Hasty Cash Transfer: Appealing or appalling?

Finally the Govt. has failed to meet the deadline of Direct Cash Transfer( DCT) of subsidy in the wake of haphazard and unfinished preparation. They have now postponed it by four days.

The key purpose of DCT is to provide entitlements in cash to the poor via biometric identification under Aadhar. Any rational Govt. would have first assembled the data of beneficiaries before introducing schemes, intrinsically aiming at poor-benefit. But it is staggering that India still doesn't possess any authentic data of poverty when the entire system of social-welfare schemes rests on poverty-estimation. What is more surprising is that Govt. effort of identifying needy via Socio Economic Caste Census (SECC), which was supposed to be completed by 2006 is yet on play and Govt. is moving forward to live with the faulty list of beneficiaries. Hence many deserving needy will remain out of the ambit since beginning.

Govt. put its all energy into making people Aadhar enabled which doesn’t even estimate income data. Govt. would have done better to either associate it with specifying income data or simply expedited the process of SECC before distributing Aadhar in remote villages.

The selection of states and welfare programs also shows the poor insight of Govt. States like UP, Bihar, Orissa, and West Bengal, considered to be densely destitute, are not part of this first trial of DCT. Apart from this, Govt. has chosen mainly scholarship and pension schemes which are less or not at all tainted with leakage. Pilot projects are meant to be testified in challenging situations, if not entirely then at least on smaller scale. It is pertinent to mention that one of the testing trials in Kotkasim (Rajashthan) has comprehensively failed to deliver the desired results of DCT of Kerosene subsidy.  

Only 40% of India's 1.2 billion people have bank accounts, and only 36,000 of India's 600,000 villages even have a bank branch. There were plans to open 73,000 new "ultra small" bank branches of about 100 to 200 square feet apiece and hire one million banking employees in rural areas (according to minutes from a government committee overseeing cash transfers) but when the target seemed unattainable before deadline, there came a wild card entry i.e. Business Correspondents known as BC model. This model seems tricky. Representatives from companies, financial institutions, panchayat and even kirana shoppers etc can become a BC in far-off villages. These BCs will be deployed in villages with a micro-ATM. Villagers wanting to withdraw their entitlement will approach a BC, get his/her fingerprints verified on machine and will be paid by BC. Micro-ATM devices will be operated through wireless connectivity which is by and large intermittent and creaky. In case of any technological failure, beneficiaries might be deprived of their benefits. 

This Friday Union Agriculture Minister and Nationalist Congress Party ( NCP) Supremo Sharad Pawar cautioned the Govt. against hasty implementation of cash transfer schemes. Many Chief Ministers had also opposed the move in the recently held National Development Council (NDC) meeting. The implementation of DCT, without the consent of state governments, is certainly a tough call in the federal setup of the country. No single target pertaining to DCT has been achieved so far. The problem is that there was no visionary agenda for the same and many institutions were roped in without coordination. Govt. must understand that too many systems lead to no systematic system at all. Mr. Chidambaram, DCT is definitely a game changer (directing towards failure) and a pure magic (a black one).

Corporate for Community

Corporate philanthropy is all set to become a practice thanks to recent amendments in   Companies Act. The amended bill has included a unique proviso of mandatory Corporate Social Responsibility (CSR) in companies operation.  It is now by a statute of law that they are supposed to engage with CSR which was till then a voluntary practice. The Govt. might provide further incentives to motivate the companies to work for social betterment. With the inclusion of CSR in companies act, corporate can safely counter balance the political demand of reservation in private sector through their community development initiatives.

The Bill mandates that companies having net worth of Rs.500 crore or more, or turnover of Rs.1,000 crore or more, or a net profit of Rs.5 crore or more in a fiscal will have to spend a minimum of 2% of the average net profit of the past three fiscals on CSR. If companies are unable to meet CSR norms, they will have to give explanations and disclose reasons in their books for the same. Otherwise, they would face action, including penalty. It is left to companies’ discretion to choose the nature of their CSR programs.

Endeavors carried out by companies for the betterment of community and society are termed as Corporate Social Responsibility. It is considered that they are ethically liable to spend a part of their profit for community development. It is not a new concept for India Inc. Many renowned companies like Tata Group, Aptech, Infosys, Mahindra & Mahindra etc are already enthusiastically engaged in CSR activities. They voluntary provide services in the area of healthcare, education, employment, and environment etc under their CSR projects. This trend of engaging in CSR without a motive of profit emerged twenty years back and is highly popular at global stage as well. In 2011 companies like Statoil, Nestle, Edison, Walt Disney Company, Grupo Ferrovial etc have been listed by Fortune Magazine among top 10 companies involved in CSR.

