25.11.2010

Politics & the Nation

• Nitish Wins in Bihar
• The JDU combine won 203 seats in the 243 seat assembly. Some excellent commentary / observations on the emphatic victory scored by Nitsh Kumar in Bihar:
• He ran his political campaign in Bihar on just two words: development and governance. And the response from the voters was historic: a seismic shift in the political mood among voters.
• The election results, which proclaimed a dramatic expansion of Mr Kumar’s social base, saw the NDA eating into every category of voters. The social rainbow that he tailored — it has in it large chunks of upper castes, non-Yadav backwards, numerically preponderant extremely backward classes, the politically crucial Maha-dalits, besides a respectable share of Muslims — torpedoed the socio-political foundations of every party. While the ripping apart of the once lethal Muslim-Yadav (MY) alliance bullishly shoved Mr Yadav to the periphery, the poll results exposed an abysmal lack of electoral depth on the part of the Congress in the Hindi heartland state.
• Bihar’s electoral script has for long been riddled with heavy doses of key voter-friendly themes such as bijli, sadak and paani. But irrespective of who came to power, the promises remained hollow. Mr Kumar changed the rules of the game early in his tenure, quietly unrolling the script aimed at transcending Bihar from the morass of empty commitments and delivering palpable changes on the ground. If this result proves anything, people will not buy into empty promises of politicians. Mr Kumar’s campaign dispensed with the usual poll-time styrofoam promises made by leaders and, instead, precision-bombed voters with focus on development in the last five years. The voters responded resoundingly through ballots that celebrated hopes for good roads, hospitals with both doctors and medicines and schools with buildings and teachers.
• And if the result means that the enmeshing of crime, clans, caste and communalism is starting to end, then it is a welcome outcome. Nitish Kumar’s development agenda has demonstrated that the caste arithmetic of rivals RJD and the LJP will not work beyond a point.
• The lesson from Bihar seems to be that governance and development offer a politically-viable platform. If more politicians act on this cue, it would take the Indian growth story to the next level.
• An excellent graphic that puts Bihar in an economic perspective.
• Rosaiah quits; Kiran Kumar Reddy is the new CM
• Assembly Speaker N Kiran Kumar Reddy will be sworn in as the new chief minister of Andhra Pradesh today.  In a day of swift political developments, the Congress high command effected a change in the state leadership.
• Chief Minister K Rosaiah was asked to put in his papers to make way for a more assertive chief minister who would not only be able to “politically handle” the Jagan factor but also deal effectively with the crisis that may crop up after the report on whether Telangana state should be created is submitted on December 31.
• The trigger for the change was prompted by a recent show on Sakshi TV, a regional channel owned by Jagan Reddy, which criticised Prime Minister Manmohan Singh and Congress president Sonia Gandhi. Though the objectionable remarks were dropped in a subsequent re-telecast, the Congress leadership decided it was time to have a more assertive leader to tackle the rebellion in the party.
• A bit about UNCAC
• It stands for United Nations Convention Against Corruption.  It provides state-of-the-art legal framework for recovering stolen assets. The UNCAC is the first international treaty against governmental corruption, which, according to the UN, is the major obstacle to development in poor countries.
• It is the news recently because, in spite of Global Financial Integrity identifying that a staggering $462 bn of Indian money is stashed away abroad in foreign banks, there is virtually no political will on the part of the government to initiate any action to move in the direction of getting it back into India.
• The complete lack of political will to contain and recover the illicit outflow has only deepened poverty and inequality, degraded public institutions and weakened the private investment climate in the country.
• India has not even ratified the convention so far.
• On our membership in FATF
• India became the 34th member of Financial Action Task Force (FATF) in June 2010. Gaining FATF membership is a long and arduous task. It evaluates the country’s commitment to abide by the 40 + 9 recommendations, and involves reviewing not only the regulatory framework but also its implementation by representatives from FATF member countries. The FATF review for India was undertaken in November-December 2009. While we have received the membership, our journey is not complete. With a periodic mutual evaluation still looming large, we need to work on amending a few regulations as well as review implementation effectiveness.

