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TheIndian EXPRESS
www.indianexpress.com

FRIDAY I SEPTEMBER 7 I 2012

The Indian EXPRESS

BECAUSE THE TRUTH INVOLVES US ALL

S INDIA pushes for more investment in infrastructure projects, the challenge of pricing premium infrastructure services and ensuring the availability of alternatives for those who opt out of the facility, will only grow sharper. In the case of the DelhiGurgaon expressway, matters got complicated as both the concessionaire, DS Construction, and the National Highways Authority of India underestimated the volume of traffic, and the government omitted to build alternative lower-cost or zero-cost parallel infrastructure. Yet in the same city, commuters have peaceably utilised the premium air-conditioned public bus service along with the cheaper alternative. The answer could lie in the ease of access and the options that are made available. AC buses of the Delhi Transport Corporation ply along with their less fancy counterparts but there has been no alternative to the expressway for a long time. Even now there are no other roads to provide connectivity to areas like Udyog Vihar in Gurgaon, for instance. Commuters have thus reacted angrily to this exclusion. Shadow pricing principles could have offered practical

The fracas over the Delhi-Gurgaon toll road frames wider issues
advice to policy-makers regarding the cost of such exclusion. The other issue concerns the method of payment for using the service. Wherever an infrastructure project demands payment from the public, the ease with which they can be made will, to a large extent, determine public perceptions of the project. In Delhi, again, the rate of collection of property tax has gone up as the city government has introduced easier payment options. For infrastructure projects, tying up both these issues providing an alternative and the pricing is essential as governments at the Centre or in the states can hardly be expected to pay for them through annuities. The literature on infrastructure built through the public-private mode pays a lot of attention to how the costs and revenues of these projects should be shared, but not to the method of collection, deemed administrative trivia. Yet collection and alternative options in a price sensitive country like India can decide whether or not a project built at considerable cost turns into a political hot potato. These are high stakes choices that cannot be skirted.

Pricing it right

Government needs to calm down, take media praise and criticism in its stride
N September 1, the Economist reported that foreign correspondentsworkingin Romania were being accused of being anti-Romanian spies and international disinformers in the pay of the troubled President Traian Basescu during the time he was suspended by Parliament. The hitlist included the Economist, USA Today, El Pais, Le Monde, Der Spiegel, CNN, Deutsche Welle and France 24. Surely, Romania cannot be Indias inspiration? It would certainly seem that way, with the government persisting with its fightback against The Washington Post for a story that painted an unflattering portrait of Prime Minister Manmohan Singh. Now, workers of the National Panthers Party have burnt copies of The Washington Post, The Independent and Time at Jantar Mantar, dubbing them the mouthpiece of white chauvinism against India. It only underlinesthesorryimpressionofan immature nation that cannot take criticism in its stride. The Washington Post story covers ground that Indian reporters have long been trudging, particularly since the 2G scam broke and the government slipped into neutral gear, took its foot off the pedal and

India vs Washington Post 2

left the engine idle as it coasted downhill.TheIndianmediaschorus against policy paralysis has been loud enough to drown out the protests in Parliament. The government displayed a robustly thickskinned approach as experienced establishmentsusuallydo.Butwhen a foreign publication said the very same thing, it had a fit. What does it fear? It does not matter where anythingispublishedanymore.Themedia world has been made borderless bytheinternetandnewsisalsopropagated through social media. From the readers point of view, there is no us and them any more. Will the government now go back to old bad habits? It cant launch a tax investigation against The Washington Post, or unleash the CBI on it. Will it block its website or issue a takedown request, though? It is already applying pressure and encouraging ministers to attack the paper as if it were a foreign invader. The next step up is the exclusive club of Myanmar (recently reformed), China (no chance of reform) and Ecuador, whose president is protecting Julian Assange in London while cracking down on media at home. Not the most cheerful company to keep.

HERE are fears that Indias sovereign rating will be downgraded in the near future. This may, however, not happen if the policy environment is better than it was a few months ago. The new finance minister and his team have already raised the hopes of both Indians and foreigners. If the government accepts the GAAR committee recommendations on taxation, and the Kelkar committee recommendations on fiscal consolidation, the policy environment will certainly look better. A diesel price hike, if implemented next week, as reports suggest, would also play a crucial role in preventing a downgrade. There are two issues related to a downgrade. First, when good governance and fiscal prudence can keep Indias credit rating high, Indian companies are able to compete on an equal footing with the rest of the world. By adopting better policies both for its budget and for economic growth in general, the government can provide Indian companies a better environment. Second, at a time when India has a difficult balance of payments situation, it cannot afford to have lower capital inflows that could put further pressure on the rupee. Not adopting measures that would improve the rating, but simply criticising either the ratings agencies or the ratings mechanism, will be damaging for the economy. Today, if India does see a ratings downgrade, it will make the cost of borrowing abroad higher. When borrowing is cheaper abroad, it is attractive to borrow in dollars. A ratings downgrade will serve to raise the cost of borrowing, thus imposing a private cost on companies that borrow in dollars. Even if an Indian company is as good as a comparable one, say, from China, if India gets a downgrade then the company has to pay more for its borrowing. In a domestic environment that is already difficult, imprudent fiscal

