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Reliance Anil Dhirubhai Ambani Group chairman Anil Ambani’s wife Tina Ambani donated Rs 5 crores to Mukesh Gandhi, Co- founder and Director- Finance MAS FINANCIAL SERVICES LIMITED (MFSL). An organisation in retail financing which marked entry of R-ADAG into the Indian micro financing world. With a vision to provide finance to the grass root level they would serve the rural and semi-urban areas.

Group has committed to play a serious role in bringing standard and value to the lives of the aged and the underprivileged in India. This would be an extra mile walked by the group in that direction. This cheque of Rs  5 crores is to be given away in the form of loan though at the a competitive interest rates as compared  to what is offered by the banks, but importantly, it would be given to the organizations like MFSL which would be an  added avenue to raise resources. R-ADAG financial services company RELIANCE CAPITAL LIMITED (RCL), is already working in collaboration with a Gujarat based group VARDAN TRUST, which could be seen as its vehicle for a national rollout of its attempt in the field of micro financing in the country.

This is not just one odd big Indian Inc looking to spread its share in this field. You may also hear the names of Mukesh Ambani, Sunil Mittal (Airtel) and few others going to enter in the field. This could be sensed by some aggressive recruiting and benchmarking salaries. The hiring of Brahmanand Hegde from ICICI by the Temasek’s Fullerton makes it quite evident the way big players find micro financing an area of opportunity. This is a welcome development as the borrowers can have a greater choice. With the rise in the competition, better rate of interest would lure the mushroom growth of Indian middle class who want to add a class to their lifestyle. Be it a loan for the vehicle, studies abroad, foreign tour or housing the areas which are neglected by the banks now a days on the bases of remoteness will also have access and credit available at their disposal (of course on repayment basis).

It is worth mentioning here that there is no threat to the existing players as many of them have made the system and streamlined it. They also have loyal borrowers provided if treated well.

The major challenge the Government o f India is facing today is the inflation. Though the growing economy of the country has withstood higher rates of inflation in the past and anything like 7.5% is not a great trouble if it did not precipitate even a higher rate of inflation tomorrow.  Most importantly, there is no time for pulling each other’s leg as to who is responsible for this situation and who must accept the blame as is the situation in the political arena of the country.

The economic growth of the country and the welfare of common man have to suffer heavily if the situation remains the same. This crisis may turn uncontrollable if appropriate measures are not taken that too in timely fashion. RBI other than the measures like controlling liquidity and suppressing demand should look how to raise the confidence of the investor and reverse the expectations about continuing inflation.

The first cause which is constrained supply, which actually is controlling liquidity and managing the demand side, would definitely bring the prices down. This may also result in growth of output and employment. The RBI’s attempt to squeeze liquidity is a step in right direction. Rise in the CRR RATIO (cash reserve ratio) may affect the profitability of the banks where cash would have no returns. If your aim is to reduce expenditure, preferred option would be increase in the rate of interest; however, there should be policies to neutralize its effect on the increased inflow of foreign capital. The appreciation of rupee would cut down exports which in turn would result into downsizing and rising interest rates if RBI would not interfere to buy up dollars.

There is another policy which is often preferred over others- to control inflow of foreign funds. This can be done by either imposing a Tobin-type tax where taxes should be raised on short term capital gains. In financial management it is an art to fine tune the reducing of liquidity with no or minimal possible cost of output and employment. 

In a country like India where economy is globalised, there should be a mechanism in existence which could protect against the sudden increase in the cost of essential goods and it should be regarded as indispensible component of public policy.

 Inflation has led to payment pressure which in turn has increased debt burden. People have to now cut their expenditures in different areas rather in some instances, to manage their position with the available funds; some have changed lifestyles as well. Credit counseling, thought not very popular is the need of hour to handle situation in a profitable manner.

If an individual has taken or is planning to take a debt burden, the process of explaining the impact of this burden is called Credit counseling. An individual is also explained the ways to address the debt burden and is showed a path to come out of it.  Regular interaction to understand an individual’s position and to gain his confidence to assure the required steps are taken is the key to the success of credit counseling. 

