Friday, April 28, 2000,
Chandigarh, India


E D I T O R I A L   P A G E


Promising panchayati raj
Haryana Chief Minister Om Prakash Chautala’s “Jind declaration” for reviving the panchayati raj institutions need not necessarily be viewed as a political gimmick by his detractors.

Sensex turns very sane
Hope returned to the stock markets on Wednesday and volatility took leave. Thursday started on a faltering note but everyone, including the speculator, expects the share prices to steadily go up.


by Hari Jaisingh

UN Council seat for India
It is a pity that India's claim for a permanent seat in the United Nations Security Council has not received the degree of global support it richly deserves. India is not a banana republic.


The traveller’s troubles
by J.L. Gupta
MY friend is “bald as a billiard ball”. He has an “itching” foot. He cannot sit still. He is mostly on the move. A compulsive traveller. Since his younger days. Seeing places is his sole source of pleasure. Despite an indifferent health.

Whose drought is it anyway?
April 27, 2000
Police and the law
April 26, 2000
Unwise and impolitic
April 25, 2000
Drought and dry run
April 24, 2000
Pakistan’s changing scenario
April 23, 2000
Undying aberration
April 22, 2000
Trivialising cricket crimes
April 21, 2000
April 21, 2000
Group for group's sake
April 20, 2000
Political volatility
April 19, 2000
A routine BJP session
April 18, 2000
Labouring a conflict
April 17, 2000

Economic fundamentals & political responses
by Balraj Mehta

THE line of political demarcation on the basis of economic fundamentals has to be clear and sharp. But the attempts of political parties and personalities of different hues and affiliations are still to combine market-friendly economic growth ambitions with populist pretensions.


Global financial crisis
By M.S.N. Menon

THE ills of globalisation are on the increase. The frequent spasms of fever are turning into delirium. But the medicine-man’s diagnosis continues to be incoherent.

75 years ago

Defects of the Cotton Industry
OME of the Bombay papers have drawn attention to the serious defects existing in the organisation and management of cotton mills and point out that they account, in a large measure, for the inefficiency and depression in the industry. Top


Promising panchayati raj

Haryana Chief Minister Om Prakash Chautala’s “Jind declaration” for reviving the panchayati raj institutions need not necessarily be viewed as a political gimmick by his detractors. Of course, political bickering between rival factions is a major reason why the concept of gram swaraj as enunciated by Mahatma Gandhi has failed to take off in the country. There are only some pockets in the country, Madhya Pradesh is one of them, where the idea of recognising village as the unit of national development has been given shape and substance. This has been done through the transfer of local level decision-making powers to the grassroots institutions like gram panchayats and gram sabhas. The package which Mr Chautala unfolded at Jind needs closer scrutiny for identifying the bottlenecks in making the panchayati raj institutions effective instruments of socio-economic development. Had the policy of transfer of power from the Centre to the states, from the states to the divisions, from the divisions to the districts and from the districts to the villages been honestly implemented after Independence, there may have been no need for the Prime Minister to convene an all-party meeting for discussing the drought situation in the country. Villages which have taken the initiative of putting into place projects for becoming self-sufficient, without having to seek help from corrupt officials, have done better in implementing projects for meeting the basic needs of the community than those still dependent on the long chain of command for their voice being heard. If the transmission lines are long and seemingly endless, any form of power does get stolen before it reaches the end-users. Mr Chautala is not the first Chief Minister to have offered “sarkar apke dwar” to the people. In practice the “sarkar” does not go beyond the “dwar” of a chosen few. For instance, Mr Chautala’s “sarkar” may not show the same interest in visiting the “dwar” of those who did not return his party’s candidates to the Assembly. The fault lies not in Mr Chautala’s personal style of functioning but in the myopic approach of most chief ministers in not rising above petty political considerations for strengthening grassroots democracy in the country.

