8 ISSUES AND INSIGHTS MUMBAI | FRIDAY 30 AUGUST 2019 >

porate mind like a debt overhang. In out most Indian firms as potential collab- order to become net-debt free in the next orators, and willy-nilly only a foreign firm > CHINESE WHISPERS Big and bigger two-years and improve returns for mil- can come to its rescue. lions of its shareholders, the traditionally That the march of foreigners is hap- Some of the biggest names in Indian business are shedding their insular RIL is now openly serenading pening across sectors, and that the most Tharoor takes on critics global biggies in its core business — successful Indian firms are setting the The Kerala unit of the Congress had reticence and letting in global firms into their parlours refining and petrochemicals — and sun- trend, make the current partnerships issued a show-cause notice to the rise areas — retailing and telecom. qualitatively different from earlier times. party’s Lok Sabha MP Shashi Tharoor for the hunt for strategic partners for its tele- scribing to a sliver of quasi-equity in one Though Chairman Mukesh Ambani had Unlike the rent seeking partnership of the his laudatory comments on Prime com and retail ventures. Well, given the of Biyani’s core firms, Future Coupons, articulated a partner-driven approach a yore, where the foreigner needed the Minister Narendra Modi, but soon stress in both the sectors and the scale which holds the strings to his listed retail few years ago too, but barring the now Indian player to navigate the treacherous discovered that the parliamentarian had of RIL’s ambitions, potential partners can business. And paying top dollars, double decade-old BP deal for oil and gas explo- regulatory, political and bureaucratic turned the tables on them. Last week, only be deep-pocketed foreign firms. the current market valuation of the ration, RIL had remained a solo player, labyrinth in India or a technology-starved Tharoor had joined party colleagues Bharti Airtel recently sought permis- group’s flagship Future Retail. even choosing to incubate new business- Indian firm needed the foreigner’s patent Jairam Ramesh and Abhishek Manu sion to up the foreign investment limit After gobbling the country’s biggest es in retail and telecom all alone. It is crumbs to survive, the current partner- Singhvi to state that Modi should be for itself to 100 per cent, with reports that ecommerce company Flipkart for $16 bil- only now that the firm is walking that ships are between near-equals, leaders in praised for doing the “right things”. In long-time partner Singtel is upping its lion last year, the world’s largest retailer famous "new Reliance" talk by Ambani their respective geography or segment. his reply, Tharoor took on his critics. He stake in the country’s second-biggest tel- Walmart has reportedly opened talks at the annual meeting of the firm’s share- In that sense, these "big bang" tie-ups are said he had intervened more than 50 ACROSS THE BOARD co’s holding firm Bharti Telecom to over with the $110-billion salt-to-software holders a few years back. reflective of the coming of age of Indian times in Parliament and had spoken 50 per cent. Though denied by the firm, Tata Group for collaborating with it in The case is very different for television industry, which for long was buffeted by against 17 Bills with “courage and SHAILESH DOBHAL there were other reports that said big box retail. After bringing in an 11 per biggie Zee, which is saddled with over a closed economy and learned to face conviction”. “Can any of my critics from all it the season of big-bang part- Japanese investment behemoth cent financial partner in American ~11,000 crore debt, and bringing in a part- global competition only in the last two Kerala say they have done so?” Tharoor nerships. The country’s biggest SoftBank too may be looking at some Invesco Oppenheimer Developing ner is an existential necessity for both the decades or so. True that some of these said. Party leaders Ramesh Chennithala, Cfirm by revenue, Reliance kind of partnership with Bharti Airtel. Markets Fund, Zee Group is on the look- firm and promoter Subhash Chandra. The partnerships may very well turn sour, oth- K Muraleedharan, Benny Behannan, Industries (RIL) sold a fifth of its oil-to- Then there is the country’s original out for a strategic partner, with specula- firm started out as global media Moghul ers may result in the foreigner taking over and T N Pratapan were among those chemical division to soon-to-be the retail king, Kishore Biyani, letting world’s tion focusing on global names like Rupert Murdoch’s India partner, split from the Indian one or it may unravel in other who had criticised Tharoor. A three-time world’s biggest firm Saudi Aramco for a biggest etailer Amazon get a toehold into Comcast and Sony doing the rounds. it and became one of the biggest in the ways, but this paring of Goliaths is a trend MP from Thiruvananthapuram, Tharoor whopping $15 billion. It also announced his sanctum sanctorum. Amazon is sub- It seems nothing pressures the cor- business in India. Its size in that sense rules that is likely to endure. thanked Indian Union Muslim League leader and former minister M K Muneer and Muslim Youth League President Sayyid Munavvar Ali Shihab Thangal for combined entity? Should the general their support. However, a rumour insurance companies be merged, and campaign has started in the Congress shares in the holding company be sold that some of its leaders could switch to Selling less while raising more or should one sell shares in the operating the Bharatiya Janata Party because the business? Different market cycles will Modi government is thought to be facing give a different answer. Unfortunately, a talent crunch. Clearer commercial focus and tighter financial discipline may yield a steady stream of dividends the decision is likely to be driven by the fear of the Central Bureau of Investigation or the Vigilance