Thursday, December 28, 2006

Sasol and the Liquid Coal Revolution

some companies are the children of closed markets and now are doing great in a free world - they began their existence and innovation for a reason - free markets were not allowed to operate. India's Wipro is often cited example. with the forced exit of IBM and other companies in the socialist revolution of the late 70s, firms like Wipro had a new market and were forced to innovate in the IT area. There are companies world over like this.

Sasol is terrific example. Due to the apartheid regime in south africa , oil was very difficult to get. so, they had to find a way out and focussed on improving the technology to get oil from coal. today, Sasol is worth $22 billion according to the stock market valuations!

"Liquid Coal: Then and Now

Enter an old technology that has been gaining plenty of new steam lately: Coal Liquefaction. The technology of producing a liquid fuel from coal or natural gas is hardly new. The Fischer-Tropsch process was developed by German researchers Franz Fischer and Hans Tropsch in 1923 and used by Germany and Japan during World War II to produce alternative fuels and overcome their limited access to oil. Germany utilized the technology to produce 6.5 million tons, or 124,000 barrels a day.

South Africa has also been producing liquid coal for a number of years, developing the technology to tap its large coal reserves and seeking ways around apartheid sanctions. In fact, liquid coal meets 30 percent of the transportation fuel needs in South Africa."

here

if u find more examples like these please do mail us, and we shall try to dig out more.



Tuesday, December 26, 2006

Imported coal

BL reports
In a bid to meet the increasing demand for coal, Government is examining whether the public sector behemoth Coal India Ltd (CIL) could be allowed to import coal and sell it to the domestic customers.

However, following the recent Supreme Court order stating that price discrimination through e-auctioning method violates the Constitution, the modalities of selling the imported coal is to be determined suitably, sources said.

"The question is whether CIL will have to sell the imported coal at market determined prices through e-auctions or the company has to stick to notified prices as in the case of domestically produced coal. This has to be a policy decision by the Government," sources said.
You would have thought, in a commodity like coal, price would depend on its quality and not on whether its imported.

Monday, December 25, 2006

TN farmers want govt to raise milk procurement rate

BL reports
The Salem-based United Farmers Association has asked the State Government to increase the milk procurement rate which will encourage producers to increase output and at the same time, buttress the farmers' income.

There is a need to supplement the income levels of the farmers in rural areas affected by high inflation and raising the procurement rate will directly benefit the rural folk largely involved in rearing milch animals, according to Mr P. Vyapuri, President of the association.

Sunday, December 24, 2006

Real estate agents

With the power that real estate agents can only dream of. BS reports
Over 1,00,000 acres will be taken over by the Chhattisgarh, Jharkhand, Orissa and West Bengal governments or government agencies, as state administrations attempt to kick-start development by getting investors to put up smokestack industries.

The West Bengal government faces the unenviable task of acquiring more than 35,000 acres using the state land acquisition machinery for special economic zones (SEZs) in the state, besides 1,600 acres for the Tata projects, 6,500 acres for the Jindal Steel project and 1,000 acres for the Reliance Retail initiative.
More

Thursday, December 21, 2006

K'tka govt reimposes ban on cola in schools

BS reports
The Karnataka government on Wednesday re-imposed a ban on the sale and distribution of soft drinks within the premises of schools, colleges and hostels with immediate effect. A notification to this effect was issued by the state government on December 18.

The decision evoked a strong response from industry body, Indian Soft Drink Manufacturers Association (ISDMA). “The Indian soft drink industry is shocked at today’s development in Karnataka,” said a statement issued by the association.

Only two days before the current notification, the Karnataka government had withdrawn the previous ban imposed on soft drinks in August 2006.

Justifying the current ban, R Ashok, Karnataka’s health minister, said, “We have consulted the legal cell of the state government and decided to reimpose the ban as per the provisions under Article 162 of the Constitution. However, we cannot ban sale of soft drinks in hospitals and government offices under this Article.”


Now look at this by Tim Harford in Slate: My school used to offer two varieties of food. There was cafeteria food, which was inedible, and there were chocolate bars from the snack shop. For two years, I had four chocolate bars for lunch every day.

These days schools are trying to outlaw the unhealthy options, but some markets are irrepressible. William Guntrip is a 13-year-old boy whose central England school banished vending machines and snack-shop food in favor of nutritious offerings at the cafeteria. Guntrip spotted a market opportunity and has been buying soft drinks and candy and reselling them in his school playground. The school is trying to stop him and claims that most students are happy with the new regime, although if that was true then Guntrip wouldn't be making nearly $100 a day.

Suppressing a market is a bit like squeezing a balloon—the trade will usually pop up somewhere else.
Let's remember, here it's the government which is imposing the ban.

Cinema tickets in TN level-pegged

ET reports
RESPONDING to the demands from various segments of the Tamil film industry, the Tamil Nadu government on Wednesday announced rationalisation of cinema entry tickets across the state. It has also agreed to quash an earlier government order permitting theatres to increase entry tickets during the first fortnight of a new movie release.

The government has fixed a maximum ceiling of Rs 50 for AC theatres in corporation limits like Chennai, and a Rs 10 minimum rate. In the case of non-AC theatres, it will be Rs 7 at the lower end and Rs 30 at the higher side.

The move is likely to hit hard a number of multiplexes (which normally charge Rs 100 to Rs 150) being planned by PVR, Inox, Shringar, Adlabs and Cinemax in the state.

Wednesday, December 20, 2006

Veg oil industry against cuts in import duty

FE reports
The vegetable oil industry has demanded the restoration of earlier duty structure for imports of palm oil. They have cautioned that any move for further cut in import duty for vegetable oils would spell a doom for growers as prices of oilseeds have started declining. The industry has demanded that the import duty on refined palm oil be restored back to 90% and that on crude palm oil to 80%.
More

Indian justice - delayed, but not denied, atleast to a few

Nothing new. Economist writes
Proceeding carefully is no doubt a virtue in justice, particularly in complicated terrorist trials. But the time taken for the final blow to fall from the gavel reflects blockages in the system. There are currently more than 30m civil and criminal cases pending. India has 11 judges for every 1m people, compared with 107 in America, so the backlog will not be cleared soon. Whether a case is seen through or neglected can seem rather arbitrary. Those who demanded justice for Miss Lal and Miss Mattoo proved more fortunate than many.
The government is so underactive here, because it's so overactive here

Monday, December 18, 2006

Minimum wages

FE reports
Around 160 colleges under Calcutta University employ part-time teachers to fill the gap in permanent teachers. The part-timers get either Rs 2,000 for six classes a week or Rs 75 each class. They do not get any other benefits. Months ago, state finance minister Asim Dasgupta promised to address the gross injustice against part-timers who are post-graduates. He told the part-timers that they would get Rs 4,000 a month and the state would take on the additional financial burden. The only condition is that the colleges have to justify the engagement of part-time teachers. Today, the part-time teachers are jobless.

Export bias

Assocham secretary general DS Rawat writes in Financial Express
Indian exporters, especially small-scale exporters, cannot do without the fiscal incentives provided to them by the government. The small-scale sector we know is a principal contributor to the country’s exports; specifically they still constitute around 40% of India’s total exports. For the continued contribution of these units to exports, they must be provided with production and export incentives, support for adoption of latest technology, advisory services, and market support to sustain their competitiveness in the international market.

One of the most important arguments for not scrapping the corporate tax and excise duty exemptions is that the general exporter is extremely dependent on them. Our internal survey of ten major sectors in September 2006 shows that exporters were highly dependent on promotional schemes and incentives. They still look to the government to provide them support in their export endeavours.

Moreover, compared to other countries, both developing and developed, it has been felt that India offered its exporters relatively less incentives, and if the present exemptions were to be scrapped, it would seriously affect our future trade potential. Assocham is a firm believer in providing such institutional/financial/promotional incentives to boost production and exports and accelerate growth, so that India raises it share in global markets.
A couple of questions. These arguments - why don't they apply to those who supply to domestic market? What about importers?

Sunday, December 17, 2006

Banks` exposure norms eased

Final guidelines remove Rs 10 lakh cap on loans for broking firms, corporates.
In a major relief for broking firms and corporates, the Reserve Bank of India has said that the ceiling on bank loans and advances against shares and debentures will apply to only “individuals” and not “single borrowers.” This means that there will not be any squeeze on bank advances to broking firms and corporates.
Any individual can now borrow from the banking system against security of such investments of up to Rs 10 lakh if the security is held in physical form and of up to Rs 20 lakh if it is in the demat form.
The central bank has kept the overall ceiling on a bank’s aggregate capital market exposure to 40 per cent of its networth.
here. (may require subscription )

it is interesting how the Central aims to influence the stock market.
particularly the clause - "Any individual can now borrow from the banking system against security of such investments of up to Rs 10 lakh if the security is held in physical form and of up to Rs 20 lakh if it is in the demat form."

maybe knowledge bankets and stock market participants should be a wee be exposed to market forces!

