Landgrab as the new face pf the globalization

 Landgrab as the new face of the globalisation

DIMENSIONS of corruption have changed over recent past. Unchecked globalisation and economic development has created a situation where large amount of unaccounted money in the system is chasing limited available assets. This black money is generated through corruption, deficit financing and several welfare scheme freebies.

Major portion of this money is finding its way into real estate sector. Corrupt politicians in connivance with builders and developers' lobby is taking unsuspecting middle-class investors for a ride.

Agriculture land is being acquired from farmers at throwaway prices by the government and is being handed over to builders, develop mega real estate projects and, with the efforts of their brand managers and marketing personnel are selling these dream projects to middle-class investors. Local authorities like the Noida Authority and the Yamuna Expressway, etc, are all part of this package and are now operating as real estate development companies. They are filling the coffers of some of the corrupt politicians.

Once the farmer, whose lands has been acquired, comes to know of these manipulations at a later stage and finds out that his interests has not been protected by the faulty and outdated Land Acquisition Act, they are bound to agitate. This is what is happening in villages like Bhatta Parsaul, etc, near Greater Noida.

Similar is the situation in case of land acquired for mining and industrial development, etc. The economic development of the country also suffers many a times. Land acquisition for industrial purposes has become one of the very contentious issue now. Land acquisition, in principle, is governed by the Land Acquisition Act (LAA) 1894. The Act, despite getting modified in 1967 and 1984 do not address the Rehabilitation and Resettlement of the displaced people. In view of this, the Government of India announced the National Policy on Resettlement and Rehabilitation for Project-Affected Families has to (NPRR) in 2003, which came into force in February 2004. Later, in order to make the NPRR more effective and to make LAA consistent with NRPP, two Bills, viz, Land Acquisition (Amendment) Bill, 2007 and the Rehabilitation and Resettlement Bill, 2007, were prepared but have been kept waiting for the approval of the Parliament.

We immediately need to take correcting action. First and foremost is the passing of the Land Acquisition Act taking into consideration, proper compensation to the farmers not only in monetary terms but securing his future livelihood? Secondly, giving stake in the future profitability of the project and thirdly providing some form of employment for the family.

To secure the interest of the investors and control the real estate development lobby, there has to be a Regulatory Authority, which will examine all schemes, check all disclosures regarding promises and risk factors and also see whether these are backed by proper legal documents. It also has to ensure that developer's lobby delivers on their promises and in case there is any dereliction, then investor's interest are properly protected and they are duly compensated.

The third very important aspect from the point of view of the economy is that, this nexus of real estate developers, corrupt politicians and their Public Private Partnership (PPP) projects should be checked for creation of black money through corrupt means. Otherwise, over a period of time, real estate bubble will be created and will lead to unprecedented problems in our economy. This asset bubble is also the result of deficit financing of the government. In its recent release Reuters has reported that, emerging economies such as Brazil and India would face fiscal and current account deficits and a crisis similar to global meltdown is inevitable.

Recent chain of events and reports are pointing towards this menace whether it is farmers agitation in UP or Naxal unrest in various other parts of the country. We need to immediately act on these issues and check this corrupt practice.

Recovery of money stashed in foreign countries

 Recovery of money stashed in foreign countries

The generation and parking of this money in foreign countries are very closely related. The money which is parked in tax havens can be brought back only if we get proper information about the accounts being held in those countries. Ratification of UNCAC was one of the important requirements towards our empowerment of exchange of information. But these tax havens are not bound to divulge information unless these account holders are proved holding criminal money.

RECENT months have witnessed allegations of corruption of unprecedented levels. Dimensions of corruption have changed over past. Unchecked globalisation and economic development have created a situation where large amount of unaccounted money is being generated and is chasing limited available assets. This black money is generated through corruption, deficit financing and several welfare scheme freebies.

Another very important aspect from the point of view of the economy is that this nexus of corrupt business class, real estate developers, corrupt politicians, bureaucrats, and their Public Private Partnership (PPP) projects and NGO's needs to be checked for the creation of black money. Otherwise over a period of time, it will lead to unprecedented problems in our economy. Some international reports have also stated that, emerging economies such as India are bound to face fiscal destabilisation and a crisis similar to the global meltdown.

