Sunday, December 31, 2006

Round up of the year 2006



Prominent visitors:

India received some powerful leaders of the world and some of the not so powerful came calling on India. The high profile visits in 2006 included:

  1. George Bush, the President of USA
  2. Jacques Chirac, the President of France
  3. Mikhail Fradkov, the Prime Minister of Russia
  4. Hu Jintao, the President of China

Other prominent visitors included:

  1. Czech Prime Minister Jiri Paroubek in January
  2. Australian Prime Minister John Howard in March
  3. Cpriot Prime Minister Tassos Papadopoulos in April
  4. Afghan President Hamid Karzai in April
  5. Amir of the State of Kuwait Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah in June
  6. Tajikistan’s President Emomali Rahmonov in August

Prominent personalities of the year:

L.N. Mittal: Succeeded in his bid for the Luxembourg-based steel major Arcelor. The merged company Arcelor-Mittal became the largest steel company in the world with a 100 million tonne annual capacity.

Indira Nooyi: She was named the CEO of PepsiCo. PepsiCo became the biggest US company to be run by a woman.

Jeev Milkha Singh: Won 4 major titles in 2006 and became the first Indian to take part in the Augusta Masters to be held in 2007. First Indian to break into the top 50 golfers in the world.

Jaspal Rana: Triple gold-medalist in the Doha Asian Games. Equalled the world record in 25 meters Center-Fire Pistol with 590 points.

Kiran Desai: Won the 50,000 pound 2006 Man Booker Prize. The 35 year old is the youngest woman to win the award. She won it for her second book “The Inheritance of Loss.”

Shanti Sounderajan: Indian runner, won a silver medal in the women’s 800 meters run at the Doha Asian Games. But lost the medal in the gender test that followed.

Shashi Tharoor: The UN Deputy Secretary General, who made a bid to succeed the present UN Secretary General Kofi Annan. Lost the race to South Korean Ban Ki Moon ultimately. Received the Rajan Pillai Foundation’s “Man of Excellence” award this year for his contribution to literature and global peacekeeping operations.

Shibu Soren: Was found guilty of murder of his former personal secretary Shashinath Jha. The first case of a Union Minister being found guilty of involvement in a murder. He was sentenced to life imprisonment.

Sunita Williams: The second woman of Indian origin to have been selected by NASA for space mission after Kalpana Chawla. She flew aboard the Discovery shuttle in December, 2006.

Hrithik Roshan: With just two releases doing very well at the box office, the industry gasped for breath when it was known that he was signed for a three-movie contract for Rs. 35 crores by AdLabs films.

Sunil Mittal: Created records of sorts, by tying up with WalMart for the retail foray.

Lalu Prasad Yadav: Credited for the turnaround in the Indian Railways. The turnaround became a case study of sorts with the rustic minister being even invited by the famed IIM, Ahmedabad for giving a guest lecture.

Shahrukh Khan: Took over as the new host of KBC (Kaun Banega Crorepati) from Amitabh Bachchan.

Kaavya Vishwanathan: Her first novel “How Opal Mehta Got Kissed, Got Wild, and Got a Life” was published in April. Soon after the allegations that she plagiarized passages from two novels by Megan McCafferty proved right and her publisher Little Brown and Company has withdrawn the book and cancelled her publicity tour.

Navjot Singh Sidhu: The former cricketer, MP was convicted for culpable homicide not amounting to murder, of one Gurnam Singh in December 1988. He faces a maximum sentence of 10 year prison term.

Top grossers (movies) of the year:

Dhoom II: Rs. 74.90 crores

Lage Raho Munnabhai: Rs. 69.86 crores

Krrish: 64.96 crores

Saturday, December 30, 2006

About Special Purpose Tea Fund


The Cabinet has recently approved the setting up of the Special Purpose Tea Fund. This fund is likely to be headed by a Chief Executive Officer and managed like a corporate entity.

Why this fund is required?

More than 50% of India’s tea bushes are over 40 years old. The older the bushes, the lesser will be their productivity. Hence they require replanting and rejuvenation. It is estimated that about 2 lakh hectare of plantation needs to be replanted in the next 15 years. This involves huge capital costs to the tune of about Rs. 4,761 crores.

Banks are unwilling to provide loans beyond 7 to 10 years at a uniform rate of interest to tea growers. Re-plantation loans require a minimum tenure of 13 years with a five year moratorium on repayment of principal. Hence the need for the creation of the fund.

What are the contours of the scheme?

Under the scheme, the growers would come up with 25% of the required funds while the government would provide 25% funds as subsidies. The rest would be provided by the SPTF through long term loans. The SPTF would borrow funds from banks and financial institutions at 1% above the prevailing G-Sec rate and would on-lend to growers at 0.5% over the borrowing rate. The loans would be repaid in 8 equal installments starting from the 6th year of sanction with a moratorium of five years on the payment of the principal. Of the total required investment of Rs. 4,761 crores, 46% would be spent in Assam, 28% in West Bengal and 22% in Tamilnadu and Kerala.

Friday, December 29, 2006

Demographic Dividend


India’s huge working age population is slated to turn into its greatest asset, provided they have access to modern healthcare, nutrition and education.

Census 2001 shows that 54% of the country’s population is below 24 years of age. The mean age of an Indian today is 24 years and India is projected to have a declining age-dependency ratio till 2035. 83% of the 371 mln increase in population will be in the working age group of 15 to 59. Today Asia (excluding Japan) accounts for 13% of the world’s GDP, while Western Europe accounts for 30%. The twain are set to converge sometime in the future.

A reality check about where we are today runs like this:

  1. Nearly 6000 ITIs – outdated curriculum, outmoded attitude, lack of quality trainers and output.
  2. 5 mln students graduating out of colleges every year; but without any skills connecting them to employment.
  3. Mismatch between educational system output and industry’s manpower requirement.
  4. Over 70% of labor force (both organized and unorganized) is illiterate or educated below primary level. Only about 13% of the population aged 15 and above is having at least higher secondary certificate.
  5. Low skill level among women causing rise in unemployment rate for women.

