Politics & the Nation
  • How did some MFIs take the poor for a ride and grow rich in the process?
    • The two-faced relationship of some promoters of microfinance companies with the poor is visible in their share transactions too. Promoters raised free money in the name of the poor, but reaped most of the gains.  To understand how this is done you must read this lead story.  
    • Take a look at this graphic too which explains the modus operandi.
  • Centre may give nod for JPC probe in 2G scam
    • With the Opposition refusing to budge on its demand for a Joint Parliamentary Committee (JPC) probe into 2G spectrum allocation, there are indications that the Manmohan Singh government is toying with the idea of softening its position.
    • After the entire winter session was paralysed, the government is keen to ensure that the same scenario is not repeated in the budget session.
    • According to UPA sources, there was a view within the ruling regime that the government should agree to a Joint Parliamentary Committee so that Parliament can function smoothly as another deadlocked session would mar the UPA’s image.
Finance & Economy
  • Infrastructure & global rebalancing
    • By channelling their high national savings into national and cross-border infrastructure projects, developing countries like India can address the growing development imbalances, says Alok Sheel.  Take a look at the full article here.  Some excerpts worth our noting:
    • He says that most of the excess global savings are generated in developing countries themselves and that their rebalancing also requires an ‘enabling environment’ for investment so that these savings are spent on infrastructure and not exported, especially since most accumulated savings in the EMEs remain with central banks rather than with governments.
    • To direct savings towards developing country infrastructure, public expenditure patterns must shift from subsidies to allocating more taxpayer funds for infrastructure investment.
    • Secondly, more private savings need to be attracted to infrastructure through public-private partnerships.
    • Thirdly, it must be recognised that the bulk of such investments would have to be publicly funded or guaranteed, as has been the case in the past.
    • Fourthly, while a greenfield international investment fund is a possibility, this would be akin to existing multilateral development banks (MDBs).
    • In the article he was also referring to Domar debt sustainability equation.  Want to know more about this?  Look at this place.  Is it quite taxing?  Then just remember this: According to this equation, GDP growth rate should exceed average interest on debt.
  • An interesting way to look at things in the context of rising inflation
    • Is the impact of inflation going to be the same for all classes of people?  Is it going to force any change in the consumption patterns all over the country?  What impact will the answers to such questions have on policy making and for the corporates?  To get a clear picture, you must read this op-ed.  Some excerpts for those of us who are too busy or too tired to grapple with complicated op-eds.
    • The country is divided into five income quintiles based on the National Survey of Household Income and Expenditure. The top quintile (20% or about 45 million households) accounts for almost 52% of aggregate income and 39% of consumption. However, they account for an even larger 45% of aggregate non-food consumption. This is the upper class that has driven a bulk of the incremental consumption in India. They have adopted a whole set of new categories and their consumption baskets have widened dramatically. This set of consumers epitomises the surging confidence of India having arrived. Considering that this quintile contributes almost 93% of aggregate savings, food inflation will have no impact on it.
    • Then there are the bottom two quintiles (40% or 90 million households) that account for 14% of income and 22% of consumption. Their share of food consumption is 26% and non-food consumption 17%. They spend a bulk of their income on food (63) and buy the bare necessities in terms of non-food items. Given their massive spend on food, these are households that are being squeezed with inflation. They are being forced to make even greater sacrifices than they are normally used to. However, there is no impact on their savings since these households did not save money anyway.
    • The most transformative impact, however, is felt by the middle two quintiles (40% or 90 million households). These households account for almost 34% of aggregate income and 39% of aggregate consumption. They spend about 54% of their income on food and about 5-7% each on housing, education, clothing, durables, health, transport and other nonfood items. Their spend on food has now spiralled up to 65-67% of their income. To cope with this, they are the ones that are likely to cut back consumption where possible, buy cheaper products given alternatives, postpone the purchase of little indulgences and cut out discretionary spend altogether. With food sucking up more of their incomes their saving is likely to disappear altogether.
    • As a result of the difference between the impact on the top quintile and the middle quintiles, the structure of consumption could become even more polarised.  This volatility and structural shift in consumption will have consequences for both companies and policy-making. Companies will need to be far more flexible in understanding and navigating this new reality. The need for clarity on which consumer to target, how to play the product portfolio, clarity on what will drive growth, the role of pricing and innovation, and the need to weed out all unwarranted costs will be ever more important.
    • From a policy perspective, however, it is clear that food inflation is a national crisis of economic, social and emotional well-being that will affect not just the poor but also Middle India. If this is not addressed with urgency, there could be a slow down in consumption. But the real damage will be to confidence, well-being and social disparity.
