Wednesday, December 12, 2007

Should higher education curricula be standardised?

It is a debate that is gaining attention of late in the media. Read the full debate that appeared in ET here.

Some points worth our noting from this debate:

1. Bringing about uniformity in the curricula has ramifications for the liberal ethos of higher education. These ramifications will be primarily in the form of curtailing the creative potential of teachers and students to ultimately make the system subservient to market needs.

2. Making courses subservient to the market needs in the name of linking the life inside and outside of the college, pushes the creative potential of the teacher as well as the student to the backseat.

3. Every region has a distinct socio-economic and cultural ethos which demands specific curriculum and pedagogy. Students coming from these varied backgrounds need varied curricula and pedagogic methods.

4. The perils that would result from implementing such a decision without adequate ground work would be:

a. Firstly, the backward linkages. When the input levels of students is vastly different, it would be meaningless to impose uniformity at the college level.

b. The infrastructure issue. The soft and physical infrastructure. Answers to questions like “Who will teach this world-class curriculum?”, “Where will be the textbooks and reference material for this?”, and “Whether there are adequate laboratories?” etc., need to be found first before jumping headlong into implementation. The human and physical infrastructure resources available in the hinterland of the country need to be kept in mind before ushering in any uniformity in the curriculum. Are all the universities in the country like JNUs and Delhi University?

c. Lastly, the evaluation system also needs a thorough revamp. Having a world class curriculum with an evaluation system that allows one to get away without critical thinking is meaningless.

Very good points know? Any inputs from you?

Tuesday, November 20, 2007

Answers to shout-box queries-17

18 Nov 07, 19:50
manpreet: sir could you please explain th term "depreciation" used in economics in simple language..thanks.

If you buy an eatable say for Rs. 100 and consume it equally over two days, how much worth of the eatable remains at the end of the first day? Since the consumption is done equally over two days, we can say that your asset (eatable) has depreciated by Rs. 50 over one day. On the second day (beginning of the day that is) its worth is Rs. 50 only. I have taken this example for the sake of simplicity.

Apply the same analogy to any real asset like scooters, cars, motors, aircraft etc. Their life time extends over several years. So if you would like to know what is their value at the beginning of say the second or third or nth year, what would its value be? The depreciated value over that period. Let us assume you buy a scooter for Rs. 30,000. If the envisaged life of the scooter is say 15 years; then its depreciated value at the end of two years would be Rs. 26,000. As you have used it for two years, you apportion about Rs. 4,000 towards the cost of your consumption/use of the asset.

I took a very simple example. But there are various complicated ways in which this deprecitation is calculated. Straight-line, Declining-balance/Reducing balance, Activity depreciation, Sum of years digits, Units of Production, and Units of time depreciation are some of the methods.

18 Nov 07, 19:18
sonali: sir please explain the concept of PFDF in detail. about the issuance of these bonds and what purpose they are used for etc ?

Under JNNURM the Central Government has announced its policy that it will fund cities coming to it for urban renewal. Huge funds are envisaged to be spent for urban renewal in the country. To the tune of about Rs. 100,000 crores. The way this huge funding is envisaged to be mobilized was on 50:50 basis. That is, the cities will have to mobilize about Rs. 50,000 crores and the Centre will give a matching funding. How will the cities mobilize this much money? State governments are almost broke to finance such kind of money for urban renewal. Hence the idea to enable the various cities (Municipalities and Corporations) to mobilize funds by issuing bonds. Who will buy these bonds from them? What is their capacity to service the interest burden on the bonds? Can they be trusted to repay the principal invested in the bonds? Hence the issue of credit rating comes in. A higher credit rating gives the investors the comfort to make investments in the bonds. Investors having a greater risk appetite will go for less rated cities also provided the interest rates they offer are attractive. So the government asked all the four major credit rating agencies in India to rate various cities. If their credit rating is good, then they will be able to mobilize resources easily. Then these cities can approach the Centre for a matching funding of their requirements.

18 Nov 07, 18:59
sonali: i.e., govt has to provide power and dole out funds for it what has individuals and credit have to do with it ?
18 Nov 07, 18:58
sonali: sir in priority sector lending credit is given to private individuals like farmers how can power projects/ sector be given such status when its all depends upon government ...

Giving priority sector status or infrastructure status means that the loans extended by banks will come at a cheaper rate for the investors. That is one way of attracting interest of the investors in putting up generation plants. This will also encourage banks to earmark funds for power sector project finance as that would enable them to meet their crucial priority sector targets. As these are still only at proposal stage, we will know the full details only when they are finalized and their details announced.

Monday, October 15, 2007

Subprime crisis fallout

Though we have noted elaborately on the subprime crisis in our blogs, we should not miss when great economists like Joseph Stiglitz write on the subject. It gives us a different perspective. Take a look at what he wrote in today’s ET on how the mortgage lending went wrong:

People have borrowed money to indulge in consumption. And Greenspan has encouraged it. He encouraged them to take variable rate mortgages, at a time when interest rates had nowhere to go but up. Predatory lenders went further and offered negative amortization loans. In these loans, the amount owed went up year after year – i.e., ballooning payments. Borrowers were wrongly advised by the financiers that when payments balloon, they need not worry as the house prices would rise faster, it is easy to refinance with another negative amortization loan. But the reality soon dawned on everybody, as people were left with mortgage payments which have far exceeded their entire income.

He further says that ‘securitization’ with all its advantages in sharing risk, has three problems that were not adequately anticipated:

· It meant that American banks would not be as hard hit as they would otherwise be; but their bad lending practices have had global effects.

· It contributed to bad lending. Banks that originated bad loans were able to pass them on to others.

· It had made debt restructuring difficult, if not impossible. Restructuring debt would have had a corrective effect on bad lending practices.

One fallout of this crisis that is right unfolding in the international banking circles is the setting up of a $80 bn fund to buy ailing mortgage securities and other assets, in a bid to prevent the credit crunch from further hurting the global economy. This fund is being setup by Citigroup along with other banks.

You may also be interested in reading the following on the subject:

The first casualty of the subprime crisis.

Why will India not be affected by the subprime crisis?

Some recommendations on handling the subprime crisis.

Can the the subprime crisis threaten the Indian economy?

