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India is one of the few countries where air passenger traffic has been rising year after year. More airports are being opened across the country. With a number of airlines in operation, competition is intense and the resulting fare war has, over the years, made flying an affordable option to many new air passengers. But, at the end of the day, none of the airlines seems to be making a profit. Perhaps only Indigo the low-cost, no-frills, airline has been able to keep its head above the waters. At the other end of the spectrum lie Air India and Kingfisher. For Air India, being a national carrier is both an asset and a liability. Kingfisher's malaise has more to do with extravagance and poor management. Today, the employees of both these airlines have resorted to strikes, protesting against the non-payment of salaries for months. The Prime Minister had himself to assure Air India pilots that their dues would be cleared over a period of time, and the Kingfisher Chairman, Vijay Mallya, had to meet unions and pilots to give them a fresh timetable for payment of salary arrears. So what's wrong with the airlines, or even the aviation industry in such a growth centre as India? Why is the sector booming in China but not here? The airlines, speaking in one voice at least on this, insist that it is the lack of a positive, coherent aviation policy since the opening up of the skies that has led to this crisis. Though traffic is growing, the cost of operations has risen sharply. Aviation fuel accounts for nearly 50 per cent of the costs, and its price increase over the past two years has been substantial, eating into already low margins. Air fares have not risen correspondingly because of competition and the need to raise the load factor. Airport charges, particularly after the advent of privately developed greenfield airports, have also increased manifold. For Air India, the unwise and as yet incomplete merger of Indian Airlines and Air India has remained an albatross, while the now-on, now-off aircraft acquisition programme has led to a huge debt and interest burden. The Centre's decision to allow airlines to directly import fuel has been a welcome measure. But it is too little too late. The Civil Aviation Ministry must discuss all the issues affecting the economics of the industry threadbare and come up with a positive aviation policy to revive the sector without giving anybody a bailout or compromising on safety. The airlines, too, must set their houses in order and take employees into confidence, without leaving them in the lurch. -------------------------------------------------------------------------------------------------------------------------------------------------------------
It is generally well known that India is one of the few countries with both a current account deficit and a fiscal deficit. However, the extent of deterioration in both is a matter of deep concern. According to the Reserve Bank of India's recent data on balance of payments (BOP), the current account deficit (CAD) rose to 4.3 per cent of the GDP during the third quarter (October-December 2011) of last year, sharply higher than the 2.3 per cent during the same period in the previous year. The sharp spike might have come as a surprise, but there was enough evidence of the deteriorating trend. Indeed, the Prime Minister's Economic Advisory Council which projected the CAD to be around 3.6 per cent by March 31, is just one of the many official forecasters which had anticipated a deterioration in the current account of the BOP. There is an expectation that a jump in the earnings from invisibles during the last quarter would help in moderating the CAD. Even so, its comfort levels variously estimated at between 2.5 and 3 per cent appear to be as elusive as ever. More ominously, during the third quarter, for the first time since 2008-09, capital inflows were not sufficient to bridge the current account deficit necessitating a drawdown of foreign exchange reserves by nearly $13 billion. India's fiscal deficit projections have gone haywire with the government revising last year's budget estimate to 5.9 per cent from 4.6. The recent budget hopes to bring it down to 5.1 per cent by March 2013, a level which is still considered very high. The co-existence of a large fiscal deficit with the CAD has invited comparisons with the period preceding the 1991 crisis, when the twin-deficits apparently presaged bad times ahead. Such comparisons can be very superficial however. By any yardstick, the Indian economy is in a much better shape today. However it is good to realise that the co-existence of the two deficits has made the economy more vulnerable to external shocks. For instance, high petroleum prices have inflated the import bill and contributed to merchandise trade deficit besides straining the fiscal situation. Policymakers face quite a challenge in minimising the deleterious consequences of the twin deficits. The RBI might be reluctant to cut interest rates if it is not satisfied with the progress of fiscal consolidation. As recent data indicate, foreign capital flows might be even less forthcoming, given the twin-deficits. All these, in turn, will have wide ranging implications for the macro economy, including exchange rate policy.
