Making India Inc. accountable

It is not the responsibility of the government alone to act in order to curb corruption; corporate firms need to be proactive as well in checking fraudulent financial practices

The winter session of Parliament witnessed a noisy debate on the black money controversy. Governments of all hues have disappointed the Indian janata on the issue of black money and the failure is often associated with a perceived nexus between politicians and big business, weak laws and poor enforcement. At the G20 summit in Brisbane, Prime Minister Narendra Modi had made statements regarding getting international cooperation to bring the unaccounted wealth of Indian individuals and organisations back from global tax havens, but back home these have not inspired much confidence.

A recent report from the Organisation for Economic Cooperation and Development (OECD) hints at multinational companies using internal loans and complex financial structures as a strategy for tax evasion. The OECD report raises several concerns relating to the erosion of the tax base in countries due to multinational companies adopting such practices.

The Global Financial Integrity Report, released in December 2013, shows that 60 per cent of black money generated in developing countries such as India happens because of corporate tax evasion. In this report, India figures among the six Asian countries that are in the top 15 exporters of illicit capital, mostly due to trade-based money laundering. The report further says real GDP growth is significantly related to driving the flow of illicit money.

What that means is that greater economic growth and greater international trade is only likely to increase illicit capital flows out of the country. A 2012 White Paper on Black Money brought out by the Finance Ministry had observed that in India, more than 60 per cent of global trade is carried out by associated enterprises of multinational enterprises, with shifting of taxable income from high-tax to low-tax jurisdictions in these enterprises being a favoured method for minimising tax liability.

While the current discourse has largely focussed on the question of bringing back illicit money that has already been transferred discreetly to Swiss banks, there is also need for concentrating attention closer home and looking at ways to strengthen vigil mechanisms that will ensure the accountability of corporate firms in India.

The Switzerland envoy’s comments that India must show proof of fraud before seeking information on black money stashed in Swiss banks point to the absence of a healthy monitoring mechanism to curb fraudulent financial transactions at home

Supply side of corruption

Corruption, which includes concerns pertaining to black money, has a supply side to it as well. The moment we take cognisance of this, it would become evident why checking corruption at the source is crucial for addressing present concerns. It is not the responsibility of the government alone to act in order to curb corruption; corporate firms need to be proactive as well in checking such practices.

The 2014 Global Fraud Survey conducted by Ernst & Young’s (EY) Fraud Investigation and Dispute Services (FIDS) wing shows that “unethical behaviour” persists among Indian businesses with practices to win/retain businesses ranging from offering entertainment, making cash payments, giving personal gifts and misstating company’s financial performance. A whopping 71 per cent of participants in the survey said at least one of these practices for winning/retaining businesses was “justified” in India. Further, to the question whether bribery/corruption happens widely in businesses in India, 68 per cent of the participants answered in the affirmative. The report further shows that 71 per cent of Indian participants had not received any anti-corruption training and 53 per cent also reported the absence of whistle-blowing hotlines for monitoring compliance with anti-corruption laws in India. In another 2014 survey by EY FIDS on the compliance with the whistle-blowing framework provided under the Companies Act, 2013, only 13 per cent of the respondents indicated that their whistle-blowing frameworks were fully compliant with what was required by law.

The survey also stated that only 22 per cent of the respondents had implemented the framework because they considered the structured mechanism integral to their business operations. The principal respondents of this survey comprised senior executives in business functions, including internal audit and legal compliance, representing Indian enterprises with domestic operations as well as Indian subsidiaries of MNCs.

Arpinder Singh, Partner and National Leader at EY FIDS, who oversaw the surveys, said, “While many organisations had a whistle-blower policy in place, half of the respondents offered only one channel for reporting of complaints — which is more a ‘tick in the box’ approach than actually reaping the real benefits of a whistle-blowing framework. This shows that while organisations are taking the initial steps to be compliant, they still have a long way to go in establishing a robust whistle-blowing framework.”

