Orissa’s Nano

“Look, how we are living today,” a middle age man said to his friend, pointing his finger at thin, dirty looking passengers in the general bogey of Howra mail.

“They could have had a better life if at all the government implemented all the big projects here in Orissa. But the politics is so dirty here that any developmental plan just doesn’t take off,” he sighed.

His impromptu analysis is not that bad. After all, lakhs of people from Orissa migrate to other cities like Surat, Ahmedabad, Delhi etc in search for greener pastures.


But does that mean big industrial projects like POSCO, Mittal Steel, Tata Steel would solve all their problems.

The question became all the more relevant after Orissa government reportedly sought referendum on POSCO-India's proposed mega steel plant, failing to implement South Korean steel major's Rs 51,000 crore project near Paradip due to local opposition.

The project, which is the single biggest Foreign Direct Investment in India, has been a non-starter since the MoU was signed in 2005. Construction of the project was originally scheduled to start in April 2008.

The POSCO’s proposed plant in Jagatsingpur district not only faced hurdles in land acquisition, it is also struggling to acquire regulatory clearances as it is awaiting mining leases.

Trapped Projects

Another big buck project of ArcelorMittal in Keonjhar district is also facing stiff resistance from the locals. ArcelorMittal is to build a 12mtpa capacity Greenfield steel plant in Keonjhar district at an investment of Rs 40,000 crore. Incidentally, the company which had signed an MoU with the state government to set up the mega steel plant in December 2006, had given direct employment to only 12 persons.

There are in all 49 companies, which had signed Memorandum of Understanding with the state government to set up their projects.

On January 9th this year, the state government had decided to review the progress on a monthly basis to push these projects, which were facing hurdles either on the land acquisition front or for getting mining leases.

As per the state government, in the pipeline, Keonjhar district has the highest proposals of 10 steel plants followed by Jajpur (8), Dhenkanal, Sundergarh, Jharsugudua (7), Sambalpur (5), Cuttack (4) Jagatsinghpur and Anugul (2 each).

All is not “always” well

One wise man once rightly said that the grass always looks green on the other side. It is quite easy to say that big projects will overnight change the living standards of poor as it has done in the West. But it has been proven that the ‘Trickledown Theory’ does not always hold true. Also is there any surety that industry will provide a better life to the inhabitants of the area?

During my days in Keonjhar, I had the chance to get a sneak peak into the lives of the tribals and the poor residents of the region. They have a really hard time to arrange rice and dal even twice a day. I could not come across even a single instance where they had three square meals a day, leave alone any delicacies.

Now, one would wonder why they are not giving up their resistance and allowing factories to come up there. The simple arithmetic is that once the factory comes up, people will be employed there and they would earn more money and have a better life.

But, there is much more that meets the eye. It is obvious that, just like us, the tribals also have their way of thinking. It is naïve to think that once they leave their land, they will get a job as they hardly have any formal education.

Second, never has any government in India (State or the Union) set any example of successful rehabilitation of the displaced people. Look at the Sardar Sarovar Dam or Orissa’s own Hirakud Dam. In both cases, after years of successful completion of the projects the displaced people are still fighting for justice.

How could a village, which is established in the best possible area, be shifted to somewhere else, just because someone at the state capital or in national capital says so.

It’s not that every tribal and poor in the area is up in arms against the industries. They too want factories and jobs to be available to them locally. But they want a concrete assurance and a better deal.

There are environment issues also. And moreover industrialists like Vedanta do not have a clean image as far as environmental issues are concerned.

But one of biggest factors that contributes to the stalemate is local politics. Every faction wants to take the advantage of the situation. There is no consensus at all among big political parties. When Congress was in power, BJP used to veto the projects and vice versa. The Tata Nano fiasco in the neighbouring West Bengal is a perfect example of what petty politics can do to the development of a state.

Vedanta has already given an indication to relocate its-yet-to-start project to Karnataka. Hopefully, Chief Minister Mr Naveen Patnaik, whose government at the helm helped the state to grow at a stunning rate of 8.74% from 2004-05 to 2008-09, will not allow a Nano to happen in his state.

RBI's Biggest dilemma

In a previous article titled, “Post Recession Blues”, I had cited how difficult it would be for central bankers and governments across the world to withdraw the gigantic amount of money pumped into the financial system through various stimulus packages. The bankers resorted to the unprecedented move to push up demand and revive growth as the world was struggling with one of the worst post-war recessions.

