Caste census:

The issue of inclusion of caste in census has triggered a debate with a section opposing it
saying that it would divide the society on caste lines while others advocate that it would
ensure fairer distribution of resources to the backward sections of the society. 

Sugar, oil & pulses may be part of subsidized menu:

THE government plans to expand the basket of subsidized food items supplied to the poor by
adding edible oil, sugar and pulses to wheat and rice provided currently, as it looks to ensure
complete nutrition to the deprived through the national food security scheme.

A panel of ministers had earlier suggested that every poor household get 25 kg of foodgrains
every month at Rs 3 a kg under the new food security law. The quantum is likely to hiked to
35 kg of wheat and/or rice a month, as below poverty line households already get this much
foodgrain. 
The government is also considering pricing food items at their maximum retail prices, or
MRP, to all households but the poor could be provided direct subsidy through smart cards. 
Subsidies can be provided to BPL families through smart cards, which will check pilferage of
subsidized food items.

It is based on the presumption that the poor has money to first buy food items and get
reimbursement later. 

FDI in multi-brand retail under debate:

THE government has framed the formal debate on the question of foreign investment in
multi-brand retail in populist terms, moving forward gingerly on a deeply-sensitive political
issue. Job reservations for local youth, stiff local sourcing requirements and mandatory
investments in backward linkages figure prominently in a discussion paper unveiled on
Tuesday by a government keen to appease constituencies opposed to foreign presence in the
retail sector. “We want to approach Foreign Direct Investment (FDI) in retail with some
amount of caution. That is why we have decided on a calibrated approach,” said RP Singh,
secretary in the department of industrial policy and promotion, which is part of the commerce
ministry. The paper, which will be open for comments from stakeholders until July 31, does
not suggest an upper limit on foreign investment in multi-brand retail. Foreign investment in
multi-brand retail is presently not allowed but multinationals can invest up to 51% in single-
brand retail. Large multinational retailers like Wal-Mart and Germany’s Metro that operate in
wholesale cash-and-carry ventures in India have been clamouring for long to open up multi-
brand retail to foreign investment. “We need to ensure that we get benefits of FDI in the
backend infrastructure and not just have investments in frontend. Right now we are not very
sure whether FDI in retail would be very revolutionary,” Mr Singh observed. Earlier attempts
to open up retail trade, which contributes more than 8% to India’s economic output, have met
with stiff resistance. The Left Parties and the main opposition BJP are completely opposed to
opening up multibrand retail, a sector that employs millions and is dominated by small kirana
stores. UPA open to multi-brand retail FDI 
A PARLIAMENTARY standing committee headed by BJP leader Murli Manohar Joshi has
recommended a ban on FDI in retail. However, this UPA government is not dependent on the
support of the Left parties for its survival and has been more open to the idea of opening up
multi-brand retail to foreign investment. 
    “If the policy process is strategically done, it can create a synergy between the small
retailer and the larger retail chains,” said Rajan Bharti Mittal, vice-chairman and managing
director of Bharti Enterprises and president of the Federation of Indian Chambers of
Commerce and Industry. Bharti operates a cashand-carry joint venture with Wal-Mart. 
    The discussion paper said foreign investment is imperative to meet the huge funding needs
of the sector to provide dynamism and efficiency and generate employment in rural areas.
India is losing fruits, vegetable and agricultural produce worth Rs 1,00,000 crore every year
and adding cold chains and backend infrastructure could reduce losses by more than half, it
added. 
    “There is an urgent need to encourage foreign investment in the sector. We need to
particularly encourage financial investors and private equity,” said BS Nagesh, chairman of
industry body Retailers Association of India and vice-chairman of retail firm Shoppers Stop.

PSU employees may get 10% extra for rural stint

Cos May Get To Set Their Own Area List But Will Have To Pay From Own Resources

Dheeraj Tiwari & Surabhi NEW DELHI 

    OFFICIALS of state-owned companies could get a special allowance if they agree to serve
in far-flung areas, helping companies expand operations and banks to reach their services to
under banked areas. The special allowance will amount to 10% of the basic pay, according to
a proposal worked out by the department of public enterprises, or DPE. The incentive scheme
has been proposed after some ministries had written to the DPE, the nodal agency for all
public sector companies, pointing out that employees don’t feel incentivised when they are
sent on deputation to far flung areas. 
    The state-owned companies had complained that such postings had also led to attrition in
the work force. “As a state-owned company, our task is to locate resources and set up plants
and offices in the region to tap that wealth. However, there is not much employee
participation as the incentives are poor,” said a senior official with Bharat Heavy
Electricals (BHEL). Under the new guidelines issued by the DPE, a government employee
will be eligible to get a maximum of 10% of the basic pay as special allowance depending on
the location. 
    “The amount is calculated on the basis of the remoteness of the area and the least that an
employee can get is 4% of the basic pay,” said a DPE official. Companies will have to
finance the special allowance from their own resources and no budgetary support will be
provided. The incentive scheme will allow the government to also push through a mandatory
stint for new employees in rural areas. “If the new work force has a rural stint in the initial
years, they would be better equipped in their future roles,” the official said. 
    In order to provide more autonomy, the government has also given the freedom to the
state-owned companies to include any area, which as per their company policy is equivalent
to a rural or far-flung posting. 
    “Companies were earlier bound by a list compiled by us, but with their expanding
operations it was prudent to let them decide on their own,” the DPE official said. PSUs,
however, will have to take this decision in consultation with their administrative ministry and
financial advisors on their board. As of now there are 265 central public sector enterprises,
with a work force of over 15 lakh employees.

Welcome FDI in retail

Without Conditions, With Rural Reform

    THE new discussion paper on foreign direct investment (FDI) in multi-brand retail is
welcome, if it is, indeed, a prelude to considered, consensus-building innovation in policy.
India needs organised retail, as it urbanises and prospers. And retail will get organised, just as
surely as motorised transport replaces haulage by animal power in a modernising economy.
The question is, should the shift take place, aided by the capital, competition and knowhow
that foreign investment brings with it, or without these benefits? Clearly, except for some
existing Indian retail operations, the bulk of the Indian economy would gain, significantly,
from the emergence of a well-capitalised retail industry that brings the latest technology and
management practices to build modern supply chains in India, connecting country and town,
connecting small producers with national, and even global markets. The creaky, old
distribution system that India has lived with so far has a major flaw: cornering most of the
rise in prices arising from higher demand for rural produce, it greatly distorts the price signals
for farmers. This, in turn, hinders the secular rise in farm output that a prospering India
desperately needs and cannot be delivered by the government hiking individual support
prices, which only shifts acreage from crop to crop without raising the output levels of all
crops. 
    The discussion paper is silent on some vital issues. One is the organisational form of rural
producers as they interact with Big Retail. Small farmers can undertake contract farming, but
have no bargaining power and will be at the mercy of their buyers. Small producers organised
into something like Amul are a different kettle of fighting fish altogether. But who will
organise them into farmer companies or producer cooperatives that can increase the value-
add before sale to the buyer, and have sufficient bargaining power? Then again, without rural
electricity and largescale new investment in surface water management, farmers would be
hard put to produce more, even with technical inputs from Big Retail. These concerns must
be addressed while allowing FDI in retail.

Freedom with fuel stops

OIL SECTOR REFORM WITHOUT FREEING UP OF DIESEL & LPG IS A

KILLER

M C GOVARDHANA RANGAN 

CHEERING THE ANNOUNCEMENT OF FREEING up of petrol prices and an intention to

do so with diesel, is something like the excitement at the sight of `80% OFF’ sign at Big
Bazaar with an invisible asterisk. *Conditions apply: Only on toilet paper. Full reading of the
press release announcing the so called “oil sector reforms” welcomed by the experts, will tell
you there is little reform in it. “It has also been decided that in case of a high rise and
volatility in international oil prices, Government will suitably intervene in the pricing of
petrol and diesel,” the petroleum ministry said on June 25. The catch here is: “high rise and
volatility”, and “suitably”. 
The only event is the apparent freeing up of petrol prices which is just 10% of oil companies’
sales. With diesel, it is just the intention and with cooking gas and kerosene, it is a clear no.
So, what is the reform and how is it going to change the oil dynamics in the country. 
Hardly anything, at least for now. The losses for oil marketing companies even after the price
changes will be Rs 53,000 crore. It will be magnified if crude prices soar either due to
demand in developing nations, or because of cheap money driven overall inflation. The track
record of this administration shows that it takes one step forward, two steps back. The way it
handled inflation of the past year with prayer to rain gods and intervening in markets, throw
light on what is in store, especially after the successful general strike on Monday. 
Prime minister Manmohan Singh’s government banned sugar exports and trading in futures
in 2009 when the prices started rising after many years of depression. It restricted stocking up
too in the name of preventing hoarding. The ban on futures trading in rice, and two other
pulses remain. Trade in corn, edible oils, non-basmati rice were suspended without any
warning. 
The most sorrowful agrarian crisis in recent years has been the cotton farmers’ suicides.
When the death rates were falling with cotton trade becoming profitable, the government
stepped in, not to enhance, but to curb. On demands from textile mills, it moved the
commodity to ‘restricted list’ from a ‘free list’, crippling farmers. 
    Arbitrary decisions have been the hallmark. 
    It would be so for any administration, be it Congress, or the Bharatiya Janata Party, if the
oil price debate is any indication. 
    The talk of dismantling the so called Administered Pricing Mechanism began in 1995 with
the R group headed by Vijay Kelkar. Four committees and 15 years later, you have the
government’s hand all over. The R group was followed by the Rangarajan Committee in
2005 and Chaturvedi’s in 2008. 
    “A prescriptive, formula-based approach involving direct government intervention does
not result in a competitive price discovery process,” says the Kirit Parikh panel, the latest.
That is what the government proposes to do with petrol. Will prices differ at pumps run by
different companies? No. 
    So, what explains the 31% jump in Hindustan Petroleum and smaller gains in Indian Oil
Corporation, and Bharat Petroleum since the announcement? Euphoria. 
    These companies have been milked by politicians and bureaucrats for decades without
much investments in upgradation and capacity expansion. So, the de-regulation of diesel
prices, whenever it comes, would harm these, rather than benefit. 
    What they lost is reflected in Indian Oil’s profit fall to Rs 2,950 crore in 2009, from Rs,
4,891 crore in ‘05. HPCL’s fell to Rs 575 crore, from Rs 1,277 crore, while Exxon Mobil’s
jumped to $45 billion, from $25 billion. 
    State-run companies’ losses between 2004 and 2009 was Rs 3 lakh crore, of which only
half was made good by the government. That is, arithmetically, an opportunity loss of setting
up 5.5 times the refining capacity of Reliance Petroleum which built a 27 million tonnes a
year unit in Jamnagar for Rs 27,000 crore. 
    Oil companies, probably, are now in a position where Mahanagar Telephone Nigam Ltd,
Bharat Sanchar Nigam, and the privatised Videsh Sanchar Nigam , now Tata
Communications, were in the mid 1990s. 
    State-run telecom companies were exposed to market competition from Bharti Airtel and
Reliance Communications, but remained under the dirty iron hands of politicians and
bureaucracy. 
    BSNL, which would have been the biggest telephone company, is into losses. MTNL
shares are down 78% since June 1997, at Rs 65 from Rs 303. Tata Communications, despite
in private hands, is down 64% in the last decade. While, Bharti is at Rs 277, compared with
the split adjusted Rs 22.5 initial offer. 
    If investors have to benefit, cooking gas and kerosene which consumed Rs 1.6 lakh crore
of subsidy in six years, have to be freed. They constituted more than half the losses. But
nothing is on the horizon. Petroleum minister Murli Deora gifted six-lakh free cooking gas
connections in Tamil Nadu as recently as May. It may accelerate with approaching state
elections. 
    “We remain wary of the political pushback to reforms as important assembly elections
near, especially as inflation impact will be significant,” says JP Morgan. Brinda Karat, a
politburo member of the Communist Party of India (Marxist), may have unknowingly,
contributed to equity analysis when she said, the moves may just benefit some private
companies.

States, companies keen to bring farmers in agri-insurance net

Our Bureaus JAIPUR | CHANDIGARH | BANGALORE 

    WITH global warming now becoming a permanent fixture in the Indian agriculture
landscape, state governments and insurance firms are rushing to provide crop insurance for
farmers. 
    Take the case of Rajasthan, which is now looking at extending agri-insurance cover across
its 33 districts this year compared to 26 last year. Ditto with Himachal Pradesh and Haryana
which would run the Rashtriya Krishi Bima Yojana from this kharif onwards. The cover
would be mandatory for those who grow notified crops and have availed seasonal agriculture
loans. “The scheme will be on a compulsory basis to loanee farmers. For the non-loanee
farmers, the scheme is optional. The indemnity level for maize, paddy, potato and ginger
crops has been kept at 80% of the average yield,” said an official with the Himachal
government. 
    The Agriculture Insurance Company(AIC), which ran an insurance programme for coconut
in Karnataka’s Tumkur district, is now expanding it to 18 districts. “Our aim is not just to
provide cover for the kharif crop but to other commercial crops. We are running this
(insurance cover) jointly with the Coconut Board, the Karnataka Horticulture department who
would bear 75% of the premium cost,” a senior AIC official told ET. 
    AIC is also collaborating with the Coffee Board to extend the insurance cover during the
post-monsoon period. Traditionally, the coffee cover would be for the blossom showers
(which would be from March to April) and the monsoon. “Unseasonal rains, notably during
the harvest period last year, hit us. If the post-monsoon cover is given, it would provide a
measure of comfort,” said Ajoy Thippaiah, member of the Coffee Board. 
    Besides AIC, other private insurance players have evinced interest in the agri-insurance
sector. ICICI-Lombard has now made product proposal presentations to the governments of
Madhya Pradesh, Bihar, Uttar Pradesh and West Bengal. 
    ICICI Lombard’s financial inclusion solutions group head Dilip Jashnani says that high
awareness level about agri-insurance in northern states makes this market attractive. But he
adds that distribution is a key challenge in a country like India. “Reaching out to all the
farmers in rural areas, amongst whom the awareness levels of insurance as a subject are still
low, is a challenge,” he said. To prevent any possibility of competitive or mis-selling,
governments have also identified the markets for the insurance companies. In Rajasthan,
while the loanee farmers avail insurance through the AIC, others can approach private
players, says a state agriculture department official. NEW VISTAS 
Rajasthan is planning to extend agri-insurance cover across all its 33 districts HP &
Haryana will implement the insurance plan this kharif onwards The cover would be
mandatory for those who grow notified crops & have availed agri-loans
CLIMATE MAY NOT BE PERFECT THIS TIME GLOBAL GURU

India,Brazil weather holds cue for global sugar prices

Industry sources suggest that sugar output in 2010-11 may fall 10%

Andy Duff 

    NEARBY raw sugar futures (basis July) gained considerable ground during June, rising an
impressive 22% from US cent (USc) 14.4/lb June1 to USc 17.6/lb June 29, before expiring on
the final day of the month at USc 18.0/lb. The equivalent gain for the October contract was
just over 2%, from USc 14.9/lb June1 to USc 15.3/lb June 29, while June 30 brought a
pronounced uptick to USc 16.1/lb. 
    Much of the rise in July futures is being attributed to perceptions of a temporary imbalance
between export availability and import demand plus technical factors in the run-up to the
expiration of the July contract. 
    Meanwhile, October futures bear the weight of much Brazilian pricing, although this did
not stop October futures from posting a one-day gain of over 5%. The nearby white premium
(basis July/August) enjoyed a spectacular month, exceeding $170/tonne for a week during the
middle of June, while the equivalent value basis October/October rose during the month from
around $100/tonne to $120/tonne. 
    Further along the futures curve, the white premium for dates in 2011 has been trading
between $80/tonne and $90/tonne. Meanwhile, premiums quoted for Thai white sugar over
the next couple of months have eclipsed $100/tonne over London nearby futures prices. 
FUNDAMENTALS 
The weather is always a key influence on agricultural commodity prices, and it is firmly
centre stage for the sugar market at the moment. The impact of weather over the coming
months in Centre-South Brazil and India has already been exhaustively debated and
developments are being monitored constantly. 
    More recently, weather conditions in Thailand have come under scrutiny. Industry sources
recently suggest that sugar output in 2010/11 could be 10% to 15% below the 6.9 million
tonne estimated for 2009/10, as a result of very dry conditions in June although the final
impact depends upon the extent to which these conditions are prolonged and the severity of
the rains expected in September and October. Eyewitness accounts suggest the impact of the
dry weather to date has been significant. 
    Northeast Brazil has suffered torrential rains and flooding in the regions two principal
cane-producing states, Pernambuco and the north of Alagoas. Local sources suggest that
losses could reach 10% of the Northeast region’s crop. 
    While this represents a significant impact in the regions affected, the implications for total
Brazilian output are minimal. 10% of the Northeast crop is approximately 6 million tonne of
cane, equivalent to just 1% of the expected cane production in the country’s Centre-South
region this season. 
OUTLOOK 
The price action in the New York July contract has grabbed attention over the last month,
along with the surge in the October contract 30 June. Over the coming months, the price
outlook will be dominated by how the weather in Brazil and India develops. 
    Although the jury remains out on these two critical factors, speculation that the weather
has not and may not be perfect in either country has emerged. This may well have helped to
boost the current ‘risk premium’. In addition, developments in Thailand strongly suggest that
the world’s second largest exporter faces a downturn in export availability in 2010/11. 
    Global stocks remain low by historical standards, and any significant downward revision
of Brazilian or Indian output would go a long way to quash the prospect of a return to a
global sugar surplus in 2010/11. 

tates look for newer ways to boost farm tourism

PK Krishnakumar, Madhvi Sally & Arun Iyer KOCHI | CHANDIGARH |

BANGALORE 

GOVERNMENTdepartments are finding new ways to promote green tourism by organising

farm festivals. They are taking citizens with urban humdrum to coconut groves and fruit
orchards and are also helping bring the consumer and the farmer face-toface. It will be a
novel experience for a discerning traveller looking for eco-tourism spots. 
    One can now bask in the ambience of coconut and its products as Coconut Development
Board along with the state and central governments are planning to develop a series of
locations under its new programme of ‘coconut trail’ designed to popularise coconut-based
tourism. 
    A pilot project was recently launched at Kumbalangi in Kerala and the concept will be
taken across various states. “What we are planning is coconut-based tourism, where the
travellers get to enjoy all things related to coconut,” said Dr K. Muralidharan, director of
Coconut Development Board. The locations will have tourist spots and the package will
include demonstration of preparation of coconutbased cuisine and handicrafts. The Konkan
region, Goa, Andamans and Lakshadweep are other regions having dense coconut plantations
that are suitable for such model spots. 
    Across the country, the departments of horticulture are promoting direct contacts between
growers and institutional buyers. The Haryana Tourism and Horticulture Department will
hold its 19th Mango Festival at Yadavindra Pinjore Garden in Panchkula district, early next
month. This follows a neartripling of acreage and production under mango in this state in the
past two decades, indicating the growing popularity of the fruit. 
    The Himachal Pradesh government along with the CII will hold the first ‘Apple Fest’ in
Shimla in September. “The Apple Fest is aimed at growth and sustenance of both horticulture
and tourism in Himachal Pradesh by providing an effective interface between advancements
in horticulture technology and growers,” said a CII official. In Punjab, such buyer-seller
interactive meets are likley to be held in December-January for farmers growing kinnow a
variety of mandarin (citrus fruit). In Bangalore, every March-April, the Horticulture
Producers Cooperative Marketing and Processing Society (Hopcoms) holds its annual
‘drakshi’ and mango ‘melas’. In its 15th year now, Hopcoms handles around 400 tonne of
grapes during the festival. 
ECO TOURISM 
Coconut Development 
Board is planning to develop a series of locations under its new programme of ‘coconut trail’
to popularise coconut-based tourism 
Across the country, 
horticulture departments are promoting growersbuyers interaction

CLEAN TECH

Paddy farmers may opt for drip irrigation now

S Sujatha COIMBATORE 
THOSE days of flooded paddy fields may soon be over. New drip irrigation technology —
using water drop by drop — could be the future of paddy cultivation in India, the world’s
second-largest producer, as erratic monsoons play havoc with yields and harvests. 
    Scientists say India can increase its rice output by almost 50% by 2020 if just 10% of the
total paddy acreage is brought under drip irrigation. Irrigating paddy fields will not only
conserve water but also lead to saving on crop nutrients and protect soil biodiversity, say
scientists at Tamil Nadu Agricultural University. 
    Companies are beginning to wake up to its potential. World’s largest micro-irrigation
manufacturer Jain Irrigation Systems (JISL) has begun trials on its fields near Udumalpet in
Tamil Nadu. Early this year, JISL and International Rice Research Institute (IRRI) signed a
MoU for collaborative research and adaptive field trials on paddy using micro irrigation. 
    Peliminary data generated by JISL scientists show that water usage in paddy cultivation
using drip irrigation will be down 66%, which correspondingly cuts down power
consumption by half. “We have data which shows that only 36.4 lakh litre of water per acre is
used in the paddy field by this method as against 108 lakh litre per acre used in conventional
paddy cultivation,” said JISL senior vice president P Soman. 
    He added that productivity has also been slightly on the higher side in the trials. The yield
was around 3.1 tonne per acre in traditional irrigation method, while the yield rose to 3.4
tonne per acre in case of drip irrigation in JISL trials. The experience of a farmer V Ranga
Rao at Jinnarum village in Medak district, Andhra Pradesh, is also similar. He direct seeded
paddy on one acre of land and used drip irrigation. He got productivity of 3.45 tonne per
acre. 
    Increasing water scarcity, deficit or skipped monsoons and lower reservoir levels at dams
are pushing farmers to shift from paddy to other crops as they know only the conventional
method of growing paddy in standing water. This year too, the sowing of paddy crop has
been delayed countrywide 
    due to deficient rainfall received in 
    many key areas. 
But paddy can be grown both in “dry and wet” methods as well as flooded conditions.
“Particular kind of air cells is available in paddy, so it is able to withstand inundated water.
But that doesn’t mean paddy can be cultivated only on flooded water,” says a scientist at
TNAU. Other technologies are also gaining attention. 
Rice Intensification System, where farmers need to irrigate only after they find a hairline
crack on the field, has begun attracting farmers in Tamil Nadu, Andhra Pradesh and Tripura.
A big deterrent is the cost of drip irrigation technology. JISL is hoping to reduce input cost
with further research. “We need two more years of research before coming up with a suitable
package for farmers. We are also planning to modify fertigation schedule to get better yield,”
Soman said. Hyderabadbased Vibha Seeds Group VP CS Pawar said drip is undoubtedly a
very good method for cultivation of crops but the initial investment is very high. “Today
farmers are slowly accepting this technology as it has a lot of benefits right from saving water
and power to quality growth of the crops,” he added.

PA gearing up to roll out modified NREGA-II

Ministry’s Coordination Group To Discuss Various Aspects Of Execution

Devesh Kumar NEW DELHI 

    SEEKING to build on the strengths of the Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA) while, at the same time, eliminating its main deficiencies and
shortcomings, the rural development ministry is planning to take UPA government’s flagship
project to a new level. 
    A three-day-long workshop of the coordination group attached to the ministry, as also
other principal stakeholders, gets underway at the Hyderabad-based National Institute of
Rural Development from Monday. On the discussion table will be the reports prepared by the
six working groups which had been set up by the ministry in March this year to study various
aspects affecting the execution of the Manmohan Singh government’s showpiece rural
regeneration project. 
    The reports, ministry sources pointed out, will form the basis of the moves to take the
scheme to a higher plane. “We’re gearing up to roll out MGNREGA-II,” a senior official of
the ministry pointed out. Each of the six working groups were tasked to study a separate and
distinctive aspect. While the group on planning and execution was headed by Central
Employment Guarantee Council member Ranga Rao, that on wages was chaired by NAC
member Jean Dreze. 
    Another prominent civil society activist, Ms Arun Roy, who’s also a member of the NAC,
was anointed the chairperson of the working group on transparency and accountability while
CEGC member Ashwani Kumar was asked to lead the group on capacity-building. Former
union minister Renuka Choudhari headed the panel on specific needs of specific category
of workers, and Mr K S Gopal, a non-official member of the CEGC, was named the chairman
of the group on works to be taken up on individual land. 
    While the reports of working groups would form the platform for discussions at the
brainstorming session, it was felt that the three main issues that needed to be addressed
included strengthening implementation mechanism by greater transparency and
accountability, improving the project’s planning and convergence with other schemes to
make it more fruitful and productive. “Implementation issues and policy correctives — these
are the main issues to be looked into,” remarked the senior rural development ministry
official. 
    Deluged with complaints of corruption and fraud in many districts, the ministry has already
introduced several measures to tackle them. Realising the importance of technology, it has set
in motion an elaborate exercise to weave in technological innovations such as ICT and bio-
metric system to bring down levels of corruption. Taking an important step in this direction,
the ministry had last month signed an MoU with the UIDA. 
    “We intend to make the NREGA processes GPS and biometric system-enabled in an effort
to weed out corruption,” the official pointed out. An important tool in monitoring the
execution of MGNREGA has been the initiation of Management Information System (MIS)
— the device through which the ministry officials can check online the progress of various
schemes being implemented across the country in each of the 619 districts, down to the block
level. “We plan to extend ICT to the lowest levels in the coming months,” the official pointed
out. The ministry has identified several distortions in the implementation of the programme.
These include absence of grass-root planning, fudging of muster rolls, role of contractors,
delayed payment, no work on demand, no compensation, poor quality of works etc.

NAC set to okay food bill tomorrow

Devesh Kumar NEW DELHI 

    THE National Advisory Council likely to approve on Wednesday the draft of the National
Food Security Bill. The scheme will be rolled out in the 150 poorest districts first on the basis
of a `notional universalisation.’ 
    Rejecting the recommendation put forward by the EGoM, NAC, at its meeting held on July
1, settled for the distribution of 35 kg of grain, either wheat or rice, to every poor household,
but left the issue of the price at which it was to be sold under the scheme, open-ended. While
NAC members have been pushing for a blanket universalisation, there is realisation that such
an ambitious target would be impossible to meet, given the country’s food production and
procurement scenario. 
    Such a programme would mean making arrangements for the supply of some 90 million
tonnes of grain every year. The government had procured 59 million tonnes of rice and wheat
in 2009-10. With universal entitlement of grain ruled out, NAC members are looking at the
next best scenario of ensuring food security to the poorest of the poor. While categories such
as children and women would be fully covered under the ambit of the scheme, majority of
Muslims too are likely to brought under its purview in view of their economic status. For the
rest, it was decided that a lesser amount of grain would be supplied under the scheme. 
    Taking a cue from NREGA, NAC, at its previous meeting, decided to unveil the food
security programme in 150 poorest districts of the country first. The members felt that by
doing so, the government could make an assessment of the strengths and shortcomings of the
scheme, take corrective steps before rolling it out in the other parts of the country.

Bharat again pips India in FMCG consumption

Demand For Shampoos & Toothpastes Picking Up In Urban Areas: Nielsen

Ratna Bhushan NEW DELHI 

    DEMAND for consumer goods like shampoos and toothpastes is picking up in urban areas
as the economy shows signs of revival, but rural markets have continued to grow faster in
these categories in January-May 2010, according to data from market researcher Nielsen. 
    In shampoos, rural demand grew by 10.7% in value terms, while in urban markets, it rose
by 6.8%. 
    Similarly, toothpaste sales grew by 9.1% in rural India and by 4.4% in urban markets. 
    "Rural demand will continue to beat urban demand in a category like shampoos because
penetration levels are low in rural India to start with," says V Ramesh, ED of Chennai-based
Cavinkare, which makes Nyle and Chik shampoos. The good monsoon being predicted this
year will hopefully fuel this demand further, he added. 
    Higher disposable incomes in rural areas has fuelled sales too, says Anand Mour, FMCG
analyst at broking firm Indiabulls Securities. Bihar, Madhya Pradesh, Rajasthan and Uttar
Pradesh, with 40% of the country’s rural population, are showing faster growth, he adds. 
    By and large, rural demand has cruised ahead on higher prices of farm produce, loan write-
offs and the government employment scheme under the National Rural Employment
Guarantee Act. In urban areas, on the other hand, high commodity prices and a poor monsoon
in the second half of the previous fiscal slowed down growth in shampoos. 
    But demand has picked up over the past few months. Consumer confidence is returning in
urban India, particularly in tier-1 cities, says Dabur India EVP (sales) George Angelo. "This
is fuelling a resurgence in demand among urban consumers," he adds. 
    Rural demand for skin creams and lotions, hair oils, toothpaste and candies first outpaced
urban demand in mid-2008, with companies stepping up their rural distribution footprint,
rolling out cheaper packs and engaging directly with consumers. 
    There’s more evidence to suggest that rural markets will keep up demand for these product
categories. Two-thirds of the country’s economic growth will come from non-farm income in
the next two to three years, according to National Council for Applied Economic Research
estimates. The contribution is currently at 48%. 
    Moreover, the number of people living in rural areas migrating to urban areas in search of
employment during non-crop periods has been decreasing over the years. This translates into
disposable income throughout the year in rural areas and thus a greater demand for products. 
    In 1981, the rural-urban migration figure was at 6.5%, and in 2001, it had come down to
2.8%, according to Census estimates. 

ECONOMATRIX

Making a case for FDI in retail

SHOPKEEPERS ARE OVERCHARGING US IN ABSENCE OF COMPETITION

Nidhi Nath Srinivas 

IN MARCH, Delhi’s shopkeepers were buying tur dal in the wholesale market for Rs 56 per
kg and selling it for Rs 71. They pocketed Rs 15 on every kilo of dal, our most basic protein.
In Kolkata, grocers inflated groundnut oil by Rs 17 per kg. In Mumbai vanaspati went for an
extra Rs 11 per kg. The list is long. As this is farm ministry data, actual profiteering must be
higher. 
    Indian shopkeepers are barefacedly, maliciously overcharging us simply because they can.
No force – business or government – is there to stop them. And with most political parties in
their pocket, they smugly believe they will never have to face the twin forces of competition
and accountability. That is why India needs to stand up for its beleagured 1.1 billion
consumers, a third of whom are officially poor. Generating greater competition in retail by
allowing foreign companies to set up large shops alone or with local partners is now the only
way we consumers can get a fair deal. If these companies lose money, that’s their problem. 
    Large retailers — the foreign players especially — possess scale, technology and cash,
which can be leveraged to reduce costs and pass on the savings to us through lower prices.
That will keep our household expenses low in a way that no social or government programme
can. The massive positive impact of lower prices on our lives in these days of stroppy
inflation can hardly be overestimated. There is another thing. Working in a shop is the top job
option in India after farming. Three out of every 10 men in a city work in a shop. 
    Everyday we see how this sales staff toils, with mediocre education and no big salaries,
health benefits, insurance or training. Few shops have growth plans. That may be great for the
owner but deadly for his employees. This 33-million-strong sales force deserves a better deal.
Large retailers will give it the training and opportunity necessary to break out of this
paycheque-topaycheque lifestyle. So while lower prices would keep inflation down, better
jobs would keep demand high. 
    Actually, shopkeepers will win too. They spend expensive time and resources sourcing
from several suppliers with uneven quality. That would stop once giant cash-and-carry stores
spring up exclusively for them. Instead of dealing with wholesalers in chaotic marketplaces
where relationships are the only guarantee against cheating, they would shop with complete
price transparency and quality assurance in hightech stores. We will remain loyal to the shops
that clearly share this saving with us. The greedy ones who cheat us daily deserve to shut
anyway. It’s true foreign investment in retail will force India’s shopkeepers into a new
relationship with customers and employees. Thank god for that. It’s not a moment too soon.

Put the consumer first

FDI IN RETAIL ’ SS BACK ON RADAR BUT LOWERING PRICES MUST BE

PRIORITY

G GANAPATHY SUBRAMANIAM 
DESPITE MANY FALSE STARTS OVER THE past several years, the prospect of retail
being opened to foreign direct investment (FDI) continues to excite India Inc. This time, the
government has triggered the buzz by floating a discussion paper that asks a number of
questions on how to go about opening up retail. Consumers as well as farmers will definitely
benefit once India develops a strong supply chain and competition makes consumer the king
at the retail end. FDI could play an important role in achieving this goal, but is no panacea for
the farm-to-fork model that could cut post-harvest losses and boost the supply chain. First we
have to study why entry of big corporates into organised retail has not resulted in the supply
chain getting the required boost or the consumer getting a great deal in terms of cheaper
prices or superior quality. There are a couple of important factors that have prevented
corporate investment in retail from delivering the results that are being expected from FDI.
Rentals in India are pretty stiff and it is estimated that this factor accounts for nearly 20% of
retailing costs as compared to 6-10% in the case of countries where retail chains have
established themselves. 
This is one of the reasons why no organised retail in India has become a runway success,
failing to dent the dominance of mom-&-pop stores or hawkers even in large metros. It may
not be fair to expect FDI to do the trick where large corporates are struggling. Supermarket
chains also get their supply of fresh produce from the same mandis that feed hawkers and
efforts to procure directly from farmers largely remain on paper. No wonder wholesale and
retail margins continue to be large, burning a hole in the pockets of consumers. In many
states, the Agriculture Produce Marketing Committee Act has not been liberalised and it is
not possible for companies to source directly from farms. Apart from taxes, mandis add to
transaction costs and prevent the best post-harvest practices from being introduced. No
wonder tonnes of fruit and vegetables get wasted, causing losses to the economy. 
    The other important point that we have to ponder over is the impact of FDI in wholesale
trading. Nothing prevents foreign investment from flowing into the back-end logistics
business which is vital for wholesale. The ground reality, however, is that not much overseas
investment has flown into warehouse facilities or cold chains. Only a handful of players like
Metro, Wal-Mart and Carrefour have come in so far. What is preventing more investment
flowing into wholesale and back-end? What should be done to encourage investment in this
important segment? 
    These are questions to be answered before going into the debate on FDI in retail which
remains politically sensitive. 
    Another major issue is the delay in amending the Forward Contracts Regulation Act of
1952 to boost futures trading in commodities and strengthen the Forward Markets
Commission. Without a robust market in commodities, it will be difficult for players in the
trading space to source commodities at competitive prices. Farmers are also losers in this
game since they cannot leverage their stocks to their best advantage, with the only option of
selling out soon after harvest. Big players like banks should be allowed to get into the
commodities market to give futures the depth it deserves. Unfortunately, liberalisation on this
front has got bottled up due to political apprehensions over inflation which has led to a ban
on futures trading in several important commodities. Instead of ringing in fool-proof systems
that will check manipulation, futures trading has been branded as speculation and blamed for
high inflation. 
    While the government has kicked off a debate over FDI in retail, opening up of the sector
still looks like a distant dream. In the political circles, it is seen as a livelihood issue for
millions of momand-pop stores, hawkers and small vendors. In the recent past, opening up of
this sector has been discussed repeatedly and the questions raised by UPA chairperson Sonia
Gandhi are likely to resurface now, leading to another round of debate on the impact of FDI
on the neighbourhood grocer. This is despite the fact that large retail players like Mukesh
Ambani’s Reliance, Kishore Biyana’s Big Bazaar or RPG Group’s Spencer’s Retail have not
eaten up the small vendor’s livelihood. Ironically, there are instances of tiny kiranas sourcing
from supermarket chains. The BJP has already emphasised that it will oppose FDI in retail
and the Left is sure to stick to a similar line. 
    What a lot of people are forgetting seems to be the key change in FDI norms that makes it
possible for foreign investors to go through the holding company route to tap segments which
are no-go. Today, a foreign investors can have a 49% holding in a joint venture which may
set up a subsidiary to operate a retail business. Even if strategic investors keep out, the
window is open for financial investors. In any case, FIIs are allowed to pick up stake in listed
companies even if they happen to operate in the retail segment. 
    The franchise route was an option that multinationals were tapping since FDI in retail
remained closed. Opening up of single-brand retail has provided an alternate option for such
investors, but the quantum of FDI flowing into this space has been far lower than anticipated. 
    With so many complexities involved, the economy as a whole will benefit if the
government works on the factors that have allowed wholesalers, distributors and retailers
from charging huge margins, rather than letting FDI in retail grab all the attention. 

Centre to revamp PDS, weed out bogus cards

Our Bureau NEW DELHI 

    AFTER having systematically weakened the country’s public distribution system (PDS),
the Centre is now gearing up for its complete revamp, on the eve of the approval of the draft
food security law by the National Advisory Council (NAC). A two-day state food ministers’
meeting here approved a time-bound deadline for some key changes in the Rs 60,000-crore
subsidy PDS with the objective of stringently plugging all weaknesses in the system. 
    “Elimination of bogus ration cards, correct identification of the poor, plugging diversion
and leakages of foodgrain at various stages are vital for ensuring that the subsidised grain
reaches the targetted beneficiaries,” food minister Sharad Pawar said in his address. Mr
Pawar has been credited with the view that the PDS is as, if not more, important than the food
law and that its strengthening needs urgent attention. 
    Beneficiaries for the food law would be identified by the Planning Commission, the
minister said. The NAC is expected to give its nod to the food law on Wedensday. However,
Prime Minister’s Economic Advisory Council (PMEAC) chairman C Rangarajan indicated
here that above poverty line (APL) consumers could also be considered for the UPA’s pet
food security scheme under which subsidised foodgrain will be available at ration shops as a
legal right. 
    Against demands for an universal PDS from the Left parties, the NAC has approved
universal access to the PDS in rural areas and rolling out food law implementation to
beneficiaries in 150 backward districts. The PMEAC chief said that another alternative being
mulled over was to give 30 kg of grain per month to the BPL consumers and 15kg of grain
per month to APL consumers. 
    A strong and responsive PDS is essential to ensure the availability of required grain and its
uninterupted supply to the underprivileged. The food law will place the onus on the state to
ensure delivery to such beneficiaries. Analysts hold that there is renewed and focussed
realisation of the importance of the PDS in a free market economy, especially in view of
spiralling food prices and an imperative political need to urgently distribute cheaper essential
items. 
    Homing in on procurement of adequate foodgrain for meeting the obligations under the
proposed food law as a key challenge to the PDS, Mr Pawar also identified an exponential
increase in the current grain storage facilities as another key challenge, both at the Central
and and the state levels. The identified total gap of storage capacity in the country is
estimated at 140 lakh tonne, entailing a massive investment of Rs 4,000 crore, involving
hiring of storage capacities, with long-term guarantees from private parties. 
    The meet approved the use of smart cards for PDS beneficiaries and pilot projects were
flagged off in both Punjab and Haryana, in a bid to replicate Chhatisgarh’s use of these in
identifying beneficiaries and weeding out bogus consumers. Against the 6.52 crore below
poverty line (BPL) households identified countrywide, the total number of ration cards issued
by state governments until May 2010 was around 11.06 crore households.

Climategate: Beyond inquiry panels

Climate crusaders obfuscate the reality that global warming is just a possibility to be
insured against, rather than a proven eventuality that has to be prevented at any cost,
says Swaminathan S Anklesaria Aiyar

    TWO British committees, one Dutch committee and a US Senate committee have
investigated Climategate — the disclosure from emails that scientists at the Climate Research
Unit (CRU) of East Anglia University sought to withhold data from and sabotage research
publications of other scientists questioning the conventional wisdom on global warming. 
    The first three committees gave CRU scientists and collaborators — including Phil Jones,
Michael Mann, Keith Briffa and Kevin Trenberth — a slap on the wrist without calling them
outright frauds. The Minority Staff Report of the US Senate Committee on Environment and
Public Works, however, has accused the scientists of (a) obstructing release of damaging data
and information, (b) manipulating data to reach preconceived conclusions, (c) colluding to
pressure journal editors who published work questioning the climate science ‘consensus’, and
(d) assuming activist roles to influence the political process. 
    Critics have lambasted the supposedly-independent inquiry by Sir Muir Russell because he
himself is a climate change crusader. He interviewed the CRU scientists but not the climate
sceptics whom the scientists were targeting. This has been called “a trial with judge, jury,
reporters, spectators and defendant, but no plaintiff. The plaintiff is locked outside the
courtroom sitting in the hall hollering and hoping the jury hears some of what he has to say.” 
    At the end of it all, two things are clear. First, it is fantasy for crusaders to claim that
catastrophic global warming is established science: the emails reveal doubts and caveats even
among true believers in CRU. Second, the International Panel on Climate Change must
disavow its claim made first in 2001 — based on the ‘hockey stick’ graph of Michael Mann
using historical tree-ring data — that the world is warmer today than ever before. 
    Tree-ring data after 1961 indicate cooling, but actual temperatures show warming. So,
Jones resorted to the ‘trick’ of splicing tree-ring data up to 1961 with actual temperatures
after 1961, thus manufacturing a steadily-rising temperature trend in the 20th century. The
splicing was dishonest and an insult to science. Yet, the independent inquiry did not condemn
it, showing how easily crusader-inquirers forgive transgressions that promote their private
agenda. 
    The IPCC needs to revert to the earlier scientific consensus — maintained from its first
report in 1990 to 2001 — that the medieval warm period of 800-1,300 AD — well before
fossil fuels were extracted — was warmer than it is today. 
    This is inconvenient for climate crusaders who blame fossil fuels for all warming. But it
will provide citizens with basic information they need before deciding whether to spend
trillions on combating a problem that may or may not be real. 
    To throw light on these two issues, it is worth citing some of the emails. 
    Phil Jones (regarding queries from climate sceptic S McIntyre). “I had some emails with
him a few years ago when he wanted to get all the station temperature data we use here in
CRU. I hid behind the fact that some of the data had been received from individuals and not
directly from Met Services through the Global Telecommunications Service (GTS) or
through GCOS.” 
    Phil Jones to Michael Mann. “And don’t leave stuff lying around on ftp [file transfer
protocol] sites — you never know who is trawling them. The two MMs have been after the
CRU station data for years. If they ever hear there is a Freedom of Information Act now in
the UK, I think I’ll delete the file rather than send it to anyone.” 
    KEITH Briffa. “I know there is pressure to present a nice tidy story as regards apparent
unprecedented warming in a thousand years or more in the proxy data, but in reality, the
situation is not quite so simple. We don’t have a lot of proxies that come right up to date and
those that do (at least a significant number of tree proxies) show some unexpected changes in
response that do not match the recent warming…” 
    Phil Jones. “The scientific community would come down on me in no uncertain terms if I
said the world had cooled from 1998. OK, it has, but it is only seven years of data and it isn’t
statistically significant.” 
    On February 13 this year, Phil Jones told BBC that “there has been no statistically
significant warming over the last 15 years.” 
    Kevin Trenberth, UCAR, October 12, 2009, “We can’t account for the lack of warming at
the moment and it is a travesty that we can’t.” 
    Professor Mojib Latif, an IPCC member, recently said, “For the time being, global
warming has paused, and there may well be some cooling.” Breaking with climate-change
orthodoxy, he said North Atlantic Oscillation (NAO) cycles were probably responsible for
some of the strong global warming seen in the past three decades. The NAO was now moving
into a colder phase (New Scientist, September 2009). 
    The National Research Council appointed by US Congress concluded that “the substantial
uncertainties in the quantitative assessment of large-scale surface temperature changes prior
to about AD 1600 lower our confidence in this (hockey stick) conclusion compared to the
high level of confidence we place in the Little Ice Age cooling and 20th century warming.
Even less confidence can be placed in the original conclusions by Mann et al(1999) that the
1990s are likely the warmest decade, and 1998 the warmest year, in at least a millennium.” 
    Climategate fortifies my own convictions as a critical agnostic on global warming. We
know so little about the weather that we cannot predict it five days ahead, let alone one
century ahead. This also means we know too little to rule out guesstimates — like the six
IPCC scenarios — about a possible catastrophe. 
    The case for combating global warming rests not on established proof of warming but on
insuring against a catastrophe that may not happen. If the public decides to spend a trillion
dollars on such speculative insurance, so be it. I doubt if this will happen once people learn
that catastrophic global warming is a guesstimate, not proven science.

GU EST COLU M N

FDI in multi-brand retail

SATVIK VARMA 

    FOREIGN direct investment (FDI) in multi-brand retail has faced both political and
ideological opposition, quite oblivious of expert studies that rank India as the most attractive
retail destination. But, finally, there may be some good news, with the department of
industrial policy and promotion (Dipp) issuing a discussion paper inviting views and
suggestions on permitting FDI in multi-brand retail trading. And while it is heartening that
the discussion paper doesn’t suggest an upper limit on FDI in multi-brand retail, caution also
needs to be exercised before the floodgates are opened. 
    At present, 100% FDI is permitted, under the automatic route, for wholesale cashand-carry
trading subject to certain end-sale limitations and restrictions. And while as a general rule,
FDI in retail trading is prohibited, an exception for FDI up to 51%, with government
approval, is permitted in single-brand retail. But no FDI is permitted in multi-brand retail on
the belief that it would adversely impact the large unorganised retail sector, and the small
mom-and-pop shops will not be able to stand up to the challenges that FDI in this sector may
pose. Concerns have also been expressed that FDI in multi-brand retail may lead to large-
scale unemployment of the workforce employed by this sector. 
    Dipp’s openness to permitting FDI in multi-brand retail would appear to be driven as much
by compulsions as by a genuine desire to provide for economic prosperity in the rural areas.
The Dipp acknowledges the need to address issues relating to farmers through removal of
structural inefficiencies, as also to improve post-harvest management that requires investment
in backend logistics and storage infrastructure. A weak supply chain results in large-scale
wastage and, more often than not, the ultimate consumer pays a lot more than what reaches
the farmer. It is important to provide for steadier incomes to farmers either through direct
marketing or contract farming programmes. From the perspective of the consumers, there is
an urgent need to check food inflation and control demand-supply imbalances. 
    The retail sector needs large-scale investments. A substantial portion of these investments
are expected from private enterprises; hence, it is imperative to make it financially
worthwhile for them. It has long been argued that the entry of foreign retailers through joint
ventures would help develop backward linkages to sources of supply and, thus, develop a
domestic supply chain of international standards. Eventually, this would improve
productivity, benefiting the farmer, and the competition may eventually help bring down
prices for consumers. The government is of the strong belief that permitting FDI in the sector
will also help bring in technical and management knowhow, all of which is in India’s
longterm interest. 
    Dipp has invited suggestions on whether there should be stipulations on
minimum investment and on investments to build backend infrastructure, logistics and
agroprocessing. While such stipulations may be justified, to expect that 50% should be
invested in such operations may be commercially-imprudent and it is also necessary that a
time period be imposed on such stipulations. The proposal that 50% of retail jobs be reserved
for rural youth may be legitimate, but credence needs to be given to the ICRIER finding that
‘there was no evidence of a decline in overall employment in the unorganised sector as a
result of the entry of organised retailers’. 
    Also, what if there are not enough rural youth available for employment? Additionally,
while it is astute to have a calibrated approach, should the government restrict investments to
cities that have a population of more that 10 lakh? Does the government really believe that
the Wal-Marts of this world would be able to sustain their business models in such cities and
if they can, then why restrict them? What really needs to be avoided is over-regulation and
the government must endeavour to provide a congenial environment where synergies can be
created between the small retailers and large multibrand retail players. 
    It has often been stated that FDI can be a great catalyst to spur competition in industries
characterised by low competition and poor productivity. The proposal of the government to
allow FDI in retail is therefore laudable. But it would be wise that the entry of foreign
players, including the percentage of such investments, should be in a phased manner with
adequate social safeguards so that the effects of such investments can be analysed and the
policy fine-tuned, if so required. What is key is to ensure strict compliance with any proposed
regulations, which can perhaps best be achieved by simplification of the licensing norms and
moving to a uniform and centralised system, both for considering investments and for
monitoring compliance. 
    (The author is a lawyer based in Delhi. 

State Oil Cos To Keep Prices Uniform, Make Monthly Adjustment

Our Bureau NEW DELHI 

    STATE-run oil companies will get together to fix the freed-up petrol prices once a month,
aiming for uniform prices across the three firms’ pumps, taking sheen off the
muchtouted oil sector reforms. 
    Officials of the Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp
which have near monopoly in fuel distribution have decided to consult each other in pricing
petrol at their meeting withoil ministry officials. 
    “The three oil marketing companies will have uniform price,” Indian Oil director-finance
SV Narasimhan said after the meeting. He said the three retailers will “co-ordinate” to fix
pricing of petrol as per global crude oil price movements. 
    The Manmohan Singh government on June 25 announced the freeing up of petrol, raising
hopes of reforms in a sector which gobbles up thousands of crores as subsidies. 
    Although, nearly half the subsidies in cooking gas and kerosene remain, investors believed
diesel and petrol will be totally free and pushed up stock prices. The firms’ losses may
continue and the private sector will probably remain out of oil marketing. Shell India has put
its outlets for sale. 
    “The June 25 decision was merely a lip service,” an official at a private oil firm said
requesting anonymity. “The government never intended to decontrol petrol and diesel prices.
While diesel was neverderegulated, it is controlling even petrol prices through oil companies.
In this hostile situation, private oil companies have no future in fuel retailing.” 
    The group headed by the Union finance minister Pranab Mukherjee approved a Rs 3.5 a
litre increase in petrol price in Delhi, which was said to be determined by the market. It raised
diesel price by Rs 2 a litre, kerosene by Rs 3 a litre, and cooking gas by Rs 35 a cylinder.
Private fuel retailers such as Reliance Industries and Essar Oil are incurring losses due to
subsidised sale of fuel by state-run companies. They have shuttered many outlets. 
    The ambiguity in communicating the group of ministers’ decision was raised by a senior
finance ministry official earlier this month. “Observers are not clear if diesel has been
decontrolled or not,” the official said in a note to top decisionmakers. “The initial increase in
retail selling price of diesel will be Rs 2 per litre ..... Further increases will be made by the
public sector oil marketing companies in consultation with the ministry of petroleum &
natural gas,” said the June 25 statement.

Can we delay FDI in retail sector?

BS NAGESH| VICE CHAIRMAN, SHOPPERS STOP LTD 

Process of modernising retail cannot be reversed in India 
CAN WE CAN DELAY THE GROWTH OF OUR children, curb the aspirations of the
youth, go back to the days of Fiats & Ambassadors, fly only Indian Airlines? With rising
aspiration of the youth, new mindset and attitude, our entrepreneurial drive has already
unleashed the beginning of a new consumption drive. This drive demands new products, new
services, alternate uses and myriad of desires. The assortment required to fulfill these desires
cannot be fitted into a small 500-800 sq ft store. 
    Somebody within the supply chain has to meet these demands now and in the future.
The process of modernising retail cannot be reversed in India anymore. The question to ask is
how we modernise, who will bring in the capital to modernise and how will the small shops
in the current eco system participate in the consumption drive of modern Indians. 
    Sustained capital infusion, expertise in managing modern retail, building the business from
scratch and nurturing it to grow to a scale over a 15-25 years period are essential to build and
grow modern retail in India. India can achieve high growth only if modern retail is 30-40% of
the retail sector and becomes a primary driver of growth and consumption. Even with such
high penetration, large modern retail companies may not get into cities and towns of less than
half a million population. The size and scale of consumers required for modern retail to
survive does not exist in the smaller towns. 
    Therefore the question is not whether we need to allow modern retail to grow, or the
current retailers to modernise, but how to allow flow of capital to help modernise retail.
We need to create a level playing field for every new business, small or big to enter
the retail industry. This will take away the need to distinguish between Indian and foreign or
big and small. The impact of small and big, Indian or foreigner on the small shops will be the
same. Allowing foreign investors capital (FII & VC) and strategic capital will not only help
investment in the front end but also all through the supply chain. We should open up the
industry at the earliest so that modern retail can support development of the total retail eco
system. The approach could be a calibrated one. 
    Modern retail will help and support the small stores in the next 15-20 years before it starts
harming them. Our society will develop in existing localities and in new suburbs. In the
existing localities, the infrastructure that small retailers enjoy cannot be duplicated by the
modern retailers and therefore new retailers will have to develop cooperation and
collaboration with the existing kirana’s—Nilgiri’s model in South, an Indian version of 7-11
will develop. If housing develops in new suburbs, there is no damage as there will be no
existing small retailers who would get hurt. Similarly when a Marico or an ITC develops a
model of servicing the modern trade it will automatically pass the same productivity and
efficiency to smaller retailers. In both the cases, the small retailer will benefit. 
    By delaying modernising of retail and not allowing capital (FDI or FII) to flow in, we are
actually hurting the small retailers. We require many more players and large capital infusion
to meet the growing needs of modern retail. 
    (Views are personal)
NIRMALA SITHARAMAN| NATIONAL SPOKESPERSON, BJP 
Allowing foreign investors will hit small & medium players hard 
WE SHOULD, INDEED. THE REASONS FOR this are compelling and critical. Take a look
at the sheer size and volume of the sector. Total retail business is near Rs 12,00,000 crore,
which is about a third of the GDP; 40 million of our workforce is engaged in this sector,
second only to agriculture and they are completely unorganised. It is estimated there are 15
million retail outlets in this country accounting for the highest retail outlet density in the
world. Only 4% of our retail outlets have larger than 500 sq feet area. Food constitutes 70%
of retail sector, which means it has a direct link with the rural economy. Therefore, any major
decision such as opening up the retail sector for FDI, if ever, will have to be after exhaustive
discussion and deliberation. 
    The government’s discussion paper is a bad beginning. It is bad because it has by-passed
the Parliamentary Standing Committee’s report tabled in both Houses on June 8, 2009.
Consisting of more than 40 MPs from different parties, it took nearly two full years to submit
its exhaustive report. This committee had taken into consideration the study conducted by the
ICRIER submitted in May 2008. And the standing committee’s report calls for a complete
ban — not to delay — of FDI in retail sector. 
    It is felt here that if a Committee of Parliamentarians (of the current House) has given a
report on this issue wouldn’t this be the document on which we would discuss and deliberate.
Why would we want to by-pass and weaken our institutions and then later cry that they do
not work? Here is a case where they have done the job for us, let us begin there, even if only
to differ with it. 
    On the aspect of suspected job losses the Parliamentary Committee’s report says: “Any
policy that results in the elimination of jobs in the unorganised retail must be put on hold, till
jobs on a large scale can be created in the manufacturing sector.” This is a crucial
observation. Even in countries like the US, the net impact on employment creation is not
empirically established. 
    The ICRIER recommendations which forms a part of the Standing Committee’s report
reads like a check list of steps that we are yet to take prior to opening up for FDI in
this sector. For example, we are aware that large operators come with advantages due to their
scales of operation. The large operators will come with predatory pricing, excellent
warehousing strengths and big cash. Have we any schemes to protect our small and medium
operators? Available data shows that only 12% of the unorganised retailers have access to
institutionalised credit. As it is even without FDI, nearly 37% retailers are asking for greater
credit facility. Without a level playing field, we are surely only opening the flood gates for
our unorganised work force to be inundated and eventually to be washed away. 
    Trade and commerce comes under the State list as per the 8th Schedule of the
Constitution. Only inter-state trade is with the central government. We do not have a National
Trade Policy that can help protect small and medium operators. Steps should be taken to
evolve a policy after due consultation with the stake holders. 
    Only very few aspects of this critical debate are flagged here. The government should not
open the retail sector for FDI. There is a lot of talk, work, initiatives and care to be taken
before rushing to open the flood gates. 

Experts favour GM food monitoring 

Devesh Kumar NEW DELHI 

EVEN as the fate of Bt brinjal hangs in balance, the parliamentary standing committee
attached to the agriculture ministry has started examining the pros and cons of introducing
genetically-modified food in India, with a panel of experts coming out in favour of setting up
a regulatory mechanism to monitor their implications. 
    At the first meeting of the parliamentary panel on the sensitive subject here this afternoon,
three experts, including Delhi University vice-chancellor Prof Deepak Paintal, who was a
member of the Genetic Engineering Approval Committee (GEAC) which gave its approval to
the introduction of Bt brinjal in October 2009, made their respective presentations. 
    Besides Prof Paintal, the other two experts who outlined their views on the subject before
the panel, which is headed by CPM parliamentary party leader Basudeb Acharia, were Dr S
Nagarajan, chairman of the National Plant Variety Protection and Farmers’ Rights Authority,
and Dr V S Chauhan, who leads the International Centre for Genetic Engineering and
Biotechnology. While Dr Nagarajan is considered to be anexpert on wheat-breeding, Dr
Chauhan has done an extensive study on the role of biotechnology in medicines. 
    While stressing on the need to have a regulatory mechanism, the experts welcomed the
new law seeking the setting up of the National Biotechnology Authority. 
    The bill was drafted by the department of biotechnology in 2008, but has failed to see the
light of the day till now. The experts came out strongly in favour of enacting the law without
any delay.

Urea projects stay in gaseous state
Hopes For Attracting Over Rs 27 K-Cr Investment In Creating 8.5 MT Capacity
Dashed On Weak Gas Links

Prabha Jagannathan NEW DELHI 

THE government’s plan to reduce the dependence on costly imported urea through a new

attractive investment policy has got stuck because of problems over gas allocation to a
number of key fertiliser projects. 
    The department of fertilisers hopes to attract over Rs 27,000 crore investment in creating
additional capacity of 8.5 million tonne, which will help cut down imports drastically and
save thousands of crores inurea subsidy. The industry has, however, demanded that the issue
of gas supply to projects — both new and those undergoing revamping, debottlenecking —
and feedstock change be settled on priority. 
    Requirement of natural gas for ongoing and proposed projects in the fertiliser sector, that
have almost reached production stage, is estimated at around 24.5 mmscmd of domestic gas. 
    Allocation and cost of gas have a direct bearing on the industry’s decision to put up
new urea capacity, It also impacts on the subsidy outgo. At risk on account of gas
unavailability in existing projects alone is an investment of over Rs 8,000 crore. This
excludes gas needed to replace RLNG in select units. Fertiliser units currently use about
8mmscmd of RLNG but it will become fully linked to crude prices from January 2014. 
    In addition, several brownfield projects are also awaiting gas allocation for further action
including financial closure. 
    Now, in a bid to urgently kickstart the new policy by ironing out differences, an
empowered group of ministers (EGoM) in the last week of July will likely take up key
industry demands holding up big investments in the urea sector and keeping the subsidy bill
obese. A ministry official acknowledged “A year-and-a-half has already elapsed between the
notification of the policy and now, with nominal results.” 
    Industry had urged both fertiliser and petroleum ministries to allow urea units to terminate
their RLNG contracts and, instead, allot them KG D-6 gas. 
    Some fertiliser units have identified customers for their more expensive RLNG but lack of
domestic gas to replace this and the Centre’s refusal to allow urea units to sell their imported
RLNG to other customers. An EGoM held in end 2009 had decided that RLNG offtakers
GAIL, IOC and BPCL and urea companies should jointly explore the possiblity of supplying
contracted RLNG to customers in other sectors on the same conditions. 
    The development comes even as India stockpiles imported fertilisers in anticipation of a
desperately needed good monsoon. Chairman and MD of DSCL, Ajay Shriram said: “The
government should pave the way for investment in the urea sector to be a viable business
proposition with some certainty on returns.” In 2010-11, India produced 22 mt of urea and
needs for the 12th plan period could go past 30mt. Under the madeover investment policy,
the time period allowed for the proposed investment may be five years from the date of
notification of the revised policy.

Sugar cos demand new price formula

Our Bureau NEW DELHI 

THE sugar industry has demanded a new formula that links sugarcane price to farmers
directly to realisation of sugar and cane by-products such as bagasse and molasses, as the
government considers deregulating the industry. Food minister Sharad Pawar has said that his
ministry would finalise proposals over the next 10 days for circulation to other ministries. 
    “With large sugar production expected in the ensuing 2010-11, this is the best time to
decontrol the sugar sector,” Indian Sugar Mills Association deputy director general MN Rao
and the National Federation of Co-operative Sugar Factories managing director Vinay Kumar
said in a joint statement on Thursday.

Petro pricing: Spot the difference

The Centre’s announcements in 2002 and 2010 claiming decontrol of petro-product

prices are eerily similar, and show consecutive governments’ discomfort with such a
landmark decision, says Soma Banerjee

Circa 2002: “…the finance minister has announced the dismantling of the administered
price mechanism in the petroleum sector from April 1, 2002. The pricing of petroleum
products will become market-determined… LPG and kerosene would continue to be
subsidised with a fixed subsidy from the government for another 3-5 years.” —
Honourable petroleum minister Ram Naik, NDA (Global crude oil price $26.88 per
barrel) 
Circa 2010: “…the government has decided that the pricing of petrol and diesel both at
the refinery gate and the retail level will be market-determined… Further increases will
be made by PSU oil marketing companies (OMC) in consultation with the ministry of
petroleum and natural gas… Market-determined pricing of petrol and diesel is expected
to do away with the OMCs’ under-recoveries on these two products… PDS kerosene
and domestic LPG, the government has decided that the subsidies on these products will
continue.” — Honourable petroleum minister Murli Deora, UPA-II (Global crude oil
price at $78.86 per barrel) 

    THE obvious difference between the two announcements — proclaimed landmark reforms
in the country’s energy sector — is the difference in the time, the government in office and,
most importantly, the global crude oil prices. But the similarities in the two official
announcements that come almost exactly after eight years (March 28, 2002, and June 25,
2010), prompt more questions than answers. First: why is a stated policy being reiterated?
The answer, as most know, is simple. The price decontrol in the petroleum sector remained
more on paper than in practice. 
    Barely a fortnight after the UPA government made this grandiose reform announcement —
which followed discussions and debates and yet another committee report, this time by Dr
Kirit Parikh — the autonomous (sic) oil companies after a meeting amongst themselves and
the ministry decided to review prices of petrol only — as opposed to both petrol and diesel —
on a monthly basis, which they would announce after consultation with the parent ministry.
Odd isn’t it? These very companies have been crying hoarse in private about how selling fuel
at government-controlled prices erodes their profitability completely. More importantly, the
controlled pricing regime impacts competition in the sector, which leaves the consumer with
little choice. Also, not to mention the uncertainty for the upstream oil-producing companies
like ONGC and OIL that have to bear a part of the subsidy burden. At last estimate, ONGC is
to bear a subsidy burden of Rs 6,000 crore for the first quarter of 2010-11. 
    The government needs to allow market pricing to ensure competition that will benefit the
consumer with better services and prices. Private oil companies that had made a modest
beginning with retail outlets were selling higher amounts per pump partly because of better
efficiency. Also, market pricing will disincentivise adulteration of fuel which is rampant in
the industry. Greener fuel like those blended with ethanol would find a play in the market.
The recommendations of the Parikh committee (earlier Rangarajan and Chaturvedi
committee) of establishing a transparent subsidy-sharing regime surely have been put on the
back burner as of now. Diesel prices, the petroleum ministry has announced, will remain
under the government purview. So, what was the major achievement as far as the petroleum-
pricing reform was concerned? The constraints faced by the present government are
understandable. 
    ONE, as is clear, global crude oil prices are still ruling firm, and have been volatile for the
last few years. With India importing close to 80% of its energy requirements, high crude oil
prices are always a huge challenge for the government. The risk of a high import bill, the
pressure on government borrowings and the risk of fiscal instability if consumers are to be
insulated from the price spikes is always there. Not to mention the high inflation — inflation
today is ruling at 10.55% against 4.87% in 2002 — and the impact of high fuel prices. But
continuing with high subsidies, which have to be funded through government budget or
increased borrowings, also leads to a greater danger of consumption indiscipline. 
    For India, which spends billions of dollars in importing crude oil — the raw material that is
used to make petrol diesel, aviation fuel, cooking gas or kerosene, among others — it is a
luxury to dole out subsidies to the richie-richs of the society. Consumers who spend a bomb
in buying the latest car surely can pay a few rupees more on the petrol or diesel they buy. The
artificially-low prices of petrol and diesel have also hampered growth of public transport.
With most big cities in the country working on metro rail projects, consumption of liquid
motor fuel should come down. If developed countries can make it mandatory to adopt car
pooling to save energy and reduce emissions, it is almost a necessity for an energy-dependent
country like India. 
    To be fair, the NDA government, thanks also the advantage that global crude oil prices
were far lower, allowed oil companies flexibility in fuel pricing for the first two years: the
periodicity was fixed, revision every fortnight in line with global markets, and the products
decontrolled were petrol and diesel. This is not saying that the petroleum ministry and its
babus did not monitor or check what the oil companies were doing. In fact, senior officials of
the PSU oil companies were regulars at Shastri Bhavan every fortnight to get the green signal
from the political master before the price revision was made public. 
    But as global crude oil prices moved up, the autonomy given to oil companies was
gradually taken away and the government took upon itself the job of fixing retail prices of all
fuel, cooking or transport. What’s more, there was no official announcement or statement that
the decontrolled regime had been paused. So, for investors looking into India’s petroleum
refining and marketing sector, the policy on paper was very misleading. 
    Decontrolling petro-pricing does not reduce government control. It has been decided that
in case of a large increase or volatility in international oil prices, the government will suitably
intervene in the pricing of petrol and diesel. But this needs to be defined as to when and how
— this has been left unsaid. An answer to this question will be provided depending on how
far an election is. For, isn’t petro-pricing all about vote-bank politics?

M MANICKAM SAKTHI SUGARS VICE CHAIRMAN AND MD

‘Export sugar & re-import it at lower rate later’

S Sujatha COIMBATORE 

COIMBATORE-based Sakthi Sugars vice chairman and MD M Manickam says the country
could export half a million tonnes of sugar now to capitalise on global demand and later
import it back at lower cost, if required, in the new season. 
How is the industry outlook today? 
It looks good in the long run. But at present, the situation is quite grim as the price ex-factory
is lower than the cost of production. While ex-factory price is at around Rs 26 per kg, the
production cost is around Rs 30 per kg. So, we are struggling to make both ends meet. The
selling prices have been suppressed with various controls and regulations while at the same
time the sugarcane price has been allowed to increase without any reference to the price of
sugar. 
Is the situation any different in 
Tamil Nadu? 
The situation is similar in Tamil Nadu. The saving grace is the longer duration of the season,
implementation of cogeneration and alcohol distillation in almost all the units. Due to the
longer duration and higher yields in the state, the farmers and the industry are in a relatively
better situation to face the problems of low sugar prices. But the disparity between sugarcane
prices and sugar prices is the main issue for whole country. 
What are your views on the price 
front? 
To cope with the current price of sugarcane (the statutory minimum price is around Rs 2,000
per tonne), the minimum price required by the mills is about Rs 30 per kg ex-factory. Any
price below that will be draining the factories of cash and make their future quite difficult.
Sugar prices need to be increased to ensure its steady availability in the domestic markets. 
How do you foresee sugar 
availability in the coming seasons 2010-11 and 2011-12? 
It is difficult to assess the situation right now. The output for season 2010-11 is almost
certain. Sugarcane has been planted and the availability of sugarcane is there. However, what
is uncertain is the price that will be paid by the mills and the reaction of farmers to the price
and the timing of payment. If sugar prices continue at current levels, there will be discussions
on sugarcane price and almost certainly there will be delay in payment to farmers. The
resultant outcome will be that farmers may divert the crop to gur and khandsari resulting in a
lower output from the sugar industry. On top of this, they may not plant more sugarcane and
the output will be lower in the following season. Another factor is the higher prices and
profitability that they can realise with alternative cash crops. Given this kind of a dynamic
situation, only reasonable sugar prices can lead to a better outcome from the sugar industry.
Only then, we will be self-sufficient in sugar. 
How is the export situation now? 
The export markets are quite good now. As the demand for white sugar is more in the global
market, India can use this window and export about half a million tonne and re-import, if
required, in the new season. This will serve two purposes — one to stabilise the local markets
in the current time and allow imports of cheaper sugar if needed at a later date. This will also
probably avoid the pitfalls that may arise with lower sugar prices in the current juncture. 
What is the impact of the increase in levy sugar price by the government? 
The impact has been marginal as the levy issue prices have not been increased yet. The
market will react favourably only when the levy issue prices are raised. 
How is the business prospect for 
Sakthi Sugars? Any expansion plans? 
It looks quite good for us, as we have implemented cogeneration and distillation capacities at
all our units. This will enable us to face some uncertainties in the sugar prices. Regarding
expansions, we are only looking at maximising the output from our existing capacities and
make the operation very profitable.

Bumper crop may prompt wheat duty 

Our Bureau NEW DELHI 

    THE government could impose duty to discourage cheap wheat imports following

a bumper crop and overflowing godowns and could also allow export of some varieties of
nonbasmati rice. 
    An empowered group of ministers, or EGoM, will take up the issue late next week. The
food ministry has proposed an import tax of 40% on wheat imports in order to check cheaper
imports. 
    “We will review in the next EGoM meet on whether or not to impose tax
on wheat imports, and will discuss allowing export of some particular varieties of non-
basmati rice,” food minister Sharad Pawar said on Friday. There has been pressure over the
last several months on traders from southern states Kerala and Tamil Nadu that the
government relax the export ban on matta and ponni varieties, both of which are consumed
by expat Indians in the West Asia region and other parts. The ban on nonbasmati rice exports
was imposed in April 2008 to cool down food inflation, currently at 12.81% but declining
over the last few weeks. 
    Speaking at an award function of the Indian Council of Agricultural Research (ICAR), the
minister also indicated that the price of wheat sold in the open market, or open market sale
scheme (OMSS), by the government could be slashed further to encourage speedier offtake
by states and freeing up of storage space. 
    A month ago the EGoM had decided to offload five million tonne of wheat in the open
market over the next 10 months to keep double digit food inflation in check. To ensure
the wheat does not remain with bulk consumers at major trading centres only, it also allowed
smaller traders to purchase up to 30 tonnes of wheat/month at Rs 12.54 a kg from any FCI
depot. In end June, the country’s food grain stocks stood at 57.85 million tonne, more than
double the requirement for state-run welfare obligations.

Subsidy sharing uncertainty casts shadow over oilcos 

Harish Rao MUMBAI 

SHARES of refining and oil marketing companies have been in the thick of action over the
past couple of weeks ever since the government said it would deregulate retail fuel prices.
After a spectacular run up, which saw the share prices gaining 10-12%, investors and traders
conviction appear to be flagging. 
    Traders and fund managers have been booking profits in these shares in the past couple of
sessions, as they are not certain if the government will be able to deregulate diesel prices
anytime soon, given the high inflation scenario. This will hurt stateowned oil marketers, as
they sell more of diesel than petrol. The under-recoveries of diesel for the current financial
year is Rs 11,500 crore, which has to be borne between all the companies thereby affecting
profitability. 
    “The rise in inflation is one of the main reasons why the government is going slow on
deregulation of diesel,” said Rohit Ahuja, oil & gas analyst, Centrum Broking. “It will also
depend on crude prices,” he added. If crude prices remain in the range of $75-78 a barrel and
inflation stabilises, diesel prices will definitely be freed up, Mr Ahuja added. 
    Most broking firms say that the long-term prospects for the stocks appear better than what
they were till last month. However, they are advising clients against taking short-term bets, as
these stocks may be overbought. “We maintain a cautious view on the sector, because of
the uncertainty over subsidy sharing which will eat in to the profits of these companies,” said
Saeed Jaffery, oil &gas analyst, Ambit Capital. 
    He also added that until a concrete subsidy-sharing formula is put in place, investors would
be sceptical about buying these shares at higher levels. Shares of oil marketing companies
like IOC, HPCL, BPCL have risen 5-12% while that of oil exploration and production
companies like ONGC &Oil India have gained around 2%, after the government’s decision to
free petrol prices.

Big bazaars score over kiranas 

Modern Retailers More Responsive In Cutting Or Holding Prices Than Kiranas, Says

Nielsen Study

Kala Vijayraghavan & Maulik Vyas MUMBAI 

    EARLYthis year, when escalating prices were crunching household budgets, modern
retailers were more responsive in cutting or holding prices of day-to-day products than
traditional retailers, thanks to their ability to check operational costs, bargain hard with
suppliers and launch private labels. 
    According to a study by The Nielsen Company, modern retail dropped prices by more, or
increased them by less, for more product categories than traditional retailers, or kiranas,
between the last quarter of 2009 (Oct-Dec) and the first quarter of 2010 (Jan-Mar). 
    “The power of modern retail lies in the scale and efficiencies which we have built over the
years,” says Kishore Biyani, CEO of Future Group that operates retail formats such as
Food Bazaar, Big Bazaar, Pantaloon and KB’s Fairprice stores. 
    The Nielsen Shop Census study compared prices of 47 commonly used items including
toothpastes, washing powder and confectionery. Modern retail dropped prices by more, or
increased them by less, than traditional retailers for 29 product categories, while traditional
retailers did better in 18 categories. 
    It collected data from 16,000 stores (11,000 urban and 5,000 rural, in both modern and
traditional retail) in 462 towns and 1,427 villages. 
    During this period, the rate of inflation, as measured by the Wholesale Price index, was
hovering around 10% and food inflation was more than 12%. 
    In the past two years, modern retail has been able to significantly cut operational costs
related to real estate rentals, energy costs and increase persquare-feet productivity of
employees, leading to savings in people costs. 
    They also launched private labels to get a better grip on selling prices and profit margins,
and some savings were passed onto customers. 
    Higher collaboration with small and medium suppliers as well as distributors of large
FMCG companies helped them cut costs in transportation and logistics. 
    Efficiencies of scale helps one source the goods closer to the manufacturer, says Mr
Biyani. In 2009, Big Bazaar sourced 26,000 tonnes of rice, 4 crore pieces of clothing, 20 lakh
suitcases, 36 lakh mixer-grinders, 45,000 manufactured beds, 20 lakh bedsheets and 19,000
LCD TVs. Each of these figures will be higher by a minimum of 30% for the year 2010, he
says. “Such large sourcing allows us to get better prices directly from manufacturers and
producers.” 
    Big Bazaar is the largest player in the segment contributing over 33% of modern retail
sales. Other top retail formats competing with traditional kirana for essential purchases
include Reliance Retail, Aditya Birla Retail’s More and Spencer’s Retail. 
    Kumar Rajagopalan, CEO, Retail Association of India, says strong sourcing power helps
modern formats offer better prices. “They have done away with the extra level of
intermediaries,” he says. 
    Meanwhile, grocers too are working on protecting their turf by leveraging on their
strengths such as customer relationships, home delivery, credit facilities and expanding their
product portfolio. 
    Top FMCG companies such as Hindustan Unilever, Procter & Gamble, Marico and Godrej
have begun adopting kiranas, teaching them category management and effective
merchandising to counter big retailers and their private labels. 
    Bharatiya Udyog Vyapar Mandal (BUVM), the biggest national-level association of mom-
and-pop stores, has formed city-centric associations that negotiate directly with
manufacturers such as Unilever and P&G and do away with any middlemen. 
    This helped kiranas offer 5-20% discounts on MRP of branded products like detergents,
shampoos, soaps, oil and atta. 
    “When prices rose due to inflation, some kirana stores offered customers the option of
paying in instalments apart from extending them credit for a month,” says Vijay Prakash Jain,
secretary general of BUVM that comprises 17,000 state and district-level associations across
27 states. 
    Interestingly, kiranas managed the prices of items such as detergent bars, toilet soaps,
shampoo, packaged tea and iodised salt better than modern retail, according to the Nielsen
study. 
    Currently, traditional retail, both grocers & chemists, constitute over 95% of total sales in
the country. 
    Modern trade at just 3-5% of the total national industry sales, had grown aggressively at
over 35-40% contributing to over 15-25% sales for most consumer goods companies last
year.
No easy route to food security 

Governance The Key

    THE public distribution system (PDS) has failed to deliver on its objectives in many parts
of the country. It would then seem appropriate to dismantle the system immediately and
replace it with food coupons or cash transfers to the eligible households. But evidence on
ground illustrate that PDS has functioned well for years in southern states such as Andhra
Pradesh, Kerala and Tamil Nadu, with majority of the households purchasing food grain from
the PDS. More recently, Chhattisgarh has demonstrated that the system can be made to
deliver with appropriate overhaul of the processes and use of information technology. So
much so that Maharashtra is reportedly planning to replicate the Chhattisgarh experiment. In
contrast, in northern states such as Uttar Pradesh, very few rural households access the PDS.
Clearly, these examples and particularly the Chhattisgarh experiment show that good
governance in a state will go a long way. Replacing the PDS with food coupons in states with
poor governance is unlikely to bring a great change.Food coupon or cash transfer by
themselves will neither ensure that the poor get access to food nor bring down the
government’s food subsidy bill. For instance, what good is a food coupon if grains are not
available readily? Therefore, comprehensive policy changes are needed to improve
the food economy at every stage — from procurement, storage, stocking and cross-border
movement — to bring down the cost of supplying subsidised food through PDS or in the
open market. Also, diversion of supplies meant for PDS to the black market need to be
checked. 
    In the long term, direct cash transfers to beneficiaries would be a more cost-effective
solution than continuing with the PDS to deliver subsidies. But the trouble is universal cash
transfers plan can be implemented only after unique IDs are allotted. Therefore, in the
medium term, the process of supplying grains through PDS needs to be streamlined.
Application of IT solutions for inventory management would partly help achieve this
objective. So would use of biometric cards help weed out fake ration cardholders and
ineligible households.

Renuka Sugars backs out of cogen project in Pune 

Despite Approvals, Doubts Over Assured Pulp Supply Said To Have Triggered Decision

Jayashree Bhosale PUNE 

    SHREE Renuka Sugars (SRSL), after receiving government approvals to set up a

cogeneration power unit on a build-own-operate-transfer basis with the Pune-based Sant
Tukaram sugar cooperative, has backed out over fears that it may not get enough bagasse for
running the plant. 
    SRSL had begun talks with Sant Tukaram cooperative sugar factory in Pune district two
years ago to set up a 17MW cogeneration unit on a BOOT basis. As per the proposed
agreement, Sant Tukaram was to supply the plant’s entire bagasse needs free of cost
to Renuka and Renuka was to provide power needed to run the sugar factory free of cost.
Considering that the factory needs 3MW electricity,Renuka would have been able to sell the
excess electricity generated from the cogeneration unit to the grid. 
    SRSL is believed to have become sceptical about assured bagasse supply from Sant
Tukaram for the proposed agreement period of 18 years. Sant Tukaram is located on the
outskirts of Pune city, where land is fast being converted to non-agricultural use. 
    Though SRSL MD Narendra Murkumbi declined to comment on the specific case of Sant
Tukaram, in an e-mailed response to ET, he said, “We are in discussions with various
cooperative sugar factories inMaharashtra and Karnataka. We have commissioned a
30MW project at Panchganga SSK, Kolhapur. We are constructing a 24MW project at
Ajinkyatara SSK. We finalise factories based on long-term cane potential and size.” Initially,
the Maharashtra Electricity Regulatory Commission (MERC) and the Maharashtra State
Electricity Distribution Authority had objected to SRSL giving power free of cost to Sant
Tukaram. Later, this policy hurdle was removed by the state government. “There have been
delays and uncertainty earlier due to some policy issues on power purchase from
BOOT projects. But all these hurdles have been cleared by the government of Maharashtra
recently. MERC has also published a reasonable tariff which will encourage more
investments,” said Mr Murkumbi. He added, “Our target for suchprojects is 300MW, of
which 54MW is operational or under construction.” 
    The current cogen capacity of Renuka Sugars in India is 173MW which includes 30MW in
Panchganga SSK under the BOOT mode, with an exportable surplus of 100MW. SRSL has
203MW ofcogen capacity in the Brazilian subsidiaries Equipav AA and Vale Do Ivai. Sant
Tukaram will set up the cogen unit on its own. “We will use a multi-fuel boiler to run a
15MW congen unit. This will use other biosmass along with bagasse to generate power,” said
SG Pathare, secretary, Sant Tukaram SSK.
Board discord has Nafed in a knot 

Joe A Scaria THIRUVANANTHAPURAM 

NAFED, a national farmers’ co-operative which has interests as diverse as consumer

marketing, organic farming and joint-venture businesses with member federations and
societies, is currently caught up in a non-farm activity that could jeopardise the activities of
the federation. 
    The Nafed board recently ejected managing director CV Ananda Bose and gave his charge
to additional MD PK Sharma. Almost immediately, the Agriculture Ministry stepped in,
terming the board’s decision to sack Bose as “incorrect”, and asking it to reconsider the
decision. 
    Nafed chairman Bijender Singh confirmed that he had received the Agriculture Ministry’s
letter and said it only underlined that the ministry acknowledged that the board meeting was
legal. “We have received the letter today, and I plan to write to the Agriculture Ministry on
Monday, stating that we would shortly convene a board meeting to reconsider the decision,”
Singh told ET. 
    Ananda Bose said he was being victimised for his drive against corruption and that it was
shocking that such a move from the board happened after he had reinvigorated the federation
through a number of initiatives. 
    “When I came on board as MD, banks were not even lending to Nafed, blaming the poor
credit worthiness of the federation. Since then, I have got a total of Rs 1,450 crore sanctioned
by different banks as loans to Nafed. The equity of the federation has risen five-fold, and it
has been a meteoric rise for Nafed,” says Bose. 
    Bose feels that the loser would be the federation and the farming community if the
corruption that is happening in the federation is not stemmed in time, adding that the fallout
of the present crisis could be the lapsing of a 1,200-crore package that the Agriculture
Ministry is planning to offer the federation. 
    Bijender Singh said one of the board’s key charges against Bose was his “very high
expenditure on travel and entertainment”, and that the decision to sack the MD had been
unanimous. Bose, however, said it was an extreme irony that charges were being foisted on
him when he was leading a war against corruption within the federation. He said there had
been rampant corruption in Nafed, particularly with regard to tie-ups with private parties,
wherein Nafed would offer guarantees to massive loans taken by private parties. These
private operators would later default, causing major losses to the federation, he said.

There’ll be formula for oil pricing

Proposed Transparent Mechanism To Cap Prices Too

Rohini Singh & Rajeev Jayaswal NEW DELHI 

THE government will work out a transparent formula-based pricing mechanism for auto fuels
that would allow any person to calculate retail price of diesel or petrol at any given time,
providing the much needed transparency to fuel pricing. 
    The proposed mechanism will also trigger a freeze on pump prices to protect consumers if
global oil prices jumped beyond certain level, say $140 a barrel, a senior official in the
government said requesting anonymity. 
    A finance ministry note has proposed to develop a software that could provide retail prices
of fuel depending on the global price of crude, the exchange rate and tax rates prevailing at
any given time, the official said. 
    On June 25, while freeing petrol and diesel prices, the government had said that it could
step in to protect consumers from unprecedented jump in global crude prices. 
    The government is currently working out a pricing mechanism including frequency of
price revisions and the level of global crude price beyond which it would control retail prices
of auto fuel. 
    The finance ministry is in favour of initially revising auto fuel prices every fortnight before
moving to a weekly system. 
    “The formula-based pricing system would bring automatic changes in auto fuel prices
without any government’s intervention. The transparent system will also help the private oil
companies to compete with oil PSUs who dominate the sector,” the official quoted earlier
said. 
    The state-owned oil companies operates over 90% of about 40,000 petrol pumps in the
country. 
    The Finance Ministry is of the opinion that the formula would also be palatable to private
players such as Reliance and Essar in the deregulated environment and incentivise them to
expand. 
    “Private oil companies may accept such transparent formula-based pricing mechanism if
for each international price rise the rise in the domestic price is stated clearly and in
advance,” says the note circulated among the country’s highest decision makers. 
    It has also proposed a predictable retail price variations in case there is a large rise in
global oil prices. “If the global price rises very high, since we will not fully raise the domestic
price cap, private players will make a loss at such times. But if we make it clear in advance
that we shall do this only if the price goes really very high, many private firms will take the
gamble and come in,” it said. 
    The note expects that the proposed mechanism will rope in private firms, bring in
competition and lower retail prices. “What is currently called the market price in India is not
really the market price but the price at which the existing public sector firm do not incur a
loss. Indeed, if there were more private players —- we would (not) have had to raise petrol
prices by Rs 3.50 (a litre). Even with a Rs 2 (a litre) rise a private firm, with its greater
efficiency, could turn in a profit,” it said.

Bhopal lapse: Seek systemic solutions

The business community, government, civic agencies and the judiciary should all
overhaul their systems to ensure that the Bhopal gas leak was the last blunder of its
kind, says Kiran Karnik

    MUCH has been written and spoken following the recent court judgement in the case
related to the Bhopal gas tragedy. For over a week, it was the flavour of the day or TV
channels and in the print media. 
    Now that the media frenzy is over, the time may be appropriate to look at some of the more
basic issues, including corporate responsibility; the role of the business community; the
governance system, at local, state and central level; and, finally, the judicial system. 
    In an industrial accident, even those caused by natural disasters, the company or
organisation concerned must be held responsible. The organisation is expected to have in
place fail-safe measures for all foreseeable contingencies, so the only exceptions should be
for completely unexpected natural disasters and for selfcaused accidents to oneself,
consequent to a clear violation of prescribed safety norms or procedures. The liability is for
courts to determine, but must not be capped ab initio, as in the proposed law on liability in
the case of accidents in nuclear power plants. Also, no entity — owner, operator or
equipment supplier — should be exempt. 
    On such organisational liability, there would probably be broad consensus. The more
difficult issue is about the responsibility of the board including, particularly, the independent,
non-executive directors (INEDs). While the board has overall responsibility for the company,
to what extent should it be held liable for an operational lapse which is unrelated to policy
and not a direct consequence of a specific decision made by the board? 
    Though full-time directors are expected to have knowledge about operational aspects too,
what about INEDs? Holding directors responsible for a lapse that is not due to policies or
matters for which they do not have direct responsibility would be akin to making the Police
Commissioner liable for an accident caused by reckless driving. 
    It is, of course, the commissioner’s responsibility to enforce laws that prevent reckless
driving and work with experts to design road and traffic management systems that ensure
safety. Also, to investigate accidents so as to bring to book the guilty, and to take steps to
minimise future accidents. This analogy could usefully be applied to board directors. 
    However, where accidents result from board decisions — e.g., compromising safety while
cutting costs or introducing unproven and unsafe processes, as seems to have been done in
Bhopal — there is clearly a direct responsibility of those in the board who knew of this.
INEDs may not be aware of the compromises and, in such circumstances, it does not seem
correct to equate the responsibility of the INEDs with that of full-time directors. The recent
tendency to do so, and pin liability on INEDs for any malfeasance by the company, will only
lead to an exodus and a paucity of good INEDs. 
    The business community as a whole has a role here. Through industry associations, they
need to stimulate an informed debate on the role and responsibility of different categories of
directors on the board, as also of the company. Following the fraud in Satyam, efforts
have been made to articulate guidelines for corporate governance. CII, Nasscom and others
have brought out reports on governance and ethics. The ministry of corporate affairs too has
enunciated guidelines. However, none of them have specifically outlined the moral and legal
responsibilities of INEDs. Such a task needs to be undertaken by industry associations, with
sufficient public debate and inputs, so as to evolve a joint government-industry document. 
    ANOTHER area in which associations need to take the initiative is on aspects related to
safety and industrial accidents. A code of ethics needs to be formulated for this, going beyond
the purely legal or regulatory, and including best practices from around the world. Clearly,
this must address the interests of all stakeholders, particularly the local community. One of
the tragic aspects of Bhopal is the apparent callousness with which the company treated the
community living around the plant. In this regard, the reaction of associations, post-Bhopal
— whether on the issue of board and INED responsibility, or a safety code for industry —
has been disappointing. 
    Governments — in the states and at the Centre — have an obviously crucial role: one that
they played badly and even abdicated from, at times, in the Bhopal disaster. First,
inefficiency or corruption seems to have paralysed the government machinery for monitoring
and inspection — which, in the early 1980s, were a routine part of the industrial landscape as
part of the licence-permit-quota raj. Second, no serious action is known to have been taken
against these safety and other inspectors. Third, environmental monitoring by a government
agency should have been a necessary part of permitting such a plant to operate. 
    Fourth, how was such a potentiallydangerous chemical plant allowed in a city, and who in
the civic agencies allowed more settlements to come up right around it? In addition, the laxity
in prosecuting the case, the ridiculously-low settlement agreed upon, the lethargic progress in
paying compensation and taking care of the health issues, and the fact that the plant site has
not been sanitised after a quarter-century: all these point to dismal governance by successive
governments at the state and central level. 
    The judicial system has once again proven that it has ceased to live by its name: for, justice
delayed is justice denied. It is used by the powerful only to delay — even thwart — justice. 
    For the tens of thousands of innocent victims of Bhopal, the political-administrative-
judicial combine is as much in the dock as the company itself. One wonders whether
powerful political leaders, learned judges and highly-paid lawyers are unable or unwilling to
repair an obviously-broken system. 
    The patience of the people of India — often dubbed apathy — is legendary; but even that
has limits. 
    The epic tragedy of Bhopal would find some solace if it serves as a wake-up call, before it
is too late, to carry out the most crying reform of all: a drastic overhaul of the whole justice
system. 

AgBank trading at a steep discount to closest rivals

Luo Jun, Eva Woo SINGAPORE 

AGRICULTURAL Bank of China’s valuation discount to its closest rivals has more than
halved in eight trading days, making the world’s biggest initial public offering (IPO) in
almost four years less appealing to investors. 
    Shares in the Hong Kong part of Agricultural Bank’s IPO are valued at an average 4.3%
less than its three biggest competitors as measured by book value, based on the top end of the
IPO price range and data compiled by Bloomberg. When the bank priced the offering on June
24, the gap was 10.5%. 
    The narrowing discount, the result of a drop in shares of publicly traded rivals such as
Industrial & Commercial Bank of China, may make it harder for chairman Xiang Junbo to
raise the maximum $20.1 billion he’s seeking in Hong Kong and Shanghai. It might also dim
the prospect of eclipsing ICBC’s record $21.9 billion IPO in October 2006, even when taking
into account an option to boost the sale by 15%. 
    “We’re not in an environment where people are going to be blasé about valuations, and as
things have sold off, it’s put some pressure on them,” said William Fries, a fund manager at
Santa Fe, New Mexico-based Thornburg Investment Management, which oversees about $57
billion. 
    Beijing-based Agricultural Bank, China’s biggest by number of customers, expects to set a
final IPO price on July 7. The company is also selling stock in Shanghai. ICBC, the world’s
largest bank by market value, exercised an option to expand its IPO after listing to meet
excess demand. Without the socalled overallotment, the sale would have raised $19 billion.
Agricultural Bank can increase its IPO to as much as $23.1 billion. 
    “Investors were very enthusiastic about our share sale, and the booked demand has been
very strong,” Agricultural Bank president Zhang Yun said on Monday in remarks broadcast
over the Internet. “We’re very confident with the IPO and listing.” 
    Agricultural Bank is offering 25.4 billion shares in Hong Kong at HK$2.88 to HK$3.48
apiece, representing 1.55 to 1.79 times 2010 book value as estimated by the IPO’s
underwriters. Shares of ICBC, Construction Bank and Bank of China have lost an average
5.9% since June 24, trimming valuations to 1.87 times estimated book value, data compiled
by Bloomberg show. Agricultural Bank may be able to sell the Hong Kong shares for at least
HK$3.3, or 1.7 times forecast book value, according to Jonathan Siu, an analyst at Core
Pacific-Yamaichi International . That price will allow the bank to raise as much as $19.5
billion before the overallotment. — Bloomberg

Sebi panel wants norms for takeover rescripted 

Restrictions Put Domestic Acquirers At Disadvantage

Our Bureau MUMBAI 

    THE Achuthan panel on takeover rules has recommended a complete rewrite of regulations

scrapping the existing one, which, if implemented in total, may draw cheers from investors,
but jeers from domestic companies. 
    The suggestions of the group aim to put all shareholders on par and let investors who don’t
want management control of a company to own more of it without an obligation to buy out
minority holders. Funding needs of companies for acquisitions are set to soar in an
environment where the Indian banks face restrictions in lending for takeovers, putting them at
a disadvantage over global rivals. ET NOW first broke the story on Friday. 
    “The new proposed takeover code is a well thought through set of recommendations,” said
Amrit Singh, head, Mergers and Acquisition at Deutsche Bank. “Domestic acquirers would
be at a disadvantage to overseas investors because there are no restrictions overseas on bank
lending for acquisition of shares unlike India.” 
    The recommendations include raising the public offer trigger to 25%, from 15%;
obligation on any acquirer to buyout all minority shareholders instead of just 20%;
introducing the “ability” to control concept; doing away with non-compete fees, and
improving the definition of indirect control of companies. The market regulator can exempt
buyers from offers based on conditions that have been laid out. 
    C Achuthan, former presiding officer at the Securities Appellate Tribunal, who was
appointed head of the panel on September 4 last, submitted the report to Securities &
Exchange Board of India chairman CB Bhave on Monday. 
    “The philosophy of equitable and fair treatment of all shareholders should have a primacy
over other considerations,” said the report. The regulator will take a decision on
implementing the suggestions after receiving comments from public till end August. It has
the right to implement, or reject, any of the recommendations. These suggestions, if
implemented, will replace an archaic takeover rule that was amended 23 times in 13 years
and created more confusion than clarifying the regulatory position. But the recommendations
could deter some takeovers, plunging the overall merger activity. Average
annual takeovers rose to 99 between 2006 and 2009, from an average of 69 a year between
1997 and 2005. 
A NEW BEGINNING 
Measure: Threshold level for mandatory open offer raised to 25% from 15% 
Impact: Promoters with low holdings may be forced to raise stakes to pre-empt
hostile takeovers 
M: Acquirers to make open offer for entire equity, once stake exceeds 25% 
I: Minority shareholders will be able to exit fully 
M: Acquirer can’t acquire shares in target firm for 26 weeks following completion of open
offer I: Will prevent acquirers from underpricing offers and later buying shares from
secondary market 
M: Acquirer to accept shares in open offer proportionately, if response exceeds maximum
permissible promoter shareholding of 75%, but falls short of delisting threshold of 90% 
I: Could be a dampener, as investors can’t be certain of complete acceptance of their shares in
open offer 
M: Proposal for equal tax treatment on gains due to sale of shares through open offer as well
as on those sold in open market 
I: Will encourage more people to tender shares in open offer if tax liability is lower 
CXOs cheer new proposals 
With Sebi proposing a 
hike in the threshold that triggers a mandatory open offer, the move will help the minority
shareholders, according to captains of the Indian industry. 
New norms to lift PE deals 
The proposed revision in 
open offer norms will be advantageous for PE investors, allowing for “meaningful
investments”, but overall M&A activity may slow down. New norms to make mergers &
acquisitions more expensive 
“I BELIEVE the proposed regulations will make takeovers far more expensive,” said
Sandeep Parekh, founder, Finsec Law Advisors. “With open offers moving from 20 to 100%,
acquiring shares and control will become prohibitively costly.” 
    But the panel aiming at “equality” attempted to plug loopholes that led to controversial
investments such as Ambuja Cement’s in rival ACC without minority holders getting the
benefits at that time. Ultimately, both were sold to Switzerland’s Holcim, with some non-
compete fee for the promoters. “If one can’t meet the fund requirements in an acquisition
process, then he should not acquire companies in the first place,”Achuthan said in an
interview. 
    Also, the conservative banking practices that helped India remain sound amid the global
wreckage after the collapse of Lehman Brothers Holdings, can put Indian promoters at a
disadvantage, vis-à-vis overseas ones. The Reserve Bank of India discourages lending
for takeovers and leveraged buyouts which keeps the acquisitions low. But the market
regulator appointed panel could not give directions to the central bank on policy. 
    “Allowing more flexible norms for grant of loans for strategic investments in Indian listed
entities, particularly for funding open offers in deserving cases under
the Takeover Regulations, is a matter of policy requiring consideration by the concerned
authorities,” said the report. Some believe that the concerns about the likely slowdown in
overall M&A activity may be overblown. “Funding of an acquisition may be a bit costly but I
don’t think it would dampen the overall M&A activities,” said HM Bangur, managing
director at Shree Cement. 
    If the threat of takeovers fall due to the current proposals, more promoters could become
complacent, leading to minority investors losing out, than gaining. “This will mean fewer
competing bids and lower offer prices to shareholders,” says Parekh. “Existing promoters will
face less threat because acquiring shares will become more expensive.” 
    It has also suggested that if an acquirer ends up with more than the minimum required
holding for listing, he could either gradually raise the public holding to 25%, or delist the
company by buying out the rest at the offer price. 
    The determination of offer price may also be relaxed to just about 12 weeks of volume
weighted average of the market price, instead of the higher of 26-week average. 
    Independent directors will play a more important role for minority shareholders as in the
UK or the US as they would be under an obligation to recommend whether investors should
act for or against atakeover offer.

‘Proper legal framework to ensure M&As won’t suffer’

    Afew months ago when C Achuthan, the former presiding office of the Securities
Appellate Tribunal, was appointed as the chairman of a committee to overhaul India’s
takeover rules, he was quite clear that the assignment would have to be thoroughly
professional and stand the test of time. On Sunday, a day before unveiling the
recommendations of the panel, Achuthan worked through the day and late into Monday
morning putting final touches to the report. He spoke to ET’s Reena Zachariah on key
recommendations made by the panel. 
What prompted the committee to rewrite the entire takeover code? 
On the review of the extant regulations, the committee felt large-scale amendments would be
required. It was also felt that the structure and sequencing of regulations also required
change. In the said context, it was considered necessary to rewrite the text instead of
tinkering with the sections. 
What is the rationale behind setting 25% as the threshold limit for an open offer
trigger? 
This law is directed to regulate substantial acquisition of shares and to some extent related to
the ability to control the management of the company. In 1994, when the regulations were
first notified, the threshold limit was 10%. Then in 1997, it was hiked to 15%, this hike was
related to the change in the ownership pattern of companies. In 1994, the perception was that
with a 10% holding, to some extent the companies would have defacto control. In the
changed economic scenario, the relevance of the threshold quantum of 10% was considered
to be unrealistic, and accordingly it was hiked. The committee taking into consideration the
extant shareholding patterns, considered it appropriate to put 25% as substantial holding. 
You spoke about the definition of control being expanded? Can you elaborate on that
and the rationale behind it? 
Control has been expanded by recognising the ability to control. As of now, control is linked
to the right of a person to appoint majority director for controlling the managements or policy
decisions. The committee felt that not only the right but also the ability should be taken into
consideration. Right is de jure control, while this (ability) is applicable to de facto control. 
There are concerns on how domestic companies will be able to fund 100% open offers.
A section of the industry feels the proposed rules put foreign acquirers at an advantage
as they have access to leveraged finance abroad. 
If one cannot meet the fund requirements in an acquisition process, then he should not
acquire companies in the first place itself. 
There is a view that considering the high cost involved in takeover deals now, the
number of M&A transactions will decrease. What is your view on it? 
The proposed takeover regulations provides a legal framework for an orderly acquisition of
shares and control. The regulation aims at providing equitable treatment to all shareholders.
That being the case, it would be unfair to deny full exit to a section of shareholders taking
into consideration the cost of acquisition required to be met by the acquirer. Also whether to
acquire a company or not is a commercial call depending on several factors. I do not think
that because of a proper legal framework, acquisition activities will fall.

Need for soil searching

STRENGTHEN SOIL TESTING FACILITIES TO BOOST AGRICULTURE

PRABHA JAGANNATHAN 

    IT JUST ISN’T THE GOOD EARTH ANYmore. Indian soils are under severe stress. And
the compulsion to produce more foodgrain to meet the demands of ever increasing population
and welfare obligations (such as those emanating from the new food law) from a shrinking
area is set to put greater pressure on soil resource. Soil health degradation has emerged a
serious threat to sustainable agriculture that aims to cater to present and future foodgrain
needs. 
    In the run-up to blueprinting the much vaunted food law, reviving soil health and fertility
should therefore have been a key pre-condition for policy makers. As should have been
exponentially boosting storage capacity and strengthening procurement infrastructure in the
existing Public Distribution System (PDS). Having debilitated it systematically over the last
several years, however, the government now appears to be planning to put the entire weight
of grain delivery under the new food law on the very same PDS, a classic demonstration of
putting the cart before an old, hobbling horse. 
    Studies have established that a marked decrease in soil nutrients has noticeably affected
crop yield per hectare, quite aside from poor or nil irrigation and other key inputs besides
increasing rain-dependence. Over the last six years, there has been an increasingly weakening
relationship between fertiliser consumption and foodgrain yield, highlighting not just
stagnant yields for several crops but simultaneously sending of warning signals on food
security and the economic health of farmers. Against an estimated annual removal of 34mt of
nutrients (NPK) from soil, the replenishment from fertilisers is pegged at only 26mt, leaving
a net deficit of 8mt of nutrients, a deficit that accumulates annually, further depleting the soil
of secondary and micro nutrients. 
    Soil testing is a basic necessity to determine the quantity of nutrients to be applied and has
a key position under the new nutrient-based subsidy (NBS) regime for fertilisers. Yet, the
country has only about 700 soil testing labs with an analysing capacity of seven million soil
samples per annum. 
    Things can get a lot dirtier. Poor soil mapping and worse soil testing infrastructure threaten
to make a mockery of the Centre’s efforts under the NBS policy to replenish soil health
unless urgent efforts are made to exponentially boost the number of soil testing labs and
facilities countrywide. Worse, in most states, both general fertiliser recommendations and soil
fertility maps have become grossly outdated. Deficiency of nitrogen, phosphorous,
potassium, sulphur, zinc and boron is quite widespread now in Indian soils and is 89%, 80%,
50%, 40%, 48% and 33%, respectively. Curiously, though, underpinning the proposed food
security law with an efficiently conceived national programme for soil mapping has never
been on the radar of the government. 
    Agri economists agree that the Indian agricultural sector currently suffers from
decelarating productivity growth rate. It is imperative, therefore, to catalyse agricultural
productivity, raise rural incomes and address serious challenges to faster productivity growth.
Stagnant yields caused by declining soil health have affected real incomes on the ground for
the entire farming community. Yet today, policy makers seem to set more store by
“imminent” radical changes in the farm sector through the growth of mobile telephony than
by tackling nitty gritty such as mandatory issue of soil health cards to all 89.3 million farmer
households. The disproportionately irrational expectation of farm growth from mobile use is
much on same lines as expectations pinned on agri biotechnology, based on the Bt cotton
experience in the country over the last two decades. Quite contrary to general belief, though,
cotton is not that one crop that showed exponential increase in output in two decades. Studies
prove that percentage increase in production of wheat, oilseeds and cotton crops in 2006-07
over the base year (1960-61) are 577.7%, 321.1%, and 229.9%, respectively, proving that
effective traditional inputting rather than agri biotech sustained the impressive crop output in
the country. 
    In “Impact of Fertiliser on Indian Agriculture and Rural prosperity”, ND Shukla of the
Project Directorate for Farming Systems Research, Meerut, argues that the crop production
scenario in the country changed markedly within a 30-year span. The share of gross irrigated
area rose to 99.5% in 2000-01 over 1970-71, a two fold increase within a span of 30 years in
tandem with heightened use of fertilisers. Fertiliser consumption shot up to 16.7mt in ‘00-01
from only 2.2mt in ‘70-71. There was a steep rise in production of rice, wheat and total
cereals from 42.2 mt, 23.8 mt and 96.6 mt in ‘70-71 to 85.5 mt, 69.7 mt and 185.7 mt in ‘00-
01 and similar sharp growth in oilseeds and commercial crops like cotton, jute and sugarcane.
The sharp growth in crop production improved the socio economic conditions of the farming
community and resource poor farmers in particular. Not only did gross incomes rise since
‘70-71 till ‘00-01 (some 16.4-fold increase in gross return from crop production) but per
capita income too rose (approximately 870% in the same period). Soil health, therefore, ranks
high as a food security, poverty elimination and social upliftment factor. 
    It also acted as a catalyst for growth of other key farm inputs such as credit for crop
improvement in the same period But replicating that success through a second Green
Revolution is unlikely to succeed if fundamentals in the farm sector such as soil health are
ignored. The Fertiliser Association of India had suggested, to no avail, a centralised agency
for soil mapping with soil fertility status checks every five years followed by remedial action
taken, soil testing labs with testing facilities for secondary and micro nutrients and the PPP
route to strengthening soil health and soil testing infrastructure. It’s time for the government
to urgently hit the dirt trail. 

PPP must pass accountability test

AMRIT PANDURANGI 
India Leader-Transportation and Infrastructure Practice, PricewaterhouseCoopers 

    THERE HAS BEEN A LOT OF DISCUSSIONS IN recent times about public private
partnerships (PPP), especially with regard to the infrastructure sector. It is indeed a proactive
step and we can hope that India will soon lead the way to establish a number of successful
PPP models in a diverse range of services. 
    PPP should be sustained with the help of appropriate checks and balances through
regulatory and policy mechanisms. However, we must not forget that the success of any PPP
or for that matter any publicly funded infrastructure or service critically depends on mutual
coordination and cooperation amongst the multitude of government agencies that are
customarily involved in the success of any project or service. 
    The good part about private sector participation in providing public facilities or services is
that the policy makers recognise their role and the risks involved and provide for appropriate
policies and regulations. Standardised processes and contractual documentation have been
created to facilitate the process of selecting the right private partners and sharing the risks
with them. Regulations also ensure that there is accountability and fairness to the user. 
    The government has, however, completely failed on issues of accountability and fairness as
far as the public sector players are concerned, particularly on issues of coordination amongst
the various agencies involved in playing their respective roles to facilitate and enable
achievement of the overall goals of efficient execution of a project or provision of a service.
The usual government response that accountability to the citizens comes emantes from
accountability to the elected representatives (Parliament) is a very weak — such
accountability is not only very indirect but is often aimed at the wrong constituents.
Therefore, a more direct and specific accountability is needed. 
    In fact the policy makers themselves have recognised the need for such direct and specific
accountability and have tried implementing a few measures in a limited way from time to
time. The MoUs that all public sector undertakings sign with their parent ministries every
year is one such illustration. The recently introduced performance oriented management that
central government ministries are being asked to follow is another example. However, these
type of measures need to be introduced in all government agencies and made into more
serious and rigorous exercises. It should also not be limited to the central agencies but the
state governments too should take up these exercises quickly and in all earnestness. 
    In addition to annual MoUs and annual performance based frameworks for the agency or
ministry as a whole, we need to put in place formally binding contractual arrangements for
each project implementation or service provision for all agencies. Such agreements, which
should be in the nature of service level agreements (SLAs), should also clearly lay out the
specific coordination mechanisms amongst the various government agencies involved.
Incentives and penalty mechanisms should also be clearly included in such SLAs. 
    Whenever there is an issue between different ministries that cannot easily be resolved
among themselves, we find that the government quickly sets up a committee of secretaries or
a group of ministers (GoM) to resolve the matter. However, these are invariably for high
level issues or policy issues. Unfortunately, there is no similar institutional mechanism for
resolving ground level implementation or operational issues. This invariably delays execution
significantly and often makes the provision of any public service very ineffective and
unfriendly to the user or the citizen. The famous adage ‘running from pillar to post’ often
makes one wonder if we have a working government at all! Such lack of coordination also
leads to opportunities of corruption. 
    To illustrate how the SLAs will work, consider the example of a typical public service
water supply arrangements in smaller towns. The 74th constitutional amendment says that an
urban local body (ULB) should be responsible for provision of water supply to citizens.
However, in most states, it is the public health engineering department (PHED) that actually
operates the water supply system. As can be expected, PHEDs around the country don’t do a
good job and have no accountability at all to the citizens. If the PHED and ULBs have a
formal SLA signed between them with specific service parameters and an incentive/penalty
mechanism, this form of publicpublic-partnership will greatly improve the services. While
many government agencies have brought in technology and citizen centric e-governance to
ease the problems, we still need to go a long way. We need a combination of tools and
institutional mechanisms to make the whole system work. Firstly, we need to bring in
enhanced accountability through SLAs. Then we need to have rigorously prepared and agreed
performance frameworks implemented in all government agencies. In addition, we also need
to significantly enhance the use of technological tools applied on a set of well re-engineered
processes. We can also use the already available Right to Information Act to ensure that such
partnerships succeed. Thus it is prudent to conclude that the time is ripe for formal policies
and mechanisms for PPP to shape up.

MILAN SHAH MD, NKG JAYANTI COFFEE

‘India not a big coffee grower as we know it to be’

    COFFEE constitutes the key plantation export out of south India in value terms. The
Hamburg-based Neumann Kaffee Gruppe, which operates in 28 countries, tied up with
Jayanti, a Bangalore-based coffee exporter, to set up NKG Jayanti Coffee in 2008. The 33-
year-old Milan Shah is the managing director of NKG Jayanti Coffee, the largest exporter of
the commodity this year. He spoke to ET on the plantation sector and the export scenario.
Excerpts: 
The marketing structure of the Indian 
coffee sector was liberalised in the 1990s. What has been the impact of this on the 
industry? 
Initially, as you would be aware, every coffee planter had to supply his entire production to
the board. In the early 1990s, it was changed allowing the planter to sell it to outsiders. Very
few exporters at that point of time had coffee curing works. Today, almost all large exporters
have this facility allowing them to directly interface with the growers. This kind of
interaction allows exporters not only to get their coffee but also process it the way the
customer wants. Today, we have reached a point where the coffee grower himself has
become an exporter. 
Do you think it’s a good idea for the grower to become an exporter? 
Absolutely. We operate in a free economy. Growers often believe that exporters make too
much money. They don’t see the difficulties and complications on the exporting side while
exporters believe that planters are hardheaded about prices. If the planter talks to the
customer, he can know how much or how little money is there. 
Growers, notably the small-sized ones, 
often complain that they are not getting 
the right price. How do you respond to 
this? 
What the grower knows for certain are the costs and the quantum of crop that he could derive
in a year. It’s my belief that if the grower sees a price for the next year’s crop and he likes it,
he should sell it and then perhaps later deliberate about it. If prices spike up, the grower feels
he’s being taken for a ride while if the price falls, the buyer may not honour the commitment.
That’s why you need to have these contracts between two strong parties. The process of
getting to know the planter is gaining ground. While, in general, exporters like to deal with
growers who can bring economies of scale, even the smaller ones are benefiting. At NKG
Jayanti, for instance, we worked with small growers in Waynad who were part of a co-
operative society helping their farms to be certified as being sustainable and not impacting
the environment. This has, in turn, helped the grower get a premium price. 
Do you think that India is getting its due as the sixth largest producer of coffee? 
India is not as large as we make ourselves out to be. As the sixth largest producing nation, we
have at best the sixth largest voice. Take countries like Vietnam and Indonesia, for instance.
Vietnam is pre-dominantly 98% Robusta and Indonesia is 90% Robusta cherry. Lots of
Central American nations have an output lower than India but it’s all of one type. India’s
output of 4.5 million bags comprises both Robusta and Arabica. The problem with India is
not having a sizeable volume of anyone type of coffee which in turn means we can’t
influence either the availability or the price movement worldwide. Thus despite being the
sixth largest producing nation, our voice is at best the 10th or 12th because of our fragmented
volumes. 
What about weather as a factor 
influencing coffee output? 
I am afraid but global warming is too cliched a term to use. But, yes, weather patterns have
changed. See the quality of coffee we are getting today is not the same what it was 10 years
ago. Indian specialty coffee producers are taking care three times more than the regular
growers. We are certainly seeing more heat and unpredictable rains. Unfortunately, even
trade has to accept part of the blame as rising competition has seen each of them outdo the
other. Five years ago, trade would not accept coffee with over 12% moisture but today they
are taking up to 14%, something which poses significant risk to the health of the consumer
due to the presence of toxins.

esel, LPG prices not decontrolled

Cabinet Secy Insists On Cutting Fiscal Deficit By Reviewing Subsidies

Our Bureau NEW DELHI 

THE government ended the confusion over pricing of diesel saying that the fuel has not been
decontrolled like petrol, but reiterated its commitment to cutting wasteful subsidies. 
    “We have not thought about decontrolling LPG (cooking gas), kerosene or diesel right
now. We have to look at a lot of things like (its) effect on consumers before we do that,”
cabinet secretary KM Chandrasekhar said on Tuesday. 
    The government said last month that it was deregulating prices of petrol and diesel, but
limited the increase in the case of the latter to only Rs 2 a litre. The impression was that
diesel prices would be made marketbased gradually but the lack of clarity over how soon that
would happen suggested that the government may have developed cold feet after a huge
uproar over the fuel price increase. 
    “I can’t say we have a roadmap to do this (decontrol) at this point of time,” Chandrasekhar
told reporters at a meeting between industry chamber CII and top bureaucrats from key
ministries on ideas to achieve double-digit growth by 2014. Apart from Mr Chandrasekhar,
finance secretary Ashok Chawla, revenue secretary Sunil Mitra, commerce secretary Rahul
Khullar, industrial policy secretary RP Singh, agriculture secretary Prabeer Kumar Basu and
member secretary in the Planning Commission, Sudha Pillai, participated in the meeting. The
Cabinet secretary reiterated the government’s resolve to cut fiscal deficit by reviewing the
system of subsidies. “We are looking at subsidies, how the subsidy system can be re-jigged to
ensure it reaches the poorest of the poor on one hand, and at the same time it incentivises
production,” he said. The Centre spent Rs 1,31,025 crore on food, fuel and fertiliser subsidies
in the last fiscal and expects to bring down such payments to Rs 1,16,224 crore in 2010-11
and rein in its fiscal deficit to 5.5% of gross domestic product. 
    Inflation, Mr Chandrasekhar said, is certain to fall “with a good monsoon and a good
crop.” Experts are saying that inflation will be 5%-6% by year end...I don’t have any reason
to disbelieve it.”

MARKET MAYHEM

Falling sugar prices may witness violent swings

GAIN FROM RAIN INDIA’S SUPPLY SET TO GO UP 

Unreliable Crop & Yield Data From India Could Sway Markets: Analysts

Agencies 
    SUGAR prices could be heading for a 30% drop, weakened by the returns from production
and an excessive supply but thanks to India’s data “casino”, investors should not expect a
smooth ride, sector leaders have been warned. 
    Pierre-Henri Dietz, analyst at sugar merchant Sucden, warned that New York raw sugar
prices will in “the medium term... recover a downward trend to $0.12-0.14 cents (per pound)
range”. The jump in prices to multi-decade highs in February was a “likely over-reaction” to
the 2009-10 hiccups in top producers Brazil and India which gave the world a second
successive shortfall in output. The supply was 8m tonnes below demand. 
    And a rise of about 6m tonnes in production in both Brazil and India this year would return
world production into a surplus of 7m tonnes, the type of balance which has historically been
associated with weak prices. Separately, trading house ED&F Man pegged the world sugar
surplus at 3.3m tonnes in 2010-11, after a deficit pegged at 2.3m tonnes the year before.
However, Mr Dietz warned that the market still faced the potential of a rough ride from India,
whose sugarcane crop statistics faced the market with “a casino”, thanks to the unreliability
of information on factors such as cane planting and yields. 
    “There are uncertainties in Indian statistics,” he told the World Association of Beet and
Cane Growers conference, adding that these had a “real impact on the market”. 
    In 2008-09, when investors had expected sugar production of 20.7m tonnes, it had turned
out nearly 30% lower, while output beat initial expectations by 19% last year. Furthermore,
the size of India’s swings in sugar production was “becoming too large for... the sugar
market” which “will remain volatile given this risk”. His warnings of volatility were echoed
by Vincent Godier, head of soft commodities and agriculture at Credit Agricole, who advised
investors: “Fasten your seatbelts.” 
    “After a consolidation phase that should lead us to the 2011-12 campaign when the
volatility should stabilise, we anticipate a comeback of violent swings in the sugar markets,”
he said, noting the growing interest of non-commercial investors in the sweetener. 
    Raw sugar closed up 2.9% at 17.61 cents a pound for October delivery on Monday, with
London’s white sugar lot for the same month ending 2.8% higher at $534.00 a tonne. 
    Meanwhile, Indian government and trade officials said on Tuesday India’s weak monsoon
in recent days was not a cause of concern and the country’s sugar supply is expected to
improve significantly. 
    This year, the area under cane cultivation has increased and sugar output is expected to rise
in the new season that begins on October 1. The Indian Sugar Mills Association said India’s
sugar stocks at the start of the new season would be 5.9 million tonnes, up from 3.2 million
tonnes a year ago.

SIRAJ HUSSAIN CMD, FOOD CORPORATION OF INDIA

FCI looks to rope in private cos for food stock storage

    ON A two-day visit to northern states for checking the current wheat and paddy stocks,
Food Corporation of India chairman and managing director Siraj Hussain talks to Madhvi
Sally about the encouragement being given to entrepreneurs in creating storage space and
problems plaguing the stock situation in flood-hit states. 
What is the FCI procurement target for paddy this year? 
The assessments are being made. We are meeting the food secretaries and government
officials on 27 July and the target procurement figure can be shared only after that. Let me
tell you that in the drought year of 2009-10, rice production was targetted at 84 million tonne
but eventually it was 89.3 million tonne. We were targeting to procure 260 lakh tonne of rice
but have till now procured 300 lakh tonne and target to touch 320 lakh tonne by September
2010. In 2008-09, which was not a drought year, we procured 336 lakh tonne rice. 
With 150 lakh tonne shortage of storage space in India including 71 lakh tonne in Punjab,
what are the immediate actions that FCI is taking? 
India currently has a storage space of 420 lakh tonne which includes 5.5 lakh tonne storage
space in silos. We have suggested to the Union government to have 25 lakh tonne space
through silos. Further, we are trying to expand our reach from Punjab and Haryana to other
states. But other states’ capacities are also full. Also we are trying to rope in private
entrepreneurs in storing the huge stocks of wheat and paddy. The Tamil Nadu government
has sanctioned a storage space of one lakh tonne to a private entrepreneur at the rate of Rs
4.14 per quintal per month under a sevenyear guarantee scheme. We are further proposing to
liberalise the norms and conditions to allow entrepreneurs to venture into the field. 
Can you give us some of the salient features of the proposal? 
FCI’s board of directors, in a meeting on 23 July, will give the full details. The proposals
include that the engineering specification as per Central Wearhousing Corporation will be
applicable and not of FCI’s. It will ensure that land requirement for a godown will be less
thereby leading to a reduction in the cost of construction. To invite corporates into
warehousing, we propose that the participants who don’t have land but who can give a bank
guarantee can also participate in setting up a godown for us. 
Do you think that an increase in the import duty of wheat will ensure more offtake from
states like Punjab and Haryana where stocks are more than that the states can hold? 
I will not like to comment on that. 
Even after tenders were floated in Punjab and Haryana to offload wheat stocks from FCI and
state governmentowned godowns, there have been no bulk buyers. Are you planning to
reduce the base offer price of wheat for the Open Market Sale Scheme? 
The Government of India will decide on the pricing. I am not the right authority to do so. 
With the government planning to provide subsidised wheat and rice to additional 1.5 crore
poor families from October 2, how is FCI geared up for the procurement? 
We already procure more than we require. We are also now procuring more from non-
traditional procurement states like Bengal, Tamil Nadu and Decentralised Procurement States
and will like to encourage the traditional players. 
In Punjab and Haryana, which locations will you be travelling to assess the loss due to the
recent floods? 
I would not like to divulge the locations but will be seeing the wheat stock and mandis. As
per the preliminary details, there has been no loss of wheat in Punjab’s FCI godowns. There
has been a loss of over 8,000 tonne of wheat in a Haryana Warehousing Corporation godown
in Sirsa.

The Local Touch

Banks have the products, but are absent in villages. MFIs are present, but lack the
products. An IFMR pilot is looking to reconfigure how financial services are delivered
to rural India, reports M Rajshekhar.

    THAMIZARASI DOES NOT KNOW JOB safety or regular income. Work comes and
goes for this 40-something agri-labourer in Alakudi, a village in Thanjavur district in Tamil
Nadu. This month, for instance, farm owners did not need labourers like her because the local
dam was yet to release water to irrigate their fields. During such dry spells, to keep the home
fires burning, Arasu pawns her jewellery. She used to do that with a moneylender, paying 36-
60% as interest. The only bank in Vallam, a village 7 km away, offered the same loan for
much less. But she, like millions across rural India, wasn't entitled to a loan from a bank
because she didn't have any land to pledge. For the past year, though, she has been borrowing
at 16%, in Alakudi itself, from a local 'bank' called Pudhuaaru. 
    Pudhuaaru is not a bank, but it works like one. So, villagers can deposit and withdraw
money at a Pudhuaaru branch—almost the way they would in a bank. They can take loans,
that too not at punitive microfinance rates or moneylender rates, but at reasonable bank rates.
They can buy life insurance or cattle insurance. There are 57 Pudhuaaru branches in the
district, which is projected to increase to 100 by March 2011 and to 200 by March 2012,
covering 1,000 villages in the district. 
    Banks have failed to provide that kind of access. According to the RBI, 292 of 626 districts
were underbanked. Microfinance institutions (MFIs), the other deliverer of financial services
to rural areas, have penetrated some parts, but they mostly do only loans. Savings,
investments, insurance and remittance—the other basic financial services—still elude large
swathes of rural India or reach them haphazardly. 
    That lack of access bothered ex-ICICI banker Nachiket Mor and his team at the IFMR
Trust—a private trust, set up with a long-term loan from ICICI Bank, that supports research
in financial inclusion. In 2006 and 2007, they experimented with alternate delivery models
like ICT kiosks and lower-cost MFI models, but they couldn't crack the conundrum of
delivering financial services through a model that went far and deep, and was self-sustaining. 
    With their latest model, Kshetriya Gramin Financial Services (KGFS), of which Pudhuaaru
is one of the three pilots, they feel they are on to something. "I have absolutely no doubt,"
says S.G. Anilkumar, senior vicepresident, IFMR Trust, and the man in charge of the project.
"KGFS and KGFS-like entities focusing on a local geography can deliver complete financial
services in a viable way." 
    IN JUNE 2008, THE KGFS PILOT WAS rolled out in Thanjavur in Tamil Nadu. Since
then, Ganjam in Orissa and Tehri in Uttarakhand have been added. Each KGFS unit was
named after a local river there: Pudhuaaru in Tamil Nadu, Sahastradhaara in Uttaranchal and
Dhanei in Orissa. 
    Thanjavur is the longest running of the three. In about two years, 57 Pudhuaaru branches
have come up in the district. Each branch is about 500 sq ft (25 x 20) in size. Three officials
—all locals and youngsters—sit behind desks. Each has spent 24 days learning the processes
and basics of financial services. In front of the desks are several bright green and orange
benches, where customers sit. 
    Between them, these 57 branches have a catchment of about 100,000 households. They
already have enrolled 70,000 customers, most of whom are accessing institutional finance for
the first time. Further, the branches are breaking even faster than their creators had hoped: at
the operational level in the eighth month; full break-even, where they even recover capital
costs, by the fourteenth. 
    KGFS works on a low-cost model. Its lending rate is 16%, compared to 24-36% charged
by MFIs. It is able to charge less because its costs are lower and spread wider due to, what
Anilkumar calls, economies of scope. While 
MFIs offer only loans, KGFS offers a bouquet of financial services. 
    A KGFS currently offers four categories of products: loans, savings, insurance and
remittances. The savings product, which makes it analogous to a bank, is ingenious. Since
KGFS is not a licensed bank, it cannot accept deposits, which dilutes its case for a one-stop
financial shop for basic financial needs. 
    KGFS has circumvented this by offering a money market mutual fund—a category of debt
funds that offers a high degree of safety of principal and liquidity (though lower than a bank
savings account). Says Vijay Mahajan, founder, Basix: "Nachiket has found a creative
solution to the regulatory constraint that only banks can accept deposits." 
    The wide portfolio ensures that people who step into a branch look at other products too.
Although IFMR Trust has an ICICI connection, KGFS won't sell just ICICI products. So,
there’s personal accident and lifestock insurance from HDFC Ergo, gold coins from Tata
Gold Plus and World Gold Council, and international remittances (Western Union). 
    GIVEN THE PROFILE OF PEOPLE IT IS selling to, how it sells is as important as what
it sells. KGFS is looking to take the wealth-management approach—recommend products
tailored to a customer's needs—to selling. Bindu Ananth, president, IFMR Trust, uses a client
transaction to illustrate. 
    A woman who had taken a jewellery loan died in a road accident. KGFS learnt that she
was an agricultural labourer, that her husband had left her, and that she was single-handedly
looking after two children, her parents and a sibling. "It was obvious that the financial
intervention she needed most, much before the jewellery loan, was life insurance. And that,
by acting without 'knowing the customer', we might do harm," says Ananth. 
    IFMR is looking to automate this process of product selection, or at least a part of it. "It is
not enough to just create a menu of products," says Ananth. "We need a system where we can
look at the client's situation and then decide what is the right product for her." IFMR is
currently working on such a software. 
    At the time of enrolling a new client, the KGFS will generate a financial well-being report,
focusing on four aspects. Plan: what are the client's income and expense projections? Growth:
how can she meet these obligations? Protect: how does she protect her assets? Diversify: how
does she spread risk? 
    This software will throw up suggestions, which the KGFS staff will convey to the client,
who takes the final call. Even then, the KGFS staff will be held accountable. With good
access, products and advice, IFMR hopes to draw rural Indians in. That's the demand side. 
    That still leaves the supply side. Someone needs to come forward and set up these branches
in every district, every village. IFMR cannot do. Its strength is ideas and research, not
running a business. For KGFS, IFMR is talking about a franchise model that is on the lines of
India's failed experiments with local area banks (LABs). 
    Says Ananth: "Each KGFS will not cover more than two or three contiguous districts—or
five million households. This will ensure local relevance." For instance, in Uttarakhand,
jewellery is seen as a symbol of pride, not to be pawned. So, jewellery loans are not popular,
unlike Tamil Nadu. Adds Anilkumar: "A single institution cannot deal with this complexity.
For a large bank, localisation is difficult." 
    Also, since the franchise holder's catchment is limited, this will ensure it doesn't merely
skim the top of the local market and then expand elsewhere. "It would have to reach deep into
the local community, ensuring financial inclusion," says Ananth. 
    For KGFS, localisation is its strength. According to N Gurunath, the head of Pudhuaaru,
the process of identifying franchisees is likely to start in a year or two. IFMR will provide the
modules, linkages with other financial institutions, knowhow, etc. Entrepreneurs will have to
train for one year at an existing KGFS. Besides that, IFMR itself will set up 12 more KGFS
in the next 10 years. The first of these will start in another 12-18 months. Further, any MFI or
financial services distributor can buy select modules from IFMR. 
    But if the past experience with regional rural banks (RRBs) and LABs is anything to go by,
it's not going to be easy to convince entrepreneurs to set up a full-fledged KGFS. RRBs and
LABs had a similar geographical construct, but they were done in by government interference
and vulnerability to local factors. 
    KGFS hopes it won't meet the same fate. Partly because of the multiple products it is
offering and the multiplier effect of such a model. Pudhuaaru has already begun 'coordinated'
loans, where women borrowing to buy milch animals are linked to a local dairy. Such assets
would work as a multiplier insofar as the village GDP is concerned. Pudhuaaru also plans to
offer loans for light commercial vehicles, water-purification plants (developed by IFMR
Ventures), loans for warehouse construction, among others. 
    In Thanjavur and Thiruvarur (the second district Pudhuaaru will cover), the 'bank' will add
all the branches it can (about 200) in its first five years. Once that expansion-led growth
tapers off, Pudhuaaru will grow at the rate of the district. After 6-7 years of operations, each
branch is projected to touch a turnover of Rs 5 crore in turnover. At 200 branches, it means
Pudhuaaru becomes a Rs 1,000 crore company. Orissa and Uttarakhand are projected to ramp
up to 50 branches by March 2011. 
    HOWEVER, BEING LOCAL HAS ITS OWN risks. If the local economy tanks, it will
hurt the local KGFS, especially if noncollateralised loans account for a big chunk of its
portfolio. IFMR is looking at loan insurance. As the entity grows, it might face resistance
from local moneylenders and providers of informal finance like chit-fund operators. "All this
leads to the question: what is the optimal size for a rural finance provider," says Ramesh
Arunachalam, an independent rural-finance consultant. "Even if national is too large, is two
districts too small?" 
    There are also questions on scalability. The model is working well in Thanjavur. In
Uttarakhand and Orissa, just one or two have completed a year. While the first branch, says
Anil, has attained operational break-even on target, "it is still too early to say". Says Prakash
Bakshi, Executive Director, Nabard: "What is good in a focussed experiment does not always
translate to exact replication on a very large scale, that too through much less efficient
replicators as we go on.” 
    Whether KGFS finds commercial expression or not, it adds to the discourse of how to
speed up financial inclusion. It also forces competitors like banks and MFIs to introspect
about their approach. Says K.C. Chakrabarty, deputy governor, RBI: "Many of the ills (that
plague MFIs) exist because people lack alternatives. The only long-term solution is
competition." The KGFS is another step, perhaps a defining one, in the long road to financial
inclusion.

Let’s walk middle of road on SEZ tax,says Sharma

Amiti Sen NEW DELHI 

THE commerce department has sought a ‘middle of the road’ solution to the taxation
problems thrown up by the draft direct taxes code for special economic zone that enjoy
substantial tax concession. 
    In a letter to the revenue department, the department has suggested ways in which the
finance ministry could implement the new tax dispensation so that the investments already
made in the zones continue to get the incentives promised under the current rules. 
    “SEZ developers and units have to be given some sort of assurance that the current tax
incentives would continue for some time,” a commerce ministry official said. The direct taxes
code, or DTC, seeks to do away with the tax exemptions for all the units located in these
special economic zones and has suggested replacing profit-linked exemptions available to
developers of these enclaves of export excellence with investmentlinked exemptions. 
    Interestingly, the opposition to the proposal comes despite the fact that the proposed tax
regime would affect the zones and units which come up after April 1, 2011, the expected date
for implementing the DTC. The department is of the view that though the regime will apply
prospectively, it does create uncertainties for investors. 
    For instance, a SEZ that is under development could get caught in the transition.
Investments from units that the developer was counting on may not flow in as envisaged
because they would no longer be eligible for tax exemptions. 
    “This could lead to all profitability calculations made by the developer go awry,” the
official said. 
    While the official refused to give details of all proposals made by the department as it
would ``first need to be discussed with the finance ministry’’, he said that it was a solution
which would ensure that SEZ developers and units do not feel short changed. 
    SEZ developers are, however, reluctant to shift to the new taxation regime. R K Sonthalia,
chairman of export promotion council for EoUs and SEZs, said income tax benefits are not
given to SEZ units nobody would want to invest in them. 
    In a meeting with finance minister Pranab Mukherjee and commerce and industry minister
Anand Sharma, the council pointed out that indirect tax benefits were available outside SEZs
under schemes such as the focus product scheme and focus market schemes which were not
available to exporters within SEZs, and no investor would, thus, want to invest in units in
SEZs. 
    Mr Sonthalia went to the extent to saying that the revised DTC would lead to curtains for
the SEZ scheme. 
    Under the present SEZ regime, SEZ units get 100% tax exemption on profits earned for the
first five years, a 50% exemption for the next five years and another 50% exemption on re-
invested profits in the following five years. SEZ developers, on the other hand, get 100% tax
exemption on profits for ten years which they can choose in the block of the first fifteen
years. 
    Once the DTC gets implemented, tax benefits enjoyed by SEZs, especially in sectors like
IT where investments are low, could go down considerably.

RSS and terror

BJP Must Sort This One Out

    THE contradiction between the RSS’ top leaders averring that the organisation would not
support or defend any members involved in terrorist activities, and the emergence of fresh
allegations linking yet more members, including one from the RSS’ top decision making
body, underlines both the problem the RSS itself faces and the one it posits for the BJP, its
political arm. Of course, establishing the degree of veracity and truth of these allegations has
to be left to the investigations. But so far, links have been unearthed between Hindu extremist
groups and RSS members and the blasts on the Samjhauta Express and those in Hyderabad,
Ajmer, Malegaon and Goa. The question is whether the RSS really believed or thought that
its wider ideological beliefs and practices, based on jingoism and hatred stemming from its
narrow and sectarian interpretations of concepts of history, identity and nationhood, could not
lead to its members committing acts of terror. It is precisely such interpretations of those
concepts that drives the Islamic extremists at home and abroad — the difference being one of
scale and expertise in implementing terror plots, not of the terror itself. The issue therefore
isn’t solely that a few fringe elements may be involved in terrorist activities, but that there is
a wider context of communal hatred and fundamentalism behind such attacks. 
    The point is that, if terrorism is to be defeated, in all its forms, then it also involves
tackling and targeting communal hatred and polarisation. Thus, the other big question is how
far can the BJP, the major opposition party, afford to be steered by an organisation whose
ideology is linked to terror and whose organisational links to terror acts is under active
investigation. And can sheer political, even electoral, compulsions force the BJP, at some
point, to re-examine its umbilical cord-connection with the RSS? Can it afford not to? While
hardline, even extreme, views can exist in a democracy, violence is immanent in attempts to
insert those views into society and the workings of the state.

Renewable energy requires further policy impetus

VIKRAM LIMAYE 
RENEWABLE ENERGY (RE) IS A KEY FOCUS AREA within the overall energy
landscape and is expected to see significant growth over the medium to long term. The
significant shortage of power, energy security and environmental concerns are some of the
reasons driving the focus on RE. Efforts for the development of RE find their base in the mid-
70s when the Centre launched its solar photovoltaics programme following the first oil shock.
The Centre has set itself aggressive targets for RE capacity addition. The 11th five year plan
(FY 2007-12) envisages adding 14,050 mw of capacity predominantly in wind power (10,500
mw), small hydro (1,400 mw) with balance capacity additions in biomass, co-generation and
waste to energy segments. This is more than what has been added since independence.
Besides this, the Centre announced the National Solar Mission that targets 20,000 mw of
solar power by 2022. Several steps have been taken to improve the environment for growth of
RE but more needs to be done from a policy and regulatory perspective considering the fact
that we have achieved only about 55% of the 11th plan targeted additions up to April 30,
2010. 
    To begin with, it would be important to look at this area in a comprehensive way and have
a strategic plan for developing RE. Policies need to be co-ordinated with states in order to
provide a conducive environment for development of RE and more importantly, policy
implementation needs to be improved. Several issues such as the bankability of the PPA, the
selection criteria of developers, and localisation of components have become contentious as
far as new utility scale solar projects are concerned. The autonomous Solar Energy Authority
responsible for monitoring technology developments, reviewing and adjusting incentives, and
managing funding requirements for solar power is yet to be set up. 
    The Electricity Act 2003 has changed the regulatory framework for RE by making it
mandatory for State Electricity Regulatory Commissions (SERCs) to take steps to promote
RE within their area of jurisdiction. It has specific provisions for determination of renewable
portfolio obligations (RPO) i.e., the quantum of RE power to be procured by distribution
utilities and feed-in tariffs (FIT) for RE sources at the state level. 
    RPO is a powerful tool for the promotion of RE, but there are several inadequacies across
states. Some states, in spite of good resource potential, have specified modest levels of RPO.
RE therefore remains under-utilised in these states. Some others do not allow the
procurement of RE from outside the state or have specified a ceiling for the procurement of
RE. This is detrimental for the overall development of RE, as investment would not take
place where the costs are lowest and efficiency highest. The enforcement of RPO also needs
to be strengthened. So far, only a few states such as Rajasthan and Maharashtra have
specified penalties on distribution utilities in case the RPO is not met. And, only the
Maharashtra Electricity Regulatory Commission has penalised the utilities for not meeting
the mandated RPOs. 
    Besides RPO, FIT also plays a crucial role in promoting RE. Analysis of RE capacity
addition indicates that to a large extent, biomass, wind and small hydro capacity additions
have been in states that have determined a FIT. But determination of FIT is only one aspect
of the regulatory framework. The adequacy of FIT is also important. The FIT determined by
SERCs is at times based on norms that are not well understood. Further, many SERCs have
determined FITs for limited periods without giving any indication of the regulatory
framework beyond such periods, thereby giving rise to regulatory uncertainty and impacting
the bankability of the project. The Central Electricity Regulatory Commission (CERC) has
come out with norms for tariff fixation for different RE sources. It remains to be seen how
soon states align their regulatory framework to these norms. Unless the FIT reflects the
underlying costs, no capacity addition will take place. 
    There is little doubt that the development and commercial implementation of RE requires a
conducive policy and an informed regulatory framework. In the long run, this will lessen the
strain on fiscal resources and hold greater potential for successful implementation. The
Centre must formulate a comprehensive policy or action plan for all-round development of
the sector. This action plan should be prepared in consultation with the state governments.
States must also be encouraged to identify their focus areas as far as RE development is
concerned and remove the policy and regulatory uncertainty surrounding it. SERCs must
devise suitable incentives to encourage distribution utilities to procure RE power over and
above the mandated RPO. They may also consider amending the criteria for power
distribution licenses to include fulfilment of RPO. Non-fulfilment of RPO would then be
treated as a violation of license conditions and would attract suitable action under the Act.
The Forum of Regulators could take up these issues and bring out model documents in this
regard. 

M’rashtra farmers prefer cotton and pulses to soya bean

Jayashree Bhosale PUNE 

MAHARASHTRA farmers have shown a preference for pulses and cotton over soya bean
during kharif 2010-11. The area under soya bean has dropped by 7 lakh ha while the area
under pulses and cotton has increased to just under 7 lakh ha. Pulses have seen an increase in
acreage by 3.6 lakh ha and cotton by close to 3 lakh ha. 
    By July 19, about 90% of kharif sowing has been completed. Soya bean had been grown
on 30 lakh ha in Maharashtra in 2009-10 while acreage under cotton was 35 lakh ha. 
    The soya bean acreage has declined by 6.80 lakh ha from 30 lakh ha (2009-10) to 23.23
lakh ha (2010-11), a 22.6% drop. Cotton acreage has increased from 35 lakh ha in the
previous year to close to 38 lakh ha this year, up by 8.5%. After a year of high pulse prices,
the area under pulses has increased by 18%. The state accounts for a fifth of the total pulse
production in the country. 
    Pulse acreage has increased to 23.67 lakh ha as against 20.04 lakh ha in the previous year. 
    Maharashtra is the largest producer of tur and the area under the commodity has increased
significantly exceeding the target of 24.50 lakh ha for 2010-11 by 12%.
Foreigners to find market for corporate control efficient 
THE NEW TAKEOVER CODE RECOMmended by the Takeover Regulations Advisory
Committee (TRAC) has made a paradigm shift towards international best practices evidenced
by the move towards an equal exit opportunity (100% offer) on equal terms, with no
tolerance limits for non-compete/control payments. However the changes disregard certain
Indian ‘tropicalities’ and so may not automatically translate into a more efficient market for
corporate control. 
    The initial trigger has been raised from 15% to 25% based on two counts: (a) a factual
analysis of current shareholding patterns of listed companies which show that “promoters”
are capable of exercising defacto control at 25%; and (b) a shareholder holding in excess of
25% has the ability to block special resolutions. Promoters may however be concerned by the
mischief that may be caused by “predators” holding just less than 25%, who may exercise
significant voting rights on account of the multiplier effect caused by absenteeism at general
meetings. 
    Defacto control as the primary trigger has also been hardwired into the definition of
control, which is referenced not just against the “right” but also the “ability” to control. As a
result, the ‘control’ trigger continues to be an elusive and subjective determination in each
case. The objectivity of “control” as a positive determination put forth by Securities
Appellate Tribunal (SAT) in the Shubhkam case — currently in appeal before the Supreme
Court — has sadly not found favour with the Committee. There is however no longer a
concept of “greater control” and joint-to-sole control has ceased to be a trigger. 
    A separate regime has been prescribed for voluntary offers which have been restricted to
consolidation offers by controlling shareholders. The (hopefully unintended) consequence is
that an unsolicited/hostile offer by a new acquirer does not seem to be permissible. That
cannot be right. 
    The proposed increase of the mandatory exit offer to a 100% shareholders as against the
current norm of 20% is a laudable move from a shareholder’s perspective, though not
necessarily investor friendly. Public mergers and acquisitions will become significantly more
expensive and thereby deter takeovers. A combination of the Indian rules against financial
assistance by the target company and limitations on acquisition financing by banks results in
the creation of an unequal playing field between Indian and foreign acquirers. The non-cash
payment options that have been offered as alternatives exist even under the current Code but
have seldom been used. Some streamlining could help. 
    A seamless “go private” route has been made available to new acquirers who buy out more
than 90% in an offer – a route that has not been extended to promoters holding above 25%.
Promoters would necessarily have to initiate delisting only under the Delisting Regulations
that to at the significantly higher price through the reverse book building route and subject to
rigours of obtaining the requisite approval as well as minimum tender from the public
shareholders. 
    The efficiency drivers are largely dependent upon the buy-in by other regulators, in
particular in relation to bank financing of takeovers and the treatment of shares tendered in an
open offer as an “on-market” transaction for tax purposes. Foreign direct investment (FDI)
rules may also need to be amended to put swaps under the automatic route. 
    In summary, whilst the new Takeover Code has made the market for corporate control
more efficient for new foreign acquirers, existing promoters have been left to grapple with
greater financial hardships. Interestingly, “promoters” as a class are curiously absent in the
list of stakeholders whose interests were sought to be balanced by the TRAC in its report.
There is some additional work to be done to create a balance amongst all stakeholders. 
FDI norms need to be amended to allow greater PE play 
FOR SEVERAL OF US, OUR FIRST INTROduction to Mr C Achutan was through his
incisive 2002 ruling against a judgement which had surprisingly held that a ~220% premium
paid for the single largest block of shares in a public company was not an overwhelming
evidence of acquisition of control! Mr Achutan’s ruling was elegant and unambiguous in its
articulation. No surprise therefore that the recommendations of the takeover code review
committee headed by him have dramatically restored fairness to the code. 
    The subject of this debate however is different. It is not about whether the new proposed
code would bring fairness to the Indian market for corporate control (‘IMCC’) but whether it
would make the IMCC more efficient? My view is clear. One important definitional change
recommended in the code will aid regulatory efficiency in IMCC, another definition urgently
needs to be amended to further enhance regulatory efficiency but substantial market
efficiency gains will require amendments outside the code viz. to related economic
regulations. And that is where this debate eventually needs to go. 
    First a quick word on the important definitional change made. The old code presumed
control, sole or collusive, at 15% ownership. There was never a logical basis for it. The new
one presumes it at 25%. And as we know, there is sound legal and practical basis for it. 
    The definitional change that is needed, but has not been recommended, concerns
preferential equity allotments in excess of 25%. The essence of any takeover code is to ensure
that minorities are offered the same price as the selling majority owner. But what if the
majority owner is not selling at all and what if all shareholders including minorities approve,
by a 75% majority, that a new shareholder be allotted more than 25% ownership through a
new issue of capital? That cannot be a corporate control event, nor can there be any
presumption of majority–minority asymmetry in such a transaction. The old code
fictionalised such transactions to be change of control events and ended up squandering
regulatory supervision and regulatory efficiency on non events. The new code must not. 
    And now to the bigger issue of how to inject substantial efficiency in the IMCC. Efficiency
requires that all bonafide economic agents be equitably enabled to participate in a market so
that the highest value outcomes are captured. This is a sine qua non for efficiency; this is also
where our supporting economic regulations fail the IMCC. The most offensively archaic
among of these is a regulation, first introduced in Press Note of 1999 and surprisingly
retained in the liberal PN4 construct of 2009, which disallows any borrowing by a foreign
owned Indian holding company [clause 6 (d)]. This stipulation simply robs IMCC of
efficiency by preventing the most prolific players in global MCC viz. private equity funds
from participating meaningfully in India. These global funds have a 25% share of global
MCC market, come with a track-record of investment and employment creation in their
investee companies and have huge credibility with lenders. Founders prefer to sell to them
because they know these funds will grow their legacy, not downsize it for synergy as trade
buyers are wont to do. But in India PE funds are tripped by PN4 of 2009. And surprisingly,
no one has ever been able to point to even one Indian constituency which is helped by this
regulation! 
    Over the last 18 months each of the five large PE funds in India has had more than 25
approaches from Indian promoters trying to sell businesses. To the dismay of the sellers, not
one of the deals happened. All because PN4 does not let a PE buyer design an optimal capital
structure for an acquisition. The losers were India which needs long term capital to fund its
large current account deficit, promoters who were unable to sell for fair value, and workers
because a business up for sale does not get invested in by the owners. 
    My prescription is simple. Accept the Achutan committee report, remove preferential
allotments out of change of corporate control definition and delete PN4 clause 6 (d). India
will be one of the most liquid markets for corporate control for the good of its economy, its
workers and its true entrepreneurs.
Acquisitions to become fairer but more difficult 
THE TAKEOVER REGULATIONS ADVISOry Committee headed by the venerable C
Achuthan has done a remarkable job of coming up with recommendations that are not only in
tune with some of the best global practices in this area, but also lays special emphasis on the
protection of minority shareholders. There are however some areas which need to be looked
into a bit deeper. 
    Most of the committee’s recommendations are in tune with similar practices globally. For
example, it is often felt that the existing threshold limit of 15% before an open offer had to be
made is too inflexible. Private equity funds, for instance, found it too limiting while investing
in small and medium enterprises or mid-cap companies. The proposed amendment will
remove this restriction. Similarly the stipulation that the Open Offer formalities need to be
completed within 57 days will also prevent the unnecessary delays that the current system of
95 days allowed. 
    Another excellent recommendation relates to the mandatory open offer for 100% of
outstanding shares and provision for automatic delisting. The existing process which forced
the acquirers to effectively make two open offers — one for control and the second for de-
listing — was simply too cumbersome. 
    The new recommendations lay particular emphasis on ensuring justice to the minority
shareholders. This is obvious from the suggestion that the mandatory offer of 100% of
outstanding shares has to be the same for all shareholders. In other words it takes issues like
control premium or noncompete fee out of the equation. 
    However, what this recommendation ignores is that very often people with a considerable
stake in a company signify some extra value for the acquirer — that person could be a
technology innovator, a progressive leader and/or manager with in depth understanding of the
business and the environment, etc. These aspects could very well have been a key reason for
the acquisition itself, in the eyes of the acquirer. A control premium/non-compete fee is often
recognition of this reality. 
    Doing away with the control premium/non-compete fee might have a few repercussions —
in fact may even reduce the value of the transaction itself. It is also possible that those at the
helm may leave the organisation soon after the acquisition, leading to significant value
erosion for the acquirer. In order to stem this possible scenario, an acquirer may in fact pay a
reduced premium for the company and find other suitable methods to compensate or retain
the key man or teams in effect re-interpreting the Code. 
    Further, the mandatory 100% open offer also makes takeovers far more expensive,
especially in a scenario like India, where funding for takeovers — more so if the attempt is
hostile — is difficult to come by. 
    This is not necessarily a good 
    thing, since M&A and takeovers, are an essential cog in the cycle of evolution of
companies and markets. 
    The committee’s definition of “control” also needs to be tightened up significantly. It
defines “control” as either the “ability to appoint majority of directors” or the “ability to
control the management or policy decisions.” This ignores two scenarios. First is a situation
of a private equity investor with affirmative rights — since by the definition of the committee
such investors would be deemed to be in control. Second is a scenario where the existing
managements may control 25% of less — something that is true of several of India’s largest
and most valuable companies. Under these circumstances, hypothetically speaking, if
someone was to acquire 24% of the company’s shares, that investor would be able exert a
significant influence on “management or policy decisions”. Yet the current recommendations
would not trigger the takeover code. 
    What some of these recommendations and their consequences mean is that while takeovers
will be far more transparent and fair to minority shareholders — an eminently desirable
outcome — they may be for more difficult and expensive to actually execute. A wider debate
therefore would be needed before the final provisions are enshrined into law.

Bank may seize lands of Vidarbha farmers

Properties Of Those Who Didn’t Repay Dues To Be Confiscated

Our Political Bureau MUMBAI 

    SCORES of debit-ridden farmers in the arid cotton belt of Vidarbha in Maharashtra are
close to losing their property rights as the statecontrolled Land Development Bank has started
the process to recover money from them. According to a top official from the revenue
ministry, the process to recover loans by selling off the land of those farmers who have
defaulted is “definitely on” and could start as early as July 23. SK Goel, principal secretary,
co-operation and marketing, declined to comment. It is now a well-accepted fact that mega
loan amnesty schemes, such as the 71,000-crore waiver announced by the central government
and the 6,240-crore state loan waiver, excluded many farmers in the state. 
    The loan waiver was applicable only for loans contracted from a government-backed
institution. But in the hinterlands, most of the farmers borrow from moneylenders. Many
could not enjoy the amnesty schemes as the eligibility was restricted to those who owned two
hectares or below. More than half of Vidarbha’s 35-lakh farmers own more than two hectares
and, therefore, according to the government scheme, can only obtain a loan waiver of 25% of
their outstanding loan instead of a total write-off. These stiff terms for loan waiver kept a
large number of farmers in the region out of the benefit. Now, the state wants to recover the
remaining 75% of the loans which has not been paid back until now. “According to the rule,
the Land Development Back needs to recover loans within five years after disbursement.
Delay makes it mandatory for the bank to recover its dues by selling the immovable assets,
the land in this case,” an official said. A top official in the agriculture ministry admitted that
the loan recovery process has been launched. “There is a motive behind it. The recovery drive
will pressure the government to waive off the remaining portion of the loan too,” he said.

Disciplining the MFIs

ADOPTING THE RIGHT REGULATORY FRAMEWORK TO BE CRUCIAL

M RAJSHEKHAR 

THE QUESTION ON HOW TO REGULATE microfinance institutions (MFIs) continues to

vex the Reserve Bank of India (RBI), Nabard and the finance ministry. They were not
satisfied with the previous options before them, namely, regulating MFIs’ conduct through
interest rate caps, priority sector lending norms, NBFC norms or the draft microfinance bill.
Consequently, a new set of regulatory approaches, variously advanced by regulators and
microfinance industry professionals, are doing the rounds now. 
Convert MFIs into banking correspondents (BC): This would enable MFIs’ clients to access
insured deposits, national payments system and remittance services even as the MFIs come
under the supervision of the banks. However, the MFI segment is not too enthused at the
prospect. Partly because the commission banks pay BCs is barely enough to meet the cost of
delivering these products, and partly due to other stipulations which restrict BCs to rural
India even though financial inclusion is abysmal in urban India as well, or insist that BCs
confine their operations to a 15 km radius around the bank. Even the regulators have their
concerns. For instance, RBI deputy governor Usha Thorat flagged possible risks like conflicts
of interest, co-mingling of MFI and bank funds, misrepresentation and other agency-related
risks recently in her talk at a seminar cohosted by the US Federal Reserve, IMF and the
World Bank in early June. 
    Create a separate regulator for financial inclusion: The argument 
    here is that India needs a new 
    breed of small finance banks, 
    perhaps 100 of them, each of 
    which can open and serve 3-5 
    million account-holders. And that 
    none of the existing regulators has the bandwidth to create and regulate 100 such entities.
And, hence, the need for a new financial inclusion regulator. The proposal carries risks of
regulatory confusion. For instance, who will regulate lending by banks to the poor — RBI or
the financial inclusion regulator? Also, financial inclusion is an integral part of the financial
sector, and so, if the plan is to mainstream the poor, it is only right the regulation be done by
the RBI, point out critics of the proposal to create a new regulator for financial inclusion. If
need be, they say, supervision can be handled by Nabard or someone else. But ultimate
authority has to vest with the RBI. 
Regulate MFIs by encouraging greater competition in rural areas: The RBI cannot do field-
level regulation, RBI deputy governor KC Chakrabarty told ET in an interview, and that
competition — by pushing cooperatives, private and public banks into rural areas — is the
best way to ensure the bad eggs in the industry behave. However it can be argued that these
institutions have been around for decades, and even during the days when they were not
measured on financial performance but on the social results they delivered, they failed to
reach out to the masses. Today, when they are as driven by numbers as private banks, and
given that the rural customer is “too lowend and high cost”, these banks are not structured to
handle such transactions. 
Regulate by size:Small organisations working at a district level can be tracked by Nabard.
Once their loan portfolio crosses a threshold – say Rs 100 crore — they should come under
RBI’s purview. Agrees IIM professor MS Sriram: “Define microfinance as an amount
equivalent to small borrowal account’ (Rs 2 lakh at present) and say that any NBFC having
90% of its portfolio as small borrowal accounts will be categorised as NBFC MFI. Over a
period of time, these outfits could be allowed to morph into small banks, and then into larger
banks.” While the proposal for small finance banks finds acceptance with the industry, they
emphasise the need for support and regulation. And that the RBI doesn’t have the bandwidth.
Ergo, again, the need for a new regulator. The bigger question here, of course, is whether
MFIs should be allowed to become banks and accept deposits. Which boils down to whether
closely held organisations should be allowed to collect deposits from a scattered public. 
    Today, some of India’s leading MFIs face charges of both corporate misgovernance and
lending irregularities — like coercive repayment techniques and harsh repayment schedules
that result in women taking fresh loans to settle existing debt. 
    Any regulatory framework chosen must check corporate misgovernance and ensure
microfinance doesn’t degenerate into predatory lending. The first option (banking
correspondents) is not viable for the MFIs. When it comes to monitoring lending practices,
the second and fourth options will face the same problems as the RBI. The third option, while
enabling borrowers to choose their financial services provider, hinges on whether banks, etc,
want to lend in rural areas. The alternative is to flank country-level regulation — which lays
down principles to check more dubious practices by the industry — with state moneylending
acts. If need be, interest caps defined in these acts can be tweaked to better accommodate the
industry’s economics. 

Weather now a commodity rainmaker

NIDHI NATH SRINIVAS 

COMMODITY markets are never for the faint-hearted. But each year between June and
September, farm futures can be more hair-raising fun than a casino. All due to weather. 
    In last four weeks, globally wheat is up 25%, corn 15%, soya bean 9%, and palm oil
climbing fast, while cotton has hit a brick wall. But it could all change with a week’s rain.
The jackpot will go to the guys who correctly match weather with market psychology. ET
helps you join the dots. 
    Crops are most vulnerable when they are standing in the fields because outside a certain
range of moisture and temperature, they wilt and die. And while technology can now better
predict weather, we can’t choose or change it. So everyone — farmers, traders, processors,
consumers — keeps an eye on how weather is cooperating in those vital months of growth
and its impact on future supply. The important thing is not what you plant but what you
grow. 
    As uncertainty and anxiety are maximum at the time of sowing, the market tends to build a
“risk premium” into prices during this time. Once the crop is in the ground, well-irrigated,
and growing, the risk premium comes down. 
    Prices tend to ebb and flow during the growing season based on weather reports, crop
conditions and projected yields. If everyone is forecasting the same harvest size — small or
big, prices move in one direction. Frequent price changes or volatility, shows people are
confused over the final impact of weather on harvest. 
    The “true” price is often not discovered until the harvest or in the months immediately
after the harvest. Last year, despite the drought, India’s sugarcane harvest was much bigger
than industry estimates, leading to an eventual crash in sugar prices. Last week sugar
retreated from four-month highs as Brazil harvests a bumper crop. 
    Vagaries of rain and heat always keep Indian traders on the edge. Inadequate monsoon in
soya bean and rice growing areas could be problematic. NCDEX August soya bean rose from
Rs 1,949 to Rs 2,006 last week while soya oil rose from Rs 457 to Rs 465. If farmers
accelerate sowing after good rainfall, things will immediately change. As cotton is doing
well, short positions or bets that prices may drop are building up. 
    In other parts of the world, the biggest risk is from drought in Russia, Europe, Canada and
Australia, all major wheat growing and exporting regions. Traders don’t yet know the full
impact of bad weather on wheat and how low the crop will be. That is leading to daily price
swings of as much as 3% as each country guesstimates. After pricing in a hefty weather
premium, the market is now taking a moment to pause and wait for further input in fixing
crop size. 
    Early July’s unusually hot weather in USA’s corn-growing areas, meanwhile, became a big
worry for ethanol and animal feed companies as this is when corn moves through pollination
with yields made or lost for the season. It’s true that one week of hot and dry weather doesn’t
kill a crop. But it is enough to scare the market. Rains last week eventually washed away
those fears, leaving punters scrambling. 
    For traders, weather scares are profitable only if they are the first to jump on them. That’s
why they watch 24/7 weather channels and buy satellite data. Even hedge funds, banks and
ETFs want a slice of the action. They can rapidly go from bearish to neutral and potentially
bullish. Speculators are building up net long positions in wheat or bets on prices rising for the
first time this year. 
    The trickiest part is how not to lose sight of the big picture. If traders focus too much on
weather or crop conditions instead of overall projected supply, they can lose heavily. Wheat
losses doesn’t automatically mean a global shortage. Moreover, there is hardly a place on
earth where a commodity shipment can’t reach at a price if there are buyers. So traders have
to balance losses in one growing area with gains in another. The real game is how to get these
numbers right and who gets these numbers right first. 
    Truth is the global agri-commodity market is now largely about weather. In almost all
crops, acreage and yields have maxed out. Demand is also well anticipated and priced in. The
only factor that can suddenly alter the equation is weather. Insurance companies say as much
as 80% of the fluctuation in farm production is due to variability in weather. Weather is a
matter of chance. And chance is what casinos are all about. 

Disasters sow seeds of success

To err is human because risk-averse refusal to stop tinkering with the world as it is
alien to human nature. The point is to learn from every mistake, not stop making them,
says Swaminathan S Anklesaria Aiyar

    GREAT disasters occur constantly. The Asian financial crisis blasted the miracle
economies of Asia. The Great Recession of 2007-09 led to the bankruptcy/rescue of the
five top investment banks on Wall Street, the biggest bank (Citibank), the biggest
insurance company (AIG), the biggest auto manufacturer (General Motors) and the
biggest mortgage underwriters (Fannie Mae and Freddie Mac). The BP disaster in the
Caribbean is the greatest environmental disaster in history. Some people fear that
global warming will be the biggest manmade disaster of all. 
    Many NGOs and politicians want to retreat from cutting-edge technologies
(deepwater exploration, climate geoengineering) to avoid all risks. Others want to end
or avoid innovation in economic and financial issues, retreating into state-regulated
cocoons. Alas, these remedies will be worse than the evils they seek to remedy. The right
approach is to learn from disasters and combine innovation with greater safety. The
wrong approach is to retreat from innovation. 
    Many Americans want to stop offshore oil exploration, saying the BP disaster shows
that potential costs exceed the benefits. This argument is bogus. If true, all offshore oil
exploration across the world should be banned, since environmental disaster can strike
anywhere. Such a ban will quadruple oil and gas prices and send the world into a Great
Depression. That will be infinitely costlier than the BP disaster. 
    After the Great Recession, some point to the state-controlled banking systems of
India and China as safer. Yet, India merely proves that if a financial system is bound
hand-and-foot, it will not have enough rope to hang itself. Ratios of bank credit to GDP
of 200% in some countries may have been too high, but India’s 50% is clearly too low,
and has starved citizens of badly-needed credit. 
    Over-controlled India escaped the Asian financial crisis. But its Asian neighbours,
though badly hit, had 5 to 20 times India’s per-capita income. For Indians, with a per-
capita income of $350, to gloat over the troubles of Thailand, with a per-capita income
of $3,000, was a case of sour grapes. 
    Indeed, India’s economic success in the last decade was aided crucially by financial
liberalisation. The lesson India learned from the crisis was to calibrate financial
liberalisation, not abandon it. The global system is also learning from the Great
Recession. Right now, the proposed changes look insufficient. But certainly, risk
awareness has improved greatly. 
    Disasters will still occur. No innovation or new exploration is ever risk-free. But just
as shipwrecks did not stop exploration of the seas, so too economic and technological
disasters should not stop economic and technological innovation. 
    Henry Petroski of Duke University has written a book, Success through failure: The
paradox of design. Its key lesson is that failures teach us more than successes. Failures
lead to radical design changes that are needed but are ignored in times of unbroken
success. 
    One example is the 1940 collapse of the Tacoma Bridge in the US. For decades,
engineers had built ever-longer suspension bridges, and this lulled them into
overconfidence. The Tacoma disaster showed that suspension bridges were vulnerable
to high winds if their stiffness and girth were not specifically engineered for safety.
Subsequent suspension bridges, often longer than the Tacoma one, were made stiffer,
and sometimes had a second deck to combat high winds even if traffic did not justify it.
Failure at Tacoma bred success in ever-longer bridges, not a retreat into smaller
bridges. 
    AIRSHIPS in the 1930s used hydrogen to keep aloft. Then the Hindenburg, the
world’s biggest airship, caught fire and airship production ground to a halt. However,
this soon led to airships being filled with safe, inert helium instead of inflammable
hydrogen. 
    The sinking of the Titanic, the meltdown of the Chernobyl nuclear reactor and the
collapse of the World Trade Center in 2001 all forced engineers to come up with new
designs to combat risks earlier thought to be negligible. The Exxon Valdez tanker was
rock-wrecked by a drunken captain in 1989, and leaked enormous quantities of oil into
the sea. This spurred a global shift from single-hulled tankers to double-hulled tankers
that can withstand a crash. The Exxon Valdez disaster spurred Exxon to develop one of
the best safety records in the industry. 
    The BP disaster will lead to vastly-improved equipment to thwart future deep-sea
disasters. Already four top oil exploration companies have decided to pool their safety
and rescue resources in the Caribbean.
    This lesson should also apply to geoengineering to combat global warming. Pilot
projects have begun to pour iron ore into the sea to increase its carbon-absorption
capacity. Simply spraying seawater into the sky could create clouds that reflect back
sunlight and combat warming. The same effect might also be achieved by shooting
aerosols and sulphates into space to reflect back sunlight. 
    Many green outfits oppose such geoengineering because of the risk of calamitous side-
effects. Dumping iron ore in the sea, for instance, could increase sea acidity and bleach
corals. Yet, iron ore is one of the common minerals in the earth’s crust, and must be
abundant in seabeds already. 
    We should start with pilot projects to educate us on possible benefits and risks, and
scale up after adjusting for risks. Geo-engineering could be a far cheaper way of
providing insurance against global warming than carbon reduction. 
    Many greens believe that humans should not tinker with nature, and will be penalised
for it. In fact, humans evolved from the hunter-gatherer stage only because exploration
and innovation is hardwired into their DNA. 
    Poet T S Eliot wrote, “We shall not cease from exploration. And the end of all our
exploring will be to return to where we started, and know the place for the first time.”
Greens who fear exploration know very little of the nature they claim to protect, and
think that ignorance is bliss. Regardless, we humans must and will explore every facet
of nature. Then alone will we know the place for the first time. How to control inflation

As demand for food shoots up, only a sustainable farm policy that involves higher
research allocation, lower wastage and an alternative to the public distribution will help
contain inflation, says Rajan Bharti Mittal

    LET me start by welcoming the Reserve Bank of India’s (RBI) move to have a mid-quarter
review of monetary policy from now. In a fast-changing and quite unpredictable
macroeconomic environment, there is a need for continuous assessment and policy action. By
reviewing the monetary policy every six weeks, RBI can provide a more realistic and faster
response to developments. This will also take the surprise element out of the off-cycle
actions, as noted by RBI. 
    Coming now to inflation, if we look at the headline index, we see that inflation has been at
double-digit levels since February 2010. Latest figures show that in June 2010, headline
inflation stood at 10.6%. Disaggregated numbers further show that while inflation in primary
articles has remained at elevated levels for an extended period, with inflation crossing the
15% mark in recent months, the price rise phenomenon is now spreading to other segments as
well. 
    Data shows that non-food manufacturing inflation has seen a rapid build-up, rising from
near zero in November 2009 to 7.3% in June 2010. This increase in prices of manufactured
goods can be explained by three factors. First is the incessant increase in prices of raw
materials and industrial inputs. 
    Second is the upward revision in wages and salaries, with several companies renegotiating
their compensation contracts to match the higher cost of living. Third and most important is
the recovery in economic situation with demand holding at strong levels in the economy. This
has led to an improvement in capacity utilisation levels with some segments of industry now
facing constraints to meet the rising demand. 
    The central bank is understandably worried about this increasingly generalised nature of
inflation. It has made its concern public and to clamp down inflation, it has introduced a
series of quick and successive policy rate hikes. 
    On July 2, 2010, we saw the repo and reverse repo rates being hiked by 25 bps. On July 27,
2010, RBI repeated the act, but this time, the reverse repo was hiked by 50 bps against 25 bps
that was the consensus view amongst economists who participated in Ficci’s latest Economic
Outlook Survey. 
    With the central bank making it clear that the balance of policy stance has to shift
‘decisively’ to ‘containing inflation’ and ‘anchoring inflationary expectations’, we can pre-
judge the direction in which monetary policy will move in the days ahead. 
    The question now is whether these moves will help in cooling down prices and bringing
inflation back to the more acceptable 5% level. In our view, the answer is both yes and no.
Let me explain. 
    The tightening of monetary policy by RBI will be followed by an increase in lending rates
by banks for all kinds of borrowers. Once this happens, you will see some impact on
industrial growth. The logic is simple: a rise in interest rate will compress both consumption
and investment demand and this, in turn, will impinge on industrial activity. As a follow up,
you will see some relief from capacity constraints and manufacturing inflation will moderate. 
    This is what RBI is aiming at, and our experience shows that industrial growth will trend
down and manufacturing inflation will get controlled as expected. However, what happens to
manufacturing inflation alone does not determine the overall inflation situation in the
economy. This is because we also have a more volatile component of primary articles
inflation. And this does not respond to monetary policy manoeuvring. Controlling primary
inflation, particularly food inflation, requires an altogether different approach. 
    TODAY, we are betting on a good monsoon that will give us a favourable kharif output.
And once the new crop comes into the market, food prices should settle down. However, this
is not a solution to food inflation. We cannot keep chasing the monsoon every year to keep
food prices under control. We have to realise that with high growth, rising incomes and
aggressive development work being undertaken in rural areas, food demand is increasing
rapidly. And the only way to maintain price line here is to have a sustainable policy for the
farm sector. We have to increase productivity, match demand with supply and ensure that
higher output gets distributed throughout the country. 
    Improving the state of farm economy calls for some serious action. 
    In case of pulses, which is the main source of protein for a large proportion of our
population, we need a quantum jump in yields through intensive R&D. Additionally,
government must put in place a robust procurement mechanism for lifting the pulses output.
Today, we rely only on Nafed for procurement of pulses, and this has not proved to be an
effective channel to extend benefits of higher MSPs to producers of pulses. 
    In case of fruit and vegetables, we need to minimise the wastage ratio that can be as high
as 40%. Here, government must encourage private sector participation in building the
required storage and transportation infrastructure. The supply chain from farm to the market
needs to be streamlined and government must leverage the capabilities of private sector
including foreign retail players in this mammoth task.
    In case of cereals such as rice and wheat, India has sufficient buffer stocks, but the real
problem lies with distribution. The public distribution system in the country has failed. We
need to develop and alternate mechanism to PDS. Also, when it comes to releasing food grain
stocks in the open market, FCI should extend selling smaller quantities of, say, 100 tonnes, at
multiple locations through electronic platforms. Bulk sales through routine tendering process
slows down the response time to any shortages that may appear from time to time. 
    By deploying monetary policy, we cannot hope to achieve medium- or long-term price
stability. The decisive action to tackle inflation has to be in the form of acceleration of farm
sector growth and ensuring comprehensive and timely distribution of agricultural produce.
Also, focus must go back to economic reforms, which will ease supplyside constraints and
bottlenecks. 

Open the doors to organised retail

Development of organised retail would be good for India, even if it is likely that the
sector would belie effervescent hopes of significant efficiencies in the sourcing of fruit
and vegetables, says Sumant Sinha

    THE story of Indian retail is a complicated one. To put things in perspective, about 40% of
the country’s total GDP of $1 trillion comes from retail sales to Indian consumers. The local,
one-off corner stores account for more than 94% of this total retail sales of around $400
billion. So-called organised retail that can be defined as a chain of anything more than 3-4
stores backed by an Indian entrepreneur or promoter, accounts for only 6% of total retail
sales. This category includes names such as Reliance Retail, Spencer’s, Pantaloon, Aditya
Birla Retail, Bharti, etc. 
    It would help to put some facts in perspective. Store sales and store profitability are an
outcome of a number of factors. First, how the supply chain is configured, how efficient it is,
how does the fruit-and-vegetable (F&V) supply-chain work, what is the dump, what is the
negotiating power of the store, etc. Second, how well the store understands consumer
preferences and needs, how good its merchandising skills are, how well its people are trained,
and the ability to provide credit and convenience. And third, what is the store’s location, the
cost of its real estate and its overall positioning. 
    An interesting fact about retail globally is that it is not a business that travels well. There
are very few truly global retail chains. Wal-Mart has been successful in several countries, but
equally it has done poorly in others. Carrefour and Tesco are the only other companies that
have a strong market share in more than one country. In addition, the small-format store, or
the convenience store, is almost always local in nature. So, even for Tesco, Wal-Mart and
Carrefour, the format that they have used across borders has been the large-format, or
hypermarket, store. 
    As regards the F&V supply chain, much is made of how organised retail can contribute.
However, this part of the business is hardest to manage and run profitably, and no Indian
retailer has been successful so far. Most chains keep F&V to generate footfalls, but it’s
mostly a loss leader. The supply chain for the rest of the merchandise is easier to manage and
is already reasonably efficient in the Indian context courtesy the distribution prowess of the
large FMCG companies. 
    With this perspective, let’s examine the government’s intention and analyse what makes
sense and what does not. Are the fears of the small retailers justified and what is the likely
evolution of Indian organised retailing with Indian groups as well as foreign participants?
The Dipp draft report states that FDI could be helpful in improving the backend, generate
efficiencies in the supply chain that could help reduce inflation, provide employment and
generally help reduce costs that will ultimately benefit the Indian consumer. These are all
noble objectives and one can’t really object to any of them. But let’s take them one by one. 
    Will the backend improve: My view is that the normal supply chain will definitely improve
as the large retailers will be able to bring their advanced expertise to bear. More importantly,
the likes of Wal-Mart, Tesco and Carrefour will be able to bring a global scale in their
negotiations with the MNCs such as Unilever, Nestlé, Reckitt, P&G, Pepsi, Coke, etc. They
will be able to pass on these reduced prices to their customers and, India being a price-
sensitive market, this will certainly help them pick up sales. On the other hand, I do not quite
believe that these companies will be able to bring skills to bear on the F&V side — this is an
area fraught with inefficient intermediaries such as the arthiyas and mandis, and while you
can set up a direct distribution linkage with farmers, managing it successfully on an end-to-
end basis is not an easy task — something that even the likes of Reliance and Pantaloon have
also not been able to manage so far. 
    Will the customer experience improve:Sure it will. Those customers who go to the large
retail outlets will get better pricing and a better shopping experience, but whether it beats the
convenience of kirana down the street for day-to-day shopping is highly debatable. 
    SO, WHEREVER organised retail is available, there will be some shifting of shopping
baskets such that the monthly shopping might move to the larger hypermarket, but the
convenience and day-today vegetable shopping will continue from neighbourhood stores. 
    Will FDI in retail generate new employment: 
Of course it will. As the Indian GDP grows, so will the need for new retail formats,
experiences and outlets. New stores, whether kirana, organised retail or FDI, will
automatically lead to new employment generation — it really depends on how much of the
incremental spend each of these three categories captures. It is a fallacious argument that
employment generation will go up only because FDI retailers are entering the system — as
penetration of any form of retail goes up in India, it will inevitably lead to new employment
generation. Yes, one can argue that the speed of this penetration will increase through more
competition and, therefore, employment generation will get hastened. 
    Will the kiranas be hit:Those kiranastores next to a new store would, of course, be hit. But
that would be the case whether the new store would have been an FDI store, an organised
retailer’s store or even a new kirana. In general, however, I think that the value proposition of
a kiranais so well-defined that it would be difficult to completely replace them: the
convenience of location, credit, home delivery, years of established relationship, cheaper real
estate, deep understanding of their communities and incrediblytightly merchandised stores
will be impossible to replicate by a new player even in the long run. Having said that, new
competition would be good for consumers and bad for the existing players. And it can be
nobody’s argument not to allow new competition. 
    The only question is whether we should allow new competition in the form of foreign
players who can sustain years of losses. My view is: let them try. I don’t believe that Indian
retail is an easy business and kiranas will also not simply roll over. They will band up,
improve their sourcing ability, improve their already-robust product offering and compete
fiercely. All this will be healthy in the long run for the Indian economy and the Indian
consumer, and I believe that all the new entrants in the market, whether foreign or local, will
take from the growth in the pie, rather than from the existing market. 
    So, all in all, competition will get tougher, but I don’t think the kiranas need to fear the
new players. They will weather the FDI storm just as they have successfully weathered the
entry of the domestic organised retailers. And consumers will certainly benefit, even if the
elusive F&V supply chain is not much improved, notwithstanding the government’s
expectations in this regard. 
    (The author runs SaVant Advisors, 

GU EST COLU M N

Affordable green energy

BJØRN LOMBORG 

    PUBLIC scepticism about global warming may be growing, but the scientific consensus is
as solid as ever: man-made climate change is real, and we ignore it at our peril. But if that
issue is settled (and it should be), there is an equally-large and important question that
remains: what should we do about it? 
    One prescription that is bandied about with increasing frequency certainly sounds sensible:
the world should drastically cut the amount of greenhouse gases that it pumps into the
atmosphere each day. Specifically, we are told, the goal should be a 50% reduction in global
carbon-dioxide emissions by the middle of the century. Even its backers concede that
achieving this target won’t be easy — and they are right. In fact, they are so right that they
are wrong. Allow me to explain. 
    Our dependency on carbon-emitting fuels is more than enormous. It is overwhelming. For
all the talk about solar, wind and other hyped green-energy sources, they make up only 0.6%
of global energy consumption. Renewable energy overwhelmingly comes from often-
unsustainable burning of wood and biomass by people in the Third World. 
    Fossil fuels account for more than four-fifths of the world’s energy diet. So, in order to cut
global carbon emissions in half by the middle of the century, we would obviously have to
start getting a lot more of our energy from sources that don’t emit carbon. 
    Can we do this? According to the International Energy Agency, here’s what it would take
to achieve the goal of cutting emissions by 50% between now and mid-century: 30 new
nuclear plants, 17,000 windmills, 400 biomass power plants, two hydroelectric facilities the
size of China’s massive Three Gorges Dam, and 42 coal and gas power plants with yet-to-
bedeveloped carbon-capture technology. 
    Now consider this: this list does not describe what we would have to build between now
and 2050, but what we would have to build each and every year until then! 
    One more thing: even if we managed to do all this (which we obviously cannot), the
impact on global temperatures would be hardly noticeable by 2050. According to the
bestknown climate-economic model, this vast undertaking would likely wind up reducing
global temperatures by just one-tenth of 1° C (onefifth of 1° F), while holding back sea-level
rises by only 1 cm (less than half an inch). 
    That’s not a lot of bang for the buck. Indeed, the projected costs of this approach — some
$5 trillion annually by mid-century — are so much greater than its likely benefits that it
makes no sense to call it a solution at all. 
    Fortunately, there is a better, smarter way to deal with global warming. What if, instead of
spending trillions of dollars trying to build an impossible number of power plants — or, more
likely, condemning billions of people around the world to continued poverty by trying to
make carbon-emitting fuels too expensive to use — we devoted ourselves to making green
energy cheaper? 
    Right now, solar panels are so expensive — about 10 times more than fossil fuels in terms
of cost per unit of energy output — that only wellheeled, well-meaning (and, usually, well-
subsidised) Westerners can afford to install them. 
    But think where we’d be if we could improve the efficiency of solar cells by a factor of 10
— in other words, if we could make them cheaper than fossil fuels. We wouldn’t have to
force (or subsidise) anyone to stop burning coal and oil. Everyone, including the Chinese and
the Indians, would shift to the cheaper and cleaner alternatives — and global emission targets
would automatically be met. 
    Can we achieve this technological miracle over the next 20-40 years? In a word, yes. The
price of solar energy has been dropping steadily for 30 years — by about 50% every decade
— and we could likely accelerate that decline further with sufficiently large investments in
research and development. How large? If we were willing to devote just 0.2% of global GDP
(roughly $100 billion a year) to green-energy R&D, I believe that we could bring about
gamechanging breakthroughs not just for solar power, but also for a wide variety of other
alternative-energy technologies. 
    This belief in the potential of technological progress strikes some climate activists as naïve
or even delusional. But is it really? Consider one of the miracles of the modern age: the
personal computer. These devices didn’t become household items because governments
subsidised purchases or forced up the price of typewriters and slide rules. 
    No, what happened is that, largely as a result of the space race, the US government poured
lots of money into R&D for solid-state physics and electronics engineering. The resulting
breakthroughs not only got Neil Armstrong to the moon in 1969, but also made it possible for
Apple to introduce the first Mac in 1976 and IBM to debut the first PC five years later. 
    We can do the same for clean energy. Forget about subsidising inefficient technologies or
making fossil fuels too expensive to use. Instead, let’s fund the basic research that will make
green energy too cheap and easy to resist. 

Education sector shows indirect problem-solving

The consumer demand for quality education is huge, but it is highly regulated and
undergoverned. Enter Indian edupreneur.

    OBLIQUE and indirect ways of solving complex problems abound in economic planning,
infrastructure, public health and education. Direct solutions do not always work. Oblique
solutions often turn out to be remarkably effective. Our brain is wired to seek direct solutions,
so such tangential solutions should not be pooh-poohed. But the tangent needs to be clearly
articulated. 
    Yale University’s Charles Lindblom is one of the early advocates of incrementalism when
he considered the role of ‘baby-steps’ or ‘muddling through’ in decision-making. Under most
circumstances, policy change is evolutionary rather than revolutionary. Lindblom arrived at
this view through his study of welfare policies and trade unions across the industrialised
world. In 1959, Lindblom wrote that there are two kinds of problems: those that are closed,
determinate and with clear-cut objectives, which can be solved through a direct approach.
Then there are those that have higher-level, ambiguous objectives which are best solved
through an indirect approach. 
    Two examples of the former are a game of sudoku and the improvement or expansion of an
ongoing business. Two examples of the latter are a start-up business and the solving of
complex social or political issues. The former can be solved through the direct and rational
single-minded focus, while the latter requires the indirect methods of experimentation and
discovery. 
    John Kay has recently written a delightful book, Obliquity: How our goals are best pursued
indirectly, in which he comments on the tangential achievement of goals and indirect solving
of problems. He quotes Jim Collins and Jerry Poras (1994) about how the most profitable
companies do not sport direct profitorientation. They simply do the right things and end up
being nicely profitable. 
    ICI flourished for decades through renewing its interpretation of one consistent and
tangential theme: responsible application of chemistry. After the Hanson Trust threat in 1991,
the company revised its vision to a direct form, ‘industry leader in creating value for the
customer and shareholder’. Over the next 20 years, ICI declined and vanished. 
    Led by the visionary Bill Allen, Boeing delivered spectacular results through an oblique
approach to profits. Phil Conduit changed the approach 10 years ago by stating that
‘shareholder return is the measure to judge us’. Boeing soon lost the plot. 
    Kay suggests that at both ICI and Boeing, shareholder value was best created when
obliquely sought. He offers the same lesson through the examples of Marks and Spencer,
Saint-Gobain and Merck. 
    Two months ago, Unilever CEO Paul Polman sensibly said that he was focused on serving
consumers, and that returns and profits would follow. Writers and analysts flayed him. In my
view, Polman is right and he confirmed that he would ignore his critics when I queried him. 
    A better everyday example concerns happiness. To quote John Kay, “Oblique approaches
are the best route to happiness… happiness is where you find it, not where you go in search
of it.” His statement verges on the Vedantic and is very compelling! Solving problems
indirectly: Consider how indirect solutions might work through the example of education in
India. The Indian education is broke and requires urgent attention. If India is to reap the
demographic dividend, the burgeoning youth need to be enabled and empowered through
education and employability. Otherwise, they will become unruly and anti-social.
Universally, citizens and policymakers do not regard education as a business that makes
distributable profits. Surpluses can be made but to be ploughed back into infrastructure,
curricula and research. Competent institutions abroad renew themselves and compete for
excellence. Many nations design policies to achieve this and refer to this as not-for-profit
activity. 
    The Indian state has a different take on not-forprofits. It wants to be involved in controlling
the activity to the point of throttling it. However, in the 1980s, a new phenomenon of self-
financed institutions and of shikshan samrat (educational barons) began, if I may quote the
director of IIT-Kanpur. 
    Government has a woolly approach to private participation and surplus. If an institution
hires top faculty and delivers terrific pedagogy, it will generate asurplus. The system then
officially restricts the surplus to a target level. It is basically a 1970s device, carrying all the
woes of price control: corruption, mediocrity, lack of accountability and inefficiency. So, 
entrepreneurs have found a way to get around it. 
    Wherever there is a large and growing market, entrepreneurs will find a way to enter and
prosper. Private equity money of $100 million has already been attracted into the Indian
education market. There are 10 major players running international schools in the country,
many of them in tier 2 and 3 cities. These are outside the purview of policy that restricts
promoters from taking a profit. Apart from these, there are opaquely-funded institutions that
are mushrooming everywhere. The state pretends it does not know of any transgression and
the entrepreneur pretends that his actions are acceptable! 
    The demand for quality education is huge. The Indian education market is gargantuan at
$80 billion per year, about the size of the Indian steel and automobile industries put together.
It is highly regulated and undergoverned. Government spend at 3.7% of GDP is lower than
Malaysia’s and Brazil’s (4.5-6%) but higher than Pakistan’s and Bangladesh’s (2%). There
needs to be more public expenditure and the efficiency and quality needs to improve. At the
kindergarten to class 12 levels, 93% of schools are public but they account for only 60% of
school enrolment. 
    Private expenditure in this market is growing at a sizzling 15% per year, an impressive
number in one sense, but is inadequate in another because India has 20% of the world’s
population but accounts for only 5% of the world’s education spending, that too in PPP
dollars. Although government’s intention is that education should be a non-profit activity,
private sector edupreneurs (educational entrepreneurs) account for as much as two-thirds of
the market. 
    How did the camel get into the tent? 
    Higher education institutions (HEIs) can adopt one of several avatars: trusts, societies or
Section 25 companies. Irrespective of the avatar, they are allowed to make only a small
surplus, which too they must use for the advancement of the HEI. HEIs are heavily and
clumsily regulated by government bodies, which fix both students’ intake, college fees and
have an influence on the teachers’ salaries. 
    To the lay person, it would appear that the selling price is fixed, the volume of production
is fixed, the costs are subject to control, then where is the scope to earn profits? Enter Indian
entrepreneurship: create two-tier models so that the regulations can be adhered to by one
without sacrificing profits, which are made in the other tier. 
    These players have come out with creative strategies and innovative structures to deliver
value education, make money and grow in this highly-regulated space. In the jargon of
finance, these private players have disintermediated the market. In the process, many of them
feel passionately that they are contributing to nation-building by making several Indian youth
employable, while generating enough profits to sustain and scale up the spiral of growth. 
    The lesson here is that you cannot fetter an idea whose time has come. It is part of the
middle-class Indian ethos to spend on education till it hurts. If the state cannot do it, someone
else will. One can gloss over all this as a desirable private-public partnership. 
    That government has inadequate funds for education is a source of long-standing
discontent. In that case, a planned and calibrated liberalisation in education should have
begun long ago. Government should not set so many controls and hurdles. The nation can
definitely adjust to indirect solutions to education issues but with a clear statement of the
tangent. It is high time that fuzzy ideas and back-door entry are replaced by active and
pragmatic policy. 

P E R S P E CT I V E S

Prosperity and urbanisation

    ARECENT morning, the breakfasts of many erudite Indians was ruined by newspaper
headlines, which announced that eight Indian states, including Uttar Pradesh, Bihar and West
Bengal, have more poor people than 26 of the poorest African nations. They now await the
publication of the 20th anniversary edition of the UNDP Human Development Report, which,
for the first time, saw the use of the Multidimensional Poverty Index (MPI), developed by the
Oxford Poverty and Human Development Initiative with UNDP support, replacing the
Human Development Index (HDI) for the first time as the assessor of a range of critical
factors, or ‘deprivations’ at the household level: from education to health to assets to services.
Why should this fact surprise anybody? Since its inception, National Council of Applied
Economic Research (NCAER) has been providing authoritative data and analyses on
household demand, which everybody recognises as a key pillar of any economy. The
incongruities in consumption and savings patterns between states were coming up in
successive reports, notable among the latest is How India earns, spends and saves:
Unmasking the real India. 
    It is clear that many states are caught in a vicious circle. On the other hand, we see the
richer states in a virtuous circle: success, as they say, breeds success. The disproportionate
rate of urbanisation has a lot to do with some states’ relative development. This is particularly
true of the richer states that have spawned more larger towns that offer their citizens better
income-earning opportunities. 
    While the low-income states do not have even a single town with a population of over 50
lakh, the middleincome states have 51% of their households living in the largest towns and
the high-income states have about 49% of their residents living in such large cities. Low-
income states, on the other hand, have more towns in the smallest-town category (below 0.5
lakh population) and nearly 42% of the population of these states lives in these towns. 
    The households of high-income states have the highest income, both across state-of-
residence groups and the town size-classes, the income being 47% more than a small-town
household’s income. It is interesting to note that the households in middle-income states
havealsoregisteredthesamerateofgrowthinlargestcities and the disparity in income between
rich and lessrich states persists even in largest cities. Similar trends are observed in
expenditure patterns as well, with the households in the smallest towns of the high-income
states spending somewhat more than their counterparts in the low-income states. Surplus
income or savings pattern reveals that households in the smallest 
townsofhigh-incomestatessavethreetimesmorethan households in the same category in low-
income states. 
    At the other end of the scale too, a similar trend is observed: households in towns of
population size 10-50 lakh in the high-income states save almost twice the amount that their
counterparts do in the low-income states. In terms of expenditure, the households in towns
belonging to low-income states spend slightly more than their counterparts living in high-
income states. What seems to be happening is that share of expenditure to income is much
higher across all town classes for low-income states as compared to those living in similar
town sizes in high-income states. Conversely, the share of savings to income is higher for the
households across all town sizes in the high-income states when compared to households in
similar town classes in the low-income states. 
    We have seen that the disparities in income and savings due to education, and sector of
employment narrow down in largest cities. This is not happening in respect of state
differences because the largest cities in richer states will have more opportunities than in
comparatively less-advanced states. The consequence is obvious: the households in higher-
income states have been able to save a much higher share of their income (41.2%) than in
middle-income states (29.5%) — the disparity has only widened rather than narrowing down.
In middle-income states, the surplus income of a largest-
cityhouseholdis1.85timesthatofasmall-town household, while in high-income states, the
increase is 1.76 times. This shows a largest-city household in middle-income states has not
received much additional advantage over its counterpart in high-income states. In middle-
income states, a largest-city household spends a higher percentage of its household income
(70.5%) than in high-income states (58.8%), both the fractions being the least in their
respective groups. 
    Poverty,accordingtoLouis-MarieAsselininAnalysis of multidimensional poverty: Theory
and case studies, is a ‘paradoxical state’, and the analysis of poverty is multidisciplinary. It
goes from ethics to economics, from political science to human biology, whose measurement
rests on mathematics. So, it would be consistent with our research discipline to unbundle the
rich information coming from the Indian field through NCAER surveys into government
programmes over the past two decades.Forinstance,theNCAER’sIndiaProtectionIndex is
developed by integrating all the important dimensions of well-being and it clearly brought out
the West-East divide starkly. It was found that Maharashtra had the highest percentage (16%)
of well-protected households followed by Karnataka and Kerala, with 10% each. Uttar
Pradesh and Bihar made up the rear. 
    Urbanisation should be the be-all and end-all of development. Preparing for changes in
urban demand would be a key challenge for both policymakers and corporate strategists.
Given where it’s headed with respect to urbanisation, India simply cannot afford urban
development to languish. On the policy front, we need to place urban development —
particularly infrastructure — squarely alongside rural priorities, recognising in part that the
two are interdependent. 

Protecting Future: Keeping girls in school

WITHIN the next decade, one billion young people – the majority living in developing
countries – will enter the global labour market and form the next generation of parents. The
world faces the tremendous challenge of providing economic opportunities and sustainable
work for this gigantic cohort of young people. Among them are an estimated 500 million
adolescent girls and young women living in developing countries – that is, one person in
every eight of the populations. 
    As they grow up, girls, adolescents and young women play an important economic role in
the households, communities and labour markets of their countries, but most still do not
enjoy the same economic and social opportunities as boys and young men. This is all the
more relevant to India, where the average wages of adolescent girls could increase by 10 to
20% with an extra year of quality education. Consequently, if the ratio of female to male
workers were increased by only 10% per capita, the total output of our country would
increase by a remarkable 8%. 
    However, the unfortunate reality remains that only 76 girls in India get a chance to educate
themselves for every 100 adolescent boys, and more than 55% of out-of-school population is
constituted by adolescent girls. This worsens to 85 for 100 boys when girls move to
secondary school. There are multiple reasons for low female literacy, particularly at the
secondary level: poverty, pressure to marry early, lack of basic amenities in schools like
toilets and the onset of puberty with a complete lack of knowledge or accessibility to quality
sanitary protection when they enter secondary school. 
    The specific aspect of providing affordable sanitary napkins is pivotal in allowing girls not
to lag behind other students on account of menstruation. A study led by Linda Scott of
Oxford University mentions that post pubescent girls were missing school as many as 5 days
each month due to inadequate menstrual care which means two months in an academic year!
Naturally, this gives in to a vicious cycle of girls lagging behind boys, leading to poor
motivation and confidence, leading to eventual dropouts. Such absenteeism and dropouts
breed gender inequality, iniquity in opportunities, marginalization of women and forced
domestication and even early marriages, thus resulting in starting the cycle all over again. 
    Socially-responsible organisations across the world have spent decades working with
doctors, educators, experts and adolescent girls to understand these issues and try to connect
the dots. It has emerged as absolutely evident that lack of access to good quality sanitary
protection is an issue that has far reaching implications on the health, happiness and
productivity of women, especially in developing countries like India where the country’s
development is so closely linked to the empowerment and well being of women. 
    And yet, of the 266 million menstruating women population in India, only 12% have ever
used a sanitary napkin. This, when contrasted with even developing countries like Thailand
(60%), China (55%) and Philippines (32%) is abysmal. In fact, in India, not only do women
not have access to quality sanitary protection, they often have to resort to options such as
cloth, husk, sand and even ash, which cause severe reproductive health issues amongst
women. Research shows a two times higher prevalence of RTI (Reproductive Tract infection)
and 20% maternal mortality rate can be attributed to unhygienic sanitary protection, and that
regular use of menstrual pads may reduce the risk of these threats. 
    The government has begun to recognise these challenges and has made initial strides in
this direction. For instance, P&G has partnered with the National Rural Health Mission in
Rajasthan to distribute low-cost sanitary napkins to rural girls and the Central Health
Ministry has announced recently its intent to make similar strides at a national level.
However, it is obvious that a lot more needs to be done. We need to make a concerted effort
to help women embrace womanhood positively: manufacturers need to provide superior
 quality products that provide a transformative experience from current alternatives like
unhygienic cloth, the government needs to improve access of sanitary napkins by putting in
place preferential fiscal & taxation policies especially in the upcoming GST regime for
sanitary napkins, non governmental organizations need to work at the grassroots to address
cultural issues, and health practitioners need to provide the right counsel. 
    Only when all of these efforts come together, each reinforcing the other, can we truly
protect the future of our girls, and indeed, of our country.

Reform CEO pay

Political Reform, More Shareholder Say

    AS SALARIES of corporate honchos rise faster than the profits of the companies they run,
shareholders and policymakers fret, around the world. But there is no real cause for alarm in
India. At one level, to the extent those who run companies choose to compensate themselves in
the open, in a manner in which they pay taxes on their incomes, it is a big improvement on the
bad old days when the government used to place stringent limits on executive pay and corporate
managements used to routinely take money off the books of companies. Even today, the
absence of institutional funding of politics is the single biggest obstacle to corporate governance
reform in India, with all major companies having to generate funds off their books to pay off
politicians and parties. It is not fashionable to acknowledge this embarrassing detail, namely
that the great Indian democracy that we are all so proud of runs on money skimmed off the
books of companies. Industry and the political class must put their heads together to lift this
constraint on India’s growth. In the meantime, it is possible to improve the functioning of
shareholder democracy, the market for corporate control and the market for managerial talent
for corporate pay to strike the right balance between destructive greed and appropriate reward.
In the US, even after reformist legislation to give shareholders some say on executive pay,
shareholder opinion remains non-binding on the board on the subject. In India, top management
pay has to be approved by the general meeting of shareholders. However, the functioning of
shareholder democracy remains stunted in India. Shareholder democracy works, ultimately, in
tandem with the market for corporate control — shareholders should have viable options to vote
with their feet when confronted with rapacious promoter directors. 
    Rather than tinker with compensation committees, it might make sense to stipulate that only
non-promoter shareholders would vote on top management pay. That would allow institutional
shareholders to exercise meaningful judgment on the subject. Mandatory disclosure on the ratio
of CEO pay to the median pay of all employees, too, should help.

Volatile input prices a challenge

RITIKA TEWARI 

    INFLATION has grabbed headlines as well as the attention of policymakers in 2010.

Following the financial crisis in 2007-08, commodity prices fell, leading to a decline in input
costs and benefiting corporate sector profit margins. 
    The economic recovery has reversed this trend and India Inc has had to recently endure
increase in commodity prices. Although commodity price volatility is exogenous, appropriate
strategies can help firms mitigate risks arising out of volatility in commodity prices. 
    The impact of the financial crisis on the Indian corporate sector became evident in the first
quarter of 2008-09 when the rate of growth of profits after tax (PAT) plummeted to 3.27%
from the record high growth rate of 37.22% in the corresponding quarter of 2007-08. For the
two subsequent quarters, the crisis deepened and profits showed a heavy decline (see chart). 
    However, since the last quarter of 2008-09, an unexpected upward movement was noticed
in profits of the corporate sector despite the financial crisis. The PAT picked up from –
26.42% in the third quarter of 2008-09 to 18% in the first quarter of 2009-10. In the
subsequent quarters of 2009-10, strong performance was shown by the corporate sector in
terms of growth in PAT and this occurred despite fall in net sales from the last quarter of
2008-09 to the second quarter of 2009-10. 
    An important reason for such strong growth of profits has to do with commodity prices. As
is widely known, the financial crisis softened prices in commodity markets. The commodity
crisis in turn cushioned the impact of the financial crisis as Indian companies improved their
margins from the savings in input costs, mainly raw material prices. 
    The fall in input prices resulted in an impressive growth in profits as PAT recorded a
growth rate of 134% and 161% in second and third quarters of 2009-10. 
    In recent months, commodity prices have, however, rebounded. According to the World
Bank, global energy prices have increased 60%, metal and agricultural prices increased by
62% and 19% respectively in the first quarter of calendar year 2010 compared to the
corresponding period in 2009. 
    The recent increase is notwithstanding the recent crisis in the PIGS countries — Portugal,
Ireland, Greece and Spain — and fear of the collapse of the eurozone. While the European
crisis did affect commodity prices especially the prices of industrial commodities during May
— oil prices fell from a high of $87 per barrel to $68 per barrel and some metal prices
declined more than 20% from their high levels in April — the World Bank predicts that
energy prices will rise by 25%, while non energy and commodity prices will increase around
17% in 2010. 
    In addition to this, there are signs of recovery in the Indian economy — strong growth in
industrial production and revised estimates of GDP — that has revived the capital flows and
increased domestic liquidity. Add to this the fact that India is facing capacity constraints and
we have a recipe for imminent price inflation. 
    Of the many reasons for inflation, volatile commodity prices pose the most serious
challenge for the country’s corporate sector. Upward movement of commodity prices
squeezes earnings in the short term. 
    Some companies try to mitigate the impact by improving efficiency of supply chains, by
substituting the costly material components with lesser expensive varieties, and by cutting
down on general and administrative costs. 
    Those companies with market power succeed in passing on the prices to the consumers. A
small, though unrepresentative cohort hedge in the commodity market using futures or option
contracts to minimise the risks linked to volatility. 
    The most important task for firms in an environment of volatile commodity prices is to
understand commodity market dynamics such as the external and internal environment, the
cost drivers of commodities they purchase and an accurate and realistic assessment of their
market power. 
    A complete understanding will enable the corporates to craft better strategies to mitigate
risks arising out of price volatility. In addition to addressing the underlying risk, such
strategies will result in reduced procurement spending and more importantly increased
shareholder value. Informed strategies therefore dominate the ‘sit, wait and do nothing’
approach adopted by most firms. 
    The year 2010 showing signs of recovery and also commodity price volatility, accordingly,
becomes a litmus test for the corporate sector to display its true strength; it would be
interesting to see whether the India Inc comes out as a shining winner or as a whining player
at the end of this test. 
    (The author is researcher at Icrier)
For growth, focus on remote villages

SONALDE DESAI 

    RURAL INFRASTRUCTURE HAS RECEIVED considerable attention and investment in

recent years through different components of Bharat Nirman Yojna. However, difficulties in
achieving infrastructure targets are also real, particularly when it comes to quality. Practical
strategies for addressing infrastructure woes require greater attention to the differences
between rural areas. 
    All rural areas are not alike and their diversity shapes the core dilemma defining modern
India. Some villages have shared the prosperity of the recent decade while other remain
forgotten and overlooked outposts in a nation in transition. A study titled Human
Development in India: Challenges for a Society in Transition by researchers from National
Council of Applied Economic Research and University of Maryland found tremendous
diversity among villages on a variety of dimensions of wellbeing. 
    Of the 1,454 villages surveyed nationwide, information on existence of the following
services was collected: Pucca road, bus stop, police station, bank, electricity, telephone land
line, mobile access, kirana shop, PDS shop, and bazaar. In developed villages, where at least
six of these eleven facilities were available, human development indicators were substantially
better. While some of these infrastructure facilities are provided by the private sector, most
are government services and one would assume that they are not driven by wealth or poverty
of the village. But two characteristics of villages with poorly developed infrastructure are
noteworthy. 
    One, these are not necessarily far flung villages — only 8% are more than 30 km away
from the nearest town. However, proximity to just any town is not sufficient, it is the district
town, the seat of power that seems to be relevant. Of the villages located within 30 km of the
district headquarters, 57% fall in our categorisation of developed village, compared to barely
42% of those that are 60 km or farther away. 
    Second, these villages are disproportionately located in Chhattisgharh, Jharkhand, Madhya
Pradesh, Orissa and West Bengal, the flashpoints of the Maoist insurgency. In these states,
70% or more of the surveyed villages are classified as being less developed compared to 50%
for India as a whole and 40% or less in southern states. 
    These are the villages where non-agricultural work is scarce, children attend school but fail
to learn to read and where vaccination levels are low. In contrast, better connected villages —
about 50% of the villages studied — appear to be far more integrated in the economy and on
some dimensions of well being, appear to be almost on par with smaller cities. 
    The key difference between lives of residents in these two sets of villages lies in
differential access to non-agricultural work. Agriculture is important in both developed and
less developed villages. In both about half the males rely exclusively on agriculture, but while
34% of the males in developed villages rely exclusively on non-farm employment, only 22%
in less developed villages do so. Both agricultural and non-agricultural incomes in
villages with better infrastructure are also higher. 
    Infrastructure development brings with it nonagricultural work opportunities by providing
jobs as teachers, clerical workers, artisans and shopkeepers within the village; it also
increases the possibility of commuting to nearby towns for work. It increases the likelihood
that the teachers and nurses will live in the village and improves the quality of education and
health care. Ironically, even NGOs are more likely to locate in villages that have better
infrastructure, augmenting the virtuous cycle of rural development. Urban and rural
differences in standards of living have been acknowledged by public policy, diversity in the
rural panorama has received little attention. While we must rejoice that some villages have
grown into prosperous hubs these statistics also offer us incentives to invest in the
infrastructure for the villages that have been left out. 
    Recognition of diversity within the rural sector is particularly important because our
typical instinct is to target poorest districts. This is not a bad strategy for many programmes
such as health schemes where strong regional clustering in disease prevalence has been
observed or for irrigation and forestry programs where spillover effects dominate. However,
it does not serve us well when it comes to infrastructure. Analysis of variance suggests that
30% of the variance in infrastructure lies between states, 18% between districts within a state
and 52% between villages within a district. This suggests a need for a targeted strategy,
consisting of a two-pronged approach starting with states that have lowest level of
infrastructure development and within those focusing on most backward villages, often
villages farthest from the district headquarters. 
    As the nation struggles with the challenges of meeting targets under Bharat Nirman Yojna,
there will be temptations to focus on the low hanging fruit – villages where some
development has already taken place and hence are easy to reach, villages that are close to
centers of power, and peri-urban villages. We must resist this temptation to focus on the
forgotten villages that have been left out of the developmental mainstream until now. 
    Sonalde Desai is a Senior Fellow at the National Council of Applied Economic
Research and Professor of Sociology at 
    the University of Maryland. Views are personal

Pranab justifies shooting prices

Says Fast-Growing Economy Bound To Face Inflationary Pressures

Our Political Bureau NEW DELHI 

    FINANCE minister Pranab Mukherjee on Wednesday justified the current spurt in prices
of essential commodities, asserting that “in a growing economy with high growth-rates,
there’ll be inflationary pressures.”
The Leader of the House, while replying to the day-long debate on pricerise in the Lok
Sabha, added at the same time that that UPA regime had taken care to factor in the concerns
of the common man by providing rights to people with legal entitlements. 
    Mr Mukherjee’s remark was trashed later by Leader of the Opposition Sushma Swaraj.
While winding up the discussion, she heaped scorn on the government’s claim that inflation
was linked to growth-rate. “The government is in a dilemma. It cannot decide whether to act
on inflation or not. The prime minister’s failure is more abject on this count. At various
international fora, he talks about the inflationary trends, but cites it as an indication of
growth. The international community pats his back,’’ she said. 
    The Opposition leader said that the economy was growing only for a certain section of
people. “Millionaires have become billionaires. But the number of poor has also grown
simultaneously, as pointed out by various committees,’’she said while expressing her
disappointment with the finance minister’s response. The House later adopted a resolution
calling upon the government “to take further action to contain the adverse impact of
inflationary pressure on the common man.’’ 
    In his hour-long reply, which was marred by several interruptions, the Leader of the House
listed out the measures taken by the government to contain prices. “We have subsidised the
supply of essential commodities through a revamped PDS to the vulnerable sections. At the
same time, steps are being taken to raise agricultural productivity. The Green Revolution is
being extended to the eastern parts of the country,’’ Mr Mukherjee told the House.

Outsourcing goes rural

Invest In Rural Power, Broadband

    THE most exciting ferment to stir up rural India after Amul cheese has been business
process outsourcing (BPO). Wednesday’s feature in this paper on rural BPOs paints a picture
of a dynamic segment of the fast growing BPO industry, slated to scale up to 1,000 centres
employing 150,000 people, from the 50 centres employing 5,000 people now. What drives
this scorching pace of growth is the self-same combination of enabling technology and cost
arbitrage that created the BPO industry in the first place. After high costs — rents, wages,
attrition — forced BPOs to look at tier-II towns, a few of the more enterprising among them
started setting up centres in rural areas, where all costs are significantly lower. Skills are
available in smaller concentrations at each location, but technology can allow many such
small locations to be coordinated to create virtual large centres, at a fraction of the traditional
cost. Hundreds of thousands of rural youth would find organised sector work, even larger
numbers of indirect jobs would be created. To begin with, simple activities such as data entry,
data and bill processing, and document verification can be entrusted to those who have
completed high school. Labour costs are just about half (Rs 4,000-4,500 per month) of what
would have to be paid for the same job in an urban centre. Freed of some routine tasks that
can be handled by the rural centres, BPO companies can then focus on higher value work,
leveraging the analytical and processing skills of urban employees. 
    Cost advantage is not enough to encourage companies to venture into smaller towns or
semi-rural areas. For the rural BPOs to effectively function as spokes of a hub in an urban
centre, high-speed data connectivity and power supply will be critical. Incentives provided by
state governments too can accelerate the process. Karnataka, for instance, gives 50% rebate
on internet connections and Rs 10,000 per candidate to the entrepreneur who plans to set up a
rural centre. Tamil Nadu may follow suit. More siginificant, however, would be infrastructure
inputs.

Start contingency operations if rainfall is less: Centre to states

Our Bureau NEW DELHI 

    THE Centre has shot off directives to states to prepare contingency operations in the event
of less rainfall even as the Met department claims that the overall rainfall in the country in the
crucial sowing month of July was 101% normal. In a reply to a query in Parliament, MoS for
food KV Thomas said that the Central government has drawn up a detailed contingency plan
to be put into operation in different types of rainfall scenarios and sent it to all state
governments for the ongoing kharif sowing and summer monsoon season. 
    The objective was to ensure that there was sufficient procurement of foodgrains and
distribution of ample grains countrywide at affordable prices in any eventuality so that the
PDS could run smoothly to aid the neediest, he said. Up to now, India’s acreage under kharif
crops has increased by 8.4% to 826 lakh hectares (lakh ha), registering a rise of 55 lakh ha
compared to last year, according to an official statement here. Until last weekend, the area
sown under food grain crops during the kharif 2010 was 466.67 lakh ha compared to a much
lower 426.94 lakh ha during the corresponding period of 2009 and 453.72 lakh ha in the year
2008. 
    According to the latest data received from states, paddy has been sown in 244.83 lakh
hectare as compared to 225.75 lakh ha on this date last year, showing an increase of about 19
lakh ha over the same period. Pulses have been sown in 88.38 lakh ha so far which is 11.83
lakh ha more than this time last season. This represents an increase of 15.5 %. 
    Coarse cereals have been sown in 181.43 lakh ha, about 15.42 lakh ha more as compared
to last year (9.3%). Among the coarse cereals, acreage of bajra has shown the highest
increase as compared to last year (from 64.16 lakh ha to 75.9 lakh ha). 
    However, food minister Sharad Pawar said late July that the loss of foodgrains on account
of floods could be as much as 15% of the total grain output in the granary states of Punjab
and Haryana. 
    Heavy rainfall subsequently also damaged foodgrain lying in open storage with the Centre.
In its August-September rainfall forecast issued on July 30, the IMD showed marked rainfall
deficit in the northeastern region in the June -September period, against 103% (+/-8%)
rainfall projected. Key areas suffering from deficit also included Jharkhand, Bihar and East
Uttar Pradesh.

Milk co-ops need agile bosses

Shyamal Gupta 

    DAIRY cooperatives have a lot to do with India emerging as the world’s leading milk
producer. However, most of the cooperative federations are not professionally managed
today. In fact, many of them outside Gujarat are now run like ‘regular’ parastatals, invariably
headed by career bureaucrats. The alternative does not lie in changing the organisational
design and the operating system which will undermine the role of cooperatives. 
    Success in the dairy industry shall continue to be in the ability to build a robust
procurement network which gives raw material cost advantage along with an assurance of
regular supply. Large MNCs have failed in the dairy sector on this account. ‘Aarth shakti’
(money power) has not got translated into ‘lok shakti’ (people power). Moga (Nestle) and
Etwah (Levers) have remained laboratory cases while Anand(Amul) has got replicated. A
strong backward integration in the form of cattlefeed supply, vaccination availability, breed
improvement programmes and profit-sharing with farmers are some of the things that none of
the private sector companies have been able to replicate and amplify. Farmgate price paid for
milk in India is the highest in the world largely due to a strong cooperative presence. The
failure of integrated dairy experiments like ‘Aarey’ has not deterred a non-milk co-operative
to branch out in the same direction recently. Also JVs and foreign collaboration have become
order of the day. Lately, India is under pressure to open up its market in dairy produce,
especially cheese, from Europe. The EU is keen to get any marketopening abroad in a bid to
compensate for the troubles facing milk farmers at home. A few years ago, there was a
sudden interest in advising India how to manage the dairy sector when it was emerging as the
world’s leading milk producer. No doubt, the advice came from a Netherland-based entity.
The US dairy industry is itching for an access to India and the US government is examining
legal alternatives towards this. 
    In Europe, when the entire milk requirement for production of cheese and value-added
products are satisfied and “profit is maximised”, the remainder is processed into butter and
SMP (skimmed milk Powder), often referred to as “residual production”. This is distinct from
the patterns of production followed in India where priority is given to production and
distribution of liquid milk for masses. In India, SMP is important for curbing excess supply
due to strong seasonal fluctuation of milk and reconstituting the same during milk shortages.
The recent incident of protestors vandalising the tankers of imported milk only demonstrates
the lack of understanding by the political class of machinations of the large milk-producing
nations. It is even more surprising that when a minister promotes private sector dairy in his
constituency instead of a cooperative dairy, these protestors don’t even raise an eyebrow.
Perhaps it is time that India demonstrates that if it can produce 112 MT of milk (09-10)
compared to only 10.40 MT in 1961, it also knows what is the best way to manage a growing
dairy industry. For this, Indians need to move from ‘me’ to ‘we’ mentality. The dairy sector
has assumed critical importance for India as it provides work and income to landless farmers.
The dairy and milk managers are yet to demonstrate the leadership quality, passion and logic
in negotiations, political acumen and stubbornness that ‘the father of white revolution’ Dr
Verghese Kurien had demonstrated. Once confronted about the market share by an arrogant
New Zealand high commissioner, Dr Kurien had fittingly replied, “If all of us Indians decide
to get together and spit on your country, your country will get drowned in our spit.”
Unfortunately, the current breed of milk leaders are more concerned in protecting their own
turf by creation of “services” to ensure that they remain at the helm of affairs. 
(The author is the chief business officer of NCMSL. The views expressed are his own
and not those of his organisation)

Panchayats overhaul soon to smoothen rural schemes

Devesh Kumar NEW DELHI 

    WITH a huge amount of funds riding on various rural development programmes, the
Manmohan Singh government has now turned its sights on reforming and strengthening the
panchayati raj system. And the task is going to start at the level of the gram panchayats,
which are the vehicle for the implementation of most of the rural development projects. 
    The ministry of rural development and panchayati raj institutions is presently in the midst
of preparing the blueprint for overhauling the lowest tier of the rural administration hierarchy.
With decentralisation and capacity-building serving as the broad parameters, the ministry is
working on developing and augmenting three critical aspects — human resources,
infrastructure and connectivity. “The idea is to build minisecretariats in all the two-and-a-half
lakh gram panchayats across the country, which would serve as the nodal point for the
execution and monitoring of all the rural development programmes,’’ a senior official said. 
    “Strengthening the gram panchayats is the primary task,’’ the official added. And the
starting point for such an endeavour, it was realised, had to be the creation of proper
infrastructure. “At present, only 60,000 gram panchayats have proper buildings. The
remaining have to make do with make-shift structures,’’ the official pointed out. Providing
connectivity to these buildings and developing the man-power to run them presents the next
big task. “All the gram panchayats will have to be ICT-enabled. Under the existing
panchayati raj laws, gram panchayats can spend 6% of the permissible administrative
expenses on connectivity. But they’re allowed to breach this ceiling for buying
computers, getting them installed, and training the personnel to operate and manage them. 
    The ministry is simultaneously working on ways to strengthen the personnel content of the
gram panchayats. “It did not only entail recruiting engineers, accountants and other categories
of people, but also aim at professionalising the management’’ the official said. It was felt that
each gram panchayat would need to avail of services of engineers, to measure the work done
under the various programmes, point out shortcomings, if any, and suggest improvements.
Similarly, accountants would be needed to audit the programmes, maintain the records and
keep an eye on the flow of funds. The task of monitoring the execution of the schemes would,
in a sense, be gradually passed on to the gram panchayat-level itself. 
    “Development of capacities to plan and use the funds being distributed under the various
rural development projects at the panchayat level —that is the main task before us,’’ the
official said. The panchayats, it was argued, are now getting huge amount of funds each year.
Finance minister Pranab Mukherjee had, while presenting the General Budget for 2010-11,
set aside 40,100 crores for the implementation of the MGNREGA. “Since the UPA
government’s flagship rural development programme, as also other projects such as the Indira
Awaas Yojana and the Pradhan Mantri Gram Sadak Yojana, were being executed by the
gram panchayats, it was felt the strengthening the administration at the lowest-level of the
hierarchy would have to be the primary effort,’’ the official reasoned. Rural development
minister CP Joshi, who also holds the panchayati raj portfolio, has, in the past few weeks,
spelt out his vision, and efforts are on to give it a proper shape.

Wheat,corn stockpiles dip on Russia drought

Grains May Turn Costly On Tight Supply; Cascading Effect Seen On Other Foods

Bloomberg CHICAGO 

    THE world’s appetite for meat, flour and ethanol is expanding faster than the supply of the
crops needed to produce them, eroding inventories and increasing the chance of accelerating
food prices. 
    Wheat stockpiles may slip to a two-year low as demand rises and a drought damages
Russia’s crop, according to 17 analysts in a Bloomberg survey. Inventories of corn, used to
feed livestock and make fuel, probably will drop to the lowest level since 2008, even as
output tops a record, the survey shows. 
    Russia’s worst dry spell in 50 years sent Chicago wheat futures to a 23-month high on
August 6. Corn prices are up 24% in the past year, as ethanol mills use 35% of the grain
produced in the US, the world’s largest exporter, and rising global incomes lead to more beef
and pork consumption. “The world doesn’t have enough exportable supplies to meet
demand,” for wheat and feed grains, said John Macintosh, 61, a vice president at Rand
Financial Services in Chicago who has been trading agricultural commodities since he was
with Continental Grain in 1973. 
    Russia, the world’s third-largest wheat exporter, plans to ban shipments starting August 15
after concluding that its grain harvest may plunge 38% this year to 60 million metric tons.
Dmitry Rylko, a director at the Moscowbased Institute for Agricultural Market Studies, said
the estimate may be cut further because of the worsening drought. Ukraine, the world’s
biggest barley exporter, may impose export quotas on 5 million tonnes of wheat and barley,
effective September 15, Volodymyr Klymenko, the head of the country’s grain association,
said on Thursday. 
    While wheat prices dropped 11% in the past four sessions to $7.25 a bushel on the Chicago
Board of Trade, they’re still up 58 percent since the end of May. The December contract on
Thursday was 1.6% higher at $7.3675 a bushel at 12:52 pm London time. In 2008, record
crop prices led to food riots and export bans from Haiti to Egypt. World food prices rose for
the first time in three months in July on higher costs for cereals and sugar, the UN Food and
Agriculture Organisation said on July 29. The USDA said July 23 meat prices will rise faster
than expected this year at 2-3%. 
    Premier Foods, the St Albans, Englandbased maker of the Hovis brand, said August 5 that
higher wheat costs mean an “inevitable increase” in bread prices. Another food crisis is
possible if wheat drives the prices higher for other staples, according to Franciscus Welirang,
chairman of the Flour Mills Association in Indonesia, the nation’s largest buyer of the grain.
“There will be a domino reaction, and we expect corn demand will rise, pushing prices
higher, and feed industries will buy more corn and soybeans,” Welirang said on August 6.
“It’s the end of cheap wheat.” 
    The wheat rally will need to last longer to boost costs for consumers, according to Bill
Lapp, the president of Advanced Economic Solutions in Omaha, Nebraska, and the former
chief economist for ConAgra Foods Inc. 
    “I don’t think it’s going to immediately pass through,” Lapp said August 5. “It’s been a
dramatic increase, but you have end users who have at least some inventory, and probably
more coverage than they had two years ago,” he said. In February 2008, Chicago wheat
futures jumped to a record $13.495 a bushel. 
    “We’re going from an incredibly burdensome supply down to just above normal, so this is
not a shortage,” said Rich Nelson, the director of research at commodity broker Allendale in
McHenry, Illinois. “Russia is going to cut back on exporting,” which will boost demand for
supplies from the US, Canada and the European Union, said Alan Brugler, the president of
Brugler Marketing & Management LLC in Omaha, Nebraska. 
    “The trade is guessing that the Russian wheat crop is anywhere from 20-40% devastated ”
Allendale’s Nelson said

Frills In The Framework

The RBI says doorstep banking for villagers is the ‘only model’ that can achieve
financial inclusion. Banks, though, remain unsure about it as a business model, reports
Ahona Ghosh

    IN THE VILLAGE OF SUDKOLI, IN Maharashtra’s Raigad district, 30-year-old Pradeep

Raghunath Tambadkar is about to get on his motorcycle to go to work. As he revs his bike off
the dirt road, he spots his neighbour, Mahesh Laxman Patil, in his small, tin-roofed PCO in
front of a stretch of paddy fields. Patil is not only Tambadkar’s neighbour and PCO owner, he
is also his bank. Patil is a ‘banking correspondent’ for the Bank of India. The bank does not
have a branch in Sudkoli, it only has Patil to serve the needs of unbanked villagers like
Tambadkar. Tambadkar rushes to the PCO and hands Rs 200 to Patil. The wiry 21-year-old
pulls out a contraption that resembles a credit card swipe machine. When Tambadkar sticks
his left thumb on the machine, a female voice representing the Bank of India greets him in
Marathi. Patil works the digits to record the Rs 200 deposit into Tambadkar’s bank
account. The voice confirms the transaction in Marathi and prints a receipt. It all takes a
minute. 
    Says Tambadkar, a sugar supplier who earns Rs 300 a day: “I’ve never had a bank account
before. But now, I can deposit money any time.” Every 8-10 days, Patil goes to the nearest
Bank of India branch, about 30 km from Sudkoli, to deposit the cash collected from his
customers. “Once my collections reach Rs 10,000, I go to the bank to deposit it.” 
    For the 107 million rural households in India, who don’t have access to a bank, such
doorstep service, delivered from a distance using technology, is their window to the banking
system. The Reserve Bank of India wants the banking-correspondent (BC) model to be the
popular window. “This is the only model (to achieve financial inclusion),” says RBI deputy
governor Usha Thorat. 
    So, in March 2006, the RBI asked all commercial banks to adopt the BC model to reach
the unbanked. It asked them to provide a no-frills savings account, loans and remittance
products. But the response of banks was lukewarm. The RBI pressed on. This March, it asked
all banks, public and private, to submit their ‘financial inclusion plans’ till 2013 — and meet
them. Since they wouldn’t go out and set up branches, banks would have to do it largely
through the BC model. 
    Even as banks press ahead to meet their stated targets, they remain unsure of the
commercial viability of the BC model given its target audience — the unbanked in India’s
6,00,000 villages. “They are below the poverty line and don’t have that much of a surplus,”
says JK Sinha, chief general manager, SBI, which has opened 3.83 million no-frill bank
accounts in about four years through BCs. It looks impressive in absolute terms. Yet, it
dwarfs the 126 million accounts that SBI services through its 12,582 branches. “We are
trying to make it (BCs) a viable business and open accounts,” says Sinha. “We debate it every
morning.” 
    FOR BANKS, THE DEBATE IS LARGELY two-fold. One, how to make revenues from
these accounts exceed the cost of servicing them. Two, how to manage a complex operation,
a large part of which is outsourced — and hence, not directly under their control. 
    Unlike the branch model, in the BC model, the bank and the customer don’t talk to each
other directly. A technology partner, with whom the BCs are attached, is the gobetween. For
instance, Patil, the PCO owner in Sudkoli, is not a Bank of India employee. He represents
Integra Micro Systems, a technology partner. The largest technology partner is Financial
Information Network and Operations (FINO), which has 8,000 BCs, who have so far serviced
17 million customers of 14 banks. 
    The technology partner, through a nonprofit arm, recruits the BCs and gives them the
handheld machines. The BC needs to have passed class X. Further, the BC should be able to
read and write English, which is the language of operation on the machine, though it has
voice commands in 14 regional languages. They undergo a basic training of two to three
months. The BCs working in rural areas earn a monthly salary of Rs 1,500-3,000 a month.
After six months to one year, they also start earning commissions, as an incentive to reach
more customers and do more transactions. Banks, typically, pay them 0.5% of the transaction
amount and Rs 10 per new account. Anjali Shashikant Thakur, 25, is a BC recruited by
Integra Micro Systems about a year ago. She covers four villages in Raigad district and
handles 1,200 customers. Integra pays her Rs 1,600 per month. Further, as commissions, she
is entitled to 0.3% of the transaction amount and Rs 5 for opening a new account. “I haven’t
got that yet,” she laughs. Till November 2009, BCs could only be individuals, and not other
entities. This created its own problems. BCs, who go from village to village, reported loss of
money. So, in November 2009, the RBI allowed natural cash-collection centres like kirana
stores and petrol pumps to also work as BCs. “This made it easier to reach out to villagers,”
says Dewang Neralla, director, Atom Technologies, a technology partner. 
    BUT ISSUES REMAIN. BANKS DON’T like it that even though their technology
partners are the ones who hire BCs, they have to answer for delays and fraud. If a BC loses
money or runs away with depositor funds, it’s the liability of the bank. NC Kulbe, general
manager, Bank of India, who oversees financial inclusion at the bank: “Monitoring BCs is a
challenge, as there are discrepancies in cash collections.” 
    Counters Manish Khera, CEO, FINO: “Banks are only making a noise because they don’t
understand the ‘micro-customer’ and they want to take the easy way out by depending on us.”
Some banks are now planning to hire retired regional senior-level bank managers to monitor
agents, and do audits every six months. Says Khera: “No one has done any audit yet.” 
    Robin Roy, associate director, financial services, PricewaterhouseCoopers India, says
banks have to be careful while choosing a technology partner. “They have to get it right the
first time, 
or else they will not get any return on investment,” he says. Adds SK Mitra, president,
agriculture and rural banking, Axis Bank: “We don’t want to work with too many BCs
because there are governance issues. We will work with strong established agencies with a
pan-India presence.” 
    The penchant of politicians for loan waivers has also made banks wary. However, says
Mitra: “The waiver is only for larger farmers, with ticket sizes of Rs 25,000 and above.
Going by the microfinance experience, the bottom-of-thepyramid customer is unlikely to
have high default rates.” 
    The bigger headache for banks is generating profits from this segment. Says Manohara
Raj, business head, microfinance, HDFC Bank: “The revenue potential of pure savings
accounts is quite low.” Meanwhile, the cost — of funds, of paying the technology partner, of
maintaining the account — is disproportionate to the revenues generated. A recent study done
by the Consultative Group to Assist the Poor on the cost of providing banking services to the
unbanked and under-banked in Africa, Asia and Brazil found that non-branch banking
was only 19% cheaper than branch banking. 
    “It costs us Rs 200 per account per year,” says Sinha of SBI. “This business will not make
profits at least for the next three years.” RBI’s Thorat disagrees. “If you do a combination of
products, it definitely delivers a break-even in a year,” she says, adding that banks have to
start seeing it as a business (See box: ‘This is the only model’). 
    Even technology partners gripe about the half-and-half approach of banks. Anurag Gupta,
CEO of A Little World, a technology partner, says this business is about scale. It has invested
Rs 60 crore in the business, but it hasn’t scaled up as desired. “Some of the banks have not
worked closely with us,” he says. 
    BANKS CAN’T WISH AWAY THE BC model, as the push for financial inclusion is
coming from the highest echelons of the government. Banks have also indicated to the RBI
strong inclusion targets (See table: Banks and Financial Inclusion). Says Sinha of SBI: “The
government wants us to do it, whether there is profit or not. We have to figure out a profitable
model for ourselves.” 
    What may work for them is that there is interest building in this space. New players are
coming into the business. Six months ago, for instance, TCS tied up with five business
correspondent agencies (who, in turn, have 500 agents working for them). “Rural is the future
market,” says Krishna Kumar, vice-president, banking, TCS. 
    They will innovate with technology. For example, currently, the handheld devices work in
an offline mode, and have to be updated through the server of the technology partner every 1-
2 days. In future, transactions can happen real-time, leading to more transactions and
volumes. Companies like TCS and Axis Bank also want the RBI to further expand the BC
universe to include companies that have an established retail network in rural areas — for
example, FMCG and telecom. 
    Even banks are doing things. Bank of India and SBI, have opened financial training
institutes to train BCs. When they enter a new village, they conduct awareness drives. Says
SS Ghugre, general manager, financial inclusion, Union Bank of India: “The people in this
segment have the ability to save. We only need to educate them as to how to do so.” 
    Women hold about 40% of the BC accounts in Union Bank of India. “Since it works on a
fingerprint authentication system, their husbands can’t operate their accounts,” says Ghugre.
Vishaka Viswas Patil, 35, is married to a paddy farmer in Sudkoli. She opened a no-frill
account —her first bank account ever — through a Bank of India BC six months ago. “I
wanted an account in my name and save money from my husband’s earnings,” says Patil. She
has saved Rs 600 so far and has not informed her husband yet of this account — a revelation
she makes hesitatingly. 
    Tambadkar and the two Patils are illustrative of the power of financial access. People like
them pay 24-36% a year to microfinance companies or 48-60% to local moneylenders. They
could sure use bank loans at 12-16%. Today, the BC model seems like the only way for a
quick scale-up — provided banks see it the same way. Says SBI’s Sinha: “If the model
doesn’t pick up in the next two to three years, we will have to change it.” Usha Throat would
not like that. 
BANK IN A BOX 
For banks, the debate is two-fold. One, how to make revenues from these accounts exceed
the cost of servicing them. Two, how to manage a complex operation, a large part of which is
outsourced — and hence, not directly under their control
Goodbye, microfinance

T K ARUN 

    MICROFINANCE is slated to join the ranks of flintstones, the crossbow, gas lamps, the
pigeon post and the floppy disk — all excellent in their own time but rendered obsolete by
the march of technology. 
    What made microfinance tick? One, failure of formal finance to reach out to the majority,
particularly in rural areas. This left the rural lending field to the moneylender, the landlord,
the trader or some other ‘informal’, usually expensive, source of credit. So, when
microfinance came up with a loan that was cheap when compared to the informal sources of
credit, it found ready takers. 
    Two, the paucity of alternate sources of cheap credit. This made people repay their micro
loans. If you spoilt your credit standing, you also spoilt the standing of the people in your
group and you lost face, as well. 
    Both these conditions are disappearing. The second factor first. The success of
microfinance has led to a rush of microfinance entrepreneurs into rural areas, who push
money at all and sundry, to build up a large asset portfolio in a short time. Many rural women
find themselves taking multiple loans and finding it difficult to repay most of them. But then,
even if you defaulted on one, some other desperate chaser of micro gold at the bottom of the
pyramid was at your doorstep with a loan offer. 
    Now, for the reach of formal credit. The traditional banking model is too expensive to
reach out to the 78 crore people in the country’s 6,25,000 villages. In fact, banks fail to reach
out to even the relatively less-affluent in the towns. This makes the moneylender and
microfinance both relevant. 
    India’s rural landscape is set to change dramatically over the next five years. Road
connectivity will improve vastly, thanks to multiple rural road projects, the golden
quadrilateral and the east-west corridors that cut through swathes of rural India and the
supplementary connecting roads these promote. 
    The rural electrification programme will definitely miss its 2012 target but still bring
power to large parts of the country by the next five years. This will make it possible for a
range of imaging devices to work, the most ubiquitous of which would, of course, be the
mobile phone. Phones would provide data connectivity, besides voice. Thoughtless
government greed has made 3G spectrum expensive, scuppering broad dispersal of 3G
connectivity, but data access will still be widely distributed, even if at low speeds. With
broadband wireless access licences being given out sans rollout obligations, whether this
would benefit rural areas as it should is up in the air, but some spread is inevitable. 
    Organised retail would be bigger and have greater reach. It would not only procure from
rural areas but also have a vested interest in supplying knowhow and inputs to rural producers
that would lower costs and improve productivity. Organised retail would have a catalytic role
in precipitating productive use of broadband communication possibilities in the rural areas,
besides forcing rural producers to acquire more organised forms that can engage with
organised retail. 
    All these make it imperative that the RBI, the banking regulator, stop shying away from
new technological possibilities for inclusive banking. One, the cost of creating and
maintaining bank accounts has come down sharply. All that the banks need to do is to follow
the example of the new pension system, which has a common record-keeper who maintains
the electronic accounts of savers accessible by six pension fund managers as per the mandate
of the individual savers. One agency could create and maintain all small-ticket bank accounts,
and each individual could decide which bank he wants to work with. 
    The more exciting technological possibility is to use mobile phones for banking. Phone
companies know how to make big money from millions of small transactions. They have a
distribution model that reaches out to remote areas. They have a piece of portable equipment,
the phone, that combines software and hardware to allow, for example, people to access their
bank accounts to transfer value from the account to the phone, and vice versa. The vendors of
prepaid cards can handle physical cash, whose need can be reduced with the unique identity
scheme and ubiquitous broadband connectivity. 
    Once these technological possibilities are realised, formal finance can reach out to all
Indians, anywhere, anytime. An expanded credit information bureau can track individual
credit histories to promote good credit behaviour among borrowers and penalise default. 
    All that is holding up this inclusive finance revolution is the RBI’s reluctance to license a
mobile phone company to do banking. The reluctance is understandable, but not justified.
The RBI could ask a mobile operator with banking operations to create a joint venture with
an existing bank to become eligible for a licence. 
    Once such regulatory reluctance is overcome, and electricity and broadband suffuse rural
areas, microfinance would die.

Microfinance has been a boon for the rural poor but is slated to disappear, with the coming
advance of formal finance 
Technology and ongoing rural transformation now make it possible for formal finance to
reach out to all Indians 
Only the RBI’s reluctance to allow new technology holds up huge strides in the spread of
formal finance

India needs a unique retailing model

TARUN JOSHI 

    AS INDIA ENTERS ITS SECOND PHASE OF organised retailing, it is interesting to

observe what the first phase has taught us. Organised retailing in India took off with great
gusto in the early 2000s. Capital markets and large business houses saw immense potential in
retail as less than 2% of the trade was organised. Caution was thrown to the wind as many in
the country joined the gold rush. Capital markets gave astronomical valuations to retail
businesses, developers started creating malls every where, the best in the industry was lured
away offering double of what they were earning earlier, and those who had international
exposure of developed retail markets could demand any price. 
    So what has changed in The Second Phase? Why have malls started struggling? According
to unofficial estimates only about half the retailers in merely 10 of the 200-odd malls make
money. Why did India’s first mall in South Mumbai shut down? Why are some key retailers
deserting malls? Why are the valuations not robust anymore? 
    The answer lies in one simple word, ‘execution’. 
    The retailer-developer-capital markets combine, decided to use fixed benchmarks — those
of the developed western markets. So the retailers copied the strategies and operating
procedures of successful international retailers, the developers planned their pricing based on
international sales and the analysts merely took international growth stories and valued Indian
brands accordingly. While doing all this the industry ignored one basic element of the chain
— the consumer, his usage and attitudes, his affordability and most importantly his living
conditions. 
    Large format grocery retailing excited everyone, not because there was a researched
consumer need, but because these had done well in markets such as the US. What got
overlooked were the grocery shopping habits of the Indian consumers. Those at the upper end
of the income bracket who would appreciate organised retailing, never really shopped
themselves. They either sent the household help or order the essentials over the phone from
the local kirana merchant – a luxury that the west can never enjoy. 
    And those in the low-to-middle income groups suffered from a perception that fancy stores
with their unwelcome attitude towards them will charge higher. As a result, most grocery
stores didn’t perform too well and suddenly found themselves out of favour. Marketing and
retail experts as well as financial analysts now dismiss this format as “not-feasible” for the
Indian markets. Wrong once again. All that’s required is a format that suits the Indian
shopping psyche. It will have to be a customised solution. There is a distinct shopping habit
that is followed by over a billion people and retailers would be better off providing a
customised solution rather than aping practices prevalent in other environments. 
    Likewise, there is much hype about tier- 2 and 3 towns. Smaller towns in the US fuel retail
growth and so it was believed that the same would apply for India. There was utter disregard
to the consumption patterns, propensity to spend, income levels, and socio-economic
indictors for the city/area. No thought was given to the fact that construction costs and
common area maintenance would make the rentals for such malls unviable, given the lower
propensity to spend. Additionally, much like in the US, many malls in smaller towns were set
just outside the city. This strategy worked wonderfully in the US, as not only were the rents
significantly lower but the driving time to these malls at the edge of the town was not much.
In India, however, the story is dramatically different. Not many people in smaller towns own
cars and it is a task to take a cycle-rickshaw to a mall 5-7 kms away—not to mention the
safety factor after sunset. Needless to add, most malls in smaller towns continue to struggle
even today. Open-air malls were another great idea picked up from the west. While a
Stanford Mall may be perfect given the famous Californian weather, to expect a similar
concept to survive in the Indian summer, rains or the dust was asking a bit too much. What is
surprising though, is that some such malls are continued to be planned. 
    The silver lining, however, are the lessons learnt. We now have the experience to script a
truly successful story for the Indian retail industry. Clearly, the rules need to be different
now. We must understand the hugely heterogeneous Indian customers completely — their
tastes, preferences, mindsets, regional sensitivities, weather conditions, propensity to spend,
their socio-economic outlook etc. The Indian market is very unique, especially so during this
phase of rapid economic growth. To be successful here, rules have to be in accordance with
the environment. There are no ready-made operating procedures, only learning and research
that can help. While copy-pasting western strategies into the Indian environment is surely a
recipe for disaster, trying to change consumer habits overnight is a recipe for bigger disaster,
as we have learnt very often in the past, much to the retailers’ woes. 

For Fair Pricing Of Land

TREAT DISPLACED FARMERS AS STAKEHOLDERS IN INDUSTRIAL

PROJECTS

B L PANDIT 

THE THEORY OF ASSET PRICING suggests that the equilibrium price of an asset
ought to be equal to the sum of discounted net cash returns over the productive life of
the asset. Let us examine the feasibility of applying this criterion to land as an asset. The
issue is important and interesting because unlike other means of production of an
economy, supply of land and what gets included under “land” is inelastic for any
economy. Use of land for a specific purpose has its externalities in terms of its impact on
environment. An issue of predominant concern in respect of land pricing is the fact that
land is often a source of livelihood in a variety of ways. Even a barren piece of land may
serve as the village commons which has an important role in enriching the life of the
local inhabitants. 
    The issue of pricing of land or land use has engaged the attention of some of the
pioneering masters in economic theory. According to David Ricardo school of thought,
land price should reflect the site value of land and the cost of subsequent improvement
on it. The cost of subsequent improvements on land can be measured without
controversy. However, there could be several approaches for computing the site value.
It is in this context that Ricardo made his famous statement that the site value is largely
because of the original and indestructible powers of the soil — which can be legitimately
considered as a gift of nature. Gradually through time, in analytical models of
production and economic growth, only three factors of production — capital, labour
and enterprise were reckoned with. Land seemed to have lost its identity as a distinct
factor of production. In an accounting sense, it is true that for an industrial unit the so-
called ground rent paid for the use of land as space is a very insignificant expense in a
relative sense. In case the land has been purchased by a firm, 
no matter how the price paid was calculated, the cost of land purchased is added to the
firm’s fixed assets. So in the account books, land is an asset. The issue is the feasibility
of its being priced as an asset. 
    When unoccupied land is relatively abundant and the pace of urbanisation and
industrialisation is slow, acquisition of land can happen without much hassles. Pricing
of land and land use is usually done by some rule of thumb. In presence of population
pressure and high population density, when land has to be acquired on a large scale for
setting up new industrial units, serious concerns about land use pattern, displacement of
existing cultivators and environmental considerations stare at the face of policy makers.
In Bengal, the failed land acquisition attempt in Singur of course had its political
undercurrents. But was it the right way of pricing land and computing the
compensation package? On the face of it, selling of land by cultivator-farmers at the
observed market price should be a normal process without prejudice to anybody. But in
a typical rural setting like Singur, is there a competitive market for land which
generates a competitive price? The answer obviously is no because there is no
competitive buying. Most of the recorded land sales could be distress sales to traders
and money lenders, or forced acquisition of land by the government. 
    Land acquisitions for setting up new industrial units can be turned into competitive
asset sale by farmers to the firms only if land is treated as an asset and the land price
matches the sum of discounted net cash returns from its use as a newly acquired fixed
asset of the firm. A feasible way to accomplish this is to make the displaced land selling
farmers as stakeholders in the concerned industrial unit. 
Raising the output of pulses

USHA TUTEJA 

    FUELLING inflation is food inflation, and a major contributor to food inflation is the rise
in the prices of assorted pulses, a major source of protein for Indians. Stagnant production
and rising demand, in conjunction with insufficient availability of imported pulses, leave us
with little option but to increase domestic production. However, there has been no holistic
strategy in place to that end. The only official move has been to hike the minimum support
price, but that is a partial solution that will not deliver the desired result. 
    It may be straightforward to expect impressive growth in the production of pulses in view
of the Centre’s decision to raise the minimum support price (MSP) of pulses sharply for the
kharif season this year. 
    A 30% hike in the MSP of pulses gives the right signal, but its utility is doubtful since
MSP alone would not be a sufficient measure to solve the long-standing problem of
stagnation in pulse production in the country. 
    The announcement of hike in the MSP by the government has come at a time when farmers
have already taken acreage decisions for various crops to be grown in kharif season, 2010-11.
Thus, it could only affect production decisions of those pulse cultivators who will be sowing
the crops late. 
    Pulse prices like those of other agricultural commodities have generally been driven by
economic fundamentals of demand and supply. There has been a widening gap between the
two due to mismatch in domestic production and demand over the past two decades. On the
one hand, production is stagnating at 12-15 million tonnes owing to slow increase in yield
rates and almost static area under cultivation. On the other hand, past strategies of the
government through inclusion of pulses in the Technology Mission since 1991 and further
implementation of the schemes such as Integrated Scheme of Oilseeds, Pulses, Oil palm and
Maize (Isopam) failed to enhance domestic production. Even the target of 16 million tonnes
set by the government could not be achieved so far. The demand for pulses is continuously
rising due to the steady rise in both population and income and concomitant awareness of
among lower-end consumers of the importance of having protein in their diet. 
    A recent study estimated annual pulse demand in India to be in the range of 18-20 million
tonnes. The huge deficit between demand and supply has been bridged through imports. But
imports are not an easy bet for the country in the long run since pulse varieties required to be
imported by India are produced and exported by only a few countries. India buys more than
60% of the pulse exports of Myanmar. In view of regular imports by India, exporting
countries hike their export prices beyond a reasonable level. 
    The recent increase in the MSP of pulses would set the base price at a higher level. It is a
welcome shift that the farmer would now receive Rs 35 per kg of arhar grown by him if he
sells his produce to government agencies. 
    Our experience has shown that the National Agricultural Cooperative Marketing
Federation of India (Nafed) and other government agencies played an almost negligible role
in setting market prices of pulses due to their limited operations. These agencies procured
pulses under price support and commercial purchases but the volume was so small that it
could not influence the decision-making of the farmers about pulse cultivation. 
    Studies on pulses point out that the supply response to their prices is limited and weak.
Pulse cultivation faces severe constraints such being confined to rain-fed, unirrigated
marginal lands, smallholder cultivation and, above all, lack of a technological breakthrough.
Even the available technology is not being adopted by the farmers due to inadequate
extension services, deficient supply of improved seeds and
rhizobiumculture,whichareessentialcomponentsfor enhancing yield of pulses. Given the
uncertainty of yields, farmers do not invest their precious resources in pulse cultivation. 
    Efficient marketing is an urgent need in case of pulses since these crops have short shelf
life and cannot be stored by the farmers for long in the absence of proper storage facility.
Often, farmers sell pulses immediately after the harvest. In these circumstances, the effective
government policy of procurement can act as a confidence booster for cultivators if
interventions are adequate. It is high time the government started procuring pulses as it does
wheat and rice at the MSP through government agencies. So far, the role of government
agencies has been negligible due to minuscule operations. 
    Procurement of pulses would increase the welfare of cultivators by giving them assured
remunerative prices and would also increase availability of this protein-rich food to the
masses, especially to the poor who depend on the public procurement system for their basic
food requirements. The problem of almost stagnation in pulse production is acute but it can
be solved by providing technology at the doorsteps to the cultivators and procuring their
output in a big way to boost their confidence. 
    In the end, a holistic strategy is required to solve the problem. Partial solutions such as
hike in the MSP of pulses have limited hope to boost pulse production in the country. 
    (The author is acting director at the Agricultural 
    Economics Research Centre, University of Delhi)
Hiking minimum support price for pulses will not result in enhanced output of this vital
source of protein for the masses 
The rise in retail prices does not feed through to the farmer, who cannot store his produce and
sells at any price he gets 
The government must procure pulses extensively and step in with comprehensive marketing
support

India shining

Nothing Automatic About It

    INDIA will start growing faster than China in 2013-says a Morgan Stanley report. The
primary reason it cites is the demographic dividend, supported by continuing economic
reform and globalisation. India will see a declining trend in the share of non-working
dependents (children and the elderly) in the population, and contribute 136 million people to
the workforce over the next 10 years, while China will add just23 million workers. India’s
savings rate would go up, as would the share of consumption in China’s GDP. The study also
assumes a sustained rise in India’s infrastructure spending, steady improvement in
educational levels and sustained fiscal consolidation. While the forecast is entirely realistic,
we would do well not to take such an India shining prognosis for granted. Two things are
worth noting about the report, which steers clear of politics and abstracts away political risk
altogether. One, the inclusive agenda that has been pursued by the current government is
assessed as boosting economic growth, rather than squandering scarce fiscal resources — the
school retention ratio has gone up dramatically from 53% in 2004 to 73.7% in 2008 at the
primary level. The trend is similar at the secondary and higher secondary levels. This would
help India produce the largest chunk of workers with tertiary qualifications over the next 10
years. Since it is not just reform in the education sector that persuades people to send their
children to school and keep them there, it is safe to infer that the huge outlays on anti-poverty
schemes and rural development have not gone waste. 
    The second thing to take into account is how easy it would be for the economy to go off
the rosy path of steady improvement forecast by the report. Internal schism is a major threat.
Maoist violence and terror and violence enabled by and emanating from communal politics
are two major sources of disruption. The forecast rise in capital formation and productivity
assume that governance would improve, not deteriorate. But signs of the political will that is
needed to improve governance are despairingly scanty. Both kinds of possible disruption to
India’s prosperity call for greater practical commitment to, and leadership of, inclusive
politics.

Grain loss in govt godowns less than 1 lakh t:Thomas

Says There’s Bound To Be Some Damage When We Stock Grains Three Times The
Buffer

    REPORTS of damage to wheat stocks lying in FCI godowns could not have come at a
worse time for the government already battling a vociferous Opposition over its
“inability” to rein in food price inflation. But Professor KV Thomas, minister of state
for agriculture, told ET’s Ram Sahgal that media reports of losses running into lakhs of
tonnes were off the mark and the damage to stocks was likely to be less than 1 lakh
tonne. The exact figure would be ascertained within a fortnight, he said. 

The government is facing flak for not being able to curb runaway food inflation. Do you
think prices 
will come down anytime soon? 
When we look at the inflation scenario, we must analyse the issue from two angles. On the
one hand, we argue that farmers should be given a better deal so that production of essential
items can be increased. The government does this through the minimum support price which
has over the past five years doubled or trebled and is bound to have an impact on the prices.
The next issue is how prices can be managed. This is done through the public distribution
system where essential items such as wheat and rice are allocated to states for distribution to
BPL and APL families and also in the open market under the open market sales scheme. We
are giving wheat at 13-14 per kilo to state governments and bulk users and rice at 11-12 per
kilo, well below the market price. However, over the past three years we found reduced
offtake by some state governments, especially for the APL category, because people probably
prefer to pay more for a better quality of grain. In the current year, though, the offtake has
improved. On PDS, the subsidy component borne by the government is 63,000 crore. 
Even as we speak, lakhs of tonnes of grain is 
rotting in government godowns. The Supreme 
Court has said that the grains should be distributed free to the needy rather than letting
them rot... 
I am not saying that foodgrain should rot but reports of lakhs and lakhs of tonnes rotting are
not correct. Our estimate so far suggests that the damage is less than a lakh tonnes. Currently,
an assessment to ascertain the damage to stored grains has been undertaken by FCI officials
and even at the ministry level an internal assessment is under way on the extent of damage.
We will be able to put a finger on the exact magnitude of the loss in another 10 days. FCI has
to procure grain by providing an MSP and also to supply to the PDS. In the light of the past
experience, when we had a shortfall of buffer stock and had to import, we need to maintain a
buffer stock that is two to three times the buffer norm. In such a situation there is bound to be
some loss, though ideally not even a kilo should be damaged. 
Is there any thinking within the government of taking positions, say in pulses, on
overseas commodity exchanges instead of floating tenders and announcing to the world
that we are faced with a shortage? 
We are undertaking sowing in the case of pulses through the setting up of pulses villages and
we hope that once these large projects come to fruition, our dependence on imports within the
next five years should come down from around 12-15% of domestic consumption. On taking
positions in overseas futures markets, we are not a China but a democracy where issues such
as the impact on pricing because of futures trading need to be considered thoroughly before
going ahead. 
In the light of the increased crop size, the sugar industry is hoping that the government
gives the nod for exports generally, and not just of the quota imported four years ago
under the advance licence scheme. Is a decision likely to be taken soon? 
The empowered group of ministers has to take a decision on this. We have received several
proposals and a decision could be taken in the next 15-20 days. Such decisions have to be
taken keeping in mind that the Indian sugar economy follows a five-year cycle wherein years
of high production and arrears (to farmers because of low sugar price for mills) are followed
by reduced area under cultivation (and high prices) when farmers switch to other crops for
better prices before moving back to sugarcane cultivation and completing the cycle. 
The agri and food minister recently asked for his burden to be reduced. Any comment. 
That’s for him to say. I have been associated with Mr Pawar for just a year but I can say that
he has an exceptional ability and it is my good fortune to be working with him.

A step towards decontrol: Sugar futures ban may be lifted in Sept

Our Bureau NEW DELHI 

    THE government could lift the ban on sugar futures early next month, by which time there
will be clarity on sugar production, a move that is expected to further help the crisis-ridden
industry and facilitate decontrol of the sugar economy. 
    “I will get to know the sugar production situation in September. I will take a view on it
(lifting ban on sugar futures) in the first week of September,” Pawar said on the sidelines of a
National Cooperative Consumers’ Federation (NCCF) function on Thursday. 
    The ban on sugar futures was imposed in May 2009 in the thick of high and rising retail
prices and is set to expire in September 2010. 
    In 2010-11, sugar output is expected at 25.5 million tonne, higher than the annual demand
of 23 million tonne. The high output estimates, although questionable at this juncture, will
ensure adequate domestic supply and lower consumer prices, allowing the government to free
the sugar trade without worrying about prices. Sugar futures trade was banned upon a
demand by the Left parties who contended that the manipulation in the futures trade played a
key role in the increase of the prices of the essential commodity. Once effected, the sugar
futures trade ban would be the third key move taken of late to relax the high-inflation era
strictures on trade in the essential commodity and also to boost sagging profit of sugar mills. 
    The Centre on Thursday also announced the relaxation of stock holding limits for sugar
placed on bulk consumers having earlier allowed the export of white sugar stuck in Kandla
and Mundra ports. 
    The stockholding limit for bulk consumers of sugar increased from 15 days to 90 days for a
further period of 180 days. Through a notification on May 18 this year, the Centre barred
bulk consumers of sugar such as beverage, ice cream, cold drink, biscuit and bakery product
makers from holding more than 15 days requirement of domestic sugar.Bulk consumers were
importing most of their needs following the imposition of the sugar stock holding limits.

Reform land acquisition

Bring In 21st Century Possibilities

    LAND acquisition claimed four lives in Uttar Pradesh over the weekend, just the most
recent episode in a continuing saga of conflict, violent dispossession and disruption of
development. The official response to the felt need to modernise the process of acquiring land
for public purposes remains tardy and, worse, ill-informed. The 2007 attempt to reform the
1894 Act that enables land acquisition is yet to reach fruition. The 2007 bill was not much of
an improvement on the colonial law that it sought to supercede. Fresh thought has to go into
how to price acquired land and how to keep those whose land is taken over as stakeholders in
the development process, rather than its abject victims. ET recently carried two articles on the
subject. BL Pandit argued that land should be priced as any other asset, capitalising the future
stream of incomes arising from it. This marks total departure from forcing the farmer to
accept the current market price, as is the norm in the 1894 Act and in the 2007 Bill —
changed land use would push future incomes far above what current price captures. Ritu
Anand suggested a model of land pooling and reconstitution, in which a sizeable part of the
land is restored to the landloser in a developed form and the land is acquired from all the
landowners in the vicinity so that some people do not end up losers while the others free-ride
on the rise in property values consequent on development at somebody else’s expense. 
    If outright dispossession is enforced, then the compensation has to take into account future
value, not current price. The better alternative is to retain a stake for the original landholder in
the development undertaken on his land. Transfer, for example, parcels of land to a special
purpose vehicle in which the original landholders hold a majority equity stake, with a lock-in
period of, say 10 years. The developer of the facility that needs the land could have the
remaining stake, lease the land from the SPV for a rental related to the income generated
from the facility and have the first right of refusal over the original landholders’ stake in the
SPV when the lock-in gets over.

Should MPs get higher salaries?

Former Secretary General, Lok Sabha Pay 3-4 lakh, revise only once in 5 years 
    THERE is every reason for the salary of MPs to be revised upwards from Rs 16,000. I
would suggest a salary of Rs 3 or 4 lakh per month. But then all other perks and allowances,
whether in cash or kind should be wholly withdrawn. There should also be no income tax
relief, no subsidies or perks of any kind. MPs should be subject to the same laws as any other
citizen. It is most surprising and infra-dig for honourable members of Parliament to compare
themselves with full-time paid government employees or bureaucrats. 
    Comparisons with payments made to legislators in other countries are odious and illogical
because in that case one has to take into account the real value of respective currencies, the
per capita income of citizens in those countries. While salaries of government employees are
reconsidered only once in five years or so, for MPs, on an average in less than two years there
have been upward revisions. So, there should be some provision that it would be reconsidered
only once in 5 years. Also, MPs now vote for their own salary hike. An eminent citizens’
panel should be appointed once in 5 years to examine the issue and make recommendations. 
    An estimate made by an honourable MP (Nanaji Deshmukh) had revealed that if
all payments and expenditure on an MP in cash or kind was counted, then the emoluments
would come to nearly 3 lakh per month. Right now, MPs also get a pension for life without
any provision regarding years of service. In fact, if a person has been a member even for one
day, he or she is entitled to pension for life. Also, the Constitution did provide for Parliament
by law, making a provision for salary and allowances of members, it had not provided for
pension. In case of bureaucrats, save the secretaries to the government of India, who are
mentioned for comparison, they get a salary of Rs 50,000 only for the last 3-4 years of their
career, roughly at the age of 55 or more. There’d be no objection to members of that seniority
seeking more pay than secretaries. A comparison between a 59-year-old secretary and a 26
-ear-old new MP is not reasonable.

    AJOINT parliamentary committee has recommended recently that an MP's salary be fixed
at Re 1 more than that of a secretary to the government of India. The logic behind this is to
fix a criterion befitting their importance in office, to the salary being paid to other dignitaries
placed in the “Warrant of Precedence” issued by the government of India. Today, the existing
practice is that the salaries and allowances of MPs are fixed on the basis of Consumer Price
Index meant for Urban Non-Manual Employees, but are deprived of DA as prescribed by the
government from time-to-time. Rather a periodic limit of five years has been fixed in the
Salaries, Allowances and Pension of MP's Act 1954 for effecting any revision of salary and
allowances. 
    Full-time involvement in the service of the nation necessitates a reasonably justified
remuneration and professional support for MPs commensurate with the constitutional
position and onerous responsibilities bestowed on them. A reasonable level of remuneration
has a bearing on the quality of the service rendered by the members in a more effective and
efficient manner. 
    With the present salary of Rs 16,000 a month plus a few perks such as the daily allowance
of Rs1000 when Parliament is in session or a House Committee sits, secretarial and
constituency allowances etc, the system is hard on those MP's who make an honest living.
There is no doubt that MPs deserve a better deal. The very large population of the
constituency, the high expectations of the people from their representatives, the complexities
of problems which they have to face, the changing public perception of the role of a MP, all
are the factors that have made the task of a member extremely onerous and demanding. 
    Since the effectiveness of the parliamentary system depends on the availability of members
from all walks of life with all kinds of specialised knowledge, the prospect of lower
remuneration must not deter better-paid professionals from standing as people's
representatives either.

Risk managing oil prices

SANDIP SEN 

    MANAGING oil prices without subsidies is no job for the faint hearted. President Obama
recently renewed his failed budget pledge of last year to remove $36 billion tax breaks given
to oil companies, in face of widespread protest by the industry. In Europe the subsidies to
energy producers as free issue of sellable carbon permits are in addition to several other tax
breaks given for North Sea exploration and downstream refining industries. In China
subsidies have kept oil prices pegged at less than three fourths of India while Indonesia and
Malaysia subsidise up to 50% of oil prices on a much smaller import bill, to keep domestic
consumers happy. 
    This skewed nature of oil pricing has occurred over the years as governments struggled to
control the volatility of oil after it jumped from the $22-$28 per barrel price band in the
nineties to the $50-$100 band during 2001-2010. The Indian government is perhaps the first
major oil importing nation to do away with subsidies and would have to manage purchase
prices effectively to ensure minimum volatility. 
    One of the ways to achieve this is to help oil marketing companies (OMCs) create a large
buffer stock of both crude oil as well as refined petrol and diesel. This means an effective
increase of oil storage capacities both at sea by leasing oil tankers as well as at offshore
terminals by hiring free storage capacities. For this to happen, the cash flow of these
marketing companies — IOC, HPCL and Bharat Petroleum — had to be given a boost so that
they could buy oil from the international spot markets. The subsidy system that locked up the
OMC liquidity for months as the government held on to the disbursements had to go, to
ensure that the OMCs are empowered with ready cash for market operations. 
    Oil prices at the international markets fluctuate more due to the volatility induced in oil
futures at the ICE and NYMEX Commodity Exchanges by the trading cartel of the big oil
companies BP, Shell and Total and the big banks like Morgan Stanley and Goldman Sachs.
The beleaguered oil giant BP lost its trading team leader Chris Paine at London to Vitol
recently while Brightoil the Chinese trading arm that plays the South China bunker market
poached a dozen other executives in a bid to control trading at the Singapore commodity
exchange. Brightoil with an asset base of $1.5 billion sub-leases around 100,000 tonnes of
storage capacity in Singapore and 450,000 tonnes in South China and has become one of the
biggest traders of marine oil in the region since its entry into the market only a year back. 
    The commodities markets of oil is an extremely volatile market, and professional traders
are needed to source the cargoes, plan the blendings and trade positions in the swap markets.
The expertise at the commodities trading floor has to be supplemented by strong cash flow,
high speed physical buying, swapping and innovative supply chain management of the
product mix. 
    Creating price inversions by stockpiling and buying bulk before the demand peaks is a
known and tested method to reduce prices. It helps to hold purchases at peak demand and
reduce the difference between spot prices and future prices. This makes it difficult for the
speculators to hold stocks as the cost of storage is often more than the price difference.
Speculators like Morgan Stanley or Goldman Sachs normally take advantage of this price
difference in a contango trade, but in May this year when China and US stockpiled heavily,
hedge funds, Wall Street banks and bull operators panicked and squared up. 
    US stockpiles had crossed a record 37 million barrels at Cushing Oklahoma leading to
wide spreads between the WTI and Brent Oil that eventually dragged down oil prices after
some dogged resistance. China too had sharply increased both its owned and leased out oil
storage facilities and refinery capacity and increased its oil purchases by as much as 30% to
meet future contingencies. COSCO the Chinese shipping giant has taken delivery of a dozen
oil tankers from its $2.3 billion order with Greek shipbuilders placed in 2005 and is now
investing in the famous Greek shipyard Piraeaus to augment its shipbuilding capacity. 
    BP’s financial dilemma following the Gulf oil spill and Europe’s debt crisis has presented
an unique opportunity to augment the supply chain of nations looking to reduce its energy
costs. Refineries and ready to store offshore storage facilities are becoming available at
reasonable prices both on lease as well as on outright purchase basis. Besides oil tanker
monthly lease rates have climbed only marginally after bottoming out in April this year. For
Indian OMCs it is right time to play the markets as well as build up capacities needed to store
and refine oil and reduce energy prices.

The Indian government is perhaps the first major oil importing nation to do away with
subsidies 
Help OMCs create a large buffer stock of both crude oil and refined petrol and diesel to
ensure minimum volatility 
It is the right time to play the markets and build up capacities needed to store and refine oil
and reduce energy prices
Crops in South battle rough weather & labour shortage

Our Bureau BANGALORE 

ERRATIC weather patterns coupled with labour shortage is proving to be a challenge for
plantation and agriculture crops in Karnataka and other southern states. A case in point is
coffee. This year, planters in Karnataka are gearing to harvest their Arabica crop nearly six
weeks ahead of schedule. 
    “The availability of labour continues to be a key worry for planters. Estimates indicate that
close to 30% of the Arabica would be ready for harvest by the middle of October, nearly
three to five weeks ahead of the normal harvest period,” said NK Pradeep, a leading grower
and president of the Karnataka Growers’ Federation. Karnataka is the country’s largest
producer of coffee. In 2009-10, the state’s Arabica output was placed at 94,600 tonne and is
projected to be 99,500 tonne in 2010-11. The uptrend in Arabic output comes after a patchy
2008-09 when the production was barely 40,000 tonne. 
    Pradeep’s worry about the erratic weather pattern is also echoed by Prashant Bhansali,
former president of the Planters Association of Tamil Nadu. “Weather continues to be an
issue. South India’s tea production is down from about 130 million kg to about 122-124
million kg during the last few years. Currently, the southwest monsoon is active in places like
Gudalur and that bodes well. If the rains persist, we are talking of the production being at the
same level like the last year. But even if we have good monsoons, we are chronically short of
enough farm hands,” he added. 
    Bhansali estimates that the shortage of labourers in these two southern states’ plantation
sector to be upward of 8,000 persons. The three plantation crop (coffee, rubber and tea)
exports brought in over 13,500 crore in forex earnings in 2008-09. 
    A Subrahmanya Bhat, MD of CAMPCO (Central Arecanut & Cocoa Marketing &
Processing Co-operative), says that the ongoing heavy downpour could probably see the
arecanut production decline by about 15% to 20%. “We don’t have the exact data as we
are still receiving rains. Non-availability of labour means we can’t undertake timely spraying,
which in turn would hit productivity,” he added. A rough weather is expected to impact tur
production in Karnataka. “We have had good rains in some districts but there are reports of
excess rains in Bidar district, which would hit the production. Most of the tur plantings are
still in the germination stage and heavy rains will wash away the crop,” said Basavaraj Ingin,
president of the Karnataka Red Gram (Tur dal) Growers Association. 
    The acreage under tur stands at 7.31 lakh hectare against the normal level of 5.13 lakh
hectare. Karnataka is projecting this year’s kharif acreage to be around 6.76 lakh hectare.
However, all doesn’t seem to be lost. Minor millet and coarse crops acreage is expected to be
robust. “Ragi is not significantly impacted by the erratic weather. We have varieties which
have different harvesting time-frame running from 90 days up to 125 days,” says Ashok, a
ragi and minor millet breeder at the University of Agricultural Sciences, Bangalore.

Monsoon musings

LUBNA KABLY 

    IT HAS been raining cats and dogs here in Mumbai. It is perhaps, just the right season for
Zenobia Aunty to sit on her favourite chair and surf the internet for tax news or to connect
with all her friends across the globe to chat on latest happenings in the tax arena. 
    Yes, it is pouring tax news. Let us start with home base, India. Soon after the revised
discussion paper on the direct taxes code (DTC) was issued, came the report of the Takeover
Regulations Advisory Commentary followed by announcements on the GST front and then
suddenly some states had second thoughts about the constitutional amendment for
introducing a GST regime. It has sure been one busy season and never a dull moment. 
    It beats me why it always pours over the weekends. Or perhaps on weekdays, unless we are
scurrying for meetings, one doesn’t have even time to look out of the window, even if it
offers a sea view. A spate of grey days makes one appreciate the sunbeams. 
    Likewise, two recent rulings relating to applicability of minimum alternate tax (MAT) on
foreign companies have gladdened many. The Authority of Advance Rulings (AAR) in two
cases has ruled that a foreign company that has not established a place of business or
permanent establishment in India would not be subject to the MAT regime. Unfortunately,
the Income Tax Act itself does not provide any specific clause stating that a foreign company
is exempt from MAT. 
    While AAR rulings are binding only that particular transaction in relation to which the
ruling was sought, they do have a persuasive effect in assessments dealing with a similar
issue. Thus, these rulings are much welcome. 
    These favourable rulings, prompt Zenobia Aunty to raise questions as regards the branch
profit tax (BPT) provisions contained in the direct taxes code. While sipping a strong cup of
masala tea she says: “It should be clarified by the government that the levy of BPT is
restricted to a foreign company that has a fixed place of business in India by virtue of a
branch office or project office. Further the BPT should only be levied on actual remittance of
profits. In the context of MAT if tax laws itself had provided for such clarity foreign
companies would not have faced ambiguity, at least now, in the context of BPT and MAT
clarity must be ensured in the new Income tax Act.” 
    While I was in Bengaluru I really thought it was no longer a garden-city but a Mall city.
When we left Mumbai, eight years ago, perhaps there were only one or two Malls. Now,
while on a drive from South to suburban Mall all you see are signs screaming: SALE!!! Malls
have, overrun Mumbai as well. 
    Kay Bell, a famous tax blogger from the US points out that in August, states in the US are
having what is typically referred to as back-to-school sales tax holidays. These last for two-
ten days and during this period shoppers don’t have to pay state sales taxes and sometimes
they also avoid local levies, on selected items. 
    Zenobia Aunty quotes from her blog: The most popular tax exempt products are clothing
and footwear where the bill is below a certain limit. Some US states also exempt school
supplies, with a few including computers and PC peripherals in the notax category. Wish we
had something similar back home, but well, perhaps we shall settle for the monsoon
discounts offered by Malls, over this weekend. 
    Mumbai is an expensive city, so are various others cities across the globe, such as New
York. This bit of news, gladdened Zenobia Aunty’s heart: Six Congressmen from New York
are pushing a tax cut for people who live in high-income areas. The idea is to index
everyone's income tax brackets to the cost of living, giving a big tax break to everyone who
lives in the nation's most expensive areas. It other words, what they are pressing for is
regional cost-of-living adjustments for tax rates. 
    I agree, for example: a salary of Rs 20 lakh in Mumbai does not go as far as a similar
salary in say Bengaluru or Hyderabad. Rentals or property prices are just too steep in amachi
Mumbai. After all if agricultural income can be tax exempt because understandably farmers
do face a lot of hardship, shouldn’t the hardship faced by those in expensive Indian cities also
be considered? Perhaps cities can be classified as Class A, B and C and a cost of living
adjustment built into the tax rate? Or is this just wishful thinking? 
    It is pouring again, there go my plans of strolling along Colaba Causeway. Maybe I shall
go join Zenobia Aunty in her quest for tax news in cyberspace.

Retail FDI: It’s spirit of law, not form, that matters

“NO great advance has been made in science, politics or religion without controversy.” So
said Lyman Beecher, a Presbyterian minister and co-founder of American Temperance
Society. 
    Going by Beecher’s words, the latest discussion paper on FDI in multi-brand retail,
released by the department of industrial policy and promotion (DIPP) on July 6, is bound to
create history. 
    Ever since its release, the discussion paper has been a subject matter of many a great
debates in almost every form of electronic and static media. The paper discusses the current
scenario (along with its limitations) of retail trading in India together with relevant facts &
figures. 
    By and large, the paper seems to adequately highlight the noncompetitiveness of India’s
horticulture produce, primarily due to its weak supply chain. FDI in multibrand retail seems
to be a perfect answer to tackle this situation as it would speed up the development of cold
chains and back-end infrastructure facilities. 
    However, at this stage, the importunate ambiguity that seems to be of utmost importance
is: how much FDI should actually be allowed in multi-brand retail? 
    There can’t be an ideal answer to this as the Indian organised retail sector is still in its
nascent stages. However, a consensus seems to be that though the eventual intention of the
government should be to allow 100% FDI in multi-brand retail, the sector may currently be
opened up partially by allowing FDI up to 51% in multi-brand retail. Thereafter, in the course
of next five years, the sector may be fully opened up, depending on the kind of response
generated during this period. 
    Having said that, it may be envisaged by future regulations to necessitate that a certain
percentage of FD should be utilised towards up-gradation/creation of back-end infrastructure
facilities such as development of post-harvest and cold-chain infrastructure near the farmers’
field, logistics or agro processing facilities. Additionally, the foreign investors may be
mandated to bring with them technology and management know-how to ensure that
investment in organized retail works to India’s maximum advantage. 
    Prima facie, the concept of compelling the FDI-funded retailers to compulsorily sell to
small retailers does not seem to find too much merit since these large retailers shall already
be obliged to invest a certain percentage towards creation of back-end infrastructure facilities,
facilitate the sharing of technology & management knowhow and compulsorily procure from
SME. Adding another restriction in addition to the above requirements, with no definite
proof that this strategy would help the small retailers integrate into the upgraded value chain,
definitely seems stringent. 
    Another interesting suggestion put forth by the discussion paper is whether a ‘Shopping
Mall Regulation Act’ is required to protect the interest of small retailers. At a time when
government is determined to make most of the acts and policies easier and user-friendly, this
appears 
to be a step in the backward direction. Besides, too many restrictions and conditions might
make the sector seem uninspiring to the foreign investor resulting in the hammering of our
primary objective of developing cold chains and back-end infrastructure facilities. 
    The paper also makes a reference to the public distribution system, suggesting that the
government should reserve the right of first procurement on grounds of ensuring integrity of
the PDS system and maintenance of buffer stock. This stand may find favour with the
majority, especially against the backdrop of the pro-active National Food Security Act being
pursued by the government. 
    To ensure that the activities of FDI-funded retailers are closely monitored and perfectly
aligned with the promulgated regulations, these retail chains may be mandated to maintain
requisite records providing ample proof of compliance. However, due caution should be
exercised to ensure that these newly propounded laws /regulations are investorfriendly and
should not result in undue and excessive burden on the investor companies for it has rightly
been said that “it is the spirit and not the form of law that keeps justice alive”.

The BPL conundrum

Budgetary transfers to those on a ‘below the poverty line’ list lead to arbitrary
identification of the poor; so build incentives for self-selection by the poor into welfare
schemes, says Ajay Shankar

    OVER the last few decades the BPL (below poverty line) concept has become central to
our thought processes regarding poverty alleviation and inclusive growth. An increasing
number of welfare programmes target those below the poverty line. It was felt that economic
growth by itself would take too long to have the desired impact on poverty, which has been
extreme since colonisation, and, therefore, directed programmes targeting the poor were
required. There are, however, limitations of the BPL concept itself which need better
appreciation and greater discussion. 
    The problem with the BPL approach is that if one is lucky enough to get into the BPL list
one gets entitled to a flow of benefits. In the actual world of real villages, when one is
required to choose a certain fixed percentage of households as being BPL from a larger
number of similar households, it is very difficult to do so in a manner which appears fair and
just. Consequently these BPL lists are, often, subject to political controversy, complaints and
enquiries. It breeds a particular kind of political economy which is not conducive to good
governance. As state governments get central funds through many channels linked to the
number of BPL households, they have a natural incentive to try and push up the percentage
below BPL. This is usually a bone of contention between the centre and the states. 
    If one sees the situation from the point of view of the poor, who are left out it, appears
quite unjust. Under the Indira Awas Yojna a dwelling unit costing about . 45,000 is given as a
grant to a BPL household whereas an equally poor neighbour not fortunate enough to be BPL
gets nothing. This is equally true for every BPL-linked entitlement. When it comes to
subsidised food entitlements in the context of food security the debate regarding the correct
percentage who are BPL is vexed and has enormous implications for budgetary resources and
the deficit. 
    The more traditional welfare measures of free school education along with the midday
meal programme or free health care through government health centres and hospitals do not
present this problem of fairness. Everyone has the same entitlement. The wealthy may and
usually do opt for privately funded education and health care. If one looks at the more recent
NREGA, it is conceptually innovative as there is an entitlement to work at the minimum
wage and therefore the actual drawal of benefits depends on willingness to work and,
therefore, poses no issues of fairness. 
    The social welfare state as it evolved in Europe along with the maturing of the Industrial
Revolution addressed the issue of poverty but did not need to use the BPL list approach. It
rests primarily on four pillars: free education, universal healthcare, unemployment
allowances, and oldage pensions to ensure a reasonable living standard to all. There emerged
over time a social compact in favour of the high tax rates and the employer/employee
contributions needed to sustain the social safety net. Ironically enough it was Bismarck, the
architect of Imperial Germany, who became the first one to introduce the key elements of
universal healthcare, unemployment allowance and oldage pensions around 1890 as measures
required for social stability to make the industrialising German state stronger. 
    RAPID industrialisation combined with large-scale emigration to the New World and the
colonies gradually took care of rural poverty. Minimum wage regulations, unemployment,
healthcare and housing benefits for urban workers were the major instruments for
ameliorating poverty. Unemployment benefits also became a Keynesian fiscal stimulus which
kicked in automatically to moderate the downturn in the business cycle. Urban
unemployment and its objective registration was never problematic. This was also the case
with disability and oldage pensions. Each state had, however, to go through a complex
process of evolving its distinct mix between employer, employee and state contributions for
healthcare and oldage benefits. 
    A BPL list essentially allows the state to restrict expenditure where it feels it cannot afford
to provide benefits to the entire population. It is, therefore, very attractive to governments,
always facing severe budgetary constraints in India. There is, however, a strong case for
examining each welfare measure very carefully. Conceptually it is often possible to design
features which could have similar budgetary implications as programmes linked to a
problematic BPL list. Government has recently introduced a scheme for a 25% grant for
infrastructure for housing projects for weaker sections in urban areas. Caps on the size and
price of dwelling units is a workable criterion. The annual outlays on the Indira Awas Yojna
could actually sustain a much larger physical programme in rural areas if it was redesigned as
an interest/capital subsidy programme for a largescale weaker section housing scheme. 
    In the case of food if the subsidy was given for, say, wheat flour (atta) nutritionally
fortified with soya bean, then on grounds of popular taste, offtake would be restricted to the
really needy and it would also take care of their protein needs. It may well turn out to be the
case that the actual subsidy burden may be comparable without restricting supply to those in
the BPL list. The same could be the case with unpolished rice which is nutritionally better
and costs less. For energy in rural areas a workable barter arrangement for supply of cooking
gas and electricity in lieu of cow dung is an attractive proposition. Cow dung can be
converted locally into useful energy more efficiently with modern technology and without
emission of methane, the worst green house gas. These would be excellent clean development
mechanism (CDM) projects and may possibly require comparable or less subsidy than the
present kerosene subsidy. 
There are no easy options or magic bullets. But greater encouragement of out-of-the-box
thinking, public discussion, and willingness to experiment with genuine pilot projects could
provide interesting innovations which deliver greater welfare more equitably and efficiently. 

Mythical benefits of retail FDI

J SHAH & M G SUBRAMANIAN 

    POPULAR business press articles today vehemently support FDI in retail often leaving
readers with this perception that once FDI is allowed in multi-brand retail, the Wal-Marts and
Tescos of the world would enter India and revolutionise the agricultural practices and supply
chains for food products. It is further assumed that our farmers would receive higher share of
the retail price and consumers would enjoy food products at lower prices. Such similar
notions have often been supported through discussion papers produced by the department of
industrial policy and promotion as well as studies in organised retail by IFPRI and ICRIE. 
    The entire debate is often based on certain assumptions (‘myths’) which need to be
questioned. We outline these major myths and question their validity by looking at
experience from the US and Europe. 
    Myth 1. Farmers would get higher share of retail income with the entry of global organised
retail chains: Empirical studies in both the US and Europe have shown that farmers share of
retail income has steadily declined over time. In an empirical study using US data it has been
shown that farm value share of consumer expenditure for domestically produced farm foods
has steadily declined from 33% to 21% from 1970 to 1994. According to a European study,
the real farm producer price index of total farm production fell by 27% over the period 1990-
2002. 
    Myth 2. Increase in share of global organised retail would lower prices in food articles:
This is a major argument used by most of the studies which strongly favour entry of FDI in
retail. However, trends in the BLS (Bureau of Labour studies) food price index in US from
1950 to 2007 tend to somewhat mirror the general Consumer Price Index, with no steady
decrease or increase. So expecting the retail price in food products to decline with entry of
global retail chains is like chasing a mirage. 
    Myth 3. Global retail chains would procure directly from farmers: This is not simply true.
Currently Wal-Mart procures only 20% (mainly non-food category) of goods directly from
manufacturers. Most of the organised retailers procure from large wholesalers and other
intermediaries. 
    Myth 4. Global retail chains would invest in cold chain and we would see immediate
benefits in terms of reduction in wastages in fruits and vegetable sector: As has been seen
world over, organised retail usually starts with non-food items and slowly moves to dry food
category and over a period of time enters into fresh food category. In general, perishables are
difficult to manage world over and it is unlikely that it would receive too much attention from
global retail chains in the initial stages. 
    Myth 5. Models and practices followed by global retailers like Wal-Mart represent the best
supply chain practices and same models and practices would continue to be valid/optimal in
future for world in general and India in particular: The current global model of organised
retail was established when crude prices were relatively low and one was not worried about
carbon footprint in the supply chain deployed in the process. This model worked with hub
and spoke model involving concentrated production and storage systems. The current model
is highly energy and carbon intensive in nature. We believe this is neither desirable nor
sustainable in long run. 
    Myth 6. Entry of organised retail would result in higher jobs: This seems to be wishful
thinking. Of course higher growth of Indian economy would result in more jobs in retail in
general but there is no reason to believe that capital-intensive global retail chains would
relatively create more jobs compared to the unorganised sector. 
    Myth 7. There is level playing field between organised and unorganised retailers: One of
the major components of cost in retail is the cost of financing working capital. Unfortunately
unorganised retail does not have easy access to finance. Most of the retailers end up
borrowing money from informal money markets and with a result we are dealing an uneven
playing field loaded against the unorganised sector. 
    The war as we believe is not between ideologies. What worries one is the wishful thinking
on the part of public in general and industry and policymakers in particular who assume that
FDI in organised retail in India is the one stop solution to all problems. Yes, we have
problems for which we do not have ready-made solutions. Yes, we need to improve
productivity in agriculture and reduce wastage in supply chains. But, it would be naive for us
to assume that global organised retail chains would do the tough task of solving these
complex set of problems in agriculture production and distribution. We need to look at FDI in
retail as just another approach and not look at it as panacea for all our problems in
agriculture. 
    (Janat Shah is professor at IIM Bangalore 
    and M G Subramanian is an 
    independent researcher)

Expecting the retail price in food products to decline with entry of global retail chains is like
chasing a mirage 
It is unlikely that perishables would receive too much attention from global retail chains in
the initial stages 
There is no reason to believe that capital-intensive global retail chains would create more jobs

Govt mulls uniform criteria for declaring drought

PTI NEW DELHI 

THE government is developing a uniform set of scientific criteria for declaring drought in
any part of the country to overcome the problems arising out of divergent parameters used by
different states. At present, there is no uniformity in the criteria for declaring drought and
each state adopts different set of rules, taking into account the agro-climatic conditions. 
    As a result, it often becomes difficult for authorities to assess the authenticity, among
other things, of the claims by states for assistance in case of deficient rains. 
    “Efforts are underway to evolve a uniform criteria for declaring drought in any part of the
country,” deputy director general (national resource management), Indian Council of
Agricultural Research (ICAR), AK Singh said. 
    The idea is to use the latest scientific inputs on real time basis for parameters related to
weather, soil moisture and crop status and evolve an integrated index which can be used for
declaring drought, Mr Singh added. 
    The ministry of agriculture and the National Disaster Management Authority (NDMA),
with scientific inputs from National Remote Sensing Centre (NRSC) and ICAR, are working
on the project, said Singh, who is associated with the task. 
    The integrated index will have three components: standard precipitation index (normalised
rainfall deviations), normalised difference vegetation index (NDVI) and water balance, Mr
Singh said. The exercise is likely to be completed soon and a report would be submitted to
the agriculture ministry for further action, he added. 
    Despite widespread monsoons this year, there are several areas that have received below
normal rains and some of them have been declared drought-hit. 
    Recently, the governments of Bihar and Jharkhand have sought for 7,221 crore assistance
from the Centre to provide relief to farmers in the two drought-hit states. Inter-ministerial
central teams have been constituted to visit Bihar and Jharkhand to assess the drought
situation and the requirement of central assistance.

Ecological sense at Niyamgiri

JAIDEEP MISHRA 

    ENVIRONMENTS are not just containers, but are processes that change the content
totally, noted the savant who mused about communication mediums, messages and the global
village. That was then, in the halcyon days of the sixties, and well before the phrase
sustainable development had been coined. Fast forward to the here and now, and the decision
of the ministry of environment and forests to disallow bauxite mining in Niyamgiri hills in
Kalahandi district, Orissa, is clearly spot on. Niyamgiri is considered most sacred by the local
Kond adivasi population, and intensive mining activity would have been wholly alienating. 
    And apart from being socially devastating by forcefully removing its sense of mystery and
lingering myths, mining on Niyamgiri would have also caused huge environmental and
ecological damage in what is a fragile ecosystem. Besides, there are plenty of proven bauxite
reserves available elsewhere in the state, in adjoining districts and perhaps further afield in
Kalahandi, with requisite prospecting. At a broader level, the idea that income growth can be
positively beneficial for the environment needs to be qualified and nuanced. 
    Back in the path-breaking 1990s, the policy pundits did begin to take note of the growing
empirical evidence that willy-nilly suggested that rising income levels could be ‘good rather
than bad’ for the benefit of the environment. The evidence seemed to rubbish the notion of
opposing growth on environmental grounds. However, the reasoning that income growth by
itself will be good for the environment also appears to be questionable and cannot really be
taken at face value. For instance, a causal relationship between income and environmental
quality cannot often be shown as correlated. Further, cultural factors may actually hamper
and negate the income effects. Although, going forward, it is plausible to assume that with
proactive policy and rising incomes, better governance, more effective regulation and the
steady diffusion of technological change all do tend to generally boost environmental
protection on the ground. 
    Around Niyamgiri, for example, it would make better sense to rev up incomes by way of
eco-tourism, cultivation of medicinal plants and arranging for boutique, leisure holidays in
the lap of nature, for sustainable development. The environmental Kuznets curve, which
shows that degradation at first increasing and then decreasing with rising incomes need not to
be taken as inevitable, or verily a foregone conclusion. 
    In select habitats and regions, it should be eminently possible to chalk out plans for long-
term income generation via better social indices, scope for profit earning and the like, sans
large-scale physical damage to the environment. It is true that two years ago, the Supreme
Court did give its conditional goahead for mining on Niyamgiri, and called for sustainable
development, which cannot be faulted as a matter of principle. 
    However, the assumption that sacred space can be leveraged for guaranteed income
streams — note that apex court ruling mandated 5% profit share complete with a floor level
of annual welfare spend — may not be acceptable in practice. 
    In any case, Niyamgiri is in the Fifth Schedule areas, a constitutional provision. And it is to
safeguard and preserve the traditions and customs of the people living in the Fifth Schedule
areas that the Centre enacted the Panchayat (Extension to the Schedule Areas) Act, 1996 —
or Pesa — which came into force on December 24 of that year. And as per Pesa, gram sabhas
are duly empowered to protect and preserve community resources, including the right to
approve government plans, programmes and projects. Moreover, gram sabhas and panchayats
are required to be actively consulted, with a priority basis. 
    Mining on Niyamgiri may not lead to project displacement and rehabilitation. But that is
precisely the point: the environs are supposed to be so culturally significant so as to outright
discourage habitation. And hence the need to avoid mining and attendant activity in the hills.
Meanwhile, the Naveen Patnaik government has all along backed Vedanta Recources, in its
mining venture in Niyamgiri, with Orissa Mining Corp even forming a JV with Sterlite
Industries. The latter is a subsidiary of Vedanta. However, reports says that the Orissa
government has decided very much to enforce Pesa and other enabling laws. It has, for
instance, launched awareness drives to educate adivasis about their rights. 
    Recently, the Orissa chief minister, after visiting Narayanpatna block of Koraput district,
announced that the Orissa Scheduled Tribe and Traditional Dwellers Act, 2006, would be
amended, to ensure that tribals continue to live where they do. 
    Their sacred spaces surely also need to be protected as well. In tandem, bauxite can well be
sourced from Panchapatmali, in neighbouring Koraput, reportedly the world’s largest single
deposit, and where Sterlite already has a mining licence. The bottomline is that our cultural
sensitivity would shore up environmental protection.
The government has taken the right step by not allowing mining in the Niyamgiri hills,
protecting the fragile ecosystem 
A more sustainable way to augment incomes is via eco-tourism, cultivating medicinal plants
and leisure holidays 
Alternately, bauxite can be sourced from Panchapatmali, the world’s largest single deposit,
where Sterlite has a licence

New Food Rules

How will the proposed National Food Security Act impact livelihoods, cropping
patterns and productivity? Chhattisgarh, which has been running a right-to-food
programme for four years now, throws up some interesting answers, reports M
Rajshekhar

    IIn its heyday, Khosla must have been a beautiful village, with fields as far as the eye can
see and a pond around which its houses arrange themselves. Today, though, the houses are
ageing, the pond is algae-flecked and the streets a mess after the rains. In one of those ageing
houses, Ram Prasad Kurmi, a former sarpanch of the block in Chhattisgarh’s Janjgir-Champa
district of which Khosla is a part, talks about another kind of change. 
    “In the old days, whenever the MP, MLA or local babus came to the village, people
unloaded grievances on them —dissatisfaction with the ration shop, non-delivery of pension,
missing doctors and teachers,” he says. “Today, they only ask for a second ration card.” Such
a difference a ration card makes to the lives of the poor in Chhattisgarh. 
    For four years now, Chhattisgarh has been giving 35 kg of grain — comprising rice and
wheat — a month at heavily subsidised rates to 3.6 million of its 4.4 million households. The
ultra-poor pay Re 1 per kg, while the poor pay 2 per kg, against the market price of 12-17 a
kg. The ration card is the document that enables this subsidised transfer. 
    This transfer of grain has come to mean many things to many people. It’s a stamp of food
security. It’s a passport for choices they didn’t have earlier: to work on the fields or in
industry, to grow subsistence crops or cash crops, to consume their produce or sell it in the
market. 
    Chhattisgarh wasn’t the first state to roll out a near-universal food-security programme.
Tamil Nadu was, in the nineties. However, Tamil Nadu is not a large producer of paddy, from
which rice is derived; Chhattisgarh is. Hence, Tamil Nadu’s farmers could never be touched
by the programme the way Chhattisgarh’s farmers are. Chhattisgarh not only diminishes the
fear of hunger that sits at the heart of the livelihood strategy of the poor, it also assures
farmers of a market for their produce. 
    The Chhattisgarh programme has come to impact the lives of everyone involved: the
labourer, the small farmer, the large farmer, the middleman, the mandis and the government.
Food security is just the starting point in Chhattisgarh. The myriad ways in which such a
welfare programme touches lives and other aspects of the economy have shaped — and
accelerated — several ongoing trends. These might well be replicated, in varying degrees, as
and when the Centre rolls out a national food programme on similar lines. 
There’s a drop in starvation numbers 
A food-security programme is also a cashtransfer scheme. At the current price of 
grain of 12-17 per kg, it would cost a 
Chhattisgarhi household 420-595 to buy 35 kg of grain from the market. Through 
the scheme, they pay 70. That’s a saving of 
350-525 a month. 
    The scheme has created a safety net for the poor, says Yasna Singh, a PhD student at the
London School of Economics, who recently finished her field work on the Satnami
community in Meu village of Janjgir-Champa. “People are now eating two meals a day,
which is a new experience for many of them.” Adds local right-to-food activist Vibhishan
Patrey: “We don’t hear about starvation deaths anymore.” 
    Nutrition levels have improved, but only marginally. While the programme has protected
people from a rise in prices of rice and wheat, it hasn’t insulated them from the price
escalation in pulses and oilseeds. Says Samir Garg, advisor (Chhattisgarh) to the
commissioners of the Supreme Court (food security): “My guess is we are stagnant on the
nutrition front, the gains from the food security programme counter-balanced by inflation.” 
The labourer is getting empowered… 
For labourers, things are getting better, relatively speaking. Historically, labourers have
worked in the fields for subsistence. Instead of money, they would take home grains. But
with the public distribution system (PDS) assuring a minimum supply of grains, they would
rather work for money than for food, which they can use to buy other staples or anything else.
“In that sense, it confers freedom from village labour,” says J Jeyaranjan, director, Institute
for Development Alternatives. 
    Reetika Khera, a development economist, says the agrarian economy across India is
monetising. “There is a greater need for money and greater supply of it,” she says. This
process has been accelerated by inflation. “Earlier, we could buy vegetables for one kg of
paddy,” says Shiela Tandon, a resident of Meu. “Not anymore.” 
    In Tamil Nadu, the food-security programme accelerated a move towards work for money.
Says Mr Jeyaranjan: “Agriculture, which was giving the household food and money, had to
compete with other activities that provide only money.” In Chhattisgarh, labourers go to work
in brick kilns and mines. Or, they migrate. 
    Says Sunil Kumar, the editor of Dainik Chhattisgarh, a Raipur-based daily: “Migration
from the Janjgir-Champa district continues unabated.” A big reason for the continuing exodus
is the lack of alternative employment opportunities in the village. In Chhattisgarh, the
National Rural Employment Guarantee Scheme (NREGS) is corrupt and doesn’t inspire
confidence among villagers — either in terms of providing work or paying on time. And so, it
seems the pressure for landless labourers to migrate has not been reduced by greater food
security at home. 
…at the expense of the 
small farmer 
    Labourers working less or migrating puts farmers, who depend on local and cheap labour,
in a bind. Bharat Lal Sahu, a large farmer in Meu, says the scheme is making workers lazier.
“Where I need 10 labourers, I get just two or three. And even they ask for 100 a day, against
the 50 earlier.” 
    Labourers in Chhattisgarh, empowered by the all-around changes brought on by the food-
security programme, now prefer to work for large farmers, for 120-130 a day. They are
organising themselves for better bargaining power. In the Bastar block, they increasingly
move around — and negotiate contracts — in groups. For instance, to transplant paddy in a
farmer’s field over 10 days, in return for a consolidated sum. 
    More than the large farmer, it’s the small farmer who is being squeezed by these
realignments. Take Kulu Ram Dewani, a farmer 
with four other family members. A resident of Bastar block, he has one acre of land, on
which he grows paddy. 
    On the one hand, his 35 kg entitlement lasts 15 days. So, he doesn’t dare sell most of his
harvest. That means he doesn’t have much cash income. But his labour wants to be paid in
cash. “I can’t compete against large farmers,” he says. “I can neither offer them (labourers)
work for a large number of days nor accommodate so many people. And all I can pay is 50-
60 a day.” But, in the new dispensation, that is not the ‘market rate’. 
    This experience might be different for farmers who rent land from larger farmers and give
them part of the harvest, says PS Vijaya Shankar, co-founder of grassroots organisation
Samaj Pragati Sahayog. “Mostly, the terms of contract are loaded heavily in favour of the
landlord. If minimum assured consumption is provided through PDS, the sharecropper will
have a greater incentive to cultivate cash crops.” They could take on higher risks and try their
hand at earning more. 
Paddy is becoming a commercial crop 
Paddy, from which rice is derived, is big in Chhattisgarh. About 63% of its arable land is
under paddy, which has historically been a subsistence crop. Of the paddy they grew, farmers
would first think of seeds for next year, for self-consumption and for paying the farm labour.
The surplus, if any, would be sold in the market. This is changing. 
    Now, the PDS gives them 35 kg of grain every month at a maximum of 2 per kg. For a
five-member household, this will last about 15 days. What farming households are doing is
retaining just enough from their harvest to make up the shortfall and selling the rest. 
    There’s also incentive for them to sell in the market. The minimum price Chhattisgarh pays
for paddy has increased from 775 a quintal in 2007 to 1,080 in 2010. Further, the state
government has committed to buying every kg of paddy put into the market by farmers.
Explains Rajeev Jaiswal, joint director, Chhattisgarh’s food and civil supplies department:
“We cannot cap procurement at 1.6 million tonnes (what the state needs to feed its PDS)
because large farmers would find a way to sell their produce first. This would exclude the
small farmer.” 
    However, acreage and production numbers, as put out by the state’s department of
agriculture, indicate the farmer in Chhattisgarh is not shifting from other crops to paddy. In
2006-07, when the state started giving 35 kg of grain, its area under paddy was 3.8 million
hectares. In 2009-10, this dropped to 3.5 million hectares. “Land under paddy has peaked,”
says Jaiswal. “We will now see a move towards other crops.” Similarly, rice production has
dropped marginally from 5 million tonnes to 4.95 million tonnes. But this is also a function
of rainfall — just 30% of the cultivable land in Chhattisgarh is irrigated. 
    Other numbers, less hostage to environmental factors, suggest a pick up in commercial
farming, led by paddy. Farmers are looking at agriculture differently. The offtake of seeds
has increased from 128,000 quintals in 2006-07 to 319,000 quintals in 2008-09. Says
Umashankar Banjare, a rural extension worker in the Pamgarh block: “In the past two to three
years, established seeds like swarnadhaara (a high-yielding paddy variety) have been replaced
by even higheryielding varieties.” 
    This trend is corroborated by RK Chandravanshi, deputy agriculture director, Department
of Agriculture, Chhattisgarh, who says the area under high-yielding varieties climbed from
52% in 2004 to 62% in 2009. Similarly, agricultural credit has increased from 457 crore in
2006-07 to 931 crore in 2009-10. 
    While it wouldn’t be accurate to attribute these changes entirely to the food-security
scheme, it’s likely that the arrival of the food-security scheme has accelerated these trends. It
has given farmers the confidence that the government will buy all that they grow, thus
improving their willingness to invest in the crop. 
    It’s possible that the availability of cheap food from the PDS could persuade medium and
large farmers to diversify into cash crops. But, says Shankar: “Punjab shows that government
procurement of rice and wheat is associated with a disappearance of all other crops and end
of crop diversity.” 
The grain mandis are losing relevance 
Ten years ago, Chhattisgarh grew 4 million tonnes of paddy, of which the state government
acquired 300,000 tonnes, or 7.5% of the produce. In 2009-10, it grew 7.6 million tonnes; of
this, 4.4 million tonnes, or 58%, was procured by the state. Of the rest, says Jaiswal, the state
government official: “Only about 500,000 tonnes went to the mandis, the rest being retained
by farmers as seeds or for self-consumption.” 
    Chhattisgarh bypassed its mandis in paddy procurement, instead buying through
cooperative societies and procurement centres at the village level. The mandis, though, are
unaffected, as the societies have to pay a procurement tax, the revenues from which go to the
mandis. However, says Rakesh Kumar Sahu, an accountant at the Akaltara Mandi: “Traders,
especially those who don’t have milling operations, are being badly affected.” 
State energy & funds are poured into this scheme 
Chhattisgarh has an expenditure budget 
of about 25,000 crore, half of which comes from the Centre. From its portion 
of 12,000 crore, the state spends about 
1,600 crore — or 13.3% — on the foodsecurity scheme. By virtue of becoming the state’s
flagship programme, it gets disproportionate attention from administrators. “Collectors start
their meetings by asking about the PDS,” says Samir Garg, advisor (Chhattisgarh) to the
commissioners of the Supreme Court (food security). “The same level of attention and
funding is yet to be given to other welfare programmes.” In the various forms it is being
debated, the proposed national Food Security Act 
will cost the Central government 80,000-90,000 crore. So far, much of the discourse has
centred on who should get the subsidised grains, how much and at what price. Chhattisgarh is
throwing up broader issues that also need to be factored into the ongoing discussion.

