Newspaper : 2017-06-06

Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful. — Albert Schweitzer


News Bulletins


  • ‘Farmers in huge stress’
  • First rural LED street lighting project to take off in AP
  • India successfully fires heaviest launch vehicle
  • China lauds PM’s ‘peaceful border’ remark
  • India’s biodiversity riches jump up by 499 species
  • IMD to give malaria, chikungunya alerts


  • Nepal, China ink mega hydropower agreement


  • ‘Trade deficit with India will not hurt U.S.’
  • NSE opens bourse at GIFT City
  • GST rate lifts jewellery stocks
  • PCA only a supervision tool, says RBI

In School

  • India’s mega rocket shows off space prowess
  • Glossary


  • The case for a rate cut
  • ‘The President should be a voice for sanity and fairness’
  • Finessing data collection
  • A passage through Europe
  • Undemocratic and majoritarian
  • Taming the inflation monster
  • How to phase out participatory notes
  • Input Tax Credit
  • Doha isolated in Gulf: What it means for Delhi
  • No country for triple talaq
  • GM Mustard should not go the BT Brinjal way
  • The Venezuela debt dilemmas


News Bulletins

‘Farmers in huge stress’

5-day relay fast observed by farmer groups ends

Farmers in Tamil Nadu were in a huge stress due to the “anti-farmer” policies of the Central government. The Central and State governments were turning a blind eye to the genuine demands of the farmers, said P.R. Pandian, coordinator of All Farmers’ Federation, here on Monday.

Speaking at the conclusion of the five-day relay fast organised by his group, Mr. Pandian claimed that the Centre had been giving a raw deal to Tamil Nadu by siding with Karnataka in the Cauvery issue. The Tamil Nadu government was sacrificing the interests of the State at the altar of self-interest, he charged.

Condemning the anti-farmer policies of the State government, the Federation members would gather farmers across the State and stage a demonstration on the last day of the ensuing Assembly session, Mr. Pandian said.

The State Government was not interested in pressing the Centre to grant due compensation for the crop loss and did not move an inch on the demand for farm loan waiver. The Centre must immediately constitute Cauvery Management Board, Cauvery Water Regulatory Committee and force Karnataka to halt the march on Mekedatu reservoir, he said.

TMC leader G.K. Vasan, general secretary of Tamil Nadu Cauvery Delta Farmers’ Welfare Association ‘Mannargudi’ S. Ranganathan, working president ‘Mahadanapuram’ V. Rajaram, and others participated on the last day of the relay fast. Mr. Vasan said that the State government must take sincere efforts to open Mettur dam after getting adequate water as soon as possible for the benefit of delta farmers. It must understand that a stable regime could not be achieved without solving the problems of the farmers.

Mr. Ranganathan urged Prime Minister Narendra Modi to ensure that Karnataka abided by the Supreme Court directive to release 2,000 cusecs of water every day to Tamil Nadu.

First rural LED street lighting project to take off in AP

French development agency to fund it

After cities, energy efficient LED lights will now light up the rural areas of the country. To start with, the Energy Efficiency Services Limited (EESL), under the Ministry of Power, is going to retrofit 10 lakh conventional street lights with LED lamp in village panchayats in Andhra Pradesh which is the first project for rural LED street lighting in the country under the Government of India’s Street Lighting National Project (SLNP). According to an official release, the project will yield energy savings of approximately 147 million units of electricity annually and lead to a reduction of 12 crore tonnes of CO2.

The upfront capital cost of this project is being funded by French development agency Agence Francaise de Developpement (AFD). EESL will carry out the entire annual maintenance and do the warranty replacement for a period of 10 years.

EESL Managing Director Saurabh Kumar acknowledged the fact that AP State has welcomed it (EESL)’s initiatives with open arms and has truly spearheaded the energy efficiency movement in India. The first phase of SLNP in AP will be implemented in Anantapur, Chittoor, Guntur, Kadapa, Kurnool, Nellore and Prakasam districts. The Government of India targeted replacement of 1.34 crore conventional street lights under the SLNP.

India successfully fires heaviest launch vehicle

GSLV MkIII-D1 places heaviest satellite GSAT-19 into orbit

India on Monday leapfrogged into a select group of nations having their own indigenous cryogenic engine technology, when the Indian Space Research Organisation (ISRO) successfully launched its heaviest launch vehicle, GSLV MkIII-D1, and placed the country’s heaviest satellite till date, GSAT-19, into a precise orbit.

The rocket lifted off from the second launch pad into clear blue skies at 5.28 p.m., and soared above the moon which was rising in the evening, leaving a plume of smoke, a bright orange light shining below the rocket as the cryogenic engine fired up and took the rocket on its intended path.

The GSAT-19, a communication satellite, expected to enhance India’s communication infrastructure, was placed into a Geosynchronous Transfer Orbit (GTO), 16 minutes after launch, with a perigee (closest point to Earth) 170 km and apogee (farthest point from Earth) 35,975 km. It will take about two to three weeks to be placed in its intended orbit.

The satellite weighs 3,136 kg. This successful launch will enable India to launch 4-tonne class satellites from India. These were earlier launched from launch pads abroad.

The cryogenic engine, which ignited roughly about 5 minutes after lift-off, and was firing for 640 seconds, “was a culmination of large amounts of work done over decades,” A.S. Kiran Kumar, Chairman, ISRO, told a press conference after the launch.

Russian design

ISRO has been trying to master development of an indigenous cryogenic for decades and has used indigenous cryogenic engines on earlier GSLV flights but modelled mainly on Russian design.

On this GSLV, no technological element was borrowed or adapted from any other space organisation, Somanath S., Director, Liquid Propulsion Systems Centre (LPSC), ISRO, said.

“The cryo stage is a complex technology. We were making it for the first time; we faced no serious test failures or problems. That is a world record,” he said, adding that despite limited resources, “it is a marvel that we were able to achieve this.”

When the indigenous cryogenic engine started firing, the mood at Mission Control was “upbeat,” Mr. Kiran Kumar said. He said the engine was being tested and perfected since December 2014.

“More than 199 tests were done since December 2014. The entire team was confident,” the Chairman said, however adding that “there were some butterflies in the stomach.”

Business opportunities

The GSAT-19 carries a Ka/Ku-band high throughput communication transponders. It also carries a Geostationary Radiation Spectrometer (GRASP) payload to monitor and study the nature of charged particles and the influence of space radiation on satellites and their electronic components, according to ISRO. “The spacecraft will open up a lot of new vistas in the field of Internet connectivity, broadband connectivity,” P.K. Gupta, project director, said.

The successful launch of the GSLV MkIII- D1 also opens up business opportunities for ISRO. “Definitely the credibility of the system goes up and customers will have greater confidence,” Mr. Kiran Kumar said, adding that it would reduce insurance premiums. “As far as Mk III is concerned, we are planning two launches every year,” he said.

More in the pipeline

Two launches are coming up, which will however, happen from Ariane in French Guiana. The first one scheduled for June 28, will be the GSAT 18, a 3.3 tonne satellite, and the second one will be a 5.8 tonne satellite.

Work is on to launch two approved missions — Aditya-L1 and Chandrayaan-II — in the next two years, Mr. Kiran Kumar said. “Chandrayaan will be [launched] in the first quarter of next year, and Aditya… around 2018-19.” The ‘Aditya-L1’ will be placed in the halo orbit around the ‘Lagrangian point of the Sun-Earth system, according to ISRO.

China lauds PM’s ‘peaceful border’ remark

Modi had said in Russia that despite the border dispute, not a single bullet had been fired in 40 years

China on Monday welcomed remarks by Prime Minister Narendra Modi in Russia regarding the status of ties with India, and said a positive relationship between Beijing and New Delhi was of global significance.

“We have noted the positive remark made by Indian Prime Minister Narendra Modi about the China-India [situation]. We welcome that,” Chinese Foreign Ministry spokesperson Hua Chunying said at her regular media briefing.

“The two major countries, China and India, maintaining sound and steady bilateral relationship is of great significance,” she observed.

Ms. Hua was responding to a question regarding observations by Prime Minister in St. Petersburg, where he had stressed, during a panel discussion, that despite their border dispute, the China-India frontier was peaceful for the past four decades. “It is true that we have a border dispute with China. But in the last 40 years, not a single bullet has been fired because of it,” he had observed.

During an interview with Russia Television (RT), Mr. Modi had said that “the 21st century is the century of Asia”. “It means that both India and China will influence the situation of the world in the coming decades.”

Earlier in the day, China’s Assistant Foreign Minister Li Huilai had welcomed the “multiple meetings” between Chinese President Xi Jinping and Prime Minister Narendra Modi, and pointed out that “healthy relations” between China and India would contribute “to Asia [as well as] world peace stability.”

