08.02.2010

Finance & Economy

• Divestment figures touch decent figures; government aims high
  
• The 2009-10 Budget had estimated that disinvestment proceeds would fetch around Rs 1,120 crore.
• But the government has earned Rs 4,260 crore from initial public offers of NHPC and Oil India.
• The recent follow-on public offer (FPO) of National Thermal Power Corporation (NTPC) is expected to bring the government at least Rs 8,300 crore. The other two remaining FPOs in the fiscal — Rural Electrification Corporation and NMDC — are likely to bring in another Rs 20,000 crore.
• In the five years preceding the current one, the government raised just Rs 13,287 crore from disinvestment as against Rs 28,000 crore raised by the BJP-led government in the preceding five-year period. A sum of Rs 38,795 crore was billed as disinvestment receipts in the 2007-08 Budget. This was largely on account of a book transfer of stake in SBI from RBI to the government.
• The government now plans to raise about Rs 30,000 crore next financial year from stake sale in public sector firms to meet a significant part of the revenue shortfall, as it looks to bring down fiscal deficit from the 16-year high of 6.8% recorded this year.
• Some of the excellent recommendations made by the 13th Finance Commission that are worth studying:
  
• The commission has dumped numerical targets in favour of qualitative ones for the fiscal and revenue deficits. The deficits are to go up in the downswing of a business cycle and come down on the upswing — all the way to a surplus in the case of the revenue deficit — with a council of wise mean moderating any inclination on the part of the government of the day to declare a downswing when there is only an election on the horizon.
• The commission has focused on the government’s liabilities as a proportion of GDP.
• Why is the petro pricing expert group's proposal for an additional excise duty of Rs 80,000 on diesel cars is wholly questionable and ill-advised?
  
• The committee has justified the additional excise on the grounds that ‘higher excise duty on petrol compared to diesel encourages use of diesel cars’. But the presence of one set of rigidities in petro-products pricing can hardly justify another, and especially so when there is already a panoply of distortions in the oil sector. The fact is that there are pervasive rigidities in market design, product taxation and subsidy levels — and the express policy purpose must be to reduce the extant distortions, not add to them.
• For an excellent critique of the expert group's proposals on oil pricing reform, take a look at this article by Jaideep Mishra. Very enlightening.

International

• Indian IT companies up US hiring
  
• In the past 12-18 months, around 15,000 US professionals have joined Indian firms across functions — from entrylevel customer care to senior level sales and consulting positions. Most of them had never worked with an Indian company before.
• This trend is expected to gather strength in the coming months, as Indian players strive to address concerns over flight of jobs, besides strengthening their own onsite services delivery capability.
• Today, locals comprise about 30% of the Indian IT employee base of over 100,000 in the US. This is up from just a few hundreds 4-5 years ago, when most onsite needs were met by flying out engineers from India on H1B visas and the local talent was sought only for a few consulting type jobs.
• In fact, most Indian companies hire local talent in what are Tier II cities in the US like Arkansas, St Antonio, Tampa, Kansas City, Alabama, and Buffalo. Talent here is 15-20% cheaper than in big cities, understands the requirements, needs no training to start and service providers creating local jobs are more favourably looked at when pitching for business.
• Two measures that President Obama has proposed to reform their banking sector
  
• The first such measure is a levy of 0.15% for 10 years on the non-retail liabilities of banks with balance sheets over $50 billion in the US. This measure is estimated to raise $90 billion over 10 years and is intended to part-cover the cost of bailing out the banking system in the US over the last two years.
• The other more radical proposal is to ban proprietary trading by banks and disallow investments in hedge funds and private equity funds, thus ostensibly reducing the chances of requiring a future government bailout.
• Strong criticism about carry trade
  
• Foreign exchange carry trades — where speculators borrow in a low interest rate currency and then lend or invest in another currency for profit — are increasingly being seen to pose a major risk to international financial stability.
• UK Financial Services Authority chairman Lord Turner has, of late, articulated the need to crack down on this activity since he feels it hardly serves any useful social or economic purpose. He has further suggested that bank capital adequacy standards and liquidity requirements need to be tweaked higher to factor such activity.
• It is common knowledge that the Yen carry trade and more recently, the dollar carry trade have helped speculators create asset bubbles, especially in the developing world.
• Why was there an uptick in commodity prices globally throughout 2009?
  
• Here is an excerpt from an op-ed that appeared in today's ET that gives a good answer:
• Financial investors poured more than $50 billion into commodity funds in 2009 — more than three times the average annual pace in the 2003-07 boom years — spurred on by excess liquidity in the system and due to a loss of confidence in paper money, preferring ‘hard assets’ instead.

Language Lessons

• imprimatur: Noun
• Formal and explicit approval
• eg: Even the Supreme Court imprimatur hasn’t quelled opposition.
• scupper: Verb
• Wait in hiding to attack; Put in a dangerous, disadvantageous, or difficult position
• eg: And in the early years of this century, a plan to delist Sterlite from Indian bourses was scuppered, after receiving dollops of negative publicity.
• racy: Adjective
• Full of zest or vigour; Marked by richness and fullness of flavour; Suggestive of sexual impropriety; Designed or suitable for competing in a race
• eg: Pachauri’s racy novel raises temperature
• epigram: Noun
• A witty saying
• An epigram penned by Samuel Taylor Coleridge:
• What is an epigram? / A dwarfish whole / Its body brevity / and wit its soul.