Thursday, May 31, 2007

Talibanisation of Sikhism

In an interesting piece written in “The Hindu”, Madanjeet Singh, himself a Sikh and a former Indian diplomat questions the militant outlook of the Sikhs. He says that the Sikh fundoos (people holding extreme views) have distorted out of all recognition the militant order of Khalsa that Guru Gobind Singh instituted in 1699. He says that it is incomprehensible as to how anyone can project nine years of Khalsa as the rason d’etre of Sikhism and give it precedence over 239 years of the history of the Sikh Gurus.

Sikh tradition has it that Guru Nanak at the age of 30, declined to say anything other than repeating “There is no Hindu, there is no Muslim.” Nanak believed that faith was a matter of personal belief and he urged Muslims to be true Muslims and Hindus to be true Hindus. His followers were called Sikhs, and included many Muslims and Hindus. Guru Nanak passed away on September 22, 1539, what he left behind was a great legacy of the three pillars of Sikhism: meditation, earning and honest living, and sharing with others. The institution of langar – common community kitchen, which the Guru established was aimed at breaking the discrimination of the caste system.

The first Khalsa was launched by Guru Gobind Singh on March 30, 1699 at Anandpur Sahib, barely nine years before his death in 1708. The order was formed during a state of emergency to confront the Mughal army in guerilla warfare. The ever-ready equipment of the five Ks – Kesh (uncut hair), Kanga (comb), Kaccha (short trousers), Kara (steel bangle) and Kirpan (sword) – was essential for the militants as they moved from place to place under cover of forest. In fact, following the death of Aurngazeb in 1707, the importance of the purely militant character of the Khalsa organization diminished.

Facts have it that one in three residences of Punjab belongs to the Scheduled Castes – the highest percentage in India. He says that the Punjab region has become the ghetto of caste apartheid. He cites an example of the seizure of a shrine at Talhan by upper-caste villagers which provoked large-scale rioting, that lead to violent attacks on both Sikh and Hindu Dalits. In response, Dalits have increasingly turned from the established faiths to new spiritual leaders who articulate their anger.

It appears that people like Piara Singh Bhaniarawala (a Dalit Sikh spiritual leader) and the Dera Chief are but manifestations of these leaders to whom the lower caste Sikhs have turned to.

Wednesday, May 30, 2007

Dera Sacha Sauda

Rishi was asking me in the shout-box to explain something about Dera Sacha Sauda. Here I go.

It is a spiritual organization based in Sirsa (Haryana) since 1948. Its followers call their guru as ‘Master’. It had three Masters so far, the present being the third. The first one was Shehanshah Mastana Ji Maharaj, who led them till his death on April 18, 1960. The second one was Param Pita Shah Satnam Singh Ji Maharaj, who led them till September 23, 1990 when he passed on the leadership to the present Master Sant Gurmeet Ram Rahim Singh Ji.

Its website says that the meaning of Sacha Sauda is to truly meditate the name of the Allah, Ram, God without interfering in anyone’s religion or caste.

Courting controversy for the present Master, appears to be not new. In 2002, he was in the eye of a controversy when the editor of a local daily “Poora Sach” was found murdered with bullet injuries. That editor was writing negatively about the goings on on in the Dera. At around the same time, there were reports of sexual exploitation of of some women followers. Though nothing (as usual) remained in public memory, the present controversy arose because some posters appeared showing Ram Rahim Singh dressed up as the 10th Sikh Guru, Guru Gobind Singh. That is when the Sikhs (especially the SGPC – Shirmani Gurudwara Prabandhak Committee, which overseas the Sikhs’ religious affairs) got wild and started protests. Initially the demands were to tender an apology to the Sikh community for denigrating them. Then the demand was upgraded to giving an apology in writing. The Master is reported to have tendered an apology to the Sikh Guru in writing and handed over the letter to the SGPC. But the SGPC appears to be still not satisfied. The apex Singh Sahibs (Clerics) of the Sikh community have rejected this apology and warned the Master against imitating the practices of any faith across the globe. They said they would continue their struggle against the Dera Chief.

Tuesday, May 29, 2007

Full and capital account convertibility

Sreenadh was asking me about the meaning and import of trade and current account convertibility and also about capital account convertibility.

