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CURRENT AFFAIRS (13.01.2014)

1. 2011-12 GDP growth revised up

India will on January 30 revise its Gross Domestic Product (GDP) growth rate for2011-12 from 6.2 to about 7 per cent. Faulty data earlier underestimated industrialoutput by about 7 percentage points, sources in the Prime Ministers Economic

Advisory Council told The Hindu. India has been overstating the slowdown inthe economy, this correction will address that.

The revision in the data assumes significance in the wake of the severe Oppositioncriticism of the Manmohan Singh governments performance in economic

management.GDP data for a fiscal undergoes three rounds of revisions; the processtakes three years. The Central Statistics Office is scheduled to release the Second

Revised Estimate for 2011-12 on January 30. The First Revised Estimate was 6.2per cent.The Second Revised Estimate will use the Annual Survey of Industries(ASI) findings in place of the Quick Estimates of the Index of IndustrialProduction (IIP). The ASI data shows industrial output in 2011-12 grew by 23.6

per cent in nominal and about 15-16 per cent in real terms, the sources said.The IIPdata had significantly underestimated the real factory output growth for the yearat 2.9 per cent.

2. Knowledge as power

Common people, acting collaboratively, are a wonderful source of public good.Regretfully, experts, when assigned a monopolistic role, can abuse public interest

My ears perked up during a lively rendition of the Lungi Dance by mygranddaughters, for the words ran: Gharpe jaake tum Google kar lo, mere baareme Wikipidia pe padhlo! So, Wikipedia, which has become such a fantastic sourceof information and enjoyment for me over the last few years, is now a part of

popular culture! This is incredible, because Wikipedia goes against all the tenets ofthe votaries of market economy who had confidently predicted fourteen years agothat this non-profit, voluntary experiment was bound to fail.The Wiki software that

permits building up of information in a collaborative fashion is a remarkableinnovation, and its creator, Ward Cunningham, could have made lots of money by

patenting it. Instead, he made it freely available, opening up enormouspossibilities. Encyclopedias, centuries-old compendia of knowledge, havetraditionally been expert-driven and commercially produced. But with the World-Wide-Web flowered concepts such as Creative Commons, a platform for peoplewho wish their creations texts, pictures, music to be freely and publicly

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available, not only to enjoy, but to change, augment, improve. This is a process ofpositive feedback, with creations and creativity growing from strength to strength.According to market devotees, Creative Commons, starved of the waters of private

profit, should have forever remained barren. But over the years it has become a

lush garden, tended lovingly by people who can see well beyond personal gain.

Wikipedia is the great Banyan tree, growing in this public garden. The initial free,public Encyclopedia, Nupedia, composed by experts, failed to take off. Experts arebusy people, generally with a strong personal profit motive, and initially failed totake the lead in this public-spirited endeavour. It was then that Wikipedia boldlydecided that any lay person too would be welcome to contribute to an article onany topic, provided that the inputs are based on acceptable sources of information.People, especially experts, enjoy nothing more than pointing out other people smistakes, so an excellent way of arriving at valid information on the Internet is to

begin by posting some, possibly erroneous information.

Rigorous scrutiny

Wikipedia invites all comers to scrutinise every piece of information in everyarticle, eliminate errors and improve its quality. This stimulated experts who now

participate enthusiastically in the inclusive, egalitarian enterprise of Wikipedia. Inthis new culture of the Commonwealth of Knowledge, experts have graduatedfrom the earlier overpowering, monopolistic role to a very constructive one ofcollaboration and guidance. So, Wikipedia has become a standard source of

information even for professional mathematicians, with the material, naturallyenough, based on inputs from practising mathematicians. They have gone on tocollaboratively develop outstanding mathematical text-books as Wikibooks.

The gratifying outcome is that the accuracy of information on Wikipedia, on a parwith that in commercial encyclopedias, has been maintained even as its quantityhas grown a thousand times over that of commercial ones. Moreover, theinformation is very much up to date. Within hours of the tsunami hitting the eastcoast of India, Wikipedia carried authentic pictures and information on the event.

Happily, all major Indian languages now have their own Wikipedias, with morethan half a lakh articles each in Hindi, Tamil and Telugu.Common people, actingcollaboratively, are a wonderful source of public good. Regretfully, experts, whenassigned a monopolistic role, can abuse public interest. Goas Mines and GeologyDepartment is expected to regularly inspect mines, maintain proper data and ensurethat mining operations do not impose undue environmental and social costs. Yet,the Shah Commission Report on Illegal Mining in Goa records that no inspection

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was carried out of iron ore mines as required under the Act, resulting in damage tothe ecology, environment, agriculture, ground water, ponds, rivers, and

biodiversity. The commission squarely puts the blame for such damage on manyofficial experts. My own studies document that experts from private organisations

have been guilty of deliberately falsifying information in the EnvironmentalImpact Assessments of mines.

Creation of knowledge

Wikipedia is an encyclopedia, an exercise of compiling available knowledge. Butnew knowledge, too, may be created very effectively in the same inclusive cultureof collaboration, for common people know a great deal from their experience. Idiscovered a striking example of this in my field research on ecology andmanagement of bamboos. The Foresters prescribed that the thorny covering at the

base of bamboo clumps must be cleared to decongest the clumps and promotebetter growth of new culms. The villagers told me that this was a mistake; thatclearing the thorns exposed new shoots to grazing by cattle as well as wild animals,adversely impacting the bamboo stocks. Three years of careful field studiesrevealed that the villagers were entirely right.

