MUMBAI (Reuters Breakingviews) – In India, it was called big bang Friday. That was the day when Manmohan Singh unleashed bold economic reforms. Assuming the Prime Minister’s nerve holds in the face of strong protests, he may even get a taste for such announcements. India’s financial sector, mining industry and labour market would all benefit from a similar approach.

The 79-year-old Singh seems to have finally convinced Sonia Gandhi, the real power behind the throne, that without a revival in growth the chances of the Congress party clinging to power in 2014 are slim.

On their own, each of his major steps: a cut in diesel subsidies and opening up the retail and aviation industries to foreign investment would be considered politically difficult. That’s why it was smart to bunch them together. The opposition has barely had time to catch its breath. Though protests are inevitable, Singh appears to have calculated that the government is sufficiently strong – or its opponents sufficiently weak — that the Congress party will be able to hang onto power.

If Singh succeeds, he should push even harder. There’s a long list of outstanding reforms that could help raise the economy above its current 5.5 percent annual growth rate.

For example, Singh could dust down the Reserve Bank of India’s roadmap for banking liberalisation, levelling the playing field for foreign lenders. He could also take steps to open the insurance and pensions sectors, though the legislation needed to make such changes may put him off for now.

Then there are bills pending to improve the allocation of land for development and clarify the operation of mines. These would give business greater clarity and help India channel its target of $1 trillion of infrastructure investment over the next five years.

And the biggest elephant in the room is labour market reform. Over 90 percent of India’s workers operate outside formal employment law. Restrictive rules make hiring new workers hugely off-putting. The 10 percent of the workforce who currently enjoy protection may bristle, but the rest of the country would welcome more pragmatic rules.

The message is clear: big bang Friday was a good day’s work. But Singh needs to do more to make up for eight years of inaction.

CONTEXT NEWS

- The government on September 14 announced that it was opening up the retail sector to foreign supermarket chains and removing the bar on foreign investment in both airlines and broadcasters. It also approved the sale of stakes in four state-run industries.

- The move came a day after the government raised the price of heavily subsidised diesel, increasing prices by five rupees per litre. That translates as a 14 percent rise, including taxes.

- The committee also decided to limit the number of subsidised cooking gas cylinders per household to six per year, a move seen as hitting the poor hard. Any LPG cylinders bought over this ceiling will be at market rates, which could almost double the price.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

(Editing by Peter Thal Larsen and Katrina Hamlin)

MUMBAI (Reuters Breakingviews) – In India, it’s being called big bang Friday. That was the day when Manmohan Singh unleashed bold economic reforms. Assuming the Prime Minister’s nerve holds in the face of strong protests, he may even get a taste for such announcements. India’s financial sector, mining industry and labour market would all benefit from a similar approach.

The 79-year-old Singh seems to have finally convinced Sonia Gandhi, the real power behind the throne, that without a revival in growth the chances of the Congress party clinging to power in 2014 are slim.

On their own, each of his major steps: a cut in diesel subsidies and opening up the retail and aviation industries to foreign investment would be considered politically difficult. That’s why it was smart to bunch them together. The opposition has barely had time to catch its breath. Though protests are inevitable, Singh appears to have calculated that the government is sufficiently strong – or its opponents sufficiently weak — that the Congress party will be able to hang onto power.

If Singh succeeds, he should push even harder. There’s a long list of outstanding reforms that could help raise the economy above its current 5.5 percent annual growth rate.

For example, Singh could dust down the Reserve Bank of India’s roadmap for banking liberalisation, levelling the playing field for foreign lenders. He could also take steps to open the insurance and pensions sectors, though the legislation needed to make such changes may put him off for now.

Then there are bills pending to improve the allocation of land for development and clarify the operation of mines. These would give business greater clarity and help India channel its target of $1 trillion of infrastructure investment over the next five years.

And the biggest elephant in the room is labour market reform. Over 90 percent of India’s workers operate outside formal employment law. Restrictive rules make hiring new workers hugely off-putting. The 10 percent of the workforce who currently enjoy protection may bristle, but the rest of the country would welcome more pragmatic rules.

The message is clear: big bang Friday was a good day’s work. But Singh needs to do more to make up for eight years of inaction.

CONTEXT NEWS

- The government on September 14 announced that it was opening up the retail sector to foreign supermarket chains and removing the bar on foreign investment in both airlines and broadcasters. It also approved the sale of stakes in four state-run industries.