The Labourer 
When we met her, Sanita Kadha was working in a relative’s field. For her efforts that day,
she would be paid Rs 60 — a good jump over Rs 20-30 two years ago. Large farmers in this
part of Bastar have been shifting from paddy to corn and other cash crops. Between that and
NREGS, work is easier to come by. And the food programme helps
The Big Farmer 
Ten years ago, Golchand Nayak did something different. On his 25 acres of land in Bastar, he
stopped growing paddy. “It was difficult to get labour during the growing season, as most
labourers were occupied on their own small tracts,” he says. He now plants tomatoes and
cucumbers in November, uses groundwater for irrigation, and farms till the end of August.
The Small Farmer 
Unlike Kadha and Nayak, small farmers like Kulu Ram Dewani are struggling. He grows
paddy on his one acre of land, but sells none of it. His family’s 35 kg PDS entitlement
finishes in 15 days and he needs his harvest. Other things complicate his life. Labour is
getting costlier and wants to be paid in cash, but he doesn’t have an income and doesn’t get
loans.
State Reaps A Rich Harvest 
Since Chhattisgarh began its food programme in 2006, agri-credit has grown at twice the rate
it did in the last five-year block. And rice production is expected to see a spike this year.

Habits die hard: New fertiliser scheme fails to dent urea use

Our Bureau NEW DELHI 

    THE NEWLY introduced nutrient-based subsidy (NBS) policy seems to have failed to
change the consumption pattern with most farmers still preferring to use urea, the cheapest
fertiliser available in the market. 
    Consumption of urea has increased in the first few months of the nutrient-based subsidy
(NBS) policy, contrary to expectations that it would lead to a balanced use of fertilisers.
Consequently, the central government’s subsidy spend on the fertiliser will remain high,
defying projections of a lower bill in 2010-11, if the trends in this kharif (summer sowing)
season up to the end of July are any indication. A macro picture of consumption this year will
only emerge by the end of the fiscal. 
    Sale of urea in kharif 2010 season up to July 31 rose to 73.59 lakh tonne from 68.05 lakh
tonne in the same period last year. Th e ministry has noted a close to 10% increase in the
supply of fertilisers annually since kharif 2008. Overall urea use last kharif stood at 136.65
lakh tonne compared with 120.03 lt in the previous year. Overuse of urea has led to soil
degradation and abysmal lack of nutrients in several key crop regions, stalling crop
productivity. 
    Industry analysts believe that deregulation of urea imports will result in lower subsidy
bills. Urea accounts for more than half of the country’s fertiliser consumption. Currently,
only government agencies are allowed to import the fertiliser. 
    The NBS was aimed at allowing more efficient fertiliser companies to neutralise the
impact of volatility in prices, introduce innovative products and promote balanced
fertilisation. But it now appears that the policy has failed to address some of these issues. 
    The current trends on the consumption of urea have renewed the demand for the
government to urgently decanalise the import of the commodity, a proposal made more than
six months ago. Urea has accounted for over half of India’s fertiliser consumption.
Currently, only parastatals are allowed to import urea. But industry sources believe that
allowing individual companies to import at the best prices will peg down overall subsidy
spends. 
    In 2009-10, the fertiliser subsidy spend of the Centre on indigenous urea totalled 17580.25
crore and another 6999.63 crore was spent on imported urea. In volume terms, imported urea
went up to 52.10 lakh tonnes in 2009-10 compared to only 20.57 lt in 2005-06, burgeoning
the urea subsidy bill each year. The government's fertiliser subsidy spend for 2009-10 stands
at 64,932 crore but it has signalled its desire to reduce this to 1.5% of the GDP by 2011-12. 
    Significantly, for the first time in years, the new policy has ensured that availability and
supply of DAP is far exceeds the demand for the season. .." The government has actually
been pleading with us to hold off supply of DAP, MoP and other key fertilisers since there is
ample supply compared to demand. This is perhaps the first time in years that there has been
no report of shortage anywhere." an official of the Fertiliser Association of India (FAI), 
    A fertiliser ministry official acknowledged "Somewhat worrisome is that urea use has
increased under the NBS. But there used to be a maximum dearth of DAP for the last 4-5
seasons. The main problem was of supply and availability. In the last three years, the
consumption of DAP was 43.55 lt,59.51lt and 68.75lt respecively. We have tried out best to
meet the entire requirement of DAP in states because we want farmers to use a NPK in a
balanced manner. . " 
    Endorsing this, a ministry official maintained "Requirements of fertilisers for both kharif
2010 and rabi 2010-11 have already been firmed up. Fertiliser companeis have assured us
production and import of fertilisers for all of 2010-11." In a recent reply in Parliament on the
subject, fertiliser MoS Srikant Jena acknowledged that in addition to indigenous production
of DAP (45lt) and complex ferts (87lt) and import of 70lt of DAP, 45lt of MoP and 11 lt of
complex fertilisers have been committed so already by the industry.

Acquire land,pay well:Sonia Gandhi

Congress Chief Cites Haryana’s 8-20 L Per Acre & Annuity For 33 Years As Model;
Sets Stage For Amending 115-Year-Old Land Acquisition Law

Our Political Bureau NEW DELHI 

    WITH the hinterland witnessing several violent agitation against land acquisition,
Congress president Sonia Gandhi on Thursday pitched for a policy that will ensure proper
compensation for the displaced. 
    Ms Gandhi suggested that Haryana’s land acquisition policy was worth emulating, setting
the stage for a drastic overhaul of a draft bill prepared by the Centre for amending the 115-
year-old land acquisition law. Although she acknowledged that problems over land
acquisition should not be allowed to disrupt development, Ms Gandhi said it should not be
done at the cost of farmers’ interests. “New industries and infrastructure cannot be built
without acquiring land. This is obvious and there is no argument about it. But land
acquisition must be done in a manner that it does not result in loss of large tracts of fertile and
productive agriculture land,” she said at a function here. 
    Ms Gandhi also said that the compensation package should be a mix of cash and annuity
benefits. “Farmers must be provided adequate compensation and an alternative
occupation. Some states like Haryana have progressive legislation in this regard and other
states should emulate it,” Ms Gandhi said. Haryana has been offering highest market rates in
the country for the land acquired from farmers for development projects. The state
government has fixed the minimum floor rates for acquisition of land ranging from Rs 8 lakh
to Rs 20 lakh per acre depending upon the area. Farmers also get an annuity for 33 years over
and above the land compensation. The annuity has been fixed at Rs 15,000 per acre per year,
with an increase of Rs 500 per acre every year, for 33 years. 
    Besides this, state agencies like the Haryana Urban Development Authority (Huda) and
Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) offer
residential and commercial plots through direct allotment to farmers who have been ousted
from their land. Ms Gandhi’s intervention was not unexpected as the National Advisory
Council headed by her have been demanding changes in the draft prepared by the Centre. A
section of the NAC is of the view that the yield per hectare idea should be also incorporated
in the proposed law. 
    Politically, the issue is of importance for the Congress as attempts are now being made by
its rivals to corner the UPA government it heads over land acquisition. After Rahul Gandhi
took up the case for displaced Uttar Pradesh farmers, the Mayawati government had, last
week, come up with a new acquisition law that is seen to be an improvement on the Haryana
policy. The Supreme Court on Wednesday had leaned in favour of UP’s policy and said that
land rights must give way to development. A two-judge bench, comprising Justices VS
Sirpurkar and Cyriac Joseph, endorsed the Mayawati government’s acquisition of 25 million
square metres of land along the six-lane Yamuna Expressway project. “The scale of justice
must tilt towards the right of development of the area, as against the human rights of 35
petitioners,” the court had observed. 
    But the Centre’s efforts to put in place a new policy may not be easy as a section within the
government is against any role for it in acquiring land for the industry. Trinamool Congress,
which captured the West Bengal electorate’s attention with the struggle in Nandigram and
Singur, has already told the government that it cannot bank on its support for the passage of
the legislation.
Optimising growth to benefit the poor

The National Council for Tribal Welfare can prove its worth by proactively working to
ensure that the laws are implemented in letter and spirit, while enabling development
activity in tribal areas, says Mukul Sanwal

    THE decision to withhold forest clearance to a mining project in the tribal area of Orissa is
a turning point in the evolving national consensus around sustainable development, because it
focuses attention on a neglected dimension of sustainability — the social dimension, or
impact on the poor. 
    It is timely, because we will be making increasing demands on natural resources as we
consume vast quantities of steel, cement, aluminium, chemicals and fertilisers needed for
infrastructure, urbanisation and food security essential for the eradication of poverty. Almost
all the mining will take place in the tribal areas. 
    As the finance minister pointed out to the Standing Committee leaping the ‘double-digit
growth barrier’ and, ensuring that the growth is tempered with inclusiveness, equity and
concern for the aam admi can be met only through sustained investment in infrastructure. We
plan to invest . 4.1 trillion ($880 billion) in the period 2012-17, in the XII Plan, as compared
with $541 billion in the current Plan. 
    It has yet to be recognised that the stress on infrastructure, and related mining, because of
the vast areas covered, requires a corresponding shift from focus on the exploitation of
natural resources (the economic-environmental dimension) to the role, allocation and
valuation of ecosystem services provided by these natural resources (the social dimension). 
    Currently, the different ‘environmental’ clearances consider only a part of the problem, and
the interests of the tribal’s are invariably neglected. For example, environmental impact
assessment essentially considers the technology used and environmental damage by the
pollution caused directly on air, water and soil, ignoring the changes in ecosystem services
that result and the consequential economic and welfare impacts on the local population. 
    The Forest Rights Act provides detailed procedures, and safeguards, only in cases where
the rights of tribals are affected in critical wildlife habitats of national parks and sanctuaries,
and these provisions need to be extended to diversion of forest lands for development of
infrastructure projects. 
    A new poverty index, recently developed by the United Nations, stresses the role of
services such as electricity, water and sanitation in the eradication of poverty. It shows that
the numbers of poor is more than economic indicators indicate, and has important
implications for defining the resettlement or alternatives package in terms of not only
compensation for land, and establishment of schools and hospitals but also access to modern
services. 
    The Forest Rights Act’s definition of ‘community forest resource’ recognises that reserve
forests were created out of the traditional, or customary, boundary of villages, over which all
the local inhabitants had ‘unlimited’ rights. Therefore, there is no need to determine the
nature and extent of these historical rights based on the restrictive approach taken by colonial
administrators in recording such rights. 
    We also know that markets fail to capture most ecosystem service values. Existing price
signals only reflect — at best — the share of total value that relates to provisioning services
like food, fuel or water and their prices may be distorted. Even these services, where carried
out as part of community management of shared resources, often bypass markets. The values
of other ecosystem services are generally not reflected in markets apart from a few
exceptions, such as tourism. This is mainly explained by the fact that many ecosystem
services are considered ‘public goods’ or ‘common goods’: they are often open access in
character, but are really a community resource, and have now been recognised as such in the
tribal areas, under the Forest Rights Act. 
    THERE is also a lack of clarity about the nature of these rights. Private and public
decisions affecting rights of forest dwellers rarely consider benefits beyond the immediate
geographical area (e.g. from watershed protection). They can also overlook local public
benefits (e.g. provision of food, fodder and fuel) in favour of private benefits (e.g. from
mining and commercial timber extraction), even when local livelihoods are at stake, or focus
on short-term gains to the detriment of the sustained supply of benefits over time (e.g. in the
case of fisheries). Benefits that are felt with a long-term horizon (e.g. from climate
regulation) are frequently ignored. This systematic undervaluation of ecosystem services and
failure to capture the values is one of the main causes underlying today’s crisis in the tribal
areas. 
    Public policies, therefore, have an essential role to play in ensuring that the main types of
benefits are identified and taken into account in implementation of decisions affecting the
rights of tribals, to avoid grossly underestimating the overall value of ecosystem services,
rather than have individual tribals put forward ‘claims’ before the gram sabha, that are
required to be based on documents they were never provided. 
    Almost exactly one hundred years ago, consequent on the reservation of village forests in
Kumaon, and responding to a violent agitation, the government in fact dereserved almost half
the forests and handed them back to the local community, limiting the control of the forest
department to commercial transactions. Village (Van) Panchayats were established, and some
of them continue to be in a better condition than reserve forests. This may well be a drastic
solution, but is certainly an option that should be considered. 
    Similarly, innovative strategies must focus on non-regulatory longer-term approaches to
restoring, protecting and sustainably using natural resources that can also lead to new
livelihood and economic opportunities for the poor and renewed ecosystem vitality, for
example, payment for indigenous crops and traditional knowledge of biodiversity and water
management will increase agricultural productivity, improve health and ensure long-term
sustainability of forests. 
    Government needs to review the policy levers, strategies and market frameworks needed
for analysing, recognising and integrating the value of ecosystem services into decision-
making processes vesting forest rights in tribals, as only then will the concerns of the poor be
met. The way the forest conservation issue is framed around ecosystem services will
determine strategic goals related to economic growth, impact on other policy arenas and alter
policy objectives with respect to the poor.

Hike farm land compensation: Basu

Chief Economic Advisor Feels Forecast Of 9% GDP Growth Next Fiscal Year Quite
Realistic, Sees 8.5% Growth This Fiscal

    CHIEF economic advisor to the finance ministry Kaushik Basu says the government
should step in and acquire land for development projects to protect the interests of
farmers. He also explains why the government cannot tackle food inflation by
distributing free foodgrain among the poor. Excerpts from interview with Deepshikha
Sikarwar and Vinay Pandey: 

A large number of land-intensive project have run into opposition. Could it actually
undermine our infrastructure thrust and growth? 
    There is no getting away from the fact that some land will, over time, have to shift from
agriculture to industry. This is a concomitant of development. China has done this in a big
way. We don’t want to do it the same way—indeed we can’t, given our democratic structure.
The US, which treats private property as sacrosanct, has eminent domain law to enable
acquisition of land for public and socially valuable private sector projects. The way this has
to be done is by compensating farmers and local inhabitants substantially above the
prevailing market price. There is a huge difference in market price before and after an
industry comes up; and, I would want farmers to get the benefit of this future price rise. At
the same time, one cannot take the view that each farmer has the right to hold up a project. If
we do grant such a right, then we will be violating the rights of those farmers who want to
sell their land to industry. 
    One of the biggest needs for India is industrial development in small towns and the rural
hinterland. This will create employment and boost development. For this to happen what
government has to do is to provide power, law and order, and road connectivity and then
leave it to the enterprise and creativity of the people. We should use the entire golden
quadrilateral, where the road is already there, to develop industry along it. The aim should be
to create an “industrial diamond” cutting across the length and breadth of the nation. 
Do you think government should help private sector to acquire land? 
    Yes. The private sector, left to its own devices, could use unfair threats and force against
poor farmers and tribals. We don’t want that to happen. We need a legally welldesigned
method for acquiring land. The government has to mediate in this acquisition and after that
let private industry function with minimal interference. 
What about the environment issues with the resource-rich industries? 
    Environment is a difficult issue. All I can say is that we have to be vigilant in protecting
our environment. But, at the same time, this cannot be at the cost of holding back our poor
people in poverty. At some point we will have to face the troubling question of whether
nations as big as India and China can prosper economically, taking along their entire
population? Will the limits of global resource make that impossible? I am not foolish enough
to claim I have answers to these questions. 
The government seems to be confident of achieving 9% economic growth next fiscal. But
independent economists are not so optimistic. Why this disconnect? 
    I don’t think all private economists are pessimistic. Morgan Stanley has given a very
optimistic forecast. And the IMF—I don’t know if you call it private or public—has also
given us a bullish forecast. I believe our forecast of 9% GDP growth next fiscal year is quite
realistic. This is not to deny that there are downside risks. The biggest one is the European
economy. If it goes into a recession, it will affect us. But it speaks well of India that its main
worry is Europe. The other concern is the balancing act one has to perform between inflation
and growth. An excessively sharp tightening of monetary and fiscal variables can rapidly
bring down inflation, but this will inevitably slow down growth and increase unemployment.
I expect the second quarter growth this year to be less than 8.8% achieved in the first quarter.
But the third quarter should be very good. On an average, the current year should achieve an
8.5% growth. 
How do you explain stubborn food inflation when we have mountains of foodgrain? 
    It is an unfortunate fact that we have overflowing stocks of grain, some of it going waste,
and high food prices. There are ways of intelligently releasing these stocks; we have to use
those. If we simply open the doors and sell these stocks at zero or near-zero prices, it is likely
that substantial parts of this foodgrain will be resold to government at the minimum support
price. So we will end up paying subsidy multiple times for the same grain. On the other hand,
if in the name of managing the fiscal deficit, we try to release it at too high a price, no one
will buy it. What we need is a systemic reform of our foodgrains system—both procurement
and distribution. We should, for instance, have a procurement policy which is cyclical—
procuring more in years of plenty and procuring less in years of shortage when the market
price is anyway high. 
    Further, if stocks are greater than what we can use, instead of letting them rot, we should
be prepared to export the excess. And in case we are worried about food supply in bad years,
it is now possible to sell as swap deals whereby the buyer assures us of selling back the
equivalent amount in a future year. This is, in effect, no different from storing the excess and
taking it out when we are short of food. 
How do you see the recent moderation in industrial growth? 
    Our industry is still in the recovery mode after the downturn of 2008-10. Keeping that in
mind, its performance is very good. In Q1 industry grew at 10.3% and manufacturing at
12.4%, which is almost back to the performance of 2005-08 when the economy grew at over
9% for three consecutive years. Indeed, what is happening right now is rare for India—
industry is outperforming the services sector. Services are not doing badly, but by our own
standards we are not quite there. Since our services sector is so outward looking, it is
reasonable to expect that once the industrialised nations begin to do better, we should be able
to climb up from the current growth of 9.7% to 11% that we earlier achieved. I should also
mention that industrial growth of 12.4% means that employment is being generated in the
economy. The two sectors doing particularly well within the industry are capital goods and
consumer durables. The first shows optimism among firms and the second shows optimism
among consumers. So not only have we done well this year but the long-term prospects look
good as well. 
There is a view that RBI should pause interest rate increases because of a moderation in
industrial and exports growth, although inflation remains a concern. 
    There are times when action is obviously needed and times when action is not needed. The
current situation is in the cusp of the two. Growth is comfortable, especially so by all
international standards. But inflation, though slowing, is by no means gone. Food price
inflation was tapering off but there is concern about global food prices. There is a large
shortfall expected in global wheat production; the estimated decline is largest in fifteen years.
This is pushing up global wheat price rapidly. We have to keep a close watch on this. And it
is important that we continue with our fiscal tightening. 
Do you think opening up of multi-brand retail can pump in investments into rural
infrastructure, especially back-end cold chains? 
    I am in favour of greater opening up of the retail sector. A lot of Indian firms will tie up
with foreign firms that have the know-how. Both farmers and consumers will do better;
middlemen will do worse. Large multibrand retail has been the trend worldwide; it will be
folly to resist this alone. 

RAMAN SINGH CHIEF MINISTER, CHHATTISGARH

We have given food security model: Raman

CHHATTISGARH, long known as the epicentre of Left-wing extremism, clocked the highest
growth rate among all states in 2009-10. The emergence of the state as a ‘miracle economy’
is yet to loosen the grip of politics of misery-mongering. Chief minister Raman Singh
discusses the state’s growth journey and its challenges with Bharti Jain. 
Chhattisgarh is the latest growth story, having ranked first among states with 11.49% growth
rate. What are the factors that enabled this growth? 
We had been maintaining a healthy 10.4% growth rate over the past four years,
notwithstanding the disadvantage of being a land-locked state, afflicted with Left-wing
extremism. Infrastructure sector, in particular, recorded good growth in 2009-10. Growth in
agriculture and allied sectors was at 4.94%, which I think leaves scope for improvement. 
You have a much talked-about food guarantee programme. Many say it should be replicated
at the national level. 
The food security model has been developed by Chhattisgarh government over the last six
years and will be useful for the country. After all, wheat, rice or salt should reach the last
man. 
I have suggested to the Centre to replicate the food security system that we have developed,
as it is, on the national level. It is a ready, successful model. How each state will implement it
should be left to states. You have to trust self-help groups and the elected panchayat. Once
Unique ID is given, one can aim for 90% coverage. Biometrics will rule out any duplication
of beneficiaries, besides enabling on-line tracking of PDS consumption. At my meeting with
the Planning Commission on Wednesday, the Centre agreed in principle to adopt the
Chhattisgarh model for its food security scheme. That, in itself, is a big achievement for us. 
How do you to plan to sustain the growth rate? 
Our aim is to not only maintain 11.49% growth rate but also accelerate it. The growth rate in
agriculture was 4.94% last year... our challenge is to increase it. That will be our focus in the
coming years. In the next three years, with more power projects slated to come up, growth in
core sector will also witness a jump. 
What else will be your focus? 
We are now focused on 70% of the population who need the government for access to
schools, food, medical care, etc. The remaining 30% can look after themselves. We will
address agriculture and social sector concerns in the next 2-3 years. We have lot of scope for
improvement when we compare our agricultural production with Punjab and Haryana. We
have 31% irrigated area, and new pump connections will add to this. We plan to increase
production and also get into crop diversification. 
Don’t you think grievances of tribals, about resources being exploited without any contingent
benefit to their areas, are genuine? 
It is correct that Chhattisgarh is divided between haves and have-nots. But the Naxals’
argument that the have-nots are created by the state government is a myth. In Bastar, only
NMDC or SAIL have the rights to carry out mining. No MNC has mined iron-ore ever in
Bastar in the last 60 years. Therefore, the charge that the state government is exploiting
tribals in collusion with MNCs is baseless. 
NMDC makes profit worth 10,000-15,000 crore from Bastar every year. According to a
Supreme Court directive, any PSU or private player mining in a tribal area should spend 20%
of the profit on social sector initiatives there. I have asked the prime minister, apart from
chairmen of the NMDC and SAIL, and the concerned ministers, why this directive was never
followed. After all, had NMDC even spent 10% of its profit on social sector in Bastar, the
problem would long been solved. They are barely spending 2-3% of their profits. 
There are reports about pilferage of coal worth 200 crore by a particular company in
Chhattisgarh. And there could be many such firms... 
One Prakash Industries was given a coal block by the government of India. It is active in steel
and power. They were also given a linkage. GoI should have examined if the coal Prakash
Industries was getting from the its mining lease was enough for its current capacities, and
accordingly discontinued the linkage. Why should go by Prakash Industries’ claims that it
needed both the lease and linkage to take care of its needs? But as per our own assessment, it
is not easy for a mining company to mine coal and then sell it all to another company as all
companies have linkages. But if GoI feels this has been done, the linkage can be easily
cancelled right away. 
What is your view on the declaration of Hansdeo Arand forests as a ‘no go’ area by the
ministry of environment and forests? 
We have clear-cut opinion. If you feel Hansdeo Arand is a ‘no go’ area due to its rich forests
and wildlife, why have you notified it? First the Centre notifies an area, allots it to screening
committee and spends nearly 00 crore on prospecting. And when finally a projects ends up at
the MoEF’s desk — by which time, the mining company has acquired land and ordered plant
machinery — the area is declared a “no go” area. 
    This is wastage of national wealth. The government has set a target of 60,000 MW power
generation... if most areas are classified as ‘no go’ areas, where are you going to get meet this
target from? 
What do you have say about reports on illegal mining in Chhattisgarh? 
Mining in Chhattisgarh is essentially carried out by NMDC and SAIL. My officers and I
know each and every inch of the mining area in Chhattisgarh. Illegal mining is not easy to
miss...it takes nearly 10 years for a miner to set up a plant. There is no illegal mining going
on in the state. 
Naxalism is bleeding your state for the past several years. Your critics say that your
government has no specific action plan. How do you plan to contain the problem? 
It is not long before we can get a hold on the Naxalites, as has been done in Andhra Pradesh.
The problem may be contained to a great extent in another two to two-and-a-half years. We
are undertaking concerted police action while also strengthening police stations and posts in
Naxal-infested areas. At the same time, we have started initiatives for tribal welfare. Our
commitment towards tribals is established by the fact that 45% of the state’s social sector
budget is earmarked for tribal welfare.
For fair land acquisition

Modernise Land Acquisition Law

    THE Supreme Court’s nod for the Yamuna Expressway project is positively welcome, but
it’s wholly avoidable that land acquisition across India should involve protests, street
violence and the spilling of blood. What we clearly need is pro-active policy to rightfully
compensate land-title holders and others dependent on the land. Farmer’s rights must be
heeded and respected, as reiterated by Congress President Sonia Gandhi. Now it is inevitable
that with rising incomes, and ongoing structural diversification of the economy away from
farming, land should be diverted to build urban spaces that house industry and services. It’s
also a no-brainer that public-private partnerships are required for land acquisition given the
dearth of governmental funds, as in the Yamuna project, which would link Greater Noida
with Agra. The project investors propose to finance it by building urban spaces and entire
cities, which is unexceptionable. The apex court has ruled that the Yamuna project clearly
involves public purpose. 
    There is pressing need, however, to institutionalise norms for payment of the land being
acquired, incorporating continued stakeholdership for the landloser. This would involve three
things. The land needs to be valued at the going market rates plus an attractive premium since
under-reporting of transactions is routine. Also, since substantial appreciation of land value
can be expected upon acquisition and development, there needs to be builtin provisions for
reaping capital appreciation, by way of lease rentals that are periodically revised, by
ownership of ‘developed’ land in proportion to the original holding, etc. Next, income loss
must be compensated with an annuity plan, covering not just lan-owners, but those who live
off the acquired land, as well. Reports say that the government in UP has now included
annuity for those giving up land for the Yamuna project, following protests. The law must be
reformed, to obviate the need for protest. The extant 19th-century legislation, albeit amended
three decades ago, can no longer guide policy in a high-growth economy undergoing
structural change. The new bill to replace this law must be modified further, to accommodate
the concerns discussed above.

Farm credit surges, so does moneylenders’ hegemony

Only One In Seven Marginal Farmers Has Access To Institutional Credit

Our Bureau NEW DELHI 

THE number of farmers borrowing from moneylenders has risen to levels not seen since
independence, despite doubling of agricultural credit in recent years and several efforts from
the government towards financial inclusion. 
    Just one in every seven marginal farmers has accesses to institutional credit, says a study
on agricultural indebtedness. About 38% of these loans carry interest rates of 30% or more,
while another 36% cost anywhere between 20% and 25%. The implications are predictable
— impoverishment, distress migration and, sometimes, suicide. 
    A task force led by Nabard chairman UC Sarangi has come up with some far-reaching
suggestions to ensure that the country’s small and marginal farmers have access to
institutional credit on “reasonable terms and reasonable rates”. It submitted its report to the
agriculture ministry recently. 
    The committee was set up after the 2008 Agricultural Debt Waiver and Debt Relief
schemes, where the government waived farm loans amounting to 65,000 crore. One criticism
of the schemes had been that only a small proportion of farm households borrows from
formal sources, and that all the others were consequently excluded from the scheme’s
purview. 
    Accordingly, in October, 2009, the Sarangi committee was constituted to study how “all
categories of farmers, more particularly small and marginal farmers, tenant farmers,
sharecroppers and oral lessees” could be brought within the institutional credit fold in order
to reduce their dependence on informal credit sources. 
    Among others, his committee has suggested that the government extend joint and
individual loans to small farmers (tenant farmers, sharecroppers, etc) currently outside the
ambit of institutional finance via Joint Liability Groups (which are like Self Help Groups)
and thrift and credit cooperatives. Then, existing laws regulating landholdings, etc,
prevent farmers, especially tenant farmers and sharecroppers, from obtaining hassle-free
credit from the formal banking channels, need to be amended. 
    Also, recognising that the growing indebtedness of farmers is a symptom of a deeper
agrarian crisis, the report argues that interventions focusing solely on farmers’ debts may not
be adequate. Accordingly, it suggests that “as a parallel to the subsidies available to those
engaged in chemical input oriented farming, the government of India devise ways to provide
incentives to those choosing to engage in more sustainable farming”. Additionally, to protect 
farmers, it has suggested reforms in insurance. For instance, it says crop insurance should
protect farmers against loss of revenue, not against loss of investment as is the case today. 
    The committee has also recommended that states’ ineffective moneylending acts be
overhauled. These, it says, are ill-equipped to deal with the complexity of the rural credit
landscape. For instance, moneylender come in varied forms — outright lenders, suppliers of
inputs, buyers of produce, for-profit NBFCs, the owner of the land on which the farmer is
dependent. 
    Apart from that, the report has flagged weaknesses in some of the newer models of credit
delivery — like microfinance and the Kisan Credit Cards. On the Microfinance Institutions
(MFIs), the report says new moneylending laws should expand the definition of
“moneylender” to include closely-held, forprofit MFIs. It also recommends such MFIs be
excluded from priority sector lending benefits as it is difficult to ascertain if the loans indeed
reached those they were meant to reach. 
    As for the Kisan Credit Cards, while these reach out to small and medium farmers with
loans at a net cost of 5%, the report says farmers are not happy with credit limits, etc. 
    On the whole, the “Report of the Task Force on Credit Related Issues of farmers”, paints a
bleak picture. On the whole, the share of non-institutional sources in the debt of cultivator
households has risen from 30.6% in 1991 to 38.6% in 2002. The share of moneylenders,
specifically, in the debt held by these households, has risen from 17.5% (1991) to 26.8%
(2002). The smaller the farmer, says the report, the greater his/her reliance on informal
sources. 
    According to the report, this jump in demand for informal finance is partly due to the
“constriction in the rural banking network and services arising out of financial sector
reforms” and “archaic state-level cooperatives laws” that have controlled and restricted
cooperatives. On one hand, it says, while the number of commercial bank branches has been
rising since 1969, the number of rural bank offices has been declining since 1990. At the
same time, the share of co-operatives in agricultural credit disbursement has been crashing. In
1991-92, co-operatives accounted for over half of all agricultural credit disbursals. By 2008-
09, their share was down to 13%. 
    While this shortfall was picked up by commercial banks, whose share in disbursals rose to
78% in 2008-09, the report says the “rigid” procedures and systems of formal credit
prevented easy access by small and marginal farmers. In contrast, informal sources follow
easier and more flexible methods of lending. 
    This has created a situation where, says the report, despite the doubling of agricultural
credit between 2004-05 and 2006-07, the gap between the demand and availability of
agricultural credit continues to be huge. 
    That said, the report leaves some questions unanswered. For instance, it leaves the
communities dependent on livestock, etc, entirely out of its purview.

iverse water sources key to food security

Asmaa Waguih LONDON 

INCREASINGLY erratic rainfall patterns related to climate change pose a major threat to
food security and economic growth, water experts have said, arguing for greater investment
in water storage. In a report by the International Water Management Institute (IWMI),
experts said Africa and Asia were likely to be hardest hit by unpredictable rainfall, and urged
policymakers and farmers to try to find ways of diversifying sources of water. 
    The IWMI research estimates that up to 499 million people in Africa and India could
benefit from improved agricultural water management. “Just as modern consumers diversify
their financial holdings to reduce risk, smallholder farmers need a wide array of ‘water
accounts’ to provide a buffer against climate change impacts,” Matthew McCartney, a
hydrologist at IWMI, said in a statement. “That way, if one water source goes dry, they’ll
have others to fall back on.” 
    The UN panel of climate experts has projected more extreme weather such as droughts,
floods and heatwaves this century, caused by global warming. The report said that, despite a
great expansion in irrigation in recent decades in Asia, around 66% of agriculture there is still
dependent on rainfall. 
    In sub-Saharan Africa, the proportion is even greater at 94%, it said. These are the regions
where water storage infrastructure is least developed. The report cautioned against over-
reliance on single solutions such as big dams, and said an integrated approach combining
large- and small-scale storage was a better strategy. It suggested the use of water from natural
wetlands, water stored in the soil, groundwater and water collected in ponds, tanks and
reservoirs. 
    “For millions of people dependent on rainfed agriculture, reliable access to water can make
all the difference between chronic hunger and steady progress toward food security,” Mc-
Cartney added. “Even small amounts of stored water, by enabling crops and livestock to
survive dry periods, can produce large gains in agricultural productivity and in the wellbeing
of rural people.” 
    The IWMI is funded by the Consultative Group on International Agricultural Research
(CGIAR), a partnership of governments, donors and international organisations. It noted that,
in response to increased demand for food and power supplies, many developing country
governments with fastgrowing economies have recently invested in large dams. 
    The benefits of these projects in terms of storing water for crop irrigation were clear, it
said, “but so are the adverse social and environmental impacts.” 
    As examples of the value of small-scale storage options, the study cited field studies that
have proven the effectiveness of using small planting basins to ‘harvest’ water. In Zimbabwe,
such basins have been shown to boost maize yields, whether rainfall is abundant or scarce. In
Niger, they have led to three- or fourfold increases in millet yields. — Reuters

‘Global sugar demand set to outpace supply’

PRODUCERS WILL GET REALISTIC PRICES: KINGSMAN

    GLOBAL sugar demand will outpace supply in an increasingly prosperous world,

paving the way for a long-term bull run. As Jonathan Kingsman, CEO of the
eponymous sugar consultancy, tells Nidhi Nath Srinivas pricing power has now shifted
firmly from consumers to producers. 

Weather is market’s biggest worry right now, isn’t it? 

Certainly. In the order of importance, the biggest one is the dry weather in Brazil and big
concerns about next year as well. Russian drought has led to a 1-million-tonne drop in
production. Europe will lose another hundred thousand tonnes. There is worry about crops in
Vietnam, China and Indonesia. Pakistan’s loss could be anything between 3 lakh tonne and 7
lakh tonne, no one has a clue. So the market is sitting on a box of dynamite. If no one lights
the fuse, nothing will happen. If they do, prices will shoot much higher. 
What is your surplus estimate? 
We are predicting a small surplus. Our earlier figure was 5 mt but we are downgrading that to
around 3.5 mt. 
Is the world again running short of sugar? 
There is a deficit forecast for the first half of 2011 against trade flow. Import demand will be
1.5 mt more than export availability. That should be a good opportunity for India to export
into high world prices. 
How much quantity do you believe we can export? 
You could do 950,000 t under the advance licence scheme. The world will need another 0.5-
1.0 mt. 
Aren’t these uncertainties already priced in? 
The uncertainty has been priced in at 20cents/pound. But if Brazilian weather deteriorates or
Pakistan comes sooner to buy, prices will rise. The industry says it wants to import 0.5 mt.
That could create a spark.
Are we ever going to be sugar surplus again globally? 
The world needs 2.5 mn t more sugar each year as consumption rises and it needs to pay
producers more to keep manufacturing it. The cost of production in several parts of the world
is 18c/lb. So, I see prices staying at 18c for a reasonable length of time to encourage new
production. 
What about ethanol prices? 
Ethanol is already rationed by price in Brazil. The Brazilian government has changed its
strategy on ethanol. It has accepted that flex fuel cars mean that they are flexible both ways,
depending on price. So, there is less pressure on mills to provide ethanol for domestic supply.
Mills are also getting better prices for sugar. 
You are saying the industry has more flexibility now. 
Yes. Mills need flexibility to maximise returns. Decontrol in India should allow more
flexibility to industry to respond to market signals. 
Has consolidation in Brazilian industry made an impact? 
The first wave of consolidation was triggered by financial difficulties created by over-
investment. Acquisitions by Louis Dreyfus and Shree Renuka fall in this category. Now we
will see the second wave of investment where the consolidators get bought out. I foresee oil
giants buying out the very big assets owned by Louis Dreyfus. 
How much of the current price rally has been due to speculative fund investment? 
The move up to 30 cents earlier this year was largely due to speculation. The move from 13
cents to 20 cents is fundamentals- based. 
Will hedge funds return given the uncertainties? 
Speculators got so badly burnt earlier this year that they are wary about re-entering the
market. Right now, the biggest question mark for them is India. India’s crop size and exports
are not clear. This level of uncertainty is putting the brakes on fund investment. Funds like a
clear story and India is never clear. 
Do you see significant changes if India decontrols its industry? 
We could see more stability in production as mills will respond to market signals. I see India
becoming a small net exporter because the world needs more sugar. The difficulty is that
India has a shortage of water and land. This means India has to be paid a higher price for
sugar. Next 4-5 years, we should see relatively high prices. 
That’s not very good news for consumers, is it? 
The big structural change is that power is switching back from consumers to producers.
Producers will start getting more realistic prices. This has happened in metals. It is happening
finally in sugar.

Brazil crop could be downgraded further, says sugar industry forum

IN THE last 18 months, white knights from around the world have helped pull out the
Brazilian sugar industry from a morass of debt and difficulty. But that was just the first act.
Marcos Sawaya Jank, president of the Brazilian Sugarcane Industry Association (Unica), tells
Nidhi Nath Srinivas that the next round of acquisitions will be made by global petroleum,
chemical and power utility giants. 
Unica has cut sugar production estimate for the current season due to dry weather. Is a
further downgrade likely? 
That depends very much on whether we get normal rains in September-October. Right now,
they are predicting no rain next month. If rains don’t start, we will need to revise numbers.
Last year, we lost 4 million tonne (mt) sugar because of too much rain. But the quality of
cane is very good. So our current estimate is 33.7 mt production and 23 mt exports. Ethanol
export could touch 26 billion litre. The sugar-etahnol ratio is 44:56 this season. 
Virtually, a quarter of Brazilian sugar 
industry is now foreign-owned. Do you 
see more asset sale in the months ahead? 
After the financial crisis last year, 100 mt of cane changed hands. Companies in financial
trouble formed partnerships. But consolidation will increase further as new players from the
petroleum chemical and electricity sectors enter the industry. Right now, 200 groups hold 430
mills. We see the number of groups coming down to 50. The focus won’t be on nationality. It
will be on fewer companies with better financial profiles. 
Has it become easier for the industry to raise money? 
Last season, we had the double crisis of financial crunch and price crash. That has changed
and we expect better prices at the end of this season (March-November). 
Is there any investment in new mills? 
That will be the new cycle of investment after successful consolidation. Around 10 new mills
will start this year and 3-4 next year. 
Are you expecting more investment from Indian companies? 
If India becomes a large importer in future, it makes a lot of sense to invest in Brazil. It will
also allow re-export of sugar and to refining centres such as UAE. There are still a lot of
Brazilian mills in trouble. 
What is a break-even sugar price for Brazilian mills? 
Higher prices are always great, of course. Costs today are higher than they used to be due to
expensive labour and machinery. Sugar at 10c doesn’t exist any more. As more than 70% of
our sugar is exported, the exchange rate and dollar volatility are very important factors too. 
Port congestion in Brazil virtually held the world to ransom, didn’t it? 
It wasn’t a structural problem. It happened because everyone came to buy at the same time.
There was panic buying. Of course, we need investment and it is the most important topic on
the political agenda right now. If Brazil has to export 40% of its ethanol, we need pipelines.
We can’t depend on trucks.

Low realisations may dent sugar cos’ profits 

Shikha Sharma 
ET INTELLIGENCE GROUP 
STOCK prices of sugar producers have crashed since January even as the 30-stock
benchmark Sensex is close to its two-year high. The sugar sector is facing a downward price
cycle and the current rise in international prices is unlikely to continue in the long term, given
the expectation of excess sugar supply. This may have prompted investors to book profits in
the sugar scrips. 
The ET Sugar index of 10 companies has dropped 38% in the past eight months. Top sugar
firms who benefited from spiralling prices till the quarter ended March’10, swung into losses
for the three months to June. A sharp decline in sugar prices since early this year together
with higher cost of raw material impacted the performance. 
Sugar prices in India have crashed by a third after hitting a peak of Rs 40 per kg in January.
They are trading at around Rs 27/kg at present, largely explained by revision in the sugar
supply estimate for the current sugar season that ends September 30 as also for the next year.
Sugar supply is expected to improve since the area under sugarcane cultivation has increased
following the previous year’s trend of higher cane prices. A better recovery by sugar mills
has also ensured higher overall production. 
As per industry estimates, this should push up domestic sugar production by 30% to 24
million tonne during the next sugar cycle that will end in September 2011. It will be higher
than the demand forecast of 23 million tonne. This means despite higher volumes, sugar
companies are likely to post dismal performance in the near term. 
Another concern among analysts is that the current increase in international sugar prices is
not likely to support overall pricing scenario in the long term. Prices in international market
have risen by 20% in past three months due to a higher pickup by Thailand following a dry
season. 
Experts feel that booming production in India and Brazil, which together constitute 40% of
global sugar production may offset the deficit in Thailand’s production. Further, Australian
Bureau of Agricultural and Resource Economics expects global sugar supply of 173.8 million
tonne to exceed an anticipated demand of 170 million tonne in 2010-11. These factors hint at
benign price trend going ahead. A possibility of the government deregulation in the sugar
sector may offer some solace for sugar producers. A deregulation could potentially lead to
changes in policies relating to the quantum of sugar sale outside the state-controlled public
distribution system and fixation of minimum price to buy sugarcane from farmers. 
Lower realisations are likely to restrict profits of sugar companies even in future. This may
continue to affect stock prices of sugar firms in the near term. Investor should stay away from
the sector as sugar prices are expected to soften further in the coming sugar season. 

Rise In MSP Fuels Inflation In Farm-Based States Of Bengal, Punjab & Haryana

Gayatri Nayak & Atmadip Ray MUMBAI I KOLKATA 

    MAJOR foodgrains producing states have been the worst hit by rising prices, thanks to the
Centre’s decision to pay more to farmers for their produce. 
    Although inflation, as measured by the consumer price index (CPI), has been in double
digits for nearly six months, there are several states where CPI in the rural region has been
around 20%. 
    A look at state-wise consumer price index numbers shows that pre-dominantly agri-based
states such as West Bengal, Punjab and Haryana have seen steeper price rise than others.
Consumer prices in FY10 rose the most in West Bengal at 20.9%, followed by Haryana at
20.9% and Punjab at 19.7%. The all India average for the same period was 15.8%. 
    Rising food prices have been one of the major drivers of inflation. Yet, the government has
been paying farmers more by increasing the minimum support price for various food grains. 
    Higher minimum support prices (MSP) enable the Centre to build up its buffer stock which
is later sold at subsidised rates through the public distribution system. 
    These items have a 40% weightage in the consumer price index. One explanation for
the rise in food prices is that the purchasing power has gone up in the hands of the rural poor,
following NREGA (National Rural Employment Guarantee Act). 
    An indicator of high purchasing power is the higher cash in circulation this year. It rose
59,185 crore in April-August 2010 compared with the growth of 19,537 crore in the year-ago
period. 
    “Foodgrain-intensive states have seen a sharp rise in consumer prices largely because of
the steep rise in the MSPs of wheat and rice in the recent past. While in case of
other food products, like fruits, vegetable and oilseeds, these states have suffered on account
of factors like higher transportation costs, in addition to the natural price rise of these items,”
said Madan Sabnavis, chief economist of Care Ratings. 
    West Bengal, which tops the inflation list, is the country’s largest rice and vegetable
producer. According to Sugata Marjit, director of Centre for Studies in Social Sciences,
Kolkata, the state-wise differences in CPI are a reflection of poor interstate mobility
of food items. 
    Economists said the reason for this trend lies in rampant hoarding of foodgrains and the
existence of several layers of middlemen for food item marketing. 
    “There are several probable reasons behind the high rise in food prices.In West Bengal, the
large stocks have typically been controlled by a small number of people and hoarding of
foodgrains is probably the most widespread in the state. The existence of several marketing
layers pushed up prices further in the state,” said Prof Marjit, who is also a Reserve Bank of
India professor. 
    Farmers in Punjab and Haryana, he said, have incentives to pile up their stocks with
the Food Corporation of India as the MSP for their products — wheat and paddy — rose
more than anything else. 
    gayathri.nayak@timesgroup.com 
Farmlands Incorporated

Agricultural ventures may lag behind sectors such as healthcare, internet and
technology start-ups in terms of funding, but investors say the sector still shows promise

Peerzada Abrar & Ahona Ghosh 

    THE sector fuelled the Indian economy much before technology services grabbed the
spotlight. Now, as more consumers demand fresher and organic produce from farms across
the country, agriculture is emerging as an entrepreneurial opportunity that promises a largely
recession-proof and scaleable business. 
    The number of venture investments in agribusiness firms and start-ups rose to 11 in 2010
from nine in 2009, according to data from research firm Venture Intelligence. The amount of
money flowing into the sector almost doubled to $167 million this year from $89 million in
2009. 
    That money is going into firms such as REI Agro, Krishidhan Seeds, Tirumala Milk
Products, Karuturi Global and Global Green Company. These firms process and develop
products based on biotech seeds, basmati rice, milk, flowers, alternative fertilisers, livestock
feed, fruits and vegetables. While the money flowing into agricultural ventures still lags
behind other sectors such as healthcare, internet and technology start-ups, the sector still
shows promise, according to investors. 
    “Demand for consumption is rising, and this is making agricultural ventures attractive. The
sector is resilient because demand for food will always be there,” said Rajesh Srivastava,
chairman and managing director of Rabo Equity Advisors, which manages a food-and-
agriculturefocused fund. 
    Data collated by ICICI Bank said that the Indian agricultural and food business is expected
to double to $280 billion in next decade. There is an opportunity of private investments up to
$50 billion by that time. 
    It is this vitality in the agri-business that entrepreneurs are spotting opportunities
everywhere — eco-friendly clothing, mobile devices that control agriculture pumps, or
making artificial diet for silkworms. 
RICE — STILL RISING 
Rabo recently invested $10 million in LT Foods, an Indian exporter of basmati rice. LT
Foods has now started to provide raw edible material for making rice-based snack foods to
companies such as potato-chips maker Frito-Lay — a company owned by PepsiCo — and
similar brands in North America. 
    “We are growing at 15-20% annually, and hold half of America’s basmati rice market
now,” said Vijay Kumar Arora, chairman of LT Food. This year, Mr Arora expects to draw
revenues of 1,200 crore as against 1,100 crore last year. 
ECO-DOLLARS 
Entrepreneur such as Raja Sekhar Mamillapalli is going to great lengths to grab the attention
of the environmentally conscious — even if it means making a dress entirely out of banana
plant or aloe vera. Mr Mamillapali, with local artisan C Sekhar, runs Anana Fit, which has
bagged orders to make eight lakh T-shirts for a Chinese company and one lakh sarees for an
NGO — with yarn made completely out of banana-plant fibre. 
    The Chennai-based start-up has also attracted customers from France, UK, Australia and
Singapore, who want to reduce greenhouse gas emissions and increase their carbon credits.
With India being one of the largest banana producers in the world, the start-up utilises the
banana plant waste bought from the farmers that would otherwise have been disposed off,
said Mr Mamillapalli, a research scholar from National Institute of Technology, Rourkela.
They are planning to raise a funding of 25 lakh to scale up their business and patent their
technology. “No machinery is involved here. The fibres are taken out with the help of needles
and then treated biologically to prepare fibres for yarnmaking,” said Mr Mamillapalli. 
CONSOLIDATED FARMING 
Creating a concept of living in a farm house, doing agriculture as a passion coupled with
business, is a unique model introduced by Ootybased Lawrencedale Estates and Farms. The
model includes community-based organised farming system, buying land and farm houses. 
    It combines organic farming, research farming, agro-processing, marketing and farm
tourism. The farming company located in the Nilgiris Hills helps to create business by
producing fruits and vegetables such as potato, carrot, mushroom, strawberry under the brand
name ‘Ooty Fresh’. 
THROUGH PROPER CHANNEL 
Addressing the supply chain problems of the quick service restaurants (QSR) by feeding
them with fresh vegetables is where WynFarms has found an opportunity. 
    The Bangalore-based firm manages entire process starting from planning and procuring the
raw material for QSRs such as Mc Donald’s, Pizza Hut, KFC, Domino’s Pizza and Taco Bell.
With source of funding being personal savings, the company of about 100 employees expects
to achieve a revenue of 5 crore for the year 2011. 
    WynFarms has a unique business model, which works towards the inclusive growth of the
people — working from the rural areas. “By using modern communication tools, we have
inspired some of the workers to take the farming opportunity back to their houses for gainful
employment to other members of their families,” said Stephen Poonnen, founder mentor at
WynFarms. 
    Monitoring the quality management process has been simplified to an electronic ordering
system per store and a receiving process and audit to conform to the food safety standards.
Introducing modern technology is another area that is creating business opportunities. 
ARMED WITH TECHNOLOGY 
Vijay Bhaskar Reddy Dinnepu quit his job in July this year as senior engineer at networking
giant Cisco to launch his innovation — Kisan Raja. The embedded device enables farmers
use their mobile phones to operate motor pumps and irrigate the agricultural land at fixed
times while sitting at home. That means during erratic power supply or any kind of fault in
motor pump, the farmer does not need to run to the field. The embedded device will warn the
farmer and obey his instructions through a cell phone. 
    The 3,000 device can also conserve water and prevent theft of machinery. Mr Dinnepu’s
startup Vinfinet Technologies is preparing to unveil the device to around 500 farmers by
October this year. The Bangalore-based start-up is raising $50,0000 from family to scale up
the business. The firm, which has already run the pilot projects in rural agricultural lands of
Karnataka and Andhra Pradesh, is in talks with government, telecom companies and channel
partners to reach to the farmers. 
    “There are 50 million motor pumps in India worth around $3 billion. If I succeed to
address 10% of these pumps in next five years, I can easily make a revenue of around 1,500
core,” said Mr Dinnepu, who holds a master’s degree in computer science and engineering
from the Indian Institute of Technology (IIT), Madras. 
CONNECTING THE LINES 
Similarly, another start-up Agrocom’s mission is to enable tele-advisory services to millions
of farmers using internet and communication technologies by providing ‘authoritative and
accurate agricultural information’. 
    For example, Agrocom operates a farmer knowledge exchange platform, which receives
questions every hour from farmers, in four languages, from any one of listed 420 districts in
India and a few places abroad. 
    Formed at IIT Bombay’s innovation and entrepreneur incubation cell, it has turned
cashflow positive. 
MAINTAINING THE RESOURCES 
For a positive cash flow, your ware must be excellent, for which the input should also be
equally good. Bangalore-based start-up Sericare has spotted such an opportunity. The firm is
growing through developing products such as artificial diet and growth regulators for
silkworms to enhance their productivity. It also develops sericulture crop care products,
which protect the silkworm and its preferred food mulberry leaves from various infections
and predators. 
    Sericare, which is working with 250 farmers, has a model of selling their products directly
to the farmers, and promote the brand through onfarm demonstrations. It has started a cell-
phone based communication programme called ‘Sericare Sahaya Vaani’ to reach to farmers,
said Bharat Tandon, managing director of Sericare Divn Healthline. 
    “Indian talent is trying to solve the problems faced by the West, but the fact is that they
don’t have many. The real problems are in the developing economies, which, if addressed,
can turn into huge business 
Roots and shoots of agricultural business

Nexus Venture Partners, an early-stage sector agnostic fund with $320 million under
management, is taking a big bet on the potential of the agri-business sector in India. The fund
has invested in a clutch of agri-business companies including Suminter Organics, an organic
food exporter, and Sohan Lal Commodity Management. In this exclusive column, Sandeep
Singhaland Manoj Gupta of Nexus Venture Partners highlight the salient issues in growing
agribusinesses in India. 
BUILDING BLOCKS 
The agriculture sector presents a tremendous opportunity, given its size and large-scale
inefficiencies, but building a large company is not easy. It requires domain knowledge, as
local issues such as weather, pests, soil conditions, and water availability, and global factors
such as commodity price swings can play havoc with any plan. On the supply side, their
business model has to support a dispersed network, with the support of field activities and the
need to work in different languages. Depending on where they play in the ecosystem, the
company’s systems and processes should be able to handle large numbers of cash
transactions and prevent fraud and leakage. All of this is further complicated by the need to
manage risks related to government policy/regulatory changes and global commodity
pricing. 
BIG PICK 
Agriculture business can be divided into companies supporting preharvest and post-harvest
activities. On the pre-harvest end, there are opportunities in farm inputs – high yield seeds,
speciality fertilisers and pesticides. Given the issues we see on water availability, irrigation is
another hot area. On the post-harvest side, warehousing and logistics presents a good
opportunity for entrepreneurs, so does contract farming and agriculture processing. Other
high-growth areas are information dissemination and market-making. There is also scope for
spot exchanges and weather forecasting services. 
FUND IN NEED 
An agri-entrepreneur should recognise that capital looks for the best risk-return profile, and
therefore they are competing with other highgrowth sectors. Traditionally, agriculture is seen
as a higher-risk/lowgrowth sector, although the recent spike in commodity prices is focusing
interest on the space. For services companies in this space, they need to show that the target
market has the ability to pay and is large enough for the company to scale. There is also a
need to build market differentiation and ability to scale. 
HURDLES ON THE WAY 
Lack of adequate infrastructure presents the biggest hurdle for building large-scale agri
businesses in India. Also, as India does not allow corporate farming, the fragmentation of
land holdings have scattered the needs across a large farmer base. Another challenge is the
availability of senior and mid-level talent, which combines domain knowledge and business
mindset. Wage inflation and availability is becoming an issue in recruiting field-level staff
due to NREGA and urban migration. 
CROSSING BORDERS 
It will be some time before the Indian agri-business will build a global consumer brand, other
than for location-specific products such as basmati rice. Companies need to adhere to global
standards of food safety and specifications. An export-oriented business has to deal with
increasing prices of Indian commodities. Finally, there is an exponential increase in the
complexity of managing field operations in global markets.

Wheat surges on Russian export ban

Bloomberg MOSCOW 

WHEAT rose in Chicago after Russia, the world’s third-largest grower, extended a ban on
grain exports into next year, raising the prospect of higher food prices that already have
sparked riots in Mozambique. 
    Wheat for December delivery rose as much as 1.5% to $7.2475 a bushel, advancing for a
third day and taking this week’s gain to 4.3%. Russia, suffering from its worst drought in at
least a half century, started an export ban on August 15 that was scheduled to end on
December 31. 
    Prime Minister Vladimir Putin on Thursday said it would not be reviewed until after the
next harvest and Agriculture Minister Yelena Skrynnik said Russians are hoarding staples. 
    “Russia was for the last couple seasons a very large part of the world export market and
now all of sudden they disappeared,” said Keith Flury, a grains analyst at Ratzeburg,
Germany-based FO Licht. “This is kind of the new fundamental shift that not everybody was
really ready for.” 
    Wheat traded in Chicago, a global benchmark, as much as doubled since June as Russia’s
drought, flooding in Canada and parched fields in Kazakhstan and the European Union ruined
crops. Higher prices, combined with rallies in corn, rice and livestock, are increasing concern
of a return to the food crisis of 2008, which sparked riots from Haiti to Egypt. 
    Residents of Mozambique’s capital, Maputo, were on strike for a second day on Thursday
in a protest over higher food and utility prices. At least seven people have died in clashes
with police and another 280 injured, Cabinet spokesman Alberto Nkutumula said on
Thursday.\

Rural India in the Vortex of change

N Shivapriya 

VORTEX ENGINEERING BUSINESS Rural ATM STARTED 2006 

INVESTORS 
Venture East, Aavishkaar, Ray Stata & Bamboo Finance ( 30 crore) 
    VILLAGERS IN INDIA HAVE TOtravel miles for basic amenities such as food and
medical facilities. In these circumstances, access to banking services may seem like a dream.
But not anymore. Thanks to an ATM built for rural India by the Chennai-based Vortex
Engineering. 
    Vortex’s Gramateller ATM was conceived for rural India, but given its rich features, it can
possibly find ready markets even outside and give multinational ATM vendors a run for their
money. 
    The idea of an ATM for rural India took root in the early part of the decade when Vortex’s
founder, R Kannan, an alumnus of IIT Chennai, along with professor Ashok Jhunjhunwala,
Bhaskar Ramamurthi and other faculty, were working on ways to leverage technology for
rural benefit. Around the same time, a few banks approached IIT for help with rural banking.
The team experimented with installing ATMs in a rural area near Madurai in Tamil Nadu,
and the results were encouraging — people were able to use the ATM without assistance but
the hitch was the high cost. 
    “Acceptance was good but the ATM was too expensive for places with low footfalls such
as rural and semi-urban areas,” says Mr Kannan. Conventional ATM costs were around Rs 5
lakh, and including the air-conditioning and the room to house the ATM, the installation
costs would spiral to Rs 8-10 lakh. Another big hurdle was long power cuts, because of which
the ATM would be unusable for hours. 
    In working out on how to overcome these hurdles, Mr Kannan and IIT’s faculty eventually
came up with Gramateller after four years of innovation in the design, electronics and
mechanics. “It was a tough investment. It took a long time to perfect,” recalls Vineet Rai of
Aavishkaar, a venture capital (VC) focussed on social and rural investments, which pumped
in Rs 10 lakh along with another VC firm, Venture East, when Gramateller was still in
concept stage. 
    Gramateller’s cash dispensing machine (CDM), which is the heart of the ATM, accounts
for a large part of the innovation, which makes it less power-hungry and cheaper — a basic
Gramateller model costs Rs 1.75 lakh, one-fourth the cost of a conventional ATM. 
    In conventional ATMs, the cassette, where currency notes are stored, is vertical and
requires a spring or piston to push the notes when they have to be dispensed. In Gramateller,
this cassette is horizontal and the notes are dispensed using a gravity-assisted mechanism,
saving power. 
    Conventional ATMs consume about 1,800 units of electricity a month, but Gramateller
requires 72 units, says Vijay V Babu, CEO, Vortex. Less power means less heating and
therefore no need for air-conditioning. “Frugal engineering definitely helped,” he adds. 
    The ATM runs on Linux, which is an open source software, unlike conventional ATMs
that run on Windows for which licence has to be purchased. It also has a built-in UPS, which
ensures the ATM doesn’t go down when there are power cuts, and the option to run on solar
energy. Other unique features include fingerprint-based biometric authentication and the
ability to dispense soiled notes. Vortex started with seed funding from Venture East and
Aavishkaar in 2006. Ray Stata, founder of semi-conductor firm Analog Devices and
Switzerland-based Bamboo Finance invested in 2008 and 2009, taking the total VC
investment to Rs 30 crore. 
    Vortex launched Gramateller commercially in 2008, and after a pilot with State Bank of
India in the same year, the company has now clinched an order for 545 ATMs from the bank.
Orders have also started coming in from private banks. The manufacturing of the ATMs has
been outsourced to a contract manufacturer. 
    With about 80% of India’s population in rural areas and less than 10,000 ATMs, there is a
huge latent demand, feels Babu. “India has an installed base of around 45,000 ATMs — the
ideal ratio is 1 ATM for every 1000 people. So, to even get to 1 ATM for every 10,000
people, India would need over 1 lakh ATMs more,” he says. Enquiries have also started
coming from African countries and Indonesia, Malaysia, Afghanistan and Pakistan. “From
here, I only see the value of Aavishkaar’s investment enhancing. Not only because profits
will start coming in from sales, but because the business has huge potential to scale up,” says
Rai. 

Need for soil searching

Posted on July 20, 2010 | Author: Prabha Jagannathan | View 103 | Comment : 5
Strengthen Soil testing facilities to boost agriculture.

It just isn't the good earth anymore. Indian soils are under severe stress. And the compulsion
to produce more foodgrain to meet the demands of ever increasing population and welfare
obligations (such as those emanating from the new food law) from a shrinking area is set to
put greater pressure on soil resource. 

Soil health degradation has emerged a serious threat to sustainable agriculture that aims to
cater to present and future foodgrain needs.
    
In the run-up to blueprinting the much vaunted food law, reviving soil health and fertility
should therefore have been a key pre-condition for policy makers. As should have been
exponentially boosting storage capacity and strengthening procurement infrastructure in the
existing Public Distribution System (PDS). 

Having debilitated it systematically over the last several years, however, the government now
appears to be planning to put the entire weight of grain delivery under the new food law on
the very same PDS, a classic demonstration of putting the cart before an old, hobbling horse.
    
Studies have established that a marked decrease in soil nutrients has noticeably affected crop
yield per hectare, quite aside from poor or nil irrigation and other key inputs besides
increasing rain-dependence. 

Over the last six years, there has been an increasingly weakening relationship between
fertiliser consumption and foodgrain yield, highlighting not just stagnant yields for several
crops but simultaneously sending of warning signals on food security and the economic
health of farmers. 

Against an estimated annual removal of 34mt of nutrients (NPK) from soil, the replenishment
from fertilisers is pegged at only 26mt, leaving a net deficit of 8mt of nutrients, a deficit that
accumulates annually, further depleting the soil of secondary and micro nutrients.
    
Soil testing is a basic necessity to determine the quantity of nutrients to be applied and has a
key position under the new nutrient-based subsidy (NBS) regime for fertilisers. Yet, the
country has only about 700 soil testing labs with an analysing capacity of seven million soil
samples per annum.
    
Things can get a lot dirtier. Poor soil mapping and worse soil testing infrastructure threaten to
make a mockery of the Centre’s efforts under the NBS policy to replenish soil health unless
urgent efforts are made to exponentially boost the number of soil testing labs and facilities
countrywide. 

Worse, in most states, both general fertiliser recommendations and soil fertility maps have
become grossly outdated. Deficiency of nitrogen, phosphorous, potassium, sulphur, zinc and
boron is quite widespread now in Indian soils and is 89%, 80%, 50%, 40%, 48% and 33%,
respectively. 

Curiously, though, underpinning the proposed food security law with an efficiently conceived
national programme for soil mapping has never been on the radar of the government.
    
Agri economists agree that the Indian agricultural sector currently suffers from decelerating
productivity growth rate. It is imperative, therefore, to catalyse agricultural productivity, raise
rural incomes and address serious challenges to faster productivity growth. 

Stagnant yields caused by declining soil health have affected real incomes on the ground for
the entire farming community. Yet today, policy makers seem to set more store by
“imminent” radical changes in the farm sector through the growth of mobile telephony than
by tackling nitty gritty such as mandatory issue of soil health cards to all 89.3 million farmer
households.
The disproportionately irrational expectation of farm growth from mobile use is much on
same lines as expectations pinned on agri biotechnology, based on the Bt cotton experience in
the country over the last two decades. Quite contrary to general belief, though, cotton is not
that one crop that showed exponential increase in output in two decades. 

Studies prove that percentage increase in production of wheat, oilseeds and cotton crops in
2006-07 over the base year (1960-61) are 577.7%, 321.1%, and 229.9%, respectively,
proving that effective traditional inputting rather than agri biotech sustained the impressive
crop output in the country.
    
In “Impact of Fertiliser on Indian Agriculture and Rural prosperity”, ND Shukla of the
Project Directorate for Farming Systems Research, Meerut, argues that the crop production
scenario in the country changed markedly within a 30-year span. The share of gross irrigated
area rose to 99.5% in 2000-01 over 1970-71, a two fold increase within a span of 30 years in
tandem with heightened use of fertilisers. 

Fertiliser consumption shot up to 16.7mt in ‘00-01 from only 2.2mt in ‘70-71. There was a
steep rise in production of rice, wheat and total cereals from 42.2 mt, 23.8 mt and 96.6 mt in
‘70-71 to 85.5 mt, 69.7 mt and 185.7 mt in ‘00-01 and similar sharp growth in oilseeds and
commercial crops like cotton, jute and sugarcane. 

The sharp growth in crop production improved the socio economic conditions of the farming
community and resource poor farmers in particular. 

Not only did gross incomes rise since ‘70-71 till ‘00-01 (some 16.4-fold increase in gross
return from crop production) but per capita income too rose (approximately 870% in the same
period). Soil health, therefore, ranks high as a food security, poverty elimination and social
upliftment factor.
    
It also acted as a catalyst for growth of other key farm inputs such as credit for crop
improvement in the same period But replicating that success through a second Green
Revolution is unlikely to succeed if fundamentals in the farm sector such as soil health are
ignored. 

The Fertiliser Association of India had suggested, to no avail, a centralised agency for soil
mapping with soil fertility status checks every five years followed by remedial action taken,
soil testing labs with testing facilities for secondary and micro nutrients and the PPP route to
strengthening soil health and soil testing infrastructure. It’s time for the government to
urgently hit the dirt trail.
Obama eggs on US kids to meet B’lore challenge
PTI WASHINGTON 

US PRESIDENT Barack Obama has exhorted American students to toil harder at school,
saying their success would determine the country’s leadership in a world where children in
Bangalore and Beijing were raring to race ahead. Mr Obama has repeatedly said that
American schools would have to ensure that they continue producing leagues of top
professionals, so that the American hegemony in human resource continues in this century. 
    “At a time when other countries are competing with us like never before, when students
around the world in Beijing, China, or Bangalore, India, are working harder than ever, and
doing better than ever, your success in school is not just going to determine your success, it’s
going to determine America’s success in the 21st century,” Mr Obama said. 
    “The farther you go in school, the farther you are going to go in life,” he told students at a
school in Philadelphia, Pennsylvania. 
    Last year, while announcing an end to tax incentives for US companies which created jobs
overseas, he had launched the ‘Say no to Bangalore and yes to Buffalo,’ slogan. 
    Since then, he has time and again mentioned the competition coming in from developing
countries like China and India while asking Americans to rise to the challenge to keep the
American supremacy alive. 
    “... you’ve got an obligation to yourselves, and America has an obligation to you, to make
sure you’re getting the best education possible,” Mr Obama said in his latest remarks. 
    He said preparing the students for success in classroom, college and career would also
require an enormous collective effort of teachers, principals as well as the administration. 
    “It’s going to take outstanding principal and outstanding teachers who are going above and
beyond the call of duty for their students.” 
    Asking the students to work harder than everybody else and seek out new challenges, he
said his call was directed at all Americans alike.
Competitive edge from low wages
ARUP MITRA 
Professor of economics, Institute of Economic Growth 

    INDIA’S SUSTAINED ECONOMIC GROWTH HAS opened up new interests and

concerns. A foreign company looking for a base here will be keen to know if it offers
potential for new investment opportunities. Some crucial aspects in this context are the
magnitude of wage cost, determinants of wage inflation and the short- and medium-term
future trend in wage inflation. These aspects will have to make a strong reference to the
labour market rules and regulations, which were drafted to protect the workers’ interest. 
    We can divide the total employment in the nonagriculture sector into two broad
components: semiskilled and unskilled wage labour, and the educated or highly-skilled
workforce. The real wages of the highlyskilled workers have been growing rapidly. The
technology that is used in the production process in the manufacturing and services sectors is
highly skill- and capital-intensive, hence, the skill premium has been increasing fast. This has
created an impression that Indian wage inflation has been very high. 
    However, by international standards, the real wages even of the highly-skilled workers in
the country are relatively lower. Some outsourcing think tanks believe that Indian R&D staff
is still cheap compared to their abilities. Besides, the proficiency in English of the educated
employees places India on a much higher plane compared to China. All this would suggest
that despite an increase in the wage rate of the Indian skilled work force, it continues to be
potentially a more profitable place for newer investment. 
    Regarding the real wages of the unskilled or semiskilled production and service workers,
the growth rate is negligible, or at least much less than the labour productivity growth. From
the producer’s point of view, the low wage cost is an attractive feature particularly for new
investment projects. In the case of China, several scholars allege that the labour cost has been
deliberately kept low and, if left to market forces, the wages would be much higher. In India,
however, the real wages have grown much sluggishly due to the vast supply of labour
operating in the informal sector. 
    Technology, which is usually imported, has become cheaper after trade liberalisation and
contributes substantially to labour productivity growth. However, such technology suits
labour-scarce developed countries. For a labour-surplus economy like India, these
technologies have resulted in a limited expansion in labour demand in the high-productivity
manufacturing sector. The excess labour supply has led to sluggish growth in the real wage
rate. Since the low-income households cannot afford to remain unemployed for long, they
participate in the labour market without being able to negotiate for higher wages. 
    The advocates of economic reforms emphasise labour market deregulation. It is felt that
the labour market in developing countries is rigid in terms of work practices, wages, hiring
and firing policies, etc, and this has been attributed to prevailing rules. While there may be a
case for removing labour market rigidities by discouraging political patronisation of the
unions and relaxing strict labour laws that prohibit employment growth, attention also needs
to be given to the labour welfare issues. Given the levels of underemployment and poverty,
India cannot afford to have rapid growth that does not benefit labour in a significant way. 
    Since much of the focus of the labour market deregulation lies on introducing wage
flexibility, we may like to examine how responsive employment is in relation to wages in the
manufacturing sector. This responsiveness of employment growth with respect to wage
inflation is usually termed as wage elasticity of employment. The evidence does not support
that wage elasticity is very high in the Indian context. In other words, forcing labour market
deregulation and introducing lower wages may not lead to increase in employment. 
    Based on the United Nations Industrial Development Organization data, the average labour
cost — real wage rate multiplied by total employment — as a percentage of real value during
1990-2004 has been estimated for the manufacturing sector. Among 36 countries for which
this ratio could be calculated, only eight reported a figure of over 35%. So, the argument of
high labour cost does not seem to have a strong basis to build a case for labour market
deregulation. India is a low-cost economy and, hence, productive potential of the economy
needs to be enhanced by other means, e.g., improving infrastructure. The contractualisation
process too has contributed to keep labour cost to a minimum. Though labour market
deregulation has not been carried out in black-and-white in India, the firms in the organised
sector are free to choose the mix of regular wage labour and contract labour. 
    The other striking feature in the context of wage inflation is the practice of sub-contracting
followed by large firms. The small units that receive sub-contracts from large firms offer
nominal wages to workers, and that too mostly on piece-rate basis. Minimum wage
legislation and other benefits relating to social security are not easily applicable to workers in
small units. 
    In China, the underpaid and overworked workers have started protesting, forcing
employers to raise wages. This can have a two-fold effect in India: one, Indian employees
may also start negotiating for higher wages. Two, wage inflation may force some companies
to lose their competitiveness in China and shift to India. This process may raise the pace of
wage increase in India, particularly when it comes to the educated and skilled workforce. The
unskilled workforce would, of course, continue to remain at the lower echelons.

CEOs’ pay here fatter than that of global peers

Vivek Sinha & Mahima Puri NEW DELHI 

PATNI Computer Systems, 90 times smaller than Microsoft by revenues, cannot hold a
candle to the US software company on most counts. There is one notable exception though —
CEO pay. 
    The cash portion of Patni chief executive Jeya Kumar’s compensation was twice that of
Microsoft’s Steve Ballmer in 2009. An Australian citizen, Mr Kumar, 55, received 12.19
crore for the year to December 2009 compared to $1.26 million, or nearly 6 crore, for the
fiscal to June 2009 for Mr Ballmer. 
    Likewise, Wipro chief Azim Premji earned 7.8 crore, again outshining Mr Ballmer’s pay. 
    Mr Kumar is part of a growing tribe of Indian executives whose salaries in terms of cash
have rocketed above those of global counterparts in recent years. Vodafone Group chief
Vittorio Colao took home £2.6 million, or nearly 18.5 crore, last year. 
    That was 20% less than the 23.48 crore that Sunil Mittal, chairman and managing
director of Bharti Airtel, received in 2009. 
    Jurgen Hambrecht, CEO of the world’s largest chemical company BASF, earned € 3.37
million, or about 20.2 crore, around the same amount pocketed by Vivek Jain, managing
director of Gujarat Fluorochem. 
    Brijmohan Lall Munjal and Pawan Munjal of two-wheeler maker Hero Honda joined
Japanese board members, joint MD Toshiaki Nakagawa and technical director Sumihisa
Fukuda, too earn five times more than Takanubu Ito, the CEO of Honda Motor Co, whose
pay was $1.3 million, or nearly 6 crore. 
    Globalisation is driving the remuneration of Indian CXOs on a par with overseas
counterparts, says Sanjiv Sachar, partner at Delhi-based executive search firm Egon Zehnder
International. 
    “The gap between compensation paid to a global executive visa-vis an Indian has
narrowed,” he says and compensation is no longer a deal breaker anymore when it comes to
recruiting the right talent. Pay packs of CEOs rising 
INDIAN companies are notoriously loath to sharing details about the money given to bosses
and promoters. For a comprehensive study, there is a wait for the annual reports of companies
filed towards the later part of a calendar year. A study of the reports for 2009-10 reveals that
executive remuneration in India is rising at a fast pace, often pipping if not matching the
payouts to the biggest global names in business. 
    Anita Ramachandran, founder of Mumbai-based Cerebrus Consultants, says the pace of
CXO compensation in India is rising rather fast compared with global peers. “In India,
salaries are increasing far more than the size of the company and many mid-sized firms have
not yet aligned their compensation structures with respect to their sizes,” she said. The
explosive growth apart, the Indian pay structure is different. The pay packets of most global
CEOs are stuffed with stock options that make up for their lesser salaries compared to Indian
peers. For instance, Microsoft’s Ballmer owns shares worth nearly $10 billion. Jeffrey
Kindler, CEO of the world’s largest drugmaker Pfizer, earned $14.8 million last year. Scratch
$8 million worth stock options and his compensation is just a tad higher than Cadilla
Healthcare’s Pankaj Patel, who earned Rs 28.6 crore. 
    Jacynthe Cote, chief executive of Rio Tinto Alcan, received $3 million in cash from a pay
package of $5.2 million. The cash component is comparable to the Rs 13 crore each that
Debu Bhattacharya and Kumar Mangalam Birla got as Hindalco’s managing director and
chairman. Likewise, the Munjals collected Rs 30 crore each last year against the nearly $1.9
million in cash compensation and $16 million through stocks and options that Ford Motors’
Alan Mulally received. 
    The Indian corporate scene is also different from the West in that the topbracket payments
are given as a sort of keepsake to promoters, who are rarely hired. Naveen Jindal, executive
vicechairman and MD of Jindal Steel & Power, earned Rs 49 crore, a tad higher than Rs 48.6
crore in the previous year. His pay was almost three times that of Lakshmi Mittal, chief of the
world’s largest steelmaker ArcelorMittal.
The EVM Cracker

He wants to save Indian democracy. The Election Commission says he is out to sabotage
it. Tired and out on bail, Hari Prasad vows to continue his campaign to prove that the
Electronic Voting Machine can be manipulated, writes Sruthijith KK

THE DAY AFTER HIS 16TH WEDDING anniversary, Hari Prasad was woken up by cops
at 5:00 am. Fifteen of them arrived at his first floor apartment in Hyderabad’s upscale
Banjara Hills neighbourhood and whisked him away to Mumbai in a Toyota Innova. But
since his arrest on 21 August 2010, the nation is waiting to know if Prasad’s aim was to save
India’s democracy or to sabotage it. 
    For a year before his arrest, Prasad had been trying to prove that the electronic voting
machines (EVM) used by the world’s largest democracy is not tamper-proof. The
wellregarded Election Commission (EC) and two large government-run corporations blocked
him – never allowing him access to an EVM long enough to prove his point. When he 
eventually laid hands on an EVM — how he did it is a bone of contention — and produced
video evidence that it can be manipulated, Prasad was arrested for possession of a stolen
machine. The EC maintains that the EVM is tamper proof. Yet, it has made three important
changes to plug the loopholes Prasad discovered. 
    After initially welcoming anyone to demonstrate breaches, it now says tests must be under
conditions similar to elections. It responds to critics by pointing to an elaborate system of
administrative checks and balances to ensure the integrity of the machines. The checks have
also been significantly bolstered after Prasad’s demonstration. 
    The yearlong saga is a telling clash of cultures, with a bureaucratic sense of entitlement,
infallibility and suspicion of the outsider on one side, and a spirit of enquiry and scepticism
kindled by scientific knowledge, on the other. It is also a cautionary tale of this nation’s
treatment of whistleblowers, and the system’s intolerance even to white-collar dissenters. 
    ELECTRONIC VOTING MACHINES were used in nation-wide elections for the first
time in 2004. They have been deployed in all assembly polls and the general elections in
2009. It’s easy to see the utility of the machine— it eliminates invalid votes, ends booth
capturing, and makes counting easier and faster. “It is tamper-proof, error free and easy to
operate,” the EC’s manual for returning officers states. The machines are made by
Electronics Corporation of India and Bharat Electronics, two state-owned companies with
‘Navratna’ status. The microchip, or the machine’s brain, is manufactured in the US and the
source code or the logic the chip follows, is written in India, but locked into the chip in the
US. ECIL and BEL both write separate source codes. Both did not comment for this story. 
    When the Indian National Congress surpassed all projections to win 262 seats in 2009,
doubts about the ‘tamper-proof’ status of the voting machines rose to a crescendo. There is a
real or perceived political undertone to the EVM sceptics’ movement due to the nature of
these results. But most major political parties, including the Congress, have, at various points,
expressed their uneasiness with the simple electronic device that measures the political pulse
of a sixth of humanity. 
    “EVMs were manipulated during the poll which resulted in defeat of many Congress
candidates,” IANS quoted Congress general secretary Ghulam Nabi Azad as saying soon
after his party’s defeat in Orissa in July 2009. L.K. Advani has demanded a paper backup to
electronic voting. Parties such as CPM, TDP, AIADMK, RJD, LJP and Trinamool Congress
have joined the chorus. 
    Thirteen political parties have written to the EC demanding an all-party meeting, which is
to be held soon. There are nearly half a dozen petitions in various high courts against the
EVMs. 
    At least four nations – the Netherlands, Ireland, Germany and the US have scrapped
electronic voting or instituted backups. (see box) “In the absence of verifiability, there is no
way of knowing if an EVM has been manipulated,” says G.V.L. Narasimha Rao, a vocal
critic of the EVMs and an active supporter of Prasad. Rao is a professional psephologist who
started studying the issue after his predictions of the 2009 elections went awry. He is also a
media advisor to the chief minister of the BJP-run Madhya Pradesh government. 
    HARI PRASAD IS A MAVERICK inventor. He dropped out of his electronics diploma,
but invented a handheld device that could talk to any phone and send emails using acoustics
(essentially analog signals). He started Net India in 2000. HCL Comnet invested in it, but the
technology became obsolete before the product could be marketed. 
    Prasad had little to do with politics. In early July 2009, V. Lakshman Rao, president, of a
little-known organization called Jana Chaitanya Vedika, approached him. Rao comes from
Prasad’s hometown – Guntur in Andhra Pradesh. Rao wanted Prasad to prove that EVMs
could be tampered with. The NGO activist took him to meet Chandrababu Naidu, the Telugu
Desam Party leader and former chief minister of AP. 
    “Babu requested that I should help these people,” Prasad says, referring to Naidu. “He told
me it would be a service to the nation.” 
    Prasad’s company had done some work for ECIL in 2002. Soon, he built a prototype and
demonstrated to Naidu and the activists that if the real EVM was anything like this, it can be
tampered with. The movement received an instant shot in the arm. 
    Jana Chaitanya Vedika moved a PIL in the Supreme Court on 9 July 2009, with two
engineers from Prasad’s company joining the petition for their technical expertise. The next
day, Prasad and his NGO supporters held a press conference at the Delhi Press Club to
demonstrate the EVM’s fallibility. 
    Next, in Bombay, at invitation of the BJP, Prasad held a demonstration before “at least
1,000 workers”. Rajnath Singh facilitated him publicly. Another meeting was held in Nagpur,
yet another in Hyderabad. An invitation from the PMK and the Lawyer’s Forum took him to
Chennai. By this time, he had assumed a more central role in the campaign. 
    “We met a lot of leaders—Advaniji, Prakash Karat, Laluji, Sharad Yadav, and Ram Vilas
Paswan,” Prasad says. His brush with political royalty reinforced his commitment to the
cause. 
    On the 27th of July, the apex court disposed the PIL, directing the petitioners to approach
the EC. Prasad’s first meeting with the commission came on August 17. According to
multiple accounts, the then chief election commissioner Naveen Chawla didn’t want any
discussion – he asked Prasad to demonstrate how the machine can be tampered. 
    When Prasad accepted the challenge, Chawla backtracked and said they would be invited
on another day. Prasad proposed a challenge: Give me 20 EVMs. I’ll tamper with three or
four, and jumble them up. Let EC officials identify the tampered ones. Prasad claims this
proposal was accepted. The EC does not deny this. 
    But before the promised meeting, ECIL served a legal notice to all the petitioners in the
PIL and sought a public apology for the “deliberate vilification of the stature” of the
company. Intimidated, Rao, the NGO president, and two Net India engineers, backed out.
“The families of my engineers came and scolded me,” Prasad says ruefully. “It was very sad,
that was not my intention.” 
    By now, Prasad had pretty much become the face of the campaign. On 3 September, on
EC’s invitation, Prasad saw the innards of a real EVM for the first time. Chawla was not
present. “It was far less resistant to attacks than I had expected,” Prasad says. 
    The EC showed this reporter a 25-minute video of this contentious meeting. Prasad and
two engineers from his team can be seen examining the machine with a magnifying glass,
making notes and diagrams. Thirteen minutes later, they were stopped by commission
officials wary of the scrutiny. A verbal duel ensued between commission officials, and those
accompanying Prasad, including former Orissa advocate general Jayant Das and Janata Party
leader Subramanian Swamy. 
    The EC says this was an attempt to reverse 
engineer (taking apart a machine to understand and duplicate it) the EVM. 
    By December, the movement had a book of its own, written by Rao, the psephologist, and
a growing number of supporters. One of them, Satya Dosapati, a techie from AP living in the
US, connected the movement with Rop Gonggrijp and Alex Halderman. Gonggrijp is a Dutch
activist who was part of the team that persuaded his country to scrap electronic voting.
Halderman holds a PhD in computer science from Princeton University and is currently an
assistant professor of electrical engineering and computer science at the University of
Michigan. When Prasad eventually got hold of a machine, Gonggrijp and Halderman worked
with him to demonstrate two ways in which a potential hacker could manipulate the
machine. 
    How Prasad got a machine is the subject of a police enquiry. Prasad says two people came
one morning, in February this year and gave him the machine and asked him to crack it. They
came back the next evening and took it back, he says. 
    Gonggrijp and Halderman were his guests in Hyderabad, he says. Having come to India for
Narasimha Rao’s book launch in New Delhi, they had travelled to Hyderabad to work on the
prototype Prasad had built. Prasad maintains none of them had any idea that they were going
to gain access to a real EVM. 
    The trio produced a video demonstrating two breaches. In one, they replaced the display of
the machine with a look alike with an integrated bluetooth receiver. No matter how the votes
are polled, the display could be manipulated using a blue tooth device. Next, they inserted a
pocket-sized device into the memory of the machine altering the vote count. “There is
nothing special about the machine. It uses a chip that is used even in our energy meters. The
memory is external, making it vulnerable,” Prasad says. 
    “We had a mirror image situation in Netherlands,” Gonggrijp said, speaking on the phone
from Amsterdam. “The only surprise here is how the authorities continue to say the machine
is tamper proof. It’s a simple microcontroller that talks to a few buttons and a screen. It is not
secure,” he added. In his country, access to the EVM was not restricted, and his group
brought it from a municipality. 
    On April 28, Prasad went public with the video on a Telugu news channel. 
    Alerted, the EC asked officials to check for bluetooth devices in EVMs during the first step
in securing a machine for an election. Engineers from the manufacturing companies are also
now required to certify that all components are original, and have not been tampered with.
They also have to ensure the absence of any external component. It’s unclear though if the
hundreds of components in 1.3 million machines can be rigorously tested and cleared by
engineers before every election. 
    The video showed the serial number of the EVM Prasad had used. The district electoral
officer in Mumbai filed a police complaint saying the machine was stolen, leading to Prasad’s
arrest. 
    He was granted bail after a week in custody. “..if the machine was possessed by the
accused for demonstrating only that it could be tampered with, then the accused committed
no offence. On the contrary he has done a great service to the democracy,” the Judge said in
the bail order. 
    Mumbai Police continues to summon him every day, and Prasad must camp here away
from work and, family, He suffers from Sleep Apnea—he can only sleep with the help of a
machine. The police have now moved the Sessions Court to cancel his bail. “I wish I had just
said why should I care,” Prasad says. 
    THE EC HAS AN OPEN MIND. LET HARI Prasad or anyone come and show how the
machine can be tampered with,” says deputy election commissioner Alok Shukla at his sixth
floor office in Nirvachan Sadan, the massive red-brick headquarters of the EC. A large
citation hangs on the wall behind his desk—the Prime Minister’s award for excellence in
public administration. “They have to do it under real election conditions and they have to do
it in our premises,” adds Shukla, a doctor by training, in a long interview, occasionally
interrupted by calls on his iPhone. 
    The election conditions Shukla is referring to is an intricate system of checks and seals—
the EVM at a polling station has 24 seals, including one produced at the India Security Press
in Nashik, where currency is printed. 
    Before every election, engineers from BEL and ECIL do a functionality check. After
Prasad’s demonstration, this is now done in the presence of representatives of political
parties. Then, after the last day for withdrawal of candidature, parties get to check the
accuracy of the machines by polling at least 1,000 votes on at least 10% of the machines to be
used. This is also a newly introduced security measure. Representatives do another mock poll
an hour before the polls begin at 7am. 
    Shukla said the microchip is locked in a way that a virus cannot be introduced into it. 
    What if the microchip is replaced with a look alike? “Nobody has shown that it can be
done,” he says. 
    A technical committee headed by P.V. Indiresan, former director of IIT Madras, was
appointed in 2006 to examine and approve the upgraded EVM. Recommendations made by
the committee have not been incorporated, the critics allege. 
    “Who is saying this?” Shukla asks, visibly frustrated at what he calls a “misinformation
campaign” against the machines. “You should ask the committee if this is true.” 
    “I think BEL has incorporated them, I don’t know about ECIL,” Indiresan told ET. 
    But Shukla is grateful that Prasad uncovered the threat from bluetooth devices. “Now the
engineers are checking for this,” he says. But there are other wireless threats. Prasad says a
communication protocol called Zigbee, or citizens’ band radio frequency could be used to
break the EVM. 
    Shukla relates a story to illustrate how there have always been allegations against electoral
systems. “Balraj Madhok (former politician and co-founder of the Bharatiya Jana Sangh)
once alleged that Indira Gandhi had colluded with the Russians and imported a special
election ink. Wherever it is marked in the ballot paper, the ink would disappear and reappear
against the Congress symbol. This is like that,” he says.

Seed cos’sales zip 50% as farmers expand acreage on good rains

S Sujatha COIMBATORE 

INDIA’S biggest seed, crop inputs and irrigation companies clock a spectacular 50% growth
in sales this summer, beating annual targets, as farmers invest in high-quality seeds and plant
more area to boost profits on the back of a good monsoon and rising cotton, rice, corn and
sugar prices. 
    Many seed companies have already crossed last financial year’s topline in the first few
months of 2010-11. Nuziveedu Seeds, India’s biggest domestic seed company, with a
turnover of Rs 550 crore in 2009-10, is expecting to cross Rs 700 crore this financial year.
“This kharif season has been one of the best periods for Indian agriculture and we also expect
the rabi season to be very good,” said Nuziveedu Seeds chairman and managing director M
Prabhakar Rao. 
    At Monsanto India, engaged in the business of production and sale of pesticides and hybrid
seeds, the season has been very fruitful. “While the overall cotton seed market grew by 20%,
we have recorded a 50% growth in volumes due to high performance of our hybrids,” said
Monsanto India managing director Amitabh Jaipuria. 
    Other companies are equally delighted. “We have done Rs 156 crore worth business till
August 31, which is more than the total turnover of Rs 126 crore clocked in 2009-10,” said
Kaveri Seeds chairman and managing director G V Bhaskar Rao. He expects the company to
touch Rs 200-crore net sales this financial year. The season has been good for drip irrigation
companies with a 40% year-on-year growth. Apart from sugarcane, kharif crops like cotton,
corn, groundnut and soya bean flourish under drip irrigation. Dr P Soman, senior vice
president at country’s biggest irrigation player Jain Irrigation, said farmers have started using
drip irrigation for toor dal. “We have seen nearly a 50% increase in the use of drip irrigation
for sugarcane this year. Farms in Tamil Nadu, Maharashtra, Uttar Pradesh, Karnataka and
Gujarat have started using drip facilities,” he added. 
    Pesticides companies are seeing fortunes improve on the back of higher pest attacks that
follow excessive rains. “Pest attacks will be more during rains and since our country received
101% rains this season, the requirement of pesticides have increased,” said Chennai-based
Jhaver group’s pesticides and allied agrochemicals manufacturing company Tropical Agro
System’s director V K Jhaver. 
    The extended monsoon this year is adding to corporate cheer. “In general, we received
about 25% more rainfall this year than in a normal year. This has led to about 10% more area
under kharif crops than in the last year,” said Hyderabad-based Vibha Seeds Group chairman
and managing director Vidyasagar Parchuri. Cotton has been a golden goose for India’s crop
inputs industry this summer, with a third of its revenue coming just from this crop. Jagresh
Rana, the director of Mahyco Monsanto Biotech said nearly 11 million hectares have come
under cotton this season. The introduction of BT cotton has led to a consistent increase in the
acreage of cotton in the last few years, said Salem-based Rasi Seeds managing director M
Ramaswamy. Nagpur-based Ankur Seeds managing director Madhav Shembekar said the
season was very good for cotton seeds while the demand was less for maize and
paddy. FARM FRESH 
Many companies have crossed last financial year’s topline in the first few months of 2010-11 
Pesticides companies  are making a fortune due to higher pest attacks that follow excessive
rains.

NAC readies to rewrite food security bill

NEW DELHI: The National Advisory Council (NAC), it appears, is set to radically rewrite
the the Food Security Bill. 

The meeting of the NAC, which discussed the draft bill prepared by the government, was of
the view that the Centre should move beyond the traditional APL-BPL faultline and aim for
an inclusive Bill. Universalisation, said NAC member A K Shivakumar, sits better with the
spirit of the Bill. 

That said, the bill could look at evolving a self-selecting character with some exclusionary
criteria. The members also agreed the bill had to go beyond offering subsidised grains and
offer nutritional security.

In other words, it might offer varieties like jowar, bajra, ragi, etc, which would make the bill
more nutritionally advantageous while also making it self-selecting — the Indian affluent
stopped eating coarse cereals a while ago. Further, more affluent parts of the society, like
government employees and others, could be excluded from the purview of the bill. 

An approach, pegged around self-selection and exclusionary criteria, might also help the
country generate more empirical estimates about the incidence of poverty — on an annual
and seasonal basis. 

On the whole, said Mr Shivakumar, “about 80% of rural India and 40% of urban India might
come under the ambit of the bill.” In all, he said, 60-70% of the country might access the
scheme. 

In the meeting, chaired by Congress president Sonia Gandhi, the members also discussed
different ways of rolling out the Right to Food programme. 

The NREGA, for instance, had started with 200 poor districts and then scaled up. Here too,
one option which was discussed was that the Bill could be first rolled out in the poorest 150
or so districts. 

Another approach discussed was that the entitlement should initially be pegged at about 15
kilos on average, with the poor getting slightly more. This could gradually be ramped up to
the full complement of 35 kilos. 
The members also discussed the desirability of perhaps moving from a per household
allocation to a per capita allocation. And the need for a special focus on disadvantaged groups
like the aged, the destitute, primitive tribes and those suffering from debilitating diseases also
came up for discussion. 

At the same time, there are several unresolved questions. Procurement itself, said NAC
member Mirai Chatterjee, needed scrutiny since the NAC wants to expand the scheme to
provide coarse cereals, oilseeds and pulses. 

The issue of pricing of foodgrain — whether it should be priced at Rs 2 or 3 — will be taken

up later. Ms Chatterjee said the emphasis of Thursday’s deliberations was more on the macro
issues. 

The meeting was attended by all the NAC members, namely, Prof MS Swaminathan, Dr Ram
Dayal Munda, Narendra Jadhav, Pramod Tandon, Jean Dreze, Aruna Roy, Madhav Gadgil,
NC Saxena, AK Shiva Kumar, Deep Joshi, Anu Aga, Farah Naqvi, Harsh Mander and Mirai
Chatterjee.

Cabinet rejects Moily’s unworkable law

NEW DELHI: The Union Cabinet has shot down a bill to amend the Indian Penal Code and
other laws with the aim of cracking down on ‘honour killings’ and reining in Khap
panchayats after several members found it ‘draconian’ and ‘unworkable’. The issue has now
been referred to a group of ministers. 

“The prime minister will constitute a group of ministers (GoM) to discuss the Cabinet note
(on ‘honour’ killings) in greater detail,” I&B minister Ambika Soni said after the meeting. 

The GoM, which will be constituted shortly, will also seek views of states on the “sensitive”
issue. While there is divergence in the Cabinet on the nature of the amendments, there was a
general agreement that existing law was not sufficient. 

The amendments that have been proposed aim at bringing honour killings under the
definition of ‘murder’ by amending the IPC. It would also seek to amend the Indian Evidence
Act which would bring the onus on khap panchayats to prove their innocence in any such
case. The khap panchayat or any group ordering honour killings and any person who carries
out the diktat will be jointly liable for punishment under the proposed legislation. 
Sources said that among those who expressed their opinion on the issue were roads minister
Kamal Nath, HRD minister Kapil Sibal and sports minister M S Gill. Sources said the
proposed amendments did not provide any remedy to the peculiar problem of honour killing.
The amendments suggested increased the ambit of conspirators and abetment to include those
those involved in taking the decision to kill persons in the name of ‘honour’. 

However, conspiracy and abetment are already defined under the Indian Penal Code and
Criminal Code of Procedure. More importantly, the proposed amendments do not address the
issue of endorsement that follows the act of murder/honour killing. It also doesn’t address the
question of how to deal with individuals whose role and involvement cannot be described as
either that of a conspirator or abettor under the law. 

Questions were raised on the issue of who would be held accountable. As khap panchayats or
caste councils where orders to murder in the name of honour are issued are generally a
congregation of villagers, the question raised was whether all the people present during that
assembly would be held accountable. Some members were of the view that the prosecutor
will not name anybody as there would be fear of reprisal should an entire village or
community be named. 

“Many members wanted to put across their views but a discussion was not possible as a
decision was taken to consult states and set up a GoM on the issue. We do feel the pressure to
bring amendments in the monsoon session of Parliament,” Ms Soni said. 

The GoM will have greater and in-depth look at the proposals, Ms Soni said, adding the
terms of reference of GoM would be decided when it is set up by the prime minister. The
minister said there was “urgency” to bring about changes in the law to deal with “so-called
honour killings.” 

“We do feel the pressure to bring the amendment in Monsoon session of Parliament. There is
not only social pressure, not only media pressure but within our own Cabinet and party, we
feel that the so-called honour killings have to be brought under the ambit of the law of the
land and how best this can be done,” Ms Soni said.

Home minister P Chidambaram said the government’s intention is to introduce the

amendment bill in the monsoon session. “Consultations will be completed well before the
(month-long) Monsoon session is over and views of the state government (will be) placed
before the Cabinet,” he said.
Interest in SEZs waning on uncertainty over tax sops
NEW DELHI: The uncertainty over tax benefits for special economic zones, or SEZs, arising
out of the proposals in the draft direct taxes code seems to have started impacting flow of
investments into these enclaves. The number of new applications for setting up dropped to
three this month. 

A worried commerce department is already in discussions with the finance ministry on the
fallout of the proposed code on the SEZ policy. 

“We get enquiries by the dozens from investors over what would happen to their investments
once the DTC comes in,” a commerce department official told ET. 

There is a lot of apprehension that profit projections made on the basis of the existing SEZ
Act may go awry once the new tax code comes in, the official added. 

The board of approval, which gives the green signal to new zones, has received only three
applications for consideration in its meeting scheduled on Tuesday. The board had received
six proposals each in the previous two meetings and eight proposals in each of the preceding
two meetings. 

“We are not surprised by the declining numbers as setting up new zones may not seem as
attractive as before,” the official said. 

The draft direct taxes code has proposed withdrawal of exemptions for new units that come
up after the tax code is implemented and replacement of tax exemption on profits for
developers with sops on investments. 
The direct taxes code is expected to implemented from the next fiscal year. 

SEZs may also attract minimum alternative tax (MAT) of 18% as the proposed DTC has no
provision of giving any sector exemption from this levy. 

The shift from profit-based tax exemption to investment-based tax exemption for developers
would adversely affect sectors such as IT where investments are low. 

Under the SEZ Act, SEZ units get 100% tax exemption on profits earned for the first five
years, a 50% exemption for the next five years and another 50% exemption on re-invested
profits in the following five years. 

SEZ developers, on the other hand, get 100% tax exemption on profits for ten years which
they can choose in the block of the first fifteen years. 

China offers new tax break to woo outsourcing businesses

BEIJING: China, keen to end India's dominance in the outsourcing industry, today
announced it will not levy operating taxes on offshore service outsourcing business in 21 of
its key cities till 2013 to promote growth of the industry. 

The five per cent operating tax exemption will run from July 1 this year until December 31,
2013, the Chinese government said. The 21 cities covered are Beijing, Tianjin, Dalian,
Harbin, Daqing, Shanghai, Nanjing, Suzhou, Wuxi, Hangzhou, Hefei, Nanchang, Xiamen,
Ji'nan, Wuhan, Changsha, Guangzhou, Shenzhen, Chongqing, Chengdu and Xi'an. 

According to a joint statement released by the Ministry of Finance, the State Administration
of Taxation and Ministry of Commerce, offshore service outsourcing income refers to service
revenue arising from contracts signed with offshore entities for providing information
technology outsourcing (ITO), business processing outsourcing (BPO) and knowledge
processing outsourcing (KPO) services. 

Those already taxed on offshore service outsourcing income since July 1 would be refunded
within this year, the official Xinhua news agency quoted the statement as saying. 

China's service outsourcing industry posted a 21 per cent year-on-year increase to USD 23.6
billion in 2009, according to a recent report by Deloitte. Last month, accounting firm KPMG
had said China had overtaken India as the primary destination of outsourcing and shared
services for Asia-Pacific companies after netting business to the tune of USD 20 billion. 

The KPMG survey, which covered 280 senior company executives across Asia, showed that
China's outsourcing and shared services are rapidly expanding, winning a substantial market
share over India and other regional destinations. 
"Though, at the moment, the country has still not reached the level of maturity seen in India,
the growth of China's outsourcing market is significant. Many Western companies may still
see India as their location of choice, but for executives within Asia Pacific the message is
clear — China is now leading the way," Edge Zarrella, global head, IT Advisory, KPMG
China, was quoted as saying.

Punishing the Jobless by Paul Krugman07/04/2010

0 Comment(s)
 

There was a time when everyone took it for granted that unemployment insurance, which
normally terminates after 26 weeks, would be extended in times of persistent joblessness. It
was, most people agreed, the decent thing to do.

But that was then. Today, American workers face the worst job market since the Great
Depression, with five job seekers for every job opening, with the average spell of
unemployment now at 35 weeks. Yet the Senate went home for the holiday weekend without
extending benefits. How was that possible?

The answer is that we’re facing a coalition of the heartless, the clueless and the confused.
Nothing can be done about the first group, and probably not much about the second. But
maybe it’s possible to clear up some of the confusion.

By the heartless, I mean Republicans who have made the cynical calculation that blocking
anything President Obama tries to do — including, or perhaps especially, anything that might
alleviate the nation’s economic pain — improves their chances in the midterm elections.
Don’t pretend to be shocked: you know they’re out there, and make up a large share of the
G.O.P. caucus.

By the clueless I mean people like Sharron Angle, the Republican candidate for senator from
Nevada, who has repeatedly insisted that the unemployed are deliberately choosing to stay
jobless, so that they can keep collecting benefits. A sample remark: “You can make more
money on unemployment than you can going down and getting one of those jobs that is an
honest job but it doesn’t pay as much. We’ve put in so much entitlement into our government
that we really have spoiled our citizenry.”

Now, I don’t have the impression that unemployed Americans are spoiled; desperate seems
more like it. One doubts, however, that any amount of evidence could change Ms. Angle’s
view of the world — and there are, unfortunately, a lot of people in our political class just
like her.

But there are also, one hopes, at least a few political players who are honestly misinformed
about what unemployment benefits do — who believe, for example, that Senator Jon Kyl,
Republican of Arizona, was making sense when he declared that extending benefits would
make unemployment worse, because “continuing to pay people unemployment compensation
is a disincentive for them to seek new work.” So let’s talk about why that belief is dead
wrong.

Do unemployment benefits reduce the incentive to seek work? Yes: workers receiving
unemployment benefits aren’t quite as desperate as workers without benefits, and are likely to
be slightly more choosy about accepting new jobs. The operative word here is “slightly”:
recent economic research suggests that the effect of unemployment benefits on worker
behavior is much weaker than was previously believed. Still, it’s a real effect when the
economy is doing well.

But it’s an effect that is completely irrelevant to our current situation. When the economy is
booming, and lack of sufficient willing workers is limiting growth, generous unemployment
benefits may keep employment lower than it would have been otherwise. But as you may
have noticed, right now the economy isn’t booming — again, there are five unemployed
workers for every job opening. Cutting off benefits to the unemployed will make them even
more desperate for work — but they can’t take jobs that aren’t there.

Wait: there’s more. One main reason there aren’t enough jobs right now is weak consumer
demand. Helping the unemployed, by putting money in the pockets of people who badly need
it, helps support consumer spending. That’s why the Congressional Budget Office rates aid to
the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large
infrastructure projects, aid to the unemployed creates jobs quickly — while allowing that aid
to lapse, which is what is happening right now, is a recipe for even weaker job growth, not in
the distant future but over the next few months.
But won’t extending unemployment benefits worsen the budget deficit? Yes, slightly — but
as I and others have been arguing at length, penny-pinching in the midst of a severely
depressed economy is no way to deal with our long-run budget problems. And penny-
pinching at the expense of the unemployed is cruel as well as misguided.

So, is there any chance that these arguments will get through? Not, I fear, to Republicans: “It
is difficult to get a man to understand something,” said Upton Sinclair, “when his salary” —
or, in this case, his hope of retaking Congress — “depends upon his not understanding it.”
But there are also centrist Democrats who have bought into the arguments against helping the
unemployed. It’s up to them to step back, realize that they have been misled — and do the
right thing by passing extended benefits.

Pity the Poor C.E.O.’s

Paul Krugman | nytimes | 09-07-2010

Job creation has been disappointing, but first-quarter corporate profits were up 44 percent
from a year earlier. Consumers are nervous, but the Dow, which was below 8,000 on the day
President Obama was inaugurated, is now over 10,000. In a rational universe, American
business would be very happy with Mr. Obama.

But no. All the buzz lately is that the Obama administration is “antibusiness.” And there are
widespread claims that fears about taxes, regulation and budget deficits are holding down
business spending and blocking economic recovery.

How much truth is there to these claims? None. Business spending is indeed low, but no
lower than one would have expected given widespread overcapacity and weak consumer
spending. Business leaders are feeling unloved, but giving them a group hug won’t cure what
ails the economy.

Ask the Obama-is-scaring-business crowd for some actual evidence supporting their claim,
and they’ll tell you that business spending on plant and equipment is at its lowest level, as a
share of G.D.P., in 40 years. What they don’t mention is the fact that business investment
always falls sharply when the economy is depressed. After all, why should businesses expand
their production capacity when they’re not selling enough to use the capacity they already
have? And in case you haven’t noticed, we still have a deeply depressed economy.

Historically, there has been a close relationship between the level of business investment and
the “output gap,” the difference between the economy’s actual output and its long-run
trend — which means that there’s nothing surprising about low investment now, given the
fact that the output gap is hugely negative. If anything, it’s surprising how well business
investment has been holding up.

Alternatively, we can look directly at measures of unused business capacity. Capacity

utilization in industry is up over the past year, but still far below historical norms. Vacancy
rates at industrial and retail properties are at historic highs. Again, given that businesses have
plenty of idle structures and machines, why should they be building or buying even more?

So where’s the evidence that an antibusiness climate is depressing spending? The answer,
supposedly, is that this is what you hear when you talk to entrepreneurs. But don’t believe it.
Yes, when you talk to business people they complain about taxes, regulations and the deficit;
they always do. But the Obama’s-socialist-policies-are-wrecking-the-economy chorus isn’t
coming from businesses; it’s coming from business lobbyists, which isn’t at all the same
thing. Read the report on the U.S. Chamber of Commerce in the latest Washington Monthly:
peddling scare stories about what Democrats are up to is a large part of what organizations
like the chamber do for a living.

Or read through the latest survey of small business trends by the National Federation for
Independent Business, an advocacy group. The commentary at the front of the report is
largely a diatribe against government — “Washington is applying leeches and performing
blood-letting as a cure” — and you might naïvely imagine that this diatribe reflects what the
surveyed businesses said. But while a few businesses declared that the political climate was
deterring expansion, they were vastly outnumbered by those citing a poor economy.

The charts at the back of the report, showing trends in business perceptions of their “most
important problem,” are even more revealing. It turns out that business is less concerned
about taxes and regulation than during the 1990s, an era of booming investment. Concerns
about poor sales, on the other hand, have surged. The weak economy, not fear about
government actions, is what’s holding investment down.

So why are we hearing so much about the alleged harm being inflicted by an antibusiness
climate? For the most part it’s the same old, same old: lobbyists trying to bully Washington
into cutting taxes and dismantling regulations, while extracting bigger fees from their clients
along the way.

Beyond that, business leaders are, as I said, feeling unloved: the financial crisis, health
insurance scandals, and the catastrophe in the Gulf of Mexico have taken a toll on their
reputation. Somehow, however, rather than blaming their peers for bad behavior, C.E.O.’s
blame Mr. Obama for “demonizing” business — by which they apparently mean speaking
frankly about the culpability of the guilty parties.

Well, C.E.O.’s are people, too — but soothing their hurt feelings isn’t a priority right now,
and it has nothing at all to do with promoting economic recovery. If we want stronger
business spending, we need to give businesses a reason to spend. And to do that, the
government needs to start doing more, not less, to promote overall economic recovery.

India’s food security challenge

The state of India’s food security is worsening by the year. The cost of food items is
increasing rapidly, making them unaffordable to a majority of the people. Added to these
woes is the short supply of pulses and edible oils, which forces the Central government to
import them.

Pulses play a critical role in the diet of the people of India, where large sections are
vegetarians. Protein plays a key role in the human diet. It is the body-building nutrient that
develops muscles and is responsible for body strength, endurance and productivity at the
workplace.

It is established that a human body requires a daily intake of about 50 gm of protein. While
people in the developed countries and most of the developing countries have a satisfactory
intake of protein, in India the per capita daily intake is only about 10 gm. This endangers
health and work performance.

Proteins are amino acids. Out of the 22 amino acids required in the human diet, the body
supplies 14. The remaining eight have to come from food. If all the eight amino acids are
present in a single food item, it is called a complete protein food.
Since all proteins from animal sources are complete proteins, it is easy to meet the dietary
protein requirements of non-vegetarians. However, the main sources of protein for
vegetarians are leguminous plants — to which pulses belong. In general, pulses have lower
concentrations of protein than animal sources. Besides, none of the pulses — except soybeans
— are complete proteins. Therefore, combinations of two or more pulses are needed in a
vegetarian diet. Dairy products, which are complete proteins, may also be used to supplement
pulse proteins in vegetarian diets.

Given the important role that pulses play in the human diet, their availability needs to be
increased indigenously. The common belief that without new high-yielding varieties the
country will have to continue importing pulses and edible oils to meet the requirements is not
true.

The possibility of improving productivity per acre by an order of two to three times using
existing varieties has been demonstrated time and again in grower-fields in India. However, it
is not done just by following current production practices but through the adoption of entirely
new but simple and farmer-friendly technologies and tools that are now not available to
Indian farmers.

The underlying problem of Indian agriculture that threatens food security is extremely low
productivity. For example, in the case of rice it is only a third of what has been achieved
elsewhere. Cotton productivity is only a sixth of what has been achieved in developed
countries. The situation is no different in the case of other crops. In order to progress, the
mindset with regard to the following two factors needs to change:

1. It is not the farmer who makes the food: he is only a facilitator. Food is actually made by
plants. Therefore it is important to understand the requirements of plants and supply them
without restrictions in order for plants to deliver food. Since plants do not talk, their needs are
understood through research and experimentation. As indicated by Dr. R.S. Paroda, a former
Director-General of the Indian Council of Agricultural Research (ICAR), our agriculture
scientists will not by themselves be able to cope with the food security challenges that face
the country.

The current policy of pampering farmers with subsidies will get us nowhere in terms of
improving productivity. This is well understood not only in developed countries but also in
developing African countries like Malawi. Malawi was a basket case of poverty, malnutrition
and food shortage. Crop productivity improvements have taken it to the point where the
country now exports its surplus food to neighboring poor countries.
The lesson India has to learn is that instead of subsidising food supply to the people, the
plants need subsidised food such as fertilizers and other inputs in order for them to produce
the food to achieve food security.

2. The mindset that assumes that breeding is the solution to all maladies has to change.
Nurturing of plants is several times more important in crop productivity improvement than
hybrid seeds per se. A hybrid variety will not produce if planted in non-fertile beach soil. But
it will produce several times more if planted in fertile soil.

Brazil learnt this lesson years ago and stopped financing breeding for new varieties. Instead,
it scours countries around the world and selects promising varieties to test their adaptability
to Brazilian climatic conditions and then provides funding just to do that. It has taken stem
cuttings of black pepper varieties from Kerala and spent money and effort on crop production
practices. Now Brazil’s pepper yield is 1,500 kg an acre compared to India’s average of 350
kg an acre, the lowest among all pepper-producing countries.

India has about 50 million acres of irrigated land and is second only to the United States with
60 million acres. In the U.S. it is possible to raise only one crop a year due to weather
constraints. However, many areas in India have the potential to raise three crops a year,
provided we learn how to sustain the fertility of the soil. This will be equal to 150 million
acres of irrigated land. At the present time our system of monitoring soil fertility and
maintaining it is flawed and needs urgent attention. We cannot just bury our heads in soil as
ostriches may do.

Finally, we have facilities now in place in Tamil Nadu to adopt new crop production
technologies and tools, where crop productivity is routinely maintained at 300 per cent to 500
per cent more per acre than the average in India. We are now in the process of developing
infrastructure for the rapid propagation of these highly cost- effective crop production
technologies across the country.

FACULTY CRUNCH: PLUGGING THE GAPS

Teaching still second option

Payscale Revisions Are Happening And Institutes Are Doing Their Bit To Make
Academics Attractive, But Corporate India’s Pay Perks Still Means It Attracts The Best
Talent

Sreeradha D Basu KOLKATA 

    FELLOWSHIP student V Reddy is in somewhat of a quandary. He can’t decide whether
he wants to take up teaching full-time in the future, or tread the corporate path. Academics,
he says, has always been his first love, but salaries are an issue he can’t discount. “I know
teaching can’t possibly match corporate salaries, but still something needs to be done.
Otherwise, young people like me will find it harder to make up their minds about entering
academia.” 
    Reddy’s predicament is understandable. In an increasingly competitive market where India
Inc’s salaries are scaling new heights, Bschools are more or less stuck in a groove. Payscale
revisions have done their bit to improve things, and consulting activities, executive training,
satellite programmes, foreign assignments and the like help supplement faculty salaries.
Though the variance at the entry level has narrowed, at the senior level, the gap remains as
large as ever. 
    “People join academia for the passion of research and teaching” is what those in the
profession have always maintained. But in today’s context, what cannot be ignored is that
faculty salaries are increasingly influencing people’s decision to join a PhD programme and
enter teaching. 
    Consider this. An AACSB (Association to Advance Collegiate Schools of Business)
International 2009-10 Salary Survey Report covering 30,971 B-school faculty members states
that on an average, Bschool professors at publicly-accredited institutions receive $129,300
( 59 lakh, approximately) annually. In comparison, in India, a professor at an IIM would get
about 8-10 lakh annually on an average. Top private B-schools in India, claim education
sources, are believed to pay up to $80,000 ( 37 lakh approx.) — that too, to professors who
have spent years teaching abroad. At the other end of the spectrum, there are the small-time
private management institutes which pay their professors as little as 15,000-20,000 a month! 
    Not surprisingly, the dearth of quality faculty is a raging problem countrywide. At the top
of the rung, the seven IIMs have around 400 full-time faculty members and need another 60
of them. With four new IIMs to come up in the first phase, another 250 faculty members
would be required. 
    At present, entry-level salaries are still competitive, with assistant professors earning about
6 lakh. However, it’s at the senior level, where the divergence widens immeasurably. To
make up for this, some B-school professors also do what are known as ‘satellite programmes’
and even executive training where the fee per hour is between 3,000-6,000. Consulting
assignments are more lucrative, bringing in anything between 50,000-1,50,000-plus a day,
but a portion of that, in most cases, needs to be shared with the institute. 
    Says IIM Calcutta economics professor Anindya Sen: “Over the last few years,
management development programmes (MDPs) conducted by faculty have shown huge
growth. Including consultancy, professors have the capacity to earn upwards of 40 lakh p.a.,
but most choose to devote some of this time to research. Abroad, institutes thrive either
through government or alumni support so professors there can concentrate more on
research.” 
    Prof A Vinay Kumar, chairman of the Fellowship Programme at IIM Lucknow, says: “The
gap persists and the gap is huge. But on the salaries front, we are more comfortable now than
earlier. HR, strategy and finance professors stand to gain more through both consultancy and
executive training assignments.” 
    Top private institutes have made the effort of bridging the salary gap to a greater extent.
Prof Sanjay Kallapur, senior associate dean-faculty and research at ISB Hyderabad, says:
“We benchmark our faculty salaries at approximately 60% of the total salary at comparable
research-oriented US business schools. In addition, we allow our faculty one day of
consulting time per week, and a research budget for travel to international conferences. The
institution does not take any part of the consulting fees charged by faculty. However, our
faculty tends to focus more on publishing in leading international academic journals, and
seldom use up their full allowance of consulting time.” 
    MDI Gurgaon registrar VK Nangia says the institute follows the scale of the Mehta
Committee which is followed by the IITs and IIMs. “There has been a 30% salary increase
since 2006 as per the Sixth Pay Commission. The institute allows 52 days of consulting in a
year. A professor gets two-thirds of the consulting charges after spending on expenses
incurred in a consulting assignment. MDI gives additional allowances which goes to almost
10% of the salary.” 
    Interestingly enough, some of the upcoming private B-schools or those which are in
expansion mode, are now turning to head-hunters to attract good talent to come and work for
them, particularly those with relevant industry experience. Says leading HR firm Ma Foi
Randstad director & president E Balaji: “In the last one quarter, we have seen 14-15
mandates from private institutes, something which was unheard of even two-three years
earlier. These are typically for senior positions like heads of departments, offering attractive
salaries of anywhere between 15-24 lakh.” 
    TeamLease Services chairman Manish Sabharwal says: “It’s true that a lot of such
mandates are now doing the rounds. But a number of the private institutes which are willing
to pay don’t yet have the legitimacy or the brand value to attract top faculty. A top corporate
guy is still willing to take a bet on a small company but academics value job security and the
brand more.” 
    The general consensus though is that the war for academic talent will get hotter. “It’s just
starting to get competitive. In the coming years, even institutes will have to think like
corporates to attract quality talent,” says Sabharwal. 
SKEWED SCALE 
WORLDWIDE 
On average, B-school professors at publicly accredited institutions receive $129,300
annually 
New hires at the professor level earn more per year than those that have been with the
institution longer 
IN THE US 
Average US salaries for full-time, 9-month faculty across all ranks and disciplines increased
from $109,212 to $111,084 (1.7% increase over the last year) 
The largest increases in salary (5.8%) were in the rank of assistant professor in
accounting/taxation while other areas remained steady or declined 
New doctorates in finance, banking, real estate, and insurance received the highest
increases in starting salaries 
Source: AACSB International 2009-10 Salary Survey Report, representing global figures on
30,971 B-school faculty members and 5,924 administrators across 28 disciplines
500-per-hectare diesel subsidy to drought-hit farmers
Our Bureau NEW DELHI (18th sept. 2010)

FARMERS in drought-hit districts will get diesel subsidy of 500 per hectare, even as the
Centre awaits bumper crop production for most key kharif crops including paddy, cotton,
pulses, and sugarcane. 
    A good monsoon and prospects of a good kharif and rabi should have a sobering effect on
food prices, still in excess of 15%. 
    “Every farmer will get 500 per hectare as diesel subsidy,” Agriculture minister Sharad
Pawar said, at the start of the National Conference on Rabi Campaign on Friday. The Centre
has earmarked 500 crore to help farmers prepare for rabi sowing expenses in around 78
affected districts including 11 in West Bengal, 28 out of 38 in Bihar and all 24 districts in
Jharkhand. 
    However, diesel subsidy spends may not actually be as high as earmarked. In kharif last
year, when a similar scheme was announced, key farm producer states Punjab and Haryana
that use mostly electricity refused the scheme while Bihar picked up only around 1.5 crore.
Tamil Nadu availed the scheme to the tune of 22 crore. The Centre, however, had to spend
around 1,200 crore on power subsidy in both Punjab and Haryana. 
    Mr Pawar said that decision on sugar sector decontrol would be taken only after sugar
producing states got back to the Centre by mid-October. 
    He also lowered the sugar production estimates for the year to “over 22 million tonnes
(mt)” from 23 mt, much below the 25 mt estimated by the Indian Sugar Mills Association
(ISMA). Sugar exports have already started in a modest way. 
    The sugar decontrol issue was referred to the state governments at the behest of the prime
minister despite a big pitch by Mr Pawar to take a decision on the decontrol decision
immediately. 
    However, the bumper paddy crop could help the Centre decide on finally lifting the export
ban on non-basmati rice in force for several months now. 
    The heavy rains this monsoon in several parts, especially in September, especially helped
the paddy crop and is expected to boost water levels and soil moisture for the coming rabi
crop, sowing for which starts next month. 
    The actual numbers on acreage and estimated production, however, will only come in by
next week for the first advance crop estimates. Paddy acreage has dropped, according to state
inputs, in Bihar, Jharkhand and West Bengal (over 7% acreage drop). However, Haryana has
more paddy acreage. 
    “Some of the oilseeds acreage has been diverted to pulses in key states on account of
higher support prices for pulses,” agriculture secretary PK Basu told ET. 
    The bright side is that global edible oil prices have been tempered and ample is available,
unlike pulses, the other big commodity imported annually to meet demand. 
HELPING HAND 
300 districts were hit by drought last kharif This year, 78 districts have been hit, including 11
in Bengal, 28 in Bihar and 24 in Jharkhand 500 crore earmarked as diesel subsidy Bumper
crop of paddy, cotton expected in kharif ’10 Better than normal crop expected in pulses,
coarse cereals

Green energy set to light up your homes soon

PUNE: First it blended green fuel into petrol. Now, the government wants green power
blended into electricity to light up our homes, offices and factories. Energy distribution
companies have to replace 6% of their total quantity with power generated from solar, wind
or hydel energy. 

A new financial instrument, reduction in emission certificate or REC, has been created that
will be sold by Indian companies producing renewable energy to distribution companies such
as Maharashtra State Electricity Distribution Company, Tata Power, Reliance Infrastructure
and BEST. One REC will represent 1 megawatthour (MWh). 
An REC aims to help consumers meet their renewable purchase obligations, or what the
government calls RPO. The concept is directed specially at states that have no renewable
energy potential but can meet it through the purchase of RECs. 

“A Certified Emission Reduction (CER), however, is targeted at carbon emissions. Hence, it

is measured in tonnes while an REC is measured in units of kilowatthour,” said Vivek
Sharma, head of energy practice at Crisil Advisory, a consultancy firm. The paper will begin
trading from December on the two national electricity exchanges, the Indian Energy
Exchange and the Power Exchange of India. 

An official with the Power Exchange of India said potential buyers would be distribution
companies of state electricity boards, captive power plants and open access consumers.
“Wind, biomass, cogen and hydel generators are eligible to sell RECs. Solar is a separate
category, with a separate certificate, it being a very small generator. The focus is non-solar
renewable,” the official said. 

With India’s 1.60-lakh mw installed capacity, 9,600 mw has to be bought from renewable
energy companies physically or as REC. And given the government-fixed price band of Rs
1.5-3.67/mwh, the market is worth a minimum `14,400 crore. No wonder sellers have begun
licking their lips as they wait for this new source of profit. 

“We can earn over and above the price per unit that we get from the state power utility. In
Rajasthan, for instance, we get Rs 3.90 per unit for the wind power we supply to the state
utility. When the tradable REC comes into force, we can get an additional Rs 1.50 per unit for
the power we have sold,” said Satyen M Patel, director, commercial, at Sahyadri Industries, a
Rs 295-crore player in building materials. His company has already installed 25 windmills
and plans to add six more to produce 23 mw power not all of which is eligible for REC
trading, though. 

Each seller will get REC from the state electricity regulatory commission equivalent to the
actual quantity of renewable energy supplied to the state grid. The paper can then be traded. 

To really take off, the fledgling REC market needs equally enthusiastic buyers. In theory,
they should come rushing. The government has fixed stiff penalties for companies that do not
meet their 6% obligation. It is also difficult to buy renewable energy only through short-term
contracts or in the spot market. 

Two new retail price indices by Jan: Chief Statistician

NEW DELHI: The government is likely to introduce two new consumer price indices (CPIs)
for tracking inflation by January 2011, to better reflect the consumption pattern and price
movement at the retail level. 

The two new indices, one each for rural and urban areas, would be calculated on a base year
of 2004-05 and would be released monthly. 

"The first set of CPI numbers will be from the month of January 2011, that will be two CPIs
-- CPI Urban and CPI Rural," Chief Statistician T C A Anant told PTI. 

He said that the new consumer price index will not replace the existing ones and is only in
addition to what is already there. 

"The data collection started last year. The current set for four CPIs will continue, this is
simply an additional index," Anant said. 

He added, however, that the new indices would gradually replace the existing ones. 

Currently, there are various CPIs, including Agriculture Labour, Rural Labour, Industrial
Worker and Urban Non-Manual Employees. 

They are calculated on different base years. While CPIs for agriculture and rural labours are
calculated on the base year 1986-87, that for industrial worker is on the 2001 base year. CPI
for urban non-manual employees is on the base year 1984-85. 

Data for CPI for rural and agriculture labours as well as industrial workers are released by the
Labour Bureau, Shimla. However, the CPI for urban non-manual employees is calculated by
the Central Statistical Organisation, under the Ministry of Statistics and Programme
Implementation (MOSPI). 
The data for new CPI would be released by MOSPI and will be based on the National Sample
Survey (NSS). 

"The basket here is based on NSS, while those in the present indices are based on separate
surveys conducted by different departments," Anant said. 

When asked if there would be any changes in the way of computation of the basket, he said,
the sample survey in the new index would give an all-India picture of consumption. 

He also said that as the base year of the new CPI would be 2004-05, it would give a new
valuation to the basket. 

"The obsolescence of the basket is a function of the base. CPI Index is exclusively consumer
price and the weightage of food items depends upon the groups that are comprising the
survey base on which the index was based," he said. 

There is a recommendation that all these indices (Wholesale price index (WPI), Index of
Industrial Production (IIP) and CPI) be moved to a common base year and a common
frequency of revision. 

Currently, both IIP and WPI are calculated on the base year 1993-94. The move is afoot to
introduce the new series of these two numbers on the base year 2004-05.

Yet another pro-farmer budget! 

Maybe the pro-farmer claim was a typing error. This is a budget crafted for, and perhaps by,
the corporate farmer and agribusiness, writes P Sainath. 
 
The real heroes of India's success story were our farmers. Through their hard work, they
ensured "food security" for the country. - Pranab Mukherjee, interim budget speech Feb. 16,
2009

This Budget belongs to 'Aam Aadmi'. It belongs to the farmer, the agriculturist, the
entrepreneur and the investor. - Pranab Mukherjee, budget speech, Feb. 26, 2010
04 March 2010 - Gee! Another pro-farmer budget. Going by the media, every budget this
past decade has been one. Editorials across ten years have always found "a new thrust" to
agriculture that spelt "good news" for the farmer. Rarely mentioned are the massive
subsidies, now larger than ever before, for the Corporate sector.
This year alone, the budget gifts over Rs.500,000 crores in write-
offs, direct and indirect, to the Big Boys. That's Rs.57 crores every single hour on average -
almost a crore a minute. Beating last year's Rs.30 crores an hour by more than 70 per cent.
(See Tables 5 and 12 of the "Statement of Revenue Foregone" section of the budget.)

Maybe the pro-farmer claim was merely a typo or proofing error. They just dropped the word
"corporate" before "farmer." Reinstate that and all is true. This is a budget crafted for, and
perhaps by, the corporate farmer and agribusiness.

Some television channels set the tone for the debate before the budget in giant hoardings:
Will Pranab Mukherjee function "like the CEO of India Inc., or will he behave like a
politician?" The message was straight: the finance minister's job is to serve India Inc. not the
people of India. A second ad in this series read: "Will FM's speech DESTROY or CREATE
Market Wealth?" In the event, the Finance Minister more than lived up to their demands. The
budget hands out new bonanzas for Corporate Kleptocrats. It goes further than earlier ones in
pushing the private sector as prime driver of development and economy. Not the public
sector.

Take Mr. Mukherjee's "four-pronged strategy" for agriculture. The first of these, "agricultural
production," could mean anything. The other three are a goldmine for large corporations, not
the countless millions of small and marginal farmers who produce India's food. Take
"Reduction in wastage of produce." This means more big bucks for companies setting up
storage facilities. Take this together with the related "Credit Support to farmers." Already, an
Ambani or a Godrej can set up a cold storage in Mumbai and get agricultural rates of credit
for it. That's thanks to our re-jigging of what "agricultural credit" and "priority sector
lending" mean. This budget takes that process further.

More and more of "agricultural" credit will go not to farmers but corporations. Indeed, "even
External Commercial Borrowings will henceforth be available for cold storage or cold room
facility." The budget even says: "Changes in the definition of infrastructure under the ECB
policy are being made" to foster this process. Some of those changes have already happened.
Several of the loans disbursed as "agricultural credit" are in excess of Rs. 10 crore and even
Rs. 25 crore. And even as loans of this size steadily grew in number between 2000 and 2006,
agricultural loans of less than Rs. 25,000 fell by more than half in the same period.
(See Revival of Agricultural Credit in the 2000s: An Explanation. R. Ramakumar and Pallavi
Chavan, EPW December 29, 2007.)
Met any subsistence farmers taking out Rs.25 crore loans lately? Nor will it be small or
marginal farmers availing of the "full exemption from customs duty to refrigeration units
required for the manufacture of refrigerated vans or trucks." Nor is the "infusion of
technology" proclaimed going to help them.

The budget promises "appropriate banking facilities" in every village with a population of
over 2000. Since 1993, the number of rural branches of scheduled commercial banks has
steadily fallen, even as the rural population has grown. So taken together with the licenses to
be given out to private operators, this means the new branches will be those of private banks.
Not one of whom has an iota of interest in small and marginal farmers. Nor are they bound by
the social banking obligations that once guided the nationalised sector. "A thrust to the food
processing sector" is exactly the same. More cash for big companies. You know who the
"state-of-the-art infrastructure" will be built for - with public money.

Of the many claims the media have dished out for weeks now, none is more absurd than the
fiction that farmers have gained massively from soaring food prices. And that rural India is
doing so well, its saving the rest of us. (And doing that on a projected growth of minus 0.2
per cent).

Higher MSPs certainly helped ease pressure. So have higher global prices for some products
in a few cases - briefly. But with higher food prices, with retail prices rising many times
faster than wholesale, where does the farmer begin to benefit? Farm gate prices are way
below those of even the wholesale markets. Further, over
70 per cent of Indian farmers are net purchasers of
foodgrain. (Between 55 per cent and 60 per cent of the average Indian farm household's
monthly per capita expenditure goes on food.) Huge rises in food prices crush them.

Remember the excuse trotted out for letting Big Retail sell agricultural produce? It would do
away with the "middleman," giving farmers and consumers a better deal. Yet prices of fresh
produce are costlier at big retail's outlets. You still get a better deal from the petty vendor on
the street. Often, that pathetic "middleman" they're crushing is a poor woman street vendor.
The last and weakest link in the chain of intermediaries between farmer and public. The new
middlemen wear suits.

The 'higher-prices-benefit-farmers' mob seems clueless about what has happened with
cultivation costs. It took Rs.2500, for instance, to cultivate an acre of cotton in Vidarbha in
1991. Rs.13,500 in 2006-07 and Rs.18,000 to Rs.20,000 today. (Counting family labour and
like costs). The 'gains' from these higher costs are cornered by the corporate world in sectors
like seed, fertiliser and pesticide. Soaring input costs have been crucial to farm bankruptcies,
debt and suicides. The looming cuts in fertiliser subsidies won't spark rural euphoria either.
An incentive to repay loans on time - which millions of farmers cannot do - is being passed
off as an additional subsidy to the aam kisan in this budget. And there is still an air of self-
congratulation on the Rs. 70,000-crore farm loan waiver of 2008. A one-off waiver that
comes once in so many decades. Yet revenue foregone in this budget in direct tax
concessions to corporate tax payers is close to Rs. 80,000 crores. It was over Rs.66,000 crores
last year. And Rs.62,000 crores the year before that. In all, Rs. 2,08,000 crores of direct
freebies in 36 months.

Consider that this loot-and-grab sortie has been on for two decades now. It means that in
direct tax freebies alone the corporate sector has had the equivalent of some 15 'farm loan
waivers' since 1991. Then there's the indirect stuff. In this year's budget: Revenue foregone in
excise duty - Rs.170,765 crores. Customs duty - Rs.249,021 crores. Together with the
Rs.80,000 crores in direct write-offs, the total nears Rs.500,000 crores.

The media's shameless lobbying for Corporate "wishlists" began weeks before the budget. A
class and vested interest analysis of the writers, panels, discussants, "experts" (and anchors)
would be edifying. Budget time is when Big media are seen for what they are: stenographers
to the powerful.

Ill-informed aam aadmi rants in the streets are quickly 'balanced' by 'the experts.' Sure, there
is, in a few panels, the odd dissenter. This discussant the anchor always turns to with a wry
smile of amused tolerance. The unstated message to viewers: "here's this whacko with his
loony left delusions. Accept him as the comic relief in what are otherwise serious
discussions."

Never mind that some of these deluded dissenters warned - correctly - of the type of crisis
that shook the world in 2008. Not one of the "experts" ever came within miles of predicting
that meltdown. They were in fact proclaiming the Golden Age to be upon us when their
babble hit the fan. But no questions on their competence. Many of the "experts" have direct
ties to large corporations and peddle their interests with zest. Sometimes, with a little more
sophistication than panting media hucksters who show not a trace of the scepticism their
profession demands of them. Straining at the leash to beat their rivals in serving the richest 1
per cent (or less) of Indians.

Mr. Mukherjee's budget speech spouts dated World Bank babble about the "the focus of
economic activity" shifting "towards the non-governmental actors." And about "the role of
Government as an enabler." (Private corporations and football clubs also qualify as non-
governmental actors, but never mind). "An enabling Government does not try to deliver
directly to the citizens everything that they need. Instead it creates an enabling ethos..." His
budget does that. It enables a grasping corporate world to grab more public wealth. And the
entrenchment of perhaps of the most parasitic elite in the planet. ⊕

CEOs and the wealth of notions 

Gross inequality does far more than breed resentment. It destroys millions of lives, devastates
the access of the poor to basic needs, dehumanises both its victims and its votaries, and
undermines democracy itself, writes P Sainath. 

"The Prime Minister wants CEOs to create wealth for the nation. Then he wants them to take
pay cuts." That's a slogan gracing the huge hoardings put up by a Mumbai newspaper. It's
over two weeks since Manmohan Singh asked the Confederation of
Indian Industry's annual general meeting "to resist excessive
remuneration to promoters and senior executives and discourage conspicuous consumption".
But the cries of wounded crorepatis still rent the air.

It must intrigue Dr. Singh that the media have been far more hostile than industry itself. After
all, the CII had invited him to speak on `inclusive growth.' This is the politically correct
jargon of our times. His speech at the event was as vanilla as it gets. It bore no strictures,
carried no warning. In effect, the super-rich were told it was okay to be quite greedy, but not
obnoxiously and conspicuously greedy. The subtle distinction escaped his audience and
enraged the media. The speech drew more editorials in a week than the subject of inequality
did all of last year.

The front page stories were more editorials than news reports. Dailies ran whole pages of
"debates" on inequality and CEO pay packets. Pages with headlines such as "India Inc &
India Red Ink". Most concluded that, actually, we're not so bad after all on the inequality
front. The odd dissenter was published, giving the rest of the rant a focal point and a soft
target.

The media see themselves as the cutting edge of India's Brave New World. So it was earlier
too, when the Bharatiya Janata Party-led National Democratic Alliance hogged massive
publicity for its India Shining campaign. Far beyond even what they had paid for with
countless crores of public money. For the media, it was and is a mission. One which produces
that warm and righteous glow that only the happy wedding of Cause & Commerce can. The
poll debacle of 2004 earned us a brief respite from the mantra.

Weeks ago, Mani Shankar Aiyar made a far more devastating speech on the "classes and the
masses". It drew a scathing picture of the state of things. The media absorbed that more
calmly. After all, Mr. Aiyar was not the 'architect of the reforms'. Dr. Singh was, so the sense
of betrayal still pours out from the television screens.
One thing stands out, though. The most hated line of the Prime Minister's speech (apart from
daring to suggest that CEOs might survive on a few rupees less) was this: "Such vulgarity
insults the poverty of the less privileged". That annoyed the media. Should the `reforms' be
derailed because of the `resentment' of some over the success of others?

This is the debate at its lowest. Inequality has many faces. The kind we have nurtured in the
`reform' years does a lot more than "plant seeds of resentment in the minds of the have-nots."
It destroys millions of lives, devastates the access of the poor to basic needs, dehumanises
both its victims and its votaries, and undermines democracy itself. It was there earlier, of
course. What's new is the ruthlessness with which we have engineered its growth these past
15 years.

This week's big news is that Mumbai has topped Maharashtra's HSC results with a pass
percentage of 76.67. That should not surprise us. The metro's schools and facilities outclass
those of other regions. True, even this time, the State toppers are not from Mumbai. They are
from Wardha (in Nagpur division) and Amravati. Both in Vidarbha. But at 47.5 and 51.08 per
cent, the overall pass percentages of those divisions are dismal. They are way below the State
average of 64.25 per cent. And both have fared worse than they did last year.

Here's one reason why. Vidarbha, always electricity starved, saw 12- to 17-hour power cuts at
the time the children were studying for their examinations. (It's a region where schools re-
open weeks late to avoid exposing children to excessive heat.) The great metro of Mumbai
was spared this "power crisis." (Some of the well meaning did write articles on how to be a
good citizen and use your air conditioners more efficiently.) In one estimate, a 15-minute
power cut in Mumbai could give Vidarbha two hours of electricity. Half that would have
helped the students with their examinations. Further, malls and multiplexes lead Mumbai's
biggest power guzzlers. But this is the city of 25,000 of India's 83,000 dollar millionaires.
Not only home "to the largest number of affluent individuals," as an American Express study
puts it. But also having "the fastest growing affluent population in the world". So the
darkness is banished to zones such as Vidarbha - which produces more power than the other
regions of Maharashtra.

Inequality in the context of growing commercialisation of education means that millions of

bright and talented students are shut out from a better future for want of money. That rubs in
an old truth. Merit = accident of birth + electricity. (And
maybe a dash of geography.) In health, a fifth of Indians no
longer seek any kind of medical treatment. Because they cannot afford it. In law and justice,
each month brings us a new and shameful example of how the law is not an ass but a far
more malleable creature.
Still, what outraged the media most was: CEO salaries. Touching them is "against the spirit
of the reforms". Earlier this year, a programme on an English TV channel asked: Has the
reform process largely favoured the rich and corporations? Close to 70 per cent of an
audience of younger generation corporate executives answered `yes'. The anchor's own take
was revealing. When one of the tycoons argued for 'inclusive growth' she laughed and told
him: "You're sounding like a politician. That's the language they use."

This fortnight's debate did have its moments. Its highlight: Planning Commission Deputy
Chairman Montek Singh Ahluwalia defending the Prime Minister's statement on television.
Endorsing a call for corporate restraint must have been embarrassing for Mr. Ahluwalia. He
said that, er, well you know, ahem, the Prime Minister did not quite really, in his view, uh,
say, exactly what was being ascribed to him. Then he brightened up. "It's an issue even in
America," he said, quite rightly, of obscene corporate salaries.

Well, it's been an issue there for two decades or more. Five years before Mr. Ahluwalia
stumbled upon the debate in the United States, Merrill Lynch, Lucent Technologies,
Citigroup, and AT& T axed over 91,000 workers between them. The same year, their four
CEOs took home more than $130 million in pay. (Plus more millions in stock options and
other sops). Lucent Technologies in fact (as the New York Daily News pointed out) reported a
$17 billion loss and sacked 56,000 workers. Then it gave its CEO a $22 million payoff.

Management guru Tom Peters long ago suggested that CEOs be called CDOs: that is, chief
destruction officers. Because "you essentially get paid for blowing up your own business
before the competition does".

In India, the ILO reports that labour productivity shot up 84 per cent between 1990 and 2002.
But real wages in manufacturing fell 22 per cent in the same period. It sees this as "an
indication of deterioration in the incomes and livelihoods of workers. Despite the increasing
efficiency of their labour." This was also a period when CEO salaries had begun clocking all-
time records. Even now, top-end compensations in India are growing much faster than in the
U.S.

Meanwhile, two days after the Prime Minister's speech, the media hailed the New Dawn. The
emergence of India's first trillionaire in Reliance chief Mukesh Ambani. As one writer puts it:
"expressed as a percentage of profits, Indian company heads are far above their global
counterparts ... For every Rs.1 crore earned as profit, the Indian CEOs take home Rs.16,800."
Global CEOs take home Rs.9,900.

"Government cannot legislate CEO salaries." That's a line running through most attacks on
Dr. Singh. They do legislate taxes, though. And also a low-end wage. About the one thing
Tony Blair can look back on without shame is his government's minimum wage law. The
Guardian points out that as a result of it, "Britain's lowest-paid workers enjoyed a higher
improvement in their standard of living since 2003 than those in any other European
country."

Over five years ago, Paul Krugman, in a devastating piece on inequality in the U.S., found it
obscene when a CEO there earned a thousand times what an ordinary worker did. What about
us? Presently, the average package of the top five Indian CEOs is around Rs.13.5 crore. The
lowest paid workers in their own companies would earn 15,000-20,000 times less. If we
compare these top incomes to those of agricultural workers, the gap would be 32,000:1 or
worse.

Dr. Krugman argued that it was not simply economic well-being that such levels of inequality
threatened. It was democracy itself. He's in good company. Decades ago, the architect of a
very different kind of reforms than those Dr. Singh represents, put it sharply. Dr. Ambedkar
warned that a lack of economic and social democracy would spell doom for our political
democracy. In Dr. Krugman's own nation, long ago, Justice Louis Brandeis said the same
thing: "We can have concentrated wealth in the hands of a few or we can have democracy,
but we cannot have both." 

India Shining meets the Great Depression 

In the villages, we demolish their lives, and in the city their homes. The smug indifference of
the elite is matched by the governments they do not vote in, but control. P Sainath contrasts
the tongue-lolling coverage of the Beautiful People with the studied indifference to the plight
of millions. 
 
02 April 2006 - Farm suicides in Vidarbha crossed 400 this week. The Sensex crossed the
11,000 mark. And Lakme Fashion Week issued over 500 media passes to journalists. All
three are firsts. All happened the same week. And each captures in a brilliant if bizarre way a
sense of where India's Brave New World is headed. A powerful measure of a massive
disconnect. Of the gap between the haves and the have-mores on the one hand, and the
dispossessed and desperate, on the other.

Of the three events, the suicide toll in Vidarbha found no mention in many newspapers and
television channels. Even though these have occurred since just June 2 last year. Even though
the most conservative figure (of Sakaal newspaper) places the deaths at above 372. (The
count since 2000-01 would run to thousands.) Sure, there were rare exceptions in the media.
But they were just that - rare. It is hard to describe what those fighting this incredible human
tragedy on the ground feel about it. More so when faced with the silence of a national media
given to moralising on almost everything else.
In the 13 days during which the suicide index hit 400, 40 farmers took their own lives. The
Vidarbha Jan Andolan Samiti points out that the suicides are now more than three a day - and
mounting. These deaths are not the result of natural disaster, but of policies rammed through
with heartless cynicism. They are driven by several factors that include debt linked to a credit
crunch, soaring input costs, crashing prices, and a complete loss of hope. That loss of faith
and the rise in the numbers of deaths has been sharpest since last October. That's when a
government that came to power promising a cotton price of Rs.2,700 a quintal ensured it fell
to Rs.1,700. A thousand rupees less.

When 322 of 413 suicides have occurred since just November 1, you'd think that is
newsworthy. When the highest number, 77, take place in
March alone, you'd believe the same. You'd be wrong,
though. The Great Depression of the Indian countryside does not make news.

But the Sensex and Fashion Week do. "There is nothing wrong," an irate reader wrote to me,
"in covering the Sensex or the Fashion Week." True. But there is something horribly wrong
with our sense of proportion while doing so. Every pulse beat and flutter on the Sensex
merits front-page treatment. Even if less than two per cent of Indian households have any
kind of investments in the stock exchange here. This week's rise does not just mark the
highest ever. It makes the lead story on the front page. That's because the "Sensex beats
Dow in numbers game." The strap below that headline in a leading daily reads: "Dalal Street's
11,183 eclipses Wall Street." It's moved to 11,300 since then.

On television, even non-business channels carry that ticker at the right hand corner. Keeping
viewers alert to the main chance even as they draw in the number of deaths in the latest bomb
blasts. At one point, the mourning for President K.R. Narayanan was juxtaposed to the joys
of the Nifty and the Sensex. The irony does get noticed but it persists.

The great news for Fashion Week lovers is that this year will see two of them. There's a split
in the ranks of the Beautiful People. Which means we will now have 500 or more journalists
covering two such events separately. This in a nation where the industry's own study put the
Indian designer market at 0.2 per cent of the total apparel market. Where journalists at such
shows each year outnumber buyers - often by three to one.

Contrast that with the negligible number of reporters sent out to cover Vidarbha in the depths
of its great misery. At the LFW, journalists jostle for 'exclusives' while TV crews shove one
another around for the best 'camera space.' In Vidarbha itself, the best reporters there push
only the limits of their own sanity. Faced with dailies that kill most of their stories, or with
channels that scorn such reports, they still persist. Trying desperately to draw the nation's
attention to what is happening. To touch its collective conscience. So intense has been their
tryst with misery, they drag themselves to cover the next household against the instinct to
switch off. Every one of them knows the farm suicides are just the tip of the iceberg. A
symptom of a much wider distress.

The papers that dislike such stories do find space for the poor, though. As in this
advertisement, which strikes a new low in contempt for them. Two very poor women,
probably landless workers, are chatting: "That's one helluva designer tan," says the first to the
other. "Yeah," replies the other. "My skin just takes to the Monte Carlo sun." The copy that
follows then mocks them. "You'll agree," it says, "chances that the ladies above rub shoulders
with the glitterati of the French Riviera are, well, a little remote." It throws in a disclaimer, of
course. "We don't mean to be disrespectful ... " But "this is a mere reminder to marketers that
a focus on customers with stronger potential does help." That is an ad for the 'Brand Equity,'
supplement of a leading newspaper group.

Nearly 5,000 shanties were torn down in Mumbai in the same eventful week. But it drew
little attention. Their dwellers won't make it to the French Riviera either. Those in media
focus, though, might. Mumbai's planned Peddar Road flyover, seen by some of the metro's
mega rich as hurting their interests, grabbed yards of newsprint and endless broadcast time.
There was barely a word seen or heard from those whose homes were razed to the ground.
Meanwhile, more and more people flee the countryside for urban India. Candidates for future
demolitions. In the village, we demolish their lives, in the city their homes.

The smug indifference of the elite is matched by the

governments they do not vote in, but control. When the National Commission for Farmers
went to Vidarbha last October, it brought out a serious report and vital recommendations.
Many of these have become demands of the farmers and their organisations. At its Nashik
meeting in January, the All-India Kisan Sabha (a body with 20 million members) called for
immediate implementation of the NCF report.

Instead, both the Centre and the State Government have sent more and more 'commissions'
to the region. To 'study' what was well known and already documented. It's a kind of distress
tourism now. It just adds the sins of 'commissions' to those of omission.

Favouring corporates

The damage is not only in Vidarbha but across the land. Why is the Indian state doing this to
its farmers? Isn't farming, after all, the biggest private sector in India? Because being private
isn't enough. Ruthlessly, each policy, every budget moves us further towards a corporate
takeover of agriculture. Large companies were amongst the top gainers from distress sales of
cotton in Vidarbha this season. The small private owners called farmers must be sacrificed at
the altar of big corporate profit. The clearest admission of this came in the McKinsey-
authored Vision 2020 of Chandrababu Naidu in Andhra Pradesh. It set out the removal of
millions of people from the land as one of its objectives. Successive governments at the
Centre and in many States seem to have latched on to that vision with much zeal. In some
ways, the present United Progressive Alliance takes up where Mr. Naidu left off.

Where are those being thrown off the land to go? To the cities and towns with their shutdown
mills. With closed factories and very little employment. The great Indian miracle is based on
near jobless growth. We are witnessing the biggest human displacement in our history and
not even acknowledging it. The desperation for any work at all is clear in the rush for it at just
the start of the National Rural Employment Guarantee Programme. Within a week of its
launch, it saw 2.7 million applicants in just 13 districts of Andhra Pradesh. And close to a
million in 12 districts of Maharashtra. Note that the Rs.60 wage is below the minimum of
several States. Know, too, that many in the lines of applicants are landed farmers. Some of
them with six acres or more. In the Warangal district of Andhra Pradesh, a farmer who owned
eight acres of paddy fields was a person of some status 10 years ago. Today, he or she, with a
family of five, would be below the poverty line. (If that's the case with landowners, imagine
the state of landless labourers.)

If the State Government's role in Vidarbha is sick, that of the Centre is appalling. Making sad
noises is about as far as it will go. As the NCF report shows, much can be done to save
hundreds of more lives that will surely otherwise be lost. But it avoids that path.

Its vision of farming serves corporates, not communities. And the media elite? Why not a
Vidarbha week? To report the lives and deaths of those whose cotton creates the textiles and
fabrics that they do cover. If just a fourth of the journalists sent to the Fashion Week were
assigned to cover Vidarbha, they'd all have many more stories to tell. ⊕

SUICIDES IN CHHATISGARH 
"Only the idiots are committing suicide" 
In Chhatisgarh's Durg district, there is no shortage of farmers who have taken their lives - the
district ranks second in the state on this count. But equally, there is no shortage of those who
don't see these suicides. Shubhranshu Choudhary reports. 

31 March 2009 - Nawagarh, in Durg district of Chhatisgarh, is a very small place by any
standard. Everyone knows everyone else here, and so it was not difficult to find a local
journalist as soon as we reached Nawagarh. We were looking for
help to investigate stories of farmers' suicides in the area. A simple
enquiry at a local paan shop on the road side got us the address and directions to the most
famous journalist in town.
In a town this small, journalists have to wear many hats. Ashish Jain also runs a grocery
shop, apart from being a correspondent for a daily from the capital Raipur. A big picture of
him with a state Congress leader in his drawing room tells us that he is also active in local
politics, apart from journalism and his shop. While waiting to be served tea, I asked him if
there have been many incidents of farmers committing suicide in the region lately?

"No, we have never heard of any farmer's suicide here," Ashish said very confidently. Indeed
he was quite surprised to hear my question. His brother, who is a correspondent for another
daily from Raipur and was in the shop next door while we chatted in the drawing room,
overheard our conversation and made a quick call to the police Town Inspector and
confirmed that no farmers had committed suicide in the area.

I took out a list provided by the police headquarters in Raipur, and started reading and
counting. It had names and addresses of 23 farmers who had committed suicide in the last
year and a half within the jurisdiction limits of Nawagarh police station. How far are the
villages listed here, I wanted to know.

Ashish took a close look at the list, and said that all the villages in it were within 4-5
kilometers from Nawagarh. But he would still not believe us. He was shocked to hear that
according to data provided by National Crime Records Bureau, Chhatisgarh has the highest
per-capita rate of farmers' suicides in the country. "I have never read about it anywhere in the
newspapers," he said.

"The figure is not only for this year, but Chhatisgarh has remained at the top of the list every
year since its inception. 1593 farmers committed suicide in the state last year, according to
the data provided by state police to the National Crime Records Bureau," I said. It means 4
farmers die every day by committing suicide. Moreover, Durg is just behind Raipur, which
tops the list amongst the districts of Chhatisgarh in this infamous list. Last year alone, 206
farmers committed suicide in Durg.

Ashish was bewildered.

After taking directions from him, we set off to meet the families of some of the farmers from
the police list who have committed suicide last year. There was one farmer from Mohtara
village, who as per the list had decided to put an end to his life because of a heavy loan. We
thought of going to his family first.

"Pardesi, who died"? Yes. "Go along the pond and knock at the last house to your left that
was Pardesi Sahu's house", people told us at the village square in Mohtara.
Raju Sahu looks younger than the twenty years he claims his age to be. But he is the eldest in
the house now. He needs to take care of sister Rajmati and younger brother Rajesh after
father Pardesi's demise. His mother died a natural death 6-7 years ago and his two elder
sisters were married before that.

He has no answer to why his father may have consumed poison and ended his life. "May be
he was unhappy with my mother's death" he said. But that was 6-7 years ago. "Then may be
he was drinking too much," he answered reluctantly. Sawat
Sahu, an old friend of Pardesi, had joined us by this time;
he objected to this remark from Raju. "Yes, Pardesi used to drink when he met his friends of
that type, but he was definitely not a drunkard".

"How much loan did he have?" I asked

"It was around one lakh" Raju replied.

Who was the loan from?

"We have a Rs.10,000 loan from the bank and the rest was from relatives and friends".

"Did they come to your house to ask for the money?

"Yes, they used to come to our house asking for the return of the loan. But I have now
returned most of the loans", Raju said

"You have returned the loans, how?" I asked.

"I sold 55 decimals of land after my father's death to repay the loans to relatives. I have
repaid Rs.60,000. But there is another Rs.30,000 still to be paid to Padum Guruji in Jhal and
one more relative in Semarsal. I have not paid the bank yet".

"But I would have thought that being your relatives, you can return the money to them later,
they would wait, and you would return the money to the bank first," I said.

"No. I did not want the relationships to go sour. My father died in shame that he could not
return their loan, so that is the first thing I did after my father's death" Raju said

The story was becoming clearer now. Sawat Sahu, sitting nearby, pitched in, "Though Pardesi
had 2 acres of land but he used to take another 4-5 acres on lease every year. He thought he
would repay the loans with income from the extra land but the crop failed".
Pardesi's elder sister also had joined in by now. "Many years ago we used to go out to work
to other states and had bought this land with the help of that earning. It would have been
better had my brother continued to go out to do labour work and not insisted on doing
farming. This farming has killed him. Pardesi had sold some land earlier as well, to repay
loans in the past. But this time he had only 2 acres left and could not bear the thought of
having to sell them too"she said.

It was quite obvious that suicide is such a negative thing socially that people do not want to
think about the reason why a family member may have committed suicide. Or even if they
think about it, they try to avoid discussing it with outsiders, and it is difficult to get the story
out as a journalist, unless one is prepared to be very persistent.

We moved to nearby Ranbod village, where Beturam Sahu committed suicide. He also had 2
acres of land. His wife is sick and weak, and it is obvious that she has not been able to
manage to put together enough money even for food. She lives with a small baby in their mud
hut next to the village pond. Though the crop is yet to be harvested, this year the elder son
Lakhnu has already left for Agra to earn some money by labour work. They have a loan of
Rs.30,000 on them.

"The crop is so bad this year, that we will not even be able to save any seeds. There were no
rains at all," Santosh, Lakhnu's friend says. "That's why Lakhnu left even before harvesting
the crop. There is nothing left to harvest in his land this time. It is all gone. He is worried how
will he repay these loans".

Jeevan, a friend of Beturam, says "Beturam died due to loans. He had no fight with anyone.
He was also not keeping well lately and burnt himself one day. Here every farmer is in debt. I
have 15 acres of land but I too have around Rs.27,000 in loans from the bank".

Santosh, sitting next to him, said "There is a case pending on my land so I can't get a loan
from the bank. I have taken a loan of Rs.13,000 from the moneylender. Lakhnu also
borrowed from the moneylender because the land is still in his father Beturam's name.So the
bank did not give any loan to him this time".

How is it that these obvious suicide stories are not visible to journalists like Ashish Jain, who
live so close? Even the state Chief Minister Raman Singh, says, "Not a single farmer has
committed suicide due to loans in the state ever". This, despite police records for last few
years in Durg district that has 13 farmers listed as committing suicide due to debt. Not only
that, 31 farmers are listed as having committed suicide due to 'economic distress'.

To go to the third village Nandal, we needed to come back to Nawagarh, as Nandal is on the
other side of Nawagarh. Shatrughan Sahu of nearby Dharampura village was on his
motorbike. We flagged him down to ask for directions to Nandal. I also asked him, "Have
you heard of farmer suicides in the area?" Shatrughan was the first person we met to accept
it. "Yes, farmers are committing suicide here, but [only] all the idiot ones are committing
suicide" he said.

Shatrughan has two shops in Nawagarh town. On further enquiry he says "The water level
has gone down below 250 feet here. It used to be at 40 feet a few years ago. Most of the
farmers here are indebted, and only God can save the ones who do not have a bore well".

We move on to Nandal with directions from Shatrughan.

Teerathram Sahu in Nandal used to work alone on his farm. Both his sons went to work as
masons in Pune. He sold half an acre of land to repay a loan few years ago but since his sons
started sending money from Pune he did not have to borrow any money. After the father's
death the elder son Arjun has stayed back and does the farming. His younger brother has
gone to Pune this year too.

"My father had no loan but he wasted all the money we sent from Pune in the farming. He
used to take 8-9 acres on lease and thought he would earn handsome amounts from that, but
the crop failed. He was sick as well. This year I have taken only three and half acre on lease.
There is no profit in farming. All our income from Pune has gone waste in the farming. We
have a very small unpaid loan of Rs.2500. But my father died of the guilt of wasting all our
earning in farming. We tried for a bore well few years ago but that failed".

It was getting dark now. But on the way back we decided to stop by at Netram Yadav's house
in village Bhainsa. Netram (30) attended school up to class 4. He had 3 acres of land and used
to take more land for farming on lease every year. His wife can't think of any other reason
why he committed suicide. "He was worried about the loan of Rs.15,000 he had taken from
the moneylender. There is an interest of Rs.5 per month on every Rs.100 and he was worried
how he would repay it. He was a good farmer. He had no fight in the family".

His wife is left with 3 children to bring up. Two of them go to school and the youngest one is
too small to go to school yet. Netram had some problem in his eyes, and that was giving him
trouble. His brother Santram now goes to work as a labourer in the farms of those from
Haryana who have bought huge amounts of land and grow sugarcane. Their land is not
irrigated and they can grow only 10-12 bags (of 75 kg) of paddy per acre.

The farmer suicide rate in tribal areas of Chhattisgarh is less than half in comparison to non-
tribal areas.
Suicides are complicated, and need deeper investigation. A journalistic enquiry can only
provide pointers to this problem - to draw the attention of the people who are in a position to
study these matters in detail and take appropriate action.

But will anyone heed the pointers that are everywhere? Not only the Chief Minister Raman
Singh but the opposition Congress also does not see any farmers' suicide in the state. Some
members of the farmer wing of the Congress party tried unsuccessfully to include the subject
in the Congress manifesto for the last assembly election. A high profile Congress leader told
me righteously, "We also visit the villages. We do not see any farmer committing suicide. So
how can we include the issue in the manifesto?"

Maybe the reason no one can see it is because no rich farmer is committing suicide. Who
cares for the poor and idiots anyway! ⊕

Food security, by definition 

In the 1960s, Maharashtra ended famine forever by passing an Act that deleted the word
'famine' from all laws of the State. It's an idea that is still in fashion,  •  Write the author 
writes P Sainath. 
 •  P Sainath 
   •  Food Security 
05 September 2010 - Maybe the government, the National  •  Maharashtra 
Advisory Council and other assorted enthusiasts of the Food  •  Send to a friend 
Security Bill can learn from Maharashtra about moving towards  •  Printer friendly
ending hunger altogether. version
In 1963, the government of Maharashtra ended famine forever in
the State. It did this without adding a morsel to anyone's diet. It did
so simply by passing an Act in the Legislature that deleted the word 'famine' from all laws of
the State. No kidding. This was called 'The Maharashtra Deletion Of The Term "Famine"
Act, 1963" (And was dug up after decades by an independent researcher from Bangalore.)

The basis for this? Let the Act explain itself. It asserts that "there is now no scope for famine
conditions to develop." Why so? Because "the agricultural situation in the State is constantly
watched by the State government." And "relief measures as warranted by the situation are
provided as soon as signs of scarcity conditions are apparent." Goodbye Famine.

The next para says the term 'famine' "has now become obsolete, and requires therefore to be
deleted" from "other laws on the subject in their application to the State." It decrees that "for
the words 'famine or acute scarcity' the word 'scarcity' shall be substituted," in all laws of the
State. Lucky Maharashtra - it can't ever have acute scarcity either.
By slaying famine and acute scarcity on paper, a government kills its own responsibility
towards citizens, mainly poor and hungry ones, in times of crisis. Its burden becomes less. It
can concentrate (especially in Maharashtra) on boosting the Indian Premier League and its
billionaires.

This approach essentially defines a problem out of existence. You can't fight famine - so
abolish it. It's a proud tradition the State still hews to. Can't stop farmers' suicides, so redefine
who a farmer is. Then redefine what a suicide is. Maharashtra has done both. Why not have a
law banning the word 'farmer' or 'suicide' or both? Solves an annoying problem in a State that
has seen, in official count, over 44,000 farm suicides since 1995.

This is an Act in a State with a gosh-awful record in food production for years. That includes
a 24 per cent fall in 2008-09. A rich State that has seen far
more child hunger deaths than many poorer ones. A State
that added greatly to its hungry with 2 million people losing
their jobs between 2005-06 and 2007-08. That's over 1800
each day - and that's before the global meltdown of
September 2008, according to the State's own economic
survey.

The 1963 Act casts its shadow to this day. By legal The 1963 Act defining
definition, we cannot have a serious crisis in Maharashtra. famine away casts its shadow
So when there is one, we respond to it on a much lower to this day. No matter how
scale than needed. No matter how deadly the crisis, relief
deadly the crisis, relief work
work will never be up to the mark because it is not required
by law to be so. will never be up to the mark
because it is not required by
The Union government and the NAC can learn from this. law to be so.
Why not just abolish the word 'hunger' by law? Replace it,
maybe, with 'a mild craving for calories' (mild, not 'acute,').  
Or words to that effect. End of hunger. We've started down  •  Of APL, BPL and IPL 
that road. The NAC's idea of 'universal PDS in 150  •  Food for all? Not through
districts" is similar. It re-defines the word 'universal.' Death
NFSA 
by definition has been routine for decades in India -  •  Outsourcing food
consider the poverty line debates, for instance. production 
 •  Covering the Republic of
Meanwhile, say the 'experts,' the millions of tonnes of grain Hunger
rotting in open yards present a "golden opportunity" for
India to export this in bulk "and seize on the high prevailing
global prices of grain." That is also what the government hopes to do. Its affidavit in
response to a slap from the Supreme Court speaks of liquidating the excess stocks by open
market sale (read exports).

Leave aside for a moment the appalling insensitivity of exporting grain when there are, as the
Supreme Court says, many "admittedly starving people" at home. Just look at the logic of it.
You have a gigantic pile up of grain. You have these admittedly starving people. You say the
production is not enough to go for a universal system in PDS - even while boasting we have
so much grain, we can cash in on high global prices. Remember that the government has
bragged of "recording the highest ever production of about 235 million tonnes of food grains
in 2008-09 ..." So much so that we cannot store half of it and it is rotting.

Who will you export it to? Are there good global prices for rotting grain? Grain that even
when in best condition was not of superior quality? What you will do is flog it at rock bottom
prices to traders who know you won't consider any other option - like letting the hungry eat it
- and can knock your prices through the floor. And then the traders can export it as cattle feed
- like India has done before in this very decade. About the only thing Iran and Iraq could
agree on in 30 years was that the grain exported to them from India was unfit for human
consumption. Both rejected shipments early this decade. But there are always, never fear,
European cattle. Talk of sacred cows - these will be subsidised by some of the hungriest
humans on the planet.

The government knows this is how it will end up - and is not at all averse to that happening.
Apart from the juicy avenues of corruption it presents to many connected to the Food
Ministry and the trader lobbies linked to them, it makes "sound economic sense" in their
worldview. One in which the hungry count for little. The National Democratic Alliance did
the same thing in 2001-03 and paid the price for it in 2004. The United Progressive Alliance
feels confident the elections are far off. And there are no pesky Leftists to restrain them in
this innings. This is the time to ram through 'hard decisions.'

Meanwhile, even as we talk of 'exportable surpluses,' we look around for ways to make up
our production shortfall. Indian companies are buying land in parts of Africa to grow
foodgrain. This finds approval with the Working Group on Agricultural Production set up by
the Prime Minister and chaired by Haryana Chief Minister B S Hooda. Its report says "We
should seriously consider these options for at least 2 million tonnes of pulses and 5 million
tonnes of edible oil for 15-20 years."

Indeed, the Hooda report wants us to spread our net further. It says "Indian companies can be
encouraged to buy lands in countries like Canada, Myanmar, Australia and Argentina for
producing pulses under long-term supply contracts to Indian canalizing agencies." (Thereby
eyeing four continents besides Africa). So even as we convert more and more food crop land
to cash crop or to non-farm use at home, Indian companies (doubtless with handsome
government support) will buy land and grow grain in poorer countries (which is where it will
mainly happen). Why? So we can create worse food crises in even poorer nations? But what
if the locals get restless? They might resent the food they hunger for being shipped to India?
No worries. What are we building a Blue Water Navy for, anyway?

A dismal debate all around. Yet, in the next few weeks, the government, the NAC,
Parliament, and the judiciary will all be called upon to take major decisions, even vital steps,
on the food security of the Indian people. They might want to remember that there is existing
legislation to draw from. Legislation far superior to and of a very different kidney from the
"Maharashtra Deletion of the Term 'Famine' Act, 1963." That is, the Directive Principles of
State Policy - that give us the vision and soul of the Indian Constitution.

Of course, the moment we speak of the Directive Principles, up pops the point: "but these are
not enforceable!" Yet, the very line of the Constitution which says they are not enforceable
goes on to say they are "fundamental in the governance of the country and it shall be the duty
of the state to apply these principles in making laws." How the state - and others - perform
their duties will be on display in the next fortnight.

Will the courts say anything about the notion of shipping grain abroad when millions go
hungry at home? Will the government say something other than 'no' to the needs of the
hungry? Will the NAC rethink its stand on a universal PDS? Will Parliament accept
fraudulent definitions of food security? Will anyone speak for the Directive Principles of
State Policy and how policy must work towards strengthening them? It would, of course, be
silly to expect a government of this sensitivity to care a fig for the Directive Principles. But
perhaps we can hope that the Supreme Court does? 

Vidarbha farmers get market-savvy with hi-tech solution 

Reuters Market Light, a professional content service, has been changing the way Vidarbha
farmers make decisions on sowing, selling farm produce, and other important matters and
increase their profits. Jaideep Hardikar reports. 
   •  Write the author 
 •  Agriculture 
15 August 2010 - Gondia and Nagpur: It is 8 am on a cloudy day in
June. Sunita Bhajipale is anxiously awaiting a message on her cell  •  Maharashtra 
phone, quite unusual for a woman farmer in Jhilmili village of  •  Send to a friend 
Vidarbha’s Gondia district. As the ringtone on her handset buzzes,  •  Printer friendly
Sunita smiles and checks the message. “Not a good time to start version
sowing yet,” she says.
 Sunita Bhajipale, a progressive woman farmer and an RML
subscriber, at her farm in Jhilmili village in Gondia district
of Maharashtra. Pic: Jaideep Hardikar.

The SMS she received is the latest ‘weather advisory’ from

Reuters Market Light (RML), a professional content service
for farmers from the Thomson Reuters Group. “RML is my
friend,” she says as she decodes the message: 95% chance of
rains, 2 mm rain. “It might rain today, but not enough to
commence sowing. Let’s wait for two days,” she asserts.

Among the progressive big farmers, the entire Bhajipale

family, comprising several brothers and cousins, collectively
owns 100 acres of land and is into experimenting new cost-effective farming techniques
and new crops – from grains to vegetables to fruits. RML, they say, has augmented their
income.

Four text messages a day at an annual subscription of Rs 800, Sunita says, is not bad. “We
get all information about weather, crop, commodity prices at different markets, and future
projections.”

Thanks to daily updates, the Bhajipales have been able to jack up their profits by at least Rs 1
lakh with just one year’s RML subscription. “Until last year, we sold our bananas to traders at
Bhandara or Gondia at a price they quoted. Now we show them the RML messages if they
quote less,” she says. “It helps us in making informed decisions on whether we should sell
our produce or wait.”

RML, a silent revolution

Welcome to the ICT-enabled farming. It is a complex web of activities that is, on the one
hand, revolutionising the way content is generated, tailor-made, and disseminated. And on the
other, it is helping the peasants use the information to do smart farming and make informed
choices like which crop to sow, when and where to sell the produce.

RML – ideated in Stanford, California, US; incubated in London; and tested in Vidarbha – is
making silent but deeper penetration into the vast Indian rural landscape. From a few
thousand subscribers who received the service free of cost during a test-run in 2007, RML
today reaches 250,000 peasants in 13 states, signalling a staggering growth driven by greater
rural consumer interest. Not to mention the ripple effects it creates when one RML-
subscribed farmer passes on the information to his fellow-villagers.
 “What we do is manage the
risks at one level and try to
maximize the farmers’ gains
Conceived by Mans Olof-Oars, a Reuters’ employee, at at another. We give them
Stanford in the Reuters Digital Vision Program, the idea information and leave the
got selected for the Reuters Innovation Program and was decisions to them.”
backed by funds. Initially, Mans had emerging markets in
sight, RML Managing Director Amit Mehra says. India –  
where two out of every three new mobile subscribers come  •  Cotton marketing fails
from rural India – emerged as a natural choice. Moreover, Vidarbha farmers 
the country’s mobile telephone sector was booming and  •  Vidarbha meltdown:
economy was expanding at a rapid pace. bumper crop losses
Plus, India has 150 million farming households, largest in
the world. To top it all, Bangalore is the hub of the Reuters global data operations. All these
features, the project think tank thought, would naturally aid the project in accessing
technology and tackling the initial hiccups.

The Reuters Innovation Foundation formed a team that looked at the potential test field.
Maharashtra, Vidarbha in particular, emerged as a choice because of significant farming
population, deeper rural penetration of mobile network, marketable surplus of commodities,
and internal assessment.

Cellphone flashing an RML advisory. Pic:

Jaideep Hardikar.

According to RML Vice-President (Operations)

Ranjit Pawar, a lot of field research and
consumer feedback was carried out in the first
year (2006). “We engaged research agencies to
know the top-most information needs of the
Indian farmers.”

The research assumptions were obvious: there

was information asymmetry, farmers did not get
timely crop and weather advisories, and the
information about schemes and government programmes was hardly accessible. When
consumer surveys were analysed, the assumptions stood vindicated.

Based on the subscribers’ feedback, RML synthesized prototypes of text messages and sent it
to some farmers in Maharashtra, particularly Vidarbha. “They liked what they saw,” Pawar
says.

Pilot project
In 2007, a pilot product was launched. Instead of providing
the product on the java-enabled mobile handsets, the RML Use of RML and other
team chose to provide text services to the universally used mobile-enabled service-
handsets. The technological change was from application- advisories is a new but
based to text messaging. This made things easier for the significant trend in Vidarbha
farmers to receive and understand the content.
and other parts of the
“We could have tested it in two-three states,” Mehra says. country's agricultural
“But we decided to test it first on a small scale in landscape, particularly where
Maharashtra before scaling up the operations in 13 other agrarian crisis is still
states.” wrecking havoc in the
peasantry.
How it works

It’s 2.30 pm. A motley group of traders begins auction of As farmers continue to take
local and hybrid gram that has arrived at yard No.7 on their own lives in their
Nagpur’s sprawling 125-acre Kalamna market campus. hundreds, a credible
Standing attentively in one corner is Sarang Pimpale, 24, to information and extension
jot down the price at which the buyer closes his deal. “Rs services (which were
2,160”, he notes and moves on to the next auction site. At 4 otherwise a key role of the
pm, after three different auctions of gram and soybeans in a state agriculture universities
typical off-season when the arrivals are sluggish, he texts a and departments) through cell
report on his cell. phones are aiding some of the
user-farmers in their
This first-year BA student is a farmer’s son and RML’s decision-making process.
market correspondent. “He’s our eyes and ears at the local
mandi,” says Shrinivas Pande, chief market reporter. Every
day, between 11 am and 5 pm, Sarang taps on the prices at this market of 20 different
commodities – from fruits to grains to vegetables.

After cross-checking his message, Sanrang shoots it to a system’s unique short code, after
which it gets structured at the Reuters’ data centre in Bangalore before appearing in minutes
on an internal prices application portal. Sitting in his Nagpur office, Pande surfs through the
messages on his laptop when he taps on Sarang’s entry. It reads: soybean maximum price-
2024, minimum price-1951, average price-1975, arrival at Kalamna market-800 quintals;
wheat maximum price-1199, minimum price-1176, no average (since only two auctions took
place that particular day), arrival-700 quintals…”

Pande clicks “approved”. The message heads to the production desk and is ready for
dissemination. In an instant, it reaches the subscribers as per their market and commodity
preferences.
RML sources about 5,500 data points, of which 680 are in Maharashtra. For instance,
soybean prices at Nagpur market forms one data point. Local level market reporter is the
primary source and foundation of the Market Light product. The Reuters editorial network
and its premium services are its backbone.

The whole of market intelligence is available to farmers for whom it reads like a simple text
message. But the challenge is in synthesising of a complex set of fast-paced global activities:
from collecting data, deciphering it, and disseminating it in a way that can be easily read and
understood even by illiterate peasant subscribers.

Global market intelligence and information is sourced from various market reports and
analyzed by experts. Granular information and intelligence is collected by market reporters
posted at APMC markets.

RML’s USP

It’s affordable, easily accessible, and customized for the needs of individual farmers. If you
choose to get information on soyabeans and cotton, two major globally traded crops of
Vidarbha, you’ll get it. At any stage, if you intend to change your choices, you could do so by
dialling a toll-free number.

“When the idea got coined, we said, we now have the device that makes it possible,
workable. It only had to be affordable and accessible for farmers,” says Mehra.

It is simple and user-driven. All that you do is dial 18002708090, a toll-free number to
enquire about RML. Buy a scratch card available at retail shops and Krishi Gramin Bank
branches and follow a couple of simple steps to get the service activated. What makes the
service spread fast is easy access from any handset and mobile operator. There are no
language barriers either since the farmers can get messages in any regional language of their
preference.

RML market reporter Sarang Pimpale at Nagpur's Kalamna

Market yard. Pic: Jaideep Hardikar.

If you hear Sunita, it becomes clear why she subscribed to the

service when she first heard of it at a farmers’ convention in the
district. “I needed this information. It gives us an edge and
confidence,” she says. This need, in essence, is what creates
business opportunity for RML. This one’s a new segment of
customers and a new area for content generation.
Pawar says RML’s weather updates, drawn from both local and overseas professional
weather forecast services, is one of the top four information needs of a farmer.

RML’s content-spread is mind-boggling. It covers 250 crops; 1,000 markets and 3,000
weather locations. So is the size of operations: 300 people in 13 states source information at
granular levels. Another 13 editors source information from global markets and keep a tab on
the global commodity trends, activities at the Chicago Board of Trade, and dozens of
advisories issued by governments worldwide.

Farmers avert losses

A number of subscribers reported that the RML advisories helped them avert potential losses
by reacting quickly to weather and pest information resulting in “generated positive economic
benefits”.

Take for instance, Ravindra Lindal, a marginal farmer in Beed’s Rohtalgaon village. Two
years since he subscribed to RML, Lindal has preserved every single advisory he received on
his cell phone. Last season, his profits went up by Rs 64,000.

“One SMS advisory suggested that soybean prices would drop in a week’s time and I decided
to sell my produce immediately,” he says adding that he would not have sold the output
otherwise. “The prices did drop. I was saved.”

“What we do is manage the risks at one level and try to maximize the farmers’ gains at
another,” says Pawar. “We give them information and leave the decisions to them.”

In highly volatile global markets, getting accurate market intelligence and a picture of future
trends are crucial to the farmers who had no access to such specific information earlier, says
RML editorial head Sunil Tambe.

The RML subscribers benefited immensely last year when markets were bearish, in contrast
to the long-term experience. “Our analysis showed that soybean prices would collapse later,
because of the bumper crop in Agrentina and South Africa. The prices usually start to climb
at a later stage. The RML subscribers told us they sold the crop early and averted the losses.
As for cotton, our advisories suggested a rising trend in global prices at a later stage, so the
farmers decided to wait,” adds Tambe.

According to Tambe, the content has evolved and been shaped by the subscribers over the
time. RML equips the farmers with market intelligence and keeps them updated on prices of
different markets to help them understand broader current trends and future projections.
“Now the farmers growing soybeans in Vidarbha want to know the plant delivery prices –
meaning the procurement price at soya oil extraction plants. This information gives them an
idea of the global trends and the market situation.

Other models

So far, it remains the only commercial mobile-enabled information service for farmers in
India. A few other area-specific parallels such as IKSL are non-commercial and do not
provide country-wide service. IKSL, run in partnership with Bharti Airtel by the Indian
Farmers Fertilisers Co-operative Ltd (IFFCO), requires the farmers to purchase a special SIM
card to receive free voice-mails on agricultural information at Rs 1 per minute.

The MS Swaminathan Research Foundation (MSSRF), a Chennai-based NGO, is piloting a

mobile information services model for fishermen in partnership with Qualcomm, a global
technology company, and Tata Teleservices, an Indian mobile phone operator. The
programme, Fisher Friend, provides free mobile handsets to fishermen along with free access
to the information service.

Similarly, agribusiness company ITC also operates several models of a rural internet kiosk
programme, the “e-choupal”, serving farmers across rural India. The version investigated for
this report was anchored upon an internet kiosk manned by a local farmer who acts as an
agent for ITC called ‘sanchalak’.

Last year, a research carried out by ICRIER on the “Impact of Mobile Phones on Agriculture
Productivity” found “evidence that mobiles are being used in ways which contribute to
productivity.” When compared to other models, the ICRIER researchers found the RML
model most suitable to the farmers because of its customized nature and easy access.

Ready for expansion

Now that the product is replicable and foolproof, RML is ready to sail beyond the Indian
shores. “We are gearing up to introduce the product in other developing countries. That’s the
reason why we scaled it up in India because it’s a model that works accurately,” says Mehra.

Accuracy of information and credibility are “RML’s soul”. “The fact that we are part of the
broader Reuters network brings in the integration of best
human resource, content, and technology,” he adds.

The value chain, Pawar says, is equally important. The Thomson Reuters does everything on
its own: sources the content, manages it, disseminates it on its own, looks after the billing
and sales (it has its own pre-paid vouchers), and also handles customer care and support.
Subscribers’ information consumption behavior is changing, Pande asserts. “Earlier, they
expected a message once in 3-4 days; now they want it a few times a day, particularly in
harvest season.” Some curious farmers call RML reporters any time to know more about crop
and market situation and newly launched government schemes.

“It can play a big role in extension,” Gondia sub-divisional agriculture officer Rajratan
Kumbhare says. “I see a qualitative change in the way RML subscribers take to farming aided
by this information.”

Farmers like Sarjerao Sahebrao Kharwade, who owns a five-acre rain-fed strip in Beed’s
Gevrai tehsil, are already blending their wisdom with advisories. “I’m able to sell my produce
at an appropriate time,” he acknowledges. “I am sticking with it since it’s giving me
dividends.” 

Preparing for a tsunami of migration 

India cannot afford not to take a proactive approach to migration. In particular, adaptation
measures in key sectors are needed to improve resilience and reduce the pressure on
migration from climate change, writes Sujatha Byravan. 
 
 •  Write the author 
28 July 2010 - Migration has been ubiquitous since the evolution of  •  Sujatha Byravan 
early humans. Historical reasons for large-scale movement of
 •  Displacement 
populations were probably related to the search for resources,
safety from predators, and the need to get away from difficult living  •  Climate 
conditions. We know that in the Indian sub-continent there have  •  Send to a friend 
been early and later migrations from Africa, South East and Central  •  Printer friendly
Asia, China and Europe. And there may be even more movement of version
people in the near future as a result of climate change, which is
expected to have a defining impact on human migration.

What are the likely levels and characteristics of climate-change induced migration in South
Asia? Most studies on migration at time-scales of a generation or less in India have relied on
analyses of census and National Sample Survey Organisation (NSSO) data. These surveys,
however, suffer from having strict and narrow categories for people to provide 'reasons' for
migration.

Second, gradual change and cumulative impacts of various drivers of migration are difficult
to recognise, and when people are asked why they moved they simply say, "to find a job".
Environmental degradation such as deforestation and some of the effects from climate change
would probably not be recognised as the main causative agents. Only immediate effects such
as displacement relating to building a dam, and dramatic/profound changes, such as being
forced to move out of one's country, as a result of climate related causes such as in the case of
sea level rise would be remembered and cited as the primary reason for migration.

The state of migration

Migration, which has been an area of interest for academics, has increasingly begun to
concentrate on rural-urban (RU) aspects, as there has been a general belief that following
trends in Latin America and Africa, Asia is going along the same route. However, some
people argue that such RU trends are not so evident in Asian cities. In contrast to the
experience of other regions, the prediction is that in Asia only the least developed cities will
see an increase if any. The contribution of RU migration to the increase in urban population
in India was 21 per cent during the 1990s and census data analyses suggest that over the last
few decades, overall migrant population is generally about a third of the total population.

But there is still plenty of debate on various questions: Is such RU migration accelerating in
India, are the cities people move to mostly 1 to 5 million in size, smaller or larger, should
people be discouraged from moving into cities even if that has been shown in general to
improve economic and living standards, and what should we do. None of these are clear.
Indeed there is no agreement on what constitutes the right response.

According to an NSSO report that came out in June this year, about a third of Indians are
migrants, but within this there are some interesting differences in the rural-urban and also in
male-female distribution patterns. Women migrate mostly for marriage, while among men the
single largest reason is employment. Migration because of natural disaster, displacement due
to a development project and socio-political reasons is classified as 'forced migration' and this
is 2 per cent each in rural and in urban migrant households. Education, natural disasters,
housing problems or house or land acquisition, healthcare, retirement, and marriage are
among the other reasons for migration.

Contrary to the belief that the poor are forced to move, or that poverty is a major push factor
for migration, we find that it is the educated and the wealthy who are most likely to migrate.
The report indicates that the poor, the illiterate, those who are part of backward castes and
tribes do not migrate as much. This suggests that lack of access to resources, social networks,
and social and economic status become hindrances to migration. Migration in itself improves
a person's life but those who have most to gain from it, the very poor and marginalised, are
the ones least likely, or able, to do so. This particular observation is similar to what was
highlighted in the 2009 Human Development Report.

For the most part, experts working on migration in the region have not considered the impacts
of climate change in evaluating future trends in migration. Internationally, there has been
debate on migrants and environmental refugees for a long time. Forecasts of how many will
be displaced in 2050 by climate change vary widely from about 25 million to 1 billion. The
problem lies not only in the uncertainty regarding future climate change impacts and coping
measures, but also in the difficulty in estimating the interaction among the several factors
driving migration.

What to expect with climate change

Globally, climate change is expected to result in droughts,

heat waves, melting of glaciers, famine, changes in patterns
of many diseases, and sea level rise. Each of these can lead
to a range of effects that can then have various secondary
impacts and these changes are likely to contribute to
temporary migration. For instance, if precipitation drops in Developing regional policies
already drought prone-areas such as Bundelkhand, seasonal on forced displacement and
migration may increase and perhaps become permanent.
labour is important and since
In case of famine, it may be difficult to indicate the extent the Refugee Convention does
to which climate change forced the migration, but this is not recognise climate change
relatively easier to understand with sea level rise (SLR). migrants as refugees, a new
Most experts now expect at last a metre rise by 2100 with international agreement is
effects such as salt-water intrusion, an increase in the required to address the plight
intensity of storms, fresh water shortage, reduction in
agricultural yield and inundation. All these difficulties will of these people, especially
force many people to move well before they are inundated. those who will be rendered
Globally, SLR will lead to migration of people out of their stateless.
low-lying islands, delta regions and coasts. Around the
world, about 60 million live within 1m of mean SLR and  
roughly ten times that number live in an area that will be  •  Unemployment and
inundated by a 10m SLR. migration 
 •  Migrant labour, migrating
In the South Asian region, climate change is expected to debt
have dire consequences: variability in monsoon patterns
with a likely increase in the number of days with heavy
precipitation and flooding, a severe shortage of fresh water and the melting of the Himalayan
glaciers leading to an exacerbation of drought in many parts of the Indian subcontinent,
reduction in agricultural yield eventually leading to widespread famine. Diseases such as
cholera will intensify with water shortage and vector borne diseases such as malaria will rise.
Since the region has small islands, delta regions and long coastlines with densely populated
cities, SLR will certainly force people to move inland or out of their islands and delta regions.
Being one of the most densely populated regions of the world, the adverse impacts of climate
change will be experienced by millions of people.

Based on the information we have it is difficult to predict how migration numbers will
change with the impacts of warming. Given the scale of uncertainties, most reported numbers
are good guesses. Perhaps more people will move to other rural and urban areas with an
increase in droughts, fall in agricultural yield, water shortage, and floods. People will be
vulnerable to many effects: globalisation, water shortage, famine, poverty and so on. They
will experience them simultaneously and respond to them based on how these impinge on
their daily lives. Seasonal migration during floods or droughts may intensify and then
become permanent.

We need to understand the tipping points for migration and the numbers of people who are
already migrating in different parts of the country as a result of environmental causes. While
triggers of migration are complex, there are certain patterns that are becoming clear.
Migration tends to take place in waves to places where people have existing family or social
networks, cultural affinities and economic opportunities. The young tend to move early,
creating further stresses in the remaining population and intensifying future migration. Old
people tend to leave last, but do not necessarily return first.

In the unique instance of SLR where numbers might be relatively clearer, how many people
do we expect will migrate? With its long coastline and densely populated coastal cities in
addition to the delta region of the Ganges, India can expect tens of millions of people to be
forced to move. Up to 80 million people living along the coast may be forced to migrate
inland as a result of SLR. In case of a 3 to 5 metre sea level rise, Dhaka, Mumbai, and
Kolkata could potentially be significantly de-urbanised.

Another important consideration is the SLR expected in Bangladesh. About half the
population of Bangladesh lives within 10 metres above sea level and flooding currently
displaces 500,000 people each year. Although flooding and temporary migration are a way of
life for many people in this region, the frequency of 100-year storms is also expected to rise
and with that the number of people who are forced to move is expected to increase. Since
Bangladesh has a large delta region in a small country, many of the close to 80 million who
might be affected by rising seas may have no place to go except their hinterland and their
neighbours.

What should we do?

India cannot afford not to take a proactive approach to climate change and migration.
Adaptation measures in key sectors such as water conservation, agriculture, urban planning
and coastal management will improve resilience and reduce the pressure on migration from
climate change.

One may consider, for example, that coastal planning and infrastructure development need to
be regulated. While existing investment of crores of rupees is not resilient to SLR,
infrastructure development continues along India's coastline as ports, highways, airports,
special economic zones, industrial parks, upscale hotels, and housing developments are
proposed. Mal-development along the coast already leads to salt water intrusion and
destruction of coastal ecosystems. Thus in the case of SLR as in other areas of climate
change, development challenges are not always distinct from adaptation, but some of the
specific problems that we will encounter with warming will be relatively distinct while at the
same time exacerbate development problems if they are ignored.

There are particular knowledge gaps on internal migration in India, which need to be located.
We need to do a better job of tracking migration and its causes, identify indicators and
thresholds, so we understand how decisions on migration are made. We need an
understanding of multiple vulnerabilities in particular ecological zones in India in order to
adapt better to warming. In situations in which migration cannot be avoided we need to have
policies in place to prepare for a proactive phased movement of people. Provision of skills in
advance of migration, civil and legal rights and appropriate labour policies are all relevant to
preparing for the changes in migration patterns.

If the global community and South Asia are to survive climate change, it will require us to
learn that we cannot engineer our way out by merely using new technologies. We may have
to re-imagine a more cosmopolitan South Asia, redefine our identities and what we mean by
culture. 

Schizophrenia of agricultural policy 

Any discussion of GM crops must take place within the larger framework of the
indispensable need to promote biodiversity and set up agricultural policies linked to this
need, writes Sujatha Byravan. 
   •  Write the author 
 •  Sujatha Byravan 
27 March 2010 - The last few weeks have indeed been colourful if
 •  GM Crops 
not schizophrenic with regard to agricultural policy in India - a
moratorium on Bt-brinjal, a steep rise in food prices, an  •  Biodiversity 
international conference hailing biodiversity as pivotal to food  •  Send to a friend 
security, and a proposed Memorandum of Understanding with the  •  Printer friendly
version
U.S. on agriculture cooperation and food security; the last item was kept under wraps and
later announced as a fait accompli.

Activists, farmers, some scientists and many who are concerned about what they eat have
been celebrating the moratorium promised by Environment Minister Jairam Ramesh in
introducing Bt-brinjal into the Indian markets. Never mind that by all accounts the delay will
be for a few months and we do not know what it means in the long term for farmers and
consumers. Will there be more scientific tests? Who will conduct them and how will they be
evaluated? Indeed, will postponing the introduction of Bt-brinjal improve matters or will we
need another round of protests and consultations at the end of the moratorium period?

Further, what is the plan for other Bt-vegetables that are being field tested? Last week
Monsanto announced that the pink bollworm has developed resistance to Cry1Ac, which is
the Bt protein in Bollgard cotton. This has taken place in the past in other places including in
the US and was to be expected. Under intense pressure, pests will develop resistance; this is
101 biology. Perhaps the annoucement is an inducement for farmers to start using Monsanto's
second generation Bt-resistant cotton, the Bollgard II.

The union government has announced that it will change the Genetic Engineering Approval
Committee (GEAC), a statutory body under the Ministry of Environment and Forests
(MoEF), to Genetic Engineering Appraisal Committee, whatever that might mean in real
terms for the decisions it makes. Meanwhile, a proposal is being considered to take over
authority from the MoEF. A draft bill to set up the Biotechnology Regulatory Authority of
India (BRAI), will supposedly be tabled by the government in the budget session. It proposes
to "regulate the research, transport, import, manufacture and use of organisms and products
of modern biotechnology...in order to promote the safe use of modern biotechnology by
enhancing the effectiveness and efficiency of regulatory procedures."

India has not used the rights offered by the Biosafety Protocol, which already provides a
significant degree of protection that this bill proposes to offer. Is this simply because
agribusiness is opposed to the Protocol?

Further, while the GEAC was under the MoEF, the new Authority will be under the
Department of Biotechnology in the Ministry of Science and Technology. Thus, the agency
charged with regulating the technology also has the responsibility of promoting it. It seems
like India is trying to duplicate, instead of improving on, the mess of U.S. biotechnology
policy. There we find that three federal agencies regulate genetically modified (GM) foods:
the Food and Drug Administration (FDA), the U.S. Department of Agriculture (USDA), and
the Environmental Protection Agency (EPA). Oversight by these departments is based on a
random collection of pre-existing statutes and conflict of interest is structurally embedded by,
for instance, having the USDA regulate and promote GM crops.

Problems with the BRAI

We need an overhaul of the regulatory bodies and regulatory processes for GM crops in
India. Riddled with conflict of interest, lack of scientific rigour, outright lies by the
companies, and corruption of Indian regulators, every aspect of the regulatory system
requires a rethink. The BRAI, which is based on a different version of the older National
Biotechnology Regulatory Bill, 2008, simply adds to the chaos in the institutions that regulate
GM crops.

According to article 63 of the proposed law, "whoever,

without any evidence or scientific record, misleads the
public about the safety of the organisms and products ...
shall be punished with imprisonment for a term - and with a
fine - or with both". Another controversial new article, 81,
indicates that decisions made at the state level can be
overridden. Yet another clause, article 27, suggests that the
BRAI could override India's Right to Information Act, We learned, almost in an off-
which mandates citizens' right to obtain information from hand manner, that the
the government. This confusing, not to say, disingenuous government has secured
legislation has many civil society groups up in arms and is cabinet approval for a new
perceived as unconstitutional by many of them. agreement with the U.S.,
which, among other things,
Moreover, any discussion of GM crops must take place
within the larger framework of the indispensable need to promotes the privatisation of
promote biodiversity and set up agricultural policies that agricultural extension
will support or, at the very least, not be in conflict with this services and facilitates
necessity. At the same time, we must cut down on the use collaboration between
of petroleum products such as fertilisers so that we can American agribusiness and
reduce greenhouse gas emissions.
the farm sector in India.
We should consider what kinds of innovations could be
promoted in agriculture. What role do practices such as  
intensification of farming, low or no-till farming, organic  •  Where is the science?
agriculture, ecological agriculture and farmer?s
cooperatives have on improving agricultural yield in a warming world? How will methods to
advance storage and distribution of food grains improve food security in concert with other
changes? We need an integrated systemic approach to agricultural policy, not the piecemeal
methods adopted by the government thus far such as evidenced in the case of Bt-brinjal.

While all these regulatory changes were taking place, an international conference was held in
the MS Swaminathan Research Foundation (MSSRF) in Chennai, with high-level experts
from different parts of the world. A nine-point plan for boosting biodiversity was announced
in a Chennai Declaration, a manifesto that links food security, climate change and
biodiversity. Various measures to strengthen and expand biodiversity were highlighted, as
were methods to build resilience in a changing climate. The need to protect our ecosystems
from the threat of monoculture and the connections with rural livelihoods, health and food
security were noted along with the need to establish gene banks.

The promotion of GM crops by MSSRF on the one hand - thus promoting monoculture - and
calling for the preservation of biodiversity on the other hand, leaves many activists confused
about the organisation's goals and motivations.

Privatising extension services

Yet, perhaps all this happened in some sort of vacuum. We learned, almost in an off-hand
manner, that the government has secured cabinet approval for a new agreement with the U.S.,
which, among other things, promotes the privatisation of agricultural extension services and
facilitates collaboration between American agribusiness and the farm sector in India.
According to The Hindu, "An India-U.S. Agriculture Knowledge Initiative is already in place
that allows for US-based private multinational trading and seed giants like Cargill and
Monsanto to be appointed on the board, enabling them to bear influence on the country?s
farm research". The last thing we need is Monsanto and Cargill giving us advice on food
security.

According to Doug Gurian-Sherman from the Union of Concerned Scientists, "this is

potentially a very serious development for several reasons. One is that a system of private
extension could shift farm practices toward technologies preferred by the private sector -
especially the large companies. Extension acts as a conduit of science and technology to
farmers, and can be very important and influential in shaping farm practices".

He adds that extension in the US has gone down this privatization course over the past 30
years. While public sector extension scientists, usually associated with agricultural
universities, may provide farmers with information on the best practices, private extension
may be influenced by incentives from companies to push their preferred solutions. Practices
based on knowledge - like organic farming rather than expensive inputs that are attractive to
big business - will not have big business constituencies to buy off extension agents with
incentives. "In practice in the US, industrial agricultural methods were pushed by public
sector extension scientists too, because of the undue influence of industry and large farms on
our Department of Agriculture. But at least if structured properly, public sector extension
could be more objective".

While many were celebrating a delay in Bt-brinjal commercialisation, our policymakers were
selling our farmlands for all varieties of crops as dictated by agribusiness. While some people
in MSSRF were calling for biodiversity, our gene banks were being handed over to American
agribusiness. I do not believe that this is simply the result of pressure from agribusiness,
although I know that such pressure is nothing to be scoffed at for its power and reach.
Agribusiness in the US has done all it can to destroy their ecosystems, consolidate family
farms, and industrialise agriculture. It has resulted in an increase in monoculture, contributed
to the expanding American waistlines and made the US one of the unhealthiest countries in
the developed world.

What we need in India is an integrated agricultural policy. There are excellent approaches
suggested by groups such as the International Assessment of Agricultural Knowledge,
Science and Technology for Development (IAASTD), and others. We need to establish far
stricter rules for transparency in government at every level. Only then can we at least begin
our task by voicing our opposition when we want a different future from the one envisioned
by our policymakers. ⊕

Organic veggies in my Inbox 

In operation now for more than two years, Gorus has a network of about 50 committed
families as consumers and 25 farmers as suppliers, and growing steadily. Shripad
Dharmadhikary reports. 
 

25 February 2010 - Every Saturday, I open my email inbox to find

a mail with a form that I have to fill out and send by Tuesday. The  •  Write the author 
form has a list of vegetables along with their prices. I fill and email  •  Organic farming 
the form at my convenience, and on Wednesday, I get my order  •  Send to a friend 
delivered at home. Not only that, but the vegetables - and other
 •  Printer friendly
produce like rice, pickles, panner - is 100 per cent organic. This
initiative of providing organic vegetables to consumers at their version
doorstep is a venture of the Gomukh Centre for Rural
Sustainability, known also as GORUS. Located about 40 kms from
Pune, Gorus is an innovative idea that marries convenience for consumers, assured market for
farmers and a quest for sustainable farming.
It began as a small in-house pilot project of the Gomukh Trust that works on issues of
sustainable agricultural development for marginal farmers, irrigation management with
equitable distribution of water and rural development through Integrated Watershed
Management approach in the Kolwan valley near Pune. They started organic cultivation of
vegetables on one of their own demonstration farms and established a marketing relationship
with 5-6 families. In about six months, this experiment attracted the attention of many
neighbouring farmers, who expressed interest in joining it.

In operation now for more than two years, Gorus has a network of about 50 committed
families as consumers and 25 farmers as suppliers, and growing steadily. The small numbers
are a result of deliberate strategy, a part of the Gorus philosophy and vision. Moreover, as
Ashwin Paranjpe, the Principal Coordinator of Gorus, points out, the work of Gorus is very
human resource intensive.

One of the key pillars of Gorus strategy is backward integration, ensuring that what the
farmers grow is a good match with the demand. At the start of every growing season, Gorus
staff and all the farmers get together. They begin by
estimating the likely demand for vegetables in the season
based on the experience of the earlier year, and the change
in the consumer numbers. Once they have an estimate of
what quantities of which vegetables are to be produced - for
example so much of tomatoes and so much of palak etc. -
they estimate the land that will be required to grow it. This
is matched against the total land that the farmers have, and
the quantities are allotted to each farmer on a pro rata basis.
Thus, beginning of each season, the farmer is allotted the One of the key pillars of
area of each vegetable that he or she is to grow.
Gorus strategy is backward
According to one of the farmers, this is very important for integration, ensuring that
them. He relates the story of how some years back, farmers what the farmers grow is a
had grown tomatoes in large numbers, and when the crop good match with the
was ready, they found that there was a glut in the market, demand. (Above: Farmers
and hence the prices collapsed. Due to this, it was not sharing their experiences
viable for the farmers to even harvest the tomatoes, let
with consumers at a Gorus
alone transport them to the market. Ultimately, the farmers
had to feed them to the cattle. Such stories are a regular farmer-consumer meet.)
occurrence, emphasising the uncertainty of market for
farmers and underscoring the importance of an assured  
market. The backward integration put in place by Gorus is  •  Timbuktu is scaling up 
precisely to ensure that they don't have a glut (and hence an  •  Persisting with organic
unmarketable surplus) of some vegetables, at the same time they can provide what the
consumers want.

Gorus also has another important provision. They pay the farmers the same rate per kilo, no
matter which vegetable they bring in. Thus, tomatoes may be cheaper in the market than
broccoli, but the farmer gets the same rate for it at Gorus. This measure, combined with the
above described crop allocation, promotes equity and ensures that all farmers get a good
return for their produce.

The advantages for the consumers are obvious. Being able to order from the comfort of one's
chair and getting the vegetables delivered at home are the lesser of these. More important are
the numerous well known benefits associated with getting organic produce. Organic
vegetables are healthier due the absence of pesticide residues and contamination. Consumers
of Gorus also swear by the disctinctly better taste of most of the produce. Tired of eating
bland carrots and watery tomatoes from the conventional market, Gorus consumers talk with
delight of going back to vegetables with real flavours and tastes.

For the farmers, the assured market for their produce is a key element of the whole system,
the most important immediate benefit. Moreover, as a farmer Sathe put it, "With our regular
farming, we found that when we sold the crop in the market and then deducted the costs of
inputs like fertilisers and others, we had little left for our labours. But with organic farming,
our input costs have gone down and we earn a good profit." Gorus says that in the
conventional marketing process which involves several middlemen and other costs, the
farmer maybe getting at little as 20-30% of what the consumer pays. But in the Gorus system
the farmer gets as much as 60-65% of what the consumer has paid.

The rest of the 30-35 per cent goes to pay the costs of handling, packing, delivery and the
overheads of the distribution and planning system. Over two years, Gorus has reached a
financially stable system. The farmers also pointed out that with organic farming, their
requirement of water significantly reduces.

But it is the long term benefits that has gotten many of the farmers committed to it. They
have experienced soils being degraded due to continuous use of chemical fertilisers. Now
they have found a way to get out of this trap and ensure that their soils get enriched rather
than depleted. One farmer told this author that "I am 40 years old and my father 75. But he
looks more fresh than I do, for he has lived on organic food, and I have grown up on
chemical food. With this switch, I can at least ensure that my children will go back to eating
organic food, free from chemicals."
 Raju Phale shows his farm to consumers.

In any organic farm produce marketing arrangement,

one of the most crucial aspects is to instil confidence
in the consumer that the crop has been grown using
only organic inputs. The conventional way in which
this is done is through third-party certification. But
this method is very costly, as it involves highly paid
consultants who fly in to verify the farmers'
practices. Gorus has rejected this system partly
because of the high cost, especially since many of
their member farmers are essentially small farmers.
Instead, they have devised a system which they call Peer Certification.

In this system, three times a year, one representative of the farmers, and one staff member
from Gorus takes a round of every field to check that only organic farming methods have
been used. Interestingly, some of the key staff is part time staff and part time farmer, so they
have the direct experience of organic farming. Hence, as farmer and part-time Gorus staff
Raju Phale says, "We go around and visit all the farms regularly to check, and we can easily
look at the crop and identify if anyone had used chemicals." Moreover, the group interacts
several times and the staff is also meeting farmers regularly. Gorus also organises interactions
between consumers and the farmers. All this ensures a peer and moral pressure on the farmer.

The most important thing about the Gorus system is that it is a system based on human
interaction, building a community and nurturing it. Its strength and credibility derives from
this. However, this is only possible in small systems. Gorus recognises this, and in fact,
Ashwin Paranjpe says that limiting their size is a part of their vision. "Our vision is to have
on this location a renewable energy based food processing unit, and eco-friendly farmer-
consumer relations. We would like to restrict ourselves once we have about 200 families as
consumers and about 50 farmers as producers. This will allow optimal use of our resources,
and also maintain our strengths. After that, we will invest our time and energy to transfer our
experience to other groups interested in replicating it."

And while he himself cautions that the Gorus model is not a universal model but that each
group would have to evolve solutions appropriate to their situations, clearly, the basic
principles and values on which Gorus is structured have a wide relevance. 

Reasons for the Bt Brinjal moratorium 

Barely three days after the conclusion of the last of six public hearings, Minister of
Environment Jairam Ramesh slapped a moratorium on the release of Bt Brinjal.Anupama
Rao summarises key points from the Minister's note. 
 
 •  Write the author 
12 February 2010 - Anxious eyes must have scanned through 16  •  GE/GM 
pages of rationale to arrive at the italicized bold font quoting
Minister for Environment Jairam Ramesh imposing 'a moratorium  •  Agriculture policy 
on the release of Bt Brinjal till such time studies establish the safety  •  Send to a friend 
of the product from the point of view of its long-term impact on  •  Printer friendly
human health and environment, including the rich genetic wealth version
existing in Brinjal in our country to the satisfaction of both the
public and professionals'.

 
The Bangalore Bt Brinjal consultation on 6th February with Minister Jairam Ramesh at the
centre and former prime minister H D Deve Gowda on the right. Pic: Gandal Srikanta.

Before the moratorium was imposed on 9th February, at the final hearing in Bangalore on 6th
Feburary, the 'No's outnumbered the 'Aye's in favour of release of Bt Brinjal. Critical were
voices of the agricultural universities, public sector organizations, Kerala State Biodiversity
Board and the Organic Farming Mission of Karnataka. There were also concerns over
biopiracy, protection (or lack of it) under the Biodiversity Act, Food Safety Act and
Prevention of Food Adulteration Act.

The Minister laid bare ‘all the factors for his decision’ in his lucid report, and as he predicted
the nation is divided into the ‘happy’ and the ‘unhappy’.
Reasons cited by Minister Jairam Ramesh for imposing the moratorium

• There is no over-riding food security, production shortage or farmer distress

arguments favouring release of Bt Brinjal, other than the need to reduce pesticide use.

• The apprehensions expressed on and caution called for by Chief Ministers /

Agriculture Ministers of 9 states for release of Bt Brinjal, are extremely important as
agriculture is a state subject.

• Non Pesticide Management or NPM, a part of the National Mission on Sustainable

Agriculture (one of the missions under the National Action Plan on Climate Change)
scores over Bt technology as it eliminates chemical pesticide use completely whereas
Bt technology only reduces the pesticide spray, albeit substantially. The Minister has in
the past also suggested to the Union Agriculture Minister on the need to evaluate large
scale replicability of the NPM experiment conducted in Andhra Pradesh.

• The threat of contamination and natural toxins resurfacing is worrisome. In this

context, the fact that the safety tests have been carried out by the Bt Brinjal developers
themselves and not in any independent laboratory raises legitimate doubts on the
reliability of the tests.

• There is a lack of large-scale publicly funded biotechnology effort in agriculture to

compete with and countervail Monsanto’s expertise and capabilities so that it does not
jeopardise national sovereignty. Further fingers have been pointed at the manner of
funding of the Bt related research in government owned Tamilnadu Agricultural
University, Coimbatore (TNAU) and University of Agricultural Sciences Dharwad as
well as TNAU’s right to transfer products and germplasm to Monsanto.

• India is undoubtedly the country of origin for Brinjal. The National Bureau of Plant
Genetic Resources of the ICAR has pointed out the likelihood of diversity loss due to
gene flow (also relevant is the experience of Bt-cotton seeds taking over non-Bt seeds).

• The Central Institute of Cotton Research, Nagpur has, in the light of its review of Bt
Cotton in India, highlighted the need for development of data regarding pest resistance
and strategies for pro-active Insect Resistance Management as well as for resistance
monitoring after release, all to be carried out independently.

• Several tests suggested by Dr. P.M. Bhargava and Expert Committee I members were
discarded by Expert Committee II (EC II) while evaluating Bt Brinjal. The EC-II
report and the biosafety dossier have been criticised from a statistical point of view as
well. A National Biotechnology Regulatory Authority which is professional and
science-based, independent of the government, equipped to conduct all essential tests
with integrity and impartiality is on the anvil but yet to come into being. In the absence
of such a body, arguments that have been made on the limitations of the GEAC cannot
be ignored.

• Many countries, particularly in Europe, have banned GM foods. China’s policy is to

be extremely cautious about introduction of GM in food crops, even when it has a very
strong publicly-funded programme in GM technology unlike India.

• The current standards by which the GEAC has formulated the decision to approve Bt
Brinjal do not match global regulatory norms to which India is a party, specifically, the
provisions in the Cartagena Protocol on Biosafety, pertaining to public consultations
prior to the release of GM food crops and those governing risk assessment, Article 15
of the Rio Declaration on Environment and Development (1992) which echoes the
precautionary principle and Section 45 of Codex Alimentarius containing "Guideline
for the Conduct of Food Safety Assessment of Foods Derived from Recombinant-DNA
Plants".

• Scientists in the USA, France, Australia, UK and New Zealand have written to the
Minister raising very serious doubts on the way tests have been conducted in India for
Bt Brinjal. 17 noted scientists from different countries have addressed a joint letter to
the Prime Minister on February 8th, 2010 giving scientific reasons against the release
of Bt Brinjal.

• The Indian Council of Medical Research and the Drug Controller to the Government
of India have recommended that chronic toxicity and other associated tests be carried
out independently drawing a parallel with independent testing for drugs on human
beings instead of relying on developer companies’ data. Doctors for Food and Safety, a
network of doctors across the country have warned of the health hazards related to GM
foods in general, Bt Brinjal in particular and the possibility of loss of medicinal
properties of Brinjal used in Ayurveda, Siddha, Homeopathy and Unani.

• Dr. Swaminathan, whose research foundation is working on GM technology, has

highlighted concern over chronic toxicity and called for credible independent testing of
the chronic effects of consumption of Bt Brinjal. Additionally he sees the need for an
independent regulatory system and for conservation and collection of India's existing
genetic variability in Brinjal.

• The decision on Bt Brinjal also has to take note of the Public Interest Litigation filed
with the Supreme Court which is pending response from the Union of India on the
steps taken to protect traditional crops. It is also relevant that the Supreme Court has
 The Bangalore hearing on 6
February

In favour of Bt Brinjal
invoked the precautionary principle as a guiding
instrument in environmental decisions. • Vice Chancellors of
University of Agricultural
Minister Ramesh also countered the suggestion for a Sciences, Dharwad and
limited release for the reason that in a retail market such as GKVK, Bangalore. They
India’s it would be extremely difficult and impractical to cited favourable results based
mandate labeling and monitor limited usage. Other pro-Bt specifically on own studies.
Brinjal arguments that he has deliberated upon also suggest Farmers would get seeds
setting up a regulatory authority for governing GM crop 'virtually free of cost' and can
cultivation upon release. save them. 
• Balasubramanian (Tamil
Ramesh also cited the development of Bikaneri Nerma Nadu Agricultural
(whose seeds can be saved by farmers) by the Central University, Coimbatore).
Institute of Cotton Research, Nagpur, as an example for the Cited large doses of
need to strengthen good public research. He is also equally pesticidal sprays (citing the
vocal in the report about encouraging science based Coimbatore situation) needed
companies launched by Indian entrepreneurs. for brinjal. 
• Farmers who favoured Bt
Vision for the moratorium period Brinjal spoke primarily of
their success with Bt Cotton.
Reiterating his support for tapping the tools of modern
biotechnology, the Minister hopes it would aid crop Opposition to Bt Brinjal
improvement and strengthen national food and nutrition
security. He has indicated his interest in harnessing ‘the full • Organic farmers - said
potential of GM technology in agriculture’ and for integrated pest management
prioritising introduction of the public sector products. He was superior. 
has however emphasized that there must be no rush with • Dr Vijayan (Chairman,
establishing public trust in the very first genetically Kerala Biodiversity Board) -
modified vegetable anywhere in the world. Irrevocable risk of
contamination. 
In his report, Ramesh sets out the need for a fully • Claude Alvares (Organic
operational independent regulatory body, a need to evaluate Farming Association of
transgenic seeds in the context of the Seeds Bill (awaiting India) - The agriculture
parliament’s approval), to strategise public and farmer universities guilty of
control over the seed industry, a comprehensive discussion 'biopiracy' for patenting
in the National Development Council and the need for a farmers' heirloom seeds. 
debate in Parliament on the subject. • Dr A S Ananda (Chairman,
Organic Farming Mission,
The to-dos for the GEAC include following up on further Government of Karnataka) -
tests with appropriate protocols (to be decided in A Gazette notification
consultation with certain named scientists) and in (October 2009) has excluded
protection under the
Biodiversity Act for brinjal
(and 189 other plants). 
• Health professionals, Dr
appropriate laboratories. The Minister further expects the GEAC to engage and interact with
scientists, institutions and civil society groups who have submitted written representations.

Meanwhile the GEAC will be renamed as Genetic Engineering Appraisal Committee. The
change in emphasis from the ‘approvals’ to ‘appraisal’ is there for all to see.

If the public consultations were themselves a novel experience for the layperson, Jairam
Ramesh's report that publicly acknowledges the government's duties 'as a measure of our
sensitivity to public opinion' elicits appreciation. It was right up there with the best of people-
centric acts in our country. Even as we expect effective and even-handed regulation of GM, it
will take an informed public to ensure there is no compromise in law, policy or practice. 

The Borlaug I knew 

"When people fail to recognise farmers' role in feeding the country, be sure there is
something terribly wrong happening", he once told me. Devinder Sharma remembers Dr
Norman Borlaug. 
 
 •  Write the author 
23 September 2009 - It was discovery of the stocky Japanese  •  Devinder Sharma 
wheat variety Norin-10, which the US military advisor D C Salmon
 •  Food security 
sent back home in the early 1960s that changed the face of global
agriculture. This was the variety, the only known semi-dwarf  •  History 
traditional wheat strain, that Dr Norman Borlaug was keenly  •  Send to a friend 
looking for. Crossed with the rust-resistant varieties that Borlaug  •  Printer friendly
had developed at the International Centre for Wheat and Maize version
Research (CIMMYT) in Mexico, the world got the miracle
improved varieties that made history.

These semi-dwarf plants developed by Dr Borlaug responded to the application of chemical

fertilisers and produced a bountiful grain harvest. The yields multiplied under favourable
conditions, and Borlaug knew that the best place to apply the new technology was obviously
India, with the largest population of hungry and starved in the world. "I tried my best to
convince the Indian politicians about the utility of these semi-dwarf varieties in fighting
hunger, but they were not interested," he once told me. Although the agricultural scientists,
by and large, were convinced about the yield potential of these varieties, the politicians were
not.

"When I didn't see much headway being made, I played the political card knowing the
political rivalry between India and Pakistan," he went on to explain. "I told India that if you
don't want these varieties, I will give them instead to Pakistan." I am not sure whether it was
because of the political astuteness of Dr Borlaug or the domestic necessity, India imported
18,000 tonnes of wheat seed of the semi-dwarf varieties in 1966. Within a few weeks of the
import, the seed was made available in 5 kg packs and distributed widely in the areas where
irrigation was abundant.

The rest is history. India emerged out of 'ship-to-mouth' existence.

For several years after the Green Revolution was launched, I had the pleasure of
accompanying him on his annual visits to the Punjab Agricultural University in Ludhiana. As
a young journalist I was always in awe of Dr Borlaug, but always found him to be a simple
and dedicated scientist. He would spend hours in scorching sun in the wheat research fields
and was always keen to visit farmers. At one such evening at a farmer's house, I remember
the host saying: "The three major inputs for raising wheat yields are: farmers, improved seed
and Borlaug."

Walking along the sprawling wheat fields in Ludhiana, I asked him once:" What is your
biggest achievement. I mean what you would like to be remembered for?" I thought he would
say that he wanted to be recalled for his contribution to plant sciences and fighting global
hunger. But in all humility, Dr Borlaug replied: "I want to be remembered as someone who
introduced baseball in Mexico." And when I burst out laughing, Dr Borlaug gave me a
detailed account of how he actually spent hours playing and promoting baseball.

Green Revolution subsequently spread to other parts of Asia, and to Latin America, enabling
a number of developing countries to emerge out of the hunger trap. Agricultural scientists
globally promoted the technology - cultivating the water guzzling high-yielding varieties of
wheat (the same technology was subsequently applied in rice) application of chemical
fertilisers, and pesticides - and were never able to understand why the environmentalists were
opposed to the technology.

Such was the blind faith in the technology that Borlaug developed and promoted that
agricultural scientists refused to see the flip side which was clearly evident - the deterioration
of the plant ecology and the destruction of the environment. Several years after Rachel
Carson published her historic work The Silent Spring I asked Borlaug whether he had read
the book: "She is an evil force," he reacted angrily, adding: "These are the people who do not
want to eradicate hunger."

I didn't agree with him, and asked him why agricultural scientists can't accept that chemical
pesticides simply kill. "You too, Sharma," he quipped, and then replied: "Remember,
pesticides are like medicines. They have to be applied carefully and safely."
Dr Borlaug remained steadfast all through on the role of
chemical fertiliser and pesticides. He was so adamant that
when the Third World Academy in Italy presented a paper
on how Brazil had achieved remarkable crop yields in
soybean and sugarcane without applying chemical nitrogen,
he didn't agree. It was only after he travelled to Brazil and
saw for himself the crop yields that he at least
acknowledged the reality. But even then, he wouldn't
accept agriculture without chemical fertilisers and
pesticides. Such was his blind faith in plant breeding that
initially he even rejected biotechnology, saying it was a He would often tell me that if
'waste of time." Later, he backed genetic engineering. India had not followed the
Green Revolution
He would often tell me that if India had not followed the technology, the country
Green Revolution technology, the country would have would have required bringing
required bringing an additional 58 million hectares under
cultivation to produce the same quantity of food that was an additional 58 million
being produced after the high-yielding varieties of wheat hectares under cultivation to
were introduced. My argument to this was that although the produce the same quantity of
country saved 58 million hectares then, 40 years after food that was being produced
Green Revolution, more than double - close to 120 million after the high-yielding
hectares - are faced with varying degrees of degradation. varieties of wheat were
Borlaug never pardoned me for espousing the cause of introduced. (Picture source:
long-term sustainability in agriculture. He never accepted worldfoodprize.org)
that the world could produce enough food with Low-
external Input Sustainable Agriculture (LEISA) techniques.  
In fact, knowingly or unknowingly he did espouse the  •  A revolution long turned
cause of corporate control of agriculture. brown
 •  Monocultures of the mind
Although Green Revolution did bypass small farmers,
Borlaug knew and appreciated the role farmers played in
producing food. Perhaps the world does not know that it was for the sake of farmers that he
had even decried a Nobel prize for Poland's popular leader Lech Walesa. At a time when
Lech Walesa had emerged as the leader of the Solidarity Movement in Poland, the Nobel
Prize committee constituted a small team to go and find out whether Walesa deserved a prize.
The team was headed by Dr Borlaug.

Upon return, he told me that how appalled he was to learn that all that Walesa was talking
about was cheaper food for the industrial workers. He was not bothered nor did he care to
know as to what would happen to the livelihoods of millions of farmers who were producing
food for the industrial workers. "My report had therefore categorically ruled out a Nobel for
Walesa." Nonetheless, Walesa did receive a Nobel Peace prize.

"Be warned, Sharma," he told me during one of his visits to Pantnagar University, situated at
the foot of the Himalayas in Uttarakhand: "When people stop talking about farmers, when
people fail to recognise their role in feeding the country, be sure there is something terribly
wrong happening in agriculture." These prophetic words hold true today. In India, it no
longer hurts when farmers commit suicide or quit agriculture. For quite some time, farmers
have disappeared from the economic radar screen of the country. This is a clear pointer to the
terrible agrarian crisis that prevails.

New language, old crisis 

It is ironic that 'Conservation Agriculture' the new wave from agriculture scientists, requires
so much new technology, and focuses so little on existing traditional knowledge of
conservation techniques, writes Devinder Sharma. 
 
 •  Write the author 
03 March 2009 - On the face of it, it appears that agricultural  •  Devinder Sharma 
scientists all over the world are now trying to mend their ways,  •  Agriculture 
trying to learn from farmers on the need to conserve natural  •  Send to a friend 
resources, with a view to improving efficiency, equity and
 •  Printer friendly
environment. The unprecedented global food crisis in the first half
of 2008, and the continuing agrarian crisis in India, I thought, had version
brought about this change in their thinking and approach.

It didn't take me long to realise that I was wrong. They haven't learned anything from the
agriculture debacle, nor are they serious in tackling the fundamental crisis of sustainability
that agriculture is faced with. Using the right vocabulary, and ensuring it is politically correct,
they have now come up with another buzzword - Conservation Agriculture. It looks so
appropriate and timely, that for once you feel like patting agriculture scientists. 'Better late
than never' you might say.

Hardly so. Conservation Agriculture is all about "sustainable agricultural intensification" - I

wonder how intensive farming practices can be termed sustainable! At this rate, I wouldn't be
surprised if they start promoting chemical pesticides under the garb of "sustainable pesticides
use". Bringing in new machinery to improve cropping intensity, that wouldn't help either.
Coming back, wasn't the Green Revolution all about intensive farming, wasn't it aimed at
increasing cropping intensity, increasing per-unit productivity? So what's the difference
between Conservation Agriculture and Green Revolution technology?
Conservation Agriculture is about no tillage. It is based on minimal soil disturbance, organic
residue retention and crop rotations. It is believed that the shift to zero tillage or minimal
tillage will not disturb the soil, and therefore help in conserving natural resources. I've always
thought earthworms were nature's tillers, so it's not clear to me exactly what zero tillage
would amount to, since the earthworms would go on tilling anyway, unmindful of new
agricultural terminology. Bhaskar Save tells us that earthworms turn around 6 tonnes of soil
in its short lifespan. Zero tillage sounds unfamiliar in the Indian context!

Zero tillage has brought about its own industry. And that is what primarily interests
agricultural scientists. Among the new conservation technologies required are: Laser land
levellers, which have thus far been imported, but some of whose parts are now being
fabricated locally; Zero till planters, including the second generation 'Happy Seeders' and
'Turbo Seeders;' Rotatory Disc Drills used for intensive soil We don't need an agriculture
working; and of course a range of herbicides.
where farmers are pauperised
All this equipment has been suitably modified and and the service providers rake
redesigned. Among the planter prototypes, you now have in money. We need
the multifunctional-multicrop-ferti-seed-zero till/raised bed agriculture where farmers
planters. Don't bother trying to understand its don't think of quitting
multifunctional operations; there are already 150 fabricators
farming.
and entrepreneurs breathing down our necks pitching the
device. Which makes me wonder why agriculture scientists
 
never think beyond costly equipment and endless
 •  Nothing unscientific about
chemicals. Why do they have to rely on imported concepts
it 
of sustainability, and the technology options linked to those
 •  A revolution turned brown
ideas? Why can't they look inwards, search for the
wonderful low-external-input technologies that local
farmers have perfected over the years?

The answer is that they are actually not working for farmers anymore. Farmers just happen to
be incidental, coming in handy to promote the machines, chemicals and the hybrid/GM seeds.
If only they had listened to farmers, spent more time understanding and then improving
sustainable farming systems, the face of Indian agriculture would have been ever-smiling.
Farmers have all the answers, and they in fact it is they who need to show us the way towards
sustainable agriculture, wherein the natural resource base remains protected and preserved.

We do not need an agriculture which is dependent upon external inputs. We do not need an
agriculture that destroys soil health, mines the groundwater, and contaminates the
environment. We don't need an agriculture where farmers are pauperised and the service
providers rake in money. We need a sustainable farming system which is economically
viable, where money flows into the pockets of the tillers. We need agriculture where farmers
don't think of quitting farming. Only then can agriculture become truly sustainable.

In a few weeks, the government is likely to come up with a National Mission on Sustainable
Agriculture (NMSA). The Rs.83,000-crores project is to be introduced in 100 districts across
the country, and will operate for five years. Read the document carefully and you find that it
follows the same beaten track. It uses the right kind of language, and under the garb of
sustainable agriculture, new technologies and machinery are getting ready to be introduced.

Take dryland farming, which constitutes more than 60 per cent of the country's cultivable
lands, the strategy that has been spelled out has been repeated again and again ever since the
subject was accorded top priority in Indira Gandhi's 20-point programme. Rs.54,000 crores is
proposed to be allocated for dryland agriculture in NMSA. A careful perusal tells you that the
emphasis is on introduction of sophisticated technologies and genetically modified crops. In
other words, the mission is merely a facilitating process for the large-scale introduction of
genetically modified crops and balanced use of chemical fertilisers. At a time when world
over there is an increasing realisation that chemical farming has destroyed soil health and in
turn devastated agriculture, I fail to understand how India's planners hope to apply those
faulty technologies to resurrect agriculture.

The sub-committee that has prepared the approach paper for the National Mission on
Sustainable Agriculture is dominated by people who were actually part of the system that
turned agriculture completely unsustainable in the past 40 years of Green Revolution. The
agriculture portion of the 11th Plan document too has been written by experts who were
largely responsible for the agrarian crisis that we witness today. How you can expect people
who were responsible for the crisis to provide the right solutions? If they were so good, India
wouldn't have been faced with an agrarian crisis of such a grave magnitude.

Why can't we thank these experts once and for all, for what they have done to the country's
agriculture? Now don't get me wrong; many of them have already retired, and are
unnecessarily being drawn in again and again as chairman or members for consultations for
the new programmes and projects. I find them in various committees, commissions and of
course they form part of the national consultations that agribusiness companies and foreign
institutes/universities are regularly holding to promote their own technologies. This is
certainly not what the country needs. What we urgently require is a change in mindset, a
change in approach and a willingness to listen to farmers and NGOs who are working to
regenerate agriculture.

Without this fundamental shift, the National Mission for Sustainable Agriculture will join the
already long line of ideas that have led to the deep crisis.
SRI: Small state, big results 
With a focus on attaining self-sufficiency in the production of food grain, Tripura has
embarked on an ambitious programme to bring large swathes of cultivable land in the state
under the System of Rice Intensification. The results are promising, writes Ratna Bharali
Talukdar. 
 
 •  Write the author 
29 January 2008 - Looking at the healthy grains of his rice crop
 •  Tripura 
that have been cultivated using the System of Rice Intensification
(SRI; see box for more) method, Kranesh Dev, a farmer in Dukli  •  Send to a friend 
block of West District in Tripura comforts himself. This year, he  •  Printer friendly
can expect surplus food grain, despite a ravaging flood caused by version
backwaters from Bangladesh that partially damaged his paddy-field
three months back.

For Dev, a small farmer with only six kanis of land (6.5 kanis constitute a hectare), the SRI
method was an experiment, carried out in the hope that he would get an increased crop from
his plot. He is one of thousands of small and marginal farmers, who constitute 90 per cent of
total farmers in the state, who have adopted the popular 'less seed, less water, less manure,
less pesticide and high yielding' SRI method of agricultural practices to be a part of
government's approach to boosting rice production in the state. Having been used to
"somehow managing two meals, provided everything goes alright", he can now dream of
much more, with his yield up 45 per cent despite the flood-related damage.

The harvesting season was almost complete, and farmers were busy in post harvest operations
when I visited Tripura on 18 December. But Dev was still in his field, harvesting a relatively
late cultivation. He was happy to share his moments of joy with India Together. As he stood
there overseeing the six agricultural labourers he had engaged for harvesting the crop under
the guidance of block level officials of the Agriculture Department, he was convinced that it
had been, after all, a wise decision to switch to SRI. "I have six kanis of cultivable land.
However, I dared to experiment with SRI only in three kanis this year. The outcome is
tremendous. I shall use SRI method in the remaining land also from next year," he says.

The distinctiveness of SRI methods involves developing

nutrient-rich and un-flooded nurseries instead of flooded
ones, single planting of seedlings ensuring wider gaps
between them, preference of organic manure and organic
pesticides to protect natural environment, a systematic
 management of water so that plants roots are not saturated
and sufficient oxygen is ensured for healthy growth.
Seedlings are transplanted singly rather than in clumps of two
or three or more. This means that individual plants have
rooms to spread and to send down roots.

The most labourious part of the cultivation is proper

management of water with an appropriate irrigation system
that allows water to be "put on" and "taken off" from the field
at certain intervals. The system was developed in Madagascar
in the 1980s and has been successfully tried in 25 countries
across the world.

 
 •  Less seed, more harvest

State government promotes SRI

For Tripura, a tiny state of only 10,491 square km and only 2.40 lakh hectares under rice
cultivation, SRI may help improve productivity, and eventually help the state attain food
sufficiency. To attain food security in food grains and improving economic condition of the
farming community, the state government in 2000 adopted a 'Perspective Plan for Self
Sufficiency in Food-Grains by 2010'. The current rice production in the state is 6.30 lakh
metric tonnes (MT) which is grown in 2.50 lakh hectares of land. The agriculture department
has estimated the annual requirement of food grains for 2010 to be 8.22 lakh MT, and is
optimistic of reaching the goal thorough SRI practices.

Picture: Kranesh Dev harvesting his paddy grown

using SRI methods (Photo by Ratna Bharali
Talukdar).

State officials from the agricultural department have

been helping farmers like Dev raise the productivity
of their lands. Baharul Islam Majumdar, senior
agronomist at the Department of Agriculture, who
has been instrumental in popularising SRI in
Tripura, improving the yields through SRI was
particularly important because there isn't much additional cultivable land that can be brought
under paddy.

Initial trials of SRI were conducted in State Agricultural Research Station (SARS) farms by
the department in 1999. The trial plantings were evaluated by different spacing, age of
seedling, and seed rate per hectare. Following successful experiments with SRI in different
rice varieties over 2.5 years, a rigorous field demonstration programme was carried out,
aimed at popularising the system among farmers. Within three years of the initiation of the
demonstration programme in fields, the department has turned SRI into a mainstream
practice. A quiet revolution has spread through the state, bringing the production targets
much closer, and also benefiting farmers like Dev in the process.

Majumdar told India Together that around 44 demonstration programmes were carried out in

2003-04; this was increased 10 times during the next year. In the year 2005-06 the
department of agriculture initiated a large-scale demonstration programme with a targeted
area of 16,745 hectares under SRI, and by the following year, 85 per cent of the target was
met, covering 74,000 farmers. For 2007-08, the state agriculture department has set a target
of bringing 30,000 hectares, involving 150,000 farmers under SRI during both kharif and rabi
seasons. It has also set targets to bring an additional 50,000 hectare under SRI in 2008-09 and
75,000 hectares in 2009-10.

To meet these, the state government has chalked out a number of innovative methods to
popularise SRI; these include research, a sensitising programme, training of agricultural
officials, rigorous campaigning, and providing financial SRI practices work well for
assistance to the tune of Rs.4500 per hectare to farmers who
small farmers too; in Tripura,
adopt these practices.
where 90 per cent of the
From early indications, it appears the state is well on course farmers hold very small lands
to meet its targets. According to reports from the state - averaging 0.56 hectares
agriculture department, per-hectare production of some each - this is especially
local varieties of rice using the SRI method has grown 38 to
important.
40 per cent over production by conventional practices
during the year 2006-07. A World Wide Fund for Nature
 
(WWF) report on Tripura's experiences with the SRI
 •  Less seed, more harvest
method projects that with the system the state can easily
achieve its target of producing 13 lakh tonnes of paddy (9
lakh MT of milled rice) by 2015.

"Tripura is now unstoppable. It is even willing to devote 100,000 hectares to SRI cultivation.
If this happens, it could become the first state in the country to produce more rice in an
ecologically and socially sustainable way," says Dr Biksham Gupta, Policy Adviser, WWF
International in the organisation's publication on SRI practices in Tripura titled More Rice,
Less Water. Small State, Big Results.

Drought of justice, flood of funds 

Ask for expansion of the NREGS, universal access to the PDS, more spending on health and
education - and there's no money. But there?s enough to give away to the corporate world in
concessions, writes P Sainath. 
 
 •  Write the author 
15 August 2009 - Sure, August is proving an unusual month. But  •  P Sainath 
what an extraordinary one July was! We celebrated the delivery of  •  Public funds 
the cheapest car in the world and the costliest tur dal in our history  •  Send to a friend 
within the same 31 days. And it took some work to get there. The
 •  Printer friendly
price of tur dal was around Rs.34 a kilogram just after the 2004
elections, Rs.54 before the 2009 polls, Rs.62 just after and, now at version
over Rs.90, bids for three-figure status.

The euphoria of July also saw Montek Singh Ahluwalia declare that the "worst is behind us."
(Though it must be conceded that he said that even in June and, possibly, earlier.) That's
good. I only wish he had told us when the worst was upon us. It would have been nice to
know. Otherwise, it gets hard to appreciate improvement.

As a matter of fact, Prime Minister Manmohan Singh and Agriculture Minister Sharad Pawar
suggest that the worst could be ahead of us. And they don't mean the swine flu. Both appear
to have written off much of the kharif crop. They advise us to buckle up for a further rise in
food prices due to the drought they now say affects 177 districts. That they've thrown in the
towel on the kharif crop is evident in their calling for a more efficient planning of the rabi.
Yet, the government had two months during which it could have opted for compensatory
production of foodgrain in regions getting relatively better rainfall. But there was no effort at
monsoon management.

Even today, there are very useful things that could be done to counter the worst ahead. A
positive step taken by the Rural Development Ministry now allows small but vital assets like
farm ponds to be created on the lands of farmers through the NREGS. A pond on every farm
should be the objective of every government. (Incidentally, this would help hugely with the
rabi season. It would also ease the hostility of quite a few farmers towards the NREGS.) A
massive expansion of the NREGS will also help cushion the lakhs of labourers struggling to
find work and devastated by rising food costs. But it would call for throwing out the entirely
destructive 100-days-per-household limit on work under the scheme. With the Prime Minister
calling for anti-drought measures on "a war footing," this should be the time to do it.

The price-rise-due-to-drought warning is a fraud. Of course, a drought and major crop failure
will push up prices further. But prices were steadily rising for five years since the 2004
elections, long before a drought. Take the years between 2004 and 2008 when you had some
good monsoons. And more than one year in which we claimed "record production" of
foodgrain. The price of rice went up 46 per cent, of wheat by over 62 per cent, atta 55 per
cent, salt 42 per cent and more. By March 2008, the average increase in the prices of such
items was already well over 40 per cent. Then, they rose again till a little before the 2009
polls. And have risen dramatically in the past three months.

The Agriculture Minister appears to have figured out that the stunning rise in the price of
pulses may have little to do with drought. "There is no reason," he finds, "for prices to rise in
this fashion merely on a supply-demand gap." He then goes on to find a valid reason:
"blackmarketing or hoarding." But remains silent on forward trading in agricultural
commodities. Many senior Ministers have long maintained that "there is no evidence" that
speculation related to forward trading has had any impact on food prices. (The ban on trading
in wheat futures was lifted even before the results of the 2009 polls were announced in May.
And existing bans on other items have been challenged in interpretation.)

The price rise since 2004 could be the highest for any period in the country barring perhaps
the pre-Emergency period. For the media, of course, July was far more interesting for the
political price in Parliament over the gas war between the Ambani brothers. When these two
barons brawl, governments can fall. Also, how could atta be more interesting than airline
tickets (the prices of which fell dramatically over several years)? Food prices might have
gone up but airline travel costs went down and those are the prices that mattered.

So the price of aviation turbine fuel became a far more to-be-covered thing as private airlines
threatened a strike demanding public money bailouts. At the time of writing, it appears the
government will try and make things cheaper for them. These airline owners include some
associated with the IPL, which got crores of rupees worth of tax write-offs last year.
Maharashtra waived entertainment tax on the IPL. And with so many games held in Mumbai
that proved a bonanza for the barons paid for by the public.

There's always money for the Big Guys. Take a look at the budget and the "Revenues
foregone under the central tax system." The estimate of revenues foregone from corporate
revenues in 2008-09 is Rs.68,914 crores (see this link) By contrast, the NREGS covering tens
of millions of impoverished human beings gets Rs.39,100 crores in the 2009-10 budget.
Remember the great loan waiver of 2008, that historic write-off of the loans of indebted
farmers? Recall the editorials whining about 'fiscal imprudence?' That was a one-time, one-
off waiver covering countless millions of farmers and was claimed to touch Rs.70,000 crores.
But over Rs.130,000 crores (in direct taxes) has been doled out in concessions in just two
budgets to a tiny gaggle of merchants hogging at the public trough. Without a whimper of
protest in the media. Imagine what budget giveaways to corporates since 1991 would total.
We'd be talking trillions of rupees.

Imagine if we were able to calculate what the corporate mob has gained in terms of revenue
foregone in indirect taxes. Those would be much higher and would mostly swell the
corporate kitty for the simple reason that producers rarely pass on these gains to consumers.
Let's take only what the budget tells us (Annexure 12, Table 12, p.58). Income foregone in
2007-08 due to direct tax concessions was Rs. 62,199 crore. That foregone on excise duty
was Rs.87,468 crores. And on customs duty Rs. 1,53,593 crore. That adds up to Rs. 3,03,260
crore. Even if we drop export credit from this, it comes to well over Rs. 200,000 crore. For
2008-09, that figure would be over Rs. 300,000 crore. That is a very conservative estimate. It
does not include all manner of subsidies and rate cuts and other freebies to the corporate
sector. But it's big enough.

Simply put, the corporate world has grabbed concessions in just two years that total more
than seven times the 'fiscally imprudent' farm loan waiver. In fact, it means that on average
we have been feeding the corporate world close to Rs. 700 crore every day in those two
years. Imagine calculating what this figure would be, in total, since 1991. (Er.., what's the
word for the bracket above 'trillion?') Ask for an expansion of the NREGS, seek universal
access to the PDS, plead for more spending on public health and education - and there's no
money. Yet, there's enough to give away nearly Rs. 30 crore an hour to the corporate world in
concessions.

If Indian corporates saw their net profits rise in April-June this year, despite gloom and doom
around them, there's a reason. All that feeding frenzy at the public trough. The same quarter
saw 1.7 lakh organised sector jobs lost in the very modest estimate of the Labour Ministry.
That's not counting the 15 lakh jobs said to have been lost in just the export sector between
September and April by the then Commerce Secretary.

And now comes the drought. A convenient villain to hang all our man-made distress on - and
sure to oblige by adding greatly to that distress. A huge fall in farm incomes is in the offing.
If the government wants to act on a war footing, it could start with a serious expansion of the
NREGS (about the only lifejacket people in districts like Anantapur in Andhra Pradesh have
at this point, for instance).
It could launch, among many other things, the pond-in-every-farm programme. It could
restructure farm loan schedules. It could start getting the idea of monsoon management into
its thinking. It could curb forward trading-linked speculation that was driving one of our
worst price rises in history long before the drought was on the horizon. And it could declare
universal access to the PDS. That cost could probably be easily covered by, say, cancelling
the dessert from the menu of the unending corporate free lunch in this country. 

The new Maharajas 

What is it like to be a modern-day Indian prince? Devinder Sharma and Bhaskar Goswami
explain how, with the proliferation of Special Economic Zones everywhere, the laws of the
land are being redefined to bring in the reality of the royal tag for the rich and beautiful. For
the rest of the country, sub-Saharan Africa is the only comparison. 
 
16 December 2006 - It took nearly 15 years for India's first Home Minister Sardar Patel to
ensure that the 554 princely estates scattered throughout the country finally integrate with the
new nation. Some 45 years later, in the 60th year of India's Independence, almost an equal
number of princely estates are once again being carved out. And a new breed of Maharajas is
all set to grab the crown.

The only difference being that the new princely estates comes within the gambit of a strange
sounding acronym - SEZs, which stands for Special Economic Zones. As the name suggests,
these cut out zones will have a special status, very special indeed. Except for floating their
own currency, these zones would operate more or less like a princely estate, and would even
have special courts to try the economic offences.

Doling out state largesse in the name of 'production incentives' - no, it's not fair to dub these
as subsidies - these SEZs will primarily be duty free zones. Complete exemption from excise
duty, custom duty, sales tax, octroi, mandi tax, turnover tax, as well as income tax holiday for
ten years, are some of the inducements. Also spelled out are provisions for 100 per cent
foreign direct investment, exemption on income tax on infrastructure capital fund and
individual investment, and an assurance of round-the-clock electricity and water supply. The
SEZ promoters have also been given a waiver from carrying out an Environment Impact
Assessment.

Permitted to indulge in commodity hedging, external commercial borrowings up to US $500

million without any maturity restrictions, freedom to bring in export proceeds without any
time limit and make foreign investments from it, exemption from interest rate on import
finance, and setting up off-shore banking units with income tax exemption for three years and
subsequently 50 per cent tax for another two years are some of the financial enticements. And
if the new Maharajas were to sub-contract production to local manufacturers outside the
 As part of the process of
accession to the Indian union,
princely estates, there would be duty drawbacks, exemption the Privy Purses were
from state levies and income tax benefits. accorded in terms of
measurement of the revenue
All these exemptions will mean a revenue loss of more than and potential of the merging
Rupees 1.75 lakh crores to the state exchequer after five
states. These Privy Purses,
years. Although this staggering amount is enough to feed
the country's 320 million people who go to bed hungry provided to some 400
stomach for a number of years, or provide guaranteed princely rulers, were
employment to at least two members of each of the rural abolished by the then Prime
families for the next five years, this is a 'small price' that Minister Mrs. Indira Gandhi
the nation must pay to keep for the royalty tag for the rich in 1969.
and beautiful. In a way, what is being considered as a
revenue loss is in reality like the Privy Purse - a grant given  
to the princely states after India's Independence - for the  •  SEZs: Invitation to chaos 
new Maharajas.  •  Special Exploitation Zone
Legally authorized to disallow any inspection, search or
seizure without prior permission, and with sanction to operate their own private security
systems, these princely estates will for all practical purposes be autonomous. That is how the
former princely estates operated - of course, with blessings of the British Empire. The new
princes too enjoy the confidence of the ruling Congress-led UPA Coalition. Moreover, with
the National Democratic Alliance (NDA) and the left parties bending backwards by seeking a
few amendments to support the SEZ, the political backing is complete.

No wonder, the State governments are letting no stone upturned to acquire agricultural land
and offer it on a platter. With promises of 'the right kind of environment' many chief
ministers are waiting with garlands in hand. Take for instance the Haryana Chief Minister
who had specially flown to Mumbai to invite a top industrialist. The Gujarat government had
sent a team abroad to invite investments for SEZ. The Orissa government is moving a step
further; it is seeking an amendment to the Scheduled Area Tribal Immovable Property Act,
thereby allowing outsiders to come and buy tribal land. Given a choice, the central and state
government would hand over the prime land to industrialists - Tatas, Ambanis, Mittals, and
the like.

Union Commerce Minister Kamal Nath has been going around seeking investments from
European countries for the SEZs. After all, he has a huge responsibility to ensure that the
Prime Minister's dream of turning India into an international workshop is turned into a
reality.
You may call it 'the biggest land-grab of the century' or term it as 'open-loot,'; the powers that
be are simply not deterred. Prime Minister Manmohan Singh has repeatedly said that the
SEZs are the need of the day. No wonder, agricultural land, which is a scarce commodity, is
suddenly available in abundance. Unmindful of the fact that the per capita land holding is
already at an abysmally low of 0.25 acre, the government is using the draconian Land
Acquisition Act 1854 to further purchase any land that it sets its eyes on. In the first phase of
clearances accorded by the government, a total of 1.25 lakh hectares of prime agricultural
land are in the process of being acquired. In the second phase too, almost an equal area would
be obtained.

It was only after an increasing tide of protests that the Ministry of Commerce asked the state
governments not to acquire agricultural land and to also ensure prevailing market value to
farmers. The State governments are however more eager to make land available to industries.
In Punjab, where almost the entire state is irrigated, SEZs are being set up on prime
agriculture land. The Punjab government is using repressive techniques to browbeat agitating
farmers near Barnala, who have been opposing the forcible acquisition of land for the private
company, Trident. Similarly, farmers have been agitating against the government's repressive
policies in acquiring fertile land for an SEZ near Amritsar. Although rules forbid acquiring
more than 10 per cent of the double-cropped area for setting up SEZ, the fact remains that a
majority of the princely estates are coming up on fertile land.

Even in Himachal Pradesh, where the average farm size is about 0.4 hectares, the government
is keen to convert 35,000 hectares in the Kangra valley into an SEZ.

One of the biggest SEZs is coming up near Mumbai. Spread over 14,000 hectares, it is
coming up predominantly on double-cropped land. The Mukesh Ambani group has already
acquired 9,000 acres of land in Jamnagar for its petro-product SEZ. It plans ultimately to
increase the size of the product to 10,000 acres and convert it into a multi-product SEZ. With
provisions for owning 65 per cent more land than required, the government has provided the
'developers' of SEZ an environment to build supermarkets, malls, restaurants, recreation
parks and so on - essentially given permission for building small princely estates. Out of 1.25
lakh hectares allocated so far to SEZs, nearly 31,250 hectares can be used for real estate
development. The real estate firms are obviously elated.

Another major SEZ proposed in Jhajjar adjoining New Delhi is spread across 10,000 hectares
and is again gobbling double-cropped land. Interestingly, both these SEZs, proposed to
occupy a landmass larger than the suburb of Gurgaon, are yet to be officially approved. In
Mangalore, one of the promoters is the government-owned ONGC and 2,200 hectares of
double- and even triple-cropped land is being acquired for setting up an SEZ.
 Tall promises of employment
generation notwithstanding,
Take the case of Tata Steel-promoted Gopalpur SEZ in who will be held accountable
Orissa. Originally acquired by the state government for a if the promise of job creation
paltry sum, the land was handed over to Tatas for a steel remains unfulfilled?
plant. When the plant didn't come up, and the farmers
demanded the land be returned, the company promptly  
proposed to convert this land into an SEZ. Korean steel  •  Shangri-la and sub-
giant Posco, which is also setting up a steel unit in Orissa, Saharan Africa 
was provided with 1,600 hectares of land and exclusive  •  Global plans, empty
access to an iron ore mine despite massive protests by stomachs
farmers. Posco now wants this land to be converted into an
SEZ and the state government is willing.

In another interesting example, the CPM government in West Bengal has acquired some 400
hectares of fertile land for the Tatas to set up an automobile factory at Singur, near Kolkata.
Technically speaking Singur is not an SEZ, but what makes the deal politically significant is
that the State government has actually acquired the land at cost of Rs.140 crores. It has then
been made available to the Tatas for a mere Rs.20 crores, one-seventh of the cost price. Even
that can be treated as a loan for 5 years. Ironically, while the poor rural women in self-help
groups (SHGs) in West Bengal pay a minimum annual interest rate of 24 per cent for micro-
credit, the Tatas will be charged a nominal rate of 0.1 percent for macro-credit. In Kerala too,
the communist government is gung-ho over the promise of SEZs.

The setting up of the princely estates is being primarily justified on account of employment
generation. The premise is that it will create 5 lakh job opportunities. Does this kind of
employment generation mean anything for India? This question has been conveniently
ducked, and for obvious reasons. Now let us examine the ground realities. It was at the
beginning of this century that some 75 lakh people, more than the population of Switzerland,
had applied for a mere 28,000 lowly paid jobs in the Indian Railways. For a country, which is
on a fast track information highway, this does not mean anything significant except for
statistics. Even if you were to employ five lakh out of these 75 lakh, isn't that a mere drop in
the ocean? Millions of assured jobs can be created if the total amount of revenue loss - Rs
1.75 lakh crore - and the several times higher public sector investment to follow is used for
employment generation.

Not to discount the achievements in information technology, the fact remains that IT has
provided only five to six lakh jobs. The BPO service industry that we hear about every other
day actually employs only 2 lakh people. A large number of IT companies applied for setting
up SEZs not because they intend to provide huge job opportunities but are simply looking
forward to take advantage of the tax concessions. The tax exemption currently enjoyed by the
IT sector comes to an end in 2009-10. Moreover, since existing contracts and employment
can be shifted, it is quite likely that IT units will merely shift their operations into an SEZ,
thereby nullifying claims of employment and revenue generation.

With such large-scale diversion of land the first and foremost impact will be through
displacements. Our estimates show that close to 1.14 lakh farming households (each
household on an average comprising five members) and an additional 82,000 farm worker
families who are dependent upon these farms for their livelihoods, will be displaced. In other
words, at least 10 lakh people (twice the number of jobs that SEZ promise to create) who
primarily depend upon agriculture for their survival will face eviction. The plight of farm
labour is surely going to be worse as they will not only witness their source of livelihood
being taken away but they will hardly see any employment opportunities for them in the
princely estates. All they can do is to stand outside the tall gates of the SEZ and dream to be
born in such families in their next birth.

Now let us take a stock at the annual loss in income for those displaced. As per the latest
report of the National Sample Survey Organisation (NSSO 2005), the average income of a
farming household stands at Rs. 2,115 per month (income from cultivation - Rs. 969; farming
of animals - Rs. 91; wages - Rs. 819; and non-farm business - Rs 236). Of these, income from
the first two sources (Rs. 1,060) will be immediately lost. Therefore, each farming household
will lose Rs. 12,720 every year. The total loss of annual income for the 1.14 lakh displaced
farm families works out to Rs.145 crores. While it remains a fact that most of these displaced
farmers would earn more for their land, but as several studies have shown that unless a
rehabilitation policy is in place a majority of these farmers would ultimately end up further
marginalized over a period of time.

As per the National Rural Labour Commission, an average agricultural worker gets 159 days
of work in a year; and as per NSSO (2005), the average daily wage of agricultural labour in
rural areas is around Rs.51. Considering this, the estimated 82,000 agricultural labourers'
households will lose Rs.67-crore in wages. And put together, the total loss of income to the
farming and the farm worker families is to the tune of Rs.212-crore a year. For the
marginalized, the loss of income - even if it hovers around the poverty line - has disastrous
implications. After all, the small piece of land is their only economic security.

Food security too is no longer the national priority. Otherwise, no sensible government would
have at any cost tinkered with the country's dwindling ability to produce food for its own
population. Our own conservative estimate shows that the nation will suffer a loss of Rs. 250
to 400 crores from the reduction in area under cultivation of food grains alone. Foodgrain
production is expected to drop by at least 4 to 5 lakh tonnes a year.i Remember these are only
conservative estimates. In case of land under high value crops, the losses would be much
higher.
Tall promises of employment generation notwithstanding, who will be held accountable if the
promise of job creation remains unfulfilled? First of all, the Ministry of Commerce has no
true basis for telling us how many jobs will be created. It is merely a guess-estimate.
Secondly, if the past experience is any indication, the real jobs that are added by the
industries are only a miniscule of what they promise. Take the case of Pepsico's entry into
Punjab in the 1980s. The multinational giant promised to create 50,000 jobs. In reply to a
1991 parliamentary question, the Ministry of Food Processing in acknowledged that the
company had created only 482 jobs, of which 210 were unskilled workers.

It is primarily to avoid embarrassments at a later stage for promises unkept that industrial
houses are seeking the advise of consultancy firms like Price Waterhouse, Ernest and Young,
and Feedback Ventures among others to prepare master plans for the promoters. Basically the
job of these consultancy firms is to write the proposals in such a format using the right
vocabulary so that they get the government's nod. At the same time the State governments too
are utilizing their services to ensure that the land transfers do not invite un-necessary
litigation. In essence, if you are rich and can afford to hire a consultancy firm to write a
proposal on your behalf you can aspire to be a modern-day prince.

It is therefore a free-for-all activity. If you can mobilize political support by hook or by

crook, you can rest assured that you are on the right path to royalty. Whether you finally
deliver what you promise is something that you can leave to the consultants to take care of.
What is more significant is that nowhere else in the world will you find such a pliable
government and a supporting bureaucracy like in India. that helps you to not only identify the
place where you want to set up your princely estate but also provide you all the necessary
sops, support and protection.

In China, from where India drew inspiration, only six SEZs - at Shenzhen, Shantou, Xiamen,
Zhuhai, Hainan and Pudong - have been set up so far. These economic zones, all in the public
sector, came after a lot of debate and deliberation, and all of them are situated along the coast.
Faced with shrinking cultivable land, the Chinese SEZs have come up only in wastelands. In
India, all these norms have been thrown to the wind. World over, there are only some 400
special economic zones. If it was such a productive and useful activity, why hasn't the world
woken up to the promises that Dr Manmohan Singh's government has been making? The
SEZs cannot, and will not, create economic magic, but this has not been the reason for setting
them up. They are essentially aimed to create a series of affluent islands amidst the cesspool
of poverty, hunger and deprivation. Oases, or pockets of effluence for the rich and elite, who
find the poor an eyesore.

For the Maharajas, the nation is building estates at its own cost. For the rest of the country,
exploited in the name of development, sub-Saharan Africa is the only comparison.
‘Rising middle class a boon for us’
SMITHAVENKATESWARAN 

    THE furniture industry is seeing robust growth,, thanks to the rise of new cities and a
growing middle class. Godrej Interio, the furniture arm of Godrej & Boyce Mfg Co, is the
largest company in the organised sector. The company’s chief operating officer (COO) Anil
Mathur reckons that an increase in nuclear families and rising disposable incomes augur well
for growth in the residential segment. 
    The country’s furniture retail market is estimated at around . 35,000 crore. It is likely to
witness an accelerated growth, with a compound annual growth rate estimated at about 30%.
Nearly 85% of the segment is, however, unorganised. 
    Godrej Interio, which claims to have a 20% market share, admits that it faces stiff
competition from the unbranded segment. “Easy imports from Malaysia and Singapore have
drawn more people to the furniture industry. However, they lack consistency in quality,” says
Mathur. 
    The corporate segment — the more organised of the furnishing industry — is Godrej’s
money-spinner, accounting for 70% of its business. In the branded segment, too, it faces stiff
competition from smaller players such as Style Spa, Hometown and Durian Furniture in the
office space. So, the focus for Godrej is to better their after-sales service. Mathur says that
good maintenance and upkeep facilities are a big draw for customers. 
    To enhance its market share, the company is working with designers to create
technologically embedded designs that cannot be easily replicated. In the office space, the
focus continues to be in creating low panels and increased storage space. The cubicle
environment, too, has become more flexible with contemporary designs to create a
fun workspace. Here ‘green’ is the ‘in’ theme. 
    The company recently introduced three green office ranges, all of which occupy minimal
space. The aim is to reduce the carbon footprint. “Our goal is to reuse, recycle and reduce
polluting products. Energy-saving furniture will reduce other overheads like airconditioning
so that the customer gets value for money,” says Mathur. 
    The rising urban Indian middle class is slowly opening up for a better planned furnishing at
home. Unlike an office, homes don’t have many rigid definitions of space, giving people
more options to experiment. According to Mathur, the company is looking at more
penetration in the retail segment. “From 70:30, the ratio should be 50:50 in about three
years,” he says. 
    However, the bulk of growth continues to be in the unorganised segment, where consumers
choose and create furniture designs themselves without much professional help. “Most often,
they look at furnishing books and provide these designs to carpenters, though this does not
provide the best option,” says Mathur. 
    Godrej is making the personalised home furnishing segment to create customer-specific
products. The key here is to create designs that cannot be easily replicated. “We are designing
to create furniture for Indian habits. For example, unlike western countries, Indians prefer
food hot,” says Mathur. 
    The new range of products is technologically advanced and energy-saving. A dining table,
say, that has incubation top to keep food warm or contemporary sofa designs that can be
opened into a larger seating comfort or assembled into a sleek sitting design to create more
walking space. 
    To enhance domestic furniture sales, the company is investing . 10-15 crore annually for
R&D. The idea is to create contemporary designs that blend in any environment. On the eve
of Onam, Godrej launched a special Onam designer collection in Kerala in sync with the
state’s wooden architectural designs. Similar products will be launched elsewhere to bring in
more local flavour. 
    Godrej is also leveraging on low labour costs to expand its export market. While Indian
designs like the traditional hand paintings and temple architecture have always been in
demand in the West, the key is to keep pricing to the minimum. 
    With offices in Dubai and Saudi Arabia, Godrej is looking at exploring major markets in
the EU region, the US and Malaysia. At present, the export market makes up for 5% of office
furniture sales. 
    Almost 60% Godrej sales comes from south and west India. New ways are being created to
penetrate deeper into north India and the east. The company hopes to grow its turnover to .
1,000 crore by April 2011.

Wrong, your honour; not just grain at stake (1 SEP, 2010,) 

The Supreme Court has erred by directing the government to distribute rotting food grains to
the poor for free. This is so regardless of the government’s response that it would follow the
court order. The court is, of course, entirely right to be outraged over grain rotting under
government custody even as many people go hungry and some even starve. But this outrage
should not allow it to upset the fine balance among the different organs of the state. The court
should, ideally, stick strictly to matters of law, leaving policy and administration to the
executive, held accountable by the legislature. 

It would be wrong for the court to step in to fill the action deficit by the executive and the
legislature. Nature abhors a vacuum. So it is with the division of responsibility for
governance among the organs of the state, too. When one arm defaults on its responsibilities,
others tend to step in, to make good the gap. A short-term gain might arise, but the long-term
loss is likely to far outweigh the gain. For example, the Supreme Court suffers, silently, daily
contempt when the medley of two-wheelers, three-wheelers, cars and buses that constitutes
traffic in Delhi violates the orders of the court on a routine basis with regard to the respective
lanes in which each type of vehicle should move. 

The government has shown savvy in readily agreeing to comply with the court, and not
oppose the directive on grounds of constitutional impropriety. Even if it would be entirely in
the right to tell the court to kindly mind its own business while it tends to its, or pays the
price for it at the court of the people, it would pick the wrong fight. It is unconscionable that
grain is allowed to rot. Inadequate storage is no excuse. Why shouldn’t there be inadequate
storage? 

If the government, by policy, prohibits private trade from storing more than limited quantities
of grain, it has the responsibility to build the requisite storage capacity, or to lease such
capacity from the private sector. Failure to that is, indeed, egregious. The entire system of
food security is in desperate need of thorough overhaul. How to do that is for the government
to decide, not the courts.

SC talks tough to govt on rotting grain issue (1 SEP, 2010,) 

NEW DELHI: The Centre’s failure to prevent wastage of millions of tonnes of grain stored in
godowns invited the Supreme Court’s ire. In a stinging indictment, the Supreme Court
charged the government with a callous approach and suggested remedial measures. 
The court said it was concerned the government was allowing rotting of grain when millions
in the country were going without two square meals a day. “The government should specify
what it prefers — to waste grain or give it free of cost to the poor and the hungry,” the apex
court said. 

A Bench comprising Justices Dalveer Bhandari and Deepak Verma, who subjected Mr
Sharad Pawar to some verbal caning, said the food ministry was not serious about handling
the peculiar situation of overflowing granaries and hungry stomachs. 

Mr Pawar’s statement on sugar prices also came in for criticism from the court. It said a
recent remark of Mr Pawar that sugar prices may continue to rise before falling in the near
future was an open invitation for hoarding. “This is an open invitation for hoarding. You are
creating artificial scarcity.” 

In its observations, the Bench said it was willing to accept the claim of food security activists
that grain was rotting in godowns. It said there was some truth in court commissioner NC
Saxena’s report that spoke about lakhs of tonnes of grain going waste. 

The Bench also rejected the argument of additional solicitor general Mohan Parasaran that
the problem has arisen on account of record procurement. “If your refrigerator has the
capacity to store 10 bricks of ice cream, would you buy 100 bricks and allow 90 to melt
away. Procure as much as you can store properly without wasting it,” the Bench said. But the
government just cannot afford to accept the suggestion to moderate procurement as it would
expose the government to major onslaught from the powerful farm lobby. 

Meanwhile, the Opposition stalled the Lok Sabha twice over the government’s inability to
handle the issue. BJP, which led the attack, got support from parties such as BSP, SP and the
RJD.

Implementing SC order on foodgrains not possible: Pawar

NEW DELHI: The government on Thursday said it is not possible to implement the Supreme
Court order that asked the Centre to distribute foodgrain for free to the poorest instead of
allowing it to rot due to lack of storage facility. 

"It's not possible to implement the Supreme Court order," Food and Agriculture Minister
Sharad Pawar told reporters here. 

He said that the apex court "had suggested to either distribute freely or sell at cheaper rates to
the poorest of poor. The government cannot distribute foodgrains freely", but is providing
rice and wheat at cheaper rates to the poor. 

"We cannot distribute freely. Antodaya Anna Yojna (AAY) is applicable to the poorest of
poor. We are buying wheat at Rs 16 a kg and distributing at Rs 2 a kg. What SC is telling, we
are already doing it," he noted. 

Last week, the Supreme Court had directed the government to distribute foodgrains to the
hungry as a measure to overcome the storage problem. "The foodgrains are rotting. You can
look after your own people. As a part of short-term measure, distribute it to the hungry for
free," the court had observed. 

The bench had passed the direction while dealing with a PIL filed by the civil rights group
PUCL on rampant corruption in Public Distribution System (PDS) besides rotting of
foodgrain in FCI godowns. 

The bench had asked the Centre to ensure construction of a big godown in each state besides
separate godowns in different districts and divisions within the states and expedite the
computerisation process of PDS system to check pilferage and corruption. 

Food Corporation of India, the nodal agency for procurement and distribution of foodgrain,
has stock to the tune of 57.8 million tonnes at the start of the month against buffer norm of
31.9 million tonnes.

Centre should double the grain procurement: CFR (6 SEP, 2010)

NEW DELHI: The Centre should double the current grain procurement, which is only 25%
of the total production besides using the 2010 population figures to decide on the number of
BPL people in the country, thus automatically expanding the number of recipients for
distributing grain, the Right to Food Campaign (CFR) has said. 

Compounding the confusion over the PM’s remark today on the need for the Supreme Court's
to stay out of the government’s decision on food grain distribution, the CFR said. However,
while welcoming the court’s suggestion on distribution fo free grain to the poor instead of
letting it rot in godowns, the CFR expressed its apprehensions over the court’s suggesting
that the APL category should be done away with. "Limiting the percentage of people covered
under the BPL to only 36% has meant that huge numbers of the hungry get left out. The
Planning Commission has also shown high targetting errors in the BPL list with more than 50
percent of the actual poor BPL families being left out of these lists. With the present situation
of run away prices of food grains, and a nutritional and food emergency situation in the
country, abolishing a system of subsidised food grains for those who are outside the BPL list
will result in many going hungry," the CFR said in a statement here. It emphasized "It is a
proven fact that the adoption of universal coverage in distribution of grain is the only
measure that will prevent exclusion of the poor.In the present scenario atleast those poor who
have been excluded from the BPL must have the right to avail of the APL grain, which is at
less than half the market price of grain." 

The CFR has suggested that there is urgent need to put in place the infrastructure for local
procurement of grain, thus savign on transport costs for a countrywide grain distribution
network. Referring to grain rotting in godowns, the Campaign said "Instead of asking the
government to reduce procurement to present storage capacity, we would instead request the
court to ask for an expansion in decentralized storage capacity and procurement so that public
provisioning of subsidised food grains is expanded and strengthened, the FCI needs to
improve its storage systems and local bodies (including Panchayat) managed storage systems
ought to be put in place." 

The Campaign also expressed concern over the Court’s suggestion to introduce fortified atta
instead of wheat. Replacing wheat with atta will lead to more corruption due to central
processing of the wheat by private flour mills, it said. 

The CFR has suggested that the governemnt release 2.5mt of excess food stocks (the decision
was taken by the government on 2nd September, 2010) by expanding the AAY grain
entitlement to all rural households for an initial period of two years in all districts that were
declared drought affected in 2009 or in 2010. 

It has also recommended the extension of Antyodaya cards and entitlements forthwith to all
the priority groups without any quota/ limit on the number of households living at the risk of
hunger as per the order of the Central government dated 3rd August 2004;, issued on the
basis of the SC order of 2nd May 2004 in the PUCL case 196/2001. This stipulates that,
amongst others, all landless agriculture labourers, marginal farmers, rural artisans/craftsmen,
slum dwellers and daily wage earners in rural or urban areas should be given Antodaya
cards. 

"We urge the Supreme Court to ensure that all these households receive the full quota of 35
kgs without any restriction on the numbers of such households so long as they meet the
criteria set above by the Government of India order," the CFR said in a statement here.
Signatories include the steering group of the organisation comprising Prof Jean Dreze, Anjali
Bhardwaj, Aruna Roy and Nikhil Dey (National Campaign for People’s Right to
Information), Subhash Bhatnagar (National Campaign Committee for Unorganized Sector
workers), ), Kavita Srivastava (People’s Union for Civil Liberties), Mira Shiva and Vandana
Prasad (Jan Swasthya Abhiyan), Paul Diwakar (National Campaign for Dalit Human Rights),
Annie Raja (National Federation for Indian Women), Anuradha Talwar (New Trade Union
Initiative), Arun Gupta (Breast Feeding Promotion Network of India), Arundhati Dhuru
(National People’s Movement of India), Ashok Bharti (National Conference of Dalit
Organizations) and others.

Give foodgrain to poor rather than let it rot: SC (13 AUG, 2010,)

NEW DELHI: Expressing serious concern over government's failure to provide adequate
warehousing and water proof enclosure causing widespread rotting of the foodgrain in the
country, the Supreme Court on Thursday asked the authorities to ensure free distribution of
the such scattered grains to the poor and hungry. 

The court asked the government to revamp the Public Distribution System to meet the needs
the people living Below Poverty Line (BPL). 

"Give it to the hungry poor instead of it (grains) going down the drain", said a bench
comprising Justice Dalveer Bhandari and Justice Deepak Verma. 

The court directed the government to establish adequate warehouses /godowns for storage of
the foodgrain which were rotting in absence of such facilities. 

It asked the government to ensure construction of a big godown in each of the states besides
separate godowns in different districts and divisions within the states. 

The bench also asked the government to ensure that fair price shops are kept open throughout
the month. It also asked the authorities to increase the quantum of food supply to the
population Below Poverty Line and to ensure distribution of the foodgrain to the deserving
population at a very low cost or no cost. 

The PDS needs to be strengthened, particularly in tribal and drought-prone areas of the
country, court said. 

Earlier, the court had asked the government to consider the feasibility of disbanding PDS
supply to Above Poverty Line (APL) families and restrict the benefit only to BPL families
and Antodya Anna Yojana (AAY) Scheme beneficiaries. 
However, the Centre in its affidavit filed through Additional Solicitor General Mohan
Parasaran on Thursday said, that the government was extending the supply of goodgrain
under the PDS to APL families only after meeting the requirements of the BPL/ AAY
beneficiaries. On July 27, the court had said, "people below poverty line are not able to get
full benefits of PDS because you (government) are extending the benefit to even those who
are above the poverty line. When you and I can pay, why should it be extended to the above
poverty line family?" court had asked. 

If existing subsidy is withdrawn from ABPL families, there would be enough foodgrain to
those in the BPL category, court had pointed out. 

Extra 2.5 million tonnes, not free, but at BPL prices (3 SEP, 2010)

NEW DELHI: The Centre will release an additional 2.5 million tonnes of grain to states for
the poor. It will be sold at BPL prices, and not distributed free as directed by the Supreme
Court. 

This will be an interim arrangement to be revisited after six months. The Empowered Group
of Ministers (EGoM), which met here on Thursday evening under the chairmanship of
finance minister Pranab Mukherjee, decided to consider an overhaul of PDS scheme,
including upgrading the number of eligible BPL families. 

Food and consumer affairs minister Sharad Pawar told newspersons after the meeting that the
overhaul is expected to increase the number of BPL families eligible for assistance and a
corresponding increase in grain allocation by the Centre. 

The Supreme Court had, in its hearing held earlier this week, taken the government to task for
not complying with its earlier order on distributing grain rotting in the FCI godowns to the
poor free of cost. 

“It was not a suggestion. It is there in our order. It is part of our order. You tell the minister
about it,” a Supreme Court bench comprising Justices Dalveer Bhandari and Deepak Verma
told additional Solicitor General Mohan Parasaran on Tuesday. The court was reacting to the
government’s refusal to distribute the grain among the poor while it rotted. 
According to estimates prepared by the Planning Commission, there are 6.52 crore families
registered under BPL category. The Tendulkar committee, however, pegged the figure at 8
crore, which was later accepted by the Yojana Bhawan in keeping with the National Advisory
Council’s views on the subject. BPL cardholders are eligible for 35 kg of grain a month. Rice
is distributed to BPL families at `5.65 a kg, while wheat is allotted at `4.15 a kg. After the
proposed overhaul, the number of BPL families is expected to increase to 8.1 crore. 

After dragging his feet over the Supreme Court order delivered on August 12, Mr Pawar fell
in line after the court took a tougher line on August 31. He told Parliament later in the day
that the government will honour the decision of the Supreme Court. 

“Give it to the hungry poor instead of it going down the drain,” a bench of Justices Dalveer
Bhandari and Deepak Verma said in an order that followed reports of food wastage. 

The Food Corporation of India, which is responsible for warehousing grain, in a response to a
RTI query, had admitted to wastage of over 1.3 million tonnes of grain in various warehouses
over the past decade.

Can India absorb the FDI rush coming it's way? (20 SEP, 2010,)

India is now rated as the second-most favoured destination for foreign direct investment
(FDI) in the world after China, according to AT Kearney’s latest global FDI Confidence
Index, an annual survey of executives of the world’s largest companies. 

The potential is clearly massive , given the huge investment backlog across sectors and
industries, as the economy picks up and sustains speedy growth. However, the fact remains
that India is also ranked 133rd as per the World Bank’s Doing Business 2010 survey, thanks
to the flawed political-administrative structures and culture. 

India will not be able to absorb the FDI inflows coming its way without reform in the policy
framework and the enabling legal environment — with proposals not getting cleared, not
taking off after being cleared or being written off. Obdurate non-reform and revenue leakages
stymie FDI in a sector like power. 
The index shows that India has elbowed ahead of the United States, thanks to financial
services investors upgrading the economy from the fourth to the second-most attractive FDI
location, the easing of ownership restrictions in telecom and perceptions of attractive
investment options both in heavy industry like steel and in light manufacturing like auto
ancillaries. 

Given the large infrastructure deficit, we do need to be focused on reforms like land
acquisition to actualise investment intentions, whether in steel plants or new towns. We need
to shore up transparency and rationalise the rules. India is ranked 169 (out of 183 economies)
when it comes to procedures involved in starting a business, and placed at a scandalous
second-last (rank 182) for enforcing contracts. On heads like getting credit, India is ranked
relatively high at 30, as also for investor protection, at 41. 

Streamlining of investment procedures here would pay rich dividends and solidly rev up
inflows. It is also noteworthy that the FDI index reveals that China and India are the most
preferred destinations for future research and development projects over the next three years.
It underlines the need to step up the knowledge infrastructure for competitive advantage in
the medium term and well beyond.

Next SEBI Chief's salary only a fraction of CEOs'

New Delhi: Hundreds of listed companies regulated by SEBI may be paying crores of rupee
in a year as salary to their CEOs, but the next chief of the market watchdog is going to get
only Rs. 3 lakh a month.

The government has proposed a consolidated monthly salary of Rs 3 lakh for the market
regulator SEBI's new Chairman. 

This translates into an annual package of Rs. 36 lakh for the Securities and Exchange Board
of India (SEBI) chief.

The salary package of current SEBI Chairman C B Bhave, whose term ends in February
2011, could not be ascertained.

SEBI regulates all the listed companies in the country and it is quite common for most of
them to pay salaries running into crores of rupees for their CEOs and other top management
personnels.
As per the latest available data, at least 265 companies have disclosed having paid annual
remuneration of a minimum of Rs one crore to their chiefs and other top management people
during the last fiscal 2009-10. Many of them are paid more than Rs 10 crore a year as
remuneration.

While the salary data is not available from most of the about 5,000 listed companies for
2009-10, close to 500 companies had paid salary running into crores to their chiefs in the
previous fiscal.

Same is the case for the banking regulator RBI, whose Governor gets a salary far less than
most of the banks operating in the country.

Ironically, banks need RBI's approval for the salary paid to their chiefs, although the listed
companies do not need any clearance from SEBI for salaries paid to their CEOs.

The salaries of both RBI and SEBI chiefs are decided by the Central Government.

Inviting applications for the next SEBI Chief, the Finance Ministry has said in a notification
that "The (SEBI) chairman shall have an option to receive pay-as admissible to a Secretary to
the Government of India or a consolidated salary of Rs 3 lakh per month."

The finance ministry has further said that the person preferably should have more than 25
years of professional experience and in the age group of 50 to 60 years.

"The Chairman shall hold office for such period not exceeding 5 years and shall not hold
office beyond 65 years of age, whichever is earlier. He is eligible for re-appointment," it
added.

The government has constituted a high level search panel, headed by Cabinet Secretary KM
Chandrasekhar, for selecting the next SEBI chairman. Finance Secretary Ashok Chawla is
also part of the panel.

High CEO salaries prevalent in banking and other sectors and comparatively much lower
remuneration of regulators, including RBI, has been a matter of debate in recent past.

RBI Governor D Subbarao's total remuneration is less than not only the chiefs of private
sector banks, but also most of the public sector lenders.

According to the information available from RBI under the Right to Information Act, RBI
Governor D Subbarao got a gross salary of Rs. 1,28,500 in the month of June 2010.

This corresponds to an annual package of little over Rs 15 lakh for RBI Governor. In
comparison, at least 14 top executives at various private banks got an annual remuneration of
more than Rs one crore in the last fiscal 2009-10.

Among the public sector banks also, at least ten top executives of various banks, including
the State Bank of India Chairman OP Bhatt's salary is higher than that of Subbarao.

Bhatt's total remuneration in the fiscal 2009-10 stood at nearly Rs 26.5 lakh. Among private
banks, HDFC Bank Managing Director Aditya Puri earned Rs. 3.40 crore in 2009-10 while
ICICI Bank MD and CEO Chanda Kochhar's pay package stood at Rs. 2.08 crore during that
fiscal.

In the non-banking space also, remuneration running into crores of rupees are paid to top
executives at hundreds of companies. 
In the last fiscal, these companies included those belonging to the two Reliance Groups --
those led by Mukesh Ambani and Anil Ambani, Tata, ICICI, HDFC, Vedanta group and
Bajaj groups. 

US House passes 'Made in America' bill(16 SEP, 2010, 12.38PM IST,PTI )

WASHINGTON: In another protectionist measure primarily aimed at China, the US House

of Representatives passed two different bills that mandate the Congress and the Department
of Homeland Security to purchase only US-made goods. 

The Congressional Made in America Act, introduced by Congresswoman Marcy Kaptur,

requires the Congress to buy goods and services made in America for the first time in nearly
seven decades. 

Similarly, the Berry Amendment Extension Act, introduced by Congressman Larry Kissell
directs the Department of Homeland Security to buy clothing, tents, and other products made
in America. 

These two bills, unanimously passed by the House, will help in creating American jobs, and
expand America's manufacturing sector, said Nancy Pelosi, Speaker of the US House of
Representatives. 
"In passing these bills, we reaffirm that when we make it in America, we create jobs, promote
our competitiveness, and lead the world economy," Pelosi said. 

"Democrats will continue to move our nation forward to prosperity for the middle class.
Democrats are committed to 'Making it in America,' while Republicans are standing with
corporations that that ship American jobs overseas," she alleged. 

"We can protect our American economy while also protecting our national security and
borders. The only way to ensure this is the case is to make these items right here at home,"
Kissell said. "For the last 60 years the Berry Amendment has served our nation well, and its
expansion to the Department of Homeland Security will further benefit American
manufacturing." 

The Berry Amendment, originally enacted in 1941, requires the Department of Defence to
procure a range of domestically produced or grown items with 100 per cent US content. 

The legislation has been supported by many groups, including the American Manufacturing
Trade Act Coalition, the National Textile Association, the National Council of Textile
Organizations, the National Cotton Council and the United States Industrial Fabrics
Association International. 

It is estimated that for every USD 10 million spent annually, the US government will create
or save 500 badly needed US manufacturing and other jobs, said Auggie Tantillo, Executive
Director of the American Manufacturing Trade Action Coalition. 

"Congressman Kissell's 'buy-US' legislation will provide a shot in the arm to America's
economy that has suffered more than 5.6 million US manufacturing jobs losses in the last
decade," Tantillo said.

New govt plan may be sweet for cane farmers (September 21, 2010)

In what could pave way for a handsome increase of up to 30 per cent in incomes of sugarcane
farmers, the government is keen to bring in a revenue-sharing formula that will allow the
sugar industry to share the upside in revenues from sugar with the farmers.
This formula will also take into account revenues from by-products such as molasses and
bagasse.

Prime Minister Manmohan Singh, after meeting Food and Agriculture Minister Sharad Pawar
earlier this month over sugar decontrol, suggested the formation of a committee to formulate
such a sharing mechanism.

The committee will be headed by C Rangarajan, former RBI governor and chairman of the
prime minister’s Economic Advisory Council, said a person close to the development.

While farmers will have a guaranteed sugarcane price in the form of the fair and
remunerative price (FRP), they will also be a partner in the upside. Sugar mills in the world’s
biggest sugar producing nation, Brazil, also resort to a revenue-based sharing formula. In his
presentation to Singh on decontrol, Pawar also referred to a formula-based revenue sharing
with farmers based on price of sugar and by-products.

For every quintal or 100 kg of sugarcane crushed, mills produce roughly 10 kg of sugar, 4.5
kg of molasses and 30 kg of bagasse (of which 21-22 kg is used for meeting in-house steam
consumption requirements, leaving a surplus of 8-9 kg).

At current ex-factory realisations of Rs 25/kg for sugar, Rs 2/kg for molasses and Rs 1.10 for
bagasse in Uttar Pradesh, the gross realisation from sale of 10 kg sugar, 4.5 kg molasses and
8 kg bagasse would be around Rs 268. Two-thirds of this would work out to nearly Rs 180 a
quintal for cane, while the FRP is about Rs 139 per quintal. This will especially benefit
farmers in states such as Maharashtra that follow the FRP. However, farmers in states like
Uttar Pradesh (which follow a state advised price or SAP) will also benefit considering that
SAP was Rs 165 for the 2009-10 season.

“It is a step in the right direction to ultimately follow best global practices and will lead to
tempering of the industry’s cyclical nature. Brazil, for instance, emerged as the world’s
biggest sugar producer after decontrol in 1997 and is consistently producing 30-32 million
tonnes sugar every year,” said Vivek Saraogi, managing director, Balrampur Chini Mills and
president of the Indian Sugar Mills Association (ISMA).

This idea was initially mooted by the apex industry body ISMA in July this year in its
representations for decontrol. The association had suggested sharing 62 per cent realisation
from the main product (that is a global benchmark), which is sugar, and the two byproducts
— bagasse and molasses.

Farm ministry sleeps over 7,000-cr warehouse plans (September 21, 2010)
EVEN as the Sharad Pawar-headed ministry of consumer affairs, food and public distribution
has come under a hailstorm of criticism over rotting food grains, a Rs 7,000-crore proposal to
build additional climate-controlled storage capacity has been gathering dust. Preliminary
discussions are yet to take place on a July proposal to float a special purpose vehicle to build
additional storage and lease capacity from private entrepreneurs. The ministry estimates that
the country needs an additional storage capacity of 17 million tonne. 
    “As of now, we need additional storage capacity of 17 million metric tonne,” minister of
state KV Thomas said. 
    India’s agricultural production has risen sharply, leaving storage capacity far behind.
Currently, 87 million tonne of grain is being stored by the Food Corporation of India (FCI)
and Central Warehousing Corporation (CWC). The task of shoring up storage capacity,
however, is facing two important issues. For one, the pace at which CWC is adding capacity
lags the growth in demand by a huge margin. The public sector unit plans to build 91,050
tonne of capacity during 2009-10 and 177,300 tonne during 2010-11. Food Corporation of
India is not currently building additional capacity. FCI’s efforts to spur private investment in
warehousing by guarenteeing a ten-year lease period has also met with lukewarm responses.
Sources in the ministry said many prospective investors are discouraged by the stringent
terms and conditions. 
    The proposal for a special purpose vehicle that can work outside the existing
administrative framework and fast-track the building and leasing of storage capacity took
shape after a delegation from the ministry visited China in June, to study the massive strides
that country has made in food storage technology. The delegation comprised of the heads of
both FCI and CWC, apart from Thomas and others. 
    “Like us, China must also store large quantities of grain. But they have made a lot of
progress in terms of the technology. They use solar energy to keep godowns climate
controlled. It’s an energy efficient way of doing it,” Thomas said. 
    The delegation recommended that at least ten lakh tonne of climate-controlled storage
capacity be set up in the initial phase.

Changing crop pattern must to rein in prices

ISSUE: FOOD COST TO STAY HIGH AS POLICY MEASURES DON’T ADDRESS
CORE ISSUES

FOOD inflation will defy government policies to remain in high single-digit levels in the
long run, unless there is a change in an overwhelming bias among farmers towards staples
such as wheat and rice, say economists and policymakers. 
    A steady growth in population and rapidly rising income levels are adding to inflationary
pressure at a time when agricultural productivity is showing a decline. A major reason is that
the agriculture sector is not sufficiently diversified. 
    “Our approach to agriculture has to change,” says Pronab Sen, principal advisor to the
Planning Commission. 
    “Our production strategies are very focussed on staples.... We could see food inflation at
around 8% levels going forward,” he says. High food prices, a sensitive issue in India where
nearly 40% of the population is poor, is the main driver of inflation in the economy. While
the WPI inflation fell to 8.5% in August in response to increases in key policy rates by RBI,
food inflation remained sticky at around 11.5%. 
    The focus on cereals, partly a result of policies that ensure a minimum market price for the
produce, seems to be preventing diversification of farm sector. Production of dairy products,
meat, fruit and vegetables has failed to keep pace with the increases in population and
purchasing 
    power, resulting in lower per capita food consumption. 
    The situation requires a change in cropping patterns as well as better facilities to store and
transport perishable items. 
    While it is easier to store cereals — this is another reason for their popularity — the
country lacks storage facilities for perishables. Even storage of cereals is not being handled
effectively. The economic cost of procurement for rice and wheat has gone up by 40.2% and
35.96%, respectively since 2005-06. This has a direct impact on the market prices. While this
is understandable, a failure in distribution of food grains defies all explanation. 
    “The problems in agriculture are indeed structural,” says Mridul Saggar, chief economist at
Kotak institutional securities. He says the cost side pressures are high and income distribution
is getting skewed. This, in effect, has divided consumers into two groups with vastly different
purchasing powers. 
    There has been an uninterrupted rise in food prices since 2005, despite accommodative
price policies. Supply side constraints, which allow hoarding and black-marketing, is another
reason for high food prices. Disruptions in supply also allow retailers to exercise more
pricing power. The last three weeks witnessed higher inflation due to localised disruptions
due to rains and floods. 
    “Minor blips in food supplies tend to cause an over-reaction in the markets,” says Sunil
Sinha, head of research and senior economist at rating agency Crisil.

Get the government out of land deals

The hurdles to India's growth and social peace are the rules that govern the acquisition
of land, meant to enrich politicians rather than the people, argues Abheek Barman

    TWO days after the government scrapped a bauxite mining project in Orissa, Rahul
Gandhi visited Niyamgiri, ground zero of the anti-mine protests and told tribals that he was
their sipahi in Delhi. Around the same time, farmers in Uttar Pradesh said they wouldn’t sell
their land at the rates, the government was offering. India is growing fast, but hassles over the
acquisition of land are going to be the greatest brakes on growth and social peace in the
immediate future. 
    There are several reasons why this is likely. The law governing land purchases in India is
116 years old. It was amended once, three years ago, but those changes were never legislated
in, and have now lapsed. Here’s one big problem with the law: it gives the government the
right to buy land anywhere for a compensation to the original owners — provided the land is
acquired for a public purpose. The sarkar, whether at the state or at the central level, is
therefore the ultimate zamindar. 
    As India rolls out infrastructure projects at a breakneck pace, it’s hard to determine what is
a project for the public good, and what is designed to maximise profits. Many infrastructure
projects are partnerships between the government and private players, where the role of the
government begins and ends after it acquires land for the developer and then sits back to
collect rent. 
    For example, when the Uttar Pradesh government bought land to build the Noida to
Greater Noida expressway around 10 years ago, it paid farmers between . 50 to . 300 for one
sq m. Today, the Jaypee Group, a property developer, is selling plots there at . 15,000 per sq
m. Prices have climbed at least 50 times in a decade. And remember, one arm of the Jaypee
group is also the main contractor to build the expressway that’ll connect Noida with Agra. 
    Is the Noida-Agra Yamuna expressway aproject for the public good? You could argue that
it is because after all there’s a road that’s being built to connect the two places. But what
about the high rises, golf courses, for-profit schools and even a Formula 1 racetrack that’s
supposed to come up along the expressway? Why should the government buy huge chunks of
land cheap, and hand it over to private builders? 
    Similar questions were asked when the government in West Bengal tried to acquire land
for private projects. The trouble began in Singur almost three years ago, where Tata Motors
wanted to locate its factory to build the Nano. As protests dragged on, the government went
ahead with another attempt to acquire land in Nandigram, for a dodgy Indonesian company to
set up a chemicals complex. This ended in violence, and rising anger against the ruling
CPI(M) in a state where it had been in power continuously for over 30 years. 
    Should the government buy any land if the end user is private business? The amended —
and now lapsed — version of the land law says it can buy up to 30% of the total project land
for private businesses. Many people, including rail mantri Mamta Banerjee say that this
should be zero, the government should never buy land for private businesses. 
    The new law tried to smoothen over the differences by saying that when the land is sold at
a profit, 80% of the increase in prices should be handed over to the original owners. Ask
yourself if, even with the best intentions, that’s possible in a country where most land is held
by poor people without papers or proper legal deeds. 
    AMASSIVE rumpus has already started over where to build a second airport in Mumbai.
The shortlisted zone near Navi Mumbai is ecologically fragile, and environment mantri
Jairam Ramesh, who shot down the Vedanta mining project in Orissa, has shot down the
Navi Mumbai airport as well. 
    In a recent paper in the Economic and Political Weekly, environment experts Debi Goenka
and Gautam S Patel go through the pros and cons of the airport debate and conclude that it’ll
make much more sense to expand the existing airport than build a new one. It’s hard to
disagree with their argument, especially when they point out that the only serious opposition
to this comes from two MLAs, who depend on support from the slums surrounding the
Chhatrapati Shivaji airport. 
    Naveen Patnaik, chief minister and leader of the Biju Janata Dal (BJD) of Orissa must be a
worried man. New Delhi has not only scuttled the Niyamgiri mining project, it has also
started asking uncomfortable questions about the embattled project of Korean steelmaker
Posco in the state. The Centre says environmental rules are being violated and that tribal
councils that opposed the sale of their land weren’t being heard. There’s also a five-year old
controversy about how exactly people, who include tribals, small farmers, paan leaf growers
and prawn farmers should be compensated for their land. 
    The roots of all these problems go back to one major problem: Indian state governments
have quietly turned into a bunch of property brokers. The main commercial activity for these
governments — and the parties that run them — has changed from collecting taxes, revenues
and party membership fees, to buying land cheap and selling it dear. Almost always for
kickbacks. 
    Most businesses know that governments have power over land, and cultivate political
parties and state governments to get access to that. This, as economist Raghuram Rajan
points out, has led to the development of a peculiar kind of crony capitalism in India. It has
spawned a nexus between parties and businesses within individual states. 
    So what if governments help businesses get land and start working? The real problem is
that in the long term, this scratch-my-back way of doing business is bad for business — it’ll
crowd out newer startups without the connections and reward incumbents. That in turn, will
stop innovation, growth and new jobs. In the long term, it’s also bad politics: if farmers and
prawn growers feel cheated out of their land and livelihoods, they’ll vote against the regimes
that cheated them. 
    India needs to untangle its land rights mess. Better property records and automation might
help, but won’t solve the problem. When India rewrites its new land laws soon, it should
write the government out of the picture. For private projects — even those masquerading as
public ones — let the developer negotiate and buy all the land.

Can we halve poverty by 2015?

    ASURFEIT of declarations, commitments and pledges to banish poverty in the developing

world culminates in the Millennium Development Goals (MDGs) summit in New York (20-
22 September, 2010). What lends urgency to this mega event is the fact that there are just five
years left to achieve, say, MDG1 (i.e., halve extreme poverty) by 2015. The optimism that
preceded the food price crisis in 2007-08 and the financial crisis that rapidly engulfed the
global economy in quick succession gave way to dire and alarming predictions of millions
descending into acute poverty. Worse, there were apprehensions that these reversals would
get worse if remedial policy initiatives — by governments, donors and multilaterals — were
few and far between. 
    At the Summit in September, 2000, world leaders committed the global community to
halving the proportions of people experiencing poverty and hunger by 2015. They also
pledged in the UN Millennium Declaration to achieve other MDGs encompassing education,
gender equality and women’s empowerment, health and communicable diseases and
environmental sustainability. In brief, these goals aim for a broader and more inclusive
process of human development. 
    The MDGs are ambitious as they represent clear and direct challenges both to individual
countries and to the global community. Achievement of these goals in the Asia-Pacific —
especially South Asia — is of considerable importance because of the pervasiveness of
deprivation in this region. 
    While the progress achieved in meeting MDG1 is laudable, new estimates of poverty in the
developing world by World Bank researchers raise concerns, as the incidence of extreme
poverty they report is considerably higher than the previous estimates that formed the
baseline for MDG1. The updating of poverty estimates was necessitated by new purchasing
power parity estimates for 2005. As the trauma of the two crises are far from over — despite
impressive growth rates recorded by India and China in the last two quarters — it is
necessary to review the prospects of achieving MDG1. Our study [K Imai, R Gaiha and G
Thapa, 2010: Is the Millennium Development Goal on Poverty Still Achievable? The Role of
Institutions, Finance and Openness, Oxford Development Studies, 38(3)] throws new light on
key issues. 
    Following the new estimates, MDG1 implies a reduction of the poverty headcount ratio to
17.3% in 2015. If the historical growth rate of GDP per capita over 1980-2006 is maintained
to 2015, the estimated poverty falls to 15.7%, lower than MDG1. This goal is thus achievable
without any growth acceleration at the country level. An exception, of course, is sub-Saharan
Africa. All other regions, including South Asia, will meet this goal in the sense that the
predicted poverty headcount is less than half of that in 1990. 
    In the scenario in which all developing countries improve their institutional quality to the
average of top 30 countries — using World Bank institutional quality indicators (e.g., rule of
law, corruption control) — all developing countries and regions will meet MDG1 because of
a dramatic effect of an improvement in institutional quality. Of particular interest is the case
in which the rule of law or corruption control improves. If, for example, the rule of law
improves to the level of top 30 performers, the predicted poverty headcount ratio will fall
from 15.4% to 9%. 
    Recent estimates of the effects of the financial crisis are alarmist — an additional 53
million were trapped in poverty in 2009 alone. These, however, cannot be taken at face value
as the channels through which the financial crisis impacted various segments of the
population in the developing world are not specified. Confining to the adverse effects of
contraction of private credit on consumption stabilisation and overall growth, a reversal in the
progress towards MDG1 is indicated, but well below the scale of alarmist predictions. 
    Two related findings are particularly worrying in the context of South Asia. Elasticity of
poverty with respect to income (i.e., per cent reduction in poverty for 1% higher growth) has
declined in recent years. This is largely a manifestation of a stronger positive association
between poverty and income inequality. 
    The lessons for India’s policymakers are hard to overlook in the context of poverty
reduction, regardless of how it is measured. If our analysis has any validity, some of the
priorities are greater attention to ‘triggers’ for institutional reform (e.g., speedier
implementation of the right to information to restrict corruption) and a more inclusive growth
through easier access to both human and physical capital. The challenge is whether the
euphoria over impressive growth in recent months will be matched by measures designed for
better health and education among the deprived, and institutions that will enable more
equitable sharing of growth. 

Govt clears pay hike for professors at IITs, IIMs (September 21, 2010)

IELDING to the year-long demand of IIT faculty members, the Centre has decided to offer experienced and senior
faculty members a Higher Administrative Grade (HAG) Pay of Rs 67,000-Rs79,000 — the highest government pay
scale accorded at the Additional Secretary level since the Sixth Pay Commission came into effect.

The move is good news particularly for professors.

In its earlier order, dated August 18, 2009, the HRD Ministry had said that those appointed as professors must
have a Ph.D with first class or equivalent with a very good academic record and a minimum of 10 years of
experience with an academic grade pay of Rs 10,500 per month. Forty per

cent of these every year, the ministry order had said, would be eligible to move to Academic Grade Pay (AGP) of Rs
12,000 per month after six yearsofregularserviceinAGP of Rs 10500 per month subject to performance evaluation
basedonresearchpublications, Ph.Dsupervision,teachingand consultancyservicesetc.

Now, in a new order dated September 15, 2010, the Ministry has said that instead of movement up to AGP of Rs
12,000 per month, 40 per cent of the professors would move to HAG. "It has now been decided in consultation with
the DepartmentofExpenditureto extend the HAG scale of Rs 67,000-Rs 79,000 without any Grade Pay in place of
AGP of Rs 12,000 per month. The AGP of Rs 12,000 per month does not exist anymore," the HRD notification
states.

The IIT teachers, during their agitation last year, had sought a HAG pay or higher for senior faculty. “We are glad
this has been notified. This was one of our key demands, which has been much delayed by the Ministry,” Prof M
Thenmozhi, president, All India IIT faculty Federation, said.
Recently, members of the IIT faculty federation had also met HRD Minister Kapil Sibal, demanding HAG and its
implementation from 2006 with retrospective effect.

They also wanted it to be extended to larger sections of faculty and not only to 40 per cent of the professors.

The new pay-scale will apply to professors at IITs, Indian Institute of Science (IISc) Bangalore, Indian Institutes of
Management (IIMs), National Institute of Industrial Engineering (NITIE), Mumbai and Indian Institutes of Science
Education & Research (IISERs).

The main drawback of thinking in the ministries of agriculture and

food is that while it is assumed that production must be raised
steadily, poverty will be persistent. This must change More than
half a century after adopting the original declaration, after two
world food summits, a so-called green revolution, and a
millennium development goal which proclaimed that hunger
should be reduced by half by 2015, our food security is worse than
some of the worst-ruled countries in sub-Saharan Africa
With more than 400 million Indians going to bed hungry each day, food security has become a crucial issue. On
June 4 last year, the president made an announcement: “My government proposes to enact a new law — the
National Food Security Act — that will provide statutory basis for a framework which assures food security for all.
Every family below the poverty line in rural as well as urban areas will be entitled to, by law, 25 kg of rice or wheat
per month at `3 per kg. This legislation will also be used to bring about a broader systemic reform in the public
distribution system.” Does food security mean simply providing food for “all” who need it, or for the most
vulnerable in society? Can India really achieve food “security” for all, in the right sense of the word? The fight for
human rights must begin with the right to food. It is a fundamental right. In 1998 the BJP government under Atal
Bihari Vajpayee declared agriculture as the “first priority”.

Vajpayee said he would make India “hunger free” in ten years.

The BJP has been replaced by a government primarily headed by the Congress. It is more than ten years since
Vajpayee’s statement but India is not only not hungerfree, but hunger has got worse. Inflation was at 9.97 per
cent in July. Agricultural prices remain high and the worst hit are food items. The official “food articles index” had
risen to 11.4 per cent in the year to July 31.