So, systematically recording such detailed location and society specific knowledgecan be of immense value. The Australians, for instance, have a Citizens River

Watch Programme involving local residents who adopt nearby river stretches forkeeping a watch over them. The government arranges two-day training

programmes for all those interested, communicating simple techniques of assessingwater flow and water quality. The water quality assessments are based onoccurrence of animals like damselflies that occur only in clean water orchironomids that frequent highly polluted waters. Numerous volunteer observersupload such data employing user-friendly online data entry forms. This data isopen to scrutiny and correction by all concerned. Such citizen scientist data has bynow generated an excellent knowledge base of the state of rivers of Australia. Sucha rich database could never have been created by experts acting by themselves;there are too few of them, they are expensive, and assigning a monopolistic role to

them is dangerous. Moreover, involving all interested citizens in collecting andscrutinising the data ensures that errors, including deliberate falsifications, arequickly noticed and eliminated. The world over, such Citizen Science projects arenow taking root. It is such Citizen Science that the people of Kerala should now

pioneer, with the stone quarries as the focus, for the official agencies have noproper database on these allegedly largely illegal, environmentally-destructive andsocially-abusive activities. After all, it was in Kerala that scientists began to break

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the stranglehold of official agencies through an open, transparent exercise ofconducting an environmental and techno-economic assessment of the Silent ValleyProject.

Now, in the new millennium, a cadre of volunteers can readily put together aquarries database since the easily available GPS instruments pinpoint geographicallocations, and satellite images bring out patterns of land use includingquarrying, the watercourse that the quarries affect, the landslides that they trigger,the fields and plantations that they smother. Local residents can involve themselves

by speedily collecting pertinent physical data, as well as detailed information onemployment generated, other economic, social, health impacts and on matters likewhether the concerned gram sabhas support or oppose the enterprises. Iforganisations like the Kerala Sastra Sahitya Parishat and Vigyan Bharathi makesuch an effort their mission, a rich reliable information base can be put together in

as short a time as a few weeks.

Of course, this ought to have been already under way. The Biological DiversityAct, 2002, mandates all Panchayat Bodies to develop Peoples Biodiversity

Registers that would include many of the elements sketched above. Noting thatfirst-hand observations on environmental parameters would be an excellenteducational tool, the Central Advisory Board on Education had strongly endorsed a

programme of using student Environmental Education projects throughout thecountry to develop such databases as early as 2005, as did the Approach Paper forthe Eleventh Five Year Plan. But these formal provisions have been of no avail forour rulers believe in what Tao Te Ching, the Chinese manual of Statecraft

preached two thousand four hundred years ago: The ancients who practised theway did not enlighten people with it; they used it, rather to stupefy them; the

people are hard to rule when they have too much knowledge. Therefore, ruling astate through knowledge is to rock the state. Ruling a state through ignorancebrings stability to the state.The citizens of the world are now ready to rock many

of the thoroughly mismanaged boats of our nation-states. Peoples taking charge ofthe knowledge enterprise should be one of the steps in such a revolution. So, letKerala pioneer the Citizen Science approach, focusing on a significant issue of the

daythe stone quarries disfiguring the mountains of Gods own country.

3.Upbeat global sentiment

At the start of the New Year, global economic sentiment appears to be more upbeatthan at any time after the financial crisis of 2008. Even taking note of the pitfalls ofa hasty generalisation, it is possible to discern a mood of optimism among

policymakers and financial markets around the world. Policymakers in the

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advanced economies of the U.S., the European Union and Japan though thesecountries are in varying stages of recoveryhave special reasons for cheer. In theearly days after the crisis, they lagged behind the developing economies led byChina, India and others, in what the Ineternational Monetary Fund called a multi-

speed global recovery. The roles are now reversed, with the developed countriesproviding the momentum. Leading the pack is the U.S., which is once againdriving global economic growth. In a recent major policy speech possibly thelast before he hands over the reins of the Federal Reserve at the end of this monthoutgoing Chairman Ben Bernanke examined recent U.S. economic performancefrom the perspective of global economic growth and found enough reasons to becautiously optimistic about both the developed and emerging market economies.

In the last reporting quarter, U.S. economic growth has been higher than expected.Improved economic prospects have induced the Fed to reduce, or taper, the scale ofasset purchases it has used to prop up the U.S. economy.

That decision has had varied meanings for the rest of the world. India and certainother countries feared an imminent withdrawal of capital flows which have helped

bridge the deficit in its current account. However, they have come to realise thatthe decision to gradually reverse its ultra-soft monetary stance has been based onan improving domestic economy, and what is good for the U.S. will be good forother economies as well. For instance, more spending by American firms andhouseholds will in turn buoy demand for goods and services from across the world.That development has already benefited India, whose exports have picked upsmartly since May. To be sure, the U.S. still has its share of problems.Unemployment remains high. But the risks to the worlds largest economy

emanating from other areas such as a housing market slump, fiscal dysfunction andthe eurozone crisis have clearly abated. One potential area of concern, however,has been the unbridled growth of its financial sector and the failure of regulators to

put in place checks and balances. In India the stock markets are running ahead ofthe real economy, which after a dismal run might have bottomed out and can nowonly move up.

4.When the burden falls on the poor

Policies being pursued in India are based on the growth-at-any-cost model. The

poor and the enviroment suffer while the corporates and organised sectors reap

the benefits

The Aam Aadmi Party, having won the trust vote, is now in the saddle in Delhi. Byannouncing several measures to benefit Delhiites, it had already impacted the

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political discourse in the nation. The established political parties are trying tofollow suit. Why did the previous Delhi government not take some of these stepsgiven that the financial implications are not large while the benefits to the citizensare substantial?

The steps initiated by the Aam Aadmi Party in Delhi have come under severeattack on various grounds. First, that subsidies will increase with adverse fiscalimplications. Second, that this would set in motion competitive politics of givingfreebies adversely affecting the budgets of other State governments and the Centre.Third, that the benefits would mostly accrue to the middle classes as opposed to thereally needy and the poor. Fourth, the steps were initiated when the governmenthad not yet won the vote of confidence and, therefore, did not have the mandate totake such important and far-reaching decisions. Lastly, the tax payers willsubsidise others and this is like robbing Peter to pay Paul. This last implies that the

measures undertaken by the AAP will benefit some at the expense of others azero sum game. The question then is who is the aam aadmiand who will benefitfrom the steps initiated? A deeper analysis of the processes set in motion by theAAP can help clarify that.

