And The Brick Finally Drops

5 Lessons From the Rise of the BRICs

STATE CAPITALISM WORKS

Only one of the four BRIC economies could be considered free: India. The other three are deeply capitalist, sure -- finding success on international markets has been a big part of their rise -- but their version of capitalism includes the strong guidance of the government. State capitalism means state-owned firms like the massive China National Petroleum Corporation or Gazprom, but it also means heavy regulation, frequent intervention, and sometimes a degree of state control over markets and firms that doesn't look so capitalist. But this a statist means to a capitalist ends, designed to maximize long-term growth and encourage development. It doesn't always work out that way, but their success is hard to ignore, especially as the great free market stalwarts -- the U.S., Europe, Japan -- fall on increasingly hard times.  

The state capitalist model will be an attractive one for other developing economies. Rising neighbors in Asia, Africa, and Latin America may seek to engage with the global markets but, rather than opening everything overnight and letting Westerners conquer their entire economies, protect and grow domestic firms that can compete internationally and will funnel money back into development. But the West can learn as well. As free markets -- especially financial markets -- fail and fluctuate, free marketeers in Washington and London and elsewhere may want to ask if a bit more state intervention and regulation is worth considering.

Car Manufacterers Pushback Against Diesel Car Tax

Additional tax on diesel cars will further impede industry growth: M&M

Terming the calls for imposing additional tax on diesel vehicles as “retrograde”, homegrown auto major Mahindra & Mahindra today said such a move will only further impede growth of the industry which has had a difficult year in 2011.

Reacting to issues raised from various quarters over usage of subsidised diesel fuel for “luxury” and seeking imposition of additional tax to the tune of Rs 80,000 on diesel cars, the company said use of diesel fuel for luxury personal vehicles is less than 0.2 per cent.

“In my opinion to consider an additional tax on diesel vehicles is a retrograde step...” Mahindra & Mahindra President (Automotive and Farm Equipment Sectors), Mr Pawan Goenka, said.

Urging the government not to consider such a move, he said: “In the upcoming Union Budget, this is perhaps the most critical item for the automotive industry which will have a significant impact on the growth of the industry in the upcoming fiscal year.’’

Explaining why such a move would prove counter-productive, Mr Goenka said: “A tax on diesel vehicles will further impede growth of the industry which has had a difficult year in 2011.’’

Of course, the industry estimate of the percentage of diesel used by diesel cars is flawed :Press Release: CSE trashes contention that diesel use by cars is very low.  Got to keep those profits rolling in.

Gordian Knot of Petrol/Diesel Subsidies

Cleaning the fuel subsidy mess

It is high time that people, who can afford to buy cars and two-wheelers, realise that fuel won't come in cheap. None of them complains when they have to pay for expensive airline or movie tickets. Is petrol such a measly commodity that it has to be sold cheap? There is just no alternative unless state governments decide to do away with sales tax on petrol, clearly an inconceivable option from the viewpoint of revenue generation. Dealing with diesel pricing won't be as straightforward, since it is used in the commercial vehicle segment which carries food products across the country. Higher operating costs will do little to curtail inflation, and diesel prices just cannot be tinkered with, at least for now.

Yet, it is only logical that users of cars and SUVs pay the market price for the fuel. The auto industry believes this is a better alternative to taxing diesel vehicles. Now, how does one ensure that diesel-driven cars are charged higher at retail outlets while vans and trucks pay less? Certainly not the easiest of tasks, especially in a system where cross-subsidies only spawn fuel adulteration. Clearly, finding a solution to this huge mess is almost impossible. There have been any number of expert committees which have come up with suggestions, but the reality at the ground level is something quite different. Till then, sleepless nights are only inevitable for the Government and the entire oil sector.

The auto industry is entirely based on fuel subsidies, hence they would not like the government to further tax diesel vehicles.  They are all shifting to making diesel vehicles since they see people opting for those.  But I don't understand why it is difficult to tax diesel-driven cars at a higher rate without penalising commercial diesel vehicles.  Surely there should be some way of differentiating between car and truck sales?

