10.04.2010

Politics & the Nation

• Chidambram offers to quit; but Congress won't accept it
• The Dantewada massacre (wherein more than 75 CRPF personnel were killed by Maoists) appears to be causing political convulsions at the Centre with home minister P Chidambaram offering to quit. But Prime Minister Manmohan Singh has rejected his resignation.
• Mr Chidambaram, who has been using the latest variation of the phrase “buck stops here” to describe the leadership’s responsibilities to tackle internal security issues, on Friday made it plain that he will not engage in buck passing and accepted the full responsibility of the Dantewada massacre.
• According to sources, Mr Chidambaram had also written a letter to Ms Sonia Gandhi expressing his willingness to step down.
• On the need to revisit basics for fighting Naxalism
• In this excellently written article, Ajit Doval former director, IB gives an incisive analysis on the Maoist problem. A must read for everyone of you. Some excerpts, in no particular order:
• Naxalism is a variant of Fourth Generation Warfare (4GW) in which civil society is the critical element of war. This war is to protect the civil society and at the same time fought in the battle ground of civil society.
• The modern day guru of 4GW William Lind aptly observes that, “If nation states are going to survive, people in power must earn and keep the trust of the governed.” He further said: “The heart of Fourth Generation Warfare is a crisis of legitimacy of the state”.
• Majority of Maoist supporters or even their cadres have little to do with Maoism. They are only frustrated and angered people with a perceived sense of injustice, oppression and indignity. Maoists are cleverly exploiting this sentiment to their advantage — caste conflicts in Bihar, resentment against landlords in Andhra, discontent against forest laws in tribal areas, unemployment amongst youth and radicalism amongst Muslims prescribing capture of power through gun as solution of all their grievances. The local grievances need to be effectively addressed through improved governance and ruthless accountability.
• The tendency to underplay the role of intelligence and doing little to strengthen it is largely responsible for recent tactical setbacks. The tendency to raise additional battalions without corresponding accretion in intelligence network creates little pressure on the extremists and only provides them more visible targets to hit.
• To meet the challenge India has to raise its level and style of governance, build capacities and raise legitimacy of the political class.
• The immediate need in India is for all the political parties, national or regional, to realise that Left wing extremism is a political plan to acquire power through blood bath and it is their politics which is responsible for it. Maoists feel and are able to sell that ousting their form of polity is doable as the political class is fast losing its legitimacy and credibility due to its subordinating national interests to electoral policies, craving for power only to make money and perpetuate themselves, allowing vested interests to undermine the civil society at the cost of justice and fair play and using their political genius to fragment the society on all conceivable fault lines to gain power. All this provides the right recipe for a 4GW and in a setting like this any external adversary will exploit it as a low cost and sustainable option to bleed India.

