31.12.2007

A very happy, prosperous and successful new year to you all.

• Harley Davidson to enter India
• Perhaps every youngster’s dream, driving a Harley Davidson is likely to be within the realm of possibility. But what held it back so far?
• One word describes it all: homologation. Remember, we noted about this word sometime back? While dealing with Project Natrip and ARAI.
• India’s policy hitherto had been that the tests needed to be carried out (homologated) only in the ‘country of origin’ of the product. But now the DGFT has relaxed the testing norms that allow US made bikes to be tagged with a EU homologation certificate for sale in India.
• Some wonderful thoughts on economic reforms
• The champions of reform often fail to come up with any clear articulation of what they mean by reform. Reform is presented as a series of discrete policy changes – tax reform, capital market reform, trade and investment liberalization, labour market flexibility, deregulation of banking, opening up to foreign investment, privatization of public enterprises, cutting wasteful government expenditure, etc – rather than as a coherent strategy aimed at generalized emancipation of the people.
• The ultimate goal of reform must be understood as liberating human productive potential from assorted constraints, to help every man, woman and child realize his/her capacity to create something new.
• The ability to translate an idea into reality depends on three things:
• Physical infrastructure: power, roads, telecom etc.
• Institutional support: a supportive rather than stifling administration, security of life and property, a financial sector that mediates savings efficiently to those who would generate additional incomes using the capital, sufficient supply of talent, ability to forge and enforce legal contracts
• A culture that encourages entrepreneurship instead of playing safe all the time.
• “The financial sector can take a big leap forward in the next couple of years in terms of financial inclusion.” Comment.
• Yes, it can for two reasons:
• One is the penetration of mobile telephony. Nimbler banks feel that mobile phones would take banks closer to the customer than a ‘no frills’ account.
• Closing of the technology gap. The mobile handsets will be seeing a glut of java-based applications which will provide the interface for facilitating banking transactions on ordinary handsets.
• Chief of IEA
• Nobuo Tanaka
• India’s solar energy potential
• India has about 300 clear, sunny days in a year. According to CII estimate, most parts of the country receive 4 to 7 kwh of solar radiation per square meter per day making it over 5000 trillion KW per year. This is far more than the total consumption of the country.
• Entry loads on mutual fund schemes
• Entry load is a charge levied by mutual funds when an investor steps in.
• Open ended mutual funds charge between 2 and 2.5% of the amount invested as entry load to meet their marketing costs, distribution commissions, etc.
• Close ended schemes are permitted to charge up to 6% as initial issue expenses that are amortized over the life of the scheme.
• SEBI is reportedly toying with the idea of doing away with the entry loads on open-ended schemes.
• CBSE Chairman
• Ashok Ganguly
• What would be the benefits of adopting IFRS by India?
• Apart from becoming a part of the international movement in adopting the standards, the significant benefits include:
• Encouraging capital flows
• Reduction in cost of compliance for enterprises
• Lower cost of capital
• A boon to professionals enhancing their status, acceptability and mobility across the globe
• KPO/BPO businesses will flourish
• It’s been a long time since we read a piece from Bradford Delong. Writing about the subprime consequences he talks of three crises and their cures. The piece may be too much for non-finance guys. Take a look at it here.
• A full scale financial crisis is triggered by a sharp fall in the prices of large set of assets that banks and other financial institutions hold. This can happen in three possible ways and the cure is different for each.
• First, when investors refuse to buy assets at normal prices not because they suspect the economic fundamentals, but because they fear other will panic, forcing everybody to sell at fire-sale prices.
• Second, when investors recognize the asset prices should never have been as high as they were, or that future productivity growth is likely to be lower and interest rates higher.
• Third, a bursting bubble or bad news about future productivity or interest rates drives the fall in asset prices.

30.12.2007

• On Competition Commission
• Want to get a lowdown on what this body does? Can’t have it better, as it comes straight from the horse’s mouth viz., Vinod Dhall, the Acting Chairman of the Commission.
• One important thing that his writing clears the air over is about mergers and acquisitions. Take a look at it here.
• The finance guys amongst you will love this. It is a challenge to really understand the causes of the subprime crisis. Take a look at “The Bear Flu: How it spread” that appeared in today’s ET, which is a reproduction from Businessweek.
• You are forewarned. It is for finance guys. Have appetite for understanding CDOs and Klios? Be my guest. Wade through this article and try to get a hint of what it is trying to say.
• Those of us who can’t appreciate all this gibberish, will realize one thing: how finance guys keep inventing complicated things to make our lives miserable; and their lives pleasurable!
• Climate change
• The UNDP’s Human Development Report 2007-08 identifies 2 degrees celsius as the threshold, above which the damages of the global climate changes will be irreversible.
• If the world wants to avert a climate crisis, it has to live within the carbon budget of 14.5 gigatonnes of CO2 per annum for the remaining years of the 21^st century.
• Significance of the Bali meet
• For the first time the deliberations were dominated by the findings of the IPCC report. There was a complete absence of any questioning of the scientific assessment of climate change.
• Though a couple of countries questioned the extent of required cuts that a new global agreement should incorporate, a compromise was reached supporting deep cuts in emissions and a timetable for a draft plan of action to be completed.
• Today, being very light on us, it is time to have some fun. Let's watch Dilbert, the Engineer!!!

