Saturday, January 29, 2011

India's "black money" trail

Why won't the government go after billions of dollars in stolen taxes?

By Jason Overdorf
(GlobalPost - January 28, 2011)

NEW DELHI, India — If it's true that Indians have stashed more than $450 billion abroad, why doesn't the government appear to care?

The stakes are high. According to international money-laundering watchdog Global Financial Integrity, the unreported overseas funds, or so-called "black money," amounts to a whopping 35 percent of the country's total gross domestic product.

And yet, the Indian government appears to be protecting these tax evaders, despite the fact that the money may be linked to terrorism, the arms trade and drug trafficking. The government has refused to divulge the names of 26 tax evaders with secret accounts abroad — possibly due to links to prominent politicians.

On Thursday, India's Supreme Court blasted the government for withholding the information.

"What steps have you taken? Have you set the law in motion?" the court demanded of solicitor general Gopal Subramanium, who has done everything in his power to avoid releasing the names of the tax evaders.

Though billions of dollars in lost tax income means India has that much less to spend on vital programs designed to uplift its poverty stricken people, there's more to the picture than tax evasion.

With a new corruption scandal surfacing seemingly every week, India's image with global investors has already been tarnished. And by dragging its feet on chasing black money, Manmohan Singh's United Progressive Alliance (UPA) government risks compounding the damage done by the alleged $500 million rice export scam [2], $1.5 billion Commonwealth Games scam [3] and the $40 billion 2G spectrum scam [4] — among many other scandals.

But most importantly, failure to stop the crony capitalism at the root of the black money trail could derail the economic rise of India — where the UPA is preaching "inclusive growth" but the country's 10 richest tycoons account for one-tenth of the entire economy.

This current controversy began in 2009, when former law minister Ram Jethmalani (an opposition legislator), former secretary general of the parliament Subhash Kashyap and several other prominent citizens filed a petition, alleging that the government hasn't taken effective steps to recover illegal funds secreted abroad.

The petitioners' case was strengthened in May 2010, when the government was virtually forced to accept a list of Indians with secret bank accounts in LGT Bank of Liechtenstein — part of a much longer list that Germany that had obtained from a former bank employee in the so-called "Liechtenstein Affair."

In fact, and ridiculously enough, when Germany first offered India the names of the Indian Liechtenstein tax evaders in 2008, the government did its best to avoid accepting them. Then, when it finally accepted the list, the government routed it through the prime minister's office and the directorate of enforcement so that citizens could not demand that the names be divulged through the country's powerful Right to Information Act.

"It's rubbish," said Supreme Court lawyer Kamini Jaiswal. People have a right to know, and this information must be divulged."

While Germany and the United States have already used the information about secret accounts in Liechtenstein to recover millions of dollars and prosecute tax evaders, India has made little progress on either score.

"Either they are protecting their own party members or the corporates who have bribed them," said Supreme Court lawyer Prashant Bhushan.

If India were to ratify the United Nations Convention Against Corruption — which India signed in 2005 but is still "studying" — the government could not only divulge the 26 names that Germany revealed but also the names of countless others, he argues. "If they were serious about investigating this illegal money they could easily do so," Bhushan said.

The Indian government has been roundly criticized by the Supreme Court and opposition parties for failing to publicize the names of the individuals involved or launch proceedings against them.

"You know the names and where the money is," the Supreme Court admonished on Thursday. "What action have you taken when you came to know that they have stashed money in foreign banks?"

For its part, the government claims that it cannot follow the money trail because of confidentiality clauses in its double-taxation avoidance agreement with Germany. But critics suggest that argument, as well as claims that the names cannot be divulged without compromising the investigation into the offenders, are just stalling tactics to protect unknown powerful people on the list.

"That [argument] is utterly dishonest," said Bhushan. "Germany openly offered this information to all the countries. It was not even information pertaining to German entities. It was pertaining to account holders to a bank in Liechtenstein, so there was no condition that it would not be revealed."

One of the reasons for the government's prevarication, says Bhushan, is that the illegal funds may also comprise billions of dollars in bribes paid to political parties and public officials.

