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					Vol. XXXXVIII, No.: 10
                                                              MONDAY, MARCH 15, 2010



                                  BY Narendra Sharma

NEW DELHI: Budget 2010-11, now before Parliament, has almost ignored the most
serious problems of inflation and unemployment. By doing so, it has dismissed as of little
consequence the urgent concerns of the country‟s three-fourth population. They include
all those working in the industry, SEZs, SMEs. Agriculture besides vast mass of
unorganised workforces who have no means to reach their voice to the policy-makers.

        This, against the backdrop of increasing unrest, ipso facto, means that the
controversies generated by Budget 2010-11 inside and outside Parliament will not end
with the end of the Budget session. The nine central trade union organisations (CTUOs),
which concluded their nationwide protest satyagraha on March 5, 2010, have come to
realise that the UPA Government remains callous and unresponsive to the miseries of
the impoverished working people. They already feel that a bigger massive nationwide
industrial action may be necessary to shake the UPA Government out of its corporate-
friendly attitude.

        It is to be noted that involved in the controversies are not only the actual contents
of the Budget but even more so the underlying intention of the Government. Finance
Minister Pranab Mukherjee can be said to have taken the controversies to a new pitch
by outlining the “broad conceptualization” of his Budget. He has sought to give the
ongoing practice of the policy-makers based on liberalisation, privatisation and
globalisation a big push by giving it the shape of a concept.

         Here are the outlines of Mukherjee‟s concept of the role of Budget 2010-11. “With
the development and economic reforms”, according to Pranab, “the focus of economic
activity has shifted towards the non-government actors”. He does not indicate who the
non-government actors are but under the LPG regime key non-government actors are
the corporate kings. This shift, he emphasizes, has brought “into sharper focus the role
of Government as an enabler.”(emphasis IRL)

        Lest there be any misunderstanding, Mukherjee cares to explain the role of an
enabling government: “An enabling government does not try to deliver directly to the
citizens everything they need. Instead, it creates an enabling ethos so that individual
enterprises and creativity flourishes.” The Government “concentrates on supporting and
delivering (probably via the PPP model) services to the disadvantaged sections of the

        If the practice of the Manmohan Singh Government in the field of industry is
taken into account, any regulation of labour-management relations has come to mean
immobilisation of central Government‟s conciliation machinery so as to give a free hand
to the employers to deal with the labour wherever they can. The recruitment of contract
workers in violation of the Contract Labour Act has become the norm in public and
private sector enterprises. The proportion of regular and contract workers even in many
of the public sector enterprises has reached the level of 50:50. The less said the better
about the state-of-the-art enterprises like automobile units where even unionisation is

treated as a crime, not to speak of implementation of such minimum necessary laws as
Minimum Wages Act, working day law, maternity benefit law, etc.

         Does all this mean that an “enabler” Government is seeking to create an
“enabling ethos” for individual (private) enterprises and their creativity to flourish? There
is all the concern for the enterprises to flourish and little concern for the over hundred
years of struggle of the working class for their rights during the colonial rule, later as part
of the freedom struggle and in the post-Independence phase as part of economic
development with emphasis on building a public sector “as part of the mixed economy”

         It is obvious that Mukherjee‟s Budget has given notice that economic development
policies adopted during the post-Independence phase are now being buried; the private corporate
sector will henceforth determine the future course of development in urban and rural areas. Only
the other day, when there was a furore over the impact of global economic crisis and slowdown
on unemployment, small and medium industries, etc Mukherjee had praised Indira Gandhi for
nationalising the banks 40 years ago. Even the LPG policy-makers realised the significant role
the public sector banks played in mitigating the negative impact of the crisis and slowdown on
Indian economy. The same Mukherjee has now projected a concept that implies that as a
consequence of reforms, the country‟s economy is to be guided by the private corporate interests
which implies that profit-making will be the “be all and end all” of the post-Budget economic
development and not the fate of multi-million working people.

         Lest he is accused of deserting the people who voted the UPA Government to power or
the Congress party, the Finance Minister has sneaked in a line for the poor people in his Budget
conceptualization: “Government concentrates on supporting and delivering services to the
disadvantaged sections of the society”. Just as he took care not to identify the non-Government
actors, he has left it to friends and critics to speculate on who the disadvantaged sections are.
This virtually amounts to cheating the nation of 1160 million people.