    • It is a well known fact that bureaucracy is too slow to react to situations and that is not going to help fight inflation in a big way.  So what should be done?  Inventing adhocracy, says Tejinder Narang.  Take a look at his solution here.
    • Currently, there is talk of increasing interest rates to curb demand, but this may not be the right long-term solution. Instead, we need to improve the entire supply chain.
    • So, what are the policy measures that will ensure this?
    • One, improve agri growth and productivity: Many Indian farmers still depend on antiquated methods of farming, with no certainty of annual farm output and income. This has to change. Farmers should be educated on best agricultural practices. Investment in R&D should find realisation through effective implementation, from lab to land. This will not only improve the quality and quantity of yields, but also ensure higher remuneration for farmers.
    • Two, reduce wastage via efficient supply chains: A well-oiled supply chain ensures proper distribution of produce across all geographies, preventing demand-supply mismatches. This is particularly important when inclement weather in different regions hits farm output, affecting proper distribution of produce across states. Such a situation allows the middlemen to hoard goods and later benefit from the shortage by profiteering.
    • Three, repeal and revise outdated laws: The APMC Act has to be revised so that private firms can buy directly from farmers across the country. The central and state governments need to implement reforms that permit free movement of goods between states, including the immediate implementation of GST.
    • Four, meet growing demands from rising prosperity: After liberalisation in July 1991, reforms in multiple sectors have led to increased spending power for many people. Rising prosperity has meant that people are consuming more, thereby fuelling more demand. The implementation of well-researched farming practices and an efficient supply chain that eliminates wastage would greatly contribute to enhancing availability of agricultural produce. It would also augment the variety of products available to the increasingly-discerning consumer.
Language Lessons
  • canoodle: Verb
    • Fondle or pet affectionately


Politics & the Nation
  • Ruing about corruption
Finance & Economy
  • It’s still 9-month wait for accessing Swiss a/cs
    • The government had approached Switzerland in April, 2009 with a request to renegotiate the double taxation avoidance agreement, seeking access to banking information.  An agreement was inked in August last year.  But India will have to wait for another nine months before it can lay its hands on information on Indian’s holding accounts in Swiss banks.
    • This is because the Swiss Parliament is expected to complete the ratification only by October after which the new protocol would come into effect.
    • Unlike India, where a tax treaty can come into effect by a simple executive notification, in some countries such as Switzerland international agreements have to be ratified by their Parliament before they can come into effect.
    • India has completed negotiations of ten new Tax Information Exchange Agreements with Bahamas, Bermuda, British Virgin Islands, Isle of Man, Cayman Islands, Jersey, Monaco, Saint Kitts & Nevis, Argentina and Marshall Islands out of 22 identified jurisdictions to facilitate greater exchange of information. These agreements became possible after the G-20, which took up issue of tax havens and tax evasion, threatened actions against such jurisdictions.
  • The tax conundrm of foreign banks in India
    • The RBI has been pressing for a wholly owned subsidiary structure for foreign banks operating in India.  This it feels provides more effective control in a banking crisis and enables the host country to act more independently as against branch operations.
    • But foreign banks are wary because such a structure, they feel, is likely to attract more tax liability.  It appears that for any Capital Gains Tax arising out of transfer of property, goodwill and other assets of capital nature to its own newly incorporated subsidiary in India, the provisions of Section 47(iv) of Income Tax Act, 1961 would be applicable.
    • So now the government is reported to have clarified that such conversion into wholly owned subsidiary structure will be tax neutral for foreign banks.
    • Under the proposed direct taxed code, the tax treatment of branches of foreign companies will be on par with that of subsidiaries.
    • There are currently 34 foreign banks operating in India as branches. Their balance sheet assets accounted for about 7.65 % of the total assets of the scheduled commercial banks as on March 31, 2010.
  • Better days seen as area under wheat, pulses goes up
    • The area under wheat, oil seeds and pulses increased substantially from a year ago, giving the hope that these essential items of consumption will not add to inflation pressures. The government is battling a high food inflation, triggered largely by expensive fruits and vegetable prices. The inflation in cereals and vegetables has been subdued even as overall food inflation is in excess of 15%.
    • However, the increase in the wheat acreage by almost 9 lakh hectares from a year ago has triggered apprehensions among analysts that a bumber crop is likely to create a huge storage problem for the government.
    • The government has estimated a 82 million tonnes of wheat production this year. Last year, wheat production was at 80.17 million tonnes.
