States of penury
Never on a Sunday
Fieldwork in trade
Letters to the Editor

All through this year, state governments have tried to beg or bully the Centre for money. Whether Congress ruled Rajasthan or Shiromani Akali Dal governed Punjab, almost every major state government is teetering on the edge of bankruptcy. Initially some states tried to impose austerity or simply juggle the books. Now they are in panic. Six state governments, led by Rajasthan�s chief minister, Mr Ashok Gehlot, recently met the prime minister, Mr Atal Behari Vajpayee, and urged him to dole out a few hundred million rupees to them. The Union finance minister, Mr Yashwant Sinha, himself battling a widening fiscal deficit, put off any decision on handouts pending the 11th finance commission�s report. The state governments deserve little sympathy. Thanks to a penchant for political gimmickry, most pay huge wage bills, indulge in unaffordable populist subsidies and run up enormous debts. India�s 25 state governments have collectively accumulated a debt of over four trillion rupees. The red is still rising. Their combined revenue deficit was Rs 410 billion last fiscal year. The states can partly blame this on the Centre. State governments were solvent until the mid-Eighties, but the double punch of the fourth and fifth pay commissions pushed their budgets off the precipice. The six states which met Mr Vajpayee are ruled by parties outside the National Democratic Alliance. Their chief ministers should look into a mirror if they want to blame someone. Congress and United Front regimes okayed both pay commission reports. But the Bharatiya Janata Party ruled states are also pleading for help. It is not election symbols but region that differentiates the states: the East and North are the most profligate, the South the most fiscally upright.

While a debt ridden Centre tries to figure out what to do with bankrupt states, the recent passage of the 89th amendment to the Constitution should introduce the sort of fiscal responsibility the country needs. In the past, Centre and state have shared only some tax revenues. This meant the Centre concentrated on collecting taxes which it did not share. The new amendment merges all tax revenues into a central pool and gives the states two percentage points more as their share. Once this kicks in, the states will be richer. However, this will only put off judgment day if the states run up deficits in every walk of fiscal life. They need to discipline their own free spending ways. Those states that have tapped the World Bank for funds have already been forced to start balancing their books. The weak link is New Delhi. Over the years, Indian states have developed a talent for lobbying the Centre for money rather than keeping a control on their expenses. With both parts of the federal system drowning in red ink this option is increasingly unviable. Time for state governments to start learning how to live within their means.    

All play and no work makes Jack unproductive. This simple truth is perhaps behind the plea of the Citizens Organization for Public Opinion in Mumbai to reduce the number of public holidays in India. This body, pursuing a worthy cause, has written to the prime minister, Mr Atal Behari Vajpayee, and the chief minister of Maharashtra, Mr Vilasrao Deshmukh, that public holidays should be cut down from next year as too many public holidays tend to adversely affect productivity. At the moment there exists, according to the Citizens Organization for Public Opinion, 22 public holidays. In some states, like West Bengal, there are more. This situation has arisen because no government from the time of independence has pursued a logical policy on holidays. On the contrary, the effort has been to placate or accommodate every possible opinion and pressure group. This is, in part, a fallout of Indian secularism which defines itself not by indifference to all religious matters but in terms of accommodation to all religions. The Indian holiday calendar thus represents a most odd mishmash of secular and religious holidays. Thus Independence Day and Republic Day sit easily beside Christmas, Good Friday, Guru Nanak�s birthday, Id, Dusshera and Diwali. Added to these are holidays dedicated to national icons, like Mohandas Karamchand Gandhi�s birthday. In West Bengal work comes to a stop on Subhas Bose�s birthday and for four days at a stretch during Durga Puja. So far as holidays are concerned, Indian secularism believes in taking from both worlds, the religious and the secular.

It is only in India that people stop work to honour a great man. Thus the anomaly of a holiday on Gandhi�s birthday. There is no explanation for a holiday to remember a man who worked ceaselessly practically every day of his life except to surmise that Indians do not worship work. The confusion is worse if one extends one�s view across the globe. In the United States, Good Friday is not a holiday but in India offices and institutions pull their shutters down because Jesus Christ was crucified. It is true that India has diversity of culture and religious beliefs. And it is also true that the Hindu almanac has a plethora of holy days. The only way to get round this problem is to secularize holidays completely. Public holidays should be above all religions. This would drastically reduce the number of public holidays. From 22 it could easily be brought down to seven as has been suggested by the Citizens Organization of Public Opinion. This organization, at least on the issue of reducing public holidays, deserves to be supported: the many chambers of commerce and bodies representing business and industry should add their voices to the appeal that has been made to the government. Holy days and holidays should not necessarily be tied together.    

