No one wants a rollback," said Palaniappan Chidambaram, soon after taking over as India's Chief Finance Officer in May. He was out to reassure India Inc, investors, and the world that the country was committed to free market economics. It is ironic he should have resorted to the R-word. It was the previous government, the National Democratic Alliance, now projecting itself as a die-hard economic reformist that popularised the term in its early years in office when Yashwant Sinha presided over North Block as India's Finance Minister. The man would present a budget that held the promise of reform, the various coalition partners that made up the NDA, even some members of his own party, Bharatiya Janata Party would lobby against measures seen as affecting their own electoral bases-farmers, the poor, small industry-and the government would quietly return things to status quo. Chidambaram knows everyone is watching to see how a government that is in power largely thanks to the support extended to it by the Communist Party of India, and Communist Party of India (Marxist), (together referred to as the Left) both anti-reform moves ahead on its economic agenda. "I have spoken to the Left," he said at the first instance. "What they want is to go forward."

There can be no doubt over Chidambaram's credentials as a reformist Finance Minister-he was the architect of what has become known as the Dream Budget of 1997-but over the past few weeks, signals emanating from various ministries have clearly shown that this government is not above revisiting key economic decisions taken by the earlier one, rationale be damned. Even before the United Progressive Alliance government took office, its constituents, including the new Prime Minister Manmohan Singh made it clear that the Disinvestment Ministry would be scrapped. Then came other announcements.

One of the first concerned a "review" of the path-breaking Electricity Act of 2003-passed after three years of intense debate-and was the UPA's first quid to the Left's quo. The Act seeks to tame the Wild West that is India's power sector by encouraging competition, rationalising power tariffs, and being transparent about subsidies. The new government has postponed the date for unbundling the bankrupt State Electricity Boards (SEBs) into generation, transmission, and distribution companies from the earlier deadline of June 10. Consultants such as R. Venkatraman, Executive Director, KPMG, an audit and advisory firm believe that it is unlikely the June 10 deadline could have been met given the complexity of the unbundling, but with even the government's intent to reform the power sector now suspect, private sector companies are unlikely to rush into the business. After all, the first wave of power sector reforms, circa the early 1990s, failed largely because private generators of power had no recourse but to distribute electricity through SEBs that were both financially and operationally inefficient.

In what could be disastrous timing, two state governments, Andhra Pradesh, where the Congress has returned to power, and Tamil Nadu, where the ruling AIADMK was routed in the Lok Sabha polls, have chosen to return to a regime of free power. "This turning back the clock," says Paul Rawlins, Senior Director, Fitch India, a rating agency, ''could have serious repercussions on state finances.'' "The last thing the states need to do is indulge in such profligacy," he adds, an obvious reference to the fiscal deficit of the states which is a staggering 6 per cent of national Gross Domestic Produce.

Then, there's the oil sector where it is clear the UPA will not press ahead with the previous government's stated objective of aligning prices with international ones. The CPI has already articulated its opposition to any proposal to remove subsidies on kerosene and cooking gas (even downstream product urea), and the stabilisation fund that the government is creating to help it maintain price stability sounds suspiciously like the oil pool account that was scrapped in April 2002. The flip-flop is also evident in the government's policy on modernisation and privatisation of Mumbai and Delhi's airports. The NDA had announced a ceiling of 74 per cent for private sector participation; the UPA has scaled that down to 49 per cent and the CPI(M) has signaled its solidarity with the employees of these airports who do not want them to be privatised (or modernised) at all. With Textile Minister Shankarsinh Vaghela putting in his bit about the NDA's efforts to reduce, eventually to zero, the gap between the excise duties on cotton and synthetic textiles, needing to be "reconsidered", the tableau of imminent rollbacks is complete. Now, if only Chidambaram can undo some of the damage with his budget.

-By Ashish Gupta

LOBBIES
Shopping List

What India Inc. wants from the Finance Minister and what it is likely to get.