Debt, asking for regular service, is always a problem if it is unmanageable. In tough financial state, it often becomes hard to cope with the interest and repayments. Restructuring or changing of debt is required in such situations, to ensure the funds being placed and employed effectively. It also means starting a new debt to close the existing one.

Spending everything what is earned often makes financial state extremely tight as there is no margin for error if budget is planned in such a way. There is no backup in case something goes wrong. This results into postponing or sacrificing planned requirements to meet the contingency need. It is always wise to keep a margin in the budget for any immediate requirements. 

The position varies from individual to individual according to the circumstances that affect him/her, thus every case in credit counseling is unique and is seen in different light altogether. Proper understanding of the situation, helps in extending a helping hand to an individual to set things right and to get back on the track of financial adequacy.

Listing of real estate companies has brought a turnaround in the business and towards the perception about the sector. It has, for the first time highlighted the challenges the sector is facing. The urban planning is one of the major concerns this sector has to deal with. Economic growth forcing infrastructural development is an imperative. Reforms are required in Land acquisition because of saturation of good land bank in metros.

Real estate finance growth is for sure in terms of public and private equity and debt. High net worth individuals, mutual funds, close ended and PE funds, leads the markets currently in private equity space. Entry of global players in collaboration with national players in the industry may result in landscape change. Success in the emerging market bet on emerging trends and defining strategies accordingly.Urbanization today is driven by educated, professional workforce joined by rise in the middle class with higher disposable income, which is favouring the Indian developers. This would be the prime factor for a boom in the sector in year 2008. With nearly double digit growth in its GDP, India has an edge over other developing countries. All we need now is flexible government policies and reforms in the sector to offer an affordable housing in the country.

With a growth of over 8% in the last two years and an anticipated growth of over 7% in the coming 5 years, India being world’s fourth largest economy promises the demand of real estate outdistance the supply of real estate in all the major economic hubs of the country. There is a paradigm shift in terms of growth in real estate in metro cities. This boom would continue to gallop the Tier II and Tier III cities also, which would make them first preference of the realty players.

Over 150 million sq. ft space would be required by IT & ITeS by the end of 2010. With retail industry getting organized an additional 220 million sq. ft space would be required by then. Looking at the promising opportunities in the sectors international players and foreign direct investments inflow has been estimated over US $6 billion.

Developers are no more local players now, rather called as Pan India players, they have operations in all infrastructure verticals which has made Indian real estate sector one of the fastest growing sectors.  Construction and facility management put together with real estate makes this sector the second largest employment generator in the country which has linked more than 250 adjuvant industries like cement, brick and steel through back and forth links. Though there is an acute shortage of technical manpower in this sector, a unit increase in the sector has a multiplier effect and the capacity to generate five times higher incomes.

People at the top of government get paid two or three times less than they should and people at the bottom of government get paid three or four times more than they should. There is no real system to reward or punish a good or bad job, we have too many people in government, and about 75% of compensation is not salary. Unfortunately most of this will be true even after the sixth pay commission is implemented.

Any vibrant organisation (private, public or non-profit) knows that the sure path to mediocrity is a performance management system that does not create differentiation or what Alexis de Tocqueville called the “fear of falling and hope of rising”. The lack of a credible system to punish and reward performance means that year of joining is the primary metric for promotions. This may be objective but has lower predictive efficacy than palm reacting. I often fought with my “1964″ civil servant father when he identified people by their joining year; one argued that decades of service must throw up more relevant information. I gave up fighting when he explained that, within a batch, the criteria for getting the plum posts dose to retirement was your rank in the entry test over thirty years ago! The weak incentive pay attempt is no substitute for robust evaluations that accelerate performers and must precede private benchmarking.