The signs are pretty grim. Even as prime minister Manmohan Singh has been fighting the impression that his government has allowed corruption to thrive, his solicitor general has been battling tooth and nail to stall the investigation into ill-gotten gains.

Meanwhile, though the Supreme Court has taken an aggressive stance in this case, the judiciary is itself under fire for alleged corruption — after battling to prevent its judges from being forced to reveal their financial assets. As it turns out, the head of the central vigilance commission responsible for investigating all this alleged chicanery was appointed even while he himself faced corruption charges in his home state.

"The watchdog for corruption cases is touted to be corrupt, the judiciary that's looking into the matter is apparently corrupt, and the government is now defending people involved in black money and money laundering," said a lawyer close to the proceedings. "It's quite incredible."

Copyright 2010 GlobalPost – International News
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Thursday, January 27, 2011

India: Can tourism trickle down?

"Heritage" tourism moves from the palace to the hinterland.

By Jason Overdorf
(GlobalPost - January 27, 2011)

MORBI, Gujarat — Far below the terrace of the Darbargarh Palace in Morbi, Gujarat — once the fiefdom of a minor Indian prince — tenant farmers plow the floodplain beside the meandering Macchu river.

Car horns blare faintly in the distance. Across the water, smokestacks from the town's many tile factories gently puff soot into the sky. A parakeet swoops onto the terrace. Room service arrives with breakfast.

As the first guest to sleep under Maharani Uma Dubash Morbi's roof since she turned this 19th century, neoclassical palace into a hotel, I was surely at the frontier of so-called "heritage tourism."

"Heritage tourism" is the rubric that India uses for the forts, palaces and havelis that savvy or desperate owners have converted into hotels to prevent them from falling to ruins.

Once upon a time, virtually the only heritage hotels belonged to the grand Maharajas of Jaipur, Jodhpur and Udaipur in Rajasthan — the Indian state created from the erstwhile kingdoms of Rajputana, "the land of kings." These days India's rapid economic growth and a new Indian confidence about the country's postcolonial identity is bringing heritage tourism to the hinterland.

"Now we see a lot of people doing heritage tourism," said Prateek Chawla, co-owner of New Delhi-based Outbound Travels. "Everybody is restoring old properties. It's a big trend, and now it's moving to smaller places, with smaller, boutique hotels."

On the grand scale, the conversion of India's palaces into hotels began in Rajasthan in the early 1980s, after then-Prime Minister Indira Gandhi abolished the privy purses with which the erstwhile royals had sustained their colossal properties.

Suddenly robbed of a lifestyle that would put Fifty Cent to shame — with bathtubs filled with champagne, Rolls Royces made of gold and palaces that glistened with precious gems — first the Maharana of Udaipur, then the Maharajas of Jaipur and Jodhpur each converted their various properties into hotels or museums to avoid bankruptcy, turning the state of Rajasthan into India's leading tourist destination.

Soon, the former kings had outsourced the management to professionals, and Taj Hotels and Oberoi Hotels, India's top luxury chains, were dominating the business (Oberoi with spanking new, imitation palaces that rivaled the real ones).

But the acknowledged pioneers of the trickle-down movement, Aman Nath and Francis Wacziarg of the Neemrana Group, are of humbler origins. They first showed that even the tiny castles of obscure royals could turn a profit when they bought and restored an otherwise unremarkable 15th-century fortress in tourist-poor Haryana and converted it into a hotel in 1986.

Today, the Neemrana Fort is the flagship of a company that operates 23 intimate heritage hotels on the fringes of the traditional tourist's itinerary. Moreover, as the recent addition of Morbi's Darbargarh Palace shows, they are now pushing even harder to draw tourists into the unexplored heart of India — and that's providing new hope that India's rich architectural and cultural heritage will survive.

"For all people with ancestral properties, we at Neemrana have come to represent a company who turns liabilities into assets," said Nath. "By that logic, every week we get one or two offers from people who want us to buy or manage their forts or palaces. We're buried by it. We're forever looking at properties."

That could be a big boost for India's forgotten places. According to the Ministry of Tourism, the travel industry — which generates substantially more jobs per dollar of investment than either agriculture or industry — can be a major source of employment and economic growth in areas of India that have yet to benefit from the current boom.

