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E COSHASTRA A !

From Faculty!s Desk

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Dr. Sangita Kamdar Area Chairperson, Economics, NMIMS, Mumbai

The Indian Economy: The fairytale, which is in danger of losing the plot significant

of India. The global environment is

of

India’s

deteriorating and is volatile. This has

economic growth. Since the economic

had an adverse impact on trade and

reforms of 1990, India has been growing

capital flows as well as the external

at a rapid rate. The years 2005 to 2008

value

were some of the most exciting in our

inflation

country’s history. India was growing at

inflation, has proved to be a stubborn

rates of around 9 per cent, making it

adversary. The corporate sector did not

the second fastest growing economy in

have much to cheer about either as the

the world and triggering hopes that we

period was marked by tight monetary

would

policy

The

year

milestone

1990 on

soon

was

the

break

a

road

past

the

magical

was

another

the and

and

rupee. in

Domestically,

particular

high

food

interest

rates.

Politically, the situation was unstable

double digit barrier. 2008

of

marker

in

our

and the government has lost credibility

economic history-this time however it

with

marked the beginning of a slow and

making

painful regression of our economy. The

government of corruption. The hazards

Indian

of

of coalition politics became apparent

shifting into the next gear, is grinding

and regional political powers did not

to a shuddering halt. The IMF growth

allow the government to adopt any

forecast for India in FY 2014 is hardly

significant policy reform, thus resulting

inspiring at a figure of 5.6%.

in

There are several reasons for this sudden

paralysis. The same investors who were

change in fortunes in the growth story

singing India’s praises a few years ago

growth

engine,

instead

civil

what

society

to

is

halt

today

bringing by

decision

accusing

known

as

the

policy


E COSHASTRA ! ! now

are

the

first

! dismiss

to

our

the path of high growth. Perhaps not. It

economy.

is one thing to have a young population

Compounding the issue are problems

but it is another to have a young,

such as the ever-increasing chasm in

trained population. The need of the

our

hour is widespread education and that

current

industrial

account

production

deficit.

a

too quality education. An environment,

standstill and our reliance on imports

which is favorable for investment in the

growing, this gap has been growing ever

domestic industry, needs to be created.

wider. Our insatiable desire for gold is

There are issues such as access to land

leading us down a dangerous path and

and

the government is trying hard to curb

causing

this

not

industries. Policy measures to address

helping matters either. Since the time he

these pressing issues are needed. We

announced that the US would cut back

have been found wanting in areas such

on

as investment in infrastructure and the

demand.

Ben

quantitative

coming

With to

Bernanke

easing,

the

is

Indian

natural

resources,

major

which

holdups

in

are

various

rupee has been in free-fall with the RBI

speed

having to intervene to arrest its fall.

decisions are being taken. A lot needs to

Another contentious point is the populist

be done to improve in this regard. It is

reforms,

time

which

the

government

is

with

for

which

our

administrative

government,

and

for

implementing in the run up to election

whichever

year. While it may have good intentions

power, to take hard decisions. Fiscal

there are several structural issues, which

consolidation will only be achieved if

suggest that, it may be severely flawed.

the government is ready to take a hard

The

stance.

Indian

growth

story,

which

government

comes

into

promised so much, has seemingly lost

In summary, all is not lost. There are

the plot. All hope is not lost however.

strong indicators, which show that we

There

can

exist

deeply

rooted

structural

bounce

back

from

our

present

drivers of economic growth. We are a

predicament.

young nation. The average age of our

strengths. The country is in need of a

citizens is a lot lower than many of the

policy

developed

economic considerations and is investor

nations.

The

disposable

income of the Indian citizen has been growing. This coupled with the vast domestic market has propelled India’s growth even during the global recession period.

The

levels

of

poverty

have

significantly improved and economic benefits have been felt even at the base of the social pyramid. The question that remains is whether these factors are sufficient to bring the country back on

We

agenda,

friendly.

need which

to is

back based

our on


CONTENTS ! !

EcoNMist

COVER STORY Y

1!

6!

"#!Suhasini Kirloskar

Article by Senior Committee 2013-14 -14 14

Lets try y and keepp this pprivate

Take the Leap of Faith

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CORPORATE INTERVIEW !

Mr. Narendra M. Murkumbi Managing Director & Vice Chairman

CROSSWORD

of

Renuka Sugars Limited

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ARTICLES !"#$%&'( Is the Dragon!s fire incinerating !"#$%&'())*+,-' the Elephant?

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SOLUTION

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AMAZING G FACTS

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)*%+,($-&.,( High Growth Trajectory: The FDI

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and The Uncelebrated Savers ,%&./'())*+0-' %"/&/%&( The Food Security Bill: Vote bank Politics or A Game Changer? ! 123425&'6'*.&"#'(!*)*17'*3852"-'

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ECODOODLE

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EcoNMist

Let!s try and keep this Private ! !

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The total estimated coal reserves in the world are about 860 billion tonnes. With energy, power and various other dependent sectors worldwide growing at breakneck speeds, the demand curve for coal has always been on a steady rise. The supply on the other hand has been unable to keep up. Moreover, governments have had to lay down stringent environmental regulations as a result of which the production targets have fallen well short of demand from various sectors. The gap has been steadily increasing. Of all the primary sources of energy, coal is the most extensively used one in India. This trend is expected to continue. The power sector is the largest consumer of coal followed by the iron and steel and cement segments. The demand for coal in FY 201213 was 696.03 Million Tonnes (MT) while supply was only 534.53 MT. As per the 12th Five Year Plan the estimated demand of coal in 2016-17 is 980MT while the supply has been pegged at 795 MT. Fast forward to 2021-22 and the demand and supply are expected ! to rise to 1373 MT and 1102 MT

AUGUST 2013

respectively. Clearly there is a shortage. This leaves organizations no other choice but to source from abroad. As a result of this the annual rate of coal imports has been growing at 22%. On the one hand there is pressure to spur growth. On the other, there is pressure to minimize the Current Account Deficit and maintain price levels. There is need for an equitable solution. Are there substitutes that could be imported? As can be seen from the table, coal is a much cheaper alternative when compared to other options. Moreover a large percentage of consumption of Oil and LNG is already imported. To meet the demands of various sectors, coal as an energy source appears to be the only feasible option. On the downside however, with the imbalance in supply and demand, the prices of coal are headed in one direction only – up. Another point of concern is that the cost of internationally traded coal is considerably higher than domestically available coal. This would have an inflationary effect on all


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Source : BP Statistical Review of World Energy 2013

affected sectors which in turn would lead to slowdown in growth. Moreover the country cannot afford to have further strains on its already burgeoning Current Account Deficit. It appears therefore that the most viable option for the government would be to look within and turn to the private sector. Presently private participation in the coal sector is restricted to captive mining and contractual operations. The concept of captive mining was introduced in the 70s when coal production became nationalized.

industry exclusively. The allocation of blocks was done based on the sector’s end-use requirements and the technical capabilities of the private company (the 1973 Act was amended in 1993 to expand captive mining to the power generation sector. It was further modified in 1996 to include the cement sector). The rest of the sector was broadly divided among two public companies! • •

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Up until the 70s, the coal sector mostly comprised a mix of small and big mines with most of them under the control of private players. Due to mismanagement, no forthcoming investments and an extremely low annual growth figure of 2%, the Government passed the Coal Mines Act in 1973 with the purpose of nationalizing the sector. Barring the mines under the control of Tata Steel Ltd and one or two major players at the time, the remaining mines were brought under the government’s control. In 1976 companies like Tata Steel were allowed to captive mine i.e. they were allocated a block or an area within which they were allowed to mine. They could then use this block to cater to the needs of the steel !