Continue textile tech fund till end of 11th Plan: Industry body

More lobbying from textile makers. BL reports
The Confederation of Indian Textile Industry (CITI) has asked the Centre to continue with the technology upgradation fund scheme (TUFS) for textile sector in its present form till the end of the 11th Plan period

Another argument here
One of the arguments forwarded in support of this approach, according to Mr Agarwal, is that support to individual companies under the TUFS would be inconsistent with the WTO norms.

If so, some of the largest trading countries in the world such as the US and China were too operating support schemes which are inconsistent with the WTO norms.

In many cases, these schemes were being continued despite specific objections from the WTO, he noted.
Who pays?

Wednesday, December 13, 2006

Should the state buy land for the private sector?

BJP leader M Venkaiah Naidu makes some good points in a debate in BS:
Land acquisition through the state is inherently unfair to the land owner since it is done through the Land Acquisition Act, which is a unilateral piece of legislation, heavily favouring the state in its power to acquire land. The Land Acquisition Act had been brought in primarily to acquire land for developmental purposes, for purposes serving the greater common good, like roads, bridges and other such projects. In such cases, the state is free to determine the amount of compensation that land owners get.

The SEZ or industrial unit that is being set up is in that sense not a “governmental” project, but a commercial one. Our examination of SEZs/industrial units has shown that promoters prefer that land be acquired by the states in question and then resold to promoters as a chunk. They prefer this to negotiating with each farmer on market prices. The Land Acquisition Act is so skewed in favour of the state government, that many times, there is a huge difference in the price paid by the government to the land owner and the rate at which the land is resold to the SEZ promoters/industrial units. The promoters who gain a lot from the project, don’t mind paying a bit more for the land. Would it not be better if this premium on the land could be encashed by the land owner rather than the government?

This puts the government in the role of a land shark or even a real estate agent, which is not its job. We want that SEZ promoters/industrial units negotiate with the land owner and determine a fair price through the mechanism of the market.
More here

Monday, December 11, 2006

Anti-dumping duty on non-radial tyres from China and Thailand

ET reports
The department of revenue has imposed provisional anti-dumping duties on imports of non-radial tyres, tubes and flaps imported from China and Thailand. The department has fixed the benchmark price for tyres originating from China at $88.82 per piece. Any import below this price would attract anti-dumping duty.
.
.
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While this may come as good news for tyre manufacturers like Ceat, Apollo, JK and Birla Tyres who had asked for an investigation into the entire pricing structure, the duty has ruffled the feathers of tyre importers and dealers. Truck and bus operators who had opposed the move would be affected due to higher prices, industry sources said.

Sunday, December 10, 2006

India’s Absurdities

Omkar Goswami writes in BusinessWorld:
A friend of mine who has recently taken up a career as an independent consultant was given a serious run-around in getting a service tax registration. The authorities wanted proof of residence. He submitted the most recent bank statements as well as copies of his telephone bills — both of which carried his address. These were summarily rejected. Guess why? Because the bank statements were from a private, non-nationalised bank, and because his was an Airtel phone connection. According to the service tax babu, statements from private sector banks and telecom providers do not constitute valid proof of address. Those from state-owned banks and MTNL and BSNL do.

Eventually, my friend had to get a certified copy of his home rental agreement on stamped paper before the service tax office accepted it as a proof of residence. Had he been living in his father’s house, he would have been in serious trouble, for he would not have been able to give a rental agreement.

And concludes
The older I get, the more I focus on the micro: laws, rules, regulations, approval processes, and the nitty-gritty of doing business.

India’s macroeconomics is par for the course. It’s the myriad dysfunctional micros that drag us back. Like the absurdities that you have just read. And the many others that you, dear reader, could offer as examples. We are like that only.
I guess, this is yet another example of what we saw a few posts back. Rules are tilted in favour of businesses run by government - in many small ways.

Textile makers want interest rate subsidy to continue

BL reports
Any move to discontinue the technology upgradation fund scheme (TUFS) for the textile sector beyond March 2007 would lead to the collapse of investment plans drawn by the textile industry for the 11th Plan period.

Such a move may also erode the competitive edge wielded by the Indian textile sector in the global market because different free trade agreements signed by the country are expected to come into force only during the period, according to Southern India Mills Association (SIMA), the apex textile trade body.

Expressing apprehension over recent media reports suggesting that the Union Government is not keen on giving an extension to the operation of TUFS beyond March 2007, when the tenure of the scheme would expire, the SIMA Chairman, Mr S.V. Arumugam, noted in a communication that revival of the domestic textile industry took shape since 2003 due to Government's proactive measures such as fiscal policy changes, low interest regime and thrust for modernisation under TUFS.

Consider the reference to FTA. This in effect means, let Indian tax payers subsidize what foriegners buy, is it not?

Saturday, December 9, 2006

How Much Does Violence Tax Trade?

Economists S. Brock Blomberg and Gregory D. Hess write (pdf)
for a given country year, the presence of terrorism, as well as internal and external conflict is equivalent to as much as a 30 percent tariff on trade. This is larger than estimated tariff-equivalent costs of border and language barriers and tariff-equivalent reduction through GSPs and WTO participation.


Amartya Sen says 'Indian government has been overactive, where it should have been underactive, and underactive where it should have been active.' So true. I guess we can add that a government is underactive in areas where it should be active because it has been overactive in areas where it shouldnt be active. Leaving running businesses to businessmen, and focussing on external security and law and order within, it appears, would be a double blessing for an economy.

Subsidy for rural mobiles: Bill passed

BL reports
The Lok Sabha today passed a Bill enabling cellular mobile service providers to get financial support from the Universal Services Obligation Fund for offering mobile services in rural and remote areas. At present, the USO fund is mandated to support only fixed line telephone in rural areas. However, with wireless technologies offering cheaper and more affective means of communications, the Government had introduced an amendment to the Indian Telegraph Act in Parliament to enable the fund to be used for supporting cellular services.

Replying to a debate on the Indian Telegraph (Amendment) Bill, the Communications and IT Minister, Mr Dayanidhi Maran, said that it was necessary to provide support to the mobile operators in order to replicate the urban success of telecom services in rural areas.

The subsidy would be given for a period of five years to cover nearly 2.5 lakh villages in remote areas. Some members expressed concern that the support to cellular operators may divert money from the USO fund, primarily created to finance fixed line projects by BSNL and MTNL.
Supporters of economic reforms have long cited the success of (private and relatively free) telecom sector in providing access even to poor. I dont know the details of this scheme, but i am not sure if subsidies are the best way to replicate urban success in rural areas.

When government runs a business

FE reports
Amidst the debate on creating another state-owned power equipment manufacturing company,Bharat Heavy Electricals Ltd on Friday dubbed the idea as "ironic" and said a company of its size would require an investment of at least Rs 20,000 crore.

"Do we need another such company when BHEL has operated below its capacity all through the 40 years of its existence due to the lack of demand in the country," BHEL chairman and managing director AK Puri said when asked about power ministry's indication to set up a BHEL clone for adding massive generation capacity.

Both power minister Sushilkumar Shinde and Secretary RV Shahi have said in the past that BHEL, the country's largest power equipment manufacturer with more than Rs 40,000 crore of orders in hand at present, was "overburdened" and there was a need to establish another state-owned supplier.

Why state-owned supplier?

Draft policy that seeks to control drug prices by Dec end

FE reports

The draft of the much-awaited new pharmaceutical policy that focuses on controlling prices of essential drugs has been finalised and would be sent to the Cabinet by this month-end, chemicals and fertiliser Minister Ram Vilas Paswan said on Friday.

“The Satwant Reddy Committee has submitted its report and we will be sending it to the Cabinet for approval by the end of this month,” he said on the sidelines of GlassTech International expo.

Asked about the differences with the industry on the mechanism of bringing down prices of 354 drugs under the National List of Essential Medicines, Paswan said the ministry has favoured the price control route. “We have proposed the price control model in the draft, but ultimately the Cabinet will decide,” he said.

The ministry and the pharma industry have been at loggerheads over ways to make medicines affordable to the common man as per a Supreme Court order.

Friday, December 8, 2006

Privatize, privatize, privatize?

BS reports
The urban development ministry has opposed the bid of Hotel Excelsior Private Ltd, which runs the five-star Shangri La Hotel in the Capital, to get its property converted from leasehold to freehold.

The company took over Kanishka Hotel during the disinvestment scheme under the NDA regime.

