Governance : Can India have too much?

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In June 2008, Goldman Sachs issued a report titled ‘Ten Things for India to Achieve its 2050 Potential’.  On the top of the list was the clarion call to improve governance.  Fast forward to the present day and an interesting tapestry of regulation and regulatory bodies starts revealing itself.  

In the financial sector, the decks have been cleared for the creation of an interregulatory co-ordination body - the Financial Stability and Development Council, or FSDC. The FSDC has been set up with a view to strengthen and institutionalise the mechanism for maintaining financial stability and development. 

        

The Indian mining sector has occupied centre-stage in the media over the last few months.  The draft of the Mines and Minerals (Development and Regulation) Bill, 2010 seeks to give wide powers to the National Mining Regulatory Authority. The Bill lists as many as 16 powers granted to the mining regulator, in sharp contrast to the current situation.

In the aviation sector, the autonomous Civil Aviation Authority (CAA) is proposed to supersede the current regulator, the Directorate General of Civil Aviation. 

With respect to corporate governance, there is a proposal to create an over-arching regulator to oversee auditing norms in the country in the new Companies Bill. As per its proposed form, the body will be called the National Advisory Committee on Accounting and Auditing Standards (NACAAS) and require the Institute of Chartered Accountants of India (ICAI) to seek a go-ahead from the expert forum before prescribing any norm.  

In the domain of biotechnology, the Indian Cabinet has approved the Biotechnology Regulatory Authority of India Bill 2010. The Authority will be set up as an independent and autonomous body to provide a single window mechanism to regulate research, manufacture, import and use of products of modern biotechnology including biosafety clearances of genetically modified crops.

In view of India’s ambitious plans for education (see earlier blog), the Government is creating an over-arching regulatory body called the National Commission for Higher Education and Research (NCHER). 

In the realm of environment, the Minister in charge has taken it on himself to ensure environmental compliance and  preservation.  According to one estimate, he has halted 64 projects and held up 469 due to environmental concerns. Those projects include a US$10.9 billion steel plant proposed by Korea's Posco and two US$2.2 billion power projects.

The recent roll-out of the Unique Identification (Aadhar) project is an excellent example of the potential transformation in transparency in governance that is hoped will be catalysed across India.

The above will add to the 36 regulatory bodies already in existence in India.  More than anything else, it will be vital to ensure that these bodies are fair, impartial, transparent and effective in their functioning. 

While it is critical to have checks, it will be imperative to have balance as well. After all, we all know what absolute power results in.

If you would like to understand more about how you can increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com.

FDI in Indian Retail : One step forward . . .

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As Delhi put its proverbial foot to the accelerator to gear up for the Commonwealth Games over the past week, the Indian economy at large was not delinked from the spirit of sport. Indeed, the Olympic motto of ‘faster, higher, stronger’ is easily apt for the some of the economic indicators and signals that were revealed.

1. The Bombay Sensex reached a 33-month high.
2. India now home to as many as 69 dollar billionaires, compared to 52 last year (Forbes).
3. 127,000 High Net Worth Individuals[1], whose cumulative wealth stands at US$477 billion resident in India (2010 Asia-Pacific Wealth Report, compiled jointly by Cap Gemini and Merrill Lynch Global Wealth Management).
4. India’s growth is likely to outpace China’s (cover story of the latest Economist).

Ostensibly sensing the mood, the Government of India decided to give greater steer to the economy. It announced an easing of the norms for foreign direct investment (FDI) for a few sectors including wholesale cash-and-carry trading.

The Indian retail sector is arguably the most watched and contentious sector on India’s economic horizon. With growth trends and forecasts being what they are (see earlier blog post), this is not surprising. The policy amendment removes the restriction for internal use by the foreign wholesale cash-and-carry segment. It, however, retains the ceiling, mandating that such companies could sell only up to 25 per cent of their turnover to group companies. The move has implications for several retailers such as Bharti-Walmart, Carrefour and Metro Cash and Carry.

This relaxation comes at a time when much debate is underway regarding opening up of the retail sector to foreign investment. Since 2006, FDI up to 51 per cent has been permitted in single-brand retailing in India. 100 per cent FDI has been allowed under the automatic route in the cash and carry wholesale business. A few months ago, the Indian Ministry of Commerce had released a discussion paper on the issue of multi-brand retail, soliciting opinions. While Commerce is in favour of easing norms with some restrictions, the Ministry of Finance is said to be in favour of a more cautious approach.

Some innovative players are not letting these current restrictions be a bottleneck. Instead, they are crafting innovative solutions within the defined goal posts while the patiently nudge the public policy eco-system.

Interestingly, the organised, domestic retail sector is keen to see opening up. Indeed, there are strong and vociferous proponents on both sides of the fence. At what pace the situation evolves and its implications for the economy only time will tell. Perhaps it will be a case of catching the tiger by its (re)tail.

If you would like to increase the growth of your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com .

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[1] Has “investible assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables”.