To capitalize, the country will need to draw more tourists — last year 5.6 million foreign tourists visited India, generating nearly $15 billion in revenue, but tiny coup-plagued Thailand, next door, saw 15 million tourists spend nearly $20 billion. But it will also need to draw travelers to rural areas and smaller towns, which is one of the national tourism policy's expressed goals.

Some of Neemrana's core properties are in strong locations for tourism — like the Glasshouse on the Ganges, near the Hindu pilgrimage town of Rishikesh, or the Hotel de L'Orient, in the one-time French colony of Pondicherry. But the latest additions are pushing the idea — common throughout Europe — that a charming hotel can itself draw tourists to places like Patiala, where the group operates the Punjab's first heritage hotel in the 19th-century Baradari Palace.

"What we claim to do is give an authentic image of a particular area, by sticking to the way the palaces were furnished in the olden days and serving the food of the area and also employing the local people so the body language belongs to that area," said Wacziarg. "The entire approach to hospitality is different."

Take Morbi, for example. The closest sizable city to this small, industrial town is Ahmedabad — the better part of a day's drive away — and even that city struggles to attract many tourists, not least because alcohol is forbidden in Gujarat. Apart from Darbargarh, the only real attractions in Morbi itself are a couple clock towers, a swinging footbridge that spans the Macchu, and a Hindu temple that's only 70 years old. Yet Neemrana's founders are confident that they can make the old palace go as a hotel, and in the process introduce seasoned tourists to rarely visited sights such as Lothal — an ancient harbor city of the Indus Valley civilization that dates back to 2400 B.C.

"We think when you put somebody out in the wilderness, you will find some 1500 or 1000 year old site," said Nath. "For the real traveler, it's very hot to make private discoveries, not just to go to the Taj Mahal."

India's profit-minded entrepreneurs aren't far behind. Along with older firms like HRH Hotels (where HRH stands for His Royal Highness, the Maharana of Udaipur), large hotel companies like ITCWelcom Group's WelcomHeritage and smaller upstarts like the Pachar Group are restoring properties and forming marketing tie-ups with otherwise isolated hoteliers. WelcomHeritage, for instance, which handled just five heritage properties in 1997, now markets 67 small, niche hotels in 18 states.

"There are a lot of smaller agents doing similar work," said Pankaj Gupta, Chawla's partner at Outbound Travels. "They get a bigger commission from the heritage properties, which they add on and send to people like us. They're only doing B2B work, and they've made people like us aware of the products."

Copyright 2010 GlobalPost – International News
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Saturday, January 22, 2011

India's red-hot art scene

What will it take for the Indian Art Summit to be the next big thing?

By Jason Overdorf
(GlobalPost - January 23, 2011)

NEW DELHI, India — Inside New Delhi's Pragati Maidan convention center, workmen with electric drills, staple guns and masking tape rushed to hang paintings, power up video installations and position sculptures for the public opening of India's largest art fair today.

The atmosphere was frenetic, and the exhibitors were harried, but the excitement and optimism was palpable.

"It will take a few more years to get established as a significant international art fair, but I'm very optimistic about it because of the circumstances and focus on India," said Gigi Scaria, an artist with several works for sale here. "The world is turning toward India, so that momentum is crucial."

In its third year, the India Art Summit, which opens to the public today, is staking its claim as the next big art fair on the international calendar — hoping to compete with London, Miami and Basel within the next decade. Lured by India's red-hot art market and growing number of art buyers, some 75 galleries will participate, top experts will speak on art in emerging markets and an education series will be conducted to inform buyers.

But even as more and more contemporary Indian artists cross the $100,000 threshold and experts predict the market will grow more than 10 times by 2018, artists and gallery owners are concerned that India lacks the institutions needed to build a strong body of serious, knowledgeable collectors.

"That's down the road," said Deepak Talwar, whose New York-based Talwar Gallery promotes several prominent Indian artists. "The amount of time it takes to get there will not just depend on the [Indian Art] Summit or any one factor. The biggest factor that will influence that is even some small interest from the government in terms of giving a little more attention to the art institutions, creating some new ones and improving the ones that they have."