29.12.2007

• DNC directory a failure?
• The do-not-call (DNC) registry reportedly attracted only about 2 mn enrollments, as against the 5 mn that appeared to have shown an inclination for registering in it.
• Initial predictions were that about 50 to 100 mn cellular phone users would register. The slow registrations are reportedly due to:
• The non-effectiveness of the DNC which has resulted in even registered users continuing to be troubled by telemarketers. (I can personally vouch for it.)
• Lackadaisical attitude of the service providers for this service. (I second this too. Personally I had to call up my service provider four times to register my number with the service.)
• To the above reported reasons I would like to add my own: the general apathy of the Indian consumer for such services. Registering the number is seen as a hassle. And then quite many amongst us would be content to howl at the tele-marketer when disturbed, rather than taking the trouble of registering the number with the DNC registry.
• Nevertheless I think it is too early to write the epitaph of the DNC registry.
• When did decimalization of Indian rupee occur?
• It is an interesting story that appeared in today’s ET. A must read for those with an eye on history. Look at it here.
• It was 10 years after Independence that our currency came to be decimalized. Before that it was 1 rupee = 16 annas = 64 paise. This system was perhaps based on the pebble based system of valuation (prevalent in Indus Valley Civilisation) in which pebbles were chosen to be weights in the pattern of 1,1,2,4,8, and 16. The new weights are a sum of all the previous weights.
• What is a salami attack?
• It is a type of online fraud in which the criminal deducts small sums of money from the accounts of various victims in a way that doesn’t get detected. The hacker uses it as the safest tool for earning large sums of money without getting even noticed.
• Polio eradication failure
• It was over a year ago that we noted about this subject. Even after a year, we seem to have not made any progress on this front. Look at what we noted earlier here.
• Polio is decisively back and India is only one of the four countries in the world where the disease is endemic. This year an estimated 500 children in the country have been diagnosed with paralytic polio.
• The rise of polio has much to do with the prevalence of the virus in two states – UP and Bihar.
• The failure is largely attributed to the wrong choice of immunization made by India. Experts argue that the OPV (Oral Polio Vaccine) immunization choice was not suitable for India and that this was known even at the time the choice was made. India made this choice in 1978 following an advice from WHO (World Health Organization). In contrast, the other choice was the IPV (Injectable Polio Vaccine), which was 50 times more expensive than the OPV.
• There are three types of polio virus: P1, P2 and P3. Of these, the P2 type is reportedly eradicated. P1 is reportedly more contagious of the three varieties. While the earlier OPV drops were designed to immunize against all the three varieties, switching to a monovalent form (which targets only the more contagious P1 form) of the drops in UP and Bihar in February 2005 proved to be a mistake. Because the recent outbreak is of the P3 variety.
• Why the apparent all-round welcome of the SEBI’s guidelines on REITs?
• Real Estate Investment Trusts (or REMFs – Real Estate Mutual Funds) offer individuals a wider choice of investment, especially in the booming realty sector. But the complication, unlike in the equity mutual fund market for the small investor, is that the NAV (Net Asset Value) of an REMF will not vary on a daily basis. This is because the underlying asset is direct ownership of land and built-up property, whose values will not fluctuate on a daily basis. So the investor would have a reduced choice of exit. Hence it calls for a slightly different rigour in monitoring the operation and performance of these REITs. The valuation of the assets should be on acceptable standards for all the stakeholders. The ICAI and AMFI have done well to firm up on these standards. Secondly, the SEBI guidelines have now mandated that 90% of the post tax profit of these REITs should be distributed as dividends.
• What is wrong with our agrarian model?
• Watching his writings over the last couple of years, I began to appreciate the off-tangent thinking of V. Raghunathan.
• Many of us would be wracking our brains on finding measures to improve the lot of our farmers. Here is one radically different way of looking at the solution.
• As India has many small and marginal land holdings, which do not allow any scale economies to come into play, he suggests that corporate leasing of farm lands from these small and marginal farmers should be allowed. This will have two more added benefits:
• One, the farmer never loses his ownership of the land, where lot of sentiment is attached to it.
• Secondly, he can leverage the only profession that he knows best – farming, by finding employment in these corporate farms. This would supplement his income from the lease rental. A win-win situation both for the corporate and the farmer.
• Is the political class ready for it?

28.12.2007

• Mrs. Bhutto is no more
• It is so sad that the most leading moderate voice of Pakistan is put to silence by terrorists of Al Qaeda. An editorial comment in today’s ET on the traditional jirga-based tribal system of governing FATA and Waziristan in Pakistan is worth our note:
• Islamabad should realize that it cannot enforce the writ of the constitution in those areas through force alone. Of course, Islamist militancy would, in the first instance, have to be countered through military might. But the backward social consensus that supports such terror can be transformed only through a truly democratic political process.
• What better bet could have been there for Pakistan than Mrs. Bhutto for a truly democratic political process?
• What would be the size of the resulting behemoth if SBI carries out the merger of its subsidiaries with itself?
• The new entity will have 14,030 branches (almost 30% of scheduled commercial bank branches), 6441 ATMs (a little less than 25% of the country’s ATM network) and an asset base of Rs. 8,05,795 crores (more than all of the private sector banks).
• Get a picture of what ‘size’ means? Even then, compared with the global biggies, this is still miniscule. For example, take Citigroup’s figures:
• Total Net Revenues: $89.6 bn
• Assets: $1884 bn (as against SBI’s $200 bn approx.)
• Market capitalization: $274 bn
• Employees: 3,27,000
• Operations: In over 100 countries worldwide
• Can you give some strong reasons why the STPI scheme should not be continued? Look at these points from today’s debate:
• Research shows that, for maximizing the effects of tax incentives, they should be offered for a limited period.
• Continued tax exemptions to STPIs, due to their revenue implications, would make difficult meeting of the targets set by the FRBM Act, thwarting prudent fiscal policy.
• Such sops are effectively subsidies to exporters, and are challenged in international fora such as WTO.
• Many of the Indian software sector’s problems span beyond tax exemptions. They include workforce shortages, rising costs of real estate etc. Tax exemption is like treating the symptom while ignoring the underlying disease.
• “Development” as defined by Amrtya Sen
• Development is an enabler of human freedoms and well-being, rather than a mere enhancement of inanimate objects of convenience. It is inseparable from environmental and ecological concerns such as clean air and water, epidemic-free surroundings, and the preservation of all life forms.
• South Asia’s first underground LPG storage facility
• It is commissioned at Visakhapatnam. It is a 50:50 joint venture between HPCL and Total of France. It is a Rs. 333 crore project designed on ‘water containment principle.’

