Indian Current Affairs: 29.04.2010

Politics & the Nation

The US government has reportedly agreed to take “suitable steps” to facilitate direct access for Indian authorities to Lashker operative David Coleman Headley.
The aforesaid agreement between India and US was reached at an April 27 meeting in Washington comprising solicitor-general Gopal Subramanium and US attorneygeneral Eric Holder. After detailed discussions on the Headley case, the two sides finalised a mutual commitment for the best possible co-operation in their common fight against terrorism.
Headley was arrested by FBI in October, 2009, for conspiring and plotting terror attacks in Indian and Denmark. He recently entered into a plea agreement with the US authorities, pleading guilty on all the 12 criminal counts against him, including his role in the Mumbai attacks conspiracy. In exchange, the US prosecutors agreed that he would not be extradited to a third country, including India, or face death penalty.

Finance & Economy

After Greece, it’s Spain, as the contagion seems to be spreading fast across Europe. Ratings major Standard & Poor’s (S&P) on Wednesday cut its ratings on Spain by one notch to AA from AA-plus. Indian shares joined the worldwide slide in equities and commodities, after S&P had lowered Greece’s debt rating to junk and that of Portugal by two notches on Tuesday.
In the global markets, yields on Greek two-year debt soared to a record 26% and the euro hovered around near a one-year low against the dollar as investors worried that the sovereign debt crisis in parts of Europe may soon spread to markets as well.

Government is reportedly in favour of allowing refinancing of domestic debt taken for equipment purchases with exeternal commercial borrowings. Such a type of facility was recently allowed for telecom companies.
This measure is expected to give the infrastructure companies access to cheaper loans as interest rates head higher in India because of monetary tightening.
India will need over $1 trillion of funds over the twelfth plan for the infrastructure sector. A greater access to overseas funds will help raise cheaper funds for executing infrastructure projects.

Here is a very good ET in the Classroom column that explains the process of passing of the budget in the Parliament and the associated process of cut motions. Worth a read. Take a look.

Worried over the mounting power sector losses adversely affecting the finances of state governments, the Planning Commission has suggested an immediate revision in power tariff by state utilities.
Transmissiona and Distribution losses in 2009-10 are likely to exceed Rs 45,000 crore and may reach Rs 68,000 crore in the current fiscal.
The Thirteenth Finance Commission has also urged a speedy reform of power distribution. In its report, the commission has pointed out that even better performing states need a minimum of 7% increase in tariff on an annual basis (at 2007-08 subsidy levels) to bridge the gap between actual receipts and government subsidy.
As per assessment the losses of state utilities will rise from a level of Rs 68, 643 crore in 2010-11 to a staggering level of Rs 1,16,089 crore in 2014-15 if urgent steps are not taken to reform the utilities.

It is the PSUs. Maharatna status requires a three-year track record of annual net profit of over Rs 5,000 crore, net worth of Rs 15,000 crore and a turnover of Rs 25,000 crore. SAIL, ONGC, Indian Oil and NTPC are the only PSUs that meet the criteria. Only listed entities are eligible to become ‘maharatnas’.

International

The more we read about it the better could our understanding be. Take a look at how TT Ram Mohan explains the case:
The allegation against Goldman is that it sold packages of securities based on home mortgages to various investors without making several disclosures or making false disclosures. It did not disclose that the securities it was marketing and for which it earned a fee had been created by a client, Paulson and Co, which was betting against US home mortgages. It did not disclose that some of the securities in the package had been selected by Paulson and, instead, gave the impression that an independent agency had made the selection. It did not disclose that it was itself hedging its position on US home mortgages.
When the US home mortgage market blew up, Paulson and Co made $1 billion in profit on its position, IKB, a German bank that had bought the securities package, lost $150 million and Goldman lost $100 million (although the loss occurred because it failed to liquidate some of its positions).
More details about how the ABACUS deal was structured by Goldman Sachs is here. Worth a look to understand the complex nature of the transaction.

All banks are seen as villains in the present crisis. But to claim that the recent financial crisis was driven by conflicts of interest in investment banking would be quite a stretch. The financial crisis involved banks that failed due to bad risk management. Goldman Sachs was not among the failures. It did a better job of risk management than others.
The short point is that regulatory reform cannot be driven by Goldman Sachs-envy. The regulatory failures lie elsewhere: excess leverage, liquidity risk, banks that are too big to fail, and concentration in banking and investment banking.
The Barack Obama administration wants to push through reforms that will address these issues. The banking industry is lobbying hard to defeat the reforms and the US administration is understandably annoyed. But it’s hard to see how bashing Goldman Sachs will help matters.

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