Even the unprecedented can be unsurprising. For the first time, the Election Commission of India has been forced to countermand an election to the Rajya Sabha: in Jharkhand, following incidents of horse-trading and attempts to influence the electors Members of the Legislative Assembly by offering cash for votes. Until now, the bribing of electors has never been a visible factor in elections to the Upper House of Parliament, unlike in Lok Sabha or Assembly elections, where the poll process is routinely suspended as candidates come up with different ways of luring or pressuring voters. However, the seizure of Rs.2.15 crore in cash from a car belonging to the brother of an independent candidate in the Rajya Sabha election from Jharkhand could not have come as a total shocker. The surprise, actually, was in the seizure, not in the attempt to bribe. When the candidates are few and the electorate is small, as is always the case in Rajya Sabha elections, malpractices normally escape public attention. Jharkhand certainly was not the first instance of moneybags seeking easy entry into the Rajya Sabha. Industrialists and businessmen have always found a way to enter the Upper House. The preferred mode of operation, however, is striking a deal with top party leaders, not individual MLAs. In recent times, several industrialists or their representatives and lobbyists have entered the Rajya Sabha through this door with little or no affiliation to the party that supported them. Once elected, these MPs are under no obligation to their electors, and further their own personal or business agenda in Parliament. The Jharkhand case, however, has its peculiarities. Two seats were at stake in the Rajya Sabha election, but no party was in a position to win even one without the help of others. With five candidates, including two independents, in the fray, the field was wide open for a dark horse. The Bharatiya Janata Party at first announced its support for a Non-Resident Indian businessman, but backtracked following criticism. It later talked of abstaining from the vote, but finally announced support for its ally, the Jharkhand Mukti Morcha. In such circumstances, the two independents, both with considerable financial clout, must have fancied their chances, and lobbied hard with the MLAs. The EC did the right thing in countermanding the election after the cash seizure as the situation was getting murkier by the hour. But unless it is able to prove wrongdoing by some of the candidates, and then disqualify them, the same set of circumstances will be repeated when the elections are held again.
Licensed to kill
That tobacco products are singularly responsible for a large number of cancer deaths in adults has once again become strikingly clear. According to a paper published recently in The Lancet, in India, tobacco-related cancers were found in 2010 to be responsible for some 1,20,000 deaths 84,000 in men, and 36,000 in women among adults aged 30 to 69. That tobacco-related cancers constitute about 30 per cent of the total mortality (3,95,000) from all cancers in the same age group is proof of the lethal effects of tobacco products. Oral cancer was found to cause more than twice as many deaths as lung cancers. The reasons are not difficult to find. According to the 2009-2010 global adult tobacco survey, 170 million Indians chewed tobacco, and 120 million smoked. While a majority of rural women chewed tobacco, many men in urban and rural areas chose to chew and smoke. Tobacco that remains in close contact with the sensitive mucous membrane of the oral cavity for extended periods is a potent and lethal carcinogen. What makes tobacco use all the more dangerous is that besides causing organ-specific cancers, it increases the risk of death from other medical causes. In urban areas, smoking-related deaths are more from heart attacks, while tuberculosis and respiratory diseases are the main causes in the rural areas. With smoking accounting for five per cent deaths among women and 20 per cent among men, a 2008 study published in the New England Journal of Medicine estimated about one million deaths in 2010 in the 30 to 69 age group. Evidence from elsewhere paints an equally compelling picture. We know from a study that the mortality rate from lung cancer in 2009 in the American State of Utah was nearly 75 per cent lower than Kentucky. The reason: the prevalence of smoking in Utah was 10 per cent compared with 25 per cent in Kentucky. The single-minded pursuit of governments around the world should, therefore, be to reduce tobacco consumption through all means. The most effective way is to ramp up taxes. France has shown the way by tripling taxes between 1990 and 2005 and halving consumption. Using powerful pictorial warnings, as in many other countries, rather than the currently used ineffectual ones, and rotating them every year instead of once in two years, is yet another means. Maximum gain can be achieved by resorting to both these measures simultaneously. The government showed great eagerness to introduce into the national immunisation programme the human papillomavirus (HPV) vaccine to prevent cervical cancer, the most common cancer among women in 2010. Sadly, it seems to lack the gumption to clamp down on killer tobacco products. Will the latest research results stir it into action?
There are two ways of looking at the downgrade of India's rating outlook by Standard & Poor's (S&P) last week. The first is to dismiss it as something that points to what is obvious to all a deterioration in major macro-economic indicators, whether fiscal deficit, current deficit or GDP growth. Indeed, this was how the markets reacted, shrugging off the news and showing neither shock nor surprise. To some extent this is understandable because the Reserve Bank of India had already sounded a warning in its monetary policy statement of April 17 pointing to worrisome data. The other choice is to take the downgrade in outlook from stable to negative as a wake-up call and initiate steps to put the economy back on the rails, which is ideally how the government should view the development. Finance Minister Pranab Mukherjee struck the right note with his statement that the downgrade should be taken as a timely warning, even as he rightly pointed out that there was no reason to panic. Yet, more than words, what's needed is action, which alone can prevent a downgrade of the sovereign rating to below investment level in the next review by the rating agencies. Tough decisions are necessary to rein in subsidies, especially on fuel and fertilizers. An increase in the retail price of petrol, diesel and LPG will help the government rein in the fiscal deficit even as oil imports may drop as consumers cut down consumption. With oil being one of the two causes (the other being gold) for the rising import bill, lower imports will also have a salutary effect on the external payments situation. Gold imports may decline following the imposition of a 4 per cent duty in the Budget but the government needs to watch the trend closely and if necessary increase the duty further to keep imports in check. There is pressure from some quarters to liberalise FDI norms in the retail, insurance and banking sectors, the argument being that such a move will boost sentiment among investors. But these proposals are politically contentious and it is not even clear they will deliver the desired impact. For the moment, other reform measures such as the fast-track implementation of the Goods and Services Tax need to be given a conscious push. A trend towards fiscal consolidation together with positive reform measures will also strengthen the RBI's hand in easing interest rates further. This will hopefully boost investment in the corporate sector, giving a leg up to GDP growth. However, none of the above can be achieved in the absence of political consensus. And that appears to be the biggest risk to the economy at this point in time.