On paper the decision to raise the limit on spending by panchayats from Rs 25,000 to Rs 1.25 lakh on village development projects looks good. So does the raising of the limit on spending to Rs 3 lakh with the permission of the panchayat samiti and between Rs 3 lakh and Rs 5 lakh with the approval of the zila parishad. The intentions are good, but who will protect the panchayats from the institutionalised system of “cuts” on the amount sanctioned for development work? The lack of political will is one reason why village level democracy has not taken roots in most parts of the country. What Rajiv Gandhi once said about the flaws in the system too is relevant. According to him, only a few paise out of every rupee actually gets spent on development work.The entire system is tailor-made for encouraging financial fixing. No gram sabha or panchayat can hope to get its fair share of the sanctioned amount without giving the mandatory cut to the local patwari, tehsildar, block development officer and other functionaries of the “sarkar” which Mr Chautala has promised would come to “apke dwar” for on-the-spot redressal of grievances. The Gandhian vision of gram swaraj as the first important step for attaining the objective of “purna swaraj” cannot be attained without streamlining the entire system of administration and decision-making. Without giving the village the right to raise resources for implementing healthcare projects, opening schools and taking care of basic needs like water, fuel and food of the local community the hurtful disparity of the India which lives in Delhi and the one which barely survives in the rural areas cannot be bridged. Gender empowerment too should be considered a key component for making rural India the fulcrum of uniform national development. The disproportionate amount of money which is spent on taking care of the extravagant needs of the minority living in urban centres and the pittance which is allocated for the development of rural economy must end. This objective can be achieved only through implementing the promise of strengthening grassroots democracy.Top


Sensex turns very sane

Hope returned to the stock markets on Wednesday and volatility took leave. Thursday started on a faltering note but everyone, including the speculator, expects the share prices to steadily go up. There are three factors giving rise to optimism. Nasdaq, the New York-based stock exchange which has come to set the pace for all exchanges, including the Indian ones, has ended its see-saw movement and is firmly looking up. In a grand act of imitation, the Bombay exchanges too have followed suit. Two, all companies have announced excellent results for the last quarter of the financial year; information technology units have recorded net profits of more than 100 per cent over the previous year. That means that their scrips will remain the darling of both foreign and Indian buyers. Three, every analysis indicates that the economy is firmly on the path of growth and this should sustain the present sentiment. In view of these strong fundamental points, the 30-stock Sensex forgot the recent reverses and staged a great rally. It climbed nearly 262 points to touch 4796 points. True, at this level the Sensex has shed 26 per cent from the peak of slightly over 6000 points in February. If the upward movement remains unhalted, the yearend should see the index nudge close to 7000 points. In all stock exchanges, upward movement of prices is self-sustaining. Every increase attracts mutual fund managers and even some individuals to enter the market to make a tidy profit by way of rising prices and not attractive dividends. As long as there are purchasers, the prices will go up; thus each reinforcing the other. The opposite happens when owners unload shares; prices dip and more line up before the counters to sell, setting off a downward spiral.

A greater source of confidence was the new device to curb violent movement of prices. SEBI has rewritten the rules in two major ways. Until now trading, both buying and selling, will be switched off once the price goes up or down by 8 per cent. This is the so-called circuit breaker. Brokers and others have opposed it, complaining that this strangles trading. The new arrangement will keep the computer live but restrict trading to the 8 per cent band. After a cooling-off period of 30 minutes, there will be a further 4 per cent band, which means that trade can now be conducted even if the increase or decrease is as high as 12 per cent. Simply put,from now onwards the limit of circuit breaker is up from 8 per cent to12 per cent. Anyone wanting to flee the market will get a second chance as will those who want to dig in. This will add to investor confidence which is crucial to the health of the secondary market. SEBI took a significant step to discourage pure and always profitable gambling. It has stripped the short-seller from receiving any fee (badla); that money will now go to a SEBI-run fund. The badla system is an anachronism. It permits a broker to sell on a distant date shares he does not have and the buyer has to pay a small amount to keep the contract alive. Now the long-term buyer will still pay some money to be in the deal but that will benefit the fund set up to protect investors.Top


Frankly Speaking
by Hari Jaisingh

UN Council seat for India
Time for USA to see reason

It is a pity that India's claim for a permanent seat in the United Nations Security Council has not received the degree of global support it richly deserves. India is not a banana republic. Nor is it a nation without substance. The country has civilisational roots which are deep rich in thoughts and accomplishments. As a leader of the non-aligned world, it has played a critical role in establishing peace and allround human growth and development.Right from the fifties, Indian leaders have worked actively for the promotion of global peace and building a new and just order. It has participated in the United Nations peace-keeping operations and unlike America, India has never delayed the payment of dues to the world body.

