06.04.2009

Politics & the Nation

• Financial inclusion goes for a toss with the change in government
• The previous BJP government in Rajasthan is reported to have taken some worthy steps to further the cause of financial inclusion.  But the successor Congress government appears to be on a course to dismantle the scheme. 
• Read this report and draw your own conclusions.
• Satyam's auditors get clean chit from its ex-CFO
• In a significant development, former Satyam Computer CFO Vadlamani Srinivas has told representatives of the Institute of Chartered Accountants of India (ICAI) — the apex regulatory body for chartered accountants in India — that auditors S Gopalakrishnan and Talluri Srinivas of audit firm Price Waterhouse had no role to play in the fraud, as they were given forged documents by the company management. 
  
• Mr Srinivas admitted that the fraud at the software company, which rocked the Indian corporate world, was entirely perpetrated by former chairman B Ramalinga Raju, with the active involvement of the CFO (Mr Srinivas himself), the company’s managing director B Rama Raju and cost accountant G Ramakrishna. 
  
• This should come as a big relief for the two PWC employees who are incarcerated in jail ever since the scam broke out.

Finance & Economics

• What makes banks so 'special' and how they are 'too big to fail' when it comes to rescuing them and the same doesn't apply to big manufacturing behemoths like GM?  Let's take a look at the resoning given Mythili Bhusnurmath: (An excerpt from yesterday's ET)
  
• The reason is simple. The collapse of a GM or any other equally large or even larger manufacturing company will, no doubt, impact huge numbers directly. Indirectly too it will have a ripple effect throughout the economy, affecting auto ancillaries and other units supplying to it. But the impact will be nowhere near as catastrophic as the collapse of a ‘systemically important financial institution’ or one that is ‘too big to fail.’ 
  
• To understand why, think of the critical role of bank finance in greasing the wheels of the economy. Banks are the repository of public savings and are also the backbone of the modern payments system. So if a large enough bank collapses, it risks taking the entire economy down with it. Too big to fail is only another way of saying ‘too interconnected to fail’. Faced with the alternatives, governments everywhere opt to play safe and come to the rescue of banks rather than let them collapse 
  
• Take for instance Lehman Bros. Allowing Lehman to go down was the acid test of the toobig-to-fail hypothesis. And we all know what happened. It was not meant to be this way. Lehman, after all, was only an investment bank, not a conventional commercial bank. But the gamble backfired completely because it owed money to a host of other banks, all of who found they were suddenly faced with the prospect of huge defaults on their dues from Lehman, in turn endangering their ability to honour their own debts. 
  
• The G20 nations’ agreement to “to take action against non-cooperative jurisdictions, including tax havens” is likely to hurt India the most in the short- to medium-term.  How?
  
• The source of India’s biggest FDI is Mauritius, a tax haven. As much as $11 billion, or two-fifths of the country’s total FDI, came from Mauritius in 2007-08. If this route is plugged, huge investments will dry up.
  
• Is this really going to play out that way?  Chances are: it's probability is 50:50.
  
• Because this African nation has moved towards implementing internationally agreed tax standards set by the Paris-based Organization for Economic Cooperation and Development (OECD) and endorsed by G20. An OECD note, released on the same day as the G20 summit, said Mauritius now falls under the “least-risky” category, meaning the country has substantially implemented the internationally agreed tax standards.
  
• The worst offenders according to the OECD note — Costa Rica, Malaysia (Labuan), Philippines and Uruguay — are statistically insignificant to India.
  
• Committee on Financial Sector Assessment (CFSA)
  
• Headed by Dr Rakesh Mohan of the Reserve Bank of India, it submitted its report last week, calling for “gradual” reforms, opening up and skill upgradation across the board. 
  

International

• Want to get a briefing on gold standard and how it came apart?  How did the US dollar come into being as world's reserve currency?  
  
• For such questions, this article by SSA Aiyar gives excellent answers.  Take a look at it.
  