What we can infer from this is there is not enough incentive for reporting of financial malpractice among Indian enterprises at present. Since its revision, the Companies Act 2013 has introduced a provision for mandatory vigil mechanism to monitor fraudulent practices, and also ensured the appointment of independent directors, who must “ascertain and ensure” that the company has an “adequate and functional” vigil mechanism and that the interests of the person using this mechanism are protected.

Whistle-blowing frameworks within companies cannot be an answer for addressing ongoing black money-related concerns since the matter largely falls within the realm of banking and taxation. But they help in pressuring companies to comply with anti-fraud mechanisms mandated by law.

Speaking from a Companies Act perspective, Mr. Singh said that specific revisions as well as additional guidance focussed on vulnerable industries such as gems and jewellery, real estate, NGOs, etc., which are currently unregulated from an anti-money laundering perspective, call for strengthening compliance to the monitoring framework. Having a reporting mechanism to an independent body such as the Financial Intelligence Unit (FIU), under the Ministry of Finance, could also be considered as a good starting point, he added.

Lessons from the U.S.

The anti-fraud mechanisms available in the United States have saved millions of dollars of losses to the government there. These offer valuable lessons for India. Andrew Beato, chair, False Claims Act and Whistleblower Practice Group at Stein Mitchell Muse Cipollone & Beato LLP, said the False Claims Act in the U.S. allows citizens to report instances of abuse of public money for personal gain. “For every dollar that the U.S. government invests in implementing this law, they earn back 20 dollars,” he said. To cover tax frauds, the U.S. Internal Revenue Service runs a separate whistle-blower programme. He cited the example of Bradley Birkenfeld, the whistle-blower in the tax evasion case involving Swiss global financial services company UBS AG in which cross-border fraud by American citizens to the tune of $780 million was exposed. The IRS whistle-blower programme helped Mr. Birkenfeld win $104 million from the tax authorities in return for his services. Mr. Beato, who had represented the case of the Ranbaxy whistle-blower Dinesh Thakur in the U.S. courts, said that the absence of a comparable mechanism in India to safely report corporate fraud compelled Indian citizens to turn to the U.S. to report such practices.

In an interview published in The Hindu on December 3, Switzerland’s envoy to India Linus von Castelmur had remarked that India must show proof of fraud before seeking information from them on the illegal wealth of Indians held in their banks. The envoy’s comments draw attention to the perils of not having a healthy monitoring mechanism to curb fraudulent financial transactions in India. The hard lesson for India remains that curbing financial fraud, like charity, has to begin at home.

Understanding inflation targeting

Inflation targeting re-emphasises the primacy of price stability as the objective of monetary policy. Given the rigidities in the economy and lags in policy impact, it must be operated with flexibility

Inflation targeting is back in the news and this is welcome. I have always held the view that the dominant objective of monetary policy is the maintenance of price stability. Inflation targeting gives precision to the concept of price stability.

In any monetary policy framework, a key ingredient is an enunciation of its objectives. This aspect has assumed increased significance in the context of the stress being laid on the autonomy of central banks. Autonomy goes with accountability, and accountability in turn requires a clear statement of goals.

The case of price stability as the major objective of economic policy rests on the assumption that volatility in prices creates uncertainties in decision-making. Rising prices adversely affect savings while making speculative investments more attractive. These apart, there is a crucial social dimension, particularly in developing countries. Inflation adversely affects those who have no hedges against it, and this includes all poorer sections of the community. This is indeed a very strong argument in favour of the maintenance of price stability in emerging economies.

“Apart from monetary policy, regulation of the financial system, particularly the banking system, is entrusted to central banks in most countries. There has to be close coordination between these two functions.”

Price stability and growth

A crucial question that arises in this context is whether the pursuit of the objective of price stability by monetary authorities undermines the ability of the economy to attain other objectives such as growth. In short, the question is whether there is a trade-off between inflation and growth. There is a general consensus that over the medium and the long term, there is no such trade-off and an environment of low inflation is most conducive to faster economic growth. However, there could be such a possibility in the short term. By injecting greater demand and thereby generating higher inflation, higher growth may be achieved. However, to sustain this growth, the authorities may have to generate higher and higher inflation. This will end up as a self-defeating exercise.

