A suitable boy

NEW Delhi’s nomination of Dr Shashi Tharoor to be the next Secretary General of the United Nations brings the spotlight not just on the multi-faceted UN bureaucrat and author but also on the recent shifts in India’s foreign policy. Dr Tharoor’s credentials for the job are as good as they usually get. His record within the UN suggests he has the know-how to reform the world body. His contention that the UN needs reform not because it has failed but because its achievements make it worth investing in also focuses attention on the success the UN has enjoyed in areas like humanitarian assistance and peace-keeping rather than being preoccupied with the relative failures of the Security Council. But the battle is not about Dr Tharoor alone. It is equally, or more, a matter of India’s candidate being chosen for the job. If conventions are followed — and there is no indication that they will not — it is Asia’s turn to head the UN. The question is whether the Security Council will believe Dr Tharoor is the Asian for the job.
It is here that the ramifications of the recent shifts in India’s foreign policy will be felt. India can no longer be certain of support from groups it may have earlier relied upon. It has distanced itself from the non-aligned movement. It cannot rely on support from the Saarc nations either. Pakistan has made its opposition known and Sri Lanka has its own candidate. But the decision is to be made within the Security Council. And India has been seeking to move closer to its five permanent members. While the relationship with the Bush administration has been receiving much attention, India has simultaneously tried to build on its traditional relationship with Russia and mend fences with China. These changes have been part of a larger strategy aimed at moving India’s position on the world stage from being a leader of the developing world, to being seen as an emerging power in its own right. While too much should not be read into Dr Tharoor’s fortunes in his efforts to be the next UN Secretary General, the process will provide some indication of just how realistic India’s global ambitions are.


-- The Economic Times Editorial

Rajasthan’s retrograde move

Now that the BJP government in Rajasthan has decided to send back the regressive anti-conversion Bill to governor Pratibha Patil, the latter must do what she ought to have done in the first instance: reserve it for the President’s consideration. The Rajasthan Dharma Swatantrya Bill, 2006, proposes to ban “forcible” conversions by making them severely punishable. Patil had, while returning the Bill to the state government, recommended that it be forwarded to President A P J Abdul Kalam. That was secularist tokenism. It smacked of poor knowledge of the law, or lack of gubernatorial will, or both. The Constitution empowers the governor to reserve a Bill for the President’s assent. There is, however, no provision by which she can recommend that the House do so. She should have known that the BJP government, given its persistently anti-minority record, would not heed her recommendation. In fact, Patil, if she had really wanted to prevent the Bill from becoming law, should simply have, under the provisions of Article 200 of the Constitution, withheld her assent (indefinitely). Besides, even now she can fault the government’s decision to send back the Bill on constitutional grounds. A state government cannot send a Bill back to its governor, like it has in Rajasthan, without tabling it in the House/Houses again.
To argue that the anti-conversion legislation in Rajasthan is tenable merely because similar laws, enacted by governments of Orissa and Madhya Pradesh, received the Supreme Court’s sanction in 1977, would be as ill-informed as the apex court judgement itself. The 1977 verdict, which interpreted the “right to propagate” one’s religion in Article 25 of the Constitution to mean, not the right to convert, “but to transmit or spread one’s religion by an exposition of its tenets”, contradicts the spirit of the Constitution. The five-judge bench, which passed the verdict, had sought to interpret the word propagate in a narrow sense by glossing over the meaning — implying conversion — that was ascribed to it during the Constituent Assembly debates. That is wholly consistent with the philosophical ethos of a modern, post-Enlightenment society in which people can choose and change their religion.


