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Ecotimes15nov13

Jairam Wants Govt to Control Krishna, Godavari Rivers

Rural minister says it wont be possible for Telangana and Andhra Pradesh to meaningfully adjudicatewater disputes

CR SUKUMAR HYDERABAD

Jairam Ramesh, who is part of the group of ministers on Telangana, has recommended that the Centralgovernment should take control of South Indias two largest rivers when Andhra Pradesh is bifurcated. The ruraldevelopment ministers prescription for Godavari a nd Krishna rivers is not the first idea that seeks to hand

powers to New Delhi instead of the new state of Telangana.Some days ago, a task force of the home ministry suggested that the central government should oversee law andorder in Hyderabad, a city which is located in the Telangana region but where settlers from Seemandhra (thecoastal and southern portions of the state) have grown deep roots. Predictably, the Telangana Rashtra Samithi,the party which led the fight for a separate state, is very upset with the proposal by Ramesh, a member of the

Rajya Sabha from Andhra Pradesh. Sravan Dasoju, who is on the TRS politburo, said that a tribunal headed bya Supreme Court judge should adjudicate on water, not the Central government.Krishna and Godavari originate in Maharashtra and flow through Telangana before entering the Seemandhraregion and emptying into the Bay of Bengal. A group of ministers headed by home minister Sushil KumarShinde is in the process of devising specific plans to deal with issues arising from the planned division ofIndias fourth -largest state. On Thursday, ET cited Congress sources and said that the Centre aims to createTelangana before the end of the year.Rameshs idea is for the constitution of a Krishna Godavari River Boar d that will be controlled by the Centre.He observed that it would not be possible for the newly formed state of Telangana and the residuary state ofAndhra Pradesh to meaningfully adjudicate water disputes every season. A number of irrigation projects h avecome up based on the expectation of surplus water in the Krishna river. After bifurcation of the state, there will

be a serious problem of release of water for various projects in the event of deficit flows in Krishna, he wrote.Water is a sensitive issue in Andhra Pradesh, which is often referred to as the rice bowl of India. Apart from

irrigation, hydel power generation issues also have to be sorted out.The Krishna Godavari River Board should be under the control of the Central government and c onsist of achairman to be appointed by the Union government with appropriate representation to both the states andindependent experts as members, he said. He also recommended that the board be assisted by Central IndustrialSecurity Force in the management of reservoirs. No new irrigation projects should be taken up by eitherTelangana or Seemandhra without approval, he wrote.But TRS Dasoju said many irrigation projects on Krishna and Godavari were constructed without statutoryapprovals and allocation of water from the Central Water Commission.

Why Rajan is Right on the Economy

Markets can breathe easier as CAD fears go

Reserve Bank of India governor Raghuram Rajan has correctly predicted a current account deficit (CAD) thatwill be sharply lower than the near-$88-billion figure for last year. Rajan figures that the deficit could be as lowas $56 billion, well under 3% of the GDP and certainly much lower than the 4.8% of GDP figure last year, thehighest in history. For five months in a row, exports have grown at more than double-digit pace and the mix ofgoods is diversified, showing little sign that exports are being overinvoiced to bring back money salted awayoverseas. Fuels take up a lot of exports, perhaps signalling weak demand at home, but other things, includingcars, textiles, chemicals and farm products, are also selling briskly overseas. The fastest growing categories infarm exports are meat and non-basmati rice, which grew 66% and 58% respectively, year on year.

Imports are also slowing, impacted by the weaker rupee. Gold imports have fallen sharply, but so have othernon-essentials. Inflows of direct and portfolio investments are also quite high. In this context, the rupee ought tostrengthen sharply, but it has not. There is some mystery about why this has not happened. Ironically, theweakness of the currency could be the result of RBI intervention: the central bank stabilised the currency byselling dollars to oil companies at a special swap rate, but it could be buying dollars from the market to offsetthis, weakening the rupee.

