Bitter but Unavoidable Medicine

8/3/2019 Bitter but Unavoidable Medicine

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Bitter but Unavoidable Medicine

Given that inflationary expectations are well-entrenched, harsh monetary

tightening is all but inevitable

Central bankers never talk about what the worst-case scenario is, admitted MervynKing, governor of the Bank of England, in a rare moment of candour. Its a differentmatter that King was referring to the Lords test between India and England, where the

worst-case scenario was that bad weather had set in and we are not going to get asingle ball bowled for the rest of the day. But he could well have been speaking for thegovernor of the Reserve Bank of India (RBI), D Subbarao. The Banks First QuarterReview of Monetary Policy 2011-12 released last Tuesday paints a rather gloomy picture

of slowing growth and persistent and high inflation but stops short of describing what the

worst-case scenario could be, a return to the stagflation of the 1970s.After all, none of the factors advanced as justification for the sharper-than-expected hikein policy rates is particularly new or convincing. Demand pressures have been strong andinflation has been way higher than the RBIs own projections for the past many months.Yet the RBI preferred to hold its horses and persevere with baby -steps. As for growth, itchose to ignore signs of over-heating when, arguably, there was a case for monetary

tightening and tighten just when there are signs that growth has begun to moderate,even if, as the Statement says, there is no evidence as yet of a sharp of broad-basedslowdown.So why did the RBI turn much more hawkish than earlier? Why did it decide that it is not

only necessary to persevere with its anti-inflationary stance, but also go on toadminister harsher medicine than in the past, disregarding market expectations and its

own decidedly more dovish past? The Bank claims it has been among the mostaggressive across the world in tightening liquidity (a debatable claim going by theaccompanying table), but conveniently ignores the fact that even more aggression wascalled for since inflation is among the highest in India. So what changed?There are two possible explanations. One, the inflation outlook is far worse than theBank has cared to admit to date. A careful reading of the RBIs First Quarter Review ofMonetary Policy 2011-12 released last Tuesday suggests this might be so. For perhapsthe first time, the RBI has put inflation concerns foremost and in no uncertain terms,

calling it the dominant macroeconomic concern.Better still, unlike the previous year when it retained its unrealistically low estimate foryear-end inflation only to dent its credibility when the final March 2011 number came in,it has raised its inflation projection for March 2012. The Bank now expects fiscal 2011-12

to end with inflation at 7%, up from 6% projected in May this year. Even this comes witha number of caveats: the performance of the southwest monsoon that does not look toohopeful at present, crude oil prices whose outlook is uncertain, policy decisions regardingadministered prices. Hence, we could end up with inflation well above 7%.

The second reason for the Banks uncharacteristic (though not unwarranted) aggressivestance could be that it has finally managed to convince the government that it is riding atiger. Witness the thumbs-up the rate hike has got from the finance minister, Pranab

Mukherjee, a far cry from the days when government was overtly and covertlypressurising the Bank to keep interest rates low, regardless of the long-termmacroeconomic consequences.

As a consequence, what we see is a Bank that is far more confident of itself. In the

past it was often content to attribute inflation to supply-side constraints, ignoringdemand factors. Now, its First Quarter Review of Macroeconomic and Monetary

Developments during the current fiscal admits what many observers have pointed outearlier. Without the presence of demand pressures the generalisation process (ri se in


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inflation across sectors) would not have sustained over successive months.Further, the significant pick-up in inflation in nonfood manufactured products since

December 2010 is largely driven by pass-through of input cost pressures to outputprices. So, any moderation in such inflation would require easing of pressures both fromthe input cost side as well as demand. Ergo, a blunt assertion that in the absence ofcomplementary policy responses on both the demand and supply sides stronger

monetary policy actions are required, and an aggressive 50 basis points hike instead ofa tepid 25 basis points hike.A third, though unrelated, reason that perhaps influenced the Banks decision to acttough is the unmistakable shift in public opinion on the growth vs inflation debate.Editorials in dailies the day after the Bank delivered its harsh medicine suggest a farbetter understanding of the RBIs compulsions in a scenario where the government doesnot keep its part of the bargain. And that is no small victory. A white paper known for its

strident criticism of the RBI even defended it saying, it is often a misconception thatraising interest rates is bad for investment and therefore if investment slows downinterest rates should be cut. Bravo!Predictably, industry has cried foul, stock markets have reacted in their usual kneejerk

fashion and borrowers faced with rising EMIs (equated monthly installments) are

dismayed. But when inflationary expectations are as entrenched as they are in Indianow, bitter medicine is unavoidable if growth is not to come to a grinding halt.Low inflation, as the Prime Minister has repeatedly asserted, is the best antidote topoverty.

