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w w w. f i n a n c i a l e x p re s s . c o m

l WEDNESDAY l JANUARY 2 l 2013

Immediate crisis staved, tough decisions left for later?

hile purists argue President Obama has given away too muchtotheRepublicanswhowillcontinuetobargainmore since the debt-ceiling still remains unresolved, the deal is significant since, after many years, the US is actually raising taxes to deal with fiscal problems. The hiking of taxes to Clinton-era rates for families that earn more than $400,000 a yearassuming the Senate passes it tomorrowis much more generous than what Obama campaigned for. He wanted to apply these rates to family incomes of over $250,000, but keep in mind raising taxes is easier, and makes more sense, when the economy is doing well as it was when Clinton was president.WhichiswhytheWhiteHousehasclaimedithasmanaged to get 80-85% of what it wantedthe concession to the rich, presumably ,wasbarteredforbeingallowedtoretainotherbenefitssuchason unemployment insurance, tax-credits for low-income families and a reduction in the impact of the alternative minimum tax on middleclassfamilies.Estatedutieshavebeenraisedfrom35%to40%anddividendtaxfrom15%to20%again,notashighastheDemocratswanted, but higher than the Republicans would have liked to concede. The $600 billion of extra taxes this will generate over a decade means average US taxes will rise between 1-1.25% instead of the 5% that would have taken place had the cliff not been resolved. While that means a definite slowing of the US growth process, it probably wont be enough to tip the US back into recession. Indeed, what will help further bolster US consumer confidence that is just about coming back is, according to a calculation by Reuters Breakingviews, the saving in energy prices thanks to the fracking revolutionthis was around $107 billion in 2012, working out to around $926 of savings through lower gas prices per household. The tax impact of the cliff not being resolved, according to the Tax Policy Centre in Washington, as quoted by the NYT, would have been higher taxes by $3,446 per household. The unfortunate part of the deal, however, is that nothing has been achieved on the larger issue of the dramatic hikes in entitlement expenditure or trying to simplify the US tax code which is so complex few even understand it. Nor is there any word from the White House as to when, or whether, this is to be tackled. NYT columnist David Brooks points out the average Medicare couple contributes $109,000 while getting $343,000 of benefits out of it. But given how the US political system has divided power among the House, the Senate, the White House and the Supreme Courteach body must agree if a Bill is to become lawunsatisfactory compromises are the order of the day .

Scaling the cliff

Can India be Germany of East?

Germany had a social contract between govt, industry and unionsIndia has mainly mistrust
ermany of the East and not Factory for the West. In a recent survey of CEOs in Indias manufacturing sector carried out by the Boston Consulting Group in partnership with CII, this came out as a clearly articulated aspiration. The CEOs want to build high value manufacturing sector based on Indias perceived advantage in engineering and jugad skills, and not on the large-scale low labour cost driven manufacturing growth model of China. They see the current churn in global manufacturing industry as the best opportunity to shape Indias position for next two decades, an opportunity that was grabbed by China two decades ago when the western world discovered low-cost manufacturing. Thus, China became the factory to the West. That is the aspiration. What is the reality? Three years ago, the Indian manufacturing was flying high. The growth rates in one quarter touched a high of 10% and performed consistently around 8%. The National Manufacturing Plan was announced last year targeting a contribution of 25% of GDP for the manufacturing sector in 10 years from current level of 16% and to take India to the forefront of global manufacturing giants. In just three years this high flying sector has come crashing down with IIP growth becoming negative (minus 0.35% over AprilSeptember 2012, compared to 5.5% and 8.9% in the same period in preceding years), flat manufacturing GDP growth in FY13 so far and falling in-

