Ecotimes25sep13
Default rate rose to 4.5% last fiscal from 3.5% and 0.3% in the preceding two years
OUR BUREAU KOLKATA
Debt default by Indian corporates rose toa10-yearhighin2012-13asdemandfell and cost of borrowing rose in a
slowing economy,accordingtoIndiaRatingsand Research. The Fitch Group firm said the annual default rate of
corporate finance issuers rose to 4.5% last fiscal from 3.5% and 0.3% in the preceding two financial years.
It said of the 716 issuers rated by India Ratings, which included companies, banks, non-banking finance
companies and infrastructure and project finance companies, about 32 defaulted on their debt obligations due to
economic stress. “Credit quality of Indian issuers deteriorated due to slow pace of both domestic and global
demand, high cost of borrowing and leveraging of corporate balancesheet,”IndiaRatings&Research said in a
report. Tight liquidity, rupee depreciation and low demand also contributed to the rise in default rate, it said.
The bright side, however, was that the proportion of issuers downgraded by the rating firm declined to 9.7% last
fiscal from 12.3% in the previous year. Nevertheless, the number of downgrades was higher than upgrades.
The ratings agency said the pace of upgrades was higher than that of downgrades due to a combination of two
factors. Firstly, India Ratings was conservative in assigning initial credit ratings and this provided some elbow
room to ratings. Secondly, the issuers, after the initial setback, started managing their finances better by
controlling their inventory positions and operating as per demand in the system.
India Ratings’ corporate finance rating activity in 2012-13 remained net negative for a second consecutive year
since 2010-11. Last fiscal, 9.7% of rated corporate entities were downgraded (FY12:12.3%), while 6.6% (6.0%)
were upgraded. The ratings firm downgraded 7.5% issuers (FY12:10.1%) from the investment grade category
and 12.1% (FY12:16.5%) from the non-investment grade category.
All corporate finance issuers rated by IndiaRatingsinthelast10yearswereincluded in the study, the agency said.
Awful For Aadhaar, OK For UPA’s Welfare Plans
Minus linkage with Aadhaar, direct benefits transfer programme can perhaps get a boost
M RAJSHEKHAR & VIKAS DHOOT NEW DELHI
What is the future of one of India’s most high profile government programmes after Monday’s Supreme
Court interim ruling on Aadhaar? And is there a collateral damage on election-facing UPA’s ambitious welfare
schemes? The answers are starkly different. Aadhaar, unless the Supreme Court changes its ruling in the final
judgment, has received a body blow. But, ironically, minus the linkage with Aadhaar, UPA's direct benefits
transfer programme can perhaps get a boost. Meanwhile, Oil Minister Veerappa Moily said on Tuesday that,
“We have told the solicitor general of India to take steps for correction of this order.”
On Monday, a bench of Justices BS Chauhan and SA Bobde ruled Aadhaar cannot be made mandatory for
accessing government services and subsidies. If it is repeated in the final order, Aadhaar will lose the main
reason people were queuing to enrol. The top court can vacate the order if it’s convinced of the government's
case on that day. The government could specially contest that part of the order, which asked it not to issue it
to illegal immigrants.
All this time, people were queuing at Aadhaar enrolment centres, fearing that without a UID number, they
would not get their pensions, scholarships and subsidies. In states like Delhi, an Aadhaar number was essential
for anyone looking to register their marriage or rent a house. AP Shah, the retired Chief Justice of the Delhi
High Court, feels the interim order is unlikely to change. "While all interim orders are subject to the final order,
there is very low probability of this order being changed by the court unless the government changes its
position about Aadhaar being voluntary." If Aadhaar is voluntary, he says, "the natural corollary is that
governments can’t deny anyone social benefit because they don’t have an Aadhaar number." The interim
order will affect DBT differently, and perhaps positively. According to Himanshu, an assistant professor in
Economics at Delhi's Jawaharlal Nehru University, "DBTs can be done without Aadhaar." Indeed, across India,
NREGA payments have been made into workers bank accounts without them having Aadhaar numbers -- all
that is needed to transfer the wages is the worker's name, job card number and bank account number.