The labour market distortion by high wages at lower levels (Group C & D that are 88% of employees) will get more acute. A friend and former consultant to the ministry of finance recently ran into his old driver and asked him how things were. The driver said not good because he had been assigned to a joint Secretary who was not nice. So he had outsourced his job; the government pays a driver perhaps four times higher than the public market price of a driver. My friend’s ex-driver recruited a driver from the public market, sent him in to work every day in his place, and pocketed a neat profit off the wage differential (even after the money paid to the payroll department to keep quiet). This applies equally to government teachers, nurses, peons, stenos, etc. We needed salary rationalisation but got a minimum government salary including benefits that is about five times minimum wages.

Recognising the wisdom of Corporate India’s move to cost-to-company (CTC), the sixth pay commission commissioned an XLRI study on calculating cost to-government (CTG) or total compensation. The CTG including benefits is more than three times the salary. For railways the ratio is 3.75 and for armed forces it is 4. Benefits like housing, house building advance, healthcare, indexed pension, etc., should have been monetized and made optional.

Obviously the most important benefit that is impossible to value (but particularly valuable for the mediocre) is job security.

The eleventh finance commission had opposed recurring pay commissions because of the damage to states but now expect a repeat of the 1997 fifth pay commission chaos with weaker state finances. The civil service is too diverse for aggregated raises; future reviews must be nuanced, decoupled and coordinated with the administrative reforms commission.

My father and others joined the civil services because it was the only true meritocracy in town for thirty years after Independence. Corporate India was still run by unimaginative family owners who not only paid and treated professionals sloppily but valued sycophancy over competence. But we are now in a very different labour market with a very different corporate and not-for-profit India. If the government wants to attract and retain top talent it must demonstrate institutional backbone by creating sharper differentiation (within and across grades). Unfortunately, this pay commission fails the best and brightest in government.

High food prices around the world? Blame - at least in part - the investors who moved their money into commodities in the past five years, looking for better returns than they were getting from stocks and bonds.

Global investment funds saw the potential for profits in commodities outstripping those from the stock market, and from 2002 started diving into oil, followed by metals and then grains.

This move was fueled by falling interest rates in major economies, which make fixed-income investments less attractive, and a weak dollar, which tends to drive up the price of dollar-denominated investments such as most grains. These in turn attracted investors with little or no connection to the grain market often labeled as speculators, who took corn, soybean and wheat prices to a whole new altitude.

In March, corn futures hit a record $5.88 a bushel and, soybeans $15.86-3/4 on the Chicago Board of Trade, the benchmark for world prices. CBOT wheat peaked at $13.49-3/4 a bushel in February.

Stung by high transportation costs from record oil prices, food makers have passed some of the high crop prices to consumers, leading to protests in many countries. Some nations have even withheld grain exports to guarantee domestic supply.

Investors say high prices are supported by fundamental supply-and-demand factors like a higher protein diet in emerging economies like China, demand for bio-fuels made from corn, soybeans and palm oil, and drought in some important grain exporting nations. But investors bear at least some of the blame, economists say.

The idea is there are a lot of new players in the commodities-futures game and those new players don’t necessarily have a vested interest in the market beyond the speculative interest. Although agricultural commodities trade on fundamentals like harvest reports, they have become more volatile due to the influx of new money. With speculation it means it tends to move much sharper than it did in the past.

Unfortunately, when people are trading commodities, I don’t think they are even caring about social impact. What these people do is invest and their job is to make money. If they think something’s going to go higher, they are going to trade on it. They’re not going to be worried about repercussions somewhere else.

As recession talk swirls in the United States, some say the outlook for stocks and bonds may not be as bright as for commodities. Investors are likely to see negative US GDP from here and they have 65 to 95 pet of their assets in stocks and underperforming assets.

They’ve no choice but make an allocation to something’ that’s at least participating. On the long side, it’s commodities at the moment. A long position is a bet that prices will go up, while a short position is a bet that prices will fall. Traders said the weight of long investors has crowded the space between producers and consumers in grain markets, which are much too small to handle the influx.

Total trading volume for a day in CBOT corn, soybeans and wheat is less than 1 per cent of the $3 trillion traded each day on the global foreign exchange market. And the combined value of the US corn, soybean and wheat crop for last year was just $92.51 billion. By comparison, outstanding US Treasury bonds total about $4.6 trillion, arid the market capitalization of U.S. stock markets is about $16 trillion.