Mere having a huge working age population, more so when other developed countries are having an ageing population, will not necessarily translate into an advantage for us, unless our workers are skilled enough to produce the goods and services that are in demand in advanced economies. Therefore we must invest in vocational training centres in small towns and technical colleges in big urban centres.

The existing framework must be restructured to provide for:

  1. Flexibility to move between various general educational, vocational and technical streams.
  2. Flexible system of learning to include dropouts, underprivileged and others.
  3. A funding scheme to provide for subsidies to disadvantaged sections for pursuing education and skill building.
  4. Resource mobilization to revive the middle layer -- those who pass out of school and do not enroll in the graduate degree colleges.

Thursday, December 28, 2006

India on road to an era of prosperity

India is has for sure embarked on an era of prosperity feels Professor T.T. RamMohan of IIM, Ahmedabad. Let us see the reasoning given by him.

India’s high growth rate is sustainable as it rests on profound structural changes.

World economic growth is projected to slow down to 3.2% in 2007 before accelerating to 3.5% in 2008.

But America’s policy towards Iran remains a key risk to the world economy. Let’s see how the Professor explains this:

  1. The first half of the calendar year was depressing. America’s housing sector was slowing down sharply; oil prices were hovering around $75 a barrel; inflation and interest rates were seen headed for north; foreign investor were seen exiting the emerging markets and a hard landing of the US economy seemed immanent.
  2. In the second half, the not so successful attempt by Israel of wiping out Hezbollah (the Iranian backed militia) in Lebanon had brought in a change of scene. This failed mission meant that a war in Gulf (an attack on Iran by Israel or US to wipe out its nuclear infrastructure) had been averted – at least for the time being. Therefore oil prices started declining, inflationary pressures eased and the world economy bounced back.
  3. So a change in America’s policy and bombing of Iran will disrupt oil supplies and destabilize the world economy. Oil prices, thus are carrying a ‘terror premium’, reflecting the risks to the world economy of conflagration in the Gulf.

Concerns about India’s ability to sustain the growth momentum and how or why they are of no consequence:

1. Recent growth rates are entirely due to global economic boom. This implies that a global downturn could seriously affect India’s growth prospects. As India’s export/GDP ratio is around 13%, a global slowdown could only impact GDP growth by about one percentage point. That still leaves our growth rate at a healthy 7%.

2. Growth is consumption-driven and arises from a fortuitous surge in liquidity. But going by the investment intentions of the corporates as well as production and imports of capital good, it is reasonable to assume that growth is increasingly investment driven.

3. The economy is showing signs of ‘overheating’. The rise in inflation has been fuelled by shortages of agricultural products, not excess demand. Though real estate and stock prices look stretched, they do not pose any systemic risks.

NOTE: You can listen to a podcast of this article below. Click on the "listen to this article" link.

Wednesday, December 27, 2006

Corporate governance

    • Apart from the Enron and WorldCom debacles, which have thrown lot of focus to corporate governance, in the recent past the issue of backdating stock options to senior executives of leading corporations in an effort to ‘sweeten’ their compensation packages, has attracted lot of attention and scrutiny by the now famous Eliot Spitzer, NewYork State’s Attorney General. But what exactly is corporate governance?
    • This is how wikipedia’s introduction on the subject runs: Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.
    • In a very good article in today’s ET, Nitin Bhatt highlights that the ‘spirit’ of corporate governance is about putting in place safeguards around any eventuality that could have a serious negative impact on a company and its stakeholders. Good corporate governance practices are tedious to implement, because they require buy-in from people across the enterprise, from the boardroom to the shopfloor. These practices however, do not guarantee that mishaps such as fraud will not occur. However the implementation of such practices does give the stakeholders a reasonable assurance that their interests will be protected by the management on a proactive basis.
    • There is a globally accepted standard on corporate governance called the COSO framework. It derives its name from the Committee of Sponsoring Organizations (COSO) of the US-based Treadway Commission. According to this framework the elements of good corporate governance include:
      • Effectiveness and efficiency of operations
      • Compliance with laws and regulations
      • Reliability of financial reports that are provided to the public.

Tuesday, December 26, 2006

About whistleblowing


Whistleblowing means speaking out to the media or the public on malpractice, misconduct, corruption, or mismanagement witnessed in an organization.

The Veerappa Moily Commission on Administrative Reforms II has recommended protection to whistleblowers. It advocates that honest and conscientious public servants, privy to information relating to gross corruption, abuse of authority or grave injustice, should be encouraged to disclose in public interest without fear of retribution. In conjunction with the Right to Information Act, a Whistleblowers’ Protection Act can indeed be a potent tool for promoting good and transparent governance in the country.

In the US whistleblowing is encouraged by statute as an ethical duty. In 1980, a code of ethics for government service was unanimously passed by the Congress and singed into law by Ronald Reagan. Passing of the Sarbanes-Oxley Act (SOX) of 2002 post Enron and WorldCom debacles is another step in that direction.

The US society also approves whistleblowing in a serious way. Look at the celebration of whistleblowing by the Time magazine. It has named three whistleblowers – Sherron Watkins of Enron, Coleen Rowly of the FBI and Cynthia of WorldCom as its “Persons of the Year” for 2002. Whistleblowing has featured in Hollywood films such as Serpico, Silkwood, Marie and The Insider.

Let us hope our Veerappa Moily committee will have its way.

For more details of examples of whistleblowing in US see in today's ET a centre page article by Raghu Dayal.

Friday, December 22, 2006

Energy Survey

If India grows at 8 to 9% per annum, it will need at least 4 to 5 times the energy it currently consumes by 2030-31.

India’s current total primary energy supply (TPES) per capita stands at 520 kgoe (kg of oil equivalent) as against a world average of 1,688 and China’s 1,090 and USA’s 7,853 kgoe.