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Given below is the production history since that decade:

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As can be seen from the figures, there has been considerable growth under nationalization. But of late the figures seem to be stagnating. Unfortunately this stagnation is occurring at a time when demand is peaking. Compounding the issue are events like the 2012 blackouts which was the largest power outage in history. All this suggests that changes are the need of the hour. There is a need to bring in new technology and mining methods to improve current productivity. Following are the areas which need to be looked at: ! Exploration The Working Committee Group of the Planning Commission stated that in excess of 4000 sq. km. of area remains unexplored. It is not feasible for a body such as Coal India to explore this entire area by utilizing only its own resources. The technical expertise of private companies could be leveraged here. The exploration of these mines could be outsourced. There is a large possibility of finding suitable mines in such a large area. They could then be developed and utilized and in the process reduce the pressure on coal imports.

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! Improving technology existing mines

of

currently

While it is necessary to explore further, it is equally if not more important, to try and maximize the productivity of already existing mines. Private companies would bring to the table deep pockets, human resource and technical knowhow. They could contribute towards increasing the efficiencies of the processes and boost levels of output to meet demand and hence reduce reliance on imports. Alternately the expertise of private companies could be used at various levels of the supply chain. ! Finances In India FDI for setting up power projects and coal mines for captive consumption is allowed up to 100%. However, given the current industry trends, global economic pressures and lack of private participation, the sector has seen limited investment. This figure (table on the next page) amounts to only a fraction of the total FDI inflows into the country. So where is the money going to come from? Commercial Bank Lending is one option. The other option would be to turn to the private


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sector and enter into a Joint Venture or Private Public Partnership Model. There is already a Mine Developer cum Operator or MDO model in place. This is similar to a contract model wherein the MDO finances the start up costs while the PSU focuses on the end requirements. The MDO alternately provides equipment or brings technical capabilities to the partnership. This model could be promoted and the incentives need to be made more attractive to private players. The main advantage of this kind of contract model is that it would ease financial pressures. PSUs would not have to buy and maintain expensive equipment or hire labour. As can be seen there are a fair few advantages of calling for the private sector’s aid. Not only would it help improve productivity it would also level the playing field. There would be more players and this would make prices more competitive. It would reduce the Current Account Deficit considerably and would reduce the number of stalled projects thus contributing towards growth. All this sounds quite rosy, too good to be true even. Surely there are pitfalls? There are, in fact, some strong arguments to prove that privatization is not always the answer: 1) If history is any indicator then privatization does not seem like a very good option. The door

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to the power sector was left open for private players. Although they entered, they seem to have slipped on their way in and some companies are now in need of financial bailouts. The power sector was opened to private companies in 2002. In some states like Delhi there has been no significant improvement. Between 2002 and 2012, the power generation capacity has risen from 995 MW to 1047 MW, a rise of only 52 MW. Demand on the other hand has spiked to 5500 MW. In order to meet the gap private players have had to buy from other states or standalone power generation firms. A similar trend might follow in the coal sector. Private players might be plagued by the same problems which are being faced by the PSUs and there is no guarantee that privatization will bring about a drastic change. Another pertinent argument is that a fairly large percentage of the regions which need to be explored are Naxal dominated territories. This questions the merit of the suggestion that privatization will lead to higher levels of exploration. 2) Detractors of the move for privatization say that Coal India Limited has had the raw end of the deal. They are of the view that CIL is, in fact, competent to meet India’s demand requirements. It is the government which is hampering its progress. Given below are some of the project details of Coal India Ltd. What the table shows is that if the government laid more focus on giving clearances to projects then they would not have to turn to the private sector. Coal India seemingly has the capabilities to increase its production levels and reduce the gap between supply and demand which currently exceeds 150 Million Tonnes.

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! Given below are some of the project details of Coal India Ltd.! !

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3) There is always the possibility that some players might buy rights to the mines but then sell them off to bigger players. Moreover the power sector has the most subsidized rates. Private companies, in order to generate profits might choose to avoid this sector in favour of other, more lucrative ones like the iron and steel sector. Unless there are firm regulations in place private companies will supply to sectors which suit their requirements. A strong auditing body will have to be set up to monitor and regulate the private players. Another apprehension among Left wing politicians and labour unions is that introducing private players will slowly lead to the privatization of Coal

India. Their fear is that this would lead to a loss of jobs. In theory the proposition of making the coal sector private does sound inviting. There are, however, convincing opposing viewpoints to the move. It remains to be seen as to what steps the government will finally take to tackle this problem. Is the sector ready for privatization? Has the government learnt from past errors with the power sector? One does hope though that with the coal sector, the government decides to ‘try and keep it private.’

Article by Senior Committee 2013-14, Ecolibria Anirudh Kowtha – MBA (Core), NMIMS – 2012 -14 Krishnakumar Subramanian – MBA (Banking), NMIMS – 2012-14

References Indian chamber of commerce coal reportThe Indian coal sector:Challenges and future outlook Govt of India-Ministry of Mines report on fdi in mining secto Livemint article-Government approves bailout plan for power, roads Fri Jun 21, 2013 !

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Business standard article: Will privatisation help fire up the coal industry? , January 15, 2013 Financial express article : A private tinge for coal sector via equity tieups , Jul 15, 2013 ET article : Montek for coal sector privatization , Jan 4, 2013


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COVER STORY !

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Take the Leap of Faith

Suhasini Kirloskar

For young Indians who are entering the professional world today, what exactly is the unique place that they can carve out for themselves? This question is related to the question of India itself, what is her space in the world today? Let’s examine these two questions to develop a vision of the great things we can achieve in the future. Our country is at a unique juncture today, and we can sense that we are at the threshold of something big but are being held back from taking that leap of faith. The heady days of aiming for double digit growth (which was a tantalizing possibility a few years ago), now seems like a distant memory. While our country seems to be floundering currently, we have come a long way since independence. We need to look back over our shoulders at the road we have taken and decide the course for the future. The Indian economy was largely a closed and controlled one from the 40s up until 1990. You may have heard your parents tell you that there were only 2 models of cars on the road! Today

there are more than 50 automobile brands on Indian roads. Owning a landline telephone was considered a luxury. These things may be quite hard for the present day Indian to imagine, who is spoilt for choice. India’s economy in those decades was influenced by socialist principles. Post World War II, the Soviet Union appeared to be present an economic model and Jawaharlal Nehru sought to lay down the same foundations which the Russian economy rested upon. State controlled industrialization, central planning and licensing was the norm. The idea was to generate a pattern of savings, believing that this would lay the foundation for growth and to help the country revive from colonial rule. In reality though, the conditions were not conducive for private industry and enterprise to flourish. As an example, Bajaj Auto Ltd was given a license to produce only 20,000 two wheelers a year, a control that Mr Rahul Bajaj challenged, saying he was ready to even go to

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Cover Story – Take the Leap of Faith

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jail for the excess production of a commodity that most Indians needed. While Indian entrepreneurs were stifled in this manner, international competition too was restricted from entering the market. The Indian consumer was simply left with no choice.