Answer to such questions can elicit different responses from people with differing backgrounds. For our understanding, I would like to put it this way:

If you are able to pay for the goods and services that you are importing into the country without any hindrance i.e., no caps or restrictions, then it is called full convertibility on trade and current account. If you are only allowed to import certain goods with a kind of ceiling or cap fixed on them – say an individual cannot import more than $100 worth of magazines in a period of three months, then there is no full convertibility of current/trade account. Current account or trade convertibility also includes your ability to export some goods and services and get paid in any currency by the foreign importer. When you receive that foreign currency in India, if the Central Bank is not going to place any restrictions on conversion of that currency into local currency, then that is full convertibility.

If a foreigner is allowed to invest in the country in any sector without any fear of restrictions being there on the future repatriation of profits and/or capital on winding up of operations, then it is full convertibility on capital account. Similarly there is another side to this coin. You should be able to invest (establish companies, factories etc.) in any foreign country without any fear of your being denied equivalent foreign currency if you give local currency to the Central Bank (RBI).

Monday, May 28, 2007

Sponsored Post: How not to write a blog?

I came across a blog, which I accepted for reviewing. Those of you who are budding bloggers and/or serious ones already, should certainly have a look at this blog to learn how not to maintain a blog.

The author of the blog preferred to remain anonymous and had posted just two posts in the blog. And the blog was about reviewing laptops. Other than the reviews of two laptops, which themselves were lifted out of some other site, there is nothing else in the blog. This is what you should never do.

Write something which is original and which is truly your own. Don’t lift content from somewhere else and post in your blog, as if it is your own.

The only good thing that I found about the blog was that the author appears to be very tech savy. He knows how to go about promoting the blog, get higher page ranks and enlist the services of top sites for getting his blog reviewed. His unabashed attempt at getting a page rank is titled GetRank.

Is it worth follow this link to know what I am saying? I think so. Though it may take a couple of your precious minutes, do have a look at it to know what not to do in the Internet space. By the way, the content that he lifted is good. It is real and exhaustive information giver about the specs of two Lenovo IBM Thinkpads.

Should forex reserves be invested in equities?

Paper reports have informed that China has decided to invest about $3 bn of its reserves in Blackstone, a private equity fund. On the face of it, it will look like a communist government doing what capitalists would normally do. But most analysts failed to understand and predict China. This coupled with the fact that India also has been accumulating substantial forex reserves, (though not at levels which are comparable to the Chinese – its forex reserves have crossed the $1 trillion mark while that of India’s are currently at about $200 bn) has brought the question of making more money out of deploying these reserves, to the fore.

First some facts. India’s earnings on forex investments, which are mostly made in US Treasury bills and Gold, were about 3.1% and 3.9% respectively in 2004-05 and 2005-06. Taking into account the inflation rate prevailing in those years, the returns translate to a negative return of -1.86% and -0.75% respectively. The current year is not expected to perform any better.

There are two arguments for and against such use of forex reserves.

China is not the only country that has undertaken such a deployment of forex reserves. Singapore, South Korea, Malaysia and Thailand have been investing their forex reserves in various assets like top-grade corporate bonds, equities and real estate all across the globe.

While that is so, what one needs to look at is:

  1. Can a country like India, which has witnessed comfortable levels of foreign exchange accumulation only in recent times, afford to invest in riskier assets? Those countries have been having comfortable forex accumulations over a much longer period.
  2. On the face of it, China’s deployment appears to be a sound business proposition. Their interest rates are far lower than that of the US. So, if they are investing about $3 bn out of their $1 trillion funds, it is a simple case of testing the waters. It hardly makes up for a paltry 0.3% of their total reserves.
  3. But for a country like India, which in fact is subsidizing exports by costly forex build up operations, does it make sense to invest such reserves in more riskier assets? The answer can be a ‘yes’ and ‘no’ depending on how you look at it. If the risks yield better rewards, then the costs of building them up would be offset, at least to a certain extent. On the other hand, if the risks hand out worse results, it will lead to a further hike in costs for the country. So, only a careful study of the risk-reward ratios should clinch the decision rather than mere copying of what China or some other country does.

Sunday, May 27, 2007

Carbon Trading Mechanism

I was asked to explain something about carbon trading by Vivek sometime back. Here I take a shot at it.

Emissions trading is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. The development of a carbon project that provides a reduction in Greenhouse Gas emissions is a way by which participating entities may generate tradeable carbon credits. Say a company in India can prove it has prevented the emission of x-tonnes of carbon, it can sell this much amount of points (or carbon credits) to a company in say, the US which has been emitting carbons. The World Bank has built itself a role in this market as a referee, broker and macro-manager of international fund flows.

