A wonderful edit by Pratap Bhanu Mehta says it all.
The Government is pursuing an irresponsible course of destroying the
independence of institutions. It is such institutions that are the bedrock of a
strong democracy, and the undermining of them weakens and ultimately destroys
democracy. As Mehta puts it beautifully, "In a democracy, institutions are all
that stand in the way of tyranny and caprice."
The manner in which independent institutions are being misused smacks of capriciousness. The use of investigative institutions, such as the CBI, to control and subjugate opposition political parties is a bad portend; for, when the shoe is on the other foot, as does happen in a democracy, the opposition would, too. This undermines the legitimacy and authority of such investigative agencies.
Or consider how DoT is arm twisting telcos to bid for spectrum under threat of cancellation of licences! This is ludicrous! Once a business has been licensed and the company has built the infrastructure, the renewal of licences to operate cannot be subject to whims and fancies. If the renewal of licence to operate is based upon an insistence to participate in a spectrum auction it is an appalingly poor display of governance.
And now its the turn of the Reserve Bank of India (RBI) to be destroyed as an independent institution. The Justice BN Srikrishna Committee has just submitted its recommendations for the changes necessary in the financial sector
Some of the suggestions, such as pooling 4 regulators, viz. SEBI, IRDA, PFRDA and FMC, together, appears, prima facie, to be an idea worth considering.
However, the committee has suggestions that would significantly erode the independence and the ability of the RBI, one of the institutions that we can be rightly proud of.
It recommends that the RBI be responsible only for overseeing the banking industry and for monetary policy. The management of Government of India debt as well as of foreign remittances would be directly under the purview of the Government. With these taken out of its purview, how can it manage monetary policy?
Also, for monetary policy, there would be a 7 member committee, of which only 2 would be from the RBI (including the Governor) and 5 would be nominees of the Finance Ministry. Thus RBI is emasculated. The Governor would have a casting vote, though he would have to justify it!
Bottom line is, that, if these suggestions were to be accepted, the RBI would not remain an independent institution. That would be a disaster.
Even in the US, under the guise of national security, the Government is trying to bulldoze its way through. However, a District Court judge has ruled that National Security Letters, which seek customer details en masse from telecommunication companies, are illegal orders. Governments must, of course, have the right to seek information (call records) in the case of national security, but it is not an unfettered right and must be used with discretion and wisely.
What happens when independent bodies are continually interfered with? They take action that are devoid of economic justification. Thanks to high procurement prices (to keep the famer vote bank happy) our foodgrain godowns are overflowing; yet food inflation remains high because, for reasons best known to the authorities, the stocks are not released fast enough to bring down the prices. This, at a time when global food and commodity prices are coming down. And, since food inflation is a worry for RBI, it does not bring down interest rates, which displeases the Finance Ministry.
The high inflation also means that bank deposits earn, net of inflation, a negative rate of return. This drives people to invest in gold which, in turn, makes our current account deficit unsustainably high at 6.7%. As the saying goes, 'and oh, the tangled web we weave, when first we practise to deceive'.
Governments also have a nasty habit of dipping their grubby fingers into the coffers of profitable companies under their control. In India, companies like Oil and Natural Gas Corporation (ONGC) suffer; it has had to bear a share of subsidy on petro products that belongs to the Budget. In Venezuela the late Hugo Chavez used the funds of its oil company, PDVSA, to pursue his social agenda. In Brazil, the Government has asked its oil company, Petrobras, to do several things.
Petrobras has been asked to provide thousands of jobs, which has led to Brazil having a low rate of unemployment, and to buy ships from the local shipbuilding industry (delivered with time and cost overruns) but, as a result, its oil production has stagnated and unable to meet Brazil's growing energy needs. Its market cap., which was once second only to Exxon Mobil, has fallen sharply.
In global news, the troika (European Union, IMF and ECB) have arm twisted the Cyprus banks to give a haircut (compulsory forfeiture) to those having deposits of over Euro 100,000. The haircut is probably around 40%. The new ATMs for Cypriot banks would come with a shredder attached!
At first glance this seems to be a travesty of justice. It is the shareholder of the banks who ought to take the first hit, and the depositors who ought to get protection; not the converse.
However, ironically, this would be a quirky achievement of justice. For, most of the accounts having over Euro 100,000 as deposits belong to tax evaders! Several of them are Russian oligarchs who, with political backing and skulduggery, obtained State assets cheaply on the sly. Few would shed a tear for them. The loss of 40% of their deposits would be a smaller price than that paid by another oligarch, Boris Berezovsky, who had migrated to London and was found hanging in his apartment.