MYTHILI BHUSNURMATH

Limited Lokpal


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The Lokpal should probe the PM, ministers and babus, not MPs and judges

The governments version of the Lokpal Bill says that sitting prime ministers will not

come under the ombudsmans lens. Instead, it should have empowered the Lokpal toexamine the functioning of the entire executive. Now, the Lokpal will have jurisdictionover ministries, but not the prime minister and his office. Excluding the incumbent PM isa mistake. He is the head of the Cabinet and the first among equals; he is a minister, asliable to scrutiny as his peers. Ministries and various departments are the functioningarms of the government, which enforce rules that are vital for trade, commerce,investment and almost every facet of peoples lives. The root of corruption lies in howthese rules and policies are administered. While the authority to frame policy is

unarguably that of Parliament and the government, the Lokpal should have the authorityto see that the policies are administered fairly. For example, the exact formula toallocate telecom spectrum whether by a first-comefirst-served rule or auctions

should be determined by the government. The Lokpal should make sure that whateverprocess is chosen is followed fair and square.The structure of regulation and graft is held together by bureaucracy, which hasfixed tenures and near-immunity from prosecution. This immunity will go by bringingcivil servants under the scrutiny of the ombudsman. Unless rule makers and enforcersare open to scrutiny, the Lokpal will be truly toothless. However, the Lokpals powersneed to be circumscribed. The government version correctly says that the ombudsmanshouldnt have jurisdiction over the conduct of members of Parliament. Our directly-elected MPs are responsible to people who have voted them into Parliament and to theirparties. Its up to political parties to ensure that their representatives behave withdiscipline in the House. The Speaker is armed with enough powers to keep order. Finally,

the Constitution has made the judiciary independent of the executive so that it can actas an effective check on the latter. This independence has been respected and theLokpal cant meddle with the judiciary. In any conflict, the courts will be the final arbiter,

not the ombudsman.

A Welcome Move

India needs an independent body for environmental appraisal and monitoring

Prime Minister Manmohan Singh hit the nail on the head when he declared that theenvironment cannot be protected by perpetuating poverty. But the regulatory frameworkfor environmental clearance of development projects needs urgent streamlining andreform. Dr Singh added that the Centre would soon set up an independent regulatorybody, the National Environment Appraisal and Monitoring Authority. This is welcome,

provided the authoritys work is based on science and clear-cut norms and that theinstitution would not regress to the opaque and hated licence-permit raj of the pre-reform days. The way ahead is to have in-built predictability in the whole process of

environmental vetting and clearance, based on sound guidelines and standards. What isessential is that environmental approval should underscore the principle of sustainabledevelopment, with a vision that is forward-looking. Also, approvals and objections need


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to be made in a transparent, timebound manner with ample provision for course-correction in project implementation, in what remains an under-industrialised economy.

It would often be the case that proposals requiring forest clearance or additional effluenttreatment can be made good with afforestation, proactivity and other attendantmeasures.As an autonomous body of professionals, the proposed body for environment appraisals

and monitoring should mark a major institutional improvement. At present, theenvironment ministry both vets and approves projects. True, individual ministers andconcerned justices have, indeed, gone on the front-foot and batted well for theenvironment. But we do need institutional reform for better oversight and addedtransparency. However, the environmental norms must not be cast in stone, but keepabreast of changing knowledge and take into account societal dynamics as well.Additionally, the states need to follow the Centre and hive off appraisal and monitoring

from their respective environment departments. A business-like approach onenvironmental oversight would be all for the greater good.Advertisement