-- The Economic Times Editorial

Don’t mess with NPS

The government is reportedly planning to extend benefits of gratuity, family pension and death gratuity to the new pension system (NPS). A committee has been appointed to estimate the extent of liabilities this will create for the government. This move deserves to be nipped in the bud. Introducing features such as gratuity, death gratuity and family pension goes completely against the original objectives of the scheme and will effectively dilute the case for introducing NPS. Instead, the scheme needs to be strengthened by linking it with group insurance schemes and by carrying out reforms that would make capital markets more stable. The NPS was envisaged to be a defined contribution scheme wherein the benefit at the time of retirement was linked with the contributions made. This contrasts with the older system in which cumulative retirement benefit comprised of PF contributions and ‘non-contributory’ elements such as pension and gratuity. The main advantage of NPS is that it would free the government from huge pension liabilities for its staff.
The proposed new additions significantly dilute the original idea. It will create fresh liabilities for which successive governments will have to find resources. The design of the NPS has already been extensively debated and there is general agreement, except for a few sections, that this is the right way to go. Social security for government and other employees can be enhanced by encouraging employers and employees to opt for group insurance schemes — life, accident and disability. This will provide financial security to the employees and their families. Also, important in this context is the reform of the capital market. The NPS plan envisages investment in equity. However, the kind of volatility that has been witnessed over the past one month has the potential to scare would be subscribers away from plans with an equity component. Stable markets will, therefore, be important for the success of the NPS.


-- The Economic Times Editorial

Dynamism in gas pricing

There is a new, welcome dynamism when it comes to the domestic pricing of natural gas, the cleanest fossil fuel. Reportedly, power major NTPC is to call for daily price bids to competitively source a part of its requirements of gas. The strategy makes perfect sense. The right pricing is of the essence to better allocate resources for gas, which accounts for a poor 8% of India’s energy mix. Already, there is a huge and growing demand-supply gap in gas. Production is put at just about 87 million standard cubic meters per day (mmscmd). But demand is estimated to be at least 50% higher, and rising. Also, effective supply is really no more than 74 mmscmd, after providing for internal consumption, extraction of LPG and flaring. And the bulk of gas usage is for power generation and as fertiliser feedstock. It is good that since last year, the pricing of gas for ‘commercial’ users has been decontrolled, to better reflect scarcity value. But for power and fertiliser consumption, gas prices remain very much administered and repressed by fiat, and wholly in variance with market-determined prices. And here, sectoral rigidities and warped policies in power and fertilisers may seem to limit the scope for regular price discovery in gas. But as the NTPC initiative suggests, the potential for efficiency prices in gas is simply enormous.
NTPC, with its current 17 mmscmd gas requirement, would source about 4 mmscmd via the bidding route and invite quotes from ONGC, Gail, Petronet LNG, GSPC, Shell, et al. It is not clear if the market would be online, with the requisite systems for billing and settlement. Presumably, at least, the minimal physical infrastructure to deliver gas is in place. But then, one recent estimate put the investment requirement for a pan-India gas network at a whopping $44 billion. Attracting resources on such scale would require proper investor comfort. This means time-of-day metering for electric supply so as to make viable dearer gas-fired, peaking power. Also required are regular trading in gas futures, as also a comprehensive natural gas Act.


-- The Economic Times Editorial

More power to short selling

The government’s decision to explore ways to curb market volatility, including permitting institutional short sales, is welcome. But these measures would have only a limited impact as long as derivatives remain a predominantly retail phenomenon, and long-term sources of savings such as pension monies are prevented reasonable access to equities. The recent market volatility has yet again exposed the systemic shortcomings of the market. For one, it continues to swing to the flow of FII money, more so on the downside. This is largely because of the skewed make-up of the local investment community. LIC is perhaps the only large institution in the market with a long-term orientation. The rest, including mutual funds, which are quasi retail and high net worth (HNI) categories, are largely sentiment driven. The problem is even more acute in the derivatives segment, which now dominates price discovery. Nearly two-thirds of trading in derivatives is non-institutional (mostly HNI). Such investors had taken to derivatives because of the unidirectional market, which yielded good speculative gains. There was very little institutional check on this runaway speculation as FIIs and MFs are subject to position limits that caps their exposure to the various exchangetraded derivatives products. The resultant huge build-up of uninformed exposure in the derivatives is to an extent responsible for the increased volatility.
The proposed measures such as institutional short sales, delivery-based settlement of options and higher margins in futures are fixes that would work only when the market has more depth. Short sellers are needed to curb irrational exuberance. But we need investors with long-term orientation — who would step in if stock prices are hammered below their fair value — to prevent these short sellers from destabilising the market. Permitting a greater flow of retirement savings to equities through pension reforms is certainly a lasting solution. And the imbalance in the derivatives market needs to be corrected by giving greater play to institutional players.