Hydel power has a current installed capacity of 32,000 MW.

Coal:

Of the four major fuel sources, coal has the largest share of India’s energy requirement at about 55%.

With an estimated reserve of 248 bn tonnes and proven reserve of 92 bn tonnes, the supply is expected to last about 80 years.

70% of power being produced in the country is from coal. Coal production has gone to 400 mt currently. Only 30 to 32% of energy efficiency is achieved through the present coal based power generation. Gas based plants have an efficiency of 50%. The latest super critical technology for coal based power generation takes the energy efficiency up to 40%.

Oil:

The current oil reserves will last only about 22 years.

Currently there is a 70% dependency on imports and it is expected to go up to more than 90%.

Oil and gas account for about 38% of the primary energy consumption in the country.

India’s consumption of diesel, petroleum and aviation turbine fuel is about 52 mln tonnes in FY06.

Total number of vehicles in India was about 67 mln in 2002-03; with about 24 mln added in the three subsequent years.

Gas:

Current gas availability is about 90 MMSCMD, against an estimated requirement of around 150 MMSCMD (Million Metric Standard Cubic Meters per Day)

India’s current reserves are about 30 tcf (Trillion Cubic Feet), enough for only about 30 years.

Gas has currently a share of 11% in total installed capacity. The share of natural gas in the country’s energy basket is about 8%, but is still far lower than the average of 23% for the world.

Uranium:

India has a requirement of about 600-650 tonnes/year of uranium, which will nearly double in the next 15 months.

Nuclear power share is currently about 3%.

Fast Breeder Reactors: The advantage with these reactors is that they will use the reprocessed fuel from the first stage reactors. Also, the third stage development, which uses locally available thorium, can increase nuclear potential from the current 10,000 MW to about 500,000 MW.

Wind energy

Worldwide installed capacity is about 67,000 MW.

India’s installed capacity is 5,200 MW and is the 4th largest in the world.

Wind has unpredictable and very low load factors – for India it is estimated to be in the 20-25% range.

A windmill can be setup in a matter of weeks in contrast to other modes which take years to install.

Tuesday, December 19, 2006

High profile murder cases hogging headlines

Jessica Lall case:

Jessica Lall was a model in New Delhi who was working as a celebrity barmaid at a socialite party when she was shot dead on April 29, 1999. Dozens of witnesses pointed to Siddharth Vashisht, a.k.a. Manu Sharma, the son of Venod Sharma, a powerful Congress politician in Haryana, as the murderer. Due to inadequacies in the investigation and an overall shoddy prosecution, Manu Sharma and a number of others were all acquitted by Judge S. L. Bhayana on February 21, 2006.

Manu Sharma was convicted in a reopened case as per judgement delivered on 18th December 2006. Manu Sharma was represented by famous lawyer Ram Jethmalani and court proceedings in reopened case was conducted in fast track manner by daily hearings for over 25 days.

For more details about the case see here.

Priyadarshini Mattoo case:

Priyadarshini Mattoo was a 22 year old law student when she was found raped and murdered at her house in New Delhi on January 23, 1996. On October 17, 2006, the Delhi High Court found Santosh Kumar Singh guilty on both counts of rape and murder and on October 30, the same year awarded him capital punishment. Santosh Kumar Singh, the son of a Police Inspector-General, had earlier been acquitted by a trial court in 1999, and the High Court decision was widely perceived in India as a landmark reversal and a measure of the force of media pressure in a democratic setup. This decision went in favour because the facts were not presented correctly in the lower court. The intense media spotlight also led to an accelerated trial, unprecedented in the tangled Indian court system.

For more details see here.

Nitish Katara case:

Nitish Katara was an executive in Delhi when he was murdered in the early hours of February 17, 2002. The son of an IAS officer in the Ministry of Shipping, he had recently graduated from the Institute of Management and Technology, Ghaziabad, where he had fallen in love with his classmate, Bharati Yadav. It is widely believed that he was murdered by Bharati's brother Vikas Yadav. Vikas Yadav is also one of the co-accused along with Manu Sharma in the Jessica Lal case.

Bharti Yadav is the daughter of DP Yadav, well-known criminal leader in Western Uttar Pradesh who has also served as a member of the Indian Parliament. The family apparently did not approve of the alliance, and Nitish was threatened several times. He was finally kidnapped and battered to death with a hammer before his body was dumped and burned.

For more details about the case see here.

Sunday, December 17, 2006

Mobile business: comparing China and India

India and China contribute to about 25% of the mobile telecom subscribers in the world. China as 425 mln subscribers, while India has 125 mln.

Tele-density in China is 45% while the same is about 12% in India.

China’s total revenues are $35 bn; India’s $8 bn.

Herfindahl Hirschman Index ( a measure of competition) is 0.14 for India. This is below the threshold level of 0.18 required for a good competition in market place.

Competition has brought dramatic reduction in mobile tariffs in India to about Re. 1 per minute, which is one of the lowest in the world.

Indian operators are faced with regulatory levies of up to 25%; while Chinese operators pay less than 5%.

Research has shown that it is not the income level but the level of competition that has significantly contributed to bridging the digital telecom divide in India.

Reasons that contribute to curbing the investment and growth of mobile services in India:

  • Policy flip-flop on telecom FDI
  • Higher regulatory levies
  • Inadequate allocation of spectrum

Friday, December 15, 2006

Millennium Development Goals & Monterrey Consensus

Millennium Development Goals

The UN General Assembly adopted on 8th September 2000 the eight millennium development goals as below:

  • Eradicate extreme poverty and hunger
  • Achieve universal primary education
  • Promote gender equality and empower women
  • Reduce child mortality
  • Improve maternal health
  • Combat HIV/AIDS, malaria and other diseases
  • Ensure environmental sustainability
  • Develop a global partnership for development

The goal is to meet all these goals by the target date of 2015. They have galvanized unprecedented efforts to meet the needs of the world’s poorest.

