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TheIndian EXPRESS
www.indianexpress.com

l THURSDAY l OCTOBER 4 l 2012

The Indian EXPRESS

BECAUSE THE TRUTH INVOLVES US ALL

Like the bad old days

TS a pity that India was tempted to engage in a war of words with Pakistan on the question of Jammu and Kashmir at the just-concluded annual session of the United Nations General Assembly in New York. This is a throwback to the bad old days when Indian diplomats engaged in pointless arguments with Pakistan in major international forums. Diplomatic posturing of this kind plays into the hands of those in Pakistan who are opposed to the normalisation of relations with India, diminishes Delhis international standing and undermines the pursuit of a carefully calibrated strategy towards Islamabad. More than eight years ago, Prime Minister Manmohan Singh decided to persist with the peace initiative towards Pakistan launched by his predecessor from the BJP, Atal Bihari Vajpayee. Despite the many reservations at home stemming from Pakistans inability or unwillingness to control cross-border terrorism, Singh kept a relentless focus on the larger objective of transforming Indias regional environment.Delhiisacutelyawarethat Pakistans civilian government, led by Asif Ali Zardari, has no control over the security agencies and is not in a position to give India satisfaction on cross-border terrorism. Yet, Singh has found in Zardari an en-

Delhi could have avoided getting drawn into a spat on Kashmir at the UN

thusiastic partner on other important fronts. Breaking a long-standing political taboo in Pakistan, the Zardari government agreed to normalise commercial relations with India, open up overland trading routes and liberalise the highly restrictive visa procedures. There is no denying Delhis surprise, therefore, when Zardari, the most vocal champion in Pakistan for productive relations with India, chose to rake up the Kashmir question in the UN. He was probably under pressure from the military establishment to revive the noise on Kashmir. Delhi had every reason to take note of Zardaris uncharacteristic move. But it had no reason to react the way it did. Instead of the empty argument with Pakistan on whether J&K is an integral part of India or not, Delhi could have made public its recent negotiating record on J&K with Pakistan. During 2005-07, Singh had conducted a significant negotiation with the then Pakistan president, General Pervez Musharraf on Kashmir. General Ashfaq Pervez Kayani, who succeeded Musharraf as the Pakistan army chief, has shown no interest in furthering those talks. Telling that truth about Pakistans reluctance to engage on Kashmir would have been much better diplomacy than employing puerile rhetoric.

S THE dates for the highstakesGujaratelectionwere announced, Congress president Sonia Gandhi launched her partys campaign in a predictably riven atmosphere. Gandhi herself refrained from a personal back-andforth. Instead, her speech in Rajkot focused primarily on the UPAs raft of reformist decisions, which the BJP has opposed. She spoke of FDI in retail, of the diesel price hike and the capping of subsidised LPG cylinders. Not all reforms are electorally palatable, given that they inevitably hurt some constituencies while holding out a larger, more long-term promise however, FDI in retail is an easier sell than most, and Gandhi seized the opportunity. She framed retail reform as a move that would benefit farmers, and lower prices in towns and cities, and also pointed out that states that remained wary were free not to implement it. She squared with citizens about the the need for more rationalpricing,giventhatIndiaimports 80 per cent of its petroleum. This speech was remarkable becauseitisthefirsttimetheCongress party has politically defended the UPAs newfound will to reform. The

Sonia Gandhi kicks off the Gujarat campaign on a new note, arguing for economic reform
prime ministers address to the nation explained the context for these decisions, and later, the CWC endorsed them, after it was made clear that the welfare schemes that the party and the NAC throw their weight behind depend entirely on a thriving economy. However, the UPA can no longer split its thinking along a left axis and a right axis the Congress cannot presume thatgoodeconomicsmakesbadpolitics, that the discussion about reforms is too technocratic for the electoral arena. At a moment when practically every party in opposition, including the BJP, is taking on the discredited vocabulary of the Left, it is up to the Congress to make a strong argument for growth, for managing inflation, curbing subsidies, sharpening productivity and taking investment-friendly actions. A clear signal from the party, like makingeconomicreformpartofthe electoral pitch, could goad the government into action and such encouragement would still be late, but better than never. Sonia Gandhis speech in Gujarat marks a welcome shift in the discourse. Economic good sense should not be considered a political liability.