Happy birthday everyone EXHIBIT 1: BSE PSU VS SENSEX VS BSE 100 EXHIBIT 2: PSU ETF RETURNS Commissioner, rather than what mar- Kakra village in 1-Month 3-Month 1-Year 3-Year kets dictate. Madhya Pradesh’s S&P BSE Bharat 22 TRI -12.32 -8.39 -4.24 - There are ownership models that Shivpuri district is address the challenges that plague unique in a way. Category returns -7.02 -5.4 -2.93 - Indian PSUs. They address governance Almost all the Rank within category 107 102 70 - issues and structures, a path towards residents of this gradual disengagement from non-core village have the Number of funds in category 107 107 94 - investments, beneficial asset monetisa- same birthday, CPSE ETF -3.85 -17.17 -14.34 -14.1 tion and generating returns for the state. January 1, on their Temasek (Singapore), Khazanah Aadhaar cards. OCCASIONAL ASIDE Category returns -1.95 -12.09 -8.14 10.26 (Malaysia), Solidium (Finland), Forsta Kakra is a tribal-dominated village and AP-fonden (Sweden), ADIA and most residents don’t have any documents AMIT TANDON Rank within category 3 3 3 3 Mubadala (Abu Dhabi, UAE), are some they can present as proof of age. So Number of funds in category 3 3 3 3 successful models. All of them involve officials tasked with enrolling Aadhaar aising money from sale of public at the core, putting in place a governance aspirants gave them the same date and sector undertakings (PSUs) is Source: BSE, up to July 31 Data as on August 2, 2019 structure where ownership shifts from month of birth. According to the Unique Rnow a critical item in meeting individual ministries to a government Identification Authority of India fiscal targets. This government has would return ~88.0 today. A similar objectives in running PSUs. Second, is a ministry’s responsibilities. Shortish holding company or a fund and further- guidelines, if an individual is unable to raised ~2.71 trillion or 84.3 per cent of amount invested in the BSE Sensex the current ministry-PSU linkage the tenures leave bureaucrats insufficient ing their governments agenda. produce proof of birth at the time of the targeted ~3.21 trillion since 2014-15, would have returned ~146.7 and in the best structure to ensure PSUs function time to read the industry trends, let Parenthetically, the report of the registration, he/she can still register for it meeting its divestment targets in the BSE100 ~147.0. efficiently, and three, is the divestment alone understand business nuances. An Committee to Review Governance of without documents. If they are able to last two years. The tenacity with which Two, this is reflected in the price per- giving the government most bang for added downside is a very short institu- Boards of Banks in India aka the PJ furnish proof at some point, they can get the government is pursuing this one formance of PSU ETFs. The CPSE ETF, its bucks. tional memory. Responsibilities Nayak Committee had a similar recom- the date of birth added to their Aadhaar number is admirable. which tracks 11 central PSUs, has raised There is limited clarity regarding the towards the company give the appear- mendation for government owned data. The authorities say that despite the During this period, no route to raise ~48,500 crore. And Bharat-22, its dizy- objectives and purpose. Oscillating ance of being chores and need safe deci- banks. Such structures will bring the option to update, there has hardly been money has been off the table; the gov- gotic twin, with 19 public sector compa- between achieving the greatest good for sions: Why else will PSU boards be dom- desired focus, accountability, specialisa- any instance of someone visiting an ernment has used buybacks (Oil India, nies and three SUUTI shares — Axis the greatest number versus running a inated by former bureaucrats — which tion and sense of ownership to the task Aadhaar centre to avail of it. National Hydroelectric Power, IRCON Bank, ITC and Larson & Toubro, has gar- profitable business muddles decision- compound the problem of limited skills at hand. These are some examples of suc- etc.), offers for sale (NALCO, National nered ~26,400 crore. Their performance making at the PSU level and confuses and to a less robust board oversight. cessful transitions and structures impor- Fertiliser, Neyveli Lignite etc), piggyback- lags as seen in Exhibit 2. investors. It is perfectly legitimate to have Then there is the mistaken belief in tantly within the ‘state’, that we should Aadhaar for food ing on PSU IPOs (Cochin Shipyard, GIC, Three, governance is no longer an national political-level objectives (devel- Delhi that Sebi’s rules apply only to the consider emulating. The Aadhaar has made lives easy for New India etc), off-market transactions amorphous idea; it can now be measured opment of a backward region), but these private sector. Consequently, PSUs gen- This shift, even if begun today, will people in many ways. It has also helped (HPCL-ONGC), strategic divestment on the IFC-BSE-IiAS Corporate should be separated from those that con- erally weigh in favour of their parent bear fruit in the medium to long term. the Pashupatinath temple administrators (PFC-REC, Dredging Corporation), sale Governance Scorecard. Excluding banks trol national resources (ONGC, Coal ministry; conversely market discipline Meanwhile there is undoubted fiscal in Mandsaur district, Madhya Pradesh, to of SUUTI shares, sale through ETF’s there are 16 PSUs in the BSE-100 index. India), or building national champions is frequently breached. And while mar- pressure to raise funds. There are assets separate local devotees from outsiders. (CPSE ETF and Bharat 22) and even sale Their average and median score out of (SBI). The government is better served ket discipline may not ensure business including Balco and Hindustan Zinc, The temple administration provides free of enemy shares. Nor is any amount too 100 is 52.3. Our research shows compa- pursuing just one goal. With clearer