If anything, the rollout could accelerate. Till now, DBT rollout has been slowed due to the limited number of
districts with high Aadhaar penetration. Not to mention the slow progress being made on seeding every
database (of banks and welfare departments) with the Aadhaar number. The ruling also comes as a shot in the
arm for the Home Ministry's National Population Register (NPR) which has seen bruising battles over
enrolments with the UIDAI over the last two years.
In this period, the NPR, which was to originally issue resident ID cards with Aadhaar numbers embedded in
them, has been scuttled by the cabinet which refused to approve a home ministry proposal to issue cards
under the programme. A GoM set up by the cabinet to examine if NPR cards were necessary given that the GoI
was already issuing Aadhaar numbers met once in March 2013. Since then, the matter has been in suspended
animation. But now, with Justices Chauhan and Bobde criticising the Aadhaar project on two grounds -- that
states were trying to make possession of a voluntary number mandatory; and that the numbers were being
given to "illegal migrants" -- the government might have to rethink.
Unlike Aadhaar, the NPR is mandatory. Further, its original mandate, before it was diluted by the UPA in a bid
to broker peace between the NPR and UIDAI, was to enrol only citizens. In contrast, Aadhaar was enrolling all
residents.
When asked about this, a senior official at the Registrar General's office, said: "We have not been told anything
about this." It's not clear what Aadhaar will do next. UIDAI chairman Nandan Nilekani did not respond to an ET
questionnaire. If the interim order is repeated by the final order, then the organisation will have to go back to
the drawing board. If Aadhaar is to become mandatory, the UPA will have to either get an Ordinance or the
Unique Identification Authority of India Bill passed. The bill, incidentally, had been severely criticised by the
Standing Committee of Finance, which had even asked whether such a programme was needed. If it stays
voluntary, then it will be just one more form of ID among others.
Pakistan shows why a military, however efficient and disciplined, ultimately fails to govern
Indians don’t realise how exceptional they are in never even thinking about the army when discussing
politics. In many developing nations, the army casts a long shadow on politics even when it does not rule
directly. Pakistan is a classic example.
Fakir S Aijazuddin has written a slim volume From a Minister’s Personal Journalabout his brief tenure as
aminister for culture and tourism in Pakistan’s state government of Punjab from November 2007 to April 2008.
The book touches on the rise and fall of Pervez Musharraf, Benazir Bhutto’s assassination, and the rise and fall
of Asif Ali Zardari.
It relates, with wit and humour, the author’s experiences in negotiating the army and bureaucracy as a
minister, his one success being the establishment of the Lahore City Heritage Museum. Above all, it gives deep
insights into how the elite and army rule Pakistan.
The Pakistan Army has always been contemptuous of politicians. It prides itself as an efficient force in a
country ruined by inefficient, undisciplined politicians. To prove they were not just self-serving autocrats,
Pakistani generals sought to appoint the best and brightest from civil society as ministers (though some said no).
It tapped the World Bank, private sector, academia, media and the civilian elite in general. It also tapped
Aijazuddin — an educationist, art historian, author, newspaper columnist and corporate honcho.
In India, there is a clear distinction between civil society and politicians. Not so in Pakistan. Aijazuddin notes
the tradition of former World Bank Pakistanis becoming finance ministers: Mahbubul Haq in 1988, Shahid
Husain in 1974 and Shahid Javed Burki in 1996. Indeed, in 1993, Moeen Qureshi, former vice-president of the
World Bank, became Prime Minister.
In India, by contrast, persons from the World Bank or IMF are expected to serve a stint in a lower capacity to
get rid of the “Washington taint” before getting a top Indian post (examples include Raghuram Rajan, Shankar
Acharya and Bimal Jalan).
Crowning Glory for the Elite
Musharraf’s choice for finance minister was Shaukat Aziz, executive VP of Citibank. Many other Cabinet posts
went to the civilian elite such as Razak Dawood, businessman and rector of Lahore’s University of Management
Sciences; Abdul Sattar, ex-diplomat; and Usman Aminuddin, ex-CEO of Shell, Pakistan.