Agriculture will be a crucial area of negotiations when the millennium round of world trade talks is taken up again in December. Agriculture is not a North-South issue. Like most trade issues, it is primarily an arena for the two traditional trade belligerents, the United States and the European Union. At the Seattle conference of the World Trade Organization, part of the US agenda was to see that agricultural agreements were implemented and insist the EU provide better market access. A major reason for Seattle�s failure was the EU�s intransigence over agricultural support.

In the coming millennium round, India�s position on agriculture should focus on three key issues: market access, domestic support and export competition. Other important issues are intellectual property, sanitary and phytosanitary standards, standards on genetically modified organisms and so on.

Market access is basically about tariffication. India should insist that quotas on farm imports be replaced by tariff equivalents. Second, maximum tariff bindings on agricultural goods should not be more than 50 per cent. Third, tariff reduction on all agricultural goods should be across all commodities rather than an averaged measure. Fourth, India should push for a variable import levy system within the bound rate of 50 per cent.

On domestic support, the ceiling should be 40 per cent, of which product specific and nonproduct specific aggregate measures of support should be 30 per cent and 10 per cent respectively. Second, reduction commitments should include each support measure, and a faster reduction of product specific rather than nonproduct specific subsidies. Third, India should resist moves by developed countries to treat negative product specific support as zero. In calculating aggregates support, both of these support measures should be added, even if product specific support is negative. Fourth, the majority of support measures provided by developed countries is either �green box� or �blue box�. India should team up with the Cairns group of agricultural exporting countries and insist blue box measures should be part of aggregate support calculation.

India is in a strong position regarding agricultural export subsidies since it provides few such subsidies. It only provides income tax exemption for profits from agricultural exports and freight subsidies for floriculture, vegetable and fruit exports. These are outside reduction commitments � India only has to notify the WTO once in two years on the extent of its export subsidy.

The high levels of export subsidies given by some developed countries are a major concern for India. During 1986-90, the world�s top five export subsidizers for any major product accounted for nearly all such subsidies worldwide. The US, the EU, Canada, Turkey and Hungary account for 95 per cent of export subsidies on wheat worldwide. For rice, 100 per cent subsidies come from Indonesia, the EU, US, Uruguay and Colombia. On sugar and dairy products, the EU is the largest provider of export subsidies.

Sanitary and phytosanitary measures are emerging as one of the most trade distorting barriers. Though such standards are consistent with the national policies of WTO members, developed countries frequently use them as nontariff barriers. They do this by setting standards which are much higher than international norms, providing only a flimsy scientific reason. For example, Japan insists on a pesticide residue level of 0.4 particle per million in unmanufactured tobacco. The international standard is as high as 6 PPM. The Indian standard is 1-2 PPM. As a result, Japan does not allow unmanufactured tobacco from India on phytosanitary grounds.

Under special and differential treatment for poor countries, there is a five year transition period for least developed countries and two years for developing countries on sanitary standards. But the first period expires in 2000. The other period expired in 1997. But a two year transition is inadequate for developing countries to revamp their internal systems.

New Delhi should also look at other trade distorting policies emanating from weaknesses in the Uruguay round agreement. These include a large number of countries where the monopoly of government parastatals like state trading enterprises still continue. For example, many countries in central Europe, west and southeast Asia have government monopolies in tobacco. Even rich countries like France, Spain and Italy have government monopolies on tobacco. Import decisions by such monopolies lack transparency and are done without inviting international bids.

Standards, which are continuous in nature, are emerging as the most trade restrictive practice in the post-Uruguay round scenario. Indian exporters are flooded with standards requirements from the West. Already Germany has imposed a variety of standards like Blue Angel, Rugmark and a host of ecolabels on carpets, apparels, textile materials and different agricultural products. There are also product specific standards like green dot, Duel system, the German Institute of Quality Control and labelling.