         As expected, Prime Minister Manmohan Singh described the Budget as “exceedingly
good” and one which would help the economy to return to nine per cent growth. For him, it was a
“job well done”. Home Minister P. Chidambaram described it as a “very balanced effort” marked
by a mature assessment of the state of the economy and of measures required to “sustain a high
and inclusive growth.” Commerce Minister Anand Sharma says that the Budget continues support
and incentives for the SEZs “without any dilution”. He expected that a comprehensive FDI policy
was likely to take shape in April. Much is said about promotion of labour-intensive units in this
sector. This is the worst sector for unionisation of labour, and where labour disparities are
handled by police and not by labour inspectors.

         Interestingly, FICCI scheduled its national session on February 27, a day after the Budget
was presented in Parliament. Finance Minister Mukherjee was an honoured guest at the session.
He took care to assure them that though he had taken a few steps to partially roll back the
stimulus package the necessity and timing of its withdrawal will be “gradual and calibrated”. He
wanted the industry to go in for rapid investment to sustain growth over a long period. An enabler
Government‟s Finance Minister could certainly be a guarantee for the non-Government actor
kings of the private sector.

        Will he now call the trade unions for a discussion on the Budget proposals as he had
promised during the pre-Budget consultations with them? At least, the nine CTUOs should send
a collective comment on the Budget to Mukherjee and seek a post-Budget review meeting with

       Commenting on the so-called “pro-farmer budget”, P. Sainath of The Hindu says: “This is
a Budget for, and perhaps by, the corporate farmer and agri-business.” (IRL-IPA)



                                     S. Sethuraman

        After the boom and bust of the first decade of the 21st century , the world
economy is struggling to recover from the Great Recession with little promise of a strong
rebound in 2010. What dampens the prospects for advanced economies is continuing
lack of business confidence and weak consumer buying in the first quarter while the
hesitant recovery is getting overshadowed by geo-political factors and troubles at home
for the Obama Presidency.

        Washington is gripped by politics with Democrats afraid of losing their majority in
the mid-term election in November from the Republican onslaught on Obama
Administration policies lock, stock and barrel. Democrats failed to get the President‟s
signature Health Reform enacted as his first year achievement. Besides health care,
financial regulations and climate and energy are other major measures languishing in
Congress for months. A meager addition to stimulus was being pushed through for
some job creation by way of more tax reliefs and extension of unemployment assistance
which got reflected in a mild market recovery in the retail market.

       While a health bill, a jumble of compromises in the year-long debate, was
expected to be finally voted over-riding Republican opponents and Democrat dissenters
before January 20, the Senate‟s Democrat majority leader Mr. C J Dodd has firmed up a
sweeping financial regulation law, with the Administration‟s support, for policing Wall
Street and empowering Fed to supervise institutions “too big to fail”. There are
uncertainties how far such and other legislative priorities of the Obama Administration
would be got through Congress in this election year.

        Economic signals are mixed, modest gains in industrial output offset by
weaknesses in consumer spending and unrelenting home foreclosures. Though job
losses have moderated of late, it remains the most serious concern for the
Administration and at stake is its credibility to ensure durable recovery to reduce the 9.7
per cent rate of unemployment.. The economy‟s downturn is unlikely to be reversed
without continued Federal support and Fed‟s emergency programmes including low or
zero interest regime for an extended period.

          In Europe, the debt crisis in Greece has delivered a blow to the 16-nation
monetary union leading to fall in the value of euro, the major competitor to the dollar.
Eurozone leaders dithered but finally resolved to stand in readiness to bail out Greece if
it fails in its stated goal of reducing budget deficit of 12.7 per cent by four percentage
points. They now see the urgency of tightening budgetary surveillance of the single
currency union of 16 member-countries along with promoting an European Monetary
Fund for Greece-type contingencies.

        In Asia, China has begun to throw its weight around escalating trade tensions
with the United States which has been pressing Beijing to move toward a more market-
oriented exchange rate. Overall, developments across the world are putting at risk the

G-20 Summit objective of rebalancing the world economy for strong and sustained
growth as USA would no longer be the principal engine of global growth.