The US imported $36 billion worth of crude oil last month. If oil exporters then used this money to buy our wheat, they would have enough money to buy the entire US crop.

Investors also say the farm sector is partly to blame for failing to invest enough in production over the past five years. With the US credit squeeze getting worse by the day, securing borrowings has become harder for farmers in the world’s biggest grain exporter.

Adding to the mix is the race to make bio fuels. The United States has a mandate to produce 9 billion gallons of ethanol, made from corn, this year and 10 billion gallons in 2009.

Given the varied factors at play, blaming hedge funds and other speculators for current commodity prices may not be fair. When the fast money crowd sees things moving, they want to jump on. Until the bubble kind of bursts.

Spiraling food and commodity prices pushed the inflation rate to a worrisome 7 per cent and a concerned government, confronted with major supply constraints, threatened to come down heavily on hoarders. The latest price data released on Friday showed that the Wholesale Price Index (WPI) reached its highest since December 2004.

The rate of inflation in the previous week was 6.68 per cent and 6.54 per cent in the corresponding week a year-ago. Commerce and Industry Minister Kamal Nath warned that the government would come down heavily on those found to be involved in hoarding and profiteering. “We will not hesitate to take the strictest measures, including using legal provisions, against hoarding and profiteering, whether in food, cement or steel,” Nath said.

The Centre has already empowered state governments to impose stock limit orders on essential commodities to check hoarding. Earlier this week, the government announced a slew of measures, including import duty cuts on edible oils and a ban on export of non-basmati rice.

Experts cautioned that the price situation was unlikely to ease in the near future as a shortage of food had pervaded the world economy. Record prices of rice and sky-high oil have stirred up inflation worldwide, prompting many governments to impose price controls and curb exports of essential goods.

In India, during the week ended March 22, prices of fruits and vegetables, pulses, cereals, eggs, meat, fish and edible oils went up, while condiments and spices were cheaper. The mineral category index shot up by 38.2 per cent, primarily driven by a 46 per cent rise in the prices of iron ore.

Inflation is in an accelerating mode and we are yet to see any signs of its softening. While the government has taken some measures: I would not be surprised if the Reserve Bank of India (RBI) increases interest rates further. The RBI will announce its slack-season monetary policy this month and many analysts expect the central bank to raise interest rates to tame inflation.

ICICI Bank Managing Director and Confederation of Indian Industry (CII) Vice-President K V Kamath felt India’s economy would continue to grow at a fast clip despite inflation. “The present inflationary spiral is a pure supply-side phenomenon and not due to overheating in the economy,” Kamath said.

India’s gross domestic product (GDP) is estimated to grow at a slower 8.7 per cent in 2007-08, after clocking 9.6 per cent in the previous year.

Your monthly expenditure will go up, your groceries will cost more and your disposable income will buy less for the same money. Retailers will pass on the rise in wholesale prices to consumers.

Your home loan rates may shoot up. The Reserve Bank will take steps to tighten money supply. This will either stop interest rates from falling - or could even make them rise to curtail overall demand in the economy.

Your salary hikes may be curtailed. When inflation goes up, your employer’s costs go up and to save money the employer may reduce or hold back your pay increases

Growth may slow - and so will job prospects. Industries put their foot on the brakes or accelerators when interest rates go up. They hire fewer people or take their time to make up their minds on investment plans. This could stagger job prospects.

Your stocks and mutual fund values suffer. It is simple; when economic growth suffers, corporate earnings take a knock and bulls and foreign investors stay away from the market.

Exports may be hit. If inflation goes up, the cost of manufacturing goods or producing services like software in the country goes up. The country’s competitiveness may suffer as a result and export sector prospects in industries like textiles, software and jewellery may be hurt.

Imports will become costlier if the rupee becomes weaker. That makes the government’s oil bill higher, and this could potentially lead to increased fuel prices be in diesel, cooking gas or kerosene. And foreign trips will become tougher as well.

