06 AUG 2012 All in it together

Pointing out that the growth slowdown in the emerging markets has been a bit more severe than expected, the IMF revised the forecast for China down from 8.2 to 8 per cent, for India from 6.9 to 6.1 per cent and for Brazil from 3.0 to 2.5 per cent. Low exports and low investment are the proximate causes for the deceleration, although quite obviously there is variation across countries. The IMF, among others, expects the big emerging economies to have a soft landing, but at lower growth rates. The challenges from now on will be varied and different for each of them. Can India expand at 8 per cent levels while simultaneously taking care of its high fiscal and current account deficits and persistently high inflation? China is planning a shift away from investment-driven growth to a more sustainable one driven by consumption, even if that means a lower GDP growth rate. Brazil, an important commodities exporter, has welcomed the recent depreciation of its currency, the real, quite in contrast to the reactions that have greeted the rupees recent fall. Russia will have to reduce its overdependence on oil and gas. While no uniform prescriptions for either the emerging economies or for that matter the developed ones are possible, it is time again to re-emphasise the mutual interdependence of all countries. The festering euro crisis is a global problem and a fair resolution will benefit even countries outside the eurozone. A stronger U.S. economy will stimulate world trade. The financial markets have already discredited the decoupling theory, which held that emerging markets can grow independent of negative influences from the West.

Disturbing trends in judicial activism

Activism, like beauty, is often in the eye of the beholder. In India, the opening up of access to courts to the poor, indigent and disadvantaged sections of the nation through Public Interest Litigation, popularly known by its acronym PIL, is unexceptionable judicial activism. In 1979, Supreme Court advocate Kapila Hingorani drew the Courts attention to a series of articles in a newspaper exposing the plight of Bihar undertrial prisoners, most of whom had served pretrial detention more than the period they could have been imprisoned if convicted. Sunil Batra, a prisoner, wrote a letter to Justice Krishna Iyer of the Supreme Court drawing his attention to torture by prison authorities and the miserable conditions of prisoners in jails. This was taken up as a petition and the Court passed orders for humane conditions in jails. In 1980, two professors of law wrote a letter to the editor of a newspaper describing the barbaric conditions of detention in the Agra Protective House for Women which was made the basis of a writ petition in the Supreme Court. The exploitation of workmen at construction sites in violation of labour laws was brought to the attention of the Supreme Court by a letter. The slave-like condition of bonded labourers in quarries was brought to the attention of the Court by a social activist organisation. A journalist moved the court against the evictions of pavement dwellers of Bombay. Several cases of this type followed. In dealing with such cases, the Court evolved a new regime of rights of citizens and obligations of the State and devised new methods for its accountability. In 1982, Justice P.N. Bhagwati, correctly stated the purpose of PIL as it originated. He emphasised that PIL a strategic arm of the legal aid movement which is intended to

With PIL, the common man, the disadvantaged and marginalised sections of society had also easy access to the Court with the help of social activists.

bring justice within the reach of the poor masses, who constitute the low visibility area of humanity, is a totally different kind of litigation from the ordinary traditional litigation .

This unique judicial activism was not found in other countries and leading judges abroad such as Lord Harry Woolf of the United Kingdom and Justice Michael Kirby of Australia, applauded it. However, over the years, the social action dimension of PIL has been diluted and eclipsed by another type of public cause litigation in courts. In this type of litigation, the courts intervention is not sought for enforcing the rights of the disadvantaged or poor sections of the society but simply for correcting the actions or omissions of the executive or public officials or departments of government or public bodies. Examples of this type of intervention by the Court are innumerable. In the interest of preventing pollution, the Supreme Court ordered control over automobile emissions, air and noise and traffic pollution, gave orders for parking charges, wearing of helmets in cities, cleanliness in housing colonies, disposal of garbage, control of traffic in New Delhi, made compulsory the wearing of seat belts, ordered action plans to control and prevent the monkey menace in cities and towns, ordered measures to prevent accidents at unmanned railway level crossings, prevent ragging of college freshmen, for collection and storage in blood banks, and for control of loudspeakers and banning of fire crackers. In recent orders, the Supreme Court has directed the most complex engineering of interlinking rivers in India. The Court has passed orders banning the pasting of black film on automobile windows. The Court has ordered the exclusion of tourists in the core area of tiger reserves. All these managerial exercises by the Court are hung on the dubious jurisdictional peg of enforcing fundamental rights under Article 32 of the Constitution. In reality, no fundamental rights of individuals or any legal issues are at all involved in such cases. The Court is only moved for better governance and administration, which does not involve the exercise of any proper judicial function. In its most activist and controversial interpretation of the Constitution, the Supreme Court took away the constitutionally conferred power of the President of India to appoint judges after consultation with the Chief Justice, and appropriated this power in the Chief Justice of India and a collegium of four judges. In no Constitution in the world is the power to select and appoint judges conferred on the judges themselves. The Supreme Court has made an order even in a military operation. In 1993, the Court issued orders on the conduct of military operations in Hazratbal, Kashmir where the military had as a matter of strategy restricted the food supplies to hostages. The Court ordered that the provision of food of 1,200 calorific value should be supplied to hostages. Commenting on this, an Army General wrote: For the first time in history, a Court of Law was