According to government policy, the hotel was given to the company on a 99-year lease. However, the company had approached the Delhi High Court two years ago, seeking conversion of the property from leasehold to freehold, thereby confirming its ownership rights of the land as well.

This permission was granted by a single-judge Bench. The ministry has now challenged the singe judge’s order and filed an appeal before the Division Bench of the high court.

With crores of rupees at stake, this will be a heavily contested litigation for the government because at the time of disinvestment, the government had not taken into account the market value of the hotel land while fixing the reserve price.

Only the business was sold and not the land. The land value assessed at that time was also much lower than the pre-determined commercial rate.


This vaguely reminds me of the privatisation in Russia, when state owned assets were sold to businessmen at throwaway price. Conversion of the property from leasehold to freehold - without compensating the government - would amount to just that, it seems to me.

At the sametime, i wonder what's the point in these kind of limited privatisations. May be it's a step forward - or is it half a step?

Allow broadband on DTH, VSAT: govt panel

"NEW DELHI, DEC 6: A high-powered inter-ministerial committee has recommended that DTH and VSAT operators be allowed to offer wireless broadband for a much faster, especially in rural areas, using satellites. The committee has said that suitable regulatory and policy initiatives be devised for permitting VSATs and DTH operators to provide broadband connections.

The move will benefit DTH service providers Tata Sky and Zee group’s Dish TV. Anil Ambani-controlled Reliance Dhirubhai Ambani has also announced a DTH venture while communications and IT minister Dayanidhi Maran’s brother Kalanithi Maran has plans to launch a DTH service under the Sun TV network. " here

we think the move to allow net access through DTH could do more for rural connectivity than all previous and future govt. efforts put together. imagine getting connected to the net anywhere and having access to net based telephone service like vonage or free ones like skype.

freemarkets are not just about free movement of good and services but govt. remaining technologically neutral to allow unhindered flow of technology for the benefit of humanity.

ps: a friend of ours says SKY TV in UK offers unlimited broadband for ten pounds a month (about rs 850) at speeds of 2 mbps! cheaper than airtel and bsnl 256 kbps connection here in india.



Rein in maize prices: Poultry firms urge

BS/PTI reports
The poultry industry is currently facing a severe crisis due to unprecedented increase in the price of maize, the most crucial ingredient of poultry feed accounting for more than 80 per cent of the cost of production of eggs and broilers, the committee said in a release here today.

At the present level of production, poultry sector contributes approximately Rs 35,000 crore to the economy and provides direct and indirect employment to more than 3.2 million persons, it said.

Normally at this time of the year, maize prices range between Rs 500 to Rs 550 per quintal.

However, this year, the price has gone up to Rs 900 per quintal and in some parts of North India, it is as high as Rs 1,000 per quintal, it said.

The government is apparently following the example of developed countries, where forward trading is a norm. However, there is a vast difference between agricultural farming of the developed countries and that of India, the NECC said.

“We are afraid the prices of eggs and chicken will further rise,” it said and asked the government to take steps to ensure that maize is available in adequate quantity and at affordable price to the poultry farmers.

Thursday, December 7, 2006

Schools can’t levy fees at will: Court

TOI reports:
A consumer court has directed the Delhi government to set up a committee for fixing a ceiling for the maximum admission and tuition fees that private schools can charge at the time of a student’s admission.

Expressing anguish over the practice of airconditioned schools fixing very high admission fees, the president of the city’s apex consumer court—state consumer commission—Justice J D Kapoor, gave a month to the director of education to constitute the committee.

The panel will comprise representatives of private schools and societies which run schools, and fix the maximum limit of admission fees as well as tuition fees by taking into consideration the quality of education being provided by them, he said. ‘‘Education should be treated as a pious and noble cause and not a trade or commerce,’’ Justice Kapoor said, adding that quality of education in a school should be the only benchmark for fixing admission fee and other charges.


The commission said schools claiming to offer central ACs in their classrooms and providing airconditioned school buses should not be allowed to fix an astronomically high amount as admission fee.


Superb suggestion! In fact every school should have its own panel, comprising of parents of all the students (surely the parents have more concern about the quality of education their children get, and in a better position to know what fees they can afford). And those panel members who think the school is charging too much should enrol their children in some other school.

That will be a good lesson for the schools that charge too much!

[[[Update: I realised my comment needs some explanation.
There's no doubt that the quality and cost of education should be monitored. But by whom? A committee, says the consumer court.

But a committee is not the best solution - because its memebers can't be as diverse, as concerned about the quality, as knoweldgeable about the paying capacity of parents as the parents themselves. So, an ideal committee should include all the parents.

Let's suppose this committee tries to arrive at a maximum limit by asking each member to give the number they think is the ideal.

Now, if you set the lowest amount as max limit, that should satisfy everyone - but the school might have to close down. The average might be right for some, too low for some others, and too high for the rest. And the highest amount wouldn't make sense for anyone except for the highest bidder. A single number can't be fair to all. It's not right to impose a 'solution' on people who think it's not a solution. It's probably far better to let the people decide and take action for themselves.

So, how will they do that? Let's say, the fee is too high for 90% of parents, it's better for them to vote by feet, and look for another school. They can send a stronger message to school by doing this, than by spending hours to persuade them to reduce the fee. (Using government to reduce the fee is not fair, because it is just another way of saying using force, for the government essentially says 'do this or else you will be punished'. As long as the transaction is voluntary, there is no role for government. It's a different case if the school cheats or goes back on its promise.)

So if the 90% decide not to join, the school might decide to run with 10% of the students; or if it can afford, bring down the fees to retain some more; or close down. In short, letting the customers decide and take action is far better than let a committee do that. In other words, market is better than a committee.]]]]

Fuel price cut

BL reports

State-owned oil marketing company Indian Oil Corporation Ltd (IndianOil) said on Wednesday that it was facing an extra burden of Rs 8 crore per day due to recent fuel price cut. "We are losing an additional Rs 8 crore a day on sale of petroleum products after the recent price cut. Our total revenue loss per day is now close to Rs 53-54 crore," Mr Sarthak Behuria, Chairman and Managing Director, IndianOil, said.

The Government reduced prices of two petroleum products - petrol and diesel - by Rs 2 per litre and Re 1 a litre on November 29. The company is losing Rs 2.1 per litre on sale of diesel, Rs 132 per cylinder on cooking gas, and Rs 13.81 per litre on sale of kerosene. However, the company is making a profit of Rs 1.67 a litre on sale of petrol while it was about Rs 4 per litre prior to the price cut.

What happened to Rangarajan Committee report (pdf)?

Builders want more regulation in steel and cement

BL reports
The 22nd All India Builders Convention, which concluded here recently, called for establishment of an independent Ministry of Construction as the construction activity, with major thrust on infrastructure, being the key to achieve double-digit economic growth.....

Under free economy, consolidation in cement and steel industry has gathered momentum, resulting in "unfair, monopolistic trade practices detrimental to the construction industry," a press release said. A resolution called for establishment of a Steel Regulatory Authority and a Cement Regulatory Authority on the lines of SEBI, IRDA and TRAI.

Wednesday, December 6, 2006

How lobbying starts

BS reports
Even as the government is mulling an umbrella legislation to block investments on security grounds from other countries, 32 Chinese firms in India have come together to form the Chamber of Chinese Enterprises in India (CCEI), which will lobby for Chinese commercial interests here.

The chamber, set up recently in the capital, is the initiative of the Embassy of the People's Republic of China and headed by Hongsen Wang, managing director, Sino Steel India Pvt Ltd.

The formation of this chamber is also relevant in the context of complaints from China on discrimination against Chinese companies by the Indian government.

Sources in Sino Steel India said the chamber would work for the interests of Chinese enterprises and promote high-level business and political talks between the two sides. Currently, there are around 50 Chinese companies in India.


The CCEI will help Chinese companies resolve trade problems with the Indian government.

"It will help Chinese enterprises in appearing as a collective entity and the chamber will represent the companies’ interests to the Indian government," sources said.

According to Ficci Secretary General Amit Mitra, the formation of the Chinese chamber indicated the increasing presence of Chinese companies in India.

An interesting space to watch. (Remember Adam Smith quote here)

Doing business with India

BL reports
The Supreme Court has ordered the Union Government to allow export of pulses by two firms, which were refused permission to send their consignments on the grounds that a ban had been imposed on such shipments from July 22.

Dismissing an appeal by the Centre against rulings of the Gujarat and Delhi High Courts, a bench comprising Mr Justice S.B. Sinha and Mr Justice Markandey Katju, said any prohibitive order promulgated by statutorily could only have prospective effect.

The bench, however, said the Delhi High Court order declaring a notification issued by the Centre on July 4 as ultra vires, was not sustainable. The July 4 notification permitted export of pulses for which irrevocable letter of credit had been opened before June 22, when the ban was decided to be imposed.

