22.04.2010

Politics & the Nation

• What is it that the IT raids on IPL and its franchisees are focusing on?
• It is all widely known to us all that the IT Department is on the trails of IPL and its franchisees. What exactly could the IPL and its franchisees have done wrong? What is it that the IT Department can hope to find through these raids? Let's look at some excerpts from today's lead stories to get an inkling:
• The immediate reason for the survey in Mumbai is to obtain details of a socalled facilitation fee of $80 million connected to the restructuring of the telecast arrangements for the second edition of the IPL held in South Africa.
• A report in The Times of India suggested that the $80 million fee was negotiated by Mr Modi without the consent of the governing council of the IPL. The amount was siphoned off to a middleman, the report had suggested.
• Under income-tax rules, tax is required to be deducted before making payments to overseas entities and officials had been verifying whether WSG (World Sport Group) had sought the clearance of the tax department to remit the amount.
• Some tax experts say since the money was sent from a bank in Singapore, WSG is likely to claim that there was no need to deduct tax as no money was sent from India. But in the recent past, Indian I-T authorities have aggressively tried to tax such payments if it is determined that the income paid to an overseas entity is generated in India. In a number of cross-border tax claims made by Indian tax authorities over the past three years, including the famous multi-billion-dollar tax claim on Vodafone, the nub of the income-tax department case is that the country has a right to claim tax on income generated in India, irrespective of the location where the transaction took place.
• Some background information on IPL broadcast deal: In January 2008, WSG and MSM had bought the rights of the IPL for 10 years at a cost of $918 million and an additional $108 million for promoting the event. But a year later, BCCI/IPL served a termination notice to MSM to end its broadcast rights, accusing it of breaching the original contract on several counts. This had resulted in a bitter legal wrangle between MSM and BCCI. In March 2009, just before the IPL moved to South Africa, the deal was renegotiated and BCCI managed to sell the broadcast rights to MSM and WSG for $1.63 billion (Rs 8,200 crore) for nine years. This was the biggest-ever deal in Indian sports history, and is valid till 2017.
  
• A little info on WSG: World Sport Group, a Singapore-based sports marketing, event management and media company, buys sponsorship, marketing, television, digital, team and athlete rights from sporting entities. It in turn sells them to corporates. WSG deals with cricket, football and golf events across Asia. It manages close to 600 days of sports events annually. Apart from BCCI and IPL, WSG works with the Indian Golf Union, Asian Football Confederation, the South Asian Football Federation (SAAF), West Asian Football Federation (WAFF) and Singapore Sports Council. It is headquartered in Singapore.

• Power tussle in Mumbai
• There is a big battle going on between Tata Power Company and Reliance Infrastructure in Mumbai over power supply and generation. The issue is quite complicated and is not amenable to be told in a few sentences. One should read this news story to comprehend it in full. Take a look.
• An excellent editorial comment on the current Gujjar agitation
• The current march on Jaipur by members of the Gujjar community came after their demand to freeze government hiring while the reservation issue was sorted out. The whole mess represents the race among social groups to reach the bottom of the pyramid in an attempt to get a share of the reservation pie. A clear consequence of the malaise of political parties envisaging the electorate as competing caste groups.
• ...In the quota-based patronage system, the Gujjars feel they are losing out. And the agitation is a reminder of the violence that attends on this socio-political process. Some make-shift reprieve may yet be found, but the whole situation posits the need to break the paradigm of competitive identity politics.

Finance & Economy

• What are MSS bonds?
• We have noted this earlier also. But a recap will not be a waste of effort.
• When the central bank purchases dollars, it injects fresh liquidity into the system. To prevent such a flood of rupees created as a result of dollar purchases from pushing up the money supply above the desired level, the RBI then absorbs the rupees by selling government bonds. The bonds used for this purpose are the so-called Market Stabilisation Scheme (MSS) bonds. Right now, their supply with the RBI has dwindled to some Rs 2,700 crore.
  
• How valid is the criticism that financial super regulators will not deliver?
• It has become fashionable to poohpooh the idea of unified regulation of the financial sector, citing the example of Britain's Financial Services Authority, which failed to prevent the financial meltdown after the collapse of Lehman Brothers, although it was a single, unified regulator for all banking, insurance, debt, stock and derivative markets in Britain.
• This is populism, not analysis. It neglects two factors.
• One, finance in Britain was and is globally integrated, whereas regulation was still mainly national and it is only now that substantive efforts are being made for global coordination in the regulation of finance, through the G20 mechanism.
• Two, while structure determines what kind of functions it can sustain, it does not guarantee that function will necessarily follow.
• An excellent excerpt that explains the concept of securitization and maturity transformation.
• Consider a securitised mortgage. A loan is given by a bank to help someone buy a home. The bank now converts the loan into thousands of units and sells these to investors. These investors now have claim to the debt servicing carried out by the borrower. The bank gets its money back upfront and can now lend again to another home loan seeker. At the same time, a perfect maturity transformation takes place, with minimal cost. A bank has short-term, relatively speaking, deposits while its loans will be repaid over a long time. There is thus a mismatch between the maturity of its liabilities (deposits) and the maturity of its assets (loans). Using short-term deposits to finance longterm investment is maturity transformation, a key task of financial intermediation. Securitisation of loans achieves this at minimal cost. The investors who buy the securities into which the loan has been converted know that the bonds would be redeemed only after a long period — the maturity profiles of the asset and the liabilities now match.

Language Lessons

• gumshoe: Noun
• Someone who is a detective
• eg: The gumshoes also dropped into the offices of the owners of three IPL teams—Deccan Chargers in Hyderabad, Chennai Super Kings in Chennai and Kolkata Knight Riders in Kolkata.
• shenanigan: Noun
• Reckless or malicious behaviour that causes discomfort or annoyance in others; The use of tricks to deceive someone (usually to extract money from them)
  
• eg: The shenanigans surrounding the Indian Premier League (IPL) may be grabbing all the eyeballs, but away from the headlines a little noticed battle has broken out between energy companies belonging to two of India’s largest business houses, the Tatas and the Anil Dhirubhai Ambani Group (ADAG).
• bootylicious: Adjective
  
• Having strong sexual appeal
  
• eg: ...bootylicious babes ...
• affray: Noun
• Noisy quarrel; A noisy fight