Even proceedings of Legislatures are controlled by the Court. In the Jharkhand Legislative Assembly case, the Supreme Court ordered the Assembly to conduct a Motion of Confidence and ordered the Speaker to conduct proceedings according to a prescribed agenda and not to entertain any other business. Its proceedings were ordered to be recorded for reporting to the Court. These orders were made in spite of Article 212 of the Constitution which states that Courts are not to inquire into any proceedings of the legislature. Matters of policy of government are subject to the Courts scrutiny. Distribution of food-grains to persons below poverty line was monitored, which even made the Prime Minister remind the Court that it was interfering with the complex food distribution policies of government. The Court has for all practical purposes disregarded the separation of powers under the Constitution, and assumed a general supervisory function over other branches of governments. The temptation to rush to the Supreme Court and 21 High Courts for any grievance against a public authority has also deflected the primary responsibility of citizens themselves in a representative self government of making legislators and the executive responsible for their actions.

asked to pronounce judgment on the conduct of an ongoing military operation. Its verdict materially affected the course of operation .

The answer often given by the judiciary to this type of overreach is that it is compelled to take upon this task as the other branches of government have failed in their obligations. On this specious justification, the political branches of government may, by the same logic, take over the functions of the judiciary when it has failed, and there can be no doubt that there are many areas where the judiciary has failed to meet the expectations of the public by its inefficiency and areas of cases. Justice Jackson of the U.S. has aptly said: The doctrine of judicial activism which justifies easy and constant readiness to set aside decisions

of other branches of Government is wholly incompatible with a faith in democracy and in so far it encourages a belief that judges should be left to correct the result of public indifference it is a vicious teaching.
Unless the parameters of PIL are strictly formulated by the Supreme Court and strictly observed, PIL which is so necessary in India, is in danger of becoming diffuse, unprincipled, encroaching into the functions of other branches of government and ineffective by its indiscriminate use.

High spectrum base price: An immense setback for telecom sector

If the forthcoming auctions for telecom spectrum come a cropper, and the degree of competition in the sector comes down sharply from the level prior to cancellation of 122 licences by the Supreme Court, the government will have no one to blame but the Cabinet. India's highest decision-making body fixed the base price for a 5 megahertz (MHz) chunk of radio waves in the 1,800 MHz frequency band at a staggering Rs 14,000 crore. The 1,800 MHz frequency is used by operators who use GSM technology, which includes most incumbents and a few new players. There is absolutely no rationale to fix the base prices of the auction at such astronomical levels even if the payout is staggered over 12 years. These high base prices could signal to prospective new entrants that they are not welcome to enter the market. Especially when the government is yet to decide whether incumbents have to pay similar amounts for the spectrum they hold. This will thin out the crowd of bidders at the auctions and could reduce competitiveness in the Indian telecom market. The social and economic gains from affordable telecom services far outweigh a short-term bonanza for the exchequer. Continued use of the 2001 auction-determined figure of Rs 1,650 crore for a licence that came with 4.8 MHz of spectrum that could go up to 6.2 MHz might have been arbitrary, but it led to India's telecom revolution: the cheapest tariffs in the world that led to fast spread of the benefits of affordable communication to millions. Now, with smart phones and tablets dissolving the barrier between computing and communications, India is on the threshold of another revolution, where education, information, entertainment, healthcare, financial and other services stream cheaply and quickly to the remotest corner of the country. That leap now faces hurdles: already bleeding telecom companies, faced with high spectrum charges, will be loath to invest and spend as much as they did during the 2G revolution. The digital divide could turn permanent.

Unrest in Syria continues, international efforts remain deadlocked

Amidst the complexity of the situation in Syria, the clearest danger is that of the fighting between the opposition, led by the Free Syrian Army (FSA), and the Assad regime's forces turning into a full-scale sectarian war. The worst-case scenario for the region would then be Syria disintegrating into something like Lebanon, with rival Sunni and Shia factions, both backed by different regional players, seeking to carve out separate enclaves and continuing a nightmarish conflict.