Aijazuddin was first approached in 1999 after Musharraf took over. Portfolios were discussed, and he said he
would like to head the Privatisation Commission. Instead, he was offered the Board of Investment, which in
Benazir’s earlier regime had been Zardari’s vehicle for extracting bribes (he was called Mr Ten Percent). It is
impossible to imagine a nonpolitical civilian in India being able to haggle about a ministerial post.
Aijazuddin refused the offer. He says he is not clear why he said no: maybe his own arrogance, or pique at
being offered only minister of state status, or doubts about Musharraf’s longevity. A second unsolicited offer
came his way in 2007, this time as a minister of culture and tourism in the state government of Punjab.
He consulted friends, one of whom made the remarkable statement, “Take the ministership. It will look good
on your CV, for one thing. Also, they need you. And don’t forget — you will never get such a post in a
democratic set up.”
The best passage in the book is Aijazuddin’s exchange with General Aziz. Aijazuddin asks, “Why do you
assume that a Pakistani in uniform is better qualified to improve the country than a Pakistani out of uniform?”
The General replies, “Because they are more efficient. They are more disciplined.”
No Army Copyright
Aijazuddin responds, “I’m in the private sector. I’m running an investment bank. If we are not efficient, we
cannot survive. No one who runs my organisation can afford to be inefficient. They would either become
bankrupt or have to close down. So, efficiency is not the factor. Forgive me for saying I do not believe it to be
the prerogative of the Pakistan Army.
“Now, so far as discipline is concerned, if I was to ask one of my bank employees to jump off the roof of a
10-storey building, before doing so, he would ask me a host of questions. Is it in my job description? Am I
insured? Will my family receive compensation in the event of my disability or death? I would be bound to
satisfy him before he would take that leap.
Rule of the Baton
“But when you order your soldier to stand in the line of an enemy bullet, either that bullet will get him or yours
will — for disobedience. So, General, it is not a matter of efficiency or discipline. It’s a matter of obedience.
“And, General, you will find that when you give orders to civilians, you will wonder why they do not carry
them out instantly. And that will be the beginning of the end for you as a government.”
There could scarcely be a more masterful destruction of the claim of generals that army rule is justified since
it ensures efficiency and discipline. This helps explain why army rule keeps failing, not just in Pakistan but
across the world.
NEW LAND LAW
A Threat to Growth Prospects of the States
The Parliament has passed the Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Bill. On several counts, this legislation is better than the extant law. However,
it has serious flaws too. Since the Bill is yet to receive Presidential consent, there is scope for rectifying its
deficiencies. The Bill offers enough opportunities to the resourceful to make money simply by engaging in sales
and purchases during the acquisition process. Moreover, by confusing publicprivate partnerships (PPPs) with
private companies, it makes infrastructural development by the states and urban local bodies unnecessarily
difficult. Indeed, the Bill throws up serious challenges for the states. Contrary to perception, the largest
proportion of affected projects will be that of the states. The lawmakers have failed to notice that the Bill
discriminates between projects of the Centre and those of the states. All of its provisions apply to projects of
the state governments, including social impact assessment (SIA), increased compensation to the landowner
and the rehabilitation and resettlement (R&R) of the project-affected people. The proposed acquisition
process is unreasonably lengthy. It can take up to 4-5 years. However, as many as 13 categories of projects of
the central government have been let off, including mining, coal and railways projects. These projects affect
livelihoods of people. Yet, the affected people will continue to get scanty compensation and no R&R benefits,
at least as of now. A better balancing of the two extremes is possible. The bias is even worse when it comes to
projects funded through PPPs. These partnerships are used by the Centre as well as the states to mobilise
private investment for public goods; the land is provided by the government concerned. Many of the national
and state highways, ports, airports and urban development projects have been funded through this
mechanism. Under the new law, the Centre can carry on with this practice. For instance, for highway PPPs, it
will continue to acquire land using the National Highways Act, 1956, which provides extremely low
compensation and no meaningful R&R. However, the PPP route has become unnecessarily difficult for states
and local bodies. If a state or municipality would need land for a road or flyover funded through PPP, it will
require the consent of 70% of landowners. Besides, it will have to comply with all other provisions of the Bill.