27.12.2007

• Infrastructure funding progress
• You might remember the noting we made about an SPV that would be established specifically for funding infrastructure requirements of the country using the huge forex reserves that are built up with us.
• The government and the RBI have now formally approved formation of the SPV in London. It will be a fully owned subsidiary of the IIFCL – India Infrastructure Finance Company Limited. It will access part of the forex reserves and then lend it to Indian companies for funding their capital expenditure abroad.
• RBI agreed to set aside $5 bn for this purpose. The SPV will borrow from RBI in the form of long term securities issued in foreign currency. RBI will subscribe to these securities and the SPV will then provide foreign currency funds to Indian companies engaged in the infrastructure sector.
• Take a look at what we noted on the subject on three occasions earlier: 21.02.2007, 06.03.2007 & 14.03.2007.
• Why are hotels likely to face labour problems in future?
• So far hotels have been out of the purview of the Factories Act, 1948. They are regulated through Shops and Establishments Act. The definition of a ‘factory’ in the Factories Act excluded hotels, restaurant or eating places and railway sheds.
• Once they are brought under the purview of the Factories Act, they will not be able to retrench their employees or shut down their operations without the approval of the authorities.
• Government plans exclusive streets and arcades for designers to promote special interest shopping among foreigners
• This is as part of its efforts at promoting top end retailing. It is expected to increase the per capita revenue expenditure by foreign tourists generating greater foreign revenue earnings for the government.
• Indian fashion design sector is expected to reach about Rs. 750 crores by 2012 from the present Rs. 270 crores.
• The country accounts for barely 0.2% of the international industry’s estimated size of about Rs. 1,62,900 crores.
• Picocells
• This is a technology that creates micro cellular sites called ‘picocells’ within an aircraft, without interfering with the airplane’s communication or other systems and will make cell phone calls possible for travelers.
• Japan plans world’s fastest maglev train
• Estimated to cost $45 bn and to be operational by 2025, this is expected to travel at 500 kmph.
• At present the only maglev train that is operational is in China (Shanghai).
• Maglev (magnetic levitation) trains travel above ground through an electromagnetic pull.
• 2007 was a record year for equity mop ups
• Equity mobilization in 2007 was the highest ever in the Indian capital market’s history. The market mopped up Rs. 45,137 crores compared to Rs. 24,679 crores in the previous year.
• Update on telecom density numbers
• Just recently we noted these numbers. I found that the figures noted earlier by us are a little dated. Look at the figures as of October 31,2007:
• Total number of phones in India: 256 mn
• New phones added per month: 6.65 mn
• Tele-density: 22.52 per hundred persons.
• Tele-density was barely 0.6 in March 1990. In that year, India had barely 5 mn phones in total.
• List out a couple of important steps that have ushered in a changed telecom sector in India.
• Passage of the TRAI (Amendment) Act, 2000, which split regulatory and dispute settlement roles of the original TRAI. Assignment of the latter role to the newly created TDSAT (Telecom Dispute Settlement and Appellate Tribunal).
• Transferring the service providing function of the DoT to the newly created BSNL.
• We can also add the Unified Access Service Licence regime that allows the holder to provide fixed line as well as cellular service in an area.
• Ever the optimist, TT Ram Mohan while giving his take on why we should cheer up and look up for a good 2008, explains how a banking crisis is not likely in spite of the subprime crisis:
• Banks’ losses are expected to rise in the months to come as the crisis unfolds. Many of the off-balance sheet vehicles floated by banks are now coming on to their balance sheets. As banks are expected to carry a minimum of regulatory capital against balance sheet assets, it is argued that their ability to extend credit will be impaired and we could see a credit crunch.
• This is true, of course, but a credit crunch does not imply a banking crisis. A banking crisis involves the failure of several banks, that is, the net worth of several banks gets wiped out. There is nothing so far to suggest that such a crisis threatens American banking. Large banks operate with a capital adequacy ratio of over 12% against the regulatory minimum of 8% or so. They are well placed to absorb the impact of the subprime crisis and also to boost their capital. That is because, as Citibank and UBS have shown, there are overseas investors willing to provide capital.
• Mobile Fisher Friend project
• It is a unique project launched by the MS Swaminathan Research Foundation. In a tie up with telecom and software majors, this project developed applications to provide fishermen with up-to-date information of relevance to them.
• At the press of a button, fishermen now can gain access to information on wave height, weather, potential fishing zones, news flashes, government schemes and latest market price.
• Akshardham temple complex in Delhi sets world record
• The Guinness Book of World Records has recognized this complex as the world’s largest Hindu temple complex.

26.12.2007

• Mobile STD calls to become cheaper?
• The 225 mn cellular users of the country can perhaps expect 5 to 10% reduction in usage charges. This is because the ADC (Access Deficit Charge) regime is likely to go w.e.f. April 1, 2008.
• You might remember that the ADC is used basically to fund state-owned BSNL’s operations in rural India.
• Telecom regulator TRAI has already decided that ADC cannot continue in perpetuity as the idea behind the levy was to have it only for a limited period, mainly to give time to incumbent operators to rebalance their tariff during the transition. The regulator also said if the DoT feels that BSNL requires further financial support for its unviable rural landline services after March, 2008, the PSU can be funded from the USOF (Universal Service Obligation Fee).
• All the telecom companies pay 5% of their total revenues towards the USOF. This fund has now become a sizable Rs. 10,000 corpus. DoT is contemplating using this substantial fund towards encouraging R&D and increasing the tele-density in the country. At present the country’s tele-density stands at about 22%. Rural tele-density is still under the 10% mark.
• Look at the details of the slashed ADC charges in March, 2007 here.
• Hand-in-Hand 2007
• This is the code name given to the first ever Indo-Chinese military exercise on anti-terrorism conducted recently at Kunming in China.
• TVS comes out with ABS for two wheelers
• In a first of its kind in the world, TVS is set to launch Anti-lock Braking System in two wheelers.
• ABS is a high-tech feature that helps avoid skidding of vehicles and allows sure stopping on wet and slippery roads. It reduces the chances of crashing, the severity of the impact by instantly locking the multiple wheels of the vehicle at a time.
• This technology is already there in four wheelers.
• Country’s metros and growth of financial services
• According to the 2001 census, there are 35 cities that are classified as metros in India and they have a population of 108 million.
• The country’s top 6 metros account for only 10.5% of population but consumed 61% of bank credit in 2006-07 against 55% in 1999. They are responsible for 46% of the total bank deposits – a rise of 10% over the corresponding figure of 35.6% in 1999.
• Game theory and spectrum auctions
• Remember our noting about the 2005 Nobel laureate Robert Aumann? He was awarded the prize for his contribution to game theory. A look at the basics of game theory.
• It had been first launched by John Von Neumann and Oskar Morgenstern, who had argued that this theory would help economists find a way to investigate how each economic player’s actions influence those of others. Though their work was basically confined to two player ‘zero-sum’ games, it was John Forbes Nash who extended the concept to any finite game (not just zero sum games) and proved that games with more than two players must have at least one strategic equilibrium, the Nash equilibrium.
• It was this that was widely used in the 1994 spectrum auctions in US. The FCC (Federal Communications Commission) turned to the economists to understand the economic principles of auction and in designing a good auction for auctioning spectrum. In the year 2001 alone, more than $100 bn was realized by way of spectrum auctions all over the world by governments.
• An interesting tidbit about Russia’s “Winter Palace and Hermitage”
• This is the world’s largest art gallery and houses more than 30 lakh art pieces. If you want to see all these at a stretch, you will have to walk a total of 24 kms!!!