UK to India: Please Take Our Money

From the too funny-to-be-true department, the how-the-might-have-fallen department, and the bathos department:

India tells Britain: We don't want your aid

India’s Finance Minister has said that his country “does not require” British aid, describing it as “peanuts”.

Pranab Mukherjee and other Indian ministers tried to terminate Britain’s aid to their booming country last year - but relented after the British begged them to keep taking the money, The Sunday Telegraph can reveal.

Bathos because the mighty idealism of aid to fight poverty may be rooted in the pure quid pro quo of modern  government-mediated commerce.

Cameron leads the attack on Indian decision on Rafale

Prime Minister David Cameron on Wednesday led an attack on India for selecting French firm Dassault Rafale for a mega deal to supply fighter jets ignoring British claims as MPs and the media accused New Delhi of “ingratitude,” arguing that Britain gave millions of pounds in aid to India.

On Corporate Power

Corporations Have No Use for Borders

The decay of Canada illustrates two things. Corporate power is global, and resistance to it cannot be restricted by national boundaries. Corporations have no regard for nation-states. They assert their power to exploit the land and the people everywhere. They play worker off of worker and nation off of nation. They control the political elites in Ottawa as they do in London, Paris and Washington. 

"Playing 'God' with Spectrum"

Playing ‘God' with spectrum

The National Democratic Alliance (NDA), led by the former Prime Minister, Mr Atal Bihari Vajpayee, in power then, never really thought it would lose the Parliamentary elections in 2004. But if it had had some inkling of the impending defeat and wanted another tilt at power, it couldn't have thought of a better ‘Trojan Horse' for the successor government to fiddle around with than the much criticised ‘first come first served' (FCFS) policy of handing out additional ‘spectrum' to mobile telecom operators.

Sounds far fetched? Not really. Consider the evidence. Up until then, it had been a well-settled principle of administrative law that the State cannot dole out any largesse to any section of society, except under the most objective or equitable principles.

...

Yet, here was a conscious policy decision taken to give out radio frequency spectrum to mobile telephony operators when even canteen contracts in obscure railway stations are awarded through open tender.

Good overall summary  of the telecom saga.

Fighting Corruption On The Demand Side

The founder of Lok Satta party has a spectrum of solutions for corruption, all of which pertain to the corporate world.  Competitive bidding for national resources and the following three: 

What other steps should we take to curb collusive corruption and to protect public revenues? Three specific steps are needed now. First, a law should be enacted by Parliament making all contracts involving corruption, or a loss to the Exchequer, void and unenforceable. This will remove all incentives for corporates to bribe any public official to get a favour. A company that loses the bribe amount as well as the business or benefit or favour received through corruption is unlikely to resort to bribery. Only then can we demand corporate integrity and create a level playing field.

Second, a windfall profit tax should be imposed on all those who secured a license or mining lease or other natural resource, and made huge profit without value addition. This will ensure that excess profits made out of a vital public resource are retained with the Exchequer, and aren't appropriated by private interests. Mere private monopoly of public assets shouldn't be a source of unusual profits, even if there is no corruption in the transfer of asset. Such a windfall profit tax was imposed in the UK in 1997, in respect of North Sea Oil, and the monopolies in electricity, telecom, airports, gas, water, and railway sectors.

Third, a law similar to the False Claims Act in the US should be enacted in India. This law allows imposition of a civil penalty five times the loss sustained by the Exchequer in any public procurement or transfer of natural resource.

Makes sense.

Spectrum Auctions Not The Way To Go

By far the most interesting take on the 2G decision by the Supreme Court comes from a pink paper:

2G Scam: Supreme Court’s cancellation of 122 licences is mostly unfortunate

The Court posits auctions as the only acceptable method for fair and transparent allocation of national assets. Why ignore a draw of lots among financially and technically qualified aspirants? It equates national enrichment with the proceeds of auction.  

This is a simplistic assumption devoid of economic analysis. Low-cost telecom spreads fast, increasing, with each additional connection, the utility of being connected for everyone on the network. The result is efficiency and productivity gains across the board, leading to faster economic growth. Crores of lives improve and the government nets superior tax receipts, far in excess, over the years, of auction proceeds. Auctioned spectrum jacks up the telecom industry's capital costs, which will either raise tariffs or delay further expansion and upgradation. 

