03.01.2011

Politics & the Nation
  • An excerpt from an ET editorial about the havoc that can be wreaked by corruption
    • Corruption today is not just a peripheral concern for moralists, but a major obstacle to India’s progress, something that should concern every realist as well. Corruption jacks up the cost of land, making hospitals and schools expensive, turning healthcare and education prohibitive for the majority. Corruption scuppers vital projects, delays them, alters masterplans and route alignments, drains the exchequer and makes the government underperform and underdeliver. It makes fools out of honest men, heroes out of crooks and rewards dishonest officials. Corruption turns a blind eye to RDX being smuggled in, forex being smuggled out. It excoriates faith in the system and prepares the ground for extremist ideologies.
  • Telangana state: Is there an economic rationale?
    • Take a look at this well written article that shows that there is no economic rationale for the formation of Telangana state.  Authored by a non-AP person and a Professor at the reputed ISB, Hyderabad, it makes a very good reading.  The accompanying table is a must see.
Finance & Economy
  • Infrastructure debt funds to roll out soon
  • What was the Jalan committee constituted for?
    • To review the ownership and governance of market infrastructure institutions.
  • What is a benami transaction and why are benami transactions bad for the country's economy?
    • As the word ‘benami’ suggests, it means not in own name. It is commonly used to denote a transaction, which is done by a person without using his own name but in the name of another. The benamidar has no beneficial interest in the property or business that stands in his name; he represents, in fact, the real owner and so far as their relative legal position is concerned, he is a mere trustee of the real owner.
    • The question whether a particular deal is benami or not is essentially a question of fact. The courts in deciding the issue are usually guided by the circumstances as to: (a) the source from which the investment came; (b) the nature and possession of the property after acquisition; (c) motive, if any, for giving the transaction a benami colour; (d) the position of the parties and their relationship, if any; (e) the custody of the title deeds; and (f) the conduct of the parties in dealing with the property. These are illustrative instances, not exhaustive. The burden of showing that a transfer is benami is upon the person, who alleges benami, i.e., if the government wants to say that a transaction is benami, it will have to prove it.
    • The adverse impact of benami transactions on the country’s economy is large. It bifurcates income earning activities into fragments leading to loss of tax revenue. These have been resorted to commit frauds and cheating. These lead to substantial litigation, where the burden of proving benami is on the government, but it does not get discharged substantially because the facts are in the knowledge of respective parties.
  • Sudhir Chandra takes over as chairman of CBDT
    • This 1973-batch Indian Revenue Service officer, has taken over as the new chairman of the Central Board of Direct Taxes (CBDT). He handled the investigation portfolio in the board when the income-tax department took up several politically-sensitive cases, including that of raid on Madhu Koda. He replaces S S N Moorthy who is joining the Securities Apellate Tribunal. Mr Chandra will have one-year term as CBDT chairman.
  • Some interesting stats on steel consumption in India
    • The current per capita steel consumption is 50 kg for India, which is far short of countries like South Korea (936 kg), Japan (419 kg), China (405 kg) and world average (179 kg). An increase of 10 kg in per capita consumption would require an increase in output by 12 million metric tonnes per annum (mmtpa). This highlights the massive growth needed to raise domestic steel production to nearly 220 mmtpa by 2020. This is also the reason why major foreign players have been attracted to the country.
  • Govt plans to exempt factoring services from stamp duty, to introduce bill soon
    • The government plans to offer stamp duty exemption for sale of accounts receivables, allowing businesses to encash sales made on credit and ensure a healthy cash flow.
    • The finance ministry will facilitate this change by moving a new bill to regulate factoring business and to amend the Stamp Act, 1899. The Factoring and Assignment of Receivables Bill 2010 will be placed before the Union Cabinet ahead of the budget session of Parliament that begins in February.
    • Stamp duty exemption will allow companies to get their bills discounted easily by banks or other entities that provide factoring services, which buy accounts receivables at a discount.
    • As of now only banks are exempt from paying stamp duty on receivables. Pure factoring companies have to pay the duty, which differs from state to state.
    • The factoring business has not made much progress in India because of a lack of a consolidated framework for the business. In 2008, the total factoring business was worth Rs. 33,228 crore, or just 1.24% of the total bank credit. Steep stamp duty on assignment of debt and lack of recourse for the buyer if the account receivable turns sour are the other factors troubling the business.
International
  • The problems the world faces on the way to international monetary reform
    • It is a given that there is need for international monetary reform.  Jean Pisani-Ferry, Director of Bruegel, an international economics think tank, Professor of Economics at Universit√© Paris-Dauphine, and a member of the French Prime Minister’s Council of Economic Analysis explains the problems very well in his article on Project Syndicate.  Do take a look.  The gist:
    • The first is exchange-rate relationships.  The current practice of some countries pegging their currency's value to that of the dollar or the euro often leads to undervaluation or overvaluation.
    • The second problem is imposing discipline on national policies in order to preempt the temptation to export domestic inflation or unemployment. Under the gold standard, discipline was automatic. With floating exchange rates, it is not.
    • The third problem concerns international liquidity. Financial flows are excessively volatile. Emerging countries are inundated with capital inflows one day, and faced with abrupt and equally destabilizing outflows the next.
    • The fourth problem is collective anchoring. Naturally, the major central banks are concerned with the inflation that they can control – homemade inflation. But this neglects global inflation driven by rising commodity prices, which has been increasingly evident.
Language Lessons
  • mordant: Adjective
    • Harshly ironic or sinister; Of a substance, especially a strong acid; capable of destroying or eating away by chemical action
    • Noun: A substance used to treat leather or other materials before dyeing; aids in dyeing process
    • eg: Similarly, Wodehousian flippancy, so enjoyable in the privacy of your home or club and in the company of fellow eggs and beans, is out of place when aired in public, no matter how mordant the wit or how innocent the intent.
  • husbandry: Noun
    • The practice of cultivating the land or raising stock
  • sybaritic: Adjective
    • Displaying luxury and furnishing gratification to the senses
  • pro bono: Adjective
    • Done for the public good without compensation

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