Saturday, October 13, 2007

Copy of recent 100 shout-box discussions - 1

sir, any site for psychology? 12 Oct 07 18:54
any way to read the old discussions completely? 12 Oct 07 18:36
sir, 12 Oct 07 18:35
policies, BASEL II which requires 15% of to be set aside for operational risks, IPDI has been exempted from SLR/CRR+ call option is disabled which idon't understand why. 12 Oct 07 16:45
Thanks a lot for clearing my 3 doubts. Sir, regarding the introduction of Innovative perpetual debt instrument(IPDI) and debt capitals to help banks generate funds in view of tighetening monetary 12 Oct 07 16:40
We must soon adpot newer basket of G&S to calcluate the WPI. The present one idicates the taste and preferences of 1993-94 12 Oct 07 16:37
Sir, There is a debate about changing the basket of goods that constitute the WPI index. Though the inflation has been "tamed", the food prices are still climbing as indicated by CPI(AL) and CPI(IW). 12 Oct 07 16:36
@Naveen: Refer this: 12 Oct 07 11:20
@Gaurav: So long as the inflation is not a significant contributor to the GDP growth, I would settle for 9%+7%. Otherwise, the latter is better. In a growing economy inflation CAN be tackled. 12 Oct 07 10:51
@Jyothikarthik: A test of majority on the floor of the hosue (Assembly or Parliament) as the case may be. 12 Oct 07 10:47
sir, GDP growth of 9% with 7% inflation is better than GDP growth of 7% with 4-5% inflation? 12 Oct 07 00:45
sir what exactly do you mean by "generally accepted accounting principles".can you please explain it in detail 11 Oct 07 21:43
What is a Floortest? 11 Oct 07 20:35
Debt has to be repaid whether or not you make profits. Equity has no such gaurantee as it gives you ownership. 10 Oct 07 19:12
Bonds means debt. Shares are equity. Equity is ownership. Debt is just money that is advanced. Equity gives u voting rights. Debt doesn't give u that. 10 Oct 07 19:11
On tier 1 and tier 2 capital refer this: 10 Oct 07 19:09
Call is an option contract for buying shares at a price agreed upon now. Put is an option contract for selling at a future date for a price that is agreed upon now. 10 Oct 07 19:08
3. what is the difference between TiER1 capital and TIERII capital? 10 Oct 07 17:28
2. How are corporate bonds different from money raised from scrips/shares raised through stock exchange? 10 Oct 07 17:28
Sir, I would like to know 1. What is Call and put option? 10 Oct 07 16:46
Only when there is a reverse tide. Such fluctuations keep happening. Its only when sustained one way flows happen there will be problem or some correction has to happen -- like allowing appreciation 07 Oct 07 09:02
naraynan sethurao
Dear Sir, under MSS, if RBI keeps on proping up the rupee parity against Doller every time when FII flows are and when RBI will offload thefunds into the system..? 07 Oct 07 08:12
@Rishi: On reserve currency wait for today's post. On selling dollars, yes it means so, if you are selling in the Indian markets. 06 Oct 07 10:57
sir what is a reserve currency ? and also does selling dollars mean getting it exchanged for its worth in rupees? 05 Oct 07 22:00
@Gaurav: Distribution of land to the landless. 05 Oct 07 11:13
@Satish: Thanks for the clarification. Will carry it out shortly. 05 Oct 07 11:12
Sir,Just to clarify -Irani trophy is played between Last season's ranji champions and Rest of India.and Mumbai were last years champions 05 Oct 07 10:54
ok bt what does land reform means exactly? 05 Oct 07 00:37
@Gaurav: Land is the ultimate security one can get in a predominantly agrarian country like ours. Spend a couple of days in a village. I am serious. You will notice the answer to ur question. 04 Oct 07 16:16
@Vikash: You should have noticed that of late I have been covering Hindu also a bit generously. But whether or not any thing gets noted in my blogs is highly subjective. I should feel is importance. 04 Oct 07 16:14
@Ankur: And do try the India Year Book. 04 Oct 07 16:13
@Ankur: Though not very comprehensive, you can check this: 04 Oct 07 16:12
Sir, I wanted a detailed review of Indian Defence forces..All about the missiles they have, other weapons they possess, the joint exercises undergoing these days..Is there any link..Its urgent.. 04 Oct 07 15:20
Sir, I wanted a detailed review of Indian Defence forces..All about the missiles they have, other weapons they possess, the joint exercises undergoing these days..Is there any link..Its urgent.. 04 Oct 07 15:19
Sir, I wanted a detailed review of Indian Defence forces..All about the missiles they have, other weapons they possess, the joint exercises undergoing these days..Is there any link..Its urgent.. 04 Oct 07 15:18
Dear sir , Can you plz add the summary of the HINdu Editorial column also in your daily blog. 04 Oct 07 12:14
how land reforms coul have helped india in uplifting the poor farmers? 04 Oct 07 00:06
Suresh 03 Oct 07 08:10
@Ajay: A growing economy should also result in increase in jobs. If there are no jobs being created and still the economy is growing it is called jobless growth. 02 Oct 07 17:13
I got few details like it will be around 7% this year. and some figures. But not much. Job breakup i couldnt find :( 01 Oct 07 22:42
@Ajay: Try the Economic survey. It will have full details. If u can't get it there, get back to me. I will chip in surely. 01 Oct 07 20:28
Assets minus liabilities is net worth. 01 Oct 07 20:27
sir what is meant by net worth ? 01 Oct 07 20:23
Hi, can you please give pointers for what contributes to India's GDP - % wise. What is the breakup in IT industry. similarly - %job sector wise. Also, what is jobless growth? 01 Oct 07 17:19
@Karthik and Jasmeet, I will answer you in Discover It. It will be a bit longish. 30 Sep 07 10:58
jasmeet singh
Sir, what is core inflation and how is it different from WPI (in india),? is there any specific index to measure core inflation in india? 29 Sep 07 22:15
@hsha: Thanks. 29 Sep 07 11:39
sir, please tell me why Japanese currency vakue is less than indian rupee? I don't think their economy is inferior to india; i heard something called undervalue of currency?whats that? 29 Sep 07 08:08
thanks sir your guidence is very great sir. 28 Sep 07 23:21
Hi ALL: I answered some of ur queries in today's Discover It. Look there. 28 Sep 07 20:18
Page: [1] 2 3 4