Contracts

The case relates to contracts for export of 415 tonnes of pulses signed by Asian Food Industries and for shipment of 3,000 tonnes of chickpea by Agri Trade India Services Ltd, which won a tender floated by the Trade Corporation of Pakistan.

Asian Food had received orders from the Gulf and executed contracts between April 22 and May 2. It also received 20 per cent of the contract amount totalling $2,94,942 as advance for supplying pulses. As per the contract, it had to ship 107 containers, of which 20 were sent between June 22 and 24. The rest were to be sent from Kandla Port between June 23 and June 26.

However, as the Centre took a decision to ban pulses export on June 22 and issued a notification on June 27. This led to the port authorities refusing to allow the consignments despite being cleared by the Customs authorities.

Permission refused

Subsequently, the Centre came up with a notification on July 4 allowing exports of contracts for which the LC were opened before June 22.

Though Asian Food took up the issue with various authorities, it was refused permission resulting in the firm moving the Gujarat High Court. The High Court in its order said the shipments should be allowed as the Customs authorities had cleared and permitted loading of the goods on the ship. Moreover, the bill of lading had also been filed.

In the other case, Agri Trade signed an irrevocable letter of credit on June 24 and on June 2, it filed invoices with the Customs authorities. But again, Kandla port authorities said they would not allow the shipment in view of the ban. A writ was then filed in the Delhi High Court, which asked the authorities to permit the shipment.
It's not difficult to see why a ban should only come to effect prospectively. Forcing people to break the perfectly legal contracts they entered into won't do any good for a country's reputation. Wonder why it's more difficult for some to see that it's equally bad for a government to force people not to get into some contracts in first place.

Tuesday, December 5, 2006

Tariff

FE reports:
Lavin also said, although India had lowered its peak tariffs to 12.5%, average tariffs at 34% were still very high. Moreover, there were some products on which duties were more than 100%. In comparison, the US had average customs duties of just 4%, he said.

Corporate rivalry at play in Singur: CPM

FE reports:
The CPI-M on Monday hinted that corporate rivalry could be behind the recent land acquisition row in Singur where the Tatas are planning to set up their ambitious Rs 1 lakh small car project.

Without naming any company in particular, CPI-M leader Sitaram Yechury set the cat among the pigeons by saying there could be more than meets the eye for the motivation to turn the Tatas’ land acquisition process into a raging controversy. “There may be some whose interests would be hurt when the Rs 1 lakh car comes out. It is for the media to find out who could be behind all this,” Yechury said.

For the record, Yechury refuted the charges that farmers were getting a raw deal, asserting that the “highest level of compensation” was being granted. Comparing the deal with similar ones in Maharashtra, Yechury pointed out that CIDCO paid only about Rs 24,000 an acre in the state, while Singur farmers were getting Rs 8.4 lakh an acre for single-crop land and around Rs 12 lakh for multi-crop land.
Don't know how true this is. But who knows!

Monday, December 4, 2006

Tasting anti-dumping duty medicine

Being a victim often offers better perspective. FE reports:
Shrimp exporters have questioned the very relevance of the anti-dumping duty imposed by the US in the wake of latest reports of payouts of around $100 million by the US government to its domestic shrimp industry.

A major part of the payouts under the Byrd law of distributing revenues from dumping duties collected, exporters said quoting US reports, will go to a select few big firms, making the whole issue of dumping a farce.

According to analysis, around 60% of the money would go to 20 top seafood firms, they said. This would mean that a large section of the industry there would have very little benefit from the whole exercise of imposition of anti-dumping duty to ‘protect’ the domestic industry.


Of course, India leads the world in using anti-dumping measures.

Exporting iron ore is bad for country, says Jindal

JSW Steel MD Sajjan Jindal tells FE:
I think Indian decision-makers need to take a far-sighted view on this issue. In today’s cut-throat competitive world, while every nation is trying to play off its strength in order to remain competitive and survive, we are literally obliterating our strategic advantage by exporting our iron ore. In fact, in 2005-06, we exported almost 90 mt of our 165 mt iron ore production. Many in the mining fraternity believe India has abundant reserves—enough to last for hundreds of years. What they don’t understand is that India’s per capita iron ore availability is one of the lowest in the world at only 21 tonne per person.

Suppose the demand for steel picks up in overseas market, and domestic customers are not willing to pay enough I wonder if steel makers will still make 'strategic advantage' argument and ask the government to ban steel exports.

Anyway, case after case shows that the best way for a country to gain and sustain 'strategic advantage' is to simply let businessmen decide where they source money, material, machines and mangers from and to whom they sell their products/services. Even with this freedom to choose, high transaction costs would mean that businessmen often have to act sub-optimally. I dont know if there is any point in government adding to those costs (by tariffs, immigration restrictions etc). But, governments do that all the time - sometimes in the name of protecting domestic business, and sometimes in the name of national security.

Two examples from today's BS
After a delay of four months, Indian intelligence agencies have given security clearance to International Container Terminal Services Inc (ICTSI) of the Philippines for participating in the Rs 1,200-crore offshore container terminal project at Mumbai Port Trust (MbPT).

--

Telecom firms that have non-Indian CEOs or CFOs may get to keep them, as the Department of Telecommunications (DoT) is understood to have convinced security agencies that such foreign executives were no threat to the country.

DoT, which held extensive discussions with security agencies in this regard, had also possibly found a practical solution to allowing companies remote access to haul telecom traffic from outside India, sources said.

When a government runs a business

BS reports
The government want perks of executives of Central Public Sector Enterprises (CPSEs) to be linked to their performance, but is also anxious to see that their earnings do not exceed those of bureaucrats.

The Pay Revision Committee, set up last week, has been asked to examine productivity-linked incentives and performance-related payments.

The government wants the committee, which will be headed by retired Supreme Court Judge M J Rao, to look at performance-linked payments and incentives as a tool to transform CPSEs into professional and successful commercial entities.

However, while talking about linking payments to performance, the government also wants to ensure that this does not lead to a situation where emoluments of officials of CPSEs far exceed those of bureaucrats.


* Governments tend to balance such constraints with its power to make laws that favour state-run organisations. (A recent example. A government agency in West Bengal acquired over 990 acres land for Tata's 1 lakh car project. But, it cannot transfer the land to Tata, because land ceiling laws in that state restrict private land ownership to 24 acres.)

* Some of us argue it's competition that matters, not ownership (pointing out to the much improved service by BSNL these days). But laws that favour state/state-owned businesses should make us think again.

* There is no reason why this should be so. Forget a government doing things that others see as immoral (killing dissenting people in authoritarian states, for example). We saw a few posts back that a government need not necessarily worry about doing things that even it sees as bad for the country. (Whether it's right in thinking so is a different issue)

Sunday, December 3, 2006

Reliance wants a level playing field

BS reports:
The country’s leading retail chains have raised apprehensions that the collaboration between Bharti Enterprises and Wal-Mart could provide backdoor entry to the world’s largest retailer.

Retailers point out that the government allows 100 per cent foreign direct investment in wholesale cash-and-carry and Bharti Enterprises and Wal-Mart are planning a joint venture in this area.

However, there is nothing preventing them from supplying products to only stores controlled by Bharti Enterprises, which is planning to set up a nationwide retail chain.

According to sources, Reliance Retail boss Mukesh Ambani has met Commerce Minister Kamal Nath to seek a level field for Indian retailers.
What about government giving a level field for smaller retailers, facing unfair competition from Reliance Retail!

Thursday, November 30, 2006

Joint economic zone opens in Pakistan

China has opened its first overseas joint economic zone in Pakistan in a bid to accelerate domestic enterprises' overseas investment.

The joint economic zone, covering 1.03 square kilometres at Manga Mandi, 40 kilometres south of Lahore, was established by China's leading home appliance maker Haier and Pakistani firm Ruba.

Haier has a 55 per cent stake in the joint venture, while Ruba holds the remaining share in what will be Pakistan's largest home appliance production base and the first Sino-Pakistani joint venture of its kind.

"China attaches great importance to economic relations with Pakistan. Investment in Pakistan benefits both nations," Chinese President Hu Jintao said after inaugurating the Haier-Ruba Economic Zone.

The two sides are expected to invest around US$250 million in the construction of the zone over the next five years. here.


the world believes china's ministers have had tremendous success with their ability to promote chinese enterprise. now, they want to help pakistan to do the same. this would be an interesting space to watch!



India tops in using anti-dumping probes

Business Line reports
The number of initiations of new anti-dumping investigations worldwide continued its recently noticeable declining trend during the first half of this year. But India keeps its head high on deploying this trade defensive measure with its new initiations of dumping probe during January-June 2006 standing by far the highest at 20.