Indeed, India's public art museums are in dismal shape. There are only a handful of institutions, their permanent collections are small and unimpressive, and the state of curating is dismal. Until its renovation last year, for instance, viewing the permanent collection at New Delhi's National Gallery of Modern Art felt like stumbling on a few paintings in the basement of a college library, and even post-renovation, the ongoing show of the impressive works of sculptor-architect Anish Kapoor is marred by haphazard organization.

"Do they have any independent curators there? No. It's one bureaucrat making all the decisions," said Talwar.

That absence of state-run institutions has raised the stakes for the summit, which has to play a larger role than a typical sales-focused art fair. In a sense, it is emerging from the vacuum as a kind of focal point for the developing art scene, helping to create critical mass for budding domestic galleries and a host of disparate private initiatives aimed at creating institutions whose concerns run deeper than tracking the auction prices at Christie's.

Apart from the 84 galleries that have taken booths at the fair, displaying some 500 artists, most of the New Delhi-based galleries have timed openings to coincide with the summit. On Wednesday night philanthropist Kiran Nadar launched a stunning private museum in the heart of the city's shopping district. And Czech carmaker Skoda will announce the winner of its new prize for contemporary art on Friday evening — as the art summit opens to the public.

Essentially, three years after its rather humble beginning, the Indian Art Summit has created a reason for everybody interested in the future of Indian art to be in India in the same place at the same time.

Since the first Indian Art Summit, in 2008, the number of exhibiting galleries has tripled, the number of visitors is tipped to grow from fewer than 10,000 people to more than 60,000, and the value of works sold at the fair is expected to reach nearly $10 million, compared with less than $2.5 million in its first year.

Moreover, the number of international galleries attending this year — while still modest at only 34 — has doubled since 2010. And even though the bigger names, such as London's Lisson Gallery, are here promoting top Indian artists such as Anish Kapoor, smaller and hungrier international galleries are dipping their toes in the water to see if India's burgeoning art collectors can be tempted to look beyond Indian art. That means that works by Pablo Picasso, Henri Matisse, Salvador Dali and Damien Hirst are on the block, but also a host of lesser known artists from the U.K., Europe and Asia.

"With the Indian GDP booming and the number of Indian millionaires on the rise, a section of the international galleries are interested in exploring the potential of promoting their program to the Indian collector base," said Arvind Vijaymohan, a consultant who advises art buyers. "The Art Summit is the most viable platform in the current context for anyone interested in connecting with Indian collectors."

Friday, January 21, 2011

India's military shopping spree

Analysis: India plans to spend $100 billion to modernize its military. But how likely is success?

By Jason Overdorf
(GlobalPost - January 21, 2011)

NEW DELHI, India — Nearly 30 years after its inception, India's supersonic light combat aircraft was finally cleared for induction into the air force this week — four years behind schedule, $500 million over budget and still propelled by an American-made engine.

Now, New Delhi is getting ready to double-down.

"After the Tejas [aircraft] accomplishes a series of milestones, the country is poised for a major turning point," Defense Minister A.K. Antony said at the test flight ceremony in Bangalore on Monday.

With a whopping $100 billion earmarked for defense purchases this decade, India has its sights set on simultaneously modernizing its moribund military and jumpstarting its own lame duck defense industry.

But there's a long way to go. Shortly before YouTube videos surfaced of a Chinese stealth fighter, India's Defense Research and Development Organization (DRDO) in all seriousness unveiled a domestically designed and developed... airship.

"There's a gap between their ability and their claims," said Anit Mukherjee, a research fellow at the Institute for Defense Studies and Analyses. "They may not be able to do a Fiat, but they claim to be able to build a Ferrari."

Meanwhile, the stakes couldn't be higher. A modern military is essential if India is to take a larger role in Asia and the Indian Ocean — where China is swiftly gaining influence. The DRDO is 40 years behind schedule and $1.6 billion over budget, the defense minister said in May. And its most ambitious and vital projects have by and large been failures.

