28.06.2008

• Normally a Saturday is one which we expect to bring some non-negative, if not good news. But that is not to be. See what the lead story says:
• Crude oil prices crossed $142 per barrel on Friday, fuelled by recent geopolitical factors like Israel’s threat to bomb Iran and ethnic unrest in Nigeria. Worse, it is now expected to cross the $150-mark in a month. The latest rally, after a brief lull, comes a day after Opec president Chakib Khelil predicted that crude oil prices are likely to rise to between $150 and $170 a barrel. India’s oil import bill is expected to go up from $68 billion in 2007-08 to almost $110 billion this fiscal.
• What does this recent hike mean for India? Prices of other oil products that are linked with international prices of crude, will go up significantly. Already, the hike in prices of naphtha, furnace oil and other products are contributing as much as half of the overall increase in inflation on account of oil. The most disturbing fact about the present crude oil crisis is that while global oil consumption grew by 1.1% or 1,000,000 barrels per day in 2007, the global oil production fell by 130,000 barrels per day.
• Last week, finance minister P Chidambaram had said increase in oil prices was due to “unregulated over-the-counter markets and futures trading in oil”. At the recently held meeting of energy ministers in Jeddah, he proposed a Price Band Mechanism. As per this, consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level.
• Look at this graphic; it gives you details of under-recoveries and monthly highest prices of crude since January.
• As long as our political class keeps indulging in populism – unrealistic subsidy patronages, quota politics and the like – there is no way we can rescue ourselves from the chaos that stares us in our face in the near future. Do we need another 1991 like situation to jolt us out of our slumber? Looks like so for me. (Remember? In 1991 we had to swallow the indignity of mortgaging and selling our gold to the Bank of England and the Central Bank of Japan to get the necessary foreign exchange to pay for our imports. And we had to accept the preconditions of IMF to tide over the balance of payments crisis.)
• A look at the reasons for the liquidity crunch being faced by banks; for lending to the agriculture sector
• First, only about 10% of the total agriculture credit (Rs 16,000 crore) extended in 2007-08 has been recovered by co-operative banks. The nationalised banks, which have a marginal presence in the agricultural credit sector, have reported slightly better recovery between 10% and 30%, sources said.
• The second reason why banks are facing liquidity crunch is because the 50% reimbursement from the Centre would come in only by September-end.
• Mobile gaming is going great guns.
• Want to have a picture of where it is headed? Look at this graphic.
• Why is a loose monetary policy of the US detrimental to a country like India?
• In a world where capital is mobile, a loose monetary policy in the US has serious implications for developing countries like India where the exchange rate regime is a managed, rather than a free, float. Loose monetary policy means lower interest rates. This results in flow of dollars to India, as there is huge interest rate differential. This limits monetary policy options of national authorities as they are de facto forced to adopt the same loose policy. The RBI’s purchase of dollars in a bid to keep the rupee from appreciating, for instance, led to an infusion of rupees into the system. This imposes a huge cost on the system as the rupees then have to be mopped up (sterilised in technical jargon) by issuing bonds that, typically, carry a higher rate of interest than the interest earned on bonds bought with the resultant forex reserves. It also makes domestic monetary policy a hostage to US economic fundamentals resulting, for instance, in keeping monetary policy loose even when domestic policy prerogatives might call for monetary tightening.
• Some excellent commentary on how the Centre’s authority has got undermined over the last two decades:
• The political authority of the central government has been weakened because the coalitional partners do not share any common national political world view. A federal system of government can be effective only when a minimum national consensus exists among major political players especially on all-India issues. The coalitional federal Centre either of the NDA or the UPA has been practising the politics of ad-hocism as fragmented coalition groups and ideologically antagonistic political formations have failed to evolve any national consensus on all-India issues.
• The Constitution makers had expected that an effective federal Centre would play the role of a ‘stabiliser’ in a competitive democratic political system, but the Centre ever since the 1990s has become itself politically shaky, even unstable, and in this situation the Centre cannot play the role of providing effective democratic leadership to the whole country. A federal Centre is meant for the whole country in which state governments perform their own constitutional responsibilities and the Centre is the only arbiter if there is any violation of the Constitution. Unfortunately, the complete fragmentation of the party system and the weakening of all-India parties have directly adversely impacted normal functioning of the Centre.
• Wind power scenario in our country
• India is the fourth-largest wind power producer in the world. While India generated 12,400 mw of renewable energy by the end of Tenth Five Year Plan, wind power contributed almost 8,760 mw of installed capacity to it.
• So far, the major driver of growth in wind power has been the provision of 80% accelerated depreciation, which has attracted private investors with strong balance sheet to the sector.
• The ministry of new and renewable energy (MNRE) has announced a generation-based incentive (GBI) of 50 paise per unit of electricity for investors who do not have access to benefit of accelerated depreciation. This is expected to provide new and large independent producers a level playing field.
• If you were to get a chance to interact with an economist of great repute, especially one who is at the centre of a country’s policy making group, you wouldn’t know what to ask. Even when you do, chances are that what is replied by him/her will not give you enough time to scrutinize and get clarifications. That’s why papers like ET are the best bet for lesser mortals like us. Look at today’s ET interview of Arvind Virmani. It answers many of the questions that quiz our mind.
• Worth a read. Don’t miss it. It is here.
• I told you I am a fan of Kamala Haasan; didn’t I?
• His recent film Dasaavatharam is going great guns. It is expected to break quite a few records. Look at some specifics here.
• EURO 2008
• Spain trounces Russia 3-0 in semi-finals to reach the finals. It will meet Germany in the finals.
• Wimbledon
• Watching the action there?
• What a pleasure watching such power tennis from Federer. His opponent, Marc Giquel displayed no less a great game.
• But the shock of the evening was reserved for us from Ana Ivanovic, the top seed. She crashed out of the tournament!! Couldn’t believe it. She lost to Chinese wildcard Zheng Jie, the World No. 133.
• The chase for the 2008 women’s title is now thrown wide open.
• Obituary: Sam Manekshaw. The five-star general, one of only two army officers to be honoured with the rank of Field Marshal, passed away early on Friday at the military hospital, Coonoor, after a long battle with a lung disease. He was 94. Many of you are youngsters. You need to know something about our past and present heroes. Field Marshal Sam Manekshaw (Full name: Sam Hormusji Framji Jamshedji Manekshaw) is one such personality that you can’t afford to not know about. Read the piece that appeared in today’s ET here.
• Here is a picture of the hero.
• He was the architect of India’s successful war with Pakistan in 1971 that ultimately led to the creation of Bangladesh. He participated in 5 wars in all during his illustrious career spanning four decades. Recipient of countless military awards, he was one of the two Field Marshals that India ever had. The other FM is KM Cariappa.