25.12.2007

A HAPPY AND MERRY CHRISTMAS TO ALL OF YOU

• Indian Trusts Act, 1882 to be amended
• The government is contemplating to amend this Act to allow trusts to invest in securities, including shares and bonds, of listed companies. This move is expected to further charge up the booming stock market.
• There are reportedly a few thousand trusts in the country, of which about 400 are very big with phenomenal resources.
• Section 20 of the Act which prescribes the investment options is proposed to be amended.
• Thermal efficiency to boost low emissions
• All across India, thermal efficiency (which denotes the percentage energy content of fuel being converted into electrical energy) rate in coal-fired power plants is a low 28%.
• In contrast, average thermal efficiency levels abroad, in routine commercial operations, is in the range of 42-44%.
• A one percentage point increase in thermal efficiency reduces CO2 emissions by over 3 percentage points.
• World Bank’s ICP report says Indian economy is only 5^th largest; not 4^th largest
• ICP: International Comparison Programme.
• This downsizing is on PPP (Purchasing Power Parity) terms. The country’s GDP in PPP terms for 2005 is estimated to be only $2.34 trillion compared to $3.8 trillion computed earlier. This revision occurred because the price data used by the Bank to estimate PPP has been changed to the year 2005, as against the year 2000 used in other World Bank reports.
• PPP expresses the value of national currencies in terms of a common currency, and in this report the US dollar value in 2005 has been used as the common currency.
• Americans are now tripping on their credit card payments
• Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year. This is largely attributed to financial deterioration in many households due to mortgage woes.
• 325 million individual accounts are held in trusts that were created by credit card issuers in order to sell the debt to investors. Together they represent about 45% of the $920 bn the Federal Reserve counts as credit card debt owed by Americans.

24.12.2007

• Look at how much money is lying idle in our banks!!
• Over Rs. 1000 crores is lying with banks in India in the form of unclaimed deposits in 1.03 crore inactive accounts.
• Banks term money lying in accounts that have been inactive for over 10 years as unclaimed deposits.
• Language lessons
• A sentence in today’s ET:
• There has always been an unresolvable tension between the party’s hardline and the ecumenical demands on its non-Hindutva allies.
• What is meant by ‘ecumenical’ here?
• It means: concerned with promoting unity among religions
• What is meant by skulduggery?
• Trickery: verbal misrepresentation intended to take advantage of you in some way.
• Nuances in taming inflation
• In a very good article on suggesting the course of action that the RBI should take in the ensuing year, Rohit Prasad gives us some good opinion:
• CPI (Consumer Price Index) places a much greater emphasis on food (46% weight) as opposed to 15% in WPI (Wholesale Price Index). Therefore, CPI tends to be less interest rate sensitive and more affected by supply side movements than the WPI. In other words, the problem of inflation has partly already been solved (since WPI is down and CPI follows WPI with a lag), and the portion remaining cannot be solved through monetary tightening since the CPI is affected by non-monetary measures far more than by monetary measures. In other words, as far as controlling inflation is concerned, it is time for Reddy (RBI Governor) to take a bow and Chidambaram to enter the stage.
• Ever heard of “regulatory capture”?
• It describes a situation in which the regulator does not act in the public interest but is instead driven by concerns of the entities that it regulates.
• What should be the relationship between the regulator and the regulated? How do vested interests seep into regulations, blurring the line between both groups? When does regulation begin to get dictated by interests of those who are being regulated? When does a regulator exactly forfeit its autonomy? Concerns such as these point to what is referred to as ‘regulatory capture’.
• According to public choice theory, the regulated will find ways to capture decision-makers directly or indirectly. The theory of regulatory capture was proposed by Nobel laureate economist George Stigler. The concept found roots in the economics of regulation – where the government is responsible to protect and distribute public goods.
• No more ‘outsourcing’, it is ‘worldsourcing’ that we should learn now. So says William Amelio, the CEO of Lenovo.
• What it refers to is the fact of a product being labeled as ‘Made in India’ or ‘Made in China’, but containing components manufactured in many places all across the globe.
• He feels that this is a powerful emerging market force that can help India set itself on a new course to prosperity and its fair share of the global economy.
• He sees this as a business strategy that smart, ambitious companies use to take the underlying forces of globalization and shape them to maximize the value and quality they deliver to customers worldwide.
• Differences between outsourcing and worldsourcing:
• While the former is a centralized, top-down strategy designed to save money on non-core operations by handing those operations to a third party evaluated by a single criterion: the lowest price, the latter is a global, decentralized strategy designed to drive greater value and quality by distributing an organization’s core functions across multiple global hubs of excellence located wherever the best resources, talent, ideas, and efficiencies exist or can be created.
• The benefit of worldsouring?
• Global companies that worldsource their goods and services are exposed to the probing light and criticism from demanding customers and government regulators in many diverse countries. They create trusted brands by adhering to the highest standards of governance, transparency, compliance and quality.
• Some lucid commentary on the off-budget liabilities
• We have noted about the issue of oil bonds to OMCs on a couple of occasions earlier. Let us look at some commentary on that practice:
• Most of the states having enacted fiscal legislations (FRBM Acts), cannot take recourse to accounting jugglery like issuing bonds to take their subsidies out of their budget books. So, after this fiscal’s performance, it is likely that Centre will be on a weaker wicket when it comes to taking the high moral ground, as it used to do in the past, when it talks of fiscal prudence.
• Issuance of bonds helps fiscal managers to postpone liability to a future date. Over the last decade or so this has been resorted to.
• In effect, this translates to inter-generational inequity – the future generations pay for such acts of fiscal jugglery. Some argue that issuance of oil bonds is a violation of the basic tenets of FRBM Act. Perhaps not in letter, but in spirit.