While that might be embarrassing for India, it's a huge opportunity for U.S. suppliers like Lockheed Martin, Boeing and Northrop Grumman. But Washington will need to cut some of the red tape associated with U.S. arms deals to leverage American industry's cutting-edge defense prowess to reshape U.S.-India relations. And New Delhi will need to defeat the rearguard resistance to private industry posed by the left to transform its domestic defense industry.

"There are three gods in Hinduism: Brahma, the creator; Shiva, the destroyer, and Vishnu, the preserver. You will need all three to reform our aerospace sector," said former Air Vice Marshal Kapil Kak, who now heads a think tank called the Center for Air Power Studies.

The first step will be Shiva's job: destroying — or radically restructuring — the existing system.

India's department of atomic energy has built a nuclear bomb and its space agency has sent a rocket to the Moon. But since 1992, when APJ Abdul Kalam declared that India should aim to make 70 percent of the equipment used by its military by 2005, the DRDO has "invented" radar and sonar systems, combat rifles, an artillery gun and cold weather gear for soldiers posted on the Siachen glacier — all of which it could have bought off the shelf elsewhere (including North Face).

Various ballistic missiles have failed in the testing process. Army personnel say the Arjun tank doesn't shoot straight. And even after it gets a second-generation engine in 2014, again from General Electric, critics say the Tejas — which was jointly produced by the DRDO and state-owned Hindustan Aeronautics Ltd. — will not be able to compete with state-of-the-art fighters.

"DRDO has not produced anything that would change India's strategic condition in any way," said Sunil Dasgupta, a defense expert with the Brookings Institution. "After all, that's the entire point of military research and development."

As a result, India is preparing for a foreign shopping spree. According to a recent study by the consultancy firm KPMG, India is expected to buy $100 billion in foreign weapons by 2022. In the pipeline already are a $10 billion contract for 126 multi-role combat aircraft, a $7.6 billion tender for 12 stealth frigates, a $3.5 billion deal for seven submarines and a $3 billion contract for 197 light helicopters, among other items.

But Indian industry could benefit, too, if New Delhi plays its cards right. If it succeeds in leveraging its planned big-ticket purchases and its attractiveness as a manufacturing center for global suppliers to encourage technology transfers, KPMG argues, India could become one of the world's key sourcing destinations for defense systems and equipment, fueling technology spinoffs for a host of industries.

"If you look very conservatively, over the next 20 years, India will require about 1,200-1,500 aircraft in the civil sector alone," said Kak. "If you take the military aircraft, the military and civilian infrastructure, and you put it all together I see in the next 20 years a market of between $250 and $300 billion."

That's not the only reason the intersection of the commercial and military aerospace industries presents exciting prospects. There's a lesson in history, too. Prior to India's 1991 economic liberalization, the country's automobile sector was in much the same condition as its aerospace industry is today — with only two state-owned manufacturers, both relying on outdated designs to generate a pittance in sales.

Since opening to joint ventures and later direct foreign competition, however, India's car industry has grown more than tenfold in sales and manufacturing capacity — producing nearly 2.5 million cars a year, compared with less than a million in 2003. More than 40 Indian auto parts companies generate $100 million or more in annual revenue — supplying components to virtually every carmaker in the world. And half a dozen of the world's largest auto companies have invested $500 million or more in the past year to make India a global hub for small car manufacturing.

Aerospace could be looking at its own reform-era boom, following the government's decisions to open up the defense industry to domestic private companies and allow limited foreign direct investment in defense in 2001. Already, Mahindra Defence Systems has inked a deal with Seabird. Tata Advanced Systems has formed agreements with Boeing, Israel Aerospace Industries and Sikorsky Aircraft. And Larsen and Toubro has signed pacts with the European Aeronautic Defence and Space Company (EADS), Boeing, Raytheon, the Russian Aircraft Corporation (RAC MiG), Saab Gripen and Lockheed Martin.

"The Indian aerospace industry, both military and civil, stands uniquely poised today, on the threshold of catapulting itself into the global arena," the consultancy PricewaterhouseCoopers wrote in a recent industry report.

But both New Delhi and Washington will have to break existing paradigms for U.S. suppliers to seize the opportunity and bolster the ongoing transformation of U.S.-India relations.