The main contributors to the food inflation rate have been pulses — the poor man’s protein — up by 34.14 per cent
over the last year and milk, which has risen by 21.12 per cent. So, does food mean only staples like rice and
wheat? What about a poor household that can’t afford pulses and milk? Or is consuming adequate quantities of
pulses and milk, as nutritious supplements, not a prerogative of poor Indians? What does the international
background say? More importantly, we must examine what “Right to Food” means. In 1948, the Universal
Declaration of Human Rights was passed and the right to food acknowledged. Article 25 of the declaration says,
“Everyone has the right to a standard of living adequate for the health and well-being of himself and his family,
including food and the right to security in the event of unemployment,

sickness, disability and widowhood, old age and other lack of livelihood in circumstances beyond his control.” In
1966, the UN General Assembly adopted the International Covenant on Economic, Social and Cultural Rights, which
formalised the right to food as a basic human right. By 1989, 85 states, including India, had signed the covenant.
Yet more than half a century after adopting the original declaration, after two world food summits, a so-called
green revolution that is supposed to have filled our granaries, and a millennium development goal which
proclaimed that world hunger should be reduced by half by 2015, our food security is worse than some of the
worst-ruled countries in subSaharan Africa.
How do we ensure universal food security? We must realise that the proposed grain subsidy (universalised public
distribution system) regime overlooks issues such as sustainability, externalities and institutional lacunae. The food
ministry is sceptical primarily because it feels procurement levels might not consistently match the demand of the
reassessed Antyodaya Anna Yojana (AAY), Below Poverty Line (BPL) and Above Poverty Line (APL) categories. The
Planning Commission shares this apprehension and suggests rationalising APL retail food prices.

This, after the enhancement of BPL quota to 37.2 per cent, will be crucial in ensuring grain for AAY and BPL
consumers. Yet,

ensuring that the grain trade caters to the upper 40 per cent is crucial in streamlining the efficacy of subsidy.
Increasing procurement to 50 per cent of net grain production and dissemination into a leaking and inefficient
supply funnel such as the PDS might discourage farm production by denying higher values to the farmer that the
open market will offer. Here is a classic case of the “Keynes versus Hayek” dilemma. Should we deny the farmer
the fruits of higher productivity by administering prices, or allow the market to offer variable prices? To commit a
higher-than-required subsidy on account of errors of inclusion, especially on the APL side, is to compromise future
productivity for sustaining present consumption. In other words, procuring most of the grain, and then channeling
it into an ill-managed system (where 40 per cent physical losses are reported, annually `20,000 crore as per
Planning Commission data) to individuals who can afford market prices, is to reduce farmers’ incentive, productivity
goals and sustainability.

When we consider distribution within India, we must take note of two important differences between the public
(Food Corporation of India) and private approach.

FCI procures a lot and stores the grain inefficiently, leading to a lot of wastage. Private traders stock much smaller
quantities and move grain very fast to the consumer. In the FCI system only a few agents handle the “farm-to-
home” movement. The subsidised

issue prices make the process vulnerable to corruption. The market system is also corrupted through the leakage
of cheaper grain, giving rise to a black market. Therefore, well-intentioned and aggressive “hyper-welfarism” might
worsen the health of the distribution system. This clearly brings to the fore the need to design effective and
sustainable institutions to implement the objectives of the Food Security Bill.

While designing a foolproof food security system, various aspects have to considered: procurement projections
over a specified time span, net grain balance studies, evaluation of export potential of premium categories of rice
like basmati. These questions are best left to a statutory authority.

Procurement, distribution and export-import are complex questions and cannot be tackled in isolation, as is being
done now.

It is high time a scientific and statutory approach was put in place, in the place of the ad hoc measures of the food
ministry.

The institutional design should also include freedom to alter procurement and distribution patterns based on solid
data, rather than in an ad hoc manner. The main drawback of current thinking in the ministries of agriculture and
food is that while it is assumed that production must be increased steadily, poverty will be persistent.

This mindset has to change. If programmes like the Mahatma Gandhi Rural Employment Generation Scheme are
effective, more and more Indians will escape the poverty and hunger trap. Rigid laws combined with a populist
posture must not compromise productivity targets, procurement potential and farmers profits. The need of the
hour is to balance the “Keynesian” impulse with a strong dose of “Hayek” thinking ■

FII inflow can’t be long-term FDI (23 SEP, 2010)

There’s a heavy downpour of funds on the domestic bourses. The bull run makes a notable backdrop to the recent
Report of the Working Group on Foreign Investment, the expert committee headed by U K Sinha of UTI Asset
Management. 

The report calls for reducing transaction costs on capital inflows from abroad, easing regulatory complexity and curbing
legal uncertainty, which cannot — broadly — be faulted. However, in calling for treating foreign portfolio investment —
above a certain benchmark level of shareholding — as foreign direct investment (FDI) for policy purposes, the report
seems to make several tenuous arguments. 

Given the panoply of rigidities, shortcomings and lacunas in the real economy, it makes no sense to gloss over the
distortions and assume that trends in the financial markets do reflect ground realities. 

The report goes on to suggest that for foreign investment coming in via the so-called automatic route, ‘there be no
distinction between FDI and portfolio investment’. It would be perverse incentive, for instance, to ‘play the markets’ and
reap the tax benefits and incentives available for FDI projects. 

The fact remains that there is a huge investment backlog in the real sector here, which is why for infrastructural
projects, for example, there’s much focus of policy including tax incentives on offer to coagulate funds, expertise and
resources. 

As for taxation of portfolio inflows, the report prescribes tax-free treatment, which again is questionable. It is categorical
that ‘whether India applies a securities transaction tax, a stamp duty or a capital gains tax upon residents, integration
with the world of international finance requires not applying a burden of taxation upon non-residents’. 

It is true that the stock market is a leading economic indicator, and buoyant portfolio flows by foreign institutional
investors (FIIs) do point at firm growth and earnings trend in the offing. 

But it cannot be gainsaid that heightened capital inflows tend to harden the rupee, which can have negative
implications for the real sector generally. And an artificially-stronger rupee would require currency intervention by the
central bank, which has its costs. 

Hence, the need to continue with the securities tax, stamp duty and levy short-term capital gains tax on FII
transactions, as per the existing norms. Yet, the report calls for investment in listed or unlisted securities at a level
above 10% of shares to be considered as FDI. 

The report’s rationale for such a policy regime is that it is standard practice within the Organisation for Economic
Cooperation and Development (OECD) economies, as well as ‘in peer countries such as Brazil, South Korea, South
Africa and Turkey’, which ‘have comparable-sized domestic markets’, it is averred. 

However, it would clearly be premature in our regulatory regime to remove the distinctions and characterise portfolio
investment above 10% of shares as FDI, as done in the higher-income economies. 

Abroad in the mature markets, there’s no glaring infrastructure deficit and investment backlog in the real economy,
which is why there may be policy logic in not differentiating between portfolio flows and FDI. In sharp contrast, we do
need proactive policy to boost manufactures and attendant economic activity, and hence the continuing need to policy
distinguish between portfolio inflows and FDI. 

West Asia curbs threaten Indian rice exports

Our Bureau NEW DELHI 
INDIA’S basmati rice exports to West Asia could be hit after Saudi Arabia and Iran took
measures to curb imports, even as shipments to Europe are under a cloud after a prominent
Hamburg-based lab alleged high levels of pesticide residue in Indian basmati in June. 
    Rice exports to Iran and Saudi Arabia comprise 60% of the total exports. While Iran has
withdrawn import licences, Saudi Arabia has removed subsidy on rice imports. “Both these
developments could impact short-mid term exports to W Asia,” a Delhi-based director of a
basmati exporter company said. 
    Compared to last year, the exports were slightly lower in the April-July 2010 period, but were
expected to pick up once the monsoon withdraws, according to Mr Vijay Setia, president of All
India Rice Exporters’ Association. 
    But the exports prospects could take a hit after Iran’s Trade Promotion Organisation withdrew
licenses for rice imports, ostensibly to improve the quality of domestic products and lower
consumer prices. 
Saudi Arabia removed subsidies on rice imports last week on the contention that foreign
exporters have been taking advantage of these to increase prices. 
The decision is being viewed as part of an exercise to ensure food security for the Saudis and
reducing over-dependence on countries such as Philippines and India for rice need. In the short
term, it will helpcountries such as Thailand, Vietnam and even the USA if they offer competitive
prices. Thailand has stockpiled 6 million tonne of rice and is desperate to offload without
bringing prices crashing down globally. “In the longer term, this could jeopardise India’s basmati
exports to Saudi Arabia,” an industry source said. 
    Private investors and government agencies from Saudi Arabia have been acquiring arable land
in African countries for growing aromatic rice. India annually exports about $500 million worth
of basmati and $102 million worth of non-basmati rice to Saudi Arabia. “... The only
beneficiaries of the subsidy are the exporters and not the consumers,” Saudi trade minister was
quoted as saying. But exporters claimed prices were high last year because of the worst drought
in three decades and higher farmer input costs had pushed up basmati price. 
    Rice exports increased by 44% to 2.3 million tonne in 2009-10 from 1.8 million tonne in
2008-09, Agricultural and Processed Food Products Export Development Authority (Apeda) data
said. In value terms, exports crossed 12,000 crore in 2009-10, as against 9,476 crore in 2008-09.

Corporate India opens its purse wider for CSR dos

Apurv Gupta MUMBAI 

    IT IS not only corporate profits or the broad-based barometer that is rising. An ET study of
corporate donations reveals that philanthropy too is touching new highs in India. As India Inc is
getting richer, it is getting more generous too. 
    Over a period of five years, the donations have gone up by almost three times to 946 crore.
During the same period, profits of these companies have only less than doubled to 1,77,077
crore. 
    Blue chip companies like Reliance Industries, Hindalco, Grasim, Jindal Steel, Ambuja and
Torrent Power have donated more than four times the amount they donated in 2006 while
Infosys, Bharti and Jaiprakash Associates have more than doubled their donations over this
period. 
    However, in most cases they continue to be a small fraction of their total profits. 
    According to Angel Broking CMD Dinesh Thakkar the increased actions towards CSR are an
1inevitable and healthy step in the evolution of Indian Corporates. “It makes sense for Indian
corporate to recognise the need for such actions voluntarily, so that the immense growth
opportunities that India offers can be realised in a more inclusive manner, where all stakeholders
benefit,” he said. 
    The number of companies making donations of over 1 crore has steadily gone up to 110 this
year from 60 in 2006. 
    However, this still stands at about 0.5% of the total profits, much below the much-debated
proposal of earmarking 2% of the net profit for CSR activities in the new Companies Bill. The
government is likely to make it mandatory for big companies to earmark at least 2% of their net
profit for corporate social responsibility (CSR) activities in the new Companies Bill. If passed,
every year corporates have to earmark at least 2% of their average net profits during the three
immediately preceding financial years shall be spent on CSR activities. 
    The Bill is expected to be presented in Parliament for passage in the Winter Session. The new
provisions will be applicable to companies having a net worth of 500 crore or more, or a turnover
of 1,000 crore or more, or a net profit of 5 crore or more, during a year. Directors will have to
make suitable disclosures in this regard. Reports suggest that separate disclosures will have to be
made by companies in their Annual Report by way of CSR statement indicating the company
policy as well as the specific steps taken there under will be a sufficient check on non-
compliance. 
    CSR is a concept where the company indulges in sustainable or responsible activities.
However, experts feel that it will take some more time for Indian corporates to understand CSR
in its true spirit. 
    “We need to look at individual companies rather than looking at individual companies. Since
there is a wide variation and only a few companies have been donating. Also, if we need to see
social balancing to prevent naxal or maoist movement, corporates need to spend substantial sums
in the geographical areas they operate. One should also carefully check if these include donations
for employee benefits or political parties etc. To arrive at the true picture, these should be
excluded from this total figure,” said Bombay Shareholders Association president Ashok
Bakliwal. 
    According to analysts, the donations as a percentage of turnover or profits are negligible but
they are contributing to the exchequer through taxes. Also, there is a lack of such agencies who
have proven abilities to take up social activities. 
    “CSR initiatives also helps in image building of the corporate and thus on the bottom line and
his creditworthiness goes up. People prefer doing business with those who spend on
philanthropy. While it is possible that some promoters may divert funds to meet their personal
obligations, it may happen only in exceptional cases,” said Jain Ambavat & Associates partner
Vinod Ambavat. 
    Mr Thakkar said while amount still constitutes small part of the bottom line, there is a genuine
shift in the mindset of Indian promoters that takes into account the reality of operating in a
country like India. 
    Interestingly, Jet Airways which had contributed about 101 crore and 69 crore towards
donations in 2009 and 2008, respectively despite huge losses — 402 crore and 253 crore for the
two years, respectively —is missing from this year’s list. Also, many prominent PSUs and
MNCs are conspicuous by their absence in the top donors list for want of any significant
contributions.
Support for small units

By all indications, micro, small and medium-scale (MSME) units have fared better than large
industries in the post-2008 period. This may sound counter-intuitive, the natural assumption
being that small units would be the first to be hit by an economic crisis. However, it is
remarkable that net bank credit to MSMEs showed a sharp increase in 2009-10, in contrast to
the sluggish growth in non-food credit for the economy as a whole. The former rose from Rs
44,000 crore in 2008-09 to Rs 113,000 crore in 2009-10, as against a rise from Rs 411,824
crore to Rs 462,571 crore in the case of the latter. The lending to MSMEs in Karnataka
affirms this trend, rising over three-fold between 2008-09 and 2009-10, or from about Rs
3,000 crore to over Rs 10,000 crore. A recent RBI paper notes that “MSMEs have recorded
relatively better performance than non-MSMEs during the slowdown period” in at least ten
sectors.

It would seem that, apart from the fiscal stimulus, certain policy moves by the Reserve Bank
of India have started to show results. Some of these are directing banks to increase lending to
MSMEs by 20 per cent per annum and providing collateral-free credit up to Rs 5 lakh.
Besides, some export-oriented SSIs in the garments and machine tools sectors have been able
to adjust to sudden macro-economic changes by focusing on the domestic market. But all is
not well within the MSME stable. The Karnataka numbers point to what one might have
suspected anyway — that the bulk of the credit has been cornered by medium-scale units.
This is in line with the prevailing all-India pattern, and an indication that the RBI directive to
set aside 60 per cent of MSME funds for the micro-sector has not taken effect. Since an
average enterprise for the economy as a whole employs 2.4 persons, and has fixed assets way
below Rs 5 lakh, there has to be a concerted effort to reach out to the bottom of the
‘entrepreneur pyramid'.
The recent recommendation by a Government task-force on small-scale industries to raise the
limit of mandatory collateral-free lending to Rs 10 lakh could lift the performance of micro-
enterprises. Even if one accepts that MSMEs cope well with adversity and are less vulnerable
to currency shocks, they need policy support at a time when the economic crisis in the US
and Europe is here to stay. The Government should help them break into markets in Latin
America and Africa. However, a shift to new markets is unlikely to happen in a hurry when
world growth is sluggish; therefore, it should be supported by a domestic impetus. The
Centre's proposal to rely on MSMEs for 20 per cent of its procurement deserves serious
consideration.

Oilseeds: Higher MSP does not guarantee better yields

On June 10, the government announced, more or less ritualistically, the minimum support
price for various kharif season crops. What ought to have been decided upon and announced
by mid-May, well before the onset of the south-west monsoon — for that is the time farmers
begin to source their inputs — came ten days after rains officially hit the Kerala coast. So
much for the commitment of this government to agriculture!

Be that as it may, the MSP decided by the government for kharif 2010 crops has drawn
bouquets and brickbats from various quarters. The sharp hike in MSP for pulses has attracted
commendations. Of course, it an entirely different story that higher MSP has little to do with
truly empowering growers or helping them realise remunerative prices. It is also no guarantee
of an increase in production or yields.

Meagre hike

As for oilseeds, the Mumbai-based Solvent Extractors Association of India (SEA), an

industry body representing, as the name suggests, the country's solvent extraction industry
(there are about 800 solvent extraction plants across the country) has expressed
disappointment with the government's decision to raise the MSP for oilseeds by what it sees
as a meagre 2-9 per cent.

It compares unfavourably with pulses (15-30 per cent MSP hike) although both oilseeds and
pulses are in short supply and higher MSP is necessary to encourage production, the industry
body has alleged.
The major crops of the season are soyabean and groundnut. Terming the government move as
step-motherly treatment to the oilseed sector, the SEA pointed out that oilseeds acreage and
production have stagnated in the last five years and farmers have to be incentivised by way of
higher MSP to grow more oilseeds.

This industry body and probably a few more may have their own logic or justification for
demanding higher MP for oilseeds.

Such public statements in our country expressing sympathy for farmers are often made so as
to look politically correct and expedient.

It may get some media coverage too. But trade and industry bodies that try to shoot from the
farmers' shoulder seldom introspect to see whether they have done anything worthwhile to
uplift farmers or agriculture.

But the question to be debated is more fundamental. Does a higher MSP guarantee higher
production? Unfortunately, the answer is an emphatic NO.

Surely, farmers in India who have been short-changed for decades deserve higher prices,
more remunerative prices. No one can argue against it.

But to believe and assert that MSP should be hiked year after year so as to enable farmers to
produce more is nothing but naivety.

Responding to signals

As has been pointed out often, the ability of the average Indian farmer to respond to price
signals is rather limited. Farming conditions in the country are onerous and risk-prone.
All these years, India as a nation has failed to build capacity among farmers to raise crop
productivity and production. In other words, unlike in the western world, supply response to
prices is rather limited in our country. This reality needs to sink in clearly.

Take oilseeds themselves. In four years from 2006-07 to 2009-10, for the kharif season, the
MSP for groundnut in-shell has seen substantial increase. Same is the case with soyabean.
The appended table shows MSP for the two major kharif season oilseed crops and the output.

One can clearly make out that there is little relationship between support price and hike on
the one hand, and output on the other.

If there ever is, it would be coincidental and not causal. Indeed, ironically, production
increased during years when MSP hike was nominal; and equally ironically, production
declined despite sharp hike in MSP.

The support prices have had nothing to do with oilseeds production, something the industry
and trade bodies must understand. Obviously, while MSP is necessary to provide a
psychological prop to growers, it is hardly the instrument for raising production. Indeed, as
said earlier, higher MSP does not in any way help Indian farmers.

Policy failure

Take soyabean, specifically. MSP for this oilseed has actually become irrelevant. In the last
three years, bean prices have ruled well over 50 per cent of the MSP, making the very
announcement of MSP laughable.

Farmers have received such attractive prices that their ability to holdback harvested produce
has improved.

The inference is that high open market prices, rather than MSP, have actually boosted
soyabean output. If the oilseed processing industry is genuinely serious about an increase in
production, it should pay remunerative prices to growers.

Nothing prevents the industry from doing so. Such a move can result in opportunities for
establishing backward linkages which the industry, in general, has failed to explore all these
years.

Clearly, there has been a major policy failure in case of oilseeds, similar to pulses. The
government is well aware of the structural problems that stymie production growth, but has
failed to address them effectively.
Ineffective input delivery system, antiquated agronomic practices, no significant expansion in
irrigation facilities and lack of rural infrastructure are some of the age-old problems crying
for attention.

Far from demonstrating any commitment to addressing the structural problems, the
government has taken the facile option of importing vegetable oils at low or nil duty. While
the policymakers are culpable for the sorry state of affairs, the industry's locus to question the
government is itself questionable.

Iran's move to hike import duty hits rice

Rice prices continue to rule low with Iran's move to raise the import duty adding to the woes
of the traders and exporters. The prices of aromatic rice, in particular, are on the downswing.

On Thursday, the prices of pusa 1121 declined further to Rs 4,700 a quintal against Rs 6,800-
7,000 during the same period a year ago.

Rice prices are under pressure mainly due to lack of demand from the Gulf countries and
drop in the dollar. As a result, the warehouses are brimming with stocks.

On the other hand, the ban on non-basmati rice exports is also telling on the prices, affecting
the business in Haryana and Punjab.

Mr Pravin Kumar, a rice trader, said that slack demand from Iran, Saudi Arabia and Dubai is
affecting the market badly. “Fall in the dollar is also affecting us,” he said.

Mr Kumar said that the Iran decision was hurting exporters, especially in Haryana.

Mr Rajiv Takkar, a rice miller, said that 1121 paddy was purchased between Rs 1,900 and Rs
2,500 a quintal from market last season. Currently, it is ruling at Rs 1,700-1,800 a quintal.

“The decline will continue as the warehouses are full in the face of low demand and traders
are expecting rice production to rebound in this year as well, he said.

However, monsoon holds the key to production and price, millers say.

On Thursday, 1121 Pusa (Sela) was quoted at Rs 3,600-3,700 a quintal, Sharbati between Rs
2,500 and Rs 2,600 a quintal and Parmal at Rs 1,850-2,000 a quintal.

Nabard to tie up with banks, NGOs to drive organic farming

The regional office of the National Bank for Agriculture and Rural Development (Nabard) is
planning to promote organic farming in the State through banks and non-governmental
organisations (NGOs).

The programme will integrate the activities of over 10,000 farmers with organic farming, in
the first phase, according to Mr K. C. Shashidhar, Chief General Manager, Nabard, Kerala.

NGOs MEET

A meeting of NGO stakeholders convened here has decided to publish a white paper on the
potential of organic farming in Kerala.

Addressing the meeting, Mr Shashidhar said that the apex bank plans to promote organic
farming through Joint Liability Groups (JLGs).

Organic farming practices need to be encouraged using local knowledge of farmers. They
also need to be integrated with the tested practices of research scientists and academia. To
accomplish this Nabard will associate itself with Kerala Agricultural University.

“Our mission is to develop an organic farming approach, particularly in all the watershed
development areas,” Mr Shashidhar said.

“We will extend support, including capacity-building and financial assistance, for soil and
water conservation measures through ongoing programmes.”

Nabard will implement the project in seven districts in Kerala initially in association with the
Kerala Social Services Forum, an umbrella NGO of the State to which as many as 36 NGOs
are affiliated.

TRAINING PROGRAMME

As a prelude to the formal launch of organic farming in the State through the bank, Nabard
will also conduct a two-week training programme for farmers in organic farming.

The training programme is expected to create the right awareness about organic agricultural
techniques, organic manures, production of bio-control agents such as organic pesticides and
organic fungicides to the participants.

It will also take the participants through topics such as pesticide-free food production
methods, post harvest management means, food security through organic farming and seed
conservation etc.
The farmers will also be taken for exposure visits to organic farms within the state and
outside.

The ‘Joint Liability Training' programme will be led by experts from agricultural fields along
with Nabard district officials.

Sugar mills renew demand for higher ethanol price

Harish Damodaran

New Delhi, July 1

The latest hike in petrol prices has emboldened sugar millers to renew their demand for a Rs
27-a-litre rate on the ethanol supplied to oil marketing companies under the 5 per cent
blending programme.

The current retail price of Rs 51.43 a litre for petrol in Delhi, after deducting Central/State
taxes and dealers' commission, translates into a refinery-gate realisation of around Rs 25.80.

“You now have a situation where the effective price, oil companies are getting on petrol, is
close to the Rs 27-a-litre we are seeking on the ethanol they buy,” said Mr Gautam Goel,
Managing Director, Dhampur Sugar Mills Ltd.
On a price of Rs 27, if expenses on denaturant (Rs 0.30), Central excise (Rs 2.78 @10.3 per
cent), State taxes (which average about Rs 1.30) and transportation from the mill to the oil
depot (Rs 1.10) are added, the ethanol would cost roughly Rs 32.5 at the point of blending.

‘pure' petrol

As against this, ‘pure' petrol (with nil ethanol content) costs oil companies nearly Rs 40.6 a
litre at the depot after payment of excise duty. To the extent the ‘pure' petrol is doped with
ethanol, there is a saving of Rs 8.1/litre on that replaced portion.

To put it differently, if an oil company sells ‘pure' petrol, its effective realisation is Rs 25.80
a litre. But if 5 per cent ethanol blended petrol were to be sold, it would realise Rs 35.1 a litre
on the 5 per cent doped portion. All this is, of course, only because ethanol attracts lower
excise than petrol and the two are assessed separately prior to blending at the depot.

“Given the savings from ethanol blending, they can certainly afford to pay us Rs 27.
Moreover, we are willing to supply them at this rate for a three-year period,” said Mr
Narendra Murkumbi, Managing Director of Shree Renuka Sugars Ltd.
In 2009-10, the country consumed 12.8 million tonnes or 17 million kilo-litres of petrol (one
litre=0.75 kg). At 5 per cent blending, the ethanol requirement accordingly works out to 85
crore litres or Rs 2,300 crore at Rs 27/litre.

“With consumption rising 10-12 per cent annually, the savings from ethanol use would only
go up. And you have to also factor in an uncertain global oil price environment,” Mr
Murkumbi added. In their earlier three-year contract with oil companies, which expired on
October 31, the mills were supplying ethanol at a fixed ex-distillery price of Rs 21.5 a litre.
Since then, no fresh contracts have been entered due to dispute over pricing.

Awaits cabinet nod

Although the Group of Ministers under the Finance Minister, Mr Pranab Mukherjee, on April
6, endorsed a Rs 27/litre price, it is yet to be cleared by the Union Cabinet. The opposition
here is coming mainly from the Department of Chemicals, which fears that the blending
programme would hit alcohol supplies to chemical units.

The annual alcohol demand from potable liquor and chemical units is estimated at 90-100
crore litres each. In a normal year, the country produces 225-250 crore litres. If 85 crore litres
is consumed by oil companies, it would either push up domestic prices or force alcohol-based
chemical manufacturers to import.

During the 2008-09 sugar season (October-September), import of denatured hydrous spirit by
India Glycols, Jubilant Organosys and Laxmi Organic Industries totalled 36 crore.

This season, it may touch 17-18 crore litres, according to Mr Gautam Sharma, a Mumbai-
based molasses and alcohol trade consultant.

SEZ investors' interest will be protected: Sharma

Even as uncertainty looms large over the tax treatment on new SEZ units established after
April 1, 2011, the Commerce and Industry Minister, Mr Anand Sharma, today sought to back
the investors in SEZs, stating that their investment interests will be protected.
"We will see to the best extent possible the interests of the investors (in SEZs) are protected.
will be protected", Mr Sharma told Business Line at North Block soon after his nearly hour-
long meeting with the Finance Minister, Mr Pranab Mukherjee.
The revised discussion paper on the Direct Taxes Code had said that profit-linked deductions
would be available only for existing units in SEZs. By implication, new units that come up
after April 1, 2011 will not get profit-linked deductions. Many SEZ developers feel that such
a tax treatment would discourage setting up of new units, undermining the commercial
viability of such zones.
The Finance Ministry is in no mood to relent and is not in favour of providing profitlinked
deductions to new units established after April 1, 2011. The CBDT is of the view that profit-
linked deductions are distortionary in nature as they create an incentive to inflate profit as
well as to transfer profits from a taxable entity to a non-taxable one.
The Commerce Minister today sought to allay the concerns of SEZ fraternity and noted that
he had taken up this matter with the Finance Minister. "We discussed all shared concerns and
had general discussion on DTC. I am not in a position to tell you what decision has been
taken because the legislation goes to Parliament. We had a productive discussion. I hope
there will be a fair and balanced solution", Mr Sharma said.
In the meeting, Mr Sharma also discussed the various incentive- linked export schemes and
the annual allocations that need to be made for such schemes.
He had also raised the issue of de-regulation of pre-shipment and post-shipment export credit
under the newly kicked-in lending regime of base rate.
From July 1, a base ratelinked lending regime has been ushered in the Indian banking system.
A base rate is a rate below which banks cannot lend. Except for certain specified export
sectors and in cases of subventions, the banks have the freedom to set any export credit rate
above the base rate. Hitherto, export credit was pegged at PLR-2.50 percentage points for
each bank.
With the base rate regime in place, the Commerce Minister was concerned that the actual cost
of export credit may go up when compared with what exporters were earlier getting, official
sources said. There may not be any re-think on the de-regulation of export credit and each
bank would now decide the export credit rate depending on its own cost structure, they
added.
The meeting was also attended by the Commerce Secretary, Dr Rahul Khullar, and the
Secretary-Financial Sector, Mr R Gopalan.
The Direct Taxes Code released in August 2009 had said that the current profit linked
deductions available to developers of SEZs would be protected for their unexpired period.
However, there was no mention of grandfathering of those profit-linked deductions in the
case of units operating in these zones.

‘Annual pay hike of CEOs, whole-time directors of pvt banks not to exceed 10-15%'

The annual increase in the fixed pay of CEOs and whole-time directors of private banks
should not be more than 10-15 per cent, according to the draft guidelines on compensation of
Whole-Time Directors and CEOs for private and foreign banks.

From now on, banks will have to take permission from the RBI for the remuneration
packages of their top management. While granting permission, the RBI will take into account
whether the compensation policies and practices are in accordance with the Financial
Stability Board (FSB) principles, whether there is appropriate balance between fixed and
variable pay, and whether adequate deferrals are built in the variable component.

The compensation policy should be completed before December 31, and should be in place
for the year 2011-12.

The RBI had announced in the second quarter review of monetary policy in October last year
that it will issue guidelines to private and foreign banks on sound compensation policy.

The private banks' boards have been asked to constitute a remuneration committee
comprising non-executive independent directors and non-executive Chairman of the board to
oversee the framing, review and implementation of compensation policy of the bank.

Variable pay

The guidelines have prescribed that in cases where the variable pay constitutes a substantial
portion of the total pay, 40-60 per cent of the variable pay must be deferred for a minimum
period of three years. A substantial proportion of deferred variable pay should be awarded in
shares or share-linked instruments.

The RBI has also frowned upon the practice of giving guaranteed bonuses. “Guaranteed
bonuses are not consistent with sound risk management or the pay-for performance principles
and should not be part of compensation plan. Therefore, joining/sign on bonus should only
occur in the context of hiring new staff and be limited to first year,” the guidelines said.
Banks have also been asked not to grant severance pay other than accrued benefits (gratuity,
pension, and so on) to whole-time directors and CEOs.

In case of deferral compensation, where a particular line of business has given negative
contributions, any unvested portions are to be clawed back, subject to realised performance of
the bank and the business line, the report said.

Foreign banks

Foreign banks have been asked to submit a declaration annually from their head offices
stating that their compensation structure in India, including that of the CEOs, is in conformity
with the standards set by the FSB.

While according approval to the CEOs' compensation, if the RBI observes that the
compensation is not properly aligned to risks or there are other regulatory and supervisory
compliance issues in relation to the Indian operations, then the RBI will take up the issue
with the home country regulator, on a case-to-case basis.
Cyber-security

All coins have two sides and the bad side of the cyber coin is the ease with which it can be
used by terrorists and other such misfits to communicate with each other. A secure
communication network is, therefore, of paramount importance for any country, especially
India, which has been dealing with terrorism for almost three decades. According to the
International Telecommunication Union, a United Nations body, the next world war could
happen in cyberspace. Indeed, aware of what lies in store, other countries are also dealing
with the cyber problem. For India, the problem is complicated by the fact that most of the
technology used in the telecommunication networks is bought from foreign countries. This
makes India very vulnerable. Therefore, the intent behind the Government's recent attempts
to enforce stricter norms for foreign equipment vendors and service providers is in the right
direction. In a sense, there is no option.

However, asking such companies as Google and Research In Motion (RIM) who are the
manufacturers of Blackberry phones to provide real-time information on data passing through
their networks in a readable format to Indian security agencies is almost like asking these
companies to reveal their trade secret which they have developed after years of research and
development. No company would wish to part with such information, even if the alternative
is to pack its bags and leave the country. Since that cannot be what the Government wants,
because of the impact of such a move on millions of users, threats of banning non-compliant
companies or forcing them to part with critical business information does not improve
anything. The Government will have to think of some other way to get what it wants.

The data services offered by these companies are highly encrypted and our security agencies
do not have the technology to crack these. Anti-social elements know this and are probably
using these encrypted services to communicate with each other. But, rather than putting the
onus on the service-providers, perhaps the Government should immediately invest in
equipping the monitoring agencies with better technology that will enable them to snoop into
any type of network any time they want. In the long term, the Government could do two
things. First, it should work with international bodies such as the ITU to develop a standard
global framework for such service providers. So, for example, whatever RIM has to do to
address security concerns in the US, the Canadian company has to do the same in India.
Second, the Government needs to offer incentives to foreign vendors and service providers to
set up a manufacturing base or a local server respectively in India. Security agencies will
have better access to such local units, leading to better monitoring. Security concerns have to
be balanced with consumer and business interests; only then can it be a win-win situation for
all concerned.

Monsoon boosts sowing of oilseeds, cotton

Our Bureau

New Delhi, July 2

Good monsoon rain in Maharashtra, the Saurashtra-Kutch belt of Gujarat, and much of
Andhra Pradesh has helped boost sowing of oilseeds and cotton during the current kharif
season, even as plantings are yet to fully pick-up in other crops.

Farmers have so far sown 43.68 lakh hectares (lh) under cotton this time, as against a
coverage of only 29.17 lh during this period last year. Much of this additional acreage has
come in Maharashtra (13.89 lh against 2.88 lh last year), AP (6.35 lh versus 3.47 lh) and
Gujarat (7.08 lh versus 6.18 lh).

In Punjab, too, a good round of pre-monsoon showers in mid-June has helped raise cotton
planting from 5.36 lh to 5.59 lh, while it is lagging behind in relatively parched Haryana
(4.44 lh versus 5.07 lh). Significantly, of the total 43.68 lh sown under cotton till now, Bt
hybrids/varieties have accounted for 39.76 lh .
Oil seeds

A similar story holds for oilseeds such as groundnut and soyabean, where acreages are
substantially up this time. In groundnut, there was no sowing in Gujarat at this point last year,
whereas this season it has already touched 8.1 lh. AP, too, has registered an increase from
1.13 lh to 2.91 lh. In the case of soyabean, Maharashtra farmers have so far sown 8.53 lh
(against last year's corresponding 0.54 lh), while in the main growing State of Madhya
Pradesh, only 2.13 lh has been covered.

In most other crops, particularly coarse cereals, sowing has been held up by the slow progress
of the south-west monsoon, which is still to cover half of the country. Last year, farmers
generally went for large-scale early planting, buoyed by optimistic official monsoon
forecasts. But with these forecasts going horribly wrong, they ended up burning their fingers.
In many cases, the already planted crop withered away or had to be re-sown at a cost.

This time, reports from the ground suggest a more guarded approach on the part of farmers
who are seemingly prepared to wait till the rains come.

The revival of monsoon activity is also crucial for the sugarcane crop, which has already been
planted in Uttar Pradesh (during March-May). In Maharashtra, the bulk of the crop to be
crushed in the new season beginning October was already planted between April last year and
February this year. On the whole, cane area is up nearly six lh this time.

Farm subsidy touches record high in rich nations

Despite several issues including stalled WTO negotiations and newer challenges such as
climate change concerns, little has actually changed in the agricultural policies of OECD
countries in recent years except for a consistent increase in farm support. For 2009, farm
support (popularly understood as agricultural subsidy) of developed countries stood at an
estimated $383.7 billion, up from $379.4 billion in 2008 and $362.2 billion in 2007.

While the most distortive forms of support still dominate, few new substantive policy
measures were adopted, and reforms remained uneven across countries, the Agricultural
Policies in OECD Countries 2010 report issued on Wednesday showed. The OECD is a
forum of 31 developed/ industrialised countries in which agriculture is on a large commercial
scale and mechanised. In many cases, less than 5 per cent of the population is engaged in
farming.

Distortive forms of support include those based on output (including border protection) and
on unconstrained use of variable inputs. These accounted for more than half of the OECD
aggregate producer support estimate for 2007-09.
Total support to the agricultural sector combines producer support, support for general
services to agriculture as well as budgetary payments to consumers. As a percentage of
OECD GDP, the overall burden of agricultural support has continued to decline and stood at
0.9 per cent in 2007-09, down from 2.3 per cent during 1986-88.

Importantly, support for ‘general services to agriculture' which include research,

infrastructure, inspection and control as well as marketing and promotion has been rising
regularly and for 2009, it stood at a new high of $95.3 billion, up from $85.8 billion for 2008
and $77.3 billion in 2007.

Market volatility concerns

The report concedes that although multilateral trade negotiations, including on agriculture,
have yielded no tangible results in nine years, a re-examination of agricultural policies was
needed. While the price boom of 2007 and early-2008 weakened the rationale for broad-
based income support for producers and raised concerns about the negative impact on
consumers, particularly in less-developed countries, the fall in prices at the end of 2008 led to
concerns about the impact of future market volatility on the ability of producers to expand
output, on an environmentally sustainable basis, in response to growing global demand.

“All these developments call for a fresh, forward-looking approach to food and agriculture
policy,” the report says.

Agricultural ministers from OECD countries and from other countries that are major players
in the food and agriculture markets had agreed on the future challenges and opportunities
during their meeting in Paris in February. They noted that recent developments had brought
into focus several issues confronting the global food and agriculture system.

These include “strong growth in demand for feed, food and non-food uses of agricultural raw
materials, alongside persistent global food security issues; climate change exacerbated by
increasing competition for land, water and other resources; price volatility; opportunities for
‘green growth' with potential economic and environmental benefits; growing interest in the
manner in which food is produced; food-related health concerns; a renewed emphasis on
innovation, efficient resource use and productivity growth in both developed and developing
countries including the production of renewable energies such as bio-energy on a viable
economic and environmentally sustainable basis; and the essential role of trade in ensuring a
sustainable and reliable flow of food and raw materials”.

Food crisis – how prepared is India?

The recent spike in world food prices has further widened the gap between the developed and
the developing economies. While, over 70 per cent of the world's population resides in poor
countries, it has access to less than 40 per cent of the world's resources such as water,
irrigated land, power, etc. This is a result of inconsistent economic progress (post-
colonialisation birth pangs), rampant population growth and distractions such as internal
conflicts and neighbourly tensions. Over the last 300-400 years, developing countries in
South Asia and Africa experienced high population growth supported by fertile plains of
large river basins. However, in recent years, there is large-scale de-silting and exhaustion of
soil regenerative capabilities, leading to lower production.

Certain prominent leaders and economists have placed the responsibility of rising world food
prices on China and India. The West, with its declining birth rate, is fairly self-sufficient in
food and can withstand these shocks better than developing countries. Hence, there has been
no concerted effort till date, to improve the food price scenario other than mere rhetoric at
G8/G20 summits. According to the latest report on UN Millennium Development Goals,
India would have reduced its poverty rate from 51 per cent in 1991 to under 25 per cent by
2015 and over 180 million would move out of the BPL category. While that's a commendable
milestone, it, however, brings with it, the challenges of increasing per capita food and calorie
intake and, hence, greater food demand and prospects of higher food inflation.

Water Shortages

India's inability to moderate population growth has led to social tensions, economic
distortions, low per capita food grain availability and environmental degradation. As a result
of continuous man-nature conflicts, the per capita food grain and water availability in India is
about one-third of the world average. In the past, India severely neglected its water resources
and ignored ground water re-generation. There has also been a gradual reduction in the water
flow of the Himalayan rivers as a result of depleting glaciers. This is compounded by the
phenomenon of rampant use of ground water for construction and industrial use without
focus on harvesting, leading to over-dependence on monsoon. However, in the last decade,
the Government has tried to address the issue through several initiatives such as subsidies for
micro-irrigation (which optimises water usage for agriculture), national watershed
development project for rainfed areas, artificial recharge to ground water through dug wells
in hard rock areas and rural water supply enhancement programme through the catchment
area approach.

There is need for more focused implementation of these schemes as also forward action on
the national river linking project which was proposed a few years ago. Optimal management
of this critical national resource will be the key to managing food security.
A Huge Opportunity for agriculture

Farming is no longer a preferred profession in India, especially among the new generation,
due to high degree of uncertainty in income contributed by fragmented land holding, high
monsoon dependence along with low irrigation, limited access to affordable credit, low
productivity due to outdated techniques and migration of farm labour to cities. Fragmented
land holdings also mean unviable mechanisation and lower productivity. The poor returns
from farmlands coupled with rampant industrialisation and soaring real estate prices have led
to diversion of productive land. Government's MSP policy which kick-started the green
revolution has in some cases led to surplus cultivation of certain agri-commodities such as
wheat , rice and sugarcane in Uttar Pradesh/Maharashtra leading to wastages.

Agricultural infrastructure neglect (which leads to large wastages) has been exacerbated by
the Centre-State conflicts, and severe resource crunch faced by the State Governments.

The Central Government is aware of the challenges and has initiated several policy initiatives
such as Seeds Bill (increase seed replacement and boost exports), Amendments to the APMC
Act (promote investments in agri-marketing infrastructure), Nutrient-based Subsidy Policy
(to incentivise the farmers to go for balanced fertiliser application and ensure soil
regeneration), National Horticulture Mission and the National Food Security Mission (which
aims at widening the food basket and improving productivity – early results already indicate
gains of >25 per cent in many districts). These initiatives need to be implemented vigorously,
as the agriculture sector has a huge potential which can be unlocked to ensure long-termfood
security.

India-China – The Current Scenario

Like India, China faces an equally daunting task with pressure on its per capita agri-
resources. On the population front, China seems to be in a better position as its total fertility
rate (TFR) is already below the replacement rate, whereas India would achieve a TFR of 2
only by 2050. China, as an authoritarian state, is perceived to be able to respond to a crisis in
a military-like discipline unlike a democratic India – with its quasi federal structure, linguistic
divide and coalition compulsions. However, it has been proved beyond doubt that a thriving
and vibrant democracy such as India has been able to prevent famine-like situations post-
independence mainly due to the periodic ballot process. The democratic process also has
ensured that political parties have tilted towards the doctrine of economic reforms with a
human face and schemes such as NREGA have taken shape and been implemented to the
benefit of the bottom of the pyramid. Nevertheless, the democratic process needs to be
enhanced through decentralised decision making, and increased cooperation between the
Centre and the State Governments to implement the policies and reforms in agriculture.
Conclusion

India's democracy is a major asset in terms of the policies favouring equitable economic
growth. However, to achieve that objective in the near term (2020), we need some structural
changes in the economy, stabilisation of our population growth and de-centralised policy
making.

Continued food price rise amidst sustained population growth, could lead to pockets of civil
unrest and separatist movements which could threaten our national solidarity. Hence,
coordinated efforts on war footing are necessary. We need efforts on R&D to increase
productivity, increase irrigated land share and promote farm mechanisation and land reforms.

India needs greater autonomy to the State Governments to optimise resources for higher
productivity. Since marketing of agri-produce is in State's policy domain, we need
coordinated contract manufacturing and procurement laws between various states to
incentivise farmers. Much greater focus should be accorded to cold chain infrastructure to
reduce wastage in the food supply chain.

We need serious steps to achieve the TFR target of < 2 which would need mass level
education, and incentive-based programmes.

‘Reining in inflation essential for growth'

Monetary tightening might hurt growth in the short term but tackling inflation was essential
for long-term sustained growth, said the Reserve Bank of India Deputy Governor, Dr K.C.
Chakrabarty. “For the Reserve Bank, inflation is everything, for the Ministry growth is
everything, but in the long-term both will converge because inflation is the greatest enemy
for long-term high growth,” Dr Chakrabarty told newspersons on the sidelines of an
Assocham event here on Sunday. Hinting at a further hike in rates if inflation exceeded
expectations, Mr Chakrabarty said that a 25 basis points increase was the minimum hike, as
in the past the RBI had never increased rates less than 25 basis points. Dr Chakrabarty had
recently indicated that the RBI would further raise key rates, if inflation continued. The 25
basis points enhancement in repo and reverse rates was ‘a welcome and appropriate measure'
said Mr Pranab Mukherjee, Union Finance Minister, speaking at the same event. — Our
Bureau

Indian tomato yet to sprout global demand

Being the world's fourth most cultivated crop, with a production estimated at 130 million
tonnes and an acreage of 5.2 million hectares, the tomato is an indispensible vegetable crop
world over and, of course, for India. China is the world's largest producer of the vegetable
(33.8 mt) followed by the US (12.6 mt) and India (11.3 ). Turkey, Italy, Iran, Egypt, Brazil,
Spain, Mexico and Russia are also significant producers.

In India, tomato cultivation has expanded progressively in the last 20 years in terms of area
coverage and production.

Currently, it accounts for about eight per cent of the country's total vegetable production of
about 133 mt. Vaishali, Rupali, Rashmi, Rajni, Pusa and Ruby are some of the popular
varieties cultivated.

For 2008-09 (latest available data from the Government), tomato was cultivated in 6,08,000
hectares and production was an estimated 11.3 mt.

In 2007-08, the area planted was 5,67,000 hectares and output was 10.5 mt as compared with
the previous year's 5,96,000 hectares and 10.1 mt output.

Currently at 18.5 tonnes a hectare, yields are struggling to reach 20 t/ha, far below global
norms (high at 60-75 t/ha and normal at 25 t/ha) because of seed quality and agronomic
practices.

Farm losses are reported to be heavy because of poor post-harvest practices resulting from
lack of knowledge and, of course, inadequate rural infrastructure.

Although a significant part of tomato production is still consumed in fresh form – by

households and catering institutions – the vegetable also lends itself to processing and value
addition. There is large production and trade in processed form including paste,
ketchup/sauce, puree and canned tomato. Current world consumption in processed form is
estimated at about 35 mt. International trade in tomato is currently estimated at about 18 mt.
Italy, Spain and Greece are among large exporters of processed products.

Marginal player

Huge internal market, perishable nature of product and inadequate logistics make India a
marginal player in world tomato trade. Small volumes are shipped out to neighbouring
markets in South Asia and West Asia.

Tomato trade is largely regional. The product does not travel far because of its weight and
high transportation costs.
There are periods of glut and scarcity. It is necessary to invest in research to evolve newer
varieties of the vegetable, especially those that lend themselves to processing into value-
added products.

Standardisation of quality is the key to successful marketing. Investment in appropriate

infrastructure for post-harvest handling, including storage and movement would help.

Rising purchasing power within the country, urbanisation, changing lifestyles and, therefore,
rising demand for processed foods makes tomato an ideal candidate for entrepreneurs to
focus on. Some corporate have successfully tried out contract farming.

Growing market

Promotional agencies such as the National Horticulture Mission and APEDA have schemes
and programmes for raising production and productivity as also for processing and value
addition. India is sure to continue to be a major producer and consumer of tomato. The
emerging market opportunities are immense.

Land of agriculture

Nagaland, the 16 th State of the Indian Union, was carved out of Assam in 1963. It is
bounded by Myanmar on the east, Arunachal Pradesh on the north, Assam on the west and
Manipur on the south. The State is mostly mountainous except those areas bordering Assam
valley. A mountain range forms a natural barrier between Nagaland and Myanmar.

Out of total land area of 16.6 lakh hectares, forest area occupies approximately half. If power
supply is an index of development, Nagaland has achieved 100 per cent village
electrification. A combination of abundant rainfall, sunshine and rich soil conditions mean
tremendous biodiversity - abundant and varied natural vegetation.

Land of Agriculture

As the State is basically a land of agriculture, the farm sector's contribution is significant.
There are no major or medium irrigation projects. The irrigation works are mostly meant to
divert small hill streamlets to irrigate valleys used for rice cultivation. Total area under
irrigation is a little over 90,000 hectares.

Over two-third of the population depends on farm and related activities. The major land use
pattern is ‘slash and burn' cultivation locally known as jhum, area under which is about one
lakh hectares. Terraced cultivation is also practiced.
Total food production is close to four lakh tonnes. Rice is the staple food. Paddy occupies
close to 70 per cent of total area under cultivation and constitutes about 75 percent of the
State's total food production. Other grains cultivated, albeit on a small scale, include maize,
millets and pulses. As for oilseeds, in addition to groundnut, soyabean and sesame seeds are
grown. As Nagaland is severely deficient in grains production, consumption demand is met
through large-scale imports from the other States. The State Government has drawn up plans
for boosting food grains output. Given the salubrious climate, horticulture holds immense
potential in terms of variety and production.

The agro-climatic conditions are suitable for perennial fruit crops such as mango, litchi,
guava, orange and lime; annual fruit crops such as banana, pineapple and papaya; spices
including ginger, turmeric, pepper and chillies; as well as a variety of roots and tubers and a
whole range of vegetables. The State enjoys natural comparative advantage for horticulture.
Area under horticulture crops is close to 30,000 hectares.

Organic Cultivation, Livestock

The virgin nature of the soil also offers near-ideal conditions for organic cultivation.
Traditionally, the farming systems have been sustainable and nature-friendly. With market
for organic food growing, the strong and sustainable production base offers huge potential
that can be tapped by entrepreneurs.

As the hilly terrain limits scope for cultivation of large-scale field crops, livestock has
assumed importance. Rearing of cattle, pigs, goat and poultry is gaining in popularity. As the
State is milk deficit and demand for dairy products as well as meat and eggs is rising, newer
market opportunities in the dairy and livestock sector are opening up.

Supportive Policies

The State government policies are supportive of agriculture and allied activities. Supportive
policies such as crop zoning concept optimises land use while horticulture development is
given primacy with focus on multiplication and distribution of quality seeds and planting
material.

In sum, it can be asserted that Nagaland offers huge investment opportunities in cultivation of
a wide range of horticulture crops, including organically-grown crops, as well as in setting up
of food processing facilities covering horticulture and livestock products. Entrepreneurs, who
move in quickly, are sure to enjoy early-mover advantage.

When rules are made to be broken

  
The rules must be clear, well communicated and enforced.

The signs at several major road intersections in Bengaluru declare, ‘Follow Lane Discipline'
and ‘Follow Traffic Rules.' Helpfully, the authorities have written it in both Kannada and
English. Yet, the policeman standing under the signboard does not seem to care if the traffic
moves within lanes or not, as long as it is moving. He even watches, disinterested, when the
stragglers accelerate and slip past even after the colour changes to red.

Meanwhile, my taxi driver, when he does see a lane marking on the road, seems to think that
the centre of the hood of his vehicle needs to be aligned with the dotted line on the road. So,
he happily straddles two lanes.

Several others are trying to do the same. I wonder if my driver even knows what the
signboard is saying. He admitted to me that he could not read.

This makes one wonder about all the efforts to inculcate discipline and agreeable habits. In a
bank, there is a sign asking customers to form a queue. Here, you can't straddle lanes since
the authorities have provided tape railings to make you go in a line to the teller's counter. Yet,
some have difficulty standing one behind the other and are looking to get past those in front
of them.

The teller is not of much help in regulating the line. When I reach the counter, I find the one
who tried to pass me leaning over my shoulder, and the teller, instead of dealing with my
problem and asking the other one to step back, also looks at him quizzically as if to find out
what he wants.

And then, a third person takes the cue and begins waving his slip of paper. Each one is trying
to suggest that their work is simpler, or may take a shorter time (‘only want to deposit this', or
‘only have a question') than mine.

The teller decides to multi-task and takes the deposit slip while simultaneously asking me for
my cheque. I begin to worry if my work is going to be dealt with in the manner I would have
liked.

I make a mental note to count the cash when I receive it. As with the policeman, we have a
bank rule (trying to get people to form a line so that each individual is dealt with one at a
time) that the employee (the teller) has decided to over-rule.

WHEN ENFORCEMENT WORKS

Public policy researchers know that self-regulation works in an environment where there
exists a strong external regulatory structure.

If the law provides for a stiff fine for breach of driving etiquette, and if, on a regular basis,
there is strict enforcement, then putting up signs reminding people of a rule can inculcate the
habit and serve as a reminder for self-regulation.

Of course, a pre-condition is that people know what ‘lane discipline' means. Driving schools
must be told to teach it, and public service ads must show visually what it means and the
confusion that is caused by not following the rule.

If these prepare the ground by creating awareness, enforcement raises the downside risk. But
behavioural researchers tell us that there is one feature of Indians that comes in the way —
we are a universalist, and not a particularist culture. That is, general rules of conduct and
one's obligations to society give way to personal relationships and self-preference. So, the
driver will look at the ‘‘Follow lane discipline'' sign, and say that is fine in general but in that
particular road, and at that particular time, it cannot work — ‘look how the driver in front is
behaving, and therefore I cannot be sticking to a lane' and so on.

This is when breaking the rule requires a stiff downside risk (high fine), and frequent
enforcement to make a dent. When you do not enforce a rule, or sometimes actively connive
to bypass it (like the policeman who waves you on through a light even when it is changing,
or the teller breaking the line), it only makes the people who are following the rule wonder if
they did right, and reinforces the behaviour we want to change.

LEADERSHIP ISSUES

That pattern holds true for organisations as well. Recall the ‘5-S' system — one of those
Japanese management imports. It is a methodology to organise the workplace that uses a list
of five Japanese words ( seiri, seiton, seiso, seiketsu and shitsuke).

Translated into English, and retaining the S alliteration, it stands for sorting, straightening,
systematic cleaning, standardising, and sustaining. The list describes how items are stored,
how the new work order is maintained, how the work is done, and so on.

It instils ownership of the process in each employee and is a good framework to inculcate a
work ethic. An appropriate work ethic can work wonders for both efficiency and
effectiveness.

But a set of rules alone do not lead to the desired results. It has to be backed by awareness
and commitment on the part of the leadership. I know of an organisation that has painted
arrows on the stairs so people do not walk all over the place, but stick to the left. But if even
senior people are not aware of this system, the rule cannot work.

Similarly, after making a few internal phone calls, a senior manager explained the 5-S to me
as ‘something the HR people' had probably thought-up!

When you want to change behaviour on the road or in the organisation, the rules must be
clear, it must be communicated well, and there must be enforcement. It is easy to come up
with slogans and strictures.

Like ‘Follow Lane Discipline' or the 5-Ss, but to make them work requires a deep
commitment of those in charge to practice it themselves, to explain what they mean, and to
educate the target group of the benefits from following these guidelines. Otherwise, they are
just more signs cluttering up the place.

New framework for FDI in retail

Just back from first frenzied shopping experience in the UK, my four year old ever-
inquisitive daughter inquired, “Daddy, why do we not have a Harrods in Delhi? Shopping
there is so much fun!” Simple question for a four-year-old, but not so simple for her father to
explain.

Retail in India has remained a point of academic discussion for several years.

The recently released consolidated policy framework for foreign direct investment (FDI) in
India is undoubtedly a respectable effort of the Indian government to promote FDI through a
policy framework that is transparent, predictable and simple, thus reducing regulatory burden.

This document (Circular 1 of 2010) now consolidates all existing regulations relating to FDI
contained in the Foreign Exchange Management Act (FEMA), the Reserve Bank of India
(RBI) Circulars under FEMA and various Press Notes issued by the Department of Industrial
Policy & Promotion (DIPP). This new Circular, effective April 1, 2010, supersedes all the
previous guidelines and press notes relating to FDI, issued by the government. It is envisaged
that this Circular will be updated every six months, thus liable to be superseded on September
30, 2010.

FDI in multi-brand retail

Returning to our discussion on FDI in retail, as per the current regulatory regime, retail
trading (except under single-brand product retailing — FDI up to 51 per cent, under the
Government route) is prohibited in India. Simply put, for a company to be able to get foreign
funding, products sold by it to the general public should only be of a ‘single-brand'; this
condition being in addition to a few other conditions to be adhered to. That explains why we
do not have a Harrods in Delhi. Additionally, the Circular explains that the aim of opening
FDI in single-brand retail is to attract investments in production and marketing, improving
the availability of such goods for the consumer and encouraging increased sourcing of goods
from India, among others.

The plausible question one would be tempted to ask at this stage is that would these
objectives not be better achieved by opening FDI in multi-brand retail also?

Interestingly, as per popular news items, DIPP will soon come up with concept papers on
relaxing norms for FDI in multi-brand retail. The paper may include a provision that global
retailers interested in opening multi-brand stores in the country will have to put in a
significant part of their investment in the back-end infrastructure.

As per the extant regulatory policy, FDI up to 100 per cent is allowed under cash and carry
wholesale trading.

The term ‘cash and carry wholesale trading' was not defined earlier. The Circular now defines
it as “sale of goods/merchandise to retailers, industrial, commercial, institutional or other
professional business users or to other wholesalers and related subordinated service
providers”. Thus this kind of sales is for the purpose of trade, business and profession, as
opposed to sales for the purpose of personal consumption.

Wholesale trading

Further, the Circular wisely suggests that the yardstick to determine whether the sale is
wholesale or not would be the type of customers to whom the sale is made and not the size
and volume of sales.

As per the ‘cash and carry' structure commonly employed in India, the wholesale and retail
entities are maintained as separate entities without any cross-shareholdings. The retail entity
is owned and controlled by the Indian partner while the wholesale entity can be owned by the
foreign partner up to 100 per cent. The association between the wholesale and retail entity
can then operate on a number of exclusive arrangements. At this stage it is also worth noting
that an additional condition has been specified in the Circular that seems to be raising
everyone's eyebrows.

The condition spells that though wholesale trading of goods would be permitted among
companies of the ‘same group', however, such wholesale trading to group companies taken
together should not exceed 25 per cent of the total turnover of the wholesale venture and the
wholesale made to the group companies should be for their internal use only.

Further, the term ‘group company' has not been defined in the said Circular. Further
clarification on the meaning of ‘group company' is much awaited by the market players.

Haryana, Punjab paddy sowing hit by water, power shortage

Water and power shortage has affected sowing of rice, particularly non-basmati, in Haryana
and Punjab.

Till now, only 50 per cent of the sowing has been completed and any further delay in
monsoon could lead to fall in the production.

Haryana has set a target of 11.50 lakh hectares to be brought under paddy crop in the current
kharif season compared with 12.05 lakh hectares last year. Of this 7 lakh hectares are to be
brought under non-basmati cultivation and the rest basmati.

Till now, 4.5 lakh hectares have been brought under non-basmati.

According to agricultural experts, due to late sowing the production could fall, while Basmati
sowing is yet to begin. During the same period last year, 6.5 lakh hectares were brought
under non-basmati.

On the other hand, Punjab is planning to bring 27 lakh hectares under paddy crop against
28.20 lakh hectares last year.

Monsoon delay

Impatient farmers are waiting for heavy rainfall so that cultivation can gather pace. However,
rains on Sunday offered a ray of hope for them.

On the other hand, the ground water level is low in the region and in view of this, the State
Government has imposed a ban on the cultivation of sathi or summer paddy. Farmers were
asked to take up non-basmati sowing from June 15 to take the full advantage of monsoon.

Farmers had been expecting a good amount of rainfall and bumper production of non-basmati
but the delay in monsoon has disturbed their schedule.

Mr Vijay Setia, President, All-India Rice Exporters Association, said, the climate conditions
are improving and the loss would be made good.
Farmers are used to cultivation of early variety ( sathi) but since it involved tapping ground
water, the Government imposed a ban, he said.

Mr B.S. Duggal, Additional Director of Agriculture, Haryana, said that only 3.5 lakh hectares
have been brought under paddy but farmers could sow paddy in the first week of July as well.
Lower rainfall is the reason for the coverage being affected, he said.

Mr Seva Singh Aarya, State Secretary, Bhartiya Kissan Union, said that shortage of water
and electricity is causing problems for the farming community. If the situation continues for
another week to 10 days, even basmati cultivation would be affected, he said.

In Haryana, Karnal, Kaithal, Yamuna Nagar, Panipat, Ambala, Sirsa and Kurukshetra are the
prime paddy-producing districts but farmers in these regions hardly get 6-8 hours electricity a
day.

Sugar production set to rebound, but price risks persist

With the crop weather watch group saying that as on June 25, area sown to sugarcane was
reported to be 47.4 lakh hectares (up from 41.8 lakh hectares of previous year), the prospects
of a rebound in domestic sugar production during 2010-11 have become more real. Yet, even
after a 5.6 lakh hectares area expansion (which was not unexpected), the country is unlikely
to be in a state of genuine surplus. If anything, some imports may become necessary to
contain price pressures.

National average yield of cane is 65 tonnes a hectare. There are of course regional variations.
Monsoon will have a crucial bearing on cane yields and juice content. Assuming there is no
major revision to the cane acreage of 47.4 lakh hectares, the country can hope to harvest
about 300-310 million tonnes (mt) of cane.

This expectation surely presupposes normal weather conditions next 2-3 months. At this
point in time, the southwest monsoon is actually running behind schedule by over two weeks.
Large parts of key cane growing regions, especially Uttar Pradesh, are yet to enjoy adequate
precipitation. So, concerns persist and cannot be wished away.

Be that as it may, from out of the anticipated harvest under normal rainfall conditions,
necessarily, anything between 80 and 100 mt will be diverted for traditional sweeteners,
direct use and so on. That would leave for sugar production 200-220 mt of cane.

Tightly balanced market

At this point of time, given these expectations, it would be appropriate to assume that sugar
production may record 20 mt on the lower side and 22 mt on the higher side, unless some
dramatic developments change this tight range. Sugar consumption may be assumed at 24 mt.
There is no reason to discount this because of generally rising incomes and demographic
pressure. Additionally, if rural incomes were to increase this year courtesy satisfactory
monsoon, consumption should generally rise.

So, even an optimistic cane harvest and sugar production estimate based on acreage numbers
would result in sugar production in 2010-11 trailing consumption by at least 2 mt. Closing
stocks for the current year are being variously estimated at between 3 and 4.5 mt. There is
reason to believe, stocks on the books of mills may not exactly tally with physical goods in
the warehouse. Additional consumption demand during the festival season from August to
October will have to be factored in too.

Assuming that opening stocks for next season are 3 mt, total availability would range
between the low of 23 mt and high of 25 mt. In other words, the domestic sugar market may
be tightly balanced. Such a tightly balanced market is fraught with possibilities.

When commodity demand and supply are tightly balanced, even a small change in either
demand or supply or both will exert a disproportionately larger impact on prices. On current
reckoning, the risk to sugar production next year is to the lower side, rather than to the higher
side because of ongoing weather concerns. This will have implication for market prices
which can potentially spurt unless appropriate price policies are put in place.

The Food Ministry will have to continually monitor the emerging situation and undertake
assessment of price risks. The aforesaid numbers are obviously not sacrosanct and some
variations are possible; but overall, it is clear, a bumper crop of sugarcane or record
production of sugar with genuine export surplus is currently not in the realm of certainty.

Therefore, there is no great urgency to clamp restrictions on imports by raising tariffs; in any
case, now is not the time. New Delhi will have to wait until September to get a clear picture
of the next sugar season .

Rising OECD farm subsidies

With farm subsidies touching record highs in rich nations and newer challenges such as
climate change confronting global agriculture, the latest report on ‘Agricultural Policies in
OECD Countries 2010' should be an eye-opener for policy-makers in India. The report
concedes that in 31 industrialised countries that constitute the OECD, most distortive forms
of support still dominate, reforms remain uneven across countries and hardly any new
substantive policy measures have been adopted. The unconscionable levels of farm support in
the OECD area have been under attack at the World Trade Organisation's farm trade
negotiations, but little has changed since the Doha Development Round began nine years ago.
Keen observers of OECD practices and agricultural policies have always known that the rich
nations would never whittle down massive farm support despite farm activity in those regions
being agribusiness (not a ‘livelihood issue,' as in developing economies) and less than 5 per
cent of the population was engaged in it (versus, say, 55 per cent in countries such as India).
No wonder, in developed countries, total support to agricultural sector reached a staggering
$383.7 billion in 2009, up from $379.4 billion in 2008 and $362.2 billion a year earlier.

Now, with agricultural markets turning volatile in last two to three years, the OECD countries
are demanding a fresh, forward-looking approach to food and agriculture policy, which
simply is a euphemism for continuing with the huge subsidy programmes. “The fall in (farm
goods) prices at the end of 2008 has led to concerns about the impact of future market
volatility on the ability of producers to expand output, on an environmentally sustainable
basis, in response to growing demand,” goes the argument. This can potentially deflect WTO
talks as and when they begin.

An important element of OECD farm programmes is support for ‘general services to

agriculture' which includes expenditure on research, infrastructure, inspection and control as
well as marketing and promotion. This support has been rising regularly. For 2009, it touched
a new high of $93.5 billion, up from $85.8 billion in 2008 and $77.3 billion in 2007. For
India, too, these are critical areas that cry for policy attention, budgetary support and faithful
implementation of schemes. Declining public investment in agriculture is a matter of public
record. Budgetary outlays for farm research, irrigation and inputs have failed to produce
tangible results because of tardy implementation and lack of accountability. Instead of
striking public postures attacking OECD farm subsidies, India should concentrate on putting
its own house in order by, for one, attempting to replicate the OECD ‘general services'
model.

How about agri-tourism?

When my friends from France and Spain wanted to visit my village in Bihar, I broke into a
sweat. All my efforts to dissuade them yielded little result. They insisted they would wrap up
their India tour only after a trip to my native place. But, surprise of surprises, they had a great
time. They were lost in the natural surroundings, spending hours under a banyan tree and
listening to the tweeting and chirping of birds. They plucked unripe mangoes from the
orchard and ate them with relish. They fed cows and enjoyed milking them.

Aloo paratha in desi ghee with coriander chutney became their preferred food. In the morning
they fanned out to the sprawling fields and tried the plough. They fetched water from a well.
“Oh! What a wonderful experience it is,” they would exclaim every time they came across
something that was hard to find in their countries.

WRONG PRIORITIES

This experience raises a question: Why not go for agri-tourism? I was wondering if their visit
could be a preface to a new chapter in India's tourism to take thousands of foreign tourists to
enjoy our vast, verdant countryside. India gets about five million foreign tourists every year.
More than 600 million tourists within the country visit different places. Every time we think
of promoting tourism, we think of star hotels, huge buildings, wide roads and big airports.
Little have we cared to understand the psyche of tourists, why they go out and what they
want.

No tourist would like to remain confined in star hotels and waste his holiday. Every tourist
wants to take back memories of something different and unique . It is a well known fact that
tourists visit India to experience Indian culture, which is basically ‘agrarian'.

The cohesive existence of cultures and religions, the colourful festivals, natural diversity,
multiple cropping and climatic zones — these are some major attractions for foreign tourists.
And, agri-tourism offers most of these at one go.

AGRI-TOURISM BECKONS

India's countryside is a repository of all these elements that can bind a tourist for days
together. To see how cabbage and potato are cultivated would be far more satisfying than
eating them in a star hotel.

Sleeping under the open sky, a bullock cart ride in a dusty village road or a day in a
farmhouse would surely be a pleasing experience for any visitor.

India's diverse agro-climatic conditions with different regions yielding varieties of crops,
fruits, vegetables and trees should be projected as potential tourist destinations.

A visit to a farmhouse in the Kashmir valley, the vineyards in Maharashtra or for that matter
the tea estates in Darjeeling is bound to evoke tourist interest. Tourists do not hesitate to
spend a few bucks more provided they get something that has never happened to them. What
we need is proper marketing of our potential.

Agri-tourism requires sustained joint effort by all stakeholders, particularly government

agencies.
Transport, comfortable stay, cleanliness, quality food, security, medical facilities are a few
prerequisites for any tourism venture. Development of basic facilities for tourists can be
undertaken either at the community level, or at the individual farmer level.

Programmes such as NREGS with annual allocation of a Rs 40,000 crore and other village
and agriculture-based programmes are making enough resources available in the villages.

What will meet agriculture tourists' expectations? Something to see — like crops in the field,
agricultural practices in progress — and if the tourists have opportunity to try them out, they
are enthralled.

Farm workers are expected to be like tourists guides who can explain what, why, and how of
all the practices. Churning curd to get the ghee or butter milk, and shearing sheep are
experiences which give metropolitan tourists more value for their money.

MARKETING EFFORT

But it will not happen on its own. It requires niche marketing. It needs to be planned,
publicised and managed. Farm houses need to be developed so that they serve the tourists'
purpose of being able to see most things within a small distance.

It is a win-win game for all the players — tourists, tour operators, government agencies,
village-based businesses, farmers, and even landless labourers.

It is time the Government becomes more focused on agri-tourism instead of doing a few trips
to selected tribal villages in the name of rural tourism.

Agri-tourism requires to be integrated with rural tourism, packed with a larger strategy so that
the tourists get the best for every penny they spend.

Though some sort of a beginning has been made towards this, agri-tourism will get a boost
only when the Government and other stakeholders understand its social, revenue generating
and employment potentials.

Ways to govern education

As I said in my previous article, in the field of education, India has three options: The first
option of retaining the existing system with suitable reforms to punish offenders is the
simplest. Considering that the Indian judicial system is beset with inordinate delays, there is
not much hope that recalcitrant colleges will be punished, at any rate fast enough or severely
enough to deter them. Therefore, the real choices are only two: Have a new system of
regulation or a new system of governance.

Current thinking appears to favour a powerful central authority that will oversee all aspects of
education — from the primary school level to the post-graduate.

That choice has its own problems. What is the guarantee that such a body too will not be
corrupted the way the UGC and the AICTE have been? Who will man the body?

If the same persons who are handling the UGC and the AICTE were to do so (that is highly
probable) will they not carry the old baggage? If, for whatever reason, a wrong choice is
made, a megalomaniac or a corrupt or a timid person becomes the chief regulator, will that
not damage the entire system?

As we are not clear what the proposed system will be, one cannot be very specific. At the
same time, we have to be concerned in instituting a monopoly to control the entire system of
education.

Further, what will the regulator do — regulate courses, standards, admissions, fees? How will
that help educators have their own autonomy? One wrong or bad choice of regulation can do
untold and even irrecoverable damage.

TRAI as analogy

SEBI can be cited as an example of a good regulator which regulates innumerable businesses
performing entirely different tasks. However, SEBI does not regulate how a business operates
but only its financial system.

For that purpose it has the support of innumerable accounting and auditing firms each one of
which has decades of tradition and is regulated by well established laws. At present, we have
no equivalent of auditing firms to discipline any educational institution.

The demands of the education market vary a lot. Some like to have the standards of the IITs;
there are others who are quite happy with the sub-standard of poor colleges. How can a
central body bring them all under a single roof?

We are witness to the problems faced by the Telecommunication Regulatory Authority of

India. Education is probably an even bigger business, and a far more complex one, than
telecommunications is. Hence, a cautious administration should be more concerned about
what is happening to TRAI than to SEBI.
Apart from a small minority of the very rich, for almost all others, the aim of education is to
get better jobs. Unfortunately, the fact is that unemployment among the university graduates
is much higher than among the others. In particular, under-employment of graduates is
widespread in the country.

The problem starts at the school level: According to a Planning Commission report, most
students cannot divide a two-digit number by a single digit, nor can they read a sentence even
after several years of education.

Cost of education

The basic problem with Indian education is at the primary stage. That is where most dropouts
occur and the best minds are lost. As the Centre has the responsibility to maintain standards, I
suggest that the Centre should run or fund at least one institution in every tehsil where even
the poorest child will get good education — provided it is among the top ten per cent. That
kind of a system will do more to improve education than any regulator can.

Educational institutions may be funded either by the government or privately. Each system
has its own problems. In many state-funded institutions, teacher discipline is poor; in many
private institutions, admissions are arbitrary and fees can be extortionate.

Most governments have given up on disciplining teachers. Instead, they impose ceilings on
fees and, at the same time, insist that teachers be paid properly. The latter is a rule that is
bound to be broken. Looking at the issue objectively, there are three beneficiaries of the
education system: The student, the employer and the society at large. As a simple rule, we
might say that the cost of education should be divided equally among the three. The fees
charged may not be the same for every student but students as a whole may contribute a third
of the cost and the employers and the state a third each.

Unfortunately, the state is unable to charge students a third of the costs and has no money to
spare beyond paying salaries. It is unable to discipline teachers.

It interferes with the system of admissions and has a great propensity for central entrance
tests. It forgets that entrance tests cannot, and do not, assess the full potential of a student;
that nationwide tests can at best be used (as the US does) for short-listing and not as the final
arbiter of admissions.

Biased view to blame

The current problem in Tamil Nadu medical admissions has risen because the state and the
judiciary have a biased view of the rich.
A rich child can enjoy many luxuries including exclusive school education which no poor
child can ever hope for. He/she can even go abroad and enjoy an even more expensive
education. All that is legal, accepted, and permitted.

However, at the Indian university level, the child cannot go to expensive and exclusive
colleges by paying whatever the institution may charge. That is not legal. Suddenly, the rich
child loses the freedom it enjoys elsewhere. That is at the root of the problem.

I suggest that private colleges should have the autonomy to decide what courses they will
teach and at what standard, admit whoever they like and charge whatever they consider fit
from each student but they should do so transparently, not secretly. Let them have the same
rules by which Harvard and Stanford discipline themselves.

In the case of state-funded colleges, the state may impose its own policy on admission and on
the fees to be charged. However, the state should give up its prerogative to transfer teachers.
It is the transfer business that has destroyed most government institutions. If the IITs have
done fairly well, that is because their teachers are not transferable.

Ideally, each institution should have its own management committee which will recruit (and
promote) its teachers. That is the basic autonomy that state funded colleges need more than
anything else.

Charter Schools

The state may also consider the system of “Charter Schools”: Schools in the US that receive
public money but have been freed from some of the rules, regulations, and statutes that apply
to other public schools in exchange for extra accountability.

It is best to leave private institutions alone. Let them prosper or sink according to the quality
of education they provide and at the cost they charge. Sooner or later, they will find it
necessary to admit more competent but poorer students – even free if that is needed – the way
Harvard and other private universities do in the US.

If like the US, India does without a central regulator, what kind of Public-Private Partnership
can it have?

Caste identities and income inequalities

Official surveys on socio-economic conditions of Indians have traditionally followed a

politically correct approach to the gathering and dissemination of data: That the poor are
poor, ‘caste no bar' — to use a phrase made more famous by matrimonial ads in the classified
columns of newspapers — and poverty, as the cliché goes, is colour-blind.

It is true that deprivation is no great respecter of caste or creed. But does that also mean that
caste ought simply not to count in the analysis of socio-economic situations? Leave aside the
fact that in popular perception at least, caste leaves a strong imprint in practically everyone's
consciousness as a matric of personal identity.

When public policy choices on affirmative action are increasingly expanding the scope of
social identities deserving of some special dispensation from what began as a limited
classification of groups with a manifest record of discrimination (Scheduled Caste/ Tribes) to
a more inclusive one involving groups with real or imaginary notions of deprivation, isn't it
time that we bring caste identity out of the research closet and out into the open?

The authors of the book, Caste in a different mould(Shukla, Jain and Kakkar, BS Books
2010), seem to think that they do. Using data drawn from a survey of household economic
situation from the rubric of caste identity of those enumerated, they have come up with a
book that is the first serious attempt at mounting a challenge to the stereotyped official
portrayal of deprivation. In the process, they have come up with some startling insights about
the nature of income inequalities.

Income inequalities

Consider this: The Other Backward Classes (OBCs) account for roughly 41 per cent of the
population. The survey by Shukla et alshows that their share of graduates among the total
number of graduates in the country is 36 per cent or roughly about the same proportion as
their number in the total head count.

Their share of jobs in the total number of technical/managerial and other professionals — a
creamy layer of white collar jobs in the country — is also similarly placed at 36 per cent. The
numbers, as the authors imply, doesn't suggest a tremendous degree of deprivation in access
to educational or job opportunities in the country.

By far their singular contribution to the debate is their insight that income differentials across
different social groups (SC, ST, OBC and the upper castes) narrows quite significantly as
households move up the value chain on educational attainments.

As the authors seem to suggest, “fix the problem of educational backwardness among the
disadvantaged”, the problem of income backwardness resolves itself. There is a vast treasure
trove of data disaggregated along the lines of income, expenditure and savings trends among
the households that are useful in their own right.
It should warm the cockles of acolytes of the idea of India always presenting a picture of
unity in diversity that the average Indian's propensity to borrow or their scepticism about
signing up for a credit card is remarkably similar across different social classes. Every fifth
upper caste household has some loan outstanding, a figure not dissimilar to that of Scheduled
Tribe households with 22 per cent of them having some loan outstanding.

Even more impressive is their savings habit. A remarkable 80 per cent of the households
surveyed, with only marginal differences across all social classes, indicated that they were
putting by money for the education of their children. The average American youth struggling
to pay off his student loan would perhaps give an arm and a leg to be born to Indian parents
in his next life should he believe in the karmic theory of the eternal cycle of birth, death and
rebirth.

Wealth of data

A book such as this with its wealth of data, which must necessarily be arrayed before the
reader in close succession to one another, cannot set itself to be a competitor to a Jeffrey
Archer novel on sheer narrative pace. While the authors have managed to avoid their offering
read like an article in the RBI Bulletin, the reader cannot completely escape the feeling of
being awash in a flood of statistical trivia that only grows with every page that is turned over.
Statistics, like some strong broad spectrum antibiotic, must be administered in small doses. A
combination of analytical insight with some discursive discourse on policy implications on
affirmative action would have been just right.

This book should ideally spawn a serious debate on the nature and scope of affirmative action
in this country. But one is also gripped by a sense of despair. The idea of affirmative action
has long since moved away from one of levelling an unfair playing field for classes that have
historically been disadvantaged for a variety of reasons into it being some sort of an
entitlement springing from one's distinct social identity.

Mainstream opinion

This reviewer recalls an interview of the leader of a political party that has been at the
forefront of a campaign for expanding the vertical and horizontal scope of reservation in
employment, published some years ago, in a leading news magazine devoted to current
affairs. The interviewer wanted to know whether such an expansion does not do disservice to
the economically disadvantaged among a sub-group within the upper castes who now have to
compete in larger numbers to the ever shrinking pie of opportunities.

The respondent's rhetorical answer was to suggest that it should be perfectly in order for this
group to demand a quota of reservation in proportion to their strength in the total population.
In other words, he was perfectly comfortable with the idea that employment opportunities in
the public sector being compartmentalised across different social groups and assigned
distinctive proportion to individual segments. And merit, such as it is, be damned. What was
a fringe opinion then, has now become mainstream. In such an atmosphere, the authors'
attempt might well end up being a cry in the wilderness.

Green is the new mantra of job creators

In India, 10-11 million additional people enter the job market every year. Creating ‘green
jobs' is a potential way of meeting the employment demand, feels the Minister of State for
Labour and Employment, Mr Harish Rawat.

This suggestion came up at a conference on green jobs organised last week in Delhi by the
Labour Ministry, along with the International Labour Organisation (ILO).

It's not just the Government that is thinking on these lines. Suddenly, ‘green' has become the
new mantra of the job market — with job creation, job migration and labour relation
strategies focusing on this new area — all riding on the back of climate change initiatives.

As Mr Parul Soni, Executive Director, Development Advisory Services, Ernst &Young,

forecasts, soon you could find a Green Department in corporate organisations. Although, the
concept of a ‘green collar economy' is still nascent in India, E&Y has started looking at
providing consultancy in this space.

Green jobs

So, what exactly are green jobs? Many definitions are doing the rounds, but basically it refers
to the millions of jobs anticipated to be created as nations and enterprises try and transform
into sustainable, low-carbon economies.

According to the United Nations Environment Programme, any work that contributes to
preserving environmental quality, protecting ecosystems and biodiversity can also be defined
as a green job.

In India, the maximum buzz on new green jobs is in the renewable energy space (the
potential is about 1,50,000 jobs) and in green buildings, but the opportunity to create new
jobs is literally everywhere, from agriculture to administration.

To give an example, Mr Soni describes how when offices start striving to reduce their carbon
footprint by going paperless or recycling water, there could be energy auditors appointed.
Other examples are green plumbers (who work with recycled water), green facilities
managers and so on.

According to the ILO, the new green collar worker will be found in every strata of the
workplace — from low to high-skilled, from the organised to the unorganised sector, from
the green architect to the neighbourhood kabadi walla.

Indian scene

Since the definition of green jobs varies, it's hard to say how many such jobs are being
created.

Mr Peter Poschen, Head, Job Creation and Enterprise Development, ILO, Geneva, and a
green jobs expert, however, feels that, “emerging economies such as India will have higher
net job creation of green jobs because there will be less substitution of high-carbon
infrastructure and jobs. Instead they can leapfrog and directly move to 21 century
technology.”

There are challenges, of course. We need to first map the opportunities for green jobs,
especially in small and medium enterprises where the potential is thought to be huge. Then
create awareness and finally create appropriate skill sets. Mr Poschen suggests this could be
done by adding a module on green skills to existing courses.

So, what would the emergence of the new green collar workforce do to the old blue collar and
white collar equations?

“In all cases, the green collar workers will be valued more because they play a central role in
productivity (saving enterprises money) and for meeting environmental standards required by
markets and governments,” says Mr Poschen.

Energy body tells India to focus on achieving efficiency

As a strategy to combat climate change, in the global attempt to reduce carbon dioxide (CO2)
emissions in the coming decades, major focus has been on China and India, two of world's
most populous countries that continue to register rapid economic growth; and by implication
are rapidly growing emitters of CO2.

Devoting attention
Admittedly, there are substantial challenges for all countries and regions in their endeavour to
reduce emissions; but how the two Asian giants play ball with other nations will determine
the total quantum of global emission in future.

No wonder, in its recently published Energy Technology Perspectives 2010 report containing
scenarios and strategies to 2050, the International Energy Agency (IEA) has devoted a lot of
attention to China and India, in addition to OECD Europe and the US.

Each of these regions will have a crucial role to play in helping achieve a 50 per cent
reduction in global CO2 emissions as envisaged by the IEA in its ETP report.

Admittedly, currently India has by far the lowest absolute emissions and average emissions
per capita, the latter being only six per cent of those in the US.

However, going forward, things are not going to be the same.

Relative increase

The Baseline scenario under ETP is that CO2 emissions in India show the largest relative
increase, rising nearly five-fold by 2050.

Consistent with varied fuel mix and varied levels of emissions in different regions, the BLUE
Map scenarios drawn up by ETP 2010 envisages large-scale investment and government
policies supportive of carbon reduction.

Measures to improve

According to this scenario, while emissions in India rise by 10 per cent, in the US, Europe
and China emissions decrease but at varying levels. Critically, the BLUE Map scenarios
show that measures to improve energy efficiency and reduce CO2 emissions in energy-
intensive sectors such as iron and steel, cement and chemicals should be a priority as they
will have significant impact on the country's overall energy use and emissions.

Electricity demand

As India will exhibit strong electricity demand growth over the next 40 years to sustain
economic development and meet increasing household electricity needs, huge additional
capacities will be required.

“This opens up the possibility of building a low carbon electricity system almost from the
scratch,” the report observed.
Solar is identified as the most promising renewable energy technology for India. Solar could
play an important role along with nuclear and some fossil fuel with carbon capture and
storage.

Although India has some of the world's most-efficient industrial plants, it also has a large
share of inefficient plants.

Income increase

There exists potential to achieve overall energy efficiency, but it may be seriously
constrained by the unhealthy combination of a large number of small-scale plants, the low
quality of indigenous coal and the quality of some primary sources (such as iron ore), the
report has noted.

Increase in household incomes and in industrial production will generate large increases in
demand for transport.

Admittedly, India's passenger vehicle stock is relatively efficient.

Improvement

However, improvements in new vehicle technology and the penetration of hybrid, plug-in
hybrid, battery and natural gas vehicles will limit increases in CO2 emissions for which
investment and favourable policies are necessary.

Role of migration

Strong growth in the buildings sector – both household and commercial – means strong
growth in energy demand driven by improved standards of living and higher demand for
services.

Migration from rural to urban areas will also play a role in increasing energy consumption.

Efficiency improvements in space cooling and appliances will be critical in restraining

growth in energy consumption and emissions.

Govt opens debate on FDI in multi-brand retail

Braving all political odds, the Government, on Tuesday, took the first step towards opening
up foreign direct investment in multi-brand retail.
Advocating that FDI in retail would bolster farmers' income, tame inflation and bring
technical knowhow, the Government has kicked off a discussion to formulate the rules of the
game, including imposition of FDI cap and riders for local sourcing and rural job creation.

The move was eagerly awaited by foreign players such as Carrefour, Wal-Mart, and
Woolworths, that have been angling for a larger play in the market. Even domestic retailers
such as Future Group and Aditya Birla Retail have been lobbying hard for FDI in the sector.

While foreign investment in multi-brand retail is prohibited now, the Government allows 51
per cent FDI in single brand retail and 100 per cent in wholesale cash-and-carry trade.

“Keeping in view the large requirement of funds for back-end infrastructure, there is a case
for opening up of retail sector to foreign investment. At the same time, there is a view that
this may be more appropriately done, in a calibrated manner,” the Department of Industrial
Policy and Promotion (DIPP) said in its discussion paper on the controversial issue, which
has, in the past, triggered widespread resistance from political parties such as the BJP and the
Left.

Detractors have been arguing that such a move could hit the fortunes of 1.3 crore small
retailers across the country.

Interestingly, Tuesday's discussion paper has not recommended a specific FDI ceiling; it has,
instead, sought public opinion on the same.

“It appears that the Government is under pressure from MNC retailers to open up the sector.
We also have been demanding opening up of multi-brand retail to step up investment in back-
end and front-end. If the Government does it in a calibrated and graded manner, it would be a
welcome step,” said Mr Thomas Varghese, Chief Operating Officer, of Aditya Birla Retail
and Chairman, CII Committee on Retail.

However, he rued that the concept paper, though comprehensive, has not spelt out a clear
direction for FII portfolio investment in retail – which is what many domestic retailers have
been clamouring for.

The discussion paper talks of earmarking 50 per cent of FDI inflows for building up of back-
end infrastructure, logistics and agro processing; and even moots riders such as reserving 50
per cent jobs in FDI-funded retail outlets for rural youth.

Other issues up for debate include identifying possible locations for such stores. The current
thinking is that these stores could initially be allowed to come up in cities with population of
over 10 lakh, particularly on the outskirts. Also, to provide a fillip to the SME sector, the
Centre has recommended sourcing a percentage of manufactured products from the domestic
SMEs. Over the last few years, foreign investment in retail has been a politically sensitive
issue. Concerns that foreign retailers, with their financial prowess, could rob the kirana stores
and pushcart vendors of their livelihoods, meant that the Government had to tread cautiously
on the issue.

Last year, a Parliamentary Standing Committee headed by BJP's Dr Murli Manohar Joshi had
sought a blanket ban on large corporate houses and MNC retailers entering the trade.

However, earlier this year, the Prime Minister, Dr Manmohan Singh, called for a debate on
the opening up of the sector, pointing to the vast difference between farm gate and consumer
prices.

On similar lines, the DIPP's discussion paper points out that the farmers get just a third of the
total price paid by the final consumer, as against two-thirds realised by farmers in nations
with a higher share of organised retail. FDI in retail, therefore, could be an efficient way of
addressing concerns of farmers and consumers, it said.

“Allowing FDI in multi-brand retail in India is a step in the right direction…The FDI
percentage could be between 49-51 per cent based on all considerations and the conditions
should not be too onerous,” said Mr Rajan Bharti Mittal, President of FICCI and Vice-
Chairman of Bharti Enterprises, which has a joint venture with Wal-Mart.

The Indian retail industry is the fifth largest in the world. The organised retail segment in
India accounts for less than five per cent of the total retail market, but it is expected to grow
at a compounded annual rate of 40 per cent to $75 billion by 2015, from less than $20 billion
now, according to estimates by various brokerage reports.

RAJAT KATHURIA
It is imperative that spectrum management is predictable, stable and transparent.

The telecom industry is in for another tumultuous phase. Following the Telecom Regulatory
Authority of India's (TRAI) spectrum recommendations for 2G on May 11, the divide in the
industry is once again out in the open. TRAI has recommended that price for 2G spectrum be
pegged at the price discovered in the 3G auction.

GSM operators with ‘excess' 2G spectrum beyond the ‘contractual' amount of 6.2 MHz feel
victimised since they were assigned the spectrum on the basis of administrative orders issued
by DoT along with payment conditions. It is another matter that extra spectrum was given on
basis of subscribers; the more you had, the more spectrum you were entitled to and it's no
secret that fudging of subscriber numbers took place.
THE PROBLEM

Depending upon how you do the math, pure GSM players such as Bharti Airtel, Vodafone
Essar and Idea Cellular, would have to shell out about Rs 20,000 crore for holding spectrum
beyond 6.2 MHz if the recommendations are implemented.

On the other hand, CDMA based mobile operators such as Reliance Communications and
Tata Teleservices are less affected, if at all, by the recommendations since their excess
holding beyond 5 MHz (the ‘contractual' amount determined for CDMA providers) is zero.
TRAI's recommendations treat GSM and CDMA spectrum separately; thus a dual technology
player like Reliance is contractually entitled to 11.2 MHz of spectrum.

Incumbent CDMA operators welcomed the recommendations but feel that the 2G spectrum
price should be higher than the price discovered in the recent 3G auction, presumably with
the aim of making the cost of doing business higher for GSM operators. On the contrary,
according to DoT, 3G is three times more efficient than 2G and, therefore, the price should be
linked accordingly.

Amidst the confusion, the buck has now been transferred to an Empowered Group of
Ministers (EGoM), headed by Finance Minister Pranab Mukherjee, to decide the 2G pricing
issue. The protagonists in this saga are TRAI, DoT, CDMA and GSM service providers, and
dual technology operators. Whatever the pronouncement of EGoM, the matter will
predictably be challenged all the way to the Supreme Court.

HISTORY OF CONFLICTS

Not for the first time have battles in Indian telecom reached this predicament and perhaps it is
not the last. In Round 1, the battle was between DoT (the predecessor of BSNL) and private
GSM entrants in 1995. To make private entry in mobile telephony unattractive, DoT hiked
tariffs to mobile by 24 times and refused to connect their network with that of the private
entrants. It took many years for the matter to be resolved, and it needed the creation of an
independent regulator, TRAI, by legislative intervention, to rationalise tariffs in the interest
of competition and to ensure interconnection between networks.

Round 2 was between DoT and TRAI, in which the former successfully challenged the
latter's jurisdiction to modify interconnection charges that were enshrined in the license
issued by DoT. The court agreed with DoT and in an emergency meeting of the Cabinet,
TRAI was dissolved and its adjudicatory powers were given to a special tribunal for telecom,
TDSAT.
In Round 3, GSM and CDMA operators locked horns, after the latter were allowed to provide
mobile services and assigned spectrum although they had only paid for a basic or fixed
license that attracted lower fees. A protracted legal battle ensued that was eventually resolved
by the intervention of multiple agencies, including a GoM, the Standing Committee on
Telecommunications, TDSAT and, of course, the Supreme Court.

Round 4 is currently being contested and is likely to eat up much more time and resources
than all the previous rounds put together since the stakes this time are very, very high.

The inevitable question that presents itself is whether any institutional mechanism can be put
in place to pre-empt such expensive dispute resolution processes that involve the judiciary
and ministerial groups. Such a system can of course be created, but it will require massive
amounts of political will.

Regulatory process

Significant advances have already been made in India's regulatory processes in telecom. DoT
is obliged, by law, to seek the recommendations of TRAI on licensing-related issues. TRAI's
processes are built on public consultations, providing service providers a critical opportunity
to give feedback. An institutionalised and robust decision making apparatus has, however,
been conspicuously absent in areas such as 2G spectrum assignment, resulting in allocation
via ad hoc administrative measures.

Round 4 is the result of such ad hoc administrative decisions. In hindsight, one can conclude
that this should not have happened, just like ‘limited mobility' should never have been
permitted under the fixed license. Because spectrum is a scarce resource, regulation has a
much more critical role in enabling effective use of wireless than it does with wire-based
telephony. It is imperative, therefore, that spectrum management is predictable, stable and
transparent.

The demand for improving transparency in regulatory processes must also come from service
providers.

While operators who have successfully developed the art of working within the system may
not be interested in this, improving overall efficiency demands that explicit rules for
application processing, timeframes, verification and compliance procedures get notified and
enforced.

Only then will we obviate the periodic formation of GoMs to resolve or regularise ad hoc
decisions. It is difficult to quantify what the lack of processes has cost the sector until now,
but it is undeniable that the burden has been immense.
Why have a Planning Commission at all?

The Planning Commission had it coming some time or the other, if not from the Road
Transport and Highways Minister, Mr Kamal Nath, then from any of the other Union
Ministers or the Chief Ministers. Mr Nath has undoubtedly earned their gratitude by pulling
up the Commission for indulging in ‘arm-chair' second guessing without any sense of ground
realities and bringing out books and reports which are ‘well-bound' but low in content. He
had the intellectual honesty to say this in the presence of the Deputy Chairman of the
Commission, Dr Montek Singh Ahluwalia, who had the sporting spirit to hear it out with a
broad smile and take it as ‘constructive criticism'!

Let us try to understand the reason for Mr Nath's pique. A time there was when the Planning
Commission was all powerful and had the final say and the veto over every aspect of the
functioning of the Union Ministries and the State Governments.

The manner of raising and utilising resources; specific allocations to particular schemes and
programmes; location of enterprises; expansion and reduction of capacities; application of
technologies; sources of supplies; modalities of implementation; priorities, phasing, pricing,
targets and time-frames; nature of the instrumentalities; qualifications and strength of
personnel of organisations; staff emoluments — you name it, the Planning Commission had
to okay it in advance.

Every year, and often, even in the course of the year, Union Ministers and Chief Ministers,
and their senior officials had to troop to the Yojana Bhavan to be grilled on the justification
for their proposals and fund requirements as also on the progress in the fulfilment of their
commitments. Thus, the Planning Commission superimposed its own judgment on that of the
Ministries and State Governments on what was good for them.

Since 1991, India has veered away from the kind of centralised planning on the Soviet model
envisaged by Jawaharlal Nehru. Now Ministries and Departments, as well as the corporate
entities in the private sector, enjoy a lot of functional, financial and operational autonomy.

In the era of liberalisation, the economic players should properly be left to decide for
themselves what they consider to be the appropriate courses of action on the various issues
coming up before them, whether they relate to policies, schemes or investments.

The Commission has put out on its website that it is nowadays into ‘indicative planning' and
‘building of a long-term strategic vision of the future' and providing ‘promotional stimulus to
the economy to grow in the… direction (of) priorities of nation'.

Grandiloquent words
It claims to work out sectoral targets and play an integrative role in the development of a
holistic approach to policy formulation in critical areas of human, social and economic
development.

These are just grandiloquent words. But riding on their back are as many as 34 divisions,
most of which are vestiges from Nehru's days and deserve to be scrapped. Actually, in the
current environment, the Planning Commission has little or no role to play.

If it is a question of keeping information and databases and serving as a mediator and

facilitator for Ministries and States, or effecting coordination among them, a small cell
attached to the Cabinet Secretariat or the Prime Minister's Office can easily serve the
purpose, without having to maintain the huge paraphernalia of a bloated bureaucracy at such
great expense.

There have been periods in the past, such as between 1965 and 1969 and 1990-92, when the
Planning Commission was in a state of suspended animation, with the country feeling no ill
effects.

In the present context, dismantling it will have a wholesome effect, besides saving plenty of
taxpayers' money.

Monsoon revival gives a boost to fertiliser stocks

Fertiliser stocks have been in the limelight, thanks to the monsoon covering most parts of the
country as on date, said market experts.

“The onset of a good monsoon this year will provide impetus to sectors related to food,
especially fertilisers,” said Mr Anil Advani, Head of Research, SBI CAP Securities.

With the Government contemplating deregulation in urea pricing and the prospect of gas
becoming available at priority rates, fertiliser companies that make urea will be in the
limelight.

Manufacturing costs would come down by 15 per cent and EBITDA margins and hence
return on equity would go up, resulting in upward re-rating of fertiliser sector stocks, said the
head of PMS business at an Indian AMC.

Once pricing deregulation is done, experts expect entry of private players with abundant gas
supply linkages to the urea business.
Increasing competition is expected to drive prices down, say analysts. Imports of urea will
also fall, said the analysts.

India imports 50-60 per cent of its urea requirement.

“The complex fertiliser business comprising DAP and MOP is expected to see increase in
dispatches, going forward,” said Ms Neha Sarwal, an analyst covering the fertiliser sector at
Dolat Capital, an institutional broking house.

New policy

Urea players are set to benefit under the new policy — NPS IV — that is now expected to be
unveiled by the end of September. The urea business will see an increase in off-take by 10-15
per cent year-on-year, said Ms Sarwal.

Raw material costs for urea business will go up by 5 per cent, she added.

In fact, the working capital-intensive fertiliser sector would see an unlocking of Rs 400-600
crore as fertiliser companies can now liquidate the fertiliser bonds issued by the Government.

Experts said the stocks to watch out for are Chambal Fertilizers, RCF, GSFC, Coromandel
International and Zuari.

Centre expands list of fortified fertilisers

As a follow-up to its instituting a nutrient-based subsidy (NBS) regime, the Centre has
widened the list of micronutrient-fortified fertilisers marketable by companies.

Manufacturing firms

Currently, there are two popular NPK complexes – 10:26:26 and 12:32:16 – manufactured
mainly by the Indian Farmers Fertiliser Cooperative (Iffco), Coromandel International and
Tata Chemicals.

The Centre has now allowed both complexes to be fortified with zinc and boron up to 0.5 per
cent, with the value-added products being included under Schedule I of the Fertiliser
(Control) Order, 1985.

Thus, companies that were so far selling plain 10:26:26 (containing 10 per cent nitrogen or N,
26 per cent phosphorus or P and 26 per cent potash or K) can, henceforth, market the same
product having an additional 0.5 per cent zinc or boron content.
“It is a welcome move. We will take up production of boronated 10:26:26 and zincated
12:32:16, with the intention of selling them from the coming rabi season itself. Given the
deficiency of both these micronutrients in our soils, we expect good farmer response for these
value-added offerings”, Iffco's Managing Director, Dr U.S. Awasthi, told Business Line.

Formula

Under the NBS system, the Centre is giving a fixed Rs 23.227 a kg subsidy on N, Rs 26.276
on P and Rs 24.487 on K. The subsidy given according to this formula, then, works out to Rs
15,521 a tonne for 10:26:26 and Rs 15,114 a tonne on 12:32:16.

But the NBS also provides for an additional subsidy of Rs 500 a tonne on zincated fertilisers
and Rs 300 a tonne on boronated fertilisers (subject to the fortified products being part of
Schedule I). In the case of zincated 12:32:16, therefore, companies can now avail a
concession of Rs 15,614 a tonne, as against only Rs 15,114 for normal 12:32:16.

The Central Fertiliser Committee under the Agricultural Commissioner, which met here on
Monday, is said to have also approved the inclusion of 4 per cent sulphur-fortified di-
ammonium phosphate (DAP) and neem-coated urea under Schedule I. While ordinary DAP
contains only 18 per cent N and 46 per cent P, the value-added product would have an
additional 4 per cent sulphur content.

Farmers, over the years, have increasingly been using DAP in place of single super phosphate
(SSP), considering the latter's much lower P content (16 per cent versus 46 per cent). But SSP
also has 11 per cent sulphur, which is totally absent in DAP.

“We plan to introduce this product that will partially address the major drawback of DAP.
Although there is no separate subsidy for elemental sulphur fortification (unlike for zinc and
boron), we are permitted to recover the additional cost by charging farmers 5 per cent over
and above the maximum retail price of Rs 9,950 a tonne on DAP”, said Dr G. Ravi Prasad,
Senior Vice President, Coromandel International.

With regard to neem-coated urea, five companies – Tata Chemicals, National Fertilisers,
Chambal Fertilisers, Indo-Gulf Fertilisers and DCM Shriram Consolidated – have already
been granted provisional approval to manufacture it on a commercial trial basis under Clause
20A of the Order. Inclusion under Schedule I will open up its manufacture to others as well.

NEEM-COATED UREA

“In ordinary urea, the nitrogen gets released very fast and much of it gets vaporised or lost
through leaching. Neem-coated urea is more efficient, as the nitrogen is released slowly”,
noted Mr Kapil Mehan, Executive Director of Tata Chemicals, which is already coating 2.4
lakh tonnes (lt) out of its total 12 lt urea production with neem.

“We are not allowed to coat more than 20 per cent of our urea production with neem. Given
the demand for neem-coated urea among farmers, we believe this limit should go”, he added.
Companies are permitted to charge 5 per cent more for neem-coated urea over the maximum
retail price of Rs 5,310 a tonne fixed for ordinary urea.

Fisheries board sets course to double aquaculture yield

The National Fisheries Development Board has taken up a programme to help increase
aquaculture yield from an average of 2.5 tonnes a hectare to at least five tonnes in the next
two years.

“A push to aquaculture development is essential to meet the target of increasing the total fish
production from the current 7.13 million tonnes to 10 million tonnes by 2012, especially with
production from the deep sea sector almost stagnating,” said Dr P. Krishnaiah, Chief
Executive of the Board.

The increase in yield is being done by encouraging healthy farming, use of quality feed and
ensuring proper drainage facilities.

Currently, production from the aquaculture sector accounts for nearly 55 per cent of total fish
production. It has been estimated that an area of 1.2 to 1.4 million hectares along the coastal
regions is suitable for aquaculture. Now, about 1.5 lakh hectares are under farming, with tiger
shrimp (Penaeus monodon) being the principal crop.

“A recent development has been introduction of the vannamei variety of shrimp for
commercial aquaculture – this is picking up momentum. An allocation of Rs 22 crore for the
development of this variety has been made. We see a bright future for this variety,” Dr
Krishnaiah told Business Line.

Ornamental fish

The NFDB sees ornamental fish as another opportunity for growth in the marine products
sector. The world ornamental fish export earnings had crossed $ 344 million and imports
$349.4 million in 2008. India produces an estimated 100 million ornamental fish from about
1,700 units; its contribution to global trade is, however, less than one per cent of global
production of this variety of fish.
“India's production of ornamental fish, primarily concentrated in West Bengal, Kerala and
Tamil Nadu, is estimated at Rs 250 crore. But we are aiming at taking this figure to Rs 1,000
crore in the next couple of years. The Board is helping entrepreneurs set up ornamental fish
units, with more than 100 ornamental fish species easily bred domestically,” he pointed out.

Mariculture

Yet another area that has significant growth opportunities is mariculture, a specialised branch
of aquaculture involving cultivation of marine organisms in the open ocean or tanks filled
with seawater.

The potentially cultivable candidate species in India include about 20 species of fin fishes, 29
crustaceans, 17 molluscs and seven seaweeds. “NFDB has included many schemes to
promote mariculture, with Rs 7.5 crore allocated this fiscal for this exercise,” Dr Krishnaiah
said.

Opposition up in arms over plan to allow FDI in retail

The political battlelines are drawn on the issue of FDI in multi-brand retail, with the
Bharatiya Janata Party and the Left slamming the Government's latest move to open up
discussions on the contentious subject.

Cautioning the Government against taking any "hasty" decision on opening up the sector for
Foreign Direct Investments, the BJP said on Wednesday that it had set up a five-member
committee that will tour the country and meet all the stakeholders before coming out with a
report on the impact of FDI in the sector.

The party has, however, not set a time frame for the report, nor identified members of the
proposed committee.

No hasty steps

"We see them (the Government) rushing, and caution that they should not go into it and take
hasty steps. FDI influenced companies could enter with predatory pricing policy.It will be a
tough call for small vendors to carry on with trade. Today, the realisation for farmers varies
between two-thirds in some countries to one-third in others. So there is a need for a careful
study," party spokesperson, Ms Nirmala Sitharaman, said.

Alleging that there is a pattern in the manner in which the Government had gone about
openingup various facets of retail such as cash and carry and single brand, the party pointed
out that the sheer size of the sector - 33.1 million workforce - merited a careful study before
being opened up.

Mr Sitaram Yechury of the CPI (M) said that there was no change in the party's stance on the
issue from what had been announced earlier. "We continue to stand by what we had
announced earlier. Why we oppose it has been brought out in the paper on FDI in retail," he
added.

In May, the CPI (M) and the CPI had called on the Government not to permit FDI in multi-
brand retail trade.

The CPI (M) proposes that a system of licensing should be introduced for organised retail.
Any retail outlet with floor area over an appropriate minimum floor area should require prior
licence from local authorities (city corporations or municipalities).

A dedicated committee/board/department should be set up by the urban local bodies, with

representation from street vendors and small retailer associations, which should be
empowered to grant licences to organised retailers.

SEZ developers step up demand for continued tax sops

The likelihood of new units in Special Economic Zones losing Income-Tax exemptions in the
Direct Taxes Code regime has stepped up representations to the Centre.

According to the DTC revised draft, units coming up in SEZs after the implementation of the
Code from April 1, 2011, would not get I-T holiday.

Many SEZ developers, including infrastructure major GMR, have written to the Prime
Minister, Dr Manmohan Singh, the Finance Minister, Mr Pranab Mukherjee, the Commerce
and Industry Minister, Mr Anand Sharma, and State Chief Ministers about their concerns on
the adverse impact of DTC on their SEZ projects.
Mr Ajay Nijhawan, Convenor, Export Promotion Council for EOUs and SEZs Panel for SEZ
Developers, told Business Line that, "At stake is around Rs 30,000-crore worth exposure that
banks and financial institutions have to SEZ projects under different stages of development.
Many of these SEZs are awaiting new units to come up. If the benefits provided by the SEZ
Act are taken away, these loans could turn non-performing assets."

Highlighting similar representations received by him, the Andhra Pradesh Chief Minister, Mr
K Rosaiah, too has written to the Union Finance Minister. Mr Rosaiah stated that the Andhra
Pradesh Government had "made conscious attempt to attract international investors to make
sizeable Foreign Direct Investments under the SEZ scheme."

In order to restore investor confidence in Government policies, he wanted Mr Mukherjee to

personally intervene and ask the Finance Ministry to issue a clarification that all the benefits
originally provided to developers and units under the SEZ Act be continued even after the
DTC comes into effect.

`Migration of economic activity'

The SEZ Developers' Association of India has also written to Mr Mukherjee that if tax
benefits are not given to new units, there would be migration of economic activity to other
countries, in turn resulting in loss to India.

The Association said if tax benefits are withdrawn, no new unit will come up in SEZs, adding
that developers will lose huge investments made in land and infrastructure if companies do
not set up units.

GMR's letter to the Tamil Nadu Chief Minister, Mr M. Karunanidhi, states that the DTC, in
its present form, would not only affect the investment climate of the State and the country but
also its Krishnagiri SEZ project.

GMR has asked Mr Karunanidhi to take up the matter with the Centre. Calica Constructions,
which is developing an IT/ITes SEZ in Gujarat with an investment of Rs 650 crore, has made
similar demands in an appeal to the Prime Minister, Finance and Commerce Ministers.

The DTC draft states that it would protect profit-linked deductions for developers and
existing units in SEZs for the `unexpired' period. But the Finance Ministry is against tax
breaks for new units. It favours investment-linked deductions.

The SEZ Act provides developers 100 per cent I-T exemption for a block of consecutive 10
years of the first 15 years. It also grants units total I-T exemption on export profits for the
first five years, and 50 per cent exemption for the next five years.
Retail story

In a commendable and courageous push for reforms the Government has now reopened the
contentious issue of foreign direct investment in multi-brand retail, which was banned so far.
Courageous because the country has just expressed its anger at the fuel price hikes and rising
food inflation; and commendable as the Government has thrown open the issue for debate
through a discussion paper that, it has made clear, in no way constitutes a policy decision on
the matter.

The debate on foreign direct investments in multi-brand retailing has so far generated more
heat than light; politicised to the point where the main issues were obfuscated. It is time the
country thought through the issue more rationally, given that food prices remain stubbornly
high, with several factors preventing their descent. While droughts and floods have taken
their toll on farm produce, the traditional supply chain that moves products from the farm to
the household has proved even more detrimental to whatever farm produce is available, and
there is plenty. India, for instance, is the second largest producer of fruits and vegetables but
post-harvest losses are estimated at nearly Rs 1 lakh crore, of which 57 per cent is the result
of avoidable wastage. Opponents of FDI in the retail trade, however, point to the human cost
of investments that bring in large-scale operations with modern technology. They say this
will result in the loss of jobs for millions in the unorganised retail trade, and render redundant
the small, neighbourhood kirana stores, most of them family-run operations.

Even if the reforms go through, the threat to the informal business is likely to be small for
quite a while, since organised retail accounted for just 4.1 per cent of the total trade in 2006-
07; it is not likely to be much higher now as the only FDI allowed so far is in single-brand
retail and the cash-and-carry trade. The more substantive issue of loss of jobs and businesses
too may not stand the test of time; in China, for instance, the expansion of FDI in retail trade
since 1992 has not only expanded the trade itself but doubled both the number of small
outlets to 2.5 million and jobs to 54 million respectively. After China entered the WTO in
2004 it lifted all restrictions on equity participation in the sector; in three years the number of
new foreign retail and wholesale enterprises had increased to more than 5,000. And, needless
to say, this gave a significant boost to consumption — the most efficient driver of economic
growth. These experiences should provide salutary lessons for the opponents of FDI in India's
inefficient and outmoded retail trade.

Retail stocks soar as Govt unveils FDI plans

Shares of multi-retail firms soared on Wednesday after the Government's plans to consider
FDI investments in the organised retail space.

Some multi-retail stocks even touched their highs on a day when the benchmark indices fell.

The Ministry, in a discussion paper on Wednesday, said: “…keeping in view the large
requirement of funds for back-end infrastructure, there is a case for opening up of the retail
sector to foreign investment.”

Trent, the retail operations arm of the Tatas which runs the lifestyle chain Westside, sky-
rocketed more than 7 per cent to close at Rs 1,128.85 on the BSE. During the day it jumped
to an all-time high of Rs 1,135.

Pantaloon Retail rose 5.36 per cent to close at Rs 464.6 touching its 52-week high of Rs
469.95 in intraday trade. Shoppers Stop, too, touched a 52-week high of Rs 658. It closed up
11.54 per cent at Rs 626.15 on Wednesday.

The movement of these stocks was in contrast to that of the market as a whole; the Sensex
was down 143 points (0.81 per cent) to close at 17471 on Wednesday.
FDI is not allowed in the multi-brand retail space. In the single brand space, FDI is allowed
up to 51 per cent. In the cash and carry segment, FDI of 100 per cent is permitted.

According to the ninth annual Global Retail Development Index study from management
consulting firm A.T. Kearney, India is among the top 10 countries on the index's 2010 mix.
“India, last year's top GRDI destination, fell to third. Retail growth will continue in India, but
an influx of foreign players, limited and expensive desirable real estate and foreign
investment restrictions have pushed the country's retail market closer to maturity.” India was
number one in 2009.

A recent McKinsey report said that India's retail space is set to grow to $450 billion by 2015,
comparable to Italy's $462 billion market. “The game here has just begun, with organised
retail accounting for just 5 per cent of today's market and likely to expand anywhere between
14 and 18 per cent by 2015.”

“There are positives to this move (the government discussion paper) as a lot of foreign
players are waiting on the sidelines for the FDI rules to come through. And many of them are
looking at India with the long term in view,” said Mr Viraj Nadkarni, Research Analyst at
Angel Broking. As the concept paper points out that it has been written keeping in mind the
need to protect the smaller kirana shops or unorganised sector, bringing in FDI into the space
will not harm them either, said Mr Nadkarni.

“The jump in the share price of retail companies was a sentimental push following news of
the concept paper,” said Mr Nadkarni.

There is a huge potential for FDI in Indian retail, said Mr Amit Khurana, Head of Research at
Dolat Capital Market. “A lot of foreign players will jump to it once the FDI norms come out.
Wal-Mart has already tied up with an Indian player. Carrefour and other such retailers are
testing the waters here. Home Depot has also shown interest here.”

It's a mixed bag for kiranas

 “Our survival will be threatened if 100 per cent FDI in retail is allowed!” exclaims Mr Rajiv
Singhal of Mediways, a grocery store in Delhi's Mayur Vihar Phase I Extension area. He
points out how the entry of Reliance Retail around three years ago in the area has hit his
business badly.

“We have had zero growth despite the addition of three new apartment complexes in the
area,” he says.

“Now, if the Wal-Marts too come in, we will be completely wiped out,” he says. “I thought
Ms Sonia Gandhi was on our side – I remember a promise she made when the Wal-Mart-
Mittal tie-up was announced,” he adds, belligerence creeping into his voice.

If this East Delhi neighbourhood represents a typical urban colony in India, then the trends
are clear.
Till three years ago, residents of the 22 apartment complexes located here used to shop for
their daily needs at the three grocery stores in the local shopping centre.

When Reliance Retail opened an outlet here, one of the local grocers, Annapoorna, shut shop.
The other two clung on, but say they have been finding it increasingly hard to cope.

“The three of us (father and two sons) work 14 hours in the shop just to stay afloat,” says Mr
Singhal's father, pointing out how customers have increasingly been demanding discounts on
MRP just because the big stores give them. Preeti Jain, a housewife, is a typical example. She
says that ever since organised retail showrooms such as Reliance and Spencer's opened in the
area, her shopping pattern has changed.

She now prefers to buy monthly rations rather than daily at the kirana store. “You can say the
inflation and rising prices are also responsible for the change in my shopping habits,” she
says, pointing to how she now looks for savings everywhere. “I see all my friends doing the
same,” she says. Dinesh Doval of The Guardian Pharmacy, one of the very first shops to be
set up in the local shopping centre, says that till now his business has not been affected, but
now that Apollo Pharmacy is opening here, he fears a hit.

“I have heard they will be offering 10 per cent discounts and that Apollo is also getting into
drug manufacturing,” he says. With the kind of integration that Apollo has from hospital to
pharmacies to manufacturing, he fears that he will just not be able to compete on price.

However, in Hyderabad, Mr Ramesh, who runs a mom-and-pop store in Gandhi Nagar, says,
“At least five organised retailers such as Spencer's, Big Bazaar and More had set up shops in
a radius of 500 metres. But I have not seen any change in my business. In fact, Heritage's
Fresh@ recently closed its branch here.”

“The market has been down for some time and big stores are not able to bear the overheads,”
he says.

“It is a misconception that the top FMCG companies favour only organised retailers. HUL
and P&G have rated my store as an A1 store and keep at least 2-3 items on display and offer
good margins,” says Mr Ramesh.

“Many of our patrons do not intend to go to superstores as their buying needs are small.
Super stores generally do not witness transactions below Rs 200-300. We are very strong in
this,” he adds.

In Chennai's Gandhi Nagar, a residential area, Mr Ramaiah, who runs a well-stocked store,
says custom is impacted only when the large stores run killer promotions. Otherwise, it's
business as usual for him, despite the presence of More, Spencer's and a Nilgiri's just across
the road.

He says the home delivery and credit facility for regular customers are a big differentiator for
stores such as his.

Also, such stores offer a variety of household goods from bindis to maps and notebooks for
school children that a large player does not offer.

FDI inflow will have wholesale impact: Retailers

With the belief that opening up the retail sector will provide a war chest of foreign
investment, boost rural employment and strengthen the supply chain, organised retailers said
such a Government move would help the sector take big strides. The Department of Industrial
Policy and Promotion (DIPP) had on Tuesday sought views from stakeholders on opening up
the retail sector. In a 21-page document, the Government said doing so could enable
organised retailers generate enough cash to fund investments.

“There is a case for opening up of retail sector to foreign investment. At the same time, there
is a view that this may be more appropriately done in a calibrated manner,” DIPP had said.

A cross-section of retailers Business Line spoke to said investment enhancement will be a

key aspect of opening up of the sector. It will help in job creation and also help build a strong
supply chain infrastructure.

“Retail is a long-haul game. The concept paper currently talks only of the supply side of retail
and not much of the demand side. In our opinion, both supply and demand will have to go
hand in hand. Also investments into the sector will have a positive bearing on creating the
infrastructure needed for conducting the retail business,” Mr Kishore Biyani, Managing
Director, Future Group told Business Line.

Stating that Government should have allowed foreign companies to enter the Indian retail
sector long ago, Mr Ram Chandra Agarwal, Chairman and Managing Director, Vishal Retail
Ltd, said foreign players coming to India will also source from India, which will be an added
advantage to the economy. “Since a long time the entire retail industry has been in favour of
creating some regulations and guidelines so that it can structure the retail sector, giving it an
industry status.”

While foreign investment in multi-brand retail is prohibited now, the Government allows 51
per cent FDI in single brand retail and 100 per cent in wholesale cash-and-carry trade.
“If the policy process is strategically done, it can create a synergic relationship between the
small retailer and the larger retail chains. India can develop its own model based on its own
realities towards modernisation of this sector in a calibrated manner,” Mr Rajan Bharti Mittal,
Vice-Chairman, Bharti Enterprises and President, FICCI, said.

Global players such as Wal-Mart and Carrefour have been evincing keen interest in the
Indian retail market for its sheer size. Foreign retailers have been constantly seeking opening
up of the sector to pump in investments and also a larger slice of the profit. French retailer
Carrefour, when contacted, refused to comment on the issue.

The DIPP paper has also stressed that job creation and manpower training needs to be
carefully addressed. Also, an enhanced back-end supply chain will have a positive bearing on
the retail infrastructure.

Mr D. P. S. Kohli, Chairman, Koutons Retail India Ltd, said, “Allowing FDI can change the
dynamics of the industry and bring investments from outside that will boost the supply chain
and infrastructure. There was a lack of regulations and guidelines for the industry. We can
expect generation of more jobs and expansion of organised retail.”

According to Mr Prashant Khatore, Tax Practice, Ernst &Young, “We believe that the
Government is trying to build a positive environment on opening up of the retail sector. The
issue is politically sensitive and a comprehensive discussion paper will help Government take
a positive decision on opening up of sector.”

Retail needs industry status more

The larger issue than the discussion paper on FDI that has been released is the accordance of
industry status for retail. This is not even mentioned in passing when there is so much of
discussion and details reported about Indian retail.

Enough has been written about why retail needs industry status. I would compare it to
telecom which started at about the same time as corporate retail. Both these business
segments contribute significantly to the Indian economy. One has a specialised body such as
the TRAI (Telecom Regulatory Authority of India) to focus on it, while retail is still only
being debated. Incidentally, this discussion paper is the second one and seems to be like a
Hollywood film series which is bound to have many sequels.

The positive impact of FDI on agriculture, supply chain management, infrastructure, food
processing, and so on, is given as a fallout of retail development. However, these also happen
to be independent business segments and development of these cannot be the only
justification for retail FDI. In that context, why bother about FDI at all?

The obvious expectations from FDI are that it leads to investments which mean funds,
technology and processes. If retail is defined as an industry and given sops, such as how IT
was given or for that matter so many other industries have been given, funding would not be
an issue. Many bottlenecks faced by retailers would ease. Most importantly, this would not
benefit just the large corporate chains but also smaller retailers.

I am not a detractor of FDI in retail. However, I feel the accordance of industry status is a far
more important and pressing need. My view is that by keeping the debate on FDI alive and
releasing papers on it while categorically stating that there will be no FDI as of now, we are
all being distracted and kept conveniently occupied in a pointless discussion.

Why pointless discussion? Anyone, even a layman, can read the details and facts mentioned
in the paper including the various studies and research and sign on for rapid and immediate
development of Indian retail and allowing FDI to enable that.

FDI to plug back-end infrastructure gap: DIPP

A day after opening the debate on FDI in retail, the Department of Industrial Policy &
Promotion (DIPP) has made it clear that the Government would like foreign investment to
plug the gaps in back-end infrastructure (such as cold chain and logistics) and merely
bringing in money for front-end retail operations will defeat the purpose.

"We welcome FDI only if the inadequacies of the back-end are addressed.we are not
interested in pure money for front end.Also we will go about it in a calibrated manner both in
terms of FDI cap and the reach (the current thinking is that such stores could initially be
allowed to come up in cities with population of over 10 lakh)," Department of Industrial
Policy and Promotion Secretary, Mr R.P. Singh said.

Yesterday, the Centre took the first step towards opening up FDI in multi-brand retail through
a concept note to debate 12 crucial issues.

DIPP - the nodal body for framing the FDI rules - has invited stakeholder comments by July-
end on issues such as FDI cap to be imposed, possible location for new stores, and riders with
regard to local sourcing and job reservation for the rural youth.

"We would like them to fill gaps in the back-end, and if they do not do that it does not serve
any purpose.Then we are not interested and we will not like to extend it beyond cities with
over 10 lakh population," Mr Singh said.
He said that companies would have to formulate a `plan of action' and commit funds for
back-end activities. "Only then alongside we are prepared to allow them to set up shop," he
pointed out.

Mr Singh said that the whole exercise was aimed at ensuring a premium for the producer
(farmer), concession to consumers, as well as reducing the wastage and arbitrage. "We want
to integrate genuine retailers to the extent possible, and bring down the wastage and
arbitrage," Mr Singh said.

Why the corner store will remain resilient

The debate about whether organised retail will eat up the small kirana stores has been raging
for a while now. The reality is, who is eating up whom? As far I can see the kiranas have got
smarter, brighter, and more service-oriented.

Can modern trade ever make inroads into the kirana fiefdom? Very doubtful. Why?

I offer three major reasons:

Ask our town planners! The Indian cities we live in are cramped for space to the extent that
there is no place for playgrounds or parks. Traffic has been reduced to below 25 km an hour,
average speed. In such a situation, where 5 km may take 45 minutes to travel, it is likely that
small bill value shopping, less than Rs 200, will be done within walking distance.

The food category structure shows that value-added packs such as retort pouches, heat and
eat, and such have not taken off (though many soothsayers still wait with bated breath). The
kitchen is still filled with basic food that is better bought in smaller quantity and fresh every
time.

Rentals are high for spaces above 1,000 sq. ft, and with commercial power tariffs and air-
conditioning, modern trade outlets have larger costs to bear. Rentals of less than Rs 50 a sq. ft
are difficult to come by and hence it is more expensive to run a store closer home. Kiranas
work on lumpsum rents, and they “manage” the other costs well.

It is my surmise that modern trade will continue its efforts at the fringe areas of the
catchments.

Plea to ban FDI in retail

The Tamilnadu Foodgrains Merchants Association Ltd has expressed its shock over the
Union Government's move to allow multinational companies in retail trade in the country. In
a letter addressed to the Prime Minister, Dr Manmohan Singh, the Association Secretary, Mr
P. Subaschandra Bose, said that, “the proposal to allow multinational companies in retail
trade is really shocking ”.He said that in India millions of people are surviving by engaging in
small retail trade and will have no alternative, if the small trade industry's interests were
surrendered to the multinationals. “The Government should give serious consideration to this
burning issue and should impose permanent ban on foreign direct investment (FDI) in Indian
retail trade,” he said. The new FSS Act 2006 that was passed by Parliament recently, has
given the red carpet welcome to multinational food processing industries. The Government
should enact the Monopoly Trade Control Act restrictions on the big Indian players to save
the small and medium scale food business operations and industries in the country, he added.
— Our Correspondent

Better ways to control inflation

A good monsoon after a bad one should see softening of food prices.

The expected spread of food price inflation to broader industrial categories has provoked a
crescendo of calls for sharp monetary tightening. Such a response would be appropriate if
excess demand were driving inflation.

But the current high WPI inflation follows prolonged cost shocks and a period of very low
inflation. This low base overstates inflation. Policy should rather reduce inflationary
expectations without hurting the supply response.

SUPPLY RESPONSE

The supply response is especially important since India is in a catch-up growth phase.
Investment is occurring to relieve specific bottlenecks.

CSO data shows that fixed investment has remained above pre-crisis levels of 32 per cent of
GDP. There is a sharp rise in the production of capital goods. Continuing high investment
implies there cannot be a large excess of demand over capacity. Good growth and sales help
spread manufacturing costs. If productivity rises, the price-line can be held. A good monsoon
after a bad one should see a sharp jump in agricultural production and softening of food
prices. Inflation in primary articles will fall from this month onwards because of the base
effect and manufactured goods inflation from November.

But wages and commodity prices are pushing up costs. Sustained high food price inflation
raises wages, since food is still above 50 per cent of the average consumer basket. That
procurement prices have held steady this year, after excessive hikes in the past few years, will
provide some relief.
But over the longer term, structural measures, such as better infrastructure and empowering
more private initiatives, are required to improve agricultural supply response. That NREGA
has raised rural wages is a good thing, but the emphasis has been on employment and not
productivity, although it has the potential to raise both. A wage rise exceeding that in
agricultural productivity raises food prices. Or else rupee appreciation is required to let wages
rise without inflation. Prices normally are sticky downwards. So, with monetary
accommodation, a relative price change raises the general price level. What goes up doesn't
readily come down except for commodities. But in India administered prices impart an
upward bias even for food and fuel.

The petrol price decontrol was required — prices will now be free to fall as well as rise. But
the timing of the price rise, when inflation is dangerously high, is unfortunate.

Past oil price hikes have not led to sustained inflation because they either followed or led to
severe monetary tightening. The attempt to conserve the macroeconomic stimulus can be
consistent with falling inflation only if it enables a supply response.

Post-reform India has had loose fiscal and tight monetary policy. Direct subsidies created
hidden indirect costs and raised debt. But inflation harms electoral prospects, so instead of
inflating debt away, a severe monetary tightening would be imposed. There would be a large
sacrifice of output, but little reduction in chronic cost-driven inflation.

FISCAL CONSOLIDATION

The government now seems to be trying a better combination: Imposing fiscal consolidation
so monetary policy can be more accommodative. Lower debt, deficits and interest rates are
useful attributes for a more open economy to have. But rather than raise tax rates that push up
prices and costs, a better approach to fiscal consolidation is to reduce wasteful government
expenditure. Plugging leakages and cutting allocations in areas where budgets have not been
spent would create better incentives to spend.

The Government has a poor record in spending effectively. Tax revenues have started rising
again with growth, but this boom should not be squandered like the last one. The contribution
of economic growth was 55 per cent and of spending cuts was 35 per cent to Canada's
successful deficit reduction in the 1990s.

MONETARY POLICY

A sharp rise in interest rates has severe consequences. We saw the collapse in industry
following such a rise in the late 1990s and in July 2008. Policy should rather follow a path of
gradual rise in interest rates conditional on inflation. The knowledge of future rise will reduce
inflationary expectations, if combined with action to reduce costs.

A short-term nominal exchange rate appreciation reduces costs. This can be very useful to
contain a temporary spike in oil or food prices and will become more effective as petrol
prices are free and food prices reflect border prices. Today, the price of Washington apples
determines that of Indian apples.

The current depreciation runs counter to the attempt to reduce inflation. Changing one
exchange rate prevents thousands of nominal price changes that then become sticky and
persist, requiring painful prolonged adjustment. Small steps give the freedom to respond to
evolving circumstances. But to walk with baby steps one must start early and coordinate
action over several fronts.

Sugar mills moot new cane pricing formula

Private sugar mills, for the first time, are apparently willing to consider a cane pricing
formula that would entail sharing two-thirds of their realisations from not just sugar, but even
molasses and surplus bagasse, with farmers.

According to sources, the proposal is slated to be discussed at an internal committee meeting

of the Indian Sugar Mills Association (ISMA) here on Wednesday. If it goes through, it
would be signify a departure from the hitherto stated position of mills that cane prices should
be exclusively linked to sugar realisations and they should be under no obligation to share
proceeds from by-product sales with growers.

But as per the formula being proposed now, growers would be entitled to two-thirds of the
mills' total realisation from all the three primary products resulting from crushing cane –
sugar, molasses and bagasse.

For every quintal or 100 kg of cane crushed, mills produce roughly 10 kg of sugar, 4.5 kg of
molasses and 30 kg of bagasse (of which 21-22 kg is used for meeting in-house steam
consumption requirements, leaving a surplus of 8-9 kg).

At current ex-factory realisations of Rs 25/kg for sugar, Rs 2/kg for molasses and Rs 1.10 for
bagasse in Uttar Pradesh, the gross realisation from sale of 10 kg sugar, 4.5 kg molasses and
8 kg bagasse would be around Rs 268. Two-thirds of this would work out to nearly Rs 180 a
quintal for cane.
“The realisation may be more if say, the 5 per cent ethanol blended petrol scheme were
restarted, which will push up spirit prices to Rs 27/litre and, in turn, molasses prices to Rs
3.50/kg or so”, an ISMA official, who did not want to be identified, told Business Line.

Moreover, the cane price arrived through the two-thirds composite realisation sharing
formula would only constitute “our minimum obligation to growers”. It does not prevent
individual mills from paying a higher price than this minimum obligation.

‘Objective To Decontrol'

“Our ultimate objective is decontrol. The Government should free us from all levy and
release mechanism obligations, and allow prices of all our products to be market-determined.
Once that happens, cane prices can be fixed based on a transparent formula acceptable to
growers as well”, the official added.

When asked why the proposed formula does not go beyond bagasse and molasses to the next
stage of revenues from co-generation and alcohol, the official said “not all our mills have
distilleries and co-gen plants” but they would get captured by the underlying traded prices of
molasses and bagasse.

Lack of rail rakes hits raw sugar movement

Non-availability of rail rakes has hit movement of imported raw sugar, with an estimated 7
lakh tonnes (lt) still lying unprocessed at Kandla and Mundra ports.

“The Railways are supposed to provide three rakes daily for movement of raws as per an
understanding with the Food Ministry.

But currently, it is down to hardly 3-4 rakes a week”, complained a sugar miller from Uttar
Pradesh (UP). One rake carries roughly 2,600 tonnes.

During the 2009-10 sugar season (October-September), around 11 lt of raw sugar has been
imported through Kandla and 4 lt through Mundra.

The bulk of this 15 lt imports through these two ports has been contracted by UP millers,
including Bajaj Hindusthan, Balrampur Chini, Dhampur Sugar Mills and Simbhaoli Sugars.

UP Ban
For mills, particularly in UP, the imports have turned out to be a disaster, of sorts. To start
with, the UP administration under Ms Mayawati imposed a virtual ban on their entry into the
State.

The Railways were, on November 3, issued an advisory against accepting any rake indents
for moving imported raws into UP, in view of their perceived threat to the interests of cane
growers in the State.

The ban was lifted only towards the end of crushing operations, with the State Government,
on February 19, informing the Railway Board that it no longer had objections to mills being
allotted rakes for transporting the raws.

“Following that, we started getting 3 rakes daily as per our indents throughout March and
April. But since May, it has dropped to 3-4 a week”, the miller said.

This time, the non-availability of rakes is being attributed to the precedence being accorded
to movement of fertilisers.

“We have been told that since planting for the kharif season is now on, fertilisers would be
given priority in allotment of rakes over all other commodities.

At this rate, it will take us months to evacuate the 7 lt raws still lying in the ports (5 lt in
Kandla and 2 lt in Mundra). The longer it takes to process this sugar, the more the losses for
us”, the miller added.

But what could be more disturbing is the possible implication for overall sugar availability.
“Raw sugar by itself is as good as standing cane on the fields — neither can be consumed
without processing. It is for the Government to decide whether it would like the raws to be
processed in time for the coming festival season”, he warned.

Pay should reinforce right tone at the top

There are serious defects in Anglo-Saxon capitalism, rues John Zinkin in Challenges in
Implementing Corporate Governance: Whose business is it anyway?( www.wiley.com). Top
among the defects he mentions are: the importance and amorality of financial services with
its excessive securitisation leverage; the apparent lack of moral purpose in so many Western
enterprises; and the belief that the purpose of business is to maximise shareholder value
without paying adequate attention to other stakeholders.

Then come these flaws, in the author's list: the view that the firm is an economic nexus of
legal contracts, ignoring the social nexus of emotional contracts; the excessive pay of CEOs
that appears to be disconnected from performance; and the principal-agent conflict
exacerbated by the fact that too many shareholders have become speculators rather than
owners or investors.

Does this mean Asian governance is perfect? No, it is not, says Zinkin. Minority shareholders
are regularly mistreated, and it is extremely difficult for independent non-executive directors
to do their jobs, given both the concentrated structure of ownership and the cultural
constraints within which they must work, he reasons.

Also, “Families make wrong investment decisions and governments are not very good at
picking winners over the long term.” On the positive side, however, the author notes that no
Asian CEO is paid the way American CEOs are, and so there is less risk to the business
resulting from inappropriate levels of compensation.

Four Asia advantages

Reassuringly, again, in Zinkin's view Asia has four distinct advantages over the West in
creating a new, gentler, less-speculative capitalism. First, financial services play a much
smaller part in the economies of Asia, which are still geared to producing goods as opposed
to services, some of which are of questionable value in creating real, sustainable, long-term
wealth, he explains.

The second advantage is the importance of having a moral purpose, especially in many
Japanese and Korean companies. This takes into account the wider needs of all stakeholders,
allowing a deeper sense of engagement and alignment by the workforce with the objectives of
the company, Zinkin elaborates.

The third advantage is the communitarian nature of many Asian societies and the fact that, in
many Asian companies, dominant shareholders are either families with long-term ‘skin in the
game' or governments with a long-term view of the business purpose of the firms, with the
result that there is less principal-agent conflict than in Anglo-Saxon markets.

That way, in much of Asia, business is still community-based rather than being truly private,
observes the author. “Moreover, equity markets are less important as sources of capital —
therefore reducing the risk of the stock market acting as a distraction from investment.”

And finally, he finds greater room for loyalty in Asian firms, engendering long-term survival,
because of the culture that gives as much space for social relationships as for legal,
instrumental and contractual ones. “The same applies to relationships between enterprises,
where legalistic contracts are not regarded as paramount, while preserving relationship is.”
A section on ‘rewarding top management appropriately' stipulates that boards have a
fundamental responsibility to ensure that CEOs and the top management team are properly
rewarded. Any package should reinforce the right tone at the top, instructs Zinkin. It should
also be seen to be fair, both in the differential that is paid to the top management team and in
rewarding superior performance and penalising poor performance, he adds.

Companies can tick boxes to demonstrate that they are well-governed and are behaving
responsibly but if the tone at the top is wrong, the letter of the law is respected, but not its
spirit, cautions Zinkin. “Boards must therefore ensure that CEO remuneration rewards correct
behaviour rather than encouraging risky behaviour that jeopardises the company's long-term
interests, either through fraud or through decisions where CEOs are rewarded for short-term
gain without taking into account the long-term impact.”

Scandalous CEO packages

The author is aghast that the scandalous packages awarded to so many incompetent or
crooked CEOs and their top management teams since the 1980s caused shareholders to suffer
three times over, thus: “First, from the poor decisions taken at the expense of the long-term
viability of the company; second, through the payouts of excessive benefits for mediocre or
poor performance; and third for the costs and settlements of any ensuing lawsuits, which
were paid by the companies involved.”

This gross misallocation of resources by boards, as bemoans Zinkin, undermines capitalism

in a number of critical ways. First, it perpetuates the myth of the superstar, celebrity CEOs
and devalues the results of the rest of the workforce, he argues. “There is no way that the job
of CEOs in the US has become 20 times more difficult than it was in Alfred Sloan's day or 10
times more difficult than it was in the 1970s, and yet the packages suggest precisely that.”

Another detrimental effect of the grossly-skewed pay packets goes beyond just taking money
from shareholders: it takes money away from R&D, from creating better customer value,
from better terms and conditions for the rest of the workforce, and even from the government
in the form of lower taxes as a result of excessive CEO pay, Zinkin laments.

He frets that when CEOs walk off into the sunset with huge settlements, regardless of their
performance, it is a signal to the rest of the world that there are two standards by which
performance is judged: pay-for-performance for ordinary people, and pay for non-
performance for the CEO suite.

Economic and social growth

Good corporate governance ensures proper accountability, probity, and openness in the
conduct of a company's business, resulting in a business environment that is fair and
transparent, and where companies can be held accountable for their actions, reminds Tan Sri
Zarinah Anwar, Chairman of Securities Commission Malaysia, in the foreword to the book.

Emphasising that only with good governance can companies create wealth and ensure the
management of such wealth in a sustainable manner for its shareholders and other
stakeholders, Anwar sees good corporate governance as capable of holding the balance
between economic and social growth.

Studying the Asian markets, the author concludes that the problems of implementing good
corporate governance come in two distinct parts. “The first is caused by the adoption of codes
from jurisdictions that are culturally different and built on a different underlying stock market
structure and assumptions about how boards are supposed to work based on different
ownership structures and levels of market sophistication.”

The second, and perhaps a more important problem, arises when ‘ translating conformance or
compliance (which is what regulators look at) into good performance (which is what
concerns shareholders).'

CAG audit of PPPs 

There are benefits when the watchdog scrutinises the accounts and finances of public-private
partnerships.

It is good that the Ministry of Corporate Affairs (MCA) is in favour of subjecting the special
purpose vehicles (SPVs) set up to execute public private partnerships (PPPs) to audit by the
Comptroller and Auditor General of India (CAG), a constitutional authority, whose writ runs
on the entire gamut of state finance.

Under the Companies Act, 1956, only government companies — more than 50 per cent of the
share capital is controlled or contributed by the Government — come under the purview of
the CAG's jurisdiction, with the CAG contending itself with delegating the auditing powers
to firms of CAs but reserving to itself the power to carry out supplementary audit by sending
a questionnaire to the auditor so that areas considered crucial are not left out.

PPPs are a rage these days with the Government wisely refraining from promoting
government companies for executing infrastructure projects and relying on the expertise,
experience and fleet-footedness of the private players.

But the Government does contribute substantially in terms of capital to these projects which
has given a rise to a valid question: Should such SPVs not be brought under the purview of
the CAG, though technically they cannot be under the existing norms in view of less than 51
per cent investment by the government in the capital of these companies?

The rationale

The rationale for CAG's proactive role in the context of PPPs is undeniable and not far to
seek. The clincher of course is taxpayers' money substantially bankrolling these projects. But
there are other powerful reasons as well.

Some of the PPPs have been awarded to private parties on the basis of the Swiss auction
model in which there is always a lurking danger of gold plating of capital.

Under the Swiss auction model, it is the private party imbued with a mission that sets the
auction process in motion with terms and conditions spelt out with the right to better the
terms offered by a rival trying to upstage him.

The point is the Swiss auction model lends itself to the danger of gold plating — inflating
investments with an eye on getting more of the government guaranteed attractive minimum
rate of returns — more than any other model. The wrangling between the Delhi Government
and GMR over the revenue sharing from Delhi International Airport Ltd (DIAL), the SPV
operated on PPP lines, also strengthens the case for public scrutiny of the accounts and
finances of such PPPs.

Substantial deposits have reportedly been taken from the occupants of properties belonging to
DIAL with a concomitant reduction in the rental so as to rob the Government of its share of
revenue — only rentals enter the computations and not deposits.

The truth is, a sleeping partner is always taken for granted and in a PPP, the private party is
proactive and the Government resigns itself to a dormant role by supplying the capital. In all
fairness, the sleeping partner should have some means of ensuring that his interest is also
taken care of. Hence the case for CAG's proactive role.

While there is a powerful and undeniable case for treating SPVs on a par with government
companies, the issue is whether the CAG should outsource the auditing services from firms
of CAs as he does under extant norms with reference to government companies or should he
be allowed to be more hands-on?

There are strong grounds for giving parity of treatment between SPVs and government
companies with regard to audit, the most important of which is if the government companies
where the government has got greater equity stakes can delegate the auditing function to a
CA firm, a fortiori, the audit of SPVs where the Government's financial stakes are lesser
should also be outsourced.

There is considerable merit in this argument.

The CAG's hands are already full. Furthermore, private practitioners have acquitted
themselves well with government audits where they are more forthright and revealing,
assured as they are of future audit assignments on rotational basis come what may without the
fear of possibly antagonising the promoters gnawing them.

Of course, the CAG should have the freedom to carry out supplementary audit to ensure that
crucial areas are not left out. Under the extant norms, the auditor of an SPV is for all practical
purposes handpicked by the private partner which effectively seals the lips and freezes the
hands of the auditors when the time comes for reporting.

Prevention better than cure

Of course, audit is not a substitute for careful drafting of the partnership agreement to
forestall creative financial engineering by the more ebullient and active private partner in a
PPP.

The Government has learnt quite a few lessons from its initial fascination for the revenue-
sharing model with private telecom operators who too are alleged to have resorted to creative
accounting to hoodwink the Government.

Chastened, it plumped for upfront licence fees in the recent auctions of 3G spectrum and
laughed all the way to bank. The point is, a carefully crafted agreement that is at once fair to
both the sides is any day preferable to unseemly battles later on in the wake of audit reports.
This however does not detract from the reasonable and just demand for CAG audit of PPPs.

First public-private job exchange

Karnataka on Wednesday launched the country's first public-private employment exchange

that would register, assess, train, certify and place young people in suitable jobs. Staffing
solutions company, TeamLease Services, in a joint initiative with the State Government has
launched the Karnataka Employment Centre that will train and provide employment to about
2,000 candidates in the next one year.

Terming it a lighthouse venture, Mr Manish Sabharwal, Chairman and Co-founder,

TeamLease Services said, “We have been talking to several State Governments, and
Karnataka was the first to recognise the reality of India's labour market.”
Under the MoU between the State Government and TeamLease, the State Government would
subsidise the training costs of the candidates that register at the employment centre (about Rs
1,000/candidate) and TeamLease would ensure training and placement.

“We have assured the Government that at least 50 per cent of the people registered would get
employed,” says Mr Sabharwal.

The Karnataka Employment Centre, located at the TeamLease premises would start with
training in sales and retail jobs and then move on to industrial training, according to Mr
Sabharwal.

Mr S.R. Umashankar, Commissioner, Employment and Training and Managing Director,

Karnataka Vocational Training and Skills Development Corporation, said that there were
plans to open ten such centres across the State.

TeamLease is also is in initial stages of talks with the other State Governments such as
Orissa, Maharashtra, Gujarat and Delhi to open such employment centres.

On whether this could signal the end for the existing employment exchanges, promoted by
the Government, Mr Umashankar said that the Government was trying to upgrade these
centres (like the one at Mangalore) and these would run parallel to the private employment
centres.

Fuel inflation hots up even as food inflation cools

Food inflation, measured by the Wholesale Price Index, rose 12.63 per cent in the week
ended June 26, marginally below from the previous week's annual rise of 12.92 per cent.

The statistical base effect contributed to the dip, which happened despite pulses recording a
30 per cent year-on-year inflation, milk surging 16 per cent and both rice and wheat up six
per cent during the latest week.

During the latest week, inflation in vegetable fell by over 4 per cent year-on-year, led by a
steep decline in the prices of potatoes and onion, Government data released on Thursday
showed. Potatoes were down by over 42 per cent, while onion by 9 per cent on an annual
basis.

Fuel inflation up

Fuel inflation, however, shot up 18.02 per cent on a year-on-year basis during the latest
reported week from the previous week's 12.90 per cent, coming in the wake of the increase in
rates of petroleum products. After the fuel price hike by the Government on June 25, prices of
petrol and diesel were raised by up to Rs 3.50 a litre, while that of LPG and kerosene were
hiked by 35 per cylinder and Rs 3 a litre, respectively.

After factoring in the hikes, the inflation reading for liquefied petroleum gas surged 16 per
cent on a year-on-year basis, diesel was up 22 per cent and petrol climbed 27 per cent during
the latest week, the data showed.

According to the data, on a sequential basis, the index for the Primary Articles group rose by
1.4 per cent, even as the index for ‘Food Articles' group declined by 0.1 per cent due to lower
prices of fruits and vegetables, moong and rice (1 per cent each).

However, the prices of maize (5 per cent), bajra (2 per cent) and eggs, mutton, jowar and
condiments and spices (1 per cent each) moved up.

Non-food articles rise

The index for ‘Non-Food Articles' group rose by 0.2 per cent due to higher prices of fodder
(5 per cent), sunflower (3 per cent), raw silk and raw rubber (2 per cent each) and castor seed,
copra and groundnut seed (1 per cent each).

However, the prices of niger seed (4 per cent) and cotton seed and rape and mustard seed (1
per cent each) declined.

The index for ‘Minerals' group rose by 28.3 per cent on a sequential basis due to higher
prices of magnesite (61 per cent), iron ore (38 per cent), steatite (6 per cent) and asbestos (2
per cent). However, the prices of manganese ore (38 per cent), feldspar (5 per cent) and
barytes (3 per cent) declined.

Reneging on legislated incentives

In American gangster slang a fall guy is the one who has to pay the price for someone else's
bungling or misdemeanours. In the case of the Special Economic Zones, the fall guys are the
developers who, in all earnestness had applied for and received approvals to set up SEZs,
only to be told that one of the main attractions of the whole project — income-tax
exemptions, that were promised in the SEZ Act of 2005 — may be scrapped in the new
Direct Taxes Code, the revised draft of which is under review. In fact, some time ago, a series
of promoter-applicants had not only decided to put their projects on hold but had actively
sought de-notification or reconsideration of their proposals, creating a piquant novelty for the
Board of Approvals. Now other developers have decided to pressure the Centre and States to
reconsider the case for tax exemptions for SEZs. Some Rs 30,000 crore worth of investments
by domestic and foreign entities, they say, are at stake.

That they are in a jam is undeniable; first, the world economy spins into recession, enterprise
demand for sites in the SEZs, it is felt, could turn cold following the domestic slowdown in
consumption and GDP growth; but all these are part of the warp and weft of the business
cycle. What is not is a policy regime that reneges on legislated incentives, however flawed
they might have been to begin with. The SEZ Act was notified in 2006 on the initiative of the
Commerce Ministry, with the tax exemption provision as one of the main sweeteners. North
Block was opposed to the revenue loss that would follow; at times, the differences were made
public even as the Commerce Ministry steamed ahead with applications that poured in thick
and fast. What made those differences potentially lethal was their timing; had they been aired
and ironed out before the SEZ Act was passed, it would not have had, as it does now, mud all
over its front page. As if that were not evidence enough of bad planning, unexpected
resistance in many parts to land acquisitions forced some State governments and developers
in western India and West Bengal to abandon some proposed and, in some cases, notified
SEZs.

The SEZ experience most vividly highlights the inability of various arms of the Government
not just to work together but, worse, even plan as a team. Having said that, policymakers are
morally responsible for their haphazard functioning and must pay for it; they must honour the
tax exemptions for approved SEZs and plan wisely the future of a concept whose time has
gone.

Waka waka for South Africa

 
Foreign tourism is expected to account for 16 per cent of the World Cup's gross economic
impact.

The Bafana Bafana may have exited the football World Cup early but South Africans' interest
in their most popular game sustains for reasons sporting and economic. From June 11, world
attention has been riveted on South Africa, where thousands have landed to watch the FIFA
World Cup soccer games.

Many more millions have been glued to television sets worldwide to watch the tournament
and, in the bargain, get a glimpse of South Africa. The football World Cup draws more
television audience than even the Olympic Games. The current edition is expected to do even
better than the 2006 World Cup in Germany, termed the most extensively viewed event in
television history.
Though taking place in a country struggling with widespread poverty, unemployment,
HIV/AIDS and rising violent crime, where objections were raised about the cost of the
tournament (South Africa has invested some $12 billion during the past four years in
infrastructure for the Cup), the country is actually quite lucky to be hosting the World Cup
that comes as a stimulus package thanks to the willy nilly spending, both by the government
and visitors.

Thus, though consultancy Grant Thornton projected a lower number of World Cup visitors, at
3,73,000 — down from the initial estimates of 4,83,000 — many of the visitors have stayed
an average 18 days, compared to the 14 days first projected, and each attended an average of
five matches, up from the first estimates of 3.4. This compares with an average of 2.6
matches attended by foreigners at the World Cup in Germany.

With extended stays, the average spend by an overseas tourist could be 30,200 rand ($4,000),
compared with the 22,000 rand ($3,000) forecast. The country thus appears on track to earn
nearly 9 billion rand ($1.1 billion) from World Cup fans, according to Grant Thornton.

Many diversions

For the football jaded, exotic South Africa offers a variety of diversions. Besides the best
known wildlife safaris, South Africa has many entertainment avenues. For instance, its food
is as diverse as its people. From crocodile steaks to fried caterpillars for the more
adventurous, to local delicacies such as biltong (dried, salted meat), bobotie (a much-
improved version of shepherd's pie) and boerewors (hand-made farm sausages, grilled on an
open flame) visitors are sure to savour the culinary experience.

Then there are the diverse pubs, wine bars, and township taverns, known as shebeens,
nightclubs, or the variety of mainstream, avant-garde and dinner theatres for visitors to
experience.

The South African Tourism Minister, Marthinus van Schalkwyk, was quoted by agency
reports as saying that the country's $100-million marketing campaign in the months before
the World Cup increased arrivals in the first quarter, South Africa's most important tourism
season. More than 1.9 million tourists visited from January to March, up nearly 21 per cent
from the year before, he said, adding that the marketing benefits of the World Cup would be
felt for years to come.

The gross economic impact, according to southafrica.info, is expected at 93-billion rand, with
62 per cent of this amount expected to have been generated pre-2010 and 38 per cent during
the course of the year. Foreign tourism will account for 16 per cent of the gross impact.
Impact on GDP

Much of the spend has been by the government creating the infrastructure for the event as
also the operational expenditure. South Africa may end up spending over 30-billion rand ($4
billion) compared to the 2007 budget of around 17-billion rand ($2.25 billion); cities and
provinces may have a spent another 9-billion ($1.1 billion) rand.

All this could shore up the GDP 0.54 per cent in 2010, according to southafrica.info. This
could be a significant add to the estimated 2-2.5 per cent overall economic growth expected.
UBS research also indicated that the three previous World Cup hosting-countries saw their
GDP grow by 1.8 per cent on average during the year of the tournament; setting an exact
number by which such tournaments impact an economy is quite difficult.

In terms of numbers, the World Cup's total contribution to South Africa's GDP will be a
massive 55.7-billion rand, of which 33-billion rand will be in direct spending on stadiums
and infrastructure (17.4-billion rand just in 2010), spectator trip expenditure (8.1-billion
rand), ticket sales (6-billion rand), and rights and sponsorships (750-million rand). Just over
415,000 jobs will be created in tourism, transport, construction and other industries.

Improved image

But much more important will be the indirect spin-offs, especially the better profiling world-
wide of South Africa. This could have an even greater, longer-lasting impact, not only on
South Africa and its development but on the continent as a whole. Caught between the First
and Third Worlds, even while struggling to develop a new identity two decades after the fall
of apartheid, South Africa's economy remains fragile.

Unemployment remains high, having climbed to more than 25 per cent in the first quarter of
2010, with over 800,000 jobs lost since the year-ago period. The country's benchmark
Johannesburg Stock Exchange All Share index has fallen just under 1 per cent over the last
year.

While most tend to associate South Africa with the mining industry, that sector is diminishing
in overall importance and accounts for only 5 per cent of the economy. Of that, South
Africa's world famous gold mining operations represent only 2 per cent of total employment.
South Africa has turned into a predominantly services-driven economy, with 62 per cent of
GDP coming from the tertiary sector, according to a UBS survey. The services sector
dominates employment, accounting for 60 per cent of total jobs. Manufacturing, mainly oil,
vehicles and basic metals, accounts for another 15 per cent of the economy.
The smooth, incident-free conduct of the World Cup is sure to change the perceptions abroad
of South Africa, a nation of over 49-million people of diverse origins, cultures, languages and
beliefs, which is now viewed with a lot of awe and some fear. But will it change enough for
investors see the potential in the economy and bring in dollars, instead of just the chant of
“waka waka, this time for Africa”?

Emission reduction options

India is likely to meet its commitment of cutting down emission intensity by 20-25 per cent
by 2020, in a business-as-usual scenario, aided by an energy efficient industry. However,
beyond 2020, emission reduction would be fraught with the risk of compromising on
economic growth as it means high cost with limited technology options, says a recent study
by the Centre for Science and Environment.

Post Copenhagen, the country had declared that it would bring down its emissions intensity
of GDP by 20-25 per cent by 2020 in comparison to the 2005 level. The study, Challenge of
the New Balance, by Chandra Bhushan has analysed India's six most emission-intensive
industry sectors — power, steel, aluminium, cement, fertiliser, paper and pulp — to look at
options for reducing emissions, their feasibility and the costs involved with exploring the low
carbon growth options.

These six industry sectors account for close to 62 per cent of the country's emissions. Data
from these sectors were studied under two scenarios — BAU or Business as Usual, in which
the industry will improve its efficiency on its own due to the rising cost of energy and Low
Carbon (LC) growth option in which government action to combat climate change will
decide their growth strategy. The study dispels the general perception that rising emissions in
India were due to an inefficient industry. Data analysis of these six industries reveals that
many of them are actually performing at the global best and in a BAU scenario are expected
to help the country to cut down on emissions.

Sectoral analysis

The power sector, the single largest contributor to carbon dioxide or CO {-2} emissions, has
the biggest potential for emission reduction, while others such as cement, aluminium and
fertiliser are counted among the global best.

In the BAU scenario, the power sector could reduce emissions intensity by 18 per cent by
2030, largely due to the adoption of newer technologies by coal-based power plants, the CSE
study says.
However, in the LC scenario, the potential to reduce emission would be 35 per cent, but it
will be an expensive proposition as it means investments in new technologies and low carbon
fuels.

The cement sector, which is already using modern technology and blending materials such as
fly ash and slag, could lower its emission intensity by 25 per cent in a BAU scenario, while in
LC it could come down by 35 per cent, if the proportion of blended cement in the total output
is increased.

Steel will be the problem sector for India as it will not be able to reduce emissions intensity
significantly because of the technology choices it is making today — moving from blast
furnace to sponge iron route.

About 60 per cent of India's steel will be produced using sponge iron in which emissions
efficiency are very few, it notes. Going forward, India, which is at the bottom of the
development trajectory, has a lot to cover to meet its growth needs and will inevitably add to
pollution.

As technology options for curbing emissions stagnate after 2020, there is no way India can
reduce emissions without impacting its growth, once the current emissions-efficiency
technology threshold are crossed. While the country could look at a changing its fuel-mix, but
options are costly and limited.

The dependence on coal is unlikely to be reduced substantially. The study shows that if India
gives up its demand for an equitable global agreement, it will not be able to afford the cost of
transition for low carbon growth.

Farmers duped with chemical fertilisers'

A group of NGOs working in rural areas has alleged that farmers are being lured to use
chemical pesticides in the garb of bio-pesticides.

“A few years ago a new category of pesticides called bio-pesticides have entered the market.
About 100 companies have started selling these pesticides without getting registered with the
Central Board of Insecticides as mandated by the Union Ministry of Agriculture,” they said.

Addressing a press conference here on Thursday, Mr M. Srinivasa Reddy, who represents the
CNRI (Confederation of NGOs in Rural India), said bio-pesticides were not harmful to
environment as they did not contain chemicals.
“We have got at least seven samples tested at the Institute of Pesticide Formulation
Technology (a government agency) and found that there are traces of chemicals,” he said.

“There are about 90 companies that are selling chemical pesticides in the name of bio-
pesticides, causing harm to crops and environment,” he said.

“It is estimated that these companies do an annual sales turnover of Rs 200 crore,” he said.

He appealed to the Government to keep tabs on the erring companies and bring in controls to
rein them.

Mills losing interest in cotton contract farming

Cotton contract farming, a much-talked about concept a few years ago, appears to be fizzling
out.

Industry sources say that the mill sector has lost its initial enthusiasm for in the concept since
the farmers were not consistent in their supplies.

“They invariably sold the first picking (good quality) cotton elsewhere, leaving the contracted
party/sponsor to contend with the second and third picking,” an industry spokesperson told
Business Line.

Lack of definition

This seems to have been one of the many reasons for the failure of the contract farming
concept.

“There was lack of definition. The contractor came between the farmer and the buyer; he was
not in a position to assure profitability to the farmer. There was also a fear among those
mooting such ventures that the idea would be politicised,” said Mr A. Ramani, Joint
Secretary, South India Cotton Association (SICA).

The Tamil Nadu-based Super Spinning Mills, for instance, took to cotton contract farming in
2003 in Salem, Coimbatore, Vellore, Namakkal, Madurai and Theni districts.

As the land holding in this part of the country is largely marginal, the sponsor (Super
Spinning Mills) selected farmers based on the location of the farm, its size, cropping pattern,
source of irrigation facilities, their economic condition and above all, their willingness and
commitment to cultivate the crop in at least one acre of land.
While stating that the concept has not been a failure insofar as Super Spinning Mills is
concerned, the company spokesperson said: “We have since diversified into organic farming
of cotton, extending input and technical support to the farmers who have sought our help. We
are supporting over 2,700 farmers and the area is a little over 3,700 acres. We are doing it
more as a corporate social responsibility.”

Appachi Cotton and Surya Group were others that got into this business in this region, but
they have since opted out.

The sponsors provided the farmers with inputs such as seed, farm implements and extension
support throughout the crop period.

They even assured to pay the farmer the prevailing market price at the time of procurement of
the produce.

“The response was initially quite good and the acreage under contract farming swelled, but
all those who got into it have burnt their fingers and got out of this venture,” said Mr Ramani.

The area under contract farming was around 50,000 acres five years ago and the production
thereon estimated at 50,000- 60,000 bales.

Success in other crops

“It was not much, less than 0.2 per cent of the overall crop size,” said Mr Ramani, adding
“the concept has been successful in other crops such as sugarcane and rice.”

Asked why it has failed to click in the cotton, he said: “A spinner will not be able to say what
spinnable count of cotton he will require, say six months down the line.

The varieties are innumerable; there is rapid change in customer requirement and expectation.
Moreover, land holdings are fragmented.”

According to him, the best way to address this issue would lie in pooling all farmers, and in
trying out contract and corporate farming combination technique.

A novel attempt using drip irrigation for paddy

An initial experiment in the use of drip irrigation in paddy cultivation by Jain Irrigation has
demonstrated significant savings in water and power.
The experiment conducted by Jain Irrigation, the country's largest manufacturer of drip
irrigation systems, at its farm in Udumalpet near Coimbatore, showed that paddy yield was
comparable to that of conventionally flood irrigated field. But under drip irrigation, the
volume of water used was just about a third of that used in flood-irrigated field, apart from
the reduction in power cost. The initial results are encouraging and the next step for the
company is to focus on raising productivity, say officials.

The company was showcasing its study to a group of journalists it had taken recently to its
farm.

Dr P. Soman, Senior Vice-President – Projects, Jain Irrigation Systems Ltd, said the
demonstration of the reduced water use to get comparable output of paddy was a significant
outcome of the study. Paddy is a water intensive crop and over the next two decades,
scientists project a nearly five time growth in annual paddy demand to about 533 million
tonnes. This would have to be achieved in the face of stiff competition for water.

Jain Irrigation conducted the study on a 27-cent (about a fourth of an acre) plot in which it
cultivated ADT-45 variety of paddy under conventional conditions and under drip irrigation.
The study showed that against a potential yield of 4 tonnes an acre estimated for the
particular variety, it harvested an equivalent of 3.8 tonnes an acre under drip irrigated
conditions and 3.4 tonnes under conventional flood irrigated conditions.

But the volume of water used with drip irrigation was 32.4 lakh litres an acre against 104 lakh
litres under conventional irrigation, he said. The electricity used for drip irrigation was about
half that of the conventional pumping. Subsequent studies are under way to look at increasing
yields under drip irrigation systems.

While the results are encouraging, it will be a few years before the company is able to bring
this technology to farmers, he said. The cost of cultivation would be a major disincentive. For
instance, farmers would have to spend about Rs 57,000 an acre to set up the drip irrigation
system which would be effectively used to cultivate paddy for about 10 seasons. There are
also other costs relating to the changes in cultivation practices, such as mulching, that need to
be adopted to enable drip irrigation.

This has to be considered against the backdrop of farmers getting free power for agriculture
in States such as Tamil Nadu, he said. Also, drip irrigation for paddy is not covered under
subsidy.

Decision on sugar decontrol in September

 
The Union Food and Agriculture Minister, Mr Sharad Pawar, on Friday, said that this was the
“right time” to work towards decontrolling the country's sugar industry.

“This is the only industry that has too many controls from the Government's side. The time
has come to give a second thought about this approach. We have to withdraw government
controls and give full freedom to those managing this industry just like in others,” Mr Pawar
told presspersons at the sidelines of the Golden Jubilee function of the National Federation of
Cooperative Sugar Factories here.

The Minister noted that the country's sugar production in the 2010-11 sugar season (October-
September) is likely to be sufficient to meet the domestic demand of 23 million tonnes (mt).
If the coming season is going to be good for both farmers and consumers, it would be
possible for the Centre to take a “drastic decision,” he added.

No blank cheque

According to Mr Pawar, the Centre would be in a position to make a reasonable estimate of

sugarcane planting and sugar output for the season by the first week of September. “Based on
the assessment, we (the Ministry) will take a final decision and recommend to the Cabinet.
Till then, we will not recommend,” he stated.

At the same time, the Minister made it clear that even in a de-controlled regime, mills would
not have the freedom to decide on cane prices. “One thing is for sure — the right to fix the
support price of cane for farmers will definitely be with the Government,” he added.

Good ethics is good business

Corporates should develop an Indian style of management with its unique ethics, morals and
values, said Mr M. Gopalakrishna, former Chairman of Andhra Pradesh State Financial
Corporation (APSFC).

Ethos is the ‘spirit' or ‘breath' of an organisation while Ethics is an un-written law evolved by
society, based on universal principles and represents the ethos or spirit of the country, the
retired bureaucrat said.

Delivering the BL Club lecture at the Malla Reddy Institute of Management on ‘Ethics and
values', sponsored by Karur Vysya Bank recently, Mr Gopalakrishna said ‘morals' are the
personal norms and codes of conduct followed by persons and has the explicit or tacit
approval of society.
When you do an act and feel good after it, it is ‘moral' and if you feel bad after the act, it is
immoral.

Unselfish acts are generally ‘moral' while selfish acts may not be moral, he explained to the
management students.

Importance of good values

He exhorted students to inculcate good values, ethics and morals, which would help them in
both their lives and careers in the corporate world.In the Corporate context, we have to
understand that “good ethics is good business”. Also, that “business without ethics is a
business at risk”. Similarly, there is ‘more' to business than business.

The ‘more' refers to norms, mores or moral standards, and ethics and values of business, Mr
Gopalakrishna said.

What are these values? Some of the universally recognized values are human rights , dignity
of the individual, truth, trust, love, peace, non-violence etc., he explained.

For corporates, the essential values are value addition ,economic efficiency, productivity,
innovation and customer orientation.

For good corporate governance we need transparency, tolerance and tact.

Ethics, morals and value system for Indian corporates can be summed up as Satyam-Vada,
Dharmam-Chara, Karmam Kuru. Value addition emphasises standards of quality, timely
delivery, least cost of product and goods and good service as the four essential ingredients
which also build the brand of the product and the Company.

Students with good values, ethics and morals show good conduct and listen carefully in class-
room, he pointed out.

He advised students to “See inward, look outward and move forward” towards their goal.

To do so, students would have to outthink, outplan and outplay the competition and develop
requisite skills and confidence to achieve the set goals.

In conclusion, he advised students to follow the Pancha Sutra of home-work, hard-work,

smart-work, team-work and also net-work to succeed in life.

Of bandh calls and retail reform

There couldnot be any direct or indirect economic benefit from the bandh.

The ‘Bharat Bandh' called by the combined Opposition on July 5 to protest against the
persistent price rise evoked a mixed response. What did it achieve? In economic terms, the
loss has been estimated, using unclear methods, between Rs13,000-30,000 crore. There could
not be any direct or indirect economic benefit from the bandh, unless of course one argues
that higher television viewership has positive economic consequences.

Politically, one doubts whether the Opposition parties can garner either short- or long-term
benefits. India's rural population is neither concerned nor affected by such protests. For urban
voters, any extra hassles in their already stressful existence and the loss of the daily wages for
the urban poor could only generate negative sentiments against the organisers.

Morally, unlike hunger strikes or silent protests, these bandhs which invariably involve some
coercion by a small minority do not evoke any empathy, nor do they allow the perpetrators to
seize the high ground. If at all, the general sentiment is that the activists have little
understanding of the issues involved, and participate because they are either paid or see this
as a step in their political future. It is indeed time that political leaders ask themselves
whether India, especially its poor, can really afford the additional costs of such protests.

The bandh was timed to protest against the petroleum price rise, following the Government's
announcement of the dismantling of the administered oil price mechanism. The Opposition's
calculus must have been that this issue offered the best bet to bring the middle-classes out on
the streets, as a rise in petroleum product prices hurts them the most. But this is rank
dishonesty.

UNTENABLE PROTEST

Political leaders surely realise that petroleum prices in India are lower than in all other
countries, except the US. They must also know, as some of them had supported price
decontrol in 2004, that petroleum subsidies are neither beneficial to the poor nor sustainable
in fiscal terms. In fact, these subsidies have a deleterious outcome for the poor because of the
inherent trade-off between a rising subsidy bill and allocation of greater public expenditure
on improving public education, health, rural physical infrastructure and irrigation, all of
which directly benefit the actual poor.

Political leaders resort to such opportunism and dishonest protest perhaps because that is the
easy way out, compared to the harder and longer task of mobilising popular support on the
basis of programmes that will generate benefits for the poor. A negative approach towards
political mobilisation carries the downside risks of generating widespread cynicism and voter
apathy, and can also be deeply divisive.
However, it was also disheartening to see that UPA spokespersons limit themselves to
scoring debating points in the inevitable television discussions. Senior government officials
did not disclose any measures that were being contemplated to tackle inflation, while
asserting that they expected inflation to start declining towards the end of the year. It would
appear that they are simply waiting for the 'base effect' to kick in and lower inflation.

INFLATION AND MODERN RETAIL

The best option for the government would be to allow the RBI to raise interest rates and
blame it afterwards for bringing down the economic growth rate.

Raising interest rates will surely dampen demand and rein in inflation, but surely the present
inflationary phase is also due to some structural and supply-side factors that only the
government can address through necessary reforms.

Rising food prices, which raise the cost of wage goods and impart a cost-push impetus to
inflation, are a direct outcome of stagnating yields, huge waste and high intermediary
margins in agriculture. The cost-plus administrative agriculture pricing mechanism only
passes on higher costs to the consumers. Waste and intermediary margins can be reduced
sharply by large-scale entry of modern retailers in the agriculture and agro-food processing
sectors.

There is ample empirical evidence to show that modern retailers offer higher farm gate
prices, reduce waste through investment in post-harvest logistics and sell the product at lower
prices.

These retailers also offer new technology and extension services to farmers, thereby helping
to raise yields and lower crop risks. Until the government's agriculture extension services can
be revived — if that can be achieved — this is perhaps the only way to bring in much-needed
technology and investment into agriculture. The sector must be modernised, if it has to keep
in step with the rest of the economy.

In this regard, the government's latest initiative of putting out a discussion paper on the retail
sector is commendable. One hopes that clear policies for bringing in FDI into multi-brand
and food product retailing will be announced without further delay. This will bring in real
competition in retail, and encourage further pruning of margins.

Retailers will try and reduce costs by procuring directly from the farmers and small
manufacturers, supporting them with new technology and cheaper inputs. They will thus cut
out the intermediaries, who operate in the agriculture mandis but have no value addition role,
as well as with branded manufacturers, thereby bringing down prices for both food and
manufactured products.

So, the first step in fighting inflation can be taken by modernising the retail sector. This will
generate positive growth impulses and also help in holding the price line, both for agriculture
and manufacturing.

Kerala Tribunal To Get Compensation From Coke

Softdrinks company to pay for "serious losses" caused to people, environment and
agriculture in Plachimada

The LDF Government in Kerala decided on Wednesday to set up a special tribunal to realise
compensation from multinational softdrinks giant Coca Cola for the "serious losses" caused
to people, environment and agriculture by its plant at Plachimada in Palakkad District.

The state cabinet took the decision based on the report of a government appointed high-power
committee which quantified the losses inflicted by the plant of the Hindustan Coca Cola
Beverages Ltd, the Indian subsidiary of Coca Cola, at Rs 216.26 crore, Chief Minister V S
Achuthanandan told reporters.

The Law Department had been asked to work out the details of the proposed tribunal, he said.

However, the company, which had run into legal tangles quite often over the issue, stuck to
its position that the committee was set up with "a pre-determined and unproven conclusion"
that operations of the plant had caused loss to the residents of plachimada.

The Coca Cola plant at Plachimada had been virtually dysfunctional for the last four years as
it was the target of agitations by resistance groups.

The company had faced problems with the government which had even banned sale of Cola
products in the state, but lifted it on the basis of an high court order.

The cabinet took the decision after overruling certain reservations expressed by Principal
Secretary (Industries) T Balakrishnan on rushing to conclusions on the recommendations of
the high power committee.

The panel headed by Additional Chief Secretary K Jayakumar had submitted its report two
months ago.

"I have already conveyed to you the cabinet decision," Achuthanandan shot back when
reporters asked about the official's views contradicting LDF's position on the issue.

He said the report had concluded the Coca Cola plant had inflicted "serious losses" in terms
of health of local people and caused agricultural and environmental harm. Newly born babies
in the area were suffering from serious health problems like underweight, he said.

The loss quantified by the committee was apart from the depletion of ground water sources
caused by the plant.
 
The report had also claimed that besides causing severe damage to farming sector in the rural
area with sizable tribal population, the plant's functioning had resulted in loss of over four
lakh work-days for labourers in the area for four years, Achuthanandan said.

He said the Cabinet agreed with the recommendation of the panel report that the company
should bear the cost of the damage it inflicted on the people and the environment.

The anti-Cola agitators and lobbyists had been pressing the government to act fast after the
recent court verdict on Bhopal gas tragedy.

However, certain statements and official note given by the Industries Secretary against
rushing to a decision on the issue have come as an embarrassment for the government.

The 14-member high power committee, which included experts from various fields, was set
up about one-and-a-half-years ago under pressure from various political parties and anti-Cola
agitators.

The committee recommended that either the state on its own constitute a tribunal or ask the
Centre to take steps to realise compensation from the company on the basis "polluter pays"
principle.
Games big corporations play

Over 20,000 killed. Over half a million victims maimed, disabled or otherwise affected.
Compensation of around Rs.12,414 per victim on average on the 1989 value of the rupee.
($470 million or Rs.713 crore. And that divided among 574,367 victims.) Over a quarter-of-
a-century's wait. To see seven former officials of Union Carbide Corporation's Indian
subsidiary sentenced to two years in prison and fined Rs.1 lakh each. Not a single person
from the far more responsible parent U.S. company punished.
Yet, the notion that the main injustice to Bhopal is the failure to extradite then UCC chief
Warren Anderson from America is mildly ridiculous. Trying to evade the lessons the 1984
Bhopal gas disaster threw up on the tyranny of giant corporations is completely so. Well over
two decades after its MIC gas slaughtered 20,000 (mostly very poor) human beings, Bhopal
still pays the price of Carbide's criminality. (Evident from the long-term impact on the health
of the gas-affected. And from the poisoned soil and water around the former Carbide plant.)
While the Indian government's appalling Civil Liability for Nuclear Damage Bill, if adopted,
would give legal cover to such conduct across the country.

Bhopal marked the horrific beginning of a new era. One that signalled the collapse of
restraint on corporate power. The ongoing BP spill in the Mexican Gulf — with estimates
ranging from 30,000-80,000 barrels a day — tops off a quarter-of-a-century where
corporations could (and have) done anything in the pursuit of profit, at any human cost.
Barack Obama's ‘hard words' on BP are mostly pre-November poll-rants. The BP can take a
lot of comfort from two U.S. Supreme Court judgments in the past two years.

The first of these came in 2008. That was in the case of the Exxon Valdez oil spill of 1989 —
till then the biggest recorded (or admitted to) oil spill in history. Simply put, BP's blowout is
recreating an Exxon Valdez every eight days or so. And has been doing that since late April.
In the Exxon case, a jury in 1994 imposed penalties of $5 billion on the company. In 2006,
points out Sharon Smith in an incisive piece in counterpunch.org, “an appeals court halved
the punitive claim to $2.5 billion.” And in June 2008, “the Supreme Court reduced that
amount by 80 per cent, to roughly $500 million — an average of $15,000 per plaintiff.”
Exxon CEO Lee Raymond who fiercely fought the damages, retired with a $400 million
package all for himself. While Exxon Valdez's victims, points out Smith, ended up with
roughly the same amount — only, it was shared among 33,000 of them. That is about 10 per
cent of the original award and roughly $15,000 per victim.

In September the same year, Wall Street's kleptocrats famously tanked the world economy.
Their actions cost millions in America and elsewhere their jobs and livelihoods. Yet, U.S.
CEOs took home billions in bonuses that very year. Even The New York Times felt the need
to say in a lead editorial at the time: “Just weeks after the Treasury Department gave nine of
the nation's top banks $125 billion in taxpayer dollars to save them from unprecedented
calamity, bank executives are salting money away in billionaire bonus pools to reward
themselves for their performance.” (In that election year, Big Oil also drummed up support
for offshore drilling with this cheery slogan: ‘Drill, Baby, Drill.' What'll it be now? ‘Spill,
Baby, Spill?')

This year, barely three months before BP turned the Gulf of Mexico into a sludge pond, the
U.S. Supreme Court further strengthened corporate power with its ruling in the Citizens
United versus Federal Election Commission case. As Ralph Nader put it: “With this decision,
corporations can now directly pour vast amounts of corporate money ... into the electoral
swamp already flooded with ... [corporate] dollars ... corporations can [now] reward or
intimidate people running for office at the local, state, and national levels.” Mason Gaffney
makes the point in the Counterpunch Newsletter that “The ideas behind this are that a
corporation is a ‘legal person,' with all the rights [if not all the duties] of a human being; that,
as such, it has a right of free speech; and that donating money is a form of speech.” So chin
up, BP, there's still hope. Remember how many who make it to Congress and Senate get there
on Big Oil's big bucks.

While on the BP spill, spare a thought for the victims of such disasters who are not American
or white-skinned. As Foreign Policy in Focus columnist Conn Hallinan points out: “Nigerian
government figures show there have been more than 9000 spills between 1970 and 2000, and
there are currently 2,000 official spill sites.” But then, what are African lives worth?

Seven years after Bhopal, Larry Summers, then chief economist at the World Bank, wrote his
infamous memo. This said, among other things: “Just between you and me, shouldn't the
World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less
Developed Countries]?” Summers suggested that “the economic logic behind dumping a load
of toxic waste in the lowest wage country is impeccable and we should face up to that.”

Summers was to later say that he was joking, being sarcastic, and so on. Few buy that
pathetic plea. Still, he went on to become President of Harvard and is now President Obama's
chief economic adviser. And his memo's logic holds in the real world. It is exactly what has
happened since Bhopal.

The UPA's response to the Bhopal sentences shows the government's ethics to be as
despicable as they were in 1984. To mourn Bhopal and ready the nuclear liability bill is a
hypocrisy hard to match. Bhopal was a post-facto sell-out. With the nuclear liability bill, the
government sells out in advance. Is it only governments that have something to hide from
Bhopal 1984? Even at the time, newspapers gladly carried planted stories suggesting
“sabotage by Carbide's workers” had caused the disaster. Four years later, a UCC-funded
‘study' claimed to prove that the disaster was caused by a disgruntled worker at the plant.
Carbide also ensured it could not be sued in U.S. courts. In December 1985, some of India's
great legal luminaries, including Nani Palkhivala, helped persuade U.S. courts that Indian
courts were the appropriate forum to deal with the case. (With results that we now live with.)
That spared Carbide the relatively much higher damages the U.S. courts might have imposed.

Barely 10 years later, Enron emerged as the symbol of the new era of liberalisation. Top
academics, ‘experts,' and columnists worked hard to tell us what nice guys the Enron mob
were. All this, after much initial criticism of the Enron deal. The change of heart was possibly
a transplant funded by tens of millions of dollars set up by that company to “educate” Indian
opinion-makers, lawmakers, etc. Advertising, too, flowed freely. One famous newspaper
started out very critical of Enron, only to switch to being one of its cheerleaders. Many
others, too, did the same. I guess that kind of fund buys a lot of education. For Maharashtra
and India, it bought disaster. The once profit-making State electricity board piled up millions
in losses. The State, in turn, slashed money from welfare projects and services. Enron, fraud
that it was, collapsed in the U.S., some of its top guns turning fugitives from the law. The
mess remains with us. The one chance of evading disaster vanished when the Supreme Court
threw out a petition against the Enron deal brought by the CITU and Abhay Mehta, and that
was that.

Meanwhile, Mr. Obama's rhetoric seems to have hurt British sentiments. The truth is that the
U.S. has helped, even subsidised, BP in the past. In what Alexander Cockburn calls “the
biggest bailout in history,” the CIA staged a now infamous coup in Iran in 1953 to get rid of
Mohammed Mossadegh's government. The Iranian Parliament had by unanimous vote
nationalised the exploitative Anglo-Iranian Oil Company. Mossadegh was toppled. Installed
in his place was “Shah Reza Pahlevi, the creature of the West's oil companies, with full
tyrannical powers. The AIOC got back 40 per cent of its old concession and became an
internationally owned consortium, renamed — British Petroleum.” The lists of corporate-
sponsored coups in the third world would fill volumes.

All that the Union Carbide did and got away with in Bhopal is shocking. But not, alas,
surprising. In the quarter-of-a-century since then, corporate power has only grown. Bhopals
happen when societies privilege corporates over communities, and private profit over public
interest. Curb corporate power, Indian or American, or it will rip you apart.

Remember too, that important thing Bhopal victims say over and over again: “we should see
that this can never happen again.” However, we seem to be ensuring quite the opposite. The
Civil Liability for Nuclear Damage Bill in its present form ensures that U.S. corporations
causing any nuclear accidents on Indian soil will get away with minimal damages. A
compensation now seen as a crime in Bhopal could be a legal norm in the future. Welcome
back, Larry Summers.

Why nations host tournaments

Watching World Cup Soccer being played in South Africa has made many wonder as to
whether India can host such a tournament. What drives countries to compete with each other
to host such tournaments?
Consider this. If India were to host the World Cup, it has to build some world-class stadiums
and renovate old ones to international standards. That would drive demand for steel, cement
and associated sectors. The increase in economic activity should augur well for the country.
Well, it turns out that the economic gains from hosting international games are not so clear-
cut. A study conducted by two economists' shows that sports-related investments are less
profitable.

National pride?

Yet, many nations invest huge money in building sports complexes and in training athletes.
Often, sports administration and the government justify the investments stating that hosting
international games boosts national pride. Does it?

A study was conducted to see if people were generally happy when their country hosted an
international tournament. The study found no evidence to this effect when countries hosted
Olympics or the European Cup. Yet, there was a telling impact on the people when a country
hosted World Cup Soccer! Unfortunately, the satisfaction, though large in magnitude, lasted
less than a year.

‘Affective forecasting'

So, if the above studies are anything to go by, India should not bid to host the World Cup.
Yet it could, as will any other nation aspiring to host the tournament. Why?

We typically err in estimating what will make us happy or unhappy in the future. Behavioural
psychologists call this “affective forecasting”. Politicians especially suffer from it. So, if they
believe that hosting an international tournament will create a feel-good factor among the
people, the nation will bid to host the games. Interestingly, happiness or excitement is not so
much in hosting the tournament. It is more so in winning the bid to host the tournament!
Besides, the feel-good factor could well enhance a government's political standing. Good
enough (behavioural) reason to bid for the World Cup?

Is Ethical Capitalism Possible?

I was scheduled to deliver a keynote speech next month to more than 1,000 business
executives on the topic of whether ethical capitalism is possible. The event organizers, a
Tokyo-based consultancy that specializes in corporate social responsibility, had the foresight
to pose this question last fall. Ironically, the intervening events of the global economic
downturn—caused by misguided incentives, greed, and moral lapses—forced the company to
cancel the event.
For me, this recession has been defined by frustrating paradoxes. Easy money, overcapacity,
and reckless consumption are what got us into this mess, yet governments must react by
lowering interest rates and pushing through enormous fiscal stimulus packages with the hope
that the housing, retail, and investment markets won't fall much more. Similarly, long-term
sensible investments in clean energy and social welfare are hindered by falling oil prices, a
lack of funding, and fresh anxiety about corporate bottom lines.
From these developments, one could conclude that the global economic system is inherently
flawed, that it is unethical and doomed to destroy itself. In fact, what is critically needed is
moderation, a middle ground between total freedom and principled action. The incoming
Obama Administration calls it "smart policies." The alternative is protectionism, a rolling
back of the open global economy, and political if not armed conflict.
Instilling the practice of ethical capitalism is possible and practical. Consumers increasingly
demand products that coincide with their moral awareness. Likewise, politicians are under
pressure to implement policies that mitigate the stresses of globalization. These forces can
come together to produce products that are recycled, carbon neutral, free range, or fair trade,
and policies that battle climate change, poverty, and global diseases.
Non-action is highly risky. Looking at climate change alone, the possible long-term risks
include a shift in arable land; sharpening competition for energy resources; and the
emergence of climate change refugees from island nations or low-lying areas, who may carry
with them or engender political violence and unrest, even terrorism. Given that carbon
emissions are primarily related to business activities, how can business models become more
sustainable?
Global human civilization has all the moral tools it needs. As Peter David Pedersen of E-
Square has noted, we neither have the time nor the need for another ideology or "ism."
Ethical principles that emphasize reciprocal rights and responsibilities have long
characterized human societies. The Golden Rule is a feature of more than 100 world religious
and cultural canons—"Do unto others as you would have them do unto you."
The ancient Egyptians and Greeks alike pointed to the moral worth of not doing to your
neighbor "what you would take ill from him." The Golden Rule is found in both the Old and
the New Testament, with the Great Commandment found in Leviticus: "Love thy neighbor as
thyself." For Islam, the Golden Rule was offered in the last sermon of Muhammad: "Hurt no
one so that no one may hurt you."
Variations and extensions of the principle are also found in Buddhism, Hinduism, Taoism,
and Jainism. For many of these Eastern faiths, the Golden Rule extends beyond one's fellow
man to encompass all creatures, because sentience exists in a spectrum. The original
interpretation of humankind's relationship with nature was that of stewardship, as outlined in
the Old Testament and Hebrew Scriptures.
If the Golden Rule acts to codify one's rights and responsibilities toward others, the principle
of the Golden Mean helps them to be achieved. As a key concept in Chinese, Greek, and
Indian philosophy, the Golden Mean emphasizes tolerance, moderation, and pluralism.
Aristotle's maxim "nothing in excess" and Confucius's idea of equilibrium speak to modern
concepts of sustainable living.
In the 1980s, the Brundtland Commission presented sustainability as an integration of
economic, social, and environmental spheres to meet the needs of the present without
compromising the ability of future generations to meet their own needs. This is simply a
special case of the Golden Rule: Do unto future generations as you would have them do unto
you.
Encompassed in this definition are not only the traditional relations of sustainability to
energy, natural resources, and emissions, but also a notion of sustainability that is extended to
community relations, working conditions, and succession planning. If heeded, these basic
ethical principles require individuals to consider the consequences of their actions, as they
apply not only to their peers but also to their environments.
Today there are promising signs of a more ethically minded business culture. Many
businesses are shifting away from narrow, profit-driven models to models with a greater
focus on environmental and social issues. Corporate social responsibility, although not a new
concept, is gaining currency in the mainstream marketplace, as governments, consumers, and
shareholders demand better products and conduct from companies.
Corporate social responsibility and its financial counterpart socially responsible investing
have risen substantially as a concern for global executives. These two fields, devoted to the
creation of an ethical and sustainable business mode, encompass within them everything from
funding local community projects to securing employee benefits in the workplace, reducing
poverty, and preserving the health of the environment.
Part of the reason for this shift is that companies are being held to account by their
constituents. The reach of the Internet has produced ready access to information and a new
means of voicing objections and suggestions. With the ease of new technology and a more
resolute brand of activism, stakeholders are better able to create open lines of communication
to corporate management circles, forming the grassroots campaigns of the new millennia.
These concerns about redirecting capitalism toward the public good are perennial. In 1909,
Herbert Croly, one of the founders of the New Republic, published The Promise of American
Life. His book, which influenced Presidents Theodore Roosevelt, Woodrow Wilson, and
Franklin Roosevelt, pointed to the need for a stronger central government to check greed,
corruption, and unfair distribution of wealth.
In the interconnected global community of today, organizations and individuals are banding
together across cultural and geographic divides to solve common problems. They are voicing
the need for a renewed and moderate normative framework that will define the way humans
live and interact in the 21st century.
In anticipation of the February event in Tokyo, I asked United Nations Special Representative
John Ruggie whether ethical capitalism is possible. "Well, sure," he said with a grimace. But
it won't occur unless policies and regulations provide the right incentives, he continued. The
role of ethics is in shaping those regulatory regimes.
The Obama Administration has a big job ahead in reminding the American people of their
ethical roots. During his inauguration speech this week, President Obama said that although
we all face new challenges, core ethical principles, like honesty, loyalty, and fair play, are
"old" and "true." Fortunately, and again paradoxically, the new president also knows that a
crisis is not to be wasted.
PM panel's draft plan for farm sector growth soon

A committee on agriculture, which includes corporate bigwigs such as Mr Mukesh Ambani

and Mr Jamshyd Godrej, has decided to come with an operational plan to achieve higher
growth in the farm sector through private sector involvement.

The committee, which had been set up by the Prime Minister under the Prime Minister's
Council on Trade and Industry, met for the first time on Friday. The members decided to
prepare a draft operational plan by mid-August taking inputs from industry leaders.

“Growth in the agriculture sector is lagging behind compared to other sectors. We deliberated
on the role of trade and industry in enhancing agriculture production to meet the country's
food security,” said the Agriculture Secretary, Mr P.K. Basu.

Market Reforms

He said: “We have broadly agreed to identify some of the policies like market reforms that
are stopping the sector from achieving higher growth and also agreed to identify agri-zones
so as to design focussed programmes to raise food production.”

The country's average farm growth in the first three years of the 11th Plan period (2007-12) is
only 2.2 per cent, while the target is 4 per cent for the entire period.
The Godrej and Boyce head, Mr Jamshyd Godrej, said: “We discussed how to boost food
production for the next ten years and how the private sector can be involved in enhancing
foodgrain production and increase the income of farmers.”

Premji's mantra for managers: Face clients or colleagues

Rasheeda Bhagat

Wipro Chairman Azim Premji's style of management is not only “unique, it is also very
professional and very thorough,” says the IT giant's Joint CEO Girish Paranjpe, who has
worked with the organisation for 20 years.

For one thing, Premji believes managers should travel and be in front of “clients or
colleagues”.

Each quarter, Wipro's head honcho prepares a chart to track who has done the most business
travel. “And we have a very strict matrix… the number of days travelled is counted only if
you stay overnight; morning-evening travel is not counted,” says Paranjpe.

Not only does Premji track his colleagues' travel but also puts out the numbers so “everything
is public. His logic is you should be sitting in front of clients or your colleagues who are
scattered all over the world, and not in the head-office writing memos,” says Paranjpe.

“He has been advocating and practising this for the last 20 years that I've known him.”

So last quarter, when numbers were published Premji topped the chart with 36 days' travel
during the quarter. Paranjpe was second with 32 days and his co-CEO Suresh Vaswani third
with 31 days.

Premji's preference for economy class is well known; so has the 65-year-year old man now
switched to business class?

“No, no, Mr Premji travels only coach, except internationally, and that too if it is six hours or
more. (Which means Dubai and Singapore would be by economy!) But for all domestic
travel, including in the US, he travels only coach. This is the policy for everyone in the
company from Day 1 and it has not changed,” says Paranjpe.

Asked if there is any resentment, he says: “Well, it is company culture and everybody has to
accept it.”
Though Premji does not “micro manage,” the meetings he calls need great preparation.
“There has to be formal preparation for the meeting; there will be an agenda, papers
submitted beforehand, sometimes he'll seek clarifications before the meeting starts, so that he
doesn't waste his time asking factual questions at the meeting. It is very elaborate; if the
meeting is on Monday, the papers have to reach him before the weekend. He'll read the
papers over the weekend and ask questions.”

So what does he admire the most about the man?

“His discipline is phenomenal, as also his hard work. People wonder why should a person of
his wealth and stature care to work so hard… he could just relax and spend his time south of
France! But he works as though he is a paid manager.”

But along with being very hard working and disciplined, he has “a great business sense. He
knows where the opportunities are before they happen. But it is not just instinct; he
reads/studies things like crazy. All the papers you can send him…they could be thousands of
pages and he'll read… not skim through but read… all of them! So you can't just casually
send papers to him because he will read every line in every page.”

Why pulses prices are ruling higher at the retail level

G. Chandrashekar

Mumbai, Aug. 1

At Rs 45 a kg, imported yellow pea is the cheapest pulse on the kirana shop shelf.
Its landed cost is Rs 16 a kg (Rs 16,000 a tonne) and processing adds another Rs 6 a kg (Rs
6,000/tonne). Yet, by the time it reaches the shelf of your neighbourhood kirana shop or the
supermarket, the price is double the wholesale rate. Retailers, it would seem, make as much
money as the primary producer (grower).

As prices of essential commodities soar, the Government claims helplessness citing such
reasons as domestic shortage and high international prices. But, it does not seem to be
looking at what is going on in the marketplace in its own backyard.

For, as market participants assert, retailers are quick to raise prices when the wholesale rate
moves up but seldom reduce prices with the same alacrity when wholesale rates drop.

An essential food commodity of mass consumption, pulses prices have been of grave concern
for the Government and consumers alike the last two years. Official measures such as ban on
exports, zero-duty imports, storage control, subsidised imports through public sector trading
enterprises and so on have yielded little.

Sharp hikes in the minimum support price for various pulses have surely raised the bar. Other
contributory factors include brokerage (at multiple points), produce market cess (APMC),
costs of transport, storage and handling as well as dal milling expenses.

There is then the question of sentiment. Shortages usually result in speculative trading. There
is also cash and carry arbitrage. Wholesale price movements usually reflect the market
sentiment.

Despite all this, pulses prices ought to have been lower than the current levels by about a
fifth.  But, they are not and the retail segment may be the reason. There has always been a
marked difference between the factory-gate prices of dal (split pulses) and the retail rates, but
in the last two years, the gap has widened. Retail margins are a high 20-30 per cent.

While the wholesale market is quick to respond to changes in market conditions (say, in
international prices or domestic output), retailers are often loathe to changing the
consumer price tags.
Also, the pulses supply chain is far from efficient. There are too many intermediaries, though
adding little value. At the retail end, there is enormous profit to be made by simply ignoring
changes in the wholesale market and sticking to the same (usually higher) price until stocks
last or consumers stop buying.

Well-to-do consumers complain but do not stop buying.

Does this call for a stricter monitoring of the retail trade? Should restrictions be imposed on
storage and trade margins?

The jury is out on that, but surely, if retailers work on reasonable margins, pulses prices can
be lower by at least 20 per cent from the current levels.

Drip irrigation developed for pulses, oilseeds

After its recent success with the water guzzler paddy, Jain Irrigation is propagating usage of
drip irrigation in pulses and oilseeds.

Traditionally, pulses have been a rain-fed crop and most farmers use minimal irrigation.

pulses

The company has conducted initial tests providing complete solution along with drip
irrigation facility to a few farmers growing pulses in Maharashtra and Andhra Pradesh.

It is now extending it to Madhya Pradesh and parts of Karnataka.

Mr Anil B. Jain, Managing Director of Jain Irrigation, said farmers growing pulses in
Maharashtra have not only conserved water through drip irrigation, but also earned much
higher income as the yield goes up substantially with limited use of fertiliser and other
nutrients.

The normal yield of pigeon pea (tur) crop in Maharashtra under standard conditions of
sowing is just four quintals an acre.

It has been enhanced to 10 quintals an acre due to drip irrigation.

COST

The cost of laying the drip irrigation system works out Rs 15,000-22,000 an acre.

Farmers get Government subsidy of 50 per cent on the total cost of drip irrigation.
Drip irrigation system delivers water to the crop using a network of mainlines, sub-mains and
lateral lines with emission points spaced along their lengths.

Each dripper or emitter supplies a measured, precisely controlled uniform application of

water, nutrients and other required growth substances directly into the root zone of the plant.

OILSEEDS

“The test on using drip irrigation for oilseeds is in the final stages and will be testing the
same on the fields soon,” Mr Jain.

Jain Irrigation recently conducted a test on using drip irrigation for paddy at its farm in
Udumalpet near Coimbatore.

It managed to increase the yield on ADT-45 variety of paddy to 3.8 tonnes an acre through
drip irrigation against 3.4 tonnes under conventional flood irrigation.

COMPARISON

The volume of water used with drip irrigation was 32.4 lakh litres an acre against 104 lakh
litres under conventional irrigation.

The electricity used was almost halved by use of drip irrigation against conventional pumping
system.

“We do not merely sell the micro irrigation system but provide the entire agronomic after
careful study of all the relevant factors such land topography, soil, water, crop and agro-
climatic conditions,” said Mr Jain.

The company has more than 300 technocrats, engineers, agronomists, horticulturists and
regional offices, as well as trained dealers, distributors all over India and abroad.

Tax issue keeps buyers off, wheat drops

The firmness with which market authorities are collecting tax is keeping buyers off the grains
market here.

Due to low buying, wheat prices dropped marginally. On Thursday, the Dara variety ruled at
Rs 1,185-1,190 a quintal.

The prices of desi wheat varieties ruled unchanged at previous levels.

The Tohfa variety ruled at Rs 2,200 a quintal; Lok-1 ruled between Rs 1,800-1,820; kitchen
queen new marka was at Rs 2,000-2,100; Parley-G variety was quoted at Rs 2,000-2,130 and
the Nano was at Rs 2,070 a quintal.

On the condition of anonymity, a wheat trader, told Business Line that traders want to
procure the stock without paying the eight per cent tax imposed by the Haryana Agriculture
Marketing Board (Market Committee). Stock is available in the market, but because of the
high tax very few traders are in the market, he said.

Around 250 quintals stock arrived in the market from Uttar Pradesh on Thursday, but only
part of the stock was lifted.

Mr Sewa Ram, a wheat trader, said that around 60 quintals of tohfa variety arrived in the
market but because of rain, the moisture in the arrival was high.

Following the high moisture, it would be cleared at lower prices, he said. Paddy arrived

Around 1,000 bags (60 kg each) of Govinda paddy arrived in the market.

The early variety paddy was quoted at Rs 950-985 a quintal.

Sugandha-999 paddy, with a stock of 500 bags, was quoted at Rs 1,100-1,250.

Gulf enquiries egg on layer trade

Lower production and the resumption of export enquiries from the Gulf led to improved
market sentiments for the layer egg trade this week.

The minimum stock levels currently witnessed have given scope for a five paise hike in the
wholesale egg price.

The Namakkal-based National Egg Coordination Committee's zonal price fixation committee
has decided to increase the farm gate price to Rs 2.35 an egg from last week's Rs 2.30.

General Slackness

The trade is going through a period of general slackness in consumption in upcountry markets
such as Delhi, Uttar Pradesh, Maharashtra and the neighbouring Karnataka and Andhra
Pradesh.

This has cast a sobering effect on the shell egg prices.

“In fact, NECC last week chose to maintain the farm gate price of table egg at Rs 2.30 a piece
and only for the past two days it has raised the prices to Rs 2.35,” an NECC office–bearer
said, adding that if at all there was any upward movement in the wholesale price, it would be
only by 5-10 paise more over the next few weeks.

NECC has increased the rates for its layer birds at Rs 40 a kg (Rs 34 a kg).

The Palladam-based Broiler Coordination Committee has fixed the prices of live chicken at
Rs 62 a kg throughout this week from last week's Rs 56.

The improved market sentiment for table eggs will lead to resumption in the new bird
placements in the Namakkal region.

Defence Ministry's move

The Defence Ministry's move to increase the number of eggs for the 30-lakh strong armed
forces from this week to two eggs a day is expected to give a fillip to the poultry farms
thereby, leading to expansion in the number of layer population in near terms.

But some traders discounted the possibility of wholesale egg prices showing any surge
immediately due to this announcement stating that poultry units in Namakkal, the country's
poultry trade hub, should plan on packaging eggs in liquid form and then to transport them to
rough terrains in shock-proof boxes.

Subsistence with guarantee

Jashmabai is working under the punishing sun on an earthen dam in her village of Darkali, in
Madhya Pradesh's Alirajpur district, being built under the Government-funded Mahatma
Gandhi National Rural Employment Guarantee Act (MNREGA). She candidly explains why
she labours thus, “Our men are wastrels, spending their time drinking or looting someone. So
we decided to do something about it and found work here.”

Belonging to the Bhilala tribal community, she speaks for many other women like her living
in extreme poverty in a drought-prone region. A local organisation helped the women access
the Government worksite, and today they are at least able to keep their families fed. They
have few livelihood options. The land cannot support most families here, because the soil in
these small, fragmented homestead plots is poor and unproductive. The mahua trees and
toddy palms that dot the region only serve to provide the local men with ample sources of
liquor. Poverty and alcohol form a lethal cocktail, leading also to crime and violence.
Women, as always, emerge from such a situation as the worst sufferers.

The MNREGA is nothing short of a lifeline for the women in Darkali, helping them battle
both poverty and male oppression. According to the recent UN Millennium Development
Goals (MDGs) Report 2010, poverty rates in India are expected to fall from 51 per cent in
1990 to 24 per cent in 2015. The MNREGA has helped this process. Its greatest advantage is
that any group of job-card holders can prepare a work scheme and present it to the panchayat
for implementation. If the panchayat does not agree, the applicants can deposit the
application at the local panchayat office and get a receipt. After that it becomes mandatory
for work to start within 15 days and 100 days of work have to be provided to each of the
applicants at a daily wage of Rs 100.

The MNREGA emphasises the employment of women in such projects, so that their wages
can augment the family's meagre income. Local social activists are now working to mobilise
and assist local communities to demand work and get their full entitlements.

Explains Retli Ajnaria, who gave up her job as an anganwadi worker under the Integrated
Child Development Scheme of the Madhya Pradesh Government to become a full-time
activist with a local group, the Khedut Mazdoor Chetna Sangath (KMCS), “This scheme
allows women to apply for work in a group of their own and then the payments are made
directly into their bank accounts. With one stroke women get the work they want and also the
money without the involvement of any intermediaries. This gives them a tremendous sense of
power.”

Earlier, Retli was working to organise women into Self-Help Groups of 10 or 12 members.
She tried to introduce them to microcredit, but their extreme poverty meant they could save
very little. Things changed drastically with the MNREGA. Apart from the employment
generated, it also helped create water and soil conservation structures, which have in turn
resulted in higher agricultural productivity. This has meant more agricultural work for both
men and women.

Gamtibai, also of Darkali village, comes straight to the point, “Its biggest advantage for us is
that men have now got some work to occupy themselves and keep them from fighting and
looting each other. Only last year there was a murderous fight between two groups in our
village and many men got seriously injured and landed up in jail. Now they are all working
together on the same earthen dam.”

The path to this relatively happy situation was by no means smooth. Initially, local officials
like sarpanches (village council heads) and panchayat secretaries actively dissuaded people
from applying for work schemes. Jashmabai recalls, “The local sarpanch, Ugar Singh, refused
to accept our application for work, as did the panchayat secretary, Chandar Singh. Then we
went along with Retli bai, to the local office to file our application there.”

Even after the work was officially sanctioned, the sarpanch refused to initiate it. That was
when Retli decided to go to the worksite with the women, and together they began the
digging work. After three days of work, the sarpanch had to concede to the women's demand.
Now things have settled down and wage payments have steadily found their way into the
bank accounts of the workers. A creche for the workers' children was also set up, with two
women employed in it.

Development projects in rural India have long been a source of corruption, with funds
regularly siphoned off at various levels by bureaucrats and politicians. The MNREGA has
tried to remedy this by instituting social audits and insisting on transferring wages directly to
bank accounts. But corruption still seeps in, with those in charge sometimes devising
ingenious ways to cheat poor workers of their dues, either through intimidation or by
manipulating registers.

“This is why it is extremely important that those seeking work on Government jobsites are
better informed,” says Yogesh Kumar, Executive Director, Samarthan, a Bhopal-based
organisation working on issues of participatory development and governance. In Panna,
another impoverished district, Samarthan — with assistance from the Government of India
and United Nations Development Programme (UNDP) — is conducting functional literacy
interventions in 13 villages.

Explains Kumar, “The idea is that MNREGA workers, especially the women, are able to
comprehend the entries on their job cards and bank books, and read related numbers and
words like mazdoor (worker), kaam (work), daam (prices).”

The results, he says, are encouraging. Small groups of women workers have been formed to
deliver these lessons in basic literacy to others in the community and a primer has been
developed for it. This informal teaching has another benefit: It facilitates discussion on
people's experiences in accessing work under the MNREGA and general working conditions.

If poor, largely illiterate workers are to get their entitlements under the MNREGA — widely
regarded as the world's largest employment-generating State initiative for the poor — they
also need to be better informed and supported. The initiatives of the KMCS and Samarthan in
Madhya Pradesh, arguably India's poorest State, are therefore extremely important.

This month, leaders from various countries will gather at the United Nations to assess the
progress the world has made on the Millennium Development Goals, including the key
challenge of halving, between 1990 and 2015, the proportion of people living in extreme
poverty. There is little time to be lost with the deadline for this pivotal goal just five years
away. According to the new multidimensional Poverty Index of the UNDP, 55 per cent of
India's population is poor and they number about 645 million. Employment for women like
Jashmabai is therefore crucial for giving their families a better deal in life.

Rotting foodgrains, starving poor

First, a few shocking facts, unearthed by a Parliamentary Committee: Between 1997 and
2007, 1.83 lakh tonnes of wheat, 6.33 lakh tonnes of rice, 2.20 lakh tonnes of paddy and 111
lakh tonnes of maize rotted due to either lack of storage facilities or poor maintenance of
stocks in the existing facilities.

As on January 1 this year, 10,688 lakh tonnes of foodgrains were found damaged in the
depots of the Food Corporation of India (FCI), enough to feed over six lakh people for over
10 years.

The storage losses of foodgrains in 2009-10 amounted to Rs 228.39 crore and transit losses
another Rs 182.46 crore.

The targeted public distribution system (TPDS) meant for families below poverty line (BPL)
was unable to reach the poor, on account of both systemic deficiencies and the Government
not having updated data.

The Parliamentary panel found that the requirements of foodgrains for the TPDS were being
computed at 27.5 per cent of the population on the basis of the lowest poverty estimate of
1993-94 made by the Planning Commission, overlooking the calculations of much larger
number made by Committees headed in recent years by Arjun Sengupta, N. C. Saxena and
Suresh Tendulkar.

For instance, according to the Saxena Committee, the BPL population was 50 per cent, while
the Tendulkar Committee's estimate was around 38 per cent with the base year of 2004-05.

Normally, one would have expected the Government and the Food Minister, Mr Sharad
Pawar, to be human enough to feel for the starving poor, and taken steps, on their own
volition, against the rotting of huge quantities of foodgrains in the godowns or lying in the
open exposed to sun and rain.

If their tears for the poor were genuine, they would not have been waiting for somebody to
goad them to distribute the grains free to those below BPL in the country, especially in the
context of the FCI having, as on June 1, a stock of 57.8 million tonnes against the buffer
norm of 31.9 million tonnes.

Stalling tactics

As Dr M. S. Swaminathan, the renowned agricultural expert, suggested, the Government

could by this time have asked the National Institute of Nutrition, Hyderabad, and the Central
Food Technological Research Institute, Mysore, to examine the rotting foodgrains to sort out
the quantities which were inedible, or were edible only as an animal feed, so that foodgrains
fit for human consumption could have been distributed free to the poor.

But no, it did nothing of the sort. Even after the Supreme Court, while hearing a public
interest petition, told the Government as early as on August 12 to discharge its bounden duty
to save the starving poor by the free distribution of foodgrains which were going waste, Mr
Pawar began quibbling that the Supreme Court only made an ‘observation' and it was not an
‘order'.

When the apex court on August 31 emphatically drove home the point that its earlier remark
was a clear directive meant to be carried out, Mr Pawar adopted stalling tactics. He first flatly
stated that it was not practicable to implement the court's order, then that the quantities said to
be rotting were ‘hugely exaggerated', and next, that the court's order had not reached his
hands.

It was only when he was cornered by relentless castigation by angry members in both Houses
of Parliament did he finally agree to ‘honour' the court's decision.

Altogether an unsavoury spectacle of a seasoned Minister like Mr Pawar tying himself into
knots over what essentially was a simple and commonsense proposition.

In the bargain, he made the Government look heartless and callous, causing acute
embarrassment to the Congress(I) and other partners of the UPA, making it impossible for
them to come to his defence.

Carbon credits to be taxed in new tax regime

Sale proceeds of carbon credits will not escape tax when the new Direct Taxes Code comes
into effect from April 1, 2012.

This is because the DTC Bill 2010 has explicitly stated that money received or receivable
from transfer of carbon credits will be treated as business income and taxed accordingly.
Such a provision if enacted will remove the current uncertainty surrounding the taxation of
carbon credits, say tax experts.

Ambiguous

In the existing income tax law, there is no explicit provision that brings transfer of carbon
credits under the tax net. In the absence of an explicit provision, there were disagreements
between companies and the tax department on the taxability of carbon credits.

It was often contended that cash credits were in the nature of capital receipts and therefore
could not be subjected to income tax. There were also sections that considered carbon credits
as revenue receipts and hence felt that it should be subjected to tax.

The availability of tax incentives (profit linked deductions) for certain industries also
complicated the issue of taxability of carbon credits.

However, the DTC Bill has now proposed to move away from profit linked deductions in
respect of most segments except in the case of SEZ developers and SEZ units.

“The current income tax law has no provision on carbon credits. It is a grey area. However,
the DTC Bill has sought to clarify the position and clearly mentions that carbon credit sale
will be categorised as business income. So under the proposed regime, carbon credits will be
treated as revenue receipts and will also attract tax,” Mr Sameer Kanabar, Tax Director, Ernst
& Young, told Business line.

Moving backward

Some industry observers, however, contend that bringing carbon credits into tax net may be a
retrograde step as it will discourage corporates from working towards reduction in carbon
emissions and preventing global warming.

China and India account for about 75 per cent of the carbon credits issued, according to the
United Nations Framework for Climate Change. Many Indian corporates had in the recent
years earned tidy profits from carbon credit trade, but had not provided for any tax in the
books of accounts in the absence of specific provision in the income tax law.

FDI investments dip 18%

The unstable economic situation in the US and Europe has had a bearing on foreign direct
investments which has registered a 18.33 per cent dip to $10.77 billion for the January-June
2010 period as against $13.19 billion in the corresponding period a year ago. According to
Department of Industrial Policy and Promotion data, services sector attracted maximum
investments. Other sectors include telecommunication, construction activities, housing and
real estate, power and automobile. FDI for 2009-10 at $25.88 billion was lower by five per
cent from $27.33 billion in the previous fiscal. Mauritius continues to be the highest investor
into India followed by the US, the UK, Singapore, the Netherlands and Japan. — Our Bureau

There's a big difference between running an industry and a business

“When I joined Cipla, we had a very rough time between 1960 and 1975…We had to apply
for permissions for every product we wanted to manufacture. It would take six months. If a
product required import, exceeding a particular percentage, it had to go for an industrial
licence; it would take 2-3 years to get one. To go abroad was impossible. At that time, it took
six years to buy a Fiat car ....six years to buy a car!” recollects Cipla Chairman Dr Y. K.
Hamied, in his characteristic rhetorical style.

It has been a 50-year-long journey for Dr Hamied in Cipla, with the company itself clocking
its 75 {+t} {+h} year. And though much has changed since, some arguments continue to be
relevant, he observes, especially when it comes to rewarding research, and keeping out a
monopoly.

Glimpse of yesteryear

Offering a glimpse into how young companies worked then, he says they sought to create an
industry, as opposed to just being a business. “There's a big difference between running an
industry and running a business. Industry, to me means today, tomorrow and the day after. If
something goes wrong in the industry and people want to back out, that's a different issue.
But the industry should keep going,” he says, speaking from his Central Mumbai office on a
rainy Saturday morning, pushing a punishing schedule.

“Let's take England… When I was a student there, 50-60 years ago, the major companies
were ICI, Beecham, Burroughs Wellcome, May & Baker and Boots — none of the five exists
today,” he observes, citing similar examples from France, Germany, Italy and Switzerland, to
illustrate how older companies don't exist anymore.

“We are seeing a major change in the pharma industry scenario worldwide, especially in the
area of M&As (mergers and acquisitions). Now, whether it is a good thing or a bad thing and
what it leads to, I am not in a position to answer. I only know that if Government supports an
indigenous industry in every way possible, then the indigenous industry can sustain (itself),”
he says.
Reflecting on the pre-1972 situation, Dr Hamied says it was when the Indian Drug
Manufacturers Association was formed to fight against existing product patent laws. “It was a
very tough battle,” with multinationals holding 70 per cent of the market. “I remember
clearly, the fight was not for patents, the fight was against monopoly,” he says, recalling the
changing industrial landscape then. “We want patents, I am a scientist, I want patents....but,
monopoly nahi chahiye,” he had said then.

A sentiment that is relevant today, as the country journeys from a time it recognised product
patents pre-1972, to honouring only process patents subsequently. And then again in 2005,
the patent regime in the country was amended through an Ordinance to recognise product
patents.

Product patents allow the inventor or originator a 20-year exclusive monopoly on sales,
thereby keeping at arm's length companies capable of making generic or chemically-similar
versions of the same medicine.

There are fresh worries on the horizon, though. Five years after the patent regime was
amended to respect product patents, the country has witnessed six domestic drug operations
sell out, completely or in part, to multinationals. And this has raised eyebrows in several
quarters, on the impact it would have on medicine prices.

So is there a sense of déjà vu, in 2010? “We are revisiting the pre-1972 situation, with a slight
difference. The difference I notice is that in those days all the companies were very small and
they were all growing. So there was a purpose and we were trying to generate an industry.
Today I see, at least in the pharma industry, that business is getting mixed up with industry. I
personally feel that conducting a business and running an industry are two separate things.”

Like-minded

Yes there are pressures, and people may want to sell when you are at the top, comments Mr
Hamied, on developments in his industry. But as businesses pass down from generation to
generation, does the idealism and involvement reduce as well, especially vis-à-vis the
founders?

We were all fighting for the creation of Independent India and self-reliance. I grew up in that
environment and, perhaps because of that, I haven't changed and luckily for us, my brother
and I are totally like-minded on this. We grew up in that atmosphere. And we are trying to
see that the next generation also thinks our way,” he says; Cipla recently inducted Dr
Hamied's nephew Kamil Hamied into the company.

Younger generation
Faced with queries on the significance of the younger generation getting involved with the
company, he says, “the younger generation getting involved is a good sign. But getting
involved from the business point of view or to run an industry,” he asks, leaving it open-
ended.

Running a company or a country has to do with continuity in leadership, he says,

emphatically. Unfortunately though, at a policy level, “we are giving more than we are
getting, for what reason I don't know. It's about time we decide our own destiny. What is best
for India,” he says. Else the best in the business may be forced to take a pragmatic and
realistic view of their business, he cautions, against the backdrop of local promoters exiting
their businesses.

A pragmatic, compulsory licensing system is something the country needs to bring in, he says
emphatically, as it allows generics to make a patented drug, by paying royalty to the
innovator. The aim is to discourage monopolies. “After 2015, more and more monopolies
will set in and the general public will not be able to afford the newer drugs. The trend is
already coming in,” he observes, sounding a note of caution.

Blight disease hits Karnataka potato

Potato crop under contract farming in Hassan district of Karnataka has been affected by
potato light blight (PLB) disease, forcing farmers to migrate to other cash crops this kharif
season.

Multinational companies such as like Pepsi, Coke Cola and others are active in the region
through contract farming to make wafers. These companies together account for about 15 per
cent of the total area under potato cultivation in the State.

Karnataka's potato crop determines the price in the country till the north Indian crop arrives
in the market. The State is one of the few ones to have a potato grown both in the kharif and
rabi seasons.

SWITCH TO OTHER CROPS

Hassan has nearly 60,000 hectares under potato and accounts for nearly 70 per cent of the
State's production.

The State Horticulture Department estimates potato acreage in Hassan district during the
ensuing kharif season at a mere 30,000 hectares as farmers have switched to maize or ginger.
“This has led to acreage under potato declining from 55,800 hectares in 2005-06 to 43,300
hectares in 2007-08. This has halved the output from 3.6 lakh tonnes in 2005-06 to 1.45 lakh
tonnes in 2007-08,” said a State horticulture department official.

“In addition to PLB disease this year, the area sown is less than 30,000 hectares due to
shortage of complex fertiliser and delayed rains,” said the official.

The PLB disease which occurs due to low temperatures, has been affecting the potato
growing areas in the State for the past three- four years.

This year too, the crop has been affected.

“Ironically seeds supplied by MNC companies under contract farming have also been
affected by the PLB this year,” said a senior official of horticulture department.

Mr H. Venkatappa, a farmer from Arkalgud taluk, a farmer who has benefited by contract
farming, said “Earlier we were dependent on open market prices. But with the entry of
MNCs, we have been getting quality seeds and steady income.”

Mr Venkatappa further said he had been growing potato for the past 10 years, but was facing
problems related to PLB for the past four years.

A plethora of opportunities

Arunachal Pradesh has a rural economy with approximately 75 per cent of the population
dependent on agricultural and allied activities for their livelihood. Shifting or Jhum
cultivation occupies centre stage in the agricultural landscape of the State with around 110
thousand hectares under the same. The net State Domestic Product has shown an increase of
about 84 per cent from 1999-2000 to 2005-2006 but agricultural output has increased by only
around 38 per cent during the same period. Agriculture and allied sector's share in the net
State Domestic Product has decreased from about 32 per cent in 2000-01 to about 25 per cent
in 2007-08.

Horticulture

Undulating topography and varied agro-climatic conditions offer vast potential for the
development of horticulture for growing varieties of tropical, sub-tropical and temperate
fruits, vegetables including off-season vegetables, spices, aromatic and medicinal plants,
flowers such as orchids and mushroom. The agro-climatic conditions are perfectly suitable
for fruit crops such as apple, citrus, pineapple, banana and papaya; spices – cardamom, black
pepper, ginger, turmeric and chilli; a variety of roots and tubers and a range of vegetables.
The State thus enjoys a natural comparative advantage for horticulture with possibilities for
growing a diversified basket of fruits, vegetables, spices and tubers, whose potential has not
been fully exploited. Horticultural crops occupy around 5.2 per cent of the total geographical
area with acreage of around 99,116 hectares during 2009-10 and out of this fruits cover 70
per cent of the area while vegetables and spices account for 16 and 14 per cent of the area
respectively.

The State is also an ideal location for the production of a large variety of orchids. Out of
about a thousand species of orchids in India, over 600 are to be found in Arunachal alone.
Many of these orchids are rare, endangered and highly ornamental with long-lasting flower
qualities. Amongst the orchids, as many as 150 species are ornamental and commercially
important.

The State, thus, has great potentials in orchid trade industry which consists mainly of plant
and cut-flowers besides various other cottage industries and tourism potential.

The farm lands provide significant scope for cultivation of organic fruits, vegetables and
spices in Arunachal Pradesh. The agro-climatic conditions and bio-diversity as well as the
culture of tribal people are most suitable for promotion of organic farming. As there has been
no advent of chemical inputs in most of the farming areas in Arunachal Pradesh, a large
chunk of production in the State has been through organic cultivation by default. A careful,
conscious and a well-designed promotion of the concept is the need of the hour, followed by
certification, which would fetch a good price for the farmer and improve his livelihood.

Foodgrains

Important foodgrains cultivated in the State are rice, wheat, maize, millet and pulses, among
which rice accounts for close to 52 per cent of the total area under food-grains. Soyabean and
sesame are the major oilseed crops grown in the State, besides groundnut. The production of
food grains during 2008-09 was to be around 370 thousand tonnes while production of oil
seeds to be about 38 thousand tonnes. The State Government aims to achieve self-sufficiency
in food grains especially in rice in the coming years.

Livestock and Poultry

Livestock plays an integral part in the socio-economic and culture of the local population.
The local consumption habits are basically non-vegetarian. This sector has great potential for
employment generation in addition to poverty alleviation and enhancing economic status.
According to the 17th livestock census (2003), the total livestock population of the State was
about 12.50 lakh heads, of which pigs and goats contributed to 3.30 lakh and 2.31 lakh
respectively while the population of mulching animals was estimated to be about 4.69 lakhs,
of which cattle constituted 97 per cent while the rest were buffaloes. The poultry population
was estimated to be about 17.43 lakh birds.

Government initiatives

To achieve higher economic growth and create job opportunities for the rural unemployed
through agriculture and allied sectors the State Government has formulated the Agricultural
Policy 2001. The key initiatives under this are as follows:

Addressing problems related to shifting (jhum) cultivation, location-specific strategy

development, convergence of allied activities by making a shift from a commodity approach
to a system approach in agriculture.

Technology transfer

Supply of inputs such as seeds, fertiliser, pesticides, agri-tools and implements, and credit to
farmers at reasonable rates, Facilitating private investment in agriculture, especially for
establishing agro-based industries.

People's participation through formation of “self-help groups” and village committees at

several levels, research and technology package for location-specific agricultural research
based on identified agro-climatic zone, Marketing infrastructure and techniques, especially
for preservation, storage and transportation, Priority on setting up agro-processing units in
key production areas, market intervention scheme involving procurement by a notified
agency to assure remunerative prices to farmers.

Conclusion

Arunachal Pradesh with its varied agro-climatic conditions and agricultural potential can
transform its agricultural landscape for all round development. Though the scope of area
expansion is limited due to topographic conditions, the State can benefit by focusing on high
value and niche products unique to the region. The need of the hour is a concerted effort on
several fronts based on a system centred on the prevailing conditions with additional
resources and strong support at the grass-root level.

Living well, dying well

Kerala has long been feted for its superior quality-of-life and human development indicators,
which often put it on par with – if not ahead of -- advanced Western economies, despite being
burdened with a low per capita income and industrial backwardness. No wonder, the Nobel
prize-winning economist Amartya Sen hailed Kerala as a “shining example” of the
exceptional possibilities of concerted public action and State policy to deliver good services
to its citizens.

Consider just one indicator – longevity. The average life expectancy in Kerala is now close to
74 years (near European standards), compared to 68 a quarter century ago.

The average proportion of the elderly (over age 60) in India as a whole was 6.3 per cent in
1981. For Kerala, the percentage was 7.6. Demographers project that the elderly population
in Kerala will rise to 4.6 million by 2011 and to 8.3 million by 2026. By 2026, Kerala will
have 6.3 million people aged 60-74 and 2 million people aged 75 and older.

If there's one principal reason for the increased longevity of Kerala's population, it is the
quality and reach of healthcare in the State, both in the private and public sector. Old people
in Kerala are not left to fend for themselves, even though they may be sent off to old-age
homes. And now, this fact – end-of-life care – has been recognised in a new Quality of Death
Index

The Economist Intelligence Unit (EIU) was commissioned by the Lien Foundation, a
Singaporean philanthropic organisation, to devise such an index to rank countries according
to their provision of end-of-life care. “End-of-life care” includes palliative care but also refers
to broader social, legal and spiritual elements of care relevant to the quality of death.

According to the EIU report, “Palliative care is an approach that improves the quality of life
of patients and their families facing the problems associated with life-threatening illness,
through the prevention and relief of suffering by means of early identification and impeccable
assessment and treatment of pain and other problems, physical, psychosocial and spiritual.”

The Quality of Death Index scores countries across four categories: Basic End-of-Life
Healthcare Environment; Availability of End-of-Life Care; Cost of End-of-Life Care; and
Quality of End-of-Life Care. Expectedly enough, countries such as the UK, Australia and
New Zealand figure high in the overall ranking, due to their relative wealth, advanced
infrastructure and long recognition of the importance of developing national end-of-life
healthcare strategies.

The bottom-ranked countries in the index include mainly developing countries such as China,
Mexico, Brazil, India and Uganda. Yet, ironically enough, Kerala “stands out as a beacon of
hope”.

While India ranks at the bottom of the index in overall score, Kerala bucks the trend. Though
it makes up only 3 per cent of India's population, the tiny State provides two-thirds of India's
palliative care services, notes the EIU report.
The State also has a formal palliative care policy in place – it is the only Indian State with
such a policy – and its government provides funding for community-based care programmes.

Kerala was also among the first States to relax narcotics regulations to permit the use of
morphine by palliative care providers.

The importance of receiving high-level backing and government funding for end-of-life and
palliative care strategies cannot be stressed enough. Once again, Kerala appears to have
shown the way for the rest of the developing world.

‘Cartelisation' fails to sweeten sugar prices

Monthly release mechanism forces mills to sell at lower price.

The very obligation to sell the quantities released to it for the month rules out the legal
possibility of hoarding by any mill (that some do manage to circumvent release orders is a
different matter).

Harish Damodaran

New Delhi, Aug 4

On July 22, sugar mills from Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra and
Gujarat met in Mumbai and “informally” decided not to sell below their production cost.

Since the production cost was reckoned at an average Rs 2,700 a quintal, the mills agreed
among themselves to fix this as the floor rate for selling sugar.

Though it was ostensibly a voluntary initiative not binding on any mill, the move drew flak.
The industry was accused to resorting to “cartelisation” and “syndication”, with the Bombay
Sugar Merchants Association urging Government intervention to “stop such restrictive trade
practices”.

How successful was this effort at “cartelisation”?

The day after the July 22 meeting, ex-factory prices of S-30 sugar in Maharashtra rose by Rs
150-160 to touch Rs 2,640-2670 a quintal – close to the “agreed” Rs 2,700. They remained
around these levels for five days.

However by July 29, realisations had dropped to Rs 2,510-2,520 a quintal. Over the next
couple of days, the prices plunged further to Rs 2,340-2,370 – below even the Rs 2,490-2,510
levels prevailing on the day the mills apparently resolved not to incur cash losses by selling
below production cost.

Monthly Quota

There was a simple reason why cartelisation did not work and has probably failed in the past
as well. That has to do with the monthly release mechanism, under which every mill is
allocated a particular quota of sugar to sell in a given month.

The very obligation to sell the quantities released to it for the month rules out the legal
possibility of hoarding by any mill (that some do manage to circumvent release orders is a
different matter).

“As long as the monthly release mechanism exists, there is no way we can cartelise. While
we may be able to hold back sales for a few days, at the end of the month there is no choice
but to dispose of the entire released quota. The traders know it and that is why they push their
purchases to the extent possible to the month-end, when we have no option but to sell,”
claimed a Maharashtra-based miller.

Late purchases
While private mills largely follow the open outcry or price discovery route to sell their sugar,
cooperative factories do not enjoy even this limited flexibility to decide on their quantum and
timing of sales.

Maharashtra's Cooperative Societies Act requires mills to compulsorily float tenders for sale
of sugar. Factories typically divide their monthly release quota into four parts, which means
conducting weekly auctions, for which notices have to be published in local dailies.

“Through this, the date of auction and quantities on offer are known; very often, traders do
not participate in the auctions at the start of the month. They wait till the month-end to submit
bulk of their bids. It is they, not we, who cartelise,” the miller alleged.

According to him, the opposition to sugar decontrol was mainly coming from traders and
industrial users, who have learnt to work the monthly release mechanism to their advantage.
“When there is no such forcible sale dispensation for cement, steel or any other industry, why
should sugar be treated differently? Cartelisation and restrictive trade practices in this case
must be dealt with the same law applying to all industries,” the miller added.

Wheat export window opens(5th August)

International wheat prices have rallied in recent days to touch 13-month highs in the wake of
aberrant weather in some of the major origins. While excessive wet weather has affected
planting in Canada's Saskatchewan region and south-eastern Europe, prolonged periods of
dry weather and high temperatures in the Black Sea region have raised serious concerns about
production prospects in Russia, Ukraine and Kazakhstan as well as north-western areas of
EU. Taking note of the developments, the International Grains Council has reduced its
forecast of world wheat production for 2010-11 to 651 million tonnes, trailing estimated
world consumption of 655 million tonnes. No wonder, milling wheat export quotations in the
EU and the Black Sea port region have climbed by around $70 a tonne. The markets are also
speculating about possible export restrictions or even an outright ban by Russia and Ukraine.
It looks like the rally in wheat is not going to stop here and further price gains cannot be ruled
out, especially with heightened speculative activity in the US bourses. India must step in to
fill the void, at least partially.

With this a window, albeit a small one, has opened for India to explore wheat exports. At
33.6 million tonnes as of July 1, public stocks with the government (including buffer stocks
and strategic reserves) are far in excess of the prescribed minimum of 20 million tonnes.
While storage costs keep mounting month after month, some quantities of wheat stored in the
open for want of secured warehouse space are actually reported to be rotting. At current
domestic costs and prices, Indian wheat would be about Rs 15,000 a tonne or $320 a tonne
free-on-board (FOB), which would still be uncompetitive by about 10 per cent.
Will the government gather enough political will to encourage wheat export by providing a
10 per cent subsidy? If export prices rise further and the disparity disappears, shipments to
South-East Asian and North African countries may materialise on merit. Ongoing wheat
imports into southern parts of the country should not be disturbed with tariff restrictions.
There is a case for co-existence of import and export, on merit. At the same time, domestic
consumers, especially the poor, should be well serviced through open market sales at
affordable rates. New Delhi must keep the export option open and closely monitor overseas
developments.

Rains, higher price drive cotton acreage to record

Kharif sowing sees shift to pulses from oilseeds too.

Farmers have planted a record 103.365 lakh hectares (lh) under cotton so far this year.

During 2009-10, the total acreage was 103.29 lh, the first time it crossed the 100-lh mark.
This time, with sowing still in progress in Tamil Nadu, the total area under cotton could well
surpass 105 lh.

Bt coverage
Significantly, out of the total 103.365 lh of area planted till now, as much as 91.10 lh or over
88 per cent has come under Bt cotton hybrids and varieties.

According to the Agriculture Ministry's latest sowing figures, cotton area has gone up from
33.30 lh (position at this time last year) to 39.22 lh in Maharashtra and from 10.26 lh to 15.96
lh in Andhra Pradesh (AP). Both these States have received excellent rains during the current
monsoon season.

The progressive area sown is also higher in Punjab (5.59 lh versus 5.36 lh) and Karnataka
(3.25 lh versus 2.68 lh), while being lower in Gujarat (25.08 lh versus 26.25 lh), Madhya
Pradesh (6.40 lh versus 6.44 lh), Haryana (4.44 lh versus 5.07 lh) and Rajasthan (2.41 lh
versus 4.44 lh).

INSPIRATION

Farmers have this time been inspired to expand cotton plantings on account of good rainfall
(especially in Maharashtra and AP) and also remunerative price prospects. With international
prices currently ruling at around 87 cents a pound (as against 64 cents at this time last year),
and the Centre expected to lift existing curbs on exports before the start of harvesting,
farmers are hoping to benefit from their decision to plant more area under the crop.

The Agriculture Ministry's data also indicates significant shift in area this time from oilseeds
to pulses because of more favourable price signals in the case of the latter.

HIGHER COVERAGE

The progressive acreage under pulses is up almost 12 lakh hectares (lh) compared to the
coverage during this period of last year. All the three major kharif pulses – arhar, urad and
moong – have recorded higher acreages this time.

Oilseeds area in general is lower this year, with the only real increase taking place in
groundnut – that too, mainly because of a rebound in AP (12.57 lh versus 4.57 lh). On the
whole, the revival of the monsoon during July has resulted in higher acreages under most
kharif crops, including rice, bajra and maize.

Dhanuka Agritech forays into retail sector

Setting up a retail chain in agrochemicals is the new diversification for Dhanuka Agritech
Ltd, a Rs 450-crore agro-chemical, fertiliser and seeds major, which is into its Golden Jubilee
year now.
The company launched two agro-chemical retail outlets in Gujarat last week. It already set up
seven such outlets in Uttar Pradesh. Plans are to establish 10 more in Gujarat this fiscal,
according to Mr R.G. Agarwal, Group Chairman-Dhanuka Agritech.

While the UP outlets are all company-owned, in Gujarat most of the retail shops to be opened
would be on franchisee model. “We want to try these models for a year and then take up big
expansion accordingly,” Mr Agarwal told Business Line here.

Agrochemicals companies such as Coromandel International already have a presence in the

retail sector, which is set to grow. Dhanuka Agritech will expand further in the next two
years, as the demand for the products and services to farmers will rise, explained Mr
Agarwal.

‘dhanuka choupal'

The retail outlet chain called ‘Dhanuka Choupal', which will see a few million rupee
investment in each, will not just showcase the range of products we offer but will also extend
agri-technology services and have experts who will address queries of farmers.

“We will also use video films, education material and Internet access to reach experts to more
farmers,” he added.

For example, plans are to have a small soil testing facility so that famers can be given the
right advice on the ratio of fertilisers to be utilised. Similarly, doubts on newer technologies,
use of products and their benefit/risk aspects would also be addressed, Mr Agarwal said.

Dhanuka Agritech has a portfolio of around 85 products, including pesticides, fungicides,

weedicides, fertilisers, sticking agents, plant growth regulators etc. It has four modern
facilities at Gurgaon and Sohna in Haryana, Sanand in Gujarat and Udhampur in J&K. Its
two seed processing units are at Mandideep in M.P and Turkapalli, near Hyderabad
For more private farm players  
The current opaque and extensive regulatory control regime generates considerable
uncertainty for the investor.

Agriculture has emerged as the key constraint to achieving rapid growth and improving
equity. It is also clear that while land, the principal productive asset, is almost entirely under
private ownership, the sector is characterised by extensive government intervention and a
visible lack of large-scale corporate investment.

As a result, the sector, except perhaps in the Punjab, Haryana and the Terai region of UP,
remains backward. This is evident across the entire range of cultivation and irrigation
practices, lack of use of new technology, non-existent back-end infrastructure and logistics,
abysmal research generation and diffusion, and very low levels of processing of agro-output.
No wonder, with 60 per cent of population, agriculture contributes a mere 17 per cent of the
GDP.

This understanding must be behind the government's setting up of the Sub-Group on

‘Enhancing Agriculture Production and Food Security' under the Prime Minister's Council on
Trade and Industry.

TASK CUT OUT

Amidst the rather juvenile and self destructive hullaballoo around the Commonwealth
Games, the meeting of this Sub-Group last week has gone unnoticed.

The Sub-Group's prime focus is to make policy recommendations for attracting greater
private investment in agriculture. Surely, the real issue should not be to only attract private
corporate investment but to examine the constraints that impede the inflow of private
investment in agriculture.

Therefore, the Sub-Group would do well to focus on these few critical constraints and lay
down a time-bound plan of action to address them. This will be quite different from
enumerating the sub-sectors within agriculture where either private corporate investment is
already present, or in which it can be potentially promoted.

This latter approach, which often characterises official reports and documents, tends to
assume private investment simply waits for a signal from the government to move into a
particular sector or activity. We know from long experience that in the case of private supply
response this assumption is invalid.

INVESTMENT IN IRRIGATION

The private sector looks principally at the prospective rate of return on its investments in
conditions where risks can be managed. As the accompanying chart shows, terms of trade
have been favourable to agriculture relative to the manufacturing sector almost consistently
since 1995. Unless wage costs were rising even more sharply, which did not happen,
favourable movement in the terms of trade for agriculture products would demonstrate
relatively higher potential rates of return on investment in agriculture. On this basis, Indian
agriculture should have been attracting significant investment since the mid-nineties.

Unfortunately, during the same period (1994-95 to 2008-09) investment in agriculture as a

share in total national investment barely increased from 7.5 per cent to 8.4 per cent and that
of private investment actually declined from 11.9 per cent in 1999-2000 to 6.4 per cent in
2007-08!

Clearly, there were some severe structural factors that negated the relative price advantage
and constrained investment in the agriculture sector. It is evident that in irrigation, private
investment has invariably gone for expanding the area under pump irrigation, using
groundwater resources. Unfortunately, this has not been accompanied by sufficient public
investment in recharging the aquifers and maintaining the underground reservoir.

This could not be expected from the private sector. With a dramatic drop in water tables and
resultant hike in irrigation costs, and especially in the context of highly erratic electricity
supplies which make farmers dependent on diesel, private investment in even this form of
irrigation has not increased. Moreover, this has made a complete hash of the irrigation regime
that has been adopted since the Green Revolution.

Instead, a properly working private-public partnership could have resulted in achieving

sustainable and more inclusive irrigation practices, based on regulated utilisation of
continually recharged and sustainable groundwater resources, eminently possible given the
annual rainfall.

PERVASIVE GOVT PRESENCE

An even more important structural impediment to attracting private investment has been the
pervasive presence of government in the sector. This extends to controlling foreign and
domestic trade, regulating output and input prices, controlling the already distorted land
market, its virtual monopoly over R&D and technology diffusion (sadly in very poor shape)
and a veto on new varieties, especially of genetically modified crops.

This has had two very negative consequences for the entry of private investment. First, the
extensive and opaque regulatory and control regime, currently in place, generates a great
degree of future uncertainty for the investor. The potential investor can never be sure of the
rules of the game that are constantly changing with each government decree. This pure
uncertainty, very different from risk, is a death knell for investment in any sector. Agriculture
can be no exception.

Second, in sub-sectors like the mandis, warehousing or a number of services related to

agriculture (like soil testing, pest control, veterinary services, etc.) the looming presence of
large public sector undertakings deters private sector entry.

While due to their systemic inefficiencies these public sector agencies cannot cope with the
farmers' demands and rents are collected as a norm, their presence combined with
administrative clout at the ground level prevents the entry of more efficient private suppliers.

Unless the government is willing to bite the bullet and effectively reduce its presence in the
agriculture sector, prospects of attracting greater private investment must remain rather dim.
A mere statement of good intent not accompanied by action on this front will certainly not
suffice.

Discord over GST

It is no surprise that the State Governments are opposed to veto power for the Centre on
aspects of the composite Goods and Services Tax (GST). As much as the revenue from liquor
levies, a tax on goods and services is vital to the States' fiscal fortunes and they would be
loath to give up any control over it. Adding to their discomfiture would be the track record of
Governments at the Centre, which haven't shied away from playing politics with vital issues
if the ruling party in the State is different from that at the Centre. This is not to say that the
Centre's wishing to have a say on changes in the tax structure effected at the State level is not
without fiscal merit. Unfettered freedom for the States could set off rate wars among them in
a competitive race to the bottom as they strive to attract fresh investments.

Whatever be the fiscal merits, it is difficult to see the Centre going ahead with the Bill, as it is
presently structured. Even some of the UPA allies might have reservations about the wisdom
of such a veto power to the Centre, given their regional sensitivities. The prospect of a
majority of the States voting in favour of the Amendment Bill looks remote as the Congress
party is not in power in most of the States. The Centre has tried to sweeten the deal by
offering to include petroleum products within the ambit of State-level GST. But the States are
unlikely to budge on the fundamental question of fiscal autonomy.

It is entirely possible that the Centre is merely testing the waters by introducing such a clause,
knowing fully well that most State Governments would oppose it. It may then offer to relent
on the veto as a gesture of statesmanship in order to secure their approval to the new system
of commodity taxation. After all, there still are many sticky points that need to be resolved if
the Centre and the States are to reach a consensus. The insistence of the States on retaining
the CST, which goes against the very principle of a consumption-based levy that the new tax
system seeks to enforce or pegging the exemption limit for small and medium-sized
enterprises fairly high (increasing the compensation burden on the Centre) are some
challenging issues that lie ahead. The Finance Minister's claim that he is implementing a
major piece of tax reform will convince no one. The present value-added tax system at the
Central and State levels will stay pretty much intact. The new measure, though officially
billed as a unified system, results in neither a reduction in the overall tax burden for the
consumer nor elimination of any stage in the assessment procedures for the corporates and
small businesses. In effect, then, it is a status quo under a different label rather than a
progressive tax reform measure.

MSME institute to train over 10,000 this year

Hyderabad, Aug. 6

The National Institute for Micro, Small and Medium Enterprises (Ni-msme) is hoping to
impart entrepreneurial skills to over 10,000 this year. The Hyderabad-based institute has also
tied up with 23 industry bodies and institutions in different States for the purpose, Dr Chukka
Kondaiah, Director–General, Ni-msme, told newspersons here on Thursday. Ni-msme earned
a revenue of Rs 8.61 crore during 2009-10. “We are in a self-sufficient mode. The earnings
this year would be much more,'' he said. As part of its efforts to bring about entrepreneurial
development, the institute would be organising a two-day national workshop on
‘Entrepreneurial development in the food processing industry' during August 13-14. The
meet would be inaugurated by the Secretary, Food Processing, Government of India. — Our
Bureau

Warehousing: Screaming for more space

The wastage in Indian warehouses is disturbing. You just have to walk into one to see the
horror, says Ms Poonam Verma, commenting on reports of how tonnes of foodgrains are
rotting due to lack of proper infrastructure. She would know; she regularly walks into
warehouses, being the Vice-President of Business Development at the National Multi
Commodity Exchange of India.

“Our mindset about agriculture is outdated. We refuse to treat it scientifically,” she says,
adding that more than 35 per cent of the country's produce rots on a regular basis due to a
non-scientific approach. “Beginning from how we store our grains to what tools we use to
handle the gunny bags, everything needs to change.”

Yawning requirement gap

The fact that warehouses in India are not built around optimum advantages of technology is
evident when there are reports on how foodgrains stored in Haryana and Uttar Pradesh have
rotted due to a rodent attack, the rains or wind. At present, there are roughly 6 million tonnes
(MT) of foodgrains that are rotting as they are kept in open spaces, according to the Chief
Executive Officer and Managing Director, National Collateral Management Services Ltd
(NCMSL), Mr Sanjay Kaul. With these foodgrains being covered by mere plastic or
tarpaulin, the range of loss due to insufficient storage space in India amounts to Rs 15,000
crore per annum, according to a FICCI task force. “The only solution is to build more storage
facilities and to build them quickly,” says Mr Kaul.

According to the FICCI task force, while the storage requirement peaks to 88 MT, the storage
capacity available to the public sector is 55 MT. This leaves a gap of more than 30 MT in
storage space requirements, according to Mr Kaul. To build more capacities, an investment of
Rs 15,000 crore is required if the average for every million tonne is Rs 5,000 crore

“The Government will not in itself invest the money, but it can do it through guarantees in a
public-private-partnership mode where the private player will invest the money and the
public organisation such as the FCI will promise occupation for seven years, after which it
can be continued to be leased out as the agreements go,” says Mr Kaul.

Infrastructure status

There is a demand from the industry to confer infrastructure status on warehouses to

incentivise private investors. In other words, industry is asking for all capital investments
made in the warehousing infrastructure to be made eligible for a tax holiday under section
80(IA) of the Income-Tax Act where the company would be given 100 per cent tax holiday
for 10 years.

The argument goes that while infrastructure has largely remained focused to building roads,
highways and the like, agriculture growth and food security equally require modern, well-
developed and large infrastructure. Due to the lack of adequate warehousing capacity, as
much as 10 MT of the 35 MT of wheat stock in the Central Pool is kept in the open and is
vulnerable to rapid deterioration, he says.

While it is true that warehousing is an important auxiliary service for the development of
trade and commerce, especially in respect of farm produce, there are reservations about more
privatisation in the space. The Warehouse Development and Regulation Act, 2007, is also set
to get operationalised by October, he adds. This legislation will enable additional benefits of
warehousing through the issue of negotiable warehouse receipts, according to him.

The other suggestion put forward by the industry is bringing private investments under
“direct category” instead of “indirect category” in priority sector lending to make the
borrowing from banks more aggressive. Allowing access to RIDF funds to the private sector
at a low rate of interest for developing warehousing in the country is another demand.

NCSML is the warehousing arm of NCDEX and is involved in storing, testing, grading and
associated activities in 14 States. The Rs 200-crore company has identified 45 locations in 10
States to set up warehouses dealing in farm produce, with six cold stores. The investment
planned through a mix of equity and loan is Rs 400 crore and the work, to be started in
September, is expected to be completed by December 2011.

Mega irrigation projects are key to farm growth, says Rosaiah

The Centre should implement large irrigation projects and increase financial support to
current projects for agricultural growth, according to the Andhra Pradesh Chief Minister, Mr
K. Rosaiah.

Addressing the inaugural function of a three-day international conference on eliminating

hunger and poverty here on Saturday, he said that augmenting irrigation potential is among
the key factors in increasing agriculture output. The Centre should announce mega irrigation
projects along the lines proposed for power projects. Allocation should also be increased to
the irrigation projects in operation now.

In addition, efforts to bridge the yield gap by fully exploiting the yield potential of crops and
enhancing dry land cultivation were also needed to increase output, he said. Research
institutions have a key role to play in enabling production in dry land through location-
specific systems, he said, at the seminar organised by the M.S. Swaminathan Research
Foundation (MSSRF) to mark the release of its 20th annual report. The event also coincides
with the 85 {+t} {+h} birthday of Dr. M.S. Swaminathan, the founder of MSSRF.

The Tamil Nadu Chief Minister, Mr M. Karunanidhi, said the State Government policy was
consistently geared to supporting agriculture and farmers. In tune with modern day needs it
was in the process of putting in place a policy to address the challenges faced by agriculture
due to climate change.

Govt set to ease quarantine norms for pulses import

Canadian pulses exporters can now heave a sigh of relief and hope to do more business with
India in less uncertain conditions.

The prospect of problems associated with phyto-sanitary or plant quarantine clearance for
imported pulses being resolved appears bright.

The Indian quarantine law requires that each imported consignment be certified by an official
agency at the origin for having been tested for named pests (including stem and bulb
nematode) and indicating that shipments have been fumigated with methyl bromide.

The Canadian side has been claiming that the Indian procedure adds significant risk and cost
for Canadian pea exporters.

As an interim measure, imported parcels were fumigated at the discharge port.

Last month, at the invitation of Pulse Canada, the official agency for promotion of Canadian
pulses worldwide, a delegation of Indian plant protection officials was in Canada and met the
Canadian Food Inspection Agency (CFIA) to amicably resolve the issue of certifying pulses
shipments as free from stem and bulb nematode, admittedly present in small numbers in
Canadian consignments.

Win-Win Arrangement

According to Pulse Canada, the Indian officials and CFIA have agreed on a draft technical
arrangement that will provide for Canadian pulse shipments to be fumigated with methyl
bromide upon arrival in India (an arrangement that has been going on in recent years with
six-monthly extensions). Importantly, the agreement will remove the need for CFIA to test
each shipment for stem and bulb nematode in order to issue the phyto-sanitary certificate.

Pulse Canada believes that the agreement, when implemented, will be win-win for both
countries as it would eliminate the largest risk for Canadian pea exporters — the risk of
shipment testing positive for stem and bulb nematode.

It will also provide more certainty about India's import requirement over the medium to long
term. Besides, it will benefit India by reducing costs of supply from its largest supplier of
pulses.
 The technical arrangement will of course have to receive approval both in Canada and India.
For years, India has been rather concerned about exotic pests and diseases entering the
country through agricultural imports and therefore put in place a strict plant quarantine
regimen that seeks to protect domestic agriculture.

India's is world's largest producer, importer and consumer of pulses. Canada accounts for
more than half of the country's annual imports of about 3.5 million tonnes.

Corruption games

In Srimad-Bhagavatam, the greatest of all the Puranas, the learned writer Vyasadeva begins
and ends the piece of Vedic literature with the verse: Satyam Param Dhimahi. In essence this
means “seek the truth, the whole truth and there is nothing else but the truth”.

Europeans watched shocking incidents unfold in India last week, incidents contrary to this
Vedic dictum.

I am referring to the earth-shattering revelations that have surfaced on the suspected colossal
scale of corruption in the preparations for the Commonwealth Games.

The monumental sums being bandied about are beyond belief. And, as they say, we have
hardly seen the tip of the iceberg. In fact we will never know the real amount of Indian
taxpayers' money that has gone into private pockets.

This is sheer lunacy. And that brings me to my column.

Lack of Patriotism

I wrote a piece a few months ago on corruption (‘Is the nation in coma?', Business Line, May
31). While there were bouquets, I also got some brickbats.

I was accused by some readers as being “unpatriotic” and the column I wrote caused quite an
uproar. I did not imagine I would write yet again and so soon on the fact that our nation and
its political constellation are soiled, once again, in the European eyes, with one long
darkening shadow of untamed nastiness — the nightmare of corruption.

I am a full-blooded and patriotic Indian, born and raised in India, living in Germany. I can tell
you with conviction that the foremost impression any first-time European visitor has of India
is of a country where nobody takes the law seriously because laws are never enforced due to
corruption.
Crisis of Values

The impression is of a disorganised, muddled, messy, free-for-all country with a complete

lack of patriotism. I could write a long and repetitious list of wretchedness but I would only
reiterate the obvious. That is not the purpose of my present musings.

I want to get to the heart of the matter. And, this comes from several years of watching India
from the ringside, living and working in Europe, and from the feedback I get from my
European friends.

I think it is the crisis of values that denotes the Indian condition. Moral values of all kinds
seem to have rapidly and irrevocably declined. The second, of course, is external control,
which the Government can exercise to take care of law and order and make corruption a very
dangerous exercise. As an Indian, I am concerned with the second part.

The fact that a lot of our citizens intentionally disobey the laws of the land — which if
enforced, as they should be in a typical society, will give us a better and more organised
country — is a reflection of the insanity and breakdown of law and order.

By this I mean in its totality — not just motorists, highway and railway dacoits, armed
robbers and militants, Naxalites and extremists but also corrupt officials in Government,
industry and specially the arrogance in those bestowed with sudden affluence.

Thick as Thieves

Looking at our systems in India today, corruption is encouraged by the following reasons:
There continues to be immense red tape and bureaucratic delay. There is a lack of
transparency from the governments.

Our judicial system cannot guarantee justice, fairness and equality. The police cannot protect.
The lawmakers break the laws. Casteism and nepotism thrive among the corrupt to protect
each other, as with the idiom “thick as thieves”.

Most kleptomaniac cream of the crop, bureaucrats and politicians lack empathy and are
psychopaths, therefore they rarely feel compunction, regret, or fear the consequences of their
misdeeds. This only makes them more culpable and perilous.

Again, examples abound currently with those indicted or arrested pulling strings to get rid of
evidence, getting anti-corruption chiefs removed or even resorting to “eliminating” witnesses.

Fighting the Common Enemy

Truth be said, we are all fighting a common enemy in corruption. Our very survival, and that
of our future generations depends on it.

But, sadly, many Europeans believe India is irredeemable and incorrigible.

Corruption has eroded the nation's foundation so much that it is becoming mere wishful
thinking to expect that it can be reduced to manageable levels.

India continues to be perceived as among the most corrupt nations, occupying a prominent
position in the contemporary intercontinental rogues' gallery.

The country continues to wear the badge of dishonour and infamy.

The time is surely ripe to encapsulate the transgression and misconduct of those who violate
the Eleventh Commandment of public office — thou shall not be caught! Lest they continue
to embarrass, dishonour, humiliate the nation before the international community.

But we may be able to move successfully as a nation and people only if we know what we
want.

I recall in Alice in Wonderland. Alice asked the cat: “Would you tell me, please, which way I
ought to go from here?” The cat answered, “That depends a great deal on where you want to
go, Alice.” Alice said: “Oh, I don't much care.” He answered, “Then it really doesn't matter
which way you go.”

Corruption as a national scourge and shame

“Little evidence of corruption going down, says Plan panel” is the headline of a news report
appearing in Business Line, August 2). The Planning Commission has discovered that
corruption “has permeated the entire social fabric” leading to “large-scale misutilisation of
resources”. The solutions it offers are equally original: A quick identification of those guilty;
swift decision; deterrent punishment; taking away the scope for discretion in decision-
making; and bringing in more transparency. The Commission has certainly justified its
existence for the mere reason of being so insightful.

There was a time in India when scams and scums were few and far between, and it was
possible to deal with them to good effect. Finance Ministers, R. K. Shanmukham Chetty and
T. T. Krishnamachari, left the Cabinet for lapses which today may seem piffle. The Chief
Minister, Pratap Singh Kairon, loomed large as an embodiment of corruption, but you will
really wonder what the fuss was all about if I narrate his peccadilloes.
A price tag

During Janata rule, poor Morarji Desai and Charan Singh came in for a lot of bashing for the
former's son and the latter's wife and other relatives dabbling in affairs of state for a
consideration, but, again, by today's standards, their transgressions, if there were any, are a
mere speck in the political spectrum. Even the Bofors payoff was peanuts compared to the
dizzying heights scaled by persons in positions of authority in recent years. India has come a
long way since then. The day is not far off, if it is not already upon us, when a passer-by will
demand a 100 rupees to tell you the time of day. No public figure, no institution, no authority,
no seat of power any longer commands the people's confidence for unimpeachable rectitude.
Every one of them is assumed to be in on the take, to have a price tag.

Supreme Court and High Court Justices, Vice-Chancellors, Central and State Ministers and
Chief Ministers, MPs, MLAs, bureacracy, police, media barons auctioning ‘paid news', now
office-bearers of the Organising Committee of the Commonwealth Games — the cancer has
metastasised into every nook and corner of the polity. There is a regular flow of news, almost
by the hour, of some big shot or the other being either caught in the act or covering up his and
his cohorts' misdeeds.

Eating into the vitals

Figures of 100 or 200 crores of rupees have become contemptible. When the fodder scam of
Bihar touched Rs 900 crore, it looked like a huge amount. The plunderers of public coffers
and the fleecers of the people may sue you for defamation if you associate them with such
paltry amounts, when the Madhu Kodas and their ilk have notched up Rs 4,000-6,000 crore
as the minimum ‘respectable' amount for qualifying as a star swindler, a Grabber Ratna as it
were.

Indeed, the stories of wholesale daylight robbery have become so blasé that people don't even
bother to take notice of them any more. They read the headlines or momentarily listen to the
lead stories on the TV, and blank them out of their minds. Promises of inquiries, law taking
its course, punishments being meted out and the kinds of stale findings the Planning
Commission has come out with are all regarded as hilarious jokes because not one big-ticket
blackguard has ever been locked behind bars in half-a-century.

Whereas, in the last five years alone, in the US, two Governors (akin to India's Chief
Ministers), and six Members of the Senate and the House of Representatives have been
sentenced to serve between six-12 years in jail for crimes which pale into insignificance
compared to what India's counterparts are capable of. In the same period, China executed five
top officials, including a Mayor and the head of a government agency after summary trial.
Is it possible to hit upon a similar quick, firm and legal way of fighting the scourge in India?
For answer watch my next column.

Farmers, experts call for changes in Agri Council Act

The Tamil Nadu State Agricultural Council Act 2009 should be amended to clearly express
its objective to streamline the professional practice of agricultural graduates and not limit
flow of traditional knowledge among farmers, feel agriculturists and experts. 

They made the suggestion at a seminar organised by the Centre for Cauvery Delta
Development Studies to debate farmers concerns regarding the law.

Over 15 farmers' representatives from across the State, academicians and State Government
representatives, including the former Union Minister of State for Social Justice and
Empowerment, Ms Subbulakshmi Jagadeesan, participated in the event.

The Act is to “provide for the regulation of agricultural practice in the State of Tamil Nadu.”
It provides for the registration of agricultural practitioners in the State and to establish the
Tamil Nadu State Agricultural Council. Though it was passed in the Assembly the State
Government did not frame the rules or notify the Act following objections raised by farmers.
The worry was that the law would restrict traditional practices, including organic farming.

Addressing the seminar Ms Jagadeesan said that the objective was to create a council for
professional agricultural graduates along the lines of medical council and bar council. This
is to streamline and make accountable those profiting from offering services in the
agricultural field while ensuring quality to benefit farmers. The suggestions from the farming
community would be considered by the Government and the law amended to allay their fears,
she said.

Open mind

Ms S. Ranganathan, Chairman, CCDDS, said that seminar had been organised with an open
mind to get the views of the stakeholders and address the concerns.

Prof G. Chidambaram, Member Planning Commission and Managing Trustee, CCDDS, said
that feedback from farmers across the State was being collected through a questionnaire to
assess awareness and support for the law.
Mr S. Kosalaraman, Tamil Nadu Agriculture Commissioner, said that the Government was
aware of the farmers' concern of being limited by the law. Particularly in the context of the
definition of ‘agricultural practitioner' which farmers feel could cover them and Section 29
that related to allowing only registered agricultural practitioners being allowed to offer
agricultural services. But these can be corrected, he said.

Penal provisions

Mr G. Sither, an organic farmer and nature cure promoter, and Mr V. Dhanapalan, General
Secretary, Cauvery Farmers Welfare Association, expressed concern that the law would
penalise farmers who share information based on experience and traditional practices. The
law should clearly spell out that the farmers are not covered under its penal provisions.

Prof S. Janakarajan of the Madras Institute of Development Studies, emphasised that the Act
is focussed on quality assurance of agricultural consultancy and services. Services relating to
soil health, seed quality, water, and chemical inputs were rooted in science and required
qualified practitioners. Traditional knowledge spread would not be affected. 

Dr E. Vadivel, Project Officer, e-Extension Centre, Tamil Nadu Agricultural University, said
the law is aimed at regulating agriculture professionals who provide commercial services to
farmers.

Farm investments

The article “For more private farm players” ( Business Line, August 7), is food for thought
for the Centre to eat and digest and not resort to eschew the seriousness of the insignificant
contribution of a meagre 17 per cent by the agriculture sector to the nation's GDP.

Private players must be encouraged to enter the various fields of agricultural domain such as
R&D facilities, seeds distribution, irrigational facilities and warehousing.

Keeping private players out of the above arena is perhaps a convenient route for the
government to remain ‘opaque' rather than ‘transparent' in its agriculture policies.

It reflects the Centre's callous and indifferent attitude in taking decisions and curbing
inflation in foodgrains prices.

To make matters worse, monsoon has been playing truant for quite some time.
With global weather pattern changing, the significance of augmenting and tapping irrigational
methods need no emphasis. Private-public partnership will surely lead to competition and
throw up areas of inefficiencies. Ashok Jayaram

Imported milk powder, butter oil to be kept as ‘buffer'

Facing political flak for importing skimmed milk powder (SMP) and butter oil amidst a
developing domestic glut, the Centre, on Friday, stated that the imported material will be held
by the National Dairy Development Board (NDDB) “as buffer stock” to be “carried over (to)
the next lean season”.

CONDITIONS FOR RELEASE

NDDB will supply the imported powder and fat to State Dairy Federations “only if they are
not in a position to maintain supplies to consumers by using locally available fresh milk or
surplus milk powder,” according to a Union Agriculture Ministry statement here.

The decision to hold the imported material as buffer (and not offload it in the market) has
been taken “in view of recent reports coming from some States that the milk availability
situation has improved and surplus milk in coming into the organised market due to good
monsoon”, the statement added.

IMPORT CONTRACT

NDDB had earlier contracted import of 30,000 tonnes of SMP and 15,000 tonnes of butter
oil/anhydrous milk fat, of which 12,000 tonnes and 6,500 tonnes are learnt to have already
arrived. With the balance quantities slated to land during the ‘flush' season from next month –
when buffaloes, in particular, tend to produce more milk – domestic dairies have expressed
fears that the imported material would depress their product realisations.

The fear of imports has already led to ex-factory prices of SMP dropping from Rs 145-150 to
Rs 120-125 a kg and that of ghee from Rs 250 to Rs 185 a kg over the last three months. The
prevailing domestic rates are below the landed cost of $2,950 a tonne (Rs 138 a kg) and
$4,150-4,250 a tonne (Rs 195-200 akg) at which NDDB has reportedly contracted the
imports from New Zealand and Ireland.

The Agriculture Ministry statement said that NDDB was permitted to undertake the duty-free
imports based on the “serious apprehensions about availability of adequate quantity of milk
in the lean/summer months of 2010”. During 2009-10, due to severe drought conditions
impacting supply of fodder and feed ingredients, milk production suffered a set back.
Procurement by cooperatives grew by only 3 per cent, as compared to around 10 per cent the
previous year, whereas the milk marketing rose by 6 per cent.

The imports were allowed only to ensure no disruption of milk supplies to consumers, the
statement added.

Domestic dairies, on their part, contend that the imports, if at all, should have taken place last
year. Instead, their arrival precisely at a time when production is rebounding has depressed
product prices to levels, where it is uneconomical for dairies to procure and process milk
from farmers.

UNREST OVER REPORTS

In fact, there have been reports of milk refusal by dairies triggering farmer unrest incidents in
the Agriculture Minister, Mr Sharad Pawar's state, Maharashtra. The opposition BJP-Shiv
Sena, in turn, has sought to derive political mileage from the issue.

“NDDB cannot obviously go back on the import contracts, though it might seek to
renegotiate the prices. Otherwise, it stands to lose by having imported at above current
domestic prices and now being forced to bear the cost of stocking till the next lean season,”
sources pointed out.

Farmers' body wants States to control seed prices

Our Bureau

Hyderabad, Aug. 13

Political parties, farmers and non-governmental organisations have asked the Union
Government to let States to have the power to regulate seed prices and royalties. They wanted
the Government to introduce relevant clauses in the Bill to make it farmer-friendly.

Addressing a press conference here on Friday, Mr M. Kodand Reddy, President of Andhra

Pradesh Kisan Congress, said the all-party delegation had not received any positive response
from Mr Sharad Pawar, the Union Agriculture Minister, in their meeting last month.

“We met him twice but he had not cleared our doubts related to control on seed pricing and
royalties. Also, we received no response to our demand that only State agencies should carry
out the trials and certify. We are worried about the future of farmers in case of passage of the
Bill in its present farm,” he said.
“We will be left with no option but to organise the farmers to oppose clauses that could harm
their interests,” he said.

Mr Kolli Nageswara Rao, Vice-President of Akhila Bharata Kisan Sabha, felt that the multi-
national companies could charge very high prices for seeds if the Government did not take
steps to regulate prices.

Ms Kavitha Kuruganti of Kheti Virasat Mission said the argument that prices would come
down if things were left to market economy. “The Minister contended that the companies
might withhold seed production in the event of uncompetitive pricing regime. Citing this
bogey, they were taking powers away from states to control prices,” she said.

Kashmir, Kashmiris and all that

In 1971, my brother married a Kashmiri Hindu. So after nearly 40 years of discussion and
observation, I can claim to have a somewhat better insight into the so-called Kashmir
problem than most other commentators. They don't have the home advantage, so to speak.

Undefinable thing

Net-net, without making the story too long and loaded with the Rajatarangini, Sufism and so
on, all Kashmiris believe in something called Kashmiriyat. But no matter how hard they try,
they can't define it.

But this undefinable thing, many of them believe (some strongly and some weakly) makes
them sufficiently different to claim that they are not Indians. When you go to Kashmir, some
even ask you if you have come from India.

Although I have stopped baiting them now, I often used to ask — both Hindus and Muslims
— if Hindu Kashmiriyat and Muslim Kashmiriyat were the same. Asked singly, they said no;
asked jointly they said yes.

Also, many Kashmiri Hindus from the Valley used to look down on the rest of us. There is
absolutely no historical reason for this but they just felt superior. Maybe they still do.
Jawaharlal Nehru's Kashmiri provenance and Indira Gandhi's preference for Kashmiri Pandit
political advisors strengthened this sense of superiority.

Types of separatists
Until the early 1990s not many Muslims were separatists. That element gained strength only
because Pakistan got active in the Valley after it had failed in Punjab in the 1980s. The ISI
always needs something to do against India.

There are, I think, two types of separatists — weak and strong. The weak separatist wants
more ‘autonomy' and the strong one wants ‘azaadi'.

The latter are in a minority but make up for it by making a lot of noise, aided by Pakistan.
The former are confused because, as we shall see, they can't define autonomy.

There is also a strong sociological factor: The typical Kashmiri Muslim from the Valley takes
a dim view of the non-Valley Muslim. It is a deep-rooted prejudice, not unlike the sectarian
prejudices elsewhere in the world. That is why the soft border thing has so few takers in
Kashmir. They prefer to keep the Mirpuris and such like out.

As to ‘autonomy', those who want more of it are basically political windbags who want the
best of all worlds. I discovered this just before the 1996 election in J&K.

About autonomy

I had gone along with two of my colleagues (one of whom was a Kashmiri Muslim with a Ph
D from an institute in Kerala!) to interview a former chief minister of Kashmir who was
trying to become CM again. He grandly said he wanted autonomy.

We asked him to define it for our readers by spelling out what more J&K could have than it
already did under Article 370 and the overall provisions for state autonomy under the
Constitution, not to mention the things listed in the States and Concurrent Lists. He kept
dodging and we kept insisting.

He then lost his temper. He said the chief minister of Kashmir should be called vazir-e-azam
(prime minister) and have his own flag and that Kashmir should have its own currency.

India could look after everything else like defence, external affairs, communications etc and,
naturally, backstop the currency.

In a sense he was asking for all costs to be borne by India, all benefits to accrue to J&K
politicians. I asked if this was practical. He said nothing.

Jobs for the boys

Now, 14 years and three elections later, no one is seriously talking about this sort of frippery.
The main issue has changed and become the same as elsewhere in the country: Jobs for the
boys.

This is a fair demand but there is a problem: Very few Muslim Kashmiri boys are willing to
come out of Kashmir in search of jobs. They come to trade, though only in winter. But they
simply do not believe in migration like the rest of us Indians do. So let me reformulate the
domestic component of the Kashmir ‘problem': It is to get the Kashmiri kids to come out and
work here because the Valley, all of 320 or so square miles, can't provide full-time jobs to all
of them, certainly not in the state government, even though that is a highly preferred option
for the usual reasons.

So here is a practical suggestion: Let the UPA promise a quota to Muslim boys from the
Valley in all public sector and Central Government jobs, say, 2 per cent. Let us see how many
takers there are, both amongst the Kashmiri Muslim boys. I don't think there will be many.

Climate change?

Recently, when talk came around to it, I asked a middle-aged, highly educated Kashmiri
Muslim if he really thought whether, given its limited natural endowments — it is 80 miles
long and 40 miles wide — the Valley could find jobs for all of them. He said no, which is
why independence is not a viable option. So why don't the lads come out of the state, I asked.
Because, he said, they think it is too hot even in Jammu. It's possible he was joking. But if
not, perhaps the solution to the Kashmir ‘problem' is climate change.

Kharif coverage of all crops, barring soya, up

Our Bureau

Chennai, Aug. 27
With the monsoon picking up this month, sowing in almost all crops, barring soyabean, has
gained.

According to the Agriculture Ministry's data, the area under rice has increased to 312 lakh
hectares (lh) against 293 lh during the corresponding period a year ago. The rise is despite
deficient rainfall in the eastern parts, particularly Bihar, Jharkhand and West Bengal.

Cotton acreage

Coverage of cotton has increased to a record 106 lh (98 lh), while sowing in sugarcane is
estimated to have been completed in 48 lh (42 lh).

Oilseeds coverage has also improved but the area under soyabean trails 3.2 per cent at 92 lh
(95 lh). This is mainly in view of parts of Madhya Pradesh being covered by monsoon rather
late. However, Government authorities expect a higher yield in these areas to make up for the
lost coverage.

Groundnut's revival

Groundnut acreage that witnessed a sharp fall last year along with production seems to be on
a comeback. Sowing in the crop has increased nearly 20 per cent to 49 lh (41 lh).

Acreage in coarse cereals has increased over 10 per cent to 202 lh (183 lh).

Of this, area under maize is up at 73 lh (69). Bajra and jowar coverage has increased mainly
since farmers in rain-fed areas of northern parts, especially Rajasthan and Haryana, chose to
sow them.

Pulses crops are among the ones that have witnessed a rapid improvement over last year.
Enthused by timely monsoon in States such as Maharashtra, Karnataka and Andhra Pradesh
and higher minimum support prices, farmers have covered a higher area. The area under
pulses so far is 109 lh, up from 89 lh last year.

Meanwhile, the storage position in the 81 major reservoirs in the country is near the 10-year
average.

Water level as on August 26 in the reservoirs was 82.792 billion cubic metres (BCM) against
the full reservoir level of 151.768 BCM. This is 55 per cent of the capacity, marginally lower
than the 10-year average of 56 per cent. During the same time last year, the level was 42 per
cent.
Adopt contract farming to enhance food processing, says Sahai

Mr Subodh Kant Sahai, the Union Minister for Food Processing, has urged the local
entrepreneurs to come forward in a big way to adopt contract farming as a means to promote
food processing activity which, blessed with so may incentives from the Centre, holds out a
big promise particularly in West Bengal. The State, according to him, is not only a major
producer of potato but also a complete horticulture state.

Potential to lead

“West Bengal, dominated by small and marginal farmers, can give lead in this matter in the
entire eastern region, more so because Pepsi's contract farming in potato in the State has
proved to be a big success despite political reservation about it in certain quarters,” he said,
adding, “I do not want to bring Government into it”.

Mr Sahai was addressing the members of the Bengal National Chamber of Commerce and
Industry (BNCCI) here on Friday.

The Minister felt that even existing industries could promote contract farming and in fact they
should do it. “I've requested the Steel Authority of India Ltd and Coal India Ltd to adopt
three-four districts each and go for contract farming,” he said. To promote food processing,
he felt, Central or State level planning would not be enough as more important would be to
have district level, even block level, planning.

The call for second green revolution given by the UPA Government would remain a distant
dream unless a linkage was established between farming and industry, he observed.

Storage facilities

The food processing industry, Mr Sahai pointed out, posted huge growth in 2009-10 when
many other sectors were languishing due to the downturn.

The colossal wastage of fruits and vegetables, estimated at Rs 58,000 crore annually, caused
by the absence of proper storage, particularly cold chain facilities, could be prevented
provided adequate investments were made. The investments, in his opinion, should not be
lagging because this particular sector was totally tax-free.

Earlier, Mr S K Roy, President of BNCCI, in his welcome address, pointed out that with the
change in life style, particularly in urban areas, the demand for packaged and preserved food
products was fast increasing, thus making food processing an attractive venture.
Right pricing of water

With the growing scarcity of water, we need to invest in institutions for water allocation
rather then work at interventions for augmenting its supplies, says M. Dinesh Kumar in
Managing Water in River Basins: Hydrology, economics, and institutions ( www.oup.com).
Citing studies, he adds that in situations such as what India faces, the opportunity cost of not
investing in institutional reforms would be much higher than the transaction cost involved.

A section on ‘pricing of water' opens by stating the general principle that the price of water
for competitive use sectors such as irrigation and water-intensive industries means that
pricing of water should be fixed in such a way as to discourage economically inefficient uses.

Wasteful practices

The author traces how, after Independence, the Indian governments saw irrigation as welfare
means and therefore were reluctant to raise irrigation fee charged to poor farmers. “Also, the
charges are paid on acreage basis and are not reflective of the volume of water used. It is
believed that the lack of linkages between volumetric water use and water charges, and lack
of agency capability to recover water charges and penalise free riders create incentive for
overuse or wasteful practices.”

Merely raising water tariff, however, without improving the quality and reliability of
irrigation will not succeed, reminds Kumar. He adds that poor quality of irrigation increases
farmers' resistance to pay for irrigation services they receive because returns from irrigated
crops are more elastic to quality of irrigation than its price.

“Therefore, the ‘water diverted' by farmers in their fields does not reflect the actual demand
for water in a true economic sense, so long as they do not pay for it. In other words, the
impact of tariff changes on irrigation water demand can be analysed only when the water use
is monitored and farmers are made to pay for the water on volumetric basis.”

Quality of irrigation

Interestingly, if positive marginal prices are followed by improved quality, the actual demand
for irrigation water might actually go up depending on the availability of land and alternative
crops that give higher return per unit of land, one learns. This is because the tendency of the
farmers would be to increase the volume of water used to maintain or raise the net income, as
studies show.
When the farmer is confronted with marginal cost of using water, the water application
regime should ideally correspond to a point where the net return per unit of land is highest,
the author argues.

Though this level of irrigation may not correspond to the point of maximum water
productivity for that crop, he says it would result in higher water productivity in economic
terms (Rs/cubic metre) as compared to a scenario of zero marginal cost of water. Also,
increased efficiency may not lead to reduction in aggregate water use, as farmers might tend
to increase the area under irrigation.

Power for agriculture

An allied area is power for agriculture, where researchers have come up with varied views,
ranging from emphasis on ‘rational pricing of electricity as a potential fiscal tool for
sustainable groundwater use,' to caution that ‘flat rate-based pricing structure of electricity in
the farm sector creates incentive for farmers to over-extract water as the marginal cost of
extraction is zero.'

The book cites Saleth (1997) for the caveat about the negative impacts of power tariff hike on
the economic prospects of farming, unless farmers shift to high-valued crops. “The
underlying argument is that the price levels at which power demand responds to tariff
changes would be too high that the traditional irrigated crops would become economically
unviable for the farmers.”

Another study is by Shah et al. (2004) postulating that given the millions of wells and pumps
scattered over vast rural areas, metering is an almost impossible task, and that the cost of
metering electricity consumption in farm sector would be so high that, if transferred to the
consumers, it would have negative impact on the social welfare produced from the use of
energy in agriculture.

Diesel command

Insightful, in this context, is a study reported in the book about the finding from the Mehsana
district of north Gujarat and coastal Saurashtra on diesel and electric well commands: that
control over watering will have greater bearing on the net returns from irrigation than the cost
of irrigation.

“In spite of the higher direct cost of irrigation using diesel pump as compared to the implicit
cost of irrigation using electric motors, the command areas with diesel pumps were found to
receive more irrigation and give much higher yield levels as compared to those with electric
motors.”
This means, as Kumar elaborates, that the desired impacts of changes in the pricing structure
of electricity on economic efficiency of irrigated crops can be realised only if the quality of
power supply is ensured.

Managing urban use

Urban areas are expected to become the second largest user of water by the end of the first
quarter of this century. Promoting, therefore, efficient use in urban water sector will have a
strong leverage in managing the overall demand of water to match the supplies, observes the
author.

The first institutional factor, in this area, is subsidy, he identifies. “Domestic water supply is
highly subsidised in many Indian cities… Though in many cities, the average water tariff is
higher than the cost of production and supply of water, the high average is because of high
tariff levied from industries and commercial connections.”

Water supply administration ranks as the second factor, where a worrying fact is that
domestic water supply is not fully metered even in large cities.

Pollution tax

The book devotes attention to pollution control as a topic related to water management. It
should be a matter of concern that although the existing pollution control norms are stringent,
the legal powers to enforce them are lacking with the pollution control agencies.

“Industries and municipal authorities often get away with flouting the pollution control
norms… The fact that the agency that monitors ‘pollution' is the same as the agency that
enforces the ‘norms,' which is against the institutional design principle for sound water
management further weakens the agency.”

Moreover, the polluting industries and municipal authorities are not confronted with the
opportunity costs of pollution, rues Kumar, as the penalty paid for pollution is much lower
than the investment in effluent treatment facilities to avoid or mitigate pollution.

Hence, he calls for the levy of pollution taxes that reflect the volume of effluent discharged
and the level of toxicity of the effluents. "Incremental block rates can be introduced, along
with creation of two separate institutions, one for monitoring pollution and the other for
levying pollution taxes and carrying out corrective measures against pollution." The
effectiveness of economic instruments in pollution control, as the author concedes, would
depend on the water quality monitoring (WQM) systems.
Ban coming on imported mobiles with high radiation levels

Arun S.

Thomas K. Thomas

New Delhi, Aug. 2

In a blow to unbranded mobile handsets being sold in the market, the Directorate-General of
Foreign Trade (DGFT) will shortly issue new rules in effect banning import of phones that
emit radiation higher than what is permitted under the Specific Absorption Rates (SAR)
standards.

SAR shows the amount of radio waves absorbed by the body while using a mobile phone.

The Department of Telecommunication (DoT) has finalised radiation protection norms for
mobile handsets and sent them to the Commerce Ministry for notification, official sources
said. Currently, a large number of unbranded handsets from China and Taiwan, which do not
conform to these radiation standards, are flooding the market in the absence of import norms.

The SAR adopted by the Government is based on the guidelines set by the International
Commission on Non-Ionizing Radiation Protection (ICNIRP). SAR is measured in watts per
kilogram (W/kg) and the higher the SAR rating, the more the radiation absorbed.

ICNIRP has stipulated that manufacturers must ensure that the SAR level of a cell phone
does not exceed 2W/kg. These guidelines are followed globally by a number of countries
including the US, France and the UK in a bid to limit radiation exposure to consumers.

All branded mobile handset makers, including Nokia and Samsung, adhere to the global
norms but there is no check on handsets sold in the grey market. Once the DGFT issues the
notice, the Customs authorities will ensure that all mobile handsets being imported into India
have certification from manufacturers that they meet these standards.

This is the second major setback for handsets sold in the grey market after the Government
earlier banned devices without proper International Mobile Equipment Identity (IMEI)
number.

Profiteering in pulses
While complaints of high profit margins may be incongruent with trade liberalisation, where
the poor are hurt by unaffordable prices the government has to step in.

Rising domestic demand, population pressure, shortfall in domestic production, hike in

minimum support prices, speculation and high international prices have all been mentioned at
various times as reasons for sharp rise in prices of pulses. The large difference between farm-
gate and retail prices has been recognised and attributed to supply chain inefficiencies. Yet,
when one looks at the pulses value chain, it is clear that the price consumers pay at the retail
level bears little connection with wholesale rates. Margins at the retail level are as high as 20-
30 percent; and on occasions, profits are more than the price growers get at the farm-gate.
While complaints of high profit margins may be incongruent with our professed stance of
trade liberalisation, in situations where the poor and the needy are truly hurt by unaffordable
prices artificially maintained by greedy retailers, it is time for the government to step in.

Even the ballpark numbers are mind-boggling. Last two years, the country consumed an
aggregate quantity of about 350 lakh tonnes of various pulses, domestic and imported, the
total value of which was an estimated Rs 1.4 lakh crore, assuming an average wholesale rate
of Rs 40,000 a tonne. At the retail level, however, consumers paid a staggering Rs 2.1 lakh
crore for the same quantity assuming a conservative average price of Rs 60 a kilogram —
easily a profit margin of 50 per cent. Allowing for 25 per cent to cover distribution expenses,
overheads and decent margins, additional profits made at the retail level amount to Rs 35,000
crore. While this has surely burnt a hole in the consumers' pocket, there is nothing to suggest
that the benefit of high retail price has flowed to the grower in any measure. This situation is
unsustainable. The tragedy is that the government has been a mute witness to the goings in
the marketplace; or perhaps, it had no clue. Under the circumstances, it may be tempting to
impose storage and similar restrictions on the retail trade; but in practice, nothing is likely to
come out of it.

Our pathetic agriculture track record suggests that the shortage in pulses is unlikely to
disappear anytime soon; and if anything, the supply shortfall would widen in the coming
years. A time-tested way to insulate the poor from the ruthlessness of the market is to ensure
supply of pulses through the public distribution system. Despite all its limitations of leakages
and so on, PDS still reaches a large number of poor people. It should be relatively easy to
include pulses with the existing supplies of rice, wheat and sugar. New Delhi has been rather
lethargic in addressing food inflation and PDS-related issues. The sooner it demonstrates
political will the better.

‘Rich countries need to mitigate climate change effects now'

Let the poor countries be put on a different track so that they can be asked to take mitigation
steps at a later date.

 
— PROF ARVIND PANAGARIYA, COLUMBIA UNIVERSITY, NEW YORK.

B. Baskar

George Verghese

Vinay Kamath

Prof Arvind Panagariya, Jagdish Bhagwati Professor of Indian Political Economy, Columbia
University, New York, has done research in international trade, development economics and
climate change and written extensively on these subjects. He has also recently written a paper
on the growth performance of Indian States and found that some of the traditionally poor
ones such Bihar, Orissa and Rajasthan have grown exceptionally well in the recent past. Prof
Panagariya was in Chennai recently to deliver the Fourth SAGE-MSE Endowment Lecture at
the Madras School of Economics. He took time off to speak to Business Line on a range of
issues.

Edited excerpts from the interview:

You wrote India: An Emerging Giant in 2007, since then we have seen the global financial
crisis, the meltdown, and the worst global recession since the 1929 Great Depression. In the
light of this, would you like to revisit some of the things you wrote in the book?

Actually very little has changed in terms of policies, so there are few things that I would like
to change. As the book did not have anything on climate change, I would include a few pages
on that as it has emerged as a major global issue. I would also include a chapter on the growth
at the State level. I have since realised that some of the traditionally poor States of Bihar,
Orissa and Rajasthan have grown rapidly. And some of the smaller ones too, such as
Jharkhand and Chhattisgarh, have grown impressively. But we have to see whether these
growth rates sustain in the long term.

Well, regional inequality still exists and that is going to remain for a while. In China, it took
much longer for the poorer regions to catch up.

What are your views on climate change? Post-Copenhagen, what is the way forward?

There is compelling evidence that global warming is happening. And I am in agreement with
the IPCC's view that the carbon emissions are responsible for it. In terms of solutions, there
are two parts to it. One, large investments in research are required. The poor countries are
already victims of climate change, and are the most vulnerable to floods and droughts. So our
endeavour should be to strengthen their economic defences so that they can withstand the
vagaries of nature. So, ultimately, it is a question of raising the living standards, and that
brings us to growth and poverty alleviation, which trump everything else. At the same time,
we cannot altogether ignore the emission problem, and we have to make a small contribution.
We can have an agreement where the rich countries start mitigating aggressively now and
convince the rest that they also have to contribute in some small way.

Let the poor countries be put on a different track so that they can be asked to take mitigation
steps at a later date. The rich countries should start right away. China can be made to start at
2020 and India, in 2040 perhaps. So the agreement not only has to include serious mitigation
commitments by rich countries but also committing large funds for research, which can help
the poor countries adopt alternative sources of energy that are not dependent on fossil fuels.

This research is vital because at current costs it is too expensive to adopt mitigation efforts
and alternative sources of energy.

Unfortunately, the Indian Government itself has not taken a strong stand on this. There
should be a super fund for research. The results of this research should be made available to
everybody without payment of royalties, the way the results of the Green Revolution were
made available.
Industrial growth in May dipped to 11.5 per cent, the lowest in seven months. Some say that
India has entered a low growth phase; what do you think are the near-term prospects for
growth?

Well, industry is still growing at a double-digit rate, and has now overtaken the GDP growth
rate. I see that as a positive sign. The economy, I think, can maintain 8-9 per cent growth in
the near term. The auto sector has been growing at a rapid pace and so has construction and
telecom, and these are the sectors that lead the economy. So 8-9 per cent growth will
continue, unless of course something unforeseen happens.

The big constraint as I see it is the Government's ability to deliver. Therein lies the difference
between India and China. In China, it is the Government that is capable of delivering,
whereas in India it is the entrepreneurs. In spite of the difficult infrastructure condition
(power, roads, etc), our entrepreneurs still manage to work around them and deliver. So I am
very optimistic on that front.

While the share of agriculture and manufacturing in GDP is either stagnating or decreasing,
that of the services sector is increasing. Is such a trend sustainable in the long run?

Depending so much on the services sector is not good. It is not just the manufacturing sector
but labour-intensive manufacturing that has to grow rapidly. That is not happening in India.
The one big issue in development is how to get people out of agriculture and provide gainful
employment in the manufacturing sector. If you look at the structure of the GDP, the share of
agriculture has been declining over the years. But if you look at the employment, a sizeable
section of the workforce still depends on agriculture for employment. Unlike in Korea and
Taiwan in the 1960s and 1970s and China in the 1980s and 1990s, the shift in employment in
India has been small.

So there is this problem of transformation. I think the ability of the services sector to absorb
labour from agriculture in significant numbers and in good jobs is limited, though I would be
happy if I am proved wrong. I believe the growth of labour-intensive manufacturing is vital
for providing unskilled, semi-skilled jobs.

As an academic based in the US, what do you make of the HRD Minister, Mr Kapil Sibal's
proposal to allow foreign universities to set up campuses in India?

It is a step in the right direction. But given the number of conditions imposed, I suspect
whether we will get the best of universities to set up campuses here. If you say you cannot
repatriate profits, it is going to impinge on their willingness to enter the market. And even if
some of them come here without the specific intention of making profits the conditions
imposed make them hesitant. Maybe there is some scope for joint ventures. But UGC's
influence is still overarching, nothing can happen without its approval.

But yes, the proposal is a step forward and we will have to wait and see whether foreign
universities come in. And if we don't not see any significant entry in a few years, we will
have to take stock of the situation and relax a few of the conditions.

The Government has been repeatedly saying that overall inflation will come down to around
5 per cent by March 2011. How credible are the Government's projections?

I am very sure that the Government's projections are based on the base effect. So you have to
check what the inflation rate was in March 2010. If it was very high then, the percentage
increase in March 2011 will be low. I haven't been looking at the numbers closely but all
these projections are based on the base effect, so it's not really rocket science.

Do you foresee India becoming a high-cost economy, given the way the labour and asset
prices have been moving?

The problem, the way I see it, is of our own making. We have to ask ourselves why, not just
the MNCs, but even Indian companies are not investing in a big way in low-cost
manufacturing. They are not doing it because labour costs in the organised sector are already
very high. Also, our land acquisition laws are bad. I cannot understand how in a big country
like ours we cannot find land for industry without having to displace farmers. So there is
something seriously wrong in our land acquisition laws.

We are our own enemies in both land and labour markets. The big problem is to convert the
large workforce in the agriculture sector into unskilled, semi-skilled workforce with gainful
employment in labour-intensive manufacturing. Again one has to contrast this to what
happened in Korea, Taiwan and later in China. Of course, during their miracle growth years,
both the land and labour markets were very flexible and during that period all these countries
had an authoritarian political structure with little or no worker rights. Now we in India do not
want to go that far. But we seem to be at the other end, where labour laws in the organised
sector are rigid and hiring and firing workers are extremely difficult.

So our policies seem to be keeping our workers where they are, but development will happen
only if there is large-scale migration.

These rigid labour laws affect our textile and apparel industry in particular, as it is not able to
hire workers on a large scale. As a result, it is not able to undertake large orders from the
West as China is able to.
Is the current high trend in inflation, a result of the unsustainable fiscal situation or are there
more structural, supply-side factors at work?

It is a result of both factors. Food inflation is very high and that has certainly fed into the
overall inflation. The fiscal situation has played a part but that's not the big part of the story. I
am not underplaying the role of the fiscal deficit, so in that sense I am all for the deregulation
of petroleum prices even though it is going to feed into inflation. I think that is a bullet we
have to bite at least once.

We also have to look at some of the external factors. In an open economy, if we have prices
rising in the international markets, that will inevitably feed into domestic inflation. For some
time we have had a rising trend of primary product prices in the global economy, especially
of fuel and minerals. Now that feeds back into domestic steel prices and other products as
well. So there are supply-side factors that feed into domestic inflation.

The stimulus package and the fiscal expansion last year were needed because of the difficult
economic conditions. Also, it gives the business community a sense of confidence that the
Government is doing its part.

The financial crisis and the subsequent meltdown happened at the worst time for India. We
had finally got on to the 8-9 per cent growth trajectory and there was this very real danger if
that getting derailed. But now the country is back on the growth path and we have shrugged
off the crisis. So now with all that behind us the country can get back to a more prudent fiscal
path.

But I am not an anti-inflation hog. I am willing to live with 7-8 per cent inflation as that helps
in adjusting the relative prices. Of course, we have to ensure that inflation does not run into
double digits, but I am also not in favour of capping inflation at, say, 3 per cent. I am also not
so sure that inflation necessarily affects the poor more. After all when the food prices rise the
farmers also benefit. So that is an open question.

Do you think there is a danger of India not reaping the benefit of demographic dividend?

There are two ways one can look at this. One is the less demanding way. If you have a lot of
younger people in society than older people, then it is a good thing regardless of the job
situation, because you will have fewer people who are dependent. The other way is that we
have this opportunity to use this sizeable young workforce and push the economy to new
frontiers. Now, whether we are able to do this or not depends on the kind of policies we
adopt. Education plays a crucial role here. We are still way behind on that front. At least in
primary education, we are making some progress. Most children these days manage to go to a
school, though the quality of education is still poor. But on higher education, we still have a
long way to go. The college-going population from among those in the 18-24 age-group is
only 12 per cent. Even as early as a decade ago this percentage in China was only 5-6 per
cent whereas in India it was 8-9 per cent. But now China is way ahead at 22 per cent, whereas
we are still stuck at 12 per cent.

The number of colleges and universities has not grown significantly either. The Government
does not have the resources to open new universities and the entry of the private sector
remains difficult. There is a lot of regulation on the fee structure of private colleges and
hence that constrains these colleges from paying good salaries and attracting good faculty.

Opening universities are even more difficult as they either have to be deemed by the UGC or
by State legislation.

Defining Prosperity Down

New Krugman, from the New York Times:

I’m starting to have a sick feeling about prospects for American workers — but not, or not
entirely, for the reasons you might think.

Yes, growth is slowing, and the odds are that unemployment will rise, not fall, in the months
ahead. That’s bad. But what’s worse is the growing evidence that our governing elite just
doesn’t care — that a once-unthinkable level of economic distress is in the process of
becoming the new normal.

And I worry that those in power, rather than taking responsibility for job creation, will soon
declare that high unemployment is “structural,” a permanent part of the economic landscape
— and that by condemning large numbers of Americans to long-term joblessness, they’ll turn
that excuse into dismal reality.

And

I’d like to imagine that public outrage will prevent this outcome. But while Americans are
indeed angry, their anger is unfocused. And so I worry that our governing elite, which just
isn’t all that into the unemployed, will allow the jobs slump to go on and on and on.

Get the details here.

I wonder. 

Not about where we're headed, Krugman is right on target as far as that's concerned: bad economic theory is taking us
into many years of sluggish growth alternating with chronic recessions. Clearly, we've set the controls for the heart of
the sun, as it were. 

No, what I wonder about is whether our leaders are committing economic suicide because they're heartless assholes
who don't care about rank-and-file Americans, or whether it's because our leaders are incapable of questioning
theReaganomics that got us into this mess in the first place. My gut instinct is to believe the latter. I mean, it's
impossible to stare into the souls of Congress to divine their true motivations, so all we can really do is speculate.

Krugman has good reasons for believing that Congress and the White House simply don't care. After all, based on what
they actually do, the legislation that they pass, and the debates they have, it sure does  look like they don't give a fuck.
We're experiencing extraordinarily high unemployment, and all they seem to be focusing on is the deficit. Small
business are going under day in and day out, but big business gets all the bailouts.

But, you know, I used to buy into Reaganomics, myself, years ago. And it's quite a beautiful and seductive theory. It is
essentially supply-side in nature, arguing that the best thing the government can do to grow the economy is to
generate policy that favors producers over consumers and workers. The idea is that once producers get really cranked
up, their products get cheaper, and more jobs are created, which allows people more money to spend as consumers. In
effect, or so the theory goes, the government doesn't have to deal with  the demand side at all because supply-side
policy takes care of that indirectly.

Like I said, beautiful. If only it worked in the real world.

Because I embraced the supply-side view over a quarter century ago, I've been watching all these years to see how it's
working out. And you just can't get away from the fact that since Reaganomics became conventional wisdom in
Washington, for Democrats and Republicans alike, the rich have gotten richer and the poor have gotten poorer. The
theory says that shouldn't happen. There's supposed  to be prosperity for everybody. But there's not. Things have
gotten much worse since the Reagan era.

So if Reaganomics is, empirically, an utter failure, why does almost everyone in Washington continue to embrace it?
Belief is a curious thing: it doesn't have to have anything to do with what actually happens. Virtually everybody in
America, for instance, believes in the strange being known as God, but there is about as much evidence for His
existence as there is for the Easter Bunny's existence. No problem. Lack of evidence makes people believe more
strongly. Yeah, I know, that makes no sense at all, but, you know, what can you do?

People believe in God because it makes them feel good. People believe in Reaganomics for essentially the same
reason. Evidence, reality, scientific studies, none of this makes any difference. I'm not really sure  why Reaganomics
makes people feel good, but I have a few ideas. Supply-siders pitch the notion as being about freedom, and hard work,
and property rights, abstract ideas that are historically near and dear to the American heart. It's probably very much like
Stephen Colbert's "truthiness." That is, supply-side economics feels right, feels  American, so it must necessarily
be right.

And that's where I think our idiot-leaders are coming from. It's not that they don't care about people spending years
without a job, even though they legislate policy that ensures such a situation. It's that they honestly believe, in spite of
mountains of evidence to the contrary, that their job-destroying agenda is, in fact, a job -creating agenda.

Kind of like medieval doctors who would bleed their patients to death, all the while believing that they were saving
them. We really haven't come too far in the last thousand years.

Aditya Khaitan sees value-added line from Indian, Vietnamese, Ugandan teas.

“We're starting in Dubai in a small way and hope to be in the market by October-
November.” — Mr Aditya Khaitan, Managing Director.

Our Bureau

Kolkata, August 2

McLeod Russel India Limited, the country's largest tea producer, is planning a blending
facility in Dubai to cater mainly to West Asian and Commonwealth of Independent States
(CIS) markets that prefer standardised multi-origin blend.
“It will give us a new and value-added line of sale,” Mr Aditya Khaitan, Managing Director
of McLeod, told newspersons at the end of the company's annual general meeting here on
Monday. “We're starting in Dubai in a small way and hope to be in the market by October-
November.”

Value-added product

McLeod, he said, produces various types of teas in a large number of gardens in Assam and
Dooars in India, Vietnam and Uganda. The North Indian teas command a high price because
of its premium quality, unlike the teas produced in Vietnam and Uganda.

“It, therefore, makes sense to blend the different varieties to create an acceptable value-added
blend,” he said.

The company's production in India this year, he said, would fall short of the target of 80
million kg (mkg) by an estimated 3 million kg. This would keep the production unchanged at
last year's 77 mkg. The reasons for the shortage were incessant rain and pest attack. However,
the global production would be around 100 mkg, following improved production in Vietnam
and Uganda.

The average price realisation for the company's tea, he said, should be around Rs 150 a kg, up
from Rs 137.25 a kg in 2009-10. “There is a huge shortage in the domestic market,” he said,
indicating that the current year started with a shortage of about 60 mkg.

The company's exports from India would be lower by an estimated one mkg from last year's
28 mkg.

Exports

“This will be largely due to the drop in production to the tune of 3 mkg of premium tea till
July, which is unlikely to be made up fully in the remainder of the year,” he said. “Unlike
October-November last year when the domestic price crashed, the price in October-
November this year will remain firm.”

Mr Khaitan said that the company's earning from exports would be higher because of the high
price in the international market.

Between January and June, the price of Ugandan tea in Mombassa auction was up by 40
cents a kg over the same period a year ago. “Last year, the price was high because of crop
failure but this year the price is high despite bumper crop,” he said, attributing it to global
shortfall in supply, estimated at 120 mkg.
‘Pesticides can save grains worth Rs 2.5 lakh cr a year'

Our Bureau

Ahmedabad, Aug 2

Through judicious use of pesticides, the country can save foodgrain worth Rs 2.5 lakh crore a
year and address the food security concern in the country to a large extent, according to Mr
R.G. Agarwal, Group Chairman, Dhanuka Agritech Ltd.

By proper exploitation of yield potential of crops, the country's agricultural sector has the
capacity to add Rs 5 lakh crore worth foodgrains a year, the BSE-listed company Chief said
at Rajkot, according to a press release here on Monday.