According to the Geneva-based World Trade Organisation Secretariat, during January-June 2006, 20 members reported initiating a total of 87 new investigations, down from 105 initiations in the corresponding period of 2005. But the number of new final measures increased to 71 during this period, against 55 such measures applied during Jan-June 2005.

Members reporting the most new initiations during the period under review were in descending order: India, with 20 new investigations, up from 14 during the corresponding period of 2005; the European Union 17, Australia nine and Argentina, Indonesia and Turkey at five each.


India's finance and commerce ministers love to point out that tariff rates in India have come down - and that consumers have gained. At the same time, you have these anti-dumping measures that stand in the way of free trade and of customers getting the benefit of lower costs. FE today carries an Economist piece on a paper (by a University of California at Davis political science professor) that makes this contradiction less obscure. Here is the abstract:
A growing body of research shows that democracies have more liberal trade policies than do autocracies. I argue, in contrast, that democracy has contradictory effects on different types of trade policies because electoral competition generates more information about some than about others. It generates considerable information about policies whose effects on consumer welfare are easy to explain to voters, but less information about policies whose effects are more complex. By increasing the transparency of some policies relative to others, democracy induces politicians to reduce transparent trade barriers but also to replace them with less transparent ones. I test this hypothesis by examining the impact of democracy on tariffs, “core” nontariff barriers (NTBs) such as quotas, and “quality” NTBs such as product standards in 75 countries in the 1990s. I find that democracy leads to lower tariffs, higher core NTBs, and even higher quality NTBs. I conclude that democracy promotes “optimal obfuscation” that allows politicians to protect their markets while maintaining a veneer of liberalization.


Here is the Economist on the connection between free trade abd anti-dumping measures:
In other cases, however, governments have promised to fight dumping in order to win support for radical trade reform. Several of Latin America's young democracies, for example, were keen to slash tariffs and peg their exchange rates to fight inflation. They promised to defend companies against super-cheap imports as a way to sugar this free-trade pill. Mexico, for example, launched 83 antidumping investigations in 1993, more than any other country. But this was partly to shore up support for the North American Free-Trade Agreement.

Wednesday, November 29, 2006

Liquor

S Anand writes in Outlook:
Both retail and wholesale vending of liquor in the state is controlled by the Tamil Nadu State Marketing Corporation Limited (Tasmac), launched in 1983. During MGR's chief ministership, the state decided to control all wholesale vending of India-Made Foreign Liquor (IMFL). In October 2003, the J. Jayalalitha government took over retail vending as well, ostensibly to put an end to the "cartelisation in the liquor trade". The M. Karunanidhi-led DMK government has found no reason to reverse the policy since revenue from the sale of liquor has broken a 23-year-old record.


'Drinks are bad for you, your home and the nation'. This is a warning you will see prominantly displayed in all liquor retail shops in Tamil Nadu. I am not sure, but i think it's mandatory for them to do so - like the health warning on cigarette covers.

(While we are on that subject, bidi makers in andhra pradesh are up against a rule that asks them to display a danger symbol (skull etc) on beedi covers. Their voices are louder now because there is an election around the corner. I read in BL yesterday that the government might relent because it thinks the rule would affect the livelihood of beedi workers.

I wonder if you still need magnifying glasses to read the statutory warning on cigarrette packets. Compare this to the large photos of decomposing lungs you get to see on them in developed countries. I don't know what to make out of such government rules - but, clearly, the question in this case is why impose it on beedis and not on cigarettes, or for that matter on cigars. Lobbying power?)

Back to alcohol, the irony about the gloomy warning is that those shops are run by the government itself. If government thinks that alcohol is bad for home and the country, and yet has no qualms about selling the stuff to fill its own coffers, what happens to the leftist argument it's the market that doesn't care about what's good and what's bad, and that the market needs government intervention to make it behave?

I dont see any point in government banning alcohol, or for that matter, drugs. (That people will find a way around them is just one of the reasons. Medical shops in Tripura place huge orders for cough syrup, only to send them across the border to Bangladesh and sell to people who see cough syrup as an alternative to alcohol, banned in B'desh for religious reasons. Btw, India is building a huge fence between the two countries - not to stop the movement of cough syrup, but, it says, to stop illegal immigrants. But that's a different story.) Less so in a government selling them.

In any case, it's doing a bad job even in that. Anand goes on:
Not only are Tasmac outlets filthy, they also force brands like Cosmopolitan whiskey and Day & Night rum on buyers. Sometimes even Romanov and Blue Riband are unavailable. Says veteran journalist Sam Rajappa: "These rotgut, local brands are badly distilled molasses. Tasmac peddles arrack packaged as IMFL." Breweries in TN ensure that other brands don't get a foothold in the state.


Meanwhile ET reports:
THE European Union (EU) has challenged the Tamil Nadu government’s policy of prohibiting sale of imported liquor in the state claiming that the provision went against India’s obligations under the World Trade Organisation (WTO). The EU’s complaint against the state’s retail policy for liquor is in addition to its other accusation that the actual import duties charged by the country on wines and spirits is much higher than the level at which the country has bound its duties at the WTO.

The EU has sought consultations with India at the WTO on both the issues and if the two fail to reach an amicable solution to the problem, it could blow up into a fullfledged dispute.

In a submission made to the dispute settlement body of the WTO, the EU pointed out that measures taken by the Tamil Nadu government to establish a legal basis for awarding licences for the sale (including wholesale and retail distribution) within the state of wines and spirits produced in other Indian states, but not for sale of wines and spirits imported into India from other WTO members. Therefore, state authorities do not issue licences for sale of imported wines and spirits.

Pressure mounts for corn export ban

FE reports:
‘‘Exports have really picked up in the past two weeks,’’ Amol Sheth, president of the All India Starch Manufacturers Association said on phone from Ahmedabad, citing exports of 100,000 tonne in the past 15 days.

‘‘If India doesn’t ban exports, it could touch one million tonne as all of southeast Asia is short of the grain.’’
The real question to ask is what would be the stage two/stage three impact if government decides not to impose a ban.

Taxing the poor

Subir Roy makes a superb point in Business Standard today:
The government should remove all duties on the import of ingredients and manufacture of vital medicines. Devi Shetty, an iconic evangelical doctor, makes the startling point that “22-25 per cent of the money spent by a person in pain goes to the government. Every policy of the government is made looking at corporate hospitals in Delhi, Madras.” This is clearly an area where the government can and must act. By all means tax the incomes of corporate hospitals but why levy indirect taxes on medicines for the poor?

Tuesday, November 28, 2006

Power entrepreneurs step in to keep Baghdad humming

BAGHDAD — Some people never complain about Baghdad's daily power outages.

Wathiq Hassoun, 31, is one of a number of entrepreneurs who operate large generators and sell electricity to entire neighborhoods. "It's a great business," says Hassoun, who started his career shortly after the U.S.-led invasion in 2003. His profits have allowed him to buy two houses, one of which he rents out. here

maybe parts of india need this service too!

GM rice

FE reports:
Indian rice exporters are concerned over the growing rejection of genetically modified (GM) across the world. Recently producers in major rice exporting countries - Thailand and Vietnam -signed agreement to keep GM rice out of cultivation. The All India Rice Exporters Association (AIREA) has woken up to the situation and have asked the government not to allow any field trials or commercial cultivation of GM rice in the country. They say that the retention of the country’s image as producer of non-GM foods would largely boost the prospects of rice exports.

“Country earns millions of dollars in foreign exchange due to export of rice. India’s long grain aromatic rice - basmati has a premium market abroad,” said RS Seshadri of Tilda Riceland - a major exporter of basmati rice.
Concerns are probably real, but i wonder what's the need for government to step in and stop field trials or commercial cultivation?

Throwing rocks in our harbours

Business Standard reports:
Accusing developed countries of using the issue of protectionism as a bogey’, Commerce and Industry Minister Kamal Nath said on Monday that India’s annual increase in imports of over 30 to 35 per cent from the United States and the European Union was proof that the Indian economy was not ‘protectionist’.

“Barring some items like wines and spirits where India does have high tariffs, largely tariffs in India are not high. We are unilaterally bringing down our imports duties on manufactured goods from an average 12.5 per cent at present to Asean levels. We can do more, but I want to see what we can get in return [at the World Trade Organisation]. When we unilaterally reduce duties, it is pocketed very easily [by the developed countries],” Nath said at the India Economic Summit.


I will just quote Jagdish Bhagwati (2002) here: But you don't get ripped off. I think that's the wrong way to look at it. My old teacher, a great radical, Joan Robinson at Cambridge used to say, if you throw rocks into your harbor, that's no reason for me to throw rocks into my own. Essentially what she was saying was that it's good for me to have no restrictions--or reduced restrictions on trade because trade leads to gains--true. If your door is closed, you know, I would get less by their trade. But it doesn't mean that I should then close my own door because then I get doubly hurt.