A central authority (in our case CDM India, an authority under the Ministry of Environment and Forests) sets a limit or cap on the amount of a pollutant that can be emitted in a country. Companies or other groups that emit the pollutant are given credits (CERs – Certified Emission Reductions) or allowances which represent the right to emit a specific amount. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that pollute beyond their allowances must buy credits from those who pollute less than their allowances or face heavy penalties. This transfer is referred to as a trade. In effect, the buyer is being fined for polluting, while the seller is being rewarded for having reduced emissions. Thus companies that can easily reduce emissions will do so and those for which it is harder will buy credits which reduce greenhouse gasses at the lowest possible cost to society. Countries which have companies having higher credits will enable them to sell the credits in the international market.

There are a number of international markets -- most notably the EU, with its European Union Greenhouse Gas Emission Trading Scheme (EU ETS) that began its operations on 1 January 2005. Companies which accumulate CERs sell them there in this market to interested buyers. The international market for CERs has crossed the $30 bn mark in 2006, largely driven by the trading of EUA (European Union Allowances). EUA are the equivalent of CERs (Certified Emission Reductions).

China is the largest seller in the CDM market with about 61% share, followed by India with 12% share.

So far, India approved about 513 (as of April 2007) projects with a potential to generate about 355 mn CERs (Certified Emission Reductions). Each CER can trade for anywhere between $6 and $16 in the international market.

Saturday, May 26, 2007

Preparing for Civil Services Exam

Rohit, a student of NIT Bhopal, asked me advice on how to start preparation for civil services examination.

I have answered this, a number of times. But this time, I thought I would put it on the blogs itself, so that all of you could take a peek at my viewpoint. What I am going to describe need not necessarily be the best way to attempt the Civils exam. But it worked for me. I have seen it work for quite a few others. So I have belief in it.

Preparation varies from candidate to candidate. I would dare say that not all people are born equal. Some are born with the ability to grasp quickly some things, while some others are born to grasp some others things which the first set cannot possibly be good at. Again, some are born to find ease in ‘method’ and some are born with the ability to find ease in ‘madness’. Thus, while it all depends on your innate character and strengths, there are some things which I call common denominators, which enable anybody to take a shot at the exam in a reasonable way. It is for you to decide where you stand in this pecking order. Don't be over confident; don't be a frightened chicken. An exam is after all an exam. Life doesn't start or end with an exam. You may be surprised to know that quite a few of those who succeeded in the exam were miserable failures on the job. Those that didn't make it to the exam subsequently turned out be quite successful in life and have achieved far greater heights than the ones that did.

Preparation varies for first timers and repeaters. For repeaters my advice is -- look at where you made the grade. Look at where you failed to make the grade. Try to compute the kind of extra marks that you can get from working on both these. Which of them is easier to work with – is it working on your strength, or is working on your weakness? Take a call and work on that which will fetch you more marks. Don’t waste precious time on things that will not give you any mileage even when you put in extra effort.

For first timers my advice is start at least 18 months before the Mains exam. You should assume that you are clearing the Prelims. So, from the 18th month before the Mains, which is usually around April/May of the previous year, start with your Mains preparation with the optionals. Cover them at least once in about 6 months. Then about 12 months before the Mains exam, start with the GS preparation (both for Mains and Prelims), the General Essay paper and Prelims optional preparation. Continue this up to 6 months before the Prelims. At 6 months before the Prelims go slow on your GS for Mains and General Essay paper and continue with the GS Prelims and Optional Prelims preparation. Write the Prelims. And continue with your Mains preparation in full swing for GS, General Essay and Optionals. Whatever might be the Prelims result, keep preparing this way till the Mains time. And the cycle continues.

When you clear the Mains, interview preparation calls for an equally grueling schedule. Don’t underestimate it. For interview you should concentrate mainly on GS and OLQ (Officer Like Qualities). I strongly recommend reading as many published interviews of successful candidates as possible. There are a number of places where you can get them. Stay in touch with the latest happenings and preferably the most controversial of them. It can give you a chance to steer the interview your way. It is a tough job; but I saw it happen to quite a few people. Even if you don’t perform well in the interview, don’t lose heart. It is not your performance here that matters; what matters is your total score thus far. Though I have not heard of cases which failed miserably in interview and yet succeeded in the selection, it is not altogether an impossible thing to occur. Technically it is possible. For anybody who has performed well in the Prelims and Mains, it is very tough to foul it up. Put your best foot forward and win.

