09.03.2009

Politics & the Nation
  • Take a look at the draft manifestos of two of the political parties in Andhra Pradesh.  I leave it to you to comment on them.
    • TDP (Telugu Desam Party)
      • Rs 1,000-2,000 cash dole for the poor 
      • A colour television set for families below the poverty line 
      • Free health insurance cover for all illnesses 
      • Tax sops for cable operators 
    • PRP (Praja Rajyam Party)
      • 2.5 to 5 acres land to the poor, schedule castes, scheduled tribes and backward castes 
      • Creation of 10 lakh jobs to youth in 1,000 days 
      • Free power to farmers for 10 hours in two shifts 
      • Gratuity of Rs 1,000 per month to each unemployed youth and Rs 200 to 500 pension to senior citizens and widows 
      • Abolition of common entrance tests 
      • Enquiry commission with sitting judge to investigate into 15 years of political corruption 
      • Redefinition of functions of ACB, Enforcement and Vigilance to avoid overlapping 
      • Removal of belt shops 
      • Creation of market stabilisation fund to the tune of Rs 500 crore to control prices and commodities
  • An ineresting snippet on conduct of elections
    • Elections in 1950s were carried out using different ballot boxes for each candidate, rather than voting on ballot paper!  Different coloured boxes represented different parties.
Finance & Economics
  • India Inc's MTM accounting owes 
    • Many corporates had entered into foreign exchange forward contracts (an excellent primer on forwards is here) with Indian banks against their dollar receipts.  It is the likely MTM losses on these contracts that is going to be a headache for corporates now at the fag end of the current financial year.
    • Today, the US currency is trading at over 51. A contract, which promises the exporter an exchange rate of 45 to the dollar, can be a winning deal if the dollar had dipped below 45, to say 44, but it’s a losing one with the greenback having surged to 51 — since the exporter is tied to an unattractive rate, receiving Rs 45 for every dollar he earns, rather than Rs 51 which the market has to offer. 
    • Thousands of such contracts, which will expire after March 31, will have to be accounted for in this year’s balance sheets. If on March 31, the dollar closes at a rate higher than what has been fixed in the contract — and it may well do so, given the state of the market — the deal, in market parlance, will be ‘out of money’. To an accountant, the contract has a mark-to-market (MTM) loss. 
    • The issue corporates are grappling with is whether to provide for this loss on contracts struck to hedge (or cover the risks of a choppy market). Many of them are engaged in a vigorous discussion with their auditors, trying to explain why this bit of the accounting rules should be skipped. More so, in an unusual year like this. 
    • The Accounting Standards Board, which is looking into the finer points of derivatives accounting, has proposed that MTM losses should be provided only for “speculative contracts”. The Institute of Chartered Accountants of India (ICAI) is expected to look into the matter. 
  • The impossible trinity is haunting India again
    • A weakening rupee, surprisingly causing no great furore, has brought to the fore the issue of impossible trinity; yet again.  Hope you remember what it means.  It refers to the discord between capital mobility, an independent monetary policy and a pegged exchange rate.
    • But why is it that the weakening rupee is not causing that much furore this time?  An ET editorial gives three very good reasons:
    • One, the fear that a lower rupee will translate into higher inflation has all but disappeared as both inflation and global commodity prices are on the downswing. With the wholesale price index just above 3% and oil prices at less than $45 a barrel, the pass-through of a cheaper rupee to domestic prices is bound to be subdued. 
    • Two, a weaker rupee comes as a godsend to exporters reeling under the impact of the global slowdown — exports declined 13.7% in February for the fifth consecutive month. 
    • And three, the decline in the rupee-dollar exchange rate is more a reflection of the somewhat ironical strength of the dollar than any inherent weakness of the rupee. 
  • While it would be na├»ve to suggest that in a globalised world India would not be affected, it would be equally wrong to transfer the global doom and gloom in its entirety to India, argues a piece penned by Aditya Puri.  How?
    • One, the financial tsunami of toxic asset and crazy market regulation which flattened the financial systems of the west passed us by. Indian banks are safe, secure and profitable. Currently, as a banking system we have gross average NPAs of around 2% odd and net average NPAs of 1%. At worst, we can see average NPAs go up to a gross of around 3% and a net of 1.5%. The Indian banks can by and large afford these from the profits. More importantly, there is no stalling of the banking system. Credit by Indian banks has been growing at 24% plus. That industry is crying about shortage of funds is consequent to sources of funds (other than bank finance) drying up — that is global and local equity markets, international, trade finance, ECBs, etc. 
    • Two, about 60% of Indian GDP is domestic consumption and our percentage of exports is 23%. So, we can, through fiscal and monetary measures, coupled with government spending, pump prime our economy. 
    • Three, the fall in the price of crude and commodities will provide the government with some fiscal spending leeway because at current prices we should not need oil or fertiliser subsidy. 
    • And, four, inflation is falling and will fall further as the effect of oil and commodity prices passes through the economy and company balance sheets. Interest rates are falling and are set to fall further. 
  • Ever heard of managed futures?
    • Managed futures is an asset class that has a low correlation to stocks and bonds, and has the ability to perform in both bull and bear markets. 
    • An example of such managed futures is the CISDM CTA Index.  Reportedly it has outperformed stocks by eight times and has given an average return of 15% per annum since 1980.
  • What is backwardation?
    • The phenomenon of spot prices being much higher than forward prices .
  • Zero-based budgeting back in fashion?
    • Faced with the kind of slowdown they haven’t seen before, US companies are going back to history to a concept used by an earlier Democrat president. The concept of zero-based budgets, popularised by US president Jimmy Carter in 1977-81, is now finding currency among companies in the worst-hit sectors of the economy such as financial services and auto, that are using it to bring down IT spends.
    • In zero-based budgeting, companies do an audit of their expenditure and evaluate which one needs to be allocated funds.  Just because something has been existing, should not result in allocation of fresh funds year after year.  The concept of zero-based budgets was first developed in the 1960s by an engineer in Intel. The original reason was to justify spending on new projects, but it was later extended to operations, where it was found to be very effective in controlling costs. 
International
  • Today's ET is so full of important articles that it looks as though I should advise you to read in in full.
    • This article from Sudeshna Sen is an excellent one that I have read for a long time.  It puts in words, what many of us have all along been feeling -- confusion, chaos and diffidence about the unfolding events in the global economic firmament and more importantly the steps that are being taken (or not taken) by the world governments to contain the damage.  Worth a read.
Environment
  • What is Colony Collapse Disorder?  Why is it in the news?
    • It is about the disappearance of honeybees and the collapse of their communities. 
    • Scientists are still clueless as to what causes this and have no satisfactory explanation to offer.
    • But why should it bother us?
    • The potential gravity of the problem can be gauged from the fact that some 80% of all food crops are pollinated by honeybees; in the US alone bees are crucial to some $15 billion worth of agri-products.  No bees, means no food!
Language Lessons
  • cockle: verb
    • Stir up (water) so as to form ripples
    • To gather something into small wrinkles or folds
    • eg: All this should cockle the hearts of admirers of dictators like Fidel Castro and despots like Hugo Chavez.

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