21.12.2007

• Short selling on our bourses allowed
• SEBI formally laid down the framework for short-selling and the SLB (Securities Lending and Borrowing) scheme for all market participants.
• With this any non-institutional investor (that means small investors, day traders and high net worth individuals) can now short sell securities. FIIs/MFs will be allowed to short-sell once SEBI specifies the date.
• However naked short-sales won’t be allowed. Naked short-sales are sales that are not backed by delivery.
• Scorpene submarine deal gets CBI probe
• The Delhi High Court has ordered a CBI probe into the Rs. 16,000 crore deal as there were allegations of kickbacks in the deal.
• Yuletide keeps market in low spirits
• So reads a news headline. What does ‘Yuletide’ mean?
• It refers to Christmas, the period extending from Dec. 24 to Jan. 6. There is an interesting background.
• Yule is a winter festival associated with the winter solstice celebrated in northern Europe since ancient times. Its Christianized form is "Christmas", which is essentially the symbology and traditions of Yule with the Christian story of the birth of Jesus of Nazareth superimposed upon it. Yule traditions include decorating a fir tree, burning a Yule log, the hanging of mistletoe and holly, giving gifts, and general celebration and merriment.
• IFCI strategic sale fiasco
• The government’s attempt at selling 26% stake in IFCI to a strategic investor ended up as a farce.
• There was confusion over whether the strategic investor would get management control. The investor was getting only two out of eight board seats and had no right to appoint the CEO. Usually the world over, a strategic investor gets management control.
• India goes ‘open source’ in drug discovery
• I think this is one measure which should take us to a different league altogether.
• The idea is that all relevant data and accumulated intelligence on a particular disease, would be hosted online. We are starting with TB. Researchers and experts then would be encouraged to come forward and solve specific problems, which would largely be chemical in nature, essentially figuring out mathematical algorithms to make protein to bind to the target. Promising solutions would then be assigned to research organizations for clinical testing and validation. The multi-stage problem solving approach should logically yield a cure.
• The consequences of this would be:
• It is nothing short of taking drug discovery away from the exclusive preserve of a few MNCs with deep pockets.
• Though primarily directed at promising markets, typically diseases common in rich countries, some of the third world ones such as TB are also included.
• The drugs developed through the process would not be IPR- protected and would, therefore, become a low-cost generic from day one.
• Putin is TIME’s Person of the Year
• You know, this selection has become politically sensitive in the US?
• On its part the TIME magazine said it is not an honour, not an endorsement or a popularity contest. It is a clear-eyed recognition of the world as it is and of the most powerful individuals shaping the world – for better or for worse.
• South-South cooperation (From Anthony de Sa’s article)
• December 19 is observed as the South-South Cooperation Day.
• The essence of this cooperation is that the wealth of knowledge and capacity in developing countries, when systematically mobilized and shared, can be a powerful tool for their effective participation in the global economy.
• How is an industrial economy better than a commodity exporting economy?
• Commodity export (or unprocessed agriculture) confers disproportionate profit on landowners and traders, with practically no spin-off benefits – in fact, sometimes with the negative effect of starving domestic industry of raw materials. One the other hand, industrialization makes profit for factory owners, no doubt, but it also gives rise to a host of upstream and downstream ancillaries that provide year-round employment, availability of consumer goods to raise the standard of living, and all-round empowerment.
• Functional literacy plays an important role in the making of an industrial economy.
• Functional literacy is not just those who are literate, but rather the percentage of literates equipped with relevant production skills and production-related service capabilities, actively involved in design, processing, manufacturing and marketing.
• Now that the tax revenues are very buoyant, is it time to reduce the tax rates in India?
• Gist of arguments put forth by two experts:
• The idea being floated about to reduce the rates from 30% to 26% needs to be viewed with some circumspection. This is because a 4% to 5% reduction in the rate could translate into a 13% reduction in corporate tax collections.
• A pure and simple reduction in rates with no accompanying rationalization would amount to a lost opportunity.
• Will the reduction induce a Laser-curve effect? What this means is, would it result in higher collections through better compliance?
• Whether a reduction in tax rates is the best way to use the present expanded collections? Perhaps it could be better used to improve our infrastructure or something else. Need it be used for just give-aways?
• What is the ‘zeroing’ principle adopted by the US in dumping cases, that is raising the ire of the rest of the world?
• What the US does while calculating the average dumping margins is ignore (thus zeroing) the negative dumping margins. Dumping margin is the difference between the normal price of a product in the market of the exporting country and the export price. When the average dumping margin on a number of similar products is calculated, if the negative margins (where the local market price is more than the export price) are ignored (zeroed) this results in an inflation of the anti-dumping duty.
• That’s why the exporters to the US are up in arms against this method of calculation of the anti-dumping duties.
• While writing today’s notes, I was listening to “Move ya body” song from Johny Gaddar. Felt like giving a link of the video. What a remarkable lady? From the days of “Glassy” to this one. As good as Nina Sky for me. Here it goes…