Several well-meaning organisations and individuals are doing their lot to check this rot. They have come out with several documents to check this menace. One of the primary concerns of the people is the large amount of unaccounted money stashed in foreign countries and ways and means to bring it back.

The generation and parking of this money in foreign countries are very closely related. The money which is parked in tax havens can be brought back only if we get proper information about the accounts being held in those countries. Ratification of UNCAC was one of the important requirements towards our empowerment of exchange of information. But these tax havens are not bound to divulge information unless these account holders are proved holding criminal money. We are in catch 22 situation: unless we know the identity, we can't prove it to be criminal money. These tax havens will not divulge information under tax evasion issue as they have zero tax liability and therefore tax evasion is not a crime in these countries.

They will never provide information under Double Taxation Avoidance Agreement (DTAA). I suggest that we can use the Floating Warrant Concept as was successfully done in USA known as John Doe Lawsuit. A John Doe Summons is any summons where the name of the culprit under investigation is unknown and therefore not specifically identified. A summons of this nature can only be served after approval by a court.

 As we lack provisions relating to proving money stashed in tax havens as criminal money, we can use this warrant. We know that the money stashed in foreign countries can be classified into three categories: money accumulated through corruption, money generated through drug trafficking, terrorism or crime-related activities, and the third category is the tax evasion. The identity of the culprit is not known to us therefore, we have to issue a Floating Warrant on the unknown person. Based on the warrant, the person whose account is in the foreign country can be declared as an offender and the information regarding him can be demanded. The warrant gets fixed on the person at a later stage when his identity becomes known. With this, foreign countries will be bound under the UNCAC agreement to divulge information of these accounts. The information received through this process will not be classified as secret and therefore the government will be free to share it with public and other law enforcement agencies.

In relation to generation and prevention of corruption, one major gap in our domestic law is the prevention of bribery in the private and NGO sector. In all our existing laws regarding corruption, one party has to be government employee or a political person. The United Nations Convention Against Corruption (UNCAC) has also identified these gaps. Our provisions lack mispricing and valuation of contracts and licenses. The definition regarding gratification and bribery through third party is not clear. Lobbying and influencing decision through public policy debate is not covered under corruption clearly. This year's official revenue foregone figures in our Budget is to the tune of Rs 5,11,630 crores in the form of tax concessions and therefore leaves a lot of scope for manipulations. We have also not defined code of conduct, rules, regulations, and guidelines to be put in place by private sector to check and control bribery. Our laws do not enforce prevention of bribing of foreign nationals.

To tackle these issues effectively we have come out with a specific legal provisions in the form of draft 'Prevention of Bribery in private/NGO sector bill' clearly defining all these terms and provisions.

Besides these provisions, this draft bill defines 'Bribe' as facilitation payments, directly or through third parties, including gift and hospitality expenses whenever they could affect the outcome of business transactions and are not reasonable. It says that a person shall be guilty of an offence of giving bribe, when committed intentionally in the course of economic, financial or commercial activities when it is established that there is a promise, offering or giving, directly or indirectly, of an undue advantage to any person who directs or works, in any capacity, for a commercial entity, for the person himself or herself or for another person, in order that he or she, in breach of his or her duties, act or refrain from acting. It also covers solicitation or acceptance, of an undue advantage, for the person himself or herself or for another person.

The draft bill states that, the bribe becomes extortion when this demand is accompanied by threats that endanger the personal integrity or the life of the private actors involved, otherwise it takes the form of speed money. Speed money is the bribe given for expediting approvals and for providing services. The draft provides protection as a whistle-blower in case of the extortionist bribe.

This draft puts an obligation on a commercial entity to make adequate procedures, designed to prevent persons associated with it from undertaking bribery. And clearly defines the code of conduct to be put in place by the commercial entity. These procedures provide for commercial entities to establish and ensure the effectiveness of internal controls and compliance measures for preventing and detecting bribery.