By 1993 there were no quantitative restrictions on manufactured capital goods. The tariffs on manufactured goods were reduced from 76.3% in 1990 to 42.9% in 1992. Opening up the economy opened up avenues in the job market which led to a higher disposable income of the average Indian. Per capita spend slowly began to rise and the Indian citizen began to adopt a spirit of consumerism. People who previously did not have access to products and services now became consumers. They were not restricted in terms of options either. By 2001, 10 years after the reforms began, restrictions on manufactured consumer goods were lifted.

This left one wondering as to how India was planning on growing. How were our leaders planning on bringing India on the global map?

The demographics of India when compared to the rest of the world at that point of time proved to be favourable as well. European and American markets were beginning to saturate and some were even on the decline. Growth was beginning to stagnate and maximum penetration had been reached in these markets. Moreover, European and American citizens were getting older and manufacturers were facing the prospect of slowly losing customers. They began to seek access to new markets and new geographies.

India’s was growing at a pedestrian rate in that era. In 1950 India’s growth was about 4% and was predominantly reliant on agriculture. Agriculture’s contribution to in the FY 1950-51 was 55% of GDP and close to 75% of the workforce.

In a category such as automobiles, whereas only 7 Indians out of every 1000 owned a car, 500 out of every person in Western Europe owned one. This led companies across the world to believe that there was a huge, untapped market opportunity in India.

By 1991, it became apparent that the economy could not continue in this manner. Reforms were forced on us after the 1990-91 external payments crisis. When the government finally adopted liberalization in 1991, our lives changed. Private enterprise began to flourish. The previously suppressed entrepreneurial spirit of Indians finally found scope to grow.

A similar trend followed across all categories of products and services. The developed economies saw India as an exciting opportunity. The caged tiger that was the Indian economy was slowly breaking its shackles. The purr was building up to a roar.

I sometimes imagine that if in those days, one would have asked international economists or investors, “What do you think about India?”, their answer may have been something like, “I don’t think about India.” We were simply not on the world’s radar.

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Our reliance on agriculture also reduced. While in the 1950s, agriculture’s contribution to GDP was about 50%, the number reduced to 17% by


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2008. This is an indication of how far India had grown in terms of industrialization. Buoyed by this optimism, we began to grow at figures of 8 to 9% for a sustained period of nearly 5 years from 2007 till about 2012. At one point in 2008, the Sensex touched 21000 points. In 2010, India’s trade to output ratio was 46.3%, a dramatic rise from the figure of 15.7% in 1990. Those were definitely heady days. A Mckinsey report said: ‘Income levels will almost triple. India will be the 5th largest consumer market by 2025. Over 291 million people will move from desperate poverty to a more sustainable life. By 2025, over 23 million Indians, which is more than the population of Australia, will be among the world’s wealthiest citizens.’ Investors were pinning their hopes on India’s

growth story and companies were eagerly trying to enter into our market and establish themselves. According to development reports, India, China and Brazil were projected to account for 40% of global output by 2050. The roar was now loud enough for everyone to hear. Coming to 2013, however, we see a very different picture. The tiger now seems to be withdrawing back into its cage. Investors who not too long ago were knocking at our door are now beating a hasty retreat. The extent of negativity towards India is shocking and depressing. The country at the moment is lacking credibility and there is no faith in the existing policies. When giants like Arcelor Mittal decide to scrap their plants in parts of the country, then you know that something is amiss. The figure of 6.5% growth now seems a

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distant possibility. ! The environment is not ideal and ! poses a ! challenge for all of us. This does not necessarily mean there is a dearth of opportunities today. If the world is changing, we may need to change our approach as well. The first thing that we should keep in mind is that we should not fall prey to hype cycles. Bubbles while pretty to behold, take only the slightest touch, gust of wind or dust particle to pop. It is therefore imperative to understand that we cannot remain insular in our environment. We must look at ourselves not in isolation but as part of a larger, interconnected system. The second thing we should do is to look beyond economic indicators. The ugly truth is that while we were growing at 9%, we were not performing well on human development indices. The 2013 UN Human Development Report portrays a sad picture on many different indicators. . Some of the more humbling points of the report are: •

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The average life expectancy of a newborn child in India is lower than a child born in war torn Iraq Overall in the human development report we are 136th out of 186 countries Our neighbors Sri Lanka, Bangladesh, Nepal and Pakistan are performing better than us on many development indices Education and literacy figures are poor

So for young people in India today, I believe the time has come to think differently. The young generation has to think radically, going beyond even the vision of Mr Narayan Murthy and Azim Premji. The time has come to focus on our development and social indices. Where we fare poorly on development indicators is exactly where we offer opportunities for improvement and enterprise. !

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Cover Story – Take the Leap of Faith

There are opportunities in areas such as healthcare, education and sanitation that will affect the country right at its roots. If you can find a way to really change the lives of people, the monetary and business model will fall into place. Take the example of the recent Uttarakhand tragedy. Such a catastrophe could have been avoided if significant investment of resources and capital had been made to strengthen our warning systems and research equipment. These are areas which remain ignored and are a clear opportunity for us. There seems to be a basic flaw in our assumption that technology is beneficial only if there is an immediate reward of dollars through its use. Our technological prowess cannot be directed only towards creating IT systems for foreign clients. Can we not look inward and try and capitalize on our immense intellectual capital to improve the developmental indices of the country? Young Indians today need to have a vision of what is possible if a sustained economic model is built on improving our development indices. The world is looking to the next generation for solutions in the areas of education, health, sanitation and infrastructure. There are a number of organizations that are willing to recognize, support and reward entrepreneurs in these fields. Initiatives such as the Mahindra Rise program, the Graduate Entrepreneur program run by UK Trade and Investment, the Bill and Melinda Gates Foundation and the Stanford Ignite program are meant to produce entrepreneurs in this direction. The tools are laid out for you. It depends on how you use them. The next generation needs to take a leap of faith. So let’s get out of our comfort zones and make this country as great as she deserves to be.


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About !Suhasini Kirloskar ! Kirloskar, an alumna of the! NMIMS batch of 1989, works with UK Suhasini Trade & Investment as Director, British Trade Office, Pune. In this role, she promotes UK and India partnerships in the areas of business, education and R&D. Prior to this, Suhasini had her own consulting company where she consulted Indian as well as international companies on marketing strategy and corporate communications. She has also consulted overseas companies to help them create and execute India market entry strategies. Besides this, she has also authored a number of articles and spoken at a number of forums, as well as visited B-schools around the country as a guest lecturer.

When she is not donning her corporate hat, Ms. Kirloskar dabbles in art and writes graphic novels for kids. All views expressed in this article are Ms. Kirloskar’s personal views.

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Corporate Interview !

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Mr. Narendra M. Murkumbi

Team Ecolibria – What role does sugar industry play in building Indian Economy and what is the current scenario of sugar industry in India? Mr. Narendra – In population terms, India remains a rural economy; Of the 1.2 billion total population of India, 69% resides in Rural areas. Out of the people staying in rural area a total of 129 million farmers, of which about 6 million farmers (4.6%) are engaged in sugarcane cultivation. The sugar industry provides a large revenue source to growers with annual payments of Rs. 65,695 crore (US$ 12 bn) in 2012/13 which is approximately 9% of total farming GDP. The industry is used as a channel for loans, technology and banking services to farmers. As it has to be located in close proximity to the sugarcane fields, the continued development of the Sugar Industry would foster further rural growth and provides high skilled jobs through the process and manufacturing technologies employed. The industry fosters economic development !