sir the concept roll section is really a good one,very helpful, thankyou 28 Sep 07 13:00
sir, i have asked earlier hw the value of Rupee is decided u said Market, Which Market & hw. tell me by example 28 Sep 07 10:34
sir, i have asked earlier hw the value of Rupee is decided u said Market, Which Market & hw. tell me by example 28 Sep 07 10:34
sir, what is banda chelva pact all about??? 27 Sep 07 23:37
what is the meant by Indian Economy's fundamentals? 27 Sep 07 22:23
sir what is the meant by Indian Economy's fundamentals 27 Sep 07 22:23
It is the MARKET. Ofcourse with active intervention from the RBI. But then RBI can influence it only to a certain extent. No central banker, not even the fed can dictate it. 27 Sep 07 19:22
Good question, who decides how the value of money changes 27 Sep 07 15:46
sir, Can u tell me how the value of Rupee is decided.I mean how the value of any currency is decided.. 27 Sep 07 11:45
@hsha: It is 27 Sep 07 11:24
sir thnks for reply pls give the web address of britannica 26 Sep 07 23:45
Hi ALL: Take a look at the CONCEPT ROLL that I placed above this shout-box just now. Click on a word/phrase and it will take you to the relevant place explaining smthg abt it. Let me know ur views. 26 Sep 07 21:16
BSE calculates the sensex. Similarly NSE calculates its own Nifty50 Nifty100 etc. Each exchange does its own calculations. 26 Sep 07 21:14
@Rishi: Our economy is our consumption driven. Not dependent excessively on exports. Savings are great 35%+. Investment rate is good 35%+... 26 Sep 07 21:13
Nice piece bout Dividend Stripping 26 Sep 07 18:09
Who determines the actual Sensex values in the market?? is there any agency which monitors and declares that the values should be so and so? 26 Sep 07 18:09
Hi Sir , what is the meant by Indian Economy's fundamentals. 26 Sep 07 18:08
Hi..Sir in a reply you have told that Indian economy is built on strong fundamentals,so rupee is gaining.I am not clear about that fundamentals of my country's eceonomy.Can you detail it out ? 26 Sep 07 17:54
@hsha: I would recommend regular stuff like guides for it. They will give you all at one place. Try Britannica if u hv time. 26 Sep 07 12:23
sir where can i found social and cultural movents of india in 19th and 20th centuries? 26 Sep 07 06:51
@saima: Both are same. Is anybody having a different take on this matter? 25 Sep 07 14:35
@subham: India' economy is based on strong fundamentals. So rupee is gaining. Because the US economy is feared to be going into a recession, dollar is weakening. The fed rate cut hastened this fall 25 Sep 07 14:34
@subham: Foreign portfolio is investment in stocks like FII investments. For private equity refer our glossary. 25 Sep 07 14:33
sir what is the difference between unorganised sector and informal sector ? are they the same ? 24 Sep 07 23:52
what's the reaon behing strenghening of rupee and faling of dollar ? 23 Sep 07 22:14
sir i meant could please explain the terms : foreign portfolio and private equity investment 23 Sep 07 22:08
@subham: Thanks and welcome. 23 Sep 07 11:21
@raina: Increases liquidity; interest rates will come down. Economic activity expected to pick up. But inflation also can rise. 23 Sep 07 11:20
Sir thanks a lot for this glossary section of your blogs ..its a real help :) 23 Sep 07 00:14
what is the consequence of tax tare cut by US federal bank ? 22 Sep 07 21:05
@Vinod: Tell me is it not already in the hands of such people? I believe ULCA is a retrograde step. It's time we moved away from such hackneyed attempts at controlling asset distributions. 22 Sep 07 11:17
@Subham: didn't get ur second question. 22 Sep 07 11:14
@Subham: Military uses lot of spectrum in high GHz ranges to avoid using satellite technology. The tropo-scattering method deployed by them is considered inefficient. 22 Sep 07 11:14
@RamaNaidu: See 14.9.2007 and our glossary for them. 22 Sep 07 11:12
Sir...govt is asking maharashra to remove the urban land ceiling..isnt it a move which will lead the land to fall into the hands of a few land contractors.......... 21 Sep 07 22:32
foreign portfolio and private equity investment in FDI ? 21 Sep 07 21:20
spectrum ineffeciency? hwz it used ny the defence ? 21 Sep 07 21:19
Sir, would u please explain the terms:White goods, Intermadiate goods, consumer non durable goods 21 Sep 07 20:14
Quiz Contest in downloads section. 21 Sep 07 17:06
@All: Posted the key for the 21 Sep 07 17:06
@Vinod: There has to be a lid somewhere on what the country borrows! So the government fixes the limit. 21 Sep 07 17:02
@Praveen: It is here: Do you still want it to be on our blog? Thought it is well-known. 21 Sep 07 17:01
@Subham: It's all in the ad revenue that it is able to generate out of the eye-balls that follow the game. It is the same for European soccer and American Basketball. 21 Sep 07 17:00
Suresh Nandigam
hi guys& gals, a good cartoon in recent times in todays TOI-Hyderabad edition 21 Sep 07 16:13
Why does the govt a limit on the ECB by the companies? 21 Sep 07 15:03
plz ir can you put eonomic survey 2007 in this blog 21 Sep 07 00:23
why is BCCI so rich ? 20 Sep 07 23:01
@Santoshi: Check ur mail. Sent it just now. 20 Sep 07 21:08
@Varun: Tried India Street? I link it from here. It is good. 20 Sep 07 21:08
santoshi P
Sir Plz reply to the mail I have sent ,It would be og gr8 help in improving my abilities.pLzzzzzzzzzzz :( :( :( 20 Sep 07 19:18