We strongly suggest that these two concepts should be thoroughly discussed and considered for immediate implementation. We already had several rounds of discussion with business associations, lawyers, professionals and civil activist where these concepts have found favour.

Gopal Krishna Agarwal is the National spokesperson of the Bharatiya Janata Party on economic affairs. 

Expectations from budget

 Expectations from Budget

By Gopal K Agarwal,

GOVERNMENT has to focus on Fiscal responsibility.

1. Over the last few years there is complete indiscipline in the management of budgetary deficit on account of various schemes and not providing them in the budget:

Loan waiver to farmers. Social Security's Scheme, MNREGS, with rampant corruption and complete disregard to labour and industrial policy.

2. Excess liquidity in the system as a result of: Deficit financing, Corruption and black money.

Causing dilemma to Policy Makers over the tradeoff between Inflation Economic growth.

3. Long overdue Pending Commodities market reforms: The whole Supply chain is in disarray. Large-scale Investment in storage and warehousing facility required through incentivizing Public Private Partnership (PPP) model, Agriculture Produce and Marketing Committee Act needs review, Immediate passing FCRA act in parliament to properly empower Forward Market Commission (FMC).

4. Some anomalies have come into Financial Markets that need immediate attention: Very High cost of transaction at domestic exchanges due to multiplicity of taxes leading to Fight of transaction to international market, Infrastructure investments for making Mumbai as a Global Financial Center, Autonomy of SEBI has to be kept intact and away from intervention of Ministry of finance, Complete removal of Securities Transaction Tax (STT), delinking it from Capital Gains Tax, which is the route being adopted to bring back money stashed in foreign countries by culprits through the Participatory Notes(PN) mechanism, Implementation of Uniform Stamp duty across all states and not link it to GST, which is facing stiff resistance from states.

5.Checking illegal flows and bringing transparency in International financial flows: Signing of Double Taxation Avoidance Agreements (DTAA) with all tax havens, Control over Transfer Pricing so as to check Under and Over invoicing of imports and exports, Put checks and balances in the General Anti Avoidance Rules (GAAR) Provisions, to keep check on draconian powers to Income tax department.

6. Disinvestment of Public Sector Units so that government concentrates on Governance instead of business and these units do not become dens of corruption for the people in power.

7. Issue of subsidy payment directly to the end user in the form of cash through Unique Identification Number (UID). Subsidy should be target driven and not product based.

8. Inclusive growth through structural reforms and not through social security measures. At present 37 per cent of GDP is being used for them and these are being misused to buy votes.

9. FDI in retail and other sectors is a very contentious issue and needs a detailed rethink. Secondly, at present we don't need foreign exchange reserves to that extent, therefore we can hold ourselves in this matter and change our priorities looking into the requirement of domestic industry and trade.

10. Cooperative sector has contributed a lot to the overall development in the country and therefore has to be given special treatment. And the exceptions that have been withdrawn under Direct Tax Code (DTC) have to be restored, but only for smaller cooperative so that they do not become vehicle of business.

Global currency crisis-FII and FDI Flows

 Global currency crisis- FII and FDI Flows

By Gopal K Agarwal, 

In the times to come, the future of politics will be influenced more by economics than anything else. With economics being so important in the politics what is needed is a position paper on major issues. But with economics there is always a dilemma, a trade off. Economics is critical negotiations and therefore requires an analytical approach with a long-term vision, with well-informed people at the same level of understanding. The strategy and concept of development have to be formulated through democratic means. Development models based on consensus and participation minimize strife and civil unrest.

 Whenever there is a crisis, economic nationalism takes centre stage over political nationalism. World is in conflict. Every nation is watching its own interests, Economic well-being of its own people is taking precedence over global concerns. Some myths have to be shaltered, economic policy of the country has to take into consideration the futuristic aspirations of our own people. We don't need to follow what the western world did and taught us some twenty years back, when even our food is not secured and our farmers are committing suicides. There are some serious issues having far reaching consequences in the country. We have to analyze them. The issue of foreign direct investment (FDI) and exchange rate management are very closely intertwined to each other, accumula generating widespread debate the world over.