Addressing a gathering of pesticide dealers and farmers at the opening of Dhanuka Agritech
franchisee outlets, Mr Agarwal said that Dhanuka Agritech was currently focusing on public-
private partnerships (PPPs) with various State governments through the company's
knowledge forums to educate the farmers and agricultural input dealers to advise and adopt
improved technology to tackle the food security issue.

Besides its efforts to address the food security issue through the PPP model in Gujarat,
Maharashtra, Madhya Pradesh, Uttar Pradesh, Rajasthan, Punjab, Uttarakhand and Andhra
Pradesh, the company has also initiated efforts on rainwater harvesting and conservation and
its use during dry spell.

ENHANCING R&D CAPACITY

The company has recently acquired 15 acres to enhance its capacity in research and
development at Sanand near Ahmedabad, where it has a manufacturing facility.

Dhanuka Agritech Ltd, a Rs 500-crore ($125 million) company, is engaged in the business of
agro-chemicals, fertilisers and seeds. It reaches out to more than 10 million farmers with its
eco-friendly crop care products, the release added.

Mobiles without unique ID number connected still; ban only on paper

Directive ignored

DoT check finds operators still supporting handset without the unique number
Thomas K. Thomas

New Delhi, Aug. 3

The ban imposed by the Government on offering mobile services to handsets without the
International Mobile Equipment Identity (IMEI) number remains only on paper.

According to a compliance check conducted by the Department of Telecom, all the operators
are still offering services to users owning handsets without the IMEI number.

Grey market

IMEI is a unique 15-digit code that identifies a mobile. It prevents the use of stolen handsets
for making calls and allows security agencies to track down a specific user. However,
handsets sold in the grey market do not come with the IMEI, a matter of concern for security
agencies, especially because most of the handsets are brought into the country from China or
Taiwan.

Last year, the DoT issued a directive to all mobile operators to disconnect subscribers without
the IMEI number.

Since there were as many as 25 million subscribers who had handsets without the IMEI, the
Government allowed a private agency to implant the number through software for a limited
period of time. The ban came into effect from November 30, 2009.

However, random checks conducted across the country by the Telecom Enforcement
Resource and Monitoring wing of the DoT has revealed that the ban order is yet to be
implemented.

In Assam, for example, every tenth call from a mobile phone was found to be from a handset
without the unique number and operators are allowing such calls to go through.

Senior DoT officials said that notices will be issued to the operators seeking explanation for
the unsatisfactory implementation of the ban.

“This has serious implications on the working of the law enforcement agencies and we will
ask the operators to strictly comply with the instructions on this issue,” the official said.

India goes on the offensive in cyber warfare

Preparing master plan to counter attacks on information networks.
Thomas K. Thomas

New Delhi, Aug. 3

After being at the receiving end of cyber attacks from across the border for many years, India
is preparing a blueprint for undertaking counter cyber warfare on unfriendly countries.

According to a proposal being considered by the National Security Council, Indian agencies
may be told to enhance capabilities to exploit weaknesses in the information systems of other
countries and also collect online intelligence of key military activities.

The proposal includes setting up laboratories in research institutions to simulate cyber attacks
with the help of ethical hackers. These laboratories would be used for training intelligence
agencies for offensive and defensive cyber warfare techniques. Personnel working in this area
may be given legal immunity for carrying out these activities.

The blueprint is likely be put into action by the National Technical Research Organisation,
the Defence Intelligence Agency and the Defence Research and Development Organisation.

The plan also talks about setting up early-warning capabilities about impending attacks on the
country's information systems and developing expertise in cyber forensics, which includes
tools that focus on acquiring information from attacked systems to find out sources of attacks.

The Government is looking at setting up a National Testing Facility that will certify all
imported software and hardware procured for key information systems. Security agencies are
concerned about spyware or malware embedded into imported products which can be used by
unfriendly countries to disrupt key sectors.

The proposed testing facility will be on the lines of the Trust Technology Assessment
Programme in the US.

In order to secure key areas such as banking, Defence, the Railways, civil aviation, atomic
energy and oil and gas, it is being proposed to set up a Computer Emergency Response Team
for each of these sectors.

Opposition launches scathing attack on Govt for failure to tackle price rise

Our Bureau

New Delhi, Aug. 3

The Opposition in the Lok Sabha on Tuesday launched a blistering attack on the Government
for its failure to rein in the runaway rise in fuel and food prices, which they said had affected
the common man the most.

Initiating a debate on a motion moved by the leader of Opposition, Ms Sushma Swaraj, on

the issue of inflationary pressure on the economy, the veteran BJP member came down
heavily on the Government for raising prices of petroleum products, especially kerosene and
LPG, when the common man was already reeling under the spiralling prices of foodgrains
and other essential commodities.

The Finance Minister, Mr Pranab Mukherjee, will reply to the discussions on the motion on
Wednesday.

Ms Swaraj, who spoke in Hindi, said that the Government was “insensitive” to the plight of
the common man. She asked the UPA Government to “wake up from its deep slumber” and
take urgent steps to bring relief to the common man. She also made it clear that the
Opposition was not trying to divide the House but wanted it to support the motion.

The motion that was moved on Tuesday read, “This House do consider the inflationary
pressure on the economy and its adverse impact on the common man.”

This motion was taken up a day after the Government and the Opposition reached a
compromise on the price rise issue, which had paralysed Parliament throughout last week.
While the Opposition was pushing for a discussion on price rise under a rule (Rule 184) that
entails voting, the Government had not agreed to this, leading to the commotion in the Lower
House last week.

On Monday, the Government and the Opposition reached a consensus to discuss the
“inflationary pressure on the economy” under Rule 342, which does not involve any voting as
such, unless a member moves a substantive motion.

On petrol prices, Ms Swaraj noted that the UPA-I Government had in June 2008, when
international crude oil prices were around $134 a barrel, not increased prices of petroleum
products because of electoral compulsions and allowed the State to face revenue losses
through duty cuts. Now after winning the elections and when international crude oil prices
have come down to $74, the Government has increased the prices of petroleum products and
also raised the duties on petroleum products, thereby putting the common man to hardships.
“After winning the elections, what is the compulsion for you to raise prices (kerosene,
LPG),” she asked.

She said that the NDA Government had been hit hard by only one committee — the Kelkar
Committee — while the UPA Government had been hurt by three high-level committees
constituted to go into key aspects of hydrocarbon economy, including subsidies. These
committees were headed by Dr C. Rangarajan, Mr B.K. Chaturvedi and Mr Kirit Parekh.

Lack of funds won't stop spread of literacy: PM

Our Bureau

New Delhi, Aug. 3

The Prime Minister, Dr Manmohan Singh, said on Tuesday that ‘paucity of funds' will not be
an impediment in the spread of literacy in the country.

“It is our Government's commitment that the paucity of funds will not be allowed to limit the
spread literacy and education in our country. It is on the foundation of this fiscal commitment
and political resolve that we went to Parliament and added a new Fundamental Right to our
Constitution – the Right to Education,” he said at a lecture by the Nobel Laureate, Prof
Amartya Sen on ‘Centrality of Literacy' here.

Dr Manmohan Singh stressed that the challenge is to seek a productive collaboration between
Government and civil society organisations. This would help in implementing durable
strategies for universal literacy and mass education.
Highlighting some of the Government initiatives in recognition of the importance of literacy
he spoke about the National Literacy Mission launched in 1988 by former Prime Minister, Mr
Rajiv Gandhi.

“This Mission mode approach helped India record the highest decadal rate of growth of
literacy of 12 percentage points between 1991-2001. During this period, the increase in the
literacy rate amongst our women was higher than that for men. The vulnerable sections of our
society like the scheduled castes and the scheduled tribes also recorded faster growth of
literacy during this decade,” said the Prime Minister.

However, despite the initiatives India still suffers from low literacy rates. According to
UNESCO's Global Monitoring Report 2006, out of 771 million illiterates in the world, 268
million are estimated to be residing in our country, which accounts for nearly one-third of the
world's non-literates.

Dr Singh said that the inferior literacy status of India has contributed to the lowering of our
position in the UNDP's human development index.

Inflation: Time for non-monetary solutions?

S. Balakrishnan

The Quarterly Monetary Policy Review has come and gone. The Reserve Bank of India duly
raised rates a quarter point.

Are we closer to the beginning or end or somewhere midway in the up cycle of interest rates?
The general opinion seems to be that we do have some way to go, considering that the
increases so far haven't brought down inflation as much as we want.

Officialdom keeps saying food inflation will be down to five-six per cent levels on the back
of good rains and harvests and their flow into markets. But a recent story in ‘Business Line'
makes the important point that supply increases have been immediately reflected in a fall in
wholesale prices, but not for the consumer. Not that the retailers have formed a cartel. There's
no consumer resistance.

The job market is booming and nominal incomes are rising sharply. The large discretionary
incomes with the middle class upwards make them price insensitive to the cost of living. The
savings ratio of these segments could be over 50 per cent. Besides, their investments in
property and stocks have paid off handsomely, adding substantial wealth to already high
incomes.
There's enough liquidity in banks, despite the transfer of funds to Government after the
spectrum auctions. This is because they have invested more than the mandatory 25 per cent in
Government securities. The excess is eligible collateral to borrow from the RBI itself.

With Government bond yields in the region of 7 per cent, holding more Government
securities than necessary is not only costless, it's profitable, because the RBI charges only the
repo rate of 6 per cent on its lending against the Government collateral. The central bank can
be arbitraged against itself!

Credit is easy, cheap relative to general inflation and more so relative to asset prices.

Taking into account all of the above, do we have the makings of a bubble? That's the big
question for the central bank.

On the monetary front, the pressure on the RBI will be relentless. Soon, if not already so,
banks will turn liquidity surplus. Money rates will descend well below the repo rate. Another
round of CRR increases is on the anvil to tighten liquidity and ‘manage' market interest rates.

Are non-monetary solutions in order?

How about impounding (say) 10 per cent of salaries above a certain level in Government and
the organised sectors without paying interest for a period of (say) one year?

That could ratchet down the optimism factor that's ratcheting up inflation.

Quiet entry of labour standards

Narendar Pani

By refusing to discuss labour standards at the WTO, India ended up having no say when
overseas buyers began to enforce their own norms on its soil. Indeed, a number of India's
WTO positions could come back to haunt it.
  
Indian manufacturers for the global garment market operate in conditions that are totally
dominated by the buyers.

Whatever happened to labour standards? The early ministerials of the WTO invariably found
the West demanding core labour standards be brought under the ambit of trade negotiations.
Over the last decade or so the issue has completely fallen off the radar. It is tempting to see
this as a victory for India since this country had led the opposition to linking labour standards
to trade negotiations. But if we look at the local units of global circuits, another, rather less
flattering, explanation stares us in the face: The West has simply found another, more direct,
means of imposing core labour standards in the manufacture of goods sold in the international
market.

Indian manufacturers for, say, the global garment market operate in conditions that are totally
dominated by the buyers. The buyers, in turn, are very wary of what stories of their products
being manufactured with child labour, or other unethical labour practices, would do to their
brands in Western markets. Manufacturers know buyers will shift their demand elsewhere if
minimum labour standards are not met, and go out of their way to fall in line.

Over the last decade buyers have laid down the law regarding the standards that are
acceptable. And while they were at it they have laid down some environmental standards as
well. Buyers typically insist on a global standard like the SA 8000 that has both labour and
environmental norms.

IMPACT ON UNIONS

This quiet, but extremely effective, implementation of the link between labour standards and
trade in the world market has several implications for the local economy. Arguably the most
visible of the consequences is on the trade union movement.

As these core standards include minimum wages, a clean working environment, monitoring
of supervisor behaviour, and the setting up of committees to address worker grievances, there
is not always enough reason for the workers to reject these standards. Add to this the fear that
joining a trade union would affect the ability of a worker to get another job, and trade unions
find it very difficult to gain a foothold in these units.

The internationalisation of labour standards has also divided the international trade union
movement. Indian trade unionists have been willing to play down their lifelong commitment
to improved labour standards to fall in line with the national government's opposition to the
linkage between these standards and trade. Trade unions in the developed world on the other
hand have found the support of their governments in their efforts to influence labour
standards in countries like India.

GOVT ROLE AFFECTED

In the process, the role of the government in monitoring labour conditions has also been
affected. For instance, Fibres and Fabrics India came under attack from international NGOs
on labour standards in their Bangalore unit.

The local courts supported the Indian company. But Dutch politicians got behind their NGOs,
brought up the issue in their parliament and built international pressure on the Indian
government. A settlement was finally negotiated with the intervention of a former Dutch
prime minister. If such conflicts have not occurred more frequently it is only because the
government and the international buyers have, to a great extent, defined their own domains.

Since the conditions demanded by the buyers within the workplace are higher than the
standards set by the government, the buyers have gone beyond the official monitoring of
labour practices.

INDIA'S WTO POSITIONS

In addition to carrying out their own inspections, the buyers also often rely on international
monitoring agencies to spot erring manufacturers. Above all, this monitoring is extremely
sensitive to Western media. A single report on BBC has been enough for a global brand to
pull out of a contract with a specific manufacturer.

The fear of a brand-damaging story makes buyers focus their attention on conditions within
the workplace. There may be the occasional Corporate Social Responsibility project aimed
outside the workplace but these are few and far between. This contributes to a very sharp
difference — for garment, and other similar, workers — between conditions in the workplace
and at home.

The global labour standards within the workplace do not percolate to their cramped and often
unhygienic living conditions. This sharp distinction between the workplace and outside,
between areas where the buyer dominates and those where the government does, points to the
limits of focusing on trade negotiations alone when dealing with globalisation.

By refusing to discuss labour standards in the WTO, India only managed to ensure it would
have very little influence on the determination of the specific core labour standards that
would be implemented on its soil. And labour standards are not an exception. The spread of
global markets could ensure that a number of India's positions in the WTO could come back
to haunt it.

India has campaigned resolutely against the subsidies Western governments give their
agriculture. But if those subsidies are removed global food prices will shoot up. And given
the impact global food prices are now tending to have on domestic prices, India has reason to
hope that the West does not accept its arguments on reducing food subsidies!

The broad contours of India's positions in the WTO have typically been defined at a time
when it was still possible to focus on limiting our interaction with the rest of the world. But
the experience with labour standards has clearly demonstrated that as the country gets drawn
into the effects of globalisation, this approach is ineffective, if not self-defeating.

Out of depths in Kashmir

B.S. Raghavan

Judged from the steep deterioration of the situation in Kashmir, the impression one gets is
that there is nobody in charge either at Srinagar or at New Delhi and that the crisis managers
at both ends are utterly clueless, confused and out of depths.

It is the ruling establishment in Delhi and not Mr Omar Abdullah's Government in Srinagar,
that must squarely bear the responsibility for letting the turmoil in Kashmir assume such
bewildering proportions. Kashmir has never been only a law and order or security-related
problem, to be legalistically construed as coming solely within the State Government's
purview. Arrests, curfews, shootings and similar time-(dis)honoured bad habits which the
Indian state is still unable to shake off are not the answer to the prevailing chaos in Kashmir.
Sending more forces there will only mean courting more trouble. For, implicit in it is the
greater possibility of more shootings, more deaths and more violence.

The sooner the Government at the Centre realises that Kashmir is its problem and a political
problem at that, the better will be the chance of defusing the time-bomb that it has become.
The Government's ability or willingness to act on such a realisation is predicated on certain
vital considerations.

PM in the shadows
First, it must desist from making Mr Omar Abdullah a pack pony for palming off its own
political bankruptcy. Second, the people of Kashmir — particularly those who have lost their
loved ones, whose homes have been destroyed or who have suffered at the hands of the
police — must get the feeling that the Government, not in the abstract sense but by the living
presence of the Prime Minister, Home Minister and Defence Minister among the affected
people — cares for them and shares their grief. This is what, at the first sign of trouble,
Jawaharlal Nehru, Lal Bahadur Shastri or Indira Gandhi, would have done. It is common
sense that empathy combined with expression of solidarity goes a long way to forge
emotional bonds.

Unfortunately, Dr Manmohan Singh is not made of that kind of stuff and, like the bureaucrat
that he has been all his life, prefers to work anonymously from behind the scenes. Also, for
some weeks past, not just in the case of Kashmir, but in managing affairs of state in general,
far from looking like a leader of the nation in full command, he appears to be content with
being in the shadows, leaving it to the Finance Minister, Mr Pranab Mukherjee, to handle
sensitive issues inside and outside Parliament.

The Home Minister, Mr P. Chidambaram, and the Defence Minister, Mr A. K. Anthony, too
are comfortable working with fellow Ministers and officialdom. Because of their total
unfamiliarity with Urdu or Hindi, they are prone to resort to remote control from within the
confines of their offices instead of freely engaging themselves with the people of the Valley
on applying a soothing balm to their hurt state of mind.

Bold decision needed

The prime requisite in the immediate term is to send to Kashmir an all-Party Parliamentary
Committee to hold talks with whomsoever wants to meet them to recommend within a week
or so the steps to be taken to restore peace and harmony. This by itself may calm frayed
nerves. Meanwhile, the Government should address the long-persistent demand for repealing
the draconian Armed Forces (Special Powers) Act without further dithering.

Every special power becomes an addiction over time and those used to wielding it become a
vested interest. So was it with the Emergency and the Defence of India Rules which
continued for 15 years from 1962 on the argument that without them, India would be
destroyed. Well, they were revoked in 1977 and India is intact.

The Government already has before it the report of the Justice Jeevan Reddy Committee
which had gone into the Act, and taking full account of the imperatives of national security,
recommended its repeal. A bold decision to mitigate its severity or repeal it altogether will in
itself bring about an electrifying psychological change in the Valley.
Finally, the time has come for the Prime Minister to seriously consider creating a separate
Ministry of Kashmir Affairs and appoint as Minister a person of the stature, knowledge and
experience of Dr Karan Singh who can be assisted by a broad-based Council of Advisers on
Kashmir Affairs on the analogy of the Prime Minister's Council of Economic Advisers.

Should India set up a sovereign wealth fund?

 
Sovereign wealth funds help in diversifying and improving the return on a country's foreign
exchange reserves.

Kavaljit Singh

New Delhi's proposal to establish a $10-billion sovereign wealth fund should be treated with
caution. The necessary preconditions for setting up a SWF are squarely lacking in India.
Besides, the purported objectives of the fund to pursue strategic investment opportunities
abroad are highly debatable. It appears that New Delhi is blindly following a “me-too”
approach rather than understanding the rationale behind setting up such funds. What are
sovereign wealth funds? In simple terms, SWF is a large pool of assets and investments
owned and managed (directly or indirectly) by a national or state government.

Rationale behind the fund

The main policy rationale behind setting up a SWF is not to acquire strategic assets and
secure supply of natural resources, as proposed by New Delhi. Such funds are established to
manage excessive foreign exchange reserves, commodity exports, the proceeds of
privatisations and fiscal surpluses. For instance, China established its SWF, China Investment
Corporation, with a $200 billion corpus to manage its excessive forex reserves, which
reached 2.4 trillion by end-June 2010.

SWFs help in diversifying and improving the return on a country's foreign exchange reserves
or commodity revenues. Like central banks, SWFs deploy surplus forex reserves; but since
SWFs are set up to diversify investment, they undertake long-term investments in illiquid and
risky assets, whereas central banks typically undertake short-term investments in low-
yielding liquid assets, such as government securities and money market instruments.

At present, there are more than 50 SWFs in the world, managing assets worth around $3
trillion. Of the top 20 SWFs, 14 are funded from commodity revenues, predominantly from
oil and gas exports but some from metals and minerals (such as Russia's Reserve Fund or
Chile's Social and Economic Stabilisation Fund). The revenues are generated in a variety of
ways, including profits made by state-owned companies, commodity taxes and export duties.

Non-commodity SWFs are largely funded by transferring assets from official foreign
exchange reserves, although some are based on fiscal surpluses, proceeds from the sale of
state-owned enterprises to the private sector, and direct transfers from the state budgetary
resources.

Unlike China and other East Asian countries, which have established such funds on sustained
current account surpluses, India has been running persistent current account deficits. Its
current account deficit touched $29.8 billion in fiscal 2009 as against $15.7 billion in fiscal
2007. Unlike West Asia, India does not have any dominant exportable commodity (such as
oil or gas) so as to generate significant surpluses. It continues to be a huge net importer of oil
and gas. The country's current account deficit is widening despite steady growth in software
services exports and a rise in workers' remittances from overseas Indians.

Its persistent current account deficits have been financed by large capital inflows in the form
of portfolio investments and other volatile capital flows that are subject to capital flight.
Given the overriding presence of volatile capital flows in India's forex reserves, coupled with
vulnerability to external shocks, it would be erroneous to consider its foreign exchange
reserves ($280 billion) as a position of strength.

India's external debt has been rising steadily for the past few years on account of higher
borrowings by the Indian companies and short-term credit. Besides, India also runs a
perennial fiscal deficit which means that raising substantial money for sovereign fund from
budgetary allocation would be extremely difficult.

Santiago Principles

As far as the proposed fund's objectives to invest directly in strategic cross-border assets are
concerned, the Indian policy-makers need to recognise that the overwhelming majority of
sovereign funds are passive investors. In the rare cases where SWFs have made direct
investments, they have not sought controlling interests or active roles in the management of
invested companies, as private investors do. Even the large-scale direct investments made by
SWFs in US and European banks during 2007-08 were minor in terms of bank ownership and
did not come with any special rights or board representation. Any direct investment in
strategic assets by a sovereign fund will invite severe criticism for its alleged political and
non-commercial objectives. Not long ago, the Western world had characterised SWFs as
“villains” and introduced new policy measures, popularly known as Santiago Principles, to
regulate the investments of SWFs globally. Thus, acquisition of strategic cross-border assets
(including natural resources) will not be a cakewalk. Also $10 billion is not enough to acquire
strategic assets abroad — unless they become very cheap.

Furthermore, there is no guarantee that investments made by the Indian fund will be
profitable. As witnessed during the global financial crisis, SWFs from West Asia, China,
Singapore and Norway suffered huge losses for their investments in Western banks and
private equity funds.

Paradoxical as it may sound, extreme poverty and hunger still pervades India. For New Delhi,
the first priority should be to free the nation from hunger, malnutrition and illiteracy rather
than financing the acquisition of strategic assets or rivals abroad.

In this regard, a portion of the country's forex reserves could be prudently used in the
improvement of physical infrastructure, education, health and financial services, particularly
in rural India.

Inflation is biggest dampener: survey

Our Bureau

Kolkata, Aug. 3

The majority of the retail, corporate investors and financial advisors think that inflation has
been the single biggest confidence killer over the last two quarters for the investment
environment in the country, according to the latest quarterly survey done by JP Morgan
(JPM) and Value Notes (VN) for constructing the Investment Confidence Index (ICI).

Last quarter, the Euro zone debt crisis also appeared to have dented confidence to some
extent, the JPM-VN press release said. While for corporate investors and advisors, it was
second biggest confidence dampener, for retail investors, high fiscal deficit was more of a
confidence eroding factor than Europe's crisis.

“Concern over inflation is back to September 2009 levels for corporate and retail investors
after a spike in February 2010 but continues to be the most negative economic indicator for
the financial community.”
In the last quarter, 48 per cent of the corporate investors said it was the biggest negative.
Some 40 per cent of the advisors and 35 per cent of the retail investors surveyed also had the
same opinion.

Overall, retail investors continued to be buoyant with increase in levels of confidence. In the
June quarter, advisors' was at the peak amongst the last four quarters.

Recycle exhaust gas to cut emissions

M.R. Ganesan

Unlike the open cycle system, a combined cycle system captures the hot exhaust gas from
turbines and uses the same to generate steam which is again used to produce more power.

 
Natural gasis a clean fuel, but only in relative terms.

Give a man something cheap, he'll use it with abandon. But in this world, no extravagance is
without its consequences. It is in the context of the ‘carbonaceous consequences' that the
callous use of deplete-able resources in oil-rich West Asia should be viewed.

To wit, there is gas-fired power capacity of about 175,000 MW in this region. Most people
believe that natural gas is a clean fuel, but that is true only in relative terms. Natural gas is
methane, or CH {-4}, and when it is burnt, carbon is let out.

Water in short supply

The problem with the West Asian region is not that natural gas is used for power generation
— which, indeed, is inevitable — but with how it uses the gas in open cycle systems.
An open cycle system lets the high temperature exhaust gas from the gas turbines out into the
atmosphere.

We Indians, by nature, are accustomed to extracting the maximum value out of any resource.
Open cycle gas turbine systems are anathema to us. A gas-powered station to us means a
combined cycle system.

Now, what is a combined cycle system? It captures the hot exhaust gas — that has done its
job of turning the gas turbines — and uses it to generate steam (in what are called ‘heat
recovery steam generators'). This steam is charged into the steam turbines to produce some
more power, thus enhancing the efficiency of the system.

Countries in West Asia find it bothersome to exploit the value of exhaust gas. This is because
while gas is available in plenty in the region, there is scarcity of water that is needed to
generate steam and to cool it in the condenser of a steam cycle. Hence, they have ended up
with nearly 107,000 MW of open cycle systems.

It makes economic sense, but if one looks at it in terms of carbon emissions, the indifference
is appalling to say the least.

Yes, water availability is an issue, but there are solutions — desalination plants and air-
cooled condenser systems, for instance, can be used instead of water-cooled systems.

It may be argued, and rightly so, that there may not be enough demand. If that be the case,
what makes carbon-sense is to convert as much capacity as possible into combined cycle.

Rest of the world

For sure, the issue of open cycle systems is not unique to West Asia. In fact, globally there is
310,000 MW of capacity running on open cycle — resulting in a huge wastage of resources.

Assuming conservatively that only about two-thirds of this capacity can be converted into or
replaced with combined cycle systems, doing the conversion/replacement will result in
addition of 100,000 MW of capacity, without burning a gram of carbon. (Incidentally, this is
equal to the thermal capacity installed in India.). In other words, if this 100,000 MW of
combined cycle plants are built to fire gas, the carbon emissions will be to the tune of about
400 million tonnes. Needless to say, there is a need to evolve a mechanism for
compensations.

Conversion process
In the developed world, notably the US, open cycle gas-fired plants are used, given their
amenability to be switched on and off. This advantage would be lost if they were to be
converted into combined cycle systems.

The problem is, if you start the gas turbine and also move on to combined cycle mode, it
takes about an hour if started after an eight-hour shutdown and about an hour-and-a-half if
started after two days.

However, it is possible to convert these plants to combined cycle and use them for peaking
load also. Let us assume that converted units are numbered as units 1 to 10. Peaking load
(say, 20 per cent) can be managed by starting combined cycle unit 1 one-to-two hours before
peaking load occurrence on Day 1 and shutting unit 6 after peaking requirement. Similarly,
start unit 2 on day two and shut down unit 7. After 5 days, unit 6 will be started and unit 1
shut down.

The general impression is that gas is sort of ‘okay' in terms of pollution. We no longer worry
too much about depletion of hydrocarbons because we know that as oil prices go up,
unconventional oils and gas — from shale, Orimulsion, coal-bed methane, gas hydrates, coal,
and so on — will start flowing.

With depletion not weighing too much on our minds, we tend to guzzle. But burning gas also
lets out carbon. Those who are concerned about climate change mitigation should realise that
sooner the open cycle systems are converted to combined cycle, the better it is for mankind.

Court turns down SPIC plea for grant of electricity tax exemption

Our Legal Correspondent

Chennai, Aug. 3

The Madras High Court has rejected the prayer of Southern Petrochemical Industries Corpn
Ltd, Tuticorin, to grant it exemption from the levy of electricity tax as it was engaged in the
manufacture of ‘chemicals' and fertilisers such as urea and di-ammonium phosphate and that
it had installed captive power generator sets in the Tuticorin plant.

The TN Electricity (Taxation on Consumption) Act, 1962 empowered the Government to

exempt ‘chemical industries' which generated electricity in their captive units from the levy
of tax.

Challenging the demand dated January 23,1995 for payment of tax from the Assistant
Divisional Engineer (O&M), the company filed a writ petition in the High Court.
Mr Justice V. Ramasubramanian, in his elaborate order, held that none of the contentions
raised by petitioner for grant of exemption from tax could be countenanced. “There are no
merits in the writ petition”.

Main contention

The main contention of the petitioner included that the fertiliser industry was a chemical
industry. But, the Superintending Engineer, Tuticorin Electricity Distribution Circle
(Respondent I), in his counter-affidavit, submitted that the fertiliser industry would not come
under the category of chemical industry and it was not exempt from the levy of tax. The
notification GO Ms No 852 dated May 20, 1988 exempted only chemical industries and not
fertiliser industries.

The petitioner pointed out that the object of the exemption was to encourage captive
generation of power, and hence, there was no rationale behind the stand taken by the
respondents.

The Judge noted that the words ‘chemical' or ‘chemical industry' did not appear anywhere in
the TN Electricity (Taxation on Consumption) Act, 1962. They also did not appear in the
Rules. Irrespective of how academicians, encyclopaedias, etc., had understood the term
‘chemical industry', what was important was to find out as to whom the benefit of exemption
was sought to be conveyed by Government. “I am unable to convince myself that the GO
granting exemption to chemical units, would automatically cover fertiliser industries, merely
because of text book definition of the term,” the Judge said.

Also, the Judge observed that there was no intention to include the fertiliser industry within
the meaning of chemical industry was borne out either by express words or by implication.
On the contrary, the Government had explained in clear-cut terms that by drawing analogy
from schedule to Industries (Development & Regulation) Act, 1951 they had treated the
fertiliser industry, independent of chemical industry. “Therefore, if at all, any intention was
borne out, it is against the petitioner”, the Judge held.

‘chemical industries'

The expression ‘chemical industries' in exemption notifications, could not be stretched to

include fertiliser industries by looking into any dictionary or glossary of chemical terms. Not
all industries which used captive power had been granted exemption by the Government. The
exemption had been confined to paper, textile, cement and chemical industries, and hence,
the tool of purposive interpretation could not be used, Judge ruled.
Citing the judgment of the apex court in Shaw Wallace & Co Ltd vs State of TN [1976 (3)
SCC 17], the Judge pointed out that the principal question taken up for consideration was
whether fertiliser mixtures could be treated as same article as chemical fertilisers. “Fertiliser
mixture was not the same article as the ingredients composing it. . . . As such, it has to be
treated as a different article from its component parts.”

Lower Pusa-1121 sowing leads rice rally

Our Correspondent

Karnal, Aug. 3

With arrivals from Uttar Pradesh dwindling, rice is witnessing a good rally in prices in the
last two days. Apart from low arrivals, lower sowing of Pusa-1121 variety in the region has
resulted in the uptrend.

On Tuesday, prices of Pusa-1121(steam) was quoted at Rs 5,250 a quintal, prices of Pusa-

1121 (sela) around Rs 4,110 a quintal, while the prices of Pusa-1121(raw) at Rs 5,240.

Due to low export demand, a downfall in the prices of Pusa-1121 variety was witnessed last
week with prices dropping to Rs 5,200 a quintal.

Pusa (Sela) variety was quoted Rs 3,150 a quintal and Pusa (Raw) ruled around Rs 3,950 a
quintal. Basmati Sela ruled between Rs 6,000 and Rs 6,025 a quintal and Basmati Raw ruled
around Rs 7,050 a quintal. Low arrivals lifted prices of non-basmati rice too. Sharbati Sela
variety ruled around Rs 2,800 and Sharbati steam was quoted at Rs 2,900-3000. Permal (PR)
sela was quoted at Rs 1,980-2,130, PR (raw) at Rs 2,050-2,250 and PR (Steam) at Rs 2,210-
2,360.

Tibar, Dubar and Mongra –all varieties of Pusa-1121– are broken rice that do not attract any
export demand. Tibar ruled at Rs 3,450 a quintal, Dubar at Rs 2,830 and Mongra at Rs 2,050.

On Monday and Tuesday, around 6,000 bags (75 kg each) of early variety paddy, Govinda
and 1,121, arrived here. Govinda ruled between Rs 875 and Rs 925, while 1121 fine quality
was quoted at Rs 2,300. Rice millers lifted the new arrivals.

Mr Amit Kumar, Proprietor, Hanuman Rice Trading Company, told Business Line that low
arrivals lifted rice prices by 50-100 in last two days. Rainfall is the prime reason behind the
low arrivals, he said.

Also due diseases affecting Pusa-1121, farmers preferred to sow Basmati variety instead.
Tea output down 12% in June; export falls 15%
Production affected by lower rainfall, pest attack.

“The fall in output is higher than industry's expectations. It was expecting 8-10 per cent fall
in production.”

C J Punnathara

Kochi, Aug 3

The country's tea production in June slipped close to 12 per cent to 104.03 million kg.

The lower production was attributed to lower rainfall, decreased soil humidity and increased
pest attack in some of the major tea growing areas of the country, especially in the North-
East.

While most of the country received normal to good rainfall till August, the tea-growing areas
of North-East reportedly received deficit rainfall.

S. India contribution

Although North Indian production, including from Assam and West Bengal, was significantly
down, the slight increase in South Indian production was unable to make up for the shortfall.

Increased production from Tamil Nadu accounted for the spurt in South Indian production.

Production for the first three months of the current fiscal was, however, up at 338.96 million
kg (333.89 million kg).
The shortfall in production from the North Indian plantations persisted into June.

The biggest production losses were reported from Assam, especially from the Assam valley
plantations.

However, increased production from South Indian plantations during the first three months
was not only able to make up the deficit but also enabled the country to report an overall
production increase.

Highest production increases were reported from Tamil Nadu plantations.

Tea export was down in both volume and value in June.

The country's exports fell close to 15 per cent to 12.76 million kg in June 2010, as against
14.95 million tonnes in June last year.

The fall in value realisation was even sharper at 21.5 per cent to Rs 166.96 crore as against
Rs 213 crore.

The higher fall in value realisation was also on account of lower unit value realisation. Unit
value realisation for tea fell to Rs 130.84 per kg as against Rs 142.46 per kg last year.

While there was an increase in the value of high-quality teas exported from North India,
significant fall in value of bulk tea exports from South India eroded the country's unit value
realisation.

Unit value of North Indian exports was twice that of South Indian tea exports in June.

pest attack impact

Reuters reports: A pest attack of helopeltis adversely affected tea gardens in the Assam.

“The fall in output is higher than industry's expectations. It was expecting 8-10 per cent fall
in production,” said an official of the Calcutta Tea Traders' Association.

Despite a drop in June production, the country's tea output in January–June stood at 339
million kg, up 1.5 per cent on year due to higher crop in January–April.

The Tea Board chairman, Mr Basudeb Banerjee, told Reuters last month that the country's tea
output in 2010 is likely to fall below 2009 level.
“Pest attack is now under control, but it had caused damage in July as well. We are expecting
lower output in July,” said a senior Board official, who declined to be named.

India exports CTC (crush–tear–curl) variety of tea, mainly to Egypt, Pakistan and the UK,
and the premium orthodox variety of tea to Iraq, Iran and Russia.

In January–June, the country's tea exports stood at 83.9 million kg, 12.6 higher on year, the
statement said.

However, average realisation during the period fell by 6.4 per cent to Rs 123.48 per kg.

Tea prices in India have been rising for the past one month due to lower crop in June.

Ministry seeks Rs 13,381 cr to compensate oil cos

Our Bureau

New Delhi, Aug. 5

The Petroleum Ministry is knocking at the Finance Ministry's doors again. It wants Rs 13,381
crore for meeting the under recoveries of the public sector oil marketing companies (OMCs)
during the first quarter of 2010-11 for selling petroleum products below market prices.

The three OMCs – Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan
Petroleum Corporation – have got Rs 14,000 crore from the Government as balance cash
compensation on subsidised sale of fuel for the financial year 2009-10. The total under
recovery for 2009-10 was Rs 46,051 crore.

“The Finance Ministry has been requested to provide financial support of Rs 13,381 crore for
meeting the balance under recoveries incurred by the OMCs during the first quarter of 2010-
11,” the Minister of State in the Ministry of Petroleum and Natural Gas, Mr Jitin Prasada, to
the Lok Sabha on Thursday.

Out of the total under recovery for April-June 2010-11 amounting to Rs 20,072 crore on sale
of petrol (up to June 25), diesel, PDS kerosene, and domestic LPG, one-third under-recovery
amounting to Rs 6,690.68 crore has been compensated by the upstream oil companies –
ONGC, Oil India Ltd and GAIL (India) – through price discounts on crude and products.
This was done under the burden sharing mechanism.
“It was decided in the meeting of the Empowered Group of Ministers held on June 25 that the
burden sharing mechanism for 2010-11 will be decided by the Ministry of Petroleum and
Natural Gas in consultation with the Finance Ministry,” Mr Prasada said.

The under recoveries incurred by the three OMCs on selling domestic LPG and PDS
kerosene during the current year first quarter is Rs 5,098 crore, and Rs 10,119 crore,
respectively, he said.

The three OMCs had reported net losses in the first quarter, as the compensation from the
Government for selling the products at a controlled price did not come before the accounts
were closed. For the first quarter, ONGC has shouldered Rs 5,515.54 crore, Oil India Rs
729.66 crore and GAIL Rs 445.48 crore. For the full financial year 2010-11 the projected
under recoveries are close to Rs 57,000 crore.

On June 25, the Government decided to deregulate petrol prices, while increasing the prices
of diesel, PDS kerosene and domestic LPG. The OMCs are incurring an under recovery of Rs
2.76 a litre on diesel, PDS kerosene Rs 15.41 a litre, and domestic LPG Rs 170.57 a cylinder.

Wheat prices soar as Russia suspends exports

G. Chandrashekhar

Mumbai, Aug 5

Russia has announced a temporary ban on wheat exports. This is of course not entirely
unanticipated.

Today, soon after the Russian Prime Minister reportedly announced a temporary grain export
ban, prices were seen rising further.

Drought conditions have threatened Russian wheat harvest.

From record 63.7 million tonnes in 2008-09, wheat production declined by two million
tonnes the following year.

Drought is now threatening to pull output down to around 50 mt. Russia's wheat exports were
17-18 mt last two years.

winter plantings
 As the harvest moves into areas most severely impacted by the acute dry conditions, soon the
market can expect to get a clear idea about the quantum of output loss.

There are concerns about winter wheat plantings too.

 Next week's USDA monthly grain market report is keenly awaited.

While wet weather affected Canada and south eastern Europe planting, dry conditions have
hurt production in Ukraine, Kazakhstan as also north-western parts of the EU.

 Recently, the London-based International Grains Council reduced 2010-11 world wheat
output forecast by 13 mt to 651 mt.

On current reckoning , further downgrades look certain. The rise is seen having a rub-off
effect on corn and soyabean.

Bloomberg reports: Wheat for December delivery, the contract with the largest open interest,
advanced as much as 7.9 per cent to $8.155 a bushel in Chicago on Thursday, the highest
level since August 2008. The contract was 7.8 per cent higher at $8.1425. Wheat prices may
continue rising till the end of August, said Mr Chris Yoo, manager of the global derivatives
team at Samsung Futures Inc. in Seoul. Consumers are likely to switch to consume rice.

Wheat has jumped faster than in the first two months of 2008 when a 41 per cent gain to a
record $13.495 spurred concern over a global food crisis and sparked riots from Haiti to
Egypt.

High-capacity solar power generation plants planned

Our Correspondent

Madurai, Aug. 5

Six major industries in the southern districts plan to establish high-capacity solar power
generation plants under a scheme of the Central Government, according to S.E.S.Syed
Ahamed, Deputy General Manager, Tamil Nadu Energy Development Agency (TEDA),
Madurai region.

The applications have been forwarded to NTPC Vidyut Vyapar Nigam (NVVN), the power
trading arm of the State-owned National Thermal Power Corporation and the National Solar
Mission, the designated nodal agency for Jawaharlal Nehru National Solar Mission
(JNNSM). Currently, the applications are with TEDA for providing technical advice to the
applicants. He said that the annual returns on this project could touch Rs 12 crore. It has been
planned to generate 150 MW every year from 2010 to 2013.

The scheme is part of the Centre's plan to generate 20 gigawatts by 2020, by establishing
solar photovoltaic and solar thermal power plants across the country, he added.

Foodgrains merchants appeal on consent to GST

Our Correspondent

Madurai, Aug 5

The Tamil Nadu Foodgrains Merchants Association (TFMA) Ltd has urged the Tamil Nadu
Government to consider the well-being of the small traders and manufacturers in the State
before giving its concurrence for the Goods and Services Tax (GST) implementation, even if
it took few more years for implementation.

It has further requested the Government to set up a committee consisting of Government

officials and trade body representatives, representing mainly the small scale industries and
traders to study the effects of GST implementation.

In a memorandum addressed to the Chief Minister, Mr M. Karunanidhi, and submitted to Mr

S.N.M. Ubayadulla, Minister for Commercial Taxes, during his recent visit to Madurai
recently, Mr S. P. Jeyaprakasam, President of the Association, thanked the Chief Minister for
being considerate at the time of implementation of value added tax in the State earlier,
through exemptions given to a number of commodities that included essential commodities
He stated that in the event of implementation of GST in the country with uniform tax rates,
the exemptions and concessional rates extended must be continued for the benefit of traders
and the public.

He pointed out that the excise duty and service tax incorporated in GST are not applicable for
several commodities under value added tax (VAT). But when GST is implemented, these will
also be loaded on to the VAT items which do not attract the same. At present the highest
VAT rate is 12.5 per cent and even at this rate some unscrupulous traders resort to unethical
business practices leading to tax evasion and putting the genuine and honest traders and
business houses into unhealthy competitive situations.

Smooth road ahead for farm equipment makers

Monsoon, global developments bode well

M.R. Subramani
Chennai, Aug. 5
Stocks of farm equipment manufacturers, especially tractors, have witnessed a mixed trend
since the beginning of this year. Signals from the monsoon had been unclear at least until last
week, indicating problems for the kharif crop.
Things seem to have improved this week with excess rain. Still, a worrying factor is that
Bihar has declared 28 districts as drought-hit, eastern Uttar Pradesh needs rains as also north-
western parts of the country.
The India Meteorological Department and other forecasters are still confident of a normal
monsoon. The story unfolding for the sector, however, is elsewhere.
This week, there have been two important developments which signal good times for Indian
agriculture pricewise.
First is the well-known fact of Russia being affected by the worst drought in 50 years.
Weathermen predict an even harsher climate in the next months. Moscow has promptly acted
to face the situation, banning wheat exports from August 15.
Other crops such as sugar beet - used in sugar production - potato and a few other crops, face
problems.
On the other side of the globe, rains and floods have wreaked havoc in China. As a result of
the rains, the Communist nation's rice production is now projected to be 10 per cent lower,
while the cotton crop has also been affected.
ALTERNATIVES?
Why does India does not export wheat or rice, one may ask. How do farmers stand to gain?
What happens is that when a foodgrain like wheat or rice faces production problem, the issue
percolates down to other cereals such as corn (maize), bajra, barley, jowar.
This is because people look at alternatives to fulfil their needs. Not just that, a certain amount
of wheat and rice are used as feed for cattle and poultry. When such a shortfall arises, then
the demand shifts to other sources such as corn, bajra and even oilmeals.
Where Indian agriculture could stand to gain is that there could be increased demand for corn
in which the country has emerged as a key exporter in the last couple of years. Oilmeals have
recorded a positive growth in July after eight months, promising of the much-required
turnaround.
Though non-basmati rice exports are banned, demand for aromatic rice such as Pusa- 1121
could rise if the situation worsens. Wheat products exports, which are allowed, could take
place despite India's track record of ad hoc decisions marring shipments.
All these means, farm commodities are likely to face pressure since Indian farmers do get
prices on par with global rates. More money in the hands of farmers mean they could go in
for mechanisation and modernisation, particularly when they are facing shortage of labour
hands.
It is here that farm equipment manufacturers stand to gain. As a trend of hardening prices
emerge, it could be a good move to accumulate stocks of these companies. In the short-term,
they do look promising.

Rural job scheme adds to farmers' woes

Growers double wages but no takers.

 
Dried hopes: Traders drying paddy at the Gingee foodgrains market after purchasing it from
farmers.

N.S. Vageesh

M.R. Subramani

Chennai, Aug 5

G. Devarajan, a farmer of Vallathi village in Gingee taluk of Tamil Nadu's Villupuram

district, is a disappointed man. His 20 bags of paddy (75 kgs each) have been sold totally for
around Rs 12,000 at the Gingee grain market, 150 km from here. For him, this is at least Rs
2,000 lower than what he had to incur in growing paddy.

“My input costs have mainly gone up due to rising labour costs. It is hard to get labour as
they opt for the National Rural Employment Guarantee Act (NREGA) scheme,” he says.
“Even when we tell them that we will give them a higher wage, they are not coming.”

“Wage costs for farm labour have nearly doubled. Last year, a farm labour was paid Rs 130 a
day. Now, we have to pay Rs 250,” says Mr Iyya Kannu, General Secretary of the Tamil
Nadu wing of Bharatiya Kisan Sangam.

“Until last year, we were paying Rs 70 a day to women, who are engaged in transplanting
paddy. Now, we are offering Rs 120 a day but they are not willing to work on the fields,” Mr
Iyya Kannu says.
“Last week to harvest paddy, I had to pay Rs 1,000 to get four workers. On top of it, I had to
get them food and also liquor,” says the 71-year-old Pavadairayan from Sutheri village in
Gingee taluk.

Harvest of the short-term Kuruvai crop is on in Tamil Nadu and the farmers' woes are
compounded by lower realisation for their produce. “The short-term crop gets lower price on
grounds of quality. The grain is likely to get broken unlikely the crop that is harvested in
January,” says Devarajan.

Farmers cutting across sections are upset that the NREGA scheme has made things difficult
for them.

“For normal farm work, we have to give Rs 250 and provide the labour tea. But for harvest,
we have to get them liquor,” says Mr Iyya Kannu.

Most of those who get work under NREGA scheme earn Rs 75 a day.

“The problem is when we call them, they say we make them slog from morning to evening. If
they go for work under NREGA scheme, they say they can sit under shade for most of the
time,” the farmers' leader says.

“Women come to work on Saturdays and Sundays when there is no work under NREGA
scheme,” says Mr Iyya Kannu.

The problem of lack of farm hands is not confined to Tamil Nadu alone. A similar situation
exists in Karnataka too, where coffee planters are groping in the dark to get hands for their
estates.

“Due to lack of workers, we are turning to mechanisation, using harvesters. But the recent
hike in diesel price has come as a dampener,” Devarajan said.

Farmers have no problem if their fields are dry during harvest. “We have to pay the harvester
owner Rs 1,500 for an acre. But if the field is wet, then we have to pay Rs 4,000,” he says.

“Fertiliser, seeds and pesticide all cost us a good amount,” Devarajan says.

Poultry products hatch gains

Gayathri G.

Chennai, Aug. 5

With the austere month of Aadi in the South and Sravan in the North getting over soon, the
poultry industry has reasons to smile.

Egg prices have increased by 3 paise in a week and chicken prices by Re 1 a kg on hopes of
rise in demand.

On Thursday, the Namakkal zone of the National Egg Coordination Committee (NECC)
hiked the price of an egg to Rs 2.38 from last week's Rs 2.35.

Similarly, the Broiler Coordination Committee (BCC) at Palladam in Coimbatore district

raised the price of broiler chicken to Rs 51 a kg from Rs 50.

The price had dropped to Rs 47 a fortnight ago.

Namakkal and Palladam prices are the benchmarks for eggs and chicken, respectively, in the
country.

An NECC official told Business Line that egg and chicken consumption suffered due to the
austere month in Tamil Nadu.

“Some communities resume egg consumption after the eighteenth of Aadi ( Aadi Perukku).
Usually, egg prices rise after this. Now that the austere month will end in a week's time, we
are expecting demand to pick up further and hence raised the prices.” NECC has increased
layer rates also by Re 1 a kg to Rs 37 this week.

The State's poultry sector caters to neighbouring Kerala and distant markets such as West
Bengal.

On the broiler front, BCC expects a likely rise in demand for chicken after Onam in Kerala.

The calorie countdown

Sudhanshu Ranade

 Calorie consumption has fallen over the decades, but there are no signs of distress. On the
contrary, the nutritional status of the population has improved.

This could signal a convergence between the laboriousness of rural and urban lifestyles, and
the lifestyles of the rich and the poor.

While the rich consume more calories than the poor, townspeople have a lower calorie-count
than rural folk. As if, unlike the gap between the rich and the poor, the determining factor in
the rural-urban divide is the rural person's greater need for calories.

Anyway, both gaps have been narrowing, according to a study published in the Economic and
Political Weekly earlier this year. As more and more rural households graduate out of
destitution, rural calorie consumption has been falling until it is now not so very different
from urban levels.  

By 2005, the rural-urban gap had almost been eliminated altogether; at all points of the
spectrum, from the rich down to the poor.

Expenditure went up, calorie consumption did not.

According to the National Family Health Surveys and data put out by the National Nutrition
Monitoring Bureau, though under-nourished Indians are cutting down on calories, they are
putting on weight, not losing it.

‘Whether one looks at weight-for-age or height-for-age, child nutrition indicators point to a

steady retreat of severe under-nourishment over the last 30 years'.

The proportion of underweight adults has also declined steadily, though there is a shortfall of
specific nutrients for lower income households, and for many middle income households as
well.

As economists tell the story, the main reason for lower calorie consumption in cities is the
difference in the laboriousness of rural and urban lifestyles: the more sedentary lives of a
large fraction of the urban population, the heavy demands of agriculture and domestic work
in rural areas, and the lack of cheap and easy transport facilities in the rural sector. This
‘laboriousness of lifestyle' argument has traditionally been used to explain the differential in
the rural-urban calorie count, not to account for its disappearance.

But since a person's need for calories changes substantially in response to improvements in
public health and small changes in strenuous activity like grinding flour at home rather than
getting it done in a chakki, it might in the end turn out that this is where the action is, as
exemplified by the vigorous increase in the sedentary activity of TV watching. One in five
rural households owned a TV ten years ago; thirty five years ago, just one in a hundred.

Some insist that the calorie countdown signals growing immiserisation (impoverishment).

But this story seems farfetched. Forcing it onto the data leads to the odd conclusion that
poverty is more widespread in rich, rapidly developing states such as Karnataka and Tamil
Nadu than in poor and more slowly growing Bihar, Uttar Pradesh and Orissa, where the
decline in calorie consumption has remained muted.

Of free milk and treadmills

Rasheeda Bhagat

While the UK's political leadership is thinking up ways to save as much money for the
exchequer as possible, what is happening in New Delhi in the run-up to holding the
Commonwealth Games is disgusting, to say the least.
  
The Commonwealth Games' main stadium in New Dehli… The country seems to have
adopted a ‘chalta hai' attitude to corruption in high places.

In Britain an interesting public debate is on about cutting corners to save the public
exchequer every penny, the argument being that a serious effort to tighten the belt is required
in these difficult times.

With Ms Anne Milton, Health Minister in the coalition government, proposing to scrap the
free milk scheme for nursery children in UK schools, the British media was engaged in an
exercise to find a fitting sobriquet for Prime Minister David Cameron that could rival the one
earned by his Tory colleague Margaret Thatcher way back in the early 1970s. As the then
Education Secretary, Ms Thatcher had ended free school milk — 1/3 pint for children in the
age group 7-11 — and promptly earned the title “milk-snatcher”.

But, sensitive to public opinion, and aware that he was in real danger of getting a similar
scathing title, Mr Cameron's administration scotched all speculation that such a move was in
the offing. The BBC quoted Mr Stephen Dorrel, an ex-health secretary, as saying the
government had decided not to end this scheme as the political risk “didn't merit the
rewards.” Every year Britain spends £50 million on the Nursery Milk scheme.

Only on Sunday the British Prime Minister had written in a newspaper advocating that the
Government should allow “no sum of waste too small to escape the microscope of
efficiency”.

Earlier, Ms Milton had described the scheme as “ineffective and inexpensive” and, in a letter
written to a Scottish executive, and which was leaked to the media, said: “There is no
evidence that it (the scheme) improves the health of very young children, yet the cost of
delivering it is increasing significantly. We think the scheme is out of step with the principle
that public funding should focus on the most needy.”
Fully aware of the criticism that would come the coalition's way, she had added in the letter:
“Abolition of the scheme will be contentious and we can expect opposition from the media,
parents, nurseries, child-minders and the dairy sector. However... this would clearly be the
best time to do it, given the state of public finances and the need to make savings.”

Had the cut come, the British daily The Independent speculated, “journalists would have
struggled to devise a sobriquet as damaging as ‘Thatcher, the milk-snatcher' for the current
Conservative leader.” Would it have been “Cameron the milk kleptomaniac, or Dave the
dairy cutter,” it wondered.

Games scandal

While the most robust of economies is pinching pennies and its political leadership racking
its brains to save as much money for the exchequer as possible, what is happening in Delhi in
the run-up to holding the Commonwealth Games is disgusting, to say the least.

Hundreds of crores of rupees from taxpayers' money have been swindled. The reputation of
the organising committee of the Games is in tatters, and its chairman, Mr Suresh Kalmadi, is
barely hanging on to his post, making one false and fabricated claim after another.

Whether it is in the renting of treadmills or air-conditioners or liquid-soap dispensers, one TV

channel after another has been reeling out unbelievable statistics on how the committee
members had rented stuff at twice, thrice or four times the actual cost of the item. The brazen
manner in which the whole thing had been done, taking the definition of corruption to another
level and even putting to shame Internet jokes on the monumental levels of corruption
indulged in by our netas, defies description.

And then to cover up the lies and the corruption, the Indian High Commission in Britain was
dragged in, e-mails were fabricated and every rule in the book was flouted. While TV
anchors — each one claiming the story was first broken on that channel — reserved the
harshest of criticism for Mr Kalmadi and company, what was surprising was the muted
response, even of netas from opposition parties.

Resigned to corruption

The understated/unstated message always seemed to be: This is a prestigious event for India;
let us not do anything hasty to jeopardise the holding of the Games. After they have been held
successfully, we will catch and punish the guilty!
That the Congress party, which leads the UPA government, would say this is understandable,
but for some Opposition leaders to chant the same mantra shows the chalta hai attitude we as
a country seem to have adopted for corruption in high places.

Of course, some tokenism has been shown and the organising committee of the Games has
suspended three errant officials. But this is like bolting the stable doors after the horses have
fled! There isn't the faintest chance of the huge money that has been siphoned off being
recovered.

The media can only speculate on the mammoth amount that has been swindled, but whatever
the figure, the math on how many million malnourished Indian children could have got milk,
or at least kanji, from it, and for how many years, should not be too difficult to do.

And where did this money come from? The Government coffers, which are also filled by the
sweat and hard work of ordinary, honest, salaried tax-paying middle-class Indians, who can
only dream of working out on a Rs 9 lakh treadmill or installing a Rs 4-lakh air-conditioning
unit in their homes!

FDI and the core sector

Policy-making has now to concentrate on attracting FDI into sectors that desperately need it
— the core sector, for example.

Once in a while, it might pay policy-makers steeped in the quotidian business of maintaining
the right environment for economic growth to step back and cast a bird's-eye view on what
they have achieved so far. The most common way of doing this is to look overseas at our
competitors — China, for instance — and tote up a comparative record of where the Indian
economy stands today against the fastest growing economy in the world. But a far more
productive way to evaluate the effect of policymaking is to review the past; this may help the
planners get a better fix on what's missing in the present for a better future. A comparison
over time, then, offers a guide to better and more efficient policy-making.

The Reserve Bank of India's report on the management of foreign exchange reserves is a
good place to start, especially with the changes in reserves since 1991. That was a watershed
year; not only did India's reserves plummet to their lowest and the country stood on the edge
of default but it also is the year when the first systematic unravelling of the extant economy
began, however falteringly and under compulsion. In March 1991, reserves totalled a meagre
$5.8 billion; they steadily increased to $54.1 billion by end-March 2002 and never looked
back, rising to $309.7 billion in March 2008, the high noon of India's growth. The
accumulation of reserves then began to reflect the global turbulence, with a dip to $252.0
billion in March 2009; a year later $27 billion were added. Overall, this is an eloquent
testimony to the success of the reform process that successive governments undertook since
the abolition of the licensing raj in 1991. But the effectiveness of reforms was not uniformly
spread across the board. Between 1991-92 and 2009-10 the accretion to the total forex kitty
was mainly on account of short-term capital flows; portfolio investments totalled $80.7
billion and NRI deposits $37 billion; against this, foreign direct investment totalled just $96
billion. If such numbers indicate anything, they tell us that financial reforms were more
effective than those that would have attracted long-term investments into the real economy.
Admittedly, external commercial borrowings, at $70 billion, muddy the picture somewhat,
but most firms used the proceeds to acquire overseas assets, though it is debatable how useful
these are in bolstering domestic capacity.

Financial sector reforms have worked wonders for capital flows, in general, and those into the
capital market, in particular; policy-making has now to concentrate on attracting FDI into
sectors that desperately need it — the core sector, for example.

China's wealth-creation strategy

Pratim Ranjan Bose

China's unparallel success in wealth creation and its resulting influence on the global
economy, especially on the US economy, needs no introduction. The mood is often reflected
in the long-term capital (debt) market, where China has parked its near idle foreign currency
reserves of $2.4 trillion.

It is argued that with bulk of its reserves invested in the dollar-denominated bonds (including
the US treasury bills worth $900 billion), China is “vendor-financing” the consumption of
Chinese goods by the US. The larger implication of this exposure is the unmistakable
dependence of the dollar on Chinese investment strategies.

However, the dollar is no exception. The dependence of the world's leading currencies on
China was amply proved during the last week of May when the euro ended on a four-year
low in response to a media report that Beijing was concerned about its euro-zone bond
holdings due to the European debt crisis.

A quick assurance from China has not merely strengthened the euro but brought cheer to
stock markets across the world and increased crude prices by four per cent. The issue was
further stressed at the meeting between the Chinese Premier, Mr Wen Jiabao, and the German
Chancellor, Ms Angela Merkel, in July when Beijing re-assured to “pay attention to Europe's
financial and economic development” and continue to invest in the euro.
Emerging global investor

However, this may be only the tip of the iceberg. According to available estimates, if the
corporate reserves are taken into account, China has amassed a huge surplus of $4-5 trillion,
which is nearly one-fourth the size of the US economy. The larger impact of this wealth
creation, which the Chinese authorities have so far been protecting like family silver, may
now unfold.

Mr Jing Ulrich, chairman and managing director of China Equities and Commodities of JP
Morgan, Hong Kong, predicts a paradigm shift in the global capital movement during the
next decade, as China is expected to use its reserves for large-scale acquisition of assets and
market share, worldwide.

“In the next 10 years China will be investing its huge capital accumulation across the world,”
Mr Ulrich said in an international conference in Hong Kong earlier this year.

The underlying assumption of this theory is: The Chinese economy which is already
integrated with the world — mostly through its export trade and exposure in the long term
capital market — will be further globalised on course to replace the US as the largest
economy in the world. If the prevailing trend is any indication, China is definitely stepping
up its investments in assets. Parallel to its stated objective to reduce dependence on foreign
investment in the domestic economy, China adopted a “Go out” policy in 2002 offering
incentives to the state-owned and private sector industries to expand overseas.

The initiative received a further boost in 2007 with the incorporation of China Investment
Corporation (CIC), dubbed as “one of the world's largest sovereign wealth funds with over
$200 billion assets under its management”.

According to available information, in 2009, China's worldwide outbound foreign direct

investment (OFDI) reached $43.3 billion, an increase of 6.5 per cent from 2008 and almost
eight-fold increase from the investments in 2004.

Stronger grip on US

The most interesting outcome of China's increasing focus in acquiring assets may be reflected
in the US-China relationship.

Till recently, China was not a major investor in assets in the US. As against its trillion dollar
bond holding, the total Chinese FDI in the US was a mere $1.2 billion in 2008. The reasons
behind were more political in nature.
A case in point is the failed $18.5 billion cash bid by China National Overseas Oil
Corporation (CNOOC) for Unocal in 2005 which was eventually blocked by the US
Congress. It was when the US was apparently treating China as a cheap source of funds to
fuel its economic growth (read housing boom) and outsource cheap foreign goods.

However, the economic crisis brought a major change in the scenario. According to a recent
report “Chinese FDI in the US — causes, case studies and the future”) by the American
Chamber of Commerce (AMCHAM) in Shanghai, in 2009, the flow of Chinese FDI is
estimated to have increased five times to $6.4 billion, as Chinese companies and CIC entered
into an acquisition (or investment) spree in the US automotive, real-estate, hospitality,
banking and finance and energy sectors.

The implication of such investments on the US job market that suffers from high
unemployment, needs no mention.

As Chinese investments have now become a bigger part of the global FDI in the US, the US
business lobby is building pressure on the policymakers to further “depoliticise” its
regulatory process, so as to make the most of China's emerging strategy and “change the
political and economic reality” of the US,

While the future will tell how the US-China relationship shapes up apparently, the message
has been well received in the US, with more than 30 states and even a few cities opening up
offices in China to attract FDI.

Time for greater Indian initiative in Africa

Indian investments in Africa need to go beyond tea and roses and into pulses, oilseeds and
cereals as well.

S. Srinath

The uncertain global economic environment caused by the financial crisis has rekindled the
interest of investors to look for other attractive areas of investments. The growth of BRIC
countries and the ever expanding emerging markets have increased their thirst for minerals
and essential raw materials for their manufacturing sectors.

In this context, Africa is an interesting avenue for investments. The combined GDP of Africa
in 2009, at $2.2 trillion, is almost as much as that of India and Brazil. From 2002, Africa has
seen a combined GDP growth of 5 per cent per annum. The region has witnessed FDI of $62
billion in 2008 alone, the major contribution coming from China.

Politics, economics

On the political front, the region is slowly democratising itself, after the spate of coups
witnessed between the 1950s and the 1990s. Democracy has stabilised in big African
countries such as Nigeria, Kenya, and South Africa. Economic growth in 27 of its 30 big
economies surged, thanks to government action to end armed conflicts and improved
macroeconomic conditions. The new generation of leaders sees public-private partnerships as
playing a vital role in bringing about sustained growth in the region and integration with the
global economy.

According to the World Bank's Doing Business 2010 report, Rwanda took the top slot as the
continent-wide reformer and Liberia, the tenth spot. In addition to these reforms, the African
continent has understood the importance of infrastructure development and human resource
development. Africa has 10 per cent of world's oil reserves, 40 per cent of gold, and more
than half of the world's chromium, not to mention other minerals such as bauxite, columbite
and zinc. China is mulling a $6-billion investment in roads, rails and schools in exchange for
10 million tonnes of copper and two million tonnes of cobalt in the Democratic Republic of
Congo.

Against this background, India can effectively participate in the African Growth Scheme.
India is now reeling under double-digit inflation and spiralling food prices, chief among them
being pulses and cereals. Our land, due to overuse/misuse of fertilisers and chemicals have
become toxic, and in spite of various measures announced by the government, the
contribution of agriculture to GDP growth has not improved at all. There is a ample scope for
India to enter into agricultural ventures in Africa, which will give us the benefit of a constant
supply of pulses and cereals.

Agriculture remains Africa's largest sector and contributes 15 per cent of continent's GDP.
But the potential is larger than its current output and its own food requirements. Of the gross
potential arable area (rain fed) of about 41.44 million sq.km available globally, Sub-Saharan
Africa has a more than 27 per cent share. With these vast resources, Africa produces only
about 10 per cent of world output, indicating huge scope for intensive farming, investment in
technologies for soil engineering and water utilisation. It requires an investment of about $50
billion annually to improve yields and provide marketing infrastructure.

Realising this, countries in West Asia — such as Qatar, Jordan, Kuwait and Saudi Arabia —
have invested in large chunks of land in Africa. With dwindling land and growing population,
China and South Korea have joined the race.
Tea and roses

India has a vast role to play both at the official and private levels taking advantage of our
goodwill built from Nehruvian era. Already, Indian tea companies such as McLeod Russel
are investing in Ugandan tea gardens, as some of the best black teas in the world are
produced in these regions. Jay Shree Tea has acquired tea gardens in Uganda and Rwanda.
Other companies such as Rossell Tea and Dhunseri Tea are looking to buy tea gardens.

In horticulture, Mr Sai Ramakrishna Karuturi, from Bangalore, has become the largest
producer of roses by owning vast tracts of rose gardens in Kenya. The Tatas have leased land
in Uganda to run agricultural projects, and another company, Shapoorji Pallonji, has acquired
the lease of 50,000 hectares in Ethiopia for farm projects. It is learnt from the African Unity
bench that many SMEs (small and medium enterprises) specialising in spices and minerals
have started making forays into the African agricultural sector. Malawi, Zambia and Congo
in East Africa and Liberia, Togo and Ghana in West Africa also offer huge scope for Indian
agriculture.

These acquisitions come in the wake of a silent discontent being expressed in certain circles
over Chinese investments. For example, in Angola, though the Chinese signed for a contract
for rehabilitation of three rail lines damaged during civil war on the basis that 30 per cent of
the workforce will be sourced locally, the platoon system adopted by the Chinese resulted in
the locals deserting the job and the Chinese filling the balance 30 per cent themselves,
resulting in nil employment for Africans.

There is another factor too — even after the project, the Chinese don't leave. The African
Union is calling for more interaction within sister African countries and bilateral contacts
with China to guard against being outsmarted. On the other hand, there is a genuine feeling
that Indian companies not only generate local employment but also help develop local skills.

The Indian government, no doubt, has been playing a mediatory role, but it is time it worked
together with private players and went beyond tea and rose gardens and looked at oilseeds
and pulses, which will be readily absorbed in India.

Brazil keenly watching Indian sugar dynamics

Mainly to pick up price signals in advance.

G. Chandrashekhar

Mumbai, Aug 9
India is once again the focal point for the world sugar industry as developments here are sure
to have a bearing on world sugar trade and prices. In particular, Brazilian sugar exporters are
keenly watching developments in India and are poring over various production estimates that
are being bandied about, with a view to picking up price signals in advance.

According to the representative of a leading company engaged in production of food and

renewable energy operating in Argentina, Brazil and Uruguay, information about India is
critical for firming their views on building volumes for next year.

Sugar Output

Although information emanating from India suggests sugar production may reach 24-25
million tonnes next year, it is clear that belief within the South American industry is that
India's production will be just enough for rebuilding internal inventories, but nor enough to
go for exports.

In other words, the world will need Brazil to come up with an excellent 2011 production in
order to satisfy worldwide demand.

In addition, Brazilian exporters are banking on drought conditions in Russia that is sure to
affect the sugar output.

Brazil output

While Brazil is world's largest producer and exporter of sugar, India is the world's second
largest producer and the world's largest consumer. Obviously, developments in the two
countries at the helm of the sugar market impact global trade and prices.

“Brazilian cane output is estimated at 585 million tonnes and sugar production this year looks
close to 34 mt with a 44 per cent mix of sugar and 56 per cent ethanol final number,” the
company representative sin an email while seeking authentic information about India's sugar
market status and outlook.

South American traders are expecting an average price of sugar for the whole year between
16 and 18 cents a pound on the commodity exchanges; and their forecast for July 2011 is 17
cents a pound with volatility, depending on India's news.

Indian ourlook

Ironically, some sugar mills in India are a little more bullish about international forward
prices than the Brazilians.
Clearly, the Indian sugar market fundamentals are going to remain rather tight in 2011. While
domestic prices may remain relatively soft until February 2011 because of peak crushing
season, planting and precipitation next year still remain a matter of conjecture. There indeed
are uncertainties going forward.

So, there is reason to believe, if there is directional change in price it would be to the upside.

While the current dry conditions in Brazil seem to be supporting cane harvest, there are issues
with logistics.

Last July, the country shipped out a record 2.9 mt sugar, which it is believed will be hard to
accomplish again if coastal weather conditions play against loading.

“It is and will be an issue every time maximum port capacity is to be tested in Brazil,” the
company official said adding current line up in Santos was 86 boats and 37 boats in Parangua
port.

Biotech body asks Govt to lift moratorium on Bt brinjal

G. Chandrashekhar

Mumbai, Aug 9

In a bid to end the impasse and have the moratorium on Bt brinjal lifted, the Foundation for
Biotechnology Awareness and Education has submitted a memorandum to the Prime
Minister, as also to several concerned ministries and departments that have a say in
commercialisation of genetically modified (GM) crops. It has strongly urged them to accept
the recommendations of the GEAC (Genetic Engineering Approval Committee) made on
October 14, 2009 on the safety of Bt brinjal, lift the moratorium with immediate effect and
release it for commercial cultivation without delay.

The memorandum signed by about 40 scientists has also asked the Government to ensure that
the research and development activity of the other GM crops under development is not
jeopardised by unwarranted intervention and to ensure that the GEAC is allowed to carry out
its mandate unhindered until the Biotechnology Regulatory Authority of India becomes fully
operational.

The Foundation said that its plea is based on broad scientific consensus on the safety of Bt
brinjal following a scientific workshop conducted in New Delhi on July 28. The Ministry of
Environment and Forests (MoEF) was influenced more by opponents of agricultural
biotechnology than by credible support of bio-security experts, the Foundation has alleged,
adding that the moratorium has created a regulatory uncertainty on the development of all
GM crops in the country.

‘No New Tests Necessary'

Arguing that no new tests are necessary as the product efficacy, bio-safety and environmental
safety of Bt brinjal were evaluated for seven years and thoroughly reviewed by many experts,
the Foundation has demanded an urgent and definitive action from the government to resolve
the uncertainty caused by the moratorium and rescue the Indian agricultural biotechnology
from the present impasse.

In an accompanying paper reviewing the order of the MoEF on Bt brinjal, the Foundation has
come down heavily on the Ministry saying that its exercise has obfuscated the entire issue
and created a new breed of experts even as decision making has been further politicised with
emotion riding roughshod over scientific reason.

“The moratorium may have gladdened those who claim to represent the public, but threatens
the deployment of a safe technology aimed to benefit the public. The critical science-based
activity of bio-security evaluation of GE crops is now replaced by the whims of the
politicians and professional protestors on the street. The MoEF has supported the alarmist
and paranoid activism that imagines demons where there are none. At this rate the nation will
not be able to derive the full benefit of modern agricultural biotechnology for a very long
time to come.”

The industry's anger is palpable. It remains to be seen if the contents of the memorandum
would move the government to come up with a clear, time-bound plan for GM crops.

Global crisis and farm exports

SHASHANKA BHIDE

Farm exports are more dependent on small producers than other sectors. They need the
benefits of scale, diversification and investments in market development to minimise their
exposure to risk.
  
In India, pushing farm exports has been a strategy not only to increase export earnings but
also to find more remunerative markets for the produce.

The ups and downs in global commodity prices remain a source of concern for the farm
sector, which also has to bear with uncertainties of weather at home. Constrained by the
availability of key inputs such as land and water, there is little room for immediate and
significant responses to deal with large fluctuations in output prices and supplies, other than
stocking up supplies or releasing them for consumption.

Trade cooperation is supposed to spread risk and available supplies. The steep rise and fall of
international commodity prices in recent years points to both the benefits and risks of liberal
or protective trade regimes. The experience has also shown that a liberal trade policy regime
itself becomes vulnerable in times of crisis. This balancing act will continue, but the need to
expand markets is also here to stay.

For India, pushing farm exports has been a strategy not only to increase overall export
earnings but also to find more remunerative markets for the produce where domestic markets
are limited. Spices, cashew, oil meal perhaps were driven by the latter imperatives. The
overall consideration has been the need to balance domestic needs and the need for export
earnings.

EXPORT BEHAVIOUR

Trade in the farm sector is seen as a residual activity rather than driver of the sector. The on-
and-off nature of our farm-related exports is well known.This approach has not paid off either
as an efficient use of scarce resources or as a driver of productivity. Though not quite linked
to the marginal role of exports in the farm sector, the share of our farm exports has also
declined in total merchandise exports, as the economy changed over the years. Farm exports
now account for only 10 per cent of our total exports; they were half the total exports, in
terms of value, in the early 1960s.

Farm exports have diversified to some extent and are a driving force behind manufactured
exports such as cotton textiles. Although farm exports may have lost their significance in the
overall export earnings of the economy as a whole, they remain important in sectors where
they are a source of ‘remunerative prices'.

The swings in the export market prices can have a significant impact on the ‘margins' of the
farm sector.

It was expected that the demand for agricultural produce would be relatively stable as these
exports meet some ‘essential requirements' in the export destinations.

However, it was not unusual to see large changes in demand when exports were specialised,
and were dominated by a few markets. The oil-rich, Gulf market has been relatively stable for
farm exports, except when regional conflicts broke out.

IMPACT OF CRISIS

The rapid growth of global trade in the few years up to 2007-08 also helped farm exports to
grow, but at a slower pace. Rising internal demand may explain the slower increase in
exports.

Nevertheless, a more liberal trade regime also helped. There were attempts to ease import and
export restrictions. The improvement in foreign exchange reserves helped reduce uncertainty
over the nation's ability to import essential consumption needs of the population.

However, this situation of comfort in external balances was somewhat dented by the global
economic crisis. How did farm exports fare during this period? The slump in world trade that
followed and created recessionary conditions in many of our main export destinations,
affected not only trade in items such as auto parts or other engineering goods, but also textiles
and farm exports. Nothing was spared.

During the crisis years of 2008-09 and 2009-10, the share of agricultural exports remained at
about 10 per cent of the total exports, the same as in 2007-08, even as the total exports
declined.

Some of the decline was due to the fall in prices and not only quantities. Nevertheless, a
sharp contraction in global trade affected our farm exports.
COPING WITH RISK

The lessons for farm exports are perhaps no different from exports of the other sectors. The
global economy is now again set to recover and the growth in trade will follow. There will,
however, be a need to improve the ability of the farm sector to bear the risks of market.

Farm exports are more dependent on small producers than many other sectors. They need the
benefits of scale, diversification and investments in market development to minimise their
exposure to risk.

For that, exports would have to be given higher priority than just being seen as a residual
activity.

Making corruption a capital crime

B S Raghavan

I had ended my last column pointing to China executing corrupt functionaries after a
summary trial without showing them any mercy.

India's corrupt have turned manipulating the investigation process and court proceedings into
a fine art. By now every schoolboy knows the drill perfected by the scoundrels: Arrest of the
culprit with a lot of publicity; complaint of chest pain by the accused and admission to the
hospital; several weeks of uncertainty caused by medical examination and the like facilitating
tampering with evidence and intimidation of witnesses; the accused produced before the
magistrate on emerging from the hospital after being certified fit; judicial and police
remands; finis — here all trail is lost and the cases do not surface and are soon forgotten.

Issue of integrity

Appointments to public offices were once based on the principle “Caesar's wife must be
above suspicion”. In fact, even today, as far as government employees are concerned, there is
a column on integrity in the annual performance appraisal report and if the superior officer
records that it is suspect (for credible reasons), then the concerned employee is shunted off to
non-lucrative positions, with a bar on promotion as well.

Unfortunately, in public life, mouthing the pious dictum, “Innocent until proved guilty”, the
corrupt, even when they have been indicted and are notorious for their extortionist
proclivities, rule the political roost with a vengeance, a broad grin and a V-sign, get
nominated as candidates and elected to legislatures, and become Cabinet Ministers enabling
them to make still bigger piles. The leadership of all political parties without exception goes
along perpetuating the illusion of corrective action and the younger generation of elected
representatives which was expected to be idealistic and sensitive to right and wrong, also falls
in line with the shameless practice of sleeping with venal bedfellows.

Quick and sure-fire recipe

The body politic will never be purged of corruption by soft and gentle methods. Already I
have come across many who fondly recall the Tamil movie, Indian, in which the hero, Kamal
Hasan, with the help of some secret martial technique, snuffs out the lives of the corrupt on
the spot.

I also saw some time ago an editorial in a newsletter brought out by an anti-corruption outfit
in which persons who were being pestered for bribes were asked to carry a sharp sickle and
cut out the hand of the public servant demanding money; the editorial argued that the likely
punishment of six months or so in jail for committing the offence was worthwhile, if such a
campaign is viewed as analogous to freedom struggle during which heroes such as Gandhiji,
Jawaharlal Nehru, Sardar Patel and others underwent far longer periods of incarceration.

These are, of course, counsels of desperation. There is a legally quick and sure-fire recipe for
fighting corruption with some modicum of success. On the model of the US system of getting
the opinion of the people for specific ‘Propositions' meant to be built into law, the Election
Commission should be asked, without minding the effort and expense involved, to ascertain
the verdict of the nation's electorate on the two cardinal propositions “Whether corruption
should be made a capital crime and whether those caught committing it should be put through
a summary trial to be concluded within three months, on the presumption of their being guilty
unless the opposite is established, with no adjournments, no right of bail and only one
appeal”. It is absolutely certain that 99.9 per cent of the electorate would vote affirmatively
and jubilantly on both counts. It will bind the Government to bring forward the needed
legislation incorporating the will of “We, the People”.

There is no other way by which the corrupt lot preying on the Indian people can be made to
pay for their strangulating oppression.

‘Down to Earth' at 300

SHARAD JOSHI

This column has argued that the farmer needs the right price incentives to increase output
and improve technology. The prices in a truly free market will cover the cost of cultivation.
  
Any attemptto block advancement of technology in agriculture can only be disastrous.

This is the 300th “Down to Earth” column I am writing for Business Line since 1998. A
collection of selected articles, called Down To Earth, has come out in the form of a book
recently. It would not be out of place to look back on what I have been trying to say through
this column.

My views on agriculture are essentially those of an outsider. I was not born into a farmer's
family, nor did I receive any landed inheritance. I developed my perceptions by making
farming my sole means of livelihood.

These views have often been the inverse of the accepted establishment positions on the
subject.

NEGATIVE SUBSIDIES

The main burden of my argument has been that the poverty and backwardness of Indian
agriculture cannot be put down to farmers' laziness, illiteracy, addictions to vices or
extravagance in celebrating festivals or weddings.

They are a result of the deliberate policies followed by successive governments, both before
and after Independence, to depress agricultural prices and twist the terms of trade against
agriculture, starving it of investment and technology.
I have described such policies as amounting to the imposition of “negative subsidies” under
the pretext of ensuring a “low-cost” economy.

The neo-colonial character of these policies found expression in the now famous “India-
Bharat Divide Syndrome”.

Had I not received the massive support of the mainstream farm community, particularly in
Maharashtra, my views would have been laughed off by the political and economic
establishment.

The latter was forced to endorse my views after the “Aggregate Measurement of Support”
documentation of the Uruguay Round of WTO negotiations surfaced.

My views on other issues in agronomics that are equally unorthodox have not, as yet, been as
widely accepted. Here is a brief inventory.

FREE FARM PRICES

For the growth of agriculture, infrastructure and technology are undoubtedly important. But
far more important is the incentive for the farmer to increase production. The incentive can
come only if the prices obtained in the market are higher than, and not less than, the cost of
cultivation. The Indian religious-cultural traditions appear to have been designed to keep the
farmer needy and poor.

The prices in a truly free market do cover the cost of production/cultivation. It is only in cases
where the Government intervenes in the market to the detriment of the farmer that he needs
the mechanisms related to CACP or MSP.

The greatest beneficiary of increasing agriculture prices is the class of agricultural wage
earners and the landless. Agricultural wages increase much faster than agricultural prices;
NREGA or no NREGA.

The so-called policies of inclusive growth are necessarily inflationary in character as they
boost consumer demands and discourage enterprise and hard work.

The difference between urban consumer prices and the farmers' prices is not caused by a long
chain of intermediaries and the quantum of commissions they claim; it is explained by the
widely varying income/cost levels in ‘India' and ‘Bharat'.

The urban consumer demands lower prices, the rural consumer, far more numerous, desires
higher incomes and hence higher commodity prices.
The agronomic scenario will largely improve if the vicious cycle of CACP- FCI- APMC-PDS
is replaced by generalised futures marketing and a system of food coupons for BPL
populations.

TECHNOLOGY CRUCIAL

Technology rather than land is the most important cause of agricultural productivity. Any act
or attempt to block advancement of technology in agriculture can only be disastrous,
particularly in an age of climate uncertainty.

There is nothing like bad technology per se. Every technology is good or bad depending on
how it is used.

The evil effects of a technology are taken care of by going ahead to more advanced
technologies.

EXIT POLICY

All agriculture loans are both illegal and immoral. They are illegal because the moneylender
forbids the performance of the contract by the farmers. They are immoral because the
government owes the farmers, on account of the negative subsidy, much more than the
farmers owe the government.

Agriculture needs an exit policy. The exodus from agriculture is a measure of development.
Special Economic Zones and booming land prices can represent a great opportunity for a
second Green Revolution and the liberation of most farmers from the burden of inherited
land, if his right to property is scrupulously respected.

Human ingenuity and the capacity for innovation are the most wondrous things on this planet.
It is this ingenuity that falsified Malthus and many a forecaster of impending doom.

‘Certified' coffee output on the rise

A. Srinivas
Bangalore, Aug 10

The country's output of ‘certified coffee' – or coffee that is issued a certificate by

international NGOs such as UTZ Certified, SA 8000 and Rainforest Alliance for meeting
certain environment and social welfare standards – is estimated at about 18,000 tonnes for
2010-11, against about 14,000 tonnes in 2009-10. This amounts to about 8 per cent of the
country's coffee exports.

Tata Coffee is a leading producer. Mr A.S. Muthanna, Vice-President, Plantations, Tata

Coffee, said: “Our estates are certified by UTZ, Rainforest Alliance and SA 8000 and our
output is in the region of 9,000 tonnes.”

According to industry sources, the remaining 9,000 tonnes of certified coffee is expected to
come mainly from the following sources: Ned Commodities (3,500 tonnes), ECOM Gill
(1,700 tonnes), ABC Group (1,600 tonnes), Savamalai Estates (1,000 tonnes), Bombay
Burmah Trading Corporation (500 tonnes) and Carrara Group Estates (350 tonnes). Ned
Commodities and ECOM are Netherlands-based and Swiss-based export houses,
respectively, that have been organising farmers, both as individuals and groups, to grow
certified coffee.

Most of the coffee is exported to Europe.

According to UTZ Certified, worldwide sales of its certified coffee in the year ended June 30
amounted to 58,800 tonnes against 43,300 tonnes in the same period a year ago. Rainforest
Alliance-certified coffee sold worldwide was estimated at about 87,000 tonnes in 2009.

Growing trend

Mr Nishant Gurjer, Managing Partner, Kaapi Royale, a speciality coffee player, said: “The
fastest growing sector in speciality coffee is certified coffee. There isn't much of a premium
at present on certified coffee, but between two coffees of equal quality, certified would be
preferred. In the US and Europe, it is a growing trend. What was a whisper and murmur is
growing louder and louder.”

Mr M.P. Devaiah, General Manager, Allanasons, a leading export house, said: “As of now,
we have not started, but we are thinking along these lines. At the moment, it is a small
proportion of world coffee output, but even if we assume just 1 per cent growth, it would
amount to about one million bags.”

Dr Rajesh Dube, Programme Manager (South and South-East Asia), Solidaridad, a

Netherlands-based NGO that was one of the founders of UTZ Certified, said: “There is a
demand for certified coffee in the domestic market as well. A recent consumer survey
conducted by our organisation captures this trend.”

Perceptible shift

Solidaridad is working in collaboration with Ned Commodities and ECOM Gill to enable
small and medium farmers to get UTZ certification. “There is a gradual but perceptible shift
towards sustainable coffee production,” Dr Dube said.

9.25 cr Kisan Credit Cards issued

New Delhi, Aug. 10

The banking system has issued 9.25 crore Kisan Credit Cards (KCCs) cumulatively, as on
March 31 this year, since the inception of the KCC Scheme in August 1998, the Minister of
State for Finance, Mr Namo Narain Meena, said in a written reply in the Rajya Sabha on
Tuesday. He said that Rs 4,17,326 crore had been sanctioned under KCCs till March 31,
2010, since the beginning of the scheme. According to information given by the National
Bank for Agriculture and Rural Development, in 2007-08, 84,69,602 farmers were issued
KCC, while in 2008-09, the card was issued to 85,92,473 farmers. In 2009-10, 78,49,966
farmers received the card. The KCC Scheme was introduced to provide adequate and timely
credit to farmers in a hassle-free and cost-effective manner. The scheme is being
implemented by cooperative banks, regional rural banks and commercial banks throughout
the country, the Minister said. — Our Bureau
Bumper crop hopes pull down pulses

Our Correspondent

Indore, Aug 10

Hopes of a bumper harvest and increase in coverage of pulse seeds by 16 per cent this year
continued to drag the price of pulses lower.

Optimism based on good monsoon and increase in coverage is also causing stockists to keep
away from building inventories, as they hope that pulse prices will decline further once new
crops arrive in the market.

Tur dal that was ruling at a record level of Rs 6,000 a quintal in the wholesale market at the
beginning of this year has come down to Rs 5,600 a quintal.
This has also led to a dip in the prices of other pulses. Chana dal was quoted at Rs 2,600 a
quintal (down by Rs 50) on Tuesday.

Similarly masoor dal fell by Rs 25 to Rs 3,750 a quintal, urad dal quoted at Rs 5,500-5,600 a
quintal, down Rs 200 and moong dal quoted at Rs 6,200-6,300 a quintal, also down Rs 200.

The downtrend in the wholesale market also had an impact on the retail market where tur dal
is sold at Rs 70 a kg, urad dal at Rs 85 a kg, moong dal at Rs 82 a kg, masoor dal at Rs 50 a
kg and chana dal at Rs 33 a kg.

More Stories on : Pulses

Reports on rotting of foodgrains exaggerated: Pawar

PTI
SHARE  ·   COMMENT   ·   PRINT  ·   T+  

PTISharad Pawar had earlier said that over 11,700 tonnes of foodgrains worth Rs. 6.86 crore
were found “damaged” in government godowns. File photo
The government on Friday termed as “quite exaggerated” reports on rotting of foodgrains and
said a master plan has been prepared to increase storage space.

“All reports on rotting of foodgrains are not actually correct and quite exaggerated. There are
only certain cases of damage and we have suspended some officials,” Food Minister Sharad
Pawar told the Rajya Sabha.

The remark came two days after the Minister conceded in the House that rotting of
foodgrains was a “shameful” fact. He had said that over 11,700 tonnes of foodgrains worth
Rs. 6.86 crore were found “damaged” in government godowns.

During Question Hour, Mr. Pawar said the government has prepared a comprehensive plan to
create 149.4 lakh tonnes of storage space to prevent damage of foodgrains. These will be
built by Food Corporation of India (FCI) through private entrepreneurs and, Central and State
warehousing corporations.

The deadline for completion of construction of godowns for private entrepreneurs would be
one year, while that of godowns with railways sidings would be two years from the date of
agreement, he said. Tenders invited under a new scheme for construction of godowns will be
processed quickly, he said.

Mr. Pawar also said that the government is taking other steps to enhance storage capacity of
food grains with special emphasis on North Eastern region.

Keywords: Food Corporation of India, food security, public distribution system, Sharad

Pawar

Higher basmati share may hit Punjab, Haryana rice production

Harish Damodaran
New Delhi, Aug. 11

There has been a significant increase in the share of basmati varieties in the total area planted
to paddy in Punjab and Haryana this year. That could, in turn, have implications for the
country's overall rice production.

Farmers in Punjab have sown 27.5 lakh hectares (lh) under paddy this time, compared with
28.02 lh in 2009. Haryana, too, has reported a decline, from 12.05 lh to 11.5 lh. However,
both States have witnessed higher basmati acreages.

“I expect basmati's share in total paddy area to go up from 50 to 60 per cent,” said Mr B.S.
Duggal, Additional Director of Agriculture (Extension), Haryana. In absolute terms, it means
a rise from six lh to about 6.9 lh.

Punjab's basmati coverage last year stood around 5.1 lh. “This time, we might exceed 6.5 lh,”
according to the State's Director of Agriculture, Dr B.S. Sidhu. In other words, basmati will
occupy a quarter of Punjab's paddy area.

Part of the expansion in basmati plantings has been the outcome of floods in the first week of
July, inundating large areas in northern Haryana and South-East Punjab.

Only alternative

The heavy downpour and accompanying breach of canal embankments damaged an estimated
1.9 lh of crop area in Punjab and 0.85 lh in Haryana — where farmers had already undertaken
transplanting of normal high-yielding paddy varieties.

“This area could not have been re-transplanted with non-basmati, as the window for it (the
whole of June) was over. The only alternative was to go for basmati varieties, where the
regular transplantation schedule is from July 1 to end-July. And this time, transplanting went
on till the first week of August,” noted Mr Vijay Sethia, President, All-India Rice Exporters
Association.

Will this late transplanting impact yields? “It is quite possible that the farmer who usually
gets 18-20 quintals an acre from Pusa-1121 basmati may harvest 2-2.5 quintals less this
year,” pointed out Mr Anil Mittal, CMD of KRBL Ltd.

Moreover, even within basmati, there has been a distinct acreage shift from the relatively
high-yielding Pusa-1121 and Pusa Basmati-1 to traditional varieties, especially HBC-
19/CSR-30.
Price factor

Mr R.S. Seshadri, Director of Tilda Riceland Pvt Ltd, reckons that the area under traditional
basmati may well have doubled this time, while falling by 35-40 per cent for Pusa Basmati-1
and 15-20 per cent in the case of Pusa-1121. This shift has been prompted largely by prices.

Traditional basmati paddy is now fetching Rs 35 a kg, having started at Rs 25 in October and
scaling Rs 38-plus in January. Pusa-1121 prices ruled at Rs 16-18 a kg in October and briefly
touched Rs 28 in January before falling to Rs 20-21 under the weight of a bumper crop.

Last year, the country produced an unprecedented nine crore bags of Pusa-1121 paddy,
translating into 22.5 lakh tonnes (lt) of rice. As against this, traditional basmati output was a
mere 1.5 crore bags or 3.75 lt rice (one bag of paddy is equivalent to 2,500 tonnes rice).

The trade believes that out of the nine crore bags of Pusa-1121, about three crore would be
carried over to the new season. On the other hand, there will be very little opening stocks of
traditional basmati. “Farmers foresee better price prospects in traditional varieties compared
to Pusa-1121, where the huge overhang from the 2009 crop could be a dampener,”said a
Delhi-based exporter.

On a wider note, the higher share of basmati (and within that, traditional varieties) in their
total paddy acreage is likely to result in a lower rice output from the two granary States this
year. In 2009-10, Punjab produced an all-time-high 122.36 lt and so did Haryana, at 36.25 lt.
This came even as the country's rice production fell from 991.82 lt to 891.27 because of
drought in major growing States such as Uttar Pradesh (UP), Bihar and Andhra Pradesh (UP).

This year, production is set to recover in AP, but not so spectacularly in UP, Bihar or West
Bengal, where the rains haven't been all that good. Combined with lower output in Punjab
and Haryana, the country may produce more than last year, but not as much as the record
level of 2008-09.

Slack export demand drags basmati rice a tad

Our Correspondent

Karnal, Aug 11

With sentiments being low and slackness in export demand, the basmati rice market dropped
marginally from their upper levels while the non-basmati variety ruled firm, here on
Wednesday.
The price of Pusa-1121 (steam) ruled between Rs 5,000 and Rs 5,180 a quintal. Pusa-1121
(sela) was quoted at Rs 4,000-4,085 a quintal; while Pusa-1121 (raw) was quoted at Rs 5,000-
5,180. Pusa (sela) variety was quoted at Rs 3,085 a quintal and Pusa (raw) ruled between Rs
3,385 and Rs 3,920 a quintal.

Basmati Sela ruled between Rs 6,000 and Rs 6,050 a quintal; while basmati raw was quoted
at Rs 7,110 a quintal. On the other hand due to the uncertain weather, fresh arrivals from
Uttar Pradesh dropped marginally and the prices of non-basmati variety ruled firm.

The Sharbati sela variety ruled around Rs 2,825 and Sharbati steam was quoted at Rs 2,900-
3010. Permal (PR) sela was quoted at Rs 2,000-2,150; PR (raw) at Rs 2,060-2,265; and PR
(steam) at Rs 2,210-2,365. Brokens such as Tibar ruled at Rs 3,480 a quintal, Dubar at Rs
2,830, and Mongra at Rs 2,020.

Mr Amit Kumar, Proprietor, Hanuman Rice Trading Company, told Business Line that with
low export demand, market sentiment is low. Inventories are already high and new arrivals
continue to flood the market. In such a situation, every trader wants to clear the old stocks so
that they can have liquidity to purchase the new arrivals, he said.

He further said that new season might witness some rally in the price of export varieties as
there was not much sowing of Pusa varieties this year.

On Tuesday and Wednesday, around 8,000 bags (60 kg each) of Govinda paddy arrived in
the market. The early variety paddy was quoted Rs 1,045 a quintal. Because of low arrivals
from Uttar Pradesh, Govinda paddy witnessed a good rally in the prices. Millers lifted the
new arrivals.

Time to get serious about agriculture

G. CHANDRASHEKHAR

 
 Large sums are spent on ‘creating irrigation potential' but the area under cultivation has
shown no marked increase in recent years.

“Farm sector crucial for overall growth”; “Farm growth must go up to ensure food security;
“Double farm growth rate to ensure food security” — these are some of the headlines in the
press in recent weeks. These statements have been made by eminent persons holding exalted
positions — the Prime Minister, Dr Manmohan Singh, and the Deputy Chairman of the
Planning Commission, Dr Montek Singh Ahluwalia. What is new in these statements about
agriculture and food security? Nothing, really. We are tired of hearing such platitudes. On the
ground little has changed, and farm output continues to languish.

While the demand side, currently driven by rising incomes and population pressure, is indeed
robust, the supply side has failed to match the pace of demand growth. This is inevitably
leading to high levels of food inflation and its attendant problems, especially for the poor.

The annual average agricultural growth rate of the last ten years has been woefully low, at
just 2.2 per cent. The Prime Minister wants this rate to double to 4 per cent. The Planning
Commission Deputy Chairman too echoed a similar sentiment when he told journalists that a
4 per cent farm growth rate is a good target for the Twelfth Five-Year Plan. He admitted that
the same 4 per cent target, fixed for the ongoing Eleventh Plan, could not be achieved so far.

Missing action

The tragedy is that the powers-that-be have, all along, been talking about agriculture, the
need to raise growth rates, improve farmers' returns, and so on; but concrete action has been
missing. The policy-makers would do well to first establish a system of monitoring and
evaluation of numerous agriculture-related plans, schemes and programmes. Also, there has
been little accountability on part of the government, in general, and of various departments,
in particular. Ministers and officials ought to be made responsible and accountable for
performance; otherwise, it would be naïve to expect substantial improvement.

Without doubt, huge amounts are being earmarked and spent on various agriculture-related
programmes; but much of these seem to evaporate into thin air. Large sums are spent on
irrigation (or ‘creating irrigation potential'); but the actual area under irrigated cultivation has
shown no marked increase for any of the major field crops in recent years. Where has all the
money gone? And who is responsible?

No breakthroughs

The same is the case with fertiliser subsidy. Enormous amounts have been paid to the
fertiliser industry; but there is little to show by way of tangible results. Although rising, the
per hectare use of fertilisers is still low; and there is an awkward skew in fertiliser
consumption.

The budgetary outlays for farm research institutions have been rising; but have resulted in
little by way of results. For instance, there has been no breakthrough in seed technology for
oilseeds and pulses the last several years.

The Planning Commission now wants to retain 4 per cent as the agriculture growth target for
the Twelfth Plan period. But what is the sense in fixing a target without the appropriate
strategies in place to achieve it? The Planning Commission is yet to tell us what it will do
differently in the next Plan period that will make that target achievable. So, it looks like no
one within the government is truly committed to ensuring the sustained growth of the farm
sector. The supply-side issues have been ignored or glossed over for so long that, with each
passing year, the challenges are becoming more daunting.

Smug and deluded

Within government circles, there seems to be a smug feeling that we are food self-sufficient.
This is probably because we do not import rice and wheat. The rate at which our consumption
demand for fine cereals is rising and domestic output is trailing, in about three years from
now, we may be forced to import rice and wheat regularly.

Currently, we are very large importers of edible oil and pulses. Sugar is imported from time
to time, and so is wheat. Rice exports have dried up because of domestic pressure. The claim
that India is self-sufficient in food is dubious, simply because the food needs of the people
are far from satisfied. There are still a few hundred million poor people who have no access
to sufficient food at affordable prices. On the other hand, public granaries are overflowing.
But millions of tonnes of grains in government warehouses do not translate to food security.

The stocks have to be effectively deployed to fight poverty and malnutrition. In the latest
Union Budget, the Government proposed to organise 60,000 ‘pulses and oilseed villages' in
rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting,
watershed management and soil health to enhance the productivity of the dryland farming
areas. A quick calculation shows that the Budget works out to Rs 50,000 per village — a
mere pittance for achieving a laudable objective.

The same may be said of extending the new ‘green revolution' to the eastern region
comprising Bihar, Chattisgarh, Jharkhand, Eastern Uttar Pradesh, West Bengal and Orissa,
with a provision of Rs 400 crore for the year.
Meanwhile, the Minister for Food and Agriculture has realised that he has bitten off more
than he can chew and has requested the Prime Minister to relieve him of some of his
responsibilities. How things will pan out in the near future is anybody's guess.

Call to improve soil organic matter content

Our Bureau

Hyderabad, Aug. 11

The International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) has called
for efforts to improve the soil organic matter content of tropical soils.

“Plant nutrition is very tightly linked with soil organic matter content as it drives the
complete cycle of plant nutrient release and availability. The challenge lies in improving the
soil organic matter content of tropical soils,” Dr William D. Dar, Director-General of
ICRISAT, said.

Addressing the inaugural of the three-day international conference on plant nutrients here on
Wednesday, he said soils in the dryland tropics were not only thirsty but hungry too and were
under high pressure as a large number of people were dependent on it for their food, fibre,
and fuel needs.

Quoting FAO estimates, he said there were 102-crore undernourished people in the world as
of 2009. China and India accounted for over 36.3 crore hungry people, followed by 20.4
crore in sub-Saharan Africa.

The International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) has asked
policy makers to increase their investment in agricultural research and encourage private
sector players to bring down the number of malnourished people in the country.

“We need to adopt a five-point agenda that includes increasing investment in research and
encouraging private players and philanthropic organisations to invest in agriculture,” Dr Dar
said, addressing another conference held recently at the institute.

He said the MDG target could still be attained if the ‘business-as-usual' approach was
replaced by a new strategy to fight hunger.

Dr Dar and Mr K. S. Raju, Vice-Chairman and Managing Director of Nagarjuna Fertilisers,

presented the International Plant Nutrition Award to Prof. Maarten J Chrispeels, an
agriculture scientist from the US.
Food Ministry's portal to link buyers and suppliers

Portal news

The portal will focus on the North-Eastern States

Initially it will be available in English and Hindi

Later it will be available in Marathi, Telugu, Gujarati, Kannada, Tamil and Bengali

Our Bureau

New Delhi, Aug. 11

The Union Minister for Food Processing Industries, Mr Subodh Kant Sahai, inaugurated on
Wednesday an e-portal that aims to bring together farmers, suppliers and customers.

The portal, called www.efreshindia.com has been designed by a private company and aims to
empower Indian agriculture, said an official release.

Based on a food chain concept, it creates connectivity between the suppliers and the buyers
through a trading platform.

“The portal will help increase farmers' income through increased agricultural productivity. It
will especially focus on North-eastern States. Initially available in English and Hindi, soon
Marathi, Telugu, Gujarati, Kannada, Tamil and Bengali versions will also be available,” the
release said.

Speaking at the launch, the Minister urged upon the portal operators to take this facility to the
Panchayats also as the farmer functions only through Panchayats.

He suggested that the e-portal should also contain information regarding the connectivity of
the farmer to the market and the cold chain available to him.

“We are wasting Rs 30,000 crore of agriculture produce every year, because farmers do not
have access to information,” he said.

The portal has been developed by IL&FS Education and Technology Services (IL&FSETS),
while Dutch company eFresh.com BV has given the linkage to the international portal.
Govt plans comprehensive animal welfare Act

Our Bureau

New Delhi, Aug. 11

The Lok Sabha was informed on Wednesday that the Government would come forward with
a comprehensive Animal Welfare Act with “steep penalties”, even though it has no agenda to
amend the existing Prevention of Cruelty to Animal Act that came into being in 1960 with a
very small penalty

Replying to a spate of supplementaries on the main question raised by Mr Ramshanker

Rajbhar, the Union Minister of State (Independent Charge) for Environment and Forests, Mr.
Jairam Ramesh, said the country has an elaborate legal network and an institutional network
for implementing both the law as well as the rules.

He said the Animal Welfare Board of India has registered 2,800 NGOs on its books out of
which some 1,700 are goshalas which take care of migrant, roaming, unacknowledged
animals on the streets. He said his Ministry provides every year Rs 13 crore by way of Plan
and non-Plan support.

He said despite all these assistance, there were still visible cases of cruelty, besides organised
cases of cruelty such as bull-fighting which is an accepted cultural practice in many States.

When Mr. N.S.V.Chitthan (Congress) said that in Tamil Nadu bull-fighting iscelebrated
during the festival of harvest, Mr Ramesh said that “not every cultural practice is
sustainable”. When the member said that cannot be treated as cruelty to animals, the Minister
said that it has also seen the death of human beings. That was why, he said, the Animal
Welfare Board moved the apex court in 2007 to ban jallikattu. But in response to this, the
Tamil Nadu Legislative Assembly passed regulations.

Mr Ramesh said that the Catalonia Province of Spain, long associated with gory bull-fighting,
has banned bull-fighting and why not Tamil Nadu ban jallikattu?

When Ms. Maneka Gandhi (BJP) sought to know whether he would ban animal sacrifice
practised across the country, the Minister said that a number of States have banned animal
sacrifice in religious places.

He said that he would send an advisory to all the States to emulate the States which have
already banned animal sacrifices.
The Minister also voiced concern, in response to a query from Mr Lalu Prasad (RJD), over
the Sonpur Mela (Bihar) where elephants are traded. He said the Ministry of Environment
and Forests has set up an Expert Group on Project Elephant which would submit its report by
the end of this month. As long as the Sonpur Mela remains, the problem of elephant trade
with all its attendant consequences would continue, he said adding that is why he has asked
the group to look at the future of Sonpur Mela. The Minister also described as “a matter of
great shame” the manner in which elephants are treated in some of the most sacred temples of
the country.

Symposium on climate change and impact on plant diseases

Our Bureau

Kozhikode, Aug. 11

The Indian Phytopathological Society, in association with the Indian Institute of Spices
Research (IISR), is holding a national symposium on various aspects of climate change and
its impact on diseases of various crops.

The two-day symposium on ‘Changing Plant Disease Scenario in Relation to Climate

Change' will be held on October 22 and 23 at the Silver Jubilee Hall of IISR in Kozhikode.

The seminar will deliberate on key issues like global warming and climate change, remote
sensing and surveillance, impact assessment, plant health in changing climate and sustainable
development.

Plant pathology

According to an IISR statement, the symposium will have both oral and poster sessions on
various aspects of changing diseases scenario in crop plants in relation to climate change.
Scientists, researchers, faculty members and students of research
institutions/universities/colleges, who are interested in plant pathology and keen to apply it in
their domains, can participate in the symposium.

The institute has invited abstracts on all aspects of original work in plant pathology in
agriculture or related fields.

The Indian Phytopathological Society has also invited applications for Prof. M.J. Narasimhan
Academic Merit Award contest. The preliminary selection of the contestants for the award
will also be held during the symposium.
Pakistan floods offer hope for Indian basmati

Harish Damodaran

New Delhi, Aug. 11Basmati exporters here are keeping a close eye on the impact of the
recent floods in Pakistan that have caused extensive damage to crops, particularly cotton,
rice, sugarcane and maize.

Lower than india

During the year ended June 30, 2010, Pakistan exported 1.05 million tonnes (mt) of basmati
rice, valued at $875 million.

This was lower than India's shipments, which, during 2009-10 (April-March) were estimated
at slightly above 2 mt, worth $ 2.28 billion.

Cheaper offer

“Although Pakistan's exports are below that of India, it is able to offer material at a cheaper
price, courtesy of its weak currency. As a result, it is setting the world price, much to our
disadvantage,” a Delhi-based exporter pointed out.

Pakistan exported basmati rice at an average $830 a tonne in 2009-10, as against India's $
1,150. “We are still ahead mainly because of Pusa-1121. It is largely this variety that has led
to our exports more than doubling in the last two years”, the exporter added.

To what extent will the floods change the picture? “It is difficult to say, more so when the
bulk of their rice exports (4.6 mt in 2009-10) consists of non-basmati. Basmati shipments per
se may not be all that affected”, the exporter added.

AFFECTED BELT

According to Mr Saqib Choudhary, Director of the Karachi-based Amir Rice Trading

Company, the floods have mainly affected the belt in Punjab province along the Jhelum river,
from Mandi Bahawaldin to Jhang, Sargodha, Layyah, Bhakkar and Rahim Yar Khan.

“My guess is that about 12-15 per cent of the area sown to coarse (non-basmati) varieties in
this stretch would have been destroyed. The damage may be only 8-10 per cent in respect of
basmati,” he told Business Line over phone.
SAFER AREA

In the other major rice-growing belt, which is along the Chenab (covering Gujrat, Daska,
Sialkot, Narowal and Muridke), “there has been no major damage”, Mr Choudhary added.

DAMAGE TO COTTON

Our Chennai Bureau reports: Meanwhile, Pakistan's deadliest floods is feared to have
damaged at least 30 per cent of the cotton crop.

The Pakistan Government had fixed a target of 140 lakh bales for cotton production.

Industry experts and government officials now say that the target is unlikely to be met.

In fact, with India looking at a better crop, possibly a record 325 lakh bales (of 170 kg),
Pakistan could turn to India to meet the demand for its spinners.

The damage to Pakistan's sugarcane crop has opened up a scenario where Indian mills can
look forward to sell sugar to the neighbouring country as it happened a few yeas ago.

Retail gains down the chain

Multi-retail trade may be a good thing for farmers with scarce holding capacity, small
manufacturers eager to shed inventory and consumers too.

In a blitzkrieg of advertising, the Future group-owned multi-retailer Big Bazaar promises that
its discount sales of consumables across the board will help fight inflation. How will the
retailer manage discounts on over 2,000 items and yet hope to earn bountifully? The secret is
bulk buying, sometimes at least seven months in advance. That kind of logistics helps not
only the retailer but also the suppliers. And when the producers from whom the retail outlets
buy happen to be farmers with scarce holding capacity or small manufacturers eager to shed
inventories and pay off bank loans, multi-retail trade can be the best thing to happen to them.

Amplify this example of efficient retail trade and what the nation gets is a bunch of
advantages down the supply chain; producers are assured of sound inventory clearance and
consumers of discounted prices for goods that may cost more in small retail outlets such as
kirana stores; the economy benefits because consumer prices could conceivably stabilise at
lower levels. On these counts the case for opening the multi-retail trade to global investments
is strong, and needs to be followed through with more light than heat, as has been the case so
far. To its credit, the Industry Ministry's Department of Industrial Policy and Promotion
(DIPP) seized the bull by the horns recently and rekindled the debate on multi-brand retailing
through a discussion paper on the topic. The paper makes a strong case for opening up the
sector. With every new story of food-grains rotting in open storage and food prices escalating
despite adequate stocks, the need for an efficient and competitive retail chain acquires greater
urgency. India ranks second in the production of fruits and vegetables but post-harvest losses
take a heavy toll of an estimated Rs 1 lakh crore, of which more than half is the result of
avoidable wastage. Critics of a more liberal policy point to the possible loss of jobs with the
entry of large retailers. Evidence from China, which has opened up the sector far more,
however, suggest the opposite is true; since 1992, when the sector was opened up to FDI, the
volume of trade itself has expanded and doubled the number of small outlets to 2.5 million
and jobs to 54 million.

Critics wary of global competition's impact on the local multi-retailers would like a calibrated
approach, but clearly the debate must now move on from whether FDI must be allowed to
how much stake the foreign retailer may hold in the domestic entity. Both the farmers and
consumers would want a quick decision.

Cyber crime becoming a part of online life, says survey

L. N. Revathy

Coimbatore, Aug. 11

“With the Web penetrating all areas of life, there is a growing fear among computer users that
crime, terrorism and warfare will follow humanity wherever it turns,” notes IT security and
control firm Sophos.

The firm had, at the start of 2010, surveyed the events of the last decade.

The findings highlighted in Sophos' mid-year 2010 Security Threat Report show that many
trends and patterns pointed towards more sophisticated, widespread and diverse dangers.

“Six months on, these patterns are clearly continuing. Cyber crime has become an established
part of online life, impacting businesses and private individuals alike. It has entered a third
age, maturing from a geeky hobby, money-making enterprise to a global, political, industrial
and perhaps even military tool.

“The growing sophistication of social engineering techniques used to trick and deceive
victims mirrors the growing complexity and diversity of technological methods,” the report
says.
Several countries have already taken steps towards closer policing and protection of internal
networks. While some hints of the potential danger of cyber attacks have been hypothesised
by researchers, some security gurus perceive that the whole concept of cyber warfare is being
over-hyped.

“It's perhaps surprising that so many people seem to think that using the Internet as a tool for
spying or even as a weapon is acceptable practice. After all, by giving the green light to these
kind of activities you'd have to expect to be on the receiving end too,” says the Senior
Technology Consultant at Sophos, Mr Graham Cluley.

‘Operation Aurora',

‘Operation Aurora', which first came to light at the start of the year, resulted in Google
accusing Chinese hackers of cyberwarfare, as its systems, and those of other companies, were
hit with targeted attacks signalling the sign of a new age of malware.

“Hacking and virus-writing began as a hobby, more often to prove how smart the
programmer was, rather than cause serious long-term harm.

“It evolved into organised criminal activity over the years with the lure of large amounts of
money. Now, it could be argued that the third motivation is using malware and the Internet to
gain commercial, political and military advantage over others,” Mr Cluley said.

UP, Bihar have contrasting tales to narrate

Venkitesh Ramakrishnan

New Delhi, Aug.11

Kharif sowing in Uttar Pradesh and Bihar have progressed in contrasting forms this season.
Uttar Pradesh has experienced relatively good monsoon, barring three districts in the eastern
parts of the State, and consequently, sowing has been by and large on target. Bihar has had a
42 per cent shortfall in rainfall and the State Government has declared 26 of the 38 districts
as drought-hit.
Uttar Pradesh

According to Dr. Raja Singh, Joint Director in the Uttar Pradesh Agriculture Department,
sowing, as on August 11, has taken place in 84.75 lakh hectares (lh) in the State. The target
for the season is 92.76 lh. Senior officials in the State Agricultural Department are of the
view that sowing is well on course. Paddy sowing has been carried out on 54.45 lh, maize on
9.05 lh and jowar on 2.97 lh. The targets are 60 lh, 9.20 lh and 3.23 lh, respectively. In 2009
kharif, the total area under cultivation was in 64.53 lh. Of this, paddy cultivation was on
38.42 lh, maize on 7.87 lh and jowar lh on 2.25 hectares.

Bihar

Bihar, in contrast, has shown an overall decline, particularly in paddy sowing. According to
senior officials, drought has hit the State's rice bowl severely. Sowing of paddy has not even
touched 50 per cent of the target as on August 10. The target was 35.5 lh, but only 15 lh have
been completed, said senior officials in the Agriculture Department.

Last kharif season, paddy cultivation was on 34.5 lh. Bihar is way behind the target in terms
of pulses and oilseeds sowing too. According to Agriculture Department figures, 1.41 lakh
acres of pulses have been sown till August 10, as against the target of 3.08 lakh acres.

Oilseeds sowing has been completed on 14,287 acres, in comparison to the target of 48,421
acres.

With hardly a fortnight left for the Kharif sowing to conclude, Bihar's farmers are in a
desperate situation.

Last year too was a drought year and output was below normal. Projections this time are that
cultivation would be far short of the below normal figures of 2009.

RJD reacts

Commenting on the situation, former Bihar Chief Minister and Rashtriya Janata Dal (RJD)
President, Mr Lalu Prasad Yadav, told Business Line that the severity of drought across large
parts of Bihar is such that the people, including farmers, are not even getting drinking water.

“When they are not getting enough water even to survive, how can farmers carry out
agricultural activity,” he asked. Bihar Chief Minister

Mr Nitish Kumar has demanded a special drought package from the Centre in this situation.
Impact

While the overall situation in Uttar Pradesh can be considered to be “on course,” farmers
association activists like Professor Sudhir Kumar Panwar of the Kisan Jagriti Manch, point
out that the erratic nature of the monsoons has caused problems in eastern Uttar Pradesh and
this is bound to impact the overall paddy sowing.

“As things stand now the agriculture department is relying heavily on expectations of a
revival of the monsoon in these eastern districts. But if that expectation is not fulfilled,
projections on adequate paddy sowing may be way off mark. The State Government does not
seem to have any contingency plan too counter such a situation,” Mr Panwar told Business
Line.

Time for women to take charge

B.S. RAGHAVAN

Looking round at the mess men have made of the state of the world, I am not at all shy of
admitting that I have totally lost faith in them. I believe women are the hope of the future. I
can cite three sources of corroboration of my observation.

First, my own experience of interacting with grassroots women leaders and watching them
manage the tasks entrusted to them in bio-villages set up by the M.S. Swaminathan Research
Foundation and during training camps conducted by the Satyamurti Centre for Democratic
Studies.

I found the women quicker on the uptake, more determined in fighting the ills and evils
confronting them, more sensitive, more value-conscious and more competent and committed
in the performance of the allotted functions than men.

The second source of corroboration is the number of surveys undertaken worldwide by

various think tanks and research institutions. All of them have come up with findings
extolling the quality and calibre of women in whatever position of responsibility they may be.
They get high marks for scoring over men in being hard-working, result-oriented, responsive,
honest, efficient, even-handed and effective in their dealings.

Little known fact

Women at the top, whether in government, the corporate domain, or any other avocation,
have proved to be great doers and achievers. To my best recollection, in the entire world,
there have been only two instances of women in leadership positions abusing their powers for
self-aggrandisement, while men in similar positions giving full play to their covetous
temperament are legion.

I have recently come across my third source of corroboration in the reference to a book titled,
The Female Vision: Women's Real Power at Work, by Sally Helgesen and Julie Johnson, in
the Strategy+Business write-up of July 30 on the Internet.

An interesting but little-known fact to emerge from their book is that in none of the
companies implicated in the financial crisis, not only on Wall Street, but also in London,
Sydney, Reykjavik, Dublin, Geneva, and Dubai, were women involved in any wrong-doing.
All those high-stakes dealmakers, merger-and-acquisition kings, buyout artists, and hedge
fund entrepreneurs who indulged in machinations and manipulations were men.

The authors draw attention to a study by the National Council for Research on Women which
found that female hedge fund managers are less willing to assume a high degree of risk, less
likely to take an attitude of “no guts, no glory.”

They quote a partner of Goldman Sachs whose reputation lay shattered in the wake of the
crisis: “The companies [implicated in the crisis] needed more women leaders because they
needed a more balanced decision-making model. Think what might have happened if Lehman
Brothers had been Lehman Sisters!”

Defect of their virtue

Unfortunately, male executives with dubious track records, some of whom had been leaving
trails of wreckage behind them for decades were able to stall the progress of able women of
integrity in organisations which fuelled the crisis.

One factor that perhaps works against women taking charge is the very defect of their virtue.
For instance, they are usually far too gentle and decent to aggressively make their way
forward elbowing out men. Instead of taking time by the forelock and kicking the doors open,
they are given to wait patiently for opportunities to knock first.

There is no doubt some evidence of their shedding these inhibitions and getting to be pushy,
but there is also no doubt that they are most of the time content to wait their turn.

India is advantageously placed in nurturing female talent. It has many role models from
ancient times of women who outshone men in a number of areas. Today too, there are many
bright and articulate women in various walks of life. Young women have taken to politics and
entered legislatures. They collectively represent an invincible and mighty force which can
work to the good of the society. Come forward, ye women, take charge and save the world!
Much depends on the Asian consumer
SUPARNA KARMAKAR
TRADE WINDS.

The US is running up high trade deficits and unemployment levels. It is looking at an

increase in Asian consumption to boost its economy, but this may be difficult in a savings-
driven Asia.

A sense of uneasy déjà vu has started to permeate the global economic climate. This is on
account of growing fears over a double-dip recession in the US and the UK, coupled with the
return of global current account balances to pre-crisis levels.

GLOOM IN THE WEST

Two pieces of economic news are at the root of this angst. Revised data from the US
Department of Commerce indicate that the US posted a goods and services deficit of $49.9
billion for June, on the back of decelerating exports and increasing imports, even with
domestic economic growth visibly slowing down.

Recently released data also clearly indicate that growth in the major global economies is sure
to weaken in the second half of 2010. And, with unemployment in the developed West
remaining stubbornly high at double digit levels, an impending sense of doom is slowly
spreading; global equity markets have fallen sharply even as the bond yields in the US and
Germany slumped to record lows.

The more disconcerting fact is the US trade deficit with China, which (at nearly half of the
total US trade deficit) in June hit its highest level in nearly two years, a 17 per cent increase
over the previous month's deficit.

Also, the Chinese government data indicate that China's trade surplus grew to an 18-month
high in July, as a government-induced slowdown in investment took a toll on imports, with
economic growth slowing down. This rising imbalance in China driven by strong exports and
weakening domestic demand could rekindle trade tensions with industrialised and developing
countries alike.

In particular, the trade figures have set the stage for a revival of the fight in the US Congress
over China's currency policy. New York Senator Charles Schumer, an outspoken critic of
Chinese trade policy, seized on the unexpected surge in China's trade surplus last Tuesday to
renew his call for US legislation to deal with Chinese currency practices, stating that China
has little motive “to end its currency manipulation unless it is pushed to do so”. Thus, even in
the realm of economic and foreign policy, it appears that heated exchange rate debates are
likely to take centre-stage once again.

The resultant political stalemate is likely to be further exacerbated by the fact that calls for
more consumption from the export-led-surplus nations have apparently gone unheeded, in
particular in Asia. While the jury is still out on how much of the recent Asian economic
revival was domestic/regional demand-led, it does appear that growth prospects of the region
continue to remain hugely dependent on the demand from the industrialised countries.

LIMITS TO CONSUMPTION

Rebalancing of growth is an important issue that policymakers in Asia are contending with,
since an export-driven growth strategy has served the region well. But rather than the intent,
it appears that the structural issues are more difficult to overcome. The question facing
policymakers is how they can move from ‘Factory Asia' to ‘Consumer Asia'.

Bringing about the structural change at the pace desired by the global economy is not easy,
even in the command-control economic dispensation of Asia.

Though it might not appear as such, exports in most chronic-surplus Asian economies are
driven less by mercantilism and more by favourable industrial policies that enabled the
establishment of the Asian supply chain. A regionally integrated production structure, based
largely on super-specialisation, has come into being.

On the other hand, consumption and imports in Asia are dependent on the region's
demographics (a rapidly ageing society), consumer traditions and preferences, which induce
them to save more and buy local. It may be recalled that the Opium Wars in the 19th Century
were a consequence of the Chinese indifference to British consumer exports. Despite the
rising Western influence, most East Asian societies continue to remain deeply traditional in
their demands and preferences of consumer products.

DEMOGRAPHIC FACTORS

In such a situation, conventional remedies may not provide the expected succour. For
example, it has been often argued that in Asia savings rates are high because of the absence
of social protection networks, which in turn calls for pension reforms and healthcare reforms.
However, even with vastly improved social security systems, the ageing Asian consumers
will not consume enough to be able to supplant the US consumer, unless the West develops
and exports products that are more aligned with Asian consumer preferences.

As for the newly affluent young middle class in the large emerging Asian economies such as
China, Indonesia and India, where consumerism is on the rise, such a transition is not going
to happen overnight, and may even take decades, given the low per capita income in most of
the booming Asian countries.

The high population density in most emerging Asian countries also means that the products
of consumer interest will be different from the situation in the US. For example, concentrated
urbanisation in Asia, added to climate change concerns, will mean a comparatively lesser
number of private automobiles and a higher preference for public transport among the target
population.

Policymakers and corporate strategists in countries wishing to become net exporters to Asia
should, therefore, re-evaluate their product and policy portfolios. Relying on standard
solutions may not bring about the desired move to Consumer Asia.

Wheat stays unchanged as FCI open market sale looms

Our Correspondent

Karnal, Aug 12

Wheat prices ruled steady on Thursday, around levels of Rs 1,190 a quintal witnessed since
the beginning of this week. On Thursday, the Dara variety was quoted at Rs 1,180-1,190 a
quintal, while the mill delivery was reported at Rs 1,190.

Last week, the prices had dropped to levels of Rs 1,170. As a result, Uttar Pradesh farmers,
who had been coming to the Karnal grain market are now heading towards the Narela mandi
in Delhi, where they are getting better price. In July, the prices had increased to Rs 1,210
before lack of demand led to drop in prices to around Rs 1,170 last week.

Following the uncertain weather, there was limited movement in desi wheat varieties. Tohfa
variety of Madhya Pradesh ruled between Rs 2,210 and Rs 2,215 a quintal. Lokwan was
quoted at Rs 1,825, kitchen queen new marka at Rs 2,110-2115, Angoor variety at Rs 2,130-
2,150 a quintal, Nano variety at Rs 2,065-2070 and the Kangan and Parle-G variety at around
Rs 2,180.
Mr Sewa Ram, a wheat trader, told Business Line that in the wake of reports that the Food
Corporation of Indiais likely to offload its stocks under the open market sale scheme, there
was not much buying in the market. Subsequently, the prices dropped and Uttar Pradesh
farmers were unable to get a fair price for their produce in the Karnal market, he said. The
offloading by the local stockists also did not help , he added.

He further said the traders are in a dilemma as the FCI has heavy stocks and it could offload
its stock anytime in the market. Traders expect that in September and October, the
Government would release some stock for the above poverty line cardholdersto be distributed
through the public distribution scheme.

Rice exporters want guidelines on pesticide use

Our Bureau

Chennai, Aug 12

The All-India Rice Exporters Association has asked the Centre to issue guidelines to
pesticide manufacturers so that farmers, particularly those growing aromatic rice varieties,
will use pesticides judiciously.

In a letter to the Agriculture Minister, the association President, Mr Vijay Kumar Setia, said
that strict guidelines should be issued to pesticides' manufacturers to put out advisory in local
languages, “giving correct and complete information to farmers about quantities,
recommended crops, the method and the right time for using during the crop cycle.” The
advisory should also carry other relevant facts or information that farmers should know.
“This will help in controlling pesticide residue issues to a large extent and also help the
farmers in getting higher yields of better quality produce,” he said. Mr Setia said that if
proper care is not taken while using the chemicals, the country's export trade may suffer
damage, and farmers' interests will also be harmed. “Pesticide manufacturers are not giving
correct and complete advice to farmers about proper use of these chemicals,” he said.

At least three million tonnes of rice are exported annually to Europe, the US and West Asia.
Mr Setia's plea to the Centre comes on the heels of recent reports that pesticides had been
found in Indian rice exports. The findings, by a private laboratory that does not have proper
validation, have been challenged by exporters and so far, there has been no response from the
EU end.

What do budget cuts mean for U.S. military?

2010-08-14 08:51:48 GMT2010-08-14 16:51:48 (Beijing Time)  Xinhua English
WASHINGTON, Aug. 13 (Xinhua) -- The U.S. Defense Department's recent decision to cut
thousands of jobs and realign its spending raises the question of what the budget shake-up
means for the military's future.
U.S. Secretary of Defense Robert Gates announced on Monday a string of cuts including the
shuttering of Joint Forces Command and an annual 10 percent reduction in spending for
contractors over the next three years.
The changes were aimed at saving 100 billion U.S. dollars over the next five years and part of
a broader effort to create a more efficient department of defense.
"They are realizing that from 9/11 until now, the defense department, intel agencies, all
aspects of the national security world saw huge increases in their budgets every year," said
Kyle Spector, policy advisor at Third Way.
"And with the economic climate that we have now, the leaders in those departments started
realizing that this can not continue forever," Spector said.
Gates is likely to continue to cut pricey programs such as the F-22 - last year's budget ended
production of the fighter plane - and funnel those savings into more support for troops, as
well as think about how funds could best be used in the future, analysts said.
Gates last year also killed Future Combat Systems - the Army's principal modernization
program that included plans for manned and unmanned systems that would be linked by an
electronic network.
"I think we will see a shift from huge weapons systems to more support for the war fighter,"
Spector said, adding that the military will retain its superiority.
"You are not going to see a desire to eliminate the preeminent military edge that the United
States has," he said. "That will continue to be, at least for a couple of decades, one of the
basic aspects of our military strategy - having this ten-fold edge over the next possible
adversary."
The Defense Department (DOD) is faced with the question of how much it can cut until it
starts eating into the bottom line, but analysts said the department will continue to spend
more than the rest of the world on its military.
"While there will inevitably be cuts that impact (certain) development programs, at the end of
the day the U.S. is still spending order of magnitude more than anyone else on defense," said
Nathan Hughes, director of military analysis at global intelligence company Stratfor.
He added that the question comes down to which strategies are going to shape the decision
about what programs are kept.
"The military is starting to think about shaping itself for the next war," he said, adding that no
one really knows what that next war is going to look like.
Indeed, the military in recent years has seen a debate over whether the next war will be
conventional - two sides facing off on an open battlefield - a counterinsurgency campaign
such as Iraq, or a hybrid of both, although conventional systems are scaling down.
Maren Leed, senior fellow at the Center for Strategic and International Studies, said it is more
accurate to view the measures as re-allocations.
"The popular characterization of it as reduction misses the point that it's all done with the
intent of reinvesting it in higher priority more directly related war fighting capabilities," she
said.
While Gates has laid out a number of budget objectives, it remains unknown how they will be
achieved, she said.
"It's hard to say how it will play out politically, whether these things will be successful until
we have more detail about how you get to the targets that he set out."
The secretary of defense is also taking it upon himself to ramp up more DOD efficiency so as
not to have budget cuts imposed upon him by lawmakers, analysts said.
But some fret the spending overhaul could impair U.S. strategic objectives in Iraq, and the
Pentagon's 2 billion U.S. dollar request to equip and train Iraqi security forces has been
slashed by half, although the decision is not final.
The Washington Post reported that Gen. Ray Odierno, commander of U.S. forces in Iraq, said
it is important to continue to fund Iraqi forces as U.S. troops pull out of the war-battered
country.
While some in Congress argue that Iraq's oil revenues can pay for the difference, the Post
quoted Odierno as saying it is a "misinterpretation" that Iraq boasts a large amount of oil
wealth now, and that the country is unlikely to increase its oil output before 2013.
Renewal date
Of the need to evolve with the years, and when the time comes, to bow out with dignity..

 
Keeping an eye on the expiry date …
M. Chandrasekaran

We all get excited when we hear the word ‘sale.' The cupidity that resides just below our
skins wakes up each time this sign is spotted. At the end of the day, sale is a simple word
with a multitude of meanings:

I get it cheaper than usual

Even more importantly, I get it cheaper than the others who don't know about this sale

Best of all, I get invited to buy it cheap

I am not sure if all these layers of meanings were coursing through my rational mind when I
saw a sign which said 75 per cent off! I rushed in and bought several cartons of fruit juice and
came home beaming at my luck. My mood of exaltation lasted precisely 15 seconds. My
daughter took one look at the cartons and said, “No wonder they marked it down by 75 per
cent; look at the expiry date!”

As usual and as always, she was annoyingly right — the expiry date was less than a week
away. Defeated, I slunk away with the taunts of the entire family ringing in my ears.

My misery did not end at home. I reached the venue of a day-long company retreat where I
had to endure endless presentations and discussions devoted to renewing the organisational
fabric. I have often wondered as to who thinks up these phrases — must be a factory devoted
to inventing words that sound catchy and which soon become parodies of their original
premise and promise!

To get back, clarion calls for renewal were being made by veterans in the system who had
perpetuated a policy of occupying the top slots by rotation. The day ended with pious calls
for remaking the system to face the emerging challenges.

Nature is a wonderful teacher. Trees and plants grow, flower and bloom, shed their leaves
and spring back to repeat the process till they become too old and die. The cycle of life as
represented by the supreme trinity of Hindu Gods — Brahma (Creation), Vishnu (Nurture )
and Shiva (Destruction / Renewal) — is another representation of the same cycle. I started
wondering why it was so difficult to imitate mother nature.

Verily, had Prof Higgins been confronted with this obvious need, might he have plaintively
cried out in that movie classic My Fair Lady “Why can't we be more like Mother Nature?”

Accepting the inevitable

It becomes important to recognise one's expiry date at each level in the hierarchy; most
crucially, in the upper reaches of the system. I believe that each of us is akin to a package on
a store shelf with the crucial difference that our expiry dates are marked with a special type of
invisible ink.

The date begins to show up faintly at first and then more and more clearly as time passes;
something like the slowly vanishing Cheshire Cat in Alice in Wonderland, except in reverse
order!

I would submit that in order to grow ourselves and help the organisation to grow, we need to
pay heed to this phenomenon.

In the case of the package on the store shelf, the shopkeeper is mandated to sell by a certain
date and if the product remains unsold, to throw the package out. In our cases, we certainly
do not wish to be labelled as being fit only for a one-way ride to the exit!

Evolving with time

The whole picture takes on a different hue if we substitute the word ‘expiry' with the word
‘renewal'. It is imperative that we focus on renewing ourselves wherever we may be in the
hierarchy.

In the case of younger folk, it becomes the duty of the seniors to make sure that they are
guided properly to enhance their skills and their attitude sets so that they are ready to move
upwards. This process also needs to be linked to performance-setting and appraisal systems
so that the organisation grows even as the individuals grow. And the growth-oriented,
performance-driven DNA of the organisation gets set properly.

In the case of the seniors, this drive has to come from within. That is the way one can seek
growth with dignity and when the time comes, exit with dignity as well.

When we look around us at our own organisation and others that we know of, it becomes
apparent that there are probably far too many organisational zombies in the system. They
cause significant damage by their presence — both by being exemplars of past glory
guaranteeing a place in the future and by blocking avenues for growth for those who deserve
it.

The Darwinian system of evolution has much to recommend it even in the corporate system
— the rule must be, evolve or perish.

Furrows of worry
While the kharif harvest could be better than in 2009, it may be far from bumper. And the
price implications are self-evident.

With nearly two-thirds of the southwest monsoon season behind us, it is time to take stock of
the kharif crop situation. The news is at once good and disappointing from the point of view
of overall precipitation and area planted. Although the all-India area weighted rainfall is still
in negative territory as of mid-August, 28 of the 36 meteorological subdivisions have had
excess (nine subdivisions) or normal (19 subdivisions) precipitation so far. But the
disaggregated picture is somewhat worrisome. Even as Assam, Bihar, Jharkhand, Madhya
Pradesh and Uttar Pradesh as also Gangetic West Bengal face deficiency, Punjab, Haryana,
Chhattisgarh, Orissa and Eastern Rajasthan, currently in the normal category, risk falling into
deficient category. This raises the possibility of yield losses and the concomitant effect on
production of cereals and cash-crops, although it may be premature to put a number on this.

The acreage picture is mixed too. Compared with drought-hit 2009, the cultivated area for
rice, sugarcane, pulses, groundnut and cotton has increased, raising hopes of a rebound in
output. However, it is still less than what it has been in a normal kharif season, according to
Weather Watch Group of the Agriculture Ministry. Overall, the oilseeds planted area is
unchanged from this time last year. The incidence of pests and diseases has generally
remained below the economic threshold level for all crops. In sum, there is no cause for alarm
but there should be no complacency either.

The risks to crop size and quality will increase if the forecast of more rains in the rest of
August and in September turns out to be correct. Excessive rains, especially when crops near
maturation, can be damaging. So, while the ensuing kharif harvest may be better than in
2009, it is unlikely to be anywhere near bumper. The price implications of the emerging
scenario are self-evident. Do not expect any miraculous relief from high food prices. There
may be a slight softening of prices in October, with the harvest and arrival pressure; but the
sentiment can quickly change for the worse. The Government must be in a state of readiness
to deploy the buffer stocks of rice and wheat for effective market intervention. The poor will
need a credible and effective safety net in the form of access to food (fine cereals, pulses,
cooking oil and sugar) at affordable prices. Liberal, duty-free imports will have to continue.
Policymakers must exercise abundant caution while considering changes in trade and tariff
policies. Globally too, grain prices have rallied to new highs because of weather aberrations
in some regions, including the Black Sea port area and Canada's grain-bowl of Saskatchewan.
This is raising the spectre of a 2007/2008-like food price situation. And such price cues can
cause ripples here too.
Ground reality catches up with UPA
Ashok Upadhyay

As India enters its 64th year, the signs of a new social compact are being forced upon a
reluctant state.

 
Maoist troubles… A wake-up call for the Government.

Last week, the Finance Minister, Mr Pranab Mukherjee told a gathering in New Delhi that the
government's inclusive growth had just gotten more inclusive through two new proposals:
Right to Food and Right to Health Bills.

The introduction into the public discourse of this exciting idea of ‘inclusion-through-
legislation' could have sounded convincing, groundbreaking indeed, but for the widespread
news of food stocks rotting in FCI sites across the country and New Delhi's deafening silence
on this appalling neglect.

What prompted the government to reach for its inclusive rhetoric was the Supreme Court's
unique intervention in the matter, ordering the government to ensure that not a single grain
was wasted but instead distributed to the poor. An EGoM huddle after the verdict decided to
release 30 lakh tonnes to 11.5 crore above-poverty-line families.

That the Judiciary had to remind the Executive of its basic responsibility to those who elected
it to office is an indication of the latter's callousness. In fact, what the UPA-II's check list of
‘rights' for the poor reflects is the loss of a vision for itself; it seems as though the
government has suddenly woken up to the ground realities.

DISTRIBUTING NATIONAL INCOME

Over the last two decades, the Indian state has moved a long way from its earlier world view
on what constitutes good governance.

When the reforms began in 1991, policymakers abandoned more than the commanding
heights of the economy; they also shed the social compact with India's diverse citizens.
Central to governance till then was the belief envisioned by Jawaharlal Nehru for the
National Planning Committee's consideration, a belief in ‘the principle of service before
profit'. As Ramchandra Guha points out in his book India after Gandhi, India's industrialists
concurred; soon after Independence, the Bombay Plan asserted that ‘private enterprise had
failed to bring about a satisfactory distribution of national income'. The Indian state fashioned
itself a unique world view, a vision for political activism for the public good.

That the vision mutated into a parody and perversion is of course history; in the name of the
poor and distributive justice, the state expanded to the point of sloth and wasteful
expenditure. The idea of a social democracy that motivated Jawaharlal Nehru's vision for
statecraft morphed into ‘democratic socialism', a catch-all phrase for government intervention
in almost all economic activity that gave rise to huge transaction costs.

HUNT FOR MEGA-MONEY

By 1991, with the nation on the brink of default in its international obligations, the abolition
of licensing and the hegemony of governance seemed the most natural thing to do for an
economy straining at the leash. The slow and sometimes protracted liberalisation paid off
finally a decade later and auspiciously in the new Millenium.

But in the race for high growth something of the world view that had bound the state to its
people, however distractedly, fell by the wayside.

When the UPA government first assumed power in 2004 it had only an inchoate idea that
growth rates were well on their way to unprecedented heights and the Common Minimum
Programme virtually lit up the first interim Budget's text. By 2005-06 India's economy was
flying and Mr Chidambaram's subsequent Budget speeches became increasingly “growth-
oriented”. From a concern for growth to a fascination with 9 per cent expansion was a short
journey. The glittering lights of growth however blinded the UPA to the reality of its
restricted base; so long as services and manufacturing contributed to rising GDP, the UPA
government was content. What New` Delhi had done was to identify the narrow organised
economy's growth with the development of the nation. That led it to abandon the idea of
distributive justice for wealth production.

SOCIAL PRESSURES
Nothing seemed to disturb the growing hubris of the policymaker watching the GDP
numbers. Not the fact that farmers' suicides had increased during its term, not the declining
growth rates in agriculture, not even last year's drought. It was the Maoists in the eastern
states who have finally woken up the government to the hinterland behind the blinding lights
of GDP expansion.

What we are now witnessing is the beginning of a new social contract with the poor, forced
upon the reluctant state by the threat of “Maoist troubles” spreading. Suddenly the air is thick
with talk of “rights”, of food security and health care for the poor, of pensions for
unorganised workers and even a regulator for the health industry.

At first glance this laundry list of entitlements sounds farcical; ideally the right to health and
to food should have preceded, or have been passed along with, the Right of Children to Free
and Compulsory Education Act.

But legislations can only do what policymakers want them to do; an encoded right requires
governance to enforce them and social pressure to make both work. The problem of food and
hunger or deprivation and its resolution lies in the villages, urban slums and pavement
dwellings facing the worst consequences of bad indifferent and callous governance at every
level.

What does this mean as India enters its 64th year? Should Mr Mukherjee's proposed “rights”
be legislated upon, the Indian state will have been forced to change yet again. Since the state
will have to ensure, through funds and mechanisms the operation of the envisioned “rights”,
it will move once again into its role as arbiter of the balance of interests, the enabler for those
that can profit from the free market and a dispenser of equity entitlements to those that
cannot.

Depending on the extent of social pressures, the enlarged role of the state may lead to the
emergence of a new compact between Indians and the state; the freedom to engage in profit
making enterprise and the protection for the vast majority from its excesses or its exclusivity.

Without knowing it the UPA government may have taken the first step towards a unique form
of social democracy.

Wanted: National Water Security Commission

B.S. Raghavan

The Water and Food Equitable Distribution Organisation at Chennai has been doing yeoman
service by keeping before the people the vital importance of water security. Recently it held a
national seminar on the multifarious dimensions of the theme of sustainable water resources
management.

I hope the Central and State Governments will give due weight to its recommendations for
putting in place a public policy framework and operational mechanisms for water security,
ensuring greater availability of, and accessibility to, surface water, maximising the benefits of
irrigation by an efficient use of water, and resolving environmental, and funding and legal
issues relating to inter-linking of rivers.

With the world's population expected to touch 9.7 billion by 2050 from the present 6.2
billion, and equitable sharing of the limited availability of water becoming increasingly
problematic, upheavals within and between nations over water are inevitable if national
governments fail to take remedial action well in advance. In that sense, there is every
prospect of mismanagement of water resources posing a threat to a nation's internal and
external security.

There are other aspects of water security as well. All the talk of food security is apt to come
unstuck without nutrition security going hand in hand with it, and there can be absolutely no
nutrition security without clean, drinking water. And, it goes without saying that food
security is contingent on enough water being available for irrigation and more land being
brought under irrigation leading to still greater need for water.

‘Water wars'

It is for these reasons that India's Supreme Court has interpreted right to clean, drinking water
as a salient part of right to life itself and the UN has declared that access to clean water and
sanitation is “a human right that is essential for the full enjoyment of life and all human
rights”. The former Union Secretary for Environment, Mr N. R. Krishnan, brought the
participants of the seminar face to face with the grim scenario facing humankind by pointing
out how ‘water wars' were waiting to erupt in the 263 river systems worldwide and how, over
the last 50 years, there have been ‘international entanglements' over water supplies, of which
21 led to military action. India is no stranger to such ‘entanglements' as between States which
have often behaved as if they are countries at war. And future contingencies on these lines are
bound to increase, draining the energies of the governments and the people away from the
essential tasks of good governance and overall development.

The suggestions for staving off a crisis in India in terms of both availability of water and its
equitable distribution for drinking, irrigation and industrial use range all the way from putting
more teeth into the Inter State River Water Disputes Act, 1956 to water being brought under
the Union List and treated as a public and saleable, and not a free, good, and inter-linking of
rivers.
Consensus building

The last alone has spawned six alternative approaches with each technical body, think-tank or
NGO pressing for its own favourite option, without presenting a united front on one proposal
agreed to by all of them by discussions among themselves.

The Central Water Commission meant for doing water planning, river management, project
preparation and appraisal, and design and research, being only the attached office of the
Ministry of Water Resources, is in no position to undertake the political and administrative
consensus-building on the various, sometimes mutually contradictory suggestions.

There is an urgent need for an overarching National Water Security Commission, on the
analogy of National Commissions on finance, education and agriculture, which will go into
the merits of the suggestions and present a definitive action plan to the Government on the
further course of action.

Why HR is no one's favourite

C. Gopinath

At a recent corporate training workshop for a multinational, it surprised me to see that the
least popular organisational activity amongst those present was the human resources (HR)
department. Every time HR was mentioned during various sessions, it was sure to evoke
some sniggering and rolling of the eyes. Wonder why the HR director in the Dilbert cartoon
strip is always a devilish looking red cat!

Of course, it is important to understand the context in which the derogatory remarks were
being made. The organisation was adjusting to a major merger and had been losing money
the last few years. It was in turnaround mode with all the attendant uncertainties. The mood
of the mid-level managers in the room was edgy. They were not clear about the organisation's
strategy and were even more concerned about their personal careers. Even so, the attitude
towards HR in this case was not unlike what I have come across in more successful
organisations. HR managers often end up being defensive, justifying, or apologising for,
actions. Why? There are four main reasons.

CONFUSION OVER ROLE

Gap between expectations and delivery: When organisations moved from a straightforward
‘Personnel Department' to the ‘Human Resources' moniker, it reset expectations of what the
department would accomplish. Personnel departments managed personnel issues quite
simply; dealing with recruitment, maintaining records, managing benefits, and so on. They
probably said ‘no' to the employees more often than they said ‘yes'! When they were given
the charge of managing the ‘human resources' of the organisation, it sent a signal to all
employees that the organisation truly regarded its people as resources, not just those who
performed jobs for which they were paid miserly.

Expectations went up about how the employee would be treated. Unfortunately, many HR
departments do not have the time, skill, or authority to deliver on all that the employees
expect from them.

The net result is that when there is some issue regarding personnel, the HR department is
expected to be fully aware and do something about it. When this does not happen, you can be
sure where the finger is pointed.

Lack of clarity on its role: HR departments do not clarify on what that they are responsible
for and what they are not. Take the important issue of employee motivation. This is not
something that the HR can do alone. It takes all line managers to participate in executing
policies on employee motivation, or morale building.

Say, when an employee needs special consideration due to a personal issue, the line manager
thinks it is something that HR should handle because he as ‘has enough on his hands and
cannot be bothered by this'. But if the employees' concerns are not properly handled, it does
not remain a one-employee problem, but reveals the lack of process in the organisation,
which could be the start of a cancer that can become a morale issue for the organisation.

The HR department needs to be constantly coaching the line managers on how to deal with
the employees and be available as a resource or a facilitator. It certainly does not help for the
the HR department and line managers to play football with the employee's concerns. The
organisation must make it clear to all how HR's role is defined and the part that everyone else
plays in helping HR execute its role.

COMMUNICATION DEFICIT
Poor communication of its activities: At a time when newsletters had to be printed, there was
a minimum size of the organisation that justified having a newsletter. That number has
dropped significantly with the convenience of digital production and distribution.

Yet, only a few enlightened organisations have taken advantage of it to truly communicate. In
the multinational programme I referred to earlier, few participants had actually reflected on
the enormous investment the organisation was making in them — conducting training
programmes, and allowing them time away from work to participate. There were many such
activities and opportunities that HR had on the anvil that few knew about. Keeping an open
line of communication with all employees is an important job of HR, yet few this give a
thought. HR needs to do an internal sales job.

The standard organisational newsletter, even where it exists, becomes an internal PR effort
for top management to present its image of the organisation. It does not provide relevant
information from an HR point of view. HR ends up having little space in a corporate
communications programme and this only gives more fodder for sceptical employees to
snigger.

NEW WORKING PATTERNS

A big challenge many organisations face today is how to deal with the changing nature of
work. Travel versus video/audio conferences, outsourcing activities requiring new forms of
monitoring and control, employees who work in client offices or from home, and so on.

These not only require new systems and rules on how human resources are managed, but also
a change in the mindset of managers. How does a line manager prevent her tone from
conveying a suspicion that she thinks the employee working from home and reporting to her
is not doing his ‘full eight hours' work'?

Setting clear work targets and expectations can only partly alleviate what the tone conveys.
How do you make your remote employees feel connected to the organisation? Do you deal
empathetically with their problems or concerns that they send by email, even though they are
not sitting across the table? It was illustrative for me to hear from one participant in the
workshop that he went into the nearby branch of his organisation once a week (although
nobody there is in his group) just for human contact and to ‘know what is happening'.

HR rising to these challenges can truly make a difference to the organisation.

Fluffy, white idlis: There's more to it than rice

A GLOBAL EFFORT.
R. Balaji

Chennai, Aug. 15

That plate of fluffy ‘idli' on your breakfast plate may have been cooked with rice bought at a
neighbourhood store. Probably, the rice was cultivated and milled a few hundred kilometres
from where you are sitting. But, someone sitting in far-away London might have been
responsible for ensuring the lily-white colour and softness of the ‘idli' on the plate.

Yes. That someone in London is monitoring online the high-tech equipment at the rice mill
closer to home. Even as the paddy is processed into rice, the quality is being monitored
continuously from the remote location and suggestions are given online to make the required
changes here.

The place is Manachanallur, about 25 km from Tiruchi. Mr B. Rajantran, Managing Director,

Rice Land Agro Food Pvt Ltd, is showing around the mill, a Rs 26-crore unit, the largest in
Tamil Nadu. It processes about 12 tonnes of paddy an hour, he says, and pauses, for a second,
before putting it differently. “A household usually buys a 20-kg bag of rice a month; we
make 6,000 of those bags every day”.

On an average, every tonne of paddy yields 650 kg of rice, in trade terms, an ‘outturn' of 65
per cent, and allowing further quality rejections, the mill makes about 120 tonnes of prime
quality rice every day, he says.

Mr Rajantran calls out to one of his workers, asking him to bring a handful of rice to show
the quality. The boy replies in Hindi, with an apologetic smile, that he does not understand
Tamil. He is from distant Bihar.

At Rice Land, operations are automated. The milling machine is from a Brazilian
manufacturer, Zaccaria, the driers are from Thailand and the Sortex Z+, based on German
technology, which ensures only grains of a uniform quality get into the bag, is from London,
he says. The Sortex Z+ is connected by modem to the supplier's office in London, says Mr
Rajantran.

Use of an array of technology involving high resolution cameras, sensors and infrared
technology scanners ensures that only the finest white grains of rice pass muster. All else like
broken grains, immature grains, bran, yellowed, chalky or red grains or the stray bit of husk
do not get through.

Acreage of kharif pulses up on good monsoon, price hopes

Harish Damodaran

New Delhi, Aug 15

A combination of good monsoon rains and expectations of remunerative prices among

farmers has led to a perceptible increase in area planted under kharif pulses this time.
According to the Agriculture Ministry, farmers have till now sown over 103 lakh hectares
(lh) under various kharif pulses, which is one-fifth more than what was covered during this
period last year. All the three major pulses grown during kharif – arhar (pigeon pea), urad
(black matpe) and moong (green gram) – have registered increased acreages.

This is good news considering that the production of kharif pulses in 2009-10 was a mere
4.30 million tonnes (mt), the lowest since the 4.15 mt of 2002-03, which also happened to be
a drought year.

The main reason for the turnaround this time has been the reasonably good rains in the major
growing States of Maharashtra, Rajasthan, Karnataka and Andhra Pradesh (AP). Maharashtra
has so far seen higher coverage for arhar (12.63 lh versus 9.55 lh), urad (4.66 lh versus 3.42
lh) and moong (5.72 lh versus 3.95 lh).

Likewise, AP farmers have brought more area under arhar (5.59 lh versus 2.53 lh) and moong
(2.84 lh versus 1.68 lh), while their counterparts in Karnataka have done the same for arhar
(7.03 lh versus 4.70 lh), moong (3.66 lh versus 3.63 lh) and urad (1.17 lh versus 1.02 lh).

On the other hand, the relatively dry Madhya Pradesh (MP) has witnessed a drop in coverage
of urad (5.74 lh versus 6.13 lh) and moong (1.01 lh versus 1.17 lh), while registering a
marginal increase for arhar (4.40 lh versus 4.27 lh).

Cotton area rises

The other crop to have benefited substantially from good rains, particularly in Maharashtra
and AP, has been cotton. Here too, farmers have responded to prospects of better harvest-
time prices compared to last time.

With global prices currently ruling at around 91 cents a pound (as against 64 cents at this
time last year) and the Centre expected to lift existing curbs on exports before the start of
harvesting, farmers are hoping to benefit from both higher prices and increased yields.

Indian farmers have planted a record 104.965 lh area under cotton so far this year, which is
more than the 103.29 lh for the whole of 2009-10 (the first time it crossed the 100 lh mark).

Significantly, out of the total 104.965 lh of area planted till now, as much as 92.06 lh or 88
per cent has come under Bt cotton hybrids and varieties.

Cotton area has gone up from 33.30 lh (position at this time last year) to 39.48 lh in
Maharashtra and from 10.63 lh to 16.49 lh in AP. The progressive area sown is also higher in
Karnataka (3.41 lh versus 2.68 lh), while being lower in Gujarat (25.88 lh versus 26.25 lh),
MP (6.40 lh versus 6.44 lh), Punjab (5.30 lh versus 5.36 lh), Haryana (4.45 lh versus 5.07 lh)
and Rajasthan (2.54 lh versus 4.44 lh).

Oilseeds slip

The higher area planted under pulses and cotton this time has come largely at the expense of
oilseeds. Oilseeds area in general is lower this year, with the only real increase taking place in
groundnut – that too, mainly courtesy a rebound in AP (13.90 lh versus 5.21 lh).

On the whole, the revival of the monsoon from July – except in eastern India – has resulted in
increased acreages under most kharif crops, including rice, bajra and maize.

Accelerating agro-meteorological services vital to climate change

Rana Kapoor

Climate change is expected to profoundly affect the global agricultural scenario in the near
future.

Studies by the Inter-govermental Panel on Climate Change (IPCC) indicate that the earth's
surface temperature could rise by 2.5-5.9 {+o}C by the end of this century compared to pre-
industrial levels. This could trigger severe and more frequent weather disasters while
dramatically changing the rainfall pattern and climate zones of countries.

The panel indicates that “rain-dependent agriculture could be cut in half by 2020 as a result of
climate change”.

Rainfall patterns in India are already impacted by climate change.

According to a recent United Nations Environment Programme report, the national average
monsoon rainfall has shown a “neutral-weak negative trend” while the less important summer
rainfall has risen by 20 per cent in the five decades' period between 1950 and 2004.

Further, the spread of rainfall in the individual monsoon months has become erratic and
unpredictable by even the most sophisticated climate models.

For instance, while the Indian Meteorological Department (IMD) forecasted that the country
would receive 93 per cent of normal rainfall for 2009 South-West monsoon, the country
actually received a deficit rainfall of just 77 per cent, with the sowing month of June
receiving a mere 53 per cent of normal rainfall.

Dramatic changes in climate, especially the rainfall pattern, have left farmers across the
country struggling with uninformed and risky sowing and harvesting decisions — which in
turn have adversely affected considerable economic value creation.

Given that the country's agriculture is largely a gamble with monsoons, there is an urgent
need for India to build a more robust and scientific agro-meteorological infrastructure that
provides every Indian farmer with access to climatic information.

According to the National Centre for Medium Range Weather Forecasting (NCMRWF),
provision of timely and accurate agro-meteorology advisory services to farmers could
increase net returns by as much as 10 to 83 per cent for various crops.

Such an infrastructure would not only facilitate farmers to take well-informed farm decisions
but would also form the backbone for efficient implementation of weather-based insurance
products.

Status of Agro-meteorology

In the mid 70's, the IMD — in collaboration with various state governments and agricultural
universities — initiated the Agro-meteorological Advisory Services (AAS) focused on
addressing the needs of Indian agriculture. District level advisory services were started in
2008. While IMD provides district agro-meteorological information and advisory on a five-
day interval, the services provided are grossly insufficient to meet the mounting challenge of
climate change. Some of the key bottlenecks of the current system include:

At a policy level, the focus on development of agro-meteorological services lacks the

intensity and drive that is required to handle the massive challenge that climate change is
posing to Indian agriculture.
With just about 130 Agro-meteorological Field Units (AMFUs) the agro-meteorological
infrastructure in the country is extremely under-developed and needs extensive scale-up.

At the information dissemination level, while provision of district level AAS information is
commendable, this needs to be at more micro-level (such as the mandal level) so as to make
the information more precise and useful to the farmer. Further, AAS information published
electronically by IMD rarely reaches the farmer due to limited access to internet.

Research and development in agro-climatology is found wanting in applied research and

farmer interaction.

Private sector participation in institutional capacity building is extremely low.

Recommendations and Way Forward

Though policy makers have initiated action to address the impact of climate change on
agriculture, a lot more focus needs to be brought in to address the challenges of ‘climate risk'
to Indian agriculture. The first step in this direction would be to develop a comprehensive
policy and action plan that assesses various scenarios of the possible impact of climate
change on agriculture. Some of the other key interventions that require specific attention
include:

Building Specialised and Dedicated Institutional Capacity for Agro-meteorology: There is an

urgent need to build a dedicated national institution that is focused on developing
infrastructure and information on climate risks to agriculture. Information thus generated
needs to be efficiently used as adaptive responses to climate change by the farming
community and all other actors involved in agriculture.

Building a robust, scientific and intensive agro-meteorological infrastructure network: This

network will have the capability to capture weather information up to the mandal or taluk
level.

Promote ICT participation for transfer of information to the farmer: While IMD has invited
proposals from public and private institutions in media, telecom & IT sectors to take up the
task of distributing agro-meteorology advisory to farmers, there is a need to bring in
economically viable yet farmer-friendly public-private partnership models to efficiently
disseminate climate information to the farmer.

Promote private participation in Agro-meteorology: While there are several private players
who are offering niche weather-based services in the sector such as NCMSL (National
Collateral Management Services Limited), WRMS (Weather Risk Management Services) and
Skymet, lack of scale and economic viability is restricting entry of private players into the
sector.

The Government needs to develop collaborative partnership models and provide incentives
for entry of private players into this sector during the initial phases.

Support transfer of world class technology into India: There are many global technologies
linking agro-meteorology to scientific yield management of crops. For instance, a Dutch firm
provides an automated weather station (linked via satellite) in the farm which monitors water
usage by plants, evaporation, humidity, wind, rainfall, temperature, etc. to judge the crop
condition and give timely advice to the farm owner on decisions related to activities such as
sowing, irrigation, fertilizer application, pest control and harvesting time. The company
claims that farmers achieve up to 30per cent more crop output while reducing input usage.
While use of such technologies in India is limited at individual farmer level, it could be
introduced at a community or a village level through proper governmental support.

Develop a focused and integrated R&D program for agro-climatology: There is a need for a
pan-India detailed study of the crops and climate on a region-wise basis and efficient
dissemination of this information to the farmer.

While many institutions such as IMD, NCMRWF, IITM (Indian Institute of Tropical
Meteorology), the State Agricultural Universities, ICAR (Indian Council of Agriculture
Research) and Indian Institute of Science (IISc) are engaged in research on agro-meteorology
and weather forecasting, their efforts are rarely co-ordinated towards a common goal. There
is a need to build strong cross-institutional interaction and develop coordinated research
programmes amongst these institutions so as to leverage the combined strengths and offer
robust weather forecast for crops.

To sum up, climate risk to India's agricultural economy is an imminent danger and its impact
is expected to worsen rapidly in the near future. At a policy level, there is an urgent need to
develop a focused and robust plan for adaptation of Indian agriculture to this impending
climate challenge. This would require a significant increase in institutional capacity so as to
provide the best possible support to the farmer in order to strengthen his adaptive capacity to
the vagaries of climate change and get onto a pathway of climate-resilient development of
Indian agriculture.

A fruit with tremendous biz potential

Focus:Grapes.
Grapes (Vitis vinifera) are believed to have originated in Western Asia and Europe and was
introduced to India by the Persian invaders in 1300 A. D. The fruit contains about 20 per cent
sugar in easily digestible form besides being rich in calcium and phosphorus.

With an estimated global production of 67.7 million tonnes in 2008-09, the grape is grown in
about 90 countries around the world covering an area of 7.5 million ha with an average global
productivity of 9.1 tonnes an hectare. Italy is the leading producer of grapes followed by
China and the US. In terms of productivity, India tops the global charts with a yield of 26.2
tonnes an hectare followed by Iraq (23), Israel (19) and Korea (18.3). Because of the tropical
climate and special arbour training systems provided for grape cultivation in India,
productivity is highest among the grape-growing countries of the world.

India is 12th largest grape producing country in the world. The country has shown a
consistent increase in the production of grapes in the past few years. The rise in yield can be
attributed to more acreage and better productivity levels as a result of cultivation of improved
varieties and adoption of better cultivation practices.

During the year 2008-09, the crop was grown in an area of 79,600 hectares, with a production
of 1.87 million tonnes and productivity of 26.2 tonnes an hectare. Though, grape occupies
only 1 per cent of the total area under fruits and contributes to about 2.7 per cent of the total
fruit production of the country, grape is considered as a high value horticultural commodity.

Grape cultivation in India is concentrated mainly in the peninsular India and parts of northern
India. Thompson Seedless is the ruling grape variety occupying 55 per cent of the area with
its clones.

Bangalore Blue occupies approximately 15 per cent of the total area while Anab-e-Shahi and
Dilkhush (15 per cent), Sharad Seedless (5 per cent), Perlette (5 per cent) and Gulabi and
Bhokri (5 per cent) are the other commercial varieties.
Arrival of grapes to the domestic market starts in middle of January and the peak time of
availability is during February-March. Availability season is extended further to April-May
by keeping the produce in cold stores.

Areas of high relative concentration of grape cultivation include:

•Maharashtra is the highest contributor (about 75 per cent) to the total grape production in
India with major pockets such as Nasik, Sangli, Solapur, Pune, Satara, Ahmednagar and
Osmanabad.

•Karnataka contributes about 14 per cent of the production with the important growing
districts such as Bijapur, Bagalkot, Kolar and Bangalore.

Export marginal

India exports a marginal volume of its grape output constituting about 1.3 per cent of the
world's total grape exports. In 2009, India's grape exports stood at Rs 4.09 billion (0.125
million tonnes) mainly to Bangladesh (44 per cent), Netherlands (20 per cent), the UAE and
UK (10 per cent). Other export destinations include Nepal, Belgium, Saudi Arabia and
Germany. Though the harvesting season of grape in India starts from January and extends to
October, the export season of grapes spans from January to April. During this period, South
Africa and Israel are the main competitors. India also exports marginal quantities of raisins,
constituting about 0.02 per cent of world's exports and wine, constituting about 0.01 per cent
of world's exports. India imports marginal quantities of fresh grapes, raisins, wine and grape
juice.

various forms

Approximately 82 per cent of world grape production is used for wine, 8 per cent as fresh
fruit, and 10 per cent for raisin making. However, in India, out of the total grape production,
85 per cent is consumed fresh, 12 per cent is dried for raisins, 1-2% is used for juice and the
balance for making wine. Raisin production in India is estimated to be 1,05,000 tonnes and
wine production is approximately 13,200 tonnes. Prominent buyers include some of the
supermarket chains such as Tesco and Sainsbury operating in various areas.

Buyer requirements vary considerably depending on the importing country. Preferences in

terms of variety, size of the fruit, storage conditions, traceability, packaging specifications
and mode of transportation also vary depending on the buyer.

International buyers prefer to purchase from the certified exporters (ISO 22000, BRC,
SEDEX etc) and those exporters who have a base of GlobalGAP-certified farmers.
Sometimes, these nations change the requirement criteria such as MRL (maximum residue
level) in the middle of the season which poses difficulty in conforming to the prescribed
limits. Grape farmers are of the view that the changes to MRL in the mid-season are made by
the developed countries to discourage imports and such changes act as non-tariff barriers.

There is a need for implementation of multidimensional and sustainable solutions for the
development of grape industry of the country addressing the following issues:

1. Food Safety issues: The Major issue with development of export and superstore sale of
grapes is presence of chemical residues in grapes. Food safety standards and traceability
norms should be promoted across the value chain.

2. Development and diffusion of quality-enhancing measures as well as yield-increasing

technologies.

3. Post harvest losses should be minimized by enhancing value chain efficiencies and
increasing cold storage facilities

4. The Fast growing wine sector has to be exploited. There is scope for expansion of area and
production for domestic as well as export market.

5. Export demand for raisins in the international market can be captured by India by
improving the quality of produce.

6. Exploring and increasing export of Indian table grapes to South and South East Asian
countries and other non-traditional export destinations

Govt controls crush sector

Industry Focus: Sugar.
G. Chandrashekhar

Sugar industry is an important segment in the country's food processing sector, making
significant contribution to employment in rural areas, revenue for the exchequer and a
sweetener of mass consumption for the people. Yet, the industry is subject to a host of
government controls. Two key restrictions are the ‘levy system' under which a certain
percentage of sugar produced by mills is compulsorily requisitioned at a fixed rate by the
Government and the second is the so-called ‘free-sale release mechanism' under which non-
levy sugar is allowed to be sold through periodic quota allocation.

To be sure, India is the world's largest consumer and second largest producer of sugarcane
and sugar. There is market, albeit dwindling, for traditional sweeteners gur and khandsari.
Over 550 sugar mills in the cooperative sector (over 50 per cent), private sector (over 40 per
cent) and public sector (less than 10 per cent) produce between 18 million and 26 million
tonnes of sugar, depending on cane availability. An estimated 50 million cane growers plant
cane in about 4.2 – 5 million hectares and harvest between 270 million and 340 million
tonnes of cane. The Government fixes a statutory minimum price (SMP) that mills have to
pay growers. While Uttar Pradesh and Maharashtra are two principal cane growing States,
others include Andhra Pradesh, Karnataka, Tamil Nadu, Bihar, Gujarat, Haryana and Punjab.
No wonder, the crushing industry is largely concentrated in these States.

Demand for sugar has been expanding at about one million tonnes a year, driven primarily by
rising incomes that raise consumption demand for food, and demographic pressure.
Currently, demand is estimated at 24 million tonnes of which household demand is a third
and the rest, institutional and industrial.

In recognition of expanding demand, in recent years, huge investments have gone into
building large crushing capacities. Important by-products of the industry include molasses
and bagasse as well as ethanol (a biofuel) that can be blended with petrol/gasoline, and co-
generation of power.

One of the challenges for the industry is fragmentation of crushing capacities that denies
economies of scale. For the industry to be truly bankable, there is need for consolidation of
capacities in order to benefit from scale economies.

After years of hesitation, the Government has finally agreed to examine the case for full
decontrol of the industry by September 2010. Full decontrol will prove positive for the
industry as mills cry for investment in modernisation and for scaling up capacities. Once the
twin-shackle of levy and free-sale quota is removed, the industry can and will be forced to
operate in a largely free market environment. The efficient ones with strong supply chain
capabilities will survive and prosper.

However, it would be risky to consider total decontrol in isolation. There are other aspects
that merit consideration. Decontrol does not mean dismantling of SMP which must continue.
There must be a strategic endeavour to break the cyclical nature of cane output. Without
sustained and stable cane availability, the purpose of decontrol may not be served.

The trade and tariff policy for sugar must be kept open too. In times of domestic shortage,
imports must flow in feely, while the window for export should stay open always. Across the
world, the sugar sector enjoys exceptional policy support from governments. Global sugar
subsidy is an estimated $ 6 billion. Yet, there is need and opportunity for the Indian sugar
industry to become globally competitive on merit. The Government must create conducive
policy environment and the domestic industry must seize the initiative.

Team to study low-cost Argentine warehouse model

Our Correspondent

Karnal, Aug 15

The Agriculture Ministry has sent a team to Argentina to study a low-cost warehouse model
there, according to the department Secretary, Mr P.K. Basu.
“The model is a temporary one in which foodgrains can be stored for a limited period,” he
told Business Line.

Asked about the Supreme Court's order to release foodgrains stocks to the poor rather than
letting them rot, he declined to comment.

New warehouses

On loss of foodgrain stocks, he said it was not due to non-availability of warehouses.

“The problem is because the Government's procurement was highest so far. Farmers should
also try to stock their produce at the farm-level. The department, though, has plans to
construct new warehouses,” he said.

Pesticide usage Bill

Mr Basu said the Agriculture Ministry will introduce a bill in the Lok Sabha on the usage of
pesticides.

The bill will have guidelines and limit for pesticide use that have to be followed by the
producers.

He also said the Ministry was concerned over the slow and stagnant growth rate in wheat
production. Mr Basu was here to discuss strategies to improve wheat and barley production.

The Union Agriculture Commissioner, Dr Gurbachan Singh, said that seed, fertilisers,
pesticides, weedicides are critical inputs and their availability must be ensured to farmers.

Govt will reduce burden of inflation on the poor: PM

Bill for councils for higher education, health soon.
 – Ramesh Sharma 

 
Spirit of freedom:The Prime Minister, Dr Manmohan Singh, inspecting the Guard of Honour
before addressing the nation from the ramparts of the Red Fort on the Independence Day in
the Capital on Sunday.

Our Bureau

New Delhi, Aug 15

Under attack from the Opposition on issues such as price rise, Naxalism and terrorism, the
Prime Minister, Dr Manmohan Singh, on Sunday assured that his Government was trying to
reduce the burden of inflation on the poor and also made the offer of talks to Maoists and the
agitating Kashmiris.

“I know that in the last few months high inflation has caused you difficulties. It is the poor
who are the worst affected by rising prices, especially when the prices of commodities of
every day use like food grains, pulses, vegetables increase,” Dr Singh said during his 35-
minute speech on the 64th Independence Day.

“It is for this reason that we have endeavoured to minimise the burden of increased prices on
the poor,” he said from the ramparts of historic Red Fort amidst tight security and an overcast
sky.

Wearing his trademark blue turban, he unfurled the national tricolour for the seventh
consecutive Independence Day to become only the third Prime Minister to do so after
Jawaharlal Nehru and Indira Gandhi.

No timeline
Dr Singh, however, did not give any timeline for curbing inflation, which is in double-digits.

Addressing the nation from a closed enclosure, he said, the Government was “making every
possible effort” to tackle inflation.

The Opposition BJP and the Left parties had attacked the Centre over surging food prices and
Parliament was disrupted recently on the issue.

Dr Singh said though the Government had given remunerative prices to farmers to encourage
them to increase production, “one effect of providing higher prices to farmers is that food
prices in the open market also increase.”

Farm push

On the farm sector, he said, “We need to work harder so that we can increase the agricultural
growth rate to 4 per cent a year.”

He said the Government wants a food safety net in which no citizen would go hungry.

Admitting that a huge deficit in the country's infrastructure is affecting its economic
development adversely, he said, “The resources required to create good physical
infrastructure are difficult for the Government alone to mobilise. Therefore, we have
endeavoured to involve the private sector in our efforts.”

Pointing to the success of the building of the Delhi airport's new terminal, he said, “We will
continue to make such efforts to improve our physical infrastructure.”

Petro price hike defended

Defending the hike in prices of petrol and other petroleum products, Dr Singh said, “If this
had not been done, it would not have been possible for our Budget to bear the burden of
subsidy and our programmes for education, health and employment of the poor would have
been adversely affected.”

The Prime Minister said the Government “will soon bring a Bill to Parliament for
constitution of two separate councils in higher education and health respectively so that
reforms in these two areas can be accelerated”, amidst applause from hundreds of
schoolchildren who were present.
He sought to allay fears of tribals over loss of livelihood saying, “Apart from adequate
compensation for land which is acquired from them, we should also ensure that our ‘Adivasi'
(tribal) brothers and sisters have a stake in the developmental project being undertaken.”

‘Our 28% interest is the lowest cost finance for the poor'
We scale at a level of about 2 lakh new clients every month: Vikram Akula.

Our staff recruitment is from the same basic economic profile of our borrowers. A very high
percentage of our staff are children of borrowers.— Mr Vikram Akula, founder and
Chairperson, SKS Microfinance

 
Mr Vikram Akula, founder and Chairperson, SKS Microfinance

N.S. Vageesh

Chennai, Aug. 15

SKS Microfinance is all set to begin its innings as a listed entity today (August16). Its Initial
Public Offer to raise Rs 1,650 crore (priced at Rs 985 a share and oversubscribed about 13.6
times) is set to be a trail-blazer. Other micro-finance institutions may now look at this option.

In an interview to Business Line,Mr Vikram Akula, founder and Chairperson, SKS

Microfinance, expanded on some of the best practices that made SKS different from other
players in the field. Excerpts:

On scaling up
I looked at the Grameen bank model (of Bangladesh) to understand how they scaled up. They
have reached about 7 million clients in 30 years. We wondered how to do this faster. I looked
at other companies – the Cokes, Starbucks, McDonald's etc and noticed how whenever they
enter a country, they were able to reach out to millions of customers immediately.

We decided to adopt a lot of practices from the business world. So, for instance, we have a
high level of systematisation that you might see in these fast food chains; we adopt lean
processing from the banking world; factory style training for our loan officers and frontline
staff and a franchisee model of training for low-skilled workers. Today, we scale at a level of
about 2 lakh new clients every month and open about 50 branches every month.

On training practices

I had returned from the US — where we have this concept of looking at the average time to
serve — 1 minute/ 2 minutes etc. for every service industry. When I looked back at my NGO
days, I remembered that clients would be there for hours. It was a waste of their time and our
time. So early on, one of the things I did was to think of a stopwatch and started to time the
process to find out where time was wasted.

When you do something like this, you learn a lot of small things. It sounds simple — but one
of the things we learned was that if you have your repayment in odd numbers, that delays the
process because you have to have loose cash. Customers will also have to carry change and
that can take a lot of time — considering they spend just about an hour at the centre. So we
decided to standardise the repayment module and divided it into 50 equal weekly repayments.
We have been asked whether this move doesn't cut into flexibility. You can be flexible — but
at a certain cost. And the cost from our perspective was in terms of other people's time. These
50 women will be wasting time if someone brings an extra Rs 5. There are some trade-offs.
We lose some local colour, we don't give odd number loans, and if the amount to be repaid is
Rs 220 – we don't take Rs 215 or Rs 230. Some NGOs think this is absurd. Why would we
not take the money when it is given to us? But this is our way. We wanted scale and for that,
this had to be done.

On recruitments

We found that experience is given a tremendous premium in the NGO sector – and for that
matter even in other sectors in the country. Everything is seniority-based. We didn't want to
give experience this kind of a premium. We want to make the process so machine-like that
you can put an 18-year-old kid, train him, and whether he is in Bihar or Uttar Pradesh, as
long as the process is standardised, he or she'll do exactly the same thing. And we wanted to
do this training in an accelerated way. So I borrowed a training manual from a friend who
works for an American company, studied it and then wrote down a detailed manual for
training our loan officers — that went right down to the sequence in answering questions,
even including hand gestures — and saying do this, don't do this. We framed a 12-week
programme that is now been shortened to 8 weeks. In the first week, a trainee learns how to
form a group, in the second week, how to do a process etc. and by the end of 8 weeks, he is
ready to go. The standardisation in systems also helps standardise our training and therefore
roll out our manpower in 2 months. Today, we recruit about 1,000 new loan officers every
month.

Challenges in recruitment –getting the right people

When other companies say they want good manpower — they mean they want educated and
trained manpower. I am going to be a bit provocative here — but I mean no disrespect. What
we want is uneducated and untrained manpower. We want an 18-year-old kid, who has not
worked anywhere — so he has not picked up any bad habits. We need someone who is young
enough, understands poverty and is open to being trained. When we first started, we
experimented with older and experienced people. But after a while, we realised the young
guys are better — because they don't ask too many questions. The older ones ask too many
questions.

Our staff recruitment is from the same basic economic profile of our borrowers.

A very high percentage of our staff are children of borrowers. They are first generation
learners. They are perfect for us. Since they come from poor families, you don't have to teach
them about poverty. They can sit comfortably on a dirty floor and do business or be able to
tell this goat from that. What they have not done is work in an office before.

We have invested heavily in technology which allows these loan officers to operate on their
own. You can't put an educated urban professional in this context, because they won't be
successful. We are in a position where we can give them the second best job. The best paying
job for their education level may be a government job.

We get almost a 1,000 applications for say about 50 vacancies. So we get to pick the cream.

On the peer lending model

When a borrower wants to get a loan, she has to get it approved by four other borrowers in
her group. Then they take it to the centre where it gets cleared by another 50 pairs of eyes
(ten other groups of five women each). If it is cleared here, then 90 per cent of the time we
give the loan without any more questions. The reason this works is that they know that if they
default, then nobody else in the group will be able to get a loan. We don't have one
underwriter; we have 50 underwriters. They know everything about each other and they get it
right every time.

On the conflict between social service motive and for profit model

We don't see a conflict between the two. You must realise that even the 28 per cent interest
that we may charge is the lowest cost finance for the poor.

Remember, when they borrow from us for some productive and income generating activities,
their returns are much higher. Second, look at the reality here. A number of studies have
shown that while banks may offer loans at between 8 per cent and 12 per cent, the poor pay a
much higher rate. If you ask the borrower the transaction costs – the number of trips that you
have to make, the bus charges, the time lost, the broker's fee, bribes for government subsidies
etc., then the true cost is often higher than an SKS loan.

Global retailers make a strong pitch for FDI

Small players oppose move outlined in DIPP paper.

Bindu D. Menon

New Delhi, Aug. 16

The Department of Industrial Policy and Promotion's (DIPP) paper seeking stakeholders'
views on foreign direct investment (FDI) in multi-brand retail has evoked mixed response
with global retailers making a strong pitch for opening up of the sector. In contrast, the SME
sector, including smaller retailers and associations, are opposing it, citing loss of employment
and predatory pricing.

The ‘big boys' of retail, however, feel that the Government needs to be clear on what
constitutes back-end investments. It may be recalled that DIPP had sought views from
stakeholders by July 31.

Retailers such as Metro Cash & Carry, Bharti Wal-Mart and Carrefour have recommended
opening up of FDI in multi-brand retail stating it would have a positive impact on the sector
as a whole.

“A step-by-step approach to the opening up of the sector is preferable…the stipulation of

investment in the back-end needs to be clearly defined as to what constitutes the investments
in back-end,” Metro Cash and Carry India said in a written reply to the DIPP.
 The DIPP had in its proposal also said that foreign investors should make a genuine
contribution to the development of infrastructure and logistics and also that a stipulated
percentage of FDI should be spent towards building up of the infrastructure needed for the
same.

Bharti Wal-Mart in its response said FDI in multi-brand should be “absolutely permitted and
ideally without any restrictions.”

“Multi-brand retailers in India must invest substantially in the back-end to ensure successful
front-end operations,” it said, however, “a fixed percentage of investment in the back-end
could be counter-productive as it could lead to misallocation of resources and take away from
where they are most needed to create an efficient, modern supply chain.”

Carrefour India, meanwhile, said that any cap or restriction on FDI in the sector may result in
potential loss of opportunities and avenues of inclusive growth of the retail sector. “… The
cap should be kept such that a foreign retailer is entitled to make a minimum of 51 per cent
investment with right to mange the company and bring about efficiency in the operations.”

However, even the French retailer voiced its concern regarding back-end investments stating
that any stipulation for minimum investment in back-end and unrelated to retail will put
undue and additional pressure on the profitability margin expected from the retail operations
and negatively influence the viability of the operations.

Pricing policy

Meanwhile, several smaller retail chains have written to the DIPP stating that, “small-scale
manufacturers would be forced to sell their products at cheaper and uneconomic prices
dictated by the MNCs as they would enter with predatory pricing policy and create
oligopolistic market conditions in retail trade.”

Besides rendering numerous retailers jobless, it will also be “impossible to contain MNCs
with any fixed rules and regulations,” was another apprehension voiced by domestic retail.

Beware $1 Trillion Lying Under Chinese Mattress: William Pesek

August 15, 2010, 3:20 PM EDT

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By William Pesek

Aug. 16 (Bloomberg) -- Now that’s one big mattress.

Last week, we learned China’s households hide as much as 9.3 trillion yuan ($1.4 trillion) of
income not reported in official figures -- 80 percent of it by the nation’s wealthiest. This
massive pile of stashed cash is equal to about 30 percent of gross domestic product.

There may be both good and bad news in the above study conducted for Credit Suisse Group
AG. The good: it lends credence to the domestic-demand story for Chinese growth. It turns
out, the average urban disposable household income is 32,154 yuan, or 90 percent more than
official figures. The bad: China’s rich-poor gap may be much bigger than we realize.

China’s “Gini coefficient,” a statistical measure of wealth equality, has long been too high. In
May, the Economic Information Daily, a government-affiliated newspaper, said the figure
reached 0.47, higher than the recognized “warning level” of 0.4.

Things may be far worse in the most populous nation. A widening wealth disparity will lead
to trouble down the road for 1.3 billion Chinese and investors betting on stability in an
economy that may already be the second-largest.

Nothing spooks the Communist Party like social unrest. Its conviction to snuff it out
whenever and wherever it occurs was behind the 4 trillion-yuan stimulus package in 2008.
Reducing income disparities is a top goal of President Hu Jintao and Premier Wen Jiabao to
stave off riots, strikes and other unrest that might threaten the party’s six-decade rule.

Harder, Faster

They need to work much harder and much faster. The risk is that they may start believing
their own press.

The story getting the most mileage is China’s economic brawn. Its $2.5 trillion of currency
reserves is viewed as a nice insurance policy against trouble in markets. News that China
bought $20 billion more Japanese bonds than it sold in the first half of 2010, the fastest pace
of purchases in at least five years, is seen as a passing of the torch in Asia.

In a way, it is. Japanese officials have done a poor job of disguising their glee over China
supporting their debt. Government and Bank of Japan officials are concerned about their own
nation’s ability to finance a widening budget deficit. The desperation was fairly clear in a
recent advertising campaign that suggested Japanese women are attracted to guys who invest
in government bonds.

China’s Fragilities

Investors haven’t gotten rich betting against China. Yet China’s fragilities need tending to,
and now, if its development is to be sustainable.

The condition of China’s state-owned banks is a concern for investors, and rightfully so.
China plans to stress-test banks to assess how a big drop in property prices would affect the
financial system. Officials should make sure the process is more thorough and transparent
than in the U.S., Europe or Japan.

Social unrest is a bigger risk. Much of China’s hidden income may be “illegal or quasi-
illegal,” according to the Credit Suisse study, published by the China Reform Foundation.

It should be no surprise that a nation growing 10 percent has a healthy gray economy running
in parallel. That’s what happens when an all-powerful, top-down government mixes with vast
supplies of capital. Crony capital thrives, be it kickbacks from construction projects, gifts to
officials at weddings, payoffs from state monopolies such as the tobacco industry or
spreading profits from land transfers.

Corruption’s Price
This corruption comes at a huge price. The inefficiencies it breeds feed disparities in
economic opportunities, income and the distribution of assets, such as property. The degree
of social conflict inherent in China’s rise is becoming more apparent. Just ask the folks at
Toyota Motor Corp. and Honda Motor Co. dealing with strikes and demands for higher
wages.

The most dangerous aspect of China’s trajectory is how, well, American it looks. The
concentration of wealth among the richest Chinese helps explain a surge in spending on
luxury goods. As Japanese sales wane, posh brands can’t open Chinese stores fast enough.
Last year, Gucci opened one in Shijiazhuang, the capital of Hebei province, selling $4,000
snakeskin purses. That’s about twice the city’s official annual per-capita income.

China’s social fabric is under pressure. This year’s employee suicides at Foxconn
Technology Group are a case in point. So is the spate of deadly attacks on schoolchildren,
which press reports suggest are related to grievances with local governments. Last week, the
New York Times reported on growing violence against doctors in the northeastern city of
Shenyang.

China has done a remarkable job raising living standards for millions. The reason it sucks up
so much attention and investment is genuine progress. While its challenges are many, China
is leaving India far behind in tackling poverty. Now, its wealth balance is heading in the
wrong direction.

You can censor Google Inc.’s search engine. You can’t hide the fact that a handful of Chinese
are getting very rich from the billion-plus workers being left behind. Anger will rise, tempers
will flare and things could get out of control. Try stuffing that under a mattress.

Policing social media isn't a smart policy

Companies should start identifying how they can leverage social media to engage with their
own employees better and address the ‘real' problems by doing a root-cause analysis.

Debashish Sengupta

Ray Titus
The phenomenon of consumers going public with disenchantments about a product/service of
a company is quite common. But, of late, companies are coming face to face with a new
reality — that of their employees (internal customers) peppering social media platforms with
their dislike and disapproval of their workplaces, and companies seem to be clueless on how
to handle this disenchantment which is going digitally public.

Should employees criticising their organisations or employers on social networking sites be

seen as a problem or symptom to a bigger problem? Infosys, for instance, is reportedly
contemplating a social media policy. This policy, a first of its kind in India, will impose
restrictions on its employees' tweets, blogs and other social media messages. The defaulters
face warnings, or even termination. But the question is: Will this quell employees' voices on
the social media? Incidentally, Infosys' net profits have dipped by 2.4 per cent in the first
quarter ended June 30 and the attrition rate has peaked to 15.8 per cent during the June
quarter, the highest the firm has seen in the last two years.

Gag the voices?

Again, in the age of ubiquitisation of social media, can such restrictions really make a
difference? Should companies try to gag such voices or should they make an attempt at
finding out the reasons behind such disenchantment?

About a year back, Kimberley Swann, a 16-year-old was fired from Ivell Marketing &
Logistics, a product development and sourcing company, for describing her job as ‘boring' on
Facebook. Miss Swann working as an office administrator found her job of filing, stapling,
shredding hole-punches and scanning paper as wasteful and monotonous and so she let out
steam by sharing the same with her friends on Facebook. She was given marching orders
from the Ivell premises.

Did such a measures help? Were Miss Swann's comments a problem or was the problem with
the job-design? And would Ivell's fortunes change by firing Swann? Confidentiality

Social media policies are often shrouded under the cover of confidentiality. But isn't that
already one of the clauses of employment in the first place, for every employee? Then why
need for another policy to restrict propagation of confidential information?

Social media networking has just made word-of-mouth electronic and widespread. The
‘word', positive or negative, was always there and so will it be in the future.

According to a recent survey by global Internet content security provider Trend Micro, the
percentage of employees visiting social networking sites at the workplace globally rose to 24
per cent this year from just 18 per cent in 2008, even as more companies are restricting access
to such Web sites.

The same social media, which is becoming a cause of concern for some employers unable to
contain the voices of dissention of their employees, could become a strength for them if the
word ‘spread' changed to positive.

‘Unique entity'

Management wizard, the late C.K Prahalad's n=1 strategy of serving customers also works for
firm in terms of treating its employees.

It implies treating every employee group as a ‘unique entity' and not trying to fit everyone to
the same size.

If a video on YouTube has made a local taxi-driver of Varanasi a celebrity, and if an

engaging Facebook account has made some popular foreign (Starbucks, Coca-Cola, Skittles)
and Indian (Vodafone Zoo Zoos, Fastrack, Tata Docomo) brands garner a huge following,
then there must be more to social media than being a negative publicity tool.

So its time that companies started identifying how they can leverage social media to connect
and better engage with their own employees. Also, companies must try to address ‘real'
problems by doing a root-cause analysis, rather than quell dissent on the social media.
Additionally, they must also provide for internal communicable platforms that allow for a
dialogue between the firm and its employee constituents.

The content generated from such platforms can then be used as a feedback tool to better
internal processes. It would bode well for companies to look at social media as an opportunity
rather than a threat.

Easing processed foods push inflation down to single digit

WPI for July at 9.7% as primary articles too aid trend.

An easing of price levels of manufactured food products (processed foods) and some primary
food items aided the downward trend in the headline inflation.

Our Bureau

New Delhi, Aug. 16

While the annual headline inflation has finally slipped into single digit in July, the silver
lining for consumers could be the continuing downward trend in the price levels of processed
food such as sugar, butter, coffee powder and gur on a month-on-month basis.

The annual Wholesale Price Index-based inflation increased 9.97 per cent in July, against a
year-on-year surge of 10.55 per cent reported during the previous month, despite a big jump
in fuel-based inflation and a surge in primary food items during the month.

INFLATION for MAY UP

The rate of inflation was recorded at minus 0.54 per cent during the corresponding month of
the previous year. The annual reading for May was, however, revised up to 11.14 per cent
from the provisional estimate of 10.16 per cent.

Manufactured food items

An easing of price levels of manufactured food products (processed foods) and some primary
food items aided the downward trend in the headline inflation. The sequential inflation in
manufactured food products was down 0.61 per cent in July after a 1.25 per cent dip in May.
Manufactured food inflation was unchanged in June on a sequential basis, according to the
data released by the Commerce and Industry Ministry on Monday

On a sequential basis, the index for the Primary Articles group gained 1.85 per cent from the
previous month as the index for the ‘Food Articles' group was up 0.91 per cent due to higher
prices of maize, poultry chicken, condiments and spices, mutton, urad, gram, milk, eggs, fish-
inland, jowar, wheat, bajra and rice. However, the prices of moong, fruits and vegetables,
coffee, masur, arhar as also fish-marine declined.

RUBBER DEARER

The index under the ‘Non-Food Articles' category grew by 0.80 per cent, due to the higher
prices of raw rubber, castorseed, raw silk, fodder, groundnutseed, raw jute, copra, sunflower,
rapeseed, mustardseed, gingellyseed and tobacco, while those of nigerseed, raw cotton and
linseed dropped.

The index for the ‘Minerals' group rose by 19.25 per cent, due to the higher prices of iron ore,
magnesite, steatite, fluorite and asbestos; but, those of manganese ore, feldspar and barytes
declined.

The Fuel and Power index was up by 3.21 per cent from the previous month, due to the
higher prices of kerosene, liquefied petroleum gas, petrol, high-speed diesel oil as also
aviation turbine fuel, while those of furnace oil, naphtha and light diesel oil fell. In case of the
Manufactured Products, the ‘Food Products' group index declined due to lower prices of bran
(all kinds) (6 per cent), sugar and butter (3 per cent each), khandsari (2 per cent) and coffee
powder and gur (1 per cent each). However, the prices of sooji (5 per cent), groundnut oil and
rice bran oil (4 per cent each), imported edible oil and maida (3 per cent each), cotton seed oil
(2 per cent) and coconut oil, atta, sugar and sweet meat confectionery, biscuits and soyabean
oil (1 per cent each) moved up. The data showed that food articles spiked slightly at 14.94 per
cent in July on a year-on-year basis, against 14.6 per cent in June. Fuels increased 14.29 per
cent in the month under review as against 14.32 per cent in June. The Manufactured Products
index was up 6.15 per cent on a year-on-year basis during July.

Maharashtra may produce 86.5 lt sugar in new season

25 lakh tonnes more than initially anticipated.

Harish Damodaran

New Delhi, Aug 16

Maharashtra expects to produce 86.50 lakh tonnes (lt) of sugar during the 2010-11 season
starting October.

“Our estimate (jointly worked out with State agencies) is that the total cane area this time is
10.22 lakh hectares, which, at an average yield of 81 tonnes/hectare, will lead to production
of 827.36 lt. Of this, the mills will crush 752.15 lt, which, on an average recovery of 11.5 per
cent, will result in a sugar output of 86.50 lt for the new season,” said Mr Prakash
Naiknavare, Managing Director, Maharashtra State Cooperative Sugar Factories Federation.

Current produce
During the current season, mills in the State as a whole crushed 614.47 lt of cane and
produced 71.05 lt.

These turned out much higher than the initial estimates of 410 lt of cane crushing and 46 lt of
sugar production.

It is this 25 lt more-than-initially-anticipated production from the country's largest sugar

producer that has contributed significantly to a reassessment of the overall domestic supply
position with regard to the sweetener.

“This time, we have taken extra care to arrive at the projections. The agricultural wing of
every mill was asked to collate cane area registered by individual farmers with the factory.
This data was, in turn, counter-confirmed with the village-level personnel attached to the
State Agricultural Department,” Mr Naiknavare told Business Line.

Estimates

According to him, while the cane area estimates will more or remain unchanged, the yield
figures are always subject to change.

“There are so many factors that could bring forth higher or lower cane yields, which we have,
as of now, assumed at 81 tonnes per hectare.

If that changes, it would obviously alter the production estimates as well,” Mr Naiknavare
pointed out.

In fact, given the good monsoon rains in Maharashtra, there are fears (from the industry's
perspective) of sugar output in the State even surpassing the record 91 lt-levels of the 2006-
07 and 2007-08 seasons.

But it is not only in Maharashtra where the production numbers for 2009-10 ended up being
significantly higher than the originally estimates.

Uttar Pradesh, too, was initially expected to produce only 39.6 lt during the season, but the
final sugar output turned out to be 51.7 lt, as the cane yields harvested by growers exceeded
industry as well as official expectations.

India wins ‘Ponni' rice trademark row in Malaysia

  
Different grades of Ponni rice on sale

G. Srinivasan

New Delhi, Aug. 17

India has won the battle for ‘Ponni' rice in a Malaysian court.

The Malaysian High Court in Kuala Lumpur on Tuesday ruled that a local firm, Faiza Sdn
Bhd, should not use the ‘Ponni' label for its rice products, on an application by the
Agricultural and Processed Food Products Export Development Authority (APEDA) and four
others. The judgment, quoted by Malaysian news agency Bernama, said that ‘Ponni' rice was
produced along the Cauvery river in Tamil Nadu and Karnataka and that Faiza did not have
the right to register it as its own trademark.

The judgment termed the entry of ‘Ponni' in the register of trademarks as “…wrongfully
made…”

Exporters of this premium non-basmati rice variety, mainly from South India, should heave a
sigh of relief. Trade sources here told Business Line that before the ban on non-basmati rice,
from April 1, 2008, India was annually shipping close to 1.5 lakh tonnes of non-basmati rice
including premium ‘Ponni' and ‘Sona' varieties to major destinations including Europe and
West Asia as also Hong Kong, Singapore, Australia, New Zealand, and Malaysia.

A positive development

The APEDA Chairman, Mr Asit Tripathy, said: “It is a positive development. We have
succeeded in preventing somebody from appropriating this brand, and as and when the ban
on non-basmati rice export is lifted, Ponni rice exporters would benefit.”
Mr P. Vishnu Kumar of Vishnu Kumar Traders Pvt Ltd (the firm is one of the respondents in
the case), Secretary, South India Rice Exporters Organisation, hailed the Malaysian court
decision as “a victory to ‘Ponni' rice growers and exporters, thanks to the timely action taken
by the Indian authorities” to fight the usurping of a variety that has its origins in the Cauvery
delta. In the light of the victory, New Delhi, he said, should consider lifting the ban on
premium non-basmati rice variety such as ‘Ponni', or at least allowing export of small
consumer packs.

Commerce Department officials said it is time also to get ‘Ponni' registered as a certification
of trademark or geographical indication (GI). For this, standards needed to be evolved just as
for basmati rice, for Ponni's aroma, length and characteristics. Sans such standards,
onslaughts on traditional farm varieties, as had also happened on turmeric and neem, could
not be averted. 

Batting with Australia

To gain the most from an FTA with Australia, India would be well within its rights to demand
a more liberal movement of people.

Had India and Australia not played cricket with each other, sometimes with great animosity
and/or patriotic fervour, it is unlikely that one would have known much about the other. After
all, the physical distance between the countries is around 10,000 km. Enormous distances
don't encourage much trade, except in bulk goods, where the unit cost of transport is
absorbable; or in services that are either delivered in person or through electronic signals. So
it is not surprising that, of the overall trade between India and Australia of about $16 billion
in 2009, around three quarters can be accounted for by raw materials (mostly coal) and
intermediates. The two-way trade in manufactures has grown over the years but is still
minuscule by any yardstick. There is some trade in services too but, again, nothing to write
home about. Given this, there are two ways of taking matters forward. One is to leave it all to
chance and wait for something to happen that will give a major fillip to trade and investment;
the other is to push things along by taking proactive steps.

In 2008, looking at India's growth performance over the previous five years and given its new
status as a US favourite, Australia (which for the previous 30 years had been counted by
India amongst the major India-baiters) thought it made sense to kiss and make up. So,
following the fashion of the day, it suggested that the two countries ought to examine the
feasibility of a Free Trade Agreement. India saw no harm in this and a joint study group was
established. Its report, which has been ready for a few months but which has only recently
been placed in the public domain, says that an FTA is “feasible” and recommends that the
two Governments “may consider negotiation of a comprehensive bilateral FTA that includes
trades in goods and services, investment and other trade and investment facilitation and co-
operation as a single undertaking.”

Much of what the Report contains is unexceptionable and should be pursued as best as the
two countries can. But it is possible to foresee a sticking point in the area of services: all of
the services identified as needing a push are capital-intensive, and most of them can be
delivered without people going over to deliver them. India, on the other hand, would be well
within its rights to demand, in return for whatever concessions it makes, a wholehearted
endorsement for not only disembodied services but also services that require the movement
of people. This can be accomplished by adopting a liberal definition of the term “temporary”
which ought to leave the choice of opting for permanent residence in Australia to the
individual rather than to the Australian Government. This would be akin to treating the
movement of labour on par with capital, which is granted all sorts of protection in FTAs.

Higher import prices perk up urad, tur

Our Correspondent

Indore, Aug 17

Urad dal and tur dal prices increased following a spurt in prices of imported pulses on the
Mumbai market. Urad dal in the spot market ruled at Rs 5,900-6,000 a quintal, up Rs 200
from Monday. Similarly, tur dal perked up by Rs 150-200 to Rs 5,800-5,850 a quintal.
Prices of imported pulses on the Mumbai market were:Urad Mumbai – Rs 5,175, peas – Rs
1,681 a quintal, Australian gram – Rs 5,291 and Masoor Mumbai – Rs 3,511 a quintal.

Compared with imported pulses, prices of moong and chana dal ruled stable and slipped from
Monday's rates. With demand limited in chana dal, its prices in the spot market fell by Rs 50
to Rs 2,625-2,650 a quintal.

The main reason for declining trend in chana dal has been attributed to rise in coverage of
pulse seeds in the country to 87.36 lakh hectares compared with last year's 75.84 lakh
hectares.

Besides, the decline in raw chana (kanta) prices in the spot market on Tuesday to Rs 2,225-
2,230 a quintal also contributed to the fall in chana dal prices.

Masoor dal and moong dal remained stable. Masoor dal quoted at Rs 3,825-3,850 and moong
dal at Rs 6,000-6,100 a quintal.

PTI reports: Masoor and its dal prices gained Rs 50 a quintal in the wholesale pulses market
in New Delhi on retailers' demand.

Masoor small and bold remained in demand and increased to Rs 3,300–3,500 and Rs 3,500–
3,750 a quintal respectively.

Dal masoor local and best quality increased by a similar margin to Rs 4,000–4,100 and Rs
4,300–4,600 a quintal respectively.

Registration for cotton export to begin on Sept 1

Meet with Farm Ministry to decide on quantity to be shipped.

Restrictions lifted

Registration from Sep 1 to facilitate exports from Oct 1

Meeting on Sep 1 to find out how much can be exported

Duty to be levied when export reaches the decided limit

Our Bureau
New Delhi, Aug 17

The Commerce Secretary, Dr Rahul Khullar, said on Tuesday that cotton exports would be
allowed from October 1 without any restrictions, when the new crop starts arriving in the
market .

Though there will be no export tax on cotton, the only condition will be that contracts for
exports need to be registered with the Textile Commissioner, he told reporters, adding that
the registration process will be simple.

“Cotton exports will be on OGL (Open General Licence) from October 1, which means
cotton exports are unrestricted and free. What exact amount will be exported, so that the
domestic industry is not affected, will be decided when we get more accurate figures,” Dr
Khullar said.

He said the Textile Commissioner will start registering contracts for exports from September
1 so that traders can export cotton when the crop arrives in October. “The reason for the time
gap is otherwise people will run around at the last minute trying to register contracts,” he
said.

Another meeting

The Ministries of Commerce, Textiles and the Agriculture Ministry will have another
meeting on September 1 to assess the total domestic demand, prices and the estimates of
production so that the Government can figure out the quantity that can be exported, he said.

“Later when you get a much more reliable figure of cotton crop, then we will decide on how
much will be exported,” he said, adding that cotton exports will continue unrestricted till it
reaches the amount that can be exported.

“When it (cotton exports) starts getting close to that (amount that can be exported), which is
some time in the next year, then we will levy an export duty,” he said.

The current export restrictions are essentially till September 30.

The Directorate-General of Foreign Trade had, on May 21, moved cotton exports from “free”
to the “restricted” list, with shipments being permitted only against licence.

Even prior to that, on July 22, 2008, the DGFT had stipulated that all export contracts be
registered with the Textile Commissioner prior to shipment.
On April 19 this year, the Textile Commissioner announced a suspension of registration of all
export contracts “till further orders.”

Ban

The virtual ban on exports has come under attack for being against the interests of the
country's cotton growers.

Cotton exports have become highly attractive following a spurt in international prices. During
the 2008-09 season (October-September), 35.14 lakh bales valued at Rs 3,838.85 crore were
shipped out of the country.

In the current season till April 2010, 73.76 lakh bales have been exported of an estimated
total crop size of 292 lakh bales.

The surge in exports led to heavy lobbying by the textile industry, following which the
Centre clamped the restrictions on shipments.

However, according to a report by the International Cotton Advisory Committee, India's

cotton exports are likely to fall by 14 per cent to 1.2 million tonnes in 2010-11 marketing
year (October-September).

Local demand

Industry sources also say a major local demand would limit cotton exports in 2010-11.

The country's cotton production is likely to increase slightly at 5.1 million tonnes in 2010-11
as against the previous 5.01 million tonnes.

The domestic demand is expected to go up to 4.59 million tonnes as against the earlier 4.25
million tonnes.

La Nina may extend into early 2012, say Japanese experts

Vinson Kurian

Thiruvananthapuram, Aug 17

The prevailing La Nina condition would be more long-lasting than thought earlier and may
continue until early 2012, according to updated forecasts from the Tokyo-based Research
Institute for Global Change (RIGC).

Formerly called the Frontier Research Centre for Global Change, the RIGC is an affiliate of
the Japan Agency for Marine-Earth Science and Technology (Jamstec).

In an e-mailed communication, Dr Jing-Jia Luo, Senior Scientist at the Climate Variation

Predictability and Applicability Research Programme at RIGC, said that the La Nina has
continued to develop quickly in July.

Dr Jing-Jia maintained a watch for a fairly strong cold event to occur in the following
months, and peak around the end of 2010.

Associated with this strong La Nina influence, above-normal rainfall would continue over
East Asia, Indonesia, northern parts of South America, Australia, apart from India, even
going into winter. Dr Jing-Jia also did not find any reason to change the outlook for a colder
than normal winter for many parts of the globe, including in India. The only exceptions are
likely to be Europe, northern reaches of the Eurasian continent and south-eastern flanks of
North America.

Meanwhile, an outlook from the International Research Institute (IRI) at Columbia University
suggested that the wet weather over Tamil Nadu, Rayalaseema and adjoining Interior
Peninsula would persist until Friday.
Based on initial conditions obtained on Sunday, the IRI expected that parts of North-west
India – Central and West-central Rajasthan and adjoining Pakistan across the international
border – might continue to receive showers during this period.

RAINS FOR PAKISTAN

East, East-central and North-east Pakistan, with maximum exposure to the whims and fancies
of the rain-driving monsoon trough lying next door over India – that may act in concert with
the odd western disturbance — are expected to undergo another round of precipitation. Very
heavy rainfall has also been forecast over the entire western half of Nepal and adjoining
Uttarakhand and Uttar Pradesh, as the monsoon trough inches closer to lie along the foothills.
In fact, the India Meteorological Department (IMD) said in its updated forecast on Tuesday,
that the monsoon trough would shift closer to the foothills on Wednesday.

The last 24 hours, ending Tuesday afternoon, saw widespread rainfall occur over the West
Coast while it was fairly widespread over Lakshadweep, Madhya Pradesh, East Rajasthan,
Sub-Himalayan West Bengal, Sikkim, Assam and Meghalaya.

Satellite cloud imagery revealed the presence of convective (rain-bearing) clouds over parts
of Himachal Pradesh, Uttarakhand, the North-eastern States, East-central India and the plains
of Northwest India, Andhra Pradesh, East-central and South-east Bay of Bengal, South
Andaman Sea and East Arabian Sea.

RAIN ALERT

A heavy rainfall warning valid for the next two days said that isolated heavy to very heavy
rainfall would occur over Himachal Pradesh, Uttarakhand, Sub-Himalayan West Bengal,
Sikkim, the North-eastern States, Bihar, Uttar Pradesh, Konkan, Goa, Coastal Karnataka,
Kerala and Lakshadweep.

Outlook until Friday said that widespread rain or thundershowers would occur over Sub-
Himalayan West Bengal, Sikkim, the North-eastern States and the West Coast.

Fairly widespread rain or thundershowers have been forecast over the Western Himalayan
region, Punjab, Haryana, Chandigarh, Delhi, Uttar Pradesh, Bihar, Orissa, Lakshadweep and
Andaman and Nicobar Islands.

MORE TO COME

As mentioned earlier, the intensity of rainfall along the foothills of the Himalayas is expected
to scale up from Wednesday.
Extended forecast until Sunday (August 22) also spoke about the possibility of widespread
rainfall activity over Punjab, Haryana, Uttar Pradesh, Bihar, Sub-Himalayan West Bengal,
Sikkim and the North-eastern States.

‘Wheat export prospects exist'

Our Bureau

New Delhi, Aug 17

Even as the Food Minister, Mr Sharad Pawar, recently ruled out removing the ban on wheat
exports, the Commerce Ministry on Tuesday referred to the high international prices and said
the Government could consider allowing export of the commodity. India is the world's
second biggest grower of wheat.

“As of today, yes, domestic prices (of wheat) are lower than the international prices, so the
prospect of a commercial export exists,” the Commerce Secretary, Dr Rahul Khullar, told
reporters.

“The fact that you are sitting on a silo of wheat just means that yes, you can offload some of
it, depending on how bad the situation is for other wheat suppliers,” he said.

Mr Pawar had said there is no move to lift the ban on wheat exports as the priority was to
keep the domestic prices in check and to provide foodgrains to the poor at subsidised rates.

Huge stock

As on July 1, the country has a wheat stock of 33.58 million tonnes, which is nearly double
the buffer volume. However, there is a concern that there is not enough space for storage of
the grain.

The global wheat prices surged following Russia's (the third biggest producer of wheat)
announcement of a ban on grains exports in the wake of its worst ever drought in several
decades damaging its crops. Floods in Canada had also brought down wheat supply.

Besides, dry conditions in Europe and drought concerns in Kazakhstan have also hit global
supplies of wheat. Ukraine is also planning restrictions on wheat export.

Dr Khullar said, “The question to be asked today is how much further will they (global wheat
prices) go up given what is happening in Russia, Ukraine and Canada.”
India's wheat production was a record of 80.71 million tonnes in the 2009-10 crop year
ending June, as against last year's 80.68 million tonnes.

Wheat exports were banned in early 2007, while the import of the item was made duty-free to
boost its availability in domestic markets. To meet its buffer stock requirement, India
imported nearly seven million tonnes of wheat in 2006 and 2007.

Kerala leads major increase in area under certified coffee

Targets small, big growers shifting to sustainable cropping practices.

 
The robusta-growing Wayanad region accounts for most of this year's increase in acreage
under certified coffee.

A. Srinivas

Bangalore, Aug. 18

Area under ‘certified' coffee, that is, coffee certified by certain international agencies to have
been produced in environmentally sustainable and labour-friendly conditions is slated to
increase by at least 7,000 acres in 2010-11, from the present level of about 50,000 acres .

The robusta-growing Wayanad region in Kerala accounts for most of this year's increase in
acreage under certified coffee.

It is reliably learnt that the ABC Group plans to bring 2,000-2,500 acres under UTZ Certified
this year – 1,600 acres in Kerala and 600-700 acres in Karnataka. It has about 6,000 acres
under certified coffee plantation.

Target groups
The target group consists of both small and big growers, who are shifting to sustainable
cropping practices. “Kerala offers an advantage because big and small growers comply with
labour norms,” industry sources said. The Group has reportedly fixed an October deadline for
getting these areas certified, a process that takes about nine months.

Mr Vasudeva, Quality Manager, IMO Control, a firm that audits farms on behalf of
certification bodies, said: “The time required for the grower to prepare his estate could be
three to six months for UTZ and Rainforest Alliance. To get the estate certified as Organic, it
will take about three years of conversion period. Certification process could take three
months from the date of inspection.”

Officials in ECOM Gill, a Swiss-based export house, said the company was organising 3,000
small growers, each holding one or two acres, into ‘groups' in the Wayanad region of Kerala.
In the process, an additional 5,000 acres is likely to come under certified coffee this year. By
forming groups, the cost of certification would come down, even while covering a large area
in the process, they said.

The other major export house, forming small and medium growers into groups, is Ned
Commodities (Netherlands-based). These export houses have undertaken to bear the cost of
certification, an annual procedure, in the first two or three years. The group certificate is
generally issued by audit firms — empanelled by UTZ, Rainforest, Fair Trade or Organic – in
the name of the export house.

Contract

Industry sources said the growers and export houses enter into a contract of “first preference
of sale at a mutually agreed price”.

Mr M.P. Devaiah, General Manager, Allanasons Ltd, said: “The certificate should go to the
grower and not to the export house. If the others are willing to offer a higher price than the
export house, they should get the certificate as well. Otherwise, there is no point buying that
coffee. In the process, the growers' option to sell to other parties is also curbed. I have taken
up the issue with the Coffee Exporters' Association.”

However, Mr Bose Mandanna, former Vice-Chairman, Coffee Board, and a grower of

certified coffee as part of a group scheme, said: “If the certificate is freely transferrable, it
may discourage export houses from bearing the costs. Growers cannot pick up the tab.”

The Coffee Board officials said that the cost of certification in the case of Rainforest Alliance
was $5 a hectare ($2 an acre) for small farmers and $7.5 a hectare ($3 an acre) in the case of
large farmers. In the case of UTZ, the cost of the certificate is a flat Rs 1,000. In both cases,
the charges for audit and travel are separate.

The Coffee Board officials said that international auditors could charge about $800 per man
day.

As a result, Indian auditors have entered the field on behalf of UTZ, Rainforest and others,
offering their services at lower rates.

An ECOM official said: “To get both Rainforest Alliance and UTZ certification over a 100-
acre holding may cost Rs 1-1.5 lakh, depending on auditors' fees.”

Ned Commodities is estimated to procure 4,000 tonnes of certified coffee in 2010-11, up

from about 3,000 tonnes last year, while ECOM Gill may make available close to 2,000
tonnes.

Nabard to support rural tourism, IT parks in Kerala

For inclusive growth

Working on strategy to bring private banks, NBFCs into mainstream of development

economy

Our Bureau

Thiruvananthapuram, Aug. 18

The National Bank for Agriculture and Rural Development (Nabard) plans to promote rural
tourism in Kerala in what is a fresh area of financial intervention, says Mr K.C. Shashidhar,
Chief General Manager, Nabard-Kerala and Lakshadweep.

He said this while making a presentation to members of the Trivandrum Management

Association (TMA) on ‘Role of Nabard in the economic upliftment of Kerala'.

RURAL HOME STAYS

Nabard is especially interested in supporting rural home stays through the banking sector.
It is also tracking natural resource management with a project in Wyanad with an outlay of
Rs 9 crore.

In tune with the changing patterns of rural living, Nabard has also started looking at IT parks,
anganwadis and rural markets as prospective areas of activity.

The apex agricultural bank has also plans to support corporate social responsibility initiatives.

It is working on a strategy to bring private sector banks and non-banking financial companies
(NBFCs) into the mainstream of the State's development economy by prompting them to
enter microfinance, Mr Shashidhar said.

JOINT LIABILITY

With a view to promoting more activity-based empowerment and thereby welfare of the rural
folk, Mr Shashidhar said that Joint Liability Groups (JLGs) will be given priority for
financial assistance.

Nabard has advised banks and NGOs to form at least 15,000 such JLGs during this fiscal in a
bid to promote the benefits of microfinance to newer segments.

The bank intends to leverage more on the strengths of information and communication
technologies (ICT) for agriculture and farmers' welfare, he said.

Village knowledge centres will be established to facilitate farmer access to several facilities
on offer from Governments from time to time.

A credit counselling centre will be set up at a district cooperative bank, which would be the
first of its kind in the State.

DEPOSITS SCENARIO

On deposits scenario in the State, he said deposits with commercial banks in the State,
including RRBs, crossed Rs 1.5 lakh crore by March 2010.

In the cooperative sector, primary agriculture cooperatives have a deposit base of Rs 21,000
crore; the district cooperative banks Rs 12,000 crore; and the State Cooperative Bank, Rs
7,000 crore.

The State now enjoys a credit-deposit ratio of 70 per cent, with total outstanding loans of Rs
1 lakh crore.
Retail rip-off in pulses
G.CHANDRASHEKHAR

Retailers are quick to raise prices when wholesale rates move up, but seldom reduce the
price with the same alacrity when wholesale rates decline.

 
Retailers are often loathe to changing the price tags.

Pulses prices have remained stubbornly high. Higher minimum support price (MSP) has of
course set a benchmark for the open market. In the last three years, MSP for urad was raised
by Rs 12,000 a tonne and for arhar/ tur by Rs 14,500. Higher MSP has surely benefited
growers by raising their incomes; but it has not benefited crop growth or consumers.

In recent years, rising demand unmatched by supplies has been a major reason for the rise in
pulses prices. Additionally, last year's bad monsoon hurt domestic grains output and
worsened the supply situation. Policymakers have no clue about what's going on in the
marketplace. Their inaction has in fact precipitated the crisis. The failed role of public sector
enterprises in pulses import is a case in point.

‘Risk premium'

With retail prices of various pulses at unaffordable levels, consumers are taking a beating.
The domestic market is subject to global price dynamics as well. Overseas suppliers usually
inflate their offer once Indian market conditions and import needs are known. Also, owing to
uncertainties in dealing with India (counter-party risk, fumigation issue, phyto-sanitary
clearance, and so on), exporters usually add a ‘risk-premium' of, say, $25-50 a tonne, for
contracting with Indian importers.
But the market fundamentals do not justify three-digit retail prices for some of the pulses.
There are serious flaws in the pulses supply chain that have to be addressed urgently. The
price trend of different pulses has been mixed in the last one year.

In the last one month, international prices have fallen by about $100 a tonne because of the
ongoing South-West monsoon and improving kharif crop conditions in India. We looked at
the prices of three major pulses — arhar/ tur (pigeon pea), urad (black matpe) and moong —
during June-July. From the peak of $1,100 a tonne in 2009, arhar/ tur prices have fallen to
about $900 a tonne for whole tur Burmese origin, and for East African origin the current
price is around $650 a tonne cif (cost insurance freight).

In the wholesale market, the pulse was trading at about Rs 36,000 a tonne early August. After
adding milling cost (20-30 per cent processing loss, covering splitting, cleaning, and so on),
transportation charges, brokerage, etc., the cost price of dal (milled pulse) works out to about
Rs 55,000 a tonne.

In the case of urad, international prices have spurted from $650-750 a tonne this time last
year to $1050-1200, depending on quality. Wholesale rates recently have been in the Rs
52,000-57,000 a tonne range. After processing, the cost price of urad dal comes to Rs 65,000
a tonne.

Like urad, moong too spurted from $800 a tonne to a peak of $1,400 in May, after which it
has moved down to $975 a tonne. Given varietal differences, moong is trading at Rs 55,000-
60,000 a tonne, with milled quality quoting at Rs 70,000 a tonne.

High margin

Far from ending, the story of elevated pulses prices actually begins here. Traders and
intermediaries assert that there is currently a price disparity in pulses import and that the
wholesale rates are occasionally lower than the import parity. Currently, the wholesale
market is facing a slowdown in off-take, dealers complain. Why then should consumers pay
Rs 100 a kg? There seems to be a big rip-off at the retail level. There are an estimated 10,000
dal mills in the country that process both domestic and imported whole pulses and convert
them into ready-to-consume dals.

The goods travel from producing centres or ports to dal mills from where they move (after
processing) to wholesalers and then on to the retailers. It is here that the price action kicks in.

There has always been a huge difference between the factory-gate price of dal and the retail
rates; but the difference has accentuated in the last two years for a variety of reasons. Retail
margins are as high as 20-30 per cent. While the wholesale market takes quick cognisance of
changes in market conditions (say changes in international prices or the size of domestic
output), retailers are often loathe to changing their price tags.

Traders this correspondent spoke to were categorical that retailers are quick to raise prices
when wholesale rates move up; but seldom reduce the price with the same alacrity when
wholesale rates decline. To test this, we went to a couple of kirana stores in downtown
Mumbai where tur dal is sold at Rs 75-80 a kg and moong, at Rs 90 a kg (having fallen from
Rs 100/kg a couple of months ago). Imported yellow peas are the cheapest, at Rs 45 a kg. A
non-premium pulse in the global market, the import prices of yellow peas have remained
largely steady or moved in the $300-340 a tonne range in the last one year. India imports
large quantities of this low-priced pulse.

According to traders, yellow peas can be consumed as whole or as dal (split form). The
wholesale rates are currently Rs 16,700 a tonne (having gone up in the last few weeks from
Rs 14,000 a tonne) and dal is offered at Rs 23,000-24,000 a tonne. It was a shocking
revelation that retail price of yellow peas in Mumbai was Rs 40-45 a kg, far above what the
usual costs would justify. “Considering all costs, there is absolutely no justification for
yellow peas to retail at anything above Rs 30/kg,” lamented a trading house executive.

Strict monitoring?

While it is well-known that pulses supply chain is far from efficient — too many
intermediaries adding too little value — at the retail end there is enormous profit to be made
by simply ignoring changes in the wholesale market and sticking to the same (usually higher)
price until stocks last or consumers stop buying.

Does this call for strict monitoring of retail trade? Should restrictions on storage and trade
margins be imposed? Opinions differ. But it is clear, if retailers shed their greed and work on
reasonable margins, pulses prices have the potential to decline by at least 20 per cent from the
current levels. This will bring substantial relief to consumers. Are the policymakers listening?

Towards inclusive growth?

Alok Ray

In terms of the Human Development Index, India's relative ranking has worsened, whereas
that of China and even Bangladesh has improved.
  
There is noevidence of a larger reduction in poverty in the post-reform period

Alok Ray

The theme of the Eleventh Plan (2007-12) and beyond is “faster and more inclusive growth”,
meaning that the benefits of faster economic growth should reach a much higher number of
poor and disadvantaged people. But how “inclusive” has been the Indian growth story so far?

There is no single measure by which one can judge inclusiveness. However, several human
development indicators, taken together, give some broad idea about the performance on
“inclusiveness”.

HDI rankings

For example, in terms of country ranking by Human Development Index (HDI) — a

composite measure of achievement in health, education and standard of living — India stood
at 128 out of 177 countries in 2005 (124 in 2000). China's position was 81 (96 in 2000) and
Bangladesh ranked 140 (145 in 2000). The disturbing fact is that India's relative ranking is
worsening, whereas that of China and even Bangladesh has been improving over the same
period.

According to the latest available World Bank indicators, in 2007 the adult literacy rate for
India is 66 per cent against 93 per cent for China and 92 per cent for Indonesia.

Life expectancy at birth for India (2007 data) is: 63 (male) and 66 (female). For China, the
corresponding figures are 71 and 75. The infant mortality rate per 1000 for India was 52, as
against 18 for China and 18 for Brazil. In terms of malnutrition (underweight) among
children under five years of age, India's figure (2006) is 43.5 per cent against 41.3 per cent
for Bangladesh, 2.2 per cent for Brazil, 32.8 for Somalia and 31.7 for Sudan.

On the basis of international poverty line of $1.25 a day, the poverty ratio (per cent of people
below the poverty line) was 49.4 for India in 1993-94. After a decade (in 2004-05), it became
41.6 signifying a 7.8 percentage point improvement over a decade. By contrast, China's
poverty ratio was 28.4 in 2002 and 15.9 in 2005. So, poverty in China went down by 12.5
percentage points in just over three years.

However, the picture on inequality is different. The Gini Index (a measure of inequality in
distribution of income or consumption) was 32.5 in India in 1999-00 while it was 44.7 in
China in 2001. So, India has far lower income/consumption inequality than China.

One area of major concern is job creation — which is the primary mechanism of inclusion of
more people in economic prosperity — has been slowing down in the post-liberalisation era.
Employment growth fell sharply in the post-reform years, from 2.6 per cent per annum over
1983-1993 to 1.2 per cent over 1993-2000.

The fall in employment growth rate was specially concentrated in agriculture and the
organised sectors (particularly in the public sector). This trend has been reversed to some
extent as the latest available National Sample Survey (NSS) data show employment growth
during 2000-05 was 2.7 per cent per annum.

But, then again, the growth in jobs has been mostly concentrated (about 87 per cent) in the
unorganised sector. How about the trend of poverty reduction over time? In a very recent
paper, World Bank economists Ravallion and Datt (2009) argue, on the basis of consumption
distribution data over a 50-year period (1956-2006), that that there has been a faster reduction
in headcount poverty in the post-reform period compared to the pre-reform era (until 1991).

But in terms of other measures (like poverty gap) that gives greater weight to the gains of the
poorest, there is no evidence of a larger reduction in poverty in the post-reform period,
despite a higher growth rate.

The possible implication of these findings is that the gains from high growth in the post-
reform period are going more to the officially poor, but not particularly to the miserably poor
or the poorest.

Further, in contrast to the pre-reform period, the post-reform process of urban growth has
brought significant gains to both urban and rural poor, while inequality (Gini) has increased
in both urban and rural areas.
Urban-rural divide

Interestingly, however, a recent National Council of Applied Economic Research study using
2004-05 data for the BPL (Below Poverty Line) families find 30.3 per cent of urban ‘poor'
own a colour TV, 24.9 per cent own a two-wheeler, 10.5 per cent a refrigerator and 55.6 per
cent a pressure cooker. The corresponding figures for the rural poor are much lower — 6.3
per cent, 9 per cent, 0.9 per cent and 18.6 per cent, respectively.

Such studies underline that poverty (and its manifestations in various forms) is much more
concentrated in the rural areas of some specific States and regions within the States.

At the same time, all the official ‘poor' in India are not necessarily the destitutes that we
usually associate with the term ‘poverty'. There was no question of a ‘poor' family owing a
colour TV set or a refrigerator some 15 years back.

Overall, though the picture is still pretty bad (especially on malnutrition and child mortality),
absolute poverty (in the sense of utter destitution) is now mostly concentrated in a few
pockets (like the remote tribal belts) where the benefits of growth and development have not
yet percolated.

The Government's limited resources should best be focused on the development of

infrastructure and connectivity in a time-bound manner for such areas. In view of the growing
Maoist menace, this would be both good economics and good politics.

Rotting foodgrains: House panel pulls up FCI

Critical of the ‘lackadaisical manner of handling the issue' by Govt'.
– Kamal Narang 

 
Wheat stocks from last year's crop at Karnal mandi in Haryana (file photo).

Our Bureau

New Delhi, Aug. 21

A House panel has pulled up the Food Corporation of India (FCI) and the Government for
letting a large quantity of foodgrains lying in open and letting them rot, especially “in a
country where incidents of hunger and malnutrition are still reported.”

In a report on food subsidy and its utilisation, tabled by the Chairman of the Standing
Committee on food, consumer affairs and public distribution, Mr Vilas Muttemwar, in
Parliament on Friday, the Committee criticised the “lackadaisical manner of handling this
issue by Government/FCI.”

Even as the Plan panel has liberally allocated huge funds to FCI for construction of godowns
every year, a large quantity of foodgrains is destroyed for want of adequate covered capacity
of godowns in the procuring States, it observed.

New strategies needed

It also faulted the recommendation of the High Level Committee (HLC) of FCI which gave
its nod for construction of storage godowns for a capacity of 127.65 lakh tonnes in various
parts of the country with a major part being in the granary States of Punjab and Haryana as
being “not practical due to the very high cost of land in these States.”

It called for a different approach in these twin States which are the major wheat and rice
producing States and where the problem of storage supervenes every year. It asked the Food
Ministry to create storage capacity in these States and also in other States where non-
cultivable land is available in a decentralised and time-bound fashion by using the modern
scientific technology.

Storage, transit losses

Estimating the storage losses of foodgrains at Rs 228.39 crore and transit losses another Rs
182.46 crore in 2009-10, the Committee said that due to poor maintenance of godowns, a
large quantity of valuable foodgrain is lost every year. The Committee did not accept FCI's
alibi that physical verification of the depots with a capacity of 10,000 tonnes in a year and
depots with less than 10,000 tonnes capacity once in two years could not be conducted due to
the shortage of manpower.

It said such physical verification is “very essential which should be conducted frequently so
that any damage to foodgrains from insects, rats, moisture could be detected timely.”

Poor data on poverty

Even as the food subsidy has ballooned from Rs 31,260 crore in 2007-08 to Rs 68,198 crore
(budgeted) in 2010-11 due to the widening gap between minimum support price (MSP) and
central issue price of wheat and rice purveyed to Antyodaya Anna Yojana (AAY), Below
Poverty Line (BPL) and Above Poverty Line (APL) families, the Committee was surprised to
note that the Government has no “updated data of the population living below the poverty
line”.

Though poverty estimates had been made by other committees such as Arjun Sengupta
Committee, Saxena Committee and Tendulkar Committee, the requirement of foodgrains and
subsidy is still decided on the basis of survey made by the Planning Commission, which is
the lowest poverty estimate in the country based on poverty estimates of 1993-94.

Even as the Government was working on a National Food Security Bill, which is “obligatory
on its part to provide a minimum food security to all,” it should work on revising poverty
estimates based on the present day wage and expenditure level to determine the number of
AAY and BPL families.

In this context, the House panel said bluntly that “the distribution of foodgrains at subsidised
rates involving huge public expenditure would be a futile exercise until and unless the
benefits of targeted public distribution system (TDPS) reach the poorest of the poor.”

Taking a dig at the drive to eliminate bogus ration card without ensuring that no eligible
applicant was denied a ration card, the Committee quipped wryly that “since July 2006 the
government has detected 174.10 lakh bogus/ineligible ration cards from 23 States but they do
not have the data of poor persons who have not been issued the ration card.”

Panel wants Customs duty cut on rubber imports

Suggests duty of Rs 20.46/kg or 20 per cent.

The ultimate objective of fixing the cap would be to harmonise the domestic rubber prices
with international prices.
C. J. Punnathara

Kochi, Aug. 20

The Government-appointed panel to look into the problems of the rubber industry has
recommended that the Customs duty on natural rubber imports be brought down to either Rs
20.46 for a kg or 20 per cent, whichever is lower. This comes as a major relief to the
consuming industry which has seen a widening divide between the Indian and international
price of natural rubber.

The duty of Rs 20.46 for a kg was arrived at by calculating the last three-year average price
of natural rubber in Indian markets, which worked out to Rs 102.32 for a kg. As the price of
natural rubber soared in the Indian and international markets, the industry was constrained to
pay as much as Rs 30-32 for a kg. As the Customs duty continued to remain at 20 per cent, it
had hampered imports which resulted in differentials between Indian and international prices
widening to as much as Rs 30 for a kg.

The cap on non-ad valorem duty shall be subjected to annual revision based on the trends in
natural rubber prices, production, consumption and external trade in rubber and in rubber
products, the panel has recommended. The ultimate objective of fixing the cap would be to
harmonise the domestic rubber prices with international prices and would be fixed only if the
average price in the domestic market remained higher than that of comparable grade in the
international market.
Prices

The panel was of the opinion that minimum and maximum price for natural rubber shall not
be notified except in an emergency situation as they cannot be enforced without infringing
upon the commitments of the Government of India under the WTO agreement. The demand
for banning futures trade in rubber also did not find favour. But it was thought prudent that
the Forwards Markets Commission be directed to re-examine the Daily Cap. On the question
whether the rubber cess should come under Cenvat, the panel left the final decision to the
Union Ministry of Finance.

The panel which was headed by the Rubber Board Chairman, Mr Sajen Peter, and had expert
members as well as a nominee from the Forward Market Commission, was concerned about
the rubber consuming units in the country. However, the market for natural rubber had a
handful of major tyre manufacturing units dominating the purchase side and numerous
marginal/small farmers on the supply side.

Withheld stocks

While powerful sections of the consuming industry had been reportedly influencing rubber
prices earlier, the current complaints have been that the producers and traders have been
withholding stock to jack up prices. It was in this background that the panel felt that some
sort of tariff concessions should be accorded to the rubber consuming industry at least on an
ad hoc basis. This, it was believed, would lead to greater harmonisation and integration of
domestic and international prices of natural rubber.

The integration of rubber market with the world market which culminated in the lifting of
quantitative restrictions in April 2001, led to the harmonisation of the Indian and international
prices of rubber.

During the 1980s, domestic prices on an average were about 50 per cent higher than
international rubber prices. However, the higher domestic rubber prices could be absorbed by
the Indian industry by virtue of the domestic market orientation and protection from external
competition.

This changed dramatically by 1990s when domestic prices ruled just 6.5 per cent above
global prices. Even that trend was reversed during the current decade when domestic prices
were lower by 2.8 per cent from global prices. The panel felt that the time had come bring
non-advalorem duty as the protection extended to the domestic rubber manufacturing
industry has been substantially eroded and the sector has to face intense competition
especially from Chinese manufacturers.
N-E monsoon also may benefit from La Nina

Vinson Kurian

Thiruvananthapuram, Aug 20

International Research Institute (IRI) at Columbia University sees 96 per cent chance of La
Nina conditions persisting through August to October this year.

In updated seasonal forecasts on Friday, the IRI assessed almost similar probability (95 per
cent) of these conditions extending into November and December.

NORMAL MONSOONS

The IRI found elevated probabilities of the La Nina favourably impacting not just the
ongoing south-west monsoon but the subsequent north-east monsoon as well.

As for expected rainfall trends for September-October-November, the IRI assessed as high
the probabilities for excess precipitation for the entire western half of the country except the
south-west Coast and North India (Jammu and Kashmir, Punjab, Haryana, Himachal Pradesh
and Uttar Pradesh) where it would be normal.

WET NORTH-WEST

During October-November-December, the north-west is expected to see the advent of the

seasonal winter with a largely normal rainfall pattern.

Going into the December and January, the IRI sees elevated chances of Central and East-
central India going through a lean phase in terms of recorded rainfall.
Meanwhile, India Meteorological Department (IMD) has indicated on Friday that the rainy
weather over north-west India could sustain with more helpful atmospheric dynamics being
thrown in.

Active convection and surplus moisture available is now expected to spin up a land-based
low-pressure area, rare but not improbable, over West Uttar Pradesh by Monday.

A western disturbance is also forecast to enter the region subsequently, which could intensify
the rainfall over the Himalayan foothills in Uttar Pradesh.

A causative upper air cyclonic circulation has been hanging in over West Uttar Pradesh and
neighbourhood over the past few days.

HEAVY RAIN

An IMD update said that the last 24 hours ending Friday afternoon saw widespread rainfall
being reported from Himachal Pradesh, Haryana, East Rajasthan, North Madhya Pradesh,
Sub-Himalayan West Bengal, Sikkim, the North-eastern States and the West Coast.

It was fairly widespread over Jammu and Kashmir, Uttarakhand, Uttar Pradesh, Jharkhand,
Gangetic West Bengal, Orissa, Marathwada, Vidarbha, Telangana and Interior Karnataka.

A satellite cloud imagery showed the presence of convective (rain-bearing) clouds over many
parts of the country (outside Jammu and Kashmir, Gujarat, Mizoram and Tripura), South Bay
of Bengal, Andaman Sea and East Arabian Sea.

CYCLONIC WHIRL

An upper air cyclonic circulation has been traced to over Rayalaseema and neighbourhood
and which has been spearheading precipitation over the Southern Peninsula.

A rain alert valid for the next two days said that isolated heavy to very heavy rainfall would
occur over Himachal Pradesh, Uttarakhand, the Jammu division of Jammu and Kashmir, Sub-
Himalayan West Bengal, Sikkim, Uttar Pradesh, Bihar, East Rajasthan, the north-eastern
States, Coastal and South Interior Karnataka and Kerala.

Forecast valid until Monday spoke about the possibility of widespread rain or
thundershowers over Himachal Pradesh, Uttarkhand, Sub-Himalayan West Bengal, Sikkim,
the north-eastern States and Coastal Karnataka.

FAIRLY WIDESPREAD
Fairly widespread rain or thundershowers would occur over Jammu and Kashmir, Punjab,
Haryana, Chandigarh, Delhi, East Rajasthan, Uttar Pradesh, Bihar, Jharkhand, Madhya
Pradesh, Konkan, Goa, Kerala, Interior Maharashtra, Interior Karnataka, Lakshadweep and
the Andaman and Nicobar Islands.

Extended forecast until Wednesday said that widespread rainfall would occur over Sub-
Himalayan West Bengal, Sikkim, Bihar, Uttar Pradesh, Haryana, East Rajasthan,
Uttarakhand, Himachal Pradesh, the north-eastern States, Coastal Karnataka and Kerala.

Pulses drop on fall in imported seed prices

Our Correspondent

Indore, Aug. 20

Pulses continued to witness a downtrend with a fall in domestic demand in the upcoming
festival season. Downtrend in prices of imported pulse seeds has also contributed to the
decline in its prices.

Among pulses, the major fall was witnessed in moong dal. Its prices at the Indore mandi on
Friday quoted Rs 700 less at Rs 5200-5300 a quintal. Chana dal witnessed a decline of Rs 25
at Rs 2650-2675 a quintal, masor dal quoted at Rs 3800-3850, also down Rs 25. Tur dal
(markewali) quoted Rs 100 less at Rs 6100, while urad dal also quoted Rs 100 less at Rs
5600-Rs 5700 a quintal.

At the Mumbai port, tur (lemon) quoted at Rs 3650 a quintal, peas (matar) – Rs 1671 and
Australian gram quoted Rs 2265 a quintal. WiThe Indore mandi on Friday witnessed an
arrival of around 1,300 bags of new moong and it was sold down Rs 500 at Rs 4,000-Rs
4,500 a quintal. Chana raw (kanta) also witnessed a decline at Rs 2200-Rs 2210 a quintal,
down Rs 10.

MPs' pay and Barber's Paradox

There may be room for pruning expenses on MPs, but the majority of them are, in fact, not
very rich and do need the increase in remuneration.

It is now four years since MPs' salaries were increased. So it is good that the manufactured
controversy over MPs' salaries has been laid to rest with the Government deciding to increase
their pay from Rs 16,000 per month to Rs 50,000 per month. The Bill is likely to face
opposition from a few MPs who want the pay to be Rs 80,000. The constituency allowance
will be raised to Rs 40,000, which means that after the hike comes through, an MP will be
left with about Rs 70,000 per month after tax from which to meet all of his or her day-to-day
expenses. Contrary to public perception, the vast majority of MPs are not very well off.
Despite that, they have to bear huge day-to-day costs in feeding and housing constituents who
turn up in Delhi seeking help for one thing or the other — including, in most instances, the
return fare back home. It is not uncommon for an MP to have to feed as many as 50-100
people everyday, even if it is only tea and bread or biscuits for the majority of them. One only
has to talk to some of the MPs' wives to see how parlous the finances of many of them are,
even if one takes into account the allowance for attending Parliament, which will be doubled
to Rs 2,000 per day. This sounds like a huge sum but Parliament is in session, on average, for
150 days in the year while most MPs spend around 200-250 days in Delhi. Objections have
been raised that there are far too many perquisites and that they cost too much, especially the
34 air tickets every year to visit the constituency. Perhaps there is some room for pruning
here but, as stated earlier, one has to keep in mind the fact that the majority of MPs are not
very rich and that they do need this increase in remuneration.

There are two far more pertinent questions that need discussion. The first is why their parties
— a select few of which make crores through corruption — do not subsidise them. The
second is why there is no performance criterion. Ideally, if such a criterion were introduced
— not just attendance — and linked to the payment to be made by the party, it would
improve the incentive structure for parties, which get away scot-free at present. This would
ensure an altogether better outcome for all concerned — except the party bosses, who often
don't make a distinction between personal and party funds.

The only problem with all such suggestions is that they fail the test of the Barber's Paradox,
first postulated by Bertrand Russell — namely, in a village where the barber shaves only
those who do not shave themselves, who will shave the barber?

Inflation: God, give us enlightenment

S. Balakrishnan

Everyone is exercised about inflation.

But what's so bad about it? Or, what's so good about zero inflation? (Economists of all hues,
it seems, draw the line at deflation, i.e., falling prices.)

To take the first question, it's not as if there's no growth, only inflation. As is well-known, the
Indian economy is in the neighbourhood of double-digit growth for some years now. So
inflation hasn't eaten away growth. Even after reckoning the general increase in prices, the
average household is far better off than what it was a decade ago.

Of course, those on fixed (i.e., non-inflation indexed) incomes see purchasing power being
eaten away. The vast majority doesn't belong to this category and aren't complaining.

This doesn't mean we should turn a blind eye to inflation. There's no doubt inflation
psychology and inflation expectations are extremely damaging. For one, they encourage
buying in excess of current requirements and, worse, hoarding. Spot prices rise, adding to
inflation, because of speculative activity in the market, not because of an increase in real
demand and consumption. Low interest rates make speculation a riskless bet.

The primary job of a central bank is, therefore, to make threatening noises about inflation and
to carry out its threats if the situation is getting out of hand – loosely termed ‘staying ahead of
the curve'.

Of course, growing incomes and wealth cause excess demand. Fortunately, supply responses
have been quick. Trade liberalisation has helped enormously. The surprise – and lesson – for
central banks, especially in emerging economies, is that inflation has remained relatively low
despite rapid growth.

What is significant is that the ratio of liquidity to GDP has gone up significantly with no
adverse consequences for prices. This is true of the rich G-7 as well, which are benefiting
from the low wage centres of the emerging and poor economies.

New forces are at work in what could even be called a ‘liquidity explosion' – the financial
sector. In another dimension and as is common knowledge now, the balance sheets of
financial institutions have grown disproportionately, compared to GDP for at least the last
two decades – exactly the period in which inflation has been very well behaved. Anyone still
for monetarism?

The sharp jump in asset prices is a natural outcome of the extraordinary growth in liquidity
and subdued ‘conventional' inflation.

Lots of known and unknown variables, relationships and factors are at play in determining
growth and price behaviour in goods and asset markets.

Central banks can't play God with just money and interest rate tools.

Women, maths and the socio-cultural equation

M. Somasekhar

Hyderabad, Aug. 20

Does maths continue to be dominated by men? All the seven top prize winners at the
International Congress of Mathematicians 2010, world's biggest once-in-four-year
congregation of mathematicians, now on in Hyderabad, are men.

Gender need not differentiate the capability in maths, but it has more to do with the socio-
cultural realities, asserted Prof. Ingrid Daubechies. Incidentally, she is the first woman to
head the International Mathematical Union (IMU) and was elected at the body's meet in
Bangalore on August 16-17 for 2011-14.

There is no reason why women cannot shine in this sphere. However, to fare well, one has to
disentangle oneself from mundane activities and devote time to ponder over maths problems.

Women can be creative in maths only if they organise their life in such a way that they have
more free time. It is more of a socio-cultural limitation, not whether you are a man or woman.
The number of women doing well in maths now is far greater than a century ago, but we need
to do a lot to help maths grow popular among women and in developing nations, says Prof.
Daubechies, who has the distinction of being the first woman professor of mathematics at
Princeton University and also the first woman to receive the National Academy of Sciences
Medal in Mathematics in 2000.

Too much is being made out of Vedic maths. There is neither enough proof about its
antiquity linked to the Vedas nor anything so profound as claimed, said Prof. M. S.
Raghunathan of the Tata Institute of Fundamental Research (TIFR), Mumbai.

In recent times, Vedic maths has been promoted with books and coaching across the country
and abroad. The opinion of the academic circles is divided. Prof. Raghunathan, who is
Chairman of the ICM-2010 Organising Committee, said any personal computer or a
calculating tool today can do the same calculation much faster. The proponents of Vedic
maths need to establish several things.

While India gave the world, the concept of ‘zero', which revolutionised maths, in the last 75
years no Indian has won the the Fields Medal (the Nobel of maths) that the IMU awards.

In over 3,000 years of history in mathematics, Indians from Bhaskara to Aryabhatta and
Bhaskaracharya to in modern times Ramanujan have made profound contributions that have
shaped the subject. However, in the 20 {+t} {+h} century, except for Ramanujan not many
Indians seem to have attained global fame.
S. R. S. Varadhan of Indian origin and formerly of the Indian Statistical Institute, Kolkata,
made a mark winning the Abel Prize for 2007. Similarly, M.S. Narasimhan, who retired from
TIFR, won the King Faisal Prize in 2006, perhaps auguring well for the beginning of the 21st
century for Indians.

Preparing the ground for meaningful CSR

Visibility, incentives and sensitising the public to the need for social initiatives can go some
way towards creating a culture of giving..
— D. Gopalakrishnan 

 
It's time for a spring-clean: Deloitte employees devote some time and effort to clean up
facilities at a hospital in Hyderabad as part of their CSR initiative.

K. Rajeshwari

Corporate India has grown exponentially in the last two decades post-liberalisation. But have
social initiatives taken by corporates grown alongside? No.

According to a report published by Karmayog in 2008, of the 1,000 largest companies in

India, around half do not undertake any kind of CSR whatsoever.

The best definition of CSR that I have come across is: ‘How companies manage business
processes in order to produce an overall positive impact on society.'

A tradition of ‘good karma'

Ironically, India has one of the world's richest traditions of CSR. The spirit of ‘good karma'
or ‘giving' is intrinsically built into our coding. Corporate India is no exception. The Birlas
and the Tatas are known to uphold the ideals of nation-building and trusteeship in their day-
to-day operations.

Dalmia Cement (Bharat) Ltd provided for the digging of bore wells in villages located in and
around its factory when it realised that the villages were dependent on the rains for their
water needs.

Public sector companies such as BHEL (Bharat Heavy Electricals Ltd), HDFC (Housing
Development Finance Corporation), NTPC and ONGC (Oil and Natural Gas Corporation)
have also led by example.

But in the current scenario, not many companies have adopted a systematic approach to CSR.
Of course, a handful of companies, including Dr Reddy's, Infosys, Ranbaxy, and Wipro, have
made contributions as well as reduced the negative impact of their products on the
environment.

The ground work

How could CSR in India reach the ‘tipping point'? How do we ensure that corporate top-line
growth goes hand-in-hand with CSR growth? This article aims to examine a few of the
factors that may need correction.

First, recognition of CSR initiatives is still below par. The media does not carry adequate
motivational stories in this regard. Given that CSR initiatives are aimed at contributing to
society, such initiatives deserve adequate visibility.

Second, there is inadequate incentive from the Government to pursue CSR. For instance,
there could be formal partnerships with local administrations, easy grant of 12A, 80G and
other fiscal incentives such as tax breaks. For example, ICICI Bank's Social Initiatives Group
(SIG) identifies and supports initiatives designed to break the cycle of poor health and
nutrition and ensures early childhood education as well as access to basic financial services.
All these get expedited when there is substantial Governmental support.

Sensitisation to CSR should be undertaken early on. For example, business schools should
include courses on CSR in their curriculum, creating awareness among students, thus, helping
them to incorporate CSR in their daily lives.

Fourthly, organisations should actively work to create awareness about their CSR activities
so that various parts of the ecosystem are kept in the loop. Apart from the Government that
can issue guidelines and incentives, NGOs can benefit from such information put out by
various companies. Increasing awareness of CSR initiatives could also lead shareholders and
investors to view this as one of the important criterion governing their investment decisions.
Last but not the least, the employees would themselves feel greatly motivated by the initiative
taken by their company. Also, it is increasingly being felt that the top talent in any company
stays with the company that does ‘meaningful' work — and CSR goes a long way towards
establishing that image.

Finally, helping an organisation identify a CSR initiative will go a long way in the company
adopting the same. The historical driver for CSR has been philanthropy or a sense of ethics.
But unless this ties in with the company's core skills and strategy and contributes to business
growth, it is not sustainable.

Peter Drucker spoke about this in his article on ‘Strategic corporate responsibility'. An
example of such an inititative is a company operating in the software sector engaging
unemployed rural women in transcription of documents; an extension of its skills being used
to create a business opportunity. This way, both the community and the company benefit.

Infosys is utilising its core competence in the area of technology for the larger good of the
community. Along with Microsoft, it launched a programme called Computers@Classrooms
in 1998-99 where it donated 1,185 computers to 435 institutions across India.

Infosys also works closely with the Government to conceptualise innovative ideas that have
resulted in bringing out three different plans aimed at eradicating poverty through
information technology. Similarly, every company has a cause that is close to its heart. The
key is to be able to find a synergy between the cause and its business skill enhancement.

To sum up, the following are some factors that will facilitate CSR from a corporate angle:

Media visibility of ongoing CSR

Government incentives

Sensitisation of the public from an early stage

A conscious awareness drive leading to transparent information availability

Help in identifying the right CSR initiative for the organisation

Nothing happens by chance — only by careful choice and planning. Therefore, for CSR to
cross the threshold and acquire scale in India, it is important that the spirit of social
responsibility is ingrained in the organisation. This process should be taken forward through
facilitators such as reward systems and review mechanisms that look at this area more
systemically. Such an approach could, over a period of time, change the gene of the
company. Corporate social responsibility would then move towards ‘continuous social
responsibility'.

Incredible India, incredible Indians

B.S.RAGHAVAN

About the incredible attractions of India as a tourist destination, there has never been any
dispute.

But I am not here to talk about the incredible India of tourist literature. India is incredible in
many other ways. Its complexities, its diversities, its lores and legends, myths and mysteries,
the seamless blend of the old and the new and the traditional and the modern, its numerous
languages, castes and communities, are all too well-known to be laboured.

The first incredible feat, unmatched by any other country within living memory, is its
blundering on as a ‘functioning anarchy' to be within the reach of the status of the largest
economy on par with, if not ahead of, China, Japan and the US. From one viewpoint, it can
be compared to the tortoise in the famous fable of the hare and the tortoise. From another, it
is more an elephant whose ponderous gait belies its innate agility and alertness.

unsung achievers

Then there are incredible stories of individual Indians. Here again, I am not thinking of those
in the big league — the likes of Swami Vivekananda, Rabindranath Tagore, J. C. Bose, C. V.
Raman or Ramanujan of yore, or the present-day colossuses of India Inc. or even of a
Shakuntala, the Mathematical wizard, a Mandolin Srinivas, Sachin Tendulkar or A. R.
Rahman. Any country is bound to have its share of prodigies and giants in various fields of
activity. No, where incredible India scores is in its crop of unhonoured and unsung achievers
and innovators.

To wit: S. R. Rao who restored Surat to pristine glory after the plague; J. Radhakrishnan who
stood four square against the ravages of tsunami in Nagapattinam and so impressed Bill
Clinton himself as to make him wish the young lad were in charge of Katrina; Sujatha
Rangarajan who invented India's electronic voting machine which has stood up to the doubts
voiced by its detractors; and many more heroes of their ilk.

But even of them I am not so very much in thrall. Rather, I am stunned by 15-year old
Mohammed Aamir who is doing his Ph.D. at the Indian Institute of Science, Bangalore.
I am clean bowled by that unlettered and unkempt 17-year old genius of the Mumbai slum
who fixed the Blackberry of the Editor-in-Chief of the Indian Express, Mr Shekhar Gupta, in
eight minutes flat when the brand's service centre had said it would take a week just to find
out what was wrong.

Topsy-turvydom

And I am absolutely knocked down by news of Mansukhbhai Prajapati, that incredible school
drop-out of Rajkot in Gujarat, who has won a National Award from the hands of the
President, and been hailed as a ‘true scientist' by Abdul Kalam, for his low-cost MittiCool
refrigerator made of clay which can store water, fruits and vegetables for eight days and milk
for one day, not to mention his other patents — water-filter, non-stick tava and pressure
cooker — all made of clay and available at a tiny fraction of the price of products of multi-
nationals.

There has, of course, to be a downside even in being incredible. Our scams, for instance, and
the ingenuity associated with them. And the incredible 70 lakh crore of rupees said to be
stashed in Swiss banks, the largest amount lying outside any country, among 180 countries of
the world.

The troubling topsy-turvydom which places India near the top in Transparency International's
ranking in corruption (where it should be bottom), and the bottom 128th among 159 countries
in UNDP's human development index (where it should be top) and 78th among 100 countries
in the Newsweek's ranking of best countries of the world based on five categories (education,
health, quality of life, economic competitiveness, and political environment) of national well-
being, while being reckoned as an emerging super-power!

Incredible India, incredible Indians!

Learning from Japan and China

ASHOAK UPADHYAY

With China overtaking Japan to become the second largest economy after the US, the world
economy undergoes its second shift in the balance of power after 1945. While the US has
since then continued to drive the world economy, the second level position has been an arena
of contention, the site of tacit battles over the most efficient route to high growth.

Soon after the war, the US aid helped both Germany and Japan get off the ground. German
industry and infrastructure was blown to bits by Allied bombing. Yet, the German miracle of
the fifties that took it to second position in the world was not surprising; it had been an
advanced economy before the War, thanks ironically to the ambitions of the Third Reich.
RISE AND FALL OF JAPAN

The Japanese economic miracle certainly was not par for the course. Its shattered economy
and its US-authored Constitution helped reconstruction, but in the late fifties and early sixties
the government laid the ground for the new model of “income-doubling” growth via the cosy
relationship between the government and industry, symbolised by MITI, Japan's Ministry for
International Trade and Industry, and the industrial conglomerates, the keiretsu.

Through the sixties the Japanese economy expanded. But it was the first oil shock of the
1970s that sparked off the economic miracle based on the dramatic surge in exports,
catapulting Japan over Germany's head to the perch of second most important economy after
the US.

With soaring fuel prices and calls for energy conservation, Japanese auto firms tapped the
Western consumer's urge for cheap and fuel-efficient cars.

At the same time, the Japanese art of miniaturisation — think of Bonsai — seemed the
answer to the immense possibility for a burgeoning consumer electronic market, till then used
to American and German clunky machines.

Japan's enormous success as an export-driven economy was predicated on specialisation in

technology-driven products from super-tankers to cars to computer discs. Its organisational
structure was unique too: MITI actively arbitrated to foster industrial conglomerates
underwritten by the banking system and the practice of “over-loaning”.

The hand-in-glove relationship between the government-as-MITI, banks and the keiretsu,
forged a formidable juggernaut for export-led growth for two decades to the early 1990s,
when the asset price bubble burst and led to Japan's protracted but inevitable journey into the
night.

CHINA'S APPROACH

China's ascent to its present position is also based on its enormous export earnings. But
unlike Japan it has not specialised in technology-driven exports; it focuses on everything. It
attracts very cheap labour into the Special Economic Zones, the epicentre of growth, with all
of them strategically located along rivers or in coastal areas.

In the process, China was able to bypass the accumulated backwardness of its vast hinterland,
its low purchasing power, and ship everything it produced to America and Europe, from latex
gloves to computer chips and Madras bleeding shirts — in the millions.
But unlike Japan, that remained an obstinately closed economy to imported goods and
investments, China welcomed both so much so that it is now the largest importer of cars.
Companies couldn't wait to get in fast enough to its coastal belts for the cheap labour
flooding in from the countryside and the ready infrastructure.

And unlike Japan's cosseted keiretsu, China has created a form of state capitalism to forge its
global outreach for both exports and imports of raw materials, especially metals and oil.

While the rest of the advanced world spun into recession and commodity prices fell, China
went shopping for cheap commodities to drive the next round of trade; in the bargain it
earned itself immense goodwill because it had shored up commodity-exporting nations.

CANNOT REPLICATE MODELS

Should India emulate China's model of growth as it thought it could Japan's some decades
ago? Could it? Taiwan and Korea may be the only carbon copies of the Japanese path to
prosperity, and, it must be said, to a bust from which Japan never recovered. The East Asians
are recovering, but gingerly.

History shows that the emulative approach has limited value for an aspiring society; it
ignores the heterogeneity of institutions and mechanisms in different societies and the
unstated fact that most radical reformers never break completely with their own past.

China relied on Japanese finance, not on its form of state mediation and private
conglomerates; Americans gave the Japanese a new Constitution and plenty of funds, but not
its MITI-created nexus between the keiretsu and almost every other constituent of the
economy.

India's own history will not allow China's state capitalism or its ability to grant economic but
not political freedom, and not given its anarchic democracy. At best it can and must learn
from the undesirable consequences of both Japan and now China's neon-lit growth.

It can avoid emulating precisely the kind of institutions and mechanisms that create
problems, the more ominous among them being the myth of economic invincibility.
The changing DNA of today's entrepreneur

Rather than a degree from IIT/IIM or any family backing, the new-age entrepreneur relies on
an idea and, more important, his confidence to turn it into a viable business model.
  
Mr R. Ramaraj

Our Bureau

Chennai

The stereotype of an entrepreneur is changing. No longer is he or she from the metros. And,
nor necessarily does he or she have a strong family backing to break into business.

The emerging entrepreneur of today may be from a Tier 2 or 3 town. He could be a graduate
with an idea and the confidence to translate it into a viable business. The entrepreneur of
today relies more on the network he has created — some with family and many with friends.
But some of the traits of entrepreneurs of the previous generation remain — passion,
commitment, integrity. The new–age entrepreneur is willing to accept failure, go to work for
someone else, and come back with a fresh idea after a few years.

Mr R. Ramaraj, who in his post-corporate life mentors entrepreneurs, says, “one way of
defining the emerging entrepreneur is the next 800 million people.” This means not
necessarily those coming out of the IITs or IIMs or from the city environment.

As Business Line begins a fortnightly page focussing on entrepreneurs, who better than Mr
Ramaraj, 60, a chemical engineer from Madras University and an MBA from the Indian
Institute of Management – Calcutta, to profile entrepreneurs of today and put in perspective
issues confronting them. Since resigning as CEO and Managing Director of Sify Ltd, an
Internet, Networking and e-Commerce Services company, Mr Ramaraj is busier than ever.
He wears several hats: Of an angel investor, a director for some 15 companies, a member of
the board of the Internet Corporation for Assigned Names and Numbers (ICANN), an adviser
with Sequoia Capital, an advisor with The Indus Entrepreneurs (TiE) and as a mentor to
emerging entrepreneurs. Here, in his words…

The Emerging Entrepreneur:

I think one way of defining the emerging entrepreneur is the next 800 million people. Not
necessarily those coming out of the IITs, IIMs and major city environment, but coming out of
Tier 2 and other locations. The second is to look at the environment over the next 5-10
years… an entrepreneur starting now would see things differently. There are always
constants. We are looking for passion, commitment, integrity. What is changing is ther
opportunities. There are few things that make success factors. One is the execution capability
has to be extraordinarily high… If there is one quality that everybody will look for today in
an emerging entrepreneur it is the capability to execute.

We are going to start seeing people coming out of not necessarily main markets. How do they
get exposure on some of the best practices, how can they network well, how can they attract
talent. For example, if companies are coming out of Tiruchi or Madurai or Nashik or places
like that, how many would like to go and work there when you start looking for talent. You
need to create a local talent pool.

Whether your market is global or otherwise, competition can come from anywhere,
irrespective of which sector you are in. Do you have a global perspective if you are an
emerging entrepreneur? That is the key… this was not necessary 10-15 years ago.

The social pressures mean that it is not easy for people to become entrepreneurs. The job
opportunities are getting better, so people ask, ‘why don't you take a stable job? Why do you
want to take the risk?' We hear from some of our start-ups that lots of youngsters don't mind
coming and working in a start-up. About the time they want to get married, they move to a
brand, saying the choice of partner becomes easier… families find it easier.

Attributes

Of success, you have so many examples. Take Arvind Eye Hospitals. Look at the world-class
institution they have built there. Or, at Lion Dates, Suguna Poultry, Cethar Vessels... I think
the basic entrepreneurial drive has helped them find the gaps and either bring in teams or
train themselves. The common thread — all of them have thought of being world class. When
they started, they focussed on quality and made sure they were doing something well. I don't
think they were scared of scale. They thought really big.

Their passion was so infectious that they were able to attract people even in some of these
smaller towns. Passion is one of the things we look for in an entrepreneur… Not just energy
in fulfilling his or her dream, but enough to attract a supporting ecosystem of good people.

Challenges

We don't forgive failures. The other day somebody was saying, ‘I got 95 (per cent marks).'
Instead of congratulating him, the question was, ‘was that the highest?' That comparison has
been a problem for a long time. It requires courage to become an entrepreneur where
classmates are taking well-paid jobs, working in air-conditioned offices and you are sitting in
a garage trying to build your product. We are starting to see some understanding, saying the
experience out of failure is of great value. Fear of failure is still one of the key inhibitors for
an entrepreneur.

The curve to go from zero to a minimum size takes lot longer than most estimation. For the
first one-two years, it seems to be the greatest trouble here than in many markets. I would
think that extraordinary perseverance and stamina to see through the first couple of years are
important. Many investors want to see something in the first 18 months. The effort and return
in the first 18-24 months in the biggest challenge. Two, is attracting talent. It will not be a
challenge if you are able to have the passion and be infectious about it.

Warning signals

What are the trouble spots? One is the Monday morning fatigue. If you are starting to look
forward to weekends, I think you are starting to lose that passion. I don't think you recognise
the day of the week when you are in the early stage of entrepreneurship. So, if your personal
energy, commitment, perseverance are not there, then you need some support to continue.

Two, you are not able to execute quick enough and therefore there are others coming in.
Technologies change, look-alikes come, then me-toos overtake you. If you start seeing it is
getting crowded and you have not encashed the first-mover advantage, then it is going to be a
bigger struggle. Three, scale.

Potential CEOs or cyber coolies?

Which category of talent are we generating, asks the Country Head of Novell India..

 
Sandeep

D. Murali

It is reassuring to hear from Sandeep Menon, Country Head, Novell India Pvt Ltd, Bangalore
(http://bit.ly/F4TNovell) that recession is almost forgotten, what with headlines across the
media speaking about jobs that are back, campus interviews on schedule, and no ‘people on
the bench'. The need for employees is as good as ever and the process of recruitment has
picked up its almost usual speed, reports Sandeep, during a recent interaction with eWorld.

His worry, however, is whether we are generating potential CEOs or cyber coolies. “A few
lakh students passing out as technical graduates every year, increase in the number of jobs as
on date, and yet a talent crunch! That is the situation that most IT (information technology)
companies in India find themselves in,” frets Sandeep. The time has come, therefore, to sit
back and rethink strategies, even revamp our education system so that we continue to grow as
a knowledge economy, he argues. Our conversation continues over e-mail.

Excerpts from the interview.

On today's needs.

While globalisation has created and continues to create job opportunities on a scale like never
before, the availability of opportunities does not guarantee that a ‘graduate' can cash in unless
he is really capable of meeting expectations. This is because employers seek and value people
who can act independently, think professionally, and adapt seamlessly; not those who just
come in with a degree and theoretical knowledge.

A ‘job' today is not just about a designation and a pay cheque, but about being useful from
day one.

Today's enterprises need employees who are educated and employable, fit into their job roles,
deliver on expectations, and are entrepreneurial.

Employees need to take the initiative and come up with ideas that are ‘out-of-the box' and be
responsible not only for outputs, but also for professional outcomes. Most importantly, they
need to be reliable. The organisation needs to feel the confidence that they can hand over a
project or job to them, and not have to follow up or handhold them constantly. This is a major
worry in today's recruitment environment.

On the India story.

In India which produces more than three million graduates a year, a quarter of whom are
from the engineering stream, the parallel increase in unemployment is worrisome. There are
estimates suggesting that our unemployment rates rose from about 7.8 per cent in 2008 to
10.7 per cent by 2010.

Our labour force is expected to be growing at about 2.5 per cent annually, while job growth is
estimated to be growing at 2.3 per cent off a smaller base. Which means, we are constantly
creating a backlog of unemployed and underemployed youth who then become representative
of the collective frustration that now reveals itself in India with alarming regularity.

All this is despite a growing demand for a skilled workforce and talent crunches across
growing sectors.

Speaking for the IT industry, there is a widening skills gap visible in the market today. Many
IT graduates are being churned out, but they may be actually considered unemployable by the
rapidly growing IT and ITeS sector in the country. This is a cause of concern for an economy
having the world's second largest education system and providing one of the largest pools of
skilled manpower.

The story is no different for potential global employers. Today's graduates have the
opportunity and they aspire to work in organisations outside the country.

While these organisations recognise the inherent intelligence of Indian students and their
capacity to deliver, they also expect a great deal of discipline, work ethic and focus. And a
critical aspect for global employability is a degree of cross-cultural sensitisation and dropping
of prejudices or mindsets that may accompany us from the socio-cultural environments that
we grew up in.

On the quality of education.

Institutes imparting technical and business courses in India are many and continue to grow.
Much has been said about educating the poor and dispossessed sections of society. Very little
has been said about the middle and lower middle class, who can scrape together some funds
and educate their children, but really have no access to high quality education even today.

Our businessmen and/or politicians have been quick to spot this money-making opportunity.
Every day we see new institutes coming up and advertising heavily, with taglines such as
“global campus,” “largest university,” “hundreds of placements,” etc. Yet those who are
associated with the industry as well as academics know that many of these institutions are
peddling hollow promises. They have an ability to make students write an exam and
regurgitate data, and hand out a degree. But that's about it.

Many of these institutions charge a fairly large fee and attract thousands of students who
come to them with stars in their eyes. Families struggle to meet the expenses in the hope that
the next generation will break free from the shackles of hand-to-mouth existence. The tragedy
is that this is often far from reality.
There is a distinct lack of exposure and depth that makes the students of many of these
institutes unemployable. The result is a huge talent crunch, broken promises, shattered
dreams and frustration for students and their parents.

A recurring theme responsible for this situation is the old-fashioned and blinkered quality of
education being imparted by these mushrooming institutions across the nation.

Differential literacy levels, poverty, and the rural-urban divide have also contributed to the
scenario, but to a far lesser scale. The silver lining in all this is that if these institutions can
actually be encouraged to focus on delivering practically relevant education, we could
harness the significant human resources that can propel this nation forward.

On the teaching vs learning divide.

The crux of the issue remains that most professional institutions in India focus on teaching
rather than learning. The education environment is mostly teacher-centric and students have
very little exposure to the world they need to serve in. The syllabus is theoretical and makes
little attempt to relate to the practical needs of the industry in terms of content.

There is a shortage in practical exposure provided to students, and quite often, the teachers
themselves have never been exposed to the industry.

Hence they are unable to convey what potential employers will expect and prepare their
students for the same. This means that many students go on believing the myth that just a
professional degree and a high score would earn them a good job. They pass out from
colleges but end up unemployed or worse under-employed!

On what we can do.

As Indian organisations continue to increase their workforce and strive to maintain their
position in the global marketplace, industry-academia alliances are required to enhance talent
development amongst the youth at the grassroots level. Educational institutions must update
the syllabus of technical courses to make them more industry relevant.

Industry in turn has to open up, to provide corporate exposure for students and faculty and
make them well-equipped in terms of both skill-sets and industry knowledge so that they
don't just get placed from campus, but hit the ground running for their employers.

At the graduation level itself, students need to be exposed to activities such as group
meetings, presentations and progress report briefings. There is a need to inculcate a sense of
working within deadlines and delivering under pressure to mirror a global work environment.
Students must be trained to develop a degree of cultural neutrality so that they are able to
appreciate the differences across global corporate cultures. Alternate skills such as
communication and presentation skills, need to come off the “optional” shelf, onto the “must
have” shelves.

Training must also be imparted to college faculty, and their skills must be honed to meet the
needs of a changing global economy. Beyond associating for campus placements, academia
must seek to network with the corporate world to provide regular training, conduct
workshops for the students and the faculty, and provide regular updates from professionals
who have a closer exposure to current business developments, needs and technical standards.

On the industry-academia collaboration efforts.

There have been some attempts to bridge the industry and the academia, to create synergies.
Industry bodies such as Nasscom have devised the IT Workforce Development (ITWD)
programme to address the growing concerns of the industry as well as the challenges of the
academia.

Many IT companies are partnering with engineering colleges and universities to create
universally accepted benchmarks such as certifications and policy-level curriculum changes.
Multinationals have established alliances with academia for faculty upgradation, internships,
curriculum revision and research.

Infosys launched the ‘Campus Connect' programme to align the education provided by
various engineering colleges with the requirements of the industry. Wipro initiated the Wipro
Academy of Software Excellence, in association with BITS (Pilani) to prepare fresh
graduates for careers in software programming. Novell introduced the Linux Academic
programme to bolster Open Source skills, Tech Mahindra set up the Mahindra College of
Engineering to equip engineers with the skills required in a ‘fast changing global scenario'.
The Cisco Networking Academy (NetAcad) program was devised to support the needs of
national and global organisations.

Such partnerships between academia and industry help to plug the talent gap, and make our
youths more competitive and help them grow as professionals. In the long run, this will help
us consolidate ourselves as a successful knowledge economy.

There are many such initiatives, but there are also dozens of institutions that are paying
absolutely no attention to these urgent requirements. They know they can attract desperate
students, especially from the smaller towns and cities, looking for a ‘degree'. Unfortunately,
demand supply economics ensures that there is little pressure on them to do more than this
today. One can only hope that with the opening up of the education sector and increasing
competition, the same market forces will one day force them to ask “how do I differentiate
myself positively?” And then the fact that they need to produce employable and successful
candidates, rather than just dish out certificates, will come home to them sharply. I wait for
that day.

Alarm bells ringing for India's ITES

B.S. RAGHAVAN

The interview with the country head of Novell India, Mr Sandeep Menon, ‘Potential CEOs or
cyber coolies?' ( Business Line, August 23) should ring alarm bells as regards where the
Information Technology Enabled Services based in India are heading.

Mr Menon was essentially referring to the diminishing ‘employability' of the thousands of

technical graduates churned out in India, who do not also academically and temperamentally
measure up to the requirements of the knowledge economy even within India, leave alone at
the global level.

“There is a distinct lack of exposure and depth”, he is quoted as saying, “that makes (them)
unemployable. The result is a huge talent crunch, broken promises, shattered dreams and
frustrations….”

In other words, the companies which have been riding the crest of the IT boom are going to
be forced to recruit substandard human talents and skills, and incur heavy costs in bringing
them up to the required standards or see their exaggerated claims couched in fanciful
hyperbole come crashing.

There are other equally disturbing factors endemic to India's ITES sector and relatable to
India's economic environment that are waiting to cause havoc unless the denizens of that
sector give up their ostrich-like attitude, and gird up their loins to adopt countervailing
measures.

Observers of India's ITES scene normally sweeten their opinion of what is wrong so as not to
hurt. But not the founder of Microsoft, Mr Bill Gates, who is feared within his own company
for his blunt dealings with his associates.

During his visit this time last year, he pulled up India's IT industry for depending on low-cost
labour as almost the sole mainspring of their business.

The purport of his comments was that the ITES industry in India was not paying sufficient
attention to high-end research and development to meet the next generation demands of high-
flying products and services.
Skull-and-bones

He warned them that they would not remain competitive with the prevailing mindset and
might soon come to grief with a fall in demand. In short, the success story cannot be
sustained. There are features that already make this conclusion obvious. The CEO of Infosys,
Mr Kris Gopalakrishnan, has himself admitted that the rough ratio of the routine chores to
technological creativity in Indian IT firms is 70:30, whereas it ought to be exactly the other
way about.

Elusive patents

It is not generally known that as regards patents, no Indian IT/ITES companies, including
Tata Consulting Services (TCS) and Infosys, are to be found in the list of the top 200 of the
world. No Indian IT firm has any patents of its own, while the top 10 patent-holders across
the world are IT companies in the industrial countries. TCS and Infosys account for only 35
and 29 published applications respectively, mostly extensions and improvisations of
borrowed and imported systems already in use in industrial countries.

I was scanning the annual reports (2009-10) of TCS and Infosys to see whether there is any
indication of the efforts they are making to develop high-end products which will make India
stand out as a technological hub in the near future. Unfortunately, while they use a plethora of
high-falutin jargon like cloud computing, capex and opex, ideation accelerators, thought
leadership and the like — again imitative of foreign verbiage — they have been confined to
the lower reaches of the value chain, banking on business process outsourcing, financial and
customer care solutions and software services rather than software products, and preening
themselves on some non-descript awards.

At this rate, the time is not far off when India's IT majors will all be facing the skull-and-
bones sign, with the disappearance of their competitive advantages and other countries
(China, Taiwan and Korea, for instance) leaving them far behind.

No undermining the environment

Sterlite project-owners face barrage of action.

G. Srinivasan,

New Delhi, Aug. 24

Following the furore generated at the moratorium clamped by the Union Minister for
Environment and Forests, Mr Jairam Ramesh, on the commercialisation of Bt brinjal early
this year, the Minister has done an encore by denying the grant of forest clearance for Orissa
Mining Corporation (OMC) and Sterlite mining project on the Niyamgiri Hills in Lanjigarh,
Kalahandi, and Rayagada districts of Orissa.

Vedanta, which was in the news recently for its acquisition of Cairn Energy's Rajasthan
oilfield, has through its subsidiary, Sterlite India, a joint venture pact with OMC to mine
Niyamgiri Hills for bauxite.

Forest clearance

Releasing a document chronicling the various events preceding today's decision at a news
conference in the Capital, Mr Ramesh said the forest clearance for the OMC and Sterlite
bauxite mining project in Orissa in the said districts could not be granted. To add to the cup
of woes of the project owners, he said since forest clearance is being set aside, the
environmental clearance for this mine stands inoperable. The project proponents, which are
sourcing bauxite from a large number of mines in Jharkhand for the one-million tonne
alumina refinery, do not possess a valid environmental clearance and this is also being
scanned separately.

While a show-cause notice is being despatched by the Ministry to the project proponent as to
why the environmental clearance for the one-million tonne alumina refinery should not be
revoked, another show-cause notice is also being served as to why the terms of reference for
the Environmental Impact Assessment report for the expansion from one million tonnes to 6
million tonnes should not be withdrawn. Separately, the Ministry is in the process of
examining penal action against the project proponents for the violation of various laws, as
revealed exhaustively by the Saxena Committee. Thus, a battalion of woes bedevils the
project owners.

Gross violation

Considering the fact that most mineral-rich States in the eastern and Central India suffer from
violation of tribal rights enshrined in the Forest Rights Act, 2006, that partly or wholly
explains the perilous prevalence of left-wing extremism as manifest in the Naxalite and
Maoist movements, and the latest move by the Ministry of Environment and Forests to take
up the cudgels in the interests of tribals and their livelihood concerns are too serious to be
treated tetchily by resource- exploiting industrial-political combine.

By denying the forest clearance to the OMC and Sterlite bauxite mining project, Mr Ramesh
has rightly invoked the pertinent responsibility of his Ministry to enforce the various vital
laws such as the Forest (Conservation) Act, 1980, the Environmental (Protection) Act, 1986,
and the Scheduled Tribes and Traditional Forest Dwellers (Recognition of Forest Rights) Act
2006. It is also true that the resource curse is such that these backward States endowed with
the best mineral and metal resources could not be catapulted into the mainstream of
development because no serious efforts have been made in the past to leverage these
endowments for developing indigenous industries to provide jobs and security to displaced
people.

As development entails cost and as long as the State or the private project developers are not
inclined to underwriting this cost, the right to pollute the atmosphere without paying the due
recompense to people who are left high and dry would definitely be denied by the vigilant
wings of the Government. The Environment Ministry at the Centre happens to be one such
legitimate vigilante, say policy analysts.

Will sugar decontrol crystallise now?

G. CHANDRASHEKHAR

While decontrol is welcome, it would be naïve to believe this by itself will make the sugar
industry more competitive.

 
Sugar suppliesunder the public distribution system should continue.

Talk of sugar industry decontrol is in the air again after a gap of seven years. Since 2003,
when the idea of total decontrol was first mooted, the Government has hesitated to bring
about substantial reforms in the sugar industry, which today remains a vestige of the permit-
licence-quota Raj of the decades preceding the 1990s.

The economic liberalisation process begun in 1991 hardly touched this industry, which holds
considerable economic interest for a large number of politicians. In the past, the demand for
decontrol was often rejected on flimsy grounds. In times of sugar surplus, control was seen
necessary to prevent a price collapse that would hurt the industry; and during a shortage,
protection of consumer interest became a ready excuse.

Mr Sharad Pawar, Minister for Agriculture and Food, who is widely believed to be the
architect of this sector's policies, stated recently that the Government would consider total
decontrol of the sugar industry sometime in September 2010 after cane crop and sugar
production estimates for 2010-11 crystallise. Going by various reports and estimates, 2010-11
may witness fairly balanced sugar-market fundamentals. New Delhi appears to believe that a
balanced demand-supply scenario is ideal for announcing total decontrol.

Twin restrictions

Total decontrol essentially means abolition of the twin restrictions on sugar marketing — the
levy system (under which the Government compulsorily procures a fixed percentage of sugar
from mills at below market price); and the free-sale quota release mechanism (under which
mills have to sell sugar according to Government allocated quota). The end of these outdated
restrictions is sure to boost competitiveness in the domestic sugar industry. It will allow mills
to plan and manage production, marketing and inventory. Sugar prices will be largely market-
determined. The investment climate will improve.

Some believe that total decontrol should also remove the Government-determined statutory
minimum price (SMP), or more recently called the fair and remunerative price (FRP), for
cane growers. This belief is wholly unfounded, and the SMP/FRP must continue to protect
cane growers' interest. Output (sugar) prices will suitably adjust to input (cane) costs. It will
not be politically expedient to end SMP/FRP, as cane growers will be subject to the whims of
mills.

Fine-tuning operations

While decontrol is welcome, it would be naïve to believe this will magically make the sugar
industry more competitive. To be sure, the industry is currently mired in operational
inefficiencies, lack of modernisation, fragmentation of capacities and poor economies of
scale, to name a few. If policymakers genuinely want to set the domestic sugar industry free
to pursue growth objectives then, in addition to removing the twin marketing restrictions,
several other issues have to be simultaneously addressed. These include promoting scale
economies, free and stable trade and tariff policies, ensuring sustained raw material (cane)
availability and prevention of unethical trade practices in times of shortage.

A majority of the over 550 sugar mills in the cooperative (over 50 per cent), private (40 per
cent) and public (less than 10 per cent) sectors have sub-optimal crushing capacities and are
denied economies of scale.
The policy environment should be conducive for investments in scaling up and modernisation
to achieve competitiveness.

Cane supply troubles

The next critical need is to break the cyclical nature of cane output andensure sustained
availability. Given current crushing capacities as well as demand, cane production should
ideally exceed 300 million tonnes annually. There is scope to increase cane yields in many
regions. As cane is a 12-14 month crop, farmers are forced to wait a whole year to realise
income. Mills should be encouraged to network closely with growers and pay an advance, say
six months after planting. This will enhance their mutual dependence.

Cane provides livelihood to over 50 million growers. If the cyclical nature of cane production
is not consciously broken through innovative and sustainable methods of farming, as well as
support to farmers, seasons of surpluses and deficits will alternate. This will have serious
implications for sugar prices. Deficits will surely hurt consumers, while surpluses will do
mills no good. On the other hand, demand for the sweetener is sure to expand with rising
incomes and demographic pressure. Shortages may be more frequent than surpluses.

Global standards

To prevent cartelisation or similar unethical practices, the Government should follow a

largely free and stable trade and tariff policy. Export and import of sugar should be allowed
freely. Tariffs should be used sparingly and judiciously.

Lastly, sugar supplies under the public distribution system should continue. After abolishing
the levy system, the Government will have to buy sugar from the open market, but may have
to supply at a lower price under the PDS. If this entails subsidy, so be it. It would be
disastrous if the Government announces decontrol of the sugar industry without addressing
the other related issues.

The aim of the Indian sugar industry ought to be ‘to attain global competitiveness by being
able to produce globally acceptable quality at globally comparable cost'. World over, the
sugar sector is protected, and sugar subsidy among developed countries is an estimated $6
billion (about Rs 30,000 crore) a year. Indian industry has been protected for too long. It is
time to set the industry free to pursue its fortunes.

Rotting grain suits FCI fine

SHARAD JOSHI
The actual procurement of wheat is less than the figures shown on paper.

In early June 2010, I had written that the Centre was finding it difficult to ensure an orderly
wheat market, because of the bountiful crop in all major wheat-producing countries. Worse
still, wheat godowns in India were bursting at the seams because of abundant stocks which
were largely substandard and unfit for human consumption.

The Food Corporation of India (FCI), which turns a deaf ear to any criticism of its
inefficiency and corruption, had promptly reacted, maintaining that of the 101.437 lakh
tonnes of wheat stored by the Corporation only 0.03 per cent was found to be damaged.

STATE OF DENIAL

The electronic media dished out ample footage on wheat coming out of torn bags and
germinating with exposure to the early monsoons. The matter came up even before the
Supreme Court, which went to the extent of suggesting that the Government should distribute
the wheat to the famished BPL population, rather than let it go bad through exposure to the
elements, and to rodents.

It is difficult to understand why Mr Sharad Pawar, the Agriculture Minister, chose to deny
that such a pronouncement was made by the highest court of the land.

While, as a matter of general rule, the Government does not give away foodgrains free of
cost, this kind of free distribution is not entirely unknown. There were several instances of
natural calamities where the government distributed foodgrains without insisting on monetary
quid pro quo.

In periods of famine, the standard modus operandi is to organise famine relief work to put
some purchasing power in the hands of the famished, enabling them to purchase their
requirements of foodgrains.

India's warehousing infrastructure for foodgrains is outmoded and decrepit. It cannot offer
protection from rodents and rain. It would appear that both the Minister for Agriculture and
the Supreme Court are not fully informed about the true situation.

DISAPPEARING STOCKS
The rotting of foodgrains is not an isolated phenomenon. It is like the fires that destroy large
stocks of cotton and lint in the custody of the Cotton Corporation of India (CCI) and, more
often, the stocks under the Maharashtra State Cotton Monopoly Procurement Scheme.

If one looks at the beneficiary of these happenings, the needle of suspicion clearly points
towards the Food Corporation of India and the sundry cotton procurement agencies. Whether
it is cotton, wheat or paddy, a substantial proportion of the commodities procured is
substandard. This kind of procurement cannot be on account of ignorance of the standards
laid down or a shortage of scientific instruments required for assessing the quality of the
produce.

The actual procurement is often short of the figures that are shown on paper. This could
either be because of pilferage at the source or generosity shown to the vendor. This shortfall
could also be a result of diversion of stocks before they enter the public distribution system
channels. An accidental cloudburst or fire makes it impossible to render accurate accounts of
the stocks held and the money spent.

The accounts of the Maharashtra State Cotton Monopoly Procurement Scheme can never be
tallied unless there were half a dozen fires in the cotton stock at different places in the State.
Wheat is not as combustible as cotton.

However, it is susceptible to spoilage due to humidity, and to attacks by pests and rodents.
Organising an appropriate exposure of the stocks held to the elements should not be a
difficult job for an organisation like FCI.

Importance of dryland farming

SHASHANKA BHIDE

A policy emphasis on irrigation should not lead to the neglect of dryland agriculture. Where
irrigation raises input costs for dryland farmers, alternative enterprises such as livestock
rearing can be promoted. The challenge is to nurture crops to suit diverse conditions
  
Does growth of irrigation make dryland production more difficult?

The monsoon is expected to be bountiful in many parts of the country, with only the eastern
region getting lesser rain than the long-term average. Skewed distribution over the monsoon
season is not optimal for crop output. But late rain in the season could have a positive effect
on the next season's crop, as the reservoirs get filled up for irrigation.

Where there is no irrigation, farmers may have changed crops or crop varieties so that they
are able to make the best of the rain. With the investments in research and technology, there
are perhaps now more varieties and crops for farmers to choose than earlier. Growing crops
for the market rather than for own consumption has also expanded the choice before the
farmer.

CROPPING AND MONSOON

The rainfall situation improved after mid-July. Floods and rainfall deficiency in the same
season in different parts of the country are not unknown. The impact of monsoon highlights
the difficult choices farmers and policymakers face in the allocation of land and water to
different crops.

The policy response at the national level can be expected to refocus attention on growth and
income stability for agriculture. However, the overall strategies quite often do not work in all
situations.

It is perhaps the recognition of this potential for different outcomes that led to a detailed
regional approach to agricultural strategies. But, even with detailed regional strategies, the
policy choices may end up being the same as the national ones.
Greater attention to the disadvantaged is necessary to ensure equitable growth. A case in
point is the policy preference that irrigated agriculture enjoys over dryland agriculture.
Irrigation is a time-tested method of raising crop productivity.

A focus on growth leads to a push to expand irrigated area. An emphasis on stability may also
point to the same strategy. Irrigation provides greater stability to output than dryland
production, as it also helps protect yields when the monsoon is weak.

But does growth of irrigation also make dryland production more difficult? Or are there
complementarities that help improve the returns to dryland production when there is an
expansion of irrigated area?

The trade-offs are significant, as are the complementarities. One trade-off is the case of input
markets. Irrigation allows farmers to bid input prices higher to ensure their supplies.

Dryland farms would now pay more than before. Higher wages bid labour from dryland
production to irrigated production. Unwittingly, non-farm employment programmes may
increase the divergence of profits of dryland production relative to irrigated farms or irrigated
production. This wedge is likely to widen with respect to the price of most inputs, except
land.

Lower price of land may help mechanisation if it is easier to aggregate smaller land holdings.
The impact of mechanisation on productivity under dryland agriculture would have to be
significant enough to match the advantages of irrigated agriculture, for the two systems to be
equally attractive.

NEW OPPORTUNITIES

The diversification of farm output has not led to output or income growth in dryland
production to the extent that it has in irrigated land. Irrigation helps farmers take risks, raise
new crops and diversify output.

Growing vegetables and flowers is far more profitable when there is water for irrigation. It
presents a greater choice of crops and timing output to meet market demand.

Diversification in dryland production, on the other hand, is essentially to reduce risks rather
than increase income.

Delayed rain would mean recourse to somewhat lower-yielding but sturdier varieties of
crops. Delayed and less-than-normal rainfall may also warrant switching to crops that would
not have been grown otherwise.
The focus of irrigated production on crops that are more responsive to intensive use of inputs,
such as fertiliser, sets aside some opportunities for dryland production. The crop choices
under irrigation may also make livestock enterprises more attractive for dryland farming
rather than irrigated land.

The complementarities between irrigated and dryland farming arise out of the externalities of
irrigation, in the form of exposure and access to technologies.

They also emerge from increased supplies of food in the market, permitting farmers in
dryland regions to exploit opportunities in other crops.

NURTURING POSITIVES

Limits to availability of land and water in the face of rising demand for food and fuel will
require a choice of strategies that will raise productivity and profitability of farming under
diverse conditions. The complementarities will need to be nurtured.

The trade-offs need to be accompanied by opportunities to adapt alternative technologies or

enterprises.

Dryland agriculture will remain important, given the limits to increasing irrigation. Pushing
innovations that improve income opportunities for dryland agriculture is as important as
investing in irrigation. The randomness of monsoon patterns is a constant reminder of the
need for this balance.

Panel set up to check borer menace in coffee

Move to share knowledge on white stem infestation.

While the broad approach has been formulated, the specifics are yet to be worked upon.
A. Srinivas

Bangalore, Aug 24

A five-member committee of scientists, two from the University of Agricultural Sciences,

one each from the Indian Agriculture Research Institute, the Indian Institute of Horticultural
Research and the Central Coffee Research Institute (CCRI), respectively, has been set up find
a solution to the white stem borer pest that attacks the arabica variety in particular.

The idea is to share knowledge and resources with similar institutions of agriculture research.

For instance, if there is something similar to white stem borer in other crops, on which
research has been done, that knowledge would be beneficial to coffee producers. Likewise,
the CCRI can assist in research initiatives in other areas, sources close to the Coffee Board
said.

While the broad approach has been formulated, the specifics have yet to be worked upon.

The Director, CCRI, is expected to formulate some details in this regard in a month's time,
industry sources said.

Extension services
Two members of the committee were of the view that while the techniques have been
developed, the issue is to work on the extension services so that they are implemented
effectively at the estate level.

Mr K. M. Nanaiah, Chairman, Karnataka Planters' Association, said: “We welcome the

formation of the committee to address an age-old problem.

This year, with scanty rain, stem borer infestation is high.”

He said: “The temperature and weather have to be at a certain level for the pest to be
controlled. Once the pest penetrates the stem, we do not have a fungicide or chemical to act
on it. Nor can we create an opening in the stem, as that could give rise to secondary infections
to the stem. Besides, we cannot afford to use chemicals that might leave behind a residue in
the coffee.”

‘No uniformity'

Mr Anil Bhandari, Member, Coffee Board, said: “Pests are hard to control and despite the
Coffee Board's extension efforts, there is no uniformity in the upkeep of plantations. A
number of small growers are absentee landlords, and are unable to devote time to cultural
operations, as they are gainfully employed elsewhere. The key to pest control lies in good
estate practices — removing and burning of plants for white stem borer. However, climate
change has rendered the task of pest management more difficult. The flight period of the pest
has become unpredictable. The idea behind involving more agencies is that somebody might
find a silver bullet.”

Dr N. K. Pradeep, President, Karnataka Growers' Association, said: “The Coffee Board has
been saying the same thing for so many years. There has not been enough research into why
the white stem borer attacks arabica and not robusta.”

Mr Ajoy Thipaiah, Member, Coffee Board, said: “Rather than focus only on extension
services, more research has to be done with respect to isolating the genome in robusta.
Planters are aware of the cultural practices that need to be adopted, but climate change
nullifies their efforts.”

It is just as well that the Coffee Board is at the forefront of this coordinated research effort,
some former board members said.

A similar effort was attempted in the late 1980s when planters from Kodagu requested the
Indian Council of Agricultural Research to work on the white stem borer pest.
A major corporate player then offered its land for the research effort.

However, the project was discontinued after the Coffee Board, which was not involved in it,
reportedly raised objections over the role of ICAR.

Consumer Affairs Ministry says yes to 49% FDI in multi-brand retail

Bindu D. Menon

New Delhi, Aug. 25

The Consumer Affairs Ministry has given the green signal to allow 49 per cent FDI in multi-
brand retail. It has written a letter to this effect to the Commerce Ministry.

India currently allows 100 per cent FDI in cash-and-carry operation and 51 per cent in single-
brand retailing. Foreign investors are barred from investing in multi-brand retail.

Additionally, the Ministry also sought that a model law be first put in place at the State-level
to protect mom-and-pop stores from the impact of the ‘Big Boys' of retail.

“Multi-brand retail should be permitted with a cap of 49 per cent… A significant chunk of
investments should be spent on back-end infrastructure, besides logistics and agro-
processing,” the Consumer Affairs Ministry had said in response to the discussion paper
floated by the Department of Industrial Policy and Promotion in June on allowing 100 per
cent FDI in multi-brand retail.

A senior government official said the Consumer Affairs Ministry has sought the enactment of
the National Shopping Mall Regulation Act to regulate the fiscal and social aspects of the
retail sector, besides allowing mom-and-pop stores to become franchises of multi-brand
retailers.

“This will help grow not just the business but also in setting up back-end infrastructure which
is much needed for the evolution of the retail sector,” the official added.

According to an ICRIER study, commissioned by the Commerce Ministry in 2007, “the retail
business, in India, is estimated to grow at 13 per cent each year from $322 billion in 2006-07
to $590 billion in 2011-12. The unorganised retail sector is expected to grow at about 10 per
cent a year from $309 billion 2006-07 to $496 billion in 2011-12.”

MPs' salary hike to be implemented with retrospective effect

Monthly pension hiked to Rs 20,000.
As regards rail travel, the spouse of an MP can travel any number of times in first-class air-
conditioned or executive class in any train from the usual place of residence of the member
to Delhi and back.

Our Bureau

New Delhi, Aug. 25

Members of Parliament (MPs) will not only get a three-fold increase in monthly salaries, they
will also get this benefit on a retrospective basis from May 18, 2009, the date of the
constitution of the 15 {+t} {+h} Lok Sabha.

Former MPs also have a cause for cheer, with their monthly pension set to increase from Rs
8,000 a month to Rs 20,000/month.

The additional pension that would be payable to them for every year in excess of five years'
membership would be Rs 1,500 a month, as against Rs 800/month earlier. The increase in
pension will also take effect from May 18, 2009.

These have been provided in the Salary, Allowances and Pension of Members of Parliament
(Amendment) Bill 2010 introduced in the Lok Sabha today. The Bill was introduced by the
Parliamentary Affairs Minister, Mr Pawan Kumar Bansal.

The salary and pension arrears from May 18, 2009 to July 2010 would result in a one-time
expenditure of Rs 118 crore. Also, the proposed increase in salary, daily allowance, rate of
road mileage and increase in the minimum and additional pension would involve a recurring
annual expenditure of Rs 103.76 crore.

The Bill provides for hike in salary of MPs from Rs 16,000/month to Rs 50,000/month. Also,
the daily allowance payable to the MPs during any period of residence on duty would stand
enhanced to Rs 2,000 for each day of duty, as against the current level of Rs 1,000 per day of
duty. The rate of road mileage is also proposed to be enhanced from Rs 13/km to Rs 16/km.

As regards rail travel, the spouse of an MP can travel any number of times in first-class air-
conditioned or executive class in any train from the usual place of residence of the member to
Delhi and back.
When Parliament is in session, the spouse of a MP can travel by air or partly by air and partly
by rail from the Mp's place of residence to Delhi and back. The only condition on air travel is
that the total number of such air journeys should not exceed eight in a year.

The provisions on rail facility, daily allowance and road mileage will come into effect from a
date to be notified by the Centre.

Constituency allowance

In addition to the salary hike, the MPs will also get an increase in constituency allowance
from Rs 20,000/month to Rs 40,000/month.

The office expense allowance will also see an increase to Rs 40,000/month from the current
Rs 20,000/month.

These two steps would result in an annual recurring expenditure of Rs 38.5 crore and would
be implemented through amendment in rules. There are 545 members in the Lok Sabha and
250 in the Rajya Sabha.

Is Wipro not getting enough local talent for European operations?

Situations vacant

Wipro reportedly has ‘hundreds of vacancies' in Europe

Overall target is to have 50 per cent employees local to the geography within two years

The company is keen to hire persons in sales, consulting, functions (HR, operations) and
project delivery

Analysts feel all top IT companies have a problem with local hiring in Europe
Adith Charlie

Mumbai, Aug. 25

Wipro Technologies seems to be finding it difficult to hire more local people in Europe
despite an internal mandate to ramp up its headcount there, according to details available on
computerweekly.com.

“We have hundreds of on-site jobs not filled because I am finding it difficult to get the staff,”
Mr Jeffrey Heenan Jalil, Head of Europe for Wipro, was quoted in the blog section of the
Web site.

Mr Jalil, according to computerweekly, is not sure whether this due to shortage of skills. The
company is keen to hire in the areas of sales, consulting, functions (HR, operations) and
project delivery.

According to a Wipro spokesperson, the company expects half of its overseas workforce to
be non-Indians in two years from the current level of 39 per cent. Currently, the company
employs 5,500 people in Europe of whom nearly 41 per cent are local nationals. However,
the spokesperson did not offer colour on Mr Jalil's comments.

Global presence

Large Indian software services providers such as Wipro, TCS and Infosys are going
increasingly local with hiring in overseas markets, part of a drive to portray themselves as
truly global players and polish their image in western economies reeling from job losses. Last
year, many of the top positions at Wipro Technologies have been filled by foreigners. Ms
Martha Bejar left Microsoft to join India's third largest software exporter as president, global
sales and operations. Mr Ralf Reich, a former Unisys executive in charge of strategic
outsourcing in continental Europe, was appointed head of German operations. The company's
operations in France and Japan are also headed by non-Indians. Wipro also has offices in
Austria, the Netherlands, Switzerland, Romania, Finland, Portugal and Sweden.

Hidden barriers

Analysts feel that most IT companies have a challenge on their hands when it comes to hiring
local people in Europe. “European talent does not yet see the Indian firms as attractive
employers where they can develop their careers. Additionally, many leave in frustration after
just a short time because they hit invisible barriers and feel that their contributions and
creativity are ignored and stifled,” said Mr Peter Schumacher, who closely tracks the
European IT landscape as the CEO of management consulting firm Value Leadership Group.

Moreover, the perception of being job outsourcers seems to be negatively impacting their
ability to recruit local talent in Europe.

“Foreign companies in general and Indian IT firms, in particular, are seen as a riskier place to
work when compared to local firms. So there is a mix of related obstacles, many of which are
tacit, that Indian companies need to understand better and address,” Mr Schumacher said.

Why people hate the IAS

M. R. SIVARAMAN

The malaise of ineffective governance goes beyond the IAS. The entire system calls for
reforms. If the IAS has to be continued, it has to be merit-based and result-oriented.
  

A call for the abolition of the IAS by Mr N. R. Narayana Murthy, Chairman and Chief
Mentor, Infosys, has received wide media attention. Four decades ago, non-Congress parties,
when they came to power, had come up with a similar demand. Why is the IAS singled out,
when there are other All India Services, such as the IPS, the Indian Forest Service, the Indian
Foreign Service and the Indian Revenue Service whose members occupy important positions
in the central and state governments?

Is the ire directed at the IAS symptomatic of the widespread dissatisfaction against the way
governments in general have performed, with the IAS bearing the brunt? Are there other
factors which have contributed to the decline in levels of performance of all organised civil
services, and the IAS in particular?

DECISION-MAKING PROCESS

It is irrefutable that while India has globalised fast, its governance systems and procedures
are still antiquated, with reforms yet to reach areas where the common man is affected.
Decisions get delayed due to internal turf wars and political gerrymandering.

The officers of the IAS, who are at the pivot of decision making, have to take the blame for
not showing the commitment to reform the process of decision making. The Cabinet
Secretary has to realise this and ensure that the set-up in the ministries is revamped so as to
put responsibilities only on the officers. The present system of decision-making starts with
the initiating clerk so that all delays are explained away.

The other important reason for people to hate the IAS is that every act of mis-governance is
attributed to it. Some of it is justified, as many IAS officers who can fearlessly write what is
in the public interest fail to do so.

For example, a Secretary could refuse to oblige the minister if he /she had been asked to deal
with a case in a particular manner, and take the matter to the PM. When I was the Finance
Secretary in Madhya Pradesh, I disagreed with a cabinet sub-committee on a particular
matter. I was not prevented from expressing my views. Overruling my views caused
problems to the government but even those who suffered did not penalise me.

There are other instances of Secretaries refusing to tow the line of ministers. But most of
these cases are not known to the people. Similarly, District Collectors and Superintendents of
Police refuse to abide by the wishes of the local political bullies even though they suffer
frequent transfers. When someone joins the IAS, public welfare, national honour and
integrity should be the guiding principles. The globalisation of the Indian economy and its
rapid growth has generated a new breed of corporate executives who have a large purse to
spend on entertainment. Powerful lobbyists constantly flit in and out of ministers' rooms and
convey their wishes to the bureaucrats to do or not do certain things, with promises of future
jobs or better postings. Many bureaucrats in Delhi succumb to these manipulations.