Sovereign warning
Why India can ill afford a ratings downgrade
ILA PATNAIK
policy imposes further costs on Indian companies. Balance of payments data for the last two quarters shows a decline in foreign loans, both in external commercial borrowings (ECBs) and in short-term loans. In almost each quarter of 2010 and 2011, companies borrowed more than $6 billion. After the last quarter of 2011, when net foreign loan inflows were $8.5 billion, there has been a sharp decline. In the first quarter of 2012 (January-March), they fell sharply to $1.6 billion. They remained low, at $2.7 billion, in the following quarter. loans, and only 500 basis points above Libor for loans with more than a five-year maturity period. Only a handful of Indian companies are considered creditworthy enough in international markets to be able to borrow at such low interest rates. Those with explicit or implicit sovereign borrowing or those with significant international presence may be able to do so, but the bulk of Indian companies may not be able to borrow abroad at these rates. In earlier years, two factors played a role in Indian companies being able to borrow more abroad.

LETTER OF THE WEEK AWARD

To encourage quality reader intervention The Indian Express offers the Letter of the Week Award. The letter adjudged the best for the week is published every Saturday. Letters may be e-mailed to editpage @expressindia.com or sent to The Indian Express, 9&10, Bahadur Shah Zafar Marg, New Delhi -110002. Letter writers should mention their postal address and phone number. The winner receives books worth Rs 1,000.

There are two issues related to a downgrade. First, when good governance and fiscal prudence can keep Indias credit rating high, its companies can compete on an equal footing with the rest of the world. Second, with the difficult balance of payments situation, India cannot afford lower capital inflows that could put further pressure on the rupee. Not adopting measures to improve the rating, simply criticising ratings agencies or the ratings mechanism, will be damaging for the economy.
There has been a decline in both ECBs and short-term loans. In ECBs, we see a sharp change in 2012. There were no net flows in the first quarter. In the second (April-June), they picked up, but were about half of the net flows in the last quarter of 2011. In short-term loans, the story is even more striking. From an average of more than $2.5 billion per quarter, they have fallen to less than $152 million. The all-in-cost ceiling imposed on ECBs by the RBI allows borrowers to pay only 350 basis points above Libor for three- to five-year First,theIndianeconomywasdoing well, sovereign ratings were higher and more companies were able to fall within the ceiling. But, equally importantly, a large number of companies borrowed through Foreign Currency Convertible Bonds (FCCBs). The Indian borrower gave the foreign lender two options when it was time for loan repayment, the lender could take back his principal and pre-negotiated interest dollars or he could choose to take his repayment in the form of shares of the Indian company at a pre-determined price, often the price prevailing at the time the loan

was taken. Although most companies would have found it hard to borrow at the low all-in-cost ceilings imposed by the RBI, it was possible for them to get foreign loans through FCCBs because it also included a bet on the apparently ever-rising Indian stock market. If the share price of the company was expected to increase, the foreign borrower would be willing to lend to the Indian borrower even when it would not have done so at the interest rate the company was allowed to pay. After the crisis, when stock prices fell, lenders chose the option of asking for the principal and the interest in dollars, rather than in shares. Today, expectations from the stock markets are not looking good enough to attract a lot of money through FCCB. If the RBI leaves the all-in-cost ceiling unchanged, a sovereign credit rating downgrade would make it more difficult for Indian companies to borrow abroad and take less foreign currency risk on their balance sheets. At present, India is running a large current account deficit, to the tune of more than 4 percent of the GDP. In the April-June quarter of 2012, the current account deficit was $21 billion. Of this, $16 billion was financed by net capital flows. The bulk of capital coming into India in 2012 is portfolio investment. In the April-June quarter, $14 billion came in through portfolio investment. Only $2.7 billion came in through loans. Foreign currency denominated loans may not be the best option for financing the countrys current account deficit but at the moment, India needs to keep up with the flow of loans, given the pressure on its balance of payments. It can ill afford a downgrade. IlaPatnaik, professor at the National Institute of Public Finance and Policy, Delhi, is consulting editor for The Indian Express
express@expressindia.com