In any case, what sense does it make to transfer huge investible resources from industry to the government? 

So auctions are not the bestest methods of all?  And they tell us only now?  So sad.  But the pink one need not worry.  Our telecom guys have a neat trick through which huge auction prices can be whittled down to manageable amounts:  just take the money from our public sector banks, discussed in The 3G Scam?

Corporate Subsidies Anyone?

Coal India puts off price hike on key users' protest

NEW DELHI, JAN 31: 

Buckling under consumer pressure, Coal India Ltd has rolled back the price hike proposed under its new Gross Calorific Value-based pricing mechanism effective January 1.

Coal India will delink the rates from international parity prices, said Mr N. C. Jha, Chairman. This would eventually reduce the prices for different grades of coal. However, the GCV-based grading of coal will continue and the anomalies in the pricing structure will be set right, he added.

Coal India switched to the GCV-based pricing mechanism in line with the international norms and had proposed an average of 12.5 per cent hike in prices.

This had evoked strong protest from consumers in sectors such as power, cement, steel and aluminium. In the earlier Useful Heat Value (UHV) method, the pricing was decided on the ash and the moisture content in coal. 

"In U-turn, RIL wants say in gas pricing"

In U-turn, RIL wants say in gas pricing

Less than three years after Reliance Industries Ltd. told the Supreme Court that the Krishna-Godavari basin gas is a “national resource” over which it had “no unfettered rights” in terms of price or quantity, and that it was “bound by the terms of the production sharing contract [PSC] and the policies and directions issued by the government from time to time,” the Mukesh Ambani-owned company has done a U-turn — serving a 90-day ultimatum on the Petroleum and Natural Gas Ministry to “amicably settle” a new gas price revising formula.

In 2009, when RIL did not want to supply gas at a previously agreed low price to NTPC and the Anil Ambani group, it took the plea that only the government had the right to decide at what price a “national resource” like natural gas could be sold. In the ‘Radia tapes' — recordings made by the IT Department of Niira Radia's conversations with journalists during that period — this is the line the former PR representative of RIL is heard pushing. But with that battle behind it and global gas prices spurting, the company now wants a say in the price-setting process.

Nice.  Also,

Interestingly, Communist Party of India (Marxist) MP Tapan Sen has charged RIL with deliberately scaling down production from the KG D6 gas blocks in order to force prices up. “It is expected of the contractor [RIL] handling the natural gas reserve to scale down the production of gas in KG D6 as pressure tactics for achieving premature price rise from the government,” he had written to Prime Minister Manmohan Singh earlier this month.

That sudden mysterious drop in production is a bit less mysterious now.  

Law-Making In The Richest Democracy

Money, power, and Congress: how lobbyists will determine the fate of SOPA

I quickly learned that our elected officials are not demigods solely focused on the collective good — they’re just people. To inflate them into anything else trivializes their real accomplishments at best, and blinds us from the reality of Congress at worst. Lawmakers may have their own parochial interests or lofty causes, but first and foremost they're always looking for votes. To get votes, they need attention and money -- something that corporate lobbyists can dish out in abundance. The end product of this system is lawmaking that's less about making good public policy and more about appeasing the hands that feed — as a result, powerful corporations with deep pockets gain unparalleled access to members of Congress, and they help set the agenda. That agenda is why bills like SOPA and PIPA gain such traction — they were delivered to Congress in return for money and votes.

You don't even have to dig deep into the history of SOPA and PIPA to find blatant conflicts of interest: According to Politico, Allison Halatei, former Deputy Chief of Staff to House Judiciary Chairman Lamar Smith, and Lauren Pastarnack, a Senate Judiciary Committee Senior Aide, just accepted jobs with two of the lobbying firms backing SOPA and PIPA. Halatei and Pastarnack helped write the bills. Halataei is now the National Music Publisher's Association chief liaison to Congress, and Pasternak is now the director of government relations for the MPAA.