The withdrawal of tax benefits for petroleum refineries, proposed in the budget, needs to be seen in the proper perspective. There is clearly no shortage of domestic refining capacity. There is much scope for exports of petro- products. In fact, petro-goods are now our biggest export item.

 But the idea that the exchequer needs to continue propping up export capacities with generous tax exemptions is thor0ughly questionable. Multi-year fiscal benefits for capital intensive oil refineries may well mean actual misallocation of resources and over-investment, in what remains a rather poor country.

That is why the move to do away with 100% income- tax holiday available on refinery profits, for seven years, as per Section 80 IE (9) of the I-T Act, makes ample sense. Reports say that at least three upcoming refinery projects, in Bhatinda, Bina and Paradeep, would be affected. But oil refineries need to be viable sans fiscal prop-ups.

Also, proper project management and fast-forwarding completion schedules would likely shore up internal rates of return and make long-term tax breaks quite redundant.

There may still be a case for faster depredation benefits, to incentivize the setting up of world -class refineries. But blanket tax exemptions would be fiscally imprudent. We do need to do away with such tax breaks on the double-quick.

That said, the proposed dropping of Sec 80 IB (9) tax benefits for exploration and production (E&P) as well, in the upstream oil and natural gas sector, needs to be promptly reconsidered. Given the high risks and uncertainties in E& P, continuing with the tax holiday seems unexceptionable. It could be argued that tax exemptions, across the board, do need to end. And that with crude oil at over $100 per barrel, it’s incentive enough to foray into E&P. But the fact is that over half our sedimentary basins remain essentially unexplored. Also, up to 10 billion tonnes of crude and a trillion cubic meters of gas are estimated to be in situ in Indian waters. With domestic crude output stagnant - actually declining - for years, we need a proactive policy to coagulate funds in the E& P sector. It would be for the greater good.

SEBI’s primary market advisory committee is reportedly in favour of making underwriting mandatory for initial public offers (IPOs). This is an avoidable complication, and one which we have already experimented with in the past. It would further distract retail investors and may even give them false comfort. In the early 1990s, SEBI had introduced mandatory underwriting when IPO pricing was freed. But the concept was found wanting and mandatory underwriting was withdrawn in October 1994. Underwriting of IPOs is essentially a risk-mitigating mechanism, a kind of insurance.

The issuer enters into an agreement with the underwriter(s) to take up the unsubscribed portion, if any, subject to some limits, of the IPO so that the issue sails through even if investor response is poor. In exchange, the issuer pays an underwriting fee to the underwriters. Therefore, while underwriting pushes up the issue costs, it provides a cover against under-subscription. Meanwhile, investors, supposedly, have comfort that the issue has the support of an informed market intermediary.

These intermediaries would also, because of the risk of devolvement, ensure better pricing. This may have been an important consideration in the early years of market reforms, but not any longer. The primary market now has large institutional participation and book-building ensures a better price discovery, though it has some shortcomings. Indeed, most retail investors look at the institutional subscription before applying for an IPO. In such a situation, underwriting is needed largely to cover under-subscription risks.

Whether an issuer wants to cover the risk is best left to an individual issuer. Indeed, most IPOs do have some sort of underwriting arrangement. Besides, underwriting anyway is no guarantee that the issue would sail through. We saw some high profile issues withdrawn recently because the investor response was so poor that even after underwriters taking up their share, these IPO s would have failed. We have also had many instances of underwriters reneging on their commitment and SEBI initiating proceedings against them. SEBI should move ahead and not reverse the clock.

The flourishing IT & ITeS may face some challenges in the coming months. Since the US financial market is witnessing a downturn, the dollar is on a dive, higher taxes and salaries are eroding margins and clients are reluctant to negotiate on higher price. All these factors will make life challenging for the IT and BPO companies, which have been used to fast growth and expansion over the past several years.