• Early implementation of the Value Added Tax regime.
  Yes
• Emphasis on infrastructure.
  Yes
• Acceleration of private sector participation in defence sector.
  Unlikely
• Full implementation of Kelkar committee's report on direct and indirect taxes.
  Likely
• Continued disinvestment of profit making public sector companies.
  No
• Tax exemption for it and IT-enabled services sector.
  Unlikely
• Reduction in import tariffs on raw materials so that these are at least five per cent lower than duties on finished products.
  Unlikely
• Continued emphasis on reigning the country's fiscal deficit.
  Can't say
• Renewal of subsidies for exporters.
  Unlikely
• Sops for rural housing industry.
  Likely

SECOND
FII Fundamentals
Foreign institutional investors go cold on India.
By Roshni Jayakar

An encore is unlikely: For most foreign institutional investors, it's time to say goodbye

You know things are bad when you ask a global fund manager for advice on where to invest in India and he suggests real estate. "It's so underdeveloped compared to other Asian countries," says Marc Faber, aka Dr Doom, the renowned Hong Kong based fund manager. There's no talk of equities, something that isn't altogether surprising. Dr Doom turned negative on India in early 2004. "Far too many foreigners (read: Foreign Institutional Investors) were investing there; foreign buying always comes at the top."

You know things are getting worse when, as in late May, Merrill Lynch's global investment strategy group, puts out a negative report on the country. Titled, Taking The Shine Out of India, the report argues that the new government's intent to free market economics is suspect and cuts the rating for India from 'over weight' to 'market weight', effectively indicating that it isn't bullish on Indian equities any more. And you know things can't possibly get any worse when Morgan Stanley, reduces the weightage it assigns to India from 5.9 per cent to 2.9 per cent.

Some of these could explain why FIIs, which invested $10 billion, Rs 45,060 crore in India between April 2003 and March 2004, about 20 per cent of total FII investments in emerging markets in the same period (and well in excess of the 5.3 per cent weightage assigned to India in Morgan Stanley Capital Index (MSCI) for emerging markets) suddenly turned cold on Indian equities. In May 2004, for the first time since October 2002, FIIs sold more stocks than they bought (in terms of value). India, it is evident, is no longer the hottest destination for FIIs.

If there's any silver lining to this phenomenon, it is that foreign investors have been deserting most emerging markets these past few weeks. By some estimates, Asian emerging markets that attracted some $30 billion (Rs 1,35,180 crore) of FII investments last year, have witnessed an outflow of $5 billion (Rs 22,530 crore) in just the last four weeks. The spurt in oil prices, the fear of a slowdown in the Chinese economy, and the possibility that the US Federal Reserve will increase the interest rate, obviating the need for investors from that country to seek higher returns elsewhere (one of the reasons for the surge in emerging market investments in the past three years), have all contributed to this trend.

India's cause, as evident in the Merrill Lynch report, has not been helped by a change in government. Ergo, despite some soothing words from the Prime Minister and Finance Minister, most fund managers have decided to wait and see what the new government delivers. "Most fund managers have adopted a wait and watch approach," admits Mark Mobius, President, Templeton Emerging Market Funds. "If the liberalisation and privatisation programme is abandoned (by the government) there will be fewer investments." "From where we are at present, a lot depends on the budget," adds Andrew Holland, Executive Vice President (research), DSP Merrill Lynch. Things could go either way. If the government decides to go slow on economic reforms, FIIs will likely turn bearish on India. And if it doesn't, or if a clutch of companies with strong fundamentals, such as TCS, decides to tap the market through initial public offerings, or if Korea is categorised a mature market by FIIs, thereby resulting in a reallocation of the country's weightage among all other emerging markets including India, or all three happen, FIIs could return to India with a vengeance.

No one, however, is counting on all three positives coming to pass. The most optimistic estimate of FII inflow into India in 2004-05 is $6-$7 billion (Rs 27,030-Rs 31,542 crore). Which, when seen in the light of Dr Doom's investment advice isn't all that unimpressive a number.