Nehru used to say that we might be poor, weak, good or bad, but "India counts". Our size, situation, status plus the circumstances of the world we have lived in, as well as our efforts, have all enabled this country to be counted in the comity of nations.

The question which has often bothered me is: why has this country been denied its legitimate place in the world body? Why has the basic fact of India being the world's largest democracy with rich human material been conveniently overlooked by the big powers? And in this never-ending power game, the key player has been the USA. The American role in world affairs has become all the more pronounced in the post-Cold War period.

The moot question now is: will the Americans be more responsive to Indian sensitivities? As of today, signals from Washington are mixed.

Of course, the question of India's permanent seat in the Security Council is very much linked with long-pending reforms of the UN. This has been high on the agenda of the General Assembly. But as in other walks of life, global power politics has become a major stumbling block in reforming and returning the world body to the changing needs of the time.

It is a fact that the agenda for the UN is set by the USA and not by its over 186 members. Washington acts as a supremo of all that the UN stands for. Nothing happens against its wishes. So powerful is the hold of the Americans on the world body.

There is, however, no point in grudging the American supremacy in today's global realities. The USA acts as a global policeman and uses the UN to impose its will on the rest of the world. There is nothing democratic about such an approach. But then global power realities cannot be made to order. Nor can these be cast in a democratic mould.

In global power games, India's misfortune is that it has become a victim of Pakistan's evil obsessions. Right from the fifties, Islamabad, as a member of the Western military alliance, could successfully manipulate the Americans. Of course, Pakistan then ideally fitted in the US grand design of containing communism. Washington also saw in Islamabad a counter-balancing force to New Delhi's pro-Soviet stance. This was all part of the Cold War phenomenon basically involving Moscow and Washington.

It is also true that India's dispute with Pakistan on Kashmir and the subsequent armed conflicts right from 1948 only complicated matters to the disadvantage of this country. In fact, it would not be an exaggeration to suggest that India's case for a permanent seat in the UN Security Council has suffered mainly because of the hostility of Pakistani leaders and their ability to influence the USA during the Cold War days. This is now part of history. What is reassuring is that new trends are emerging on the global canvas. Today, India has acquired special importance in the market-driven global politics.

India is no longer a paper tiger. It is the world's largest democracy with a track record which can be the envy of any civilised nation.

Also, there is a perceptible change in American perspective on India. President Bill Clinton's recent visit has surely induced a new thinking among the policy-makers in Washington. They seem to be reassessing the position and strength of this nation. This is a welcome development.

Even on the question of CTBT and NPT, Washington appears to have shed its rigid postures. New Delhi will have to wait and watch developments in this regard.

India's nuclear power status is a reality. It cannot be wished away even though the members of the nuclear club—the USA, Britain, China, France and Russia—are reluctant to treat India on an equal footing. This may be a matter of time. The attitude of France has changed. Even Britain seems to be showing new understanding of India's susceptibilities than ever before. For that matter, the American attitude has also changed considerably, notwithstanding the blow hot, and cold emissions from Washington. The US Administration seems to have an open mind on accepting India as a permanent member of the Security Council.

Left to itself, Washington would like to induct only Germany and Japan in the Security Council's select group. But the latest reports suggest that the USA may be willing to accommodate India in an enlarged Council.