This slowdown in the US economy will have an impact on the large companies more, compared to smaller IT companies. Most of the large banks work primarily with the top tier Indian IT companies, who will be impacted the most, as their clients report losses and go bankrupt. UBS declared a loss of $13bn. Bears Stearns had to sell off to JP Morgan for $236 million as it was reported that the former booked a loss of over $2.6bn. Citibank is planning to restructure its India BPO operations as it has declared a loss of $24 bn. There are almost at least one center in India for these big financial institutions.  Satyam handled Bear Stearns, Citibank does its business with its captive E- serve in India.

There may be a slowdown in the IT and BPO industry however it would not stop altogether.  Though some maintain that there will be greater outsourcing and more deals (though in the range of $30-$70 million in the next 12-18 months, as valuations have come down. It is estimated that a consolidation in vendor base as companies move towards financial restructuring and look towards cutting costs in the medium term. Critical outsourcing work like applications maintenance and infrastructure management will continue. But as things subside we may see greater outsourcing.

It is expected that the yearly top line and bottom-line growth for the top five IT players may be taper this year. We expect top-tier IT companies (Infosys, TCS, Wipro, Satyam and HCL) to record around 20- 25 % year-on -year top-line growth in FY-2009, driven mainly by volumes and pricing-led improvements. If there is any further appreciation of the rupee against the greenback is also likely to put further pressure on growth rates. Consequently, we expect 50100 bps year-on-year margin contractions for these companies, which is likely to lead to slower EPS growth of 15-18% yearly.

The IT Stocks are to be handled with caution, as believed by many analysts. Since the beating they have taken over the past year, downside risks are limited for IT stocks. The dramatic re- ratings of these stocks are not likely in the near future. The investors must be patient if they plan to be buyers of IT stocks and expectations must also be toned down by market realities. We believe a 15 % annual return is not unreasonable to expect from top-tier IT stocks going ahead.

In between all this the companies are looking to expand their businesses in the Tier II and Tier III cities. This is to fight rising salaries and to reduce the impact of rising taxes. The Indian BPO companies are at an flexion point. The challenge for them is how to move from the tried and tested labour arbitrage model to value added services. More focus on domestic market will be seen and salary growth will obviously taper down to 10-12 % per annum from 18 % last year.

Another up move that flattered to deceive, the second in 2 months. All of us want to believe the worst is over, but the ticker simply refuses to oblige. Hopes are raised every time the Nifty pulls back towards the 5,000 mark and then there is despair as it fizzles out. Perhaps there are just too many headwinds at this point for the market to move ahead unfettered.

The biggest trigger for the recent sell-off is inflation. The inflation data and reactions from policy makers have left little room for doubt for the equity market that all hopes of interest rate cuts should be abandoned for the moment. In fact, many economists have begun talking about interest rate hikes, which would be disastrous for the stock market.

Another up move that flattered to deceive, the second in 2 months. All of us want to believe the worst is over, but the ticker simply refuses to oblige. Hopes are raised every time the Nifty pulls back towards the 5,000 mark and then there is despair as it fizzles out. Perhaps there are just too many headwinds at this point for the market to move ahead unfettered.

The biggest trigger for the recent sell-off is inflation. The inflation data and reactions from policy makers have left little room for doubt for the equity market that all hopes of interest rate cuts should be abandoned for the moment. In fact, many economists have begun talking about interest rate hikes, which would be disastrous for the stock market.

With this second failed attempt at 5,000, bulls will be very short on confidence. There was clear unwinding of long positions even as bears pounced on the weakness to open fresh shorts. Any further weakness in global markets this week would raise the odds of a retest of recent lows. The market has clearly not stabilised yet, at best it ill churning violently in a 500 point Nifty range. But it has been a month already in this broad range, about time it made a break in either direction.

Hopefully, there will not be any ICAI-led earnings disappointments, which force the market below the lower end of its range. Meanwhile, the prudent strategy remains the same: use panic days to buy into stock price aberrations for investors, with traders not taking large positional trades but sticking to scalping small gains whenever they get any within the extremities of this trading range.

