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TheIndian EXPRESS
www.indianexpress.com

l TUESDAY l JANUARY 15 l 2013

The Indian EXPRESS

HE announcement of a twoyear deferral for the General Anti-Avoidance Rules (GAAR) would appear to be in line with measures to attract investment into the economy, such as the liberalisation of foreign investment in multibrand retail and the raising of the cap for investment from abroad in government and corporate debt. With external indicators like the current account deficit threatening to close the year at 4 per cent of the GDP, and internal indicators, such as the growth rate of the economy, reflected in an anaemic index of industrial production, the government had limited options. Finance minister P. Chidambaram has done well to make it clear that he will allow a long lead time for the new rules to come into effect. The minister has introduced some changes to the GAAR recommendations of the Parthasarathi Shome committee. Two of these, the approving panel and the grandfathering clause, are departures that could be contested by investors. The ruling by the proposed three-member tribunal has now been made binding on the taxpayers and the department, a move that shortens the litigation

With GAARs deferral, Indias tax laws could look more settled to investors, domestic and foreign
cycle going ahead, but whose mandatory nature could be controversial. The date for the clause on the grandfathering of all tax cases in the ambit of GAAR since August 2010 could have been brought forward, instead, to the date of the current notification. The changes mean that a large segment of the Indian tax laws will look settled to investors, domestic and foreign. The minister has made no mention of the capital gains tax regime, though the Shome committee had suggested phasing it out. In all probability, the minister will take a call on those issues in the forthcoming budget. He has not mentioned anything about the fate of the Vodafone tax case. But as the tax demand in that case fell under Section IX of the revised Income Tax Act, rather than the omnibus provisions of the GAAR, the litigation in the case stays alive. Though the Shome committee had said that the tax demand was not justified, even if the tax giveaway was huge, this may be a matter for further deliberation. GAAR, too, despite the prime ministers promise to re-examine the subject, took about six months to resolve.

Better late

HE Congress partys major conclaves or chintan shivirs have coincided with political milestones in the past. At Pachmarhi in 1998, it reiterated its unwillingness to forge coalitions or to acknowledge that the rules of the game had been transformed for good. The party was still in denial to an extent, it still is about the collapse of one-party dominance. In part, it was that refusal to attune itself to the new politics, and the BJPs unreserved plunge into coalition-making, that led to the NDA coming to power in 1999 as a 24party alliance. By the time the party met again at Shimla in 2003, the Congress had seen the necessity of rallying together secular forces. When the 2004 Lok Sabha elections came, therefore, the Congress had gathered partners of its own, and the UPA was born soon after elections. As the party prepares to meet again for another brainstorming later this week in Jaipur, it could be on the cusp of another momentous discovery and makeover or not. The partys leaders are reportedly concerned about the challenges posed by the social media its power to mobilise crowds at Jantar

At the chintan shivir, the Congress needs to own up to its communication problem
Mantar or Raisina Hill, during the Anna campaign and in the course of the agitation against the rape in Delhi recently. It is true that the Congress leadership showed itself to be far too heavy-footed in the face of protests energised and amplified by the new media. Yet, if the party were to allow itself an honest introspection, it might find that its failure runs deeper. If at one time the Congress was faced with the challenge of finding a way to talk to potential allies, now it confronts a task more daunting. It needs to break its silence with the people. Ever since it came to power in 2004, the Congresss leadership has stepped back from every opportunity to strike a conversation with the electorate. In consequential and turbulent moments, in Parliament and outside it, the top leadership has appeared reticent and remote. At present, the Congress appears overtaken not so much by the new media, but by an old democratic idea acquiring new force: that part of the job of being a leader is to engage with the peoples anxieties and concerns in between elections, and be seen to be doing so.

Talk about talking

HEN it comes to economic policy, it is better to be safe than sorry because decisions once taken cannot be reversed easily. This is true of the Banking Laws (Amendment) Bill, 2012, which was passed by Parliament on December 20. The amendments to the existing laws will be followed up by the RBI through suitable policies. The reforms will not transform the landscape of banking in India, or fully open up the sector to foreigners and industrial houses, though it will admit a few of the serious ones from among them. But there seems to be a grudging acceptance that the current structure of Indian banking is not helping the expansion of banking services, thereby putting the governments financial inclusion and growth objectives at risk. It is widely believed that, in comparison with the rest of the world, banking penetration in India is low and profits arehigh.Therefore,morecompetition would help. Enter private and foreign banks. Foreign banks in India currently operateasbranchesoftheirforeign parent.Butitmakessenseformany of them to become Indian subsidiaries of the foreign parent, which would give them access to cheaper funds and more freedom to expand. The RBI would also like that, as the subsidiary will then appoint its own CEO and board of directors, making it more accountable to Indian depositors than in the current system, where the branch reports to the foreign headquarters. Moreover, the RBI will getgreatersupervisorycontrolover thebank,especiallyintimesofcrisis. Thereformshavepavedthewayfor all this by removing the stamp duty thatwouldhavepreviouslybeenimposed on foreign bank branches during their conversion to subsidiaries. However, there is still a lackofclarityonwhethertaxwillbe imposed on capital gains arising from the conversion. The governmenthasnotexactlycovereditselfin glory when it comes to tax on foreign entities, which may make foreign banks wary.