Giving free water of up to 667 litres a day to a family will definitely involveincreased subsidy. It is also correct that those who do not get piped water fromDelhi Jal Board will not benefit from the announcement and steps would have tobe taken to supply them water. The AAPs contention is that both these are feasible

given better governance of DJB, which would reduce wastage of water leading toincreased availability of water and higher revenues for the board.Further, given thesurplus in the Delhi Budget, more tankers can be purchased soon and additionalwater pipelines installed in the coming years. Checking of the tanker mafia inDelhi which operated with the connivance of the officialdom and the politicianswould help augment water resources of the DJB. Of course, nothing would changeunless corruption is checked. This would be feasible if the Mohalla committees

begin to function as proposed by the AAP.

Regarding the reduction in electricity tariffs for the consumption of the first 400

units per month, a subsidy will be borne till Delhi Electricity RegulatoryCommission (if convinced) lowers the rates. But, the AAP will also checkmalpractices by the electricity companies which were yielding them undue profitsat the expense of the citizens of Delhi. Earlier, some citizens and businesses werefound to be stealing power, causing losses to Delhi Electric Supply Board, but after

privatisation, it is the electricity companies who have been stealing from thecitizens. It is well-known that regulation is hamstrung by the famous Averch-

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Johnson effect. It implies that the private regulated companies show higher capitaland other expenditures to get a higher price from the regulator for the

product/service they provide. The regulator does not have an independent source ofdetermining the cost of production and depends on the private companies to supply

them with data and this is manipulated to show higher costs. This is achieved byshowing higher capital costs, higher overhead costs, and so on. Past examples ofsuch manipulation are Enron and fertilizer subsidy.

Cross-subsidisation

How can profiteering by the private companies be checked? The accounts of thecompanies need to be checked by independent auditors and that is what the AAPhopes to do with the help of the CAG. But, what if the CAG, under political

pressure, does not play ball? Can the private auditors be used? No, because they

are usually in cahoots with the companies.Thus, at the end of the day, loweringpower tariffs may only be possible if the government is willing to increasesubsidies. The same may be the case for water. Those who are well-off in societyoften pay for others on the principle of Ability to Pay or cross-subsidisation.The issue is whether this is fair.

Subsidies are typically a result of economic processes that create economichardships for those being subsidised. The poor who face under employment andlow incomes need state support to afford even a minimal existence. Typically, thelow incomes of the poor lead to the higher profits of the businesses and the high

living standards of the well-off Indians. In this sense, cross-subsidisation of thepoor by the well-off is a way of paying back what was due to the poor in terms ofthe basics of life.So, who is Peter and who is Paul in India? As the issue is posed, itis implied that there is a zero sum game, that is, Paul gains at the expense of Peter.Can there not be a positive sum game in which both gain together? Policies being

pursued in India for more than two decades have been based on the principle ofgrowth at any cost with all costs falling on the poor and the environment while

the corporates and the organised sectors benefit. This has led to massiveenvironmental degradation, displacement of the poor and increased disparities.

Consequently, at a very low level of per capita income, India has one of the highestnumber of billionaires and the largest number of extremely poor in the world andhas some of the most polluted rivers, air in the cities and habitats in the world.

The growth of the black economy has led to a rapid increase in corruption allaround. The top three per cent of the income ladder benefit from this since theunderground economy is concentrated in their hands. This worsens the disparity

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beyond what the official data reveals, leads to price rise, waste of resources andloss of production due to inefficiency.The black economy also leads to expensiveand poor quality services. Take the case of water supply in Delhi. The tanker mafiahas corrupted the bureaucracy, the police and the politicians (the Triad). Often, the

politician and the businessman are the same person. The Triad makes money at theexpense of the citizens. They disrupt the water supply and allow wastage to takeplace. The loss of DJB and the citizens becomes the profit of the water mafia.Thus, checking the black economy will immediately increase water supply, lowerthe cost of water to the citizens and increase the profits of DJB. The same is thecase with electricity or speculation in vegetable prices (traders prefer thatvegetables rot so that the prices shoot up).

Thus, the issue is not robbing Peter to pay Paul but the returning of what wasrobbed by Peter from Paul. In other words, checking the growing black economy

and corruption is a positive sum game for every citizen except the corrupt. This iswhat the AAPs agenda is. The black economy is now over 50% of GDP and if

brought into the white economy or checked, it would lead to a rise in the tax-GDPratio by about 20 per cent. This would be adequate to finance the proposedsubsidies nationally, lead to lowering of prices for all, result in higher profits forthe honest due to increased production in the economy because of the efficiencygains and increased demand. As income generation becomes buoyant, mostsubsidies can be eliminated.

The issue is macro and not micro as the opponents make it out to be. In brief, thehonest Paul and Peter would gain together while only the dishonest Peter wouldlose. It is the latter who is shedding crocodile tears at the actions of AAP.

5. Hasina to head 49-member Cabinet

Prime Minister Sheikh Hasina began her second successive innings in governmentleading a 49-member Cabinet which was sworn-in on Sunday.This is Ms. Hasinasthird stint as Prime Minister since 1996 when she became the head of governmentfor the first time after Bangladesh returned to democracy from a prolonged militaryrule.The new Cabinet has 29 Ministers, 17 State Ministers, and two Deputy

Ministers.The members of the new Cabinet, including the Prime Minister, weresworn in by President Abdul Hamid at a ceremony in the Bangabhaban, thePresidents House.

The President had earlier invited Ms. Hasina, who was elected the leader of thepartys Parliamentary Party to form government as the Awami League won two-

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thirds majority in the January 5 parliament election held amid massive violenceand boycott by the opposition parties.

In the new parliament, Jatiya Party is going to play a dual role as its leaderRaushan Ershad will be Leader of the Opposition while several partymen wereinducted as ministers. Mr. Ershads wife, Raushan Ershad, has replaced Begum

Khaleda Zia, who was the Leader of the Opposition in the last parliament. Nonefrom the former parliamentary opposition, Bangladesh Nationalist Party and itsallies attended the swearing-in ceremony. But H.M. Ershad, who had earlierrefused to join the election announing a dramatic Uturn even after he and his mensubmitted nomination papers to contest the polls, attended the ceremony as a guest.Mr. Ershad took oath on Saturday as he was elected a member of parliament .Mostof the Ministers are seen as experienced since they are not only party veterans butalso held various portfolios previously. While the majority in the new Cabinet are

from Awami League, the rest are from Jatiya Party, Workers Party, JatiyaSamajtantrik Dal, and Jatiya Party (Manju).