        China and India led emerging economies in providing support for global recovery,
in part, in the latter half of 2009. But both these powers have major problems of
restructuring their economies to raise domestic consumption in the absence external
demand for their goods and services returning to pre-crisis levels, whether from USA or
EU. India‟s inflation is now close to double digit requiring monetary tightening, fiscal or
administrative measures to tackle the food prices having proved negligible or ineffective.

        China is also facing a surge in consumer prices, 2.7 per cent in February against
the official target of 3 per cent, and more worryingly possible asset price bubbles with
over-extended bank loans to the commercial property sector. China‟s massive stimulus
helped its economy grow 8.7 per cent in 2009 and the World Bank projects 9.5 per cent
in 2010, though the official target is a modest 8 per cent. More significantly, the Bank
has urged China to tighten its macro-economic policy stance both through interest rates
and “stronger exchange”policy both to contain inflationary expectations and overcome
risks of property bubbles as well as promote global balance.

       It is on the exchange rate that Sino-American relations have entered a tense
phase with Premier Wen Jiabao rejecting US calls for more flexible exchange rate
dubbing them as “trade protectionism”. Pressure is building in US Congress to name
China as “currency manipulator” and for trade sanctions. In turn, the Prime Minister has
charged Washington with failing to contain its fiscal deficits and defend the dollar to
reassure the safety of investors in US Treasuries. China has been trimming its holdings,
by 5.8 billion dollars over the last three months, though it still remains the biggest holder
of US securities at 889 billion dollars in January.

       Premier Wen contends that the yuan‟s exchange rate is held at a “stable and
appropriate” level while authorities maintain they have to be cautious in making
exchange rate moves when the world economy is still mired in recovery uncertainties.
China has managed to gain its global share in exports though at a lower level and its
trade surplus declined in 2009. China‟s toughening postures have to be viewed in the
context of the recent welcome in White House for the Dalai Lama which it viewed as not
respecting its sovereignty as also US arms sales to Taiwan.

         IMF is maintaining its year-end forecast of 3.9 per cent growth for the world economy in
2010 though it has predicted slow recovery and underlined risks for smaller advanced economies,
citing Greece‟s debt crisis and fiscal over-run which could have spill-over effects for other
member-countries of the euro- zone. It will come up with an update before Finance Ministers
gather in Washington for the spring meetings of the Fund and World Bank in the third week of
April. OECD, the grouping of richer nations, says recession has eroded potential output of
industrial economies over the medium term with an estimated loss of three per cent on average
across the OECD area. The “deep scars” left by recession in the major economies would be
visible for many years to come but OECD as well as WTO and UNCTAD have urged countries to
resist protectionist temptations in international trade and labour markets.

          US budgetary projections currently are for deficit to rise from 1.4 trillion dollar in 2009 to
1.56 trillion in 2010 and for trillion dollar deficits annually over the next decade. President Obama
has set up a bipartite Finance Commission to come up with measures to bring down these
deficits to sustainable level ando present its report by the end of the year. The long-term
projections are for US debt to rise from 13 trillion in 2010 to 22 trillion by 2010. Currently, debt
held by the public and foreign governments which bought US treasury securities is abouit 8 trillion
dollars and the rest represents liabilities to entitlement funds like social security,which have been
used up to cover other Federal outlays. (IRL-IPA)

Corporate Watch


                                  By Nantoo Banerjee

        Finance Minister Pranab Mukherjee may disagree, but the Government is
certainly not among the best money managers. The Government‟s huge access to public
funds, jumbo-size administration, spend-thrift attitude with expenditure outsmarting
income, lack of accountability and corruption in its ranks automatically makes it a poor
money manager. The national assets the Government builds come at a much higher
cost if one compares with the costs incurred to create similar assets by private sector
enterprises. And, when it comes to selling these high-cost assets, the government again
emerges as a poor seller. With all its state power and money muscle, the Government is
a poor manipulator of the market. On the contrary, it is always a victim of market
manipulation. This is despite the fact that the Government has the biggest reservoir of
knowledge and intelligence or has access to it, at least on paper. And, this is the most
unfortunate part.

