Inflation in India : The Blues

WPI (Wholesale Price Index) inflation is at 6.58 per cent; and “in view of the paramount need to contain inflation expectations”, the RBI has yet again upped the cash reserve ratio of banks by half a percentage point to 6 per cent of net demand and term liabilities.

How serious is our current bout of inflation? What drives it? Can RBI’s monetary and credit tightening policies work? If not, what will?

For all of corporate India’s good news, ours is a nation of over 500 million poor people. That being so, every government in India is hyper-sensitive about inflation. As Mr P. Chidambaram once said to me, “At 6 per cent inflation, the government’s boat starts to rock; at over 8 per cent, there can be blood on the streets.

As the chart shows, the 13-w MA of primary product inflation has been rising since May 2006, and now stands at 8.4 per cent, with no signs of letting up. Incidentally, the point-to-point primary products inflation on 27 January was 10.7 per cent. Manufactures inflation has increased from 1.9 per cent in early May 2006 to 5.2 per cent today, and is still on the rise — with the latest point-to-point estimate being 6.2 per cent. The saving grace has been fuel, power and lubricants, whose inflation has dropped significantly since July 2006, and stands at 4.1 per cent today, with the point-to-point at 3.7 per cent. Had crude reigned at $70 per barrel, we would have faced a WPI inflation of over 7.5 per cent.

If you carefully look at the data, you will be convinced, as I am, that our current WPI inflation is driven largely by supply side factors. That being so, there is little that monetary policy can do other than reduce money supply, hike interest rates and, in the process, possibly choke some of the growth impulse. When inflation is supply driven, it requires freeing up imports of primary products, sharply reducing tariffs on manufactures, and betting on a plentiful rabi crop. In any event, we are possibly looking at over 6 per cent inflation for another month or two.

But since RBI must be seen to be doing something, act it certainly will. So, expect yet another round of credit tightening fairly soon — which will not really dampen WPI inflation but can harm growth.

So Bright .............

Twist of fate, Destiny awaits,
Throw me off a cliff and watch me fly,
I will see that you are left dry,
Blood and gore will always be mine,
I know I aint a monster but still I wont sublime,

Crawl through me and take my blood,
You will feel the poison that flows like flood,
When you see the stars you will feel their pain,
Its time to realize that you have turned insane,

Fear the wrath above ur head,
I will make you realize as I said,
That poison aint just your food,
Coz I live upon it and now I am more shrewd.

You know its never over when you think it is,
It’s just the time you mite have bought on lease,
Wait for the time to come again,
Yet another history rewritten on this stage,

I will see that you soon realize,
It’s not just sickening thought but a sickening sight,
I shall rise and I shall fight,
But fight with whom, the one that gave me light??
Ahh - are you the one who gave me light?
Then show me that this light is not the light of darkness -

Not the light of darkness that switched so bright………

A Vampire's Tragedy

Alone I sit on the top of a hill
thinking of how my un-life has been
Of the pain and the sorrow I've seen
In the eyes of my victims before they lay still.

Though a hunter in darkness I must be
the feelings of guilt always come back
when I sink my teeth in another man's neck
My conscience is the only light left in me.

All I want is to leave the shadows behind
And truly this time I will
For I no longer desire to kill
Thoughts of light are now on my mind.

I'm waiting for the sunrise today
On the lonely hill where I sit
And maybe, I'll catch a glimpse of it
Before the wind blows my ashes away.

SEZs - Gainful or Lossy?

Special Economic Zones are expected to facilitate exports worth Rs 3,40,352 crore by 2009-10. But even if the target is met, it will cost Rs 22,913 crore in direct taxes foregone in the year, according to the revenue department. Calculations by the department show that exports from SEZs will grow from Rs 61,734 crore in 2006-07 to Rs 3,40,352 crore by 2009-10. The loss on direct taxes will grow from Rs 4,156 crore in 2006-07 to Rs 22,913 crore in 2009-10. (The profit margin on exports has been assumed at 20 per cent.) On the indirect side, the government will incur a tax loss of Rs 8,147 crore by 2009-10. Indirect tax foregone will, in fact, decline —from Rs 14,936 crore in 2006-07 to Rs 8,147 crore in 2009-10.