com- success, but its absence will ensure fail- that can be sold immediately — to meals to devotees and was struggling to small; the Dredging Corporation of India nies that scored above 60 had a median mercial focus and tighter financial dis- ure. Suffice to say, the ministries have Vedanta or even the public. cope with the flow of visitors. The meal employees brought in ~9.3 million return of 39 per cent over two years, (7 cipline, the treasury can hope for a exhibited extremely uninspiring stew- Shareholding with SUUTI can also be facility is for people who arrive from through an OFS. per cent over one), while those with low- steady stream of dividends and of real- ardship over our PSUs. monetised relatively quickly. These and other cities and not for locals. The temple Despite the impressive amounts gath- er scores, generated a 3 per cent return ising a fair price from the sale of shares Finally, divestment is a specialised other such ideas will serve for the short administration has made it mandatory ered from their sale, there are infirmities (negative 16 per cent). This is a pointer and even entire businesses. This money job. Deciding between IPOs, offers for term. For the long term, unless we bring for visitors to declare their Aadhaar that ail the public sector. These come in that poor governance lies at the heart of is then available for its broader (social) sales, follow-on offerings, bulk deals, about transformative change, the pipes number to avail of free food. The temple the way of a more robust fund-raise. middling performance. objectives. The alternative of running a QIPs is not an easy task. Add to this the will choke. committee manager, Rahul Runwal, said Some alternate sets of data point to this. If the government wants to continue febrile business which consistently complexity of deciding which company the number of devotees who wanted to One, the trailing BSE PSU Index to mobilise resources from divestments, needs funds to be injected, does not serve is ripe for sale. Will selling HPCL to The author is with Institutional Investor eat had come down by 50 per cent since (Exhibit 1). ~100 invested in the PSU it needs to ask itself three questions: the divestment agenda. ONGC be more value accretive than Advisory Services India Ltd; Views are the new system was introduced. index five years ago in August 2014 First, if there is clarity regarding the Oversight of a PSU is a small part of merging the two and then selling the personal. Twitter: @AmitTandon_in

INSIGHT > LETTERS

ical leaders and betrays his disdain for mercial coal mining sounds good. Its The science of ambient marketing Get down to business the liberty of an individual guaranteed translation to execution will be crucial. under the Constitution. Equally outra- The government failed to open the home with a tranquil charm". penser systems and candles. geous is his belief that mobile phones industry to competition, despite liber- Riding the odour bandwagon are London developers have made this and internet are essentially weapons of alisation of the economy years ago, other miscellaneous products such as into a fine art to the extent that upper- terrorists, and ordinary citizens have because of bureaucratic indecision. a “scented” vest that is skin friendly end home owners are curating their little use of them. If so, why not extend The Union cabinet had also approved and anti-bacterial. Microbiologist own fragrance, to suit their home envi- such restrictions to the rest of the coun- policies opening coal mining to private Christopher Callewaert of Ghent ronment. Floral for one if their home try? The governor also displayed scant miners and partially removing restric- University has even made it his mis- has a floral theme. More animalistic regard for decorum by predicting that sion to understand the various types or musk if the home has a stronger people would beat up Congress leaders of body odours, as reported in The masculine flavour. Or lime and lemon, with shoes for their stand on the Week magazine. He and his colleagues if the home has a lot of indoor plants changes in Kashmir. This is highly AMBI PARAMESWARAN have studied thousands of consumers and such like. I wonder if this is a trend provocative and unbecoming of a per- and have categorised the body odour that is waiting to be tapped in India. son of his stature. into specific typologies such as Fishy, In an HBR article (March 2015), It is not for the first time that someone S K Choudhury Bengaluru hen you get back from an Faecal-like, Oniony, Floral and even a Science of Sensory Marketing, the in the government was announcing hir- international trip and step bit Soapy. Callewaert says, “... triggers authors point out that many industries ing large numbers in government jobs. A game changer W out of the airport, the first that cause the corynebacterial to flour- are missing out on the opportunities Satya Pal Malik (pictured), governor of thing to assault you is probably the ish include... wearing certain clothes to connect with the customers’ senses. Jammu & Kashmir, has announced that Close on the heels of Finance Minister unique odour that seems to permeate that have their own microbiome and The focus till now has been on building 50,000 vacant government posts in the Nirmala Sitharaman’s announcement any public space in India. Is it the lack their own bacterial community”. So expertise on what is obvious such as state would be filled in the next three of measures to perk up the country’s of toilets or is it the fact that our toilets may be the “scented vest” has a future. shape, colour, touch. New research is months. Well before the 2014 general sagging economy, the Union cabinet’s are badly maintained or should we lay Getting back to the odour that hits emerging to suggest that even the elections, Narendra Modi had move towards increasing foreign direct tions on the sale of coal produced at the blame on the lack