31.12.2010

A VERY HAPPY NEW YEAR TO YOU ALL

Politics & the Nation

• Should we have smaller states?
• In the context of the Justice Srikrishna committee submitting its report on Telangana, the debate acquires significance.  Take a look at today's face-off column that puts forth two differing view points.  Excerpts:
• Against smaller states:
• The debate now is that smaller states ‘facilitate better governance’ and ‘help concentration on developmental issues’. But the experience of the three states that were carved out of Bihar, MP and UP does not justify it. Governance and concentration on developmental issues relate to the prevailing socio-economic system. In the present system, economic disparity is bound to increase, not only among the people, but also among the regions. Industrialisation is determined on the basis of location of raw material and development of infrastructure. Regional disparity is byproduct of the capitalist order.
• For smaller states:
• The tragedy is that vested interests want concentration of power. For them the best way to handle it is through big underdeveloped states. Look at the contrast. The US with a population of 310 million has 50 states. India with 1.2 billion has 28 states and seven union territories.
• Good governance is possible only when the government is nearer to the people. Small states and decentralisation of power through Panchayati raj and municipalities are the best instrumentalities to achieve it. It is widely acknowledged and scientifically proved that smaller states have progressed enormously.
• Tribunal gives biggest share of Krishna water to Andhra
• The Krishna Water Dispute Tribunal on Thursday announced a water-sharing formula to end the 43 years of conflict among three states — Andhra Pradesh, Maharashtra and Karnataka.
• According to tribunal’s formula for sharing the waters of river Krishna till 2050, Andhra Pradesh will get the largest share. It also increased the allocation for Karnataka and Maharashtra. Every year, Andhra will be entitled to 1,001 tmc (thousand million cubic feet), Karnataka will get 911 tmc and Maharashtra 666 tmc. The tribunal’s decision has come as a big victory for Karnataka as it allows the height of the Almatti dam to be raised. Karnataka has been raising the issue for long, but was facing stiff opposition from Andhra Pradesh.
• The tribunal, headed by Justice Brijesh Kumar, also allowed more water to be stored in the Almatti dam in Karnataka. With this order, 524 metre of the dam height could be used to store the Krishna water from its earlier 519 metre.
• Justice Srikrishna committee submits report on Telangana formation
• Not wanting to fuel speculation over the Telangana report — submitted to the government on Thursday by the Justice BN Srikrishna Commission — the government has decided to share the document with political parties of Andhra Pradesh and also make its contents public in a week’s time.
• The decision to bring the Telangana report expeditiously in the public domain is in line with a key recommendation by the Srikrishna Commission that a final solution to the Telangana issue must be taken over a limited timeframe of three to six months, preferably through political consensus. This is in the best interest of every stakeholder in the state, the panel is said to have told the government.