• Following excerpt worth our attention has answers to the question: How are SDRs created and how are they allocated?  Will their creation reduce the importance of US dollar?
  
• The IMF has since 1970 issued only 21.4 billion SDRs, worth $32 billion at today’s exchange rate. The proposed new issue worth $250 billion will be far larger. Yet, it pales in comparison with trillions of dollars held in forex reserves globally. 
  
• SDRs will probably be issued to countries in proportion to their IMF quotas. If so, two-thirds of new SDRs will go to rich developed countries. India will get just 2%, China just 3.7%. 
  
• Hence, SDRs will hardly dent dollar dominance in global reserves or liquidity. 
• The achievements of the G20 London summit: (Excerpted from an article by Mythili Bhsunurmath)
  
• Addition to the IMF's resources for on-lending to countries facing liquidity crunch: $250 bn.
  
• Augmenting the IMF's resources by upto $500 bn over the medium term.
  
• Commitment to support a general allocation of SDRs equivalent to $250 bn
  
• Additional $100 bn lending by World Bank 
  
• A trade credit of at least $250 bn.
  
• While the above are the most significant measures outlined, the others which are no less important include:
  
• Agreement on broad principles for strenghthening financial supervision and regulation, particularly of hedge funds and rating agencies.
  
• Reform of multilateral institutions, including their governance, appointment of heads and time-bound implementation of the quota review agreed last April.
  
• Decision to establish a new Financial Stability Board (FSB) with representatives from all G20 countries, as successor to the Financial Stability Forum.
  
•  The call to eschew protectionism and refrain from competitive devaluation.
  
• The recognition of the need to put in place credible exit strategies from the measures now being undertaken to ensure long term fiscal sustainability and price stability.
  
• What are the two areas where it (the G20 summit) failed?
• Its complete silence on two issues that underlie the on-going crisis and are of vital importance in any effort to prevent a recurrence — the role of the US dollar as international reserve currency and linked to that, global imbalances.
  
• IMF asked to sell gold to assist poor countries
  
• The International Monetary Fund (IMF), has been authorised by the G-20 leaders to sell gold to assist poor countries.  It is reportedly sitting on reserves of the yellow metal of 3,217 tonnes, valued at $95 billion (about Rs 4.8 lakh crore). 
  
• Incidentally, the IMF is the third-largest official holder of gold in the world.  The US has the largest official reserves of gold in the world (over 8,000 tonnes), followed by Germany at around 3,400 tonnes. 
  
• North Korea fires a long range rocket
  
• Analysts say the launch was effectively a test of a ballistic missile designed to carry a warhead potentially as far as Alaska. 
  
• This has outraged the entire international community and evoked calls for strong punishment to be meted out to this pariah state.
  

Astronomy

• Jupiter's 'great red spot' seen shrinking
  
• There's fresh evidence that one of the planet's most recognizable features, the Great Red Spot, is shrinking.
  
• The spot, which is actually an ancient monster storm that measures about three Earths across, lost 15 percent of its diameter between 1996 and 2006, scientists at the University of California, Berkeley, have found.
  
• It shrank by about 1 kilometer (about 0.6 miles) a day during that time period.
  
• Take a look at these pictures ( 1 & 2 ) from BBC.  It will give a better idea of what we are noting about.  If you have patience to read more about it, follow this CNN report.

Sport

• Third test with New Zealand
  
• India lead by 531 runs with 5 wickets remaining as at the draw of stumps on the third day of the match.  Indias have scored 349 for 5 in the second innings of this test match.  Yuvraj Sing and Dhoni are at the crease.
  

Language lessons

• ferul or feral: adjective
  
• wild and menacing
• Eg. A pack of feral dogs.
• droll: adjective
• Comical in an odd or whimsical manner
  
• eg.  a droll little man with a quiet tongue-in-cheek kind of humour
• mordant: adjective
• Harshly ironic or sinister
  
• eg. fun ranging from slapstick clowning ... to savage mordant wit