Indeed, Indian diplomacy will be on test in the months ahead. South Block should not be apologetic about the country's legitimate claim. In today's global setting, India is a power to reckon with. It cannot be equated with Pakistan. If anything, India has to be seen vis-a-vis China. If China can be a permanent member of the Security Council, there is no reason why India should be denied the position it deserves.

It needs to be borne in mind that the global scene is undergoing such radical changes—in framework, in the interplay of forces that shape them and even in the sources of power and influence—that India will have to deal with a world which will be very different from the one we have known since World War II.

India is actually in a definite phase of transformation, and can no longer remain insulated from global dynamics. It has to reorient its foreign policy objectives and work out modalities to achieve them.

Strategically, this country will always be important. It will also be cultivated commercially as a market comprising a billion people, with the second biggest middle class in the world. But the weak point is that there are also roughly 400 million who live at the poverty level. The "rising expectations and the growing frustration" of this large section of humanity pose a major challenge.

In fact, poverty and social deprivations of large sections of the population have somewhat weakened the country's bargaining power in today's competitive world. We have to see how liberalisation and globalisation help us to tackle key problems on the socio-economic front.

As already pointed out, the most dramatic and decisive change is in the relationship with the USA. The patterns of economic development, the subordination of ideology to practical need and, above all, the vast unknown impact of the technological revolution are obviously the critical determinants of change.

Indeed, the hard new world calls for hard new thinking and hard work. A flash-in-the-pan diplomacy will not work in today's complex world of one player and innumerable hangers-on.

A lot will now depend on the main player — the USA. The recently noticed better understanding between India and the USA should certainly help this country get a permanent seat in the Security Council. It will also be in the interest of the USA to sponsor India's case graciously.

The US Administration cannot overlook India's economic potential and its nuclear status. Moreover, in the past 52 years, this country has established itself as a shining example in democratic house-keeping. Top


The traveller’s troubles
by J. L. Gupta

MY friend is “bald as a billiard ball”. He has an “itching” foot. He cannot sit still. He is mostly on the move. A compulsive traveller. Since his younger days. Seeing places is his sole source of pleasure. Despite an indifferent health. Limited resources. And the nagging wife who is never tired of telling him that his head is as empty as his pocket. He uses every weekend and holiday to visit one or the other place. But, always on a strictly austere budget. That is an unavoidable necessity. Thus, he travels by any mode of transport. A bullock-cart. A camel back. A cycle. By bus, is sheer luxury for him.The innate desire for travel is not born out of any egotism. In fact, he firmly believes that travel is education. One is as wise as the number of places he has visited. Each place has something new. Something different. Every time, it is a new experience. Of its own kind. Worth more than the money spent.

One fine day, he decided to visit the erstwhile princely states in Punjab. The area that was earlier known as PEPSU - the Patiala and east Punjab states union. He had heard of the different places and the peculiarities thereof. Like, he knew that Patiala was famous for the “Patiala peg”. Also the fort. The “medals gallery”. And so on. He knew a bit about every place and the princes. Some princesses too.

Not only this. He had also made enquiries about the means of travel. He knew of the buses being run by the PRTC - the Pepsu Road Transport Corporation. He had assumed that in the erstwhile state of Pepsu, the PRTC should be the best. And on seeing my response, he was quick to ask if it was not a private organisation. Managed by professional managers. Providing satisfactory service to the travelling public. Seeing his enthusiasm, I decided to remain quiet and to let him see everything for himself. Especially because, I had nothing better to offer. At least within his limited budget.

So, my friend left Chandigarh. After an early breakfast. Got his lunch packed. Made a solemn promise to try and be back in time for dinner. Seven. Eight. Nine. There was no sign of him. No news from him. Not a word. Even on the next day. Nobody had any clue. We were anxious. But, that was of no use. Ultimately, after two days of absolute anxiety, we got an urgent telegram. To inform us that he would be back after a couple of days.