    • The acreage under oil seeds has risen 3.23 lakh hectares. However, there was a corresponding decline in area under other marginal rabi crops rice, jowar and maize were lagging behind from the year-ago period. Rice acreage was lower at 1.94 million ha as on today, against 2.18 million hectare in the same period last year.
  • Karmapa may be Chinese agent
    • You might have noted the high profile swoop down by Indian security agencies on Karmapa, the exiled Tibetan religious figurehead.  Though he is also recognized by the Dalai Lama, Indian security establishment suspects him to be a Chinese agent monitoring the activities in the Tibetan monasteries here as part of Beijing’s long-term plan to take over their control and create a alternative centre of power to the Dalai Lama.
    • Police seized foreign currency valued at over Rs. 6 crore during raids in the offices of a trust backed by 17th Karmapa Ugyen Trinley Dorje.
    • According to intelligence sources, the allegedly benami land deals that prompted the raids may have been struck as part of Beijing’s larger plan to acquire land for building a monastery at Dharamsala with a stature similar to the Rumtek monastery in Sikkim.
    • Though the Rumtek monastery, revered by the Karma Kagyu sect, was the seat of the 16th Karmapa in exile, the security agencies have kept it out of bounds for Karmapa Trinley Dorjee on the suspicion that he may be a Chinese prop to gain control of the monasteries here and downgrade the stature of the Dalai Lama among Tibetans.
    • Notwithstanding that the Karmapa has wide support among Tibetans and has been recognised by the Dalai Lama himself, the Indian agencies have been suspecting him right from the time he “walked” across the Sino-Indian border to enter Dharamsala in 1999.
  • Why are there riots in Egypt?
    • The people there have risen against the three decade rule of the incumbent President Hosni Mubarak.
    • Tens of thousands of Egyptians took to the streets after Friday prayers in by far the biggest of four consecutive days of protests by people fed up with unemployment, poverty, corruption and the lack of freedom under Mubarak.
    • Such popular unrest has not previously been seen during Mubarak’s rule of Egypt, where security services keep a tight grip on dissent.
    • It was triggered by the overthrow two weeks ago of Tunisian President Zine al-Abidine Ben Al Ben Ali in a popular revolt which also inspired anti-government protests in Yemen.
    • Two thirds of Egypt’s 80 million people are below the age of 30 and many have no jobs. About 40 percent of Egyptians live on less than $2 a day.
    • Egypt has been under emergency rule throughout Mubarak’s term in office. The government says it is used to combat terrorism. Critics say it is used to stifle any dissent.
    • Elections were due to be held in September and until now few had doubted that Mubarak would remain in control or bring in a successor in the shape of his 47-yearold son Gamal. Father and son deny that Gamal is being groomed for the job.
    • The events pose a quandary for the United States, which has professed its wish for democracy to spread across the Middle East. Mubarak, however, has been a close Washington ally for many years and the recipient of huge amounts of military aid.
  • After Japan, US debt faces a downgrade, says Moody’s
    • Moody's Investors Service said it may need to place a “negative” outlook on the AAA rating of US debt sooner than anticipated as the country’s budget deficit widens.
    • The extension of tax cuts enacted under President George W Bush, the chance that Congress won’t reduce spending and the outcome of the November elections have increased Moody’s uncertainty over the willingness and ability of the US to reduce its debt, the credit-ratings company said on Thursday.
    • The warning from Moody’s came on the same day that Standard & Poor’s lowered Japan to AA- from AA, signalling that the ratings firms are stepping up pressure on the governments of the world’s biggest economies to curb their spending. The threat of a lower rating may cause international investors to avoid US assets. About 50% of the almost $9 trillion of US marketable debt is owned by investors outside the nation, according to the treasury department in Washington.
    • US debt has increased from about $4.34 trillion in mid-2007 as the government increased spending to bail out the financial system and bring the economy out of recession. The budget deficit has increased to 8.8% of the economy from 1% in 2007.
    • The US has the highest government debt-to-government revenue of any AAA-rated country, Moody’s said on Thursday. The ratio, at 426%, is more than double that of Germany, France and the UK and more than four times higher than Australia, Sweden and Denmark, according to Moody’s.
Language Lessons
  • Maghreb: Noun
    • The region of northwest Africa comprising the Atlas Mountains and the coastlands of Morocco and Algeria and Tunisia
  • brogue: Noun
    • A thick and heavy shoe


Politics & the Nation
  • An excellent critique of the proposed Lok Pal institution
    • Look at this ET editorial on the subject.  Well worth a read.
    • Take a look at this graphic too in this context.  It points out what exactly is wrong with the Lok Pal bill.  