can u suggest some blog for business relted news 20 Sep 07 19:16
@Vinod: Income, if taxed in one country will not be taxed in another country again. That is a DTAA. 20 Sep 07 18:39
Sir...what is double tax avoidance agreemnet 20 Sep 07 07:17
@Karthik: Sure I will post them tomorrow in Discover It. 19 Sep 07 22:22
sir, please give the answers for the quiz contest 19 Sep 07 20:25
@hsha: If it is from GS perspective, I would recommend reading Britannica. In fact that is what I did 2.5 decades ago. 19 Sep 07 18:22
Hi All: Imteyaz Ali was in touch with me through mail. He says shoutbox is banned in his organization. Hence he preferred to contact me through mail. All the best to him once again. 19 Sep 07 18:18
sir can any one tell how to preare hisotry of indian heritage and culture 18 Sep 07 00:05
Sir, can u tell us what benifit/s & advantage/s will india get out of several joint- milatary, naval and air exercises with different countries? 17 Sep 07 23:02
Suresh Nandigam
congrats to Inteyaz Ali 17 Sep 07 20:21
Is Imeteyaz Ali listening? Can he say hi? 17 Sep 07 08:54
@Vinod: I don't think so. Strictly who is the champion of NAM today? I feel it has lost all its relevance. All the NAM countries also seem to have realised this as much. 17 Sep 07 08:42
@Narayanan: That's what it fears. Hence the corrective measures. 17 Sep 07 08:41
@abhijeet: Surely Abhijeet. I will do it. 17 Sep 07 08:41
Sir...thank you...will our joint military excercises with the "imperialsit countries" have any effect in our relation withour fellow NAM countries? 17 Sep 07 08:06
Jho Ram Ka Nahi Hai, Oh Kham Ka Nai..Will this slogan topple the centre..? 17 Sep 07 07:52
Hello Sir, can u plz write an essay or significance of INDIAN OCEAN REGION to india and the region with recent happenings in view. 16 Sep 07 22:57
@RamaNaidu: Vow, this will need a full article. I will do so in the next couple of days in Discover It. 16 Sep 07 09:20
@Vinod: I agree with such an assessment fully. Results in log of discontentment. 16 Sep 07 09:19
@amjad: Caribean islands are in South American continent. 16 Sep 07 09:18
Thanks for reply Sir! but, i could not understand your openion clearly, it may be becs I don't know much about Nuclear NPT. Can please elaborate what r the implications of becoming a signatory to NPT 16 Sep 07 00:16
Sir...i think the concept of having different rules for different sections of a country will have its toll on our unity? 15 Sep 07 21:42
sir, again in which continent carribean island situated? 15 Sep 07 19:28
thnx a lot 4 clarifying my doubt. 15 Sep 07 19:28
@Vinod: Disparate religious practices, which have a lot of bearing on one's civic conduct in general. That is the root cause. 2. Lack of political will. 3. Is it really that necessary? 15 Sep 07 13:47
Why is it not possible to have a unified civil code? 15 Sep 07 02:06
@Naveen: thnx a lot 4 clarifying my doubt. 15 Sep 07 00:50
@ALL: Any idea about pink tide? What is it? Amjad wants it. Couldn't know anything about it. 14 Sep 07 23:45
@Amjad: A red corner notice is a 'look out for this offender' notice given for wanted persons. All countries cooperate with each other in nabbing such people. 14 Sep 07 23:44
@Vinod: A good question. But successive governments have failed to come up with that magic formula of integrating the NE and NW into our mainstream. Let's keep wracking our brains about it. 14 Sep 07 23:42
@RamaNaidu: Why should it join? Don't you see that NPT perpetuates an unequal world? Besides comparisons with China can never be wished away. 14 Sep 07 23:41
Suresh Nandigam
blog address once again 14 Sep 07 21:00
Suresh Nandigam
hi to all, as Roopa Singh pointed out, let us share all of our knowledge and doubts, I request you all to have a look at my blog @, pass your comments to me 14 Sep 07 21:00
sir, what is red corner notice? 14 Sep 07 17:59
sir, what is pink tide? 14 Sep 07 17:03
in which continent carribean islan situated? 14 Sep 07 17:03
Sir.dont u feel that we all behave in a different way our countrymen in north-east.....whats are the govt initiatives to increase the feeling of belongingness in them . 14 Sep 07 16:32
Sir , Plz Add international news summary also in ur section 14 Sep 07 14:44
Sir, Why India is not willing to join NPT? 14 Sep 07 13:57
@abhijeet: Follow the article given in Discover It. Follow all the links given there. That should be good enough. 14 Sep 07 12:39
tenders as you know are quotes for carrying out the work already put up for bidding. 14 Sep 07 12:39
@ni****ha: Expression of interest is only willingess to carry out the work and bid for it as part of the subsequent process of award of contract. And... 14 Sep 07 12:38
Sir, can u plz tell us what it means by subprime mortgage? and all related terms to it like hedge funds,etc. or plz give us a link to all about the SPM . 13 Sep 07 23:26
sir,what's the difference betn expression of interests and tenders 13 Sep 07 23:01
@Vinod: Tried the India Year Book? Can't get a better source than that. Then do a search for 'social security' in our blogs. You will have ur answer. 13 Sep 07 17:04
be gone ahead with without hurting the religious sentiments of the people. 13 Sep 07 17:02
@Sreenadh: As far as feasible, governments should not play with the 'faith' element of religions. It should better stay away from it. The project is otherwise very good and economical. It should... 13 Sep 07 17:02
What are the differrent programmes initiated by govt to ensure social security for people(old people,farmers,unorganised sector other than agri)? 13 Sep 07 12:19
Sir, What is your opinion on controversy surrounding Sethu samudram Project ? 13 Sep 07 11:48
@Abhimanyu: Thanks. But that would take a lot more effort from me. I would keep you suggestion in mind though. 13 Sep 07 11:17
Page: 1 2 [3] 4

rama krishna sir your site is excellant.i too am a civils aspirant.sir,won't it be good if there are more questions in "today's quiz".if it is not trouble for you please make that to 15 .thank u sir 12 Sep 07 19:20
and often the pre-existing site/facilities are contaminated/polluted 12 Sep 07 16:39
green field projects are built from scratch on green field land (undeveloped) like new plants, airport factories etc while brownfield projects are built on pre existing infrastrucutre 12 Sep 07 16:38
@Sadhana: Which field are you referring to? Can you elaborate your question? 12 Sep 07 14:01
@Vikash: It's a tough call for me. 12 Sep 07 14:00
Sir, can u plz tell me the significance of colurs in different fields like green field and brown fields etc... 12 Sep 07 13:48
Plz help me out i am not able to devote continuity in my my time goes in reading the news paper only...i am worried for my Public Adminstration Subject 11 Sep 07 16:41

Answers to shout-box queries-16

I answer below two questions raised by Vikraman in the shout-box.

12 Oct 07, 16:36
vikraman: Sir, There is a debate about changing the basket of goods that constitute the WPI index. Though the inflation has been "tamed", the food prices are still climbing as indicated by CPI(AL) and CPI(IW).We must soon adpot newer basket of G&S to calcluate the WPI. The present one idicates the taste and preferences of 1993-94.

Answer:Yes, my take is that the WPI basket should be reconstituted once in every five years to reflect ground realities. Actually, my preference is for the CPI's adoption for measuring inflation. Any idiosyncracies that may arise out of its adoption have to be/can be tackled at the time of revamping the basket of goods and services itself. I hope the government comes out with a committee to examine the issue ind detail. It should be also mandated to look into the issue of which of the inflation figures have to be taken into account by the monetary authorities while deciding the monetary policy -- is it the core inflation or should it be the headline inflation?

Sir, regarding the introduction of Innovative perpetual debt instrument(IPDI) and debt capitals to help banks generate funds in view of tighetening monetary policies, BASEL II which requires 15% of (capital) to be set aside for operational risks, IPDI has been exempted from SLR/CRR+ call option is disabled which idon't understand why.

Answer: I am not able to understand your question well. Are you wondering as to why the call option on the IPDIs is disabled? If that is so, my initial reaction is that it is termed 'perpetual'. How can there be a call option at all? Can you call back your capital? You can't; know? IPDI is capital. So it can't be called back by the investor. He can only divest it; provided there is a market for it.

If you are wondering as to why IPDI is exempted from SLR/CRR computations, (though I really can't confirm whether this was done) it appears quite logical. SLR/CRR are on net demand/time liabilities; isn't it? Can capital figure under 'net demand/time liabilities'? It can't. So it should stay excluded from the SLR/CRR computations.

Those of you who have a penchant for detail can take a look at the RBI's circular in this regard.

Friday, October 05, 2007

Answers to shout-box queries-15

29 Sep 07, 22:15
jasmeet singh: Sir, what is core inflation and how is it different from WPI (in india),? is there any specific index to measure core inflation in india?

Core inflation is a measure of inflation which excludes certain items that face volatile price movements. Example fuel prices. In many countries, fuel prices see wide fluctuations. Hence they are excluded from the computations of core inflation. When they are included it is called headline inflation. WPI is just an index. It by itself is not inflation. An increase in the index represents inflation.