The Ministers who were inducted from the previous cabinet are A M AbdulMuhith, Matia Chowdhury, Syed Ashraful Islam, Obaidul Quader, Nurul Islam

Nahid, Shahjahan Khan and Abdul Latif Siddiqui, while the new entrant partyveterans are Amir Hossain Amu, Tofail Ahmed, Mohammad Nasim, MofazzalHossain Chowdhury Maya and Assaduzzaman Noor of the Awami League.Ministers from the Jatiya Party are Anisul Islam Mahmud, Mujibul Haque andRashed Khan Menon from Workers Party, Hasanul Huq Inu from JatiyaSamajtanktrik Dal and Anwar Hossain Manju from JP-Manju.The notable dropfrom Ms. Hasinas previous Cabinet are Dr Dipu Moni, Dr Mohiuddin Khan

Alamgir, Air-Vice Marshal (retd) AK Khandaker, Suranjit Sengupta, Ruhul Haque,Shafique Ahmed, Hassan Mahmud, Ramesh Chandra Sen, Shamsul Haque Tukuand Jahangir Kabir Nanak.Hours before the swearing-in, an appeal was filed in theHigh Court by a lawyer on Sunday challenging the move to form a new Cabinet

before dissolving the existing 9th parliament.The petition also sought a stay on theswearing-in ceremony of the Ministers.

6.Gobal economy, moving forward but on different enginesIs the air of optimism that seems to permeate the global economic outlook

justified? Leading commentators around the world are more optimistic at the startof the New Year than they have ever been since the global recession of 2008. Evenconceding that a certain amount of cheer and expressions of glad tidings arecommon on every new years eve, the year 2014 seems exceptional in theopinion of many experts, things look much better than they did in the recent past.

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Subjectivity rules

A few points are relevant here. The positive view of the world economy is mostlyconfined to the U.S. and other developed countries but, emerging market countries

are not doing too badly either. But in a significant change, it is the advancedcountries and not the emerging market economies that are in the forefront of globalrecovery. Earlier, the developed economies were trailing the emerging marketeconomies in what the IMF likes to call, a multi-paced recovery of the worldeconomy.In popular discussions such as this, most experts tend to equate theadvanced economies with the U.S. and to a lesser extent the European Union (EU)and Japan. Discussions on emerging market economies are invariably confined toChina.

India out of sight

At this juncture, India seems to have dropped out of sight. Slowing economicgrowth amidst well-entrenched inflation is surely responsible. While the attainmentof a gross domestic product (GDP) growth of just above 5 per cent for the currentyear 2013-14 would appear to be creditable, not so long ago India could boast ofmuch higher growth rates. Being included in BRICS and other groupings wouldsuggest that Indias potential was recognised. That was then. One might have to

wait until after the elections and many concrete examples of robust reforms andgovernance to re-rate India as it were.

It may be argued that a 5 per cent annual growth rate, while being sub-optimal forIndia, compares favourably with the growth rates of many other countries, bothdeveloped and developing. Yet, the perception of India is rooted in the belief that itlags behind in economic reforms, and, more relevantly, in terms of various socialindices such as health, education and sanitation. A very different illustration ofsubjectivity is in the ways the opinions on the Europe have changed. Not long ago,the crisis-hit countries were forced to adopt a socially disruptive austerity package.If Europe has bounced back (in the experts opinions), it is simply because theyhave not broken up and are staying together.

U.S. the growth engine

A very important speech on the current global economy was delivered by theoutgoing chairman of the U.S. Federal Reserve, Ben Bernanke. At a recent policyspeech in the U.S., which most people think will be his last before he leaves officelater this month, he said there were grounds for cautious optimism for both

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advanced and emerging economies around the world. The U.S. is clearly drivingthe global economy with a better-than-expected growth rate in the last quarter. Itsstock markets are buoyant. The S&P index is at a record high, after rising 30 percent in 2013, the biggest annual gain in almost two decades. Higher consumption

by U.S. households will drive demand for these products from across the world.

Yet, Mr. Bernanke, in whose tenure the Fed embarked on a massive andunprecedented quantitative easing (QE) to spur economic revival in the U.S., feelsthat the U.S. economy needs to traverse some more ground. For instance,unemployment still remains at 7 per cent. However, the threats from the effects ofthe financial crisis, the woes of the housing market, low productivity growth, theeurozone crisis and the fiscal dysfunction in the U.S. seem to be receding.Improved economic circumstances have induced the Fed to reduce or taper theasset purchase programme.According to Mr. Bernanke, reforms in the U.K. and

Japan are still in their early stages, but all indications point to better growthprospects. Emerging market economies too have grown more quickly in thesecond-half of 2013, after slowing down in the first-half. The Fed Chairmanssigning-off speech is generally upbeat on the world economy, which is, however,moving on different engines.

7. BHAG Inclusion BHAG

In their book Built to Last: Successful Habits of Visionary Companies (1994),

James Collins and Jerry Porras postulated that an important characteristic of such

companies was their articulation of their Big Hairy Audacious Goal, or BHAG. Incontrast to the operational goals that company managements usually specify tomeasure their performance against, BHAG is a long-term aspiration and inspiration

that they saw as an energising and motivating force for the entire organisation.

The goal of the Committee on Comprehensive Financial Services for SmallBusinesses and Low-Income Households, a panel chaired byNachiket Mor that

submitted its report to the Reserve Bank of India (RBI) last week, is truly a BHAG.

It visualises meaningful financial access for all adult residents of India by January

2016. The building block for this is the universal electronic bank account (UEBA).This objective has to be viewed against the backdrop of the record so far. Millions

of accounts have indeed been opened over the past five years, but true access in theform of practical deposit,credit,insurance and pension products is far from being

realised. So, a massively disruptive strategy is absolutely necessary. Speaking ofstrategy, the key to success of visionary organisations is the matching of BHAG

http://www.business-standard.com/search?type=news&q=Nachiket+Morhttp://www.business-standard.com/search?type=news&q=Rbihttp://www.business-standard.com/search?type=news&q=Uebahttp://www.business-standard.com/search?type=news&q=Credithttp://www.business-standard.com/search?type=news&q=Credithttp://www.business-standard.com/search?type=news&q=Uebahttp://www.business-standard.com/search?type=news&q=Rbihttp://www.business-standard.com/search?type=news&q=Nachiket+Mor

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with the instruments that will be used to pursue it. Do the committee'srecommendations offer this match?

