Wednesday, July 14, 2004

Water: While North East reels under flood, Punjab faces a major crisis

News from The Hindu

North Eastern states including Bihar, Assam, West Bengal and Arunachal Pradesh are reeling under a bad flood situation. Several human lives are lost; Kaziranga wildlife sanctuary is apparently 90% under water. As of now, the Central Government has sanctioned 212 crores to Assam and Bihar. Army helicopters are pressed into service in Bihar to save lives and distribute food packets in regions cut off from the mainland. West Bengal also has serious problems. Two of its districts are under water. Arunachal Pradesh rivers are touching the danger mark.

In neighbouring country Bangladesh, floods have taken a serious toll as well.

In the Northern Front, Punjab state legislature has forced a major crisis, by revoking a water sharing accord signed between Punjab, Haryana and Rajasthan in 1983. The story is very similar to the Kaveri water sharing problem between the states of Karnataka and Tamil Nadu. A detailed presentation of the problem is available in a Frontline story written in 2002. In short, India and Pakistan entered into an agreement for sharing water in the Sind rivers, in 1960. Despite three wars subsequently between the two countries and constant problems across-the-border, the two countries have abide by the agreement properly. There are some unresolved disputes here too, but they pale in comparison to the ugly way in which the states within the Indian Union fight with each other. Subsequent to the India-Pakistan river water sharing accord, the unified Punjab province received a certain quantity of water. When Punjab was split into Punjab and Haryana, the central government determined in 1976 that both states will receive equal amounts of water. Punjab went to court against this in 1978. However, in 1983, with both the states Punjab and Haryana ruled by Congress (I), the chief ministers worked out a reasonable formula sharing the water between the two states as well as giving some to Rajasthan, Delhi and Jammu & Kashmir.

Then Punjab went through insurgency problems, because of perceived (and possibly real) issues relating to Hindu-Sikh, Hindi-Gurmukhi conflicts. Rajiv Gandhi-Longowal (Longowal was killed by Sikh militants, while Rajiv Gandhi by LTTE suicide bomber) accord in 1985 allowed for construction of Sutlej-Yamuna Link canal and through this water was to go to Haryana. However because of intractable stance of Punjab, whose job it was to construct the canal, work on SYL canal was stalled. Haryana had gone to court against this, and the Supreme Court handed an order last month asking Punjab to hand over the construction of the canal to the central government. So, Punjab legislature came up with an innovative model - to convene a special session of the assembly to nullify the 1983 accord signed by the chief ministers of Punjab and Haryana. It is unclear to me whether the subsequent legislatures have the power to nullify the agreement signed by head of two states.

Capt. Amarinder Singh, Chief Minister of Punjab nonchalantly says "Every State has to protect its interests. If others are not happy, they can go to court. The Supreme Court can strike down the Act. The final decision is a judicial review. I have to hand over the SYL site to the Centre the day after tomorrow. We were legally advised to take this course.". Chautala correctly responds that "Then, different States would enact their own laws to terminate all water agreements and projects." The result will be chaos. Even when the courts have ruled on water sharing, states such as Karnataka have not followed them. Already politicians in Punjab are demanding the same.

The central government, to avoid problems such as this, should nationalise the rivers and take complete ownership of them and should be the final arbiter of who should get how much of water. This may also be abused by unscrupulous elements in the central government, but at least in such cases judiciary can step in to correct the injustice. In the current case, the states have shown that they are unstable and devoid of thinking clearly and show scant regard for judicial process and hence should be stripped of powers to manage such a crucial resource as water.

Monday, July 05, 2004

Agriculture: Rediff interview with Dr Raja Jesudas Chelliah

From Rediff

An interesting interview and viewpoints. The one that interested me a lot was the answer to the following question.
Do you feel the NDA government neglected the agricultural sector?

It is partly true. I think the weakness of the NDA government was that nobody really knew the economy except the prime minister. (Deputy Prime Minister L K) Advani had no knowledge, so he did not interfere. The finance minister, poor fellow, he was an army man (Jaswant Singh, who retired as a major from the army and who was finance minister from 2002 to 2004), what did he know about economy? He is a good, intelligent, honest man but didn't know much about economy.

One mistake the NDA government made, mainly because of opposition from the lower rungs of the BJP and the Rashtriya Swayamsevak Sangh, was to throw out Yashwant Sinha [who was finance minister from 1999 to 2002]. He was following the correct policies, exactly the policies that are opposite to what the Communists want. The BJP thought they lost some by-elections because of him, but that is not true. So there was no one knowledgeable about agriculture. They didn't put enough investment in agriculture.

Then, you must in all fairness also say that it has to be done by the state governments. It is the deterioration at the level of the state governance that was partly responsible for the rural people not getting enough. We should not blame the Centre too much.

As an economist, I would say the NDA did not lose because they carried out reforms. Maybe reforms did not benefit the poor or the ordinary person sufficiently; maybe it is true. But it certainly improved his position because of the lower rate in inflation, food availability, etc.
Going by this answer, what would the current government, which is full of economists, do? So far, the Government has not come up with any detailed policy for growth in agriculture. The only announcement has been in making more rural credit available. There is no clarity on how we are going to manage the drought years since the monsoons are not in our control. Though we produce significant amount of food grains now, there is no clarity on whether we will continue to increase our food production to cope up with the rising population. Food distribution is still predominantly controlled by the Government. The state governments have not seriously looked at water preservation, changing crops in low water areas etc. Our agriculture sector is also highly inefficient because of serious fragmentation and lack of mechanised production. So we will never be in a position to increase our agricultural income by going to global market and selling our food there. Someone out there has lower cost of production. Likewise, we will be forced to safeguard our farmers from an onslaught by outsiders. We have to impose major tariff on agri imports, or massive subsidy to local farmers. How this will affect our involvement in WTO is another major issue.

And the states, which will have to implement several measures to help agriculture sector, continue to have the same, poor administration. How can the centre force the states to get good administrators?

How exactly will our economist PM and FM solve these problems?

States: P. Sainath on Chandrababu Naidu misrule

Opinion in The Hindu

P. Sainath has been a vocal critic of Chandrababu Naidu administration over the last few years. This, even while the Indian and the world press had been singing hosannas to Naidu.

The above opinion piece has been severe on Naidu and hold him responsible for all the ills Andhra Pradesh has faced. I can't somehow accept this. Perhaps I have been just as seduced by the newspapers and Naidu that I can't see the truth in this.

Sainath says:
Economists C. Mahendra Dev and C. Ravi show that "in the 1980s, A.P. was one of the top performing states in terms of Gross State Domestic Product (GSDP) growth. Only three states, Rajasthan, Haryana and Maharashtra, showed higher growth than A.P. in the 1980s." However, this rank sank from number four to eight in the next decade. "Seven states showed higher growth than A.P. in the 1990s." The State was overtaken by Gujarat, Karnataka, Tamil Nadu and West Bengal.
I am still puzzled by how Tamil Nadu ruled by Karunanidhi and Jayalalitha, prone to nepotism, corrupt to the core and whimsical (certainly the latter) could push the state ahead of another state ruled by a man who seemed intelligent, honest, focused, charming and powerful (as he controlled the Government at the centre).

As to whether Naidu is corrupt or not, Sainath's final paragraph is quite revealing.
The media bios of Naidu called him the son of a "poor agriculturist." Or of a "small farmer." Or of a "modest farmer." How the modest farmer and his spouse came to be worth Rs. 21 crores after nine years in power is a mystery no one wants to solve. That's the figure you'll find in his poll-time declaration of assets. But no questions. The king could do no wrong.

Food: Amul to set up co-operative milk movement in Sri Lanka

Wanted to blog this last week, but forgot the source. I think it was in Economic Times. Can't find it in Google.

Amul will be setting up a Anand, Gujarat type experiment in Sri Lanka. They will invest about Rs. 10 crores to set up a co-operative milk procurement movement. Initially, milk from Tamil Nadu will be taken via sea and sold in Sri Lanka under the Amul brand. In due course, proper co-operative set up will be built and then the venture will be trasferred to the local co-operatives. This venture will be allowed to decide their own brand, or use Amul brand by paying royalty to Gujarat Co-operative Milk Marketing Federation (GCMMF) that owns the Amul brand.

As of now Sri Lanka imports milk powder from outside the country.

Previous item: Food: M.S.Swaminathan appointed head of National Commission on Farmers

Thursday, July 01, 2004

Power: Reliance Energy and Power Trading Corporation bag power trading licenses

News from The Financial Express

After Adani Exports Limited and Tata Power Trading Company Limited, two more companies - Reliance Energy and Power Trading Corporation have been awarded power trading licenses by The Central Electricity Regulatory Commission (CERC). NTPC's subsidiary NTPC Vidyut Vyapar Nigam Ltd is also going to be awarded this license subject to certain procedural issues.

The applications from two other companies - Amalgamated Transpower Ltd and Global Energy Ltd - have been put on hold for lack of full details.

Previous item: Power: Nuclear power sector may be opened up for private participation

Monday, June 28, 2004

The policy-execution disconnect - N.Vittal

Opinion in The Hindu

There is an interesting article by N.Vittal, ex-bureaucrat, on where governments falter, despite coming up with - at least in their own minds - people-friendly policies.