The EU is following suit. It has environmental standards on genetic modification, bans on hormone boosted farm products, risk materials for mad cow disease, pesticide residue, azo dyes and so on. In the US market, green standards include labelling and transitional safeguards. Japan�s trade restrictive standards include country of origin requirements and labelling. The Indian agricultural exports most likely to be affected by these ever multiplying labels are leather, textiles, commercial plantation products, shrimps, lobster, many dairy products, potatoes, mushrooms, bananas, mangoes, grapes, coffee, tea, rice seeds, tobacco and cut flowers, among others.

India�s agricultural exports are under peril due to two exogenous developments. However, India has little bargaining leverage.

One reason is the growth of regionalism and bilateralism. Seattle�s failure has tempted developed countries to switch to bilateral arrangements providing less market access to nonmembers. Article XXIV of the General Agreement on Tariffs and Trade permits regional trading blocs as a one time departure from the most favoured nation principle. This has caused enormous damage to Indian exporters because it encourages trade among the member countries of a regional bloc at the expense of nonmembers.

After Seattle�s failure, the EU is likely to push harder for regional trade deals that grant it preferential access to foreign markets. Recently it signed arrangements with South Africa and Mexico. The US may pursue a mooted free trade area of the Americas with greater vigour. Even Japan, which has resisted regionalism, announced after Seattle that it would pursue free trade deals with Singapore and place more stress on the Asia Pacific Economic Cooperation forum and the Association of Southeast Asian Nations.

Another exogenous factor restricting market access has been the growth of intrafirm trade. According to the United Nations conference on trade and development, one third of world trade is intrafirm � between branches of a multinational company. Another one third is between multinationals and nonaffiliated companies. It is only the remaining one third of world trade which is outside MNC control. Over the years, MNC influence in world trade has grown tremendously.

Agricultural commodities are no exception. In unmanufactured tobacco, 90 per cent of international trade is dominated by three firms: Dimon International, Standard Commercial and Universal Leaf. All multinational cigarette makers buy tobacco from these three firms. Trade in tobacco is thus largely between MNCs. While it may talk about market access, MFN principles, national treatment and so on, the Uruguay round agreement is helpless against such cartelization. Indian negotiators should keep this phenomenon in mind.

Growth of countertrade between countries also distorts trade. In many cases, countertrade does not follow the MFN principle. US share in Japan�s tobacco imports was once only 30 per cent. This rose to 95 per cent after a bilateral countertrade agreement in the late Eighties. Such bilateral agreements are WTO consistent so long as they follow the MFN principle. In practice, however, these are often in violation of the WTO. In December, Indian negotiators should insist that countertrade agreements, as well as many of the other trade practices listed above should be nondiscriminatory.

The author teaches international trade and commerce at the Indian Institute of Public administration, New Delhi    


Secret of success

Sir � Digvijay Singh seems to have learnt the tricks of his trade � the art of catapulting oneself to the national and international levels making full use of �exploits� at the local level (�Digvijay flies high over bumpy roads�, June 24). In actuality, what this means is the state, Madhya Pradesh here, can grovel under grinding poverty, but the chief minister will have made a name for himself for having eradicated poverty. This is the magic of politics and for Singh it has won him an invitation to be a speaker on an United Nations debate and dialogue on �poverty eradication�. Among others proficient in this game of politics is Naveen Patnaik, who, despite projecting himself as son of the soil of Orissa is unable to speak a line of Oriya. He is already celebrating his hundred days of �successful� chief ministership with great fanfare while those affected in the cyclones last year in the state have not yet been rehabilitated. Whoever said all play and no work makes dull boys?

