13 economic priorities for fy13-14 - mslgroup india

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• Preface 4-5

• Women’s empowerment 6-9

• Internal security 10-13

• Sports 14-17

• E-governance 18-21

• Corruption 22-25

• Low-cost medicine 26-29

• Affordable housing 30-33

• Agriculture finance and food prices 34-37

• A smoother road for FDI in retail 38-41

• Aviation 42-45

• Taxing the super-rich 46-49

• Goods and services tax 50-51

• Coalition politics 52-53

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Table ofcontents

13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe

Exactly 50 years after he was assassinated, Kennedy’s warning continues to ring true. Ever since

India set off on the reforms path in 1991, the parameters for judging the progress of the economy

have been narrow. Growth rate, investment, expenditure and deficits are the terms frequently

heard during discussions on ‘development’ and ‘progress’.

But an economy is more than just that. It has as its constituents obscure moving parts that are

forgotten – sometimes deliberately – or which remain hidden because of a lack of understanding.

For instance, many would be shocked to know that sports are vital to the economy. Usually,

discussions on sports are restricted to the number of medals or trophies won, or what sporting

icons do for the national mood. But, did you know that the United Nations Millennium

Development Goals view sports as an economic engine? Sports contribute to development

through employment opportunities and demand for sports goods and services. An inclusive

national sports programme would also provide economic opportunities and social upliftment for

marginalised sections such as women and the physically challenged.

The positive economic impact of e-governance, too, is rarely discussed. Seen mainly as a tool for

convenience and greater reach, a well implemented e-governance programme could slash

government expenditure by reducing the cost of service delivery. These lower costs would help

shrink the fiscal deficit, which has reached worrying levels.

The internal security situation – alarmingly precarious across large swathes of India – also has a

profound impact on citizens, industry and society. The economy is not immune to it. Naxalism

alone affects 60,000 sq km of central and eastern India, depriving this area from the benefits of

reforms and the chance to contribute to national progress. This isolation has kept farmers

backward and made the establishment of industries virtually impossible. The delivery of

government services is another casualty of this internal war.

Yet, the link between such insurgencies and the lack of economic progress in the areas they affect

– though understood by many – rarely finds a mention during debates on the Budget.

MSLGROUP India, through this report, aims to bring into focus precisely such linkages between

issues and our economy, the opportunities missed and the ones that are within reach. We have

focused on subjects rarely mentioned in the same breath as the economy, but there are also those

more familiar to the economic debate – taxing the super-rich and the Goods and Services Tax are

but two examples. Together, we have chosen 13 that we think should be India’s economic priorities

for Fiscal year 2013-14.

Yes, there are many others on India’s plate of concerns and our 13 choices leave us open to

allegations of subjectivity. To that charge, we plead guilty.

In our defence, we can only say that throughout our aim has been not to preach, but to foster an

understanding of the issues and to suggest recommendations for the way forward.

We hope you find this report interesting and useful.

- Ashraf Engineer, Head – Content, MSL India

Preface


Economic growth without social progress growth without social progress growth without

lets the great social progress lets the great social progress

majority of lets the great majority of lets the great

people remain in majority of people remain in majority of

poverty, while a people remain in poverty, while a people remain in

privileged few poverty, while a privileged few poverty, while a

reap the benefits privileged few reap the benefits privileged few

of rising reap the benefits of rising reap the benefits

abundance.of rising abundance.of rising

- John F Kennedy, late US President

Economic growth without social progress lets the great majority of people remain in poverty, while a privileged few reap the benefits of rising abundance.

- John F Kennedy, late US President5

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A recent study by Booz & Company,

which studied the economic

empowerment of women in 128

countries, ranked India a low 115.

What’s more troubling is that the

government is stubbornly apathetic

towards women’s issues. The distress is

evident when you see how various

corrective recommendations are

gathering dust. Take the example of the

December 2012 Delhi gangrape case

that shocked the nation. The delay in the

filing of the chargesheet was typical of

an uncaring system.

Gender stereotypes, discrimination and

cultural beliefs foster disempowerment.

In India, a little more than 50%of girls

are enrolled in school, of which many

drop out by age 12. At least 40% of those

who complete their primary education

are not allowed to pursue higher studies

by their conservative families. A survey

conducted by the non-profit Child Rights

and You (CRY) across lower-income

groups of 480 households in five cities

showed that 33% of households felt

that girls were abused in school, while

nearly 48% were abused en route to

school. About 57% of them were

ignorant of the Right To Education Act

two years after its implementation.

This lack of education – and awareness

about its essentiality – denies women the

knowledge and skills needed to advance

their economic status. At the community

level, social and economic development

of women is negatively impacted by

corruption in developmental schemes

and the absence of good governance.

ImplicationsA strong society has as its foundation the

social, economic and political well-being

of women. The participation of women in

decision-making is absolutely necessary

since they will play a vital role in building

social infrastructure and contributing to

economic growth.

Their inclusion in the national push for

upskilling of 500 million workers by

2022 is essential. Kiran Mazumdar

Shaw, chairman and MD, Biocon

Industries, told ‘The Times of India’:

“Women have enormous opportunities

to excel and succeed. All they need is

to be willing to take on leadership

challenges and to use their spirit of

enterprise and perseverance.”

Research shows that women contribute

three-fourths of the labour globally, but

own only a quarter of the resources. It is

presumed that an increase in literacy and

the attainment of a higher level of

education and skills will lead to greater

employment of women at higher levels.

Still, women’s work participation in India

stood low at 25.6% as compared to

males’ at 51.7%, according to the

provisional 2011 census. This was blamed

on gender discrimination.

Discrimination limits women’s economic

choices and freedom. The male-female

literacy gap is a just indicator. Provisional

2011 census data showed the female

literacy rate as 65.46% compared to

males’ 82.14%. There also exists a

rural-urban divide in education access for

women, which indicates poor education

infrastructure as well as the societal

response to the need for female literacy.

It was encouraging that Finance Minister

P Chidambaram allocated Rs 97,134

crore to the gender budget for 2013-14.

In 2009-10, the gross total allocation

towards gender budgeting was

Rs 56,857.61 crore and Rs 78,251.01 crore

in 2011-12 – a rise of 38%.

Security is a major concern for women

working in the business process

outsourcing (BPO) and information

technology-enable services (ITES) sector.

Increasing crime against women in Delhi

has deterred many from taking up jobs in

this industry. Incidents like the December

2012 Delhi gangrape have a profound

impact on productivity in cities like

Mumbai, Hyderabad, Bangalore, Pune,

Chennai, Ahmedabad, Lucknow and

Jaipur. In an Assocham survey, a majority

of the respondents working in firms in

Gurgaon, Noida, Delhi, Sonepat and

Faridabad said they now insist on leaving

offices immediately after duty hours.

Over the past two decades, India’s booming economy, strong manufacturing capabilities, and respected universities have positioned it as an emerging world leader. However, its gender disparity remains among the highest in the world, impacting not just economic growth but society as a whole

Women’sempowermentWomen’sempowermentWomen’sempowerment


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Recommendations

• Follow up allocation of funds for

women’s development with a suitable

tax policy, that is, gender budgeting.

Fiscal policies affect men and women

differently; gender budgeting ensures

greater opportunities for women, a

better standard of living and fair

distribution of income. Additionally, it

ensures better allocation of funds to

healthcare. Also, the tax code does not

discriminate against work efforts or

products that are the core expenditures

of poor families disproportionately

headed by women.

• As recommended in the 12th Five

Year Plan, ensure all ministries and

government departments tabulate

gender-specific management

information system (MIS) data for

improving the gender budgeting

mechanism.

• Monitor funds allocation and utilisation

better. There is a delay between

allocation and release of funds mainly

due to faulty design, apathy and

bureaucratic bungling. This is why the

success enjoyed by government

initiatives is uneven.

• The government raised the corpus of

the Women’s Self Help Group (SHG)

Development Fund from Rs 200 crore in

2011-12 to Rs 300 crore in 2012-13. The

objective was to empower such SHGs to

access bank credit through interest

subvention. The effective interest rate

under this initiative works out to 4% for

women who repay the loan on time.

Establish more such SHGs to provide

women bank credit at modest interest rates.

• India can learn from women-friendly

tax policies of other countries. In

Singapore, for instance, working

mothers get child relief if they earn less

than SGD 4,000 (Rs 1.74 lakh) per

annum. Likewise, give tax exemptions to

women who run their houses and have

dependents. There could also be tax

credits for professional women who

return to work after a break owing to

family responsibilities.

• More stringent laws would help

reduce the number of crimes against

women. The Rs 1,000-crore Nirbhaya

Fund as a tribute to the 23-year-old

Delhi gangrape victim can help if the

money is utilised well. The Ministry of

Women and Child Development and

other ministries were working out the

details of the fund’s structure, scope

and application at the time of writing.

• According to a World Bank study, just

26% of women in India have an account

with a formal financial institution

compared to 46% of the men. The

proposal to set up India’s first women’s

public sector bank is welcome. It is

likely to start operations through six

branches from November 2013 and will

lend to women and women-run

businesses, and provide support to

women SHGs. Moreover, it will employ

mainly women while taking deposits

from men and women.


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India is home to diverse socio-economic

groups. Some have been assimilated

into the mainstream, but many others

are still fighting for justice and identity.

Three regions – the Naxalite belt in

Central India, Kashmir and the

North-East – have felt the harsh

economic impact of internal conflict.

NAXALISM: In 2004, Prime Minister

Manmohan Singh described Naxalism

as India’s biggest internal security

threat. Almost a decade later, Naxal-hit

areas – about 60,000 sq km in central

and east India – still comprise of some

of the country’s least developed parts.

Between 2005 and 2010, the conflict

claimed more than 10,000 lives, but

the root cause of the problems

remains unaddressed.

India’s economic growth – uneven, with

a tendency to create growing rich-poor

disparity – led to a demand from

business houses for land and natural

resources. Orissa, Chhattisgarh, Andhra

Pradesh, Jharkhand, Maharashtra and

Bihar have huge mineral resources.

Business houses want access to forest

and tribal land for development, but this

has meant the loss of homes and

livelihoods for many tribals.

Grinding poverty, endemic malnutrition

and virtually no healthcare have

worsened tribals’ living conditions. The

often-unrestrained exploitation of

natural resources has also led to

rampant environmental degradation.

Tribals claim they are not even

adequately compensated for their lands.

They have no political voice to address

their grievances.

Tribals see Maoists as their saviours

because their ideology holds the

government, bureaucracy and business

houses responsible for their plight.

Over time, these ‘saviours’ themselves

have been accused of exploitation and

violent crimes against the villagers. Often,

they have been charged with using

civilians as human shields during

operations against the police. According

to the UN secretary-general in his annual

report ‘Children and Armed Conflict’,

Maoists have even recruited and

indoctrinated children to form squads

deployed in their war against the state. In

2011, between January and August, 333

people were killed – 241 civilians and 92

security personnel. In 2010, 534 people

were killed in 1,103 attacks.

Despite having an abundance of mineral

resources, projects to set up refineries in

these areas have run into trouble as

investors have not been assured of

protection from Naxalites. The Naxalites,

meanwhile, have abducted officials, blown

up roads and disrupted development.

KASHMIR: It is one of the longest

standing and deadliest conflicts in the

world, and it has the potential for

nuclear war. The troubles date back to

Independence. On October 26, 1947, the

ruler of Kashmir signed the Instrument

of Accession, acceding to India in

exchange for military assistance.

Since then, India and Pakistan have

been locked in a bitter standoff, both

sides staking claim over the province.

Separatist leaders, meanwhile, demand

complete independence from both

countries. Three wars have been fought

– 1947, 1965 and 1999 – over the issue.

With the imposition of the Armed Forces

(Special Powers) Act (AFSPA) in Kashmir

in July 1990, the Indian Army and

paramilitary forces have been accused of

brutal oppression, extrajudicial killings,

rapes, murders, and of arresting people

on the mere suspicion of being terrorists

or their informants. Many also accuse

the army of displacing families and

firing on unarmed protestors. All this

has led to the radicalisation of large

sections of Kashmiri society.

Kashmir is primarily an agrarian economy

with sericulture and horticulture being

major revenue earners. In 2005-06, the

state reported Rs 1,150 crore in exports.