Retaining the idea of a united, pluralistic Syria would mean a political, diplomatic solution and an immediate end to the ferocious fighting. But that looks difficult as of now, given that the sectarian divide is buttressed by hardening of positions of key external players: the western powers, and Turkey and Saudi Arabia on one side, and Iran and Russia on the Assad side. Predictably, international efforts remain deadlocked as witnessed in the spectacle of the UN General Assembly criticising the UN's own Security Council for failing to act on Syria.

The determination of both the Assad regimeand the opposition in seeking a military knockout means efforts like the six-point peace plan of UN-Arab League envoy Kofi Annan have failed. Despite defections, suffering assassinations of key members, daring rebel attacks on the capital Damascus, and being battered by sanctions, the Assad regime is showing fierce tenacity: brutal violence, it seems, will continue.

The Assad regime, one of the most ruthless dictatorships of the region, displays unmitigated brutality against opponents. And the dangerous conflation of the regime protecting itself and of it representing minority Shia Alawite identity and interests might mean the very existence of this minority being threatened if the FSA prevails. The FSA too has indulged in harsh reprisals, and while some of its top members claim they are aware of the nature of Jihadist elements ranged alongside them, and that their vision isn't Islamist, sectarian rhetoric is touching new highs. Syria is turning into the nightmare version of the Arab Awakening dream.

The need for stricter laws to report restructured loans

Faced with the prospect of drought in large parts of the country, gov wants to continue the existing practice of regulatory forbearance(the quality of being patient and sympathetic towards other people, especially when they have done something wrongThe mortgage company had acted with forbearance, only taking them to court as a last resort.). This would enable banks to restructure their short-term crop loans, particularly those made to small and marginal farmers, without classifying them 'non-performing.' Under the existing guidelines, banks are required to set aside a certain amount of their profits as a cushion against the risk of default. Predictably, banks are required to set aside much more for sub-standard and doubtful or loss assets compared to standard assets since there is a greater probability that such loans will not be recovered. So, by the simple subterfuge(a secret, usually dishonest, way of behaving. Journalists often use subterfuge to obtain material for stories) of labeling sub-standard loans as standard, banks can get away with making much lower provisions and by extension, report higher-than-warranted profits. According to the Expert Group, restructured standard loans stood at Rs 1,06,859 crore, higher than the gross NPAs of the banking system as at the end of March 2011. Since then, the pace of restructuring has shot up sharply as economic growth has slowedAdd to this the quantum of short-term credit to small and marginal farmers approximately Rs 2,00,000 crore - to which the government now wants to extend regulatory forbearanceAnd it is clear that a very substantial quantum of bank credit that should be reckoned as NPA will be glossed over and treated as 'standard'. .Banks will therefore make much lower provisions against these loans and by extension report higher-than-warranted profits. The question is should we encourage such subterfuge? Or should we, as the Expert Group has recommended, bring our systems in line with international best practice and mandate much stricter caveats while upgradingrestructured loans so that the balance sheets of banks reflect their true financial health? Take, for instance, the international practice that restructured loans must be treated as impaired if the restructuring is due to financial stress of the borrower. Or the requirement that satisfactory performance after restructuring is a must before the loan can be upgraded. Both these conditions have been vastly diluted in the Indian context.

Consequently, a significant proportion of banks' restructured standard assets are not 'standard' at all. However, thanks to regulatory forbearance, banks can make lower provisions and report higher profits. Ironically, the government's proposal came even as Reserve Bank of India deputy governor K C Chakrabarty charged Indian banks with misguiding investors by not giving proper NPA numbers. In the Indian context, there is another reason why we must tread very warily when it comes to restructuring loans that are in poor shape. In other countries, restructuring is done only in exceptional circumstances and where the borrower is otherwise viable in the commercial judgment of the bank. In India, unfortunately, restructuring is often driven by extraneous considerations: the political clout of the borrower (as evident in the repeated restructuring of Kingfisher Airlines' loans) or political populism (as evident in the proposal to restructure small farm loans). In such a scenario, at the very least, we need to end the present regulatory forbearance and compel banks to make provisions in line with international best practices. If the government wants to come to the rescue of particular borrowers - whether corporate or farmers - let it do so transparently through the budget, not by encouraging practices that result in bank balance sheets being dressed up to reflect a patently incorrect picture of their financial health. The problem is that, as things stand, none of the parties - RBI, government, corporates and now, small farmers has an incentive to alter the status quo. Banks, because they can show higher-than-warranted profits; the RBI, because it can present a rosier picture of the health of the financial sector; government, because it reduces the pressure to recapitalise banks and wins it brownie points as well and corporates and small farmers, because restructuring gets them concessions they would not have got otherwise. So is it a win-win for all concerned? Unfortunately not. The loser in all this is the luckless taxpayer who, as recent events have shown, is forced to pick up the tab when the chickens finally come home to roost and banks can no longer pretend 'all izz well'. Then they will have to be recapitalised. With taxpayer money!