Finance & Economy

• RIL set to buy 40% in Atlas shale gas arm for $1.7 bn
• Reliance Industries (RIL) has agreed to buy a 40% stake in a US shale gas venture of Atlas Energy for $1.7 billion, joining Exxon Mobil and France’s Total in the race for a fuel that may change the global energy economics.
• The nation’s biggest company will invest $340 million in cash for the stake and pay Atlas’ drilling expenses of up to $1.36 billion over the next five-and-a-half years. The deal values per acre of shale at $14,167, compared with $14,000 an acre paid by Japan’s Mitsui & Co in a similar deal.
• Shale gas represents a growing source of energy and is expected to constitute 20% of the overall gas production in the US over the next 10 years.
• Gas locked in shale formations is expected to account for 50% of US supply by 2035, up from 20%.
• Extracting gas from shale rock formations is accelerating in the US, which is looking for ways to reduce the dependence on Middle-East oil and cut pollution by limiting coal-fired power plants. Hydraulic fracturing and horizontal drilling are the two methods used to release natural gas trapped in shale rock formations.
• Under the fracturing method, chemicals and other materials are blasted into the rock to create cracks that lead to gas flowing to the well.
• Horizontal drilling penetrates the earth vertically before moving sideways for thousands of metres.
• Although some US companies began shale gas exploration nearly two decades ago, they did not become a success due to lack of technology and interest form big energy companies. Given the stagnant reserves, many oil companies now see shale gas as a major source for the future.
• Floating rate borrowers to benefit from base rate regime
• In its final guidelines on the base rate — the new benchmark that banks will use to price loans — the RBI has made it clear that any change in the base rate will apply to new as well as old customers. Banks often offered lower rates and even teaser-rate schemes to attract new customers. However, existing customers were left out of these schemes, even though they had taken loans at floating rates. As a result, floating-rate borrowers did not get the full benefit of falling rates. This is expected to change, with the new guidelines on base rate coming into effect from July 1.
• The regulator had said that the base rate system was aimed at enhancing transparency in lending rates and would lead to a better assessment of monetary policy transmission. According to the RBI formula, the base rate factors in only cost and profit margin while risk and tenure premia will be charged over and above the base rate. However, RBI has given banks the freedom to use any other methodology, provided it is consistent and is made available for supervisory review or scrutiny when required.
• Base rate will replace BPLR. Banks will be allowed to use the BPLR system till December 2010. However, during the six months (till December 2010), banks have been allowed to change the benchmark and the methodology till the system stabilises. Thereafter, they are required to review their base rates at least once in three months.
• 3G auctions rake in big moolah for the government
• The keenly-awaited 3G airwaves auctions began on a rousing note on Friday with the government receiving bids worth Rs 3,919 crore for one slot after five rounds, in line with all-round expectations that telcos will shell out record amounts to offer faster data services.
• Analysts said the final bid price is likely to settle at about Rs 9,000 crore a slot and Rs 45,000 crore overall, including revenues from sale of broadband spectrum, helping the government curb record fiscal deficit that leaped to a 16-year high last year.
• Still, India’s 3G auctions are unlikely to match the record prices in Europe and the US. The UK, for instance, raised $35 billion from a spectrum auction while Germany collected $67 billion from its UMTS licence auctions in 2000. The US raised $18 billion from a spectrum auction two years ago.
• 3G services were originally due for launch in India in 2007 but have repeatedly been deferred amid troubles over freeing up airwaves and setting bid prices. Telcos now offer services on 2G spectrum, but further allocations in this medium have been on hold till the government finalises a new allotment methodology. Before March 2009, when the allocations were stopped, telcos got spectrum based on subscriber numbers.
• Poverty meter: Govt works out new formula to count the poor
• The government is likely to fix the poverty line based on the criteria suggested by the S D Tendulkar headed task force last year after the new survey for identifying below poverty line households is complete.
• The new survey methodology to identify the poor is yet to be finalised, though recommendations made by the NC Saxena committee and eminent economists like Jean Dreze are likely to be the basis for it.
• The Planning Commission’s earlier estimate of the poor has been criticised for being based on an outdated poverty line and commodity basket that date back to 1970s. Even the survey methodology has been faulted for leading to the inclusion of several non-BPL families and exclusion of many BPL families.
• The Tendulkar committee has pointed out that rural poverty was under-stated because it was based on 1973-74 prices and a dated consumption basket. The committee has recommended changes in the price index and also widening the consumption bundle to include expenditure on items such as health and education. As per the committee’s estimates, the number of poor in the country was a high 37.2% of the population in 2004-05 as opposed to the Planning Commission’s estimate of 27.5%.
• The NC Saxena committee has recommended a score-based ranking, besides recommending parameters for “automatic inclusion” and “automatic exclusion” for some categories of households.
• The alternative methodology, suggested by Dreze, deals with an “exclusion approach”, whereby all households are entitled to social support except if they meet pre-specified exclusion criteria.