N.Vittal concludes that the problem is in poor implementation, and talks about four specific points that policy makers should think about.
  1. Bureaucrats at the top have a fairly clear idea of what needs to be implemented. However down the line, those in the field have very poor idea and end up executing something by the letter rather than the spirit. If the 'letter' is messy, the implementation is messy as well. So problem number one is improper communication of the vision down the line.
  2. Problem number two is, as anyone would have guessed, corruption. This is something that we have to mostly put up with and hope to keep chipping it away and reduce the scale considerably.
  3. Top civil servants not going to the field to see for themselves where the problem is. This is closely related to problem one.
  4. Lack of accountability. Public servants are rarely prosecuted, and anti-corruption laws are poorly implemented. Hence there is no incentive for anyone to be honest and accountable at the implementation level.
Now what can be done?

Dealing with corruption is a major issue in itself. The Prime Minister can perhaps take up accountability and de-centralisation as priorities. Otherwise, whatever policies his government comes up with will always be poorly implemented. Key part of decentralisation is giving power to local bodies to implement certain important civic functions - such as primary and secondary education, quality primary healthcare and locality development. There should be strong laws to remove the control state governments have over the local bodies. Central government should ensure distribution of funds to local bodies directly. There will be corruption, as there has always been, but local bodies are likely to be more responsive to local needs than centralised corruption.

The next thing that can be done is to create an effective administrative model where the top civil servants meet staff at the implementation level on a regular basis. Now, this could be easier said than done. Some of the retired bureaucrats should come up with a paper on specific examples of where things are going wrong in the administration and how it can be improved.

Saturday, June 26, 2004

Telecom: Consolidation in the telecom market

News from The Hindu

The latest mega acquisition in the mobile telecom space is Hutch acquiring Aircel (Chennai and Tamil Nadu circles) for supposedly Rs. 1,600 crores.

Since the liberalisation of the mobile telecom space in terms of mergers and acquisitions, there have been a few smaller deals. Bharti acquired Hexacom in Rajasthan circle and Idea Cellular acquired Escotel in Uttar Pradesh West, Haryana and Kerala. Aircel itself acquired RPC in Chennai and thereby enhanced its value, when Bharti, Idea and Hutch aggressively tried to buy Aircel. In the end Hutch has won, but at a fairly high premium.

The telecom space is getting clearer now with these acquisitions. The dominant players in the GSM based mobile delivery are Bharti's AirTel, Hutch and Idea, with Govt. controlled BSNL/MTNL. In the CDMA space, Reliance and Tata Teleservices rule. These six together will be fighting a pitched battle for the supremacy of the mobile space.

They are only two other players outside the above six who still continue: BPL in Mumbai, Maharashtra, Tamil Nadu and Kerala circles; Spice Telecom in Karnataka and Punjab circles. BPL groups mobile operation has been loss making (despite their Mumbai circle operation), and Spice may also not be making any profits. They would do well to quit as soon as they can if they get a good price.

Even amongst the six dominant players, Idea will be hamstrung by Tata group's involvement who are aggressively pushing their CDMA based Tala Teleservices, while BSNL/MTNL will always struggle with Govt. decision making process and the inherent delays in that.

Hutch may struggle a bit from its pure play mobile operator model. Reliance seems to have clearly decided on an organic growth model.

Issues to look at in future:

- IPO of Hutch
- Idea's future plans and whether Birlas and Tatas will exit. Idea is also planning an IPO
- Reliance's growth plans. Reliance Infocomm may look at a listing as well in future
- Tata Teleservices - VSNL - Tata Teleservices Maharashtra merger?
- Bharti's acquisition plans

Wednesday, June 23, 2004

Opinion pieces in The Business Line and Business Standard

There are some thought provoking opinion pieces in The Business Line and Business Standard today. Worth reading.

Sharad Joshi's advice to Sharad Pawar, Union Minister for Food and Agriculture, asking Pawar to initiate reforms in the agricutural marketing system and restore property rights for the farmers.

KP Prabhakaran Nair on Exporting food, losing water, where he says with poor productivity in India, exporting of food out of India also implies considerable 'export' of water resources as well.

S Padmanabhan discusses the power crisis in India and suggests ways by which the power sector can be made investor friendly. Discusses in details steps to be taken by the state and central government in terms of guarantees they have given in the past, and asks the governments to stick to the guarantees.

A K Bhattacharya discusses what the Government should do with Public Sector companies. Given that privatising them is not going to happen, the least the Government should do is to get a strong management at the top.

Michael Pinto on why the states should not be investing in sectors which are already well served by private capital. Shows the example of Shipping Corporation of India, where the decision to buy a ship takes more than 2 years, whereas in a private company all it takes is a single board meeting. Despite this, SCI is profitable, at least as of now. But Pinto asks whether it is worthwhile for the state to park its funds in SCI when it could be using this money elsewhere - in education and healthcare. [Couldn't find the URL for this article on the web.]

Power: Nuclear power sector may be opened up for private participation

News from The Business Line

Changes to Atomic Energy Act awaits Cabinet nod, which if accepted and passed in the Parliament would result in private participation - both Indian and Foreign - in nuclear power generation, according to Mr. SK Jain, Chairman and Managing Director, Nuclear Power Corporation of India Ltd (NPCIL).

Even a 100% private participation in building nuclear power plants could be a reality says Mr. Jain.

However, even if such amendments to Atomic Energy Act are made, private investment in nuclear power plants may not be easy. Invariably organizations and individuals have shown serious resistance to nuclear power plants coming up in their vicinity. Currently NPCIL operates the following power stations:
  • Tarapur Atomic Power Station
  • Rajasthan Atomic Power Station
  • Madras Atomic Power Station
  • Narora Atomic Power Station
  • Kakrapar Atomic Power Station
  • Kaiga Atomic Power Station
The project at Kudankulam is probably almost completed and ready.

To my knowledge, there were (and are) opposition to plants constructed at Kalpakkam, Chennai (Madras); Kaiga and Kudankulam. Private investors will be worried about the cost of delays, since their capital gets locked up.

Unless NPCIL comes up with a better model, they won;t attract private participation in nuclear power plants in India.

Previous item: Power: Tata Power gets trading license

Tuesday, June 15, 2004

Power: Tata Power gets trading license

News from The Hindu

Tata Power has set up a subsidiary called Tata Power Trading Company Ltd, which has obtained power trading license from Central Electricity Regulatory Commission (CERC), and will indulge in trading of surplus power of State electricity boards, captive power plants and generating companies as also the power output of merchant power plants.

Power Trading Corporation (PTC), a company promoted by NTPC and other state and central power utilities is already in the business of trading in power, has also applied to CERC for inter-state trading license. Reliance Energy is also expected to get into this area, as could be a few other private players.

Previous item: Power: No further review of Electricity Act 2003, says PM Sayeed

Power: No further review of Electricity Act 2003, says PM Sayeed

Interview from The Financial Express

PM Sayeed says the concerns expressed by UPA partners regarding the Electricity Act 2003 has been taken care of, by merely extending the unbundling deadline by an year. PM Sayeed says: "there is no other clause under the Act on which a review has been sought. At least, I have not been informed of any further change, either by my party or the allies." The implication is that there is nothing more in it which is of concern to the partners including the left parties. Let us see how the Left Parties react to this.

The minister also talks of setting up a nodal agency for rural electrification called Rural Electrification Corporation. Reiterating his earlier statement he said: "Subsidies have to be funded from by the states from their own funds."

Previous item: Power: Andhra Pradesh Govt. wants to review power purchase agreements

Power: Andhra Pradesh Govt. wants to review power purchase agreements

News from The Financial Express

First of, after winning the elections, Chief Minister YSR Reddy writes off electricity dues of the farmers, and announces free power. Even before his nomination as Prime Minister, Manmohan Singh says he doesn't like offering free power by any state. Power Minister PM Sayeed announces that free power is okay as long as the state government accounts for it in its budget and finds the necessary revenue to pay for the same from its pocket.

So now YSR Reddy has to find a way of covering this huge gap. So he goes after the private power companies that produce electricity in the state and wants to renegotiate the power purchase agreements. Under the existing arrangement, power companies are charging Aptransco, the state EB, Rs. 1.10 per unit of power sold to it. YSR Reddy says if the cost of this acquisition is brought to 73-78 paise, the money saved would be sufficient to cover up for the free power being offered to the farmers.

Naturally, the private power generators are annoyed, and the financial institutions that have lent money to these entities are also annoyed. Neyveli Lignite Corporation (NLC), a public sector company, which sells bulk of its power to Tamil Nadu and Andhra Pradesh state electricity distribution entities (the two most profligate states - that have announced free power to farmers) is worried that the free power move by these two states will affect its own profitability. NLC, a public sector company, gets around Rs. 1.70-1.80 per unit on an average! A full Rs. 1 over what YSR Reddy wants to pay the private companies. Talk of private sector capitalist pigs robbing the poor!