of water in our us as we enter a premise, it has been ambient temperature can have an announced that if elected, his govern- investment (FDI) into the country the so-called captive mines but these toilets? But I am seeing or should I say an area of concern for real estate com- influence on consumer behaviour. A ment would create 20 million jobs for could prove to be a game-changer. In a too have not been implemented. It is a smelling that this is slowly changing. panies. In an article published in wine glass may change the perception the youth of the country. Instead, there fresh round of FDI reforms, the govern- paradox that with the world’s fifth- The rapid growth of products aimed Financial Times (June 16, 2018), the about the wine that is poured into it. has been rampant unemployment dur- ment relaxed FDI rules in single-brand largest reserves of the fuel, we import- at masking the smell of our toilets has writer observes that today, there is the The smell of cinnamon can make a ing his regime owing to the economic retail, approved 26 per cent FDI in dig- ed over 40 per cent more coal during been astounding to say the least. In new art of blending custom fragrances café that much more welcoming. slowdown. Take the automobile sector: ital media and offered 100 per cent FDI January to April this year compared to the years gone by, the only brand that for buildings and this has become a University of Michigan’s Aradhana Nearly, 2 lakh jobs have been cut in the under the automatic route in coal min- last year. That the dip in global price of used to be seen in Indian toilets was delicate science that can bring subtle Krishna in her book, Customer Sense: past three months because of the slow- ing and contract manufacturing. The coal should dictate the pace of our self the Odonil bar. And they used to have benefits to the sellers. Smell has for How the 5 Senses Influence Buying down and this process is being followed big stimulus could also help to consid- sufficiency in a vital sector as coal is a peculiar smell of their own. In the long been a powerful tool for selling Behavior calls out industries still in other sectors like aviation, garments, erably ease trade tensions between but a fig leaf over goal clarity. last five years, there has been a rapid property. In what is called “Open focused on visual attributes giving lit- foods — the list is endless. Instead of India and the US which has been sim- R Narayanan Navi Mumbai growth in the adoption of air purifying Days” when prospective visitors are tle thought to the other sensory effects. hollow slogans, the governor should mering for some time now. brands and products. Odonil itself has welcome to take the tour of a home, it For example, will a bank feel that make an effort to bring stability and N J Ravi Chander Bengaluru Letters can be mailed, faxed or e-mailed to: been transformed. There have been is customary to do some fresh baking much more solid if it had aromas of peace while ensuring that civil liberties The Editor, Business Standard Nehru House, 4 Bahadur Shah Zafar Marg numerous new brands, Indian and before the prospective buyers walk in. wood and leather? Will a boutique feel are in place in the state as people there Execution will be key New Delhi 110 002 International, such as Ambi Pur and A freshly baked cookie smell is expect- that much more welcoming if it smelt are crying for it. The biggest punish- Fax: (011) 23720201 · E-mail: [email protected] Godrej Aer that have managed to cre- ed to trigger the saliva glands of a vis- of lavender and jasmine? ment for the people of Jammu & The announcement allowing 100 per All letters must have a postal address and telephone ate smaller-sized products tailor- itor and help him reach for his cheque The good news is that we are seeing Kashmir is that they don’t have the cent foreign direct investment in com- number made for smaller spaces such as toilets book that much faster. the emergence of ambient fragrance means to communicate with the out- and elevators. This is now getting a little more marketing in India too. And as our toi- side world. > HAMBONE If we are seeing innovative products evolved. In developed countries, lets start losing their bad odour, hope- S K Khosla Chandigarh at the middle or the bottom end of the builders are employing specialist per- fully our shops and showrooms will market, we are also seeing the introduc- fume designers to create curated smells start developing their own unique Provocative comments tion of curated products labelled “home for a building, so that what reached the ambient fragrances. fragrances”. These are often packaged nostrils of the prospective buyer is not Smell well to sell well. The comment by the J&K governor in exquisitely styled dispenser systems the smell of cement and sawdust but Satya Pal Malik in his maiden official including reed diffusers and oil vapor- those of something more interesting, The author is an independent brand media interaction since August 5 that isers. An ad extolls the virtues thus: “The may be sandalwood or lime or more strategist and founder, the longer politicians stay in jail, the rejuvenating scents of tangerine, laven- exotic lavender and musk. These are Brand-Building.com higher the political dividends for them der and coral blue are sure to leave your dispersed innocuously through dis- [email protected] is disgraceful. Such a comment trivi- alises the prolonged detention of polit- OPINION 9 > STAY INFORMED THROUGH THE DAY @ WWW.BUSINESS-STANDARD.COM

Volume XXIV Number 14 ILLUSTRATION: BINAY SINHA MUMBAI | FRIDAY, 30 AUGUST 2019 An exceptional year Govt needs to reduce dependence on RBI