I give below an excerpt from our RBI Governor's speech in June 2006 about why we don't consider core inflation in our inflation calculus:

"Finally, let me also respond to Professor Jacob Frenkel who raised the general issue of focussing on the core-inflation in policy and not the headline inflation in spite of persistence of high oil prices for a long period. In India, we could not consider core-inflation for several reasons, especially because the two major sources of supply shock, food and fuel, account for a large share of the index. In our case, pass through of higher oil prices has been halting and not full. Thus, the headline inflation in our country in a way understates the problem. So, in our monetary policy communications we emphasised the fact that there is clear evidence of a permanent component in the oil price increase, and hence the headline inflation may be understated till that component is fully passed through. While the permanent component is judgmental, broad magnitudes could be perceived and articulated. Such an explanatory approach to headline and underlying inflation pressure in monetary policy has added credibility to the policy and influenced and guided the inflation expectations in India."

Hope this helps.

29 Sep 07, 08:08
karthik: sir, please tell me why Japanese currency vakue is less than indian rupee? I don't think their economy is inferior to india; i heard something called undervalue of currency?whats that?

Japan has introduced the yen in 1870. At that time a yen represented the value of 24.26 gms of pure silver or 1.5 gms of pure gold. If you were to buy that much of gold or silver now at the current rates, it would approximately require 1181 yen for that much silver and 3572 for the gold. This is where the weakness of the yen comes from. Over the years the yen has lost its value. Especially so during the World War II when its value was fixed as 360 yen for one US dollar. Afterwards, it has actually strengthened against the dollar and is today trading at about 120 yen for the dollar.

There were subdivisions of the yen also, just as we have paise for our rupee. Those subdivisions were the sen and rin. Sen was 1/100th of a yen and rin was 1/1000th of a yen. But these were discontinued in 1953. I hope you can guess why they were discontinued.

1 Oct 07, 17:19
Ajay: Hi, can you please give pointers for what contributes to India's GDP - % wise. What is the breakup in IT industry. similarly - %job sector wise. Also, what is jobless growth?

Look at for the composition of GDP. You will have to calculate the percentages from the figures given. A point to note is that if a sector you are looking for is not found in the table, you are on your own in finding about it from the industry body relating to that sector. They usually have some reliable estimates of their contribution to the GDP. But anyway that would not be official.

I have already answered about jobless growth in the shout-box itself. Any economic growth without creating employment is jobless growth. Such a growth is not considered good. It is more prone to widen the income disparities. Remember the Gini coefficient?

You can get authentic information on Indian Budget and the Economic survey at

Hope this helps.

Friday, September 28, 2007

Answers to shout-box queries-14

28 Sep 07, 10:34

Sadananda: sir, i have asked earlier hw the value of Rupee is decided u said Market, Which Market & hw. tell me by example

Market, means the foreign exchange market operating in India. You don't see it in a physical form like the Bombay Stock Exchange. It operates in a nebulous way. The market participants in it operate through telephones/fax/telex/internet to conduct their trades.

If more dollars are on offer (for sale), the rupee will rise and vice-versa. The foreign exchange earned by various companies will have to converted into rupees; isn't it? So, they sell those dollars through their banks or directly. Similarly importers will be need of dollars, to pay for the goods and services they import from elsewhere. That is how there will be demand for various foreign currencies and Indian rupees.

But because the dollar is the dominant currency in which many countries prefer to operate their import/export transactions, it effectively works as the reserve currency. There are at least three other currencies which also occupy such a position -- the Euro, the Japanese Yen and the UK Pound sterling.

27 Sep 07, 23:37

neha: sir, what is banda chelva pact all about???

It is the agreement between Sirimavo Bandaranaike, the Sri Lankan Prime Minister and Chelvanayagam, the leader of the Tamil Arasu Katchi in 1957. It was about four major issues:

1. Federal constitution for Sri Lanka.

2. Parity for Tamil and Sinhala languages.

3. Repeal of citizenship laws which discriminated against Tamils in Sri Lanka.

4. Immediate halt to colonization of the Tamil homeland in Sri Lanka.

The Sri Lankan Prime Minister repudiated the agreement in 1958 itself.

See for more of it here.

27 Sep 07, 22:23

rishi: sir what is the meant by Indian Economy's fundamentals

I answered this already know? It is about growth in GDP, substantial domestic savings and having a low inflation. Buoyant taxes, reduced/decreasing deficits etc. We can also add the absorptive capacity of the economy as one more fundamental. If the economy is able to absorb more of capital for productive purposes, it is a sign of strong fundamentals.

Thursday, September 27, 2007

The Darfur Crisis

I came across an excellent articulation of the origin of this crisis from Jan Pronk, a senior Dutch politician and statesman who worked as the head of the UN Mission in Sudan (UNMIS), in today’s Hindu. It is worth a repeat. Do read the full interview here.

The seeds of this conflict lie in the historic, tribal, economic, ethnic and ecological dimensions of the problem that had been slowly unfolding over the years in Darfur.

Historically speaking, the borders of Sudan were drawn in the Berlin conference of 1892 at the behest of the colonial powers, with nobody from Sudan being even present there. Subsequently, the north of the country was administered differently and the south in another manner. And before that, the slave trade, dominated by the Arab constituents within the tribal identities, had created their own imbalances.

The baggage and legacy of all this laid the foundations for mistrust and power struggles, leading to the conflicts of the present day. And then progressive desertification, resulting in resource scarcity and economic hardships had been leading to tensions between the nomadic Arab pastoral tribes and the settled agricultural black African communities in the region.

The disgruntled rebels, representing the farming villagers, after continued inaction by the government to act on their behalf, attacked the Al Fasher airport in April 2003. This was the spark that led to unspeakable violence.

The Janjaweed militia, with the tacit and covert support of the government, retaliated and unleashed terror that borders on ethnic cleansing and even genocide. Villagers had to flee their homes to refugee camps, running away from rape, murder, torture, poisoned wells and burnt farmlands. There are now roughly two million displaced people in the camps and another 2,00,000 refugees in neighbouring Chad. The people in the refugee camps now live off international donations, whose continued inflow is not guaranteed within any legal framework. Conditions are difficult in these camps, and there is the risk of a whole generation losing out.

It is imperative that these people are restored to their homes and lands if they are too see meaningful lives again. The world has a great crisis on its hands.

Saturday, September 22, 2007

Implications of becoming a signatory to NPT

Signing the NPT would force India to forswear its nuclear option. Acceding to NPT means accepting the three basic principles represented by it -- non-proliferation, disarmament, and the right only to peacefully use nuclear technology. Can a country, placed as India is, sign the NPT? More so when the very foundations of the treaty are being shaken thoroughly?

In trying to comprehend the implications, it is very important for us to look at these three following questions:

  1. What made India not sign the NPT in the first place?
  2. Has anything changed between then and now?
  3. Or whether these changes have highlighted the necessity of our accession to the treaty?

India’s objection is that the NPT creates a club of "nuclear haves" and a larger group of "nuclear have-nots" by restricting the legal possession of nuclear weapons to those states that tested them before 1967. But the treaty never explains on what ethical grounds such a distinction is valid. Secondly, while China is recognized as a nuclear ‘have’, India cannot remain a nuclear ‘have not’.

