The modern consumer

Thisreferstothereport Nooneshouldsell
belowcost: Biyani(October10). Intodays
business, every company gets funded.
EvenKishoreBiyani got funding. Thereis
no such law that says no one should sell
belowcost and, in fact, no one does. It is
unfortunate that Biyani, with so much
experienceinretail, isadvocatingthegov-
ernment to meddle with market players.
One hopes that Nirmala Sitharaman, the
commerce minister, soonrealises her fol-
ly in interfering with such market forces.
Todaysconsumersareintelligent andcan
punishpeoplewhothinktheycanbearm-
twisted. Let thegovernment lookbackand
see what they can do to restore taxpayers
moneytheyhavelost inareassuchasspec-
trum and coal mine allocation and land
deals conducted by various state govern-
ments across the country.
Thegovernment shouldnot get carried
awaybyafewretail cartels whoare sayth-
eyaresavioursofconsumersinthecountry.
MGovardhan Mumbai
Beyond give and take
This refers to the report RBI governor
might get veto in price stability mecha-
nism(October 10). While such gestures
tocalmdissent arenormal ingovernance,
the recent initiatives from the finance
ministry, including the hurry with which
some of the recommendations of the
Financial Sector Legislative Reforms
Commission are being pushed through,
gives theimpressionthat thenewdispen-
sation in Delhi has not fully recovered
from the hangover of the previous coali-
tion governments give-and-take
approach in making decisions.
It will be an unhealthy message to the
regulators and stakeholders in the finan-
cial system, if such concessions to the
Reserve Bank of India (RBI) and its cur-
rent governor appear to be a privilege
available to some, in certain situations.
Thereis achanceof lesser mortals among
regulators becoming less amenable to
governments guidance.
The government should not shy away
from normal procedures and parliamen-
tary debates before implementing meas-
ures of long-term implications for the
economy. The sooner the transparency
in policy formulation and respect to leg-
islative processes and procedures are
restored, the better for the country.
MGWarrier Mumbai
Too late to save Dunlop?
This refers to the report Ruia gets his
best chance to save Dunlop (October 9).
Dunlop has been in a never-ending
declinesincethemid-70s, thenunder for-
eignownership. Onehopes that Dunlopis
restored to some health. Even if one
assumes that Pawan Kumar Ruia is sin-
cere and wants Dunlop back as a tyre
giant, and not into stripping assets, he
faces huge challenges. Decades of low
activity and losses mean equipment is
old and poorly maintained, technology
is not the latest, the brand value has ful-
ly eroded and workmen skill along with
the work culture is gone. Transportation
costs will behighsinceEasternIndiais far
from both raw material and automobile
markets. It is unlikely that new technolo-
gists, managers, marketing people and
dealers will flock to Dunlop.
PDatta Kolkata
India, Pak and Kashmir
This refers to Ajai Shuklas article After a
decade of calm, army gears up for active
border (News Analysis, October 10).
That Pakistan does not indulge in mil-
itary aggression at the borders at Punjab,
Rajasthan and Gujarat is often missed.
Pakistani rulers always try and divert
attention from their internal squabbles
by bringing Kashmir centre stage.
It is also important that the current
Pakistani general doesnot carrytheprofile
of Musharraf or Kayani and tries to make
his presence felt inthe political theatre.
PradeepBhave Thane
>
LETTERS
Letters canbemailed, faxedor e-mailedto:
TheEditor, Business Standard
NehruHouse, 4Bahadur ShahZafar Marg
NewDelhi 110002
Fax: (011) 23720201 E-mail: letters@bsmail.in
All letters must haveapostal address and
telephonenumber
8 ISSUES AND INSIGHTS MUMBAI | MONDAY, 13 OCTOBER 2014 1
>
T
he general sense in the financial
markets is that the rupee is
somewhat fairly valued at this
stage and might just see small depreci-
ation in line with the persistent infla-
tion differentials with trading partners.
The data on the real value of the cur-
rency might tell a different story.
The September 2014 Reserve Bank
of India (RBI) monthly bulletin shows
an real effective exchange rate or REER
(a weighted average of the exchange
rates against trading partners adjusted
for inflation differences) index level of
around 117 for August, compared to the
base of 2004-05. This uses trade
(imports plus exports) with six major
trading as weights. The index prints at
around 108 if export weights are used.
Going by the thumb rule that the mar-
kets tend to use, this would suggest
overvaluation of the rupee of 17 and 8
per cent respectively. These inciden-
tally, use the consumer price index to
build in the inflation differentials. I am
perhaps over-interpreting things a bit
but the RBI governors categorical
assertion in his post-policy interaction
with the press that the rupee might
appear weak against the dollar but was
strong against other currencies seemed
to hint at the growing strength of the
rupee in real terms.