He came back. All wet. With sweat. As if there was an early monsoon. The bulge of the belly was a little less. The tan on the face was a lot more. Seemed that he had come back from a walking expedition. Through a desert. And he had plenty to tell. Of the delicious “daal” at the wayside “dhabas” and the vast fields with the wheat crop. Also about the cities and towns. In particular, he talked about the royal remains — the old and dilapidated palaces, the worn out faces and the manner in which some of the most beautiful places were being maintained. Or totally neglected?

And then, he took out his clothes, which told their own tale. A trouser besmeared with grease. Unwittingly left by the “cleaner” on the seat. Another one, badly torn. Courtesy — the mechanic who had put the screw but not fixed it well. The shirt that had changed from white to brown because of all the dust and smoke. Thanks to the missing windowpanes in the buses.

“The bus service is appalling”, he thought. Felt very sore. He was not given a seat despite the fact that he had a ticket. On another occasion, he had paid the money to the conductor, but was not even given the ticket. His request was turned down with a mouthful in typical Punjabi. And then, no refund was given when the bus had broken down after it had moved only a mile. The list of troubles was long and unending.

He declared — “the PRTC really means - Pitdee Rondee Turi Chal”. The buses just heave and hove. Though seemingly new, these are not roadworthy. Notwithstanding the certificates issued by the motor vehicles’ inspectors.

Travellers face troubles. Can something be done?Top


Economic fundamentals & political responses
by Balraj Mehta

THE line of political demarcation on the basis of economic fundamentals has to be clear and sharp. But the attempts of political parties and personalities of different hues and affiliations are still to combine market-friendly economic growth ambitions with populist pretensions.

The partners in the ruling coalition as well as the opposition are evidently not yet ready to pull down the government headed by Mr A.B. Vajpayee. The objections to the selective increase in administered prices and cuts in subsidies do not add up to become a basis for a viable policy alternative and political leadership.

The Prime Minister, on his part, riding the high horse, is brushing aside all questioning within and outside the ruling coalition. He has unreservedly devoted himself to the task of integrating the Indian economy to the global market. He is only trying to gain confidence of the foreign investors who may still be entertaining reservations about the capacity of the Indian economy to absorb and provide for their investments high returns and foolproof security. He is totally unconcerned about losing the confidence of even his partners in the coalition government, let alone the mass of the people.

It is not surprising either that budgetary stringency is advanced as the alibi for meagre provisions for investment and mass welfare. The Indian State has indeed been made to take big strides away from performing a developmental role as a part of the structural adjustment process initiated in 1991. Segments of even the Indian industry have expressed their anxiety about their investment plans going awry because public investment is not picking up. But public sector disinvestment overshadows official economic policy priorities. Budgetary support for social welfare too is viewed indifferently. Worse still, the tendency not to fully utilise the meagre provisions for this purpose is gaining impetus in the name of expenditure control. The official economic policy-makers have not been well advised in these conditions to make an upward revision of administered prices and cut in subsidies as a big issue. The idea that cuts in subsidies can be justified in the name of their rationalisation is rather ticklish. The question of subsidies cannot be approached in terms merely of containing the fiscal deficit either. These proposals in the Budget have predictably become issues for political contention.

There is strong resistance of not only the popular masses but also a variety of vested interests in politics and the economy against the move to recover from the consumer even partially the cost of goods and services that the State provides directly or through industrial and commercial enterprises in the public sector. The upward revision of administered prices when market forces have been let loose are bound also to precipitate a general rise of all prices in the open market. The apprehensions about a return to a double-digit rate of inflation are not unfounded. It is indeed disconcerting that the self-styled economic reformers and their representatives in all political parties are not willing or able to devise a sane and sensible scheme for rationalising subsidies and fix sound economic and social priorities. The increase of the issue price of foodgrains and petroleum products has far-reaching cascading effects on the general level of prices.

There is undoubtedly a strong case for gradually eliminating power, irrigation and transport subsidies. But this is possible only if, side by side, there are improvements in the efficiency and productivity of these sectors. In the case of power, the mindless induction of foreign power producers has increased its price for the consumer. There is really far more to the removal of the baneful effects of subsidies on resource mobilisation and deployment as well as establishment of a sound structure of relative prices than just the upward adjustment of administered prices. The drive for eliminating subsidies must not be a substitute for resource raising for investment and welfare either. The sovereign right of the state to raise taxes from the affluent segments of society is necessary to finance general public services, including law and order and security. It is also socially desirable to provide social security to the weak and vulnerable who are still half the Indian population.