Several sectors were identified by

Assocham, an industry association, to woo

investors; the state and central

governments are also working to establish

special economic zones.

The economic potential is tremendous

because of the availability of natural

resources, but efforts to harness it have

not paid off because of poor

administration, corruption and

government inefficiency. The scarcity of

ration shops, drinking water and power,

along with the security issues, has made

the creation of roads, infrastructure and

overall economic development difficult.

Even tourism, which played a central

role in the Kashmiri economy, all but

disappeared after the start of the

insurgency in 1989. It is seeing a revival

of sorts only now.

The National Sample Survey (NSS)

estimated the rate of unemployment as

5.3% – much higher than the adjoining

states’. There is an all-pervasive sense of

disappointment amongst the youth, many

of whom fail to secure jobs despite being

qualified. The public sector, too, has been

accused of discrimination along

communal lines when hiring people.

While India grows at 6%, Kashmir’s

economy remains crippled.

THE NORTH-EAST: Arunachal

Pradesh, Assam, Manipur, Meghalaya,

Mizoram, Nagaland, Sikkim and Tripura

are connected to the rest of the country

only by the 22-km wide Siliguri Corridor in

West Bengal. This ‘geographical isolation’

from the rest of India has had far-reaching

consequences on development.

The inclusion of north-eastern states in

India’s ‘Look East’ policy in 2003

ushered in new hope for the region’s

economy. The policy was meant to

integrate the region better with India’s

overall economy as well as that of its

brutal oppression, extrajudicial killings, brutal oppression, extrajudicial killings,




insurgency in 1989. It is seeing a revival insurgency in 1989. It is seeing a revival

brutal oppression, extrajudicial killings, brutal oppression, extrajudicial killings,

on the mere suspicion of being terrorists on the mere suspicion of being terrorists on the mere suspicion of being terrorists

or their informants. Many also accuse estimated the rate of unemployment as

5.3% – much higher than the adjoining the army of displacing families and the army of displacing families and the army of displacing families and




of whom fail to secure jobs despite being of whom fail to secure jobs despite being





qualified. The public sector, too, has been qualified. The public sector, too, has been

Kashmir is primarily an agrarian economy accused of discrimination along



meanwhile, have abducted officials, blown meanwhile, have abducted officials, blown

up roads and disrupted development.up roads and disrupted development.

KASHMIR:


It is one of the longest KASHMIR: It is one of the longest

nuclear war. The troubles date back to nuclear war. The troubles date back to


Since then, India and Pakistan have


sides staking claim over the province.

Separatist leaders, meanwhile, demand Separatist leaders, meanwhile, demand

the root cause of the problems the root cause of the problems


– 1947, 1965 and 1999 – over the issue. – 1947, 1965 and 1999 – over the issue. – 1947, 1965 and 1999 – over the issue. overall economic devoverall economic dev– 1947, 1965 and 1999 – over the issue.




(Special Powers) Act (AFSPA) in Kashmir

in July 1990, the Indian Army and

role in the Kashmiri economy, all but role in the Kashmiri economy, all but role in the Kashmiri economy, all but role in the Kashmiri economy, all but



to the UN secretary-general in his annual paramilitary forces have been accused of paramilitary forces have been accused of

report ‘Children and Armed Conflict’,

insurgency in 1989. It is seeing a revival

of sorts only now.

insurgency in 1989. It is seeing a revival insurgency in 1989. It is seeing a revival

of sorts only now.brutal oppression, extrajudicial killings, brutal oppression, extrajudicial killings, brutal oppression, extrajudicial killings,







sections of Kashmiri society.


rapes, murders, and of arresting people rapes, murders, and of arresting people




firing on unarmed protestors. All this firing on unarmed protestors. All this

sections of Kashmiri society. sections of Kashmiri society.











brutal oppression, extrajudicial killings, brutal oppression, extrajudicial killings, brutal oppression, extrajudicial killings,





or their informants. Many also accuse or their informants. Many also accuse or their informants. Many also accuse



insurgency in 1989. It is seeing a revival insurgency in 1989. It is seeing a revival insurgency in 1989. It is seeing a revival






on the mere suspicion of being terrorists on the mere suspicion of being terrorists indoctrinated children to form squads


or their informants. Many also accuse deployed in their war against the state. In deployed in their war against the state. In

The National Sample Survey (NSS) The National Sample Survey (NSS)















5.3% – much higher than the adjoining 5.3% – much higher than the adjoining 5.3% – much higher than the adjoining 5.3% – much higher than the adjoining

disappointment amongst the youth, many disappointment amongst the youth, many


qualified. The public sector, too, has been qualified. The public sector, too, has been qualified. The public sector, too, has been

accused of discrimination along accused of discrimination along





states’. There is an all-pervasive sense of states’. There is an all-pervasive sense of
















people were killed – 241 civilians and 92




states’. There is an all-pervasive sense of states’. There is an all-pervasive sense of

security personnel. In 2010, 534 people security personnel. In 2010, 534 people


states’. There is an all-pervasive sense of firing on unarmed protestors. All this


disappointment amongst the youth, many has led to the radicalisation of large has led to the radicalisation of large has led to the radicalisation of large

up roads and disrupted development.up roads and disrupted development.up roads and disrupted development.up roads and disrupted development.




Between 2005 and 2010, the conflict Between 2005 and 2010, the conflict


the root cause of the problems the root cause of the problems



Despite having an abundance of mineral Despite having an abundance of mineral Despite having an abundance of mineral








meanwhile, have abducted officials, blown meanwhile, have abducted officials, blown meanwhile, have abducted officials, blown


protection from Naxalites. The Naxalites, protection from Naxalites. The Naxalites,


resources, projects to set up refineries in resources, projects to set up refineries in resources, projects to set up refineries in



Despite having an abundance of mineral Despite having an abundance of mineral


Kashmir is primarily an agrarian economy Kashmir is primarily an agrarian economy



Kashmir is primarily an agrarian economy Kashmir is primarily an agrarian economy










protection from Naxalites. The Naxalites, protection from Naxalites. The Naxalites, protection from Naxalites. The Naxalites, protection from Naxalites. The Naxalites,

meanwhile, have abducted officials, blown meanwhile, have abducted officials, blown meanwhile, have abducted officials, blown


It is one of the longest It is one of the longest




ruler of Kashmir signed the Instrument

of Accession, acceding to India in

Since then, India and Pakistan have Since then, India and Pakistan have


Since then, India and Pakistan have Since then, India and Pakistan have Since then, India and Pakistan have



been locked in a bitter standoff, both been locked in a bitter standoff, both


Separatist leaders, meanwhile, demand

Grinding poverty, endemic malnutrition Grinding poverty, endemic malnutrition

complete independence from both complete independence from both

Separatist leaders, meanwhile, demand Separatist leaders, meanwhile, demand Separatist leaders, meanwhile, demand


countries. Three wars have been foughtcountries. Three wars have been fought

the root cause of the problems the root cause of the problems the root cause of the problems the root cause of the problems the root cause of the problems

and virtually no healthcare have

– 1947, 1965 and 1999 – over the issue. – 1947, 1965 and 1999 – over the issue. – 1947, 1965 and 1999 – over the issue.

(Special Powers) Act (AFSPA) in Kashmir role in the Kashmiri economy, all but


to the UN secretary-general in his annual


paramilitary forces have been accused of




5.3% – much higher than the adjoining the army of displacing families and






security personnel. In 2010, 534 people has led to the radicalisation of large has led to the radicalisation of large





Kashmir is primarily an agrarian economy accused of discrimination along

















been locked in a bitter standoff, both been locked in a bitter standoff, both

complete independence from both

Grinding poverty, endemic malnutrition Grinding poverty, endemic malnutrition











ruler of Kashmir signed the Instrument InternalSecurity


10 11

Globalisation and reforms are turning India into an economic powerhouse. But growth is largely dependent on the internal security environment. Volatile political and social landscapes often destabilise administrations, adversely impactingthe economy

Image: viiphoto.ning.com

Image: kashmirvoice.org

neighbouring countries. The

socio-economic conditions of these

states, however, are a reflection of the

policy’s failure.

Violence is part of daily life, keeping the

rate of economic development

abysmally low. AFSPA, imposed on

September 11, 1958, has empowered the

army to control unrest to some extent

but has also led to accusations of

human rights violations, rape, murder

and custodial deaths, leading to further

militarisation of the people. Civil society

groups are demanding the repeal of

AFSPA. Irom Sharmila Chanu, a

Manipuri political activist, has been on a

hunger strike since November 2002 to

support this demand.

Ironically, the North-East is rich in

mineral resources, which should have

created a thriving economy. Instead,

there is a secessionist movement that

charges the central government with

exploitation of resources, especially oil,

while neglecting the development of the

region and interests of the locals.

Meghalaya, for instance, has coal and

uranium deposits and the governor has

advocated their judicious mining to

boost the economy. The tribals, however,

are opposed to it. The Khasi Student’s

Union in Shillong called for a 36-hour

general strike on June 11, 2007, to

protest a public hearing on mining by

the Uranium Corporation of India Ltd,

which wanted to invest Rs 1,000 crore in

a mine and ore processing plant in West

Khasi Hill District.

In Assam, insurgents often blow up oil

pipelines and trains that transport coal

and petroleum for industrial use.

Nagaland’s oil reserves are estimated to

be worth billions, but locals fear forceful

displacement by the government and

the oil companies. They also fear

environmental degradation and want

protection for their rivers and paddy

fields. In 1981, when the Oil and Natural

Gas Corporation, found huge oil

reserves in Wokha region, Naga

insurgents stopped it from further

exploratory works.

Guerrilla outfits like The National

Socialist Council of Nagaland-Khaplang

have threatened oil and gas companies

with violence if they try to extract oil.

The central government, meanwhile,

has not adequately invested in

infrastructure like roads and easy access

to markets. This has led to slow

industrialisation. The region’s agrarian

economy, supported by primitive farm

practices, can’t produce enough to feed

the population. As a result, almost all

states in the region are forced to buy

food from other parts of India.

While the government claims that there

is no dearth of investments in the region,

there is a lack of accountability in

development efforts. Corruption, social

unrest and lack of a skilled workforce

have made development difficult, and

the unrest has kept investors away.

Mani Shankar Iyer, the erstwhile minister

of development for the North-East, had

said that the region’s gross domestic

product (GDP) must grow at 16.37% by

the 13th Five Year Plan for it to catch up

with the rest of India.

There is renewed private sector interest

in the region – it proposed investments

worth Rs 700 crore in 2007-08 after the

North-East Industrial Investment

Promotion Policy was unveiled – but the

opportunity will slip away unless law and

order improves. Implications“Those who are in power are responsible

for the issue of Naxalism. It cannot be

solved by force deployment, but by

social reform and change in policies,”

former army chief VK Singh was

reported as saying.

This is a telling statement. The internal

security crisis has landed a major blow

to India’s image as an investor-friendly

nation. Internal tensions have often

destroyed pre-militancy infrastructure,

making even investments from within

the country impossible.

Political stability and a peaceful

environment are prerequisites for

economic growth, but the insurgencies

have excluded several parts of India

from the growth story.

Recommendations

• Allocate more funds for the

upliftment of troubled regions. Focus

on social welfare, rural development,

roads, bridges, power, drinking water,

healthcare, industrial infrastructure

and government services. Ensure

statutory minimum wages for locals.

• Military operations are often not the

solution for internal security problems.

Invest in modernising state police forces

and strengthen state security networks.

• These regions need both public and

private investment. Assure

infrastructure and security to investors.

At the same time, address tribals’

grievances to ensure that development

doesn’t impact their lives and livelihood.

• Tourism could be a cash cow. Focus on it.

• The onus can’t be only on the

government; it’s also up to business

houses to invest in these areas, to

assuage locals’ fears. The private sector

needs to interact regularly with all

potential stakeholders of their projects.


12 13

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The United Nations Millennium Development Goals (MDGs) urge that sports be viewed as an engine of development. They contribute to economic progress as sports programmes provide employment opportunitiesand stimulate demand for goods and services. The MDGs also stress the need for sports programmes to be based on the ‘sport for all’ model, ensuring that all groups are given the opportunity to participate, particularly those who gain additional benefits, such as women, the physically challenged and the young.