Another global issue of concern is the looming global scarcity of water. Farmers in New Mexico, when informed that they would be getting only 10% of their requirement of water, voiced their objection and are legally challenging the rights of those who used water later than them (i.e. industry) to get it. We are seeing similar agitations in India too.
The problem of crude oil shortage has been technologically averted by using a technique called fracking to extract shale oil/gas. Fracking, however, uses considerable amounts of water which, as seen above, is becoming a major issue. However, technology is now emerging to use carbon dioxide, instead of water, in fracking. The CO2, after use in fracking, would be stored underground, solving another problem of its emission.
Technology is also trying to solve a third problem, that of shortage of conventional energy. Companies like Bright Source, which have already set up one project, are setting up another huge concentrated solar power projects.
Thus scientists are solving problems created by the policy makers all over the world.
India is also facing an energy shortage. It consumes some 17% of the world's energy but has only 0.8% of the world's oil and gas reserves. It must attract more expoloration, both of conventional oil/gas as well as of non conventional shale oil/gas. Now here is where good governance and vision is needed.
Just consider this. India's IT Department has raised a ludicrous demand of Rs 15,000 crores on Shell India for underpricing shares issued to its parent at par instead of at an assumed higher valuation that the subsidiary deserved, according to the Department.
On the other hand China has given clearance to Shell to invest $ 100b. (Rs 550,000 crores) to exploit shale gas reserves in the country.
Which is more sensible?
Can technology correct such problems, created by myopic policy and action? It can't.
The BRIC countries are considering setting up another development bank, a la IMF/World Bank, to serve the interest of emerging markets. They will fund it with an initial corpus of $ 100b. This would be a good move.
Indian stock markets, perhaps inspired by Cyprus, took a 40% haircut and were open only 3 out of the 5 working days last week, with holidays for Holi and Good Friday. The BSE-Sensex ended 100 points up at 18,835 and the NSE-Nifty closed 31 points higher at 5,682.
The sensex is poised just above its 200 day exponential moving average of 18,719 and a long term support line of 18,000. A breach of these levels would spell trouble. Caution is advocated for investors. It is also advocated for policymakers, particularly in their wanton destruction of independent institutions, but they are less likely to listen.
By J Mulraj
The manner in which independent institutions are being misused smacks of capriciousness. The use of investigative institutions, such as the CBI, to control and subjugate opposition political parties is a bad portend; for, when the shoe is on the other foot, as does happen in a democracy, the opposition would, too. This undermines the legitimacy and authority of such investigative agencies.
Or consider how DoT is arm twisting telcos to bid for spectrum under threat of cancellation of licences! This is ludicrous! Once a business has been licensed and the company has built the infrastructure, the renewal of licences to operate cannot be subject to whims and fancies. If the renewal of licence to operate is based upon an insistence to participate in a spectrum auction it is an appalingly poor display of governance.
And now its the turn of the Reserve Bank of India (RBI) to be destroyed as an independent institution. The Justice BN Srikrishna Committee has just submitted its recommendations for the changes necessary in the financial sector
Some of the suggestions, such as pooling 4 regulators, viz. SEBI, IRDA, PFRDA and FMC, together, appears, prima facie, to be an idea worth considering.
However, the committee has suggestions that would significantly erode the independence and the ability of the RBI, one of the institutions that we can be rightly proud of.
It recommends that the RBI be responsible only for overseeing the banking industry and for monetary policy. The management of Government of India debt as well as of foreign remittances would be directly under the purview of the Government. With these taken out of its purview, how can it manage monetary policy?
Also, for monetary policy, there would be a 7 member committee, of which only 2 would be from the RBI (including the Governor) and 5 would be nominees of the Finance Ministry. Thus RBI is emasculated. The Governor would have a casting vote, though he would have to justify it!
Bottom line is, that, if these suggestions were to be accepted, the RBI would not remain an independent institution. That would be a disaster.
Even in the US, under the guise of national security, the Government is trying to bulldoze its way through. However, a District Court judge has ruled that National Security Letters, which seek customer details en masse from telecommunication companies, are illegal orders. Governments must, of course, have the right to seek information (call records) in the case of national security, but it is not an unfettered right and must be used with discretion and wisely.