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Mr. Narendra is Vice Chairman & Managing Director at Renuka Sugars Limited. He trained as an Electronics Engineer and then did his MBA from the Indian Institute of Management, Ahmedabad in 1994. He cofounded Shree Renuka Sugars Limited and in the last 14 years, the Company has become a fully integrated sugar manufacturer, which also has large power generation, ethanol and sugar refining capacities

through provisions of schools & healthcare facilities Besides supplying sugar to the Indian population, sugarcane is also used to produce ethanol and electricity. Team Ecolibria – What are the effects of government regulation on sugar industry? (wrt pricing, exports, imports etc) Mr. Narendra –


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Before partial de-regulation ! suffered from regulatory release • Mills mechanism whereby quarterly quotas ! ! were given to sugar mills in order to sell their produce • Mills had to supply 10% of sugar produced to public distribution system (PDS) at a subsidised rate of Rs. 18.5/kg much below its cost of production • There were quantity restrictions on import and export of sugar • Post Partial De-regulation • Regulated Release Mechanism of sugar by mills dispensed; the move will lead to timely payment of cane price to farmers • Obligation to supply sugar as levy on mills at a control rate for Public Distribution System (PDS) done away with & requirement of sugar for PDS to be procured by states through open market • No limits on quantum of sugar for import & export but there is currently 15% import duty whereas no duty on exports • The current system of dual fixation (central and state) of cane prices would continue but it recommended that cane pricing move to a system based on sharing returns from sugar, bagasse and molasses between farmers and mills Team Ecolibria – What is the impact due to concept of levy sugar on the industry as a whole and on profits of the company? Mr. Narendra – • Obligation to supply sugar as levy on mills at a control rate for Public Distribution System (PDS) done away with & requirement of sugar for PDS to be

procured by states through open market Present sugar quota of states to be protected and States mandated to continue with the current retail issue price of Rs. 13.50 per Kg. under PDS. States to be given subsidy for the balance amount between retail issue price and the current ex-mill price calculated provisionally at Rs. 32/- per Kg. Removal of levy sugar would save the industry about Rs 3000Cr per annum and our company to the tune of Rs. 80 crores

Team Ecolibria – How is the situation in India different from what it is in Brazil? Mr. Narendra – There are differences both at the farm plus mill levels as well as on the policy front as highlighted (table on the next page) Team Ecolibria – When the overall sugar industry is facing losses, how does Shree Renuka Sugars sustain in such a difficult scenario? Mr. Narendra – • Strategic Locational Advantage and Nation-wide Presence – o SRSL’s presence in the progressive sugarcane states of the country, o its port-based refineries providing ease of imports and exports and • Integrated Business Model to manage Industry Cyclicality – o High level of Integration enables better earnings stability in the business during different phases of sugar cycle; o Strong demand for Ethanol in future due to requirements for the National Fuel Ethanol Program (current 5%

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Corporate Interview – Mr. Narendra M. Murkumbi

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blend in petrol going up to 20% in future), o Cogeneration Capacity of 272 MW with surplus of over 139 MW of saleable energy • Refining Operations Support Sustainable Operating Profitability – o Only sugar company in India with portbased standalone sugar refining operations, o Covers the fastest growing sugar consumption regions of the world, o Strategic advantage being on both the east and west coast of India,

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o High quality ports capable of handling large bulk as well as containerized volumes, " Lower transportation costs as compared to land-locked refineries (almost Rs. 3,000 per ton), " Proximity to both high consumption export (middle-east and south-east Asia) as well as domestic (Northern, Western, North-eastern and Eastern India) markets, " Flexibility to take advantage of domestic sugar demand-supply balance, " Ability to import raw sugar and supply refined sugar in domestic market in the event of sugar deficit in India, " Ability to procure raw sugar domestically and export white sugar internationally in the event of sugar surplus in India " Strong Operating Track Record with Efficient Operations " Leading to Consistent Revenue Growth, While Maintaining Consistently Profitable Operations

Team Ecolibria – In your opinion, what are the initiatives that need to be taken by the government and ISMA to boost the sugar industry? Mr. Narendra – • Cane Pricing Mechanism: It is required that


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State Governments to ensure a ! progressive cane pricing policy in line with global practices wherein the sugar cane ! price is linked with revenues from sugar and ! by-products. Following the recommendations of Dr. C Rangarajan, ! Maharashtra and Karnataka are on the verge !on framing such a policy whereby farmers are assured 75% of the returns ! from sale of sugar and by-products (70% if the mill ! sells only sugar). Ethanol Blending Policy: Government ! must play a stronger role in ensuring fuel ethanol! blending in the country starts on a firm footing. The policy measure has the ! of reducing India’s fuel imports potential and managing the widening current ! account deficit that the country is facing ! currently. ISMA can emphasize on the benefits ! of ethanol in fuel viz. reduced carbon footprint, renewable clean energy source,! reduction in GHG emissions, ability ! to use the fuel without any modifications required in vehicle, energy ! to the country security Fostering Cane Research and Development Program: Investments need ! to be made to improve the productivity of current land and research to increase the ! productivity of land along with sugar

recovery. There need to be continuous focus on knowledge sharing with other major producing countries like Brazil, Australia, Thailand etc. And good practices need to be bought from those countries to India Team Ecolibria – How can India leverage technology adoptions to increase sugarcane yields? Mr. Narendra – 1) Technology adoption can be adopted to increase the forecasting of cane crops, yields and output for better price discovery of the raw material. 2) Also, mechanical planting and harvesting can be adopted to increase the efficiency and also reduce the dependence of manual labour for cane cutting. 3) SRSL has adopted Cane Tabs for its on-field Cane Supervisors that helps provide real-time data and management reports regarding sugarcane acreage, yields and age of cane so that it can schedule the harvesting across its registered area to maximise yields and recoveries

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Corporate Interview – Mr. Narendra M. Murkumbi

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Team Ecolibria – How has rupee depreciation affected! Shree Renuka Sugars? ! Mr. Narendra – For Renuka, we are net foreign currency earners on account of valueaddition in our refineries. However we do suffer from high hedging costs of our imports as well as on our overseas borrowings on the Indian balancesheet. However the depreciating currency is making our refineries more competitive in cost compared to other refineries in the region.

Team Ecolibria – What is the contribution of sugar industry by-products to the overall profitability of Indian sugar mills vis-a-vis foreign companies? Mr. Narendra – Given the pressure on sugar margins , ethanol and power are critical to the survival and sustained profitability of the business in India. Indian sugar industry can now claim to be in the forefront of tight integration in production of all three coproducts. While Brazil has pioneered the production and use of ethanol as a fuel, the level of exploitation of by-products in other countries is not as high as in India.

Team Ecolibria – What is your take on the future outlook of sugar industry? Mr. Narendra – The sugar industry is poised for better times with deregulation of the sector effective from this year onwards. The vicious sugar cycle of alternating high and low production should ease off now that the industry is able to flexibly able to manage its price risk and cashflows. Reform in cane pricing would make sugarcane farmers the true partners of the industry leading to predictable earnings for both. Demand is poised for steady !