Friday, May 25, 2007

Understanding IMF Loans

I was asked a couple of days ago by one you to explain the import of this statement found on IMF’s web site.

"Technically, countries do not receive loans from the IMF -- they "purchase" foreign exchange from the IMF's reserve assets, paying with their own currency. The loan is considered repaid when the borrower "repurchases" its currency from the IMF in exchange for reserve assets."

You should know that the mandate of IMF and the World Bank are totally different. Many a time even the institutions themselves are confused as one entity.

The IMF is not a development institution. It does not and cannot, provide loans to help poor countries build their physical infrastructure, diversify their export or other sectors, or develop better education and health care systems. This is the job of the World Bank and the regional development banks.

The IMF makes financing temporarily available to member countries to help them address balance of payments problems—that is, when they find themselves short of foreign exchange because their payments to other countries exceed their foreign exchange earnings. Its loans are intended to help its members tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth. Unlike the World Bank and other development agencies, the IMF does not finance projects. In most cases, IMF loans provide only a small portion of what a country needs to finance its balance of payments. But, because IMF lending signals that a country's economic policies are on the right track, it reassures investors and the official community and helps generate additional financing. Thus, IMF financing can act as a catalyst for attracting funds from other sources.

The ‘loan’ advanced by IMF to a member country is in the form of SDRs – Special Drawing Rights (an instrument which was introduced in 1969). A country that is advanced loans by IMF is given these SDRs (in exchange for its own currency) with which the country buys the required foreign currency to tide over its balance of payment crisis. When the country comes out of the balance of payment crisis, it surrenders these SDRs and gets back its currency. Hence the statement that IMF does not actually given any ‘loan’ but only a facility in the form of SDRs.

The basic purpose of IMF:

The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to buy goods and services from each other. To maintain stability and prevent crises in the international monetary system, the IMF reviews national, regional, and global economic and financial developments. It provides advice to its member countries, encouraging them to adopt policies that foster economic stability, reduce their vulnerability to economic and financial crises, and raise living standards, and serves as a forum where they can discuss the national, regional, and global consequences of their policies.

And it provides technical assistance and training to help countries build the expertise and institutions they need for economic stability and growth.

Thursday, May 24, 2007

About Offices of Profit Issue

On 8 May 07, at 23:19, Aishwarya was asking me to explain the provisions in brief of the Office of Profit bill, i.e., the amendment proposed in 2006.

So I did a bit of research on the issue and here I go.

Those of you who have got the time and patience to go through what I have gone through to write this piece, please go ahead and follow this link:

A lot of ruckus was raised on this issue. Under the Constitution, the President decides whether a sitting member has incurred disqualification in consultation with the EC.

Article 102 (1)(a) bars an MP from holding any office of profit under the government of India or in any state other than an office declared by Parliament by law not to disqualify its holder.

Further Parliament passed an Act in 1959 through which it declared holding certain offices of profit under the Government as not disqualifying the holders thereof for being chosen as, or for being, Members of Parliament. You can read this act here. It is a small 7 page enactment. Many offices were mentioned in the Schedule to the enactment. Any person holding these office/s would not be disqualified from being or from being chosen as an MP.

It all started with a complaint lodged by one Mr. Madan Mohan. He contested against Jaya Bachchan to become a Rajya Sabha MP and lost the election from UP. Jaya Bachchan went on to become the Rajya Sabha MP from UP on the backing of Samajwadi Party. This was sometime in 2005. Based on his complaint the Election Commission has recommended Mrs. Bachchan's disqualification on the ground that she was holding an office of profit -- Chairperson of UP Film Development Board.

It was then that all hell broke lose. Many prominent personalities including the present Speaker of the Lok Sabha and the Chairperson of UPA, Sonia Gandhi etc., were found holding ‘Offices of Profit’ while still being MPs. Because the UPA had many people who were holding ‘Offices of Profit’, it was decided to amend the 1959 enactment (it was also amended on a couple of occasions earlier) and bring in all those ‘Offices of Profit’ being held by the MPs under the exempt category.