Well, well, it's not just India. FE reports:
Speaking on the sidelines of CII-WEF India Economic Summit, US deputy trade representative Karan Bhatia said, “We are prepared to engage with anyone and everyone on topics like domestic support or on any other subject in the Doha round to resolve problems. But there is no basis for expectations that somehow the US would come forward with a new unilateral offer without seeing any other movement by anybody else.”

Sunday, November 26, 2006

Friday, November 24, 2006

Anti-dumping duties

Today's BL has an interesting example anti-dumping duties imposed by India on application by, whoelse, other businesses. Here, All-India Rubber Industries Association wants to review the duties because one company which wanted the anti-dumping duties has closed down seven years back, and another which won a anti-dumping case more recently is down because of a fire. Taxes continue.

BL writes:
[out] of the four types of synthetic rubbers as made in India, (SBR-1900, HSR, NBR and EPDM), antidumping duties are levied on three of them.

Mr Thomas said anti-dumping duty was levied on SBR-1900 at the instance of Synthetics and Chemicals Ltd, and the company was wound up some seven years ago, though the levy still continues. It is learnt that while levy on SBR-1500 and 1700 has been withdrawn, that on SBR-1900 still continues.

Asked on EPDM, anti-dumping duty on which was imposed from July 2006 on an application by Unimers India Ltd, the sole manufacturer in the country, Mr Thomas said the quality of the indigenous variety was not up to the standard and supplies to consumers too were quite erratic. He said the availability was just 5,000 tonnes per annum against the industry requirement of around 16,000 tonnes.

The Unimers India plant is now said to be out of operation owing to a devastating fire at the factory premises recently, and that the anti-dumping authority has assured suspension of levy of anti-dumping duty till such time as Unimers is able to commence full production.
Indians love anti-dumping duties. Remember the Friedman quote a few posts back?

Foriegn bank CEOs come together

BS reports
India CEOs of 12 banks form pressure group within IBA.

To make sure their voice is not lost in the corridors of power, the India CEOs of 12 banks have formed a pressure group within the Indian Banks’ Association (IBA).

The group had its first meeting today and will henceforth meet once every quarter.

Sanjay Nayar, CEO of Citigroup in India, is the chairman of this standing committee of foreign sector banks.

The other banks in the group are HSBC, Standard Chartered, Deutsche Bank, BNP Paribas, ABN Amro, Bank of America, American Express, DBS Bank, JP Morgan, Barclays, and Calyon.

On the agenda for today’s meeting were the recent draft guidelines issued by the Reserve Bank of India (RBI) on non-banking finance companies (NBFCs) and priority sector lending, among other issues, banking sources said.
Fine, they have come together to lobby against unfair regulations. But, let's also remember Adam Smith: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."

Thursday, November 23, 2006

Steel makers succeed

BS reports:
The Centre may impose export duty on iron ore exports at a level acceptable to steel makers, said Anwarul Hoda, member Planning Commission and head of committee set up to review the minerals and mining policy.

He said that the level of export duty would be determined after a consultation process. Hoda was speaking on the sidelines of IMME 2006, a mining summit organised by the Confederation of Indian Industry.

The Hoda committee has recommended that export duty be levied on exports of iron ore in lump form with iron content above 65 per cent. However, the steel industry wants duty on ore having iron content of 62 per cent and above.


Or may be no!

Another report says
A high-powered Committee of Secretaries (CoS) has failed to arrive at a consensus on the controversial issue of restricting iron ore exports from the country and has put the ball back in the government’s court.

In a recent CoS meeting, “it was decided that since it is not possible to reach a consensus on restricting ore exports, the same may be decided by the government appropriately,” official sources said.

Wednesday, November 22, 2006

Sweeping powers for govt in drug law: HT

HT reports:
A planned law to control drug prices which raised fears of backdoor nationalisation in the industry seeks to confer the government with sweeping powers to regulate the production, supply, distribution and the maximum retail prices of both bulk drug intermediates and end-use formulations. Differences have already erupted within the government over the Bill.

The Chemicals and Fertiliser Ministry has come out with the draft Drugs ( Price Regulation and Control) Bill, 2006, a copy of which was obtained by Hindustan Times.

The Bill categorically states that “government, by order, may provide for regulating the production, supply and distribution” of bulk drugs or formulations if the government feels that it is necessary to do so.

Section 3 of the Bill also seeks to confer the government with powers to impose a ceiling on the maximum sale price or control the price in any manner of "any individual, class or category of drug or formulation" for any period of time. This is irrespective of whether a drug is manufactured in India or outside.

Subsidies and cotton

FE reports:
Strongly defending farm practices in the US, Johanns (the secretary in the US department of agriculture) said that in the US about 60% of farmers did not depend on any subsidy. There was no subsidy for beef, poultry, pork, fruits and vegetables, he said, adding that only 40% of farmers get the benefit of the subsidy regime.

In the US, it was the soybean and cotton growers who take the chunk of 93% of the subsidy, he said

When pointed out that Indian farmers would be adversely affected by opening up of markets to the cheap subsidised goods, Johanns said: “Indian textile industry imports cheap subsidised cotton from the US and make huge profits.”

Subsequently, when he was told that it was the industry that had prospered on account of cheap imports while the Indian cotton growers were in distress, Johanns did not have any satisfactory answer.
I am not sure if the distress of cotton growers is because of cheap imports. Anyway, those who have been complaining that US has been throwing billions of dollars to protect 0.7% of labour force, can now take some consollation that it's actually 40% of that 0.7%

Sunday, November 19, 2006

India open to halting corn exports

FE/Bloomberg reports:
India may accede to a demand from poultry farmers and other users of corn to ban exports of the grain amid a domestic shortage caused by a fall in production, trade minister Kamal Nath said on Friday.

India may import corn for the first time in five years to meet a shortfall of at least 1 million tonne.

Production may fall 15% from a year earlier to 12.8 million tonne, Amol Sheth, president of All India Starch Association said on November 13.

“I’m open to it. The agriculture ministry is looking at production figures,” the trade minister told reporters in New Delhi.
Government jumping in everytime someone complains about rising prices will result atleast in one big problem. It would discourage development of the institutions, the financial infrastructure that might help people to take on these risks.

Friday, November 17, 2006

Milton Friedman d.2006

Favor and harassment are counterparts in the Indian economic scheme. There is no significant impairment of the willingness of Indian capitalists to invest in their industries, except in the specific industries where nationalization has been announced, but they are not always willing to invest and take the risks inherent in the free enterprise system. They want the Government to support their investment and when it refuses they back out and cry "Socialism".
Thus Milton Friedman, back in 1956. The entries in this blog show not much has changed.

Do check out his memorandum to Indian government.

state backed enterprises beating global competition

"The rise of mega companies is also part of a concerted Kremlin effort to lend a competitive edge to Russian industry and extend its reach into global markets.

Back in the 1990s, way before he became Russia's leader, Mr. Putin wrote a paper for his Candidate of Science degree where he argued that globalisation "demands all possible state support for creating strong financial-industrial corporations with an inter-sector profile on the basis of resource extraction enterprises." These entities should be "capable of competing on equal terms with Western multinational corporations." It is this programme that Mr. Putin is implementing today. He has consistently pushed for consolidation in "strategic sectors" under state control."

"The idea is to create 30 to 40 large holding companies in a range of fields in which the state will control at least 50 per cent of the shares." an article from The Hindu.

the words sound nostalgic to me. russia is today trying why india tried and failed - and india got the idea from russia in the first place and russia had failed in its earlier attempt!

are most humans wired in such a way that they can learn from history!



Wednesday, November 15, 2006

Tax to punish?

MJ Antony makes a case against Madhya Pradesh Motor Karadhan Adhiniyam which imposes a tax of Rs 1500 a seat a month on motor vehicles without permits, and those that run on unauthorised routes or make authorised trips, saying that there is a distinction between fees and taxes. And that taxes should not be used as a penalty.

What about taxes on polluters? It's also tax as a penalty; tax as a fee for negative externalities, is it not? Your thoughts.

Here is an interesting news, by the way, also from BS

In a novel way to check factories from flushing waste into a river, it has now been made mandatory for industrial units in the Baddi and Barotiwala industrial towns of Himachal Pradesh to build fish ponds.

The treated waste water flowing out from each factory in these towns will now have to flow into a fish pond. And only if fish survive in that water will it be allowed to flow into the nearby Sarsa river.

