14.04.2008

• What is portfolio leveraging and pyramiding?
• Portfolio leveraging is a method of raising easy interest loans whereby investors leverage on their own fund portfolio to raise a loan that will be re-invested into the market (either in mutual funds or stocks).
• Portfolio leveraging and super portfolio leveraging (leveraging again on an already leveraged portfolio, also called pyramiding) are done by investors who have hi-return funds, stocks and gilted instruments. The investor is safe till the time his portfolio yields decent return (more than the interest payable on leveraged portion).
• When the lenders see the value of underlying assets depleting, they simply ask the investor to meet the differential (between the assessed value at the time of taking loan and current market value of portfolio) in hard cash. If investors failed to do so within the deadline, lenders ask their broking arms to redeem the whole portfolio.
• On tackling water shortage
• I find the following advice quite meaningful on the issue.
• The need of the hour is to mobilise our wisdom in solving water scarcity problems of our country by implementing pro-active measures like rain water harvesting, ground water recharging, changing crop pattern to less water intensive crops, efficient use of irrigation water, etc.
• What we need to do is to make informed choices, bring efficiency in how we use all resources, learn, relearn and innovate, bring all stakeholders together for positive sustainable and inclusive development, encourage all those including companies to improve and most importantly discourage forces who are too keen to project their own interests.
• You will understand the import of these suggestions, if you had been following the accusations against Coca Cola company. Anyway even without the controversy on our radar, the above suggestions do make lot of sense.
• On the reservation issue
• If you were queries, “what did the private sector do, to contribute to the upliftment of the backward classes?” you could get enough material from today’s article by JJ Irani in ET. Some excerpts:
• The private sector has through its body the CII (Confederation of Indian Industry), studied what it could do and what it couldn't to tackle the issue of backwardness amongst the SCs and STs.
• It realised that in spite of having the basic qualifications, many members of the scheduled tribes and scheduled castes were unable to find suitable jobs since they lacked the opportunity to learn good communication skills, basic IT knowledge, career counselling, how to speak in public, how to conduct themselves in an interview, etc. These are soft skills, but very critical nevertheless. Therefore, they had identified employability creation as one of our key areas of intervention.
• The second was the universally accepted shortcoming which afflicts a large part of our young population irrespective of their caste status — quality education. In the long run, universal access to quality education would be the only solution to the problems of social discrimination. Now this is an action, which lies largely in the government’s domain. But for the time being, it decided to make industry’s modest contribution to the cause. CII decided to provide scholarship support to students, who wish to pursue higher education, but would not be able to do so owing to severe economic limitations.
• Then there was the third area of intervention. In our country, if one maps the size of the working age population and compares that with the number of jobs that are created across all sectors every year, the huge mismatch would be staggering. Yet it is important that every person in the working age population must have a means of earning a livelihood. The solution is no rocket science. We just have to create a large number of entrepreneurs, who in turn would be able to create jobs for others. Naturally, this was CII’s choice as the third area of initiative for the scheduled caste and scheduled tribe youth. The results of this last initiative seem to have been very encouraging.
• Some notes from Joseph Stiglitz’s article on America’s problem and its contribution to the world problems
• It has borrowed more than $1.5 trillion in home equity loans in recent years; most of it spent on consumption.
• US is spending about $12 bn a month on the Iraq war. Almost all of this has been effectively borrowed money.
• The national debt has increased by 50% in 8 years, with almost $1 trillion of it due to the war.
• From Robert Samuelson’s article
• America saves about $2 trillion a year.
• Financial services – that is, insurance, real estate, banking and securities trading – accounted for 15% of the GDP back in 1976. Now it accounts for 21%.
• Josh Lerner, a Professor at Harvard says that there is a regular cycle of financial innovation (good), imitation (good up to a point, because it provides competition) and finally suicidal excess.
• Greed, shortsightedness and herd behavior compromise securitization’s usefulness. But regulation cannot cure this dilemma, because regulators can’t anticipate all the problems and hazards either. The best protection against human fallibility is to insist that major financial institutions have ample capital to absorb unexpected losses.
• State levies on export inputs may be reimbursed
• The 13th Finance Commission may provide a solution to the long-pending issue of reimbursement of state-level levies paid on inputs used for exports. The Centre is looking at the option of providing reimbursement of state taxes from its kitty and then deducting it from the Central allocation to states. The Finance Commission headed by Vijay Kelkar has asked the Commerce Department to submit a draft proposal based on which it could take its decision.
• There is a general acceptance of the fact that state-level input duties paid by exporters like octroi, mandi tax, sales tax on petroleum products, electricity tax and municipal cess should be refunded. This adds up to a sizeable amount and is an estimated 6% of the free on board (FOB) value of exports.
• While the Centre doesn’t want to reimburse the state taxes with its own funds as it could encourage states to impose more taxes, the state governments have been reluctant to shell out the amount on their own.
• Solar powered windows – a panacea for energy ills?
• If scientists are to be believed, people could soon live in glass houses and look at the world through rose-tinted windows while reducing their carbon emissions by 50%. A team of researchers at the Queensland University of Technology are developing transparent solar cells that will act as windows as well as generate energy in houses or even in commercial buildings.
• The solar cells have a faint reddish hue but are completely see-through. The solar cells contain titanium dioxide coated in a dye that increases light absorption. The glass captures solar energy which can be used to power the house but can reduce overheating of the house, reducing the need for cooling.