For decades, India has preferred to buy arms from Russian defense companies, due to the erroneous impression that its state-owned firms are less prone to corruption — especially after allegations of kickbacks from Sweden's Bofors brought down Rajiv Gandhi's government in 1989. Moreover, Indian strategists until recently deemed American companies to be unreliable weapons suppliers, following America's gunboat diplomacy in the 1971 war between India and Pakistan, the U.S. decision to equip Pakistan's air force with the F-16 in the 1980s, and the imposition of sanctions in response to India's nuclear tests in 1998.

At the same time, America's private defense firms — in contrast to state-owned rivals — will likely have deep reservations about the demands India is making in return for access to its large and fast-growing weapons market. The terms of the multi-role combat aircraft contract, for instance, require that a massive 50 percent of the total outlay be outsourced back to Indian industry in what is known in the industry as "offsets." And the absence of any significant privately owned Indian defense companies will make meeting that requirement difficult for American firms — which unlike their Russian rivals are reluctant to form joint ventures with state-owned enterprises.

"I don't think Indian officials accept this idea that government can fund research without actually conducting it. There are no startups, no programs whereby people can come together in garages to develop new technology," said Dasgupta, who co-authored "Arming without Aiming: India's Military Modernization," with the Brookings Institute's Stephen P. Cohen. "That is something that needs to happen in order to foment the activity that breeds innovation."

To overcome those obstacles, Washington will need to cut some of the red tape associated with U.S. arms deals and begin to treat India like the "strategic partner" it is meant to be instead of a subordinate ally.

For example, India at first baulked at signing America's boilerplate logistical supply agreement and proliferation security initiative, because some Indian policymakers feared it would force India into toeing the U.S. line on foreign policy.

Meanwhile, New Delhi will need to shake off its fears about private firms in the defense sector — whether related to corruption or sovereignty. At the simplest level, that means opening defense and aerospace further to foreign direct investment and removing the remaining tax incentives and the like that give state-owned firms a cost advantage. But it also means formulating a defense industrialization policy that identifies and prioritizes the technologies and capacities it wants to acquire, and amending the existing offset policies, according to KPMG.

Currently, India doesn't offer its foreign suppliers any offset multipliers — which encourage technology transfer by giving desired technologies a greater offset value than the contract's actual dollar amount. (For example, if India assigned jet engine technologies a multiplier of 7, then choosing a local company to manufacture $100 million in components would earn the foreign firm $700 million in offsets). But most importantly, India will need to re-envision its current narrow definition of privatization — which doesn't allow for government-funded research unless one of its moribund government labs does the work.

"The biggest long-term thing is to create a procedure whereby research can be independent from the state," said Dasgupta. "If that can happen somehow the pace of innovation will get faster."

Copyright 2010 GlobalPost
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Friday, January 07, 2011

Food crisis threatens India

In a country where cost of onions has toppled two governments, Singh has to act fast.

By Jason Overdorf
(GlobalPost - January 7, 2011)

NEW DELHI, India — Alok Kumar, a 30-year-old father of two, is worried. Though the monthly salary he earns as a chauffeur in New Delhi amounts to about half the sum the average Indian earns in a year, high prices have forced him to stop giving his children their allowance and eliminate essentials from his family's diet.

"We used to live on 3000-4000 rupees a month, and that has gone up to as much as 13000," Kumar said. "At home we don’t even use onion and garlic now. Not at all! That has made the food bland and tasteless. Yes. But what else can we do? We have no way out. We are helpless.”

Kumar is hardly alone. The specter of another food crisis has the whole world nervous. But in India, skyrocketing food prices threaten to send the entire economy into a tailspin, as the government struggles to balance growth and inflation — and create a safety net for the millions still mired in poverty.

Government data revealed on Thursday that India's food inflation topped 18 percent for the week ending Dec. 25, with vegetables prices up more than 50 percent from the same period last year. The steep increase came as a surprise to economists, who had predicted a moderation in prices due to last year's good monsoon.

For India, a spike in food prices means real suffering. But a prolonged and seemingly unstoppable rise in the cost of basic commodities like the one India has witnessed over the past two years could have farther reaching effects.