The sudden escalation in the long-simmering tension between Sudan and South Sudan is something neither country can sustain without inflicting serious hurt on their respective populations. The Comprehensive Peace Agreement (CPA) made South Sudan the world's newest country in July 2011, but disputes continue over provinces such as South Kordofan in the Nuba region, Abyei on the border, and Blue Nile. There are also tensions over oil; landlocked South Sudan's pipelines run northwards through Sudan, but it has 75 per cent of the former unitary country's oil reserves and has closed down further supplies, possibly because transit fees were in dispute. The latest fighting has seen the number of refugees in the South rise to 100,000, almost all of whom are already at risk in the fierce dry heat, with severe flooding and water-borne diseases awaiting them when the rains start in a few weeks' time; 30,000 more have fled to Ethiopia. Recent refugees tell of air attacks ordered by President Omar al-Bashir's government in Khartoum, and the Southern President Salva Kiir, during an official visit to China, announced that Sudan had declared war on his country, though he himself had presided over an attack on Heglig in the second week of April; 35,000 civilians are on the move as a result, despite the fact that Juba has now withdrawn its forces. In all this, it is easy to forget the two million who fled their homes in the western province of Darfur. As so often, the key problems are political. The CPA left the status of South Kordofan and Blue Nile subject to referenda, but those are yet to be held. Secondly, Khartoum had neglected Kordofan for years, mainly because a substantial proportion of its population are Christians or have their own strand of Islam; the province had received no benefits from its oilfields. A rigged 2011 election there led to an uprising, followed by Sudanese reprisals, which were also inflicted on Blue Nile. Worse still, Southern militias are operating in Sudan, and vice versa. In this cauldron of mutual fear and violence, international intervention can achieve little. China, which buys oil from both sides, has long refrained from interference in the internal affairs of its African trading partners. The African Union (AU) and the United Nations Security Council have called for hostilities to cease, but neither side is willing to listen. If there is hope, it lies in the fact that Egypt had a hand in the South's withdrawal from Heglig; the AU, possibly through Egypt, might be able to put enough pressure on both sides to cease their violence. The AU, however, must not stop trying to reach a settlement.
Monsoon reading
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Come April, it is time for an important ritual in the run up to the monsoon the Indian Meteorological Department's forecast of how the rainy season, which still sets the pace for so much of the country's economy, will turn out. This early in the game the rains typically set in between the end of May and early June and without a scientifically reliable crystal ball, the IMD has an unenviable task. The monsoon is a hugely complex phenomenon, and scientists are still in the process of deciphering how the ocean and atmosphere interact to decide its progress. Without such understanding, attempting to predict how the rains will fare can look rather like soothsaying. The IMD's forecast for this year's monsoon used a statistical model to estimate the probabilities for various outcomes. It predicted an 88 per cent probability of the monsoon turning out to be normal' in the sense that scientists generally use the term (meaning a season when the nationwide rainfall is between 90 per cent and 110 per cent of the long period average). Rainfall data for over a hundred years shows that seven years out of ten turn out that way. The IMD forecast would, therefore, appear to indicate enhanced odds for a normal' monsoon. But that prediction needs to be taken with some degree of caution. How the sea surface temperatures of the equatorial Pacific, especially in the central part of the ocean, evolve in the coming months can impact the monsoon. Several coupled models, which attempt to simulate processes in the oceans and atmosphere, are already suggesting that the central Pacific will warm and a weak El Nino could develop as a result. An El Nino often adversely impacts the monsoon. At present, those models do not show rainfall deficits over India. But that could change as time goes on. However, it is noteworthy that even if the monsoon does turn out to be normal,' the IMD's probabilistic forecast already indicates that it is likely to be towards the lower end of that range. The category it terms as below normal', with the monsoon rains between 90 per cent and 96 per cent of the long period average, has a probability of 24 per cent. That is higher than its climatological probability of 17 per cent. How the monsoon fares will also depend on what happens in the Indian Ocean. There are some indications that this ocean too may not favour a good monsoon. Such uncertainties over the fate of a monsoon should diminish as scientists gain more insights into the phenomenon and consequently are able to improve models that simulate it. One hopes that the National Monsoon Mission, which seeks to do just this and has now received governmental approval, succeeds and soon.