Monterrey Consensus

A sort of sequel to the Millennium Development Goals is the Monterrey Consensus.

The Monterrey Consensus was the outcome of the 2002 Monterrey Conference, the United Nations International Conference on Financing for Development. It was adopted by Heads of State and Government on 22 March 2002. Over fifty Heads of State and two hundred Ministers of Finance, Foreign Affairs, Development and Trade participated in the event. Governments were joined by the Heads of the United Nations, the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO), prominent business and civil society leaders and other stakeholders. New development aid commitments from the United States and the European Union and other countries were made at the conference. Countries also reached agreements on other issues, including debt relief, fighting corruption, and policy coherence.

Since its adoption the Monterrey Consensus has become the major reference point for international development cooperation. The document embraces six areas of Financing for Development:

  1. Mobilizing domestic financial resources for development.
  2. Mobilizing international resources for development: foreign direct investment and other private flows.
  3. International Trade as an engine for development.
  4. Increasing international financial and technical cooperation for development.
  5. External Debt.
  6. Addressing systemic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development.

Some critics suggest that the US has ignored the consensus because the total amount of US official development assistance, while very large, is still a small percentage of the US gross domestic product. Its much lower than other developed countries.

Tuesday, December 12, 2006

Plaza and Louvre Accords

Plaza Accord

The Plaza Accord was an agreement signed on September 22, 1985 by the then G5 nations (France, West Germany, Japan, the United States and the United Kingdom). The G5 agreed to devalue the US dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets.

The exchange rate value of the dollar versus the yen declined 51% over the two years after this agreement took place. Most of this devaluation was due to the $10 billion spent by the participating central banks. Currency speculation caused the dollar to continue its fall after the end of coordinated interventions. Unlike some similar financial crises of the 1990s (such as the Mexican and the Argentinian financial crises of 1994 and 2001 respectively), this devaluation was planned, done in an orderly manner with pre-announcement, and did not lead to financial panic in the world markets.

The reason for the dollar's devaluation was two-fold: to reduce the US current account deficit, which had reached 3.5% of the GDP, and to help the US economy to emerge from a serious recession that began in the early 1980s. The U.S. Federal Reserve System under Paul Volcker had overvalued the dollar enough to make industry in the US (particularly the automobile industry) less competitive in the global market. Devaluing the dollar made US exports cheaper to its trading partners, which in turn meant that other countries bought more American-made goods and services. The Plaza Accord was successful in reducing the US trade deficit with Western European nations but largely failed to fulfill its primary objective of alleviating the trade deficit with Japan due to the fact that this deficit was due to structural rather than monetary conditions. US manufactured goods became more competitive in the exports market but were still largely unable to succeed in the Japanese domestic market due to Japan's structural restrictions on imports. The recessionary effects of the strengthened yen in Japan's export-dependent economy created an incentive for the expansionary monetary policies that led to the Japanese asset price bubble of the late 1980s. The Louvre Accord was signed in 1987 to halt the continuing decline of the US Dollar.

It is unlikely that such an arrangement would have succeeded in the long run, as the global economy is too large, heterogeneous, and fluid for even the most sophisticated central banks to effectively intervene.

Louvre Accord

The Louvre Accord was signed by the then G6 (France, West Germany, Japan, Canada, the United States and the United Kingdom) on February 22, 1987 in Paris, France. Italy had been an invited member, but declined to finalize the agreement. The goal of the Louvre Accord was to stabilize the international currency markets and halt the continued decline of the US Dollar caused by the Plaza Accord.

EPFO interest rate controversy

Before we go into the controversy let us take a look at what is EPFO and what it is mandated to do in the first place.

The Constitution of India under "Directive Principles of State Policy" provides that the State shall within the limits of its economic capacity make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old-age, sickness & disablement and undeserved want.

The EPF & MP Act, 1952 was enacted by Parliament and came into force with effect from 14th March,1952. A series of legislative interventions were made in this direction, including the Employees' Provident Funds & Miscellaneous Provisions Act, 1952. Presently, the following three schemes are in operation under the Act:

  1. Employees' Provident Fund Scheme, 1952
  2. Employees' Deposit Linked Insurance Scheme, 1976
  3. Employees' Pension Scheme, 1995 (replacing the Employees' Family Pension Scheme, 1971)

The Employees' Provident Fund Organisation, India, is one of the largest provident fund institutions in the world in terms of members and volume of financial transactions that it has been carrying on.

The EPFO covers the organized labour force which comprises no more than 7 to 8 % of total labour force in India. As at the end of March 2003, there are about 394.98 lk employees covered under the EPFO schemes. They have contributed an amount of Rs. 11,388.14 cr during that year and the cumulative corpus was about Rs. 1,08,510.14 cr during that period.

The labour force pays a certain portion of its monthly earnings as PF contributions to the EPFO. The Central Board of Trustees of the EPFO declares interest rate on these contributions every year. If the EPFO’s investments are not yielding it a return equal to the administered rate of return, the EPFO has to dip into its reserves to keep the contributors satisfied. The contributors’ cause is always championed by the Left who want a rate which is more than the market rate. Last year the rate was 8.5%. This year also they want it to be maintained at the same level. Unable to decide about the administered rate to be declared, the EPFO simply left it to the PM to decide. The PM as usual will be forced to satisfy the political allies and declare an acceptable return or maintain it at the same rate as last year.

Everybody admits that the system of administered rates has to go; but nobody is able to bell the cat as it would be politically suicidal. Then what is the way out? ET argues that if we had alternative in the form of a modern pension system in place, that would allow reform on the EPFO front.

Monday, December 11, 2006

BJP’s stand on Indo-US nuclear agreement

It feels that India would be forced to adhere to obligations of international protocols – Proliferation Security Initiative, the Australia Group and the Wassenaar Agreement – regarding which India had objected to in the past. We will see some basic info about these agreements below; excerpted from their web sites.