he Reserve Bank of India (RBI) has released its Annual Report for 2018- 19, which explains its actions over the past year and outlines expectations America’s overall trade deficit reflects a shortage for the broader economy. The Annual Report comes shortly after reports of US national savings relative to investment. By caus- ing US government debt to increase by an additional that the RBI will transfer a considerable amount, over ~1.7 trillion, to the T $1-2 trillion over the next decade, the 2017 tax cut will government’s coffers this year. This is thanks to a much larger surplus of ~1.23 make the government’s savings rate substantially trillion, with excess provisioning making up the remainder. This followed the rec- more negative. Because it is unlikely to be offset by a ommendations of a high-level committee led by former RBI governor Bimal Jalan. decrease in national investment or a large enough The surplus is high partly due to an acceleration in open market operations (OMOs) increase in private-sector savings, the tax cut has con- by the RBI, particularly in the second half of the year, which saw ~2.5 trillion worth tributed to a higher US trade deficit. The overall deficit this year is projected to be larger than in 2017 or 2018, of OMOs. Nevertheless, the Annual Report noted that liquidity remained tight and this trend is set to continue. and “system liquidity experienced shortages despite injection in durable liquidity Could a US recession This strongly suggests that the US trade deficit of the order of ~3 trillion, the highest in any year so far”. Some observers believe with China will increase. With US politicians and that liquidity in the banking system is comfortable. India Ratings argues that this much of the media evidently failing to recognise the is because the net liquidity injection under the liquidity adjustment facility con- connection between Trump’s tax cut and the growing tinued in FY19 and the credit offtake remains weak. end the trade war? US trade deficit, they will most probably think the Chinese are doing something pernicious. For this rea- Future views on liquidity in the system are crucial as to whether the higher son, I have long argued that the US tax cut is a signif- transfer from the RBI will be a one-time event or sustained under the new frame- In recent downturns, the US has been more willing than normal icant structural impediment to reducing America’s work. As to why the RBI felt the need for liquidity injections on a larger scale, the trade deficit with China (and with many other trading Annual Report was quite clear on the motives: It was largely because of foreign to cooperate with China in order to try to spur recovery partners), and therefore a likely source of tension over exchange operations and large currency expansion. the next few years. The RBI also felt that the last vestiges of remonetisation were dealt within he recent inversion of the yield curve in the Trump’s administration may not have international Nonetheless, the US trade deficit (as a share of United States — with the interest rate on 10- cooperation in its DNA. But, tellingly, Trump initiated GDP) typically decreases as the American economy 2018-19, taking the currency-GDP ratio from 10.7 per cent to 11.2 per cent. That Tyear US government bonds currently lower the current tariff war when the US economy was weakens, because import demand tends to fall as meant that system liquidity shifted from surplus to deficit during the year. than that on short-term bonds — has raised fears of a somewhat overheated, partly as a result of the aggres- well. A US recession may, therefore, somewhat mod- Therefore, the RBI blamed capital outflows and the expansion in currency in cir- possible US recession later this year or in 2020. Yet, sive tax cut that he pushed through Congress in late erate the negative impact of the Trump tax cut on culation for strong action on liquidity. The government, thus, cannot depend paradoxically, a downturn in America could help to 2017. Frictions with America’s trading partners, which the trade deficit. upon a permanently higher level of transfers from the RBI and must reduce its improve bilateral economic relations with China and many economists believe are damaging both the US More important, the Chinese government has itself dependence thereon. cool the two countries’ escalating trade dispute. and the global economy, may in fact be helping to cut taxes aggressively since the end of 2018, reducing Recent history offers grounds for such predic- cool down the US economy. But Trump’s stance on value-added tax (from 17 per cent to 16 per cent and It is important to note that the RBI, through the Annual Report, signals its tions. True, by reducing import demand, US reces- China may soften, should a recession materialise. then to 13 per cent), lowering the corporate income- continued vigilance about the need for ample precautionary buffers against sions normally have a negative impact on economies Two factors could derail this possibility. First, tax rate, and decreasing the social-security contribu- external crises. These are more important than even in the “taper tantrum” with a high trade-to-GDP ratio, China may be unable or unwilling to tion rate for employers. episode of 2013, because the sensitivity of portfolio flows to global spillovers has including China. However, in provide economic stimulus. The Because these recent tax cuts are unlikely to be increased significantly. recent downturns, the US also has Chinese government’s debt-to-GDP offset by lower investment or a sufficiently large In other respects, the Annual Report might be considered to be surprisingly been more willing than normal to ratio is higher today than it was a increase in private savings, China’s national savings cooperate with China in order to decade ago, when the authorities rate will most probably decrease. As a result, the coun- sanguine, such as on the matter of the growth of the general government deficit. try to spur recovery. rolled out an aggressive stimulus try’s overall trade surplus — which reflects its excess While it highlights the lack of growth impulses domestically and the downside During the last