vestment to GDP ratio asm to move forward. (from 38% to 32%). At the same manufacPerhaps there is no turing summit I had the more disturbing data opportunity to ask the than a comment by an inCEOs two questions. The dustry leader at a recent first was what the indusmanufacturing summit try can do within these when he said that the constraints to move tonumber of manufacturwards their aspiration. ing jobs in the organised ARINDAM K The second was what sector in India today is would be one advice that BHATTACHARYA they the same as the number would give to the gov40 years ago when he ernment if they had an opjoined the industry after This social portunity. On the first passing out from college. contract was question, it was no surAs another participant prise that the answer was forged after in the same summit said, improve productivity tothe labour laws have WWII when the wards global standards. done a great job in proThe CEOs felt that they entire nation tecting the interests of had much room for imless than 5% of the total was united by provement on quality and workforce at the expense the desire to product and process innoof the 95% rather than vation and it was critical collectively rise to improve productivity creating new jobs! Many reasons have from the faster than growth in been put forth for this wage rates to remain globashesgetting short-term decline in perally competitive. On the this in place is formance and the longsecond question, the reterm jobless growth in the Indias biggest sponse was more interestmanufacturing sector. ing. One CEO put it, his Most of these issues like leadership one sentence advice to the access to land, raw mate- challenge government would be lisrials like coal and iron ten to the industry, we are ore, lack of power, cascadnot adversaries. ing taxation, poor infraClearly, there is a growstructure or stifling business regulaing belief in the industry that many in tions etc are clearly understood, and the government do not trust them as there are plans and/or bills under way another CEO put it. This widening gap to try and fix them. Except labour, is not just between the industry and the which has been one topic where there government but also with other stakeseems to be a distinct lack of enthusiholders like civil society and labour.

Germany of the East is a wonderful aspiration to have, but Germanys success has been underpinned by the amazing social contract between the government, industry, labour unions, banks and research centres, which has created an industrial ecosystem that is the envy of the rest of the world. This social contract was formed by a common sense of purpose among all the stakeholders, forged in the aftermath of the World War when the entire country was united by the desire to collectively rise from the ashes, which trumped any personal agendas that may have existed. Organisations, societies and nations develop common objectives driven by a crisis like Germany or Japan did post the World War II, or by powerful or charismatic leaders of totalitarian states like Korea or China did in more recent years. There is a third, perhaps more sustainable but certainly more difficult way, when multiple stakeholders align their interests through a series of dialogues and discussions. But that calls for trust driven by the belief that all the stakeholders have the same aspirations at the end of the day. This is the biggest leadership challenge for India. Also perhaps the greatest opportunity for an India way to forge an alliance among the different stakeholders, based not on best practices of the last century but showing the way forward for the present one. The author is managing director , the Boston Consulting Group, India. Views are personal

Using Aadhar to cut subsidies still a long way off

hough the government has substantially scaled down the Aadhar-based direct benefit transfer (DBT) scheme to delivering just 7 scholarships to 200,000 beneficiaries across 20 districts in 16 states from January 1DBT for 26 schemes is to be launched in 11 districts from February 1 and in 12 more from March 1this represents an important beginning. And will go a long way in convincing sceptics that the scheme works. Critics have, in the past, used isolated examples, including from cash transfer schemes that were not based on Aadhars unique ID system, to argue the model doesnt work. In other cases, axiomatic assumptions were made that those getting Aadhar-based cash transfers would simply drink the money away . While the results of the Aadhar-based DBT will have to speak for themselves, it has to be recognised that Aadhar is only a payment-enabling mechanism, though a very sophisticated one, with no parallel anywhere in the world. Aadhar can only ensure the person getting a benefit is matched to a unique set of biometrics, but whether this person is rich or poor is something only the concerned project authorities or the local administration can determine. So if the non-poor get cash transfers using Aadhar, lets not blame Aadhar for it. Though some pilot projects are to be done for food subsidies in some union territories, the fact that Aadhar-based DBTs are not being used to distribute any major subsidy is unfortunate and represents a wasted opportunity . If DBTs are not used for major schemes like food and fertilisers or kerosene, the chances of this being done later, in the run-up to the elections, look a bit weak. More so since, despite there being enough studies to show a 30-40% leakages in grain transfers through PDS, the government is finalising the mother of allPDSscalledtheFoodSecurityBill.Thatpushestheuseof Aadhar for cutting subsidies to the next government. Whether the new government will use Aadhar to cut huge leakages in subsidies remains to be seenthat depends on whether, like the UPA right now, it is under severe pressure to move on critical reforms.