-- The Economic Times Editorial

The door to labour reform

The government has, at last, woken up to the need to initiate labour reforms. A high-level central panel will look into an offer, made by the domestic textile industry, guaranteeing a minimum of 150 days of work a year to contract employees. This is welcome. In the era of globalisation and intense competition, labour reforms are crucial for generating productive employment opportunities and ensuring sustainable growth. Currently, the textile industry is smarting under regressive labour laws. The garment manufacturing industry is facing a critical shortage of temporary contract labourers and, therefore, is unable to execute the high-volume foreign seasonal orders. To that extent, the industry’s proposal to omit Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970, which provides for the abolition of contract labour, is legitimate. Making the hiring of contract labour simpler will create a more cost-effective and flexible atmosphere for the industry. Concurrently, the payment of minimum wages and proper social security cover for the workers must also be ensured.
Certain provisions of the Industrial Disputes Act (IDA), 1947, make it virtually impossible for owners of textile firms to retrench surplus labour and close down loss-making units. This needs to change as it pushes the industry into a self-propagating trap of lower investment and even fewer jobs. In keeping with the industry’s proposal, Chapter VB, which restricts the removal of surplus workers even in financially unviable firms, leading to accumulation of losses, must be deleted from the IDA. Sections 25M and 25N of the IDA, which disallows employers to lay off or retrench workers without prior permission of the government needs to be modified. Employers must be able to retrench workers without any strings attached along with adequate compensation to those retrenched. Additionally, Section 25O prohibiting closure of a firm without prior permission, resulting in illegal lockouts, must be amended.


-- The Economic Times Editorial

Markets and macro diverge

The stronger than expected industrial growth in April predictably failed to impress the markets, which again tanked on Monday. IIP data released on Monday showed overall industrial growth of 9.5% while manufacturing output rose an impressive 10.4%. These figures gel with the robust sales numbers for cellular phones, automobiles, two-wheelers and cement in April and May. They also come on top of 9% plus GDP growth in the March quarter. But all this is unlikely to have an immediate impact on the markets, which have been spooked by the worldwide flight of money from asset classes perceived to be riskier — such as emerging markets and commodities — to safer ones such as bonds. Also, in India markets are far more focused on quarterly results than on industrial production data.
Two sectors, mining and electricity, continue to slow down industrial growth. The government should denationalise coal mining, and liberalise licensing procedures for mining other minerals. This must be accompanied by a generous rehabilitation policy for those displaced by mining projects, as well as training to ensure that local people can be employed in the new mines and factories. It’s clear that in the face of local opposition India’s mineral resources will remain unused. Populism has ensured that electricity continues to be an even more intractable problem. State governments must compensate SEBs for subsidies, to make investments viable. Going ahead, future macro performance will largely be determined by the impact of rising interest rates on both consumption and investment. India’s 8% plus GDP growth has been, to a surprising extent, driven by consumption, which in turn has been spurred by interest rates kept low by a flood of liquidity. Spending on infrastructure, as a percentage of GDP, was just 3.5% in 2003, a 33-year low according to Morgan Stanley, and has barely budged since. That must change. With FII flows in reverse, India must find more stable forms of foreign capital. It must immediately scrap restrictions on FDI. That apart, infrastructure spending needs to go up to maintain 8% growth.


