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BW Businessworld

Solid Stance

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India’s decision to oppose the adoption of the Trade Facilitation Agreement (TFA) protocol at the recent WTO meeting has evoked mixed reactions from member nations. But its position is very clear. The country is not against TFA. It is only against the “persistent efforts that are being made to subvert the WTO mandate by divesting it of its core elements”. The last time that the Indian political leadership showed similar grit was at WTO’s Cancum Ministerial Conference in 2003. While it should stick to its stand at the WTO, New Delhi should unilaterally do what it can to facilitate its external and internal trade. It can augment its freight infrastructure, modernise its customs procedures and enhance its trade with neighbours in the spirit of TFA. India should not be known as anti-trade; instead, it should be known as pro-development in its actions.  
— Joe Mathew

Ringing In The Good Times
Three years after the service was launched in India, 3G is finally starting to pay off for its operators. Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications, who together shelled out nearly Rs 38,000 crore for the 3G spectrum in 2010, boast of 50 million-plus 3G subscribers now. While that’s less than six per cent of the total subscriber base, the impact on data revenues of firms is quite evident. In the Mar-Jun quarter, Idea Cellular, for instance, saw its 10 million 3G subscribers account for half of its total data revenues of Rs 854 crore  (total revenues Rs 7,556 crore). This is one metric operators will now be looking at closely. After all, that will be a means of factoring how quickly they can pump more revenues from users. 
— Anup Jayaram

Hard Talk
IF ever there was a loose canon in the Indian judiciary, Justice Markandey Katju is certainly one. Last month, he outdid himself by all but naming a ‘corrupt’ judge and saying how three successive Chief Justices of India kept him in office, bowing to political pressure. Nobody can accuse Katju of ulterior motives.The process of appointment of judges is indeed a matter of concern. In this regard, the Judicial Appointments Commission is a step in the right direction. With a broadbased selection panel, including the representative of the opposition party and eminent jurists, there will be a fair and transparent selection process. With trust in the judiciary’s integrity wearing thin, a system of selection that is perceived as most fair cannot wait to be implemented.
— Abraham C. Mathews

Pumping Up The Cost
the pricing mechanism of petroleum products by state-owned oil marketing companies (OMCs) has come under the scanner of the Comptroller and Auditor General of India (CAG). Apparently, the OMCs have been calculating their under-recoveries on the basis of a notional loss in terms of customs duty on diesel and petrol, which they never pay to the government. They earned Rs 26,600 crore between 2007 and 2012 on account of this calculation. The OMCs’ claim that the additional amount earned through import parity pricing is invested in new refineries is not only weak but also smacks of inefficiency in managing operations. The government should address the faulty pricing mechanism of petroleum products to bring down the cost of fuel.
— Neeraj Thakur

A Win-win Ride

life is expected to become a lot easier for vehicle owners with the insurance regulator considering allowing a five-year one-time cover for automobiles. On the face of it, such a policy appears a win-win for all. It will not only do away with the need for insurance renewal every year, but could be cheaper as well. Customers will also benefit as companies may offer such a policy as a freebie to push sales in lean seasons. Insurers may see an uptick in the renewal business in rural areas as well as benefit from a fall in the incidence of ‘staged claims’ – false claims that are made towards the end of the annual insurance cycle. These are interesting times for the sector. 
— Sachin Dave

What’s New Here?
we are told mint road will come out with guidelines for ‘small banks’. These small banks will cater to the credit needs of all things small be it businesses, farmers, micro industries, and the unorganised through high-technology-low-cost operations. Few are aware the idea was toyed with way back in 1996 when then finance minister P. Chidambaram, made a case for what was called ‘Local Area Banks’ or LABs. Four such banks were set up, but the concept flopped. In September 2002, Mint Road in its review of LABs noted “whether it is rural banking or any other segment... size, whether in terms of capital base or totality of operations... is of critical importance”. Mint Road has played it safe in its draft guideline on small banks. It says: “While permitting small banks, issues relating to their size, capital requirements, area of operations... need to be suitably addressed in the light of experience gained.” Well put!
— Raghu Mohan

It’s Time To Get Real
bitcoins may have got a new lease of life recently, with the New York Department of Financial Services coming out with proposed guidelines for licensing of bitcoin intermediaries. Predictably, not everybody is happy with the norms. Many voices on bitcoin forums lament the loss of freedom, But regulation is an absolute necessity for its proliferation among laymen. In the six months since BW | Businessworld wrote about the risks of unregulated currencies like Bitcoin, many more organisations have begun accepting the crypto-currency as valid tender. Just the same, the biggest Bitcoin exchange, Mt Gox, went under, taking $600 million in Bitcoin wealth with it. Clearly, the risks of an unregulated currency are enormous. Bringing in meaningful regulation on the lines mooted by New York might be the touch of assurance that shores it up.
— Abraham C. Mathews