Banking on reform
The new Act could nudge the sector towards the goals of financial inclusion and growth
RUDRA SENSARMA
Foreign banks are also concerned about a stricter priority sector lending requirement (forced lending to agriculture, small businesses and other priority segments of the economy), which kicks in when they become locally incorporated subsidiaries. The RBI believes it is only fair that there be a level playing field among all locally incorporated banks, which would now include foreign bank subsidiaries. But what is fair is not always right. In an ideal world, priority sector lending would not be something that was enforced by the rush of foreign investment that could swamp the banking industry. The entry of foreign banks may nothelpthecauseoffinancialinclusion if they snatch away high value customers from Indian banks, including the large borrowers in the prioritysector.Researchhasshown that such cream-skimming by foreign banks can even lead to smaller borrowers getting completely cut-off from banking if Indian banks increase their lending rates to cover for their loss of business. In order to encourage foreign banks to lend to small businesses

LETTER OF THE WEEK AWARD

Foreign banks are concerned about a stricter priority sector lending requirement, which kicks in when they become locally incorporated subsidiaries. In an ideal world, priority sector lending would not be something that was enforced by the banking regulator. But the RBI has been entrusted by the government to contribute to national development. This means that the government has passed to the banks its responsibility of helping the priority sector.
banking regulator. But the RBI has been entrusted by the government to contribute to national development. This means that the government has passed to the banks its responsibility of helping the priority sector. This is just another example of the government abdicating its responsibilities, like the recent move to force corporate social responsibility on private industry. Foreign investors can own up to 74 per cent of an Indian bank. But large shareholders need a say in the decision-making of companies owned by them so that profits, and thereby returns, on their investment can be increased. Voting rights of foreign investors have been raised from 10 per cent to 26 per cent, thus making foreign investment more attractive. Yet it is sufficiently low to prevent a mad and weaker borrowers, the RBI should strengthen the credit information system in India. If more is known about a potential customer, foreign banks will be able to factor in the risk while deciding on the loans terms and conditions. The finance minister has spoken of his desire to see two or three banks of global size emerging in India.Theonlywaythiscanhappenis through mergers or acquisitions. It is unlikely that such restructuring will happen in public sector banks, giventhattheunionsarestrictlyopposed to the idea. Research has shown that smaller banks, such as the associate banks of the SBI, stand to benefit the most from a merger. But the government is struggling to consolidate these banks. It seems consolidation can only happen in private banks, or if

public sector banks are privatised. The latest reforms are expected to bringinnewprivatebanksthatmay have the muscle to take over others. The RBI has been given more regulatory powers to supervise other companies of the group running a bank, as well as to supersede the board of a bank, if the need arises. This will give the RBI more confidence in accepting applications from industrial houses interested in setting up banks. But we should expect the RBI to be extremely selective in approving these applications. What about the public sector? Research has shown that the entry of new banks (domestic or foreign) puts pressure on the government to divest stakes in public sector banks. Only if that happens will we see consolidation in public sector banking.Ineithercase,theCompetition Commission of India (whom theoppositionmanagedtoretainas the protector of banking competition) may raise objections, unless it is convinced that consolidation does not preclude competition, which is necessary for financial inclusion and growth. Banking is said to be the engine that pulls economic growth, but heavy burdens will slow down any train. However, an engine needs fuel; only then will the train gather speed. Therefore, we need policies to provide income-generating opportunities among unbanked people, for which they require banking access. This will help sustain increased competition in the industry, which will in turn help broaden access. To help those who already have access to bank credit, we need to open up other avenues of financing, such as a stock marketforsmallerandyoungercompanies, and a vibrant corporate bond market. Finally, we need stronger credit information agencies and better accounting disclosures to help bankers give out loans to more of those who need them. The writer is associate professor of economics, Indian Institute of Management, Kozhikode
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EDITOR
Tribal denial
Christians in Palghar (Maharashtra) is deplorable (Facing boycott, claim Palghar Christians, IE, January 11). The Tamsai village panchayat seems to have victimised the local Christians to the extent that the tribal population has denied converting to Christianity. Police inaction seems to have added to their plight. If the state government cannot instil a sense of security among its people, the Central government should intervene. Subhash Kumar New Delhi
THE attack on the tribal

