30.03.2009

Politics & the Nation

• Pension for all citizens; a dream set to become true?
  
• The New Pension Scheme, which has hitherto been applicable only for government employees since April 1, 2004, is set to be extended to all other organized and unorganized sectors from April 1, 2009.  
  
• With the clearing of the decks for this from the Election Commission, it is expected to have a smooth launch.
  
• However, experts are cautioning that the scheme may, after all, not be that successful because the incentive for a distributor to sell pension plans from an insurer is far higher than that offered under the NPS.
  
• Let us wait and see how this pans out in the near to mid term.
  
• This is one interview that is a must read for anyone trying to grasp the problem with inflation.
• It answers questions like:
  
• Why is that the common man is not feeling the benefit of a falling inflation?
  
• Is what we are facing currently, deflation?
• West Bengal and bio-villages
  
• The West Bengal government, in its efforts to spread organic cultivation, has resolved to set up one bio-village in each of the 341 blocks in the state in the next two years. The objective behind setting up bio-villages is to create role models for adaptation to organic farming. Already 75 bio-villages have been set up across the state up to 2007-08 since its launch in 2004-05. There was plan to set up another 64 biovillages in 2008-09. 
  
• In these villages, work is in progress to train farmers on the proper use of bio/botanical pesticides and use of microbes and parasites to wage a biological warfare against prevalent pests and plant diseases. 
  

Finance & Economy

• RIL (Reliance Industries Limited) set to commence natural gas production from KG (Krishna Godavari) basin
  
• Natural gas production is set to commence from the D6 block of the KG basin.  This is expected to add about $2 bn for the topline of RIL.  The field is expected to reach a peak production of 80 mmscmd by the end of 2009. 
  
• Gas from this field could substitute around 7% of oil consumption in 2009-10 and about 10-11% over the next three fiscals. 
  
• RIL is planning to invest an estimated $8.8 billion in the KG exploration block, and of this, it has spent $5.5 billion in developing the block and beginning production. 
  
• The current demand for gas in India is estimated be to nearly 190 million standard cubic metres per day (mmscmd), against a supply of 80 mmscmd, resulting in a shortfall of over 110 mmscmd.
  
• What are CCPs?  Why are they in the news?  Also did you hear of 'arbitrage money'?
  
• CCP stands for cumulative convertible preference shares.  These are the instruments that were issued by Indian companies, mostly unlisted, to foreign private equity players and hedge funds, circa 2006-07 for their fund infusion.  Typically these had a tenure of 3 years, offered a fixed interest, and at the end of three years, could either be redeemed to pay back investors or could be converted into shares, which could be sold once the company got listed.
  
• Now that the three year period is nearing completion, many of the Indian companies neither have the money to pay these overseas investors nor the will to enter the dormant IPO market.  
  
• Estimates put that close to $5 bn out of about $15 bn of CCPs are mautring this year.
  
• Why did CCPs not figure in the calculus of firms after 2007?
  
• After June 2007, the rules were tightened to ensure that CCPs get compulsorily converted into shares, failing which they were classified as debt. This was done to stop the unbridled flow of overseas arbitrage money — where foreign funds borrowed abroad to invest in India — that was fuelling asset bubbles in markets like properties. But soon, Indian companies, starved of domestic institutional finance, found a way out to beat the rule. 
  
• The fresh investments that were structured after June 2007 gave a put option to the foreign investors who could exercise it to sell the securities back to the promoter after three years. Here, the onus was on the ‘promoter’ to buy back the security since the company (post-June 2007) had to convert these into shares. This new instrument, tagged with a put option, was used till late 2007 and even early 2008 to bring in foreign investment.
  
• Arbitrage money:
  
• This is money that is borrowed abroad to invest in India; or another country for that matter.
  
• Exports contribution to our GDP.
  
• It is about 18%.
  
• An estimate of the money that is stashed away by Indians in Swiss banks & people of the world in tax havens
  
• In the range of $500 billion (Rs 25,00,000 crore) to $1400 billion (Rs 70,00,000 crore)
  
• A study by the Boston Consulting Group estimated that $7.3 trillion is stashed in offshore banking centres by people either taking advantage of low taxes or simply evading notice of tax authorities back home. 
• Curbing havens is one of the issues facing the Group of 20 summit on the world economic crisis, which gathers rich and leading developing countries in London on April 2.

• What is Disintermediation?  Can you give two examples of this phenomenon that have the potential to alter our lives forever?
• Disintermediation simply meant savers taking their hard-earned savings directly to those who needed it most — that is, companies setting up projects — instead of lending it to intermediaries (such as banks), which then eventually lent it to the companies. The word was used repeatedly in the perspective of developing the Indian capital markets.  What disintermediation simply meant was cutting out the middleman from — or delayering — a company’s supply chain or distribution networks.  Here is an excerpt from an article that appeared in ET today that offers a perfect answer for the second leg of the question:
  
• One is the Apple iPod/iTunes.  Reams have already been written about Apple’s iTunes and how this business model has changed the music industry. Apple realised early on that the internet would modify the music distribution business forever. That model — which has the sale of hardware layered on the software promise — has now become the defining template for music distribution. It peeled off many layers — such as, the music stores and the distributors, all of whom meant additional costs for the ultimate customer. But, there are further changes coming, which drive the disintermediation process further and promise to even do away with the need to buy hardware to access the software. A new service called “Spotify” allows users to hear songs of their choice from a virtual jukebox, all free, provided they agree to listen to 20 seconds of ads between 30 minutes of uninterrupted music. The songs can only be heard, not downloaded, reducing the piracy threat for music companies. The promise becomes attractive, given the easier access to the internet today, especially through mobile phones. It not only does away with the need to carry an iPod around or manage shelf-space overflowing with CDs, but it also has music labels signing on to offer their music. The service is still developing, but it has already created a buzz. 
  
• The second example is “Kindle”, an e-book reader launched by Amazon, which is now in its second version. It would be instructive to remember that Gutenberg’s invention freed ordinary people from the tyranny of priests and godmen, when he made available printed copies of the holy texts and scriptures at affordable prices. That was disintermediation 101. With Kindle-2 comes the second phase. With the help of the net, readers can download books, magazines and newspapers on their e-reader, which can then be read at leisure. Most importantly, if Amazon becomes a publisher also (which is not too distant a likelihood), the Kindle would have eliminated — in one stroke — the whole middle kingdom of agent, publisher, distributor and book shops. Sure, the Kindle-2 still has a long distance to travel — readers are unlikely to give up the printed, paper version completely in favour of a Kindle (at least, not yet), or eschew the option of browsing in a bookshop. But, the field has been set and a game is certainly afoot. 

International

• The ensuing G20 summit at London on April 2.
  
• Leaders from the world’s 20 biggest economies meet in the British capital on Thursday to discuss how better regulation, help for international trade and extra spending could help pull the world out of the worst recession since the 1930s. 
  

Language lessons

• catatonia: Noun
  
• Extreme tonus; muscular rigidity; a common symptom in catatonic schizophrenia
  
• A form of schizophrenia characterized by a tendency to remain in a fixed stuporous state for long periods; the catatonia may give way to short periods of extreme excitement
  
• eg: People seem to be emerging from their catatonic state through the winter, and actually beginning to go back to economic activity, with the accent on activity.