Mr. Li, however, did not confirm whether the two leaders would meet on the sidelines of the Shanghai Cooperation Organisation (SCO), which gets under way in Kazakhstan’s capital, Astana, on June 7.

NSG membership

In response to another question, Mr. Li said that India’s bid for membership of the 48-nation Nuclear Suppliers Group “is more complicated what was imagined previously.” He added: “China supports the NSG to have several consultations to reach a non-discriminatory and universally applicable solution to all the members of the NSG.”

India’s biodiversity riches jump up by 499 species


Himalayas, Northeast and Western Ghats yield the most

On World Environment Day, India has 499 reasons to cheer: 313 species of animal and 186 of plants have been discovered from various areas of the country last year.

Animal Discoveries 2016, New Species and Records, brought out by the Zoological Survey of India on Monday, and Plant Discoveries 2016 , by the Botanical Survey of India, bring the glad tidings.

Wide variety

Of the new animal species, 258 are invertebrates and 55 vertebrates. As many as 97 species of insects, 27 of fish, 12 species of amphibians, 10 of Platyhelminthes, nine of Crustacea and six of reptiles have been discovered and described by the scientists. There are 61 species of moths and butterflies (order Lepidoptera) and 38 of beetles (Coloeptera).

ZSI Director Kailash Chandra said most of the new species were from the four biological hotspots of the country — the Himalayas, the Northeast, the Western Ghats and the Andaman and Nicobar Islands.

Animal Discoveries 2016 says that for the first time, the number of animal species in the country, including protozoa, has crossed one lakh — 1,00,693 is the exact count.

Till last year, India was home to 97,514 species of animals.

Updated list

“A lot of species in different groups have been updated during the past one year. India is one of the 17 mega-diversity countries and it has about 6.42 per cent of the global fauna,” Mr. Chandra said.

Plant Discoveries 2016 says that along with 186 new species, scientists have discovered seven new genera, four subspecies and nine new varieties from India, taking the number to 206.

The publication lists 113 new records from India.

The geographical distribution of the new plant species reveals that most discoveries were made in the Western Ghats (17%), followed by the Eastern Himalayas (15%), the Western Himalayas (13%), the Eastern Ghats (12%) and the west coast (8%).

Medicinal value

“Among the interesting discoveries of the year are eight new species of wild balsams, five species of wild ginger and one species of wild amla [Indian gooseberry]. Also, 39 varieties of mushrooms have been discovered. These new species will have use in horticulture and have medicinal value too,” BSI Director Paramjit Singh said.

IMD to give malaria, chikungunya alerts

15-day advance warning linked to rain

The India Meteorological Department (IMD) is working on a forecasting system to give 15-day warnings on the likelihood of a malaria or chikungunya outbreak, over different regions.

IMD Director-General K.J. Ramesh said such a service was part of a larger initiative by the department to provide custom, weather-related information to cope with challenges of a global warming and its associated impact of weather. Extreme rainfall events were on the rise, said Mr. Ramesh and this could also mean more instances of humid conditions and water-logging that could precipitate vector-borne disease outbreaks.

“We have teamed up with the Medical Council of India and the Red Cross Society,” Mr. Ramesh told The Hindu , “and are customising our dynamical model (that simulates weather and forecasts, using supercomputers) for generating this information.”

Increased variation

Speaking on the sidelines of a function marking World Environment Day, Mr. Ramesh said average Indian temperatures had risen 0.86 C since 1901. But the average annual rainfall (about 120 cm) hadn’t changed much.

This rain was now being distributed over fewer days. “Also places that were once relatively drier are wetter and more humid [engendering conditions for water-logging and mosquito breeding] and our attempt is to give advance warnings to better prepare for outbreaks,” he added.

The IMD’s National Climate Centre in Pune, traditionally tasked with forecasting the monsoon and documenting monsoon-related statistics, was being reorganised to provide such climate services.

Nepal, China ink mega hydropower agreement

To build 1,200 MW Budhi-Gandaki hydroelectric project

Nepal has signed an agreement with a Chinese company to build the largest hydroelectric plant in the impoverished landlocked country, which suffers from a chronic energy shortage.

Nepal’s Energy Minister Janardan Sharma on Sunday signed the agreement for the China Gezhouba Group Corporation to build the long-mooted 1,200 megawatt Budhi-Gandaki hydroelectric project.

The agreement was signed at the Prime Minister’s residence, in the presence of outgoing Prime Minister of Nepal Pushpa Kamal Dahal ‘Prachanda’ and Chinese Ambassador to Nepal Yu Hong, The Kathmandu Post reported.

Estimates put the project cost at $2.5 billion. A financing agreement will be signed later, Ministry spokesman Dinesh Kumar Ghimire said.

Water-rich Nepal has a mountain river system that could make it an energy-producing powerhouse, but instead it imports much of its electricity from neighbouring India. Experts say it could be generating 83,000 megawatts, but its total installed generation capacity currently stands at less than 2% of that.

Demand for electricity has long outstripped supply in Nepal due to chronic under-investment and inefficiencies in the power network. The result has been crippling for domestic industry and deterred foreign investment. Crucial infrastructure development has flagged in the years of political paralysis that followed the end of the Maoist insurgency in 2006 and the overthrow of the monarchy two years later.

India and China have vied for influence in the small country, with both pumping money into Nepal through large-scale infrastructure projects.

The CGGC is currently building three smaller hydro-power plants in Nepal and has completed another one, though critics have complained that the projects have consistently run over time and over budget.

‘Trade deficit with India will not hurt U.S.’

Washington’s $24 bn. goods trade deficit too low, says CII

India Inc. has told the U.S. government that contribution of India to the overall U.S. trade deficit is too low to create any significant adverse impact on the American economy.

In its comments submitted recently to the U.S. Department of Commerce and the Office of the U.S. Trade Representative (USTR), India’s premier business association, the Confederation of Indian Industry (CII) has also said: “In light of the large market share that U.S. products have in the Indian market, it is clear that the balance of trade issue that is perceived is not due to a market access problem.”

Modi-Trump meet

This development assumes significance as the $24.3 billion goods trade deficit that the U.S. had with India in 2016 may prominently figure in the meeting between Prime Minister Narendra Modi and President Donald Trump expected later this month in Washington DC.

While the Trump administration may also take up its concerns over the protracted negotiations on the proposed Bilateral Investment Treaty, New Delhi would raise issues such as visa curbs and non-tariff barriers of the U.S. affecting India’s exports as well as the delay in talks on a bilateral totalisation (social security) pact.

The CII’s submission followed the U.S. Commerce Department and the USTR calling for comments from the public to assist in assessing, among other things, the major causes of the U.S. trade deficit as sought in President Trump’s Executive Order on March 31.

The Executive Order sought an ‘Omnibus Report’ from the U.S. Commerce Secretary and the USTR (in consultation with other U.S. government departments/agencies) within 90 days on ‘Significant Trade Deficits’.

The U.S. government said: “The trading partners with which the U.S. had a significant trade deficit in goods in 2016 were Canada, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Switzerland, Taiwan, Thailand, and Vietnam.”

As per Trump’s Executive Order, “unfair and discriminatory practices by our trading partners can deny Americans the benefits that would otherwise accrue from free and fair trade…”

The CII stated that: “… during 2011-2015, India’s contribution to the overall trade deficit of the U.S. was only 2.5% (average).

Thus, India’s share in overall U.S. trade deficit is too insignificant to cause any adverse impact on the U.S. economy.”

As against this, China’s contribution to the overall trade deficit of the U.S. during 2011-2015 was 43.9% (average), while that of Japan was 9.4%. Germany (8.1%), Canada (4.4%), Mexico (8.2%) and Saudi Arabia (3.5%) were higher, the CII showed.

As per the U.S. government, “the U.S. (overall) annual trade deficit in goods exceeds $700 billion, and the overall trade deficit exceeded $500 billion in 2016.”

‘High tariffs’

While the National Association of Manufacturers, the largest manufacturing association in the U.S. – has said American manufacturers continue to be challenged by India’s “excessively high tariffs on imports of a range of manufactured products”, the CII countered this by saying that “the major products that the U.S. exports to India have tariffs between 0-10%. This is lower than the tariffs other countries place on the same products in which the U.S. trades.”

The CII said though the U.S. is among the few countries that India has a trade surplus with, this must be put in context.

“Regardless of this surplus, the U.S. is the second largest exporter to India, second only to China,” the CII said.

NSE opens bourse at GIFT City

Trading to be allowed on derivative contracts

The National Stock Exchange (NSE) on Monday unveiled its exchange at Gift City.

The exchange will see trading on derivative products based on stocks, indices, precious metals and currencies.