There should be a regulator for the whole of the country who regulates the cost of per unit. Leaving it to the state level regulatory commission and arming these SERCs with too much powers will result in chaos. In fact, in the aftermath of Electricty Act, 2003, if a particular state is unwilling to pay a decent price, the power generator could sell the entire power he generates to another state that has a more prudent administrative model and is willing to pay the right price.

There are comparisons being made with Dhabol Power Corporation in Maharashtra (that Enron company). There is simply no comparison. Maharashtra State Electricity Board (MSEB) had enetered into a poor contract whereby the cost per unit was upwards of Rs. 7! That is plain cheating on the part of DPC or poor thinking on the part of MSEB while entering into the contract. MSEB was incurring a cost of about Rs. 2.80 in purchasing power from other companies owned by State or Central Government.

Compared to that, the price at which the private companies offer power to the Aptransco is fantastic. In fact, Reliance Energy, another much maligned private player, has agreed to sell power to Aptransco at a mere Rs. 0.98 per unit. YSR Reddy wants to push the price even further down!

Previous item: Power: PM Sayeed's wish list

Monday, June 14, 2004

Commerce: WTO Panel report on Shrimp dumping allegation in US by India delayed

India exports about $1.5 billion worth of shrimp to the rest of the world. Of this, close to $425 million exports happen to USA. India's exports to USA has risen tremondously over the last four years. It was $255.93 million during 2000-01, $299.05 million during 2001-02 and $424.51 million during 2002-03 [Source: The Financial Express]. This has been the case despite a significant drop in price per kg after the 9/11 bombing.

The largest import to USA happened from Thailand at $1.1 billion in 2002. Some of the countries importing shrimp to USA are Thailand, China, Vietnam, India, Brazil and Ecuador. Meanwhile USA based shrimp farmers have formed an association called The Southern Shrimp Alliance and have moved the Department of Commerce in USA to initiate proceedings against the importing countries, on anti-dumping charges. The Southern Shrimp Alliance has claimed that their value of US-harvested shrimp was cut in half - from $1.25 billion in 2000 to $560 million in 2002 - with a 40% drop in employment at Southern shrimp plants. Meanwhile, it says imports from the six targeted countries increased from 466 million pounds in 2000 to 780 million pounds in 2003. [Source: The CalTrade Report]

US Dept. of Commerce initiated preliminary hearing starting January 2004, but its report is still not out. Indian exporters, in the meanwhile, have stopped exporting to USA as they claim they will be unable to pay the 80-110% duty that may be imposed on them. The Seafood Exporters Association of India (SEAI) has hired a US based law firm (Garvey Schubert Barer) to fight the case. The report from WTO on this case is delayed causing considerable damage to the shrimp farmers and exporters in India. See the detailed story on The Financial Express.

A detailed chronological presentation leading up to the anti-dumping proceedings is available at Shrimp News. However this stops at around January 2004.

Related link: Marine Products Export Development Authority, India

Previous item: Commerce: Exports rise, but imports rise even more

Power: PM Sayeed's wish list

From The Financial Express

Power Minister PM Sayeed has listed his wishes to the Finance Minister in a letter dated 7th June 2004, in the run up to the budget making process. They are
  1. Complete village electrification by the year 2007, and reaching electricity to all 7.8 crore rural households by 2009.
  2. Since rural electricity delivery would cost significant money, increase of subsidy from 40% to 90% to rural consumers
  3. To increase private investment in power generation, there is no sufficient risk capital available. To enable this setting up a India Power Fund, managed by Power Finance Corporation. The quantum of fund needed to kickstart this fund is Rs. 2,000 crores, and Sayeed would want the Finance Minister to offer Rs. 1,000 crores for this purpose. Sayeed expects this fund to be of the size Rs. 7,000 crores by 2010.
  4. Relaxing the exposure limit set by RBI and IRDA on Banks, insurance companies and financial institutions on investing in power sector. Sayeed feels the current norms constrain flow of funds from the above bodies into this sector.
Previous item: Power: Sucheta Dalal on problems with privatising power distribution

Power: Sucheta Dalal on problems with privatising power distribution

There is a very good article by Sucheta Dalal in The Financial Express.

Recounting the experience in USA where unscrupulous power distribution companies (starting with Enron, but not restricted to only them), she shows how these companies manipulated the power distribution and raken in excess cash from poor, unsuspecting people.

She also shows some problems in Mumbai where the power distribution is managed by Reliance Energy and Tata Power.

As of now, power distribution is in private hands only in Mumbai and has just recently been introduced in Delhi. Reports indicate that things have considerably improved in Delhi, though there have been several complaints as well in terms of billing discrepancies and collection methods as well as dealing with complaints.

A very strong regulator is required to manage the prices when private power distribution companies come into the picture. More competition would/should help in keeping off illegal operation by power distributors as in the case of USA.

Previous item: Power: Neyveli Lignite Corporation declares its annual result

Power: Neyveli Lignite Corporation declares its annual result

News from The Hindu: One | Two

NLC has shown increased turnover and marginal decrease in profits in 2003-04 over the previous year. turnover for the year 2003-04 was Rs 2,807.54 crores comapred to Rs. 2,681.48 crores in 2002-03. The profit for 2003-04 was Rs. 1,143.51 crores compared to Rs. 1,148.40 crore in 2002-03.

NLC produced 205.57 lakh tonnes of lignite from its opencast mines, up from 186.24 lakh tonnes in the previous year. It generated 16.39 billion units of gross power, compared to 14.97 billion units the previous year.

Some key points from the press conference by Chairman of NLC, S. Jayaraman:
  • The Rs. 2,161.28-crore 4.5-million tonne Mine II expansion linked to the Rs. 2,030.78 crore thermal station II expansion is awaiting Government nod.
  • The 2.1-million tonne Rajasthan mine-cum-power project (2X125MW) costing Rs. 1,347.76 crores is awaiting nod from the Public Investment Board.
  • Land had already been identified for the joint venture 1,000 MW coal-based power project in Tuticorin, with TNEB. Once TNEB gets TN Govt. approval, the project will start.
  • NLC is awaiting sanction for the 4x500 MW coal-based power project in Ib Valley in Orissa.
  • NLC is willing to take up the Jayamkondan lignite-based power project (1,000 MW) which is delayed because the private players are asking for payment security mechanism from TNEB.
Previous item: Power: Tamil Nadu gets extension for unbundling its SEB

Friday, June 11, 2004

Power: Tamil Nadu gets extension for unbundling its SEB

Today's The Hindu reports that Tamil Nadu sought, and received extension by an year to unbundle the generation, transmission and distribution functions performed by Tamil Nadu State Electricity Board. Quite a few states have already asked for and received this kind of extension.

Subsequent to the new government's stand on reviewing Electricity Act, 2003, extensions are being granted to all and sundry.

Electricity Act envisaged splitting transmission from generation and distribution. It allows anyone to generate power without having to obtain any license whatsoever - provided they conform to the local norms for running any industry, such as zonal norms, pollution control norms, labour rules and so on.

I went to a talk last week by AA Sadagopan, Member (Generation), Tamil Nadu Electricity Board on the changes expected at TNEB brought in by Electricity Act, 2003. This was a technical talk organized by IEEE. As such, there was not much of scope asking certain political questions.

I did ask him what the gap was between the current demand in power and the supply that TNEB is managing. To my surprise Mr. Sadagopan answered that TNEB is perfectly matching the demand and the supply and that in the last four years there has been no scheduled load shedding or power cut. He also answered that with the new projects coming up (Koodangulam in TN, and others in neighbouring state), we will be able to manage the future demand as well.

Can any of you living in Tamil Nadu accept this statement? I know for a fact that in Srirangam, where my parents live, there is a continuous 2 hour power cut happening every day. This is not something caused by a faulty line being repaired. Sadagopan pointed out that in Chennai the power availability is over 99.8%. Even this sounds unbelievable to me.

Sadagopan's talk however was useful in understanding several issues, such as the various forms and amount of power produced in the state, the central share we are getting to our grid etc. Someone in the audience (an ex-member of the TNEB) raised a point about Tamil Nadu generating about 1300 MW of Wind power whereas it should not be more than 900 MW or so (apparently a thumb rule of not more than 10% of the grid capacity should be in the form of wind power), and wanted to know if we are recklessly allowing wind power installations south of Tamil Nadu. This sounded strange to me... The whole idea, I thought, was that we are short of power and desperate for more power, and hence the Electricity Act 2003 envisages liberalising the sector, allowing more private investment and more efficiency to be brought in to the system.