This is not a message India has taken to heart

India trails nations poorer than it,

despite the huge pool of talented

sportspersons. The usual story is one of

failure at the international level – barring

a few exceptions like cricket, cue sports

and the few recent Olympics medals in

shooting, boxing and wrestling.

The problem lies in improper training,

poor organisation at the grassroots

level and a woeful lack of

infrastructure. No wonder, then, that

India is a sporting disaster as per the

Weighted Ranking system of the

Olympics – 0.1 weight medal points per

million; 48th position overall.

The underlying economic story here lies

in the state-centre dichotomy acting as

a barrier and the manner in which funds

are allocated – through sports

federations and authority centres. Much

like with India’s social welfare schemes,

much of this money never reaches the

sportsperson in the form of training

facilities or infrastructure.

Take the case of the Indian Amateur

Boxing Federation. It claims that much

of its Rs 12 crore budget for 2011-2012

was met through sponsors even though

the sports ministry gave it Rs 3 crore for

administrative expenses. It was alleged

that the federation spends money on

administration and junkets for officials.

A group of former officials and athletes

took the Wrestling Federation of India to

court, charging that its funds were spent

on foreign travel for its president and

secretary rather than on athletes.

The story is one of political interference.

Politicians with little knowledge of or

interest in developing sports occupy top

positions in associations and selection

committees. Fifteen of the 39 Indian

Olympic Association (IOA) constituent

federations and 23 of 33 state Olympic

association presidents are politicians.

Veteran sportspersons or experts rarely

get a chance to run these bodies.

Rahul Mehra, sports activist and lawyer,

told ‘Tehelka’ magazine: “The IOA,

which is supposed to promote Olympic

sports, has created federations for

non-Olympic sports because it is easier

to manage these smaller bodies and

secure their votes. Since there are no

stipulated criteria for becoming a

member of a sporting body and the ‘be

all and end all’ is to stay in power, you

nurture a vote bank by appointing

people close to you. They also ensure

that even if they retire, the transition is

just on paper. Dynasties seem to rule

Indian sport.” Former hockey star Ashok

Kumar told ‘The Sunday Guardian’ that

“when politicians started heading these

bodies, initially sportsmen felt that this

would be of use to them. We felt that

our grievances and voices would be

heard by the authorities. Some bosses

also began to take up our issues at the

highest level. But once these people

settled in, they began to distance

themselves from the welfare of the

sportspersons. They began to further

their own interests and distanced

themselves from the sportspersons.”


14 15

Abhay Singh Chautala

Vijay Kumar Malhotra

Ajay Singh Chautala

Politician Political background Sports Authority

Suresh KalmadiMember of Indian National Congress President - Indian Olympic Association

Member of Parliament, Pune Chairman of Organising Committee, Delhi Commonwealth Games

Former Member of Rajya Sabha & Lok Sabha President, Table Tennis Federation of India

MLA Haryana Assembly Member of Organising Committee, Delhi Commonwealth Games

MLA Haryana Vidhan SabhaPresident, Indian Olympic Association

Member of Organising Committee, Delhi Commonwealth Games

Jagdish TytlerMember of Indian National Congress President - Judo Federation of India Former Member of Parliament

Vidya Stokes Member of Indian National Congress President - Hockey India

Sharad Pawar President - Nationalist Congress Party Past President of Board of Control for Cricket in India

Leader of Opposition - Delhi

Legislative Assembly

SOME OF THE POLITICIANS HEADING SPORTS BODIES, NOW AND IN THE PAST

SVP - Indian Olympic Association

President - Archery Association of India

Source - The Sunday Guardian & Wikipedia

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The problem of misadministration is

compounded by the lack of good

coaches and physical education (PE)

teachers. There is practically no training

for PE teachers; they are mostly former

athletes who get their degrees after a

correspondence course. There is no

system for renewal of coaching licences

either, unlike in England where coaches

must renew their licences every three

years. China has 3.5 lakh sports

instructors, whereas the Sports Authority

of India (SAI) – which runs three PE

colleges – churned out only 1,577

coaches in 2012.

Hence, the Rs 250-crore allocation in

the Budget for the modern National

Institute of Sports Coaching at Patiala

was welcome. This will facilitate

international-level coaching for athletes.

Sport in India has never been integrated

with formal education, always ranking

well below academics. There is virtually

no effort to integrate sports science into

training. In comparison, the West divides

PE into three phases – foundation, basic

skills and pick-up – to lay the foundation

for sporting success.

Abhinav Bindra, who won an Olympic

gold in the 10-metre air rifle shooting

event, minced no words when he said

that the training facilities provided by the

authorities are below par.

Let’s look at what the US does. The

effort begins at the grassroots level

with scholarships given to those who

excel. Schools are well equipped with

coaching and infrastructure and

sports are treated on par with

academics. It’s no wonder that the US

is a sporting superpower.

ImplicationsThe Delhi Commonwealth Games

scandal damaged India’s – and the

region’s – reputation immeasurably.

Generally, such games serve as a

springboard to bigger events. Now,

international bodies think twice before

thinking of India as a venue. In fact,

the bid for hosting the 2018

Commonwealth Games was won by

the Gold Coast in Australia as many

nations privately expressed a wish to

“stay away” from Asia. Hambantota in

Sri Lanka was the rival bidder.

The Delhi games cost citizens Rs

14,830 crore. What they got in return

was broken roads, choked drains,

traffic snarls and incomplete

projects. Azim Premji, founder of

Wipro Technologies, called the

games a “drain on public funds”.

In December 2012, the International

Olympic Committee (IOC) suspended

IOA, barring India’s participation in the

Olympics. IOA conducted elections

under the government’s Sports Code,

defying the IOC rule to hold them

under the Olympic Charter. IOC had

repeatedly warned IOA in the run-up

to the elections. Now, IOA will stop

receiving IOC funding and its officials

will be banned from attending

Olympic events. More significantly,

India’s athletes will be barred from

competing in Olympic events under

the national flag; they can, however,

participate under the IOC banner.

Technically, the suspension was not

aimed at government interference but

for the character of those involved at the

top levels of Olympic and other sports

leadership in India.

Within days of the suspension, the

International Boxing Association (IBA)

provisionally suspended the Indian

Amateur Boxing Federation (IABF),

alleging possible manipulation in its

recent elections. The former is now

investigating the election and a

potential political link with the IOA

president, as former chairman of the

IABF. Outgoing president Abhay

Singh Chautala, who was elected IOA

president despite the IOC suspension,

was retained in the IABF as

nominated chairman during the

September 2012 poll.

Recommendations• Adopt the United Nations MDGs

immediately, not just in word but in deed.

• Corruption is ubiquitous in Indian

sports bodies. Focus on undoing their

politicisation. Focus on optimum

utilisation of funds.

• In a ‘Tehelka’ article dated December

22, 2012, former hockey Olympian

Jagbir Singh suggested that India

revamp its youth centres. “Divide the

country into five zones, identify rural

and urban sports based on differing

talents and popularity,” he said. “Create

two centres of excellence in every zone,

one urban and one rural. They should

pick 30-40 children of both genders

under the age of 14 every year. For three

years, provide them state-of-the-art

facilities, top coaches and foreign

exposure. At the end, you will see 700

children mature into great athletes.”

That could be one way of ensuring the

right use of money.

• Develop an effective mechanism for

tracking funds released for sport.

Track the movement of money and its

utilisation at all levels, including

development of infrastructure,

training facilities, research and

development. This would ensure

greater transparency.


16 17

visited the CSC, the operator filled his

form online and gave him a unique

application number imprinted on a

computer-generated receipt. Well

within 72 hours, Charandas had the

certified copy, digitally signed by the

concerned official.

This story shared by the National

e-Governance Plan is testimony to the

emergence of e-governance in India.

E-governance is defined by UNESCO as

“the public sector’s use of information

and communication technologies with

the aim of improving information and

service delivery, encouraging citizen

participation in the decision-making

process and making government more

accountable, transparent and effective”.

The origin of e-governance in India

dates back more than three decades

when the government started

computerisation initiatives. Back then,

the term e-governance was restricted

to development of in-house

government applications for defence,

economic monitoring, planning and

the deployment of IT to manage

data-intensive functions related to

elections, census and tax

administration. The next significant

step was when the National

Informatics Centre tried to connect all

district headquarters.

The growth of the web and, more

recently, the evolution of digital

communities have fuelled the

e-governance drive. There is a

constant need for information and it is

here that e-governance can play a

significant role. With the increase in

internet and mobile connections,

citizens expect easy access to

information and services online.

In the last few years, state governments

and central ministries have initiated

several projects.

After getting a certified copy of the

electoral roll in just 72 hours from the

nearby Common Services Centre (CSC),

a smile appears on the wrinkled face of

50-year-old Nitai Charandas. For the

resident of Bhootpara gram panchayat

in Sonitpur district of Assam, this was

unlike any of his past experiences with

government service delivery.

This time, he did not have to commute

35 km to the district headquarters or

pay a penny to either a government

official or an advocate. And, he did not

require a bureaucrat’s signature or

official stamp on the certificate.

Three days [earlier], when Charandas

RECENT PROJECTS

State/Union territory

Andhra Pradesh

e-Seva, CARD, VOICE, MPHS, FAST, e-Cops, AP online - One-stop-shop on the Internet, Saukaryam, Online Transaction processing

Delhi Automatic Vehicle Tracking System, Computerisation of website of RCS office, Electronic Clearance System, Management Information System for Education

Automatic Vehicle Tracking System, Computerisation of website of RCS office, Electronic Clearance System, Management Information System for Education

Gujarat Mahiti Shakti, request for Government documents online, Form book online, GR book online, census online, tender notice

Bihar Sales Tax Administration Management Information

Chhattisgarh Chhattisgarh Infotech Promotion Society, Treasury office, e-linking project

Goa Dharani Project

Haryana Nai Disha

Karnataka Bhoomi, Khajane, Kaveri

Kerala e-Srinkhala, RDNet, Fast, Reliable, Instant, Efficient Network for the Disbursement of Services (FRIENDS)

Maharashtra SETU, Online Complaint Management System – Mumbai

Rajasthan Jan Mitra, RajSWIFT, Lokmitra, RajNIDHI

Tamil Nadu Rasi Maiyams - Kanchipuram; application forms related to public utilities, tender notices and display

Himachal Pradesh

Madhya Pradesh

Community Information Centre. Forms available on the Meghalaya website under schemes related to social welfare, food civil supplies and consumer affairs, housing, transport

Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland

Lok Mitra

Initiatives covering departmental automation, user charge collection, delivery of programme information, delivery of entitlements

Source: PC Quest


18 19

Effectively implemented e-governance can reduce the

cost of public-government interaction, raise

government and public productivity and significantly bring down governance costs.The fiscal deficit worry could be partly addressed by

lowering the cost of service delivery

through e-governance

ImplicationsOn May 18, 2006, the government

approved the National e-Governance

Plan (NeGP) to “make all government

services accessible to the common man

in his locality, through common service

delivery outlets, and ensure efficiency,

transparency, and reliability of such

services at affordable costs to realise the

basic needs of the common man”.

NeGP aims to integrate e-governance

initiatives into a single vision. As part of

this, the government is evolving an

enormous infrastructure network that

reaches the remotest corners of India.

Services offered

1. G2C or government-to-citizen

services (accessed by citizens):

Information on agriculture services,

change of address in records, bill

payments, birth registrations.

2. G2B or government-to-business

Services (accessed by

businesses): E-filing, purchase

and sales invoices, issuance of

statutory forms, information

services, stamp duty calculations.

3. G2G or government-to-government services (accessed by government departments): Collection of road

tax, open space bookings, issue of

disability cards, online publication of

the government gazette.

Challenges

• Resistance to change: Government

officials have felt indispensible for the

longest time. Processes that will ease

services for citizens are bound to face

resistance. There is a disconnect also

between departments’ needs and solution

developers. E-governance projects require

great restructuring of administrative

processes – a sensitive matter that

requires intervention at various levels,

making it a long-drawn process.