The exchange, NSE IFSC, will have two trading sessions initially. The market timings will be gradually extended based on demand. The first session will be between 8 a.m. and 5 p.m. Session two will start at 5:30 p.m. and end at 11:30 p.m.

The trading hours will overlap with the timings in London and Dubai markets. This will allow investors to react to news developments over a longer period of time, said a release from the exchange.

Incidentally, a large section of market players has been demanding longer trading hours in the equity market in India especially since the commodity markets are open for longer hours.

According to the statement, trading will begin with stock derivatives on 10 stocks, index derivatives on Nifty, Nifty Bank and Nifty IT indices along with derivatives on gold, silver and currency pairs such as euro-dollar and pound-dollar.

The stocks on which derivative contracts will be available initially are Axis Bank, HDFC Bank, ICICI Bank, Infosys, Larsen and Toubro, Maruti, Reliance Industries, SBI, Tata Motors and TCS.

The NSE IFSC Ltd and NSE IFSC Clearing Corporation Ltd have been formed as 100% subsidiary companies of NSE and National Securities Clearing Corporation Limited respectively.

GST rate lifts jewellery stocks

3% rate in line with those mentioned in draft tax rules

Shares of gems and jewellery firms surged on the BSE on Monday as investors cheered the lower-than-expected goods and services tax (GST) rates on the sector.

The Centre announced 3% tax on gold jewellery, which was in line with the 2-6% rates mentioned in the GST draft rules.

Analysts reckon that the organised sector would gain under GST as it would increase the compliance cost for the unorganised sector.

Titan Co. Ltd. rose 17%, the highest among the jewellery stocks, to close at Rs. 552.40.

Shares of several jewellery firms including Gitanjali Gems Ltd. and Tribhuvandas Bhimji Zaveri Ltd. closed higher.

“Against the cumulative current tax rate of 2%, the final GST rate at 3% is higher, while the import duty will continue at prevalent rates,” ratings firm ICRA said.

ICRA expects the same to be passed on to end customers and the higher tax is not likely to cause any major disruption to the gold jewellery demand.

Unorganised sector

According to Ambit Capital, unorganised sector accounts for 80% of the $40 billion jewellery market and enjoys low direct tax compliance.

GST brings the entire jewellery chain in the tax net.

It will increase the compliance cost of unorganised jewellers and hence narrow the gap between making charges of unorganised and organised jewellers, it said.

According to brokerage firm Motilal Oswal, Titan, which has only 5% share of the total jewellery market in India, could be a gainer over the medium term post GST implementation.

“Given the pricing power of the Tanishq brand, we do not think passing on the increase of 1% will be any problem,”the brokerage firm said in a report.

PCA only a supervision tool, says RBI

The RBI on Monday said its prompt corrective action (PCA), initiated in the case of some public sector banks with high NPAs, is a supervision tool and does not constrain normal banking operations for the public.

The Reserve Bank has put Dena Bank, IDBI Bank, Indian Overseas Bank and UCO Bank, under the PCA in view of their mounting non-performing assets.

RBI’s statement comes in the backdrop of “some misinformed communication” circulating in some sections of media as well as social media platforms, about the PCA framework, it said.

India’s mega rocket shows off space prowess

India’s space exploration programme gets a new fillip with the indigenously made heavy-duty GSLV Mk III rocket

India’s most powerful home-grown rocket to date was launched Monday, another milestone for its indigenous space programme that one day hopes to put a man into orbit.

The 43-metre (140-foot) rocketlifted off just before 5:30 p.m. (1200 GMT) from the southern island of Sriharikota, one of two sites used by the Indian Space Research Organisation (ISRO) to launch satellites.

This latest model boasts a powerful engine that has been developed in India over many years.

The GSLV Mk III rocket’s payload is a satellite weighing more than three tonnes.

“This is an important moment in India’s space technology to launch an indigenous heavy rocket,” Ajay Lele from the Delhi-based Institute for Defence Studies and Analyses told AFP.

“Communication satellites are quite heavy and we were able to send up to two tonnes previously. This is a double quantum jump for India.”

A successful launch of the 640-tonne rocket will be another feather in the cap for scientists at ISRO, who won Asia’s race to Mars in 2014 when an Indian spacecraft reached the Red Planet on a shoe-string budget.

That feat carved out India’s reputation as a reliable low-cost option for space exploration, with its $73 million price tag drastically undercutting NASA’s Maven Mars $671-million mission.

ISRO is also mulling the idea of missions to Jupiter and Venus.

India is vying for a larger slice of the booming commercial satellite business as phone, internet and other companies seek greater and more high-end communications.

In February, India put a record 104 satellites in orbit from a single rocket, surpassing Russia which launched 39 satellites in one mission in June 2014.

The rocket’s main cargo was a 714-kilogram (1,574-pound) satellite for Earth observation but it was also loaded with 103 smaller “nano satellites”, nearly all from other countries.

The space agency tested a less-developed version of the rocket in December 2014, while the cryogenic engine was still in the testing phase.

It carried an unmanned crew capsule which separated from the rocket and splashed down in the Bay of Bengal off India’s east coast 20 minutes after lift-off.

The Indian-made capsule was designed to carry up to three astronauts, but ISRO said the project would take at least another seven years to reach the point where a crew could be put into space.

India wants to become the fourth nation — after Russia, the United States and China — to put astronauts into orbit but its manned spaceflight programme has seen multiple stops and starts.AFP


Squiggly: A short, irregular curve or twist, as in writing or drawing

Conspicuously: In a clearly visible way.

Knick-knacks: Small, decorative objects, especially in a house

Voraciously: Engaging in an activity with great eagerness or enthusiasm.

Anguish: Pain or suffering

Romanticise: Make something seem better or more appealing than it really is.

Aura: The distinctive atmosphere that seems to surround a place

Goatherd: A person who tends goats

The case for a rate cut

If the RBI wishes to do its bit to boost growth, it must keep its inflation target flexible

Did demonetisation impact the economy badly? Observers have been awaiting the growth figures for the full year, 2016-17, for a clear answer to the question. Well, the figures are out now. But the answer is not as clear as some would like to believe.

Demonetisation happened on November 8, 2016. Observers had said its effects would be reflected in the figures for growth in the third quarter of the year (October-December). They were proved wrong. Growth held up quite well in Q3 compared to that in the previous quarter.

Hold on, critics of demonetisation said, you will see the effect with a lag in the fourth quarter. It would appear they have been proved right. Growth, measured by Gross Value Added (GVA), did slow down — from 6.7% in Q3 to 5.6% in Q4. But if demonetisation did impact the economy, growth for the year as a whole should have been lower than forecast before demonetisation.

Check the timeline

This has not happened. Growth in GVA for the year as a whole, at 6.6%, is in line with estimates prior to demonetisation. Growth in GDP, which is GVA plus net taxes, came in at 7.1% for 2016-17. This is what the Central Statistics Office (CSO) had forecast even before the impact of demonetisation became known.

Some argue that the impact of demonetisation may not be reflected in aggregate growth but it is reflected in particular sectors that bore the brunt of demonetisation. Manufacturing slowed down from 8.2% in Q3 to 5.3% in Q4. The growth rate in construction over the two quarters changed from 3.4% to minus 3.7%. Segments of the services sector also slowed down sharply in Q4. The services sector as a whole was rescued by an acceleration in public administration, defence and other services.

The difficulty is in disentangling the effect of demonetisation from that of other factors. Merely because growth in FY 2016-17 is lower than in 2015-16 or because there was a deceleration in Q4 of 2016-17 relative to Q3, we cannot conclude that demonetisation is primarily responsible.

In 2015-16, the Indian economy reaped the benefits of a sharp drop in oil prices and the boost to consumption it gave. The Economic Survey of 2014-15 had estimated the potential gain for the next year at 2 percentage points of GDP. This gain was absent in 2016-17 when oil prices stabilised or even rose slightly. Private investment has continued to decelerate.

The fall in GDP growth from 8% in 2015-16 to 7.1% in 2016-17 reflects these larger factors.

Reserve Bank vs CEA

So much for the impact of demonetisation. The fact remains that growth has decelerated over the past year. The policy question is: how should the Reserve Bank of India (RBI) respond? Chief Economic Adviser (CEA) Arvind Subramanian and the RBI differ on this all-important question.

Mr. Subramanian noted in an article last month that “since the middle of last year (2016) there has been a noticeable deceleration in manufacturing activity”. He went on to argue that “there is a strong case for broad macro policy support, including monetary policy support, to reinvigorate the economy.” (Mint , May 25, 2017)

That is not the line that the RBI has been taking. The minutes of the Monetary Policy Committee (MPC) meeting of April 20 noted that growth in GVA was poised to rise to 7.4% in 2017-18 from the then estimated level of 6.7% in 2016-17. Further, in its monetary policy report, the RBI noted that manufacturing activity had gained momentum in the second half of 2016-17. The RBI seemed to be saying: growth is recovering of its own accord, there isn’t much that we need to do.