These estimates have been worked out taking into account only 70 SEZs. “After this, about 230 more SEZs have been granted approval. So you can imagine the volume of revenue foregone,” says a finance ministry source.

Total revenue loss has been estimated at Rs 1,02,621 crore for the period 2006-07 till 2009-10 — Customs concessions will amount to Rs 29,700 crore, excise Rs 10,368 crore and service tax Rs 8,813 crore. The total projected investment lined up to the first board of approval meeting is around Rs 1,75,000 crore, based on which the finance ministry has made these calculations.

Even as the controversy raged — and has now taken on deeply political overtones — finance ministry officials maintained that there were still many concerns on the SEZ policy. One, they argue, there is absence of a level playing field between manufacturing units within the SEZ and those in the Domestic Tariff Area (DTA). “It will soon not make any sense for anyone to operate in the DTA,” explains one official.

Then, there will be large revenue loss on account of tax concessions for exports of goods that are already being exported without such concessions. “The SEZ policy, and the tax concessions it offers, is coming at a bad time when we want to look at phasing out tax concessions and reducing the government’s total tax expenditures”, says one official.

The ministry is keen that a clear time frame should be set for phasing out all exemptions. Its view is that barring senior citizens, defense personnel and physically handicapped persons, all tax concessions on the direct and indirect side should gradually be phased out.

The Indian Digital Migration

India stands on the threshold of entering the digital cable television era, with cable operators in the country's largest cities—Delhi, Mumbai and Kolkata.

To speed up this ‘Digital Migration', India's broadcast regulator, the Telecom Regulatory Authority of India (TRAI), supported by the judicial and executive branches, has sketched out a fine blueprint for the transition to digital cable operations. The entire switch to digital cable television is set to be completed by the time India hosts the Commonwealth Games in 2010.

Every society has its own set rules and ways of doing business, and soon the broadcast stakeholders—broadcasters, multi system operators (MSOs), cable operators and subscribers/viewers—will find themselves in new territory as the rules guiding digital migration are implemented in India. Based on the experiences of other countries that have gone through digital migration, along with regulations that fit each society, everyone in this broadcast value chain will discover a spectrum of new possibilities as this era unfolds.

India's expanding middle class, its vibrant Bollywood film industry, and its steady advances in broadcasting technologies are all laying the foundation for the introduction of digital cable television, which will deliver a new freedom of choice for viewers in terms of television channels and content, an enforced truce among broadcasters, MSOs and cable operators, and reduced fees for subscribers.

A unique feature of digital migration is that everyone in the broadcast value chain will become a stakeholder, since subscribers are identifiable, and every link in the chain can be managed through a Conditional Access System (CAS).

This CAS, or addressable system, is a description used for a matrix of set top boxes (STBs) and connected software used at different stages in the distribution of a TV network, through which normally the pay channels are transmitted in encrypted form. The subscriber is given an authorisation depending upon his request to view one or more encrypted pay channels of his choice. This authorisation is given and managed by the MSOs that own the conditional access system in a digital cable television network. Here, the MSO is often assisted by the local cable operator. The MSO and the broadcaster will know the exact number of subscribers per pay channel, and the amount that is due from each subscriber.

The present practice in India is that the MSO, after buying/receiving the signals of various channels from different broadcasters, bundles them into a single “bouquet” and transmits them to individual subscribers' homes through the cable operators, and charges for the entire bundle. This sometimes results in a subscriber paying for channels he does not want to see, but has to pay for because they are part of the bundle. However, with the introduction of conditional access following TRAI's mandate, it will be possible for the consumer to decide and choose which channels he or she wants to view and pay accordingly.