There is no valid reason to treat land acquisition for PPPs differently from the acquisition for publicly-funded
projects. This discrimination, affecting interest of the private sector in PPPs, can deliver a deadly blow to
resources available for infrastructure development by the states and urban local bodies. Moreover, it is against
the spirit of federalism enshrined in our Constitution. Besides, the Bill is open to strategic manipulation. It
requires compensation to be based on sale deeds pertaining to the three years prior to the date of notification
under Section 11 of the Bill. The problem is that the stipulated three years include the time period between
the dates of Section 4 and Section 11 notifications: through the former notification, the government will
announce its intention to acquire land and start the SIA, the acquisition decision will be confirmed formally by
the latter. The time gap between these two notifications can be as much as 18 months. Therefore, the
resourceful can make money simply by engaging in sales of small plots at artificially high rates, and then using
these transactions as evidence to demand higher compensation. Disputes over compensation will abound. The
Bill is vulnerable to litigation. Under it, as is the case under the extant law, government officials are required to
assess the market rate on the basis of sale deeds. Officials play it safe and award compensation using relatively
low-value sale deeds. In contrast, courts tend to use highervalue sale deeds. Acquisition-affected parties have
reasons to approach courts to get their due. Now, the compensation will be 2-4 times the assessed market
rate. So, gains from litigation will increase. And the incentive to litigate will be stronger.
The writer is associate professor, Delhi School of Economics
Allow FDI into Online Retail
There is muddled thinking and myopia on foreign direct investment (FDI) in retail e-commerce. It makes no
sense to allow FDI in retailing of the standard brick-and-mortar variety and disallow FDI in online retail —
thankfully, 100% FDI is permitted in business-to-business (B2B) e-commerce. The plain fact is that retailers
now value both internet-enabled and offline, across-the-counter sales, and the policy moves lately to enable
FDI in retail would be incomplete sans clearcut liberalisation and opening up in online retail. Assorted domestic
ventures in online retail starve for capital and the best way to attract both capital for these ventures and
foreign exchange for the larger economy is to remove the restriction on FDI in online retail.
The policy change to allow FDI in retail e-commerce would boost investments, rev up stable capital inflows,
modernise the entire retail sector here and, in the process, bring in new expertise, knowhow and shore up
hiring and employment in myriad related ways. Note that it is now standard practice for online retailers to
have offline presence too, including in prime footfall areas, for seamless brandbuilding. Often enough, it is
more convenient for Indian shoppers to go through displays and catalogues online, but opt to pick up the
goods from conventional stores (to avoid, say, home delivery during office hours). So, the notion that retail ecommerce would amount to no more than a “dotcom” presence in cyberspace can promptly be set aside.
Successful online retailers cannot but be big in stocking, logistics and attendant activity. Besides, online
retailers would boost domestic IT services and system integrators, firm up demand for quality commercial real
estate and have other beneficial spin offs right across the board.
The Court Gets it Wrong on Aadhaar
Courts should refrain from meddling in policy
The Supreme Court’s interim order on Aadhaar is unfortunate and should be remedied in the final verdict.
True, the government should not deny benefits to deserving citizens just because they have not been able to
obtain their unique identity number due to deficient supply arrangements. But to go beyond this and obstruct
use of Aadhaar to streamline disbursal of benefits would be miscarriage of justice manifold. To begin with,
apart from the constitutional validity of issuing unique identity numbers, everything in the Aadhaar project is a
matter of policy, altogether outside the remit of the judiciary, as per the clarification of the Supreme Court in
response to the President’s reference in the wake of the 2G verdict. It is time high courts and smaller benches
of the Supreme Court stopped their routine trespass into the rightful domains of the executive and the
legislature.