This is not quite true. Even if growth were recovering, it would be below the output potential of the economy. We need to aim for higher growth. The case for the RBI to cut interest rates in order to support growth does not go away.

But growth is not the primary mandate of the RBI today. The primary mandate is keeping inflation within a targeted band of 4% plus or minus 2%. The MPC’s interpretation of this mandate has evolved. To start with, the MPC suggested that it only needed to ensure that inflation stayed with the overall band. In February 2017, the MPC made a significant shift: it signalled that its inflation target was 4%. Where do we stand in relation to this target?

In his VKRV Rao memorial lecture last month, Mr. Subramanian argued that the economy has “over-achieved” on inflation. Consumer Price Index (CPI) inflation is well below the RBI’s medium target. “True core” inflation, that is, inflation minus food, fuel and transport services, has been falling for the past several months.

The central bank, however, is guided, not by past inflation, but by inflation expected in the future. In its monetary policy report of April 2017, the RBI noted that “core” inflation (CPI inflation minus food and fuel) was sticky. The RBI said it expected inflation to average 4.5% in the first half and 5% in the second half of 2017-18.

There is every prospect that inflation in 2017-18 will be within the RBI’s 4% target. However, if the RBI does not want to take chances, it can cite several factors that could cause the 4% inflation target to be breached. GST might impact the price level adversely. The climatic factor known as El Niňo could disrupt food output. Commodity prices may harden. Allowances prescribed by the last Pay Commission could cause the inflation rate to edge up. And so on.

For a government that is keen to push growth, the RBI’s position does present a problem. A cut in the policy rate would help repair the balance sheets of banks and corporates and reverse the fall in the investment rate. It would further boost consumption. By checking the appreciation of the rupee we have seen over the past year, it would give a fillip to exports.

Rupee not a worry

Until December 2016, when the U.S. Federal Reserve announced the first of many interest rate increases expected in a tightening cycle, the concern was that any rate cut by RBI would lower the difference in yields on the rupee and the dollar, cause an exodus of funds from the Indian markets, and lead to a destabilising fall in the rupee exchange rate. This is not such a concern today when foreign inflows remain strong and the problem we have is of rupee appreciation.

Whichever way you look at it, the Indian economy could use a rate cut today. However, the RBI’s commitment to an inflation target of 4% renders a rate cut difficult. If the RBI wishes to do its bit to boost growth, there is only one way out. It must avail of the flexibility it has been provided under the inflation mandate. It must return to its initial commitment to the inflation band of 4% plus or minus 2% instead of being fixated on a 4% target. The alternative would be to squander a great opportunity for stepping up growth.

‘The President should be a voice for sanity and fairness’

A strong President can inspire us to stand up for all sections of the people, says Amartya Sen

The President of India has an elevated standing as head of the Republic, and should be a voice for sanity and fairness, says Amartya Sen, Nobel laureate and economist. In the run-up to the presidential election, he answered questions via email on the role of the President in a secular and federal democracy. An enlightened President has many things to do, but being a ‘rubber stamp’ is not one of them, he says. Excerpts from the interview.

President Pranab Mukherjee’s term ends soon. Given that the President has only a formal, titular role, is it better to look for a candidate outside the realm of active politics? Is opening up the position for writers, artists, public intellectuals and so on more desirable?

The President of India has an enormously important role in the leadership of the country. This is not only because of the particularly assigned duties of the President in special circumstances, as in a political crisis of governance, but also because of the elevated standing of the head of the Republic in motivating and inspiring the secular democracy of India, guided by the Constitution.

While a number of statesmen and politicians have played that role with distinction, going back to Rajendra Prasad (the first President of India), leaders of thought from other walks of life — including Sarvepalli Radhakrishnan, Zakir Husain, and K.R. Narayanan (among others) — have also, by their prominent presence and stature, helped to lead India to remain faithful to itself — reminding the country of the vision of fairness that gave birth to democratic and secular India after its long and hard fight for independence.

At a time when sections of society are apprehensive about the secular credentials of the government at the Centre and there is criticism from abroad that religious freedom is under threat, what should be the role of the President in guiding the government and its policy? Should the President be activist by nature, or confine herself to the customary, constitutional role as a titular head of state?

There are indeed serious reasons for concerns and apprehensions right now, based on observing the violations of human rights and of traditional protections that are going on in the country. The targeted victims come typically from vulnerable sections of the society — from minority communities (particularly the poorer Muslims), Dalits and tribal people. The President has potentially a hugely important role in insisting on fair treatment of all the people in the country and the immediate stopping of what The New York Timeshas alarmingly described, in its widely-read lead editorial of the day, “vigilante justice in India.” The recognition that India’s image as a successful democratic country has dramatically declined across the world may be a minor concern (even though it does worry many Indians, and should have worried the Government of India as well), but the violations and wrongdoings themselves have reason to agitate all fair-minded people in India, whether they are themselves targeted or not. The President can be not only the face of India, but also a great voice for sanity and fairness.

What sort of candidate would you endorse? Will you prefer someone with an independent mind, someone who will not be a ‘rubber stamp’, or someone who will take a strict, constructionist view of the Constitution and abide by its letter?

Accountants need rubber stamps — a country does not. The President not only has to exercise his or her own judgment, and to recognise that within the provisions of the Indian Constitution, he or she has a much bigger role than simply rubber-stamping decisions taken by others. A President can be quite tough — and ultimately effective — in asking the government to reconsider its priorities, especially when rights and fair treatment of countrymen are threatened, and also — to take another area of serious transgressions — when education, science and freedom of thought are undermined. There were very illuminating — and quite long — discussions in the Constituent Assembly on why certain provisions and articulations were necessary to stop the continuation of old injustices and the avoidance of new inequities. That background is extremely important in interpreting not only the nastiness of what are increasingly becoming the new rules of governance in India, but also for the determination to pursue equity to which the Indian Constitution made such an important contribution. An enlightened and strong President will have many things to do — being a rubber stamp is not one of them.

Given that the electoral college for electing the President of India is drawn partly from the State Assemblies, the President’s office has a federal character. Doesn’t this place an onus on the President to defend the rights of States? In practice, Presidents are often asked to endorse decisions adverse to State governments: for instance, imposition of Article 356 and appointment of Governors without consulting Chief Ministers. What should the role of the President be in such situations?

You are absolutely right that the President of India has a natural role in ensuring India’s constitutional federalism. When dictates of the Centre run counter to the legitimate rights and the traditional spheres of the States, the President certainly has a protective role that cannot be obliterated by the commands of the Centre. It would be absurd for the President to be guided only by the orders of the Centre when the Centre is itself an interested party.

What qualities should a President have?

The election of a President involves practical politics, but there are issues that go well beyond that. In building our future, we have to be careful not to shed the strength we have got from our past. Rabindranath Tagore wanted us to fight for freedom for all, with reason and determination. Mahatma Gandhi taught India the importance of public protest whenever we face inequities and unfair treatment of vulnerable people (by the way, among the names suggested in the papers, Gopalkrishna Gandhi, the Mahatma’s grandson, would be an excellent standard-bearer, given his knowledge, experience and wisdom). The President of India should fit into this broad, non-sectarian picture, inspired by the history of our fearless and shared movement for independence (a history that some leading politicians in India seem to have forgotten). Within his or her constitutional as well as evocative roles, a strong President can make a major contribution in inspiring us to stand up for fairness for all sections of the people. If we do not ask anything from our President except being a rubber stamp, we are very likely to get nothing more than a decorated rubber stamp.

Finessing data collection

Despite availability of employment statistics, data gaps need to be plugged

The government has recently set up a task force headed by the Vice-Chairman, NITI Aayog to recommend a methodology to generate timely and reliable employment data.

India already has several globally respected sources of employment statistics, which include employment and unemployment surveys (EUS) conducted by the National Sample Survey Office (NSSO) till 2011-12 at an interval of five years and annually with a thin sample; annual and sub-annual EUS by the Labour Bureau since 2011-12; the Census of India conducted every 10 years; an Economic Census conducted for agricultural (excluding crop production and plantation) or non-agricultural sectors at intervals; and other administrative data. However, with the changing times, new challenges need to be addressed.

Filling in data gaps

These include the need to collect detailed information on informal workers — their earnings, and their working and living conditions, the need to reduce the time lag between the survey and release of data and the need to conduct short-term surveys for quick assessment of the impact of different policies on employment. A few data gaps need to be filled in, such as the absence of data on district-level employment for decentralised planning, data on circular migrant workers; the working and living conditions of women labour.