It gets worse: Chris Dodd, who served as a senator for thirty years, is now the Chairman and CEO of the MPAA. As a senator, Dodd swore he'd never take money from lobbyists, but he now reaps a $1.5 million base salary and a $100 million lobbying budget. Lobbying is one art form the entertainment industry doesn’t mind investing heavily in: SOPA’s 32 co-sponsors received four times more in campaign contributions from the entertainment industry than from the tech industry. We shouldn’t be surprised that SOPA is as bad as it is; we should be surprised it’s not worse.

No wonder policy/law-making is likened to sausage-making - you really don't want to know how it is done.

India Burning

No public, just hearings for mega projects

They walked in a single file. Some were bare-chested, their shirts used to tie their hands behind their back; many nursing bruises from fibreglass batons wielded by policemen. All 36 men were picked up on January 7 and marched six km to a police station on the outskirts of the coal mining town of Korba in northern Chhattisgarh after a public hearing, held to assess the environmental impact of a thermal power plant, turned violent.

...

Large projects in predominantly tribal areas (called Scheduled Areas) must comply with a two-step process of public consultation: a public hearing to assess the environmental impact of the project and a crucial village-level consultation – called a Gram Sabha – where villagers and government representatives agree on the terms and conditions of land acquisition.

Yet, documents obtained by The Hindu reveal how officials in Chhattisgarh treat the Environmental Impact Assessment Notification of 2007and the Panchayat Extension to Scheduled Areas Act (PESA) of 1996 as mere formalities and routinely overrule gram sabhas to acquire lands on behalf of industry, prompting a withdrawal of the ‘public' from public hearings. In the past, the Planning Commission and Rural Development Minister Jairam Ramesh identified the non-implementation of PESA as a factor in increasing tribal disaffection and the rise of the CPI (Maoist).

In Korba, the villagers were protesting against the planned expansion of a 1,320 MW power plant set up by Lanco Amarkantak. “Earlier, we gave our land willingly on the condition that the company would provide us with jobs,” said Laharam Murao, a village leader from Imilibhata. Mr. Murao said the company had acquired 1.5 acres of his land in 2005, but he had neither received any compensation and nor had anyone in his family gained permanent employment at the plant. “This time we said ‘we will not give any land, no public hearing shall take place,'” Mr. Murao said.

...

District Collector R.P.S Tyagi arrived at about 3 p.m. and, according to the villagers and policemen interviewed, set up a table 50 metres from the crowd and announced that the public hearing had begun.

“We refused to approach the table,” said Shyam Kumar Chauhan, a villager, “but a few people allied with the administration gave their opinions.” Twenty minutes later, Mr. Tyagi said that the hearing was complete and tried to leave when the crowd grew agitated and sought to stop him.

“All the legal formalities of the public hearing were complete. If even one project affected person gives his opinion…the legal requirements are fulfilled,” said Mr. Tyagi in an interview, adding that 24 people had participated in the hearing.

Of UPA-I and II and Coalitions of The Willing

D Raja of the CPI analyses the workings of UPA-I and UPA-II

‘UPA’s fall will be due to its own contradictions’

“The biggest weakness of the present coalition, according to him, is the lack of a co-ordination committee and a Common Minimum Programme (CMP). Nobody knows how and why allies joined hands with Congress to form the government without either of these.

UPA I had both. The Left parties decided to support it on the basis of the CMP, which led to formation of a co-ordination committee.

Then, policy matters used to be sorted out within the parameters of CMP. The Left criticised the government when it deviated from the CMP, as in the case of its decision to disinvest from BHEL. We stayed away from meetings. UPA chairperson Sonia Gandhi finally took up the hive-off issue and it was put in abeyance. Again, when the government took up other issues such as FDI in retail, opening up of insurance, banking sectors etc, we opposed. But then all these were first discussed at the meeting of co-ordination committee. Importantly, we opposed them because they were not part of CMP.

Many good things too happened. Many progressive legislation such as rural job scheme, Forest Rights Act, Prevention of domestic violence bill were framed during UPA I. Even the Women's reservation bill was passed in one House of Parliament.

We quit UPA when the government took up the nuclear deal with US. Still we discussed, there were several meetings. Finally, there was no meeting ground and we decided to move out. 

The committee used to hold dignified , serious discussions. We never indulged in one-upmanship.  Thats why ÚPA-I was stable. It could enact positive legislation. 