I had also been to an interesting talk given by Mr. L.V.Krishnan, Retired Director of Safety at Kalpakkam Atomic Power Plant, about three weeks back. Some of the key indicators presented during that talk was:
  • In the year 2000, India's per capita energy consumption was 500 kgOE. The comparable figures for China was 900 kgOE while the world average was 1,600 kgOE. Thus India is way below in the energy average consumed. Energy consumed is a reasonable indicator for the quality of living and economic status. If India is expecting to grow, then our energy requirements will have to at least double over the next few years.
  • Of this 500 kgOE we consume per capita, 330 kgOE comes from commercial sources, while the remaining 170 kgOE comes from fuel wood, animal dung and crop residue. Of the comemrcial sources, 52% comes from Coal powered thermal plants, 34% from oil, 7.5% from Gas, 4.5% from hydro and 1.4% from nuclear power. Wind power constitutes 0.6% only.
  • At the current usage levels, our coal reserves will come for another 240 years. If the power production is increased three-fold, the reserves will last us only for another 80 years. Similarly the oil reserves we have access to will most likely come for only another 22 years. Natural gas reserves may come for only another 22 years as well.
  • World oil production is most likely to peak immediately after 2020. At that time, the cost of the oil will start shooting up rapidly, and only powerful countries in the world may have access to oil.
  • Hydro electric power - there is very little scope for massive projects in the thickly populated regions. IOf the new projects identified (of totoal capacity 150,000 MW), one third of this lies in the state of Arunachal Pradesh (that is how strategic this state is for us now!) and even to tap this and build the necessary structures, we need hydromet data from China. The mini/micro hydel projects have only a potential of about 7,000-10,000 MW.
  • The conclusion by LV Krishnan was that nuclear power is the only hope going forward for India. Despite the safety fears that people may have, Nuclear plants in India are more safe than any other industry. He said Nuclear industry is the only industry to have an International set of standards for safety.
Previous item: Power: Delay in reforms

Tuesday, June 08, 2004

Publishing: International Herald Tribune latest

News from The Hindu

I & B Ministry will be filing caveats in the high courts of Andhra Pradesh and Delhi to prevent the publishers of the Indian version of International Herald Tribune from getting any ex parte orders. I & B Ministry has also served a notice to IHT in Hong Kong and used Indian Consul-General in Hong Kong to serve the notice, asking IHT to stop the publication immediately.

Shouldn't the I & B Ministry be talking to Midram Publications in Hyderabad rather than talking to someone in Hong Kong?

Previous: Publishing: When the International Herald Tribune stumped India...

Policy: From CMP to President's address, what is in and what is out

Full text of the President's address to the Parliament is available here. All newspaper reports indicate that this is mostly based on the CMP - of course - that has been worked out by UPA. [The full text of President's address is also available The Hindu.]

I have not yet fully read through the address. I hope to read through the text carefully and compare where it differs from CMP if at all.

The next step is to carefully follow whether the issues talked about here are implemented properly. And even if implemented, will it help the nation achieve its goals of consistent 8% economic growth, poverty alleviation, and lifestyle improvement for majority of the people.

Saturday, June 05, 2004

Publishing: When the International Herald Tribune stumped India...

Read The Hindu: One | Two. For a slightly different version, read Business Standard.

Since May 31, 2004 a newspaper with the title International Herald Tribune started publishing out of India, from Hyderabad. It was printed from Deccan Chronicle's press on behalf of an Indian company Midram Publications Private Limited, owned by Deccan Chronicle's owner T. Venkattram Reddy. The paper carried the editor's name as MJ Akbar.

The Ministry of Information and Broadcasting was caught unawares. Only when newspapers started reporting this fact did they wake up to the issue.

The Hindu seems to indicate that this type of publication is a violation of the existing laws in the country. According to the 1955 Cabinet Resolution, says The Hindu, "foreign newspapers and periodicals which dealt mainly with news and current affairs should not be allowed to bring out editions in India." In 2002, NDA Government allowed 26% equity stake in news media and upto 100% in entertainment media.

The Hindu further states
As for syndication laws, the Government in 2002 revised the guidelines to mandate that the total material so procured and printed in an issue of an Indian publication should not exceed 7.5 per cent of the total printed area of that issue. Further, the masthead of the content provider could not be used.
However, the Business Standard report indicates that the whole operation has been planned very meticulously.
  1. The company that is publishing the Indian version is a company regsitered in India, and fully owned by Indians.
  2. The name of the paper has been registered with the Registrar of Newspapers of India.
  3. To avoid copyright and trademark violations, the publishing company in India has obtained no-objection certificate from The International Herald Tribune.
  4. Only 7.5% of the content is sourced from The International Herald Tribune. The rest from various news agencies.
It is unclear what the masthead looks like. Having taken so much care, they would have ensured that the masthead is not the same as the one used internationally.

It appears from The Hindu news item that the I & B ministry officials are asking the IHT to withdraw from this arrangement. However, I cannot see how this is enforceable. One can also see the shades of reporting standards not being up to the mark: The Hindu resists foreign investment in print media, Business Standard welcomes it, and has sold 26% equity in its company to the London based The Financial Times.

Previous item: Broadcasting: Interoperability of STBs not viable, say manufacturers

Parliament: Amendments to the Representation of the People Act, 1951 in bad faith

Ex-Rajya Sabha MP Kuldip Nayar has gone to the Supreme Court against the amendments made to the Representation of the People Act, 1951 earlier that did away with the domicile requirement for candidates contesting the Rajya Sabha elections, as well as the open ballot system introduced replacing the earlier secret ballot system.

It appears that except for the communists every one in the Lok Sabha voted for these amendments. This shows how honesty today remains only with the communists.

The Supreme Court has issued an interim order restraining the Election Commission from issuing the notification to fill 65 vacancies that have arisen in the Rajya Sabha.

Read The Hindu

Kuldip Nayar has very ably argued that rmeoval of the domicile status changes the federal structure of the constitution. We already know how the Prime Minister Manmohan Singh (despite all his credentials) has been brought in via Assam to the Rajya Sabha.

There was an unwritten rule that the Prime Minister was always an an elected representative from the Lok Sabha. This has changed for the first time with Manmohan Singh. It is still possible that Manmohan Singh may resign from the Lok Sabha to contest elections from a friendly constituency. But worse is the way Rajya Sabha being abused to bring in powerful leaders who cannot however get people's mandate, and have only recently lost in elections. The current Home Minister Shivraj Patil (lost in Latur), Power Minister PM Sayeed (lost in Lakshadweep) and Health Minister Anbumani (who didn't stand in the Lok Sabha elections at all) have to now get through via Rajya Sabha. As it is, starting from the Prime Minister Manmohan Singh, there are several Rajya Sabha MPs in the coucil of ministers: Arjun Singh, Ghulam Nabi Azad, Natwar Singh, HR Bhardwaj, Prem Chand Gupta, Suresh Pachouri, Dasari Narayana Rao, Rahman Khan, MV Rajasekharan and Prithviraj Chavan. The Minister for Civil Aviation Praful Patel lost in Bhandara constituency, but is a Rajya Sabha member as well currently. Laloo Prasad Yadav, on the other hand, is at present a Rajya Sabha member, and has also won in two Lok Sabha constituencies! A few other Rajya Sabha members have stood in Lok Sabha constituencies and won and will be vacating their Rajya Sabha seats. Mulayam Singh Yadav who wants to continue as Chief Minister of Uttar Pradesh is resigning his Lok Sabha seat as well.

While it is perfectly acceptable to have Rajya Sabha members in the coucil of ministers - in fact desirable too - all attempts should be made to ensure that they truly represent their constituents. Manmohan Singh cannot be truly said to represent Assam. Before the amendment to the Representation of the People Act, quite a bit of spade work had to be done to get un-winnable leaders to register a home address in states where their parties have significant MLAs. Manmohan Singh apparently has a home address in Assam!

Now, with the amendment, this sham is done away with. You can live wherever you want and can get elected to the Rajya Sabha representing a specific state. Perhaps this is why the UPA has happily inducted Shivraj Patil, PM Sayeed and Anbumani into the coucil of ministers. Anbumani at least will be coming via Tamil Nadu Assembly. PM Sayeed will have to be accomodated from some other state.

BJP is just as much a culprit. Its top leaders Venkaiah Naidu, Jaswant Singh and Arun Shourie will be seeking Rajya Sabha seats from some safe states, about which they may know very little. So are several other aspirants to MP posts. This kind of abuse of course happens only with the two major National Parties. We hope the Supreme Court comes down heavily on this amendment and restores the original character.

The open ballot system was something I welcomed when it was announced. I can now see the problems in this system. However, I am not overly worried if this aspect of the amendment is either retained or struck away.

Newspapers report that this stay order will result in constitutional crisis. I do not think so. The non-members of the Parliament have six months to elect themselves in. If they are seen as that important, their respective parties can find some safe Lok Sabha seats and have them vacated for these leaders stand in the elections. If not, six months down the line, these folks can resign, and find a proper way of entering either the Lok Sabha or Rajya Sabha and then resume their ministership. Surely this is not a constitutional crisis? It would have been the case had it been the Prime Minister who was caught in such a scenario.

Power: Delay in reforms

Editorial in The Hindu, Article from Financial Express

As per the Electricity Act 2003, the state electricity boards (SEBs) were to be unbundled by 10th June 2004. Now an extension of one year has been granted to Himachal Pradesh, Meghalaya and West Bengal, while an extension of six months have been granted to Maharashtra, Punjab and Chhattisgarh. Two months of extension has been granted to Assam. Kerala and Tamil Nadu have requested for a one-year extension while Bihar and Jharkhand are expected to ask for the extension as well, and in all likelihood these extensions will be granted.

Besides these extensions, the CMP even talks about reviewing the Electricity Act 2003 itself.