When the bill was presented for the first time to the President, he returned it to Parliament. He wanted the Bill to be reconsidered in the context of a “settled interpretation” of the expression ‘office of profit’ in Article 102. Adding that the issue called for comprehensive and fair criteria applicable across all states and UTs in a transparent manner. Among other concerns, he also wanted Parliament to consider whether an amendment seeking to be applicable retrospectively, is indeed sound in law. Under Article 11, the president may return a bill once. If it is passed again, he has no power to withhold his consent to it.

Parliament cleared the bill and has sent it again to the president. He had to give assent to it. This law exempted 56 positions held by about 40 MPs of various political parties. With this, all the petitions pending before the EC on the issue have become infructuous. As did the JPC (Joint Parliamentary Committee) that was appointed by the Lok Sabha to go into the issue.

Through the amendment a three sub-sections viz., (k), (l) and (m) were introduced in Section 3 of the original Act. A table also listing out all the offices of profit the holding of which would not disqualify the person from being an MP, is appended to the enactment. See the enactment as it stands with the amendment incorporated here.

Tuesday, May 22, 2007

Controversy about taking Dhaka

There is an unseemly controversy about the taking of Dhaka in 1971 by the Indian Army. Let’s know some details about it; it’s interesting.

Some important personalities associated with the 1971 liberation of Bangladesh:

Field Marshal Sam ‘Bahadur’ Manekshaw, Indian Army Chief

Major-General J.F.R. Jacob, Chief of Staff of the Eastern Command

Major-General Gandharv Nagra, India’s General who captured Dhaka

General Tikka Khan, the Pakistani General who oversaw the pogrom against the Mukti Bahini guerillas of Bangladesh

Abdullah Niazi, Pakistan’s Eastern Command Chief in Dhaka

Abdul Kader ‘Tiger’ Siddiqui, the leader of the Bangladesh guerillas

General Jacob asserted that the capture of Dhaka did not figure in the Field Marshal’s offensive plans and that it was in fact the result of the initiative of mid-ranking officers – notably himself.

In March 1971, Pakistan initiated a massive pogrom directed at pro-Bangladesh nationalists. General Tikka Khan estimated that the Pakistani forces killed at least 30,000 people. Mukti Bahini (Liberation Army) guerillas responded by staging strikes against Pakistani forces from bases inside Indian soil.

India entered the war on 3 December 1971. In fact, the Indian soldiers were already participating in the war in different guises since November when the freedom fighters had launched the Belonia battle. The war with Pakistan was officially declared through Operational Instruction 53 of the Indian Army Headquarters. It ended with the liberation of Bangladesh from Pakistani rule. On 16 December 1971, commander of the 14 division of Pakistan army Major General Jamshed surrendered to Indian General Nagra near Mirpur bridge in Dhaka. At 10.40 am, the Indian allied force and Kader Siddiqui entered Dhaka city. That signaled the end of 9-month long War of Liberation of Bangladesh.

About Ways And Means Position

I was asked on 22 May 07, at 13:12:

kushagra: sir, plz update me on ways and means advances. what is the current position.

My Answer:

The Reserve Bank provides the facility of WMA/ OD to the State Governments and manages market borrowing programmes for States. Let us take a look at the WMA position of all the States as at the end of March every year from 1991:


Rs. Crores



































Source: Finances of State Governments – 2006-07: Highlights, Published by RBI on February 15, 2007.

Based on the recommendations of the Bezbaruah Committee, the aggregate normal WMA limit was increased by 10.5 per cent to Rs.9,875 crore for the year 2006-07. The interest rate on WMA for 2006-07 has been linked to the LAF (Liquidity Adjustment Facility) repo rate as against the Bank Rate earlier.

Some excerpts from the same report that are worth noting to get an understanding of the WMA position:

During 2005-06, the average utilisation of normal WMA, special WMA and overdrafts by the States remained substantially lower reflecting an improvement in their overall cash position. There was a reduction in the number of States that availed normal WMA during 2005-06 (12 States as compared with 21 States in 2004-05). This reflected a change mainly on account of the provision under the revised Scheme that special WMA should be availed before taking recourse to normal WMA. The special WMA facility is linked to the investment in Government of India securities by the State Governments. The rate of interest charged on special WMA was one percentage point less than that on normal WMA. Higher mobilisation of Small Savings and enhanced market borrowings also facilitated the reduction in recourse to normal WMA. Similarly, there was a reduction in the number of the State Governments (8 States as compared with 13 States in 2004-05) availing overdraft during 2005-06. The liquidity position of the States has remained comfortable during 2006-07 (up to October 31, 2006). The weekly average utilisation of WMA and overdraft by the States at Rs.239 crore during 2006-07 (up to October 31, 2006) was substantially lower than that of Rs.772 crore in the corresponding period of the previous year.