The inflation rate has already risen close to 5 per cent within six weeks of the presentation of the Budget this year. That the economy is poised for the high annual growth rate of 8 per cent with a safe inflation rate of 5 per cent does not, however, carry conviction or credibility. As the government has chosen to advertise its growth ambitions by offering fiscal and monetary incentives to investors, specially foreign investors, inflationary pressures are bound to get out of control and become intolerable. The low inflation rate during the last two years was entirely in response to the policy to deflate domestic investment and growth impulses. While the middle classes found some reprieve from a low rate of inflation, the mass of the people suffered from the decline in investment, shrinking employment and denial of social services. The rich business interests and their highly paid professional aides as well as the landed gentry are, of course, immune from the adverse impacts of price movements.

To endure, the BJP-led coalition government must not be an instrument merely of securing electoral advantages for its constituents. It must have an integrated view of economic growth and social equity.

Far from trying to define clearly the parameters of economic fundamentals and finding ways to develop a policy framework on that basis, the coalition has chosen mindlessly to uphold the market-directed economic growth policies. The critics of these policies within the ruling coalition and outside too have sidelined the search for a credible and meaningful policy alternative. The upshot is that political cohesion on the basis of shared priorities and policies has not yet emerged and the economy has remained stuck in the mire of stagflation after the process of planned socio economic development was jettisoned.Top


Global financial crisis
By M.S.N. Menon

THE ills of globalisation are on the increase. The frequent spasms of fever are turning into delirium. But the medicine-man’s diagnosis continues to be incoherent.

When the BSE stocks fell recently (April 4), following the New York crisis in stocks, some sighed in relief and some let out deep groans. The sigh came from those who were happy that India caught the fever from New York. And the groans? It came from those who saw nothing but disaster from the delirium.

Of course, both are partisan and perhaps ill-informed. The American economy is the engine that drives the rest of the global economy. There can be no comparison between the US and Indian economies. One is a giant; the other is a dwarf. They cannot be linked together. The financial architecture of both are different. Their problems are different.

American investors are prone to speculation. They are in multi-million. They expect easy and quick windfalls. In fact, the Americans are also prone to panic, whereas Indians fear volatility. Are we, then, to be victims of this American proneness to panic forever? The very idea that the Indian economy is to be guided by the daily whims of millions of Americans is nothing but intolerable.

The US economy is perhaps the most dynamic. Companies are formed, they merge, are bought over or are overtaken by new technologies all in a constant stream of changes. Such is the case with information technology today. It is changing by the hour. The investors are, of course, different. They are young, brash, ambitious, today. As The Guardian (UK) newspaper pointed out, “they are the entrepreneurs, a new generation of virtual prospectors scrambling for territory in the greatest goldrush since the Klondike.” The old giants are being replaced by Net service providers, telecom titans and computer makers.

And there is the financial mafia — the crime syndicates, which today find the bourse the safest place to make their billions. George Sorros, the speculator, confesses that he made two billion dollars from the Asian crisis in a matter of days!

To be hitched to such an economy has to hazards. You can be wiped out if you are small. Naturally, Mumbai and New York responded differently. The New York Nasdaq fell by 20 per cent, but in India the fall was greater. New York Nasdaq is driven by dotcom, technology, computer service and hardware companies. In India, IT industry is made up of software service companies, most of them small.

Thus, while the recovery in New York was smart, it was slow in India. And because the Bombay Sensex is weighted heavily in favour of infotech stocks, it was deeply affected. More so because a high proportion of infotech leaders like Infosys is linked with America. So the BSE will move in tandem with the Nasdaq as long as it reflects mainly investor sentiment about technical stocks.