Letters to the

EDITOR

Stormy weather

department are alleged to have made dubious statements recently (IMD getting monsoon forecasts wrong: Govt, IE, September 6). In its report on coal block allocations, the former estimated a huge loss figure and the prime minister dismissed its calculations as flawed. The result was a political storm that has held up Parliament for days. Meanwhile, the Met department, after predicting substantial rainfall, scaled down its forecast drastically. By then, the faulty forecast had caused despair among farmers in various states. K.L. Khandekar Vadodara
IT TAKES many years and concerted effort to build ties with neighbouring countries. Tamil Nadu Chief Minister J. Jayalalithaas preposterous behaviour towards Sri Lankan pilgrims and football teams does not augur well for Indias ties with that country (Jayas low blow, IE, September 5). Her narrow politics should not be allowed to cast a shadow on international relations. Visitors who come to the country for sports and cultural events, or on pilgrimages, have nothing to do with politics. They should have been treated with due respect. Jayalalithaas rejection of these innocent visitors will only harm Tamil interests. The states have no right to interfere when foreign visitors are in the country legally and for specific purposes. Sharda Bhargav Jalandhar

BOTH the CAG and the Met

Staying friends

INDER MALHOTRA
HANKS, perhaps, to my stars, I have had the good fortune to watch from a ringside seat the inspiring rise and sad decline of Indias apex legislature, from the first day of the first session of the provisional Parliament in 1950. The Lok Sabha and Rajya Sabha were elected two years later. Until 1967, I covered both Houses on a daily basis, and have never ceased my vigil since. Distressingly, disruption and debasement of Parliament, at the hands of its own members, began decades ago and has steadily worsened over the years. It now seems that unless heroic efforts are made to first stem the rot and then reverse the tragic trend, Parliaments authority and prestige could be destroyed completely. Wednesdays exchange of blows in the Rajya Sabha between two honourable members may well be a precursor of more squalid episodes. Younger generations might find it hard to believe, but there were times when things were totally different. The 17 years of Jawaharlal Nehru constituted a glorious period in Parliaments history. Foreign observers held it up as a role model for legislatures of other newly independent countries. There was a bond of mutual respect between Nehru and Parliament. On occasions when tempers ran high, he would spring to his feet and easily restore calm. Today there is no one

From the glory days of the Nehru era to the squalid spectacle of today
around to be able do so. In 1957, when his son-in-law, Feroze Gandhi, drove his government up the wall over the Mundhra affair a case of questionable investments by the Life Insurance Corporation in the highly dubious shares of a certain industrialist Nehru did not deny the charge of wrongdoing out of hand. Instead, he spoke of Parliaments majesty and ordered a judicial inquiry. Unfortunately, the Parliaments decline began after the general elections of 1967, in which the Congress majority was greatly eroded, and the more agin the 1970s, he became the reason for the first ever disruption of an entire session of Parliament, which has since become a precedent to be followed. The innocuous Congress MP from Bihar had done nothing wrong himself. His bosses had made him sign some papers and used them to make money. Rajiv Gandhi was reigning supreme until Bofors got the better of him. His nemesis, V. P. Singh, however, lasted as prime minister for just 11 months. After the defeat of P.V. Narasimha Raos government in 1996, the Congress went into the wilderness eral cannot be grounds for demanding the prime ministers resignation and then holding Parliament to ransom for two weeks. But then, why had the self-same Congress demanded the resignation of then defence minister George Fernandes after the CAG had reported on the coffin scam, and then disrupted Parliament for nearly 20 days? What has turned the situation particularly ugly is that the BJP is punch drunk with the belief that it has got its Bofors moment again. The Congress suffers from the delusion that it can pass a populist bill to amend the Constitution in the midst of hellish noise and thus spike the BJPs guns, aimed at the alleged coal scam. Indeed, politics has become thoroughly bizarre because, whatever the issue in contention, it instantly becomes occasion for a slugfest between the core of the ruling coalition and the principal opposition party. Like the proverbial kettle and pot, each is calling the other black, although both are tarred by the same brush. In all cultures and all languages, there is a saying that two wrongs never make one right. But it is the contribution of the Indian political class to human thought that when two parties opposed to each other are equally culpable, their guilt cancels itself out. The writer is a Delhi-based political commentator
express@expressindia.com

House in distress

NCE-DOMINANT Nokia releaseditslatestWindowsbasedsmartphones,theLumia 820 and 920, to a tepid reaction from investors on Wednesday. The launch represents perhaps the last chance for the Nokia-Microsoft alliance to bear fruit for the Finnish company, which embarked on a risky strategy by abandoning its inhouse Symbian operating system to partner with Microsoft. It also reveals how competitive the mobile computing market has become. Nokia hopes to expand its market share and compete with Apples iPhone and devices based on Googles Android system, which together command over two-thirds of thesmartphonemarket.Thephones themselves received good reviews but, just like with the browserwarsa decade ago, a good product is no longerenoughtoguaranteesuccess. With smartphones, as important as the hardware is the ecosystem surrounding it apps, developers and the like. This is where Apple and Google have succeeded, and where older phone companies like