Finance & Economy

• Food inflation at 10-wk high of 14.4%
• A spike  in vegetable prices pushed India’s food inflation to a 10-week high in the week to December 18. The fuel price index also rose on a rally in global crude prices, increasing the likelihood of another rate hike by the Reserve Bank of India (RBI).
• The high food inflation was attributed largely to a surge in the prices of onions, which have risen nearly 50% in the six weeks to December 18.
• Prices of some other vegetables like tomatoes and potatoes have also firmed up in the period. The overall index of vegetables has risen by 28% in this period.
• A surge in prices has also increased the likelihood of a hike in key policy rates when the RBI meets for its next review on January 25. The central bank has raised interest rates six times since March.
• Core sector grows at 21-month low of 2.3%
• The output of six key infrastructure sectors grew 2.3% in November from a year ago, the slowest pace in the last 21 months, raising the prospects of a drop in industrial growth for the month.
• The six core industries — crude oil, petroleum refining, coal, electricity, cement and finished steel — have a combined weight of 26.7% in the index of industrial production and are considered an advance indicator of industrial activity.
• The sluggish growth was largely because of a contraction in refinery and cement output in November from a year ago.
• PF rate increase to impact firms with own trusts
• The government’s decision to raise the Employees Provident Fund (EPF) rate to 9.5% this fiscal could hit the bottom line of 3,000 firms running their own PF trusts.
• These trusts may find it difficult to bridge the gap between the actual income on their PF investments and the mandated rate, forcing them to dip into their company’s profits to make up for the deficit.
• Most trusts do not have any reserves left, as the PF rate has been set higher than investment earnings for most of the last seven years. The few firms that have the reserves, are barred from using them to pay interest to subscribers under new regulatory norms issued by the Employees Provident Fund Organisation (EPFO) this year. So, the only alternative with the PF trusts is to seek funds from the parent company. At an EPFO board meet earlier this month, at least two trustees expressed concern over company-run PF trusts’ ability to match the 9.5% largesse from the EPFO.
• The EPFO is expected to earn about 8.5% interest on its investments in this financial year. But it set a 9.5% PF rate after it located some reserves that had built-up in its poorly maintained records since 1952.
• RBI report tags soft spots in economy
• Indian economy's soft spots identified by RBI in its second Financial Stability Report: Rising bad loans, asset-liability mismatch at banks, widening current account deficit, hot-money flow, and fiscal deficit.
• Look at this RBI Press Release for more info and also to check the link provided for the report.
• Look at this graphic for a gist of the report.

30.12.2010

Politics & the Nation

• Rosaiah in trouble over land scam
• At a time when the Congress is battling charges of turning a blind eye to corruption, a Hyderabad local court’s directive to the Andhra Pradesh government’s anti-corruption bureau (ACB) to register a case against former chief minister K Rosaiah and 16 other persons for their alleged involvement in a landscam in the state Capital is expected to make things difficult for the ruling party in the coming days.
• Rosaiah has come under scanner following allegations by a group of petitioners that nine acres of land, located in Ameerpet, Hyderabad, was handed over to a private party by him when he was the chief minister of Andhra Pradesh. The plot of land, which was in the custody of the state government, was said to be worth 200 crore.
• The petition against Rosaiah and others has been filed by an advocate, Mohanlal, in the ACB court in Hyderabad. The court had on Monday directed the bureau to submit a report on the subject before January 28.
• UP goes one-up on Kerala in emigrant race
• A demographic shift is underway in India, and it has the potential to affect economies of several states.
• Kerala, which used to send the maximum number of people abroad for work, has been quietly dislodged from the top slot by Uttar Pradesh.
• Uttar Pradesh sent 1.25 lakh people for work abroad in 2009 as against 1.19 lakh that took the flight out of Kerala, according to the ministry of overseas Indian affairs. The trend continued in 2010 with UP registering 68,375 emigrants till June, compared with Kerala’s 45,278.
• Foreign remittances, or cash sent by relatives working abroad, make up about a quarter of Kerala’s economy. The state was the biggest contributor to the $55 billion India received in remitted money in 2010, the most by any country in the world.
• According to the 2001 census, UP is India’s most populous state with 166.2 million people, of which 31.15% live below the poverty line. The state’s rate of population growth is 25.8%, as against the national average of 21.3%. UP ranks 26th in literacy rate among 30 states and union territories surveyed.
• Kerala, which is home to 31.84 million people, is counted among the prosperous Indian states with only 12.72% of its population below the poverty line.