Many policy makers and economists have echoed the same. It will be a Catch-22 situation for the Reserve Bank of India (RBI), the country’s central bank, when it will sit to review the monetary policy on January 29.

"If you suck out liquidity, other sectors get affected; roads get affected...So it’s a complex issue," RBI Deputy Governor KC Chakrabarty noted, indicating the delicacy of the situation.

On the one side, inflation is rising to new highs and on the other industry leaders are repeatedly asking the government not to withdraw the stimulus. The Wholesale Price Index-based inflation, which has jumped to above 7 percent from 4 percent in December, is now expected to touch double digit figures by the fiscal end.

According to Venu Srinivasan, president of the Confederation of Indian Industry, the fiscal stimulus should continue for another six months, besides the implementation of Goods and Services Tax (GST) to help firms reduce costs.

Added another industry lobby, the Associated Chambers of Commerce and Industry (Assocham): "Stimulus package should not be suddenly withdrawn, but should be gradually phased out as the industry is just coming out of the recession and inflation rate has already increased significantly during December 09."

The government is also under pressure to reduce its fiscal deficit, estimated at 6.8 percent of gross domestic product (GDP) for 2009-10, as it has increased its borrowing to a record Rs 4.51 trillion.

“Too much of stimulus, when the body is getting healthy, is not good, it can be injurious to health," Finance Secretary Ashok Chawla said recently.

The United Progressive Alliance (UPA) government had introduced a host of stimulus measures including excise duty cuts by 6 percent, service tax reduction by 2 percent and enhanced expenditure in social and infrastructure sectors, besides agriculture loan waiver to the tune of Rs 65,000 crore and implementation of the Sixth Pay Commission recommendations.

The fiscal and monetary sops introduced by both the RBI and the government led to the economy bouncing back with growth in the second quarter of 2009-10 standing at 7.9 percent against 6.1 percent in the first quarter and 5.8 percent each in the preceding two quarters.

Between September 2008 and January 2009, the RBI had cut repo rate by 425 basis points, reverse repo by 275 basis points, and cash reserve ratio (CRR) by 400 basis points to prop up the economy.


What is monetary policy?

Monetary policy is a policy document, which is traditionally announced by the RBI, through which it seeks to ensure price stability for the economy. Along with fiscal policy, it is an important tool to influence the macroeconomic policy. Primarily, it is used to regulate the flow of money supply to the system.

For example, whenever the central bank wants to pump up the currency availability in the market, it simply lowers the CRR (the level of deposits banks are mandated to park with the RBI) and repo rate (the rate at which our banks borrow rupees from RBI). A reduction in the repo rate will help banks to get money at a cheaper rate. Similarly, when the CRR goes down, banks are required to park less money with RBI. Hence the total money with the banks will go up.

Another tool for the RBI is reverse repo rate, which is the rate at which apex bank borrows money from commercial banks. An increase in reverse repo rate can encourage the banks to transfer more funds to RBI. This can be used to suck out the additional liquidity from the system. Now, in order to do the reverse, the RBI simply has to hike the interest rates.

Will RBI hike rates?

Most likely. “I expect the RBI to hike cash reserve ratio by 50 basis points. The central bank could also raise repo and reverse repo rates by 25 basis points each," says DK Joshi, principal economist at rating agency Crisil.

However, some analysts think otherwise. “Don’t expect much of a change in the key interest rates in the RBI policy. Inflation is due to supply side issues, especially of food items, which have small weight in the WPI,” says S.A. Dave, chairman at the Centre for Monitoring Indian Economy (CMIE).

How will it affect us?

If the RBI raises interest rates, the first sector to take a hit is the credit industry. Loans will no longer be that cheap. Banks will have to hike various loans including car loans, home loans etc.

It has other implications too. As there will be less money in the market, it would dampen demand and thereby contain inflation to some extent.

The international scenario

All major economies of the world, on the sidelines of last year’s G20 meet in Pittsburg, US, had decided against any hasty withdrawal of stimulus measures. Global financial institutions like the International Monetary Policy (IMF) have repeatedly warned against early withdrawal, saying it would jeopardise the fragile recovery.

However, the improved performance of big economies, including the US, has boosted confidence of many policy makers to take bold actions. This has brought the focus back onto inflation.