An issue that has a bearing on the liquidity management by the State Governments relates to surge in surplus cash balances of the State Governments as reflected in their investments in 14-Day Intermediate Treasury Bills. In view of the build-up of the surplus cash balances, resort to utilisation of WMA/OD by the State Governments has declined significantly. The upsurge in surplus cash balances of the State Governments has emanated mainly from the large automatic inflow of relatively high cost NSSF resources, larger central tax devolution and grants following the recommendations of the TFC, as well as buoyancy of States’ own tax revenues, in relation to their budgetary projections. The surge in surplus cash balances of the State Governments, however, has posed challenges to the cash and financial management of the State Governments. The Working Group to Evolve the Framework for Investment of State Government Balances constituted by the Reserve Bank is seized of the matter.

Government Bonds and MSS

I was asked the following on 21 May 07, 21:43:

Sreenadh: Why there is limit on govt bonds? how much interest govt pays on that. what is the benift of MSS over conventional ones.

My Answer:

Government cannot (and does not want to) borrow more money just because it can borrow more. It only wants to borrow only that much as is needed. Say if it wants to raise Rs. 30,000 crores in a year, it will only issue those many bonds. Even out of this also, there would be two types of issues – a short term one and a long term one. Long term bonds carry more interest and short term bonds usually carry lower interest rates. As Government’s banker, RBI manages these issues of bonds and raises the money required by Government. When the RBI doesn’t manage the issues, it can also buy the bonds of the Government and keep them with it and issue the money to the Government.

The RBI used to mop up excess liquidity (money floating) in the system by issuing the Government bonds in exchange for the value. When the RBI ran out of stock of the Government bonds, and it still found that there is excess liquidity in the system, it had to come out with an alternative. That is when the MSS (Market Stabilization Scheme) was launched. It issues bonds with a tenor varying between 3 months to 1 year.

MSS is one more method of mopping up excess liquidity in the system. There is nothing superior to it over the selling of Government bonds.

Explanation about forex curbs and reigning in inflation

I was asked the following on 21 May 07, 16:44:

Sridhar: Sir, Could you plz explain this 'More curbs on forex inflows to reign in inflation" elaborately.

My Answer:

One of the methods by which a Government can tackle inflation is by controlling the foreign exchange inflows into the country. Before we see an example of such a control measure, let us understand that increasing inflows of foreign currency into the country leads to an increase in the circulation of the domestic currency. If not all the inflows, at least some of it will be converted into local currency for domestic use. This leads to increase in money circulation. When more money is there in the system, it leads to an increase in prices. More money chases the same quantity of goods available. Hence there will be an increase in prices i.e., inflation.

Now let us see how the Government can control the inflows of foreign currency into the country. One of the routes through which foreign currency flows into the country is raising of loans overseas by corporates in India. As interest rates in international markets are invariably lower than the interest rates prevailing in India, corporates tend to borrow in the international markets. The government prescribes the rate at which the corporates can borrow money from abroad. The government has now ordained that the corporates cannot borrow from overseas at an interest rate which is more than 1.5% over the LIBOR (London Inter Bank Offer Rate, the rate against which international financial deals are referenced). Earlier this ceiling used to be 2% over LIBOR. What impact will this have on foreign exchange inflows? Because the corporates can only raise foreign money at a more competitive rate, it becomes difficult for them to raise money abroad. So this will have a negative impact on the foreign exchange inflows into the country. This leads to lower amount of domestic currency finding its way into our system. Hence it will have a negative impact on inflation.

I hope now you will understand the full import of what I noted on 20.05.2007 about this subject.

Sunday, May 20, 2007

Electing the President of India

The minimum age limit is 35 years. At present the salary of the President is fixed at Rs. 50,000 per month.