BRIGHT SPOTS

The IAS has also changed in character and composition over the years, with a number of
MBAs from the IIMs, IIT graduates, doctors, economists and even veterinarians as its
members. Their pro-active role in propelling reforms cannot be under-estimated. They
conduct the elections in this country, and the world has acknowledged the efficiency in the
conduct of the largest elections in the world. Collectors in Tamil Nadu and elsewhere who
handled disasters received universal acclaim.

The IAS alone cannot be blamed for everything. An example of ministerial apathy is the lack
of reaction to the impassioned appeal by Mr Mani Shankar Aiyar in the Rajya Sabha recently
to implement the recommendations of the Planning Commission Expert Group on
Development Challenges in Extremist Affected Areas.

In the States most officers are not allowed to stay in the same post for even two years. What
can an SP or DM do in a district if he or she is transferred in a few months? Collectors and
superintendents of police who have done long stints are remembered for the good they have
done.
Collectors and SPs get killed in the line of duty and yet their sacrifices are not appreciated
either by the media or the public. The malaise of impotence in governance goes much deeper
than the IAS officers.

MERIT-BASED PROMOTIONS

Practically everyone selected for the IAS ends up with the maximum of the pay scale, despite
the fact that many of them would not have held positions of responsibility.

This is also true of the other services. The States to which officers are assigned at the
beginning of their careers routinely give the pay scales of higher ranks on the completion of a
fixed number of years of service; this is usually three to five years less than the number of
years required for a member of the service to get to that grade in the central government. This
leads to a proliferation of all posts, but it gets highlighted only for the IAS.

If the IAS has to be continued it has to be merit-based and result-oriented. All promotions of
the All India Services to the Joint Secretary level and above should be given by a central
committee consisting of the Cabinet Secretary and one senior Secretary each from the IAS,
non-IAS, IPS, IFS and an outside expert. Those who are found unfit should have the option to
retire.

No officer should be transferred unless he/she has completed a minimum of three years in the
post. All the assets of the officer charged with corruption should be frozen till such time a
decision is given by a court. Cases against such officers should be dealt with in courts
specially set up for this purpose so that decisions are given within four months of the charges
being filed. A strict code of conduct should be formulated and officers asked to take an oath
to follow them.

Perquisites and privileges should be made uniform across all the services, including the
armed forces, and adequate protection should be given to the officers against political
victimisation.

Enhancing microfinance
K. V. RAMANAND

Microfinance institutions need to be permitted to operate as a business or an industry with

an objective to make profits and grow.
  
Currently, over Rs 20,000 crore is channelled by private sector MFIs amongst around 28
million borrowers.

“Give a man a fish, you feed him for a day. Teach him how to fish, you feed him for a
lifetime,” goes the Chinese saying. Microfinance is hailed by many as the panacea to alter the
social fabric of rural India.

The depressing levels of poverty, particularly in rural India, motivated policymakers (such as
the RBI and the Registrar of Cooperative Societies) to embark on the Self-Help Group
(SHG), bank linkage programme to channelise the much-needed capital to the remotest parts
of the country with the hallowed twin objectives of social and economic uplift.

SIDBI and NABARD, leading Indian financial institutions, played a stellar role by lending
directly. They also paved the way for extensive private sector participation in this industry by
funding private sector players.

The emergence of the concept of microfinance and private sector institutions was primarily to
supplement and enhance the outreach of the traditional banking sector through the length and
breadth of the country.

The benign objective was to protect the poor from the usury they were subjected to from
unorganised moneylenders. Microfinance industry operates on the fundamental concept of
small loans disbursed amongst a group of close knit people and subtly leverages on social and
peer pressure to ensure full and timely repayment.

This industry has an envious record of loan recovery (almost 97 per cent). More importantly,
the sector also seems largely immune to the global financial turmoil as it tends to operate on a
regional basis. Therefore, it is highly susceptible however, to the regional issues and trends.

Organised phenomenon
What started as a local initiative by a few dedicated individuals with a social/community
objective to mobilise and channel local resources has become a parallel organised banking
phenomenon.

The style under which the entities operate ranges from for profit corporate entities such as
NBFCs (non-banking finance companies to Section 25 companies and societies and trusts.
Even the spectrum of regulators is widespread and ranges from the RBI to the Registrar of
Cooperatives.

For long, this sector depended on the traditional sources of borrowed capital. There were
many restrictions on free access to capital.

Public deposits were not available based on the nature of the entity and sources were
primarily from the community and grants. Priority sector norms enabled microfinance
institutions (MFIs) access to bank funds. Currently, over Rs 20,000 crore is channelled by
private sector MFIs amongst around 28 million borrowers.

Lately, this sector has attracted funds from global development financial institutions and,
more importantly, the global private equity funds. Private equity players have invested
approximately $300 million in this sector in about 25 transactions since 2006.

This availability of capital in turn saw many socially-oriented entrepreneurs launching MFIs
of their own. In all, over 3000 MFIs operate currently in India. This led many to draw
comparisons between the credit-card boom for the middle class and the poor man's credit
mechanism, the microfinance industry.

Key concerns

This rapid growth has led to many concerns being raised, primarily around the usage of funds
by the borrowers and the rates charged by the lenders. In many cases, the lending rates range
from an effective 25 per cent per annum to 32 per cent per annum.

Concerns were raised by activists whether this mechanism was fuelling rural consumerism by
encouraging “unnecessary” spending by making credit easily available.

Is the credit being used for “productive” purposes? Is the credit going for measures that
alleviate the impoverished status of the borrowers or is it meeting their short term
consumption requirements? Other serious considerations are with regard to the systems and
processes at the lending institutions to monitor and control disbursements and collections.
The MFIs have a requirement to strengthen their internal process and corporate governance
standards. This is mandated by the rapid growth of the industry and also the need to operate
from discrete and remote locations.

Considering the widespread presence of operations, many a times in remote areas with
minimal access to communication networks, there is serious inherent risk in operations.
Technology, therefore, will be a great enabler and can play an important role in the stability
and growth of this industry by minimising risks and also significantly reducing costs.

We believe that the microfinance industry is a path breaking tool in achieving the stated twin
objectives. The best and the most effective way of reaching there is by a judicious mix of
active private sector participation with a calibrated approach of support and regulation by the
Government and its agencies.

MFIs need to be permitted to operate as a business or an industry with an objective to make

profits and grow. The regulatory set-up should be focused on prevention of any frauds or
scams considering the high growth this sector is witnessing. The long-term growth of this
industry is ensured if the MFIs practise self-regulation and direct the funds for productive
purposes at a healthy margin without just being focused on growing the business by
maximising (not optimising) disbursals at the highest possible rates of interest.

Sharing of information about borrowers and their payment track record/defaults will go a
long way in preventing sizeable write-offs. This will also prevent multiple borrowings by the
same borrower from multiple entities. In some instances, the new borrowings were apparently
to service the old ones.

Regulatory supervision

The Government and other regulators should enable the MFIs to operate in an unhindered
manner but with a clear and strict oversight. There has been a lot of debate about the need to
regulate the interest rates on microfinance loans. The best that the regulators can do is to
encourage this sector that enables multiple players to enter and participate aggressively,
thereby increasing competition and the enhancing the need for efficiencies to survive and
grow.

In a very positive development, leading players in this industry have come forward to set up a
Microfinance Institutions Network (Mfin) that will interact on behalf of the industry with the
regulators to ensure sustainable growth of the industry. It hopes to enhance information
sharing amongst the members about the regulations, operational benchmarks and also
borrower profiles and, more importantly, act as a self-regulating initiative.
While corporate diktats suggest a full-blown stress on growth and profits, the nature of the
industry and the target segment it caters to position the players uniquely with the need for
socioeconomic consciousness. This is a challenge for the captains of the entities that operate
in this segment. However, we can be certain of one thing here — like some of the events that
transformed the country, like the IT revolution, the concept of microfinance is destined to
make a significant difference to the populace.

Spices export rises 12% in volume, 17% in value

Realisation from small cardamom, turmeric doubles in April-July.

42 per cent of the quantity target has been met, while 41 per cent of Rs 5,100-crore goal has
been fulfilled.

C. J. Punnathara

Kochi, Aug 25

There was all round increase in spices export from the country in terms of value and volume
as well as in foreign exchange earnings during April-July.
Prices of most spices increased compared with the same period a year ago. The unit value
realisation of small cardamom almost doubled, while large cardamom prices increased over
three-fold. The price of turmeric also more than doubled.

Shipments

During April-July, spices exports increased 12 per cent in volume to 1,93,875 tonnes
(1,72,510 tonnes), while the value realisation was up 17 per cent to Rs 2,084.96 crore (Rs
1,775.39 crore). Spices exports fetched $454.10 million ($374.68 million) in foreign
exchange, registering a growth of 21 per cent over last year.

Exports of pepper, chilli, ginger, celery, fennel, garlic and other spices such as tamarind and
asafoetida increased in volume.

The export of value-added products such as curry powder, spice oils and oleoresins, also
increased.

However, in the case of small cardamom, turmeric, fenugreek, nutmeg and nut-mace, the
increase has only been in value terms.

Although export volumes of these spices declined, a sharp increase in global prices for
several of these commodities have ensured that the total value realisation increased. Export of
coriander increased in volume, while the value realisation fell as the prices dropped in the
international markets.

Few spices such as cumin, mint products and some seed spices decreased in volume and
value. But the trend has been positive for most of the spices.

Chilli, Mint

Chilli was the biggest item of export with volume growing to 77,750 tonnes realising Rs
481.41 crore. This was followed by mint and mint products exports that fetched Rs 388.01
crore, although volumes remained thin at 5,500 tonnes. Spice oils and oleoresins came next
fetching Rs 294.28 crore on an export of 2,540 tonnes. Export realisation from turmeric has
also grown rapidly over last year to Rs 247.89 crore on an export volume of 18,350 tonnes.

Compared with the export target of 4,65,000 tonnes valued at Rs 5,100 crore ($1125 million)
for the current fiscal, the achievement of 1,93,875 tonnes valued at Rs 2084.96 crore ($
454.10 million) during April-July 2010 is 42 per cent of the quantity, 41 per cent of the rupee
value and 40 per cent of the dollar earnings target. If the trend is sustained, the country is
likely to surpass the targets set for the year, sources in the trade said.
Anand Sharma rules out cut in import duty on rubber

Aravindan

Kottayam, Aug 25

The Union Minister for Commerce and Industry, Mr Anand Sharma, has ruled out cut in the
import duty on rubber from 20 per cent, said Mr Sajen Peter, Chairman of the Rubber Board.

The Minister gave this assurance to a team of MPs from Kerala that called on him this
morning.

EXPERT PANEL

However, he said that the Government would be implementing the recommendations of the
expert panel constituted under the directive of the Delhi High Court to look into the demands
raised in a petition by rubber consuming organisations.

The expert panel had recommended that the import duty be retained at 20 per cent, but a
maximum ceiling of Rs 20.46 be fixed which is based on the average domestic price of
rubber during the last three financial years.

The recommendation was made by the expert panel after hearing the views of the
organisations and submissions by grower organisations.

This recommendation was welcomed by the Rubber Board meeting held on July 31.

PHASED MANNER

The Minister also said that import with the duty cap would be allowed only in a phased
manner in lots of 25,000 tonnes.

Dr Rahul Khullar, Union Commerce Secretary, and Mr Sajen Peter, Rubber Board Chairman,
too attended the meeting with the Commerce Minister.

Move to allow cotton exports hailed

Chennai, Aug 25

The Cotton Association of India (CAI) has welcomed the Centre's decision to allow exports
of raw cotton and cotton waste from October 1. The long-term interest of the cotton economy
in the country was ensuring availability of the abundant cotton supply. The Government's
decision to suspend cotton exports will remove ambiguity in the minds of cotton farmers,
assure them of remunerative price for their produce and encourage them to produce more
cotton. It will also send a positive signal to the global cotton economy and remove doubts in
the minds of buyers of Indian cotton worldwide, said Mr Dhiren Seth, President of CAI in a
statement. — Our Bureau

Fighting absenteeism, B-school shows the way

LEARN AND EARN.

A.J. Vinayak

Mangalore, Aug. 27

Want to bunk classes to watch a new movie? Think twice. In normal circumstances, students
may lose a class. But the Nitte-based Justice K.S. Hegde Institute of Management has turned
this predictable inclination as a learning tool as well as an attendance monitoring system.

Leave trading system

Call it a penalty for not attending the class or an innovative method to learn and earn, the
leave trading system (LTS) of the institute allows students to trade their leaves providing
them an opportunity to learn the theory of pricing and trading of securities and assets in the
market and at the same time bringing down cases of absenteeism among students.

Prof Radhakrishna Sharma, Associate Professor at the institute, who came out with such an
idea, told Business Line that this method is used to control absenteeism and to teach theory
practically.

Improvement in attendance

Stating that it can do wonders in educational institutions, he said: “It has made dramatic
improvements in performance at our institute and achieved its objectives.”

The system works as follows: Students will be issued 20 coupons a semester. If a student is
absent for a class, he/she will have to give a coupon to the faculty whose class he/she misses.

The students are free to trade the coupons within their class at a price to-be-decided by the
market forces of demand and supply.
It automatically controls the attendance of students on a self-regulation basis. If the students
start absenting more, then the price of the coupon shoots up. The price, which started at Rs 10
a coupon at the institute, has reached Rs 65 now, he said.

After introducing LTS a-month-and-half ago, the level of attendance has increased by 15 per
cent, he said.

Prof Sharma said the LTS helps them understand factors influencing the securities, how a
person takes cues from the market and the price discovery in the market. The law of demand
and supply can be practically learnt in this system, he said.

Those who are prompt in attending classes make money by trading coupons, while the
absentees attract attention of their parents by spending money to buy coupons.

Monitoring attendance

Stating that punishments such as imposing fine on students for remaining absent or calling
their parents to the college are not a pleasant experience to students, Prof Sharma said.

LTS practically monitors attendance at the institute.

Students who are away on health grounds or those deputed by the institute for some
competitions or events are exempted from the coupon system, he added.

Right pricing of water

With the growing scarcity of water, we need to invest in institutions for water allocation
rather then work at interventions for augmenting its supplies, says M. Dinesh Kumar in
Managing Water in River Basins: Hydrology, economics, and institutions ( www.oup.com).
Citing studies, he adds that in situations such as what India faces, the opportunity cost of not
investing in institutional reforms would be much higher than the transaction cost involved.

A section on ‘pricing of water' opens by stating the general principle that the price of water
for competitive use sectors such as irrigation and water-intensive industries means that
pricing of water should be fixed in such a way as to discourage economically inefficient uses.

Wasteful practices

The author traces how, after Independence, the Indian governments saw irrigation as welfare
means and therefore were reluctant to raise irrigation fee charged to poor farmers. “Also, the
charges are paid on acreage basis and are not reflective of the volume of water used. It is
believed that the lack of linkages between volumetric water use and water charges, and lack
of agency capability to recover water charges and penalise free riders create incentive for
overuse or wasteful practices.”

Merely raising water tariff, however, without improving the quality and reliability of
irrigation will not succeed, reminds Kumar. He adds that poor quality of irrigation increases
farmers' resistance to pay for irrigation services they receive because returns from irrigated
crops are more elastic to quality of irrigation than its price.

“Therefore, the ‘water diverted' by farmers in their fields does not reflect the actual demand
for water in a true economic sense, so long as they do not pay for it. In other words, the
impact of tariff changes on irrigation water demand can be analysed only when the water use
is monitored and farmers are made to pay for the water on volumetric basis.”

Quality of irrigation

Interestingly, if positive marginal prices are followed by improved quality, the actual demand
for irrigation water might actually go up depending on the availability of land and alternative
crops that give higher return per unit of land, one learns. This is because the tendency of the
farmers would be to increase the volume of water used to maintain or raise the net income, as
studies show.

When the farmer is confronted with marginal cost of using water, the water application
regime should ideally correspond to a point where the net return per unit of land is highest,
the author argues.

Though this level of irrigation may not correspond to the point of maximum water
productivity for that crop, he says it would result in higher water productivity in economic
terms (Rs/cubic metre) as compared to a scenario of zero marginal cost of water. Also,
increased efficiency may not lead to reduction in aggregate water use, as farmers might tend
to increase the area under irrigation.

Power for agriculture

An allied area is power for agriculture, where researchers have come up with varied views,
ranging from emphasis on ‘rational pricing of electricity as a potential fiscal tool for
sustainable groundwater use,' to caution that ‘flat rate-based pricing structure of electricity in
the farm sector creates incentive for farmers to over-extract water as the marginal cost of
extraction is zero.'

The book cites Saleth (1997) for the caveat about the negative impacts of power tariff hike on
the economic prospects of farming, unless farmers shift to high-valued crops. “The
underlying argument is that the price levels at which power demand responds to tariff
changes would be too high that the traditional irrigated crops would become economically
unviable for the farmers.”
Another study is by Shah et al. (2004) postulating that given the millions of wells and pumps
scattered over vast rural areas, metering is an almost impossible task, and that the cost of
metering electricity consumption in farm sector would be so high that, if transferred to the
consumers, it would have negative impact on the social welfare produced from the use of
energy in agriculture.

Diesel command

Insightful, in this context, is a study reported in the book about the finding from the Mehsana
district of north Gujarat and coastal Saurashtra on diesel and electric well commands: that
control over watering will have greater bearing on the net returns from irrigation than the cost
of irrigation.

“In spite of the higher direct cost of irrigation using diesel pump as compared to the implicit
cost of irrigation using electric motors, the command areas with diesel pumps were found to
receive more irrigation and give much higher yield levels as compared to those with electric
motors.”

This means, as Kumar elaborates, that the desired impacts of changes in the pricing structure
of electricity on economic efficiency of irrigated crops can be realised only if the quality of
power supply is ensured.

Managing urban use

Urban areas are expected to become the second largest user of water by the end of the first
quarter of this century. Promoting, therefore, efficient use in urban water sector will have a
strong leverage in managing the overall demand of water to match the supplies, observes the
author.

The first institutional factor, in this area, is subsidy, he identifies. “Domestic water supply is
highly subsidised in many Indian cities… Though in many cities, the average water tariff is
higher than the cost of production and supply of water, the high average is because of high
tariff levied from industries and commercial connections.”

Water supply administration ranks as the second factor, where a worrying fact is that
domestic water supply is not fully metered even in large cities.

Pollution tax
The book devotes attention to pollution control as a topic related to water management. It
should be a matter of concern that although the existing pollution control norms are stringent,
the legal powers to enforce them are lacking with the pollution control agencies.

“Industries and municipal authorities often get away with flouting the pollution control
norms… The fact that the agency that monitors ‘pollution' is the same as the agency that
enforces the ‘norms,' which is against the institutional design principle for sound water
management further weakens the agency.”

Moreover, the polluting industries and municipal authorities are not confronted with the
opportunity costs of pollution, rues Kumar, as the penalty paid for pollution is much lower
than the investment in effluent treatment facilities to avoid or mitigate pollution.

Hence, he calls for the levy of pollution taxes that reflect the volume of effluent discharged
and the level of toxicity of the effluents. "Incremental block rates can be introduced, along
with creation of two separate institutions, one for monitoring pollution and the other for
levying pollution taxes and carrying out corrective measures against pollution." The
effectiveness of economic instruments in pollution control, as the author concedes, would
depend on the water quality monitoring (WQM) systems.

Growers, traders cool to duty cap on rubber imports

Panel's recommendations on levy termed ‘fair'.

 
Rising demand: A close-up view of a rolled rubber sheet at a commodity collection centre
near Kochi. –

C.J. Punnathara

Kochi, Aug. 27

The decision of the Union Commerce Ministry to impose a duty cap of Rs 20.46 a kg on
rubber imports or a customs duty of 20 per cent, whichever is lower, has found all round
acceptance among the rubber growers and traders. The decision was based on the report of a
high-level panel constituted by the Government and headed by the Rubber Board Chairman,
Mr Sajen Peter. Rubber prices have fallen from their recent peaks after the Commerce
Ministry announced the non-advalorem duty cap on rubber imports.

We have tried to be impartial and fair in our recommendations to all segments of the rubber
sector, be it the grower, trader or the consuming industry, sources in the Rubber Board said.

Without the industry the Indian rubber farmer would not survive and without the farmer the
Indian rubber industry would not survive. We have tried to ensure the survival and growth of
all stakeholders, they added.

Fair decision

Terming the decision fair, a source in Harrisons Malayalam, the largest rubber plantations
group in the country, said that the cap would start working only if domestic prices rule higher
than the international prices. The new ruling is likely to deter unhindered growth in rubber
prices while at the same time offering more competitive prices to the industry.

Historically the demand for rubber has invariably been in sync with supply and close 98 per
cent of domestic demand being met from domestic production. When the protection meted
out to industry and rubber growers were withdrawn during the last decade, Indian and
international prices were expected to narrow down and become uniform. However, domestic
rubber prices were persistently quoting below global prices during the last five years but for
the year 2009, Mr J.K. Thomas, former President of the United Planters Association of
Southern India, said.

This was partly because the domestic rubber industry was dominated by some major players
who accounted for 50-55 per cent of the domestic consumption. The production segment was
dominated by small and medium-scale growers who accounted for 90 per cent of the Indian
rubber production. In this background, Mr Thomas advocated strict vigil by the Government
on imports stating that specific quantities could be imported at specific prices to contain
major price disparities. An annual review on import duty cap would also be beneficial to the
grower and the industry.

Review prices

After the decision to impose 20 per cent duty was taken in 2004, it was high time that a
review of the prices and duties on natural rubber was undertaken, Mr N. Radhakrishnan,
former President of the Cochin Rubber Merchants Association said. The average rubber
prices were Rs 55.71 and the import duty worked out to Rs 11.42 a kg in 2004. By 2010, the
prices peaked over Rs 180 and the duty rose to Rs 30 a kg. He felt that the reduction in duty
to Rs 20.46/kg would be in favour of the industry, which was evident in the recent fall in
prices. With the demand for natural rubber poised to overtake domestic supply, remunerative
prices to the farmer were mandatory to ensure faster extension and accelerated production of
this vital crop.

Kharif coverage of all crops, barring soya, up

Our Bureau

Chennai, Aug. 27

With the monsoon picking up this month, sowing in almost all crops, barring soyabean, has
gained.

According to the Agriculture Ministry's data, the area under rice has increased to 312 lakh
hectares (lh) against 293 lh during the corresponding period a year ago. The rise is despite
deficient rainfall in the eastern parts, particularly Bihar, Jharkhand and West Bengal.

Cotton acreage

Coverage of cotton has increased to a record 106 lh (98 lh), while sowing in sugarcane is
estimated to have been completed in 48 lh (42 lh).

Oilseeds coverage has also improved but the area under soyabean trails 3.2 per cent at 92 lh
(95 lh). This is mainly in view of parts of Madhya Pradesh being covered by monsoon rather
late. However, Government authorities expect a higher yield in these areas to make up for the
lost coverage.

Groundnut's revival
Groundnut acreage that witnessed a sharp fall last year along with production seems to be on
a comeback. Sowing in the crop has increased nearly 20 per cent to 49 lh (41 lh).

Acreage in coarse cereals has increased over 10 per cent to 202 lh (183 lh).

Of this, area under maize is up at 73 lh (69). Bajra and jowar coverage has increased mainly
since farmers in rain-fed areas of northern parts, especially Rajasthan and Haryana, chose to
sow them.

Pulses crops are among the ones that have witnessed a rapid improvement over last year.
Enthused by timely monsoon in States such as Maharashtra, Karnataka and Andhra Pradesh
and higher minimum support prices, farmers have covered a higher area. The area under
pulses so far is 109 lh, up from 89 lh last year.

Meanwhile, the storage position in the 81 major reservoirs in the country is near the 10-year
average.

Water level as on August 26 in the reservoirs was 82.792 billion cubic metres (BCM) against
the full reservoir level of 151.768 BCM. This is 55 per cent of the capacity, marginally lower
than the 10-year average of 56 per cent. During the same time last year, the level was 42 per
cent.

Stress on self-sufficiency in pulses production

Our Bureau

Hyderabad, Sept. 5

There is a need for the county to ensure self-sufficiency in production of pulses, according to
Dr William D. Dar, Director, International Crops Research Institute for the Semi-Arid
Tropics (Icrisat), Hyderabad.

In his inaugural address at the ‘Hyderabad Pulses Conclave 2010' co-sponsored by Icrisat and
Agriwatch here on Saturday, Dr Dar said: “India needs to mobilise innovations and delivery
and support systems to ensure that these pulses are sufficiently produced locally. Our shared
goal should be that India should be self-sufficient in pulses.''

Mr R. Gopalakrishnan, Executive Director, Tata Sons, said there was a need for leadership in
mitigating shortage of pulses.
Mr N. Raghuveera Reddy, Minister of Agriculture, Government of Andhra Pradesh, said the
State Government would provide necessary extension support and timely availability of
inputs, besides creating a transparent marketing infrastructure for the farmers.

Mr N.V. Ramana, Chairman, Agriwatch, said the objective of the conclave was to bring
under one roof research specialists, policy makers and traders to draw a roadmap for self-
sufficiency in pulses.

Four states, namely, Andhra Pradesh, Karnataka, Kerala and Tamil Nadu cumulatively
account for 15-20 per cent of the total pulses production.

Sugar policies paying off

Prices are consumer-friendly.

Our Bureau

Mumbai, Sept. 5

Have the government's sugar policies relating to imports and administrative measures such as
stock limits worked well for consumers?

Admittedly, wholesale prices are stable at Rs 2,700-2,800 a quintal the last four months or so,
having fallen from January/February levels of Rs 3,700-3,800.
Importantly, sugar prices in India are lower than those in other producing countries such as
Brazil and Thailand, said an analyst. Avoidance of import on government account was a
prudent step that kept overseas quotes under check at a time when India's own domestic
output was revised higher, he asserted. With demand and supply (domestic plus imports)
broadly matching consumption needs, no major price volatility is seen except for some minor
cyclical pressure during the upcoming festival months, according Mr Tejinder Narang,
commodity analyst and former director of PEC Ltd.

Indian prices are currently delinked from the world market because of sound government
policies relating to imports and enforcement of stock limits, he asserted, adding “we are
safely insulated from the ongoing port congestion in Brazil that is playing havoc with export
shipments to many consuming markets”.

In contrast, Trading Corporation of Pakistan, the government mandated agency, is facing

strong criticism for its failure to organise timely imports of sugar, Mr. Narang points out.
Pakistan bought emergency needs of about 3.2 lakh tonnes at a high $725 a tonne C&F a
couple of weeks ago. This translates to Rs 34 a kg.

Thailand, a major exporter, overcommitted sugar for the overseas markets and found itself
short in the domestic market, so much so that the Thai government recently bought 75,000
tonnes from multinational warehouses in the country at $ 720 a tonne. So overall, India is in a
happy position as far as sugar availability and prices are concerned, concluded Mr Narang.

The golden bean of 20th century

FOCUS: SOYABEAN.

The “Golden Bean” of 20th century, soyabean is a legume classed as oilseed with about 20
per cent oil, 40 per cent protein and 30 per cent carbohydrates. It is claimed to produce at
least twice as much protein per acre than any other major vegetable or grain crop and has
favourable nutrient profile for human health.

Soyabean first originated in China but today top producers in the world are dominated by the
western countries. The US ranks first in global soyabean production and acreage accounting
for 35 per cent of the total production, followed by Brazil (26 per cent), Argentina (21 per
cent), China (6 per cent) and India (3 per cent). These top five countries contributed about 91
per cent of the world's production in 2008-09. In 2009-10, the world produced 258 mt of
soyabean and in 2010-11, it is estimated to dip to 250 mt due to reduction in acreage in the
US, Brazil and Argentina.

In 2009, the Department of Agriculture, Government of India, reported a slight increase in

acreage to 9.67 million hectares from 9.62 million hectares in 2008. According to SOPA data,
soyabean production in the country is estimated at 9.72 mt in 2009-10. India produced 1.1 mt
of soyabean oil and imported 1.5 mt in 2009-10, which was about 17 per cent of the world's
soyabean oil imports.

In the same year, India exported 2.2 mt of soyabean meal, accounting for about 4 per cent of
the global exports. India mainly imports soybean oil from Brazil/Argentina and exports
soyabean meal to China.

In India, initially soyabeans were introduced in Madhya Pradesh and Uttar Pradesh where
fallow lands were utilised between the kharif (monsoon) and rabi (sowing) season. The short
duration of soyabean did not affect the sowing time of the second crop after the monsoon
season.

Today, the major soyabean states lie in central zone: Madhya Pradesh contributed to 65 per
cent (5.5 mt ) of the total production in the country followed by Maharashtra (24 per cent) (2
mt ) and Rajasthan (6 per cent) (2009-10).

In Vidharba region in Maharashtra, farmers have adopted this miracle bean over cotton as it
requires less inputs, water, less cost of cultivation as compared with cotton. Major varieties
planted in India are JS-335, NRC (Ahilya), PUSA, MACS etc and sowing is carried out in
kharif season with the onset of rains in the second week of June and harvested in October.
Rest is planted in spring mainly in central India.

About 85 per cent of the world's soyabeans are processed, or “crushed,” annually into
soyabean meal and oil. Approximately 98 per cent of the soyabean meal that is crushed is
further processed into animal feed with the balance used to make soy flour and proteins.

Of the oil fraction, 95 per cent is consumed as edible oil; the rest is used for industrial
products such as fatty acids, soaps and biodiesel. With a total of 155 extraction plants, the
country has a processing capacity of 55,000 tons/day crushed about 7 mt soyabean in 2007-
08, which is about 3 per cent of the world, producing 1.1 mt of oil and 3.2 mt of meal export.

Global soyabean prices are governed by factors like soya oil prices, which in turn depend on
demand for soya oil and soya meal, crop outlook for soya and other oilseeds, prices of other
competing oils, freight and import duty. Soyabean prices in the Indian market have become
extremely sensitive to global trends. The rising demand in China, decrease in acreage in
South America or damage due to pest in the US have had major impact in major soybean
mandis such as Indore and Nagpur.

Constraints
Major constraints in Indian soyabean industry are the low-yield production per hectare ie half
of the world average, loss due to disease and pest faced by farmers, which goes up to 40-60
per cent damage to crop, competition from palm oil which is cheaper than soyabean oil and
changing crop pattern from soyabean to cotton as the latter has more MGP declared by the
Government.

Government policies needs to address the issue of crop shifting pattern observed in the
soyabean zone and stronger steps needs to be taken to maintain the soyabean acreage. Private
players can also play a major role by going forward with contract farming arrangements.

Changing patterns of consumption and production have meant that palm and soyabean oil
consumption has increased, from a mere 4 per cent in 1970's to 59 per cent today (38 per cent
palm and 21 per cent soyabean) oil today. There lies immense scope and potential to harness
the packaging and branding of soyabean oil. Certain developmental steps which could be
taken to develop soyabean industry:

a) Increase acreage: Domestic edible oil production is not sufficient to meet the demand
hence we need to increase the production so as to decrease imports. Total edible oil demand
is expected to grow by 3-4 per cent per annum over the next 5-10 years, which translates into
an additional requirement of 0.3 to 0.4 million tons a year.

b) Development of better resistant varieties resistant to various diseases and pest.

c) Research by NCSR, Indore, to double the yield by using advance technology and practices
from the developed nations.

d) Favourable policy decisions which will give better MGP to farmers, which will stop
farmers from shifting to other crops. (eg: In MP, farmers are showing a pattern of shift to
cotton as latter has higher MGP).

The economics of food management

Harish Damodaran

Kaushik Basu proposes a new framework for release of foodgrains from government
warehouses.
Last year, official food inflation peaked at 21.05 per cent for the week ended November 28.
Since then, it has eased — though the year-on-year rise of 10.86 per cent for August 21 is still
in double-digit territory.

Moreover, in absolute terms, the ‘food articles' index for the latest recorded week, at 303.3, is
higher than the 296.1 level for November 28. Thus, while food inflation may have declined,
food prices haven't: They have actually gone up.

What makes the current episode of high food prices perhaps unprecedented is the fact that it
is in spite of overflowing government granaries. As on July 1, public rice and wheat stocks of
around 58 million tonnes (mt) were more than twice the required minimum buffer of 26.9 mt.
It is this spectacle of ‘packed godowns' amidst ‘hungry stomachs' that has provoked even the
Supreme Court to take notice.

At the heart of the mess is, obviously, flawed foodgrains management. The Government, in
recent times, has been procuring more and more quantities of grain from farmers. Increased
procurement has, however, not been matched by correspondingly redoubled efforts at
releasing the grain where and when necessary. By doing the former well and not the latter,
the Government has ended up being a net buyer from the market, while simultaneously
raising the average price of food.

The mechanics of this entire process is lucidly illustrated by the Chief Economic Adviser,
Prof Kaushik Basu, in a paper posted on the Finance Ministry's website
( http://finmin.nic.in/WorkingPaper/Foodgrain.pdf).

Economists' approach
Economists are known for using supply-and-demand curve tools to analyse everything under
the sun at the drop of a hat. Prof Basu has employed the same technique to understand the
workings of India's foodgrain markets and the structure of government policy interventions.
For a change, it does throw some useful light on why things have gone so wrong, while
challenging entrenched positions even within the Government and Prof Basu's own Ministry.

The accompanying figure, taken from the paper, depicts a standard demand (D) and supply
(S) schedule for, say, wheat. The demand for wheat rises with declining prices, just as
farmers (and traders) would supply more as prices go up. If the market is left free, with no
government intervention, the price will settle at P {-m}. At this ‘free market equilibrium
price', a quantity of OE will be bought and sold.

Now, what happens when the Government steps in, with a view to provide grains to
vulnerable consumers at below the market-equilibrium price and also guarantee a certain
minimum support price (MSP) to farmers? If the Government wants to buy, it has to pay
more than P {-m}; if it offers less, farmers would rather sell at the market price. In the event,
it sets the MSP higher, at P {-s}, while driving up the market price as well to this level. At P
{-s}, a total quantity of OA would be supplied. Of this, the Government will purchase BA
and others the balance OB (which is less than OE).

The problem arises when the Government, having procured the wheat, decides on its
offloading. The prevalent practice has been to offer grain from the Food Corporation of
India's (FCI) stocks at above its purchase price, covering the MSP plus transport and sundry
costs. This strategy, Prof Basu argues, makes little sense. Why should a miller pay above P {-
s}, when he could well buy at P {-s}, which is now the market price? If the Government is
really keen to sell, it should make the grain available at or below P {-s}.

Why is it not doing so? The answer stems from the mistaken belief that since the FCI is
already issuing substantial grains to the poor at below even P {-m}, it needs to cut some of
these losses by selling at above the acquisition cost to non-poor consumers. But then, by
trying to sell at a price at which it is unable to sell at all, the fiscal burden on the Government
would only be greater, as the cost of procurement is a ‘sunk' cost. If the Government
genuinely wants to pay farmers more than P {-m} and, at the same time, supply wheat to the
poor at below Pm, it has no choice but to incur a fiscal cost, which is BA multiplied by P {-s}
- P (where P covers a range of prices below P {-s}).

Release, the key

The key to sustain such an operation, Prof Basu notes, lies in managing grain releases. Given
that the effect of Government procurement is to raise market prices beyond the normal
equilibrium level (P {-m}), corresponding efforts are necessary to release grain back into the
system. In bad crop years — when the aggregate supply curve shifts leftwards, leading to a
higher P {-m} — the FCI should ideally not buy at all. This can be done by keeping the MSP
unchanged, so that P {-s} is below P {-m} and farmers are encouraged to supply mainly to
the market. This, combined with more releases from public stocks, will help stabilise open
market prices.

The current system, by contrast, makes the Government a net buyer in all times — whereas it
ought to be procuring only during the immediate harvest period (so that farmers solely
benefit) and largely in bumper crop years. The release window, on the other hand, should be
open round the year.

Prof Basu suggests that the Government must not excessively monitor where the released
grain is going and whether traders are making a killing in the bargain. A better way is to
release grain from FCI godowns in small quantities to large numbers of millers and traders,
and giving them the freedom to make profits. Competition will drive the prices down through
natural market forces.

The ultimate aim is to ensure that the grain procured by FCI goes back into the system and
the Government does not become a hoarder, which it is today. Point taken, Professor. But can
you get your Minister and other higher-ups to agree?

Role of technology in transforming Indian agriculture

Insistence of the scientists that new varieties be provided sufficient nutrients, newer
agronomy and proper pest control brought in substantially higher yields.

Dr B. R Barwale

A large agricultural country with a population of more than 115 crores (1.15 billion), over
half of India depends on agriculture for livelihood.

With population increasing simultaneously with expanding raw materials consumption for
industrial production, demand for agricultural products is consistently rising.

In the 1960s, we were overly dependant on imported foodgrains; infamously known as ‘ship
to mouth' existence. The PL-480 red sorghum we imported was not suitable for bread
making; yet, we were forced to consume the grains then.

Now, we are largely self-reliant in wheat and rice, but import large quantities of edible oil (80
lakh tonnes ) and pulses (30-35 lakh tonnes) to meet the growing calorie and protein needs of
a predominantly vegetarian population.
There are not many suppliers of pigeon pea (arhar/tur) in the world; so, we substitute pigeon
pea with peas. Canadian farmers are said to be setting up dal mills to provide Indian
consumers with peas-dal.

In 1957, ICAR signed an agreement with Rockefeller Foundation to increase food

production.

The first maize hybrids were produced in 1961, the first Jowar hybrid CSH-1 was produced
in 1965, and the first Bajra hybrid HB-1 in 1966. Both jowar and bajra hybrids were
produced at Barwale Farm, Mandwa, in Jalna district of Maharashtra, successfully for the
first time in India.

Simultaneously, the new technology wheat varieties— Sonaro 64 and Larmarojo from Dr
Borlaug's evolutions — were tested at IARI by Dr M. S. Swaminathan and his team of
scientists, while Dr Challam introduced dwarf rice variety from Taiwan Taichung Native -1.

All these newer varieties were the result of new technology that was being introduced to
Indian farmers. Insistence of the scientists that these new varieties and hybrids be provided
sufficient nutrients, newer agronomy and proper pest control brought in substantially higher
yields.

Thus, the introduction of new technology transformed India from food deficit to surplus. This
transformation was named “Green Revolution”.
Now, there is talk of an Evergreen Revolution that must transform our agriculture once again
given the new compulsions. To realise the goal, there is urgent need to constantly provide
improved and newer technologies so that green revolution remains topical and continuous.

Revolution in Indian cotton sector is a live example of the role of technology in transforming
Indian cotton production. In just six-seven years of introduction of Bt seeds, Indian cotton
production has nearly doubled.

Specifically, we have become the world's second largest producer after China; world second
largest exporter with 85 lakh bales (after having been net importers until a few years ago);
and yields have nearly doubled to 570 kg per hectare.

New technology

It is, by far, a record for adoption of new technology by small Indian farmers. In addition to
raising growers' returns, it has helped farm labour earn higher wages due to good crop yields.

Today, everybody talks of production in terms of lint; and cotton is termed a non-food crop.

We forget that lint is only 33 per cent of cotton, whereas 66 per cent is food quality oil and
cake (cattle feed).

To achieve food and nutrition security, we need to improve upon crop productivity in cereals
(rice, wheat, chickpea, pigeonpea); and oilseeds (groundnut, soyabean, sunflower,
rapeseed/mustard) to achieve self-sufficiency in edible oil. It is absolutely possible. In fibre
crops, despite improved cotton productivity, there is still scope to elevate it.

Today, major problems in improving productivity are:

1) Drought susceptibility; 2) nitrogen use efficiency; 3) insect damage; 4) diseases; and 5)

sucking pests.

But these are not insurmountable problems.

Importantly, we are a talented nation. Our scientists are capable of rising to the occasion and
delivering the goods. Our laboratories in public sector are well-equipped. Private sector also
has invested large sums in R&D with good results.

They are bringing in products for crop productivity improvement. The farmer is very
responsive. He is as good as anywhere in the world. He has accepted the technology for
dwarf wheat and rice. The same way or even faster, he has accepted hybrids in cotton and
vegetables. He has accepted Bt cotton in a revolutionary way and created a record of
technology acceptance.

The Government generally has been supportive of technology in agriculture. However, the
country's needs are large and urgent. We need more vigorous and high-speed decision-
making.

Several times it is frustrating to invest in and conduct research, with outcomes and policy
support uncertain. Eight to ten years of time for a product launch and before that seven years
of research is a really long time.

I do not know whether our nation can afford this long timeline given the imperatives of food
demand growth.

To overcome pulses shortage, particularly pigeonpea and chickpea, ground-breaking research

on pigeonpea (Cajanus cajan (L.) Millsp) hybrids and related efforts to improve yields,
nutrition and disease resistance have been carried out.

Pigeonpea is suitable for ensuring food security through rainfed agriculture as it tolerates
drought, needs minimal inputs and produces reasonable yields of grain containing 20-22 per
cent protein and essential amino acids.

The split peas are used for cooking to make dal, which is eaten with bread and rice.
The world's first pigeonpea hybrid, ICPH-8, was released in 1991 by ICRISAT (International
Crops Research Institute for Semi Arid Tropics). However, it has problems in producing
hybrid seeds.

Scientists have now developed hybrids using cytoplasmic nuclear male sterility, achieving
the first breakthrough in this technology by crossing the wild species C. cajanifolius with a
cultivated line.

The newer method has an excellent and stable male fertility restoration system. It has made
possible the development of several genetically diverse experimental hybrids.

While medium duration hybrids, which mature in 170-180 days, yield 2,650 kg per hectare
under irrigation, this hybrid yields even higher at 3,250 kg / ha. Efforts are on to introduce Bt
in Pigeonpea to control pod borer. Although pigeonpea was a neglected crop, there is now
better price support.

With heterosis and control of pod borer, pigeonpea yields can double, bringing remunerative
returns to growers. In five-seven years, we can have four times the current production.

Besides it's a leguminous crop and fits exactly into crop rotation.

Chickpea yields also can be rapidly improved by making it pod borer-proof. Mahyco is
working on providing pod borer and sucking pest resistance by adding new genes. This also
provides opportunity to double the yields.

Besides, the chickpea borer in storage can be checked with this gene.

Without doubt, technology has a critical role in transforming agriculture and in addressing
persistent shortfall in crop production.

Rotting grain and food security

Stocks in government warehouses do not make for food security; but food in every kitchen on
a daily basis does.

The Supreme Court's unsuppressed ire over the wholly avoidable rotting of foodgrains in the
open and its order that grains be distributed to the poor free may have upset many within the
government and outside for its overtones of judicial activism. But from a purely humanitarian
perspective, the order is but an indictment of the callous attitude of the government towards
management of the country's humungous foodgrain stocks. Unabated food inflation hurts the
poor the hardest and avoidable wastage of large quantities of food in a country where
millions live below the poverty line borders on criminal negligence. One is reminded of the
telling lines from a song of Tamil poet Subramania Bharati — ‘even if one man goes hungry,
we shall destroy the world'. The stark contrast with the current situation is inescapable.

It is easy for policymakers to take refuge under administrative formalities to assert that free
distribution of grains is not feasible under the present political set-up. But what has been in
demonstration in recent years is the utter lack of political will to deploy effectively the public
stocks of grains by making them affordable for the poor. Unconscionable amounts are spent
annually on storing vast quantities of rice and wheat, far in excess of the needs of the country,
pumping up the food subsidy bill. If these grains rot because they are not stored scientifically,
it only reflects the failure of the government's foodgrains management policy and the lack of
imagination and commitment to deploy it for general welfare. Food stocks in government
warehouses do not make for food security; but food in every kitchen on a daily basis is what
does for individual families and the nation.

While there can be no justified argument against increasing minimum support prices or
procurement prices for growers, it is necessary to use the procurement policy to address crop
imbalances in certain regions. Open-ended procurement of rice and wheat is fast turning
counter-productive, going by the serious soil degradation and alarming decline of water table
in frontline States such as Punjab and Haryana. Even as an ecological disaster is waiting to
happen, open-ended procurement simply encourages continued grain mono-cropping. This is
compounded by inadequate storage infrastructure and lackadaisical handling of foodgrains.
What we need is a holistic approach to foodgrains production, processing, storage, movement
and distribution, with the various ministries at the Centre and in the States playing effective
roles in maximising welfare gains from procurement, pricing and distribution. As food
security and food inflation are largely seen as the responsibility of the Central government,
New Delhi must at least now show renewed resolve for more scientific management of
foodgrain stocks.

Breakthrough to "revolutionise" food production

HASAN SUROOR
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In what is being hailed as the most significant breakthrough in agricultural science since the
“green revolution”, a team of British scientists has decoded the genetic sequence of wheat —
claimed to be the largest genome to be sequenced to-date — raising the prospects of bigger
and faster disease-resistant crops to meet the looming global food shortage.

The achievement by scientists from the universities of Liverpool and Bristol and the John
Innes Centre in Norwich would “revolutionise” wheat production leading to greater food
security and lower prices, experts behind the research claimed.

“We have delivered most of the sequences necessary for plant breeders to identify genetic
differences in wheat. The data will dramatically increase the efficiency of breeding new crop
varieties,” said Keith Edwards of the University of Bristol.

Researchers said farmers were expected to start producing higher-yields of disease resistant
crops within five years.

“The information we have collected will be invaluable in tackling the problem of global food
shortage. We are now working to analyse the sequence to highlight natural genetic variation
between wheat types, which will help significantly speed up current breeding programmes,”
the University of Liverpool said in a statement.

Scientists said it would now be possible to identify genes which controlled important
agricultural characteristics.

“Using this new DNA data, we will identify variation in gene networks involved in important
agricultural traits such as disease resistance, drought tolerance and yield,” said Anthony Hall,
a member of the research team.

The data, a version of which would be placed online so that farmers around the world could
have immediate access to it, would help “accelerate the speed and accuracy of plant-
breeding”, Prof Mike Bevan of the John Innes Centre told The Times pointing out that while
the genomes of rice and maize had already been sequenced, contributing to vastly improved
breeding, wheat had, so far, proved harder to sequence because its genome was “vast and
highly complex”.

Universities and Science Minister David Willets said the new advance would help produce
crops that could “thrive in challenging conditions” at a time when the world was facing the
prospect of food shortages.

David Kell, chief executive of the Biotechnology and Biological Sciences Research Council,
which gave a £1.7 million grant for the project, described the breakthrough as a boon for the
world food system.

AP adds:

British scientists say they’ve decoded the genetic sequence of wheat and are posting the data
online.

The plant is among the world’s most important crops and the researchers say the information
could help farmers create disease-resistant strains of the global food staple.

University of Liverpool Scientist Neil Hall says the wheat genome was far longer than the
human genome first unravelled 10 years ago. But he says the techniques used to decode
genetic information have improved considerably, meaning the process took only about a year.

Hall and others worked on a strain of wheat known as Chinese Spring. Hall said Friday that
his team would soon work to decode other varieties.

Renewable energy: A success story

R. Balaji

Tamil Nadu success in the field of wind energy is a given, with more than 5,000 MW of
generation capacity in place and more in the pipeline, it is a success story that is oft repeated.

But the point in renewable energy sector is that the State is set to repeat this success in other
areas of renewable energy, including solar power, biomass and gasifier units, say
Government officials.

Fair Wind

According to the Tamil Nadu Energy Development Agency (TEDA), the nodal agency for
the promoting renewable energy sector, the State has 5,055 MW of wind generation capacity
now with private investors accounting for about 5,038 MW. About 17 MW is with the Tamil
Nadu Electricity Board and TEDA.

During the current year, Government estimates indicate that over 645 MW of wind turbines
will be added.

In addition, the State is a hub of wind turbine manufacturers with most of the leading global
players setting up manufacturing facilities.

They are Suzlon, Vestas, Gamesa, Enercon, RRB Energy, Shriram Leitner, Regen Power …
and a bunch of local players many of them based in the engineering hub of Coimbatore which
churn out small aero generators of kilowatt capacity.

Together there is a wind turbine manufacturing capability covering a range from 25 KW to

2.5 MW, say the officials At current levels of capacity, the industry has actually fully
exploited the levels of wind power capacity that had been initially estimated. The potential
assessed was then 5,374 MW, they say. But over the years developments in technology,
larger size and more efficient turbines have contributed to increasing the potential in this
sector which is now grown multi-fold.

Apart from the Government support through the Ministry of New and Renewable Energy, the
supportive approach of the State Government and the Tamil Nadu Electricity Board in
offering an attractive tariff of Rs 3.39 a unit, and facilities for banking and wheeling and
scaling up evacuation infrastructure have helped catalyse investments in this sector. The
TNEB is in the process of setting up five 400 kv substations and three 230 kv substations that
would address the bottlenecks in evacuation of wind power, says officials.

Solar Next
Investments in solar energy sector will be another big area of growth, say officials from other
industry promotion agencies. Tamil Nadu stands third in estimates of solar energy potential
after Rajasthan and Gujarat.

The private sector is looking at an array of applications from the tried and tested solar thermal
water heating systems to the cutting edge of technology solar photovoltaic systems for power
generations. Moser Baer, through its subsidiary Sapphire Industries, has started ‘spade work'
on setting up a 5 MW solar photovoltaic power facility in Sivagangai District, where the
Coimbatore-based KG Design Services is setting up a 1 MW solar PV plant, officials said.
Also, according to officials in the know, Moser Baer has revived its mega investment
proposal to set up a solar photovoltaic products manufacturing unit near Chennai.

This project had been put on the backburner by the company last year but it is now back on
track, officials say. A couple of years ago, Moser Baer and Signet Solar had entered into
separate agreements with the State Government to set up solar PV manufacturing facilities in
Tamil Nadu. Solar power generation is also seeing an enthusiastic response with private
investors vying for registration under the Jawaharlal Nehru National Solar Mission
Programme.

More than a 100 applications were received in Tamil Nadu of whom seven have been
shortlisted by the MNRE. These include: Noel Media & Advertising Pvt Ltd; Gemini Geoss
Energy Pvt Ltd; B&G Solar Pvt Ltd; Harrisons Power Pvt Ltd; RL Clean Power Pvt Ltd;
Great Shine Holdings Pvt Ltd; and Amson Power Pvt Ltd.

Cotton cheer

The upcoming season provides a great opportunity for Indian cotton to win globally. New
Delhi must ensure that trade and tariff policies stay undisturbed.

The Government deserves to be complimented for opening up raw cotton exports once again
from the new season beginning October, despite pressure from industry groups. India's
credibility as a reliable supplier of cotton to the world market took a beating in recent months
because of changes in government polices (imposition of export duty and suspension of
contracted shipments) but the lifting of export suspension coupled with bright crop prospects
has now sent a clear message to the global marketplace about India's intent to be back in the
trade, which it ought not to have deserted in the first place.
Among various kharif season crops, cotton prospects look the brightest on current reckoning.
For the first time on record, acreage has crossed the magical 100 lakh hectares to touch a new
high of 105 lakh hectares (10 lakh hectares more than last year's), with a very significant part
planted with genetically modified seeds. There is tremendous optimism among growers and
other stakeholders as the country is poised to harvest an unprecedented crop for 2010-11
season, tentatively estimated at around 325 lakh bales. Such a large output opens up many
possibilities for those along the value chain; but it also means prices may be at risk of a
collapse because of an underdeveloped supply chain. Sharp price declines have to be
prevented at any cost as numerous growers' fortunes are at stake. The anticipated crop size
may prove to be too much for any procurement agency to handle, but if concurrently the
textile mills do build inventories and exporters weigh in, it may be possible to hold cotton
prices around the minimum support price during the peak arrival time from mid-November to
mid-February. Abundant availability means the user industries will have no reason to
complain; indeed the onus is on them to export an increased volume of value-added yarn, or
cloth or garments.

On their part, exporters will have to rise to the occasion by maximising shipments even while
ensuring that export price realisation is maximised. One way to prevent price undercutting
may be to impose a minimum export price that can be reviewed from time to time. Globally,
cotton production is set for a big rebound with larger crops in the US, China, Brazil, Turkey
and other countries in addition to India. Fierce competition from the US and other origins to
capture markets is widely anticipated. Consumption too is trending up worldwide. Despite a
higher domestic crop, China's cotton import requirement is expected to increase by a fifth,
opening the export window for Indian cotton a little wider. The upcoming season provides a
great opportunity for Indian cotton to win globally. New Delhi must ensure that trade and
tariff policies stay undisturbed.

Myth called Indian middle class

Ashoak Upadhyay

The myth of India's growing middle class has a hollow ring to it, given the reality of
economic indicators.
  
McKinsey has predicted that India's middle class would grow from 5 per cent of the
population to around 40 per cent 20 years hence.

Three years ago when India's GDP growth was astonishing the world, a study by the
McKinsey Global Institute predicted that in two decades its consumers would be a force to
reckon with. This is how Eric Beinhocker, Diana Farrell and Adil S. Zainulbhai gushed in
The McKinsey Quarterly of August 2007: “The same energy that has lifted hundreds of
millions of Indians out of desperate poverty is creating a massive middle class centred in the
cities.”

Really? The Mumbai Human Development Report 2009, prepared by the city's municipal
corporation, the first ever by any city, finds more than half its citizens live in scabrous filth
on just 6 per cent of the city's land; less than 3 per cent use cars or taxis to commute and 44
per cent walk to work — out of compulsion, not to make a statement or to lose weight.

NUMBERS' GAME

As India's urban spaces start to burst at the seams, the story of deprivation is being repeated
ad nauseam. Yet the McKinsey authors, carried away by their rhetoric, further predict that
India's middle class, mostly “centred in the cities” would grow from 5 per cent of the
population to around 40 per cent, 20 years hence.

That same year, Forbes magazine, in its issue dated November 7, carried a story on the Indian
middle class, which cited a survey by the brokerage firm CLSA, that estimated the middle
class at around 300 million, or 30 per cent of the population.

The story went on to define the markers of middle-class prosperity thus: “An estimated 100
per cent of households have televisions, 91 per cent have mobile phones and 19 per cent own
four-wheel vehicles. Half the households experienced growing incomes in the past 12
months, of which one-third enjoyed a rise in excess of 20 per cent. The statistics are a
reflection of India's strong growth…”

In February this year, a Deutsche Bank report on the subject took a more balanced view of
the numbers: Cautiously, it suggested the middle class to be somewhere between 30 million
and 300 million, a range that renders meaningless any conclusion about its relative size and
place in the demographic spectrum.

CREATING A MYTH

A part of the reason for the wide divergence is the use of different criteria to quantify the
middle class. But the possibility of such a wide range within which one can literally choose
and pick the size of the Indian middle class has a hidden advantage; it generates public
dreams that, in turn, create myths, as Joseph Campbell once suggested. The breathless
conclusions of the McKinsey-type research — pole-vaulting the Indian consumer to the fifth
largest market in two decades — only add to the fantasies of an emergent economic power.

But no data on the size of the middle class encourages the “public dream” as much as sleight-
of-hand comparisons with developed country consumers. When analysts point to the
possibility of the discretionary Indian consumer outnumbering those in Germany, they create
a myth of a shining India. Persistent and expanding belief in that myth turns it into a truth.

FALLACIOUS COMPARISON

That kind of myth-making would not ordinarily matter, except as a reality check for a
shopper caught in a downturn. But it is particularly harmful for the policymaker because it
can blind him to the hollowness of the country-comparison in the first instance. What does it
matter if the Indian middle class is larger than Germany's if it remains just a fraction of the
Indian population?

Look at the latest study on Asia's middle class in the Asian Development Bank's “Key
Indicators for Asia and the Pacific 2010” and you realise how an imperfect ‘reading' of data
can imprison India's policymakers in the tangled web of the myth-turned-truth process.

In a special chapter devoted to the “rising middle class” in Asia, the ADB pays the usual
obeisance to its power to revive consumption and trade, drive innovation and inspire
enterprise. That sounds sweet to the policymakers' ears and not surprisingly, the media also
loves such sweeping compliments.

But the ADB cannot deny its own caveats. It identifies the middle class in terms of a daily per
capita consumption of $2 to $20 (in purchasing power parity terms), based on survey data in
2005. Unlike other analysts, the ADB has three sub-sections: The lower middle class with per
capita consumption of $2-4 per day; the middle segment up to $4 and the upper between $10-
20.

ON THE CUSP OF POVERTY

India's ranks of the middle class grew by 205 million in the 17 years to 2008. But, and here is
the danger signal, more than 70 per cent of the middle class is in the lowest segment. Thus,
out of 206 million, more than 150 million eke out a vulnerable existence on the border of an
international poverty line of $1.25 per day.

Why? The ADB tells us that global economic vicissitudes make the bottom segment very
vulnerable. But that is an omnibus caveat it issues for all Asian countries under review and
would apply most to commodity-exporting countries.

The fragility of the vast majority of Indians on the other hand, is largely domestic in origin
emerging from the cumulative lack of entitlements such as stable incomes medical insurance
(just 3 per cent of India's population enjoys it), recourse to education and everything else that
eases upward mobility.

Measured against these indicators instead of per capita consumption alone, the proportion of
the poor would not just include those Below the Poverty Line segment, now recalculated at
around 40 per cent of the population, but those above it and without the above entitlements.
Together, the numbers of the poor and vulnerable, as an official committee called them,
would constitute nearly 80 per cent of the population.

Using 2005 data, the McKinsey authors counted 50 million among the middle classes; the
number coincides neatly with the estimate of the ADB's upper two middle-class segments.
That number is more than Canada's population, but it is just 5 per cent of India's.

Now, farmers as well

Facebook seems to be going places in India. Last week the social networking site overtook its
rival Orkut in number of users. Everyone wants to be on Facebook, it seems. A retailer who
had organised a farmers' meet to enlighten them on new farming methods was surprised at the
number of farmers who were logged on to Facebook. “Add me to your friend list on FB,” a
farmer from nearby hinterland quipped as he proceeded to show-off his social networking
skills on his newly acquired Blackberry to the bewildered retailer and press reporter.

Daggers drawn

A battle has started between Kolkata Municipal Corporation, controlled by Trinamool

Congress, and the Kolkata Metropolitan Development Authority, which is under the Urban
Development Department of the Left Front Government in West Bengal. They are quarrelling
over who will control the estimated Rs 100 crore which could become available from the
Centre for beautification of the banks of the Hooghly river. The renovation of the ghats along
the river is also part of the beautification programme. There are 54 ghats under the
management of the Kolkata Port Trust.

An eye on the election?

Last week, the Centre decided to allow exports of cotton from October 1. Exports were
banned earlier this year when cotton prices surged and the industry cried foul. No doubt, the
Government is estimating a record cotton drop but the catch is lower carryover stocks. There
are also talks of a cap on exports. The move seems to have been made to immobilise any
attack that the Gujarat Chief Minister, Mr Narendra Modi, may unleash against the ban. He
was among the first to raise his voice against the ban. The second decision makes it
mandatory to package foodgrains and sugar totally in jute bags. The mandatory packaging
rule was relaxed last year in view of lower production and the 61-day strike by jute workers.
This year, though the area under jute is up, there are doubts over production, particularly with
part of West Bengal reeling under dry weather. So, why tighten the rules? Guess.

Shaken, if only slightly?

The Tamil Nadu Chief Minister, Mr M. Karunanidhi, recently defended his family's presence
in Tamil movies production and distribution. He said his family was being targeted because
he came through the Dravidian movement — a statement he often puts out when under
pressure. Next, when the DMDK leader and Tamil film actor, Mr Vijaykanth, said he
wouldn't align with either the DMK or AIADMK as they did not meet his standards of
probity, Mr Karuanidhi said his understanding was that payments for the DMDK leader were
partially in shades of black. And the next day, he was saying that the impressive turnout at
AIADMK meetings addressed by Ms Jayalalithaa was manufactured. Have the turnouts at the
Coimbatore and Tiruchi meetings of the AIADMK leader unnerved the DMK veteran?

Khullar's repartee

Some exporters were unhappy after hearing the Commerce and Industry Minister, Mr Anand
Sharma's speech when he released the annual supplement to the Foreign Trade Policy. The
Minister said that the duty entitlement passbook (DEPB) scheme would be extended by six
months until June 2011 and that he had a tough time getting the Finance Ministry to agree.
One exporter told the Ministry's top brass that he was glad that the DEPB scheme would be
available for six more months from end-December this year. However, he wanted to know
what would happen after end-June 2011. The quick-witted Commerce Secretary, Mr Rahul
Khullar, replied: “You must remember my friend that current happiness comes with future
shocks”.

Truly amazing!

Parliament was recently told that 69 sports federations have received funding from the
Government. Here are some: Equestrian Federation of India (Rs 0.61 crore in 2007-08, Rs
0.86 crore in 2008-09, Rs 0.08 crore in 2009-10); Amateur Handball Federation of India (Rs
0.18 crore in 2007-08, Rs 0.72 crore in 2008-09, Rs 0.24 crore in 2009-10); Atya Patya
Federation of India (Rs 0.08 crore in 2007-08, Rs 0.16 crore in 2008-09, Rs 0.08 crore in
2009-10); Sepak Takraw Federation of India (Rs 0.11 crore in FY08, Rs 0.09 crore in FY 09,
Rs 0.24 crore in FY10); Tenni Koit Federation (Rs 0.09 crore in FY08, Rs 0.16 crore in FY
09, Rs 0.09 crore in FY 10). There are also federations for tug of war, wushu, Sepak Takraw,
Tenpin, etc. Only Ludo is missing.

Conspiracy theory
There is a feeling gaining currency in the Opposition circles that the ruling Congress is
deliberately mismanaging the functioning of key areas to pave the way for the entry of Rahul
Gandhi. According to one political observer: “It's clearly a well-thought-out plan to create as
much chaos as possible and just when there is one year to go for elections to bring in Rahul
into the Ministry. Just you watch how things will miraculously be straightened then!”

‘Minister-compatible'

The latest criterion, albeit an informal one still, for IAS officers looking for a Joint Secretary
and above posting in Delhi, is that he or she should be minister-compatible. Everyone knows
what that doesn't mean.

Cotton body sees record output next season

Production estimated at 325 lakh bales, exports pegged lower.
M.R. Subramani

Chennai, Aug 30

It's official now. Cotton production for the season beginning October is expected to be
upwards of 325 lakh bales (of 170 kg each). The production comes on the heels of the
acreage under the fibre hitting a record of over 106 lakh hectares.

The production expected for the next season is against 283 lakh bales estimated for this year.
The official projection has been made by the Cotton Advisory Board (CAB) that has
representation from the Government, industry, trade and growers side. The estimates were
made at a CAB meeting last weekend.

According to the CAB, production has been pegged at 325.48 lakh hectares with 106.12 lakh
hectares being expected to come under the crop.

But exports could be lower at 49.50 lakh bales against 83 lakh bales this year.

Mr Basant Vaid, Senior Research Analyst of Bonanza Commodity Brokers (Pvt) Ltd, said
with acreage being 10 per cent higher than last year, the crop would surely be above 325 lakh
bales.

Some traders are a little more bullish, hoping the crop could be around 330 lakh bales.

Carryover stocks

However, one worrying factor is the drop in carryover stocks to 40.50 lakh bales from 71.50
lakh bales this season.

Gujarat, which has emerged as the key cotton-growing State in the last few years, is expected
to contribute nearly one-third of the estimated output. Production in the western State is
expected to be back above 100 lakh bales at 106 lakh bales next season. This season, it
produced 98 lakh bales.

Maharashtra, where the area under cotton is the highest in the country, is projected to produce
77.31 lakh bales, up 15 lakh bales over this season. Andhra Pradesh is also expected to
contribute significantly to the output, producing 65.68 lakh bales.

Domestic consumption
The CAB has pegged domestic consumption at 246 lakh bales against 230 lakh bales this
year. The estimate of 49.50 lakh bales could be the board's estimate of surplus cotton.

Despite the exports and rising domestic demand, the carryover stocks could be higher at 55
lakh bales from the next season.

Mr Vaid said crops in the US, China, Brazil, Turkey and other producing countries are also
higher than the previous years for possible reason for projections of lower exports.

According to him, domestic prices could be under pressure due to the record crop, possibly
affecting growers.

However, prices will sustain above the minimum support level fixed by the government in
view of steps to lift export ban.

Prices could further be supported if the millers raise their inventories finding it attractive to
procure at the lower cost.

A curious factor, though, for the next season is that total supply is seen down at 370.50 lakh
bales, primarily on account of the low carryover stocks.

Imports, too, are seen down at five lakh bales (7 lakh bales).

FDI in retail — The ground realities

It is not clear whether FDI in retail can redress the infrastructure and productivity
constraints in agriculture.

Niraj Kumar

The discussion on allowing foreign direct investment in multi-brand retail trade — triggered
by a draft on the subject prepared by the Department of Industrial Policy and Promotion
(DIPP) — has so far been rather one-sided.

The debate in the media has veered round business, business players, the effect of one
business format over another and the infrastructure required to make business more
profitable. But what about the farmer? Despite being the original producers of food and food
products, which constitute the bulk of the retail business, farmers have not participated in the
debate.
Though the DIPP document does submit that farmers will be benefited, the argument appears
too blurred to be convincing. Further, the entire document is based on the premise that our
production (farmers') system is ready to cope with the efficient supply-chain concept and the
increased quantitative and qualitative demands made on food products. The fact is — it is
not.

An efficient supply chain and increased demand cannot be expected to infuse vigour into an
already weak production system. Indian agriculture is far too complex to expect a
phenomenal response in a short span of time. It would only be practical to include farmers in
the discussions so that, at least along with the formulation of policy on FDI in retail, the
problems faced by our farmers can be addressed. A strong and efficient farming system is a
must for the success of the mega-retail business.

LOW PRODUCTIVITY

Where do we stand today? According to the National Sample Survey Organisation (NSSO),
40 per cent of the farmers have lost interest in agriculture.

The proportion of household income from agriculture is coming down even in the rural areas.
Eighty per cent of 12 crore farm holdings own only 20 per cent of the cultivated land.

Not only is the average land holding of Indian farmers too small (less than 20,000 m {+2}), it
is ‘fragmented', too. Agriculture productivity per hectare or acre is lower than in almost all
the countries cited by the DIPP document to make its case on the benefits of retail. The
National Commission on Farmers has reported the almost stagnant or decline in productivity
of our farmlands. In the last 10 years, credit to agriculture sector has gone up by 200 per cent
and fertiliser subsidy by 300 per cent.

Yet, the productivity of rice, wheat, and pulses has almost remained constant. Now, when
area under cultivation is shrinking because of urbanisation and industrial growth, intensive
and commercial farming on limited land will take a toll on the productivity of land. All
efforts notwithstanding, almost 60 per cent of the arable land is rainfed, and not irrigated.
Increasing fluctuation in rainfall, depleting ground water level, and lower and improper
fertiliser usage are also issues of great concern.

So, who is going to benefit from efficient back-end operations and improved infrastructure of
business? Certainly not the aam Indian farmers!

There would be further land consolidation in favour of the already rich and resourceful
farmers, creating conditions for further widening of the gap between the well-to-do and poor
farmers.
It is no secret that when small and marginal farmers change their cropping pattern from cereal
or staple food-based crops to high-value crops (in which retailers would be interested), the
quality of their nutrient intake deteriorates as they become dependent on the market for their
staple food. This affects the health of the farming families.

INFRASTRUCTURE REALITIES

Rural infrastructure is another area of worry. One cannot drive high speed, air-conditioned
trucks carrying fresh perishable fruits or milk products on roads unsuitable even for bullock-
carts. During the monsoon, when a considerable amount of agriculture inputs is expected to
be moved to villages, more than 30 per cent of the villages in flood prone states become
unapproachable by road.

“Farming is the riskiest profession,” observed Dr M. S. Swaminathan, eminent agriculture

scientist and Rajya Sabha MP. In spite of being an agricultural country, our farmers are not
insulated from risk. The existing insurance system is either beyond their reach or too
complicated to be relied upon. The arrival of retail in a big way will certainly make farming
riskier.

Meeting customers' (mostly urban) demands and quality specifications demand more
resource-intensive farming. We need to learn lessons from the innumerable incidents of
farmers' suicides being reported across the country. Only time will tell how much risk these
big retail players will be willing to shoulder.

Contract farming, projected as the ‘panacea' for the problems of Indian agriculture, is yet to
pass the test of time. There are instances galore of one party blaming the other for
dishonouring contracts.

Though, theoretically, it presents a win-win situation for farmers and private players, its
implementation at the field level has been very tricky, and in many cases farmers have been
found on the losing side.

It is time we understand the ground reality and make farmers the focus of our discussions,
just as we have been looking at big retail houses like Wal-Mart, Carrefour, Tesco, and
unorganised retailers, or ‘mom and pop' stores. The need of the hour is to first work on the
‘roots' of the business, before thinking about strengthening the ‘shoot' and expecting
colourful flowers and fruits to blossom.

There are still many loose ends which need to be tightened at the production end of the
supply chain. Believing that foreign investment will tie them together is like expecting a
dwarf to leap to the moon.
For a balanced cotton export policy
MANIKAM RAMASWAMI

PERSPECTIVE

Cotton is turning out to be a hugely profitable crop for our farmers, ever since BT cotton was
allowed. Unlike in the case of foodgrains, where farmers are forced by export bans to sell the
produce at lower than international prices (he cannot hold on, as the crop is perishable), the
cotton farmer enjoys access to international prices. For a farmer to get international prices, a
sound export policy is a pre-requisite. While the cotton farmers' interest should be paramount,
the concerns of the Indian textile industry and the consumer are quite as important. The
cotton export trade, which delivers cotton to mills in Pakistan, Bangladesh and China, is the
other key player in this scenario. The current policy regime tilts towards the traders and hurts
the interests of the industry in particular.

To protect the cotton farmer, it is important to ensure that the domestic prices are close to
international prices during years when the latter are higher than support prices, and ensure a
transparent and efficient support price operation during the few years when support prices are
higher than the international prices. To ensure that domestic prices are close to international
prices, we need to keep the export window always open and allow the surplus to go out.

POWERFUL TRADERS' LOBBY

The textile industry in India needs assured supplies of cotton at international prices less
freight costs (the price realised by the farmers/ginners). For every metre increase in per capita
cloth consumption, we need 20 lakh additional bales of cotton. How is this to be achieved?
Cotton production and consumption are estimated by different interest groups and an average
is arrived at. This process is defective. Traders overestimate the cotton crop and
underestimate the consumption to arrive at a higher exportable surplus.

This lobby is very powerful.Traders were able to secure export incentives for cotton sold the
previous year and the current year, and simultaneously got the Cotton Corporation of India
(CCI) to support them as well. CCI came out with a ridiculous sales policy of offering over
10 per cent discount, including free warehousing and carrying of purchased cotton for up to
six months, only for large traders. Traders used this benefit to sell cotton at 10 per cent
cheaper to our textile competitors, after earning 5-10 per cent profits. This ruined the
profitability of the textile industry for 18 months.

MANAGING STOCKS, EXPORTS

Therefore, only the clearly established surplus must be exported. Adopting the practices of
other cotton-producing, exporting and consuming countries, India should ensure at least 60
days' carryover stock to prevent today's situation of zero inventory and skyrocketing prices.
By ensuring proper estimation of production, consumption and surplus and allowing exports
of surplus cotton alone in a calibrated manner, we can ensure that the farmer gets
international prices right through the year and the textile industry is not starved of cotton. The
surplus will be exported in an organised manner and our cotton buyers in Pakistan,
Bangladesh and China will know beforehand the monthly exportable quantities and have the
confidence to deal with us on a regular basis.

Good draw at global tourism fair

Our Bureau

Bangalore, July 10

The tourism industry's annual promotional platform, the 47th India International Travel Mart
2010, got off to a start in Bangalore on Saturday.

Over 250 domestic and international tourism players, 20 State government promotion bodies
and 15 countries are promoting their respective destinations at the event, its organisers said.

They include travel and tour operators, hotels, resorts, destination managers, airlines, cruises
and online travel portals.

Domestic and international destinations ranging from pilgrimages, culture and heritage to
adventure, beach and hill resorts are being aggressively marketed. It is expected to have over
15,000 visitors over three days.

Mr Sanjay Hakhu, Director, Sphere Travel Media, which organised the event, said, “India is
fast emerging as one of the most interesting and productive countries for the travel trade
industry both for leisure and business travel. A combination of factors is responsible for the
growth and demand of travel trends from India.”

Mr K. Vishwanath Reddy, Director of Tourism, Karnataka, opened the three-day event co-
hosted by Karnataka Tourism.

Tourism bodies of Australia, Egypt, Thailand, Dubai, Indonesia, Switzerland, Greece, Bhutan
and Sri Lanka are promoting their respective countries along with tourism boards of 20
States.
Mr Rohit Hangal, Director, Sphere Travel Media, said IITM gave the right impetus to the
domestic tourism industry.

According to tourism studies and trends, international travel is no longer a luxury as the year
2010-11 will see Indian tourists embarking on overseas travel and spending more than $15
million; they have encouraging trends such as low cost international airfares, holiday
packages that are payable on monthly instalments.

Established in 1998, IITM is held every year in Mumbai, Bangalore, Chennai, Hyderabad and
Pune, with Kochi joining in now. The 48th edition will go to Chennai from July 16 to18.

Shortage of skills hampering food industry, says FICCI

Our Bureau

New Delhi, July 11

Shortage of skilled personnel is eroding the competitiveness of the domestic food industry,
according to the Federation of Indian Chambers of Commerce and Industry.

The Chamber stated in a study that the projected increase of the food market from the present
$181 billion to $258 billion in 2015, has brought into focus the acute shortage of skill in the
industry.

The study entitled, ‘Rising Skill Demand: A Major Challenge for Indian Food Industry,'
reveals that almost 58 per cent of the companies are not satisfied with their employees'
current level of technical skills and knowledge needed for the job.

Almost two-third of the companies feel that their employees lack the ability to use
appropriate and modern tools, equipment and technology specific to their jobs, and 66 per
cent feel their workforce lack the ability to deliver work on time in accordance with quality
standards.

FICCI's survey was based on responses from 250 companies across the entire food value
chain. Other focus areas of the study included the current status of shortage of manpower in
the sector, current status of the course curriculum offered by various institutes and industry
expectations, and current duration of training provided to the newly hired employees which
reflects the efforts put in by the industry for upgradation of basic skills.

According to the survey, companies expect a demand of 9,53,876 production managers and
engineers in the sector within a year, which would increase to 13,05,304 by 2015.
R&D specialists would also be in demand. The survey states that approximately 8,03,264
quality control and R&D specialists would be required in another year and around 10,29,182
specialists would be required by 2015.

The survey also reveals that maximum skill shortage in the sector is for quality control and
R&D specialists, regulatory and legal experts and production managers.

Asian trade and the global financial crisis

G.SRINIVASAN

The global financial crisis of 2008 hit Asia hard but the region has managed to cope well
with the sharp decline in exports.

After the fnancial crisis that engulfed the global economy for over one-and-a-half years, the
trade performance of Asian economies during and following the 2008 tsunami, particularly of
China, India, Thailand, Malaysia, South Korea, Japan, Singapore and Chinese Taiwan, offers
some objective grounds for optimism.

The current century is billed as the turn of Asia to march ahead and, interestingly, the assault
during the first decade on the global economy has left many an Asian economy largely
unscathed.

Too big to fail

This is all the more comforting, given the reality that financial institutions in the developed
countries had to be bailed out on the ground that they were too big to fail.

Yet, ironically, the Asian export juggernauts were kept rolling by the authorities through
stimulus packages of substantial size, so that the export sector should not lose its traction so
laboriously built up in the past.

In China and India, there is an added concern about jobs because the manufacturing-
exporting industry, such as gems and jewellery, leather, handicrafts and textiles and clothing
employs legions of skilled and semi-skilled workers.

Against this backdrop, a new paper from the NBER by Mr Jing Wang, Chinese Academy of
Social Sciences (CASS), Beijing, and Mr John Whalley, University of Western Ontario,
Canada, on the trade performance of select Asian economies
( http//www.nber.org/papers/16142) has filled the gap in research comparing the speed,
severity and acceleration of both decline in trade and the subsequent rebound of Asian
economies.

Swift rebound

Comparisons of May 2008 and May 2009 demonstrate that monthly exports of China, India,
Japan, Korea, Malaysia, Taiwan and Thailand plummeted by 26.3 per cent, 37.1 per cent,
49.4 per cent, 15.4 per cent, 29.8 per cent, 26.6 per cent and 44.4 per cent respectively.

Monthly imports fell more by 43.1 per cent, 37.3 per cent, 42.7 per cent, 24.3 per cent, 30.3
per cent, 40.3 per cent and 56.6 per cent respectively, reflecting in part the oil price decline.

The key point is that, among these countries, Korea's trade performed the best, with a smaller
drop after the initial onset of the crisis, followed by a swift rebound.

Japan's trade was hit the most, with a severe and prolonged decline on both the export and
import sides — a far cry from its halcyon days of export excellence in the post-War era that
stretched for a prolonged spell.

Pre-crisis, Indian exports grew the fastest and Korean exports the second fastest in 2008. But,
for 2009, the picture is different, albeit the best performance by Korea among the countries in
this region. Again, China's 2009 performance was a shade better than that of India, Malaysia
and Taiwan. On the import front, save Korea, country imports appear to follow a pattern
whereby the faster the growth pre-crisis, the grater the decline during the crisis.
A sharp decline in Asian countries' foreign trade, in general, was a mirror image of the
complete collapse of world trade in 2009.

CHINA TRADE

Illustrating this is China's foreign trade, which halted a trend of export expansion since 1999.

China's share of net global export growth in GDP growth dropped from over 10 per cent
between 2000 and 2007 to 0.8 per cent in 2008. In the rebound, in March 2010, China's
foreign trade was in deficit by $7.2 billion, the first since 2004.

China's trade balance returned to a surplus in April 2010 but with only $1.7 billion surplus,
which is less than 10 per cent of the earlier sum. Even as India's exports maintained its
decline for ten months of 2009 ranging from a high of (-)37.1 per cent in May to a low of -6.6
per cent in October, Asian export performance shows, according to the paper, China and
Asean dropped by only 16 per cent and 18 per cent respectively.

These two account for 56.5 per cent of total Asian exports with Asean comprising ten
countries. Interestingly, exports from Korea even increased by one per cent in 2009, whereas
those of Japan plunged by 28 per cent.

FOCUS SHIFT

Per contra, imports by Korea and Malaysia dropped by 12 per cent and 17 per cent smaller
than world import decline in percentage terms. Imports by Asean and India fell by 23 per cent
and 21 per cent in 2009, which led significantly to the decline of Asian imports.

A noteworthy feature is that all countries' exports to China rebounded strongly from the end
of 2009 and these countries' imports from China, which fell sharply in the first quarter of
2009, lagged a coupled of months more than exports to China and began to rebound from the
end of 2009, almost synchronously with exports.

The rebound speed for imports is markedly lower than that for exports, reflecting China's
humongous market for foreign goods, which led to the recovery of neighbouring trade.

There is a cue in that India, for all its China tirade on trade, should step up its exports to the
Middle Kingdom even as it finds its feet in the weak economies of the West a bit wobbly.

The Commerce Ministry should gear up for a focus and product shift to the giant neighbour
instead of rooting for far-off places such as Latin America.
New tenant

With numerous allegations of corruption and security breaches against officers in the
Department of Telecom, investigating authorities have decided to set up a permanent base
within Sanchar Bhawan. The Intelligence Bureau has taken a room on the fifth floor of the
Telecom Department in a bid to be closer to the action and hoping to cut down on murky
deals, if any.

Push and pull

Unlike Metro Rail, Kolkata's East West Metro, now under construction, is not a project of the
Indian Railways. The Kolkata Metro Rail Corporation, responsible for implementing the
project, has been promoted jointly by the Urban Development Ministry of the Union
Government and West Bengal Government. The Railway Minister wanted to take control of
the East West Metro project for her own reasons. But this is being resisted by the Urban
Development Ministry, whose junior minister is from Didi's party.

RBI's boo-boo

Banks have diligently moved to the base rate-linked lending regime with effect from July 1,
2010 following the Reserve Bank of India's directive. However, the “current rates' section on
the RBI's Web site does not reflect the shift in the lending regime from prime lending rate to
the base rate, even after 10 days. As on Saturday, the central bank's Web site was showing
the prime lending rate at 11-12 per cent.

Lamplighter

An industry body had invited a senior minister to inaugurate a meeting that almost coincided
with a Union Cabinet meeting. So the Minister wanted to rush through the inaugural to make
it to the cabinet meeting on time as his Ministry's item was on the cabinet's agenda. In their
anxiety to complete the inaugural as quickly as possible, the tradition of lighting the lamp
was given the go-by. But the minister, when he got to the mike, reminded the organisers that
they forgot to ask him to light the lamp. The organisers cited time constraints and even
suggested that the Minister could go ahead with his speech without lighting the lamp.
However, the Minister insisted on lighting the lamp. Afterwards, the minister quipped: “That
was important as I couldn't go away from this function anticipating news items that may say
ministers don't even light lamps these days”.

So why didn't the Minister excuse himself from the industry event if he had to be at the
cabinet meeting? Lest newspapers write that these days ministers don't even turn up for
events?

Familiar country

Indians are bound to feel at home in faraway Mexico. Their tortillas are pretty close to our
chapattis, the weather is on similar lines as our tropical conditions and, most of all, the sundry
crime rate in major cities in the Central American nation is pretty close to the situation in
Delhi and elsewhere. “Beware of pickpockets, touts and drug dealers” are among the oft-
repeated warnings that foreign nationals are offered by hosts the minute they land.

Unspent money

Keeping allocated funds unspent is certainly not the most preferred option to bring down
fiscal deficit, according to the Finance Minister, Mr Pranab Mukherjee. But, then, the Centre,
as he laments, has little choice in the matter because a chunk of the development funds is
spent (or unspent) by the State governments. The Centre does everything — conceptualising
a scheme, undertaking detailed planning and funding it — and yet has no control over the
implementation. Such is the Constitutional requirement. Mr Mukherjee made this observation
while addressing an MoU-signing function in Kolkata recently.

Same-to-same fellows

Politicians and administrators face the same kind of flak from industrialists across countries,
it seems. At the IATA AGM discussions this year, a top airline official was recounting the
politicians' and administrators' reaction to the volcano eruption in Iceland and subsequent
suspension of air traffic this year, “We contacted them on Friday for a meeting. We were told
‘come back on Monday'....”

New gig

At a recent corporate press meet in a five-star hotel, the emcee was heard announcing about
safety and security drill, much to the amusement of the audience present. Reminding one of
the mandatory security drill aboard an aircraft, the emcee went to demonstrate exactly in the
same manner pointing that this exercise was to defuse any untoward happenings. Only the
‘fasten your seatbelt' thing was missing.

Media-friendly

Disappointed that reporters weren't interested in the World's Best Hotel award won by the
Oberoi Group's Oberoi Vanyavilas in Ranthambore, Mr P. R. S. Oberoi stormed out after the
press conference saying, “This is why I don't meet the press. You people always insult me.”
How did the press insult him? Well the reporters asked him questions on whether he's selling
stake in the company!

Praful's pique
A little bird tells us that the Minister for Civil Aviation, Praful Patel, threw an almighty fit
because his name was not included by GMR on the plaque marking the inauguration of the
new terminal at Delhi Airport on July 3. Oddly, though, at the foundation ceremony in
February 2007, the plaque had his name, along with that of Sonia Gandhi. But, this time, only
the names of the PM and Sonia Gandhi were there.

Why should we pay?

The CEO of a public sector bank has been complaining about rising rural NPAs. Farmers are
asking why they should be asked to repay their loans when their neighbours' loans were
waived by the Government in 2009.

Medieval horror in 21st Century

B.S.RAGHAVAN
Khap panchayats have been hogging the headlines these past few weeks and from all that is
coming to light about them, they seem to be a frightful combination of the Spanish
Inquisition, thuggee cultists, Sicilian mafias and Ku Klux Klan, delighted in committing with
impunity and in the most brutal and calculated manner cold-blooded murders of those who
disobey their diktats which are ostensibly meant to maintain the sanctity and purity of their
castes and communities.
In line with their medieval mindset, they have been regularly targeting young persons in love
who want to marry but who, being from the same gotra or even from the same village or
community, are deemed to be brothers and sisters.
It is evident from the unyielding and arrogant manner in which they have been asserting their
right to resort to the so-called `honour killings' of those who flout their authority that they
care a tuppence for the disgust, shock and horror they have roused all over the country and
even abroad.
KHAP PANCHAYATS
Here is a thumbnail sketch of khap panchayats: Khaps are clusters of villages united by caste
and geography. They have been part of the social landscape of Haryana, western Uttar
Pradesh and parts of Rajasthan from as early as 14th century.
It is through them that upper castes assert their power and position. The main rule is that all
boys and girls within a khap should be regarded as siblings. Khap panchayat holds sway over
the khap formed by same gotra families from several neighbouring villages. Love marriages
are totally taboo in areas governed by khap panchayats.
Apparently, the entire populations of villages in the States infested by them are so
inescapably in their clutches that they have acquired the additional character of solid vote-
banks which no political party dares to take on.
That explains the lukewarm reception on the part of political leaders to the idea of stamping
them out as also the consternation the Home Minister, Mr . hidambaram, caused to his
colleagues from the Northern States with his bid to crush khaps through amendments to the
Indian Penal Code and the Indian Evidence Act before the Cabinet on July 8.
TIME-BUYING TECHNIQUE
The amendments sought to bring `honour killings' under the definition of murder and put the
onus on khap panchayats to prove their innocence during trial. More importantly, they
provided that the khap panchayat or any group ordering `honour killings' and any person who
carries out the order of the khap to kill will be jointly liable for punishment.
The Cabinet Ministers from the northern States did not want to openly oppose the move, nor
did they dare to antagonise the khaps which might extract a heavy price at the hustings. So,
they indulged in the time-honoured time-buying technique of kicking the proposal around
like football (this is the soccer season as well!) and eventually asking the Home Minister to
consult the State Governments and place their views before the Group of Ministers to be
constituted by the Prime Minister.
The reported reasoning was that the issue was a sensitive and emotional one for north Indian
states and it was necessary to take account of the sentiments of the rural populace of Haryana
and Punjab before taking any decision.
The prevaricating attitude to the khap panchayats and the political groundswell in favour of
mention of castes in the Census enumeration are deeply disturbing signs. Not only is a
casteless society nowhere in sight, there is an aggressive assertion of, and morbid obsession
with, caste identities.

Vested interests in caste-based politics are ruling the roost everywhere, and knowingly taking
India to the brink of disaster. Alas, for India!

Fighting to tame inflation

  
The inflationstory in India is still largely dominated by supply constraints.

Shanto Ghosh

Sagar Kanade

Recent media reports have highlighted the ongoing inflationary spiral in India and its
reluctance to abate. This assumes significance in the light of the fact that any attempt to
contain inflation through interest rate hikes will impact the growth prospects of the economy
by increasing the cost of borrowing and slowing down investment.

India is at a critical juncture in its development path. A misdirected policy intervention at this
stage may derail the growth momentum and make the growth process regressive. It is in this
context that we should adopt a broad-based approach and study the global developments on
the inflation front and design policy measures in a more prudent and calculated manner.

Negative shock

The world economy suffered a substantial negative shock in the aftermath of the sub-prime
crisis with the collapse of well developed capital markets in US and Europe causing credit
growth to slow down significantly.

Unemployment levels soared and growth rates stagnated. The world output growth contracted
to near zero levels and several governments across the globe embarked on a path of boosting
demand by increasing the levels of government spend. This increased fiscal spend added to
domestic demand causing inflation to rise.

Global inflation, which was reasonably stable until mid-2007, started rising from then on and
continued its upward trend until mid-2008. The trend thereafter paints an interesting story —
while most countries experienced declining price levels after mid-2008, some countries
actually experienced rising prices thereafter.

India is one of the countries where the experience has been more of the latter with a marked
divergence of domestic inflation relative to the trend for the rest of the world. While other
countries have been fighting the problem of declining prices (or impending bursting of asset
bubbles), policymakers in India are struggling to contain spiralling price inflation which has
reached double digit levels as of April 2010.

Theory vs reality

Economic theory predicts that when increased government spending causes prices to rise,
suppliers respond to higher prices by producing more — although with a lag — causing
prices to gradually stabilise. Unfortunately, the current global experience does not fit in with
this story. Even though global inflation level fell after 2008, they could not be maintained at
pre-crisis levels and slumped further drastically.

This was seen in many countries where, despite increased government spending, bleak
growth prospects and deflationary expectations continued to dampen the demand leading to
even further fall in the price levels. Hence, the fall in prices was not due to supply catching
up but by continued sluggishness in the growth of consumer demand.

In contrast, in many countries, including India, the price levels could not be controlled and
remained untamed. Recall that the current slowdown originated in the capital markets and
then flowed through to the real sector. Hence, when governments increased their spending,
suppliers were unable to respond to this price rise to produce more since credit was still hard
to come by and supply bottlenecks persisted. The global inflation has been dictated by the
flow of capital which has behaved in unpredictable and uncertain ways — some countries
have benefited while others have lost out.

Indian story

The inflation story in India is still largely dominated by supply constraints. A bad monsoon
caused havoc with food prices causing inflation in food items to reach close to 19 per cent.

Manufacturing and export growth have been sluggish at best and it is only recently that these
sectors have exhibited healthy results. Therefore, it is too soon to rejoice and declare the end
of turmoil for the Indian economy.

There are significant challenges ahead and inflation in an increasingly globalised and
intertwined world is an important determinant to evaluate while framing domestic policies.
Our policymakers will do well to acknowledge that industrial output is booming across the
world and corporate profits are rising leading to increased investment.

In addition, forecast for global growth have been optimistic with forecasts for average growth
rates going up from 3.9 per cent to 4.2 per cent. All this activity in the real sector will lead to
added supply which will have a positive impact in tempering the inflation rate. Hence, any
action by the RBI to increase interest rates and address a primarily supply-driven phenomena
will be tantamount to substituting a short-term problem of inflation with slowing the growth
rate that is likely to have long-term repercussions.

Vegoils: Fundamentals point to bearish phase

 
Low demand:A file picture of oil palm fruits prior to processing at a factory in Dengkil in
Malaysia.

M.R. Subramani

Chennai, July 11

Last week, crude palm oil futures (July contracts) fell below the crucial support of 2,330
Malaysian ringgits (MYR) or $730 a tonne on Bursa Malaysia or the Malaysian Derivatives
Exchange.

However, it gained during the weekend to close at 2,421 MYR ($760.7).

On Friday, soyabean and oil gained on the Chicago Board of Trade following reports that the
yield in US soyabean could be affected by heavy rains in the growing areas.

Other factors that have helped vegetable oils during the weekend were reports of China
planning to import more soyabean, a rebound in the European economy and gains in crude oil
prices.
“Fundamental factors point to fall in the near futures,” says Mr Ambi Sivaramakrishnan, a
Chennai-based analyst. “There are no buyers for palm oil October delivery that is quoted
around $745 a tonne. Besides, there are no buyers on the spot market,” he says.

“Moreover, soyabean oil and palm oil are at par. Palm oil's USP is its discount to soyabean
oil.

Contracts at discount

“Therefore, a fall is on cards,” he says, adding that all forward contracts are being offered at a
discount.

On Friday, soyabean oil ended at 36.99 cents/pound or $815 a tonne, resulting in a $70
premium.

Reports from Malaysia said traders are looking to crude palm oil falling towards 2,000 MYR
before they can look at value-buying.

Higher supply of soyabean oil from South American nations such as Brazil, Argentina,
Paraguay is also playing on the minds of the market.

NCMSL outlook

According to the National Collateral Management Services Ltd (NCMSL) outlook, the
market for soyabean oil continues to trade below the support level of 38 cents a pound ($835-
840 a tonne) that is considered to be negative.

Even within the country, soyabean oil at Indore is quoted at Rs 1,955 a quintal, lower than the
support level of Rs 1,980. “It could target the Rs 1700-1,750 level,” it said in its outlook.

The reason why most paint a bearish outlook for the vegetable oil sector is that currently, it is
the peak arrival season for palm oil.

The market expects palm oil exports from Malaysia to drop at least five per cent this month
since buyers would be looking to delay purchases in view of the peak arrival season.

On the other hand, the Indian oilseeds crop is expected to arrive in the markets in October
and the US soyabean will arrive from November onwards.

Carryover stocks
“Though the kharif oilseeds will arrive only in October, we have carryover stocks of 125 lakh
tonnes. This will help check any sharp rise in the prices,” said Mr Sivaramakrishnan.

NCMSL, too, pointed out to the high carryover stocks. Besides, a higher minimum support
price for oilseeds and higher coverage would fundamentally work against any bull
movement. Angel Broking, in its outlook, said the edible oils counter could witness profit-
booking this week.

Much will depend on how the monsoon behaves, especially in the rain-deficient States of
Gujarat and Madhya Pradesh. Gujarat holds the key to a good groundnut crop, while Madhya
Pradesh is the hub for soyabean.

Word of caution

NCMSL, however, sounded caution on a couple of aspects that could determine the price
movement. Malaysia's crude palm oil output is likely to fall below the previous forecast as
unusual wet weather caused by La Nina could affect crops and reduce yields.

The other factor is the US Department of Agriculture pegging soyabean stocks at 571 million
bushels, lower than trade estimates of 594 million bushels.

This indicates near-term tightness in the US markets and dependence on South American
markets.

Time to smell the coffee

Coffee yields are languishing because Indian growers have failed to create a buzz around the
beverage, as other major coffee producers have done.

Growers and traders may be excused for considering the Coffee Board's output estimate of
3.08 lakh tonnes of the plantation crop in 2010-11 a trifle optimistic. An output of more than
three lakh tonnes was last recorded in 2001-02. Hence, the lack of self-belief among growers
is understandable. Yields of arabica, a premium variety from which Indian coffee derives its
reputation, have dropped since the mid-1990s, from 750 kg per hectare to 500 kg per at
present. The moot point is why Indian coffees, arabica in particular, have failed to respond to
the encouraging trend in world prices since 2005.

Arabica accounts for a third of the country's 2009-10 coffee output of 2.7 lakh tonnes and
robusta about two lakh tonnes per annum. Till about the mid-1990s, arabica accounted for
about 40 per cent of the total output. Having notched up an output of 1.2 lakh tonnes in 2001-
02, arabica output has been on the decline, despite an increase in cultivated area. Evidently, it
has never really recovered from the crash in world coffee prices at the turn of the century, and
the subsequent spells of drought and pest attacks. Rising temperatures in the higher altitudes
of the Chikmagalur region render the arabica variety vulnerable to pests such as white stem
borer and yellow rust. Robusta is less prone to pest infestations; therefore, its cost of
cultivation is lower than arabica's — a factor that could offset its lower price realisation. The
hilly arabica terrain limits mechanisation options to raise productivity and reduce costs, while
skilled labour is increasingly hard to come by. There are, however, fewer constraints to
increasing robusta yields.

These problems, however, do not entirely explain the stagnation in coffee yields. All major
coffee-growing countries face similar challenges, including higher labour costs than in India,
and yet seem to beat them back. The crux of the matter, it appears, is that Indian growers are
not passionate about coffee. They have failed to create a buzz around the beverage, which is a
striking feature of such major coffee producers as Brazil. Half the growers, with assured
income from other sources, spend more time away from the estate — a remarkable fact for a
crop with not just an assured international market (which soaks up 70 per cent of India's
coffee) but, more significantly, a rapidly growing domestic market. The domestic market's
annual consumption has nearly doubled from 55,000 tonnes in 1999 to one lakh tonnes in
2009, up about 6 per cent per annum. Most of that growth has taken place in the ‘non-South'
regions. The credit for this spurt goes to the Coffee Days and Baristas, but the rest of the
coffee community has pitched in as well. Coffee will continue to grow in popularity, with the
young generation in particular. If Indian growers do not pick up the cue, other producers will.
In this promising scenario, an output of three lakh tonnes should be the norm rather than the
exception.

Energy revolution, key to cutting CO2 emissions

$46 trillion needed to shift to low-carbon economy: IEA.

“Different combinations may be required for different countries depending on level of

development”

G. Chandrashekhar

Washington DC, July 12

To enhance global energy security and foster sustained economic development in the context
of tackling climate change, an energy technology revolution is absolutely necessary.
Although early signs of such a revolution are visible, more needs to be done to achieve the
necessary long-term carbon-dioxide (CO2) cuts, the International Energy Agency (IEA) said
while releasing the study report on Energy Technology Perspectives (ETP) 2010 here on July
1.

“Increasing energy efficiency and carbon capture and storage (CCS) would be two key
options available to stakeholders including governments,” Mr Nobuo Tanaka, Executive
Director of IEA, told media persons.

‘BLUE Map'

IEA's ETP 2010 baseline scenario showed that without new policies fossil fuels will continue
to provide most of the world's energy needs, with energy-related CO2 emissions almost
doubling to 57 Gigatonnes (Gt) by 2050. However, ETP 2010 report has presented a BLUE
Map scenario that charts a least-cost path for halving global energy-related CO2 emissions by
2050 (as compared to 2005 levels), consistent with long-term temperature rise of 2 to 3
degrees Celsius.

Under the BLUE Map scenario, the global demand for oil, gas and coal in 2050 would all be
lower than today, substantially reducing the world's dependence on finite fossil resources.
The world today is heavily dependent on fossil fuels.

Coal, oil and natural gas currently provide 81 percent of global primary energy needs, which
in turn leads to significant emissions of climate changing CO2 as well as poses broader
environmental, economic and energy security challenges.

Advanced Transport

According to IEA, investment to the tune of $46 trillion would be required for the world to
transition to a low-carbon economy, of which the transport sector for advanced vehicle
technologies would account for half of the investment. However, lower fossil fuel
consumption would result in cumulative fuel cost savings of about $112 trillion, the report
pointed out.

‘Mostly Pvt Investment'

To a question from Business Line as to where such huge investments would come from and
who will develop the requisite technologies, Mr Tanaka said that he believed most
investment would come from the private sector. But enabling government policies and some
incentives may be necessary, he argued, adding that policies have to be transparent and
subsidies will have to be phased out over time.

“We need a combination of energy sources. No single source — say, nuclear or biofuels —
will succeed. Also, different combinations may be required for different countries depending
on level of development,” IEA experts remarked.

While decarbonising the construction/building sector in developing countries is a daunting

task, one of the biggest challenges for the world is decarbonising the electricity sector, the
second largest source of emission reductions, which must involve dramatically increasing the
shares of renewable and nuclear power and adding carbon capture and storage to plants that
consume fossil fuels.

“Reducing CO2 emissions will require global effort. While the OECD (Organisation for
Economic Co-operation and Development) countries should take the lead, all major
economies need to be involved,” the report emphasized. There was also suggestion that
governments should manage and moderate demand by designing policies that penalize carbon
emissions.

IEA is an autonomous agency with mandate to promote energy security among its member
countries through collective responses to physical disruptions in oil supply and to advise
member countries on sound energy policy.

Kharif sowing picks up as monsoon intensifies

Jump in area under oilseeds, coarse cereals, cotton.
Our Bureau

New Delhi, July 12

The monsoon's general revival over the past 10 days or so has spurred kharif sowing in most
States, barring Madhya Pradesh, Uttar Pradesh and Bihar, which have received deficient
rainfall.

The sowing activity is reflected in crop acreages. Farmers have planted 72.3 lakh hectares
(lh) under rice this time, which is more than the 68.67 lh covered at this time last year.

At the same time, the area has fallen in Uttar Pradesh (2.57 lh against 9.11 lh) and Bihar (1.66
lh against 2.47 lh).

The same trend in visible in soyabean, where overall area sown is higher (34.24 lh versus
31.62 lh), but lower in Madhya Pradesh (14.3 lh versus 20.10 lh).

Madhya Pradesh has also reported a decline in pulses coverage (1.41 lh versus 2.27 lh).
Another State where planting is trailing in most crops is Karnataka – maize (5.07 lh versus
7.93 lh), pulses (2.73 lh versus 3.55 lh), groundnut (1.28 lh versus 2.29 lh), sunflower (0.81
lh versus 2.57 lh), cotton (2.04 lh versus 2.28 lh) and jowar (1.31 lh versus 1.99 lh).

There have been very goods rains in Maharashtra and Andhra Pradesh. This, in turn, lifted
overall area under oilseeds, coarse cereals and cotton.

Maharashtra has seen huge jumps under cotton (26.5 lh versus 11.57 lh), soyabean (17.31 lh
versus 6.41 lh), jowar (5.65 lh versus 1.90 lh), bajra (6.11 lh versus 0.85 lh), maize (4.06 lh
versus 1.03 lh) and groundnut (1.58 lh versus 0.20 lh).

The same story holds true for Andhra Pradesh, where farmers this time have brought in more
land under cotton (9.45 lh versus 5.79 lh), groundnut (5.03 lh versus 2.03 lh), maize (2.64 lh
versus 1.37 lh), arhar (1.17 lh versus 0.68 lh) and moong (1.05 lh versus 0.70 lh).

Our Chennai Bureau reports:The fall in the soyabean acreage in Madhya Pradesh is telling on
its prices. Soyabean prices gained on Monday with prices on the futures closing at Rs 1,920 a
quintal for June contracts.

Along with soyabean, prices of groundnut oil soared in Rajkot and Mumbai. Cottonseed oil
too gained in tandem.

India's domination in black tea production set to continue

C.J. Punnathara

Kochi, July 12

Although China continues to dominate global tea production, India will remain the biggest
producer and consumer of black tea in the world. This dichotomy is mainly because India is
mainly a black tea producing region, while China continues to focus on green teas, United
Planters Association of Southern India (UPASI) sources said.

Reinforcing the importance of black tea in global consumption and trade, the Inter-
Governmental Group on Tea has pointed out that over the past five years black tea accounted
for 65 per cent of the total production, 67 per cent of consumption and 80 per cent of trade.
The FAO-affiliated Group has predicted that India's premier position in black tea will not
only continue throughout this decade but is also likely to be reinforced further.

Biggest consumer
Global black tea production is estimated to reach 3 million tonnes (mt) by 2019 of which
India is expected to contribute 1.2 mt. However, with the country's consumption expected to
perk up to one mt, it is also expected to retain the tag of the biggest consumer in the world.
But heightened consumption also implies less for export. Global black tea production is
expected to grow from the one per cent levels of the last decade to two per cent, while Indian
production is expected to remain at the two per cent growth rate.

Although India would account for the lion's share of global black tea production, other major
producers are Kenya with 403,000 tonnes and Sri Lanka with 339,000 tonnes. As the
domestic consumption of these countries would continue to be limited, they are expected to
hold sway over the global production and trade.

Exports

World black tea exports are projected to reach 1.49 mt by 2019. Export volumes for Asia are
projected at 7,36,000 tonnes and that of Africa would be 6,06,000 tonnes. As the demand-
supply equilibrium is slated to be sustained till 2019, prices are expected to remain stable,
although slightly higher than the historical averages. And the trend would be based on the
firm price trends of recent years. After a long period of sustained growth, global black tea
production declined by 0.64 per cent in 2007-09 while consumption grew by 0.57 per cent.
As a result, global tea prices have shown sustained increases. The FAO composite price rise
for tea increased from $1.95 a kg in 2007 to $2.39 and finally to $3.18 a kg in September
2009.

Black tea consumption in other consuming countries such as Turkey, Bangladesh, Vietnam,
China and Sri Lanka are expected to accelerate during the current decade while more modest
growth of one per cent is expected from developed countries such as Russia, UK, US, Japan
and Canada.

Nabard to promote 7,500 joint liability groups

  
Aiding farmers: Mr P. Mohanaiah, Chief General Manager of Nabard (AP region), and other
General Managers, at a press conference in Hyderabad on Monday. –

Our Bureau

Hyderabad, July 12

The National Bank for Agriculture and Rural Development (Nabard) has said that it would be
promoting 7,500 joint liability groups, helping them establish linkages with banks.

“Though it began in 2006, it took shape last year where we supported 350 JLGs. This year we
will scale this up to 7,500 groups,” he said.

Facilitator role

The issue of credit to tenant farmers has been a tough issue, with most banks preferring to shy
away from giving them loans. Recognising this need, the apex agricultural bank has decided
to act as a facilitator.

It would help farmers' clubs, NGOs and other agencies to form the joint liability groups.
These groups would take joint liability for all the loans taken by the individual members.

Addressing a press conference to mark the bank's Foundation Day here on Monday, Mr P.
Mohanaiah, Chief General Manager of Nabard (AP Region), said the bank, which usually
refinances to banks and cooperative banks, would also begin co-financing from this year.
“We have allocated Rs 20 crore for this in 2010-11 and signed agreements with AP Gramin
Vikas Bank and Saptagiri Gramin Bank. We are in the process of joining hands with other
banks as well in this regard,” he said.

For 2010-11, the bank targeted to sanction Rs 890 crore for Andhra Pradesh and achieve
disbursals of Rs 1,430 crore. Besides, it would give Rs 2,550 crore for refinancing of crop
loans and Rs 2,200 crore for investment credit.

Trade liberalisation and farm output

SHASHANKA BHIDE

The removal of trade curbs can spur a sector to meet the demands of a rapidly growing
economy. However, global cues, as against a system driven by fiscal support, can lead to
output fluctuations. Hence, focusing on the output of some commodities may be a viable
option.

 
While exports have acted as drivers of production for several products in the domestic
market, the same has not happened in the case of foodgrains.

The Indian economy has been described as being driven more by ‘internal demand' than by
‘external demand'. This is one reason for its relatively good performance during periods of
global economic crisis — not just in the present situation, but also when the regional
economies of South-east Asia slumped in late 1990s. However, these internal drivers have
not been enough to accelerate agricultural income growth in the recent years. Are there some
missing elements, such as inadequate internal and/or external liberalisation of certain sectors?

SUGAR DECONTROL
A deregulated, albeit protected, sugar sector is expected to grow faster. Deregulation is
considered necessary to provide greater flexibility to the processing sector to develop
markets. Higher income elasticity of sugar provides the basis for the expectation of rising
demand, as the economy continues to grow. The business-as-usual approach seems to have
led to cycles of shortages and stocks and lack of dynamism.

If deregulation implies higher prices — sugarcane prices are not likely to come down,
deregulation or no deregulation — the import competition for sugar will increase at least in
theory. Some import tariff may be justified as it is omnipresent. But high level of protection
from imports will mean the Indian consumer will end up paying more for sugar than
necessary, unless the government wishes to subsidise sugar, something it now wishes to stop
doing.

But what is the key reason for reforms in the sugar sector? It is not merely providing greater
flexibility to the sugar producers, but the overall sustainability of the sector that has to be
addressed. The rigid links running from input subsidies, administered output prices, levies for
PDS and control on sugar prices leave scope for dynamism amidst fiscal support or trade
protection.

A regulated trade regime in agriculture has been necessary to either protect the producers
from the uncertainties of international markets, or protect the consumers from the
uncertainties of supplies.

EDIBLE OIL IMPORTS

One significant transition in the recent years, from a regulated and essentially internally-
oriented sector to the one where imports play a significant role, has been in the case of edible
oils. Import tariffs do remain at high levels, but imports meet a significant share of domestic
demand.

In the case of pulses too, there has been growing recourse to imports. The shift has been
possible as domestic supplies could not keep up with the rising demand.

But the internal demand orientation in most commodities, however, has meant that the overall
growth of the sector is placid and determined by the fiscal resources of the government. The
government is the biggest purchaser of key agricultural commodities, under minimum
support price or procurement and levy operations.

The fiscal position cannot be too volatile, as the stability in fiscal operations also translates
into stability in demand for agricultural output. But when the fisc is not in a position to
sustain internal orientation of the sector, trade policies have opened up.
DEMAND FOR FOODGRAINS

In the case of foodgrains, the internal orientation is strong. Exports have emerged essentially
as a residual balancing item for the sector. For example, the estimated per capita net
availability of food grains — after netting out international trade and government's operations
in the sector — does not show a clear rising trend.

In the years from 2000 to 2009, the estimate has varied between 415 gm to 460 gm per day in
seven out of nine years and exceeded the upper limit only once. Although net production
increased, exports have offset the increase leading to near stagnation in net availability.

While the availability of other basic requirements such as edible oils, sugar, tea, coffee, cloth
and electricity show clear improvement, the foodgrain availability has not.

It is expected that consumption of foodgrains would increase either for direct consumption or
for indirect consumption. The indirect consumption through use of grains as feed also does
not seem to have affected trend in consumption. The rise in domestic demand is yet to
translate into a stimulus for rapid growth.

BASIC SUPPLIES

While exports have acted as drivers of production and hence improved availability of several
other products in domestic markets, the same has not happened in the case of foodgrains. In
the case of vegetables and fruits, production has accelerated where exports are significant.
The dilemma of using international trade to drive production growth gets exacerbated by
fluctuations in output.

The margin of permissible error in ensuring adequate supplies for minimal consumption
appears to be quite small. But it is necessary to increase the safety margins by increasing
production in a selective manner. Focusing on the production of select commodities can help
provide that extra margin of safety.

Roots of mess in Kashmir

B.S. Raghavan

The inhabitants of this land can be conquered only by spiritual force and never by brute force
of arms.

— 12th century poet, Kalhana, in his chronicle, Rajatarangini, on Kashmir.

There has been a plethora of commentaries in the media on what is happening in Kashmir,
and I do not want to crowd the space with anything of my own, especially when I have
nothing new to add. All I want to do is express my infinite distress at what the political and
governing classes in India have done to Kashmir as I knew it some 60 years ago.

It was in 1952 that I first travelled to the interior areas of the Kashmir Valley while on my
way to military attachment with the 8 Madras Battalion at Chamkot on the Kishenganga river
which was the tentatively designated cease fire line. It was a two-day journey from Srinagar
involving crossing of the 10,000-plus foot high Nasta Chun pass and then descending to
Tangdhar and on to Chamkot.

Since then, I have been to Jammu and Kashmir six times both on duty and for pleasure.

unspoilt innocence

Apart from the breathtakingly bewitching scenery, what indelibly embedded itself in my
psyche every time was the spontaneous friendliness, ready smile ending up in bubbling
laughter and instant helpfulness of the people who showed themselves to be, oh, so very
ecstatic while mingling with us.

Kalhana too reserves his best poetic imagery to the sheer joy, guileless abandon and unspoilt
innocence that the Kashmir people exuded. In sum, more than the natural endowments
themselves, the people of Kashmir lent their magical touch to their land. In my eyes, they
were truly phantoms of delight, as Wordsworth would say.

What accounts for the terrifying transformation that has occurred in the character of the
people in recent years — from acceptance of India as a welcome benefactor to looking upon
it with such revulsion? How could so much violence and militancy grow among such an
inherently peaceful and trusting people?

Psychological roots

As any sociologist or psychologist would confirm, human nature cannot register this kind of a
swing from one extreme to another unless it went through a prolonged period of hurt, neglect
and callousness. Unfortunately, the blame for this should be squarely placed at the doors of
Delhi from the days of Jawaharlal Nehru himself.

The 11-year long incarceration of legendary Sheikh Abdullah from 1953 in the Kashmir
conspiracy case, especially his being lodged in Kodaikanal, far away from relatives and
friends, on the unsustainable charge (the case had to be dropped in 1964) of overawing ‘‘by
force and show of force the duly constituted government of Jammu and Kashmir with the
object of overthrowing it and facilitating the annexation of the State's territory by Pakistan''
showed up India in the eyes of the Kashmiri people as a country which, even under Nehru,
was prepared to go to any lengths to harass and humiliate their leaders.

What got their goat was their impression, progressively getting strengthened over the past
five decades, that most of the money given as Central grants to Kashmir went into the
pockets of the pliant politicians who were lending themselves to manipulation by Delhi.

The impression arises from their observation of the utter lack of development commensurate
with claims of transfers of enormous amounts from the Centre to the State. It is further
confirmed by the Transparency International ranking Jammu and Kashmir along with Bihar
and Uttar Pradesh in the category of the most corrupt States in India.

Thus, the mess in Kashmir has deep psychological roots and cleaning it up is going to be a
formidable task.

Open up retail, but carefully

Modern retail can offer products at lower prices, but its impact on employment is not clear.
FDI should be permitted, but with the necessary regulations.

Vinish Kathuria

On July 6, the Department of Industrial Policy and Promotion of the Union Government
released a discussion paper on allowing foreign direct investment (FDI) in multi-brand retail.
This has once again revived the debate on the subject. How will the move effect employment
in the traditional wholesale and retail sectors, and will it boost the products of small
enterprises? The discussion paper has linked FDI in multi-brand retail to creating processing
plants and cold storages.

FDI is permitted up to 51 per cent under single-brand retail trading, and in 100 per cent
subsidiaries of multi-national retailers only if they operate in the cash-and-carry segment
catering to institutional and business consumers, rather than households.

Deregulation of retail sector is part of the unfinished agenda of the UPA-II Government. In
its previous term, feelers were given that 100 per cent FDI in retail is round the corner.
Nothing much happened partly because of the vociferous opposition by the Left. Now that
the Centre has floated a discussion paper, is it an indication of readiness?
The main opposition to FDI in retail in the past was not to FDI as such, but to the entry of big
retailers like Wal-Mart and Tesco. These big retail giants, especially Wal-Mart, have been the
cornerstone for a paradigm shift in retail business in the past three or four decades, though the
spread of Wal-Mart in US itself is not without controversy.

The issues to be looked at are: a) How do consumers, producers and the government benefit
with the entry of retail giants like Wal-Mart;

b) If allowed entry, is there any player in India which can match the onslaught of these
giants?

TECHNOLOGY BENEFITS

To appreciate the benefits of FDI in retail, one needs to see what role big retailers like Wal-
Mart and Tesco have played in vitalising the retail sector in their respective countries.

Among the several firsts through which Wal-Mart has gained prominence are: its investments
in information technology; its transformation of supply-chain relationships by establishing
private labels and purchasing more products from overseas producers; and its embrace of a
low service, ‘one-stop shopping' format.

Technology and scale are at the core of Wal-Mart's advantage. The pioneering efforts include
installing bar-code readers in all distribution centres by the late 1980s, which reduced the
labour cost of processing shipments to half.

In 1990, Wal-Mart introduced Retail Link — a software connecting all its stores, distribution
centres and suppliers. This provided detailed inventory data and brought suppliers closer to
the individual stores, thereby affecting the supply-chain.

Wal-Mart is currently at the forefront of efforts to use Radio Frequency Identification (RFI)
— a technology in which each individual item receives a tag that can be read by a radio
signal, thus facilitating tracking shipments, inventory and sales.

Use of better technology allows a firm to grow and this growth then lowers the operating
costs through economies of scale, as has happened in the case of Wal-Mart.

The combination of technological prowess, and economies of scale and scope will have direct
implication on productivity in the retail sector.

LOWER PRICES
Among other benefits, entry of a big retailer tends to lower the prices that incumbent
competitors charge and in that way indirectly affects consumers who shop elsewhere. A 2007
study by Jerry Hausman and Ephraim Leibtag in the Journal of Applied Econometrics has
found that over a four-year period, expansion of superstores, mass merchandisers and clubs in
US has forced traditional supermarkets to lower prices by approximately 3 per cent, with
some variation across products.

One direct beneficiary of organised retail will be the government itself. Since most petty
traders and shopkeepers avoid giving receipts to escape tax, any transfer of retail trade away
from these shops to retail chains would increase government tax collection.

NEGATIVE ASPECTS

Among the negative aspects, the cannibalisation of single-store retailers with several people
losing out their livelihood is the most pernicious. The data indicates that between 1963 and
2002 the number of single-store retailers declined by 55 per cent in the US, while that of
chain stores (having 100 or more stores) tripled.

However, location of superstores in malls may lead to mall anchor store effect, where the
traffic to the smaller stores in the mall increases, though having a detrimental effect on stores
not located in the mall. Another negative aspect would be the change in the consumption
pattern, with consumers going for more window-shopping or trying to mirror the lifestyles of
a consumerist economy.

Increased trade imbalance could be another negative impact of FDI in retail if these retailers
source a sizeable proportion of their merchandise from other countries. Lastly, when a new
mega store opens, there are potentially negative effects on traffic and congestion.

GREY AREAS

The impact on employment will be a grey area which would require empirical verification
when FDI in retail is allowed. New retail chains for sure will hire several hundreds of
workers in an area, but this increase in job will be offset by job losses in other competing
retail firms..

Given the fact that most chain stores are vertically integrated and purchases are done
centrally, there will be a decline in jobs among the local wholesalers who were supplying to
local retailers . Even in the US context, the net impact of employment is little inconclusive.

There are few other grey areas too that would require empirical verification. What will
happen to average daily wage if a superstore or a mega-store comes — will it fall or rise?
The average working hours for any chain store is eight or nine hours -- will it increase
further? Similarly, retail sector as of now is beyond the purview of unionisation. Will there be
further push towards non-unionisation with increased FDI in retail. Evidence indicates that
there are no unionised Wal-Mart stores in North America despite providing employment to
1.3 million people. Any move to unionise by the workers in the past has been countered
swiftly by Wal-Mart.

Lastly, will entry of big retailers like Wal-Mart, Tesco vitalise our small and medium
enterprises (SMEs), the way it has been done in China? This is again a big question. If these
big stores source from local SMEs, it will induce these SMEs to invest in technology (for
tracking the consignment, proper inventorisation, etc.), which might have a spillover effect on
other SMEs in the area.

CONSIDERED APPROACH

To sum up, if some of the negative aspects of FDI in retail are addressed, and proper thought
given to the grey areas, FDI in retail will yield rich dividends.

The way retail sector has grown elsewhere, it is not just about selling to consumers but also is
about using technology, supply chain management, and logistics.

Yet, given the impact on large section of traditional retailers, a cautious approach will be
useful. If the government decides to open up the sector, it should impose regulations such as
zoning, sourcing and back-end investment requirements to protect traditional retailers.
Besides protecting traditional retailers, this would help in SMEs growth – a win-win situation
for all.

Illegally grown Pak, Afghan poppy seeds entering India

Traders want ban on such imports.

G.K. Nair

Kochi, July 13

Illegally grown and inferior quality Afghan poppy seeds mixed with Turkish produce are
allegedly finding their way into the country at low prices.

Afghan poppy seeds cargo reaches Turkey's Merzin Free Trade Zone (FTZ) via Karachi port,
as bird seed, before being mixed in Turkey and then exported to India.
“This is done by two big importers and all these cargoes are landing at Tuticorin port and
sold at Kolkata. If these cargoes are seized, samples tested, it can be proved. The Afghan
poppy seed appears dull with more black spots, while that of Turkey is in white colour,”
market sources told Business Line.

Illegally grown poppy seeds from Pakistan are also finding its way after mixing it with
Turkish poppy seeds via its Free Trade Zone in Merzin and these cargoes arrive via Nava
Sheva and Tuticorin ports, the trade alleged.

Traders of poppy seeds in Kolkata had taken up this issue with the authorities requesting
them to ban imports of this kind of material that is harmful to the consumers, they said.
Expressing concern over illegal cultivation of poppy seeds in Afghanistan, the US officials in
Kabul had reportedly complained in May last year to Afghan authorities on their “failure to
support a poppy eradication programme”.

Legal cultivation

Rules for the legal cultivation of opium poppies were set out in the United Nations' Single
Convention on Narcotic Drugs in 1961. Countries that produce and export opium must keep a
close watch on the poppy farms within their borders. In Turkey, for example, poppy farmers
harvest both the opium and the seeds.

The opium is sent off to a pharmaceutical company, where it is processed into legal
painkillers, and then the seeds are harvested to make poppy-seed oil or sent abroad. The
Government keeps a close watch on cultivation: Farmers must submit crop estimates before
they begin planting, and Government officials check these estimates against the actual yield
and their own inspections of the land, a report said.

But, some in the trade are involved in fraudulent activities, a report said. The exports of
poppy seeds to India from Free Trade Zone Merzin increased significantly in 2010 to 1,008
tonnes from 227 tonnes in 2009 while imports from outside the FTZ dropped to 1,368 tonnes
from 1,594 tonnes during the period.

No buying interest

The poppy seed market is stable and, in India, prices rule between Rs 200 - Rs 230 a kg,
Bangalore-based traders said, adding “China poppy seeds are selling well, this has corrected
the prices and broken the monopoly of Turkey poppy seeds,”.

Currently, the markets are dull and it is expected to become activated pushing the demand up
during the festival season from August to February, they claimed. In the international market,
prices in Turkey and China are at $2,300 and $2,800 a tonne respectively. Meanwhile, a
Turkish exporter was quoted in a recent report as saying that “the market continues to be
weak with little trading and no buying interest. India continues to stay away and most
probably, with the arrival of new crop (in Turkey), we will see $2,500 a tonne easily.”

Chances of demand rising significantly are remote as India is currently absorbing its own
crop, harvesting of which was started in April. It is estimated that the production would be in
the range of 8,000 to 10,000 tonnes. At the same time, Turkey is reported to have “large
carryover stocks ahead of an expected good crop in July”.

‘Bring palm sector under support price mechanism'

Centre can save forex outgo on imports, says Godrej Agrovet MD.

 
Mr Balram Yadav, MD, Godrej Agrovet

Suresh P. Iyengar

Mumbai, July 13

With food prices rising sharply in the last few months, the entire nation is hoping for a good
monsoon to alleviate the pain. The progress of the rains in the next few weeks will determine
the kharif output. Besides, the increase in diesel prices has only added to the cost spiral. The
Centre did its bit by increasing the minimum support price for most kharif crops.

Godrej Agrovet, one of the most diversified agriculture-business companies, has decided to
take on the cost push by expanding its business. The company, which operates in poultry,
palm plantation, agriculture inputs and animal feed business, has chalked out a plan to
increase its topline by 15 per cent and bottomline by more than 25 per cent this fiscal.

Mr Balram Yadav, Managing Director, began his career with Godrej in 1991 as Branch
Executive at Khanna, Punjab. In 1999, he moved to the headquarters in Mumbai and was
entrusted with the job of handling the integrated poultry business. He was instrumental in
establishing the brand – Real Good Chicken. Mr Yadav spoke to Business Line on key issues
in the agriculture sector. Excerpts:

After a good start, the rains seem to have taken a break. What are your thoughts on this?

The monsoon has been quite satisfactory as far as agriculture is concerned. The initial rains in
June improved soil moisture and sowing has been completed or close to completion in most
regions. Rains in July and August will be crucial for the outcome of agriculture produce this
kharif. If the momentum continues this month, I believe the monsoon will be much better
than what the India Meteorological Department had predicted.

With the new Government policy pushing up fertiliser prices, do you think farmers will be
hit?

Though urea prices have gone up by around 10 per cent, the Government has also increased
the MSP (minimum support price) for most agriculture products such as wheat, paddy, pulses
and sugarcane. The new pricing policy for sugarcane has increased farmers' realisation by 50
to 60 per cent in the last year.

The MSP for kharif pulses has also been hiked substantially. In fact, MSP for various food
crops is up by 15-16 per cent CAGR (compounded annual growth rate) in the last two years.
Suddenly, farming has become remunerative. Whether farmers can afford the increase in
fertiliser prices is debatable. A positive impact, of course, is that mindless use of fertilisers
will come to an end. The price rise will ensure their judicious use after proper soil testing.

While other companies are looking overseas for palm plantations, you have stuck on to India.
What is your take on for boosting the fortunes of this industry?

The Gujarat Government recently allocated 10,000 hectares at Bharuch to grow palm. We
will be working closely with farmers. The company expects to increase palm coverage from
38,000 to 45,000 hectares by the end of this year and produce 40,000 tonnes of CPO (crude
palm oil), a growth of 30 per cent.

We have palm plantations in Goa, Orissa, Andhra Pradesh, Tamil Nadu, Karnataka, Mizoram
and Gujarat. The company will invest Rs 60-70 crore in nine months to set up an oil mill in
Andhra Pradesh with a capacity to produce 40-60 tonnes (of oil) an hour. The Centre should
bring palm sector under the MSP regime to encourage farmers.

Won't this make things worse for the Centre which is already bogged down with a huge MSP
bill?
This is a misconception. On the contrary, the Centre can save immensely on foreign exchange
as huge quantities of palm oil are imported annually. At present, developers buy FFB (fresh
fruit bunch) directly from farmers at a fair formula fixed by the Centre based on global palm
oil prices.

However, the fall in prices had caused FFB prices to crash by over 35 per cent from their
May 2008 peak, while prices of competing crops have shot up. Palm farmers have to wait for
three years to get a cash flow and five years for breakeven. It becomes remunerative for them
only eight years after the tree matures.

Without this support, many farmers have started uprooting oil palm trees.

Will the fuel price hike affect the agriculture sector?

The fuel price rise is inflationary and will push up the freight cost of food and milk product
prices. I expect freight rates to go up by 10-12 per cent depending on the quantity and
distance the goods are carried. Freight charges may vary for a full and half truck load over a
same distance. The impact will also vary though the distance remains the same. On the
whole, the final cost push may not be more than two to four per cent at the retail end.

Do you see poultry product prices softening?

The rise in chicken prices was mainly due to the mismatch in demand and supply besides a
shift in food habits in the last two years. Pulses are a cheap source of protein and with their
prices remaining high, health-conscious consumers rely on chicken. The demand as a result
has propped up their prices by 17-20 per cent over the last year.

However, prices may soften a bit by the end of this year as major investments made by the
industry in the last few months have begun yielding results and improving supplies in the
process. The poultry industry suffered major losses after the recent bird flu epidemic coupled
with high costs of feed such as soya and maize due to low production. Going by the IMD's
outlook of good monsoons, animal feed crop output could be a lot better and prices will ease
out too.

Firms go for ‘alumni hiring' to woo talent back

Re-hiring does have advantages such as ex-employees comprise a ready-to-use resource that
requires very little training (and so a company saves on that cost) and on-boarding is easier.
Anjali Prayag

Bangalore, July 14

With companies back in the growth mode, employees who quit, voluntarily or involuntarily,
are likely to be seen on old turfs again. Boomerang hiring or alumni hiring will be one of the
pipelines that talent managers would look into to strengthen their pools.

“I'm a big fan of alumni hiring,” says Mr E Balaji, CEO and Director, Ma Foi, HR consulting
firm, but what is most important is the right expectation setting from both sides, he warns.

Re-hiring does have advantages such as ex-employees comprise a ready-to-use resource that
requires very little training (and so a company saves on that cost) and on-boarding is easier.

‘Fatigue Factor'

Mr Venkatshastri, Client Partner, Technology and Office, Managing Director, Korn/Ferry

International, Bangalore, says companies should, however, watch out for the ‘fatigue factor'
that the employee carried when he or she quit the organisation. “A new role in the same
company should re-energise the individual to perform,” he explains.

After a 7-8 year-stint, employees tend to get tired of working for an organisation and should
not come with this negative baggage. Mr Amitabh Das, Founder and CEO of HR consulting
firm, Vati Consulting, says that this should not be a knee-jerk reaction to a hiring pressure.
“If the good guys come back, the programme can be termed successful.” But Mr Balaji
argues that the guys will come back if the exit, even if involuntary, is handled in a humane
and sensitive manner.

With alumni hiring getting formalised (Infosys announced a green channel for its alumni),
companies are setting up formal procedures for re-hiring. Homecoming features as an integral
part of our recruitment strategy, says Ms Sujata Mukhopadhyay, Head, Talent Acquisition,
Logica India.

Mr Elango R, Chief Human Resource Officer, MphasiS, who himself is an alumni hire, says
that companies should ensure that the comeback does not impact existing employees. “People
who stayed back should not feel that they have lost out because of their loyalty,” he warns.

Software firm Symphony Services too welcomes back former employees. “The only caveat is
that they will come back at the level and compensation that HR believes is right and not at
the same levels with their current employer. This ensures that loyal employees staying with
the company are not short-changed,” says Mr C. Mahalingam, Executive Vice-President and
Chief People Officer of the company.

Challenge of sugar decontrol

The long overdue decontrol will open up new vistas for the industry in terms of
modernisation and expansion of capacity.

The Agriculture and Food Minister, Mr Sharad Pawar, has talked about his Ministry's
willingness to recommend decontrol of the sugar industry after assessing the condition of the
sugarcane crop by September. The Minister has rightly made it clear that the Government
would continue to fix the statutory minimum price for cane to ensure fair and remunerative
prices for growers. As the input (cane) price will be fixed, one can expect that decontrol will
relate to the output (sugar), on which there now are two restrictions — the levy system
(which makes mills surrender a part of their sugar production to the government at less than
market price for supply through the public distribution system) and government-determined
free-sale quota system (regulation of quantity and timeline for sale). Abolition of these two
controls should bring significant relief to sugar mills which then can operate in a marketing
environment free from government interference. In the absence of levy system, the
government will have to purchase sugar from the open market for meeting PDS needs. This
has the potential to raise the sugar subsidy burden.

While the long overdue decontrol will open up new vistas for the industry in terms of
modernisation and expansion of capacity, there are several vexatious issue that neither the
industry nor the government should lose sight of. For sustained and healthy growth of the
industry, it is imperative that the cyclical swings in cane output are smothered. Little
attention is currently being paid to this aspect. Seasons of large surpluses and shortages can
lead to wild swings in prices. Therefore, import and export trade in sugar should be freed too,
and the tariff should be the only instrument in the hands of the government. The legal validity
of State Advised Price has been upheld by the Supreme Court. In order to ensure that SAP is
not abused by State governments, the Centre should bring forward appropriate legislative
amendments to make cane pricing uniform across the country.

From the industry perspective, perhaps the most important issue to be addressed is the
consolidation of fragmented capacities. Of the nearly 600 sugar mills in the private, public
and cooperative sectors, many do not enjoy scale economies as their cane crushing capacity is
less than the optimum size of 4,000 tonnes a day. Government and industry must together
explore ways to consolidate fragmented capacities which will lend a competitive edge to the
industry. It is imperative that the announcement of decontrol be made before the new season
beginning October. However, it would be naïve to assume that the measure by itself would
bring about significant transformations; industry has to do its part to become truly globally
competitive.

Sugar industry steps up pressure for decontrol

Our Bureau

New Delhi, July 14

Sugar millers have stepped up their lobbying efforts to seek decontrol of the industry. This
comes less than a week after the Union Agriculture Minister, Mr Sharad Pawar's statement
that the current time was ‘right' for decontrol and the Centre would take a call on it by early
September.

In a joint release issued here on Wednesday, the Indian Sugar Mills' Association (ISMA) and
the National Federation of Cooperative Sugar Factories Ltd (NFCSFL) demanded a complete
lifting of output controls.

These include dismantling the ‘release mechanism' (where the Government decides how
much sugar each mill can sell in a particular month), levy procurement (where a certain
percentage of their production is requisitioned at below market prices for the public
distribution system or PDS) and stock holding limits on traders and bulk consumers.

According to the industry, sugar for the PDS should be sourced by the Centre entirely
through competitive open market tendering and not by levy obligation on mills. Sugar should,
moreover, be removed from the Essential Commodities Act. Considering that households
account for just 26 per cent of the country's consumption, with the remaining 74 per cent
being bought by bulk consumers such as beverage, biscuit and sweet-meat makers, there is no
need to view it as an ‘essential commodity'.

The joint release also sought a minimal role for the Government (both Centre and States) in
fixing cane prices. This, even as Mr Pawar made it clear that the Centre would retain its
powers over cane price determination even in a decontrolled scenario.

The release called for a ‘globally benchmarked' cane pricing formula, wherein mills would
pay 62 per cent of their total realisation from the sale of sugar and direct by-products
(molasses, bagasse and press-mud) to growers and keep the rest with them. The cane price
worked out by this formula should be inclusive of all State taxes, it added.
The industry's enthusiasm for decontrol was, however, not as pronounced in matters of cane
reservation or import policy. The release sought continuation of the existing practice of cane
area reservation along with maintenance of a minimum distance between two mills. In fact, it
even demanded an increase in the minimum distance between an existing and proposed new
mill from the current 15 km to 25 km, with this going up proportionately with higher cane
crushing capacity.

The same protectionist approach was evident in respect of imports. Imports, if at all required,
should only be in the form of raw sugar. “The duty structure should be calibrated in a
manner…so that the country is self-sufficient in meeting its domestic requirements of sugar,”
the release added.

Batting for agriculture

SHARAD JOSHI

 
The Agriculture Minister, Mr Sharad Pawar.

It is unusual for a politician to voluntarily seek curtailment of his powers. Mr Sharad Pawar,
Minister for Agriculture, did it. Soon after assuming the responsibilities of the President of
the International Cricket Council (ICC), he called on the Prime Minister to indicate his
willingness to accept a reduced work burden.

When UPA-I was being forged, it was known that Mr Pawar had insisted on getting, along
with the agriculture portfolio, the Ministry of Consumer Affairs, Food and Public
Distribution.

No minister of agriculture in the past had demanded or obtained additional charges of these
ministries. It appeared that Mr Pawar wanted to make a fresh beginning.

WHAT A BURDEN

Agriculture is a state subject. There is a huge Ministry of Agriculture at the Centre employing
around 30,000 people.
This army of employees makes little contribution to the production side of agriculture. Its
functions are limited to coordinating the work of research and promoting a balance between
the consumers' and the farmers' interests.

The two Ministries —Agriculture and Consumer Affairs, Food and Public Distribution — are
functionally intertwined. However, they together represent an enormous burden on the
minister(s) in charge.

Since 2004, I have never heard any senior officer of these ministries complaining of any lack
of attention or application on the part of Mr Pawar.

Everyone knows that he bears the burden not only of two large Ministries, but also presides
over a huge financial empire of cricket in India.

They are also aware of the fact that the Minister has considerable interest in many industries
and businesses, all of which are running smoothly. It is also well known that no decisions
affecting the cooperatives or sugar are taken without consulting Mr Pawar.

To cut a long story short, the additional burden of the ICC could not have been a reason for
Mr Pawar seeking a reduction in the burden of his work.

CONGRESS HOSTILITY

No doubt, many leaders in the Congress party are unhappy about Mr Pawar's rise in the field
of cricket, as they are about the kind of mandate he runs in Maharashtra's politics.

Congressmen try to pass the entire blame for price hike and food shortages on to him.

There are jokes doing the rounds about Mr Pawar being the right person for the Ministry of
Sports, particularly to handle the Commonwealth Games and cricket.

The bitterness among Congressmen came out typically in a recent report of the Estimates
Committee of the Parliament.

The committee is chaired by the former Goa chief minister, the Speaker of the State
Assembly and the incumbent president of the Pradesh Congress Committee, Francisco
Sardinha.

In its report, the committee has lambasted both the Meteorological Department and the
Ministry of Agriculture for their failure to foresee the drought and take adequate preventive
and corrective measures.
It has attacked the Ministry of Agriculture for its handling of the drought situation and price
rise. Further, the Committee has pulled up some officials in these two organisations with an
acerbity that is rarely seen in the reports of Parliamentary committees. If Mr Pawar is up
against Congressmen, he also has to deal with pressure from members of his own Nationalist
Congress Party.

They want him to end the masquerade of running an independent national party with a single-
point agenda of opposing a prime minister of alien origin. Why not go back to the Congress,
some of them could well wonder.

Meanwhile, the Prime Minister is reported to have promised serious consideration of Mr

Pawar's request to lighten his burden.

It is not known how the Prime Minister intends to come out of this politically embarrassing
situation.

However, it presents him with an opportunity to knock down two birds with one stone —
resolve a political problem while also carrying out a long overdue reform of the agriculture
bureaucracy.

AGRICULTURE SERVICE

Agriculture demands considerable attention and still there is nothing like an All-India
Agriculture Service. Even forestry, which is only a branch of agriculture, has an Indian Forest
Service, but not agriculture.

Even more important is the matter of coordination between various ministries, some 14 at the
last count that have stakes in agriculture. The Ministries of Commerce, Water Resources and
Fertilisers often work at loggerheads with Ministry of Agriculture, on the one hand, and that
of Food and Consumers' Affairs, on the other.

In the 1990s, when Devi Lal was both minister of agriculture and the deputy prime minister
under V. P. Singh, a proposal was mooted to put all agriculture-related ministries under the
control of the deputy prime minister. The V. P. Singh government fell before the proposal
was seriously examined.

The present embarrassment for both the Congress and the NCP could be resolved by
resurrecting that proposal.

HUL plans to intensify rural push for brands

  
Hindustan Unilever's rural push: Commercials are aired on television sets mounted on
travelling ‘palkis,' for housewives and children in the village.

Purvita Chatterjee

Mumbai, July 15

Intensifying its reach in the rural markets, HUL has decided to make its brands more
‘experiential' in nature instead of merely making them available in these media dark markets.

While its agency, O&M, has already been working on its rural initiatives, this time around
HUL is tapping the rural markets with the intention of giving its rural consumers a chance to
sample its brands with a ‘difference'.

Speaking to Business Line, Mr Sudhanshu Vats, Vice President, Home Care and Skin
Cleansing, HUL, said, “Deep down in India, the frequency of usage of FMCG categories is
low. We want to drive consumption reaching out to the top villages in the top states. Our
target is to reach out to 50,000-60,000 villages with experiential and educational campaigns
for our brands.”

From giving demos on the germ kill proposition of Lifebuoy to the grease cutting technology
behind its dish wash brand of Vim, HUL is showing live examples of what its brands can do
for its rural consumers instead of simply thrusting it on them. With competition getting
intense in the urban markets, the FMCG major has been losing share across a host of its
categories and tapping into the rural markets with its latent demand is the new gameplan to
get market shares. With programmes such as Khushiyon Ki Doli (a palki or palanquin with
LCD TVs and DVD player moves around the village to educate rural housewives about HUL
brands), a rural initiative spearheaded by Mr Vats, HUL is also betting on the monsoons to
give an additional fillip to its rural sales .

As Mr Vats said, “At the moment the monsoon is progressing well and a good monsoon does
impact our sales. Today half our sales comes from rural India and the rural thrust
programmes of the government brings more money in the hands of rural India and that
directly impacts the kind of categories that we are in.”

Considering that 70 per cent of India resides in rural markets, HUL is gearing up to tap into
the additional disposable incomes in these markets to generate sales (and thereby shares) of
its brands.

“As incomes become homogenous, particularly disposable incomes, it becomes directed

towards our kind of products after categories like food,” he said. In the past, HUL has
initiated programmes such as Project Shakti that targeted villages with a population of less
than 5,000.

U.P. warehouses may spoil Bengal potato party

Shobha Roy

Kolkata, July 14

The demand from other States for West Bengal potatoes is likely to drop after August when
the cold storages in Uttar Pradesh (U.P.) will start releasing potatoes into the market.

West Bengal is currently sending large quantities of potatoes to Bihar, Jharkhand, Orissa,
Andhra Pradesh and the north-eastern States, particularly Assam. “Cold storages across the
various parts of Uttar Pradesh have been holding on to their stocks in anticipation of a
possible increase in price of potatoes they hold. This is one of the primary reasons why
Bengal potatoes have found a good market in other States,” said Mr Patit Paban De, Member,
West Bengal Cold Storage Association.

Close to 28 per cent of the potatoes stored in cold storages across West Bengal amounting to
about 16 lakh tonnes have already been released into the market. An estimated 58 lakh tonne
of potatoes have been stored in the 403 odd cold storages across the state this year.

“About seven lakh tonne out of the 16 lakh tonnes of potatoes released from cold storages
have been transported to other States. Another 12-13 lakh tonnes of potatoes have been
directly transported by farmers to other States post harvest, thereby taking the total quantity
of potatoes transported to about 20 lakh tonnes till date,” Mr De told Business Line.

Cheaper Bengal

The release of potatoes from various zones of UP have been relatively lower this year. While
Agra has released about 28 per cent, Farukkhabad released only about 11-12 per cent and the
Eastern zone released about 15-16 per cent as on date. “The quality of their potatoes is better
than that of ours but their prices are higher at about Rs 450-500 a quintal (Rs 400 in Bengal)
so there is a demand for Bengal potatoes,” he said.

However, the release of potatoes from these belts would begin in the second week of August
as cold storages would find it difficult to hold on to their stock beyond that. “Once that
happens (release of UP potatoes into the market) then Bengal potatoes will not find a
market,” he said.

However, that would not have a significant impact on prices as the domestic consumption
was expected to pick up post August, he added.

The potato traders' association in the State were also mulling to go on an indefinite strike
starting July 16 in order to mark their protest against certain charges imposed by cold
storages. Wholesale prices of potatoes (Jyoti variety) were stable at Rs 380-400 a quintal.

Farm futures

India needs delivery-based forward trading in sensitive commodities, rather than mere
paper-trading by a band of speculators.

The impact of commodity futures on market prices has been a topic of debate since the
commodity market bull run of 2006-2008. It is widely acknowledged that rising global food
prices — resulting from too much speculative capital chasing a limited supply of essential
commodities — devastated a number of import-dependent poor countries. In this context a
policy brief published by the United Nations Food and Agriculture Organisation (FAO)
calling for greater regulation of the food futures markets assumes importance. Conceding that
the worldwide rise in food prices two years ago “might have been amplified by speculators in
organised futures markets,” the brief however cautions that “limiting or banning speculative
trading might do more harm than good”. A recent study by two US academics for the OECD
also says: “Financial market speculation did not cause the price bubble in agricultural futures
markets in 2007-08”.

It is, however, essential to bear in mind the setting and context of the studies — agriculture
and the futures market in the US. It would be unwise, therefore, for Indian policymakers to
get carried away by the ‘findings and recommendations' of these academic exercises as
market conditions are vastly different here. Large-scale agriculture, highly mechanised
production and well-organised markets with huge processing capacities, serviced by efficient
supply chain logistics, supported by investments and good governance have combined to
generate huge surpluses in the developed economies. No wonder, the supply response to
prices is significant; and infusion of speculative capital helps boost prices and/or arrest
drastic price falls. The situation contrasts starkly with conditions in emerging markets such as
India, where agriculture is a livelihood issue, characterised by fragmented landholdings, rain-
fed cultivation and inadequate rural infrastructure and processing capacities. All these
structural constraints result in unsteady production, often suspect quality and volatile prices,
while shortages are chronic. Without addressing these structural problems, allowing
speculative capital to flow in freely and engender additional paper demand in such shortage-
economies is sure to distort the market rather than advance stakeholder interest.

To lift the fortunes of growers and support poor consumers, India's priority should be to
strengthen the farm production base and put in place efficient infrastructure for marketing
and delivery. Farmers here are in no position to respond to price signals. Therefore, India
needs delivery-based forward trading in sensitive agriculture commodities, rather than mere
paper-trading by a band of speculators who have no genuine interest in the underlying
commodity.

Farm futures

India needs delivery-based forward trading in sensitive commodities, rather than mere
paper-trading by a band of speculators.

The impact of commodity futures on market prices has been a topic of debate since the
commodity market bull run of 2006-2008. It is widely acknowledged that rising global food
prices — resulting from too much speculative capital chasing a limited supply of essential
commodities — devastated a number of import-dependent poor countries. In this context a
policy brief published by the United Nations Food and Agriculture Organisation (FAO)
calling for greater regulation of the food futures markets assumes importance. Conceding that
the worldwide rise in food prices two years ago “might have been amplified by speculators in
organised futures markets,” the brief however cautions that “limiting or banning speculative
trading might do more harm than good”. A recent study by two US academics for the OECD
also says: “Financial market speculation did not cause the price bubble in agricultural futures
markets in 2007-08”.

It is, however, essential to bear in mind the setting and context of the studies — agriculture
and the futures market in the US. It would be unwise, therefore, for Indian policymakers to
get carried away by the ‘findings and recommendations' of these academic exercises as
market conditions are vastly different here. Large-scale agriculture, highly mechanised
production and well-organised markets with huge processing capacities, serviced by efficient
supply chain logistics, supported by investments and good governance have combined to
generate huge surpluses in the developed economies. No wonder, the supply response to
prices is significant; and infusion of speculative capital helps boost prices and/or arrest
drastic price falls. The situation contrasts starkly with conditions in emerging markets such as
India, where agriculture is a livelihood issue, characterised by fragmented landholdings, rain-
fed cultivation and inadequate rural infrastructure and processing capacities. All these
structural constraints result in unsteady production, often suspect quality and volatile prices,
while shortages are chronic. Without addressing these structural problems, allowing
speculative capital to flow in freely and engender additional paper demand in such shortage-
economies is sure to distort the market rather than advance stakeholder interest.

To lift the fortunes of growers and support poor consumers, India's priority should be to
strengthen the farm production base and put in place efficient infrastructure for marketing
and delivery. Farmers here are in no position to respond to price signals. Therefore, India
needs delivery-based forward trading in sensitive agriculture commodities, rather than mere
paper-trading by a band of speculators who have no genuine interest in the underlying
commodity.

SEZs have a cause for concern

T.C.A.RAMANUJAM

The Direct Taxes Code has proposed not to extend the scope or the period of profit-linked
deductions to Special Economic Zones.

 
In a countrylike India, SEZs represent oases of development
Parliament had enacted the Special Economic Zones Act in 2005. The very same Act also
introduced special provisions giving benefits to newly established units in such Special
Economic Zones w.e.f. February 10, 2006. Hundred per cent of the profits were exempt from
such units which derive income from export for a period of five consecutive years from the
year of manufacture, production or provision of services and 50 per cent of such profits for
further five assessment years.

Such profits from the SEZs should be credited to a reserve account and utilised for purposes
of business as laid down in Section 10AA(2) of the Income-Tax Act, 1961. Similar incentives
are also offered to newly established undertakings in free trade zones (FTZs). The tax benefit
was in respect of profit-based tax holidays. Such units were exempted from Minimum
Alternate Tax and Dividend Distribution Tax.

DTC shock

The first draft of the Direct Taxes Code (DTC-I) gave a shock to such units. It was provided
that profits of the business of developing SEZs shall be the gross income reduced by business
expenditure under Sections 33 and 34. The SEZ project was not recognised in the DTC as an
infrastructure project.

The DTC itself altered profit-based incentive into investment-based deduction. The result
was, while there has been no tax in the first few years, subsequently, when the capital
expenditure is absorbed in due course and receipts exceed expenses, there will be tax liability.

DTC-I provided for no exemption from MAT. The Twelfth Schedule to the DTC allowed
developers to recover capital and revenue expenditure only and units in SEZs will be taxed
on profits.

The switch over from profit-linked incentives to investment-based incentives was not
intended under the SEZ Act, 2005. The Twelfth Schedule was silent on the promises made
under the SEZ Act.

There was widespread disappointment about the treatment meted out to SEZs. The Revised
Discussion Paper (RDP) on the DTC deals with this subject in Chapter VII. The case for
area-based exemption is based on the consideration of balanced regional development.

DTC-II reiterates that such area-based exemptions create economic distortions and allocate
resources to areas where there is no comparative advantage. Such exemption leads to tax
evasion and avoidance and there is huge cost of administration. Available exemptions will
therefore be grandfathered.
Profit delinked

Current profit-linked deductions available to developers of SEZs have been protected for
their unexpired period in DTC-I. However there was no mention of grandfathering of these
profit-linked deductions in the case of units operating in such SEZs.

DTC-II once again upholds the view that profit-linked deductions create an incentive to
inflate profit and also to transfer profits from a taxable entity to a non-taxable one. The
Government has therefore decided not to extend the scope or the period of profit-linked
deductions. Specific provisions will however be made for protecting such deductions for the
unexpired period.

That sums up the Government's response to innumerable representations made for continuing
the present tax advantage scheme for SEZs. DTC-II forbids tax holiday for units coming up
in SEZs w.e.f April 1, 2011. There is disappointment once again all round.

The Commerce Secretary points out that SEZs have attracted investment to the tune of Rs
1,05,000 crore in the past five years compared to just Rs 4,000 crore up to 2005.

Tax breaks under the SEZ scheme have contributed in a big way to this huge investments.
The proposed change in the tax regime for SEZ is making industries nervous.

Compromise arrangement

The Commerce Ministry objects to the dice being loaded against the investors after the game
has begun. The stable tax regime promised for exporters and developers should be honoured.
The Commerce Ministry is aware of the huge revenue drain caused by the SEZ scheme. But
it wants compromise arrangements to keep all sides happy.

There is a real danger of migration of economic activity to other countries if tax benefits are
not given to new units after April 1, 2011. Even banks have entered the fray pointing out that
they have an exposure of over Rs 30,000 crore to SEZ projects that are awaiting new units
and withdrawal of benefit can turn these loans into non-performing assets (NPAs).

The SEZ idea itself was borrowed from China. The Finance Act, 2009 brought in investment-
linked investments in the place of the gradual withdrawal of profit-linked incentives. In a
developing country like India, SEZs represent an oasis of development.

There can be no doubt that the promotions of SEZs offend the canons of horizontal and
vertical equity. Fiscal policies however are not always based on theoretical principles.
Practical considerations do prevail. Both DTC-I and DTC-II have withstood a barrage of
criticism against the withdrawal of tax benefits for SEZs. It will be interesting to see the final
outcome of the debate, when the DTC is introduced in Parliament in the monsoon session.

Maharashtra, AP help increase kharif acreage

Crops coverage in other States tardy.

Our Bureau

New Delhi, July 16

The Union Agriculture Minister, Mr Sharad Pawar, can afford a smile.

Excellent monsoon rains in Maharashtra have given a huge boost to sowing of all major
kharif crops in his home State.

More under cotton, soya

Maharashtra farmers have till now planted 34.19 lakh hectares (lh) under cotton this time,
compared with last year's corresponding progressive coverage of 22.19 lh.
They have similarly brought in more area under soyabean (21.14 lh versus 18.10 lh), arhar
(10.16 lh versus 5.86 lh), moong (4.94 lh versus 2.56 lh), urad (3.98 lh versus 2.20 lh), bajra
(7.81 lh versus 3.49 lh), jowar (7.58 lh versus 5.85 lh), maize (5.16 lh versus 3.24 lh), rice
(3.77 lh versus 2.49 lh) and groundnut (1.95 lh versus 1.21 lh).

Even in the case of sugarcane – where the crop to be crushed in the ensuing sugar season
from October was already planted between April and December last year – the area in
Maharashtra has gone up from 7.36 lh to 8.96 lh.

The good rains this time will benefit both the standing crop to be crushed in 2010-11 as well
as the one being planted for the 2011-12 season.

Surplus rain

All the three major regions of Maharashtra have so far received surplus rainfall in the current
monsoon season: Madhya Maharashtra (3 per cent above normal), Marathwada (46 per cent)
and Vidarbha (8 per cent).

Same story

The same surplus story holds for the three regions of Andhra Pradesh: coastal Andhra (50 per
cent), Telangana (17 per cent) and Rayalaseema (63 per cent).

The results of this are borne out by higher acreages in the State for cotton (11.86 lh versus
8.12 lh), groundnut (7.51 lh versus 2.49 lh), maize (3.29 lh versus 2.33 lh), arhar (2.52 lh
versus 1.40 lh) and moong (2.04 lh versus 1.20 lh).

Acreage in suicide belt

In fact, it is the good rains and higher sowing levels in these two States — covering even the
farmers' suicide belt of Vidarbha-Telangana-Marathwada — that have helped pull up overall
all-India acreages under most kharif crops this time. Sowing in other States has not been all
that good.

In Uttar Pradesh, where the monsoon has been particularly bad, progressive rice area is down
from 23.41 lh to 18.13 lh and so is it for maize (4.38 lh versus 6.19 lh), arhar (1.15 versus
2.17 lh), urad (0.55 lh versus 1.53 lh), bajra (2.09 lh versus 2.70 lh) and jowar (0.38 lh versus
1.07 lh).

La Nina to bring rains, and a colder winter

Vinson Kurian

Thiruvananthapuram, July 16

A monsoon-friendly La Nina condition has established rather quickly in the east equatorial
Pacific Ocean in June itself, according to Japanese researchers.

Apart from the “above normal” rains for August and September, it may also ring in colder
than normal conditions during the northern hemisphere winter.

Double bonanza

If the forecasts were to hold, the northern plains would stand to benefit from a double
bonanza – assured soil moisture and cooler climes during the season.

These are ideal conditions for growing wheat and mustard, among others, during the ensuing
rabi season.

A “fairly cold event” or La Nina (as against the warm El Nino) would roll out during the rest
of the monsoon and beyond, says Dr Jing-Jia Luo, a researcher based in Tokyo.

Dr Jing-Jia is Senior Scientist with the Climate Variation Predictability and Applicability
Research Programme at the Research Institute for Global Change (RIGC) under the Japan
Agency for Marine-Earth Science and Technology (Jamstec).
The La Nina may also last longer than usual, Dr Jing-Jia wrote to Business Line. He would
not be surprised to see it active for more than one year from now.

Longer lasting

Its impact would be most visible in above-normal rains for India during the rest of the
monsoon, and into the following autumn and winter.

Outside India, La Nina conditions are expected to lead to more rains/floods over north-
eastern China while hot/dry conditions may emerge over Southeast China and southern
Japan.

Above normal rains are also indicated for Indonesia, northern parts of South America, East
Africa during the fall and winter seasons. Many parts of Australia also might experience
surplus rains from October to early 2011.

Typhoon re-emerges

Meanwhile on Friday, tropical storm Consun in the South China Sea regained typhoon status
and was barrelling towards Southwest China/Vietnamese coast for a landfall.

Once again, Consun has come in the way of any meaningful activity that might have been
triggered in the Bay of Bengal, with a chunk of the monsoon flows straying off the beaten
track to feed the typhoon.

Fortunately for India, forecast models indicate that Consun might make a landfall by
Saturday itself and get weakened over the rugged terrain of interior Vietnam.

This would once again free up the monsoon flows from the dominating influence of the
typhoon. However, forecasts did not indicate a ‘resourceful' low-pressure area taking shape in
the Bay any time soon.

The European Centre for Medium-Range Weather Forecasts (ECMWF) sees the flows
reviving over the Arabian Sea by Monday but largely benefiting peninsular India only.

A properly oriented ‘low' would have brought the monsoon trough southward, but India
Meteorological Department (IMD) said in its forecast on Friday that the trough was expected
to move north instead.

This would bring another round of rains into east and northeast India over the next few days,
even as the west coast and parts of interior peninsula may continue to receive rains.
The IMD said in its update on Friday that it did not expect any possibility of ‘cyclogenesis'
(birth of a weather system) in the Bay of Bengal for another five days.

Meanwhile, the all-India agro-met advisory issued by the IMD said that though the rainfall
has been deficient in some districts of the country, it has been largely well-distributed over
the last fortnight.

This has ultimately helped hasten the sowing of kharif crops in more and more areas. The
revived monsoon in north India accelerated the sowing/transplanting of rice, oilseeds and
cotton and rice sowing is at its peak.

Rainfall has softened the soil so that the already sown/transplanted crops, particularly in
Punjab, Haryana, Uttar Pradesh and Rajasthan, find themselves in good condition. Most parts
of soybean-growing Madhya Pradesh, too, received adequate rains as was the case with the
cane-growing areas.

The area under groundnut crop has increased substantially in Anantapur district in the
Rayalaseema subdivision of Andhra Pradesh.

The same was the case with red gram and castor also, as ‘sole crops' improved in the district
thanks to good rains in the month of June and subsequently during July.

National Dairy Plan to focus on bovine productivity in first phase

Our Bureau

Ahmedabad, July 16

The National Dairy Plan (NDP) proposed to be implemented by the National Dairy
Development Board (NDDB) with an outlay of Rs 17,000 crore, aims to nearly double the
country's milk production by 2020.

The plan will focus on better breeding and feeding of milch animals, the NDDB Chairperson,
Dr Amrita Patel, said on Thursday.

As of now, dairying contributes to around 8 per cent of the country's Gross Domestic Product
(GDP).

Nearly 90 per cent of milk is produced by 14 major dairying States.

Project reports
The multi-State NDP, with financial assistance largely from the World Bank, aims at
increasing milk production through higher productivity and enhancing the income of rural
milk producers by providing them improved access to the organised milk sector.

The States have urged the Centre to provide funds as grants, not as loans. To begin with,
NDDB will draft detailed project reports for five or six States.

Once the Centre and the World Bank approve the projects, the NDP will be implemented.
The first phase of the NDP, scheduled from April 2011 to March 2017, will involve funds to
the tune of Rs 1,600 crore, for which credit is being sought from the International
Development Agency (IDA) of the World Bank, in the form of an interest-free soft loan,
repayable over 35 years.

In this phase, the funding activities will mainly focus on increasing bovine productivity,
expanding coverage of milk producers and procurement and human resource development,
she told a news conference in Anand. .

India is the largest milk producer in the world, with an output of 108 million tonnes in 2008-
09, that the NDP plans to increase to 180 million tonnes by 2020. As of now, the annual
increase in milk production is 2.5 million tonnes, which the NDP proposes to double, in order
to achieve the projected targets. The annual growth rate of dairying is 4 per cent in India,
double that of the world average of 2 per cent. However, the upsurge in demand due to
increased economic levels is overtaking supplies, necessitating urgent steps.

“Milk is not only a commodity but a basic nutrient for children,” Dr Patel said.

Bovine Breeding Bill

Based on the NDP, drafted by the NDDB, the Union Government's Department of Animal
Husbandry and Dairying has taken up the proposed Bovine Breeding Bill with the States, to
modernise and regulate artificial insemination on a professional and scientific basis.

The country has a bovine population of around 191 million cows and 102 million buffalos, of
which around 10 per cent are unproductive. Only 20 per cent of animals that can be bred
receive artificial insemination, which the NDP plans to increase to 50 per cent .

It also intends to increase semen doses from 50 million to 140 million annually, upgrade 25
of the existing 49 semen stations as mega-stations, preferably on a public-private partnership
basis, and focus on 48,000 artificial insemination centres to get semen doses.
Also, the NDP will ensure professionalism and proposes artificial insemination charges to be
increased, with subsidies to milk producers on this count, in order to attract the private sector
as well .

Use of higher genetic merit bulls, quality semen and artificial insemination delivery at the
doorstep of milk producers through trained personnel, will increase productivity, she said.

Since 17 per cent of the cost of milk production is due to cattle feed inputs, its production,
especially oilseeds ( de-oiled cake is an important ingredient in cattle feed), would also have
to be raised, by discouraging edible oil imports.

Cattle feed production will have to be doubled from the current 15 million tonnes. This will
result in better milk yield and reduce methane production due to decreased dependence on
grass.

The National Dairy Plan is being billed as the ‘Second White Revolution' or the ‘Second
Operation Flood' — if the first one lasted 26 years, the new one is likely to last 15 years.

“Operation Flood” was initiated by Dr Kurien in July 1970, with a financial outlay of Rs
1,750 crore while the NDP has ten times more — around Rs 17,000 crore.

The NDDB also said it plans to set up a special purpose vehicle — NDDB Dairy Services —
with its headquarters in New Delhi. It will be headed by a Managing Director, who will take
charge in a month. NDDB Dairy Services will handle all matters relating to the execution of
the NDP.

In the first phase, the NDDB will prepare project reports for six states — Gujarat, Punjab,
Karnataka, Uttar Pradesh, Bihar, and Maharashtra.

Fertiliser industry wants subsidy paid to farmers directly

P.V. Sivakumar 

 
Mr K.S. Raju, Chairman of FAI –
Our Bureau

Hyderabad, July 17

The Fertiliser Association of India (FAI) has reiterated its demand for decontrol of fertiliser
prices and device methods to pass on the subsidies directly to the eligible farmers rather than
giving the sop to the manufacturers.

Addressing a press conference here on Saturday, Mr K. S. Raju, Chairman of FAI, and Dr G.

Ravi Prasad, Senior Vice-President (Sales and Marketing) of Coromandel International, said
decontrol of fertiliser prices and withdrawal of subsidies would not have much impact on the
cost of production for farmers.

Though it would lead to some increase in the fertiliser prices, it would ultimately be factored
in by CACP (Commission for Agricultural Costs and Prices) resulting in a good support
price.

Besides, it would lead to judicious use of fertilisers.

“Abuse (in using fertilisers) is happening because of the lack of understanding and
misunderstanding of the soil needs. Unnecessary use of fertilisers would lead to their fixation
in the soil,” they said.

When done, the decontrol would help in rationalising prices and encouraging competition.
For about a decade the industry failed to add additional capacities due to the restraint on
them.

Stating that the industry always called for judicious use of fertilisers, Dr Ravi Prasad said the
per capita consumption of fertilisers in India was one of the lowest at 110 kg to a hectare
against the global average of 260 kg/ha and 400 kg/ha in some European countries. “Our per
capita usage is much lower than Pakistan and Bangladesh too,” he observed.

National meet

FAI, in association with Institute of Public Enterprise (IPE), would hold a national
conference on ‘India 2020: Chemical fertiliser sector – Government policies, challenges and
growth strategies' here on Monday (July 19, 2010).

Besides discussing the chemical fertiliser scenario in the country, the conference would
suggest measures to address the issues that dogged the industry.
Fertiliser subsidy may go up despite price decontrol
Post-decontrol DAP subsidy will rise by 59%.

Harish Damodaran

New Delhi, March 21

The move to decontrol prices of all non-urea fertilisers with effect from April 1, as part of the
changeover to a nutrient-based subsidy (NBS) regime, is supposed to help lessen the Centre's
subsidy burden.

But if the new rates of subsidy applicable on different fertilisers from the coming fiscal are
compared with their existing levels, a somewhat different picture emerges. In most products,
the subsidy payable to fertiliser companies will actually go up.

Take di-ammonium phosphate (DAP), where manufacturers and importers are currently
given a concession of Rs 10,245 a tonne in return for selling at a controlled maximum retail
price (MRP) of Rs 9,350 a tonne.
In the event of decontrol, companies will technically enjoy the freedom to set their own
MRPs. Notwithstanding that, the Centre has decided to enhance the subsidy they would
receive on DAP sales by 59 per cent to Rs 16,268 a tonne.

Likewise, the subsidy on mono-ammonium phosphate (MAP) has been raised by a whopping
104 per cent and that on triple super phosphate (TSP) by 38.5 per cent. Earlier, there was no
subsidy on ammonium sulphate (AS), whereas now it has been fixed at Rs 5,195 a tonne,
benefiting Gujarat State Fertilisers & Chemicals and Fertilisers and Chemicals Travancore.

Additional subsidy

Moreover, companies would be entitled to an additional subsidy of Rs 300 a tonne if they

fortify their fertilisers with boron and Rs 500 in case of zinc. The current regime does not
extend any such sops on secondary and micro-nutrients.

The only major product whose subsidy has been slashed, by over Rs 4,700 a tonne, is muriate
of potash (MOP). Under the NBS, the Centre has fixed a per kg subsidy of Rs 23.227 on
nitrogen (N), Rs 26.276 on phosphorous (P), Rs 24.487 on potash (P) and Rs 1.784 on
sulphur (S).

These, in turn, have been linked to the import parity prices of urea, DAP, MOP and sulphur,
taken at $310, $500, $370 and $190 a tonne, respectively and at Rs 46-to-the-dollar.

The lower subsidy on MOP – and thereby the ‘K' component in complex fertilisers – is
mainly due to Indian importers contracting material for 2010-11 at almost $100 a tonne
below the rates negotiated for this fiscal. The accompanying table shows that the subsidy
rates have been increased for even many complexes, excepting those not containing any ‘K'.

“The higher subsidies would make it very difficult for us to raise MRPs. In fact, we have
been sounded out to keep any hikes to within Rs 30 a bag, i.e. Rs 600 a tonne,” an industry
official told Business Line.

Fertiliser industry demands implementation of nutrient-based subsidy

  

The industry's take is that price decontrol will keep fertilisers affordable for farmers.

Our Bureau

New Delhi, Feb. 10

The fertiliser industry's main demand from the coming Union Budget is centred around actual
implementation of the Nutrient Based Subsidy (NBS) regime announced by the Finance
Minister, Mr Pranab Mukherjee, in his 2009-10 Budget speech.

“The last Budget talked about moving to NBS along with a mechanism for direct transfer of
fertiliser subsidy to the farmer. What we want is implementation of the policy on the ground,
which is important from a long-term soil health and sustainable farming point of view,” said
Dr U.S. Awasthi, Managing Director of Indian Farmers Fertiliser Co-operative.

Rationalisation of prices

Towards this goal, the industry is seeking rationalisation of retail prices, particularly of urea,
which has been frozen at Rs 4,830 a tonne since February 28, 2002. Prices of di-ammonium
phosphate (DAP) and muriate of potash (MoP) have also remained unchanged at Rs 9,350
and Rs 4,455 a tonne, respectively, since then.

“We want a 30 per cent increase in urea prices, though we understand that the Group of
Ministers (GoM) under Mr Mukherjee is considering only 10 per cent. The GoM has
apparently also recommended price decontrol for other fertilisers (including DAP and MoP),
while seeking guarantees from us that we will not raise prices more than 5 per cent,” an
industry representative told Business Line.

Innovative combinations
The industry's take is that price decontrol, in conjunction with subsidy on all nutrients (as
opposed to individual products like urea) in a competitive environment, would keep fertilisers
affordable for farmers, while inducing companies to offer innovative nutrient combinations
customised to different crops and soil-moisture conditions.

“Ideally, the subsidy must go directly to the farmer. If that is not feasible, they can route it
initially through industry and then trade. Either way, they should go ahead with the NBS
from April 1,” Dr Awasthi said.

Domestic capacity

The Chairman and Managing Director of DCM Shriram Consolidated Ltd (DSCL), Mr Ajay
S. Shriram, said that the Budget should incentivise domestic capacity additions. “Our urea
production has been stuck at 20 million tonnes (mt) for over a decade, while our imports have
surged to 6-7 mt from just 0.5 mt five years ago,” he pointed out.

If current trends continue, the country may have to import up to 10 mt in the next 3-4 years,
whereas the world trade in urea is barely 30 mt.

“In 2008, we ended up importing urea at $600 or Rs 27,000-28,000 a tonne. The same, if not
more, would be repeated if we do not add to our capacity now,” Mr Shriram added.

Will nutrient-based subsidy rates be tweaked?

Harish Damodaran

New Delhi, May 30

Landed prices of urea, di-ammonium phosphate (DAP) and sulphur have plunged below the
import parity prices (IPP) assumed by the Centre while determining the unit nutrient based
subsidy (NBS) rates for 2010-11.

The Department of Fertilisers had, on March 16, fixed the per kg NBS at Rs 23.227 for
nitrogen (‘N'), Rs 26.276 for phosphorous (‘P'), Rs 24.487 for potash (‘K') and Rs 1.784 for
sulphur (‘S').

These rates, then, formed the basis for setting the subsidy on individual fertilisers. For
example, one tonne of DAP contains 180 kg of ‘N' and 460 kg of ‘P'. The subsidy payable by
the Centre to manufacturers/importers of this fertiliser, thus, came to Rs 16,268 a tonne, just
as it worked out to Rs 14,692 a tonne for muriate of potash (MOP) with 60 per cent ‘K'
content.
But for arriving at the per kg NBS rates, the Department had benchmarked them to the IPPs
of urea (for ‘N'), DAP (for ‘P'), MOP (for ‘K') and sulphur (for ‘S'), which were taken at
$310, $500, $370 and $190 a tonne respectively at Rs 46-to-the-dollar.

Currently, however, landed prices of urea (c&f) are ruling at $260-265 a tonne. Imported
DAP and sulphur, too, are quoting at $465-470 and $165 a tonne.

“Strictly speaking, that should lead to a downward revision in the IPPs and, by extension, the
unit NBS rates as well. But whether this will happen is not clear, as the March 16 notification
states that the rates are for 2010-11, which means the entire fiscal”, sources pointed out.

Unchanged NBS rates at prevailing landed prices would effectively translate into excessive
subsidy for the industry. This calls for either a reduction of the NBS rates or, alternatively, a
lowering of fertiliser prices at the farmgate, the sources added.

Fixed nutrient subsidy improves importers' bargaining power

Harish Damodaran

New Delhi, March 21

Has the Centre's decision to pay fertiliser companies a fixed unit subsidy on each nutrient
improved the bargaining power of Indian importers by placing a virtual cap on world prices?

On the face of it, that would seem so. Over the last week, the Indian Farmers Fertiliser
Cooperative (Iffco), Indian Potash Ltd (IPL) and Coromandel International, among others,
are said to have contracted up to 15 lakh tonnes (lt) of di-ammonium phosphate (DAP)
imports at $500 a tonne, cost and freight (c&f). That includes the 10 lt deal entered by the
Iffco-IPL combine with PhosAgro of Russia during its Prime Minister, Mr Vladimir Putin's
India visit early last week.

Coromandel International is also learnt to have contracted 1.5 lt at the same $500 a tonne
rate.

These imports are to arrive during April-June.

“The suppliers were earlier demanding anywhere in the range of $540-570. But with the
Department of Fertilisers fixing a per kg subsidy of Rs 26.276 on phosphorous (P) and
benchmarking it to a landed price of $500 a tonne, they had no option other than fall in line”,
industry sources said.
The Indian importers' position was that since the Centre would not compensate them beyond
Rs 26.276 and this subsidy was applicable for the whole of 2010-11, paying any price above
$500 was not feasible. And, in the absence of Indian buying, there would be a glut in world
supplies.

DAP imports

Of the total 153.58 lt of global DAP imports in 2009, India's share was 61.74 lt or 40 per
cent. It was no different in muriate of potash (MoP), where, too, the Centre has, of late, been
prodding the companies to drive a hard bargain.

Since last month, Coromandel, IPL, Tata Chemicals, Kribhco, Rashtriya Chemicals and
Fertilisers and MMTC have struck over 20 lt of MoP import deals with Canada's Canpotex,
Israel's ICL and the Belarusian Potash Company at $370 a tonne, c&f. This is well below the
$460 a tonne price negotiated last June for material supplied through July 2009 to March
2010.

The $370 rate, in turn, became the benchmark for fixing the Rs 24.486 per kg subsidy on
potash (K). “Again, this fixed subsidy will more or less set the cap on international prices in
the coming months as well”, the sources added.

CSR is not just doling out money

Acts of philanthropy are laudable, but it is also important to examine whether businesses
made their money the right way.

 
 A call by the US financier, Mr Warren Buffett (left), and Microsoft co-founder, Mr Bill
Gates, to their fellow wealthy to do more for society must be welcomed.

Mr Warren Buffett, billionaire investor and Chairman of Berkshire Hathaway, along with Mr
Bill Gates, co-founder of Microsoft, gave a call to their fellow billionaires in June to give
away a majority of their fortunes during their lifetime or after. Mr Buffet, who has committed
to give away 99 per cent of his wealth, says that part of his wealth was the luck of the draw
and he wants to share it.

Nowadays, it seems respectable to talk about corporate social responsibility (CSR), and so
the call by these leading US business idols to their fellow wealthy to do more for society
must be welcomed. After all, these people made their money in the corporate world and this
is their way of giving back to society. Isn't that what philanthropy is all about? American
business history abounds with such examples which went on to create the Ford, Rockefeller
and Carnegie Foundations.

CHARITY AND BUSINESS ETHICS

The timing of this call is also right. CSR has received a boost in the current environment. The
severe impact of bad behaviour by the US financial services firms has resulted in a backlash
against any ideology that asked you to trust the businessman to do good for society by
pursuing profit. The so-called ‘invisible hand' argument of Adam Smith was traditionally
presented as a justification for less government intervention and free markets.

Although the financial services industry was not operating in a totally free market and had
enough regulators breathing down its neck, it became clear that the slightest loophole in any
regulation would be exploited for personal profit, with nobody paying any heed to the impact
on society. And most commentators, who have not read Smith's other book, The Theory of
Moral Sentiments, did not get to know what he really thought of the business class.

The old notion of CSR was for an individual or company to write a fat cheque to some
prominent charity or medical research (perhaps one with which the Chairman's wife is
associated). So, is this decision by the billionaires any different? Does a donation condone the
behaviour of corporations in their normal course of business?

Although a public pledge to donate money is not legally binding, Mr Gates and Mr Buffett
believe they will be putting a moral obligation on their peers. But morality is not a trade-off;
you cannot slap an adversary and then give him a gift. Moral behaviour is more like how
Hindus view karma — doing good deeds does not cancel the ill effects you are to suffer from
your bad deeds. They operate from independent account books.
While we welcome the giving of money, it is also important to examine how it is made.
Buffett says, ‘‘My luck was accentuated by my living in a market system that sometimes
produces distorted results, though overall it serves our country well.” We need to think about
how the companies distort those systems with their behaviour. Although Rockefeller and
Carnegie are known for their foundations, their business behaviour left much to be desired.

TRUSTEESHIP CONCEPT

Gandhi, whose ashrams and various political and social movements rested on the generosity
of Birla, Sarabhai, Bajaj, and other businessmen, respected business and the profit motive as
a worthwhile activity. It is said that when a young J R D Tata wanted to join the freedom
movement, Gandhi turned him away, saying that his skills were better utilised in the business
world.

However, Gandhi had different ideas on how people should use their wealth. He called it
trusteeship. Some have misunderstood this to mean that the wealth and profits must be
controlled by trusts.

What Gandhi meant was not a legal body, but a moral view of how business activity or life in
general is viewed. People, he felt, should believe that their wealth, in excess of their needs, is
held by them in trust for society, and used accordingly. Pharmaceutical companies routinely
point to their donations in poor countries as proof of good behaviour while at the same time,
their drug marketing practices, co-opting doctors, and delayed response to problems with
drugs raise questions about their priorities. Even Mr Gates has been accused of sharp
practices by rivals, and regulators, as he built his company's (and thereby his personal) wealth
that he is now giving away. Competition is good, but how you behave while you compete
also counts.

It is a tough call but that is the challenge that Gandhi's idea places before us. Don't get me
wrong. Donations are welcome, but we also need to think about whether society can rest easy
with born-again philanthropists. Should we instead work to promote people whose business
practices, in the first place, builds the kind of society we need?

KOFI ANNAN'S INITIATIVE

Mr Kofi Annan, as Secretary General of the UN, took some initiatives in this regard when he
instituted the Global Compact Programme. This programme has a set of standards or
expectations in the area of labour, human rights, environment, and anti-corruption.
A company voluntarily signs on to this plan by passing a resolution in its board, and the idea
is to ensure that the major decisions taken by the company are in accordance with these
standards of behaviour.

For Buffett, there is no morality involved. His pledge is almost a matter-of fact issue. “This
pledge will leave my lifestyle untouched and that of my children as well. … And I will
continue to live in a manner that gives me everything that I could possibly want in life. ..Keep
all we can conceivably need and distribute the rest to society, for its needs.”

Gandhi would have been pleased with that, but to meet his standard, one should not forget the
means that the billionaires use in building their corporate wealth also matters.

Food Safety and Standards Act – raising the bar for regulations

Rana Kapoor

The recent occurrence of serious food scares and food contamination events – such as
salmonella contagion of peanut butter in the US, melamine contamination of milk in China,
and high pesticide content of aerated drinks manufactured in India – has significantly
enhanced the concern for food safety and its impact on health, marketing and foreign trade.

Protecting consumer health from food borne hazards has become a compelling duty for
policy makers across the globe. Consequently, regulatory frameworks and standards are
being developed wherein trade and health issues are being addressed by prioritising consumer
protection over freedom of trade. Thus, it has become imperative for the Indian industry and
policy makers to adopt strong practices of food safety so as to remain sustainably competitive
both in domestic and export markets. In this context, it is essential to have a close look at the
recent changes in food safety regulations adopted in India which if effectively implemented
will not only protect domestic consumers from food contamination hazards, but also become
instrumental in making India meet international standards of food safety.

Positively forward looking changes

Until the recent past, the Prevention of Food Adulteration Act, 1954 (PFA) was the main
legislation concerning food safety and protection of consumer health. In addition, there were
a number of other standards and acts administered by different governmental agencies.
Despite a plethora of regulations, Indian food safety system was found lacking in many
fronts.

First, it was not responsive to scientific changes such as introduction of GM crops and
functional foods. Second, there were too many food related laws which were often
inconsistent on certain issues and overlapping in others. Third, the country lacked the “one
law-one regulator approach” followed across the globe, and also lacked harmonisation with
International standards – resulting in global trade challenges.

Realising the importance of introducing an integrated, contemporary and comprehensive law,

the Food Safety and Standards Act (FSSA), 2006, was introduced. The law intends to ensure
better consumer safety through the introduction of food safety management systems based on
science and transparency. Main features of the law include:

Single reference point for all issues related to food safety and standards

Harmonisation with international standards such as CODEX and, hence, responsive to

international trade requirements

Responsive to dynamic issues such as genetically modified food

Clear procedures for food recall.

Shift from a regulatory regime to self compliance through food safety management systems

In addition, the Food Safety and Standards Authority of India (FSSAI) was set up in 2008 to
lay down scientific standards and ensure availability of safe food for human consumption.

Implementation Challenges

Introduction of the FSSA could be instrumental in boosting both domestic and international
consumer confidence, and making India match the international standards of food safety.
However, its effective implementation is fraught with numerous challenges such as:

Poor general awareness towards the hazards associated with unsafe food practices and the
best practices to be followed

Lack of basic supporting infrastructure such as testing labs

Insufficient technical expertise and skilled manpower for implementation of legislation at the
grass root level

Exclusion of primary producers from the purview of the law thus putting the onus of
preventing food hazards on the manufacturers/processors

Problems in traceability of product especially in the upstream processors of the food chain –
from the farm gate to the processing unit
Creating an enabling environment

In a vast and diverse country such as India, the efforts to harmonise food safety regulations to
match international standards are bound to face implementation challenges. It is thus
imperative to create an enabling environment so that a brilliant strategy does not fail at the
grass roots level. Some of the key enablers for speedy and effective implementation include:

Transparency and inclusive development of framework: During the initial phases of the
implementation of the FSSA, a high degree of transparency needs to be maintained in the
process of framing rules and regulations. Involvement of industry and other stakeholders
during the preparation, evaluation and revision of food law is essential for comprehensive
review and examination of the issues that could hamper the implementation on field.

Awareness creation: Effective awareness creation programs need to be carried out by the
Governmental agencies for smooth transition from the current food safety laws to the
proposed system, specifically by keeping the small and medium enterprises abreast of the
salient features of the law and practical issues that are likely to be faced by the manufacturers
and their solutions.

Capacity building: Massive efforts are required for capacity building in order to successfully
implement the proposed FSSA at the grass root level. Well evolved training programs need to
be conducted for the state, district and block level enforcement agencies. The programs
would have to equip the implementing officers with knowledge on international standards of
food safety and quality thus enabling regulators to make judicious decisions relating to food
contamination.

Infrastructure creation: One of the critical links in the successful implementation of FSSA is
food testing laboratories. Under the new law the manufacturers need to get their products
tested every month and keep a certificate. Hence, building up a sufficient number of
accredited laboratories is of paramount importance.

Building Research & Development Capacity: There is also a need to build a strong R&D base
in areas of food safety, quality control, food toxicity and related scientific risk assessment
systems.

Certification of Raw Material: One of the major sources of contamination in food systems
occurs during the primary production stage - which is kept out of the ambit of the FSSA.
Successful and holistic implementation of Food safety system would require an extensive
campaign that encourages implementation of Good Agricultural Practices (GAP) at the farm
level. Further, organized manufacturers should be encouraged to take pro-active steps to
ensure that GAP is adhered to by their suppliers, and a traceability system including
geographic application put in place at the back-end thus reducing the risk of food
contamination.

Conclusion

In conclusion, the introduction of FSSA provides the much required “one law-one regulator”
platform for raising the food safety standards of India to match global standards. Its speedy
and effective implementation is quickly warranted to put India onto the global food map. This
would require an enabling implementation environment focused on creation of transparency,
developing right infrastructure and extensive R&D capacity so as to match the dynamically
changing requirements of food safety and standards. The initiative would also require a wide
spread awareness and promotion campaign focused on changing the mindset of food
producers so as to encourage adherence to food safety standards.

Popular fruit lacking quality storage

FOCUS APPLE.

Girish Aivalli

Popular for its titillating flavour – which can be sweet or tart – apple is one of the most
popular and widely consumed fruit in the world. It is also among the highest traded fruit in
the global fresh fruit market due its propensity of having a long shelf life, easy to ship,
resistance to diseases and high seasonality.
Apple is a temperate fruit that originated in Central Asia. In 2008, global production of
apples was about 70 million tonnes with an average productivity of 14.36 tonnes a hectare.
China is the leading producer of apples contributing to about 43 per cent of the global
production (29.8 million tonnes) followed by the US contributing to about six per cent of the
global production (4.4 mt). Austria leads in terms of productivity with yield of more than 91
tonnes a hectare.

Apple was introduced in India at the beginning of 20th century by a visiting missionary from
the US. India ranks second in the world in terms of area under apple cultivation with more
than 2.6 lakh hectares under the crop. Among the fruits grown in India, apple has the third
largest area under cultivation after banana and mango. India is ranked 7 {+t} {+h} in terms of
apple production with about three per cent of global production (two mt). However,
productivity is just 7.65 tonnes a hectare.

Rising area

While the area under apples in India has been increasing by a compounded annual growth
rate of more than 6 per cent during last six years – production is characterised low yields as
most apple orchards in India are old.

The low productivity and poor quality of apples is linked to monoculture of a few old
cultivars that have degenerated over the years. Also, apple requires 1,600 hours of chilling
during the dormant stage for healthy crop but due to temperature fluctuations at lower
altitudes this requirement is not completely met leading to lower yields and smaller fruit size.
Due to temperature fluctuation, occurrence of mite is also on rise in last few years affecting
quality of fruit.

Hilly regions

Apple production in India is mainly concentrated in the hilly regions along northern
Himalayan range with extension towards north eastern States as well. Major apple cultivating
States are Jammu and Kashmir, Himachal Pradesh, Uttarakhand and Arunachal Pradesh.
About 95 per cent of India's apple area falls under the north western hills region, covering six
districts of Jammu and Kashmir, six districts of Himachal Pradesh and eight districts of
Uttarakhand.

In the north eastern hills, good quality apple is grown in a small area in Arunachal Pradesh.
Apple is also grown in Sikkim and Nagaland.
Most of the apples grown in India are variants of the Red Delicious or Royal Delicious
varieties and the harvest period is from August to December. Although some harvest activity
begins as early as June, the bulk of the harvest occurs during August to November.

Exports

India exports a marginal volume of its apple output constituting about 0.5 per cent of the
world's total apple exports. In 2008-09, India's apple exports stood at Rs 52.2 crore (44,552
tonnes) mainly to Bangladesh (83 per cent) and Nepal (13 per cent). India imports apples
(58,401 tonnes) mainly from the US (33 per cent), China (32 per cent) and Chile (25 per
cent).

About 10-20 per cent of apple produced in India is being processed. Main processed products
of apple are apple juice concentrate, jams, and squashes. Development of the apple industry
would need implementation of multi-dimensional and sustainable solutions including:

Providing for quality planting material and developing apple varieties that are more resistant
to water scarcity, climate changes, with better yields and which are more amenable to
processing.

Introducing traceability and certification norms to promote quality and hygiene and thus
promote better participation in global trade.

Post-harvest handling and grading standards need to be upgraded and enhanced as currently
grading standards are only partly fixed.

Encouraging R&D efforts in yield-improvement technologies and development and diffusion

of quality-enhancing technologies across the value chain.

Dairies report rebound in milk procurement

But it is not only Gujarat that is seeing a jump. Dairies in Maharashtra, which has had
excellent monsoon, have also been flooded with lot more milk this time.

Harish Damodaran

New Delhi, July 18

After last year's drought and consequent supply pressures, dairies across the country are
reporting strong rebound in milk procurement volumes this time round.

The Gujarat Cooperative Milk Marketing Federation's member unions are currently buying
10 lakh litres per day (LLPD) more compared to last year.

“Our procurement is up 15 per cent over last July and 10 per cent on a cumulative April-July
basis,” Mr R.S. Sodhi, Managing Director of India's largest dairy concern, told Business
Line.

But it is not only Gujarat that is seeing a jump. Dairies in Maharashtra, which has had
excellent monsoon, have also been flooded with lot more milk this time. Dynamix Dairy
Industries, Parag Milk Foods, Warana Dairy, Swaraj India Industries and Siddharth Milk
Foods alone have registered a combined procurement increase of 14 LLPD.

“The five of us are now converting about 24 LLPD of milk into powder and white
butter/ghee. Last year, at this time, we were doing just half,” said Mr Ranjeetsingh Naik
Nimbalkar, Chairman and Managing Director, of Swaraj India Industries Ltd. Andhra
Pradesh's four leading private dairies – Heritage, Tirumala, Creamline and Dodla – are also
said to be together procuring around 22 LLPD, 3 LLPD more than last year.

Additional milk

In Tamil Nadu, procurement by the state-owned Aavin cooperative is up from 20 LLPD to 23

LLPD, while that of Hatsun Agro Product has similarly risen from 14 LLPD to 17 LLPD.
The Karnataka Milk Federation, too, is learnt to be collecting 4-5 LLPD of additional milk
compared with last year.

“My hunch is that dairies across India are currently procuring some 50 LLPD more milk than
they were this time last. And once the flush season starts in the North, the incremental
increase would probably be 65 LLPD or more,” said Mr R.G. Chandramogan, Chairman and
Managing Director, Hatsun Agro Product Ltd.

Northern dairies, on their part, are saddled with excess powder and ghee inventories even
ahead of the ‘flush' production period, which begins from mid-August and peaks towards
November-December before ending in March. The region's big private dairies – VRS Foods,
Bhole Baba Dairy Industries, Sterling Agro and SMC Foods – are all apparently holding 30
per cent of stocks from the last flush, which they say can last till October.
“We don't really need to operate our plants till then. Fresh production would be required only
during Diwali (scheduled for November 5),” said Mr Kuldeep Saluja, Managing Director,
Sterling Agro Industries Ltd.

Surplus stocks have led to wholesale prices of skimmed milk prices (SMP) falling from Rs
150-155 a kg in May-June to Rs 120-130 in northern markets. Ghee, which ruled at Rs 255 a
kg in May and Rs 240 in June, is now trading at Rs 210. “There are no buyers even at these
rates. Therefore, we have had to slash factory-delivered buffalo milk prices from Rs 26 to Rs
20 a litre since mid-June,” Mr Saluja added.

In Maharashtra, private dairies do not have the option of reducing prices, given the large
presence of co-operatives. “But we have decided to reduce procurement by 20 per cent,” Mr
Nimbalkar said.

The industry claims that the National Dairy Development Board's (NDDB) move to import
30,000 tonnes of SMP and 15,000 tonnes of butter oil at nil duty has worsened matters. Of
the total imports, an estimated 12,000 tonnes of SMP and 6,500 tonnes of butter oil have so
far arrived.

“The bulk of imports will land in October, which will further depress realisations, that too
during the flush season. These imports, if at all, should have taken place last year when there
was a shortage and not now,” an industry source said. NDDB is learnt to have contracted the
imported SMP at a landed cost of $ 2,950 a tonne and butter oil at $ 4,150-4,250 a tonne.

They ‘cultivate' IT
A Dutch technopreneur's passion for technology is helping farmers get ‘more for less' from
their fields..

...from the data generated on soil moisture from a particular farm, the farmer would be
advised on whether, when, and how much, to irrigate the field.
Vishwanath Kulkarni

Recently in Amsterdam

A farmer in Egypt has cut down on his water usage by half to grow the same quantity of
strawberries compared with a year ago. Similarly, a vine and potato grower in South Africa
has reduced usage of chemical inputs while realising better yields since 2002.

The common link between these two farmers in different countries is that they follow the
agri-yield management practices propagated by a little known Dutch company called Dacom.
Founded by a farmer-turned-technopreneur Jan Hadders, Dacom leverages a combination of
sensor technology, the Internet and scientific knowledge, as part of a broader concept called
‘Agri Yield Management' (AYM) to provide practical solutions to farmers across the world,
from a remote location in the Netherlands.

“Using real time on-farm data, we basically advise farmers on what to do during the growing
season,” says Hadders. It's not the individual farmers alone who have leveraged Dacom's
sensor system and solutions. Even large firms such as Frito-Lay, a PepsiCo company, rely on
the inputs provided by Hadders and his team to control potato blight, a fungal disease, in
geographies such as the US and Indonesia, among others.

Sensor ear to the ground

Dacom's sensor system consists of a portable weather station and soil sensors equipped with
Geographical Positioning Systems (GPS) fitted with a solar panel. The soil sensors and the
related software are designed by Hadders and his team of some five engineers. The sensors
come in the form of a long tube to help detect moisture to a depth of one to five feet. Once
deployed, these weather and sensor systems constantly measure and monitor data pertaining
to rainfall, wind direction and speed, humidity in the air and soil moisture, among others, and
transmit such data to a centralised server located back at Emmen, near Amsterdam.

A team of some 15 agri-experts interpret the data and advise growers through e-mail on what
steps need to be taken to protect their crop on the field on a regular basis, says Hadders.

For example, from the data generated on soil moisture from a particular farm, the farmer
would be advised on whether, when, and how much, to irrigate the field. The Dacom soil
moisture sensors monitor the daily water consumption on the crop through different soil
layers. Such data is used to determine the optimum time for irrigation to prevent both damage
due to draught stress and excessive watering, says Hadders.

Similarly, by monitoring the weather data closely, the onset of blight, a fungal disease that
affects the potato foliage, is predicted. Such constant remote monitoring of moisture content
on the field not only helps reduce water consumption but also helps cut down the number of
chemical sprays for farmers to keep the diseases under control, Hadders adds. The data sensor
systems developed by Hadders and his team are proprietary and are now contract
manufactured in the Netherlands. Dacom charges about 2,000 Euros per hectare for
deploying these systems and the advisory offered, Hadders adds.

Database of scientific knowhow

Alongside companies such as CHIPSY, a PepsiCo unit, and agri-exporters MAFA and PICO,
the Dutch potato growers association has used Dacom's systems. Besides the knowledge
gained from his personal farming experience, Hadders has collaborated with various agri-
schools to develop a database of scientific knowledge relating to the cultivation of crops such
as potato, grapes, strawberry and corn, among others. The database includes knowledge about
the various stages of crop development, the need for nutrients and water at different stages,
diseases, plagues and their symptoms, crop tolerance for heat or cold, among others.
Leveraging the database, which is updated on a regular basis, the experts advise the growers
appropriately.

Dacom's advisory services are confined to farming techniques alone and do not include the
post-harvest practices. Using Agri Yield Management, a farmer can gain up to 30 per cent
more crop volume while reducing the usage of pesticides, fertiliser and irrigation, says
Hadders. As Dacom expands its operations globally, the company plans to create centralised
back-end systems to offer advisory services in each country it plans to operate in, says
Hadders. Dacom is looking to expand to countries such as China, Brazil, Russia, and India.
The remote advisory concept would work well in large farms spread across hundreds of
thousands of acres, but it would be too early to guess about its success in countries such as
India where the average landholding is little over a hectare. But the concept might prove
useful for Indian companies that are leasing out large agricultural areas in African countries
such as Ethiopia and Kenya, among others.

Efforts on to double share of food processing trade

(File photo) 

 
A worker operating a bottling machine at a food processing unit near Kochi in Kerala.

Our Bureau

Kochi, July 18

The Confederation of Indian Industry (CII) in association with the National Institute of Food
Technology Entrepreneurship and Management (NIFTEM) organised a one-day seminar cum
workshop on ‘Opportunities in the Food Processing Sector.'

Addressing the workshop, Mr Sanjay Kumar Singh, Under Secretary, Ministry of Food
Processing Industries, said that efforts are under way to increase the size of the food
processing industry in the country by 2015. The Ministry targets an increase in the level of
processing of perishables from 6 per cent to 20 per cent, value addition from 20 per cent to 35
per cent and the share of global trade from 1.5 per cent to 3 per cent. He spoke about the
Ministry of Food Processing Industries' initiatives, mandate of NIFTEM, key differentiators
for NIFTEM to be the apex institution in Food Technology, core activities undertaken, lab
infrastructure, undergraduate degree – B.Tech in food processing; synergy of research and
education, global integration for research, education and technology transfer – strategic
linkages; technology incubation, technology transfer and enterprise development; and
identified several new opportunities for Careers in Food Science.
Mr Jose Dominic, Vice Chairman, CII Kerala State Council, emphasised that over the last
decade the Government has recognized the critical role of the processed food industry in
stimulating the growth of Indian agriculture and the national economy. Also, the strategic
importance of the processed food sector cannot be overstated. He pointed out that the food
processing enhances shelf life and reduces wastages and also it offers hygienic and
convenient foods to consumers.

Ms Ashadevi Varma, Principal Agricultural Officer, District Agricultural Office, said that as
far as Kerala is concerned food processing and horticulture offers a great opportunity. She
also emphasized that taking the national advantages offered by food processing industry into
consideration, the NIFTEM that is being set up by the Ministry of Food Processing Industries
will cater to the needs of all the stakeholders such as entrepreneurs, industry, exporters,
policy makers, Government and other research institutions. She also urged all the stake
holders involved in the programme to come forward and support the initiative to make it a
success. The workshop focused on various issues faced by the industry in the country in
general and the State in particular. Kerala is third in terms of licensed food processing units
after Maharashtra and Tamil Nadu. The State has over 1,200 food processing units engaged
in process of cashew, spices and other items. There are about 300 units dealing in processed
spice trade, about 400 coconut processing units and over 350 fish processing units. Two
thirds of Kerala's total export income comes from processed food.

No big bang deregulation, please, we are the UPA

RICHA MISRA
MICROSCAN.

With the three public sector oil retailers deciding to have a uniform price, a cartel has been
created. So where will competition go?

 
 The Governmenthas kept an escape clause so that it can intervene if crude oil prices rise
sharply.

June not only saw the weather God play his little games, but also the Government. On the
25th, just after the Prime Minister left for Toronto for the G-20 meet, it announced the
deregulation of petrol prices, but not of diesel.

But like Banquo's Ghost, the question is still hanging in peoples' minds: Has the Government
actually given the public sector oil marketing companies — Indian Oil Corporation, Bharat
Petroleum Corporation, and Hindustan Petroleum Corporation — complete freedom to decide
retail prices?

Pricing benchmark

The three oil companies have decided to review the price on a monthly basis. But they have
not fixed any dates, nor disclosed the mechanism for deriving the price. They say giving a
date would lead to hoarding. As to the formula, patience, friends, we are working it out.

Issues such as to which international market the pricing will be benchmarked needs to be
decided. Typically, the benchmark could be Dubai, as most imports of high sulphur crude are
based on Dubai pricing.

However, there have been instances when Dubai price has been higher than in other markets.

What does deregulation mean for competition and pricing? With growing competition in the
retail sector, prices are eventually expected to soften on the retail front. However, with the
three public sector oil retailers deciding to have a uniform price, a cartel has been created.

Strengthening food security

B. ASHOK

Procuring most of the grain, channelling it into an ill-managed kitty and distributing it to
individuals who can afford to pay market prices will reduce farmers' incentive.
  
Accountability must begin at the level of fair price shops.

The proposed grain subsidy (universalised public distribution system) regime overlooks
issues such as sustainability, externalities and institutional lacunae. After the Government's
commitment to 25 kg of rice/wheat at Rs 3 for all, much has happened.

The Food Ministry is sceptical primarily because it feels that the procurement levels might
not consistently match reassessed AAY (Antyodaya Anna Yojana), BPL (Below Poverty
Line) and APL (Above Poverty Line) demand. The Planning Commission shares this
apprehension and suggests rationalising APL retail price.

Dis-incentivising the net APL (after the enhancement of the BPL quota to 37.2 per cent) will
be crucial in restricting the government grain for dependant AAY and BPL consumers.

Yet, ensuring that the grain trade caters to the upper 40 per cent of income groups is crucial
for streamlining the efficacy of the subsidy. Increasing procurement to, say, 50 per cent of net
grain production and dissemination into a porous and inefficient ‘supply funnel' might
actually dis-incentivise farm production by inhibiting higher values the markets might offer.
Here is a classic Keynes versus Hayek dilemma. Will we deny the fruits of higher
productivity to the farmer by administering prices, or allow the market to offer variable
prices, due to the preference for processed products, exports, etc.

Incentive system

To commit a higher than required subsidy by virtue of errors of inclusion, especially on the
APL side, is to compromise future productivity for sustaining present consumption. In other
words, procuring most of the grain, channelling it into an ill-managed kitty and distributing it
(with 40 per cent physical losses, approximating to Rs 20,000 crore per annum as per the
Planning Commission) to individuals who can afford market grain in the first place is to
reduce farmers' incentive, productivity goals and sustainability of the grain sector.

This however is not an insurmountable issue. The key to solving this dilemma is to
understand the dichotomy of the incentive systems that operate in the public and private
trades. The public system stores long term, comparatively inefficiently and sporadically
releases stocks for mandated TPDS requirement, while the private trade stocks less and
moves grain faster.

In the closed grain transport model (FCI, for example), a few agents handle ‘farm to home'
grain movement. The highly subsidised issue prices make the process vulnerable to
corruption. Worse, the market system also gets corrupted through the leakage of cheaper
grain, giving rise to a series of diseconomies, and thereby enlarging the black market.

Therefore, well-intentioned and aggressive hyper-welfarism might actually worsen the health
of the grain distribution system. This clearly brings to the fore the need to design effective
and sustainable institutions that will implement the objectives enshrined in the Food Security
Bill.

It is not difficult to see that the primary correction required in refining the PDS is fixing the
accountability and performance parameters of the retail food dispensing shop. Unless the
selection and regulation of the fair price shop (FPS) are set right, the first building blocks of
food security will not be laid.

Fair price shops

While the existing four lakh FPSs need to be brought formally under the panchayats, and new
FPSs designated to build sufficient redundancy to give alternatives to poor consumers, there
is also the need to introduce a viable cash transfer system in urban areas. In net foodgrains
deficit areas as in the metros and JNNURM townships, the poor have to be brought under the
smartcard-based dispensing system.

There is need for a district and State food and nutrition security authority with participants
from government, the market and civil society, to provide adequate oversight reporting to
higher formations. While the State authority must undertake coordinated efforts such as
conducting BPL census, the national authority must set norms for BPL and other categories,
periodically revise BPL norms and effectively monitor and evaluate the performance of the
State food security systems.

Unless panchayats know their achievement under clear parameters of foodgrain availability
(quality, quantity and consumer satisfaction) corrective action cannot be expected. Using
grain politics to dominate the local polity must be a strategy. Current data on malnourishment
and distortions in the supply system are too undifferentiated for executive action.

Scope to alter

The foodgrain procurement projections, net grain balance studies, evaluation of export of
premium categories (basmati, for example), and so on, must be left to the statutory authority.
Food procurement, distribution and export/import are too complex to operate in isolation. It is
time to give a scientific and statutory basis to these. A foolproof institutional design should
also include the freedom to alter the procurement and distribution parameters based on data.

The trouble with the current formulation is that it assumes steadily increasing production and
persistent poverty. If welfare programmes such as MNREGA are effective we could see more
Indians escape poverty. We must anticipate lower poverty rates and new preferences for
cereal consumption, especially processed varieties. Rigid laws combined with a populist
postures must not end up compromising productivity, the procurement potential and farmers'
profits which cannot be made up even with cash support later. The need of the hour is to
balance the Keynesian impulse with a dose of Hayek.

Assessing MNREGA
The BL Review.

 
Publisher: Lal Bahadur Institute of Management, Delhi

Preeti Mehra
The book, A Report on Management of National Rural Employment Guarantee Scheme:
Issues and Challenges, by Sageeta Chhabra, Roshan Lal Raina and G.L. Sharma, is an
outcome of a research programme that studied the experience of the Government's flagship
social security programme — MNREGA, as it is how rechristened — in six key States to
identify critical issues and concerns that need the attention of implementers and
policymakers.

A nationally co-ordinated project undertaken by the Lal Bahadur Shastri Institute of

Management, Delhi and sponsored by the All India Council of Technical Education, the
study is based on both primary and secondary data collected from the field and Government
sources. Painstaking as it may have been, but grassroots data were collected from 21 districts
that were involved in Phase One implementation of MNREGA, which comprised 43 blocks
and 108 villages in the States of Andhra Pradesh, Uttar Pradesh, Haryana, Orissa, Madhya
Pradesh and Gujarat.

Research parameters

To assess the success of the programme, the main parameters for research included the three
broad domains of planning, implementation and impact. Towards this end the study teams
tried to garner how far awareness of MNREGA had spread, did the public know what their
entitlements were under the scheme and how efficient was the process of issuing job cards to
family members so that they can take advantage of the 100 days of guaranteed wage
employment every year.

Next came studying the worksite practices, how payments were being made and what had
been the outcome of various social audits. Lastly, the teams carried out the impact of the
programme at three levels — household, intra-household and village level. The most
important finding by researchers vis-à-visthe programme was that in all the three parameters
there was no uniformity among the States. There were wide inter-State as well as inter-
district variations. This means that a Central mandate is not enough to ensure uniform
implementation of the programme.

Individual driven

The scheme, like many other ones, is largely individual driven — if officials at the panchayat,
the district and State Government level are committed and motivated enough to steer the
programme, only then would it move forward. Here is where, in my opinion, the biggest flaw
lies — the lack of penalty in case State Governments and officials fail to provide to the
people their rightful due under the MNREGA norms. The study revealed the need for further
capacity building as the implementation apparatus turned out to be “inadequate and ill-
capacitated”. The need for a more proactive and co-ordinating role by panchayati raj
institutions and civil society was also felt.

On the upside, the study highlighted in which areas the scheme had been successful and it is
heartening to note that in the sphere of population targeting, MNREGA has been able to
address the sections of society it is meant for — the deprived.

According to the research conducted for the book, in the six States the higher participation
rates were among the Scheduled Castes, Scheduled Tribes, women and those below the
poverty line. Among the land-holding groups a similar picture merged — the participation of
agricultural labour, small and marginal farmers.

With the MNREGA scheme continuing in full swing, there is need for an update of statistics
and bringing more States under the lens. The book, though ideal for libraries, makes for a
foundation on which continued research can be based.

New policy to revive 8 public sector urea plants

Initiative to cut imports thru public-private partnership.

Our Bureau

Hyderabad, July 19

The Union Government will soon come out with a new investment policy to revive eight urea
factories in the public sector in order to make the country self-reliant in this nutrient.

Urea imports increased sharply to 6.9 million tonnes (mt) in 2007-08 and 5.66 mt in 2008-09
from 0.22 mt in 2000-01.

“The idea is to reduce dependency on imports by reviving the now defunct urea units, each
with an average capacity of 1.15 million tonnes. We may expect the policy in a couple of
months,” Mr Satish Chandra, Joint Secretary, Department of Fertilisers (Ministry of
Chemicals and Fertilisers), said.

Talking to reporters on the sidelines of a national meet on fertilisers here on Monday, he said
the opportunity to revive these units may first be given to the public sector fertiliser
companies on nomination. If they were not ready for the job, they could be taken up under
public-private partnership. The new promoters would have to bring in investments to acquire
new technologies and machinery.
The conference on “India 2020: Chemical fertiliser sector – Government policies, challenges
and growth strategies' was jointly organised by the Fertilisers Association of India and
Institute of Public Enterprises.

An industry source said it would require Rs 3,000-Rs 5,000 crore to revive each of the eight
units.

“The recent patterns indicate that the usage of urea has not witnessed sharp increase. This is a
good sign,” he said.

The Government would extend the decontrol mechanism to urea in the phase-II of the revamp
of the fertiliser pricing system (nutrient based scheme or NBS), he said, without indicating a
timeline for the same.

It was in the process of formulating a pricing policy for Stage-IV of new pricing system
(NPS) for urea for the intervening period from April 1, 2010 till NBS was made applicable to
urea.

Ruling out reduction of the scaling down of subsidies, Mr Satish Chandra said the NBS had
not resulted in sharp increase in prices of fertilisers that witnessed decontrolled in the phase-I.

Modified crop risk cover scheme from rabi season

Agriculture Insurance targets 50% farm holdings in three years.

 
Paradigm shift: There might be a shift in focus towards actuarial-based insurance rather than
the present claim-based system.

K.V. Kurmanath

Hyderabad, July 20

The Agriculture Insurance Company of India (AIC) will bring half of the 12 crore farm
holdings in the country under insurance cover in the next three to four years.
“We have so far covered 2.80 crore farmers (2.50 crore farmers in the National Agriculture
Insurance Scheme and 30 lakh in the weather-based insurance scheme). We will add another
three crore in the next three to four years,” Mr M. Parshad, Chairman and Managing Director
of Agriculture Insurance Company of India, told Business Line.

He said the company would introduce the Modified National Agriculture Insurance Scheme
from the rabi season this year, addressing the deficiencies such as the size of the unit.

A pilot scheme would be launched in the rabi season.

Mr Parshad said the size of the unit had been a major issue. “In most States, it is block or
sub-district level. It needs to be reduced to the village level, in order to let the farmers benefit
most,” he said.

Stating that individual assessment of crop losses at the level of a farmer could be functionally
difficult, Mr Parshad said there might be a shift in focus towards actuarial-based insurance
rather than the present claim-based system.

While the latter system involved contribution from the States and Centres in the claims, the
actuarially priced (with higher premiums) policies would hold AIC responsible for all the
claims.

Keeping in view the expansion of the coverage, the premier agriculture insurance company
has decided to establish district level set-ups soon.

The company, which reinsurances with Nabard and General Insurance Corporation, had
cumulatively covered 13.46 crore farmers in 26 States and Union Territories in 19 seasons
from 1999 to 2009.

Fuel prices, taxes and the common man

RAGHUVIR SRINIVASAN
While increasing the retail administered prices for fuel last fortnight, the government pleaded
helplessness pointing to how global oil prices were rising and exerting pressure on the
balance-sheets of the oil marketing companies. It invoked the much-abused concept of under-
recoveries again, quoting mind-boggling numbers to support the decision to increase prices.

Taxing the common man

Yet, if you look at the price build-up for petroleum products, you will notice that it is
government levies more than rising oil prices that are burdening the common man. That taxes
account for a disproportionately large portion of the retail selling prices of petrol and diesel
has always been known.

Taxes account for as much as half of the retail price of petrol and a third of diesel price in
some States. Interestingly, Karnataka, West Bengal and Kerala, whose governments
vociferously protested the fuel price hike and even supported a total bandh, are among those
with high sales tax rates on the two fuels, apart from Tamil Nadu and Maharashtra.

The almost extortion-like levies start at the Centre with an excise duty of Rs 14.35 per litre on
petrol and Rs 4.60 on diesel. The States pile on with high sales taxes; Andhra Pradesh and
Tamil Nadu tax petrol at 33 per cent and 30 per cent respectively. Maharashtra and Kerala tax
diesel at 26 per cent and 24.69 per cent respectively.

The high excise duty on refined products is in addition to the Customs duty. Petrol and diesel,
for instance, suffer a basic Customs duty of 7.5 per cent each and countervailing duty of Rs
14.35 per litre and Rs 4.60 per litre respectively. The last Budget reintroduced Customs duty
on crude oil at 5 per cent.

The point to note is that the import duties on petrol and diesel do not fetch any revenue to the
Centre as there are no imports of the two products.

However, they become crucial in the calculation of “under-recoveries” on the two products
by the oil companies. Under-recovery is the difference between the trade parity price of a
petroleum product and the domestic retail selling price.

The trade-parity price includes levies such as Customs duty and countervailing duty, which is
a protectionist levy. The Customs duties on petrol and diesel thus only help inflate the
“under-recoveries”. This is nothing but a backdoor compensation for the oil companies.

Controlling inflation

There is no denying the impact of higher fuel prices on inflation as the latest figures show. It
is also well known that the poorest citizens are the worst hit by higher diesel prices which
cascades all the way down to their level.

While it is important that consumers pay market prices for the fuel they consume, the
government can do its bit by reducing duties and taxes.

The Delhi Government showed the way last week when it reduced sales tax on diesel by Rs
2.50 a litre. Effective Tuesday, diesel price in Delhi will fall to Rs 37.60 from Rs 40.10 a
litre. What will be the impact if other State governments take the cue and reduce their sales
tax rates by a similar level? As the accompanying graphic shows, diesel prices will fall by Rs
2-3 per litre while petrol price will drop by Rs 2.50-3.50 a litre across the country. We have
assumed a 33 per cent reduction in sales tax on diesel and a 25 per cent reduction in that on
petrol. Will the governments formed by the same parties that opposed the fuel price hike now
do what is well within their powers to lighten the burden on the common man?

‘Farming is the riskiest profession'

At the height of the Green Revolution, the media was “ecstatic” about the dwarf wheat
varieties making waves in the country, but today unfortunately the attention is on farm debt
and farmer suicides.
  
DR M. S. SWAMINATHAN, AGRICULTURAL SCIENTIST AND RAJYA SABHA MP.

G. Srinivasan

When India's population was 350 million decades ago, 75 per cent of the people eked out a
living by farming. But at today's 1.1 billion, the percentage of people living on land is still 60
per cent. “Land is a shrinking resource all over the country and you have no option but to
produce from less land and less water”, says eminent agricultural scientist Dr M. S.
Swaminathan. The octogenarian Rajya Sabha MP laments that “we have widespread
malnutrition because small and marginal farmers are malnourished”.

In an interview to Business Line, Dr Swaminathan asserted that “India will remain a

predominantly agricultural country. Shaping, instead of predicting, the future of agriculture is
the duty of farm scientists, just as we shaped the future of agriculture in the 1960s through the
Green Revolution. Modern industry offers jobless growth but agriculture accords a job-led
growth. What CII and others should understand is that the largest private industry in India is
agriculture — crop husbandry, animal husbandry, fishery, forestry, horticulture and agro-
processing.”

At the height of the Green Revolution, the media was “ecstatic” about the dwarf wheat
varieties making waves in the country, but today unfortunately the attention is on farm debt
and farmer suicides.

Edited excerpts from the interview:

Why is the farm sector in the doldrums despite proactive measures from the Government?

The National Commission on Farmers has examined in great detail the fatigue issue in Green
Revolution — the stagnation in yield, and the fall in factor productivity in relation to the
1960s. You need to double the quantity of fertiliser to produce the same output. Some of the
reasons for the stagnancy are decline in investment in rural areas from the 1990s, and
overexploitation of natural resources in States such as Punjab and Haryana.

We divided the country into four areas. First, the Green Revolution (GR) areas — the
heartland of GR Punjab, Haryana and Western Uttar Pradesh.

Second, the green, but no GR, areas — the whole of Eastern India, including West Bengal
and Assam, where water is not really the limiting factor.

Third, un-irrigated areas — with almost 60 per cent rain-fed, and only 40 per cent irrigated in
spite of the best efforts. Even here, I would say only 30 per cent has got fairly reasonable
irrigation. Groundwater is the most important component here.

The rain-fed areas produce pulses, oilseeds and many horticultural plants. Stagnancy in
pulses production is because they are produced in un-irrigated areas. Fourth, special zones
like the hills — the Himalayas, Western Ghats/Eastern Ghats — and coastal areas.

The most important suggestion we made was conservation and climate-resilient farming. In
the US Farm Bill, for instance, the largest amount of money goes to conservation farming —
soil conservation and conservation of bio-diversity. We have added climate-resilient farming
and you have to have a new technology that helps minimise loss through changes in
temperature.

We recommended shifting the breeding strategy to per day productivity and not per crop.
Wheat yield in Punjab, farmers say, is a gamble in temperature and not rainfall.

Treating the saline soil is crucial. The Central Soil Salinity Institute in Karnal has developed
a lot of technologies for reclamation of saline soil.

So, we must restore our soil fertility, conserve our groundwater, promote more use of river
water with groundwater and adopt technologies which are climate-resilient. We can develop
wheat varieties which are less temperature-sensitive.

In the green but no GR areas (Eastern India) there is going to be a second GR.

Sadly, today, 40 per cent of the farmers want to quit farming as revealed by the NSSO, and
how do you have a second GR? But in the green but no GR areas there is a large untapped
production reservoir. They can double the production over a period of time through water
management, rainwater harvesting and care of soil health. That every farmer should be given
a soil healthcare card is what we recommended, and the only State which did so quickly was
Gujarat
The plant is no magician, it requires inputs for output. But nitrogen alone will not do.
Micronutrients are needed to assuage what we call hidden hunger of the soil.

In the summer heat, carbon goes away, leaving soil carbon conditions poor. You may give
any amount of nitrogen and if the micronutrient iron is not there, you will not get full yield.

So balanced fertiliser use is very important and that is why we recommended a nutrient-based
subsidy which was accepted by the Government, and was implemented from April 1. I have
not yet studied how well it is doing as it requires a lot of preparation on the part of farmers,
such as determining deficiency in the soil.

In balanced farming we need to look at soil, water, credit and insurance.

Credit-linked insurance is weak. Farming is the riskiest profession. Higher the risk, the
greater the insurance. Farming is the largest, most unsecured enterprise in the world. We have
not insulated the farmers. We have forsaken the farmer to nature.

What do you think ought to be done to bring farming back into focus and what strategies are
needed to stimulate farming as an industry?

We need to seriously look at agriculture. There are 128 agro-climatic zones in the country.
We need in each and every zone a contingency plan, alternative cropping strategy, seed
banks, grain banks and modern grain silos. For instance, in the seed bank in Koraput (Orissa),
the women used to maintain 20-30 varieties of paddy seeds — one for late sowing, one for
crop failure and a rescue crop. But now we have made it all homogenous in the bank.

There must be technological upgrading of agriculture through use of information technology

sponsored by the Department of Information Technology in establishing common service
centres (CSC) across the country.

Two models of dairying

HARISH DAMODARAN

The American dairying experience holds positive and negative lessons for India.
Rodger Koehn is one of those straight-talking, affluent farmers you would encounter in mid-
western US. This 47-year-old resident of Peotone in Illinois operates 1,650 acres, of which
850-odd is devoted to corn, 650 to soyabean, 80 to alfalfa and the rest to wheat.

A significant portion of Koehn's income, however, comes from dairying. The 205 animals he
rears are fed mainly on the farm's own produce. A lactating cow consumes daily around 60
pounds of corn silage, 8-10 pounds of dry alfalfa hay, 8-9 pounds of corn grain and 10-12
pounds of soyabean meal (one pound equals 0.45 kg).

“The entire grain, silage and hay I grow myself. Only the meal I buy, though even the
soyabean gets produced here”, notes Mr Koehn, whose farm also has a cooling tank to store
7,500 pounds of milk.

The cows are machine-milked twice a day — 4 to 7 in the morning and likewise in the
evening. The milk from the udders is conveyed through pipelines into the bulk tank, where it
remains chilled at 3 degrees Celsius. The following noon, a tanker, normally of 60,000
pounds capacity, takes the milk to Foremost Farms, a cooperative dairy owned by 2,300
farmers, Mr Koehn included.

Mr Koehn sells daily about 7,000 pounds of milk or 2.5 million pounds annually. Foremost
Farms, in turn, handles 5 billion pounds or 2.2 million pounds per farmer-member — making
Mr Koehn a relatively big supplier even by US standards. In 2009, an average cow in his
farm yielded 30,540 pounds, against the national figure of 20,576 pounds. His best cow,
‘Star', produced 56,000 pounds.

Factory Farm

But Mr Koehn's operation is miniscule compared to that of Fair Oaks Farms, a 30,000-cow
venture spread over 25,000 acres in Newton and Jasper counties of Indiana. This farm — the
largest in the US — produces 2.4 million pounds daily, with 80-90 calves being born every
day. One in 17 minutes!

Milking is done on a rotating platform handling 72 cows at a time. The cows walk into the
circular platform one after the other and ride the merry-go-round for roughly 8.5 minutes,
during which they get milked by individual machines attached to their teats by operators. The
motorised platform keeps revolving; the moment one cow completes its 8.5-minute round and
is ready for despatch back to its barn, there is another one taking its place. Each cow is
milked thrice daily. For the 28,000 lactating animals at any point, it translates into more than
80,000 milkings per day round the year.

Fair Oaks, too, produces all its fodder requirements — and even its own electricity. The
30,000 well-fed Holsteins excrete enough manure that can be turned into 59 per cent methane
in a central anaerobic digester.

“We are now working on a closed-system technology to enable production of natural gas-
equivalent 100 per cent methane”, says Mr Gary Corbett, CEO of the farm, jointly set up by
five families in 1998. While buying power off the grid may be cheaper, the economics of on-
farm methane is enhanced by sale of carbon credits (the captured biogas prevents methane
emission as well as displaces fossil fuel use for electricity generation).

Such industrial-scale dairy farms are a contrast to India, where even 10-animal herds are
exceptional. The country's 110 million tonnes (mt) milk output comes from some 70 million
cows and 55 million buffaloes. This is as opposed to the US' 86 mt from just 9.2 million
animals — the latter population having more than halved since 1950.

The 20,000-pounds average milk yield in the US compares to hardly 1,400 kg (3,100 pounds)
here, with the best Murrah buffaloes giving 2,500 kg (5,500 pounds). India's largest dairy
concern, Amul, procures 10 million kg of milk daily from 2.5 million farmers. At 4 kg per
farmer, this is a fraction of the 3,100 kg supplied by Mr Koehn, leave alone Fair Oaks' 1.1
million kg.

Side Business
In India, unlike in the US, dairying is a subsidiary activity, with animals fed mostly on the
by-products of crop agriculture — straws, cane tops, oil-cakes. For farmers, it is, thus, a
means for converting agricultural wastes and using surplus family labour. Milk is more a
source of daily cash, supplementing their primary income from sugarcane or paddy.

While American dairy farms rely on economies of scale and relentless yield improvements to
pare production costs, it is the opposite in India: The very absence of scale — besides
virtually nil opportunity costs of agri-residues and underutilised family labour — keeps costs
low. With small herd sizes and negligible capital investments, there are no major overheads
or replacement costs of assets to be factored into farmers' calculations.

The American dairy model has been successful in raising milk yields, but not so in
addressing price volatility. Through much of 2007 to mid-2008, Mr Koehn was realising $20-
22 on every 100 pounds of milk. With the meltdown, prices slid as low as $9.80 in July 2009.
It has since recovered to $15-16, just about covering both feed ($6.5-7) and fixed costs ($7.5-
8). “In 2008, my dairy income was $500,000. Last year, it plunged to $260,000 and I lost
$180,000. Thankfully, my crop revenues fell less, from $700,000 to $620,000”, complains
Mr Koehn.

It is precisely this sort of volatility that explains the phenomenon of farms periodically going
bust and reinforcing the long-term trend of consolidation.

There are barely 65,000 dairy farms left in the US today — of which 7,000 with 200 or more
cows produce 70 per cent of the total milk. But consolidation has not really helped farmers
get better prices. For every gallon of whole milk selling at $3.3 in US stores, the farmer's
share is only $1.3-1.4.

It is probably better in India, where Amul's farmers receive nearly Rs 25 on full-cream milk
retailing at Rs 30 a litre in Ahmedabad and Rs 32 in Delhi.

‘Pure' Dairying?

For Indian dairies, the key future challenge lies in managing costs. As non-farm employment
opportunities open up in a growing economy and more emphasis is placed on children's
education, the advantages of zero/low opportunity cost of unpaid family labour will steadily
diminish. The disappearance of common grazing lands in villages, diversion of straw to
alternative uses (bio-fuel, paper, packaging) and increasing export of oil-meals will similarly
impact hitherto ‘free' fodder and feed supplies.

In the long run, dairying may well have to outgrow its subsidiary status. Farmers with even
five acres can be encouraged to take it up full-time by exclusively growing high-yielding
fodder and maintaining 25-30 animals. They could also go in for selective mechanisation
(milking machines and harvesting brush-cutters) to save on labour. The trick is to scale up
without unduly pushing up capital costs and overheads. Farms with 100-plus cows are
certainly not the way to go.

Caution is the word on cotton crop prospects

Trade body sees higher area under the crop in South.

L.N. Revathy

Coimbatore, July 20

While the sowing report released by the Agriculture Ministry has shown good progress in the
cotton coverage during the current kharif season, the South India Cotton Association (SICA)
prefers to maintain a conservative estimate of the crop at least for another fortnight.

The report has indicated a good increase in acreage in Maharashtra and Andhra Pradesh this
season.

The Cotton Advisory Board is expected to meet on July 30 in Mumbai to discuss the current
crop scenario. The CAB's estimate for the 2009-10 season ending September is 292 lakh
bales.

Zonal pattern

Meanwhile, the cotton association here has made a study of the crop situation across the three
cotton zones – North, Central and South.

SICA sources said the crop was in good shape in Punjab. Both in Punjab and Haryana,
farmers were clearing the flooded tracts, pulling out weeds and applying manure. While the
acreage seemed to have increased in Punjab, in Haryana, despite the favourable condition for
planting of cotton, the area continued to remain steady (earlier season's level). In Rajasthan,
SICA sources anticipate a dip in acreage.

The area under Bt cotton in the northern zone is expected to go up 7-12 per cent.

In the Central zone comprising Gujarat, Maharashtra and Madhya Pradesh, sources said, the
sowing had advanced but it was still early to assess the acreage.

The area under cotton in the South – particularly in Karnataka and Andhra Pradesh – could
increase by 12 to 15 per cent due to favourable conditions, said SICA sources.

Lint prices are reported to have remained steady during the last fortnight and the arrivals
satisfactory, in small lots.

Chilli farmers get weather-based insurance claims in AP

INCREASING AWARENESS.

Our Bureau

Hyderabad, July 20

About 16,500 chilli farmers in Guntur district of Andhra Pradesh have received the first ever
insurance claim under the new Weather Based Crop Insurance Scheme launched by the
Agriculture Insurance Company (AIC) for chilli farmers.
The scheme covered events like deficit rainfall, excess rainfall and uneven distribution of
rainfall. It calculates the crop damages with village as a unit as against block, mandal or
district in the other agriculture insurance scheme.

Mr K Rosaiah, the Chief Minister, received a cheque for Rs 17.34 crore from Mr M. Parshad,
Chairman and Managing Director of AIC, here on Tuesday towards insurance claims for the
farmers for the lost crop during the kharif season last year.

Stating that weather-based insurance scheme provided better coverage, Mr Rosaiah said the
Government had decided to extend the scheme to all the districts from this season. The State
now has extended the scheme to cotton, oil palm and sweet lime in several districts.

Addressing a press conference here, Mr N. Raghuveera Reddy, the Minister for Agriculture,
said the farmers in 38 mandals of Guntur were benefited. “This year, we have extended the
weather-based cover to cotton farmers in Adilabad, Khammam and Warangal districts, sweet
lime in Nalgonda district, palm oil in West Godavari district and mangoes in Chittoor and
Rangareddy district.

“We have significantly increased awareness among the farmers in the last few years. As
against the total insurance claims of Rs 598 crore during 2001-03 in the Telugu Desam
Government, we could see disbursals of Rs about 2,000 crore during 2004-08,” the Minister
said.

Can the Olympics turn East London to prosperity?

Vidya Ram

London, July 20

Holden Point, a bleak-looking no-frills tower block, providing sheltered housing to elderly
East London residents, may seem like an unlikely centre-piece of the city's forthcoming
Olympic Games. Yet, the 22-storey building is the vantage point, where visiting dignitaries
and members of the Olympic Committee have come to see the latest on the £8-billion
transformation of a 2.5-km stretch of wasteland into the heart of the 2012 Olympics.

Replete with separate stadiums for everything from handball to fencing, an aquatic centre and
an athlete's village capable of housing 17,000 sportspersons and officials, the site already
offers quite a spectacle of what is to come.

Controversy over funds

But the billions poured into cities to prepare for games such as the Olympics have always
been a point of contention and London is no exception. Particularly in the wake of the
financial crisis, the Government has had to scale back plans for drawing significant funding
from the private sector (the £16 million that Arcelor Mittal is putting towards a steel tower
being designed by Anish Kapoor is one exception) leaving the taxpayer with a significant
bill.

Unsurprisingly, the question of the game's legacy looms large — Can the game succeed in
transforming London's East End?

While parts of East London have been transformed — as any visitor to the financial centre,
Canary Warf or the 02 Concert Arena will testify — large parts remain huge pockets of
poverty. Newham, where around 60 per cent of Olympic events will take place, is among the
poorest — and most ethnically diverse — boroughs in the UK, according to the government
indices of multiple deprivation, with high rates of joblessness, homelessness, child poverty
and infant mortality. Around 15 per cent of adults lack employment, according to the Trust
for London charity, while the rate of infant mortality stands at 7 in 1,000.

Biggest regeneration

Local politicians are hopeful that the Olympics will help change that. “We see the Games as a
catalyst to change the area,” said Clive Dutton, Executive Director for regeneration at
Newham Council, describing the current work on the area as the “biggest economic
regeneration project in Europe at the moment.”

Along side plans to use the Olympic facilities — such as the aquatic centre — for the local
community post-Olympics, new developments are coming up rapidly, including a new giant
shopping centre near the heart of the Olympic development, built by Australian retail
behemoth Westfield, which the council hopes will create thousands of new jobs in the area in
the long term. The massive media centre, which will host journalists from across the world,
will, according to current plans, be transformed into a business centre.

Vision for future

Mayor of Newham, Sir Robin Wales, acknowledges the challenges facing them. ‘Simply
creating jobs doesn't solve the problems of the East End,” he said at a recent meeting in East
London. Sir Robin's vision is to use the impetus and attention from the games to attract
international businesses to the area, using the rapidly improving transport network, and
possible Eurostar connection to create a science and technology hub linking London and
Cambridge. “We have a vision of creating a centre of science and technology,” says Sir
Robin.
One company already with plans for the region is German engineering giant Siemens, which
in May announced plans to create a green technology exhibition centre, and research and
development facilities.

The Council isn't naming others but according to Dutton, if even half the companies they're
currently in discussion with about local projects pay off “it will blow your mind.”

Projects for locals

It has not been an entirely smooth journey, of course — and there has been concern within
the local community that the Games are by and large sidestepping the local area —
highlighted, for example, by the fact only a fraction of the jobs in the construction of the
Olympic developments are going to people who live locally. However, an important step was
taken last July with the setting up of the Olympic Park Legacy Company — with the vision
of transforming the park, in 2013 and beyond, into a “thriving new community over the next
three decades.”

Acclaimed social entrepreneur Lord Andrew Mawson, who has set up health and educational
projects across East London and has joined the board of the legacy company, says he is
encouraged by the way the work is heading.

“The board of the legacy company is still putting the wheels on the wagon but is very serious
about learning from what social entrepreneurs and business players are doing in the area, “
said Mawson in a recent interview with Business Line.

While it is early days for the company, projects such as incorporating local entrepreneurs and
small businesses facilities into the facilities after the games are over are being considered.
Like Sir Robin, Mawson's ambitions surrounding the Olympics go far wider than the
immediate terrain for the Games.

‘Water City'

Alongside renowned architect Richard Rogers he has launched plans for “Water City” — an
initiative to transform the region, through which the River Lea runs, using the forgotten
waterways of the area, which had been a vital part of the economy, until the decline of the
Royal Docks of London in the mid 1960s.

“The Lower Lea Valley has been run by water for 2,000 years,” says Mawson. “Regeneration
cannot come from Mars, it has to come from the ground. If you want to persuade
entrepreneurs to come and invest, the legacy must be built on the history of the people and
the economics of the place.”
Green signal on fertilisers

It is commendable that the Department of Fertilisers is keen to revive as many as eight public
sector urea plants to reduce the country's dependence on imports.

At a time when the country's agriculture is under stress and subsidy on fertiliser has reached
unsustainable levels, recent policy initiatives such as price decontrol for most fertilisers
(except urea) and nutrient-based pricing send out a strong signal that New Delhi is keen to
release the industry from antiquated regulations and make it truly market-oriented. Given that
there is demand-supply mismatch and imports, especially of urea, have become inevitable, it
is commendable that the Department of Fertilisers is keen to revive as many as eight public
sector urea plants to reduce the country's dependence on imports. The cumulative production
capacity of the closed units is estimated at about 8 million tonnes, enough to bridge the gap
of 5-7 million tonnes currently being imported.

It is already known that an Empowered Committee of Secretaries, constituted to look into the
financial models for revival of the closed units, has recommended the revenue-sharing model
with an upfront fee for the revival of each unit through the Build-Own-Operate mode.
Confirmed availability of gas would be a critical determinant of urea production. So, gas
availability and increase in urea production must move in tandem. It is also time to lay down
a definite plan for conversion of all non-gas-based urea units into gas-based ones. Obviously,
huge investments are required not only for revival of defunct units but also for modernisation
of existing ones. For the government, it would make commercial sense to involve the private
sector and revive the factories through the well-accepted Public Private Partnership route,
given the expected scale of investment. In addition to augmenting indigenous production, it
may be commercially prudent to explore setting up urea projects in countries with adequate
gas availability. Assured supplies from abroad will to an extent shield the domestic market
from volatile conditions in the global marketplace.

Without doubt, chemical fertilisers have played an important role in boosting farm output.
Although the country's fertiliser consumption is relatively low at about 130 kg a hectare with
high inter-regional variations, the overall usage has been increasing gradually in recent years.
Sadly, the increase in consumption is not adequately reflected in the overall farm output as
there are other constraining factors that stymie production and productivity. Improving the
marginal productivity of soil through increased application of NPK and proper nutrients
based on soil analysis remains a challenge. Farmers need to be educated about the use of
appropriate fertilisers depending on the soil condition. It is in this context that the proposal to
launch a pilot project, leveraging the country's strengths in information technology to track
movement of fertilisers from factory to field deserves mention. Together with soil testing,
delivery of customised fertilisers to meet soil-specific and crop-specific needs would go a
long way in improving farm productivity. It would also help to eventually move to delivery
of subsidy payment directly to growers.

Creditor banks force probe into Nafed affairs

Central Registrar initiates action to wind up the cooperative.

Vinson Kurian

Thiruvananthapuram, July 21

A statutory inquiry has been ordered into the state of affairs at the National Agricultural
Cooperative Marketing Federation of India (Nafed) at the instance of creditor banks.

These banks expressed their concerns to the competent authority about Nafed's financial
stability, according to the Union Minister of State for Food and Agriculture, Prof K.V.
Thomas.

SERIES OF EVENTS

The Multi-State Cooperative Act stipulates that if such a request comes from the creditors,
the Central Registrar, Cooperatives, must initiate an enquiry into the goings-on in the
organisation.

This is the culmination of a series of events that had ended in the latest flare-up when the
board of Nafed decided to sack the Managing Director, Dr C.V. Ananda Bose, who was
hand-picked for the job by the Cabinet Committee of Appointments.

Nafed top brass was not available for comment.

IN TROUBLE

Nafed has been in trouble thanks to various acts of omission and commission, Prof Thomas
told Business Line on Wednesday.

A situation had come about when it became clear that, left on its own, the institution would
collapse sooner than later under the weight of contracted liabilities.
“But we wanted try and see if the situation could be set right. And there was a request for
intervention from the Nafed board as well. This was how Dr Ananda Bose was deputed for
the clean-up job, against his own will,” the Minister said.

But the board has sought to summarily remove him, which it is not legally allowed to.

Dr Bose has been conducting himself well and was only half way through the job when the
board's action came.

“Dr Bose enjoys unstinted support of the Government,” the Minister affirmed. “If the board
indeed had some issues to sort out, it could have talked it out with him, rather than cite some
flimsy charges to unseat him.”

BANKS' EXPOSURE

Meanwhile, almost all leading banks have varying exposure in the cumulative Rs 1,600 crore
lent to Nafed to finance Government-mandated business carried out in public interest.

Among them are State Bank of India, Federal Bank, South Indian Bank, Punjab National
Bank, Indian Overseas Bank and Oriental Bank of Commerce.

The Union Minister said the action initiated by the Central Registrar could even lead to the
winding up/liquidation of the federation based on the findings of the inquiry.

But the Minister clarified that this is not something that the Centre would like to happen.

“Nafed is an independent cooperative entity, and its independence needs to be respected.”

COMFORT LETTER

“When there is a price crisis, Nafed is mandated to intervene in the market to protect the
interests of the farmers; they are entitled to raise needed resources with Government
guarantee,” he added.

According to sources in the Government, the Centre had in the interregnum offered a
“comfort letter” that would have allowed Nafed to borrow Rs 1,200 crore as fresh loans from
commercial banks.

The 10-year package provided for a scenario where the Centre would undertake to pay the
interest during the first three years.
On its part, Nafed would liquidate existing loans on its books. It was also required to commit
itself to improving business and start repaying the loan at the earliest.

CRUCIAL RIDER

But the package had also come with a rider that 51 per cent of the Nafed equity would go to
the Government, which is said to have raised the board's hackles.

The board refused to toe the Government line, upon which the latter chose to withdraw the
package. The Union Minister confirmed this, too.

This was the last straw for the creditor banks, which have now acted in concert in a bid to
recover their dues.

The Union Minister also revealed that the Centre intends to amend the Multi-State
Cooperatives Act to facilitate ‘reasonable Government control' over cooperatives.

As of now, the cooperative sector is marked by two extremes of governance – while the
multi-State cooperatives enjoy total freedom to conduct business, the State cooperatives
present a picture of tight control by the respective State Governments.

The amendment to the Act is under consideration of the Union Cabinet, the Minister added.

Nafed improved equity, asset base before trouble began'

Cooperative began repaying debts taking fresh loans: MD.

 
Dr C V Ananda Bose

Vinson Kurian

Thiruvananthapuram, July 22
The probe into goings-on in the trouble-ridden National Agricultural Cooperative Marketing
Federation (Nafed) has come at a time when some in-house financial engineering has
rekindled lenders' interest in the organisation.

The Nafed board had earlier rejected a Central package for a “comfort letter' that would have
enabled it to borrow Rs 1,200 crore afresh to liquidate existing debts of Rs 1,600 crore,
though with strings attached.

RISK AVERSION

A lot of persuasion coupled with financial engineering prompted lenders to shed their risk
aversion towards the Nafed, its Managing Director, Dr C. V. Ananda Bose, told Business
Line here.

Dr Bose was deputed by the Centre to get the loss-making federation back on its feet. But
after nine months in the job, Dr Bose was unseated by the Nafed citing ‘flimsy charges' of
financial misappropriation that he claims was in retaliation for his objecting to allegedly
questionable deals entered into by the Nafed board. The Government, however, still treats
him as the managing director.

These deals are now being probed by the Central Registrar, Cooperatives, on a complaint by
lending banks, as reported in these columns on Wednesday.

AUTHORISED CAPITAL

“My mandate was to basically improve the business of the organisation,” Dr Bose said. The
first area of focus was financial management.

“The little bit of banking experience that I had came in handy here,” he said. The first thing
that he proceeded to do was to improve the equity base.

Nafed's authorised capital was Rs 21 crore, of which Rs 10.5 crore was paid-up. As a first
move, Dr Bose says he got the entire authorised capital fully subscribed. In doing so, he says,
he also got offers from the federated units to invest more as equity. “I started repaying the
debt owed to the federated units by taking fresh loans. So that instilled some confidence in
the federated units,” Dr Bose said.

Besides getting the entire authorised capital by the federated units, he claims to have
persuaded them to beef up the authorised capital five times. “All this happened within two-
three months of my taking over. Nafed is now a Rs 100-crore organisation,” Dr Bose said.
ASSET REVALUATION

Dr Boase says that he then proceeded to revalue the assets. The result is that Nafed's asset
base and equity have improved substantially. This has, in turn, helped boost its borrowing
limit three-fold. This, he says, seems to have restored the confidence of the banks.

Separately, Dr Bose claims to have managed to negotiate cheaper loans to replace the high-
cost that he says were contracted at as high interest rates as 13.5 per cent.

“We managed to persuade the banks to bring down the interest rates at least for the fresh
loans to nine per cent. This makes a lot of difference,” he said.

The Kerala State Cooperative Bank came forward to extend Rs 200 crore at only seven per
cent. Nafed has since done brisk business. The turnover of Rs 4,900 crore has, in the last six
months, grown to Rs 7, 900 crore, he added.

Govt relaxes built-up area norms for SEZs in smaller cities

Move to spur IT/ITES investments in Tier 2, 3 cities.

“This is an excellent decision. It will encourage entrepreneurs and developers to look at

development in semi-urban areas.”

Our Bureau

New Delhi, July 22

Amidst concerns over the adverse impact of the Direct Taxes Code on Special Economic
Zones, the Government has relaxed the minimum built-up area norms for these tax-free
enclaves coming up in smaller cities.

Industry watchers say the move would mainly spur investments in IT/ITES SEZs in Tier 2
and Tier 3 cities. It could also help sectors such as gems and jewellery, non conventional
energy, biotechnology and free trade warehousing, where minimum built up area norms are
prescribed.

In a recent notification, the Commerce Ministry has classified all cities into four categories
A1 (four metros, Bangalore and Hyderabad); A (cities such as Pune, Ahmedabad,
Coimbatore, Vijayawada, Visakhapatnam), B1 (small cities such as Patna and Ludhiana).
Locations which fall outside these three categories have been tagged as B2 cities.
For 21 cities which have been categorised as B1 (including Kochi, Agra, Allahabad, Madurai,
and Raipur), the Government has pruned minimum built-up area for SEZs to 50 per cent of
the current norms. For ‘B2' cities, the minimum built-up area has been lowered to just 25 per
cent of the present norms.

The current built up requirements range from a minimum 40,000 square meters for bio-
technology SEZs to one lakh square metres in case of IT/ITES SEZs. The built up area norms
pertains to the processing area where production takes place; this is at least 50 per cent of the
total SEZ area.

As many as 16 cities – mostly large ones – have been classified as A and A1 and the built up
area norms for these cities remain unchanged.

“This is an excellent decision. It will encourage entrepreneurs and developers to look at

development in semi-urban areas and ensure that world-class infrastructure gets created in
remote areas,” Mr L.B. Singhal, Director-General, Export Promotion Council for EOUs and
SEZs, said.

Stating that many employees in IT and ITeS SEZs come to work from far off locations, he
pointed out that Government's latest move will enable people in smaller cities to seek
employment at their doorsteps.

The Nasscom President, Mr Som Mittal, said that the move would spur investments in
smaller towns and augur well for local SMEs and entrepreneurs.

“However, since the DTC in its current form proposes to take away income tax incentives for
units that come up after the Code becomes operational (from April 2011), such initiatives
may not achieve their desired purpose,” Mr Mittal said.

Nasscom has recently submitted its recommendation on DTC to the Government.

“The Government should give a defined time frame, say 2014, for SEZs to become
operational and the units (that would come up within such notified parks) should avail the
same benefits as were promised in the SEZ Act,” Mr Mittal added.

Kharif sowing revives as monsoon gains strength

Area under rice, pulses, cotton, coarse cereals, pulses up.
Our Bureau

New Delhi, July 23

With the monsoon gaining strength across the country, including in hitherto parched areas of
Uttar Pradesh (UP) and Bihar, there has been a perceptible revival in sowing of most kharif
crops.

According to the Union Ministry's latest compiled data, farmers have till now planted more
area under rice, cotton, pulses, coarse cereals and pulses, compared to their corresponding
coverage during this time last year.

TRAILING IN BENGAL

In rice, the progressive coverage is up over last year not only at the all-India level – 169.71
lakh hectares (lh) versus 157.67 lh – but even in individual States such as UP (31.38 lh versus
29.85), Punjab (23.75 lh versus 23.46 lh), Chhattisgarh (22.83 lh versus 21.74 lh), Assam
(13.68 lh versus 8.30 lh), Haryana (9.82 lh versus 9.40 lh) and Maharashtra (5.91 lh versus
3.95 lh). It is trailing behind marginally in West Bengal (10 lh versus 10.40 lh) and Bihar
(8.13 lh versus 8.14 lh).
In the case of coarse cereals, the overall acreage is higher despite lower plantings of jowar
and maize. The decline in the latter two has been more than made up by higher area under
bajra, where Rajasthan (36 lh versus 25.45 lh) and Maharashtra (8.98 lh versus 6.64 lh) have,
in particular, seen increased sowing. In maize, progressive sowing is lower in Rajasthan (6.64
lh versus 9.05 lh), UP (7.05 lh versus 7.24 lh), Karnataka (7.06 lh versus 9.53 lh) and Madhya
Pradesh (7.82 lh versus 8.12 lh), while going up in Maharashtra (5.95 lh versus 8.12 lh) and
Andhra Pradesh (3.79 lh versus 3.10 lh).

Maharashtra and Andhra Pradesh (AP) are, in fact, the two States to have received the best
rains in the current monsoon season. In Maharashtra, apart from rice, maize and bajra, sowing
has also been higher for cotton (37.98 lh versus 28.50 lh), soyabean (23.23 lh versus 21.21
lh), arhar (10.16 lh versus 5.86 lh), jowar (8.83 lh versus 7.87 lh), moong (4.94 lh versus 2.56
lh), urad (3.98 lh versus 2.20 lh) and groundnut (2.32 lh versus 1.76 lh).

AP farmers, likewise, have brought in more land this time under cotton (14.25 lh versus 8.12
lh), groundnut (9.92 lh versus 3.57 lh), arhar (3.83 lh versus 1.96 lh), rice (3.81 lh versus 3.47
lh) and moong (2.40 lh versus 1.47 lh).

Sugar mills want export curbs against advance licence to go

Our Bureau

New Delhi, July 23

With sugar prices the world over touching a four-and-a-half month high, sugar mills are
seeking a lifting of restrictions on their re-export obligations against past advance licences
(AL).

The Centre has banned export of sugar from the country, including even re-export obligations
of mills under the AL scheme. The AL scheme requires mills to re-export one tonne of
white/refined sugar for every 1.05 tonnes of duty-free imports of raw sugar, with this
obligation to be discharged within 24 months of the licence being issued.
The outstanding re-export obligation against ALs pending now is estimated at 9.63 lakh
tonnes (lt). The bulk of it is accounted for by southern mills, including the Thiru Arooran
Group (2.15 lt), Sakthi Sugars (1.63 lt), Sagar Sugars (1.64 lt), Dharani Sugars (69,338
tonnes) and EID Parry (24,000 tonnes).

“Now that global prices have improved, the industry should be given an opportunity to at
least discharge its re-export obligations against ALs. Since the quantities involved are known,
there should be no problem in this case,” said Mr V.M. Rao, Deputy Director-General of
Indian Sugar Mills Association (ISMA).

The pending re-export obligations are all, interestingly, against ALs issued between
September 2004 and April 2008 – which, in the normal course, should have been discharged
by now. But in the light of domestic shortages, the Centre has been repeatedly extending the
period for mills to meet their export obligation, even while not granting any release orders
towards this purpose. AL holders currently have been given time till March 31, 2001, to carry
out their re-export commitments.

Mills, on their part, are viewing the recent firming up of global prices as opening a temporary
window to discharge their re-export obligations under the AL scheme. The October contract
for white sugar at London's Liffe exchange is now quoting at $570 a tonne, the highest since
March 9. The December contract is trading more than $50 lower, reflective of short-term
supply pressures that might ease in the months ahead.

“At $570 or Rs 26,780 a tonne and deducting Rs 1,000-1,200 towards transport and port-
handling charges, the ex-factory realisation on exports would be Rs 25,500 or so. This is not
very much below the Rs 26,000-27,000 that we are getting on domestic sales. Given this
small window of opportunity (before global prices ease again), the Centre should allow us to
discharge our pending re-export obligation,” a Tamil Nadu-based miller said.

Responding to Maoist challenge

P.V. Indiresan

Communism, the basis of which is inevitably a totalitarian state, cannot be a solution to

India's problems. At the same time, the present approach to inclusive development will not
work. We need a new idea.
  
The country's growth does not automatically guarantee inclusive development.

Of late, there has been a series of articles in the mainstream press on Maoism. Some have
condemned Maoists for their authoritarianism, violent acts and false claims. This has
triggered a typically vituperative response from the Maoist camp.

The first set of writings takes on the Maoists by putting forth the following arguments: They
pose as Robin Hoods but rule by fear and authoritarian command over cowed camp-
followers; they cannot claim ‘genocide' of tribals, as the tribal population was 84.3 million
according to the 2001 Census, against 10.1 million in 1951; they don't want schools but
agitprop centres to indoctrinate the young; and they have set their sights on reconstructing
India as a totalitarian state.

The response to this line of argument is as follows:

Maoists have never considered themselves Robin Hoods and have even undertaken deep
reviews of how the cult of the individual is part of bourgeois culture;

the seemingly huge strength in the population growth of scheduled tribes in India is not
because of an increase in the population of tribes, but due to the inclusion of several hitherto
non-tribals in the ST category (that is true, but even so the increase in tribal population is
substantial);

Maoists have explained why they are targeting roads, bridges etc; they set up schools, dig
wells and tanks to develop irrigation and increase productivity, organise cooperatives, train
local doctors, and build roads and bridges deep in the forest.

Maoist doctrine
The Constitution, they say, is a piece of paper that does not hold any value for the vast
majority of the Indian people. The Indian freedom fighter was not impressed by the
‘development' the British colonialist brought to India through their railways, roads,
communication networks, plantations, mines, etc, they say.

But the Maoists forget that Gandhiji made extensive use of these same developments and
would not have succeeded but for their use. What's more, their manner of expression can be
abusive and personalised. Whether tomorrow is the era of Communism or not, we should be
aware that this doctrine holds sway over large sections of our tribal population. Maoists
believe in totalitarianism, which has been unfortunately justified by Plato's Republic.

As Karl Popper has pointed out, Plato envisioned a state that had totalitarian features as it
advocated a government not elected by its citizens as being the fate and direction of the state.
Plato's state also aimed at autarky, and advocated censorship.

In recent times, the idea of Plato's philosopher kings, with their dreams of ‘social engineering'
and ‘idealism', led to Stalin and Hitler (via Hegel and Marx). In addition, Ayatollah
Khomeini is said to have been inspired by Plato's philosopher king, and subsequently based
elements of his Islamic Republic on it. We have many admirers of China, which has made
remarkable economic progress.

Evidently, China is much better organised and much more prosperous compared to us. Hence,
it is important that we take a look at totalitarianism — even if it goes by the name of people's
democracy.

PROGRESS AND POVERTY

Whatever one may say, China is not a Communist state. China is efficiently run, but it is also
totalitarian. There is little freedom of the type we in India have. People live in fear of the
state. Is it a good bargain to have the kind of poverty we have in exchange for freedom of
speech?

For the past five years, our government has talked of inclusive growth and inclusive
development. No matter how an economy is organised, there will always be some people who
are rich and some others who will be, without option, poor.

In the rich Scandinavian countries, those who cannot have a holiday in the sun may be
deemed poor. In a poor country like India, those who cannot get three square meals a day will
be called poor. Therefore, poverty is not a fixed line; it moves as the economy progresses or
regresses. Hence, by inclusive growth or inclusive development, we mean a process, a change
for the better, an improvement in the condition of the poor. It is not the abolition of poverty
because, as the Bible says, it seems the poor will always be with us.

GROWTH AND DEVELOPMENT

Many people use the words ‘growth' and ‘development' interchangeably as if they represent
more or less the same thing. That is not correct: Growth is physical change that can increase
or decrease. In contrast, development is an irreversible chemical or biochemical change, like
the formation of a new compound or the onset of puberty.

The present Indian government got itself re-elected by implementing vigorously the National
Rural Employment Guarantee Scheme (NREGS), and by waiving farm loans worth huge
sums. Thereby, it no doubt induced growth but not inclusive development.

Except in rare cases where individuals are far-sighted, that growth will vanish the moment
the scheme is withdrawn; it will not make most of the poor permanently better-off — which,
after all, is the purpose of inclusive development.

We need a better idea, and need it immediately. Communism is no solution — it has failed in
Eastern Europe, Cuba and in China too.

Import duty on wheat not warranted

G. Chandrashekhar

Kolkata, July 25

Many South India-based wheat processors (roller flour mills) and importers holding
outstanding contracts for import of wheat are worried that the Finance Ministry may choose
to stop such inflows by imposing a stiff rate of customs duty.

Their fears have been reinforced by statements from New Delhi that levy of duty was under
consideration.

An objective assessment of the situation including unabated food inflation, high prices of
domestic wheat in southern region, consumer-friendly import prices and potential for a sharp
rise in domestic wheat prices after August do not justify levy of import duty on wheat at this
point in time.
Perhaps it is for this reason that the Prime Minister's Economic Advisory Council in its recent
meeting recommended that zero duty on wheat, rice and sugar should continue until food
inflation comes under control.

Importers are hoping that the Finance Ministry will respect the EAC's recommendations and
refrain for the time being from tinkering with the duty structure.

In any case, the volumes expected to arrive are minuscule as compared with production of
over 800 lakh tons as estimated by the Government.

These imports are not going to hurt growers because they have already marketed the
harvested crop.

On the other hand, because of superior quality of imported wheat, food processing units that
make bread and cookies as well as consumers will benefit immensely.

While premium wheat from Australia costs Rs 14,600 a tonne, Food Corporation of India
(FCI) wheat is on offer at Rs 14,280 a tonne. Premium Australian wheat is most suitable for
bread and cookies.

If anything, wheat from Ukraine/Black Sea region is a lot cheaper at Rs 12,900 a tonne. It is
well known that offtake of FCI wheat is South India is lukewarm because of high prices and
irregular supplies.

The Karnataka Roller Flour Mills Association, in a recent representation to the Government,
has sought extension of the zero duty regime for imported wheat till March 31, 2011, and has
estimated that import may be about 3 lakh tonne maximum.

It is necessary to emphasise that wheat is an essential food commodity whose consumption is

growing the fastest in the four southern States.

It is imperative New Delhi wields the instrument of customs tariff judiciously and cautiously.

Frequent changes in trade and tariff policies have already generated a lot suspicion overseas
about the stability of the country's policies. Unwarranted restrictions on cotton exports are a
good example.

On wheat imports no tariff restrictions are warranted – in any case not at this point of time.

Any such ill-timed restriction will distort the market and surely hurt roller flour mills and
consumers in South India.
There will be little benefit that anyone will derive. New Delhi must clear the cloud of
uncertainty over wheat import tariff.

It is vital that import contracts with overseas suppliers are honoured and consumer interests
are fully protected.

Cotton farmers opt for double-gene Bt technology

Harish Damodaran

New Delhi, July 25

The widespread acceptability of Bt technology among India's cotton farmers is a recognised

reality today.

This year, out of the total projected cotton area of 260-265 lakh acres, about 225 lakh acres
would be sown under Bt hybrids/varieties. Considering that the latter figure stood at a mere
72,000 acres in 2002, it represents perhaps the most rapid rate of diffusion for any technology
after the mobile phone.

But even this tells only a part of the story. Equally remarkable, though not as well known, is
the way farmers have graduated from the first-generation ‘single-gene' Bt hybrids to adopting
more advanced ‘double-gene' versions of the same technology.

Till 2005, the Bt cotton hybrids grown in the country predominantly incorporated the US life
sciences major Monsanto's proprietary ‘Bollgard-I' (BG-I) technology. These genetically
modified plants harboured a foreign ‘cry1Ac' gene isolated from a soil bacterium, Bacillus
thuringiensis or Bt, that produced proteins toxic against the American bollworm, spotted
bollworm and pink bollworm.
From 2006 onwards, farmers began planting seeds based on Monsanto's second-generation
Bollgard-II (BG-II) gene construct that deployed a stacked combination of two Bt genes,
cry1Ac and cry2Ab. The new Bt technology, it was claimed, not only offered enhanced
protection against the three bollworm insect pests (due to better protein expression from the
action of dual genes), but even control over beet and fall armyworms.

In 2006, only 2.35 lakh acres were planted under BG-II Bt hybrids, as opposed to 84.62 lakh
acres under BG-I.

Last year, BG-II coverage, at 114.2 lakh acres, exceeded the 78.20 lakh acres of BG-I. This
year, BG-II sowing is expected to further go up to 160 lakh acres, while decreasing to 50 lakh
acres for BG-I. In addition, there would be 15 lakh acres under alternate Bt gene constructs of
JK Agri-Genetics, Nath Biogene and the Central Institute for Cotton Research.

“The trend on the ground is clear: Farmers are making a shift to double-gene Bt technology”,
said Mr Jagresh Rana, Director of Mahyco Monsanto Biotech India Ltd (MMB). MMB, the
licensor for Bollgard technology, is a 50:50 joint venture between Monsanto and its 25 per
cent-owned local partner, Mahyco.

Conscious shift

How much of the shift to double-gene technology is conscious, stemming from genuine
awareness among farmers about the additional benefits from its use? “Well, farmers
definitely know the difference between planting single-gene and double gene-based Bt
hybrids. At the same time, the shift has also taken place because the price difference between
the two technologies is not very significant. And that has to do with State Government
policies”, noted Dr Paresh Verma, Director (Research), Shriram Bioseed Genetics India Ltd.

The Andhra Pradesh, Maharashtra and Gujarat Governments have fixed a maximum retail
price (MRP) of Rs 650 for every packet of Bt cotton seeds bearing single gene trait, with this
being Rs 750 a packet in the case of BG-II technology.

In Punjab, Haryana and Rajasthan, the MRPs have been similarly set at Rs 750 for BG-I and
Rs 925 for BG-II packets, each containing 450 gm of Bt cotton seeds.

Indian farmers currently obtain an average 6.5 quintals of kapas (seed-cotton) on every acre.
At Rs 3,000 a quintal, this translates into revenues of Rs 19,500. On the other hand, farmers
plant 1.3-1.5 packets in an acre. At the prevailing MRPs, the additional cost of shifting from
BG-I to BG-II would be hardly Rs 200 an acre or one per cent of the gross revenue.
According to Dr M Ramasami, Managing Director of Rasi Seeds Pvt. Ltd, the favourable
economics of adopting BG-II technology has forced seed companies to slash prices of single-
gene Bt packets to even below the Government-fixed MRP levels in some cases. “There are
sales happening at Rs 500-550 a packet, as companies are resorting to somehow liquidate
inventories by offering more discounts to the distribution channel”, he added.

Wheat prices rise on speculation over import duty

Roller flour mills say it's not the right time to impose customs duty.

M.R. Subramani

Chennai, July 25

Wheat prices surged in the domestic market last week on speculation that the Centre may slap
customs duty on imports.

Not just the rise but the Centre's move itself has left the user industry, particularly the roller
flour mills, worried since it feels it is not the right time to impose the duty that was revoked
in 2006.

“Currently, wheat from Uttar Pradesh delivered at railway shed in Tamil Nadu is quoted at Rs
1,390 a quintal. This is Re 1 higher than the price fixed by the Food Corporation of India
under the open sale scheme,” said a South India-based miller.

On Thursday, wheat prices jumped Rs 20 a quintal on speculation.

According to industry sources, the issue of import duty is feared to come up at a meeting of
empowered group of Ministers on Monday.

On the National Commodities and Derivatives Exchange, wheat for August delivery ended at
Rs 1,251.40 a quintal on Saturday, while September contracts closed at Rs 1,270.60.

“The point is not imposition of import duty but the global market scenario. International
prices of wheat are ruling firm now and any duty at this stage is not advisable,” the sources
said.

CBOT

Wheat futures on the Chicago Board of Trade gained 1.5 per cent last week. The prices have
increased 28 per cent so far this month.
Wheat production in Russia, the largest global exporter, has been affected due to drought.
The five million tonnes drop in the Russian production has pushed up the prices higher.
Besides Russia, wheat production in Ukraine, another major exporter, has been projected 15
per cent lower.

Milling wheat in Europe was quoted at $234.40 (Rs 11,000) a tonne during the week-end.

“Imports into the country are meagre. Less than two lakh tonnes of wheat have been imported
since April. No bulk imports are taking place in view of the stringent phyto-sanitary norms.
Imports are done mainly through containers,” said a miller in Tamil Nadu.

Imports

Until last week, Australian wheat import in containers through Tuticorin cost $280 a tonne
(Rs 13,150). Now, it costs $302 (Rs 14,175). Besides, flour mills will have foot an additional
Rs 1,800 a tonne to get it to their gates.

“We are importing Australian wheat to blend it with our wheat for biscuits and breads. It
helps us to get quality produce. If the duty is re-imposed, the cost of wheat-based product will
surely rise,” said another South India-based miller.

The Centre had toyed with the idea of re-imposing the import duty in April but put it off till
this month.

With monsoon playing truant, the general view is that the Government might not think of
imposing import duty now.

It won't be a wise move as it will aid further food inflation, said industry sources.

According to sources, the talk of import duty gained momentum after two vessels were
sighted on seas carrying wheat in bulk.

One was sighted near Mumbai carrying wheat from the Black Sea region and the other near
Tuticorin with Australian wheat.

Bulk import of wheat could land the importer in problems if the quarantine authorities reject
the consignments for not meeting the phyto-sanitary requirements.

In 2006-07, the Centre amended the phyto-sanitary norms to facilitate imports and overcome
supply shortage.
The amendment expired in March 2009, forcing the users to physically clean the imported
wheat before bringing it into the country.

Import duty on wheat not warranted

G. Chandrashekhar

Kolkata, July 25

Many South India-based wheat processors (roller flour mills) and importers holding
outstanding contracts for import of wheat are worried that the Finance Ministry may choose
to stop such inflows by imposing a stiff rate of customs duty.

Their fears have been reinforced by statements from New Delhi that levy of duty was under
consideration.

An objective assessment of the situation including unabated food inflation, high prices of
domestic wheat in southern region, consumer-friendly import prices and potential for a sharp
rise in domestic wheat prices after August do not justify levy of import duty on wheat at this
point in time.

Perhaps it is for this reason that the Prime Minister's Economic Advisory Council in its recent
meeting recommended that zero duty on wheat, rice and sugar should continue until food
inflation comes under control.

Importers are hoping that the Finance Ministry will respect the EAC's recommendations and
refrain for the time being from tinkering with the duty structure.

In any case, the volumes expected to arrive are minuscule as compared with production of
over 800 lakh tons as estimated by the Government.

These imports are not going to hurt growers because they have already marketed the
harvested crop.

On the other hand, because of superior quality of imported wheat, food processing units that
make bread and cookies as well as consumers will benefit immensely.

While premium wheat from Australia costs Rs 14,600 a tonne, Food Corporation of India
(FCI) wheat is on offer at Rs 14,280 a tonne. Premium Australian wheat is most suitable for
bread and cookies.
If anything, wheat from Ukraine/Black Sea region is a lot cheaper at Rs 12,900 a tonne. It is
well known that offtake of FCI wheat is South India is lukewarm because of high prices and
irregular supplies.

The Karnataka Roller Flour Mills Association, in a recent representation to the Government,
has sought extension of the zero duty regime for imported wheat till March 31, 2011, and has
estimated that import may be about 3 lakh tonne maximum.

It is necessary to emphasise that wheat is an essential food commodity whose consumption is

growing the fastest in the four southern States.

It is imperative New Delhi wields the instrument of customs tariff judiciously and cautiously.

Frequent changes in trade and tariff policies have already generated a lot suspicion overseas
about the stability of the country's policies. Unwarranted restrictions on cotton exports are a
good example.

On wheat imports no tariff restrictions are warranted – in any case not at this point of time.

Any such ill-timed restriction will distort the market and surely hurt roller flour mills and
consumers in South India.

There will be little benefit that anyone will derive. New Delhi must clear the cloud of
uncertainty over wheat import tariff.

It is vital that import contracts with overseas suppliers are honoured and consumer interests
are fully protected.

States gnash teeth on farm front

AP wants 20% cap on seeds royalty.

Committees should be formed locally for quicker assessment and payment of compensation.
— Mr N. Raghuveera Reddy, AP Agriculture Minister
  
Mr N. Raghuveera Reddy, AP Agriculture Minister

Our Bureau

Hyderabad, July 26

Even as the Seed Bill gets ready to be introduced in Parliament, Andhra Pradesh has begun
nation-wide lobbying to put pressure on the Union Government to get control on fixing seed
price and to place a cap on royalty fee paid to seed companies.

A delegation led by Mr N. Raghuveera Reddy, Andhra Pradesh Agriculture Minister, and

comprising the State's members of Parliament will attend a meeting convened by Mr Sharad
Pawar, Union Minister for Food and Agriculture, to discuss the Bill in New Delhi on
Wednesday.

Mr Reddy also wrote to his counterparts in other States a few days ago, seeking their support
for the demands, ahead of the Parliament session.

All-party meeting

Addressing a press conference here on Monday, after participating in an all-party meeting on

the issue, he demanded that the Union Government place a cap of 20 per cent (of the seed
price) on the royalty or trait value for a period of three years after the technology was
launched.

“They can charge 5 per cent for three more years thereafter. They cannot charge exorbitantly
and exploit the famers by charging irrational amounts of royalty,” he said.

“Monsanto used to charge Rs 1,250 as trait value for a few years. We had opposed it and
forced the company to reduce the trait value to Rs 90.

The new Bill should give clarity on the issue of royalty,” he said.
Field trials

Strongly opposing the existing tradition of accepting self-certification on the efficacy of

multi-location field trials by the seed manufacturers themselves, Mr Raghuveera Reddy felt
that it was a not a good practice.

“The performance of the seeds should be ratified by the Indian Council for Agricultural
Research and State Agriculture Universities and not by the companies themselves,” he said.

He also wanted the seed companies to disclose how they sourced the seed from different
producers.

“The new Bill proposes that the companies can submit a report to the Seed Certifying
Agencies. But we feel that the agencies do not have wherewithal to handle such information.
The companies should provide the information to the Agriculture Department,” he said.

Compensation panel

On the proposal to set up a national level committee to assess the farmers' claims, he said the
committees should be formed locally to ensure quicker assessment and payment of
compensation to the farmers.

With regard to penalties, the Minister favoured both imprisonment and penalties as against
“imprisonment or penalties” proposed in the Bill.

Does price decontrol rein in inflation?

The fuel price hike points to the arrogance of those in power. It was the same disregard for
the common man that led to food decontrol in 1947 and the runaway price rise thereafter.

 
 Mahatma Gandhiand Vallabhbhai Patel were strongly in favour of decontrol of foodgrain
prices soon after Independence.

Sumit K. Majumdar

The rise in fuel prices, as a result of the Budget, was unwelcome. The decontrol of fuel prices
was worse. Fuel price policies are tantamount to fighting a blazing fire using the liquids in a
petrol tanker. The fires of inflation will overwhelm India.

The price increases have led to inflation, as fuel is a primary input for all basic activities. The
fact that the Indian businessman tends to pass on the cost has made life worse for Indian
citizens. For the principal petroleum civil servant to aver that there would be no price rises,
across the board, was risible and disingenuous.

An Orwellian statement some time ago by the Information and Broadcasting Minister, Ms
Ambika Soni, defended the Government's stand on the oil price hike, stating that it was
important for growth.

Said Ms Soni: “Hike was necessary to maintain growth, give aam aadmi spending power and
create stimulus for growth.” By taking money out of the person's pocket, how do you actually
enhance spending power? The DMK, the Trinamool Congress, the BJP, and the CPI(M) were
justifiably united in opposition to the move.

The BJP spokesperson, Mr Prakash Javadekar, was on record criticising the policies as
“arrogance of power” and for the assertions that there would be no price rollbacks.

Going back in time, a similar “arrogance of power” episode led fledgling India to disaster in
1947.

FOOD DECONTROL IN 1947

Just after Independence, there was a movement to decontrol foodgrain prices. The Food
Minister, Dr Rajendra Prasad, initiated policy review measures. A Food Grains Policy
Committee (FGPC) was appointed. It was a 15-member committee, which included four
official members, Mr D. S. Bakhle, ICS, from Bombay, Mr R. A. Gopalaswami, ICS, from
Madras, and Mr R. L. Gupta, ICS, and Mr S. Y. Krishnaswamy, ICS, from the Centre.

It was chaired by Sir Purshottamdas Thakurdas (Sir PT), a Bombay industrialist, once a
British loyalist who had changed into an arch nationalist. The FGPC Member-Secretary was
Mr Gopalaswami. The Committee was under severe pressure from the Indian business
community, from Western India, to immediately decontrol food prices.
Sir PT was convinced of the need for control, given the recent Bengal famine and the empty
food depots in Bombay and Madras. Under great pressure from the business community, via
agents, he buckled and changed his mind fully. Who were the business community agents?
They were Mahatma Gandhi and Vallabhbhai Patel.

Mahatma Gandhi's role, as recounted by Mr Bakhle, is important. He was convinced that

controls kept grains away from the market. If controls were removed, grain would
automatically flow into the market. If this did not happen, those who did not have enough to
eat could treat a day without food an Ekadasi fast! If they still wanted sustenance, they could
eat coconuts, other nuts, roots and tubers.

Mr Bakhle recorded that Mahatma Gandhi, the ultimate Indian non-official, was an invisible
member of the FGPC. He was so opposed to food controls that he expressed his views at five
prayer meetings on October 6, 7, and 10 and November 17, 1947. Convinced that the
opposition to decontrols came from the official FGPC members, he stated that: “Must the
voice of the people be drowned by the noise of the pundits, who claim to know all about the
virtues of controls?”

The official FGPC members from outside Delhi, such as Mr Bakhle, found themselves under
pressure. Mr Gopalaswami, earlier Member-Secretary of the Famine Enquiry Commission
that investigated the Bengal tragedy of 1943, was considered incorrigible, having made up his
mind. Mr Bakhle, as Supply Commissioner of Bombay, was asked to tea with Mr G D Birla
in Delhi.

At Birla House, he found that within minutes of his arrival, Sardar Patel, accompanied by
daughter Maniben Patel and Mr Dhirubhai Desai, a Bombay businessman, turned up. The
Sardar harangued Mr Bakhle, stating that controls were unnecessary. Oppositions to removal
implied that the official members were opposed to the government. He strode out, leaving the
task of dealing with Mr Bakhle to Maniben and Dhirubhai. The FGPC removed foodgrain
controls at the end of November 1947.

AFTER DECONTROL

What happened next? In Bombay, the combined price index for foodgrains rose from 100,
pre-decontrol, in November 1947, to 256 in October 1948. In the Gujarat part of Bombay it
rose from 100 to 300, in the Deccan part from 100 to 235, and in the Karnataka part from 100
to 226.

In a year, foodgrain prices rose two-and-a-half times. Food controls were restored at the end
of 1948. Who benefited; the common man or the businessman?
To suggest that petroleum price increases and decontrol are not going to have an inflationary
impact is ludicrous. It seems that we never learn from history. We perpetually operate under
the dictates of vested interests. Over six decades after freedom, we are no better off now than
we were then.

Sadly, the siren song of international policy advisers that has brought the Western economies
to their knees sounds very mellifluous to the Indian policy fraternity.

An “arrogance of power” led fledgling India to galloping inflation for the first five years after
independence. An “arrogance of power” is once again at work today.

Taxing food imports

This is an inappropriate time to tinker with import tariffs on essential food commodities.

At a time when the demand for imposing customs duty to restrict import of certain essential
commodities such as wheat and sugar is getting shriller, the Prime Minister's Economic
Advisory Council (EAC) has emphasised, and rightly so, that such duty-free imports should
continue in order to augment availability and contain food inflation. The EAC's
recommendation makes eminent sense simply because it is now an inappropriate time to
tinker with import tariffs. The southwest monsoon is still in progress and it would be at least
six weeks before a reasonable estimation of the next kharif crop can be made. At this point in
time, rainfall is still below normal and at least 10 out of 36 meteorological sub-divisions face
deficient rains. While the prospect for a rebound from last year's drought-affected crops looks
highly probable, there are as yet no signs of a bumper crop in the offing. Globally too,
agricultural markets are currently weather-driven and August, in particular, is a treacherous
month when crops run high weather-related risks.

Meanwhile, at home, August, September and October are months with a series of festivals
when domestic food consumption rises manifold. It is absolutely essential that there is
uninterrupted availability of essential commodities at affordable prices. A hike in duty may
prove counter-productive at this point in time. If anything, the Government must strengthen
its own import programme through public sector trading organisations and arrange to supply
pulses and cooking oil through the public distribution system. In the case of wheat, despite a
large harvest and bin-bursting public stocks, prices are still high, for a variety of reasons.
While the grain does move from the producing centres in the north to the consuming markets
in the south, wheat imported from Australia or Ukraine is actually cheaper than the domestic
produce available in the south. In any case, import volumes are minuscule and are most
unlikely to hurt anyone. If anything, consumers will be winners given the superior quality of
Australian wheat for certain food applications.

The EAC has also asked for release of food stocks to dampen the price sentiment. Action on
this front brooks no delay. However, successful market intervention may involve an element
of subsidy as prices will have to be made affordable for consumers. In the case of sugar, the
Food and Agriculture Minister is of the firm view that cane crop prospects would crystallise
some time in September. There still are several ifs and buts about the size of the next cane
crop. So, it would be prudent to wait for clearer picture to emerge and not rush to hike
customs duty on imported sugar.

How to enhance food storage

Shashanka Bhide

An efficient storage system may not necessarily reduce the spread between farm and retail
prices, but it can stretch supplies to meet the ever-rising demand, on account of urbanisation
and rising incomes.

 
What is needed is a clear grain handling policy.

There have been periodic complaints on two issues in agriculture for many years.

The first is the poor state of storage of foodgrains purchased by the Government and the
second is the wide difference between the price paid by the consumer and the producer. The
two are fairly clearly stated, and related, problems but the state of affairs continues to be
unsatisfactory.
Government stock of foodgrains is said to be well above 50 million tonnes now, compared
with the buffer norms of half this level. The stock has accumulated in times of good harvest
with no economically feasible ways to unload them. The level of stocks has varied over the
years, but 30-40 million tonnes of stock is not an entirely new situation.

PAUCITY OF STORAGE

Why is proper storage not built, so that grain does not rot, or is not washed away by rain? At
a moral level, there can be no defence for not building adequate storage, even when the losses
are small, because the grain lost could have fed people.

At a rational level, it may be either an O&M (operations and maintenance) problem that
haunts India's capital assets, or a question of whom to bill for the added expense. The O&M
argument would explain the scant attention to wear and tear. There is no penalty for poor
quality of service. Besides, it may be expensive to build storage facilities and manage
operations, as this will add to the cost and the subsidy.

What is needed is a clear grain handling policy that lays down standards for acceptable losses
in storage and handling.

These standards may already be there, but they fail when the stocks overflow the storage
capacity. With a good monsoon, open-ended procurement leads to unexpectedly high stocks.
Some farmers may sell to the government precisely because they do not have the storage.

Growth of better storage capacity has not matched the rising levels of stock. Would the
situation be very different if the storage were to be handled by private parties rather than
government agencies?

NEED FOR INTERMEDIATION

The private operator would reduce losses more effectively because he expects to sell what he
saves.

Even if the foodgrain operations for PDS are managed through food stamps or coupons, some
understanding of the losses would be required to ensure that the grain produced is put to best
use.

One option is to simply say that no grain can be stored in an unsafe manner, such as in the
open. This would mean building adequate storage infrastructure, which may also increase the
cost of intermediation.
That large losses in perishable farm produce occur because of the lack of proper processing
and storage is quite well known. In the case of fruits and vegetables, the losses are
substantial. Large losses occur even when no government agency is in charge. Processing and
storage expenses are beyond the reach of an individual farmer or the infamous middleman.
The capacity to store what is procured remains a costly affair and is limited to what can be
dried and saved.

Some other integrator must build the infrastructure to reduce losses. When this does not
happen, the gap between the producer and the retail consumer prices has to account for the
losses in transit and storage. Lack of competition perhaps keeps the extent of actual losses
hidden, allowing for adulteration, high prices and other unhealthy practices.

There are fiscal incentives to build proper storage and cold chains. This should help the
integrators step in, whether they are the large retail chains, or just those who provide storage
services. The large losses make additional investments worthwhile.

The new infrastructure may be necessary only because the scale of marketing operations
today has grown, to meet the demands of an ever-expanding urban population.

INVOLVING PRIVATE TRADE

Large storage facilities with traders have been viewed with suspicion. How will they be seen
now? Perhaps, a robust PDS and higher income levels of the consumers provide the
opportunity to make a transition to better storage services.

To reduce storage and handling losses, an efficient storage service is necessary, whose
viability is determined by the extent of savings it brings to the system. While this will not
necessarily reduce the farm-retail-price spread, it will stretch supplies to meet the ever-
increasing demand.

Time to crack the whip

India has its anti-corruption legislation, but unfortunately the enforcement does not seem to
have reached the desired levels.
  
Corrupt practices are robbing the developing nations of as much as $40 billion annually.

Arpinder Singh

Vinay Garodiya

In India, bribery has been a menace for decades and the authorities have been trying their best
to control it.

The issues range from corruption to conflict of interest situations. . Though the country has
its anti-corruption legislation, the enforcement unfortunately does not seem to have reached
the desired levels. However, there is silver lining as well.

Over the years, there have been some important initiatives to combat corruption and bribery.
One recent example being the e-initiative by Tata Tea through series of “Jaago re”
advertisements. Further, the Right to Information Act has been creating ripples, by putting the
fear of the law among politicians and bureaucrats.

According to the World Bank, corrupt practices are robbing the developing nations of as
much as $40 billion annually, even a fraction of which can help fund the treatment of over six
lakh AIDS patients.

While the Indian authorities are trying hard to grapple with the situation, the UK recently
announced a strong legislation against bribery, the ‘UK Bribery Act'.

It signals a fundamental change in the UK's approach to tackling corruption and the
authorities have already made significant investment in enforcement capabilities.
This change in approach is underlined by a growing number of high-profile actions taken
against companies recently.

Global regulation

With increasing cross-border transactions, M&As (mergers and acquisitions), global

expansion by Indian companies and international listings, regulations such as the US' FCPA
(Foreign Corrupt Practices Act) and the UK Bribery Act have become extremely relevant for
Indian companies.

The FCPA, passed by the US in 1977, has been arguably the most aggressively enforced.

This piece of legislation has led to high-profile cases in which reputations have been severely
damaged, fines running to billions of dollars levied and jail terms handed down to senior
executives.

Coming to the UK Bribery Act, it is meant to create a more effective legal framework for
combating bribery. The Act basically covers four offences:

Two general offences covering the offering and receiving of a bribe;

A separate offence of bribing a foreign public official; and

A new corporate offence of failing to prevent bribery.

With the Bribery Act comes an urgent need for businesses to re-examine their approach to
managing bribery risk and to ask whether their current procedures are adequate.

Compliance with the FCPA does not necessarily mean complying with the Bribery Act as
well. It goes further in its reach than the FCPA in the following respects:

It draws no distinction between public sector and private sector bribery, bringing into its
remit business-to-business bribery.

There is no exemption for facilitation or ‘grease' payments. The focus is on the improper
action rather than the business nexus.

It creates two offences, of bribing another (“active offence”) and of being bribed (“passive
offence”); and

It introduces a new corporate offence of failure of a commercial organisation to prevent

bribery. It is a strict liability offence which includes the activities of third parties acting on a
business's behalf. The legislation allows for unlimited fines under this offence. The defence
available to corporates is one of having ‘adequate procedures' in place to prevent bribery.

Next Step

It's time the Indian authorities demonstrated their commitment to rid the menace of bribery.

With the focus increasingly shifting from the West to the East, MNCs will want to get an
assurance that India is serious about combating corruption, thereby making the environment
conducive for both domestic and multinational companies to do business.

The Central Vigilance Commission (CVC) has been wrestling with the idea of identifying
areas where generic solutions to the problems of vigilance administration can be applied
across a wide spectrum of government organisations. Initiatives such as e-procurement, e-
payment and signing of Integrity Pact have been taken to curb corruption.

As per the CBI's action plan for 2010, it will launch SMS campaigns and distribute posters
and pamphlets inviting the public to co-operate in fighting corruption.

Further, the CBI shall have zero tolerance to corruption. As on April 2010, 36 officers from
various public sector banks have joined the CBI on secondment basis. They are helping the
investigating officers on issues relating to financial transactions.

Along with the various initiatives from the regulators side, it is a responsibility of the
corporate sector to examine and evaluate quickly the existing anti-bribery and corruption
framework, benchmark it against the international norms, and assess what improvements
should be made to avoid contravening the legislation.

The initiatives undertaken by companies to fight against bribery and corruption should also
form part of their corporate social responsibility (CSR) activities.

Iffco-Tokio upbeat on farm insurance

  
Mr S Narayanan, MD & CEO, ITGI

Our Bureau

New Delhi, July 28

It is probably one of the most innovative, yet transparent and easy-to-administer, insurance
products designed for farmers.

Covering about 80 lakh farmers, the Sankat Haran Bima Yojana (SBY) of Iffco-Tokio
General Insurance Company (ITGI) is now entering its tenth year of operation. What makes
the scheme unique is its simple design, linking accident insurance to fertiliser purchases.

A farmer buying a 50 kg bag of fertiliser from the Indian Farmers Fertiliser Cooperative
(Iffco) – which owns 74 per cent of ITGI – is automatically insured for an amount of Rs
4,000. This insurance is provided free of cost, as the premium of Re 1 for every bag is fully
borne by Iffco. The sum insured goes up the more the number of bags the farmer buys,
subject to a maximum of Rs 1 lakh, corresponding to 25 bags. The policy is effective for only
12 months from the date of purchase of the bag.

As regards coverage, SBY provides Rs 4,000 (a bag) for death caused by accident, Rs 2,000
towards permanent total disablement and loss of two limbs or vision in both eyes, and Rs
1,000 in the event of loss of any one limb or vision in one eye.

The scheme, moreover, involves no major documentation; even cash receipt against fertiliser
purchase is treated as evidence for making insurance claims. Since September 2001, ITGI has
disbursed claims totalling about Rs 60 crore to almost 10,000 farmers under the SBY.

SBY a branding tactic

For Iffco – which markets 11 million tonnes or 22 crore bags of fertilisers annually – SBY
has been a means to consolidate its brand positioning among farmers. For ITGI, “it has been
the best advertisement for spreading the message of insurance among rural customers,” says
Mr S. Narayanan, Managing Director and CEO, adding “we have sought to piggyback on its
goodwill to launch other products for the same market”.

These include a cattle insurance scheme, Pashudhan Bima Yojana (PBY), and two weather-
related products, Barish Bima Yojana (BBY) and Mausam Bima Yojana (MBY).

The PBY has pioneered the use of Radio Frequency Identification (RFID) chips for livestock
identification, as against the normal brass/plastic tags that lend themselves easily to
fraudulent claims.

RFID systems – which transmit the identity of an object in the form of a unique sequence of
numbers or letters – enable exact animal identification through automatic capture of data
even from a long range. RFID tags also facilitate better herd management, as it is possible to
feed and track data pertaining to artificial insemination, pregnancy testing, calving or
vaccination of every individual animal in large dairy farms.

ITGI has so far insured approximately 4,000 heads of cattle under the PBY. The scheme
charges a premium rate between 3 and 5 per cent of the sum insured of the animal, which is
fixed at a maximum of Rs 30,000.

The BBY, which is a rainfall index-based insurance scheme for kharif crops, covered 69,502
farmers during 2009-10, while meeting claims in 16,198 cases. The MBY is a more recent
scheme for providing risk cover against temperature, humidity and rainfall aberrations in
respect of rabi crops.

While both schemes rely on historical weather data from the India Meteorological
Department, the product designs vary according to both region and crop. “For example, if it is
paddy grown in a rainfed area, the rainfall deficiency trigger would start from 20 per cent
below the normal average for that area. The trigger would be 40 per cent below normal for
paddy in irrigated conditions,” explained Mr Narayanan.

Likewise, a farmer in Coimbatore growing jowar (a relatively sturdy crop) may have to pay a
premium of only 4.5 per cent of the sum insured. The same would go up to 7.5 per cent if he
raises cotton, which is a more sensitive crop.

Nabard calls for stringent regulation of MFIs

Concern over high rates of interest charged.
It is time that the MFIs reduce their rates of interest. We do not, however, want to prescribe
a cap on interest rates: Nabard chief

Our Bureau

Kolkata, July 29

National Bank for Agriculture and Rural Development (Nabard) has called for stringent
regulatory framework for the micro-finance sector.

The apex bank for agriculture has taken up the matter with the Government and the regulators
concerned, according to Mr U.C. Sarangi, Chairman, Nabard.

The need for stringent regulations arose in view of the high rates of interest charged by the
micro-finance institutes.

Nabard, however, was not in favour of putting a cap on the interest rates charged by the
MFIs, Mr Sarangi said while talking to newspersons on the sidelines of a banking conclave
organised by the Federation of Indian Chamber of Commerce and Industry here on Thursday.

“It is time that the MFIs reduce their rates of interest, particularly if the MFI movement is to
continue in the country,” he said.

High returns

Citing the example of a recent study, he said top five MFIs in the country reported an average
return on assets of about 4.3 per cent, against about 1.7 per cent globally.

“We have discussed the matter with the concerned regulators. We do not want to prescribe a
cap on interest rates, but we certainly want more regulations in the industry,” he said. .

The margins were as high as 20 per cent for most MFIs, he said and added that interest rates
up to 25 per cent on an annual basis would be an acceptable limit for MFIs.

Better alternative

Talking about the advantages of financing self-help groups, he said, they were a better
alternative to the MFIs, as profits could be ploughed back for disbursing fresh loans.
Nabard, Mr Sarangi said, has started pilot projects in five districts of Tamil Nadu, through
tie-ups with post offices, to reach out to the village level entrepreneurs through SHGs.

The bank has also set aside a corpus of Rs 3 crore for this purpose.

The agricultural bank plans to refinance crop loans (both short and long-term loans) worth
about Rs 40,000 crore during the current fiscal, which is an 11 per cent increase over that
disbursed during the previous year, he said.

Monsoon may carry distinct La Nina stamp from August

Vinson Kurian

Thiruvananthapuram, July 29

The predicted cyclone threat in the North-west Pacific/South China Sea from early August
would carry the unmistakeable signature of brewing La Nina conditions to the east.

The Climate Prediction Centre (CPC) of the US National Weather Services has put the two
contiguous ocean basins on notice for likely cyclone (locally called typhoon) development
during this period.

LA NINA STAMP
All major international weather models seem to suggest that La Nina's effect would become
palpably evident over North-west Pacific/South China Sea from August.

Elevated sea-surface temperatures (SSTs), which would help boost evaporation, are a notable
feature identified with La Nina conditions.

Warm air rises over these waters and sets up low-pressure areas, which, in turn, go on to
become storms thanks to the helpful environment.

This is the exact reverse of the El Nino, an extreme version of which rolled out during this
time last year, when sea waters cooled and suppressed evaporation, storminess and
precipitation.

Weather charts on Thursday showed that the ‘warmest' pool of waters was parked around the
Philippine archipelago and over a large area of the Southwest Pacific.

FERTILE GROUND

They provide among the most ‘fertile ground' around the tropics for storms to breed one after
the other, a spectacle on view when La Nina is in full cry.

Though having an initial draining effect on monsoon, typhoons moving west or west-
northwest are known to send in ‘pulses' towards further west into neighbouring Bay of
Bengal.

These pulses or remnant circulations are known to set up monsoon low-pressure areas in the
Head Bay, which is a crucial location for them cross land and wheel into the interior setting
up classic monsoon conditions.

According to Dr Akhilesh Gupta, leading operational forecaster and Advisor to the

Department of Science and Technology, these ‘remnants' are a vital cog in the larger
monsoon wheel.

‘IN SITU' SYSTEMS

This apart, the Bay tends to pulsate in tandem with the seas to the east and witnesses rising
motion of air, which is helpful for setting up ‘in situ lows' (locally generated) as well.

According to Dr Gupta, if forecasts are to be believed, various pieces might just be falling in
place from August for the Bay to erupt with action.
Almost all international models are showing enhanced rainfall activity over parts of India,
especially the west, in August and even in September.

This becomes possible only when lows from the warming Bay move west-northwest across
the farming heartland of the country producing copious rainfall.

This was one feature conspicuously absent during July, considered the wettest during the
season, especially in a La Nina year.

MONSOON PERFORMANCE

The unusual disquiet in the Bay despite what have widely been described as the best enabling
environment had made leading meteorological experts sit up and take notice, Dr Gupta told
Business Line.

Monsoon performance is assessed across three distinct realms – the ‘large-scale' flows, the
‘mesocale' systems and the ‘synoptic' systems.

While the first two measured up to the threshold levels this time round, the third proved a
spectacular failure.

DIFFERENT LEVELS

The term ‘synoptic systems' is used to refer to monsoon lows and troughs, while ‘mesoscale'
represents a scale that falls between the synoptic scale and the storm scale.

Large-scale flows are typically planetary in nature and are taken to mean seasonal
phenomena such as El Nino/La Nina or the Madden-Julian Oscillation (MJO) wave.

An India Meteorological Department (IMD) update on Thursday said that the 24 hours
ending in the morning saw fairly widespread rain fall over the West Coast, East Madhya
Pradesh, Assam and the Andaman and Nicobar Islands.

WIDESPREAD SHOWERS

It was scattered over East Rajasthan, West Uttar Pradesh and Himachal Pradesh,
Lakshadweep and remaining parts of peninsular India outside Tamil Nadu where it was
isolated.

A warning issued by the IMD said that isolated heavy to very heavy rainfall would occur over
South Chhattisgarh, South Orissa, North Andhra Pradesh and Jammu and Kashmir on Friday.
The warning will be valid for one more day for Vidarbha, North Madhya Maharashtra,
Konkan, Goa and Coastal Karnataka. Isolated heavy to very heavy rainfall is likely to begin
over Madhya Pradesh from Friday.

Loan waiver to come under tax net in new regime

May create hardships for debt restructuring cases.

Widening the ambit

Loans waived by lenders will be treated as income in the hands of the borrowers and taxed
accordingly

Tax experts are of the view that the clause concerned is quite broad and vague, which could
lead to litigation

K.R. Srivats

New Delhi, Sept. 5

Corporates going in for debt restructuring may face rough weather on the income-tax front
when the Direct Taxes Code (DTC) comes into play from April 1, 2012.

This is because the DTC provides that loans waived by lenders will be treated as income in
the hands of the borrowers and taxed accordingly.

It may then not matter whether the loan was utilised for acquisition of capital asset or for
revenue expenditure purposes, say some tax experts.

The DTC Bill seeks to directly bring within the scope of income the amount of remission or
cessation of any liability by way of loan, deposit, advance or credit.

This could affect corporate debt restructuring (CDR) activities in the country. Many tax
experts are of the view that the clause concerned is quite broad and vague, which could lead
to litigation.

“This provision could create issues for debt restructuring activities,” Mr Samir Kanabar, Tax
Director, Ernst & Young, told Business Line.
CDR packages may not always involve waiver of loan repayments, but there could be cases
where loans are rescheduled or partial waiver is agreed.

“The Code proposes to treat such remission (of loan, deposit, advance or credit) as income
for tax purposes. However, the same may require reconsideration in light of genuine debt and
financial restructuring exercises to mitigate undue hardships,” said Mr Aseem Chawla,
Partner, Amarchand & Mangaldas.

BlackBerry and national security

Mohan Murti

In Europe, the right to privacy in electronic communications is subject to national security

concerns. India should adopt a similar approach.

 
Different governmentshave different issues in relation to BlackBerry-maker RIM.

About a 150 years ago, Samuel Morse sent the first public message over a 60-km telegraph
line between Washington and Baltimore, and through that simple act he ushered in the age of
telecommunications.

Privacy has been a concern since those early days of electronic communications. The
International Telecommunications Union (ITU) treaties provide the basic legal template in
this regard, which have been incorporated in the laws of many countries. These treaties lay
down the principles regarding privacy in telecommunications.

Nevertheless, basic texts of the ITU also are endowed with the legal basis for lawful
interception. The procedural implementation of those two disparate requirements in Europe
— secrecy and intervention — is a matter that is constantly debated.
LAWFUL INTERCEPTION

Although the Europeans are believed to be more concerned about privacy, their laws
concerning data retention can be characterised as exacting and severe in relation to those
elsewhere.

The vast majority of countries within Europe with cell networks already have laws in place
that require cell providers to enable lawful intercept of calls and messages.

In general, the law is known as Lawful Interception (LI). In the US there is Communications
Assistance for Law Enforcement Act (CALEA).

Research In Motion (RIM) was an anomaly in the past because it provided no lawful
intercept capability to European Union countries. Now, RIM devices in Europe and the US
are already subject to lawful intercepts.

DATA RETENTION

Within Europe, one of the major parameters in electronic surveillance is data retention.
Retention refers to ‘the storage of telephony and Internet traffic' by companies that provide
these services. This data specifically includes call detail records, or details of the incoming
and the outgoing calls, sent and received emails, visited web sites of the customers of ISPs,
and the location of the customers of telecommunications companies.

The maintenance of such data gives governments the ability to collect, analyse and monitor
the life of hundreds of millions of individuals, thereby allowing mass surveillance of almost
the entire population.

DEALING WITH BLACKBERRY

These are times when national security takes precedence over corporate security concerns. In
such a scenario, RIM must either deliver what is required by India, or find other markets
where it can escape with the standard slogan about BlackBerry being ‘interception proof'.

A number of European governments have threatened to ban the use of BlackBerry in their
country, citing threat to security. In Europe, many countries had to force RIM to provide
access to information that crosses their service networks. Others decided to directly ban
BlackBerry usage for high officials, because of servers located in the UK and the US.
Russian Secret Services reached an agreement with RIM and now can snoop BlackBerry
email and web traffic in Russia. In France, the government banned BlackBerry for use by
officials and also replaced the device for voice encryption use.

The US National Security Agency initially prohibited President Obama from using
BlackBerry for his official work. Only recently, they managed to secure it with a custom
encryption layer done specifically by NSA, and allowed Obama to use a custom-secured
BlackBerry.

France blacklisted RIM for government use because of espionage-related risks. In Germany,
RIM was banned for government use because of risk related to surveillance by foreign
governments. So it can be understood that different governments have different issues in
relation to RIM.

INDIAN CONTEXT

We are at a critical point in national security and time is always of the essence. When the
nation's security is at risk due to RIM's system of encrypting data and retaining them in third
country servers, India's Home Ministry should not grant to RIM any latitude whatsoever.
BlackBerry services in India must be discontinued, till national security concerns are
completely resolved and restored.

The Union Government can issue a notification under Section 70 of the Information
Technology Act 2000 and declare RIM systems relating to India and their networks extended
to India as a “protected system”.

The Government ought to direct RIM to discontinue its services in India until it relocates its
server in India, decrypts customer data and content and subjects its systems and networks to
scrutiny by the government agencies concerned.

As for the users, the days of unqualified privacy are gone forever.

Kharif sowing sees shift from oilseeds to pulses

Timely rains, promise of better prices lead the change.
Our Bureau

New Delhi, July 30

Farmers have shifted significant area under oilseeds this time to pulses because of more
favourable price signals in the case of the latter.

Up 12 lakh ha

According to the Agriculture Ministry's latest kharif crop acreage data, the progressive area
sown under pulses is up almost 12 lakh hectares (lh) compared with the coverage during the
same period last year.

All the three major kharif pulses – arhar, urad and moong – have recorded higher acreages
this time.