Let me focus on three components of the strategy. The first relates to the

institutional structure that needs to be put in place. Clearly, relying on the existing

banking system to achieve BHAG is unfeasible; new mechanisms need to becreated. The committee essentially recommends a number of specialised

intermediary institutions to be set up. Of course, this immediately raises doubtsabout the two-year time frame, but that should not be the main basis of critique.

The real question is whether these new institutions can do what the old oneshaven't and still make reasonable money in the process.

The key new institutions are paymentbanks and wholesale banks. The payment

banks are intended to provide very basic services - deposit taking and payout. Withno credit risk being assumed, these can function with relatively low capital,

allowing them to build large networks at low cost, which can be brought downfurther with effective use of technology. The wholesale bank concept reflects the

development of a continuum across the range of financial intermediaries. Theseinstitutions will have a more pointed focus on the target segments of

theinclusion strategy and will essentially provide a second tier of intermediationbetween the existing banking system and these segments.

Whether this will work or not is going to depend critically on two things. One, will

the cost structures of these institutions be compatible with the business

environment in which they operate? One obvious barrier to banks' collectivedifficulties in pushing inclusion is that they find it unremunerative. Profitabilityover the medium-to-long term is absolutely necessary. The committee's

recommendations help this along by suggesting lower capital and prudentialrequirements, in keeping with lower risk profiles. But, beyond that, operating

costs, particularly human resource costs, need to be dramatically lower than thosein the traditional banking model. Two, combining low human resource costs with

high technology will yield the best returns. But making this combination work is

always a challenge and there clearly will be an experimental phase during which at

least some of these new institutions will fail.

The second component that I want to examine is the redefinition of the prioritysectorlendingmandate. Raising the limit from the current 40 per cent to 50 per cent

may seem like an unnecessary dose of populism, but this is perhaps more thanoffset by three significant recommendations. One, loans to priority sector

borrowers are to be completely free of price restrictions, with any subsidy that the

http://www.business-standard.com/search?type=news&q=Bankshttp://www.business-standard.com/search?type=news&q=Inclusionhttp://www.business-standard.com/search?type=news&q=Lendinghttp://www.business-standard.com/search?type=news&q=Lendinghttp://www.business-standard.com/search?type=news&q=Inclusionhttp://www.business-standard.com/search?type=news&q=Banks

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government wants to give them being paid directly to the borrowers. Lenders can,therefore, price their loans based entirely on their risk assessments of individual

borrowers. The second is to differentiate sectors and geographies by difficulties in

lending. By giving more weight to loans made to the more challenging ones, more

equitable lending can be hoped for. Third, reinforcing a measure that has beensuggested before, the introduction of tradable certificates based on priority sector

exposure will facilitate the lowest cost achievement of a system-wide prioritysector target of 50 per cent.

The risk here, of course, is that the 50 per cent limit will be gleefully accepted,

while efforts on the others will lag. Merely more lending, without any of theflexibilities and efficiencies that the other recommendations provide both old and

new intermediaries, will do very little for inclusion, particularly in terms ofbringing relatively deprived sectors and regions more firmly into the financial fold.

The third component of the strategy that I think needs to be looked at carefully isthe role of technology. At one level, there is a clear recognition of the central role

that it will play in the entire process. Linking customers to institutions, oneinstitution to another and all institutions to regulatory and credit monitoring

databases in a completely seamless and real-time fashion is clearly within therealm of possibility today. This requires policy and regulatory co-ordination

between the financial and telecom regulators and, perhaps, others as well, which, if

effectively done, will be good for BHAG.

However, there are low-hanging fruits that the current state of technology providesaccess to and will allow for the building block UEBA to be achieved even withoutthe whole intermediary framework being put into place. For example,

theAadhaar number could be linked to ane-wallet,stored on the cloud, into whichall government payments could be paid. This would give an immediate start to the

payment banks, allowing existing and new providers of e-wallet and m-wallet andrelated services to bring a huge number of currently unbanked people into the

financial system in a relatively short time frame.

Taken as a whole, the committee's recommendations offer a substantial andfeasible strategy to achieve meaningful inclusion. Two years may be enough or

not, but the first steps down the road should be taken as quickly as possible. Also,it should be emphasised that inclusion is as much a technological as a financial

challenge. This will also require discontinuous change in the policymaking andregulatory framework.

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8.Breaking the impasse of 2013

The year2013 was a wasted one. How can2014be different? When I look back on

the year, I think of a cacophony. There was huge dissent about the way we

mismanagecoal reserves; theSupreme Court shut downiron ore mining inGoa;later in the year, there was outcry about rampant and rapacioussand mining and

the havoc it was wreaking onrivers.

There were equally loud calls for the need for green clearance to all projects,

fromhydropowerprojects in theHimalayas to mines in dense forests of central

India. One side wanted to shut everything down; the other side wanted to open up

everything.The polarisation was absolute. In my view, this has not benefited

theenvironment's cause. It has certainly not changed the way we will manage our

natural resources for sustainable and inclusive growth. This impasse will help

nobody.Take, for instance, the issue of building hydroelectric projects in the

Himalayas. The dam builder-engineer lobby wants no restraint on construction of

projects in this fragile ecosystem. In the Ganga basin alone, some 70 projects were

on the cards to generate 9,000 megawatts ofpower.These projects together would

"affect" - humanly re-engineer - some 60 to 90 per cent of the river's length and

would dry up stretches completely. There was no method in this madness.