These two objections are still valid even after 40 years of the existence of the treaty. Having been an ‘unofficial’ nuclear power since 1974, India had to bear the brunt of sanctions imposed on it by the US government and had to live with the non-cooperation of the developed world for a better part of the last 40 years on science and technology front. This, in spite of our stated policy of ‘no first use’ of a nuclear weapon against any country and an impeccable non-proliferation record.

If at all there is anything that has changed in between, it is that some of the official ‘haves’ and others have indulged in proliferation. US connivance cannot be brushed aside in Israel’s nuclear program. Nor can Russia’s with Iran and China’s with Pakistan. Israel (a non-signatory country) has actively assisted South Africa in the 1970’s. The latter is believed to have tested a nuclear weapon in 1979. But it has subsequently destroyed its entire nuclear arsenal and joined the NPT in 1991.

Now Iran has publicly breached the treaty saying that it is only conducting its nuclear program with a view to produce nuclear energy. The suggestion becomes laughable in the light of the fact that Iran has one of the largest reserves of oil (third largest) and natural gas (fourth largest) in the world. Moreover, enriched uranium can only be used in light water reactors. Iran doesn’t possess light water reactor technology. North Korea has publicly withdrawn from the treaty in 2003 and gone ahead and tested nuclear weapons in 2006. The US and four others are trying their best to resolve the impasse with North Korea still.

None of these events necessitate or usher India into signing the NPT. So why should it sign? Having endured the sanctions regime, India had done commendably well in developing its own nuclear and space program strengths. Acceding to NPT is not a solution. Signing the nuclear deal with the US is. It will hasten the process of our development. It will make the world albeit grudgingly admit India into the club of nuclear ‘haves’. It still retains with it the benefits of a non-signatory country and is not obliged by the treaty conditions. Though being a non-signatory country, we have demonstrated a much better non-proliferation record than the ‘haves’ and other signatories.

Will signing the NPT now bring any extra benefit to India? I doubt it. We are fairly developed. Our progress on the nuclear and space fronts has made the world realize that India perhaps can be slowed down, but not stopped from developing its strengths. The deal with US will hasten the process and integrate us into the top tier countries. Singing NPT may bring these benefits with the added conditionality of forswearing the nuclear option. So, why should it oblige?

Wednesday, September 19, 2007

US Federal reserve and its terminology

“Federal Reserve cuts key rate by 50 basis points”

Amidst fears that the subprime crisis is going to have a negative impact of the other sectors of the US economy and thereby speed up a much feared recession in the US, the Fed has cut the interest rate by 0.5% (100 basis points = 1%) from 5.25% to 4.75%. This reduction is expected to boost consumer spending and economic activity, thus ensuring that the US economy doesn’t go into a recession.

A paper headline like the one mentioned above, has three unknown terms for a novice. “Federal reserve”, “key rate” and “basis points”. Let me explain these terms for you today.

Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States.

The Federal Reserve System is a quasi-governmental/quasi-private banking system composed of (1) the presidentially-appointed Board of Governors of the Federal Reserve System in Washington, D.C.; (2) the Federal Open Market Committee; (3) 12 regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. Treasury, each with its own nine-member board of directors; (4) numerous private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks; and (5) various advisory councils.

The Federal Reserve System implements monetary policy largely by targeting the federal funds rate. This is the rate that banks charge each other for overnight loans of federal funds, which are the reserves held by banks at the Fed. This rate is actually determined by the market and is not explicitly mandated by the Fed. The Fed therefore tries to align the effective federal funds rate with the targeted rate by adding or subtracting from the money supply through open market operations. A reference to “key rate” in the news headline above, is to this federal funds rate.

The Federal Reserve System also directly sets the "discount rate", which is the interest rate that banks pay the Fed to borrow directly from it. However, banks usually prefer borrowing fed funds from other banks, even at a higher interest rate, rather than directly from the Fed, because that might suggest problems with the bank's credit-worthiness or solvency.

Both of these rates influence the prime rate which is usually about 3 percentage points higher than the federal funds rate. The prime rate is the rate at which most banks price their loans for their best customers.

Interest rates are usually mentioned by bankers in terms of basis points. 100 basis points equals 1%. Therefore, 50 basis points refers to 0.5%.

Thursday, September 13, 2007

More about subprime crisis and consequences

"Developing a new risk paradigm” is an excellent article written in today’s ET by TK Arun. A must read for those who want to understand the play of subprime crisis on developing countries’ economies.

It gives an excellent explanation of how the crisis started.

· The subprime crisis started with lenders in the US pushing home loans to people who just didn’t have the capacity to service them.

· These unviable loans do not stay on the books of the lenders for long. They are securitised and sold off to other investors in various esoteric combinations. How risky these instruments were, the investors didn’t have a clue — they chose to swallow the triple A rating the credit rating agencies gave them and bought them up by the tonne anyway.

Some other questions that are answered in straight-forward manner by this article include the following.

What adverse affects were played out by the subprime crisis?

· When interest rates went up, as the Fed raised rates to combat inflation, default on these loans began. Worse, fears of large-scale default began to mount. And defaults on loans lead to mortgage foreclosures, bringing houses on to the market.

· House prices have not just stopped soaring in the US, but also started declining, as more and more houses come up for sale. The drop in house prices makes the outstanding loans riskier still — the loan-to-house-value ratio goes up. If the loan against a house is larger than the market price of the house, even foreclosure will not prevent loss. So, the closer the value of the loan approaches the value of the house, the riskier the loan.

What is a ‘flight to safety’ manoeuvre undertaken by FIIs and how does it hurt countries like India?

· When this perception of risk goes up, lending freezes up, throwing sand into the economy’s machinery. Further, funds undertake a manoeuvre called flight to safety. This is where developing economies like India get hurt. India, and such economies classified as emerging markets, are still seen by developed country fund managers as risky propositions. So the flight to safety will see some funds pull out of countries like India. This could lead to a stock markets slide in these economies, loss of confidence and slowdown of the real economy. This is one source of disruption.

· The other source of disruption is construction-led slowdown in the US. This could hit developing economies that export a lot to the US. Around 40% of Chinese exports, for example, go to the US. About 22%of Indian goods exports go to the US and a significantly larger share of India’s service exports.

You may also be interested in looking at what we noted on the subject earlier on:

10th August

11th August

17th August

3rd September

Monday, September 10, 2007

Oaths of Office

Why are oaths of office and secrecy different for various functionaries in the Constitution of India?

The President and the Vice President are above the three pillars of the Constitution of India viz., the Legislature, the Judiciary and the Executive. Perhaps, this explains their oath being mentioned in the main Constitution (Arts. 60 and 69) itself; not in any Schedule thereof. They affirm that they will discharge their duties faithfully. The President undertakes to preserve, protect and defend the Constitution and the law of India. The Vice President undertakes to faithfully discharge his duties and owes his faith and allegiance to the Constitution of India.