20.12.2007

• Akash test fired successfully
• India’s multi-target medium range missile with a strike range of 25 kms and capable of carrying warheads of 50 kgs was test fired successfully again.
• In these trials Lakshya, the PTA (Pilotless Target Aircraft) was used as the support system for the target.
• Some details about steel making
• Ever heard of the TMT steel bars?
• TMT stands for thermo-mechanical treatment process, used in making the steel.
• What goes on in this manufacturing process is quenching and tempering of the steel. In this process, steel bars are passed through a specially designed water-cooling system where they are kept till the outer surface of the bars cools down while the core remains hot. When the bars are withdrawn from the cooling system, heat flows from the core to the outer surface, further tempering the bars, which helps them attain higher yield strength. The resulting heat treated structure has superior strength and toughness.
• This technology patented by HSE (Hennigsdorfer Stahl Engineering) Gmbh, a German company.
• Earlier to this CTD (Cold Twisted Deformed) bars, a technology developed sometime in 1970 was being used in Europe. But it fell into quick disuse there. But in India this was being used.
• A transition from CTD to TMT is considered a sign of progress for a country. Nowadays TMT bars are widely being used in the construction industry.
• Why are air travel agents angry?
• They are upset with airlines and the government. They are losing about Rs. 25 crores per month which is not paid by airlines to them. This is due to the fact that airlines are excluding fuel and congestion surcharge (Rs. 1800) from the airfare. It is only on airfare that commission (about 5%) is paid by airlines to the travel agents.
• Certified market participants
• SEBI is planning to make the life of the retail investor easier by coming up with a database of certified market participants. This certificate is issued by its NISM – National Institute of Securities Management after the participants clear exams conducted by it.
• SEBI is also stated to be having plans of grading these market participants to give some additional comfort level for the retail investors.
• Don’t get confused by the phrase market participants. It is nothing but stock brokers.
• Bond market to see lot of action
• This is due to the fact that banks need to raise about Rs. 30,000 crore to meet their Basel II commitments.
• Defaults on the vehicle loans on the rise
• The mean delinquency figure, 12 months after securitization, stands at 4.92% for loans originated in 2006. This is double the figure of 2.10% for loans that originated in 2003.
• Land acquisition and SEZs
• Can you reel out two problems with the issue of establishing ‘market value’ of the land that is about to be acquired for an SEZ?
• In an article on the subject Prabhu Ghate gives two of them. Take a look:
• First is not knowing the counterfactual – what would the value of the land have been in the absence of the project? Large projects affect land prices for miles around. A mechanical tying up of the land price to the stamp duties assessed on sales at the time of mooting the project is unfair, because it penalizes persons for land undervalued by others so as to save on stamp duty.
• Secondly, it understates the increase in land in values that would have taken place even without the project, especially in areas which are nearer to large cities.
• Subprime’s lessons on socialism
• Writer after writer keeps surprising me with a new angle or twist to the problem. Look at today’s beautiful article by TK Arun here.
• He argues that the subprime fiasco has taught some socialistic lessons to us. In the process he also gives a very neat account of the how the mess unfolded itself. Does help us get a clearer picture of what (or how it) went wrong.
• His argument is that the unfolding mess has added lot of housing stock to the market. This has resulted in some people getting highly cross subsidized housing at the expense of the government and shareholders of banks which have burnt their fingers in the mess. He wonders whether or not this is a kind of socialism.
• Confusing? Read on here.
• While on the subject let us see on more casualty
• Morgan Stanley reported its first every quarterly loss in 73 years!!!
• Led by a $9.4 bn writedown, it lost $3.61 bn in the fourth quarter.
• Though John Mack, its CEO is still retaining his job, it may be a matter of time before there will be calls for his resignation.
• Morgan Stanley is the second largest investment bank in the US.
• Our PM also worries about recession in the US
• With the external sector accounting for almost 40% of GDP, the country cannot be immune to international developments, he feels.
• How much does it cost to administer subsidies?
• According our FM, the centre spends Rs. 3.65 to transfer Rs. 1 to the poor in subsidies.
• Mobile bank branches
• TMB (Tamilnadu Mercantile Bank) will be perhaps the first bank to launch these mobile branches. It is essentially a van which will have a computer connected to the bank’s server through a VSAT, two staff and a security guard. It could cover about 6 to 7 villages in a day.
• Looks like a perfect solution for making headway in banking penetration.
• Only about 59% of adult population in India has bank accounts. In rural areas, this is just 39%.
• Classical language status to Telugu
• The Centre gives this status to a language which is 1000 years old. Recently it seems to have revised this qualifying period to 1500 to 2000 years.
• But Telugu, according to ASI (Archaeological Survey of India) studies is now about 2400 years old.
• Three inscriptions recovered in Bhattiprolu (Guntur District) contained several Telugu roots or words. These inscriptions date back to 400 BC.
• Telugu language was found in a more refined form in Kantamnenivarigudem (West Godavari District) and Gummadidurru and Ghantasala (Krishna District), dating back to 2nd century AD.
• Pest in Areca nut
• One of the important pests of this crop is spindle bug.
• These bugs feed on the top most regions of the leaf axils by injecting toxic saliva, producing elongated necrotic lesions, shredding and short holes in the leaves.