Though a philanthropic intent involved, CSR has become more of a business strategy. Many global companies undertake ethical business actions, such as maintaining environment sustainability, providing labor etc in order to raise their reputation in market. British American Tobacco (BAT), the petroleum giant BP (well known for its high-profile advertising campaigns on environmental aspects of its operations), and McDonald's are believed to undertake CSR programs in order to avoid ethical questions based on their core operations. However this is not the case in India.

The CSR performance of India Inc has been pathetic. They could neither link CSR with business sustainability nor business strategy. A study carried out by ET intelligence group says that while most companies discuss CSR initiatives at great length only a handful have mentioned the amount spent, either in absolute terms or as a percentage of their sales or profit. Thirty eight companies of the Nifty companies mentioned CSR initiatives in their annual reports or exclusive sustainability reports, but there was no information on the amount spent.

Incorporating CSR as a statutory provision in companies bill is a commendable step. It would make corporate more sensitive and proactive towards their social responsibility. Companies must come forward to complement Govt. efforts for social development. CSR is an ideal measure for complementing government efforts of social development and a win-win preposition for both i.e. companies and society.

Affordable Sickness

How unfortunate it is that India who is called the ‘Pharmacy of the Developing World’ is not equipped-well at home to procure decent health facilities for its vast majority of population. Good number of people in this country becomes the victim of death knell simply because they are not provided with adequate medical attention. Only handful of the people has access to those top-class medical services which India likes to boast of. Poor can’t take advantage of these expensive medical amenities and end up in Govt. hospitals, mostly devoid of doctor and dose. How shameful it is that a good chunk of India can’t even afford to get sick!

In the backdrop of this sorry state of the nation, it is surely a commendable step taken by Gov. to allow reducing the prices of essential medicines. Recently Govt. has passed a long-pending bill named “National Pharmaceutical Pricing Policy (NPPP 12), concerned with the price control of 348 drugs enlisted in National List of Essential Medicine (NLEM). Once implemented, the prices of these medicines will go down by 50-70%. For the first time the cost of imported drugs, like insulin imported by Eli Lilly and Novo Nordik, has also been kept in its purview. Only new drug discoveries, new drug delivery systems (NDDS) and those which get their first patent in India will be exempted from price control for five years. Hence the new drug policy secures the sanctity of patent drugs and new inventions and at the same time protects the interests of those many people who can’t avail costly medicines.

Indian Pharma Industry is one of the fastest growing pharmaceutical markets in the world. It is world's fourth-largest in terms of volume and stands 14th in terms of value. The profitability of pharmaceutical industry will be reduced to some extent due to new drug policy but it won’t be as serious as being projected.  A preliminary working shows that prices of many leading brands will be slashed by 50 per cent to 80 per cent. This will reduce industry's profit by Rs 4,000 crore on domestic sale of Rs 67,500 crore per annum. Indian Pharma sector is growing at over 16% because of the strong growth in chronic segment in the domestic market. It is definitely a booming sector. India has the highest number of pharmaceutical manufacturers in the world: over 20,000. It must also be noted that price reduction will result into volume expansion and it can very well balance possible profit erosion due to price reduction of medicines.

Another criticism of NPPP 12 is that if profitability of pharma companies will spiral down, there would be less money to put in Research & Development. “In the past decade, the pharma sector has been spending more and more on R&D activities, while the returns have been minimal,” said D.G. Shah, secretary general of Indian Pharmaceutical Alliance (IPA) in an interview. However, It is a convenient and safest argument on the part of pharma companies sitting on high reserves.

A public health group AIDAN has filed a PIL in Supreme Court to bring down the prices of essential medicines. Hearing of the case is likely to happen in the second week of Jan 2013. By then Govt. might come up with new prices for all 348 drugs enlisted in NLEM. It is mandatory to not let pharma companies reign over this sector. Medicine is the ONLY commodity, purchasing of which is not decided by purchaser but by prescriber. One can imagine the grave scenario in the event of cartelization between producer and prescriber or for that matter among the companies themselves. Truly justified it is on the part of Govt. to intervene as 'health for all' is the fundamental duty of a welfare state.

The Male muddle : Politics vs corporate

How unfortunate it is to see that political establishments are hitting hard at the business of corporate-giants. You get a contract sponsored by sovereign Govt. of the country and later the apex court concerned simply terminates it regardless of the huge loss the private enterprises involved go through with.

It seems that not only in India but globally internal politics of respective nation is encroaching upon the territory of its global economic relations which are supposed to be dealt with independently. Economic relations must never get tainted by the petty interests of politics, opposite of which just happened in Maldives.

The earlier Govt in Maldives in the president-ship of Naseed enters into a concession agreement with GMR-MAHB to develop the Male International Airport. After a coup d’état, the new Govt. formed in the stewardship of Waheed annuls the same contract calling it illegal and this $500 million airport-deal simply goes into vain. The similar incident has happened in India as well when 2G-spectrum allocations had been negated by Supreme Court jeopardizing the interests of corporate including foreign companies such as Telenor , Sistema, Etislat etc.

