Economic Highlights

New Delhi, 26 July 2014

Novel FCI, FDI In Insurance

ENROUTE TOWARDS NEW ORDER

By Shivaji Sarkar

The Narendra Modi Government is indeed taking over the reins. It is taking decisions on reforms and is trying to check prices. It has taken a sanguine decision of selling 10 million tonnes of wheat in the open market and on FDI on insurance it has been cautious as not to put the FDI fund increase to 49 per cent on automatic mode.

Food, FDI, divestment and taxes have been the bane of the economy for the past few years. A bureaucrat-controlled government had made the life of people difficult and the economy was put to shambles. People want the political brains to run the Government. Undoubtedly, the bureaucracy needs to be dealt with a stern hand for taking governance on course.

Importantly, there has been an old suggestion to turn the Food Corporation of India (FCI) into a market intervention agency. The NDA Government has now virtually accepted that wisdom. The Government had earlier taken a decision to release from its stocks five million tonnes of rice. The decision to release wheat should now send the hoarders into a tizzy and force them to release more stocks in the market. Logically the prices of food grains should come down.

The Government, however, has to be cautious. The market undeniably has been convoluted during the past few years to benefit the large traders and hoarders. So it should not be expected that this move alone would lead to a price crash. There are many other allied mechanisms, including forward trading in food grains and farm commodities that have to be reformed. The improper governance of the past few years has put onerous task on the new dispensation.

The availability of food should not be restricted alone to the below poverty level people. Those above that euphoric line could any day slip down if they have to buy food grains and essential commodities at high and unaffordable rates. The ration shop should be allowed to be accessed by anybody who wants to lift the quota from there, even if he or she is a multi-millionaire. There should be no dual pricing. It is the citizen’s right and the Government is supposed to facilitate it. That is the fundamental of the State and good economy.

Onion has not escaped the Government’s attention. It has put a virtual export ban and the doors for imports have been kept open. But the vegetable market has been convoluted by the large retail cartels. Action needs to be initiated against them.

A positive too is seen in the international market. Commodity prices are coming down. It has helped sugar prices to remain under check, despite allowing concession to Indian producers. However, the price situation as yet is not comfortable. The Government has to take more steps to keep its critics at bay.

It is trying to balance institutions such as the views of the World Bank on reforms and strong domestic views on FDI. It has bitten the bullet by allowing increase in FDI to 49 per cent from 26 per cent in insurance. Simultaneously, it has put too many cautionary steps.

Insurance is a volatile business. In the 1950s, foreign insurance companies had put the country in a difficult situation as many folded up without paying the benefits to policy holders. So the 49 per cent increase is not an automatic process. It would require FIPB clearance and mandatorily the control of the company would be with Indians. The Government hopes that it would satisfy the critics of FDI and also safeguard the interest of the beneficiaries.

In yet another move, it has belled the cat at the World Trade Organisation (WTO). It has told the WTO that it would not accept selective developing country oriented customs reforms. The latter has been asked to initiate worldwide reform on customs rates. It means that even the EU and US would have to have the same rates and cannot make arbitrary changes to alter the world dynamics.

The WTO was told to put off trade facilitation agreement (TFA) and India even went to the extent of using veto to stall the implementation of new anti-developing country rules. It is a significant move. It could resuscitate Indian manufacturing as imports of trivial items could be barred through tariff mode. In simple terms, the Government has exhibited the courage to take on the WTO.

So far, it has not taken a decision on divestment though it wants to raise Rs 58,000 crore through this route. It should keep in mind that divestment should not be a fund-raising exercise. The assets of each company – land to scrap – have to be assessed. Hindustan Zinc was sold for Rs 221 crore and the buyer raised Rs 550 crore by selling scrap alone. Similar was the case of Centaur Hotel. Those mistakes must not be repeated and the Government should pay heed to the adage—once bitten twice shy.

A wiser route is to lease out the companies, with controls in Government. Companies such as Air India are causing a constant drain. If it is leased out at a proper annual fee, the Government would benefit in many ways. It also needs to swoop down on all its previous CMDs and other officials who have allegedly made crores by taking illegal concessions as also compromising the interest of Air India to benefit its rivals. All these officials’ pensions and other benefits must be stopped and they should be asked to pay for the losses of the profit-making company.

Divestment has to be selective. Divesting ONGC-like companies does not help the economy. It should also not be for the purpose of reducing fiscal deficit.

Finance Minister Arun Jaitley’s assurance of ensuring low-tax regime is welcome. He has also to ensure that tax officials do not misuse their discretion. Further, he need not expand the numbers of appellate and tribunals as these add to expenditure. He only has to tell the officials that they do not harass people on petty cases such as taking benefits of interest waiver on home loans for 15 years. There are numerous such frivolous cases that causes problem to individuals, who have little time to protest.

Importantly, the Government is making the right moves. It has to ensure that political leadership remains in touch with the people. If that happens, not only in insurance but in all other sectors, investments would not be lagging. One only hopes that a new era in Indian economy would begin soon. ---INFA

(Copyright, India News and Feature Alliance)