What then is the tolerable level of inflation? At very low levels of inflation, there may not be any adverse consequences on the economy. However, in every economy, given its structure, there is always a certain level of inflation beyond which costs of inflation begin to rise steeply. It is this inflation threshold which can provide guidance to policymakers. Interestingly, the Chakravarty Committee, of which I was a member, regarded the acceptable rise in prices as 4 per cent. Several studies in the Indian context have estimated that the threshold level of inflation may be around 6 per cent.

Other objectives

Questions have been raised about the robustness of such models. Even large econometric models are not in a position to capture all the costs of inflation. This order of inflation is however higher than what developed countries normally aim for. This will have some implications for the exchange rate of the currency and Current Account Deficit. In the Indian context, it is best to work towards an average of 4 per cent and take strong action if it touches 6 per cent. This will amount to inflation targeting with a band, as recommended by the Urjit Patel Committee. Such a commitment will also dampen inflation expectations.

Does the focus on inflation targeting by monetary authorities mean a neglect of other objectives such as growth and financial stability? Hardly so. What inflation targeting demands is that when inflation exceeds the threshold level, the primary focus of monetary policy must be to bring it back to the desired level. It is sometimes claimed that the financial crisis of 2008 in the United States and western Europe sounded the death knell for inflation targeting. There is continuing debate on whether the crisis was precipitated by monetary policy failure or regulatory failure. Countries like Canada and Australia, which were committed to inflation targeting, were not caught in the crisis.

Central banks have multiple functions. Apart from monetary policy, regulation of the financial system, particularly the banking system, is entrusted to central banks in most countries. There has to be close coordination between these two functions. For the crisis itself, regulatory lapses have to take major responsibility while monetary policy in these countries might at best have played a facilitating role. The low interest rate regime which prevailed because of low inflation could have created an environment favourable for high risk-taking. A rise in asset prices should have alerted the monetary authorities and they should have taken appropriate action. Inflation targeting does not preclude other objectives from the purview of monetary authorities so long as inflation remains within the comfort zone. The control of inflation becomes its exclusive concern only when inflation crosses the acceptable level.

Can it be done?

Can the Reserve Bank of India (RBI) or for that matter any central bank effectively implement an inflation mandate? Do they have enough instruments to achieve the goal? The ability of the central banks to control inflation when such inflation stems from excess demand is normally conceded. It is when inflation is triggered by supply shocks that some doubts are raised. Such supply shocks are most common in countries like India where agricultural production is subject to the vagaries of nature. Even when inflation is triggered by food inflation, monetary policy and fiscal policy have a role to play. If food inflation lasts long, it gets generalised. Wages rise leading to a general cost push inflation. If head line inflation exceeds the acceptable level, monetary policy must act at least to ensure that the return on financial assets is positive in real terms. In a situation of supply shocks, it may take longer for monetary policy to bring down inflation. The recent experience with inflation in our country is a good example of this. That is why the inflation mandate must provide for a range and a time frame for adjustment which should not be too short. Nevertheless, monetary policy must act irrespective of what triggered inflation. Obviously, supply side management is needed in situations of supply stock and that should be the responsibility of the government.

Institutional framework

The appropriate institutional framework for implementing the inflation mandate also raises certain questions. The first issue is on who should determine the acceptable level of inflation. In most countries which have adopted inflation targeting, the target is set by the government or Parliament. This appears to be appropriate in as much as the acceptable level of inflation is not purely an economic issue. However, once a mandate is prescribed by the government or Parliament, the monetary authority should be left with full autonomy to use whatever instruments that are available to it to implement the mandate.

The second issue relates to an appropriate price index which should be used to monitor inflation. In India, we have monitored inflation by mostly looking at the wholesale price index. That was because of the easy availability of this index. Until recently, we have had no composite retail price index. Since the objective of inflation targeting is to minimise the impact of price rise on people, the appropriate index will be retail inflation.