In arhar, the major area increases have taken place in Maharashtra (12.63 lh against 9.55 lh),
Karnataka (6.17 lh against 4.56 lh), Andhra Pradesh (4.56 lh against 2.24 lh) and Uttar
Pradesh (2.70 lh against 2.65 lh). Maharashtra farmers have also expanded plantings of urad
(4.66 lh against 3.42 lh) and moong (5.72 lh against 3.95 lh).

TIMELY RAIN
Krishi Bhawan officials say that timely rain along with promise of better prices have led
farmers in Maharashtra to divert a large area that would have been normally sown under
soyabean to pulses.

SOYABEAN DIPS

In fact, soyabean area in the State is lower this time, at 23.98 lh, compared with last year's
corresponding coverage of 27.14 lh.

The main soyabean-growing State of Madhya Pradesh (M.P.) has also registered a decline in
coverage, from 51.02 lh to 50.88 lh.

The cause of this, however, has more to do with poor rains in the State: Western M.P. has so
far recorded a 27 per cent deficiency in overall precipitation during the current monsoon
season.

In fact, M.P. has registered lower acreages even in maize (8.13 lh versus 8.30 lh), urad (4.79
lh versus 5.16 lh), arhar (3.33 lh versus 4.06 lh) and jowar (3.67 lh versus 3.82 lh).

GROUNDNUT ACREAGE

Oilseeds area in general is lower this year, with the only real increase taking place in
groundnut – that too, courtesy Andhra Pradesh (11.69 lh versus 3.84) and Gujarat (16.29 lh
versus 15.88 lh).

On the whole, the revival of the monsoon during July has resulted in higher acreages under
most kharif crops, including cotton and rice.

Selling pressure continues in sugar

Our Correspondent

Mumbai, July 30

Sugar prices continued to fall due to month-end selling at lower price by mills to fulfil the
July free sale quota. The prices dropped to Rs 100-160 a quintal on Friday.

Within a span of three days at the Vashi wholesale market, prices have tumbled by Rs 210-
250 for a 100-kg bag. The sharp decline in price is likely to reflect at the retail level soon.
Last week, sugar mills decided not to sell S-grade sugar below Rs 2,700 a quintal and M-
grade below Rs 2,850 (including excise), but it has failed to yield results due to disunity
among mills, resulting in the fall in price, said Mr Tokershi Dedhia, a trader.

On Thursday evening, stockists/traders came forward to buy at lower rates. Mills did business
of about 2.5-3 lakh bags (100 kg each) in the range of Rs 2,450 for S-grade and Rs 2,500-
2,550 (excise paid) for M-grade.

On Friday , about 1 lakh bags were sold by Maharashtra mills. Upcountry buying also
resumed after a gap of 2-3 days. With the start of new month, the market will see good
demand and prices may settle at the current levels, said Mr Ashok Kataria of Ashokkumar
and Sons.

Ttotal arrivals were at 33-35 truck loads (10 tonnes each) and lifting was also at the same
level. There will be more arrivals on Saturday and Monday, said traders.

According to the Sugar Merchants Association, spot market rate was for S-grade was Rs
2,540- 2,630 a quintal, (Rs 2,700-2,730), M-grade quoted at Rs 2,610-2,700 (Rs 2,720-
2,820).

Naka delivery rate for S-grade was Rs 2,540-2,570 (Rs 2,670-2,680) and M grade Rs 2,590-
2,630 (Rs 2,710-2,730). Maharashtra sugar mills quoted Rs 2,350-2,370 for S-grade and Rs
2,400-2,450 for M grade.

Locavorism: Fad of unscientific greens

The best use we can make of our limited land, water and agroclimatic conditions
is for each area to specialise in what it produces best, and then transport it, at
minimal energy cost, to consumers, says Swaminathan S Anklesaria Aiyar

    MOST governments seem to believe that global warming threatens to become catastrophic, and so are looking for
ways to reduce their carbon emissions. However, given the weak global recovery from the 2007-09 recession, no
government wants to impose tough additional carbon taxes or other such measures that might tip their economies back
into recession. 
    Whatever governments might say at international climate meetings, they will end up risking climate change dangers
rather than deliberately engineer recessions. They will happily set targets but not implement these if it means
committing political suicide. 
    They will implement deep emission cuts only if new technologies produce breakthroughs that make it possible to
reduce emissions without causing recessions. Environmentalist Bjorn Lomborg has, very sensibly, suggested focusing
on R&D rather than carbon reductions: only when R&D produces breakthroughs will carbon cuts become politically
feasible. 
    Meanwhile, various environmental groups have started pushing a separate agenda to reduce energy use and carbon
emissions. This is to eat locally-grown food, and not eat food transported over long distances. Some have coined the
word ‘locavore’ (a la carnivore or herbivore) to describe green heroes who eat only locally-grown food in order to
reduce their carbon footprints. The same greens have coined the word food-miles, to measure how local a locavore can
be. 
    This is an ecofad parading as environmentalism. It has no sound scientific or economic basis. The public must be
educated on how the locavore ideal is not only bad science and economics but bad environmentalism too.  
    Those wanting to reduce carbon emissions would be on stronger ground arguing for a stiff carbon tax. To the extent
a carbon tax simply replaces other indirect taxes (like sales tax) it will be politically doable. It will change the
composition of indirect taxes without increasing their  overall burden. This will not be recessionary. Even those
sceptical of climate change will agree that replacing part of sales tax by a carbon tax will induce higher energy
efficiency. 
    Once a carbon tax is in place, prices will automatically adjust to tell you where crops are best grown and to where
they should best be transported. In some cases it may make sense to grow and eat produce locally. In Punjab, it makes
sense to eat locally-grown wheat. In Kerala, it makes sense to eat locally-grown coconuts.  
    It makes no sense at all for Keralites to grow their own wheat or Punjabis to grow coconuts. That will condemn them
to low yields and correspondingly high prices. Worse, growing inappropriate crops will crowd out acreage of
appropriate crops, driving up shortages and prices. If locavorism is implemented on a large scale, it will soon oblige a
country to import food. Unwittingly, this will hugely increase food miles!  
    Stephen Budiansky has sarcastically remarked in the New York Times, “it is sinful in New York to buy a tomato
grown in California because of the energy spent to truck it across the country: it is virtuous  to buy one grown in a
lavishly heated greenhouse in, say, the Hudson valley.”  
    LOCAVORE arguments on transport costs can be false or highly misleading. They say, for instance, that it takes 36-
97 calories of fossil fuel to transport one calorie of lettuce from California to New York. But this simply reflects the
fact that lettuce contains very few calories, and ignores the fact that growing lettuce takes a lot more energy. Modern
transport has steadily become more and more energy-efficient. It takes around 11,000 calories to grow one kg of
lettuce, while transporting the vegetable across the US can take just 2-6% of that.  
    Budiansky calculates that one tablespoon of diesel (around 100 calories of fuel) is enough to move one pound of
freight over 3,000 miles. Truck transport takes thrice as much, 300 calories, for the same job. Still, that’s peanuts
compared with energy used in cultivation. The US moves agricultural produce right across the continent, yet
transportation accounts for only 14% of the total energy consumed by the US food system.  
    You might think that modern agriculture is too energy intensive, and uses too much fertiliser and chemicals. Wrong
again. Budiansky calculates that these account for only 8% of energy in the total food system.
    What, then, is the main culprit? Home storage, preparation and appliances. These account for no less than 32% of
food system energy, the largest component by far. Just running a refrigerator for a week can consume 9,000 calories.
Cooking, dishwashers, freezers and additional appliances all soak up energy. In India, appliance use is far lower but
rising fast. 
    Locavores think they save energy by driving 10 miles to a local farmers’ market. But a single round-trip will
consume 14,000 calories of fuel! Personal transport is terribly inefficient compared with bulk commercial transport by
rail or truck-trailer. 
    Food apart, Budiansky calculates that households account for 22% of total energy use in the US. By contrast US
agriculture uses only 2% of total energy, for all its farm machinery, fertilisers and chemical use. This is a tiny energy
investment that feeds the whole country and leaves a large surplus for export.  
    Separate research by the World Business Council for Sustainable Development shows that 40% of global energy use
is accounted for by buildings. These offer huge scope for saving energy. Locavorism does not.  
    The best use we can make of our limited land, water and agroclimatic conditions is for each area to specialise in
what it produces best, and to then spend the very modest amounts of energy to transport it to consumers. This
specialisation raises yields and reduces shortages. It saves huge areas of forest and grasslands from having to be
diverted to agriculture to feed the population. It raises farm incomes, increases labour demand and wages, and reduces
poverty. 
    That represents not only good science and good economics, but good environmentalism too. So, let’s say boo to food
miles and locavores. We have more than enough genuine problems, and don’t need to get diverted by bogus ones.

FMCG cos told to pull out some TV ads

Mumbai, Sept. 15

Hindustan Unilever, Nestle and Parle Agro have been made to withdraw the TV commercials
they aired during the quarter from April to June, by the Advertising Standards Council of
India (ASCI).

Misleading While HUL was pulled up for its Dove Treatment shampoos with false efficacy
suggestions, Nestle's Maggi Ketchup's claims of being healthy was found to be misleading,
and Parle Agro's LMN lemon brand was said to be racist in nature.

HUL's TVC on Dove Treatment shampoo was claiming to be more effective than ordinary
antidandruff shampoos.

According to ASCI, the claim that ordinary anti-dandruff shampoos make your hair dry and
rough is not supported by any valid research or tests and had no authenticity.

The claim was disparaging to all the other anti-dandruff shampoos and the TVC was
withdrawn.

Nestle's Maggi Ketchup showed an obese and aged gentleman consuming unhealthy burgers
with claims of ‘Make India Healthy'.

ASCI felt that the ad created an impression that by consuming unhealthy food India could be
made healthy and that the ad is contradictory to healthy eating habits. Nestle discontinued the
TVC.

Parle Agro depicted a parched African site with people looking for water. ASCI claimed the
situation in Africa and India is extremely grave with no water. The TVC showed the African
nation in poor light and the fact that ‘if you don't have water, drink LMN juice was
ridiculous'.

Racist
Besides, the TVC has ‘nourished' stereotypes about Africans which are blatantly racist, said
ASCI.

More of growth and inflation

There is a very high probability that the Government will take its chances with inflation, and
opt to keep growth going.

Later this week, the Reserve Bank of India (RBI) will put out its quarterly review. Opinion is
divided whether policy rates — the repo and the reverse repo — that determine the price of
money in the economy will go up or stay where they are. Two technical and one political
judgment will inform the decision. The technical judgments are whether the economy is
slowing down and whether the current high inflation is going to persist. Current conditions in
the economy don't suggest that demand is slowing down, which means inflation will persist.
At present, there is some sluggishness in consumer non-durables whose growth in the last
few years has been driven primarily by rural demand. That collapsed following last year's
drought but revived partially with the good rabi crop in April. It ought to revive fully when
the kharif crop for 2010 is fully in, so demand will get a further boost. As to inflation, no one
believes official statements any more. The Chairman of the Prime Minister's Economic
Advisory Council, Dr C. Rangarajan, has said that we may have to wait until March for it to
start declining. But before this, many others have put the date at December 2009, March,
July, October and December 2010. Now it is March 2011. The political judgement is whether
the Government will agree to a slowing down of the economy at this point. There is a very
high probability that the Government will take its chances with inflation, and opt to keep
growth going. This means no change in policy rates now, if only because they can be changed
at will any time later if inflation looks like getting out of hand politically. In short, don't rock
the boat if it isn't rocking you.

The trouble with stimulus-induced growth, though, is that it is addictive. Fortunately, India,
unlike the US, is somewhat luckier on this count. It began withdrawing the stimulus almost a
year ago and is now less dependent on easy money and large infusions of borrowed money by
the Government to keep demand up. But its problem arises not from having to keep the
stimulus going via borrowed funds; instead it is the temptation to waste the money received
from the tax and other bonanzas that have accrued recently to the exchequer. In other words,
inflation and growth are both a North Block matter, which is why they have such a high
political content.
So what can we expect for the rest of the year? If nothing goes horribly wrong, more of both
growth and inflation which, in the Indian context would mean a worsening of income
distribution because our type of growth favours the well-off while our type of inflation —
high food prices — leaves the poor worse off. The Government should start paying heed to
this dichotomy inherent in our economic structure.

Tea Board mulls select pre-shipment inspection

Likely for exports to Iran, Iraq, Egypt and Russia.

The pre-shipment inspection may be confined only to select destinations and below a certain
value.

M.R. Subramani

Coonoor, Sept. 13

The Tea Board is ‘actively considering' introduction of pre-shipment inspection of

consignments as part of its efforts to ensure quality of exports.

“The move is under active consideration. We are trying to work out the modalities for the
inspection and are in discussion with the concerned players,” said Ms Roshni Sen, Deputy
Chairperson, Tea Board.

However, the pre-shipment inspection may be confined only to select destinations and below
a certain value.

“The pre-shipment may not be done for all exports. We may do it for shipments to Iran, Iraq,
Egypt and Russia. Also, we may scan only tea priced below a certain level, say, $2 a kg,” she
told Business Line. On Monday evening, a meeting was held in this regard, with
representatives of the United Planters Association of Southern India (Upasi) holding talks
with Tea Board and Commerce Ministry officials.

“We have a mandate to do pre-inspection but our fear is that it should not delay exports,” she
said.

Samples of poor quality

According to plantation industry sources, growers are the ones who have impressed upon the
officials to bring in the pre-shipment inspection. This is mainly to ensure that poor quality tea
is not exported to targeted markets such as Iraq and Egypt.

A couple of years ago, tea exports to Iraq were found to be of poor quality and the industry
ran into problems. Since then, Iraq has cut down its buying from India drastically.

Similar problems have cropped up in exports to Egypt, where the Indian Trade Promotion
Council (ITPC) has been set up on the initiative of the industry with the help of the
Commerce Ministry.

The ITPC representative in Egypt, who is here in connection with the 117th annual meeting
of Upasi, has brought samples of poor quality tea that has been shipped to Egypt. During a
technical session, he told the growers that the tea being sold through the ration shops in Egypt
had no buyers and India cannot afford to ignore the issue of poor quality exports.

When contacted, he said the poor in Egypt had the option to buy tea from ration shops apart
from edible oil and sugar. “Since the quality is bad, people are reluctant to buy it. I have told
them to come up with some sort of pre-shipment inspection,” said the representative, Mr
M.R. Heiza.

Sources said the Tea Board's reluctance to bring in pre-shipment inspection stems from the
delay caused by Customs authorities in clearing exports. Such steps were also giving way to
red tapism, they said.

In his presentation, Mr Heiza called for exports of packet and packaged teas instead of bulk.
“Last year, four million kg (mkg) of tea were exported in bulk to Egypt. This year, exports
have touched seven mkg with at least 0.5 mkg in packets,” he said.

He also regretted the poor response from exporters to initiatives from the ITPC. For example,
only two exporters have come forward to tent shelves at the ITPC office in Cairo to display
the products.

“May be, exporters are waiting to know the Egyptian response to Indian tea,” Mr Heiza said.

He also told the technical session that rent for the ITPC premises has not been paid since
2010 but Upasi sources said there was a delay in processing it at the Tea Board's end and it
has been cleared.

Nine factories told to clear Rs 63-cr cane arrears

Notices to be served through Deputy Commissioners.
Our Bureau

Bangalore, Sept. 13

The State Government on Monday instructed managements of nine sugar factories to pay
dues to the tune of Rs 63 crore to sugarcane growers in the next 15 days.

Addressing newspersons here, the Minister for Sugar and Agriculture Marketing, Mr Shivaraj
S. Tangadagi, said factories had not paid dues to growers, who had supplied cane in 2009-10.
Notices through Deputy Commissioners would be served on nine factories to clear all dues of
growers in the next 15 days, he said.

The Naranja Sugar Factory (Bidar) has to pay Rs 12.40 crore, Raitha Cooperative Sugar
Mills, Mudhol Rs. 2.98 crore, Badami Sugars Limited (now defunct) Rs 7 crore, Bhavani
Khandasari Sugar Pvt Ltd (Bidar) Rs 2 crore, Bilagi Sugar Mills Ltd, Bagalkot Rs 50 lakh,
Jnanayogi Sugar Mills (Bijapur) Rs 5.49 crore, Godavari Sugar Mills (Bijapur) Rs 2 crore,
India Cane Power Ltd, Mudhol Rs 9 crore, and NSL Sugars, Mandya Rs 7 crore to growers,
he said.

The total arrears are in the region of Rs 90 crore. Of this amount, sugar units have not cleared
Rs 63 crore dues for the cane supplied in 2009-10. Cases were pending before courts for
clearing the rest of the amount, he said.

The Minister said the funds have been released for upgradation of technology and other
works in the Pandavapura Sugar Factory in Mandya district and the Mysugar factory in
Mandya. The cane price at Mysugar factory has been fixed at Rs 1800 per tonnes in 2010-11,
Mr Tangadagi said

Manager versus entrepreneur

It is forward-looking, innovative employees who are the competitive edge of a company
today..

Entrepreneurism is the art of accomplishing much more than what the science of
management says is possible.

R. Devarajan
It is now well recognised that the most important competitive advantage and growth factor
for a company is nurturing a spirit of adventure and enterprise among its executives. The
future belongs to fearless, forward-looking employees; the innovative and entrepreneurial
cadre in an organisation.

In the old-time, conventionally-organised companies, any type of entrepreneurial thinking or

innovative leadership was looked upon with suspicion. A stable and well-structured
organisation — they believe — needs managers who can maintain and operate within the
framework of established norms and parameters.

Human nature being what it is, the majority of managers is comfortable with the status quo.
Anything out of the ordinary is anathema to them. An extension of this conservative outlook
has made them experts in spotting what is wrong, rather than what is right in a statement or
proposition.

Over a period of time, by sheer habit and custom, they have acquired a tunnel vision and a
myopic mindset, whereas entrepreneurial instinct and iconoclastic thinking are the hallmarks
of the trendsetters in an organisation. It is such an attitude and spirit of adventure that will
separate the wheat from the chaff in the corporate fiefdom of the twenty-first century.

In the speed-of-thought economy predicted to prevail over the next 50 years, it is the
customer who will wear the crown and wield the sceptre. Even benchmark trade practices
will come into question and companies will be judged by their deeds and not words.

The eventual winner will be the entrepreneur who will serve well his business, his clientele,
and his community pari passu adhering to and abiding by the core values of his company.

Business is, and will ever remain, the best and biggest avenue for individuals to manifest
their talents. Business per se is simple. As success grows, managers tend to complicate it and
business illustrates the uncanny ability of man to complicate simple things.

However, by revisiting the basics of business, managers can reinvent the original pioneering
spirit that created the company. There are questions that all captains of industry should
periodically ponder in order to remind themselves of the basic elements that brought the
business into being.

In this world, many relationships fall apart because people forget what it was that initially
garnered them into a group. So also, many businesses fail, because people in charge of them
lose sight of the basic values that prompted and promoted the enterprise. Success quite often
brings with it a sense of self-importance and arrogance, which blurs the visibility so essential
to perceive the basics behind such success.
As creativity is a key criterion for improving business development, an intrepid entrepreneur
will ensure that the organisational structure is not a deterrent to innovation. The structure
must be flexible so as to facilitate and not forestall corporate prosperity.

Moving away from the pyramid towards a flat structure was deemed as the doorway to
dominate the market. Nevertheless, many companies continue to remain hierarchical in their
thinking. The social and cultural forces at work inside some organisations still seem to be in
favour of the status quo.

There are three skills imperatives for success in any business — managerial skills, leadership,
and entrepreneurial spirit. But these three elements involve different thought processes,
different agendas, and different outcomes. However, “leadership” is a common denominator
for both management and entrepreneurism.

There is a subtle difference between a manager and an entrepreneur. While the entrepreneur
looks at his profession in “ownership” terms, the manager looks at his profession in terms of
“carrying out a task”.

The manager entertains an impersonal, unemotional, and pedestrian approach towards

corporate goals and their achievement. The goals are merely a means of accomplishing his
task. And getting his task performed is merely a means for making a living. He may employ
the language to motivate the head and the heart, but his focus will only be on completing the
task at hand.

Management, at best, is about optimising what is available as resources; while

entrepreneurism is going forward with a vision and mission — dictated by drive and
determination — possessed by a high degree of passion and commitment towards the cause.
Entrepreneurism is the art of accomplishing much more than what the science of management
says is possible.

Balanced land use

The government must develop a mechanism to balance the land needs of agriculture and
industry in the context of India's high growth.

In less than a fortnight, two of the most influential policymakers have used the word
“balanced” in their nostrums for contentious issues. First, the Prime Minister, Dr Manmohan
Singh, suggested that concerns about the environment had to be “balanced” against the need
for industry. Last week, the UPA Chairperson, Ms Sonia Gandhi, noted that the drive for
industrialisation must not lead to a loss of “large tracts” of fertile land; a balanced approach
was needed she said to ensure that farmers are not coerced into surrendering productive lands
for industrial purposes.

Ms Gandhi has not been the first one to express such views. The Railway Minster, Ms
Mamata Banerjee, has forbidden the Railways to acquire land without the consent of every
farmer whose land is being eyed by the network for its various projects, an eminently
welcome idea but at times impractical. It could take just one farmer to spook a project. In a
country where most farmers own small plots the acquisition process can become fractious on
the flimsiest of issues and vulnerable to outside influences, as has been the case with many
industrial projects, most notably the Tata's car project at Singur, West Bengal. Ms Gandhi's
stance, of course, has implications for the entire economy and, belated as it has been, its
sentiment is laudable. But to move beyond rhetoric the government will have to develop an
appropriate mechanism to define that ‘balance' within the context of India's high but skewed
growth. Land is needed for a growing industry and core sector projects as much as it is for
agriculture and food security. The fact, however, has been that agriculture is no longer a
profitable venture for many farmers, even those in fertile areas, or at least not as profitable as
selling out to developers. In still other cases, where tensions have been high, emotional
attachment and perceived high-handedness or injustice plays spoiler. What Ms Gandhi needs
to keep in mind is the increasing awareness among farmers near the epicentres of high growth
of the value of their holdings — not for farming but for industry. At the same time, in
backward regions such as Orissa, Bihar and eastern Maharashtra, where most of the
confrontations have taken place and continue to do so, industrialisation is seen as a threat, not
as an alternative to backwardness.

Both attitudes arise from the persistent neglect of the farm sector. In 2004, when the first
UPA Government took power, the rural sector grew 4 per cent; by the time its term ended, it
had fallen to half that rate and subsequently turned negative. That is why large fertile tracts
are being “lost”.

The strange persistence of family firms

T.C.A. SRINIVASA RAGHAVAN

The success of family firms is because arranged marriages make careful mate selection
possible, says a study by four economists.
Most well-informed Indians believe that family-controlled businesses and hereditary rights in
them are a peculiarly Indian phenomenon. Many lament the fact saying India would be better
off with professionally managed firms.

But a recent paper Must Love Kill the Family Firm?, by economists Vikas Mehrotra, Randall
Morck, Jungwook Shim and Yupana Wiwattanakantang
( http://www.nber.org/papers/w16340), shows how wrong this lament is. Family-owned and
controlled businesses are to be found in all countries in very large numbers and are doing
very well, thank you.

The interesting analytical question, they say, is not that such businesses are ubiquitous.
Instead, it is “How does this feudal vestige not only persist, but continue drawing praise in
the modern merit-based economy?” To answer the question the authors have conducted
cross-country research and come up with an extraordinary conclusion.

It is also one that will warm Indian hearts because not only do we have a large number of
family firms in the top echelons of the corporate world, there is also a great observance of the
arranged marriage system.

However, it's not their conclusion alone that is fascinating. Their methodology is also worthy
of note as it is based on a famous work in sociology.

They rely to a large extent on the works of a sociologist called Gerard Hendrik Hofstede who
has studied the relationship between national culture and its organisational culture and also
their persistence over time.

Hofstede has identified five factors that link national cultures and values. Others who have
tested his theory have found him to be right.

These five factors are as follows:

Power distance, which is a measure of how the less powerful members of institutions and
organisations expect power to be distributed unequally and accept it.

This is inversely related to the degree of democratic consultation and interpersonal

relationships are much more equal (Australia, Denmark, Israel and so on).

Individualism vs collectivism is a measure of how individuals define themselves vis-à-vis

groups — example, family, religion, age, etc. The authors say that as a society grows
wealthier, people become more individualistic.
Masculinity vs feminity shows how a society views its men and women or, what is the same
thing, the value that it places on male and female values. You have masculine cultures which
value assertiveness, ambition, etc., and you have the opposite cultures, which value
relationships and the quality of life.

Avoidance of uncertainty, which can be weak or strong. This shows how cultures cope with
the fear of the unknown and this manifests itself in explicit rules, and formally structures
activities for the strong avoiders and vice versa.

In organisational terms, employees don't change jobs very frequently.

Long vs short horizons, which show how people in a society view the future as against the
present and maybe even the past.

This, too, is an important determinant of behaviour in respect of thrift, etc. Messrs Vikas
Mehrotra, Randall Morck, Jungwook Shim and Yupana Wiwattanakantang use this overall
framework to analyse family owned and controlled firms.

Their panel data is quite amazing, even if you can, when you have run your own regressions,
come up with different conclusions.

For example, they find that family businesses provide an average of 61 per cent and a median
of 70 per cent of all jobs provided in the top ten businesses or business groups.

There is also a strong correlation between the greater predominance of large family business
and a greater acceptance of inequality, less individualism, and greater risk avoidance but
gender differentiation is not correlated with family businesses.

Be that as it may be, the question remains: When dynastic succession is not the basis of
selection in most other areas of human endeavour, why has it worked so well in family
businesses, that too all over the world?

Their answer is as follows: “In countries where cultural attributes favour arranged marriages,
family firms appear to dominate. While no strictly causal links can be drawn from our study,
the association between these two variables persists when we control for GDP. We posit that
arranged marriages allow mate selection to favour succession practices that allow family
firms to perpetuate for several generations. Absent such targeted mate selection, family firms
are unlikely to enjoy the kind of longevity that is observed in many countries.”

How access to finance can reduce poverty

NACHIKET MOR
BINDU ANANTH
FINANCE MATTERS.

Financial products can address income fluctuations, protect savings from inflation, and
provide support against economic shocks. However, regulatory issues need to be addressed,
before these services are expanded to remote areas.

 
Financial services, in all their diversity, can help transform the lives of the poor.

Poverty can be seen in many ways. One aspect that is of specific interest to us is the poverty
of income, characterised by the inability of the family to afford the bare necessities of life,
and a sense of complete loss of control over its future. A vast majority of our fellow citizens
live such lives; they spend most of their time struggling to cope with the present, with little or
no strength to dream and plan for a better future for themselves and their children.

If we look closely at the life of a hardworking family, we will find that despite every member
putting in enormous effort, if somebody falls ill or the rain fails, all of this hard work is
brought to naught. What if a breadwinner dies unexpectedly at the prime of his or her life —
where will the money to keep the children in school come from?

Some families would have struggled with their meagre incomes and found a way to invest in
gold, or in a patch of land, or in buying a home.

However, when the time comes to draw from these savings they find that inflation or lack of
liquidity in the market has eroded most of the gains.
How would these families cope with financial stress? For the most part they don't; they eat
less when there is no income, pull children out of school and live with their illness. As a
family, they get involved in many different occupations so that if one fails they can fall back
on another.

Through this effort, they do buy a measure of protection but at the cost of being unable to
build deeper skills, or to focus in any one area that they may be good at. Their life pattern
may ensure survival, but perpetuates the cycle of poverty.

TRANSFORMATIVE POTENTIAL

These are very real problems, and the question is: how can access to finance help?

At its core, finance is a service that is only about movement of resources that the family
already has — from the present to the future; from the future to the present; from a state of
the world in which there is rain to a state of the world in which there is no rain.

Unlike education or healthcare or NREGA, it is not a new input from the outside that can
come to the family's assistance. One could, therefore, argue that access to finance is not a tool
for poverty alleviation.

However, financial services, in all their diversity, could transform the lives of the poor in
some of the following ways:

— A small credit line to manage the seasonality of incomes;

— Safe and accessible savings and investment products that provide inflation-protected
returns and reduce a family's exposure to the vagaries of the local economy;

— Insurance products to tide over calamities such as the death of an earning member;

— Loans for an economic activity that enable the user to focus on work, knowing well that if
things were to go wrong, savings remain protected along with insurance;

— Wealth management services to help the family understand what these products can do
and how they interact with their existing reality.

At a more advanced level, access to finance means a put option on the price of the crop that
ensures a farmer gets at least a minimum amount for his crop rather than having to sell it at
whatever price prevails in the market.
REGULATORY CHALLENGES

Today, there are technology and business models to take these services to the remotest
corners of the country in a viable manner. While a great deal of fundamental work on the
regulatory front remains to be done, there are no fundamental barriers to making this
approach a reality. However, at some point, regulatory change and service accountability will
be called for.

Today, for example, drugs cannot be sold without safety checks and no surgeon can operate
on a patient without being conscious of the fact that should things go wrong he will be called
to account; no such accountability exists for the provision of financial services.

In our view, finance, too, has the power not only to transform lives, but also to do enormous
damage. Imagine the consequences, if a household that has volatile incomes were to take a
loan that has fixed repayment schedules. During months when income is the lowest, meeting
repayment dues can render the household more vulnerable than it was to begin with. The
person providing the loan would at some point need to be held legally responsible for not
having done a proper “diagnosis” before offering the fixed loan. While these are some of
challenges in delivering financial services, the inherent power of finance is deeply
transformative.

Motivating youth to enter politics

B.S. RAGHAVAN

It is entirely to Rahul Gandhi's credit that he has given priority to acquainting himself with
the conditions at the grass roots instead of becoming part of the Government. He has
consistently been refusing offers of Ministerial berths and focusing all his energies and
efforts on revitalising the Youth Congress, and on making the parent Congress itself a vibrant
organisation.

The experience of mingling with various sections of people in different parts of India and
getting a first-hand feel of the problems they face will stand him in good stead in his
subsequent political career, whatever be the course it takes.

Wherever he has been going in pursuit of his mission, Rahul Gandhi has made it a point to
meet the youth and student community. They are flocking to him in large numbers and he has
been able to fire their imaginations and touch a chord in their hearts by the simple and
spontaneous manner in which he relates to them.

His constant refrain at all his meetings is that they should join politics without any hesitation
or reservation if they want to bring about a change in society or cleanse the system. He has
publicly admitted to the presence of corrupt politicians, musclemen and people with vested
interests in politics, but has been pointing out that participation of the youth is essential for
carrying out political reforms. At the same time, he has been cautioning them that they should
not look upon politics as a way of reaping benefits for themselves, but of striving for the
progress and well-being of the common people.

Thumbs-down for politics

I have my own doubts, though, about the extent to which he has been able to convince the
youth and students by his fervent call. Only the other day, I addressed about 1,000 boys and
girls of 13-18 years of age at the Rajiv Gandhi National Institute of Youth Development at
Sriperumbudur in Tamil Nadu. I found, from a show of hands, that while the number wanting
to become engineers, software professionals, teachers, and so on, varied, on one thing they
were unanimous: All of them, without exception, wanted to become IAS officers! But when I
asked them how many wanted to join politics, only two hands went up! It was a massive
thumbs-down for politics on the part of youth, and that too, at such a tender age. The reason
given was the rampant corruption and utter lack of scruples plaguing politics in India.

On another occasion, a young college student, while chatting with me, only half-jocularly
scoffed at the rank cowardice of the Maoists in taking police persons as hostages, whereas, he
said, they would be doing immense good to the people by targeting the corrupt and rapacious
politicians in power! Rahul Gandhi is certainly serving a worthy cause and long-felt need by
his country-wide campaign to draw youth into politics.

In doing so, he should not lose sight of another public duty of equal, if not greater,
importance that can benefit enormously from his sustained attention with all the political
clout he enjoys.

And that is to mobilise the MLAs and MPs of the still unspoilt younger group all over the
country as a bastion, bulwark and buttress of all the values of honesty, transparency, rectitude
and commitment to public service that he espouses.

He must instil in them the necessary courage to fight the wiles and guiles of old-style
politicians and rid the system of crooks and scoundrels. That would be the true litmus test of
his sincerity and public-spiritedness.

We are poorer than we thought

S. D. NAIK
  
About 55 per cent of India's population is poor.

Despite more than half a century of battle against poverty, including a plethora of poverty
alleviation programmes, the problem remains formidable. In fact, it has acquired new
dimensions as income inequalities have accentuated in the post-reform, high-growth phase of
the economy.

Last year, the expert group headed by Dr Suresh Tendulkar, former chairman of the Prime
Minister's Economic Advisory Council, estimated that 37.2 per cent of Indians live below the
poverty line (BPL), 10 per cent higher than earlier estimated by the Planning Commission.

According to this estimate, 41.8 per cent of rural population lived on a monthly per capita
expenditure of Rs 447. In urban areas, the BPL population was 25.7 per cent, living on a per
capita expenditure of Rs 578.8. The figures are for 2004-05, drawn from the latest available
major National Sample Survey (NSS) round.

It can be seen that the per capita expenditure norms for estimating poverty are abysmally low,
and some experts call it the ‘starvation line' rather than poverty line. It is also evident that
poverty in rural areas is much more acute; it is as high as 57.2 per cent in Orissa, 55.7 per
cent in Bihar and 53.6 per cent in Madhya Pradesh.

NEW DIMENSIONS

Now, a new Multidimensional Poverty Index (MPI) worked out by the United Nations
Development Programme (UNDP) and Oxford University in July this year, which will be
incorporated in the forthcoming Human Development Report, shows that we are poorer than
we thought. Even in countries with strong economic growth, the MPI analysis reveals the
persistence of acute poverty, as poverty is more than an economic phenomenon based on
income levels.

“The MPI is like a high-resolution lens which reveals a vivid spectrum of challenges facing
the poorest households,” said the director of Oxford Poverty and Human Development Index
(OPHI), Sabina Alkire, who created the MPI with James Foster of George Washington
University.

This composite indicator takes into account the following ten markers of education, health
and standard of living:

Child enrolment and years of schooling (education);

Child mortality and nutrition (health);

Electricity, flooring, drinking water, sanitation, cooking fuel and assets (standard of living).

Going by these indicators, about 645 million people, or 55 per cent of India's population, are
poor. Thus, this research suggests that as compared with the 410 million multi-dimensionally
poor people residing in 26 of the poorest African countries, there are as many as 421 million
such poor in just eight of the poorest Indian States (Bihar, Chhattisgarh, Jharkhand, Madhya
Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal).

Further, if we look at an important indicator such as the proportion of malnourished children,

there seems to be virtually no improvement here over the years — 46 per cent in 2005-06 as
compared with 47 per cent in 1998-99. Even with regard to safe drinking water and
sanitation, the situation remains hugely disappointing.

GDP obsession

Policymakers are seemingly more obsessed with the country's GDP growth rate rather than
how the national cake is distributed. The Nobel Prize-winning economist, Joseph Stiglitz,
calls this GDP fetishism. The recent research findings show that income disparities have
increased sharply in post-reform India.

A study by the National Council of Applied Economic Research (NCAER) shows that the top
20 per cent of India's population had 53.2 per cent share of the national income in 2009-10,
up from 36.7 per cent in 1993-94. The bottom 60 per cent had a mere 27.9 per cent share in
total income in 2009-10, down from 38.6 per cent at the start of the reform process.
 It is, of course, understandable that in the initial years of reform there will be an increase in
income inequalities, as those with access to resources and better equipped with qualifications
and skills would make better use of the opportunities. However, over time, a larger
proportion of the population should have benefited from the near double-digit growth rate in
national GDP.

This has not happened largely because of neglect of agriculture in the post-reform period and
the failure of government policies to equip new entrants to the labour force with education
and skills.

EMPOWERMENT

What is more important is to equip the younger generation with skills, as empowerment is the
key to poverty removal rather than handing out doles to the poor. Unfortunately, in India
there is not only a shortage of various skills but also a big mismatch between the skills
imparted by vocational training institutions and those demanded by industry and services.

With empowerment comes access to opportunity and, as Dr Raghuram Rajan, honorary

economic advisor to the Prime Minister puts it, income inequality itself may not matter as
much as inequality of opportunity. Without access to opportunity, it would be difficult to
bridge the ever-growing income gap between the rich and the poor.

To achieve a more inclusive growth, it is critically important to balance growth and equity.
The core agenda for inclusive growth must include a new deal for agriculture, a greater thrust
on upgradation of skills and empowerment of the downtrodden. Equally important is
improvement in governance and delivery.

UN sees global hunger easing in 2010

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By Catherine Hornby
ROME | Tue Sep 14, 2010 9:58pm IST
(Reuters) - The number of people in the world suffering chronic malnutrition fell for the first
time in 15 years in 2010, but volatile food prices could hamper efforts to fight hunger, the
United Nations' food agency said on Tuesday.
The Food and Agriculture Organisation said it did not expect to see a repeat of the 2007/2008
food crisis soon, as stocks and production prospects for cereals were still viewed as adequate
but it expressed concern about price rises.
"Larger price volatility, combined with the recent increase in food prices, if it persists, will
create additional obstacles to reduce hunger," FAO Director-General Jacques Diouf told a
news conference.
The FAO's view that a new emergency was unlikely contrasted with the World Health
Organisation, which on Tuesday warned flooding in Pakistan and Russia's drought threatened
to spark a food crisis that could endanger the world's poorest people.
About 925 million people are undernourished in 2010, down from a record 1.02 billion last
year, which was the highest number in four decades, the FAO said in its report.
It said most of the world's hungry people lived in developing countries, where they account
for 16 percent of the population in 2010.
While that marks an improvement from a level of 18 percent in 2009, the FAO warned it was
lagging a U.N. target to halve the proportion of undernourished people in developing
countries from 20 percent in 1990-92 to 10 percent in 2015.
"The fact that nearly a billion people remain hungry even after the recent food and financial
crises have largely passed indicates a deeper structural problem," the FAO said.
"Governments should encourage increased investment in agriculture, expand safety nets and
social assistance programmes, and enhance income-generating activities for the rural and
urban poor."
SUMMIT GOALS
World leaders are expected to declare at a United Nations summit next week that the set of
goals aimed at drastically reducing poverty and hunger worldwide by 2015 are achievable,
according to a draft document. [ID:nN09221099]
The number of hungry people in the world had been rising for more than a decade, reaching a
record in 2009 triggered by the economic crisis and high domestic food prices in several
developing countries.
The improvement in food security in 2010 was mainly a result of better access to food due to
improving economic conditions, as well as lower food prices after two years of bumper cereal
harvests, the FAO said.
But there are others who say the overall situation remains threatening.
Russia imposed a grain export ban last month after a drought ruined swathes of crops while
Pakistan is still grappling with floods which have destroyed over 3.4 million hectares of
crops.
"With both countries suffering the loss of crops ... we have to anticipate another global crisis
of soaring food prices that will hit poor households the hardest," WHO Director General
Margaret Chan said in a speech in Moscow.
Chan said the floods in Pakistan had shown the dangers climate change posed for the health
of the world's population.
"Sceptics who doubt the reality of climate change would do well to look closely at recent
events in China, Pakistan and here in the Russian Federation," she said.
"The downpours, mudslides, floods, heat waves, droughts, wildfires and ruined crops match
closely the predictions of climate scientists. These scientists have repeatedly warned the
world to expect an increase in the frequency and intensity of extreme weather events and this
is what we are seeing."
13 years, and no progress

By the time the new company law is enacted, the world may well have turned its back on
liberalisation and globalisation.

Back in 1956, India had legislated itself a new Companies Act, throwing out the 1913 one.
While there have been some changes to the law from time to time, often dictated by emergent
circumstances, the regulatory framework largely remained intact. In the late 1990s, with
liberalisation having changed the corporate landscape over nearly a decade, it dawned on
someone that the old Act needed a complete overhaul so that India could get a simplified,
compact, and modern law. Therefore, “the process” was ‘initiated' and a Bill came into being.
But in 2003, the Cabinet decided to withdraw the Companies Bill, 2003, indicating a clear
victory for India Inc. That Bill had drawn largely from the recommendations of the Naresh
Chandra Committee on Corporate Audit and Governance and the Joint Parliamentary
Committee on the 2000 stock market scam, besides some leftover items of the Companies
Bill, 1997. It had tried to make Indian company law more consistent with global norms.
Seven years later, the much-needed and much-promised overhaul remains a distant dream
although it has been debated thoroughly in the meantime. In 2009, a new Bill was finally
introduced in Parliament by UPA-I, which was promptly passed on to a Standing Committee
that has now come out with its Report, all 250 pages of it.

Given the increased participation by common folk in the stock market a major objective was
to strengthen shareholders' democracy, protect the rights of minority stakeholders, and
introduce responsible self-regulation with proper disclosure and accountability. The
substitution of Government control over internal corporate processes and decisions by
shareholders control was also envisaged. Thus the corporate sector was to be treated like a
grown-up which had nothing except public interest at heart. Such was the lyricism of the draft
Bill that few ‘promoters', accountants and auditors were left with dry eyes. But then in
January 2009, Satyam happened and promptly all the old fears came rushing back. It is hard
to straighten a dog's tail, cried the critics. So ‘concerns were raised' about doing away with
Governmental control and giving corporates a freer hand or ‘allowing self-regulation'. The
role of directors, particularly independent directors, came into sharp focus; the Standing
Committee has suggested legislative protection and fixed tenures for such directors, the idea
being that they would then be more diligent and dutiful. The Committee has also suggested a
more effective regime for inspections and investigations of companies. Importantly, a
company has been identified as a separate entity for imposition of monetary penalties from
the officers in default, and in the case of fraudulent activities/actions, provisions for recovery
and disgorgement have also been included. There are scores of other similar suggestions.

The new Minister for Corporate Affairs doesn't seem to be in a hurry to get the Bill through
Parliament. Nor does anyone else. By the time all these suggestions are incorporated and a
new law is enacted, the world may well have turned its back on liberalisation and
globalisation — and India can claim credit for being ahead of the curve, just as the Reserve
Bank of India did in 2009 after the global financial crisis.

Spices exporters want support scheme restored

Our Bureau

Kochi, Sept 6
The All-India Spices Exporters Forum has sought immediate reinstatement of the Vishesh
Krishi Grama Udyog Yogana (VKGUY) scheme for spices exports, saying that the scheme's
sudden withdrawal will lead exporters to lose competitive edge in exports and incur direct
losses.

Addressing a press conference here on Friday, the Forum Chairman, Mr Philip Kuruvilla,
said that the DGFT had removed spices and its value-added products from the scheme from
August 23 even though the scheme was applicable until March 31 next. With the sudden
change in the policy, he said exporters who are availing of these benefits would be badly
affected over the future commitments they had made.

Loss due to shifting

With the shifting of spices from the VKGUY scheme to focus products, the net loss of the
exporter is three per cent of the f.o.b value amounting to approximately Rs 110 crore so far.
The loss will mount to Rs 200 crore by March 31, he added.

The objective of the scheme, he said, is to promote export of agriculture products and its
value-added products. This entitled farmers an extra five per cent benefit when selling to
trade. The spice processing industry can afford to discount it in the final selling price to
remain competitive and to sustain India's market leadership.

The spice industry operates on the seasonality of all agri commodities. Most exporters enter
into annual forward contracts for the year during the crop season. As such, due to global
competition, exporters have always discounted the five per cent available against VKGUY
scheme to sustain market position. The Forum recommended for the continuation of spices
under VKGUY scheme for the financial year ending March 2011 because of the forward
contracts taken by the spice exporters. This will avoid huge financial loss to spice exporters
to the tune of Rs 100 crore, he said.

It also suggested that any future amendments in Handbook of Procedure may be made
effective only on a prospective basis giving sufficient time to change the terms of business
contracts, which can only protect the interests of Indian exporters. The recent price increase
in spices will not sustain for long. Better monsoon for the current season and the present
higher unit price may influence the farmers to extend the cultivation of spices to additional
areas, which may result in higher production and resultant decline in prices.

The Forum also requested to include pepper and chillies, the breadwinners of spice business,
under the VKGUY scheme as it is facing challenges from other aggressive producers such as
Vietnam and China.
According to the Forum, the spice industry has the vision to reach its turnover by $10 billion
by 2020 with globally preferred source for food-safe, processed and packed spices and
culinary herbs. This can be achieved only through constant support from its stakeholders.

Pursuit of rural prosperity

SHASHANKA BHIDE

Till such time as the rural non-farm economy gathers momentum, the farm sector holds the
key to rural fortunes. While better prices can spur productivity, increasing the returns on
investment in farm research is crucial.

 
The rationale for improving the terms of trade for farmers is that it spurs higher productivity

The impact of population pressure on resources is manifest in the smaller land-holdings of

farmers, and perhaps in the scarcity of uninhabited common land in urban areas. Employment
growth in the modern non-farm economy has not kept pace with growth of the labour force;
this has led to smaller farms, more marginal farmers and large numbers of rural landless
labour.

The only credible sources of rural prosperity are agricultural growth and urban, or urban-like,
job opportunities for rural labour. Rural industrialisation has not caught on, nor have rural
BPOs. Roads going through farm-land, or industries being set up on farm land, have attracted
sharp protests as these alternative land uses are a cause of uncertainty to the affected farmers,
throwing a question mark on their lifestyles and livelihoods.
Tractors replacing bullock carts, irrigation tubewells replacing old tanks or even changes in
cropping patterns did not attract such protests. However, the protests were forceful when
farm lands were submerged to irrigate land elsewhere. The pressure on available land
resources now leaves little opportunity for land-for-land offers. Nevertheless, fair
compensation is necessary.

RELIANCE ON AGRICULTURE

While rural prosperity has traditionally depended on the fortunes of agriculture, there has,
over the years, been some income diversification among rural households; villages have
become larger and infrastructure for social and economic services has expanded. Household
surveys do show diversification of household income in rural areas.

This occurs because land-based activities are not enough to provide adequate subsistence
earnings. This expansion of occupational presence becomes profitable when rural-urban
economic links strengthen. Rural infrastructure development may be laying the ground for a
quiet transformation. But until this change occurs, rural prosperity would have to rely largely
on agricultural prospects.

Given the low rate of increase in productivity of severely supply constrained resources, such
as land, the task of bringing about prosperity is left to prices. With agricultural growth rate
barely exceeding 2.5 per cent per year in the last 10 years, the average per capita growth of
income for the farm households is just above 1 per cent.

The mid-term appraisal of the Eleventh Plan is hopeful of achieving an annual growth of 3
per cent, if not the targeted 4 per cent. This is still a modest income growth for the sector,
which is expected to be a source of prosperity for a very large section of the population.

Good rain is only a random source of happiness, as land productivity rises sharply in these
times. The more enduring methods to improve farm prospects are higher yielding varieties of
crops, better breeds of livestock, and, of course, irrigation.

However, if the overall rate of output growth continues to be modest, an improvement in

terms of trade becomes the only other window of prosperity. The dilemma is that terms of
trade should increase along with an improvement in productivity. In reality, the converse may
occur more often.

There has been a long-standing debate on the role of price and non-price factors in bringing
about productivity growth. Output prices have two effects: they improve profit margins so
that farmers can raise the intensity of use of other inputs; secondly, they also increase cash
inflows, making new investments possible.
An increase in the prices of sugarcane, cotton, rice or wheat improves the economic activity
in the villages when it is combined with a good harvest. Effective support prices and access
to inputs to raise productivity helped bring agricultural prosperity to the north-west. Farmers
made investments as they saw large returns. The rationale for improving terms of trade, or
more accurately ‘remunerative prices', is that it achieves higher productivity through new
investments.

There is, of course, the other half of the story, when the crop output growth is not good
enough, and prices rise. Those who are ‘net-buyers' in rural India pay more for the farm
produce. The MG-NREGS and PDS have partly offset the adverse impact of high farm prices
on landless labour for now. A faster-growing non-farm sector may have provided some
opportunity to rural households to diversify their income sources away from reliance on just
agriculture.

RESEARCH EMPHASIS

What is clear from the large canvas of policy interventions to push farm productivity is that it
is an extremely slow process. While there are major differences in productivity between one
region and another, from the laboratory to the field, continued focus on farm research appears
to be the only way to expand investment options available to the farmer, when he has more
cash in hand.

Raising the returns on investment in farm research and dissemination is perhaps the most
likely route in which rural prosperity can be realised.

Decontrol, the sweetener

Almost two decades after liberalisation began, the sugar sector is still mired in outdated
controls. The sooner this changes, the better.

If true, the report that sugar decontrol may not take place any time soon is disconcerting. Just
when the Food and Agriculture Minister, Mr Sharad Pawar, a person with long-term interests
in the sugar sector, especially in Maharashtra, who is widely believed to have disfavoured
decontrol since 2003, has himself initiated the move towards removal of controls, it is unclear
what the hitch is this time. It is said the Centre wants to consult the States before taking a
final decision — a puzzling move.
Sugar decontrol essentially involves two main elements — abolition of the levy system and
dismantling of free-sale quotas, neither of which involves the States. When the levy is
abolished, it devolves on the Centre to procure the sweetener from the open market through a
tender or any transparent method and supply to the State governments for the public
distribution system (PDS). It would be politically inexpedient to discontinue sugar sales
through the PDS. If there is an inevitable rise in sugar subsidy, so be it. Dismantling of free-
sale quota is an overdue step. It would allow sugar mills the freedom to plan production,
inventory and sales; and this is as it ought to be. Clearly, if decontrol constitutes these
essential elements, State governments need not come into the picture. Ideally, to draw
additional benefits from decontrol, a couple of attendant steps, including withdrawal of
administrative restrictions such as stock limits and removal of external trade restrictions
(import and export) are warranted. Industry, scientists and policy-makers together must
explore how best to break the cyclical nature of cane production and ensure sustained
expansion of cane yields and output, to meet growing demand in the coming years.

The State Advised Price of cane is something the Supreme Court itself has held legally valid.
Removal of cane area reservation would simply mean that growers and mills are free to
sell/buy more freely than hitherto. Such freedom is not incongruent with the imposition of the
SAP. In fact, abolition of cane area reservation would allow growers more marketing
freedom and mills greater sourcing freedom. It has the potential to transform growers into
savvy traders. Any apprehension of objections by State governments is illusory. The Prime
Minister must now take charge of sugar decontrol and ensure that its essential elements are
implemented at the soonest, while allowing time for meaningful discussions in areas on
which State governments may wish to express their views. It is a shame that, almost two
decades after the liberalisation process commenced, the sugar sector continues to be in mired
in outdated controls. The sooner this changes, the better.

Foodgrains dilemma

The Prime Minister's assertion that the Government cannot implement court's order to
distribute free grains to the poor amounts to misinterpretation of an order of the highest court
of the land. Obviously, the Supreme Court has said that when the food-grains cannot be
stored properly by the Government and become un-consumable in course of time, it should
distribute them to the poor before they rot away.

It appears that the Prime Minister would rather have a strong “balance-sheet”, where millions
of tonnes of food-grains would be shown as current assets (though unusable), instead of using
them for the benefit of the poor and hungry. This is unfortunate.

Strange ruling and a stranger response

Sharad Joshi

The Supreme Court's ruling on free distribution of grain is questionable on many counts.

 
It is uncertain whether an attempt was made to ascertain farmers' views on free distribution of
foodgrains and its possible impact on prices.

The Supreme Court “injunction” on distributing foodgrains free of cost to the poor has
triggered a strange cascade of events, with the Minister for Agriculture, Mr Sharad Pawar,
brushing aside the ruling to begin with, only to do an about-turn in Parliament.

The Centre later clarified that foodgrains would be distributed to the poor at below-poverty-
line prices, which amounts to a departure from the Court ruling.

The latest, of course, is that the Prime Minister, Dr Manmohan Singh, has virtually ruled out
free distribution of grain to the poor, saying “we have not allowed any increase in the issue
price of foodgrains to people below the poverty line since 2004”.

Two weeks back, I had argued in these columns that the phenomenon of rotting food suits the
FCI (Food Corporation of India) fine. It helps FCI window-dress its accounts and stock
registers.

Then, I had marvelled at Mr Sharad Pawar's attempt to turn a Nelson's eye to the Supreme
Court's obiter dicta that it is better to distribute foodgrains free to the poor and needy than let
them rot.

Since then, the Supreme Court has embarrassed the Minister for Agriculture et al by making
it clear that “free distribution to the needy poor was not an advisory but more an injunction”.
IMPACT ON FARMERS

The nation has been in the dark on how the matter of rotting food evoked such a strong
reaction from Supreme Court whether it had taken suo motu notice of the abomination, or had
responded to a public interest litigation by some busybody NGO.

Nor was it clear if the apex court had attempted to ascertain the views of other stakeholders
and interested parties.

It is hard to say whether an attempt was made to ascertain the farmers' views on free
distribution and its possible impact on the foodgrains market and prices.

Has there been any attempt to estimate the number of suicides that could occur in the farm
community as a result of the Court order?

It is also not known if the court had before it the affidavits of the PDS (Public Distribution
System) or State government authorities, on the performance of various programmes which
distribute foodgrains for free.

ENCOURAGING LOOT

Free distribution of foodgrains is, indeed, a noble and lofty idea. But this noble idea has to be
implemented by a mundane administrative apparatus.

It would be very impractical to expect the babus to move trucks loaded with foodgrains, from
slum to slum in the cities, and from village to village, encouraging the needy and the
famished to help themselves by dipping in, without any quid pro quo.

The babus would have no way of knowing who is needy and who is only interested in getting
his hands on the bounty, simply because it is free.

If the Supreme Court had attempted to work out the nitty-gritty of “free distribution”, it
would have realised that the PDS is a bottomless pit, into which food simply disappears.

It would also have been clear that the marauders who divert foodgrains from the PDS will
make a killing from any kind of “free distribution”.

The affidavits by the distribution and State government authorities would have brought out
clearly that a scheme that comes closest to free distribution of food, called “Annapoorna”, has
few takers.
If the babus were to go in trucks throwing crumbs to the people at large, the hungry would
perhaps turn down the offer, seeing the exercise as an affront to their self-respect. This would
leave then leave the field open to marauders.

ORDER CIRCUMVENTED

The events that unfolded after the Supreme Court's clarification, that the “free distribution of
foodgrains was not an advisory but more an injunction”, were quite bizarre.

Mr Pawar had pooh-poohed, in public, the Court order as an advisory, without any legal
force. Later, he made it clear on the floor of Parliament that the Government would abide by
the Court's orders.

The Central Government has, effectively, endorsed Mr Pawar's earlier stand and interpreted
“free distribution” to mean “issue of foodgrains in PDS shops at BPL prices”. If this is not
contempt of Court, what is! The Supreme Court issues an unprecedented order, beyond the
limits of its judicial competence, without explaining its rationale or basis.

A Cabinet minister pooh-poohs it in public; the Court takes the trouble to clarify that “free
distribution of improperly warehoused foodgrains was not advice but more in the nature of an
injunction”.

The Minister then swears by the Government's commitment to abide by the wishes of the
Court, and the Government merrily proceeds to distribute foodgrains, not free, but through
the PDS, at BPL prices!

It appears that fixing is not confined to cricket.

Asia can steer initiatives on climate change

SUPARNA KARMAKAR

Asian governments should create a fund for promotion and dissemination of clean
technologies. Involving the private sector will not work, when the gestation period is as long
as 50 years.
  
Asian economic powerhouses can show the way in climate change mitigation.

The recent floods, mudslides and forest fires in large parts of Asia and Europe have rekindled
fears of global warming and its economic and social consequences, once again highlighting
the urgent need for acts of mitigation.

The prospects of a solution via the multilateral negotiation route remain uncertain, given the
weak progress after the Copenhagen meet. However, many individual (including developing)
countries have started to set and implement national climate-change mitigation and
adaptation (NAMA) targets. The NAMA targets focus on promotion of sustainable green
growth and heightened use of renewable forms of energy and electricity.

Asian economic powerhouses, the surplus economies in particular, can show the way in
climate change mitigation. In the aftermath of the more recent financial and economic crisis,
it has been argued that Asia should take the leadership in providing solutions for stabilising
and rebalancing the global economy.

It is also widely acknowledged that the present energy-intensive model of raising standards of
living, as practised in the developed countries, is not sustainable and a new dynamic of
broad-based environment-friendly economic growth model is needed for the region and the
rest of the world.

INNOVATION FUND
But can a still largely developing Asia make a difference? We believe it can. In fact, recent
green growth initiatives in Asia do indicate a clear intent among the region's policymakers to
promote inclusive growth, while creating mechanisms that minimise externalities.

There is much that Asia can deliver in terms of cooperative mitigation efforts. The creation
and promotion of a dedicated climate change fund, along the lines of the Carbon Market
Initiative but expressly dedicated to clean-tech innovation, can facilitate climate change
mitigation. Given the nature of the funding source, namely pooling of national government
resources, this initiative should fund and support cooperative public-sector R&D on green-
technology innovation, its objective being rapid diffusion of newly developed green
technology through mandated technology transfer.

PUBLIC SECTOR INITIATIVE

Why should a public sector initiative be supported, when private initiatives on clean-tech
innovation are more efficient? The reason is that renewable energy technologies, given their
long lead-times and the highly resource-intensive nature of technology development, can
make even the most promising business propositions unviable.

This point is exemplified in the clean-energy innovation experience of the US. Even in the
pre-crisis times of entrepreneurial optimism and availability of easy credit, finding market
(venture capital) funding was difficult for projects that would rationally require 40-50 year
gestation periods to develop, perfect and commercialise new technologies; such long-term
private funding is simply not available.

However, private sector funding did flow into proven technologies, which had a quicker
commercialisation potential, even as research in basic innovation lagged. An easy way to
resolve this financing issue is, therefore, to make public funds available; pooling resources
for creating a global public good seems to be an effective means of avoiding the free-rider
problem that usually accompanies such initiatives. In fact, history shows that most critical
technology innovations over the years have always germinated in public-funded universities
and research laboratories.

But can one insist that the market cannot provide a solution? In the past, pharmaceutical
research and progress in medical technologies have been largely and successfully private-
funded, boosted by the incentives from strong intellectual property regimes created in the
innovating countries. However, the Adam Smithian logic of profit motive and greed
propelling innovation is unlikely to support the cause of green technology innovation, its
ineffectiveness stemming from the unusually long gestation periods necessary for clean-
technology research.
While in the case of pharmaceutical research, companies could hope to recoup their
investments with a 20-year patent, green technologies would call for a 50-year patent period.
The latter, other than other ethical objections, would surely come in the way of technology
diffusion. Such long-term IP protection would be inimical to climate change mitigation
through the dissemination of new technologies.

RESOURCE CHALLENGE

If technology change is deemed to be one of the key economic tools for tackling climate
change disasters, massive investments in green-technology R&D would be needed, reportedly
requiring about 0.2 per cent of global GDP, upward of $100 billion a year for the next several
decades. In the present economic scenario, finding resources from the developed world is not
going to be easy.

However, given that a significant portion of global current account surpluses reside in Asia,
forward-thinking regional economies are well placed to take up the challenge of funding such
research. Asian policymakers can provide climate-change leadership by setting up a
multilateral, public-sector-led regional fund.

In the absence of an international agreement on climate-change mitigation targets, making

available cheap green-technology solutions appears to be the best options.

Godrej Agrovet sets up leaf, soil lab for oil palm

To guide and help farmers in improving productivity.
— P. V. Sivakumar 

 
R&D focus:(from left) Mr R. R. Govindan, Vice-President, Godrej Agrovet Ltd, and Dr V.
M. Reddy, Chief Agronomist, announcing the launch of leaf and soil analysis laboratory in
Hyderabad.

Our Bureau

Hyderabad, Sept 9
Godrej Agrovet Ltd, part of the diversified Godrej group, today announced the launch of Leaf
and Soil Laboratory near Vijayawada, which focuses on helping farmers in improving
productivity in oil palm plantations.

More on cards

“With over 70 per cent of the country's oil palm cultivation centred in Andhra Pradesh, we
have decided to locate the first such facility at Vijayawada. Based on the requirement in other
States such as Mizoram where oil palm cultivation is centred, we may consider more such
centres,” Mr R.R. Govindan, Vice-President, Plant Group Vertical, Godrej Agrovet, said.

Addressing a press conference, Mr Govindan said oil palm cultivation is taken up in much
tougher conditions in India compared with South–East Asian countries such as Malaysia and
Indonesia that get rain for over six months in a year.

Therefore, cultivation of oil palm in the country is lot more challenging, requiring expert
guidance and assistance.

“The lab set up in Andhra Pradesh will provide latest knowhow, offer soil testing services
and advise on how to limit the usage of fertilisers and nutrients. Typically, about 40-50 per
cent of the total cost of the plantation goes to fertilisers. The lab helps identify the shortage of
specific element of the 17-odd required for the crop. This will enable farmers to add specific
ingredient to address,” Dr V. Madhava Reddy, Chief Agronomist, Godrej Oil Palm Ltd, said.

The Godrej Agrovet sees its oil palm business crossing Rs 100 crore this year.

Special thrust

Mr Govindan said that the company is laying special thrust on tissue culture and it is
proposed to cover several crops in the next two-three years. Referring to edible oil imports,
Mr Govindan said “as an industry representative, we have suggested imposition of 30 per
cent duty. “While this increases prices, the duty could be ploughed back to assist
development of plantations within the country.”

Marketing a ‘traditional' edible oil — the ‘Idhayam' formula

It is worth roughly Rs 190 crore in annual revenues.

Harish Damodaran

Virudhunagar (TN), Sept 9

The country's branded vegetable oil market is today dominated by the likes of Ruchi Soya,
Adani Wilmar, Cargill, Bunge, Agro Tech Foods and KS Oils, dealing largely in imported
material — palm, soyabean and sunflower — sold as refined oil or vanaspati.

The deluge of imported oils has led to the marginalisation of costlier traditional oils (mustard,
groundnut, coconut, sesame), which are marketed mostly by regional and local players
struggling against the onslaught of ubiquitous national brands.

There are exceptions, though, such as ‘Idhayam' — a brand synonymous with sesame
(gingelly) oil, particularly in the South.

“We sell about 1,200 tonnes every month, of which, 80 per cent is within Tamil Nadu (TN)
and 10 per cent in other States. The balance is exported, mainly for the Tamil diaspora in the
US, Canada and Australia,” says Mr V.R. Muthu, CEO of V.V.V and Sons Edible Oils Ltd,
which owns the brand.

Market share

According to him, ‘Idhayam' has a 60 per cent share of the branded sesame oil market in TN,
where there are also others such as ‘VVS', ‘Anandham', ‘Sastha', ‘Anjali' and ‘Pashumark.' At
an average ex-factory price of Rs 120 a litre , ‘Idhayam' rakes in roughly Rs 190 crore in
annual revenues. V. V. V. and Sons also sells 300 tonnes a month of groundnut oil under the
‘Mantra' label, which is worth Rs 30 crore at Rs 80/litre.

“Our business is only in traditional oils that are expeller-pressed and filtered. We are not into
solvent extracted and refined oils,” emphasises Mr Muthu.

‘Idhayam' retails upwards of Rs 130 a litre in TN, compared with RBD palmolein (Rs 45-50),
refined soyabean (Rs 55-60) or sunflower (Rs 65-70) oils.

“Refined oils are a field where we cannot compete with the big names. It is better to be in a
niche segment and target consumers who prefer oils having natural flavour and aroma that is
lost during refining. They know the taste of oil that is physically extracted and filtered after
crushing sesame-seeds along with 2 per cent palm-jaggery,” notes Mr Muthu.

Regional Popularity

Sesame oil is especially popular with Tamilians, “who, wherever they are, cannot do without
it in their fish, brinjal, tomato or potato kuzhambu (gravy).”

One reason, then, why ‘Idhayam' sells predominantly in TN.

“We even source 45 per cent of our sesame-seed from the State, with 40 per cent coming
from Karnataka and Andhra, and the rest from other regions,” says Mr Muthu.

In traditional oils, the manufacturer must have the patience to build volumes, while investing
in one's brand and maintaining consistent quality.

For ‘Idhayam', the test came in late 2007, when a crop failure in China generated a spurt in
export of sesame-seeds, pushing up domestic prices from around Rs 3,450 to Rs 4,850 for a
75-kg bag.

“As a result, our ex-factory price, which had never crossed Rs 100, soared to Rs 151/litre. But
our brand's strength ensured that sale volumes fell by just 15 per cent,” recalls Mr Muthu.

Even today, the product moves fast enough so that “we keep not more than five days' stocks
at our plant.”

Moreover, “nobody, including Reliance Retail, is supplied on credit.” Distributors get their
delivery only after they had submitted their draft the previous morning.

CONFIDENT

Mr Muthu is confident of raising monthly sales of ‘Idhayam' by 50 per cent to 1,800 tonnes
in the next two years.

“We are now promoting the use of sesame oil for improving oral health. Oil-pulling (rinsing
the mouth with oil for 10-15 minutes) is a known folk remedy for preventing tooth decay and
oral malodour. A Business Line article on an American Heart Association study, linking gum
disease to cardiovascular problems, led me to sell Idhayam in 10 ml sachets at Rs 2 purely for
oil-pulling,” he adds.

Marketing in sachets is also a way to make expensive oil more affordable.

Thus, while a one-litre ‘Idhayam' pouch costs Rs 136, a 30 ml sachet is available for Rs 4 and
100 ml for Rs 14.

The road to financial inclusion

K. VENUGOPAL

New transaction-cost-reducing technology, a legal push and a changed attitude from bankers
can put banking within the reach of all, and yet make it viable for those offering it.
  
Mandis across the country receive an average of Rs 800 crore each day, all of it taken home
in cash.

Over then next year and a half, brace yourself to hear the continuous recitation of the mantra
of “financial inclusion” by ministers, bureaucrats and bankers. The Finance Minister, Mr
Pranab Mukherjee, promised in the Budget speech that every habitation of over 2,000 in the
country will have access to banking services by March 2012, and all banks are busy charting
out how they will implement that promise on the ground.

It is a commendable initiative; though whatever plans are unfolding in the name of financial
inclusion may have nothing to do immediately with raising incomes of the poor. They are all
about increasing the market share of the formal banking system. They are about making the
have-nots customers of banks and weaning them away from the informal providers of
financial services, such as moneylenders. But the hope is that eventually, these measures will
allow the currently disadvantaged section of the population save, borrow, send and receive
money faster and more easily.

Just pause to take stock of what is driving this campaign. Only 5 per cent of the 6 lakh
habitations in the country have a commercial bank branch; the proportion of the population
that has a bank account is less than 20 per cent. “Even where bank accounts are claimed to
have been opened, verification has shown that a significant number of these accounts are
dormant,” acknowledged the Reserve Bank of India Governor, Dr D. Subbarao, at a recent
speech in Hyderabad. “Very few conduct any banking transactions and even fewer receive
any credit.” And this is the report card after four decades of bank nationalisation.
Adding to the discomfiture at the RBI and the Finance Ministry is the news from the telecom
sector, where mobile phones are reaching deeper into the population, providing voice
connectivity cheaper than almost anywhere in the world. More than 650 million people have
mobile phones; fewer than 200 million have bank accounts.

Banks missing out

The question that the RBI and the Finance Ministry are asking themselves is: why is it that
people are taking more readily to the mobile phone than they are to bank accounts. The
simple answer is that mobile phones are delivering value to those people, while banks do not.

Of what use is a bank to someone who earns about Rs 5,000 a month and cannot save any of
it. For such a person, the bank is not useful as a savings institution; it might be as the source
of a loan; but, then, banks are not exactly falling over one another to lend to such people,
except under duress.

Banks can, of course, help put through their transactions. There are income-earners in every
family, but what proportion of the population does find their income dropping into their bank
account?

Take the farm sector. Every day, thousands of farmers bring their produce to sell at mandis
across the country. Business Line estimates that they receive over Rs 800 crore, on average,
each day. But the reality is that virtually all of that money is taken home in cash. Banks have
no role in facilitating these transactions. Neither are they are present at the mandis, nor are
they ensuring that the participants in the trade put through deals through their counters.

Indeed, as Business Line reported recently, farmers and traders at the mandis had a healthy
disdain for banks. In the event banks are missing out on practically all the transactions of the
farm sector, whose contribution of Rs 10 lakh crore to the country's GDP is as much as that
of the manufacturing sector.

Value proposition

If banks do not touch the income streams of rural India, do they at least help put through
spending transactions? Do farmers pay workers by cheque? Do they use credit cards to pay
for the umbrellas they buy? Obviously unthinkable.

All of which drives home the point that most people in rural India and the poor in urban India
find little utility in the banking system and rely very much on good old rupee notes.
Clearly, banks do not provide a value proposition. Would that be altered if banks set up
enough branches across the country and expanded their reach to every habitation? It might
make a difference on the margin, but not in any significant manner. One has only to examine
the case in urban India where there are bank branches in virtually every locality, and yet we
find a large segment of the population staying well away from them.

The challenge for the banks is to change the value proposition, but it is evident they will need
substantial support from the Government for it. And a government that wants to promote
financial inclusion cannot hope it will happen very quickly by mere persuasion.

Look at the fate of the no-frills bank account introduced with much fanfare a couple of years
ago. Most of these accounts are now dormant, with small balances and no transactions.

The account-holders holders do not know what to do with the accounts, which they opened
only because some earnest bank officers had to fulfil targets set by their zealous bosses.

The government must convince itself to adopt some compelling methods to infuse utility into
bank accounts. Otherwise, this campaign may go the way of others in the past.

One, the government must tweak the laws to require all transactions at mandis be routed
through banks. Rural banks branches that have only opened loan books for farmers will
finally see some incomes flow through those accounts. Preventing those loans from turning
non-performing assets will be much easier.

Two, to expand their reach, there is no better way for commercial banks than to piggy back
on the ubiquitous post-office, put up a resource such as ATMs at each post-office in the
country that all banks can share in much the way telecom companies use transmission towers
in rural India.

Why not the government also let the post-office savings bank operate a full-fledged banking
service? The post gets delivered to every nook and corner of this country; there can be no
better demonstration of universal accessibility and reach.

Three, the government needs to ensure that peoples' incomes first drop into their banks
accounts. It can start with all Central and State government offices and organisations, and
firms in the organised sector. They must be required by law to pay wages and pensions, and
payments for goods and services bought directly into the recipients' bank accounts.

Four, banks must allow liberally and innovatively the use of the mobile phone as a tool to
facilitate transactions, to let people make payments to one another electronically. It is a
device that has won the confidence of the rural population, and since the RBI has also granted
regulatory approval, banks would do well to ally with the phone companies. Which villager
would not appreciate getting instantly money sent by a relative from the town? Owning a
bank account may have become worthwhile.

Yet sometimes, change can be wrought only by fiat. By strictly requiring the
dematerialisation of shares 15 years ago, even though it did initially encounter resistance
from vested interests, the Securities and Exchange Board of India dramatically reduced the
cost of transacting at the stock market.

If the government and the central bank are determined to succeed in the task of financial
inclusion, they may have to get into the act and usher in the changes, for banks may not be
able to win the confidence of the entire population on their own. With help from new
transaction-cost-reducing technology, a legal push and a changed attitude from bankers, the
RBI can bring about a transformation similar to that SEBI wrought: banking within reach of
all, and yet viable for those offering it.

EVMs: Vote against half-truths

P.V. INDIRESAN

Why do political parties prefer the much-discredited paper system to EVMs? It is because of
a major flaw in the system of democracy where the votes of all losers are set to zero.
  
Why do so many political parties prefer the much-discredited paper system to the EVMs?

Bertrand Russell once said that the whole problem with the world is that fools and fanatics
are always so certain of themselves, and wiser people so full of doubts. Peter Drucker has
written that fanatic activists are so sure of the importance of their cause that it is worthwhile
to espouse their cause with half-truths. It is unfortunate but true that it is much more difficult
to nail a half-truth than a lie. That is why Gandhiji once said that a half-truth is a lie and a
half.

It is a fact that half-a-dozen activists of the Right to Information have been murdered. Then,
can you extrapolate and say that all bureaucrats are murderers? Can you go further and insist
that every bureaucrat should prove that he is not a murderer?

It is easy to create doubts; it is difficult to quell them. It is a pity that 13 parties have
petitioned that the Electronic Voting Machines (EVMs) be replaced by paper ballots. It is a
greater pity that the BJP, which has a good probability of coming back to power one day, is
one of them.

Tamper-proof?
Critics have said that the EVMs can be tampered with. That is only because anything can be
tampered with. At the same time, can all or even many of the 1.3 million EVMs be tampered
with? Critics say that if one machine can be tampered with, then they can all be.

That is no different from concluding that because a few activists have been murdered, all
bureaucrats are murderers. Extrapolation is an interesting exercise, though not always
valid.The fact is the EVM is a dumb calculator. No doubt it is sophisticatedly dumb: It can
calculate the votes cast for up to 64 candidates; it is protected from radio interference; it
cannot receive any radio signal.

Critics question whether it is impossible to alter the EVM to receive radio signals, whether
they cannot be corrupted to favour one party, or whether BEL and ECIL engineers cannot be
induced to indulge in such a corrupt act?

Fear of detection

They overlook three facts: One, not all bureaucrats are corrupt. That will, no doubt, be
discounted. Two, it takes enormous monetary and technical resources to introduce radio
capability into an EVM. That too will be brushed aside — political parties are so flush with
unaccounted money that cost will not deter them.

Three, even if the machines are corrupted, it is impossible to keep that secret; any tampering
is detectable and the engineers will be caught. It is this last fact that will keep engineers
honest, no matter what the temptation. As President Kennedy remarked, it is not the severity
of punishment but its certainty that keeps persons honest.

Candidates should have the right to enquire whether any of the machines used in his or her
constituency has been corrupted. But nobody should have the right to condemn all EVMs just
because somebody says they can be corrupted.

Need for mature democracy

One wonders why political parties have suddenly become suspicious of the system. Why do
they prefer the much-discredited paper system to the EVMs? In my opinion, it is because of a
major flaw in the system of democracy where the votes of all losers are set to zero. There has
been the case of a person, now a Cabinet Minister at the Centre, who lost Assembly elections
by one vote. Thereby, he lost everything, including the possibility of becoming Chief
Minister. In mature democracies, with only two significant parties, the personal loss may be
severe but the system averages out and rewards both parties more or less fairly. Ours is not a
mature democracy.
The loss is felt both by individuals and parties. That loss is unfair. Proportionate
representation does limit the flaw, but it too introduces problems. First, it reduces stability.
More important, it reduces the link between the elected representative and the constituency he
or she represents.

Rewarding losers too!

Hence, I revert to my earlier suggestion: reward (as in sports) at least the top two (or three)
candidates. Together, the top candidates will normally get nearly three-fourths or more of the
votes cast. Together they can represent a constituency better than the top candidate alone can.

When top candidates are each given some authority, there will be competition about who
exercises that better. That competition does not exist at all at present. Hence, currently, the
only way the loser(s) can make his or her presence felt is by launching agitations — based
usually on half-truths.

I do not say that losers should sit in the legislature, but that they should have the authority
and the resources to compete in providing the services their constituents need.

How about giving a fair share of the MPLADS fund to the top candidates, with each having
the responsibility to activate the RTI and other consumer protection services? Will our
political parties become generous, empower the top loser(s) and earn for themselves a mature
political climate?

Govt okays modified farm insurance scheme

Private insurers will be allowed to participate.

Our Bureau

New Delhi, Sept 16

The Government on Thursday approved the Modified National Agricultural Insurance

Scheme (MNAIS).

Significantly, private sector insurers with adequate infrastructure and experience will also be
allowed in the implementation of MNAIS.

“With the introduction of the modified scheme, it is expected that an increased number of
farmers will be able to manage risk in agriculture production in a better way and will succeed
in stabilising farm income particularly at times of crop failure on account of natural
calamities,” an official statement said.
Central sector scheme

The Cabinet Committee on Economic Affairs gave its approval for making budgetary
provisions of Rs 358 crore for the MNAIS for 2010-11 and 2011-12.

The scheme will be implemented as a Central Sector Scheme on a pilot basis in 50 districts in
last two years of 11th Five- Year Plan starting from the rabi season of 2010-11, the statement
said.

Keeping in view the risks in agriculture production, the Agriculture Ministry has been
implementing the National Agricultural Insurance Scheme (NAIS) as a Central Sector
Scheme since rabi season 1999-2000 to insure the farming community against these risks.

It was reviewed after many deficiencies in the scheme were identified during its
implementation.

The MNAIS has been formulated, incorporating the necessary modifications in consultation
with States to remove the deficiencies and make it more comprehensive and farmer-friendly.

Terms of the scheme

In the MNAIS, actuarial premiums will be paid for insuring the crops and hence the claims
liability would be on the insurer.

The unit area of insurance for major crops will be the village panchayat.

Besides, the indemnity amount shall be payable for prevented sowing/planting risk and for
post-harvest losses due to cyclone.

According to MNAIS, ‘on account payment' up to 25 per cent of likely claims would be
released as advance to provide immediate relief to farmers.

There will be uniform seasonality discipline for loanee and non-loanee farmers.

It also has a more proficient basis for calculation of threshold yield and minimum indemnity
level of 70 per cent instead of 60 per cent.

MNAIS with improved features will have two components — compulsory and voluntary.

Loanee farmers will be insured under ‘compulsory category' while non-loanee farmers will
be insured under ‘voluntary category.'
Export only surplus cotton (18 th Sept.2010)

 
It is importantto allow domestic producers to build up their stocks, as present levels are low

India's exports have been languishing at below $200 billion. Chinese exports are in excess of
$1.2 trillion, or six times higher! We clearly need to enhance our exports to generate more
employment and achieve a better external account balance. But should we, in trying to push
exports, put our manufacturing capacities at risk?

Rising volumes of primary exports clearly have an adverse impact on the manufacturing
sector — whose share in the GDP is an abysmal 16 per cent — by raising the price of
industry inputs. Domestic industry finds it difficult to absorb these higher costs, given the
other non-favourable operational conditions and higher transaction costs, and faces a risk of
becoming sick.

EFFECT OF INPUT PRICES

The issue is pertinent both for iron ore and cotton prices which have skyrocketed in recent
times, principally on account of an insatiable demand from China. It seems that global and
domestic cotton prices are on fire and pose a fairly significant risk to our domestic textile and
garments sector that directly employs 35 million workers and made new investments worth
more than Rs. 125,000 crore, of which a significant amount has come from the Government's
Technology Upgradation Fund Scheme.

The domestic price of cotton has risen from Rs 23,000 per candy (356 kg) in April 2010 to Rs
41,000 per candy before subsiding to Rs 36,000 on the news that the processing of export
contracts had been shelved until the end of October. These windfall gains do not accrue to
Indian farmers as they sell their entire output by the end of March each year. All these gains
are cornered by traders.

Quite alarmingly, it is a group of about six or seven multinational traders, with access to
cheap finance, that reap the benefits, as it can easily outbid domestic traders and then export
straight to China, which will apparently pay almost any price to build up stocks and keep its
textile and garment industry, its major export earner and employer, humming.

China would be justified in its efforts to corner as much global supplies as possible because,
with the floods in Pakistan destroying nearly a third of the cotton crop and lower levels of
expected production in Uzbekistan, the global cotton supply and demand balance is likely to
be very tight in 2010-11. It must be noted that China, despite being the largest producer of
cotton (India is second and the US third) does not allow any cotton exports, as it is committed
to expanding higher value-added exports.

RESTRICTING EXPORTS

High domestic cotton prices do not benefit the Indian farmer, manufacturers, or, for that
matter, even the trader as he is elbowed out by his foreign competitor. The farmer, by the
way, is protected by the existence of a minimum support price, that was hiked by an
unprecedented 48 per cent in 2008, and by the commercial operations of Cotton Corporation
of India, which prevent a collapse of domestic prices.

Would it not be reasonable for the Government to restrict exports only to the surplus
available, and not permit a free cotton export regime? The actual availability will be clear
only by the beginning of next year, as cotton arrivals have been delayed due to heavy rain in
Punjab, Haryana, Gujarat and other parts of India.

The cotton season lasts from October to March, with the arrivals peaking in the last month.
But the crop is taking longer to mature even in Gujarat due to extended monsoon; firm output
estimates will therefore not be available until we are well into the second half of October.

The Government has done well to announce a delay in processing export contracts. It will do
even better if export contracts are processed only in January when the domestic mills are
assured of their requirements and the volume of exportable surplus is clearly known.

BUILD UP STOCKS

It is important to allow domestic producers, a majority of whom are relatively small spinners
or weavers compared with the global scales of production, to build up their stocks, as present
stocks are extremely low, at less than two months' requirements. China enables its producers
to maintain at least three to four months' stocks, and the world average is similar. With
opening balances in India at an all-time low of less than 40 lakh bales, any undue hurry in
allowing exports may well see avoidable volatility in domestic cotton and textile prices.

The International Cotton Advisory Committee, based in Washington DC, has put out
estimates of a bumper crop in India at more than 5.7 million tonnes in the coming 2010-11
season. But this has not cooled domestic prices, which reign above global prices, due to
prospects of global excess demand in the coming year.

We should carefully balance the cost and benefits of making a quick export buck, while
ensuring that our domestic textiles and garments industry is not grievously injured by
unaffordably high cotton prices. An export target of 40 lakh bales, that is half the volume
exported last year, would perhaps be appropriate in view of the precarious state of domestic
supplies and stocks of cotton.

The manufacturing sector in India needs policy nurturing at this time. It should not be made
to face an unpredictable global free market, or suffer on account of a policy to raise primary
exports at any cost. A shrinking manufacturing sector will not allow us to generate the
necessary employment opportunities for a burgeoning young population. That is a dangerous
road to take.

‘Globalisation impacting rubber use'

Kottayam, Sept. 17

The Rubber Board Chairman, Mr Sajen Peter, has said here today that the Indian rubber
industry is undergoing transformations owing to compulsions of globalisation which will, in
turn, reflect in the consumption pattern of natural rubber.

The fact that, with increasing level of radialisation of tyres, there is a decreasing demand for
lower grades of natural rubber, is an example of this change. He was delivering the inaugural
speech in the Industry Awareness Programme conducted jointly by the Rubber Board and
Bureau of Indian Standards (BIS) mainly for collecting feedback from Natural Rubber (NR)
processors and product manufacturers. He has also pointed out that India, till recently, was
being considered an NR producing country, which status also is now being changed as a
major consuming country.

Mr K Anbarasu, Deputy Director General, Southern Region of BIS, presented the programme
objectives. Mr WR Paul, Director, Thiruvananthapuram Branch Office of BIS, Mr P
Arumugam, Specification Officer, Rubber Board and Mr KC Chacko, Manager (Quality
Assurance, Rubber Board), made presentations on various aspects of quality control and
certification for NR industries.

Mr R.C. Mathew, Director and Head, BIS, Thiruvananthapuram, welcomed the gathering and
Dr M. Sunny Sebastian, Director (P&PD), Rubber Board, proposed a vote of thanks.

New index gives right picture on food: Basu 

New Delhi, Sept 17

In a stout defence of the new series of wholesale price index (WPI), the Chief Economic
Advisor to the Finance Ministry, Dr Kaushik Basu, today said that the new index, using
2004-05 as base year, will give a more accurate picture of inflation than under the old index,
using 1993-94 as base.

"There has been no attempt to construct these indexes in such a way that they look better.
Unlike some countries, there is no dodging over here. You are not changing the index for
figures to do better," Dr Basu said at an interactive session with newspersons here.

In all the new indexes, one is going to get a fairly good picture of what's actually happening,
he said. Dr Basu pointed out that even as the entire WPI showed better picture in August
2010 at 8.5 per cent under the new series as against 9.5 per cent in the old index, the same
was not true for food price inflation numbers. At 14.6 per cent, the food price inflation under
the new index was substantially higher than under the old index (11.1 per cent in August).

"The new index on WPI entirely is slightly better. On food it is worse. But that is the correct
picture. Like it or not, we have to live with that and try to make do better with that," Dr Basu
said.

Taking a defensive stand

He also said that the Finance Ministry sticks to its earlier stance of WPI inflation coming
down to 6 per cent by end December this year.

On the issue of there being no relief to the common man from the skyrocketing prices of
certain essential items, Dr Basu made it clear that no claim was being made by the Finance
Ministry that prices are going down.

"When we are saying inflation is going down, it is not being claimed that prices are going
down. Prices in general are rising, but slowly. Inflation is coming down and there is no
contradiction between those two," Dr Basu said.

Meanwhile, Dr Basu said that he expects the third quarter GDP growth to be over 8.8 per
cent.

As regards the second quarter, he sees GDP at less than 8.5 per cent.

"We are going to average the year at 8.5 per cent. As of now, we are sticking to the earlier
forecast of ending up the year with a growth of 8.5 per cent," Dr Basu said.

He said that the reason why the medium-to-long term growth prospects are even better for
India is that the manufacturing sector is experiencing buoyancy rarely seen before. "Studying
some of the underlying variables and structures, I get the sense that the manufacturing sector
growth of the last months is not just a one time correction but the start of a new trajectory for
Indian manufacturing," Dr Basu said, adding that this is likely to put India on a very good
wicket for some years to come.

AP offers sops for investing in food processing

Hyderabad, Sept. 17

The Andhra Pradesh Government has asked the industry to invest in food production and
processing in a big way. “It is time big players come and invest in the food chain. The
Government will fill in the viability gaps, if any,” Mr J.C. Sharma, Principal Secretary
(Industries – Food Processing) of Andhra Pradesh, said.

Delivering the inaugural address at the CII's seminar on ‘Emerging technologies in food
processing industry' here on Friday, he said the Government policy offered tax and power
concessions for the food processing units in the State.

Asking the industry to come forward to take up the challenges in food production, he said the
agriculture sector would improve if industry stepped in.

Dr Ramachandra N. Galla, Chairman of Amara Raja Group, said the farmers were not getting
the right value for their produce in the absence of processing facilities. “Productivity in
agriculture has been a major issue. This, in turn, leads to lesser incomes,” he said.

Soaring food prices — Failure of supply management

The new system of presenting inflation data of primary articles and fuels separately on a
weekly basis introduced by the Government with effect from November 5, 2009, has brought
the relentless price fever in food articles to the fore. The wholesale price index (WPI) of food
items that had shot up to 13.39 per cent for the week ended October 24 has been scaling new
highs week after week. It surged to 19.95 per cent for the week ended December 5, 2009.

Though the food price inflation had eased a bit to 18.65 per cent for the week ended
December 12, it again climbed to 19.83 per cent for the week ended December 19.

Thus, the new system of presenting the WPI for food articles and fuels separately on a
weekly basis is proving to be a huge embarrassment for the Government. What is even more
worrisome is the fact that even these indices relate only to the wholesale prices; the retail
prices are much higher.
Indications are that if the raging food price inflation is not controlled, it may spill over to
manufactured products and derail the ongoing economic recovery.

In fact, the prices of processed food products and some of the other products have already
been marked up increasing the hardship of the poor and middle-class further.

SUPPLY MANAGEMENT

What is all the more disappointing is the utter failure of the Government on the supply
management front. While the production of food items did suffer a setback following the
drought in many parts of the country and subsequent floods in some parts, the prevailing
shortages in the marketplace are far in excess of the production shortfalls.

Both the Central as well as the State governments failed to strengthen their distribution
networks even after knowing the impending production shortfalls following the deficient
rainfall. The stocks of foodgrains totalling 233.88 million tonnes were sufficient to ensure
supplies at affordable prices to consumers. But the authorities unduly delayed unloading the
stocks in the open market and rein in the surging prices.

In the case of sugar, despite reports of an impending shortfall in domestic production, the
Government had initially allowed exports of the commodity in 2008-09. Then it had to go in
for imports of raw and refined sugar following a production shortfall to the tune of 700,000
tonnes when international prices had soared. Not surprisingly, the price of the commodity
zoomed from Rs 16 a kg two year ago to Rs 40 now in retail markets.

Meanwhile, there have been reports of large-scale hoarding of foodgrains, pulses, sugar and
other essential commodities by the middlemen and wholesale traders in anticipation of further
escalation of prices. With regard to fruits and vegetables also, malpractices of the middlemen
are rampant.

There are wide variations between wholesale and retail prices of commodities such as rice,
pulses, potatoes and onions, and also vegetables. The unfortunate part is that the high price
paid by the consumer is not reaching the farmer and the vegetable grower; they get only a
fraction of this for their produce. The huge difference between the wholesale and retail prices
is pocketed by the middlemen.

While on an average, the variation between the wholesale and retail prices is 100-150 per
cent, in the case of certain commodities, it is as high as 300-400 per cent. What is even more
shocking, the politicians, local bureaucrats and police are said to be in league with the
middlemen and black-marketers.
POSSIBLE REMEDIES

In the short-term, some of the measures suggested by the Parliamentary Standing Committee
on Finance could be implemented forthwith. These include: a comprehensive food pricing
and management policy; stern enforcement measures to curb hoarding and speculation; ban
on diversion of cultivable/agricultural land for industrial purposes, including SEZs; and
creation of adequate buffer stocks of essential commodities.

Among other measures, serious efforts would be needed to ensure: (a) eased contract farming
rules and retail reform aimed at giving farmers a direct access to markets by eliminating the
middlemen wherever possible; (b) greater official encouragement for setting up of cold
storage facilities and agro-processing units; (c) promoting local markets and integrated food
value chains connecting farmers to processing units and big retailers; and (d) amending the
Essential Commodities Act to effectively check hoarding and speculation.

FOOD SECURITY

Over the longer term, serious efforts are needed to address the food security concerns on a
war footing. The earlier concerns relating to food security have only increased now with the
sharp jump in the food price inflation which has pushed millions more below the poverty
line. In fact, the deficient rainfall in 2009 is only a proximate cause of the soaring food prices.

The real worry is the more serious problems of persistence of low productivity in Indian
agriculture in recent years even as the demand for foodgrains and other essential commodities
has been growing with the increase in population as well as the rising purchasing power of
the people. As it is, already there is widespread malnutrition in the country and any failure in
stepping up agricultural growth in the coming years will have serious consequences.

Unfortunately, importing foodgrains and other agro products will not be a feasible option
even if the other sectors of the economy do exceedingly well and the country's GDP keeps
growing at 8-9 per cent per annum. For the available supplies of food items in the world
markets have been dwindling and the entire world is facing food shortages.

The number of hungry people in the world topped one billion in 1999, according United
Nation's Food and Agriculture Organisation (FAO).

Against this backdrop, boosting domestic farm output should receive top priority. The Prime
Minister, Dr Manmohan Singh, has already said that the country needs to sharply increase
public spending on agriculture, particularly on irrigation and technology in order to raise farm
output. India's Eleventh Plan, which began in 2007, aims to double annual agricultural
growth to 4 per cent. Achieving this target should now receive much greater attention.
Special efforts and focused attention are needed to complete all the ongoing irrigation
projects at the earliest. Adoption of better water management practices, including drip
irrigation and a change in the cropping pattern where necessary, could go a long way in
providing a much-needed boost to agricultural production.

The greenrevolutionanditsimpact
 

India is an agricultural country and 70% of its revenue comes from agriculture and related
industries. Cotton occupies only 5% of the cultivated land, but 70% of this crop depends on
pesticides. A lion’s share of the synthetic chemical fertilizers in the country is used by the
farmers of Andhra Pradesh.

According to the central crop research institute in Dry land agriculture, after the green
revolution, farmers began to use synthetic chemical fertilizers and pesticides in large doses to
increase the productivity. In the decade beginning the profits from cotton began to fall and
higher doses of Monochrotophos, Endosulphon, quinolphos, and other pesticides were
applied. And next the pests had developed immunity towards the pesticides and more
powerful pesticides had to be used which polluted the land water even more.

At this juncture, a multinational company, Monsanto, introduced new varieties of disease

resistance seeds. These are a genetically modified variety of seeds. But if the seed companies
acquire a grip on our agriculture, the farmers will have to spend and lose their rights on the
seeds as well. Meanwhile, a few costlier pesticides like Avaunt, Trisar, Imida, and Chloride
entered the market too. They were soon followed by fake seeds and pesticides.

The answer to this problem lies in educating he farmer about seeds and going back to the
practice of setting aside seed grain from the harvest itself. Only then will the farmer’s
suffering cease. The Andhra Pradesh Agriculture department is campaigning for this now.

Total transformation
Ancient India believed that the whole world was one family. The modern old believes that the
whole world is one market.
The revolutionary changes information technology has made it possible for news, to be
electrically transmitted from one corner of the world to another within seconds. In a matter of
new hours, even people and goods can make trans-continental journeys. The natives of any
country can now engage in business or operate from any other country.

Where production costs less, factories move in there. In this game to cut costs, environment is
given the least importance. Polluting industries are shifting to new areas from places were
people have become environmentally conscious and insist on implementation of environment
statues

Globalization began when the development nations began to shift their waste producing
tanneries, pharmaceuticals and dyeing industry to poorer, developing nations.

In the development nations, laws to control polluting are strict and they are implemented
uncompromisingly. The industries are forced to spend more on reducing wastes, which turns
to be quite expensive for the industry. So they shift to poorer countries to reduce these costs.
In this context, there is increasing pressure that the importing goods must be form factories
which meet environmental standards as the place o origin

Developed nations thus exploited he global natural resources and in the course of
development, released pollution. Even now, they continue to realize the greenhouse gases
such as methane and carbon dioxide and others like chlorofluorocarbons (CFCs), which
destroy the ozone layer.

To repair the damage done to the environment, the Montreal protocol pressurizes nations all
over the world ban the use of CFCs. The Kyoto Agreement addresses the problem of the
greenhouse effect and calls for stopping of activities which release greenhouse gases.

The green revolution and its impact

The green revolution launched the use of synthetic chemical pesticides and insecticides on a
large scale, causing unimaginable damage to the fertility of the soil and destroying the micro
nutrients in it.
 The hybrid variety of crops intended to boost productivity could not resist pests. Further, only
a few varieties of seed were promoted. This led to the loss variety in seeds and crops. The
excessive use of water that the green evolution promoted has led to the drying up of water
sources.

The high yielding variety or genetically Modified (GM) seeds are unable o solve the problem
of hunger that they were expected to address. On the contrary, they crated new health
problems. The Blue revolution to increase fish and prawns further polluted freshwater
sources with chemicals.

The advent of the call centers has increased incomes, but the effect of lack of food, promotion
of fast food and insufficient sleep has begun to show up in obesity.

Globalization has erased the difference between night and day. Work hours have changed and
commercial areas, restaurants and hospitals are all day and night, creating more waste.
Smaller, nuclear families have greater challenges to meet.
FDI inMulti-BrandRetailSector
The stakeholders in this case are:

 The government
 Foreign retail companies
 Domestic retailers
 Farmers
 Consumers
 Intermediaries
PROS for the various stakeholders:
The government:

 Economic benefits, increase exports and imports.

 Lead to greater sourcing from India.
 Make organized retail more efficient.
 Infrastructure standard rises.
 Competition will improve the competitors know how and technology further,
increasing national standards.
 Will help meet the growing demand of high class products from income level
increasing groups of India.
 Increase employment, spur growth in GDP.
 Reduce wastage.
 India will become global shopping destination, increasing economic benefits more.
Foreign retail companies:

 Invest more and make use of the untapped organized retail sector in India.
 Provides more opportunities to step into one of the biggest retail markets in the globe.
 Will get more support and resources from the government once they step in.
Domestic retailers:

 Will be able to develop their technology by joint ventures with MNC’s.

 Will get know how’s and understand various key strategies to compete globally.
 Will raise their standards.
 Would help develop backward linkages to sources of supply.
Farmers:

 Foreign retail chains, with their huge cash resources, could benefit farmers by buying
their perishables at their doorstep at harvest time.
 The several layers of middle men would be cut out.
 Farm productivity, manufacturing, processing will develop with better infrastructure.
Consumers:

 Reduced prices, as the middle men will be cut out.

 Reap the benefits of global industries.
 Quality of the perishables will improve due to better storage and handling.
 Will get wide quality assortments.
 Will be able to buy best brands.
 Better customer service.
CONS for the various stakeholders:
The government:
 Organized retail in India is not yet grown or consolidated.
 Implications to manage mom and pop stores will increase.
 Around 30 million people are depending on the retail sector in India, so government
must be very cautious.
 Create monopolistic market.
Foreign retail companies:

 There isn't much space available for large retailers to enter the most crowded areas
within most of the big cities.
 Difficult to measure up on the home delivery services and personalized services.
Domestic retailers:

 Small family owned outlets may suffer.

 Domestic players, as they are still not to international standards may loose to MNC’s.
 If small family stores are not modernized then the impact on employment will be large.
 This unique model of retailing in our country may not survive.
 Government may stop thinking much about small outlets.
Farmers:

 As time passes, big retailers may become dominate and will have more bargaining
power. So the prices gained by the farmers initially will be no more.
 Farmers will be treated as mere employees of the retail houses.
Consumers:

 Customers will have to travel more, as the big retail shops may be located at the
outskirts of the city.
Intermediaries:

 It’s actually a big problem for intermediaries, as they maybe cut out due to direct
procurement of MNC’s from farmers.
 The intermediaries like bullock carts, agents, small traders and transporters will lose
employment.

Cotton lobbies (Monday, Sep 20, 2010)

With a record cotton harvest ahead, exports alone can prevent a price collapse and protect
growers.
At a time when the country can boast of a record cotton crop, estimated at 325 lakh bales
(170 kg each), it is unfortunate that the textile industry is unable to come to terms with the
government's cotton export policy. The concerted move by the Confederation of Indian
Textile Industry, the South India Mills Association and similar user bodies asking the
government to stop registration of raw cotton export contracts and place an embargo on
shipments during October-December — the peak arrival period — is unjustified, to say the
least. Equally unfortunate is the stand of the Federation of Indian Export Organisations in
support of a self-defeating export restriction. These short-term measures to prop up the user
industry are far from equitable to all stakeholders. No one seems to care for the cotton-
grower, who has toiled to deliver a record crop, and his right to remunerative prices.

No doubt, none can dispute the user industry's right to advance its own business interest in
terms of access to raw material at a reasonable price. But if such a position hurts the interest
of another important stakeholder group — the millions of cotton growers — then it calls for
strict government intervention to strongly demonstrate that it is the farmer who comes first.
Given the anticipated harvest over the next three months, exports alone can prevent a price
collapse and protect growers; unfortunately, the industry's track-record does not generate
confidence that it will do what exports can. The projected demand-supply fundamentals show
there will be a definite production surplus that needs to be liquidated, and the most logical
way is to export to markets that have been cultivated painstakingly in recent years. It would
be most unfortunate if such an opportunity is lost because of lobby pressure.

The industry should learn to work under conditions of market-driven raw material prices and
not seek artificial insulation from high prices. If volatile prices are a problem for the user
industry, it should learn to hedge its price risks in the futures market; but it has been reluctant
to do so for years now. The trade and tariff policy for cotton cannot be skewed. If cotton
imports are unrestricted and duty-free, exports should be too. New Delhi should make it clear
that it is not the government's duty to make raw material available to the user industry at
artificially low prices. What prevents the domestic mills from establishing backward linkages
with cotton growers through contract farming is unclear. Instead of succumbing to lobby
pressure, as it did a few months ago, New Delhi must be firm about its trade and tariff
measures so that no groups harbour any hopes of a change in policy at will.

Rotting foodgrains and insensitive policies (Monday, Sep 20, 2010)

There shouldn't be scope for debate on as fundamental an issue as distribution of rotting

foodgrains to the hungry. But the leadership seems to think otherwise.

 
Foodgrains enoughto feed the hungry rot each year.
I happened to be holidaying in India for a couple of days, when several events happened in
rapid succession. But what struck me as most odd and peculiar to the country was the Food
Minister's and, subsequently, the Prime Minister's statements on the Supreme Court judgment
ordering the Government to distribute rotting food-grains to the hungry across India.

Where is the scope for debate on such a fundamental issue, I cannot understand. New Delhi
ought to inquire under what circumstances government godowns were rented out for liquor
barons to store their wares. And who ordered the storage of foodgrains in the open —
unmindful of the vagaries of the monsoons.

Rather than focusing on that, what we get is a bland statement by the Prime Minister,
challenging the Supreme Court's authority to make the observation it did.

I would like to state here that the circumstances that led to the French Revolution were much
the same as what is happening in India now.

Life and death issue

Does the Prime Minister want that kind of an uprising in India? The Maoists are already on
the streets and both the Central and State governments are unable to handle them. They are
bargaining for peace with them.

Does the Prime Minister want to escalate the problem? Forget whether the Supreme Court is
right or not. I recall here a Sanskrit couplet my father once quoted to me: “Good advice,
when it comes, should be accepted, even when it comes from a parrot or a baby.”

Now, coming to the Food Minister, how can he play around with matters of life and death?

“Great men do not play stage tricks with matters of life and death; only little men do that,”
said Thomas Carlyle. This seems to aptly reflect the Indian situation.

Europeans are stunned that, along with the 9 per cent growth which Indians “tom-tom” about,
we also carry one-third of the world's poorest and hungry. This is shameful. Is this what
Gandhiji, Nehru and others fought for? They envisioned that milk and honey would flow
across the country. What we find now is even water does not flow adequately across all its
regions.

State Policy?
When the Supreme Court pointed out that the best way to use the rotting grains is to first feed
the hungry, one fails to understand how the question of policy comes in. It is impossible to
understand the language of our leaders.

I had pointed out, in a different context, that the have-nots in India would someday rise in
revolt. If our leaders foment trouble by making such frivolous comments, that day may not be
too far away.

Rantideva's legacy

Contrast this with King Rantideva's ( Sr imad Bhagavatam 9.21.12) famous pronouncement,
recorded in fitting terms by Mahakavi Veda Vyasa: “My only desire is to be present in all
beings, undergo suffering with them and serve them so that they may become free from
misery.” Mahatma Gandhi inscribed this verse of the Srimad Bhagavatam in front of the
Sabarmati Ashram.

There can be no higher or nobler humanitarian ideal than this. Not only did Rantideva seek to
relieve the misery of his fellowmen, but he also desired to so identify himself with them and
become a part of them so as to undergo their suffering and, thereby, share their miserable
predicament.

The recent Global Hunger Index (GHI) of 2009 ranks India, Asia's third-largest economy, a
low 65 out of the 84 countries in the Index. Europeans are befuddled by the staggering
contradictions and contrasts in India .

India boasts of being the world's fourth-largest economy based on Purchasing Power Parity
(PPP). Yet, foodgrains enough to feed a 100 million rot each year.

The political leadership in India has become the subject of ridicule in Europe, simply because
of its perceived insensitivity. Looks like it's time for younger blood to take over. Someone
like Rahul Gandhi, for instance, who knows the pulse of the people. He, at least, seems to
connect with people — whether from roadside ‘ dhabas' or gourmet restaurants on Kolkata's
Park Street.

Let me close with what Mahakavi Subramania Bharati, the great Tamil poet, said: “ Thani
oru manithanukkunavilayenil jagathinai Azhithiduvom”. It translates as: “If you deny food to
even one man, we will destroy the entire universe.”

Coffee Board proposes changes in replanting subsidy; cos may gain

A Srinivas

Bangalore, Sept. 19

The corporate sector may soon be able to claim a subsidy for replanting operations in coffee.
The Coffee Board has drawn up a proposal to this effect, for the Centre's consideration.

According to sources close to the Board, the proposal, apart from suggesting that corporates
and cooperatives be made eligible for subsidy, moots just two subsidy slabs on the basis of
the size of landholding.

This is against the prevailing system of determining the replanting subsidy on the basis of
three slabs. The proposal, according to sources, derives its logic from replanting support
norms in tea, where corporates are eligible for subsidy. The proposed norms suggest that
replanting subsidy be allowed up to 50 per cent of the unit cost in the case of holdings of 10
hectares or less, and up to 25 per cent of the unit cost in the case of holdings above 10
hectares.

Corporates and cooperatives, so far explicitly excluded from replanting assistance, are likely
to fall in the latter category.

No distinction

The proposed norms would remove the prevailing distinction between those holding two
hectares or less and those holding between two hectares and 10 hectares. The former is, at
present, entitled to a replanting subsidy of 40 per cent of the unit cost and the latter 30 per
cent of the unit cost.

Those holding above 10 hectares can, at present, claim a replanting subsidy of 25 per cent of
the unit cost; the new proposal does not affect this category of non-corporate growers.

Sources also said that replanting allowance may have been claimed against 10,000 hectares in
the first three years of the 11th Plan period (2007-12).

About 9,500 hectares were covered during the 10th Plan period, when arabica plants hit by
white stem borer disease were replaced, they said. The subsidy criteria were then relaxed to
make such replanting eligible for subsidy.

A replanting target of 40,000 hectares has been set for the 11th Plan period.
According to sources close to the Board, the prevailing unit cost norms, estimated about four
years ago, may not change in the near future. Unit costs have been determined at Rs 1,00,000
a hectare in the case of arabica and Rs 70,000 a hectare in the case of robusta.

Unit costs

“While wage costs have risen, it is difficult to allow for flexibility, as that would make
implementation difficult. Besides, unit costs could vary from estate to estate,” they said.

Mr Shaji Philip, Chairman, Coffee Committee, United Planters' Association of Southern

India, said: “Subsidy should be extended to all. The unit cost should be increased. There has
been a steady decline in productivity in the case of both arabica and robusta. If senile bushes
are replaced, the situation will improve.”

Mr Ashok Kuriyan, Managing Director, Balanoor Plantations and Industries, said: “The
replanting subsidy is not adequate and does not cover all sectors. Costs, particularly labour,
have been rising.”

The current norms allow for replanting subsidy in the case of arabica plants that are over 30
years old and robusta plants that are over 40 years old.

Food for all — Aiming towards an efficient public distribution system

Rana Kapoor

India has the highest concentration of deprived and hungry in the world – more than that of
the continent of Africa. With about 27 per cent of the world's undernourished population
residing in the country, fighting hunger has been a key challenge for independent India.

Consequently, policy makers have taken up numerous initiatives to increase availability and
access of food to the poor.
These initiatives range from meticulous efforts to boost agricultural production to a broad
spectrum of market interventions aimed at income generation, food price stabilisation and
improved access to subsidised food.

Of all the social safety-net initiatives taken up in India, the public distribution system has
been the biggest and the most widespread program both in terms of coverage as well as
public expenditure on subsidy.

While the PDS has been fairly successful in providing a food security net for the poor, giant
strides still remain to be taken for the PDS to be truly utilitarian to the teeming millions of
poor and hungry in the country.

Non-precise end-user targeting and blatant leakage across its value chain has made PDS one
of the weakest links in the overall food security net of the country.

Studies indicated that, for every rupee worth of income transfer through the PDS, just about
25 paise accrues as a benefit to the poor.

Clearly, the structure and functioning of the system requires a stringent review and overhaul
so that innovative strategies for execution are put in place which are in tune with the vision of
building a truly hunger free nation.

Review of current PDS

The Indian Public Distribution System (PDS), now called the Targeted PDS, is the largest of
its type in the world. With a network of close to half a million fair price shops (FPS), the PDS
currently targets about 400 million people and is the main delivery channel for subsidised
food to the poor. Operated jointly by the Central and state governments, the system takes care
of all activities of food supply including procurement, storage, transportation, and pricing,
identification of families below poverty line (BPL) and distribution of foodgrains to target
beneficiaries.

While PDS has been an important social safety-net in the past, functioning and execution of
the system has been criticised for inefficiencies and high levels of pilferage. A study done by
the Planning Commission in 2005 indicates that about 58 per cent of the subsidised foodgrain
issued from the Central Pool does not reach the BPL families.

It further estimates that over 36 per cent of the budgetary subsidies on food are siphoned off
the supply chain and only about 42 per cent of subsidised grain issued from the Central Pool
reaches the target group. These numbers clearly reflect the urgency and intensity of appraisal
that is required to mend the current Public Distribution System.
Opportunities for improvement

Inefficiencies in the functioning of PDS stem from three major areas — procurement
mechanism, distribution system and end-user targeting and delivery.

While a more efficient handling of PDS is critical for better delivery, it would also require
integration and adoption of multiplicity of approaches to improve the procurement,
distribution and delivery mechanism of the scheme. Some of the key areas that would need
intervention and improvement include:

Expanding the geography of the procurement grid: While there are 11 states that participate
in the procurement grid, just two states – Punjab and Andhra Pradesh – contribute to more
than 50 per cent of the rice procured for the central pool. Almost the entire wheat
procurement is done in just three states – Punjab, Haryana and Uttar Pradesh. It is necessary
to include more states into the procurement grid, especially in the east and west. This would
not only reduce the logistics cost but also bring more farmers into the procurement system.

Diversifying the commodity mix – The current PDS largely handles just two foodgrains –
rice and wheat. There is a need to include coarse grains and millets which is largely
consumed by the poor. This would facilitate “self exclusion” of population above the poverty
line as coarse grains are generally not consumed among affluent section. This “perceived
inferior good” approach has reaped great success in countries such as Tunisia and can be
replicated with ease in India.

Building and modernising the storage and logistics infrastructure – A rudimentary and
inadequate warehousing and logistics infrastructure results in not just loss due to spoilage but
also poor lifting of allotted foodgrains by states due to lack of sufficient storage
infrastructure. There is an urgent need to improve this infrastructure. PPP models such as the
FCI-Adani partnership needs to be replicated across various states in the country.

Involving local community and NGOs in selection and monitoring of Fair Price Shops (FPSs)
– Biased and non-transparent procedure followed for selection of fair price shops has led to
allocation of FPSs to incompetent individuals. Consequently, FPSs are central points for
pilferage and diversions of subsidised grains.

There is a need to decentralise the process of FPS selection and involve NGOs and local
communities to monitor their functioning. Applicants for FPS need to be experienced in
retailing and capable of running a business independent of PDS. This would ensure better
transparency and delivery of intended benefits.
Introducing biometric identification of beneficiaries — Inefficiencies in identification and
recording of target groups has led to widespread mal-practices during the enrolment for the
PDS scheme resulting in erroneous inclusion of a large number of non-BPL families,
existence of a number of ghost cards and exclusion of the actual needy. There is an urgent
need to introduce systems such as biometric identification of beneficiaries so as to restrict
leakage and weed out unintended beneficiaries. The proposed introduction of Unique Identity
Cards could play a critical role in this process.

Integration of ICT for monitoring and evaluation: Lack of a robust monitoring system has
been a big problem as most of the records and book keeping is still manual which hinders
proper monitoring.

The problem is further accentuated as BPL ration cards are distributed based on manual
records making it extremely difficult to monitor benefits accrued to target beneficiaries.

Automation and computerisation across the supply chain of PDS arerequired to facilitate
better monitoring and delivery. The recent introduction of “smart cards” is certain locations
such as Chandigarh is a positive step in this direction.

Integration of alternative delivery mechanisms: Innovative “Conditional Cash Transfer

Schemes (CCT)” have been found to be better ways of subsidising livelihoods of the poor
across the world.

Models such as the “Bolsa Familia”- a part of the “Zero Hunger program” of Brazil and
“Oportunidades” of Mexico directly transfer money to the beneficiary – with strings attached
for utilisation such as compulsory education and vaccination of children. Such schemes need
to be studied and opportunities for replication identified.

Conclusion

Given that about 37 per cent of the country's population lives below the poverty line and
depends heavily on the public distribution system for their food security, there is an urgent
need to revamp the delivery mechanism of PDS so as to push up the value of its benefits to
the population at the bottom of the pyramid.

This would require creative restructuring of the system so as to ensure diligent and
meticulous end-user targeting and efficient and pilferage free delivery of benefits to the poor.

Veg oil refining capacity: More expansion likely

Industry focus.
Last ten years or so, there has been an explosive expansion of the country's vegetable oil
refining capacity.

G. Chandrashekhar

While the overall demand for edible oil has been rising steadily, driven by improving
economic performance and population increase, the growth of domestic vegetable oil industry
is more closely linked to changing food habits of consumers in addition of course to rising
purchasing power.

Over the last ten years or so, there has been an explosive expansion of the country's vegetable
oil refining capacity, triggered in part by tax breaks, changes in import tariffs and rapidly
rising import volumes.

As of January 2009, there were as many as 943 vegetable oil refineries across the country
with aggregate capacity to refine 12.3 million tonnes of raw material; but average utilisation
was about 37 per cent, according to the Directorate of Vanaspati, Vegetable Oil and Fats,
under the Ministry of Food and Public Distribution.

Refineries

Disaggregated figures show that independent refineries were 590 in number with annual
capacity of 3.5 mt and the average capacity utilisation of 36 per cent.

Refineries numbering 127 attached with vanaspati units had an annual capacity of 5.1 mt and
utilisation averaged 45 per cent.

Refineries attached with solvent extraction units were 226 in number with capacity to process
3.7 mt , but utilisation averaged only 29 per cent.

It is clear that the domestic vegetable oil refining industry is highly fragmented with too
many units dotting the country's landscape even as installed capacities of most units are
rather small (which denies scale economies) and many nurse huge idle capacities.

Refineries process crude vegetable oil through technological means such as neutralising,
bleaching and deodorising, which result in production of refined vegetable oil which is
practically colourless, odourless and without the distinctive taste/flavour characteristic of
many traditional oils.
Non-traditional oils such as that of ricebran, cottonseed and sunflowerseed are all now
available in refined form for consumers. Importantly, humungous imports of crude palm oil
(driven by low or zero tariff regime) continually meet the raw material needs of domestic
refineries.

Quality standards

The Prevention of Food Adulteration Act, 1954 and Rules there-under specify the quality
standards for refined oils. In order to ensure availability of safe and quality edible oil in
packaged form at pre-determined prices to the consumers, the Government promulgated the
Edible Oils Packaging (Regulation) Order, 1998 under the Essential Commodities Act, 1955,
to make packaged edible oil, sold in retail, compulsory unless specifically exempted by the
State Government concerned.

The share of refined oil in the total edible oil market stands at 55 per cent. With urbanisation,
nuclear families, changing food habits and rising health consciousness, demand for refined
oils especially in consumer packs has been rising rapidly. No wonder, consumers have a wide
choice of refined oils and brands.

Despite actual utilisation trailing installed capacities for years, new capacities have been
added in the last few years especially in port towns such as Kandla and Kakinada, primarily
because of easy access to volume imports and tax breaks provided for setting up industrial
facilities.

Another trend visible is that large players in the domestic vegetable oil sector are now either
buying up units or hiring spare capacities to enhance production of refined oil. Mergers and
acquisitions are on the rise. This can potentially result in consolidation of capacities and scale
economies over time.

Bountiful pulses crop may rein in domestic imports in 2010-11

G Chandrashekhar

Washington DC, Sept. 19

Given the sheer volume of business, the Asian pulses market in general, and India in
particular, has always been exciting for exporters of pea and lentils in Canada, the US and
elsewhere.

This year (2010-11), while the focus of global attention remains on Canada's Saskatchewan
region which unfortunately is hit by too much wet weather, many seem to lose sight of the
fact that there is a healthy rebound of pulses crop production in India, even as the US has
finished harvesting a larger crop, holds significant inventory from last season, and is looking
for large and ready marketing opportunity.

Simply put, on current reckoning, there is no major shortage of pulses in the world; and in the
world's largest import market (India) there is a huge rebound in production. The price
implication of this development cannot escape anyone's attention.

India is poised to harvest record pulses crop in kharif 2010, given the fact that according to
latest estimates, acreage under pulses has expanded by a whopping 20 lakh hectares from last
year.

Major kharif season pulses – arhar/toor (pigeon pea), urad (black matpe) and moong – have
all been planted in larger acreages, with pigeon pea alone accounting for over half the
additional acreage for pulses. Total acreage for all pulses, according to the Ministry of
Agriculture, is 110 lakh hectares this season, up from last kharif's drought-hit 90 lakh
hectares.

Reports of some damage to crop, in some regions, because of extended rains are doing the
rounds; but the extent of loss is yet to be quantified; and there is broad consensus that such
damage, if any, would be limited.

Even assuming an average yield of 500 kg/ hectare, India may harvest an additional quantum
of close to 10 lakh tonnes, a huge increase by any reckoning. Importantly, soil moisture
conditions are turning increasingly favourable for rabi season planting. It is well known that
the rabi crop in India – planted in October/November and harvested in the following
February/March – accounts for 60 per cent of annual pulses production.

Price correction

The domestic pulses market has already taken cognisance of the emerging situation and
prices have corrected downward. Unlike last year, Indians have a choice this year and can
enjoy their traditional indigenous pulses, rather than overly depend on imports of peas, beans
and lentil.

To be sure, despite large domestic output, Indian imports are likely to continue.

As overall satisfactory agricultural outlook leads to higher rural incomes, there will also be
rise in consumption demand as prices become more affordable and purchasing power rises.
While one may not like to hazard a guess at this point of time about the volume of India's
total import during 2010-11 (it was 35 lakh tonnes in 2009-10), it is becoming increasingly
clear that Indian importers are sure to exercise abundant caution before making
commitments.

So, the message is clear - price is the key. If overseas suppliers want to service the world's
largest import market, it is imperative they offer peas and lentils at prices that are consumer-
friendly.

It is also necessary to realise that the quality of supplies from Canada is likely to be below par
because of aberrant weather.

In the US, pea crop quality is not exactly up to the mark. Some of the lower grade material
may find a market in India. One can already sense the competition between the Canadian and
US suppliers to meet India's needs. World pulses prices will be under downward pressure,
despite Canada's output woes.

Fertiliser shortage puts mixture plants in a spot

AP to take up issue with Centre; Association denies allegations.

Our Bureau

Hyderabad, Sept 20

The Andhra Pradesh Government has asked the Centre not to pay subsidy dues to fertiliser
manufacturers that divert fertilisers to ‘mixture plants', leading to shortfall in the open
market.

(The Government allowed private players to set up mixture plants a few years ago to meet the
demand for complex fertilisers. There are about 228 units in 10 States.)

Mr N. Raghuveera Reddy, the Andhra Pradesh Minister for Agriculture, will be meet the
Union Ministers for Agriculture and Fertilisers this week in New Delhi to demand a
transparent policy on allocations to mixture plants.

“There is no clarity on allocation of fertilisers to these units. There are allegations that they
are getting fertilisers directly from manufacturers. Some hold licence to import. There is no
clarity on the pricing of the output,” he said.

Addressing a press conference on Saturday, the Minister demanded that the mixture plants be
given inputs over and above the allocations made to the respective States.
Andhra Pradesh is home to some 20 mixer plants, with a combined capacity of 14 lakh
tonnes. The fact that the Government sourced about 3.5 lakh tonnes in 2008 and 3.29 lakh
tonnes to meet the demand showed the importance of these plants.

The issue, however, was that these plants were eating into the allocations made by the Centre
to the States.

The State ordered a probe into alleged diversion of fertilisers to the mixer plants, including
Haritha Fertilisers, promoted by Mr Ravindranath Reddy, Mayor of Kadapa.

Allegations denied

Meanwhile, the Andhra Pradesh Fertiliser Mixture Manufacturers' Association has denied the
allegations that they had kept the Government in the dark about the details of their production
and sourcing of raw materials.

“We submit monthly reports on sourcing, production, distribution and sales. The Government
is welcome to investigate into malpractices, if any,” Mr Y.T. Raja, President, and Mr G.
Krishna, a member of the association.

Addressing a press conference here on Monday, they clarified that fertiliser manufacturers
had stopped supplying raw material to the mixture plants following a Central order on August
17.

Preventing public sector corruption

RAGHAVAN PARTHASARATHY

The political leadership must show the will to eliminate corruption by enacting meaningful
legislation and putting in place strong enforcement mechanisms.
Every year, a non-government organisation known as Transparency International ranks
countries on public sector corruption. A 0-10 scale measures perceived corruption levels
(zero most corrupt, 10 least) and countries are ordered based on the results. In 2009, India's
corruption score was 3.4; its rank, 84 {+t} {+h}. It means that India's public sector is very
corrupt and that 83 countries are less corrupt than India.

What is more troubling is that India shares this dubious distinction in governance with such
frail and fledgling democracies as El Salvador and Guatemala! Equally disconcerting is the
news that India has been mired at these low levels for quite some time now and has not made
much progress. Recent allegations of massive corruption in the run-up to the Commonwealth
Games, if proved true, should swing India further toward the bottom levels of the integrity
scale!

Harmful effects

Several definitions of public corruption exist. World Bank's description of it as “abuse of

public office for private gain” is a popular one. Public office is abused when officials
circumvent rules to collect a bribe or extend patronage to friends and relatives. It is also
abused when private agents induce public officials through bribes to grant them exclusive
rights or advantages.

The harmful effects of corruption are well-documented. In general, it weakens government's

ability to provide good governance, suspends the rule of law, undermines people's trust in
public office, and threatens equal distribution of resources and services. Specifically, its ill-
effects are on the economy and public well-being:

a) it breeds an inefficient business climate — inept businesses thrive, largely by bribing;

b) it curtails competition — instead of investing in better products or processes, firms invest

in bribes to gain monopoly power;

c) it siphons out precious resources that could have been usefully spent on needier projects;

d) it reduces foreign investment flows by increasing the cost of doing business in a country;
and e) undermines equitable economic development.

Chief Causes

Generally, the incidence of corruption in a country depends on its culture, social history,
political development and bureaucratic traditions. More specifically, corruption arises in
economies that are highly regulated — cumbersome regulatory regimes encourage bribing as
an easy way out.

It occurs in environments where public officials enjoy wide discretionary powers — the more
public officials regulate, the more opportunities exist for corruption. It takes root in countries
where laws are tepid and judiciaries are overloaded, perceived as weak or corrupt.

Strict enforcement

Fighting public corruption in a society requires several steps. First, awareness must be
created that it exists and is causing harm. Second, the political leadership must show the will
to purge it from society by enacting meaningful legislation and putting in place strong
enforcement mechanisms.

Third, enforcement agencies must be allowed to strictly enforce the laws without political or
bureaucratic intervention. Fourth, a system-wide, value-based culture that will detest
dishonest behaviour and applaud integrity must be nurtured and promoted. India has made
noteworthy strides in one and two; in three and four, its progress is dismal.

Concrete action in the following areas should help minimise the occurrence of corruption and
strengthen law enforcement.

Privatisation: Despite India's privatisation efforts, the government's role in economic activity
is still very high. By some estimates, PSUs contribute nearly half its GDP ($500 billion).
Aggressive privatisation could curtail corruption by reducing government's presence in the
economic sector.

Special Courts: According to the Supreme Court, Indian courts are inundated with pending
cases — a backlog of nearly 30 million cases! Special courts for corruption should help
deliver timely justice and check its spread. India is making piecemeal efforts in this area
when what is needed is a permanent system

Autonomous anti-corruption body: The Central Vigilance Commission (CVC), responsible

for enforcing anti-corruption laws, lacks a comprehensive mandate. It is enjoined from
investigating high-ranking officials without the government's permission. Besides, it has no
investigative arm of its own — it must conduct investigations through the CBI. In 2005, India
signed the UN Convention against Corruption that requires the creation of a fully
autonomous agency to fight corruption nationally and trans-nationally. India is yet to ratify it.
Ratifying this agreement and repositioning the CVC with full powers to investigate and
prosecute without political/bureaucratic pressure or approval would go a long way in fighting
corruption.
Whistleblower law: Investigative agencies alone may be insufficient to do the job. Insider
information greatly enhances successful apprehension and prosecution. Whistleblower law is,
therefore, a critical must.

Investigative journalism: Investigative journalism exposes large-scale public integrity

violations, builds anti-corruption attitudes in people, and mobilises the political will for
reform. India's media has yet to make its mark on investigative journalism. Providing the
necessary training to aspiring journalists should set the stage for investigative reporting.

Ethics education: Ethics education starts at the cradle stage. When given early in life, it is
reported to build probity and moral integrity. Ethics and civic responsibility should form an
integral component of India's elementary and high school curricula.

Pay and civil service reforms: Low government corruption in Denmark and Sweden are
attributed to high civil service wages, merit-based rewards, and the prestige that government
jobs offer. Making India's public service attractive in pay and prestige should help.

A value-based social order: India urgently needs a social order in which corruption is
anathema. Intellectuals should take the lead in fostering such an order through writings,
public discourses, and policy discussions.

Food security is achievable

The farm sector can be transformed to produce enough to feed the hungry; but only with
genuine commitment from policymakers.

A recent report from the Food and Agriculture Organisation (FAO) and United Nations
World Food Programme (WFP) says that as many as 925 million people worldwide live in
chronic hunger and that India is among the seven nations where over two-thirds of the world's
undernourished live. This should jolt our policymakers into action. The world's hungry are
not just numbers; they are real people — women and men struggling to bring up their
children and give them a better life; or young people trying to build a future for themselves.

Those in positions of power and influence seem to be too absorbed with robust rates of GDP
growth and stock market rallies, but appear to be little concerned about widespread hunger
and pervasive malnutrition which can potentially drag down the country's growth prospects,
if not addressed without delay. There is serious protein and calorie deficiency afflicting
several millions. With sufficient foreign exchange food can be imported in times of shortage,
but the assurance of nutrition is not one-off, it is ongoing — and it cannot be imported or
bought. No wonder, India has the dubious distinction of being one of the world's fastest
growing significant economies even as millions live below the poverty line (living on less
than $1 a day), have limited income opportunities and inadequate access to affordable food.
The manufacturing and services sectors have been posting healthy growth rates; but
agriculture is still a drag on the growth rate in the economy. The benefits of overall economic
growth do not seem to reach over half the population, which is dependent on agriculture and
related activities for its livelihood.

Even as progressive policies are essential to sustain robust growth in manufacturing and
services, neglect of agriculture will be at our own peril. For the last ten years, the farm
growth rate has averaged less than 2.5 per cent a year. This must change, but there are no
positive signals on the horizon. The Planning Commission projections of a 4 per cent annual
average growth for the farm sector for the Eleventh Plan period have gone for a toss. There is
neither accountability nor a sense of remorse; and ironically, the same 4 per cent growth rate
is considered good enough for the ensuing Twelfth Plan. Agriculture calls for more public
investment as well as scientific monitoring and evaluation of various programmes covering
inputs, irrigation, agronomy and rural infrastructure. Strengthening the input delivery system
to ensure quality and appropriate pricing of seeds, fertilisers and agro-chemicals, as also rapid
expansion of actual area under irrigated cultivation can help transform the farm sector. But all
this calls for genuine commitment from policymakers.

Study finds large diversion of rice, wheat from PDS, welfare schemes
Grains leakage in the range of 40-100% across 11 States.
M.R. Subramani

Chennai, Sept. 22

The leakage of foodgrains under public distribution schemes and for development
programmes, where a portion of wages is paid in food grains, ranges from 40 to 100 per cent
across a cross-section of States, a Government sponsored research study has revealed. 

According to an evaluation undertaken in 11 States by the National Council for Applied

Economic Research in 2008, diversion of wheat and rice takes place in cereals meant for all
categories — Antodaya Anna Yojana (AAY), below poverty line (BPL) and above poverty
line (APL).

In the case of Assam, the diversion is total in the case of wheat for APL and 83 per cent in the
case of rice. In Bihar, diversion of wheat meant for AAY and BPL is above 40 per cent, while
in the case of Chhattisgarh 78 per cent of the wheat for APL is diverted. (See table)
The evaluation is, more or less, in tune with the findings of ORG-Marg in 2005. The findings
showed total diversion of wheat in Assam meant to be distributed through ration shops. It
also showed high percentage of diversion in Arunachal Pradesh (64.1 per cent rice and 96.2
per cent wheat). In Chhattisgarh, too, the diversion of wheat is as high as 71 per cent but
more surprising is the diversion of wheat in Haryana being 74.2 per cent.

The leakage from the public distribution system is due to the inclusion of people who were
not eligible for concessional price and exclusion of those deserving of issue of such food
grains on concessional terms. In Kerala, for example, the inclusion error or enrolment of
wrong people for the benefits is 80 per cent, while in the case of Delhi and Rajasthan it is 50
per cent.

These details were made available during the meeting of the core group of Central Ministers
and State Chief Ministers on prices of essential commodities on April 8.

A Project Evaluation Organisation study in 2005 showed that total food grains leakage from
the public distribution system is 36.38 per cent with nearly 20 per cent of coming at the ration
shops and the rest through bogus ration cards.

9-point action plan

Ironically, these findings have come up in the backdrop of the Centre's decision to increase
the allocation by an additional 2.5 million tonnes (mt) of wheat and rice through the public
distribution system, responding to the Supreme Court's criticism of rotting food grains. While
the Centre plans to make the cereals available to the below poverty line people in six months,
there seems to be a more serious issue — that of leakage and diversion of food grains that are
subsidised and distributed through the ration shops.

The Government distributes annually a total of 43.86 million tonnes of food grains (wheat
19.71 mt and 24.15 mt rice).

The Food Ministry came up with a nine-point action plan to strengthen the public distribution
system, including computerisation of the entire process, at the meeting.

Three working groups were set up at the meeting with the Deputy Chairman of the Planning
Commission, Mr Montek Singh Ahluwalia, heading one on Food and Public Distribution
with the Chairman, Economic Advisory Council to the Prime Minister, and the Chief
Ministers of Chhattisgarh and Assam as its members.

Kharif pulses production set to hit record

Importers may exercise caution before making commitments.
G. Chandrashekhar

Washington DC, Sept 22

Given the sheer volume of business, the Asian pulses market, in general and India in
particular, has always been exciting for exporters of pea and lentils in Canada, the US and
elsewhere.

This year (2010-11), while the focus of global attention remains on Canada's Saskatchewan
region which has been hit by too much of wet weather, many seem to lose sight of the fact
that there is a healthy rebound of the pulses crop in India.

This is even as the US has finished harvesting a larger crop, holds significant inventory from
last season and is looking for large and ready marketing opportunity.

On current reckoning, there is no major shortage of pulses in the world; and in the world's
largest import market (India) there is a huge rebound in production. The price implication of
this development cannot escape anyone's attention.

Jump in acreage

India is poised to harvest record kharif pulses crop this year given the fact that as per latest
estimates, acreage under pulses has expanded by a whopping 20 lakh hectares from last year.

Major kharif season pulses – arhar/toor (pigeon pea), urad (black matpe) and moong – have
all been planted in larger acreages, with pigeon pea alone accounting for over half the
additional acreage for pulses.

Total acreage for all pulses, according to the Ministry of Agriculture, is 110 lakh hectares this
season, up from last kharif's drought-hit 90 lakh hectares.

Reports of some damage to crop in some regions because of extended rains are doing the
rounds; but the extent of loss is yet to be quantified; and there is broad consensus that such
damage, if any, would be limited.

Even assuming an average yield of 500 kg a hectare, India may harvest an additional
quantum of close to 10 lakh tonnes, a huge increase by any reckoning.

Importantly, soil moisture conditions are turning increasingly favourable for rabi season
planting.
It is well known, the rabi crop in India – planted in October/November and harvested in the
following February/March – accounts for 60 per cent of annual pulses production.

The domestic pulses market has already taken cognisance of the emerging situation and
prices have corrected downward.

TAKING COGNISANCE

Unlike last year, Indians have a choice this year and can enjoy their traditional indigenous
pulses, rather than overly depend on imports of peas, beans and lentil.

To be sure, despite large domestic output, Indian imports are likely to continue. As overall
satisfactory agricultural outlook leads to higher rural incomes, there will also be rise in
consumption demand as prices become more affordable and purchasing power rises.

While one may not like to hazard a guess at this point of time about the volume of India's
total import during 2010-11 (it was 35 lakh tonnes in 2009-10), it is becoming increasingly
clear that Indian importers are sure to exercise abundant caution before making
commitments.

Price factor

So, the message is clear – price is the key. If overseas suppliers want to service the world's
largest import market, it is imperative they offer peas and lentils at prices that are consumer-
friendly.

It is also necessary to realise that the quality of supplies from Canada is likely to be below par
because of aberrant weather.

In the US, pea crop quality is not exactly up to the mark. Some of the lower grade material
may find a market in India. One can already sense the competition between Canadian and the
US suppliers to meet India's needs.

World pulses prices will be under downward pressure despite Canada's output woes.

India Inc urged to invest more in agriculture

Our Bureau

Kolkata, Sept. 22
The President, Ms Pratibha Patil, today called for increased corporate investment in
agriculture sector, in order to ensure modernisation of rural economy which in turn would
fuel India's rapid yet inclusive economic growth.

Inaugurating the 37 th national management convention organised by the All India

Management Association (AIMA), here today, the President said that agriculture needed “a
fresh approach” to enhance its productivity and profitability.

“Industry partnering with agriculture, particularly in the rainfed areas, can be a win-win
option,” she said.

According to Ms Patil, “Increased corporate investment in this key sector (agriculture), can
offer a new frontier of growth across myriad areas. Some of these areas are: economies of
scale through advanced models of farming; effective distribution systems so as to reduce the
gap between the farmer and the end customer and, food security.”

The President reminded the corporate India about its responsibilities in partnering India's
growth story. “The world's most successful organisations as also the admired ones are those
which have committed not only towards the shareholders of their company, but to a wider
body of stakeholders including employees, customers and indeed the society at large,” she
said.

For corporate India to become a credible partner in India's progress, a trust-based relationship
between the Government, organisations and the society at large is a must.

“Business is for profit but it cannot be divorced from ethics,” she felt.

Earlier speaking at the occasion Mr B. Muthuraman, Vice-Chairman of Tata Steel and

Chairman of the Convention, said that India should focus on two key areas of education and
healthcare to ensure empowerment of her citizen.

Mr Muthuraman particularly invited attention on primary education, education of girl child,

primary healthcare and women healthcare.

Addressing a morning session, Mr Nandan Nilekani, Chairman, Unique Identification Card

(UID), said that a lack of certifiable identity is acting as a barrier especially for the poorer
sections in accessing the social benefits.

He informed that a system of online authentication on real time basis has been developed to
make identification fast and convenient.
Realising India's FDI potential
PRAVAKAR SAHOO

India should address bottlenecks in infrastructure, labour laws and land acquisition, if it is to
attract investors looking at alternatives to China. A cohesive policy on foreign investment is
the need of the hour.

 
A major obstacleto infrastructure development is cost and time overruns.

The time has come for India to realise its potential as a top destination for foreign direct
investment. Forbes puts India at 77 th place ahead of China (90 {+t} {+h}) in its latest list of
best countries for business in 2010. The UNCTAD report on ‘World Investment Prospects
Survey 2010-2012', the AT Kearney FDI Confidence Index, 2010, and the Japan Bank for
International Cooperation rate India as the second most promising country for investment and
business.

This is not surprising, given that India has not only survived the global financial crisis, but
also revived its growth rate, which has been close to 9 per cent in the recent quarters.
However, India receives lower FDI compared with other developing countries such as China,
Brazil and Singapore. As WIR 2010 reports, India received $34 billion in 2009, against
China's $95 billion. During the period 1990 to 2009, India received only 17 per cent ($167
billion) of the total FDI inflows into China, amounting to $977 billion, a figure close to
India's GDP.

OPPORTUNITY FOR INDIA

China has reached a stage where the signs of overheating loom large, combined with an
increase in the overall cost of production in the economy, particularly labour.
Quite a few MNCs from the US and Japan have shifted base from Mainland China to
Vietnam during the last few months, owing to a rise in land prices, cost of production and
labour protests in China.

India is well placed to attract FDI, particularly in manufacturing. FDI in manufacturing, as in

China, will help in productivity growth, improve export competitiveness and create
employment opportunities for a huge semi-skilled labour force. However, the Government
does not have a priority list of sectors where it wants FDI.

FDI reforms in India have been progressive and successful at the macro level. Apart from the
increase in volume of FDI inflows, other important indicators include increase in FDI through
non-acquisition mode, manifold increase in actual FDI as a percentage of approvals and
increase in number of countries investing in India (from 29 countries in 1991 to more than 90
countries by 2009). However, FDI inflows can, and must, be increased. The important factors
that impede FDI flows are lack of infrastructure, restrictive labour laws, absence of Centre-
state co-ordination, dormant SEZ policy and lack of institutional reforms. A major obstacle to
infrastructure development is cost and time overruns due to contractual and institutional
failures. This is largely due to lack of co-ordination among central and state government
departments on land acquisition and environmental clearances.

It is time to revisit land acquisition methods and laws and develop a more decentralised
process to tackle issues such as compensation, rehabilitation and resettlement.

Further, a proper dispute resolution mechanism, an independent regulatory authority and an

acceptable cost-recovery based pricing in the infrastructure sector is needed.

Another way to get FDI, like China, is to focus on product-specific SEZs or multi-product
SEZs with adequate size and infrastructure connectivity. Land acquisition is the biggest
hurdle, and the effective way to resolve problems is through local solutions. It's time to look
at Andhra Pradesh and Tamil Nadu, which have most of the SEZs and have attracted FDI
without much resistance during land acquisition.

MODIFY LABOUR LAWS

The need for labour reforms has been long recognised in policy circles. In his recent Dharam
Narain memorial lecture, Dr Kaushik Basu, Chief Economic advisor to the Union
Government, advocated labour reforms, as existing labour laws encouraged industries to opt
for labour-saving technology and contractual employment, pushing 90 per cent of the
workforce into the unorganised sector.
India should revisit the relevance of innumerable provisions in Central and state labour laws
in a market economy and then unify all these labour regulations under a single statute. If
India aspires to attract FDI in labour-intensive manufacturing, labour laws need to be
changed so that they don't favour only the employees.

POLICY REFORMS

Although the Centre has been pro-active in reforming FDI policy, bureaucratic hassles,
mainly at the State level, are one of the major reasons for slow realisation of FDI, compared
with approvals. It is imperative that States implement single window nodal agencies which
work in co-operation with Central government institutions such as FIPB, FIIA and SIA to
reduce the number of clearances.

Relaxation of the ceilings for foreign equity in many sectors, particularly in manufacturing,
would be attractive to MNCs. The Budget 2010-11 proposal to look at ownership and control
issues is a welcome step.

FDI has lacked a proper policy document and been administered primarily through a series of
press notes over many years. The accumulated press notes, now more than 170, create new
areas of ambiguity while trying to resolve the existing ones. There is no synchronisation of
FDI ‘policy' with export policy. The sectors that receive FDI include telecommunications,
transport and machinery, but India's top export items include textiles, marine products, and
light engineering goods, among others. A mismatch between the FDI sectors and export
sectors has left foreign investors high and dry.

It is time to implement policy reforms at both the macro and micro level, to send out a clear
message that India is serious about attracting FDI.

(The author is Associate Professor, Institute of Economic Growth (IEG), Delhi, and Visiting
Researcher, Institute of Developing Economies (IDE), Japan.)

The poor man's venture capitalist

S. MURLIDHARAN

Microfinance institutions have the potential to rescue the needy from usurers.
  
Competition amongstMFIs will help bring interest rates down.

The wretched of the world never got access to institutional and bank finance because of the
insistence of lenders on collaterals and tangible and credible proof of repaying capacity both
of which unfortunately they lacked. Microfinance came as manna from heaven for them.

A concept of relatively recent origin dating back to 1970s, it made its mark in many countries
of South America and Europe but created quite a splash in Bangladesh where Muhammad
Yunus worked with missionary zeal to take finance through his Grameen Bank initiative
virtually to the doorsteps of poor but talented people mainly women (90 per cent of its
borrowers are women) who were condemned to live in abject poverty for want of initial push.

His model dispenses with collaterals and instead sets store by solidarity lending which is all
about lending to a group of people in very small tranches on incremental basis with members
of group exerting moral pressure on each other to honour their commitments to the micro
finance institution (MFI) resulting in an enviable compliance rate of 98 per cent.

In other words, NPAs the bane of commercial and development banks the world over, is just
2 per cent for Grameen Bank. Small wonder, he was decorated with the Nobel Prize a couple
of years ago for his pioneering work worthy of emulation especially by countries where
poverty lurks and stalks.

The Indian scenario

There is a view that India has been practising its own unique model of microfinance much
before it was formally discovered and launched. The reference is to chit funds which dot our
unorganised and vastly unregulated financial sector. But a moment's reflection would show
that a chit fund is all about periodic contribution and bidding by those who are in need of
money.
In this sense, it is more of a self-help mechanism which does not square with the
microfinance model consisting in an outside agency or MFI becoming the purveyor of funds.
The Reserve Bank of India actively encourages microfinance by allowing financial assistance
extended by commercial banks to MFIs to pass as priority sector lending.

The RBI more than anybody else knows that the MFIs can fill the void left by commercial
banks which are unable to fan into nook and crannies of villages and hinterland to identify
people in need of finances to eke out a honourable living who are otherwise driven to
borrowing from those who practice usury.

A rash of MFIs have naturally sprung up in the country many of them enticed by profits and
some by the genuine desire to reach out to the jetsam and flotsam of the society.

The average interest rate of 24 per cent per annum has more than anything else whetted the
appetite of businessmen and venture capitalists who have embraced the corporate model for
their MFIs much to the chagrin of Muhammad Yunus who bristled with indignation when
SKF, an Indian company, led the way in making an IPO of Rs 10 shares at a whopping Rs
1,000. Yunus feels the microfinance model does not sit well with the corporate model which
panders to the market and shareholders more than serving the needy customers.

Fox guarding henhouse?

Yunus' views are shared by many in India who believe that by going public for funds, MFIs
could well turn their time-honoured business model on head. In their view, the poor people
hitherto exploited by grossly crass and greedy moneylenders would now be exploited by the
more urbane but unctuous sophisticates and city slickers.

But it is worth pondering that for-profit organisations hobnobbing with the wretched of the
world should not always ring alarm bells. A 24 per cent interest may appear unconscionable
but the apologists of MFIs aver that they require a much larger spread than commercial banks
to sustain their businesses because fanning out to the borrowers as frequently as every week
and otherwise interacting with them entails a lot of travelling expenditure.

This argument can of course be countered by saying that correspondingly there is a sizeable
saving in office expenditure. Whatever the merits of these arguments, the truth is, a MFI is a
lesser evil if at all. It at least does not practice usury. It is transparent and above all does not
use strong arm tactics including forfeiture of gold and other valuables pledged at the drop of
the hat.

Solidarity lending which is at the centre of the MFI business model shames the borrower
before his biradri and hence makes everyone of the group strive towards compliance. This is
indeed the masterstroke. The group members put pressure on each other lest they are
blacklisted as a group for future incremental financing.

At any rate, for the needy what matters more is the initial push. A small craftsman or itinerant
trader typically invest, say, Rs 300 per day but has the satisfaction of having Rs 450 at the
end of it for his toils.

The point is he takes the high rate of interest in his stride a la a mortgage borrower who does
not argue with the mortgage institution despite knowing that there is a hidden cost of
borrowing for him given the way interest is calculated and given the periodicity with which
credits are given to him for repayment of the principal.

If housing finance companies rescued the middle class, MFIs have the potential of rescuing
the wretched of the world from practitioners of usury. So let us not grudge for-profit MFIs
their profits. Competitions amongst them would bring about sanity in interest rates and there
is no point in capping them at 24 per cent as is being suggested in some quarters. Capping
dividend payment alternatively is also fraught with difficulties inasmuch as MFIs as a group
would be boycotted by investors.

Poor man's VC

Venture capitalists have played a stellar role in helping technocrats finding seed and start-up
equity capital besides by and large adopting hands on approach in helping them see through
teething troubles in their infancy. In return, the venture capitalists earn capital gains by
cashing out by making offer of shares to the public unless the technocrat promoter has the
capacity and willingness to buy the shares himself.

MFIs can be perceived as poor man's venture capitalists except that what they offer are loans
and not equity and they do not do hand holding much less are hands-on. It would perhaps
improve the competitive strength of MFIs if they in addition to extending loans also offer
advisory services on procurement of materials and marketing the finished products.

Ripe pickings
Rasheeda Bhagat
  
The apple industry in Washington will bring in a revenue of $2 billion in financial year 2010-11.

Wenatchee, Washington State, US

G uess what? It's not only Indian farmers who are finding that agriculture is not such a profitable industry after all. Particularly when
compared to the razzle-dazzle of a career in, say, something like IT. When one travels to Europe or the US and sees the prosperity
and, more important, the respect their farmers get, one comes away with the heart bleeding for the drought- and flood-afflicted small
and marginal Indian farmers, burdened with mounting debts and often pushed to suicide.

Well, the tale is nowhere near as grim in the US but when you take, for example, the fruit- growing farmers of Washington State in
the north-western region of the US, the writing has been clear on the wall for some years now. That, if you are a small apple growing
farmer — and in the US small would mean something around 20 acres — in Washington State, you might want to consider moving
out to something more lucrative. And that is exactly what the small apple farmers have done here.

Mind you, the apple-growing farmers of Washington are nothing to snigger about. In the financial year 2010-11, the apple industry
here will bring in a revenue of $2 billion.

About 42 per cent of the apples grown in the US (60 per cent grown for fresh consumption) are produced here and while 70 per cent
are consumed in the domestic market, the rest are exported.

Export markets

“Thanks to our proximity to the West coast, we export about 90 per cent of apples and 65 per cent of all fruit grown in the US'' says
Mr Tod Fryhover, President of the Washington Apple Commission, which does international promotion and marketing of Washington
apples.

While his primary export markets are Mexico and Canada because of the proximity — “we can put the fruit on the truck and let it go
and don't need to organise containers, shipment etc”— Asian markets such as India, China and Indonesia are becoming important,
with India emerging as the fourth largest export market.
For reasons of distance and logistics from Kashmir, South Indian markets, particularly Tamil Nadu, are seeing increasing popularity
of Washington apples. These started coming to India 10 years ago and this year “we imported 2 million boxes (each weighing 20 kg)
of Washington Apples, says Mr Sumit Saran, Director, SCS group, a Delhi-based agribusiness consultancy firm that represents the
Washington apple Commission in India.

There are 2,200 apple growers in the State where the acreage under apple cultivation is around 174,000 acres and while last year
the annual revenue the industry fetched had dipped to $1.7 billion this year, with a better crop the figure is expected to revert to 2
billion.

Huge farms

So what is the average size of an apple orchard in the Wenatchee region of Washington?

“It is 80 hectares and the largest orchard would be a mammoth 5,000 hectares. If you had asked me this question 10 years ago it
would be only 20 hectares; consolidation is taking place due to economies of scale,” says Mr Fryhover.

As in all businesses, here too the economies of scale operate and obviously the smaller farmers have sold their orchards and
moved on. “The way it works is that most of those who had orchards also had at least a primary job and the smaller ones sold out.”
But the good news is that these orchard owners have constantly innovated by going for newer varieties, investing in state-of-the-art
post-harvest technology and increasing the density of their orchards to remain both competitive and profitable. Some of the orchards
have, says Mr Fryhover, about 600 to even 1,000 trees a hectare; earlier, the trees used to be planted 10 ft apart but now could be
as close at 2 ft.

The nutrient-rich soil, arid climate — “long dry days, cool, crisp nights” — plentiful water and advanced growing practices provide the
right ingredients for producing top-quality fruit. The state has led the US in apple production since the 1920s.

Hand-picked

All the apples are hand-picked — every year, about 10-12 billion apples are handpicked in Washington — and visiting a few apple
orchards, a group of Indian journalists saw hundreds of apples that had fallen on the ground being left to rot. Even the smallest of
bruises will affect the shelf-life and quality — taste and crunchiness — of the apple. Handpicking apples is a challenge in a country
short on labour but what helps is that different varieties are harvested at different periods, so the labour force can be maintained.
And during the harvesting season a labourer can make $100 or more per day.

After being harvested, the apples are carefully cleaned, sorted and stored in cold rooms before being placed in cartons for eventual
shipment to the consumers. The most favourite variety is the Red Delicious and the bulk of the apples exported to India from here
are Red Delicious.

BIG Indian market

According to Mr Saran, the Indian markets opened to fruit imports in 2000 and in 2009-10, India imported fresh fruits valued at
$272.9 million, an increase of 27 per cent over previous year. In the last five years, fruit imports are growing at 6.7 per cent CAGR
“and yet imported fruits form only 1.6 per cent of the total fruit market in India, so there is a huge potential for growth as the Indian
consumer today has become very health-conscious and wants the best available in the global market.”

As one watched the intense care with which each apple is managed in the post harvest period in the packing and storage facility —
they are first washed with soap water, then rinsed thoroughly and dried, before being sorted and then packed. Every fruit with a
single flaw or bruise goes out of the assembly line.

As the quality of an apple starts deteriorating from the time it is plucked, what came home from this experience was the stark
difference in the post harvest facilities, and the co-operation among the American fruit growers compared to our apple growers in
Kashmir or Himachal Pradesh. After all, the Washington Apple Commission is funded by the apple growers.

Coromandel plans foray into urea business

Chosen as handling agent for urea imported on Govt account at Karaikal port.
“Right now, the idea is to leverage our retail network to supply urea as well,” — Mr A. Vellayan, Chairman, Murugappa Group.

Harish Damodaran

New Delhi, Oct 11

The country's No. 2 phosphatic and complex fertilisers concern, Coromandel International Ltd (CIL), is entering the urea business.

The Rs 6,527-crore flagship company of the Murugappa Group plans to launch sales of urea under its ‘Godavari' brand during the
current Rabi season, for which sowing operations will start after the middle of this month.

“We have just been nominated as a handling agent for urea imported on Government account at the Karaikal port in Puducherry.
That will enable us to receive and unload vessels carrying official urea cargo at the said port. After paying customs duty, this
material can then be bagged and distributed under our own brand,” said Dr G. Ravi Prasad, President (Marketing), CIL.

He added that the first vessel of 50,000 tonnes is scheduled to arrive by mid-October and “we would be in a position to launch our
product immediately after that.”

The company expects to handle one vessel every month, which translates into roughly 5 lakh tonnes (lt) on an annual basis.

Import of urea, unlike other fertilisers, is currently not freely allowed and can be undertaken only through the state-owned MMTC,
STC and Indian Potash Ltd.

These canalising firms, in turn, have officially-nominated handling agents at designated ports to take delivery and undertake
distribution in accordance with the Centre's movement control orders.

During the year ended March 31, 2010, CIL sold 29.09 lt of fertiliser materials.

This included 19.63 lt of complexes, 6.03 lt of di-ammonium phosphate (DAP), 0.92 lt of single super phosphate and 2.51 lt of
muriate of potash.

That makes it the second biggest domestic player in complexes/DAP next to the Indian Farmers Fertiliser Cooperative.

The latter did sales of 26.98 lt of DAP and 27.94 lt of complexes in 2009-10, besides 63.35 lt of urea.

Will CIL's foray into urea through imports be a precursor to its getting into manufacture, either through green field investments or
takeover of an existing unit (there are a few struggling plants in the South itself)?
Indigenous manufacture

“Indigenous manufacture of urea is not really viable today, given the high gas prices here. So, we don't intend going for it. Right
now, the idea is to leverage our retail network to supply urea as well. Being able to import will help us meet our customers' demand,
especially in States like Andhra Pradesh, where there are shortages,” the Rs 13,617-crore Murugappa Group's Chairman, Mr A.
Vellayan, told Business Line.

Call for sharing biodiversity database

Our Bureau

Kozhikode, Oct 12

Experts attending a national consultative meet on bioinformatics in horticulture at the Indian Institute of Spices Research (IISR) have
called for evolving a data sharing policy by the Indian Council for Agricultural Research (ICAR) in the area of biodiversity.

The suggestion came up during a technical session on biodiversity informatics, held as part of the ‘Hortinformatics 2010', organised
by IISR, on Tuesday. They said that there was a huge database on biodiversity available in various institutes and the policy should
facilitate the exchange of the information.

The panel of experts stressed on the need for maintaining a single biodiversity base at the national level on the lines of GRIN Global
and EOL (Encyclopaedia of Life).

2-day meet

The two-day meet, which commenced on Monday, had four interactive sessions during which the speakers highlighted the
importance of biodiversity database, DNA bar-coding, biodiversity informatics of plant associated bacteria and insect genomics.

Dna-barcoding

A presentation on ‘DNA bar-coding – problems, progress and prospects' threw light on the major problems pertaining to the barcode
of plants. The session recommended a tiered approach for DNA bar-coding of plants and insects.

A session on cheminformatics emphasised the need for moving from model organism and extend the research on bioinformatics to
improve crops such as brinjal and okra. The experts also suggested convergence of bioinformatics and plant breeding for further
refinement of horticultural crops.

Earlier inaugurating the meet, Dr H.P. Singh, Deputy Director-General of Horticulture, IACR, said that in agriculture, the outcome of
biotechnology and bioinformatics research should reach the resource-poor farmers.

He said that understanding the potential benefits of research in bioinformatics, ICAR was developing a strong expertise and building
capacity to take up bioinformatics research to tackle the problems facing crops, fishes and animals.

ICAR had already launched a national agricultural bioinformatics grid as a national facility for the scientists.

According to him, utilisation of bioinformatics tools and initiation in genomics had made better understanding of pathogenic
organisms such as phytoplasms, viruses and bacteria associated with diseases in many crops.

Industry seeks check on ‘speculative' cotton export registrations

  

Our Bureau

New Delhi, Oct. 14

With exporters having registered 55 lakh bales (of 170 kg each) cotton for exports within nine days of the start of the process, the
textile industry has termed a majority of these as “speculative” and has sought the Prime Minister's intervention in the matter.

In a missive, the industry sought a balance between “consumption by domestic mills and exports against genuine contracts” and has
warned that aggressive exports might leave the country with no ending-stock by December 2011.

The registration of export contracts with the Textile Commissioner's office was opened on October 1 for shipments to be affected
from November 1.

About 5.5 million bales had been assessed as exportable surplus for the entire cotton year (October 2010-September 2011), for
which applications have come in within the first 10 days of opening up of export registrations. “There would be practically no cotton
stock left in the country if 5.5 million bales get exported during this time.

“This will lead to a cotton famine in the country and mills will be forced to close down or scale down production drastically,” the CITI
Chairman, Mr Shishir Jaipuria, said in the letter to the Prime Minister.

Pricing pressures

The domestic textile industry is already reeling under pricing pressures, especially the apparel export community as cotton prices
have surged to Rs 41,000/ candy in October, as against Rs 23,000/candy during the same month in 2009, the letter said.

CITI has demanded that cotton exports against contract already registered should be delayed up to January and having a monthly
cap of one million bales for exports from January 2011.

It is ‘obvious” that many of the applications for registration of export contracts are “speculative”, the letter has said.

Therefore, it has demanded that no time should be allowed for those who fail to ship within the stipulated time and further
applications for export registration should be denied.

OECD index for Aug confirms slowing growth

G. Chandrashekhar

Mumbai, Oct. 14

Signals of slowing economic expansion already witnessed on basis of data for July are now reinforced with OECD composite
leading indicators (CLIs) for August 2010 showing stronger signs of peak in expansion.
Over the last four months, the index has shown negligible or negative growth, the OECD said in its latest release.

While stronger signals of a possible peak are emerging in the US and Euro area, leading indicators strongly point to a downturn in
the OECD non-member emerging markets Brazil, China and India.

CLIs attempt to indicate turning points in economic activity approximately six months in advance. India's industrial production growth
since April this year has shown a decelerating trend.

Signs of peaking economic activity among major OECD member countries, China and India, will have an impact on commodity
demand and consumption, and in turn on commodity prices. However, in recent weeks, prices of many commodity prices – crude,
base metals – have risen. It is partially explained by supply side issues, especially in the case of copper and tin. Crude oil has
perhaps broken away from the shackles of economic pessimism and its fundamentals are asserting themselves.

Akula presses board to explain recent events

Move Said To Be Based On Murthy’s Advice

Sugata Ghosh MUMBAI 

    INFOSYS co-founder NR Narayana Murthy, whose venture capital fund Catamaran is sitting
on a fortune with the listing of SKS Microfinance, has advised the firm to make a statement to
contain further damage. Following this, a draft statement, prepared by the SKS management, was
shared with the board members two days ago, according to people familiar with the matter. None
of the independent directors have so far responded to the statement, which has been circulated to
the board members, the people said. 
    The draft makes an attempt to explain the events that led to the sacking of SKS chief executive
Suresh Gurumani — a decision that not only turned controversial for the country’s largest
microfinance company but also dragged the entire sector into harsh media glare. 
    According to the draft (the contents of which was described to ET) during the IPO roadshows
a number of investors desired that Vikram Akula, the SKS founder, should return to a full time
executive role in the company. This view was shared by the rating agencies, says the draft. 
    “Murthy thinks that the market is still not fully comfortable and feels that the board must make
a statement along the lines of what the company management has been explaining to the
regulator....In fact Akula spelt this out, along with what a possible statement could read like, in a
mail to all board members,” said a official. 
    “Most of the directors are yet to take a stand on the course of action, but some of them may
push for a settlement with Mr Gurumani at the next SKS board meeting,” said another person
familiar with the developments. 
    Mr Murthy is a member of the SKS advisory council, and the fund he floated received shares
at a discount before the SKS’ maiden equity issue. While Mr Akula wrote the mail after
consulting Mr Murthy, it is possible that Mr Murthy is yet to approve the draft statement. Akula
ready to cut lending rates by 2% 
VIKRAMAkula, the beleaguered executive chairman of SKS Microfinance, on Friday offered to
meet the critics of the microfinance sector half-way by declaring that he is willing to reduce his
firm’s lending rates by 2%. 
    “We are ready to drop our interest rates in case the finance ministry and the RBI advice. We
currently charge 26% and have dropped rates twice so far since the inception. This will not affect
our profitability because our business is growing from other segments as well,” Mr Akula said at
a news conference in Hyderabad. 
    Many critics, especially politicians, have blasted the microfinance firms for keeping interest
rates high and have alleged that their strong-arm recovery tactics have resulted in atleast 25
suicide cases in Andhra Pradesh. On Thursday, the union finance minister Dr Pranab Mukherjee
added his voice to the chorus saying that interest rates should be brought down. “The cost of
intermediation should be reduced,” he said. 
    The Andhra Pradesh government issued an ordinance on Thursday, placing some curbs on
microfinance firms and threatening punitive action if they flout the norms or try to recover their
money through strong arm means. Mr Akula welcomed the state government’s law and said that
the restrictions will help bigger MFIs to gain more business while irregularities, largely
committed by ‘rogue’ or freelance firms will be taken care of. 
    SKS is the largest microfinance player in the country, the only listed player and is seen as a
proxy for the industry. Also, 17 out of the 25 people who committed suicide in Andhra, are SKS
borrowers. Dr Akula has been battling one crisis after another in the past few weeks. Earlier this
month, SKS sacked its CEO S Gurumani after differences between him and Dr Akula proved
very difficult to bridge. The sacking, just weeks after the IPO, triggered a run on the SKS shares
and caused a lot of investors to closely question the company. The market regulator, Securities
and Exchange Board of India (Sebi) also stepped in, demanding an explanation from the
company. This controversy, added to the already simmering one over high interest rates and
suicide deaths, caused the Andhra government to react with an ordinance. The state cabinet
passed it on Thursday and the governor approved it on Friday. The details of the ordinance is not
known though the initial fears of the microfinance firms — that it would put a cap on interest
rates — is likely to be unfounded. 
    Explaining the rationale behind the interest rates that MFIs levy, Dr Akula said that of the
26%, approximately 8.5% is the cost of borrowing, 9% is the cost of delivery and RBI stipulates
for to put aside 1% for hardship cases. Also, the corporate tax amount for 3% and the company
makes 4-5% margins. 
    “This is the lowest ever cost of financing that can be provided without collateral. Borrowers
make the best use of it in income generation activities. In fact, a SIDBI study says that the annual
income increase for these borrowers after gaining back the cost of capital is atleast 45%,” he
said. “All major MFIs are Non Banking Finance Companies regulated by the RBI. We cannot
levy any hidden charges and we also explain our customers thoroughly about the interest rates,”
he said. 
    In the past couple of months, suicides have been on the rise in Andhra, allegedly due to
harassment by microfinance loan collection officers. Of the 25 cases, 17 were SKS borrowers.
“A suicide is clearly a tragedy. Those suicides are not because of the defaults and some of our
members could be borrowing from other MFIs as well. It is a complicated and a deeper issue. A
woman will not commit suicide if she is not able to repay around Rs 250 for the week,” Dr Akula
said.

Akula presses board to explain recent events

Move Said To Be Based On Murthy’s Advice

Sugata Ghosh MUMBAI 

    INFOSYS co-founder NR Narayana Murthy, whose venture capital fund Catamaran is sitting
on a fortune with the listing of SKS Microfinance, has advised the firm to make a statement to
contain further damage. Following this, a draft statement, prepared by the SKS management, was
shared with the board members two days ago, according to people familiar with the matter. None
of the independent directors have so far responded to the statement, which has been circulated to
the board members, the people said. 
    The draft makes an attempt to explain the events that led to the sacking of SKS chief executive
Suresh Gurumani — a decision that not only turned controversial for the country’s largest
microfinance company but also dragged the entire sector into harsh media glare. 
    According to the draft (the contents of which was described to ET) during the IPO roadshows
a number of investors desired that Vikram Akula, the SKS founder, should return to a full time
executive role in the company. This view was shared by the rating agencies, says the draft. 
    “Murthy thinks that the market is still not fully comfortable and feels that the board must make
a statement along the lines of what the company management has been explaining to the
regulator....In fact Akula spelt this out, along with what a possible statement could read like, in a
mail to all board members,” said a official. 
    “Most of the directors are yet to take a stand on the course of action, but some of them may
push for a settlement with Mr Gurumani at the next SKS board meeting,” said another person
familiar with the developments. 
    Mr Murthy is a member of the SKS advisory council, and the fund he floated received shares
at a discount before the SKS’ maiden equity issue. While Mr Akula wrote the mail after
consulting Mr Murthy, it is possible that Mr Murthy is yet to approve the draft statement. Akula
ready to cut lending rates by 2% 
VIKRAMAkula, the beleaguered executive chairman of SKS Microfinance, on Friday offered to
meet the critics of the microfinance sector half-way by declaring that he is willing to reduce his
firm’s lending rates by 2%. 
    “We are ready to drop our interest rates in case the finance ministry and the RBI advice. We
currently charge 26% and have dropped rates twice so far since the inception. This will not affect
our profitability because our business is growing from other segments as well,” Mr Akula said at
a news conference in Hyderabad. 
    Many critics, especially politicians, have blasted the microfinance firms for keeping interest
rates high and have alleged that their strong-arm recovery tactics have resulted in atleast 25
suicide cases in Andhra Pradesh. On Thursday, the union finance minister Dr Pranab Mukherjee
added his voice to the chorus saying that interest rates should be brought down. “The cost of
intermediation should be reduced,” he said. 
    The Andhra Pradesh government issued an ordinance on Thursday, placing some curbs on
microfinance firms and threatening punitive action if they flout the norms or try to recover their
money through strong arm means. Mr Akula welcomed the state government’s law and said that
the restrictions will help bigger MFIs to gain more business while irregularities, largely
committed by ‘rogue’ or freelance firms will be taken care of. 
    SKS is the largest microfinance player in the country, the only listed player and is seen as a
proxy for the industry. Also, 17 out of the 25 people who committed suicide in Andhra, are SKS
borrowers. Dr Akula has been battling one crisis after another in the past few weeks. Earlier this
month, SKS sacked its CEO S Gurumani after differences between him and Dr Akula proved
very difficult to bridge. The sacking, just weeks after the IPO, triggered a run on the SKS shares
and caused a lot of investors to closely question the company. The market regulator, Securities
and Exchange Board of India (Sebi) also stepped in, demanding an explanation from the
company. This controversy, added to the already simmering one over high interest rates and
suicide deaths, caused the Andhra government to react with an ordinance. The state cabinet
passed it on Thursday and the governor approved it on Friday. The details of the ordinance is not
known though the initial fears of the microfinance firms — that it would put a cap on interest
rates — is likely to be unfounded. 
    Explaining the rationale behind the interest rates that MFIs levy, Dr Akula said that of the
26%, approximately 8.5% is the cost of borrowing, 9% is the cost of delivery and RBI stipulates
for to put aside 1% for hardship cases. Also, the corporate tax amount for 3% and the company
makes 4-5% margins. 
    “This is the lowest ever cost of financing that can be provided without collateral. Borrowers
make the best use of it in income generation activities. In fact, a SIDBI study says that the annual
income increase for these borrowers after gaining back the cost of capital is atleast 45%,” he
said. “All major MFIs are Non Banking Finance Companies regulated by the RBI. We cannot
levy any hidden charges and we also explain our customers thoroughly about the interest rates,”
he said. 
    In the past couple of months, suicides have been on the rise in Andhra, allegedly due to
harassment by microfinance loan collection officers. Of the 25 cases, 17 were SKS borrowers.
“A suicide is clearly a tragedy. Those suicides are not because of the defaults and some of our
members could be borrowing from other MFIs as well. It is a complicated and a deeper issue. A
woman will not commit suicide if she is not able to repay around Rs 250 for the week,” Dr Akula
said.
Finmin rejects RBI proposal on cos acquiring regional rural banks
Dheeraj Tiwari NEW DELHI 

THE finance ministry is not in favour of corporates acquiring dedicated rural lenders, regional
rural banks, a suggestion mooted by the Reserve Bank of India in a recent discussion paper on
new bank licences. 
    “The disinvestment mandate is clear that we’ll not bring down the government stake in banks
below 51%,” said a finance ministry official ruling out the proposal. 
    Under the current set up, the central government holds 50%, state government 15% and
sponsoring banks 35% stake in a regional rural bank, which are tasked with providing credit in
rural areas. 
    As an intermediate step, industrial and business houses could be allowed to take over RRBs,
before considering allowing them to set up banks, the central bank had suggested in the
discussion paper "Entry of new banks in private sector". 
    The RBI had argued that this will give industrial and business houses an opportunity to prove
their suitability for promoting banks and promote financial inclusion in underbanked areas. 
    The idea has not found favour with the public sector banks, one of the promoters of these
banks. 
    “It is foolish to think that we’ll give up our stake in these RRBs and offer it to some private
company on a platter,” said executive director with a Mumbai-based public sector bank. 
    “All of our RRBs are stable and also we can synergise with them in our efforts towards
financial inclusion,” said a senior official with Punjab National Bank, adding that bank’s are
making effort to put them on a par with sponsoring banks in terms of technology. 
    NABARD, the specialised refinance agency for rural lending, is also working with RRBs to
deepen the reach of modern banking through a an information and communication technology
platform in 30 districts of 14 states. 
    There are 82 regional rural banks with a network of 15,475 branches. They provided a
combined credit of . 56,268 crore in 2009-10, up nearly 30% from . 43,367 crore in the year
before. The government has set a up a . 100 crore fund for providing technological support to the
regional banks. 
    As of now 30 regional rural banks had accumulated losses to the tune of . 1,808 crore. 
    The government wants them to meet the target of 2000 branches by March 2011 in the
unbanked areas and reduce the level of non-performing assets, or bad loans, to below 5% by the
year-end.

Logistics key to growth of retail

A NANDY & A DAWER 

    THE retail sector in India, both organised and unorganised, is set to grow at a very rapid pace
over the next few years. Indian retail is currently ranked as the fifth largest globally, contributing
over 5% of the country’s GDP. India has also been consistently ranked as the most attractive
investment destination in retail among 30 emerging markets in A T Kearney’s annual Global
Retail Development Index (GRDI) for the past four years. FDI inflows between April 2000 and
April 2010 to singlebrand retail trading stood at $195 million. 
    Various estimates of potential growth in retailing in India are available. According to BMI
India Retail Report, the total retail sales is expected to grow from $353 billion in 2010 to about
$543 billion by 2014, with organised retail accounting for 5% of the sales. According to a
different set of estimates provided by McKinsey & Co, organised retail in itself is expected to
increase its share from 5% in 2008 to an estimated range of 14-18% of the total retail market by
2015. With the nod to FDI in multibrand retailing anticipated by mid-2011, and with top retailers
diversifying into destination retailing (i.e., offering various consumer-oriented services, in
addition to products), organised retail sector, in particular, is expected to witness robust growth
over the next decade. 
    While the above projections are encouraging for the sector, its efficacy as the next growth
driver it is contingent upon robust and consistent growth of the infrastructure sector, particularly
a more reliable and efficient supply chain and logistics mechanism. Therefore, the following
points merit attention. 
    First, the rural market is projected to dominate the retail industry landscape in India by 2012,
with total market share projected above 50%. The rapid growth of organised retail and the need
to reach out to the large untapped rural markets will necessitate massive capacity addition to
rural infrastructure and the development of strong and diversified back and front-end supply and
logistic networks. 
    Second, an expanding pan-Indian presence of retail businesses and huge diversity in India’s
topography will require supply chain networks to not only add capacity on a continuous basis but
also to become increasingly multi-modal and efficiency-driven. The national highways form a
meagre 2% of the total roads in the country, but carries 40% of the load. Almost 80% of the
roads are, in effect, unsuitable for commercial vehicular movement. The average speed of such
vehicular movement in India is a mere 20 miles/hour, compared with 60 miles/hour in developed
countries. Currently, about two-thirds of agricultural produce in India moves on conventional
carriers. The inadequacy and inefficiency of the logistics infrastructure is evident. 
    Third, international benchmarks suggest that the cost of logistics (warehousing and
transportation costs) for a retail chain, as a percentage of the cost of goods sold (COGS), is about
4% or 5%. However, in India, logistics costs as a share of COGS are three to five times higher.
According to a report published by CII and Amarthi Consulting, supply chain costs as ashare of
GDP are five percentage points higher than other developed countries (7-8%). 
    The unorganised logistics structure, insufficient capacities, diseconomies of scale, multiple
and complex tax structures, long inventory ‘lead time’, dearth of trained manpower and
substandard quality benchmarks are driving the cost incompetencies in logistics, and in turn,
adversely impacting the competitiveness of the organised retail sector in India. 
    Currently, there is a lack of sustained government investment in planned infrastructure like
warehouses and transport centres. India’s logistics sector accounts for a mere 2% ($100 billion)
of the $5,000-billion global logistics industry. It is currently growing at 8-10% per annum and is
expected to reach the size of $385 billion by 2015. The World Bank rates India 47th in logistics
out of 155 countries and estimates that over $65 billion of loss is incurred due to inefficient
supply chains. 
    Fourth, India’s indirect tax regime has discouraged large centralised warehouses and has led,
over time, to fragmentation in the warehousing sector. Besides streamlining the tax structure,
scaling up the number of free trade and warehousing zones (FTWZs), a special category of SEZs
that will bring dynamism in domestic distribution networks, also needs to figure prominently on
the policy agenda of the government. 
    FDI in multi-brand retailing is expected to come with conditions like compulsory contribution
to back-end infrastructure investment. This will positively contribute not only to retail
distribution in the country through higher asset turnover and better inventory management, but
also increase private investments in the logistics sector, sector, mostly limited to the participation
of private equity firms. 
    Modern retail, which streamlines the connections among markets, manufacturers, farmers and
consumers, offers tremendous growth and investment opportunities in India. The sector’s growth
will depend on overcoming the structural challenges in a more proactive and organised way, to
make it internationally competitive and globally streamlined. 
    (Nandy is associate professor and Dawer is visiting faculty at Goa Institute of
Management)

RBI puts microfinance players on notice

Regulator Appoints Sub-Committee Of Its Board To Look Into Microfinance Issues

Parshant Krar & Rahul Kumar CHANDIGARH 

A DAY after the Andhra Pradesh government passed an ordinance to check irregularities by
microfinance institutions (MFIs), the Reserve Bank of India (RBI) on Friday appointed a sub-
committee of its board to look into issues concerning the microfinance sector and its implications
on policies of the apex bank. 
    “The board discussed situation evolving due to the microfinance sector and its implications on
RBI policies,” RBI governor D Subbararo said here on Friday, after the RBI board meeting that
deliberated over issues like global economic condition, new banking licences and IMF annual
meeting. 
    “A few financial companies come under RBI regulations, but a vast number of companies are
outside the purview of the bank,” he said while referring to Andhra Pradesh Cabinet’s decision to
regulate MFIs to check rising reports of harassment of borrowers. The ordinance provides three-
year sentence and 1 lakh penalty for harassing borrowers. Earlier this year, the RBI had told
banks to make sure that loans they advance to MFIs are on-lent at rates prescribed by the central
bank. 
    Some microfinance companies feel that if the RBI does bring in regulations, it might benefit
the industry which is facing the heat over charges over multi-million salaries and fat margins.
According to Equitas MD PN Vasudevan, the central bank needs to come out with a definition
for MFIs distinguishing them from money lenders. 
    He feels that this is one of the reasons for the negative perception of the industry. “A non-
banking finance company engaged in microfinance should have a distinct identity,” he said. He
pointed out that the central bank has already come out with guidelines on transparency on
interest rates and pricing and said that 100% compliance should be ensured. MFIs are also open
for some kind of a cap on margins which could broadly be pegged to their return on equity. 
    Addressing mediapersons, Mr Subbarao said, “RBI has no control over interest rates being
charged by MFIs as they are regulated by same set of rules as non-banking financial companies,”
he said while replying to a query about high interests being charged by MFIs. “The MFIs get
concessional funds from banks under the priority sector lending and so benefit needs to be
passed on to borrowers,” he said. He said that the sub-committee appointed would look into
issues, including profitability of MFIs. 
    The RBI governor maintained that the bank has discussed at the meeting the situation
pertaining to MFIs and “as part of the our responsibility we will watch what is happening in the
financial sector and what falls in the purview of RBI as far as MFIs are concerned”. 
    “Already banks have been allowed direct lending at a small charge in remote areas through
business correspondents and technology have been introduced to reach out to unbanked areas,”
RBI deputy governor Usha Thorat said while deliberating on the issue of high interest rates being
charged by MFIs. The RBI central board meeting comprised members of the board, including
key industrialists.

The food security dilemma

S. D. NAIK

The reservations of the Plan panel and the Food Ministry on universalisation of the PDS need to be taken note of, based as they are
on grounds of cost, not to mention the rampant corruption and inefficiencies in the current system.
  
Given thecountry's current level of food production, it may not be possible to meet the requirements of a universal PDS.

The debate over the proposed National Food Security Bill has been on for quite some time now. The National Advisory Council
(NAC), led by Ms Sonia Gandhi, had favoured a universal public distribution system (PDS) and increasing the allotment of grain to
eligible families from 25 kg to 35 kg. However, the Planning Commission recently expressed its reservation about the
universalisation of PDS.

The Planning Commission Deputy Chairman, Dr Montek Singh Ahluwalia, has proposed that food-grains for above poverty line
(APL) families be sold at a much higher price than those for the below poverty line (BPL) families, which may continue to get them at
Rs 3 per kg (rice or wheat). Also, he favours per capita allotment of grain (6 kg per person) against the NAC's idea of providing 35
kg of grain to each entitled family, so as to bring down the subsidy burden

Even the Food Ministry, headed by Mr Sharad Pawar, had ruled out a universal PDS earlier, on the ground that given the country's
current level of food production, it may not be possible to match the procurement levels with the requirements of a universal PDS.
Thus the dilemma on the Food Security Bill persists, with no solution in sight.

VALID RESERVATIONS

The reservations expressed by the Plan panel as well as the Food Ministry are well founded and deserve to be taken note of. The
Planning Commission has estimated the cost to the exchequer of the universal food security programme at a whopping Rs 1.9 lakh
crore, against the current subsidy bill of about Rs 80,000 crore. Hence, it favours continuation of the targeted PDS.

Moreover, the Planning Commission has expressed its inability to provide the required funds for implementation of the proposed
National Food Security Act in the final lap of the Eleventh Five-Year Plan, arguing that doing so would mean diversion of funds from
ongoing schemes. Dr Ahluwalia, in his presentation before the NAC, proposed the roll-out of the scheme from the beginning of the
Twelfth Plan, starting from April 2012. Though silence followed Dr Ahluwalia's presentation, sources indicate that the NAC
chairperson, Ms Sonia Gandhi is not unsympathetic to the fiscal concerns voiced by the Plan panel. The fiscal concerns and the
prevailing widespread leakages in the PDS cannot be brushed aside easily. Unfortunately, the NAC is silent on reforming the
prevailing PDS, which is corruption-ridden and appears beyond redemption.

Second, apart from the fiscal considerations, there are other equally important reservations against universalisation of the PDS. For
instance, it would mean procurement of much larger quantities of wheat and rice every year to the tune of about 100 million tonnes
or nearly 50 per cent of India's total grain production. This will result in very low availability of food-grains in the open market,
leading to a sharp rise in open market prices. Unfortunately, the promised new deal to agriculture and raising the growth rate of farm
output to at least four per cent per annum remain elusive, despite repeated promises by policy-makers.

With stagnant agricultural production, even the current level of procurement by the Government is one reason for the upward
pressure on the open market prices of food-grains. Also, the country has often witnessed a paradoxical situation of thousands of
tonnes of food-grains rotting away in the Food Corporation of India (FCI) godowns and the authorities denying the poor and the
needy access to the bulging stocks.

Clearly, there is now a new urgency to seriously examine whether a better alternative can be found to the PDS, which has proved
exorbitant, wasteful and corrupt. Way back in 2005, a Planning Commission study had revealed that the targeted PDS had to spend
Rs 3.65 to transfer just one rupee's worth of benefit to the poor. Even more shocking was the revelation that about 58 per cent of
subsidised grain failed to reach the poor because of identification errors, rampant corruption and inefficient operations. Over 35 per
cent was siphoned off by shopkeepers and traders and another 21 per cent was leaked to non-poor households. The cost of
handling of food-grains by the FCI is also huge.

TIME TO REFORM PDS

The government should now consider the better alternative suggested by many experts of giving cash directly to the eligible poor
through a coupon system. In fact, the Government's pre-Budget Economic Survey also came out with a similar suggestion aimed at
making the PDS more effective and leak-proof. The Survey went a step further and said that the eligible households should be given
the freedom to choose the store from which to buy grains. In fact, the Government's chief economic advisor, Dr Kaushik Basu, in a
recent working paper prepared for the Finance Ministry, advocates that the poor should be given the option to convert the coupons
either into money at a bank, or into goods in a shop. This will help eliminate corruption.

The Planning Commission's suggestion to implement the Food Security Act only from the beginning of the Twelfth Plan period also
deserves favourable consideration. The time available till then could be used fruitfully to identify the really eligible families with the
help of the ongoing Census data and the proposed Unique Identification (UID) system.

Micro-finance on test

Given the proliferation of micro-finance institutions and the profit motive driving them, a re-appraisal of policy may be warranted.

Does demand create supply or, as Jean-Baptiste Say, the 18th Century French economist, said, supply create demand? A bit of
both surely, as recently demonstrated by the controversies that have sprung up around micro-finance institutions. Everyone needs a
loan now and then. Earlier, money-lenders used to provide these loans, often at exorbitant and unconscionable rates. Repayments
often completely ruined the borrowers. Nowhere was this more apparent than in the loss of land that had been pledged as collateral.
It was a grossly unfair system. So the Government tried to finish it off. It didn't succeed wholly but in enough measure to significantly
reduce the supply of credit to the rural poor. For almost three decades, therefore, the provision of rural credit became not just a
political strategy but also a genuinely felt need. The Government created many institutions, such as Nabard, to name just one, to fill
the gap. But these were Government bodies with cumbersome procedures. As a result, demand for credit was mostly not met. This
applied most to consumption loans. The village money-lenders then began a quiet but triumphant return. To thwart them, some
people with genuinely good intentions decided to start small co-operatives, not unlike chit-funds. And thus, in the mid-1980s began
the business of micro-finance. Its greatest successes were in Bangladesh, and the Grameen Bank idea became the inspirational
role model for copycat attempts in India. The Government, having failed to provide affordable and quick loans to the rural poor,
encouraged the idea.

Over the last decade, businessmen whose goals were not the same as those of the original do-gooders, entered the micro-finance
space. They had a firm eye on the profit opportunity and there was a proliferation of micro-finance institutions (MFIs). Through
clever marketing and image-building, they all donned a halo of virtue that sought to hide the fact they were, in fact, just large-scale
village-type money-lenders by another name. This was apparent from the interest they charged, usually upward of 30 per cent. The
margins were huge and, given efficient enforcement, some worked well. One of those that worked well was SKS Microfinance, now
in the grip of a severe controversy. There are two aspects to this controversy. One is internal, which is of limited public interest; the
other is external, which requires a re-appraisal of the policy in regard to MFIs.

The central question is simple to ask but hard to answer: should there be, as demanded by the Finance Minister, a cap on the
interest rates that MFIs charge? A convincing case can be made for both yes and no. But before attempting anything, the Finance
Ministry would be well advised to read the report on small money-lenders prepared by the RBI in 2007. It gives most of the answers,
only some of which are being implemented. The rest deserve a chance, too.

Crop output determines oil prices

Focus: Mustard/Rapeseed.
  
Determining factor:A file photo of mustard/rapeseed being harvested.

Mustard and rapeseed are usually confused with each other as both belong to the same genus Brassica. The nomenclature is not
fully standardised and understood due to which there are many synonyms and its classification is in a confused state. Rapeseed oil
is not distinguished from mustard oil as both of these come from the same species and possess almost same properties.

However, major difference among these two seed crops is in the pungency levels. Rapeseed is more pungent and is grown
extensively in India.

Source of veg oil

Rapeseed and mustard category is the third most important source of vegetable oil in the world, after soyabean and palm oil. Also, it
is the second important source of protein meal. Along with that rapeseed-mustard oil has also become the primary feedstock for
biodiesel in Europe.

Mustard seed and rapeseed have great importance in many countries as spices. But, these seeds have important by-products too.
Rapeseeds and mustard seeds yields 37 per cent oil and the rest is high protein oilcake, which serves as an animal feed.

World's total production of rapeseed-mustard was about 62 million tonnes in 2009. China is the leading producer of rapeseed-
mustard accounting for more than 21 per cent(13.5 mt) of global production, surpassing Canada for the first time which accounts for
nearly 20 per cent of global production with 12 mt. Though India stood third in the leading producers list, it is far behind with about
11 per cent of global production. Region wise Europe leads the production of rapeseed-mustard, it accounts for more than 40 per
cent of global production.

One of the unique observations about global rapeseed-mustard production is in the productivity levels. The top three producing
countries, which jointly accounts for more than 62 per cent of area harvested have recorded productivity of 1,872 kg/ha, 1,906
kg/ha, 1,163 kg/ha respectively.

However, global average stands much higher at 1,955 kg/ha. This strange phenomenon is due to the extremely high productivity
level of 2,837 kg/ha in Europe which accounts for 28 per cent of crop global area of about 32 million hectares. The productivity
levels of Europe are more than 76 per cent higher than the combined productivity level of top three producing countries.

Rapeseed-mustard is a major crop in India, grown on about five per cent of net cropped area. However, area under cultivation and
production has not increased in recent past. India has produced 7.2 mt of rapeseed-mustard in 2009 with 6.19 million hectare under
its cultivation. However, productivity levels are extremely low- with an average yield of 1.16 mt/ha compared to that of the
Netherlands- the leader in productivity - producing at the rate of 4.61 mt/ha.

Rabi crop
Rapeseed-mustard accounts for 65 per cent of the total rabi oilseed crop in India. Key producing states are Rajasthan, Uttar
Pradesh, Madhya Pradesh and Haryana contributing about 85 per cent of country's production. Rajasthan leads the pack with about
half of national production followed by Uttar Pradesh and Haryana with about 13 per cent and 12per cent contribution respectively.

Only Haryana, Rajasthan and Punjab are the States having productivity levels higher than national average. Haryana has the
highest 1.75 mt/ha, Rajasthan and Punjab with 1.32 mt/ha and 1.21 mt/ha respectively. Significant laggards are Madhya Pradesh,
West Bengal and Assam jointly contributing 21 per cent of area under crop.

Climatic conditions

Lower yields in India have more to do with climate and soil conditions than crop management. The growth of rapeseed-mustard is
more vigorous in temperatures between 10˚ and 30˚ C.

Crop is very sensitive to high temperature at the blooming time. Seed oil content, however, is highest when seed mature under low
temperatures 10˚ to 15˚C. Crop needs three weeks of near-freezing temperatures in the field to get fully vernalised and start rapid
generative growth.

About 97 per cent of total rapeseed-mustard seed produced in India is being processed. Main processed products are oil and
protein-rich oil cakes.

Rapeseed-mustard oil is second most consumed oil (21 per cent) in the country after palm oil (26 per cent of oil consumption).

The export of rapeseed-mustard oil from India is currently banned. Canada is the leading rapeseed-mustard oil exporter with 1.27
million mt accounting for 30 per cent of global exports; whereas Germany and the US are the key importers, jointly accounting for 43
per cent of global imports with 1.83 mt. Besides oil, by-product of the crop rapeseed meal, which is mainly used in animal feed and
also as organic fertiliser is exported from India.

The main export markets for rapeseed meal are Bangladesh, South Korea, China, Malaysia, Philippines etc. Canada and Australia
are also the major producers and exporters of rapeseed meal. The rapeseed meal prices mainly moves in the same direction as
soyabean meal as it is a cheaper substitute to it.

Generally, mustard oil accounts for 30 per cent of the total vegetable oils produced in India. However, 80 per cent of the mustard oil
is marketed by the small-scale sector in loose form and only 20 percent by the organised sector, in packed form as crushing of
mustard is categorised under the small-scale sector.

India's rapeseed-mustard seed and oil prices have experienced a significant amount of volatility. Generally, the wholesale price of
rapeseed-mustard oil in India is determined by the domestic production of rapeseed-mustard. Fluctuations in price can, therefore, be
largely attributed to ups and downs in production levels.

Other volatility drivers include the seasonal nature of production and the crop's vulnerability to inclement weather.

Though, rapeseed-mustard oil has emerged as a major edible oil in India, much opportunity for growth remains.

However, the sector continues to be marred by price volatility.

Till date, India has been largely self-sufficient in rapeseed-mustard seed production. However, stabilising prices and increasing farm
incomes in the sector have become an urgent necessity for sustainable of growth.

For the integrated development of the domestic industry there is a need for implementation of multidimensional and sustainable
solutions addressing the following issues:

1. Productivity in the rapeseed-mustard oil sector: With demand growing faster than the supply of rapeseed-mustard oil throughout
the country, the sector should bring additional areas under cultivation.
2. Rationalisation of the tax structure of the rapeseed-mustard oil: Oils, seeds and meal are subject to multiple taxes throughout the
production process, at rates which vary across states within the country. The regulatory framework and tax regime, therefore, need
to be simplified and rationalised.

3. Technological improvements: Technology upgrades and improvements must be realised for both production and processing, so
that the amount of oil derived from the seeds can be increased.

4. Supply side management: Marketing and processing efforts must be increased and improved by removing domestic restrictions.
A policy framework should be established to promote private investments in markets, logistics and infrastructure in the country,
which could bring substantial economic benefits. Proper storage facilities (warehouse/godown) also need to be made available to
farmers through public and/or private sector initiatives.

ood security needs beckon investment in transnational farming

 
Rana Kapoor

Rana Kapoor

Global food security challenges are here to stay. The international food stock situation has worsened ever since the 2008 food crisis
– when nearly 40 countries across the globe faced food riots. Even now, instances such as Russia's ban on wheat export, deadly
food riots in Mozambique and building social unrest in various countries over rising food prices has left policy makers grappling for
the right solution to address food security needs of the world.

The world population is expected to increase by 40 per cent by 2050, demanding an additional output of about one billion tonnes of
cereals and 200 million tonnes of meat/annum by then. Consequently, future emphasis would be keenly focused on growing more
food.

While options such as boosting yields through technology interventions and provision of better irrigation facilities do exist, a key
solution theme that has garnered immense attention in the recent past has been investing in farmland in under-developed and
developing countries – across regions such as Africa, Latin America and South-East Asia.

With a projected population of 1.6 billion by 2050, India may find it extremely difficult to depend on farm land within her boundaries
for our future food security needs. It is thus imperative for policy makers of the country to seriously explore the option of
transnational farm land opportunities and put in place a well structured policy to promote and facilitate the same so as to better
national food security concerns of the future.

Current Scenario

According to the Food and Agriculture Organisation (FAO), 400 million ha of uncultivated arable land can be brought into cultivation
in countries across sub-Saharan Africa (SSA), Latin America and South-East Asia. Demand for this farm land has been colossal in
the recent past.

A latest World Bank report states that 45 million hectares (mha) of large scale farmland deals were announced in a two-year period
between 2008 and 2009. This compared to an average annual expansion of global agricultural land of less than four mha before
2008. These investments are largely driven by governments, sovereign wealth funds and private investors of import dependent
nations.
In addition to national concerns, investment houses across the globe have been considering acquisition of farmland as an
increasingly attractive investment opportunity. Studies indicate that investments of over $60 billion have been committed for
farmland deals by the financial investment firms alone.

India's private sector has been participating in this global phenomenon in a big way. In Africa alone for instance, it has been
estimated that more than 80 companies, mainly processing and trading houses, have invested about $2.4 billion in acquiring
farmlands to secure raw material supplies, scale and global presence. The choice of location is mainly driven by agro-climatic
advantages of the host country, logistical convenience to the target markets, availability and cost of land and water, socio-political
security, basic infrastructure facilities and investment incentives offered by the host country.

Transnational Farming

India has limited farmland resources vis-à-vis the population explosion in the country. In addition, the country is experiencing a
‘Green Revolution Fatigue' manifested by stagnant yields and marginal or no response to farm inputs. In the last decade, national
food grain production has been more or less stagnant while the population has increased by almost 90 million, thereby, increasing
the country's dependence on food imports. Consequently the country is heavily dependent on imports of oilseeds and pulses –
which is likely to extend into crops such as wheat in the near future. Continual increase in import bills amplify food sufficiency scare
in the country, giving a sense of déjà vu of the pre-Green Revolution Era and the ‘ship to mouth' existence of the 1960s.

Transnational farming has the potential to address these concerns. The production from these farmlands can supplement the food
supplies of India while addressing local food security of the host countries. In addition, these investments have the potential to
benefit host countries through transfer of investment and advanced technology into these developing economies.

Key Challenges

While a number of Indian entrepreneurs are exploring the opportunity of transnational farming, both as a vertical integration strategy
as well as a new business opportunity, they face some critical challenges.

Lack of a structured Regulatory and Policy framework: India does not have a specialised regulatory and policy framework to support
the nuances of overseas farmland acquisition and protect investors against associated risks.

Lack of financial and technical support: The Indian Government does not offer any fiscal incentives for such projects while the
governments in other investing countries deploy development funds or sovereign wealth funds (SWFs) to provide financial
assistance including subsidies, soft loans, guarantees and insurance. Government agencies such as export credit agencies in other
countries provide technical and bureaucratic support to the investors.

Civil strife in host country: Recent surge in farmland investment popularly termed as ‘neo-colonialism /land grabbing' has raised
concerns about land expropriations -undermining the livelihood of local populations. Many countries have reported social uproar
against such projects.

Action steps to facilitate

Trans-national farming

Given the limited scope for farmland expansion within India, policy makers of the nation need to evaluate the option of promoting
cross border farmland cultivation and establish a robust framework to support such initiatives. Some key action steps in this
direction include:

Develop a national policy on transnational Farming – supported by a structured legal and regulatory framework that enables
investors to pursue farmland investments abroad.

Establishing inter-government agreements such as bilateral treaties and cooperation agreements with the potential host countries
and route development aid and investment incentives through farmland deals

Providing greater level of facilitation, both in terms of substantive as well as procedural law for realisation of these projects and
protection of investment
Devising specific import policies for produce from such lands by defining clear cut incentives such as duty-free access for such
produce

Revisiting thresholds and restrictions on investment in foreign nations - taking into account factors such as cost of farm land and
socio-political and regulatory environment of host countries.

Conclusion

To conclude, commercial farming across borders could be a key solution theme to address national food security concerns in the
future.

While a structured policy framework on trans-national farming is urgently needed to improve public and private sector investment in
commercial farming abroad, it is also critical for Indian investors to carefully scan the socio-political and economic condition of the
host country and build in socially inclusive models of farming. Such models could include out-grower programs - where the foreign
investor shares the advantages of modern technology and better market access with farms in the surrounding localities. This in turn
will help build a symbiotic relationship with the local population in the host country based on transparency, broad based social
acceptance, evidence based multi-stakeholder approach and a trust based commercial relationship.

Rosaiah seeks Finance Ministry, RBI intervention in MFI issue

Our Bureau

Hyderabad, Oct. 17

The Andhra Pradesh Chief Minister, Mr K. Rosaiah, has written to the Finance Ministry and the Reserve Bank of India expressing
the need to regulate the microfinance institutions (MFIs) with regard to high interest rates they are currently charging.

In separate letters addressed to the Union Finance Minister, Mr Pranab Mukherjee, and the Reserve Bank of India Governor, Dr D.
Subba Rao, the Chief Minister sought to highlight the hardship faced by people in the State, who had borrowed from these MFIs.

The Chief Minister said that MFIs have caused much distress among the rural and urban poor resulting in a series of suicides by the
poor. Although MFIs came into existence as financial intermediaries for the poor, they have actually led to further impoverishment
due to unethical practices.

In fact, MFIs are resorting to multiple loans without due diligence, charging usurious interest rates, and adopting coercive methods
of recovery. Since all MFIs are engaged in money lending, this comes under the State List. “We have been advised that State
Government can regulate the money lending aspect of MFI functioning,” he said.

He mentioned that after due diligence with RBI, and to protect the poor from further atrocities, the State Government has
promulgated an Ordinance for regulation of the MFI's activities. However, regarding interest rates of MFIs, there seems to be some
ambiguity. While the RBI Governor suggested that the State Governments are the best agencies to regulate coercive interest rates,
the Secretary, Banking Department, advised us against regulating the interest rate being charged by MFIs.

Considering that the effective interest rates are ranging from 36 per cent to 54 per cent, he called for urgent intervention by the
Centre in this regard.

In the letter addressed to RBI, Mr Rosaiah said that RBI guidelines at this time would be timely and help clear the air about interest
rates charged.

Last week, the State passed an Ordinance to regulate MFIs, as more than 40 people have allegedly killed themselves due to
coercive collection by MFIs.

Microfinance industry body moves court against AP Ordinance Oct. 19

The State Government had passed the Ordinance to regulate and monitor the functioning of
microfinance institutions in the State, in a move that is likely to affect the Rs 30,000-crore
industry in the country. The MFIN has about 44-member institutions across the country, with
20 of them being active in Andhra Pradesh, and their cumulative exposure being about Rs
10,000 crore. About 80 per cent of the capital with the MFIs is bank lending.

With the Ordinance making it mandatory for all MFIs in the State to register themselves in
every district they operate, the institutions fear that this process alone may take 60 to 90 days
and till then they cannot either lend or collect payments. This will not only impact our
lendings, but may lead to large-scale defaults as there may not be any transactions in the next
60 to 90 days due to the ordinance.

Microfinance rates can be cut if banks lower interest: Apex body Oct. 19
Microfinance institutions are ready to cut lending rates by as much as 2.50 percentage points
provided banks reduce the cost of money for these institutions by a similar quantum.

The 12-13 per cent interest on loans taken from banks is the single biggest cost for MFIs and
this presents them a challenge in bringing down lending rates. Microfinance Institutions
Network (MFIN) chief said MFIs can cut lending rates to 23-24 per cent from 25-27 per cent
if banks bring down their lending rate to 10-11 per cent.

Recent incidents of high-handed recovery methods adopted by agents of some MFIs in

Andhra Pradesh have shown the sector in poor light.

MFIs contend that their average operating costs (around 10 per cent) are high as employees
have to go to customers' doorsteps in rural areas to meet their financial needs, make
collections and undertake recoveries. If one adds loan loss provision of 1-2 per cent and a
reasonable rate of return on investment, the interest rate to borrowers is upwards of 25 per
cent a year.

Referring to recent incidents of agents of some MFIs violating ethical practices while
undertaking recoveries in Andhra Pradesh, MFIN emphasized that it is essential to make a
distinction between the RBI-regulated NBFC-MFIs and those without the right credentials. It
is the agents of the latter who resort to strong-arm tactics while making recoveries, thereby
bringing a bad name to the sector.
The RBI regulates only those MFIs that are registered with it as non-banking finance companies. Although the
registered companies cover over 80 per cent of the microfinance business, in terms of number of companies they
constitute a small percentage of the total number of MFIs in the country.  The central bank, however, does not
prescribe lending rates for these institutions.
Bharat, not India, needs FDI
The small shopsin the rural areas are unlikely to be affected by the advent of organised retail trade.

The UPA government is set to trigger yet another round of discontent, by restricting FDI (foreign direct investment) in retail to large
cities with populations of over a million each. This tilt towards the urban, to the exclusion of the countryside, does not stand to
reason.

The Government of India recognises the key role of FDI in supplementing domestic resources, and as a source of technology and
global best practices. The restriction of FDI to larger towns can only be counterproductive.

India has only 35 towns with a population of over one million. The total population of these towns totals just 108 million. A policy to
allow FDI in the retail sector in just 35-odd townships amounts to closing the doors of 91 per cent of the Indian economy to
greenfield FDI.

FDI has provided the main boost to industrial growth, now entering the double-digit spectrum. On the contrary, the countryside and,
in particular, agriculture is starved of investments, credit, technology, efficient marketing networks and also managerial acumen.

It would be more logical if FDI in the retail sector were to be primarily channelled into the rural regions.

TRANSFORMING RURAL INDIA

FDI in retail trade in the metros is more likely to be in the nature of mergers or acquisition of existing outlets, and, in most cases,
would not lead to introduction of any new technologies in the economy.

On the other hand, the FDI in rural small towns and even villages will be predominantly of a greenfield character. It will open up new
production lines, leading to an improvement in cultivation practices, better varieties of produce and creation of new retail networks.

FDI can replace the existing APMC (Agriculture Produce Market Committee) network, with its long chain of commission agents that
deprive the farmer of remunerative prices and the consumer of a fair price, assured quality, choice and transparent accounting.

Further, FDI retail outlets in the cities tend to displace the existing indigenous and well-settled corner shops that cater to the needs
of the urban consumer. They give little by way of catering to the input needs of the urban population, except through vending of
kitchen garden equipment, books, computers and white goods.

In rural India, such direct investment can put agro-inputs such as hybrid seeds, pesticides and fertilisers within easy reach of the
farmers, help improve cultivation practices through extension services and information on SPS (sanitary and phyto-sanitary)
standards, and usher in effective farm contracts.

The traditional retail sector is the second largest hive of concealed unemployment and underemployment, next only to agriculture.
The neighbourhood corner shops in the mofussil areas are unlikely to be affected by the advent of organised retail trade as they
have their own strong points that make clients stick to them, often with fierce loyalty.

EMPLOYMENT POTENTIAL

The widespread misconception that the organised retail causes a net reduction in employment has been comprehensively disproved
by a number of well-documented studies. If there is some reduction in the floor staff, it also means a marked elevation in the skill
level of jobs done. If one calculates the secondary and tertiary effects, retail trade promotes higher employment as also a higher
lifestyle with greater degrees of freedom at both ends of the production chain.

The traditional corner shop is often the cause and the beneficiary of pilferages in the PDS (Public Distribution System). The informal
system of inventory control and accounts used by them does not permit them to supplement the PDS. BPL customers would
welcome the supermarket that accepts food coupons.
FDI is known to boost credit, finances, technology levels and efficiency in marketing. These are required in all sectors of the
economy, but the need is most dire in the rural sector, and predominantly agriculture. Keeping such investment flows away from
Bharat can only be an act of sheer animus towards the farm sector, on a par with the imposition of deliberate negative subsidies.

Two cheers for support prices

The nomenclature may change, but the implicit belief that markets by themselves are unlikely
to lead to stable and reliable supplies of farm produce continues to hold.

The fact that greater change and diversity are possible in the non-farm sector, but not in the
farm sector, also implies that income levels in the farm sector are likely to be slow to improve
compared with the non-farm sector. Hence, support prices are an income security measure.

Price support is designed to provide stable and remunerative prices. The problem is that
prices cannot be determined for each crop in isolation of the others. Shouldn't all farmers be
provided the same level of assurance on their prices irrespective of the crops they grow?

The objective of food security may require ensuring that food crops are grown. But this
quickly leads to the need to ensure the survival of farmers and at this point the support
mechanism expands, with good justification, to cover all crops. Support prices were
successful in getting the farmers to usher in the Green Revolution, as prices were
remunerative and assured, especially given the yield advantages.

But the focus on price alone meant that the other consequences of crop-specific incentives
were not fully captured in the policy. Fertiliser use became intensive and ground water
depleted.

If there was no support price, would market prices have dropped? Would farmers have
switched crops to take care of their land and water resources? The support price mechanism
was not only an assurance of price but also a marketing revolution in the sense that payments
were made promptly at a predetermined price. Again, this was necessary to get the farmers to
focus on farming and not worry about prices.

The process has also helped in the modernization of agriculture where farmers produce crops
to sell in the market.

But the system has also established rigidities. It would be hard to withdraw support prices
even if markets provide remunerative prices.

In fact, some of the studies in the early 1990s showed that the support prices actually were
well below international prices. Soon, however, support prices also increased and the gap was
reduced or closed.
The argument that agricultural markets are likely to be more volatile in the absence of
support prices cannot be ignored.

IMPACT ON COMPETITIVENESS

In reality, farm support prices are an income support to the farmers. If seen in this way,
perhaps the complications arising out of setting the prices of different crops may diminish.

Direct support is less distorting of markets than product-specific incentives. Do farm-support

pricing policies make our agriculture less competitive? In a world of subsidies and tariffs
these are difficult questions. While the calculations of remunerative prices are made based on
domestic prices, competitiveness will be determined by international market prices.

If decades of support prices have not led to competitive agriculture, it may be because these
prices have not permitted adequate investments that improved productivity.

The small farm sizes also took away the possibility for most farmers to build on the small
cost-price margins to make new investments. Support prices gave only small margins over
and above the costs incurred. Any larger margins would have meant even higher prices,
which the poor consumer could not pay.

To be fair, agriculture is not the only sector where support prices or remunerative prices are
in vogue. The fertiliser and power sectors enjoyed such producer prices until more
competitive pricing mechanisms came to the scene. Most investors would not take up
projects if there are no significant profits to be made. Farming would be no exception.

A farmer's ability to survive bad markets and bad weather is limited, especially when there
little savings to fall back on. These are good reasons why support prices may be necessary in
the case of farm products.

But what makes the final outcome less than satisfactory is the complexity of the process of
determining these prices and inadequate productivity gains that it provides. Innovations in the
pricing mechanism are necessary to make farming a remunerative enterprise.

New definition on control to remove FDI loopholes

THE government will make it tough for foreign firms to exercise control over Indian businesses
through indirect arrangements by updating the ambiguous definition of “control” in foreign
direct investment policy with the precise one used in the Companies Bill.

The current foreign investment policy says any Indian company “owned or controlled” by a
foreign company would be considered a foreign company. 
While a more-than-50% equity holding was sufficient for establishing foreign ownership, control
was defined as ability to appoint a majority of directors. This precluded other indirect ways of
obtaining control such as lein over voting rights and equity purchase agreements — a loophole
used extensively by foreign investors to control Indian ventures without violating the sectoral
caps. Such arrangements violated the FDI policy in spirit while paperwork was in order. “A
number of companies that show foreign investment much below 50% have issued quasi-equity
instruments with voting rights to foreign investors.

This allows the investor to effectively exercise control over the entity indirectly. The Companies
Bill, which is under Parliament’s consideration, has a more comprehensive interpretation of
control. Apart from the already mentioned right to appoint a majority of directors, the bill defines
control to include the ability to influence management or policy decisions. The bill goes on to
say that this ability to influence decisions could be by virtue of direct powers such as
shareholding or management rights, or indirect ones such as shareholders agreements or voting
agreements or in any other manner. Effectively, the new bill covers every possible way of
exercising control. Company law experts say inclusion of the new definition of control will
remove the loopholes in the FDI policy. 
The strengthening of definition of control will definitely check potential misuse of indirect
foreign investment route in sensitive sectors.

Govt mulls waiving 120-cr potato loan

Atmadip Ray & Sutanuka Ghosal KOLKATA 

POTATO traders in Bengal may have something to cheer about during this Diwali. The finance
ministry is examining their demand to waive 120 crore of bank loans they had defaulted in 2008
and 2009 following a steep fall in potato prices after a bumper harvest. 
    The ministry has summoned United Bank of India, the convenor of state-level bankers’
committee in Bengal, to discuss the demand raised by cold storage owners who took bank loans
to on-lend to potato farmers. During 2008-09, farmers had failed to repay as they were forced to
offload their produce in distress sales as prices crashed owing to abundant production. Cold
storage owners, in turn, defaulted in paying back their bank loans. There are 400-odd cold
storages in the state for keeping potato. 
    Banks have restructured the loans and extended the tenure to five years to enable the traders to
repay them. But the cold storage owners have now demanded a complete waiver. 
    West Bengal Progressive Potato Traders Association president Sanatan Santra said cold
storage owners have written to Union agriculture minister Sharad Pawar to waive the loans that
they had availed from banks. “We have learnt that the agriculture ministry has in turn forwarded
the proposal to the finance ministry,” Mr Santra said. 
    Potato is the country’s top vegetable crop, taking a lion’s share of the total annual vegetable
production of 100 million tonne. West Bengal is the second-largest potato grower in India, and it
produced nearly 98 lakh tonne in 2009-10 against 55 lakh tonne in the preceding fiscal year. 
    Potatoes are normally stored during March-November. The cold storage owners are a bit
anxious this time too as a significant chunk of the crop is still left in storage. 
    In the first week of October, West Bengal finance minister Asim Dasgupta announced that the
government would release 10 lakh tonne through public distribution system and traders to put
check rising prices. But cold storage owners said not much movement took place even after the
announcement.
Microfin may be hot, but India scores below Peru, Bolivia
Philippines Offers Best Overall Healthy Regulatory Environment For Microfinance, Says A Study By
Economist
Atmadip Ray KOLKATA 

IN July 2010, when India’s largest micro lender, SKS Microfinance, became only the second
microfinance institution ever in the world to launch an initial public offering, investors from the
US and UK showed tremendous interest in raking in the mullah. The country’s microfinance
market has grown exponentially over the past couple of years and covered nearly 30 million
poor borrowers with nearly . 25,000 crore worth of small loans. 
    Yet, smaller countries like Peru, The Philippines or Bolivia, are believed to be ahead of India in
terms of microfinance business environment, regulatory framework and investment climate,
according to a study conducted by Economist Intelligence Unit (EIU), the business information
arm of The Economist Group. 
    India ranks eight in the overall tally, below Pakistan, which is less stable politically and
economically. Bangladesh, which has been on the global microfinance map owing to Professor
Muhammad Yunus and his Grameen Bank, ranks a poor 33rd and scored lower than it did in
2009. 
    According to EIU, Pakistan has advanced in terms of regulatory and market reforms. While in
its overview on India, EIU wrote: “The microfinance sector has continued to grow rapidly and
with it the need for better regulation.” EIU conducted the study in terms of three broad
categories: regulatory framework, institutional development and investment climate. 
    It noted that The Philippines enjoys the best overall regulatory environment for microfinance,
alongside Cambodia and Pakistan. In case of India, the failure to pass the proposed
Microfinance Bill, which has been pending in Parliament since 2007, has surely dented India’s
microfinance ranking. In the regulatory framework category, it ranks a joint 14th alongside El
Salvador, Nigeria and Rwanda. 
    EIU noted that although the Bill is expected to pass in 2010, it will not cover non-banking
finance companies and MFIs registered as not-for-profit entities, thereby ignoring over 80% of
the microfinance sector. Bandhan Financial Services CMD Chandra Shekhar Ghosh said:
“Pakistan has done well in creating a special regulation for microfinance. But India is well ahead
of Pakistan in terms of investment climate and institutional development.” 
    Incidentally, the rankings reflect Mr Ghosh’s sentiment. For the investment climate category,
India ranks 14, ahead of Pakistan’s 20th position. However, so far as institutional development
is concerned, India enjoyed the seventh position, higher than Pakistan’s 12. 
    The study covered 54 countries and provided a benchmark for the business conditions for
privately provided microfinance in countries. EIU said most of the research for this report was
conducted between August 2009 and May 2010. 
    About Bangladesh’ microfinance practice, EIU wrote: Bangladesh has a moderately restrictive
regulatory framework that serves to constrain a majority of MFIs and has a fairly consolidated
market.” Peru retained the first ranking in the second edition of the study while the Philippines
and Bolivia swapped positions and finished second and third respectively, this year. Pakistan
and Kenya joined the top 10, displacing Nicaragua and Uganda.

Ban gutka sachets, SC tells govt

New Delhi: The Supreme Court on Tuesday asked the Centre whether it was more interested in
the revenue generated by sale of gutka sachets, which experts call a poisonous cocktail of
tobacco and plastic, rather than the health of millions who consume it and invite cancer. A
Bench comprising Justices G S Singhvi and A K Ganguly asked the government to fix its priorities
and sought its response by December 2. “Do government authorities know how many cancer
patients are suffering from the harmful effects of gutka and paan. Can you (Centre) have
financial interests outweigh the health interest of people,” it asked. 
    These observations came on a bunch of petitions filed by gutka manufacturers, who
challenged Rajasthan High Court’s August 2007 decision banning use of plastic sachets for gutka
and paan contents. Resorting to ‘polluter pays’ principle, the HC had also ordered fines on
manufacturers using plastic sachets. Though on September 7, 2007, the SC stayed the HC order,
it sought assistance of the solicitor general keeping in mind the seriousness of the issue and had
made the Centre a party to the petitions. 
    S-G Gopal Subramaniam attempted to assuage the Bench’s concerns by saying, “We have
appointed a committee to look into these aspects. All we are seeking is time to file an affidavit
based on the findings of the report.” Though the Bench granted four weeks time to the Centre
to file the affidavit, it was unimpressed by the government’s stand. “The government is not
doing anything except appointing committees. There must be ban on sale of these items.” 
    Pointing out the environmental hazards posed by use of plastic sachets, the court gave an
illustration of how the Yamuna was being choked due to plastic waste. “The next generation
will thank us for choked cities and villages,” it said. 
    The S-G used the opportunity to pacify the Bench and said the good work done by the SC in
implementing the warning on cigarette packs had resulted in considerable decline in smoking.
“Today, people are willing to look into the aspect of health hazards thanks to the SC’s efforts,”
he said. 
    But it failed to yield the desired result. The Bench said, “The health hazard warnings on these
sachets are printed minutely. We feel the government is soft on dealing with these hazards.” 
    It was of the view that taking timely steps would not only curb health hazards but also
substantially reduce the expenses incurred for treatment of diseases, especially oral cancer and
tuberculosis, caused due to consumption of gutka and similar products. 

Farm labour realities

India's farm sector has traditionally enjoyed a low-cost edge because of cheap and abundantly
available labour in the countryside. The virtually nil opportunity cost of this workforce and
no value being imputed for unpaid family labour have often more than offset the
disadvantages of poor crop yields. But today this advantage, too, seems to be diminishing,
even as the other factors of production are turning increasingly expensive (land) or are
already priced above world levels (capital and energy). Combined with a strong rupee, this
raises concerns over the global competitiveness and very sustainability of agricultural
operations in the country. Consider this: During the current sugar year from October, mills in
Maharashtra have agreed to pay cane-cutting workers 23 per cent more than the rate
negotiated for 2009-10. In Tamil Nadu, of the Rs 1,900-a-tonne ex-field price that growers
are to receive from factories this time, Rs 350-400, or one-fifth, will go to the cane
harvesters. Sugarcane is not an exception: The story is the same, whether one is hiring hands
for transplanting paddy, harvesting wheat, picking cotton or plucking apples. And it is not
just labour rates, but actual scarcity — making it a seller's market during the peak season —
that is an issue. About four years back, Maharashtra had an estimated 9 lakh manual
sugarcane cutters; it is down by a third now.

What accounts for all this? A growing economy and the opening up of alternative
employment avenues in industry and services (especially construction) is an obvious
explanation. Equally important is the role of education. As families find it increasingly
worthwhile sending their children to school, there is an opportunity cost to working them on
the farm for free. Education, in turn, begets a disdain for manual labour and a spontaneous
urge to escape the ‘idiocy of rural life', to quote Karl Marx. If to these, the effects of the
National Rural Employment Guarantee Act and provision of highly subsidised grains to poor
households are added, the reasons for the tightening of farm labour markets aren't hard to
fathom.

The solution for this is, of course, greater mechanisation and harnessing technology to
improve farm productivity, though small landholdings make it uneconomical to invest in
costly labour-saving machinery. But there are ways to work around the problem. Farmers in
Punjab and Haryana, for instance, get most of their wheat harvested and threshed by
harvester-combine operators, who own the contraptions. There is no reason why many more
operations — from transplanting and ploughing to weeding and fertiliser application —
cannot be outsourced to specialised equipment and service providers, leaving the farmer to
just ‘manage' his farm. Custom hiring of farm hardware can even emerge as a business of the
kind rural microfinance is today. And with the right business model, an IPO may not be too
far!

Retail therapy: US prez to 

press for FDI
Wal-Mart CEO To Do Groundwork Next Week

Chaitali Chakravarty & G Ganapathy Subramaniam NEW DELHI 

    US PRESIDENT Barack Obama is expected to raise the issue of allowing foreign investments in
multi-brand retail during his visit next month, after Wal-Mart CEO Mike Duke sets the stage
next week with a strong pitch for liberalising the industry. 
    Mr Duke will land in India ahead of the US president’s visit and, in his first public meeting in
the country, will address an open session in FICCI, officials in the know said. He is expected to
present the largest retailer’s business case here. 
    “Wal-Mart is crucial for America and India is crucial for Wal-Mart,” said Harminder Sahni, MD
of retail consulting firm Wazir Advisors, adding that FDI in multi-brand retail should figure
prominently in Mr Obama’s talks with prime minister Manmohan Singh. 
    Getting into the retail business in India is important for Wal-Mart in view of the huge growth
potential here due to a booming economy and increasing incomes. Also, growth has stagnated
in the US, the retailer’s key market. The world’s largest retailer sold consumer goods worth
$405 billion in the fiscal year 2010. 
    Retail is among a handful of sectors which are not open to FDI and various proposals to open
up the sector landed on the back-burner due to political resistance and apprehensions that
hawkers, mom-&-pop stores and sundry retailers in the unorganised sector would be thrown
out of business. 
    According to an official in the consumer affairs department, which looks after policies
governing retail, a new proposal to allow 51% FDI in retail — tagged with safeguards — would
be floated soon. The outcome of this, however, will depend on the political response to the
proposal, the person added. 
    The government last month constituted an inter-ministerial panel chaired by Kewal Ram,
senior economic advisor in the consumer affairs ministry, to look into the matter. 
    The department of industrial policy & promotion (DIPP), a nodal authority for FDI-related
issues, and the consumer affairs department are also studying the feedback received from
various segments on opening up the sector. 
    In the past, both the departments favoured FDI in retail, but political opposition nixed their
recommendations. 
    While industry sources said Wal-Mart will make a strong case to push for FDI in retail during
Mr Duke’s visit next week, the company termed it as a routine visit. 
    “Mike Duke and other senior Wal-Mart officers are currently on an Asia visit to China, India
and Japan. This is a regular visit to review the business in markets where Wal-Mart is currently
operating,” Wal-Mart said in a response to queries from ET. 
    Recently, Wal-Mart’s India head Raj Jain wrote to the DIPP, strongly advocating opening up of
the sector to FDI. Responding to a discussion paper floated by the department, he said 100%
FDI should be allowed in retail without any restrictions and a beginning should be made with at
least 49% foreign investment in the sector. 
    The US-India Business Council and the American Chamber of Commerce in India have also
backed Wal-Mart’s stand. Leading French retailer Carrefour, Metro Cash & Carry, and
homegrown Pantaloon Retail have also backed liberalisation of the sector. Retail trade accounts
for nearly 8% of the GDP, according to DIPP estimates.

Finmin asks Andhra to tweak MFI ordinance

State Asked To Reconsider Issues Raised By MFIs

Our Bureau HYDERABAD 

THE ministry of finance (MoF) has asked the Andhra Pradesh government to reconsider certain
aspects in the microfinance ordinance that was issued by the state government last week.
Earlier, the Centre had also indicated that it would intervene by bringing about a policy to meet
the concerns of the government as well as MFIs. 
    Confirming the development, a top official in the Andhra government said, “We have
received a communication from the finance ministry and are examining it. They have asked us
to reconsider the issues that have been raised by the microfinance institutions. We firmly
believe that the state has the authority and can have a say on this subject. However, we will
look at it with an open mind,” he said. 
    The Andhra Pradesh government had come out with an ordinance to curb the money-lending
activities of these MFIs. The move was triggered by a spate of around 57 suicides, which the
state says is due to the coercive methods used for repayments and multiple borrowing by rural
households. 
    Self-regulating body, the Microfinance Network of India, had also approached the finance
ministry and the Planning Commission last week to look into the matter. MFIs have also
approached the Andhra Pradesh High Court seeking a stay on the ordinance. Their main
contention was that the state has overstepped its authority and has no right to act on subjects
that already fall under the Centre’s list. 
    The ministry of finance is also believed to have urged the state government and MFIs to opt
for an out-of-court settlement. But the state government, however, seems to be keen on
sorting it out the legal way. 
    “We are not interested in any out-of-court settlement,” the official said. In fact, the Centre is
also said to have written to the state government earlier this month and prior to issuing the
ordinance. It had then asked to study the effective impact of the ordinance on microfinance
institutions. 
    The Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance
mandates all MFIs to register with local and municipal governing bodies in each district within a
timeframe of one month. It had also restricted them to halt lending and borrowing activities till
the time they get registered and disclose norms. 
    Andhra chief minster Dr K Rosaiah had met authorities in Delhi prior to issuing the ordinance.
He later sought clarity from the finance ministry and the Reserve Bank of India over authority to
regulate the interest rates charged by these MFIs.
FDI, franchising and fast implementation of technology hold the key to retail growth in India

WHERE is the Indian retail sector headed, and what are the speed breakers in its path? What
can help retailers to accelerate growth without losing their existing momentum? At a recent CII
event, retail sector representatives from across India discussed the way forward and reached a
consensus on several issues. 
    “Retail is no more about selling, it’s about managing people. Building a showroom is not a big
deal in today’s world. When a regional retailer touches the double digit mark, he should start
expanding pan-country. After managing at least 10 stores he must have learnt the art of
retailing, so he should start looking for bigger markets, outside his zone,” Darpan Kapoor,
Director, Kapsons, pointed out. 
    Justifying his reasons for franchising, Sushanto Dey, MD, Sreeleathers, said, “A regional
retailer understands the taste of the consumer of that region very well. That is why we prefer
franchising in new markets. If I have to go to north or south I have to understand the market
mechanism of that area very well.” 
    Driving home the point of regional retail Manohar Chatlani, MD, favourite Shop, Bangalore,
emphasised, “Even within South India, there are a lot of differences. For example green is very
popular in Hyderabad, but it doesn’t do well in Bangalore. Retailers need to keep in mind their
TG, to grow big.” 
    Bijou Kurien, President and Chief Executive, Reliance Retail - Lifestyle felt that regional
retailers laid a lot of stress on the in flow of cash, whereas national retailers emphasized more
on store management. The reason for this he explained was the fact that the owner of a
regional retail store can visit his store everyday, but a national retailer can’t do so. “A regional
retailer should pay more attention to customer experience and store management,” he
reiterated. 
    Dinesh Talera, MD, Mysore Saree Udyog when he commented that discounts are no
parameter for attracting footfalls. Many regional retailers do so but it’s not a correct way to
grow. Customers should be given value for money and that is the only way to build a very good
rapport with the customers he observed. 
    During focused discussions on IT in Retail, the growing significance of tools such as bar coding
and RFID technology was highlighted. Data synchronization system which connects the front-
end with the backend formed the crux of the debate. “Usually retailers depend on forecast for
buying or replenishing their stocks. These forecasts are not always correct. IT can aid the
retailers in checking consumer buying patterns and align his merchandise accordingly,” said
Kumar Vembu, Founder and CEO, Go Frugal Technologies. He added that the use of technology
can even help reduce attrition “With the help of technology you are doing everything
hypothetically. You don’t have to listen to your boss,” he underlined. 
    Rajkiran Kangala Head BD, TCI Supply Chain Solutions, explained that, “Technology can fight
counterfeit. There are t e ch n o l o g i e s which can help in figuring out the authentication of a
product. People in India are scared of technology as they feel it will snatch away a great
number of jobs. But technology is not here to take away your job. It is here to aid you. Queue
busting is a problem in retail and one needs to understand that it can’t be tackled without
proper RFID system and bar coding system.” 
    Emphasising that you need money to achieve scale, for that you need FDI, Kishore Biyani said,
“It’s a collective failure on the part of the retail industry to have failed to convince the
government regarding FDI in Indian retail. The industry needs to come together and work
towards the same. It’s crucial to understand we need an initial investment in order to fulfil the
demand. Modern retail has a huge potential to not only benefit from India's increasing
consumption demand but also create demand for value-added products, boost local
entrepreneurship, create jobs and raise income levels.” 
    Ireena Vittal opined, “The law needs to balance both environments, maybe 49 per cent FDI
investment. Consumers are ready for organized retail, they do not differentiate between
foreign and local retail. All they look for is good variety and prices.” 
    Structured employment and better life for people are the two key issues that modern retail
can address. Speeding up the modernization process is extremely vital as the retail sector has
the ability to create some 10 million additional jobs in next 5 years time. Over one billion sq feet
of quality retail and entertainment space with annual revenue of Rs. 12,00,000 crore, a
whopping Rs. 1,30,000 crore in annual VAT collections and over Rs. 12,000 crore in additional
income tax revenues to the exchequer – all these can actually happen in just five years time.”

Value-add facilities at spice parks to benefit exporters,growers alike

PK Krishnakumar KOCHI 

A STRING of spice parks being launched by the Spices Board across the country is helping
exporters move up the value chain and growers absorb price volatility. 
    The board will spend around Rs 200 crore to set up the parks which will be specific to the
spices available in the region. The Chhindwara spice park in Madhya Pradesh was the first to
start operations with a focus on garlic and chillies. The spice parks have been envisaged with
common facilities such as cleaning, grading, sorting, steam sterilisation, warehouses and banks. 
    The dehydration and extraction units in Chhindwara is proving to be beneficial to onion and
garlic growers who can now afford to wait for higher prices. “The dehydrated commodities can
be stored for a long time,” says Mr Charles Kithu, director of marketing and finance of Spices
Board. India has seen a 300% rise in garlic exports this year. 
    Next in line are the cardamom and pepper spice parks at Puttadi in Idukki district in Kerala. E-
auctioning of cardamom has already been shifted to the park, the soft launch of which has
taken place. Other facilities like warehouses are ready. Cardamom Growers Association
secretary KK Devassia said the growers will easily get loan against the stock in the godowns as
both warehouses and bank are in one place. Cardamom now offered in bulk at the auctions can
be cleaned, graded and packed before presenting to the buyers. The allotment of land for a spice
park for chillies at Guntur is over and construction has begun, said Mr Kithu. Apart from the
warehouses, the board has plans for cold storages. A large number of cold storages have already
come up in Guntur augmenting the carry-over stock of farmers. 
    The construction of a spice park for turmeric, chilli and tamarind at Sivaganga in Tamil Nadu
is progressing. Jodhpur in Rajasthan for seed spices, Mehsana in Gujarat for coriander, cumin
and fenugreek; and Guna in Madhya Pradesh for coriander and cumin are the other parks the
board is targetting. 
    All India Spices Exporters Forum chairman Philip Kuruvila said that the board was likely to
invest more money in the parks for value-addition and exporters could benefit as such products
command premium prices abroad. “This is a unique concept not found in any other spice-
producing country,” he said.

Woman forced to abort at 8 months

Undergoes the pain of China’s one-child norm

Beijing: A pregnant woman in south China was detained, beaten and forced to have an abortion
just a month before her due date because the baby would have violated the country’s one-child
limit, her husband said on Thursday. 
    Construction worker Luo Yanquan said his wife was taken kicking and screaming from their
home by more than a dozen people on October 10 and detained in a clinic for three days by
family planning officials, then taken to a hospital and injected with a drug that killed her baby. 
    Family planning officials told the couple they weren’t allowed to have the child because they
already have a nine-yearold daughter, Luo said. 
    For the past 30 years, China has limited most urban couples to just one child in a bid to curb
population growth and conserve its limited resources. China has the world’s largest population,
with more than 1.3 billion people. Couples that flout the rules face hefty fines, seizure of their
property and loss of their jobs. 
    The case is an extreme example of the coercive measures Chinese officials sometimes use to
comply with the strict family planning regulations. Though illegal, police and judicial authorities
often look the other way when forced abortion cases are reported and the heavily censored
state media shy away from such news. 
    But in recent years, victims have begun to speak out about their ordeals with the help of the
internet and text messaging. Aiding them are social campaigners and lawyers who have
documented cases of forced late-term abortions. Similar abuses have been reported in Hebei
and Shandong provinces and in the Guangxi region. 
An official with the Siming district family planning commission, which oversees Luo’s
neighbourhood, confirmed there was a record of Luo’s wife, Xiao Aiying, undergoing an
abortion recently but said the procedure was voluntary and that she was about six months
instead of eight months pregnant at the time. Like many Chinese bureaucrats, he refused to
give his name. 
China bans forced abortions, but doesn’t prohibit or clearly define late-term abortion. The
Siming official said Xiao’s husband had approved the abortion, a claim Luo denied. 
“I never signed anything. No one in our family did,” he said by telephone from Xiamen.
AGENCIES

Coffee council study says importers quick in passing on price hike to retailers

Oct. 24

As world coffee prices hit new highs, the hike appears to be passed on immediately at the
retail level in importing countries. This relation is much stronger when price levels are high.
But during periods of low prices, downward adjustments is much slower, reveals a study by
the International Coffee Council (ICC).

The ICC conducted a study ‘Comparative analysis of retail prices of coffee in importing
countries' in 10 importing countries in September.

The study revealed that during the periods of rising world prices, rapid upward readjustments
of retail prices occurred in some importing countries. During periods of low prices, as was
the case in the period from 1999 to 2004, downward adjustments were much slower. The
situation is completely different in the case of Japan where retail prices show little relation to
world price changes.
Coffee roasting is an important component of the food and drinks processing industry in
many importing countries. Retail prices vary from place to place and exert an important
influence in the development of coffee consumption.

The methodology adopted by ICC is through an observation of average annual retail prices
during the period 1975 to 2009. The criterion for the selection of importing countries is based
on an average annual import volume of at least 1.5 million bags.

10 importing countries

Ten importing countries' average imports (in 60 kg bags) are as follows: Belgium (2,707
bags), France (6,113), Germany (12,990), Italy (5,316), Japan (5,217), Netherlands (2,859),
Spain (3,008), Sweden (1,634), UK(2,934) and US (20,753).

These importing countries hold the dominant share of the world's coffee processing industry
and account for nearly 71 per cent of total coffee imports by all importing countries. More
specifically, their share of world imports was nearly 69 per cent during the period 1990 to
2009 compared to 76 per cent between 1975 and 1989.

Indian exports substantial amounts of coffees to five of the ten coffee importing countries
which were part of the ICC study. During this calendar year (as on October 12), exports to
Italy stood at 64,453.1 tonnes, Belgium 12,216.1 tonnes, Germany 21,973.9 tonnes, Spain
7,433.6 tonnes and US 5,737.5 tonnes.

Green coffee

With regard to relations between prices of green coffee and retail coffee prices, study for the
entire period (1975 to 2009) relatively strong coefficients were recorded only in the case of
France, Germany and, to a lesser extent, Sweden, showing a positive correlation between the
ICO composite indicator price and retail prices in these three countries. When the broader
period is divided into two distinct periods, however, a number of countries show high
correlation coefficients.

During the first period, from 1975 to 1989, high positive correlations were recorded in six
countries, namely Belgium, France, Germany, Netherlands, Sweden and the US. Japan was
the only country that showed a (weak) negative correlation.

The second period (1990 to 2009), which is characterised by the absence of any intervention
mechanisms in the coffee market, showed positive correlations between the ICO composite
indicator price and retail prices in all importing countries. Japan and Italy, however, showed
lower correlations (below 0.5) between retail prices and international prices.
Retail prices (in $)

As for comparative analysis of changes in retail prices expressed in US currency is concerned

for the period 1975 to 2009, retail prices were highest in Japan and Italy while the lowest
average was recorded in the US. Retail price data for the UK are not directly comparable with
those in other countries since they relate to soluble coffee. During the regulated market
period the highest retail prices were recorded in Japan, Italy and Germany. This was also the
case during the free market period (1990 to 2009). On the other hand, comparison between
retail price changes during the recent period of relatively high world prices (2005 to 2009)
and variations in the preceding period when world price levels were very low (1999 to 2004)
shows that retail price increased in all the importing countries except Japan, where the retail
price fell by 24.7 per cent. Japan, Italy, Germany, Belgium and the Netherlands recorded the
highest retail prices while prices in the US remained relatively low.

Microfinance institutions cautious on IPO plans

Amit Mitra

Hyderabad, Oct. 24

Large microfinance institutions (MFIs) with an equity base of over Rs 500 crore that had
lined up plans to raise fresh capital, including through the IPO route, are at the moment
treading with caution.

This is in response to the unfolding developments in the MFI sector in Andhra Pradesh,
triggered by suicides among rural borrowers allegedly due to default in repayment,
subsequent bringing out of an ordinance by the State Government to check the functioning of
MFIs and the ongoing legal battle on the ordinance.

With the developments rattling the MFI industry, a clutch of about seven or eight major
MFIs, which had been enthused to take the IPO route after India's biggest MFI, SKS
Microfinance, raised $350 million in July, are preferring to wait and see how the legal battle
unspools before taking the plunge.

Tapping capital market

In the immediate aftermath of SKS's success in the stock market, MFIs such as Spandana
Spoorthy and Share Microfin, both based in Andhra Pradesh, had been considering tapping
the capital market.
Spandana, for example, was looking at raising upward of Rs 1,000 crore, on the strength of
its equity base of Rs 600 crore and outstanding portfolio of Rs 4,200 crore.

Although the MFIs are not willing to admit that they are cautious in their approach, industry
leaders feel that this is only logical under the prevailing circumstances.

“Certainly this is not the best time (for MFIs) to look for capital, especially using the IPO
route,” admits Mr Vijay Mahajan, President of Micro Finance Institutions Network (MFIN),
a MFIs apex body.

The Rs 30,000-crore loan portfolio of MFIs in the country is in fact dominated by about 10
major MFIs. For example, Sa-Dhan, a national body of MFIs, has 264 members, including
non-profits institution such as societies and trusts, with a loan portfolio of Rs 18,000 crore.

Another indication of the dominance of these large MFIs can be had from the fact that the
total borrowings of the 264 member-institutions of Sa-Dhan are about Rs 17,000 crore — of
this more than 77 per cent has been provided to these 10 MFIs.

MFIs may be under Nabard control soon

Deepshikha Sikarwar NEW DELHI 

    AWORRIED government has put on fast track the proposed bill to regulate micro-lenders,
as it seeks to ensure that over-regulation by states does not kill the sector that is envisaged to
play a big role in furthering financial inclusion. 
    The finance ministry could move a bill in the winter session of parliament that will make
Nabard responsible for the regulation of all non-profit microfinance institutions structured as
a trust, cooperative, or mutual benefit society. “Finance minister Pranab Mukherjee has put
the bill on the priority list for the winter session,” a finance ministry official told ET. 
    At present, micro-lenders follow the relevant sector law, depending on the way it is
structured. The new law will treat micro-finance as a separate business and will also consider
bringing non-banking finance companies in the micro-finance sector under the ambit of the
new law. 
    The decision to fast-track the bill follows the October 15 ordinance, or an emergency law,
issued by Andhra that imposed severe restrictions and debtrestructuring obligation on lenders
following a spate of suicides that were blamed on coercion by micro-lenders to recover their
dues. 
    The sudden sacking of Mr Suresh Gurumani as MD & CEO of the recently-listed micro
finance lender SKS Microfinance on October 4, 2010, by the company’s board has also
drawn attention to the industry. 
    As many as 15 states already have laws on money-lenders in place under which they try to
regulate the high interest rates and usurious practices followed by them. 
    States say that although the RBI protects the interests of depositors, there is no framework
to safeguard the interests of borrowers who are, at times, charged interest as high as 30%. 
    The finance ministry wants to prepare a comprehensive law after discussing the issue with
the regulators. 
    Industry experts agreed that there is a need for some form of regulation. “The activities
have to be supervised,” said Mathew Titus, executive director of Sa-Dhan, an association of
microfinance firms. “There is no framework for customer protection at present,” he said.
Microfinance Institutions Network (MFIN), the industry body, had challenged the validity of
the Andhra ordinance in the high court, which allowed them to continue their business. 
MACRO CHANGES COMING 
New law to treat microfinance as separate business and also consider bringing NBFCs in the
sector under the legislation 
Finance firms may have to create a microfinance business distinct from their other business
and asked to follow the new regulation 
Nabard to be responsible for regulation of all non-profit MFIs structured as trust, cooperative
or mutual benefit societies 
Bill to empower Nabard to appoint microfinance ombudsmen for settlement of disputes
between MFIs and clients 
MFIs may get access to retail deposits that will allow them to raise cheaper funds and lend at
lower interest rates 
Finance ministry has decided against suggesting a cap on interest rates in the draft bill 
Bill provides for registration of MFIs collecting thrift from individual members of self-help
groups or through a group mechanism 
It provides for creation of a reserve fund that would be 15% of a MFI's net profit or
surplus FinMin to ensure norms don’t kill micro-lenders 
The court said that the interest charged could not be more than the principal amount and that
coercion cannot be used in recovery. The finance ministry is keen on ensuring that from an
almost free reign, the regulation does not swing to the other extreme and kill the industry that
is still expected to play a big role in alleviating poverty by furthering financial inclusion.
Therefore, while regulations are most likely to get tightened, they may also give microfinance
institutions access to retail deposits that will allow them to raise cheaper funds and lend at
lower interest rates. 
    The finance companies may also have to create a micro-finance business distinct from
other businesses such as car/ truck loans and asked to follow the new regulation. Andhra
Pradesh chief minister K Rosaiah has written to the Union government asking it to bring
NBFC-MFIs under the ambit of the new bill. The governments of Gujarat and Kerala have
tried to put curbs on MFIs under their money lending Acts and look for greater clarity on the
regulatory framework of such institutions. The state governments are not equipped to handle
supervision and a sector supervisor is the need of the hour, said Mr Titus. However, the
finance ministry has decided against suggesting a cap on interest rates in the draft bill, said
another government official privy to the deliberations. He said the Andhra chief minister has
pitched for capping interest rate spreads of microfinance lenders at 8%. 
    The industry says the government should take into account the re-cent events when it
finalises the bill. "The bill should consider what is happening at the ground level...a regulator
by itself is not the solu-tion," said Gautam Bharadwaj, director, Invest India Economic Foun-
dation. 
    The Micro Financial Sector (Development and Regulation) Bill was first introduced in
parliament in 2007 by the government and was re-ferred to the standing committee on
finance. However, the bill subse-quently lapsed due to the dissolution of the Lok Sabha and
has been in the works since then as the government decided to hold consultations with the
stakeholders again. The new draft of the bill defines the role of regulator more explic-itly. It
has a provision for the registration of microfinance organisa-tions collecting thrift from
individual members of selfhelp groups or through a group mechanism. The bill provides for
the creation of a re-serve fund that would be 15% of a microfinance institution's net profit or
surplus.

Farmers ready to part with land

Steel Companies Go Ahead With Projects Sans Hurdles In The State
Anil Kumar M | TNN 

Bangalore: Karnataka’s political classes might be striking deals and engaging in a war of
words, but this has in no way affected the smooth progress of work for some of the multi-
billiondollar industrial projects in the state. 
    ArcelorMittal, the world’s largest steel producer, which plans to set up a 6-million tonne
per annum plant in Bellary district with an estimated investment of Rs 30,000 crore, is now
seeing farmers come forward to accept compensation for their land, to be acquired for the
project. 
    Initially, certain farmer groups in Bellary had opposed the steel giant’s plans as they were
seeking compensation higher than what was fixed by the state government. ArcelorMittal
would be requiring around 4,000 acres for its steel plant and the government has fixed land
compensation rates in three slabs — Rs 8 lakh, Rs 12 lakh and Rs 16 lakh per acre. 
    According to large and medium industries minister Murugesh R Nirani, farmers have
started accepting the compensation amount and he expects this number to rise substantially in
the coming weeks. Giving other sops to the farming community, the minister said that
priority of jobs in the ArcelorMittal steel plant would be given to those farmers who come
forward to accept the compensation amount. “The new development land compensation
policy by the government will add a great deal for the land losers,’’ Nirani told The Times of
India. 
READY AND RARING 
ArcelorMittal is the first to get off the block in setting up its steel plant in Karnataka, being
among the many who signed agreements with the government during the Global Investors’
Meet in June. At GIM, Karnataka received investment proposals worth Rs 4 lakh crore from
diverse industries and sectors. CM B S Yeddyurappa has already formed a cabinet sub-
committee to dole out incentives for proposals signed during GIM. Further, there is also
another committee headed by chief secretary S V Ranganath, monitoring all the investment
proposals on a monthly basis. 
    Nirani said the industries department also formed a separate team to monitor the progress
of the investment proposals. “Earlier, it was industries who were asking us about the progress
of their investment proposals but now it is the other way round,’’ he remarked. 
STEEL FIRMS PAY UP FOR LAND 
During the GIM, it was the iron and steel sector which attracted the highest attention with
investment proposals worth Rs 2 lakh crore, which included companies such as Posco,
Bhushan Steel and Essar. The state government has earmarked the districts of Bellary,
Raichur, Koppal, Bagalkot, Gadag and Haveri as the proposed steel zone. 
    Most of these companies have already deposited huge sums of money with the Karnataka
Industrial Areas Development Board (KIADB) for acquisition of land. Posco has deposited
Rs 60 crore and sought 2,500 acres in Koppal district. Essar Steel has deposited Rs 25 crore
to acquire 1,500 acres in Gadag district for its 6 mtpa plant. Besides these steel majors, the
others who have also deposited the money towards land acquisition include Brahmani Steel,
seeking 5,000 acres in Bellary district, as well as Bhushan Steel for 4,000 acres in the same
district. Surya Vijayanagar Steel has sought 500 acres in Bagalkot district.

Bt is only hype, no results’

Farmers Aren’t Impressed
TIMES NEWS NETWORK 

Bangalore: More hands have joined to support the cause of ‘Kisan Swaraj’ and ‘safe food for
all, sans Bt’. Adding momentum to the cause, the Kisan Swaraj Yatra reached Bangalore on
Sunday. 
    At a public meeting in the Institute of Agricultural Technologists (IAT), Kodihalli,
Chandrasekhar, president, Karnataka Rajya Raithara Sangha (KRRS), said over 5,000
farmers from the state will join the yatra when it ends at Rajghat in New Delhi on December
11. 
    “Almost the entire nation is united against Bt. But the agriculture minister seems to be
more interested in cricket. Even the government has been sleeping on such vital issues. We
farmers cannot be forced into Bt,” Chandrasekhar said, adding that the Centre must scrap
agreements with corporations like Monsanto as “they are only interested in profiteering at the
expense of poor farmers.” Enlisting other demands of framers, he said: “State agricultural
universities must be directed to stop GM crop trials as this will be against the organic farming
policies being pursued by the government. Even USAIDsupported Bt brinjal must be
cancelled.” He asked the Centre to play a pro-active role in legislations like Seed bill and bio-
technology regulatory authority of India bill. 
    Farmers and activists out on the yatra from across the country shared their experiences
about Bt. Kultar Singh, a farmer from Punjab, detailed out how these issues have now
reduced his state to a ‘dying civilization’. “The country must learn from our experience.
Today, no farmer’s son wants to pursue agriculture as also any graduate in agricultural
science,” he said. 
Cotton bluff? 
    Even after several years of cultivation in Karnataka, Bt cotton hasn’t lived up to its
promises. Kavitha Kuruganti of Kheti Virasat Mission proved this with records from the
directorate of agriculture. After the advent of Bt cotton, yields have dramatically fluctuated in
top five cottongrowing districts of the state. Secondary data shows Bt cotton has worked well
only under irrigated conditions. But, most cotton cultivations happen only under nonirrigated
conditions. Killing fields: toxic soil alarms farmers Want To Switch Over To Organic
Options Jayashree Nandi | TNN 
Bangalore: How toxic is the soil in the state’s agricultural areas? The subsidized chemical
fertiliser use of Shimoga taluk alone was 284 kg/hectare this kharif season, that’s more than
double the national average. The use of toxic elements like urea has increased about 2.5
times, Diammonium Phosphate (DAP) about two times, and potash about three 
times in the past decade in one taluk alone. The audit was conducted by a coalition of
environmental organizations like Greenpeace, Environmental Study Centre and SOIL. 
    This is one of the revelations of a social audit conducted in Shimoga district among 200
farmers in different taluks. Strangely, even farmers are noticing the degradation in soil
quality and voiced their intention to move away using toxic pesticides and fertilizers. 
TOXIC MIX 
The survey reveals that farmers in Shimoga started using mixtures of fertilizers in the past ten
years. A majority agreed that fertilizers could lead to soil degradation and about 50% stated
they use chemical fertilizers only because there’s no other option. Almost 90% of farmers use
some form of ecological fertilisers also. A majority is unaware there are subsidies for 
chemical fertilizers. Over 93%, stated they would prefer organic fertilizers over chemical
fertilizers, if organic fertilizers are subsidised and made easily available. 
    About 80% of farmers make their own decisions on agriculture matters and fertilizers and
don’t depend on advertisements. 
    Strangely, about 27 farmers surveyed did not use fertilizers at all. 70% of the farmers
understand that fertilizers lead to soil degradation and about 50% use them despite knowing
its health impacts. Only 2% use it because it’s cheaper and about 20% use it because experts
recommended it. 
    Many farmers also knew the health impacts. “Those who were using it complained about
health issues like breathing problems.Some said even cancer cases were surfacing and many
had severe skin disorders,” GL Janardhana of Environmental Study Centre told TOI. 
    “It’s shocking to know that in a state like Karnataka, seen as a leader in organic farming,
there could exist pockets of fertile land being degraded by chemical fertilizers. Given that the
majority of farmers want to replace chemical fertilisers with organic ones, the government
must seek subsidies for them from the Centre,” said Jai Krishna, sustainable agriculture
campaigner, Greenpeace. 
WHAT THE SURVEY SAYS 50% farmers use chemical fertilizers only because there’s
no other option. 90% of farmers use some form of ecological fertilizers also 93% , prefer
organic fertilizers overchemical fertilizers 80% make their own decisions and don’t depend
on advertisements

Akula has trouble sharing power & sharing credit, says estranged wife

    MALINI Byanna, the former wife of SKS Microfinances’ Vikram Akula, for the first
time came out in the open and gave her side of the story. In an exclusive chat with
Avishek Maitra from ET NOW, Byanna, a lawyer by profession, speaks about her days
as director at SKS Foundation and the way Vikram Akula manages SKS Microfinance. 

After a successful IPO, the CEO of SKS Microfinance, Suresh Gurumani, was sacked.
What could be the possible reasons? 
To be honest, I was not surprised. Vikram Akula has trouble sharing power, sharing credit,
and sharing the glory for the accomplishments of the organisation. There has been a long
history and pattern of this, dating back to the period when we were married. When I learnt of
this, my first thought was that Suresh Gurumani was the tool that Vikram Akula used to
ensure a successful IPO and then a power struggle started. Any dissenters to his vision or any
challengers to the credit he might receive or have to share would be then pushed out of the
organisation. Given that the IPO was so successful, I can’t imagine that non-performance
could be the reason why Gurumani was asked to leave or eventually sacked. There are also
reports that suggest Gurumani was going to quietly resign with an agreement that included a
severance package and with the benefits that came with it. But when he did see the final
proposal or the proposed severance package and decided not to resign, he was sacked. So,
those erroneous clauses call into question the corporate governance issues within the
company. 
You have been on the board of SKS Foundation earlier. Could you take us through
what sort of corporate governance norms were being violated in the company? 
    One of the reasons for my separation and divorce from Vikram Akula involved certain
activities and certain requirements that he was asking of me that were illegal and unethical.
He was my husband and we had a business relationship as well. I was not aware of the Indian
laws and there were many things that I was asked to do, including writing fraudulent
immigration letters, bribing public officials and also covering up of shifting of finances and
funds between programmes at a time when we had secured funding or grants for the SKS
education programmes. 
    The programme was dipped into without the board’s knowledge to make up for a deficit in
the bankrupted SKS Microfinance programme. I confronted Vikram Akula about this, hoping
that as his wife and business partner, we could resolve this. The SKS Foundation board
started to ask him some tough questions on the expenditures. Vikram Akula resisted those
questions and I had to remain silent. When I could not resolve the issues with him, I tried to
get help from his family. I didn’t get co-operation there. So, I brought this issue to the
attention of some of the officers of the SKS foundation. 
    I, at that time, decided that I needed a legal separation both personally and in terms of our
business. There was a board meeting that was scheduled for October 7, 2001, where we had
an agenda. I was going to request that the SKS Foundation and SKS Education be legally
separated from SKS Microfinance and SKS Technologies. I would have primary oversight
and management of the SKS Foundation and Education and Vikram Akula would have SKS
Microfinance and SKS Technologies. He knew that all these problems within the
organisation would be brought to the attention of the full board. Because he didn’t want any
of these things be disclosed in a formal board meeting, he obtained ex-parte orders three days
before the board meet, abducted my child from my parents’ home and threatened to legally
confiscate my son. At this point, I cancelled the board meeting. He was furious, and I was not
allowed to go near the SKS Foundation office because he thought that it would preclude me
from attending the board meeting. He used my son, Tejas, as a cohesive tool to back away
from my challenges and the legal steps to protect myself. The general pattern is that he didn’t
want to share any of the power, he didn’t want the separation. “I am going to steal your baby
from you unless you back down, I don’t want you be the whistle blower, I don’t want you to
be the challenger, I want to run this organisation in an autocratic way, making unilateral and
covert decisions,” he said. 
A firm is required to give full disclosures to Sebi before listing. So, you are saying SKS
Microfinance has not made full disclosures? 
    There is a lot that has not been disclosed to the public. I had to actually file a complaint
with Sebi when I first saw the red herring prospectus. Many of the pending proceedings
against Vikram Akula and/or the members of his company were not disclosed. In the first red
herring prospectus, some criminal complaints were not disclosed. There was a criminal
trespass complaint that was pending in Hyderabad for forcefully entering the place which I
had leased and had exclusive possession of. There is also a criminal case pending against
him. Then, the case of his executive assistant and HR manager fraudulently obtaining and
producing Jet Airways boarding passes and e-ticket itinerary in the names of me and my son
on a date when we never approached or entered any airport was not disclosed. There are
pending proceedings in Illinois in the Circuit county domestic relations division against
Vikram Akula, including a petition for child support. 
    He had not turned over full discovery for four years. After we learnt that he had bought a
4,200-sq feet home in Illinois, we learnt that he earned an income much more than what he
had been disclosing to the courts and filed a petition for modified child support. In doing so,
we discovered that he failed to turn over his 2008 tax returns. There is now a petition for
adjudication of indirect civil contempt for failing to turn over his tax returns pending against
him. I have also learnt that in 2008, when he did not file his tax returns, he paid Rs 31 crore
as taxes to the Indian government. My son is entitled to 20% of his income on which his
taxes are based. So, he had a huge incentive not to turn over his taxes returns because then his
child support obligation will exponentially increase.

Vikram Akula & Malini Byanna in earlier days

Varun Berry is new CEO of PepsiCo India Foods

Ratna Bhushan NEW DELHI 

VARUN Berry, a PepsiCo veteran of 17 years, will take over as CEO of its foods division in
India, where the US foods and beverages major is adding healthier foods to its portfolio to
check eroding market share in the snacks business. 
    Mr Berry, designated CEO of PepsiCo India Foods, will also oversee the company's
recently set-up lowcost foods division, say two officials in knowledge of the development. 
    Before this, Mr Berry was at PepsiCo Dubai and was the CEO of International Dairy &
Juice, a joint venture between PepsiCo and Almarai to manufacture and market dairy
products and juice in the Middle East, Africa, the Indian subcontinent and South East Asia. 
    Mr Berry, in his late 40s, succeeds Frito-Lay's former head Gautham Mukkavilli who has
been relocated to the firm's New York office. 
    Besides stepping up PepsiCo India's portfolio transformation to healthier foods, Mr Berry's
immediate priority will be to counter stiff competition in the snacks category, which the US
major has dominated in India for more than a decade now. 
    Its Lay's potato chips, Kurkure and Lehar namkeens have been losing market share to ITC,
Parle and regional rivals such as Balaji Foods and Haldiram as well as private brands of
retailers such as Future Group and Spencer's. 
    A PepsiCo India's spokesman declined comment on the matter. 
    An alumni of Punjab Engineering College and an MBA from Panjab University, Mr Berry
cut his marketing teeth at Brooke Bond India in 1986, where he worked as marketing
manager for six years. 
    After joining PepsiCo in 1993, Mr Berry has worked across markets such as the Middle
East, Philippines, Vietnam and India, on various categories, including dairy, juice and tea.

India, China boundary talks in Nov

Inclusion Of Arunachal In China’s Online Map Causes Concern
Indrani Bagchi | TNN 

New Delhi: India and China will hold their next round of boundary talks at the end of
November. It will be the first round to be held this year and the first with Shivshankar Menon
as the chief negotiator. 
    The India-China story has acquired certain dark overtones, particularly on the boundary
question which has become a lot more complicated after China inserted itself into the Jammu
& Kashmir issue, while maintaining relentless pressure on Arunachal Pradesh — the latest
provocation being to include it as Chinese territory in online maps. 
    The resultant strain in ties has not been good for either side. So Zhou Yongkang, one of the
most senior members of China’s powerful Politburo, will lead a high-level delegation to India
to attempt to sort out some of these difficulties. The high-level Chinese visit will be followed
by a visit by Chinese premier Wen Jiabao early next year. 
    Sources said the Chinese leader was coming with an important message. But Indians are
also gearing up to deliver a strong message on recent Chinese behaviour. As China continued
with issuing stapled visas to Kashmiris, cold-shouldering an Indian Army general, B S
Jaswal, and involving themselves in Gilgit-Baltistan, India has been trying to grant incentives
for better behaviour by Beijing. But clearly that is not working. 
    When Menon met the Chinese leadership in July in an attempt to reset the relationship, his
most detailed and frank discussions were with his counterpart Dai Bingguo on the boundary
negotiations. Menon is believed to have told Dai that repeated assertions by China on
Arunachal Pradesh would indicate to New Delhi a nonserious approach by Beijing to
resolving the boundary issue. 
    But it’s China’s new-found role in Kashmir that is of greater concern to India, said sources.
While on the one hand they maintain it is a dispute between India and Pakistan, their actions
on the other have mounted concern here. 
    What’s added to the concern is that Pakistan appears to have ceded responsibility of the
part of Kashmir it occupies to China. For the Pakistan army, which controls its India policy,
this is an excellent way of getting China involved in security in Kashmir, should India want
to take a military stance there — perhaps in the aftermath of a Pak-sponsored terror attack in
India. In other words, if India considers military retaliation, it will have to factor in the
Chinese presence. So China is Pakistan’s insurance policy in Kashmir. 
    It means, sources said, that China has been inserted into the Kashmir debate, which is a
significant shift in policy. As one senior official observed, “What you are seeing now is a
game that’s begun. New rounds will increasingly see them realise that tension between the
two of us isn’t good for the region.”
MAN AT THE HELM: Wen Jiabao

Green Bank in works to power renewable energy projects

Funds For Proposed Bank To Come From Coal Cess, Says Farooq Abdullah
Subhash Narayan & Rajeev Jayaswal NEW DELHI 

THE government is planning to set up a green bank by leveraging the . 5,000-crore national
clean energy fund expected annually through a cess on domestic and imported coal. 
    The proposed bank will fund projects to generate electricity from wind, solar, tidal and
other renewable sources, which currently contribute about 6,000 MW in India's power
capacity of about 150,000 MW.
    India has the potential to generate 80,000 MW from non-conventional sources, according
to estimates of the ministry for new and renewable energy (MNRE). 
    "Our ministry is working on a proposal to set up the green bank," Dr Farooq Abdullah, the
union MNRE minister told ET. 
    The ministry plans to use only part of the national clean energy fund for its programmes. 
    "A large part (of the fund) will still be available with other ministries involved in reducing
India's dependence on fossil fuel and protecting our environment," Dr Abdullah said. 
    The fund set up by finance minister Pranab Mukherjee in the union budget 2010-11, is
expected to raise about . 4,500-5,000 crore this fiscal year, an official working in the finance
ministry said. The government levies a . 50 per tonne cess on both domestically-produced and
imported coal. The cess aims to fund research and innovative projects in clean energy
technology. 
    MNRE-proposed bank will be linked with the Indian Renewable Energy Development
Agency (IREDA), a government-owned non-banking financial company, an official directly
involved with the matter said.
    The ministry may even consider converting IREDA into a green bank. "Details (structure
and function) of the proposed green bank are yet to be finalised," the official, who did not
wish to be named, said. 
    IREDA, established in 1987, promotes renewable energy and energy conservation projects.
MNRE is its administrative ministry. Besides tax free bonds of . 250 crore, IREDA's prime
lenders include Indian banks and multilateral agencies dedicated to protect the environment.
The concept of such a bank is not new. Clean Energy Development Bank of Nepal is
operational since 2006 in a joint venture with the Netherlands-based financial institution
FMO. 
    MNRE expects rapid expansion of renewable energy projects, especially solar power in the
country that will require dedicated funding. India is already one of the world leaders in
generating wind energy.

One-year MBAs, the way to go

R T KRISHNAN & J RAMACHANDRAN 

    WITH the costs of higher education in the US rising at a rapid pace, their model has
recently been subjected to severe criticism. In a stinging critique, recent articles in The
Economist and the The Washington Post ask whether US higher education, currently the toast
of the world, will suffer the same fate as the US automobile industry — i.e., become too
bloated and expensive to survive. We know that the only way to attain developed country
standards in health or education is to adopt resource-light strategies that don’t emulate the
resource-intensive models of the West. Yet, in higher education at least, India is imitating the
developed world. 
    An egregious example of resource wastage is the two-year MBA programme. In schools
like the IIMs, more than 90% of the MBA students are engineers, often from the country’s
top engineering colleges. They are trained to be quick, adaptable learners. How long ought it
take to provide such a highly skilled crew with the management arsenal they need to
succeed? 
    Surely, not two years. Already, business schools across the world provide the core of the
MBA programme in about 45-50 classroom days in their executive education programmes.
So, it seems reasonable to cut down the duration of the programme substantially. Unlike
North American business schools, the majority of European business schools (including
leading schools like INSEAD) have favoured the one-year model. There is no sign that the
market finds their graduates any less competitive than the products of two-year programmes.
The impact of the one-year programme is also being felt in North America with Canada’s top
b-school, the Ivey School at the University of Western Ontario, adopting the one-year model. 
    For Indian business schools, it may be wiser to follow the European model. Predominantly
publicly-funded, like the IIMs, European business schools have had far and weaker resource
bases as compared to most US ones. The one-year MBA enables better utilisation of scarce
resources while meeting growing demand for business education. Second, it is no secret that
most MBA students at the top institutions slack off after the completion of the first year. By
that time, they have completed the core curriculum that gives them the vocabulary and basic
knowledge and techniques they will need in their managerial career. More importantly, the
range of their grades is established by that time. This is important as companies typically use
grades for shortlisting candidates for job interviews. 
    The growing trend among companies to offer ‘pre-placement offers’ to students based on
their summer internships has only exacerbated the observed slacking. Moreover, as Prof
Datar and others have stressed in Rethinking the MBA, the second year of the programme
“consists of a potpourri of electives, driven largely by the academic interests of individual
faculty or departments, from which students choose as if they are facing a smorgasbord or a
buffet table. This is hardly a prescription for effective design or an approach that maximises
learning or educational impact”. 
    What about the summer internships, often mentioned as one of the main justifications for
the two-year duration? While internships give students who lack prior work experience
exposure to business organisations, the purpose they really serve is providing cheap labour to
companies and allowing a low-cost trial of potential employees. Why should MBA students
be indirectly subsidising companies through the high fees they pay? And more fundamentally
in our context, why should scarce public resources be used to subsidise the companies?
Besides, today there are many alternatives to summer internships. Practice courses, ‘real-time
projects’ and opportunities for consulting can be dovetailed with regular course work to
provide organisational experience. 
    An 11-month MBA programme would be more resource-efficient for the students, the
educational institutions as well as the country. It is possible to provide a comprehensive core
and a limited set of electives to students during this timeframe. The advantages are obvious:
less infrastructure investment; a smaller number of faculty needed by the business school;
lower opportunity costs and quicker earning opportunities for students. This will solve the
acute faculty shortages that we will otherwise face in the years ahead. We can immediately
double the capacity of the MBA programmes at the IIMs that today admit just about 2,000
students every year. 
    Companies the world over have proved that high returns on investment can be generated
by leveraging assets and turning over inventory rapidly. Why not do the same with our
management education? Let’s leverage our country’s brightest better. Let society have access
to their talent faster. Let us reinvent our management education and make the one-year MBA
programme the standard model! 

Higher production in AP hits tobacco prices

Sreekala G HYDERABAD 

TOBACCO farmers in Andhra Pradesh are a worried lot and so is the export community.
While farmers are unhappy over the low prices, exporters may have to cope with less demand
and falling prices owing to high production in Zimbabwe and Brazil. 
    This season, there has been a 
marked slump in prices across all auction platforms in Andhra Pradesh. “The average price
has come down to Rs 80-85 a kg, down over Rs 20 on the aggregate as against last
year’s average price realisation of Rs 103.4 per kg. Considering that this year the crop sold in
the state is about 215 million kg, farmers are facing a collective loss of about Rs 480
crore,” said Y Sivaji, president of the Indian Virginia Tobacco Growers Association. 
    Andhra Pradesh accounts for 70% of the country’s FCV tobacco production. In the state,
tobacco is cultivated on 3 lakh acres by about 43,000 farmers. 
    While farmers blame the long-drawn auction overlapping with Karnataka as the main
reason for the lower prices, G Kamalvardhana Rao, chairman of Tobacco Board, says quality
was low this year. “This season, around 40% of the crop auctioned was of low-grade variety.
This has resulted in lower prices,” he said. 
    This season, the board had fixed the crop size at 170 million kg and the production was in
excess by 40 million kg. “To ensure transparency and better pricing for farmers, the board
has decided to introduce e-auction. We will invest about Rs 24 crore to implement this in 20
platforms of Andhra Pradesh and 11 platforms in Karnataka,” he said. 
    Meanwhile, exporters say they will not be able to take advantage of this year’s low prices
to gain good margins. “This year, prices are low in Andhra Pradesh due to excess production.
Besides, quality is also a concern. With Zimbabwe and Brazil reporting better than expected
crop this year, there can be fall in tobacco prices globally,” said YV Rao, exporter and
managing director of Best India Tobacco Suppliers. 
    However, he maintains that it is too early to give any projections on export orders as the
tenders from other countries including Egypt and Tunisia will be finalised by January. Last
year, tobacco production in Andhra Pradesh was 203.94 million, of which 60% was for
exports. 
    “Global demand is expected to come down for Indian tobacco due to the availability of
quality crop in other countries. This could affect export margins and by end of December we
will get a clear picture and global demand and supply,” said an official from a leading
tobacco exporting company.
Cotton and the laws of natural selection
Nidhi Nath Srinivas 

LONGafter it’s over, 2010 will be remembered as the year that separated the men from the
boys in India’s cotton business. If you are smart and the right size, growing, making and
selling cotton fibre and clothes has never been more lucrative. 
    Even a one-acre farmer in Gujarat is today earning Rs 54,600. Last year he made Rs
36,000. That’s a 50% jump in income though his field has produced only one extra quintal.
And the season has not even kicked off. Large farmers that get higher yields through drip
irrigation and high-tech seeds are earning in lakhs. Big ginners and exporters are equally
delighted, with an 84% jump in cotton exports worth extra Rs 300 crore. It will take deeper-
than-usual pockets to buy, hold and trade 34 million tonne cotton at current prices. That
clears market clutter. 
    Business is brisk for big spinning companies. While production is rising 4% annually,
consumption is rising twice as fast. Exports are likely to double over last year and fetch Rs
1,800 crore. Cotton and yarn exports will earn India Rs 2,100 crore. Not bad. Perched at the
top of the value chain is the giant weaving and clothing industry that claims to be in the midst
of a life-threatening crisis. Yet not everyone is feeling equal pain. The garment industry is
worth Rs 3 lakh crore. Of this, domestic sales are Rs 2 lakh crore. Or you and I buy more
than half the clothes and fabric. And we are hardly in a position to worry about expensive
jeans, shirts, curtains and children’s clothes when food, travel, rent, and everything else in
our shopping basket are so costly. Indeed, we aren’t even complaining. 
    Big players such as Aarvee Denims, Reliance Industries and Gokaldas Exports raised
prices by 15% this month. World’s biggest denim maker Arvind Ltd, supplier to Levis, Lee,
Wrangler, Color Plus, Killer, Arrow and Park Avenue, is now charging Rs 15/metre extra for
denim that used to sell for Rs 130. Instead of baulking, we are buying more. Branded clothing
sales are up by a fifth in last three months and the festival season has just begun. 
    Only the one-third output which is exported is troubled. Yet the situation is not dire.
Apparel Export Promotion Council says shipments till end-August were just 14% lower than
target. And targets are hardly cast in stone, as any parent of a teenager can tell you. Margins
are under pressure because recessionhit American buyers — our biggest customers — are
bargaining harder. With so many countries jostling for business, Indian exporters can’t pass
on entire raw material cost. But they still have an edge because India has the world’s cheapest
cotton. Watching only the fittest survive has the government in knots. With cotton beyond
control, it now wants to check yarn prices. Options include imposing an export duty on yarn
by introducing count-wise tariff lines or quantitative restrictions. A group of ministers will
decide what to do this week. 
    The big question is who would this help? The biggest players will obviously exploit
cheaper yarn the most. So rather than suppressing prices, targeted schemes will go further to
help powerloom weavers who can’t afford yarn today. The way BPL cards work. And though
Tirupur hosiery makers are politically savvy and vocal, destroying a free market won’t
resuscitate their high-cost and fragmented business. Or recover lost jobs. Consolidation and
efficiency are the answer. It will become increasingly difficult for winnows in the textile
industry to survive the coming years. India’s cotton acreage is saturated but industrial
capacity is expanding. Machines must replace expensive labour. 
    Eventually only companies with strong cash flows and pricing power will be able to afford
expensive cotton — local or imported — and also charge us a fancy price. This churn is never
a pretty sight. Indeed, the human suffering is terrible. We’ve seen it before. A 2,500-tonne
sugar factory can never compete for cane against a 10,000-tonne factory. Tiny ‘kachi ghani
kolhus’ have given way to giant refineries. Lakhs lost their livelihoods. 
    Unless the small player compensates with extraordinary nimbleness or specialization,
existence is impossible. Frantic TN textile industrywallahs are threatening murder at the polls
if government takes away their life support. So it won’t. That only postpones the inevitable.
It’s the old law of natural selection. Meanwhile, raise a toast to 2010. Cotton is the new white
gold. 
    nidhi.srinivas@timesgroup.com 

Soaring food, property prices trouble China

David Barboza SHANGHAI 

CHINA’S roaring economy slowed in the third quarter, rising at an annual rate of 9.6% after
the government took steps to prevent overheating, according to data released Thursday. But
inflation last month hit its highest rate in nearly two years. 
    The government said the consumer price index (CPI), the broadest measure of inflation,
rose 3.6% from the previous September. It was the highest rate in China since 2008, largely
because of food prices, which rose 8% last month. Analysts said the slowdown was a return
to normal, sustainable growth, rather than the beginning of a slump. 
    “I expect growth to continue to slow a bit more in the fourth quarter as energy-saving and
property-tightening measures take hold and exports continue to decelerate,” said Wang Tao,
an economist at UBS in Beijing. But, she added, “growth remains very strong.” The main
issue for Beijing now, economists said, is containing inflation and rebalancing the economy
in favour of domestic consumption. The inflation report, and other economic data released in
recent weeks, point to one of the central challenges that now face Beijing policy makers: how
to prevent soaring food and property prices from creating social problems and undermining
the nation’s economic boom. Those challenges were probably behind the central bank’s
surprise move Tuesday to force banks here to raise the benchmark interest rates on lending
and deposits by 0.25%. 
    The decision was meant to force borrowers to pay more interest and to provide higher
interest rates for savers. The government has indicated that it hopes the decision will slow
property purchases and encourage people to keep money in the bank rather than spending and
driving up inflation. But some analysts say the initial move may not be enough. Consumers
are benefiting from strong economic growth, with the nation’s gross domestic product (GDP)
moderating from about 10.3% in the second quarter this year. But they are increasingly
anxious about rising prices for a wide variety of goods. 
    “The purchasing power of households is being eroded,” said Ma Jun, a Hong Kongbased
economist at Deutsche Bank. “These low rates are basically a subsidy to corporations by the
household sector.” 
    Interest rates on savings deposits in China recently fell to about 2.25% a year before the
decision Tuesday. (The government-mandated rate is now 2.5%.) But inflation has risen
steadily this year, which means bank depositors are essentially facing a negative interest rate
return. 
    Analysts say negative returns have persuaded many consumers to invest in real estate,
which has served to fan property speculation and higher prices, alarming those who have not
yet bought a home. Meanwhile, low corporate borrowing rates have given companies cheap
capital and strong incentives to borrow and invest. 
    And yet, things may be even worse than the consumer price index suggests. A growing
number of analysts say inflationary pressure is stronger than the price index indicates,
because it is heavily weighted toward food, particularly pork prices. 
    Rising energy, property and transportation costs are not as significant a factor in the index.
And even the price increases of many food items — aside from pork — are also not
adequately weighed or calculated, analysts say. 

MFIs selling NCDs to raise funds

Shailesh Menon MUMBAI 

ESAF, Spandana, Equitas and Share Microfin are among a number of micro-lenders rushing to
sell non-convertible bonds (NCDs) to meet funding needs as state-run banks close the tap and
regulators scrutinise their practices that could crimp profitability. 
    These companies who were credited with taking financial inclusion to villages after what even
the nationalisation of banks failed to achieve, may raise about 6,000 crore in the next year as
banks are unlikely to ease lending to them immediately. 
    “Several tier-2 MFIs are looking to raise money through NCDs,” said K Paul Thomas, CEO,
ESAF Microfinance. “Lenders like Grameen Koota and Equitas have already raised funds
through this route. We’re in the final stage of issuing our first NCD series.” 
    The microfinance industry has fallen into tough times on allegations they are charging
exorbitant interest rates, leading to comparisons that they are as usurious as rural moneylenders
who made money out of misery. Banks who used to fund more than 90% of the industry are
capping on-lending rates at about 24%. Andhra has passed a legislation that could punish
directors and officials if found to be using coercive methods to recover funds.

Farmers can opt for insurance on crop loans

TIMES NEWS NETWORK 

Bangalore: S Ramappa, a marginal farmer from Keelara village of Mandya taluk, wanted to
cultivate sugarcane on his two acres. After a few years of running from pillar to post, he got a
crop loan of Rs 1 lakh from a cooperative bank. 
    Unfortunately, three months later, he met with an accident and was bedridden for six months.
He was not able to repay his loan even after a year, forcing the bank to confiscate his land. Such
an unfortunate situation could be avoided now, if farmers like Ramappa avail of insurance on
crop loan. The state government, in association with Airtel’s Bharti AXA Life Insurance, has
launched group personal accident life insurance policy for farmers. “The new insurance scheme
will protect the families of farmers in the state, in the event of death or disability due to an
accident or sickness. It could benefit about 15 lakh small and marginal farmers,’’ cooperation
minister Laxman Savadi told reporters here on Wednesday. 
    Apart from reimbursement, the minister said the insurance company will also provide Rs
30,000 to buy provisions and livestock, and Rs 10,000 for the education and marriage of the
children of the deceased or disabled farmer. The only rider is that the loans must be availed from
cooperative institutions.

SKS cuts interest rate by 2% for AP borrowers

Lower Rate Only For New Customers; Other Lenders Too Look At Easing Instalments

Our Bureau HYDERABAD 

SKS Microfinance, which has been in the eye of a storm after the unceremonious exit of its CEO
Suresh Gurumani, has slashed its interest rate from 26.69% to 24.55% with immediate effect.
However, the cut in rates is only meant for its prospective borrowers in Andhra Pradesh, where
microfinance institutions (MFIs) are finding it difficult to conduct routine business after the
state issued an ordinance to regulate their activities. 
    The country’s largest microcredit lender in terms of assets seems to be in an image-building
exercise after it faced flak following Mr Gurumani’s exit. Its CFO Dilli Raj said the company has
voluntarily decided to drop the rates keeping in mind the operational scale and added that the
measure would not impact its topline. He refused to comment when asked whether the
company would drop rates in other states too. Andhra Pradesh contributes to around 30% of
the business of SKS with 21 lakh borrower customers. 
    Meanwhile, other microfinance institutes regulated by the Reserve Bank of India are looking
at reducing their interest rates after the Andhra government tightened norms of collecting and
lending money. “We have set a benchmark of 24% in the view of current situation. Most of
members are moving towards offering the same interest rate. Every institution, however, needs
to assess its ability to do so,” said Alok Prasad, CEO, MFIN (Microfinance Institutions Network).
The self-regulatory body had earlier suggested that it would offer its existing customers an
extension of the loan term from 50 weeks to 75 weeks. The state government has asked MFIs
to shift to a monthly repayment system akin to that followed by self-help groups so that the
borrower does not feel the pinch. 
    “We are in continuous dialogues with the government and we believe they cannot mandate
it. It is up to the borrower to choose between a weekly or a monthly repayment structure,”
Prasad said. 
    Among the major microfinance institutions, Basix claims that it has offered the choice to the
borrowers. MFIs are facing hurdles in recovering money from borrowers in districts like
Khammam, Prakasam, Chittoor, Vizianagaram, Srikakulam, Guntur, Karimnagar, Warangal and
Visakhapatnam. The high court has ordered MFIs to register themselves with the district and
municipal governing bodies within this week.

India slips 10 places in Global Prosperity Index

Sudeshna Sen LONDON 

    INDIA has slipped 10 places to rank 88th out of 110 on the 2010 Global Prosperity Index,
created by the London-based Legatum Institute as a measure of “wealth and well-being”, lagging
30 spots behind a country like China. 
    The prosperity index is based on 89 variables over 110 countries, grouped into 8 subindices,
and claims to comprehensively rank the level of prosperity in 110 countries by taking into
account both economic growth and citizens’ quality of life, drawing on data from various sources
including the Gallup World Poll 2009 and the UN Development Report. 
    The institute said that India’s ranking dropped from 2009 primarily due to a drop in personal
freedom coupled with poor rankings on measures of health and entrepreneurship. 
    That India ranks low on access to education and health is no surprise — the surprises are that
it shows up way below the global average in the entrepreneurship and opportunity index, a key
lever for prosperity, personal freedom, a well-educated workforce and is almost at the bottom in
social capital such as reliable family and social networks, helping strangers, or contributing to
charity. While many of the conclusions of the index or methodology is open to debate, some of
findings fly in the face of conventional wisdom. 
    Despite having the second highest rate of marriage globally, Indians can’t rely on family and
social networks as much as the rest of the world can — less than two-thirds of people claim they
can rely on family or friends in times of need, behind 105 other countries, almost at the bottom
of the scale. Only 21% of Indians feel that they can trust others, compared to 57% in China.
While Indians are hugely optimistic about the economy, the surprise is that Indians approve of
our government, ranking an international high 16 on this measure, and fifth highest for being
confident about its financial institutions. 
    On the negative side, Indians are extremely pessimistic about the local entrepreneurial
environment: amongst the lowest 15 countries on this index — business start-up costs are a
massive high at 66% of GNI per capita. Despite the tech sector, the index finds only 1.3 % of
goods exports come from the ICT sector, placing it at global rank of 59 on this variable — even
though it does reasonably well in R&D spend. The country invests 0.9% of its GDP in R&D,
placing 47th and is among the top at 32 for royalty receipts from overseas. And no, according to
the index, India does not have a well-educated workforce. The country places 91st for the
average level of secondary education attained by workers, and 94th for the average level of
tertiary education per worker. 
    Besides poor healthcare and failure to battle systemic diseases, a hefty 27% of Indians report
debilitating health problems, and more than a third of people “feel worried for a significant part
of the day.” The Prosperity Index presents a broad view of wealth, happiness and prospects of
the world’s nations and citizens captured in eight sub-indexes. The idea behind the Index is that
material wealth alone does not make for a happy society, but happy citizens are produced as
much by democracy, freedom, social cohesion and entrepreneurial opportunity as they are by a
growing economy.

Planning Commission deputy chairman says public-private

partnerships haven’t lived up to expectations

PPPs are the way forward 

    Planning Commission deputy chairman Montek Singh Ahluwalia’s assertion that ventures
based on the publicprivate partnership (PPP) model haven’t delivered much shouldn’t lead us to
jettison this approach altogether. While it is true that PPPs in social sectors such as healthcare
and education have been found wanting, contractual endeavours between public and private
bodies in projects such as building of roads, ports and airports 
have been quite successful. Good 
examples include low-income 
housing projects on the outskirts of Kolkata, the water and sewerage project in Tirupur, Tamil
Nadu, and the Delhi-Noida expressway. Based on experience so far, there is a strong case to
push ahead with PPPs. 
    The underlying philosophy of PPPs requires the government and the private player to suitably
share costs, risks, returns and management responsibilities. The government plays the role of a
facilitator and provides legal and administrative assistance while the private consortium brings to
the table the required resources, expertise and technology. It is well known that the government
takes a massive amount of time to assimilate technology, sanction projects, mobilise resources
and execute works. With the PPP model, projects can be taken up on a priority basis.
Competitive bidding among interested private players ensures quality, reduces costs and
increases efficiency. 
    If there are certain sectors where the PPP model has been unable to meet expectations it 
is because the government has failed to incentivise private participation. A significant
impediment in many cases is the lack of regulatory framework and security. This is true in the
Maoist-affected areas of the country where administrative presence is minimal. The antidote lies
in the government assuming a greater share of the risks and guarantees. That would ensure the
success of PPP projects in rural healthcare and education as well. We would do well not to throw
the baby out with the bathwater. 
The new name for licence raj Jay Kumar 
    Implicit in the doubt cast by Montek Singh Ahluwalia on the working of PPPs is the
admission that PPPs have been excessively hyped as a vehicle for the delivery of social and
economic objectives. The underlying motive of the PPP was to revive public services with the
efficiency of the private sector on a 
shared cost-basis. But, that has not happened. On the contrary, government is growing more and
more indebted. Given these failed objectives, it is but natural to raise questions about PPPs’
viability in the overall economic development process. 
    At the outset, the PPP model appears incongruous. It starts with the caveat that profit motives
can be balanced with social welfare objectives. The private sector simply works on a profitability
principle and no investment would take place unless it can reap profits. Investing in a sector to
achieve social objectives is contrary to its ethos. When it comes to PPPs, inevitably, the private
sector refuses to share the market risk and instead seeks a guarantee from the public sector. This
is unwarranted if the private sector was pitched primarily to build a revenue base and enhance it
to profitable levels. 
PPPs, therefore, can amount to a resurrection of the licence raj with select private sector players
using government resources to rake in the moolah while piling risks and liabilities on to the
public sector, all in the name of fulfilling social objectives. Let’s stop this game of smoke and
mirrors, and focus instead on improving public sector management. There are many successful
cases of public sector management: look at Delhi Metro and navratna companies. The old nexus
of politician-bureaucrat-businessman has reappeared as PPP, where bids with opaque revenue
sharing models are awarded as patronage. This can only be a fount of corruption.

Think Beyond PDS

Innovative means needed to deliver food security

    Will UPA-II’s ambitious food security programme work? The issue gains immediacy, with the
National Advisory Council unveiling a new draft plan envisaging legal entitlement to subsidised
foodgrain for at least 75 per cent of the population. That works out to almost 800 million
people. If implemented, this means the government’s food subsidy bill will be far bigger. Also,
our groaning public distribution system will come under greater strain. Now, central to the
question of the doability of any food cover plan is the efficacy or otherwise of its delivery
apparatus. Clearly, the public distribution system as it exists can’t deliver the goods. 
    Unsurprisingly, policymakers have called for alternative delivery mechanisms. Reportedly, a
paper by the finance ministry’s chief economic advisor Kaushik Basu advocates a lower profile
for the Food Corporation of India in the delivery framework. It also asks that the PDS – seen as
pretty much beyond redemption – be replaced by more effective mechanisms such as food
coupons. In response to the contention that coupons may be bought and sold, defeating the
purpose of reform, it is suggested that they be given to women members of households on an
experimental basis. The idea makes sense. Women household heads will hardly resort to
malpractice at the cost of letting their families go hungry. 
    Given the political class’s aversion to radical change, consensus on the PDS’s total dismantling
may be hard to come by. But, remember, over 65 per cent of PDS foodgrain lands up in the
open market. Basu highlights a study revealing that 70 per cent of PDS wheat eludes targeted
BPL families. So, there’s no denying that the PDS needs a thorough overhaul. Structural
makeovers, however, can’t happen overnight. While PDS revamp is undertaken, there’s every
reason to test out other innovative ways of providing access to food. Some states are already
experimenting with food coupons, which are accepted at all grocery shops. An even better idea
is biometric smart cards, whose use Orissa is piloting, which make identity theft or fudging
difficult. Under PDS, ration cards using false names – ghost cards – are a big problem. Poor-
directed cash transfer is also worth considering. 
    All these options are qualitatively superior to the existing system on several counts. They
allow subsidy to go directly to targeted beneficiaries rather than circuitously via an inefficient,
leaky PDS. Selling food at market rates reduces the incentive for profiteering through diversion
by officials, transporters and fair price shops. Plus, people get to choose what they want to buy.
It’s been recommended that food coupons, supported by the UID project, should eventually
cede way to mobile banking-linked smart cards. The government must act on this advice, which
also mandates that UID and financial inclusion initiatives are fast-tracked.

Warehouse projects a non-starter in UP

Private players find norms for building FCI godowns unappetising

Jayashree Bhosale, Madhvi Sally & Man Mohan Rai 

PUNE | CHANDIGARH | LUCKNOW 

    GODOWNS for storing grain will remain scarce in India’s top producer Uttar Pradesh as well
as Maharashtra because private players find latest government norms unappetising. 
    The government has invited companies to build godowns for Food Corporation of India,
which annually handles more than 200 million tonne grain, under a public-private partnership
scheme. But it has found few takers in Uttar Pradesh and Maharashtra because companies are
expected to build, own and operate the godowns without any guarantee yet from the FCI on
minimum rent or volume. That has made it difficult for companies to plan a bankable project or
invest in expensive land. 
    In UP, 57 warehouses with a total capacity of 26.81 lakh tonne has to be allotted. But only 35
tender documents have been sold till now. Apprehensive of a poor response, the authorities
have now extended the last date of tender submission till November 16. “Minimum 2 acre land
is needed to build a 5,000-tonne warehouse, which will entail an investment of Rs 1.5 crore and
above. That is not a business proposition many would jump at,” said a UP State Warehousing
Corporation official. The corporation is the nodal agency acting on behalf of FCI for executing
the project in the state. 
    Once the projects are awarded, it will take a year for the godowns to be built, making
them available only for the kharif 2012 crop. “The project involves a big investment and there is
no clarity on the rentals which will vary from location. Preference will be given to
godown/warehouse which is within 8 km from the rail head,” said an investor in Pune who had
recently attended an investors’ meet organized by FCI. 
    Though FCI has given investors in Punjab and Haryana a choice between built, own and
transfer (BOT) or build-own-operate (BOO), it has not been extended to Maharashtra and UP.
Investors have to operate these godowns . 
    In Maharahstra, where 7.15 lakh tonne storage space has to be allotted across 25 location in
23 districts, the Maharashtra Warehousing Corporation has not got a good response. Date of
tender submission has been extended to November 18. But investors have responded
enthusiastically to the tender in Punjab and Haryana because of the more favourable terms.
Though FCI wants new capacity to store 67 lakh tonne, investors have put in 533 bids that
can together store 101 lakh tonne, with the nodal agency, Pungrain. 
    “Investors have offered to store grain at rates that range from Rs 4.50 to Rs 8 per quintal per
month,” said Aseem Chhabra, FCI deputy general manager, Punjab region. The Punjab
statelevel committee will make recommendation to a high-level committee headed by the FCI
managing director and the rates are expected to be approved in a fortnight. 
    In Haryana, over 467 bids have been received for a total storage capacity of 121 lakh tonne.
After the scheme launched in 2001 got a lukewarm response, FCI has tweaked some conditions.
Land requirement for a warehouse has been reduced to 2 acre for a 5000 tonne capacity
godown from 3 acre. Specifications of godowns have been relaxed and are at par with those of
the Central Warehousing Corporation. An investor need not own the land and he can make
financial closure after contract is rewarded to him.

Reaping profit from sustainable farming

Arun Iyer & Sutanuka Ghosal BANGALORE | KOLKATA 

GLOBAL agencies involved in sustainable agriculture value chains such as Rainforest Alliance
and Utzcertified are increasingly targetting growers in India. Major FMCG players like Unilever
and Nestle too have indicated that they plan to increase procurement of sustainable plantation
crops. A certification on sustainable agriculture is an added advantage for farmers in realising
better prices. 
    Mr Shatadru Chattopadhayay, MD, Utzcertified (south & south-east Asia), said: “The
sustainable agriculture movement was earlier focussed more on customers but today we are
equally concerned about the producers (farmers), notably in markets like China, India and
Brazil.” Utzcertified is focussing on tea, sugarcane, cotton and textiles, besides coffee. It has
certified as many as 2,000 soyabean farmers in Madhya Pradesh besides associating with
sugarcane farmers who supply cane to EID Parry. To bolster support for its initiative, Rainforest
Alliance will make its maiden appearance at the ensuing meeting of the Karnataka Planters
Association. Currently, it has certified 7,655 hectares. 
    “There is a growing movement towards sustainable agriculture. This association should help
coffee growers as price realisations tend to be higher for such products,” said Mr Nishant Gurjer,
managing partner of Sethuraman Estates. His viewpoint is echoed by an official of the Kolkata-
headquartered McLeod Russel India (MRIL), the world’s largest integrated tea company. “We
have been running the programme for the last two years. Our teas always fetch good prices. Our
association with Rainforest Alliance has boosted our prices and image in the international arena.
The price has gone up by 25%,” says Mr Azam Monem, a director of MRIL. But he adds that
activities such as the weedicide policy prescribed by Rainforest Alliance tend to add to operating
costs.

China set to add fuel to commodities rally

Country Looks To Replenish Strategic Reserves, May Make Huge Purchases Of Corn, Cotton & Sugar

Reuters SINGAPORE | BEIJING 

    CHINA, wrongfooted by a blistering rally in corn, cotton and sugar markets, could be forced to
replenish strategic reserves run down in a failed attempt to cool prices. Purchases by the
world’s biggest consumer of cotton and the secondlargest consumer of corn and sugar would
provide fresh bullish momentum to prices already near record or multiyear peaks. 
    China, which buys around 60% of soybeans traded across the world, could be in the market
to take more than 5 million tonnes of corn in 2011, according to some analysts, quadruple its
buys this year and potentially making it the world’s fifth largest importer. The country is already
the world’s No. 1 cotton importer. 
    “China’s futures prices have been rising, trade numbers show higher imports and there are
government stocks being released into the market — all these factors point to a lower than
expected level of supply,” said Sudakshina Unnikrishnan, an analyst at Barclays Capital in
London. “I think they need to replenish stocks as it quite clear from different indications that
the stocks have been run down.” 
    Analysts and traders say China’s corn stocks could have dropped below 10 million tonnes, or
less than a month’s supply, following the release of some 45 million tonnes since the beginning
of 2009. Similarly, reserves of cotton, the price of which climbed a new high this week in New
York and Zhengzhou, could be as low as 300,000 tonnes, less than 5% of annual production, and
sugar 200,000 tonnes, around two weeks of supply. 
    The nation has sold 1.7 million tonnes tonnes of sugar in the year ended September 2010 and
2.1 million tonnes of cotton since September last year. Beijing stockpiled large volumes of
agricultural commodities, including soy, rapeseed, corn, sugar and cotton to help shore up
domestic prices and boost farmers’ income in 2008-09. 
    This year, the country has been selling reserves of corn, cotton, sugar and rapeseed oil, but
the sales have so far failed to calm markets. With cotton and sugar prices hitting record highs
which analysts say indicates lower stocks and strong demand. 
    China’s move to seek additional volumes to boost stocks could further tighten global supplies,
with lower-than-expected corn yields in the US, rain damage to cotton in Texas, which produces
about half of the US crop and lower sugarcane yields in top producer Brazil. 
    The talk of Chinese corn purchases last week in the US pushed up Chicago Board of Trade
prices close to a 2-year peak, while Dalian corn futures jumped to an all-time high, although no
deals have been confirmed. “We believe a certain amount of US corn cargoes have been
booked for refilling state stocks,” said one Shanghai-based grains analyst, who declined to be
identified. “Otherwise, it would be too late.” 
    China, where corn production has been steady near 155-165 million tonnes in the past few
years, is struggling to meet demand from the rapidly expanding animal feed industry which is
growing at an annual pace of 10-15%. China could face a corn shortfall of up to 7 million tonnes
this year, widely tracked analytical firm Shanghai JC Intelligence has said, after sharply cutting
estimate of the coming year’s harvest. 
    Purchases by the world’s second largest corn consumer of as much as 1.3 millions tonnes this
year, its biggest imports in 15 years, have been a key factor driving benchmark US corn futures
this year. US and Chinese cotton futures rallied to hit new highs this week as expectation of
higher demand from China continued to underpin the market amid rains damaging crops in
Texas. China has been picking up large quantities of cotton from the international market
in recent months, with imports in September nearly doubling to 201,000 tonnes. “Unlike wheat
and rice, for cotton China relies heavily on imports and the overseas market is asking when the
government would refill its reserves after it has sold most of the stocks,” said Zhang Ruming, an
analyst with Dalian Liangyun Futures. “The market is concerned about supply, particularly after
the US trimmed its output forecast.”

Centre to decide soon on Nafed revamp package

Expert panel against expanding scope of futures trading.

Futures trading, if at all, should only be in the nature of hedging transactions, said the expert panel.
Vinson Kurian

Thiruvananthapuram, Oct. 27

The Centre is expected to take a decision soon on the recommendations of an expert committee on ways to revamp National
Agricultural Co-operative Marketing Federation of India Ltd (Nafed).

Mr G.C. Pati, Additional Secretary, Department of Agriculture and Cooperation, had headed the committee that comprised Dr
Chandra Pal Singh, Mr C. B. Holkar, Mr M. L. Danga, Mr Siby J. Monipally and Mr Ajay Vir Jakhar as members.

FUTURES TRADING

The committee was of the view that Nafed should not expand the business of futures trading beyond what it is doing now.

“…At least not until comprehensive guidelines in this connection are finalised by the Managing Director in consultation with the
Forward Market Commission and after imparting necessary training to the personnel,” it said.

Futures trading, if at all, should only be in the nature of hedging transactions, it added.

From now on, no advance, letter of credit, or guarantee should be permitted in favour of any business partner so resources do not
get wasted in pursuing recoveries, if any.

EQUITY PROPOSAL

A restructuring proposal made by the committee provides for infusion of additional equity by the Government and increasing its
stake in Nafed to at least 51 per cent.

The Nafed board has already extended its approval to this plan. The package is crucial for Nafed's survival, the committee noted.

The committee said that most of Nafed's losses were generated after it strayed from the traditional business into non-agricultural
goods and business in collaboration with private sector firms/parties (tie-up business).

An amount of Rs 1,610.94 crore invested with 29 such parties has been blocked and their accounts have become non-performing
assets (NPA).

The defaulters are neither returning the money nor paying the interest accrued thereon even as Nafed continues to pay interest on
funds borrowed from banks.

In this connection, the committee has said that the ‘enabling' words - non-agricultural and non-traditional - in the byelaw should be
deleted.

Nafed should instead focus on its core business of agricultural commodities only.

1% crop loan interest for farmers repaying promptly

Cooperatives disburse Rs 2,434 crore loans.

Farmers who borrowed crop loans in 2010-11 are eligible for this benefit
Our Bureau

Bangalore, Oct.27

The State Government has decided to charge just a 1 per cent rate of interest on regular repayment of crop loans borrowed by
farmers.

Cooperatives in the State have been offering an interest subsidy of 3 per cent on crop loans up to Rs 50,000.

All public sector and regional rural banks have been sanctioning crops loans at a rate of 3 per cent.

Farmers who have been regular with repayments would get loans at 1 per cent rate of interest, thanks to the Centre's largesse. The
Centre has raised the interest subvention for timely repayment of crop loans from 1 per cent to 2 per cent in the current fiscal year,
Minister for Cooperation, Mr Laxman S.Savadi, told mediapersons here on Wednesday. Thus, the effective rate of interest for such
farmers will now be 1 per cent per annum. Farmers who borrowed crop loans in 2010-11 are eligible for this benefit, he said.

Recovery

The Minister said the recovery rate of crop loans touched 80 per cent in the State. Cooperatives have already disbursed Rs 2,434
crore crop loans to farmers in this fiscal so far. The Government has set a target to disburse crop loans to the tune of Rs 4,300 crore
in 2010-11.

The State Level Bankers' Committee revealed that the State Government has already released Rs 40 crore as advance subsidy
under the scheme for reimbursement of interest subsidy claims to public sector banks and regional rural banks. The Karnataka
State Insurance Co-operative Society Limited (KSICSL) and private insurer Bharti AXA General Insurance, entered into a tie up for
providing group personal accident insurance policy and vehicle loan insurance policy to farmers. The Karnataka State Co-operative
Federation Limited initiated the KSICSL.

A farmer who borrowed the crop loan from cooperatives and paid annual premium of Rs 40 is eligible for the personal accident
insurance policy. In case the farmer meets with an accidental death, the insurance firm would return the loan amount, and grant Rs
5,000 each for two children for education, Rs 5,000 each for two girls' marriage and Rs 30,000 towards foodgrains and purchase of
domestic animals for the farmer's family.

In the case of of Rs 5 lakh borrowed from a cooperative society/bank for the purchase of tractor, the farmer has to a pay annual
premium of Rs 1,900. In the case of farmer's death, his family would get insurance amount of Rs 11.20 lakh, the Minister said. The
scheme would cover 13 lakh farmers by March 31, 2011, he said.

Cold storages

The Minister said a decision has been taken to set up four cold storages in Belgaum, Dharwad, Raichur and Bijapur at a cost of Rs
10 crore. The milk unions of respective districts would take up works of cold storages.