What happens when independent bodies are continually interfered with? They take action that are devoid of economic justification. Thanks to high procurement prices (to keep the famer vote bank happy) our foodgrain godowns are overflowing; yet food inflation remains high because, for reasons best known to the authorities, the stocks are not released fast enough to bring down the prices. This, at a time when global food and commodity prices are coming down. And, since food inflation is a worry for RBI, it does not bring down interest rates, which displeases the Finance Ministry.
The high inflation also means that bank deposits earn, net of inflation, a negative rate of return. This drives people to invest in gold which, in turn, makes our current account deficit unsustainably high at 6.7%. As the saying goes, 'and oh, the tangled web we weave, when first we practise to deceive'.
Governments also have a nasty habit of dipping their grubby fingers into the coffers of profitable companies under their control. In India, companies like Oil and Natural Gas Corporation (ONGC) suffer; it has had to bear a share of subsidy on petro products that belongs to the Budget. In Venezuela the late Hugo Chavez used the funds of its oil company, PDVSA, to pursue his social agenda. In Brazil, the Government has asked its oil company, Petrobras, to do several things.
Petrobras has been asked to provide thousands of jobs, which has led to Brazil having a low rate of unemployment, and to buy ships from the local shipbuilding industry (delivered with time and cost overruns) but, as a result, its oil production has stagnated and unable to meet Brazil's growing energy needs. Its market cap., which was once second only to Exxon Mobil, has fallen sharply.
In global news, the troika (European Union, IMF and ECB) have arm twisted the Cyprus banks to give a haircut (compulsory forfeiture) to those having deposits of over Euro 100,000. The haircut is probably around 40%. The new ATMs for Cypriot banks would come with a shredder attached!
At first glance this seems to be a travesty of justice. It is the shareholder of the banks who ought to take the first hit, and the depositors who ought to get protection; not the converse.
However, ironically, this would be a quirky achievement of justice. For, most of the accounts having over Euro 100,000 as deposits belong to tax evaders! Several of them are Russian oligarchs who, with political backing and skulduggery, obtained State assets cheaply on the sly. Few would shed a tear for them. The loss of 40% of their deposits would be a smaller price than that paid by another oligarch, Boris Berezovsky, who had migrated to London and was found hanging in his apartment.
Another global issue of concern is the looming global scarcity of water. Farmers in New Mexico, when informed that they would be getting only 10% of their requirement of water, voiced their objection and are legally challenging the rights of those who used water later than them (i.e. industry) to get it. We are seeing similar agitations in India too.
The problem of crude oil shortage has been technologically averted by using a technique called fracking to extract shale oil/gas. Fracking, however, uses considerable amounts of water which, as seen above, is becoming a major issue. However, technology is now emerging to use carbon dioxide, instead of water, in fracking. The CO2, after use in fracking, would be stored underground, solving another problem of its emission.
Technology is also trying to solve a third problem, that of shortage of conventional energy. Companies like Bright Source, which have already set up one project, are setting up another huge concentrated solar power projects.
Thus scientists are solving problems created by the policy makers all over the world.
India is also facing an energy shortage. It consumes some 17% of the world's energy but has only 0.8% of the world's oil and gas reserves. It must attract more expoloration, both of conventional oil/gas as well as of non conventional shale oil/gas. Now here is where good governance and vision is needed.
Just consider this. India's IT Department has raised a ludicrous demand of Rs 15,000 crores on Shell India for underpricing shares issued to its parent at par instead of at an assumed higher valuation that the subsidiary deserved, according to the Department.
On the other hand China has given clearance to Shell to invest $ 100b. (Rs 550,000 crores) to exploit shale gas reserves in the country.
Which is more sensible?
Can technology correct such problems, created by myopic policy and action? It can't.
The BRIC countries are considering setting up another development bank, a la IMF/World Bank, to serve the interest of emerging markets. They will fund it with an initial corpus of $ 100b. This would be a good move.
Indian stock markets, perhaps inspired by Cyprus, took a 40% haircut and were open only 3 out of the 5 working days last week, with holidays for Holi and Good Friday. The BSE-Sensex ended 100 points up at 18,835 and the NSE-Nifty closed 31 points higher at 5,682.
The sensex is poised just above its 200 day exponential moving average of 18,719 and a long term support line of 18,000. A breach of these levels would spell trouble. Caution is advocated for investors. It is also advocated for policymakers, particularly in their wanton destruction of independent institutions, but they are less likely to listen.
By J Mulraj
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