-- The Economic Times Editorial

VAT breather for fertilisers

The Cabinet secretariat has proposed to categorise naphtha, fuel oil and LNG — key inputs for the fertiliser industry — as declared goods, and levy a flat 4% VAT on them. That is welcome as it will lead to a substantial reduction in the burgeoning fertiliser subsidy bill. Unproductive fertiliser subsidies — to the tune of a whopping Rs 17,253 crore in 2005-06 — have been a monumental drain on resources, and are unwarranted. The government currently pays the difference between the cost of production and retail prices of fertilisers as subsidies to manufacturers. Over the past few years, subsidies have risen alarmingly, no thanks to a surge in input costs abetted by high and multiple state taxes. Implementation of a uniform 4% VAT on inputs across states will lower the cost of production appreciably, thus reducing subsidies. Successive governments have refrained from hiking fertiliser retail prices in the face of intense and persistent opposition from political parties and farm lobbies. This needs to change. Since fertilisers are used mostly by affluent farmers with sizeable landholdings, there is no reason why retail prices should remain suppressed. To that extent, the supplementary proposal to allow state governments, who are unwilling to implement the 4% VAT, to add the quantum of state tax over 4% to the minimum retail price, is also welcome. Increasing fertiliser prices will, inter alia, help in reducing the subsidy bill.
Fertiliser subsidy reform is also crucially dependent on the rationalisation of urea pricing. Currently, it is the only fertiliser under the Group Retention Pricing (GRP) system, a cost-plus approach accounting for an increase in input prices among other things. This essentially means that plants using high cost naphtha and fuel oil as feedstocks get a higher subsidy package than plants using low-cost LNG. Phasing out GRP would incentivise switching over to cheaper LNG. This would, in turn, promote cost-efficient methods of production, encourage a more appropriately diverse fertiliser basket, improve productivity considerably and reduce the subsidy burden. Moreover, decontrolled urea imports and increased competition would promote efficiency in the production and use of fertilisers.


-- The Economic Times Editorial

Mid-cap crisis

The sharp decline in the prices of various mid- and small-cap stocks in the recent sell-off shows how susceptible they remain to market sentiments. It is true that even blue chips have been slaughtered in the selloff, however, the mid- and small-caps have always been more volatile. They tend to outrun the index — both on the upside and the downside. Another characteristic feature of mid-cap stocks has been the huge swings in liquidity. These stocks tend to attract a lot of interest when the going is good, but liquidity dries up quickly and substantially in the event of a decline. This not only prevents investors from exiting their positions but also contributes significantly to price volatility.
In recent times, however, there have been signs that this could change. Last year, one report pointed out that FIIs were moving beyond the top 100 companies and that the FII ownership of BSE 200 companies had gone up significantly. It also mentioned that the huge breadth and range of companies in India was one of the attractions of the Indian market. Investors, according to the report, had gone down to companies with a market cap as low as $1 million. The increasing number of mid-cap mutual funds and funds focused on emerging companies also promised to create adequate liquidity as well as reduce volatility in these stocks. The steep and quick decline has belied those hopes to some extent. Continuously improving disclosure and listing norms have weeded out errant companies considerably. However, investors are yet to be adequately educated about the intrinsic riskiness of placing bets on mid- and small-caps in the hope of catching a multi-bagger. Serious efforts need to be put in to establish a functional SME exchange. A special exchange or platform for smaller companies will make risks more apparent to the investor.


-- The Economic Times Editorial

Opportunity amid gloom

The sharp fall in stock prices is an opportunity both for investors and companies alike. While investors can look to pick up bargains in the market mayhem, listed companies have a chance to restructure their capital through share buybacks. Although the net profit growth for India Inc has, as a whole, slowed down in the last quarter, many companies continue to cruise along at well over 25%. Most such companies have rewarded their shareholders with handsome dividends. With the sensex coming down sharply from the near 13,000 levels, cash-rich companies can now think of share buybacks instead of dividends, to return cash to shareholders. Besides sending a strong message about valuation, this way of returning cash to shareholders is more democratic. Share buybacks, as opposed to dividends, have an element of choice. While dividends accrue to all shareholders alike, in buybacks only those shareholders who need cash would surrender a part of their holdings. To such investors, it would make no difference whether they get the cash through dividends or buybacks, assuming that there is parity in tax treatment. Investors who would rather see their earnings reinvested in the company than receive dividends would not participate in the share buyback. These investors would also benefit, albeit indirectly, from the buyback in that their future earnings per share would increase because of the reduction in the number of shares.
For companies, share buybacks have an added use: capital restructuring. Through market purchase of shares with the cash that they would have otherwise returned through dividend, companies can change their capital structure. Under-leveraged ones can increase their leverage without taking on fresh debt. Yet others that have a high equity base can reduce their shareholder capital. This is particularly relevant for those companies that have seen substantial equity dilution though bonus issues. Lastly, in such choppy markets, buybacks would have a calming effect on share prices.