Finance & Economy

• Why is a social audit of the MGNREGA preferable to the audits by CAG?
• MGNREGA is an example of transiting from welfare plans to rights-based entitlements.  This challenges the challenges the conventional grammar of account-based audits that look mainly at expenditure, conformity to rules and classificatory heads.
• As the law (MGNREGA) is for the very poor, for whom time is critical since the work to be given in 15 days and wages paid in 15 days serve as the lifeline to stay off debt and starvation, then a post-event indictment will not suffice.
• In a rights-based law, not only outcomes but the processes of exercise of rights are central concerns as they determine the nature of outcomes and determine accountability for decisions taken. Legal rights are vested in individuals. A sample check of some individual’s records cannot safeguard or verify the rights of other individuals, nor can the findings of a sample be generalised or applied to other individuals. The only way the exercise of rights and the implementation of corresponding legal guarantees can be regularly and universally scrutinised is through a system that audits processes concurrently at their level of incidence. The CAG audit, in its conventional form, cannot do this. Such an audit is possible only by the local community that is most equipped with to assess because it has the most powerful tool for such interrogation — local knowledge and historical memory which defy the best government records.
• A very good definition of defence offsets
• Defence offsets are arrangements between a national government and a foreign arms supplier to direct some benefits of the contract back into the purchasing country as a condition of sale.
• Know what are inflation indexed bonds?
• Take a look at this very good ET in the Classroom column.  
• Multi-layered subsidiaries to stay
• Multi-layered subsidiaries are subsidiaries of subsidiaries.  These are in the news because of the country's attempt to tackle the post Satyam scam scenario.
• A maze of subsidiaries makes it difficult for investors to figure out financial transactions, allowing companies to divert funds. This was highlighted by the Satyam scandal where investigators found it difficult to track the flow of money from the scam-hit firm.
• In a submission to the parliamentary standing committee on finance that reviewed the Companies Bill 2009, the corporate affairs ministry had mooted the idea that subsidiary companies should not have further subsidiaries.
• Details of the new provision will be spelled out in the reworked Companies Bill that the government expects to get passed in the budget session of Parliament beginning February.
• The parliamentary panel headed by Yashwant Sinha had raised concerns over the incidence of corporate delinquency. Its report, released in August this year, had sought additional measures, saying the Bill stopped short of addressing the issue.
• Corporates, however, opposed the proposal saying the restriction would undermine their competitiveness as multi-layer subsidiaries are necessary to support activities like M&As and joint ventures.
• An expert committee on Company Law, led by JJ Irani, also cautioned against restrictions on corporate structuring.
• India to get another index to record price movement
• India is set to launch the PPI (Producer Price Index) soon.  The ministry of industry has set up an internal committee to prepare a framework for the new index. The committee has commissioned studies to arrive at a commodity basket for the PPI. The process could take a couple of years despite a reasonably good wholesale price index (WPI), considered a proxy to the PPI.
• The PPI measures changes in prices received by domestic producers of goods and services over time. This is different from the retail price paid by consumers that include logistics costs, taxes and other levies. It will give an account of the economy’s efficiency in transferring goods and services from the producer to the consumer, who could be the final consumer or another producer using it as an input.
• India has five gauges of inflation, measuring prices from the wholesale level to the retail level. The WPI is the most widely followed index for inflation and there are four consumer price indices. The WPI measures prices recorded in bulk transactions, while the consumer price indices measure prices paid by the consumer. The current WPI series was launched in September this year with 2004-05 as the base year.
• Once the PPI is in place, there would not be any need for the WPI.
• The US had converted its wholesale price index into a producer price index in 1978.

Language Lessons

• redux: Adjective
• brought back; revived
• eg: Gujjar agitation, redux
• epistle: Noun
• A letter; A poem or other literary work in the form of a letter or series of letters; A book of the New Testament in the form of a letter from an Apostle; An extract from an Epistle (or another New Testament book not a Gospel) that is read in a church service
• dank: Adjective
• Disagreeably damp, musty, and typically cold
• eg: Imagine that letter being enveloped by the gloom of some dank pigeonhole in the GPO ...
• subaltern: Adjective
• Of lower status; (of a proposition) Implied by another proposition (e.g., as a particular affirmative is by a universal one), but not implying it in return
• eg: The private tutor was a recognized subaltern part of the bourgeois family
• cleave: Verb
• Stick fast to; Adhere strongly to (a particular pursuit or belief); Become very strongly involved with or emotionally attached to (someone)
• eg: Part of why we cleave to sports is that excellence is so measurable.