• FIIs, sub-accounts told to lay bare investment structure
• Foreign institutional investors and their sub-accounts will have to disclose the investment structure in India, say the new guidelines from the regulator, Sebi, as it looks for ways to identify the eventual beneficiaries.
• Existing FII and sub-accounts too will have to make necessary changes in line the new disclosure norms.
• These foreign investors will now have to disclose to the regulator whether they are a multi class vehicle (MCVs), segregated portfolio company (SPC) or a protected cell company (PCCs) and whether they maintain segregated or a common portfolio.
• SEBI action comes in the backdrop of alleged misreporting of transactions by some large blue-chip FIIs such as Barclays Bank and Societe Generale (SocGen).
• A multi-class structure allows distinct pools of investments, akin to various schemes of a Mutual Fund, under an umbrella asset management company.
• Investors deploying funds in the various pools, called cells, can have different fund managers pursuing different investment strategies.
• There were concerns that investments through such a structure can slip out of the regulatory radar. They could also be used as a conduit for round tripping, or Indian money being invested through foreign entities to avoid tax.

Environment

• Taking stock of climate negotiations
• As climate negotiators again converge in Bonn this week, it is appropriate that we take stock of the key issues that must be resolved if climate negotiations are to yield an equitable solution that is also acceptable.
• The most critical unresolved issue vexing the negotiations is the issue of accepting and interpreting historical responsibility. The touchstone of “common but differentiated responsibilities” under the Framework Convention embodies the historical responsibility of the developed world that is home to less than 20% of humanity but responsible for almost 80% of the current greenhouse gas concentration of our planet.
• Agreement on the level of mitigation actions within the borders of the developed countries is the second major unresolved issue.
• The third area of discord that must be addressed is the negotiating forum and the enforceability of the negotiated outcomes under international law.
• The fourth area of disagreement that must be addressed is the issue of Shared Vision. The long-term global goal is not as important nor is it essential to cast it in stone. Given knowledge gaps in climate science and the impossibility of predicting the potential and timing of new and disruptive technologies, what really needs to be agreed is committed actions by different countries in the next 10, 15 and 20 years.
• For a detailed explanation of each of the above issues, do read today's op-ed in ET by Surya Sethi.

International

• EU to rescue Greece as Fitch downgrades debt
• European Union officials said they are ready to rescue Greece, if needed as Fitch Ratings cut the country’s credit rating to the lowest investment grade. Greece’s long-term foreign and local currency issuer default ratings were cut to BBB from BBB+ by Fitch Ratings.
• Greece will need to seek emergency funding now to make debt repayments of more than € 20 billion in the next two months.
• Greece still needs to raise € 11.6 billion to cover debt that is maturing before the end of May and plans to sell bonds to US investors in the coming weeks. The country’s debt agency announced on Friday it would offer € 1.2 billion of six-month and one-year notes on April 12.
• Chinese imports surpass its exports!
• China may post its first trade deficit in six years after a surge in imports of commodities and consumer goods, weakening US arguments that the nation is keeping its currency undervalued to gain an advantage.
• Imports probably exceeded exports by $390 million in March after a $7.6-billion trade surplus the previous month, according to the median estimate in a Bloomberg News survey of 26 economists. Part of the shift into deficit is likely due to rising commodity prices, economists said.

Language Lessons

• mollycoddle
• Noun: A pampered darling; an effeminate man
• Verb: Treat with excessive indulgence
• eg: Why mollycoddle tax evaders who fuel growth of a parallel economy and impede provision of public goods?
• Identikit: Noun
• A likeness of a person's face constructed from descriptions given to police; uses a set of transparencies of various facial features that can be combined to build up a picture of the person sought
  
• eg: Identikit politicians may be the dream creation of media managers and party bosses who do not want their candidates to put their feet anywhere near their mouths, but they are killjoys from an electorate’s point of view.
• anodyne: Adjective
• Capable of relieving pain
  
• eg: The new breed of British politicians better watch out: the brooding, dour, lumbering incumbent may just strike gold with voters simply because he has none of those anodyne attributes that characterise those ranged against him.