Changing the frame

HE approach paper of the Financial Sector Legislative Reforms Commission (FSLRC) has proposed a new direction for financial regulation in India. While on one hand, half the Indian population still does not have access to finance, on the other, regulations have restricted the growth of financial services. In a country growing at such a rapid pace that the GDP doubles every 8 to 10 years, the needs of people and firms are constantly changing. In recent years, various government committees have pointed to the need for policy change. But it was found that the required changes could not be made under the existing, mostly outdated, financial laws. This prompted a review of the financial legislative framework. TheFSLRCwasgiventhejobof reviewing, simplifying and modernisingthelegislationthataffectsfinancial markets in India. It was asked to prepare legislation in tune with the present-day needs of finance. The commission has recently released an approach paper available on its website (http://goo.gl/aJlCQ).Thepaperdiscusses its strategy and philosophy. News reports about the commission have focused on the FSLRC recommendations for Indias financial regulatory architecture. But that is only one of the many aspects of Indian finance that the commission was mandated to review. In its proposed recommendations, it has endorsed a transition to a modern regulatory architecture recommended by previous government reports such as the Raghuram Rajan and the Percy Mistry committee reports. These reports had described the problems in the Indian financial sector arising from regulatory cracks and overlaps. The novel element of the FSLRC approach is the emphasis on the modes of independence, accountability and the rule-making process of regulators in India. The modern approach to financial regulation allows greater innovation. It emphasises the ob-

What is regulation for?

We need financial regulation to protect consumers while fostering innovation
ILA PATNAIK
jectives of regulation. Regulation is needed when markets fail. The approach emphasises that the objective of regulation is to protect consumers. This can be achieved by creating a system in which it is difficult to indulge in unfair practices or sell consumers products that are unsuitable for their specific needs. Unlike in goods and services, where there may only be a small lag between payment and delivery, the lags in finance are long and often contingent on a state of nature. A customer keeps paying a premium to buy a promise from an insurance company to pay his family if he dies. The customer does not know if the company is taking on regulators powers clearly enumerated. Normally, a regulator might have an incentive to kill innovation so that risk is eliminated and no firm fails on its watch. But eliminating risk altogether will not allow finance to reach out to new customers, products and markets. Thus, the powers of the regulator have to be restricted. It has to be made accountable for what he does. If its regulations go beyond the objectives the law tasks it with, it can be questioned, its decisions can be appealed against. This is a mechanism to restrict the arbitrary use of power and lack of reasoned regulations and orders. The regulator must not prevent

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The paper discusses a consumer protection law and a microprudential law to lay out principles on the basis of which regulators would write regulations. These laws would not contain detailed regulations. They will be separate from the regulatory agencies that enforce them. A law can be enforced by a number of agencies, each in their sector. A single redressal agency would hear complaints for all sectors.
so much risk that when the time to pay comes, it will be bankrupt. It is the job of the regulator to protect him from fraudulent practices and prevent the company from taking on too much risk. If consumer protection is the objective of the regulator, it must be empowered with instruments to ensure it. It should not be tasked with other objectives or with doing things in the public interest. It cannot prevent innovation as long as the financial firm selling the service is not engaged in practices which violate these objectives and if it is not taking on excessive risk. This requires that regulatory objectives are clearly defined, and the the failure of financial firms completely. Firms that are prone to take very high risks or are very weak should fail. However, firm failure must be happen at minimum cost to consumers and none to the taxpayer. The owner should lose money. The FSLRC approach paper discusses the creation of a new resolution agency for handling firm failure through mergers, acquisition or a close-down before the financial firm goes bankrupt. Theapproachpaperdiscussesa consumer protection law and a microprudential law which would lay out principles on the basis of which regulators would write regulations. These laws would not contain de-

tailed regulations, which would be only written by the regulator. These laws will be separate from the regulatoryagenciesthatenforcethem.A law, such as a consumer protection or microprudential law, can be enforced by a number of agencies, each in their sector. A single financial redressal agency would hear complaints for all sectors. Regulators in this approach will be given independence under the law. At the same time, they will be accountable. Accountability will be ensured through clearly defined objectives, avoiding conflicting objectives, a well-laid out rule making process and an appeals mechanism (there would be a newly created non-sectoral financial sector appellate tribunal). As the Indian economy grows bigger, its need for finance increases. Households and firms often do not have access to the formal financial sector. Until now, the approach in the formal regulated financial sector has been to give explicit permissions for some products or markets. The rest of the financial products and markets are banned. This approach has restricted innovation in financial markets as no market or product is allowed unless the regulator prescribes it. The FSLRC approach should bring about a change to the pace of innovation. We are, today, at the other end of the spectrum from the Americanmodel,wheretoomuchinnovation appears to be a regulatory challenge. The lessons from the global crisis, which FSLRC proposes to build into the new regulatory framework, will help us to maintain a fine balance between too little innovation as in India today, and too much innovation that might pose risks to the financial system. Ila Patnaik, professor at the National Institute of Public Finance and Policy, Delhi, is consulting editor for The Indian Express. NIPFP offers research support to FSLRC. The views expressed are personal
express@expressindia.com