The third issue relates to institutional arrangements within the monetary authority to take policy decisions consistent with an inflation mandate. In several countries, a technical monetary policy committee is constituted with members drawn from the central bank, from the government and from outside experts. My preference would be to constitute a committee of the board of the RBI to do this. This is what was done when the Board for Financial Supervision was set up. While constituting the central board of the RBI, this aspect of the work of the bank must also be kept in view.

Inflation targeting re-emphasises the primacy of price stability as the objective of monetary policy. Given the rigidities in the economy and the lags in policy impact, it must be operated with flexibility.

FM dangles Rs 13k-cr carrot to clear GST bottlenecks

Finance Minister Arun Jaitley, who is meeting state finance ministers on Thursday to garner support for the Constitution Amendment Bill for a goods & services tax (GST), is likely to immediately dole out about Rs 13,000 crore in Central Sales Tax (CST) compensation to states.

The minister, even as he is walking the tightrope to contain the government’s fiscal deficit, might propose to clear about a third of states’ Rs 34,000-crore CST dues in the first supplementary demand for grants, to be tabled in the current Parliament session, officials said.

The empowered committee of state finance ministers is to discuss the draft Constitution Amendment Bill for implementation of GST at their meeting on Thursday. Later that day, Jaitley will meet the state FMs and try to reach a broad understanding on crucial issues. That will be against the backdrop of Prime Minister Narendra Modi’s Sunday meeting with chief ministers where he emphasised the need for states’ greater role in the proposed body to replace the Planning Commission.

“We have shared the draft Constitution Amendment Bill with the empowered committee. The matter will be handled at the political level now,” said a finance ministry official who did not wish to be named.

Among the states earlier opposed to the proposed GST regime, Madhya Pradesh and Gujarat have relented since a Modi-led government took charge at the Centre in May this year. In two other major states, Maharashtra and Haryana, Modi’s Bharatiya Janata Party has replaced the Congress at the helm of governments after the recent Assembly polls there. Tamil Nadu was a dissenting state but it is expected to mellow down after the Centre recently gave relief to J Jayalalithaa, chief of the ruling All-India Anna Dravida Munnetra Kazhagam there, in an old income-tax case.

Though consuming states will benefit from a destination-based tax, West Bengal might still not extend its support to the Bill easily, given the recent war of words between Mamata Banerjee, that state’s chief minister, and BJP President Amit Shah. It is important for the government to have the Trinamool Congress on its side, as the BJP-led ruling coalition does not have the required number of members to get the Bill passed in the Rajya Sabha.

“States will press their demand to keep fuel outside the ambit of GST. The Centre’s suggestion on keeping petroleum products zero-rated under GST will not work. If petroleum is subsumed, states cannot get CST on inter-state movement. Integrated GST gives revenue to the consuming state, while CST gives it to the originating state,” said a state government official.

ALL ON BOARD?

Among states that were opposing GST earlier, Madhya Pradesh and Gujarat have relented since a Modi-led govt came to power at the Centre in May this year In Maharashtra and Haryana, BJP has replaced Congress at the helm of the state govts after recent polls Tamil Nadu, another dissenting state, might change stance after the Centre recently gave relief to AIADMK chief J Jayalalithaa in an old income-tax case Bengal could still not extend its support to the Bill easily, given the recent war of words between Chief Minister Mamata Banerjee and BJP President Amit Shah It is important for the govt to have Banerjee’s Trinamool Congress on board, as NDA does not have the required numbers to get the Bill passed in the Rajya Sabha

Though the Centre seems firm on its decision to subsume petroleum and entry taxes in GST, with a provision for first tranche of CST compensation, Jaitley is likely to assure states the Centre will compensate them for three years’ losses under GST as well, even without a provision for that in the Constitution.

After the previous two finance ministers refused to release CST compensation till states extended their cooperation on GST, Jaitley promised to clear the dues over a period of three years.