There are two more areas of employment statistics that need the attention of the task force.

Complementing surveys

Time-use surveys (TUS) to complement labour force surveys: It is now well accepted that TUS complement the labour force survey in two major ways. First, they can reduce, if not eliminate, underestimation of the workforce/labour force, which is known to be a major weakness of our employment statistics. This is because TUS, which collect comprehensive information on how people spend their time on different activities without missing any activity, are likely to capture even scattered, sporadic and irregular informal work of people. Also, under-reporting of workers due to the biases of investigators or of respondents is not likely to get in in this system of data collection. In addition, data on simultaneous activities are likely to net all work performed by people. They also throw additional light on the characteristics of the workforce-labour force that is not feasible under labour force surveys. This includes the scattered nature of work — mainly of informal workers, multiple jobs performed by workers; the time spent on work in hours and minutes (useful in estimating underemployment); and measuring time stress experienced by workers as reflected in their total time spent on work as well as the time spent on simultaneous activities. Our study that has compared in details the NSSO (1999-00) and TUS data (1998-99) on the workforce has shown that a TUS provides valuable additional information on the labour force in India.

The working group set up for the 68th EUS has already decided that a TUS should be conducted after an EUS — in a staggered manner to collect additional and improved information on labour force.

The ILO resolution

The task force should also take note of the Resolution by ILO (2013) on Statistics of Work, Employment and Labour Underutilisation which intends to set new standards for work statistics to guide countries in updating and integrating their existing statistical programmes in the field. It defines “work” as “any activity performed by persons of any sex and age to produce goods or to provide services for use by others or for own use” (this definition is consistent with the concept of General Production Boundary under the System of National Accounts). Under the resolution, there are five distinguished forms of work. The resolution has also presented a new labour force status classification, which includes persons in employment, persons in unemployment and persons outside the labour force — all defined slightly differently than earlier. In addition, there is a brand new concept of labour underutilisation, which includes time-related underemployment, unemployment reflecting an active job search by persons not in employment, and potential labour force, i.e. persons not in employment but who are willing to work under specific conditions.

All countries including India are expected to develop their own system of work statistics keeping in mind its various uses and a national data collection strategy. As stated in the resolution, labour force surveys will be the main source of data for implementing the resolution. They will focus on employment and, where relevant, own use production of goods. Some countries may also include unpaid trainee work. Statistics on other forms of work will be collected periodically, either as add-on modules to a labour force survey or as part of a stand-alone, special purpose survey, including a time use survey. A TUS is expected to supplement the labour force data to implement the resolution. Again, a national TUS will have to be conducted periodically using sound methods and concepts to complement the modified labour force survey to implement the resolution.

Finally, the task force should recommend modifications in a manner that comparability with old and new data is maintained — the new data should not be used to hide the declining rate of growth of employment of recent times. Unless policymakers know what is really happening, they will not be able to design correct policies.

A passage through Europe

While talking trade and terrorism, the Prime Minister also presented India as a defender of the global order

Prime Minister Narendra Modi was in Europe last week to galvanise India’s ties with key European powers as well as to keep the momentum of his past visit to Europe going. In what has now become his signature style, he touched upon key aspects of Indian foreign policy interests pertaining to each of the four nations — Germany, Russia, Spain and France. Despite Europe’s inward-looking foreign policy orientation at the moment, several aspects of Mr. Modi’s visit stand out which will help India over the long term.

Trade, ties and terrorism

The focus of the visit was clearly on boosting trade and economic ties with Europe. Mr. Modi’s unabashed selling of India as an investment destination is the most striking aspect of his outreach to the West. One of the most important roles that leaders of major economies are expected to play in today’s day and age is that of a salesman. And Mr. Modi is a salesman par excellence. Pledging a stable and transparent tax regime, he has been busy wooing global investors, arguing that development is “not a mere political agenda” but an “article of faith” for his government. In Germany, he addressed the Indo-German Business Forum while in Spain, he exhorted CEOs of leading Spanish companies to participate in initiatives like ‘Make in India’. To the Russian defence industry he sold the government’s new policy of allowing Indian companies to manufacture defence equipment with foreign players.

The other issue which took centre stage during Mr. Modi’s tour was terrorism. Europe has been hit by a spate of terror attacks over the last two years, and the attacks in Britain have further underscored the enormity of the challenge facing the continent. In Russia, he urged the global community to block funding, weapons and communication modes of terrorists and to rise above the ‘good terrorism/bad terrorism’ binary.

Against the backdrop of growing concerns in India about Moscow’s growing gravitation towards Pakistan, Russian President Vladimir Putin admitted that India is facing a serious problem due to the threat of terrorism and that the situation is not an “imaginary thing”. Terrorism was also a common theme in Mr. Modi’s discussions with the German, Spanish and French leaderships. Unlike in the past when Europe used to look at India’s terror problem primarily through the lens of Kashmir, there is now a greater understanding of the changing nature of the terror threat and how certain states abet the process of radicalisation. This has provided Mr. Modi with an opportunity to develop greater synergies with Europe in tackling this problem.

This is also a time when Europe is concerned about its own future under the onslaught of Britain’s impending exit from the European Union and America’s flirtation with retrenchment under President Donald Trump. German Chancellor Angela Merkel gave vent to these concerns when she suggested that “the times when we could completely rely on others are, to an extent, over”.

Partners for the future

European powers now want to hunker down and are looking for new partners. China is well-positioned to take advantage of this shift, given its economic heft. But European liberal values sit uneasily with Chinese authoritarian capitalism. India as a democratic rising power needs to position itself accordingly, and Mr. Modi was doing just that in Europe: presenting a subtle counter-narrative to China’s rise.

Towards this end, India under Mr. Modi wants to present itself as a defender of the global order: an order that has benefited India but is now under threat from Mr. Trump’s isolationist tendencies and China’s growing assertiveness. Describing the Paris agreement as “a collective asset of the world”, Mr. Modi assured the world during a joint news conference with French President Emmanuel Macron, “The protection of the environment and the mother planet is an article of faith.” He wants to project India as a responsible global power interested in preserving the extant order.

Mr. Modi’s outreach, sustained over the last three years, has injected much-needed pragmatism in a relationship which was adrift for quite some time. Now the proverbial ball is in Europe’s court.

Undemocratic and majoritarian

The attempted ban on cow slaughter is part of the BJP’s divisive agenda

It is generating so much heat and so little light. It may be useful to refer to a hilarious story in R.K. Narayan’s book My Dateless Diary in which he refers to a young orthodox Indian, a Gandhian, who goes for study to the U.S. and finds himself in a situation where he has to take to beef-eating. He writes to his mentor that this would solve our country’s entire food problem and we need not then go to America begging for wheat. The young Indian goes to the extent of suggesting to his mentor that beef-eating should be made a national duty. The mentor feels sorry that the student has completely lost touch with the Indian realities. The author concludes that “probably suggesting the eating of beef may not sound abnormal in most parts of the world but in India where the cow is a sacred object and beef cannot be eaten, no rationalisation is even possible on this subject”.

Not in the Constitution

However, the question of the proposed ban on cow slaughter cannot be decided on the basis of a majority section of the Hindu community holding it as a sacred animal. Article 48 of the Constitution is a pivotal section here. It does not ban slaughter of cows which have become useless. In order to protect and promote the cattle wealth of the country, it only says that the state shall endeavour to prohibit the “slaughter of the cows and calves and other milch and drought cattle”. In 1958, the Supreme Court in the Mohd. Hanif Quareshi case (AIR 1958 SC731) had struck the right note when it said that cattle feed shall not be wasted on useless cattle as it would affect the nutrition of the useful ones. But unfortunately, in recent times, in a case from Gujarat reported in 2005 (8) SCC 534, the Supreme Court brought in the idea of cows and bullocks being worshipped by Hindus as justification of a ban on cow slaughter.

The attempted ban is part of a divisive agenda of the majority party to consolidate itself on grounds which are constitutionally not permissible. These are social fault lines which are dogging us. Sensing such tendencies, Parliament thought it appropriate to introduce Chapter 51A, outlining the Fundamental Duties, through the 42nd Amendment Act, 1976. One of the important duties is to develop a scientific temper, humanism and a spirit of inquiry and reform. Can it ever be said that a ban on slaughter of old cattle conforms to this mandate?

Issues like a ban on cow slaughter and ghar wapsi are not harmless acts. They are a part of the cultural agenda of the majority party. A ban on slaughter, if carried to its logical extent, will be dangerous and create a state within a state. It will not only be undemocratic but also seditious. The Constitution calls for a more tolerant and pluralistic approach.