-- The Economic Times Editorial

RBI asserts autonomy

The near-simultaneous hike in interest rates by several central banks, seven at the last count, indicates inflation is now the top priority for banking regulators. Increased autonomy, which central banks have attained in most parts of the world, have given them leeway to resist political pressure to hold interest rates down. That is true for India as well. Governor Y V Reddy’s lasting legacy is likely to be a far higher level of institutional independence. The PM’s economic advisory council has welcomed the latest hike in the repo and reverse repo rates, but the finance ministry and the RBI have not always seemed to be reading from the same page in the past. The RBI has rightly not allowed itself to be influenced by the possible impact of its move on the stock markets. Mr Reddy had been widely expected to hike rates in April, but chose not to. The smart money is on another hike in July, though our view is that the RBI will make up its mind closer to the event.
Mint Street can be faulted, however, on its lack of communication. The trend is for central banks to explain in some detail the rationale of their action and to provide guidance for the future. Unlike other central banks, the RBI’s move was not anticipated. Its terse communication on Thursday night keeps markets in a state of suspense as to its future intention. That is undesirable. However, enough has been going on in the real economy to justify the RBI’s move. GDP for FY06 at 8.4% was higher than previous estimates, while growth in the last quarter crossed 9%. WPI inflation has risen to 4.7% at the end of May from 3.2% at the beginning of April, and will rise further once the latest fuel price hikes are factored in. The weakening rupee must have been another consideration. The ABN Amro India Purchase Managers Index, an indication of manufacturing activity, was at an all-time high in May. The rate hike, operating with a lag, is likely to slow down demand for housing and consumer durable loans. This coupled with the negative wealth effect caused by the market crash may help deflate the property price bubble, something which the RBI has been wanting to do for a while.


-- The Economic Times Editorial

SEZs on pause mode

The government’s reported decision to put a cap on the number of special economic zones (SEZs) is welcome, given that the recently notified rules for SEZs have met with opposition from within the government. The pause would allow the government to debate the contours of incentives for SEZs, and even the very need of such islands, to encourage exports-oriented investments. Ever since the new SEZ rules came into force early this year there has been a deluge of announcements. Many of these look suspiciously like land-grab attempts seeking to make the most of generous incentives and the ongoing real-estate boom. The various tax concession have only made the appeal irresistible. Economic theory, too, is dismissive of the relative merit of tax incentives in attracting investments. Indeed, our own experience — the 15 functioning SEZs have attracted private investments of only about Rs 2,200 crore and their share in exports is dismal — highlights the failure of SEZs to yield the desired results. Investments located in SEZs are distortionary or sub-optimal as they give undue weightage to fiscal incentives, to the exclusion of other relevant parameters such as location or the availability of labour. All this learning is lost on the latest policy, which showers numerous direct and indirect tax incentives on net forex earners in SEZs. The question is, with Indian exports finding their feet in global markets do they need such props. The justification of SEZs rests primarily on China’s outstanding success with such zones. What is overlooked is that tax benefits in China’s SEZs were available only to foreign investments, not exports.
With tariffs coming down fast, it’s not only the exporters, but even local industry that needs access to good infrastructure, cheap capital, deliverance from red-tape and more friendly labour laws. So, limited tax benefits could be made available, if at all, only to the SEZ developer. The units located therein should not get any tax incentives. For, if the SEZs come anywhere close to delivering what they promise the units located there would in any case get an enormous competitive edge.


