12.04.2010

Politics & the Nation

• Multi-brand retail FDI out of deep freeze
• The government has launched discussions between ministries about opening multi-brand retail to foreign direct investment (FDI), stepping gingerly into an issue that has been gathering dust for fear of triggering a political whiplash.
• The government allows up to 51% foreign investment in single-brand retail, but has so far been skittish about opening up multi-brand retail. The rules allow foreign multi-brand retailers only through franchise agreements with local players.
• Big retailers such as US-based Wal-Mart and Germany’s Metro AG that operate in the so-called cash-and-carry ventures in India have long been clamouring for opening up front-end retail.
• The government has always been ticklish about retail because of its standing as the country’s second-largest employer.
• There is all-round fear that opening up the sector will bring in extreme competition and lead to job losses. Indeed, a parliamentary panel headed by BJP leader Murli Manohar Joshi had called for a blanket ban of FDI in retail.
• In recent months though, the government has been airing its views on opening up retail, dwelling on its benefits, possibly to deflect the storm of protests it could set off. The government has said in various forums that FDI in multi-brand retail will enhance supply-chain efficiencies, give farmers better earnings and reduce wastage.
• FDI in defence production to be upped too
• On defence production, the government's plan to further liberalise the sector stems from its objective of eliminating middlemen in arms deals. FDI in defence production is capped at 26%.
• The department has circulated a note recommending 100% FDI in defence production after getting an okay from either the FIPB, the nodal agency for foreign investments, or the Cabinet Committee on Economic Affairs.

Finance & Economy

• What's the fracas between IRDA and the SEBI over Ulips?
• Last year, life insurance companies, including LIC, were served show-cause notices by SEBI, questioning them on sale of Ulips without obtaining the market regulator’s approval. The insurance regulator responded broadly saying SEBI did not have the remit or the jurisdiction to regulate Ulips. The turf war took a fresh twist on Friday when Sebi issued orders to 14 life insurance companies, banning them from selling new policies or renewing existing ones. The market regulator said these companies have to register with SEBI for marketing and servicing such products. SEBU’s order may compel investors to surrender their policies prematurely, leading to a significant loss to both investors and insurers.
• The issue came to a boil over IRDA telling insurance firms to continue selling Ulips, a day after capital market watchdog Sebi barred 14 insurers from selling these products without its approval. Ulips are similar to mutual funds with an added life cover.
• There have been regulatory turf battles in the past, but it has never quite come out in the open like this. The stakes are high considering that the interests of lakhs of unitholders have to be protected while the stock markets are bound to be impacted given the substantial investment in equities from Ulips.
• What makes the issue complicated is the fact that both the regulators have armed themselves with legal opinions supporting their case to regulate Ulips. SEBI had reportedly obtained the views of the Attorney General of India on the powers vesting with it to regulate Ulips while IRDA is learnt to have sought a legal opinion from NKP Salve, eminent jurist and former Union minister, before clarifying its position.
• The battle between two financial regulators may now prompt the government to step in to resolve the issue. The government may be compelled to act, considering that some insurers are planning to approach the court, and also given the fact that the sovereign is the guarantor of every policy sold by the country’s biggest insurer, the stateowned Life Insurance Corporation of India (LIC).
• Do take a look at this Q&A session to get more clarity on the matter.
• It is not regulators alone who are sparring
• Even the stock exchanges are sparring with one another.
• The Competition Commission of India is reported to have taken up a complaint by the MCX against NSE. The accusation is that NSE was indulging in unfair practices by waiving the transaction fee on currency derivatives.
• NSE and MCX have been sparring with each other for some time now. Last year, NSE wrote to all its members saying that Financial Technologies, MCX-SX’s promoter, had been placed on its watch list for “performance and system issues on multiple occasions”. In November, MCX-SX filed a complaint with CCI against NSE, alleging that it abused its dominant position and resorted to predatory pricing. MCX-SX has said that NSE has waived its transaction fee on currency derivatives and instead, charges a fee of Rs 2 per lakh on the turnover in its derivatives segment.
  
• On food security bill
• Here is an excellent graphic that gives us a better perspective on the proposed food security bill and its attendant challenges. Take a look.

Space research

• ISRO looks at space tourism
• Even as countries are vying to grab a share of the tourism pie, Indian Space Research Organisation is aiming at the skies, literally. The spacy agency is seriously taking up the challenge of pursuing space tourism in a big way.
• Newly-appointed chief of Isro, Dr K Radhakrishnan, says ISRO is exploring new strategies and technologies for human space flight programmes, low-cost access to space tourism and the colonisation of Mars and the Moon.
• As of 2009, space tourism opportunities have been limited and expensive, with the Russian Space Agency providing this facility. The price for a flight brokered by Space Adventures to the International Space Station aboard a Soyuz spacecraft is $20-35 million. Space tourists usually sign contracts with third parties to conduct certain research while in orbit. This helps minimise their own expenses.
• Countries, such as the US, Russia and Japan, have already started work to have a habitat in Mars by 2030 and are devising a transportation system to reach Mars.

International

• The Greek tragedy
• Here is an excellent article by UR Bhat that describes the current situation in Greece and also discusses the possible solutions to the present crisis. A must read. Hence no excerpts for you; but some other related info that appeared in the papers:
• Meanwhile it is reported that the Euro zone got its act together and offered Greece a $41 bn (€30 bn) lifeline.
• The euro zone loans would carry an interest rate of about 5% — well below current market rates of over 7%.
• Greece needs to borrow about €11 billion by the end of May to refinance maturing debt and interest charges. Its overall 2010 borrowing requirement is €53 billion.
• Scepticism over Greece’s ability to manage its € 300 billion ($401.2 billion) debt pile, more than its € 240 billion annual economic output, grew last week when investors dumped Greek stocks and bonds and ratings agency Fitch downgraded Athens by two notches. Fitch dropped Greece’s credit rating to BBB-, the lowest investment grade just above junk, saying a deepening recession and rising debt service costs would make it even harder for Athens to meet its budget deficit reduction target.

• BTW we learn of a new acronym: PIGS. This refers to the countries -- Portugal, Italy, Greece and Spain. All these countries are going through a bad phase in their financial situation right now.

Language Lessons

• turnstile: Noun
• A gate consisting of a post that acts as a pivot for rotating arms; set in a passageway for controlling the persons entering
  
• whiplash: Noun
• An injury to the neck (the cervical vertebrae) resulting from rapid acceleration or deceleration (as in an automobile accident); A quick blow delivered with a whip or whiplike object
  
• wangle: Verb
• Achieve something by means of trickery or devious methods; Tamper, with the purpose of deception
• Noun: An instance of accomplishing something by scheming or trickery
• eg: The board has deferred a decision on the rate of interest the Fund should pay this fiscal, because it needs time to try and wangle a subsidy from the government to pay a rate at least a tad higher than the 8.5% the Fund would be able to manage on its own.
• affiance: Verb
• Give to in marriage
  
• eg: Rumours are rife that Britain's eligible but balding prince charming, William, may soon be affianced to his longtime girlfriend Kate Middleton, of solid middle class stock.