29.12.2010

Politics & the Nation

• How many policy does a 'company' of police involve?
• About 90.
• Justice Srikrishna commission members
• Besides Justice Srikrishna, the panel comprises Ranbir Singh, vice-chancellor of Delhi's National Law University; Abusaleh Shariff, senior research fellow, International Food Policy Research Institute, Delhi; Ravinder Kaur, professor, department of humanities and social sciences, Indian Institute of Technology- Delhi; and Vinod K. Duggal, former Union home secretary.
• On sprucing up PF
• Take a look at this graphic which gives us findings from an interesting study that was carried out.  Also look at the suggestions.

Finance & Economy

• India's R&D spend
• India's R&D spend as a proportion of GDP, at 0.7%, is one-fourth than that of the US, less than half of China’s and lower than Brazil's.
• In 2009-10, as global corporate R&D expenditure dropped 3.5%, the R&D spend of the top 100 Indian companies in terms of R&D expenditure rose 1.5%, keeping pace with their revenues.
• Is financing by MFIs really poverty alleviating?
• According to a recent survey conducted in Andhra Pradesh, households use less than 2.5% of all micro-loans to start new businesses.  The survey reveals that big-ticket items on the list of customers taking micro-loans are agricultural inputs, repayment of old debt, health and ‘other consumption’. The customers use the bulk of their borrowings to bridge temporary financing gaps rather than create new businesses. While such uses can bring much-needed relief in times of financial stress, they cannot lead to sustained reduction in poverty.
• Citibank caught in 400cr staff fraud at retail unit
• Citibank is caught in an estimated 400-crore fraud and forgery by staff at its retail banking unit in Gurgaon, involving funds from wealthy individuals and corporate clients.
• The fraud was discovered early this month when a customer told a relationship manager that he had invested in a Citibank scheme that promised high returns in a short period, when no such scheme existed.
• Nearly 40 clients, including some corporate treasuries, could be affected because of the fraud, but their identities are not known. It is unclear whether Citibank will compensate its clients for the losses.
• One or more employees at Citibank’s Gurgaon office are alleged to have forged the letterhead of the bank to peddle a scheme—claimed to have been approved by Citibank’s investment product committee regulator—to clients that could yield high returns in a short span. The funds generated by selling the product to some investment companies and individuals were transferred to accounts of some brokers, who utilised the money for their transactions. The people at Citibank involved in the process were supposedly paid bribes by those brokers.

• China eyeing an oil entry in India
• China's largest government-owned energy firm, CNPC, has reportedly approached state-run Oil & Natural Gas Corp (ONGC) to forge a comprehensive agreement that could provide it access to India’s oil and gas assets.
• India, which allows 100% FDI in the oil and gas business, is extremely cautious about China’s entry in certain sensitive sectors such as energy, ports and telecommunications.
• If the government gives its go-ahead, CNPC and ONGC could collaborate in several ventures in the country.
• The US Energy Information Administration (EIA) estimates India’s proven oil reserves at about 5.6 billion barrels in January 2010, second largest in the Asia-Pacific region after China.
• China, the world’s second-largest energy consumer after the US, is aggressively looking for oil and gas assets abroad as its largest oil fields are mature and production from them is on the decline.
• ONGC’s collaboration with cashrich CNPC will help the state-run explorer finance major projects besides sourcing ultra-deepwater technology. The partnership will also help ONGC in acquiring cheaper oil and gas assets overseas by reducing stiff competition from CNPC and its arm PetroChina, the world’s most valuable oil company.
• So far, Chinese firms have joint ventures with ONGC’s overseas arm, ONGC Videsh, in foreign countries only such as Syria and Colombia.