Land Acquisition Challenges Can BeOvercome

S SANANDAKUMAR

Kerala has not been very successful in the past to consistently attract big-ticket

investments. The absence of strategic investments in key sectors has always been ahurdle in the states path to economic prosperity. The new chief minister OommenChandy, known for speedy decision-making, wants to change this scenario. He has

already been able to swing public opinion in his favour by addressing long-pendingissues such as the Smart City project and the Kochi Metro Rail project. The immediatepriority for his government is to make Kerala investorfriendly, he says.Chandy reminisces that A K Antony, who once headed the United Democratic Front(UDF) government in the state, took a major initiative called the Global Investors Meetto attract foreign direct investment. It yielded positive results. A World Bank study, thatwas released during the previous tenure of the UDF (2001-06), gave a high ranking to

the state in terms of overall investor-friendliness. It is another matter that by 2008, thestates ranking had nose-dived, says Chandy. During his previous stint as CM from 2004-06, it was Chandy and the then industries and IT minister P K Kunhalikutty who jointlyspearheaded the initiative to allow the Dubai-based Tecom to invest in a 8.8-million sq ft

technology park in the state. However, the project, called Smart City, sparked off acontroversy and remained a non-starter for the last six years. This time, after assumingoffice as chief minister, one of the first things Chandy did was put the project back ontrack. But given the high density of population in the state, isnt land acquisition for largeprojects going to be a major issue? Chandy concedes that finding suitable and adequateland will be a challenge in the state. He, is however, quick to add that this will beovercome through liberal compensation packages. Compensation at market rate will be

given before the commencement of the project, he says. We will overcome thesechallenges, he says, adding that people will cooperate if the compensation for their lossis in liberal terms. However, to accelerate the overall economic development of thestate, the government also needs to focus on some of the disturbing trends in the states

agriculture sector like the steep fall in both the area under food crops and theconsequent drop in output of these crops. Is the high wage rates in the state responsible


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for this state of affairs?According to Chandy, more than the high wage rate, it is the serious shortage of labour

that has impacted the sector. While maintaining that there are no easy solutions to allthese issues, Chandy says the government would soon come out with a policy statementon agriculture.Soon after assuming charge, the chief minister unveiled a 100-day programme for his

government. All departments were asked to list out their projects and programmes to beaddressed during this period. The different issues confronting the state were taken upone by one.A proper rehabilitation package for the people at Moolampally, evicted from their homesto provide rail and road connectivity to the Vallarpadam International ContainerTransshipment Project at Kochi, was finalised in the first few weeks. Chandysgovernment managed to settle a three-year old issue in two months.

In an attempt to bring in an element of urgency while trying to solve the problems facedby the people, the government will come up with a one-year programme at the end of its100-day programme, Chandy says.But can a coalition government, functioning on the strength of a wafer-thin majority, be

able to achieve all this? Chandy is confident that it can. He said that the government will

follow a policy of consensus on major issues. On sensitive issues, the government will tryto work out solutions after taking all the major political parties into confidence, he says.While Chandy hopes to win over the Opposition through such a policy, his own coalitionpartners have been giving him problems of late. Several decisions that the Indian UnionMuslim League (IUML) and the Kerala Congress (M) [KC(M)| took have misfired, forcingthe government to go on the back foot. The maiden budget of the government,

presented by the finance minister K M Mani, was criticised by some of the CongressMLAs themselves. A budget proposal that estate owners can use a small portion of theirland for tourism projects had invited severe criticism from the Opposition as well.However, in support of the budget, chief minister Chandy was quick to point put that the

proposals in the budget were all in line with the declared policies of the government. Iwill not agree to the view that the decisions of the IUML or KC (M) have cast the

government in bad light", he says.

Sebis Fine Balancing Act

RASHESH SHAH

Sebi has taken a balanced and pragmatic approach to takeover by amending the

Achuthan committee recommendations on Takeover Code. The main objective of a codeto govern takeovers of listed companies is to ensure that the interests of minorityshareholders are protected. This was the key premise on which the Achuthan committee

had based its recommendations. There, however, was afeeling that perhaps in a fewareas the committee had tended to ignore market realities while trying to protect theminority shareholders. Take for example the committees original recommendation that


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an Open Offer should mandatorily be for 100% of the outstanding shares. The reportpointed out that a partial open offer provision allowed for promoters to sell 100% of their

holdings in a company. But if this sale triggered an open offer and it was partial, theother shareholders may not get an opportunity for a 100% exit.Though minority investorfriendly, this would have been too onerous and made anycontrol stake acquisition very expensive. It would have also put Indian acquirers at a

disadvantage as they do not get bank funding for takeovers would have found it verydifficult to fund 100% open offers. On the other hand, international companies who canraise funds cheaply would have been at an advantage. The committee discussed thispoint but held that philosophy of equitable and fair treatment of all shareholders shouldhave a primacy over other considerations.Sebi while deliberating on the issue has taken a more considered approach and takenmarket realities into account. Its decision, therefore, to raise the minimum offer size to

