Cheaper Credit? is it the cure for all?

Cheaper Credit

It is true that high interest rates hurt and it hurts some setions more than others.

But if the government and the industrialist do come together and initiate steps which can cut down costs then there may be not an immediate need to reduce this impost. As your leader correctly points out there are sections such as realty, which have absorbed this impost (through external flows), which is once again hurting the same industrialist. Any early redemption of this impost could hurt the sections it is wishing to protect by causing runaway inflation.

As a first step the government can authorise free movement of goods across states to recognized Logistics providers who will be responsible for the movement of goods and the sales tax compliance there off. Given the ground reality of the infrastructure bottle necks, the least government could do is to reduce the transit time of goods and thereby reduce inventory and costs there off. Cost of compliance will also be low as the logistics provider can be authorised to ensure compliance.

The other area is that of the exorbitant taxation on fuel. The taxation on fuel be it used for the industry or as a part of the executive compensation should be vatable / modvatable. This will provide significant relief to the industrialist and int he long term act an incentive to the government to reduce the taxes per s

Grwoth Pangs - Engage

Growth Pangs

Engaging the key stake holders in dialogue to understand their views and share the promoters' and governments' view is the need of the hour. Corporates, starting from Reliance should heed to this intelligentsia's call and engage the masses in a continuous dialogue.

Corporate giants moving in to retail business is definitely encroaching in to another business persons territory and it reflects poorly off the corporates capabilities to move into new territories where entrenched players exist. The rush in to occupy window's space in markets across the country with out understanding the locale conditions, can be described as simple bad planning

To retain the first mover advantage if the corporates like Reliance move in at breakneck speed, they may definitely maximise the foot falls at their stores, but risk causing irreparable damage to the entire model. Better sense should prevail on these organizations, who should engage well intentioned local NGOs, to explain their plans and address issues which may be thrown up in such engagements. They should move in to occupy in steps and not rush in as they have done now.

With the larger than life size image which these corporates occupy in the minds of rural folk (read Rakshashas), it is easy for other vested interests to move in to exploit and create panic.

It is still not too late for the corporate to appreciate the errors they have committed and correct it by engaging with the stake holders.

Prescription for PN

Prescription

Any regulator would insist that the system where stake holders process their transactions capture trails which can be utilised to trace participants role leave alone their antecedents. He will be extra cautious about intermediaries, who transact on behalf of clients. The details of the clients though not available at the time of processing the transaction through the system, is an essential data which needs to be recorded. It shall be available to the regulator and the other participants of the transaction and cannot be the left indeterminate.

PN falls short of this and makes the transaction opaque. Especially, where the intermediaries are understood to have offered exotic products through their own financial engineering, the regulator needs to intervene to demand either transparency or prescribe different set of guidelines for such transactions to limit their scope.

Whether it is a cash market dealing or a derivative dealing the completed transaction over a period the owner parties (buyer or seller) to the deal are to be identified. It is therefore essential that funds behind PN needs to be identified and cannot forever hide from the purview of regulator.

While one may fault the manner in which the announcements have been made, the timing, the intent and the prescription are timely.

Power to Unlock

There are significant pointers available to the policy makers in the phenomenal success of the PGCIL IPO, both at the state and central levels.

First and foremost, it is important to establish through policies, regulations and the administrative machinery, a viable business model. When established systems are unbundled or restructured, it is necessary to keep in mind the possible future options and decide on the policy frame work.

The second important pointer is that of the organisational culture and capabilities of the public sector entity, to benefit from the enabling environment. PGCIL through its employees, have established a bench mark in performance, which is comparable to its peers abroad.

Market is also rating the NTPC Scrip (another major player in the Power sector) with lots of expectations. NTPC has also benefited from similar policy initiatives and is a well manged and run organisation with committed employees. All these augurs well for the sector as a whole. The prevailing sentiment should be capitalised to bring in part of the enormous funds required to make power for all by 2012.

Forward looking state governments should be encouraged to corporatise packets of distribution network, along with or as a separate entity the transmission systems and approach the market for equity. Every state through the Electricity act have put in place a regulator who is guiding the policy issues. In the case of Tamilnadu for instance, aggregate commercial losses on a grossed basis may look marginally higher compared to what the market would like to see. But one can look at significant pockets(geographical areas) which can be spun off into separate companies and corporatised.

Tamilnadu should take the lead to bring in the much needed funds to improve the balance network with out loosing government's control.

Indian Governments need to be more proactive

Choke Eases Even More

RBI has done its bit to unshackle the Indian Entrepreneur and industrialists from the chains of bondage to the Indian currency. The Investors are, by the day being encouraged to, explore new markets, compete globally to maximise returns on their capital.

It is now the turn of the Government to step in an unobtrusive way to support the initiative. In this era of globalisation, we need to ensure energy security, and committed linkages to commodities that help us meet our growing needs. This is best done through selective investments, which also translate to export of our capital globally. All these can be front ended by the nibble footed Indian investor, but he surely needs the unfailing commitment of the government.

We need politicians who will understand the dynamics of the Indian multinationals' support requirements and guide the policies. They should intervene to nudge friendly governments to grant a license or exclusivity. They should also provide the bureaucratic support to secure favourable terms for our capital such as Sovereign government guarantees, negotiate hard during bilateral exchanges with the Indian investors capital in mind.

Bulk of our increasing foreign exchange reserves are due to the earnings of Indian diaspora who are toiling away to bring in the riches to the country. It would befit all their efforts if the governments and Indian Entrepreneurs use this capital to further enhance the Indian growth story.