• Infrastructure and training: Not all

departments have the necessary

infrastructure, neither are they equipped to

maintain and retrieve governance

information electronically. There is no

uniform policy that charts out an

e-governance blueprint that can be

replicated. The biggest challenge is the

lack of training. Often, computerisation and

the use of basic software programs are

mistaken for e-governance. While several

departments have IT policies, not all of

them have staff qualified to execute them.

• Lack of awareness, low IT literacy:

There is little awareness about the

advantages of e-governance. This is

compounded by a lack of trust, both in

the technology as well as in the process.

There are low levels of IT literacy even

among users.

• Poverty: With close to 30% of the

population living below the poverty line,

the digital divide is a serious roadblock.

There are millions for whom even regular

electricity supply is a distant dream;

computers with internet connectivity are

unheard of. In such a scenario, there is one

strata of society that has access to

e-governance while the other is still

hoping for basic education.

Ravindra Datar, VP and global head of

marketing, Cheers Interactive, said:

“Some of the policies are really good.

The minute you introduce procedures

that facilitate easy accessibility, it

reduces the role of middlemen and

brings in transparency. For instance,

Aadhar [a unique identification

number that will facilitate access to all

government services] is a great

initiative. However, the challenge lies

in the last mile. Often, the ideas are

excellent but execution is a problem.

There must be accountability.

Awareness has to be created among

citizens as well as government

officials. Policymakers will have to

think it through to ensure that there

are no loose ends.”

Recommendations• Policymakers – politicians, senior

public servants, members of the IT task

force – require hands-on training. Often,

there is a disconnect between the policy

and its implementation, making it

important for all those involved in the

implementation and maintenance of

e-governance services to have IT skills.

• Bring more beneficiaries into the

digitised beneficiaries net. This will

mean more receive the benefits of

social welfare schemes directly into

their bank accounts through the Direct

Benefits Transfer Scheme, reducing the

scope for embezzlement.

• Measure pilot projects better.

Engage an independent agency, which

would also identify bottlenecks and

causes of delay.

• Detailed documentation of successful

e-governance projects is vital to build a

central resource that would be a ready

reckoner for all agencies concerned.

• Increase connectivity to make services

accessible to rural areas or provide

alternatives, such as e-governance

kiosks in regional languages.

• Ensure that security of sensitive

information is not compromised. This

will help win the confidence of citizens.


20 21

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Illegal allotments in Mumbai’s

Adarsh Society, the Commonwealth

Games scam, the Uttar Pradesh

foodgrain scam, irregularities in coal

block allocations, the Uttar Pradesh

National Rural Health Mission

scam… These were all merely the tip

of the iceberg. The 2G spectrum

scam – said to have caused a loss of

Rs 176,645 crore ($32.15 billion) to

the exchequer – once again brought

into focus corruption at the highest

levels as well as the nexus between

media houses, the corporate sector

and politicians.

In 2011, the 2G scam was ranked second

in ‘Time’ magazine’s list of ‘Top 10

Abuses of Power’.

Gone are the days when bribes used to

comprise of petty sums or ‘bakshish’.

Now, corruption involves kickbacks

worth tens of thousands of crores and

the siphoning away of public funds

meant for social welfare.

The Prevention of Corruption Act,

introduced in 1988 and amended in

2008, makes active and passive

bribery, extortion, abuse of office, and

money laundering criminal offences.

The law even puts a strict restriction

on public servants’ involvement in the

private sector. However, while the law

is in force, the rate of conviction under

it is dismally low.


22 23

India’s annus horribilis, 2010, was marked by a series of corruption exposés. The government came under fire from the Opposition, the media and the common man, as a series of high-profile scams were unearthed over the next two years

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major indicator of an economy’s

competitiveness. Corruption can also

result in a volatile political and

economic environment that is not

conducive to investment growth.

Fair business competition is another

casualty of corruption. The World

Bank’s Ease of Doing Business Index

released in 2011 ranked India 134 out of

183 countries, significantly lower than

China (79) and Brazil (127). Not

surprisingly, India’s FDI inflows in H1

2012 stood at a low $10.4 billion.

Corruption has limited India’s

poverty-reduction efforts as public funds

assigned for social spending – education

and healthcare, for instance – are often

embezzled. India spends more than 2%

of its GDP on uplifting the poor, but a

World Bank Study said social welfare

schemes for initiatives such as food

distribution are so riddled with corruption

that only about 40% of the foodgrain

reaches the intended beneficiaries.

Management guru CK Prahalad

estimated that the investment,

economic growth and employment

opportunities lost due to corruption

amount to more than Rs 2,50,000

crore, or $50 billion, a year.

Social discontent finally saw the angry

middle-class, comprising mostly the

youth, taking to the streets, staging

hunger strikes and anti-corruption street

protests in 2011. This movement was led

by septuagenarian activist Anna Hazare,

(pictured below) who proposed a revised

anti-corruption bill. The Jan Lokpal Bill

would mean an anti-corruption

ombudsman at the centre supported by

Lokayuktas in the states. It would also

mandate the appointment of judges and

Indian Administrative Service officers

through a transparent process, and

non-involvement of the central

government in the creation of

Lokayuktas. The opening up of FDI in

retail and other reforms are set to give

growth a major boost. If corruption is

controlled, India can get back to the

9% growth path. On the flipside, India

could suffer an economic debacle

with investment and growth

opportunities eroding if corruption

remains unchecked.

Recommendations• Transparent, speedy enforcement of

existing laws will go a long way in curbing

corruption, even in the absence of a Lokpal.

• Corporate India is not immune to

corruption. Article 21 of the UN

Convention against Corruption calls for

legislative measures to ensure that

private sector corruption is criminalised.

India is a signatory to it, so it is up to the

Ministry of Home Affairs to introduce

the necessary amendments to the

Indian Penal Code. However, the

government should ensure that there is

no harassment in the name of the law.

• Introduce provisions to protect

whistleblowers. The Whistleblowers

Protection Bill, yet to be approved, will

encourage public participation in

exposing corruption.

• Industry bodies must adopt

a zero-tolerance approach

towards corruption.

There have been other anti-corruption

initiatives, such as the Right to

Information Act, Guidelines on

Corporate Governance, the Central

Vigilance Commission and the proposed

National Anti-Corruption Strategy, but

none has effectively curbed the malaise.

Even the judiciary is not without its share

of problems. People are discouraged

from using the legal recourse in cases of

corruption because of political

interference, complex laws, ignorance of

the legal framework and delay in

imparting justice.

The private sector, which was for so long

a victim of corruption, is itself under

scrutiny. A survey by Marketing and

Development Research Associates

released in January 2010 showed that 9

out of 10 employees working in private

firms felt that corporate India was

fraught with corrupt practices. The

private sector and politicians work

hand-in-glove to perpetrate massive

corruption, felt respondents.

Many projects hit roadblocks due to red

tape, rigid laws and labour regulations,

resulting in huge losses. The political

class steps up to provide relief in return

for kickbacks. Often, the private sector

obliges. The unwritten rule is that

nothing happens without a bribe.

Due to the complete lack of

transparency, national resources and

public contracts are doled out to those

willing to pay the decision makers.

Rarely are public servants and

beneficiaries accountable.

The economic impact of corruption was

summed up by Comptroller and Auditor

General (CAG) Vinod Rai at the 11th All

India Lokayuktas Conference 2012 in

New Delhi: “Economic growth cannot be

made sustainable, cannot be made

inclusive, unless it is based on

transparency and accountability.” The

World Bank too identified corruption as a

major obstacle to inclusive social and

economic growth.

ImplicationsBefore 2010, even double-digit

growth seemed within grasp.

At that time, inflation was

under control. Economists

predicted that India would

overtake China’s growth rate

by 2013 and would remain the

fastest growing nation for the

next 25 years.

Cut to 2012-13. Chidambaram

estimated the fiscal deficit

at 5.2% for 2012-13; this puts

pressure on India’s foreign

exchange reserves and the

rupee. There is no doubt

that corruption has resulted

in a significant loss of

tax revenues.

The impact on growth cannot be

escaped. Kaushik Basu, chief economist,

World Bank, projected a growth rate of

just around 6% for India in 2013.

According to advance estimates by the

Central Statistical Organisation, growth

for 2012-13 would be less than 5%,

compared to 6.2% in 2011-2012. The

heady days of 9% growth are behind us

for the foreseeable future at least.

According to a KPMG report, the

all-pervasive high-level corruption will

damage India’s credibility among

foreign investors and stymie economic

development, turning the target of 9%

growth into an impossible dream.

Former Supreme Court Judge N

Santhosh Hegde has held corporate and

political corruption responsible for the

country’s economic woes. Corruption

was also discussed at length at the

World Economic Forum Annual Meeting

2013 in Davos. The Corruption

Perceptions Index 2012, released by

Transparency International, ranked India

94 out of 176 countries surveyed, with a

score of 36 on a scale from 0 (0 = highly

corrupt) to 100 (100 = virtually no

corruption), warning that rampant

corruption could lead to social instability

and dwindling investor confidence.

According to the World Economic

Forum’s Global Competitiveness Index

2010, freedom from corruption is a

IT GOES ON AND ON ...

SCAMLOSS (IN RS CRORE) TO THE EXCHEQUER

Karnataka Wakf Board land 200,000

Coalgate (coal blocks allocation) 185,591

2G spectrum 176,645

Uttar Pradesh foodgrain 35,000

Goa mining 35,000

Commonwealth Games 95

Sources: CAG, media reports

FDI (IN $ BILLION)

Source: United Nations Conference on Trade & Development

FDI INFLOWS (H1 2012)

COUNTRY

China 59.1

Brazil 29.7

Russia 16.3

India 10.4


24 25

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MEDICINEMEDICINE

The world over, life expectancy has increased on the back of improved sanitation, medical services and access to food

For India to achieve a robust healthcare

mechanism, it has to overcome several

challenges. Inadequate facilities and

diagnostics, insufficiently trained

personnel, and geographical and

socio-economic barriers are major

roadblocks. Geographically, for instance,

transportation and infrastructure make it

difficult to build a network that makes

drugs accessible to people in the

remotest corners. Lack of

culturally-sensitive services or ethnic

understanding are also drawbacks.

Gender discrimination means women

have minimal access to healthcare,

making them more susceptible to

disease and higher mortality rates.

However, the high cost of drugs is

perhaps the biggest barrier. India has

thousands of generic drug makers.

Some Indian multinational generic drug

producers supply most of the world’s

quality low-cost generics. A focus on

improving quality standards and

ensuring more stringent regulatory

oversight for domestic generics

manufacturers would mean that millions

of needy people would benefit from

better access to low-cost generic

medicines, greatly reducing the

economic and social burden of disease.

In India, the last decade has seen a shift

from communicable diseases to chronic

ailments such as diabetes,

cardiovascular diseases and several

conditions that can be treated and

managed by low-cost generics that

have a proven track record. If the

country is serious about healthcare

reform, it needs to prioritise access to

these medicines.

For a developing country like India,

meeting the healthcare needs of its vast

population is a massive challenge. This

concern is even more crucial in the case

of millions living below the poverty line

and who do not have access to

healthcare. It is here that generic

medicines can play a key role in breaking

down the burden of disease.

In 2008, the government launched Jan

Aushadhi, a chain of medical stores run

by the Department of Pharmaceuticals

that aims to make generic drugs

accessible to low-income groups.

Unfortunately, the scheme was plagued

by irregular supplies, lack of proper

distribution channels, insufficient generic

prescriptions by physicians and, most

importantly, lack of awareness among

consumers. Currently, there are 112 Jan

Aushadhi stores that sell 348 medicines

under the National List of Essential

Medicines (NLEM). The department

hopes to increase the number of stores

to 3,000 under the 12th Five Year Plan. A

tough ask, considering the original plan

was to have 600 stores by 2012.

AVAILABILITY OF CHEAP MEDICINES

States/Union Territory

Jan Aushadhi Stores

Rajasthan 53

Punjab 21

Orissa 14

Himachal Pradesh 5

Haryana 4

Andhra Pradesh 3

West Bengal 3

Delhi 3

Chandigarh 3

Uttarakhand 2

Jammu & Kashmir 1

All India 112

Source: http://janaushadhi.gov.in/


26 27

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A report in ‘The Economist’ pointed out

that the law bars patents that are only

minor variations of existing drugs, a

practice known as ‘evergreening’.