26% from 20% but not to accept the decision of making a 100% offer mandatory is awelcome step.In fact, this change should be read in conjunction with the other decision of raising thetrigger threshold level from 15% to 25%. The earlier provision of 15% was too

restrictive and made it very difficult for private equity funds and other strategic investors

to invest in small or medium cap companies. Also the trigger of 15% was not in syncwith any legal threshold status as the key legal threshold holding in any company is25%, 50% and 75%.The recent changes make the whole thing much more logical. If one entity or group ofentities holds 25% shares of a company, then it can block any special resolution.Therefore, it seems logical that an open offer be triggered only when someone acquires

such powers. And by ensuring that the open offer is for a minimum of 26% of theoutstanding shares, the regulator has ensured that the acquirer needs to aim for at leastmajority control. This is far more logical an arrangement. This would also make hostiletakeovers more likely in India.

Sebi had a more difficult task to perform when it came to the issue of non-compete fees.True, the provision has been misused often and is prima facie against the interest of

minority shareholders. However, when a controlling stake is sold and certain non-compete clauses are imposed on the seller, these have certain economic value beyondthe share price. Maybe the answer was to have a more nuanced approach wherebythis noncompete could have been allowed up to a particular absolute cap amount.Another idea was to get minority shareholders to vote on a noncompete where thepromoter being an interested party cannot vote on the motion. All this, of course, iswater under the bridge with Sebi decision to abolish non-compete fees. What is the likelyimpact of this? One possibility is that it may result in a bigger market for differentiated

voting right (DVR) shares. So far a few companies have issued such shares, but themarket, unsure how to treat them, tends to discount them by almost 35-40%. Sebisdecision is likely to increase the issuance of DVR shares. Though DVR has someregulation clarity issues such as, do DVR share participate in open offers? this

recent move may give a boost to DVR issuances.Another decision, while not about the takeover code, but would help the retailshareholders tremendously is the simplification of the KYC norms. Currently, each Sebiregulated entity, broker, depository participant (DP), mutual fund, portfolio manager, etc

has to do the KYC formalities resulting in duplication of work, wastage of recordkeepingspace and is a burden on the intermediaries and even more so to the client seeking tomake investments. By deciding on a structure of KYC registration agencies which can

then do all the KYC paperwork that can be used by all market participants, the regulatorhas taken a lot of pain out of investing. It is one measure that should go a long waytowards boosting market participation by retail investors.

(The author is chairman andCEO of the Edelweiss Group)


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Sole of Controversy

The shoe serves not just to cover the sole of the foot but also to bare ones true

soul

Time was when footwear stood, as it were, with its feet planted firmly on the ground,focusing on its prime function of protecting the wearers feet. Times have changed.

Footwear might still be in contact with terra firma in a lame physical sense, but servesmore elevated goals than mere insulation. And here, let us forget the functionaldifferentiation between what a ballerina slips on over her twinkle toes and therequirement of fireman or a construction worker, and focus on the aspirationaldimension. For the fashionista, what shods her feet is a statement of style. The designer

pampers her with flowing creativity in the shape, material, feel and variegated height ofher object of desire. The athlete is looking for that extra bit of flex, cushioning, groovingand fit in his shoes to give him the edge on the track or in the field. In every such

instance, the shoe caters to hope and desire. The even more interesting shoe is thepolitical one. The sheer size of Imelda Marcos footwear collection was a major factor inturning Filipinos against their dictator. The flying missile inaugurated by an Iraqi

journalist in Baghdad has been imitated so many times by now that it flatters the

original launcher no more than its intended targets. When an aged personal securityofficer bends down and cleans the shoe of the chief minister he is supposed to guard, itbecomes a parable for hubris that blurs the distinction between the modern and thefeudal. When a minister uses a garland that he had freshly been greeted with to wipe his

shoe, its semiotic possibilities are explosive, particularly when the garland/wipe wasmade of handspun cotton, so dear to Gandhi. Is it that the minister has only contemptfor the practice of greeing people with garlands, or only for the greeters? Did it bare hissoul on Gandhi or bouts of absent-mindedness?Advertisement

Tourism: Add Inclusive India to Incredible India

The latent potential of galloping tourism can be realised by adopting PPPmodel to take care of infrastructural constraints, conducive policy and effectiveuse of technology

RANA KAPOOR

Without being inclusive, financial and economic stability cannot be sustainable. I amconfident that most of us will agree with this statement. The challenge, however, is on