As an incentive, a decision was also taken to release Rs 70,000 each to newly formed cooperative milk societies in 114 backward
taluks of Karnataka.

So far, only 235 societies had been formed during the last one year. A sum of Rs. 10 crore had been set aside for the purpose.

E-stamping

Mr Savadi said ‘e-stamping' facility would be made available in 1,000 district credit cooperatives and urban cooperative banks by
March 31, 2011. Now, the facility is available only in 235 cooperatives.

620 lakh tonnes grains needed for food security

Pawar sees offtake from ration shops rising.
Our Bureau

New Delhi, Oct 27

The Centre will require around 620 lakh tonnes (lt) of foodgrains annually to meet the National Advisory Council's (NAC)
recommendations on the proposed Food Security Bill.

This is way above the peak official procurement of 590.67 lt achieved during 2008-09 and 539.75 lt in the recent marketing year.

NAC recommendations

The NAC has sought a legal entitlement of subsidised foodgrains to 75 per cent of the country's population, covering 90 per cent of
all rural households and 50 per cent of urban families. The 90 per cent rural households comprises 46 per cent ‘priority' (i.e. below
poverty line) and 44 per cent ‘general' (above poverty line) families, while the 50 per cent urban households includes 28 per cent
‘priority' and 22 per cent ‘general' families.

According to the NAC recommendations, ‘priority' households are to get 35 kg of grain every month, while the monthly entitlement
for ‘general' households is 20 kg. So, how much would this translate into in terms of aggregate foodgrain requirement.

Ministry's estimate

The Food Ministry's estimate is that the NAC formula would mean covering 9.70 crore ‘priority' households – 7.68 crore in rural
areas and 2.02 crore in urban areas. At 35 kg/month, the annual grain requirement for this section alone will, then, work out to 407.4
lt. Similarly, to provide 20 kg/month to the 8.90 crore ‘general' households (7.35 crore rural and 1.55 crore urban), the Centre would
require 213.6 lt.

In all, implementation of the NAC proposal would call for an annual grain requirement of 621 lt. “And this quantity would only be for
the targeted public distribution system (PDS). It does not include requirements for other welfare schemes and open market sales or
even maintaining a strategic buffer,” the Union Food and Agriculture Minister, Mr Sharad Pawar, told the Economic Editors'
Conference here on Wednesday.

Mr Pawar made it clear that these projections were based entirely on “what I have read about the (NAC) recommendations in the
press”. The Ministry, he claimed, had not got any formal communication from the NAC in this regard.

“It will be presumptive on my part to say what shape the Food Security Act will take. However, it is certain that our outgo from the
PDS will increase substantially from its current level once the Act is implemented,” he added. The annual grain offtake through the
TPDS alone has already gone up from a mere 120 lt in 2000-01 to 424 lt during 2009-10.

Renewable energy sector seeks continued support

Our Bureau

New Delhi, Oct. 27

The renewable energy industry would like continued support from governments globally as they become more competitive.

The industry would also like clarity from governments on – frameworks, objectives and policies – for it to grow and play a greater
role in electricity generation.

CEOs meet

These were among the main messages that a roundtable featuring global CEOs from the renewable energy sector — wind and
solar – had to convey, on the first day of the three-day DIREC (Delhi International Renewable Energy Conference) 2010, that got
underway at Greater Noida here on Wednesday.
The DIREC is the fourth in a series of international summits on renewable energy, with the theme “Up-scaling and mainstreaming
renewables for energy security, climate change and economic development.”

The previous summits were held in Bonn (2004), Beijing (2005) and Washington, DC (2008).

A status report on the renewable energy industry worldwide – prepared by the Renewable Energy Policy Network for the 21st
Century (REN21) – says that by 2010 “renewable energy had reached a clear tipping point in the context of global energy supply.”

Renewable sources of electricity generation (about 12,30,000 MW), according to the report, comprised one-quarter of global power
capacity from all sources (about 4,800,000 MW) and delivered 18 per cent of global electricity supply in 2009.

The CEOs' roundtable felt there was enormous scope for growing solar and wind capacities globally, provided clear policies were in
place.

Those who participated in the roundtable included Mr Huang Ming, President, Himin Solar Energy Group, China; Dr Fabrice Didier,
Chief Executive Officer, Saint-Gobain Solar; Mr Alf Bjorseth, Chairman and Chief Executive Officer, SCATEC Solar; Mr Gary D.
Conley, Chief Executive Officer, B2U Solar; and Mr Rakesh Bakshi, Chairman and Managing Director, RRB Energy.

According to Mr Ming, the company is a leading global manufacturer of solar heating systems.

It is negotiating to set up a joint venture company in India to manufacture its products.

(It is learnt that the Indian company that Himin is in talks with is the Bangalore-based Nuetech Solar Systems Pvt Ltd.)

The solar power market that is now being driven by a small number of countries and by feed-in tariffs (under which regulators
guarantee a certain level of tariff), would grow as more countries adopted policies that were favourable to the sector. India, West
Asia and North Africa would be regions where the sector would grow.

No deregulation of diesel for now: Govt

Our Bureau

New Delhi, Oct. 27

Diesel consumers can heave a sigh of relief: The Government is not considering deregulation of the fuel's prices.

The Petroleum Secretary, Mr S. Sundareshan, told reporters on Wednesday: “Diesel price deregulation is not possible with the
current crude oil prices. Deregulation will lead to retail price increase and it is unreasonable to expect it at this juncture.”

He was speaking at the sidelines of the Economic Editors Conference here.

As recommended by the Kirit Parikh Committee, the Government deregulated petrol prices at the refinery gate and at the retail level
from June 26. But diesel prices were not deregulated.

“The June decision was taken when crude oil price was at about $74 a barrel. Since then the crude oil price has risen to $80-$83 a
barrel. It will be unfair to think that diesel price will be market determined at these levels,” the Secretary said.

Cairn-Vedanta deal

On the Cairn Energy-Vedanta deal, he said, “Cairn must seek approvals for all blocks (NELP and pre-NELP blocks).”

“We are completely neutral to the deal. The Government has no particular views on merits of the deal as yet, and will decide on the
issue by December-end.”
The Petroleum Minister, Mr Murli Deora, said the “interests of ONGC will be protected.”

ONGC is Cairn's partner in five NELP blocks and three pre-NELP producing assets. On the issue of royalty, which is being borne by
ONGC, the Minister said, “We cannot comment at this point.”

Whose corporate social responsibility?

The attempt by some non-governmental organisations and activists to impose a straitjacket on CSR,
reflecting their priorities, is misguided and must be rejected, says Jagdish Bhagwati

    INCREASINGLY, corporations are under pressure, often from activist non-governmental

organisations, to take on specific corporate social responsibility (CSR) obligations. But the fact
that CSR is being demanded, and occasionally conceded, does not ensure clarity about either its
rationale or the ways in which it should be undertaken. 
    CSR can be divided into two categories: what corporations should do (say, contribute to a
women’s rights NGO or build a village school) and what they should not do (say, dump mercury
into rivers or bury hazardous materials in landfills). The latter is wholly conventional and subject
to regulation (and recently to questions about how corporations should behave when there are
no host-country regulations). 
    But are CSR obligations really good practice? Milton Friedman and other critics often asked if
it was the business of businesses to practice corporate altruism. Prior to the rise of the
corporation, there were mainly family firms, such as the Rothschilds. When they made money,
it accrued principally to the family itself. 
    Altruism, where it existed, also was undertakenbythefamily,whichdecided how and on what
to spend its money. Whether the firm or its shareholders and other stakeholders spent the
money was beside the point. 
    With the rise of the business corporation, large family firms have generally disappeared. But
that does not mean that a corporation is the right entity to engage in altruism — though its
various stakeholders obviously can spend any portion of the income they earn from the
corporation and other sources in altruistic ways. Instead of CSR, we should have PSR (personal
social responsibility). 
    One can also argue for PSR on the grounds that asking for CSR becomes a way of ‘passing the
buck’ — evading personal responsibility for doing good. This is the flip side of blaming
corporations for everything from obesity to scalding from spilled coffee — both the subject of
lawsuits in recent years. 
    There is also an added advantage in replacing CSR with PSR: there is virtue in diversity of
approaches to altruism. Chairman Mao wanted a hundred flowers to bloom, but only so that he
could cut them all off at their roots. But PSR is more like President George H W Bush’s
metaphor of a ‘thousand points of light’. 
    Moreover, it is hard to see how a corporation’s stakeholders can always arrive democratically
at a common position on how the corporation should engage in social responsibility on their
behalf. Each will consider his or her CSR view the best. 
    But there are strong arguments in favour of CSR as well. First, the political reality is that
society treats corporations as if they were persons, which is often also a legal reality for many
purposes. Society increasingly demands that these ‘corporate citizens’ be altruistic, just as
people are. Given this reality, corporations want to give simply because it is expected of them.
Such CSR builds the firm’s image as a ‘good’ corporation, just as giving by Bill Gates and Warren
Buffett builds their image as ‘good’ billionaires. 
    SECOND, many corporations view CSR as an effective defensive strategy against powerful
activist NGOs (such as Greenpeace) that have taken to using online agitation, boycotts, and
other means to ‘blackmail’ targeted corporations into acceding to the activists’ demands. The
more CSR a company can point to, the less such efforts will succeed — or even be mounted. 
    Consider the contrasting experiences of Coke and Pepsi. Coke has been targeted by NGOs for
alleged lapses in labour and environmental standards. By contrast, Pepsi, which once teamed
up with AT&T and the CIA to oust President Salvador Allende in Chile, smells like a rose
nowadays, because it has distributed CSR largesse to several causes that influential NGOs
embrace. 
    That is a lesson that Wal-Mart has since learned. In 2005, the Service Employees’
International Union (SEIU) created Wal-Mart Watch, with an annual budget of $5 million. The
purpose was to make Wal-Mart a ‘better employer, neighbour, and corporate citizen’, and Wal-
Mart eventually capitulated on some of the SEIU’s specific demands as well. 
    Finally, CSR can be simply a matter of advertising. In this case, the choice of CSR spending is
focused directly on generating added revenue, much like advertising, and is aimed at sales
much the way advertising is. A benign example is Adidas’s sponsorship of tennis tournaments. A
malign example is Philip Morris’s donation of money to museums, symphony orchestras and
opera houses, cynically aimed at buying off artists who might otherwise work to ban cigarettes. 
    All these rationales for CSR suggest that it should be left to each corporation to determine,
just as PSR leaves altruism to each individual’s conscience and sense of what needs supporting.
The attempt by some NGOs and activists to impose a straitjacket on CSR, reflecting their
priorities, is misguided and must be rejected. 
    Instead, the model should be former United Nations Secretary-General Kofi Annan’s
initiative, the Global Compact. What Annan has done is to embrace 10 wide-ranging guiding
principles while leaving signatory corporations free to choose that which they wish to support
actively. 

No paper rich these, over 60 SKS staff in millionaire club

Staff Sell 16% Of What They Received Via Stock Options 3 Years Ago

Our Bureau MUMBAI 

MORE than 60 employees of the embattled micro lender, SKS Microfinance, have each made
more than . 1 million selling their shares after listing, making a return 29 times their investment
in three years. 
    Employees working in various capacities - ranging from an assistant manager to a
vicepresident - have sold their holdings in at least 130 separate transactions ever since the
Hyderabad-based firm listed its shares, data show. 
    So far, the employees have sold 1.96 lakh shares, accounting for nearly a sixth (or 16%) of
what they got through an Employee Stock Purchase Scheme (ESPS) in 2007. Though a
comparable macro data on share sale by staff are not available, the number of shares sold
immediately after the listing is seen as a high number. 
    The transactions are drawing attention, given the public spat between its founder chairman
Vikram Akula and sacked chief executive Suresh Gurumani. That has drawn regulatory attention
that threatens to cripple the fledgling industry. “The number is large, but I will not be too
alarmed by it,” says Prithvi Haldea, managing director of Prime Database, a capital market
information provider. 
    The high number of transactions is not necessarily an indicator of SKS employees’ trust in the
company’s future, he says. 
    “It is the first exit opportunity for employees and human tendency is to monetise the holding
instead of keeping it,” says Haldea. 
    Irrespective of the fact what the employees feel about SKS, they have made huge profits from
the sale. They got the shares at an average price of . 38 per share and in less than three years
time; the same shares were sold at an average price in excess of . 1,100 - a cool profit in excess
of . 1,050. 
    In the past three weeks of October, post the resignation of chief executive officer, Suresh
Gurumani, there are no exchange filings from SKS on share sales by the staff. The stock has also
underperformed the benchmark, losing nearly a fifth of its value in the past 20 days. It closed at
. 1,003.5 per share on the Bombay Stock Exchange (BSE). 
    SKS has introduced a mix of employee stock options and stock purchase plans since 2007,
including one for independent directors. Eligible employees were encouraged to buy their
entitlement in the stock purchase scheme, with interest-free loans for a certain time period. 
    Under the first stock option plan, only SKS chairman Vikram Akula was allotted 9.45 lakh
shares at a price of . 49.77 per share in December last year. In less than two months, Mr Akula
sold these shares to Tree Line Asia Master Fund (Singapore) for $13.67 per share (or . 614
assuming an exchange rate of . 45 to a dollar), thus making a profit of . 564 per share. 
    At the time of filing the offer documents just before the public offer, Mr Akula held option
rights for another 2.68 million shares, accounting for little over 4% of pre-issue share capital.

MFI crisis: is it a ploy to tarnish Rahul?

Kingshuk Nag | TNN 

Hyderabad: Interests inimical to 10, Janpath are responsible for creating a crisis in the micro
finance industry in recent days. This is part of a concerted strategy for political purposes. But this
strategy has worked because micro finance companies, untrue to the social purpose behind their
establishment, are profiteering heavily from their loans to the poor. All this is the considered
opinion of representatives of micro finance companies. 
    “It seems to be a wellplanned operation. Suicides due to various reasons are being projected as
precipitated by actions of micro finance agents,” these representatives said while admitting that
the tactics used by the agents are not very savoury. “The real plan is to show Rahul Gandhi, who
is increasingly gaining acceptance as a leader sensitive to the plight of the underprivileged in bad
light. To this end Rahul Gandhi’s visit to Hyderabad in 2006 when he interacted with SKS
bosses, is portrayed to show that he is with the ‘fleecing’ MFI lobby. 
    “The suicides are due to the agrarian crisis that has set in. The indebtedness is not due to the
high i n t e re s t r at e s charged by MFIs,” the representat ive s claimed. 
    MFI industry spokesmen however agreed that the rate of interest charged by companies is
exorbitant and this has helped them make high profits. However, instead of lowering interest
rates, some MFI company chiefs are pleading innocence saying they did not realize they were
raking in handsome profits. Industry representatives recollect how a chief executive of an MFI
told the RBI governor last year: “Sir, we inadve r t e n t ly made a profit of Rs 32 crore last
year.” 
Industry representatives say when micro finance companies took their first hesitant steps (6-7
years ago) their costs were high because economy of scales had not set in. But the industry has
now come of age and the economy of scales means lower costs for them. This should be
rightfully reflected in the lending rates. 
MFIs borrow funds from commercial banks at the rate of 11% per annum or so. They add
another 10% as administrative costs. Any interest rate they charge above this from their
borrowers is clean profits. This works out to 21%. No MFI charges less than 25% interest.
Unlike the practice in banks who charge interest on reducing balance, m a ny M F I s charge a
flat rate of interest on the entire loan. This effectively means that interest could be very high
-sometimes as high as 50% per annum.

NDA-ruled states beat Cong on its pet agenda

Mahendra Kumar Singh | TNN 

New Delhi: Opposition NDA-ruled states have outsmarted the states, where the Congress is in
power when it comes to implementing UPA’s Twenty Point Programme that focusses on poverty
eradication and rural development schemes. 
    Though Narendra Modiled Gujarat was top performer followed by Karnataka, Jharkhand and
Punjab, Nitish Kumar-led Bihar (27), Left-ruled West Bengal (26) and most of the northeastern
states have failed on the ‘inclusiveness’ front. Mayawati-ruled Uttar Pradesh, where the
Congress is desperately trying to regain its lost ground, has managed to achieve fifth position. 
    Congress-ruled Maharashtra and Jammu & Kashmir (both ranked 23rd), Assam (22),
Chhattisgarh (21) and the north-eastern states, among others, brought out the rear. The ambitious
scheme was lanched by Indira Gandhi in 1975, and restructured in 2006 with the focus on
improving the living standard of the poor and downtrodden sections of the society. According a
review, conducted by the ministry of statistics and programme implementation, other non-
Congress states that figure in the top 10 are Kerala, Madhya Pradesh (both ranked 7th) and
Himachal Pradesh (10th) for performance during April-July 2010.

Jaggery prices cheer up Maharashtra producers

Andhra Pradesh Traders Unlikely To Make Gains Due To Carry-over Stock

Jayashree Bhosale & Arun Iyer PUNE | BANGALORE 

    LATE rains and an increased demand during the festival season have brought cheer to jaggery
manufacturers in Maharashtra. Contrary to their fears of jaggery turning cheaper on reports of
a bumper cane production in the sugar season 2010-11, prices of top-quality jaggery are in the
range of 3,400-3,600 per quintal. 
    However, reflecting the unorganised status of this sector of the sugar industry, the trend is
different in Andhra Pradesh, where prices at the Ankapalle market could remain soft despite
the festival offtake. Traders said that close to 400 lumps (one lump weighs 15 kg) was in cold
storage which had been procured at an average price of nearly 3,000 per quintal. Currently,
black jaggery is quoting at around 190-200 per kg. The Ankapalle market, the second biggest in
the country, is witnessing daily arrival in the range of 3,000-4,000 lumps. Arrivals tend to peak
around mid-January, just ahead of Sankranti. 
    While jaggery is consumed across the country, there is no standard measure for a lump
across states. Nor is there any standard on its density. In Maharashtra’s Kolhapur market,
famous for its jaggery trade, JB Molani, deputy secretary of the Kolhapur APMC, said, “Prices
for 10 kg on October 26 ranged between 2,400-3,600 per quintal while arrivals were more than
68,000 quintal.” 
    About 25% of the 1,100 jaggery units in Kolhapur district have started operations and have
produced more than 1.55 lakh ‘ravay’. A ‘ravay’ is a 10-kg lump. “The season started late as we
have had rain till last week,” said Rajaram Patil, president of the Kolhapurbased Shri
Chhatrapati Shahu Sahakari Gul Kharedi Vikri Sangh (a cooperative of the jaggery or ‘gur’
manufacturers in Kolhapur). 
    The Kolhapur ‘gur’ is sought after within and outside the country. Over 90% of the produce
goes to markets in Ahmedabad as the Gujaratis use ‘gur’ in food preparations. Maharashtra
jaggery traders expect prices to come down after Diwali because sugar factories have not yet
declared cane prices. If sugar factories pay less than 2,000 per quintal for cane, ‘gur’ prices are
expected to go down. “Currently, jaggery prices are holding above 3,000 per quintal mainly due
to the demand for Diwali. After the festival, the prices may come down by 600 per quintal,” said
Jaswantlal Shah, president of the jaggery traders association of Kolhapur. 
    Traders in Andhra Pradesh had been optimistic and procured jaggery in January and February
this year expecting bumper profits. But prices have been on the downswing and most of the
traders are sitting on huge losses. “The festival offtake is not likely to push the prices higher,” a
trader said. 
    A private bank official in Visakhapatnam said banks had lent close to 20 crore to the trade
though traders said the number could be far lower at about 10 crore. The 2009-10 season had
been good for jaggery manufacturers in Maharashtra with the wholesale prices having touched
5,000 per quintal. The Kolhapur APMC traded 8.18 lakh quintal worth 254.78 crore at an
average price of 3,200 per quintal. 

Need clarity on tax treatment

Speculation & Hedging In Commodities Mkt Have Not Been Defined Properly

Shyamal Gupta 

THE more you earn, the less you keep, And now I lay me down to sleep. I pray the Lord my
soul to take, If the tax-collector hasn’t got it before I wake. — Ogden Nash 
    As far as commodity futures are concerned, the grey area on the treatment of income for
“speculation” or “business” remains discretionary in the hands of income tax officials.
According to income tax laws, commodity exchanges are not notified derivative exchanges
unlike stock exchanges. The income from commodities futures is considered speculation
income in normal course. The roles of regulators, exchanges and participants in taking a
collective initiative has been inadequate for lobbying with the ministry. While focused
representation has resulted in corrective actions in several countries, the initiative by the
industry in India on this account has been near negligible. 
    It has often been argued that in case a transaction done on a commodity exchange is in the
nature of a hedging transaction, then the transaction will not fall in the ambit of speculative
nature. In some cases when a transaction has been backed by stocks of the relevant commodity
or a purchase order and the futures transaction has been entered with an intention to hedge
the loss on account of price fluctuations, then the “speculative income” criterion has not been
imposed on the parties. 
    If bidders in tenders enter a hedge transaction during the price bid on a commodity futures
exchange to protect their bid price, the treatment of a successful bidder and an unsuccessful
bidder may be interpreted in two ways while the intention of both had been to protect the
price risk. 
    One of the significant differences between stock futures and commodity futures is that
commodity futures may be converted into delivery while stock futures is compulsorily closed
out without any conversion into delivery. However, the commodity futures market should not
be seen as a delivery platform. Based on the intention of the parties entering into such
transactions, one can say whether it is speculative or not. 
    The confusion in the current scenario is due to the lack of definition of speculation.
Speculation is inevitable in any market but problems emanate from the fact that the
commodity regulator in India does not seem to acknowledge in public posturing that such
activity exists in this market. The speculative and the hedge profiles of the participants have not
been defined properly. Some of the hedge limit-exempted entities have in the past indulged in
speculative activity and have gone scot-free because of the lack of the regulatory monitoring.
But why blame our regulators, even the activities of the “Wall street refiners” have gone
unnoticed by CFTC. 
    We are talking of multiple exchange scenarios. Is it not the time for the industry to have
clarity on tax treatment? Who will bell the cat? If death and tax are only the certainties in life
then let us ascertain how income tax laws should be distinguishing between speculation and
genuine hedging in the commodities market. Unless the mystery is resolved soon, the futures
market will continue to be treated as speculative activity which will be unfortunate. 

MFIs issue: No mandate for debt swap, say AP bankers

Our Bureau

Hyderabad, Oct. 28

The State Level Bankers' Committee (SLBC) of Andhra Pradesh has “no mandate” to consider the issue of debt swapping of clients
of microfinance institutions (MFIs), according to its Chairman and CMD of Andhra Bank, Mr R. Ramachandran.

Speaking to newspersons here on Thursday, Mr Ramachandran said a core committee of five banks will meet on Saturday to
discuss ways and means to address the financial needs of self-help groups, among others. “Let me clarify. There is no mandate for
debt swap,” he said. When asked on the possibility of such a move, he said: “I cannot comment on it.”

The State Government had earlier announced that it had requested the banks to go for debt swapping to curb the alleged
harassment of clients of MFIs by recovery agents and groups members.

Mr V. Vasant Kumar, Minister for Rural Development, said on Monday that SLBC had also ‘positively' responded to a request from
State Government to provide revolving credit for the self-help group members.

Mr Ramachandran, however, declined to give any indication of SLBC agreeing to such a proposal.

“The self-help group-bank linkage system is a structured system of lending and is working well. We will continue to treat agricultural
lending and credit to self-help groups as a priority.”

The top officials of five banks – Andhra Bank, State Bank of Hyderabad, State Bank of India, Indian Bank and Syndicate Bank – will
discuss a broad range of issues associated with the plight of self-help group members in the light of recent developments in the
State.
The representatives of National Bank of Agriculture and Rural Development and Small Industries Development Bank of India will
attend the meeting as special invitees.

A ‘new normal' for inflation?

With the Government finally giving up on predicting inflation movements, the idea of a ‘new normal' has to be examined carefully.

The Chairman of the Prime Minister's Economic Advisory Council, Dr C. Rangarajan, has said that if inflation falls below 8 per cent,
policy rates will not be raised by the Reserve Bank of India. This suggests that the PMEAC is not as sure as it was a few months
ago that it was only a matter of time before inflation came down from its dizzying heights. The Deputy Governor of the RBI, Dr Subir
Gokarn, for his part has said that food inflation is structural, which means we have to live with it till there is structural change leading
to higher supplies of proteins. The Chief Statistician took a fancier way out — he simply changed the base for the wholesale price
index which pushed inflation down by a full percentage point, from 9.5 to 8.5 per cent. The Finance Minister had a less conditional
take: I am not an astrologer, he told journalists at the annual Economic Editors Conference. So, after assuring the country for almost
two years that inflation would be down to around 5 per cent ‘soon', the Government and its agencies seem to have finally given up.
From now on, as far as inflation is concerned, it would seem that we are out on a wing and a prayer, not to mention a silent
thanksgiving that militant trade unionism is largely dead. For otherwise, with such persistently high rates of inflation, cost-push
inflation originating in higher wages would have added to the demand pull variety arising from high growth.

There are two ways of solving the problem. One is to deliberately slow growth down by all means possible. The other is to accept,
as it were, a ‘new normal' and design policies accordingly. The first option is really not available because it implies growth in
income-earning opportunities, if not actually employment. Therefore, the idea of a new normal has to be examined more carefully. It
is not a new idea; until the mid-1990s, the Government had a clear notion of what was normal and this was based on the point at
which Dearness Allowance became payable to its employees. That rate was around 7.5 per cent, and, as long as inflation did not
cross it and remain beyond it for several months, the government took it in its stride.

So what should the new normal be now? Clearly, 7.5 per cent is too high. Equally, 5 per cent or less is unrealistic. It might be best,
therefore, to pick a point somewhere between 5 and 7 per cent and calibrate policies around that number within a band of 10 per
cent. 6.5 per cent seems like a reasonable compromise because it will not require too much change in any of the contributory
factors — namely, growth and structural change, which will anyway take time. This leaves the problem of capital inflows unsolved
but, then, with 1.5 per cent inflation in the US, even a 5 per cent inflation level in India would leave it unsolved.

Low buying by government, sugar factories hits jute industry

Shobha Roy

Kolkata, Oct. 28

A significant drop in the Government procurement of jute bags for packaging foodgrains during the current season coupled with the
large-scale violation of the mandatory Jute Packaging Materials Act (JPMA), 1987 by the private sector sugar mills has caused a
demand-supply mismatch in the jute industry.

There has been a 20-25 per cent drop in the Government procurement of jute bags for packaging this season, according to Mr
Manish Poddar, Chairman, Indian Jute Mills' Association. “The Government had anticipated demand for 25 lakh bales during the
current season (close to 14 lakh bales during the kharif season and about 11 lakh bales for the rabi season). However, procurement
has only been about 20 lakh bales, thereby, creating a demand-supply mismatch,” Mr Poddar told Business Line.

The drop in procurement by the Government was mainly on account of the lower foodgrain procurement during the current year, he
said.

There has also been a rampant rise in the use of synthetic bags for packaging by the sugar industry in violation of the order issued
by the Ministry of Textiles under the JPMA, which directs all sugar factories to use jute bags for packing sugar to the extent of 100
per cent, he said. The total demand from the sugar industry typically stands at about 2.5 lakh bales; however, there has been no
demand from the sugar industry so far during the current year.

The Jute Commissioner had directed all sugar factories in the country to submit returns giving details of the sugar produced or
manufactured and removed from the factories and the packing materials used, in order to check the rampant use of synthetic bags
for packaging. However, this has not had any impact on the industry so far, he said.

The jute industry has also increased its sacking capacity by almost 20 per cent over the last two years, and the lower demand from
the Government and the sugar industry would hurt the jute industry, he said.

The Government's projection for the next season's procurement has also been quite low so far. “Only two States, namely, Punjab
and Haryana, have given their projections, which work out to close to 5.5 lakh bales. We are yet to get projections from other
States,” he added.

There has also been an abnormal rise in prices of raw jute due to the late arrival of quality jute on account of the delay and failure of
monsoons in many districts of south Bengal. “The prices are ruling at about Rs 3,400 per quintal currently, against Rs 2,500 per
quintal during the same period last year. The upsurge in raw jute prices has lead to an unprecedented rise in the premium for high
quality raw jute, hiking hessian prices and prompting importers to try out new alternatives,” Mr Poddar said.

RBI sub-committee to study issues and concerns of MFIs

To examine when loans to MFIs can be classified as priority sector lending.

Our Bureau

Mumbai, Oct. 28

Reviewing the definition of ‘microfinance' and ‘microfinance institutions' (MFI) for the purpose of regulation of non-banking finance
companies (NBFCs) undertaking microfinance and examining the prevalent practices of MFIs in regard to interest rates, lending,
and recovery practices are among the terms of reference set for the Reserve Bank of India's sub-committee to study issues and
concerns in the microfinance sector.

Headed by Mr Y. H. Malegam, a senior member of the Reserve Bank's Central Board of Directors, the sub-committee will examine
and make appropriate recommendations in regard to applicability of money lending legislation of the States and other relevant laws
to NBFCs/MFIs.

The committee will examine the role that associations and bodies of MFIs could play in enhancing transparency disclosure and best
practices, and also recommend a grievance redressal machinery that could be put in place for ensuring adherence to the
regulations.

It will examine the conditions under which loans to MFIs can be classified as priority sector lending and make appropriate
recommendations.

Besides Mr Malegam, the other members of the Sub-Committee are: Ms Shashi Rajagopalan, Mr U. R. Rao, Mr Kumar Mangalam
Birla, and Dr K. C. Chakrabarty, Deputy Governor. Mr V. K. Sharma, Executive Director, Reserve Bank of India, will be the Member
Secretary to the Sub-Committee. The Sub-Committee will submit its report in three months.

Big retail chains market groceries to inner cities

Wal-Mart, CVS & others reach inner cities, where consumers are underserved

WAL-MART Stores is gearing up to open small outlets next year in US cities, where it hopes to
sell a lot of groceries. Trouble is, at least a half-dozen others are also seeking accelerated
growth in urban America. CVS Caremark, Walgreen, Supervalu, and Family Dollar Stores all are
offering fresh food at their urban outlets or opening small stores in neighborhoods with limited
access to nutritious grub. 
    While selling food is a mature business, 23.5 million Americans live in underserved urban
areas, a market potentially worth $100 billion a year, says Jim Hertel, managing partner with
retail consultant Willard Bishop. “It’s easy to go into a liquor or convenience store and find
potato chips,” he says. “But in terms of something you feel good serving your family, not so
much.” 
    The big grocery store chains abandoned the cities in the 1970s and followed their customers
to the suburbs. There they found abundant, cheap land and built superstores and parking lots
large enough for 1,000 cars. Now they have saturated that market and are turning their
attention back to urban neighborhoods that have long been served by mom-and-pop stores. 
    About five years ago, Family Dollar began selling a limited selection of packaged and frozen
food in New York, Chicago, and Detroit. As the concept caught on, the company began carrying
staples such as bread, eggs, and milk. “We have a bulkhead in many major urban areas, and
we’ll continue to build on that,” chief operating officer R. James Kelly said in October. 
    Now other retailers that traditionally haven’t carried groceries are moving in. Pharmacy chain
CVS Caremark is adding fruit, salads, sandwiches and other prepared meals at a growing
number of its city locations. While CVS is aiming at a cross-section of consumers, Save-A-Lot, a
no-frills grocer owned by Supervalue, targets households with incomes below $45,000 in
neighborhoods where supermarkets are scarce. The US government is offering $400 million a
year in loans and tax incentives to lure stores offering better quality food to these underserved
areas by 2017, part of First Lady Michelle Obama’s campaign to reduce childhood obesity. 
    Save-A-Lot, which is seeking government aid, has about half of its 1,200 stores in urban areas
and the company plans to keep the ratio the same as it doubles its store count over the next
five years. To undercut rivals on price by as much 40%, Save-A-Lot sells mostly house brands
and carries fewer items than a full supermarket. “We target the value-seeking and income-
challenged consumer,”says CEO Bill Shaner. “The beauty is that there is a relative lack of
competition in that space.” 
    The rush by dollar stores, pharmacies, and grocery chains into the urban food market means
Wal-Mart will face entrenched players as it rolls out up to 40 smaller urban stores next year.
“It’s clear that in large cities, customers want to shop at Wal-Mart, and we are working hard to
make access to our brand easier for them,” says spokesman Steven Restivo. 
    The retailer also will have to contend with Target, which already operates stores selling food
in US cities and plans to start opening smaller locations of its own. And given Wal-Mart’s bigbox
history, getting the merchandise mix right in small, urban stores may not come naturally, says
Willard Bishop’s Hertel. 

Why Haryana is India’s mine for medals

BHUPENDRA YADAV 

All of us play but we are not athletes. We are homo ludens (Latin for play) and our playfulness is
unproductive. But athletes play for profit and contest for prizes. It is the transformation of our
play and games into athletics that leads to medals. 
    What makes Haryana such a fine place for athletics in India? With barely 2% of India’s
population, people from Haryana won around 40% of the gold medals in the recently concluded
CWG 2010. People in Haryana tend to count the gold medals of the Hyderabadi shuttler, Saina
Nehwal and the Delhi wrestler, Sushil Kumar, in their tally. This is because both of them are
Jats. People of this dominant caste form more than 20% of Haryana’s population and, therefore,
in popular perception, Haryana is Jat-land. 
    All sports are oriented towards the Olympic slogan ‘higher, faster, stronger’. But the ones in
which Haryana got medals stand for plain force and aggression like wrestling, boxing and
shooting. Anthropologists call them contact sports because the opponents have bodily contact in
them. Shooting is a combative sport because opponents use a combat weapon. Such sports are a
substitute of war or training for it. 
    Haryana is India’s pride in contact and combative games. I can think of three reasons for it,
viz. historical geography, peasant culture of perseverance and a feeble government policy.
Firstly, the province has a volatile history of continuous aggression due to its geographical
location on the frontier. Secondly, the people of Haryana have valued physical strength and
perseverance due to its peasant culture. Thirdly, the sports policy since 2006 has honed the killer
athletic spirit in Haryana. The half-hearted policy does not create achievers but supports the
successful ones among them. 
    Punjab was divided on religious lines in 1947. The non-Sikh majority parts of this truncated
Punjab were constituted as Haryana in 1966. Like a horseshoe, Haryana encircles Delhi from
three sides and the culture of both is similar. At the popular level, people are rough and tough --
meaning ‘rough by tongue and tough in body’. 
    In the medieval times, Haryana flourished when weak rulers ruled Delhi. Most of the area
remained under Delhi’s tutelage but small principalities also dotted the arid landscape of
Haryana. Mostly, people of the region joined the Mughals and Marathas in repulsing invaders.
But the same locals did not mind plundering Delhi or looting the retreating armies sometimes. 
    The British colonialists expanded from the east. They conquered most of India with the help of
soldiers from western UP and Bihar. But, in the late 19th century, the colonial strategists
honoured ordinary peasant castes by calling them ‘martial races’ in united Punjab. This was a
clever way of taming the aggression in this frontier region. This smart move was also to recruit
Punjabi ruralites in the colonial army so that they could be used to thwart the southward
expansion of Tsarist Russia. 
    There is a family resemblance between military/ hunting activities and wrestling, shooting,
races, riding or archery. For the military serving population of Haryana, therefore, such sports
come easily. 
    Secondly, before the advent of machinery, agriculture was a backbreaking occupation. The
size of agricultural income had a direct relation with the quantity of sweat produced during one’s
toil. Even after the wide use of machines, peasants have to rough it out in the open and do a lot
of physical labour for long hours. 
    Haryana stands in the midst of India’s Green Revolution belt. Its peasant culture values
strength and perseverance. Being less than four hectares, 83.5% of the landholdings in Haryana
are uneconomical. Unable to hire agricultural labour, such small farms are cultivated by family
labour. Family members slog on and on till their field has been sown, weeded or harvested. The
stamina of ordinary people is thus built in their everyday routine. 
    A liking for sports among such people is natural. Consequently, the physical training
instructor is the pivot of rural life in Haryana. S/ he has the same place in the normal school in
Haryana that the dance, drama or music teacher has in Bengal. 
    Finally, this love of aggression and liking for physical culture had to be channelized to
competitive championships. This is the task of sports federations. Sports federations have to
enforce the rules of every sport and also keep the performance records of member athletes. 
    The sports federations monopolize government support at other places. The government of
Haryana, since 2006, has chosen to directly help its athletes, instead. The athletes who excel get
cash rewards and government jobs in the sports quota. This is not the best policy because it does
not help create champions or a sports culture. The policy only celebrates the famous and supports
the successful. 
Loan repayments and disbursals in A.P. hit, says SKS chief

G Naga Sridhar
Hyderabad, Oct. 30

Repayment collections and disbursals of new loans have been hit in Andhra Pradesh in the last couple of weeks due to the row over
alleged harassment of clients and the the ordinance issued by the State Government regulating micro-finance institutions, according
to Mr M. R. Rao, Chief Executive Officer, SKS Microfinance Ltd.

The company could neither collect dues nor disburse new loans in some regions as its employees were not allowed into the villages,
Mr Rao told Business Line, here on Friday. “But in the areas where we were allowed to enter, repayments were over 95 per cent,”
Mr Rao said, although he refused to quantify the figures.

On an average, the Hyderabad-based SKS collects dues of Rs 28 crore a week, and around 28 per cent of its business comes from
the State. “There are no problems outside Andhra Pradesh and its business as usual,” he said.

Calls from investors

On the mood of investors in the company, which became the first micro-finance institution to go public in July 2010, he said: “We are
getting calls as they simply want to get first-hand information on what is happening. There is nothing beyond this.” Despite a
successful IPO, the company has been facing a series of problems, including a row over the removal of its former CEO, Mr Suresh
Gurumani, and the uproar over the alleged unethical practices of microfinance institutions (MFIs).

When asked about their current strategy to tackle these issues, he said that SKS continued to believe in the “good space for
expansion of the MFI sector in the country.”

“We will focus on horizontal and vertical expansion and products such as home loans, health insurance, and finance for grocery
stores (Sangam stores),” he said.

The present controversy over MFIs was largely due to “tweaking of group lending and weekly payments by some newcomers,” he
said. The Government should not target established companies but focus on regulating the unregistered ones, he said.

Mr Rao added that the date of the extraordinary general meeting to get shareholders' nod for removal of Mr Gurumani from
directorship, has not been fixed yet.

Mr Gurumani, who was removed from the post of CEO on October 4, did attend the board meeting last week, to finalise the second
quarter results, he said.

He added that SKS was not asked any further questions by the Securities and Exchange Board of India, after the company
responded to SEBI's queries on the circumstances that led to the removal of Mr Gurumani.

Interest rates submitted to A.P. Govt incorrect, says MFI

Our Bureau

Hyderabad, Oct. 30

Bharatiya Samruddhi Finance Ltd (BSFL), the micro-finance arm of Basix group, on Saturday said data submitted to the Andhra
Pradesh Government by it on interest rates were ‘incorrect'.

According to the micro-finance institutions regulation ordinance promulgated recently, the Hyderabad-based company had disclosed
to the State Government that it was charging interest in the range of 21.2 per cent to 60.5 per cent.

Mr Sajeev Viswanathan, CEO of BSFL said at a hurriedly convened press conference that BSFL submitted ‘wrong' data to the
Government due to ‘incorrect computations.'

Interestingly, the written statement released by the company did not mention the prevailing interest rates and after repeated
enquiries Mr Viswanathan said the prevailing rate of interest was between 32 and 34 per cent.
“We are re-checking our loan data and in the next few days, we would submit our information to the State Government,” he said.

28,780 new self-help groups credit-linked in Karnataka

Anil Urs

Dharwad, Oct. 29

About 28,780 new self-help groups (SHGs) have been credit-linked and 34,549 SHGs have availed themselves of repeat finance
with bank assistance of Rs 475.01 crore in Karnataka, Dr Venkatesh Tagat, Chief General Manager, Nabard told Business Line.

“In the State, the cumulative credit support to SHGs is around Rs 4,750.75 crore and about Rs 222.87 crore has been released as
re-finance for 19,678 groups, covering about two lakh groups. The programme is being implemented through 73 banks and about
720 NGOs,” he added.

In Karnataka, there are a total of 5.19 lakh SHGs covering nearly 77.55 lakh rural families.

Earlier, speaking after inaugurating 1,001 joint liability group (JLG) and 75th Farmers Club at Kuradikeri Village in Hubli taluk, Dr
Tagat said, “Nabard is playing a crucial role in credit planning process at the district level through preparation of Potential Linked
Credit Plans (PLPs) for all the districts in the State. These PLPs have now been recognised as the ‘reference document' for credit
planning at district-level.” Formation and financing JLGs are the programmes of Nabard designed for providing focused attention to
credit needs of the rural people living below poverty level and landless farmers, tenant farmers, oral leases, small and marginal
farmers, poor artisans.

During the year, about 782 farmers clubs have been formed taking the cumulative number of farmers clubs in the State to 5,194.
These clubs enable farmers to get access to credit and technology. “About 18 programmes have been sanctioned to various
farmers clubs enabling them to visit various research institutes, progressive farmers to get exposure on new technologies,” said Dr
Tagat.

Credit deployment

Nabard has estimated a potential for credit deployment of Rs 37,000 crore in Karnataka for financial year 2010-11.

“This includes Rs 17,250 crore for crop loans, Rs 6,674 crore for term credit in agriculture and allied activities, besides Rs 13,340.53
crore for non-farm sector, agro and food processing sector and other priority sector activities,” said Dr Tagat.

Finland keen on funding small agri-biz units in developing nations

Our Bureau

Hyderabad, Oct. 29

The Agri-Business Incubator (ABI), International Crops Research Institute for the Semi-Arid-Tropics (ICRISAT), has joined hands
with Information for Development (InfoDev) of the World Bank Group, Government of Finland, and Nokia for agri-business
incubation.

The development came during the concluding day of the meeting of Community of Practices (CoP) here on Thursday. Established
within the framework of the ‘Creating Sustainable Businesses in the Knowledge Economy' project, InfoDev's agri-business CoP was
launched at a kick-off meeting organised jointly by ICRISAT and InfoDev, during the three-day meet.

More for Developing Nations

“Our financing support will further increase in the coming years for agri-business through ICRISAT, as Finland is now keen on more
funding for agri-business in the developing countries. Since 2002, Finland has been extending overseas assistance to countries in
Africa, Asia, and Latin America in various areas, but not substantially for agri-business, which we now intend to change,” said Mr
Pekka Puustinen, Deputy Director General, Ministry for Foreign Affairs of Finland.

OBJECTIVES

“The meeting brought together more than 50 participants from 15 different countries, with the objectives to understand the key
challenges and opportunities for agri-business in developing countries and emerging markets, and to share successful incubator
models that have supported and graduated successful agribusiness SMEs (small and medium enterprises),” said Mr Steve
Giddings, Consultant, Incubator Initiative, InfoDev.

Dr William Dar, Director General, ICRISAT, informed that a Global Agri-Business Incubation Conference would be held at ICRISAT,
Hyderabad, from February 7 to February 9, 2011, where CoP implementation would also be reviewed. The conference would be
followed by another agri-business conference in Helsinki, Finland, during May-June 2011.

The meeting culminated in the development of InfoDev's agribusiness Community of Practice's (CoP) preliminary work plan and
deliverables for 2010-2012.

Increased arrivals press cotton

Rajkot, Oct 29

Cotton prices dropped over Rs 1,500 to Rs 42,500/ candy of 356 kg this week on increased arrivals. Raw cotton price also
decreased by Rs 30 for every 20 kg in the last three days. At Gujarat, price of Sankar-6 cotton variety has traded on Rs 42,000-
42,500 a candy. At present, arrivals are 60,000-65,000 bales from 35,000-40,000 bales last week.

Rice Steady

Karnal: Rice market of aromatic varieties ruled firm whereas the non-basmati varieties continued to witness a steady trend on
Friday, after witnessing an good uptrend move at the beginning of this week. Prices of Pusa-1121 steam (new) ruled between Rs
5,000 and Rs 5,050 a quintal while the old Pusa-1121 steam ruled at Rs 5,100-5,200 and Pusa-1121 sela (new) ruled around Rs
4,100 whereas the old variety was around Rs 4,200-4,300. Pusa-1121 raw (new) ruled around Rs 5,000-5,100 a quintal while the
old variety was quoted at Rs5,150. Pusa (sela) quoted around Rs 3,200 a quintal and Pusa (raw) at Rs 4,050.

Turmeric falls

Erode: Due to heavy arrivals, spot turmeric prices are down by Rs 100-200 a quintal. At the Erode Turmeric Merchants' sales yard,
the finger variety was sold at Rs 11,199-14,161 a quintal, the root variety fetched Rs 10,100-13,965.

Speculation sweetens sugar

Mumbai: Spot price on the Vashi sugar market moved up Rs 10-15 on speculation of lower-than-expected sugar quota for the month
of November.

According to the Bombay Sugar Merchants Association, spot rates were: S-grade – Rs 2,706-2,736 (Rs 2,700-2,736) and M-grade –
Rs 2,725-2,791 (Rs 2,720-2,791). Naka delivery rates were: S-grade: Rs 2,660-2,700 (Rs 2,660-2,680) and M-grade: Rs 2,700-
2,750 (Rs 2,700-2,730).

A village where onion is grown for generations

FOLLOWING TRADITION.
Firoz Rozindar

Chitradurga, Oct. 29

Out in his backyard, Mr Rangaswamy, helped by his four-year-old son, is grading onions, to be transported to Bangalore. He recalls
his father and grandfather taking him to their fields where they cultivated onions.

Mr Rangaswamy hails from a tiny village Kallahalli, about 13 km from Chitradurga town in Karnataka. Passing by this small village,
on the roadside, one can see onions spread everywhere and a number of labourers packing them in gunny bags.

With a population of around 2,000, strangely almost every family of this village has been into onion cultivation for centuries.

The onion cultivated last year was a failure. Erratic rain destroyed large tracts of the standing crop.

“Most of us could not even recover the cost of cultivation even after receiving insurance against crop loss,” he said. This year,
although nature has not been entirely favourable, farmers expect to recover last year's loss.

He said that the market price of a quintal onion was Rs 1,040 for the first grade, while the second grade was being sold at Rs
720/quintal.

According to Mr Rangaswamy, to make profit, the cost of first grade onion should be at least Rs 2,000, as the farmer spends around
Rs 25,000 on cultivating onion on an acre of land and transporting it to Bangalore.

Since the Kallahalli onion fetches remunerative price in Bangalore, the farmers seldom sell the onion in local market.

Kallahalli village alone exports around 700 loads of onion every year to Bangalore. A load has around 250 gunny bags, and each
bag weighs around 65 kg.

“Till a few years ago, some of the farmers were transporting onions to West Bengal, but owing to increasing transportation cost, they
have now confined their business to the Bangalore market,” he said.

TRADITION
The tradition of cultivating onion, and just onion, has continued in Kallahalli from generation to generation.

“I really don't know why I am cultivating only onion. My father was cultivating it, so am I,” 52-year-old Honnappa said.

Unlike him, Mr Rangaswamy seems to understand why he was cultivating just onion. “Onion is a crop that can be grown is less time
and can give a higher yield if the climatic conditions are favourable,” he said.

Despite the rising cost of input and fears of adverse climatic conditions, the farmers here do not wish to switch over to any other
crop.

“Cultivating onion is like gambling with nature — sometimes there is huge profit, sometimes a great loss. The hope of making profit
encourages us to keep cultivating onion year after year,” Mr Rangaswamy said.

Call for inclusive budgeting

India spells out its poverty reduction strategy in the Five Year Plans (FYPs), whereas Bangladesh, Nepal, Pakistan, and Sri Lanka
have Poverty Reduction Strategy Papers (PRSPs) providing a focused view on the agenda towards poverty. However, the FYPs
and PRSPs of all five governments, whatever may be the effort and sophistication invested in the exercise, essentially remain
statements of intent, writes Rehman Sobhan in Challenging the Injustice of Poverty: Agendas for inclusive development in South
Asia ( www.sagepublications.com).

Since, at the end of the day, all these statements have to be operationalised through the annual budget which obligates public
revenues for specific projects and programmes targeted to reduce poverty, the author begins by examining the budget-making
process as a way to realistically assess the revealed intentions of incumbent governments towards poverty reduction.

Indicators of priorities

The budget establishes the expenditure priorities of the government, identifies the constituencies which will be targeted by these
expenditures and the fiscal policy instruments which would be instrumental in enabling it to meet its expenditure and policy goals,
reasons Sobhan.
He identifies three indicators of government's priorities in budget-making, as follows: the constituencies consulted by the Finance
Minister (FM) while preparing the budget; the actual transparency of the document in specifying the allocative preferences of the
government; and the mechanisms of accountability which ensure fidelity to the priorities proclaimed in the budget.

What can be distressing to know from the book is that most FMs in South Asia tend to be narrow in their consultative process, far
from transparent in the construction of the budget, and weakly accountable in the expenditure stages.

Consultative process

FMs of South Asia remain relatively unconstrained in preparing their annual budget beyond their own perception of a need to
consult constituencies which they deem politically important, the author observes.

“As a consequence, in most countries of the region, FMs tend to prioritise particular political constituencies such as regional
governments, parliamentarians, key business constituencies, professional bodies and occasionally some civil society groups.”

In India, as in other South Asian countries, the voice of the private sector remains largely articulated by the upper ranks of the
business community through the salience of industry bodies (such as CII and FICCI) in the consultation process, notes Sobhan.

He concedes that this preference for giving heed to elite opinion in the design of policy has not precluded episodic exercises of
consultations with the less privileged groups.

Civil societies

A noteworthy feature of India, according to the author, is ‘the voice and role of civil society in speaking directly for the excluded or in
articulating their specific concerns to top policymakers.' Civil society activism, exercised through the courts, has been occasionally
reinforced with attempts by such groups or individuals within them to reach out to the political leadership and influence their thinking
on policy issues, he informs.

An example cited in this context is about how Sonia Gandhi, ‘draws upon an advisory group which includes some very articulate
voices from civil societies such as Aruna Roy and Jean Dreze, who have played an active role in the PIL (public interest litigation)
which culminated in the legislation of the compulsory midday meal and employment guarantee schemes.'

Yet, all such interventions by civil societies in India remain ad hoc in nature, laments Sobhan.

In his view, what remains surprising, in spite of six decades of parliamentary democracy, is the absence of any institutionalised
mechanism to reach out to the excluded groups, to take account of their more endemic deprivations rather than to address specific
crises which periodically escalate their struggle for survival into a national political problem.

Open Budget Index

It should be of interest to know from the book that the International Budget Partnership (IBP) has prepared the Open Budget Index
(OBI), which awards score to governments around the world on the breadth of their consultation process and the depth of
accountability to the citizens. India's OBI score for 2008 was 60, behind Sri Lanka's, at 64, though ahead of the scores of Nepal
(43), Bangladesh (42), and Pakistan (38).

Countries with a score of 81-100 are those providing extensive information in their budget documents; a score of 61-80 indicates
significant information, 41-60 means ‘some information,' 21-40 stands for ‘minimal information,' and at the bottom of the heap, zero
to 20 indicates scant or no information.

While France, New Zealand, South Africa, the UK, and the US rank high in the score, Sri Lanka gets mentioned as the only country
in the region where the government releases a pre-budget statement prior to the actual budget proposal.

Opacity of budgetary system

The author does not find it surprising that public expenditures on poverty alleviation are opaque in the region, given the weak
transparency demonstrated in the budget-making process. “No government has designed a budget which categorically spells out,
with complete transparency, the projects and resources which are specifically targeted to the poor. Nor does the budget set specific
targets for poverty reduction or employment generation and relate these to specific projects, programmes or heads of expenditure.”

Rues Sobhan that the opacity of such a budgetary system makes it difficult, if not impossible, for any government to be held
accountable for its record in poverty reduction or in meeting its proclaimed goals through specific public expenditures. Which
explains, he says, the absence of any record of any debate in the state/provincial or national legislatures where parliamentarians
have been able to use budget documents to take the FM to task on, say, the effectiveness of public expenditure in any fiscal year for
actually reducing poverty in general or through a particular programme.

Broad brush expenditure heads

Expenditures on projects targeted for poverty reduction are usually allocated under broad spectrum budget heads such as the social
sector or safety net or transfer payments, the author finds. He adds that all public expenditures under these budget heads are
traditionally classified as being directed towards poverty alleviation. The grim truth, though, is that “targeting under these broad
brush expenditure heads conceals the actual share of resources which would end up being of direct service to the excluded.”

Instructively, a World Bank study shows that only 34 per cent of the public expenditure on education had a directly beneficial impact
on the excluded, in Bangladesh. “The poorest quintile of the population benefited from only 8 per cent while the richest 20 per cent
benefited from 49 per cent of public expenditure subsidies on curative health care. In outpatient care, the poorest quintile received
11 per cent of the subsidies while the richest 20 per cent received 32 per cent (Narayan and Zaman 2009)…”

SKS Microfinance margins may see pressure on rate cut

Regulatory uncertainties a concern.

M.V.S Santosh Kumar

BL Research Bureau

In a move to appease the regulators in Andhra Pradesh, SKS Microfinance voluntarily cut lending rates for its AP borrowers by 2.14
percentage points to 24.55 per cent, according to a statement issued to the BSE. Improving operating efficiency may help mitigate
the impact of this cut on the company's margins.

SKS Microfinance claims that it had cut rates even though its lending rates in the State were already lower than the cap set by the
AP Government ordinance (interest payment should not exceed the principal). The stock fell 3.6 per cent from its day's highs
following the announcement. The hike may shave off about 70 bps from the interest spreads of 15.6 per cent (annualised) for half
year ended September 2010. SKS Microfinance's AP portfolio made up 28 per cent of the total outstanding loan book in
September .

We have not taken into account, rising borrowing costs for SKS itself which would further pressure margins. However, falling cost-
income ratio may help the company to maintain existing profitability. The return on average assets improved from 4.9 per cent as of
FY10 to 6 per cent (annualised) for the half year ended September .

SKS Microfinance's rates in AP are already among the lowest in its portfolio. Therefore, margin pressures may be greater if other
States taking a cue from AP, pass similar regulations to curtail lending rates. The rising interest rates may play spoil sport given that
borrowing rates are exposed to interest rate risk, while lending rates are fixed for customers. The regulatory uncertainties may make
it difficult for MFIs to sustain high rate of growth without asset quality slippages.

The other regulations in the Ordinance may not have a big impact on SKS Microfinance as of now. There is no clarity on whether
these rates are applicable to only new customers or all customers. However, given that the loan tenor is less than one year, majority
of customers will come into this category sooner than later.

AP's microfinance institutions admit to charging up to 60.5%

Disclosures to Govt contradict claims of ‘reasonable' interest.

G. Naga Sridhar

Hyderabad, Oct. 29

Microfinance institutions (MFIs) of Andhra Pradesh have been charging strikingly high interest rates contrary to what they have been
claiming.

According to the information provided by the MFIs to the Andhra Pradesh Government at the time of registration in accordance with
the recent ordinance, the effective rate of annualised interest goes up to 60.5 per cent.

Interestingly, many companies made this disclosure on Thursday after some MFI associations in the State had announced that the
interest rate would be reduced voluntarily to under 24 per cent.

According to the registration document filed with the AP Government, the annualised interest rate of Bharatiya Samruddhi Finance
Ltd (BSFL), an arm of Basix, ranges from 21.2 per cent to 60.5 per cent.

Even the largest, and the only listed, MFI in the country, SKS Microfinance Ltd, is no exception to the problem of discrepancy.

While the company had advertised (and also informed the BSE on Wednesday) that the rate was reduced for women members in
Andhra Pradesh to 24.55 per cent from 26.69 per cent with effect from October 22, its disclosure to the Government made on
October 28 put the effective maximum interest rate at 31 per cent.

When contacted, Mr M. R. Rao, Chief Executive Officer of SKS, said the effective rate of interest was 24.55 per cent but coupled
with advance interest/processing fee and insurance, it worked out to 31 per cent.

“All these were explained to the Government. Further, the decision to cut interest rate from October 22 could not be communicated
to the field staff due to holidays,'' he said.

The maximum interest rates charged by other MFIs are also upward of 30 per cent — Share: 19.84 per cent to 32.84 per cent;
Asmita: 27.42 per cent to 31.8 per cent; and Trident: 33.68 per cent.

“This shows the contradiction between public claims of MFIs about ‘reasonable' interest rates being charged by them. It is for the
Government to take further steps in the matter,'' a senior State Government official said.

Andhra Pradesh accounts for about 30 per cent of the country-wide MFI loan portfolio of about Rs 30,000 crore.

More time to register

In a related development, acting on a petition by SKS Microfinance Ltd, the Andhra Pradesh High Court has extended the deadline
for registration of MFIs in the State by a week.

The MFIs were originally required to register themselves with the Government on or before October 29.

The State Government had on Thursday constituted four committees for the effective implementation of the microfinance institutions
ordinance promulgated recently. The committees would look into various aspects, including the credit flow to self-help groups.
Villages shut doors on MFIs
G. Naga Sridhar

Hyderabad, Oct. 29

The routine business operations of microfinance institutions were hit in Andhra Pradesh as their field staff were not allowed into
some villages.

“About 45-50 per cent of operations are hit in the industry in general because of this problem,'' Mr Udaia Kumar, Managing Director
of Share Microfin, told Business Line.

Mr M.R. Rao, Chief Executive Officer of SKS Microfinance, also confirmed that employees of MFIs were facing a virtual boycott in
some villages.

Apparently the MFI clients, mostly women, are now emboldened by the ordinance issued by Andhra Pradesh Government to curb
the alleged harassment of clients for recovery of dues.

The ordinance prohibited the visits by recovery agents to individual houses and provided for collection of dues only at Panchayat
offices/public places.

“There should be a political will to solve the problem. Microfinance will disappear if immediate steps are not taken,'' said Mr Udaia
Kumar.

SKS Microfinance margins may see pressure on rate cut

Regulatory uncertainties a concern.

M.V.S Santosh Kumar

BL Research Bureau

In a move to appease the regulators in Andhra Pradesh, SKS Microfinance voluntarily cut lending rates for its AP borrowers by 2.14
percentage points to 24.55 per cent, according to a statement issued to the BSE. Improving operating efficiency may help mitigate
the impact of this cut on the company's margins.

SKS Microfinance claims that it had cut rates even though its lending rates in the State were already lower than the cap set by the
AP Government ordinance (interest payment should not exceed the principal). The stock fell 3.6 per cent from its day's highs
following the announcement. The hike may shave off about 70 bps from the interest spreads of 15.6 per cent (annualised) for half
year ended September 2010. SKS Microfinance's AP portfolio made up 28 per cent of the total outstanding loan book in
September .
We have not taken into account, rising borrowing costs for SKS itself which would further pressure margins. However, falling cost-
income ratio may help the company to maintain existing profitability. The return on average assets improved from 4.9 per cent as of
FY10 to 6 per cent (annualised) for the half year ended September .

SKS Microfinance's rates in AP are already among the lowest in its portfolio. Therefore, margin pressures may be greater if other
States taking a cue from AP, pass similar regulations to curtail lending rates. The rising interest rates may play spoil sport given that
borrowing rates are exposed to interest rate risk, while lending rates are fixed for customers. The regulatory uncertainties may make
it difficult for MFIs to sustain high rate of growth without asset quality slippages.

The other regulations in the Ordinance may not have a big impact on SKS Microfinance as of now. There is no clarity on whether
these rates are applicable to only new customers or all customers. However, given that the loan tenor is less than one year, majority
of customers will come into this category sooner than later.

Centre keen, but states oppose FDI in retail

Consensus Among States Crucial As They Have Powers To Restrict Entry Within Their Borders
Anindya Upadhyay NEW DELHI 

    CONSENSUS on opening up of multibrand retail to foreign direct investment looks unlikely

anytime soon with many states opposing the freeing up of the sector, dashing hopes of
multinational retailers such as Wal-Mart and Carrefour keen on selling their goods to Indian
consumers. 
    Many states have opposed foreign investments in multi-brand retail while some big ones like
Uttar Pradesh and Maharashtra have asked for more time to respond. The consumer affairs
ministry, the administrative ministry for the retail sector, has said the proposal will not move
forward unless states are on board. 
    The ministry had held the first round of formal discussions with the state food secretaries on
Thursday. “So far, only 18-19 states have responded on the issue, of which many, including
Kerala, West Bengal and Chhattisgarh, have opposed allowing FDI in multi-brand retail,” a
senior consumer affairs ministry official told ET. 
    The support of states is important as they can always deny retailers the right to open stores
within its boundaries on various grounds. Uttar Pradesh had, in 2007, asked Reliance Industries
to close its chain of retail stores in the state after protests from small shopkeepers. A senior
official in the UP Food and Civil Supplies department confirmed that the state had not taken any
view on the subject and will do it in some time. 
    “In that sense, the central policy will be hostage to the states’ views. If they don’t respond
soon, it will take longer to roll out the policy,” the official said. Independent experts also agree
that states’ views need to be considered. “While FDI is a central subject on which the Centre is
entitled to take a decision, the view point of all stakeholders need to be considered on crucial
policy issues such as the opening up of retail,” says Akash Gupt, executive director, PwC. 
    Carrefour and Wal-Mart declined to comment. India forbids foreign firms from directly
operating multi-brand retail stores, but has allowed companies like global retailer Wal-Mart to
set up cash-and-carry, or wholesale operations.

Give excess grains to poor & hungry

PTI NEW DELHI 

    ASSERTING that foodgrains cannot be allowed to rot in godowns, be dumped in sea or eaten
by rats, the Supreme Court on Friday asked the Centre to forthwith allocate excess foodgrains to
the hungry and BPL families in the Country. 
    A Bench of Justices Dalveer Bhandari and Deepak Verma while asking the Attorney General
to respond to its views told Additional Solicitor General Mohan Parasaran that mere schemes
without any implementation are of no use. 
    “More than 9 years ago (August 20,2001), this court passed an order that the food grains
which are over-flowing in the storage, especially of the FCI godowns and which are in
abundance, should not be wasted by dumping into the sea or eaten by rats. Mere schemes without
any implementation are of no use. What is important is that the food must reach the hungry,” the
Bench said in an order after Parsaran sought adjournment as the Attorney General who was to
brief the court was held up in the chief justice’s court. 
    “Procurement of adequate foodgrains is essential to provide food security and to protect the
interest of farmers. All through, our anxiety has been that the procured foodgrains be properly
preserved. The quantity of foodgrains which cannot be preserved because of lack of storage
facility, at least that much wholesome foodgrains be allocated to BPL population forthwith,” the
Bench said. 
    The apex court said as per the latest census figures BPL population in the country has risen by
seven crore and asked the AG to come out with his views as to why the allocation should not be
made in terms of the latest figure instead of relying on the 1991 Census figures.

Sugar prices race to the bottom on high output estimate

Prabha Jagannathan NEW DELHI 

DIWALI could be a little sweeter this season and lighter on the wallet as sugar prices are set to
plummet further this festival season from the already low levels. 
    The factory gate price of sugar in top producer state Uttar Pradesh is expected to nosedive to
2,725 a quintal in November this year, a good 375 a quintal lower than what it was during the
period last year. 
    Sugar and milk prices have a strong bearing on the cost of beverages, sweets and
confectionery. The softer sugar prices will to some extent help negate the firmness in milk, the
wholesale prices of which are up over a 20% from a year ago. 
    Sugar prices have been going down since September in consonance with increasingly higher
sugar output estimates in 2010-11. 
    On Wednesday, food minister Sharad Pawar boosted the government’s estimate to 25 million
tonne from 23.5-24 million tonne only a fortnight ago, on par with the level projected by the
private sector. The Indian Sugar Mills’ Association (ISMA), the industry lobby, had earlier this
year pegged sugar production this year at a minimum of 25 million tonne. The ongoing festival
time is the peak consumption season for sugar, a politically sensitive commodity. 
    On Thursday, the Mumbai Sugar Merchants Association pegged the wholesale price for the
widely-selling small sugar variety at 2700-2736 per quintal and the price of the medium variety
at 2720-2791 per quintal. The wholesale price of sugar small variety during the same time last
year stood at 3410-3600 per quintal while the medium variety was priced 3600-3740 per quintal.
Despite lower ex-factory prices of sugar in this year’s peak consumption period, sugar
companies have reason to be smiling. Driven by higher sugarcane volumes available for this
sugar year, costs have remained much lower than last year. 
    The comfortable sugar prices have allowed the government to let the ban on futures trading
lapse in end September. On Wednesday, FMC chairman BC Khatua said fresh contracts in sugar
futures would restart in December after the peak festival period. 
    The weightage for sugar has dropped to 1.73731 in the new wholesale price index, or WPI,
with the base year of 2004-05 from 3.61883 in the earlier series. Food minister Sharad Pawar’s
assertion on Wednesday that the government would consider easing up sugar exports in mid-
November.

No clarity on ethanol supply for blending

Prabha Jagannathan NEW DELHI 

STAKEHOLDERS appear to be at loggerheads on the issue of ethanol availability for the

Centre’s ethanol blending programme (EBP), indicating that the issue is unlikely to be resolved
soon. 
    The expert group, headed by Planning Commission member Saumitra Chaudhuri, held its
meeting on Friday where the draft report was considered. The commodity’s availability is
important as without which fixing a price for ethanol will not be possible. “There was a tacit
agreement among stakeholders that supply to the EBP should be pegged at 400 million litres now
and a review meeting in March should decide on an additional supply of 100 million litres. By
that time, well into the sugar season, availability will be much more certain,” an official from the
sugar industry told ET. 
    Apart from being largely in line with the suggestion made in the expert panel’s draft report,
this is seen as being in line with the national biofuel policy suggestions on the issue. However,
the sugar industry stakeholders are understood to have questioned the mandate of the expert
panel to decide on the availability of ethanol, stressing that the key brief of the panel was to
come up with a formula for a long-term pricing. 
    Indian Sugar Mills’ association (ISMA) DG A Verma told ET: “The expert panel was set up to
decide on ethanol pricing. A GoM has already decided on availability and the Cabinet (CCEA)
has approved 5% blending with petrol. We are awaiting the pricing formula which should be
decided on expeditiously.” An official said the Friday meeting was only to focus on demand and
supply and equitable distribution to stakeholders, which is part of the expert panel’s terms of
reference. Pricing of ethanol is to be tackled at subsequent meetings, he said. 
    The Plan panel expert committee, however, is understood to have been driven at this juncture
solely by how much ethanol was actually picked up last year by oil marketing companies for the
EBP and by sugar cane and sugar production estimates for the year. “There is a huge difference
between the ethanol availability data supplied by various stakeholders. It is imperative to
reconcile this on priority before deriving a formula for pricing ethanol,” the government official
said. The industry, however, is keen that the expert panel factor in the approval of the CCEA
earlier this year for the 5% blending of the commodity with petrol for the clean fuel initiative and
the interim price of Rs 27/lt.
Permit MFIs higher interest rates
If the government wants to help the poor, rather than worry about curbing the interest rates of the MFIs,
it should re-examine whether they should be permitted a corporate structure, says V Raghunathan

    THE central government is contemplating a ceiling of 18% on interest rates charged by

microfinance institutions. The government and regulators need to understand the economics of
microfinance better. 
    The situation involving microfinance institutions and micro-borrowers presents an
understandable dilemma. Clearly, the micro-borrowers need the microfinance institutions if
they are not to fall back into the clutches of completely unregulated moneylenders. Also, if
microfinance institutions are to serve them, they must be sustainable. If they have to be
sustainable, they must collect their dues. If they must collect their dues from people, who are
genuinely poorest of the poor, the situation gets trickier. 
    At around 24% plus, are microfinance institutions charging very high interest rates when
banks charge around 12%? 
    Consider a vegetable vendor who borrows . 500 in the morning, buys vegetables from the
wholesale market andsellsitbynightfallinretailfor. 650. Now, imagine if she had borrowed . 500
from a money lender — the proverbial extortionist — for a year, promising to pay . 10 every
day towards interest and to extinguish the loan on the last day of the year. 
    Under this arrangement, she makes . 140 a day for her enterprise and labour, and retains .
500 each day for investment next morning, to continue the cycle until the last day of the year
when from the proceeds of . 600, she extinguishes the loan. That earns her about . 4,200 a
month. Not too bad for everyone involved, one might say. 
    Now take a microscopic view of this micro economy. The profit made by the borrower at 28%
per day is anything but microscopic! It translates to a simple return on investment of 10220%
(28x365) per annum. Incidentally, this translates to a compounded annual return of about
1,300 billion billion billion billion% (yes, 13 followed by 38 zeroes% or [(1.28)365-1])! That’s
an unimaginably large number. 
    The interest rate charged by the moneylender here is 2% per day. If it does not sound terribly
impressive, that amounts to a simple interest of 730% (2 x365) per annum and a compounded
interest of 1375% (1.02)365 – 1) per annum — a modest interest against the background of the
returns made by the borrower! Incidentally, moneylenders are known to charge 5% per day,
say, . 25 on . 500. That translates to a simple and compounded interest of 1,825% and 5.4
billion%, respectively! Don’t believe it? Believe it! That’s the power of compounding. 
    Against this backdrop, an MFI charging a compound interest of 24% per annum is akin to
charging 30 paise per day (0.06% per day) on a loan of . 500, with the repayment of . 500 set on
the last day of the year. Alternatively, it is the same thing as the borrower paying equalised
daily instalment to the lender equal to . 1.52 every day of the year (which includes the
repayment component) out of his daily take of . 150. 
    NONE of these figures appear very ‘extortionist’ — a term frequently used for these interest
rates — when viewed in the context of the microfinance economics. Thus, microfinance
institutions, or even the moneylenders, are not such monsters they are made out to be. The
moneylender’s sullied image in rural India of Premchand’s Godan fame owes more to his
extortionist recovery methods than to the interest rates charged by him. 
    Thus, it is in the department of recovery of dues that microfinance institutions need to have a
heart and abundance of compassion. At the same time, regulators must understand that if
microfinance institutions have to be less aggressive in their recovery methods, the interest
rates ought to be even higher, and not lower. 
    For example, allowing an interest rate of 34% per annum — equivalent to 0.08% per day, or a
daily interest of 40 paise on . 500 — is hardly excessive in the context. Allowing higher interest
rate may ensure that the paying borrowers will subsidise the defaulting borrowers, just as in
the normal economy, the paying borrowers subsidise the defaulters. Clearly, higher interest
rates in microfinance are easily sustainable. 
    Evidently, banks cannot serve the microfinance sector with their interest rate structures that
apply to normal world of economics. Also, the costs of operations as well as the cost of
recovery in microfinance are typically very high. That’s why it is virtually unsustainable for
banks to serve this sector. 
    In short, in a country where 20% of people control 80% of the wealth, there is in reality no
pot of gold for the well-heeled at the bottom of this pyramid. That is why Mohammad Yunus is
right and Vikram Akula is wrong somewhere. 
    If microfinance institutions have to be sustainable, it may be best for the government to take
another look at how they are structured. Outside the Trust, Society or Section 25 company
framework, a cooperative model rather than a corporate model may be the answer. A purely
profit-driven corporatised structure is bound to give off the stench of profiteering from the
wretched of the nation. 
    Otherwise, those who need microfinance the most will be back in the clutches of the
moneylender. So, if the government wants to help the poor, rather than worry about curbing
the interest rates of microfinance institutions, it should re-exame whether these institutions
should be permitted a corporate structure.

Pulses still short of need but set to pull down global prices
Commodities Contributed A Good Deal To The Domestic Food Inflation
Prabha Jagannathan NEW DELHI 
    INDIA’S import of pulses could drop by about a million tonne next year, with good
rains and higher purchase prices announced by the government promising to boost
production. 
    The projected increase in pulses crop in the world’s largest consumer this year
could trigger a fall in global prices of pulses next year, helping the government’s
efforts to rein in sticky food prices. While the higher than average pulses crop will
not help India break out of the vicious cycle of import dependence, it will pressure
large exporters such as Canada, Myanmar, Australia, the US, Ukraine, France, China
and Tanzania to peg prices lower. 
    Pulses have contributed a good deal to the food inflation that stood at 15.53% in
early October despite government’s efforts to address this politically sensitive issue.
A recent Citigroup report said pulses production is likely to be around 15.7 million
tonne in 2011-12 against a demand of 19.9 million tonne, necessitating imports of
4.2 million tonne. Pulses importers association president KC Bhartiya expects
imports to fall to 2 million tonne from an average of 3 million tonne over the last few
years, as he expects kharif and winter-sown pulses output to increase sharply. 
    Winter-sown crops account for around 60% of all pulses produced. The sharp 20%
pre-season increase in the government purchase price of Masur and Chana will
result in a rise in area under cultivation. A similar increase for the last kharif season
had boosted acreage under pulses by 20 lakh hectares (ha) to 110 lakh ha, which is
expected to deliver a higher crop ouput of 6 million tonne compared to only 4.3
million tonne in 2009-10. Another 1 million tonne increase is expected in the winter
crop from additional acreage. During the festival season last year, prices of urad,
chana and arhar shot up phenomenally. Prices remain at the elevated levels, but
commodities experts do not see them rising further. 
    “Demand will rise by 15% in the peak demand season but would calibrate
downward once the rabi pulses marketing season begins in March 2011,” said one
expert. 
    The output gains this year may, however, be a temporary phenomenon as unless
there are sharp productivity gains, the growth is not sustainable over a period
because of limited land availability. Pulses yield remains abysmally low at around
600 kg a hectare, resulting in per capital availability of pulses dropping alarmingly
over the years. “There is a dire need to develop high yielding varieties of pulses to
boost domestic production,” said a commodities analyst with industry body
Assocham. 
    Meanwhile, rising incomes will spur demand, creating further pressure on prices.
In the long run, prices could fall in a sustained manner only if domestic production
expands to match local demand. FOOD FOR THOUGHT
SC: why are BPL homes denied PDS grain?
Wants Attorney General To Explain On Nov 11
TIMES NEWS NETWORK 

New Delhi: The Supreme Court on Friday wanted to know the Centre’s response to a
petitioner’s allegation that over 7 crore below poverty line (BPL) families have been left out of
the ambit of the public distribution system (PDS) and deprived of subsidised foodgrains. 
    A Bench comprising Justices Dalveer Bhandari and Deepak Verma asked Attorney General G E
Vahanvati, who was busy in another court, to respond to this charge by November 11.
Petitioner NGO People’s Union for Civil Liberties (PUCL) through counsel Colin Gonsalves had
told the court that this gap in the numbers was a result of government’s insistence on supplying
foodgrains through PDS as per the 1991 census and not as per the current population
estimates. 
    The Bench said as per the census figures the population was estimated at 117.67 crores in
2010, whereas it was 99.69 crores in the year 2000 and the petitioner claims that
approximately 7 crore BPL families have come into existence and they have been left out of the
PDS. 
    It wanted to know the steps the Centre had taken to include the additional number of BPL
families within the PDS and provide them with their monthly quota of foodgrains at low prices. 
    Additional solicitor general Mohan Parasaran said that nine states were yet to respond on the
procedure to identify BPL families, the number of PDS beneficiaries and the shortfall in the
quantity of foodgrains existing in states. Pointing to the situation in Haryana and Punjab, the
Bench said, “It is admitted that FCI had reported that 55,121 tonnes of wheat have been
damaged in Punjab and Haryana alone.” In the light of such wastage, the court wanted the AG
to give his response on whether excess grains could be diverted to additional BPL families.
Gonsalves said 13 states had filed responses making a common ground that their estimate of
BPL families was much higher than the figures maintained by Centre and because of this many
were not getting their quota of cheap ration.
Corporates may turn to urban co-op banks for loan funds
RBI may do away with borrowing-share subscription linkage.

K. Ram Kumar

Mumbai, Nov. 3
Financially sound Urban Co-operative Banks may soon be able attract large borrowers of
good standing as the Reserve Bank of India proposes to do away with the constraining factor
that requires borrowers to subscribe to the shares of these banks.

Hitherto, unless the doors of public and private sectors banks are closed for them, corporate
borrowers refrained from approaching UCBs. The reason: for secured loans, borrowers are
required to subscribe to a bank's share capital to the extent of 2.5 per cent of the value of the
loan. In the case of unsecured loans, the subscription is five per cent of the loan value. The
subscription to the share capital is, however, subject to a cap of Rs 5 lakh.

Last option

Always looking to cut costs, approaching UCBs is the last option for corporates due to the
share subscription clause. Consider this: A corporate wanting a loan Rs 2 crore actually gets
Rs 1.95 crore as loan as Rs 5 lakh goes towards share subscription of the UCB.

By seeking to remove the restrictive clause that requires borrowers to mandatorily subscribe
to the shares of UCBs, the RBI seems to be doing these banks a good turn.

“Once the share subscription-borrowing norm goes, UCBs, to an extent, could be reckoned at
par with public and private sector banks. Large borrowers will be encouraged to bank with
us,” said Mr Jyotindra Mehta, Chairman, Gujarat Urban Cooperative Banks Federation.

According to Dr Vinayak Tarale, Secretary, Maharashtra State Co-operative Banks'

Association, under the proposed RBI regime, a large borrower could symbolically become
member of a UCB by subscribing to just one share and avail himself of a loan.

Via media

In order to curb political and state bureaucratic interference in the functioning of UCBs, the
RBI appears to have found a via media. It proposes to withdraw the existing restrictions on
granting multi-state status for UCBs having a minimum net worth of Rs 50 crore. Once a
UCB turns into a multi-state co-operative bank, it will be governed by the liberal Multi-State
Co-Operative Societies Act and interference by local politicians and registrar of state co-
operative societies could be minimised.

Further, the RBI, in its second quarter review of the monetary policy, said it will allow
extension of the area of operation beyond the state of registration for UCBs with a minimum
net worth of Rs 50 crore.
To encourage mergers and acquisitions within the co-operative sector, the RBI plans to allow
UCBs (with a minimum Rs 50 crore networth) which have acquired weak banks in other
State(s) to extend the area of operation to the entire state of registration of the target bank.

NCDEX launches new agri index Dhaanya

Aims to provide reliable benchmark for farm commodities.

Our Bureau

Mumbai, Nov. 3

The National Commodity and Derivatives Exchange (NCDEX) has launched an agriculture
index – Dhaanya – based on the 10 most liquid contracts that contribute about 75 per cent of
total agriculture futures trading on the exchange's platform.

To ensure proper diversification, index components have been selected from various sub-
sectors such as oilseeds, grains, spices and other crops of national importance.

Mr R. Ramaseshan, Managing Director and CEO, NCDEX, said that the index aims at
providing a reliable benchmark for the exchange traded agri-commodities. It is a value
weighted index, based upon a simple, transparent and easy to understand methodology.

Index composition

The 10 commodities that comprise the index are soyabean (carries 10.23 per cent weightage),
mustardseed (11.09 per cent), cotton seed cake (2.56 per cent), wheat (27.63 per cent),
channa (12.78 per cent), turmeric (6.88 per cent), pepper (4.69 per cent), jeera (3.86 per cent),
guarseed (16.91 per cent) and jaggery (3.34 per cent).

“The weightage and components of the index will be revised every three months based on the
crop season, production size and trade liquidity on the exchange,” said Mr Ramaseshan.

The index is computed using the prices of the near month (closest expiry) futures contracts. It
will be a rolling index, meaning that the futures contracts held in the index are rolled over to
subsequent month five days before the contract expires.

Dhaanya will be computed real-time on all trading days during the market trading hours (10
a.m. to 5 p.m.).

Vital Info source

Mr Vijay Kumar, Chief Business Officer, NCDEX, said that the index will provide a vital
source of information to value-chain participants, market participants, economists,
statisticians, research agencies and agriculture insurance providers.

The current index maintained by the exchange is more of academic interest as the weightage
is equally divided among 10 to 15 most liquid contracts, he said.

The launch of this new index comes on the heels of the Cabinet committee clearing the
Forward Contract Regulation Act. Once approved by Parliament, the law paves way for the
exchanges to launch new products such as options and trading in index.

On the possibility of relisting the sugar contracts, Mr Ramaseshan said, the ban imposed by
the market regulator Forward Markets Commission had expired in October and the exchange
is waiting approval for the sugar contracts it filed with the regulator.

Asked about the growing competition with the launch of ACE Commodity Exchange that has
expressed its desire to specialise in agriculture commodities, he said: “We are aware of
competition and it will only help us to grow. The exchange has already started reworking
some of the contracts to suit end-users.”

Sugarcane prices: Neither fair nor remunerative

SHARAD JOSHI

 
Given the currentmarket situation, the mills should have no difficulty accepting sugarcane
farmers' demands.

The sugarcane scene in Maharashtra, a dominant State in sugar production, is complex, and
the changes therein will have far-reaching consequences that will affect the co-operative
sector and its political reach, apart from other sugarcane producing regions of India.

In the year 2009, the Central government amended portions of the Essential Commodities Act
as also the Rules relating to the pricing of sugarcane there under introducing a new concept of
Fair and Remunerative Price (FRP). For long decades, the price payable to sugarcane-
growing farmers was linked to the Statutory Minimum Price (SMP).

The statutory minimum price was decided on the recommendations of the Commission for
Agricultural Costs and Prices (CACP) formulated ostensibly, inter alia on the cost of
cultivation, the cost of conversion as also the cost of harvesting and transport.

Further, according to recommendations by the Bhargava Committee, an additional amount

became payable to the farmers depending upon the income derived by the producers of sugar
from various by-products such as bagasse, molasses, pressed mud, etc. In principle, the FRP
is supposed to replace, in all respects, the Statutory Minimum Price. The FRP was to be
calculated taking into account the C2 costs and an upfront 40 per cent addition towards
elements of the Bhargava formula, as also the risk factor.

Not covering costs

Even in 2009, the farmers' organisations had protested that C2 costs that do not include
capital costs and current imputed costs did not reflect adequately the actual cost of cultivation
and that an upfront addition of 40 per cent did not even begin to cover the risk factor as also
the relevant elements of the Bhargava formula.

In the first crushing season after the promulgation of the new amendment introducing the
concept of Fair and Remunerative Price, farm organisations are up in arms against the
system. The Central government has announced an FRP of Rs 1,391.80 per tonne for 9.5 per
cent recovery and an additional Rs 14.60 per per cent point of sugar recovery over and above
9.5 per cent.

The farm organisations have presented a well-documented case to prove that the cost of
cultivation does not fall under Rs 2,200 per tonne of sugarcane. They have also shown that,
given the present market situation for sugar, as also for the by-products, the sugar
manufacturing mills should have no difficulty in paying the farmers an advance of Rs 2,200
per tonne as FRP and pay additional amounts commensurate with the evolution of the
domestic and global market situation for sugar and other by-products in the ensuing year.

Advance payment

A prominent leader of the NCP has thrown a challenge at the farmers' organisations, inviting
them to take over the sugar mills and show that they can actually pay the prices they are
demanding.
It goes without saying that the challenge of the leader will be ignored. In cases where farmers'
organisations have had occasion to take over the working of sugar factories, the authorities in
charge of the cooperative apparatus in the State make it impossible for the management to
function.

The farmers' organisations could throw a counter challenge to demonstrate the practicability
of their demands if the government could give an undertaking that the cooperative banking
set-up as also the Government itself will not obstruct the administration of the mills under the
farmers' control. Since this is hardly feasible, it is best to ignore the leader's challenge.

The more important question is, what should be the down payment made by the sugar mills at
the time of delivery of the sugarcane? Are farm leaders justified in demanding the FRP as
advance price?

Since the fair and remunerative price (FRP) replaces the old statutory minimum price (SMP),
the advance payment made should, under no circumstances, be less than the FRP amount.

The SMP represents the price that is the minimum the farmers must receive. It is quite clear
that the amount has to be paid in a single instalment on the date of the transaction, or as soon
as possible thereafter. If the payment of the minimum price is staggered over a certain period
then the farmers lose the amount of interest they could have earned on the money received.

Fair demand

The co-operative mills in Maharashtra, as a matter of common practice, stagger the payments
over a whole year and often even more. Under these circumstances, it would be unfair to the
cane growers if mills pay them on the date of the delivery an amount that is even fractionally
less than the FRP stipulated by the Central government.

The farmers' organisations have demonstrated conclusively that the sugar mills can pay Rs
2,200 per tonne in zones where the sugar recovery is about 12 per cent. In any case, even
according to the formula approved by the Central Government, sugarcane with the recovery
of 12 per cent must get an FRP of Rs 1,756.80 per tonne.

If one calculates the possible revenue that the mills will earn on account of the Bhargava
formula, and a realistic risk factor, the mills should have no difficulty in accepting the
demands of the farmers' organisations.

AP Cabinet approves Bill to regulate MFIs

Our Bureau
Hyderabad, Oct. 3

The Andhra Pradesh Cabinet on Wednesday approved the Andhra Pradesh Micro Finance
Institutions (Regulation of Money Lending) Bill, 2010, which would be introduced in the
winter session of the State Legislative Assembly.

Briefing newspersons after the Cabinet meeting, the State Information Minister, Ms J. Geetha
Reddy, said the State Government had passed an ordinance last month to regulate micro
finance institutions (MFIs) and their functioning, making it mandatory for them to register to
carry on with their business. This Bill approved by the Cabinet, will be placed in the House
for approval and replace the ordinance passed to bring about changes in the way MFIs
function in the State. She said that the State Government has taken up with the Centre, Prime
Minister, Finance Minister and the Reserve Bank of India, to see that MFIs are regulated and
hardships to borrowers reduced. Highlighting the provisions of the Bill, she said that it is
mandatory for them to register to carry on business. Failure to do register has provisions for
imprisonment of up to three years, or a fine of up to Rs 1 lakh.

The Cabinet also approved to introduce a Bill to constitute the AP Maritime Board.

During the meeting, the havoc caused by the flood was discussed in detail and directions
were given to ensure that those affected get adequate relief measures. The concerned
Ministers have been asked to supervise operations.

Nuclear, yes; retail, no?

BINDU MENON

Ahead of the US President, Mr Barack Obama's visit, retail and policy changes in the sector
are making waves.

Think of American brands and what comes to mind? McDonald's, KFC, Pepsi, Coke and
Levis? Right. Now think of retail in its multitude of formats, and Wal-Mart, Starbucks, JC
Penny and OfficeMax are some of the names one instantly recalls.

These American and very global chains are itching to make inroads into the country to tap
India's young and rich shoppers who prefer American brands over Indian ones. But there is a
glitch. The Indian Government does not allow foreign direct investment in multi-brand retail.
And American companies don't like making investments where they do not have controlling
equities. Last week, when Wal-Mart's CEO and President, Mr Mike Duke, visited India, he
made a strong pitch for opening up of the retail sector. The largest retailer in the world,
though, has made an entry into India with the Bharti group, and says it is keen on a 100 per
cent FDI in retail.

This, the retailer claims, will benefit small and medium farmers and suppliers besides helping
the company scale up its investments in backend logistics. Wal-Mart, which enjoys a near-
monopoly in several of its markets, is still waiting to make substantial investment into the
$600-billion Indian retail market that is still dominated by kirana stores.

Just ahead of the US President, Mr Barack Obama's visit, retail and policy changes in the
sector are making waves. American brands are keen to enter India as their home market is
saturated and the only way to sustain business is by expanding into such emerging markets as
India, Brazil and Russia.

Sunrise sector

Touted as one of the most versatile sectors among the sunrise industries, the Indian retail
sector is just about emerging from the cocoon — tightly protected by Government laws and
concerns regarding the global big-boys of retail usurping the share of profit from traditional
retailers, or ‘mom-and-pop' stores. While China and Russia opened up their retail sectors for
foreign direct investment in the late 1990s, India eased FDI norms only partially in the 2000s.

In January 2006, India allowed foreign companies to own up to 51 per cent in single-brand
retail joint ventures, while wholesale cash and carry was opened for 100 per cent foreign
equity infusion. Modern retail typically operates in formats such as hypermarkets, super-
stores, supermarkets, discount stores and convenience stores.

When the Indian government announced it would allow “single-brand” retailers such as Nike,
to own 51 per cent of their business operations in India, it opened the door for Starbucks and
KFCs. However, merchants like Wal-Mart or J.C. Penney that sell a variety of brands, were
still restricted.

Wal-Mart did enter India through a joint venture with Bharti Enterprises to provide back-end
support for a chain of discount stores that will be 100-per cent owned and operated by Bharti.
But it wants a bigger slice of the pie. Wal-Mart is already in India and is sourcing about $600
million worth of goods from India. Global retailers have been making a strong pitch to open
up the sector for FDI. Frontrunners such as Ikea, Carrefour, and the world largest retailer
Wal-Mart have been repeatedly seeking 100 per cent FDI in multi-brand retail.
Retail Reforms

The second tenure of the UPA government in 2009 was seen as a positive sign for the sector.
The Congress party put retail on its reforms agenda despite stiff opposition from the Left
parties and also its main opposition BJP.

The Commerce and Industry Minister, Mr Anand Sharma, has time and again favoured
opening up the sector in a calibrated manner. In June 2009, a parliamentary panel headed by
BJP leader Dr Murli Manohar Joshi recommended a ban on foreign firms and big domestic
corporates from retailing groceries, fruits and vegetables, and a ban on issuing licences for
wholesale operations.

The Economic Survey 2009-10 generated some hopes by proposing opening up FDI in multi-
format retail, starting with food retailing.

Later, in December 2009, the Department of Industrial Policy and Promotion released a draft
document aimed at simplifying overseas investments in India, called “FDI Regulatory
Framework. It clarified that while FDI is not allowed in retail, FII is permitted. This
document keeps retail out of the prohibited sector list of foreign investments while retaining
it in the prohibited sector list of FDI.

The government is now set to initiate a second wave of reforms in the segment by liberalising
investment norms further. In July this year, the nodal body for framing policy rules came out
with a comprehensive discussion paper on multi-brand FDI in retail. It has spurred a debate
on whether there is a need for opening up the multi-brand retail sector and, if yes, under what
conditions.

‘MFIs need to improve transparency'

Our Bureau

Hyderabad, Nov. 3

There is an urgent need to improve transparency in operations of microfinance institutions,

said Mr R. Subramanyam, Principal Secretary, Department of Rural Development,
Government of Andhra Pradesh.

Speaking at a meeting organised by Sa-Dhan, an association of community development

finance institutions, here on Wednesday, he said MFI should strictly adhere to the norms on
collection and lending practices as per the recent microfinance institutions regulation
ordinance issued by the State Government. About 25 Sa-Dhan member MFIs, including
Spandana, Share, Basix, had agreed to implement a code of conduct declared by the
association aimed at the protection of poor borrowers in rural and urban areas, according to a
release.

Centre initiates urea decontrol groundwork

Plans for inclusion in nutrient-based subsidy regime.
— K V Ramana 

 
A file photo of officials inspecting railway wagons carrying urea bags at a station in
Nizamabad

Harish Damodaran

New Delhi, Nov. 4

The Centre has apparently readied a rough plan for decontrolling urea and bringing it under
the purview of the Nutrient Based Subsidy (NBS) regime from next fiscal.

According to sources, the broad contours of a decontrol plan was discussed at a meeting that
the Finance Minister, Mr Pranab Mukherjee, and the Union Minister of State for Chemicals
and Fertilisers, Mr Srikant Jena, had with industry representatives here on Wednesday.

Prices

The Centre has, effective from this April, decontrolled prices of all non-urea fertilisers. The
maximum retail price (MRP) of urea is currently fixed at Rs 5,310 a tonne. In return for
selling at this administered rate, urea plants receive a subsidy covering the difference between
their higher ‘retention price' (basically production cost plus a normative return on net worth)
and the lower MRP.
While the MRP of urea is fixed, the retention prices varies from plant to plant, depending
upon their vintage, feedstock used, capacity utilisation, specific energy consumption, etc. The
plan now is to free the MRP, while also move to a fixed subsidy payable to firms as in other
fertilisers. The subsidy would, in turn, be benchmarked to an import parity price (IPP), to be
taken at $300 a tonne, the sources told Business Line.

An IPP of $300 or Rs 13,300 a tonne works higher than the existing retention price of Rs
11,500-12,000 for gas-based plants, which produce over 80 per cent of the country's urea.
The retention price is even lower, at around Rs 7,500 a tonne, for depreciated units such as
Kribhco-Hazira that also operates on cheaper, landfall-point gas.

Allowing plants to claim IPP would push up the Centre's subsidy bill, which the Finance
Ministry will obviously not agree to. Moreover, it would give a windfall to the likes of
Kribhco and Nagarjuna Fertilisers, which get gas at $ 5/mmbtu, as against Iffco's Phulpur or
Indo-Gulf Fertilisers' Jagdishpur units that fork out $ 7/mmbtu or more, the sources said.

To address this, there is a proposal to entitle low-cost plants to only about 83 per cent of the
IPP, with this rising depending on the cost of gas for other units. On the other hand, plants
running on other feedstock (fuel oil and naphtha) will continue to be governed by the
retention price regime, till they convert to gas.

The retention price of furnace oil-based plants of National Fertilisers Ltd at Bhathinda,
Nangal and Panipat and Gujarat Narmada Valley Fertiliser Company at Bharuch is placed at
Rs 17,000-18,000 a tonne. In the case naphtha-operated units, these would range from Rs
20,000-22,000 a tonne for Madras Fertilisers and Zuari Industries to Rs 27,000 a tonne for
SPIC's Tuticorin facility.

Farming is still all about foodgrains

SHASHANKA BHIDE

The massive increase in agricultural prices in the last two years should mean a lot in terms of
incentives in agriculture. The increase in minimum support prices for rice and wheat at more
than 10 per cent per year in the last five years is sharp, and indeed keeps the incentives intact
for the core agricultural produce.

At one level of analysis, these increases have shown that demand for farm produce is rising
and holds, even at high prices. But at another level, they also point to the changes in relative
incentives, if any. Relative incentives are important for their impact on diversification of
agriculture practices.
There is more than one reason for advocating diversification of agriculture, ranging from
income stability to sustaining the productive capacity of natural resources. Specialisation is
more likely to be the dominant trend as several economic advantages, such as marketing
infrastructure or technology development, begin to take root. Diversification will then require
policy support. Minimum support prices and food security propositions directly affect the
core of the agriculture sector in the country. But they also affect everything else in the sector.
Steering away from the core is not easy, even when it is recognised that diversification is
important to improve farm income.

DIVERSIFICATION DYNAMICS

Some of the major policy interventions may, in fact, be supporting specialisation, as they also
provide stability in income through stability in markets.

Diversification, therefore, loses one of its drivers: the need for stability in income. It is now
driven by the search for higher income and would have to be a highly attractive substitute to
the core or a supplementary enterprise that does not take away resources form the core.

Structural shifts are also driven by competition for the other factors of production: labour and
water. Water-saving and labour-saving crops should take precedence as the constraints
become more binding. Of course, losing land for non-agricultural uses further strengthens the
pressure to retain the core enterprises and reduces the attraction of diversification.

In this sense, the action on diversification of agriculture has been limited with mild shifts
towards some fruit and vegetables. The large increases in the prices of pulses and vegetables
may lead to increased allocation of land to these crops, at least for some time. But
competition from the ‘core' will restrain shifting of resources to the periphery.

THE UNCHANGED ‘CORE'

The livestock enterprises were once expected to assume a prominent force in agriculture.
Many parameters are in favour of this transition: the income elasticities for these products are
high, agriculture-industry interface for these products is also potentially high. These livestock
enterprises were also expected to transit from being merely supplementary enterprises to
main enterprises as the marketing facilities and infrastructure improved.

But it is interesting that within the output of more broadly defined ‘agriculture and allied
sectors' the share of crop agriculture in the value of output has remained nearly the same in
the last 10 years. The share of milk products or meat products in the value of output has also
remained roughly the same.
The allied sectors have not managed to substitute the ‘core' of agriculture. Whatever
diversification and change has occurred in agriculture is within the crop sector. Even from the
perspective of the impact of livestock sector on agriculture, they consume only 10 per cent of
the output of the crop sector in the production process.

If we have not seen a significant enough re-allocation of resources to enable growth of the
periphery, one explanation for this is clearly that the policy priority is to ensure allocation of
the most limiting land resource to basic food crops.

POLICY SUPPORT NEEDED

Growth in income levels of the consumers will raise demand more than proportionately for
products with higher income elasticities.

If there is no change in production patterns and no change in trade options, prices will rise not
only for the higher valued crops or crop products but also for all crops. More policy support
will be needed to keep the structure of agriculture unchanged.

One of the reasons for the slow development of the livestock enterprises may well be the state
of infrastructure that does not allow efficient processing and distribution. Milk production
received a boost when investments were made in marketing as much as in production. Dairy
enterprise expanded with just one or two more cows or buffaloes per farm even as the rest of
agriculture remained unchanged. It is to be seen whether the development of rural
infrastructure will provide a new impetus to livestock production, changing incentives
unobtrusively.

Microfinance institutions cut interest to 24% in AP

Restructure loans; announce 15-point agenda.

“Many accusations have been made that our methods have led to suicides – we deny that and
we feel that we need to respond.”
  
Mr Vijay Mahajan, President, Microfinance Institutions Network

Our Bureau

New Delhi, Nov. 4

Taking a corrective action under pressure, the Microfinance Institutions Network (MFIN) has
said that it would reduce interest rates to 24 per cent for borrowers in Andhra Pradesh and
later extend it to the rest of the country.

The current peak interest rate in Andhra Pradesh, where MFIs have been facing flak, is close
to 60 per cent.

In all, 15 measures were announced by MFIN, which has 22 members operating in the State,
after a meeting with Mr R. Gopalan, Secretary, Financial Services, and other officials of the
Finance Ministry on Thursday.

The measures are in the wake of an AP Government ordinance last month banning MFIs
from collecting repayments, after which the Network had approached the AP High Court.

The State Government is expected to file a reply on November 8.

“We've made several concessions because we're under duress and not because we want to. It
is against our model, but we want the sector to survive. Mr Gopalan completely understands
our situation, but he has not let us off the hook,” said Mr Vijay Mahajan, President, MFIN.

Monthly recovery
MFIN has also decided to abide by the AP Ordinance that directed the lenders to switch to a
monthly loan recovery system.

Other measures include a “scheme of restructuring loans for highly indebted borrowers” and
a decision to not impose joint liability for loans above Rs 15,000. It will also share borrowers'
credit history with the AP Government – to create a common data base and base future
lending on credit checks against the data.

MFIs in Andhra Pradesh owe about Rs 27,000 crore to commercial banks from whom they
have borrowed for further lending. There are 65 lakh borrowers in the State. However, after
the AP Ordinance, repayment has taken a sharp dip, said MFIN officials.

“We agree some errors have been made in our quest for sustainability,” admitted Mr
Mahajan, adding in their defence, “We don't receive subsidised loans. Many accusations have
been made that our methods have led to suicides – we deny that and we feel that we need to
respond.”

He added, “We were able to collect only 95 per cent of what we were due. Even though we
had a court order permitting us to collect repayment after following certain rules, we were
thwarted from going to many places by village elders and political leaders. A fear psychosis
has been created – more than 100 of our employees have spent nights in jail.”

Limited headway in agriculture

FROM ‘KNOWLEDGE INITIATIVE' TO ‘DIALOGUE'.

Harish Damodaran

New Delhi. Nov. 4

In November 2005, India and the US promoted a ‘Knowledge Initiative on Agricultural

Education, Research, Service and Commercial Linkages' (AKI), which followed the
landmark July 18 Joint Statement of the Prime Minister, Dr Manmohan Singh, and the then
US President, Mr George Bush.

What really came out of this ‘Knowledge Initiative' is far from clear: The Web sites of the US
Department of Agriculture and the Indian Department of Agricultural Research and
Extension have nothing on it after April 2008. While nobody is particularly forthcoming on
whether the Initiative is still on, equally evident is the lack of enthusiasm — from both sides
— in sharing any information.
In the meantime, on November 24 last year, Dr Singh and the current President, Mr Barack
Obama, agreed to launch a new ‘Agriculture Dialogue' and a ‘Memorandum of
Understanding on Agricultural Cooperation and Food Security'. Whether the change from a
‘Knowledge Initiative' to a ‘Dialogue' is merely one of terminology or signifies something
beyond remains to be seen.

Farm engagement

India and the US have a history of robust engagement in farm research and technology
cooperation.

The country's premier State Agricultural Universities were set up on the American ‘land
grant' model. They even benefited from faculty training and technical assistance through
special linkage agreements – for example, the Punjab Agricultural University with Ohio State
University, Pantnagar University with University of Illinois, and Andhra Pradesh Agricultural
University with Kansas State University.

All this — not to forget the role of the Rockefeller Foundation and Dr Norman Borlaug —
was vital to the Green Revolution in the 1960s. The AKI was basically meant to build on this
past experience to initiate a new agricultural partnership. “The Green Revolution was based
on traditional plant breeding and hybridisation techniques that have hit a dead-end. The major
yield breakthroughs today are happening through biotechnological approaches such as marker
assisted selection and genetic engineering. Given our limited capabilities in plant genomics, a
structured joint programme with US universities and research institutions made sense,” noted
an official familiar with the AKI.

Lack of focus

The AKI's problem, however, was that it was “too vague” and sans any focus.

The proposed areas of collaboration read like a “laundry list”, covering everything from
extrusion processing and membrane technology to molecular diagnostics, precision farming,
bioremediation and carbon sequestering.

Also, interestingly, the proposals came largely from the Indian side, which even committed a
sum of $80 million towards a three-year Work Plan.

The US, on its part, pledged only around $24 million.

“It seemed to reflect the American perception that since much of the cutting-edge farm
research is now happening in the labs of Monsanto or DuPont-Pioneer, the scope for a 1960s-
style programme was limited,” the official said.

So, what did the AKI achieve?

“Well, it was mostly about holding of workshops and six-week internships in US universities,
the usefulness of which were questionable,” he added.

Does the new ‘Agricultural Dialogue', then, hold out much promise? “There seems to be an
attempt at a more focussed interaction this time. The proposed collaboration between the US
National Oceanic and Atmospheric Administration and the Ministry of Earth Sciences for
more accurate weather and crop forecasting, and developing early warning systems, is
certainly worth it, especially given the active involvement of government agencies here,” the
official pointed out.

MFI regulator role welcome, say Nabard staff

Vinson Kurian

Thiruvananthapuram, Nov. 4

The All-India Nabard (National Bank for Agricultural and Rural Development) Employees
Association, has welcomed the proposal for declaring Nabard as the regulator of the trouble-
torn micro finance sector.

The move is reportedly being considered according to the Micro Finance (Development and
Regulation) Bill.

But a cap on interest rates, preferably linked to the average base rate fixed by banks from
time to time, is called for to ensure that formal finance becomes accessible to the needy, says
Mr Jose T. Abraham, Vice-President.

Lending credibility

This alone would save the poor borrowers from the clutches of the greedy micro finance
institutions (MFIs) and lend credibility to the financial inclusion drive in the country.

Recent incidents in Andhra Pradesh involving poor borrowers being led to a debt trap and
suicides, have laid bare the despicable trend, reflecting the dangers of unbridled
commercialisation of the banking and finance sector.
The Andhra Pradesh Government has since come out with an ordinance to go after greedy
MFI operators.

Unions supportive

The trade unions, including AINBEA, are supportive of the micro finance movement,
preferably through the self-help group (SHG) linkage programme implemented in association
with public sector banks, regional rural banks and cooperatives.

Outsourcing of banking functions through Banking Correspondents (BCs) and Banking

Facilitators (BFs) may open new vistas for MFIs to act as BCs and BFs to earn ‘credibility,'
even while continuing to swindle public money pumped by PSU banks.

In such a background, a regulation of the MFI sector with Rs 22,500 crore in total
outstanding loans and 2.67 crore active borrowers, is inevitable if only to save the defenceless
borrowers from the iron-grip of these financial sharks, Mr Abraham said.

India's progress on human development below average

UNDP's HDR ranks nation sixth in terms of HDI improvement.
— Rajeev Bhatt 

 
Real wealth:The UNDP Resident Representative and UN Resident Coordinator, Mr Patrice
Coeur-Bizot (second from left), with (from left) the Planning Commission Member, Ms
Sayeda Hameed, the Chief Economic Advisor, Ministry of Finance, Mr Kaushik Basu, and
the UNDP Country Director, Ms Caitlin Wiesen, releasing the Human Development Report-
2010 – “The real wealth of nations: Pathway to human development:, in New Delhi on
Thursday.

G. Srinivasan

New Delhi, Nov. 4

India's growth story may be a showcase of economic success but its progress on the human
development front is below the average for the medium human development category.

The UN Development Organisation said in its Human Development Report-2010 — released

here on Thursday — that India's human development index (HDI) of 0.519 is only above the
average of 0.516 in South Asian countries and this pushed India to the 119th slot out of 169
countries and areas surveyed.

However, over the long haul, between 1980 and 2010, India's HDI increased from 0.320 to
0.519, an increase of 62 per cent or an average annual increase of about 1.6 per cent.

“With such an increase India is ranked sixth in terms of HDI improvement based on deviation
from fit, which measures progress in comparison to the average progress of countries with a
similar initial HDI level,” the report said.

The human development index is a composite national measure of health, education and
income.

Between 1980 and 2010, India's life expectancy at birth increased by almost nine years, mean
years of schooling increased by close to three years and expected years of schooling
increased by four years. Yet, India's gross national income per capita increased by 254 per
cent.

More factors

This year, the report has deployed three additional indices — the inequality-adjusted HDI, the
gender inequality index (GII) and the multi-dimensional poverty index (MPI). However,
India's HDI for 2010, which is 0.519, falls to 0.365 when the value is discounted for
inequality, a loss of 30 per cent due to inequality. Bangladesh and Pakistan show losses due
to inequality at 29 per cent and 32 per cent respectively.

On the new GII, it said in India, 9 per cent of Parliamentary seats are held by women and 27
per cent of adult women have secondary or higher education than 50 per cent of their male
counterparts.

For every one lakh live births, 450 women die of pregnancy-related causes and the adolescent
fertility rate is 68 births/1,000 live births. Female participation in the labour market is 36 per
cent compared to 85 per cent for men. The result is a GII value for India of 0.748 ranking it
122 out of 138 countries based on 2008 data.
The MPI — which identifies multiple deprivations in the same households in education,
health and standard of living — shows that in India 55 per cent of the population suffer
multiple deprivations while an additional 16 per cent are vulnerable to multiple deprivations.

The breadth of deprivation (intensity) in India, which is the average percentage deprivation
experienced by people in multidimensional poverty, is 54 per cent.

The MPI, which is the share of the population that is multi-dimensionally poor, adjusted by
the intensity of the deprivations, is 0.296.

Bangladesh and Pakistan have MPIs of 0.291 and 0.275 respectively. Stating that poverty has
been frequently discussed in terms of income poverty, the report said this only tells part of
the story. The multidimensional poverty headcount in India is 14 percentage points higher
than income poverty, implying that individuals living above the income poverty line may still
suffer deprivation in education, health and other living conditions.

Poverty

Taking a cue from this skewed pattern of development by India and other developing
countries, the UNDP Administrator, Ms Helen Clerk, in a foreword to the report convincingly
argued that “there is much that countries could do to improve the quality of people's lives
even under adverse circumstances.”

Pertinently, she pointed out, “Many countries have made great gains in health and education,
despite only modest growth in income, while some countries with strong economic
performance over the decades have failed to make similarly impressive progress in life
expectancy, schooling and overall living standards.”

The “top 10 movers” highlighted in the report — countries among the 135 that improved
most in HDI over the past four decades — were Oman, China, Nepal, Indonesia, Saudi
Arabia, Laos, Tunisia, South Korea, Algeria and Morocco.

China, S Africa ahead of India on HDI

Rukmini Shrinivasan | TIG 

New Delhi: Twenty years after the first Human Development Report said that the link
between economic progress and human development is not automatic, India is one of the
world’s top-ten performers in terms of income growth over the last 40 years, but is far
outperformed by much poorer countries in terms of health and education. 
    The HDI is a composite index measuring progress towards a healthy life, access to
knowledge and a decent standard of living. The measurement of the HDI itself has been
slightly altered and India now ranks 119th of 169 countries measured on the index, with
China at 89, South Africa at 110, Pakistan at 125 and Bangladesh at 129. India is classified as
a medium human development country. 
    The 2010 report concluded that twenty years had shown that while principles mattered,
there are no prescriptions for human development, and no silver bullets. One of the most
surprising results of human development research in recent years, confirmed in this report, is
the lack of a significant correlation between economic growth and improvements in health
and education, the report says. 
    The 20th anniversary edition of the United Nations Development Programmes (UNDP)
flagship Human Development Report, first inspired by the development as freedom approach
of Amartya Sen, was released on Thursday. The Human Development Report has become
one of the world’s most remarkably well-tracked statistical documents over these 20 years
and has a significant impact on policy. India too has embraced the HDR, chief economic
advisor Kaushik Basu said at the report’s release in Delhi. 
    All but three countries the Democratic Republic of Congo, Zambia and Zimbabwe have a
higher HDI today than in 1970. Nepal is the world’s second-best performer in non-income
HDI growth from 1970-2010. China is the world’s second highest achiever in HDI
improvement as a whole, but on account of its income growth rather than health or education
achievements. China tops the income growth list over 40 years and India is 10th. Oman tops
both the overall HDI and non-income HDI improvement tables despite not featuring on the
income growth list. 
    The report also includes three new measures: the Multi-dimensional Poverty Index that
was released earlier this year, the Gender Inequality Index and the Inequality-adjusted
Human Development Index. As per the inequalityadjusted index, India loses 30% of its HDI
value when inequality is factored in. This is composed of a 31% loss in its life expectancy at
birth when inequality of outcomes is factored in, 41% in education and 15% in income. The
global average is far higher for income, but lower on all other counts, reiterating the point
that even as it does better than the global average on income measures, India does far worse
on human development measures.
India still lags in ease of doing business
Our Bureau NEW DELHI 

INDIA has shown most improvement in the last five years in terms of ease of doing business
among South Asian countries, but still ranks very lowly 134th in sharp contrast to its stature
as a rising economic power and the second fastest major growing economy in the world. 
    The World Bank and the International Finance Corporation’s annual ‘Doing Business’
report for 2011 noted the progress India had made in making business eaiser, but that was not
enough relative to others. India only moved a rank up from last year, as it implemented 18
business regulation reforms in seven areas. 
    “India eased business start-up by establishing an online VAT registration system and
replacing the physical stamp previously required with an online version. India reduced the
administrative burden of paying taxes by abolishing the fringe benefit tax and improving
electronic payment,” it said. 
    Even among the nine South Asian countries that appear in the report, India again ranks low
at the 7th position, above Bhutan and Afghanistan. Singapore ranks on the top in the world in
terms of ease of doing business. 
    The ranking is based on nine parametres -- starting a business, dealing with construction
permits, registering property, getting credit, protecting investors, paying taxes, trading across
borders, enforcing contracts and closing a business. 
    As per the report, India is one of the most difficult places to start a business among, as it
has the most procedures and the maximum cost to set up a business. 
    The maximum number of procedures are required in India in order to get construction
permits. In addition, the cost to deal with these permits is also the second highest, the largest
being that in war torn Afghanistan. 
    However, India has lesser procedures and takes lesser time to register property, the report
shows. 
    It is more difficult than other South Asian countries to enforce contracts in India. “Where
contract enforcement is efficient, firms have greater access to credit and are more likely to
engage with new borrowers or customers,” says the report highlighing its impact. 
    Another of the negative points that makes business environment difficult in India are the
hurdles that exist in the country for closing a business. It takes 7 years for a company to go
through insolvency in the country and yields the third least recovery rate after an insolvency
process.

ndia talks big money, but life still miserable

Country Ranks 119 Among 169 Countries On Human Development Index
Our Bureau NEW DELHI 

    RAPID economic growth of the past decade has ensured India a place among the top 10
movers on GDP growth, but the country ranks a low 119 among 169 countries on the 2010
Human Development Index. China has been ranked much higher at 89 on the index published
annually by the United Nations Development Programme. 
    And the reasons should be obvious. India compares very poorly with countries with high
level of human development on all indicators such as life expectancy, education and per
capita income. For instance, life expectancy at birth is 64.4 years in India. In comparison,
people living in countries such as Norway, Australia, New Zealand and many countries
across Europe are expected to live beyond 80 years. The world average is 69.3 years. The
Chinese are expected to live about 73.5 years. 
    Similarly, the number of years a person has spent in school is a dismal 4.4 years for India
as compared to global average of 7.4 and 4.6 for South Asia. The only bright spot here is the
mean years of schooling children are expected to complete. The HDI 2010 pegs that at 10.3
years, which compares reasonably well with world average of 12.3 years. However, in the
rich nations represented by Organisation for Economic Cooperation and Development
(OECD) group that number is a high 15.9 years. 
    Lastly, the gross national income (GNI) per capita measured on purchasing power parity
terms for Indian was less than a third of the world average at $3,337 in 2008. 
    Now that does not mean that India has not made much progress on each of these indicators.
Over 30 years beginning 1980, India’s HDI values has increased from 0.320 to 0.519, an
increase of 62%. In the same period, life expectancy at birth increased almost 9%, mean years
of schooling by close to three years, and expected years of schooling by four years and per
capita GNI by 254%. 
    Yet India is a laggard, as many others have moved faster on the measured indicators, some
more rapidly on non-income ones while others such as China and many south east Asian
nations on income indicators. 
    At the global level, the HDI tell a optimistic story, the report noted. “Overall, poor
countries are catching up with the rich countries... the HDI gap between developing and
developed countries narrowed by about a fifth between 1990 and 2010 and about a fourth
since 1970,” it said. 
    The latest Human Development Report (HDR) has also tried to look deeper into the
indicators to establish various inequalities. These inequalities arise due to disparity in
distribution of incomes, gender inequality and mutli-dimensional poverty. 
    Thus, India’s score could fall by a steep 30% due to multi-dimensional inequalities, HDR
2010 notes. High prevalence of gender inequality too could pull down India’s rank on HDI as
would multi-dimensional poverty. As much as 55% of the population suffer multiple
deprivations while an additional 16% are vulnerable to multiple deprivations, according to
the report. The breadth of deprivation in India, which is the average percentage of deprivation
experienced by people in multi-dimensional poverty is 54%.
India bats for endosulfan as world calls for a blanket ban
Yet Another Review On Cards To Prove Insecticide Is Unsafe
Jayashree Nandi | TNN 

    India’s vultures appear to be making a tentative comeback but their killer is very much in
circulation and will continue to be. While the global community proposed a ban on the use of
endosulfan globally at the Stockholm Convention of the Persistent Organic Pollutants Review
Committee in Geneva last month, India opposed the move, saying there was not enough
evidence to prove the health and environmental impacts of the insecticide. 
    India being the largest producer and user of endosulfan in the world, dependence on this
highly toxic insecticide has now led the agriculture ministry to call for a technical review of
its impacts on health and ecology. 
    “We have not been in favour of a ban simply because several committees earlier had
reviewed the experience with endosulfan and had observed that its use can be continued,”
said Pankaj Kumar, joint secretary (plant protection) in the department of agriculture and
cooperation. “There are fresh developments everyday and fresh evidence is submitted. Before
we can agree to a ban, there has to be proper scientific inquiry. The registration committee
under the insecticides act has to review the matter and only if endosulfan proves unsafe, it
can make a recommendation.” 
    The delegation that was also represented by the MoEF is currently documenting key issues
of conflict. “India had conflicting views over the use of several chemicals. The use of
endosulfan is put on hold in Kerala due to the peculiar health impacts that were seen after
aerial spraying in cashew plantations. But in all other states, the approved manner of usage is
being followed and there is nothing to worry,” Kumar added. 
    Additional director (MoEF) Chhanda Chowdhury, who attended the convention, told TOI
that India had been maintaining the same stand for the past four years and there was no
question of backing a ban this time around either. This, when member nations of the
convention concluded: “Taking into account that a lack of full scientific certainty should not
prevent a proposal from proceeding, that endosulfan is likely, as a result of its long-range
environmental transport, to lead to significant adverse human health and environmental
effects such that global action is warranted…” 
    Environmental activists say a nexus of the government with the insecticide lobby has led to
a stern stand not to move away from these toxic insecticides. “There is a lot of public
literature in India and globally to prove the impact of POPs like endosulfan. It is only because
of a collusion with these companies that the government is ignoring stark disasters, as in
Kasargod, where so many are killed and even disabled,” said G V Ramanjaneyulu, Centre for
Sustainable Agriculture. The Kerala government had, in fact, written to the Centre ahead of
the Geneva meet, demanding that it take a stand in support of a ban. Cases of physical
deformity, endocrine disruption and impact on reproductive development have been widely
reported in Kerala and Dakshin Kannada, in particular. 
    According to the health risks submitted by various members at the Stockholm Convention,
endosulfan can be genotoxic ie capable of causing genetic mutation. Assessments conducted
by the EU, Canada and US concluded that endosulfan was not carcinogenic but some studies
found that exposure to even sublethal doses of endosulfan and its metabolites induce DNA
damage and mutation. 
    Strangely, endosulfan is still widely used in ecological and biodiversity hotspots, such as
the Western Ghats. In the latest meeting of the Western Ghats Ecology Panel, the Central
Pollution Control Board (CPCB) chairman has been asked for a technical report on the
implications of the use of endosulfan. 
    “Endosulfan belongs to the organochlorine group of pesticides such as DDT. These remain
in the soil for a very long time. Endosulfan is known to cause endocrine disruption and has
neuro-toxic impacts. It is only the huge manufacturers’ lobby that is stopping the government
from taking stringent measures. Also, it is a cost-effective medium which deals with a broad
spectrum of pests,” said P K Shetty, professor at National Institute of Advanced Studies, who
has been conducting field surveys on the use of toxic pesticides and their impact on farmers.

The US’ measly offer on dole could hobble the climate talks at Cancun in December
since the BASIC (Brazil-South Africa-India-China bloc) will not give in further, Jairam
Ramesh tells Nitin Sethi, summing up the deliberations in Tianjin, China
‘US needs to stick to its end of climate bargain’

    What were the key outcomes of the Basic meeting and the UN negotiations at Tianjin, China?  
Well, the negotiations are still deadlocked. If anything, at Tianjin, the differences increased. Also, the fact is that the
fast-track finance…out of the $30 billion that was pledged for 2010-12, only about $6-7 billion is new additional
resources. Most of it is old or recycled money. Out of this, $4 billion is pledged for forestry.  
The Copenhagen agreement was a grand bargain, that one side would provide the finance and the other side would
come on board as far as the transparency issues are  concerned. But that fast-track finance part of the bargain is not
being fulfilled. 
    Then, the US offer on emissions reductions remains a measly one. So it’s going to hobble us if the world’s pre-
eminent economic power and the world’s second largest emitter is not going to come up with something meaningful on
the table. President (Barack) Obama and others told Bangaldesh and Maldives in Copenhagen that, look you won’t get
money till the Chinas and Indias and the Brazils agree to the transparency issue. We agreed to the transparency issue in
the expectation that the money would start flowing to these countries. But clearly, the money has not.  
On international scrutiny… 
On International Consultation and Analysis (ICA) of (developing countries’ actions) the Americans and Europeans still
have an intrusive ICA in mind. What China, Brazil, India and South Africa agreed to at Copenhagen was an ICA that
respects national sovereignty. 
At Tianjin, did the US ask for a level of parity with China and India on scrutiny of mitigation actions?  
What the Americans are saying is, once you have taken on a commitment domestically and voluntarily, you must
inscribe it in an international agreement and ‘stand by it’. What does stand by it mean? It is a binding commitment.
Binding commitment to my mind means a commitment that is subject to international consultations and analysis.  
But they are asking for the same level of scrutiny for themselves as for China, India, Brazil and South Africa…  
Yes. They are saying they are under ICA and so are we. So it’s not a legally binding agreement. The US is asking for a
softer legally binding agreement. In other words, they want to get out of a Kyoto type of regime but we would like to
them to be part of it. 
But if you are going to help Mexico with some face-saving, you shall need a decision…  
Decisions, not decision. I expect a substantive decision on REDD (Reducing Emissions from Deforestation and
Degradation) and REDD-plus. But all this is predicated on the decision that the second period of the Kyoto Protocol
will continue. If the Kyoto Protocol falls then all this begins to fall.  
And, if the $30 billion fast-track money was to come through from the developed countries, including the US, what
would the BASIC then be willing to give in? 
No, the BASIC countries have already given. BASIC have said that we are not claimants for the $30 billion. That is a
huge thing. I was criticized for it by many, including you.  
So you are saying that at Cancun, there is nothing more that the BASIC can give but there is a certain part of the
bargain that the US and rich countries have to meet.  
See, the Copenhagen accord was a bargain between the BASIC and the United States. BASIC gave the idea of ICA, the
US gave the idea of finance – that bargain is now an unequal bargain. Our commitments in my view are far more
substantive than the US commitments. 
What is the possibility of plurilateral agreements outside the UNFCCC if the Cancun results are not substantive?  
There is an example of the WTO agreement on government procurement of goods and services. India is not part of the
WTO agreement but we are part of a plurilateral agreement. So there is a plurilateral window in a multilateral
agreement. 
But you are not averse to plurilateral agreement on issues beyond forestry…  
No. To my mind, forestry is the only issue that admits to a plurilateral agreement.  

Rescue Indian Sport

Professionals must replace part-time politicians as federation heads

    The Delhi high court’s refusal to stay the modified National Sports Policy guidelines
should help efforts to infuse transparency and accountability in the functioning of sports
bodies. Five sports associations had petitioned the court against the government’s move to
streamline their functioning by mandating an upper age limit for officebearers and limiting
the number of terms in office. Earlier, the court had also supported the move to bring sports
federations under the purview of the RTI Act. These moves, hopefully, should transform the
character of sports administration in the country. 
    Sports bodies have for long been fiefs of politicians and their cronies. Under the pretext of
heading autonomous bodies, they have turned them into platforms to dispense patronage.
These bodies resist scrutiny by neutral agencies, though many of them handle public funds.
They are a debilitating influence on Indian sports. The few recent successes are despite the
people in charge of running the federations. The new guidelines, if implemented in the right
spirit, could stem the rot. The proposed cap on tenure and age for office-bearers is certainly
not aimed at politicians. There is no harm if politicians want to serve the interests of
sportspersons. But they need to accept that running sports bodies can’t be a part-time job. 
    Sport today needs professional managers. It’s an intensely competitive field and
sportspersons need quality infrastructure and professional help to excel on the global stage. If
this country of a billion people has few world-class athletes the blame squarely rests on the
sports federations. These have failed to promote a sporting culture, build necessary
infrastructure or support talented sportspeople to raise their standards. Yet, none of the heads
of these bodies have ever had to account for their failures. 
    In this context, the decision of former cricketers Anil Kumble and Javagal Srinath to
contest the Karnataka State Cricket Association elections is a welcome development. They
seem to believe that they could contribute more to the game as administrators though they
could have pursued more lucrative careers in the media or coaching. There is a need for more
such sportspersons in the field of sports administration. Of course, not every ex-player may
make a good administrator. But he will at least understand the requirements and pressures of
modern sport. Also, the presence of iconic figures could inspire youngsters to pursue sport as
a career. Indian sport is crying out for professionals who have the passion and the know-how
to help it turn the corner. Hopefully, Kumble would inspire other sporting greats to take the
plunge.
Here’s another regulator in farmers’ name
Shyamal Gupta 

INDIA has a unique distinction of creating monoliths in the name of farmers yet the objective
is to provide a better support function to established financial institutions. 
    As long as there is a public acknowledgement of this fact, there is nothing wrong in
creating better systems. The tagging often in the name of the farmer is done to gain
legitimacy. 
    The most recent initiative in this space was the creation of a regulator by the name of
WDRA (Warehousing Development and Regulatory Authority). The WDRA Act 2007 came
into operation on October 25, 2010, almost after three years since the bill was passed by
Parliament. The regulator’s mandate is to put in place a negotiable instrument in the name of
warehouse receipts (WHR). The main challenge shall be to create a foolproof network
wherein this instrument is not used in the manner in which a large corporate house had done
previously (issuance of multiple physical shares with the same number) or the fraudulent use
of bank receipts by Harshad Mehta for leveraging in the stock market. 
    With the increasing “financialisation” of the commodity market, the laws and governance
initiatives of the government seem to have remained etched in archaic classical economics of
demand-supply and individualism. Institutionalised DEF (desire, expectation and fear) has
now taken over the individual’s role in commodity markets. Price manipulation and
leveraging are not anymore a businessman’s individual prerogative but are achieved through
well-designed plans of policy manipulations and systemic loopholes. The new regulator is
expected to bring a much-desired foresight in an environment of governance myopia. 
    While promoting instruments for pledge & collateralised structure in the commodity
market, one needs to take into consideration the financial ramifications of these instruments.
In the current legal structure, the ministry of consumer affairs may not be well-equipped to
handle a financial instrument of this nature and the equipment are available elsewhere within
the country. Without direct access to the ministry of finance and RBI, WDRA may not be
constrained to access a regular financial information flow, talent and resource pool. 
    On the “farmers welfare account”, needless to mention, a majority of Indian farmers
produce a lot size which is non-remunerative to be funded by financial institutions after
considering the overall transaction cost and credit delivery cost. Therefore to make a case out
of WHR that the instrument is going to help in preventing distress sale and shall give better
access of credit to farmers is a more of a public relations exercise which is hard to be
consumed even with a pinch of salt. 
    The chances are that in order to achieve economies of scale for credit delivery, we might
see a new financial intermediation option and not a direct credit delivery. If an instrument of
such great importance gets notified (if at all) in the Negotiable Instrument Act, then can we
restrict it to only “agricultural produce” that will be the death sentence for the instrument
(WHR) or will that be a solitary confinement? 
9 NOV, 2010, 12.21AM IST, DEVINDER SHARMA, 

Obama visit: Fate of millions of farmers hangs in balance

He came, he spoke, and he got 54,000 jobs. This was on Day One of his India visit. By the
time he flies out of New Delhi on November 9, US President Barack Obama would have
charmed his way through to force open Indian agriculture to American corporations . And
therein hangs the fate of millions of small and marginal farmers. 

Top on the agenda is the push to make Prime Minister Manmohan Singh allow the entry of
multi-brand food retail. “Agriculture sector needs well functioning markets to drive growth,
employment and economic prosperity in rural areas,” says a discussion paper drafted by the
Department of Industrial Policy and Promotion sometimes ago. Nothing could be further
away from truth, but then the G-20 has made it obligatory for member countries to open up
for big retail. 

Nowhere in the world has big retail helped farmers. In the US, despite the growth of big retail
like Wal-Mart and Carrefour, farmers number has dwindled and come down to such a low
level that America has stopped counting its farmers since the 2000 census. Meanwhile,
hunger has broken a 14-year record, and poverty is on an upswing. In Europe,
notwithstanding the presence of Tesco, one farmer quits agriculture every minute. For India
too, multi-brand retail will be the beginning of the end for Indian farmers. No assessment has
ever been made of the extent of job losses in the farm sector as a result. 
If big retail in food is capable of raising farm incomes I see no reason why the US should be
providing monumental subsidies to the tune of $307 billion for five years, beginning 2008.
The same holds true for Europe where farmers survive because the Common Agricultural
Policy (CAP) bails them out with direct income support. In both Europe and America, nearly
80% farm subsidies go to the big corporations. Neither the World Trade Organisations
(WTO) nor has the US Fed ever tried to rationalise these wasteful farm subsidies. 

It is primarily because of such huge farm subsidies that global food prices slumps thereby
pricing out the Indian farmers. An UNCTAD-India study had conclusively shown that if the
Green Box subsidies were to be withdrawn, the US agriculture would collapse. The US is
therefore trying to pierce open the developing country agriculture essentially to sustain its
own economy. 

President Obama has made this abundantly clear when he repeatedly talks of seeking more
market access from India. Unfortunately, Manmohan Singh has never sought reciprocity. I
wonder how many more human lives are required to be sacrificed before the most powerful
person on earth takes notice, and revive global farming by encouraging low external-input
sustainable agriculture. 

Stricter watch on FDI use

Disclosure Norms To Be Tightened To Curb Speculation

Chaitali Chakravarty & Ganapathy Subramaniam 

NEW DELHI 

    THE government plans to keep a tight vigil on foreign investment inflows by making it
mandatory for companies bringing in foreign equity to periodically disclose the end-use of
such funds. The Economic Intelligence Council (EIC), led by finance minister Pranab
Mukherjee, has called for ‘full disclosure’ of FDI details by the industry. The department of
industrial policy & promotion (DIPP) is working on a format for submitting information to
the government. 
    Currently, there is no mechanism for monitoring the actual use of FDI and regulatory
agencies do not go beyond mandatory clearances at the time of approving foreign investment
proposals. This has the government worried since it does not want FDI flows to be exploited
for money laundering or diversion of foreign investment flows for speculation in the stock
market or real estate. 
    The government wants to put in place a detailed system to make companies come out with
full details of ownership, background of promoters, sourcing of funds and investment history,
said an official with DIPP, who asked not to be named due to the sensitive nature of the issue
and the involvement of security agencies. 
    The Reserve Bank of India had also asked the government to get either administrative
departments or state governments to monitor end use of FDI inflows. The Intelligence
Bureau, the National Security Council and the EIC have also discussed the issue, the official
said. The home ministry and the working group on intelligence apparatus, a coordination
committee set up under the leadership of the revenue secretary, are also involved in the
discussions. Mandatory disclosures would mean additional paperwork for the companies. If
deviations are found during monitoring, penal action will be taken against erring companies. 
    The National Security Council has been working on an umbrella legislation to ensure that
FDI policy does not clash with national security concerns. Since work on the proposed
legislation has slowed down due to differences of opinion within the government, the EIC is
now handling some of the issues like monitoring of FDI. 
    The EIC’s mandate is to improve co-ordination among enforcement and intelligence
agencies dealing with economic offences and the income tax /customs wings of the
department of revenue. The Council is supposed to come up with an oversight mechanism to
evolve policy responses to economic offences. Among the first sectors to come under scanner
when the new mandatory reporting norms kick in would be FDI in private banks, power,
greenfield airports, real estate and breweries, another government official said. 
    While 100% FDI is allowed in these sectors through the automatic route, these segments
are subject to sectoral guidelines. Since no clearances are required for these sectors, the
companies concerned keep the RBI informed. In fact, there is no provision under the FDI
policy or Foreign Exchange Management Act (FEMA) for which RBI is the nodal agency.
Violation of FEMA guidelines lead to imposition of penalty by RBI, but this happens mostly
in cases where the offender voluntarily discloses the violation. The RBI has been in touch
with the DIPP over the issue, the official said. The central bank’s concern is primarily about
diversion of FDI inflows into real estate for speculation. While there are restrictions on
acquisition of property by non-residents other than NRIs and PIOs, the curbs are
circumvented by bringing funds into companies that are meant to operate in the hotels or
tourism sector. Such speculation can lead to asset bubbles in real estate, the RBI feels.

Red flag over FDI in multi-brand retail

Chaitali Chakravary & G Ganapathy Subramaniam 

NEW DELHI 

TWO government departments have come out waving red flags against opening up of
multibrand retail to foreign direct investment (FDI), slowing down the momentum that had
gathered pace following US president Barrack Obama’s stong push. The micro, small and
medium enterprises (MSME) ministry has said that the government should not allow more
than 18% FDI in multi-brand retail while the communications & IT ministry has said that
opening up of the sector would have an adverse impact on manufacturers of electronics. 
    While some departments like the Planning Commission feel that allowing FDI in retail —
which will pave for global giants like Wal-Mart to enter this segment — will be beneficial to
the Indian economy, these two are the first government arms to express reservations. The
government is yet to take a call on allowing FDI in retail, commerce & industry minister
Anand Sharma said on Tuesday while answering media queries on the sidelines of a
conference here. On Monday, the minister had said that the government had a positive
mindset on the issue, but would also weigh jobs generated by small vendors. The finance
ministry has declined to comment on a discussion paper floated by the department of
industrial policy & promotion (DIPP), the nodal wing for FDI policy. The ministry is
expected to express its views only when the issue is taken up for discussion at the cabinet
level. 
    “India should tread cautiously by opening the sector, if at all, gradually and analysing the
impact before opening it more. In the beginning, FDI less than 18% may be thought of,” the
MSME ministry said in its comments on the discussion paper circulated by the DIPP. 
    The ministry’s views are likely to be considered carefully since the entire debate on
opening up retail centers circles around the possible loss of small retailers’ livelihood which
could be displaced by large retail chains. Capping FDI in multi-brand retail would make it
unattractive, especially since earlier discussions had looked at either 49% or 51% FDI in this
segment. 
    Both MSME ministry and the IT department in the communications & IT ministry have
raised apprehensions about the impact on local players, a concern cited by commerce &
industry minister Anand Sharma when he said that the government had a “positive mindset”
on opening up of this sector. 
    The minister who is in charge of DIPP had said on Monday that political consensus would
be crucial for liberalising the FDI policy for retail as 50 million jobs in the small and medium
retail sector were at stake. In a communication to DIPP, the MSME ministry has highlighted
that the retail sector provided job opportunities to 33.1 million people, making it the second-
largest employer in the country after agriculture. Sourcing of 40% of merchandise from small
units should also be made mandatory for retailers with FDI, the ministry has recommended. 
    The IT department has urged the DIPP to consult industry associations representing the
electronics segment before finalising its view on FDI in retail.

Pak to import vegetables from India duty-free

TRADERS FROM BOTH SIDES WELCOME MOVE

Madhvi Sally CHANDIGARH 

    THE Pakistan government has allowed duty-free import of 15 varieties of fresh vegetables
from India through the Attari check post at Amritsar. The move comes after Pakistani
importers and trade associations pushed their government to take steps to reduce inflation in
the country following the floods that devastated crops in Pakistan. 
    Currently, five items including garlic, tomato, potato and onions were being exported from
India to Pakistan through land route. Following the Statutory Regulatory Order (SRO) issued
by Pakistan’s commerce ministry on November 2, import of green chillies, fresh ginger and
capsicum was allowed. The other 12 items in the list include Indian cauliflower, cabbage,
carrot, cucumber, green pepper, lady’s finger/okra, gourd/marrow, bitter gourd, radish,
arum/arvi, green coriander and tinda. 
    Importers who have been sending perishable items through the bi-weekly Samjhauta
Express have largely welcomed the development. With just one or two bogeys being allotted
(each bogey carries 50 tonne) for the perishable items, the long journey was a dampener as
some of the produce got wasted and did not fetch good price. 
    Humayun Sawhney, the owner of Lahorebased Sawhney Impact, said, “With this new
amendment, we expect an increase in the trade of perishable fruits and vegetables from India.
Even though the import of vegetables was allowed through train, it was not successful as the
vegetables used to get wasted due to the three-to-four day journey, which includes loading,
unloading and journey period.” 
    A temporary mandi has come up in Batpur, 5 km from the Wagah border, where
traders and commission agents from other cities like Rawalpindi, Gujranwala, Sialkot, Okara,
Shekhupura came and bid for vegetables, the trader said. “There is a huge demand for Indian
produce due to its good quality and price. Trucks don’t even touch Lahore mandi and on the
same day of their departure from India, the produce is sold in Pakistan,” Mr Sawhney said. 
    The view was equally optimistic this side of the border too. Amritsar-based exporter of
fruits and vegetable,s Rajdeep Uppal said that green chillies from Uttar Pradesh, ginger from
Karnataka and capsicum from Uttar Pradesh and Ahmedabad were being exported through
trucks. “We expect good trade throughout the year with the addition of more vegetables in the
list. Indian farmers will get remunerative prices for their produce. Till now, we were only
sending tomato,” he added. 
    In Delhi’s Azadpur mandi, KK Bhasin of Delhi Adhrak Company said that everyday,
about 20-25 trucks of ginger arrive from Bangalore. “The wholesale price in Delhi is stable at
27-28 a kg. Exporters have been procuring from the mandi since the past one month, which
has not reflected in the price,” he said. 
    In Jalandhar mandi, Raju and Co. owner Kumar Parvez said green chillies from Kanpur
and Bareilly were being sold at 13-14 a kg and capsicum from Agra and Ahmedabad were
being sold for 22-23 a kg. “The capsicum rates are higher than previous year, though the
supply is regular. If the demand increases from Pakistan, the rates are likely to increase
further,” he said. 
    Traders and industry associations were demanding that the Pakistan government waive
duty on import of onion and potato from India, Mr Sawhney added. “In Lahore, retail market
potato is being sold for 40 a kg and onions for 80 a kg. If the duty is waived, the rates will
definitely fall and consumers will be benefitted in Pakistan,” he said. In 2009, Pakistan
imposed about 48% tax, which constitutes 17% sales tax, 5% income tax, 2% additional sales
tax and rest as regulatory tax, on Indian potato. 
DEALING BETTER 
The move comes after Pakistani importers and trade associations pushed their
government to take steps to reduce inflation in the country following the floods that
devastated crops 
Currently, five items including garlic, tomato, potato and onions were being exported 
from India to Pakistan through the land route 
Following the SRO issued by the Pakistan govt, import of green chillies, fresh ginger
and capsicum was allowed 
The other 12 items in the list include Indian cauliflower, cabbage, carrot, cucumber,
green pepper, lady’s finger/okra, gourd/marrow, bitter gourd, radish, arum/arvi, green
coriander and tinda

Anatomy Of A Crisis

It isn’t just the microfinance institutions that are to blame for the current crisis in the
sector in Andhra Pradesh. M Rajshekhar says the malaise runs deeper and goes back
longer.

With Trushna Udgirkar 

THE POSTER BOY OF MICROFINANCE IS now seeking some anonymity. In Andhra

Pradesh, the epicentre of the worst crisis faced by microfinance in India, SKS Microfinance is
playing down its identity and going into preservation mode. At its modest office in a
residential colony in Warangal district, India’s largest microfinance company has taken down
its board. At its head office in upmarket Begumpet in Hyderabad, it hung a cloth mesh in
front of its plush, six-storey glass building, ostensibly to protect it from the public ire over
suicides. It’s a bad time to be a microfinance institution (MFI). 
    While MR Rao, CEO of SKS, deflects the blame for “coercive lending” to new MFIs,
some old industry hands admit to an institutional failure. “That (following sound lending
practices) is where we failed,” says Sajeev Viswanathan, CEO of Basix, an MFI. MFIs lent
liberally to individuals who didn’t have a corresponding ability to repay. The mismatch had
to hurt sometime, and that’s what is happening now. 
    But it’s not just MFIs that are responsible for this state of affairs. Many other parts of the
ecosystem, and what they have spawned over the years, are also culpable in bringing rural
lending to a pass. Five in particular… 
Crisis Point 1 
Banks 
“IF BANKS LENT US ENOUGH, WHY would we borrow from MFIs?” asks Shantiamma
rhetorically. When ET met her, Shantiamma, a woman in her early-50s, was plucking cotton
in a field just outside Gangapur, a village 6 km from the Hyderabad-Kurnool highway. A
labourer, she knows how banks have failed women like her who exist on the economic
fringes. 
    Banks first reached out to women like her when Chandrababu Naidu of the Telugu Desam
Party (TDP) was the chief minister of Andhra. In 2000, his government ran a rurallending
pilot called Velugu, which was managed by the Society for Elimination of Rural Poverty
(SERP) based on the concept of self-help groups (SHGs). It formed groups of 10-15 women
and assured them access to bank credit provided they took responsibility of its repayment as a
group, rather than individually. The idea was to use collective responsibility to instil
borrowing discipline. 
    In 2002, Velugu was adopted across the state, with banks charging SHGs an interest rate of
12%. In 2004-05, when Rajshekhar Reddy of the Congress became the CM, he reduced it to
3%; the state would refund the balance 9% to banks. 
    The credit line is available to SHGs, but it is inflexible. A typical loan for a new SHG
starts at Rs 50,000, for one year. As the group proves its ability to repay, the loan amount and
the tenure increases — for example, Rs 5 lakh for 5 years. At any point in time, an SHG is
entitled to only one loan. In other words, there’s no provision for an emergency top-up, which
several women need. 
    A senior SERP official is especially critical of two lending practices. One, banks don’t
often give SHGs their full loan entitlement, especially to scheduled castes and tribes. “If an
SHG is eligible for a Rs 3-5 lakh loan, a bank might release Rs 1-1.5 lakh only.” Two, banks
are lending against a savings collateral. “The women of AP would have savings of about Rs
4,500 crore, or about Rs 40,000-50,000 per group,” he says. “This money could have been
used for emergencies.” And so, they turn to MFIs. 
    There was another reason why the poorer women turned to MFIs. “You don’t find the
poorest of the poor in SERP’s SHGs any longer,” says the SERP official. “If they default, the
other group members eject them, as banks don’t lend to defaulters.” They were left with no
option but to turn to MFIs and moneylenders. 
Crisis Point 2 
MFIs 
EVEN AS BANKS UNDER-FUNDED SHGs, they extended loans to MFIs. They got the
same benefits, but at a lower cost and lower risk. Loans to MFIs qualify for priority-sector
lending. And going through them lowers banks’ costs. Instead of giving loans to, say, 500
SHGs of Rs 2 lakh each, they could give Rs 10 crore to just one MFI — and pass on the loan
servicing to it. Also, Andhra politicians have a penchant for loan write-offs. Each time they
make such promises, borrowers tend to withhold repayments of bank loans in anticipation of
a waiver. On-lending helped them avoid such risks. 
    Over the last five years, the nature of microfinance delivery has changed. Says S
Sivakumar, head of ITC’s eChoupal initiative: “Microfinance used to stand on two pillars:
income generation and social capital.” 
    At one end, it was meant to create incomegenerating activities, which would enable
women to repay loans of 30% interest without driving themselves into destitution. At the
other end, MFIs had to forge a form of social capital that would encourage repayment, as
SHGs did. 
    Both these pillars got undermined as MFIs chased growth. They defined their role as
only of credit delivery, and focused on making processes idiot-proof and scalable. They left
income generation and social-capital building to the groups and the government. Says a
former microfinance professional who has worked in Andhra: “We would spend time with
the women even after a transaction was over. There was a real relationship. Not anymore.” 
    The relationship of MFIs with women has become transactional. According to Mixmarket,
an online aggregator of microfinance information, each employee of Share Microfin, an MFI,
handled 331 borrowers in 2005; in 2009, this had increased to 436 borrowers. 
    Seeing the success of MFIs, more players, both formal and informal, rushed in.
Competition intensified. MFIs moved beyond lending to households with existing,
predictable cash flows, and began targeting households relying on uncertain, daily cash
flows. Says a senior banker with a private bank in Hyderabad: “Much of this lending was
calibrated to an MFI’s capital availability and growth needs, not to a household’s ability to
repay.” 
    Such changes converge uncomfortably at Malki Mohammad Puram, a small Dalit village
in Andhra’s West Godavari district. The 132 households here used to rely on fishing, but
switched to agricultural labour after the government levelled their fishing ponds. In 2007,
there was one MFI in the village. Today, there are eight. “About 80% of the households had
loans from 6 MFIs,” says V Prabhudas, CEO, CResa (Centre for Rural Reconstruction
through Social Action), a society delivering microfinance in Andhra. 
    The over-indebtedness even showed up at the state level. “The average household in the
state has a minimum of three to four loans,” says B Rajshekhar, CEO, Serp. “We have seen
cases where the monthly cash flow of the household was Rs 4,000-5,000 and the outflow was
Rs 7,500.” The industry’s 2009 state of the sector report, pegs the penetration of
microfinance loans among poor households at 823%. In other words, if only poor households
were availing microfinance loans, each household was servicing eight loans (See table: The
Loan Ranger State). 
    Despite that, no attempts were made to cool down the market. MFIs kept lending.
Viswanathan of Basix says MFI lending in Andhra rose from Rs 5,000-6,000 crore in 2009 to
Rs 9,000 crore this year. 
    Sidbi, which provides both debt and equity funding to MFIs, stayed mum. The RBI did
little more than periodically warn the MFIs. The banks too played along. “I would get calls
from banks seeking reassurances that the MFIs they wanted to lend to would not implode for
just two more years,” says a senior staff member at a loan portfolio audit and technical
assistance agency. “By then, they could recover their loans.” The private banker says banks,
to meet lending targets, would release 60% of funds to MFIs in the last quarter of the
financial year. “Scrutiny was bound to suffer,” he says. 
Crisis Point 3 
Credit Culture 
THE EASY MONEY IS ALTERING THE credit culture in villages. In Warangal district,
employees of a large MFI say that, earlier, women had to be cajoled into taking loans. They
would borrow nervously and repay fastidiously, out of not wanting to be locked out of a
source of credit that lent quickly and without collateral. 
    Increasingly, the employees add, some women are getting blasé about borrowing. “When
we warn women against defaulting, some of them retort, ‘we will borrow from someone
else’.” Instances have been reported of women negotiating loans by pitting MFIs against each
other. 
    Rural India, usually the elite among them, is beginning to exploit the microfinance model
for private gain. For instance, in a village in Hanamakonda’s Palaveyipullah mandal, the
centre leader and a group member took money from several MFIs in the name of 10 other
women, paid interest for 10 weeks, and then stopped. That is one kind of a change. 
    At the lower reaches in the villages, as MFIs lend to households without regular cash
flows, communities are changing in a different way. Women talk about the pressure to ensure
weekly repayments. Some of this pressure comes from fellow group members. 
    If a member is unable to pay interest, the remaining group members have to make good the
shortfall. They better, for a default means no loans for any of them in the future. In the
process, an inversion has taken place. Says anti-caste writer Kancha Illiah: “Five years ago,
SHG members used to beat up husbands who beat their wives. Now, they are beating up
women who fail to repay.” 
Crisis Point 4 
Labour Slowdown 
THE STAGE WAS SET. AND THEN, A confluence of external factors triggered the present
state of suicides. The last four months have seen a spike in the number of women struggling
to repay MFI loans. Of the 30-odd women that ET spoke to, all but one were repaying their
MFI loans through manual labour. 
    In this period, opportunities for labour work have plummeted in Andhra due to heavy rains.
Then, this year, the Centre asked the states to cap employment under the National Rural
Employment Guarantee Act (NREGA) at 100 days per household. This was a major blow for
MFI borrowers in Andhra, as NREGA works for more days there than in any other state. 
    According to the state government, for the period from March to November, the average
number of workdays per household in Andhra under NREGA fell from 62.7 in 2009-10 to
52.8 in 2010-11. The percentage of households that got 100 days of work fell from 21.1% in
2009-10 to 13.3% in 2010-11. The stir for a separate state of Telengana also affected the
labour market in real estate. 
    Borrowers counting on agri-labour and NREGA to make repayments were left in a lurch.
For instance, at the erstwhile fishing village of Malki Mohammad Puram, the sudden
shrinkage of the labour markets disrupted credit cycles. In July, villagers started defaulting.
“Things are worse in the inland districts,” says CS Reddy, the head of Hyderabad-based
organisation that provides capacity building and support to SHG institutions. “In the coastal
districts, there are more income streams — coconuts, tobacco, bananas, etc. In non-coastal
districts, it is just non-farm labour, NREGA and farm labour,” he says. 
    One of the fatalities of all this was Chintan Kumar of Ibrahimpur village. Fellow villagers
say Kumar had taken a microfinance loan, which he was repaying through labour. When he
couldn’t repay, the MFI staff and group members started pressurising him. He immolated
himself on August 21. 
Crisis Point 5 
Politics 
AS NEWS OF SUCH INCIDENTS increased, the situation took a political turn. According
to Kancha Illiah, the TDP, the main opposition party, saw an opportunity to win back its
traditional vote bank of women and other backward castes (OBCs). But in the 2004 elections,
amid a backdrop of farmer suicides, the Congress promised SHG loans at 3%. It won and
delivered on the promise. And soon after, it appropriated the SHG programme and renamed
Velugu as Indira Kranthi Pratham. 
    The TDP is now trying to use the MFI crisis to win back these constituencies, especially
with municipal and panchayat polls due next year. Naidu has been saying that while the TDP
created SHGs, the Congress created the MFIs. And then, there is YS Jagan Mohan Reddy,
former Chief Minister Rajshekhar Reddy’s son. He, like Naidu, is trying to use this crisis to
woo voters in Telengana and project incumbent Rosaiah as a weak CM. 
    Much of this slugging took place through the state media, important parts of which are
controlled by political parties. Jagan Reddy owns the Sakshi channel and newspaper, while
the TDP is said to be close to the owners of NTV and ABN. The target of their ire was
common: MFIs. 
    The Congress government, which was losing political space, hurriedly introduced the
ordinance. It was aided by the bureaucracy, which has had an antagonistic relationship with
the MFIs for years. “The ordinance had been under discussion for a while. When the
opportunity finally presented itself, it was finalised and pushed through,” says Sowmya
Kidambi, who heads a state department that does social audits on the NREGA. 
    It shows in its construct. While it introduces a much-needed layer of checks and balances
by regulating the field conduct of MFIs and seeking client information to address the problem
of multiple borrowing, it also adds a knot of red tape. It empowers project directors whose
job it is to promote the SHG-bank linkage to also clear MFI loans to SHG members. “Will
they remain objective while dealing with rivals?” asks CS Reddy of APMAS. Or, will they
turn this authority into a wanton exercise of power? 
    It’s an imperfect and uncomfortable state of affairs. And every piece in the lending
ecosystem is to blame. Tomorrow—How to fix Indian microfinance TALKING HEAD

SKS wilts under pressure

Wrong Move To Cap Interest Rates

    SKS Microfinance, the first publicly-listed microfinance company, has set a wrong
precedent by capping interest rates on loans to the poor. A cap, 24% in this case, is a
discretionary instrument. It will trigger rate wars among MFIs, squeeze profits that are vital
to the expansion of the microfinance sector and make small and new MFIs unviable. The
company has clearly wilted under pressure to lower interest rates — for the second time in
one month — after the Andhra Pradesh government issued an Ordinance to check
malpractices. Some MFIs were accused of using force to recover loans and such coercion, it
is alleged, led to suicides. But only a rigorous investigation can prove the connection. Sure,
regulations are needed to check malpractices and MFIs that use strong arm tactics to recover
loans must be punished. However, the Ordinance, that restricts MFIs from charging high
interest rates on readily available small loans, will encourage rent-seeking and stifle the
sector’s growth. This is unfortunate. The Centre should encourage the state not to convert the
Ordinance into law, even as the AP High Court is hearing a case arising out of a legal
challenge to the Ordinance. Today, the poor do not have access to formal finance. Unlike
banks, MFIs lend without collateral and charge interest rates of up to 30% to cover high
operational costs. A cap is not the answer to lower interest rates. It will only dampen the
supply of microfinance and force the poor to turn to money lenders. Caps will also curb MFIs
from entering remote areas and undermine the goal of inclusive finance. Barriers in the form
of price controls are retrograde and should be shunned. Instead, policy should aim at an
increase in the supply of credit for lowering interest rates. 
    An expert panel set up by the Reserve Bank of India is now examining the entire gamut of
regulatory issues in the microfinance sector including interest rates, lending and recovery
practices of MFIs. This is welcome as the study will help spot the trends that impinge on
borrowers’ interests. It will also analyse whether MFIs are indeed charging exorbitant rates.
Hopefully, that should end the debate.
Five myths about microfinance
    THE microfinance bubble has burst. The AP government ordinance, the AP opposition’s
campaign asking borrowers not to repay and the sheer public hostility towards MFIs — all
these have put the brakes on MFI activities for now. We need to rethink the role of MFIs in
the rural economy. In order to do so, we must first grasp some of the myths on which the MFI
sector has rested thus far. 
    MFIs are crucial to financial inclusion: The big impetus to financial inclusion came way
back in 1969 following the nationalisation of banks. Secondly, financial inclusion is not just
about giving small-ticket loans. It is also about taking deposits and providing basic banking
services. 
    MFIs are hardly the pioneers in microfinance. The early initiative came from the self-help
group (SHG) movement started by the government of India in 1992 under the auspices of
Nabarad and with the involvement of banks. This is the biggest outreach programme of its
kind in the world. It covers 86 million poor households and has extended credit of . 23, 000
crore. MFIs cover 30 million customers and have lent over . 30,000 crore. 
    Under the SHG scheme, credit is linked to savings (unlike MFI credit). There is focus on
capacity-building among borrowers. The rate of interest is 8-10% with monthly repayment.
The suggestion that MFIs are crucial to financial inclusion is only part of an attempt to give
respectability to what is increasingly a profit-driven activity. 
    MFIs have reached out to those ignored by banks: The contention is that MFIs complement
the efforts of banks by reaching out to those ignored by banks. This too is not true. AP has an
average credit/deposit ratio of over 105% and a ratio of over 80% in half the districts. (The
national average is 63%). AP does not lack credit. MFIs would have been made a real
contribution had they fanned out to states where the credit/deposit ratios are low. 
    Instead, they have focused on AP. They have done so because AP houses nearly a quarter
of the SHGs. MFIs chose the easy route of tapping into established SHGs for making loans.
This was viable in the early stages but, over time, it has led to the problem of multiple
lending and excessive debt burdens. It is no different from private banks in India marketing
consumer loans or US banks marketing subprime loans.
    MFIs are an important mechanism for alleviating rural poverty: Credit is only one of
several instruments needed for fighting poverty. Secondly, credit can help alleviate poverty if
it goes into income-generation schemes. MFI credit, for the most part, is for consumption.
Thirdly, returns to agriculture are so low that it is inconceivable that it can service interest
rates of 24% and above that MFIs charge. Since agriculture is the key to rural poverty, it is
ridiculous to suggest that MFI credit can help alleviate poverty. 
    MFIs have substituted moneylenders who used to charge even higher interest rates: The
comparison with moneylenders is flawed. Moneylenders don’t go out and market their loans
as MFIs do. Besides, moneylenders make loans strictly against collateral and this is a built-in
check on lending. 
    Secondly, MFI interest rates in AP are said to be have been in the range of 24-60%. At the
upper end, the rates are no different from those of moneylenders. Yes, MFIs did substitute
moneylenders in a way because many moneylenders found it expedient to set up MFIs
themselves — they could then have easy access to bank funds! 
    High operational costs means that smallticket loans cannot cost less than 24%: If this is
true, how is lending to SHGs viable? The high lending rates of many MFIs translate into fat
salaries for executives and abnormal returns. (Some have return on assets of 5%; a bank is
lucky if it makes 1%). 
    Public sector banks (PSBs) have long had branches in the rural areas. Small loans will be
one element in their portfolio which will include low-cost deposits and other products. With
branch costs fully written off, it is hard to see why microfinance provided by PSBs needs to
be priced at 24%. If indeed the operational costs turn out to be steep in some areas, then the
bank correspondent and other models need to be developed. 
    PSBs have not put their best foot forward in respect of microfinance because they lack the
incentives to do so. Most are listed now and have had to focus on earnings growth, which is
easily provided by corporate and retail credit. The regulatory cap on interest on small loans
was a dampener. (The cap is now gone). Lending to MFIs qualified as priority sector credit,
so PSBs could not be troubled to build their own portfolios. 
    Many people think the recent problems with MFIs were the result of some excesses. With a
little tweaking here and there, MFIs can be in the forefront of financial inclusion. They are
wrong. The entire MFI model needs revisiting. At least PSBs are much better placed to
pursue financial inclusion on their own. The AP ordinance and its fallout ensure that the go-
go days for MFIs are over. And that is all to the good.

To say that MFIs are crucial to financial inclusion is to give respectability to what is
increasingly a profit-driven activity 
MFIs are no different from private banks in India marketing consumer loans or US banks
marketing subprime loans 
MFIs substituted moneylenders only in a way that many moneylenders found it expedient to
set up MFIs themselves

Loans and Livelihoods

The flaws in the present microfinance model, which starts and ends with giving a loan,
stand exposed. The next model will weave microfinance around livelihoods, and it’s
gaining traction, reports Naren Karunakaran

    FIVE YEARS AFTER VIJAY MAHAJAN started Basix, his confident, purposeful stride
across the rural heartland of India briefly turned into a halting, ambivalent amble in 2001.
While many of his swashbuckling compatriots in microfinance continued with their avowed
task of ‘alleviating poverty’ through microcredit, Mahajan chose to pause, unleash a blood-
letting exercise and churn Basix from root to shoot. 
    The immediate provocation was an impact assessment of microcredit on the poor
households he served. The Basix intervention into the lives of the poor, it turned out, was
sterile. Only 52% of its microcredit customers reported an increase in income — that too of a
measly 10%. Another 23% reported no change in their status at all; and worse, 25% of its
borrowers, despite the loans, actually slipped deeper into despondence and poverty. 
    The revelations were humbling, hurting, even humiliating, for the serial social
entrepreneur. An IIT, IIM and Princeton University alumnus, Mahajan cut his teeth in
developmental work with Bhoodan land awardees and later cofounded the hugely successful
PRADAN (Professional Assistance for Development Action). “From my earlier experience, I
knew microcredit is necessary but not sufficient. Yet, we were stunned by the assessment,”
says Mahajan. “It changed us dramatically, it changed the way we engaged with the poor.” 
    Those at the Basix helm immediately revisited the tenets that govern the poor. Within a
year, they devised the ‘livelihood triad’ it now swears by: financial services; agriculture,
livestock and enterprise development services (Ag/LEDS); and institutional development
services (IDS), though not necessarily in that order. It wasn’t just about giving loans. It was
also about creating livelihood mechanisms, which would build capacity among the poor to
repay their loans easily, and leave them better off than before. 
    “I believe in Schumpeterian creative destruction. Its time has come. The present MFI
model has to go,” predicts Mahajan, considered the high priest of Indian microfinance.
Mahajan, ironically, also presides over the Microfinance Institutions Network (MFIN), an
industry coalition, and is currently engaged in dousing the fire in Indian microfinance —
cajoling bankers, assuaging governments, building confidence and seeking a shift in
stratagems. 
    At a recent Mumbai conclave of MFI practitioners, loud voices in favour of a livelihood
model were heard. “In the next decade, tier-II and tier-III MFIs will have to focus on
livelihood mechanisms and then weave microfinance around it,” says Sundara Rao, country
head of Oiko Credit, a global microfinance fund with a strong focus on social performance
and € 446 million in capital outstanding. Capacity building, therefore, gains precedence over
credit. 
    THE STARTING POINT OF THE Basix model is risk-mitigation. “The usual risk-
mitigation tools aren’t accessible to the poor,” explains Mohammed Riaz, head of the north
Indian operations of Basix. Breadwinners of the family or cattle die. Crops fail. Nature
ravages. Sickness debilitates. “One stray incident can wipe out the net worth of a family,”
says Mahajan. 
    Basix, along with insurer Aviva, pioneered micro-insurance in India, in 2002. Riaz, an old
Aviva hand, joined Basix three months ago. Basix has also implemented the complex weather
indexbased crop insurance, in which claims are triggered by an adverse weather event and
settled over a geographic area. Today, over 3.5 million of Basix customers hold policies
covering life, health, crop and livestock, among others. 
    The livelihood triad, therefore, engenders a type of engagement that builds skills and
capacities of individual households. It also strengthens entire communities, rural or urban,
through institution and local infrastructure building. 
    The triad rationale: microcredit by itself is of use only to the more enterprising of the poor
and to those who live in areas that have a certain threshold of economic activity. For the less
enterprising, they have to first learn to cope with risks, through savings, insurance and
acquisition of skills. 
    In backward areas, the poor require considerable handholding: input supply, training,
technical support, market linkages. Services like Ag/LEDS cannot be delivered to
individuals, which means the people Basix works with have to necessarily coalesce into
informal or formal groups, cooperatives, or producer companies. The formation and nurturing
of such groups require IDS. 
    Basix, therefore, through a bouquet of companies — Bhartiya Samrudhi Finance, the
Krishna Bhima Samrudhi Local Area Bank, Indian Grameen Services, the Livelihood School,
and the Basix Academy for Building Lifelong Employability (B-ABLE) — has evolved an
entire livelihood ecosystem in its areas of operation. Though rooted in microfinance, it is a
completely different play from the neighbourhood MFI. 
    AS BASIX PLUNGED INTO THE painful, slow, yet robust livelihood matrix, its
contemporaries like Spandana Sphoorthy Financial, Share Microfin and SKS Microfinance
flogged the typical touch-and-go method of loan disbursal and raced past Basix. 
    In 12 years, SKS, with its ‘acceleration model’, offering highly standardised loan products
of around Rs 12,000, to be repaid in 50 equal weekly instalments, acquired 7 million clients.
Basix, by comparison, is at 1.5 million. Grameen Bank, set up by Muhammed Yunus, took
three decades to reach out to 7 million Bangladeshis. 
    Vikram Akula, SKS founder, has always maintained: “There is no need to tutor the poor,
they are smart enough to organise their lives.” It is now beginning to become clear that the
SKS model of microfinance, with its heightened emphasis on rapid scale and high
profitability, is flailing. Worse, Indian microfinance has been shying away from outcome
studies. Impact measurement tools like the Progress out of Poverty Index (PPI) are largely
ignored. 
    “As MFIs scale up, grow and make profits, shareholders shouldn’t be the only ones to
benefit,” says Samit Ghosh of the Bangalore-based Ujjivan Financial Services. Ujjivan, in
2009-10, its very first year of making profits, dropped interest rates on loans from 24.5% to
22%, one of the first MFIs to do so along with the Kolkata-based Bandhan. 
    The profit-maximisation breed — and a large section of MFIs, overtly or covertly, yearn to
be one — have hit a roadblock, as can be seen by the turmoil within the sector. These MFIs
are under a cloud. And for good reason. 
    Take, for instance return on assets (RoA), which indicates how much profit a company
generates from each rupee in assets. The RoA of Spandana was a stupendous 8.99% in 2009;
it’s 4.96% for SKS and a modest 3.12% for Basix. For a sector that sets great store on serving
the poor, the pursuit of extraordinary returns is inexplicable. 
    “When dealing with the poor, boards of MFIs should decide what constitutes a reasonable
profit. Good governance demands a laxman rekha,” says N Srinivasan, chairman of the US-
based coalition Microfinance Transparency (MFT). Mahajan agrees. “Such RoAs in
microfinance are embarrassing, it’s unjustifiable. It’s four times the returns even a Citibank
would have made in its peak profit-making days,” he exclaims. 
    IT’S NOT ONLY PROFITS THAT CAUSE concern. Take, for instance, transparency in
interest rates charged. In the absence of a Truth-in-Lending Act, as prevalent in the EU and
US, the Indian microfinance client is not really aware of the ‘effective interest rate’ he or she
is paying. The difference in what is stated and what is extracted can be huge indeed. 
    A few years ago, Chuck Waterfield of MFT studied the interest rates charged by Mexico’s
Banco Compartamos, the first MFI in the world to go public. Compartamos advertises its
loans as a 4% interest per month product. Chuck examined the quaint manner in which
Compartamos computes its interest rate. He also incorporated all fees, commissions and taxes
it charged, and arrived at a figure of 129%! This is the interest rate a Compartamos client was
actually paying. 
    What is the Indian scenario? There is no systematic data collation by the industry.
Effective interest rates (EIRs) or annual percentage rates (APRs) are unknown, although it is
agreed they may not be as usurious as Compartamos. “Product pricing and overall
transparency among MFIs is an issue that needs to be addressed,” concedes Sanjay Sinha,
managing director, Micro-Credit Ratings International (M-CRIL). 
    Srinivasan goes even further. “Even the 99% repayment rate claimed by most MFIs is a
myth, an illusion,” he insists. “It’s too good to be true.” Portfolio audits of MFIs, conducted
by a few mainstream banks lending to them, indicate the data offered and the ground reality
differ. How deep the rot is, only those engaged in the exercise would know. 
    These and numerous other distortions linked to untrammelled MFI growth — relaxing of
controls to gain numbers, frauds at centre-head levels, loss of focus, design flaws, lack of
transparency and consequent ad-hoc governmental intervention — are beginning to rear their
heads. 
    Unnervingly, these were the typical signs betrayed by Latin American countries. The sheer
pace of growth has overwhelmed scores of Latin American MFIs and may have gone belly
up. “Here too, systems are apparently not holding up to match growth,” says Sinha. Over a
100 MFIs have failed in Latin America. “We have to learn from the Latin American
experience,” says Ujjivan’s Ghosh. 
    THE UPHEAVAL OF THE RECENT past has brought Indian microfinance, especially the
big players, under the sustainability scanner like never before. Its relevance in a political
economy as it is today and continued societal acceptance are suspect. Competing models like
the ‘business correspondent’ model, which are increasingly finding favour with regulators,
are knocking on the doors. 
    Also the joint-liability fabric, central to MFI functioning, is withering. This is prompting
MFIs to focus on deepening relationships with existing clients, which means more of
individual loans and collaterals; are we heralding micro-banking? All of this presage change,
gradual or cataclysmic. Change is inevitable. 
    The Basix livelihood model is finding traction across India. While many NGOMFIs are
comfortable with the livelihoods approach, many NBFC-MFIS are also beginning to weave
in livelihood components into operations, to varying degrees; Ujjivan, Equitas and Grameen
Koota, for instance. 
    A quick look at Rajasthan, a market Basix entered recently, reveals the typical build-up of
the livelihoods approach. Shravan Kumar, a marginal farmer with 4 bighas of land in
Chandrana village, near Dausa town, purchased a buffalo with a cattle loan of Rs 15,000 from
Basix a year ago. He also avails of its Ag/LED service, for which he pays Rs 450 a year. As
part of this, a livestock service provider (LSP) on the rolls of Basix vaccinates, deworms the
animal and conducts preventive checks once a fortnight. 
    Ramkaran Saini, the LSP for Chandrana village, says he instructs his customers — 150
from the village alone — to follow nutrition and fodder plans. The incidence of disease has
dropped. Laxman Bairwa, Shravan’s neighbor, also an Ag/LEDS customer, says his animal
yield more output — 3 litres of milk a day, from the earlier two litres. 
    Basix is not only providing credit, but is also expending considerable resources and time
on support services, securing livelihoods and building capacities. It is helping the Rajasthani
villager to tend to cattle in a more studied manner. This is just the beginning. The Basix plan
is to foster a legion of dairy farmers. Even as it does this painstakingly, working with
individual farmers, it is simultaneously talking to Hariyali Kisaan Bazaar (HKB) of the DCM
Shriram Group, which has recently set up a milk-chilling plant at Khertal in Alwar for supply
to Nestle. 
    “The 15,000 litre plant barely collects 5,000 litres a day,” says Riaz, who is grooming his
farmers for HKB, desperate to bridge the supply gap. This is not all. HKB plans to increase
capacity to 100,000 litres a day, the viable quantity for processing of milk. Basix is ready to
extend credit to HKB to scale up and also set up chilling plants elsewhere in Rajasthan. Its
IDS is already tweaking plans to help create federations of milk suppliers. It’s a microcosm
of the Basix livelihood triad at work. . 
    JAIPUR IS A FINE EXAMPLE OF AN urban livelihood intervention. In Rajasthan, most
households, even those at the lower rung, own a sewing machine. It’s a socio-cultural thing.
But, only a fraction is involved in commercial stitching activities. The potential is huge for
Jaipur exports home furnishings and garments worth 5,000 crore a year. The temptation
would have been to immediately link households with the garment cluster. 
    “We are not doing that, not yet,” says Vishal Singh Amarawat, a garments exporter who is
now spending time with Basix. Instead, a graduation model is in place. Amarawat is hawking
a training package to enable women to maintain their own machines. The fee is 200 for 6
days training, with a free toolkit thrown in. Anita Sein, wife of a barber, has already learnt the
ropes. “Earlier, a mechanic charged me 100 a visit; 300 if parts were changed,” she says. 
    “Once they are equipped with the requisite skills, they will be linked to the garments chain,
and also command a premium for quality of stitching services,” explains Vishal. Over a 1,000
women from Jaipur and two other cities have signed up. Next, an 18-day course on product
making, costing 400, is being tweaked. In the final stage, women will be taught on button-
hole and embroidery machines. The target is to reach 10,000 customers by December. “We
can easily reach a 100,000 tailoring customers across Rajasthan,” says Riaz. 
    In Rajasthan, Basix is not only pushing its own initiatives, but is also involved with the
Rajasthan Mission on Livelihoods (RMoL) a unique community-NGO-public-private
partnership, funded by the Government and the UNDP. It’s entirely managed by Basix. In
fact, over 25 Basix employees have been seconded to the RMoL, including its managing
director, Rakesh Malhotra. 
    Over the years, RMoL has impacted over 300,000 families in Rajasthan. Over 74,000
youngsters have been skilled in various vocations. As livelihood opportunities are sparse,
RMoL has devised a unique migration platform where the youth are handheld from source to
destination, to Mumbai, or elsewhere. “A private entity cannot match the infrastructure,
influence and the immense outreach of the government,” explains Malhotra. 
    Engaging with governments, despite its occasional perils, is something Mahajan strongly
advocates, an imperative for a livelihoods strategy to thrive. Akula, with a singular, narrow
approach can get away with saying: “Our standard instinct is we don’t want to work with the
government. We just want them not to interfere.” Vijay Mahajan is turning popular
perception on its head. And it seems, his way, the livelihoods way, is the right way, for now.

UID to turn poor man’s visa for credit

Our Bureau NEW DELHI 

    THE below-poverty-line citizens in India may soon get a Visa payment card as soon as
they get their Aadhaar numbers. San Francisco-based electronic payments technology
company Visa Inc has developed a unique payment solution on Unique ID Authority’s
software platform, based on which banks will soon issue Visa cards, even for the no-frill
account holders linked with Aadhaar numbers to enable plastic money usage for the
unbanked. 
    The Visa cards for the poor will provide them convenient access to government benefit
disbursements. Aadhaar is a 12-digit unique number that the government will issue to all
Indian citizens. 
    The Visa payments card linked with nofrill accounts will also enable payment options at
merchants accepting Visa cards, reduce risks associated with carrying cash, and even provide
convenience of booking train tickets or paying utility bills by card for the unbanked
population. 
    Elizabeth Buse, Visa Group’s global executive, said: “Many Indians have little or no
access to the banking system in India. Now they will be able to benefit from all the security,
reliability and convenience that a Visa payments card has to offer.” 
    About 60% of 1.2 billion Indians don’t have a bank account and UIDAI is building the
Aadhaar platform, which can be used to bring banking services to the unbanked masses. The
Unique ID Authority plans to issue Aadhaar numbers to 600 million residents over the next
four years, with a 100 million expected to be enrolled in the first year. 
    Most nationalised banks like Bank of India, SBI, Indian Bank and Allahabad Bank have an
MoU with UIDAI, and some are also opening no-frill accounts for the poor having the
Aadhaar number. According to RBI, of the six lakh villages in India, only about 30,000 have
bank branches. On an average, there are less than three bank branches per 100 sq km of land
area and this ratio is worse for rural areas and for the North-eastern region. 
    The Visa card will provide an option of immediate cash deposit to a no-frill bank account
by enabling deposit or withdrawal of cash at ATM or Micro ATM terminals. The card will
also enable remittance of money in a secure manner by migrants to their families. 
    Uttam Nayak, group country manager (India and South Asia) for Visa, said: “We will
provide infrastructure to process payment transactions using biometric authentication from
Aadhaar, and enable the government to execute its financial inclusion strategies.” 
    Visa is working with US based TSYS, a leading global technology company, as the
biometric authentication technology partner, for the UIDAI project. “Visa, along with its
banking partners, will soon launch a financial inclusion pilot, using the UIDAI platform,” he
added.

MFIs seek 1,000 cr from banks (13 TH Nov.)

CASH-STRAPPED microfinance firms have sought emergency funds of 1,000 crore from
banks in a sign that the beleaguered industry’s options of tiding over an acute liquidity crisis
caused by the Andhra Pradesh government’s move to regulate the industry are fast running
out. 
    The Microfinance Institutions Network, a self-regulatory body of a clutch of 44 NBFC
MFIs, has asked for 1,000 crore in the form of business continuity facility, a euphemism for
emergency money to ensure survival. 
    In an email to fellow MFIN members, Vijay Mahajan, who is the president of the NBFC-
MFI association, said that the loan has been sought from SIDBI, SBI, ICICI and other major
banks. 
    “This will be used for tiding over the liquidity crisis for any MFI, to obviate default, as
well to permit token disbursements in non-AP states, so that recoveries continue there,” the
email, a copy of which is with ET, says. 
    The move highlights the huge pressures that MFIs are facing after the Andhra pradesh
government issued an ordinance last month to regulate the industry’s money lending
operations. A spate of suicides, allegedly due to harassment by MFIs, triggered a political
controversy, forcing the government to act. 
    Though the industry protested its innocence, the ordinance was passed, immediately
creating conditions difficult for MFIs. Repayments by borrowers fell sharply; banks, both in
Hyderabad and Mumbai, cut lending, and private equity and venture capital investors,
suddenly became wary of a sector they were eager to invest in only a few months ago.
Andhra accounts for about 40% of all MFI’s business. 
    The situation has now worsened with some MFIs asking banks for a loan restructuring or a
holiday period. Repayments have fallen from 99% pre-crisis to only about 25-30% now.
Hectic lobbying by MFIs has not helped so far. In the email, Mr Mahajan details their various
interactions with political leaders in Andhra and Delhi, including a meeting with Rahul
Gandhi. Lasting impact feared on MFI industry 
Mr MAHAJAN says Rahul is wary of MFIs due to the appearance in Andhra of some photos
taken of him during an SKS visit. 
    A prolonged crisis will impact the industry in three ways. First, delayed repayment will
reduce the revenue as interest income would fall. Second, as people default, MFIs would
have to take a hit on their profits because of provisioning norms for non-performing assets
(NPAs). And finally, MFIs themselves would be in danger of default as their revenue and
profits get hit by non payment of instalments. 
    Under RBI regulations, an asset becomes non-performing when interest or instalment of
principal remain overdue for over 90 days, in respect of a term loan. And the crisis is now
entering its second month in AP. 
    “If the current situation is allowed to drift, there will be lasting damage to the industry, to
the borrowers and to the cause of financial inclusion,” said MFIN CEO Alok Prasad. 
    The problem is especially severe for SKS Microfinance, which had listed on the stock
markets in the middle of this year. According to the provisioning and write-off policy it
defined while filing its draft red herring prospectus (DRHP) with Sebi, in the case of loans
with an arrear period of over eight weeks and less than 25 weeks, the estimated provision to
be adopted by the company is that 50% of the outstanding loans (and loans overdue for over
25 weeks) will be written off entirely. 
    “We will start collections soon,” says SKS CEO MR Rao. And he thinks the collections
will be healthy. However, given that the state government has directed that there cannot be
collections on a weekly basis, the model itself is likely to change. And the company might
make changes to its provisioning policy as a result, he said. 
    “Given that Andhra accounts for a very large proportion of all MFIs' loan portfolios, it
looks like they will all report very large losses next quarter.” In the meantime, says the
observer, “Some are already facing a liquidity crisis, running out money to pay salaries.” 
    The email reveals that MFIN met as many as 33 bankers in Mumbai on October 30, 31 and
November 1. In these meetings, banks clearly told the MFIs that no restructuring should be
asked for as it will immediately make that loan an NPA. 
    “We were also told that if even one MFI loan is defaulted, all MFIs will be downgraded in
credit norms of banks,” the email says. 
    The response of the banks to this proposal is not known. Some banks say that
disbursements to MFIs are continuing but at a lower rate. “We are giving loans provided they
adhere to all the conditions set by us. Recently, we sanctioned a 150 crore loan to SKS
Microfinance where they have agreed to reduce interest rates to end-users. However, not
many fresh proposals are coming to us since most of the MFIs are based in Andhra and they
are busy with the registration process. But we are not averse to giving loans to MFIs,” says
Corporation Bank chairman RN Pradeep, which has lent 600 crore to microfinance
institutions. 
    “It is a decision that banks take on a case-to-case basis and the risk perception. In the case
of Bank of Baroda we have not decided to stop lending to the MFI sector. We look at a
proposal on its merits,” MD Mallya, chairman, Bank of Baroda, which has an exposure of
less than 200 crore said. 
    Other bankers have advised the MFIs to go slow on their growth rates. “The MFIs have
enough liquidity to last out for some time. The average loan from a bank to an MFI is for 18-
24 months, while the loans they give to borrowers are for 50 weeks. And this crisis is just a
month old. We are telling the MFIs to go slow for a bit. Why do they need to grow at 100%?
It is ok if they grow at 20% for a year? Or even if they slowdown for a year?” said one
banker, who was approached by a big MFI for a loan holiday of six months. 
    The proposal, however, may not go down well with everybody. Ironically, one MFI among
the big four — SKS, Spandana, Share and Asmitha — does not seem to be convinced with
the proposal. 
    “How would MFIN allocate the funds among all the MFIs?” said an official.

White sugar drops most in a year on exports from Europe

India May Have A Surplus Of 3.5 Million Tonne This Season

Bloomberg LONDON 

SUGAR extended declines in New York on Friday and fell the most in a year in London after
the European Union announced plans to expand exports and India forecast a surplus. 
    The EU will allow an extra 3,50,000 tonne sugar exports in the 12 months ending in
September, raising the limit for out-of-quota shipments to 1 million tonne, the European
Commission, the EU’s executive arm, said Thursday. Raw sugar futures fell 9% on Thursday
after the EU’s announcement. India may have a sugar surplus of 3.5 million tonne this
season, Union agriculture minister Sharad Pawar had said. 
    “The markets are falling on panic liquidation,” said Jonathan Kingsman, managing director
of Lausanne, Switzerlandbased sugar broker Kingsman. 
    Raw sugar for March delivery dropped 1.68 cents, or 5.7%, to 27.98 cents a pound at 8:25
am on ICE Futures US in New York. Thursday’s drop was the biggest in two years. White, or
refined, sugar for March delivery fell as much as $93.60, or 12%, to $675 a tonne on NYSE
Liffe, the biggest drop since April 16, 2009. It was most recently down 7.8% at $715.50 a
tonne. 
    Sugar prices in London only Thursday climbed to the highest since 1989 after crops were
damaged by weather in Brazil, Russia, Thailand and Pakistan. Supplies have lagged demand
for two years and this year the balance “remains fragile,” London-based C. Czarnikow Sugar
Futures said in a report this week. The global sugar surplus is estimated at 3.22 million tonne
by the International Sugar Organisation. 
    Higher prices on the world market compared to the domestic market may have been the
impetus for the increased export quota, Fabienne Pointier, an analyst at Kingsman, said
earlier. 
    The EU’s reference price is € 404.40 ($554.23) a tonne, said Sergey Gudoshnikov, an
economist at the International Sugar Organisation in London. The reference price is the basis
for negotiations with importers and the sale of so-called intervention stocks. 
    The WTO in 2005 limited EU exports of subsidised sugar to 1.37 million tonne after a
complaint by Brazil, Australia and Thailand. The commission on November 5, 2009, raised
the volume of sugar eligible for export in the current season to 1.35 million tonne from
6,50,000 tonne in response to rising production. Brazil’s Unica sugar industry association
didn’t immediately respond to e-mails from Bloomberg News seeking comment. 
    The EU will also lift the duty of € 98 a tonne on most-favoured-nation imports of raw cane
sugar from December 1 through next August, the commission said. “High world market
prices for sugar currently make the cost of these imports prohibitive, which risks disrupting
supplies on the European sugar market,” the commission said. “In this kind of situation, the
commission is empowered to act.”

Illiteracy a hurdle in inclusion: Panel

Our Bureau NEW DELHI 

THE private sector has a transformational role to play in inclusive growth, said HCC
chairman and MD Ajit Gulabchand on Sunday. 
    Mr Gulabchand, who was among the panelists discussing ‘The Business Imperative for
Inclusion’ during the India Economic Summit being held in the Capital added that private
sector needs to understand that they are now expected by the society to play a role that goes
beyond the role for which their business was created. 
    The other panelists in the discussion were Telenor Group president & CEO Jon Fredrik
Baksaas, DuPont CEO Ellen Kullman, PwC International chairman Dennis Nally, Hero
Honda MD & CEO Pawan Munjal, National Chemical Laboratory president Raghunath
Mashelkar and Aajeevika ED Rajiv Khandelwal. 
    The panel was unanimous that education and skills development were major hurdles to
India’s inclusive growth. Mr Gulabchand also said the government has a key role to play in
inclusive growth, as well as in healthcare, to allow India’s emerging workforce to be
confident and successful. 
    The panelists also pointed out that transparency, accountability and openness are key
imperatives for inclusive growth, as they engender the trust and cooperation required between
different stakeholders. 
    "Weeding out corruption is important if India needs to achieve inclusion," said Dr
Mashelkar. He further added that the Universal ID (UID) card system will make a huge
difference in the process of inclusion. 
    Mr Baksaas and Ms Kullman both supported technology to get the desired reach for
inclusive growth, while Mr Nally said that various stakeholders have to work collectively to
achieve inclusion. 
    "Agriculture is one example – better partnerships can help technology have more impact,
as well as improve delivery of crops to market," Ms Kullman said. 
    According to Mr Munjal, taking industry to new places creates employment, which leads
to inclusive growth. "Governance and creating the right distribution system can help achieve
the objective of inclusion," he added. 
    Some panellists said that no single company or government can solve issues such as
inclusive growth. 
    Only when working as a collective group – of governments, industry, regulators, NGOs
and consumers – in an open and transparent way, can there be hope for progress, they
reasoned. Dr Mashelkar added that making more out of less for more people (MLM) is a way
of including people through innovation and technology.

Govt admits to scam in rice export

PSUs Didn’t Follow Transparent Procedures During UPA-1: Sharma
Our Bureau NEW DELHI 

THE government has admitted that public sector units did not follow a transparent procedure
for non-Basmati rice exports during the first tenure of the UPA. The matter has been referred
to the Central Vigilance Commission for its advice, commerce and industry minister Anand
Sharma said in the Lok Sabha on Friday. 
    This disclosure could lead to more trouble for the government which is already grappling
with a number of scams, including the 2G spectrum allocation, Adarsh Housing Society scam
in Mumbai and the Commonwealth Games scam. “With the exception of Mauritius, the
exporting PSUs (public sector enterprises) of the department of commerce did not follow a
transparent procedure for the selection of domestic associates or in the determination of the
price at which the rice was exported,” Mr Sharma said in a written statement. All exports had
taken place between December 2007 and March 2009 when the commerce ministry was
headed by Kamal Nath. 
    Showcause notices have also been slapped on the officials allegedly responsible for hugely
disproportionate profits to private parties and denial of legitimate profits to PSUs, the
statement said. The possibility of collusion cannot be ruled out, it added. 
    The government had banned the export of non-Basmati rice in 2008 to put a check on
rising prices in the domestic market. However, it allowed the export of a limited quantity to
some least developed countries, including African countries on diplomatic considerations.
But the predetermined terms of contracts between foreign buyers and domestic suppliers
(with small margins for PSUs) led to “hugely disproportionate profits accruing to private
parties, namely the foreign government nominated domestic suppliers in India,” Mr Sharma
said.
Double kisan credit card loan cap, banks told
Wary Of Increase In Bad Loans, Banks Get Upset About Govt Coercion To Lend More
Under The Scheme
Dheeraj Tiwari NEW DELHI 

THE finance ministry has nudged banks to double the limit on short-term crop loans under
collateral-free loans under the kisan credit card scheme, as it looks to increase agricultural
credit, but banks are wary of an increase in bad loans. 
    “We are not forcing banks,” said a senior finance ministry official, admitting that the
ministry has suggested banks to explore the opportunity. 
    “They should do their due diligence as required. However, if there is a case they may ease
the norms as applicable,” he said, requesting anonymity. 
    State Bank of India, the country’s largest lender, has already raised the limit to Rs 2 lakh. 
    “We’ve increased the limit for loans under kisan credit card scheme by Rs 1 lakh to
provide further support to both small and medium scale farmers,” said a senior official with
State Bank of India. 
    Under the new guidelines, the bank will lend collateral-free loans up to Rs 2 lakh to
farmers with a clean track record for the three previous years. 
    Under the kisan credit card scheme, banks offer short-term credit to farmers for meeting
expenses on seeds, cultivation and purchase of inputs such as read fertilisers. 
    In 2009-10, banks disbursed Rs 34,982 crore under the scheme. The total credit offered by
banks to agriculture sector was Rs 3,66,919 crore. 
    By the end of March 2010, Rs 4,17,326 crore was extended to farmers through the kisan
credit card scheme. 
    Banks are upset about coercion by the government to increase lending limit under the
scheme. 
    “The government should look whether they are pushing farmers into a debt trap by easing
norms. Already there have been issues with recovery of loans under the debt relief scheme,”
said the chairman of a south-based public sector bank. 
    RBI data shows that the total non-performing assets of public sector banks in agriculture
stood at Rs 8,330 crore at the end of March 2010. 
    Domestic banks are required to set aside 40% of their credit towards priority sectors.
Within this, the target for agriculture loans is 18%. 
    NABARD, the apex institution for the development of farm sector, had recently suggested
deeper penetration for KCCs, citing evidence that crop yield per hectare was higher for
farmers holding these cards as their crops received timely inputs. 
    “We have submitted a report to the finance ministry and suggested that KCC penetration
could be further increased by extending crop loans, working capital and consumption loans to
farmers,” said an official with Nabard.
Focus on poor, banks reminded
Pranab Says Growth That Doesn’t Benefit Poor Mere Statistics
Our Bureau NEW DELHI 

FINANCE minister Pranab Mukherjee on Friday asked banks to focus on the weaker section
of the society saying that high economic growth sans benefit to the poor would not achieve
the national goal. 
    Banks should expand their reach and contribute to inclusive growth as high GDP numbers
without benefiting the poor remain just a statistical number, he said. 
    Mr Mukherjee also cautioned against being complacent with 8.5% growth expected this
fiscal and said the country must overcome the hurdles for double digit growth. “We cannot
remain satisfied with this growth. We shall have to cross the barrier of double digit growth,”
he said at a Canara Bank function. 
    India’s economic growth bounced back to 8.8% in the first quarter of this fiscal after
shrinking considerably following the impact of the global economic crisis in 2008. 
    Mr Mukherjee said that against the $1-trillion investment pegged for infrastructure during
the 12th Five Year Plan (2012-17), there could be a gap of 30%. “We have to bridge that
gap,” he said. 
    The finance minister said that in order to have better coordination among regulators, the
finance "ministry has decided to establish the Financial Stability and Development Council
(FSDC)". A discussion paper has been circulated in coordination with the RBI. 
    He said the government would soon set up Financial Sector Legislative Reforms
Commission (FSLRC) to rewrite financial sector legislations. The objective is to update
various financial sector-related legislation, so that it can be in tune with prevailing condition,
he said. 
    In another development, finance minister Pranab Mukherjee on Friday said that had the
government received additional funds from sale of 2G spectrum, it would have spent the
amount on social sector schemes. 
    “If I would have got that money, I would have spent it in social response (social sector
schemes),” he said at a function. 
    According to a Comptroller and Auditor General (CAG) report tabled in Parliament, the
exchequer has lost an estimated 1.76 lakh crore on account of undervaluation in sale of 2G
spectrum. 
    Mr Mukherjee said the report of the CAG is being examined by the Public Accounts
Committee (PAC) and necessary action would be taken after that. “Till now the CAG report
is being examined by the PAC. Further evidences will be called for (by the PAC) and then the
final conclusion could be arrived at,” he said.
‘Let’s give a better deal to farmers’
RAMKRISHNAKASHELKAR 

    US PRESIDENT Barack Obama recently spoke of India and US jointly strengthening
agriculture and sparking a second evergreen revolution. A breakthrough in agricultural
research and technology is imperative to raise yields across crops, give a better deal to
farmers and provide food security to millions of poor. Rajju D Shroff, chairman of
Delhibased Crop Care Federation of India (CCFI) and managing director of United
Phosphorous, is convinced about better farm practices leading to adramatic
improvement in yields. 
    “In Tamil Nadu, Rallis India successfully demonstrated a 40% jump in pulses yield with
proper farm practices. This was replicated by United Phosphorous for sugarcane in south
Gujarat. However, we need to increase the awareness among farmers to adopt better
practices. Experts from UPL guided farmers on scientific methods such as seed dressing
where the seeds are dipped with fungicides before they are sown to prevent soil-borne
diseases, the distance at which they should be planted, how much and when water, fertilisers,
and what preventive pesticide-sprays should be used. The results made our demonstration
farm alive learning example for farmers from all parts of the country,” Shroff says. 
    CCFI plans to bring together stakeholders not just from the agrochemicals industry, but
also sectors like seeds, farm machinery, irrigation and the dairy sector to brainstorm on ways
to improve low farm yields. “We expect these issues to be debated well at a seminar early
next month on rural prosperity through better agriculture,” he says. 
    The production of pulses, for instance, has stagnated over the years, forcing the country to
depend on imports. Prices have soared globally, too. Clearly, augmenting domestic
production is the key challenge before the technology mission on pulses. 
    According to Shroff, a major problem bogging down farm yields is the supply of spurious
agrochemical products. Duplicate pesticides, valued at . 1,500 crore, are sold in the domestic
market annually. “Those indulging in the supply of spurious pesticides escape with minor
penalty. This has encouraged even larger players to indulge in such malpractices. Recently,
for instance, a publicly listed company was found to be illegally exporting herbicide
glyphosate to an African country using the brand name and registration number of another
listed company. The CCFI has sought a cancellation of the former’s licence,” he said. 
    Shroff says it is not easy to discover spurious products and hundreds of small offenders
who go scot free. “Spurious products give insufficient pest protection. Farmers lose money
buying these products and also their crops to pest attacks, leading to a vicious cycle of debt
and poverty,” he says. 
    The other problem that the CCFI wants to deal with is the poor public perception of the
agrochemical industry, with reports on pesticide residues, many of which are dubious. “We
have proved, many times, that the data used by researchers is faulty. Most of them are
unwilling to share their raw data. So, we are using the RTI Act to obtain data, but that is a
time-consuming process. Unfortunately, even the legal system today doesn't take any punitive
action against claims that have been proven as false,” he said. 
    In one case, an NGO found traces of harmful agrochemicals in vegetables in Delhi's
mandi, but it was eventually proven that the data was fabricated. In another instance,
pesticides were claimed to have found in vegetables that have been banned not just in India
but the world over for decades. If the products have long been discontinued, how can one find
its traces today? 
    In fact, the country’s premier institute for agricultural research Indian Agricultural
Research Institute conducts annual surveys of agricommodities at farm level with over 5,200
samples. “Their research shows not more than 3% of samples at the farm level have
agrochemical traces. Even in a country like Germany around 5% of farmgate samples have
agrochemical traces,” Shroff says. 
    The process of negating false claims takes long. In fact, India's agrochemical consumption
is abysmally low at below 600 gram per hectare as compared with between 3 kg and 10 kg in
advanced countries such as the US or Japan. Raising consumption — right type of agro-
chemicals at right time — holds a key to improving to farm yields. This has been
demonstrated in other developed countries, he claims.
Digital divide hampers growth of commodity mkts
Shyamal Gupta 

COMMODITY markets and market yards used to be the physical locations where buyers and
sellers met and negotiated. With the improvement in communication technology in 90’s, the
need for a physical location has become less important as traders are transacting from remote
locations over phone. 
    The ‘E’ word in the commodity cash market seems to be the latest fad. E-products are
creating sound bites rather than solutions. The solutions seem to hold more promise than they
can actually deliver with the current technological reach to the masses. Internet presents
physical cash markets with opportunities to increase efficiency through lower transactions
costs but access remains a problem. While India has emerged as the second-largest mobile
telephone market after China, in terms of computer and internet penetration India is still far
behind. India has 5.1 internet users for every 100 people, which compares poorly with
the corresponding figures of 39.2 and 28.5 for Brazil and China, respectively. 
    Today a large majority of stakeholders in the commodity market are in the midst of the
‘digital divide’. It is not difficult to see broadband connections in the pockets of market yards
of Rajasthan, Gujarat and Punjab. The commodity futures exchanges have helped in
technology and digital penetration, though a majority of the physical cash market remains
digitally excluded. Therefore, the growth of these commodity markets to the next level has
remained elusive. 
    Electronic trading makes transactions easier to complete, monitor, clear, and settle in the
physical commodity space. All the considerations lead to compare a simple solution to avoid
complex solutions. Such comparisons should also consider whether providing a low-cost
system meets the basic needs, regardless of the use of E-trading product. 
    E-trading systems are typically proprietary software (E-trading platforms), running on
COTS (Commercial off the shelf) hardware and operating systems, often using common
underlying TCP/IP protocols. The emergence of electronic trading venues known as
‘Electronic Communications Networks’ (ECNs) in the late ‘90s made it possible for more
entities to trade. ECNs and exchanges generally offer two methods of accessing their systems
— GUI & API. GUI (Graphical User Interface) is which the trader runs on desktop and
connects directly to the E-trading venues. API (Application Programming Interface) allows
dealers to plug into their own in-house systems and then directly into the E-venues. From an
infrastructure point of view, most exchanges provide “gateways” acting in a manner similar
to a proxy, connecting back to the exchange’s central system. ECNs will generally forego the
gateway/proxy, and their GUI or the API will connect directly to a central system, across a
leased line. 
    India ranks 43rd in a list of 133 countries, just behind China and Brazil according to the
WEF’s Network Readiness Index. However, the standards on E-trading systems in
commodity market with regards to authentication, encryption, transactions recording
standard, pricing and slippage standard need to be created without much delay. Unless that is
done and the ‘traffic rules’ are made, it would be a chaos on the E-trading highways of the
commodity cash markets. 
Textile cos protest over cotton export (20 Nov.)
Our Bureau AHMEDABAD 

AROUND one lakh people from the Tirupur knitwear cluster observed a day-long fast on
Friday, while many others downed shutters, bringing the cotton-dependent textile economy to
a complete standstill to protest against the Centre’s cotton export. 
    Ever since cotton yarn prices escalated, 20% of the garment units and 50% of the
powerlooms are already out of business. Close to 3-4 lakh workers employed by these units
have already been showed the door. 
    With its workers losing atleast 25,000 jobs in the last three months, Tirupur was in no
mood to relent and accept the trying circumstance. “We cannot carry on under such
circumstances,” said A Sakthivel, president of the Tirupur Exporters’ Association. The
cluster which exported apparel worth 11,500 crore in 2009-10 did not expect to see any
growth in volumes in 2010-11 owing to high yarn prices. The industry sought the ban of yarn
exports for 60 days and thereafter caliberated on a monthly basis to ensure a healthy demand-
supply ratio.
SKS Microfin must clean up its act
Disbursements Power Earnings, Asset Quality Remains Intact
Jigar Desai ET INTELLIGENCE GROUP 

SKS Microfinance’s stock fell by almost 20% on Thursday reaching its new low of Rs 639.
Investors rushed to dump the stock after the company faced turbulence in loan recovery in
one of its key markets. 
    Amonth ago, Andhra Pradesh government had passed an ordinance stopping SKS from the
recovery of loans in the state, which contributes nearly one-third to its loan portfolio. The
company has announced that its collections were lower on account of the shift from weekly
to monthly collections in Andhra Pradesh. The company has also reiterated that if not
redressed, this shift would have a significant impact on the company's profitability as well as
asset quality. 
    Barring this critical situation, the company has otherwise reported strong performance for
the September 2010 quarter. Net profit of the company almost doubled during the quarter
compared to the year-ago period. This was on the back of 61% year-on-year growth in its
disbursements. For the first half of FY2011, the company has already disbursed 70% of its
total loans disbursed in FY2010. 
    The company’s asset quality remained intact despite the robust growth in assets. Its net
non-performing assets formed only 0.1% of net advances as of Septemberend. The company
has a positive asset-liability structure. The average maturity of its assets at 4.7 months is
almost half of the maturity of its average liabilities. This shows that its assets get re-priced
faster than its liabilities, which works favourably for a company in a rising interest rate
scenario. 
    While the company looks quite strong on the basis of its financial performance, both
regulatory factors and corporate governance issues have added to the fall of the stock in the
past one month. The stock has largely under-performed the benchmark Sensex in the past one
month. The company's stock price has almost halved as against a 3% drop in the Sensex
during the period. 
    As Andhra Pradesh forms almost 27% of its gross loan portfolio as of September-end, the
regulatory issues in the state might hit the company's revenues in coming quarters.
Furthermore, the company recently reduced the interest rate it would charge its borrowers in
the state by 2.1%, which would affect its margins. 
    For investors, the main concern lies in the corporate governance and regulatory factors. A
recovery in its stock price looks difficult until these issues are resolved. 
CANE HARVEST EXPECTED TO RISE 28% TO 355.32 MT
India sugar output may lag behind estimates
Lack of rain likely to limit output at 23.27 mt against govt estimate of 25 mt
Bloomberg NEW DELHI 

    SUGAR production in India, the world’s second-largest, may be 8.7% less than predicted
as rain, pests and disease reduce yields in Uttar Pradesh, the biggest cane growing state. 
    Output may total 23.27 million tonne (mt) in 2010-2011, according to interviews with 810
farmers across six states by Geneva-based SGS SA for Bloomberg. The Indian Sugar Mills
Association and the Maharashtra State Cooperative Sugar Factories Federation forecast 25.5
mt. The government expects 25 mt, up from 18.9 mt in 2009-2010. 
    A smaller crop may hinder government plans to end curbs on sugar shipments, reducing
global supply at a time of sustained demand from importers. Prices climbed to 33.39 cents a
pound on November 11, the highest intraday level in almost three decades as drought and
floods ruined crops from Russia to Pakistan. “There is demand for Indian sugar from
Pakistan, China and Russia, and Brazil’s production hasn’t changed,” Abinash Verma,
director general of the mills association, said earlier. “There’s no surplus in the international
market.” Brazil is the world’s biggest grower. 
    The global raw sugar surplus may be 2 mt in 2010- 2011, below the 3.22 mt predicted two
months earlier, Sergey Gudoshnikov, economist at the Londonbased International Sugar
Organisation, said in an interview last month. India will decide whether to end export
restrictions from all bulk users is constantly growing,” Vivek Saraogi, managing director of
Balrampur Chini Mills, India’s second-biggest producer, told analysts. “The surplus is a
limited quantity.” Shipments from the country may be 2 mt to 2.5 mt, not enough to be a
“dampening factor” for global prices, he said. Output may be capped at 25 mt and
consumption may be “upwards” of 23 mt, he said on Thursday. “The world market will be
determined by Brazil’ and sales from India will happen gradually,” he said. 
    Raw sugar for March delivery jumped as much as 3.8% to 27.47 cents a pound in after-
hours trading on the ICE Futures US in New York. Prices closed at a 29-year high on
November 9 and slid 21% in the following three sessions. China said on Wednesday it will
offer 200,000 tonne from its reserves on November 22 to stabilise the market and cool
prices. 
    An SGS survey last November predicted production of 17.68 mt in 2009-2010, 11% more
than forecast at that time by the country’s mills association. The group now estimates the
2009-2010 harvest at 18.9 mt. 
    The cane harvest in India may climb 28% to 355.32 mt in 2010-2011 from 277.75 mt the
previous year, helped by a 25% increase in area and a 2.5% gain in yields, the latest SGS
survey showed. The study by five teams between October 16 and November 1 covered states
representing 93% of output, including Uttar Pradesh and Maharashtra, the biggest growers. 
    About 17% of farmers reported damage to cane from heavy rain this year, including 31%
of those interviewed in Uttar Pradesh and 1% in Maharashtra, the survey showed. The rains
increased infestations in Uttar Pradesh, with 16% of growers reporting severe attacks, up
from 3% last year, the survey showed. In Maharashtra, insect and disease outbreaks were less
than last year, it said. “UP will produce less than anticipated,” said Balrampur’s Saraogi.
“Western parts of the state were affected by concentrated rainfall in September. Yields are
not going to be very good. Maharashtra will definitely produce more.” Growers in most of
the states, excluding Tamil Nadu, the third-biggest cane producer, expect lower prices this
season compared with a year ago because of bigger harvests, SGS said. 
    Farmers in Uttar Pradesh anticipate an average 220 per 100 kg of cane, down from 235 last
year, and in Maharashtra they expect 193 versus 224, it said. Cane supplies won’t be “a
constraint”, said Kiran Wadhwana, a director with Comdex India, a futures broker in New
Delhi.

‘Difficult to predict returns in agribusiness’

Rabo Equity Advisors Looks Forward To A New Bigger Fund Next Year

    RABO Equity Advisors, the private equity (PE) arm of Rabobank, is an active investor in
the agricultural space. The PE arm has invested in six companies and is now analysing the
scenario for further investment. ET’s Sutanuka Ghosal spoke to Rajesh Srivastava, chairman
and managing director of Rabo Equity Advisors, to get an idea of the PE firm’s India
strategy. Excerpts: 
Rabo Equity Advisors is an agriculture-focused 
fund. Till date how much have you invested? 
India Agri Business Fund is a Rabobank-sponsored private equity fund, fully focused on
growth and expansion of small/mid-market food and agribusiness sectors and predicated on
the sector knowledge of Rabobank and the investment team. It is the first fund in India of its
kind with a committed capital of $120 million. Besides Rabobank, the fund has some other
pedigreed investors like IFC, FMO, DEG, CDC Group, Capvent, RWB Capital and Rising
Tide. We have so far drawn down $52million. 
What sort of returns do you expect from your 
existing investments? 
With a view to broad base our portfolio and thus mitigate some of the challenges of
agribusiness, we are investing in diverse sectors. So far, we have invested in
agribiotechnology, edible oils, basmati rice, rice-based snacks, processed fruits and
vegetables & flexible packaging. It is difficult to predict returns in a sensitive sector like
agribusiness as they depend a lot on the value-added inputs and hand holding we can provide
for taking the portfolio companies to the next level, which is always our investment thesis.
Having said that, we are confident of generating reasonably attractive returns for the
investors. 
What are the emerging sectors that you plan to invest in the current fiscal? 
We have been investing at a steady pace over the last two years and have, so far, made two
investment for $10 million each in this fiscal. We are consciously taking a pause after six
investments to catalyse operational efficiencies, formulate new growth strategies and energise
the management in each of our investee companies before moving on to the next one. We do
expect to close one more deal before the end of this calendar year. 
What are the challenges the agriculture 
sector faces? 
The sector faces both known and unknown challenges. Amongst the former are regulatory,
political, cultural and social challenges while the latter include weather risks, commodity
risks, related and unrelated global events. While the unknown challenges are part and parcel
of the equity risk a PE investor has to take, the regulatory and political challenges can be
reduced to some extent through targetted regulatory reforms and attitudinal change at all
levels. The cultural and social challenges can then be tackled to a large extent through the
irreversible changes in demographics/consumerism and factored in by the evolved analytical
skill set of PE players. 
Do you have any exit plan in the current fiscal? 
I cannot comment any which way at this time. Exits are driven by several factors, including
the market conditions for an IPO, strategic needs of the seller, the buyer or the fund itself and
finally by the returns they would generate. Suffice it to say that the oldest investment in our
portfolio is not even 2 years old, our portfolio is doing well and our investors are patient and
understanding. So we are in no hurry to exit and the circumstances decide. 
Do you plan to raise any funds shortly? What is 
the quantum of funds that you plan to raise? 
We would like to focus on investing at least $25 million from the existing fund, ensuring that
our portfolio is resilient before we raise a new fund. Having said this, at the current rate and
given the strong deal flow, I and my team look forward to a new bigger fund next year.

RAJESH SRIVASTAVA CHAIRMAN & MD, RABO EQUITY ADVISORS

Loans to MFIs put commercial banks in a spot
Dheeraj Tiwari NEW DELHI 

THE country’s commercial banks that have lent more than Rs 10,000 crore to microfinance
institutions find themselves in a spot with micro lenders facing uncertain future in the face of
greater scrutiny and regulatory restrictions. 
    Public sector banks account for more than half of the total exposure. Banks lent more than
Rs 8,000 crore to microfinance institutions in the last fiscal year alone according to a report
by Nabard, the apex institution on economic and developmental activities in rural areas. 
    “It is going to be the next big concern for public sector banks, given that they already have
large non-performing assets in sectors such as aviation and agriculture,” said a senior finance
ministry official. 
    In an indication of things in store, shares of SKS Micro Finance, country’s only listed
micro lender, tumbled nearly 20% on Thursday after the company issued a profit warning
because of the ordinance issued by the Andhra Pradesh government. Andhra Pradesh
accounts for less than a third of the Rs 30,000 crore microfinance industry. Though it may be
too early to hazard a guess on the amount of bad loans, a major chunk of the micro lenders’
portfolio could turn bad as these institutions come under pressure to restructure loans and
shun strong-arm tactics. 
    “If regulatory norms become more stringent there is a possibility that loan recovery for
MFIs will take a hit, which will, in turn, affect banks,” said a senior official with state-run
Corporation Bank. The bank disbursed around Rs 780 crore to MFIs in 2009-10, the highest
among all public sector banks. 
    Andhra Pradesh government had, on October 15, issued an ordinance that imposed interest
rate restrictions and debt restructuring obligations on lenders, after a series of suicides blamed
on coercive methods of micro-lenders trying to recover their dues. The ordinance said the
periodicity of the loan repayment should not be less than a month. 
    Worried by the development, the Centre has rushed in to contain the damage and is
hurrying the proposed bill on microfinance. 
    Financial services secretary R Gopalan wrote to all public sector banks asking them to
monitor the interest rate charged by MFIS, and cap them at around 22-24% per annum (all
inclusive) on reducing balance. “This is essential for large and wellestablished MFIs,” the
secretary said in his letter. 
    Most lenders have cut their lending rates after the directive and have taken a hit. “The
collections are lower than normal on account of transition from weekly to monthly collection
cycle..., if this is not redressed satisfactorily, the resultant reduction in collections in AP is
likely to have a material impact on the company's revenues, profitability and asset quality of
the AP portfolio,” SKS said in a filing with the stock exchanges.
Govt keen on cotton exports despite protests
Amiti Sen NEW DELHI 

    DESPITE an outcry from the garment exporters, the government is keen on allowing
excess cotton to be exported from the country before the US cotton hits the international
market in January and brings prices down. 
    The inter-ministerial committee on cotton will meet end of the month to look at fresh
production figures and will take a call on whether the present export cap of 55 lakh should be
lifted. 
    “We just had a meeting of the interministerial committee and it was decided that we will
look at fresh arrival figures at the end of the month before allowing more exports,” a
commerce department official told ET. 
    The government is struggling for a mid-way solution as passions are running high among
both producers and consumers of cotton. 
    Garment producers have decided to go on day long strike on Friday to protest against
cotton and cotton yarn exports, but cotton producing states, including Gujarat and
Maharashtra, claim that their farmers would suffer severe losses if exports are restricted. 
    Cotton prices had recently hit a 140-year high in the US and is up nearly double from their
levels a year ago because of large demand and low supply due to poor crops in Pakistan and
China. 
    But prices have already declined in the last few session following reports of a bumper crop
in India, the world’s second biggest producer. 
    “Our farmers can get the best price if they sell in November and December,” the official
said. 
    But the government wants to be sure that domestic supplies to the textile industry will not
get affected before allowing more exports. 
    “As per our initial estimates, domestic production of cotton will be around 335 lakh bales
while consumption will be around 260 lakh bales, creating a surplus of 75 lakh bales,” the
official said. 
    If cotton producers can show that actual production numbers are more, then there would
definitely be a case for an increase in cap. 
    The government allowed exports of 55 lakh bales of cotton from the beginning of this
month. 
    With production in most cotton producing states exceeding expectations, total cotton
production in the country would be around 357 lakh bales against last year’s 307 lakh bales,
according to crop estimates made by the Cotton Association of India. 
    The government estimates are well below that. According to August 27 estimates, the
government expects a production of 325 lakh bales in 2010-11. One bale has 170 kg of
cotton.
Strengthening corporate governance
K S MEHTA 

    STRENGTHENING the company board is the best bulwark against inadequate

governance, it is universally agreed. This requires a careful balance of adequate information
to directors, accountability, competence and activism from promoters to co-opt people with
relevant experience. Both institutional and retail shareholders should play a greater role. The
Companies Bill, 2009 should prescribe measures to improve governance, including
accounting and auditing. 
    Strengthening the audit profession is a major challenge. Business and accounting scandals
have led to changes around the world. Satyam is the only large scandal in India, while in
three decades, the developed world has suffered many more repeatedly. The developed
economies have recognised the dangers of oligopolistic trends in the audit profession, as the
Big Six became the Big Four and after the scandal could have become Big Three. The UK,
EEC and China took effective steps to promote mid-tier firms (other than Big Four) which
are now auditors to many AIM-listed companies. China is officially ordering the merger of
audit firms to achieve critical size in the mid-tier firms. The EEC has officially proposed joint
auditors for all listed companies so as to strengthen the mid-size audit firms. It is already
made part of the law in France. Canada has brought in inspection of audit firms with rotation
of partners. Peer review has been strengthened. 
    Developed countries, even with much larger company scandals, held substantive
discussions between stock exchange regulators, company law regulators and professional
institutes. They desisted from recommending rotation of auditors, but called for an oversight
board, rotation of partners, audit firm inspections and strengthened peer reviews with clear
policy thrust to strengthen the mid-tier firms. In New York and the London stock exchanges,
not one company was audited by any other than the Big Four. Is that what we want in India or
do you want a strong, broadbased profession? If the latter, then joint auditors for large
companies, and not rotation of audit firms, are the answer. The developed world is promoting
mid-tier firms. The London Alternative Investment Market listed companies now has mid-tier
 firms as auditors. 
    Our own Companies Bill, 2008 and 2009 (after Satyam) did not provide for rotation, but
the select parliamentary consultative committee (SPCC) has recommended rotation of audit
firms entirely as a reaction to Satyam (see para 10.4 of Chapter X of the SPCC report). One
needs to reconsider its efficacy. 
    The Big Four audit over 70% of aggregate revenue of listed companies in India, followed
by about 50 mid-tier Indian firms and also a huge number of small firms. Proper audit of
multi-business/unit companies requires in-depth knowledge of business risks and IT systems.
Every firm rotation will mean reinventing the wheel. The large Indian companies will be
forced by private equity investors and international bankers to move to Big Four. The mid-
tier Indian firms will be left with companies the international banks don’t touch. They will
have to devote more time to marketing than technical work to make up for lost audits. 
    An unequal battle exists for talent between Big Four and good mid-size firms; and the
uncertainty in work will further drive away talent to the Big Four. Loss of quality audits,
talent and technical skills in mid-tier firms will be the unfortunate result of this. While the
world is encouraging the growth of mid-tier firms, the Big Four are no insurance for good
audits. 
    More fundamentally, it will destroy the independence of auditors. Research has shown that
out of around 300 listed company balance sheets studied, over 80 accounts had qualified
audit reports, thus testifying to the independence of auditors. If one large audit is lost to
rotation, from whom will the mid-tier CA firm get another one? Only from the same group of
promoters, for total strangers will not call you for audit work, and canvassing for work is
prohibited by the Institute of CAs. Can you then afford to qualify audit reports? 
    The answer lies in compulsory rotation of audit partners and not of firms , stronger peer
review, an audit oversight board and inspection of firms doing listed company audits by
ICAI, joint auditors in companies having more than . 1,000 crore turnover, thus promoting
small and medium firms. The objective should be to strengthen the audit profession and its
quality; and enliven company inspection system by the Company Law Board with trained
staff with better pay. Rotation will only convert auditors into marketing strategists, making
them lose talent and quality work and destroy their ability to put up red flags to recalcitrant
managements. 
18 NOV, 2010, 05.48AM IST, 

Environmental accounting & reporting set to become mandatory for companies: Govt
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Read more on »environmental damage|confederation of indian industry|cleaner production
methods

NEW DELHI: The government will make it mandatory for companies to report measures
taken to prevent environmental damage as it steps up drive to encourage cleaner production
methods . 

The ministry of corporate affairs is revising the guidelines on corporate social responsibility
(CSR) issued last year to add detailed norms on environmental sustainability. The fresh
norms relate to efforts to prevent wasteful use of natural resources and ensure scientific
treatment of industrial waste. 

The existing guidelines, while urging companies to be environmentally conscious, left it for
them to take steps. It failed to provide a clear framework for compliance, leading to
companies not taking adequate steps. 

“The idea is to make companies responsible for the environmental impact of their products
and activities,” said a senior official in the ministry of corporate affairs. The rule will come
into force by the end of the current fiscal year, he said. 

A comprehensive accounting standard on environmental reporting is being worked out by the

Institute of Chartered Accountants of India to guide companies in the process. Though the
 norms are voluntary, they will require companies to report their performance in this regard in
the form of disclosures in their annual reports. “The review will put in place an
implementation format whereby the work can be effectively monitored,” said another official,
who is privy to the review process. 

Environmental reporting in India is at a nascent stage, even though its importance has gained
significance world-wide. 

“While the move to ask a company to report on its environmental sustainability measures is
welcome, it could effectively mean that a company would have to comply or explain steps
taken,” said an official with industry body Confederation of Indian Industry . 

Indian companies have taken sustainability measures as part of their business goals, he said,
requesting anonymity. Some big companies such as ITC, for instance, devote significant
resources to sustainable development. The company has a sustainability committee to help
integrate social and environmental objectives with business strategies and set goals in
contributing to climate change mitigation.
18 NOV, 2010, 05.33AM IST, RAM SINGH, 

Ending misuse of land acquisition laws

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Read more on »land acquisition norms|excessive acquisitions

Frequent and unrelenting protests against land acquisition seem to have compelled political
parties to take the issue seriously. The Centre has promised to introduce a redrafted land
acquisition Bill during the winter session of Parliament. As per official pronouncements, the
Bill will provide for higher compensation to the affected parties. Besides, acquisition for
private companies will be restricted to less than 30% of the total land required for the
project. 

However, it will be naive to expect the above measures to solve many of the problems
resulting from misuse of the acquisition law. In the past, state governments have been highly
innovative in devising newer ways ever to subvert the law for political and private gains. The
prospective legislation must provide safeguards against misuses. Here, an enquiry into the
actual abuses can be helpful. 

Excessive acquisitions for private companies and inadequate compensation have been the
primary causes behind the past protests against compulsory acquisition. However, courts
have been rectifying the latter problem to an extent. In most instances, the affected parties
have been resorting to litigation to seek higher compensation. On this count the judiciary has
been very sympathetic; generally, it has been increasing the compensation amount. But, as far
as the legitimacy of the acquisition per se is concerned, exceptions apart, the judiciary has left
the issue to the prudence of the executive. Left unrestrained, states have ruthlessly violated
not only the spirit but also the letter of the law, especially when it came to acquiring land for
companies. 

Part VII of the existing Land Acquisition (Amendment) Act, 1984, provides rules for
acquisition for private companies. The company gets to own the acquired land. However,
sections 38-44 of this part impose several restrictions. For instance, there is no provision for
emergency acquisition. Besides, the company and the state government are required to sign
an agreement stating the purpose of acquisition. The agreement must specify the terms on
which general public will be entitled to use the company-provided services. 

The objective behind these riders is to restrict the compulsory acquisition to limited activities
of companies from which public can benefit directly, such as school, hospitals, etc. These
stringent requirements notwithstanding, the states have acquired land for all sorts of activities
of companies, including ones that cannot even remotely serve any public purpose. Moreover,
in numerous instances, acquisition has been done using the emergency clause. How have
these blatant violations of the law been possible? 

Generally, acquisitions for companies have been undertaken under Part II of the Act. This
part concerns acquisitions by government entities for public purpose. It does not impose the
above restrictions on acquisition for companies, but requires the compensation to be paid out
of public funds. In order to justify acquisition for companies under this part, states have been
contributing nominal amounts toward the cost of acquisition. Some governments have gone
to the extent of contributing just. 100! Due to such legal ambiguities, states have been able to
violate the law with impunity. 

Companies clearly find it profitable to use the state machinery to acquire land at subsidised
rates; direct purchases from the owners, in contrast, are costlier and time consuming. Indeed,
the acquisition process stands captured by private interests of companies and the decision-
makers. 
The Rural Jobs Rush
Many companies in new sectors like telecom, rural BPO and microfinance are creating
thousands of jobs in villages and small towns. This could slow down the migration to big
cities, writes Vikas Kumar

    RIGHT AFTER COLLEGE, HARENDRA SINGH Biroria, 27, a native of Baret village in
Nainital district of Uttarakhand, did what most youngsters like him do: a short course in
computers and then a job in New Delhi. As accountant for a private chemicals firm, Biroria
was earning 5,000 a month. Life in Delhi was tough. After spending on rent, food and
transport, he had little left. "I was not happy. With rising expenses, I couldn't save much," he
recalls. On a visit home in July 2009, Biroria decided to quit Delhi and explore his options in
Nainital. Three months passed before Chirag, a local NGO, suggested he talk to B2R
Technologies, a newlyopened BPO in Simayal village, 4 km away. He joined B2R on a
monthly pay of 4,200. Fourteen months later, Biroria feels vindicated. "In Delhi, there's a
greater variety of jobs," he says. "What I liked here was that B2R gave equal preference to
those who didn't have computer skills, and trained us on new software and processes." As a
'subject-matter expert' on one of its biggest clients, EBC, Biroria is now helping set up the
same process for B2R's third 50-seat centre coming up in Letibunga near Mukteshwar. "I can
plan for my future, and I get to learn something new every day." Biroria's reverse migration,
from a city to a village, is still a rarity —it goes against the unrelenting tide of millions of
workers moving the other way around. India's urban population grew by 50 million to 340
million between 2001 and 2008, according to census data. 
    Migrants have traditionally found work as labourers, masons or security guards in the
cities. For example, 80% of the 5.5 million workforce of security firms hail from villages.
Some migrants find better roles with FMCG and consumer durables companies (as upcountry
salesmen) or with the government. At this rate, estimates McKinsey Global Institute, 590
million people will be living in cities by 2030, putting enormous pressure on urban India's
physical and social infrastructure. 
    But now, for the first time, thousands of nonagricultural jobs are being created in villages
and small towns, giving many like Biroria a new alternative. A host of services-driven
companies in emerging sectors —MFI, retail, telecom, ITeS, healthcare, infrastructure and
logistics — are scouting for local talent in small towns or from bordering villages. 
    "Companies are building their networks way beyond the top 30 cities," says Manish
Sabharwal, chairman, TeamLease, a staffing firm. "Of the 60,000-odd people we place
annually, 50% are in upcountry markets." It also makes practical sense to hire closer to where
the action is, says Sanjay Modi, MD (India/Middle East/Southeast Asia) for Monster.com:
"Employers are looking at talent that has local market knowledge and networks." 
    THE BUSINESS OF MAINTAINING telecom towers, which could employ 200,000
people by March 2011, is a good example. There are about 140,000 towers in upcountry
locations. "About 80% of the 25,000 new towers to be added this year will be in rural and
remote areas," says Amajit Gupta, executive VP-sales & marketing, Acme Telepower, a
company that provides energy-management solutions to tower companies. 
    Their operations and maintenance are managed by specialist firms like Chandigarhbased
Synergy Telecom, which runs 5,000 sites in rural areas. Maninder Nanda, COO for this
business, says that one technician can manage 5-6 rural sites. These are ITI diploma holders
who join at a monthly salary of 8,000-10,000. Ten such technicians are managed by a
supervisor, who holds an engineering degree and is paid 15,000-25,000 a month. Synergy has
around 800 employees in this business —all hired from immediate or neighbouring villages
and towns. "We prefer locals for these positions since they know the area well and, if needed,
can rush to remote cell sites at night," says Nanda. 
    Elsewhere, research done by ET suggests that rural BPOs, which currently employ 5,000
people, could generate 150,000 openings in five years. Microfinance institutions (MFIs)
already employ about 50,000. 
    All this is giving India's rural youth new career options — going to the nearest big city is
not the only way now. "The migration story is now mostly restricted to local movement
within the states," says Rajesh Shukla, chief statistician at the National Council for Applied
Economic Research (NCAER). "There are new opportunities and people want to move only
to the nearest city/town for work." 
    EMPLOYERS AND RECRUITMENT FIRMS have been testing new models to bridge the
challenging last-mile to reach rural talent. Last year, Monster.com tied up with ITC to launch
rozgarduniya, an Internet portal in English and Hindi on the latter's e-choupal's VSAT
terminals. It covers 10,000 villages in UP, Maharashtra, Madhya Pradesh and Rajasthan, and
has 15,000 registrations till date. To promote the service, job fairs were organised in Hathras,
Pilibhit and Fatehnagar (Rajasthan), and 185 job offers have been made, according to Modi. 
    "There is a substantial blue-collar workforce in rural areas, but no potent tool to connect
them to the main employment market," says Modi. "We realised we had to bring a
combination of Internet and brick-and-mortar to make this work." He adds that for the 34 job
positions posted -- from warehouse managers for an agri-logistics company to tailors for the
Abu Jani-Sandeep Khosla fashion label, from IT professionals to plumbers and electricians --
the portal received 16,000 applications. 
    Many of those came from Jarinpur Bhuraka, a village of a population of 28,000 on the
fringes of UP's Hathras district. Families here are largely dependent on agriculture or labour
jobs. Unemployment among the youth is high, according to 42-year-old Netrapal Singh, the
Sanchalak of the local e-choupal. "The nearest block office is 24 km away, in Hasayan. Most
government jobs come up there, and we miss out on the opportunities," says Singh. 
    In the last one year since the portal went live, it has managed 550 registrations and quite a
few jobs too. Recently, leading security-services company Topsgrup picked up 25 men to be
deployed as security guards in neighbouring towns. Another 20 were hired by Rajasthan
Textiles (a KK Birla group company) for a monthly compensation (post-confirmation) of
6,000-7,000, with free accommodation and medical insurance of 2 lakh. 
    NGOSHAVE BEEN AROUND TO HELP firms connect with village talent. But, a new
breed of firms is now at hand to help employers access rural talent by combining social and
commercial objectives in their business models. Among them is Chennai-based v-shesh,
which calls itself a 'livelihood exchange'. 
    It places rural youth (including people with disabilities and juveniles) as customer service
agents or transaction processing officers in rural BPOs, as loan officers in microfinance
institutions, and as rural market developers in FMCG and consumer durables companies.
"There are many people close to employment, but fall by the wayside due to lack of
opportunities. We train them on confidence and basic life skills so that they are employable,"
says P Rajasekharan, one of the co-founders of v-shesh, which operates in Madhya Pradesh,
UP, Bihar, Orissa, Tamil Nadu and Karnataka. 
    V-shesh reaches out to prospective candidates through word-of-mouth, NGO networks and
occasional job camps/fairs in villages. Raja says vshesh has trained and placed 850 people in
the last two years, and is targeting 2,000 in 2010-11. Most positions are at a salary of 4,000-
6,000 per month and are usually located within a radius of 100-150 miles of candidates'
homes. 
    Even after candidates join their employers, vshesh's team stays in touch with them for three
months. It offers them guidance and support on basic issues like how to manage their new
roles and salary, conduct themselves in a professional environment, and deal with home
pressures. 
    Ajay Gupta, who runs ruralnaukri, a portal for mid- to senior-level positions in upcountry
locations for leading FMCG and agri-based companies, considers this as the holy grail of
rural hiring. "Training and mentoring are key to rural employment," he says. "The employer
should identify a mentor who can handhold a new hire's transition from a village to an urban
context, and address the small anxieties that develop in the first few weeks." 
    The lack of soft and basic skills is indeed a serious issue, and can be traced to the poor
quality of education in rural India. Ankur Singhal, cofounder, Fusion Microfinance, knows
this too well. "We find it difficult to get candidates in Madhya Pradesh to fill up a simple
application form in Hindi. And these are 10th pass guys," he says. Fusion, which operates in
UP, Uttarakhand, MP and Delhi's outskirts, recruits through employee referrals, specialists
like vshesh and its NGO networks. It tests for basic maths, reasoning, articulation (through
group discussion), self-confidence and family background. 
    Candidates join as relationship officers (RO), disbursing loans to self-help groups and
collecting repayments. They start on a monthly stipend of 5,000 for the first three months. On
confirmation, they receive 6,000 with provident fund and ESI benefits, plus incentives of
1,000-3,500 a month, says Singhal. ROs can be promoted to assistant branch manager, and
after 3-4 years, they can take charge as branch manager with a monthly pay of 20,000.
Employees are also given free shared-accommodation in branch towns. 
    With a funding of $1 million from Incofin, a Belgian microfinance investment firm,
received in July, Fusion plans to ramp up its 12 branches to 20. This will mean 50-60 hires to
augment its existing field force of 55 ROs. The bigger players, of course, hire in much larger
numbers. 
    FROM GURGAON TO UTTARAKHAND, IT was a leap of faith for Dhiraj Dolwani. He
left his job as operations head of a captive BPO for a US-based company in the satellite city
to co-found B2R, a rural BPO about 90 km from Ranikhet, where he planned to settle down. 
    There, Dolwani found enough young people waiting for an opportunity like this.
Moreover, at Rs 28 lakh, the cost of setting up a 50-seat village centre came to less than one-
fifth of a city BPO. With the help of local NGO Chirag and other cofounders, he started his
first centre in Simayal village in April 2009. This year, B2R received an unspecified amount
of funding from Aavishkaar Micro Capital Fund. 
    B2R aptly chose to focus on the non-voice space -- back-end support, which does not
involve speaking with customers. Candidates were selected through a five-stage process,
which included IQ and English testing. Teething troubles apart, the local hires reposed the
faith placed in them. "Most of our initial assumptions about the skills of rural youth were
wrong," says Dolwani. "What has surprised us is their ability to learn quickly." 
    About 80% of the 100 agents in B2R are 12th passouts; some are graduates and post-
graduates too. In a region where the average monthly household income is 1,011, B2R offers
agents 4,000 as entry-level pay. A group process lead earns 5,000, while a team lead (for a
centre) gets 10,000-12,000 per month. 
    B2R's largest customer is Lucknow-based EBC. It publishes journals, books and judgment
copies, which lawyers and law firms frequently need to refer to. It signed on B2R to digitise
the judgments, which made it easier for EBC's customers to access. 
    EBC scans 60 years of Supreme Court judgments, and sends them to B2R, where people
like Biroria use optical character recognition (OCR) software to convert them into electronic
text. These are then proof-read, character by character, against the scanned copy, tagged with
keywords like judge name, court and judgment date, and mailed back to EBC. 
    B2R also works with a MFI, helping digitise its manual KYC (know your customer)
records. With quite a few successes in his portfolio, Dolwani says his frequent trips to New
Delhi are now less about convincing customers about his firm's capabilities and more about
taking on bigger, complex assignments from global clients. 
    None of this can yet stop millions from migrating from villages to cities. "A farmer's son
doesn't want to be a farmer," says Ashish Swarup, former CEO of Mission Biofuels in India,
who is now setting up a renewable energy business in upcountry Gujarat, Maharashtra and
Rajasthan. "Such youth are willing to work even as sweepers in a shopping mall, where
there's air-conditioning and fixed wages," he adds. 
    But in some small pockets, the talent equations are slowly changing. "Previously, people
used to come to our offices (in cities) and line up overnight," says Ramesh Iyer, managing
director, Topsgrup. "Now, we reach out to them." Its recruitment teams now frequently visit
villages and conduct job fairs to hire for positions in nearby towns. Dolwani sums it up well:
"Jobs should be created where they're relevant. People stay in their homes. By preventing
migration, we don't disturb the social fabric." Rural Employers Who is Hiring? 
TeamLease About half the 60,000 people this staffing firm places every year are in
upcountry jobs, especially in FMCG, financial services, consumer durables and telecom.
"Rural salesforce hiring by companies is growing at 40% annually, against 5% in the past,"
says Manish Sabharwal, chairman, TeamLease. 
V-SHESH The Chennai-based 'livelihood 
exchange' places rural youth as customer service agents or transaction processing officers in
rural BPOs, as loan officers in MFIs, and as rural market developers in FMCG and consumer
durable companies. It has trained and placed 850 people in the last two years. It is targeting
2,000 placements in 2010-11. 
Telecom-tower maintenance firms Rural India is expected to have 
1,60,000 towers by March 2011. Each tower needs 24x7 maintenance. Specialist firms like
Synergy Telecom, Aster Telecom and Acme Telepower employ ITI technicians and
supervisors to provide such services. The number of people who maintain these towers
(excluding security guards) could touch 2,00,000 this year. 
Microfinance institutions The big daddy of rural employment 
— there are about 50,000 people working in MFIs in rural field jobs. Candidates join as
relationship officers, disbursing loans to self-help groups and collecting repayments. 
Rural BPOs So far, they have largely been 
experiments — about 50-odd rural BPOs employ 5,000 people. Now, they are going
mainstream. For instance, Genpact, India's largest BPO, has outsourced its internal finance
and accounts work to RuralShores. Infosys BPO, Wipro BPO and Aditya Birla Minacs are
looking to outsource some of their work to rural BPOs. Five years from now, according to
industry estimates, about 1,000 rural BPOs could employ 1,50,000 people. 
FMCG companies As they renew their rural drive, 
FMCG companies are hiring field staff in large numbers. Dabur plans to hire 200 'feet on
street' and indirect employees through stockists in villages and small towns. Marico has just
finished hiring 220 people. ITC, Nestle, GlaxoSmithKline Consumer and Emami speak of
doubling their direct-employee strength in rural locations. TALKING HEADS
Regulate but don’t strangulate MFIs:SKS
SKS Microfinance Founder Akula Makes Case For More Accountability
Our Bureau NEW DELHI 

    WHILE the microfinance industry has sought a 1,000-crore lifeline from banks, its
embattled poster boy, SKS Microfinance chairman and founder Vikram Akula, tried to
defend the industry and his firm at a stormy World Economic Forum session in the capital on
Tuesday. 
    The government must regulate micro finance firms but their growth must not be strangled
due to the actions of a few, Mr Akula urged. “There are some errant practices and rogue
players in the industry. The regulations should foster ethical lending, make MFIs more
accountable but not restrict their growth,” he added. 
    Mr Akula was speaking at a panel discussion on financial inclusion for the poor. With SKS
already in the eye of a storm, microfinance became the focal point of the discussion
Microfinance firms were expected to substitute usurious moneylenders, but their interest rates
are very high and the ethics of their lending practices have come under the scanner. 
    SKS Microfinance shares, which tumbled by over 11% on Wednesday to 797.50, are
trading 20% below their offer price of 985 and have almost halved from the high of Rs 1,490
seen in September. 
    Stressing that it is possible to build a microfinance business in which profits rise while
interest rates decline, Akula claimed that the cost of lending by SKS Microfinance is around
22.5% — one of the lowest levels in the world “In order to bring down lending rates even
further, costs have to come down, which is only possible with greater access to technology,”
Akula said. 
    The SKS founder also sought to play down allegations of coercive loan recoveries from the
poor. “We don’t incentivise our staff on the loan size disbursed or on recovery,” he said. 
    While SKS staff is actually incentivised on the basis of the number of borrowers, those in
the know question Akula’s claim about SKS interest rates. 
    “What does cost of lending indicates? Is it the effective interest rate?,” asked B Rajasekhar,
CEO of Society for Elimination of Rural Poverty (SERP). According to him, MFIs don’t add
up the charges they put while advertising their low interest rates. 
    “Over and above the interest rate, they charge an upfront insurance fee, application fee
which brings the effective rate to as high as 30% in the case of SKS,” said Rajasekhar. The
SERP CEO also pointed to other MFIs charging as high as 45% annual interest from the
poor. Mr Akula also asked for the central bank to ease its norms for appointing banking
correspondents. The Reserve Bank of India has barred banks from appointing non-banking
finance companies as banking correspondents citing a possible conflict of interest.

Big retail eats into kiranas’ durables space

Pramugdha Mamgain & Writankar Mukherjee 

NEW DELHI | KOLKATA 

SK Talwar has become quite restless of late. He just can’t settle down on his chair behind the
cash counter at Neha Electronics, a standalone consumer durables outlet he opened 13 years
ago at Mayur Vihar, a middle-class residential area in East Delhi. He would get up and start
pacing up and down amid tens of refrigerators, televisions and washing machines lined up in
the crammed showroom. The causes for his worry are right across the road: new, spacious
outlets of Next, a consumer electronics retail chain of the Videocon group, and Samsung
Plaza, an exclusive outlet of the Korean company. 
    Large durable retail chains like Next, Tatas’ Croma and Future Group’s eZone as well as
big marketers such as LG, Samsung, Sony and Panasonic are increasingly targeting
residential areas for expansion rather than malls and high street, threatening traditional
dealer-run outlets. 
    “We are certainly losing business to the new stores,” says Mr Talwar who has been
running the largest consumer durables outlet in the vicinity for more than a decade. He is
offering best of the deals to hold on to his customer base. “Our profit margins may get hit by
2-3%,” he says. 
    Sectoral analysts say the impact of big durable chains’ penetration in residential areas on
small retailers will be much more than what a Reliance Fresh or a Spencer had on kiranas
shops. 
    “It will be a challenge for durable corner stores to match up to the large players that use
price promotions and have a variety of brands under a single roof,” says Saloni Nangia, vice-
president (retail & consumer products) at management consulting firm Technopak
Advisors. Retail chains are there to stay 
WORSE, the big guys are in the neighbourhood to stay. Almost all durable chains say they
plan to expand in neighbourhood locations in both large cities and small towns. 
    “It is solely due to the foray into neighbourhood locations that we have managed to scale
up so fast,” says Sunil Mehta, CEO of Next Retail, the country’s largest durable retailing
chain with 580 stores, which started the neighbourhood push about a year ago. 
    The company plans to open at least 30% of its planned 500 new outlets in residential areas
over the next one year, he adds. Samsung plans to take this business model to smaller cities. 
    “A neighbourhood store helps reach customers faster,” says R Zutshi, deputy MD of
Samsung India. The Korean durable maker plans to double the number of Samsung Plazas to
600 in next year. 
    LG, the country’s largest durable maker, as well as Japanese firms Sony and Panasonic,
too, are increasingly looking at neighbourhood stores. Panasonic, in fact, has opened most of
its 117 branded stores in residential areas, even in smaller towns such as Nashik, Chandigarh,
Allahabad and Dimapur. 
    “Setting up stores beyond malls and highstreet locations enables brand visibility and
accessibility to a large base of consumers,” says Tadato Kimura, general manager
(marketing) at Sony India, which has 270 brand stores in the country. 
    They are already enjoying the benefits. Future Group, the country’s largest retailer, says its
most profitable eZone store is the one at Koramangla, a residential area in Bangalore, thanks
to reduced fixed costs like rentals. And they are also changing the landscape. 
    “With players like us, the definition of neighbourhood durable retailer is changing,” says
Nitish Tipnis, president at eZone. “For instance, we are setting up a neighbourhood durable
store over 10,000 sq ft compared with the usual corner stores of 1,000-1,500 sq ft. Such scale
would definitely pose a challenge to the local stores,” he adds. 
    They do. And many small retailers are already bearing the brunt. “We have seen around
50% drop in sales after the opening of big box stores,” says Ganesh Kamble, owner of JP
Electronics in Mumbai’s Borivali suburb. Most small retailers are giving better deals now to
stay afloat. “The only strategy left for local neighbourhood stores is to offer better prices,
possible due to lower overhead costs,” says Pulkit Baid, director of Kolkata-based durable
retailer Great Eastern Trading, which has also scaled up from one store to a chain of 19 stores
to compete better with organised retailers. 
Khosla Electronics, another Kolkatabased local retailer, too has turned into a chain to build
economies of scale. Ajit Joshi, MD of Infiniti Retail, the Tata group’s durable retailing arm
that runs the Croma chain, however, said the big ones will not eat smaller ones. “We’ll go
wherever we find a business opportunity, but not at the cost of replacing others,” he says. 
The head of Infiniti Retail, which plans to increase the number of its stores to 75 by this
fiscal-end from 58 now, says smaller retailers will co-exist with big ones just like traditional
kiranas have done with modern grocery chains. 
But analysts say only those small outlets that are able to offer value-added services and better
deals will survive. 
(With inputs from Maulik Vyas in Mumbai)
You can make a brand out of any commodity

AT THE recently held PanIIT Alumni Conclave in Delhi, Thomas Friedman made an
interesting observation: “Everything in this world is a commodity, except for “that” and he
clicked his fingers. 
    Companies see ‘commodity’ to be a bad word and those companies that see themselves to
be at the commodity end of business lament their fate. Commodity mind set is all about
cutting costs, while brand thinking is all about adding value. So sometimes the commodity
campwalas even call people from the big bad world of branding to share with them their trade
secrets, only to dismiss them as untenable for the commodity chemicals business or the
commodity utilities business. 
    While doing my research for one such speech I stumbled upon an article that had appeared
in the Mckinsey Quarterly as far back as 1996. The journal had added a new industry to its
list of commodity businesses. The Automobile business. As I started digging deeper I found
that from the days when Henry Ford had the plant that brought in steel sheets and steel
ingots and left the plant as automobiles, today’s cars are a true demonstration of collaboration
among a number of vendors, each bringing their own set of competencies. In fact, today you
have several models of cars from several marques that share the same engine. In a sense there
is no one company that can claim ownership of the whole machine. [The same became true of
computers after IBM PC which used a chip and software from a non-IBM source for the first
time in the history of the company; sadly the business finally got outsourced as well to
Lenovo]. 
    So if every business is commodity business are all businesses doomed for consumer hell?
Well not exactly and in the HBR there was an article a few years ago on how a company even
at the commodity end can still break out by offering to reduce ‘customer’s risk’ – as the
authors point out. So a customer may be willing to pay a premium and recognise a ‘brand’ if
the vendor is willing to offer, for instance, 100% supply guarantee or 24-hour refill
guarantee. The additional guarantees in a sense reduces ‘customer’s risk’ while adding some
cost to the vendor’s supply chain. The added benefit is that the vendor is no longer seen as
just another vendor, but as a ‘name’ that offers a 100% supply guarantee. 
    Or as an article in Brand Management said, you can distinguish yourself from the
commodity end by offering a difference in the offering. The most surprising example was of
a power company in California that offered to supply you ‘green power’ at a premium price! 
    Ultimately the brand is not what we create in factories but as Alvin Achenbaum observed
‘Ultimately, a brand resides in the minds of the consumers’. 
    At one level a consumer is buying a commodity every time he or she shops. It has been the
effort of marketers to get her to see the product she buys as not just a commodity. The effort
made to differentiate the product, to imbibe it with images and values all add to the brand
halo and what the brand stands for. So customers are more than willing to ascribe greater
values to a‘commodity’ as long as they see a ‘difference’. 
    It is not always easy to find the difference, and often the difference that has been
discovered is not all that unique. Companies abandon the search for the difference or chicken
out of blowing up a small difference because of the belief that the difference is not enough.
So efforts go towards signing up the next big celebrity, and making a mega budget
commercial. But chances are that there is a difference that is waiting out there to be
exploited. 
    This was the magic that was referred to by Theodore Levitt in his seminal HBR article in
1980 “Marketing Success through differentiation of anything”. 
    And that was what Thomas Friedman referred to as ‘that’. The power of differentiation, the
power of innovation and the power of imagination. Every business is a commodity business.
And no business is a commodity business. All that separates the two, to quote Thomas
Friedman is ‘That’.

Will FDI in retail help farmers?

T NANDAKUMAR 

    THERE is news about a consensus emerging on the policy front on permitting FDI in
multi-brand retail. The opponents of this policy change have often used the argument that
FDI in retail will displace the small corner-shops that provide income and employment to a
large number of traders. The retail segment has two parts: the groceries, vegetables and fruits
part and the manufactured goods like toothpaste, shampoo, etc. For the sake of simplicity, let
us classify them as ‘food’ and ‘non-food’. This article is focused on food and uses the term
FDI in a larger framework of investments. 
    There has always been a misconception that big investment in retail is about urban real
estate. In the Indian context the bulk of the investment has to be at the backend viz.,
production systems, inputs, extension and insurance services, warehousing, storage and
transportation. Rural India needs these investments urgently to get agriculture growing and
for reducing rural poverty. 
    It is important, therefore, to move away from a discussion on corner-shops and consider
what FDI can do for rural India. The suggestion to restrict FDI to big urban centres is
worrying on this count. Even in such a case, retail chains in urban centres will need supplies
on a regular basis from rural areas. 
    How can FDI in retail help farmers? First, assured purchases. Any large retail chain will
need supplies. These are not going to come from abroad. These will have to be produced in
some part of India. The company will have to get into a contract farming agreement with
farmers and ensure that the produce is picked up and transported regularly. 
    Second, increase in productivity. Companies will have to compete not only on prices to the
consumer but also on remunerative prices to farmers. This is possible only if they invest in
better seeds, fertilisers and farm practices. The farmer has to get higher returns from his land
and he needs support to do this: be it technology, better inputs or management. The winner
will be the one which can get the farmers’ incomes up and keep the consumer prices down. 
    Third, better quality. It calls for intervention at the farming, transport and storage stages.
Besides giving right seeds and other inputs to the farmers, companies will have to advise
farmers on management of the crops and use of consumer friendly pesticides. 
    Fourth, reduction in wastage. Perishable agricultural produce are now subjected to
unscientific handling, resulting in huge wastage. Most often, the consumer pays for this
wastage. In some cases, the farmers do. A large company would consider increasing its
competitiveness by ensuring the efficiency of logistics. This requires investments in
warehouses and in transport and handling. 
    Fifth, introduction of new technologies. The competitive advantage of companies will
come from introduction of new technologies to enhance productivity and quality at the farm
level and in logistics. This could benefit a large number of farmers. 
    Sixth, encouraging producer companies and cooperatives. Large retail companies may not
be comfortable dealing with millions of farmers. They will need effective intermediation.
This could be done either through efficient private players or through farmers’ groups,
cooperatives, producer companies, etc. In fact, there could be an opportunity to form a large
number of producer companies or farmers’ groups (an enlarged version of SHGs). This could
also lead to successful financial inclusion as has been proved in the milk sector. 
    Seventh, better processing of food. Most global retail chains have their own brands to cater
to local tastes and needs. Food processing, therefore, is an integral part of investment in
retail. Wastage in the fruit and vegetable sector can be avoided through improved processing.
The factories will come up closer to the growing regions than to cities. Like sugar mills that
dot the landscape in the prosperous parts of rural India, these factories could also change the
rural landscape. 
     Eighth, enhanced exports of agricultural produce. The change in production patterns and
better conformity to SPS standards will open up more markets for exports. The retail chains
themselves are big buyers and given the right production matrices, exports can take a
quantum leap. 
    There are other benefits which are not enumerated here. The fear that the ‘mom and pop’
shops could be wiped out could be misplaced since some retail chains may choose to operate
through franchisees. 
    These can happen only if a few critical issues are addressed. Reforms in APMC (mandies)
to enable large consumers to buy directly from farmers are the most important. Encouraging
contract farming could be the next. Pragmatic policy guidelines on the rules of engagement
with the farmers could be the real catalyst. It should be possible to integrate these aims into
the policy. If we look at FDI in retail as an investment in rural India, then the perspective will
be different. 
22 NOV, 2010, 07.04AM IST,PTI 

MFIs want banks to create Rs 1,000-cr fund

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Read more on »small industries development bank of india|rbi|microfinance institution
network|emergency fund

NEW DELHI: Faced with a liquidity crunch, microfinance companies have asked RBI to
direct banks to set up an emergency fund of Rs 1,000 crore to help them tide over slowdown
in their business. 

Sources said the Microfinance Institution Network (MFIN) is trying to convince the central
bank in this regard. The micro finance sector has been reeling under a liquidity crisis after the
Andhra Pradesh government issued an ordinance to control interest rates charged by
microfinance institutions (MFIs) and also to check the coercive recovery tactics adopted by
these firms. 

From time to time, RBI had helped various sectors to deal with the money shortage. At the
time of global financial crisis, the central bank had announced special liquidity injection
measures for the mutual fund industry when it was facing a cash shortage. 

Sources said MFIN has had discussion with RBI seeking assistance. MFIN has requested the
central bank to ask the Small Industries Development Bank of India (Sidbi) and public and
private sector banks to extend the funding. 

MFIs offer credit to the poor after sourcing the funding from banks. While banks lend to
MFIs at 12-13%, MFIs in turn charge interest rates as high as 36%. MFIs say high interest
rate is charged because the cost associated with lending in rural areas is too high. 

The Andhra Pradesh ordinance on October 15 impacted the collections of MFIs. The
country’s only listed microfinance company SKS said its collection for November had come
down and in future could affect its profitability. 

Last Friday, finance minister Pranab Mukherjee had said the Centre did not intend to
strangulate the microfinance sector. 

“My idea is not to strangulate them (the microfinance institutions), but to regulate them so
that the interest they charge is not exorbitant and the method of realisation, under no
circumstances, should be quick,” he had said.

Non-basmati rice export caught in policy muddle

G. Srinivasan
New Delhi, Nov. 23

The admission by the Union Commerce and Industry Minister, Mr Anand Sharma, in
Parliament on November 18 that the export of non-basmati rice to some countries had
resulted in denial of legitimate profits to the PSUs that were the canalising agency has not
come as a shock to genuine rice exporters who were at the receiving end for not being able to
execute export in view of the ban on such despatches since April 2008 that continues till
today.

Trade sources told Business Line here that the statement of the Minister is riddled with
contradictions even as it documents the lapses committed by the public sector trading
companies that were granted the permission to export to African countries on a commercial
basis. They said that the statement noted that the importing country nominated the importing
agency in the recipient country and selected a domestic supplier in India, without involving
the PSUs. Such a stance by the importing country militated against the government's public
policy and the tender process of the PSUs. In fact, the Empowered Group of Ministers
(EGoM) which deliberated on the decision to send non-basmati rice and took a call should
have been consulted by the PSUs if they were faced with such a demand from the importing
country.

Exports

It was also pointed out by the industry that if the exports could be undertaken only through
PSUs on a commercial price basis, the bargaining capacity of the PSUs to wrest the best price
was naturally higher “since the governments of the African countries had not requested for
the rice as aid or grant; the requests were for outright sale,” as said by Mr Sharma in his
statement. If such were the lure of higher prices, the government's admission that “all
documents showed the PSUs to be the exporter for record….and the PSUs operated on a
meagre trading margin ranging between 1 and 1.5 per cent” does not exonerate the
government of its primary responsibility in not supervising the PSU trading agency in a
sensitive item export like rice. This raises the larger issue of lack of inter-face among PSUs
chief functioning under the Ministry of Commerce with their administrative ministries.
Otherwise, the PSUs would have simply carried out the transactions at the full knowledge of
their administrative Ministry and both ways the lack of transparency must be plugged, they
said.

More pertinently, the way export of banned non-basmati rice was allowed does look like
‘normal trade' with the PSUs acting like ‘brokers' for a petty margin with the rice exports
being shipped by importing countries agencies and the suppliers chosen by them from India.
 A company that was exporting rice to Comoros asked one of the state trading agencies to
permit it to send 5,000 tonnes but was told only PSUs could export. Moreover, when the ban
was in place, the DGFT, functioning under the Ministry of Commerce, had allowed the
export of 25,000 tones of non-basmati rice to two export-oriented units in Andhra Pradesh
and Puducherry in 2008 and this was opposed by the Southern rice exporters themselves who
said that they should not be discriminated. They said the government itself violated its ban by
permitting the two export-oriented units (EoUs) to undertake non-basmati rice export for no
valid reasons, a point brought to the attention of rice exporters association to the Union
Finance Minister in November 2008.

Given the fact that there were a lot of loopholes in government's policy of clamping ban on
non-basmati rice exports and then allowing PSUs to handle the selective lifting of ban on
diplomatic grounds ham-handedly or giving permission to two EoU units to export 25,000
tonnes with no previous track record of shipping such huge quantities, a thorough probe into
the whole sordid saga is needed, they said adding that the government should recover “the
hugely disproportionate profits accruing to private parties”.

With the country having procured 287.36 lakh tonnes and 336.84 lakh tonnes of rice in the
last two kharif marketing seasons and bought 320 lakh tonnes in the 2009-10 marketing
season that ended in September, and with government permitting import of rice duty-free, the
time has come to lift the ban on non-basmati rice exports or at least allow such exports in
small consumer packs with quantitative ceilings to large expatriate Indians, they said.

Fishery, poultry sectors on Nokia Life Tools radar

V. Sajeev Kumar

Kochi, Nov. 22

Nokia Life Tools, which offers a range of agriculture information and education services
through SMS, is getting encouraging response from both urban and rural consumers across
the country.

Mr Natesh B.V., Director – Emerging Markets Services, Mobile Solutions, Nokia, pointed
out that around five million users across the country are availing themselves of the service
introduced in June last year.

With the growth in the handset base in the country, the consumer base will further increase in
the coming years.
The services are designed to address information gaps thus enabling consumers to be better
informed and helps improve their livelihood, he said.

The company is working closely with various Central and State Government departments and
other partners to extend the service in other sectors also. The new sectors which are on the
anvil included fishery and poultry by offering various kinds of services, he said.

In Kerala, the company is working closely with Spices and Rubber Boards.

Axis Bank opens rural branch

Ahmedabad, Nov. 22

Axis Bank, India's third largest private bank, today launched its rural banking strategy in
Gujarat with the inauguration of a branch at Rajula in Amreli district. Mr Shriniwas
Dandekar, Senior Vice-President of the bank, who opened the branch, said the bank would
open five more branches under the strategy in Gujarat in the next seven days. He said Axis
Bank had already launched similar branches in Punjab and Tamil Nadu. It would launch 100
such branches across India by the end of this financial year, according to a release here. – Our
Bureau

Bengal CM for curbs on cotton export

Our Bureau

Kolkata, Nov. 22

The West Bengal Chief Minister, Mr Buddhadeb Bhattacharjee, has written to the Prime
Minister, Dr Manmohan Singh, urging him to control the export of cotton following the
abnormal increase in its price. In the letter, written on November 16, the Chief Minister
raised concern over the “abnormal” increase, doubling of price of cotton candy, and sought
his intervention in the matter.

According to the Chief Minister, the price of cotton has risen from Rs 21,000 a candy in 2009
to Rs 45,000 in the current year.

Policy for lending to MFIs evolving, says Union Bank chief

“We have Rs 291 crore exposure to MFIs and no disbursals are pending from our side.”
Our Bureau

Hyderabad, Nov. 22

Union Bank of India will wait for the Reserve Bank of India (RBI) panel constituted recently
to take a policy decision on lending to micro-finance institutions (MFIs), according to its
Chairman and Managing Director, Mr M.V. Nair.

Speaking to newspersons after formally launching a bulk lending scheme to Mandal Mahila
Samakhyas (MMS) to provide alternative to MFIs, Mr Nair said: “Our policy for lending to
MFI is evolving under current circumstances.”

On the quality of assets currently with MFI, he said it was too early to label MFI assets as
‘unsecure'.

“We have Rs 291 crore exposure to MFIs and no disbursals are pending from our side,” he
said. Many banks have either stopped or going slow on lending to MFIs after their
repayments were hit due to an ordinance promulgated by the Andhra Pradesh Government
regulating their activities following allegations of harassment of clients by recovery agents.
Loan collections of leading MFIs, including the country's only listed MFI SKS Microfinance
were hit in the State, which accounts for over 30 per cent of Rs 30,000 crore portfolios of
MFIs in the country.

On overseas expansion plans, Mr Nair said they plan to open two branches in Belgium and
Dubai Trade Centres in addition to the subsidiaries in the UK and Sydney.

“We have applied for licences and other regulatory approvals. All these may fructify during
the current financial year,” he said. Union Bank of India has one branch in Hong Kong and
six representative officers in six countries.

Fertiliser futures add fresh short positions

K.S. Badri Narayanan

Chennai, Nov. 22

Turnover remained strong at Rs 1.76 lakh crore on the NSE on Monday. The Nifty November
futures after fluctuating around the Nifty spot, closed at 6010, on par with the spot.

The Nifty December futures, however, closed in premium at 6038, signalling long rollovers.
The Nifty saw a rollover of just 25 per cent, lower compared with previous three months. The
Nifty option trading (December) indicates a positive bias, as 6100 calls shed open interest
even as 6000 and 5900 puts added.

The Nifty volatility index or India VIX, which measures the expected immediate movements,
tumbled 7.8 per cent to 19.93, indicating a positive undertone.

Stock futures

SBI, Tata Steel, Reliance Industries and Tata Motors were the most active counters. Among
them, Reliance witnessed a healthy rollover of 30.6 per cent.

Today's trading saw fertiliser counters accumulating short positions. The Government
decision to slash nutrient based subsidy rates payable to companies seemed to have affected
the sentiment for these stocks.

The Chambal Fertilizer November futures closed at Rs 85.65 against the spot close of Rs
85.55 and added 11.76 lakh shares or 9.98 per cent in open interest. Similarly, Nagarjuna
Fertilizer and Chemicals added 11.85 per cent or 30.96 lakh shares in open interest but
tumbled 4.56 per cent to close at Rs 33.45 with respect to the spot close of Rs 33.45.

Power major NTPC also accumulation of short positions. The futures ended the day weak at
Rs 183.6 vis-à-vis spot close of Rs 183.4 and added 9.14 lakh shares or 5.92 per cent in open
position.

FII activity

Foreign institutional investors remained net buyers of Rs 1,136.68 crore in the F&O segment
on Monday.

Their net buying in index futures stood at Rs 445.99 crore and stock futures at Rs 787.31
crore. However, they were sellers in index options by Rs 83.87 crore and Rs 12.75 crore in
stock options

Micro-credit mess

At fault is a lackadaisical policy that did not see the need for regulating the operation of
micro-credit driven by NBFCs.
As if the contagion of scandals spreading among the top policymakers was not enough, now
another major headache is slowly starting to throb and, unless North Block gets its act
together, the problem could affect the UPA's reputation in its most critical constituency —
the poor. One of the central planks of its financial inclusion vision — microfinance — is now
threatening to keel over into total disarray, largely because of a total lack of guidelines about
lending to the collateral-free poor. If the graft scandals represent everything the government
did wrong, the mess that microfinance and the institutions connected with it find themselves
in reflects what the government did not do right.

Microfinance has had a distinguished author in Mohammad Yunus and offers a shining
example in the Grameen Bank. But in India the idea took a different route with scheduled
banks funding micro-finance institutions (MFIs) whose numbers had grown to around 3,000
over a two-decade period. Of these, 400 were active till recently, according to a study by
Crisil. It was not long before profit-driven NBFCs got into the business and, by 2009, the
microfinance sector had changed, with a handful accounting for more than 70 of the total
outstanding loans of around Rs 11,000 crore. Mohammad Yunus' brainchild appeared to be
working well, perhaps too well. When SKS Microfinance went public in early August and
was oversubscribed 13 times, inspiring other private firms in the business to follow its
example, it seemed as if India had reinvented lending to the poor. Then the roof caved in with
stories of excessive interest rates, coercive means of recovery that prompted an ordinance by
Andhra Pradesh — where two-thirds of micro-credit is located — to regulate MFI operations.
The RBI then woke up last month with the announcement of a high-level committee to
inquire into NBFCs involved in micro-credit. More than a month later, banks now appear
reluctant to lend to MFIs that, in turn, face an uncertain future, especially in Andhra Pradesh.

So, what went wrong? Basically, a lackadaisical policy, which did not see the need for
regulation of the operation of micro-credit driven by NBFCs. That the RBI panel will now
examine regulation of NBFCs and their practices after more than four years of data collation
by Nabard on fund allocations tells its own story of policy without its ear to the ground. The
concentration of lending among a few private players in an activity that involved banks and
self help groups since 1992 has introduced a market-driven business model that generates
more funds, to be sure, but also more questionable business practices. Coping with it is the
challenge.

Tata Chemicals launches customised fertiliser

‘Farmoola' aimed at wheat growers in western, central UP.
 Kamal Narang 

 
(From right) Mr Petras Simeliunas, Ambassador of Lithuania, Mr R. Mukundan, Managing
Director, Tata Chemicals Ltd, and Mr Satish Chandra, Director-General, Fertilizer
Association of India, at the launch of Tata's `Paras Farmoola fertilizers' in the Capital on
Monday.

Our Bureau

New Delhi, Nov. 22

Tata Chemicals Ltd (TCL), on Monday, announced the launch of ‘Paras Farmoola', the
country's first ever customised fertiliser product specifically targeted at farmers in western-
central Uttar Pradesh (UP).

“The first truckload has already been despatched to the trade for use by wheat farmers this
rabi season. We hope this will encourage others to also come out with products customised
for specific crops and regions,” Mr R. Mukundan, Managing Director, TCL, told
presspersons here.

Deepak Fertilisers, Nagarjuna Fertilisers & Chemicals and Coromandel International are
among those which propose to introduce customised fertiliser formulations.

TCL's first ‘Paras Farmoola' offering – designed for wheat grown in the Agra, Meerut,
Bareilly, Moradabad and Kanpur commissionerates – contains 10 per cent nitrogen (N), 18
per cent phosphorus (P), 25 per cent potash (K), 3 per cent sulphur (S) and 0.5 per cent zinc.

“Wheat farmers now apply one 50 kg bag of di-ammonium phosphate (DAP) costing around
Rs 500, half-a-bag of muriate of potash (MOP) costing Rs 130 and 10 kg of zinc sulphate
(ZnS) costing Rs 400 on every acre at the time of sowing. Besides, they use two bags of urea
(Rs 265 each) while irrigating the standing crop. The total cost of fertilisers comes to roughly
Rs 1,560 an acre, against which they obtain an average yield of 12 quintals,” noted Mr B.B.
Singh, General Manager (Business Development), TCL.

With the customised fertiliser, the farmer can do away with DAP, MOP or ZnS and, instead,
just apply four bags of ‘Paras Farmoola' (costing Rs 600 each) as a basal dose, followed by
the usual two bags of urea.

“The total fertiliser cost here works out higher (at Rs 2,930). But then, the farmer will get 22
quintals an acre, with this additional 10 quintals worth over Rs 11,000,” claimed Mr Singh.

In the pipeline

TCL would be launching a similar customised product for sugarcane farmers of western-
central UP next month, containing 7 per cent N, 20 per cent P, 18 per cent K, 6 per cent S and
0.5 per cent zinc. This would also be priced at Rs 600 a bag to the farmer.

“Cane growers in the region now use as many as four bags of DAP, two bags of MOP, 10 kg
of ZnS and three bags of urea and get 25-26 tonnes an acre. We are recommending just four
bags of Paras Farmoola and three bags of urea for obtaining 35 tonnes. In this case, the
farmer not only harvests a higher yield, but also saves on fertiliser cost,” Mr Singh added.

Two more plants

For manufacturing the customised fertilisers, TCL has set up a Rs 60-crore 130,000 tonnes
per annum facility at its existing urea unit at Babrala in UP, with technology sourced from
A.J. Sackett of the US. The company intends to establish two more plants, involving a total
outlay of Rs 110 crore, in West Bengal and UP.

Customised fertiliser manufacture basically involves mixing and crushing of urea, DAP,
MOP, ZnS, bentonite sulphur and boron granules for obtaining the desired proportion of N, P,
K, S and micronutrients. The mixture is subjected to steam injection, drying, sieving and
cooling, so as to get a uniform product with every grain having the same nutrient
composition.

Customised fertilisers are currently not covered under the Centre's nutrient based subsidy
(NBS) regime. Companies, however, are entitled to claim subsidy on the urea, DAP and
MOP used in their manufacture. “If the idea to deliver nutrients to crops, there is no reason
why the NBS should not be extended to customised fertilisers,” noted Mr Satish Chander,
Director-General, Fertiliser Association of India.

Fertiliser prices likely to go up on lower subsidy rates

Firms may have to wait till next kharif planting season to raise MRP.

Harish Damodaran

New Delhi, Nov. 22

A sharp jump in fertiliser product prices from the next fiscal seems inevitable, with the
Centre slashing nutrient-based subsidy (NBS) rates payable to companies.

Under NBS scheme, companies receive a fixed per-kg nutrient subsidy, applicable on all non-
urea fertilisers. While the maximum retail prices (MRP) of these fertilisers have been
technically decontrolled from April 1, the industry is informally obliged to keep farmgate
price increases within ‘acceptable' limits in return for a fixed NBS concession on each
product.

Currently, the per kg NBS rates are fixed at Rs 23.227 for nitrogen (N), Rs 26.276 for
phosphorus (P), Rs 24.487 for potash (K) and Rs 1.784 for sulphur (S). But from next April ,
these rates are to be correspondingly reduced to Rs 20.111, Rs 20.304, Rs 21.386 and Rs
1.175. This will also translate into lower subsidy for individual fertilisers.

For di-ammonium phosphate (DAP), containing 18 per cent N and 46 per cent P, the subsidy
applicable on each tonne now works out to Rs 16,268. With the proposed NBS rates from
next fiscal, companies would be eligible for a concession of only Rs 12,960.

Similarly, for muriate of potash (MOP, with 60 per cent K), single super phosphate or SSP
(16 per cent P and 11 per cent S), mono-ammonium phosphate or MAP (11 per cent N and 52
per cent P) and triple super phosphate or TSP (46 per cent P), the subsidy reductions would
range between 13 per cent and 23 per cent.

Manufacturers of complexes — fertilisers having varying proportions of N, P, K and S —

would also receive 16 to 19 per cent less subsidy on every tonne that they sell at the new
NBS rates. “The lower subsidy from the Centre leaves us with no option but to charge higher
MRPs from farmers,” said industry sources.

But will companies be allowed to raise farmgate prices? “The new NBS rates would take
effect only from April 1. So the question of our raising prices arises, if at all, only next fiscal,
that too after Assembly elections in Tamil Nadu and West Bengal are over by May-June,”
sources told Business Line.

Simply put, companies may have to wait till the next kharif planting season to print higher
MRPs on their bags to compensate for the lower subsidy receivable from the Centre.

Although urea is outside, the sources added, the purview of the NBS, its prices, too may have
to be revised sufficiently upwards in order to minimise the already-distorted pricing
favouring its overuse, sources added.

The average MRP of DAP is now Rs 9,950 a tonne, while it is Rs 5,055 for MOP and Rs
5,310 for urea. These prices were fixed during this kharif. There have been no price increases
for the current rabi season, except in a few complexes, where these have been limited to Rs
200-300 a tonne.

The new NBS rates have been arrived at by benchmarking them to international prices of
urea (for N), DAP (for P), MOP (for K) and sulphur, which have apparently been taken at
$280, $450, $350 and $125 a tonne, respectively. These are below their corresponding
existing benchmarks of $310, $500, $370 and $190 a tonne.
“The new benchmarks are basically aimed at global suppliers, who would have to consider
them while setting their prices. Since India is a major buyer, the limits on subsidy could help
cap the import prices that are payable, thereby working to our advantage,” a source added.

Imported urea is now landing in Indian shores at about $405 a tonne, with these being $620
for DAP, $370 for MOP and $185 for sulphur.

Crisil places debt papers of 12 MFIs on rating watch

Our Bureau

Mumbai, Nov. 22

Rating agency Crisil has placed its outstanding ratings on the debt instruments of 12
microfinance institutions (MFIs) on `Rating Watch with Negative Implications', following the
Andhra Pradesh Government's Ordinance. Six of these MFIs have ratings that are in the `BB'
category or below.

Risks

According to a report issued by Crisil, the implementation of the Andhra Pradesh Ordinance
has triggered a chain of events that can permanently damage the business models of MFIs, by
impairing their growth, asset quality, profitability, and capital-raising ability.

Among the MFIs whose ratings have been put under watch are Bhartiya Samruddhi Finance
Ltd, Equitas Microfinance, SKS Microfinance, Spandana Sphoorty Finance and Ujjivan
Financial Services.

"The Andhra Pradesh Government Ordinance has been highly unfavourable for the industry
resulting in a drop in the collection efficiency and profitability of MFIs, especially those
operating in Andhra Pradesh. Further, the flow of funding to the sector from the banking
system has been severely constrained," the Crisil report said.

Consequently, the liquidity position and growth prospects of many MFIs, including those
operating outside Andhra Pradesh, have been affected.

Another risk is that other States may initiate State-level legislation similar to the Andhra
Pradesh Ordinance.

The rating actions follow Crisil's credit alert, issued on October 25, and a subsequent
assessment of the collections and funding position of the rated MFIs.
Collections in Andhra Pradesh have plummeted below 20 per cent, from nearly 99 per cent
prior to the Ordinance. Fresh disbursements in the State have been negligible over the past
few weeks. "This could lead to a sharp increase in delinquencies for MFIs that have
significant exposure in the State," said Crisil.

As loans from banks and financial institutions have dropped materially, it not only limits
MFIs' fresh disbursements, but can also have a cascading effect on their growth and asset
quality in the near term, Crisil said.

AP's alternative to MFIs: Community Finance Institutions

— P.V. Sivakumar 

 
Mr M. V. Nair, CMD of Union Bank of India, hands over the bank's Mandal Mahila
Samakhya cash credit of Rs 10 crore to team leaders of MMS as Mr V. Vasant Kumar, AP's
Minister for Rural Development, looks on, in Hyderabad, on Monday.

Our Bureau

Hyderabad, Nov. 22

Andhra Pradesh, which has nurtured microfinance institutions (MFIs) in the country, has now
set up Community Finance Institutions (CFIs) to provide an alternative to MFIs. The State,
which witnessed over 75 suicides due to alleged harassments by recovery agents of MFIs, has
roped in Union Bank of India (UBI) to provide revolving cash credit of Rs 50 lakh at 10 per
cent interest to 20 Mandal Mahila Samakhyas (MMS) to begin with.

The MMS in turn would lend to Self Help Groups (SHGs). “By the end of the year, we will
cover 100 MMS under the scheme with a total bulk lending of Rs 50 crore,” Mr M V Nair,
Chairman and Managing Director, Union Bank of India, said at the formal launch of the
scheme here on Monday.
As against the weekly repayment system of MFIs, those who borrow from MMS would have
the flexibility of repaying the one-year loans in three, six, or 12 month's interval.The
members would be eligible for new loans after they repay existing loans. Mr Reddy
Subrahmanayam, Principal Secretary, Department of Rural Development, Government of
Andhra Pradesh, said the entire process would be computerised for regular monitoring.

“There will be electronic book-keeping by village officers. Computers/laptops will also be

provided to all 20 MMS covered under the scheme,” he said. The scheme would be extended
to more MMS and more banks would also be roped in, he said. Andhra Pradesh has 1,099
MMS, which are federated through about 10 lakh SHGs. Mr V. Vasant Kumar, AP's Minister
for Rural Development, said the non-availability of bank credit was driving SHGs to MFIs.

“On an average, the loan per SHG through bank linkage per year is 1.6 lakh (Rs 16,000 per
person. For MFIs, the same figure is at Rs 3.8 lakh (Rs 38,000 per person),'' he said.

“The entire rural sector in Andhra Pradesh is in serious crisis because of excesses by MFIs.
Though only 75 suicides are reported so far, thousands of families became victims to MFIs
greed,'' he said.

The outsourcing advantage

R. Devarajan

Rapidly changing and increasingly confounding issues are the reasons behind key shifts in
business organisations today. Advances in technology, sophistication of business operations,
and need for constant growth are factors that suggest a full-time focus on functional core
competencies. As companies struggle to adapt to, and keep abreast with, the demands of
customers and shareholders alike, the focus on core competencies may suggest outsourcing as
a potential strategy to remain competitive.

Outsourcing is the practice of engaging external experts to handle business processes that are
outside the core sector of the company. It is also a method of staff augmentation without
adding to the headcount. As a strategic business tool, outsourcing enables companies to
identify functions that are not directly creating value for customers or shareholders.

Some home truths

Outsourcing is one of the most complex and controversial subjects in business. It is essential
that the home truths about outsourcing are well understood before a company begins to
employ it as a strategic platform to reduce costs, improve productivity, and increase profits.
When considering a decision to outsource a function, companies must weigh potential cost
savings vis-à-vis risks. The trend among those companies that have better success rates in
outsourcing indicates that they take their own time to do the homework, and build an
appropriate business model focussed on outsourcing. Organisations that are willing to invest
necessary effort and energy to go through a due diligence process, invariably come on top.

Outsourcing is not simply packing up IT jobs and back-office operations, and then shipping
them overseas; it is much more than that. Each outsourcing programme, on-site or offshore, is
different in details. Each has its own risks, which must be identified and monitored. The
cause and criterion for developing an outsourcing initiative may be cost savings;
nevertheless, when outsourcing a customer service process, the success or failure of
outsourcing depends only on the customer experience.

Value of employees

Successful outsourcing depends on how accurately customer demands are defined by the
company, and how well they are executed by the outsourcing partner.

Some organisations underestimate the intrinsic value of their employees. It is the people, after
all, who actually get the job done — not processes. Any successful outsourcing initiative
needs dedicated people; and most companies are likely to find them in their own backyard. In
any outsourcing context, there will be some attrition. The world changes quickly, but people
change slowly. Resistance to change gets accentuated, when people are denied participation
in the process. If companies do their homework properly, they will know how to handle the
situation. It is essential that good people stay, and do not stray away.

Outsourcing partners bring new tools, technologies, and capabilities on account of their
specialisation. Many small companies simply cannot afford to match the in-house support
services that large companies maintain. Outsourcing will help them to act “big” by giving
them access to the same economies of scale, efficiency, and expertise that large companies
enjoy.

PNB picks 116 villages to develop, provide banking

L N Revathy

Coimbatore, Nov. 22

Punjab National Bank is in the process of adopting 116 villages across the country, as part of
its CSR (Corporate Social Responsibility) activity.
The bank has, in the first phase, selected two villages for adoption in Tamil Nadu – Anangur
near Villupuram, and Kottur-Nainarvayal near Karaikudi, Sivaganga district.

A formal function to announce the adoption of Kottur village was held last week.

PNB's Deputy General Manager and Trichy Circle Head Mr S.M. Veerappan said that the
bank had initiated activities for social and economic upliftment of the people of the village.

“We select villages with a population of 2000 and less and strive to bring the people into
banking fold, apart from engaging ourselves in other CSR activities.

"For instance, in Kottur, we initiated the work of cleaning the village tank under the rain
water harvesting scheme, provided a system with Internet connection to a school to enable
the villagers get up to date information on cropping pattern, weather, prevailing prices of
various commodities and so on,” he told Business Line over phone from Tiruchi.

New branch

While stating that the bank would be extending financial assistance to the nearby villages in
that belt through its Pillaiyarpatti and Karaikudi branches, he indicated that PNB would be
opening a branch in Devakottai soon.

Assistance

“We are expected to fulfil all the banking needs of the village along with other development
work under the village adoption scheme.

"Our endeavour is to bring about some perceptible improvement in the villages identified
under this programme. The assistance would include financial and voluntary service by the
bank's staff, ex-staff, family members, etc.”

MFIs similar to money lenders, says YV Reddy

Reddy feels MFIs should not be subject to soft regulation, as they are a bigger risk to
the system than individual lenders
BAD news continues to pour for microfinance companies. Former Reserve Bank of
India governor Yaga Venugopal Reddy has equated microfinance lending with the
activities of sub-prime lenders in the US. MFIs working for profit should be treated on
par with moneylenders and should not be subject to soft regulation, as they are a bigger
risk to the system than individual lenders who extend loans out of their own net worth.
Mr Reddy has also blown the whistle on another flavour of the season — financial
inclusion. According to Mr Reddy, some financial intermediaries are looking to exploit
the situation in the guise of financial inclusion, reports Gayatri Nayak from Mumbai.
New unregulated entities are getting a toehold in the financial sector in the name of
technology, he said. The former governor has also made a strong case for the central
bank playing a larger role in financial stability and as a super regulator, as it has the
talent and it is an apolitical institution. 

How do you assess RBI’s tightening of policy? Has it taken the right steps to control
inflation? 
I think RBI is right on the spot, contextually and directionally. The exact timing and the
magnitude are matters of judgement. The problem for policy-makers today is the uncertainty
in the global economy. The phenomena among the developing countries is that there are
inflationary pressures. Strong inflationary pressures are behind us: Reddy 
THEpressure on food prices is particularly acute in India. Inflation may settle earlier in India
than many other developing countries. If you want me to speculate on the way forward for
the inflationary pressures, I think for India the stronger inflationary pressures are some what
behind us. Whereas, for a country like China, it may possibly get added. 
Do we need to give more banking licences, especially to corporate houses? 
    It is difficult to say specifically about the licence. The more important issue is ownership,
governance and how you ensure regulation. The debate should not be whether to give new
licences, but whether a bank’s dominant owner can be an industrial house or not. If there is a
conflict of interest (between the bank promoter and the bank), then how to address ownership
and governance issue. Then there is a universal recognition that banks are special, which
again means that there should be discomfort if there is a serious conflict of interest involving
banks. 
In the context of the current debate around the Andhra Government ordinance, how do
you think they should be regulated? 
    One should look at the incentive mechanism. If you go back to the person who initiated the
whole concept of MFIs (Mohammed Yunus), his view was that an MFI for profit is a
moneylender. So if it is for profit and if there is aggressive lending, it’s just money lending.
Also, if you look at the way resources are leveraged, it’s more than a money lending
business. The moneylender normally lends out of his own money, whereas here the MFIs is
actually borrowing money from the depositors and lending the money. So essentially, he is a
leveraged money lender. 
    Therefore, an MFI for profit should be regulated like any other moneylender. There should
be good money-lending legislation in every state, as this is one way of bringing
moneylenders into a better regulatory framework. RBI itself has bought out money lending
legislation about four years back, except that report said that MFI NBFCs should be outside
the jurisdiction of the money lenders Act. But now, after having seen the incentive
mechanism operating in recent years, I think that exemption should not be given, whatever
the organisational form be. 
    Essentially, I agree that MFIs for profit should be regulated at the state level, because
conditions in each state differ. It is at such a micro level and it is meant to be informal and
local. So, the regulatory framework at the state level is appropriate for MFIs. 
    Also, ultimately it’s something like sub-prime lending. The same incentives are operating
here. Only difference is that it was securitisation and derivatives that operated in United
States while here it is priority sector lending by banks which is pushing in the money. The
idea that MFIs should be treated like banks but given soft regulations is dangerous. We had
somewhat similar experience with urban co-operative banks. 
At a global level, the level of financial exclusion is huge, both globally as well as
domestically. Is financial inclusion in India mere sloganeering? 
    Improvement in technology has enabled financial inclusion (FI). Secondly, given the huge
government programmes covering so many people, it becomes economical for the
government to promote financial inclusion. So there is convergence. But there is one danger
where, like in sub-prime lending, some financial intermediaries in the name of financial
inclusion start exploiting the situation. 
    Sub-prime lending started with the good intentions of providing affordable housing. The
construction industry wanted somehow to build more houses and the financial sector wanted
to lend more.

Parliamentary panel asks govt to push up private role in grain storage

Our Bureau NEW DELHI Nov. 22

A PARLIAMENTARY committee has asked the government to consider incentivising
private players to set up grain storage facilities as it prepares to implement the right to food. 
    The government will require around 620 lakh tonnes of foodgrain annually to implement
the food security law. The official procurement stood at 539.75 lakh tonnes in the recent
marketing year. 
    “(The) government should provide soft loans at affordable rates and subsidies to private
players to set up godowns,” said the parliamentary committee on estimates in its report on
ministry of consumer affairs, food and public distribution. 
    Rotting of grain in a number of states due to lack of storage facilities had led to a furore in
Parliament and the Supreme Court reprimanded the government on the issue. 
    The committee said it was high time that the government streamlined the entire chain of
procurement, storage, transportation and distribution of food grains to ensure timely
availability. “Construction of proper godowns for storage must be completed on (a) war
footing to prevent further loss,” it said. 
    The panel also asked the Centre to ensure better enforcement of the Essential Commodities
Act. The government could check the huge difference between the farm gate and retail prices
by curbing the activities of various middlemen and better utilisation of the Essential
Commodities Act. 
    It observed that the standing core group of state chief ministers and central ministers must
come out with effective suggestions on better implementation of the Essential Commodities
Act, otherwise it could fuel price rise. 
    It criticised the government’s management of prices, saying it was resorting to ad-hoc
measures. “The menace of rising prices can be tackled only through concerted efforts of the
Centre and the states,” it said adding that the state government should be prevailed upon to
implement the Act in letter and spirit. 
    Food inflation fell by two percentage points to a three-month low of 10.30% in the first
week of November. 
    The panel also wanted the government to enhance the role of the price monitoring cell
under it so it can move beyond its role of merely collating data on retail and wholesale prices.
“Price rise needs a constant and independent monitoring at the ministry’s level and regular
corrective action,” it said.

Make laws to prevent scams

The sudden convulsion against corruption is politically motivated, but there is at least
one major thing politicians can do to clean up most of the mess, says Abheek Barman

    INDIA’S Parliament is obsessed this autumn with one subject: corruption. This avalanche
of moral outrage began in the drawing rooms and cocktail lounges of Delhi around July or
August with well-heeled folks shaking their heads and muttering their doubts whether the city
would be ready for the Commonwealth Games. 
    It took little time for tales of delay and ineptitude to snowball into charges of graft. Then
the focus shifted to Mumbai’s Adarsh Society, built for war widows, gifted to military and
political bigwigs. One chief minister and one sitting MP were gone by the time Barack
Obama’s aircraft took off from Delhi. But the biggest charges of graft have been levelled at
former telecom minister Andimuthu Raja, who’s being accused of having caused losses of up
to . 1.7 lakh crore to the exchequer. Raja too has left government. 
    Most Indians, from the humble truck driver buying his way through toll gates to the
homemaker who has to bribe the agency to supply cooking gas, live with graft every day. So
why are we suddenly convulsed by sleaze in government? The answer, most probably, is
because there isn’t much else for the Opposition to do. The scandals were headlined before
and during this session of Parliament and an Opposition bereft of issues or ideas to debate,
seized it gratefully with both hands to block both Houses. 
    This makes the main Opposition parties, the BJP and the Left, guilty of blocking reforms
that could have made important changes in rules that govern critical — and unreformed —
sectors of the economy. Karnataka is being rocked by allegations that over the last two years,
chief minister B S Yedyurappa has been signing over government land to his relatives,
who’re supposed to build businesses on these plots. India has warped rules that allow
governments to do this sort of thing. In this session, Parliament was supposed to discuss a
new law that could have cut through the clutter and loosened governments’ grip on land. But
the Opposition won’t let that happen. 
    Three men, Karunakar, Janardhan and Somashekhar Reddy, were critical in the BJP’s 2008
victory in Karnataka. By some accounts, these folks, who operate mining businesses in
Bellary, propelled the party to victory in at least four districts by greasing palms all around.
The Reddy brothers are being investigated for mining — and exporting — billions of dollars
of iron ore illegally in Karnataka and neighbouring Andhra Pradesh. 
    The Reddy brothers and their main benefactor in Delhi, Sushma Swaraj, aren’t too pally
with Yedyurappa. Earlier this year, hemmed in by charges of sleaze in mining activities,
Yedyurappa’s government banned the export of iron ore from the state, a ban that the high
court upheld recently. A new law to replace India’s archaic rules governing mining activity
was supposed to have been tabled in Parliament in this session. By blocking Parliament, the
Opposition is unlikely to let that happen. So, illegal mining and the gigantic profits from that
are likely to continue merrily for many months to come. 
    So the Opposition, which claims to be campaigning against corruption, seems to have quite
another agenda. To hold up Parliament before it can get down to legislating rules which could
have cut down on sleaze. 
    ONE of my aunts claims that India has become more corrupt with every passing year. Has
it? Is there a way to measure corruption? This month, Washington-based think tank Global
Financial Integrity (GFI) published the results of a study on India’s underground economy. It
that says through the 60 years from 1948 to 2008, Indians illegally salted away more than
$460 billion overseas. Another $178 billion is hidden away within the country. GFI says,
quite apologetically, that this number could be much smaller than what’s actually stashed
away, because it’s impossible to measure transactions from cross-border criminal activity or
hawala trades. 
    GFI reckons that the much of the money illegally sent overseas goes through mispricing of
trade: imports are overpriced and exports are underpriced. Both ensure that a lot of cash
which should have flowed into India stays back. The study also points out, quite logically,
that as India opened up to more trade flows, the avenue to salt money away grew wider. It
reckons that the size of the underground economy was about 27% of the economy in the pre-
reform years of 1948-1990. Thereafter, things get jollier, and in the years 1991-2008, the
underground economy bloats to about 43% of the economy. That seems to bear out my aunt’s
hunch. 
    As with most other things, when it comes to illegal money, fashions change. Earlier, the
bulk of illegal money stayed at home. By 2008, only 28% was held in India, the rest went
overseas. Till the mid-1990s, people who were sending money overseas preferred to keep it
in banks in developed countries like Switzerland and the US, rather than in offshore havens
like the Canary Islands. Today, it’s the opposite: nearly 60% of the money overseas is in
offshore havens, the rest are with banks. 
    If trade reforms speeded up illegal money transfers overseas, will further reforms help curb
corruption? They will, if the reforms just make India an easier, hassle-free place to do
business in legally. Tax rules, which got incredibly complex and cluttered with exemptions,
surcharges and cesses, need to be cleaned up. Governments in Delhi and the states need to get
out of acquiring land and peddling it. 
    But there’s one thing that could be the real game changer. Parliamentarians must agree to
change the rules by which political parties and election costs are funded. Today’s rules
encourage parties to accept cash; businessmen at every level therefore need to hold cash to
pay politicians and parties. 
    Bodies like the Election Commission make things worse by capping election spends to
ridiculously low levels. In Karnataka, for example, a candidate for municipal elections can
spend a measly . 2 lakh. For a Lok Sabha election, where candidates must fight for the
affections of a million voters in each constituency, the spending cap is . 25 lakh — or two
rupees fifty paisa per voter. Want less corruption? Start by making political funding legit.

India among top four B-school destinations

Anahita Mukherji | TNN 

Mumbai: That the US and the UK are the most popular destinations for management studies
is not big news. But the findings of a survey conducted by the Graduate Management
Admission Council (GMAC), which conducts GMAT, a B-school entrance test used globally,
have thrown up some surprises. Number 4 on the list of the Top 10 preferred destinations for
Bschool aspirants is India, with Canada at No. 3. Israel and Spain are the other surprise
entrants. 
    Experts say India’s foray into the elite league has a lot to do with the emergence of
institutions like Indian School of Business, Hyderabad, which was ranked No.12 globally in
the Financial Times ( London) Global MBA rankings earlier this year. The IIMs, which use
GMAT as an entrance test for their executive MBA programmes, are also responsible for
India’s popularity. 
    “B-school aspirants are looking at a return on their investment, and with the investment
being lower for management education in India when compared to the US and the UK, the
returns are higher,” said an expert. Many feel India can emerge as a hub for management
studies amongst Asian countries such as Singapore and the Philippines as it will be a less
expensive destination than western giants. 
    Although making it to the US has been the great Indian dream, it is not the only North
American country that’s attracting desi students. Many are now making a beeline for Canada,
which not only has a robust economy and liberal visa policies but also promises good job
prospects. “In testing year 2010, India was the top foreign country that sent score reports to
Canadian graduate management programmes,” reveals GMAC’s survey. 
    According to the report, 78% of full-time MBA programmes in Canada received the largest
number of foreign applications from Indians. Not surprisingly, all Canadian management
programmes that recruited foreigners targeted India, as did 44% of European programmes
that undertook special recruitment efforts.

Finance minister wants regulation, but not ‘strangulation’ of microfinance

Hurt MFIs, hurt the poor 

    Here’s some solace for beleaguered microfinance institutions. A future regulatory
structure, the finance minister says, won’t “strangulate” them. MFIs have been reeling since
Andhra Pradesh authorities sought to excessively monitor their functioning, following reports
of debtors’ suicides. The state is a major microfinance hub. So, an AP ordinance, with
stipulations on registration, interest rates, repayment deadlines, etc, had a severe impact,
compounded by populist exhortations that borrowers stop repayment. This, despite Andhra’s
MFIs not having seen worrying defaults, making reports of overlending seem hyped.Clearly,
our politicians are yet to realise that a sure-fire way to kill any industry is to try to control it
by fiat. 
    If a few microlenders did adopt strongarm debt recovery tactics, must the entire sector be
demonised? Nor are draconian methods needed to make MFIs trim interest rates. Asking
banks lending to MFIs to lean on them on the issue, the finance ministry shows there are
other ways of finding solutions. While wanting borrowing costs to be moderate, the ministry
seems to leave room for self-regulation since, reportedly, it won’t cap interest rates so as to
allow for flexibility. This is sensible, given the risks involved in microfinance. To argue that
‘commercialisation’ compromises the goal of “responsible finance” cuts no ice. MFIs needn’t
apologise for trying to be economically viable, or mobilising resources through the bourses.
Only by doing well can 
they boost social good. 
    Apart from helping banks fulfil priority sector lending obligations, MFIs give millions
without banking cover an alternative to informal sources of funds, such as moneylenders
charging extortionist rates. Giving access to credit to weaker sections and in places risk-
averse banks fear to tread, MFIs push financial inclusion and poverty alleviation. Squeeze
them hard, and the ultimate victims will be the very section politicians claim to champion:
the poor. MFIs have run amok C O U N T E R V I E W Ajay Vaishnav 
    Currently, MFIs are facing a crisis of confidence as they face a severe political backlash in
Andhra Pradesh amid rising farmer suicides. At the heart of the problem lies the failure of
MFIs to balance social objectives with their lust for profit. Tough regulations must therefore
be brought in to prevent them from exploiting the poor. They are alleged to have charged
interest rates as high as 32-42 per cent to provide finance to the poorer sections of the society
when they themselves borrow funds from banks at 9-14 per cent. In addition, what adds to the
injury is the strong-arm tactics employed to recover the loans triggering the latest crisis. But,
in their greed to achieve so-called scale and efficiency in operations, they have indulged in
usurious practices while completely neglecting the philosophy behind the MFIs. They don’t
appear any different from the traditional moneylenders. Such a state of affair cannot be
allowed to continue anymore as it jeopardises all our efforts since Independence to reform the
rural economy. Hence, there is an urgent need for an agency to cap interest rates by these
MFIs, to ensure their conformity with the broader goals of financial inclusion. 
    Let’s not forget that the emergence of the MFIs has been a saga of hope and success for
millions of poor and landless in India’s rural areas. In just two decades, MFIs have achieved
what the nationalised banks could not in the first four decades after Independence. MFIs have
transformed the rural landscape as they have provided organised credit-access to some 2.6
crore people, which include some of the most isolated communities. However, the major
driver behind the phenomenal growth of MFIs has been their inherently non-profit character
and a thrust to build social capital. Care must be taken to see that MFIs remain wedded to
these aims, if they are to inspire confidence among their clientele.

Onion seed output halves, farmers opt for other crops

PVT SEED COS REPORT 300% AVERAGE PRICE RISE
Jayashree Bhosale PUNE 

    FARMERS are not deterred by the steep rise in onion seed prices and are prepared to pay
the high prices, which have risen on average by 300% over last year. But due to the
unavailability of the seed — estimated to be 20% short of the demand — they are being
forced to opt for other crops. 
    Private onion seed companies are reporting an average rise of 300% in seed prices while
farmers buying informally from each other are doing so at even higher prices. Onion seed
production by farmers had halved in the previous year due to the uncertain weather while
demand has gone up on account of good prices that the commodity brought throughout 2010. 
    Jalna-based Bejo Sheetal Seeds Pvt Ltd, a joint venture between Bejo Zaden BV Holland
and Sheetal Hybrid Seeds, India, has the largest share of hybrid onion seeds in the country.
The price of its storage quality hybrid onion seeds increased from 600/kg last year to
1,500/kg this year, a 250% jump. The price of the nonhybrid open pollinated (OP) seeds
increased 480% to 600/kg this year from 125/kg in the previous year. Says Suresh Agrawal,
chairman, Bejo Sheetal Seeds: “We sold about 100 tonne onion seeds this year.” 
    Although onion is a major agricultural commodity for domestic consumption and exports,
the big seed companies from the private sector have stayed away from onion seed production.
Farmers produce more than 80% of the seeds in the unorganised sector for their own use and
to sell the excess quantity at the village level. Export of onion seeds is also not allowed as it
may compete with the area required for onion for consumption purpose. 
    The first preference of farmers is to purchase seeds produced by farmers known to them
rather than purchasing from private companies. There is also the fear that a private company
may have sourced the seed from unreliable sources which could lead to crop failure. 
    Says Gokul Ahire, a farmer from village Pimpalgaon Basvant in Nashik: “Most of the
farmers in my area have lost the seed yield, which has doubled the seed price. We prefer to
buy from known farmers since theyare reliable.” The Nashik-based National Horticulture
Research and Development Foundation (NHRDF) confirmed the shortage of seed. Farmers
have lost about 50% of their seed yields due to the cyclonic rains in 2009. The prices are high
as the seed shortage is about 20%, said NHRDF director Dr RP Gupta. 
    Added additional director Dr Satish Bhonde, NHRDF: “We had planned to produce 3,000
quintal (ql) seeds for the use in this season. However, we could ultimately get only 1,500 ql
due to bad weather. But the demand was for between 3,000 ql and 4,000 ql seeds.”

Maharashtra to set up Authority to rein in errant co-op societies

Act to be amended in winter session of State Assembly.

The government has decided to launch a drive to recover the dues and seize the assets of
absconding Chairmen and Directors.

Our Bureau

Mumbai, Nov. 23

The Maharashtra government is planning to set up an independent Authority for regulating

the 17,278 cooperative credit societies in the State to curb large-scale fraud in the sector.

The proposal for setting up the Authority will soon be placed before the Cabinet, the Minister
for Cooperation, Mr Harshavardhan Patil, told reporters on Tuesday at the Secretariat.

The Cooperatives Act will be amended in the forthcoming winter session of the State
Assembly so that an Authority with punitive powers can be established, he said.

The Authority will consist of government officials and office-bearers of cooperative credit
societies with a clean record.

Mr Patil said that the societies have a cumulative deposit base of about Rs 13,812 crore and
have disbursed Rs 11,406 crore as loans until March 2009.

Across the State, there are about 1.14 crore members registered with the societies.

About 469 societies are in the red and they have deposits of about Rs 1,632 crore. “These
chronically ill societies have 7.01 lakh members,” he said.
Malpractices

“In many instances, Chairmen of these societies along with their family members are found
to be running them (societies) in an arbitrary manner. Large loans amounting up to Rs 10
crore have been disbursed without any collateral. They have been sanctioned merely on the
basis of an application form,” Mr Patil said.

He added that non-performing assets of these societies have reached 23 per cent of their
lending base.

Therefore, the government has decided to launch a drive to recover the dues and seize the
assets of absconding Chairmen and Directors.

However, according to a Senior Maharashtra Government official, creation of an Authority

will only add to the bureaucracy in the State. “Had the office of the Registrar of Cooperatives
functioned in an efficient manner, this situation would not have arisen,” he observed.

Microfinance institutions in Bengal face cash crunch; disbursements hit

AP Ordinance triggers 50% drop in bank lending to MFIs.

The cash crunch is primarily because of banks' hesitation to lend to MFIs after the recent
Ordinance promulgated by the Andhra Pradesh Government making recovery from
borrowers difficult.

Our Bureau

Kolkata, Nov. 23

Microfinance institutions (MFIs) in West Bengal witnessed almost 50 per cent drop in
monthly disbursements over the last two months on account of a liquidity crunch in the
system.