In June 2010, the Maldives government, the Maldives Airports Company Limited (MACL) and GMR-MAHB Consortium signed a tripartite concession agreement to develop and run the Ibrahim Nasir International Airport at Malé, the capital of the island nation. According to this agreement GMR group levied Airport Development Charge on departing passengers, the revenues earned through this process went to the Maldives Govt. Later this practice was found illegal by a local court. Seeing that, the then president Nasheed allowed the GMR to deduct the amount of ADC from the overall revenues it used to share with the Govt. Bone of contention appeared when the changed Govt. of Waheed found out that it owed GMR about $3.5 million.

 In the guise of xenophobia he contended to expropriate the tender from GMR and won the case in Singapore Court.  It is notable that GMR-MAHB consortium has made the largest-ever FDI investment in Maldives and Male airport is a top growing airport in the region. Given these facts and that IFC, a financial body of World Bank was involved in the bidding process through which GMR had won the tender; it is wondrous how the new Govt. in Maldives called it an unfair agreement. The whole incident clearly manifests the anti-Indian sentiment spread in the neighboring island.

On one hand, GMR-Maldives spat is technically a win-win situation for the Maldives and on the other; it brings complex repercussions for India. Strategically Maldives is an important neighbor archipelago for the country. Given the geographical position of Maldives and its recent brew with India, China with all its might would try to make a footing in this region to counter balance India. Hence it is a challenge for Indian Govt. to keep Maldives in good humor while achieving justice for its company. Highly likely it is that GMR will appeal in International Trade Court against the Singapore court verdict which would further stress diplomatic  machinery’s new mission to handle Male. The test is not actually for GMR but for Indian Govt. as to how it would help this b’lore based enterprise to incur its losses at the same time keeping the strategic relationship with the island intact.

The Twin Deficit Trap

Indian economy is in the grip of classic quagmire named twin deficit. Fiscal deficit is already looming large thanks to the acute imbalance of revenue and expenditure. While current account deficit has risen to a precarious level indicating a fragile state of affair at the forex management front. A decadal low growth is making things worse. As stubborn inflation and political fluidity is here to stay, India has become a riskier place for global investors than its emerging market peers.        

A current account deficit occurs when a country’s total import of goods, services and transfers is higher than the total exports of goods, services and transfers. India’s current account deficit (CAD) has peaked to the level of 4.5% of the GDP which denotes that India is importing more and exporting less. This is the highest level of CAD in last 20 years and it is more than 1991, the year when India faced a balance of payments crisis. The skyrocketing CAD is a result of India’s huge foreign trade deficit.  The slowdown in the global economy has taken its toll from India’s exports while imports are rising unabated. Energy import (Crude oil and coal) are the fastest growing imports in last few quarters.

India is also not able to create a favorable investor environment and deters foreign investors to invest in the economy. This is another big drag of forex inflow apart from the skewed export proceeds. This current account deficit puts burden on domestic currency. Rupee has witnessed a fresh onslaught of speculators recently after CAD figure came out to public domain. A current account deficit of about 2% of GDP is sustainable in India which needs foreign funds to propel its growth. But a CAD of 4.5 pc is just a crisis and it is likely to hit rupee further in coming months.

Indian federal budget is perennially in the grip of populist profligacy. The frightening days of high fiscal deficit has returned now.  The Centre's fiscal deficit stood at Rs 3.68 lakh crore in the first seven months of this fiscal, constituting 68.32% of revised target of fiscal deficit for the entire 2012-13. Finance Minister P Chidambaram had earlier revised fiscal deficit target to 5.3% of GDP from the Budget Estimate of 5.1%. Collating GDP figures released today and fiscal deficit figures released last month, fiscal deficit constituted 7.36% of GDP in the first half of 2012-13. Ever major indicator related to fiscal deficit is giving a dismal picture as expenditure on rise and revenue growth has been tapered due to general economic slowdown. Exorbitant subsidies and reckless spending in failed schemes such as MNEREGS is one of the key reasons of fiscal quandary. Government is forced to borrow more from the market to finance its expenditure. Heavy Govt borrowings are crowding out private loans and adding fuel the inflation. The vicious cycle of high fisc def, high govt borrowing, increased money supply, inflation and high interest rates is setting in now.  

Though a minimal amount of fiscal and current account is not bad for the economy but given the present economic environment, it is going to be a deadly deterrent to the prospect of growth.  GDP growth has dipped down to 5.3% in Q2 from 5.5% of the previous quarter. With a below 6pc growth rate twin deficits have become a deadly duo for overall economic management in the nation. A quick correction to the situation seems impossible as India’s unstable political environment is making it further difficult. Indian economy is now venturing in to minefield of uncertainties.  Things will improve only after the political scene becomes clear i.e. after post Loka Sabha elections in 2014.