A look at our Presidents and their tenures:

1. Dr. Rajendra Prasad: 26.01.1950 to 13.05.1962
2. Dr. S. Radhakrishnan: 13.05.1962 to 13.05.1967
3. Dr. Zakir Hussain: 13.05.1967 to 03.05.1969
4. V.V. Giri: 24.08.1969 to 24.08.1974
5. Fakhruddin Ali Ahmed: 24.08.1974 to 11.02.1977
6. N. Sanjeeva Reddy: 25.07.1977 to 25.07.1982
7. Giani Zail Singh: 25.07.1982 to 25.07.1987
8. R. Venkataraman: 25.07.1987 to 25.07.1992
9. Shankar Dayal Sharma: 25.07.1992 to 25.07.1997
10. K. R. Narayanan: 25.07.1997 to 25.07.2002
11. APJ Abdul Kalam: 25.07.2002 to till date. (Tenure to end on 25.07.2007)

How is the President of India elected?

As our present President’s term is set to end, it is time we learn a bit about the Presidential election. The President is elected by an electoral college, consisting of the elected members of both Houses of Parliament and state legislative assemblies. For the Presidential elections, there are thus a total of 4,896 potential electors, consisting of 543 Lok Sabha members, 233 Rajya Sabha members and 4,120 MLAs.

The voting strength of each elector is different and is determined on the basis of proportional representation. The population of each state is divided by 1,000 and then by the number of elected MLAs in the assembly to yield the value of each MLA’s votes from that state. In all, the MLAs of all the assemblies put together have 5,49,474 votes. The system also tries to ensure a balance between the value of votes of MPs and state legislators. This is done by dividing the votes of all the MLAs by the number of MPs, which is 776, to work out the value of each MP’s votes. This yields a figure of 708 votes per MP. Hence the total value of the MPs’ votes is 5,49,408 (776 x 708). This is slightly different from the total votes of the MLAs due to rounding effect. The total votes in the electoral college thus is 10,98,882.

The Presidential contestant is declared elected when he secures a simple majority i.e., 1 vote more than half the total votes polled by the electoral college. The electoral college votes by a system of ‘single transferable vote’. What this means is that the contestants in the fray are given preferences by the voters. If no candidate reaches the simple absolute majority in the first round of counting, then the candidate with the least polled votes is eliminated and the second preferences marked in his polled votes are added to the respective contestants. The process is continued till one of the candidates reaches the simple absolute majority and is declared the winner.

The only occasion when second preference votes had to be taken into account was in 1969 when VV Giri led after the first round over Neelam Sanjeeva Reddy.

Wednesday, May 16, 2007

Reviving Indian Agriculture

The text books that we study during the preparation about Indian Agriculture usually leave us clueless as to what we can do to improve the lot of our country’s agriculture. Take a look at today’s article in ET on this here. It is very easy to dismiss some of the suggestions and assumptions; but did you get these ideas in the first place, is the question.

India’s agriculture has grown at only 2% in the last decade. It is beset with a number of problems. They include:

  1. Yield growth has declined.
  2. Farmers’ suicides have continued or increased in some states.
  3. Scope for increasing net sown area is limited.
  4. Land degradation in the form of depletion of soil fertility, erosion and water logging has increased.
  5. There has been a decline in the surface irrigation expansion rate and a fall in the ground water table.
  6. Disparities in productivity across regions and crops have persisted.
  7. Farming is becoming a non-viable activity.

In the light of these many problems facing the sector, how can you achieve 4% growth? Crop sector may not be able to grow at 4% per annum. But horticulture and allied activities like dairying, poultry and fisheries have to grow at the rate of 6 to 7% to achieve 4% growth in agriculture.

There are six factors which need attention in the short and medium term:

  1. Infrastructure
  2. Land and water management
  3. Research and extension
  4. Inputs including credit
  5. Marketing including price policy
  6. Diversification and development of rural non-farm sector

Some suggestions which can help the farm sector include:

  1. Changes in subsidy administration mechanism for fertilizers. Direct delivery of fertilizers to farmers that is being experimented with, may offer a better alternative to the existing fertilizer subsidy regime.
  2. Dry land farming can get a fillip with some location specific research.
  3. Tackling output price fluctuations through SHG models, cooperative models, small producer cooperatives and contract farming etc., can help the small and marginal farmers.

At present, there is a disjuncture in the interests between farmers and political representatives. The role played by agriculture as a source of supply for political funding is dwindling and other sources have started funding political activities. So that leaves only rhetoric in place of concrete action when it comes to improving the lot of the farmer.

