· On short selling in stocks

o Short selling, as you all might by now know, is a transaction where an investor can sell stocks without owning them. Investor does this by borrowing stocks from another entity, sells it in the market and buys it back before market closes to return to the lender.

o Short selling was allowed (in a watered down version) in the 2007 budget. SEBI announced the details of the scheme in December 2007. What has been allowed is a full-fledged stock lending and borrowing mechanism for all market participants in the securities market under the overall framework of Securities Lending Scheme, 1997. Naked short selling (going on selling without backed by any physical security) is not allowed.

o But why it did not take off well is because of the confusion over tax implications. The CBDT (Central Board of Direct Taxes) now says that the lending and borrowing of securities will not be subject to taxes.

o This announcement is expected to cheer the market.

· Two notable points from the President’s speech on the eve of the Budget session:

o Resolve to step up priority sector lending to minority communities from the present 9% to 15%.

o Recommendations of the Radhakrishnan Committee on agricultural indebtedness are under consideration of the government.

· Why do states shun borrowings from small savings?

o Small savings collections carry an interest rate of 8% and are mobilized by states. But the proceeds go to the Centre’s kitty. In turn the Centre passes 80% of these to the states at a higher rate of 9.5% for 20 years. The higher rate is due the maturity mismatch involved.

o But with many of the states’ finances now healthy, they are shunning these high cost funds.

· India’s first green hotel in Hyderabad?

o The Park Hotel is proposed to come up with a hotel in Hyderabad. It will be a 280 room hotel, scheduled to start operations by mid-2009.

o A green hotel aims at saving energy. It is estimated to save approximately 34.7% of the energy costs.

o An eco-friendly hotel on the other hand is constructed using recycled materials.

o India has about 17 green buildings.

· India’s patent scene

o CSIR (Council of Industrial and Scientific Research) holds the largest market share in the total US patents granted to Indians. India had been granted 128 patents during the calendar 2007. CSIR has 37 laboratories and 19,000 people working with it.

o India became a member of the Patent Cooperation Treaty in 1998. Whenever a patent application is filed, the applicant could designate all the countries (of the 138) where it wants the patent to be effective.

· About Section 25 companies

o These are companies that are registered under the Companies Act. They are not-for-profit companies and do business like any other company. Their profits are meant for furthering the social cause that they have espoused in their charter. They are prevented from distributing profits to promoters.

o The government is thinking of a stricter control regime for such companies as it was found that many such companies are doing business for their promoters to profiteer.

· Do you have any take on the tightening of the DTAA provisions with Mauritius?

o ET puts forth two arguments in favour of the continuance of a softer DTAA (Double Taxation Avoidance Agreement) regime with Mauritius.

o For one, investors locate themselves in Mauritius only to access the Indian market. A lightly regulated offshore tax haven can be a major boon to a continent sized economy with higher taxation rates. The HongKong-China combine is a classic example in this regard. Mauritius is playing a similar role for India and hence should not be discouraged.

o Secondly, FII inflows (routed through Mauritius) have been good for the economy. They have increased corporate governance standards enormously. By helping create liquid capital markets they have helped FDI by making entry and exit easier.

· Want some lessons in our economic history?

o You will surely find them in the book by Arvind Panagariya – “India: The Emerging Giant.”

o If you can’t get to read the book, at least see a gist of its arguments given by SSA Aiyar in today’s ET. Worth a read.

· Writing the above piece SSA Aiyar has given at one place the positions held by India on various indices:

o Heritage Foundation’s Index of Economic Freedom: 104th rank

o World Bank’s latest Doing Business report: 120th out of 180 countries

o Human Development Index: 126th rank

o Corruption Perception Index of Transparency International: 72nd rank.

· Two points that make us feel that there is something wrong with our stock indices:

o The individual stocks in the index are being manipulated, either to mislead investors deliberately or to offset punts in the Sensex or Nifty futures.

o The futures and options market today is in multiples of cash market, resulting in the tail wagging the dog. It should be the reverse way round. The market is so shallow that only a few investors can manipulate a couple of stocks and impact the index outcome.