As for today’s major scams dating back to UPA-I, I would like to say we did not interfere in the day to day work of the government. We discussed only policy matters. We were not part of the government. Towards the end, Congress wanted to have its own agenda. There were signs of drift from CMP. Scams started during this period. We became critical of the drift of UPA. When the committee fell, the government fell morally too.

What I remember is the Left being blamed for bunging a spanner in the works of 'reforms' constantly during UPA-I.  Authority without responsibility.  Also, the glee when the Left was routed in the 2009 elections.  Hurray for 'reforms'!  No more millstone around the UPA's neck!   

But that didn't quite work out for our pro-reform chattering classes and business houses, did it?

The Kingfisher Scam?

I wrote about public sector banks shoveling money to the telecom operators in this post:  The 3G Scam?.  Now we read this:  Kingfisher Airlines is NPA for us, says SBI chief.

New Delhi, Jan. 5:  

The State Bank of India said Mr Vijay Mallya-promoted Kingfisher Airlines has turned a non-performing asset (NPA).

“Kingfisher is an NPA for us. They are in default,” Mr Pratip Chaudhuri, SBI Chairman, told reporters here on Thursday.

SBI is the lead bank in the consortium that has funded this private airline. The country's largest commercial bank has an exposure of Rs 1,458 crore to Kingfisher Airlines, which is in a weak financial position and struggling to service its loans.

The other banks with significant exposure to Kingfisher Airlines are IDBI Bank at Rs 727 crore, Punjab National Bank (Rs 710 crore), Bank of India (Rs 575 crore) and Bank of Baroda (Rs 537 crore).

Just add up those numbers:  Rs 4000 crores has been given by our public sector banks to one private company which has blown it away.  The biggest bank has already declared its loan as an NPA.  Is this any different from a scam?

When will RBI make it mandatory for banks to reveal the full details of their NPAs and who owes them the money?

Winning Presidential Elections in the Richest Democracy

Takes a lot of money, obviously.  In fact, the guy who raises most, nearly always wins.  That, and other minor facets of American presidential elections in this piece Iowa: The Meaningless Sideshow Begins

Those numbers tell us that both parties rely upon the same core of major donors among the top law firms, the Wall Street companies, and business leaders – basically, the 1%. Those one-percenters always give generously to both parties and both presidential candidates, although they sometimes will hedge their bets significantly when they think one side or the other has a lopsided chance at victory. That’s clearly what happened in 2008, when Wall Street correctly called Obama as a 2-1 (or maybe a 7-3) favorite to beat McCain.

The 1% donors are remarkably tolerant. They’ll give to just about anyone who polls well, provided they fall within certain parameters. What they won’t do is give to anyone who is even a remote threat to make significant structural changes, i.e. a Dennis Kucinich, an Elizabeth Warren, or a Ron Paul (hell will freeze over before Wall Street gives heavily to a candidate in favor of abolishing their piggy bank, the Fed). So basically what that means is that voters are free to choose anyone they want, provided it isn’t Dennis Kucinich, or Ron Paul, or some other such unacceptable personage.

If the voters insist on supporting such a person in defiance of these donors – this might even happen tonight, with a Paul win in Iowa – what you inevitably end up seeing is a monstrous amount of money quickly dumped into the cause of derailing that candidate. This takes overt forms, like giving heavily to his primary opponents, and more covert forms, like manufacturing opinions through donor-subsidized think tanks and the heavy use of lapdog media figures to push establishment complaints.

And what ends up happening there is that the candidate with the big stack of donor money always somehow manages to survive the inevitable scandals and tawdry revelations, while the one who’s depending on checks from grandma and $25 internet donations from college students always winds up mysteriously wiped out.

Emphasis mine.  

USA Pushing For FDI in Multi-Brand Retail

Many people believe that the recently deceased FDI in multi-brand retail was taken purely to help India's farmers and consumers.  They should read this.

