17.05.2008

• ICAI tightens disclosure norms for derivatives
• The new norms come in the backdrop of various companies filing cases against their banks for the losses they suffered on exotic derivative products in the wake of the US subprime crisis. Many banks, including some of the country's biggest lenders such as SBI, ICICI Bank and Axis Bank have in the recent past announced making provisions to cover mark-to-market losses.
• The new accounting standards mandate the companies to reveal various financial instruments such as derivatives, futures and options, mutual funds and loans in their financial statements. Companies are recommended to disclose these details from the beginning of next fiscal. The accounting standard AS-32 pertaining to disclosure of financial information will become mandatory from April 1, 2011.
• AS-32 follows two other accounting standards (AS-30 and 31), wherein the regulator had laid down rules pertaining to recognition and measurement and presentation of financial instruments by companies.
• What's the problem with our inflation figures?
• Inflation rate based on the WPI figures is undergoing marked revisions. This suggests the inflation rate seen this March onwards (the index rose 3.6% points during March-April) would perhaps be even higher when the final estimates for the month are announced after eight weeks. The problem is that the data are often inadequate and delayed. The government cannot take any action against those defaulting on furnishing of data as a legislation that would empower it to take them to court is pending for over an year.
• The Collection of Statistics Act, 1953 does not give enough powers to the statistics wing to penalise a company for not providing data in time. However, the Union Cabinet has approved Collection of Statistics Bill, 2007 which empowers the statistics department to take defaulting companies to court.
• In this context it is important to know the name of the country's chief statistician. It is Pronab Sen.
• India's trade deficit
• It is up from $59 billion in 2006-07 to $80 billion in 2007-08.
• A look at congestion figures in Delhi airport
• The basic cause of congestion at the Capital’s airport is this — it has a current capacity to handle 12 million passengers a year but is actually being used by 24 million annually. Even assuming DIAL, the contractors rebuilding the airport, had done their best in terms of decongesting queues at the entrance, check-in counters, immigration and so on, there would still be problems as the airport is operating at 200% capacity. This was not anticipated by anyone. The original projection was 24 million passengers by 2010. This is already achieved, and now the projected traffic for 2010 is close to 35 million.
• Pricing the government employees
• Two civil servants have made out a strong case for better remuneration for government employees. Some excerpts:
• Government is a standard input-output conversion system. It hires funds, labour, etc., for a price, converts these into services, and provides these services for a price. It is, however, different from similar other systems in the sense that it is generally a notfor-profit, monopoly supplier of public goods. Though there may not be aquid pro quo between the payments made and services used by an individual, there cannot be a better quid pro quo relation from the perspective of the society as a whole. The society pays for the government services in a variety of forms and thereby indirectly pays for all inputs, including labour; government hires to produce these services.
• It essentially meant transition to a market-based delivery system. Market delivers best if the price is right. The outcome is sub-optimal if the price is wrong. One of the key requirements of discovering right price is that every participant in the market is a price taker. Instead of taking the price discovered by market, if government wishes to set the price, it will be priced out of the market.
• The labour market, however, is not as efficient today as the financial market is. Labour, as a factor of production, is not homogenous. The supply of labour, in the aggregate sense, exceeds demand though there are skill-specific shortages. Given these characteristics, price of labour is not fully market-determined. This enables government to be a price maker. It is able to get reasonable supply of some variety of labour even if it offers a price substantially lower than market price. Labour being rational, higher quality labour is hired by others at market price leaving the average quality for government.
• Too much difference in remuneration between private and government sector means low quality stuff being available to the lowest payer.
• It is, therefore, necessary to work out the total cost of labour to the society instead of being carried away by the explicit payment made to government employees. The cost to the society will be equal to the explicit price plus the inefficiency cost plus the rent. This would be substantially higher than the cost of a decent explicit wage to the employees.
• Service tax on forex trading plays the party pooper
• As this has come into force on broking services from yesterday, the wholesale forex trading has virtually come to a halt. Margins on large forex transactions are wafer-thin, between 0.35% and 0.75% and if 0.25% of this is paid as tax there is nothing left.
• The impact on the retail trade is clearer and smaller forex outfits, called Restricted money changers in the RBI classification, have begun charging customers at either 0.25% of the transaction cost or a flat processing fee plus 12.36% of the fee as a service fee.