The central government wants to table the Bill in the current Parliament session, so that GST can be implemented from April 2016. The Bill is important for the government, especially at a time when industry is beginning to complain about the lack of crucial reforms even six months after the change of power at the Centre.

“If they do not present the Constitution Amendment Bill in this session, GST will not happen,” said Harishanker Subramaniam, partner, EY. He, however, added it was equally important to bring out a GST with minimum exemptions. So, petroleum products, property, entry taxes and even alcohol should be subsumed in a GST.

As a robust information technology (IT) infrastructure would be the backbone of GST, as highlighted by the prime minister several times, the finance ministry has also started assessing IT preparedness of states. Revenue Secretary Shaktikanta Das is planning a meeting on the issue on Wednesday

Infrastructure for Tribal Population

The Ministry of Tribal Affairs administers two Special Area Programmes viz. Programme under Article 275(1) and Special Central Assistance to Tribal Sub-Plan (SCA to TSP) as detailed below: i. Special Central Assistance to Tribal Sub-Plan (SCA to TSP) – Funds are provided by this Ministry to the 23 State Governments as an additive to the State Plan for economic development of tribals in the States covering skill development and employment-cum-income generation activities and the infrastructure incidental thereto. ii. Grant under Article 275(1) of the Constitution: Under the programme, grant is released to 27 States including the State of Jharkhand having ST population for raising the level of Administration in Scheduled Areas and for the welfare of Scheduled Tribes. Funds are also given for setting up of Eklavya Model Residential Schools (EMRSs). In addition to the above programmes, the Ministry has launched a new Scheme called ‘Van Bandhu Kalyan Yojana’, which aims to develop the backward blocks in the States having Schedule V Areas as model Blocks with visible infrastructural facilities by way of appropriate convergence of available resources with the Central Government and State Governments. Also, two schemes are being implemented, namely ‘Construction of Hostels for ST Boys and Girls’ and ‘Construction of Ashram School for ST Boys and Girls’ to provide/improve infrastructure in Tribal Area for welfare of Tribal people. 100% Grant-in-Aid is given for implementation of the said schemes for Girls and naxal affected areas. Following schemes are also implemented for welfare of ST people in all over India including hilly region: (i) Pre-Matric Scholarship for ST students studying class IX & X. (ii) Post Matric Scholarship for ST students. (iii) Up-gradation of Merit. (iv) Construction of Hostel for ST Boys and Girls. (v) Construction of Ashram Schools for ST Boys and Girls (vi) Vocational Training in Tribal Areas. (vii) Rajiv Gandhi National Fellowship for ST students. (viii) National Overseas Scholarship (NOS) for ST students (ix) Top Class Scholarship scheme for ST students The schemes at point (i) to (v) are centrally sponsored schemes and the fund under the schemes are granted as per demand and proposal of the State Governments. The schemes at point (vi) to (viii) are central sector scheme and the fund is granted to the beneficiaries as per norms of the schemes.

Use of Led Lamps

For large scale adoption of LEDs for lighting, Ministry of Power had prepared a roadmap, in close cooperation with the lighting industry, in 2009 which sought to: (a) ensure the quality and reliability of LED lamps; (b) reduce the price of LED lamps, initially through large scale public procurement and then through a labelling programme; and (c) facilitate awareness and demonstration of this lighting through LED technology. Bureau of Energy Efficiency (BEE), Ministry of Power, simultaneously promoted demand for LED bulbs and LED streetlights by providing financial support to all states to set up demonstration projects to highlight the lighting quality and energy savings of LED technology. This was stated by Sh. Piyush Goyal, Minister of state for Power, Coal & New and Renewable Energy (Independent Charge) in a written reply to a question in the Rajya Sabha today. Shri Goyal further stated that the Ministry of Power has also written to all Ministries/Departments to procure LEDs in place of Compact Florescent Lamps (CFLs) and Incandescent Lamps (ICLs) and also requested the Directorate General of Supplies & Dsiposals (DGS&D) to include LEDs in the rate contract list. Ministry of Finance has been requested to issue directives to all Central Ministries/Departments to procure LED bulbs instead of CFLs/ICLs. Bureau of Indian Standard (BIS) has stopped giving license to produce incandescent bulbs of wattage more than 100W. The efficacy of the lamp (assembly of LED chip, diffuser, driver and heat sink which makes up the bulb or tubelight) currently ranges from 80-120 lumen/watt. Hence, LED lamps available in the market consume about 1/10th of power as compared to incandescent lamp and close to 1/2 of CFLs, to provide equivalent light output. The production of 300 lumen per watt is only under lab conditions and that too only of the LED chip as claimed by some manufacturers. Under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), Ministry of Power in 2013 has issued guidelines that LED bulbs would be provided with free electricity connection to eligible Below Poverty Line Households, Shri Goyal added. As per a report of ASSOCHAM published in 2011, it is estimated that with wide spread use of efficient lighting devices such as CFLs and LEDs can save around 34,743 MW of generation capacity. Given that our total generation capacity is 254649.49 MW (Oct. 2014), the saving is of the tune of 13% of installed capacity.