On the other side, there were equally strong views against construction ofhydroelectric projects. The arguments ranged from religious beliefs - for instance,

that construction would harm the Ganga's purity - to environmental concerns about

the vulnerability of the Himalayas. The disaster that shook the mighty Himalayas,

which killed more than 10,000 people and brought down buildings like a pack of

cards, rightly reinforced their view. The ministry of environment and forests

stepped in and declared the region ecologically sensitive. Under this notification,

no hydroelectric projects would be allowed and construction of any other building

would require permission from the ministry in Delhi.

But this is not tenable. Firstly, the ministry has no capacity to take environmentally

sound decisions while awardingclearances for projects. It has absolutely no ability

to ensure that the conditions it imposes on the cleared projects are adhered to. It

has run its own internal systems to the ground, and twisted each issue, only to

cause bureaucratic delays. With its current capacity, the ministry cannot implement

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the eco-sensitive zone notification.Secondly, the notification in its current form

will only lead to more corruption during clearances, as well as more resentment

against the environment since genuine needs of the poor people will get affected.

Meanwhile, over time, all thedams will be back. The Himalayas will become even

more vulnerable and damaged. Local communities will suffer.

So in 2014, we need a different and more nuanced approach. In this case, it would

mean accepting the fact that producing energy from flowing rivers is both a clean

and renewable source of power as well as an important resource for the Himalayan

states. It cannot be argued that no dam should be constructed, but projects that kill

the river or damage the ecosystem should not be allowed. This is non-negotiable.

And this can be done. For instance, at the Centre for Science and Environment, we

have done exhaustive calculations that show rivers can sustain the generation of

hydropower, provided there is agreement to set aside 50 per cent of the total flow

for six months of the lean season and 30 per cent during the high-discharge

monsoon season. Hydropower projects would need to be re-engineered so that they

utilise water that the river can afford to part with - and not take all it has. Our

estimation is that this will mean a reduction in the number of projects, but it will

still mean the region will generate substantial power. In addition, we advocated

that small hydroelectric projects - defined as those with a capacity of up to 25 MW

- could not be considered green unless their construction was strictly regulated.

Small is not necessarily right and green. In all this, the first right to energy should

be given to people who live in the Himalayas.

But any change we desire in 2014 and beyond is not possible if the institutions for

regulation, monitoring and enforcement are not substantially revamped and

strengthened. At the start of 2014, the Supreme Court directed the setting up of a

new national green regulator. But the fact is that in the current state of affairs, this

will only add to convoluted and delayed decisions - not to those that secure

environmental integrity.

We need to be serious about the intent and the mechanism of this institutional

reform. We need a three-pronged approach. One, we need to make clearance

assessments more coherent and comprehensive by simply linking assessments of

the environmental, forest, coastal and wildlife impact of each project. Two, we

should introduce much greater transparency to the decision-making process by

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making public hearings and prior informed content processes open and visible, and

by ensuring that committees assessing projects are accountable. Three, we need a

sharp and total focus on monitoring compliance and enforcement - and we must

build capacity to do this. This would require state pollution control boards to be

substantially revamped and strengthened. It would also need investment in

monitoring systems that allow people to know about the state of their forests, river

or air.In 2014, it is time we took the crucial next step on environmental

management - in other words, build the institutions that can bring the discourse to

fruition. This is the agenda for the future.

9. Keep divestment simple

Every year, the approach of the fiscal year-end is the cue for the government to

hastily kick-start its public sector divestment programme. This year, the action iseven more frenzied than usual with the exchequer already hitting 94 per cent of thefiscal deficit target.

So far, the divestment programme has not contributed much to the cause, raisingless than Rs 5,000 crore against the lofty annual target of Rs 40,000 crore. Asluggish economy and market conditions that were somewhat unfriendly to coresector companies forced the government to kick the can down the road for most of

this year. However, this is no excuse for the outlandish ideas that are now being

floated in lieu of straightforward stake sales in PSUs (public sector undertakings).One suggestion is that public sector banks and cash-rich PSUs be made to buy thegovernments stake in peers such as BHEL. Given that the primary purpose of

divestment is to reduce the governments role in business, transferring equitystakes in PSUs from one State entity to another is an exercise in obfuscation. It isalso not clear why capital-starved public sector banks, who have enough risks ontheir balance sheet today, should be made to play the markets with further equity

bets.

Another dubious suggestion is that PSUs issue bonus (free) debentures to the

government. Such debentures add to the debt burden of enterprises without anycash inflows, hardly desirable at a time when they need capital for expansion

projects. The government is only shooting itself in the foot by undermining publicenterprises through such shortcuts as it may lead to their de-rating in the markets.At todays prices, the aggregate government wealth invested in leading (non-bank)PSUs is Rs 7 lakh crore. Even a 5 per cent dip in their stock prices wipes out Rs35,000 crore of this wealth. Where the government has tried to take the more direct

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route, the candidates chosen have been sub-optimal. A recent proposal to divestIndian Oil met with strenuous objections from the Oil Ministry given that lack of

policy clarity on subsidies, under-recoveries and pricing have battered the firmsvaluations. Yet, the successful divestment of PowerGrid Corporation shows that

State-owned firms without such policy uncertainty stand a good chance of raisingthe required sums for the exchequer.

In this milieu, two other solutions that can help salvage the divestment programmethis year could be the sale of the government holdings in Axis Bank, L&T andITC, acquired from the erstwhile UTI. These are worth over Rs 50,000 crore afterthe recent market rally. The proposal to float an exchange traded fund (ETF) tohouse part of the government stake in PSUs is also sound. The ETF may notimmediately raise large sums of money given the muted investor appetite for manyPSU stocks. But given that the public sector space does feature some quality stocks

with sound fundamentals, the ETF may turn out to be an attractive vehicle forforeign and domestic institutions to buy into these firms over the long term.

10. Public sector firms are no milch cows

By expecting listed PSUs to sell products below cost, foot subsidy bills and coughup cash whenever the exchequer needs it, the government is trampling over therights of public shareholders.

January 12, 2014:

Can you imagine the promoter of a listed private sector company arm-twisting it tosell its products below cost to his favourite charity? Or asking it to buy shares in agroup firm or demanding big dividends whenever he was short of cash?Youprobably cant, because this would have investors coming down on him like a

tonne of bricks and regulators hauling him up for bad corporate governance. Yet,such promoter behaviour is par for the course in listed public sector companies inIndia. Just consider the following facts.