Australia was the first country in the Organisation of Economic Cooperation and Development (OECD) to hike the interest rates in 2009. China’s Central Bank too followed suite with a surprise interest hike in January first week. However, Bank of England left interest rates at a record low of 0.5 percent in January and announced no change in its 200 billion pounds (USD 320 billion) monetary stimulus programme.

It would now be interesting to see how the RBI proceeds from now on.

Can the ‘mortal’ newspaper survive?

Good journalism is not free: Rupert Murdoch

Recently, Google bowed to the persistent demands of media giants and decided to look at options to restrict the free accessing of unlimited news via the online platform. This has attracted widespread attention as it is a clear indication of the growing population of online news readers. The Google assurance came in the backdrop of massive fall in newspaper circulation in USA. Reportedly, there has been an over 10% drop in newspaper circulation in the country in 2009.

The rise of Internet is one of the biggest nightmares for the print media industry. An ubiquitous internet is still growing manifolds with better and faster technology. This is palpable looking at the significant growth of online readers in the past few years.

An online newspaper is easy to use and it can be accessed even through your mobile phone. Better search options and unlimited archive facility makes it all the more lucrative.

The major contributing factor to this spurt in online popularity is that a large part of the population is the technologically advanced younger generation. Besides, internet is also more easily accessible and its penetration is growing faster than ever before.

So, does this spell the end of the print media?

Current Status:

Recession has a marked impact on the media at large. While the print advertising revenues reported a drop of 28.95 percent, the digital newspaper advertisement revenue dropped more than 17 percent in the US (third quarter data of 2009).

Print media advertising revenues also fell across the continents with an estimated drop of 20 percent in North America, 19 percent in Eastern Europe, 16 percent in Western Europe, and 11 percent in the Asia Pacific in 2009, according to PricewaterhouseCoopers.

In the past one and half year several newspapers and magazines closed and several others went online to cut expenses and to stay in the business.

Even big newspapers like Guardian, Time, The Daily Telegraph and the New York Times has had to embrace newer platforms like smartphone applications to stay in the business.

The Indian Readership Survey, which was published earlier this year, highlighted the plight of major publication in the subcontinent.

While few English dailies gained in readership, most have suffered and lost a big chunk of their readers. Magazines received even a bigger jolt – 13 out of the top 20 magazines have seen a drop in average issue readership.

According to a study conducted by the Madison-Pitch, print media advertising has seen a 32% drop in the first half of 2009 compared with the previous year; and television, 19%. Only the Internet saw an increase in ad revenue by 16%.

So is it that the rise of internet is luring away the print media’s target audience?

According to World Association of Newspapers and News Publishers (WAN-IFRA), Japan, which is most digitized society in the world today, boasts 612 copies of newspapers for every thousand people. The same figure for India is 142 copies. In terms of reach, 91 percent of Japanese continue to read a newspaper daily despite being a technologically advanced and ‘well-wired’ society.

Moreover, the newspaper circulations globally are up by 1.3 percent in 2008 and have risen by 8.8 percent in the past five years.

WAN-IFRA further said that the newspaper circulations increased in about 100 countries of the world. Globally, 1.9 billion people choose to read a paid newspaper everyday and its reach is 34 percent of the total global population while 24 percent use the Internet. Also, newspapers reach 41 percent more adults than the World Wide Web.

Moreover, out of the total USD 182 billion advertisement industry, the newspaper digital advertisement revenue accounted for less than USD 6 billion in 2007 and it has been forecasted by PricewaterhouseCoopers that it would grow to no more than 8.4 billion dollars by 2013.

Also WAN-IFRA has said that digital advertising will not replace the print advertising in foreseeable future.

The Future

The newspaper industry is centuries old. It has been in the society since the days of yore when kings and their anarchic kingdoms circulated it in the form of leaflets. Over the years it has developed as one of the four pillars that are an essential part of contemporary democracy.

It has embraced newer techniques to reach out to the audience. The recent struggle of print media industry with its online cousin is palpable. Already the newspaper industry has started making good use of the online media to the best of its capabilities.

Also, the growing concern on climate change will pose a challenge for the industry. Paper, which is the lifeline of the industry, is produced from wood. Though paper can be recycled several times, cutting trees can be prevented. At some point of time we have to stop this and embrace more ecologically viable options.

It remains to be seen whether newspapers can adapt to multitude of challenges that it is facing.