 The policymakers are concerned that economic rivals are using exchange rates to their advantage and searching for ways to preserve domestic growth and employment. Brazil has specifically described this as an exchange war. There is a fear that investors will flee America's low interest rates and weakening dollar and flow into their markets, overheating their economies. Many countries have embraced some forms of capital controls to reduce incoming short-term investment. Brazil has increased the tax on money flooding into its bonds and South Korea is also talking of the need to check speculative foreign capital inflows.

 The issue of exchange rate management is a matter of great concern. Many countries like Thailand, Brazil, China and Europe are trying to devalue their exchange rates to help their exports. The entire world is pressurizing China to let its undervalued currency to appreciate Beijing having accumulation of large foreign exchange reserves through persistent surplus in its capital account, does not want to move in this direction.

 The deposits which are generated out of this FDI and FII tic flow's and kept with the RBI is a liability for the country and are in the form of a debt and are wrongly designated as reserves ca's and therefore are a misnomer.

Secondly, they are mostly kept in the form of dollars and other European currencies, if their currencies are devalued by these respective countries, we are ultimately a looser.

 The rate of inflation in our country is very high and to secure domestic saving, which is the backbone of our capital formation, we have to keep interest rates high. The domestic economy is in resilient mood due to high demand push in comparison to recession in many parts of the world. Both these factors are attracting FDI as well as FII funds flow. With the Indian economy forecast to grow more than 8.5% on rising incomes eed and abundant loans, global investors prefer India. India is one of the few Asian economies that do not depend on exports in eat comparison to China which is highly dependent on exports.

 FII inflows in India are expected to reach the landmark of $25 billion in 2010. FII's have already poured about $18 billion in Indian stocks so far this year surpassing the $17.9-billion record in 2007. With the Sensex. racing towards all-time high, foreign investors are pouring money in funds focused on Indian stocks. This is hot money creating lot of volatility and instability in the economy and cannot be considered to be very good for the country.

 FDI is mainly beneficial to MNCs. The manufacturing units set through FDI are owned by MNCs having majority stake. The profits of this manufacturing unit belong to them. Secondly, they have invested in a currency assets which have a potential to appreciate. They will also get higher returns simply because of the high rate of interest. Thirdly, the so-called reserves of our country are parked with their parent country having control over these reserves. A simple process of devaluing their own currency can reduce the value of these investments. What does the domestic country get? Only. good wages for the services rendered. This also makes our product cheaper in international markets and therefore helps international communities to fulfill their demand for consumption. According to WWF commissioned report, countries like Australia, United States, Canada etc. have a very high level of consumption of natural resources having heavy global footprints. These are therefore termed as unsustainable Economies.Whatever benefit we may have in the future will also be taken away from us. Historically, we have our experience with USSR. In our trade with USSR. Rouble was the denominating currency and our agreement stated that all bilateral payment will be in Rouble denomination.

 The Rouble value was not determined by market forces but was fixed. We were buying all defense equipments, oil etc in Rouble denomination, when Russian economy got burst we should have been benefited by paying in Roubles as per our agreement, but being the level of corruption that we have all liability was converted into rupee denomination Historically, this transaction has the distinct legacy of being the single largest donation by a poor country to a rich nation. Hat's off to then Prime Minister Smt. Indira Gandhi'.

 The two financial crises that the world passed through recently have many lessons for us. Earlier in the South East Asian crises, real asset bubble was built up through massive funds flow and bank lending based on the securities of these assets and currency exposure by international investors like Warren Buffett etc. combination of these factors suddenly destabilized the whole economy in a synchronized manner. The recent financial crises in the west was the other way round where bubble was built through large scale deficit financing and indiscriminate printing of currency by US and then subprime domestic lending to fuel consumption. It was in the US interest to release this bubble, and was done through loose bankruptcy laws. The world lost trillions and trillions of Dollars in the form of reserves.