Medicine & Health

• Is eradication of polio a good idea?
• Arthur Caplan, Professor of Bioethics and the Director of the Center for Bioethics at the University of Pennsylvania in Philadelphia, while admitting that the
• goal is a noble one, says that it is not the right one. The best that can be done is to seek to control polio, and to hope that politics, economics, and ethics allow us to get that far.  Those involved in efforts aimed at complete eradication should rethink their goal, lest faith in the unattainable leads to disaster.  Take a look at his reasons for it not being the right goal:
• For starters, the surveillance required to establish eradication is a huge challenge. Political instability, wars and civil breakdown, and balky governments sometimes make access nearly impossible in some parts of the world. Moreover, it is not clear that all polio cases can be detected, because some infected people do not show symptoms. And the challenge of ensuring adequate surveillance appears insurmountable when one considers that polio can suddenly reappear out of the blue in a so-called wild-type form.
• Chasing down the last cases of polio is very costly. Fragile health-care infrastructure and community support are being strained by the eradication effort, as government budgets and resources in poor countries are diverted from more pressing local problems.
• In other parts of the world, the emergence of respect for a patient’s right to refuse vaccines creates a difficult challenge for those seeking to eradicate diseases such as polio. Vaccination rates in many parts of the United States have fallen well below 90% for polio, meaning that the risk of an outbreak is very high should a case be introduced. And, in an age of mass air travel, a case in Tajikistan can be in Utah in a day.
• Finally, there is the ever-present possibility of bioterrorism. For this reason alone, no trust should be placed in claims of eradication of diseases like polio.

International

• Can India race ahead China?  What could possibly slowdown China?
• China is largely seen as having raced past India in the in the economic sphere because of its authoritarian advantage.  Democracies don't permit policy framework changes that quickly as can be implemented in authoritarian systems.  Are there any reasons to suspect that the Chinese advantage will not last longer?  Yes, says Professor Jagdish Bhagwati of Columbia University.  Look at his reasoning:
• First, while authoritarianism can accelerate reforms, it can also be a serious handicap. In a top-heavy system, growth paths can become unpredictable, and thus subject to volatility.
• As growth accelerates, political aspirations are aroused. Will the Chinese authorities respond to them with ever greater repression, as they have with dissidents and Falun Gong, creating discord and disruption, or will they accommodate new popular demands by moving to greater democracy?
• China’s authoritarian politics means that it cannot profit from the innovations that depend on software, as that is an instrument through which dissent can flourish and become subversive of total control. As one wit has observed, the PC (personal computer) and the CP (Communist Party) do not go together.
• Finally, China’s growth must continue to depend on its exploitation of external markets, which makes it vulnerable in a world that is increasingly making democracy and human rights a central preoccupation. In such a world, continued hassles and hiccups for Chinese exports can be confidently expected.
• Economic factors also militate against Chinese prospects. China was clearly able for many years to exploit a “reserve army of the unemployed” à la Karl Marx – to grow rapidly without facing a labor-supply constraint, so that capital accumulation would not run into diminishing returns. But now, given China’s one-child policy and lack of adequate infrastructure (including housing) in rapidly growing areas, labor is getting scarce and wages are rising.  In economic jargon, the supply curve of labor was flat but is now sloping upward, so that rapidly increasing demand for labor resulting from rapid growth is driving up wages. That means that China is beginning to “rejoin the human race” as capital accumulation meets scarcer labor and growth slows.
• By contrast, India has a far more abundant supply of labor, as well as a more favorable demographic profile, so that, as India’s investment rate increases, labor will not be a constraint. India will thus become the new China of the past two decades.
• Besides, in contrast to China, where economic reforms were quicker and more complete, India still has a way to go: privatization, labor-market reforms, and opening up the retail sector to larger, more efficient operators are all pending – and will give a further boost to India’s growth rate once they are implemented.
• US to reintroduce estate duty
• America’s ‘death tax’, which was repealed in 2010, is set to be introduced in the new year. Formally called the estate tax, it is levied on inheritance before it is passed on from one generation to the next. The tax was introduced in 1916 and has been in force ever since. The brief window in 2010 was the only exception.
• Under new laws being passed by the Obama administration, the first $5 million in value of any individual’s estate is tax-free, but all value above this figure is taxed at 35%. The tax will kick in from January 1.
• However, tax experts feel that there are ways to minimize estate duty. They suggest that NRIs could divest their properties in the US by gifting smaller quantities rather than giving all at one go — gift tax is exempt up to $1 million. This could reduce the amount of estate tax considerably.
• Most developed countries like the UK or France also have estate duty, in one form or another.