All the functionaries have to express their allegiance to the Constitution of India and upholding the sovereignty and integrity of the country. The obligation relating to their oaths of office and/or secrecy is laid down in Articles 75(4), 99, 124(6), 148(2), 164(3), 188 and 219 of the Constitution. The actual text of their oaths and affirmation are mentioned in the III Schedule the Constitution. The Legislatures will have to affirm only this. The Executive functionaries have to express in addition, that they will discharge their duties without any fear or favour. The Judicial functionaries have to affirm that they will perform their duties without fear or favour and also uphold the Constitution and the laws of the land.

As the Legislatures are basically involved with law making; which happens through lot of open debate, there is no oath of secrecy for them. The Executive and Judiciary on the other hand will have to express that they will perform their duties without any fear or favour. While the Judiciary has to uphold the Constitution and the law of the land, the Executive will have to undertake to maintain oath of secrecy.

Sunday, September 09, 2007

Answers to Shoutbox queries-13

8 Sep 07, 23:03

vikram sahasrabudhe: hello, I am appearing for the IAS mains this Oct, I wanted to know the source from which you have prepared these notes ? Is it a mix of Hindu , TOI and ET ? or only Economic Times, Please let me know. These notes come in very handy at the last moment , I have experienced it in the PT . . though I was preparing the notes that time but now as I am short of time . . its not possible as a result, I would be skipping some part of the newspapers . . so please let me know so that i can sort out my own notes too . . n rely on some part of ur notes as well as mine . .

Ans: It is a mix of ET and Hindu for the most part. I note something from TOI usually on Sundays. My recommendation is – be selective in what you note. Be on your own when you see something complicated and/or not the run-of-the-mill stuff. Because such preparation gives you all the background needed for articulating a point. But for others, you can safely depend on this. My blogs are basically meant for:

1.Those who are short of time to go through the daily newspapers and make notes from.

2. Those who read, but are not able to make any notes from there.

3. Those that need some backgrounders and/or help in understanding the basics behind some current developments.

7 Sep 07, 16:52

Vikash: Dear Sir Glad to join your forum . A simple question , I am not able to devote time in the studies taking into consideration that I am working and often i am on tour . How much time i shud devote.

Ans: For people like you, my advice is follow the time management principles suggested by Dale Carnegie. They are very effective.

But a lot depends on your background/battle-readiness. If you had already seen one Mains attempt, that implies that Prelims should not be a problem area for you. But if you had not cleared Prelims, it calls for lot of preparation effort from you. My recommendation for average students (the 60% to 90% people) is that they should devote a full year for the preparation. Those who are above 90% category, even while working can test their mettle and see. The chinks in their armour, if any, will come out in the first attempt. Take a call then. If the chinks are too many, devote a year and you should be safely through to Mains. See your performance in Mains. That should give you a clear idea of how much effort you should put in for your next attempt. Generally people from CBSE/ICSE schooling backgrounds find it easy to attempt the exam.

7 Sep 07, 13:31

smita: sir plz tel m what strategies i should follow and how i should devote my time 4 optionals

Ans: Had you gone through these three posts?

Please go through them first. The suggestions that you are seeking may have been there already. If not, ask me again. I would reply you in your mail.

7 Sep 07, 13:30

smita: hello sir, ur blog is very gr8 & helpful 4m sir I need ur help as m preparing 4 IAS as 1st opt is pub add & 2nd is Agri. but having confusion whether i m on right track or not

Ans: It depends on your background. Are you from Agriculture Science background? If so, that shouldn’t be a bad idea. But why Pub Ad? Why not Botany/Zoology? They could keep you in good stead even for the IFS exam, which is an equally good service. But there are many who are choosing such combinations. But you should be prepared for some grilling in the interview stage.

7 Sep 07, 12:28

Namita: sir presently i am in research at IIT Delhi on GIS.i want to appear for IAS exam but i have lack of idea and i have computer science bankground ,plz help me regarding this.

Ans: Ooh boy err… girl, you will have helluva time convincing the interview board with your background. They are sure to grill you like mad. This is not to deter you. But are you sure that you want to go for this exam? You may be making tons of money with your background in private sector. Many IAS officers are quitting the service midway and joining the private sector. If you still want to have a go at it, here is my advice:

Look at one engineering subject. Civil/Electrical/Mech. I mean glance through the syllabus. It is available everywhere. UPSC site, Civil Service India site etc. Finding it tough? Look at Maths. One of these could be an option. Then look at your mother tongue. Do you get the confidence that you can manage the preparation? Then it could be the other option.

If you have to learn these from the scratch, dump both of them. Go for safer bets like History/Pol Science/Psychology/Sociology/Anthropology etc. Though you may find them also totally new, with an year and a half’s preparation you should be in the reckoning.

But I am still skeptical; are you sure you want to do this?

7 Sep 07, 10:00

yasaswi: sir one thing that i wat to know that i take optionals in general as history and public administration and wat are the books to be read for civils

Ans: Again, my advice is look up the Civil Service India site, for which we have given a link from our Resources page. The recommendations that are found on that site are good enough. My recommendations can’t vary from theirs.

7 Sep 07, 09:57

yasaswi: sir iwat to know when the civilservices exam notification will begiven

Ans: Just keep track of the UPSC site. We have given links from our blog’s “Resources for Preparation” page to a number of sites which keep track of such things like notification dates, and also host forums on speculating about the cut-off marks etc.

Usually a few months before the Prelims and Mains, you can expect the notifications. As you might be knowing Prelims are usually held in June and Mains in October/November.

7 Sep 07, 09:37

chakra: thanku sir, iwant to know about international news so plz send some information regarding this

Ans: International news is more useful for Political Science students only and as a majority of my readers are here for General Studies, I desist from giving it a wider coverage.

6 Sep 07, 10:43

abhijeet: sir, what is the difference betn NREGA and NREG scheme.

Ans: One is the Act and the other is the implementation of the same. That’s all there is to it. To my knowledge the difference, if any, is nothing but semantics.

3 Sep 07, 22:30

jagan: sir, what are derivatives?

Ans: A simple definition is: A derivative is a financial instrument that derives its value from the value of other financial instruments or an underlying asset such as a future, forward, commodity, futures contract, stock, bond, currency, index or interest rate.

If the value of the underlying security undergoes a change it gets reflected in the derivative. At times the converse also is true. The value of the derivative may undergo a change which may trigger a change in the value of the underlying security. That is how the market's perception of an underlying security gets reflected through its derivatives. For eg., remember what we noted about CDS? A change in the value of the CDS (which is a derivative) impacts the value of the underlying debenture of the company.

Thursday, August 30, 2007

Is using forex reserves for funding infrastructure too risky?

Yes, argues an ET editorial. Let’s take a look at it.

The government has directed RBI to invest $5 bn of forex reserves in the special purpose vehicle (IIFCL) floated for funding infrastructure needs of the country. The entity would fund equipment buys and investment by Indian companies abroad.