‘Karnataka Mobile One’

Shri Pranab Mukherjee at the launch of the mobile governance project, ‘Karnataka Mobile One’

1. I am happy to be here this afternoon for the launch of ‘Karnataka Mobile One’, the Mobile Governance project of the Government of Karnataka. I compliment the State Government for this pioneering effort of starting an integrated mobile-enabled services delivery system. This unique initiative, which I am told is the first-of-its-kind in the country, signals a new era in Governance. 2. This Mobile Governance project will make available services like bill payments, traffic alerts, traffic fine payments and other utility services through the mobile phone. It will also enable access to Sakala, the platform for time-bound delivery of services, as well as prompt redressal of grievances. It is commendable that Karnataka, which is a leading centre of IT, has cohesively merged technology, innovation and governance to create a novel process of citizen-government engagement. 3. Good decision-making calls for pooling of knowledge, experience and views of all stakeholders including citizens. Recognizing thismantra of statecraft, Karnataka pursues the deepening of bond between the government and the governed. This, according to me, epitomizes the philosophy of governance that our ancient treatiseslikeBhagavat Gita,Arthashastra and Manusmritihad propounded. These treasured scriptures provided a prescription for governance based on acollaborative system between government and citizens. Ladies and Gentlemen: 4. Happiness of citizens is the foremost objective of a welfare state. It is the fulcrum on which rests it’s other goals. Driving its fulfilment calls forgood governance that has such sacrosanct elements as adherence to rule of law, participatory decision-making, equity, inclusiveness, responsiveness, transparency and accountability. 5. The Constitution of India is a model of good governance principles. The Preamble, the Fundamental Rights and the Directive Principles of State Policy comprise the tenets of governance. They provide a reference point for value based governance of our country. Fundamental rights are essential for the development of personality of every individual and for the preservation of human dignity. 6. TheDirective Principles of State Policyis a blueprint for good governance. Parliamentary enactments, and government policies and programmes have helped transform these directives into actionable points for governance. For instance, entitlements for food, education and job, backed by legal guarantees, have empowered citizens. Schemes for universal healthcare and education have shown good results. Recently, the Government has provided further boost to inclusive development through a slew of innovative schemes aimed at complete financial inclusion, provision of digital infrastructure, cleanliness campaign and creation of model villages. 7. The key parameter of success of public programmes is the meeting of the expectations of people. In the context of good governance, it implies the availability of effective delivery mechanisms. Responsiveness in catering to the needs of the citizens is a challenge the public administration of our country has to deal with. The efficacy of public institutions depends on the delivery mechanism and the institutional framework of rules, regulations and procedures, which has to evolve continuously to respond to the changing times.There is a pressing need, on the one hand, to improve organizational capabilities to cater to the increasing demand for services and improvement in the quality of service delivery, and on the other, to improve transparency and accountability. This underscores the need for innovative solutions based on technology. Late Carl Sagan, the astrophysicist, author and science communicator, had said and I quote: "We have arranged a civilization in which most crucial elements profoundly depend on science and technology” (unquote). 8. The ‘Aadhaar’ project was initiated providing every resident with a unique identification number aimed at improving delivery and easy access to benefits and services. The Direct Benefits Transfer Scheme launched in January 2013 leveraged the Aadhaar system to improve targeting, eliminate waste, usher in greater transparency, reduce transaction costs and enhance efficiency. This initiative demonstrated how good governance practices can be consolidated using suitable technology models. E-governance holds great promise for a quantum leap in governance standards. The need of the hour is to leverage India’s leadership position in ICT to introduce technology-intensive solutions for governance. Ladies and Gentlemen: 9. Dramatic developments in the IT sector have transformed the society. It has created an eco-system for the Government to tap technology-enabled solutions for deployment in the area of governance for the benefit of the common man. Karnataka, for one, is an IT hub portraying a success story that has few parallels. It contributes to thirty percent of the total software exports of our country. 10. Not only has the State created a conducive environment for the expansion of the IT sector, it has skilfullycombined innovation and government vision to bring about reforms touching the lives of citizens.E-initiatives like Bhoomi, which is an on-line system for land records management;Kaveri, which is a valuation and e-registration system of the Department of Stamps and Registration;e-swathu, which is a software that lists properties in urban local bodies and that has now been integrated withKaveri; and e-procurement have set governance benchmarks. Karnataka also has the distinction of being the first Indian state to have a dedicated secretariat for e-governance. I commend your passion to deploy technology in governance. In this context, I want to express my delight at having been associated with the demonstration of 3D holography, which is a cutting-edge technology. Ladies and Gentlemen: 11. Mobile phone has revolutionized the communication system like none other. It has brought people closer, shrunk distance and alleviated geographic separation. The total number of mobile phone subscribers in India is 93crore with a density of 75 percent. 41 percent of the subscribers reside in rural areas. The monthly growth rate of mobile phone subscription of 0.76 percent in the rural areas is higher than the 0.55 percent in the urban areas. These numbers have significance from the policy perspective of governance. 12. The ‘Digital India’ programme launched in August this year envisages the creation of a digitally-empowered society and knowledge economy by breaking the divide between digital ‘haves’ and ‘have-nots’. One of the components of this programme is the availability of government services in real time from mobile platforms. It is in this context that I consider the ‘Karnataka Mobile One’ to be an initiative of great foresight. It is heartening to note that nearly five hundred G2C and over four thousand B2C services have been integrated into this platform and I am told more services are being on-boarded. This, to me, will translate into ‘meaningful governance’ and take e-governance to the next level.