Friday, May 11, 2007

Mansooned Malabar coffee to get GI tag

We all know that GI tag is acquiring importance in international trade. GI stands for Geographical Indication and is used to identify goods having special characteristics and originate from a definite geographical territory. For example: Darjeeling tea and Pochampally sarees. These certifications aim to provide legal protection to Indian geographical indications for boosting exports and prevent unauthorized use of a registered geographical indication by others.

We can easily understand Malabar coffee. Coffee originating from Malabar region of India. But what is Mansooned Malabar coffee? This has an interesting story.

Prior to opening up the Suez Canal in 1869, this variety of Arabica coffee bean was transported across the Mediterranean Sea to the Scandinavian (Sweden, Norway, Denmark, Finland, Iceland) countries in about six months. Due to high sea moisture, the bean lost its green colour and turned golden. After the opening up of the Suez Canal, the coffee was transported through the shorter route and the Scandinavians started complaining about the lack of the regular aroma and flavour. So, the coffee growers in the Mangalore regions devised the process known as “Monsooning Coffee”. The process involved seasoning the coffee beans with humidity.

Wednesday, May 09, 2007

Strengthening rupee and trade competitiveness

India has two currency baskets against which the REER (Real Effective Exchange Rate) of the rupee will be monitored by RBI. One basket includes a six currencies in it viz., US dollar, Euro, Yen, Pound sterling, Chinese Yuan and Hong Kong dollar. The other basket includes 36 currencies from various countries where India has most of its trade competitors.

The recent strengthening of the rupee against the US dollar is feared by some to adversely impact the international trade competitiveness of Indian products and services. SSA Aiyar’s article in today’s ET argues that this strengthening will not be disastrous for our exports.

He says that we should look at the REER of Indian rupee vis a vis the 36 currency basket as this includes many middle and low-income countries with whom India competes keenly in exports. While the REER of the rupee is at 108.20 against the 6 currency basket, it is at 97 to 98 against the 36 currency basket. This is because India’s rupee has for years weakened against the currencies of many of these countries. Hence, he argues that the Indian exports will not become uncompetitive.

This is just a view taken by him. Events that unfold in the rest of the year may present a totally different picture. But nevertheless we look at it because, it gives us a chance to look at international trade and our rupee’s strengthening from a different perspective.

Tuesday, May 08, 2007

Net Lingo

In today’s ET I came across a very good article that detailed some of the practices that fool innocent users on the internet. Let’s take a quick look at them to understand what they mean.

Hacking: It means ‘intruding’ to gain unauthorized access to computers, with an intent to exploit the system taking advantage of the innocence, neglect or carelessness of the computer user. Many hackers are ‘good’ people. They don’t indulge in negative behaviour.

Spoofing: Email spoofing is fraudulent alteration of the email headers to make it appear that the message has originated from someone or somewhere other than the actual source. IP spoofing refers to making the communication appear as if it is originating from a certain IP address while in fact, it is originating from somewhere else. This is usually done to intercept communication happening between two parties and then controlling the flow or altering the information without either of the parties knowing it.

Phishing: It involves emails appearing to come from legitimate sources such as a bank or a credit card company, with an earnest request to verify personal information or account details. The users are then led to divulge their personal information with a view to making use of it for pecuniary gains by fraudulently using that information to access bank accounts, credit card accounts etc.

Spear phishing: In these attacks, once the personal information is accessed, it is used to create fake accounts, ruin a victim’s name, access his/her accounts, ruin a victim’s credit oreven prevent victims from accessing their own accounts.

Pharming: In this hackers aim to direct the traffic from a legitimate website to another malicious site and then mislead the users into providing their sensitive data such as passwords, mother’s maiden name or credit card PINs. Pharming doesn’t depend on users’ clicking on any link or entering some substitute sites. Even when the user enters the name a correct site, the attacker still redirects them to fake sites, by changing the host file on a victim’s computer or by hijacking the victim’s DNS server.

Vishing: It is combination of ‘voice’ and ‘phishing’. It leverages VOIP (Voice over Internet Protocol) phones instead of ‘misguiding hyperlinks’, to steal personal and financial information from the public. In this, a dialer calls out customers in a given region and an automatic announcement advises them to call back on certain local telephone. When users call up, computerized IVR (Interactive Voice Response) system guides them into a verification routine and the visher fraudulently captures bank or credit card details of callers.

NOTE: If you think that this is an exhaustive description of online frauds, you are mistaken. As newer devices and software make their appearance, there will always be newer forms of frauds also appearing on the horizon.