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Investments and growth will pick up sharply in the coming months, as new projects worth a staggering. 3,50,000 crore, cleared recently, start picking up steam. Rajans comments to soothe marke ts are welcome. Hehas been supported indirectly, by doveish comments from incoming Federal Reserve chief Janet Yellen.Speaking in the US, Yellen said that the Fed needs to do more to help the American economy. This suggests nohurry to withdraw the stimulus programme, helping markets to rally. But it would be foolish to sit back. Thegovernment cannot depend on US monetary policy: its own finances must be on firm footing.

Control and Food Inflation

There are many factors behind food price inflation, and a public sector mindset is one of them

Todays food inflation is less about food grain, more about fruit and vegetables, eggs, fish and meat. Pricesare subject to seasonal variations. And yes, India is the worlds largest, second -largest or third-largest producerof many agricultural products. But beyond seasonal variations, if prices increase, it means supply isnt copingwith demand. The answer doesnt lie in banning agricultural exports from India, or preventing exports of

potatoes from West Bengal.Indian yields are lower than in many countries and vary across states. There is plenty of scope for raising

productivity. There is a separate point about production being wasted because of lack of infrastructure, processing and cold storage facilities.Skewed Output PoliciesThe gap between farm-gate prices and consumer prices, highlighting need for disintermediation, is also evident,although thats also because of higher transportation costs. The APMC and ECA Acts, and orders under ECA,do need scrapping. But price rises have also hit products where controls over production, storage anddistribution are less pervasive.

Higher demand represents income growth. But the diversification in consumption baskets is not matched bydiversification in production, because policies are not geared towards this. The procurement and food securitylegislation are instances of this.

So are input subsidies, resources that could have been spent on rural infrastructure and extension. Includingsub-market yards, there are 7,246 regulated markets in India. Most of these are regulated under APMC Acts andcollect mandi fees, meant to upgrade infrastructure.

Indeed, the original Green Revolution wasnt only about high -yielding varieties, fertilisers and agriculturalmechanisation. It was also about building infrastructure in Punjab, Haryana and western UP.Upgrade InfrastructureIn contrast, there are 27,777 unregulated markets, 21,238 of which are rural primary markets, the remainder arewholesale. Ty pically, such a rural market functions only during the day. It doesnt even need electricity. Some

basic infrastructure and rudimentary processing are good enough. Therefore, at a pinch, upgrading such a ruralmarket requires no more than . 5 crore as fixed costs.

Around 6,539 of the unregulated markets are wholesale. Imagine the transformation that will be broughtabout if these are improved.

Growth comes from agriculture and allied activities, not just food grain. If agriculture has performed better inthe last few years, thats because of growth in states that have had low productivity earlier.

Rajasthan, Madhya Pradesh, Chhattisgarh, Maharashtra, Odisha, Jharkhand, Karnataka and Gujarat areinstances. This is partly an outcome of commercialisation and diversification, better irrigation, electricity androad transport.

While there are inter-state variations, most landholdings are small, less than two hectares. Productivity is alsoa function of what use is being made of the land. Even if there are no economies of scale in production, there areeconomies of scale in marketing and distribution.

Small landholdings make it more difficult to access financial products or technology. Ownership legislation isa touchy subject.

But why shouldnt leasing markets be opened up? There is plenty of slack in irrigation too, the possibility ofmultiple cropping being an instance. More land will not become available. There will be urbanisation anddevelopmental pressures on agricultural land being converted.Farms no Green PasturesThat is an even more serious issue for labour. Young people no longer wish to work in agriculture. There has

been a squeeze on agricultural profitability. Investments in education have triggered a demand for offfarm pursuits.There are also upward pressures on agricultural wages, driving labour substitution, though the extent varies

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across states. But its safe to say that if this is happening in some states today, it will occur in most statestomorrow. Therefore, productivity increases boil down to a technology issue. The Twelfth Five-Year Plandocument has some partial productivity computations, demonstrating importance of productivity gains inEleventh Plan, as compared to the Ninth and Tenth.

Hence, are we allowing farmers choice in technology or are there attempts to control it? Increasingly,agricultural technology originates in the private sector.