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growth to keep up with the growing consumption needs of our country. With the current deregulation and freer environment, it seems Indian sugar sector is gearing for surge in M&A activity, big investments including FDI and consolidation of the sector.


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! CROSSWORD !

Top-down (superscript) 1. The economic doctrine that government control of foreign trade is of paramount importance for ensuring the military security of the country(12) 2. Value of the best alternative forgone (11,4) 3. ____ is present when future events occur with measurable probability (4) 4. Synonym for prize, bonus, reward, bounty (7) 5. The term first used by Keynes for consumer confidence (6,7) 6. Planning commission is an _______ body (8) 7. Middle name of the author of the book The General Theory of Employment, Interest and Money (7) 8. Recently, 100% FDI has been approved for this industrial sector (7) 9. An environmental tax which is imposed on products which utilize materials which contribute to greenhouse gas pollution known as _____ tax (6) 10. When a government/ business spends more in a given period of time than they generate in income, they incur a _____ (7) 11. One of the proposals of the _____Woods conference was that currencies should be convertible for trade and other current account transactions (7) 12. A very early school of which likened the interactions between different sectors and classes of the economy, and the monetary flows between them, to the circulation of blood through the human body (10) !

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Left -right (subscript) 1. The exclusive possession or control of the supply, an American-originated board game (8) 2. Goods are those which cannot be provided to one group of consumers, without being provided to any other consumers who desire them(6) 3. Tax imposed to stimulate more domestic production of the product in question (6) 4. Association of independent firms for the purpose of exerting some form of restrictive influence on the production or sale of a product (6) 5. Green Gold: The empire of ___ (3) 6. A statistical measure of inequality. Score of 0 implies perfect equality and score of 1 implies perfect inequality, known as ____ coefficient (4) 7. The father of economics (4,5) 8. Someone who benefits from resources, goods, or services without paying for the cost of the benefit (4,5) 9. A form of trade in which one good or service is exchanged directly for another (6)

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Is the Dragon!s fire

UPFRONT !!

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incinerating the Elephant?

Nitesh Sinha IIM Ahmedabad

China has witnessed massive growth in the past three decades. It is suspected to surpass US’s GDP (in PPP terms) by 2016. Essentially, the nation is in the latter half of its journey towards being a developed country.! !"#$%&'()'*+,"-./'012'34&%'56&'7-/5'(8'9&-%'

India’s Current Account Deficit (CAD) has climbed to 4.8% of the GDP or about $18.1 billion for the January-March quarter of 201213. The magnitude of the situation can be assessed from the fact that India’s average CAD between 1949 and 2012 is $1.5 billion. As is evident from Figure 1, the situation has been deteriorating since Lehman’s ceased to exist. The situation is so precarious that it is being suspected that Balance of Payments (BoP) may have to be cleared using forex reserves. What is to blame for this menace? It is the general opinion among industry and government circles that gold imports are the culprit. India is the largest consumer of the !

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yellow metal (about 25% of world production) and this trend has continued in spite of rising prices of the precious metal. The volume of gold exports has registered only a modest growth, a CAGR of 6.27% between 2006-07 and 2011-12. In fact, the gold imports declined in the fiscal 2012-13 by 11.8% in volume terms. But it is the price of gold that has become the cause of much damage. Table 1 shows the gold import trends in the past 10 years. But a careful analysis of Figure 1 shows that India’s CAD began to increase 2008-09 onwards, a time when gold imports were the lowest (as percentage of imports) in a decade (see Table 1). Then what has been


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the cause of increasing CAD? The answerincreased world oil prices and India’s increasing manufacturing trade deficit, especially with manufacturing strongholds like China, United States and Germany. Figure 2 provides us with the information that India’s trade deficit began to increase from 2008-09 onwards, the same period since when the CAD began to increase. Let us consider the case of oil imports and exports. Between 2011-12 and 2012-13, the net imports of crude and petroleum related products has increased 24.75% in rupee terms and 11.38% in dollar terms. As payments for oil imports are usually paid in Dollars and Euros, the net effect of this increase is weakening of rupee. This increase in oil import bill is being observed since the time oil recovered its prices after the dip in 2008-09. Moreover, this trend (of increasing oil imports) is going to continue as India’s consumption of oil is only increasing. The effect of this depreciation of rupee has been in terms of trade gap for manufactured items increasing by about 9.3% (in rupee terms) between 2011-12 and 2012-13. On the other hand, manufacturing exports from India have increased by only 7.91% in this period. The fact that value (in rupee terms) of imports of manufactured goods was 20.4% larger than exports in 2011-12, makes the situation even more worrisome

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Let us take the case of China in detail. It’s just 5 months in to the year and the trade gap with the country has already touched $12 billion in a total trade value of $26.5 billion. This is despite reduced gold imports from China (details in Figure 2). This gap is about 2/3rd of the India’s CAD for the first quarter of 2012-13. Now the question that follows from the above facts is why is the trade gap widening between the largest and third-largest economies of Asia? The answer lies in the composition of trade between the two countries. More than half of China’s exports to India comprise electronic goods (27%), machinery (12%), organic chemicals (7%), project goods (7%) and fertilizers (5%). Clearly, China is providing India with two broad classes of goods. Firstly, there are goods, which are technology related. Since India is a developing (more appropriately, industrializing) country, the import of these equipment is only going to increase as has been happening in the past. Even economic downturns have only retarded the growth (6.9% increase by value in the import of electronic goods and machinery) of these imports and not reduce imports themselves. Second, China is selling essential commodities like organic chemicals and fertilizers, which are indispensable no matter what the market situation is. This is even more reasonable given the burgeoning middle class (leading to increased consumption and hence, increased usage of farm inputs) and growing population. Now let us a take a look at the other side of the table. Bulk of India’s exports to China includes raw cotton (16%), non-ferrous metals (15%), iron-ore (10%), cotton yarn (9%), other ores and minerals (7%) and

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Is the Dragon’s fire incinerating the Elephant?

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plastic products (6%). As is evident, India is supplying goods, which have very low level of sophistication. It is common knowledge that the lower the level of sophistication of goods the lower are the holdup costs for the buyer. Therefore, source of such goods (India in this case) is easily replaceable. The theory is exemplified by the fact that Bangladesh is fast eating into India’s pie of cotton exports market. The sporadic supply of iron ore due to the recent mining scams in Karnataka and elsewhere have caused China to majorly cut down imports from India. In order to further comprehend the vulnerability of India’s imports to China, it is important to understand the past and likely future trend of China’s sourcing from India. These trends are found to be affected by three major factors (which may be interrelated); phase of economy, domestic supply & demand of goods & services and Chinese exports. Let us take a look at the phase of Chinese economy. The country has witnessed massive growth in the past three decades. It is suspected to surpass US’s GDP (in PPP terms) by 2016. Essentially, the nation is in the latter half of its journey towards being a developed country. History tells us that a country in such a phase witnesses declining growth rates and correspondingly, declining needs of basic resources.!