There is, therefore, need to de-couple Nasdaq from Dalal Street. this won’t be easy. There are powerful Indian interest behind this financial integration.

New infotech stocks are being issued by the dozen daily. Why? Because promoters do not want to put their money in these risky ventures. Behind the many TV ventures are small-time crooks. Banks are not willing to invest in them. Hence resort to the public. You should know what to infer by the way an issue is made.

The nexus of promoters, brokers, politicians and fund managers has now become stronger. Prices of stocks are pushed beyond their intrinsic worth. Rigging prices has been an old game. It is now a fine art. The rewards are great.

Ironically, it is the high value of shares of Infosys Technologies, backed by genuine growth and good corporate practices, which has helped other software companies to enjoy the reflected glory. Infosys is ahead of all others. It is free from any charges. No doubt, friendly journalists help with planting stories to boost infotech shares. But no tricks can help to keep the prices up for a long time. What has gone up must come down, for these swings do not reflect intrinsic worth. This is where the politician can help. And he can also make money on the sly. He has the power to control policy as also the fund managers. Government mutual funds are there to oblige the politician. They will buy over valued shares. So too the foreign fund managers, if pressed. Few have the courage to refuse. The politician can order them to buy specific scripts to keep the prices up. So can the crime mafia. They are close to brokers.

France, Germany and Japan want governments to intervene to control this speculation, but America is opposed to any government intervention. As long as there is no consensus among the three giant players — the USA, EU and Japan — there will be only debates; there will never be action.

Internet service is something which is really a revolution. Yet it is on shaky foundation. If it is affected adversely, it will be a pity. According to some, the Internet bubble may be about to burst. Rajeev Gupta of Goldman Sachs’ Asia Research says: “As many as 75-80 per cent of the Internet companies will be history soon. They are not sustainable. The entire business will accrue to the top 2-3 companies.” Of the 250 or listed US companies, he says, only 30-40 may survive. And no more than five Indian companies. If this happens, millions are going to be ruined. But the promoters and others will make their pile.

Part of the problem is the investor himself. He expects quick returns. Promoters are also responsible for this, for they give false hopes. As investors have to wait for years before they get some benefits, they get frustrated. They say now that they cannot wait for more than two years. After that, they threaten, they will switch their stocks to the traditional companies. This can thus cause further instability.

It is well known that foreign exchange valued at 1.2 million US dollars is transacted across borders daily, and only very little of that (about 1-2 per cent) is due to payment for trade and services. The bulk goes for foreign investment and short-term capital flow, as well as for speculative capital flows. To this is to be added the 400 or so billion dollars worth of profit made by the narcotic mafia yearly, which invariably goes to swell the speculative funds. With so much of funds for speculation, one can understand why there is this constant spasm in the global economy. A good part of this money belongs to the rich nations. Their citizens are among the great speculators.

There is little, that the developing countries can, therefore, do to prevent international crises. It is thus absolutely necessary for developing countries to establish a policy framework to deal with financial capital flows. But for this they must know the kind of capital that enters the country and the kind of measures employed to manage them. They must also know their impact on foreign exchange position and the balance of payments.

The creation of the Financial Stability Forum to study hedge funds (used for pure speculative activities), offshore financial centres and short term capital flows, was, therefore, a right step. All these three have contributed to the Asian, Latin American and Russian crises. The forum is made up of officials from the Group-7 countries and IMF and World Bank institutions. It is time the forum got a firm grip on these recurring crisis. Top


75 years ago
Defects of the Cotton Industry

SOME of the Bombay papers have drawn attention to the serious defects existing in the organisation and management of cotton mills and point out that they account, in a large measure, for the inefficiency and depression in the industry. The appointment of managing agents who enjoy a sort of monopoly of powers is criticised.

It is generally admitted that Indian mills are not at all worked on efficient lines and serious defects are found which explain to some extent Japan being able to successfully complete with India in the trade, even by purchasing cotton from India.

We hope that the defects pointed out will be removed and attempts will be made to increase the efficiency of the mills.Top

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