According to the report, “Drug

reformulations are often used to extend

patents elsewhere; they get no

protection in India. The country also has

broad criteria for ‘compulsory licensing’.

A WTO agreement allows countries, in

some instances, to force a firm to

license a patented drug to a generic

company. India’s rules give officials

broad powers to do this.”

Now, both provisions are under attack.

In 2006, India denied Novartis a patent

for Glivec, calling it an unpatentable

modification of an existing substance,

imatinib. Novartis insists this is

nonsense. Only by making it in salt

form, imatinib mesylate, did Novartis

have a proper drug. The body absorbed

the medicine 30% more easily. The

government stand was recently upheld

by the Supreme Court.

Paul Herrling, the chair of Novartis’s

Institute for Tropical Diseases, had said

earlier that the case was a test of what is

patentable in India. “We are being

accused of evergreening,” he says.

“Having that concept applied to Glivec,

which was one of the major

breakthroughs in cancer therapies, is

completely ridiculous.” Michelle Childs of

Médecins Sans Frontières, a non-profit,

counters that drug firms such as Novartis

should not win patents for minor

improvements. “This would keep generics

off the market, driving up prices.”

While the controversies continue, the

government is working on measures to

procure cheaper drugs. Plans to offer

free generics in public hospitals would

boost sales of cheaper alternatives.

On the other end of the spectrum, a

report in the ‘The Economic Times’

suggested that “the government is

apprehensive that the Indian drug

companies’ strategy of launching

generic versions of patented drugs

could trigger retaliation from overseas

countries that may hit the country’s

ambitious drug export plans”.

Talking about the complexities involved,

from licensing and patents to

production of generics, DG Shah, of the

Indian Pharmaceutical Alliance, which

represents major generic companies,

told ‘The Economist’: “We realise that

the industry will take a hit. We’re trying

to find a solution so that the

government’s concerns on access and

affordability are addressed without

threatening the long-term growth of the

pharmaceutical industry.”

For patients and health advocates, the

competition between major

pharmaceutical producers and local

generic drugmakers spells good news as

medicine costs are set to get cheaper.

Recommendations• Ensure regular supplies and efficient

distribution so that low-cost generics are

easily available. Studies show that even

giving away medicines for free will not

work unless the supply chain is strong.

• Sensitise physicians about the need to

prescribe low-cost generics, especially

to those who can’t afford medication.

Physicians can turn advocates by

consistently prescribing generic drugs

and driving home the point that their

effectiveness is parallel to that of

branded drugs. Till that happens,

generic drugs will continue to face

credibility issues.

• Pricing policies alone cannot boost

access to medication; put in place a

unified approach that involves all

stakeholders – doctors, diagnostic

centres, patient groups, healthcare

service providers, insurance firms, the

pharmaceutical industry, non-profits,

academia, central and state

governments, and the media.

• Awareness about generic drugs is

critical. Highlight the fact that India has

thousands of generic drug-makers and

some Indian multinational producers

supply most of the world’s quality

low-cost generics.

• A sustained effort is needed to make

available resources and infrastructure

to each individual. Extend public

services and encourage the

public-private model.

ImplicationsIndia’s pharmaceutical boom was

bound to create fierce competition.

For international drugmakers battling

a stagnating market in the West, India

is an exciting opportunity. This also

necessitates a framework for the

protection of patents and intellectual

property. With a thriving generics

industry, cloned drugs make up for

90% of the Indian market share. Drug

patent laws are nascent and the

government is supporting generics to

ensure that prices stay low.

In a country where pharmaceutical

patents were not even recognised for

more than three decades, local

manufacturers imitated drugs to

produce cheaper versions. It’s only after

joining the World Trade Organisation

(WTO) in 1995 that India was compelled

to change its patent policy. The policy, in

place since 2005, has many loose ends.

The drugs available at Jan Aushadhi stores are anti-inflammatory, anti-bacterial,

anti-infectives, anti-tuberculosis, anti-fungal, intravenous fluids, vitamins,

gastro-intestinal, cardio-vascular, respiratory, anti-diabetic, cortico-steroids,

anti-malarial and accines. Generic drugs are meant to be inexpensive but the

difference in prices from branded drugs is at times drastic. This makes their

production and sales even more important.

CHEAP, BUT EFFECTIVE

Medicine Dosage Average MRP of Branded Medicines (In Rs)

Price of Generics Sold at Jan Aushadhi Stores (In Rs)

Ciprofloxacin 250 mg 55 11

Ciprofloxacin 500 mg 97 21

Diclofenac SR 100 mg 52 3

Cetrizine 10mg 37 3

Paracetamol 500 mg 14 2

Nimesulide 100 mg 39 3

Cough Syrup 110 ml 33 13

Source: Press Information Bureau


28 29

Image: marksolock.wordpress.com

Image: marksolock.wordpress.com

Affordable housing The housing sector contributes

5%-6% of India’s GDP. While the strengthening of policies would fuel the real estate and infrastructure segment, a special focus is required on affordable housing

According to the Confederation of Real

Estate Developers’ Associations of India

(CREDAI), there is a shortage of 1.81

crore houses at present, and another 3

crore would be needed by 2020. The

demand is unlikely to contract for at

least two decades. One reason for this is

that India’s urban population is

expected to rise from the present 28%

to 40% of overall population by 2020.

Amod Kumar Singh, VP (low Income

and rental housing), Tanaji Malusare

City, a large affordable housing

project close to Mumbai, said at a

panel discussion hosted by the ‘DNA’

newspaper that they received 66,000

applications for their 3,000 homes

in Karjat.

As they urbanise rapidly, developing

countries face a severe challenge in the

form of housing. India too is struggling

to provide housing to its middle- and

low-income

population.

The

government’s

contribution

has been

minuscule,

with private

players being

the major

providers.

One of the

primary

problems is

the lack of

clarity on

what

constitutes

affordable and low-cost housing. At

present, the middle and upper classes

are being considered for the affordable

housing section when the need for such

houses is largely for the

low- and middle-income

groups.

Also, there is a lack of

clarity on the price

bracket for affordable

homes. The standard

definition in India is when

a household

pays no more

than 30% of its

annual income

towards

housing.

Homes in the

Rs 6 lakh-Rs

15 lakh, Rs 20

lakh and Rs 25

lakh-Rs 40 lakh segment are all

categorised as ‘affordable’. Not

surprisingly, this has led to great

confusion.

Conversion of land use

Project letter of intent and license / Intimationof disapproval (IOD)

Pre-construction approvals from state level bodies*

Pre-construction approvals from central bodies*

Approvals for construction plan sanction

Approvals for commencement of construction

Construction period

Inspection and approval procedure for building completion

Occupancy certificate receipt from dateof completion of above

0 12 24 32 60Months

ROADBLOCKS GALORE

Approval Process after Land Acquisition TillCommencement of Construction (24-32 months)

8-12 (Months)

4-6

5-7

5-7

2-3

2-3

2-3

6-8

24-30

Source: CREDAI- Jones LangSaile Real Estate Transparency Survey 2011Note: The stage Pre-construction approvals from state level bodies and central bodies can happen simultaneously

Doing Business 2011, World Bank and International Finance Corporation

houses is largely

low- and middle-income

groups.

Also, there is a lack of

clarity on the price

bracket for affordable

homes. The standard

definition in India is when


30 31

While real estate players are aware of

the need for affordable houses, they

say they need governmental

assistance. Although the margins are

lower than in luxury housing, the high

demand ensures that affordable

houses are easily sold. However,

government policies, difficulty in

acquiring land, lack of adequate

infrastructure and restrictive building

norms have kept many large players

away. In the ‘Doing Business 2011’

report, the World Bank and the

International Finance Corporation

ranked India a low 177 out of 183

countries on ease of getting permits.

The time taken to obtain approvals could

stretch to two-and-a-half years.

Another problem is that, while demand

is high, many consumers are unable to

raise money post the down payment.

Even if the buyers borrow money, there

is no guarantee that they can furnish the

repayment installments.

Sometimes, the challenge is lack of

documentation. Often, buyers of

low-cost homes are not part of the

organised sector and hence do not have

the necessary income proof.

ImplicationsA report by Jones Lang LaSalle (JLL)

estimated that 88% of the housing

shortage was suffered by the

economically weaker sections and 11%

by lower-income groups.

Traditionally, developers have been

interested only in high-end housing due

to the high margins. However, during the

2008 slowdown, the affordable housing

sector became popular for investment

as the demand for high-end homes

contracted. Large players – DLF,

Unitech, Tata Housing, Mahindra

Lifespaces – and smaller ones

announced forays into this sector.

However, DLF seems to have rethought

its 2009 announcement that it would

build 100,000 flats in the Rs 20-lakh

range in major cities. Rajeev Talwar,

executive director of DLF, was quoted as

saying that they no longer found the

segment profitable. Does that mean that

investments in this sector are losing

their charm? According to Ashutosh

Limaye, head of research and real estate

intelligence services at JLL India, the

sector is bound to grow due to the high

unmet demand which won’t reduce in

the near future.

While affordable homes are available in

smaller cities like Raipur, Kolhapur,

Sangli and Satara, they are rare in

metros like Mumbai, Delhi and

Bangalore which account for 20%-50%

of the need. Some real estate

developers feel that an increase in the

number of rental homes could partially

solve this problem.

Satellite cities could provide a solution too.

There are two major aspects

to this: cost of land would

be low, but

infrastructure –

including transport –

would have to be

put in place for the

development to be

successful. As of now,

satellite cities have enjoyed

mixed success due to lack of planning.

Sunil Mantri, MD of Mantri Realty and

the vice-president of the National Real

Estate Development Council

(NAREDCO), told Magicbricks.com that

clearances need to be issued within 48

hours for affordable housing to

become a reality.

The success of China on this front is

worth noting. In 2007, China’s

government allotted $1.2 billion to

low-income families’ housing. The aim

was to house 20% of urban

low-income families by the end of

2015. China managed to commence

construction with 7.2 million affordable

housing units, exceeding the annual

target of 7 million.

Recommendations• Develop infrastructure outside cities.

If satellite cities are to work, amenities

like electricity, water and high-speed

transport must be available.

• Promote public-private partnerships.

Although private players are already in

the affordable housing space, the

government must encourage more to

invest in this sector. For this, it needs to

be more cooperative on the permits and

policy front. An article in ‘The Economic

Times’ in July 2012 said that private

players were reluctant to enter the

sector. According to Navin Raheja,

president of NAREDCO, laws

pertaining to this sector need to be

revisited so that efforts are directed at

the right audience.

• Promote efficient technology, specific

design strategies, optimum utilisation

of resources and lighting in order to

reduce costs.

• Provide incentives for builders.

According to Mantri, builders pay up to

40% of the final sales price in taxes.

Incentives like exemptions of service tax

or stamp duty, and waiving of customs

and excise duty for

imported

construction materials, would help.

• Ensure greater transparency. The

Housing and Urban Poverty Alleviation

Department (HUPA) has demanded

‘infrastructure status’ for the housing

sector, which would increase the flow

of funds and encourage players to set

up affordable housing projects. An

article in ‘The Financial Express’ in

February 2013 said that the

government would present the Real

Estate (Regulation and Development)

Bill 2013 in Parliament. The Real

Estate Regulatory Authority,

established through the

bill, would safeguard

buyers’ rights.


32 33

Image: homeloanguru.co.in

Image: fuzzywaffle.com

Image: architectada.com

Agriculturefinance and food prices

Agriculture accounted for 14% of the GDP in FY2012 and nearly 52% of the employment in rural India. Sixty-six years after Independence, most of our agriculture-related problems remain unresolved. Poor infrastructure; lack of irrigation, mechanisation and institutional credit; as well as the dominance of middlemen in the farm-to-plate chain plague the sector

A CREDIT CRISIS ON THE FARM FRONT

States Number of farmer house-holds Number of Indebtedfarmer house-holds % of indebtness

Andhra Pradesh 6033900 4949300 82

Tamil Nadu 3888000 2895400 74.5

Punjab 1844200 1206900 65.4

Kerala 2194600 1412600 64.4

Karnataka 4041300 2489700 61.6

Maharashtra 6581700 3609800 54.8

Haryana 1944500 1033000 53.1

Rajasthan 5308000 2782800 52.4

Uttaranchal 896200 64400 7.2

Meghalaya 254300 10300 4.1

Arunachal Pradesh 122700 7200 5.9

Source: Press Information Bureau

The irony of the world’s fourth largest

agricultural producer – in terms of

production, the government has

declared India ‘self sufficient’ – being

ranked 134 among 187 countries on the

Human Development Index is

inescapable. Roughly 212 million people

remain undernourished despite usable

farmland, manpower, largely favourable

climatic conditions and perennial rivers.