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The supply of various items of domestic consumption (e.g. infrastructure build-up) has outstripped its demand in China since the period of recession. The growth of China’s exports in the world market has seen a declining trend (on an average) since the time of recession. Given these factors, the requirements of inputs for manufacturing have seen either a decline or minuscule growth. The combined effect of declining growth rates, over-supply of consumption goods and declining trends in growth of exports has been in terms of lower consumption of India’s exports. The Chinese import of ironore from India has declined by 62.82% (it includes the effect of the ban on mining activities in India). There is also a decline of 8.13% in cotton related imports. One important thing to note here is that although the above discussion is centered on India’s trade with China, similar observations are also aplenty in India’s trade with other economies (e.g. European Union) as well. This is the reason why the problem of trade deficit is getting exacerbated instead of getting compensated from India’s trade with other nations as well. India’s export to the world again comprises products of very low levels of sophistication. Imports on the other hand include petroleum, crude & products


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(34.48%), gold (10.94%), electronic goods (6.41%), machinery (5.63%), pearls and stones (4.61%). Most of these goods are either essential (e.g. petroleum) or related to technology and the consumption of both groups is likely to increase in a growing economy. Table 2 shows the evolving trends in export composition of China and India. The inference from the above discussion and Table 2 is that the problem of Current Account ! !

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References Trading Economics. (2013, July 13). INDIA CURRENT ACCOUNT. From Trading Economics: http://www.tradingeconomics.com/india/current-account ASSOCHAM. Indiaâ&#x20AC;&#x2122;s Gold Rush: Its Impact and Sustainability. GOI. (2013). Commodity And Country Wise Imports In India From 2011-12 And 2012-13. RBI. (2013). Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans by NBFCs. RBI. RBI. (2012). Indiaâ&#x20AC;&#x2122;s Foreign Trade: 2011-12. RBI. PTI. (2013). India's trade deficit with China balloons to $12 billion. Beijing: Business Standard. PTI. (2013, June 27). Current account deficit widens to record 4.8%. WTO. (2012). International Trade Statistics 2012. WTO. Moulds, J. (2012, November 9). China's economy to overtake US in next four years, says OECD. From Guardian: http://www.guardian.co.uk/business/2012/nov/09/chinaovertake-us-four-years-oecd

Deficit is not just dependent on the current trends as increased gold imports but also on structural issues in the Indian economy. Therefore, increasing the excise from 6% to 8% on gold (as done recently by the Finance Ministry) is only likely to procrastinate the advent of problem, not resolve it. India needs to take lessons from the development of the Asian Tigers during the last quarter of the 20th century. All these economies were manufacturing based and started from low tech products but eventually became world suppliers of high-tech equipment. India cannot afford to rely just on the services industry to fill the trade gap as countries in South East Asia are now challenging its dominance in this industry. The government needs to take a hard look at its manufacturing policy to increase the sophistication of the manufactured products in order to be able to do both, meet the domestic requirements and compete with countries like China in the international arena

About Author Nitesh Sinha is a PGP II student at IIM. He has completed his internship with Accenture Management Consulting. Nitesh is an IIT Guwahati (Electronics and Communication Engineering) graduate of the 2010 batch. He went on to work as !a Software Developer with a Bio-bioinformatics firm, Strand Life Sciences Pvt Ltd. based out of Bangalore. He had a 22 month stint with them. Nitesh thoroughly enjoys taking part in cultural activities and is a member of the theatrical society of IIM A, IIMACTS. Event Management, travelling and listening to music are other things that interest him!

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High Growth Trajectory:

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CLOSE RANGE !

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The FDI and

The Uncelebrated Savers !

Ashok Rimmanapudi IIM Banglore

It has been only 2 weeks since the Ministry of Finance has removed the FDI caps on many critical sectors like Telecom, Insurance, stock exchanges etc., based on recommendations of Mayaram committee chaired by Sh. Arvind Mayaram, Secretary, and Department of Economic Affairs. Many more sweeping changes are under consideration. Though well intended, it cannot be helped but give an impression that the ruling government is not leaving any stone unturned to revive the economy before the crucial election year. Nine months earlier, when the much debated, FDI Cap in retail has been relaxed, one would have expected to see a flood of foreign funds in this sector. But, on the contrary, not a single application has been filed with the FIPB (Foreign Investment Promotion Board) as of March 2013. These happenings seem to point at the weakness inside the Indian economy, feeding on lack of proper action, has been damaging the economy further. Well, we will come to that part later anyhow; first let us try to !

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FDI flows are not necessarily the flag bearers of Economic development but rather a lagging indicator of the same.!

understand the nature of FDI flows and their impact on the economic growth. Prior to 2006, the FDI flows to India have never crossed 10 Billion USD. Starting 2006-07, the FDI flows to the country have never gone below the 2006-07 level of 22.8 Billion USD. Regarding FDI Inflows and their role in economic development, researchers have differentiated opinion about various aspects. One of the most significant studies was done by Borenszteina (1997) which resulted in conclusion that FDI flows will have positive impact on host economy only under certain condition. Carcovick (2005) proved


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Exhibit 1: FDI Inflows and real GDP Growth

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Exhibit 2: Investment Pattern of different sectors in India since 2000-01

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Source: Handbook of Statistics on Indian Economy 2011

through econometric analysis, which is robust to national income, financial development and openness to trade, that FDI inflows do not have a causal relationship with economic development. Observing Exhibit 1, we can see that it was only after the propulsion of Indian economy into high growth trajectory (Real GDP growth>8%), that the FDI flows shifted from the muted levels (<10 Billion USD). So in a way, this suggests that the FDI flows are not necessarily the flag bearers of Economic development but rather a lagging indicator of the same. Hence this brings the issue of causality in economic development - Foreign inflows relationship to the front. The actions by the ministry of Finance seem to suggest the belief and attribution of foreign flows as the causal factor between the two. Putting it in another way, it seems as though the Government

is turning to the foreign investors to revive the economy. So the next part of the article deals with the role of domestic investors in the economic development so far. India, like its Asian counterparts, is a saving rich nation. The savings rate of domestic households and private corporates has been very high in India compared to developed economies, but a crucial difference in Indian economy is that, unlike its Asian Counterparts, it is consumption driven. As Gross domestic savings (GDS) in one year become the source of investments for next year, the investment rate also follows a similar pattern. Exhibit 2 shows the investment rate pattern since 2000 and Exhibit 3 shows the year-on year growth rate of Investments since 2001.

Exhibit 3: Year-on-Year Growth rate of Investments of different sectors in India since 2000-01

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High Growth Trajectory: The FDI & The Uncelebrated Saver

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Exhibit 4: Sector-wise ICOR ! !

Exhibit 4 provides the following insights !

1. Investments in Electricity & Gas have most significant effect on improvement in productivity, followed by investments is Mining and Manufacturing 2. The National ICOR is 4.04

Exhibit 5: Potential GDP growth rate in 2013-14

Two observations can be made from the exhibits 4 and 5. Firstly, the foreign direct investments have always been minor compared to investments from households and private corporates. Secondly, there is a pattern of slowdown in growth of investments from private corporate and foreign sector since the world economic crisis of 2008. So, given that the slowdown in economic growth is due to slowdown in investments by corporate and households, the situation clearly calls for application of Keynesian principles. But given the figures of high fiscal deficit (4.9 % in 2012-13), the GOI is not in a position comfortable enough to go on spending spree to propel the economy. This is why the quality of spending has attained its vitality which inevitably leads to conclusion that the spending should be aimed at increasing the productive capacity. th

At the outset of the 12 5-year plan, the Planning Commission has calculated the required investment in different sectors and estimated productive capacity improvement thereof. This figure, technically called as Incremental Capital Output Ratio (ICOR), is an indicator of the productiveness of an investment in a sector. !