Letters to the

Raise the cost

THIS refers to Proud to pay

RITAMBHARA HEBBAR
HE recent dissolution of the Jharkhand assembly has brought to the fore the political uncertainty that hounds the state, with no leader or party managing to emerge as a viable representative of the people of Jharkhand. How does one interpret this feature, which many argue is unique to Jharkhand? Why is it that Jharkhand, particularly since its creation, has been haunted by controversy and political intrigue, and failed to evolve a leadership that could genuinely claim to represent its people? This question becomes important as many of the leaders who are now in the race for power were once at the forefront of the Jharkhand movement. Shibu Soren, the Santhali leader who, in the late-1970s and 1980s, could draw large crowds with his inflammatory anti-state speeches, is now haggling behind closed doors to form the government. It reflects the larger politics that informs not just Jharkhand but tribal areas across the country. Unlike in Dalit politics, electoral politics has been the weak link in tribal movements, most recognisably within the Jharkhand movement. It would not be a stretch to argue that electoral politics often clashed with the politics of the movement. Electoral politics blurred ideological divides, with the local Jharkhandi leaders

In Jharkhand, a gap between politics of the tribal movement and electoral politics
aligning with parties across the political spectrum. In the process, they often undermined the ideological basis of the movement. The creation of Jharkhand only strengthened this trend as it sowed the seeds of factional politics at a time when the movement was at its worst. The Jharkhand of the 1990s mostly belonged to the BJP, with their campaign for a separate Vanaanchal, while the Congress also tried to woo its constituency with the prospect of an independent Jharkhand. Presentday Jharkhand compromised on the original demand for greater exert a lasting influence beyond their tribe. This cost the movement heavily in the long run. There was a palpable gap between the politics of the movement and electoral politics, because of which the main concerns of the movement could never really sway elections. The movements lack of vision and direction when it came to the future of Jharkhand has only aggravated the situation. Interestingly, the last ten years have marked the reversal of many achievements of the Jharkhand movement. It has lost its mass base and, with it, the capacity to Jharkhand, despite being a dominant player, it still has to accommodate the compulsions of coalition politics. Within Jharkhand, there are innumerable localised protests against the policies of the government, even as the government struggles to find its bearings in the absence of a proper mandate from the people. No particular party or political configuration has been able to control and dominate the terms of governance in the state. Therein lies hope for Jharkhand. Political instability is a symptom of, rather than the cause for, distress in the state. It reflects the existence of society-state interface, however minimal. Chhattisgarh tells a different story of a feudal past and the caste dynamics that dominate its politics. Despite a supposedly stable government, Chhattisgarh continues to evade pressing issues like human rights violations and tribal selfgovernance. Tribal politics in the country has taken a turn for the worse in the last few decades. In the political flux of Jharkhand, it still has a chance to find a voice for itself again. The writer is with the Tata Institute of Social Sciences, Mumbai, and the author of Ecology, Equality and Freedom Engagement with Self-rule in Jharkhand
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State of ferment

(IE, January 11) by Shekhar Gupta. The rich do not seem to care about paying extra taxes or even a higher price for diesel. However, they purchase diesel cars because diesel is much cheaper than petrol and seem ready to take advantage of the subsidised rates for LPG cylinders. If the government removes the subsidies on diesel and LPG cylinders, people will learn to live with the realities of life. That could make it compulsory for the rich to pay more for diesel and stop them from taking advantage of the loopholes in the governments policy. This will also make commercial vehicles like trucks and buses pay more for diesel and ultimately push up the transportation costs of essential commodities. R.K. Kapoor Chandigarh

Town tragedy

.G. Wodehouses goofy, aristocratic Bertie Wooster had the incomparable Jeeves to pull him out of scrapes, make him magical cures for hangovers, lay out his clothes, serve his meals and tell him what hoochie coocher meant one of those demotic American words for ardent spirit. This dream of Jeevesian perfection must have inspired Prince William and his wife Kate to put out an internal advertisement in Buckingham Palace, calling for a super servant. Such a paragon would be required to walk the dog, clean the silver and drive the car, among other things, all in just 37 hours a week, although they should not crib about the extra hours. Finally, it is stressed that they should be absolutely discreet and loyal. This last is critical. Given the royal familys previous experience with employees, William and Kate have more to worry about than the sheen on the silver. Paul Burrell, butler to Princess Diana, once pro-