Proliferation Security Initiative: The Proliferation Security Initiative (PSI) is a response to the growing challenge posed by the proliferation of weapons of mass destruction (WMD), their delivery systems, and related materials worldwide. The PSI builds on efforts by the international community to prevent proliferation of such items, including existing treaties and regimes. It is consistent with and a step in the implementation of the UN Security Council Presidential Statement of January 1992, which states that the proliferation of all WMD constitutes a threat to international peace and security, and underlines the need for member states of the UN to prevent proliferation. The PSI is also consistent with recent statements of the G-8 and the European Union, establishing that more coherent and concerted efforts are needed to prevent the proliferation of WMD, their delivery systems, and related materials. PSI participants are deeply concerned about this threat and of the danger that these items could fall into the hands of terrorists, and are committed to working together to stop the flow of these items to and from states and non-state actors of proliferation concern. See more details about PSI at its web site http://www.state.gov/t/np/c10390.htm

The Australia Group is an informal arrangement which aims to allow exporting or transshipping countries to minimise the risk of assisting chemical and biological weapon (CBW) proliferation. The Group meets annually to discuss ways of increasing the effectiveness of participating countries’ national export licensing measures to prevent would-be proliferators from obtaining materials for CBW programs. See more details about it at http://www.australiagroup.net/en/intro.htm

Wassenaar Agreement: The Wassenaar Arrangement has been established in order to contribute to regional and international security and stability, by promoting transparency and greater responsibility in transfers of conventional arms and dual-use goods and technologies, thus preventing destabilising accumulations. Participating States seek, through their national policies, to ensure that transfers of these items do not contribute to the development or enhancement of military capabilities which undermine these goals, and are not diverted to support such capabilities. See full details about this on its web page at http://www.wassenaar.org/introduction/index.html.

Friday, December 08, 2006

Whither WTO negotiations!

Using all his experience that can come only from a keen watching of the developments taking place in the WTO arena, Manoj Pant today wrote a brilliant piece in ET. I strongly recommend reading it at least once to get a grip on WTO negotiations. Read it here. I excerpt some major points as notes below interspersed with my comments:

WTO negotiations are characterized by distinct patterns that were discernible in three phases during their course of history.

The first phase was from 1948 to 1967, almost lasting about two decades. This phase was characterized by the dominance and needs of US in breaking up the preferential trade agreement called the Commonwealth Preferences which gave the UK and Canada special trade deals with their colonies. It was also necessary for it (the US) to get Japan admitted into the multilateral trade negotiations. To achieve these two purposes, US has given a lot more that what it gained and the result is the conclusion of 6 rounds of trade negotiations during this phase.

The second phase which lasted for again another two decades is characterized by:

  1. Development of many new countries.
  2. Rapid changes in the structure of world production and emergence of major agricultural producing countries.
  3. Growing power of ‘oil politics’ made the developed countries take notice of the least developed countries seriously. Emergence of the developing countries block was effectively thwarted by granting the LDCs (least developed countries) preferential access without any reciprocity.

The third phase which is discernible from the 1980s is characterized by the following changes:

  1. Economic structure of the developed countries was shifting away from primary goods and manufactures to services.
  2. Agricultural producers felt that they gained nothing in GATT and formed Cairns group with the sole purpose of bringing in agriculture into trade negotiations.
  3. Emergence of international business interests as aid was replaced by FDI (Foreign Direct Investment).

Present and future:

Though we have framework agreement in place, as there is no consensus on the extent of tariff cuts and reduction in agricultural subsidies, there is no effective agreement. The talks are stalled.

The stalled talks have led to the development of various coalitions. It can perhaps be said that the stalled talks are a result of the developing countries realization that they were unable to understand the implications of the ‘single undertaking’ clause in the Uruguay round of 1994 and trying to rectify the situation by forming into an effective coalition. These coalitions are crucial to the success of future multilateral negotiations.

Negotiations among the 150 members can hardly succeed unless they combine into a limited number of coalitions. Tariff formulas will only work when multilateral negotiations succeed.

My own take is that the progress of the talks is a function of the abilities of various countries to indulge in a ‘give and take’. And these would depend on the tolerance levels displayed by the participating countries based on their perceptions of political sustainability. While continuing with the WTO negotiations, countries would also simultaneously be working on various alternatives, as can be witnessed in the efforts at hammering out various regional free trade agreements. This I feel will last till the the 2030’s by which time major changes would be seen in the constitution of the block of developed countries. Then new dynamics will come into play.

Thursday, December 07, 2006

The Muslim Question

In an excellent article in today’s ET (read it in full here), TK Arun analyses succinctly the issue of addressing backwardness among Muslims as well as other groups by highlighting that:

  1. Muslim deprivation is not exactly news. The point really is to devise a credible strategy to change it.
  2. Quotas are a poor solution, which has failed in the case of Dalits and tribal people. We need to think beyond quotas.
  3. Muslim as well as other subaltern emancipation is closely inter-related.

While agreeing with his first suggestion above, my point is that deprivation exists not just among Muslims and SCs or STs. Deprivation does not differentiate people based on their religion, caste or creed. It is there among all people. Only the degree is varying. If a particular group has more deprived people amongst it, it should not necessarily make the deprived among other groups to be less deserving to be targeted by the country’s ameliorative policies.

The degree of gratitude that a group would feel towards the quota provider would depend on the presumed utility of quotas. On this count, the benefit of bestowing a quota on any particular group would be outweighed, by far, by the animosity from others whose opportunities might be restricted by new quotas.

One fourth of India’s 593 districts are today officially classified as Naxalite affected. Such a level of discontent that sustains rebellion across one-fourth of the country’s administrative divisions surely spells state failure towards more than just Muslims.

It is agreed that there are factors specific to the failure of each deprived community to secure its own place in the sun. But, to focus only on these specifities, to the exclusion of the overwhelming commonalities in their collective failure, would be a gross mistake.