Letters to the

EDITOR

Question time

Modi cash in on 1,880-cr error(IE, October 3), the controversy on Sonia Gandhis foreign travel expenditure refuses to die down, mainly thanks to the clumsy handling of the matter by Congress spokespersons. The original RTI query was only to do with the Congress chiefs travel expenses, it did not enquire specifically about her travel for health reasons. However, her representatives refuse to give a straight reply and to clarify whether these were borne personally or by the public exchequer. Why is the Congress is so secretive about its leaders expenses? M. Ratan New Delhi

APROPOS Sonia tours: BJP ,

Unsung hero

OCTOBER 2 happens to be

Stoking the coals

N THE midst of the furore about coal allocations, an interlude. At a kavi sammelan on Sunday, held in a Kanpur girls college, Union Coal Minister Sriprakash Jaiswal was moved to misguided metaphor. Speaking of Indias recent win over Pakistan in the T20 World Cup, Jaiswal said the victory would soon lose its charm, much like old wives. Not surprisingly, this has drawn howls of protest. A social activist filed a case against him, womens groups and BJP workers burnt his effigies in Kanpur, the National Commission for Women (NCW) has demanded an apology. Those aggrieved may take note that Jaiswal was only living up to his reputation for gaffes. Not long ago, he expressed confidence that Rahul Gandhi could become PM anytime, even at midnight. He also felt if the Congress lost in the UP assembly polls, governors rule would be the only option. The lat-

Why Sriprakash Jaiswal is the man in the hot seat

est remark is crude and ill-considered. It betrays a strain of misogyny that persists in Indias political culture, the same mindset that blames figure-conscious women for malnutrition in Gujarat or incidents of assault on the clothes women wear. But the episode also reflects how politicians of a certain vintage are increasingly out of step with the modern media, where the omnipresence of cameras means that a stray remark at a college function willresonatefarbeyond.Thisamplification is also responsible for the somewhat disproportionate fuss about a silly remark including the alacrity that the NCW, usually slow to respond to most atrocities on women, has shown in wading into this issue. Meanwhile, Jaiswal heads a ministry that currently faces fundamental questions about the way it functions. But in a surreal twist in the tale, the minister is being hauled over the coals for sexism, not coal.

N RECENT days, as the tumult and excitement over the UPAs big bang reforms began to subside, New Delhi arguably the most political place on earth, with the possible exception of Washington within the Beltway had been agog, indeed obsessed, with the long overdue cabinet reshuffle. The hopefuls were waiting with bated breath and keeping their fingers crossed that nothing would go wrong at the last minute. Those with deep foreboding that they might get the order of the boot because of their thoroughly exposed shenanigans were busy moving heaven and earth somehow to survive. The ever-watchful media was reporting the situation from minute to minute, each paper and TV channel updating its list of ins and outs. Day after day, every report stated that the rejig was only 24, or at most, 48 hours away. On September 27, there was an hour-long meeting between Prime Minister Manmohan Singh and Congress president Sonia Gandhi, which was supposed to have clinched the reshuffle issue. Prolonged consultations at various levels, including at a meeting of the Congress Working Committee, had been concluded already. But then surprises never cease. The next morning I was startled when newspapers reported

INDER MALHOTRA

Why they say the cabinet reshuffle must wait till after mid-October
that, according to Congress sources, after all the high drama, the reshuffle of the council of ministers was likely to be deferred until after the middle of October. I was confused because this made no sense. But I am afraid I was being forgetful, if not foolish. After only a brief reflection the penny dropped. I remembered that October 1 to October 15 is the inauspicious period of shraadhs, during which the devout mourn their forbears and departed dear ones, hold special prayers for them and never initiate any new venture or activity. The joyous and auspicharmed circle. One fine morning, each of the trio got summons to be at the PMO at a certain time. When ushered into the PMs presence, they were told that they should be ready to take the oath of office the next day. Thereupon, all three supplicants folded their hands and begged of Rajiv to postpone the swearing-in and even the announcement of their appointment as ministers until after the shraadhs were over. He was amused but granted their request. On learning of this episode, I published it, together with my comments, in the newspaper for sorcery, occult and all that rubbish, we cannot succeed. Do you know politicians of today are organising tantric yagnas to destroy, or at least damage, their rivals? Rewind to 1977. Some people, at least, would remember that it was on January 18 of that year that Indira Gandhi announced fresh elections, which she predictably lost, as abruptly as she had announced the proclamation of the Emergency. During the last stages of the polls, by when her defeat was certain, I asked her secretary of 10 years, P. N. Dhar, when exactly the decision to hold elections was taken. He replied that in mid-December 1976, she had asked him to call in the chief election commissioner and tell him, in utmost confidence, to start preparing for elections that would be announced at the appropriate time. In that case, I asked Dhar, why werent elections announced on January 1? Didnt he advise her to do so? In such matters she relied on her astrologers, not her aides, he answered. Incidentally, Rajiv also fixed the date of the 1989 elections on the advice of his astrologer, who was also his cabinet secretary, T. N. Seshan. The writer is a Delhi-based political commentator
express@expressindia.com