Time Is Not Ripe Yet

benchmark indices may have gained over 24 per cent since January this year, but the IPO market continues to languish. Despite the market tipping a series of new highs, companies are reluctant to raise funds from the stock market. According to merchant bankers, unlisted companies are still not sure about the ‘longevity’ of the current market rally, as there is a lurking fear that the market may correct sharply over the next few months. A few promoters, who do not have immediate funding needs, are waiting for the market to peak out and stabilise, as this will help them command higher stock valuations at the time of IPO. As per Prime Database, over 900 companies have made public their IPO plans over the past one year, but only a handful have gone ahead with the actual process. Since January, only five companies have filed IPO prospectuses for final approvals. From the looks of it, the IPO market may take a while to firm up. A bustling primary market is still 6-8 months away.
— Shailesh Menon

Banking On Equality

the new development bank (NDB) that is proposed to be established by BRICS members with the avowed goal of mobilising resources for infrastructure and sustainable development projects in BRICS and other emerging economies has many positives. First, unlike the World Bank, which is dominated by the United States, its majority shareholder, the five BRICS members — India, Brazil, China, Russia and South Africa — will have equal voting rights irrespective of their share of financial contribution. Also, while NDB will be headquartered in Shanghai, its first president will be from India. Second, the equality principle espoused by NDB serves as a fresh example of how global financial systems should function in an inter-linked world. Third, NDB augurs well for India given its insatiable need for funds to build its infrastructure. Most importantly, unlike other multilateral banks, NDB should not be seen as intimidating or arm-twisting national governments to announce policies that may be seen as favouring the NDB founders. One hopes that finance ministers of all five countries will be mindful of this while laying down the operational procedures of NDB in the coming months.
— Joe Mathew

Prickly Point

the announcement by leading path lab chain Thyrocare of its plans to go public — the first lab chain to do so — has turned the focus on an industry which is largely unorganised but for a half dozen pathology lab chains. Of the 60,000-odd labs in the country, only about 600 have taken a voluntary accreditation with the National Accreditation Board for Testing and Calibration Laboratories (NABL). In most standalone labs, the operating procedures, maintenance and quality of machines are pathetic, posing a risk to people as 70 per cent of a doctor’s diagnosis is based on path lab reports. Then, in many places, doctors are paid a fee for referring patients to path labs for tests. Needless to say, the sector is in dire need of a regulatory ecosystem. To begin with, accreditation with NABL or another competent authority should be made compulsory. There is no point in planning free drugs or hospitals for all when the eco-system for disease diagnosis itself is in such a pathetic state.
— P.B. Jayakumar

Disinvestment Dilemma

The government has  set an ambitious PSU disinvestment target of Rs 58,425 crore for FY2015. While the intent is clear, it may not be able to meet the target, unless it sells stake in some of its prized or ‘Ratna-status’ companies. Finding buyers for loss-making state-run firms such as HMT, Scooters India, Hind Photo-films, ITI, FACT and State Trading Corporation will be very difficult. But not diluting stakes in these companies is also not an option for the government as market regulator SEBI has asked these companies to raise their public shareholding to at least 25 per cent over the next three years. The moot question then is: Will investors buy equity issuances of these companies? Fundamentally, these are unhealthy companies and will not pass the fitness test of any equity analyst. In fact, none of the above-named companies have a 5-year winning track-record. In all likelihood, these companies will not be bought by investors — even at deep discounts. The government has a big problem of ‘duds’ on its hands.
— Shailesh Menon

Dangerous Liaison
PM Narendra modi recently asked scientists at the Bhabha Atomic Research Centre to triple India’s nuclear energy portfolio by 2023. The nuclear agenda will also be his priority in upcoming visits to China, Japan, the US and Australia. Developed developed nations such as Germany and Japan, on the other hand, are moving away from nuclear energy. The fact is no supplier wants to be liable for any nuclear disaster in future since the costs attached are high and even the safest plants are not completely safe, as Japan’s experience showed. Shouldn’t we also be rethinking our nuclear policy?
— Neeraj Thakur

(This story was published in BW | Businessworld Issue Dated 25-08-2014)