Is there confusion between regulation of technology and control? Extension is typically in the public sector,even when the technology originates in the private sector.Are fiscal constraints inhibiting public sector extension services, typically at the state level? Extension played

an important role during the Green Revolution. Those control mindsets are inhibiting the supply response. Is itsurprising that demand should outstrip supply and there should be food inflation?The writer is consulting editor, ET

Junk the Real Estate Bill, it Makes No Sense

The governments Real Estate Bill, 2013, seeks to set up a regulatory authority to protect consumers and promote the real estate sector. It will effectively do neither. All it mandates is that projects above a certain sizeare registered on the authoritys website; and that real estate agents dealing with such projects are alsoregistered. Developers must open separate bank accounts for each project, in which 70% (or less, as specified bygovernment) of the amount received from customers must be deposited, with an undertaking by the developerthat these will be used only for cost of construction. It is not clear whether cost of land counts as cost ofconstruction. The Bill does not recognise that the promoter, the agent and the allottee are not the only three

players in the project. This chain includes the landowner, an attorney who investigates titles, the developer, thearchitect, the structural engineer, the approving authority, the contractor, the project manager who supervisesconstruction, the agent and the purchaser. Registering only the developer and the real estate agent, and their

projects, and expecting that this registration will bring about transparency and solve all problems, is too nave.Customers should understand what they are buying: the carpet area of liveable space, of ancillary areas likeflower beds and balconies, garage area, servants quarters, plus common amenities. They need a clear land title.There should be nothing illegal or unauthorised, safety and structural durability should be assured. Deliveryshould happen within a specified period, with compensation for delays, and penalties for abandoning a project.In case of default by an allottee, the promoter should be free to refund the money paid by the allottee, withsimple interest at prevailing bank rate. Since project delays are often caused by rent-seeking from approvingauthorities, the performance of these should be examined by the authority, with powers to fine or jail people forlapses. The authority should help the industry, both for ownership and rental. It should work with governmentand local authorities to improve coordination and expedite the grant of construction permissions, minimising thenumber of agencies giving clearances. It should present an annual report on its performance, just as companiesdo with their sh areholders. The appellate tribunal, before which appeals against the authoritys decisions wouldlie, should have the powers of a civil court. Appeals, if admitted, should lie with the high court. Most countriesregulate agents, not developers. Agents in these countries deal with buildings ready for occupation. In India,flats are prepaid in instalments as construction proceeds. There are very few international examples ofregulation of prepaid sales. The most relevant is Dubai, where since 2007 developers are required to putcustomers payments into a separate trust account for each project. The trustee is a bank or other financialinstitution. It disburses to the developer as construction proceeds. Their experience so far is that developersdelay delivery, because when the project is 95% complete and they have received 95% of their payment, theyare in no rush to earn the balance. Utah in the US and Alberta in Canada specify similar trust accounts, but apartfrom the initial down payment to the developer of 20%, keep the rest 80% received from customers and pay it tothe developer on his giving possession and transferring ownership. Should the Bill set a floor on the size of

projects that need to be protected? Fraud occurs not only on larger projects but perhaps even more on small projects for poorer people. Further, it is not only buildings that need to be worried about, but also layouts, whereland on the perimeter of a city is carved out into plots, without authorisation, sold and then built upon byindividuals who demand regularisation. Should the real estate authority address such issues? In our view, theBill should mandate the setting up of a trust account for each building, like the Dubai legislation, with thedifference that 40% of the total amount is retained and paid to the developer only on possession and completionof conveyancing.The writer is a civil engineer and urban planner. Co-authored with Vaidehi Tandel and Sahil Gandhi,PhD scholars at the department of economics, University of Mumbai

Clear Projects Faster, Finance Will ComeThe finance ministry is reportedly seeking easier lending norms for infrastructure projects that have been

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delayed for no fault of the promoters. The plain fact is that as many as 378 infra projects, amounting toinvestment of over . 17 lakh crore, have been stalled for want of various clearances and approvals, and weclearly need proactive policy to speed up their implementation. However, calling on the Reserve Bank of Indiato tweak the rules so as to allow refinancing of the big-ticket projects without treating them as restructured loans

which warrant higher provisioning by banks would be akin to merely treating the symptoms and not thedisease that appears to afflict policy implementation and follow through.