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So, putting all of the above factors together, 1. FDI does not necessarily accelerate economic growth. It is more of a lagging indicator of development. 2. Indian Economy has high saving rate like other Asian economies, Average Gross Domestic Saving (as % of GDP) since 200001 is 31% 3. Indian economy is different from other Asian economies as it is consumption driven. So, this makes the job of reviving economy easier the current slowdown can attributed to anaemic demand. 4. So, the solution lies within. The domestic saving by themselves can lend to a growth of 8.6 % next year (ref. exhibit 5). Rather than trying to restore the economic growth through foreign investments, the focus should be on attracting the domestic savers (households & Private Corporates) and making qualitative utilization of Public sector spending.


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The significance of high productive infrastructure investments is that it will have a two pronged effect on the economy. First, it will remove the supply bottlenecks in the economy. Secondly, these investments increase the domestic demand because of the ripple effect of the spending. This article concludes with the following recommendations for reorienting into the high growth trajectory: 1. The Cabinet Committee on Investments (CCI), should make promoting investments in Electricity & Gas, Mining and Manufacturing its top priority.

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2. As employees are major source of household savings, attractive schemes, alternative to the existing funds like Provident Fund etc., should be developed. Simultaneously, new instruments like Capital Indexed Bonds (CIB) aimed at diverting saving from unproductive assets like gold should be aggressively promoted. 3. In order to encourage private participation in infrastructure projects with long gestation period, encouraging exit mechanisms should be developed as this leads to the safety of investment.

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References - Borenszteina E, J. De Gregoriob, J-W Leec, (1997), “How does foreign direct investment affect economic growth?”, Journal of International Economics

Year Plan Committee

- Planning Commission of India, (2011), Report of the committee on Investment requirements, Twelfth Five

- Carkovic. M and Levine R, (2003), “Does Foreign Direct Investment accelerate Growth” , University of Minnesota, Working Papers

- Reserve Bank of India, (2011), Handbook of Statistics on Indian Economy

About Author Ashok Kunar Rimmanapudi graduated with B.Tech in Electronics & Communication Engineering from IIT Guwahati in 2012. He is an ardent lover of Macroeconomics by choice and a movie buff by helpessness. When hassle free he loves spending time doing anything from working out his grey cells to sharpening his backhand. He is currently in his 2nd year of PGP at IIM Banglore.

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OPINION !

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The Food Security Bill : Vote bank Politics or A Game Changer ?

Mohit Bajpai NMIMS, Mumbai

Saurabh Sharma NMIMS, Mumbai

India is 15th most malnourished country with its Global Hunger Index (GHI) increased from 1996 to 2011. 25% of all hungry people worldwide live in India and 40% of children below 5 years of age are undernourished.

A Populist Step An initiative like Food Security Bill in its true spirit is a great step to help the nation get rid of a chronic disorder like malnutrition. But the way it has been drafted and intends to perform poses serious questions on its real motive. Thus it seems to be more populist step directed at vote bank for upcoming elections rather than treating the problem of malnutrition. Past Experience With the agenda of alleviating the basic problems of the weaker section of the society, the government has time and again come up with measures to help them. One such attempt is the “Mid-Day Meal” (MDM). It was started in the year 1995. Its main objective was globalization of primary education, and to impact the nutrition intake of the students. But even after spending exorbitant amount of money (For example, a budget of Rs. 7324 Crores was allocated to this project in the year 2007-08), there are about 67.5 percent of children under 5 years and 69 percent of !

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adolescent girls who suffer from anaemia due to iron and folic acid deficiency. A nationwide study by Planning Commission also shows the MDM scheme to be found wanting on several evaluation parameters. Some of the factors on which this scheme was reviewed were nutrition level, quality of food and food safety. Planning Commission has recently brought out an evaluation report of the national MDM scheme. Some of the findings are reproduced below (verbatim): •

Except for Tamil Nadu and Kerala, in rest of the states a majority of sample schools, on an average, suffer from the unavailability and poor functional condition of kitchen sheds. All the states, except for Bihar and Rajasthan, have reported poor availability of tumblers. Except for Rajasthan, all the states have reported a poor availability of plates. Out of the 17 sample states where the data was collected, students in 9 states reported that they were involved in washing utensils.


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Recommended Dietary Allowances as per Indian Council of Medical Research (ICMR) is as below: ! !

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A separate agency evaluated efficacy of the food in schools run in Ahmadabad and came up with the following results

So the core proposition of the policy that is to provide nutrition is not met, and because of negligence in issues like quality and food safety, 22 children recently lost their lives. Food security or nutrition security? India is 15th most malnourished country with its Global Hunger Index (GHI) increased from 1996 to 2011. 25% of all hungry people worldwide live in India and 40% of children below 5 years of age are undernourished. Share of expenditure of cereals has decreased

to 29.1% in rural areas and 22.4% in urban areas in 2009-10. The bill doesnâ&#x20AC;&#x2122;t talk about nutritional security but only supply of food grains. But just by making food grains easily available at cheaper prices wonâ&#x20AC;&#x2122;t actually decrease the overall cost of nutrition. It will also add more pressure on the demand side and may push the agriculture sector to produce food grains more. Besides that there have been schemes in place which provide cheaper food grains to citizens, but it has been observed that despite that the level of malnutrition has not

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The Food Security Bill: Vote Bank Politics or A Game Changer

dropped significantly. It points to our argument that a cereal centric approach won’t be sufficient to address the problem of malnutrition. Where is the security? - Clause 51 Without enhancing the production capacity, irrigation systems and storage facilities, the government has simply rushed through the passage of the bill. The bill carries an objectionable clause which absolves Central as well as state government of any obligation in case of supply failure due to war, flood, droughts, cyclone and any other act of nature. Agriculture is highly dependent on monsoons (~60%) in India; impact on farm produce is quite frequent due to climatic conditions. So under adverse conditions the security of food becomes a big question mark. Vote bank politics During the last tenure of UPA I, a lot of populist measures had been taken by the government to create a favorable environment and appease the voters. Farm loan waivers, MNREGS and implementation of 6th pay commission. UPA II already facing flak from urban middle class over graft issues seems to be planning to leverage upon Food Security Bill to win votes.

which was enacted in 1997-98 to mitigate the practical difficulties in centralized procurement. The bill relies on existing TPDS and procurement system which are already notorious for inefficiencies and leakages amounting to as high as 40%. This poses a serious challenge to the effectiveness of the scheme. Provision of cheap food grain to about 70% of the country’s population also throws up serious issues for the agriculture sector. The government already buys about 1/3rd of the grain output. In case of increased demand, the agriculture sector may shift to low value cereal cultivation. It will also create a crowding out effect on the private players competing for the remaining stock. It will have an upward rising impact on the inflation. Thus there will also be an upward shift in the Minimum support prices (MSP) because government would become a larger buyer of the food grains. Another impact would be on other food items, like vegetables, pulses.

Structural flaws

It is argued that despite similar schemes of grain distribution by central and state governments the nutrition level of children has actually decreased. It can be attributed to other factors like drinking water, hygiene and protein rich food.