What commercial interest?

Ever heard of a monopolistic business that sells its produce below market price andenters into contracts that are loaded against it? Well, meet the 90 per cent Indiangovernment-owned Coal India.

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First, in order to keep fuel costs low for power generation companies (many ofwhich are for-profit private players), the government insists that Coal India sell itsoutput far below market price and not hike its selling prices, even when costsescalate. This earned the ire of UK-based Childrens Investment Fund, one of the

few institutional investors in Coal India. Last year, the fund dragged Coal India tocourt for riding roughshod over shareholder interests by under-pricing its output. Italleged that government interference was costing Coal India shareholders awhopping $20 billion in annual profits.

Then the mining major was forced to sign Fuel Supply Agreements (FSAs) withpower producers, where it committed to heavy penalties if it didnt meet these

commitments. But the only problem is, Coal India says it simply wont be able toproduce the committed quantities of coal.In a recent interview with this newspaper,Coal Indias chairman lamented: Did we sign the FSAs at our free will? We can

drive at 60 kmph. But you are forcing us to drive at 120 kmph and then penalisingus for the eventual failure. What kind of business proposal is this?

Dont dismiss this as typical public sector inertia. Coal India cant increase coal

production at will because, with multiple statutory clearances required fordeveloping each mine, securing the necessary permissions does take several years.

Neither private sector miners nor power producers who have been allocated captivecoal blocks have managed to ramp up output either.The irony is that after takingflak from the UK fund for sacrificing commercial interests to favour its customers,Coal India was also recently slapped with a Rs 1,770-crore penalty by theCompetition Commission of India (CCI) for signing FSAs without consulting itscustomers!

Tangled web of subsidy

But Coal India is still a profitable enterprise and its woes actually pale incomparison with the travails of the public sector oil companies.First, amidspiralling import costs for crude oil, oil marketers are required by the governmentto sell their products below cost, to keep prices low for the aam aadmi. Then, after

co-opting listed PSUs into this charitable endeavour, the government takes its ownsweet time reimbursing the deficit. It also haggles over the sums, with acomplicated debate about whether the oil companies should be compensated basedon import parity prices or export parity prices. These delays result in oil marketingcompanies using up huge amounts of working capital and running up giganticlosses quarter after quarter.

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However, what really adds insult to injury is the governments bright idea of

asking upstream oil companies such as ONGC, Oil India and GAIL, who actuallyhave nothing to do with all this, to share the losses by selling their output at adiscount. The proportion of losses that oil producers bear changes every year,

making it impossible for investors to take a call on the earnings or prospects of anyof these companies.Is it any wonder that the market has made mincemeat of the oilPSU stocks? Today, after the stock market rally has pushed up the markets price-earnings multiple to over 18 times, the giant oil PSUs languish at patheticmultiples of 3-5 times their earnings.

However, it is not just the oil PSUs, but also the public sector banks which areoften called upon to support the governments social endeavours. Remember how

they had to offer agricultural loans to farmers at a discounted interest rate after abad monsoon, with the government promising to foot the bill later? Or how they

were recently urged to give the economy a helping hand by offering loans to two-wheeler and consumer durable buyers at low rates?Neither move may makecommercial sense for banks, but with their majority owner insisting, do they haveany choice? With top-level appointments at the PSUs at the discretion of the rulinggovernment, the firms Boards usually offer little protest at such interference.

Deposit cash here, please

While oil and bank PSUs probably accept irrational diktats from the government asan everyday occurrence, those in other sectors have reason to fear the end of each

fiscal year. For, this is the time of the year when the Centre usually realises that itcould do with some quick cash to balance the budget. It usually turns to thePSUs.All would be well if it were to simply raise cash by divesting its equitystakes to public investors. But sometimes, if market conditions arent right,

investors may fail to take the bait. This is the cue for policymakers to come up witha host of unusual ideas to make the larger listed PSUs part with their cash.

This year, these efforts have taken many forms. First, PSUs were asked to considerbuybacks, no matter if they needed the capital for their own expansion projects.

Then, it was suggested that state-owned firms buy stakes in each other. Recently,pressure is mounting on public sector banks to consider interim dividends. This isrelatively harmless, given that dividends will have to be equally distributed to allshareholders. But the only problem is, most public sector banks also need capitalinfusion from the government. Therefore, it makes little sense for them to first payout hefty dividends to the government (with an additional dividend distributiontax), only to later request a return of that capital.

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destabilised Israels plan.After the assassination, when Phalangist terrorists entered

the Sabra and Shatila camps on September 16 and continued the killing ofPalestinians until September 18 morning, Israeli troops ignored it. Red Cross putthe number of dead at 800 to 1,000, while others say up to 2,000, many of them

women and children.Since then, Sharons name has been clubbed with Sabra andShatila. In 1983, the Yitzhak Kahan Commission held him responsible forignoring the danger of bloodshed and revenge and not taking appropriatemeasures to prevent bloodshed. Sharon had to resign as the defence

minister.Despite the huge international outcry over human rights violations, Sharonremained unapologetic; he knew these were short-term troubles in political waters,especially for a general of his stature who cut his teeth in the 1948 war with theArabs.

Peacemaker?

If one looks at the rise of Sharon to Israels premiership in 2001 and his policiesthereafter, itsnot difficult to see he had carefully cultivated the image of a toughguy. Sharons admirers say Arik (as he was known among supporters) was achanged man after he became prime minister. They cite Sharons decision to

withdraw troops and settlers from Gaza in 2005 and the plan to dismantle somesettlement areas in West Bank. But not many buy the argument.

The Gaza withdrawal was more of a military move than a step to make peace. Itwas a unilateral decision. There were no talks with the Palestinians. Israeli troopswere actually fed up with their prolonged fight with Hamas guerrillas inGaza.Sharon realised that holding on to Gaza would not serve any of his strategicpurposes other than draining Israeli militarys resources. He did not give Gazans

the freedom they wanted. He just withdrew troops to the border, turning Gaza intoa large prison of human suffering.