-- The Economic Times Editorial

Populist not popular

Manmohan Singh may have asked petroleum minister Murli Deora to stand firm, but the possibility of a rollback in the prices of petrol and diesel still remains. The ill-considered, reactive response of the Left parties, some junior partners in the UPA, and the BJP led Opposition; which have been in the forefront of the rollback demand; is far from surprising. What is, however, unfortunate is that even the Congress Party has lent its voice to the rollback chorus. The reaction of the political class, driven by electoral populism and coalition management, is retrograde in content. Fast-clip growth, coupled with development and equity, cannot be determined purely by markets. Political intervention is imperative. Such intervention would be effective only when it manages to strike the right balance between the interests of consumers and the fiscal health of both public sector enterprises and the state. The under-recoveries of oil marketing companies (OMCs) had been pegged at Rs 73,500 crore, no thanks to the government’s decision not to raise product prices for so long despite soaring international crude prices. Such gargantuan under-recoveries could well wipe out the OMCs.
Both the state and the political class should impress upon people that finally the government would have to spend public resources to bail out the OMCs if the latter go into the red. It is doubtless a political party’s task to articulate the popular will. It’s equally its responsibility to mould that will in a progressive direction. Sadly, our political class has, for some time now, failed miserably on that score. The state, on the other hand, has also been unable to improve delivery. That has surely not helped enhance public trust. The degree of people’s regard for the public sector is always directly proportional to the stake they have in a nation’s political economy. A gross deficit of functional democracy plagues the Indian polity, and its public sector. A more holistic conception of popular politics will change that.


-- The Economic Times Editorial

A retrograde move

Marriages of convenience in Indian politics have often been misconceived experiments in bad blood and poor politics. That Jan Morcha, an umbrella organisation of one left and three ‘democratic’ parties formed at former PM V P Singh’s behest, has decided to ignore that is clear from its decision to align with the People’s Democratic Front (PDF) — a newly floated agglomeration of Muslim outfits, in Uttar Pradesh. We wonder how exactly would pandering to minority communalism help strengthen the cause of democracy and development in the state. The alignment is, indeed, disturbing. There needs to be a challenge to Mulayam Singh Yadav’s government from outfits other than the BSP. UP certainly deserves to be delivered from raging epidemics, periodic gang wars and continual communal conflicts. The current alignment can, however, hope to deliver none of that. The point is not merely to unravel Mulayam’s identity-based electoral arithmetic. The point is to offer the denizens of the state an alternative political agenda of development.
In UP, minority disaffection and marginalisation are certainly not imagined problems. The attempt to economically cleanse the weaker community during the communal riots in the state last year, has underscored the continued existence of vicious Hindu communalism. Moves to form minority parties, in such circumstances, would further legitimise the sangh parivar’s specious ‘action-reaction’ thesis, and strengthen fringe lumpen groups like the Hindu Yuva Vahini. A pan-Muslim party like the PDF would, in any case, not work in UP. The Muslims there are far more socio-economically differentiated than, say, in Assam. One of PDF’s key demands — job reservation for Muslims — is unlikely to find resonance among a significant section of Muslim OBCs. The PDF, clearly, manifests the elite Muslim’s anxiety in UP. The Muslims question in the state is really about making the mainstream less exclusionary, even as the community is internally reformed. The Jan Morcha must foreground this modern core of Muslim aspirations.

-- The Economic Times Editorial

Stand firm against populism

The Centre must stand firm and not give in to the gratuitous talk of rolling back the belated hike in petrol and diesel prices. Given the continuing rally in international crude oil prices, the call for cutbacks is disingenuous and politically irresponsible. Gross, open-ended subsidies on petro-products would wreak havoc on already strained budgetary resources, and ruin the finances of oil marketing companies. Unalloyed consumption subsidies make no sense. They simply distort relative prices and thoroughly misallocate scarce resources. Already, despite the price revision, the government would need to issue oil bonds of the order of Rs 28,300 crore just to make up for the accumulated under-recoveries of oilcos. The latest tranche would be over and above the Rs 11,500 crore issued only a few months ago. All such bonds would need to be redeemed (with interest) from the general budget and would inevitably be at the cost of far worthier, more pressing governmental expenditure.
Note that planned expenditure on the capital account is budgeted at under Rs 29,000 crore for this fiscal as a whole. Yet, questionable consumption subsidies on oil products is almost the same! The cost of subsidy needs to be met through current provisioning without the frequent recourse to oil bonds. It merely compounds the economic and financial costs of run-away populism, and right across the board too. There remains an entirely valid case for moderate, specific levies on oil products. The current practice of ad valorem duties are clearly distorting given the sustained rally in imported prices. That said, the decision not to revise prices of cooking gas and kerosene is both fiscally imprudent and politically retrograde. The subsidies on LPG and SKO would add up to Rs 25,000 crore and more, per annum. In effect, the government wants to drive home the message that it is quite alright, for instance, for LPG consumers to wallow in unrevised prices today so that the entire populace pays for the higher prices tomorrow (or whenever the oil bonds are redeemed) with interest and all!