William and Kates advertisement for a super servant may be a piece of wishful thinking
fessed himself disgusted by the fact that people could give away royal secrets. He then swallowed his qualms to write A Royal Duty, a noholds-barred account of royal misdemeanors. In the late 1990s, lurid allegations made by one of Prince Charless footmen became the centre of a media storm. And its not just royals who are afflicted by freethinking staff. Recently, the pope had to forgive his former butler for stealing and leaking documents said to provide evidence of corruption in the church. British literature is strewn with instances of the faithful retainer, devoted to the family they are employed by remember the quietly despairing James Stevens in The Remains of the Day, or the fanatic Mrs Danvers in Rebecca. In todays world, with its changed social equations and the high returns of peddling information, the aristocratic dream of a super servant may just belong with these other characters, in fiction.

The butler did it

Although the movement produced some of the most formidable tribal leaders in the country, none of them could really exert a lasting influence beyond their tribe.
Jharkhand, which was to include tribal districts of West Bengal, Orissa and Madhya Pradesh. The map for the new state is perceived to have been drawn by diku (outsider) parties. Even at the height of the movement, identity politics inhibited the creation of a pan-Jharkhandi identity among the different tribes in the region over the issues of jal, jungle aur zamin. Although the movement produced some of the most formidable tribal leaders in the country, known for their charisma and political astuteness, none of these leaders could really bring together the various localised struggles in the state. Second, for the most part, the movement had been non-violent, except for a brief period in the late 1980s, which saw the rise of the All Jharkhand Students Union (AJSU). However, the spread of Maoism has changed the nature and focus of tribal resistance, reducing critical spaces for dialogue, necessary for the survival of any democracy. In neighbouring Chhattisgarh, created at the same time as Jharkhand, the BJP is hoping to continue its uninterrupted reign. In

town divided (IE, January 13). The report is a poignant commentary on the communal disturbances that rocked the town. The subtle message it tries to convey on the economic and social problems faced by different cities and towns in India cannot be missed. Bigger cities continue to be the financial and political hubs and smaller towns miss out, despite the tremendous unexplored potential they possess. Though employment opportunities abound in small towns, they have failed to attract young people due to the poor remuneration they offer and the continuing sense of insecurity that prevails in many of these towns. Moreover, the youth continue to migrate to cities for their educational and industrial promise. Ganapathi Bhat Akola

THIS refers to Dhule, a

The big picture

John Kenneth Galbraith

WORDLY WISE

The process by which banks create money is so simple that the mind is repelled.

HE most important measure of Egypts Islamist government will not be how it manages the economy or even whether it maintains friendly relations with the United States and Israel; it will be whether it preserves the democratic norms that allowed its own rise to power. If Egyptians are able to freely criticise the governments performance and can eventually vote it out of office if they are dissatisfied, the inevitable mistakes and occasional abuses of President Mohamed Morsi will be correctable. Morsi and his Freedom and Justice party, backed by the Muslim Brotherhood, insist that they are committed to the democratic system. They say that they will protect press freedom and allow all opposition parties to operate freely. After only a few months in office, however, there are disturbing signs that they may not stick to those promises.

Morsis curtailment of freedom of the press threatens the new and fragile democracy
Foremost among them is the increasing pressure being brought to bear on critical journalists. In recent months at least half a dozen prominent editors, writers and cartoonists have been the targets of criminal investigations, many of them launched by a prosecutor appointed by Morsi following complaints from the presidents office. The charges range from reporting false news to blasphemy; a cartoonist for the independent Al-Masry Al-Youm newspaper was accused of the latter after she published a cartoon depicting Adam and Eve... During demonstrations against Morsis government, his Muslim Brotherhood supporters took to the streets and were accused of targeting journalists; one was killed by a rubber bullet. From a leader in The Washington Post

Intimidation in Egypt

PRINTLINE

with film (IE, January 11). Viswaroopam literally means the bigger picture. Kamal Haasan is trying to break a cartel the association of theatre owners in Tamil Nadu. He has focused his attention on them because they seem to pocket a significant chunk of the profits from films. Actors especially the smaller artistes are aggrieved by the asymmetry of revenue sharing. The resistance put up by the theatre owners to the proposal made by Haasan may buy them some time, but they need to understand that DTH offers a novel, efficient way to provide content to an audience. Raghu Seshadri Chennai

THIS refers to Experiments