What was the idea behind unbundling of the state electricity boards into power generation entities and power distribution entities? Poor administration of state electricity boards and massive subsidies resulted in a loss of over Rs. 26,000 crores across all SEBs. Private power generation companies refused to set up shop in several states fearing that the state electricity boards will not have sufficient monies to pay them. The state governments by themselves didn't have sufficient money to invest further in generating more power. The demand for power has however been on the rise - both the domestic demand and the industrial demand, resulting in a massive gap between demand and supply.

This resulted in the previous NDA Government to bring in the Electricity Act, 2003. The salient features of this act are:
  • Each state will set up a State Electricity Regulatory Commission for determining the tariff structure for that state
  • Unbundle the Electricity Board to delink transmission and distribution from power generation
  • Meter power consumption by all users - including the farmers
  • Reimburse all subsidies incurred by the Board so that its finances are strengthened
This would have resulted in private power players showing enough confidence in entering the state for increased production of electricity in those respective states. However, the current extensions as well as the fear of 'reviewing' the act is making the private investments in power sector jittery.

Though Chidambaram has talked about financial closure of close to 3,700 MW capacity, and another 6,867 MW in the pipeline, unless the Central Government takes a strong stance on Power reforms, none of the new power projects will fructify.

While it is understandable that Farmers need to be given subsidy, it is difficult to justify providing subsidies to regular domestic users, as has been done by Tamil Nadu Government recently. The people in the state as well as the opposition parties hail this decision. However they do not realise how damaging the consequences will be. There will be continuing power cuts, making the life of common man miserable. Several villages will never ever be electrified. Industrial production will take a serious hit, resulting in less creation of jobs. The so called IT revolution will simply not happen as fast as it could, as electricity is the most basic requirement for the computer to function!

I live in a comfortable locality in Chennai (Gopalapuram). There is hardly any power cut and with the help of inverters and batteries, we handle any power cut quite comfortably. However the situation across the state is pitiable. There are parts of the state where there is a daily power cut of more about 3-4 hours. Some more places only get electricity for about 4-6 hours. And as I remarked earlier, there are several villages with no power supply whatsoever.

All because the people seemingly want cheap and unsustainable electricity and the irresponsible government is willing to mollycoddle its people.

Previous item: Power: Construction of Prototype Fast Breeder Reactor begins in Kalpakkam

Friday, June 04, 2004

Oil & Gas: Who should bear the cost of oil price increase?

The petroleum minister Mani Shankar Aiyar has said the Government will not be revising the price of petrol and diesel during the current fortnight. OPEC had yesterday agreed to increase the quota of production by another 2 million barrels per day. But that did not allay the fears in the International oil markets. The price of the crude shot up to $42, because of terror premium.

There was a discussion in NDTV, involving Nilotpal Basu of CPI (M) and RK Pachauri, Director General of TERI. Pachauri was of the opinion that the oil companies in India are already too late and should be revising the rates upward. The estimated "loss" to the oil distribution companies is about 2000 crores per fortnight, it seems.

However Nilotpal Basu had an extremely valid point. He said the cost of crude and processing came together to only 20% of the sale price, and the remaining 80% was on Government taxes, an argument not challenged by Pachauri, so I am assuming must be correct. Basu's argument was why any increase in crude cost be borne by public, when in the administered pricing mechanism, the oil companies have made profits at various other points. Also he was for rationalising the tax structure.

When the subsidy given to LPG also came up for discussion, Basu was again forceful in explainaing that the Government charges an atrocious 80% tax and then offers a bit of that back as subsidy and claims there is this huge subsidy. Basu's argument is that the price of petrol, diesel and gas shouldn't be this high. Pachauri weakly talked about how the subsidy or non-increase of oil price does not help the rural folks since oil and gas is used only by those in the cities and towns.

Pachauri did talk about energy security - the need to look for sustainable energy resources and not be held ransom by International oil prices.

I entirely agree with Basu's argument. The main beneficiary of random taxation on oil is the Government. Not the oil companies or people. If you look the world over, Indian oil prices (end user) are way over that found in other established western countries. While the taxes may have been levied to discourage wasteful use, I do not think it has helped the economy. [For comparison, a gallon of gasoline in USA costs around $2.1 - or 3.78 litres of petrol = Rs. 90, cost per litre = Rs. 23. In India, cost per litre of petrol is about Rs. 36]

What is the way forward?

To start with the Government should rationalise the taxes. The Oil Companies should then be allowed to set their own prices but governed by a regulator. This way, politicians will not be allowed to decide whether the price should be kept depressed during elections etc. The government should also not decide on who should carry how much burden. ONGC and GAIL have been asked to carry some of the costs, while HPCL, BPCL and IOC are carrying the rest. If private compnies enter the purchase, refining and distribution business, this will have to go.

Finance: Chidambaram goes to Mumbai

Read the reports in Financial Express, Business Standard.

Finance Minister Chidambaram has met people from the industry in Mumbai and promised that reforms will continue. He has also said that there will be stress on fiscal prudence and discipline, with a view to rein in fiscal deficit. There are plans for bringing in investments in the infrastructure sector.

The budget will be presented in the first week of July.

Some of the other observations by the FM were:
  • Interest rates will not go up, unless the same happens internationally
  • Government would be willing to consider a review of capital gains tax paid by FIIs
  • Pension funds may be allowed to invest in open-ended equity funds
  • Banks have completed financial closure of six power projects with a combined capacity of 3,700 MW in the last 10 weeks. Ten more with a capacity of 6,867 MW in the pipeline.
  • RBI has been asked to look at simplifying procedures for rural lending

Previous item: Finance: World Bank defers $150 million loan to Tamil Nadu

Tuesday, June 01, 2004

IT: Maran's Hotmail

News from The Hindu

Maran says his job is to
  1. bridge the digital divide between urban and rural areas
  2. encouraging usage of computers amongst villagers
  3. launching a free email service based out of India
While the first two ideas are laudable (though very blue sky), I think the third one is entirely misplaced (despite being very specific). The minister's main thrust with respect to the third issue seems to be
  1. encourage the use of *.in domain names
  2. keep India originating email traffic within India, thereby saving money for the country
He says:
The reason I am very keen on this is that we want to promote Indian domains. Every time you want to go to Windows Update or Hotmail dot com, we are going out of the country. That means the traffic is leaving the country. This means we are wasting time, bandwidth and money. We are going to ask all major website holders to have mirror-sites in India, so that you can download India-centric information much faster. This would mean we would use inland traffic and save a lot of money.
It is a good thing to ask major websites to set up mirror sites in India. Maran will have to offer some sops for such mirror hosting, at least in the beginning. However, things like Hotmail, and now Gmail are services where bandwidth is only a minor issue. The email management software and backend systems are more involved and I can't see how someone in BSNL/MTNL (the only entities owned by the Government who will respond to a Government order) will be in a position to match up to the quality delivered by Gmail or Hotmail. Further, the minister seems to think he will recover the costs through advertisements. Indian Internet advertising market is no way large enough to cover these costs. I know.

There are two main reasons why Indian and International companies do not look at India as a natural hosting location, even if Indian users are likely to predominant visitors to such web sites.
  1. The cost of bandwidth in India is huge today.
  2. The cost of acquiring high-end server quality hardware is also high in India.
So it doesn't make any sense for anybody - even an Indian company whose only target audience is Indians in India - to host their site in India. Maran cannot enforce that the cost of bandwidth be brought down. It will happen when Reliance, Bharti, VSNL, Sify and other smaller players start fighting with each other. That is how ISD call rates have come down on par with that in USA. Maran can do a lot however in bringing the cost of high-end server quality computers by talking to the Commerce Ministry and reducing (or eliminating) the excise duty on import of dual/multi-processor pentium motherboards (and similar), RAM, SCSI hard drives, RAID arrays and the like.

Further to this, Indian ISPs will have to implement a properly working Internet Exchange to avoid circuitous network traffic. NIXI - National Internet Exchange of India has been set up for this purpose. Though NIXI has been in existence for quite a while, there has been fair amount of bickering between various organizations involved. As of now, there is peering happening in one location - Noida. The second centre in Mumbai does not yet seem to be operational. Maran can look at speeding this and help set up more NIXI centres across the country so that there is efficient internal traffic.

The minister has to do a lot better by presenting us with plans on how rural digital divide can be bridged and why villagers should even use the computers. Local language computing is so far behind in India. The villager - assuming he is literate enough - needs Tamil, Telugu and Hindi computing. While Unicode is fast becoming a standard worldwide for local language encoding, Tamil Nadu Government is still far behind with its own encoding standard called TAB/TAM. Local language initiatives in Linux have at least started but they are way behind satisfactory levels. In case of Microsoft, Project Basha is at its beginning. In the absence of key infrastructure like quality power supply and quality and affordable telecom/internet connection, no one can make use of a computer in a village. While it may be easier to take internet to villages (through wifi, wifi-max and WiLL), how are we going to get sufficient power to most of our villages? Maran needs to have a long chat with PM Sayeed.