The biggest problem is the lack of

formal credit, which thrusts farmers into

the clutches of local moneylenders and

eventually leads to the loss of their land.

A large segment of small and marginal

farmers have no access to institutional

credit. There is a stark difference in

credit flow between underdeveloped

regions and those that have better

infrastructure or are closer to urban

areas. Lack of information has resulted

in farmers not understanding the

benefits of formal credit. According to

an article in ‘The Economic Times’ in

April 2012, only 50% of farmers avail of

agricultural credit, both formal and

informal. According to a National

Sample Survey Organisation (NSSO)

report on indebtedness of farmer

households, 43.42 million of the 89.35

million households are in debt.

The middleman is the

main connection

between farmers and

markets. A lot has been

said about the benefits

of middlemen – they

are sources of

information for farmers

and drivers of

technology transfer,

they are an effective

link to exporters, etc.

However, in practice,

middlemen mainly play

the role of purchasing

produce at low rates

and selling it at higher rates in cities,

pocketing the difference. The farmers’

financial position remains unchanged.

This system also ensures that food

prices remain high, leading to inflation,

which has been the cause of great

disquiet in India.

Farmers in western Uttar Pradesh

supported the government’s move to

allow FDI in retail as it would eliminate

middlemen and help them get better

prices for their produce. Hari Om, a

farmer from western UP told ‘India

Today’ magazine that they paid

10%-15% commission to agents. They

were paid Rs 2-Rs 3 for a kg of potato,

which was sold at double the price to

wholesalers. The eventual consumer

paid Rs 8-Rs 10 at a local market and

much higher in the cities.

Farmers say the odds are stacked in

favour of the middlemen. In the

wholesale markets, middlemen

decide the crop rates and get a

commission. Farmers are not allowed

to sell their produce directly to traders

and they bear all the incidental costs.

One of the reasons farmers are

dependent on middlemen is the lack

of storage facilities; middlemen

ensure that the produce gets to the

consumer on time.


34 35

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ImplicationsA farmer’s main income is the price he

procures for his/her crop. However, the

constraints and debt burdens have

driven many farmers to suicide.

According to the National Crime

Records Bureau, 2,70,940 farmers

committed suicide between 1995 and

2011 with Maharashtra topping the list.

Andhra Pradesh, Karnataka,

Chhattisgarh, Madhya Pradesh, Tamil

Nadu and West Bengal have also

reported several farmer suicides.

An article in the ‘Business Standard’

said that some southern banks were

offering interest rate arbitrage on loans

by which farmers could take an

agriculture loan at 4% and keep the

money as a fixed deposit in the same

bank at 9%. This results in the farmer

earning the interest rate difference and

banks maintaining liquidity. However, it’s

not clear whether all banks are

providing this benefit.

An article in ‘The Times of India’ in

August 2012 detailed the stranglehold

enjoyed by moneylenders. For

example, private moneylenders in

Maharashtra’s Bhandara district gave

crop loans of Rs 150 crore to 75,000

farmers at a monthly interest rate of

5%-10%, which is cumulative. Bankers,

meanwhile, ignored the state

government order to disburse loans to

small and marginal farmers. Farmers,

whose average land holding is 2 acres,

had no choice but to approach

moneylenders who then pre-fixed the

rate of the paddy before the harvest,

causing the farmers huge losses.

In this context, the Budget 2013-14

proposals on agricultural credit were

encouraging. Agricultural credit was

increased to Rs 700,000 crore from the

revised estimate of Rs 575,000 crore for

2012-13. Farm loans would be provided

at 4% to farmers who make timely

payments. This discount scheme would

be available for loans by private sector

banks apart from loans disbursed by the

government and cooperative banks.

Timely availability of agricultural credit

at reasonable rates, especially for small

and marginal farmers, is crucial.

Additionally, the budget also provided

Rs 500 crore for crop diversification to

promote technological innovation and

to encourage farmers to choose crop

alternatives. Rs 1,000 crore was

allocated for extending the Green

Revolution to eastern India, particularly

Assam, Bihar, Chhattisgarh and West

Bengal. Finally, to improve productivity

of land and water use, the allocation for

integrated watershed programmes was

increased from Rs 3,050 crore in

2012-13 to Rs 5,387 crore in 2013-14.

The Indian agricultural system is highly

dependent on the monsoon, always a

gamble since it can be irregular and

inadequate. Irrigation facilities are

needed to provide for areas with scarce

rainfall and in months when there is no

rain. Soil types vary across the country,

which means that the quantity of water

required also varies. As a country with

more than a billion mouths to feed,

India can’t afford to be so vulnerable.

The lack of mechanisation is worrying.

Most land holdings are fragmented,

which makes it unviable for small

farmers. Mechanisation would increase

production, productivity and profitability.

China, India’s biggest competitor, has

been taking large strides on this front.

According to an article in the ‘China

Daily’, the Chinese government is

providing machinery purchase subsidies

to farmers. In 2011, the country reached

a farm and harvest mechanisation level

of 54.8%, an increase of 22.5% from

2002. This resulted in more foreign

investors flocking to China.

India, meanwhile, is struggling. The

level of progress across the country is

uneven. The north – Punjab, Harayana,

Uttar Pradesh – have shown progress

while north-eastern states are lagging

behind due to their hilly terrain and

socio-economic conditions. Some

western and southern states – Gujarat,

Maharashtra, Rajasthan, parts of Tamil

Nadu – have made some ground due to

the increase in irrigated land area and

higher awareness of modern farming

practices amongst farmers.

According to the National Bank of

Agriculture and Rural Development

(NABARD), India will have to double its

food production by 2020. For this,

mechanisation will have to play an

instrumental role. The modern plough is

200% to 300% more efficient than the

traditional one; efficient machinery

increases crop productivity by 30% and

allows farmers to grow a second crop. At a

recent conference on farm mechanisation

in New Delhi, Union Agriculture and Food

Processing Industries Minister Sharad

Pawar emphasised the need for farm

mechanisation to satisfy the projected

foodgrain demand of 280 million tons

by 2020-2021.

Recommendations• Increase access to institutional credit

for farmers. The Aadhaar project could

be the key. Most farmers in rural areas

have no proof of identity. This leaves

them out of the banking net. The

Aadhaar card would allow them to avail

of formal credit.

• Involve the private sector in developing

agriculture infrastructure. Agriculture

requires huge investments. This would

pay off with farmers getting better

prices for their crops and middlemen

being left out of the loop. In England,

the government promotes farmer

markets so that farmers have more

control over their earnings. There are no

middlemen and farmers diversify their

skills as they gain experience in

marketing and business, and get an

opportunity to network. The local

economy benefits by promoting local

businesses and employment.

• Train farmers in the latest technology

and make provisions for them to access

it. Machinery rentals are one way of

achieving this. At the same time,

counsel farmers against taking drastic

steps in times of financial stress.

• The UK has come up with the Single

Payment Scheme through which funds

are provided to farmers to grow nuts,

protein crops and those needed for

energy production. Farmers growing

such crops receive a pre-fixed premium.

There is a lesson here. Not all farmers

can avail of institutional credit, and

provisions need to be made to assist

those who have no collateral.

• Encourage micro-credit. Microfinance

institutions assist farmers and small

enterprises, and promote

entrepreneurship. Due to their flexibility,

knowledge of the local problems and

presence in remote areas, they enjoy

better acceptability.

• Mobile banking could be looked

upon as way to reach people in remote

areas. The high cost keeps most

formal credit institutions away from

such regions; also, transaction values

are very low. Mobile banking could

help the poor open accounts and

transact securely.

• Agricultural scientists have

suggested a pilot project to establish

‘nutri-farms’ that experiment with new

crop varieties rich in micronutrients. A

provision of Rs 200 crore for this was

made in Budget 2013-14.

• Promote gender-sensitive farm

equipment since the role of women

farmers in agriculture is increasing.


36 37

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India is struggling to come to terms with

the initiation of foreign direct investment

(FDI) in the retail sector. While the debate

on whether 51% FDI in multi-brand retail

will help resurrect the flagging growth rate

has not ended, five months after the

proposal became law very few investment

bids have been received.

Global retailers want more clarity on

India’s stiff sourcing and investment rules,

and are adopting a wait-and-watch policy.

The political opposition to it has

unnerved many. The Bharatiya Janata

Party (BJP), the largest Opposition

party, has declared that it would scrap

the retail policies should it come to

power in 2014. The BJP is not averse to

FDI, only FDI in multi-brand retail. It

alleges that there is no provision to

safeguard the interests of traders and

fears that the entry of global retailers

would lead to more unemployment

and farmers being pressurised to sell

their produce at low prices.

The political divide is wide. States and

union territories such as Andhra

Pradesh, Maharashtra, Assam, Delhi,

Haryana, Jammu and Kashmir, Manipur,

Rajasthan, Uttarakhand, Daman and Diu,

and Dadra and Nagar Haveli have

okayed FDI in multi-brand retail. But

others such as Karnataka, Tamil Nadu

and Kerala – home to major metros

such as Chennai and Bangalore – have

given it the thumbs down.

The Opposition also believes that FDI in

multi-brand retail would snatch away

the livelihoods of those engaged in

traditional grocery retail, which accounts

for 10% of total employment in India.

Most global retailers would have a

model that requires a nationwide rollout.

Few would want to invest in a country

where several metro cities are out of

bounds to them.

Also, there are problems related to

norms that mandate at least 30%

sourcing from small-scale industries

and 50% of investment in back-end

infrastructure. Some formats, such as

fashion and electronics, don’t require

such investments.

All this has meant that India has been

deprived of huge investments, in

addition to the retail sector’s natural

evolution being stunted.

Harminder Sahni, MD of retail

consultancy Wazir Advisors, told the

‘Economic Times’ that big retailers are

not buying the India story. If they had, he

felt, they would have lobbied hard for

the easing of norms.

ImplicationsAccording to an Assocham report, the

size of India’s overall retail sector was

Rs 23,00,000 crore in 2011-2012 and is

estimated to double to Rs 47,00,000

crore in five years. Considering India’s

RETAIL SECTOR

INDIA 7 1,210 51

BRAZIL 36 205.7 100

RUSSIA 33 143.1 100

CHINA 20 1343 100

INDONESIA 30 242.3 100

SOURCE: RESEARCH REPORTS

COUNTRYORGANISED RETAIL SHARE (%)

POPULATION (MN)

FDI ALLOWED (IN %)

SOURCE: RESEARCH REPORTS


3938

While FDI in multi-brand

retail is now a reality, the

road ahead is a rocky one

Image: ruralmarketing.org

to 15% growth for the overall retail

sector, attracting investments of Rs

40,000 crore in multi-brand retail,

while the organised market is likely to

grow to Rs 4,80,000 crore.

Recommendations• Take a firm stance on FDI, which has

already cleared the parliamentary

hurdle, in multi-brand retail despite the

opposition. This would make investors

confident about India.

• Fix problems in the regulatory

environment, bring more clarity to

reforms. Multinationals are skeptical

due to the ever-changing guidelines,

complex market scenario and

political unrest.

• Make it mandatory for companies to

procure raw materials from India alone.

A regulator could monitor whether the

norm is being followed and deal with

farmers’ and traders’ grievances.

• Encourage traditional retail alongside

FDI. Promote modernisation, innovation

and competitiveness among traditional

retailers. Take a cue from Singapore; its

approach is to “cherish, but upgrade

and modernise”.

• Upgrade the traditional supply chain.