Crude fall to oil Indian economy

For India’s economy, projected to grow at a faster clip from early-2015, the timing of the oil-prices relief could not have been sweeter

Down nearly 40 per cent since June, international crude prices are close to levels last seen in 2009, when the global economy was gripped by its worst slump since the 1930s. Indians though are not enjoying commensurate savings on fuel bills — retail prices of petrol and diesel are not declining at the same pace as the plummeting price of crude. Consumers are paying 8.32 per cent less for diesel and 11.31 per cent less for petrol than on June 1.

But there are indirect gains. The sharp fall in global crude prices has a favourable impact on India’s macro economy, setting off multiple growth boosters. Investment bank Nomura estimates that the $40 fall can potentially boost growth by up to 0.4 percentage points to 6 per cent in the current financial year. “Improvement in macro fundamentals [inflation and the fiscal deficit and the current account balance] will, at the margin, increase the space for macro [monetary and fiscal] policies to boost growth,” it says in a report on the impact of the tumbling international crude prices on India.

“The price fall is fortunate for the new government … it will reduce the balance of payments and if handled well it can be translated into economic growth,” economist Kirit Parikh told The Hindu. Dr. Parikh, who has been on the economic advisory councils of five Prime Ministers — Atal Bihari Vajpayee, P.V. Narasimha Rao, V.P. Singh, Chandra Shekhar and Rajiv Gandhi, said the biggest impact on India can be that the government, if it wants, will be able to spend more on development.