Small beginning

Many in China perceive the TPP as a US-led consortium against Chinese strategic clout in the region
A top priority for the new Chinese leadership will be addressing the challenges in the regional economic landscape. China, along with the rest of Asia, is closely following the Trans-Pacific Partnership (TPP). The US is the driving force behind this sub-regional trade block coming up in the Asia-Pacific region. Comprising Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the US, the TPP, while being a collective of APEC members, does not include major APEC economies like China and Indonesia. The groups economic significance has increased with the addition of Canada and Mexico and will become even more if Japan, South Korea and Thailand join it. Most opinions in China perceive the TPP as a US-led alliance for reducing Chinas strategic clout in the region. Gradually, some other opinions are gaining influence. These include efforts for assessing the economic gains and losses of Chinas staying out of the TPP, or, in the distant future, becoming a part of it. Given Chinas strong trade and investment links with several TPP members, losses from diversion of trade and capital flows cannot be ruled out. These impacts are being assessed for gauging the economic harm that TPP can inflict on China. The growth of the TPP has encouraged China to invest more resources and energy in other regional integration efforts. China is part of all inte- on for more than four years now and gration efforts involving ASEAN and have finished fifteen rounds. RCEP neother major Asian economies. These gotiations would begin from March include the ASEAN+3 (China, Japan, next year. These negotiations might be Korea) and the East Asian Summit influenced by developments in the TPP (EAS). The latter includes ASEAN, since there are members common to China, Japan, Korea, India, Australia, both such as Australia and New New Zealand, US and Russia. The EAS Zealand and ASEAN countries like will probably become marginal to the Brunei, Malaysia, Vietnam and SingaRCEP, or the Regional pore. The common memComprehensive Econombers would probably inic Partnership. clude Japan and Korea too The RCEP involves the in the long term. integration of the China would be uncomASEANs FTAs with nonfortable if the TPP influASEAN Asian economies. ences the RCEP. The TPP It would aim to consoliis an ambitious agreedate the FTAs that ment covering several ASEAN has with AusWTO plus issues includtralia, New Zealand, ChiAMITENDU ing intellectual property, na, India, Japan and Koand environment. PALIT labour rea. The consolidation It is aiming to rewrite the would result in the rules of international ASEAN connecting to the rest of the trade by aligning them with domestic major Asian economies in a hub and regulations. The common members spoke economic framework with might try to force upon the RCEP the ASEAN as the hub. ideas of the TPP not only in WTO plus Over the next few years, the Asia-Pa- areas, but also traditional market accific would witness growth of both the cess issues such as tariffs and non-tarTPP and the RCEP. Considerable inter- iff barriers. This will be an awkward est has been generated among the eco- situation for China, as much as it will nomic and strategic communities over be for India, who also features in the whether simultaneous negotiations RCEP, but not in the TPP. would proceed harmoniously in the Greater influence of the TPP on the two arrangements. This is a major con- RCEP would also increase Chinas cern for China. strategic discomfort. China is likely to The TPP has had a head-start over view the TPP invasion as an effort by the RCEP. TPP negotiations have been theUSalliesintheTPPtodragtheRCEP closer to the TPP for maximising the US economic and strategic advantages. What will be Chinas response to these emerging issues? Much would depend on how it visualises its long term gains. While it will stay engaged with all non-TPP integration efforts in the Asia-Pacific, particularly the RCEP, for consolidating market access and minimising trade diversion, it will not be oblivious of the TPP. As an APEC member, it has the opportunity of taking advantage of the open annexation clause for joining the TPP. That will be a very tough decision though given the huge reforms it will require implementing domestic regulations and trade laws for joining the TPP. But China has taken similar steps before, the most notable being joining the WTO in 2001, despite not being a party to the WTO talks in the Uruguay round. Chinas immediate priority would be to focus on increasing market access in Asia through the RCEP. India would feature in these efforts as would Japan and Korea. Realpolitik would continue to remain Chinas main asset in securing economic gains as it will strive to overlook political differences for taking deeper strides in other country markets. The author is a visiting senior research fellow in the Institute of South Asian Studies in the National University of Singapore. He can be reached at isasap@nus.edu.sg. Views are personal