India to take up visa rejections issue with US

On its part, the US is expected to push for opening up of India's multi-brand retail trade to Foreign Direct Investment; raise its concern over certain proposals that could ‘curb' FDI in brown field pharma projects and the proposal for mechanism for an oversight by the Competition Commission of India to look at the impact of acquisitions; take up their complaint against the 30 per cent local sourcing requirement in India's solar power generation programme; India's restriction on US diary imports; as well as reduction of tariffs in industrial products in general.

Pension Bill - Only Assurance But No Guarantee?

Pension regulatory bill set to sail smoothly through LS

The government is understood to have agreed to the BJP demand for inclusion of assured returns to retired employees in Pensions Bill. The Standing Committee on Finance, headed by Sinha, had recommended for an assured return option to new subscribers. 

Pensioners are concerned over the fate of their hard-earned money as the new bill proposes to invest the pension funds in the market. The proposed Bill does not ensure guaranteed return to pensioners. The bill will provide legal backing for putting pension funds into stock markets.

At present, pension funds of over 10 lakh employees in the country are managed by domestic players such as Life Insurance Corporation of India, State Bank of India, Kotak Mahindra Bank and Reliance Capital, but foreign companies have evinced interest in the country’s pension market.  The PFRDA bill, if passed, will open country’s lucrative pension sector to foreign players.

So the bill assures return, but does not guarantee it?  And note the innocuous sentence about foreign companies evincing interest.  A bit of a lucky coincidence, for the foreign companies.  A lot of the 'second generation reforms' are somehow just what the foreign companies have evinced interest in.   

Corporates and Fin Min Officials Interfering in SEBI?

Ah, The Invisible Hand is fleetingly seen before it vanishes into the deeps.  

PMO declines to disclose former SEBI member’s letters

New Delhi: The government has declined to disclose two letters written to prime minister Manmohan Singh by former Securities and Exchange Board of India (SEBI) member KM Abraham, who had alleged in another communication, interference by some corporates and top finance ministry officials in the working of the market regulator, reports PTI.

Replying to a PTI request for the letters under the Right to Information Act, the Prime Minister’s Office (PMO) cited a clause that bars disclosure of any information that “would lead to unwarranted intrusion of the privacy of the individual”.

The PMO was asked to provide copies of three letters by Mr Abraham to Mr Singh, along with the action taken report. However, the public authority provided a copy of only one of the three letters, dated 1 June 2011, written by the former SEBI member.

The others two communications—sent on 16th May and 24th June this year—were not provided to the applicant.

In his letter dated 1st June, Mr Abraham had alleged that some corporates and finance ministry officials were exploiting the vulnerability of the market regulator, which was investigating crucial cases involving prominent business houses. 

The 3G Scam?

Banks nervous about telecom exposure

They need to be.  Their exposure is almost 1 lakh crore.  Half of that may be on account of loans to the winners of the 3G auction.  So one can argue that the auction only fetched half of what is claimed, at present.  And PSU banks - implicitly backed by the government - funded a large part of the 3G auction amount as the report points out.  SBI itself has an exposure of Rs 23,000 crore.  What if the loans go bad as some are already?

No wonder one never hears calls for privatisation of PSU banks. They are sitting ducks for industry to get loans from.

Maoists Losing Tribal Support

A turning point

There are signs of tribal support for the Maoists dwindling in Orissa. Tribal voters recently ignored a Maoist call for boycott of by-elections in the Umarkote constituency in Nowrangpur district and showed up in record numbers, with 75 per cent voters exercising their franchise. 

The Maoist call for a bundh to protest the killing of Kishenji too was ignored by the state’s tribal population, which has hitherto been regarded as a reservoir of support for the Maoists. Tribal children went to school braving Maoist threats. The message that tribals have sent out is clear and unambiguous. 

They are turning their backs on the politics of the gun that the Maoists espouse and instead putting their hopes in ballot box politics. However, it is too early to interpret the developments as signaling the decline of the Maoists. Whether it results in the defeat of the politics of violence will depend on how the government responds to the opportunity that has opened up. 

If the government uses the space to initiate dialogue with the Maoists and to kick-start socio-economic programmes to benefit the tribals, then it could prove to be a game-changer. However, if authorities interpret the tribal despair with the Maoists as a victory for ‘Operation Green Hunt’ and persist with exploitative development it could end up being a lost opportunity.

Interesting developments.