Taming the inflation monster

Looking back at a suggestion on stripping governments of their monopoly over the supply of money

Inflation affects everyone. As prices rise, an individual’s ability to afford goods diminishes unless his income increases proportionately. Yet, it has become so common to see prices rise over time that inflation is consider normal, and even harmless. In fact, most economists today agree that a moderate price inflation is a sign of a healthy economy with sufficient demand to keep everyone employed.

The most common cause of inflation is the increase in the total money supply in the economy. “Inflation is always and everywhere a monetary phenomenon,” economist Milton Friedman famously said to emphasise the influence of money supply on prices. But what explains the almost-unstoppable increase in the money supply in modern economies? After all, when the world used gold as its primary currency prior to the 20th century, both money supply and prices showed remarkable stability.

Reckless spending

To rein in the supply of money, economists at the Chicago School favoured the adoption of a rules-based monetary policy that mandated central banks to maintain a stable rate of inflation. Such a policy was supposed to tie the hands of spendthrift governments that hoped to fund their expenses by recklessly creating new money. However, history suggests that governments invariably exert political influence over the decisions of the central bank, and thus over the supply of money too. “Choice in Currency: A Way to Stop Inflation,” a 1976 essay by Austrian economist Friedrich A. Hayek, offered a more novel solution to the challenge of controlling the money supply. Hayek proposed that governments be stripped of their monopoly privilege to supply money. Instead, private companies should be allowed to offer their own money in the market, thus competing with money issued by governments.

This, Hayek argued, would discipline governments that create money in a reckless manner, as citizens can freely switch to alternative currencies that offered better value. In this context, it is worth noting that metals like gold already act as alternative currencies that citizens demand during times of high inflation.

How to phase out participatory notes

The Securities and Exchange Board of India’s war against participatory notes (p-notes) also called offshore derivative instruments, seems an endless one. While the enemy was a giant threatening to destroy the country’s capital markets earlier, it has shrunk to a very tiny size now. Despite this, the regulator is continuing to be troubled by it.

Why else would another discussion paper be released to propose more tweaks to p-note regulations? The proposals — to stop issuing p-notes with derivatives as underlying that are not for hedging purpose by December 2020 and to levy a fee of on foreign investors issuing p-notes — is unlikely to affect those misusing the route.

The regulator has to first decide which aspect of p-notes is of concern — that these instruments are being used by money launderers or that short-term speculative traders from overseas can cause volatility in markets using this route.

If it is the former, SEBI can bite the bullet and stop fresh issuances of these instruments altogether. Despite all the controls, there will be loop-holes that will be exploited for round-tripping. If the regulator is worried about hot money causing volatility, then there isn’t much that can be done. For foreign fund flows will be erratic and volatility is on par for the course for markets.

If the regulator decides to stop issuances of p-notes altogether, there is a sequence. First p-notes on debt should be stopped, followed by p-notes on equity and then p-notes on derivatives.

The basics

P-notes are derivative instruments issued by foreign portfolio investors registered with SEBI, to overseas investors who wish to buy Indian equity and debt instruments without going through the rigmarole of registering with the Indian regulator. It was primarily targeted at foreign funds that have a short-term investment horizon and prefer to move their funds in and out of a country rather quickly.

But the instrument initially had many flaws, including limited disclosure about the beneficial owner of the p-note. Further onward issuances of these instruments also made the trail complicated. These features made p-notes a popular channel for round-tripping funds.

The issue moved in to the limelight in 2007 when excessive issuances of p-notes with derivatives as underlying had made SEBI prohibit fresh issuances of them. P-notes accounted for almost 56 per cent of FII assets in June 2007. But regulatory scrutiny combined with a slew of order issued by SEBI since then on improving disclosure and restricting the entities who could subscribe to these instruments has made their in FPI assets shrink to just 6 per cent by April 2017.

Will it work?

The latest salvo fired by the regulator against p-note holders, laying down that a fee of $1,000 is to be paid by foreign portfolio investors issuing p-notes every three years for each overseas client who buys these instruments through them is unlikely to stop issuances. One, the fee is not large enough, considering it is for three years. Two, money laundering can be done more easily through a single issuer, if the issuer and subscriber work hand in glove.

The second proposal — to allow fresh issuances of p-notes only if they are bought for hedging and to wind up all outstanding p-notes on derivatives issued for speculative purposes — will bring issuances of p-notes on derivatives to a halt. It is unlikely that these instruments are used for hedging purpose.

Order it right

If the regulator decides to close the p-note channel altogether, it is best to start with stopping p-notes on debt. Unlike equity, the limit allowed to FPIs to invest in debt instruments, particularly government securities, is much lower.

Of the total G-Secs issued, FPIs held just 3.65 per cent towards the end of 2016. The Centre and the RBI have been wary about allowing foreign investors to hold Indian government debt due to the destabilising effect of fund outflows on currency. So, allowing speculative traders from overseas to hold Indian debt through p-notes does not really make sense.

The risk is highlighted when we look at numbers. P-notes on debt soared in April and May 2013 when the rupee started weakening. Outstanding p-notes, however, fell after November 2013 when the rupee stabilised following the measures taken by Raghuram Rajan.

The second category that the regulator can target is p-notes drawn on equity. Value of these towards the end of April 2017 was Rs. 109,541 crore; 85 per cent of all p-note issuances. But if we consider the share of these p-notes in free-float market capitalisation of Indian equity market, it is just 2 per cent. While there could be turbulence for a short period as these instruments are wound up, the long-term impact is likely to be immaterial.

Another reason why p-notes on equity ought to be targeted by regulators is because these are more likely to be used for round-tripping when compared to p-notes on derivatives as sums that can be transferred in to the country will be larger here. Also, genuine users of p-notes, such as hedge funds, are less likely to use p-notes on equity.

P-notes on derivatives

It is suggested that the regulator should turn its sights on p-notes on derivatives last. According to SEBI, Rs. 40,165 crore of p-notes on derivative instruments was outstanding towards the end of April 2017. This accounts for roughly 16 per cent of the outstanding derivative positions on the National Stock Exchange. Clamping down on this section will therefore impact liquidity on the exchange.

If we look at the outstanding p-notes on derivatives since January 2012, it is seen that the outstanding value of these instruments tends to increase when there is a global stock market sell-off. In October and November 2012, when the euro zone crisis increased global risk-off sentiment, outstanding p-notes on derivatives rose above Rs. 80,000 crore. In mid-2015 too, when the yuan devaluation caused a global turmoil, the value outstanding moved above Rs. 60,000 crore.

So, it is obvious that there are authentic global short-term investors that are using these instruments to trade in Indian markets during such events. The regulator needs to take a call whether we need these investment flows or not. If foreign investors based in India are allowed to trade in Indian equity markets during such phases, there is no reason why foreign investors based outside India should be stopped.

Banning p-notes on derivatives is not likely to halt round-tripping either, since p-notes with equity and debt are likely to be preferred by those wanting to launder money.

Input Tax Credit

The GST (Goods and Services Tax) and its army of terminology are briskly marching through media space these days. One such much-bandied about term is ‘input tax credit’.

What is it?

You can’t punish a man twice for the same crime, says the law. Shouldn’t the same principle apply to taxation of goods and services? Enter ‘input tax credit’. The basic premise is that taxing the same thing twice is not fair.

So, to avoid double taxation on items used as inputs to make other items, credit of taxes paid on the inputs can be taken by the maker of the next item while paying tax on the output. If the tax paid on inputs is higher than the tax on the output, the excess can be claimed as a refund.

Input tax credit is also available to traders on goods bought for sale/resale, besides a few other cases such as goods bought for use in works contract.

Currently, input tax credit is available for taxes such as excise duty, VAT (Value Added Tax), CST (Central Sales Tax) and service tax. But there are several ifs and buts as to which of the taxes can be set off against each other.

Why is it important?

The integration of several indirect taxes under GST will make life easier for companies and businesses when it comes to claiming input tax credit, as it is expected to be seamless. Currently, they cannot take credit for some of the taxes they pay, against the final produce. For example, consumer companies which spend quite a bit on advertising will be able to offset the tax paid on this under GST. This is not allowed under the existing law.

Secondly, the GST rules for claiming input tax credit has been tightened to avoid frauds or revenue leakage for the government. Among other rules, the buyer cannot get input tax credit unless the supplier has actually paid the relevant tax or claimed input credit. Input tax credit provisions also become important during the transition to GST.

For traders/retailers who may not have proper documentation of the payment of tax on inputs, only 40 per cent credit will be given for stocks in transition. The credit will be higher at 60 per cent if the item falls in the 18 per cent or 28 per cent GST rate bracket, as per the decision taken at the recent June 3 meeting of the GST council.

Why should I care?