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fast-tracking execution of inclusion planning. In my view, micro, small and mediumenterprises (MSME), agribusiness and tourism are three key drivers that can generate a

huge multiplier impact to expedite our economic and financial inclusion objectives. In myprevious article, I had written on the positive impact of MSMEs as a mission-criticalinclusive-growth opportunity.Tourism is the second pillar that provides an effective delivery platform for inclusive

growth. Further, with its backward and forward linkages and local connect, tourismbecomes an important driver of equitable growth and prosperity offering an alternativesource of livelihood, development and growth of remote locations, preservation of localskills, enterprise development at the micro level, and sustainable environmentmanagement.Globally, tourism remains a critical economic sector, employing around 250 millionpeople 8% of global employment accounting for over 9% of the worlds GDP, and

over 9% of global investments.In India, while tourism is one of the largest employers, creating 78 jobs for every . 10lakh of investment and expected to create 37 million additional jobs in the next 10years it remains grossly underutilised as a means of creating sustainable financial

inclusion. India has bountiful natural, cultural and monumental resources, and tectonic

architecture that has not been effectively tapped.With higher economic growth, share of emerging economies in global travel and tourismGDP is expected to increase significantly over the next 10 years, as also highlighted inthe WTTC report, Economic contribution of travel and tourism. This trend is alsoamplified by the significant increase in tourism activity in the country in the last decade:a three-fold increase in domestic tourist visits to 650 million, and over a two-fold

increase in foreign tourist arrivals to 5.6 million, driven by rising domestic travel,increased spending power and strong international positioning. However, while touristinflow has significantly grown in India, we are still far from the latent potential. Even thebest tourism destinations in India, such as Goa and Taj Mahal in Agra, are grossly

underpenetrated as compared to their regional competitors such as Phuket and GreatWall of China.

So, how do we reap and maximise benefits of this Great Domestic Opportunity? The keychallenges for India, as highlighted in various forums and in the recent Travel andTourism Competitiveness Report, 2011, by the World Economic Forum, include lack of(a) quality infrastructure, (b) skills development, (c) conducive policy framework, and(d) coordination among various authorities.Considering the social and economic imperatives of tourism, an integrated effort isrequired to effectively address these challenges. A three-pronged approach isrecommended as follows:

Adopting PPP model to address infrastructure constraints:

Publicprivate partnership (PPP) has proved to be a successful model for acceleratingdevelopment of tourismrelated infrastructure, particularly in the southern states

including Karnataka, Kerala and Andhra Pradesh. The same should be adopted by otherstates, especially in the regions that are lagging behind in terms of tourismdevelopment. Further, the expertise of the private sector should be used to implementlarger tourism projects such as integrated tourism destinations, eco tourism, medical

tourism,adventure tourismand golf tourism. Within the framework of PPP, a feasible solution lies in the social

equity model for inclusive growth that recognises the aspirations of the localcommunity, and enables participation of the less advantaged in larger development

efforts. This model attempts to holistically include the local community as a partner, andis an enabler of development linkages with the rural and semi-urban communities. The

model may be used to implement new tourism projects, especially in the areas of rural,


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agriculture, cultural, religious, and eco-tourism, where the development and involvementof the local community is equally important.

Under this model, a special purpose vehicle or a cooperative is formed with equity from apromoter, private investors and social equity from the local community in the form ofland allocation and local support. Government agencies and NGOs provide the necessarysupport with respect to fiscal concessions and facilitating the formation of synergetic

partnerships between the local communities and promoters of the project. Themanagement of the project is shared by the local community and the promoter. Theinvolvement of the local community also ensures sustainability of the project due to thecreation of employment and added revenue for the community.

Conducive policy frameworks for tourism development:

There is a need to implement institutional frameworks that lead to synergisticdevelopment by coordinated participation from multiple authorities with a focus ontourism-related development. A steering committee on the tourism sector, constitutionof National Tourism Board and further strengthening of the ministry of tourism shall helpin formulating conducive policies that are favourable for tourism development. This

would also lead to a higher number of tourists, local community and investor confidence.

Leveraging technology:

While the online travel industry has made travelling more convenient, the impact is stilllimited to online travel, railways and top-end hotel stays. The next wave of technologyintervention is critical to enhance the tourist experience, and further increase awareness

of India as a tourist destination, particularly considering increase in competition forglobal tourist inflow.We sincerely believe that pan-India travel currency cards, online travel and hotelbookings, timely information exchange between stakeholders, availability of multilingualwebsites, virtual 360 o tours on Websites, focused Internet advertising campaigns and

effective use of social media can enable greater tourist inflows and seamless travel fortourists in India.(The author is founder, managing

director and CEO of Yes Bank)


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Can Old Politicians Learn New Tricks?

