Shoutbox queries answered

13 Jun 08, 19:11
kranthi: sir, I don't understand whats the meaning of "revised growth" ---in 1st point, today blog ! can you explain me please?
can we compare earlier growth with revised growth....I mean do they have same base?

CSO (Central Statistical Organization) gets revised figures frequently. Not all the figures needed for compiling the inflation or economic growth figures are available by the time it releases the figures the first time. Even when it does have, the department supplying the figures keep revising them as and when they get latest data. Therefore, as and when the new figures keep coming in, it revises the compiled figures to reflect this reality. That is how/why there occurs a revision in these figures.

13 Jun 08, 16:19
zephyr: and all this while I thought Capital Account Deficit needs to be reduced... please exaplain sir...

Capital account deficit means more capital is flowing into the country. That's is usually a good thing. But then a country should be concerned when it is getting more of 'hot money' i.e., for eg., money coming in for arbitrage opportunities and not for genuine investment purposes. You can say countries will not be usually happy only with FII and Hedge fund inflows. If this is accompanied by other capital inflows for genuine industrial or manufacture build-up, it will be viewed with less suspicion.

It is current account deficit that is more worrisome for any country. That means we are consuming/importing more than what we are producing/exporting.

What broad lessons can India draw from the subprime crisis?

o In a very well written piece, the Chairman of the CFSR (Committee on Financial Sector Reforms) of the Planning Commission, Dr. Raghuram Rajan writes about the lessons that our country can learn from the subprime debacle and also offers solutions.

o Perhaps the most important lesson is that a narrow focus on rules can lead regulators to miss the bigger picture, and can encourage regulatory arbitrage, to the detriment of the system. Regulators were overly fixated on seeing that rules on capital norms were being met, without seeing the larger picture – that many banks were going to the riskiest structures consistent with the rules. To achieve this, a statutory body, the Financial Sector Oversight Agency (FSOA) composed of key regulators, which will replace the current informal High-Level Coordination Committee (HLCC) is recommended to be set up. The FSOA will conduct a principles-based supervisory dialogue with top management of key financial conglomerates, look out for an overall build up of risks in the system, and undertake coordinated action to mitigate those risks. The senior-most regulator – typically the RBI governor – would be the head of the FSOA. In many ways, the FSOA would have the powers in India that the US Treasury’s reform plan seeks to give the Fed.

o Second, some regulators resort to boxchecking when they simply do not understand what they are dealing with. We need to constantly upgrade regulatory skills. Investments in better regulatory pay and conditions, as well as in training, can offer tremendous national return.

o Third, there are fewer limits on regulatory action when regulators can go beyond the letter of regulations. To balance this power, the CFSR recommends regulatory actions should be subject to appeal to a Financial Sector Appellate Tribunal. More freedom for regulators will therefore be combined with checks to ensure the freedom is not misused.

India’s position on bio-piracy and TRIPS in WTO talks

• INDIA has insisted that the issue of amending the trade-related intellectual property rights agreement (TRIPS) to check bio-piracy should be made part of the upcoming “horizontal process” in which senior officials and trade ministers from key countries would meet to agree on the modality texts for liberalising trade in agriculture, industrial goods and other issues.
• But wait a minute. What is this ‘horizontal process’?
• 'Horizontal process' is the term given to a process of prior negotiations at Senior Official level in the WTO talks. Prior talks on trade issues at the senior official level, even before the Ministerial level talks commence, is believed to help the Ministerial meets to quickly close the gaps that exist in their positions and give commitments for the trade agreements. This was done at the behest of the Director General Pascal Lamy in April 2008 in the context of agriculture and NAMA (Non Agricultural Market Access) talks.
• Horizontal process provides a means of giving sufficient reassurance that all the other negotiating issues are advancing as they should.
• While reading this article I came across the term ‘non-paper.’ A group of about 100 countries have reportedly submitted a “non-paper” to the trade negotiations committee of the WTO proposing that three intellectual property issues, including amendment of TRIPS agreement related to biodiversity, extension of the higher level of protection for geographical indications currently only required for wines and spirits, and the issue of creating a multilateral register for geographical indications of wines and spirits, should be part of the horizontal process. What is a non-paper in the context of WTO talks?
• It is a proposed agreement or negotiating text circulated informally among delegations for discussion without committing the originating delegation's country to the contents.
• If you want to know more about such trade related terms look at this glossary.

On the spectacular growth of the insurance sector in India

If you are asked to say something about the benefits of opening up of the insurance sector in India, what could your answer be?

• Insurance penetration has increased from a niggardly 2.32 % at the time the sector was opened up to private sector participation in 2000 to more than 5% in 2007.
• The first year premium collections in life insurance, a measure of new business secured, has gone up from Rs 9,700 crore in 2000-01 to Rs 75,600 crore in 2006-07.
• Industrial houses which have forayed into this sunrise sector have seen spectacular growth and have overtaken the valuations of their parent companies. For example Bajaj Auto’s seven-year-old insurance business has overtaken its 60-year-old parent company in market value. Bajaj Auto is not an exception. Multinational companies that were smart enough to see the potential in the sunrise sector, despite the low 26% ceiling for foreign direct investment, have been amply rewarded.
• It is not only insurance companies and individuals who have benefited in the process. The close link of the insurance sector with infrastructure is widely acknowledged — insurance companies typically look for avenues for long-term investment while infrastructure companies need long-term funds — so a rapidly growing insurance sector is good news for all concerned.

A look at how IPL makes money

• A lowdown on the IPL business model
• The business model is relatively straightforward. The revenues for the IPL and the franchisees come from three streams: media rights, sponsorships under the central or local pool, and gate receipts. The central pool includes sponsorships for the entire league, to be distributed between the IPL and the franchisees. The local pool comprises sponsorships each team manages to attract, of which the franchisee/team keeps the entire amount. The franchisees’ expenses include team franchising instalments, player and personnel, marketing, stadium expenses, and promotion, event management and administration.
• The auction of the eight teams generated $724 million. Franchisees own the teams in perpetuity, but make the payments in instalments over the next 10 years. In addition, each team spends $4-6 million per year on players and team personnel. Players signed three-year contracts with the franchisee, and icon players excepted, can be traded after the first season. Stadiums could cost up to Rs 30 lakh per match, and each team is also expected to spend approximately $3-4 million per year on marketing, promotion, and event management costs.
• A consortium including Sony Entertainment Television (SET) and World Sports Group bought the broadcasting rights for a total of $1.026 billion for ten years. SET will spend $108 million on marketing, and the remaining $918 million goes into the central pool. The proceeds are divided between the IPL and the franchisees, where IPL’s share is 20% until 2013, and increases to 40% from the sixth year onwards. The franchisees receive 80% up to 2013, and 60% from 2013-2018, less a fixed percentage that goes towards prize money.
• The central sponsorship deals are for five years and for the next ten years, IPL and the franchisees will divide the revenues in the proportion 40%:60%, with the latter amount to be divided equally among the franchisees. Sponsors include DLF as title sponsor, and associate/partner sponsors include Kingfisher, Hero Honda, Pepsi, Citi, Vodafone, and ITC. Each franchisee could earn almost Rs 30 crore annually for the next five years. Additionally, the franchisees keep all the revenue generated from the local pools, which include team title sponsorship, partner sponsors, licensing, merchandising (87.5%), in-stadium signage, as well as other forms of sponsorship at the team level. Franchisees have appearance rights over the players during the IPL tournament, which can amount to approximately 10 days, of eight hours each. Gate receipts are a significant revenue source, and the IPL’s share is 20% of the total receipts from each franchisee, while the franchisees retain 80%.