28.12.2010

Politics & the Nation

• PM can't appear before the PAC, say the Rules
• Rule 99 of the Directives of the Speaker did not allow any scope for the prime minister’s personal appearance before the PAC.  The rules are very clear that no minister can be summoned or consulted when the process is on. And consultations can only take place at an informal level after the process is over.
• The rules were amended in 1966 for limiting parliamentary panels’ powers to summon ministers. The last minister to be summoned by a parliamentary committee was C Subramaniam, who held the portfolio of steel.
• However, panel chairman Joshi told reporters that a decision on summoning the prime minister will be taken at an “appropriate time”.
• The Opposition seized upon the limitations imposed by the rules to drive home the point that a JPC alone is the forum for extensive investigations. The leaders of the Opposition also maintained that they will not back down from the demand for the constitution of a joint House panel.
• Telangana MPs on fast
• A crisis is staring the Andhra Pradesh government in the face, following the decision of 11 Congress MPs from Telangana to go on an indefinite hunger strike, asking the government to withdraw all cases against those who took part in the campaign for a separate Telangana state. The students facing charges are largely from Osmania University.
• Earlier this month, the government had withdrawn 562 cases against 2,436 people who participated in the protests for Telangana. About 1,667 cases were filed against 8,047 people between December 2009 and September this year.
• Union Home Minister P Chidambaram had, on December 9 last year, assured that measures would be taken to withdraw cases against students and other agitators. But the state police refused to withdraw the cases saying it would set a wrong precedent.
• An embarrassed government finally gave in to pressure and decided to drop 132 more cases against Telangana protesters on Monday. The decision was taken in a review meeting held by the chief minister along with Home Minister P Sabita Indra Reddy and DGP K Aravinda Rao.
• However, the protesting MPs refused to relent and have decided to continue the fast.  The MPs have also asked the government to withdraw central paramilitary forces from Telangana. The forces were deployed four days ago fearing law and order problem once the Justice Sri Krishna panel, set up to look into the Telangana demand, submits its report on Thursday.
• Son-in-law’s land bank hits former CJI
• A fortnight ago, National Human Rights Commission (NHRC) chairman KG Balakrishnan was on a mission in Kerala’s Kasaragod district to ensure justice for those affected by the toxic side effects of the pesticide endosulfan. In a curious turn of events, Balakrishnan — a former chief justice of the Supreme Court — is now facing allegations that his family members are involved in noxious property deals in Kerala that run into several crores of rupees.
• Within hours of a Malayalam television channel putting out a report pointing to suspicious land deals of Balakrishnan’s son-in-law PV Sreenijan, former Supreme Court justice VR Krishna Iyer demanded that a panel of two or three judges should investigate the matter and punish whoever is found guilty.
• Justice Krishna Iyer, a minister in the EMS Namboodiripad ministry in Kerala in 1957, said it was “a shame” that the names of lawyers and those at the high levels of the judiciary were linked to corruption.
• On Friday, the NHRC is expected to release its report in New Delhi on the endosulfan disaster in Kasaragod district, and suggest recommendations, based on the findings of its team led by KG Balakrishnan that visited Kasaragod on a fact-finding mission. By the time that report is released to bring succour to the pesticide-affected persons in Kasaragod, justice Balakrishnan may himself be at the receiving end of equally toxic findings involving his near and dear ones.
• India may drag US to WTO over H-1B, L-1 visa fee hike
• India may drag the United States to the World Trade Organization, or WTO, over its decision to raise professional visa fees for an extended period and impose a 2% import levy on goods and services sold to the US government.
• The commerce department is studying details of the James Zadroga 9/11 Health and Compensation Act of 2010 which aims to increase visa fee and import taxes on supplies to government to set up a $4.3 billion fund for sharing the healthcare burden of those affected by 9/11 terror attack in New York.
• The final bill, which is now with US President Barak Obama to be signed into law, spells more trouble for Indian industry than the one initially proposed as it imposes an additional levy of 2% on all goods and services sold by Indian companies to the US government and extends the period for higher visa fees from 2014 to 2021.
• The first step would be to seek consultations with the US at the WTO on the contents of the bill and if the matter doesn’t get resolved, a dispute settlement panel could be set up.
• The 2% tax will be levied on countries that are not signatories to the government procurement agreement (GPA) of the WTO, including India.
• Prima facie, the US can give better treatment to domestic suppliers while not giving the same treatment to countries other than the signatories to the GPA as per WTO rules.
• India could, however, use the non-violation track in the dispute settlement to fight the provisions of the bill.

