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Saturday, March 17, 2012

Downward slide in the summer of our discontent ----Sitaram Yechury

An opportunity has been forsaken to strengthen our economic fundamentals while improving the lives of the people, increasing the divide between India Shining and India Suffering.

While the people were hoping for relief in the current budget, the Finance Minister was faced with the task of reversing the slowing growth rate and raging inflation. He had a choice in this budget. He, however, chose a path that is going to worsen the situation both for the economy and for the people. In the process, he also chose the wrong quotation for his speech from “immortal Shakespeare's Hamlet.”

The appropriate quote for him in this situation would have been the well-known “To be, or not to be – that is the question;/ Whether ‘tis nobler in the mind to suffer/The slings and arrows of outrageous fortune,/Or to take arms against a sea of troubles,/ And by opposing end them?”

Illusory assumptions

He chose not to end the people's growing economic burdens by continuing to embrace the neo-liberal philosophy that treats concessions to India Inc. and the rich as being incentives for growth and subsidies for the poor as a burden on the economy.

Apart from giving direct tax concessions of Rs.4,500 crore, the Finance Minister, in his speech, said: “I propose certain measures to allow corporates to access lower cost funds and to promote higher level of investments in several sectors.” This neo-liberal prescription is based on illusory assumptions: more availability of cheaper funds will lead to higher levels of investment and therefore, to higher growth rates. Missing in this logic is the vital link between higher investment and higher growth — the capacity to consume what is produced by these higher investments, i.e., the purchasing power of the people. It is precisely this link that is seriously eroded further by these budget proposals. If the purchasing power of the people does not grow, then the periodic “bubbles” created by this trajectory will continue bursting at regular intervals. The world is familiar with this continuing four-year long global recession.

However, in order to achieve the former, the budget reduces the withholding tax on interest payments on external commercial borrowings from 20 to five per cent for three years for several important sectors. The security transaction tax has been reduced. Restrictions on Venture Capital Funds have been removed, tax on Indian companies repatriating dividends from foreign subsidiaries has been halved and the cascading effect of the dividend distribution tax has been removed.

Likewise, many other measures like enhancement of investment linked deduction of capital expenditure etc. have been introduced. All this is being done with the urge to boost investor confidence and attract higher foreign financial flows. This trajectory has been adopted despite the World Bank's recent warning that the “rich countries had little monetary or fiscal ammunition available to stem any vicious circle of continuing recession”. The Finance Minister's strategy is thus bound to fail and in the process, it is the people who will have to bear further burdens.

Social sector

The Finance Minister, however, has made many bombastic claims of increasing expenditures in the social sector. Many of these sound hollow given the fact that the revised estimates show a substantial reduction in the spending of actual allocations made in last year's budget. Even flagship programmes such as the Mahatma Gandhi Rural Employment Guarantee Act has seen a huge shortfall in spending, of over Rs.9,000 crore. Similarly, the claims of raising the allocations for SC/ST Sub-Plans conceal the actual fact that they do not meet the required allocations of 16.5 and 8.2 per cent of the plan expenditure respectively. The current amounts are only seven and four per cent respectively.

Simultaneously, in an effort to contain the burgeoning fiscal deficit, indirect taxes have been hiked across the board by a whopping Rs.45,940 crore. Direct tax concessions benefit the rich while indirect taxes burden the working people. The aam admi is subjected to a double whammy as indirect taxes hikes also contribute to the inflationary spiral directly. Thus, when people were looking for some relief, they are now to be subjected to further burdens. There are also direct attacks on the livelihoods of working people. The Employees Provident Fund interest rate has been reduced from 9.5 to 8.25 per cent. For crores of employees, this fund is their only fallback economic security option.

Along with reduction in subsidies (nearly Rs.25,000 crore on fuel and Rs.6,000 crore on fertilizers) and massive disinvestment of the public sector (Rs.30,000 crore), these are all being justified in the name of fiscal consolidation. True, fiscal profligacy must be checked. But how? Look at the numbers.

The total fiscal deficit now stands at Rs.5,21,980 crore or 5.9 per cent of GDP. The budget documents show that in the same year, the total tax revenue foregone (i.e., voluntarily not collected by the government) amounts to Rs.5,29,432 crore. If these legitimate amounts were, instead, collected, then there would be no fiscal deficit at all!

Internationally, a three per cent fiscal deficit is considered healthy. This works out to over Rs.2.5 lakh crore, given our current GDP. If legitimate taxes were collected instead of doling out concessions to India Inc. and the rich, and this amount spent through public investments for building our much needed infrastructure, we could have generated huge additional employment and the consequent growth of domestic demand would have put India on the course of a sustainable healthy inclusive growth pattern.