The major difference between modern

and traditional retail is the effectiveness

of the supply chain. Retailers are able to

provide quality products at low cost due

to their strong supply chain. Strengthen

infrastructure and services at wholesale

markets from which small shops source

goods. China and Mexico have adopted

this policy for traditional retailers and

reaped the benefits.

• Amend state laws to allow direct

marketing, contract farming and

market yards in private and

cooperative sectors. So far, only 17

states and union territories have made

such an amendment.

population, the share of organised

retail is minuscule compared to other

nations. This is mainly due to the

heterogeneity of consumer tastes and

preferences, which makes it difficult to

standardise offerings.

FDI in retail would bring about several

positive changes. The much-needed

cold chain and logistics system would be

developed and strengthened, which

would reduce wastage and promote

optimum utilisation of agricultural

produce. Warehouses in India lack in

optimal size, layout, ventilation,

inventory management and storage.

This situation must be corrected if the

agriculture chain’s efficiency is to be

improved. Foreign investments in cold

storage have been insignificant so far,

even though 100% FDI in cold storage

has been permitted through the

automatic route. FDI in retail would

encourage foreign investments in cold

storage facilities.

Retailers would bring with them the

necessary agricultural technology for

creating critical physical and

institutional infrastructure. In a recent

interview, Nancy Powell, American

ambassador to India, said that a better

supply chain would drastically reduce

wastage, which currently stands at a

staggering 40% in India.

Experts pointed out that the entry

of global retailers would ensure

better prices for farmers as they

would directly engage and source

from them, eliminating

intermediaries. This process would

make the entire agriculture value

chain effective and short,

benefitting the final consumer as

he/she would pay less for the

produce. This would tame food

inflation, which has been a major

worry over the last two years.

There would be greater employment

opportunities across the agro

processing, sorting, marketing, logistics,

back-end and front-end retail spaces.

Studies show that one person is needed

for 350 sq ft to 400 sq ft of retail space,

which translates to 15 lakh jobs in

front-end retail by 2017. Additional

employment would be generated on the

supply chain front to supplement the

business model.

Umesh Patel, analyst at KR Choksey

Shares and Securities, said that with

the advent of FDI, the retail sector

would take massive strides and

catalyse GDP growth. The benefits

would take shape in five to seven

years. Organised retail is expected to

grow at 24% by 2016-17 as compared

Source: ForbesIndia.com

HOW FDI IN RETAIL WILL AFFECT DIFFERENT SEGMENTS

IMPACT Limited

WHY

Retailers across the world like to work with a small group of select vendors for economies of scale. Nevertheless, the supplier base will be larger in number and smaller in turnover than elsewhere, because of regional diversity in consumption patterns.

SMALL MANUFACTURERS

INFRASTRUCTURE, COLD CHAINS

IMPACT Limited

WHY

Each retailer will invest only for what his own business requires.

IMPACT Very little

WHY

They operate in small towns and rural India, and serve the lower social class customers as well. Modern retail will target the top income layers in urban areas. In bigger cities, many kirana shops will morph and specialise, offering phone-in home delivery, e-commerce and the like.

KIRANA STORES

JOBS

IMPACT Limited

WHY

A new skill category called 'retail jobs' will be created. The birth of modern retail could improve wage rates in traditional retail.


40 41

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Aviation

The aviation sector was supposed to be a symbol of the new India. Once touted as red-hot, the industry has had a hard landing. Crippled by weak balance sheets, insurmountable debt, high taxes, insufficient infrastructure, high costs and restrictive investment policies, Indian aviation is struggling


42 43

Image: wlppr.com

Earlier, the government had permitted

foreign investors only from outside the

airline business to buy up to 49% in

domestic airlines. In September 2012,

spurred at least in part by the

Kingfisher debacle, the Cabinet allowed

foreign airlines to buy up to 49% in

local airlines. Investments made by

foreign airlines would not be through

the automatic route, but subject to

various preconditions such as the

chairman and two thirds of the directors

being Indians, and clearances from the

Foreign Investment Promotion Board

(FIPB) and the Home Ministry.

Additionally, substantial ownership and

effective control of the airline must

remain with Indians.

High taxes are the biggest deterrent to

aviation growth. The service tax of

12.36% on tickets and other services,

such as landing and air navigation, is

much higher than global standards.

Adding to the burden are high fuel costs

on account of the 8.24% excise duty and

variable state taxes, ranging from 4% to

30%. Aviation turbine fuel (ATF) is a

decontrolled product, its prices reviewed

and fixed fortnightly by oil marketing

companies on the basis of international

crude prices. Globally, fuel costs

account for 20%-25% of airlines’ costs,

but in India it is 45%.

Even though the government approved

direct imports of ATF in 2012, no airline

has successfully done it due to high

infrastructure costs – tankers, pipelines,

refuelling capacity, storage.

Airlines have also been complaining

about the high ground handling costs

at the country’s two major airports, New

Delhi and Mumbai. In April 2012, the

Airports Economic Regulatory

Authority (AERA) approved a 346%

hike in charges related to landing,

parking and other tariffs at Delhi

airport, making it the country’s most

expensive airport for airlines. In

contrast, major aviation hubs across

Asia – Bangkok, Dubai, Singapore,

Beijing – have kept charges low to

enhance connectivity and business.

Regional connectivity is yet another

challenge. Anyone trying to fly between

small cities is forced to use multiple

modes of transport, thereby increasing

travel time. Take the case of Mysore

airport, which was renovated at a cost of

Rs 80 crore in May 2010. It has a

capacity of only 200 passengers, with

only Spicejet operating flights from

there to Bangalore and Chennai. Also,

tourist destination states such as

Himachal Pradesh and Uttarakhand

have negligible air connectivity. Work on

the Navi Mumbai airport, which was

expected to provide much relief to the

overcrowded Mumbai airport, has not

even begun. Its first phase was to have

opened in 2014.

ImplicationsEven though the government has

opened up the skies to foreign investment,

global carriers have been cautious

about India. Of course, FDI is not a

panacea. Unless the other issues listed

above are sorted out, FDI will not help.

What can’t be denied is that the infusion

of funds, knowledge and global best

practices will help Indian carriers.

Experts said that the 49% investment

cap is unattractive, unless sweetened

with tax breaks and full freedom to

run the airline. AirAsia Group CEO

Tony Fernandes had said earlier that

the aviation environment and tax

structure need to be more conducive

for low-cost operations.

The government needs to take decisive

action so that the benefits of such a

sector are shared across the economy.

Let’s not forget that India’s aviation

sector supports 1.7 million jobs, handles

90% of international tourists and

contributes 0.5% of the GDP.

Recommendations• Introduce policy and infrastructure

reforms to make India a global aviation

hub. Don’t view equity infusion merely

as a means to bail out carriers, but to

improve their credit profiles through

strategic and operational tie-ups.

• Direct states to remove or reduce

duties. If ATF duty is cut by 5%-10%,

Indian aviation could be very different.

• Speaking on the sidelines of the

General Assembly of International

Federation of Air Traffic Safety

Electronics Association’s meeting in

September 2012, Aviation Minister Ajit

Singh urged the petroleum ministry to

declare ATF a notified product so that

prices can be lowered. Piyush Gupta,

partner, Kochhar & Co, said: “The

Ministry of Civil Aviation and Ministry of

Petroleum and Natural Gases are

thinking of notifying jet fuel as ‘Declared

Goods’ such that it can avail of the 4%

sales tax levied on such goods. This is a

practical and workable proposition since

it will do away with variable state taxes.”

• Promote regional connectivity by

restructuring of Route Dispersal

Guidelines. This could provide a

framework to enhance connectivity to

areas such as the North-East, Jammu

and Kashmir, and the Andaman and

Nicobar Islands.

• Allow FDI in non-core functions, such

as ground handling and training.

Gupta said: “The maintenance, repair

and overhaul (MRO) sector is

unattractive because of the tax

differential between domestic and

foreign MROs. The government should

rationalise customs duty on the import

of spare parts and simplify the

service tax and the

value-added tax (VAT)

regime to ensure a

more

investor-friendly

tax environment.”

• Review the

archaic

requirement for Indian carriers to

operate domestically for five years

before they can get international routes.

• Reduce service tax on air tickets. All

international and domestic tickets are

subject to 4.95% service tax on the

gross fare. This has raised prices,

impacting consumers.

• Encourage more joint ventures with

foreign firms. The recent one between

Tata Sons, Arun Bhatia of Telestra

Tradeplace and AirAsia to introduce a

low-cost, no-frills model with an initial

fleet of three to four Airbus A-320s is

welcome. Together, they plan to invest

$30 million to $50 million.

foreign MROs. The government should

rationalise customs duty on the import

of spare parts and simplify the

service tax and the

value-added tax (VAT)

regime to ensure a

tax environment.”


44 45

Image: mouthshut.com

Image: topnews.in

The Indian economy finds itself in the

pincer-like grip of soaring deficits and

rising government expenditure.

The fiscal deficit target for 2012-13 was

raised to 5.3% of the GDP, from 5.1%,

mainly due to the increased subsidy

outgo. Budget 2013-14 contained it at

5.2% of GDP. To bridge this gap and lower

it to 3% by FY17, the government needs to

enhance revenue while lowering

expenditures through cost cuts.

The Budget for 2013-14 estimated plan

expenditure at Rs 555,322 crore, an

increase of 29.4% from the previous

Budget. One way to improve revenues is

through greater income-tax

collection, but

a

uniform

increase is

hardly the

solution.

In recent times,

the debate over

whether to impose

additional taxes on high

net-worth individuals (HNIs)

and to tax agricultural income, which is

currently exempt, has intensified. In

Budget 2013-14, Finance Minister

P Chidambaram took a decision on

taxing the super-rich, introducing a

one-year 10% surcharge on those with

an annual income of more than Rs 1

crore. Predictably, it was chided and

cheered in equal measure.

The current tax rates have been in

existence since 1997, surviving four

governments and as many finance

ministers. Chidambaram, it is said, had

been toying with the idea of a higher tax

on HNIs after the idea was raised during

a pre-Budget meeting with economists.

During a recent interview in Singapore,

Chidambaram said: “I believe in stable

tax rates. However, I must concede that

there is an argument that when the

economy requires more resources, the

very rich willingly should pay a little

more.” C Rangarajan, former Reserve

Bank of India (RBI) governor and

current advisor to the government, gave

the idea the thumbs up, saying that

mere expenditure cuts may not bridge

the current fiscal deficit.

ImplicationsA higher tax rate for high-income

individuals is in force in many countries.

TAXING THE

SUPER-RICHTAXING THE

SUPER-RICH


46 47

TAXING THE RICH

Sweden 56.60% $85,451

Denmark 55.38% $70,633

Japan 50% $234,484

Belgium 50% $45,037

Australia 45% $180,000

India 30% Rs 10,00,000 ($200,000)

Source: Yahoo Finance, Wikipedia

COUNTRIESHIGHEST INCOME-TAX RATE

HIGHEST SLAB

The Union Budget imposed an additional tax on high net-worth individuals (HNIs), spawning an intense debate. Which side of the divide are you on? Image: uleth.ca

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US and China, and 45 years for Europe.

Normally, a rationalised tax structure

would induce more individuals to

comply, leading to higher collections.

Kuldip Kumar, executive director (tax

and regulatory service) at

PricewaterhouseCoopers India, told

‘Business Standard’: “Those earning

crores may not mind paying additional

taxes, but the government needs a

rationale for it. Expanding the tax base

could lead to better collections.”

• One alternative could be to not raise

taxes on income, but to tax the

super-rich’s dividend income – beyond

a threshold limit – at the same rate at

which it is taxed in the hands of the

company. Currently, domestic

companies pay a dividend distribution

tax of 15%; the surcharge on this has

been increased from 5% to 10% for a

period of one year. The dividend income

is exempt in the hands of the

shareholders. This proposal would

affect promoter groups of large

companies as well as individuals with

significant shareholdings.

• Tax rich farmers. Agriculture

contributes 18.2% of the GDP; this

income is untaxed. The irony is that rich

farmers, who earn crores, pay no tax.