Second, to oppose use of Aadhaar to streamline disbursal of benefits is to collude in the corruption and
leakage that attend such transfers. High-minded individuals raise assorted objections, only to be cheered on by
middlemen who fatten themselves on leakages from public finances. Aadhaar is a project that will empower
hundreds of millions of subaltern Indians to acquire proof of identity and access the formal financial system
while producing great saving and efficiency in public finances. It would be grave iniquity to thwart all this on
the basis of objections from privacy champions, whose possessiveness over their fingerprints evaporates when
they stand in queue to supply the selfsame imprints to obtain a US visa. Aadhaar is voluntary, in the sense in
which acquiring a ration card is voluntary. But getting a ration card is mandatory for getting subsidised food.
Such constraints are inevitable.
The court’s concern over illegal immigrants getting Aadhaar cards is understandable but misplaced. Being
able to identify all residents is the first step to determining citizenship in this country where less than 5% of the
population have passports, and birth certificates became commonplace only after 1989.
CCEA Approves Shale Gas & Coal Block Policies
OUR BUREAU NEW DELHI
The Union Cabinet on Tuesday approved policies governing auction of coal blocks and exploration of shale
gas in the country.
The approved shale gas and oil exploration policy will pave way for state-run explorers ONGC and Oil India to
hunt for non-conventional sources of energy in blocks awarded to them without an auction, the government
said in a statement. The cabinet has also approved auction of coal blocks to private steel and cement firms on
a production-linked payment basis, similar to the royalty paid by miners. Power companies that quote the
lowest tariff for electricity supply will be able to secure mining licences.
“The Cabinet Committee on Economic Affairs (CCEA) has approved the methodology for auction by
competitive bidding of the coal blocks,” coal minister Sriprakash Jaiswal told reporters after the CCEA meeting.
The government has already identified 12 coal blocks for award to power companies and about 24 for auction
to private steel and cement firms. Of these, reserves in only 12 coal blocks are known.
Shale gas is a type of natural gas produced from shale. India is estimated to have 96 trillion cubic feet of
recoverable reserves of the fuel, according to various studies. Exploration and development of this fuel in India
will help it cut reliance on costly fuel imports.
The shale gas policy, however, has failed to enthuse private sector players. Executives said it prevents
participation of successful private explorers such as Reliance Industries, GSPC and Cairn India and restricts
exploration of shale resources to only five on-land basins.
Earlier, the oil ministry had said all existing operators could be permitted to explore shale GAS reserves along
with conventional oil and gas. However, the government later decided to have a separate policy for
exploration of shale gas resources in blocks awarded to private firms for conventional oil and gas and coal bed
methane, officials said. ET had first reported the matter on August 12.
The policy also bars exploration for shale oil and gas in the more than 250 blocks that were awarded to
companies in nine rounds of auctions under the New Exploration Licensing Policy (NELP) regime over the last
15 years. Even pre-NELP blocks, such as Cairn-operated Rajasthan oilfields and coal bed methane (CBM) blocks
have been kept out of its preview, officials said.
“We have restricted the scope of the policy after the department of economic affairs questioned the extending
of the oil and gas contracts of private companies to also exploit shale resources, without giving equal
opportunities to new entrants,” an official said.
The coal auction policy, however, provides for auctioning only fully explored coal blocks with known reserves
that have in-principal clearance from the environment ministry.
Exploration activities in identified coal blocks are at an advanced stage and are likely to be completed shortly,
an official statement said. Coal blocks have not been allocated to private firms after 2008.
As per the policy, steel and cement companies that propose to pay the highest amount per each tonne of coal
produced will bag the blocks. The model is a safe bet for the government, as revenue sharing will be done on
actual production of coal and will not require estimating reserves, unlike in the earlier proposed profit-sharing
proposal.
The proposal will, however, be riskier for bidders, as they will be unaware of the cost of extraction of coal at
the time of placing bids. The ministry also proposes to fix a floor price for auction to steel and cement
companies, below which bids will not be accepted. The floor price will be 10% of the estimated reserves in the
block valued at cost of mining of an equivalent grade in international markets. Power firms will also pay the
basic 10% value of the coal block.
New Avenues
• Policy enables ONGC and Oil India to
hunt for non-conventional sources of energy in blocks awarded to them without an auction
• India is estimated to have 96 trillion
cubic feet of recoverable reserves of the fuel, according to various studies