 We are mortgaging our present for the future. In a new global hunger index by the International Food Policy Research Institute, India has been ranked way below neighboring countries like China and Pakistan and is at 67 rank The index, rated 84 countries on the basis of three leading indicators- prevalence of child malnutrition, rate of child mortality, and the proportion of people who are calorie deficient. In India, the Index scores is driven by high levels of child underweight resulting from the low nutritional and social status of women in the country. The report points out that India alone accounts for a large share of the world's undernourished children. India is home to 42 per cent of the world's underweight children, while Pakistan has just 5 per cent. Among other neighboring countries, Sri Lanka was ranked at the 39th position, china at 9, Pakistan at 52nd and Nepal at 56th. Bangladesh listed at the 68 position. The economic performance and hunger levels are inversely correlated.

 In the midst of rising food inflation, this situation is very serious and the government does not seem to be at all worried on this count, indulging in massive wastage of scarce resources in organizing events like Common Commonwealth Games, getting carried away by international propaganda of India as an Economic Superpower of the future. The nation is bogged down by many unattended problems like Naxal unrest. Kashmir logjam, where the intellectual bankruptcy of our own people is cating into our roots, creating vested interest outside the national interest. Yes. India can become economic superpower, but with determined will.

The writer is National Convener, BJP Economic cell.)

Need for a strong political leadership

 Need for a strong political leadership

CA GOPAL K AGARWAL

gopalagarwal@hotmail.com,

INDIA has the potential to emerge as a superpower. But simply having potential will not help achieve the goal There can be mired factors which are acting like bottlenecks towards achievement of this goal.

Emergence of strong nation requires collective will or what is called 'a can to do spirit". But to build this momentum what we require is identification of these bottlenecks and take corrective measures to remove them. In Upanishads it is said that to achieve success we need to "Investigate carefully, decide correctly and follow faithfully".

 According to me the most important constraint that India is facing is weak political leadership. There are so many factors where India needs course corrections. These factors are not far to find. Anybody, groomed to social life can clearly identify that corruption; caste politics, violence, lawlessness, terrorism, etc are acting as a parasite to the national life. But there is nobody among the present leaders showing any will or determination to fight this menace. The politics of compromise is the name of the game. There is a continuous competition among the parties to capture vote-banks. To capture vote-banks money power, muscle power and even emotions are used.

The attitude to compromise on national issues to fulfill personal ambitions or meet short term political goals is the weakness of our leadership. We are caught up in a vicious circle where a weak leader will further lead to weakness in the leadership.

I don't want to be sounding negative. We can overcome this attitude. Ultimately everything comes down to simple economic principle of demand and supply. What we need is strong nationalist political leaders.

The second important factor is the lack of complete inner democracy in all political parties. In the name of discipline every political party has thwarted democratic values. Any party, which resorts to inner democratic process, will be able to develop strong leadership among itself. And once we get a strong political leadership we will be able to overcome most of the other constraints. We can then easily achieve a strong and a well developed nation.

Euro crisis and its fallout on India

 Euro crisis and its fallout on India

By Gopal K Agarwal,

Global economy is in doldrums, world economy is sitting on a time bomb, where there are periodical new revelations. Successive bailout packages are being announced, but how long a patient can survive on life saving mechanism.

It is being said that the economic activities are moving to- wards east. specially India and China. Developing countries are attracting funds flow from across the world. Indian Gross Domestic Product (GDP) is said to be poised for growth rate of around 8 to 10 per cent per annum. But in my opinion these growth rate predictions for our country are not correct and are presenting a false picture.

Though we have the potential of becoming an economic super, power but there can be no complacency on our part. We will have to take corrective steps at every level with determination and indomitable will. to achieve success. Factors that need our attention are enumerated below:

Parameters for Gross Domestic Product (GDP) valuation

There is a large segment of Indian economy which does not form part of the GDP calculation. With the successive improvement in the collection and availability of statistical data, more and more unaccounted economic activity in the country will get accounted for in the GDP calculations, e.g ser- vices in the unorganised sector. rural economic and household domestic activities etc.