During a discussion on NDTV, tax expert

Subhash Lakhotia said: “Agricultural

income is kept untaxed due to political

compulsions. Small farmers comprise a

major portion of the vote bank for

political parties.” About 80 years ago, Dr

Babasaheb Ambedkar spoke of taxing

agricultural income. A committee

formed in 1952 endorsed the view, as did

the KN Raj Committee formed in 1965.

• Devendra Sharma, food and policy

analyst, stressed on a TV panel the

need to withdraw exemptions given

to the corporate sector. The

projected revenue foregone in

respect of corporate income-tax

during 2011-12 was Rs 51,292 crore,

while the same for personal

income-tax was Rs 42,330 crore.

The aggregate of exemptions in

both direct and indirect taxes works

out to Rs 529,442 crore (2011-2012),

or 5.9% of the GDP. Even the

parliamentary standing committee

on finance recommended raising

the tax bar for companies and

phasing out exemptions rather than

burdening the salaried class and

smaller tax payers.

In fact, the focus of the Fiscal Cliff Bill

in the US was to increase the tax rate

from 35% to 39.6% on individuals

earning more than $400,000 annually

and to reduce the budget deficit.

Similarly, an increase in payroll tax

from 4.2% to 6.2% for income up to

$113,700, increase in tax on investment

income from 15% to 23.8% for the top

income bracket and 3.8% surtax on

investment income for those earning

more than $200,000 (couples earning

more than $250,000) were other

elements of the deal.

In the UK, those with an annual income

of £150, 000 or more pay tax at the rate

of 50%. This rate was likely to be

reduced to 45% from April 2013.

The argument for higher taxes on HNIs

is strong. Countries with high tax rates

tend to have strong welfare systems.

Tax money is allocated to support

schemes related to free education,

social security, pensions, healthcare and

unemployment. Taxpayers are assured

that their money returns to them

through these initiatives.

India, however, does not guarantee any

such return, not even in the form of better

infrastructure, enhanced security or a

better living standard. This is why there is

tremendous opposition to higher taxes.

Wipro chief Azim Premji supported higher

taxes for the super rich, but doubted the

ability of the government to implement

such a plan effectively.

While it is clear that a higher tax on

HNIs would lead to more revenue, not

everyone is convinced of its benefits.

Mahendra Kamdar, proprietor, MD

Kamdar & Co, having spent 40 years in

the taxation field, said: “Taxing HNIs is

mainly aimed at reducing the fiscal

deficit, which stands at 5.4% of GDP [at

the time of writing]. However, this

should be viewed purely from an

economic perspective. Peak

income-tax rates, which stood at

around 90% in 1973-74, are now at

30%. HNIs should not be overburdened

with exorbitant taxes again. A modest

increase would be acceptable. This

would have many implications. Some

HNIs would accept it with a view that it

would have a national benefit. Another

aspect would be higher tax evasion, if

the proposed increase is steep.”

This would be counterproductive and is

likely to dampen entrepreneurship by

reducing the incentive to start, finance and

grow a business. HNIs would start

investing abroad for higher returns. By not

taxing HNIs higher, you could facilitate job

creation as they would then invest in India.

Recommendations• HNIs comprise less than 1% of

taxpayers. As per the 2011-2012

estimate of the Standing Committee’s

report on the Direct Tax Code (DTC) Bill,

there were 17.84 lakh individuals earning

more than Rs 10 lakh or more out of the

3.24 crore taxpayers; they contributed

75% of the taxes collected. Rationalise

the tax structure by modifying tax slabs

to accommodate more payers in the Rs

10 lakh+ income bracket.

• Bring more people into the tax net.

Improving education and evolving

demographics are creating a pool of

skilled resources with better

employability and a higher standard of

living. Research shows that the average

age of the workforce in India will be 29

years by 2020, compared to 37 for the


48 49

People earning more than `10 lakha year account for 5.6 per cent

of total tax payers ....

... But they contribute75.1 per cent of the country’s

total tax collections

5.6% 75.1%

Image: blogs.reuters.com

Image: www.addictinginfo.org

Image: instablogs.com

Hailed as a game-changer after the economic reforms of 1991, the Goods and Services Tax (GST) is an attempt to integrate the economies of the states and boost the national economy. One of the most significant tax reforms introduced in India, GST is a value-added tax designed to replace all indirect taxes levied by the state and central government on goods and services. The tax system will be designed to ensure a single tax across the economy for goods and services


50 51

Contrary to popular belief, the GST is

not an additional tax. The State GST will

include VAT, stamp duty, taxes on goods

and passengers, vehicle tax, duties on

power, entry tax, luxury tax,

entertainment tax, taxes on betting,

gambling and lotteries, purchase tax,

and all state cesses and surcharges. The

Central GST will include central excise,

service tax, additional excise,

countervailing duty or additional

customs duty and all cesses and

surcharges, excluding educational cess.

The central sales tax will be abolished.

Exports will not be covered by GST.

Direct taxes – income-tax, corporate tax,

capital gains – will also be unaffected.

GST was mentioned in the Union

Budget of 2006-2007. In 2009, while

presenting the Budget, then finance

minister Pranab Mukherjee said that

GST would be introduced from April

2010 and the Empowered Committee of

State Finance Ministers was asked to

create a roadmap for it.

However, political interference ensured

that the rollout did not meet the deadline

and missed several deadlines thereafter.

GST has run into trouble because of the

absence of political consensus over it.

Staunch objections from

Opposition-ruled states have stalled its

implementation. The system has been

accused of attempting to subvert states’

rights to impose taxes. The GST

implementation would mean that

existing tax structures would be done

away with, resulting in a revenue loss for

states. States fear that if the uniform tax

rate is lower than the existing one their

revenues would shrink. Economically

backward states, especially, say they

can’t afford that.

Tamil Nadu, Chhattisgarh and Madhya

Pradesh objected because the

administrative infrastructure and

technology systems were not in place by

April 2010.

One of GST’s staunchest opponents is

Raghavji, finance minister of Madhya

Pradesh, who has accused the Centre of

introducing it to favour manufacturers;

he also questioned its timing.

ImplicationsStates have demanded that their

interests be protected and want

compensation in case of a revenue loss;

the central government has agreed.

Chidambaram announced a budgetary

provision of Rs 9,000 crore as

compensation for central sales tax loss

to the states. He also said the

government would table the draft

constitution amendment bill and the

draft GST Bill in Parliament soon.

Sushil Kumar Modi, finance minister of

Bihar and chairman of the Empowered

Committee of State Finance Ministers,

has demanded a legal assurance that

the loss would be covered. Modi said

the law should provide for

compensating states for at least five

years after the introduction of GST.

In India, like other nations which have

implemented GST, the rate of taxation

would be 16% to 20%, according to

Sumit Majumdar, chairman, Central

Board of Excise and Customs. This rate

would eventually be lowered to about

12%. The impact of taxation on goods

and services across India would depend

on existing tax rates. Those with high

existing rates would see a reduction in

rates while those with lower tax rates

would see the rate rise.

Goods and services required for

basic needs will be taxed at a

reduced rate. The main benefit from

this is that with multi-stage taxes

removed on goods and services,

prices of various goods and services

would fall, benefiting consumers.

Mahendra Kamdar, proprietor, MD

Kamdar & Co, said: “More and more

persons will be forced to transact with

bills in order to get credit for input tax,

leading to a larger chain of billings –

interlocking like paver blocks – across

the country. The government will get

more revenue, the chances of leakage

would reduce and rates would be

uniform across the country.”

Recommendations• Address the unmitigated disaster that is

our tax system, push for tax reforms to

create a uniform market that integrates

all state economies. Introducing GST

would the first major step.

• Introduce a phased rollout of GST in

which states willing to come under

the framework can do so immediately

while others can observe the benefits

and then join.

• Try to build political consensus. The

rules allow states to opt out of GST

whenever they want. States will now

enter and exit the GST system based

on their political affiliations. This

would lead to frequent and erratic

changes of rules and a complicated

invoicing system. This would hamper

trade activities.

Imag

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With the largest coalition dependent on

smaller regional parties, the power the

latter wield is disproportionate to the

number of seats they have. Often,

smaller parties like the Trinamool

Congress are the kingmakers, which

gives them a veto on economic policy

and urgently-required reforms.

Since coalitions are likely to remain a

reality for the foreseeable future,

economic growth will largely depend on

the stand regional parties take on reforms.

Clearly, it’s time to put the economy at

the centre of the political debate. In

India, few parties have been willing to

fight elections purely on economic

issues; it’s always caste,

personality-based or regional issues

that are central to the agenda. Unless

economic policy becomes the focal

point of politics, India’s potential will

remain unfulfilled.

The early 1990s saw the rise

of market-led

reforms,

making the

role of the

central

government in

the economic

affairs of states

relatively redundant.

Private investors and foreign

agencies pump money directly

into states, boosting their

economic sustainability. Some states

enjoy great investor confidence with

money being poured in consistently.

As a result, there is growing disparity

and the poorer states – often led by

coalition parties supporting the

central government – are demanding

a larger stake for infrastructure and

other expenditure.

Take, for instance, the Trinamool

Congress. While its leader Mamata

Banerjee was railway minister, West

Bengal, where her party is in power, got

the choicest rail projects. When Lalu

Prasad Yadav, of the Bihar-centric

Rashtriya Janata Dal, was railway

minister, it was his home state that

received massive rail investment.

ImplicationsLast year, ratings agency Standard &

Poor warned that India could lose its

investment grade status. Lack of

reforms, stunted growth and a

burgeoning fiscal deficit eroded the

country’s image and investor

sentiments. The warning was a jolt for

a government battling corruption

scandals, poor governance and

policy paralysis.

With the 2014 election in sight, the

government swung into action. By

furthering FDI in multi-brand retail,

aviation and broadcast, it made a

political gamble.

Finance Minister P Chidambaram went

all out to win back investor confidence,

wooing global investors with a series of

roadshows. He assured the taming of

the fiscal and current account deficits

to help the economy return to the 8%

growth path. Addressing a gathering of

200 representatives of leading

European companies, banks and other

financial institutions, Chidambaram

said: “I am very optimistic that India

can grow at a [high] rate for the next

20 or 30 years.”

For the ruling United Progressive

Alliance (UPA), the run-up to the

elections will be a trial by fire. In many

ways, the country is poised to witness a

paradigm shift in governance, where the

ruling party will be placed precariously

between populism and growth policies.

The pullout of the DMK has left the

government

dependent on

unreliable allies like

the Samajwadi Party

and the Bahujan

Samaj Party. This

could also hit the

pace of reforms.

For coalition

governments,

introducing economic reforms has

always been a challenge. It’s not just

the opposition, but internally too

they’ve had to deal with resistance. This

insecurity has crippled growth, which

has fallen close to 5%.

Recommendations• Coalitions must commit to an economic

agenda that makes clear the economic

direction of the country and reduces the

scope for disagreements afterwards.

• Ensure better coordination with allies

on policy announcements. Take, for

instance, the fuel price hikes in 2012

and 2013. Many allies claimed that the

government did not consult them

before raising prices. Rising oil imports

are inflating the deficit, so are oil

subsidies. While most experts said the

hikes were necessary, many coalition

partners disagreed.

• Several key reforms have been

languishing because not all allies are fine

with them. FDI in multi-brand retail was

just one example. There are also FDI

caps in insurance and pension. The

government must hold urgent talks with

allies to resolve these issues.

• While the abovementioned issues may

be sensitive, there are several which are

not political hot potatoes and can be

acted upon. For instance, there is little

opposition to developing the corporate

bond market for investments in

infrastructure or to developing the

municipal bond market for financing

urban infrastructure.

Coalitions are a political necessity, often involving partners with conflicting interests. No single partyhas secured a majority in theLok Sabha, the lower house of Parliament, since 1984.In fact, the number of parties sharing power has grown manifold, from 12 in 1996to 18 in 1998 and 24 in 1999


52 53

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Copyright: MSLGROUP IndiaDesigned & Printed by: MSLGROUP [email protected]

AuthorsAshraf Engineer, Head – Content, MSL India

Amrita Choudhary, Deputy Head of Content, MSL India

Nirav Khatri, Manager, Research and Insights, MSL India

Shreyasi Ghosh, Account Associate, MSL India

Pelak Desai, Account Executive, MSL India

13 economic priorities for fy13-14 - mslgroup india

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