China in a changing region

Canvassing China

ELECTRONIC SNOOPING
US states have begun legislating against employers asking for Facebook passwords. Thats good
SOCIAL networking is ingenious, in letting us observe one another under the garb of anonymity . Boys use it to ogle at girls they are mad after, jealous co-workers use it to get theircolleaguesdirtysecrets.Andnow,there is a rising trend of employers asking for employees passwords to know their lifes backstory . HuffingtonPost reportsthatover37%of American employers do a Facebook check while screening job applicants. In India, given the low-penetration of social-networking sites,thetrendisjustnascent,butissuretobe pick up in the years ahead. This has important implications for privacy . No one should have to suffer because of what they post on Facebook. A Facebook user account is merely an extension of ones privatespace,whichconsistsof friends,photo-albums,hobbiesanddislikes, into the electronic media. Thus, it becomes a casual avenue, where one may organise, petition, party and simply have fun. Now most employers would never discriminate on the basis of ones friends,politicalviewsorwhatonedoesonaSaturdaynight.Hence, therereallyshouldbenobasisforelectronicsnoopingof thesortthat is taking hold. The backlash has already started. A while ago, an online petition circulated around Facebook that sought to ban the usageof socialnetworkcontentasanalibiforanallegedfelonyof some sort. Moreover, as many as four American states have expressly banned employers against requesting for Facebook passwords. India should follow suit, and take part in the most visible example of a government legislation supporting individual rights.

LETTERS TO THE EDITOR

PUs study on internet banking
Despite more than six decades of independence, 30% households living in rural areas notified to be within the municipal limits of Chandigarh dont have a bank account. Just 28% of the banking population of rural area possess ATM cards while the users of internet banking and mobile banking stand at 12% and 8%, respectively. In contrast, 85% of the urban population of the City Beautiful carries ATM cards and 75% have access to internet banking. These were the findings of a study conducted by Rajiv Khosla of the University School of Business, Panjab University. The study aimed at finding out demographic inequalities in using internet banking by rural and urban customers in Chandigarh. Results of the study pointed out that former private sector bank customers have started inclining towards public sector banks after the Great Recession and the eurozone crisis. As far as the use of internet banking is concerned, results portrayed a skewed representation. Majority of consumers in order to avoid hassles of bureaucracy in obtaining or depositing the loan forms or falling

prey to middlemen in the financial institutions are compelled to use internet banking services. Besides, over-occupancy of consumers in their domain and increasing use of internet at homes and offices also encouraged widespread use of internet banking. This study points to the fact that there is a huge scope for banks to develop their customer base in such regions.

the kind of expertise and the knowledge that successor is possessed with, one can be doubly sure that the empire is in the safe hands to take the business process forward and maintain the groups premier position.

lice is not in her control. Is it enough? She is, after all, the chief minister.

Srinivasan Umashankar Nagpur

NS Venkataraman Nandini Voice for the Deprived, Chennai

Nitrogen fixation
This has the reference to the Food caFE And now, VGF in Agriculture! of Ashok Gulati (FE, December 26). The article says that Gulati recommends a VGF solution for some states, for growing moong since it fixes nitrogen in soil this may or may not be true, but since Professor Google is not at hand, the dumb journalists in us decide to let it pass. The fixation of atmospheric nitrogen in soil is a great source of nitrogenous nutrient requirement of crops. This fixation capability is naturally available in crops belonging to Leguminosae family in which moong plant is one. Even before Professor Google entered the classroom, bare scientific truth is taught at latter primary level which everyone is ought to know, including journalists.

SK Khosla Chandigarh

Who is responsible?
Is no one in the administration responsible for the death of the unfortunate girl? The spontaneous national anguish after the death of 23year-old girl due to assault by rowdies shows that the mindset of the average Indian is sensitive with high feelings of compassion and concern. Now, the question is how to prevent such things happening again. Obviously, those in charge of the administration in Delhi should have resigned on moral grounds, since such a heinous crime has taken place as they have been in charge of law & order and administration. But nobody has resigned, which only indicates that they are insensitive and really unconcerned. Where is the Lt Governor of Delhi hiding? The chief minister of Delhi says that po-

A gentleman to the core

It was an eventful journey for the Tata Group spearheaded by the dynamic and yet modest Mr Ratan Tata. The kind of stupendous growth demonstrated by the Group especially since 1991 in the rapidly changing business environment when he took over as its Chairman is incredible, including some strategic acquisitions across the globe to gain business size and geographical reach. Ratan Tata has set up a standard for himself that will become a hallmark for other corporates to get inspired and emulate. He has a long sighted vision. Top of all, he is a gentleman to the core and genuinely believe in values and virtues of life and eventually likes doing business ethically. Indian corporates have many lessons to learn from him. He leaves behind a rich legacy that his successor will perhaps find it difficult and challenging but, given

V Kumaresan Chennai

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