Yours faithfully,
Sujata Mukherjee, Calcutta

Suspended disclosure

Sir � The suspension of the additional commissioner of income tax, Vishwa Bandhu Gupta, for saying that the declarations under the voluntary disclosure of income scheme should be made public is an example of abysmal work culture and institutionalized corruption (�Tax officer on cricket videotape suspended�, June 21). It is unfathomable why this advice should be considered a violation of discipline and service rules. Loyalty is an admirable attribute � but should it be extended to the corrupt? Gupta should consider his suspension a reward rather than a punishment for being unlike most income tax officials who spend their time hankering for money and lobbying for promotion. Corruption among civil servants and politicians is on the rise. Many officers have cases registered against them for accepting bribes, amassing assets disproportionate to their sources of income, misappropriation of government money or rendering undue favours, causing huge losses to the exchequer. The Prevention of Corruption Act was legislated to check corruption. Should it be misused to thus harass an upright officer like Gupta unnecessarily?

Yours faithfully,
Sankar Lal Singh, Calcutta

Sir � The manner and the speed with which Vishwa Bandhu Gupta was suspended shows that the government is hiding something. Gupta may be guilty of breaking a few rules of official secrecy, but it is time the obsolete Official Secrets Act is scrapped or amended. Gupta�s duty as a citizen comes before his duties as a government officer. If he was privy to information which he felt ought to be made public in the national interest, he was right in doing so.

VDIS provisions granted declarants immunity from the Income Tax Act, Wealth Tax Act, Foreign Exchange Regulation Act but not from the Indian Penal Code, Criminal Procedure Code, Prevention of Corruption Act or other anti-criminal legislations. Another of the scheme�s conditions was that the disclosure had to be true and complete. If someone had declared income earned by criminal activity and the disclosure was not full, the government was freed of its promise of secrecy. The Mohammed Azharuddins, Kapil Devs and Romesh Sharmas should be investigated under this category. Moreover, there are links between the betting syndicate and the Dubai mafia. Shouldn�t the government�s investigators cooperate with Gupta to recover the loot?

Yours faithfully,
Ravindra Pateria, Calcutta

Sir � The extensive reach of corruption in Indian society is evident from the way crusaders like Vishwa Bandhu Gupta are victimized. Though the entire country is convinced of the involvement of cricketers in matchfixing, it is unlikely they will be punished, given our legal system and the presence of many big shots backing the culprits. Fear of death may prevent a person from speaking, but the silence of all concerned, even after Manoj Prabahkar�s videotapes, is despicable. Since Gupta�s revelations or Prabhakar�s tapes will make our cricketers own up, they should be subjected to third degree methods.

Yours faithfully,
J.K. Bubna, Calcutta

Bias in nature

Sir � Kaustav Sinha Ray, in his letter (�Secular fallacy�, June 22), displays a saffron bent. The ruling government has not merely granted a visa to Salman Rushdie, it has given him a warm welcome too. Even the media gave his visit undue coverage. There was also a suggestion to lift the ban on The Satanic Verses.

The way this government has dealt with Rushdie�s visit is a sign that the Bharatiya Janata Party does not care much for minorities. Sinha Ray must understand the difference between sanctification and respect.

Yours faithfully,
M. Arif Faridi, via email

Sir � Kaustav Sinha Ray is biased. If his opinions are followed, Khajuraho, Ajanta, Ellora and the likes would have to be demolished . Deepa Mehta�s Water did not attack Hindus, it focussed on the malpractices in Hinduism. This is accepted by all, except a particular group trying to further its own political interest. Sinha Ray should realize that respecting others� sentiments is the first step towards a harmonious society.

Yours faithfully,
Azharul Islam, via email

Withdrawal symptoms

Sir � I am shocked to learn of the arbitrary withdrawal of six trains in the Ahmedpur-Katwa and Burdwan-Katwa narrow gauge sections of the Eastern Railways. This is a condemnable example of the anti-people politics of the BJP- led government, in which the Trinamool Congress is a partner. The decision also confirms the hoax of Mamata Banerjee�s Bengal package. She has not only failed to implement the so called package but as the railways minister, is taking decisions against the common people of the state.

The recent action runs contrary to the decision announced by the former railways minister, Ram Vilas Paswan, that both the sections will be converted to broad gauge. This will seriously inconvenience the poor people in the rural areas of Burdwan and Birbhum, who use these trains and will also affect the development of these districts. I demand the immediate restoration of the trains and also the conversion of these sections to broad gauge at an early date. The common people will never accept this unjustified withdrawal of the minimal facilities they have so far been having.

Yours faithfully,
Somnath Chatterjee, Member of Parliament, Calcutta

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