19.12.2007

• What is the most urbanized state in India?
• Tamilnadu. It has 44% of its population living in urban areas.
• How does world insurance market impact Indian insurers?
• In 2007, the insurance sector worldwide suffered a loss of $25 bn.
• Indian insurers are impacted in two ways:
• Large risks with a sum insured of over Rs. 10,000 crores are reinsured directly by local companies. As a result, the pricing in their contracts reflects the position of international markets.
• Cheaper availability of reinsurance increases the capacity of local insurers and therefore increases competition. When this is not the case, even small ticket insurance deals are impacted negatively.
• Language lessons:
• I came across a phrase in today’s ET editorial:
• “The credit markets in the major economies remain gummed up.”
• What is meant by ‘gummed up’?
• It means ruined or bungled up.
• Listing of PSEs
• There are nearly 250 PSEs (Public Sector Enterprises) but only about 50 are listed. At the end of March 2006, 157 PSEs (out of 215 surveyed) were profitable, against 120 in 2001-02.
• As most of the PSEs are in a profit making mode, ET argues that this is the right time for listing these PSEs. Divesting a small stake in these PSEs will unlock lot of value.
• Rise of the rupee and the bunkum of losing jobs
• SSSA Aiyar, as is his wont debunks the theory that the rising rupee is costing India in millions of lost jobs. Have patience? Read it in full here.
• If we look at rupee’s value vis-à-vis other major currencies in Asia from July 2005, it is clear that it appreciated much less than the other currencies. It has risen only 9.4% against the dollar whereas China (10.9%), South Korea (11.1%), Malaysia (12.6%) and Thailand (20.2%) have appreciated much higher.
• With many a corporate taking a beating because of the rising rupee, another column in today’s ET suggests that corporate India should start using ‘constant currency’ to report its results. “Constant currency’ is when a company reports its results, stripping the effect of changes in foreign exchange rates.
• For eg., if a company sold goods worth $100 in 2006 at Rs. 40 to a dollar, its sales would be worth Rs. 4000. In 2007, if the sales rose to $120 and the dollar fetched Rs. 30, then sales in rupee terms would be Rs. 3,600, a 10% decline. But in constant currency terms, the sale would grow by Rs. 20%.
• About the 11^th Plan
• Many a time when we are asked to say a few words on the current or ensuing five year plan, we don’t know where to begin and where to end.
• Look at this on the 11^th Plan:
• The plan envisages an investment of Rs. 36 lakh crores in various sectors, with special emphasis on equitable growth. Important targets in the plan include:
• Reduction of poverty by 10 percentage points
• Generating 7 crore new employment opportunities; and
• Ensuring electricity connection to all villages.
• The plan targets a 9% growth rate for the economy.
• The GBS (Gross Budgetary Support) for the Plan has been fixed at Rs. 10 lakh crores.
• Gujjar agitation and Chopra committee
• The Justice (Retd.) Jas Raj Chopra committee that has been constituted to go into the issue of declaring Gujjars of Rajasthan as a scheduled tribe has submitted its report.
• The committee felt that the community’s demand for enlistment in the ST category could not be met, as such a step would require the abrogation of the criteria set by the Centre for the process. It said “Passing judgment on the candidature of a particular group for the ST status in terms of presently used criteria is very difficult.”
• The Gujjars are obviously unhappy with this. Their leader Kirori Singh Bainsla termed the report as a ‘deceit’ on the part of the Rajasthan CM.
• But the Meena groups, which till now have been opposing the ST status to the Gujjars, spoke in somewhat conciliatory tone about the government’s decision to refer the matter to the Centre.
• FIFA world player of the year
• Is Kaka, the Brazilian midfielder.
• For him, it is the third accolade this year. He won European football’s Golden Ball and World Soccer magazine’s Player of the Year award.
• He is the fifth Brazilian to win this title. The others are: Ronaldo, Ronaldinho, Romario and Rivaldo.
• Sudoku
• Ever played this game?
• It was invented by Swiss mathematician Leonhard Euler in the late 1700’s.
• Now a colourful and easier version of this game is invented by a doctoral student (Antony Harfield) at the University of Warrick in Britain.

18.12.2007

• Respectable progress in innovation and R&D from India
• In recent years India has made enormous strides in innovation and research as the driver of economic growth. This has also given a boost to the patenting activity in the country. The number of research publications from India had been stable at around 15,000 papers per year until 2000, when there was a pronounced upturn. In the last five years, they have grown 45% to cross 25,000 mark. Since the late 1980’s the citations India receives has considerably increased. For instance, research papers from India received 256,253 citations in the last five years showing a fourfold increase since the 1980’s.
• Look at what we noted about the number of patent applications received in our country. Follow this link.
• Some facts and figures about our transport sector
• The growth in commercial vehicle segment in the recent years (2002 to 2007) has been partly due to Government’s highway building programme. Yet only 7,500 km of the planned 25,000 km has been built.
• State transport corporations have a total fleet strength of just over 100,000 in a country where 1.4 mn cars and multi vehicles are sold each year.
• Of a total truck fleet of 2.8 mn, around a million are estimated to be more than 12 years old indicating a huge potential for replacement demand though the realization of this demand would depend on how strict regulators are about phasing out ageing vehicles.
• On judicial activism
• Recently we noted the contents of a Supreme Court judgment about judicial activism. A topic like this is bound to generate lot of heat and did for sure.
• Look at today’s debate on that by three legal luminaries. It is worth a read. Read it here.
• There are strong views expressed both for and against the issue. Striking a judicious balance by the Court while taking up issues that will have a potential of trespassing the jurisdictions of the executive and legislature, will remain a challenge for it as long as it exists. While we cannot find any fault with a legal luminary like Justice (Retd.) VR Krishna Iyer describing judicial activism as the ‘oxygen of rule of law’, how many of the legal fraternity can this ‘oxygen’ be trusted with, without their trampling on the domains of the other two pillars of democracy?
• I explained to you what is ‘obiter dicta’ while noting on this subject earlier. One more legal phrase that is worth our attention is ‘ratio decidendi.’ It means the reason or rationale behind the decision in the judgment.
• It would be worthwhile to take a look at what we noted on the subject earlier on 09.04.2007, 11.05.2007 and 12.12.2007.
• We have heard of hybrid vehicles. But hybrid ships?
• Their time too appears to have come.
• A giant kite designed to help slash the spiraling cost of fuel consumption could herald these hybrid ships.
• This kite is tethered to the bow of the ship. Flying at a height of 100 to 300 meters, this will tug the ship along, allowing it to operate its engines at reduced speeds, thus cutting back on fuel consumption.
• Language lessons
• W00t: Merriam Webster’s dictionary has selected this as the word of the year.
• This is often used in the online gaming world. It is used to express joy – it could be a triumph or for no reason at all.
• It stands for “we owned the other team.”
• Notice that the word has zeroes between the letters ‘w’ and ‘t’ in it.