The bill proposes a centralized procurement and distribution mechanism which takes away a state’s legal authority to customize it according to a state’s needs and strengths. Some states like Tamil Nadu have their own PDS which now will have to comply with National Food Security Bill. It also mandates the central government to procure for the central reserve of grains, which is in discord with the Decentralized Procurement System

The government estimates the cost of implementing bill to be Rs. 1.3 crores per annum. But to provide a complete food and nutritional security to underprivileged and mothers and children the financial burden on the exchequer would be much higher (~2.4 crores). It will involve additional financial obligations of provision of clean drinking water, hygienic sanitation facilities and protein rich food like pulses, fish etc. But the current

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bill does not include the above provisions which render it ineffective. Black Marketing Though launched with the best intentions, there is a strong possibility of beneficiaries selling it in the secondary market. In order to understand this, lets understand it through need hierarchy, so if a household gets grains at subsidized rates, there is a possibility that due to budget constraints he might sell it in the secondary market, in exchange of other goods. Letâ&#x20AC;&#x2122;s evaluate it through indifference curve. Now when the government gives the food, it expects that there is a shift upwards, but because of the selling in the secondary market, there is no such shift. On the contrary the government has to spend money to stop hoarding. To top that, there is no guarantee that the quality of food will not be compromised.

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Bad economics India is reeling under tremendous pressure of widening fiscal deficit and reducing value of rupee. It is expected that it will increase to about $155-160 billion this year way above last year figure of $104 billion. High spending on subsidies and lower than expected revenue collection puts an inflationary pressure also on the economy. Given such a scenario import of food grains to meet the additional requirements over local sourcing will burden the economy further increasing the fiscal deficit. So it can be concluded that Food Security is imperative for the country facing an acute problem of malnutrition and hunger. But for such a large and populous country a well articulated and more practical route than Food Security Bill is required. The Food Security Billâ&#x20AC;&#x2122;s hasty passage raises serious questions about meeting its actual goals and makes it seem more of a political gimmick.

References: 3)2012 Global Hunger Index report 1)An Evaluation of Mid-day meal by Sweta Mahandiratta, K.V. Ramani, and Dileep Mavalankar 2)Food Security Bill: Good politics to deliver bad economics accessed from http://www.deccanherald.com/content/213752/food -security-bill-good-politics.html

4)National Food Security Bill-Challenges and Options, A Gulati, J Gujral, T Nandakumar 5) Report of the expert committee on national food security bill accessed from http://eac.gov.in/reports/rep_NFSB.pdf

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! About ! Mohit Bajpai

About Saurabh Sharma

He is an engineer with 2.5 years of work ex in Software Industry. He loves playing and watching badminton. Also a keen follower of Tennis and Cricket. A great fan of movies and series like 'Suits', 'Game of Thrones'. Likes to read business news and articles

He is an engineer with 2.5 years of work ex in Software Industry. He loves playing and watching cricket. Heis a movie buff and great Batman the Dark Knight fan. Follows business news and current events around the world

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Crossword Solution !

Superscript: top to down

Subscript: Left to right

1. The economic doctrine that government control of foreign trade is of paramount importance for ensuring the military security of the country. Mercantilism (12) 2. Value of the best alternative foregone opportunity cost (11,4) 3. ____ is present when future events occur with measurable probability Risk (4) 4. Synonym for prize, bonu, reward, bounty premium (7) 5. The term first used by Keynes for consumer confidence animal spirits (6,7) 6. Planning commission is an _______ body advisory (8) 7. Middle name of the author of the book The General Theory of Employment, Interest and Money maynard (7) 8. Recently, 100% FDI has been approved for this industrial sector telecom (7) 9. An environmental tax which is imposed on products which utilize materials which contribute to greenhouse gas pollution known as _____ tax carbon (6) 10. When a government/ business spends more in a given period of time than they generate in income, they incur a _____ deficit (7) 11. One of the proposals of the _____Woods conference was that currencies should be convertible for trade and other current account transactions Bretton (7) 12. A very early school of which likened the interactions between different sectors and classes of the economy, and the monetary flows between them, to the circulation of blood through the human body physiocrat (10)

1. The exclusive possession or control of the supply, an Americanoriginated board game Monopoly (8) 2. Goods are those which cannot be provided to one group of consumers, without being provided to any other consumers who desire them Public (6) 3. Tax imposed to stimulate more domestic production of the product in question Tariff (6) 4. Association of independent firms for the purpose of exerting some form of restrictive influence on the production or sale of a product cartel (6) 5. Green Gold : The empire of ___ tea (3) 6. A statistical measure of inequality. Score of 0 implies perfect equality and score of 1 implies perfect Inequality, known as ____ coefficient Gini (4) 7. The father of economics Adam smith (4,5) 8. Someone who benefits from resources, goods, or services without paying for the cost of the benefit free rider (4,5) 9. A form of trade in which one good or service is exchanged directly for another barter (6)

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AMAZING FACTS ! Apple's cash and investments are now equal to the GDP of Hungary and more than those of Vietnam and Iraq.

Captcha is actually an acronym. It means "completely automated public Turing test to tell computers and humans apart

! A million dollars weighs about one metric ton - Hence the phrase, "a ton of money”.

Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually bigdollar patent purchases exceeded spending on research and development of new products," writes The New York Times

Dell has spent more money on share repurchases than it earned throughout its life as a public company, writes Floyd Norris of The New York Times Budget of 1973-74 is known for ‘Black Budget’ in India. During this year budget deficit in 1973-74 was Rs 550 crore

Saudi Aramco is an oil company that makes over $1 billion of revenues in the course of just one day!

Before 1896 India was the only diamonds producing country in the world.

The budget was first introduced in India on 7th April 1860 from East-India Company to British Crown. The first Indian Budget was presented by James Wilson on February 18, 1869. Mr Wilson was the Finance Member of the India Council that advised the Indian Viceroy. He was Scottish businessman, economist and Liberal politician. He founded The Economist and the Standard Chartered Bank

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! ! China's economy grew 7 times as fast as America's over the past decade (316% growth vs. 43%)

India used to account for 33% of the world's GDP before Industrial Revolution; then fell to 3%; now may rise to 25%

The first FM's post went to Sir RK Shanmukham Chetty, industrialist, erstwhile Diwan of Cochin state and Constitutional Adviser to the Chamber of Princes. He had been a member of the pro-British Justice Party. Mr. Chetty presented the first budget of Independent India on November 26, 1947, in the backdrop of partition and riots.

When you buy Chinese stocks, you are basically financing the Chinese government. Eight of Shanghai's top ten stocks are government owned. In the first quarter of 2012, the number of iPhones Apple sold per day surpassed the number of babies born per day worldwide (402,000 vs. 300,000), according to Mobile First. The employees printing the Budget papers in India are kept in complete isolation (quarantine) in the Finance Ministry for one week before the Budget.

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AUGUST 2013

Half the worldâ&#x20AC;&#x2122;s outsourced IT services come from India, amounting to a $47 billion dollar industry

42% of the world's poor live in India

India is the world's second largest importer of arms and has spent $50 billion on defense purchases in the last decade

Renaissance Technologies, a hedge fund run by James Simons, has allegedly produced average returns of 80% a year since 1988 (before fees), according to Bloomberg. That would turn $1,000 into $2.4 billion in 25 years. Transfer Pricing Regulations was introduced by Yashwant Sinha in Budget 2001-02.This regulation played a big role in the prevention of erosion of the tax base in India.


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Ecoshastra, August 2013

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