major US reces- package to offset weakening export of savings over investment —probably will be far risks from the global economy, it also says that India is going through a “soft sion in 2008-10, for example, China demand in the wake of the global smaller in 2020, and may even slide into deficit in patch mutating into a cyclical slowdown” rather than facing a structural problem, appeared to be the only major econ- financial crisis. That fact would seem one or two quarters. Although China will almost cer- though it has highlighted structural issues in areas such as labour, agricultural omy able and willing to boost global to limit the government’s capacity to tainly still run a bilateral trade surplus with America demand. Partly as a result of this, pursue an expansionary fiscal policy next year because of the effect of the US tax cut, the marketing, and land, and they need to be addressed. Sino-American ties improved, and in the event of a US recession. imbalance will be much smaller than otherwise would The RBI has also reiterated its stand that reviving consumption demand the US even advocated giving China SHANG-JIN WEI Even so, China’s debt-to-GDP have been the case. and private investment is priority in the current year. This means that since infla- a greater voice in international bod- ratio is still much lower than that of While a US recession would be bad news for the tion is likely to remain under control in the foreseeable future, the central bank ies such as the International most other large economies, giving global economy in terms of a direct demand channel, will be in a position to bring down the policy rates further. Monetary Fund and the G20. the government some room for additional fiscal stim- it could help to normalise the troubled relations Similarly, US-China relations were at a low ebb in ulus in an economic emergency. Moreover, although between America and China. If the world’s two largest mid-2001, following a mid-air collision of a US recon- the People’s Bank of China is more cautious about economies get along better, businesses and investors naissance plane and a Chinese fighter jet over the injecting liquidity at will, the relatively high reserve everywhere will breathe a sigh of relief. This may turn A positive move South China Sea, which resulted in the death of the ratio the PBOC imposes on commercial banks sug- out to be a silver lining in the next US recession. Chinese pilot and the capture of the American crew. gests that it would have significant firepower should FDI policy should be supplemented with wider reforms But after the September 11, 2001, terrorist attacks sud- the need arise. The writer is a former Chief Economist of the Asian denly darkened the US economic outlook, US-China The second risk factor is the 2017 US corporate tax Development Bank, and Professor of Finance and Economics economic ties improved. cut, which enlarges America’s trade deficit with China, at Columbia University and a visiting professor at the he Union Cabinet on Wednesday liberalised foreign direct investment Unlike its predecessors, US President Donald further damaging bilateral relations. Australian National University;©Project Syndicate (FDI) norms in areas such as single-brand retail, contract manufacturing, and the coal sector. Of course, the most-awaited change was in sourcing Tnorms for single-brand retail companies. While the government has not removed the 30 per cent sourcing requirement, compliance has indeed been made easier. For instance, local sourcing can now be met as an average of the Rebuilding ordnance factories first five years. This will give retailers more flexibility in the initial years. Further, goods procured for exports by single-brand retailers will be factored in while cal- n a bold move, the government has floated a been its limited decision-making power. As a sub- monopoly over these products. culating the percentage of local sourcing. proposal to corporatise the Kolkata-headquar- ordinate department of the MoD, OFB’s major deci- The below-optimal performance of the OFB has Given the possibilities in the retail sector, increasing flexibility should help Itered Ordnance Factory Board (OFB), under sions pertaining to finance, human resources, also led the organisation to forgo it pivotal position bring more foreign investment. For instance, a recent report by Deloitte showed which there are 41 factories with a combined man- research and development (R&D), modernisation in Indian defence production. Indian private sector power strength of over 82,000. The government’s of factories, and formation of joint ventures and companies having defence industrial licences are now that the retail market is likely to grow to $1.2 trillion by 2021, compared to its size decision has not gone down well with trade unions. subsidiaries, are taken outside the organisation. The producing more than the OFB. The growth of the pri- of $795 billion in 2017. The share of organised retail, excluding e-commerce, is They went on a 30-day strike from August 20, relent- bureaucratic nature of the decision-making of the vate sector, which is likely to be accelerated under likely to double from 9 per cent in 2017 to 18 per cent by 2021. Further, the pene- ing only after several rounds of discussion with external agencies and their inclination towards rules the Make in Indian initiative, will further push the tration of the internet will help improve the share of online retail. In this context, senior defence ministry officials. The possibility of and regulations rather than outcomes have left little OFB on the margins of defence production unless the government has also changed the e-commerce norms for single-brand retail- another strike can’t be ruled out as the proposal incentive for the OFB to stand on its own and assume reformative steps are taken at the earliest. ers. They have been allowed to sell online on condition that they open