The shape of outsourcing is changing. Indian IT companies, which have traditionally fought shy of taking on any projects involving transfer of assets and people, are now increasingly becoming open to them. In the last one year, large Indian IT firms have announced five such deals that involve taking over some part of the client’s facilities or staff.

Tata Consultancy Services (TCS), the country’s largest software exporter, has so far clinched four deals involving the transfer of hardware and software assets and people.

Last month, as part of a contract it won from Nokia-Siemens Networks to provide research services, TCS also took over 90 employees of Nokia-Siemens. It is a natural evolution. When the scale of opportunity is big, then asset takeover is one of the options. In general we don’t takeover people or assets unless we be1ieve it is strategic to us, and the people are bringing knowledge that is essential.

Through the transfer, TCS gained a delivery centre staffed by locals in Germany and also a knowledge pool that will help it win more telecommunications clients. The move is strategic in the context of how Indian IT players are trying increase revenues from continental Europe, which is a largely served by local vendors. The ability to take on assets and people also comes from increasing size. This gives them to ability to take on people in countries where labour costs are higher, without hurting their margins substantially. So far, Indian players did not have the maturity to take over assets and people. Now they have the balance sheet strength to do it.

 The asset takeover route has become inevitable if they want to participate in large outsourcing deals. Till recently, Indian players were not invited to big deals. But that is not the case now. Large global players such as IBM and EDS have been taking over assets and people for many years now. IBM deployed a similar model in its billion dollar outsourcing deal with Bharti, where it took over all its IT outsourcing functions.

Wipro inked a similar deal with the Future group for the IT operations of its retail entity, Pantaloon Retail. Vendors evaluate the suitability of the people, the value of the asset and whether they want to expand into certain geography while entering into these contracts. Companies also evaluate the risk involved and if they will be able to get the margins they desire before signing such contracts. So the issue is not just the value of the assets being taken over but also for how many years the vendor is getting the contract and how much other work can be given out to the vendor.  

Almost four years ago, the present chairman of securities market regulator SEBI was a member of a committee—Securities Market Infrastructure Leveraging Expert Task Force (SMILE)-to carry out a health check on the state of infrastructure and processes of the local primary market. That committee presented its report way back in 2004. Yet, while there has been significant progress in reforms relating to the secondary market, much of that seems to have bypassed the primary market, although this segment has been rocked by issues of manipulation of the IPO allotment process, besides pricing of IPOs. There is a widespread belief in the financial markets that the SMILE report was dumped then due to the fact that the committee was headed by PJ Nayak, now chairman of Axis Bank against whom were ranged some powerful officials in SEBI.

Now there is a growing realisation both within the regulator’s office and the government that the focus ought to be on primary market reforms both in the local equity and corporate debt markets. A committee is already at work to see how the timeline for listing a stock can be crunched to just a few days after the public offering doses. It may well be easier to do that when it comes to primary issuance of corporate bonds. The regulator is working on electronic issuance in this segment and completion of an issue within a few hours.

Given that there is hardly any retail participation, the process may not be difficult to implement. But somehow the replication of the process in the Indian secondary markets where trades are executed and settled within two days after the transaction is done has been found to be difficult.

For listing of a stock after the primary issuance in the equity market, it takes 21 days. This breathing time provides opportunities for powerful players such as bankers to such issues who enjoy the float (the money which investors pay for subscribing to issues running into crores of rupees). Perhaps given the size of the market now there aren’t enough intermediaries and investment in automated process which would have helped handle the mountain of paper which the registrars to offerings have to handle now.

The SMILE report did address that issue saying that repeated data entry and demographic details could be eliminated by using the data of investors available with the depositories.

It also suggested reconciliation of payment details with application forms besides electronic forms and use of digital signatures. In short, the P J Nayak committee reckoned that the process of listing could be completed on a T +6 basis which means within a week after the issue doses. Those at work on crunching the time say that it may be possible to do that in a phased manner. There have been suggestions that the price discovery process adopted in the secondary market should be extended to the primary markets also.