The timing of this windfall could not have been better for India’s economy. A new government with a huge mandate is in office and business is on the cusp of an upturn.

The most obvious positive fallout is on price rise. Wholesale inflation growth could slow by around 2 percentage points, Nomura estimates. Consumer prices will ease too, though to a much less extent, it says. The spare cash from fuel cost savings, howsoever small, should increase consumer discretionary spending. Higher consumption adds to corporate incomes. Abating input costs too will widen profit margins for businesses. As balance sheets start improving, companies will be better placed to start new projects or revive stalled ones, generate new jobs and growth.

Just as for companies, the government will be able to mend its balance sheet. The fortuitous oil-price situation released substantial savings on the fuel subsidy bill, which Nomura estimates at 0.1 per cent of the GDP. This has made it possible for the Finance Ministry to increase excise duty rates for petrol and diesel for additional revenue of up to Rs 15,000 crore this year.

The cushion of extra revenue and subsidy savings will come in very handy for the Centre in keeping its fiscal deficit for this year within the Budget target of 4.1 per cent of the GDP, especially because the Finance Ministry has warned that tax collections will miss the Budget target. More important, the happy oil position has emboldened the Modi government to roll out far-reaching fuel subsidy reforms and clean up the Centre’s account books. The Centre has capped the Budget subsidy on cooking gas and eliminated the one on diesel, freeing its pricing from government control. The diesel subsidy that had amounted to 0.3 per cent of the GDP last year stands scrapped.

Besides the government’s coffers, the pubic sector oil companies’ profitability could benefit too from these measures.

The third channel through which growth impulses can be expected is India’s external account or the current account deficit (CAD). Since India imports more than 70 per cent of its oil consumption, deflating global crude prices reduces India’s import bill. Nomura estimates that India’s annual CAD could improve by up to $36 billion from the $40 fall. This gives the Reserve Bank some room to add more dollars to India’s forex reserves, allowing the rupee to depreciate, which will make exports more competitive.

How did this window of good luck become available to India and till when will it last?

The remarkable fall in global oil prices is continuing because of a mismatch in demand and supply. Demand is down because of eurozone’s economic stagnation, Japan’s slipping into recession and China’s slowdown. Output, on the other hand, is rising on account of the U.S. shale boom.

The downward trend in global crude is expected to sustain after Saudi Arabia led the oil producers of OPEC last fortnight to decide against cutting their output target of 30 million barrels a day.

After the first global oil shock following the 1973 Middle East War, Saudi Arabia, the ultra-low-cost producer of oil, has influenced geopolitics at will by turning the taps on and off.

It is again playing politics with oil to force down the price with three objectives: of hurting Iran and Russia’s oil incomes and rendering the U.S. shale production unviable. The threat from the shale project to the oil producers being that the U.S. is projected to become a net petroleum exporter before 2020.

Saudi Arabia also wants to counter the attempts of the Rouhani regime in Iran at dominating the Middle East region.

Already falling oil prices have driven down Russia’s rouble by 35 per cent since June, shrinking its economy to the size of Spain’s. The vulnerability of U.S. shale, however, is still unclear with several estimates showing it will remain profitable even at crude levels far below $50 a barrel. Post-OPEC’s decision, crude prices are ruling at about $68 a barrel, at which level, Saudi Arabia believes, U.S. shale will become unviable.

Still, how long Saudi Arabia will manage to hold prices down is anybody’s guess. Projections vary from a few months to two years.

The only foreseeable downside to the emerging oil story for India comes from the fact there is a huge non-resident Indian presence in the Gulf. Their incomes could be affected if these oil-producing countries are hit. This will depress remittances from them to India.

On Tuesday, Reserve Bank Governor Raghuram Rajan became one of the first worldwide to caution against the possibility of a reversal in the downward trend in global crude and prices rising on the back of geopolitical risks. Just when this can be expected the Governor did not say. For India’s economy, which the Governor has projected will begin to revive in 2015, the oil-price relief window’s timing could not have been sweeter.