"Reforms is the art of the possible. This government has given reforms a bad name" -Arun Jaitley

Call it the side effects of fast-paced economic reforms or simply sloppy policy initiatives. Patchwork policy initiatives in some sectors have allowed the private sector to book unfair profits or stoked civil unrest as in Nandigram in West Bengal and Raigad in Maharashtra. The central government is now planning to trim Reliance's land requirement for its special economic zone (SEZ) in Raigarh. Further, the Prime Minister's Office (PMO) is steering a proposal (through the administrative ministries) to prepare a legislation to allow land acquirers to directly purchase land from landowners in an attempt to end the arbitrage opportunity that arises when the government acquires land at notified rates that are well below market prices.

Says Arun Jaitley, former Commerce Minister and General Secretary of the bjp: "Reforms are the art of the possible. This government has given reforms a bad name." The gains for the private sector have not been limited merely to the arbitrage on land values, but also access to cheap loans (at around 10 per cent) using the land asset as security. This loophole was plugged only in September last year (SEZ rules were announced in February 2006), when loans to SEZs were redesignated as commercial loans (around 12 per cent), thereby, making them more expensive.

This malaise has spread to other highly regulated sectors like power and petroleum. The recent "rushed" tendering of the 4,000 mw Sasan power project has set back the project schedule by several months. The controversy surrounding the financial strength of the winning Lanco-Globeleq consortium has led to a review of the deal. Says former Central Electricity Regulatory Commission Chairman A.K. Basu: "We advised the government to undertake the bidding process in a transparent manner. Besides, when the Sasan project came up before the regulator for tariff approval, we sent it back on the grounds that the paperwork was incomplete." If only the government had paid heed to this, it wouldn't have ended up with egg on its face.

In the petroleum sector, the New Exploration and Licensing Policy (NELP) has been reduced to an uneventful ritual over the years. NELP VI invited resistance from Petroleum Minister Murli Deora himself. Says former Petroleum Secretary T.N.R. Rao: "It is unlikely that the NELP VI terms will ensure optimal recovery of resources and higher revenues for government."

And it's not only highly controlled sectors like SEZs, power and petroleum in which the state has virtually gifted lax regulations that are tailor-made for exploitation. It has also happened in comparatively less regulated sectors like financial services and telecom.

For example, the country's biggest venture capital outfit, ICICI Venture, is planning to shift the ownership of shares currently held by it to its investors, thereby escaping taxes it would have otherwise attracted.

The ills of partial deregulation are compounded by aggressive reform measures where the government's ability to deliver well-thought out, mature policies is at a discount. Result: the government repents at leisure what it earlier allows in haste. The need of the hour: better thought out reforms.

INSTAN TIP
The fortnight's burning question.

Will the rising rupee hurt Indian exports?

Yes. Ajay Mahajan, Group President (Financial Market, Institution & Investment Management), YES Bank

The rising rupee will hurt exports. Apart from software companies, other companies don't hedge their positions in the foreign exchange market. This will see their export margins coming under pressure. However, this pressure is temporary and the inflow of foreign exchange as well as demand for the Indian currency will weaken the rupee and bring it back to Rs 44-44.5 per dollar levels.

No. Neeraj Singal, Managing Director, Bhushan Steel

I don't think rising rupee will have an impact on our export margins. It has made imports cheaper, thus, bringing down prices of hot-rolled coils in domestic market. Therefore, for secondary operators like ourselves who export galvanised steel, export margins will remain intact.

Maybe. Rajesh Mokashi, Executive Director, CARE

It's a mixed bag. Sectors like software, which are cost-competitive will not feel the impact of the appreciating rupee. Margins may come under pressure in the short run, but exports are unlikely to be affected. However, companies dealing in commodities, where margins are wafer thin, will be impacted by the rising rupee.

-Compiled by Mahesh Nayak

Q&A
"Cigars Are Here To Stay"

Davidoff and Godfrey Phillips recently launched the former's range of cigars in India. A.R. Anand, CEO, International, Godfrey Phillips India, spoke to BT's Shivangi Misra about the cigar market in India. Excerpts:

What is the potential of the cigar market in India?

The cigar market in India is really small; only about two million cigars are sold every year. However, it is growing at 30 per cent per annum. Many people who smoke premium cigarettes are slowly switching over to cigars. So, we think cigars are here to stay. We have launched 14 different ranges of Davidoffs priced at Rs 600-1,400 each for cigars and Rs 50-150 each for cigarillos and small cigars to tap this market.

How do you plan to expand this market?

We're looking at an exclusive distribution channel with only about 1,000 outlets in Delhi, Mumbai, Kolkata, Bangalore, Hyderabad, Chandigarh and Pune where we plan to stock cigars and cigarillos at five star hotels, pubs, lounges, airports lobbies, etc.

What is the range of cigars on offer?

The Davidoff cigar range will include Series Aniversario, Series Classic, Series Grand Cru, Series Millennium Blend, assortments, Limited Editions and Long Panatelas, while the cigarillos and small cigar range will include Mini Cigarillos Silver, Demi Tasse, Club Cigarillos and Exquisitos.