31.01.2011

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