It cannot be gainsaid that umpteen projects are routinely delayed in the process of seeking environmental, forestand various other clearances, often for many months even years. And unless we have in place clear-cutnorms for time-bound approvals, the delays and slippages would simply jack up costs right across the board and,what is worse, make entire projects unviable. Hence the vital imperative to boost transparency in the project-approval process and have in place benchmarks and other criteria for prompt project evaluation.We need initiative and constructive decision-making in the domain of administration and the political executive,

both at the Centre and the states. The role of the latter is often critical for large projects requiring, say, extensiveland acquisition and clearances. In deserving cases, a measure of flexibility in provisioning requirements canmean finer rates of project finance. But as a general rule, it makes better sense to eschew the case-by-caseapproach, and seek to reduce uncertainty in the process of vetting and approvals.

UN Body Agrees to Exclude Agri from Climate Talks for Now

URMI A GOSWAMI WARSAW

India and other developing countries have succeeded in ensuring that there will be no discussion on agriculturein the ongoing climate change negotiations in Warsaw, a development that could well prove a pyrrhic victory.Discussion on ways to deal with the impact of climate change on agriculture, such as variations in rainfall andtemperature, has now been pushed for talks scheduled for mid-2014. The discussions, which will be taken up bythe United Nations climate changes technical committee, will focus on adapting to climate change and emissionreduction that such measures are likely to entail.India, China and several other developing countries are of the view that postponing the discussion on agriculturehas effectively stymied efforts by industrialised countries, particularly the European Union and New Zealand, tofocus on emission reduction in agriculture.Analysts are, however, concerned that this latest move by the developing countries could provecounterproductive.For now, the group of developing countries, G-77 and China, are unified in their approach to agriculture andclimate change. However, there are concerns that delaying the discussions could weaken the alliance. In the

past, not all developing countries have agreed with the view that the focus on agriculture should be limited toadapting to the impacts of climate change. At the Doha round of negotiations in December last year, leastdeveloped countries such as Bangladesh and Malawi supported the idea of discussing the impact of climatechange on agriculture, which would include emission reduction measures.The differences that came to the fore at the Doha round of negotiations last year were bridged at the Bonn talksearlier this year. This happened as India and other developing countries agreed to expand the ambit ofdiscussions to include emission reduction benefits that could accrue from adapting to climate change.

FM Assures Adequate Steps to Boost Growth, Lower CAD

Says govt will beef up regulations to draw more foreign investment

OUR BUREAU MUMBAI

Finance minister P Chidambaram on Thursday said the government will take all steps to boost growth and at thesame time try to lower the current account deficit to below $56 billion.We will take all steps to boost growth, create a friendly and efficient investment environment. We willstrengthen regulations to improve foreign investment, the finance minister said at an Axis Capital conference.He said the government has cleared 99 projects worth . 3.5 lakh crore and that there are some big foreigninvestment proposals in sectors such as pharmaceuticals, aviation and telecom.We have huge proposals in the pharma sector for FDI. I think there will be at least one more, maybe two more,FDI in aviation, Chidambaram said, adding there is huge interest in telecom FDI as well.The finance minister also said the government is keen to reduce current account deficit (CAD). Let me assureyou that I am not in competition with the Reserve Bank governor to lower CAD targets. But I will try to lowerCAD to below $ 56 billion, he said.

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Fortunately, elections are not in this financial year. Mark my words, we will ensure fiscal discipline. Everyrupee lost in revenue will be met by one rupee cut in expenditure, he said.Chidambaram said a number of big projects are coming up and the emphasis is on implementation now.The PM has given approval to go forward with Navi Mumbai Airport and Pune Civilian Airport projects, hesaid. The Tatas are building a new steel town by investing . 40,000 crore and another . 20,00 0 crore in the next

phase.

RBI has got $18 billion from the FCNR window, may get $25 billion before the month end, the finance ministersaid. Though cumulative FII is net negative, we believe it will be better positive or net zero by the end of year,he said.