17.12.2007

• Payback time for scamsters
• There is hope at last for investors who have been defrauded in IPO scams.
• The Justice Wadhwa committee that has been constituted by SEBI to compensate individual investors has worked out a compensation of Rs. 92 crore for investors who had applied for shares in the retail category in 21 IPOs during 2005-06.
• A recap about how the IPO scam was unveiled by the perpetrators:
• Operators put in thousands of fictitious applications in IPOs in retail category.
• Thousands of bank and demat accounts were opened in the names of fictitious entities.
• Post-allotment, operators transferred shares to another set of players.
• The players in turn transferred shares to financiers who had provided funds for investing in the IPOs.
• Shares were then sold on the first day of listing, making huge gains.
• What is a reverse merger?
• When a listed company acquires an unlisted company giving the unlisted company the status of a listed company, that is called reverse merger.
• India has not been having many such reverse mergers. But in US it is quite common.
• But of late we are seeing such transactions in India also.
• Low penetration of households in equity culture
• A mere 5% of household financial savings are in stocks and debentures in India.
• Exploration of oil and natural gas blocks
• We have noted on this subject recently while covering about NELP VII. Something more worthwhile coming our way includes:
• The unavailability of oil rigs seems to have curtailed the blocks on offer. Only about 18 new blocks have been put up for bidding this time, as 24 of the blocks were relinquished by earlier bidders and another 15 blocks have had no takers in previous bidding rounds.
• What is meant by more transparent bidding conditions?
• For example, declaring upfront the numerical weightages for different bid criteria and various sub-parameters.
• Just over a third of the country’s sedimentary basins have been explored to any real extent. Estimates suggest in situ crude of over 1 bn tonnes. We need to have in place a world class regulatory regime to coagulate funds flow in the sector.
• The new buzzword: de-coupling
• While globalization was the buzzword till recently, it appears to be the turn of ‘de-coupling’ this time.
• It refers to the apparent disconnect between how the rest of the world sees the future and how we (India) see it. The world is no longer one big global village; the belief that India and other emerging markets can go their own way regardless of what happens in the advanced world, is gaining ground.
• A very good piece from Rahul Bajaj
• Many a time he is dubbed as the leader of the ‘Bombay Club’ and a retrograde person when it comes to his views on opening up of our economy and further liberalization. But if you read his today’s article, he surely comes off as a reasonable person. He gives irrefutable evidence of the double standards that the west and developed world follow. I am convinced of his arguments. Take a look at some excerpts and my interpretation of his argument.
• The focus of his argument is that the cause of the appreciating rupee is not any sound strengthening of the economy. A rise of the currency backed by a consistent strengthening of the economy over the longer run can never be found fault with. But the rupee’s rise is attributable to the massive inflow of foreign funds – the FII inflows, which are short term and speculative in nature.
• When the Asian financial crisis occurred, IMF advice made matters worse. But in tackling the recent subprime crisis, the developed world had done just the opposite of what it advised the developing world during the Asian financial crisis. It bailed out the Northern Rock bank in England and infused liquidity by establishing a $100 bn bailout fund; measures which it would have seen as moral hazards, had they been done by the developing world.
• So, it would be unwise not to keep any checks on capital inflows into the country at this juncture.
• Experience in Chile (where it mandated that a certain portion of the inflows would be retained with the Central Bank in non-interest earning deposits) and the findings of the NBER (National Bureau of Economic Research of US) that the capital controls placed by Malaysia and Thailand have helped in reducing the real exchange rate pressures, confirm that we should find solutions to our problems rather than follow someone else’s prescriptions.
• Detonators in mining and security
• I was recently on a visit to a detonator manufacturing company. I found that most of the employees are not highly educated and could perhaps be easily carried away by some misguided elements into following some wrong philosophies. I was shuddering at the possibility of the detonators being smuggled out by the employees of the company and quizzed the head of the company about it. Though he showed the systems that are there in place to ensure strict accounting; I remained a bit skeptical.
• Today’s news item which is reporting the possible separation of possession and sale of explosives does point to the right direction. The proposed changes in law mean that the company licensed to sell explosives would not be allowed to use them and a company licensed to use explosives would not be allowed to sell them. This can put a lid on the possible ‘leakages’ that can occur in the system.
• Protection of public servants
• With the recent spate of attacks on junior doctors and the resultant strikes by them in AP, the issue of protection of public servants while performing their duty has occupied public mind.
• Section 353 of Indian Penal Code laid down that assault or use of criminal force to deter a public servant from the discharge of his duties was a punishable offence with imprisonment of a term of two years or with fine.
• Integrating EU
• The EU is on course to extending the Schengen borderless area to 9 more countries this week.
• EU citizenship guarantees right of entry into all the 27 members states regardless of one’s circumstances.
• The 1985 Schengen Agreement is an agreement among some European countries which allows for the abolition of systematic border controls between the participating countries. It also includes provisions on common policy on the temporary entry of persons (including the Schengen Visa), the harmonisation of external border controls, and cross-border police co-operation. By the 1999 Treaty of Amsterdam, the agreement itself and all decisions having been enacted on its basis had been implemented into the law of the European Union.
• A total of 30 states, including all European Union states and three non-EU members (Iceland, Norway, and Switzerland), have signed the agreement, and 15 have implemented it so far. The Republic of Ireland and the United Kingdom only take part in the police co-operation measures and not the common border control and visa provisions. Border posts and checks have been removed in the Schengen area states and a common 'Schengen visa' allows tourist or visitor access to the area.
• Surprising but true!!!
• The bald or hairy rule; the rule of thumb for Russian leaders.
• In the last 130 years of Russian history, the position of the head of state, has religiously alternated between a bald person and a hairy person.
• This was from 1881 when the balding Alexander III took over from his hairy father.
• India’s F1 win
• Narain Karthikeyan won his maiden A1 GP race at the Zhuhai International Circuit in China yesterday.
• The last time he won a race was when he clinched the Spanish leg of the Nissan World Series in October, 2004.