physical under consideration threatens the very governance accountability for its functioning. OFB’s woes have The idea of corporatisation of the OFB has been structure of the organisation. further been compounded by its distant location, under consideration for a long time. It was first sug- stores within two years of starting online sales. With the easing of norms for sin- Should the government back down or stay on far away from the Delhi’s power corridors, and fre- gested by the Nair Committee in 2000. It was reiter- gle-brand foreign retail, the government should now consider allowing FDI in course with its decision? The balance of evidence quent change in key leadership. In the past 10 years ated by the Kelkar Committee in 2005, which had multi-brand retail. This will not only help bring in a significant amount of invest- suggests that the Ministry of alone, the organisation has seen 15 made a strong pitch for corporatisation of the organ- ment but will also improve supply chains, and the agriculture sector could become Defence (MoD) needs to stay firm chairmen. With such a rapid isation. However, successive governments lacked the a big beneficiary. on its decision as corporatisation is turnover at the top, the organisation political will and/or courage to implement this vital While the decision to allow 100 per cent FDI in commercial coal mining and not only in OFB’s interest and has been left with little strategic piece of reform measure. important for its long-term survival, vision and direction. The corporatisation of the OFB will turn it into a related investment (earlier it was allowed for captive consumption only) is but also for the country’s defence The OFB, on its part, has also defence public sector undertaking (DPSU) under the expected to give a boost to private miners and introduce competition for Coal preparedness and self-reliance. done little to improve its perfor- administrative control of the MoD. This is far from India, it remains to be seen if global companies would be interested in the sector. OFB, which traces its origin to mance that could match its rich his- privatisation of the organisation as rumours suggest. The other significant decision was allowing 100 per cent FDI under the automatic 1802 during the British Raj, is the tory of over 200 years and vast asset As a DPSU and with 100 per cent equity stake by the route in contract manufacturing. The idea is that it will help India integrate into oldest and one of the largest base. The organisation can hardly central government, the OFB will have far greater the global value chain. Since a number of companies are moving out of China departmentally-run commercial boast of any worthwhile product of autonomy in decision-making. It will be managed by organisation of the government of its own. Nearly 80 per cent of its its own board of directors. Subject to broad guidelines because of rising trade tensions with the US, some of them can look at India as India. With a turnover of over LAXMAN KUMAR BEHERA turnover comes from imported of the government, it can make its own an option to relocate. This will also allow foreign retailers to procure goods more ~12,800 crore, it has historically technologies. financial/investment plans, form joint ventures/sub- easily and meet the local sourcing norm. enjoyed a monopoly over a wide The lack of focus on innovation, sidiaries and articulate R&D road map without much While these are welcome developments, FDI policy is only the first step. If variety of products ranging from tanks and along with delayed execution of orders, low labour interference from external agencies. More important- India intends to be an important part of the global value chain, it has to think armoured vehicles to small arms, ammunition, and productivity, and meagre exports, has frustrated its ly, as a corporate entity with a stable leadership, it various troop comfort items. However, owing to a key stakeholders, especially the Indian Army, which will be in a far better position to respond to market beyond the idea of import substitution and ease trade restriction. Frequent changes number of factors, the organisation has performed accounts for nearly 80 per cent of its supplies. The dynamics and face competition, especially from the in tariffs, as has been the case in recent years, create friction and uncertainty. below its optimum level. Indian Army is also concerned about the poor quality private sector, effectively. Global companies may not be willing to work with suppliers located in a country Being a government department, the OFB is pro- of OFB products. The Comptroller and Auditor Lastly, with its existing turnover, the corporatised with an unpredictable and unfavourable tariff structure. Further, the other big hibited from making profits from sales to the armed General of India had once observed that some of the OFB would easily qualify for a Navratna status, which obstacle in attracting investment in manufacturing is India’s inflexible land and forces. This has taken away from it a major incentive OFB products were passed on to customers with will provide even greater flexibility in financial deci- labour market. The government should address these issues to incentivise both to improve the organisational and production effi- defects that could be visible to the naked eye. Being sion-making. Corporatisation is the only way the OFB ciency. Moreover, it is frequently allowed to pass on frustrated with the repeated performance shortfalls, can reclaim its lost glory and rebuild itself as a strong global and domestic investment, because the absence of wider policy reforms can all costs of production to customers. This cost-plus the MoD has, in recent years, tried to move away from force in defence manufacturing. restrict actual gains. approach to production, which is widely discarded procuring products from the OFB. It has already as inefficient, adds extra cost to the MoD’s budget. declared 275-odd items produced by the OFB as non- The writer is a defence economist and a research fellow at The biggest problem for the OFB has, however, core items, effectively demolishing the organisation’s Institute for Defence Studies and Analyses