-- The Economic Times Editorial

Belated and incomplete

The Centre’s move to belatedly revise the retail prices of petrol and diesel comes not a day too soon, given the spiralling international prices of crude oil. The reduction in custom duties makes perfect sense as well. It would slash the high effective tariffs on auto fuel and reduce retail prices in tandem. Also welcome is the decision to change the pricing methodology for petro-products, and dump import-parity prices. The fact is that when domestic refiners are assured import-parity prices, they enjoy unwarranted rents. After all, the differential in ocean freight and other associated costs between products and crude can be substantial. And since refiners basically import crude, import-parity prices on products actually have built-in provision for routine unearned rents. They need to be shelved. But the stubbornness in keeping cooking gas (LPG) and kerosene (SKO) prices unchanged is wholly retrograde. It means huge, open-ended subsidies which are totally unjustified.
The fact remains that the non-poor who use LPG certainly do not need give-aways and everyday handouts. And unrevised prices of SKO simply ups the incentive to adulterate auto fuel and go for untoward usage. Clearly, the move to keep LPG and SKO prices unchanged is reckless populism. The fiscal costs would be massive. It would imply high costs right across the board. Also questionable is the far greater hike in petrol prices. The notion that petrol is used by the car-owning elite and diesel is mostly used for public transport is not particularly valid any longer. As it is, petrol consumption in twowheelers has greatly increased; some of the biggest cars on Indian roads now run on diesel. The continuation of ad valorem levies on oil products is also extremely distorting, given the rally in imported prices. What we need are specific moderate duties on products, to avoid needless buoyancy in end-prices. The bottom line is that efficiency, improvement and competitive pricing should replace administered pricing and much opacity. It’s time to refine politics out of oil pricing.

-- The Economic Times Editorial

Tribal stake in plantations

The move to allow the private sector to invest in plantations to help restore degraded forest area is a pragmatic acceptance of the fact that public land like public money is often seen as not belonging to anyone and blatantly exploited by a nexus of corrupt politicians, pliable bureaucrats and crooked contractors. Which has resulted in a situation where forest produce like bamboo can be accessed by the haves for a fraction of the price a selfemployed basket-weaver has to pay! It is an iniquitous system, which sometimes throws up brigands like Veerappan, who, even while meeting the demands of this corrupt nexus, claim to be acting in the tribals’ interests by providing them alternate employment where they live! That Veerappan thrived for so long speaks volumes of the tribals’ faith in a callous state.
The move to invite the private sector to help restore degraded forest area should be seen in the context of the failure of the existing system and the rapid depletion of India’s forest wealth. The rationale is that the private sector, unlike the cash-strapped state, has the resources and the organisational skills to regenerate degraded forest land. However, adequate safeguards have to be built into the policy framework to ensure that the benefits accrue to all stakeholders. One way of doing this is to speedily introduce the Scheduled Tribes (Recognition of Forest Rights) Bill and implement the Provision of Panchayat (Extension to Scheduled Areas) Act 1996. Flyby-night operators of the kind who floated dubious money-grows-on-trees schemes should be kept out. Above all, there has to be a structured approach which not just identifies land for private participation but also the appropriate usage. For instance, degraded land abutting sanctuaries could be used to promote sustainable eco-tourism. If Bilt can acquire Malaysia’s SFI and access forest land in Sabah, a policy of encouraging corporate India to work with empowered tribals to regenerate India’s forest wealth should be welcomed!

-- The Economic Times Editorial