- The move came a day after the government raised the price of heavily subsidised diesel, increasing prices by five rupees per litre. That translates as a 14 percent rise, including taxes.

- The committee also decided to limit the number of subsidised cooking gas cylinders per household to six per year, a move seen as hitting the poor hard. Any LPG cylinders bought over this ceiling will be at market rates, which could almost double the price.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

(Editing by Peter Thal Larsen and Katrina Hamlin)

By Jeff Glekin

MUMBAI (Reuters Breakingviews) – India is still unravelling. Nine months ago, Reuters Breakingviews published a three-part series on the state of the country’s economy. At that time, most economists projected GDP growth of around 7 percent in 2012, a sharp drop from the near-double digit expansion of the boom. Today, India has fallen further behind. The case for economic reform – and a realignment of the political system – remains as strong as ever.

Notwithstanding recent policies unveiled by Prime Minister Manmohan Singh on what has been called “Big Bang Friday”, growth expectations have fallen further. And though the political gridlock that has dogged the Congress-led government throughout its eight years in office may finally have been broken, missed opportunities, government handouts and corruption scandals have taken their toll.

India faces three big economic challenges: reforming its energy industry; drawing a line under the era of crony capitalism; and reducing the burden of regulation. Achieving these goals might require a new political force to put its hands on the reins of power.

Indian energy is unsustainably cheap. The $35 billion debt of India’s state-run electricity boards – now in the process of being restructured – is just one manifestation of how power has been under-priced. Fuel subsidies, meanwhile, are crippling the government. The OECD estimates that cheap diesel alone costs the government three percent of GDP every year: equivalent to half of last year’s budget deficit.

Pricing power properly would not only ease the pressure on government finances: it would also boost the value of state-owned firms. For example, Coal India (COAL.NS: Quote, Profile, Research) sells its output at around 70 percent of international market prices, according to The Children’s Investment Fund. The company generates $8.30 of EBITDA per tonne of coal: China’s Shenhua makes $45.70 per tonne. If Coal India could double its EBITDA per tonne that might add $20 billion to its value. More efficient power pricing would also improve resource allocation, stimulate investment, and increase supply. India’s recent huge power outage, which left half the nation without electricity in August, demonstrates how critically that is needed.

Then there is the state’s lackadaisical approach to guarding its assets. Valuable telecom spectrum was given away for $29 billion less than it was worth in 2008. Next came the “coalgate” fiasco, where the government stands accused of handing out coal blocks to corporate giants at a loss of $33 billion. The Supreme Court has already insisted that the government must in future auction such assets. That’s sensible, but it’s not the end of the story. The government still needs to address the perception that there has been a huge transfer of wealth from the state into private hands. Even if the businesses were only following the rules, there’s a case for levying a one-off tax to claw back the windfall they received.

Finally, India needs deep structural reform which promotes productivity and wealth creation. The reforms of 1991 heralded an end of the “License Raj” during which time businesses were strictly controlled by the state. But progress has been slow. The World Bank last year ranked Indian 132nd out of 183 countries in terms of ease of doing business. Starting a new business in India still requires 57 different approvals. New Delhi, meanwhile, boasts a total of 77 ministers with overlapping remits in areas such as drinking water, sanitation and water resources.

A reforming government could set about rationalising bureaucracy and archive archaic laws which are no longer relevant. Some in the Indian government are already trying. Jyotiraditya Scindia, the Stanford-educated son of a Maharaja who is now a junior commerce minister, has launched a website that will allow entrepreneurs to apply for all the clearances they need to start a business. Simplifications of this kind will make India friendlier to business.

The key question is whether recent reforms can be sustained. A small reduction in diesel subsidies is a good start, as is allowing foreign direct investment (FDI) in the retail and aviation industries. But even these measures face resistance. One of the least positive aspects has been the right wing opposition’s stance. Instead of holding Congress to account for its economic mismanagement, the BJP has led the fight against recent reforms.

India’s youthful population is badly served by this system. In the last decade, the country has alternated between coalition governments of either the left-leading Congress Party or the Hindu nationalist BJP with a collection of parochial regional parties. In India, the need for a new voice is great. A party with a national agenda, not beholden to any one region, could make the country’s political system more effective.

Such a movement would need to develop a new style of political campaigning, targeting 50 or so winnable seats. It would also need untainted cash. Mass fundraising could be a way of both campaigning and building momentum. India’s 100 million internet users and 900 million mobile phone owners could be tapped for small sums. And roping in a Bollywood hero like Aamir Khan, whose TV show has made him the India’s answer to Oprah Winfrey, could add glamour and mass market appeal. With only two years to go before the next election, time is running out. But if India’s reformers get their act together, they could change the nation.

(Editing by John Foley and David Evans)

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

There’s no bigger sport in India than cricket. So you might think that the company which sponsors the Indian national team would be a household name. But Sahara has always been shrouded in mystery. Now, following a ruling by the country’s Supreme Court that the company must return $4.5 billion to millions of small investors, its finances are set for a stiff examination. The saga also raises important questions about Indian financial regulation – and how such scandals can be avoided in the future.

In India’s larger cities, Sahara is known for its glamorous links to Bollywood and for its flagship five-star hotels, which now include the Plaza in New York and London’s Grosvenor. But out in the sticks Sahara employs a million agents to raise deposits from rural Indians. The sums are small, but as important to Sahara as to the customers who trusted the company with their limited savings. Following the Supreme Court’s ruling last month, those deposits are due to be returned – with 15 percent interest.

It’s not the first time Sahara has fallen foul of the authorities. In 2008, the Reserve Bank of India shut down Sahara’s savings unit. The same year, however, two unlisted Sahara companies, with paid up capital of less than $20,000 each, began raising funds through an instrument known as an optionally fully convertible debenture (OFCD). Sahara argued the fundraising was a private placement. The Securities and Exchange Board of India (SEBI) countered that a private placement should be for a maximum of 50 investors – not 29 million.

The Sahara companies touted lucrative investments promising, in some cases, to return three times their face value after 10 years. They collected money “without any sense of responsibility to maintain records”, the Supreme Court said. The court has questioned just how genuine all the investors in Sahara’s OFCD were, but has instructed Sahara to repay the full amount nonetheless. If the investors cannot be located, Sahara must pay the money to the Indian government.

What is clear is that Sahara recruited a large number of investors who probably did not realise the complexity of the products they were being sold. The OFCD’s structure was akin to a regular savings scheme. But Sahara’s customers did not benefit from the protection associated with a public issue, or enjoy the safeguards that depositors get when they put money in a bank. Even now, as Reuters has reported, many investors remain oblivious to the fact that they are due a refund.

If Sahara doesn’t pony up within 90 days, the Supreme Court has instructed SEBI to use all legal means to claim the cash, including seizing Sahara property and freezing bank accounts. The regulator may need those powers: the balance sheets of the two firms which raised the OFCDs suggest that they lack the assets to pay back the full amount on their own. The larger of the two firms, which raised around $3 billion, showed $1.7 billion of inventories in its 2011 balance sheet. In addition, the firm has invested $1.4 billion in unlisted Sahara group companies.

Even if the cash is recovered, there’s still the tricky question of why such a huge mobilisation of funds was allowed to take place. The authorities missed opportunities to intervene before the money was raised. According to the Supreme Court, the Ministry of Corporate Affairs, which registers all private placements, should have alerted SEBI the moment the OFCDs were submitted. SEBI’s chairman has questions to answer, too. Last year, his deputy wrote to the prime minister alleging that, under pressure from the Finance Ministry, the chairman was going easy on Sahara by refusing to take out a newspaper advertisement highlighting a High Court judgment against the company. A public warning from SEBI might have deterred investors. Both SEBI and the Finance Ministry deny the allegations.

The broader question, however, is how to better serve India’s rural savers. Mainstream banks find the lowest end of the market more trouble than it’s worth. But the Sahara saga highlights that there is a large amount of cash in rural India looking for a safe home. One positive development could be the proposed introduction of a unique identity number for every Indian, which could allow more savers to open a bank account. If that turns out to be the case, the Sahara mess could at least leave a positive legacy.

MUMBAI (Reuters Breakingviews) – India’s striking shopkeepers needn’t worry so much about proposed reforms to the retail sector. New reforms proposed by Prime Minister Manmohan Singh will eventually open the door to global retailers like Wal-Mart (WMT.N: Quote, Profile, Research), Carrefour (CARR.PA: Quote, Profile, Research) and Tesco (TSCO.L: Quote, Profile, Research), all currently limited to running wholesale businesses. But India’s small shops won’t go out of business any time soon. Competition may even be good for them.

There are an estimated 50 million “mom and pop stores” in India, and some 220 million people depend on them for their livelihoods, according to the Confederation of All India Traders. In developed markets small shops have suffered under competition from big-box retail. The suggestion of letting foreign retailers own 51 percent of retail joint ventures saw shopkeepers join waves of strikes across the country on September 20.

To read ‘India hit by nationwide strike’, click here

To read ‘A nation of shopkeepers frets over retail reform’, click here

In reality, there’s plenty to go round. A mere 10 percent of India’s $500-billion-a-year retail sector is captured by large stores. The sector is still growing too, and by 2015 retailing is expected to top $800 billion according to the Confederation of Indian Industry. The average Indian is unlikely to give up the convenience of a local shop to an out of town hypermarket.

New investment won’t happen overnight. Individual state governments will decide whether to allow supermarket chains to enter and retailers will only be allowed to set up shop in cities with a population of more than 1 million. The inflated cost of real estate in big cities will force the big shops to the outskirts of the large metros.

Opposition may be mostly among middlemen who supply the sector. Their scale allows them pricing power over the millions of small shops. That could change if the likes of Tesco and Wal-Mart have their way. It’s telling that farmers’ groups have supported the change, believing that cutting out such middlemen will raise the prices they can charge the retailers directly.

At least ten states have already said they would welcome foreign investment. Once they do, it will be only a matter of time before others follow. Consumers want more choice and cheaper prices, and India needs the additional infrastructure and productivity big retail will bring. And the moms and pops should relax: if the going gets too tough, they might even be able to sell out one day to deep-pocketed foreign buyers.

CONTEXT NEWS

- India’s opposition parties led a nationwide strike on September 20 to protest against the government’s decision to allow foreigners to invest directly in retail operations, taking as much as a 51 percent stake. At present foreign retailers are only allowed to operate joint ventures in wholesale companies.

- The proposed reforms would allow individual state governments to decide whether to allow foreign supermarket chains to enter. Foreign retailers would have to source almost a third of their manufactured and processed goods from industries with a total plant and machinery investment of less than $1 million.

- They would have to invest a minimum of $100 million, and put at least half of their total investment into so-called ‘back-end’ infrastructure, such as warehousing and cold storage facilities. Retailers would also only be allowed to set up shop in cities with a population of more than 1 million.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

(Editing by John Foley and Katrina Hamlin)

MUMBAI (Reuters Breakingviews) – In India, it’s being called big bang Friday. That was the day when Manmohan Singh unleashed bold economic reforms. Assuming the Prime Minister’s nerve holds in the face of strong protests, he may even get a taste for such announcements. India’s financial sector, mining industry and labour market would all benefit from a similar approach.

The 79-year old Singh seems to have finally convinced Sonia Ghandi, the real power behind the throne, that without a revival in growth the chances of the Congress party clinging to power in 2014 are slim.

On their own, each of his major steps: a cut in diesel subsidies and opening up the retail and aviation industries to foreign investment would be considered politically difficult. That’s why it was smart to bunch them together. The opposition has barely had time to catch its breath. Though protests are inevitable, Singh appears to have calculated that the government is sufficiently strong – or its opponents sufficiently weak — that the Congress party will be able to hang onto power.

If Singh succeeds, he should push even harder. There’s a long list of outstanding reforms that could help raise the economy above its current 5.5 percent annual growth rate.

For example, Singh could dust down the Reserve Bank of India’s roadmap for banking liberalisation, levelling the playing field for foreign lenders. He could also take steps to open the insurance and pensions sectors, though the legislation needed to make such changes may put him off for now.

Then there are bills pending to improve the allocation of land for development and clarify the operation of mines. These would give business greater clarity and help India channel its target of $1 trillion of infrastructure investment over the next five years.

And the biggest elephant in the room is labour market reform. Over 90 percent of India’s workers operate outside formal employment law. Restrictive rules make hiring new workers hugely off-putting. The 10 percent of the workforce who currently enjoy protection may bristle, but the rest of the country would welcome more pragmatic rules.

The message is clear: big bang Friday was a good day’s work. But Singh needs to do more to make up for eight years of inaction.

CONTEXT NEWS

- The government on September 14 announced that it was opening up the retail sector to foreign supermarket chains and removing the bar on foreign investment in both airlines and broadcasters. It also approved the sale of stakes in four state-run industries.

- The move came a day after the government raised the price of heavily subsidised diesel, increasing prices by five rupees per litre. That translates as a 14 percent rise, including taxes.

- The committee also decided to limit the number of subsidised cooking gas cylinders per household to six per year, a move seen as hitting the poor hard. Any LPG cylinders bought over this ceiling will be at market rates, which could almost double the price.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

(Editing by Peter Thal Larsen and Katrina Hamlin)

MUMBAI, Sept 14 (Reuters Breakingviews) – The government has
announced a bold 14 percent hike in the price of diesel. Now it
needs to stay the course, embrace the decision rather than
apologise for it, and move fast to get even more done. A shift
in public spending from consumption to investment is the
ultimate goal.

Full view will be published shortly.

CONTEXT NEWS

- The Indian government raised the price of heavily
subsidised diesel late on Sept. 13. A cabinet committee
increased diesel prices by 5 rupees per litre. That translates
as a 14 percent rise, including taxes. The committee also
decided to limit the number of subsidised cooking gas cylinders
per household to six per year, a move seen as hitting the poor
hard. Any LPG cylinders bought over this ceiling will be at
market rates, which could almost double the price.

- The fuel price increase caused an instant political
backlash. Trinamool Congress, a partner in the ruling coalition,
announced a protest march at the weekend and the Bharatiya
Janata Party (BJP) called the move “financial terror”.

- Diesel is one of the main contributors to a subsidy bill
that economists warn could push the country’s fiscal deficit
above a target of 5.1 percent of gross domestic product.

- The Sensex rose more than 2 percent to new seven-month
highs on Sept. 14 following the announcement and after the
Federal Reserve announced a new asset purchase programme.

- The cabinet will also consider a proposal on Sept. 14 to
allow foreign airlines to buy stakes in local carriers. Under
current rules, foreign airlines are barred from buying stakes in
domestic carriers, although foreign investors are allowed to
hold a cumulative 49 percent.

- Reuters graphic: Inflation, rates, IIP link.reuters.com/deq95s

- Reuters: India’s diesel price hike heralds long-stalled
reforms

- Reuters: Indian shares rally to 7-mth highs on diesel
hike; Fed’s ‘QE3′

- Reuters: Indian cabinet to consider aviation FDI on Friday

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)

- For previous columns by the author, Reuters customers can
click on

(Editing by Edward Hadas and Sarah Bailey)

(Refiles to correct format)

(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own)

By Jeff Glekin

MUMBAI, Sept 14 (Reuters Breakingviews) – India’s top
securities regulator is under a cloud. Last year a former deputy
to the chairman of the Securities and Exchange Board of India

(SEBI) wrote to the prime minister alleging that Upendra Kumar
Sinha was going easy on the Sahara conglomerate (SAHM.BO: Quote, Profile, Research)
(SAHR.BO: Quote, Profile, Research). That puts SEBI, which has been tasked with overseeing
the repayment of over $5 billion that Sahara raised from 30
million rural investors, in an awkward position.

Between 2008 and 2011, two unlisted Sahara companies raised
a total of $4.3 billion using instruments known as optionally
fully convertible debentures. Under Sinha’s predecessor, SEBI
ordered the group to refund the money, with 15 percent annual
interest, after it found that the fund-raising process did not
comply with securities market rules. India’s Supreme Court has
just upheld that ruling.

Following Sinha’s appointment in February 2011, his second
in command – Kandathil Mathew Abraham – wrote to the prime
minister alleging that the new chairman was under pressure from
the country’s finance minister to deal leniently with a number
of high-profile cases, including that of Sahara. Among other
things, Abraham says that when he proposed that SEBI issue a
newspaper advertisement highlighting a High Court judgment
against Sahara, Sinha refused and would only agree to a press
release on the regulator’s website. A more public warning from
SEBI might have deterred investors from placing their money with
Sahara.

Both SEBI and the Finance Ministry have publicly rubbished
Abraham’s accusations. The ministry called them ‘false,
vexatious and defamatory’ and countered with its own allegations
of corruption against the whistleblower. Last month Prime
Minister Manmohan Singh cleared Abraham of the charge. But it’s
not clear that his allegations have been formally investigated.

SEBI now looks to be taking a tough line with Sahara. The
group has accused the regulator of acting in vengeance after it
failed to acknowledge a truck carrying documents that the
company had been ordered to hand over. SEBI says the truck was
refused entry after Sahara failed to meet a deadline set by the
Supreme Court.