My experience of the markets sug-
gests that when depreciation pressure
suddenly builds up (for instance, in a
phase of global risk aversion), the mar-
ket suddenly wakes up to these valua-
tion metrics and justifies any sharp
downward movement as the obvious
consequence of overvaluation. This is a
risk we need to bear in mind in pre-
dicting the rupees future.
There are, of course, problems with
this interpretation of overvaluation.
For instance, there might not be a
compelling reason for still treating
2004-05 as the equilibrium or base
year. If the base year is brought for-
ward, the extent of overvaluation
diminishes. In the extreme case, if we
take 2013-14 as a base year (as the RBI
does along with its 2004-05 series),
the extent of overvaluation is a meagre
3.75 per cent.
Then there is the the Balassa-
Samuelson theorem that states that if
the real appreciation of the rupee
reflects productivity gains (higher pro-
ductivity for labour, for instance, fetch-
es higher wages that feeds into higher
prices that in turn pushes the REER
up) then thats a good thing. This
should be netted out from the REER to
arrive at a fair value. The problem is
that productivity data is difficult to get.
There is also evidence based on a cou-
ple of studies that the utilisation rates
of capital as well as total factor pro-
ductivity (the bit that measures the
efficiency with which the factors of
production are combined) have
declined sharply over the last couple of
years. It is reasonable, I would argue, to
assume that productivity growth of
labour has simultaneously declined.
Thus, the overvaluation in the REER
might not be offset by compensating
productivity gains.
I am not trying to be alarmist here.
However, labour market data in the
US seems to make an increasingly
compelling case for the US Fed to hike
rates. The latest print for the Job
Openings and Labour Turnover
Survey showed that job openings in
August climbed to their highest level
in 13 years. This could mean that even
if inflation stays benign, the need to
stay ahead of the curve might force
the US central bank to hike rates ear-
lier than what the majority of market
participants are expecting. The min-
utes of the US power monetary policy
committee meeting on September 16
and 17 released last Thursday brought
some succour to the markets by talk-
ing about the risks associated with a
strong dollar in a weak global eco-
nomic environment. However, the Fed
is known to change its mind as the
flow of data changes.
The reason for the current mayhem
in the commodity markets is difficult
to fathom but one cant afford to take
ones eye off that ball. A level of around
$90 for Brent crude seemed quite
unimaginable just a couple of months
ago. The optimists will argue that this
trend should bode well for a net com-
modity importer like India. The pes-
simists will ask if the commodity mar-
ket is the first domino to fall as the US
prepares to reverse its interest rate
stance and wonder which asset class
will come next. If it happens to be
emerging markets, then having an
overvalued currency would hardly help
our case.
The writer is withICRIER.
These views are personal
Is the rupee fairly valued?
Data on the real value of the currency against other currencies suggest otherwise
>
HAMBONE
BY MIKE FLANAGAN
A
fghanistan has a new president,
albeit twomonths late. Andeven
as the newly inaugurated
President Ashraf Ghani Ahmadzai and
his CEO Abdullah Abdullah hash out
thespecifics of thecountrys first peace-
ful political transition, outgoing presi-
dent Hamid Karzai minced no words to
convey who he thought were
Afghanistans true friends. The
Westerncountries andtheUnitedStates
of America came to Afghanistan for
their personal goals. There are also
countries who, without having person-
al agendas, are here for honest cooper-
ation with Afghanistans government.
One example is India.
Before India breaks out the cham-
pagne, it will be prudent to acknowl-
edge that the stakes have changed in a
post-Karzai Afghanistan. The India-
Afghanistanpartnershipnowhinges on
the new national unity government in
Kabul forged between two bitter rivals
nonetheless andtheir visionof region-
al co-operation.
TheUSisset towithdrawall but 9,800
troops by year end and exit Afghanistan
by 2016. Given this, India (which has
spent $2 billion so far) has been often
urged to assume a more active role, par-
ticularly military. As president, Karzai
championed the same. In the last year
alone, he made three visits to New Delhi
and also shared a military wish list.
Evenas Karzai madearenewedpush
for Indian military aid in June, Ghani
and Abdullah hinted at other ideas.
First, they do not prioritise military
co-operation as Karzai did. Responding
to this writers question on whether he
will push for greater military aid from
India like his predecessor, Abdullah
Abdullah, who is a traditional Indian
ally, answered in the negative. In terms
of dealing with Prime Minister Modis
government, I dont think the priority
for Afghanistan is to ask for military aid
at this stage, he replied at a video con-
versation organised by the Atlantic
Council in Washington this June, when
hewasthepresidential front runner. He,
however, added he was keen to enhance
existing areas of cooperation for the
benefit of economic development in
Afghanistan. Aquickscanof Abdullahs
election manifesto finds New Delhi
placed within the two pillars of his eco-
nomic agenda regional connectivity
andenergypartnerships, specificallythe
Turkmenistan-Afghanistan-Pakistan-
India gas pipeline.