Secondly, India has a large parallel economy. As we move towards a regime of low taxation and strong audit trail, the incentive to move to the mainframe economy will increase. Further, with the implementation of VAT and GST. There will be a systematic synchronisation of all business data. Slowly, all these segments will start forming part of the overall GDP figures. This clearly brings out a fact that, the actual current GDP figures, for India does not reflect its true picture. The Indian economy is much larger than what it is being represented at present. As we move ahead, statistical figures will show growth automatically, but there will not be real growth in absolute terms at this rate.

The other basic problem in Indian context is of inclusive growth. India has seen widespread corruption throughout the country. The people in power. Possessing resources make sure that all benefits get concentrated to a select few. This rampant manipulation is a fault line in our economic planning and is a major cause of concern. A recent glaring example is the IPL fiasco, where who's who of the society is involved across party line. Unless the common man stands strongly against this menace of corruption, nothing much regarding inclusive growth can be achieved in India. Everything is a mere lip service. Our countrymen need to rise to the concept of taxpayers' money, making every politician and bureaucrat answerable to its misuse.

Capital flows                              

There is a very strong pressure by the US on China to revalue Yuan. Yuan is pegged to US dollar at a fixed rate. If the Chinese currency appreciates, thereby depreciating US dollar there will be a major movement in the world currency markets. impacting funds flow to the emerging economies. India has seen large inflow of funds, causing bullish trends in the domestic markets. Considering high uncertainty of this hot money and its impact on our overall economy, Indian Government has set up a committee under the chairmanship of Shri UK Sinha to gauge its impact on its usefulness or otherwise for our country. A very thought is required on the issue. Do we need foreign capital? What is the quantum that we need? And at what terms and at what cost?

Indian capital market

Indian markets over the past few months have seen an upward trend but in the last week this trend has been reversed. The impending news on the seriousness of the Greece debt crisis has shown its major impact on the world markets, including our markets. Although. European Union has come out with a

second bailout package, amounting to 750 billion Euros, but there is an apprehension; whether this bailout package can contain this crisis as a long-term solution? In addition, there is a widespread anxiety about the crisis, spreading to other European countries. Credit Rating Agency: Like Moody's have issued a warning regarding downgrading Portugal debt rating and further cut Greece rating to junk status. Question is how our domestic economy can be delinked and protected from the vagaries of the global financial meltdown?

India has seen widespread corruption. The people in power, possessing resources make sure that all benefits get concentrated to a select few. This rampant manipulation is a fault line in our economic planning and is a major cause of concern.

In addition to this our market can get into a bear phase, thereby applying brakes to the future economic development. Some factors which points towards this scenario are; Firstly, there is a big queue of IPO's lined up. The total expected targeted collection figures, amounts to approximately Rs 2,00,000 crorге The huge influx of IPO at a hefty premium will suck excess liquidity from the system. Secondly, the current nifty is being traded around a Price Earning (PE) of 24, which is very high. The basis thumb rule for an investor is to exit markets whenever, the PE crosses 22. sitting on cash, and buy when the PE falls below 15. Therefore there can be a selling pressure in the markets. Thirdly, in the Mutual Fund segment, the April month has seen the net outflow of Rs 1,133 crore from the equity scheme, against a net outflow of Rs 196 crore in the corresponding month of the previous year. This is quite high and is contrarian to the market expectations: Usually, April month should witness fresh inflows in the equity markets because of a start of new financial year. pointing towards a plight of capital from the market.

Inflation and rising commodity prices

Rising commodities prices is fuelling unprecedented inflation in the country, causing concern for the common man. The government does not seem to have any clue to contain this menace. On the one hand, surplus food grains are rotting in the warehouses, citing inadequate and improper storage facilities, and on the other hand common men are suffering due to faulty and corrupt Public Distribution System (PDS). With the storage and warehousing facilities in the county in such a dire state, the farmers are ready with the new crop to be purchased by the government and are demanding higher Minimum Support Prices (MSP). Inflation in food items and mishandling of commodities has resulted in a strong nationwide protest by all Opposition parties. United opposition brought out a cut motion against the hike in the petroleum prices by the government in the Budget Session. The manner. in which the Government has been successful in overcoming this crisis. raises several questions about the functioning of some of the institutions in the country.