I know i am being cynical, but i wonder how scientific it is, and if it will have any unintended consequences. Some questions: First of all, what about the dilution that takes place once the treated water flows into the river? Then, are there some kind of fishes which are more resistant to pollution than others? Suppose fishes can survive polluted water for lets say two three days, Will we be seeing a story sometime in the future that fish sales go up in Baddi and Barotiwala, say every 15th because that's around the date when PCB guys come to check?

Heard about rat farms? I dont know how true the story is, but when a state government wanted to eradicate rats and offered to give money for every rat that was pelted, people in that area actually started rat farms!

Watchmakers dont want us to buy watches

BS reports
The domestic watch industry has demanded sops from the government to help it improve its competitiveness and achieve its objective of every Indian having at least one watch.

Among the demands of the industry are increase in abatement rate on watches from 35 per cent to 50 per cent, rationalisation of duty structures and curbing of illegal imports.
Fairer taxes are fine, but I cant understand how buying watches can be illegal! I mean, why should there be any restriction on importing watches in first place?

Steel makers want to ban iron ore exports and steel imports

PTI reports (in BS):
The government will soon formulate a policy on export of iron-ore but has ruled out imposing a blanket ban as demanded by the domestic steel industry.

“The government is very concerned about the issue but it is not possible to put a blanket ban,” Union Minister of State for Steel Akhilesh Das said today.

He, however, said a policy would be framed soon to keep export of the raw material to the bare minimum.


Another report, also by PTI in BS, says
Steel Minister Ram Vilas Paswan today favoured framing a policy specific to the entry of Chinese steel companies into India, amid concerns in domestic industry about the market being flooded with cheaper steel.

“The government should frame proper policies on the entry of Chinese companies into India. They (Chinese steel firms) could be looking for opportunities here,” he said after inaugurating the Ministry of Steel’s pavilion at the India International Trade Fair.

Given the capacity of Chinese companies to manufacture and sell steel at cheaper rates, the domestic steel industry is apprehensive that allowing entry could threaten their existence.

What else can you ask for?

Log-unrolling

BS reports
The finance ministry has turned down Railway Minister Lalu Prasad’s proposal to set up a coach factory at Rae Bareli, the constituency of Congress President Sonia Gandhi.

In addition, the ministry has also questioned the plan to manufacture diesel locomotives at a new manufacturing facility at Chapra, Prasad’s constituency.

“Setting up a third coach factory at Rae Bareli is not financially viable, as the railways already have two factories in Chennai and Kapurthala, which at present produce 2,300 coaches annually and will be able to meet the demand of nearly 4,550 coaches by the end of the Eleventh Five-Year Plan,” a government source said.

An investment of Rs 1,685 crore is envisaged for the Rae Bareli factory, which aims to manufacture 1,150 state-of-the-art passenger coaches every year. In fact, the railway ministry did not agree to set up the project under the public-private partnership route.

Lazy capitalism

FE says,
The commerce secretary’s statement that free trade agreements (FTAs) would drive domestic reforms, and not vice-versa, indicates that India, making the best of a bad multilateral trade situation, is following the successful approach taken by the likes of Japan and Korea. Both countries used FTAs to break the stranglehold of pressure groups on trade policy and domestic reforms, even in sensitive sectors. Japan’s new FTA with Mexico, which not only opened up the Japanese market to cheaper agricultural imports but also blunted opposition from that country’s powerful agriculture lobby, best exemplifies this. Clearly, a country-based approach to opening up the economy makes pressure groups more amenable to persuasion. Moreover, given the Doha round’s virtual demise, FTAs are probably the best way to open up the Indian economy further.


Not everyone feels that way, though. Jagdish Bhagwati for one. He says,
We are thus (through these FTAs) reproducing in the world trading system, in the name of free trade but through free trade areas that spread discrimination against producers in non-member countries, the chaos that was created in the 1930s through similar uncoordinated pursuit of protectionism that discriminated in favour of domestic producers. In both cases, the preferred solution would have been non-discriminatory pursuit of freer trade.


It's interesting to see how the special economic zones are so much like free trade agreements. Like FTAs, SEZs are created in the name of friendlier policies (better infrastructure, less constraining labour laws, lower taxes etc), and like FTAs they discriminate against non-members. And yes, like FTAs, SEZs have support from reformers.

Education

Business Standard says
A government-sponsored Public Report on Basic Education in India, for example, has disclosed that teaching goes on in only 53 per cent of government schools in the villages of MP, Bihar, UP and Rajasthan. Teachers were found absent in one-third of the schools; many were found to have brazenly closed their schools and were busy running shops. Yet, governments continue to be hostile to the idea of private institutions, of public-private partnership, and of a suitable incentive system to make the public education system work better. Some state governments in the southern cone have taken the attitude that private educational institutes should be liberally allowed; this explains the sharp increase in supply of engineers in the south, though all the privately-run institutions cannot lay claim to providing quality education. Indeed, some of them already face a shortage of students, but this situation has the virtue of being a problem of excess supply and therefore student choice. In most places, however, it is still a case of supply shortage.
I think the piece confuses between primary and higher education, but raises a valid point. Wonder why the government is reluctant even to try something like a voucher system, at least in a couple of districts, see how it works, and if it's satisfied expand it to more locations.

National security is the last resort of protectionists

Business Standard reports:
Tata had written to the minister in October on various issues related to Press Note 5, including the suspension of Para 2, which said conditions related to security issues were also to apply to existing telecom operators with an FDI cap of 49 per cent.

The note puts various restrictions on telecom companies with foreign direct investment, on issues such as having foreigners at key management positions and remote access.

With uncertainty prevailing for around two years now, the telecom industry has urged the government to go back to the earlier regime that had an FDI cap of 49 per cent.
Those of us who cried foul when businesses and governments abroad seemed to be against Mittal's bid for Arcelor, should also take a look at our views on foriegners.

Some, however, say being cautious is not protectionism.

Log-unrolling?

Business Standard reports
Union civil aviation minister Praful Patel today put his weight behind Jet Airways' application seeking to fly to the US and said the issue of security clearance by home ministry to the country's largest carrier is unnecessarily delayed.

"The home ministry has given the security clearance to Jet to fly domestic routes. Why can not the carrier be given permission to fly to the US.

"If it cannot be given security clearance to fly to the US, then it should also not be allowed to operate in domestic routes," Patel said adding that the issue should be put to rest by the home ministry at the earliest.

Strange are the ways ministers behave. Or may be not. We have instances of logrolling when politicians try to cooperate with each other to pass laws that might satisfy each other's constituencies, but perhaps not the society at large. And you have such instances as above when ministers, even of the same government, don't.

Monday, November 13, 2006

Tit for tat regulations

FE reports,
The foreign banks from many countries may be pressing hard for liberalised Indian banking rules to venture into or expand in the domestic market, but it has not been an easy task for State Bank of India, the country’s largest bank, to set up normal banking activities in some developed countries.

Of late, the bank, which has a presence in 30 countries, has faced regulatory resistance in three countries -- US, Singapore and Australia – in its foray into full-fledged banking operations.

More interesting part here
In the US also, the bank’s long-drawn efforts to expand its operations have not succeeded so far. Earlier, US authorities had not allowed the bank’s move a few years ago of expanding its activities saying that it has to put up a complete secured system to prevent money laundering and fraudulent activities.

Though the bank has already complied with the US authorities’ instructions on this front, there is no change of stance by the authorities.

“They are not telling us clearly what is preventing them from giving us more freedom to expand our activities,’’ said sources at SBI.

In fact, observers point out that the attitude of several banking regulators towards Indian banks in recent times has compelled Reserve Bank of India (RBI) to adopt counter measures by not allowing foreign banks to expand their operations in domestic market.

“It is ok, if it is a tit for tat by the RBI. But RBI should allow expansion of at least those banks which belong to countries where Indian banks are not facing any problems,’’ commented a prominent foreign banker.

The last comment by the prominent foreign banker reminded me of prisoners dilemma ( Wikipedia). I would suggest you to read the whole thing, or atleast this
In his book The Evolution of Cooperation (1984), Robert Axelrod explored an extension to the classical PD scenario, which he called the iterated prisoner's dilemma (IPD). In this, participants have to choose their mutual strategy again and again, and have memory of their previous encounters. Axelrod invited academic colleagues all over the world to devise computer strategies to compete in an IPD tournament. The programs that were entered varied widely in algorithmic complexity; initial hostility; capacity for forgiveness; and so forth.

Axelrod discovered that when these encounters were repeated over a long period of time with many players, each with different strategies, "greedy" strategies tended to do very poorly in the long run while more "altruistic" strategies did better, as judged purely by self-interest. He used this to show a possible mechanism for the evolution of altruistic behaviour from mechanisms that are initially purely selfish, by natural selection.