Finance & Economy
  • Should there be an amnesty scheme for tax evaders?
    • In today's face-off column Yashwant Sinha and Mani Shankar Aiyar take opposing viewpoints.  Well worth a read.  Some excerpts:
    • The argument against the scheme:
      • Earlier schemes failed to bring any significant amount of black money. They also failed to provide protection to many, including some politicians.  Hence there is no point in coming out with one more such scheme.
      • Such a scheme will encourage people to indulge in more malpractices. Moreover, a tax of 30% on unaccounted income does not make sense when evaders multiply their money.
    • What should be done?
      • The focus should be to prevent the creation of more black money and ensure better compliance. India has double taxation avoidance agreements (DTAAs) and tax information exchange agreements to secure information on those who have stashed away money overseas. After the 9/11 terror strike in the US, countries have woken up to the fact that terror funding, drug and corruption money are all interlinked. We need to use our economic clout to make tax havens and countries with banking secrecy laws see reason. If unilateral pressure does not work, we should step up pressure on such countries through multilateral forums such as the G20.
  • Govt to disclose guarantees in budget papers
    • The Union budget 2011-12 will disclose all financial guarantees provided by the government till date, providing a clear picture of the financial position.
    • The central government’s move, a historical first, will be emulated by state governments and union territories with legislatures, which will reveal all such financial commitments in their budgets.
    • The government had committed to keeping such guarantees in check by putting a limit of 0.5% of the GDP in any financial year under the Fiscal Responsibility and Budget Management Rules, 2004.
    • So, far there is no compulsion on the government to reveal these in its financial statement.
  • IIP understating growth nos, reveals industry ministry's paper
    • The index of industrial production may be under stating the manufacturing growth, as suspected by many experts, says a working paper put out by the advisor to the industry ministry.
    • The study comes amid concern by a number of economists and the central bank that the manufacturing growth captured by the Index of Industrial Production, or IIP, was perhaps not giving the true picture.
    • The working paper -- Index of Industrial Production & Annual Survey of Industries -- rightly cautions that some amount of divergence is to be expected between the two measures because of the difference in the nature of the indices.
    • While the IIP measures the output of a select group of pre-selected units every month, the Annual Survey of Industries (ASI) is a more comprehensive survey capturing data from annual statement of accounts of different units.
    • The outdated index with 1993-94 is widely believed to be the reason for the IIP failing to capture the true picture.  
  • An interesting snippet on money laundering
    • The term ‘money laundering’ is said to have originated from mafia ownership of Laundromats in the US. Gangsters there were earning huge sums in cash by extortion, prostitution, gambling and bootleg liquor. They needed to show a legitimate source for these monies.
  • S&P cuts Japan rating, first since ’02
    • Rating agency Standard & Poor’s (S&P) cut Japan’s long-term sovereign debt rating on Thursday for the first time since 2002, saying the country’s government lacked a coherent plan to tackle its mounting debt.
    • It reduced the rating by one notch to AA minus — three levels below the highest possible rating. Politicians and credit-rating agencies have been warning for years that Japan needs to lower its public-debt pile, by far the worst among rich nations at double the size of its economy, but progress has proved elusive. The yen fell broadly and credit-default swaps on Japan widened after the announcement.
    • While other developed countries are tackling massive public debt built up during the global financial crisis, Japan’s debt has been growing for years as it tried to revive the economy after a massive property bubble burst in the early 1990s.
    • Japan’s outstanding long-term government debt is set to reach 869 trillion yen ($10.57 trillion) by the end of March this year, or 181% of GDP, the Ministry of Finance says. If short-term debt is added, Japan’s liabilities will hit 204% of GDP this calendar year, larger than 137% for Greece and 113% for Ireland, according to OECD.
Language Lessons
  • surfeit: Verb
    • Supply or feed to surfeit; Indulge (one's appetite) to satiety
    • Noun: The state of being more than full; The quality of being so overabundant that prices fall; Eating until excessively full
  • asinine: Adjective
    • Showing a lack of intelligence or thought; stupid and silly


Politics & the Nation
  • Was Kapil Sibal right in airing his views on the 2G losses computed by the CAG?
    • Today's ET editorial discusses this issue very well and concludes that he was right.  Look at the reasons:
    • The CAG itself has not sought to pronounce the final word on the subject, concluding, as it does, “the amount of loss could be debated,” after having presented four estimates of presumptive loss to the exchequer ranging from Rs. 57,666 crore to Rs. 1,76,645 crore.  Considering that Parliament has not been allowed to function and the Opposition has been going hammer and tongs at the government on the subject, to say that ministers should keep mum hurts the people’s right to know all sides of the question.
