It’s a Simple Matter of Investment

A Synchrotron is Welcome, But India still needs a Thriving R&D Culture

There is a plan to set up a ‘synchrotron’ in West Bengal with an investment estimate of Rs.60 billion to be made by the Indian government and private players, a concept that exists only in four countries – US, France, Japan and Germany. It is being hailed as India’s arrival into the Big Boys club in R&D. A synchrotron is a cyclical particle accelerator (like the one at the most famed CERN) that has its application in various streams of sciences. Truly, in the scientific industry, it’s equivalent to sending a man to the moon. For India, it’s not only a matter of pride, but a step towards rebranding itself as an upmarket research and development hub.

But keep this synchrotron instance to one side, and one starts viewing huge gaps in our R&D efforts. As per the latest data from the Ministry of Science and Technology, there were 3960 R&D institutions as of 2006, of which 707 were by the Central Government, 834 by State Governments and 2020 by private sectors. Total investment during 2002-03 was $3.91 billion, which was just 0.8% of the GNP. However, that increased to 2% of GDP in 2008.

But these numbers shrink when one compares the same to benchmark countries. OECD commented that even in 2006, China was apparently investing $136 billion in R&D. As of 2008, India had 1.5 lakh researchers compared to China’s 10 lakh plus. Even the US had a total R&D expenditure in 2006 of $340 billion. Global expenditure on R&D has dramatically increased from $525 billion in 1999 to $1.1 trillion in 2007. Positively looking, the patents granted in India had increased from 1078 during 2002-03 to 15220 during 2006-07. But in the same year, the European patent office issued 62,780 patents; and the US, 173,771 patents.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
 

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Blood Billionaires

Privatization of Natural Resources is an Anti-People Policy and would do far more Harm than Good to India

Privatisation of natural resources in India is an old debate. But it has become more relevant these days as the government is considering privatisation an imperative for resource exploration and mobilisation. But a critical analysis exemplifies the ineffectiveness of such privatisation in fulfilling policy objectives.

As an extremely diverse and unique country, India is blessed with a bounty of natural resources. With around 267 billion tonnes of coal and around 13010 million tones of iron reserves, it has its distinct position. As per the US Geological Survey (USGS), the value of India’s mineral output in the 2007-08 was $25.3 billion, (3% of GDP). State-run corporations controlled 83% of the total mining output. But with economic growth and industrial growth, demand for resources is rising exponentially. In 2006, India produced 648,000 barrels per day (bbl/d) of crude oil. However, the estimated demand that year was around 2.63 million bbl/d.

In November 2008, the High Court of Karnataka gave a verdict to stop transferring four lakes to private parties for development and maintenance as they were charging high prices and appropriating supernormal profits. In Gujarat, the state government acquired 1,777 acres of land for public purposes to construct the famous Sardar Sarovar Dam. Shockingly, 1400 acres of land, which belonged to adivasis, remained unused. The state promised to return back the unused land but the land is being used by the Sardar Sarovar Narmada Nigam Limited to build nature parks, gardens, woodlands, nature trails, and an eco-museum to attract tourists.

The Supreme Court has often taken a justifiable stand over the privatisation issue. It took a strong position in the RNRL vs RIL case where it asserted, “The State as a trustee is under a legal duty to protect natural resources. These resources meant for public use cannot be converted into private ownership.” Environment Minister Jairam Ramesh has also created some notable precedents in cases like Posco and Vedanta, which sent a signal to companies that they cannot have a free run.

The Ministry of Petroleum and Natural Gas imposed the New Exploration License Policy (NELP) in 2000 to encourage foreign and private players to take a stake in exploration domestically. But only a handful have joined including Reliance, Vedanta, Tata, Essar, et al. On another end, superlative profit opportunities in coal mining have encouraged the mafia and illegal mining, which together have destroyed the sector. Karnataka is losing Rs.150 billion annually due to illegal mining. Similarly, privatization of water and electricity distribution sans auctions and transparency has created monopoly players.

Globally, countries are increasingly nationalizing natural resources. Bolivia has been growing at 3-6% after such nationalisation. Russia nationalised its Yukos Oil Company. In Latin America, Venezuela increased taxes on foreign oil producers and made them sign new contracts under a well documented nationalization drive. Nigeria, Kazakhstan and China are also giving more priority to state-owned players in natural resource exploration. Yes, some examples are extreme.

But privatization of basic services and resources should not become a common policy initiative in developing countries. In nations like US and UK, private organisations dominate natural resources successfully.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

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One Step Forward, Two Steps Back

The Nation that has Proven Oil reserves of 79 billion barrels Representing 6% of The World total and 45% of non-OPEC Reserves needs to do Away from its over Dependence on The ‘Black Gold’ if it really wants to become a Viable Player on The Global Arena.

The Russian economy has finally returned from the brink of a collapse. After falling 11% on a year-ago basis in Q2 2009, Russia’s real GDP rebounded, growing 2.7% y-o-y in Q3 2010. While this is a step back from the 5.2% growth in Q2 2010, it was the third straight y-o-y increase for an economy that was struggling to come out of its worst recession since the fall of the Soviet Union in 1992. A major rebound in the trade surplus (at $9.6 billion in Q3 2010) on the back of rising oil prices (oil accounts for nearly 20% of Russia’s GDP, over 66% of its exports and 50% of its government revenues), following a dramatic 75% plunge in the surplus during H1 2008, has been a key driver in the recovery. Sounds impressive! But, a small walk down the memory lane and one can easily question the sustainability of this so-called remarkable rebound, once again led by the ‘Black Gold’.

For starters, during the commodity boom prior to the global slowdown, triple-digit oil prices (at $147 per barrel on July 4, 2008) were a boon for Russia. In fact, in July 2008, at the height of the oil boom, the total value of country’s oil exports was up 77% from the same period during 2007. Since the government receives 90% of all earnings of oil exports when the oil price exceeds $25 per barrel (for a field with oil depletion below 80%), the country’s coffers were brimming. But then, not to forget, it was this over-dependence on oil that has brought Russia’s economy nearly to the ground, not once but twice.

First in 1998, when the devastating Ruble Crisis hit its shores on August 17, 1998 (a massive decline in world commodity prices had triggered financial crisis across countries that were heavily dependent on the export of raw materials and Russia was among the worst hit). Second, more recently in 2008 (a part of the World Economic Crisis that started in 2008), when the price of Russia’s benchmark Urals crude fell 77% in the second half of 2008, which not only caused an 11% peak-to-tough decline in Russian GDP, but also saw the economy witnessing a capital exodus. What’s more? Net capital outflows from the country reached an alarming level of $130 billion & $50 billion in 2008 & 2009 respectively (this together amounts to about 13% of Russia’s GDP). Even Russian share markets nose-dived and a whopping $1 trillion had wiped off from them by 2008-end. All this led to a sharp fall in ruble’s (Russia’s currency) value (ruble’s value fell 35% against dollar between August 2008 & January 2009). In order to stem the ruble’s plunge, the policy-makers had to buy up rubles using country’s forex reserves. In fact, from July 2008-January 2009, Russia’s forex reserves fell by $210 billion (from $596 to $386 billion) thereby dragging the world’s largest country (by area) into a severe recession.
 

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting