April 28, 2006

Asia faces jobs crisis that could hit growth

Asia is heading towards an employment crisis that could lead to social breakdown and a rapid collapse in growth rates, the Asian Development Bank has warned.

“The outlines of an Asian employment crisis are already taking shape,” Ifzal Ali, the ADB’s chief economist, said in New Delhi. “Strong economic growth alone will not solve the [region’s] problem.”

The slow pace of job creation even in countries with relatively high growth rates has left 500m unemployed or underemployed in a region with a total labour force of 1.7bn. Another 245m are set to join the labour market over the next decade.

Mr Ali warned that unless economic activity became more inclusive, joblessness in the region would cause social instability, political strife, policymaking paralysis and capital flight.

In India, for example, we could step back from 7-8 per cent growth to 3-4 per cent growth very easily within five to six years if unemployment and underemployment is not addressed,” Mr Ali said at the launch of an ADB study of Asian labour markets.

While the newly industrialised economies of Hong Kong, South Korea and Singapore had succeeded in generating many “good jobs”, demanding high skills and wages, others, especially in south Asia, had failed.

Although the region has made progress in reducing poverty in the past two decades, almost 1.9bn Asians still survive on less than $2 a day, either unable to find work or earning too little when they do, the bank said.

The bank said a “huge global oversupply of labour” resulting from the growing integration of China, India and Russia with the world economy had led to a “race to the bottom” as companies pursued competitiveness with “often ideological zeal”.

“Asia’s success will sooner or later be eclipsed by the pressures of a huge ‘reserve army’ of unemployed and underemployed workers who are constantly driven to seek out employment at substandard wages in order to survive,” Mr Ali warned.

In China, it is getting harder to create jobs. In the 1980s, the ADB study calculates, it took a 3 per cent growth rate in China to induce a 1 per cent increase in employment, compared to the 8 per cent growth rate that was required to achieve the same result the following decade.

Employment growth rates have been especially disappointing in the formal sector, where production is more capital-intensive and workers have defined employment contracts that provide for decent working conditions and greater job security.


Battle lines form over India jobs plan

The private sector is under intense pressure from the government to adopt more progressive recruitment policies towards socially disadvantaged groups: failure could result in caste quotas being imposed by administrative fiat. The outcome of the battle will have important ramifications for all doing business there.

In the first sign of the New Delhi government’s determination to change patterns of corporate recruitment, Arjun Singh, human resources minister, has proposed lifting to just under 49 per cent the proportion of places reserved for these groups at India’s elite publicly funded institutes of higher education, including the famous Indian Institutes of Technology. Such a shift would force corporate recruiters to follow suit or increase costly overseas recruitment.

On Wednesday police used watercannon against medical students protesting over the reservation of a further 27 per cent of places in higher education for so-called “other backward castes”, in addition to the 22.5 per cent already reserved for the “scheduled castes and scheduled tribes” that occupy the lowest rung in India’s social hierarchy.

Companies have been trenchant in their opposition, saying their competitiveness and flexibility would be at risk. Azim Premji, chairman and majority shareholder of Wipro, one of India’s leading information technology groups, has said there would be no way to make the policies work at his meritocratic software company, while Rahul Bajaj, the outspoken chairman of the Bajaj motorcycle empire, has threatened to take the government to court.

“We are aware of the disparities in society,” he says. “But that does not mean we have to bring in people who do not deserve to be brought in.”


April 25, 2006

Back from the Brink: Xerox

Back From the Brink

Mulcahy Leads a Renaissance
At Xerox by Emphasizing
Color, Customers and Costs
April 24, 2006; Page B1

Five years ago, few investors were willing to bet that Xerox Corp. had a future. Overwhelmed by an accounting scandal, a Securities and Exchange Commission investigation, plummeting sales, high costs and a whopping load of debt, the one-time corporate winner had narrowly dodged bankruptcy court. The company had infuriated customers by botching a revision of its billing system. Investors were upset, and employees were fearful as waves of layoffs proceeded.

In May 2000, the company elevated to president Anne Mulcahy, an obscure human-relations head who joined Xerox in 1976 as a saleswoman. Today, Ms. Mulcahy is widely credited with managing one of the most adroit corporate turnarounds since Louis V. Gerstner Jr. rescued International Business Machines Corp.

Ms. Mulcahy took over as chief executive in August 2001. Since then, Xerox has restated $1.4 billion in earnings and settled with the SEC by paying a then-record fine. It has cut employment to 55,000 workers from a peak of 96,000. It cut $10 billion in debt, sold half of its stake in its Fuji Xerox joint venture and replaced both its auditor and its chief financial officer.

The company has increased profit for the past four years by cutting corporate overhead 26%, and research and development 29% since 2000. Xerox has regained its lead in the high end of the copier marketplace by developing a slew of new products, among them its $1 million iGen printers, which have taken an early lead in the new market for color digital presses for commercial printers.

Challenges remain. After tripling from its nadir to about $15 a share, Xerox stock price has been flat for the past two years and remains a small fraction of its 1999 highs. Although investors believe the company is on firm financial footing, expanding sales has proved an elusive goal. Ms. Mulcahy, now 53 years old, is predicting more earnings gains and a slight upturn in sales this year as she foresees new digital products overcoming the continuing decline in Xerox's traditional copiers. The key to her strategy is boosting sales of color printers and copiers: Xerox gets four to five times as much profit when a business prints a page in color than when it prints in black and white.

At a time when other old-time Blue Chip companies from General Motors Corp. to Eastman Kodak Co. face questions about their future, Ms. Mulcahy shared some thoughts on how to survive a near-death experience while preserving the capability to grow. Excerpts:

April 24, 2006

The demographic dividend

The constant argument between Delhi and Mumbai played out ad nauseam on TV channels which is the better city, which has the better fashion week, which is safer for women, which has a superior professional culture, which has a more interesting night life is symptomatic of how most of us still think: small.

Delhi vs. Mumbai is the argument of the defeatist. The real argument should be Mumbai and Delhi vs. Shanghai and Beijing. For any Indian visitor who has been to China’s capital and commercial megapolis, the comparison with India’s two major cities is an embarrassment.

While earnest intellectuals and fashionistas in Delhi and Mumbai compare their respective cities’ lounge bars (but not slums), Beijing and Shanghai have built cities that rival anything you will find in North America, Europe or Japan. The Chinese have done this by thinking big and powering FDI into infrastructure.

While India dithers at allowing FDI into realty, retail and other infrastructure projects, the Chinese have used a large chunk of the $60 billion they receive annually to build superhighways, townships, special economic zones and retail complexes on a scale perhaps only the Ambanis in the private sector in India have even envisaged.

China has a 12-year lead over India. It began economic reforms in 1979 under the visionary Deng Xiao Ping. India's economic reforms began in 1991 under the compulsion of bankruptcy. So can India catch up with China over the next decade or so?

Crunch some hard numbers. China has nearly 100 million Internet users and 450 million cellphone subscribers. India, despite signing up 2.25 million new cellphone subscribers every month, has only 50 million Internet users and 90 million cellphone users. Over the next five years, nearly 40 per cent of all PCs and a significant share of all cellphones sold worldwide will be in India and China. According to data computed by the US-based Computer Industry Almanac Inc., the number of Indians using the Internet is around 50.6 million. India had a meagre 1.40 million Internet users in 1998, which rose to 39.20 million in 2004. This has now shot up to over 50 million. And yet, Internet penetration in India is just 4.5 per cent of our total population. Compare this to China, where the penetration level is 8.5 per cent of the estimated population of 1.31 billion.

Last week, a major new international study predicted that India's demographic dividend will allow its economy to grow at 7-8 per cent a year till 2025 even as growth in ageing China slows. In the coming two decades, India, already a young country, will get demographically still younger with 700 million of its 1.20 billion people in 2025 under 35. India will also have the lowest percentage of elderly people compared with Europe, North America and Japan. Ironically, despite this, the political leadership in the West and Japan is getting younger. The current opposition leader in Britain, David Cameron, is 39 while India's leader of the opposition, LK Advani, is 79. Across ageing Europe, the US and Japan, those in charge are in their 40s and 50s. At 60, most active political careers are deemed over. In India, the current average age of the prime minister and the president is over 75.

Wisdom is a virtue of age but energy, freshness of ideas, enthusiasm for change and the ability to absorb new technology are not. Old, wise men guiding a thriving, young India into the second quarter of the 21st century while the West and Japan have ever-younger leaderships grappling with their ageing, unproductive populations is a global irony and not a pleasant prospect.

The stray Rahul Gandhi, Sachin Pilot, Jay Panda, Akhilesh Yadav, Jyotiraditya Scindia and Milind Deora will not solve the problem. These young men have not been thrown up by a dynamic, meritocratic political system that rewards young people but by sycophancy of the surname.

The key thus is political reform so that the culture of feudalism that remains embedded in our politics is gradually weaned away to be replaced by a technocratic meritocracy. In short, good governance. Then imagine: a demographically virile India led by a young, talented political leadership. The result: the world's second largest economy and the world's largest, most dynamic, multi-cultural nation. In 2006, that might appear fantasy. Twenty years from now, if we get our governance right, it will be reality.


April 22, 2006

What job reservations in corporates really mean

The Ultimate Privatisation
Coming on the heels of Arjun Singh’s proposal to impose reservations in educational institutions, Manmohan Singh’s veiled caveat to the Confederation of Indian Industry that if the private sector doesn’t accept caste-based job reservations it might have them thrust down its throat by executive fiat, is sending seismic shocks through the Indian polity. With talk of Parliament using the Ninth Schedule of the Constitution to make private sector reservations non-justiciable, the debate has intensified.
In the clamour of ‘merit’ versus ‘affirmative action’, a fundamental aspect of the issue has been ignored: What are — or ought to be — the core competencies of the private sector and of government, respectively? The core competence of a purely commercial private enterprise (as distinct, say, from a school or hospital or other public service institution) is the making of legitimate profit, with the emphasis on the word ‘legitimate’. If it cheats — by fudging its accounts, or manipulating its stock, or selling sub-standard goods, or despoiling the environment — it should be brought to book by the government. For that is — or ought to be — the core competence of the government, to govern justly and fairly and protect the interests of citizens against fraudulent practice and exploitation.
Today, some would say that the apparent determination of the government to force the private sector to become a vehicle for supposed social justice is itself tantamount to fraudulent practice and exploitation. The delivery of social justice is the proper job of the government, which many would say it has singularly failed at. When Dalit women are raped for the crime of drawing water from a well reserved for upper-caste use; when over 160 districts spread over several states are in the grip of armed insurgency; when hunger stalks the tribals of Maharashtra and other parts of the country, sarkari social justice remains a cruel mirage.
So what does the government do? With adroit sleight of hand it passes the buck on to the private sector. You make profits from society, don’t you? So you must have social responsibility as well — quite apart and on top of the social responsibility of paying corporate taxes, which the government supposedly spends on providing citizens with basic civic amenities, including the basic amenity of social justice.
Now, private enterprise is expected to shoulder the public responsibility — or in other words, what legitimately ought to be the government’s responsibility — of delivering social justice as well. And by doing so it presumably leaves the government free to do its own thing, concentrate on its own core competence. And what is that? Well, by its own tacit admission by asking the private sector to do it, it hasn’t been the delivery of social justice. Or of other items of basic infrastructure such as education, health, law and order, electricity, water, roads. Regrettably true. But then, the government’s been pretty busy doing all sorts of other things. Such as running airlines and hotels, and trying to ban dance bars and smoking in public places, including the public place of the cinema screen.
Unilaterally assigning public responsibility and the task of furthering the ends of social justice to the private sector (which has already at least partly been made to take over such ostensible public sector services like mail delivery, through courier agencies, and the protection of property, through private security guards) becomes all the more questionable if one broadens the definition of private enterprise to include not just corporates but individuals as well. Should professionals — such as doctors and lawyers, for instance — be obliged to propagate social justice by taking on a fixed quota of patients or clients who belong to societally underprivileged segments? What about individuals who represent private enterprise in other fields, such as film-makers, or actors, or writers, or academics, or journalists?
Should they also have ‘social justice’ quotas assigned to them in the pursuit of their endeavours? Making individuals conform to the dictates of a government-determined social justice recalls Indira Gandhi’s pre-Emergency attempt to create a ‘committed’ judiciary, a ‘committed’ bureaucracy and a ‘committed’ media. This is thinly disguised totalitarianism, a back-door nationalisation of the private sphere, including that most personal of spaces which we call individual conscience and the freedom to choose as to how we exercise it.
Affirmative action, in the name of social justice or social ‘commitment’, becomes its opposite when it is at the expense of individuals’ rights legitimately to pursue their core competence, be it to set up a competitive and economically viable business enterprise, select a sports team, write a book, make a film, paint a picture, teach in a classroom, conduct research, publicly express an opinion, or engage in any of myriad activities whose free interaction constitutes an open society. There is, of course, another way of looking at it. If social justice is put into private custody, it would mean the ultimate ‘privatisation’ of the public sector.
When an outcry by thousands of private citizens causes the reopening of the Jessica Lal case, or when individuals like Medha Patkar, Arundhati Roy and Aamir Khan help us all to remember the displaced villagers the government seems to have forgotten, public and private roles are switched the other way round. Perhaps what we are witnessing is not the ‘nationalisation’ of private conscience but the necessary ‘privatisation’ of a dysfunctional national conscience.

Power situation in Karnataka is Not Good

Power plays hide & seek

Six-hour shutdowns in rural Karnataka, two to four hours in urban areas. The situation is hot as the state struggles with another crippling summer. Team TOI does a reality check.
The home district of former power minister H D Revanna; the region represented by JD(S) supremo H D Deve Gowda in Parliament; the district of which chief minister H D Kumaraswamy is himself in charge. Yet, the power situation is worse than it was last year. Urban areas have six hours of shutdown, rural areas 12 hours. Result: “We spend about Rs 180 daily on fuel for diesel generators,’’ said merchant Nagaraj. Progressive farmer Ramaswamy said: “2005 was the worst year we have seen so far. Revanna announced projects worth thousands of crores, but the power situation has not improved.’’
Urban supply is good, but rural areas have 12 hours of no power. Farmers have begun to have a lifestyle similar to Bangalore’s BPO workers: they stay up nights, which is when power is supplied to irrigation pumpsets. Industry labour is also upset. A worker Sachin said: “When summer comes, our wages dip, as we take forced holidays during power shutdowns.’’ Still, the people feel the fault is not entirely the government’s. “Power saved is power produced. People should not use electrical appliances other than essential fans or coolers,’’ said flower merchant Sanjay Walwalkar.
Three to four hour power cuts, interruptions every half hour in the city; supply only for six hours in rural areas.
Talur villager Range Gowda said: “My children have not even seen glowing bulbs as power and goes early comes late night morning.’’
Degree student Jayanthi’s situation is the worst: She cannot study in the night as supply is uncertain, while scorching heat and no fans rule study out during the day.
The present summer seems to be worse than the last. There are intermittent power cuts which last for an hour or two. Those who do not have invertors/ generators at homes or offices have no option but to sweat it out in the sweltering heat and humidity. The power cut is more acute in villages. Kolthige village of Puttur taluk does not get any power between 12 noon and 6 pm.
Sadashiva from Shakthi Nagar said: “I do not have any hope from the present government as only good monsoons can help the state.’’
Both Mysore urban and rural are facing the same situation: Load shedding. Two hours in the city, six hours in the rural areas. School headmistress Dakshayani is not willing to listen to any official excuses: “It is their headache. If they cannot provide power uninterrupted, let them at least not resort to unscheduled load shedding. Private college lecturer S Raviprasad is more astringent: “The government should be proactive and concentrate on creating infrastructure.’’
With shortage of power supply from RTPS, the sun-city of Gulbarga is looking hopelessly at the still fans in all rooms amidst burning hot days. It is still the start of summer and the mercury level at Gulbarga reads 42 deg C!
Officially, there is an hour’s load shedding each in the morning and evening in Gulbarga. The rural areas have six-hour shutdowns. Result: Government servants choose to sleep in the offices itself, as they have generators.
With the heat wave getting stronger, power shortage is getting acute with each passing day in the twin cities and elsewhere in the district. Residents are suffering nightmares. Urban has about four-hour cuts, rural areas about eighthours. “Hubli has been boasting about being the second city in state with underground power distribution system. But the people find no benefit,’’ rued S R Hiremath of Deshpandenagar.
The power position in Bagalkot town is far better than last year’s, though there are about three-hour cuts. But rural areas are worsening by day. “We don’t mind scheduled power cuts for 2-3 hours during the day. But power playing truant at any time will annoy anyone,’’ said Bharath Mudhol of Bagalkot Abhivruddhi Vedike.
Bidar is cooler than Gulbarga at 39 deg C. Citizens are also luckier: no urban load shedding so far, though rural areas are struggling with six hours. But the summer, as a resident said, has just begun. No one is optimistic about good times ahead.
No power cut in the city, but the rural areas get about eight to nine hours of supply. Maheshwarappa, progressive farmer in Honnali taluk said: “Compared to last year, the situation is much better.’’

April 21, 2006

Highways to prosperity

By HUGH & COLLEEN GANTZER (Times of India, Editorial, Fri, April 21, 2006)
It’s happened at last. Speaking in Panipat recently, the prime minister said that his government was investing a mammoth Rs 1,80,000 crore for building highways and road networks as part of its efforts to develop worldclass infrastructure. We have, for too long, accepted inferior roads as an inevitable consequence of our democratic federal structure.
We can learn some lessons from Malaysia. Their federated states are even more independent than ours because some of them are kingdoms under their own sultans. As for our roadbuilders’ perennial excuse that we have to accept inferior roads because we live in a monsoon land, Malaysia has to contend with soft and soggy soil of rainforests that cover much of their water-blessed country. And yet, Malaysia has the most efficiently user-friendly network of roads we have experienced anywhere.
On a road journey of an estimated 1,000 km, we drove north from the impressive new capital of Putrajaya through Kuala Lumpur and up the west coast to Kangar where we caught a ferry to the island of Langkawi. Not once during our long tour did we bump over any patchwork repair of the sort we frequently encounter even on our national highways: mud-roadside-stones-and-a-dollop-of-tar!
Malaysia’s North-South Expressway, in particular, was superb. This is a toll highway with toll plazas spanning the road just after, and before, every turn-off onto non-toll roads. Vehicles are divided into three classes depending on the number of wheels and axles they carry. The heavier the use the more the toll except that taxis and buses fall into their own categories and seem to have been given a frequent user’s concession! This has been done, apparently, to encourage tourism. At the side of the expressway, beside every toll plaza was an expressway office and a police station. Thus, the whole system seems to be as transparent and corruption-proof as possible.
Clearly, the expressways are significant income generators. Equally obviously, this money is being spent on the expressways and their facilities. Highway service staff, in orange uniforms, trim and till flowering hedges, refresh the paint on railings, and a man with a motorcycle sweeps wind-blown leaves off the expressway. Every two kilometres, on either side of the road, are free emergency telephones connected to the nearest regional communication centre. All you have do is to pull down the switch, let it go, wait for the staff to answer, and then speak into the microphone. There is a free, 24-hour emergency service dealing with accidents, traffic management and towing to the nearest toll plaza.
Fifteen to 30 km apart are lay-bys, located off the expressway. Here there are parking areas, public telephones, clean toilets and temporary snack stalls. Every 60 km or so are rest and recreation complexes with extensive parking areas, service stations, shelters, squeaky-clean washrooms with showers and toilets, food courts, shops, and stalls offering an attractive range of fresh and unusual fruit. Local traders, farmers and craftsmen, who sell their products here, once trespassed on the verges of the Expressway. When they refused to back off, the police started prosecuting all drivers who stopped to shop at these unauthorised stalls. That solved the problem of encroachment. All highway facilities are well sign-posted and colour-coded: Expressways have green signage, federal and district roads have blue and white ones, chocolate or orange and white identify places of tourist interest, yellow and red are highway warning signs. All signs are large and eye-catching, and the more important ones are duplicated so if you miss the first one, the second will remind you. And just to make life easier for Commonwealth visitors, a driving licence issued by any Commonwealth country is valid in Malaysia.
We gathered that most, if not all, expressways in Malaysia were constructed on BOT contracts with Malaysian, Korean and Japanese companies. Such privatisation is not a subject of rent-acrowd agitations or political obstructions that disrupt the free flow of traffic, because Malaysians believe that parliament is the right forum for such protests.
The authors are travel writers.

China India infrastructure comparison

This passage below is taken from the India Today magazine where Essar Shipping's Shashi Ruia gave a speech. Pay close attention to the infrastructure figures cited.
Issues & Solutions

Shashi Ruia,
Essar Shipping

Good Morning ladies and gentlemen.
When Prabhu asked me to speak on issues and solutions on infrastructure, my thoughts went back to 1969 when I first started and that was the start of our group, Essar Group. Building break-water in the Madras Port and how that small act determined that core competence and in many ways our destiny to be a core and infrastructure company. Today standing before you I feel that if our country had put infrastructure development as its major priority then you would not be comparing our selves with China at every major economic discussion and meet. I am going to say a few words to set the tone for today’s deliberations. And I am sure that the eminent panel of speakers from government and industry will provide you with interesting and insightful views on the issues that confront us in this vital sector. In his budget speech on February 28 last year Finance Minister, Chidambaram said the most glaring deficit in India is the infrastructure deficit. He said the government will spend 150 billion dollars over the next five years to develop world class infrastructure covering power, telecommunications, airports, sea ports and roads, that was last year. What has happened since then and one more budget later it is both reassuring and disappointing but before I come to that let me take you through what must be one of the most offered projected slides on the Indian economy. India shining aptly describes………………… but I remember in the 90s reference is being made to the roaring tiger that would be India I mean just prowling or going to be roar one day and when will that day be, and when will that year come. Let me take you through some reality checks. At current GDP growth rates we cannot get close to the GDP of the US or China in 40 years. And how did they do it in the 50s Eisenhower first build the infrastructure, ports, rail, roads, highways, airports, communications and growth followed. And China’s success clearly shows that 40 years later the premise is still valid. In the US and China growth followed infrastructure, while in India infrastructure is chasing growth, making even the current growth difficult to sustain. Infrastructure should grow at at-least 15 per cent if you want to achieve 10 per cent GDP growth over the next five years. If that happen if there is sufficient public private sector partnership and sufficient foreign investment we should see that be. Let us look at the ground reality in the few sectors. India today faces a peak power shortage of 12 per cent. Government of India estimates that over 6 lakh crore of investment would be needed in the next ten years to build an additional capacity of 100 thousand MW. Company in India lose 10 per cent of the capacity utilization due to power cuts and over 60 per cent of the companies have diesel generating sets as a supplement. There is a huge imperative to get this sector on the right tact. Taking from our Chinese friend, when she said earlier, we have to think big in the sector they have the three gorgeous project generating or will generate 25,000 MW in one site. We have to learn a lesson from them because we can also have our own Teesta which has the capacity or capability to generate 18,000 MW in one site instead this project needs commitment from both the people and the government. Nehruji gave us the Bhakra Nangal, we hope that Manmohan Singhji will give us a Teesta. Take railways, in 55 years since independence the total kilometers of Indian railways has increased from 53,000 to 63,000. Road network increased by 600,000 kilometers in 15 years since 91 while the total rail route increased by a mere 1100 kilometers, China’s freight traffic 1700 billion tone kilometers in 2005 while India’s 381 billion. Most of the statistics between India and China and I know this from my steel background is a combination of 1:3 or 1:5. Their production and consumption are in some ways always three times larger or five times larger than us. So if we need to catch up with China we have some statistics which are readily available on where or how do we need to get there. Take ports, 95 per cent of international trade by volume if carried by sea transport, in India with the coast line of 7500 kilometers we have only 12 major ports which handle 75 per cent of port traffics. Not only do we need more ports, that is obvious we need much better rail and road connectivity. We also need to enhance cargo handling capability of our ports. Only 15 per cent of the India’s traffic is container-end and the capability to manage even this is very limited. In 2004 the total cargo at Indian ports was 395 billion tones and that is expected to double by 2009. there is a definite case here for rapid privatization and modernization and a word of caution in the process of privatization and modernization there should not be institutions like the Maritime Boards of each State getting into the act because our own experience in Gujarat with the local Maritime Boards has been to say the least, we have saddled with charges for barges that don’t exist. If they are being termed or they have been made out to be revenue and tax earners when they should have been provided service and earnings. So there has to be a distinction between the role of the Maritime Boards of each state and the requirement of collecting these taxes. Infrastructure lags terribly behind demand privatization of two airports in Mumbai and Delhi with much fanfare and heart burn is not sufficient we need 50 more with both domestic and international traffic growing rapidly. With domestic air traffic growing at 34 per cent annually and increase in business and tourist visitors we need to address this issue with urgency. The telecom story is the real success story. We have a little part in it because we are in collaboration with Hutch, we hold 33 per cent of the company and were among the first to launch services in the telecom sectors way back in 1995. India is a world’s fastest growing mobile communication in the market and today the hello does not require a lightening call to be booked through what was referred to as the telephone department. It is also heartening to note that the Indian consumer enjoys the lowest tariff in the world today. Tele-density has improved from 3.6 in 2002 to 11. 33 in December 2005 and the explosion never seem to stop. We at Hutch are adding one million customers a month if there is a lesson in it for the other sectors, I think there is a lesson to be learnt from the telecom the boom in the telecom and that is unless we create value we cannot attract investment. The business has to be able to enhance value to attract both attention and investment. The other story waiting to be told to us is the one of roads and highways the conversion from ‘Yojana to a Haqiqat’ is fast and commendable. National Highway Authority has done an outstanding job linking the golden quadrilateral and started the North and South and East-West highways. Only support required is legislation or ordinance to acquire land for faster implementation. I think there should be an act of Parliament where there is a public commitment than the peoples’ commitment to have better highways that will even drive the process faster. The concept of the SEZ to exploit the country’s potential as a brain power as well as manufacturing super hub for power has to be implemented with greater vigour and single mindedness. This is one of the terrific vehicles to promote domestic as well as foreign investment. While the intent is there hopefully action on the ground is slightly slow and uncompromising. I believe that the state governments have to buy, they deserve a buy into the concept and actively participate instead of looking at the loss of revenue, the loss of taxes which is totally on the basis of the investment that have not yet arrived it is a theory and there was an article this morning criticizing the SEZ and the government would lose 90,000 crore because the SEZ will come. But this is an opportunity loss. It is not real loss. If you don’t have the SEZ and you don’t have the investment there is not loss of tax. So we have to figure out what our priorities are. The compulsion of coalition politics that make different parties pull in different directions on the reform agenda are a dampener on the overall reform programmes. Reform knows only one face, the face of progress that delivers a better standard of living to all of us. The earlier presentation by our Chinese guest, she kept emphasizing that the entire growth of Shanghai was people driven. People are the centre and the core of all development. We should not have a situation where tail wags the dog in course in the government. But all is not pessimistic, we will succeed despite ourselves is what one said to me the other day on the flight.

15 years back Manmohan Singhji began a process that freed the economy in more ways than one. He free the economic growth from government and politicians and if today all of us agree to one thing it is that will continue to grow whichever government comes to power that is the most significant and fundamental truth.

The private sector has to play an even more important role and the government has to provide greatest stimulus.

Let me sum up by suggesting five key actions, on the infrastructure front that will help accelerate our growth to double digits, funding of infrastructure projects at low interest rates, taking the SEZ act to the next logical step by providing support to the development of green field sites quickly and economically, power sector reforms to be further accelerated, market determine pricing of utilities put in place, private sector and foreign direct investments need to be further increased.

It is easy for industry to right prescriptions for the well being of the patient but I know how difficult it is for the government to balance pressures on the economic and political front. As you know I have spent a majority of my earlier years working in the government offices and mind you not as an employee, on behalf of industry. I can reiterate our commitment to compress 15 years to 5 we can build it if we can make our own way.

Thank you.


April 19, 2006

Return of FERA

The PMLA revives many of its draconian provisions
WHY does government want to resurrect follies that held us back in the past, just when Indians were beginning to think the licence-permit raj might be over? It is activating a legislation that is reminiscent of the draconian Foreign Exchange Regulation Act (FERA), even though that was supposed to have been phased out by the Foreign Exchange Management Act (FEMA) in 1999 because FERA was seen as incompatible with liberalisation. The Prevention of Money Laundering Act (PMLA) revives many of FERA’s provisions, at a time when Indian investors are being exposed to foreign markets and the merits of full currency convertibility are being debated. PMLA, like FERA, reverses the principles of liberal jurisprudence. If the Enforcement Directorate (ED) should accuse someone of economic crimes like money laundering, he will be presumed guilty unless he can prove himself innocent. Penal provisions, including imprisonment, are as severe as those under FERA. Moreover an ED officer of the rank of special director will have almost the same adjudicating powers as a civil court. The Act is meant to cut off terrorists’ and druglords’ access to funds, yet is worded to facilitate indiscriminate use against people who should be presumed innocent.
When financial flows are freed up it is likely that some of them should find their way into the wrong hands. The solution is international cooperation, involvement of experts, better enforcement and technologically facilitated monitoring. Legal provisions that require banks to disclose suspicious transactions are par for the course. But the PMLA sets up the ED as prosecutor and judge, while passing the burden of proof on to the defendant. This gives a government agency catch-all powers which can easily be misused to harass legitimate businesses or political opponents. The PMLA may have been formulated to shore up government revenues by making it easy to catch tax and duty evaders, but if the net effect is to chill business sentiment and curb financial flows, then revenues won’t benefit either. While we accept the rules of liberal politics — that people opposed to a ruling government should be allowed to have their say as well — liberal economic principles, which assert that business serves social interests and government should not treat it as subversive activity unless proven to be so, seem much harder to grasp. The latter may be the reason why the PMLA passed muster with legislators, but it will begin to militate against the former if used to target political enemies.

April 18, 2006

Quota Obsession: Vote Bank Politics

The Union government’s new-found policy of quotas in professional institutions smacks of vote-gathering populism, claims to fulfil social equality and threatens caste tensions in the name of justice. No one can doubt the importance of social equality to Indian governance. Affirmative action is a constitutionally ordained part of Indian governance. The equality of the Constitution has little value if it cannot (a) prevent discrimination and (b) help the disadvantaged through affirmative action. The two key areas of equal opportunity in India relate to education and public employment. In both areas, populism has taken over.
Affirmative action was in the original Constitution of 1950 and affirmed for education by the first amendment of 1951. But affirmative action does not consist of quotas alone. It consists of a whole range of supportive activities at primary and other levels, extra help, scholarships and social benefits. No doubt quotas are a part of affirmative action. In 1963, the Supreme Court in Balaji’s case fixed a limit of 50 per cent for education, which was adopted by the Mandal case (1992) for public employment. But, even though a 50 per cent quota is permitted, we should remember that quotas are not mandatory and that 50 per cent is a maximal limit. It is not necessary to compulsively move towards 50 per cent, still less so as a political gimmick without sufficient reflection.
Just as the American Constitution is not race blind, India’s Constitution is not caste blind. That controversy is over. The Supreme Court rightly decided that caste could be a consideration for defining backwardness. To the extent that this might entail some tension between the ‘forward’ and ‘backward’ castes or groups, India’s polity will simply have to grin and bear it. Indeed, in the Mandal riots of 1990-92, the tension became unjustifiably volatile and hostile. But there is a lesson to be learnt from it.
Faced with the worst form of endemic racism, the American supreme court in the Michigan cases (2003) has virtually ended quotas but affirmed other narrowly tailored affirmative action. The Indian debate has gone in the reverse direction. All other forms of affirmative action have been marginalised. Those policies are in disarray. Corruption haunts other forms of affirmative action expenditure. There is an obsession with quotas.
India is committed to some system of quotas in both education and public employment. The question is for whom, how and to what extent. Firstly, where seats are limited, the ‘for whom’ question remains important. If a preference is called for, the primary beneficiaries have to be SC and ST over the other backward classes (OBCs) even though both form large vote banks. Indeed, Justice Krishna Iyer rightly spoke of a super-classification amongst the backward classes — enabling preference for SC and ST as preferred beneficiaries. So far, in relation to IITs, IIMs and other government institutions, the Centre followed this super-classification by restricting quotas to SCs and STs. Its decision to extend quota benefits to OBCs is pure and simple politics. OBCs should be allowed benefits other than quotas.
Secondly, the ‘how’ question remains important. Apart from supportive programmes other than quotas, there is a tendency to lower eligibility standards for quota candidates. In Preeti’s case (1999), the Supreme Court noted how quota candidates were sought to be permitted in one state even if they got zero in eligibility tests! Quota-based affirmative action combines efficiency with justice only if the two competing candidates are more or less equal. In such a case, preference is given to the quota candidates without compromising standards or competence. The possible combination of quota and incompetent eligibility is lethal.
Thirdly, the 50 per cent limit cannot be stretched to its outer limits. Within the outer limits are also preferences for residence, institutions, political sufferers, disabled and others. The 50 per cent limit is already overcrowded. Quotas are an annual affair. They are as much an opportunity for merit as for quota candidates. The idea of reservations is to advance the disadvantaged. It is not to punish merit candidates — many of whom could be equally poor. One girl from Bangalore ruefully described future admissions as a race in which the quota candidates are already at the winning post. Fifty per cent is too high and too inegalitarian. Even if OBCs are within quotas, the overall reservation should not be more than 20 per cent. But is the government prepared to scale down SC and ST quotas to benefit the OBCs? At present, there is no discerning policy. There is only a general vote-gathering largesse showing little application of mind.
Fourthly, there is the question of the creamy layer of all groups who sponge the quota. The creamy layer should be excluded for both SCs and STs as well as OBCs. Finally, there are financial fees adjustments to be made if 50 per cent of all admissions cannot pay normal fees to meet even the annual revenue expenditure. This is a matter of concern that cannot be ignored.
So far, Arjun Singh has limited himself to government institutions. The 93rd Amendment (2005) will also include quotas in private institutions. This is a practice run for serious problems that loom ahead.
The writer is a senior Supreme Court advocate.

April 14, 2006

rajkumar: may he rest in violence

Mobs hold city to ransom
Bangalore: Distraught mourners virtually took control of the city on Thursday, indulging in arson and fighting pitched battles with an outnumbered police force. The violence left five dead and over 200 persons, including 100 policemen, injured.
According to police commissioner Ajai Kumar Singh, among the dead four are civilians and one is a policeman. Of four civilians, three died in firing near Kanteerava Studio where Rajkumar was laid to rest. Among the injured civilians, condition of eight is critical.
The situation went out of control in the morning as crowds gave vent to their fury along the procession route —from Kanteerava Indoor Stadium to Kanteerava Studio. They burnt hotels, petrol bunks, buses, civilian vehicles, police jeeps and cars; pelted stones at policemen, stations, hospitals, glass facade buildings and media OB vans. Over 100 vehicles, including 20 of the police, were burnt.
People climbed atop police vehicles as a convoy of vehicles made its way to the burial site. The surging crowds were so uncontrollable that chief minister H D Kumaraswamy had to return without attending the burial. He was stopped near Mahalakshmi Layout Anjaneya Temple by the police and advised not to proceed to the studio.
Deputy CM B S Yediyurappa’s car was attacked near the studio when he went there to pay homage. The crowds did not spare the police too: they attacked the office of Deputy Commissioner of Police (North) and a police station near Yeshwantpur Circle. A DCP’s car was torched at the Circle. Several people, including policemen, sustained injuries in the melee. Earlier, the crowds went berserk near the Kanteerava Stadium where Rajkumar’s body was kept for public homage. The police lobbed teargas shells and fired rubber bullets. The police ran out of teargas shells on a couple of occasions. Over 3,000 shells were fired, a senior police officer said. A group of anti-social elements attacked a police van and set fire to it near Siddalingaiah Circle near the stadium and assaulted the policemen. When a mob almost killed a Karnataka State Reserve Police constable near the Circle, police lobbed teargas when a civilain Muniraju (43) died. The constable, identified as Manjunath Malladi (28), died in hospital.
Bangalore: Condemning the acts of vandalism on Thursday, Akhila Karnataka Rajkumar Abhimanigala Sangha president Sa Ra Govindu put the blame entirely on anti-social elements. Govindu told The Times of India: “Such incidents should not have happened. This is not the way to send Rajkumar on his last journey. I am very unhappy that some antisocial elements have done such things to mar our name.’’ Govindu also said there was no bandh call for Friday. “We did give such a call on Thursday, but there will be no bandh on Friday,’’ he said.
A little planning would have helped matters
By K R Sreenivas/TNN
Bangalore: The arson and violence in Bangalore since Wednesday afternoon was unprecedented in recent times, with the police appearing ill-equipped. While the unanticipated surge of crowds may have worsened matters, lack of planning was also evident. As the crowds went on the rampage, the police appeared hopelessly helpless. Says noted litterateur and playwright Girish Karnad: “When someone is alive we consider that it is not ‘shuba’ to talk about death. So we are never prepared for it. The moment the news came that Rajkumar was dead, the authorities would have known trouble was waiting to break out. Someone should have sat with the family and made a plan. In the West, they keep the body for three or four days for people to pay their respects. This allows the authorities time to plan for the funeral procession. Here, there was no preparation. It is not so much a criticism of the authorities as a comment on our culture.’’
Retired DGP S N S Murthy says: “Surely, what happened today was not the way to pay tribute to the legend. There must be a more civilised way... There must have been some lacunae in the arrangements. Police must have been outnumbered.The officers on the spot are the best judges.”
So what kept them from taking stringent action, asks another senior retired police officer. Is the Karnataka police so slack that it cannot control such crowds, he asked, in the light of the fact that it was not just residents who were terrorised, but even policemen.
Sources said CRPF personnel wanted a free hand in dealing with the crowds, but were denied permission. A senior officer said their brief was to maintain restraint till the funeral was over.
Even when Rajkumar was alive, things went out of control at a felicitation held last year. When the then CM Dharam Singh arrived, the mob went wild and threw chappals at him, pointed out Karnad. “It brings out other frustrations in people. The Bengaluru rebels are frustrated, perhaps, that the glory of Bangalore does not percolate down to them. If someone cries for some reason, it is not the real reason. It is political unrest.”
Bangalore: Hysterical violence leaving blood on the streets, vehicles burning, and a virtual bandh... Bangalore was brought to a grinding halt on Thursday as it bade farewell to Rajkumar.
What did Bangalore do? Virtually nothing. No petrol or diesel was available, no drivers or cab owners were willing to risk stepping out, banks remained closed and offices, schools and colleges had a holiday, ATMs remained shut, hotels, restaurants, petty chai kadais were all padlocked. Frenzied crowds had taken over the streets.
Every street corner had photos of Natasaarvabhouma Rajkumar with people garlanding it, lighting lamps, burning incense sticks. Almost all cars in the city sported a picture of Rajkumar.
The worst came when the cortege travelled from Kanteerava Stadium to the Kanteerava Studio. The 15-km route was marked with violence.
At the stadium earlier, police were forced to lob teargas shells and lathicharge every five minutes to disperse the fans who rushed to reach star’s body. Eldest son Shivaraj Kumar appealed to the fans: “My father used to call you all as his abhimani devargalu (fans are gods). Devargalu (gods) symbolise peace, I request you to remain calm and allow our father to sleep in peace.’’
That didn’t deter them from rushing towards the body. Shivaraj’s younger brother Raghavendra too made an appeal, but in vain. The police swung into action again around 11 am. Some people collapsed while others ran all over the stadium to escape the lathi.
The VIPs who reached the stadium to pay tributes to Annavru had a tough time. Veteran actress B Saroja Devi appealed to the fans: “We have worked with him, please allow us to see him for two minutes.’’ As all hell broke loose, many wondered: “Why aren’t the police better prepared having seen the kind of violence when the actor was kidnapped by Veerappan?’’

You people are not fans: CM
Chief Minister H D Kumaraswamy went on air appealing to people to maintain calm if they really loved the superstar. “People who are going against all that Rajkumar stood for cannot be called fans. If they continue behaving badly, the government will be forced to take stringent action. Don’t let such a thing happen in the wake of our Annavru (as Rajkumar is fondly called) passing away.’’
Battles rage on the roads
By Rakesh Prakash/TNN
Bangalore: “When the police are not allowing us to see Rajkumar for the last time, why should we spare them?’’ — so asked a 10-yearold outside the Kanteerava Studio. Picking up a stone, he then flung it at a fire tender and made good his escape in the bylanes of Yeshwantpur industrial suburb. His fury reflected the mood outside the studio. If the police lobbed teargas shells and opened fire, the crowd —which outnumbered the cops — found their missiles in stones, empty soft drink bottles, gas cylinders and oil cans. After pitched battles, the casualties: three among the crowd dead, nearly a hundred policemen injured.
Three hours before the funeral rites began, the area around Kanteerava Studio turned strife-zone. Trouble began around 2 pm when the police began to chase away fans gathered at the Studio, where Rajkumar’s wife Parvathamma and other film personalities were awaiting the star’s body. Agitated, the fans gathered at the Netaji Subash Chandra Bose Circle at Nandini Layout Cross on the ring road.
What started as slogan-shouting against the police took a violent turn when the police tried to disperse them. The mob started playing hide-n-strike — setting ablaze police vehicles and retreating into bylanes. In a matter of minutes, the crowds set fire to five fourwheelers and three two-wheelers. Then the expected — they set fire to an entire petrol bunk, complete with a tanker and dispensers. A fire tender and two trucks that were parked at the bunk were also set on fire and the office ransacked. Two constables and fire service personnel who tried to reach the spot were caught in a cross-fire of stones.
Later, the crowd surged towards the studio, raining stones on the police. Two police jeeps and three two-wheelers were set on fire right in front of the studio gate. At this point, the police opened fire, killing one.
With the news of the death spreading like wildfire, the crowd turned more violent. They removed empty bottles from three stationary trucks belonging to a soft drink company and threw them at the cops. Simultaneously, others set fire to a petty shop. A gas cylinder inside blew up like a bomb and touched a high-tension electric pole, setting off sparks.
“We had just moved away from that petty shop when the cylinder exploded. Otherwise, at least five of us would have got killed,’’ city armed reserve constable Venkatesh said. With such lawlessness, the firing became continuous outside the stadium.
At this point, deputy CM B S Yediyurappa arrived at the venue, against police advice. The mob began stoning his vehicle and he was injured. The police opened fire, killing two.
Tension escalated when Rajkumar’s body arrived in the police van. The mob attacked the RAF personnel following the van with bottles and stones. Though they managed to keep a huge surge at bay, fans cut open the Studio fence and poured inside. There, the police left it to the family members and there seemed to be no end to the chaos. Silence came to the venue only hours after the funeral rites were completed and several persons were rounded up by the police.
Parvathamma said: “I was unable to participate in my husband’s funeral because of hysterical fans.’’
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Singletons miss daily bread
Bangalore: With malls, restaurants, grocery stores and even the nearest juice centre shut down, singletons in Bangalore were stuck in their houses wondering where to get their meals from.
“I am feeling so helpless. I did not know where to go out for breakfast or lunch. We rely mostly on food from restaurants since we don’t have cooking arrangements in our flat,” says Prateek Chowdhary, a 24-year-old bachelor who stays in BTM II Stage along with three friends.
“Some shops in my locality were half open for a while in the afternoon. I was to get a packet of milk and bread as the limited stock got over within minutes,’’ adds Alok Ranjan, another young bachelor.
Kavitha Stephen, a HR consultant staying as paying guest in Banashankari, had to make do with only ready-to-eat noodles and bread since Wednesday afternoon. “Most of the time, I end up eating in the office canteen and a mess in my neighbourhood. I am living on noodles and some old bread for the past two days. Another day of ‘bandh’, and even this will get over,’’ she rues.
Very few have been thoughtful and smart as Manoj Reshamia, a BPO employee who managed to pick up a few fast foods items from the grocery shop in his office at the last minute on Wednesday night. “I have asked two friends to join me for dinner as they too are stuck with nothing to eat at their place.’’
Cable TV blackout
Rajkumar was the staple on TV as the only channels on air were news and Kannada channels. Said a cable operator, “I heard that other operators have been receiving threat calls not to relay entertainment channels.’’ Since all avenues of entertainment — malls, multiplexes and theatres — were shut, Bangaloreans fell back on TV. “I’ve been receiving calls from a lot of people asking me why they’re not able to tune into other channels, but Rajkumar fans would take it as a mark of disrespect if any other channel were to be relayed. Hopefully things will be back to normal tomorrow,’’ said another operator in Koramangala. But there were others who stuck to the news channels out of choice. “I don’t think I’d have watched MTV or any other channel anyway. I’m concerned about what’s happening in my city — there’s so much violence and destruction,’’ said Pooja Shah, an advertising professional.
Rs 50-crore claims
Vehicles and offices in the city were targets of public ire on Thursday. Insurance claims are expected to exceed Rs 50 crore in the coming week. Vehicles and property covered under comprehensive package are eligible to claim insurance against damages. However, no claims can be made till Monday.

April 13, 2006

Ex-generals Show Some Spine

Three retired generals have broken cover and silence in recent days and called publicly for President Bush to fire his defense secretary, Donald H. Rumsfeld. Way past time for the officer corps to speak up, I say.

Marine Gen. Anthony Zinni was the four-star commander of U.S. Central Command just before 9/11 and the wars in Afghanistan and Iraq. He has long experience in the Middle East, and President Bush used him as his negotiator in the Israel-Palestinian standoff.

Besides urging the firing of Rumsfeld, Zinni suggested that there was also something wrong with military leaders unwilling to risk their careers by speaking up against disastrous ideas that come down from their civilian bosses.

Currently serving officers have only to recall what befell the Army Chief of Staff, Gen. Eric K. Shinseki, when he first opposed Rumsfeld's plan to cut Army strength by two more divisions, and the Army National Guard by four divisions, in August 2001, and then in February 2003 told a senator at a hearing that he thought it would require "several hundred thousand" American troops to occupy and pacify Iraq successfully.

It was the truth and it came from a standard formula that was not of Shinseki's making. But that estimate ran counter to Rumsfeld's idea, and Shinseki became an "un-person" in the Pentagon. He may have been chief of the Army, but Rumsfeld and others disparaged his estimate as wildly off the mark, and Pentagon officials leaked to the press that the vice chief would be his replacement, even though Shinseki still had 18 months on his tour as chief of staff before he would retire.

Blunt opinion. I like it that way. Bush, Cheney, Rove and the entire cabal needs to be impeached from office. Incompetent to the core.

April 10, 2006

Tianjin Shines in China's North

It is heartening to see such pro-active mayors working hard for their regions. Their counterparts in India are bloody looking after their own welfare. No wonder cities like bombay, delhi, bangalore and pretty much the rest of the country are in such a sorry state.
Mayor's Bank Ties
Help Rust-Belt Port
Gain Foreign Funds
April 10, 2006; Page A6

TIANJIN, China -- This northern port city has long been a sleepy neighbor to Beijing. But Tianjin's leaders, led by former central banker Dai Xianglong, have been shaking things up.

Since he took over as mayor in 2003, Mr. Dai has helped attract multinational companies to the city with favorable investment policies. He has tapped his banking connections to bring in hundreds of billions of yuan in loans to rejuvenate Tianjin. Just last month, the central government pledged to make development of the city's Binhai New Area, an investment zone that is already home to foreign companies like Motorola Inc. of the U.S., a priority over the next five years.

Tianjin's rise reflects the emphasis that President Hu Jintao's administration has put on rejuvenating northern China -- known as the country's rust belt for its ailing, huge state-run enterprises -- and narrowing the wealth gap with the prosperous south. Dynamic officials like Mr. Dai have been tapped by top leaders to help bring up those laggard areas.

Central leaders' focus on Binhai "is a historical breakthrough for Tianjin," says Zhang Lichang, the city's Communist Party secretary.

Traditionally seen as the economic center of northern China, Tianjin has long had a well-established industrial base and one of the country's finest ports. In 1984, the central government included the city among 14 coastal open cities enjoying more market-oriented policies. But Tianjin still lagged behind Beijing and other cities to the south, especially as central leaders focused on developing Shenzhen and other special economic zones in southern China in the 1980s, and then Shanghai and its Pudong New Area in the 1990s.

All that is changing. Utilized foreign investment in Tianjin has surged by an annual average of 32% over the past five years, totaling $10.3 billion for the period. Investments in roads, factories and other fixed assets have doubled in the same period over the previous five years, to a total of 534 billion yuan ($66.7 billion). And last year, the economy grew 14.5%, compared with the national average of 9.9%.

Many city residents attribute the turnaround at least in part to Mr. Dai. Having helped secure hundreds of billions of dollars in loans, the 62-year-old former governor of the People's Bank of China has spearheaded a campaign to transform the city. Countless old properties have been pulled down to make way for modern high rises and luxury-housing complexes. The city has widened its roads and is building a subway system. New museums are under construction and parks have opened along the Hai River running through the center of the city.

Mr. Dai also has strived to build up Tianjin as northern China's financial center. He played an active role in the establishment last year of Bohai Bank. The bank, which is 19.99% held by Britain's Standard Chartered Bank, could play a key role in boosting growth in the region, such as by providing loans to the private sector, local economists say.

After aggressive lobbying by Mr. Dai, the state-owned Assets Supervision and Administration Commission, which oversees China's key state-owned companies, chose Tianjin as one of three sites for setting up an experimental property-rights exchange in March 2004. These exchanges help facilitate the sale of companies owned by the central government, with total deals potentially valued in the trillions of yuan. (Beijing won the right to host one of the other two exchanges, reportedly after lobbying by Mayor Wang Qishan, another former banking official.)

Mr. Dai and other city leaders are also touting the Tianjin Binhai New Area as the "third pole" for China's economic growth, in a role similar to those played by the Shenzhen special-economic zone and Shanghai's Pudong area in revving up development in their respective regions. Situated across the sea from Japan and South Korea, Binhai is already home to investors from more than 100 countries, drawn by its competitive land and labor costs, preferential tax policies and a large talent pool fed by nearly 200 neighboring universities and research institutions.

At Tianjin Samsung Electronic Co. in Tianjin Binhai New Area recently, workers assembled video cameras, video recorders and DVD players. The company is among 11 joint-venture projects Samsung Group has set up with Tianjin Zhonghuan Electronic Information Group Co. with a total value of $1.16 billion.

Jin Shengzhi, Tianjin Samsung Electronic's general manager, says Tianjin is attractive because of its developed components industry and favorable policies. "Local government officials give strong support to our ventures," often asking whether the company is facing any difficulties and offering to help, he says.

Tianjin is also getting a boost from the central government, which pledged in its new five-year economic-development plan to "advance the development and opening up of Tianjin Binhai New Area." As a result, the area is expected to get the go-ahead to build China's largest tax-free port, to experiment with other market overhauls and to offer favorable taxation policies for high-tech ventures.

Some major state investments are already coming to Tianjin. Early this year, Sinopec Tianjin Co. got the nod from Beijing to set up a vast petrochemical complex that will produce more than one million tons of ethylene a year once it is operational in 2008. The project is the city's largest industrial program, with total expected investment of 25 billion yuan, according to a recent report by the official Xinhua News Agency.

China's General Administration of Civil Aviation last October signed an agreement to set up the country's only civil-aviation science and technology industrialization base in the city, to conduct research and manufacture equipment. That could give Tianjin an edge in a continuing, heated race among several cities, including Shanghai, Xian and Zhuhai, to win a bid to set up an assembly line to build A320 airplanes for Airbus.