Finance & Economy

• What is our FDI policy?
• Under the extant policy, investments into most sectors fall under the automatic route. Such investments require no prior permission of the government or any regulator and the Indian company receiving the foreign investment is only required to intimate the RBI of any such investment.  But some sectors still require prior government approval and most sectors that require government approval fall within the ‘sensitive’ category.
• Subsidy burden to push oil retailers into red this year
• State-run oil companies — IOC, BPCL and HPCL — will sink into red this fiscal as finance ministry has decided to reimburse only one third of their Rs. 70,000 crore losses for selling fuel at controlled rates.
• The finance ministry's decision would mean that the three fuel retailers would have to absorb combined losses of Rs. 23,333 crore in their balance-sheets. The three firms also get one third compensation from state-run upstream companies such as ONGC and Oil India.
• The oil marketing companies' (OMCs) current subsidy liabilities would be 179% more than their combined net profit of Rs. 13,060 crore last fiscal. The three companies had absorbed only Rs. 5,621 crore last year as subsidy, which was only 12% of their total revenue losses.
• Over 100 cos told to get cost audit done
• Cost audit, which is a system of government scrutiny into a company's production cost and profit margins, is currently mandated for only 44 products in sectors like manufacturing, mining and services.
• The Cost Audit Branch (CAB), a department under the ministry of corporate affairs, in an order issued last week, has asked 115 companies to file their cost audit report for the year ending March 31, 2011. The list of companies includes names like Biocon, Bayer Pharmaceuticals, BASF India, Haldia Petrochemicals, Tata Steel and Steel Authority of India Ltd (SAIL).
• The order is issued under section 233B of the Companies Act with a view to keep track of the costing structure of these companies.
• Cost audit records comprise detailed records of materials, labour, utilities, overheads, depreciation, royalty, research and development expenses, incentives on exports, borrowing costs and inter-company transactions. The data is useful for companies to improve efficiency, while the government uses it for policy making.
• Cost audit provides the regulator an access to how a company manages its pricing scheme and can be an effective way to counter anticompetitive practices and cartelisation.
• Cost records, as procured by the CAB, are on a regular basis passed on to various departments and regulators in the government for research and sectoral analysis. The intention to extend compulsory cost auditing to infrastructure companies has been incorporated in the Companies Bill, likely to be made into a law by the end of this fiscal.
• An expert group has recommended that all companies whose turnover is more than Rs 50 crore should be mandated to maintain cost audit books. At present, companies engaged in only 44 products, including paper and sugar, need to get their accounts cost audited.