Political strategies that focus on the common features of deprivation of large sections of Indian society are next to non-existent.

Impartial enforcement of law and order, starkly absent in Gujarat in 2002 and in the Khairlanji incident in 2006 would do far more emancipation of India’s oppressed groups than quotas can.

Wednesday, December 06, 2006

About the IMDT Act

The Supreme Court on Tuesday 5th December, 2006 struck down the Assam specific rules made under the Foreigners’ Act while upholding affirming its decision striking down of the Illegal Migrants (determination by tribunals) Act, 1983 in July 2005.

Here is a primer on what the act means, why it was brought in, and what the Supreme Court order will mean, courtesy Rediff.com.

What is the IMDT Act, 1983?

On October 15, 1983, the Government of India passed an Ordinance to set up tribunals 'for determination of the question whether a person is or is not an illegal migrant.'

On December 12, 1983, IMDT Act was introduced and passed in Parliament.

Where is the act applicable?

Only in the state of Assam. In other states, detection of foreigners is done under the Foreigners Act, 1946.

Ironically, there was no member in the Lok Sabha from Assam's Brahmaputra Valley when the act was passed, since elections could not be held in the state in 1980.

What is the difference between the IMDT Act and Foreigners Act?

Under the IMDT Act, the onus of proving one's nationality or otherwise lies on the complainant whereas under the Foreigners Act, the onus is on the accused.

What did the act set out to do?

According to this act an illegal migrant is a person who:
(i) entered India on or after March 25, 1971.
(ii) was a foreigner
(iii) entered India without being in possession of a valid passport or other travel documents or any other legal authority.

Clauses 4 and 9 of the IMDT Act said those who came before March 25, 1971 would not come under the purview of the act as the issue of such cases 'has been left for negotiations.'

But even in the case of post-1971 migrants the procedures were deliberately kept cumbersome. For instance, the Act provided for two individuals living within a radius of 3 km of a suspected illegal migrant to approach an IMDT Tribunal, deposit a sum Rs 25 and then file a complaint. (The three km restriction was subsequently modified and now the complainant could be from the same police station limits as the accused, while the deposit sum was reduced to Rs 10).

But the most contentious provision of the act was the condition that the onus of proving the citizenship credentials of a person in question lies with the complainant and the police, not on the accused. Under the Foreigners Act prevailing in the rest of the country, the onus is understandably on the accused. To cap it all, the act also provided that 'if the application is found frivolous or vexatious' the Central Government may not accept it.

In short, the country had two anti-immigration acts. By scrapping the IMDT Act, the Supreme Court has removed the anomaly.

Chronology of the act's journey towards repeal.

1992: Asom Gana Parishad's Mangaldoi convention resolves to demand repeal of IMDT Act.
Sept 19, 1992: Pachu Gopal Baruah and others challenge validity of IMDT Act in the Guwahati high court.
1998: Tripartite discussion between AASU, Government of Assam and Government of India results in a consensus on repeal of IMDT Act 'in the greater interest of the people of Assam.'
1998: All India Lawyers Forum for Civil Liberties files petition in Supreme Court for repeal of IMDT Act.
Sept 1, 1999: Government of Assam files affidavit for the first time in Supreme Court supporting repeal of IMDT Act.
March 8, 2000: ID Swamy, Union Minister of State for Home tells Parliament: 'Government is of the view that the IMDT Act in its application in the state of Assam alone is discriminatory. A proposal to repeal the act is under consideration of the government.'
April 2000: Sarbananda Sonowal, president of AASU challenges the validity of IMDT Act in Supreme Court.
Sept 2000: Law Commission's 175th report recommends repeal of IMDT Act.
June 2001: Assam government withdraws and changes affidavit in Supreme Court after Congress comes to power. Says the act should stay.
May 6, 2003: Union cabinet under Vajpayee decides to introduce Bill to repeal IMDT Act.
May 9, 2003: Government introduces Bill to repeal of IMDT Act in Parliament.
August 2003: The repeal Bill is referred to the Select Committee Parliament.
August to December 2003: Discussions in the select committee go on. Parliament dissolved. Repeal Bill falls through.
July 12, 2005: Supreme Court strikes down the act.

Though the Supreme Court has directed while repealing the Act that enough tribunals under the Foreigners’ Act be created to try the cases of illegal immigration in Assam, the tribunals have not been constituted till date.

Not a single deportation has taken place in the last 17 months since the scrapping of the IMDT Act. The UPA government in an apparent pre-assembly poll bid to appease the minorities which comprise the Bangladeshi immigrants, wasted no time in effecting changes to rules under the Foreigners’ Act to ensure that the onus of proving a person as foreigner in Assam continued to rest on the complainant. It is this notification which was struck down by the Supreme Court yesterday.

Tuesday, December 05, 2006

Asset-liability mismatch explained


I have noted in Indian Current Affairs blog on 7th October that banks are battling a liquidity crunch and an asset liability mismatch in their books. Further that they want the RBI to relax the norms to help them lend and borrow more in the inter-bank money market.

Let’s look at what exactly does this asset-liability mismatch mean.

If banks mobilize short term deposits to provide short-term loans or long term deposits to provide long-term loans, it is an ideal situation. But if banks mobilize short-term deposits and lend loans on longer terms, that results in an asset-liability mismatch situation.

Ideally banks should borrow short and lend long, and keep the margin. Usually banks’ deposits are mobilized (that is they are borrowing) for periods of up to 5 years only. But their loan portfolios (they are lending) – specially those relating to auto loans and housing – have a far longer duration. This borrow short and lend long means that they have to roll over their liabilities (deposits) faster than their assets (loans). This works fine as long as the there is a reasonable spread between the long-term and short-term rates. But when the spread narrows down, as is the case now (the benchmark 10 year paper in the secondary market is being traded at 7.38% whereas the one year T-Bill is at 6.95% -- a spread of only 43 basis points!) a serious asset-liability mismatch could expose the banks to interest rate risk and could affect their profitability – especially if the rolled over funds come at a higher cost than lent funds.