After all, goes the argument, in the secondary markets when it comes to buying or selling a stock there is no distinction between a retail and an institutional investor. Such a call for an unified auction mechanism will obviously be fiercely resisted specially by merchant bankers whose clout, unlike their counterparts in the West, is disproportionate to their role here.

It is fascinating to see how stock brokers who for long set the rules in the secondary market have made the transition to a new modem system where the trading and settlement process is now recognised as one of the best in the world.

But if in the primary market we have not seen similar progress it also has to do with the cosy club of the bigger merchant bankers.

The SMILE report did recommend that fiduciary responsibility should be redefined for merchant bankers and that they should be responsible for the registrars and bankers to the issue.

When it comes to highly priced issues which have bombed or the manipulation of the IPO process or investor grievance, merchant bankers never seem to be docked. As the reform process in the primary markets gathers steam now, it could be an opportune time to redefine the role and responsibility of this intermediary.

That the Sixth Pay Commission’s (SPC) recommendations would be a bonanza for government employees was never in doubt; the debate was only about how big (read fiscally irresponsible) the bonanza would be. Since the SPC is yet to submit its report and the details are not yet known, it is admittedly a little early for this paper to make an informed comment.

However, initial reports suggest the report has been fairly circumspect in the quantum of increases recommended at the higher levels, where both the work load as well as the level of responsibility makes a strong case for generous hikes.

Where it seems to have erred is in according roughly the same treatment down the line to C and D category employees. The latter are not only much better paid than their private sector counterparts but also do not bring any specialised skills to the table. In such a scenario, the case for an across the board hike to these two categories is weak.

This was as true at the time of the Fifth Pay Commission as well. But faced with pressure from government employee unions, the then United Front government succumbed. Unfortunately there is no reason to believe this government will be any better. On the contrary, the United Progressive Alliance government has, time and again, shown that it is only too willing to play to the gallery, regardless of any potential damage to the fisc.

The September 1997 decisions resulted in pay and pension increases of 40 % and more to central government employees. And since state governments followed the Centre’s lead, the combined effect was to undo much of the progress made post reform in reducing the fiscal deficit. At the macro level, the combined fiscal deficit of the Centre and states rose from 6.4 % of GDP in 1996-97 to 9.9 % in 2001-02, while the revenue deficit doubled from 3.6% of GDP in 1996-97 to 7 % in 2001-02. About half this deterioration was the result of the Pay Commission hikes. Can we afford to repeat the same mistake again?

THE reported move to roll back domestic steel prices by slapping a 10% export duty on all grades of finished steel is retrograde and worse. The plan to penalise exports could well discourage production across the board. So, instead of dampening prices, this could stem output and needlessly make our fledgling steel exports dearer. The proposed game plan can actually harden prices. It would be akin to shooting oneself in the foot, in policy terms. In fact, the idea of export levy as an instrument of price control is perverse; it needs to be nipped in the bud. It just does not make sense in a supposedly liberalizing economy which is globalising with much gusto.

The fact is steel exports account for a very small part of the total output. To suggest exports are jacking up steel prices is to thoroughly ignore the ground reality. The point is that there’s strong demand for steel on the back of buoyant economic growth. It’s also true that steel prices have considerably firmed up of late. But the way ahead surely is to better match supply with demand and bring down prices with increased production.

In the short term, the steel minister can certainly talk down steel prices and rely on suasion to try and decelerate the trend in prices. In the longer term, the policy objective ought to be to step up domestic steel capacity. The strong price rally also reflects higher input costs. The price signals need to be read right, and steel output significantly increased. Yet a number of investment proposals in steel remain mired in policy inaction and red tape.

What’s required is ironing out the policy glitches holding back steel capacity in the pipeline, without further delay. But to attempt to douse prices by clamping down on steel exports via a steep levy is more likely to backfire. For one, it may not add very much low domestic supply. Steel exports are now more likely to be committed for long-term supplies. For another, to divert exports from the spot market would be essentially myopic. We do have a competitive advantage in steel; what’s needed is a proactive policy to make India the leading exporter of steel, including value-added high grade products. And quick fixes are no substitute for a more conducive and sustained investment environment for steel.