refused to learn from their mistakes, par- he eventually realised how “delusional” he that of their Muslim counterparts. ticularly in reforming Sharia. While many had been in believing that a deeply religious The continued political success of the The angst of a liberal Muslim Islamic countries have reformed Sharia and socially conservative community Sangh Parivar is threatening to make the explicitly in relation to women’s rights, would embrace a faith-baiting liberal. voice of Hindu liberals redundant at least der why this should be the case — but then, Islamic countries like Britain and India Indian Muslims see any suggestion as a The author says that poet Javed Akhtar in the electoral space. Among Hindu lib- Hindu liberals suffer similar delusions. remain the most backward educationally conspiracy to meddle in their religious and actor Naseeruddin Shah, two of the erals, which Prime Minister Narendra Modi Mr Suroor argues while Islam is not and economically. As the author argues, affairs. “Keep your hands off until the ini- names to which the media gives space on has taken to call the “Khan Market gang”, resistant to reform, it has to be gradual. To the reason for it in India could be the dis- tiative comes from within the community, Muslim issues, can never hope to become there is still no honest introspection to imagine Islam will ever be secular is, how- crimination that Muslims face, as the but 70 years after independence there is the voice of Indian Muslims. He says explain the political success of the Sangh. ever, a fantasy. He points to the failures of Rajinder Sachar committee documented no sign of it from the community,” Mr Indian Muslims need scholars like Sir Syed Alleged rigging of EVMs, and large sec- the secularisation projects in Turkey and in 2006. Suroor writes. Ahmed Khan, Zakir Hussain, Maulana tions of Hindus turning rabidly intolerant BOOK REVIEW Iran and the continued attraction of But how is it, Mr Suroor wonders, that Neither do Indian Muslims make com- Abul Kalam Azad and the Ali brothers — of Muslims, are the two preferred theories Wahhabism. Hindus do better in the face of similar dis- mon cause with minorities in Islamic coun- Mohammad Ali and Shaukat Ali — who to explain the post 2014-election results. ARCHIS MOHAN Islam is ubiquitous and a majority crimination than Muslims in Britain? He tries to protest evil deeds done to them, wore their beards and prayer caps with Few, if any, Indian liberals, who either occu- Islamic nation is unable to appreciate tol- says victimhood, perceived or otherwise, says the author and points to the example pride, but brought about gradual reforms. py leadership roles in the Congress and n Who Killed Liberal Islam, Hasan Suroor erance and pluralism, he writes. The of Muslims only partially explains this, the of Asia Bibi. A Pakistani Christian, she was He appeals to liberals among Muslims and some opposition parties, are willing to con- argues that left-wing Muslim intellectu- author also says historical facts do not sup- truth being that they cocoon themselves sentenced to death in 2010 on blasphemy secular Hindus to look for and encourage cede that the problem could lie closer Ials paraded as the liberal heart of the port the construct that Islam is, or ever from the outside world because plural soci- charges. In 2018, a court exonerated her such voices. home. That their ilk, in politics as also other community, the Muslims who write op-ed was, a religion of peace. eties challenge Muslim beliefs at every turn. after a long legal battle, but lynch mobs Although Mr Suroor argues his case con- spheres of India’s social life, are unable to pieces and appear on TV to denounce If the author expresses hope in Islam’s The author bemoans that a religion, were at her doorstep threatening to kill her vincingly, he writes with the empathy of “communicate” with the common people Sharia, have “done more damage to the ability to reform in the beginning of the once considered modern, has lost its abil- again. Mr Suroor regrets there was not a an outsider, and the book is likely to find of this country. That they are too urbane cause of Muslim liberalism than good.” book, by the end of it, he sounds despon- ity to question. He says in the Arab world, word from Indian Muslims when, as vic- more readership among the kind of liberal to counter the perceived earthiness of a The book is a lament at the near-absence dent that the religion, despite being the its glitzy malls sell everything else under tims of majoritarian prejudices, the least Muslims whom he painstakingly berates, Narendra Modi. of liberal Islam. It is also a story of the fastest-growing in the world, is beyond the sun but books, which is ironic since they could do was to show solidarity. and among Sangh Parivar intellectuals who author’s personal awakening to the fact that redemption. He says the Islamic world has Islam lays great stress on reading and Mr Suroor, a former journalist, describes can sharpen their Muslim-baiting argu- WHO KILLED LIBERAL ISLAM the voice of Muslim liberals, as endangered not contributed anything of note in science acquiring knowledge, “even if it means himself as a liberal Muslim who once was ments. However, the author offers lessons, Hasan Suroor a species as they are, counts for so little or literature in the past several decades. going to China”. a part of the “cabal of self-styled mod- quite unwittingly, to the liberals among among their co-religionists. One has to won- He says Muslim communities in non- He complains that Indian Muslims have ernisers” among Indian Muslims. He says Hindus whose predicament is similar to Rupa, ~595, 234 pages