This was the choice that the Finance Minister had. He, however, could not escape Hamlet's dilemma. Not only has an opportunity been forsaken for strengthening our economic fundamentals while improving people's lives, the exact opposite has been done, which will only increase the hiatus between the two Indias — shining and suffering. The Finance Minister said India was on the “brink of resurgence.” In reality, it is heading for a downward slide.

(Sitaram Yechury is CPI(M) Polit Bureau member and Member, Rajya Sabha.)

The Hindu

Sunday, March 11, 2012

High on rhetoric, low on substance ---Shalini Singh

Rather than using the Supreme Court's judgment to improve governance and reduce discretionary powers, the government is making a desperate attempt to restore false prestige by seeking a review of 2G verdict.

The United Progressive Alliance government's petition seeking a review of the Supreme Court judgment cancelling 122 telecom licences makes another desperate bid to protect its discretionary powers in the allocation of scarce natural resources by arguing that auctions cannot be the only method for its allocation.

However, the government's petition, apart from stubbornly repeating old arguments that have been shot down by the courts several times over, goes on to expose a flawed interpretation of the Supreme Court's judicial reasoning.

While the judgment addresses itself specifically to the massive commercial value attached to “scarce” natural resources, the review petition conveniently refuses to acknowledge either scarcity or commercial value while arguing that restricting the allocation of “natural resources” to auction methodology will lead to arbitrary consequences and hurt public interest. Unsurprisingly, the government is unable to explain how.

Despite the government's opposition to auctions, its petition fails to explain why auctions were chosen for spectrum in 1995, 2001 and 2010 and, further, recommended by the TRAI in February 2011. Or how a first come, first served (FCFS) system can work in a situation where demand (in terms of equally placed candidates for the scarce resource) far exceeds supply, or even why the government feels obliged to refuse legitimate revenue from applicants who are willing to pay for spectrum based on their business case. In the 2G scam, scarce spectrum allocated cheap through a FCFS method was monetised through “private” auctions, ensuring gains for individual promoters rather than the people of India.

The petition steers clear of the fact that auctions can be designed for a specific outcome by imposing conditions such as price caps for voice calls and SMSs, or a lower rural tariff. For example, when auctioning toll roads to the highest bidder, the government ensures that pedestrians, cyclists and two-wheelers are allowed free passage. While finding fault with auctions, the government is at a loss to demonstrate what the fault is.

For the government to assume that the judgment bans any alternative methodology to auctions is naive. If the government attempts an auction at a certain reserve price, fails, re-auctions at a lower reserve price and fails again, it must use another methodology. However, the Sachidanand Pandey vs the State of West Bengal case cited by the government itself demands that these circumstances be compelling and documented. Ironically, the petition not just fails to document compelling reasons but ignores the fact that the judgment only relates to those natural resources which are scarce and deliver monetisable commercial value in private hands.

It is equally inexplicable why the government is openly uncaring of the fact that except for auctions, practically all other methodologies — and FCFS or beauty parades in particular — violate Article 14 of the Constitution. In addition, auctions support the policy provisions of the National Telecom Policy 1999 seeking transparent allocation of spectrum; the 10th Five Year Plan linking spectrum pricing to scarcity; the Prime Minister's letter of November 2, 2007 seeking 2G auctions/market-based pricing; Finance Secretary D. Subbarao's attempts to secure auctions/indexation-based pricing for 2G spectrum, and the Group of Ministers (GoM) decision to auction 3G spectrum in 2010.

Laughable attempt

Despite this, in a laughable attempt to argue against auctions for “scarce” natural resources, the petition quotes cases of award of contracts without auctions for resin tapping in Kashmir, saal (oil) seeds in Madhya Pradesh and “distilleries” (liquor), which hardly qualify as scarce natural resources.

The government is opposed to judicial scrutiny of “government policy.” Can it hope to establish a Minister's illegal decision implemented without the Cabinet, the GoM or the full Telecom Commission's approval after bypassing opposition from the Prime Minister, the Finance Secretary and the Law Minister as government policy?

The government's own claim in its affidavits in the Supreme Court, multiple press releases, interviews and statements is that the former Telecom Minister, A. Raja's decision was based on telecom regulator TRAI's recommendations. Any decision of the government based on TRAI's recommendations is open to full judicial scrutiny under Section 14 of the TRAI Act. So on what grounds can the government claim insulation from judicial scrutiny?