Though Abraham’s allegations have never been proven, they
pose a question mark over SEBI’s independence. The best response
for the regulator – and for Sinha – is to ensure that 30 million
Sahara investors get their money back.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

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CONTEXT NEWS

– India’s Supreme Court on Aug. 31 ordered the Sahara
conglomerate to refund $4.3 billion it had raised from around 30
million small investors, reaffirming an order from the capital
markets regulator of June 2011. The Supreme Court also ordered
Sahara to pay 15 percent interest to investors, taking the total
payout to more than $5 billion.

– The court directed two Sahara firms to furnish the
Securities and Exchange Board of India (SEBI) with all the
details of their issuance of optionally fully convertible
debentures (OFCD), subscriptions and refunds within 10 days.

– Sahara Group accused SEBI of acting in vengeance, in a
report in the Business Standard on Sept. 13, after the regulator
failed to acknowledge a truck carrying documents. Sahara said a
truck was refused entry as it arrived after the close of
business hours on Sept. 10, the deadline imposed by the Supreme
Court.

– Sahara has 90 days to deposit around $5 billion with SEBI.
The regulator has been authorized by the court to take recourse
to all legal remedies, including attachment and sale of
property, and freezing of bank accounts of Sahara firms for
recovery of the money if it is not refunded in the next three
months.

– In a letter dated Oct. 2011 Kandathil Mathew Abraham, the
number two at SEBI at the time, and the author of the original
order against Sahara, wrote to the Prime Minister, Manmohan
Singh. He alleged that the Chairman of SEBI, Upendra Kumar Sinha
was under pressure from the then Finance Minister, Pranab
Mukherjee, to deal leniently with a number of high profile
cases, including that of Sahara.

– Abraham letter: link.reuters.com/jar62t

– Reuters: Sahara told to repay small investors $3.1 bln
[ID:nL4E8JV24L]

RELATED COLUMNS

Quick sand [ID:nL4E8JV311]

Sand storm [ID:nL3E8CJ4Y8]

Sahara desert [ID:nL4E7LS0TP]

– For previous columns by the author, Reuters customers can
click on [GLEKIN/]

(Editing by Peter Thal Larsen and Katrina Hamlin)

((jeff.glekin@thomsonreuters.com))
Keywords: BREAKINGVIEWS INDIA SAHARA

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MUMBAI (Reuters Breakingviews) – India’s top securities regulator is under a cloud. Last year a former deputy to the chairman of the Securities and Exchange Board of India (SEBI) wrote to the prime minister alleging that Upendra Kumar Sinha was going easy on the Sahara conglomerate (SAHM.BO: Quote, Profile, Research) (SAHR.BO: Quote, Profile, Research). That puts SEBI, which has been tasked with overseeing the repayment of over $5 billion that Sahara raised from 30 million rural investors, in an awkward position.

Between 2008 and 2011, two unlisted Sahara companies raised a total of $4.3 billion using instruments known as optionally fully convertible debentures. Under Sinha’s predecessor, SEBI ordered the group to refund the money, with 15 percent annual interest, after it found that the fund-raising process did not comply with securities market rules. The Supreme Court has just upheld that ruling.

Following Sinha’s appointment in February 2011, his second in command – Kandathil Mathew Abraham – wrote to the prime minister alleging that the new chairman was under pressure from the finance minister to deal leniently with a number of high-profile cases, including that of Sahara. Among other things, Abraham says that when he proposed that SEBI issue a newspaper advertisement highlighting a High Court judgment against Sahara, Sinha refused and would only agree to a press release on the regulator’s website. A more public warning from SEBI might have deterred investors from placing their money with Sahara.

Both SEBI and the Finance Ministry have publicly rubbished Abraham’s accusations. The ministry called them ‘false, vexatious and defamatory’ and countered with its own allegations of corruption against the whistleblower. Last month Prime Minister Manmohan Singh cleared Abraham of the charge. But it’s not clear that his allegations have been formally investigated.

SEBI now looks to be taking a tough line with Sahara. The group has accused the SEBI of acting in vengeance after it failed to acknowledge a truck carrying documents that the company had been ordered to hand over. SEBI says the truck was refused entry after Sahara failed to meet a deadline set by the Supreme Court.

Though Abraham’s allegations have never been proven, they pose a question mark over SEBI’s independence. The best response for the regulator – and for Sinha – is to ensure that 30 million Sahara investors get their money back.