"If food prices rise, wages go up because workers will demand high wages," said Dharmakirti Joshi, chief economist at Crisil, the Indian arm of Standard & Poor's. "Wages going up make cost of products go up, and manufacturers will try to pass it on to the consumer. It's called a wage-price spiral."

That's grim news for Prime Minister Manmohan Singh's United Progressive Alliance (UPA) government, which has already seen its approval rate plummet. According to a recent India Today/AC-Nielsen poll, the UPA has since August fallen behind the opposition in nearly 20 percent of the parliamentary constituencies it won in 2009. In a country where economists track inflation every week, instead of every month, and the cost of onions has brought down two governments, that means Singh has to act fast. The trouble is, there may not be anything he can do.

“We are not sure whether we have all the tools in our hands to control food inflation,” former Finance Minister P. Chidambaram, who is now the home minister, said earlier this week.

Since coming to power for its first term in 2004, the UPA has sought in vain for "inclusive growth" that will bring the rural poor out of poverty as rapidly as it creates wealth for the elite and middle class. The stopgap answer has been social welfare programs like the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS), which ensures that rural laborers get 100 days of work per year. But economists argue that the NREGS has only driven up prices, especially for items like milk, eggs and vegetables, as the poor begin to buy better food and change the ratio of demand to supply.

Now, to avert a crisis, the government has no choice but to increase the wages paid under the scheme, even while the central bank tightens monetary policy to rein in inflation. Essentially, India's politicians are driving up demand at the same time that its fiscal authorities seek to curb it. Thus, the same day that the gaudy inflation numbers came out, Rural Development Minister C.P. Joshi announced wage increases of 17-30 percent for NREGS workers, and economists pushed the Reserve Bank of India (RBI) to add another hike to the 150 basis points it has boosted its benchmark lending rate since mid-March.

The bottom line: India will have to sacrifice growth to stave off inflation. But tightening money supply to slow demand for fuel and concrete may not be enough to avert a food crisis.

"It's going to be a very difficult balancing act for the government to maintain growth expectations over 8.5 to 9 percent," said Shubhata Rao, chief economist at Yes Bank. "Some growth will have to be compromised in its focus toward inflation management."

Complicating matters, the very reason that India was able to weather the global financial crisis may make it more vulnerable to the food crisis.

India's economic growth is driven by domestic demand — not exports — so India didn't blink when the United States hit the skids. But that same domestic demand, fueled by the rising incomes of the middle class and government spending on the poor, has put new pressure on the supply of oil, steel, cement and everything else. And the meltdown elsewhere has pushed hot money into India, further feeding the fire.

In agriculture especially, economists say, supply has not kept up with demand.

The core problems are poor supply chain management, stagnating investment and diminishing returns from the green revolution's prescription of chemical fertilizers, pesticides and heavy irrigation. But some agriculturalists argue that these issues are exacerbated by the current attempts to solve them — by dismantling government-regulated pricing, creating a commodities futures market and encouraging industrialized agriculture. Thus, while pro-market and anti-industry experts alike blame middlemen for exaggerating the price rise by hoarding items like onions, there are deep divides over what action should be taken.

On one hand, market reformers argue that big retail — and foreign players like Walmart — must be allowed a freer hand in Indian agriculture to encourage investment and streamline the supply chain. On the other, left leaning farmer advocates say that the government's "market mantra" and politicians' dependence on traders for campaign financing has prevented timely and efficient moves to curb profiteering.

"The country does not face a constraint on the supply front," said Devinder Sharma, a farm policy analyst. "If it is happening it is because the middleman is making a killing."

Whoever is to blame, no country fears skyrocketing food prices more than India, where some two-thirds of the billion-plus population lives hand to mouth.

“We are barely managing because of the price rise," said Jai Chand, a 32-year-old security guard. "My children have become thin because we can’t give them enough milk. We eat vegetables once a day and sometimes not even that."

Copyright 2010 GlobalPost – International News
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Sunday, January 02, 2011

Industrial espionage booming in corporate India

Insiders say government phone taps are just the tip of the iceberg.