Finance & Economy

• Another bribery scandal
• The Central Bureau of Investigation (CBI) has arrested eight finance executives, including the chief of LIC Housing Finance, accusing them of taking bribes to give big corporate loans and sending shockwaves through stock and property markets at a time when the government is buffeted by a series of high-profile scandals.
• LIC Housing Finance chief executive Ramachandran Nair, Life Insurance Corporation secretary for investments Naresh K Chopta, Bank of India general manager RN Tayal, and Central Bank of India director Maninder Singh Johar were among those arrested in the nationwide swoop by investigators. The agency also arrested Rajesh Sharma, chief executive of Money Matters Group, a specialist loan arranger that was the go-between for lenders and corporates and is at the centre of the scandal.
• CBI said Money Matters ‘either bribed or attempted to bribe’ bankers to get loans for many companies, including wind energy developer Suzlon, hill station township builder Lavasa, and Mumbai developer DB Realty. The bankers were accused of seeking bribes of as much as Rs 50 lakh on transactions.
• These are the biggest and most high-profile arrests since the Unit Trust of India corruption scandal a decade ago and the 1992 securities scam.  This is the biggest corruption investigation involving officials of state-owned banks since the Unit Trust of India was investigated in 2001 for favouring brokers in the Ketan Parekh scandal. Investigative agencies filed many cases in that instance, but there have been no conclusive convictions.
• Experts said the arrests could choke liquidity in the market, as banks apply the brakes on fresh lending, especially to property firms that have been classified as ‘sensitive’ by the Reserve Bank of India, which fears a speculative bubble building in the real estate sector.

• A very good editorial comment that explains how policy irrationality is actually giving room for this sort of corruption.
• On mobile number portability
• A good graphic that gives details about its unveiling in the country.
• Nira Radia questioned by ED in 2G spectrum investigation
• In a day of hectic developments, this is one more development that deserved our attention.
• Ms Radia’s questioning mainly revolved around her role as a lobbyist for her highprofile clients with interests in telecom. She was also quizzed on certain transactions, where investigators were keen to understand if she had a role in bringing foreign investment into telecom firms in India.
• Her companies include NeUCom Consulting, which advises Reliance Industries, and Vaishnavi Corporate Communications, which advises the Tata Group.
• Ms Radia’s business activities have been under scanner since the past two years. The income tax department scrutinised her phone calls for nearly three months and tapes containing her conversations with the ousted telecom minister A Raja, prominent industrialists, notably Ratan Tata, and high-profile journalists Barkha Dutt and Vir Sanghvi have surfaced.
• On the concept of GDP
• A very good ET in the Classroom column.
• Employers refuse to put contract workers on par with regular staff
• The Indian Labour Conference, a tripartite meet of the government, employer and employee organisations, concluded in Delhi on Wednesday.
• It was at this meeting that there were a number of demands from the employees’ unions.  Prime among them being that contract labour should be paid the same remuneration and benefits as there are for regular employees.  Employers have refused it saying that there is a difference in skill levels between contract and regular employees and hence that it cannot be done.  
• The current rules say that a contract worker must be paid at least the minimum wage prescribed for the government for a particular work, but they do not prescribe same pay for same work across an organisation.
• Employers are refusing to be covered by the contract labour (regulation & abolition) Act.  At present, the law applies only to organisations employing more than 20 workers.
• There are reportedly more than 130 million contract workers in the country.