Primarily because the goods and services you buy could get cheaper. Without input tax credit, there is a ‘cascading’ effect of taxes. That is, tax is levied on the entire value of intermediate goods and services. Under GST, credit of tax already paid should reduce the tax outgo and the final price of the product or service.

Seamless availability of input tax credit for goods and services will also help shareholders. It will ease up cash flows and result in better efficiencies for businesses. This will aid savings and more effective deployment of resources.

The Government benefits too, as strict rules to prevent fraudulent input tax credit mean that it can get more in its revenue kitty. In short, if it works to plan, the input tax credit can be a win-win-win.

The bottomline

It’s always a good idea to give credit where it is due.

Doha isolated in Gulf: What it means for Delhi

In November 2008, shortly after the Lehman Brothers collapse, Prime Minister Manmohan Singh, on a visit to Doha, told Qatar’s leadership: “The current global financial crisis presents, in many ways, a rare window of opportunity for India and Qatar. The investment requirements of a large emerging economy like India and the vast financial surpluses of an energy rich economy such as Qatar can be married to create a win-win situation for both of our countries.”

Indian officials recall that while the intent was positive, the policy paralysis in the later years of the UPA government adversely impacted the investment outlook for the country. Qatar’s desire to invest in India from its Sovereign Wealth Fund was one of the many casualties.

Almost eight years later, the visit of Prime Minister Narendra Modi to Qatar in June 2016, revived the momentum. But Monday’s dramatic diplomatic standoff between the Saudi Arabia-led coalition and Qatar could slow down or derail efforts to get the economic and trade relationship to grow rapidly.

While the current volume of Qatari FDI in India is modest, Qatar’s Sovereign Wealth Fund and other state-owned entities, as well as Qatari private investors, are looking at investment options in infrastructure in India, including in real estate, roads and highways, airports amd airlines, ports, LNG, petrochemicals and fertilizers, and tourism/hospitality.

There is vast potential for Qatar Investment Authority to substantially increase its investments in India, given India’s huge needs — $ 1 trillion in the next 5 years in infra alone — investment friendly policies, and QIA’s keenness to diversify its global portfolio. India has made efforts to actively engage with QIA and other state-owned and private entities in Qatar, highlighting policies such as ‘Make in India’ and the advantages of investing in India.

The balance of trade is currently heavily in Qatar’s favour. India’s exports have stabilised in the range of $ 900 million to $ 1,000 million. However, imports in value terms have declined sharply in the last 1-2 years due to the decrease in international oil and gas prices. Bilateral trade touched a high of $ 16.68 billion in 2013-14, and fell to $ 9.93 billion in the 2015-16 fiscal.

India’s corporate sector too is increasingly pursuing business opportunities in Qatar. A number of reputed Indian companies, particularly in construction/infrastructure and IT, have operations in Qatar, including L&T, Punj Lloyd, Shapoorji Pallonji, Voltas, Simplex, TCS, Wipro, MahindraTech, HCL, SBI and ICICI. Other Indian banks have limited operations under the Qatar Financial Centre or private exchange houses in Qatar. Qatar Airways now has 102 weekly passenger flights to 13 Indian cities.

While business has been the focus of the relationship, India’s ties with Qatar have largely been founded on energy and economic links, and the presence of the Indian community, which in Qatar numbers over half a million and, as in other GCC countries, is the largest expatriate community. The interest of citizens living and working in Qatar, many of them engaged in projects related to the FIFA World Cup in 2022, is paramount for India.

“Qatar backs political Islam, but this is an Islam that is at once moderate, accommodative, liberal and forward-looking,” said Prof Bansidhar Pradhan from the Centre for West Asian Studies in JNU. Qatar also rejects sectarianism and wants to engage with Iran, much to the discomfiture of Saudi Arabia, Prof Pradhan added.

Prof Pradhan said the crisis in the Middle East would not impact India adversely, and Prime Minister Modi’s “Gulf policy is on very solid ground”. His colleague, Prof A K Pasha, director of Gulf studies at JNU, however, said balancing the relationships in the region would require “diplomatic finesse” of a high order, and “There might be some implications on investments, and the movement of labour could become difficult.”

No country for triple talaq

In pre-Islamic Arabia, there were some tribes which used to bury their female infants soon after their birth. It was not as if every Arab tribe indulged in this heinous crime, but Islam made it a big issue. The Holy Prophet strongly condemned this practice. The Quran, on the one hand, highlighted the sanctity of life to eradicate this practice and, on the other hand, it aroused very strong pathos by saying: “When the female infant buried alive is questioned for what crime she was murdered” (81.8-9).

When this obnoxious practice, of burying infant girls, was banned, nobody tried to defend it by saying that it only very few tribes like the Banu Tamim indulge in this and hence, this should not be elevated to the status of an Arab problem. In fact, the viewpoint was that oppressing one individual is a human tragedy, and oppressing more than one is merely statistics.

The incidence of divorce among Muslims may be low, and triple divorce may be even lower, but can we deny the fact that the number of Muslim women who flock to the lower courts to seek a maintenance allowance after divorce is much higher than Hindu divorced women? The reason is obvious. In the case of Hindu women, there is no instant divorce. All financial claims are settled before a divorce is finalised. But in the case of a Muslim woman, her divorce becomes final within minutes — the only option available to her to secure her rights is judicial redressal.

Even more serious is the fact that a Muslim girl grows up with the awareness that if on any given day, her husband can due to anger or any other reason, turn her out of the marital home instantly, by repeating a simple word three times. Imagine the negative impact this awareness has on her overall development and psyche.

The Hadith books tell us on the authority of Ibn Abbas that the (pronouncement) of three divorces during the lifetime of the Holy Prophet, and that of Abu Bakr and two years of the caliphate of Umar, was treated as one. But when people started to use the instant divorce freely, then Caliph Umar said: “Verily the people have begun to hasten in the matter in which they are required to observe respite. So impose this upon them, and he imposed it upon them.”

Shah Waliullah, a leading scholar of the 18th century, explains the situation in his book Fiqh E Umar. He says that men had made it a habit to divorce women and then take them back during the waiting period. Then, it was said that if men pronounce three divorces, we shall count them as three and order the separation of husband and wife.

To say that there is some hadith which legitimises this sinful practice is in itself a sin. We must understand that in Arabic usage, the bidat (wrongful innovation in religion) is a term that is an antonym of sunnat (the prophetic tradition). Every book on Islamic law, including the Compendium of Islamic Laws published by the All India Muslim Personal Law Board describes triple divorce as bidat — sinful, prohibited and irregular.

In the latest affidavit filed by the Muslim Personal Law Board, they have added one more epithet: That it is “unjust”. After using all these adjectives, it is an act of misplaced bravery to claim that the Holy Prophet would have legalised something that was both sinful and unjust.

The Quran, like any other scripture, is a book of wisdom and explains things in parables and signs. Possibly the only exception it makes is with regard to marriage and divorce — the Quran lays down an elaborate procedure and leaves nothing to speculation. The procedure it provides says that if you apprehend separation, counsel the wife; if that fails, sleep on separate beds. Finally, give examples of divorced couples to explain the adverse impact this has on families and children. If that doesn’t work, then the Quran provides for arbitration through two persons, one each from the families of the husband and the wife (4.34-35).

It is only after the failure of all these steps that the husband is permitted to pronounce a divorce and then, the Quran obliges the spouses to live during the waiting period of three months in the same manner as they were living before. During this period of iddat, the husband has the right to revoke the divorce and, after the completion of three months, if the woman agrees, they can remarry. Further, the Quran makes the presence of two witnesses compulsory at the time of the divorce and declares in clear terms that these are the limits set by God, implying that these limits cannot be altered by any human agency and this is the only way that divorce can be effected (65-1-2).

This explains why Imam Malik considers even Talaq Hasan (where three separate pronouncements are made at the beginning of every month) as bidat, because the Talaq Hasan again is not in conformity with the procedure laid down in the Quran. The Quran further clarifies that this option is available only twice during a lifetime, which means that any third pronouncement would lead to irrevocable separation (2.229).

Triple talaq is an enormity; it is a legacy of a pre-Islamic Arabia. In so far as it is arbitrary, it robs Muslim women of their fundamental rights. In so far as it is violative of the Quranic procedure, it is anti-Islam. In so far as it treats women as slaves who can be disposed of by the “master” at his sweet will, it is inhumane.

Therefore, this obnoxious practice must be put an end to, as has been done in almost every Muslim country. The Indian Muslim man is no special creature to continue to have this special right.