This week, I could use up my allotted space just by running through tickertype

headlines, theres just so much going on all around the place. Whatever happened tothose lazy, somnolent, English Augusts, when I used to climb the walls in boredom?Sigh. One never appreciates a good thing when one has it. This is one of the busiestsummers in recent history, every time we turn around, something major has happened,

somewhere in the world. After gripping weeks of spills and thrills in the phonehackingscandal which continues to putter along nicely even during a summer recess, thankyou we woke up one morning to the massacre in Norway, very Scandinavian Noire. It

brings back, after a hiatus of some years, the spectre of a vibrant extreme-right terroristmovement to centre stage again. Before we could turn around, iconic singer AmyWinehouse died, either of a drug overdose, or hold your breath from withdrawalshock after giving up alcohol. I can just imagine what tipplers will make of that rather

interesting bit of information.This weekend, we had another royal wedding: Wills cousin Zara Philips married herlong-time partner Mike Tindall, Englands rugby star, in a private ceremony atEdinburgh. In case you didnt know, Zara is the Queens granddaughter, daughter of her

eldest daughter, Princess Anne. Shes a top-rated equestrienne herself.

I cant remember off-hand the historical reasons why she doesnt use a royal title, Ithink her mother didnt want one, but the wedding is very House of Windsor without the

global attention or public broadcasts. Brits and Scots seem to think this one is a replayof April for their own private consumption, understated and low-key just how they liketheir celebrations.Meanwhile, American politicians joined their Brit and Indian counterparts in putting up

the silliest show on earth. The American Tea Party is, to the rest of us, increasinglylooking like the Mad Hatters. Nobody thinks the world will end even if the squabblingAmerican politicians cant reach a compromise by Tuesday. But nobody knows what willhappen, because America has never run out of its overdraft before.It has given rise to that deliciously-ironic situation when China, which is Americasbiggest lender, was able to publicly admonish American politicians to behave. I dontsuppose that goes down very well with an America used to lecturing China on itsgovernance. Its the supremely funny spot in the drama that could end up in economictragedy.The other odd fallout is that eurozone politicians came out looking less ridiculous, simplybecause they managed to patch up the Greek crisis at the last minute, after almost

everyone had given up on their getting their act together. Its a bad time for politicians,everywhere. Britains politicians still have to answer loads of uncomfortable questionsabout their relations with media as the public enquiry gets underway.

Last week, when Pranab Mukherjee and George Osborne were facing the press here, Iwas tempted to ask if theyd been exchanging tips on how to deal with corruptionscandals racking their respective governments.I think they should all get together and start a global politicians school, How to wiggleout of looking like fools and rogues. They could also call on Middle-Eastern sheikhs to

join them in secret classes on how to deal with a population totally fed up of you. If onedid a global survey on what every populace currently thinks of their leaders, well get the


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worst-ever rating everywhere, irrespective of whether its a democracy or a dictatorship.Talking of politics, now to the sub-continent where I suspect a seismic shock has just hit

the delicate balance of power. Theres far more to the Hina Rabbani Khar phenomenonthan her accessories. Get all feminist or scornful, but the fact is that a young, beautiful,poised and posh woman is better than a nuclear missile for international diplomacy. Itsthe ultimate demonstration of soft power. Personally, I love it. Its just what the tense

Indo-Pak relationship needs, an infusion of fizz and sparkle, however superficial ortemporary.But if thats the impact she had in India, I expect shell completely overwhelm theAmericans, Europeans and everyone else. The MEA needs to immediately update itsalready Jurassic foreign diplomacy strategy, if they want anyone the world over to evenmake a pretence of listening to the Indian point of view on any subcontinental issue.