Previous item: IT: Dayanidhi Maran's 10 point agenda

Finance: World Bank defers $150 million loan to Tamil Nadu

News from The Hindu on Tamil Nadu's electricity charge rollback, World Bank loan deferred

As Tamil Nadu Chief Minister Jayalalitha went on a roll-back mode, World Bank has decided to have a relook at the $150 million loan awarded to Tamil Nadu state government for softening the impact of the reforms process kickstarted by the government.

Since AIADMK's rout in the parliamentary elections, Jayalaitha has revoked most of her earlier decisions. Some of them have no relevance financially - such as repeal of anti-conversion ordinance. Removal of H mark on ration cards for families earning more than Rs. 5,000 per month would also have not made much of a dent in the finances and perhaps is a welcome move. However she has also rolled back the electricity reforms she has introduced in the farming sector. Now, extending the same, she is cutting down the electricity charges for homes. The new charges, effective from June 16th are:
in units per month
Present rate
(Rs. per unit)
Revised rate
(Rs. per unit)
301 and above4.753.05

This is expected to amount to an annual subsidy of Rs. 910 crores, reaching out to 1.17 crore families. Predictably the people are happy. The opposition politicians are saying this is to capture votes in the upcoming 2006 assembly elections. Now Tamil Nadu Chamber of Commerce and Industry wants the same to be extended to commercial operations as well.

However no one seems to bother where the money is going to come from. The state's revenue deficit is expected to now shoot to Rs. 4,500 crores. (Read V. Jayant's comment.)

To add to these woes, World Bank reconsidering its loan of $150 million, at close to 6% interest, that it had sanctioned for Tamil Nadu.

Previous item: Finance: Pension problems

Monday, May 31, 2004

Finance: Pension problems

News from Business Standard

Employees' pension scheme has a gap of Rs. 1,700 crores, says the article. This is because of keeping a higher fixed rate of interest of 9% on the money deposited with EPS.

The article suggests that to get out of this muddle, the government should resort to the following:
  • Market-linked rates of return instead of assured pension
  • Government’s 1.16% contribution to be withdrawn
Another consideration should be for the government to completely quit the pension sector - in phases, and leave it to private players. Across the world, private pension funds manage pension. Even government employees have their pension managed by trustee pension funds. The functioning of these pension funds are fairly transparent. We know where they invest their money. However, in India, in the guise of offering a fixed return, the EPS does not tell its constituents how they have been managing their money. With the kind of large funds they have in their hands, they could very well generate a larger than 9% return consistently, with a prudent management team. And this wouldn't require the contribution at all from the government.

Previous item: Finance: Chidambaram reacts to market crash

Sunday, May 30, 2004

Power: Construction of Prototype Fast Breeder Reactor begins in Kalpakkam

News from The Hindu

Work has begun in Kalpakkam to construct a Prototype Fast Breeder Reactor (PFBR) with a capacity to generate 500 MWe. The estimated cost (including cost of escalation) is Rs. 3,400 crores, and the plant will reach its criticality in 2010.

Previous item: Power: Electricity Act 2003 to be reviewed?

Food: M.S.Swaminathan appointed head of National Commission on Farmers

News from The Hindu

The commission is expected to focus on
  • identify the factors responsible for imbalances and disparities
  • suggest measures to achieve sustainable and equitable agricultural development
  • examine the issues of existing price and marketing policies and the legal framework to improve the income and welfare of farmers
  • assess the impact of international trade environment on the livelihood sustainability and the viability of small agricultural holdings
  • ways by which agriculture reforms can be accelerated, particularly in quality production and marketing

Previous item: Food: Merger of Agriculture and Food ministries extolled, but a long way to go

Finance: Chidambaram reacts to market crash

Article in Financial Express
"Market will react to events. Market goes up and down. One should take it as it is. The Indian capital market is well regulated and even on the Black Monday there was no payment crisis. We will regulate it better. One should not react to every market movement," the finance minister said.
Stating that the Government will take some steps over the next month which will address the fears of certain section of the market, he also reiterated that India is one of the best investment destinations and will remain so.

Previous item: Finance: Maharashtra presents deficit budget

Saturday, May 29, 2004

Finance: Maharashtra presents deficit budget

News from The Economic Times and Mid Day. Budget details at Government of Maharashtra.

Maharashtra had passed an interim vote on account earlier (Details) - in the words of Maharashtra Finance Minister Jayant Patil: "the country was about to go to the polls to elect a new Lok Sabha. The Government of India had also gone in for a vote on account and is yet to present a full budget before the Houses of Parliament."

The revenue deficit is expected to be Rs 9,037 crores. The total revenue receipts are estimated to Rs 40,393.08 crores (compared to Rs 37,158.92 crores in FY-04). The total revenue expenditure in the current fiscal is pegged at Rs 50,144.88 crores (compared to Rs 46,195.49 crores in FY-04).

In his budget speech, Jayant Patil pretty much cried out to Dr. Manmohan Singh, the Prime Minister for help:
A new Government has recently taken power at the Centre under the leadership of Dr. Man Mohan Singh (sic). The Hon. Members of this House are aware that Dr. Man Mohan Singh (sic) is a successful economist of international repute. I am confident that the present Democratic Front Government will receive excellent guidance and cooperation from the Centre in its financial management. The Government will endeavour to suitably resolve the financial difficulties of the State through consultation with the Centre and under the guidance and cooperation of Prime Minister Dr. Man Mohan Singh. (sic)
It seems the Prime Minister has to bail out quite a few states, as well as the whole country.

Previous item: Finance: Forex reserves decline for the first time this fiscal

Finance: Forex reserves decline for the first time this fiscal

News from Times of India, Press release from The RBI

The weekly reports from RBI (for week ending 21st May 2004) indicates that for the first time this financial year, forex reserves has declined. It has been going up consistently for several weeks at a stretch.

Some of the reasons are
  1. Foreign institutional investors (FIIs) were net sellers in the stock markets, resulting in foreign exchange outflow from India
  2. Declining value of Rupee vs Dollar, and against Pounds, Euro and Yen

Previous item: Finance: Markets tank on seeing the CMP

Friday, May 28, 2004

Finance: Markets tank on seeing the CMP

The stock markets have not received the CMP favourably. As I write this, the markets have crashed down by close to 200 points.

The finance minister P.Chidambaram talked to the press in a hastily arranged press conference. [News on]

It appears that the markets were spooked by
  1. A call for review of Electricity Act, 2003
  2. No privatisation of profit-making PSUs
It looks like the reaction is a bit unfair, but then the stock markets have hardly been rational. If this Govt. believes in their CMP, they should press ahead and focus on growth and not bother with what the markets think. The markets will come in line anyway, once the economy continues to grow at the current pace.

Previous item: Finance: Common minimum programme (CMP)

Finance: Common minimum programme (CMP)

The ruling United Progressive Alliance (UPA) coalition announced its CMP yesterday, signed by the current coalition partners and supported by the Left parties from outside. The full text is available at The Hindu.

The key financial aspects are:
  • Elimination of revenue deficit by 2009
  • Subsidies to focus only on the needy constituents, details of which will be tabled in the Parliament within 90 days.
  • The government is committed to early introduction of VAT
  • Measures to increase tax to GDP ratio will be implemented such as (a) expanding the base of taxpayers (b) increased tax compliance and (c) efficient tax administration
  • [Chidambaram special...] Special schemes to unearth black money will be introduced
  • SEBI will be further strengthened
  • Profit making PSUs will not be privatised. But PSUs will be allowed to go to the markets to raise resourced. [In other words, the Govt. will not reduce its stake by selling that to public, but fresh shares can be floated in the market to raise money for the PSU - in the process the Govt. equity will invariably anyway come down.]
  • Any privatisation revenue [from loss-making PSUs] will be linked to designated social sector schemes
  • Sick PSUs may be sold off or closed down

Previous item: Finance: Chidambaram's first press conference

Thursday, May 27, 2004

Power: Electricity Act 2003 to be reviewed?

The Power Minister PM Sayeed said two days back that he didn't see any need to review the Electricity Act 2003, when responding to a question posed to him by the journalists. Here is the quote from the news in The Hindu:
On the demand of some of the UPA allies that the recently passed Electricity Act be reviewed, Mr. Sayeed said there was no need to do so at the moment.

The Electricity Act, 2003 contemplates the efficient development of the power sector in a competitive environment, including restructuring of the vertically integrated State Electricity Boards to bring about greater accountability, transparency in provision of subsidy and introduction of competition through open access in transmission, he said.
However it appears that the left parties want the review of this act in the Common Minimum Programme (CMP), which is to be released today. Based on various television reports, the CMP may ask for a review of the act.

You can get The Electricity Act, 2003 as a PDF file here. The Electricity Employees Federation of India is of the opinion that this act is bad for the poor people. Their views are here.

No wonder, the Left groups are a bit concerned with this act. I intend to read the massive 84 page document of the Act and also various analysis available around to find out what is there in it, and will revert with my views at a later time.

Previous blog on Power: Power: PM Sayeed says 'free power is okay' provided it is paid for!

IT: Dayanidhi Maran's 10 point agenda

Article from

All nice things to say. High PC penetration, broadband for everyone, e-governance all over, NIXI - the much talked about Internet Exchange, Indian domain name (this is an interesting issue to talk about anyway), Migration to IPv6, Security of networks, Language computing etcetera.