         Compare the Anil Ambani-controlled Reliance Power‟s initial public offering (IPO)
and the price it fetched and the oversubscription it recorded with that of the
Government‟s National Thermal Power Corporation (NTPC). Do the two entities even
merit comparison with each other on the same scale in terms of size, operation and
future outlook? Hardly. Reliance Power projects were in the air when the company‟s IPO
opened. The company was not even in full possession of land on which the proposed
power plants were to come up. They did not have on ground presence. Conversely,
NTPC is India‟s biggest and most efficient electricity producer. Yet, there was not much
retail interest in NTPC IPO, which could have bombed if the State Bank (SBI) and Life
Insurance Corporation (LIC) had not come to the rescue of the much-touted public issue.
The PSU blue chip, Rural Electrification Corporation‟s IPO too received a lukewarm
response from retail investors.

        Although the Government will most certainly meet its 2009-10 disinvestment
target to raise Rs. 25,000 crore from sale of PSU shares by the end of this month, the
PSU IPOs could fetch much more if they used more imagination and planning in terms of
financial engineering and timing. Rs. 22,000 crore is already in the Government‟s
disinvestment kitty from Oil India, NHPC, NTPC and REC share issues. Two more IPOs
are to be completed in the course of the next few weeks. It would appear that the issues
are being rushed through. The market is taking advantage of the situation. It is like a
distress sale or „must-sell‟ situation. Investors are taking advantage of such a situation.
Clever ones are staying away from the IPOs. They wait for the shares to be listed for
open market trading, may be at lower prices as happened in the case NHPC.

        The Finance Minister, in his budget speech, claimed that the market
capitalization of five PSUs, which has been listed since October 2004, has increased by
nearly four times from the combined book value of Rs 78,841 crore to Rs. 2,98,929
crore. While such a value appreciation of stocks will be any investor‟s dream, it has little
to excite to the disinvestor. If anything, it points at under-pricing of those PSU shares
before they were offered to the public for subscription. It may not be entirely wrong to

conclude that either those IPOs were poorly planned and ineptly handled, or there were
vested interest in both the Government and the market to ensure under-realisation of the
real value of those stocks by the exchequer at the time of IPO. The original seller or the
Government is the loser. Buyers are making money, effortlessly. These PSU shares are
gold. They are expected to appreciate much more in the coming years. They are
excellent companies.

        There is no doubt that the government‟s 2010-11 PSU disinvestment target of
Rs. 40,000 crore will be achieved without a fuss. The shares of the companies to be on
the block belong to such enterprises as Coal India, National Mineral Development
Corporation, Steel Authority of India Limited (SAIL), Bharat Sanchar Nigam (BSNL) and
Hindustan Copper, all world class companies and top performers in their respective
areas of operation. A slice of their stocks should fetch much more than the targeted
amount. The market is extremely bullish following the Finance Minister‟s announcement.
Investors are waiting eagerly for the IPOs to open. Hundreds of off-shore funds would
like to own these shares, although not many of them would like to participate in the IPO
process. They may acquire the shares from the open market after the IPOs are closed,
sometimes at even below offer prices. Out of some 230 PSUs, at least 60 are doing
extremely well. The Government is planning to sell part of its stake in these high
performing enterprises in the next three to four years.

        The PSU stake selloff is the easiest way to cut down budget deficits, which
reached alarming levels of close to eight percent in the last two years. The fiscal deficit
target for 2010-11 is 5.5 per cent. Since the Government is not prepared to take
unpopular steps such as the compression of its size, cutting down unproductive
departments, changing employment and remuneration policies, productivity-oriented
promotion and retention of staff and focus on efficiency, fight against black money and
corruption-free administration, it has little control over the expenditure leading to
mounting deficits year after. At the same time, the combined pressure of ever-bulging
government borrowings – external and internal -- huge debt-service commitments,
alarmingly high trade deficits, negative balance of payments and growing expenditure on
defence and national security have taken much of the shine off India‟s growth story.
Among the limited choices it is left with to improve its earnings – without resorting to
further borrowings and counter-productive taxes and levies – the PSU selloff seems to
be the best even if it means a discount sale. (IRL-IPA)

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