23.06.2009

Politics & the Nation

• The CPI(Maoist) formally declared a 'terrorist' outfit.
• The Centre on Monday formally listed CPI (Maoist) as a separate terrorist outfit under the Unlawful Activities (Prevention) Act - UAPA.
• The Criminal Law Amendment Act, 1908, empowers the state government to declare an association as “unlawful”.
• Under UAPA, last amended in December 2008, the Centre is also empowered to declare an association as unlawful.
• The CPI (Maoist) was formed by the merger of CPI (ML)-People’s War and MCC in September 2004.

Finance & Economy

• ONGC strikes gold!!
• ONGC has struck oil and gas in three new blocks.
• The gas find at Krishna Godavari (KG) basin off the Andhra coast is estimated to be of the order of 10 TCF (trillion cubic feet) . The other two discoveries included an oil find in Charada-3 offshore block in Cambay basin and oil and gas find in Matar in Vadodara district, both in Gujarat.
• The gas find in KG basin is significant. Reliance's D6 block is reportedly having 11.5 TCF.
• Currently the country is producing about 89 MMSCMD of gas. With Reliance's gas production coming on stream, it is expected to almost double at its peak. If we add ONGC's gas production some three or four years down the line, the country's dependence on imports (at about 80% currently) will come down significantly.
• Worries on inflation front
• Even as we have been noting about the historic lows seen by WPI based inflation (it turned negative for the first time in 35 years in June!), the CPI — Consumer Price Index (CPI) — rose to 10.2% in May, the same month the wholesale price inflation remained less than half-apercentage point.
• The surge in inflation based on rural and agricultural workers’ CPI, after a steady four-month decline, is likely to crimp any enthusiasm in policymaking circles for sharp monetary or fiscal expansion.
• Retail inflation is measured by three different sets of CPI — one each for rural labourers, agricultural labourers and industrial workers.
• The labour bureau under the ministry of labour and employment, which compiles these three consumer price indices, will release the index for industrial workers, the one used for computing dearness allowance, on June 30. Inflation as per this index is also expected to move up.
• The difference between WPI and CPI is in the different items taken into account and the weights assigned to them. While food items have a weight of 15.2% in the WPI, their weightage in all the three consumer price indices is above 50%.
• The politically-sensitive food price inflation is hovering close to 9%. Economists say that with retail inflation refusing to move below the 10-year high of 10.5% it hit in January, even when WPI has dropped to negative territory, chances are RBI will reverse the expansionary monetary policy while the Centre may curb spending plans.
• Banking sector reform -- some recommendations based on lessons learnt from the recent global financial crisis.
• If you are asked to write something on the above, will your writing be comparable with the following excerpt? It is taken from today's excellent op-ed piece on the subject.
• One, the size of the banks should be restricted, so that some of them do not become so big as to endanger the entire financial system. Their activities should be restricted too. They should not be allowed in the investment banking or securities business.
• Two, banks all over the world should become a utility to serve the national economy under supervision of the local regulator. Their global expansion should be curbed. In order to support international trade and capital flows, international banks should be allowed to invest overseas, but only as minority investors. The local regulators should keep a close watch so that troubles in the home country of an international bank does not result in contagion.
• Three, the central banks must act to prevent bubbles. They should expand their focus to control asset price inflation in addition to consumer price inflation. They should take corrective steps if there is excessive credit growth overall and in any particular sector of the economy.
• Four, the capital adequacy requirements of banks and other financial institutions should be further increased. Banks should adopt dynamic provisioning policy, (as in Spain) to provide higher credit provisions and reserves during strong economy, which will act as cushion during recession.
• Five, banks should not be allowed to accumulate any risk through off balance sheet structures. All risks must be included in ascertaining capital adequacy. Innovation in banking should be encouraged, but in areas such as use of technology and other means to serve its customers better. In India and in most developing countries innovations should target to include the unserved or under-served population into financial system.
• Six, the whole system of creation and distribution of structured products needs overhaul. Banks should be asked to keep at least half of the assets created by them on their books so that the bank managements are well aware of the risks they are accumulating and distributing. Similarly the rating agency system needs major correction. Perhaps they should have their skin in the game and not only earn fees and then wash their hands off. Let them also keep 10% of the paper they rate on their books until it matures. It will concentrate their minds to understand and evaluate long-term risks appropriately.
• Seven, and perhaps the most important, the compensation of bankers and the risk management in banks require a thorough revision. Bankers’ compensation must come down and be in line with what other professionals earn. The bonuses should be downsized and linked to various performance parameters.

WTO talks

• Can you explain the reasons behind the stalled Doha round of WTO talks?
• Take a look at this excerpt; it explains it very well.
• It is the differing perceptions of the developing and the developed countries on the outcomes of the negotiations on most of the critical areas included in its negotiating mandate that have resulted in the impasse in the Doha Round. While developing countries have argued for the mainstreaming of development objectives in the multilateral trading system, the developed countries have pushed for market access in areas that suited their interests. This hiatus between the two groups of countries was clearly evident in agriculture and services. Thus, in agriculture, developing countries have argued that the WTO Agreement on Agriculture must take into consideration the interests of the low income and resource-poor producers by providing them higher level of protection, while developed countries have sought larger market access to promote the interests of the large conglomerates, in particular. But in services, where several developing countries have argued for higher degree of market opening, especially under Mode 4, which allows job-seekers better access to international markets, developed countries’ response has been rather lukewarm.

• What is meant by 'single undertaking' in the context of WTO talks?
• It is the WTO-speak for saying "nothing was agreed until everything was agreed."
• In practical terms this approach to the negotiations was significant since it sought to curb the tendencies of the more dominant countries to conclude agreements in areas that suited their interests best and to go slow (or even ignore) in areas in which they had to make concessions. Thus, countries could engage in inter-sectoral trade-offs and this was seen as a big step towards ensuring a balanced outcome.

Language lessons

• smirk
• Verb: Smile affectedly or derisively
• Noun: A smile expressing smugness or scorn instead of pleasure
• eg: While the public will shift to private airlines, AI employees smirk that the sarkari types who travel in style will be forced to travel without their Maharajah privileges in the government-owned airline!
• quaint: Adjective
• Strange in an interesting or pleasing way; Very strange or unusual; odd or even incongruous in character or appearance; Attractively old-fashioned (but not necessarily authentic)
• eg: "quaint dialect words"; "a quaint sense of humour"; "houses with quaint thatched roofs"