The best deterministic strategy was found to be "Tit for Tat", which Anatol Rapoport developed and entered into the tournament. It was the simplest of any program entered, containing only four lines of BASIC, and won the contest. The strategy is simply to cooperate on the first iteration of the game; after that, the player does what his opponent did on the previous move. A slightly better strategy is "Tit for Tat with forgiveness". When the opponent defects, on the next move, the player sometimes cooperates anyway, with a small probability (around 1%-5%). This allows for occasional recovery from getting trapped in a cycle of defections. The exact probability depends on the line-up of opponents. "Tit for Tat with forgiveness" is best when miscommunication is introduced to the game — when one's move is incorrectly reported to the opponent.

I dont know if this is also an example of Beggar thy neighbour policies.

Sunday, November 12, 2006

Socialised healthcare

When someone asked Gandhi what he thought about western civilisation he famously replied 'it will be a good a idea'. I guess you can use the same answer if someone were to ask what you about public health system in India. (We stand 126th among 159 countries according to the latest Human Development Report.)

Check this out. In villages near Madurai people go to primary health centres in good number only when crops fail, and they cant afford Rs 10 to private doctors, sending signs to HLL salesmen about how his business going to be in that season, and making a bigger statement about the state of free healthcare in the country.

A July 2005, report on Delhi doctors by World Bank says "doctors in the fee-for-service private sector are closer in practice to their knowledge frontier than those in the fixed-salary public sector. Under-qualified private sector doctors, even though they know less, provide better care on average than their better-qualified counterparts in the public sector." I know i am being unfair to thousands of healthcare professionals in government run hospitals, but i dont think i would be wrong in joining those who criticise how these hospitals and healthcare centres are run.

So, does that mean we will be better off if they are all run by private sector? It might be instructive to compare countries which provide socialised healthcare with those that dont. This piece from Economist website's new feature CORRESPONDENT'S DIARY does just that:

America is the only advanced country that does not have universal health care, with a "single payer", the government, organising the system. Instead, America argues that competition between private-sector insurance companies will cut costs and improve services. If only...

As Paul Krugman, an economist and a New York Times columnist, has pointed out, universal health-care systems minimise their risk by covering everyone, ill and healthy alike. Private-sector insurers minimise theirs by avoiding the sick. So woe betide you if you have a pre-existing condition. Bad luck, too, if you have a catastrophic illness and then lose your job.

At some point, surely, a tipping point in public opinion will be reached. It would help if America's bosses lent a hand: after all, $1,500 of the price of a car from loss-making General Motors goes to pay for health care. I remember interviewing Howard Schultz, the boss of Starbucks. Mr Schultz gives his employees, including part-timers, good health cover, but he also lobbies for the burden of care to be taken off employers' backs, and he cannot understand why so few other bosses are willing to join his campaign.

Perhaps the reason is that the obvious alternative would be "socialised medicine", a phrase that sets alarm bells ringing for the average American. But, as I say in arguments with bemused American friends, the country seems happy enough to have "socialised" roads, schools and armed forces. And what do they get with their present health system? They get lower life expectancy than in most of Europe, and higher infant mortality than in Cuba―even though, at around 15% of its GDP, America's spending on health care is the highest in the world.

None of this convinces my friends. They counter with horror stories about Britain's National Health Service, or the growing queues in the Canadian system. I cite France and Belgium in retaliation. The fundamental problem, of course, is that no health-care system can be perfect when demand is infinite and supply is not. But America sees itself as a moral country. Can it be morally right that someone hit by accident or illness should then be hit by an enormous hospital bill?

Your thoughts?

Saturday, November 11, 2006

Life insurance for HIV sufferers

Economist writes
DIAGNOSED with HIV 23 years ago, David Patient thought he would never see the day when he could insure his life. Until the launch late last year of AllLife, an innovative insurance newcomer, the few life insurers taking on clients with HIV offered very limited cover and charged prohibitive premiums. But AllLife is specifically targeting customers carrying the virus, offering them more affordable insurance for up to 3m rand ($410,000). They are now able to protect their loved ones and get mortgages. This is changing perceptions of a disease often considered to be a death sentence.

The average probability of AIDS death in South Africa would appear to make life cover prohibitively costly for people with HIV. But extremes rather than averages apply to HIV/AIDS: people who monitor their health and are treated tend to do well; most of the rest die quickly when AIDS sets in. The first group's risk profile is no worse than diabetics', according to AllLife. To maintain their cover, clients have to go for regular blood tests and take antiretroviral medication when needed. AllLife sends reminders for tests and monitors results. This helps clients to stay alive—and AllLife to keep risks down. Although its cover costs two to five times more than standard life insurance, it is much cheaper than what was available before.
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Life insurance remains beyond the means of millions of South Africans—whether they carry the virus or not—and very few apply for cover. Many of those who discover they are HIV positive withdraw because of confidentiality fears. But according to the Life Offices' Association, an insurance body, some established firms will soon come up with affordable products, too. It took decades before diabetics could insure their lives; let's hope people with HIV do not need to wait much longer.

Reading about AIDS, its public health implications, socio-economic profile of its victims and all the calls for donations to help them, i had always assumed that treating aids is a perfect example for a justifiable government intervention - and that private sector had little role to play, except in terms of charity. Bill Emmott, former editor of the economist once said that a key function of journalism is to challenge assumptions. This piece certainly challenged mine.

Even now, I don't, in any way, think that governments should keep away from dealing with AIDS. But, i look at this as an example of problems that businesses can address - even if they have to work a little harder for it.

And CK Prahlad has more examples in Fortune at the Bottom of the Pyramid.

People bought sugar; government sour

Business Line reports
The Centre has issued show-cause to four mills in western Uttar Pradesh (UP) that have been found to have sold sugar in excess of the free sale quotas (FSQ) allocated to them.

"We have sent show-cause to four mills and they have been given three weeks' time to reply to the notices," a top Food Ministry official told Business Line.
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Under the Sugar Control Order, the Centre decides how much sugar a mill can sell in the open market during any particular month. Mills are not allowed to dispose of or even remove sugar from their bonded godowns without an FSQ release order from the Directorate.

"The mills to whom the notices have been sent sold excess sugar during the festival period last month. They wanted to make the maximum out of the peak festival demand in the Delhi market and dispose of stocks before the start of the new crushing season," the official said. In UP, mills begin crushing operations from early November.

Meanwhile FE reports, "Bajaj Hindusthan Ltd, the country’s biggest sugar maker, and rival mills plan to more than double sales of ethanol to meet government alternative fuel targets, helping boost earnings as prices of the sweetener slump."

Friday, November 10, 2006

protection from destruction is creation

when we look at markets - we look at what it creates. from food to telecom, the fruits of production are easy to identify.

but what about destruction.
dont markets have a role to protect people from destruction. often, when calamity strike when we think it is solely the duty of the government to come to aid of the people. surely non profits do play a role but that does not take away the a fraction of the responsibility the government of the day faces

but what if there is no proper government ??

here is a sadly interesting example of the flood in somalia.
"Hassan said the problem lies in the fact that the country has been without a government since 1991. No one has been able "to de-silt the riverbed or manage the sluice gates on the rivers or adjoining canals. We had one canal but it is no longer functioning". the entire story is available here.
if any of the few readers do come across interesting examples of how markets work or mostly dont work in times of destruction, pl. do leave a comment or mail us!

Vanaspati producers complain buyers are getting a good deal

Financial Express reports,
In a memorandum to the finance minister P Chidambaram and the commerce minister Kamal Nath, the executive director of Indian Vanaspati Producers’ Association (IVPA) IV Mehra said, “Under the free trade agreements with Nepal and Sri Lanka vanaspati, margarine and bakery shortening are against zero duty. These are the products produced by vanaspati industry in the country. Therefore, the industry is adversely affected by cheap imports of these finished products.”

Imports of wheat affects salt production!

Business Standard reports
With the heavy import of wheat and fertiliser at the Kandla port, salt manufactures here are suffering a production loss of 8,000 tonnes per day (tpd) due to unavailability of wagons for the transportation of salts.

Hiralal Parakh, president of Kandla Salt Manufacturers Association (KSMA), said, "The salt manufacturers in Kandla are suffering losses due to the diversion of railway wagons for transportation of imported wheat and fertilisers."

He further said that the KSMA does not oppose the import of wheat or fertilisers but the government authorities as well as the Centre must take due steps to safeguard the interest of salt manufacturers in Kandla.

According to Parakh, the association had approached the railway authorities as well as the Centre but no positive steps had been taken by any of them.

"Accumulation of 20 lakh metric tonnes of salt due to unavailability of enough wagons from the Indian Railways, has compelled the salt producers to reduce the production," he adds.
It's interesting to see why wheat imports shot up in the first place. Indiatogether blames US. Do check this, this and this