According to the latest statistics on banking from RBI, the share of short-term deposits in total time deposits of banks has increased from 43.8% at the end of March 2000 to 58.2% at the end of March 2006. On the other hand the tenure of banks’ advances or loans has been getting longer. As at the end of March 2006, of the total loans and advances of new private sector banks, those with over 5 year tenure had a 17.9% share. In contrast, in their deposits, the share of deposits of 5 years plus maturity was only 1.4%. The situation with foreign banks and old private sector banks is only marginally better. The situation with PSU banks though at present is stated to be even, with banks going for home loan lending aggressively, the asset-liability mismatch is going to be worse. This could pose systemic problems and hence the concern.

Monday, December 04, 2006

Deepening corporate bond markets


We have seen earlier (on 15.10.2006 and 22.11.2006 in Indian Current Affairs blog) very briefly that there is a need to deepen the corporate bond market for ensuring adequate funding for the huge infrastructure requirements of the country. Now we will see where does India stand among the BRIC (Brazil, Russia, India & China) countries with regard to the depth of the corporate bond markets. We will also take a look at some of the measures that are being suggested for enabling this and finally look at our beloved FM Chidambaram’s take on this subject.

India’s outstanding corporate debt is around $2 bn compared with $4 bn of Brazil, $10 bn of Russia and $12 bn of communist China. The communist regimes seem to be offering better markets for the corporates than do the non-communist regimes!!

The main problem as confessed by our Finance Minster is that there are too many obstacles – political, legal and policy-related – for the emergence of a vibrant corporate bond market. For instance there are about 78 laws that need to be amended to usher in a decent bond market. The other is the implementation aspect. Should we wait for the laws to be amended and to keep the policy regime in place before we unshackle the bond market or do we attempt it simultaneously? Experience shows that waiting for all the right things to be put in place before we attempt to herald in a good system is fraught with the risk of the intended policy regime not taking shape.

So what steps need to be taken for deepening the bond market?

  1. The government needs to encourage more players and simultaneously take steps to improve liquidity and transparency so that secondary market transactions become easier.
  2. Hasten the pending pension and insurance sector reform to bring in more players seeking long-term paper. Investment guidelines for existing superannuation funds could be relaxed in line with those for employees PF. It could also raise the FII limit for investment in corporate bonds.
  3. Varying stamp duty levies on corporate bonds by the states could be addressed by SEBI mandating that all bond issues as well as subsequent trading would be in demat form, as with euities.
  4. TDS could be done away with as has been done for government securities.
  5. Easier listing requirements, shelf prospectuses and less stringent disclosure norms for already listed entities to remove the edge that private placements have over public issues of bonds.

The FM has already taken the following steps so far:

  1. Obtained cabinet approval to remove legal ambiguities over asset backed securitization. This will enable SPVs (Special Purpose Vehicles i.e., companies formed for carrying forward specific projects) to issue asset backed securities for trading. This will also partially address the issue of poor volumes on the supply side, apart from improving the quality of the paper.
  2. Urged the IRDA and RBI to let insurance companies and banks deploy a fixed percentage of their investments in low-rated bonds. Asked them to amend their regulations to remove an existing bar on insurance companies and banks that mandates them to park their funds only in AAA rated bonds.

Sunday, December 03, 2006

World’s most coveted gatherings


In an excellent compilation of the world’s most happening events, Amrita Thapar has thrown light on the world’s most coveted gatherings. Read the full details here.

We note down only the those conferences and points which are really important to us from the point of view of general interest and ignore the trivia.

  1. The Sun Valley Conference is an annual conference hosted and funded by New York investment firm Allen & Company. It is a week-long conference is held in Sun Valley, Idaho every July, since its inception in 1983. Sun Valley is an invitation only conference — and the best way to get invited is to be a company president, chairman or CEO at a multinational media concern, looking for lots of expensive deals preferably.
  2. The Bilderberg Conference is held annually in late spring or early summer, and is named after the hotel in The Netherlands where the first conference took place in 1954. This too is an invitation only conference of around 130 guests — people of influence from the world of business, academia, media and politics. The Bilderberg Conference has been much criticized, since it has never been open to the public. When the world’s most powerful gather behind closed doors, there is always immense speculation on what is actually being discussed. The Conference usually takes place at an undisclosed location, mostly exclusive resorts in Europe or North America. Big bucks properly refined can allegedly help get you in. The 2007 Bilderberg Conference is slated to be held in Istanbul, Turkey.
  3. The World Economic Forum at Davos, Switzerland held late in January is widely known in India. The conference here was inaugurated in 1971 by Klaus Schwab, a German-born business professor and consummate networker, as an intimate gathering where business leaders could debate over world problems, amidst some of the Alps' finest ski slopes. To be invited to Davos, it helps to be a CEO or a media mogul; otherwise, have your people call CII, and if you have an interesting C.V., you can probably make it onto the final list.
  4. The Forstmann Little Conference, held annually every September in Aspen, Colorado, a town with a skiing reputation, is another symposium where discussions are “off the record”. It was initiated by Theodore Forstmann, philanthropist, long-time Republican Party contributor and a partner of private equity firm Forstmann Little & Co. To ensure that you get invited it would help to be the CEO of a huge and successful company, be the best at something significant or own a Gulfstream jet, one of Forstmann’s holdings. Those attending could as easily be somewhere else but they supposedly come because at the end of it all, they have a good time.
  5. The Renaissance Weekend, originally held at New Year’s, now has Thanksgiving, Presidents’ Day, Labor Day and spring weekends as well. Started by former US diplomat Phil Lader and his wife Linda, who were bored by the thought of a quiet new years’ eve, this gathering sees about 60 eminent people get together to discuss the big issues of the day. The New Year’s weekend is always held at Hilton Head, South Carolina. To be invited it would help to be a leader, a celebrity or a friend of Phil Lader’s, or to know someone they know.