· Why should we meet the fiscal deficit targets?

o In a debate that appeared in today’s ET only one author has given a pointed answer. He is Amit Mitra, the Secretary General of the FICCI.

o Deficits make governments issue bonds to bridge the fiscal gap. The entry of the government (a giant sized borrower) has three negative fall-outs:

o One, the interest rates in the market begin to spike. This hurts investment and capital formation. This also deters those who borrow from banks for white goods, automobiles etc.

o Secondly, this leads to a crowding out of private investments. The very same rupee which could have earned a higher return in the hands of a private entrepreneur ends up offering low returns in the hands of the government.

o Lastly, evidence suggests that much of the extra spending of the government goes into salaries, interests and subsidies. These put further pressure on prices and breed inefficiencies. With rising global food prices, oil prices etc., it is critical to guard against fuelling price rise due to the impact of the fiscal deficit.

· Oscars at a glance

o Picture: No Country for the Old Men

o Actor: Daniel Day Lewis, “There will be blood”

o Actress: Marion Cotillard, “La Vie en Rose”

o Supporting Actor: Javier Bardem, “No country for old men”

o Supporting Actress: Tilda Swinton, “Machael Clayton”

o Director: Joel Coen and Ethan Coen, “No country for old men”

· The Karnataka election conundrum

o Sometime back while reading about the delimitation commission’s work and the prospect of postponement of Karnataka elections, I was wondering whether or not there could be a way out of the seemingly immanent deadlock. But today’s editorial in The Hindu does point out one.

o Rule 24 of the Registration of Electors Rules, 1960 provides solution for precisely the kind of situation that is arising now with respect to Karnataka. It is presently under President’s rule. The rule is set to expire on May 28. But in the meantime the President is likely to notify the delimitation of constituencies which makes it mandatory for all the future elections to be held on the basis of delimited constituencies. But because the process of bringing into force the electoral rolls according to the new delimited constituencies will take several months, it would have been inevitable to extend the President’s rule in the state.

o In view of Rule 24 cited above, that need not be the case. It provides that in the event of delimitation of constituencies, the Election Commission may direct that the rolls shall be prepared by putting together the rolls of such of the existing constituencies or parts thereof as are comprised within the new constituency.

o You can expect some quizzing on this issue for sure; either in mains or in interview.

· Two treaties that you should know about when it comes to development aid

o Monterrey consensus

§ It is an agreement reached by developed countries along with international agencies for extending finance for development.

§ Read more about it on Wikipedia here. It was agreed to in 2002.

§ New development aid commitments from the United States and the European Union and other countries were made at the conference. Countries also reached agreements on other issues, including debt relief, fighting corruption, and policy coherence.

o Gleneagles summit 2005

§ This G8 summit had its focus on the issues of global climate change and the lack of economic development in Africa. Other announced items on the agenda were counter-terrorism, non-proliferation and reform in the Middle East.

o The latest Development Cooperation Report 2007 acknowledges the apprehension that aid budgets are influenced more by considerations of national interest and support for friendly regimes than by lofty objectives of alleviating hunger and disease.

o You can access the full Development Cooperation Report (DCR) of 2007 here.

· Quota for SCs/STs in MBBS and BDS courses

o We all know that there is a quota; know?

o Nope; what the Union Minister Mr. Ramdoss has announced is the quota for them in the central pool i.e., seats in government medical and dental colleges across the country that are under the all-India quota. These are filled hitherto only on the basis of merit. Now he is proposing to extend quota for these seats also.

· Dhaka to honour Indian army martyrs

o This excerpt from The Hindu is worth our attention:

o Dhaka has for the first time agreed to honour the memory of Indian Army soldiers who were martyred in the war for liberation of Bangladesh. This was decided during a meeting here on Monday between the Chief of the Army Staff, General Deepak Kapoor, and his visiting Bangladeshi counterpart, General Moeen U. Ahmed, highly placed sources said.

o The martyred soldiers are likely to be remembered officially by Bangladesh on March 25, the day when the Pakistan Army began ‘Operation Searchlight,’ a brutal campaign of genocide and rape against the people of East Pakistan and the Awami League responded by declaring Independence.

o With India providing logistic support to the resistance army Mukti Bahini, Pakistan launched air strikes on the country, triggering off the Army action led at the theatre level by Lt. Gen. Jagjit Singh Aurora under the leadership of the Chief of the Army Staff, Field Marshal [then Gen.] Sam Manekshaw.

o The Indian Army overran Pakistan Army positions in 13 days, leading to one of the biggest surrenders on the Dhaka Racecourse on December 16, 1971.