In the UK, for instance, we all know that Pakistan punches way above its weight

politically and in the media, simply because of extremely efficient PR and lobbying,something the Indians never get right. Nobody in a faraway land can appreciate the

justice of any situation on the other side of the world, if they dont know about it. With alethal weapon like Khar in Pakistans arsenal, the odds get astronomical. Id worry if I

were an MEA strategist. Unfortunately from what I know of them, theyre probably going

to dismiss the whole thing as trivial media hype.And in the middle of all this, everyone keeps asking me about when Sachin will make his100th century. Which he might have already done by the time you read this. In whichcase, nobody in India will be interested in any other news

Govt may Move SC for Bellary Order Review

Violators to be isolated, ore requirement determined

OUR BUREAUS MUMBAI | NEW DELHI

The government will seek to isolate violators of law among mining companies anddetermine the amount of iron ore required by the steel industry in order to persuade theSupreme Court to modify its order issued on Friday suspending mining in Karnatakas

Bellary district. The government leadership does not view the Supreme Courts interimorder as yet another example of judicial overreach, instead viewing the intervention asan effort to set things right after rampant illegal mining degraded the environment in

Bellary and robbed the exchequer of its dues, say people connected with the issue.This is in sharp contrast to the states hostile reaction to an earlier order passed by atwo-judge bench on setting up a special investigation team to probe black money. Thegovernment has asked the court to review that order.On Friday, the court sought information on the amount of ore needed, the share ofBellary mines in the total requirement and the quantum of ore exported. Ministrysources said Attorney-General GE Vahanvati has already asked the environment ministryto convene a meeting with secretaries of the ministries of mines, steel and commerce to

provide information sought by the court. The report has to be tabled in a week. Themeeting of secretaries is on Tuesday.The people said there is no immediate crisis because there is not much mining during

the monsoon. They said the court could modify its order to allow some mining in about

three weeks, once it is provided with all the data.Last Friday, a special bench of the Supreme Court headed by Chief Justice S H Kapadia


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passed the suspension order after examining the latest report of the Central EmpoweredCommittee, a statutory body set up by the court.

The information provided by the government and CEC would help in assessing the levelof environmental degradation, isolating wrongdoers among the mining companies, anddetermining the amount of ore that needs to be sourced from Bellary. Once it gets theinformation, the court is likely to modify the order to allow some mining while punishing

the guilty, say the people cited earlier. The assessment sought by the Supreme Courtahead of its final order will be crucial in determining the fate of the Bellary region, whichalone produces 80% of the total ore produced from Karnataka and employs more than alakh people.

A Weeks Time may not Be Sufficient

The Karnataka Lokayukta, a state-level anti-corruption agency headed by JusticeSantosh Hedge that presented its report last week, pegged the value of illegal mining at

about Rs 16,000 crore.

That report had said the majority of mining companies were guilty of violation. The mostfamous, or notorious, of these is Obulapuram Mining Company, owned by the three

Reddy brothers, two of whom are ministers in the Karnataka government.The broad opinion within the government is that given the reports and informationavailable with the apex court, there was no way the bench could have passed a differentorder. The committee had found as much as 40% overmining above what is sanctioned

under environmental clearance.About 98 of the 148 mines in Bellary are located on prime forest land. The Lokayuktahas already registered cases against more than 55 companies.While the apex court order does not put a blanket ban on mining activity in Bellary, ithas directed the environment ministry to submit a report on the quantity of ore requiredby steelmakers, to determine whether past mining activity in Bellary was in tandem with

the demand for the mineral. Karnataka produces about 45 million tonnes (mt) of ironore, according to a state industry association, of which 70-80% comes from Bellaryalone. The region is home to a number of large and small steelmakers that have acombined capacity of 25 mt, including 10 mt put up by Indias largest privatesteelmaker, JSW Steel.

The regions steelmakers account for a third of Indias total steel capacity.There is apprehension that the weeks time provided by the court may not be sufficientto work out the iron-ore requirements. There are also doubts whether the CEC, whichfocuses on forest-related issues, has the technical capability to undertake comprehensiveenvironmental assessment.Even as the apex court considers its next step, the environment ministry will go aheadwith action against those mining in excess of the sanctioned capacity, or encroaching

into reserve forests. The ministrys action is based on information it gets from theregional office.Stop-work order has been issued to nearly 40 mining leases in the forest area onaccount of violation of environmental and forest norms. The environment ministry had in

October 2010 issued a moratorium on fresh applications for mining in the Bellary areaafter reports on illegal mining. The moratorium will remain in force till the stategovernment takes concrete action to curb illegal mining, the ministry said.The ministry has been requesting the Karnataka government for the last 18 months topresent its plans to put in place a foolproof mechanism to control illegal mining and givea time-bound implementation.