GM Mustard should not go the BT Brinjal way

Seven-and-a-half years ago, BT Brinjal, developed by two public agricultural universities, was approved for commercial cultivation by the genetic engineering approval committee (GEAC), a statutory body. BT Brinjal is inherently resistant to the notorious fruit and shoot borer (FSB) pest and therefore produces a marketable crop without the large number of chemical sprays that the farmer would have otherwise had to use. However, as fate would have it, this technology was held back from the Indian farmer through a “spoken order” by the then environment minister, Jairam Ramesh who, in the year 2010, succumbing to pressure from activists, overruled the science-based recommendation of GEAC, and imposed a moratorium on its commercialization.

To justify his action, GEAC was rechristened as an “appraisal” committee, thus robbing it of its statutory powers to be the final arbiter in the commercialization of such technologies. Though the legal validity of this usurpation of powers of a statutory body by mere ministerial wordplay is questionable, the action resulted in the shelving of a valuable technology which would have brought immense benefits to the farmers and consumers of this country.

Well, our neighbour Bangladesh, under the bold leadership of its agriculture minister, Matia Chowdhury, in the face of furious opposition by activists around the globe, went ahead and approved the technology for commercialization. Today, the Bangladeshi farmer is reaping the benefits of the technology developed in India, while our own farmers are reduced to surreptitiously planting the same seeds smuggled across the borders. Officially, the moratorium stands and therefore it is “illegal” to cultivate BT Brinjal in India.

A few days ago, the GEAC gave the go-ahead to another genetically modified (GM) technology developed by Prof. Deepak Pental and his team at Delhi University, the GM Mustard. Now the environment minister, Harsh Vardhan, has to take a call on allowing the GM Mustard to benefit the Indian farmer. Given the results of extensive bio-safety studies over the last decade and the edible oil shortage the country is facing, this should be an easy call and would perfectly be in sync with the National Democratic Alliance (NDA) government’s pronouncements on giving a boost to farming. However, that is not to be; the activists who are ideologically opposed to GM crop technologies have unleashed a virulent campaign with misleading propaganda and complete disregard for scientific evidence to stall this technology at this last stage. In this, they have the support of some Sangh Parivar organizations like the Swadeshi Jagran Manch (SJM), which the incumbent government cannot easily ignore. The GM Mustard was entirely developed in Delhi University with funding from the National Dairy Development Board (NDDB) and the department of biotechnology. It is therefore strange that SJM is opposed to this swadeshi technology.

India imports soybean oil, much of it is from GM soybean grown in US and Argentina. Cotton seed oil, over 1.5 million tonnes, obtained from Bt cotton grown in the country, is part of the country’s vegetable oil mix. The cotton-seed cake is widely used as cattle feed. There is no multinational corporation involved in the development of GM Mustard. The safety of GM Mustard has been scientifically validated through well-designed studies carried out over the last decade and the summary of results are in the public domain. The GEAC had no choice but to recommend this technology for commercial cultivation.

The yield levels of the Indian mustard, Brassica juncea, had plateaued in the last couple of decades. One way of breaking out of this ceiling is to exploit the hybrid vigour expressed in the first-generation progeny (hybrid variety) of a cross between two chosen parents. This approach is widely employed in the related species of oilseed crop, the rapeseed which is however, not extensively cultivated here.

The flowers of mustard are bisexual and therefore if the seeds set in one of the parental line (female line) has to be a result of pollen coming from the other parent (male line) planted as a neighbouring row, the flowers in the female lines should not produce functional pollen; in other words, they have to be feminized. In nature, there are several mechanisms by which bisexual plants are effectively rendered female; one such example is natural male sterility. Such mechanisms are part of nature to promote cross-pollination that creates diversity by the mixing and random assortment of genes. In crops like rice and maize, the genetics of such natural male sterility is well studied and has been long used for the commercial production of hybrid seeds. In the Indian mustard, though such natural mechanism of male sterility exists, they are neither stable in all parental backgrounds nor are free from certain other undesirable effects.

The GM Mustard technology developed by Delhi University scientists essentially feminizes one of the parental lines in which pollen development is disrupted by blocking the ability of a group of feeder cells in the anther sac (the tapetum) to provide the essential components for the primordial pollen cells to develop into fully mature and functional pollen grains. In the subsequent generation, however, the hybrid crop is fully fertile (flowers are bisexual) as the male line carries a component that “unblocks” the feeder cells facilitating the provision of all components needed for pollen development and function. This is a platform technology and can be widely deployed for any potential parental line combination, thus potentially removing the limitation in parental line choice for the exploitation of hybrid-vigour for mustard improvement.

It would be a pity if the environment minister heeds the unreasonable voices opposing the GM Mustard technology and consigns it to the same fate as BT Brinjal.

The Venezuela debt dilemmas

To hold or not to hold? That is the dilemma facing holders of debt issued by the Venezuelan government and its sovereign and quasi-sovereign entities. The issue has been labelled a “moral quandary” by The Wall Street Journal, put Goldman Sachs in the headlines and prompted a Harvard professor to call on index providers to exclude Venezuela from benchmarks used widely by investors.

Defined very narrowly, the question is whether to hold a bond that trades at a very high yield, has been the best performer this year in emerging markets, but whose default risk is considerable given that Venezuela is increasingly a failing state that already faces runaway inflation, growing poverty, hunger and socio-political unrest.

At one level, this is no more than the calculus facing emerging market and high-yield bond investors when considering opportunities offered by low-rated issuers. In such cases, there are three types of strategies for holders of the debt, and they need not be mutually exclusive: The first is motivated by the view that the marketplace has priced in an excessive sovereign default risk. This consideration is often embraced by those who believe that, being an oil producer that needs to maintain critical international linkages, Venezuela will go to huge lengths to make its debt service payments on the global bonds it has issued.

The second has to do with confidence in trading abilities—that is, the belief that the holders will be able to capture the high yields and exit their investment before default becomes even more likely.

The third is driven by the desire to hold the bonds through a default, comforted both by the implicit and explicit securitization and confident that a good post-default deal will be struck.

But these considerations fail to capture the broader issues, whose basic elements speak to what rightly motivates socially responsible investments. As an illustration, consider some of the recent press coverage of Venezuelan bonds.

In noting the “moral quandary” facing holders of the bonds debt, particularly Venezuelan citizens, The Wall Street Journal wrote, “many of the Venezuelan investors profit from their country’s bonds” but “are also acutely aware” that the country “is gripped by an economic crisis so deep that some of its citizens, including children, are starving.”

In commenting on Goldman Sachs’ purchase, Bloomberg Markets noted that the campaign by the Venezuelan “Hunger Bonds movement” has “suddenly gained a surge of momentum.”

Advocating for Venezuela’s exclusion from the EM index, a Harvard professor, Ricardo Hausmann, argued that, because Venezuela accounts for 5% of the index and 20% of its yield, “investing in the EMBI + (Emerging Market Bond Index Plus) means that you will rejoice when Wall Street analysts inform you that the country is literally starving its people in order to avoid restructuring your bonds.”

The argument here is no longer about credit quality and sustainability. Instead, non-commercial considerations are added to commercial ones in judging the appropriateness of an investment. And in the extreme, such concerns could compel investors to avoid a certain investment, even though they believe it will be remunerative and viable; and they could push index providers to exclude a set of bonds, even when they qualify on widely accepted commercial criteria.

When such a decision is left to individual portfolio managers, the results tend to be a mix of good, bad and ugly, potentially opening the door to controversies and even legal threats—a phenomenon that has played out to different degrees when it comes to environmental issues, including investments in coal, tobacco, and arms manufacturers. A better approach is to urgently improve the governance over this issue through transparent decisions by the boards of mutual funds, foundations and endowments, pension and retirement plans, other institutional investors, and index providers. It is at that level that the trade-off between financial and non-commercial factors should be struck, rather than by portfolio managers.

While a greater effort on this is already overdue, we are unlikely to see sufficient progress any time soon. In the meantime, there are three simple things that portfolio managers investing in emerging markets may wish to consider:

First, be open and upfront with your clients in the periodic updates about how you are combining financial and non-commercial considerations.

Second, place greater pressures on industry groups, advisory bodies and index providers to move toward a common view and collective approach.

Third, should you still feel compelled to increase your Venezuelan holdings after all that— and you would need really strong reasoning to do so—avoid to the maximum extent possible buying bonds where the resulting dollar proceeds could be used to pursue socially repressive behaviour in that country.

Over the longer-term, most socially responsible investing is likely to translate into profitable ones, too. But in the short-term, deviations do occur. Venezuela is a case in point. And the resulting dilemmas, as important as they are, should not be left to portfolio managers alone who then find themselves torn between a narrow definition of fiduciary responsibility and legitimately consequential broader issues. It is high time to make governance structures more responsive, assertive and transparent on these issues.


The Hndu
Business Line
Indian Express
Live Mint



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s