No doubt all are good things. Let us see how much he makes them happen.

Wednesday, May 26, 2004

Broadcasting: Interoperability of STBs not viable, say manufacturers

News from Business Line

Consumer Electronics and TV Manufacturers' Association (CETMA) has told TRAI that it is not viable to produce set top boxes, used in CAS, to be interoperable across different operators. Attempt to make them interoperable will double the cost of the boxes, says CETMA. CETMA's contention is also that making such boxes interoperable will increase piracy and copyright violation.

TRAI has referred the matter to the Bureau of Indian Standards, to examine whether the interoperability is viable or not.

As of now, CAS has been implemented only in Chennai. The cost of the set top box is high - as much as Rs. 3,500. There are two Multi-System Operators (MSOs) in Chennai offering CAS, one of the companies - Sumangali Cable Vision (SCV), is owned in part by the current Minister for IT & Telecom Dayanidhi Maran. A third option is also available, but via Direct-to-home satellite - from Zee group company called DishTV.

The MSOs purchase the set-top boxes from the consumer electronics companies in India or outside India. From the set-top box I have at home (supplied by SCV), it seems that the technology is owned by a dutch company (Irdeto Access), and the hardware manufactured by a Chinese company (Coship).

Consumers face a major problem because of lack of interoperability. If I purchase an STB, and then am transferred from the city, my STB won't work in the new city where the MSO may use an entirely different platform. Another problem is, I have no recourse against poor quality of service from one operator (amongst the duopoly!), and if I have to switch to another operator, I am expected to cough up more money for another STB.

It seems funny that the CETMA is raising the bogey of copyright violation and piracy. I am assuming by piracy they are talking about people making unauthorised STBs and access cards and break into pay-tv signals. I don't think it is CETMA's job to worry about this. The MSOs and broadcasters will have to worry about this.

Previous entry on Broadcasting: Telecom & Broadcasting: Jaipal Reddy wants a new regulator for broadcasting

Food: Merger of Agriculture and Food ministries extolled, but a long way to go

Article from Business Line

The above article by Harish Damodaran praises the decision to merge Agriculture, Food, Civil supplies, Consumer affairs and Public distribution under one cabinet minister - Sharad Pawar of NCP - as a good move and a step in the right direction. However also points out that crucial issues related to agriculture and food production are still outside the ambit of this ministry. For example:
  • Chemicals and fertiliser has a separate ministry, managed now by Ram Vilas Paswan, with Cabinet rank.
  • Irrigation is under Ministry of Water Resources, under Priya Ranjan Dasmunshi, another Cabinet Minister
  • Apparently, till recently there was a department of Sugar and Edible oils, headed by a secretary, but has been merged now with the department of Food and Public Distribution.
  • There is a separate ministry for Food Processing Industries, handled by Subodh Kant Sahay, a Minister of State with independent charge. But Dairies, sugar plants and edible oil industry will come under Sharad Pawar.
  • Plantation crops such as rubber, tea, coffee, spices and tobacco and the commodity boards are however under the Ministry of Commerce, headed by Kamal Nath, another Cabinet Minister.
  • The job of framing food safety standards are under Health Ministry, headed by Anbumani Ramadoss, a tyro to this area.
  • There is a separate Ministry for Rural Development administering employment generation and poverty alleviation schemes (which seems okay to me, though predominantly these jobs may be in agricultural sector).

The author shows a comparison to USDA - US Department of Agriculture - where
The USDA's role today is not limited to just agriculture per se or crop research.

It also "helps ensure open markets for US agricultural products and provides food aid to needy people overseas", is "responsible for the safety of meat, poultry and egg products", "brings housing, modern telecommunications and safe drinking water to rural America" and operates Federal anti-hunger programmes including food stamps and school lunch.

Moreover, the USDA is the country's largest conservation agency and "steward of our nation's 192 million acres of national forests and rangelands".
I think there is a clear need to bring the concerned departments together, to ensure that agriculture and food production is developed considerably, agricultural income including export income is increased manifold and rural poverty is alleviated to a great extent.

Commerce: Exports rise, but imports rise even more

News from The Hindu, Press Release from Ministry of Commerce and Industry.

Nothing to do with the new commerce minister Kamalnath. The exports have registered a growth of 19.95% in April 2004 (US$ 5.01 billion) compared to April 2003 (US$ 4.18 billion). However, the same is only 11.23% in rupee terms, as the rupee appreciated heavily with respect to the US dollar over this period.

Imports have also risen by 20.78% in this same period. It was US$ 6.75 billion in April 2004 and US$ 5.59 billion in April 2003. Of this, the main outflow was in purchasing oil from outside. The oil imports came to US$ 2.20 billion in April 2004 compared to US$ 1.45 billion in April 2003. This must be due to both a higher intake (a sign of growing economy) and the price increase.

Trade deficit for the month of April 2004 was US$ 1.74 billion. (In April 2003 it was US$ 1.41 billion.)

India will have to seriously look at home grown energy needs.

We also have to look forward to the exim policy from the new Commerce Minister.

Power: PM Sayeed says 'free power is okay' provided it is paid for!

News from The Hindu

Sorry for the corny title. Sayeed seems to indicate it is okay for any state to provide free power to any specific section of its people, provided the State Government makes allowance for the same in its budget, and pay the generation and supply company appropriately.

The new victorious Andhra Pradesh Government announced that farmers will get free power, thinking it was this issue which really threw Chandrababu Naidu of TDP to lose power. The Tamil Nadu state government headed by AIADMK which lost the Lok Sabha elections badly, also gave free power to its farmers.

However the Prime Minister Manmohan Singh has clearly showed his unhappiness over giving away any utility free. There are other ways of providing the subsidy, the one that was partially rolled out in Tamil Nadu, but has however been rescinded now. This method enforced setting up of electricity meters to all the farms, monitored the usage and asked the farmers to pay the electricity charges. The state government then paid this money back to the farmers as subsidy.

You may ask: "What is the big difference?"

The difference is huge. In case of free power, there could be reckless usage. There is no monitoring. Also the farmers fear that, the subsidy amount may be restructured at a later stage. For example, a new governmental initiative may say all small farmers - those that use less than a certain amount of electricity and use a smaller field may get 100% subsidy, while the medium range farmer gets only 75% subsidy and large farmers get only 50% subsidy. Farmers, particularly the big ones, obviously do not like this. So they do not want to even open this area up and give in to Governmental pressure.

There is also the cash flow management - which is admittedly a problem for the small farmers. You have to pay upfront and then expect the money to come back to you from the government and this could take 3-4 months. Also unscrupulous officials can ask for bribes to release this money, or take a commission in this amount. However, such problems aside, the state governments will still have to institute this sort of a disciplined approach.

As we move towards private power distribution companies, we cannot live with this unmetered power distribution. While I am all for giving measured, and justified subsidies to farmers, the farmers will also have to be made aware that there is a cost to the Government in providing free power. One may even have to charge for agri water - perhaps a nominal charge - to encourage more sensible use of the water. There could be subsidies here too.

Then there is the issue of state fiscal deficit, if electricity is given free. The assumption by most of the states is that somehow centre will pick up the tab. When the states reel under pressure to pay the salaries (a bit on the higher side because of the fifth pay commission) of their employees, there is no money in the coffers. There is additional borrowing, which results in huge interest costs. It appears that a lot of state governments have very high cost debt, of money borrowed from the central government.

On other matters, PM Sayeed has given some statistics:
Tenth Plan, 23,000 MW was being commissioned in the Central sector and 11,000 MW in the State sector; only 7,000 MW was being set up in the private sector. The total additional power generation target was 41,000 MW.
So we are massively behind target, and the private sector has not trumped up enough. The key job for the ministry would be to find more private participation (despite whatever the Left may say), so that they produce at least 50% of the target in the medium term, with the remaining 50% produced by State and Central.

Tuesday, May 25, 2004

Telecom & Broadcasting: Jaipal Reddy wants a new regulator for broadcasting

News from The Hindu

While the IT and Telecom Minister Dayanidhi Maran is sulking (because his grandfather wants him to), new Information and broadcasting minister Jaipal Reddy says he would like to see a different regulator for broadcasting.

The previous NDA government made a mess of CAS (Conditional Access System) and faced with massive resistance from all sections of the society, forced TRAI to be a regulator for broadcasting as well, besides the telecom space TRAI was regulating.

Since then TRAI has gotten into trying to understand the issues behind CAS as well as FM radio licensing issues. I had recently attended an open house session organized by TRAI in Chennai on FM and Cable TV related issues and was fairly impressed with Pradip Baijal, DP Seth and gang who were present.

There is no need to look for a different regulator, if the current bunch perform their job adequately. In fact, I am of the view that Telecom and broadcasting should be regulated by a single body as the future is convergence. This is exactly what happens in USA: Federal Communications Commission (FCC) regulates "interstate and international communications by radio, television, wire, satellite and cable". In UK, Office of Communications (Ofcom), does precisely the same: "regulating across television, radio, telecommunications and wireless communications services." UK in fact brought the Telecom regulator and the various Broadcasting regulators together to create Ofcam only recently.