The Supreme Court judgment rightfully categorises auctions as a “methodology.” Decisions of the Cabinet to liberalise a sector, allow or increase foreign direct investment and invite private capital are matters of policy, but its implementation in terms of timing, procedure and terms and conditions are executive decisions. In the telecom sector, the latter falls strictly in the purview of the TRAI Act. The government's decision-making in this respect is curtailed by law under Section 11(1)(a)(i) & (ii), read with the second, fourth and fifth provisos of the TRAI Act. In effect, all procedures like FCFS, beauty parades or auctions qualify for judicial review.

Even if one were to accept the government's fragile claim that FCFS is a policy and not an executive decision, the petition still fails to demonstrate a single public announcement of this so-called policy since the formation of the Unified Access licence regime on October 31, 2003. It is missing in TRAI's October 27, 2003 recommendations, the Cabinet decision of October 31, 2003, the licence guidelines and amendment of the National Telecom Policy 1999 on November 11, 2003 and even revised licence guidelines announced by the UPA government on December 14, 2005. The government is welcome to demonstrate otherwise. Had the FCFS “policy” not been kept a state secret, applicants would have queued up earlier than they did. The truth is that the FCFS process was deviously announced for the very first time by Mr. Raja at 1.47 p.m., less than two hours before executing the 2G scam on January 10, 2008.

Finally, even though rarely used, the powers of the Supreme Court in entering and adjudicating on the government's implementation of policy are indisputable, especially when the implementation is secretive, arbitrary, illegal, malicious, discriminatory and violates multiple provisions of law (in this case the TRAI Act) and Article 14, 19(1)(g) and 21 of the Constitution guaranteeing equal opportunity through transparent procedures for all citizens to access a resource/contract allocated by the government.

The government's tiring correlation of FCFS with public interest in terms of affordability, growth, and teledensity is also unsubstantiated in its petition. How auctions hurt urban or rural teledensity or affordability is not explained. Was the UPA intending to hurt public interest by holding auctions for 3G in 2010? Can it explain how Vodafone continuously cut back tariffs after paying $12 billion to buy out Hutch's stake in Hutch Essar in 2007? Why does higher revenue for the exchequer, which translates into roads, schools, hospitals and welfare schemes for the poorest of the poor, not count as public interest?


One would expect the government to be peeved about the reality of Mr. Raja's FCFS performance, which led to windfall gains for new operators who pocketed 30 per cent of scarce spectrum to serve less than 5 per cent of India's subscriber base. The failure of these firms to roll out telecom networks has forced the government to initiate steps to terminate their licences. Despite this, the government continues to argue that bringing in these companies served public interest, teledensity and affordability.

How does the government hope to justify its obsessive compulsion in ensuring a level-playing field with incumbent operators for seven illegally picked new entrants while totally ignoring the fact that 343 similarly placed applications were denied a fair chance of accessing 2G spectrum? Ludicrously, the government is arguing its right to discriminate in the application of the level-playing field itself.

Unfortunately, the review petition has no substantial counter to offer the Supreme Court on these critical issues despite access to the finest legal brains in the country and within the Cabinet. The Attorney General and other legal luminaries have already argued all these issues and still failed to impress the court.

One would have hoped the government would be mindful, even grateful, for the Supreme Court's restraint in avoiding any adverse observations in its judgment on issues of collective Cabinet responsibility, the Prime Minister's failure to check a Minister, or the Finance Ministry's inability to invoke its powers under the Government of India (Transaction of Business) Rules to stop a Minister from grievously hurting the exchequer and, by consequence, the common man. Instead of implementing the judgment and restoring its lost dignity, the government is provoking the court, increasing uncertainty and wasting time with its attempt at a review. Perhaps, like the election verdict, it is time for the UPA to accept defeat in the 2G matter, gracefully or otherwise.

The Hindu

Leftist opposition wins big in Slovakia polls

Preliminary results show a leftist opposition party in Slovakia is heading for a landslide victory in an early parliamentary election.

With the votes from about two thirds of all polling stations counted by the Statistics Office early Sunday, Smer—Social Democracy of former Prime Minister Robert Fico is a clear winner with 46 percent of the vote, or 86 seats in the 150—seat Parliament.

The result would allow Fico to govern alone.

Fico, a populist leader, is pledging to maintain a welfare state, increase corporate tax and hike income tax for the highest earners.

The outgoing centre-right, four-party coalition would combine for just 48 seats as it faced voter anger over a major corruption scandal. The new Ordinary People would win 16 seats.