International

• On the still evolving Eurozone crisis
• This is an article on the subject from TT Rammohan, which is well worth reading atleast once.  But some excerpts in maieutic method for our understanding.
• What exactly is the problem with Ireland?  How is it threatening to engulf the Eurozone?
• The immediate problem in Ireland is with banks, not with government finances. In 2008, at the height of the subprime crisis, the government assumed full or partial ownership of three large banks and guaranteed the liabilities of the entire banking sector until the end of 2010. The guarantee was recently extended up to June 2011.   But these measures have not stabilised the Irish banking system. Bank losses from real estate have mounted. Corporate deposits have been fleeing Irish banks. Ireland’s banks are on ventilator support — they now survive on liquidity provided by the European Central Bank.
• Fear of contagion is the answer for the other question.  Banks in Ireland -- when they fail -- threaten the banks across the border in the Eurozone.  Today's banking problem will become tomorrow's sovereign debt problem.  That's why weak/failing banks in one country are a threat to all other economies to which these banks have an exposure -- or conversely, the economies / banks of other countries which have an exposure to these weak / failing banks, have an immediate problem on hand.
• Ireland is being mentioned in the same breath as Greece. But the two situations are different. In Greece, the EU bailout was necessitated by the refusal of private investors to provide funds to the Greek government. Ireland contended that its government finances were fully funded until the middle of 2011. And yet the EU has pushed funds down Ireland’s throat.
• So how do we tackle the interconnectedness of banks across economies?
• There has to be monitoring of cross border borrowings of banks. It is not enough to monitor total external debt for a given country. External debt of banks in that country must be separately monitored.
• Secondly, there must be prudential limits on total exposure of banks in economy A to a given bank in economy B as well as to all banks in economy B. Banks routinely monitor total loans to a given borrower in their own country. The principle must be extended to their exposures to any overseas banking system. This is necessary for preventing contagion.
• Lastly, as the UK and the US did on a larger scale, Ireland shows up the perils of a bloated financial sector, of relying overly on finance as an engine of growth. We need to debate whether there is an appropriate size for the financial sector in relation to the overall economy. As for any individual or firm, so also at the level of the aggregate economy, diversification has its virtues.
• An example of cartelisation
• Cartelisation (apart from OPEC in oil) is there in potash trade too.  Canada owns 52% of the world-known reserves of potash, while Russia and Belarus own 30%.
• The three largest producers of potash in Canada, Potash.Corp, Mosaic and Agrium with a total share of 35% of the world market participate in a cartel, called Canpotex, which manages their worldwide sales (with the exception of their exports to the United States for fear of US antitrust laws).   The cartelists coordinate their production to maintain a high level of price.
• The producers from Russia and Belarus have created their own cartel which coordinates with Canpotex. Together, the two cartels control about 70% of the world exports of potash.
• What's the result of this cartelisation?
• Artificially increased prices of potash.  Whereas the price of potash hovered between $100 and $150 per tonne from the beginning of the eighties to 2005, it reached $200 by the beginning of 2008, and $825 on average in 2009 due to the increase in demand from India and China and the output restriction by the Canadian potash cartel. A reduction in the consumption of potash in 2010 brought about a reduction in price which is expected to remain at $532 in 2010.
• SAP ordered to pay Oracle $1.3 b in copyright case
• SAP must pay Oracle Corp $1.3 billion for software theft in a jury verdict that could be the largest-ever for copyright infringement.
• SAP has acknowledged that its TomorrowNow subsidiary had wrongfully downloaded millions of Oracle’s files. With the admission of liability, the issue before the jury was how much was owed in damages. SAP said no more $40 million, while Oracle sought at least $1.65 billion.
• This graphic details the issue in a nutshell for us.

Language Lessons

• atavistic: Adjective
• Characteristic of an atavist
• Atavism: Noun: A reappearance of an earlier characteristic
• Atavist: Noun: An organism that has the characteristics of a more primitive type of that organism
• trite: Adjective
• Repeated too often; overfamiliar through overuse

• schmaltzy: Adjective
• Effusively or insincerely emotional
• eg: It will be galling for either sex to admit that such age-old stereotypes may still be playing out in the 21st century thanks to some ancient atavistic urge, at a time when so many other trite conventions have been dispensed with for being too schmaltzy.
• maieutic method (also Socratic method)
• A method of teaching by question and answer; used by Socrates to elicit truths from his students