How far such a direction is tenable is questionable. RBI’s mandate of investments is drawn from Section 17 of the RBI Act. It allows investments only in gilt-edged securities with maturities less than 10 years, in bonds issued by other sovereign states and deposits with multilateral institutions. But government has argued that clause 13 of the same Section empowers the Central board to approve investments by RBI in foreign institutions.

Funding infrastructure needs out of our huge forex reserves is bad because, it is not lack of funds which is hindering infrastructure growth; it is lack of bankable projects. In such a scenario, funding the unbankable project through the use of the special purpose vehicle (IIFCL) will only result in the SPV not being able to service its bonds over a period of time and the all too familiar cycle of writing off of the bonds have to be lived with. This is nothing short of deficit financing.

On the other hand, if the projects are designed in a bankable way, then there is no need for them to use the SPV route at all. So this clearly brings out one thing – the accounting fudge being indulged in by the government; nothing more nothing less.

A better solution therefore is to moderate forex reserve growth through greater exchange rate flexibility; hiving of forex reserves management to a professional investment agency like China Investment Trust or Singapore’s Temasek, and simultaneously reduce policy waffle so that infrastructure projects get financed on their own strength.

So argues the ET editorial. But is the move really that bad? I don’t think so. Everybody knows that infrastructure needs of the country are very high. It is also a given that the country is on a growth path and is expected to stay the course in the medium to long term. This makes the prospect of securitizing the loans advanced by the SPV look attractive. Create an international market for such securitized assets; and I am sure it will whet the appetite of the international investors in the India growth story. Secondly, the proposed route is not much different from the method and manner in which the CIT and Temasek are investing for long. So, why should there be any objection? Lastly, is $5 bn such a huge amount when we are looking at $240 bn reserves? Why keep looking at only the downside all the time? Can’t we look at the upside? I think the fears are largely unfounded.

Tuesday, August 28, 2007

Hyderabad Bomb Blasts

A couple of you have written to me showing your concern for my safety in Hyderabad. But just as news broke about the bomb blasts, I was leaving the city on a two day trip to the interiors of Andhra Pradesh on a personal trip. I am pretty much safe and fine. But all through my trip, my thoughts rarely strayed away from the people who lost their lives. Many of us may be found wanting in expressing our regrets and grief. But not so experienced journos and other senior editorial personnel at the ET. Take a look at this excellent comment:

    • Indian politics today, is either about harassing Muslims for the sake of Hindutva, or pandering to retrograde impulses in the name of secularism. The abysmal record of our intelligence and investigation agencies, both in terms of preventing deadly terror strikes and correctly figuring out who the real culprits behind successful soft-target attacks are, is partly a function of such moribund politics.
      • If you were asked “Indian politics is the culprit behind the frequent terror strikes happening in India. Comment. (100 words)” You can’t have a better answer than the one above.

Similarly, if you were asked to suggest suitable remedial measures for tackling terrorism, I would rate the following paragraph as the best answer.

    • Community policing, which would ensure accurate intelligence gathering and water-tight and credible investigation, must immediately be institutionalised. But that would really work only when such dangerously sterile politics is replaced with a new politics that engages and transforms the Muslims into a modern social group, even as it cleanses the mainstream of all majoritarian and communal biases. Tough anti-terror laws are no substitute for effective and better-coordinated policing, which includes state and central authorities working together and sharing intelligence.

PS: I am sorry friends, if I am looking too businesslike in our approach to preparation. My heartfelt condolences to all those who have lost their near and dear in this mad act in Hyderabad.

Friday, August 24, 2007

Should Ronen Sen be recalled?

I am sure by now all of you are familiar with the ‘headless chicken’ statement that was made by the ambassador of India to the US while giving an interview to the press.

The politicians, especially the BJP and the Left were baying for his blood since then, citing breach of parliamentary privileges. His comments are seen as an affront to the elected members of parliament.

I am a bit surprised as to the venom that is on display even in the Press. While the Hindu has called for recall, today’s ET appears to have taken a more reasoned approach.
It argues for a thorough codification of what can be called the parliamentary privileges. Concepts like contempt of court and parliamentary privileges do impinge on the freedom of expression. Therefore, while their existence should be welcomed, there has to be clear cut guidelines as to when a person is deemed to have breached the privilege. Should omnibus comments like the one made by our ambassador be deemed as an insult? I don’t think so. Some comments made in today’s ET deserve an excerpt. Take a look:

Criticism of legislative functioning, especially when comes from quarters outside the legislature, serves to enrich democracy. The parliamentary system is no more than the best possible form that enables such deepening and broad-basing of democracy. To privilege this form over content would brush the original democratic project against its grain. Legislative privileges must be so defined that nothing save the most egregious actions – such as deliberately misleading the legislature – are deemed breach of privilege.

Thursday, August 23, 2007

Can the sub-prime crisis rock the international financial system? What role can central banks play in this?

We have been following the US sub-prime crisis for quite some time. I always wondered as to why Prof. TT Ram Mohan has not written on the subject for a long time. Here it comes today. And he seems to be grudgingly accepting (vindicating my stand) that the problem can be serious and perhaps pose some systemic risks. Though he did not say it in these words, this concern seems to be there somewhere back in his mind.

His article poses and answers two very good questions. Take a look at it here. In the process of knowing the answers, we can get our fundas right.

How could the sup-prime crisis rock the international financial system?

  • Banks are exposed to the sub-prime crisis not directly, but through derivative instruments known as CDOs. Hedge funds hold the riskier part of the CDO (Collateralized Debt Obligations) tranches. Their holdings of CDOs form a high proportion of their portfolios. As a result, hedge funds are extremely vulnerable to a problem in sub-prime mortgages. Because hedge funds are highly leveraged (meaning, they are able to obtain loans in the ratio of 20:1. That is for every dollar of rupee they bring in, they are able to obtain a loan of 20 dollars) a small drop in value of assets suffices to create bankruptcy.
  • The perception that a hedge fund is on the verge of bankruptcy triggers redemption calls from investors. Lenders too want their money back. This forces the hedge fund to liquidate assets. When this happens at several hedge funds, there is a wave of selling. Panic grips the markets quickly. Risky assets begin to get dumped as investors seek refuge in government securities. All of a sudden, assets become highly correlated. The risk management models that financial institutions use, compel them to reduce market exposures. This leads to more selling, more bankruptcies.

But is there any clarity as to the role that has to be played by the Central banks? He opines that there is a certain clarity.

o First, as long as commercial banks are not threatened, they must provide liquidity but they must not bail out insolvent institutions.

o Secondly, central banks must provide liquidity at an appropriate price. Anything less amounts to a bailout.

o Thirdly, central banks must not cut interest rates unless there is a clear indication that the problem is spilling over into the real economy. This is because, cuts in interest rates amount to a bailout of impudent investors and creates a moral hazard.

Is this all looking like Greek? Don’t worry, understand as much as you can and move on. If you have Economy and Finance as optionals, it is quite likely that a person like TT Ram Mohan may grill you in the interview.