It will be very difficult for steelmakers who source iron ore from Bellary. The issueneeds to be cleared and not all mine owners are guilty of violating norms, said NitinJohari, finance director of Bhushan Steel, which had signed an agreement with the

Karnataka government to build a steel plant.Global players like Arcelor-Mittal and Posco, which too had evinced interest to set up


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steel plants in Karnataka, are not unduly worried. The apex courts (intention) is topunish those owners who have flouted the rules. For mine owners who have conformed

to the law, there will be no punishment, said a senior executive from one large steelmajor.Earlier in an interview to ET, SY Ghorpade, head of Sandur Manganese & Iron Ores, oneof the largest miners in Karnataka, said: When considering a ban, they should see the

track record of the company. It is not fair to mix good eggs with bad eggs.Other companies that will be affected include Kalyani Steel, Jindal Saw, Tata Metaliks,Kirloskar Ferrous Industries. An Assocham report says about Rs 70,000 crore has beeninvested by steelmakers based on ore supplies from Bellary.

US Readies Debt-limit Framework

The deal structure includes immediate spending cuts of $1 trn & setting up of aanel to recommend savings

HEIDI PRZYBYLA & KATE ANDERSEN BROWER

WASHINGTON

President Barack Obama and congressional leaders began a fresh attempt to reachagreement on raising the US debt cap, with a potential framework for a deal emerging

two days before a threatened default deadline.The White House and congressional Republicans have sketched out the contours of anagreement to increase the nations $14.3 trillion debt ceiling that would raise borrowing

authority through the next presidential election, a person familiar with the talks said latelast night.The tentative framework includes immediate spending cuts of $1 trillion and creation of aspecial committee to recommend additional savings of up to $1.8 trillion later this year.

The new panel would have to act before the Thanksgiving congressional recess in lateNovember and Congress would have to approve its recommendations by late Decemberor government departments and programs, including defense and Medicare, would faceautomatic, acrossthe-board cuts, the person said.

No more than 4% of Medicare would be subject to cuts, and beneficiaries would beunaffected as reductions would apply to providers, the person said. Social Security wouldbe untouched.The framework also calls for Congress to vote on a balanced budget amendment to theConstitution, the person said. Amendments require two-thirds majorities to pass, and ifenough Democrats oppose the measure it would have little chance of winning approval.White House officials familiar with the talks cautioned after reports of the framework


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surfaced last night that no final agreement has been reached among those involved in

negotiations and that negotiations were continuing.The prospective agreement wouldnt include increased net revenue, a sticking point forRepublicans whove been adamant that any deal with tax increases couldnt pass theRepublican-run House.

Democrats, including those who run the Senate, have been insistent that any deal must

be a balanced approach that includes revenue, raising questions about whether Obamawould find substantial support from his party for the plan.Obama and congressional leaders on Saturday kick-started the new push to prevent a

US government default on its debt after several previous efforts in recent weeks hadfallen short.As the day progressed, Republicans and Democrats expressed greater optimism a dealmay be within reach before August 2, the date Treasury Department officials have saidthey will run out of options for avoiding default without a debt limit increase.Financial markets were restrained in reacting to the impasse on a debt deal through July29. Treasuries rallied, sending yields on 10-year notes to the lowest level sinceNovember. The yield on 10-year Treasury notes declined 15 basis points to 2.79% inNew York. Stocks fell as economic growth trailed forecasts. The Standard & Poors 500

Index slipped 0.7% and tumbled 3.9% this week for its worst slide in a year. SenateMajority Leader Harry Reid last night said he was confident that reasonable people fromboth parties should be able to reach an agreement.Reid, in remarks on the Senate floor before details of the framework emerged, cautionedthat there are many elements to be finalized and there is still a distance to go before

any arrangement can be completed. Still, the Nevada Democrat said, I am glad to seethis move toward cooperation and compromise.Earlier Senate minority leader Mitch McConnell, a Kentucky Republican, said he was

more optimistic and that negotiators have got a chance of getting there. HouseSpeaker John Boehner, an Ohio Republican, also voiced confidence an agreement couldbe reached.Obama has been demanding an increase in the $14.3 trillion debt limit that lasts through

the 2012 election, when he is seeking another term.Reid moved last night to give the negotiations more breathing room, pushing forward by12 hours a planned test vote on Sunday on a pending measure he has to raise the debtceiling and cut government spending. at the Capitol. The House earlier on Saturday held

a symbolic vote rejecting the Reid plan, 246-173. Bloomberg


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Bitter but Unavoidable Medicine