Water: PR Dasmunshi says river linking project will be reviewed

News from The Hindu
  • River-linking project to be reviewed.
  • "The country needs water augmentation on an aggressive scale, but certainly not at the cost of human problems and adding injury to human habitation. We must find a collective and harmonious approach to the whole issue rather than an approach of confrontation", says the Minister.
  • Major pending issues are: Cauveri water dispute, the Sardar Sarovar project and the Sutlej-Yamuna link canal.
It would be interesting to note what this Government's views are on the river-linking project and whether or not, the task force on linking of rivers will be totally scrapped. Surely there should be several localised micro-irrigation possibilities. At least, at a smaller scale, the Government may look at building a cooperative venture between Kerala and Tamil Nadu (say). Kerala keeps accusing Tamil Nadu of trying to steal Kerala's water (or already stealing Kerala's water). But most of Kerala's water goes waste. A green Kerala, however continues to depend on agricultural produce from a dry Tamil Nadu for its food needs.

Finance: Chidambaram's first press conference

Reports on The Hindu, Financial Express, Business Standard

  • There will be a full budget presented and not vote-on-account.
  • There may be some policy announcements before budget.
  • Budget session will begin perhaps late June.
  • Chidambaram believes the economy is in a resilent mood in terms of growth, inflation and balance of payments situation.
  • There will be a major emphasis on agriculture, manufacturing and emplyment generation.
  • There will be massive public and private investment to influence growth, jobs and income.
  • However Chidambaram is confident that this will not unduly increase fiscal deficit and will fit within the Fiscal Responsibility and Budget Management Act 2000.
  • India to be made shining for all Indians...
Adi Godrej, on NDTV, set the agenda for the finance minister, from his viewpoint. He concurred that it is possible to increase investments in agriculture and manufacturing and still manage the fiscal deficit.
  • Manufacturing needs excess capacity. Over the last few years, all the excess capacity has been utilised.
  • If the economy has to grow by 8%, the industrial sector has to grow by at least 12%+
  • Specific sops to be given to investments in manufacturing sector, as that would result in increased job creation
  • Tax net to be widened.
  • Import tariff to be reduced and rationalised in the following form: Lowest tariff for raw materials coming in, and maximum for finished goods, where even this should be only 20%. Intermediate rates for semi-finished goods.
  • Finance minister should target zero revenue deficit by 2006, and fiscal deficit to be not more than 4.5% of GDP.
[For the readers: If you want to know more about the FR & BM Act 2000 - Rediff column, and here is an article which doesn't concur with the need for the FR & BM Act from and on why fiscal deficit need not have to be reduced on Financial Express. However IMF's Chief Economist Raghuram Rajan has his views on fiscal deficit in India.]

The new council of ministers

Dr. Manmohan Singh is the new prime minister for the country. His council of ministers (all but the sulking DMK chaps) have taken over.

In my opinion, the following ministries are important, for they have to set the direction for key initiatives to make India a thriving economy, and a relatively more satisfied people all across. The ministries and ministers are:

Finance - P Chidambaram (Congress I)
Commerce - Kamalnath (Congress I)
Food and agriculture - Sharad Pawar (NCP)
Power - PM Sayeed (Congress I)
Water resources - PR Dasmunshi (Congress I)
Surface and Road transport - TR Baalu (DMK)
IT and Telecom - Dayanidhi Maran (DMK)

There are several other key ministries, but I would like to focus on the seven I have mentioned. In most state elections the issue of 'bijli, sadak & pani' has resulted in throwing out the incumbent state governments. The common people have increased their expectations from their ruling state governments. However, it would be the central government ministers who can set long-term goals and help the state governments achieve their respective targets.

I intend to cover whatever these ministers and their ministries say which is reported in newspapers, their web sites and in parliament proceedings. I will also try to follow what the opposition says about the policies of these ministers over the days to come.

Tuesday, May 18, 2004

Sissy Congress MPs bring shame on themselves on National TV

A drama is being played on the National TV as I write this, broadcast live from the parliament hall. The only person who has conducted herself with dignity is Sonia Gandhi. While I do not think she will be a great prime ministerial material, she is at least clear about what she can do and what she wouldn't want to. I bow to her!

Not mentioning that she was not a prime ministerial candidate before the elections could be considered a tactical move as otherwise, the coalition headed by her would have disintegrated. However she did commit a mistake by not announcing her decision publically the day the results were announced. She strung her party MPs and allies along till yesterday. Only yesterday, some rumours came out that she may not want to be the PM.

The post of PM carries a lot of dignity and hell of a lot of responsibility. If someone is not willing to take it up, it is silly to persuade her to take the job up. Would her mind be fully on the job if she was reluctant? I wouldn't want to hand over the responsibilities of my country to her, after seeing her reluctance.

It is time for the Congress (I) to move on and find another leader. Dr. Manmohan Singh is a reasonable man, and perhaps can take the country to greater heights.

But the Congress goons are turning the parliamentary party meeting into a massive sob story. Tears flow all around. It looks a pitiable sight seeing so many grown up people not willing to come to terms with a simple fact read out by Sonia Gandhi. She doesn't want to be the Prime Minister. Now which part of this sentence can they not understand?

Jayalalithaa wakes up late

After the complete rout Jayalalithaa faced in the parliamentary elections 2004, with an eye on Tamil Nadu assembly elections in 2006, Jayalalithaa has announced the following:
  1. An ordinance to repeal the Prohibition of Forcible Conversion of Religious Ordinance, 2002 (promulgated on 10th October 2002) will be passed shortly.
  2. All punishments meted out to Government employees and school teachers revoked.
  3. All cases filed under TESMA against DMK, Congress (I), and the communist party leaders will be withdrawn.
  4. AIADMK Govt. will move a resolution in the assembly to drop the privilege proceedings against The Hindu and Murasoli.
  5. Electricity will be free to all farmers, irrespective of their land holding. The state Govt. will reimburse the State Electricity Board the costs incurred.
What a mighty fall it was for the supreme leader? Of the above list, with the exception of the electricity subsidies, the rest were entirely flimsy and imposed on the victims by an inflated ego and a vengeance streak. She cannot redeem herself with this fallback. It would be easy for anyone to see through this charade.

The worrying thing is, any kind of sensible reform in the state government machinery has been set back by several years.

There are several things still to be addressed. Here is a partial list:
  1. Withdrawal of POTA against Vaiko, though now it is in the hands of the public prosecutor. Perhaps POTA itself may be repealed.
  2. Re-instatement of the kannaki statue, and a honest explanation of what really went on behind the scenes.
  3. A statement on why Queen Mary's College was chosen for demolition.
  4. Stopping the attempt to build the new secretariat in Kotturpuram, Anna University Campus, and perhaps shift it to Mahabalipuram.
  5. Perhaps, rebuilding Seerani Arangam.
I should look through the list of her inexplicable misdeeds to find out what else she should be doing. Doing all of that would still not absolve her of the last three years of misrule.

Support from outside = power without responsibility

The allies of Congress (I) have all given letters of support to Sonia Gandhi. However the important allies are refusing to be part of the government, and have said they will support the government from outside. These parties include all the left parties comprising close to 60 MPs, DMK with 15 MPs and NCP with 9 MPs. It is unclear what RJD's views are in this regard. Only PMK with 6 MPs have openly agreed to be part of the government. SP's Amar Singh has exchanged acrimonious exchanges with a few Congress (I) leaders and Congress (I) has not explicitely sought SP's support, nor has it tried to work out a deal with SP.

This is not good for the stability of the government. The left parties will get the opportunity to constantly threaten the government on several key economic issues and would not offer any alternate solution. Since they are not part of the government, they have no responsibilities - particularly to balance the budget or at least keep the fiscal deficit within a reasonable limit. Nor would they be interested in understanding the difficulties the government will be facing in managing trade negotiations with WTO countries, various other commerce ministry related issues, fiscal policy, policy related to VAT, policies related to regulations on broadcasting (say CAS), foreign direct investment and so on. I am not even touching disinvestment.

Observers may point to Chandrababu Naidu doing the same for the previous government. However the situation is quite different here. The NDA coalition that took part in the ministry had substantial (240+) numbers. Naidu brought only 30+, and an outside support was okay in such a scenario. Whereas now, only 150 or so members will form the government, while another 160 will provide outside support. As you can see, this is certainl to cause instability.

Further, unlike Vajpayee, Sonia Gandhi doesn't have the nous to manage this kind of a difficult government. She is not thick skinned (she should be one) and was apparently very unhappy about BJP/RSS propaganda yesterday and almost tried to cop out. It took fair amount of persuation from the allies and her own party members to get her to accept the top job.

Let us hope that this government lasts its full term, for stability is very much necessary to sustain the 8+% economic growth in India.

Time for smart investors is now - says The Economic Times

As you might have read in my yesterday's blog item, The Economic Times today carries a more detailed story and provides information on stocks with better dividend yield on current prices.

Though the markets are a bit up on yesterday's fall (as I write this, about 207 points up @ 10.30 AM), the dividend yields will be close enough.