Saturday, December 02, 2006

Keynes vs. Friedman

Many a time we see and hear about renowned economists. For many of us, their sayings or research sound very esoteric, if not boring. But whether we are pursuing a serious exam like Civils or serious participants in the economic and business scenario of our country a la the stock traders and businessmen, it does help at times to understand a bit of economics. Though trying to understand theory may be a tough call, we surely can try and understand the basics of the teachings of world renowned economists.

In an excellent article, Bradford Delong, the renowned Professor of Economics of the University of California at Berkeley, had brought out the differences – straight and subtle – between the theories and view points of the Economists John Maynard Kenes and Milton Friedman; both of whom are considered the greatest of the economic thinkers of the previous century.

For those of you who love digging deep into the original; find it here.

And those of you who find that the meaning of the text presented below is too complex to comprehend, just try to follow the underlined words at least.

Keynes

Friedman

His framework is based on spending and demand, the determinants of the components of spending, the liquidity-preference theory of short-run interest rates, and the requirement that government make strategic but powerful interventions in the economy to keep it on an even keel and avoid extremes of depression and manic excess.

His theory was one of employment, interest and money.

To Keynes’s framework, Friedman added a theory of prices and inflation, based on the idea of the natural rate of unemployment and the limits of government policy in stabilising the economy around its long-run growth trend — limits beyond which intervention would trigger uncontrollable and destructive inflation.

The experience of the Great Depression led Keynes and his more orthodox successors to greatly underestimate the role and influence of monetary policy.

Friedman, in a 30-year campaign starting with his and Anna J Schwartz’s “A Monetary History of the United States”, restored the balance. He gave prominence to monetary policy.

Friedman and Keynes both agreed that successful macroeconomic management was necessary — that the private economy on its own might well be subject to unbearable instability — and that strategic, powerful, but limited economic intervention by the government was necessary to maintain stability.

For Keynes, the key was to keep the sum of government spending and private investment stable.

For Friedman the key was to keep the money supply — the amount of purchasing power in readily spendable form in the hands of businesses and households — stable.

Keynes saw himself as the enemy of laissez-faire and an advocate of public management. Clever government officials of goodwill, he thought, could design economic institutions that would be superior to the market — or could at least tweak the market with taxes, subsidies, and regulations to produce superior outcomes. It was simply not the case, Keynes argued, that the private incentives of those active in the marketplace were aligned with the public good. Technocracy was Keynes’s faith: skilled experts designing and fine-tuning institutions out of the goodness of their hearts to make possible general prosperity — as Keynes, indeed, did at Bretton Woods where the World Bank and IMF were created.

In his view, it usually was the case that private market interests were aligned with the public good: episodes of important and significant market failure were the exception, rather than the rule, and laissez-faire was a good first approximation. Moreover, Friedman believed that even when private interests were not aligned with public interests, governments could not be relied on to fix the problem. Government failures, Friedman argued, were greater and more terrible than market failures. Governments were corrupt, inept. The kinds of people who staffed governments were the kinds of people who liked ordering others around.

Friday, December 01, 2006

World AIDS Day

Today (December 1st ) is World’s Aids Day.

The World Health Organisation (WHO) declared the first World AIDS Day in 1988.

The Day, 1 December, quickly became established as one of the world's most successful commemorative days and is now recognised and observed every year around the world. Over 190 countries around the globe participate in World AIDS Day each year.

The aim of World AIDS Day is to raise awareness in the community about HIV/AIDS issues, including the need for support and understanding for people living with HIV/AIDS, and the development of education and prevention initiatives.

The red ribbon is the international symbol of HIV and AIDS awareness and was conceived over 13 years ago by a group of artists in New York called "Visual AIDS". The Ribbon was chosen to represent support for those living with and affected by HIV/AIDS.

The artists sought to create an image which would be simple yet bold and able to make an impact wherever it was seen. Red was chosen to symbolise blood and danger. The tails of the ribbon pointing down was chosen to symbolise life flowing away.

All monies raised through the sale of red ribbons during AIDS Awareness Week and World AIDS Day go towards support services for people living with HIV/AIDS including medical services, counselling services, support and peer education groups.

The theme for 2006 is ‘accountability’. And the slogan is ‘Stop AIDS. Keep the promise’.

UNAIDS, the Joint United Nations Programme on HIV/AIDS, brings together the efforts and resources of ten UN system organizations to the global AIDS response.

Cosponsors include UNHCR, UNICEF, WFP, UNDP, UNFPA, UNODC, ILO, UNESCO, WHO and the World Bank. Based in Geneva, the UNAIDS secretariat works on the ground in more than 75 countries world wide.

Learn more about UNAIDS here.

In 2000, heads of state made a promise to halt and begin to reverse the spread of AIDS by 2015.

New reports by UNAIDS and the World Health Organization (WHO) indicate that, as of 2006, the epidemic continues to spread in every region of the world. By now more than 65 million people have been infected with HIV and well over 25 million people have died of AIDS since 1981, 2.9 million in 2006 alone. At this rate, the WHO predicts that in the next 25 years another 117 million people will die, making AIDS the third leading cause of death worldwide.

Read more about the world’s aids campaign here.

And do you know that we, India have the dubious distinction of having the largest number of AIDS population? We have about 5.7 mln people infected with AIDS.

How does the AIDS virus infect a person?

The virus enters a healthy cell by misleading the gatekeepers with a protein attached to it and then multiplies by adding its genetic material to the host.

What are the things that put us, Indians, more at risk for AIDS?

  1. Our poor system of primary health care
  2. Low literacy level
  3. Huge gender inequality
  4. Hypocritical society that shies away at open advocacy of easy preventives like condoms

It is said that there are three waves in which the epidemic comes; they are:

  1. HIV infection
  2. This is followed by a wave of opportunistic diseases several years later; and
  3. A wave of AIDS illness and then death.