On the other side, Sharons rise to power triggered a new wave of violent

Palestinian intifada (uprising) in West Bank, which was brutally crushed. InSeptember 2000, while campaigning for the premiership, Sharon visited theTemple Mount complex, site of the Dome of the Rock and al-Aqsa Mosque, holy

place for the Jews and the Muslims, respectively. He said the complex wouldremain under perpetual Israel control, which his critics say was a deliberate attemptto flare up emotions ahead of the elections.Within days, clashes erupted betweenPalestinians and Israeli police, which led to the intifada. Later, when The NewYorkersJeffrey Goldberg asked him if he had any regrets about going to theMount, Sharon said: I am really sorry for every casualty, Jewish and Arab. Butthe only one who is responsible for that is Arafat.

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As prime minister, Sharon also stepped up the construction of the security wallthat runs along and through the West Bank and divides the Jews and the Arabs.Critics call it the apartheid wall.During Sharons tenure, the world also saw

several targeted killings by the Israeli troops. Hamas leaders Sheikh Ahmed Yassin

and Abdel Aziz al-Rantissi were among many of those were killed by Israel. Theserecords enfeeble the claims about Sharon the peace-maker.

Whither Israel?

Did Sharon make Israel stronger? Debatable. Perhaps the most importantdevelopments during his eventful career were the settler movement in West Bankand the Lebanon invasion. Both are now a liability for any Israeli leader who wantsto make peace with neighbours.While the settlements in West Bank are nowrepresented by strong settler lobbies and rightwing parties who cannot be

overlooked in any peace efforts, the Lebanon war spawned serious securitychallenges for Israel. It led to the formation of Hezbollah, the radical Shiite outfit,which forced Israel to end its 18-year-long occupation of Lebanon in 2000 andeffectively resisted Israels deadly bombings in 2006.Not many world leaders

would like to talk about this darker side of Sharons legacy in their condolence

messages. That said, international NGO Human Rights Watch bluntly summarisedit all. It said, Sharon died without facing justice for his role in the massacres ofhundreds and perhaps thousands of civiliansSharon may rest in peace, but it

looks like his country may take a long while to find peace.

12.Vaccines can change childrens future

A single medical discovery has changed the future of children. Vaccination is apowerful and cost-effective weapon against disabling and life-threatening diseases.In India, nearly two million children still die from preventable diseases such as

pneumonia, diarrhoea, malnutrition and birth complications.

Haemophilus influenzae type b (Hib) is a major cause of bacterial meningitis whilepneumonia caused by Hib and Streptococcus pneumoniae (S. pneumoniae or

pneumococcus) is also a threat to childrens health worldwide.

Rotavirus-related diarrhoea sends thousands of children to the hospital and kills alarge number too. New vaccines are available to protect against these pathogensand India is now gradually moving towards including these latest vaccines in theimmunisation programme.In fact, 2011-20 has been declared the Decade ofVaccines by the global community. Awareness about the benefits of vaccines and

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advocacy for the introduction of new lifesaving vaccines must increase during thisperiod. The health and well-being of millions of children will improve only whenthe importance of vaccines is acknowledged.

Vaccines provided under the Universal Immunisation Programme (UIP) in Indiaoffer children protection from just a handful of infections tuberculosis,diphtheria, pertussis (whooping cough), tetanus, polio, measles and Hepatitis Bacross the country and Japanese encephalitis in some areas.New vaccines againstHib and rotavirus have gained popularity in many countries. The benefits of thesevaccines are yet to be maximised in India.The three new vaccines that will benefitchildren the most in the country are the pentavalent vaccine that confers protectionagainst Hib; the rotavirus vaccine and the pneumococcus conjugate vaccine.

Other countries have readily embraced these vaccines, and are deriving their

benefits. Hib vaccine has been a part of routine immunisation programmes inseveral countries after WHOs Strategic Advisory Group of Experts (SAGE),

recommended in 2006 that this be included in national immunisation programmes.Of the 194 WHO Member States, 185 have adopted the pentavalent vaccine that

protects against Hib.And the benefits have been huge, since Hib diseases havealmost disappeared in these parts of the world.India too would derive massive

benefits: 72,000 child deaths and nearly three million hospitalisations in India willbe prevented each year once the Hib programme is established across the country.

In India, the pentavalent vaccine that contains Hib (and also protects againstdiphtheria, pertussis, tetanus, hepatitis B) has been popular for a decade in the

private sector, and was included in the National Immunisation Programme morerecently.The vaccine was introduced in Tamil Nadu and Kerala in 2011 afterendorsement by Indias National Technical Advisory Group on immunisation anda detailed review of vaccine safety coordinated by the Indian Council of MedicalResearch (ICMR).Since then, the pentavalent vaccine has also been introduced insix additional states.

PENTAVALENT safety

The introduction of the pentavalent vaccine in some Asian countries has beenassociated with safety concerns.This included reports of deaths shortly aftervaccination in Sri Lanka, Bhutan, India, Pakistan, Nepal and Vietnam.Because ofthese concerns, Sri Lanka, Bhutan and Vietnam temporarily suspended pentavalentvaccine use as a precautionary measure. In all countries, investigations by localgovernments, WHO and international experts have not demonstrated a causal link

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between vaccination and infant death.As a result, Sri Lanka, Bhutan and Vietnamhave resumed the use of pentavalent vaccine.

Faith in the safety of this vaccine was further reinforced after WHOs Global

Advisory Committee on Vaccine Safety reviewed the pentavalent vaccine safetydata from four countries (Sri Lanka, Bhutan, India and Vietnam) and concludedthat it was safe.The Indian Academy of Paediatrics (IAP) has expressed concernabout the misinformation being spread about the vaccine, and has denouncedattempts to distort facts.IAP maintains that pentavalent is safe and endorses thegovernments decision to introduce the vaccine in six states.

While efforts should continue to ensure the safety of vaccines, the drive tointroduce immunisation that reduces childhood illnesses and saves lives should not

be compromised.The WHO remains committed to working with the national

government to enhance the benefits of safe and efficacious vaccines to Indiaspopulation.