The way UPA government is handling economy leaves much to be desired. hope that they wake-up to the situation and take corrective steps before it is too late.

Fixing Volatility

 Fixing Volatility

Why drought-hit India needs good commodities market more than ever

THE Prime Minister's speech on Independence Day recognised that the drought will impact agricultural production. He reiterated that nobody "should go hungry" because of this. But also of concern is the terrible effect that volatility in food prices has on some of the most vulnerable sections of our society.

The price of anything is determined is by demand and supply. If demand is "elastic" it adjusts to the level of supply, leading to rapid price stabilisation. But for agrcommodities, especially food products, elasticity of demand is very low- people have to eat. So relatively small changes in supply can lead to high volatility in food prices.

Another uniqueness of agricommodities in India supply can be artificially manipulated based on geographical area, which can lead to a big price difference in the prices of food items, and thus large arbitrage opportunities.

The classic example recently was the recent fracas over rice. When rice prices started firming interna- tionally, the government banned rice exports to prevent them from rising domestically. Naturally, they fell within India but internationally, they firmed up further, due to non supply of rice from a major source (India). This created an arti ficial, large price difference an arbitrage opportunity.

You could accumulate cheap rice domestically, and then tap contacts in Africa, which through diplomatic channels persuade our gov ernment to issue orders allowing exports to sub-Saharan countries on compassionate or diplomatic grounds. Then sales on the high seas could be used to divert these consignments to various European markets-thereby making huge profits for a selected few.

Similar mechanisms work in domestic markets which are geographically or otherwise dispersed. Then there are rampant, unorganised, and unregulated markets for "controlled" agro commodities in India. "Dabba trading", or pit trading, also happens in parts, creating a complete chain of intermediaries from top to bottom which restricts when knowledge about prices and open interna- positions to a very few operators manned who could then use it to manipulate from late market prices. Finally, differential transaction charges levied by exchanges concentrate volumes with a few major operators; so most market participants choose an arti- to trade through them (or se dabba traders). This can also create  insider information about open positions. Put together, this helps explain why so many small investors lose money in the commodities -gov-market-and why, in spite of negative inflation, a recessionary economy, and drought that hasn't hit fully supply yet, food prices in the country are unexpectedly high.

Price discovery for food products should be very transparent across geographical areas, should be without too many undisclosed intermediaries, and should be con- ducted in a well-regulated market. All price-sensitive information should be available in the public domain. Open positions in the market should also be generally known, as they are in well-constructed markets. Position holders should ideally be market intermediaries subject to some regulatory oversight.

The problem is that government times create artificial arbitrage of supply across different areas. This causes massive problems of the sort visible in the discussion about rice and adds to volatility. Fix this: free and fair movability graphical regions. (Sales tax dis- should be permissible across geo-parity should also to be removed. Different sales tax rates on food items in different states will just hold up the development of a healthy nationwide market

The Indian economy, as human enterprise and not value added, is dominated by agriculture. Around seventy percent of our population depends on this segment. A wholly transparent and well-regulated chain must be established between these producers and their consumers. What needs to be done for that? To start off with, well-developed transportation and warehousing facilities are a must. But who is going to invest in that? We are talking of massive infrastructure investment. Without a well-developed commodities market, it will be difficult to find and mobilise the required funds.

All the above objectives can be achieved if the market is brought under a powerful and transparent regulator-perhaps in the form of a Forward Market Commission (FMC). On lines similar to SEBI. Political interference could then be minimal. The regulator needs to be given real power, as well as a clear mandate to develop both the future as well as spot commodities market. The unorganised market should be encouraged to wither away; certainly, "dabba" trading should be scrutinised very carefully indeed for wrongdoing.

India is ready for this. Consumers and farmers are more than capable of taking advantage of a transparent, regulated and liquid market.

Food prices are still unexpectedly high. To fix that, all price-sensitive information should be available in the public domain. Open positions in the market should also be generally known, as they are in well-constructed markets; position-holders should ideally be market intermediaries subject to some regulatory oversight.

The writer is Alternate President of the Commodity Participants Association of India and associ- ated with the BJP's Chartered Accountant cell.