    • Recommend a read of the editorial in full here.
Finance & Economy
  • The status of the law on mineral exploitation in India
    • The first major exercise on policy and law on mines and minerals in independent India started with the mineral policy conference held in early 1947, which led to the setting up of the Indian Bureau of Mines as sector regulator and enactment of the Mines and Mineral (Regulation & Development) Act, 1948. Later, the legislative powers of the central government and the state governments were defined in the Constitution.  Under the Constitution, law on minerals is enacted by Parliament and its implementation is undertaken by the states. Para 54 in List 1 and para 23 in List 2 in the Seventh Schedule of the Constitution elaborate the legislative power of Parliament and the state legislatures, respectively. Under the Constitution, onshore minerals are owned by states, and the Union of India has exclusive rights over offshore minerals. Following the Industrial Policy Resolution of 1956, the Mines and Minerals (Regulation & Development) Act, 1957, was enacted by Parliament for prospecting and exploitation of minerals. The Act has seen four amendments in 1972, 1988, 1994 and 1999 respectively.
  • Board for Restructuring of Public Sector Enterprise
    • The board was set up in 2004 to advise the government on the strategies and measures for strengthening, modernizing, reviving and restructuring of public sector enterprises.
  • Clean-up of financial laws coming
    • The union cabinet will soon take up for discussion a proposal to create the Financial Sector Legislative Reforms Commission, or FSLRC, to rewrite and clean up the financial sector laws of the country.
    • Several expert panels appointed by the government in the past on financial sector regulation, including the Raghuram Rajan Committee, the Percy Mistry Committee and the UK Sinha Committee, had emphasised on the need to rewrite India’s financial sector laws to bring them in line with the current needs.
    • Finance Minister Pranab Mukherjee had in his 2010 Budget announced the government’s intention to establish FSLRC to simplify and streamline the legal framework and possibly suggest a completely new regulatory structure for the sector.
    • FSLRC will be headed by former Supreme Court judge, Justice BN Srikrishna.
    • The commission's mandate will be to examine inconsistencies and overlaps in financial sector laws and to work out a standard principle-based financial regulation.
    • It will also review the structured objectives of each of the financial sector regulators so there is no overlap among supervisors when it comes to regulation of different products.
    • The financial sector laws in the country came into existence at different points in time. This has resulted in certain degree of overlap and a lack of clarity in the functions of various regulators.
Science & Technology
  • Warming due to low cosmic ray activity: Isro
    • In a paper published by the environment ministry, physicist and former chairman of the Indian Space Research Organisation, UR Rao, has argued that decreasing cosmic ray activity, a natural phenomenon, was contributing to global warming, much higher than adjudged by the Intergovernmental Panel Climate Change (IPCC). The paper is part of Indian Network of Climate Change Assessment discussion that takes on the conventional position that it is human activity which primarily causes global warming.
    • Rao argues that cosmic rays enter the solar system and contribute to the formation of low-level clouds over the earth. Using data between 1960 and 2005, Rao found that a lesser quantity of cosmic rays were entering the solar system due to an increase in the solar magnetic field, adversely affecting cloud formation and leading to global warming.
  • Status of the stalled Doha round of WTO talks
    • The talks on opening up world markets for goods and services got derailed in July 2008 over differences on issues such as special safeguard measures for poor farmers against import surges, reduction of cotton subsidies and elimination of tariffs in some manufacturing sectors.
    • India pushed for higher protection against sharp increases in imports and to keep sectoral negotiations out of the discussion.
    • The US took a diametrically opposite stance, favouring sectorals and limit on import protection.  The US has also not come up with commitments on reducing cotton subsidies which have been hurting cotton growing developing countries, especially in Africa. It had, recently, asked for sharper reduction in tariffs for certain sectors beyond the reduction formula that has been agreed upon by members.
    • As per WTO estimates, the on-going Doha round of the WTO is expected to result in gains worth $282 billion.
Language Lessons
  • bedlam: Noun
    • A state of extreme confusion and disorder; Pejorative term for an insane asylum
  • zany: Adjective
    • Ludicrous, foolish; Like a clown
    • Noun: A buffoon in one of the old comedies; imitates others for ludicrous effect; A man who is a stupid incompetent fool
  • recapitulate: Verb
    • Summarize briefly; Repeat stages of evolutionary development during the embryonic phase of life; (music) repeat an earlier theme of a composition
  • backcloth: Noun
    • Scenery hung at the back of a stage
  • beanpole: Noun
    • (informal) a tall thin person