Mobile competition is becoming more cutthroat, replacing the browser wars of the 1990s
Nokia and Research in Motion, the makers of the BlackBerry, have beencaughtnapping.Whatmakesit difficult for these companies to catch up is that, much like a social network, the developers will go where the users are and the users willgowheretheappsare,creatinga vicious circle. As the lucrative smartphone market grows global sales grew 32 per cent last quarter the competition is only going to get more intense. Amazon, for instance, wants in on the action, and Facebook has long been rumoured to have a phone in the works. The lawsuits and countersuitsaroundsoftwarepatentsrelevant to smartphones and tablets underline the importance of the market. Analysts see market share shifting from PCs to tablets and smartphones. Just as the browser wars in the early 1990s heralded a new era for personal computing centredontheinternet,smartphone wars signal that the PC might be close to meeting its long-predicted end. The mobile revolution is already here.

End of the PC

Hardly anybody remembers the name of Tulmohan Ram. In the 1970s, he became the reason for the first ever disruption of an entire session of Parliament, which has since become a precedent to be followed.
gressive wing of the socialists, led by Ram Manohar Lohia, won more seats. They targeted the rather inexperienced and shy Indira Gandhi. Lohia nicknamed her goongi gudiya; his lieutenants used ruder invectives. Regrettably, after attaining supremacy in both the Congress and the country, she treated parliamentary opposition as disdainfully as it had treated her. As now, so then the heavily outnumbered opposition used the weapon of corruption to strike at her. Hardly anybody remembers the name of Tulmohan Ram. In Indira Gandhis heyday for eight years, during which the BJP-led coalition ruled, except for the first two years. It was then that the seeds of todays seemingly irremediable malaise were sown. To put it bluntly, since 1998, the level of animosity between the two main parties has soared so high that the basic norms and decencies, without which the parliamentary system just cannot function, are no longer being followed, and indeed cannot be followed. Both sides are more or less equally to blame. For instance, the Congress is justified in complaining that a report by the Comptroller and Auditor Gen-

THE UPA government seems to be bent on pushing through the bill for SC/ST quotas in promotions. However, this may not be beneficial for the country in the long run and only splinter it further along caste lines. Promotions should be based on merit. It is high time the modern Indian polity grew out of dated notions like caste and creed. As India forges ahead with its global ambitions, such notions can only hold it back. It would seem that the government is pressing for this bill with an eye on the votebanks for the general elections of 2014. S.P. Sharma Mumbai

Divisive bill

WORDLY WISE
Walter Bagehot

A Parliament is nothing less than a big meeting of more or less idle people.

HE latest threat to the US mission in Afghanistan is particularly sinister and hard to combat: a rising toll of green-on-blue killings, in which gunmen dressed in the uniforms of the Afghan army or police open fire on American or coalition troops. Fifteen were killed that way in August alone, including 10 US soldiers; the year-to-date total of 45 deaths already exceeds by half the number recorded in 2011... Though the Taliban benefits most from this bloodshed, and often claims credit for it, US commanders say that at most a quarter of green-on-blue killings can be blamed directly or indirectly on the enemy. The Afghan government, for its part, has offered no evidence to support its claim that foreign intelligence services by which it means Pakistan and Iran are behind the slayings.

The race to expand Afghan security forces has contributed to green-on-blue killings
The more difficult truth is that the shootings are a byproduct of a complex of factors, including the sometimes slipshod race to expand Afghan security forces from 100,000 in 2007 to 350,000 this year; cultural and personal tensions between Afghans and Westerners, exacerbated by the stress of war; and the creeping Afghan disenchantment with foreign armies that have remained in the country more than a decade but failed to bring peace. These are not problems that can be entirely fixed, except by a total withdrawal of Western forces something that would do far more harm than good to Afghanistan as well as its allies. From a leader in The Washington Post

Enemy in the ranks

THIS refers to Growth pangs (IE, September 5). In the current global economic climate, it is essential for India to accept the Basel-III norms. It will provide risk-sensitive capital regulation, cover risks from complex derivative products and provide safeguards. Shishir Sindekar Nasik

Growing need

Letter of the law

PRINTLINE

General by M.K. Venu (IE, September 5), the higher judiciary and the legislature need to dissolve the differences between them in order to ensure that the constitutional framework is upheld and there is continuity in the structures and processes of both the legislature and the judiciary. Utilitarian morality needs to be replaced with a higher morality. Nitish Sharma Pilani

APROPOS Controller