CONTEXT NEWS

- The Supreme Court on August 31 ordered the Sahara conglomerate to refund $4.3 billion it had raised from around 30 million small investors, reaffirming an order from the capital markets regulator of June 2011. The Supreme Court also ordered Sahara to pay 15 percent interest to investors, taking the total payout to more than $5 billion.

- The court directed two Sahara firms to furnish the Securities and Exchange Board of India (SEBI) with all the details of their issuance of optionally fully convertible debentures (OFCD), subscriptions and refunds within 10 days.

- Sahara Group accused SEBI of acting in vengeance, in a report in the Business Standard on September 13, after the regulator failed to acknowledge a truck carrying documents. Sahara said a truck was refused entry as it arrived after the close of business hours on September 10, the deadline imposed by the Supreme Court.

- Sahara has 90 days to deposit around $5 billion with SEBI. The regulator has been authorized by the court to take recourse to all legal remedies, including attachment and sale of property, and freezing of bank accounts of Sahara firms for recovery of the money if it is not refunded in the next three months.

- In a letter dated October 2011 Kandathil Mathew Abraham, the number two at SEBI at the time, and the author of the original order against Sahara, wrote to the Prime Minister, Manmohan Singh. He alleged that the Chairman of SEBI, Upendra Kumar Sinha was under pressure from the then Finance Minister, Pranab Mukherjee, to deal leniently with a number of high profile cases, including that of Sahara.

- Abraham letter: link.reuters.com/jar62t

(Editing by Peter Thal Larsen and Katrina Hamlin)

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

MUMBAI (Reuters Breakingviews) – Almost flat industrial production may sound like bad news in India. But July’s disappointing figure may be just what the country needs. It might lead to a reduction in wasteful fuel subsidies, which account for a large chunk of India’s fiscal deficit, currently 5.9 percent of GDP.

The new Finance Minister, P. Chidambaram, understands the problem. According to a Reuters report, he is working up a plan with the Reserve Bank of India that would amount to a policy trade: he unveils fiscal reforms and the central bank eases interest rates. The RBI’s reluctance to move first is easy to understand. India’s inflation rate probably picked up slightly in August from July’s near three-year low as poor summer rains drove up food prices, a Reuters poll showed. That gives the RBI even less room to cut policy rates at its meeting next week.

But with GDP growing at just a 5.5 percent annual rate in the June fiscal quarter, near its slowest rate in three years, the Indian economy needs a kick-start. Chidambaram’s appointment may have bought the government a reprieve from international credit rating agencies, which have threatened to downgrade India to junk status over New Delhi’s policy paralysis. But unless he shows more than just a rhetorical change, they are unlikely to remain at bay for long.

The weak industrial production numbers confirm how anaemic India’s growth has become. Still, while that strengthens the finance minister’s case for fast action, it’s no foregone conclusion that the whole government will actually bite the bullet. The country has a sad history of ignoring warnings of all sorts.

Will this time be different? So far Delhi is making the right noises on the need to reduce fuel subsidies. The weak economy is an opportunity to break the habit of over-promising and under-delivering.

CONTEXT NEWS

- Data released by the Central Statistics Office on September 12 showed July output at factories, mines and utilities was 0.1 percent higher than the previous year. That was slightly lower than a forecast of 0.3 percent growth in a Reuters poll, but an improvement on an annual contraction of 1.8 percent logged in June.

- GDP grew at an annual rate of 5.5 percent in the last quarter, as compared to over 7 percent 12 months ago. Worries about inflation, currently running at 6.9 percent, have led the Reserve Bank of India, the central bank, to resist lowering interest rates, despite the slowdown in growth. The RBI is widely expected not to change its key lending rates when it reviews its monetary policy on Monday.

- Manufacturing, which accounts for the bulk of industrial production and contributes about 15 percent to overall GDP, contracted 0.2 percent in July from a year earlier compared with a contraction of 3.1 percent a month ago. Capital investment in the economy grew 0.7 percent in the second quarter of 2012 from a year earlier. Capital goods output, a key investment indicator, shrank an annual 5 percent in July. It has increased only once in the past 11 months.

- India will have to raise the price of heavily subsidised fuels such as diesel, Oil Minister Jaipal Reddy said on September 11, indicating that hikes could be announced within a week.

(Editing by Edward Hadas and Sarah Bailey)

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)