The cash crunch is primarily because of banks' hesitation to lend to MFIs after the recent
Ordinance promulgated by the Andhra Pradesh Government making recovery from borrowers
difficult for these institutions.

The disbursements have dropped from about Rs 100 crore a month till about two months ago
to just about Rs 50 crore at present, according to Mr Shubhankar Sengupta, Managing
Director – Arohan Financial Services and Member – Microfinance Institutions Network
(MFIN).

“Commercial banks that account for almost 80 per cent of our source of funds have now gone
slow on lending after the Andhra Pradesh Ordinance. These banks have a big exposure to the
MFIs in that State and as repayment, there has taken a hit they have adopted a wait-and-
watch policy and are unresponsive to MFIs in other parts of the country as well,” he said.

The RBI-regulated MFIs in West Bengal have on an aggregated basis, an outstanding loan
portfolio of Rs 3,000 crore with a customer base of 50 lakh, Mr Sengupta told a press meet
convened to announce the development of a credit information system targeting microfinance
borrowers across the country here on Tuesday.

‘Temporary crunch'

However, this cash crunch in the State will be short-lived and banks will start lending to
MFIs, according to Mr Kuldip Maity, Managing Director and Chief Executive Officer,
Village Financial Services Ltd.

“There has been no problems with repayment in West Bengal so far and so we are hopeful
that banks will soon start disbursing the loans they have sanctioned to the MFIs here,” he
said.

Talking about the credit information system, Mr Sengupta said, MFIN was working with
International Finance Corporation and multiple credit bureaus in order to create a database of
borrowers' loans history. The database was likely to be ready by April 2011.

MFIN, a self-regulatory institution set up by microfinance lenders in April this year, has been
working with credit bureaus such as High Mark, Equifax and CIBIL to compile the database,
he added.

“The credit information framework will facilitate the credit bureaus to capture data of all MFI
customers which in turn will allow MFI and banks to avoid multiple lending and over
leveraging of customers. The credit bureaus will also have customer data including
repayment behaviour which allows lenders to take more informed credit decisions,” he
pointed out.

Blundering on biodiesel

For success, biofuels need a national policy with regionally differentiated strategies.
Despite lofty intentions and initial promise, the promotion of biodiesel as part of the National
Biofuels Policy seems to be hitting road bumps, with the government not ready and willing to
steer a pragmatic policy. Since the announcement of a National Biofuels Policy a year back,
little has moved in terms of concrete action plan and progress on issues of feedstock,
processing and marketing. The policy aims at accelerating the development and promotion of
cultivation, production and use of biofuels to complement petrol and diesel in vehicles, and
for use in stationary and other applications. Unfortunately, the national policy has remained a
statement of good intentions, but not backed by concrete action plan. Meanwhile, the
biodiesel industry, which invested over Rs 1,500 crore to create processing facilities in the
vain hope of a supportive green energy policy, stands demoralised. A significant part of the
investment is now at risk of turning into Non-Performing Assets for lender banks. This is the
state of affairs with the Prime Minister himself as head of the National Biofuels Coordination
Committee that provides policy guidance as well as implementation and monitoring of
biofuels programmes.

Under the biodiesel purchase policy, announced by the Ministry of Petroleum and Natural
Gas, oil marketing companies would purchase biodiesel at a pre-determined price for
blending with high speed diesel. The scheme has flopped with no purchase made by OMCs
simply because the price fixed was unremunerative for biodiesel producers. According to the
government, biodiesel is not being produced commercially for blending with diesel due to
non-availability of feedstock. The reality is otherwise. Biodiesel producers are unwilling to
risk production because of the twin restrictions of having to sell only to OMCs and that too at
a fixed price that is lower than the cost of production.

Unfortunately, unlike bio-ethanol which enjoys a policy-driven mandate, there is no mandate

for blending biodiesel. If the policymakers are serious about promoting biodiesel, blending
has to be mandatory. This indeed is the trend worldwide. A good start would be to have a
short supply chain from producer to user, which means mandatory blending of biodiesel for
use in stationary equipment such as diesel generator sets . Ironically, while we have a
national policy, we do not have a nationally-accepted and implemented policy. For success,
biofuels need a national policy with regionally differentiated strategies. The reality is that we
lack the ‘political will' to make our biofuels policy work.

RBI seeks details of bank exposure to MFIs

Bankers fear loans to microfinance institutions may turn bad.

Snapshot
Dual regulation, by RBI and AP Govt, is bad for the sector, say industry watchers

MFI sector would be better off if it was regulated by the RBI and a Central Legislation.

Our Bureau

Mumbai, Nov. 23

As the functioning of non-banking finance company-microfinance institutions are causing

concern, the Reserve Bank of India has called for data from all banks on their exposure to
these institutions.

Given that MFIs' operations have been impacted due to the Ordinance passed by the Andhra
Pradesh Government last month, bankers fear that their loans to these institutions could turn
bad.

Almost a third of MFIs' outstanding loans are in Andhra Pradesh. Banks have a collective
exposure of about Rs 11,000 crore to MFIs.

The RBI, say bankers, may be trying to assess the quantum of loans that could turn bad and
whether banks could go in for debt restructuring.

A series of reports about borrowers in rural Andhra Pradesh ending their lives due to strong
arm recovery practices adopted by recovery agents led the AP Government to pass the
Andhra Pradesh Microfinance Institutions (regulation of money lending) Ordinance, 2010, in
October.

MFIs in the State are finding the going tough after the Ordinance was passed. Recoveries
have come to a standstill as MFIs cannot deploy agents for recovery. On the interest rate
front, the Ordinance has prescribed that no MFI can recover from the borrower an amount
in excess of the principal amount.

Fearing bad loans, banks have become wary of taking further exposure to the MFI sector.

Industry-watchers say dual regulation – by the RBI and the Andhra Pradesh Government – of
MFIs is bad for the sector. They pointed out that dual regulation has proved to be the bane of
co-operative banks.
Mr Alok Prasad, CEO, Microfinance Institutions Network (MFIN), the umbrella body of all
MFIs registered as NBFCs, said the MFI sector would be better off if it was regulated by the
RBI and a Central Legislation.

With the MFIs' lending and recovery practices not going down well with the stakeholders –
rural borrowers, banks, RBI and the Government – the RBI has set up a sub-committee to
study issues and concerns in the microfinance sector.

The sub-committee, headed by Mr Y.H. Malegam, a senior member of the Reserve Bank's
Central Board of Directors, will review the definition of ‘microfinance' and ‘microfinance
institutions' for the purpose of regulation of NBFCs undertaking microfinance and examine
the prevalent practices of MFIs in regard to interest rates, lending, and recovery practices.

It will also examine and make appropriate recommendations in regard to applicability of

money lending legislation of the States and other relevant laws to NBFCs/MFIs.

Getting it right on microfinance

There is a strong case to support Dr Y V Reddy’s thesis that for-profit microfinance
institutions should be regulated on par with moneylenders, given their similar
incentives, says Arvind Panagariya

    THE recent microfinance crisis in Andhra Pradesh has laid bare a fundamental mismatch
between instruments and objectives. Directed credit such as microfinance or its broader
counterpart called the priority-sector lending is economically justified only if the beneficiary
entities use it to finance projects that are profitable at the market rate of interest but go
unfounded by the market. When this condition is satisfied, on average, we would observe the
same default rates on directed credit as on market-driven credit. 
    But the high rates of default and repeated loan waivers point to the failure of microcredit to
satisfy this condition. Indeed, prima facie, the availability of profitable projects in rural
Andhra Pradesh at the market interest rate on a scale commensurate with the current volume
of microcredit lending would seem to be highly improbable. A plausible conclusion is that at
least in rural areas the principal aim of microcredit is not to correct a market failure in the
credit markets. 
    By most indications, an important objective behind microfinance has been income transfer
to the poor. This objective becomes especially evident when governments offer microcredit at
ultra-low interest rates or routinely waive the loans. For example, when the incoming
Congress government in Andhra Pradesh in 2004 slashed the interest rate on the Selfhelp
Group (SHG) programme pioneered by its predecessor government from 12-3%, it was a
giveaway rather than correction of a credit-market failure. 
    But if the objective is to aid the poor, ultra-cheap loans and frequent loan waivers are poor
instruments to achieve it. Those at the bottom are perhaps among the least enterprising and
will likely fail to take advantage of such programmes. On the other hand, those adapt at
gaming the system, including many non-poor, will aggressively borrow. This is why
programmes such as the National Rural Employment Guarantee Scheme, even if not ideal,
target the poor far better than directed credit. 
    The argument made here is not intended to suggest that credit markets are working
perfectly in rural India and no government intervention is required. Instead, it calls for a
better alignment of objectives and policy instruments. Where the issue is to assist the poor
rather than supporting profitable activities that the market fails to finance, adequate income
transfers — entirely feasible in view of increased GDP and continued high rates of growth —
are the proper instrument. Indeed, these transfers will even confer a by-product benefit
related to the credit market: they will significantly cut the dependence of the poor on the
moneylender. 
    In so far as credit-market imperfections are concerned, careful thinking is required to
reform the current system. 
    The existing providers of microcredit fall into three broad categories: SHGs, microfinance
institutions (MFIs) and the village moneylender. The form these providers take varies across
states, sometimes even across regions within the same state. Any policy reform must take
into account these differences in local conditions and must be designed at the level of the
state. Here I offer some tentative thoughts taking Andhra Pradesh as the context. 
    In Andhra Pradesh, the government has been the principal promoter of SHGs. This fact
partially, though not wholly, explains the government’s hostility towards MFIs that have
largely non-governmental origins. These latter initially grew as extensions of the non-
governmental organisations (NGOs). Banks with prioritysector-lending targets and donors
keen to promote microfinance found it difficult to lend their funds to numerous small
borrowers. Instead, they found it more costeffective to loan their funds to NGO-cum-MFIs,
which had the local knowledge of potential borrowers. Initially, MFIs operated as non-profit
entities. But over time many responded to the calls for the adoption of the full-cost-recovery
model in order to scale up their operations and eventually became for-profit entities. Today,
the market includes some very large and highly aggressive for-profit MFIs. 
    IN PRINCIPLE, the SHG model has certain merit: by applying the collective wisdom of
the group and peer pressure, it tries to ensure that credit is productively used and the loan is
repaid. In other words, it potentially does try to correct the failure in the credit market. In
practice, the readiness of the government to give waivers under public pressure creates moral
hazard, leading to non-payment. The problem is exacerbated by the presence of for-profit
MFIs, which take a more coercive approach to loan recovery. When a financiallystrapped
SHG member is confronted with the prospect of having to default on one of her many loans,
she opts for the one from the SHG rather than the MFI. On one hand, this weakens the SHG
and on the other, it gives the false impression that for-profit MFIs are sound. 
    If the SHGs are to achieve the objective for which they are meant, the government needs to
shed the habit of loan waivers. Undoubtedly, this will mean slower expansion of the SHGs.
But such slowdown will be consistent with the availability of socially-profitable projects. 
    As regards MFIs, one key reform suggested by Dr Y V Reddy, the venerable former
governor of the Reserve Bank of India (RBI), is that the for-profit entities among them should
be regulated much the same way as the traditional moneylender. Incentives facing for-profit
MFIs and moneylenders are not dramatically different. Indeed, far removed from its
borrowers, a large forprofit MFI can potentially turn even more coercive than the
moneylender who resides among his borrowers. 
    Following the model legislation recommended by the RBI to regulate the moneylender,
Andhra Pradesh cabinet recently approved the Andhra Pradesh Money Lenders and
Accredited Loan Providers Bill, 2010. The regulatory provisions that the government applied
to MFIs in its ordinance last month broadly mirror the provisions in this bill. Therefore, while
the ordinance may be faulted for failing to distinguish between nonprofit and for-profit MFIs,
suggestions that it aims to permanently cripple the MFIs and that it will benefit the dreaded
moneylender cannot be taken seriously. 

Excess rainfall in M’rashtra damages crops

Output Of Cane, Cotton, Soya, Pulses, Onion & Potato To Be Lower
Our Bureau PUNE 

UNTIMELY and excess rainfall is going to affect Maharashtra’s contribution to the country’s
kharif kitty. The affected crops include cash crops like onion, soyabean, grapes while
sugarcane crushing is also not picking up pace due to the wet fields. 
    Maharashtra’s new agriculture minister Radhakrishna Vikhe Patil said in his first press
conference that approximately 10 lakh hectares of kharif crop have been damaged. But the
final figures of damage will come out only after the revenue department finishes its
panchnama’s in a few more days. 
    Maharashra is the largest producer of onions, grapes, vegetables like tomatoes and kharif
pulses. It is the secondlargest producer of cotton, soyabean and sugarcane. In Konkan region,
more than one lakh hectare of rice crop has been damaged. All the kharif crops have been
affected by the untimely rainfall. 
    “The state has received 120% rainfall this season. Some crop of late kharif onion has been
damaged. Also, the seedling plots of rabi onion have also been affected. Cotton has not
suffered much damage as two picking had already been finished,” said Mr Patil. 
    He added: “We will give some help to the farmers who have suffered crop damage as per
the existing rules. But it will not be a full compensation for their entire losses.” 
    Rainfall is still continuing across the state even after Diwali, which is happening for the
first time in the state’s recent history. This has affected the cane crushing as well since sugar
cane cannot be harvested due to wet fields. The allied industries dependent on sugarcane are
also being hit by the untimely rainfall.

MFIs in state face repayment hurdles

Shilpa Phadnis | TNN 

Bangalore: Microfinance institutions (MFIs) are facing trouble in parts of Karnataka too.
Information from several districts suggests that borrowers are being encouraged not to repay
loans received from MFIs. 
    The problem is said to be particularly acute in districts close to Andhra Pradesh, where the
MFI business has been under attack for using heavy-handed methods to recover loans. MFI
sources say that local politicians in districts like Bhadravathi, Turuvekere, Chitradurga and
Kolar are pushing borrowers to default on payments on the grounds that the interest rates
being charged are too high. 
    "Local MLAs wanted us to bring down the interest rate to 15%. But that's not feasible,"
said an MFI official who did not want to be named. He said that they borrow from banks at
12%-14%, and "since we offer door-to-door service, our costs are high and to cover our
operational expenses and generate a return, we need to lend at 25%-30%." 
    R D Gadiyappanavar, CEO of Bangalore-based MFI Sanghamithra, said he had heard of
"unwarranted interferences" in parts of Chitradurga and Kolar districts. But he does not think
that the problem in Karnataka as a whole is anywhere as bad as in AP. 
    Samit Ghosh, CEO of MFI Ujjivan, said that in many cases they were able to resolve
issues with the help of the district administration and senior party members. 
    The problem in AP is seen to have become acute following multiple MFIs lending to the
same borrower, and the borrower then finding it impossible to service all those loans. In
Karnataka, the default rates shot up in 2009 when slowdown hit the silk farming community
in Kolar, Ramanagaram, Sidlaghatta and Mysore. Unable to clear the loan backlog, many
indulged in multiple borrowings from different MFIs. A report by EDA Rural Systems and
Association of Karnataka Microfinance Institutions (AKMI) found that Kolar was the
epicentre of the crisis, with microfinance clients having an average of three loans each. Data
from 7 of the 9 MFIs operating in the town showed that 33% of borrowers had more than one
loan and 20% had three or more loans. 
    But Karnataka's MFIs insist the problem is not as acute as in AP. "Over-lending is still not
a phenomenon in Karnataka. But the situation in AP is of serious concern," said Ramesh
Ramanathan, chairman of Janalakshmi, an MFI operating in Karnataka. Gadiyappanavar too
felt that MFIs in Karnataka had been more careful in their lending. 
    Some 27 MFIs operate in the state. As of March 2009, they serviced 3.2 million clients and
had an outstanding portfolio of Rs 2,150 crore. This is estimated to have gone up to 4.5
million clients and an outstanding of Rs 3,050 crore by the middle of this year. Karnataka's
loan outstanding is second to be the second highest in the country, after AP's Rs 5,210 crore. 
    Many of them who are under AKMI are considering ways to ensure that an AP does not
happen in Karnataka. "MFIs registered with AKMI are coming together to set up a helpline to
address grievances. We are also planning to set up an independent ombudsman to monitor
MFI activity in the state," said Ghosh. 
    Suresh Krishna, MD of Grameen Financial Services, said they are educating people on
how the micro credit system works. Some MFIs like Janalakshmi have designed a system
akin to a biometric test for customer authentication. 
    Ramanathan said the Microfinance Institutions Network (MFIN) is in talks with a credit
bureau to list various MFIs in the network and make available information the way CIBIL
(Credit Information Bureau India Ltd) does. This could help to avoid the problems of
overlending and lending to defaulters.

Microfinance interest rates need to be regulated: Pranab

No intention to ‘strangulate' institutions.
  
Mr Pranab Mukherjee

Our Bureau

New Delhi, Nov. 19

The Finance Minister, Mr Pranab Mukherjee, on Friday made it clear that he does not favour
any strangulation of the microfinance sector even as he called for regulation of the interest
rates charged by the MFIs.

“My idea is not to strangulate them (MFIs), but to regulate them so that the interest they
charge is not exorbitant and under no circumstances should they use coercive methods for
loan recovery,” Mr Mukherjee said at an event organised by a media house here.

The microfinance industry has been under severe pressure after the Andhra Pradesh
Government came up with an Ordinance to regulate the lending practices of various
microfinance institutions (MFIs). Andhra Pradesh accounts for nearly 40 per cent of the
microfinance market in the country.

In the wake of a spate of suicides in Andhra Pradesh, the State Government had on October
15 come up with an Ordinance making it mandatory for all MFIs to register with the district
Registering Authority. Also, the MFIs should increase the loan repayment period for self help
groups (SHG) to 30 days, as against the earlier practice of 15 days.

Mr Mukherjee said he had analysed the Ordinance and given some suggestions to the Andhra
Pradesh Government. He expressed confidence that the suggestions would be carried out
when an Act replaces the Ordinance.
MFIs have been criticised for using strong arm tactics for loan recovery and also for charging
very high interest rates.

“Interest rates have to be moderate. I would not like to strangulate the system, because it is
not possible for the banks to reach large number of people through regular banking services,”
Mr Mukherjee said.

The Finance Minister said that in certain cases the interest rates charged by MFIs varied
between 30 and 35 per cent. “It (interest rate) cannot be uniform, so some sort of flexibility
will have to allowed,” he added.

Last month, the Reserve Bank of India appointed a committee to examine the state of the
MFI sector under the chairmanship of Mr Y.H. Malegam. The committee would submit its
report by January.

“After obtaining these (the RBI committee) reports, I will take appropriate measures in
consultation with the RBI,” Mr Mukherjee said.

A boost for renewables

While the REC scheme aims to promote new investment in renewable sources, the interests of
existing producers also need to be kept in mind.

The kick-off of the Renewable Energy Certificate (REC) scheme on Thursday takes the
country a step further in its quest to fully harness its ample renewable energy resources. The
scheme basically addresses the unevenness of renewable energy endowments across the
country. While some States and geographical regions are rich in renewable power sources,
others are poorer. Tamil Nadu has the best wind sites, Rajasthan the best for solar. Yet, it will
be mandatory for all State distribution utilities to source five per cent of their total energy mix
from green resources. Thus was born the idea of the REC, which will enable States devoid of
viable renewable energy sources to purchase RECs from States that are rich in such
renewable resources. Given the high cost of renewable power and its seasonal fluctuations,
even States well endowed with renewable resources often use them sub-optimally. The REC
scheme will ensure that renewable power producers do not have to face the predicament of
setting up capacities that end up being under-utilised. By splitting the electricity produced
into two components — electricity and green attribute — the cost of power from renewable
sources becomes affordable to utilities while the green attribute can be sold as the REC to
utilities that are poor in renewable sources. As clichés go, this is a win-win for all concerned
— those who have invested in green power capacity, State utilities, the Centre and, of course,
the consumer.

The REC scheme has come at the right time as the government is finalising the award of solar
thermal and photo-voltaic power projects. Given that the highest solar power potential is
concentrated in Rajasthan, the REC scheme will help channel investment to the State as solar
power producers can sell their RECs to other State utilities. Solar power has already been
granted several incentives, including a scheme of purchase by a power trading subsidiary of
NTPC that will make it affordable. The REC will hopefully give a further fillip to solar
power, along with the traditional renewable sources such as wind and small hydro projects.

That said, the government and the regulator have to tread carefully and ensure that regulation
is not heavy-handed in a nascent sector. For instance, renewable energy producers had
represented to the Central regulator over some provisions of the REC regulations that prevent
existing producers with PPAs from signing on to the REC scheme. While the regulator's aim
seems to be to prevent breach of existing contracts, what about those instances where the
utilities fail to pick up renewable power, either because of low demand or the availability of
other cheaper sources? While the objective of the REC scheme is to promote fresh investment
in renewable sources, the interests of existing producers also need to be kept in mind. This is
where the regulatory balance will be tested.

Govt admits to lapses in rice exports to Africa

PSU officials did not exercise due diligence: Anand Sharma.

Our Bureau

New Delhi, Nov. 19

The Government today conceded in the Lok Sabha that in the export of non-basmati rice to
some countries during the period December 2007 to March 2009 on diplomatic grounds
despite the ban on such exports, the public sector undertakings (PSU) officials tasked with
canalising such exports did not exercise due diligence, resulting in the denial of legitimate
profits to the PSUs.

In a statement made in the midst of disruptive proceedings when papers were to be laid on the
table, the Union Commerce and Industry Minister, Mr Anand Sharma, recalled his earlier
statement made on July 30, 2009, in which he had pointed out that though the government
authorised the release of about 13.5 lakh tonnes (lt) of non-basmati rice, the actual quantity
shipped was about 1.22 lt.

5 countries
Stating that the transactions were to be conducted on a commercial basis with the African
countries, Mr Sharma said that in respect of transactions with five countries, viz., Comoros,
Ghana, Madagascar, Mauritius and Sierra Leone, the recipient African countries nominated
both the importing agency in their country and domestic supplier based in India.

Since a subsequent scrutiny of transaction showed infringements, an enquiry was ordered

with the Additional Secretary in the Department of Commerce as the Enquiry Officer. He
further said the transactions with Mauritius (by STC and MMTC) were found to be
transparent and competitive.

However, he said, with the exception of Mauritius, the exporting PSUs of the Department of
Commerce did not follow a transparent procedure for selection of domestic associates or
determination of the price at which the rice was exported. In these cases, the enquiry
revealed, the importing country nominated the importing agency in the recipient country and
selected a domestic supplier in India, without involving the PSUs. Thus the importing
government/agency settled the selling price (purchase price for them) in negotiations with the
domestic Indian supplier without associating the PSUs, the designated agencies by the
Government.

The enquiry revealed that “all documents showed the PSUs to be the exporter for record,” he
said adding that the PSUs operated on a meagre trading margin ranging between one per cent
and 1.5 per cent. “The pre-determined terms of the contracts between the foreign buyers and
the domestic suppliers (with small margins for the PSUs) led to hugely disproportionate
profits accruing to private parties, namely, the foreign government nominated domestic
suppliers in India.

The Minister maintained that in lifting the ban on exports and conferring the right to export
solely on the PSUs, the government took a public policy stance, recognising that commercial
profits would accrue to the PSUs because of the large differential between domestic and
global prices. But, he said, “it appears that PSU officials did not exercise due diligence in the
matter, resulting a in a denial of legitimate interests of the PSUs”.

He said the concerned officials had been issued show-cause notices calling for their
“explanation for not exercising due diligence, failing to act in the best commercial interests of
the PSUs and abrogating their responsibility”.

Further probe

Mr Sharma said pending further probe, all the private parties (domestic suppliers) involved in
these transactions were blacklisted and the PSUs of the Department of Commerce have been
directed not to do business with them.
He said the matter has been further remitted to the Central Vigilance Commission (CVC),
even as the Directorate General of Foreign Trade, meanwhile, laid down explicit conditions
under which non-basmati rice exports would be permitted. As a sequel to these directions, the
Commerce Department made detailed guidelines governing the export of non-basmati rice by
Indian PSUs on diplomatic considerations, he added.

Cotton exports in a tangle

M.R.SUBRAMANI

There is a Malayalam saying vadi koduthu adi vanguga, which means giving someone a stick
and getting thrashed, in the bargain. This aptly describes the government's decision to allow
cotton exports.

Has the Centre asked for a thrashing after giving its competitors a stick in the form of cotton
exports? This is how it looks, as over 90 per cent of the 55 lakh bales (170 kg each) of cotton
exported from the country from November 1 heads towards India's main competitors —
China, Bangladesh, Pakistan and Indonesia.

While garment manufacturers struggle to execute their orders for Christmas and the New
Year, sky-rocketing raw material prices have made things difficult for them. Cotton export is
drawing flak from all quarters. When the Government initially decided to allow exports, it
had talked of ensuring good prices for growers.

Unfortunately, even as the ban on cotton exports — clamped in April — was removed, global
developments in the market overtook it. First, floods in Pakistan and China affected the
cotton crop in both countries. Both are now scouting for cotton, mainly from India. Second is
the uncertainty over the US cotton crop. These have put the Government in the dock, and
makes one feel that it had not taken into account all factors before taking a decision.

INVENTORY POSITION

According to Cotton Outlook, global production this year is expected to be 25.15 million
tonnes against 21.90 million tonnes (see Table 1). Consumption is estimated at 25.83 million
tonnes, against 24.9 million tonnes last year. This, in turn, will reduce the carryover stock by
778,000 tonnes. Last year, the drawdown of stocks was 3.09 million tonnes. This drawdown,
particularly from a lower US crop, is behind the market's bullishness. Prices of the
commodity ran up to 140-year high of $1.44 a pound last week before dropping to $1.2415
this week on profit-booking.

According to the International Cotton Advisory Committee, cotton stocks have been regularly
dropping since 2006-07, when they were 12.79 million tonnes. Last year, they dropped to
8.96 million tonnes. This is reflected in India as well, with prices of Shankar-6 cotton firming
to Rs 43,500 a candy (356 kg) despite higher arrivals.

Indian cotton production this year is estimated at 325 lakh bales (of 170 kg), though a section
of the trade pegs it around 350 lakh bales.
Carryover stocks from last season (October 2009-September 2010) have been pegged at
40.50 lakh bales by the Cotton Advisory Board (CAB), while in the current season they are
projected to be 55 lakh bales (see Table 2). This projection is on the ground that exports
would be lower at 55 lakh bales this season, against 83 lakh bales last season, besides the
higher output.

BAD TIMING

Why, then, should domestic prices skyrocket? The reason is the export move has been timed
wrongly and handled poorly. One problem is that the carryover stocks from last season may
not actually be 40.50 lakh bales. The second is allowing the export of 55 lakh bales within 45
days (until December 15).

This year, cotton arrivals have been delayed as the first flowering of the crop was affected by
rain. Arrivals began peaking this year only around Diwali, instead of the normal second week
of October. Therefore, only about 60-65 lakh bales of cotton will hit the market by the end of
this month. If the carryover stock of 40.50 lakh bales is added, the availability is about 100
lakh bales. But if the 55 lakh bales meant for export is subtracted, the actual availability for
domestic mills is just about 45 lakh bales. Going by the CAB's projection, domestic
consumption is around 23 lakh bales a month (266 lakh bales for the season). This is a clear
indication of where the Centre could have gone wrong.

EXPORT NORMS
The crisis has been aggravated by the Centre permitting exports on a cash-against-document
(CAD) basis. At least 70 per cent of the export authorisation registration certificates (EARCs)
were issued on a CAD basis. This has upset even a section of exporters. Rarely is cotton
traded on a CAD basis as it is a sale on credit without any security or guarantee. Some
exporters and exporting firms do ship on CAD basis to their agents or offices abroad, but the
industry is piqued that the exports are intended to meet demand that could emerge months
later.

Under CAD, there is a risk of deals being cancelled or the exporter not getting orders. This
could have a series of effects, finally leading to a crash in prices. The Government could,
perhaps, have made the production of letters of credit (LC) the sole criterion to permit cotton
exports. This would have ensured that the entire quota of 55 lakh bales would not get
exhausted in 10 days. There are complaints that the EARCs are not in the proper format, as
they do not contain the name of the buyer, details of LC and expiry of shipment contract.

This has led to a slew of complaints, leading to fear of misuse of EARCs. The Centre's fault,
possibly, lay in not fixing a monthly cap on exports. It could have been fixed at 5 lakh bales,
or a little more. This would have given the industry a little respite. Domestic prices are now
above global rates and exporters are reported to be seeking a premium.

ALTERNATIVES

The Centre could have delayed exports and followed a carrot-and-stick policy. The carrot is
to postpone exports as long as the industry pays for cotton on par with global rates. The stick
could have been allowing exports if prices were to be kept on a leash. Or, given the demand
for cotton in the international market, the Cotton Corporation of India could have been asked
to procure it at a higher price and export it.

Though the Textiles Minister, Mr Dayanidhi Maran, has ruled out further exports, there is
little to save the Government from the wrath it is facing from the textiles industry.

Mills seek formula-based pricing for sugarcane

Want Nandakumar panel recommendations implemented.

Our Bureau

New Delhi, Nov. 18

The Indian Sugar Mills Association (ISMA) has sought a ‘de-politicised', ‘formula-based'
pricing of sugarcane, linked to factories' realisations from sale of sugar and primary by-
products.
“A formula-based cane pricing on the lines suggested by the Nandakumar Committee is what
we must ultimately move to. That is how the industry in Brazil and Thailand works,” said the
ISMA Director-General, Mr Avinash Verma.

The committee headed by former Union Food Secretary, Mr T. Nandakumar, had

recommended a formula, wherein mills would pay cane growers 70 per cent of their average
realisation from sugar multiplied by a specific recovery factor. The recovery factor, in turn,
represents the sugar recovery of a particular factory (or the average for its zone, whichever is
higher) divided by the all-India average sugar recovery.

Thus, if the average realisation from sugar was Rs 2,500 a quintal and the all-India average
sugar recovery at 10 per cent, a factory in Maharashtra recording a 13 per cent recovery
would pay its growers Rs 227.5 for every quintal of cane. If the recovery for a factory (and
the zone in which it is located) was only 9.5 per cent, the corresponding cane price would
come to Rs 166.25 a quintal.

“This kind of a formula is acceptable to us, though the exact proportion of sugar price to be
shared (whether 70 per cent or 65 per cent) can always be worked out separately. The
important thing is to agree for cane pricing to be formula-based and not be fixed on political
considerations,” Mr Verma told Business Line.

UP row

Mills in Uttar Pradesh are currently at loggerheads with the State Government's decision to
fix a price of Rs 205 a quintal for normal quality cane supplied by farmers during the current
sugar season (October-September) as against Rs 165 a quintal in the 2009-10 season.

Uttar Pradesh's Rs 205/quintal State ‘advised' price (SAP) works out higher than the Centre's
fair and remunerative price (FRP) of Rs 139.12/quintal, linked to a sugar recovery of 9.5 per
cent. Mills have been seeking an end to the powers of State Government to announce SAPs
over and above the Centre's statutory minimum price, which has, since last year, been
replaced by an FRP.

On May 5, 2004 a five-judge Constitution Bench of the Supreme Court, by a 3:2 majority,
upheld the power of States to announce SAPs on grounds that these were complementary to
the reservation orders issued by them, binding growers in an area to supply cane to particular
mills to which that area has been assigned.

“The only way to challenge the right of States to fix SAPs would be to get the May 5, 2004
ruling to be viewed by a larger seven-judge Constitutional bench of the Supreme Court.
Although the Allahabad High Court, in subsequent judgments, has quashed the SAPs
announced by the UP Government, it has done so only by citing the arbitrary way in which
these have been fixed. The right of the State Government to declare the SAP has not been
questioned”, an industry source admitted.

Let's get real on MFIs

SAMIT SHANKER SHETTY

MFIs charge higher interest rates than banks, but perform a crucial service. They deliver
small-ticket, non-collaterised loans for the rural poor, without any red-tape. With some
regulation and self-correction, the sector can do better.

 
MFIs need toarrive at the right balance between strictly enforcing group liability and
allowing exceptional defaults, while keeping the group mechanism relevant.

There has been extraordinary media spotlight on micro finance institutions (MFIs), from
about the time SKS Microfinance was listed. The contribution made by SKS in particular,
and the MFI industry in general, in projecting a model that allows the poor to access
mainstream capital is stellar. The turbulence of the last couple of months has rewound the
clock and taken us back to where the politicians and babus wanted us to be.

In over four decades of nationalisation, lakhs of PSU bank employees, and other bureaucrats
in the RBI and Finance Ministry have made several attempts to pursue the goal of financial
inclusion. However, not just the poor, but even ordinary middle-class citizens find it virtually
impossible to get a personal loan.

And just when the MFI industry managed to change the rules by reaching 30 million poor
families and giving them a viable option to money lenders, the controversies began. Let us
explore the allegations.
INTEREST RATE MISNOMER

Interest rates are a percentage — but of the principal amount, and when small amounts are
discussed percentages can be misleading.

MFI's charge 24-30 per cent interest rate and operate with a spread of 12-16 per cent; this
amounts to Rs 600-800 more than what a bank would charge on an average Rs 10,000 micro
finance loan over one year. In the period of a year the customer has to be serviced 50 times,
which is Rs 16 per visit. The higher cost of Rs 800 compared to a bank, comes with doorstep
service for small, convenient instalment repayments, speedy, non-bureaucratic loan disbursals
and access to borrowing without collaterals. This cost must be viewed against the opportunity
cost for the customer of loss in labour days if he has to access regular banking channels, in
addition to the very high possibility of not getting any credit.

The opportunities for investment for the poor in the countryside are mind-boggling. A young
goat bought at Rs 2,000 can be sold at Rs 5,000 in six months of fattening. That is a 300 per
cent annualised return. A Rs 15,000 investment in a cow can fetch a revenue of Rs 200 a day
on milk and a profit of Rs 3,000 per month. That is more than 100 per cent returns
annualised, even accounting for non-lactating periods. The rate of interest on MFI loans
should be viewed against this perspective.

People need capital to magnify investments of their labour, and at the micro level the timely
availability of capital is the difference between a viable activity and wasted labour.

MULTIPLE LENDING

This refers to a practice prevalent in micro finance where customers borrow from many
MFIs. Multiple lending is a phenomenon created by the MFI industry in its urgency to grow
and in its reluctance and inability to lend the right amount to meet each customer's full needs.

This poses a problem for the customers, but is also a big bugbear for the MFIs, as it brings in
competitive pressures and, more significantly, obfuscates the customer's current debt level
and cash flow situation. It is a fact that multiple lending does lead borrowers into debt traps,
especially when the poor borrower has emergency needs to be met.

An exclusive relationship between the customer and an MFI would put the onus directly on
MFIs in the event of debt traps.

COLLECTION PRACTICES
MFIs achieve high repayment rates because of the group liability. There are no guarantees
and no collaterals. Discipline and joint liability are at the heart of micro finances, enabling
regular receipts of the money.

There is a fine line between being benevolent and creating a moral hazard. MFIs have spent
years getting the poor to maintain credit discipline, and now politicians are tempting them
with potential loan waivers. MFIs need to arrive at the right balance between strictly
enforcing group liability and allowing exceptional defaults, but still keeping the group
mechanism relevant.

As for PSU bankers in rural areas, most are either too overburdened, or too disinterested to
bring about real financial inclusion.

BETTER REGULATION

All is not lost yet, despite the stringent measures taken by the Andhra Pradesh government.
There is a chance to restore the industry to its rightful role. The regulators and lending
agencies could:

Cap the directors' and top management's salaries;

Cap the return on assets or return on equity expectations.

Allow deposits and thrift: this would help lower cost of funds and improve operational
efficiency.

Closely monitor MFIs, as in the case of banks.

Help the sector access debt cheaper

MFIs should join hands and swap loans, ensuring that one customer has a relationship with
only one MFI. This will cut service costs and provide more visibility on customer cash flows
and potential debt traps.

The role of the sector needs to be effectively communicated. The sector does small-ticket,
non-collateralised lending that is bereft of red tapism, and collects repayments at the
customer's doorstep, ensuring that the customer incurs minimal transactional costs in terms of
lost time and wages. For this service it charges interest rates that are 12-15 per cent higher
than banks. There could be lot of improvement, but the sector will never lend at bank rates.

Monsoon no longer drives growth

SHASHANKA BHIDE

A good monsoon may not be enough to revive rural demand. This is perhaps because the
multiplier effect of agricultural income is not confined to rural areas, but also extends to
where farm produce is processed and marketed.

 
Rural India now has a diversified output basket.

How important is agricultural income as a determinant of overall consumer demand? Does

the generally modest increase in farm income combine with its unequal distribution to render
it only a weak stimulant to overall consumer demand? Although farm income is no more the
sole income source for a majority of rural households, it is supposed to be the anchor for the
rural economy.

However, some of the increase in this income actually translates into savings, rather than a
direct stimulus to demand; this is all the more because the scope for income growth in
agriculture is somewhat limited. While we look for growth with stability after the recent
global economic shocks, volatile agricultural incomes may yet have a stabilising role to play.

The recent episodes of sharp reduction in global growth, modest recovery and now
apprehensions of slow growth highlight the role of rural demand in maintaining the growth
momentum. As a first hypothesis, rural demand may be less influenced by global forces than
the other sectors of the economy. Entrepreneurs may find rural-to-rural linkages promising
just as policy makers recognise the strengths of internal demand as compared with global
demand for the economy as a whole. The emergence of a rural-urban spectrum rather than
sharp rural and urban divisions of the economy may also encourage these rural-to-rural links.
RURAL DEMAND DETERMINANTS

So, how relevant is a good monsoon for the revival of consumer demand — which, in turn, is
crucial for sustaining industrial growth? Rural demand has been a wild card in the overall
consumer demand in our economy.

The recovery of the Indian economy a year ago from the global economic crisis was reflected
in the return of investment demand and to a lesser extent in the pick-up of consumption
demand.

In 2009-10, the year of recovery, agriculture did not quite enjoy a favourable monsoon and
could not play a catalysing role, especially in the first half of the year when expectations of a
good kharif crop diminished as monsoon rains arrived only towards the end. The rabi harvest
was impressive and may have contributed to stability in consumer demand at a later stage in
the year.

Producers, rural or urban, would have attempted to reach out to rural demand in a period of
generalised demand crisis. However, the crisis may also have had its effect on rural incomes.
The link is not just in the form of remittances by urban relatives, but also in the form of
reduced demand for rural products from urban consumers.

An offsetting factor has been government spending in rural programmes. It is not clear if the
agricultural loan waiver would have had an income effect on consumption spending. But
government programmes like rural infrastructure and employment guarantees would have
generated wage income. It is possible that wage income growth has a different kind of impact
on consumer demand vis-a-vis an increase in agricultural output.

DIVERSIFIED RURAL ECONOMY

The missing monsoon stimulus of the last year should have started to work now. But half way
through the year we are yet to see its impact on industrial growth. Although industrial activity
has revived, the additional stimulus from better agricultural performance is not in evidence. Is
this because of the diminished share of agriculture in the overall economy and in the rural
economy?

Rural India now has a diversified output basket. Industrial projects are increasingly located in
rural areas as we see the need for approvals from panchayats in this regard. These areas may
turn into townships in rural areas. The monsoon stimulus may be offset by the weakness of
the rural non-agricultural economy.
The rise of the new non-agricultural rural sector may have reduced the inter-dependence of
farm and non-farm sectors in the rural economy.

Traditionally, when villages made most of the requirements of the rural population, rural
output was diversified but found its markets in villages. Now, the diversified rural production
may not be for rural markets. A lot of agro processing that has moved out of rural areas and
rural fringe of urban areas may be meeting urban demand.

The new linkages are less inter-sectoral in nature. Agricultural income will continue to be an
important determinant of overall consumer demand. But the multiplier effect of agricultural
income may not be confined to rural areas; it also extends to where agricultural produce is
processed and marketed. The marketing channels derive a considerable share of income
generated by the agricultural value chain.

Overall, the monsoon stimulus alone may not enough to revive consumer demand.

Obama's sound proposal on FDI in agriculture

SHARAD JOSHI

Earlier India-US initiatives in agricultural research have failed to deliver. FDI in farm
sector has a greater chance of kick-starting a second Green Revolution.

 
FDI will helpin globalisation of Indian agriculture.

What does US President Barack Obama's visit connote for agriculture in India? During the
recent India-US Agriculture Dialogue held in New Delhi, India and the US set up three
working groups for strategic cooperation in agriculture and food security, food processing,
agriculture extension, farm-to-market linkages, and weather and crop forecasting. The
consultations were held in the Capital on September 13-14. But have such initiatives ever led
to anything worthwhile?
MEANINGLESS PACTS

India-US agricultural cooperation dates back to the early days of India-US relations and the
first Green Revolution. In 2009, President Barack Obama and Prime Minister Manmohan
Singh committed to taking practical steps to advance global food security and increase US-
India agricultural cooperation.

Former US President, Mr George W. Bush, had inked an agreement on exchange of research

and technology in agriculture. Very little came out of that agreement. The Indian side awaited
financial contributions from the US till it realised that it was supposed to finance its own
activities under the agreement. What the US did by way of India-specific research remains, as
of today, a mystery.

The 2009-10 agreements contain nothing new and would go down in history as non-events.

FDI PROPOSAL

However, another development in the course of the US President's visit augurs better for
Indian agriculture. Mr Obama said in his speech in Mumbai on November 6 that India should
allow FDI (foreign direct investment) in agriculture. It is remarkable that this initiative of Mr
Obama received little attention.

Bharat, or rural India, needs FDI in retail, as argued earlier in these columns (October 20). I
have also been consistently in favour of Indian corporate investment in agriculture provided it
is not given any special relaxations from rules regarding land holding and capital investment.

I have consistently stood for the formation of joint stock companies of farmers on the basis of
“land and labour converted into equity”, particularly for facilitating promotion of futures
commodity trade and women's property empowerment. I, therefore, welcome Mr Obama's
initiative in proposing FDI in Indian agriculture.

TECHNOLOGY SPIN-OFFS

India, in a time of dire need, benefited from PL-480 shipments till the Green Revolution
dawned. History has done a turnaround, and it is the US that is seeking business and
employment opportunities from India. The US President came to India on a deal-making
agenda and reined in $10-15 billion worth of contracts that could create some 55,000 jobs in
the US.
FDI in agriculture will benefit the US economy; it could be a giant stride in the globalisation
of Indian agriculture. FDI could come not only from the US but also from Brazil, New
Zealand and the Netherlands.

FDI would facilitate introduction of frontier technologies, large-scale investment in

floriculture, bio-diesel and mechanisation, and remedy the situation of investment shortage in
Indian agriculture.

It will help transform a ‘negative subsidy regime' into a ‘capital-intensive positive AMS
(Agricultural Marketing Service) regime' on the lines of OECD countries. It would provide a
welcome check on the Government's tendency to restrict Indian produce's access to global
markets, to suit the convenience of Indian industry.

UPA'S PRIORITIES

Mr Obama's proposal might clash against the UPA's policies of pursuing the land reforms
agenda; denying the farm sector access to markets, both domestic and global; restricting GM
technology in the food sector; and starving agriculture of credit and investment.

Earlier initiatives on co-operation in research failed to deliver. Mr Obama's initiative on FDI

in agriculture has a greater chance of kick-starting a second Green Revolution.

Unfortunately, the UPA Government with its traditional animus towards agriculture appears
to be trying to push it under the carpet.

Commodity pressures

As an economy growing increasingly dependent on commodity imports, India will have to

exercise abundant caution in placing import orders or taking trading positions.

Over the last several weeks, the global commodity markets covering energy products, metals
(industrial, base and precious) as well as agriculture have witnessed a bullish trend with
prices of select commodities recording new, multi-year or even multi-decade highs.
Fundamental and non-fundamental factors have combined to drive the market higher.
Demand has turned healthier with Asia (mainly China, followed by India) leading
consumption growth, even as OECD economies slowly recover from the demand slump of
the last two years. Supply constraints too have come to the fore, especially in agriculture
(excessive wet weather in Canada and drought in Russia). For commodities such as crude and
some base metals, the demand-supply balances are tightening (for copper, the market is in
deficit), with inventory levels turning much less-burdensome. Importantly, non-fundamental
factors, including currency and monetary policy, have created a sense of euphoria.

The second round of quantitative easing in the US and a continued low interest rate regime
means there will be too much money chasing the inelastic supply of commodities. As prices
rise conditions have turned ripe for speculative capital to enter the market, especially the
derivatives segment. A weaker US dollar (with little prospect of sustained appreciation any
time soon) has also pushed up commodity prices. Yet as developed economies loosen
monetary policy, emerging markets such as China and India tighten it with a view to
containing inflation and, in some cases, to fighting emergence of an asset bubble. This
divergent trend in policy response is sending confusing signals. The continuing, but largely
unsuccessful, tactics of the US to pressure China to revalue its currency is another factor to
watch out for, because a firmer yuan would mean cheaper imports for China, which in turn
may increase further its appetite for commodities. All these will exert tremendous pressure on
price across commodities.

India with its increasing dependence on commodity imports (crude, coal, metals including
bullion and agriculture)will have to exercise abundant caution in placing import orders or
taking trading positions. The commodity markets have been tempered recently by concerns
over re-emergence of sovereign debt crisis in Europe and strong expectation that Chinese
central bank would tighten bank credit further, While the current pullback presents a short-
term buying opportunity, the medium-term outlook continues to favour higher commodity
prices.

Climate change will have mixed impact on agriculture

Can result in more flooding, severe drought: Ministry Report.

 
 Gauging impact:The Union Minister for Science and Technology, Mr Kapil Sibal, and the
Minister of State for Environment and Forests, Mr Jairam Ramesh, at the launch of “Climate
Change and India: A 4X4 Assessment” in New Delhi on Tuesday. —

Our Bureau

New Delhi, Nov. 16

Changing climatic conditions will have a mixed impact on Indian agriculture, while the
country faces threat from rising sea-levels and temperatures, increased flooding and severe
drought by 2030, said an Environment Ministry report.

The report “Climate Change and India: A 4X4 Assessment” that examines climate change
implications for India in 2030, has been brought out by The Indian Network for Climate
Change Assessment (INCCA), a network of over 120 institutions and 220 scientists.

The report examines the climate change implications in sectors such as agriculture, water,
biodiversity and health in eco-sensitive regions such as the Himalayas, the Western Ghats,
the North–East region and the Coastal belt.

“There is no country in the world that is as vulnerable, on many dimensions, to climate

change as India is. This makes it imperative for us to have sound evidence-based assessments
on the impact of climate change,” said the Environment Minister, Mr Jairam Ramesh.

Releasing the report, Mr Kapil Sibal, Minister for Human Resource Development and
Science and Technology, said India needs micro-level studies to understand the climate
change issues as the impact varied from region to region.

Forecasting an overall warming in all regions, the report predicts that temperatures would rise
by 1.7 to 2.2 degrees, with the maximum increase in coastal regions. Besides, the Himalayas,
the North–Eastern region and the Western Ghats would see increase in precipitation of
rainfall, snow and storm, it said.

Stating that it is a preliminary report on differentiated impact of climate change on various

sectors in various regions, Mr Ramesh said it has some alarming and some positive trends.

Crops such as irrigated rice and coconut would see an improvement in productivity, while the
yields of maize, sorghum and apple would be impacted, the report said. Further, the warming
may benefit the marine fisheries segment as certain species such as sardines and the Indian
mackerel would see an improvement in yields. However, production of milk could be
impacted due to the rising thermal humidity index leading to stress to the livestock, especially
May and June.

The sea levels along the Indian coast, which has been rising at the rate of 1.3 mm per year, is
likely to rise in consonance with the global sea level rise in future. Further, the projections
indicate that the frequency of cyclones is likely to decrease in 2030, with the increase in
cyclonic intensity, the report said.

Further, the report predicts that flooding would increase by up to 30 per cent across all
regions, while the Himalayas would face moderate to extreme drought conditions. Increasing
temperatures would result in spreading of tropical diseases such as malaria in the Himalayas,
while the transmission was likely to increase for a longer period in the North-East.

The report is the second publication by INCAA, which had earlier brought out a report on
India's Green House Gas emissions inventory. Mr Ramesh said the third report to be released
in November next year would look at the impact of black carbon.

Corruption robs from even the poor

S.D. Naik

The cleaning process should begin at the top by drastically reforming the electoral system.
Excessive, illegal and illegitimate expenditure on elections is the root cause of corruption.

 
Leakages in anti-poverty schemes have defeated the very purpose for which they

India is being hailed as a rising global economic power. However, given its poor record in
poverty eradication, human development indicators and inclusive growth, it has yet to go a
long way to achieve this reputation.
The biggest impediment is the cancer of corruption, which has now spread to every wing of
the government and every section of society, including the noble professions of education,
medicine, judiciary, armed forces and journalism.

The several shameful episodes that have come to light in recent times include reports of
illegal mining in several States, the 2G spectrum licences scandal linked to Telecom Minister
Mr D. Raja, and the Sukhna land scandal involving four Lieutenant Generals of the Indian
army.

The scams relating to the recently held Commonwealth Games and the Adarsh Co-operative
Housing Society in South Mumbai have resulted in the sacking of Mr Suresh Kalmadi from
his party position and Maharashtra Chief Minister Mr Ashokrao Chavan respectively.

The just released final report of the CAG has revealed that the 2G spectrum scandal cost the
nation a mind-boggling Rs 1.7 lakh crore. However, the minister concerned clings to his job
with the blessings of his party boss, Mr M. Karunanidhi. The Government should ensure his
early exit to save face.

GROWING GRAFT

Corruption has become a way of life today, and everyone takes it for granted. Politicians and
government officials shamelessly appropriate even the welfare funds meant for the poor.

Large-scale corruption and leakages in the plethora of anti-poverty schemes launched over
the past several decades have defeated the very purpose of those schemes.

The public distribution system (PDS) intended to supply food grains and other essential items
to the poor and weaker sections is in a shambles owing to large-scale diversion to the open
markets and even to neighbouring countries like Nepal.

Similar is the case with the National Rural Employment Guarantee Scheme (NREGS), the
UPA Government's flagship anti-poverty scheme. A Government investigation in 2009
revealed that a whopping 40 per cent of the allocation from the budgeted Rs 40,000 crore had
been siphoned off.

The office of the Comptroller and Auditor General (CAG) routinely exposes serious cases of
corruption in many Government schemes and programmes. However, corrective action from
the Government is rare.

LAND MAFIA
With rising population pressures, particularly in the bigger cities, there is widespread
corruption in the real estate business with a thriving land mafia-politician nexus involved in
illegally grabbing government land and land reserved for recreation parks, playgrounds and
so on. As the eminent economist Raghuram Rajan aptly put it: Yesterday's licence-permit raj
has morphed into a land mafia raj with huge socioeconomic costs for the country.

Unfortunately, the discretionary allotment of land for housing to certain powerful groups has
almost become institutionalised owing to the criminalisation of politics.

Land scarcity for affordable housing in major cities has been accentuated by the fact that the
armed forces, railways and the PSUs hold land far in excess of their operational needs and
reasonable reserves. For instance, it has now come to light that the Ministry of Defence holds
about 17 lakh hectares of prime land across the country worth more than Rs 20 lakh crore. Of
this, only about two lakh acres are reportedly in use.

Clearly, there is need for a detailed and competent audit of the land banks held by the
country's defence forces, port trusts, railways, the PSUs and other public utilities. The excess
land held by them should be released for public housing, educational institutions and so on.

Fighting corruption and cleaning the prevailing mess should receive top priority if the
Government is to realise its goal of inclusive growth and poverty eradication to create a new
21 st century India over the next decade or two.

CLEANING THE MESS

The cleaning process should begin at the top by drastically reforming the electoral process.
Excessive, illegal and illegitimate expenditure in elections is the root cause of corruption.
Often, the poll expenditure of candidates is 10 to 15 times the legal ceiling prescribed,
eventually leading to criminalisation of politics that threatens the very roots of democracy.

In July 2008, The Washington Post had reported that nearly a fourth of 540 Indian Parliament
members faced criminal charges, including human trafficking, immigration rackets,
embezzlement, rape and even murder. At the State level, things are worse.

According to the Swiss Banking Association Report 2006, Indians had stashed away $1,456
billion of black money in that country. The corrupt entities include politicians, industrialists,
officials, cricketers, film stars, and protected wildlife operators, to name just a few.

Although the Right to Information (RTI) legislation has empowered citizens to demand
transparency from public officials, there have been instances of RTI activists being
threatened, attacked and even killed by vested interests.
Hence, there is a need to drastically change our legal system to guarantee stringent
punishment for corrupt politicians and government officials.

Asking a corrupt politician to resign from the job is not enough; criminal proceedings should
follow to deliver suitable punishment, including a jail term.

Right to food and the rural economy

Chhattisgarh's experience suggests that small farmers will find it hard to bid for labour when
their food needs are met.

 
Despite the near-universal food security net, Chhattisgarh continues to be a hotbed of Maoist
activities.

Alok Ray

The National Advisory Committee, according to the latest media report, has recommended
that the National Food Security Act should legally guarantee cheap grains to 90 per cent of
the rural population and 50 per cent of the urban population by 2014.

Further, there will be two categories within these households. The poorest “priority”
households would be entitled to 35 kg of grains per month at an average price of Rs 2 per kg
whereas the “general” households would be entitled to 20 kg a month at a price not exceeding
half the current minimum support price for the grains.

NUTRITIONAL COVERAGE
Critics would argue that 35 kg of grains would be enough to feed a family of four for only
about 15 days. Hence, even if it eliminates starvation deaths, this alone would not provide the
minimum calorie requirements. If the price of grains for BPL cardholders is fixed at Rs 2 per
kg while the current market price varies in the range of Rs 12-18, then this would be
equivalent to a cash transfer in the range of Rs 350 to Rs 560 per month per family.

For families with some other source of income, this scheme would be a supplementary
transfer which may have significant consequences for different sections of the rural
population.

A recent study of the impact of a similar food security scheme (35 kg of grains at Re 1 per kg
for ultra-poor families and Rs 2 per kg for the poor families), implemented in Chhattisgarh
since 2006, throws light on the likely consequences of the Food Security Act, as and when it
would be implemented throughout the country.

Overall, the number of starvation deaths has come down drastically in Chhattisgarh. But
since there is no protection against the rise in the price of pulses (which is a major source of
protein and nutrition for the poor as most of them cannot afford to consume milk or meat in
sufficient quantities) and oilseeds during the recent spurt in food inflation, there has not been
a significant improvement in nutrition levels.

The impact of the near-universal food security net has been different for big farmers, small
farmers and agricultural labourers.

RURAL ECONOMICS

Chhattisgarh is predominately a rice-growing area. Most landless workers used to work on

others' land against wages paid in kind (principally rice). Now, a large part of their food
requirement is being met by the food security programme and more work opportunities at
minimum wages are available under NREGA projects in the villages. As a result, they are
looking for non-farm work (including working in mines and brick kilns) against wages paid
in money so that they can buy things other than foodgrains.

More work opportunities and better bargaining power have raised the wage rates for
agricultural labour. This has made life especially difficult for small farmers who cannot
afford to offer higher wages or a large number of work days compared to what the big
farmers can provide. Some big farmers are moving away from paddy to cash crops (like
vegetables) as the local demand for paddy (from which rice is derived) has come down and
people are able to spend more on vegetables. Another contributory factor is the greater
shortage of labour in the paddy cultivating season when many workers are busy cultivating
their tiny plots of land. Labour is more easily available in the non-paddy season when
vegetables can be grown.

PADDY STILL IMPORTANT

At the same time, paddy itself is becoming more like a commercial crop. Earlier, much of the
paddy cultivation was for subsistence. The production was mostly used to meet the family
requirement for staple food (rice) and seeds for next year. Whatever little surplus remained
was sold for cash. With cheap grain from ration shops taking care of food requirements, more
surplus is becoming available to be sold in the market for cash.

This is leading to greater monetisation of the rural economy. Once the basic food security net
is available, many farmers are also able to take greater risk and are found to invest more in
HYV (high yielding variety) seeds and irrigation (like wells and pump sets), often with the
help of bank credit. Ever increasing MSP (minimum support price) for rice and wheat and the
government's readiness to buy any surplus at MSP is an additional factor inducing farmers to
go for paddy cultivation as a commercial crop.

Consequently, the total area under paddy cultivation may not necessarily go down in
Chhattisgarh. Even here, the big farmers have an advantage in that they find it easier to sell
their surplus to the government procurement agencies than small farmers. The transaction
costs (per unit of grains) of buying from the big farmers is less for the procurement agencies,
and the big farmers are better connected with the officials.

It is a paradox that despite the near-universal food security net, Chhattisgarh continues to be a
hot bed of Maoist activities. Is it because the benefits of the food security net have not
percolated to the remote tribal areas? Or, is it that the major grievances of the tribal people
(like displacement and losing their traditional way of life due to mining and industrialisation)
have little to do with food security?

Is SHG model better than microfinance?

C.A. Farzana Najeeb

With microfinance under scrutiny, the self-help groups channel is emerging as an alternative
but the true costs and risks inherent in the latter model need to be better understood.
  
SHG membersincur significant hidden costs that push the cost of accessing credit beyond the
‘sticker costs'.

In the past few weeks with microfinance under public scrutiny, the self-help groups (SHG)
channel is being positioned as a cheaper alternative of delivering microfinance compared to
MFIs. A close look at the characteristics of the SHG model, its cost structure and interest
rates to the ultimate customer shows that its cost is comparable to the MFI model despite a lot
of implicit subsidies.

The SHG Bank Linkage Programme (SBLP) has contributed significantly to making credit
available to the rural poor, but the true costs and risks inherent in this model need to be better
understood. Understanding the SBLP

Under the SBLP, a SHG with 10-20 members (usually women) is formed with the support
and guidance of a self-help promoting institution (SHPI). The SHG members are encouraged
to make voluntary savings, which is internally lent.

After assessing the savings discipline and credit history of the group, usually for 6-8 months,
the SHPI links the group to a bank.

The banks then make loans to the SHGs in certain multiples of their accumulated savings,
which the group in turn lends to its own members at a higher rate — 24-48 per cent per
annum. The group members are responsible for holding meetings, and collecting and
reaching repayments to the nearest bank branch.
So, in effect, SHGs operate as quasi-banks, using the members' savings and loans from banks
to on-lend to their own members. It is important to note here that this structure exposes the
savings of members to local risks and hence, may not be as secure as formal savings.

SHPIs typically step back after the groups are linked to banks and their monitoring role vis-a-
vis the group discipline is not explicit.

Comparison with MFI model

In the MFI model, the MFI borrows from various sources (usually banks) and on-lends to
clients, who are usually organised in five-member joint liability groups. Interest rates to the
client vary between 24 per cent and 48 per cent per annum.

There are, however, significant differences in the two models, in the cost of origination (that
is, costs incurred in forming groups, maintaining registers, etc.), the opportunity cost of the
group members, the collection costs and the loan losses. These costs are incurred by the
clients, SHPI and the bank in the SBLP model. Let us delve deeper into these and see how
the different costs are borne by the different players in the model. In the SBLP, the SHPI
does not lend to groups; the bank lends directly to groups identified and promoted by the
SHPI.

The cost of creating the groups is usually provided by the government, Nabard or other
donors in the form of a grant and not compensated by the bank. Therefore, the cost of
origination borne by a SHPI, though significant, typically goes unaccounted for.

Costs to SHPI, SHG

Almost 75 per cent of the origination costs are borne by the SHG members. Of this, a
significant chunk — nearly 60 per cent — is contributed by the opportunity cost of time spent
by members in trainings and meetings conducted for forming the group. This time could have
been spent in other, remunerative activities.

Typically, the direct costs to the SHG of forming one group, amortised over the life of a
group, represents 3 per cent of a loan of Rs 50,000 per group (a part of this cost is borne by
the SHPI). Since banks lend directly to the groups, the SHPI does not monitor repayments or
manage collections.

Instead, the members are expected to visit the bank and make repayments on their own.
Often, a visit to the bank branch could mean a loss in wages for the client for that day. The
group members themselves have to manage the entire repayment collection process,
including maintaining records, resulting in significant administration cost.
Our estimate shows that this function, along with time spent in loan repayment operations,
effectively ends up costing the group members about 8 per cent of the loan amount of Rs
50,000 that the group receives from the bank. This cost is incurred in the form of wages
foregone because of group meetings (5.4 per cent), visits to banks in terms of opportunity
cost (0.45 per cent), and maintaining accounts (1 per cent), as well as the costs of travelling to
the bank branch (1.15 per cent).

So, the SHG members actually incur a significant amount of hidden cost, which increases the
cost of accessing the credit under the SBLP model beyond the ‘sticker costs'.

In the MFI model, in contrast, there is a significant cost attached to the institution in running
its operations in the form of staff and administration costs, but this cost is almost negligible
for the client, who can repay at her doorstep, every week.

Cost to the banks

Unlike the MFI model, where the institution intermediates between the bank and the clients
and the relationship between the bank and the MFI is wholesale, there is considerable time
spent by the branch staff in the SBLP, at the time of providing loans and servicing the
accounts of the SHGs.

According to the Rangarajan Committee report, the rate of 12 per cent at which banks lend to
SHG, is 10-20 per cent lower than the ‘true total costs' of a bank. Even if we take a
conservative estimate, this cost is likely to be much more than what is accounted for in the
interest rate currently charged.

MFIs make a provisioning for loan loss, which is built into the final interest rate charged to
the client. This is usually about 2 per cent of the overall portfolio for MFIs. In the case of the
SHPI, once the groups are linked to banks, it is up to the bank to make such a provisioning,
as they would bear the ultimate default. According to the Nabard Managing Director, Mr
K.G. Karmakar, the default rate in SBLP was around 12 per cent in 2008-2009 and is
increasing.

It is likely that the bank takes some expected default into account when it prices the loan to
the SHG groups at 12 per cent, but it is not likely that it takes more than 1-2 per cent as
expected loan loss. So, even after accounting for this provision, there is an additional loan
loss of about 10 per cent on the portfolio. If the banks were pricing the SHG loans as per the
actual portfolio performance, their interest rates would be much higher.

Making costs explicit

It is difficult to make point-to-point comparisons because of the difference in the two models
of credit delivery. What is clear, however, is that all the true costs are not included in the final
interest rate that is charged to the client under the SBLP model, although it is already
comparable to the MFI rate.

Adding the other hidden costs might add at least another 20 per cent to this (3 per cent
annualised group formation costs, 8 per cent processing costs absorbed by group, and 10 per
cent loan losses)

The exposure of members' savings to local risks because of it being used for lending within
the group is also a significant and worrying design issue in the model.

Customs order on fumigation irks foodgrain importers

Circular stipulates use of methyl bromide to eliminate pests.

M.R. Subramani

Chennai, Nov. 9

A circular put out by the Central Board of Excise and Customs on November 3 is set to
change the foodgrain import scenario.

According to the circular, statutory measures will be enforced by the Customs authorities on
foodgrains that are imported before the consignments are released.

An annexure to the circular has irked importers, especially those dealing in pulses.

The annexure says an exporting country has to issue phyto-sanitary certificate for each
consignment, while the country's national plant protection organisation has to give additional
declaration on the shipment being free of pests. The consignment should also comply with
special conditions that require its phyto-sanitary treatment.

Of particular concern to importers is this norm that requires all foodgrain imports into the
country to be fumigated with methyl bromide to eliminate pests in the consignment.

The problem with the stipulation is that many countries have discontinued the process of
fumigation with methyl bromide. Development nations have given an undertaking in the
Kyoto Protocol, a UN framework convention on climate change, to undertake measures to
prevent global warming and green house gases. They have stopped using the chemical from
January 1, 2005.
According to the United Nations, this chemical is destroying the ozone layer 50 times faster
than Freon. It is also very toxic to humans and animals. A study by the United Nations shows
that it will be less expensive to eliminate methyl bromide and find alternatives than to finance
the medical costs associated with the increase in skin cancer cases caused by increased
exposure to ultra-violent rays, damage and destruction to crops and major weather changes.

Methyl bromide is used by farmers in countries such as the US before sowing to eradicate
fungus, nematodes, weeds and micro-organisms that could affect crops.

According to Mr K.C. Bharatiya, President of the Pulses Importers Association, most of the
countries do not fumigate. “In countries where the temperature goes below zero degrees,
there is no need for fumigation. We have taken up the issue with the authorities but they have
refused to heed,” he said.

Shortage feared

Pulses importers, in particular, feel that this could create shortage since the country depends
on imports to make up production short-fall.

An exporter, speaking on condition of anonymity, said countries such as Myanmar that do

not have methyl bromide will be badly hit.

“We can't import from important sources such as South Africa, Thailand and Turkey,” Mr
Bharatiya said.

South Africa supplies pigeon pea, while Turkey is an important producer of chickpea (chana).
Australia's chickpea exports to India could also be hit.

The order, however, provides for special treatment to the US, Canada and France.
Consignment from these countries could be fumigated at the port of arrival in the country.

“Officials say they want to regulate imports. When we pointed out to them that most of the
countries will be hit, they are asking us to tell them to talk to our Government. We have
alerted our suppliers,” said an exporter.

“They are pointing out at the US, Canada and France. These three countries had approached
the Government and worked out a solution,” he said.

Officials here see methyl bromide as an effective way to kill all pests, insects and nematodes.
Substitution is costly and tricky, particularly in colder climates. Aluminium phosphide can be
used as a fumigant instead but it takes three days to fumigate against 16 hours for methyl
bromide. In addition, the cost also increases three times. Mr Bharatiya said the order has
made it impossible for any consignment to reach Indian shores without being fumigated.

The move is also seen as a non-tariff barrier by India. One of the reasons for the Centre
issuing the circular now and insisting on following the phyto-sanitary measures is higher
production of kharif crops.

A flour mill source, when asked about the notification, said wheat imports are practically
over and hence it was of no concern to the user industry.

The CBEC order said: “All consignments of foodgrains may be referred to Plant Quarantine
authorities at respective point of entry for phyto-sanitary inspection before release by
Customs.

These consignments will be allowed clearance only after getting no objection certificate from
plant quarantine authorities.”

Global energy body wants subsidy on fossil fuels cut

Concessions result in inefficient resource allocation: IEA.

Our Bureau

New Delhi, Nov. 9

The International Energy Agency (IEA) has called for eradicating subsidies to fossil fuels to
enhance energy security, reduce emissions of greenhouse gases and air pollution, and bring
economic benefits.

In its world energy outlook, released on Tuesday, the inter-governmental think-tank on

energy issues from the developed world said continued subsidies to fossil fuels result in an
economically inefficient allocation of resources and market distortions, while often failing to
meet their intended remit.

“Subsidies that artificially lower energy prices encourage wasteful consumption exacerbate
energy-price volatility by blurring market signals, incentivise fuel adulteration and smuggling
and undermine the competitiveness of renewable and more efficient energy technologies,” it
warned point-blank.

Fiscal burden
Moreover, it said, for importing countries subsidies often slap a significant fiscal burden on
state budgets, while for producers they quicken the depletion of resources and could thereby
export earnings over the long haul.

Fossil fuel consumption worldwide amounted to $312 billion in 2009, the vast majority of
them in non-OECD (Organisation for Economic Cooperation and Development, a club of
rich countries) nations.

Stating that the annual level swings widely with changes in global energy prices, domestic
pricing policy and demand, it estimated such subsidies were $558 billion in 2008. Only a
small proportion of these subsidies go to the poor.

Pointing out that “reforming inefficient energy subsides would have a dramatic effect on
supply and demand in global energy markets”, IEA estimates that a universal phase-out of all
fossil-fuel consumption subsidies by 2020, albeit being ambitious, would cut global primary
energy demand by 5 per cent, compared with a baseline in which subsidies remain in tact.

This amounts to the current consumption of Japan, Korea and New Zealand combined, it
said, adding that oil demand alone would be slashed by 4.7 million barrels a day by 2020,
equal to around done-quarter of current US demand.

It said phasing out fossil-fuel consumption subsidies could signify an integral building block
for tackling climate change with their complete elimination to reduce carbon dioxide
emissions by 5.8 per cent or 2 giga-tonnes in 2020.

On renewable energy, it said though renewables are likely to become increasingly

competitive as fossil fuel prices rise and renewable technologies mature, the scale of
government support is set to expand as their contribution to the global energy mix increases.

IEA reckons that government support globally for electricity from renewables and for bio-
fuels totalled $57 billion in 2009, of which $37 billion was for the former.

It said the use of bio-fuels — transport fuels derived from biomass feedstock — is likely to
continue to increase rapidly between now and 2035, thanks to rising oil prices and
government support.

Clean energy: $50-m R&D centre soon

Our Bureau

New Delhi, Nov. 8

Ahead of the Cancun climate summit, the US and India have decided to collaborate on
developing clean energy technologies. They will jointly set up a clean energy research and
development centre in India by investing $50 million over five years.

Alternative energy

India is looking at alternative sources of energy to plug gaps in its supply and demand for
electricity which lead to frequent power cuts.

This is where the US expertise in the renewable sector, especially solar, will help as it would
bring down the cost of production. The high cost of solar modules is impeding the take-off of
solar technologies in India.

"We agreed to deepen our co-operation in pursuit of clean energy technologies, including the
creation of a new clean energy research centre here in India, and continuing our joint research
into solar, bio-fuels, shale gas and building efficiency,” said the US President, Mr Barack
Obama, at a press conference.

Collaboration with the US will provide a further impetus to India's clean energy programmes
such as the National Solar Mission, which the country has initiated as part of its efforts to
reduce green house gas emissions by 20-25 per cent by 2020 over the 2005 levels.

Funds

In fact, India has already started building a corpus of around $600 million a year for the
National Clean Energy Fund by levying a cess of Rs 50 per tonne on coal domestically
produced.

“Compared to the Clean Energy Fund, the joint investment in the R&D centre is peanuts. If
the Government was serious about this, we should have pushed the US for putting more
money on the table,” said Mr Chandra Bhushan, Associate Director at Centre for Science and
Environment.

Currently, over two-thirds of the country's electricity needs are met from the polluting fossil
fuel sources such as coal and liquid fuel. Electricity generation from nuclear and renewable
sources such as hydro-electric and wind energy account for the rest.

Sugar exports won't hurt

It would make immense commercial sense to undertake sugar exports in the coming months
and derive the benefit of high international prices.

With cane acreage and output rebounding in the 2010-11 season, prospects of a big expansion
in sugar production are bright. The latest estimate of sugar production stands at 25 million
tonnes for the new season that has just commenced compared with last year's 18.5 mt. No
wonder, the Minister for Food and Agriculture is keen to lift the embargo on sugar exports as
soon as the festival season ends, which also coincides with the beginning of the crushing
season. As luck would have it, the global sugar market favours producers, with prices hitting
a 30-year high on the bourses. In addition to strong fundamentals that support high sugar
prices, further quantitative easing in the US and the prospect of continued low interest rate
regime have been supportive. Globally, sugar prices are expected to stay at elevated levels
until the demand-supply fundamentals turn more consumer-friendly.

Today, the world desperately needs Indian sugar to fill-in the supply shortfall and moderate
prices, unlike on many previous occasions when sugar merely added to the already sizeable
global supplies. It would make immense commercial sense for India to undertake sugar
exports in the coming months and derive the benefit of high international prices, something it
never could do in the past. It may also make sense to enter into forward contracts (at lower
prices) for imports some time in the second half of next year, should the situation warrant.
Together with an estimated opening stock of about 4 million t, the total sugar availability
during the following months is likely to be at least 5 mt in excess of the consumption
requirement estimated at about 24 mt. In addition to meeting extant export obligation
(estimated at about 800,000 tonnes), export of about two million tonnes is unlikely to unduly
squeeze domestic availability. However, it is important to take a call on exports without
delay. Simultaneously, the industry should be forced to clear cane arrears so that growers stay
committed to retaining the acreage at about 5 million hectare for the next season. Meanwhile,
it is critical that the controversy surrounding the ethanol blending programme is brought to an
end soon. While the industry is reported to have committed for supplies of about 600 million
litres of ethanol, a committee under the Planning Commission has suggested that the quantum
be pruned to 400-500 million litres for the current year. It is unclear if the expert panel enjoys
the mandate to stipulate quantity, in addition to fixing prices. Mills apprehend that the
balance quantity may have to be marketed to industrial users at steeply lower prices. The
stand-off threatens a delay in cane crushing in Uttar Pradesh.

All these indicate how muddled the thinking within the government is. Sugarcane is now
perceived not only as food but also as fuel. With so much happening in the sugar sector, the
talk of decontrol seems to have evaporated into thin air. It is necessary for the policymakers,
growers' representatives, industrial consumers and mills to look at the sugar sector
holistically and come up with positions that advance growth and equity.

There is a future in farming

STHANU R. NAIR

 
Dissemination ofsuccess stories can help enhance skills.

The fact that the agriculture sector in India has not experienced any significant growth during
the post-economic reforms period is well established. For the revival of the sector,
policymakers have suggested, among others, improvements in the crop yield and promotion
of crop diversification. However, the progress in these areas has been slow.

In an emerging and growing economy like India, there will be an elevated domestic demand
for high-value food products such as pulses, fruits, vegetables, edible oils, dairy products,
processed foods, and livestock products. Catering to the high-value farm segment has been
viewed as one of the pathways out of agrarian distress. Studies suggest that the demand for
such food items has recorded high growth in India during the post-economic reforms period.
But the annual growth rates of area, production and yield of high-value agriculture products
has declined during the same period.

Foodgrains still constitute over 60 per cent of the gross cropped area in India. India's
production of high-value food commodities is one of the lowest in the world. For example,
according to World Development Report, 2008, among the countries where the proportion of
workforce engaged in agriculture was high, fruits and vegetables production was 118 kg per
capita in India during 2003-05 against 390 for China, 217 for the Philippines, 178 for
Thailand, 162 for Vietnam, and 516 for Turkey.

SOCIAL LEARNING

One possible way to hasten crop diversification and increase the crop yield is to promote
“social learning”. India seems to have overlooked this crucial aspect while charting a revival
path for the agricultural sector. ‘Social learning' is the process of learning from the
experiences of successful farmers in social networks. Individual farmers may be influenced
by and learn about the successful farm practices from their neighbours' experiences.

Evidence across the world, including India, suggests that social learning may be important for
the diffusion of new agricultural technology. In India, social learning played a crucial role in
the widespread adoption of high-yielding varieties (HYV) of wheat and rice during Green
Revolution. What we require today is more such farm information dissemination initiatives.
Instead, the public discourse on agriculture has been dominated by scary stories of farm
distress and suicides. In a way, this approach may be responsible for our negative attitude
towards agriculture. The popular impression today is that all is not well in the Indian
agriculture, due to which many do not want to continue in agriculture or take it up as a
profession.

How far is this impression true? Don't we have sufficient farm success stories in the Indian
context which, by way of adequate publicity, can be used to induce farmers to stay in
agriculture and change their farm practices, and also to attract fresh talent in the farm sector?
If you expect an affirmative answer to this question, you are mistaken.

SUCCESS STORIES

There are many enterprising people who have been charting their own growth trajectories in
the farm sector by combining their entrepreneurial skills, labour, vision, hands-on approach
with their core competence in technology, marketing and scientific inputs. Significantly, they
include both individual entrepreneurs and small and marginal farmers. For instance,
Malvinder Singh Bhinder, who owns Agro-Dutch Industries Limited ( www.agro-
dutch.com), is the world's largest mushroom producer. Jagjit Singh Kapoor is the owner of
Kashmir Apiaries ( www.kashmirhoney.com), which is India's biggest honey producer-
exporter.

The world's largest producer and exporter of cut roses Karuturi Global Ltd
( www.karuturi.com) is owned by Ramakrishna Karuturi. Suguna Poultry Farm
( www.sugunapoultry.com), India's leading integrator of poultry products is established by
Soundarajan. Jang Bahadur owns Sangha Group ( www.sanghaseeds.com), which is the
largest producer of seed and table potatoes in Asia.

Similarly, there are many other success stories among small and marginal farmers. An
excellent official source of information about such farmers is the coffee-table book titled
Harvest of Hope brought out early this year by the Department of Agriculture and
Cooperation (DAC), Government of India. This publication documents the achievements of
101 enterprising small and marginal farmers from all parts of India, who by sheer hard work
and enterprise have transformed their lives.

TALENT RECOGNITION

One important factor behind these successes was diversification towards high value
agriculture goods and the ability to unite and bring the best out of individual farmers. Most of
these farmers or entrepreneurs struggled against the common difficulties facing the farm
sector. Yet, when it comes to turning agriculture into a viable livelihood option or business
opportunity, only the initiatives by big corporates hog the limelight in this country.

Contributions by individual farmers are not given their due. A majority of Indian farmers
would be able to relate to their successes and draw lessons on how to enhance their farming
skills.

The need of the hour is to disseminate these individual-driven successes in the farming
community alongside the corporate-led ones, thereby spearheading agrarian revival by
emulation. In this process, successful farmers shall play the role of ‘change agents'.

As a positive development, early this year, DAC organised a farmers' congregation in Vigyan
Bhawan, New Delhi, to felicitate 101 small and marginal farmers who fought against odds to
make a difference and to mark the release of Harvest of Hope. What better way to boost the
morale of the farming community than this? In a country where talent from all walks of life
except the farming community gets recognised, this is a welcome move.

Speaking at a farmers' congregation, the Agriculture Minister, Mr Sharad Pawar, is reported

to have described the successful farmers as “the unsung heroes (and heroines) of Indian
agriculture”. Let us strive for more such heroes and heroines by emulation.

How the corrupt can be snared

C. Gopinath
While outsiders can use sting operations to trap the corrupt, insiders can be encouraged to
blow the whistle on wrongdoing.

The Corruption Perceptions Index, annual league tables provided by Transparency

International, is cause for grief for many well meaning leaders of nations. Though the index
has its faults, it bares you in the glare of global exposure; it tells you how corrupt you are
perceived to be.

This year's results are even more interesting for they validate one widely held feeling,
namely, that the level of corruption and unethical practices in the US financial services and
housing industries must have been really high for the economic crisis that followed and
spread to the rest of the world. Ergo, the rank of the US has fallen from 19th to 22nd place.

There is still a lot of anger and disappointment that almost none of the malefactors have been
brought to book.

It is often the nature of economic crimes that they are difficult to prove and the nature of laws
makes them so.

Yet, that should not blind us to two measures that are popular to fight the menace here. One is
conducting sting operations and the other is the use of whistle-blowing. Here are two recent
examples.

‘STUNG' AND TRAPPED

Chuck Turner has been a city councillor in Boston for more than a decade. He was convicted
last week of corruption, to wit, of taking a bribe of $1,000 (Rs 45,000) in exchange for help
to arrange a liquor licence.

The main evidence the prosecution had was the testimony of one Ronald Wilburn that he
gave the money, and a video-tape of the event. But how Wilburn came to be in the position is
interesting.

In an earlier bribery case against a state senator, Wilburn came into the Federal Bureau of
Investigation's radar as the giver of the bribe.

At that time, the authorities heard from him that Turner had a reputation for taking payoffs.
So they set up a sting operation, made Wilburn approach Turner for the favour and got their
evidence.
Now, Wilburn was not a cooperating witness but was in danger of facing severe punishment
himself if he did not cooperate.

In addition to the bribery charge, the government also got Turner convicted of lying to the
authorities since, during the inquiry, they had asked him if he took the bribe.

Some of Turner's political supporters are piqued that the government went after a man who
had done so much good for his community, for such a small sum. But that is not the point.
The government focused on a case that it could build convincingly and arranged for the
whole operation to take place, (the ‘sting') to get a conviction.

EMPOWER WHISTLE-BLOWERS

The other interesting tool that the government has is the law favouring whistle-blowing, that
is, raising a complaint from within the organisation. The False Claims Act prohibits people
from defrauding the government and also provides incentives for the person who comes
forward with evidence.

The suit can be filed confidentially to protect the plaintiff and if the government thinks there
is merit in the case, it can take it over. The whistleblower gets about 15-25 per cent of the
money that is recovered, which is a powerful motivation to compensate for the risks.

And just last week, it was announced that in a settlement reached with the company, Cheryl
Eckard would collect about $96 million (Rs 432 crore) in a case she brought against her
erstwhile employer, GlaxoSmithKline PLC.

In 2002, while still employed by Glaxo as a quality assurance manager, Ms Eckard visited
one of their plants that made pharmaceutical products. The plant had received complaints of
production problems and that drugs of different strengths had been mixed up in one bottle
and so on, leading to safety issues.

When Ms Eckard found even more problems during her visits, she wanted the plant to stop
shipments, fix the problems and notify the government authorities as they were required to by
law.

But the plant decided not to as they were busy preparing for a FDA inspection that would
allow them to produce new products. Clearly, some ‘smart' managers were willing to indulge
in unethical practices and conceal information from regulatory authorities, in the pursuit of
profit.
We saw a lot of that in the financial services industry in America lately. Government efforts
to extend the Act to the financial services industry (which it currently excludes) is being
resisted.

But getting back to our story, soon after, Ms Eckard lost her job. Since she was convinced
that the problems were continuing at the plant, she decided to blow the whistle. She notified
the Federal Drug Administration and filed her lawsuit. Investigations by the government,
including search warrants executed at the plant, produced the evidence to vindicate her.

HARD TO BOOK

Contrary to popular belief, there is as much corruption in the private sector as there is in the
public sector. Quite often, the problem is one of lack of evidence. The people hurt by the
corruption, whether it is bribery or violation of laws, are rarely willing to come forward.
Sometimes the amount involved is seen as too small to bother, at other times, the fear of
repercussions prevents complaints.

The sting mechanism used to ferret out those otherwise difficult to pin down is ingenious. It
is not just a question of marking notes and trapping the receiver of bribes.

The sting is an elaborate operation where even the clever and careful bribe receiver is made
to show his hand and at the same time, incontrovertible evidence is built that will stand in
court.

Often, a government agent acts as the giver of the bribe to overcome the problem of finding a
cooperating witness. The amount is not important. A person who might be believed to be
guilty of receiving millions in bribes can be convicted on a small amount, if the evidence is
strong.

Al Capone was a notorious gangster involved in gambling and smuggling in the 20s and 30s
in Chicago. Finally, when the government caught up with him, they were able to convict him
not for the violent crimes he committed but for tax evasion and sent him to prison!

Sting operations and whistle-blowing are just two of the several tools that countries can bring
to bear in their fight against corruption. And the authorities need to continue searching for
creative tools!

Few takers for Centre's subsidized foodgrain release

TNN, Nov 12, 2010, 03.05am IST
 Article

Comments

Tags:UPA Government|People's Union For Civil Liberties|Food Corporation Of India|

Attorney General G E Vahanvati

NEW DELHI: There have been few takers for the additional foodgrains released by the
Centre at highly subsidised rates under the public distribution system after it was singed by
the Supreme Court's "give it free instead of wasting it" remark, the UPA
government informed the apex court on Thursday. 

The ministry of consumer affairs, food and public distribution, in an affidavit before the SC,
said it had made an additional ad hoc release of 25 lakh tonnes of foodgrains in September
taking the total additional release by the Centre up to October 30 to 86.72 lakh tonnes. 
The affidavit presented before a Bench of Justices Dalveer Bhandari and Deepak Verma
by Attorney General G E Vahanvati said: "However, the lifting of foodgrains against the
additional allocations as reported by Food Corporation of India (FCI) as on November 3 has
been extremely low at 25%." 

This means, the intention of the apex court to put pressure on the Centre to release additional
foodgrains, overflowing in its not so efficiently managed granaries, so that it reached the poor
and hungry, has virtually lost its purpose. 

While complaining against the mismanaged and poorly stored foodgrains causing a lot of
wastage and preventing the needy getting food, petitioner People's Union for Civil
Liberties through Colin Gonsalves had told the court that the Centre had not taken a single
step to lend an ear to the recommendation of the Sonia Gandhi-headed National Advisory
Council for providing subsidised foodgrains to everyone in 150 poorest districts of India. 

The affidavit, which was personally vetted by food minister Sharad Pawar, stated: "The
recommendations of the NAC have since been received in the government and it is submitted
that the NAC has not given any recommendation for special coverage of the 150 poorest
districts." 

If Vahanvati could put in the response of the government to four pertinent queries including
foodgrain procurement and storage, the Bench saddled him with seven more queries related
to better enumeration of BPL population and providing food to the poor families on the basis
of the number of heads rather than counting the family as one unit for allocation of 35 kg of
foodgrain per month. 

It also asked the government whether it would be possible to put a stop to issuance of
subsidised PDS ration to those families which had an annual income of more than Rs 5 lakhs
being categorised as above poverty line (APL)cases. It fixed November 29 for further hearing
on the matter.
14 NOV, 2010, 10.46AM IST, 

What's in NREGA for the middle class

Despite its seminal success in beginning a process of addressing issues of poverty , starvation
and empowering the poor, the MGNREGA needed a general election to breathe life into it.
However, the disproportionate influence of the middle class on social sector policy has led to
the same set of pre-election prejudices resurfacing . 

"What use is the MGNREGA to the economy at large?” asks the businessman, one eye fixed
apprehensively on the share market. Meanwhile, the policy maker “crunches figures” to see
whether the 8 ½ can become nine or 10 this year, and sundry young people aspire to pass
“CAT” to settle abroad? 

We have even forgotten how rural markets in India survived the global economic downturn.
In Rajasthan , even cynical politicians and administrators admit that the drought of 2009
passed off without huge rural unrest due to MGNREGA. We have become so short-sighted
that we think that anything we do not immediately and directly benefit from must be a waste. 

It is important to address the three biggest issues raised to discredit the act — human
resources, corruption, and productive assets. 

MGNREGA has given people, the largest economic resource in our country, some amount of
work, and plenty of dignity. In state after state, workers have testified that guaranteed
employment has enabled them to fight many battles including a system of oppression where
they have no choice but to acquiesce to forced labour, indebtedness and the indignity of
having to beg for survival . The unemployed are becoming workers, and workers are raising
issues of citizenship. 

There is no doubt that corruption threatens and undermines the MGNREGA, but it is being
fought with courage and determination by some of the most disadvantaged people in our
country. In fact, it has given birth to more anti-corruption activists than any other programme
in India. In guaranteeing provisions for transparency and accountability, it has empowered
the ordinary worker to question and demand answers from the local power structure. 

Our battles against corruption in the patently wasteful Commonwealth Games could greatly
benefit by learning from the anti-corruption struggles of MGNREGA workers. We might
then figure out how to fight the corruption that permeates every part of our political and
administrative structure. 

And what about assets? The popular image of MGNREGA is of millions of people across the
country busy digging holes and filling them up. Several-thousand water harvesting structures
have been built in the most eco friendly manner possible, rural roads have connected some of
the poorest , most inaccessible hamlets, millions of dalits, land allottees and BPL families
have converted wasteland into productive plots through MGNREGA work. 

Without meaningful evaluation of the utility of the assets created , policy makers make
assertions about useless work. If it benefits the rich, an asset is called infrastructure. If it is of
use to the poor, it is the dole. 
Undoubtedly, all of this could have been done better, more efficiently, with better planning
and implementation . If only the policy makers and the implementation agencies had carried
out this mandate, including the initiation of a bottom-up effort to appropriately expand the
category of permissible works. 

Why can’t the fantastically gifted folk artists and singers become music tutors for a hundred
days a year at primary schools in their area instead of digging sand in the desert? 

Can the differently-abled not be encouraged to do work appropriate to their abilities, as long
as they engage in “productive employment at minimum wages” ? 

Can parts of the country with a dearth of public land, not be allowed to design and evolve
their own set of appropriate works? 

The truth is that the failures of the MGNREGA are the handiwork of the powerful elite and
an entrenched self-serving bureaucracy . Workers are paying the price and landmark
legislation is being undermined through the failure of policy makers and administrators to do
their job. Finally the country will pay the price in fundamental, basic ways. 

SHORTCHANGED

The radical social vision of NREGA, the showpiece legislation that won an election, is
being subverted, says Manoj Mitta

    For Sonia Gandhi, the change could not have been more dramatic. Just last year, her
contribution in pushing for the Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA) was hailed as the single largest reason for the fresh mandate received by a
government avowedly dedicated to the aam aadmi. Yet, last week, Gandhi, as chairperson of
the National Advisory Council (NAC) was reduced to lodging a complaint with Prime
Minister Manmohan Singh against a major dilution of the same showpiece legislation. 
    The provocation for Sonia’s letter pertained to a growing sense of disquiet in civil society.
This is essentially over the anomaly of labourers being paid less than “minimum wages” —
the lowest prescribed rate for bare subsistence — in as many as 19 states. This anomaly arose
out of the Centre’s notification two years ago fixing the “wage rate” at Rs 100 per day. The
Centre, which bears almost the entire burden of MGNREGA, is entrusted with an unduly
wide discretionary power for fixing the wage rate. In her letter to the Prime Minister, Sonia
conveyed the NAC’s view that the Centre cannot encroach on the right of workers to be paid
minimum wages as determined from time to time by their respective state governments. 
    Sonia’s intervention followed similar concerns raised with the PM by chief ministers of
two of the affected states, K Rosaiah of Andhra Pradesh and Ashok Gehlot of Rajasthan.
Both are incidentally Congress chief ministers. This political reaction came after a stay order
by the Andhra Pradesh high court on the Centre’s notification on the wage rate, essentially on
the grounds that it violated the Minimum Wages Act 1948. When the Centre persisted with
its policy of freezing the wage rate at Rs 100 despite the stay order, the high court initiated
contempt proceedings against the Union and AP governments. 
    Meanwhile, in a rare initiative, two former Chief Justices of India (M N Venkatachaliah
and J S Verma), four former Supreme Court judges (V R Krishna Iyer, P B Sawant, K
Ramaswamy and Santosh Hegde) and one former high court chief justice (A P Shah) signed a
statement calling for the immediate revocation of the “unconstitutional” notification under
the MGNREGA bypassing the minimum wage law. Adding to the government’s
embarrassment, additional solicitor general Indira Jaising gave a written opinion that any
payment below the minimum wage “would amount to forced labour”, violating the
fundamental right against exploitation. 
    The two civil society forces behind the MGNREGA, Aruna Roy and Jean Dreze, took up
the issue in their own different ways. Dreze, as part of an advisory body, was instrumental in
obtaining Jaising’s legal opinion. Roy has been on a dharna with other activists for more than
a month in Rajasthan. In all this churning within the institutions of governance and civil
society, the Ministry of Rural Development has come under attack for giving precedence to
financial concerns over constitutional rights. There was no way the ministry could have got
away with its subversion of the minimum wage principle as it directly and immediately
affected the earnings of the rural poor. 
    But this subversion is actually part of a series of systemic changes made by the ministry.
These changes have caused the scheme to deviate from its original avatar as a radical plan to
mitigate the rigors of “jobless growth”. The changes are as follows: 
    The first major indication of the ministry’s cavalier attitude came in 2008. It was evident in
the way it responded to the CAG’s performance audit report on the MGNREGA. When the
CAG lamented the wide gap between precept and practice of the programme, the ministry
sought to play down lapses by claiming that its performance should not be judged on the
basis of its “operational guidelines” as they were merely a recommendation. Thus, by the
government’s own admission, this very complex and ambitious programme, which in the last
Budget was allocated Rs 40,100 crores, does not have a proper administrative framework. 
    The ministry amended the social audit provision in such a way that the executing agency,
that is the panchayat, has become less accountable than before. The amendment, effected on
December 31, 2008,overturned the basic principle of audit. It empowers the panchayat to
conduct its own audit. As a result, the only credible model of social audit in the country,
designed by the Andhra government, is no longer legal as it hinges on the participation of
trained personnel from outside the panchayat. 
    Within 24 hours of demolishing the social audit safeguard, the ministry came up with its
infamous notification violating the minimum wage law. That notification, issued on January
1, 2009 has brought out the unbridled discretionary power conferred on the Centre by Section
6(1) of the Act to fix wages lower than the minimum wage. Sonia suggested that a way out of
the current mess might be if the Centre issued a fresh notification catching up with the
minimum wages in various states. But for a 
    long-term solution, this ambiguous provision on wage rate needs to be read 
    down by courts or amended 
    by Parliament to 
    preserve the sanctity of minimum wage. 
    On November 11, 2009, the ministry issued a notification shifting the MGNREGA’s focus
from labour intensive to material intensive projects. Expanding the scope of work that could
be undertaken under the Act, the ministry ordered that the MGNREGA funds be diverted to
construct a facilitation centre in each village named after Rajiv Gandhi. This executive diktat,
besides eroding the powers granted to the panchayat under the Act, has allowed material
contractors to get a foot in the door. It has also opened up opportunities for corruption. 
    The grievance redressal mechanism created in the form of an ombudsman, through a
notification issued on September 7, 2009, has turned out to be toothless. The ombudsman can
only make recommendations. Unlike his RTI counterpart, he can’t pass orders or impose
penalties on errant authorities. As a result, accountability provisions have largely remained on
paper. These include an unemployment allowance for those who are not provided work
within 15 days of their application and compensation for those whose payment is delayed for
longer than 15 days. 
    Given the insidious ways in which the scheme is being run down by its own administrative
ministry, it is just as well that Sonia Gandhi has called for correctives on the minimum wage
issue. In the runup to the fifth anniversary of its enforcement, she needs to do more to rescue
her showpiece legislation. 
ALL ABOUT THE ACT 
When | It was passed in August 2005 
What | The Mahatma Gandhi National Rural Employment Guarantee Act guarantees 100
days of paid work a year to a rural household 
Where | The scheme began on February 2, 2006 in 200 districts and covered all 593 districts
in India by April 1, 2008 
Who | It’s meant to improve rural people’s purchasing power, primarily semi or unskilled
workers, irrespective of their positioning above or below the poverty line 
How | The Centre pays the wages, three-fourths of all the material used and part of the
administrative costs. Each state pays for unemployment allowance, a fourth of the cost of
material and remaining administrative costs RURAL REPORT CARDS Some success
stories, a few failures — implementation is a patchy picture 
KARNATAKA THE NEW DAM THAT WASN’T 
Mysore: Here’s a claim so false it is absurd. A check dam was reportedly built near a mosque
at Male Mahadeshwara hills. But there are no mosques in that area. According to official
estimates, more than Rs 300 crore has been misappropriated in Gulbarga district alone. A
high-level inquiry has been ordered. Not everything is as bad. A check dam built at Hanur
village in Kollegal taluk has done wonders for the area, raising the ground water level and
recharging borewells. R Dhruvanarayan, MP and a member of the national council for
NREGA, says it should be mandatory for gram sabhas to choose the work that they need
done. The biometric card system has helped minimize the prevalence of bogus job cards. The
new cards carry a photograph of the labourer’s entire family. Dhruvanarayan says that
Karnataka is not using as much initiative as Rajasthan when it comes to utilizing the available
money. “The state has used only Rs 2,110 crore till now as against Rs 4,000 crore that was
sanctioned by the centre. And only 9 % of the total 45,668 work taken up under MNERGA
has been completed,” he claims. Social auditing is urgently needed, he insists. —M B
Maramkal

TONK, RAJASTHAN RE 1 PER DAY 

Tonk: It could go down in history as the lowest wage ever paid to anyone by any government.
Here, just 40 kms away from Jaipur, NREGA workers get just Re 1 per day. Activists say
workers are being cheated and the crime continues unpunished. “Compensation for the
workers, who have been cheated, seems a far cry. No senior administrative official has even
visited the spot to get an insight into the matter,” says Shankar Singh, an activist with Suchna
Evenum Rozgar Ka Adhikar Abhiyan, the NGO that first brought up the matter. 
    Between April 26 and May 11 this year, nearly 99 people from Gudaliya village in Tonk
district worked on digging a check dam. Each was paid just Rs 11 altogether, a rupee for each
day. This has happened four times between April and June, with villagers paid Re 1, Rs 7, Rs
12 and Rs 19 each, amounting to Rs 1 215. Officials deny misappropriation of money. One
official insisted on condition of anonymity that “the workers collectively dug only an area of
11.97 cubic metre. That’s why they have been paid so less. There are always such instances
where villagers gather at an NREGA site but don’t work. So, how can we pay them for no
work?” The government has enquired into the matter. But the official explains that “the
report by the junior engineer says that when he visited the spot on May 19, he found 150
people had been registered when in reality only 69 were working”. 
    Shankar Singh, the activist, says it’s lies, damn lies. “This means that there were 44 people
whose names were falsely recorded but they were paid. Why did the person not strike off the
names of the absentees? This clearly proves his involvement.” 
    Meanwhile, the workers have refused to take the tiny payments, choosing instead to donate
them to the chief minister’s relief fund. “Someone who is poorer than us will need this
money,” they say in a derisive comment on how NREGA has failed them. 
    —Anindo Dey
JHARKHAND WORKERS CELEBRATE BACK PAYMENTS 
Ranchi: NREGA has liberated Danu Mahato, 70. The labourer from Simbulkel village in
Khunti district never thought he’d be able to pay the moneylender what he owed him. He was
heavily in debt. The irony was he too was owed money, having never been paid for work he
had done under NREGA a couple of years ago. But in August, a surprised Mahato learnt he
would get the back payment as well as Rs 3000 to compensate for the delay. Mahato is one of
78 labourers in Khunti district who have finally been paid and compensated in this way.
When deputy labour commissioner, Mahendra Murmu, reimbursed the workers at a labour
court in Khunti, it was the successful conclusion of a two-year struggle for justice by the
NREGA Sahayata Kendra. The workers’ plight came to light in May 2009. The Sahayata
Kendra was set up in Khunti by university students and local volunteers under the guidance
of Jean Dreze, developmental economist and member of the Central Employment Guarantee
Commission. A little over 16 students from universities across the country came together to
survey implementation of the rural job scheme in Khunti. They found that work done in
2007-08 at three sites in Tirla remained uncompensated. When the ministry of rural
development sought an Action Taken Report from then deputy commissioner Puja Singhal,
she said there were no outstanding payments. Another team of student volunteers initiated a
follow-up survey in Khunti in May 2010, in collaboration with the Sahayata Kendra. They
found that nothing had changed in Tirla and the workers were still unpaid. On May 14, a
public hearing in Khunti, attended by the deputy commissioner and other officials, agreed
that in the absence of records, workers would be compensated at a flat rate of Rs 3,000, as per
Section 30 of NREGA. —Jaideep Deogharia

    VIJAYPURA, RAJASTHAN ALL’S WELL 

Jaipur: Much before the rural job scheme was launched, the nondescript village of Vijaypura
was successfully running its own version. It had issued job cards to famine relief workers.
More recently, it has given mazdoor cards that track work and wages every day. Vijaypura is
one of the few villages in Rajasthan that are able to run NREGA in model fashion. 
    Sarpanch Kalu Ram, who won the panchayat election in February 2005, takes pride in
Vijaypura’s transparency. “Ours is the only village where work under NREGA is done
throughout the year. It is a demand-generated scheme and the moment the pink slips come in
from villagers seeking work, we begin it,” he says. 
    The village welcomes visitors with a wall-turned-infograph that offers a breakdown of
work done, workers’ names and the money they earned as part of the rural job scheme. It also
lists the material used and the costs involved. Kalu Ram thought up the wall-infograph to
promote transparency. The panchayat office has a signboard that bears the legend “All
records can be inspected free of cost”. 
    The sarpanch claims he has ensured that everyone in Vijaypura entitled to a BPL card, has
one. He has also initiated a group payment system, which allots work to groups of five
workers each, paying them collectively “This ensures that no member of the group escapes
work or gets paid for no work done,” explains Kalu Ram. 
    Vijaypura’s workers get Rs 10,000 for 100 days of work, villagers are happy and Kalu
Ram remains sarpanch. All’s well with the world in Vijaypura at least. 
    —Anindo Dey

    KERALA GOOD NEWS STORIES 

Thiruvananthapuram: From tribal hamlets in Wayanad to canal crisscrossed Alappuzha, the
NREGA — if beneficiaries are to be believed — is doing wonders in God’s own country. 
    In Attappadi, Wayanad, the adivasis are redeeming arid land. P V Radhakrishnan, block
programme officer at Attappadi, says: “We are well on our way to making 3,344 acres of arid
land cultivable in the first phase. In the next, almost 5,350 acres will be ready for farming.” 
    This is real change with enormous implications because Kerala imports vegetables but
could now grow more of its own. Murugan, a poor tribal in Koodanjala ward, says he’s used
Rs 850 of the NREGA money to grow vegetables, managing to sell them for twice that. Three
panchayats are currently working on 14,405 projects worth Rs 64 crore. The women of
Idamalakkudi, the newly formed adivasi panchayat in Idukki district, are building a new road,
in a great social change that will have great impact. The state programme officer Abey
George explains that these are “primitive tribals whose women never come out” but the Rs
4.5-crore road has the women working shoulder to shoulder with their men. Alappuzha’s coir
workers have benefited too. In order to unclog the town’s many, natural canals, urban
planners decided to clean and go green at the same time, lining their walls with coir geo-
textile. The coir workers earned Rs 1 crore last year. 
—Ananthakrishnan G

ANDHRA PRADESH MIXED RESULTS 

Hyderabad: Naralla Vankanna, 29, is very aware of his rights. At the July 2009 NREGA
social audit in his Darmeshpuram village in Nalgonda district, he raised the issue of
“duplicate’’ beneficiaries. He never expected action on the complaint. But field assistants
were removed and senior officials were asked to explain themselves soon after. 
    Unsurprisingly Vankanna believes the social audit is key. “They were misusing NREGA
funds. Not only were there duplicate people on their rolls, officials were also showing work
done on paper when in reality it was not. After the audit, the duplicate muster rolls have
decreased and there is better allotment of work,” he says. 
    Some say it’s all because of Andhra Pradesh’s acclaimed model of social audit. The state
has set up the Society for Social Audit, Accountability and Transparency. But some who
work at the grassroots say the social audit is overrated. “What is the point of removing field
assistants when the Mandal Parishad Development Officers, who are responsible for
sanctioning work and accounting the expenditure, are left untouched?” asks P Prasanthi, state
programme director of the Andhra Pradesh Mahila Samatha Society. 
    Activists point out that the state government appears 
    to lack the will to act on the audit reports. Crores have 
    been misappropriated but no action has been taken, they say. Auditors admit they are under
constant pressure from politicians and officials, but the monitoring process has helped
recover at least some of the money siphoned off through NREGA. “It has led to
improvements in the implementation of the programme. It has also contributed to the
grievance redressal of the participants of the programme,” notes Professor S Galab of the
Centre for Economic and Social Studies, who has evaluated the social audit. But activists are
not impressed. Nearly Rs 30 lakh was siphoned off, they insist; just Rs 95,550 was recovered
after the social audit. —Roli Srivastava

State to conduct survey on SHGs borrowing pattern

TIMES NEWS NETWORK 

Hyderabad: The state government has directed project directors of District Rural
Development Agency (DRDA) and Mission for Elimination of Poverty in Municipal Areas
(MEPMA) to prepare a ‘credit bureau’ (database) with the available information on self-help
groups in order to study their borrowing habits. 
    One of the main problems identified by government agencies among SHGs was the system
of multiple borrowings by individual members from micro-finance institutions (MFIs), banks
and as well as SHGs resulting in rising debts. This has been eventually resulting in suicides. 
    The officials have been asked prepare detailed reports on the credit linkage by these 2.15
lakh SHGs (1.29 lakh under MEPMA and 86,000 under SERP) so that they can assess the
ground situation on the penetration of MFIs among SHGs and the credit burden on each of
the groups or individuals in the state. “This would also help us understand reasons behind the
failure of banks to reach out to the rural poor and also take up the matter of credit swapping
of these poor loanees with the public sector banks,” said a rural development official. 
    A total 439 MFIs have completed the mandatory registration process with the respective
district registering authorities before the deadline, indicating at a MFI credit base of 98 lakh
loanees, mostly with multiple loans. 
    The total amount disbursed as loans this year stands at Rs 12,637 crore as per the details
furnished to the government by MFIs under the new ordinance.According to the data
compiled by officials, there are 2.15 lakh SHGs with a subscriber base of at least 1.12 crore. 
    Meanwhile, revenue divisional officers (RDO) across the state continued to conduct a
detailed enquiry into the recent 75 suicides (mostly from Warangal, Karimnagar and Ranga
Reddy districts) on account of harassment from by MFI recovery agents or SHG members. 
    The state government also shot off letters to all project officers of MEPMA and District
Rural Development Agency (DRDA) to ensure that MFIs follow the rules prescribed under
the Andhra Pradesh Micro Finance Institutions (regulation of money lending) ordinance
2010. These include details like periodicity of repayment of the loan by the SHG member to
MFI and the calculation of interest on diminishing balances.

Climate change will prove a blessing for AP: Study

‘Rising Temperature Will Increase The Productivity Of Rice, Maize And Coconut In
Coastal Andhra In The Next Two Decades’

TIMES NEWS NETWORK 

Hyderabad: After a series of natural calamities that wreaked havoc on the state in the last two
years, a major government study has concluded that Andhra Pradesh will be a major
beneficiary of the climate change that will take place in the country in the next 20 years. 
    Commissioned by the Union environment and forests ministry, the study titled ‘Climate
Change and India: A 4x4 Assessment-A Sectoral and Regional Analysis for 2030s’ was
conducted by Indian Network of Climate Change Assessment which comprised 120
institutions and over 220 scientists and the report was released by the ministry last Tuesday. 
    The study focused on the four climate sensitive regions of India, namely, the Himalayan,
Western Ghats, Coastal and North-Eastern region. The four key sectors that were taken up
were agriculture, water, natural ecosystem & biodiversity, and health. Of these, AP is slated
to considerably gain in the agriculture and health sectors. 
    As per the study, the temperature in 2030 in comparison to the temperature in the 1970s in
the eastern coastal region will increase by 1.6 degrees Celsius to 2.1 degrees Celsius. By
2030, the number of rainy days in the coastal region including AP is likely to decrease by 1-5
days, while the intensity of rainfall is likely to increase between 1 mm to 4 mm per day.
With regard to increase in rainfall, the eastern coastal region is likely to see an increase of
annual rainfall between 0.2 to 4.4 per cent. While the study predicted that the cyclonic
disturbances in both the coasts will decrease by 2030, it cautioned that they would be more
intense. 
This warming of the climate and increase in precipitation over the next two decades will
work to the advantage of Andhra Pradesh by increasing the productivity of rice, maize and
coconut, the major crops of the state’s coastal region, the study held.According to the report,
the changes in the weather are conducive to fertilization in the major crops. As for rice, the
yield will increase by 10 per cent throughout the coastal region while the rise in north Andhra
Pradesh will be less than 5 per cent. 
    As far as maize crop is concerned, the study predicts that the climate change will adversely
affect most of the 9,000-km long coast of the country, but benefit most of the coastal districts
in the state. While the changes will lead to a much higher projected yield loss of irrigated
maize between 15 and 50 per cent, the yield loss of rain-fed maize will be about 35 per cent.
“In some districts of coastal Andhra Pradesh, rain-fed maize yields are likely to increase by
10 per cent,” the study said. 
    With regard to the coconut crop, the study predicted a 10 per cent increase in coconut yield
in north-coastal Andhra but said the yield in other coastal Andhra districts, Orissa, Gujarat,
Tamil Nadu and Karnataka will be adversely affected by about 40 per cent. 
    For AP, an important benefit with regard to the climate change is in the health sector.
According to the study, the rise in temperature over the next two decades will become
unfavourable for the spread of malaria, which kills thousands of people in the state every
year. “In southern coastal districts of AP, the transmission window for the malaria parasite
will be only 4-6 months in 2030 in comparison to 7-9 months in the baseline scenario of
1970,” the study said, adding that this would mean that the chances of getting infected by the
parasite will drastically fall in the north coastal part which bears the brunt of the disease
every year.

Farmers seek govt nod to use NREGS workers

Cyclone-Hit Farmers Seek Help To Salvage Crop Left In Fields

Vadrevu Srinivas | TNN 

Kakinada/Eluru: Farmers in both East and West Godavari districts are hoping that the
government would rescue them by giving permission to utilise the manual labour under
Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) as they are
not able to bear the high wages demanded by workers to harvest their crops. 
    “Owing to cyclones and heavy rains, the farmers’ morale has hit rock-bottom. They cannot
recover from this situation for another two seasons. On top of it, the wages of farm hands
have increased abnormally. Ryots are not in a position to pay huge wages to salvage whatever
crop is left,” said Nekkanti Srinivas, chairman of Sir Arthur Cotton Barrage Farmers
Foundation. 
    As it is the farmers are facing a lot of hardships due to stagnation of water in the paddy
fields because of incessant rains. In the aftermath of the rains, the kharif crop in both
Godavari districts has been damaged. The quality of paddy has been affected in several
mandals, while the yield was negligent in Kajuluru and Karapa mandals. 
    Coupled with the acute labour shortage, the daily wages of the workers have gone up to Rs
400 to Rs 500. “Since 15-20 workers are needed to harvest paddy in an acre of land, It would
mean a lot of expenditure,” said a small farmer of U Kothapalli mandal. Usually, workers
from Srikakulam, Vizianagaram and Visakhapatnam districts arrive here to take up
harvesting job. But this year, there are hardly any workers available. 
    This has further compounded the problems of paddy farmers to take up rabi cultivation as
they have to harvest kharif crop first. Farmers are worried that their losses would mount
further unless they harvest the crop immediately. “At the same time we cannot abandon it in
the fields since we would be going in for the rabi crop by the end of December,” reasoned a
farmer, K Ramachandra Ra of Mulkipalli village in Razole mandal. Shockingly, he had to do
replantation of paddy five times this season due to continuous downpour. 
    The yeild is normally in the range of 28 to 32 bags per acre. But this season only 8-12 bags
are expected. “When we collected details about crop experiment assessment, we found only
14 bags per acre in Narasapurapupet area in Ramachandrapuram mandal,” revealed B Ravi,
agriculture officer. Sources said initially the farmers were dreaming of a bumper crop
because of good monsoon. But the unrelenting rains put paid to their hopes. “I was expecting
an yield of 35 bags per acre. But the rains have dashed all my hopes,” rued Meenavalli
Sathiraju of Narasapurapupeta village. 
    According to officials, the yield was very poor in Karapa and Kajuluru mandals. In fact,
the agriculture department had assessed the production of rice at above 10 lakh tonnes. 
    “But it may not cross six lakh tonnes this kharif due to the nature’s fury,” said an
agriculture officer. Worried that they would not be able to harvest their crop, the farmers
have now asked the government to give permission to utilise the manual labourers of
NREGS.
MFIs responsible for 16 suicides: AP govt

BKRISHNA MOHAN Hyderabad, 22 November

As many as 16 deaths have been caused due to coercive practices of microfinance institutions
(MFIs), an inquiry by the state government into the spate of suicides has revealed.

“Initial reports from various districts have so far confirmed 16 cases of suicides due to MFIs,”
agovernment official told Business Standard, adding the final number was likely to increase
when all the field reports were consolidated. The final report would be ready in two or three
days. The investigating team visited the families of the deceased to probe the reasons for the
deaths. There are also indications of MFIs being responsible indirectly for some deaths. The
official, however, did not identify the erring MFIs saying more data was being collected.
Earlier, Microfinance Institutions Network (MFIN) president and Basix founder Vijay
Mahajan, who demanded a detailed probe into the suicide cases by social scientists, had said
that “MFIs would atone for the deaths’’ if proved. MFIN had said it would monetarily
compensate the families and also take punitive action against the erring staff of the MFIs. If
required, the MFI responsible for the deaths would also be expelled from MFIN.

The government had earlier alleged that about 75 borrowers committed suicides in the last
two months due to coercive methods of the MFIs to collect payments. Following this, the state
government had introduced the Andhra Pradesh Micro Finance Institutions (Regulation of
Money Lending) Ordinance, 2010, to protect the borrowers. The state in one of its counters to
a petition challenging the provisions of the ordinance had said that some of the MFIs
unleashed areign of terror on the poor if they failed to repay.

MFIN would monetarily compensate the families and also take punitive action against the
erring staff of the MFIs
BLACK SWAN IN MICRO-FINANCE

The SKS IPO and the Andhra Pradesh ordinance have suddenly changed everything. Will it
be the death knell or will it usher in a reformed and healthy industry? There are three basic
facts about micro-finance in India. First, most of what is described as micro-finance industry
is actually micro-loans. There is hardly any provision of micro-savings, micro-investments,
microinsurance or micro-pensions. This is mostly because of regulatory reasons, i.e. accepting
money is heavily regulated, whereas giving money is not. Hence there has been unregulated
and undue focus on “loan-pushing”. It is not as if the poor have no need for savings and
investment products.
The second fact of micro-finance in India is the remarkable concentration of business in
Andhra Pradesh. Fully onethird of all outstanding micro-loans and borrowers are from that
one state. That is `10,000 crore and 10 million borrowers. This has historic, not cultural,
reasons. It is not as if Telugu culture is more fertile and receptive to the growth of micro-
finance. Both the previous governments under Chandrababu Naidu and YS R Reddy believed
in attacking poverty through the provision of micro-loans to poor women. The government
put taxpayer’s money and massive aid from the World Bank into this strategy. The
government strongly encouraged the poor to take unsecured micro-credit and repay in a
timely fashion. Loans were intermediated by public sector banks to self-help groups of
women. The Andhra government wasn’t really pushing loans to the poor, but it did actively
encourage micro-credit. Andhra is the only state which rewards financial discipline of micro-
borrowers by a huge interest subvention. If you repaid on time, you got back 9 out of the 12
per cent interest charged. This state subsidy is available only to self-help group (SHG)
borrowers and makes the effective cost of borrowing as low as 3 per cent. This subsidy is not
available to borrowers from private micro-finance institutions (MFIs), which anyway charge
much higher interest rates.
Even then MFIs made inroads despite being more expensive than SHG loans. Perhaps it was
their doorstep service, ease of paperwork, much less bureaucracy, innovativeness and an NGO
philosophy combined with missionary zeal, which made the MFIs so successful. Andhra
today can claim almost 100 per cent financial inclusion, since there is probably not a single
village which has not been touched by micro-finance.
The third big fact about micro-finance is that it has been growing at a rate of almost 100 per
cent in recent years. Loan portfolios are doubling annually. With very low delinquency rates,
easy access to cheap “priority sector” funds for onlending, low staff costs and reasonable
deployment of IT, profitability has been high (although not the absolute size of profits per
se ). Because of very high growth in loans, this sector has been hungry for capital, both equity
and debt. And that capital has been pouring from willing bankers and eager private equity
players.
Professionals who were handling retail loans or risk for large multinational banks have joined
the fray. Everyone thought that this was an excellent opportunity to do good (to society) and
do well (financially). There are a variety of micro-credit models operating in India, making it
the world’s best laboratory for micro-finance. But the most dominant model is the group
guaranteed loan, ala Grameen Bank of Bangladesh.
The only collateral that a lender had is the peer pressure, or social capital. Even then the
repayment rates of the microloans were near perfect. This was mostly because the fallback to
the poor borrower was to go back into the clutches of even more usurious moneylenders.
Hence it wasn’t long before the excess inrush of capital into micro-finance led to phenomena
of loan-pushing, multiple lending to the same borrower, coercive recoveries and very high
interest rates (to satisfy demanding equity investors). The original process of letting group
formation mature was bypassed as loanpushers accelerated the group identification and
formation phase.
This acceleration is not conducive to formation of social capital so crucial for 100 per cent
recovery. This is like you can’t ripen a mango too fast just because the price becomes
lucrative. Solidarity groups take time to form trust, even when formed with neighbours.
So, these are the three background facts: micro-finance is de facto microcredit, it is
concentrated in Andhra and its 100 per cent growth has attracted dubious and not-so dubious
capital which has led to loan-pushing. Into this heady cocktail came the country’s first (and
the world’s second) micro-finance IPO of SKS Microfinance. SKS raised about
`1,500 crore, and its shares jumped more than 50 per cent immediately after listing on
September 13. But one month later, Andhra issued an ordinance effectively curtailing all MFI
activity in the state. Both ruling party and opposition politicians went around asking
borrowers to stop repaying MFI loans. The media focused on usurious interest rates, undue
profits and connected some suicides with coercive recoveries. Weekly recovery rates in
Andhra plunged to less than 30 per cent. Fearing further deterioration, banks stopped
supplying capital to MFIs. For an industry growing at 100 per cent rate, the last thing MFIs
need is stoppage of fuel (lending capital). SKSshare price has plunged 50 per cent below its
peak. Suddenly the darling industry (doing good and doing well) had become a villain. Even
RBI, which has long been sceptical, set in motion newer regulation of MFIs. Most successful
MFIs are non-banking finance companies, and are as such regulated by RBI anyway. The
recently formed Microfinance Institutions’ Network (MFIN) is on the back foot, trying to
defend selfregulation and prevent further draconian measures. The SHG-type of lending has
been spared much of harsher measures of the ordinance. It does appear as if there is political
motivation in “getting back” at MFIs.
The IPO and Andhra ordinance have been black swan events in the evolution of micro-
finance. They will permanently change the fate of the industry. It is true that few bad apples
have queered the pitch for all MFIs, and what happened in Andhra was waiting to happen
(like black swan!). It is also true that the drawbacks of Andhra’s heavily subsidised SHG
model have not been sufficiently highlighted. So, ideally, both MFIs and SHGs should be
allowed to coexist. But if the MFIs are drastically cut down, the section which will suffer is
the large, diffused mass of millions of beneficiaries. Their voices are not being heard in the
din of politicians’ accusations and RBI’s reprimands. You cannot ignore the fact that MFIs
did cross the last mile, did bring innovative practices and did contribute a great deal to
financial inclusion.
Killing the MFI industry will be a big setback for the financial inclusion agenda. The potential
demand for microloans is huge and is still largely untapped. It is possible to serve the
unbanked and make a reasonable profit. Flexibly, arrangements like kirana business
correspondents and mobile banking are being introduced. MFIs also have a role to play. The
black swan should not be allowed to kill the golden goose.
Micro-lenders face shakeout under new rules

BLOOMBERG 22 November
Aquarter of microfinance institutions (MFIs) may fail after a clampdown last month in their
biggest market pared debt payments and curtailed bank financing, said NSrinivasan, who
consults on the industry for the World Bank.
As many as 60-70 of the 260 MFIs are likely to collapse in coming months, as banks halt
lending to them to curb risks, Srinivasan said in an interview on November 19 in New Delhi.
That would have a “devastating effect” on the poorest borrowers in remote regions, he said.
Lending and collections by micro-lenders have ground to anear halt in southern Andhra
Pradesh after the local government introduced new rules in mid-October aimed at protecting
borrowers. A slump in microfinance loans might trigger a chain reaction of defaults by
borrowers with multiple debts, Srinivasan said.
“Multiple loans help people manage money, like juggling balls,” he said, adding every poor
household in Andhra Pradesh has 9.6 microfinanceloan accounts on average. “What’s
happening is that right in the middle of it, you remove aball. Suddenly there is no ball to
throw.” Andhra Pradesh, the largest market for most micro-lenders, on October 15 capped
interest rates that companies can charge and ordered them to collect payments monthly rather
than weekly. It also barred them from using coercive measures to force borrowers to repay
debt.
Straining capital
The move led to a slump in micro-lenders’ cash flows, strained capital levels and spooked
banks, which account for most of their funding needs. MFIs were seeking `1,000 crore ($221
million) from banks for a liquidity fund, Vijay Mahajan, head of a lobbying group that
represents about 44 microlenders, said on November 16 in New Delhi.
The new rules sent shares of SKS Microfinance, the largest such lender in the nation,
plummeting 47 per cent before Chairman Vikram Akula said on November 19 that the
company had received bank funding and didn’t have a cash shortage. The comments helped
shares of SKS, more than a quarter of whose loans are in Andhra Pradesh, rally 5.4 per cent
that day.
Rival Share Microfin, backed by New Zealand billionaire Christopher Chandler, plans to
delay an initial public offering until customers restart payments and state and central
governments deal with the current upheaval. Banks need to regain confidence in the
companies’ operations, M Udaia Kumar, managing director, said in a November 18 interview.
‘Trickle-down effect’
“Even if a single MFI defaults, it might have a trickle-down effect on the entire sector,” he
said. “Institutions with stronger net worth have a possibility of survival for a period of time.”
Share Microfin, based in Hyderabad, had planned to raise
`1,000 crore in early 2011. Microfinance, which focuses on loans in poor areas largely shut
out from traditional banking services, gained prominence globally when Muhammad Yunus
won the Nobel Peace Prize in 2006 for his role in founding Bangladesh’s Grameen Bank.
India, where banking services are available in about five percent of cities and towns, is the
largest market for such credits.
India’s microlending has expanded at an average annual rate of 62 per cent over the past five
years in terms of number of customers, and 88 per cent in terms of credit, according to Micro-
Credit Ratings International, a Gurgaon-based ratings agency for the industry.
Moneylenders
A shortage of microfinance funding might force borrowers to turn to moneylenders, said
Dipak Gupta, executive director of Mumbai-based Kotak Mahindra Bank. These unauthorised
lenders operate outside the formal credit-delivery system and charge usurious interest rates.
“Money has stopped and a borrower is used to getting that money and circulating it,” he said.
“If you don’t create an alternate system or don’t allow the system to rotate, he will go back to
the moneylender.” SKS, whose stakeholders include George Soros, has received `367 crore
from eight lenders including Axis Bank in the past two weeks, Chief Financial Officer (CFO)
Dilli Raj said on November 19 from Hyderabad, where the company is based.
Axis Bank, India’s fourthlargest lender by market value, is awaiting a report by a committee
set up by the central bank last month to review concerns about the microfinance industry,
CFO Somnath Sengupta said.
The report, due in January, “will be the guiding principles for lending to the sector,” he said in
an interview on November 19. “We will continue to be prudent. There is no reason to panic.”
Axis Bank’s loans outstanding to MFIS account for about one percent of the total, he said.
Still, the industry was bracing for consolidation, said Mahajan, who is also chairman of
Hyderabad-based MFI Basix Group.
“We could see casualties among small MFIs,” he said.
‘Even if a single MFI defaults, it might have a trickle-down effect on the entire sector’

Govt admits to scam in rice export

THE government has admitted that public sector units did not follow a transparent procedure
for non-Basmati rice exports during the first tenure of the UPA.
With the exception of Mauritius, the exporting PSUs (public sector enterprises) of the
department of commerce did not follow a transparent procedure for the selection of domestic
associates or in the determination of the price at which the rice was exported.
The government had banned the export of non-Basmati rice in 2008 to put a check on rising
prices in the domestic market. However, it allowed the export of a limited quantity to some
least developed countries, including African countries on diplomatic considerations. But the
predetermined terms of contracts between foreign buyers and domestic suppliers (with small
margins for PSUs) led to “hugely disproportionate profits accruing to private parties, namely
the foreign government nominated domestic suppliers in India.

‘Let’s give a better deal to farmers’

Country’s premier institute for agricultural research Indian Agricultural Research Institute
conducts annual surveys of agri commodities at farm level with over 5,200 samples. “Their
research shows not more than 3% of samples at the farm level have agrochemical traces.

Digital divide hampers growth of commodity mkts

Shyamal Gupta 

COMMODITY markets and market yards used to be the physical locations where buyers and
sellers met and negotiated. With the improvement in communication technology in 90’s, the
need for a physical location has become less important as traders are transacting from remote
locations over phone. 
    The ‘E’ word in the commodity cash market seems to be the latest fad. E-products are
creating sound bites rather than solutions. The solutions seem to hold more promise than they
can actually deliver with the current technological reach to the masses. Internet presents
physical cash markets with opportunities to increase efficiency through lower transactions
costs but access remains a problem. While India has emerged as the second-largest mobile
telephone market after China, in terms of computer and internet penetration India is still far
behind. India has 5.1 internet users for every 100 people, which compares poorly with
the corresponding figures of 39.2 and 28.5 for Brazil and China, respectively. 
    Today a large majority of stakeholders in the commodity market are in the midst of the
‘digital divide’. It is not difficult to see broadband connections in the pockets of market yards
of Rajasthan, Gujarat and Punjab. The commodity futures exchanges have helped in
technology and digital penetration, though a majority of the physical cash market remains
digitally excluded. Therefore, the growth of these commodity markets to the next level has
remained elusive. 
    Electronic trading makes transactions easier to complete, monitor, clear, and settle in the
physical commodity space. All the considerations lead to compare a simple solution to avoid
complex solutions. Such comparisons should also consider whether providing a low-cost
system meets the basic needs, regardless of the use of E-trading product. 
    E-trading systems are typically proprietary software (E-trading platforms), running on
COTS (Commercial off the shelf) hardware and operating systems, often using common
underlying TCP/IP protocols. The emergence of electronic trading venues known as
‘Electronic Communications Networks’ (ECNs) in the late ‘90s made it possible for more
entities to trade. ECNs and exchanges generally offer two methods of accessing their systems
— GUI & API. GUI (Graphical User Interface) is which the trader runs on desktop and
connects directly to the E-trading venues. API (Application Programming Interface) allows
dealers to plug into their own in-house systems and then directly into the E-venues. From an
infrastructure point of view, most exchanges provide “gateways” acting in a manner similar
to a proxy, connecting back to the exchange’s central system. ECNs will generally forego the
gateway/proxy, and their GUI or the API will connect directly to a central system, across a
leased line. 
    India ranks 43rd in a list of 133 countries, just behind China and Brazil according to the
WEF’s Network Readiness Index. However, the standards on E-trading systems in
commodity market with regards to authentication, encryption, transactions recording
standard, pricing and slippage standard need to be created without much delay. Unless that is
done and the ‘traffic rules’ are made, it would be a chaos on the E-trading highways of the
commodity cash markets. 

18 NOV, 2010, 05.48AM IST, 

Environmental accounting & reporting set to become mandatory for companies: Govt
NEW DELHI: The government will make it mandatory for companies to report measures
taken to prevent environmental damage as it steps up drive to encourage cleaner production
methods. . 

The ministry of corporate affairs is revising the guidelines on corporate social responsibility
(CSR) issued last year to add detailed norms on environmental sustainability. The fresh
norms relate to efforts to prevent wasteful use of natural resources and ensure scientific
treatment of industrial waste. 

The existing guidelines, while urging companies to be environmentally conscious, left it for
them to take steps. It failed to provide a clear framework for compliance, leading to
companies not taking adequate steps. 

Environmental reporting in India is at a nascent stage, even though its importance has gained
significance world-wide. 

Indian companies have taken sustainability measures as part of their business goals, he said,
requesting anonymity. Some big companies such as ITC, for instance, devote significant
resources to sustainable development. The company has a sustainability committee to help
integrate social and environmental objectives with business strategies and set goals in
contributing to climate change mitigation.

Ending misuse of land acquisition laws (18 NOV, 2010)

Frequent and unrelenting protests against land acquisition seem to have compelled political
parties to take the issue seriously. The Centre has promised to introduce a redrafted land
acquisition Bill during the winter session of Parliament. As per official pronouncements, the
Bill will provide for higher compensation to the affected parties. Besides, acquisition for
private companies will be restricted to less than 30% of the total land required for the
project. 

However, it will be naive to expect the above measures to solve many of the problems
resulting from misuse of the acquisition law. In the past, state governments have been highly
innovative in devising newer ways ever to subvert the law for political and private gains. The
prospective legislation must provide safeguards against misuses. Here, an enquiry into the
actual abuses can be helpful. 

Excessive acquisitions for private companies and inadequate compensation have been the
primary causes behind the past protests against compulsory acquisition. However, courts
have been rectifying the latter problem to an extent. In most instances, the affected parties
have been resorting to litigation to seek higher compensation. On this count the judiciary has
been very sympathetic; generally, it has been increasing the compensation amount. But, as far
as the legitimacy of the acquisition per se is concerned, exceptions apart, the judiciary has left
the issue to the prudence of the executive. Left unrestrained, states have ruthlessly violated
not only the spirit but also the letter of the law, especially when it came to acquiring land for
companies. 
Part VII of the existing Land Acquisition (Amendment) Act, 1984, provides rules for
acquisition for private companies. The company gets to own the acquired land. However,
sections 38-44 of this part impose several restrictions. For instance, there is no provision for
emergency acquisition. Besides, the company and the state government are required to sign
an agreement stating the purpose of acquisition. The agreement must specify the terms on
which general public will be entitled to use the company-provided services. 

The objective behind these riders is to restrict the compulsory acquisition to limited activities
of companies from which public can benefit directly, such as school, hospitals, etc. These
stringent requirements notwithstanding, the states have acquired land for all sorts of activities
of companies, including ones that cannot even remotely serve any public purpose. Moreover,
in numerous instances, acquisition has been done using the emergency clause. How have
these blatant violations of the law been possible? 

Generally, acquisitions for companies have been undertaken under Part II of the Act. This
part concerns acquisitions by government entities for public purpose. It does not impose the
above restrictions on acquisition for companies, but requires the compensation to be paid out
of public funds. In order to justify acquisition for companies under this part, states have been
contributing nominal amounts toward the cost of acquisition. Some governments have gone
to the extent of contributing just. 100! Due to such legal ambiguities, states have been able to
violate the law with impunity. 

Companies clearly find it profitable to use the state machinery to acquire land at subsidised
rates; direct purchases from the owners, in contrast, are costlier and time consuming. Indeed,
the acquisition process stands captured by private interests of companies and the decision-
makers. 
Non-basmati rice export caught in policy muddle Nov. 23

The admission by the Union Commerce and Industry Minister, Mr Anand Sharma, in
Parliament on November 18 that the export of non-basmati rice to some countries had
resulted in denial of legitimate profits to the PSUs that were the canalising agency has not
come as a shock to genuine rice exporters who were at the receiving end for not being able to
execute export in view of the ban on such despatches since April 2008 that continues till
today.

Trade sources told Business Line here that the statement of the Minister is riddled with
contradictions even as it documents the lapses committed by the public sector trading
companies that were granted the permission to export to African countries on a commercial
basis. They said that the statement noted that the importing country nominated the importing
agency in the recipient country and selected a domestic supplier in India, without involving
the PSUs. Such a stance by the importing country militated against the government's public
policy and the tender process of the PSUs. In fact, the Empowered Group of Ministers
(EGoM) which deliberated on the decision to send non-basmati rice and took a call should
have been consulted by the PSUs if they were faced with such a demand from the importing
country.

Exports

It was also pointed out by the industry that if the exports could be undertaken only through
PSUs on a commercial price basis, the bargaining capacity of the PSUs to wrest the best price
was naturally higher “since the governments of the African countries had not requested for
the rice as aid or grant; the requests were for outright sale,” as said by Mr Sharma in his
statement. If such were the lure of higher prices, the government's admission that “all
documents showed the PSUs to be the exporter for record….and the PSUs operated on a
meagre trading margin ranging between 1 and 1.5 per cent” does not exonerate the
government of its primary responsibility in not supervising the PSU trading agency in a
sensitive item export like rice. This raises the larger issue of lack of inter-face among PSUs
chief functioning under the Ministry of Commerce with their administrative ministries.
Otherwise, the PSUs would have simply carried out the transactions at the full knowledge of
their administrative Ministry and both ways the lack of transparency must be plugged, they
said.

More pertinently, the way export of banned non-basmati rice was allowed does look like
‘normal trade' with the PSUs acting like ‘brokers' for a petty margin with the rice exports
being shipped by importing countries agencies and the suppliers chosen by them from India.

A company that was exporting rice to Comoros asked one of the state trading agencies to
permit it to send 5,000 tonnes but was told only PSUs could export. Moreover, when the ban
was in place, the DGFT, functioning under the Ministry of Commerce, had allowed the
export of 25,000 tones of non-basmati rice to two export-oriented units in Andhra Pradesh
and Puducherry in 2008 and this was opposed by the Southern rice exporters themselves who
said that they should not be discriminated. They said the government itself violated its ban by
permitting the two export-oriented units (EoUs) to undertake non-basmati rice export for no
valid reasons, a point brought to the attention of rice exporters association to the Union
Finance Minister in November 2008.

Given the fact that there were a lot of loopholes in government's policy of clamping ban on
non-basmati rice exports and then allowing PSUs to handle the selective lifting of ban on
diplomatic grounds ham-handedly or giving permission to two EoU units to export 25,000
tonnes with no previous track record of shipping such huge quantities, a thorough probe into
the whole sordid saga is needed, they said adding that the government should recover “the
hugely disproportionate profits accruing to private parties”.

With the country having procured 287.36 lakh tonnes and 336.84 lakh tonnes of rice in the
last two kharif marketing seasons and bought 320 lakh tonnes in the 2009-10 marketing
season that ended in September, and with government permitting import of rice duty-free, the
time has come to lift the ban on non-basmati rice exports or at least allow such exports in
small consumer packs with quantitative ceilings to large expatriate Indians, they said.

Fishery, poultry sectors on Nokia Life Tools radar Nov. 22

Nokia Life Tools, which offers a range of agriculture information and education services
through SMS, is getting encouraging response from both urban and rural consumers across
the country. Nokia, pointed out that around five million users across the country are availing
themselves of the service introduced in June last year. The services are designed to address
information gaps thus enabling consumers to be better informed and helps improve their
livelihood, he said.

The company is working closely with various Central and State Government departments and
other partners to extend the service in other sectors also. The new sectors which are on the
anvil included fishery and poultry by offering various kinds of services, he said.

In Kerala, the company is working closely with Spices and Rubber Boards.

The outsourcing advantage

Rapidly changing and increasingly confounding issues are the reasons behind key shifts in
business organisations today. Advances in technology, sophistication of business operations,
and need for constant growth are factors that suggest a full-time focus on functional core
competencies. As companies struggle to adapt to, and keep abreast with, the demands of
customers and shareholders alike, the focus on core competencies may suggest outsourcing as
a potential strategy to remain competitive.

Outsourcing is the practice of engaging external experts to handle business processes that are
outside the core sector of the company. It is also a method of staff augmentation without
adding to the headcount. As a strategic business tool, outsourcing enables companies to
identify functions that are not directly creating value for customers or shareholders.

Some home truths

Outsourcing is one of the most complex and controversial subjects in business. It is essential
that the home truths about outsourcing are well understood before a company begins to
employ it as a strategic platform to reduce costs, improve productivity, and increase profits.
When considering a decision to outsource a function, companies must weigh potential cost
savings vis-à-vis risks. The trend among those companies that have better success rates in
outsourcing indicates that they take their own time to do the homework, and build an
appropriate business model focussed on outsourcing. Organisations that are willing to invest
necessary effort and energy to go through a due diligence process, invariably come on top.

Outsourcing is not simply packing up IT jobs and back-office operations, and then shipping
them overseas; it is much more than that. Each outsourcing programme, on-site or offshore, is
different in details. Each has its own risks, which must be identified and monitored. The
cause and criterion for developing an outsourcing initiative may be cost savings;
nevertheless, when outsourcing a customer service process, the success or failure of
outsourcing depends only on the customer experience.

Value of employees

Successful outsourcing depends on how accurately customer demands are defined by the
company, and how well they are executed by the outsourcing partner.

Some organisations underestimate the intrinsic value of their employees. It is the people, after
all, who actually get the job done — not processes. Any successful outsourcing initiative
needs dedicated people; and most companies are likely to find them in their own backyard. In
any outsourcing context, there will be some attrition. The world changes quickly, but people
change slowly. Resistance to change gets accentuated, when people are denied participation
in the process. If companies do their homework properly, they will know how to handle the
situation. It is essential that good people stay, and do not stray away.

Outsourcing partners bring new tools, technologies, and capabilities on account of their
specialisation. Many small companies simply cannot afford to match the in-house support
services that large companies maintain. Outsourcing will help them to act “big” by giving
them access to the same economies of scale, efficiency, and expertise that large companies
enjoy.

Make laws to prevent scams

The sudden convulsion against corruption is politically motivated, but there is at least
one major thing politicians can do to clean up most of the mess, says Abheek Barman
INDIA’S Parliament is obsessed this autumn with one subject: corruption. This avalanche of
moral outrage began in the drawing rooms and cocktail lounges of Delhi around July or
August with well-heeled folks shaking their heads and muttering their doubts whether the city
would be ready for the Commonwealth Games. 
    It took little time for tales of delay and ineptitude to snowball into charges of graft. Then
the focus shifted to Mumbai’s Adarsh Society, built for war widows, gifted to military and
political bigwigs. One chief minister and one sitting MP were gone by the time Barack
Obama’s aircraft took off from Delhi. But the biggest charges of graft have been levelled at
former telecom minister Andimuthu Raja, who’s being accused of having caused losses of up
to . 1.7 lakh crore to the exchequer. Raja too has left government. 
    Most Indians, from the humble truck driver buying his way through toll gates to the
homemaker who has to bribe the agency to supply cooking gas, live with graft every day. So
why are we suddenly convulsed by sleaze in government? The answer, most probably, is
because there isn’t much else for the Opposition to do. The scandals were headlined before
and during this session of Parliament and an Opposition bereft of issues or ideas to debate,
seized it gratefully with both hands to block both Houses. 
    This makes the main Opposition parties, the BJP and the Left, guilty of blocking reforms
that could have made important changes in rules that govern critical — and unreformed —
sectors of the economy. Karnataka is being rocked by allegations that over the last two years,
chief minister B S Yedyurappa has been signing over government land to his relatives,
who’re supposed to build businesses on these plots. India has warped rules that allow
governments to do this sort of thing. In this session, Parliament was supposed to discuss a
new law that could have cut through the clutter and loosened governments’ grip on land. But
the Opposition won’t let that happen. 
    Three men, Karunakar, Janardhan and Somashekhar Reddy, were critical in the BJP’s 2008
victory in Karnataka. By some accounts, these folks, who operate mining businesses in
Bellary, propelled the party to victory in at least four districts by greasing palms all around.
The Reddy brothers are being investigated for mining — and exporting — billions of dollars
of iron ore illegally in Karnataka and neighbouring Andhra Pradesh. 
    The Reddy brothers and their main benefactor in Delhi, Sushma Swaraj, aren’t too pally
with Yedyurappa. Earlier this year, hemmed in by charges of sleaze in mining activities,
Yedyurappa’s government banned the export of iron ore from the state, a ban that the high
court upheld recently. A new law to replace India’s archaic rules governing mining activity
was supposed to have been tabled in Parliament in this session. By blocking Parliament, the
Opposition is unlikely to let that happen. So, illegal mining and the gigantic profits from that
are likely to continue merrily for many months to come. 
    So the Opposition, which claims to be campaigning against corruption, seems to have quite
another agenda. To hold up Parliament before it can get down to legislating rules which could
have cut down on sleaze. 
    ONE of my aunts claims that India has become more corrupt with every passing year. Has
it? Is there a way to measure corruption? This month, Washington-based think tank Global
Financial Integrity (GFI) published the results of a study on India’s underground economy. It
that says through the 60 years from 1948 to 2008, Indians illegally salted away more than
$460 billion overseas. Another $178 billion is hidden away within the country. GFI says,
quite apologetically, that this number could be much smaller than what’s actually stashed
away, because it’s impossible to measure transactions from cross-border criminal activity or
hawala trades. 
    GFI reckons that the much of the money illegally sent overseas goes through mispricing of
trade: imports are overpriced and exports are underpriced. Both ensure that a lot of cash
which should have flowed into India stays back. The study also points out, quite logically,
that as India opened up to more trade flows, the avenue to salt money away grew wider. It
reckons that the size of the underground economy was about 27% of the economy in the pre-
reform years of 1948-1990. Thereafter, things get jollier, and in the years 1991-2008, the
underground economy bloats to about 43% of the economy. That seems to bear out my aunt’s
hunch. 
    As with most other things, when it comes to illegal money, fashions change. Earlier, the
bulk of illegal money stayed at home. By 2008, only 28% was held in India, the rest went
overseas. Till the mid-1990s, people who were sending money overseas preferred to keep it
in banks in developed countries like Switzerland and the US, rather than in offshore havens
like the Canary Islands. Today, it’s the opposite: nearly 60% of the money overseas is in
offshore havens, the rest are with banks. 
    If trade reforms speeded up illegal money transfers overseas, will further reforms help curb
corruption? They will, if the reforms just make India an easier, hassle-free place to do
business in legally. Tax rules, which got incredibly complex and cluttered with exemptions,
surcharges and cesses, need to be cleaned up. Governments in Delhi and the states need to get
out of acquiring land and peddling it. 
    But there’s one thing that could be the real game changer. Parliamentarians must agree to
change the rules by which political parties and election costs are funded. Today’s rules
encourage parties to accept cash; businessmen at every level therefore need to hold cash to
pay politicians and parties. 
    Bodies like the Election Commission make things worse by capping election spends to
ridiculously low levels. In Karnataka, for example, a candidate for municipal elections can
spend a measly . 2 lakh. For a Lok Sabha election, where candidates must fight for the
affections of a million voters in each constituency, the spending cap is . 25 lakh — or two
rupees fifty paisa per voter. Want less corruption? Start by making political funding legit.
India among top four B-school destinations
Anahita Mukherji | TNN 

Mumbai: That the US and the UK are the most popular destinations for management studies
is not big news. But the findings of a survey conducted by the Graduate Management
Admission Council (GMAC), which conducts GMAT, a B-school entrance test used globally,
have thrown up some surprises. Number 4 on the list of the Top 10 preferred destinations for
Bschool aspirants is India, with Canada at No. 3. Israel and Spain are the other surprise
entrants. 
    Experts say India’s foray into the elite league has a lot to do with the emergence of
institutions like Indian School of Business, Hyderabad, which was ranked No.12 globally in
the Financial Times ( London) Global MBA rankings earlier this year. The IIMs, which use
GMAT as an entrance test for their executive MBA programmes, are also responsible for
India’s popularity. 
    “B-school aspirants are looking at a return on their investment, and with the investment
being lower for management education in India when compared to the US and the UK, the
returns are higher,” said an expert. Many feel India can emerge as a hub for management
studies amongst Asian countries such as Singapore and the Philippines as it will be a less
expensive destination than western giants. 
    Although making it to the US has been the great Indian dream, it is not the only North
American country that’s attracting desi students. Many are now making a beeline for Canada,
which not only has a robust economy and liberal visa policies but also promises good job
prospects. “In testing year 2010, India was the top foreign country that sent score reports to
Canadian graduate management programmes,” reveals GMAC’s survey. 
    According to the report, 78% of full-time MBA programmes in Canada received the largest
number of foreign applications from Indians. Not surprisingly, all Canadian management
programmes that recruited foreigners targeted India, as did 44% of European programmes
that undertook special recruitment efforts.

Maharashtra to set up Authority to rein in errant co-op societies Nov. 23

The Maharashtra government is planning to set up an independent Authority for regulating

the 17,278 cooperative credit societies in the State to curb large-scale fraud in the sector.

The proposal for setting up the Authority will soon be placed before the Cabinet, the Minister
for Cooperation, Mr Harshavardhan Patil, told reporters on Tuesday at the Secretariat.

The Cooperatives Act will be amended in the forthcoming winter session of the State
Assembly so that an Authority with punitive powers can be established, he said.
The Authority will consist of government officials and office-bearers of cooperative credit
societies with a clean record.

Mr Patil said that the societies have a cumulative deposit base of about Rs 13,812 crore and
have disbursed Rs 11,406 crore as loans until March 2009.

Across the State, there are about 1.14 crore members registered with the societies.

About 469 societies are in the red and they have deposits of about Rs 1,632 crore. “These
chronically ill societies have 7.01 lakh members,” he said.

Malpractices

“In many instances, Chairmen of these societies along with their family members are found
to be running them (societies) in an arbitrary manner. Large loans amounting up to Rs 10
crore have been disbursed without any collateral. They have been sanctioned merely on the
basis of an application form,” Mr Patil said.

He added that non-performing assets of these societies have reached 23 per cent of their
lending base.

Therefore, the government has decided to launch a drive to recover the dues and seize the
assets of absconding Chairmen and Directors.

However, according to a Senior Maharashtra Government official, creation of an Authority

will only add to the bureaucracy in the State. “Had the office of the Registrar of Cooperatives
functioned in an efficient manner, this situation would not have arisen,” he observed.

Blundering on biodiesel
Despite lofty intentions and initial promise, the promotion of biodiesel as part of the National
Biofuels Policy seems to be hitting road bumps, with the government not ready and willing to
steer a pragmatic policy. Since the announcement of a National Biofuels Policy a year back,
little has moved in terms of concrete action plan and progress on issues of feedstock,
processing and marketing. The policy aims at accelerating the development and promotion of
cultivation, production and use of biofuels to complement petrol and diesel in vehicles, and
for use in stationary and other applications. Unfortunately, the national policy has remained a
statement of good intentions, but not backed by concrete action plan. Meanwhile, the
biodiesel industry, which invested over Rs 1,500 crore to create processing facilities in the
vain hope of a supportive green energy policy, stands demoralised. A significant part of the
investment is now at risk of turning into Non-Performing Assets for lender banks. This is the
state of affairs with the Prime Minister himself as head of the National Biofuels Coordination
Committee that provides policy guidance as well as implementation and monitoring of
biofuels programmes.

Under the biodiesel purchase policy, announced by the Ministry of Petroleum and Natural
Gas, oil marketing companies would purchase biodiesel at a pre-determined price for
blending with high speed diesel. The scheme has flopped with no purchase made by OMCs
simply because the price fixed was unremunerative for biodiesel producers. According to the
government, biodiesel is not being produced commercially for blending with diesel due to
non-availability of feedstock. The reality is otherwise. Biodiesel producers are unwilling to
risk production because of the twin restrictions of having to sell only to OMCs and that too at
a fixed price that is lower than the cost of production.

Unfortunately, unlike bio-ethanol which enjoys a policy-driven mandate, there is no mandate

for blending biodiesel. If the policymakers are serious about promoting biodiesel, blending
has to be mandatory. This indeed is the trend worldwide. A good start would be to have a
short supply chain from producer to user, which means mandatory blending of biodiesel for
use in stationary equipment such as diesel generator sets . Ironically, while we have a
national policy, we do not have a nationally-accepted and implemented policy. For success,
biofuels need a national policy with regionally differentiated strategies. The reality is that we
lack the ‘political will' to make our biofuels policy work.

A boost for renewables

The kick-off of the Renewable Energy Certificate (REC) scheme on Thursday takes the
country a step further in its quest to fully harness its ample renewable energy resources. The
scheme basically addresses the unevenness of renewable energy endowments across the
country. While some States and geographical regions are rich in renewable power sources,
others are poorer. Tamil Nadu has the best wind sites, Rajasthan the best for solar. Yet, it will
be mandatory for all State distribution utilities to source five per cent of their total energy mix
from green resources. Thus was born the idea of the REC, which will enable States devoid of
viable renewable energy sources to purchase RECs from States that are rich in such
renewable resources. Given the high cost of renewable power and its seasonal fluctuations,
even States well endowed with renewable resources often use them sub-optimally. The REC
scheme will ensure that renewable power producers do not have to face the predicament of
setting up capacities that end up being under-utilised. By splitting the electricity produced
into two components — electricity and green attribute — the cost of power from renewable
sources becomes affordable to utilities while the green attribute can be sold as the REC to
utilities that are poor in renewable sources. As clichés go, this is a win-win for all concerned
— those who have invested in green power capacity, State utilities, the Centre and, of course,
the consumer.
The REC scheme has come at the right time as the government is finalising the award of solar
thermal and photo-voltaic power projects. Given that the highest solar power potential is
concentrated in Rajasthan, the REC scheme will help channel investment to the State as solar
power producers can sell their RECs to other State utilities. Solar power has already been
granted several incentives, including a scheme of purchase by a power trading subsidiary of
NTPC that will make it affordable. The REC will hopefully give a further fillip to solar
power, along with the traditional renewable sources such as wind and small hydro projects.

That said, the government and the regulator have to tread carefully and ensure that regulation
is not heavy-handed in a nascent sector. For instance, renewable energy producers had
represented to the Central regulator over some provisions of the REC regulations that prevent
existing producers with PPAs from signing on to the REC scheme. While the regulator's aim
seems to be to prevent breach of existing contracts, what about those instances where the
utilities fail to pick up renewable power, either because of low demand or the availability of
other cheaper sources? While the objective of the REC scheme is to promote fresh investment
in renewable sources, the interests of existing producers also need to be kept in mind. This is
where the regulatory balance will be tested.

Govt admits to lapses in rice exports to Africa Nov. 19

The Government today conceded in the Lok Sabha that in the export of non-basmati rice to
some countries during the period December 2007 to March 2009 on diplomatic grounds
despite the ban on such exports, the public sector undertakings (PSU) officials tasked with
canalising such exports did not exercise due diligence, resulting in the denial of legitimate
profits to the PSUs.

In a statement made in the midst of disruptive proceedings when papers were to be laid on the
table, the Union Commerce and Industry Minister, Mr Anand Sharma, recalled his earlier
statement made on July 30, 2009, in which he had pointed out that though the government
authorised the release of about 13.5 lakh tonnes (lt) of non-basmati rice, the actual quantity
shipped was about 1.22 lt.

5 countries

Stating that the transactions were to be conducted on a commercial basis with the African
countries, Mr Sharma said that in respect of transactions with five countries, viz., Comoros,
Ghana, Madagascar, Mauritius and Sierra Leone, the recipient African countries nominated
both the importing agency in their country and domestic supplier based in India.

Since a subsequent scrutiny of transaction showed infringements, an enquiry was ordered

with the Additional Secretary in the Department of Commerce as the Enquiry Officer. He
further said the transactions with Mauritius (by STC and MMTC) were found to be
transparent and competitive.

However, he said, with the exception of Mauritius, the exporting PSUs of the Department of
Commerce did not follow a transparent procedure for selection of domestic associates or
determination of the price at which the rice was exported. In these cases, the enquiry
revealed, the importing country nominated the importing agency in the recipient country and
selected a domestic supplier in India, without involving the PSUs. Thus the importing
government/agency settled the selling price (purchase price for them) in negotiations with the
domestic Indian supplier without associating the PSUs, the designated agencies by the
Government.

The enquiry revealed that “all documents showed the PSUs to be the exporter for record,” he
said adding that the PSUs operated on a meagre trading margin ranging between one per cent
and 1.5 per cent. “The pre-determined terms of the contracts between the foreign buyers and
the domestic suppliers (with small margins for the PSUs) led to hugely disproportionate
profits accruing to private parties, namely, the foreign government nominated domestic
suppliers in India.

The Minister maintained that in lifting the ban on exports and conferring the right to export
solely on the PSUs, the government took a public policy stance, recognising that commercial
profits would accrue to the PSUs because of the large differential between domestic and
global prices. But, he said, “it appears that PSU officials did not exercise due diligence in the
matter, resulting a in a denial of legitimate interests of the PSUs”.

He said the concerned officials had been issued show-cause notices calling for their
“explanation for not exercising due diligence, failing to act in the best commercial interests of
the PSUs and abrogating their responsibility”.

Further probe

Mr Sharma said pending further probe, all the private parties (domestic suppliers) involved in
these transactions were blacklisted and the PSUs of the Department of Commerce have been
directed not to do business with them.

He said the matter has been further remitted to the Central Vigilance Commission (CVC),
even as the Directorate General of Foreign Trade, meanwhile, laid down explicit conditions
under which non-basmati rice exports would be permitted. As a sequel to these directions, the
Commerce Department made detailed guidelines governing the export of non-basmati rice by
Indian PSUs on diplomatic considerations, he added.
Monsoon no longer drives growth

How important is agricultural income as a determinant of overall consumer demand? Does

the generally modest increase in farm income combine with its unequal distribution to render
it only a weak stimulant to overall consumer demand? Although farm income is no more the
sole income source for a majority of rural households, it is supposed to be the anchor for the
rural economy.

However, some of the increase in this income actually translates into savings, rather than a
direct stimulus to demand; this is all the more because the scope for income growth in
agriculture is somewhat limited. While we look for growth with stability after the recent
global economic shocks, volatile agricultural incomes may yet have a stabilising role to play.

The recent episodes of sharp reduction in global growth, modest recovery and now
apprehensions of slow growth highlight the role of rural demand in maintaining the growth
momentum. As a first hypothesis, rural demand may be less influenced by global forces than
the other sectors of the economy. Entrepreneurs may find rural-to-rural linkages promising
just as policy makers recognise the strengths of internal demand as compared with global
demand for the economy as a whole. The emergence of a rural-urban spectrum rather than
sharp rural and urban divisions of the economy may also encourage these rural-to-rural links.

RURAL DEMAND DETERMINANTS

So, how relevant is a good monsoon for the revival of consumer demand — which, in turn, is
crucial for sustaining industrial growth? Rural demand has been a wild card in the overall
consumer demand in our economy.

The recovery of the Indian economy a year ago from the global economic crisis was reflected
in the return of investment demand and to a lesser extent in the pick-up of consumption
demand.

In 2009-10, the year of recovery, agriculture did not quite enjoy a favourable monsoon and
could not play a catalysing role, especially in the first half of the year when expectations of a
good kharif crop diminished as monsoon rains arrived only towards the end. The rabi harvest
was impressive and may have contributed to stability in consumer demand at a later stage in
the year.

Producers, rural or urban, would have attempted to reach out to rural demand in a period of
generalised demand crisis. However, the crisis may also have had its effect on rural incomes.
The link is not just in the form of remittances by urban relatives, but also in the form of
reduced demand for rural products from urban consumers.
An offsetting factor has been government spending in rural programmes. It is not clear if the
agricultural loan waiver would have had an income effect on consumption spending. But
government programmes like rural infrastructure and employment guarantees would have
generated wage income. It is possible that wage income growth has a different kind of impact
on consumer demand vis-a-vis an increase in agricultural output.

DIVERSIFIED RURAL ECONOMY

The missing monsoon stimulus of the last year should have started to work now. But half way
through the year we are yet to see its impact on industrial growth. Although industrial activity
has revived, the additional stimulus from better agricultural performance is not in evidence. Is
this because of the diminished share of agriculture in the overall economy and in the rural
economy?

Rural India now has a diversified output basket. Industrial projects are increasingly located in
rural areas as we see the need for approvals from panchayats in this regard. These areas may
turn into townships in rural areas. The monsoon stimulus may be offset by the weakness of
the rural non-agricultural economy.

The rise of the new non-agricultural rural sector may have reduced the inter-dependence of
farm and non-farm sectors in the rural economy.

Traditionally, when villages made most of the requirements of the rural population, rural
output was diversified but found its markets in villages. Now, the diversified rural production
may not be for rural markets. A lot of agro processing that has moved out of rural areas and
rural fringe of urban areas may be meeting urban demand.

The new linkages are less inter-sectoral in nature. Agricultural income will continue to be an
important determinant of overall consumer demand. But the multiplier effect of agricultural
income may not be confined to rural areas; it also extends to where agricultural produce is
processed and marketed. The marketing channels derive a considerable share of income
generated by the agricultural value chain.

Overall, the monsoon stimulus alone may not enough to revive consumer demand.

Commodity pressures

Over the last several weeks, the global commodity markets covering energy products, metals
(industrial, base and precious) as well as agriculture have witnessed a bullish trend with
prices of select commodities recording new, multi-year or even multi-decade highs.
Fundamental and non-fundamental factors have combined to drive the market higher.
Demand has turned healthier with Asia (mainly China, followed by India) leading
consumption growth, even as OECD economies slowly recover from the demand slump of
the last two years. Supply constraints too have come to the fore, especially in agriculture
(excessive wet weather in Canada and drought in Russia). For commodities such as crude and
some base metals, the demand-supply balances are tightening (for copper, the market is in
deficit), with inventory levels turning much less-burdensome. Importantly, non-fundamental
factors, including currency and monetary policy, have created a sense of euphoria.

The second round of quantitative easing in the US and a continued low interest rate regime
means there will be too much money chasing the inelastic supply of commodities. As prices
rise conditions have turned ripe for speculative capital to enter the market, especially the
derivatives segment. A weaker US dollar (with little prospect of sustained appreciation any
time soon) has also pushed up commodity prices. Yet as developed economies loosen
monetary policy, emerging markets such as China and India tighten it with a view to
containing inflation and, in some cases, to fighting emergence of an asset bubble. This
divergent trend in policy response is sending confusing signals. The continuing, but largely
unsuccessful, tactics of the US to pressure China to revalue its currency is another factor to
watch out for, because a firmer yuan would mean cheaper imports for China, which in turn
may increase further its appetite for commodities. All these will exert tremendous pressure on
price across commodities.

India with its increasing dependence on commodity imports (crude, coal, metals including
bullion and agriculture)will have to exercise abundant caution in placing import orders or
taking trading positions. The commodity markets have been tempered recently by concerns
over re-emergence of sovereign debt crisis in Europe and strong expectation that Chinese
central bank would tighten bank credit further, While the current pullback presents a short-
term buying opportunity, the medium-term outlook continues to favour higher commodity
prices.

Climate change will have mixed impact on agriculture Nov. 16

Changing climatic conditions will have a mixed impact on Indian agriculture, while the
country faces threat from rising sea-levels and temperatures, increased flooding and severe
drought by 2030, said an Environment Ministry report.

The report “Climate Change and India: A 4X4 Assessment” that examines climate change
implications for India in 2030, has been brought out by The Indian Network for Climate
Change Assessment (INCCA), a network of over 120 institutions and 220 scientists.
The report examines the climate change implications in sectors such as agriculture, water,
biodiversity and health in eco-sensitive regions such as the Himalayas, the Western Ghats,
the North–East region and the Coastal belt.

“There is no country in the world that is as vulnerable, on many dimensions, to climate

change as India is. This makes it imperative for us to have sound evidence-based assessments
on the impact of climate change,” said the Environment Minister, Mr Jairam Ramesh.

Releasing the report, Mr Kapil Sibal, Minister for Human Resource Development and
Science and Technology, said India needs micro-level studies to understand the climate
change issues as the impact varied from region to region.

Forecasting an overall warming in all regions, the report predicts that temperatures would rise
by 1.7 to 2.2 degrees, with the maximum increase in coastal regions. Besides, the Himalayas,
the North–Eastern region and the Western Ghats would see increase in precipitation of
rainfall, snow and storm, it said.

Stating that it is a preliminary report on differentiated impact of climate change on various

sectors in various regions, Mr Ramesh said it has some alarming and some positive trends.

Crops such as irrigated rice and coconut would see an improvement in productivity, while the
yields of maize, sorghum and apple would be impacted, the report said. Further, the warming
may benefit the marine fisheries segment as certain species such as sardines and the Indian
mackerel would see an improvement in yields. However, production of milk could be
impacted due to the rising thermal humidity index leading to stress to the livestock, especially
May and June.

The sea levels along the Indian coast, which has been rising at the rate of 1.3 mm per year, is
likely to rise in consonance with the global sea level rise in future. Further, the projections
indicate that the frequency of cyclones is likely to decrease in 2030, with the increase in
cyclonic intensity, the report said.

Further, the report predicts that flooding would increase by up to 30 per cent across all
regions, while the Himalayas would face moderate to extreme drought conditions. Increasing
temperatures would result in spreading of tropical diseases such as malaria in the Himalayas,
while the transmission was likely to increase for a longer period in the North-East.

The report is the second publication by INCAA, which had earlier brought out a report on
India's Green House Gas emissions inventory. Mr Ramesh said the third report to be released
in November next year would look at the impact of black carbon.
Corruption robs from even the poor

India is being hailed as a rising global economic power. However, given its poor record in
poverty eradication, human development indicators and inclusive growth, it has yet to go a
long way to achieve this reputation.

The biggest impediment is the cancer of corruption, which has now spread to every wing of
the government and every section of society, including the noble professions of education,
medicine, judiciary, armed forces and journalism.

The several shameful episodes that have come to light in recent times include reports of
illegal mining in several States, the 2G spectrum licences scandal linked to Telecom Minister
Mr D. Raja, and the Sukhna land scandal involving four Lieutenant Generals of the Indian
army.

The scams relating to the recently held Commonwealth Games and the Adarsh Co-operative
Housing Society in South Mumbai have resulted in the sacking of Mr Suresh Kalmadi from
his party position and Maharashtra Chief Minister Mr Ashokrao Chavan respectively.

The just released final report of the CAG has revealed that the 2G spectrum scandal cost the
nation a mind-boggling Rs 1.7 lakh crore. However, the minister concerned clings to his job
with the blessings of his party boss, Mr M. Karunanidhi. The Government should ensure his
early exit to save face.

GROWING GRAFT

Corruption has become a way of life today, and everyone takes it for granted. Politicians and
government officials shamelessly appropriate even the welfare funds meant for the poor.

Large-scale corruption and leakages in the plethora of anti-poverty schemes launched over
the past several decades have defeated the very purpose of those schemes.

The public distribution system (PDS) intended to supply food grains and other essential items
to the poor and weaker sections is in a shambles owing to large-scale diversion to the open
markets and even to neighbouring countries like Nepal.

Similar is the case with the National Rural Employment Guarantee Scheme (NREGS), the
UPA Government's flagship anti-poverty scheme. A Government investigation in 2009
revealed that a whopping 40 per cent of the allocation from the budgeted Rs 40,000 crore had
been siphoned off.
The office of the Comptroller and Auditor General (CAG) routinely exposes serious cases of
corruption in many Government schemes and programmes. However, corrective action from
the Government is rare.

LAND MAFIA

With rising population pressures, particularly in the bigger cities, there is widespread
corruption in the real estate business with a thriving land mafia-politician nexus involved in
illegally grabbing government land and land reserved for recreation parks, playgrounds and
so on. As the eminent economist Raghuram Rajan aptly put it: Yesterday's licence-permit raj
has morphed into a land mafia raj with huge socioeconomic costs for the country.

Unfortunately, the discretionary allotment of land for housing to certain powerful groups has
almost become institutionalised owing to the criminalisation of politics.

Land scarcity for affordable housing in major cities has been accentuated by the fact that the
armed forces, railways and the PSUs hold land far in excess of their operational needs and
reasonable reserves. For instance, it has now come to light that the Ministry of Defence holds
about 17 lakh hectares of prime land across the country worth more than Rs 20 lakh crore. Of
this, only about two lakh acres are reportedly in use.

Clearly, there is need for a detailed and competent audit of the land banks held by the
country's defence forces, port trusts, railways, the PSUs and other public utilities. The excess
land held by them should be released for public housing, educational institutions and so on.

Fighting corruption and cleaning the prevailing mess should receive top priority if the
Government is to realise its goal of inclusive growth and poverty eradication to create a new
21 st century India over the next decade or two.

CLEANING THE MESS

The cleaning process should begin at the top by drastically reforming the electoral process.
Excessive, illegal and illegitimate expenditure in elections is the root cause of corruption.
Often, the poll expenditure of candidates is 10 to 15 times the legal ceiling prescribed,
eventually leading to criminalisation of politics that threatens the very roots of democracy.

In July 2008, The Washington Post had reported that nearly a fourth of 540 Indian Parliament
members faced criminal charges, including human trafficking, immigration rackets,
embezzlement, rape and even murder. At the State level, things are worse.
According to the Swiss Banking Association Report 2006, Indians had stashed away $1,456
billion of black money in that country. The corrupt entities include politicians, industrialists,
officials, cricketers, film stars, and protected wildlife operators, to name just a few.

Although the Right to Information (RTI) legislation has empowered citizens to demand
transparency from public officials, there have been instances of RTI activists being
threatened, attacked and even killed by vested interests.

Hence, there is a need to drastically change our legal system to guarantee stringent
punishment for corrupt politicians and government officials.

Asking a corrupt politician to resign from the job is not enough; criminal proceedings should
follow to deliver suitable punishment, including a jail term.

Right to food and the rural economy

The National Advisory Committee, according to the latest media report, has recommended
that the National Food Security Act should legally guarantee cheap grains to 90 per cent of
the rural population and 50 per cent of the urban population by 2014.

Further, there will be two categories within these households. The poorest “priority”
households would be entitled to 35 kg of grains per month at an average price of Rs 2 per kg
whereas the “general” households would be entitled to 20 kg a month at a price not exceeding
half the current minimum support price for the grains.

NUTRITIONAL COVERAGE

Critics would argue that 35 kg of grains would be enough to feed a family of four for only
about 15 days. Hence, even if it eliminates starvation deaths, this alone would not provide the
minimum calorie requirements. If the price of grains for BPL cardholders is fixed at Rs 2 per
kg while the current market price varies in the range of Rs 12-18, then this would be
equivalent to a cash transfer in the range of Rs 350 to Rs 560 per month per family.

For families with some other source of income, this scheme would be a supplementary
transfer which may have significant consequences for different sections of the rural
population.

A recent study of the impact of a similar food security scheme (35 kg of grains at Re 1 per kg
for ultra-poor families and Rs 2 per kg for the poor families), implemented in Chhattisgarh
since 2006, throws light on the likely consequences of the Food Security Act, as and when it
would be implemented throughout the country.
Overall, the number of starvation deaths has come down drastically in Chhattisgarh. But
since there is no protection against the rise in the price of pulses (which is a major source of
protein and nutrition for the poor as most of them cannot afford to consume milk or meat in
sufficient quantities) and oilseeds during the recent spurt in food inflation, there has not been
a significant improvement in nutrition levels.

The impact of the near-universal food security net has been different for big farmers, small
farmers and agricultural labourers.

RURAL ECONOMICS

Chhattisgarh is predominately a rice-growing area. Most landless workers used to work on

others' land against wages paid in kind (principally rice). Now, a large part of their food
requirement is being met by the food security programme and more work opportunities at
minimum wages are available under NREGA projects in the villages. As a result, they are
looking for non-farm work (including working in mines and brick kilns) against wages paid
in money so that they can buy things other than foodgrains.

More work opportunities and better bargaining power have raised the wage rates for
agricultural labour. This has made life especially difficult for small farmers who cannot
afford to offer higher wages or a large number of work days compared to what the big
farmers can provide. Some big farmers are moving away from paddy to cash crops (like
vegetables) as the local demand for paddy (from which rice is derived) has come down and
people are able to spend more on vegetables. Another contributory factor is the greater
shortage of labour in the paddy cultivating season when many workers are busy cultivating
their tiny plots of land. Labour is more easily available in the non-paddy season when
vegetables can be grown.

PADDY STILL IMPORTANT

At the same time, paddy itself is becoming more like a commercial crop. Earlier, much of the
paddy cultivation was for subsistence. The production was mostly used to meet the family
requirement for staple food (rice) and seeds for next year. Whatever little surplus remained
was sold for cash. With cheap grain from ration shops taking care of food requirements, more
surplus is becoming available to be sold in the market for cash.

This is leading to greater monetisation of the rural economy. Once the basic food security net
is available, many farmers are also able to take greater risk and are found to invest more in
HYV (high yielding variety) seeds and irrigation (like wells and pump sets), often with the
help of bank credit. Ever increasing MSP (minimum support price) for rice and wheat and the
government's readiness to buy any surplus at MSP is an additional factor inducing farmers to
go for paddy cultivation as a commercial crop.

Consequently, the total area under paddy cultivation may not necessarily go down in
Chhattisgarh. Even here, the big farmers have an advantage in that they find it easier to sell
their surplus to the government procurement agencies than small farmers. The transaction
costs (per unit of grains) of buying from the big farmers is less for the procurement agencies,
and the big farmers are better connected with the officials.

It is a paradox that despite the near-universal food security net, Chhattisgarh continues to be a
hot bed of Maoist activities. Is it because the benefits of the food security net have not
percolated to the remote tribal areas? Or, is it that the major grievances of the tribal people
(like displacement and losing their traditional way of life due to mining and industrialisation)
have little to do with food security?

Customs order on fumigation irks foodgrain importers Nov. 9

A circular put out by the Central Board of Excise and Customs on November 3 is set to
change the foodgrain import scenario.

According to the circular, statutory measures will be enforced by the Customs authorities on
foodgrains that are imported before the consignments are released.

An annexure to the circular has irked importers, especially those dealing in pulses.

The annexure says an exporting country has to issue phyto-sanitary certificate for each
consignment, while the country's national plant protection organisation has to give additional
declaration on the shipment being free of pests. The consignment should also comply with
special conditions that require its phyto-sanitary treatment.

Of particular concern to importers is this norm that requires all foodgrain imports into the
country to be fumigated with methyl bromide to eliminate pests in the consignment.

The problem with the stipulation is that many countries have discontinued the process of
fumigation with methyl bromide. Development nations have given an undertaking in the
Kyoto Protocol, a UN framework convention on climate change, to undertake measures to
prevent global warming and green house gases. They have stopped using the chemical from
January 1, 2005.

According to the United Nations, this chemical is destroying the ozone layer 50 times faster
than Freon. It is also very toxic to humans and animals. A study by the United Nations shows
that it will be less expensive to eliminate methyl bromide and find alternatives than to finance
the medical costs associated with the increase in skin cancer cases caused by increased
exposure to ultra-violent rays, damage and destruction to crops and major weather changes.

Methyl bromide is used by farmers in countries such as the US before sowing to eradicate
fungus, nematodes, weeds and micro-organisms that could affect crops.

According to Mr K.C. Bharatiya, President of the Pulses Importers Association, most of the
countries do not fumigate. “In countries where the temperature goes below zero degrees,
there is no need for fumigation. We have taken up the issue with the authorities but they have
refused to heed,” he said.

Shortage feared

Pulses importers, in particular, feel that this could create shortage since the country depends
on imports to make up production short-fall.

An exporter, speaking on condition of anonymity, said countries such as Myanmar that do

not have methyl bromide will be badly hit.

“We can't import from important sources such as South Africa, Thailand and Turkey,” Mr
Bharatiya said.

South Africa supplies pigeon pea, while Turkey is an important producer of chickpea (chana).
Australia's chickpea exports to India could also be hit.

The order, however, provides for special treatment to the US, Canada and France.
Consignment from these countries could be fumigated at the port of arrival in the country.

“Officials say they want to regulate imports. When we pointed out to them that most of the
countries will be hit, they are asking us to tell them to talk to our Government. We have
alerted our suppliers,” said an exporter.

“They are pointing out at the US, Canada and France. These three countries had approached
the Government and worked out a solution,” he said.

Officials here see methyl bromide as an effective way to kill all pests, insects and nematodes.
Substitution is costly and tricky, particularly in colder climates. Aluminium phosphide can be
used as a fumigant instead but it takes three days to fumigate against 16 hours for methyl
bromide. In addition, the cost also increases three times. Mr Bharatiya said the order has
made it impossible for any consignment to reach Indian shores without being fumigated.
The move is also seen as a non-tariff barrier by India. One of the reasons for the Centre
issuing the circular now and insisting on following the phyto-sanitary measures is higher
production of kharif crops.

A flour mill source, when asked about the notification, said wheat imports are practically
over and hence it was of no concern to the user industry.

The CBEC order said: “All consignments of foodgrains may be referred to Plant Quarantine
authorities at respective point of entry for phyto-sanitary inspection before release by
Customs.

These consignments will be allowed clearance only after getting no objection certificate from
plant quarantine authorities.”

Clean energy: $50-m R&D centre soon

Our Bureau

New Delhi, Nov. 8

Ahead of the Cancun climate summit, the US and India have decided to collaborate on
developing clean energy technologies. They will jointly set up a clean energy research and
development centre in India by investing $50 million over five years.

Alternative energy

India is looking at alternative sources of energy to plug gaps in its supply and demand for
electricity which lead to frequent power cuts.

This is where the US expertise in the renewable sector, especially solar, will help as it would
bring down the cost of production. The high cost of solar modules is impeding the take-off of
solar technologies in India.

"We agreed to deepen our co-operation in pursuit of clean energy technologies, including the
creation of a new clean energy research centre here in India, and continuing our joint research
into solar, bio-fuels, shale gas and building efficiency,” said the US President, Mr Barack
Obama, at a press conference.

Collaboration with the US will provide a further impetus to India's clean energy programmes
such as the National Solar Mission, which the country has initiated as part of its efforts to
reduce green house gas emissions by 20-25 per cent by 2020 over the 2005 levels.
Funds

In fact, India has already started building a corpus of around $600 million a year for the
National Clean Energy Fund by levying a cess of Rs 50 per tonne on coal domestically
produced.

“Compared to the Clean Energy Fund, the joint investment in the R&D centre is peanuts. If
the Government was serious about this, we should have pushed the US for putting more
money on the table,” said Mr Chandra Bhushan, Associate Director at Centre for Science and
Environment.

Currently, over two-thirds of the country's electricity needs are met from the polluting fossil
fuel sources such as coal and liquid fuel. Electricity generation from nuclear and renewable
sources such as hydro-electric and wind energy account for the rest.

There is a future in farming

The fact that the agriculture sector in India has not experienced any significant growth during
the post-economic reforms period is well established. For the revival of the sector,
policymakers have suggested, among others, improvements in the crop yield and promotion
of crop diversification. However, the progress in these areas has been slow.

In an emerging and growing economy like India, there will be an elevated domestic demand
for high-value food products such as pulses, fruits, vegetables, edible oils, dairy products,
processed foods, and livestock products. Catering to the high-value farm segment has been
viewed as one of the pathways out of agrarian distress. Studies suggest that the demand for
such food items has recorded high growth in India during the post-economic reforms period.
But the annual growth rates of area, production and yield of high-value agriculture products
has declined during the same period.

Foodgrains still constitute over 60 per cent of the gross cropped area in India. India's
production of high-value food commodities is one of the lowest in the world. For example,
according to World Development Report, 2008, among the countries where the proportion of
workforce engaged in agriculture was high, fruits and vegetables production was 118 kg per
capita in India during 2003-05 against 390 for China, 217 for the Philippines, 178 for
Thailand, 162 for Vietnam, and 516 for Turkey.

SOCIAL LEARNING

One possible way to hasten crop diversification and increase the crop yield is to promote
“social learning”. India seems to have overlooked this crucial aspect while charting a revival
path for the agricultural sector. ‘Social learning' is the process of learning from the
experiences of successful farmers in social networks. Individual farmers may be influenced
by and learn about the successful farm practices from their neighbours' experiences.

Evidence across the world, including India, suggests that social learning may be important for
the diffusion of new agricultural technology. In India, social learning played a crucial role in
the widespread adoption of high-yielding varieties (HYV) of wheat and rice during Green
Revolution. What we require today is more such farm information dissemination initiatives.
Instead, the public discourse on agriculture has been dominated by scary stories of farm
distress and suicides. In a way, this approach may be responsible for our negative attitude
towards agriculture. The popular impression today is that all is not well in the Indian
agriculture, due to which many do not want to continue in agriculture or take it up as a
profession.

How far is this impression true? Don't we have sufficient farm success stories in the Indian
context which, by way of adequate publicity, can be used to induce farmers to stay in
agriculture and change their farm practices, and also to attract fresh talent in the farm sector?
If you expect an affirmative answer to this question, you are mistaken.

SUCCESS STORIES

There are many enterprising people who have been charting their own growth trajectories in
the farm sector by combining their entrepreneurial skills, labour, vision, hands-on approach
with their core competence in technology, marketing and scientific inputs. Significantly, they
include both individual entrepreneurs and small and marginal farmers. For instance,
Malvinder Singh Bhinder, who owns Agro-Dutch Industries Limited ( www.agro-
dutch.com), is the world's largest mushroom producer. Jagjit Singh Kapoor is the owner of
Kashmir Apiaries ( www.kashmirhoney.com), which is India's biggest honey producer-
exporter.

The world's largest producer and exporter of cut roses Karuturi Global Ltd
( www.karuturi.com) is owned by Ramakrishna Karuturi. Suguna Poultry Farm
( www.sugunapoultry.com), India's leading integrator of poultry products is established by
Soundarajan. Jang Bahadur owns Sangha Group ( www.sanghaseeds.com), which is the
largest producer of seed and table potatoes in Asia.

Similarly, there are many other success stories among small and marginal farmers. An
excellent official source of information about such farmers is the coffee-table book titled
Harvest of Hope brought out early this year by the Department of Agriculture and
Cooperation (DAC), Government of India. This publication documents the achievements of
101 enterprising small and marginal farmers from all parts of India, who by sheer hard work
and enterprise have transformed their lives.
TALENT RECOGNITION

One important factor behind these successes was diversification towards high value
agriculture goods and the ability to unite and bring the best out of individual farmers. Most of
these farmers or entrepreneurs struggled against the common difficulties facing the farm
sector. Yet, when it comes to turning agriculture into a viable livelihood option or business
opportunity, only the initiatives by big corporates hog the limelight in this country.

Contributions by individual farmers are not given their due. A majority of Indian farmers
would be able to relate to their successes and draw lessons on how to enhance their farming
skills.

The need of the hour is to disseminate these individual-driven successes in the farming
community alongside the corporate-led ones, thereby spearheading agrarian revival by
emulation. In this process, successful farmers shall play the role of ‘change agents'.

As a positive development, early this year, DAC organised a farmers' congregation in Vigyan
Bhawan, New Delhi, to felicitate 101 small and marginal farmers who fought against odds to
make a difference and to mark the release of Harvest of Hope. What better way to boost the
morale of the farming community than this? In a country where talent from all walks of life
except the farming community gets recognised, this is a welcome move.

Speaking at a farmers' congregation, the Agriculture Minister, Mr Sharad Pawar, is reported

to have described the successful farmers as “the unsung heroes (and heroines) of Indian
agriculture”. Let us strive for more such heroes and heroines by emulation.

How the corrupt can be snared

The Corruption Perceptions Index, annual league tables provided by Transparency

International, is cause for grief for many well meaning leaders of nations. Though the index
has its faults, it bares you in the glare of global exposure; it tells you how corrupt you are
perceived to be.

This year's results are even more interesting for they validate one widely held feeling,
namely, that the level of corruption and unethical practices in the US financial services and
housing industries must have been really high for the economic crisis that followed and
spread to the rest of the world. Ergo, the rank of the US has fallen from 19th to 22nd place.

There is still a lot of anger and disappointment that almost none of the malefactors have been
brought to book.
It is often the nature of economic crimes that they are difficult to prove and the nature of laws
makes them so.

Yet, that should not blind us to two measures that are popular to fight the menace here. One is
conducting sting operations and the other is the use of whistle-blowing. Here are two recent
examples.

‘STUNG' AND TRAPPED

Chuck Turner has been a city councillor in Boston for more than a decade. He was convicted
last week of corruption, to wit, of taking a bribe of $1,000 (Rs 45,000) in exchange for help
to arrange a liquor licence.

The main evidence the prosecution had was the testimony of one Ronald Wilburn that he
gave the money, and a video-tape of the event. But how Wilburn came to be in the position is
interesting.

In an earlier bribery case against a state senator, Wilburn came into the Federal Bureau of
Investigation's radar as the giver of the bribe.

At that time, the authorities heard from him that Turner had a reputation for taking payoffs.
So they set up a sting operation, made Wilburn approach Turner for the favour and got their
evidence.

Now, Wilburn was not a cooperating witness but was in danger of facing severe punishment
himself if he did not cooperate.

In addition to the bribery charge, the government also got Turner convicted of lying to the
authorities since, during the inquiry, they had asked him if he took the bribe.

Some of Turner's political supporters are piqued that the government went after a man who
had done so much good for his community, for such a small sum. But that is not the point.
The government focused on a case that it could build convincingly and arranged for the
whole operation to take place, (the ‘sting') to get a conviction.

EMPOWER WHISTLE-BLOWERS

The other interesting tool that the government has is the law favouring whistle-blowing, that
is, raising a complaint from within the organisation. The False Claims Act prohibits people
from defrauding the government and also provides incentives for the person who comes
forward with evidence.
The suit can be filed confidentially to protect the plaintiff and if the government thinks there
is merit in the case, it can take it over. The whistleblower gets about 15-25 per cent of the
money that is recovered, which is a powerful motivation to compensate for the risks.

And just last week, it was announced that in a settlement reached with the company, Cheryl
Eckard would collect about $96 million (Rs 432 crore) in a case she brought against her
erstwhile employer, GlaxoSmithKline PLC.

In 2002, while still employed by Glaxo as a quality assurance manager, Ms Eckard visited
one of their plants that made pharmaceutical products. The plant had received complaints of
production problems and that drugs of different strengths had been mixed up in one bottle
and so on, leading to safety issues.

When Ms Eckard found even more problems during her visits, she wanted the plant to stop
shipments, fix the problems and notify the government authorities as they were required to by
law.

But the plant decided not to as they were busy preparing for a FDA inspection that would
allow them to produce new products. Clearly, some ‘smart' managers were willing to indulge
in unethical practices and conceal information from regulatory authorities, in the pursuit of
profit.

We saw a lot of that in the financial services industry in America lately. Government efforts
to extend the Act to the financial services industry (which it currently excludes) is being
resisted.

But getting back to our story, soon after, Ms Eckard lost her job. Since she was convinced
that the problems were continuing at the plant, she decided to blow the whistle. She notified
the Federal Drug Administration and filed her lawsuit. Investigations by the government,
including search warrants executed at the plant, produced the evidence to vindicate her.

HARD TO BOOK

Contrary to popular belief, there is as much corruption in the private sector as there is in the
public sector. Quite often, the problem is one of lack of evidence. The people hurt by the
corruption, whether it is bribery or violation of laws, are rarely willing to come forward.
Sometimes the amount involved is seen as too small to bother, at other times, the fear of
repercussions prevents complaints.

The sting mechanism used to ferret out those otherwise difficult to pin down is ingenious. It
is not just a question of marking notes and trapping the receiver of bribes.
The sting is an elaborate operation where even the clever and careful bribe receiver is made
to show his hand and at the same time, incontrovertible evidence is built that will stand in
court.

Often, a government agent acts as the giver of the bribe to overcome the problem of finding a
cooperating witness. The amount is not important. A person who might be believed to be
guilty of receiving millions in bribes can be convicted on a small amount, if the evidence is
strong.

Al Capone was a notorious gangster involved in gambling and smuggling in the 20s and 30s
in Chicago. Finally, when the government caught up with him, they were able to convict him
not for the violent crimes he committed but for tax evasion and sent him to prison!

Sting operations and whistle-blowing are just two of the several tools that countries can bring
to bear in their fight against corruption. And the authorities need to continue searching for
creative tools!

Few takers for Centre's subsidized foodgrain release

TNN, Nov 12, 2010

NEW DELHI: There have been few takers for the additional foodgrains released by the
Centre at highly subsidised rates under the public distribution system after it was singed by
the Supreme Court's "give it free instead of wasting it" remark, the UPA
government informed the apex court on Thursday. 

The ministry of consumer affairs, food and public distribution, in an affidavit before the SC,
said it had made an additional ad hoc release of 25 lakh tonnes of foodgrains in September
taking the total additional release by the Centre up to October 30 to 86.72 lakh tonnes. 

The affidavit presented before a Bench of Justices Dalveer Bhandari and Deepak Verma
by Attorney General G E Vahanvati said: "However, the lifting of foodgrains against the
additional allocations as reported by Food Corporation of India (FCI) as on November 3 has
been extremely low at 25%." 

This means, the intention of the apex court to put pressure on the Centre to release additional
foodgrains, overflowing in its not so efficiently managed granaries, so that it reached the poor
and hungry, has virtually lost its purpose. 

While complaining against the mismanaged and poorly stored foodgrains causing a lot of
wastage and preventing the needy getting food, petitioner People's Union for Civil
Liberties through Colin Gonsalves had told the court that the Centre had not taken a single
step to lend an ear to the recommendation of the Sonia Gandhi-headed National Advisory
Council for providing subsidised foodgrains to everyone in 150 poorest districts of India. 

The affidavit, which was personally vetted by food minister Sharad Pawar, stated: "The
recommendations of the NAC have since been received in the government and it is submitted
that the NAC has not given any recommendation for special coverage of the 150 poorest
districts." 

If Vahanvati could put in the response of the government to four pertinent queries including
foodgrain procurement and storage, the Bench saddled him with seven more queries related
to better enumeration of BPL population and providing food to the poor families on the basis
of the number of heads rather than counting the family as one unit for allocation of 35 kg of
foodgrain per month. 

It also asked the government whether it would be possible to put a stop to issuance of
subsidised PDS ration to those families which had an annual income of more than Rs 5 lakhs
being categorised as above poverty line (APL)cases. It fixed November 29 for further hearing
on the matter.

Climate change will prove a blessing for AP: Study

Hyderabad: After a series of natural calamities that wreaked havoc on the state in the last two
years, a major government study has concluded that Andhra Pradesh will be a major
beneficiary of the climate change that will take place in the country in the next 20 years. 
    Commissioned by the Union environment and forests ministry, the study titled ‘Climate
Change and India: A 4x4 Assessment-A Sectoral and Regional Analysis for 2030s’ was
conducted by Indian Network of Climate Change Assessment which comprised 120
institutions and over 220 scientists and the report was released by the ministry last Tuesday. 
    The study focused on the four climate sensitive regions of India, namely, the Himalayan,
Western Ghats, Coastal and North-Eastern region. The four key sectors that were taken up
were agriculture, water, natural ecosystem & biodiversity, and health. Of these, AP is slated
to considerably gain in the agriculture and health sectors. 
    As per the study, the temperature in 2030 in comparison to the temperature in the 1970s in
the eastern coastal region will increase by 1.6 degrees Celsius to 2.1 degrees Celsius. By
2030, the number of rainy days in the coastal region including AP is likely to decrease by 1-5
days, while the intensity of rainfall is likely to increase between 1 mm to 4 mm per day.
With regard to increase in rainfall, the eastern coastal region is likely to see an increase of
annual rainfall between 0.2 to 4.4 per cent. While the study predicted that the cyclonic
disturbances in both the coasts will decrease by 2030, it cautioned that they would be more
intense. 
This warming of the climate and increase in precipitation over the next two decades will
work to the advantage of Andhra Pradesh by increasing the productivity of rice, maize and
coconut, the major crops of the state’s coastal region, the study held.According to the report,
the changes in the weather are conducive to fertilization in the major crops. As for rice, the
yield will increase by 10 per cent throughout the coastal region while the rise in north Andhra
Pradesh will be less than 5 per cent. 
    As far as maize crop is concerned, the study predicts that the climate change will adversely
affect most of the 9,000-km long coast of the country, but benefit most of the coastal districts
in the state. While the changes will lead to a much higher projected yield loss of irrigated
maize between 15 and 50 per cent, the yield loss of rain-fed maize will be about 35 per cent.
“In some districts of coastal Andhra Pradesh, rain-fed maize yields are likely to increase by
10 per cent,” the study said. 
    With regard to the coconut crop, the study predicted a 10 per cent increase in coconut yield
in north-coastal Andhra but said the yield in other coastal Andhra districts, Orissa, Gujarat,
Tamil Nadu and Karnataka will be adversely affected by about 40 per cent. 
    For AP, an important benefit with regard to the climate change is in the health sector.
According to the study, the rise in temperature over the next two decades will become
unfavourable for the spread of malaria, which kills thousands of people in the state every
year. “In southern coastal districts of AP, the transmission window for the malaria parasite
will be only 4-6 months in 2030 in comparison to 7-9 months in the baseline scenario of
1970,” the study said, adding that this would mean that the chances of getting infected by the
parasite will drastically fall in the north coastal part which bears the brunt of the disease
every year.
GOVERNMENT TO SET UP BANKERS’ GROUP

LOW-COST FINANCING FOR SOLAR MISSION

SUDHEER PAL SINGH New Delhi, 24 November

The central government plans to set up a group of public sector banks headed by State Bank
of India (SBI) which would brainstorm on ways to make low-cost funding available for power
projects being set up under the National Solar Mission.

The group of banks will try and work out a financial instrument specifically designed for low-
cost financing of solar power projects. These projects, to be set up at a cost of `15 crore for
every megawatt (Mw), are at least three times costlier to erect as compared to their
conventional counterparts.

“We are making this group of banks headed by SBI which would sit and do brainstorming to
see what are the steps required to make projects more viable by making lower cost of funds
available for solar projects in the mission,” Deepak Gupta, secretary in the Ministry of New
and Renewable Energy (MNRE), said.

“I am writing to all the major public sector banks. The group will have its first meeting before
December 15,” he added.

High capital cost, average gestation periods, multi-year benefits and low maintenance cost are
some of the characteristics of solar power projects which make these different from
conventional power plants. “We are asking the bankers to design afinancial instrument
specific for these needs.

The bankers’ group will work on the financing pattern for only solar projects. We have asked
the banks to nominate their representatives,” Gupta said.

One of the prime reasons why banks have been wary of lending for solar power projects is the
ill financial health of distribution companies. Under the solar mission, a developer has to sign
a power purchase agreement (PPA) with NTPC Vidyut Vyapar Nigam Ltd (NNVN), the
government’s power trading arm, which would sell the high-cost solar power to distribution
companies after bundling it with lowcost thermal power.

“The one question that the lenders are asking is that these PPAs should be assignable in the
event of a payment default by the distribution company. The main concern for the banks is the
payment link between the distribution company and NVVN,” said James Abraham, Chief
Executive Officer of Sunborne Energy. The company plans to invest over

`1,600 crore over the next four years in solar power projects in India. Assignable PPAs allow
a lender to take over the project in case of a default.

Abraham, however, added that the PPAs for solar projects had been designed by the
government in a manner that addressed this concern. “The payment link which was of concern
has been broken in the PPA. So that, even if discoms default, NVVN will still be able to pay
to the developer due to the payment security mechanism linked to the budgetary support of
the ministry,” he said.

The proposal of using MNRE’s budgetary support for covering payment risk to developers
under the solar mission has been approved by the finance ministry. MNRE is currently in the
process of seeking Cabinet approval for the proposal.

However, lending for solar projects still remains risky for bankers, as it is an entirely new area
of funding in India. MNRE’s move to set up a group of banks for seeking “innovative
financing” for solar projects is a step in the right direction, according to the industry. “Banks
are still in a learning phase in solar area. Through this group the banks will be able to share
their learning and share risks across multiple projects,” Abraham said.

Industry experts have hailed the government’s decision to set up the group. “There is
currently enormous funding pressure on the banking system, as 70 per cent of the funding
requirement for solar mission is to come as debt. Also, huge dependence on regulatory
subsidies and the risks of new technology selection will underline the economies of
investment in the field. The group of banks would be a nice way to develop an understanding
of these risks,” said Gokul Chaudhri, partner, BMR Advisors. THE GROUP WILL try to
work out a financial instrument specifically designed for low-cost financing of solar power
projects in India
Towards sustaining prosperity

 
Dr. V.K. Shanmugam,I.A.S., District Collector, Virudhunagar.

In the aftermath of the second world war, the Virudhunagar Chamber of Commerce and
Industry was established in 1944 to safeguard the interests of traders and industrialists.
Mr.V.V.Ramasamy and Mr.S.Vellaichamy Nadar played a vital role in the promotion of the
chamber.

Following Independence, the chamber started espousing the cause of export and import. It
started meeting the central ministers to solve the difficulties faced by the traders in the
process. When the Government of Tamil Nadu introduced sales tax, the chamber highlighted
the difficulties in the implementation and helped the government in the fixation of rates for
various products. In the year 1958, the chamber convened a state-level meet at Chennai,
demanding single-point sales tax instead of multiple point sales tax. The chamber
spearheaded successfully the opposition to the introduction of entry-tax.
The chamber has to its credit many first initiatives. The establishment of Spices Development
Board, the establishment of an ‘Export Forum' for export of Vattral, the right to issue the
Certificate of Origin for the export of these products- all belong to the chamber. Its role in the
establishment of Block Development Office to facilitate the formation of an industrial estate
in Virudhunagar, is noteworthy.

Traders, especially Nadars, have made Virudhunagar proud. Through their hard work,
determination, honesty and thrift through generations, they have made the town, called the
‘Little Mumbai', an influential centre of trade. The popular allure is that ‘while Virudhunagar
produces nothing, it markets everything'. The name of the town is strongly embedded in the
economic history of the country, called as it is, the ‘Oil Capital of India' today. Their
adoption of ‘Mahamai Practice' – the community traders being required to set apart daily a
stipulated amount as the trade practised - has helped the community prosper and emerge
strong. Their tradition of family business is still strong and continues even today.

In the political history of the country too, the name of Virudhunagar is strongly embedded.
The district has emerged as an excellent educational centre too. A good number of highly and
technically educated youth from the town are employed in high positions in software
companies in USA. It is identified as part of the knowledge corridor for establishing world
class manufacturing centre by the Confederation of Indian Industry in its proposal for the
industrialization of southern districts.

The district abounds with several clusters in small scale industries like the fireworks, matches
and printing in Sivakasi and cotton spinning mills in Rajapalayam.

Significant industrial presence is lent by the Madras Cements Limited and the TTK-LIG
Limited, a joint venture between TTK group, Chennai and the SSL International plc., UK,
engaged in the manufacture and marketing of latex condoms internationally.

In recent years, the traders have diversified to different pursuits like food processing, building
warehouses and cold storage facilities.

They have realized the need to adopt professional management in running the business in the
changing global scenario.

The Idhaym group, in the edible oil business, has carved out a name for itself through
innovative marketing techniques.

A study by Confedration of Indian Industry has suggested jetropha cultivation for extraction
of bio-diesel, given the hot and dry climate and soil conditions. Another suggestion has been
the promotion of herbal plants for medicinal purposes.
Microfinance institutions fear rise in customer defaults
Banks freeze fresh credit lines.

Anjana Chandramouly

Bangalore, Nov. 24

Even as SIDBI has asked microfinance institutions (MFIs) to draw up a roadmap on

reduction of interest rates, these institutions, which are finding it tough to raise funds from
banks, fear that liquidity squeeze in the market will lead to rise in customer defaults.

Some of them point out that banks are freezing fresh credit lines to even those with no
exposure in Andhra Pradesh.

“This is the greatest danger we now face, and it is important to ensure that operations of MFIs
outside Andhra Pradesh are supported,” Mr Samit Ghosh, Managing Director, Ujjivan
Financial Services, told Business Line. According to him, only very few financial institutions
such as SIDBI continue to support them, but that too come with certain pre-conditions, he
said.

The immediate measure that lenders like SIDBI insist is reduction in lending rates by MFIs to
a certain level, and also “a time-frame to bring them down to 22-24 per cent in the next 18-24
months,” he added.

In fact, Mr Suresh K. Krishna, Managing Director, Grameen Koota, pointed out that SIDBI
also wants MFIs to provide a roadmap on when and how they plan to reduce the interest
rates. In order to achieve this, MFIs will have to “take a re-look at their operating model and
are under pressure to bring down their interest rates to below 30 per cent initially and
subsequently to less than 24 per cent,” he said.

Most banks are now in a wait-and-watch mode as far as fresh loans are concerned, but there
is no pressure on existing loans, pointed out Mr Ghosh. “With banks are freezing the credit
lines, our fear is that we might have repayment problems,” added Mr Krishna.

Though banks are now easing up as far as lending to MFIs goes, Mr Mathew Titus, Executive
Director, Sa-Dhan, said that they need “comfort and knowledge that only entities like
NABARD can ensure”.

Compensation packages
Some MFIs are also under pressure to bring down the high compensation packages offered to
their executive management. “Salaries have to be brought down to a reasonable level,
depending on the size of the MFI,” said Mr Ghosh. An official of another MFI added that
salaries certainly cannot be higher than a medium-sized private sector bank.

Other issues that have cropped up include high multiple lending and collection practices, and
high return on assets. To counter these, Microfinance Institutions Network (MFIN), with
about 40 members, now plans to come up with a set of standards for pricing, remuneration,
return of assets, and return on equity for the industry. And to ensure that an Andhra Pradesh-
like situation is prevented in Karnataka, Mr Ghosh said that AKMI (Association of Karnataka
Microfinance Institutions) has already set up a help-line for customers and an ombudsman for
customer complaints.

Common legislation needed

Mr Krishna felt there was an absolute need for a common legislation for the industry. “we are
asking the Centre to come out with one,” he said. Meanwhile, industry bodies such as MFIN
are also building a code of conduct, “which will diminish the State governments' tension”,
pointed out Mr Titus. “Self-regulation is an intermittent step; it's an important condition but
not a sufficient one for easing the present crisis,” he added.

Maharashtra may not have enough hands to harvest cane crop this time

Kripa Raman Mumbai, Nov. 24

This season Maharashtra expects its largest sugarcane crop — at 80 million tonnes — but the
sugar industry fears that part of the crop may not be harvested because of unseasonal rains
and a shortage of labour.

“We usually get 9 lakh labourers during the crushing season (generally stretching over six
months starting October-November), but this year we will be getting only 7.5 lakh labourers,”
said Mr P. Naiknavare, Managing Director of the Maharashtra State Federation of Co-
operative Sugar Factories. In a year this number will shrink to about 5 lakh, he said.

For the first time, the State will be seeing the use of harvesting machines, he said. “We have
got 100 harvesting machines, but they are like a drop in the ocean.”

But many of the sugarcane farms are very small and the owners cannot afford mechanisation,
said Mr Vinay Joshi, Executive Director at Godavari Biorefineries, a private sugar
manufacturing company. According to him, a large part of the crop may remain unharvested
this season.

Crushing season

The crushing season for 2010-2011 officially began on October 1, but there has been little
harvesting done because of the unseasonal rains, said Mr Naiknavare. The rains will
adversely affect the quality of the crop too. “And the rains have not abated even though we
are in the latter half of November,” he said. The bumper production of 80 million tonnes of
sugarcane would have seen sugar production from the State at 9 million tonnes, said Mr
Naiknavare.

Labour charges for sugar harvesting this season have been raised to Rs 137 per tonne per
labourer, from Rs 117 a year ago, he said. Even with this raise it looks like there will be a
dearth of harvesting hands. Many of the labourers' sons and daughters who are educated do
not want to do such work, he said. Cane cutting labourers mostly come from the districts of
Beed and Osmanabad in the Marathwada region of Maharashtra, which has been the pattern
for the last 60 years, he said.

Sugarcane harvesting is a very specialised job and one needs labourers with specialised skills,
he said.

Dignity problem

In other sugar producing states the pattern is a little different, said Mr Naiknavare. There the
farmers and their families pitch in to harvest their own crop. In Maharashtra, where sugar
industry is closely linked with political activity, many farmers think it below their dignity to
have their families harvest their own crop, he added.

Cotton exports (26 th Nov.)

It was interesting to read the comprehensive article on “Cotton exports in a tangle” ( Business Line, November 19). The point
on the misuse of Export Authorisation Registration Certificates may be better emphasised in a later article. It is my estimate
that the trade is not equipped to ship more than 25 lakh bales by the deadline of December 15, 2010.
Moreover, it is also estimated that at least 27 lakh bales are in the hands of firms who are trading their EARC. This is in spite
of the Government's stipulation that EARC are not transferable. A premium of 4 to 6 cents is quoted in the overseas market
for such traded EARCs. The prospective buyer has to pay the premium, identify the cotton required, and pay the current
prices for such cotton. Such trading is taking place in EARCs of waste cotton exports also.

With current Indian prices ruling below the international prices, some of the multinationals that missed applying for EARCs
are seriously looking for such transferred EARCs. The method deployed may lead to a violation of FERA rules. Still, it looks
like this may take place on a large scale.

MFI crisis in perspective (26 th Nov.)

K. Kanagasabapathy

Several issues of MFI regulation and governance need to be addressed. But the potential of MFIs to emerge as a safety net
for the poor should not be overlooked.

Andhra Pradesh is in the limelight, with the State government issuing an ordinance to regulate microfinance institutions
(MFIs), effective from October 15, 2010. The merits of such a law in the absence of any regulatory framework for
microfinance cannot be denied. Yet this has given rise to extreme uncertainty for thousands of agencies engaged in
microfinance.

Moreover, following the reactions of the banking industry and silence of the regulators, the liquidity of MFIs has come under
severe strain. This is likely to affect flow of funds to more than 100 million families, benefiting from various forms of
microfinance assistance.

GROWTH OF MFIs

India has a large number of MFIs, varying significantly in nature, size, outreach and delivery mechanisms. The sector has
been going through rapid transformation in the past few years, experimenting with different models. MFIs operate under
various legal structures, as ‘for profit' and ‘not for profit' organisations.

The entry of commercial ventures in the form of NBFCs is of recent origin, but in a short time the sector has grown rapidly,
because of new entrants, and old entities such as NGOs transiting into companies. The attraction seems to have come from
regulatory arbitrage, besides the fact that the bank loans to such institutions are given priority sector status.

The problem has erupted with reference to the largest ‘for profit' NBFC, which from humble beginnings has grown into a
listed company. There are several such MFIs availing bulk loans from banks for on-lending to groups and other small
borrowers. In its annual publication on Status of Micro Finance in India for 2009-2010, Nabard has indicated that the total
exposure of banks and financial institutions to MFIs as on March 31, 2010, was Rs. 13,956 crore, representing a growth of
more than 100 per cent during the year.

INTEREST RATE ISSUE

There are four major issues surrounding the episode. The first is whether MFIs need to be brought under the regulatory ambit
of an apex institution such as Nabard or RBI or be left to be self-regulated. The consensus now seems to be in favour of a
comprehensive regulatory framework. The Bill in this regard is already before Parliament, but awaits revisions to incorporate
additional features emanating from the Andhra Pradesh episode and the recommendations expected from the RBI-appointed
Malegam group.
The second issue is the interest rate charged by MFIs, which are considered to be usurious, though perhaps not as usurious
as the rates charged by the traditional money lenders. Several committees in the past desisted from imposing any ceiling on
the interest rate.

The Andhra Pradesh ordinance has not introduced any ceiling, except for saying that the interest should not exceed the
principal. The Finance Ministry has said that the new Bill will not impose any ceiling on interest rates. Given that the current
average interest rate is in the 30 plus range, even a ceiling of 24 per cent would seem to have a large repercussions on the
sector, as per a recent study posted by a global agency monitoring MFIs.

Based on India's MFI financial data from 2003 to 2009, the agency has estimated a loss of over 10 million loans, and forced
shutdown of at least half of the institutions by 2010. This is indeed a very dismal picture.

The third issue pertains to coercive methods, forcing poor to commit suicide. In this respect, traditional money lenders have
proved to be angels. This issue needs to be addressed without creating the moral hazard of loan repudiation.

Last, but not the least, is the application of priority sector status to MFI loans. There is a valid criticism of dilution of priority
sector lending since the first Narasimham Committee of 1991. As Dr. Y.V. Reddy observed, since the recent episode is
rooted in priority sector benefit, RBI should seriously consider redefining the status of priority sector for bank loans to MFIs.

ROLE OF MFIs

There are no doubt several legitimate issues with respect to governance of MFIs, particularly the profit-making NBFC MFIs.
But, given the hope of this sector emerging as a viable social safety net model for the poor, both government and the
Reserve Bank in coordination with Nabard and SIDBI, should urgently contain the current crisis of faith so that it does not
inflict long-term damage on the entire sector.

The recent utterances of the Finance Minister are heartening. He said that no harm should be done to the system. The
government's aim was to establish a framework for the microfinance industry where the interest rate on loans would not be
exorbitant and coercion would not be part of the recovery process.

The Andhra Pradesh episode provides an opportunity to clean up unhealthy practices in the microfinance sector. This can
protect genuine lenders as also prevent vulnerable people from falling into a debt trap. It would be wiser for the AP
government to withdraw its ordinance, once the central legislation comes into force.

Green revolution over, agri yields staring at dead end?

Overexploitation of groundwater, coupled with rising temperatures, may push agriculture
to stagnation, says a satellite study mapping yields from 1982 to 2006
Amit Bhattacharya | TNN 

    The monsoon bounty this year is expected to put the smiley back on the agriculture output
graph. The government has quickly announced a target foodgrain production of 244.5 million
tonnes for 2010-11, 10mt more than the highest till date – 234.47mt achieved in 2008-09. Even
in the wake of last year’s monsoon failure, wheat production in the rabi cycle breached the 80mt
mark for the first time ever. 
    But are these recent successes signs of a much-needed turnaround or are they temporarily
masking a larger crisis in Indian agriculture that has been limiting growth in the medium term
and threatening our food security? 
    A revealing international study that used US satellite data to track year-onyear changes in
yields, warns that environmental drivers could be pushing agriculture towards stagnation. The
findings indicate that India’s Green Revolution may have reached unsustainable levels, at least in
some parts of the country, and may hit a wall unless massive policy interventions address the
situation. 
    The paper, Decadal Variations in NDVI and Food Production in India, published earlier this
year in the openaccess Remote Sensing journal, compares agriculture production in two decades
– 1982-92 and 1996-06 – and finds a distinct slowdown in growth rates in the latter decade for
both kharif and rabi crops. The study points to two worrying environmental factors, among
others, that may explain the low growth during 1996 to 2006 – increasing pressure on
groundwater due to unsustainable use and rising temperatures in the subcontinent. 
    The authors, researchers mostly based in the US, used a measure known as Normalized
Difference Vegetation Index (NDVI), which calculates crop yields using satellite data. For the
study, year-on-year data from the US meteorological sensor, the Advanced Very High
Resolution Radiometer, was used. 
    As compared to the previous decade, the study found a 50% drop in growth rates in the kharif
season during 1996-2006 and, more alarmingly, almost zero growth in the winter crop (rabi).
The slowdown was more pronounced in the main foodgrain producing states in north India and
in the central portion of the country. 
    “Around 30% of the total cropland area of India showed a statistically significant decline in
growth rate of greenness index during the rabi season,” lead author Cristina Milesi from
California State University, Monterey Bay, told TOI. 
    The rabi slowdown is significant because it’s primarily dependent on irrigation, increasingly,
groundwater. Not surprisingly, states such as Punjab and Haryana where rabi yields are
stagnating, also overlap with regions where groundwater use has reached critical levels. The
paper estimates that in the absence of any irrigation, it would require 30% to 150% increase in
local annual rainfall to sustain the rate of growth in rabi crops seen during 1982-2002 in large
portions of peninsular India. 
    “Our calculations of increase in crop water demand are greatest over the northwest and
central-southern peninsula and coincide to a good approximation with areas mapped as suffering
from groundwater overexploitation,” the paper notes. 
    Says K Krishna Kumar, climate scientist at Indian Institute of Tropical Meteorology and one
of the authors, “What could also be contributing to the fall in growth is accelerated warming
since the mid-1990s. Our paper notes that over the past decade, average temperatures have
increased by 0.25 degrees Celsius during the kharif season and by 0.6 degrees during rabi. We
cite other studies which have linked the recent warming to a potentially reduced rabi crop yield
by 6%.” 
How Sat Data Works 
Healthy plants absorb light in the visible range while reflecting a large portion of near-infrared
light. Unhealthy or sparse vegetation reflects more visible light, less near-infrared light. So, by
analysing remote sensing satellite images in different spectral bands, the ‘health’ of crops can be
measured over a period of time. This is the basis of calculating farmland yield through an
indicator known as Normalized Difference Vegetation Index.

AGAINST THE GRAIN

Devil’s in the delivery: Why cash, stamps for food will never work
BY BIRAJ PATNAIK 

    Arecent paper by Kaushik Basu, the chief economic adviser to the government, titled, “The
Economics of Foodgrain Management in India” has been generating considerable buzz in the
media and policy circles. To set the record straight, Basu does not advocate the dismantling of
the Public Distribution System (PDS) as suggested, rather mischievously, in some media
reports. 
    On the contrary, he argues for an effective delivery mechanism to strengthen PDS. The report
also endorses the enactment of the National Food Security Bill and goes on to state that, “the
right to food is well within the powers of the Indian government to satisfy under most realistic
scenarios and, moreover, this is a need that all civilized societies ought to try to fulfill”. 
    In this, the author is supportive of the efforts of the National Advisory Council and the Right
to Food Campaign to legislate the right to food. His major point of departure, and it is a
significant departure, is in the vision of how this right ought to be realized and, in proposing an
alternative to the delivery mechanism that is being sought through the NAC framework for the
draft bill. The essence of his proposal is to rethink the PDS by bringing in more private sector
competition in the last mile of the delivery through food stamps (in the medium term) and
direct cash transfers in the longer term. 
    If we ignore Nietzsche’s dictum that “there are no facts, only interpretations” and look at the
facts placed by Basu in the first part of the report, it is a very useful summary of many of the
things that are obviously, and lamentably, wrong with India’s foodgrain management policy.
Basu does not mince words in highlighting the conundrum of simultaneous occurrence of high
food inflation and large foodgrain stocks in the granaries. It is a point that could not have been
made sooner, given the reluctance of the government to release these stocks instead of
allowing them to rot in the granaries. 
    On the other side of the ledger, Basu's proposal on food stamps and cash transfers ignores
the evidence from the ground, is ill-conceived, not thought through adequately and fraught
with grave risks. It is a solution that is worse than the problem it seeks to address. 
    While it is well-known the there are largescale leakages from the PDS across the country,
there are many states which have managed to successfully reform the PDS and reach foodgrain
to the poor. States like Chhattisgarh and Tamil Nadu which have done so, have not used the
cash transfer or food stamps route but have instead revitalized the supply chain, innovatively
used appropriate ICT solutions, and focused on greater transparency and accountability at all
levels. These are models that the author has chosen to ignore, at his own peril, because the
transformation of the PDS in these states has not been achieved by creating another layer of
bureaucracy and more policing as he apprehends to be necessary conditions for the delivery of
foodgrain through PDS. 
    The track record of food stamps, on the other hand, has been disastrous in employment
programmes in India, which used a system of food coupons and saw widespread duplication of
coupons, recycling of foodgrain and increased corruption. The poor experience in neighbouring
countries which have implemented food stamp programmes (Sri Lanka is an example quoted by
the author) should serve as a deterrent. 
    As the author rightly notes, the problem of targeting the right people is not solved by food
stamps but that this is a central problem with the PDS in India and a solution that does not
address this is unlikely to be an acceptable solution. While it is theoretically possible to
inflation-index cash entitlements and food stamps, the volatile nature of food prices would
make it a more difficult process than the author envisages. 
    Access to foodgrain for the poor through this system is contingent on the availability of
foodgrain. Given that many parts of the country are food-deficient, there is no proposal in the
paper which suggests concretely how this would be addressed. The author, rather naively, also
underestimates the gender dynamics at the household level and assumes that a food stamp (a
fungible instrument) in the woman’s name, would lead to women’s empowerment. 
    “What distinguishes the worst of architects from the best of bees”, Karl Marx had famously
remarked, is that “the architect raises his structure in imagination before he erects it in reality”.
It is Kaushik Basu’s imagination and distance from ground reality that ultimately lets his vision
down. 

‘Need to be as global as the problems we tackle’

    As an NGO known for its aggressive, eye-catching protests on environmental issues across the
world, Greenpeace is rediscovering what it means to be global amid a North-South divide. The way
forward is to not give in to the dichotomy but recognize the power differentials, Kumi Naidoo, the first
African executive director of Greenpeace, tells Nitin Sethi 

What do you see as the major differences between Greepeace Europe, US and Asia and
India? 
    Whether we like it or not, all the contradictions and power differential in global society also
manifest itself in global civil society. We have just had our big strategy meeting where we have
decided to reduce our expenditures in the North, so our European offices have agreed upon 20
million euros in addition to what is already spent in China, India, Southeast Asia and Africa so
that we strengthen our ability to have a positive impact in those places. 
    We at Greenpeace are beginning to use the language of climate justice more now. Our take is
that those who have a historical responsibility have to recognize that even though there are
common responsibilities there has to be differentiation on how the burden has to be shared.
Sadly, the US is a real challenge to move the agenda forward. So we have asked our offices in
Europe for the first time to also shift resources to the US to increase our campaigning capacity
there. I think there are some countries that are critical to a just, successful, fair and binding
climate treaty. I think China, India, US, Brazil as well but less so. 
Will the right-wing conservative winds sweeping through Europe and now in US too make
it difficult to resolve the climate talks? 
    The short answer is yes. But, these things are cyclical. On the other hand, unless we can
convince the global public that we have to break out of the North-South divide on the climate
problem, it won’t happen. If you take a mediumand long-term view, we either get to survive as
rich and poor countries together and get a workable treaty and deliver a safe future for our
children, or if we get it wrong we all go down together... Poor countries are paying the first and
most brutal price. 
    Does this bring special challenges to international civil society organizations like
Greenpeace. Say in India, it’s been looked upon by the state as leading a European agenda. 
    There is no running away from the history of where Greenpeace started, in Canada, where it
evolved, but there is a strong commitment – my one-line mantra is we need to create a
Greenpeace which is as global as the problems we seek to address. 
    It’s not fair at all to say that Greenpeace acts in the interests of European Union. If we look at
India, when it was the case of the French ship Clemenceau and when the US ship was coming to
dump toxic – it all happened when our presence in India was very weak. It required leadership on
part of our folks in the developed world. 
    Does Greenpeace have enough independence that your India office can say something
that contradicts the European office? 
    Let’s put it this way. Any effective global organization has the challenge right now to
refashion and redefine what global really means. 
    For Greenpeace what I am trying to do and I think am succeeding is to not think in a clear
North-South dichotomy, recognize the power differentials and talk about it an open way. The
biggest problem I have seen with the UN, the WTO and the World Bank (is that) people don’t
talk about the power differentials in an honest way – they assume we are operating on a level
playing field when we are not. 
    This is something I am arguing within Greenpeace that some of the southern offices are in the
frontline of environmental resistance, there are good reasons why they don’t have the same
financial capabilities that we have in Europe and Canada. If we are seriously global, let’s start
shifting global resources to where we can have most impact. I am cautiously confident that
within the next year, there will be much more of an acceptance that we need to operate in
different ways in different places. 

SKS Microfinance under Irda scanner

PRESS TRUST OF INDIA Hyderabad, 25 November

Compounding its woes, SKS Microfinance has come under the Insurance Regulatory and Development Authority’s (Irda’s) scanner
for violating norms in selling insurance policies to its borrowers.

Sources said the country’s only listed microfinance company was under the scanner of Irda for charging higher commission on sale
of insurance policies. They said SKS had collected commissions higher than the 10 per cent permitted for an agent while selling
policies.

There have also been reports that SKS had received cheques for death claims on its name. Under the normal practice, the cheque is
issued in the beneficiary’s name. When contacted, Irda Chairman J Hari Narayan said, “We are still examining the records (of
SKS). Investigation is going on.” A spokesperson of SKS said, “People from Irda came to examine records a month ago. But they
have not issued any notice thereafter.” For over a month now, SKS Microfinance has been in a controversy for sacking of its CEO
Suresh Gurumani. Adding to its woes, the Andhra Pradesh government issued an Ordinance on October 15 for controlling the
microfinance companies. BS REPORTER Mumbai, 25 November

The Insurance Regulatory and Development Authority of India (Irda) today slapped `5lakh penalty on Tata AIG Life Insurance Co,
as the company’s expenses of management for the financial year 2009-10 went beyond permissible limits.

The company’s expense of management was 117.28 per cent for the period under review, as against the permissible limit of 110 per
cent under the Insurance Act, 1938.

Irda had earlier issued notice to Tata AIG, to which the insurance company had give an assurance to restrict such expenses and
increase branch productivity.

“Contrary to the directions of the authority and assurances provided by the company to the authority, while requesting for approval
to open new branches offices in the year 2009-10, Tata AIG has not complied with the limits on EoM under Rule 17D in the year
2009-10,” the Irda notice said.

The insurance regulator has asked the company to pay the penalty within 10 days.
NO TAKERS NOW FOR SECURITISED MICROFIN LOANS

MEHUL SHAH Mumbai, 25 November

Investors are shying away from securitised loans of micro-finance institutions (MFIs), as the ordinance issued by the Andhra
Pradesh government has slowed recoveries, creating uncertainty around the underlying portfolio. A third of the country’s micro-
finance lending is in AP. Securitisation is the process through which MFIs pool the receivables from loans given to their customers
and sell these to third parties like banks, insurance companies and mutual funds. Unlike the traditional loan portfolio sale or
assignment, in this process the MFI portfolio is rated and converted into standardised securities, which can be traded more easily.
Securitised loan products of MFIs were emerging as a good investment option, as they offered returns of 9-12 per cent per annum.
The size of this market was pegged at a little over
`1,000 crore. However, the issue of these products has stopped for the present, officials said. “In view of the uncertainty after the
AP ordinance, it has become difficult for MFIs to sell securitised loans. The pace of such deals has reduced,” said D R Dogra,
managing director and CEO of CARE Ratings.
After the state government passed an ordinance in midOctober, MFIs have moved to amonthly repayment cycle from a weekly one.
This has resulted in a sharp drop in collections in the southern state. Crisil estimates collections in Andhra have plummeted to
below 20 per cent, from nearly 99 per cent prior to the ordinance.
“We last rated an MFI loan assignment transaction in October. Since then, we have not received any request for rating such
products,” said Kalpesh Gada, head- structured finance, Icra. “MFI originators might possibly be wanting to securitise their loan
receivables or bilaterally assign them, but banks are mostly in a wait and watch mode,” he added.
The traditional loan assignment transactions, in which MFIs sell their portfolios to banks, have also been severely hit.
Post-Andhra ordinance developments also halt traditional loan assignment transactions
A woman signs a register to receive a loan. After the state government passed an ordinance, the collections in the southern state
registered a sharp decline. PHOTO: BLOOMBERG
SKS expects Andhra collections to improve

PRASHANTH CHINTALA Hyderabad, 25 November

SKS Microfinance, the only listed microfinance institution in the country, expects its collections in Andhra Pradesh to improve
from next week. The company had earlier reported that its collections in the state were lower than normal on account of transition
from weekly to monthly collection in accordance with the provisions of the AP Micro Finance Institutions (Regulation of Money
Lending) Ordinance 2010, promulgated recently.
“Now, we have totally migrated to the monthly model and made related changes in the management information system. We are
positive that the collections will pick up from next Monday (November 29),” SKS Microfinance spokesperson Atul Takle told
Business Standard. According to him, the collections are still below normal. Takle said in the past two weeks, SKS was engaged in
explaining to its borrowers about the monthly collection mode and the amount they had to pay to the company.
SKS, which stopped disbursal of loans following the issue of the ordinance, also expects to start lending operations from next week.
Prior to the changes in the collection mode, SKS’ normal recovery in the state stood at
`28 crore a week. During the week ended October 29, SKS could not conduct village centre meetings at 54 per cent of its centres in
the state. However, for the week ended November 12, it held meetings at 97 per cent of its centres.
The company’s shares closed 3.41 per cent higher at
`752.65 on the BSE.
Land diversion makes case for intensive, modern farming
Agricultural Land Falls To 182.4 Million Hectare In ’07-08 From 183 Million Hectare In
’04-05
Our Bureau NEW DELHI 

    THE acquisition of farm land for industrial and infrastructure use is beginning to show up in
substantial numbers, indicating an urgent need to get more out of declining agricultural land to
moderate the price pressure on food items. 
    Government data shows agricultural land has declined to 182.4 million hectare in 2007-08
from 183 million hectares in 2004-05, a drop of nearly 600 thousand hectares, slightly less than
that used for jute cultivation every year. 
    Land acquisition has increased for various non-agricultural needs such as special economic
zones, urbanisation, power projects, roads and mining. As a result, the percent share of
agricultural land has declined to 59.7% in 2007-08 from 59.9% in 2004-05, the agriculture
ministry said in response to a question in Parliament. 
    The impact of this diversion would depend on whether the land was yielding two crops or a
single one. 
    India is already battling a double digit food inflation, which is now beginning to be blamed on
structural reasons and not just temporary demand-supply mismatch because of one off reasons
such as drought or floods. "Continued stickiness in Primary Articles is possibly due to the
growing dominance of structural factors (rising incomes, changing dietary patterns towards
protein-rich items, and stagnant yields),” said Citi economists Rohini Malkani and Anushka Shah
in a recent research note. 
    Inflation in food articles has dropped to 10.15% for the week ended November 13 from over
20% at the beginning of the year, but a large part of the decline is because of the base effect, or
rising inflation at the same time last year. However, farm experts are not perturbed by the
diversion of farm land for other use, saying that the real issue is not land, but farm productivity. 
    “Over the years, agricultural area will come down as there are other uses where returns are
more,” said PK Joshi, director, National Academy of Agricultural Research and Management,
Hyderabad. 
    India has more agricultural land than China, but its farm output is much less because of a
sharply lower per hectare yield for most crops, thanks to outdated agricultural practices, poor use
of inputs and fragmented land that makes mechanisation difficult. 
    Independent estimates put India’s crop land at 170 million hectare as compared to 135 million
hectare for China, but the latter manages to produce more from the smaller area it has under
cultivation. 
    In 2008, for instance, China produced 112 million tonne of wheat, but India managed only
78.6 million tonne, says Food and Agriculture Organisation of the United Nations. Similar
differences exist in other farm produce as well. "We need to increase the cropping intensity, plot
more shorter duration crops, and also target higher productivity. These will help compensate for
the decline in land,” Mr Joshi said.

PDS in mind, FCI to beef up capacity in NE

Bikash Singh & Anuradha Himatsingka GUWAHATI & KOLKATA 
THE Food Corporation of India is looking to augment its storage capacity in the north-east
region to ensure timely supplies for the government’s public distribution system. 
    “Inadequate storage facility in the north-east region creates problems in ensuring regular
supplies to the PDS (public distribution system),” Union agriculture minister Sharad Pawar told
ET. 
    The current storage capacity of the government’s top grain management agency in the north-
eastern states is 4.58 lakh tonne, which is not sufficient to meet the requirements of the welfare
schemes and also ensure availability of key food items through the year. The ministry of
agriculture has, therefore, allowed FCI to hire godowns from private party for 10 years even as it
builds its own capacity. 
    The agency plans to lift its grain storage capacity in the region by 5.25 lakh tonnes over the
next couple of years at a cost of Rs 568 crore, helping it reduce the year round dependence on
transport systems to move grain to this deficit region. 
    The agency already has 77,500 tonne of storage capacity under construction at various places
including 50,000 tonne of warehouse facility at Changsari near Guwahati. 
    Most of the north-east India, except Assam, relies heavily on road transport for movement of
essential commodities. In the case of Assam 66% of the essential goods are moved by the
railways while roads transport about 30 %. 
    Tripura and some parts of Nagaland have some rail connectivity but other states are dependent
on roads. Life saving drugs, garments and food grains are brought to these region on trucks. 
    More than 1,000 trucks come to Guwahati everyday from New Delhi, Haryana and West
Bengal and nearly 200 trucks make there way from Guwahati to Upper Assam and other areas of
the north eastern states. Authorities in the north east have recently begun cracking down on over-
loading trucks, following a supreme court directive. Trucks have been carrying 15-20 tonne of
load against 9 tonne allowed officially.
FDI Flows Slacken

    THE report that foreign direct investment (FDI) flows into the country fell 23% during the first half of the
current fiscal underscores the concern often voiced in these columns about our widening current account
deficit. A current account deficit is not a bad thing, per se, especially for a developing country as it is a
measure of its net draft of global resources, used to raise domestic investment above domestic savings. It
becomes problematic only when its size grows so large as to make foreign suppliers of capital jittery about
the country’s ability to service the capital, and when the quality of funding is flighty, to begin with. So, while
it is but natural that faster growth in India relative to the rest of the world should see imports expand faster
than exports, leading to a widening of the trade deficit and the current account deficit, the question is, is it
sustainable? 
    At about 3% of GDP, the current account deficit is now higher than usual, but probably not yet risky.
However, there is no dispute over the dangers of relying on volatile sources of funding to bridge the deficit.
Here, FDI wins hands down over foreign portfolio investment flows. FDI tends to be sticky and has
significant positive externalities (growth of ancillary industries, export markets, technology and management
knowhow, etc). Foreign institutional investment (FII) flows tend to be volatile in largish parts, and leave it to
the domestic investor, at the best of times, to decide what to do with the additional capital brought in. But for
the all-too brief three-year period 2006-07 to 2008-09, FII flows have been larger than FDI inflows. This is
quite unlike China where FDI has hugely exceeded FII. The net result is that India’s macroeconomic
parameters, and not just the Sensex, are exposed to footloose capital. In such a scenario, we can ill-afford to
have FDI shrink. There are two ways to attract more FDI. Allow it come in, into multi-brand retail, into
insurance beyond 26%, into all sectors save some strategic ones. More vitally, reform domestic procedure
and politics to salvage permitted FDI from getting stuck, instead of producing income and jobs. This calls for
political will, not yet another expert committee, may we hasten to add!
Institutionalisation of corruption
C P BHAMBHRI 

    IN A democracy, political leaders lose their credibility, even legitimacy, if voters develop a
perception that their elected representatives are abusing and misusing power for self-enrichment
and engage in crass favouritism. Verily, even democracy will gain a bad name in the process.
People were stunned when Ratan Tata said recently that a minister of aviation had asked him for
a bribe for a routine permission to expand Tata's project of airlines in collaboration with a
Singapore company. Then came the 2G scam and the mindboggling amount of money involved
in it. Clearly, the erstwhile minister of telecommunication, A Raja, had flouted every rule,
regulation and procedure by distributing telecom licences to companies and individuals on the
first-come-first-served basis, instead of auctioning them in the open market through fair bidding. 
    Ironically, the decision to appoint Raja as telecommunications minister was taken by DMK
supremo M Karunanidhi, not the Prime Minister. Hence, every leader of every party in a
coalition government is a party to the malfunctioning and malgovernance at the Centre.
Corruption in one party-led government is appropriated by a single source of power but in a
coalition system, every partner claims a share in the spoils of office. Is it fatalistically determined
that corruption in public life will increase in the age of coalition governments? 
    Similarly, Karnataka chief minster B S Yeddyurappa has been playing a cat-andmouse game
after it has been established that he misused his authority for land-grabbing. Yet, the BJP can’t
remove him from office because of votebank considerations. Post-Nehru governments in India
have not been able to punish the guilty ministers or chief ministers because resignation is not a
punishment enough to prevent the gross abuse of power. The acts of corruption by public
functionaries take place quite regularly because there is no effective deterrence to nail the
culprits. Raja or Ashok Chavan or even Yeddyurappa will continue to pollute public life because
even after their exit, they enjoy the protective umbrella and patronage of their respective parties
and leaders. 
    Veerappa Moily has publicly stated that the mounting electioneering expenditures are
responsible for the rising level of corruption. L K Advani, on the other hand, has consistently
pleaded for the public funding of elections to cleanse the body politic of corruption. What is
conveniently forgotten in the debate is the point that politicians have themselves converted the
electoral process into an ugly competition of money power. 
    Further, it has been suggested that the quantum of corruption has increased by leaps and
bounds because every partner in a coalition government operates as an ‘empire within an empire’
and every political group separately accumulates funds by exercising power. Is it any wonder
then that that every partner in a coalition government stakes claims to the ministries where more
money can be milked through kickbacks? 
    Every chief election commissioner has attracted public attention to the pernicious role that
‘money power’ plays during elections. However, every party has seen to it that autonomous
institutions like Lok Pal and Lok Ayukta that could expose and curb corruption in public life
have been reduced to the status of paper tigers. Every major political party, national or regional,
is dominated and controlled by a family or extra-constitutional authority like the RSS. The
supreme or real controllers of a party machine also need immense financial resources to
distribute favours to their political favourites in these private political shops. The loyal party men
know it quite well that their leaders would take care of their financial needs during their political
career. 
    As a consequence of this, corruption spreads like a tornado in public life, smashing the normal
procedure-based system of governance in democracy. India cannot remain an exception to this
rule. The credibility of the CBI or the Central Vigilance Commission as autonomous watchdogs
has been eroded because politicians cannot allow these agencies to bring out the skeletons in
their cupboards. In fact, there are more incentives in our system to shield corruption: why should
a civil servant oblige a minister without getting a share of public funds for his own private family
purposes? 
    Corruption in pubic life can be uprooted only if the guilty are punished and the fear of the rule
of law acts as a deterrent among politicians and bureaucrats. For this to happen, we need speedy
trial and justice dispensed by agencies autonomous in letter and spirit — agencies that operate
without any fear or favour of the politicians. During his time as the PM, Jawaharlal Nehru had
showed us the way by removing every minister who had been tainted with the charge of
corruption. We have to follow this route of inflicting heavy punishments on public functionaries
involved in loot and plunder and confiscate their property and freeze their bank accounts.
Solving The Identity Problem
The Aadhaar number opens up new possibilities for bringing about inclusive growth
Vijay Kelkar 

Since the early part of this decade, our governments have emphasised the problems of poverty
and unequal growth as important challenges. Economic policies are built on political
foundations, and this focus of our leaders and governments on inclusive growth has been,
therefore, a critical first step. With this shift in our developmental priorities, there are now broad-
ranging efforts which have the potential to permanently change how we fight poverty and
inequality in this country. 
    I have spoken for some years in favour of a national ID system, and how it can be a powerful
means to bring better access for the poor. It can help address the causes that lie at the root of
poverty and exclusion, and address the basic challenges surrounding what many of us refer to as
the 'last mile'. It is a foundational infrastructure that – like the social security number in the US
and the welfare number in Europe – can make both governments and markets function better. 
    To acknowledge the role that the Aadhaar number can play in our development efforts, we
must consider what lies at the root of our challenges today. The poor across the country have
much fewer choices than the rest of us due to the scarcities of their environment, and the
limitations they face in educational and employment opportunities. As a result, their incomes
grow slower, steady work is difficult to find, and they often risk losing what little they have due
to sudden calamities in health and environment. To work up the ladder of income and
achievement, it is necessary to first get on it, but the poor, the ‘left behind’, often find it difficult
to get their hands on the bottom rung. Our approach must focus on giving the poor the tools to
get on the ladder, and access the resources they need to move up and out of poverty. 
    The unique identification initiative emphasises precisely these kinds of tools. The number
brings with it powerful features, and an important one is the unique identification of an
individual. In a country where fake and duplicate identities are used across systems to divert
benefits en route to the poor, an individual’s unique, real-time identification can help do away
with the bogus identities that are used to channel funds away from real beneficiaries. 
    Another great advantage of the Aadhaar number is its universal application, and the
opportunity it gives us to do away with multiple, criss-crossing schemes. Chief minister Sheila
Dikshit has noted that in Delhi alone, there are 48 programmes for different categories of poor in
the city, and defined for different income levels. The Aadhaar number would be applicable
across these databases, clearly verifying the person across benefit schemes and services. This
gives governments a chance to streamline their social programmes, and target them more
effectively to the individual. 
    The Aadhaar number also enables the poor to fulfil the Know Your Customer (KYC) norms
that, today, often limit them from using basic services – proof of identity and proof of address
requirements that they must fulfil in order to use services such as banking and telecom. 
    This is an initiative that is particularly valuable to migrants. India is increasingly a highly
mobile country. A large proportion of Indians are self-employed, and they move often. Many of
these migrants, particularly the poor, find that they descend into anonymity when they move.
The identification and address documents the poor depend on – ration cards and land records –
are usually local proofs, and lose their value when people cross the village, district or state. As a
result, poor migrants find themselves denied services and marginalised once they leave their
villages. The Aadhaar number, since it’s a portable identification/ proof of address that can be
regularly updated by the individual and used nationally, is a powerful tool for migrants to access
services and benefits. 
    The Aadhaar feature with perhaps the widest applicability is how it makes the confirmation of
service delivery possible. Governments and service providers today have little oversight over the
transfer of benefits to the poor or the quality of the final delivery point, where the person
receives the service. As a result, people across the supply chain often act as independent agents,
who may divert funds en route, deny service at the point of delivery, or demand bribes from the
beneficiary. 
    Aadhaar brings accountability to these actors, and makes the last mile in delivering benefits
less opaque. Real-time verification of identity through Aadhaar enables individuals to confirm to
service providers and governments instantly whether they have received a particular service, or a
benefit. 
    I venture to say that Aadhaar will enable us to put in place a well functioning social safety net
for our citizens by unifying all subsidies into cash-based transfers. For example, Aadhaar offers a
better alternative to promote food security for our citizens than many other proposals that are
being presently discussed as Aadhaar will help the government to save enormous costs while
improving transparency and accountability. In other words Aadhaar-based transfers will pave a
way to secure lasting improvement of governance in our country. 
Nabard may soon fund Indians setting up farms abroad

 
Mr K.G. Karmakar

Our Bureau

Hyderabad, Nov 26

The National Bank for Agriculture and Rural Development (Nabard) is likely to extend funding to agricultural enterprises
wishing to set up farming estates abroad, according to its Managing Director, Dr K.G. Karmakar.

Speaking at a seed-industry-bankers workshop, organised by the Andhra Pradesh Regional Office of Nabard here on Friday,
Mr Karmakar said there are opportunities for Indian farmers to take up agriculture in countries in Africa, Georgia, Ukraine and
Ethiopia, among others.

Nabard was also in the process of concluding a deal with an Israeli Fund for research and technology transfer in agriculture,
he said.

“I will be travelling to Israel soon for taking this forward. The fund could also be utilised for promoting Indian agri ventures
overseas,” he said.

Mr Karmakar also asked the seed industry to come up with specific research proposals especially in pulses and oil seeds
and other vegetable oils as there was a definite need. Nabard was keen on furthering research in the seed-industry, he
added.

Currently, it has three funds — R&D fund, rural innovation fund and farmer technology transfer fund with a combined outlay
of about Rs 200 crore.

On the concerns in the seed industry, he said: “At present, the major concern is lower seed germination rate. It should not be
anything less than 90 per cent. But today, 55-60 per cent is also being accepted.” The rising cost of seeds, replacement of
seeds (at 15 per cent currently), lack of any break-through in oilseeds, pulses research, thinning of talent were other major
concerns, he added.
Mr P. Mohaniah, Chief General Manager, Nabard, Andhra Pradesh, said the one-day workshop was being organised to draw
a framework for addressing the credit needs of the seed industry and public private partnership.

“Another issue is how to make quality seeds available to farmers,” he said.

Mr Karmakar had earlier formally released a national status paper on the seed industry. The seed industry had a turnover of
Rs 4,900 crore last year with a growth rate of 1.3 per cent a year. The production of seeds had grown from one lakh quintals
in 1960 to 120 lakh quintals in 2009-10. About 60 per cent of the market is catered to by 600 private companies including
multinationals.

Nabard ‘ready' to regulate MFIs

Our Bureau

Hyderabad, Nov. 26

The National Bank for Agriculture and Rural Development (Nabard) is ‘ready' to regulate microfinance institutions (MFIs),
according to its Managing Director, Mr K G Karmakar.

Speaking to newspersons on the sidelines of a seed industry-bankers workshop here on Friday, Mr Karmakar said: “We were
actually prepared three/four year ago when there was similar proposal. Now we are more updated,” he said.

The Govt was proposing to introduce a bill during the current winter session of Parliament providing for regulation of MFIs by
Nabard in the wake of recent allegations of harassment of clients by recovery agents of MFIs and over 75 suicides in Andhra
Pradesh.

The Andhra Pradesh Government had, in October, promulgated an ordinance with regulations such as mandatory monthly
collection in the place of weekly collections, among others.

On the Nabard's policy towards MFIs, Mr Karmakar said preference would be given to encourage only minor MFIs in regions
where banking was not widespread through minor equity participation.

“When we invest, we also impose a cap of 25 per cent on effective interest rates which can go up to 30 per cent only in
special cases such as operations in hilly areas,” he said.

Nabard would take ‘extra' due diligence while funding any MFI. “Over the last five years, bank funding to MFIs had grown by
80 per cent while lending to SHG-bank linkage had gone up only by 30 per cent,” he added.

“According to estimates, exposure of banks to MFIs is Over 25,000 crore. As far as we are concerned, the future policy will
depend on the report of the RBI panel constituted recently.”

Mr Karmakar said big companies including SKS Microfinance Ltd were earning ‘indecent' profits citing ‘high' operational
costs.

“But when size and scale increases, the operational costs will come down,” he said while adding that the benefit was not
being passed on to the customers by lowering interest rates.

Instead of concentrating on regions where reach of banking was not widespread, MFIs were focusing more on states where
banks were mostly present, he added.

REMEDY FOR CORRUPTION

The veil over the 2G spectrum scam seems to be slowly lifting. As it reveals its ugly face, the country becomes more and more
involved in speculating on the name of the next character that will take centre stage in this sordid drama. We are also being treated
to some excellent side-shows involving land scams in Maharashtra and the mining lease scams in Karnataka. All of this has come to
light after the corruption episodes that hogged newspaper coverage during, and after, the Commonwealth Games. Everybody loves
a juicy story and we are lapping them up. However, if history is anything to go by, next year same time all of this will be forgotten
and we will be patting ourselves on the back as we register a 9 per cent growth rate in GDP. Some of the villains of today will
continue in public life while others will be quietly making use of the monies they have stolen. And new corruption dramas will be
enacted with a completely new set of actors.

No country has been able to completely get rid of corruption. What is remarkable in India is how widespread and systematic it is. It
is difficult to think of any one sphere of our lives where we can say that we will not face any corrupt activity. The question to ask is
why corruption is so rampant here. Let us begin with the telecom scam. Every country sells spectrum. The objective is, of course, to
raise revenue subject to developing the communication infrastructure in ways that improve businesses and modern lifestyles. There
are several instances where countries have done this extremely successfully. There are other instances where errors have been
made; most of them corrected never to be repeated again. But, in India, be it government land, government spectrum, or
government contracts, we never seem to come up with a process that prevents corruption. And, the reason is a simple one — we do
not believe in professionalism; instead, we depend on “fixers” to get the job done.

Take for example the 2G scam. To begin with, the minister was not exactly a natural choice for this important ministry. The main
fixer was not somebody who can in any way be described as a public or social policy strategist, or even someone who could be
remotely described as a technologist of some repute. Many of the companies that obtained licences at throwaway prices had no
proven expertise in this field and they promptly sold apart (or all) of their holdings at obscene premiums to other players even
before any market was developed by them. Recall the exemplary success of the initial spectrum auction held in the UK that every
nation wanted to emulate. Well, what is worth pointing out is that the person who led the UK auction, in its design and
implementation, was not a fixer, was not a civil servant and certainly not a minister. He was a reputed professor in game theory and
economics, who went back to his academic career after the successful auction.

Take the issue of land. Both in acquisition and distribution, all decisions are taken by politicians and their relevant ministries. The
expertise on, say, urban planning or on land auctions comes from politicians themselves or, from civil servants. This is not to say
that they should not be involved, but clearly they should demonstrate expertise on these specific issues before being asked to take
decisions on them. Instead, lands are acquired, they are parcelled out among the loyal and faithful and then grandiose development
plans are worked out. So, those who got cheap allocations become rich overnight because of their proximity to decision makers. A
professional approach would be to announce the plan first and then parcel out lands to the highest bidders.

Ihave a nagging feeling that it is not that our leaders do not know this. Indeed, they know that this will be a smart way to distribute
acquired land for it will be transparent and will maximise the revenue to the state. Since the final ownership is now decided through
a competitive bidding process, atransparent formula for sharing the proceeds with the original owners can be stated upfront so that
incidents like Singur and Adarsh can be avoided. But, of course, we will not do it for our smart decision makers want a return on
their smart decisions! And, they can get away with it because we do not demand any professional expertise from our decision
makers.

If India has to develop into a knowledge-based economy, if India has to modernise, if India has to urbanise, if India has to build
infrastructure, we have to become more professional-oriented. Remember, our economy reformed in the nineties under a finance
minister extremely well-trained in economics leading a team of other extremely well-trained economists in major official positions.
The reforms of the nineties were not orchestrated by fixers and that has put us on the growth path we are now experiencing.
Professionals get their reputation from ajob well done, not from the amount of money they have made, or allowed others to make,
by networking in the corridors of power.

India will not be a leader among developing countries if people become experts by sitting on committees; they should be sitting on
committees because they are experts. Public policy decisions should be undertaken after they have been thrashed out in the public
space by professionals. They cannot be left to be drawn up in closeddoor meetings of civil servants and politicians. Otherwise,
fixers will continue to have a field-day and India will continue to be at the top of the list of corrupt countries.
15 JAN, 2010, 04.35AM IST,ET BUREAU 
ET classroom: Essential commodities act
The Prime Minister will soon hold a meeting of chief ministers to discuss the alarming food price situation and review
the implementation of Essential Commodities Act (ECA). ET looks at the ECA and how it can help combat the rising
prices of food articles. 

What are essential commodities? 

The government has powers under the Essential Commodities Act, 1955 (EC Act) to declare a commodity as an
essential commodity to ensure its availability to people at fair price. The EC Act, 1955 allows the government to control
the production, supply, and distribution of these commodities for maintaining or increasing supplies and securing their
equitable distribution. Essentially, the act aims to ensure easy availability of important commodities to consumers and
check exploitation by traders. 

How many commodities are covered by the Essential Commodities Act? 

There are seven broad categories of essential commodities covered by the Act. These are (1) Drugs; (2) Fertilizer,
inorganic, organic or mixed; (3) Foodstuffs, including edible oilseeds and oils; (4) Hank yarn made wholly from cotton;
(5) Petroleum and petroleum products; (6) Raw jute and jute textile; (7) (i) seeds of food-crops and seeds of fruits and
vegetables; (ii) seeds of cattle fodder; and (iii) jute seeds. Recently cotton seed was also included in the list.  

How does the Act help check price rise? 

The Act is implemented by the state governments and union territories, leaving the central government to merely
monitor the action taken by states in implementing the provisions of the Act. State and UT administrations use the
powers of the Act to impose stock or turnover limits for various commodities and penalise those who hold them in
excess of the limit. Stock limits have been imposed in several states for pulses, edible oil, edible oilseeds, rice, paddy
and sugar. 

How effective is the Act? 

Over the three years 2006-2008 , state and union territory governments prosecuted 14,541 persons under the
provisions of EC Act, 1955 and secured conviction in 2,310 cases. In 2009 as on 31 August 2533 persons had been
prosecuted and 37 convicted. But, doubts have been raised about effectiveness of the Act time and again. Recently,
Parliament’s estimates committee asked the government to come out expeditiously with a new legislation for
controlling the retail prices of essential commodities such as rice, wheat, pulses, edible oils, sugar, milk and
vegetables.

‘MFIs have no role in financial inclusion’

BS REPORTER Bhubaneswar, 28 November

At a time when micro finance institutions (MFIs) have drawn flak due to steep interest rates charged by them, Reserve Bank of
India (RBI) Deputy Governor K C Chakrabarty has categorically stated that such institutions cannot play any role in financial
inclusion.

“MFIs charging an interest rate of 30 per cent cannot bring about financial inclusion. The financial inclusion can only be brought
about by the mainstream financial institutions and they have to come out with an appropriate business model to achieve this goal,”
Chakrabarty told reporters on the sidelines of the National Financial Conclave here today.

“The banks can claim to achieve financial inclusion only when they provide services like savings, overdraft and remittances but the
banks are yet to come out with a business model to achieve this goal,” he added.
PMO PANEL FOR FOOD BILL WORRIES ACTIVISTS

SREELATHA MENON New Delhi, 28 November

The Sonia Gandhi-led National Advisory Council’s advice on aright to food law will now go through the scrutiny of a committee
appointed by Prime Minister Manmohan Singh, comprising economists and Planning Commission Deputy Chairman Montek Singh
Ahluwalia, besides secretaries of three ministries.
This news, given at its meeting last week, has dismayed food rights’ activists, who fear acheck on the clout of the NAC. However,
some NAC members deny this and say there has been no clipping NAC’s wings and it was just a routine procedure.
NAC member Jean Dreze, who’d earlier sent a dissent note on the proposed Bill not ebing strong enough, has expressed concern.
“The government is entitled to scrutinise the recommendations. However, the loaded composition of this committee is a matter of
concern. Social policy is too important to be left to economists,’’ he said.
The committee is headed by the chief of the Prime Minister’s Economic Advisory Council, C Rangarajan. It also has Ahluwalia,
Chief Economic Advisor to the finance ministry, Kaushik Basu, expenditure secretary Sushma Nath, agriculture secretary P K Basu
and food secretary B C Gupta.
“It is the Prime Minister’s men versus Sonia Gandhi’s NAC,’’ said Kavita Srivastava of the Right to Food Campaign, in which
Dreze and fellow NAC members Harsh Mander and Aruna Roy are active.
“It does not look appropriate that one committee will now examine the findings of another committee. It will lower the prestige of
Sonia Gandhi, who heads the NAC, as it makes it appear as if the Prime Minister does not trust the wisdom of the Council,” she
said.
NAC member Deep Joshi told Business Standard the committee was only meant to look at the proposals on the food Bill and not on
all proposals of the NAC.
“I don’t know the terms of reference and whether it would look at all proposals of the NAC or just the proposals on the food Bill.
But food Bill it certainly will examine. It is an important issue. Let everyone look at it. A month’s delay does not matter,” said NAC
member N C Saxena.
Whether it would mean changes in the proposals, Saxena, also a Supreme Court-appointed commissioner on the right to food, said:
“I don’t know. Maybe they will improve it.” Worries Biraj Patnaik, advisor to the Supreme Court commissioners on the right to
food: “The whole exercise is to bring in cash transfers instead of foodgrains as part of the food Bill. While the Planning
Commission in its presentation on the Bill earlier had sought dismantling of the Public Distribution System and replacing it with
cash transfers, Kaushik Basu has been an ardent advocate of cash transfers.” The main objective of the committee would be to
synchronise the NAC proposals with the proposals of Kaushik Basu on the same subject, food campaign activists said.
Jean Dreze’s note of dissent on the Bill proposed by the NAC, which differed from the unanimous view arrived at by the council
members, had sought universalisation of the PDS. The NAC view was to provide 35 kg of foodgrains per head per month to 46 per
cent of the poor in rural areas and 26 per cent of poor in urban areas. It suggested another 20 kg of foodgrain at half the market
price to 40 per cent in rural areas and 20 per cent in urban areas.
Fear dilution of proposals, in favour of pro-market and anti-PDS views
‘It’s the Prime Minister’s men versus Sonia Gandhi’s NAC. It doesn’t look appropriate that one committee will now examine the
findings of another committee’
‘International ban on endosulphan essential’
India’s opposition to a ban on the use of endosulfan at the Persistent Organic Pollutants Review
Committee meeting in Geneva in October has revived the long-drawn-out controversy over the
pesticide. Twenty-four of the 29 countries that attended the meet pressed for the ban and ironically
many of them cited reports of endosulfan-caused health problems from Kerala to back their demand.
Kerala banned the use of endosulfan after a state panel proposed so in 2001. A Achuthan, an
environmental scientist and a former president of the popular science movement, Kerala Sasthra
SahithyaParishad (KSSP), who headed the panel spoke to T Ramavarman: 
    Can you give us a broad picture of the reported ill effects caused by spraying
endosulfan? 
    The reported health consequences of endosulfan in Kasaragod district are similar to those
reported in several studies from all over the world. They can be grouped under five heads:
neurological, endocrinal, reproductive, genotoxic and dermatological. The most commonly
reported diseases are headache, nausea, quivering, convulsions, malfunctioning of kidney,
thyroid gland and liver, menstrual cycle disorder, early menstruation and early menopause,
genetic disorders, skin disorders, swelling and watering of the eyes and difficulty in breathing.
The environmental ill effects reported are reduction in honeybee population, contamination of
soil and water. 
    What evidence do we have to link these effects to endosulfan spraying? 
    Prior to 1980, prevalence of such illnesses was not reported, which means that the problem
was not serious. But between 1980 and 2000, when aerial spraying of endosulfan was done in the
area, these diseases were reported on a large scale. Many studies have shown that the prevalence
of such diseases in these areas is three to four times higher than those found in similar locations. 
    How important is the cashew plantation in Kasaragod for Kerala’s economy? 
    Only 5 to 6 per cent of the total cashew processed in Kerala comes from the Plantation
Corporation of Kerala (PCK) plantations in Kasaragod. A small decrease in the productivity
there is unlikely to have any notable effect on the industry. However, spraying endosulfan in
plantations may affect export of cashews. 
    Pesticide industry and unions in the cashew sector claim that unscientific spraying
methods are responsible for the ill effects. 
    The PCK entrusted aerial spraying of endosulfan to private helicopter operators. There was no
effective supervision. The topography and hydrography of the area is unsuitable for aerial
spraying. The PCK plantation area is uneven with a large number of small hillocks. In such an
area, helicopters cannot fly at low altitudes and the spray will spread outside the target area. The
National Spices Research Institute had suggested to rotate the pesticide and give a pesticide
holiday after every two or three years. The advice was neglected. 
    What is the way out? 
    An international ban is essential. When sprayed from air, endosulfan spreads widely and will
be transported across state boundaries. In water, endosulfan gets converted to sulfate, which will
persist for a long time, and will be transported through surface and ground water. A review of the
use of chemical pesticides is urgently needed. 
    In Third World countries, ill-informed farmers are likely to use pesticides indiscriminately. It
is necessary to legally prescribe (as in the case of schedule H drugs) that ‘all chemical pesticides
should be sold only on the basis of written prescriptions from agriculture scientists and that such
pesticides are sold only through sales-persons, who have a degree or diploma in agriculture or
entomology or a degree in chemistry’. A clause to this effect should be included in the Pesticides
Bill pending before Parliament.
Achieving success at Cancun
The rich nations must invest in the R&D of producing cheap wind and solar energies for
the benefit of all and this should be taken as a big business opportunity to enhance their
economies, says P P Sangal

    KYOTO Protocol of 1997 on climate change is expiring in 2012 and time is fast running out.
So, we should take the Cancun (Mexico) summit — which is just round the corner — as our last
chance to save the planet. From Bali in Indonesia (2007) to Poznan in Poland (2008) and to
Copenhagen in Denmark (2009), developed and developing countries have been struggling to fix
desired levels of carbon emission cuts that each other should adopt to ensure that global average
temperature does not rise beyond 2° C (preferably, 1.5° C) by 2050 that is essential to save the
world from calamity. Also, there is no clarity whether the US would commit on the quantum of
emission cuts till its government passes legislation in this regard, which certainly would not
happen before the Cancun summit. There are some other connected issues, too. 
    In view of the above grim scenario, we can’t be hopeful of any universally acceptable solution
at Cancun unless we change our strategy of combating climate change. For this, we need a
paradigm shift in our thinking. Let me explain this as follows: 
    Our carbon emissions are rising because most of our energy (say, about 80%) that we use
comes from burning fossil fuels, viz. coal, oil, etc., and only about 20% of clean energy is
available as hydropower, biofuels, nuclear, wind and solar power. Out of 20% of total global
renewable and clean energy, only a small fraction (about 0.5%) consists of wind and solar
energy. It is these two sources of solar and wind energies where there is a huge potential for
development. If we focus on these two forms of energy, we would surely be able to turn the
tables upside down in a few decades when we would be producing 80% clean energy from wind
and solar together sources with hydropower, nuclear power and in the form of biofuels and other
clean energy. 
    With economies of scale, the cost of solar and wind energies would drastically come down and
may be even less than the energy produced by fossil fuels. This may sound as a dream to some at
the present juncture. But, I am sure it is possible to achieve provided we sincerely invest in R&D
of these two wonderful and never ending resources of clean energy. 
    Just think, who would have thought 50 years back the great modern lifestyle comforts/luxuries
and facilities we enjoy today. It has been possible due to great revolutionary researches in the
field of electronics, space, medical science, information technology and communication systems,
automobiles, transportation, etc. Today, wars are fought with highly sophisticated weapons and
equipment because of investments in their R&D on a continuous basis. 
    Similarly, remarkable breakthrough in production of wind and solar energies at affordable
costs are possible by investing in their R&D. 
    Two moot questions that now arise are: how much investment is required at the global level
for R&D activity, and, who should fund this research? 
    This requirement of funds needs to be worked carefully by experts. It has been estimated that
an amount of 0.2% of world GDP, i.e., about $100 annually till 2050, would be required for
R&D. This is well within the capabilities of G20 group of world’s richest countries that account
for 90% of the global earnings. This is not an insurmountable amount if there is a serious desire
to mitigate global warming. 
    IN THIS connection, it is worth noting the findings of group of consultants consisting of top
climate economists, including three Nobel laureates. They have appeared recently in a
publication Smart Solutions to Climate Change (Cambridge University Press) very recently
which asserts that it would require emission reduction at global level by about 80% till 2050 to
keep the rise in global average temperature below 2° C. This translates to the conclusion that
while we can at the most reduce environmental damage to the tune of $1 trillion over the century,
we would cut economic growth by nearly $40 trillion. 
    Thus, emission reduction appears to be a flawed strategy to mitigate climate change and we
should rather resort to innovative R&D activity for producing affordable wind and solar energies.
Simultaneously, let the countries do whatever reduction in emissions that they want to do
voluntarily without making them legally binding. We have experienced that despite legally
binding emission reduction of 5.2% below the 1990 levels (according to Kyoto Protocol)
imposed on annexure-A countries, we could achieve very little till now. 
    Further, for achieving success at Cancun, monitoring, review and verification (MRV) of
projects funded by developed countries need not be enforced as it can lead to unnecessary
functional complications without serving any useful purpose. As responsible nations, let it be left
to the nations to do self-monitoring of such projects as they do with their own self-funded
projects. Recent happenings in Orissa, stymieing bauxite mining plans in Niyamgiri hills by one
of the world’s biggest mining companies for violating Forest Rights Act 2006, have shown what
a responsible government can do. 
    To conclude, the author exhorts all rich nations to invest in the R&D of producing cheap wind
and solar energies for the benefit of mankind and other life on earth. This should not be taken as
a liability; rather, it should be taken as a big business opportunity to enhance their economies to
better help in fighting the current financial crises and generating more employment in their
countries. Some emerging nations like India and China may be partners in their endeavours by
providing their highly talented pool of researchers. It does not require any emphasis that it would
simply be disastrous if the Cancun summit ends up in a fiasco. 

Ways to tackle corruption

The spate of corruption episodes that have cropped up in recent weeks is amazing. What is even more amazing is the fact that the
accused have no sense of shame or regret. For instance, Mr Yeddyurappa's excuse was that he did exactly what his predecessors
had done. Mr Raja too gave the same excuse.

Are Indians basically corrupt or is it the system that is inefficient? There is corruption in the US too, but the culprits are caught and
are fairly quickly convicted. Even this week, a former Majority Leader was convicted for laundering money. In India, such convictions
are unknown. The fact is the US Constitution has checks and balances; ours has none that is effective.

That is why public anxiety is not so much about the scandals themselves but that the guilty will escape. Then, which should be our
priority — individual convictions or strengthening our criminal justice system? Should we not concentrate on freeing the justice
system from political and other interference?
As a recent anonymous complaint has demonstrated, judges, even those of the Supreme Court, are under suspicion. A judge of the
Calcutta High Court is likely to be impeached soon. Evidently, our judicial system is not functioning as well as it should.

STATE OF JUDICIARY

According to an investigation by the Centre for Policy Research, Delhi, newly appointed judges are generally straightforward; they
strictly uphold the law even when it goes against the government. However, when they approach retirement, they become soft and
tend to favour the government. They do so because they retire at a relatively young age of 65 when they may still have many more
years of active life left. The judges also lose invaluable perquisites and, hence, are unable to maintain the lifestyle to which they
have grown accustomed.

They depend on politicians to appoint them to various tribunals and judicial commissions. No wonder judicial proceedings are often
endless — particularly when politicians and their cronies are involved.

Our Constitution is based on the Government of India Act, 1935; it does not follow the British practice of providing life-long service to
senior judges. In the US too, senior judges retire only when they themselves decide they are too old to continue. One wonders what
would have happened if we had adopted the British and the US practice. . If we introduce life-long tenure, more capable members of
the bar may opt to shift to the bench; in a short time, there could be a real transformation of the reputation of the judges.

Apart from life-long tenure, it would also be worthwhile to reconsider the salaries of the judges. At the time of Independence,
Supreme Court judges could earn each month enough to buy three kilograms of gold . Our Constitution-makers forgot about the
insidious effects of inflation. Even after adjustments, the salary has now dwindled so much that it no longer fetches even a hundred
grams of gold. Such a steep fall has its own ill effects — that is what we are woefully witnessing.

SECURITY OF TENURE

The bureaucracy too is under strain. In Britain, the bureaucracy is permanent in law and in spirit. As Mr B. K. Nehru told me once, if
the relations between a minister and the permanent secretary become irreconcilable, it is the minister who has to go, not the civil
servant — because the civil servant is permanent. In contrast, in our country, all officials, particularly those in sensitive posts, work
as daily wage workers — they can be shunted out the moment the minister is in any way displeased.

Unfortunately, many honest bureaucrats have such a low opinion of their colleagues that they do not recommend the British system
of permanent bureaucracy. At the same time, we have the Election Commission which has operated with impeccable integrity only
because its key officials have security of tenure. It would be worthwhile to take postings, transfers and promotions out of the ambit of
politicians. As in the case of judges, we should also consider raising their salaries to the real levels that prevailed at the time of
Independence.

Further, extravagant expenses and corruption in elections remain as a blot on our democracy. The simple solution is to make the
government bear all legitimate expenses of all serious candidates, and in full. Who are the serious candidates? They could be
anyone who guarantees that he or she will get the specified minimum percentage of votes polled, and does so by making a deposit
higher than the cost of fighting elections. Then, in no constituency will there be more than three or four serious candidates. Others
too may compete but their expenses will be limited and verified.

As the former US President, Mr Bill Clinton, once remarked, it is not the severity but the certainty of punishment that deters evil
doers. Because we have no checks and balances, our criminal politicians are confident of escaping punishment. That is why we
have to change the system to ensure there are checks on political abuse.

We can do so only by restoring autonomy to judges and bureaucrats; restore their emoluments to what they really were at the time
of Independence. We should also consider giving judges tenure for life. Then, our corrupt politicians (and bureaucrats too) will fear
punishment, will be honest — or get punished.

This is 291st in the Vision 2020 series. The previous article appeared on November 15.

India asks global fertiliser suppliers to link prices to costs

‘Refrain from opportunistic pricing'.
Our Bureau

New Delhi, Nov. 29

With fertilisers imports of over 20 million tonnes (mt) expected this fiscal – besides another 10 mt of intermediates and raw
materials – the Centre is concerned over spiralling international prices.

Since June, landed prices of imported urea has gone up from around $250 to almost $400 a tonne, while rising from $500 to
$630 a tonne in the case of di-ammonium phosphate (DAP).

In his inaugural address at the Fertiliser Association of India's (FAI) “Annual Seminar 2010” here on Monday, the Union
Minister for Chemicals & Fertilisers, Mr M.K. Azhagiri, noted that there has been a “sudden rise” in the prices of fertiliser
products and inputs in international market.

On the other hand, as the maximum retail prices charged to farmers have been not been raised much, the Government has
been absorbing the increased global prices. “A very high and unreasonable level of pricing would put stress of Government
finances. The global fertiliser industry needs to discuss and ensure that international food security is not affected,” Mr
Azhagiri said.

The Union Minister of State, Mr Srikant Jena, was more direct in urging global suppliers to “look at their pricing parameters,”
which, he said, should be based on “cost of production,” instead of the “demand-supply scenario.” While the Centre is
partially shielding farmers from the soaring international prices at a huge cost to the exchequer, “the increasing prices do
raise fears of demand destruction,” he warned.

Mr Jena said the Centre was planning to move away from the earlier open-ended fertiliser subsidy regime (which enabled a
pass-through of high international prices to the exchequer) to a “more deterministic and predictable subsidy scenario.”

During 2009-10, India imported 5.21 mt of urea, 5.89 mt of DAP and 5.29 mt of muriate of potash (MOP), with these
estimated at seven mt, eight mt and six mt respectively (in addition to 1.5 mt of complexes) in the current fiscal.

“We are large and open market. So, international suppliers must deal with us on a long-term, sustainable basis and not in an
opportunistic way leading to demand destruction. They should look at cost plus a reasonable margin,” said Mr A. Vellayan,
Chairman of FAI.

Speaking separately to presspersons, the Fertiliser Secretary, Mr Sutanu Behuria, said that the Centre's fertiliser subsidy bill
for 2010-11 may cross Rs 65,000 crore ( against the budgeted Rs 49,980.73 crore and the revised estimate of Rs 52,980.25
crore for 2009-10).

The Centre has already provided Rs 5,000 crore additional subsidy in the second supplementary demand for grants. “We will
ask for another Rs 8,000-10,000 crore in the third supplementary. The Finance Ministry will decide on the allocation, but
there could be a small carryover to the next financial year,” he said, adding that this additional sums are likely to be in cash
and not bonds as in the past.

Grapes too face ‘residual' trouble

Grapes exports have registered good growth in the last few years, crossing Rs 500 crore last year. But trouble seems to be
brewing with regard to the presence of cholormequat residue.

Cholormequat is a chemical that regulates the growth of a plant.

Nearly a dozen consignments of grapes have been found to contain the chemical but nothing has been rejected yet with the
EU stopping with just issuing a notification.
Earlier this year, the EU came up with its evaluation of cholormequat and said it should not be used in grapes. It also said
evaluations found children suffering from nausea, vomiting, headache and abdominal pain.

The EU has set a maximum limit of 1.06 mg/kg for cholormequat in grapes and so far, Indian consignments have been found
to be within the limit. “It is sudden trade issue that has cropped up. We are looking into it and are educating the growers,”
said Mr Dave. — MRS

Hi-tech plan to streamline NREGA payment

India Post To Lace Rural Officers With Fingerprint Scanners, Magnetic Strip Readers
Souvik Sanyal NEW DELHI 

    INDIA Post will provide gadgets such as biometric fingerprint scanners, magnetic strip
readers and thermal printers to its 1,30,000 rural offices to smoothen the process of verification
and payment under the national rural employment guarantee scheme. 
    It has charted out an ambitious rural information technology (IT) plan that will make the wage
disbursement under the scheme paperless, said an official with the department who asked not to
be named. 
    Although NREGA is administered by the ministry of rural development, payments under the
UPA government’s flagship job safety programme are routed through the postal network and
bank branches. The postal department services more than half of the wage earners under the
scheme in most states of the country. 
    The government has allocated . 40,100 crore for NREGA in 2010-11. It is estimated that the
rural development ministry will be able to utilise only about . 35,000 crore in the current year. A
total of 179,43,189 families have been provided employment under the scheme till June 30 this
year. 
    The devices offered to the post offices will have an in-built global positioning system (GPS) to
determine the frequency of the postal staff’s visits to the villages, which will ensure
accountability on the part of the branch post masters. This will also help the department map its
delivery territory. 
    The move will help the hugely popular scheme to check leakage of funds owing to fake
attendance under the scheme. In some states of North East, it was found that funds were
transferred under the scheme to even doctors and engineers. In Uttar Pradesh alone the leakage is
estimated at . 850 crore annually. 
    The department has invited participation of private players in this regard. The IT revamp,
which will happen in phases, is expected to be completed in two years, said an official with the
ministry of communications and information technology. 
    To ensure that the process is made hassle-free, the devices will have portable web cameras
with enabling features such as bluetooth and wifi access for seamless transfer of data that may be
required under the verification process for accounts. 
    Transactions under the scheme will happen only when the wage earner’s biometric
information is matched with data stored in the department’s electronic database. 
    “Our devices will be compliant with standards issued by the Unique Identification Authority
of India,” said YP Rai, deputy director general (rural business) at India Post. 
    As network availability in most rural areas is inconsistent, the devices will have facility to
function both online and offline. To address the problem of inadequate power supply, the devises
will have an in-built battery with solar chargers.

NCDEX launches new agri index Dhaanya

Aims to provide reliable benchmark for farm commodities.

Our Bureau

Mumbai, Nov. 3

The National Commodity and Derivatives Exchange (NCDEX) has launched an agriculture
index – Dhaanya – based on the 10 most liquid contracts that contribute about 75 per cent of
total agriculture futures trading on the exchange's platform.

To ensure proper diversification, index components have been selected from various sub-
sectors such as oilseeds, grains, spices and other crops of national importance.

Mr R. Ramaseshan, Managing Director and CEO, NCDEX, said that the index aims at
providing a reliable benchmark for the exchange traded agri-commodities. It is a value
weighted index, based upon a simple, transparent and easy to understand methodology.

Index composition

The 10 commodities that comprise the index are soyabean (carries 10.23 per cent weightage),
mustardseed (11.09 per cent), cotton seed cake (2.56 per cent), wheat (27.63 per cent),
channa (12.78 per cent), turmeric (6.88 per cent), pepper (4.69 per cent), jeera (3.86 per cent),
guarseed (16.91 per cent) and jaggery (3.34 per cent).

“The weightage and components of the index will be revised every three months based on the
crop season, production size and trade liquidity on the exchange,” said Mr Ramaseshan.
The index is computed using the prices of the near month (closest expiry) futures contracts. It
will be a rolling index, meaning that the futures contracts held in the index are rolled over to
subsequent month five days before the contract expires.

Dhaanya will be computed real-time on all trading days during the market trading hours (10
a.m. to 5 p.m.).

Vital Info source

Mr Vijay Kumar, Chief Business Officer, NCDEX, said that the index will provide a vital
source of information to value-chain participants, market participants, economists,
statisticians, research agencies and agriculture insurance providers.

The current index maintained by the exchange is more of academic interest as the weightage
is equally divided among 10 to 15 most liquid contracts, he said.

The launch of this new index comes on the heels of the Cabinet committee clearing the
Forward Contract Regulation Act. Once approved by Parliament, the law paves way for the
exchanges to launch new products such as options and trading in index.

On the possibility of relisting the sugar contracts, Mr Ramaseshan said, the ban imposed by
the market regulator Forward Markets Commission had expired in October and the exchange
is waiting approval for the sugar contracts it filed with the regulator.

Asked about the growing competition with the launch of ACE Commodity Exchange that has
expressed its desire to specialise in agriculture commodities, he said: “We are aware of
competition and it will only help us to grow. The exchange has already started reworking
some of the contracts to suit end-users.”

Farming is still all about foodgrains

The massive increase in agricultural prices in the last two years should mean a lot in terms of
incentives in agriculture. The increase in minimum support prices for rice and wheat at more
than 10 per cent per year in the last five years is sharp, and indeed keeps the incentives intact
for the core agricultural produce.

At one level of analysis, these increases have shown that demand for farm produce is rising
and holds, even at high prices. But at another level, they also point to the changes in relative
incentives, if any. Relative incentives are important for their impact on diversification of
agriculture practices.
There is more than one reason for advocating diversification of agriculture, ranging from
income stability to sustaining the productive capacity of natural resources. Specialisation is
more likely to be the dominant trend as several economic advantages, such as marketing
infrastructure or technology development, begin to take root. Diversification will then require
policy support. Minimum support prices and food security propositions directly affect the
core of the agriculture sector in the country. But they also affect everything else in the sector.
Steering away from the core is not easy, even when it is recognised that diversification is
important to improve farm income.

DIVERSIFICATION DYNAMICS

Some of the major policy interventions may, in fact, be supporting specialisation, as they also
provide stability in income through stability in markets.

Diversification, therefore, loses one of its drivers: the need for stability in income. It is now
driven by the search for higher income and would have to be a highly attractive substitute to
the core or a supplementary enterprise that does not take away resources form the core.

Structural shifts are also driven by competition for the other factors of production: labour and
water. Water-saving and labour-saving crops should take precedence as the constraints
become more binding. Of course, losing land for non-agricultural uses further strengthens the
pressure to retain the core enterprises and reduces the attraction of diversification.

In this sense, the action on diversification of agriculture has been limited with mild shifts
towards some fruit and vegetables. The large increases in the prices of pulses and vegetables
may lead to increased allocation of land to these crops, at least for some time. But
competition from the ‘core' will restrain shifting of resources to the periphery.

THE UNCHANGED ‘CORE'

The livestock enterprises were once expected to assume a prominent force in agriculture.
Many parameters are in favour of this transition: the income elasticities for these products are
high, agriculture-industry interface for these products is also potentially high. These livestock
enterprises were also expected to transit from being merely supplementary enterprises to
main enterprises as the marketing facilities and infrastructure improved.

But it is interesting that within the output of more broadly defined ‘agriculture and allied
sectors' the share of crop agriculture in the value of output has remained nearly the same in
the last 10 years. The share of milk products or meat products in the value of output has also
remained roughly the same.
The allied sectors have not managed to substitute the ‘core' of agriculture. Whatever
diversification and change has occurred in agriculture is within the crop sector. Even from the
perspective of the impact of livestock sector on agriculture, they consume only 10 per cent of
the output of the crop sector in the production process.

If we have not seen a significant enough re-allocation of resources to enable growth of the
periphery, one explanation for this is clearly that the policy priority is to ensure allocation of
the most limiting land resource to basic food crops.

POLICY SUPPORT NEEDED

Growth in income levels of the consumers will raise demand more than proportionately for
products with higher income elasticities.

If there is no change in production patterns and no change in trade options, prices will rise not
only for the higher valued crops or crop products but also for all crops. More policy support
will be needed to keep the structure of agriculture unchanged.

One of the reasons for the slow development of the livestock enterprises may well be the state
of infrastructure that does not allow efficient processing and distribution. Milk production
received a boost when investments were made in marketing as much as in production. Dairy
enterprise expanded with just one or two more cows or buffaloes per farm even as the rest of
agriculture remained unchanged. It is to be seen whether the development of rural
infrastructure will provide a new impetus to livestock production, changing incentives
unobtrusively.

Limited headway in agriculture Nov. 4

In November 2005, India and the US promoted a ‘Knowledge Initiative on Agricultural

Education, Research, Service and Commercial Linkages' (AKI), which followed the
landmark July 18 Joint Statement of the Prime Minister, Dr Manmohan Singh, and the then
US President, Mr George Bush.

What really came out of this ‘Knowledge Initiative' is far from clear: The Web sites of the US
Department of Agriculture and the Indian Department of Agricultural Research and
Extension have nothing on it after April 2008. While nobody is particularly forthcoming on
whether the Initiative is still on, equally evident is the lack of enthusiasm — from both sides
— in sharing any information.

In the meantime, on November 24 last year, Dr Singh and the current President, Mr Barack
Obama, agreed to launch a new ‘Agriculture Dialogue' and a ‘Memorandum of
Understanding on Agricultural Cooperation and Food Security'. Whether the change from a
‘Knowledge Initiative' to a ‘Dialogue' is merely one of terminology or signifies something
beyond remains to be seen.

Farm engagement

India and the US have a history of robust engagement in farm research and technology
cooperation.

The country's premier State Agricultural Universities were set up on the American ‘land
grant' model. They even benefited from faculty training and technical assistance through
special linkage agreements – for example, the Punjab Agricultural University with Ohio State
University, Pantnagar University with University of Illinois, and Andhra Pradesh Agricultural
University with Kansas State University.

All this — not to forget the role of the Rockefeller Foundation and Dr Norman Borlaug —
was vital to the Green Revolution in the 1960s. The AKI was basically meant to build on this
past experience to initiate a new agricultural partnership. “The Green Revolution was based
on traditional plant breeding and hybridisation techniques that have hit a dead-end. The major
yield breakthroughs today are happening through biotechnological approaches such as marker
assisted selection and genetic engineering. Given our limited capabilities in plant genomics, a
structured joint programme with US universities and research institutions made sense,” noted
an official familiar with the AKI.

Lack of focus

The AKI's problem, however, was that it was “too vague” and sans any focus.

The proposed areas of collaboration read like a “laundry list”, covering everything from
extrusion processing and membrane technology to molecular diagnostics, precision farming,
bioremediation and carbon sequestering.

Also, interestingly, the proposals came largely from the Indian side, which even committed a
sum of $80 million towards a three-year Work Plan.

The US, on its part, pledged only around $24 million.

“It seemed to reflect the American perception that since much of the cutting-edge farm
research is now happening in the labs of Monsanto or DuPont-Pioneer, the scope for a 1960s-
style programme was limited,” the official said.
So, what did the AKI achieve?

“Well, it was mostly about holding of workshops and six-week internships in US universities,
the usefulness of which were questionable,” he added.

Does the new ‘Agricultural Dialogue', then, hold out much promise? “There seems to be an
attempt at a more focussed interaction this time. The proposed collaboration between the US
National Oceanic and Atmospheric Administration and the Ministry of Earth Sciences for
more accurate weather and crop forecasting, and developing early warning systems, is
certainly worth it, especially given the active involvement of government agencies here,” the
official pointed out.

India's progress on human development below average Nov. 4

India's growth story may be a showcase of economic success but its progress on the human
development front is below the average for the medium human development category.

The UN Development Organisation said in its Human Development Report-2010 — released

here on Thursday — that India's human development index (HDI) of 0.519 is only above the
average of 0.516 in South Asian countries and this pushed India to the 119th slot out of 169
countries and areas surveyed.

However, over the long haul, between 1980 and 2010, India's HDI increased from 0.320 to
0.519, an increase of 62 per cent or an average annual increase of about 1.6 per cent.

“With such an increase India is ranked sixth in terms of HDI improvement based on deviation
from fit, which measures progress in comparison to the average progress of countries with a
similar initial HDI level,” the report said.

The human development index is a composite national measure of health, education and
income.

Between 1980 and 2010, India's life expectancy at birth increased by almost nine years, mean
years of schooling increased by close to three years and expected years of schooling
increased by four years. Yet, India's gross national income per capita increased by 254 per
cent.

More factors

This year, the report has deployed three additional indices — the inequality-adjusted HDI, the
gender inequality index (GII) and the multi-dimensional poverty index (MPI). However,
India's HDI for 2010, which is 0.519, falls to 0.365 when the value is discounted for
inequality, a loss of 30 per cent due to inequality. Bangladesh and Pakistan show losses due
to inequality at 29 per cent and 32 per cent respectively.

On the new GII, it said in India, 9 per cent of Parliamentary seats are held by women and 27
per cent of adult women have secondary or higher education than 50 per cent of their male
counterparts.

For every one lakh live births, 450 women die of pregnancy-related causes and the adolescent
fertility rate is 68 births/1,000 live births. Female participation in the labour market is 36 per
cent compared to 85 per cent for men. The result is a GII value for India of 0.748 ranking it
122 out of 138 countries based on 2008 data.

The MPI — which identifies multiple deprivations in the same households in education,
health and standard of living — shows that in India 55 per cent of the population suffer
multiple deprivations while an additional 16 per cent are vulnerable to multiple deprivations.

The breadth of deprivation (intensity) in India, which is the average percentage deprivation
experienced by people in multidimensional poverty, is 54 per cent.

The MPI, which is the share of the population that is multi-dimensionally poor, adjusted by
the intensity of the deprivations, is 0.296.

Bangladesh and Pakistan have MPIs of 0.291 and 0.275 respectively. Stating that poverty has
been frequently discussed in terms of income poverty, the report said this only tells part of
the story. The multidimensional poverty headcount in India is 14 percentage points higher
than income poverty, implying that individuals living above the income poverty line may still
suffer deprivation in education, health and other living conditions.

Poverty

Taking a cue from this skewed pattern of development by India and other developing
countries, the UNDP Administrator, Ms Helen Clerk, in a foreword to the report convincingly
argued that “there is much that countries could do to improve the quality of people's lives
even under adverse circumstances.”

Pertinently, she pointed out, “Many countries have made great gains in health and education,
despite only modest growth in income, while some countries with strong economic
performance over the decades have failed to make similarly impressive progress in life
expectancy, schooling and overall living standards.”
The “top 10 movers” highlighted in the report — countries among the 135 that improved
most in HDI over the past four decades — were Oman, China, Nepal, Indonesia, Saudi
Arabia, Laos, Tunisia, South Korea, Algeria and Morocco.

China, S Africa ahead of India on HDI

Rukmini Shrinivasan | TIG 

New Delhi: Twenty years after the first Human Development Report said that the link
between economic progress and human development is not automatic, India is one of the
world’s top-ten performers in terms of income growth over the last 40 years, but is far
outperformed by much poorer countries in terms of health and education. 
    The HDI is a composite index measuring progress towards a healthy life, access to
knowledge and a decent standard of living. The measurement of the HDI itself has been
slightly altered and India now ranks 119th of 169 countries measured on the index, with
China at 89, South Africa at 110, Pakistan at 125 and Bangladesh at 129. India is classified as
a medium human development country. 
    The 2010 report concluded that twenty years had shown that while principles mattered,
there are no prescriptions for human development, and no silver bullets. One of the most
surprising results of human development research in recent years, confirmed in this report, is
the lack of a significant correlation between economic growth and improvements in health
and education, the report says. 
    The 20th anniversary edition of the United Nations Development Programmes (UNDP)
flagship Human Development Report, first inspired by the development as freedom approach
of Amartya Sen, was released on Thursday. The Human Development Report has become
one of the world’s most remarkably well-tracked statistical documents over these 20 years
and has a significant impact on policy. India too has embraced the HDR, chief economic
advisor Kaushik Basu said at the report’s release in Delhi. 
    All but three countries the Democratic Republic of Congo, Zambia and Zimbabwe have a
higher HDI today than in 1970. Nepal is the world’s second-best performer in non-income
HDI growth from 1970-2010. China is the world’s second highest achiever in HDI
improvement as a whole, but on account of its income growth rather than health or education
achievements. China tops the income growth list over 40 years and India is 10th. Oman tops
both the overall HDI and non-income HDI improvement tables despite not featuring on the
income growth list. 
    The report also includes three new measures: the Multi-dimensional Poverty Index that
was released earlier this year, the Gender Inequality Index and the Inequality-adjusted
Human Development Index. As per the inequalityadjusted index, India loses 30% of its HDI
value when inequality is factored in. This is composed of a 31% loss in its life expectancy at
birth when inequality of outcomes is factored in, 41% in education and 15% in income. The
global average is far higher for income, but lower on all other counts, reiterating the point
that even as it does better than the global average on income measures, India does far worse
on human development measures.

India still lags in ease of doing business

Our Bureau NEW DELHI 

INDIA has shown most improvement in the last five years in terms of ease of doing business
among South Asian countries, but still ranks very lowly 134th in sharp contrast to its stature
as a rising economic power and the second fastest major growing economy in the world. 
    The World Bank and the International Finance Corporation’s annual ‘Doing Business’
report for 2011 noted the progress India had made in making business eaiser, but that was not
enough relative to others. India only moved a rank up from last year, as it implemented 18
business regulation reforms in seven areas. 
    “India eased business start-up by establishing an online VAT registration system and
replacing the physical stamp previously required with an online version. India reduced the
administrative burden of paying taxes by abolishing the fringe benefit tax and improving
electronic payment,” it said. 
    Even among the nine South Asian countries that appear in the report, India again ranks low
at the 7th position, above Bhutan and Afghanistan. Singapore ranks on the top in the world in
terms of ease of doing business. 
    The ranking is based on nine parametres -- starting a business, dealing with construction
permits, registering property, getting credit, protecting investors, paying taxes, trading across
borders, enforcing contracts and closing a business. 
    As per the report, India is one of the most difficult places to start a business among, as it
has the most procedures and the maximum cost to set up a business. 
    The maximum number of procedures are required in India in order to get construction
permits. In addition, the cost to deal with these permits is also the second highest, the largest
being that in war torn Afghanistan. 
    However, India has lesser procedures and takes lesser time to register property, the report
shows. 
    It is more difficult than other South Asian countries to enforce contracts in India. “Where
contract enforcement is efficient, firms have greater access to credit and are more likely to
engage with new borrowers or customers,” says the report highlighing its impact. 
    Another of the negative points that makes business environment difficult in India are the
hurdles that exist in the country for closing a business. It takes 7 years for a company to go
through insolvency in the country and yields the third least recovery rate after an insolvency
process.

India talks big money, but life still miserable

Country Ranks 119 Among 169 Countries On Human Development Index
Our Bureau NEW DELHI 

    RAPID economic growth of the past decade has ensured India a place among the top 10
movers on GDP growth, but the country ranks a low 119 among 169 countries on the 2010
Human Development Index. China has been ranked much higher at 89 on the index published
annually by the United Nations Development Programme. 
    And the reasons should be obvious. India compares very poorly with countries with high
level of human development on all indicators such as life expectancy, education and per
capita income. For instance, life expectancy at birth is 64.4 years in India. In comparison,
people living in countries such as Norway, Australia, New Zealand and many countries
across Europe are expected to live beyond 80 years. The world average is 69.3 years. The
Chinese are expected to live about 73.5 years. 
    Similarly, the number of years a person has spent in school is a dismal 4.4 years for India
as compared to global average of 7.4 and 4.6 for South Asia. The only bright spot here is the
mean years of schooling children are expected to complete. The HDI 2010 pegs that at 10.3
years, which compares reasonably well with world average of 12.3 years. However, in the
rich nations represented by Organisation for Economic Cooperation and Development
(OECD) group that number is a high 15.9 years. 
    Lastly, the gross national income (GNI) per capita measured on purchasing power parity
terms for Indian was less than a third of the world average at $3,337 in 2008. 
    Now that does not mean that India has not made much progress on each of these indicators.
Over 30 years beginning 1980, India’s HDI values has increased from 0.320 to 0.519, an
increase of 62%. In the same period, life expectancy at birth increased almost 9%, mean years
of schooling by close to three years, and expected years of schooling by four years and per
capita GNI by 254%. 
    Yet India is a laggard, as many others have moved faster on the measured indicators, some
more rapidly on non-income ones while others such as China and many south east Asian
nations on income indicators. 
    At the global level, the HDI tell a optimistic story, the report noted. “Overall, poor
countries are catching up with the rich countries... the HDI gap between developing and
developed countries narrowed by about a fifth between 1990 and 2010 and about a fourth
since 1970,” it said. 
    The latest Human Development Report (HDR) has also tried to look deeper into the
indicators to establish various inequalities. These inequalities arise due to disparity in
distribution of incomes, gender inequality and mutli-dimensional poverty. 
    Thus, India’s score could fall by a steep 30% due to multi-dimensional inequalities, HDR
2010 notes. High prevalence of gender inequality too could pull down India’s rank on HDI as
would multi-dimensional poverty. As much as 55% of the population suffer multiple
deprivations while an additional 16% are vulnerable to multiple deprivations, according to
the report. The breadth of deprivation in India, which is the average percentage of deprivation
experienced by people in multi-dimensional poverty is 54%.
India bats for endosulfan as world calls for a blanket ban
Yet Another Review On Cards To Prove Insecticide Is Unsafe
Jayashree Nandi | TNN 
    India’s vultures appear to be making a tentative comeback but their killer is very much in
circulation and will continue to be. While the global community proposed a ban on the use of
endosulfan globally at the Stockholm Convention of the Persistent Organic Pollutants Review
Committee in Geneva last month, India opposed the move, saying there was not enough
evidence to prove the health and environmental impacts of the insecticide. 
    India being the largest producer and user of endosulfan in the world, dependence on this
highly toxic insecticide has now led the agriculture ministry to call for a technical review of
its impacts on health and ecology. 
    “We have not been in favour of a ban simply because several committees earlier had
reviewed the experience with endosulfan and had observed that its use can be continued,”
said Pankaj Kumar, joint secretary (plant protection) in the department of agriculture and
cooperation. “There are fresh developments everyday and fresh evidence is submitted. Before
we can agree to a ban, there has to be proper scientific inquiry. The registration committee
under the insecticides act has to review the matter and only if endosulfan proves unsafe, it
can make a recommendation.” 
    The delegation that was also represented by the MoEF is currently documenting key issues
of conflict. “India had conflicting views over the use of several chemicals. The use of
endosulfan is put on hold in Kerala due to the peculiar health impacts that were seen after
aerial spraying in cashew plantations. But in all other states, the approved manner of usage is
being followed and there is nothing to worry,” Kumar added. 
    Additional director (MoEF) Chhanda Chowdhury, who attended the convention, told TOI
that India had been maintaining the same stand for the past four years and there was no
question of backing a ban this time around either. This, when member nations of the
convention concluded: “Taking into account that a lack of full scientific certainty should not
prevent a proposal from proceeding, that endosulfan is likely, as a result of its long-range
environmental transport, to lead to significant adverse human health and environmental
effects such that global action is warranted…” 
    Environmental activists say a nexus of the government with the insecticide lobby has led to
a stern stand not to move away from these toxic insecticides. “There is a lot of public
literature in India and globally to prove the impact of POPs like endosulfan. It is only because
of a collusion with these companies that the government is ignoring stark disasters, as in
Kasargod, where so many are killed and even disabled,” said G V Ramanjaneyulu, Centre for
Sustainable Agriculture. The Kerala government had, in fact, written to the Centre ahead of
the Geneva meet, demanding that it take a stand in support of a ban. Cases of physical
deformity, endocrine disruption and impact on reproductive development have been widely
reported in Kerala and Dakshin Kannada, in particular. 
    According to the health risks submitted by various members at the Stockholm Convention,
endosulfan can be genotoxic ie capable of causing genetic mutation. Assessments conducted
by the EU, Canada and US concluded that endosulfan was not carcinogenic but some studies
found that exposure to even sublethal doses of endosulfan and its metabolites induce DNA
damage and mutation. 
    Strangely, endosulfan is still widely used in ecological and biodiversity hotspots, such as
the Western Ghats. In the latest meeting of the Western Ghats Ecology Panel, the Central
Pollution Control Board (CPCB) chairman has been asked for a technical report on the
implications of the use of endosulfan. 
    “Endosulfan belongs to the organochlorine group of pesticides such as DDT. These remain
in the soil for a very long time. Endosulfan is known to cause endocrine disruption and has
neuro-toxic impacts. It is only the huge manufacturers’ lobby that is stopping the government
from taking stringent measures. Also, it is a cost-effective medium which deals with a broad
spectrum of pests,” said P K Shetty, professor at National Institute of Advanced Studies, who
has been conducting field surveys on the use of toxic pesticides and their impact on farmers.
The US’ measly offer on dole could hobble the climate talks at Cancun in December
since the BASIC (Brazil-South Africa-India-China bloc) will not give in further, Jairam
Ramesh tells Nitin Sethi, summing up the deliberations in Tianjin, China
‘US needs to stick to its end of climate bargain’

    What were the key outcomes of the Basic meeting and the UN negotiations at Tianjin, China?  
Well, the negotiations are still deadlocked. If anything, at Tianjin, the differences increased. Also, the fact is that the
fast-track finance…out of the $30 billion that was pledged for 2010-12, only about $6-7 billion is new additional
resources. Most of it is old or recycled money. Out of this, $4 billion is pledged for forestry.  
The Copenhagen agreement was a grand bargain, that one side would provide the finance and the other side would
come on board as far as the transparency issues are  concerned. But that fast-track finance part of the bargain is not
being fulfilled. 
    Then, the US offer on emissions reductions remains a measly one. So it’s going to hobble us if the world’s pre-
eminent economic power and the world’s second largest emitter is not going to come up with something meaningful on
the table. President (Barack) Obama and others told Bangaldesh and Maldives in Copenhagen that, look you won’t get
money till the Chinas and Indias and the Brazils agree to the transparency issue. We agreed to the transparency issue in
the expectation that the money would start flowing to these countries. But clearly, the money has not.  
On international scrutiny… 
On International Consultation and Analysis (ICA) of (developing countries’ actions) the Americans and Europeans still
have an intrusive ICA in mind. What China, Brazil, India and South Africa agreed to at Copenhagen was an ICA that
respects national sovereignty. 
At Tianjin, did the US ask for a level of parity with China and India on scrutiny of mitigation actions?  
What the Americans are saying is, once you have taken on a commitment domestically and voluntarily, you must
inscribe it in an international agreement and ‘stand by it’. What does stand by it mean? It is a binding commitment.
Binding commitment to my mind means a commitment that is subject to international consultations and analysis.  
But they are asking for the same level of scrutiny for themselves as for China, India, Brazil and South Africa…  
Yes. They are saying they are under ICA and so are we. So it’s not a legally binding agreement. The US is asking for a
softer legally binding agreement. In other words, they want to get out of a Kyoto type of regime but we would like to
them to be part of it. 
But if you are going to help Mexico with some face-saving, you shall need a decision…  
Decisions, not decision. I expect a substantive decision on REDD (Reducing Emissions from Deforestation and
Degradation) and REDD-plus. But all this is predicated on the decision that the second period of the Kyoto Protocol
will continue. If the Kyoto Protocol falls then all this begins to fall.  
And, if the $30 billion fast-track money was to come through from the developed countries, including the US, what
would the BASIC then be willing to give in? 
No, the BASIC countries have already given. BASIC have said that we are not claimants for the $30 billion. That is a
huge thing. I was criticized for it by many, including you.  
So you are saying that at Cancun, there is nothing more that the BASIC can give but there is a certain part of the
bargain that the US and rich countries have to meet.  
See, the Copenhagen accord was a bargain between the BASIC and the United States. BASIC gave the idea of ICA, the
US gave the idea of finance – that bargain is now an unequal bargain. Our commitments in my view are far more
substantive than the US commitments. 
What is the possibility of plurilateral agreements outside the UNFCCC if the Cancun results are not substantive?  
There is an example of the WTO agreement on government procurement of goods and services. India is not part of the
WTO agreement but we are part of a plurilateral agreement. So there is a plurilateral window in a multilateral
agreement. 
But you are not averse to plurilateral agreement on issues beyond forestry…  
No. To my mind, forestry is the only issue that admits to a plurilateral agreement.  

Here’s another regulator in farmers’ name

INDIA has a unique distinction of creating monoliths in the name of farmers yet the objective
is to provide a better support function to established financial institutions. 
    As long as there is a public acknowledgement of this fact, there is nothing wrong in
creating better systems. The tagging often in the name of the farmer is done to gain
legitimacy. 
    The most recent initiative in this space was the creation of a regulator by the name of
WDRA (Warehousing Development and Regulatory Authority). The WDRA Act 2007 came
into operation on October 25, 2010, almost after three years since the bill was passed by
Parliament. The regulator’s mandate is to put in place a negotiable instrument in the name of
warehouse receipts (WHR). The main challenge shall be to create a foolproof network
wherein this instrument is not used in the manner in which a large corporate house had done
previously (issuance of multiple physical shares with the same number) or the fraudulent use
of bank receipts by Harshad Mehta for leveraging in the stock market. 
    With the increasing “financialisation” of the commodity market, the laws and governance
initiatives of the government seem to have remained etched in archaic classical economics of
demand-supply and individualism. Institutionalised DEF (desire, expectation and fear) has
now taken over the individual’s role in commodity markets. Price manipulation and
leveraging are not anymore a businessman’s individual prerogative but are achieved through
well-designed plans of policy manipulations and systemic loopholes. The new regulator is
expected to bring a much-desired foresight in an environment of governance myopia. 
    While promoting instruments for pledge & collateralised structure in the commodity
market, one needs to take into consideration the financial ramifications of these instruments.
In the current legal structure, the ministry of consumer affairs may not be well-equipped to
handle a financial instrument of this nature and the equipment are available elsewhere within
the country. Without direct access to the ministry of finance and RBI, WDRA may not be
constrained to access a regular financial information flow, talent and resource pool. 
    On the “farmers welfare account”, needless to mention, a majority of Indian farmers
produce a lot size which is non-remunerative to be funded by financial institutions after
considering the overall transaction cost and credit delivery cost. Therefore to make a case out
of WHR that the instrument is going to help in preventing distress sale and shall give better
access of credit to farmers is a more of a public relations exercise which is hard to be
consumed even with a pinch of salt. 
    The chances are that in order to achieve economies of scale for credit delivery, we might
see a new financial intermediation option and not a direct credit delivery. If an instrument of
such great importance gets notified (if at all) in the Negotiable Instrument Act, then can we
restrict it to only “agricultural produce” that will be the death sentence for the instrument
(WHR) or will that be a solitary confinement?