By Jason Overdorf
(GlobalPost - January 2, 2011)

NEW DELHI, India — For the past month, Indian business leaders have watched in horror as a series of tapped telephone conversations between a powerful lobbyist and top industrialists have surfaced in the press.

But local security experts say the revelations associated with the alleged 2G telecom scam are just the tip of the iceberg when it comes to vulnerable company secrets. In India's fast-growing economy, they say, no industry is booming bigger than corporate espionage.

"If you look at all the companies doing business in the electronic sector in India, the chances are that four out of 10 would invariably have faced or are facing such issues," said Pavan Duggal, a supreme court lawyer who specializes in cyber law. "The reality is that these thefts of intellectual property rights and confidential data are hitting the corporate world in a big way."

Cut-throat competition provides ample motive, as companies battle to carve out brand positions, retain top talent and develop new products. A lax legal environment allows spies to operate with relative impunity. And a boom in white collar jobs means that employees shift jobs every few months — making it all too easy for companies to plant a mole in competing operations, and all too tempting for job-jumpers to walk away with sensitive information or protected intellectual property.

"The perpetrators of unauthorized access of corporate data do it with impunity, knowing full well that the law is deficient and that it will take a long time for them to be prosecuted," said Duggal.

According to a recent survey conducted by the consultancy firm KPMG, 14 percent of Indian companies have been victims of corporate spying, while another 39 percent fell prey to intellectual property theft and computer-related fraud — and business-sensitive information and user IDs/passwords were the principal targets.

The potential losses from this kind of spying are difficult to calculate — since nobody knows what effect a stolen ad campaign might have had, or how a stolen design might have dominated the market. But there's no doubt that big money is at stake. Early this year, for instance, India's Thermax agreed to pay Pennsylvania-based Purolite International $38 million to settle a lawsuit over the alleged theft of proprietary water purification technology.

"You may not use [your competitor's] research work," said Kunwar Vikram Singh, president of the Indian Council of Corporate Investigators. "But suppose you have already developed your own brilliant idea. Even to launch that brilliant idea in the shape of a product you must know the market."

The spies aren't always after new technology. The targeted information ranges from client lists to proprietary software to advertising strategies, says Singh.

Not long ago, for instance, a company was readying a new ad blitz when, on the day before the launch, executives saw their planned slogan all over the city on their morning commute — on billboards advertising one of their competitors.

In another case, one of the country's foremost motorcycle and scooter manufacturers lost the design and specifications for an upcoming model to a competitor through a spy planted with the contractor that was running the company cafeteria.

"They planted a guy ... who knew a little about IT and could become friendly with people, and then when the office was closed he would access employees' computers and get the information out," said Ravi Kapur of ACE Detectives, the private investigator hired to plug the leak.

Part of the problem is that Indian laws governing these areas are weak and ambiguous. India has no specific data protection law, so the theft of sensitive information like marketing strategies or employee salaries — which is not governed by intellectual property laws — throws up a host of legal questions.

And while the unauthorized downloading or copying of computer files is illegal, the civil and criminal penalties are minor compared with the sums at stake for corporations. A criminal booked for data theft under the Information Technology Act, for instance, faces a maximum three-year term in prison and a maximum fine of around $10,000, and the most a victim can seek in civil damage is about $1 million — which the Thermax-Purolite settlement reveals as a pittance.

"It's extremely lax," said Kapur. "People don't generally get caught. Then, even if this guy gets caught, they're not after this guy [who took the information] — they're after the competitors. Now, to ensure that the whole chain gets into the loop is not the easiest of tasks."

Private investigators have been the biggest beneficiaries, as the budding industry profits from both sides of the information war. While none of the detective agencies interviewed would admit to conducting actual corporate espionage, firms that perform similar work — such as planting spies for clients within labor unions — say that they get requests to steal competitive information on a daily basis.

Moreover, there's almost as much money to be made in protecting firms from spies as there is from spying on them, not only through investigating leaks, but also in risk analysis, security systems design and — since it's the enemy inside that's most feared — employee background checks.

And that means going to work for an outsourcing company is starting to seem like applying to the Pentagon.

"Before, people were reluctant to snoop around," said Singh. "Now, they go deep."

Copyright 2010 GlobalPost – International News
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