Spooked by the stars

the birthday of our former prime minister, the late Lal Bahadur Shastri. Shastri is remembered for his down-to-earth nature, his austerity and above all, his patriotism and unmatched courage. The credit for Indias victory over Pakistan in 1965 may go largely to him. But the leader has been forgotten. We associate October 2 only with Mahatma Gandhi. Hansraj Bhat Mumbai

Clutching at straws

WHEN the Supreme Court de-

livered its judgment on the presidential reference over the 2G spectrum case, the Congress expressed much delight and saw it as a victory for the party (Courting reason, IE, October 3). But after a closer study of the verdict and clarifications offered by legal experts, it has become clear that this is in fact a landmark judgment that will pave the way for complete transparency in the allocation of natural resources by any government in the future. There is no reason for a particular party to rejoice. It seems that the Congress is clutching at straws to stay afloat and divert peoples attention from its failures. M.K. Jinsi Zirakpur

Every individual has a right to follow the rituals he or she believes in, but only privately. What if the state needed, during the shraadhs, to start a project of national importance?
cious era begins with the first of the nine navratris the number can vary a little from year to year, depending on the diktat of the priest you trust which falls this year on October 16. I had first witnessed this bizarre side of Indian politics in 1986, during Rajiv Gandhis tenure as prime minister. He was rather fond of reshuffling his team every few months. Three Congress MPs, one of them a friend of mine, having got a whiff of one more change in the offing, had been beseeching him to reward them for their loyalty and services by including them in his which I was then working. I said that every individual had a right to follow the religious rituals he or she believed in, but only privately. In public life, religion could not have a place. What if the Indian state needed, during the shraadhs, to take immediate action against an adversary or start a major project of great national importance? The next day P. N. Haksar, once an outstanding principal secretary to Indira Gandhi, then in retirement, rang up to say: No matter how hard we try to extricate our society from the primordial slime of superstition,

APROPOS A duet of disharmony (IE, September 28), Lata Mangeshkars statement about the late Mohammad Rafi reminded me of a particular quote: The vanquished never speaks well of the victor. Anand Iyer Thane

Out of tune

WORDLY WISE
Groucho Marx

If a black cat crosses your path, it signifies that the animal is going somewhere.

HE killing of a US border patrol agent brought home the horrifying consequences of the Justice Department-approved gun-running operation known as Fast and Furious. This week, however, the Spanish language TV news network Univision revealed the extent of losses on the other side of the border, including the slaughter of 14 Mexican teenagers by drug cartel hitmen yes, using those US-supplied guns. The idea behind Operation Fast and Furious, begun by the Obama administration, was to let guns walk across the border, where presumably they would be traced by the Bureau of Alcohol,TobaccoandFirearms.Someofthegunswerecapableofpenetrating armored vehicles or, according to the Univision report, a whole house from wall to wall. As it turned out there was a lot of walking and precious

The USs gun-running operation across the Mexican border finally hits home
little tracing... Fast and Furious weapons were found at the scene of a 2009massacreatarehabilitationcentrethattookthelivesof18youngmen. The operation didnt become controversial or even well known on this side of the border until the murder of Border Patrol Agent Brian Terry. But as Mexican poet Javier Sicilia who lost a son in one of those massacres told Univision, Americans are not often moved by the pain of those outside [their country]. But they are moved by the pain of their own. Now the pain on both sides of the border is too obvious to ignore and the attorney general who authorised this operation Eric Holder has yet to be held accountable. From a leader in the Boston Herald

Sound and fury

PRINTLINE

THIS refers to Retail reform is in the doing by Richard Cuthbertson and Malobi Mukherjee (IE, October 2). Although I agree with the larger theme, I dont entirely agree with some of the apprehensions they raise. First, leaving the implementation of FDI to the states discretion is the best way to placate the opposition. The assumption that it will lead to disparity in economic development is unfounded. The benefits and pitfalls of FDI in the states that adopt it will point the way for the others. Moreover, economic prosperity in some states could force others to self-correct. Second, in a country with high wastage in the supply chain, the governments right to secure foodgrain before companies should not keep them from investing in the retail sector if that could reduce wastage. Abhimanyu Bishnoi Gurgaon

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