DASHBOARD

IPO
TCS files for an IPO, and although analysts say it will bring the bulls back into the reckoning, the bears rule for now

SALARIES
Indian IT-sector salaries, says Mercer Human Resource Consulting, are among the lowest in the world

M&A
More companies declare record profits, the wave of M&As continues and India Inc holds out the promise of keeping the boom going

MANUFACTURING
The manufacturing sector grows by 9.2 per cent in Aril 2004; the renaissance in Indian manufacturing is finally here

A Nifty Idea
Singapore gets a big slice of Telecom India.

Idea: It may still catch the cellular bus

Singapore Technologies Telemedia (STT) and Telekom Malaysia acquiring AT&T's (now part of Cingular) 32.9 per cent stake in Idea Cellular is no doubt a shot in the arm for the beleaguered operator, where the other shareholders include the A.V. Birla Group (33.7 per cent), the Tata Group (31.7 per cent), and American insurance giant AIG (1.7 per cent). But that's not really the interesting bit. What is, is how the small country of Singapore may actually be emerging as a big player in the Indian telecom industry. Consider: Temasek, the Singapore government's private equity vehicle, has stakes in both STT and tm. It also has a stake in SingTel, which in turn owns 28.5 per cent of Bharti Tele-Ventures. Now, Temasek is reportedly eyeing the 10 per cent in Reliance Infocomm that its promoters, the Ambanis, want to divest. If the deal comes through, Temasek (and hence its owners, the government of Singapore) will have an interest in 20 of the 35 million mobile phone market in India. (Last heard, Tata Teleservices was also said to be reportedly holding talks with Singapore companies for roping in more investment.)

Meanwhile, Idea is now on a firmer footing. STT and Telekom Malaysia's deal-won in the face of competition from six other bidders comprising Maxis, Telstra, Aircel, Sistema (a Russian Telco), and two financial investors-comes in the wake of Idea acquiring Escotel Mobile Communications from Escorts Telecommunications and First Pacific. The company has already put in place an integration blue print, which envisages the use of the Escotel brand along with Idea in UP (West), Haryana and Kerala. What impact will the STT-TM deal have on Idea's road ahead? "We are looking forward to acquiring original licensees contiguous to our circles if the price is right," says Vikram Mehmi, CEO, Idea. Bit by bit, Little Singapore is set to get a lot bigger-at least in India's telecom market.

-Sudarshana Banerjee

Rolling Stone
A small-time operator who's done it all.

Sukhjit Singh Anand: What next?

Weathermen have their weather-vanes. Small-time businessmen in Delhi's central business district of Connaught Place have Sukhjit Singh Anand. Over the past 20 years, Anand, who runs a small family business by the name of Calculus, has switched businesses over and over again to keep with the changing times. In 1985, Calculus started as an all-in-one computer accessories store in Connaught Place's well-known Regal building. ''We were ahead of the times and could not survive in retail,'' says Anand. So, Anand got into the wholesale business, importing computer peripherals that he would sell to local assemblers of personal computers. That didn't work for long either. In 1989, he got into computer education and launched Silicon Academy, training people for a career in computer maintenance. Many of his students went on to become small-time owners of service centres, but for Anand, it was time to move on again. This time round, in 1997, he launched an air-conditioned cyber café to cater to foreign tourists. To ensure that he got a steady stream of them, Anand even registered with foreign travel directories. That lasted for a couple of years and in 1999, Anand decided to get into something timeless-yoga seemed as timeless as anything else. His firm started making software for CDs on yoga. Alas, that too proved short lived, and in 2001, Anand decided to partner with UK Recruitment to body shop software engineers from India. Then, 9/11 happened and the IT sector in any case was witnessing a slowdown. Anand still has a finger in the IT body shopping pie, but his preoccupation is something else-shipping nurses to the US. He says that 25 to 30 nurses walk into his office every day, whom he vets, prepares and then sends to hospitals in the US. At the moment, Calculus-which gets a fee from the American employer-is feeding a near-insatiable demand. But tomorrow is another day. Anand knows that only too well.

-Amanpreet Singh