On his part, President Ghani is yet to
evince special interest in Indias role.
Ghanis foreign policy thrust remains
orientedtotheWest, particularlytheUS,
with a regional emphasis on a ten-year
process of engagement with Pakistan.
He has expressed some interest in talk-
ing to India on trilateral issues such as
transit. Hiselectionmanifestomentions
India frequently, but in vague terms on
strategies for Afghanistans education,
health, economic and trade sectors. In
the foreign policy section, India is only
placedinKabulsFourthCircleof com-
munication along with China and other
Asiancountries. Indiaisrankedbehind
Neighbors (Tajikistan, Uzbekistan,
Turkmenistan, Iran&Pakistan); Islamic
Countries and Europe, USA, Canada
and Japan.
Second, Ghani and Abdullah do not
share Karzais anti-American posture,
which pushed him towards India and
Iran. The new government endorsed
the bilateral security agreement right
after its inauguration and will bank on
this 10-year security framework, sup-
plemented by international support
from friendly nations like India. This
suits Indias current appetite and band-
width for a less muscular role in
Afghanistan.
India is painfully aware of its geopo-
litical limitations vis--vis Pakistan,
which shares a border with
Afghanistan. Its strategic partnership
agreement (2011) with Kabul prioritises
security but India remains cautious,
terming it an enabling framework for
co-operation when the time is right.
Nonetheless, New Delhi has to keep the
situation conducive to more military
aid. One such move is the agreement
signedwithRussiapayingMoscowto
supply light artillery and mortar to the
Afghan military.
Anotherfactorthat affectsIndiasAfg-
hancalculationsisitsPakistanfirstpo-
licy. Onanygivenday, NewDelhi would
take the normalisation of ties with Pak-
istan over a greater role in Afghanistan.
Thus, with no illusions of a primary
role in shaping outcomes, India contin-
ues to work on expanding economic co-
operation in conjunction with Iran,
which provides much-needed land
access to Afghanistan. Like India, Irans
policies toward Afghanistan transcend
political differences and remain key to
thelatters regional framework. This col-
laboration is a space to watch.
Prime Minister Narendra Modi has
continued to reiterate New Delhis sup-
port to safeguard the happiness of the
Afghan people. With the political tran-
sitioninKabul nowcomplete, Indiaand
Afghanistanshouldworkonreaffirming
and expanding their partnership. What
form this partnership takes, however,
remains Afghanistans prerogative.
Thewriteris aforeignaffairs analyst
specialisinginIranandSouthAsiaanda
ResearchScholarat theTakshashila
Institution, anindependent thinktank.
Alongerversionof this articleappears on
ourwebsite
Hamid Karzai clung tight to India but Afghanistans new leadership may have other ideas
Why we cant take Afghanistan for granted
Progress minus law& order
Listing the achievements of the Gujarat
governments Gatisheel Gujarat
(Progressive Gujarat) campaign, spokesperson
Nitin Patel was asked about the law and
order situation, especially in the light of
incidents of communal violence over the past
10 days. Patel tactfully sought to duck the
issue but ended up saying Law and order
was not part of the Gatisheel Gujarat
campaign. The statement is interesting
given that the campaign, which sets targets
for the first 100 days of the Anandibens
Patels new government, included faster
implementation of people-oriented welfare
programmes.
>
CHINESE WHISPERS
The real candidate
The Bharatiya Janata Party (BJP) and Congress
are hotly contesting the 90-seat Haryana
Assembly elections and the gated
communities of Gurgaon have not been
spared the rigours of the campaign. Hired
auto-rickshaws mounted with loudspeakers
periodically do the rounds with ear-splitting,
feedback-distorting exhortations to the
voter. The spiel is a fairly standardised one: a
one-liner informing voters why they should
vote for such and such party candidate,
asking them to press the button on this or
that party symbol on the electronic voting
machine, all of which is rounded off with a
rousing party slogan. The BJP autorickshaw
has an interesting variation on this message
to voters. After the usual pitch, the first cheers
go to Narendra Modi (Narendra Modi ki jai,
repeated three times) only after which the
announcer yells Bharatiya Janata Party ki
jai, leaving voters in little doubt who they
were really voting for if they chose the BJP.
Expressions of caution in MP
Madhya Pradeshs Global Investor Summit
may have ended on a high note after Prime
Minister Narendra Modis address but it is
worth noting that the state bureaucracy has
opted not to sign any Memorandums of
Understanding (MoUs) with prospective
investors. Instead, it has invited Expressions
of Intent through its website. Its a classic case
of once bitten, twice shy, officials explain. In
the last Global Investor Summit, the state had
signed MoUs worth over ~200,000 crore, but
just about half that materialised as
investment on the ground. The official
explanation for this discrepancy was the
gloomy economic sentiment that pervaded
the country at the time but the real reasons
could well be different.
PTI
SUMITHA NARAYANAN KUTTY
Add chauvinism to the list of things
Satya Nadella needs to sort out at
Microsoft. The software giants new boss
was supposed to turn the company
around after Steve Ballmers departure.
But Nadella has followed up a question-
able acquisition last month with advice
that women have faith in the system
rather than ask for a pay raise. He may
have later apologised, but his attitude
endorses a faulty operating system.
The evidence that men are paid more
for similar roles is pretty damning. On
average, American women working full
time make just 78 per cent of what their
male counterparts earn, according to a
2013 study by the US Census Bureau.
Its even worse for college-educated
women in Silicon Valley, who earn 40
per cent less than men, according to
not-for-profit organisation Joint
Venture Silicon Valley. Women who do
ask for raises may be in trouble.
Research done at Harvard found that
women who initiated salary negotia-
tions were penalised in evaluations,
while men were not.
This may explain why
women working in science
and technology leave these
fields in droves early in
their careers and dont
return. Over half quit these industries
by the time theyre 40, according to the
Center for Work-Life Policy. That far
outpaces attrition rates in other fields
like education or law.
As the boss of one of the most well-
known companies on the planet,
Nadella ought to know these facts and
want to change them, rather than rein-
force them. He did, at least, issue an
apology soon after, saying he was com-
pletely wrong. But a bit of PR lip serv-
ice wont close the gender gap in pay,
promotions and job offers.
Its a second strike against Nadella
after splashing out $2.5 billion on
Mojang, the maker of the game
Minecraft. That harked back to prede-
cessor Ballmers vision of Microsoft
everywhere, which fostered deals galore
and squandered capital.
Ballmer was also often out
of touch with consumers,
famously saying that the
iPhone had no chance of
getting any significant market share.
Being so patronising to women is at
least as bad from a business perspec-
tive. They now constitute the majority of
the US workforce and outpace men in
both college enrolment and graduation.
All companies, not just tech, should be
trying to harness them. Any other
approach should by rights generate
nothing but a system error.
Faithless in Seattle
BY KATE DUGUID,
STEPHANIE ROGAN
Microsoft boss endorses
faulty operating system
Twitters chirping about corporate free
speech carries an overtone of risk. After
its UK super-injunction tiff, the
microblogging service is fighting for the
right to disclose secret US demands for
data. The two cases show firms have
power to resist being muzzled or
forced to speak. That helps check judicial
and government overreach, but it could
also undermine useful regulation.
The company earned its free-speech
stripes three years ago making British
privacy guardians look ridiculous. A
court order banning reporting on a
famous footballers alleged affair
including the existence of the order,
dubbed a super-injunction was ren-
dered useless when some 75,000 tweets
broke the edict. Attempts to hold Twitter
responsible proved futile.
The populariser of hashtags bur-
nished its First Amendment credentials
on Tuesday by suing Uncle Sam for
insisting that Twitter and others
couldnt say publicly whether
they had been forced to turn
over customer records. The gov-
ernment claims such gag orders
protect national security but
Twitter is arguing, with justifi-
cation, that the US Constitution
sets a higher bar for measures
that restrict free speech. One
judge has already struck down
similar orders.
Twitters stands are notable for hold-
ing authorities on both sides of the
Atlantic to account. But they are also
reminders of a less welcome legal trend.
Especially in the US, some companies
are increasingly using free speech argu-
ments to beat back regulation with a
big assist from American courts.
In 2010, for example, the Supreme
Court extended new protections to com-
panies in relation first to the expression
of political positions and then to com-
mercial speech. And in May 2013, a
federal appeals court cited free
speech in excusing employers
from posting government-man-
dated information about work-
ers rights.
Another US appeals court in
April struck down Securities and
Exchange Commission rules
requiring companies to disclose
their use of certain minerals
sourced in Africa. The judges said
the regulations violated free
speech by forcing firms, in effect, to
denounce their own products.
National security matters more than
corporate disclosure. But in both
instances, the public interest lies in trans-
parency. Twitter seems to get it, but not
all companies have seen that tweet.
Dont tell
BY REYNOLDS
HOLDING
Twitter free-speech chirps
carry overtone of risk
WORLD MONEY
ABHEEK BARUA
THE NEW ORDER Afghanistans newPresident Ashraf Ghani Ahmadzai (right) and Afghanistans Chief Executive
Abdullah Abdullah take the oath during their inauguration in Kabul on September 29. PHOTO: REUTERS