18.02.2011

Politics & the Nation

• Honda recalls 58k Citys over faulty engine component
• Honda’s Indian subsidiary will recall over 50,000 of its City cars — a figure close to its domestic annual car sales — in one of the country’s biggest recalls and the second such move by the Japanese giant in just over a year.
• The recalls are being made to replace a defective part that could stall engine restarts and will affect 57,853 units of its best-selling City model manufactured between November 2008 and December 2009. Honda has the capacity to produce about one lakh cars but sells about 55,000-60,000 cars in India every year. It has sold 51,045 units in the nine months ended January 2011.
• This is the second recall by the Japanese major since last January when it recalled 8,532 City cars made in 2007 to replace defective power window switches that could cause fire.

• Govt spikes Antrix deal with Devas
• The Cabinet Committee on Security (CCS) has annulled the satellite transponder lease between state-owned Antrix Corporation and Devas Multimedia, ending weeks of speculation about the future of the controversial high-tech deal. The Cabinet Committee on Security move comes a day after Prime Minister Manmohan Singh announced that his government has decided to annul the deal and the delay was only procedural. The latest in a series of controversies to hit the UPA government, the Devas deal was particularly sensitive as it occurred in the Department of Space, which is under the prime minister’s direct supervision.
• The timeline in Antrix Devas deal:
• 2003: Antrix enter into discussions with US-based consulting firm Forge Advisors exploring the development of commercial applications using ISRO’s satellite capacity. A joint venture is mooted
• December 24, 2004: Antrix board approves a satellite transponder capacity lease agreement with Devas, which was incorporated in India by the parties involved with Forge Advisors. Devas would get 70MHz of S-band spectrum as part of the deal on two upcoming ISRO satellites GSAT6 and GSAT6A. Antrix/ISRO/DoS gets the development of the two satellites approved by the Space Commission and the Cabinet, but the commercial arrangement with Devas is not disclosed
• July 6, 2007: DoT cautions that the spectrum being planned by the DoS is not meant for commercial use, such as in the deal with Devas. No action is taken Dec 8, 2009: DoS institutes a one-man panel to review the deal and submits recommendations. BN Siresh committee submits its report on June 6, 2010.
• June 2010: Opinions sought from law ministry & DoT. Both advise against the deal. Space Commission asks DoS to direct Antrix to cancel the deal
• July 12, 2010: ASG advises DoS that the decision to annul the contract should be a policy decision
• Sept-Oct 2010: Reacting to reports in the media, Devas writes to the members of the Space Commission, including those in the PMO. US Chamber of Commerce writes to the PMO on the issue
• February 2011: Media reports say the CAG suspects a loss of 2 lakh crore to the exchequer as a result of the deal.
• Feb 17, 2011: Deal is annulled by CCS

• TRS hooliganism in Andhra House, Governor manhandled
• Bedlam prevailed in the Andhra Pradesh Assembly on the first day of the Budget session with Telugu Desam Party (TDP) and Telangana Rashtra Samithi (TRS) MLAs rushing to podium, pushing and jostling Governor ESL Narasimhan, Chairman of the AP Legislative Council Dr Chakrapani, and Deputy Speaker of Assembly Nadendla Manohar at the central hall.
• The Telangana agitators not only grabbed the papers from the governor, but also tore off the speech copies given to them and threw them on the governor’s face.
• TDP MLAs -- A. Revanth Reddy and Mahender Reddy -- rushed onto the podium from behind and pulled down the chairs of the governor, deputy speaker and chairman of the council. The legislators were soon overpowered by the marshalls and pushed away from the podium. The personal security of the governor prevented Revanth Reddy from attacking on the governor and in an attempt to stop him from completing his address to the house.
• They were contending that the governor’s address did not reflect the separate Telangana state aspirations of four crore people.
• Bureaucrat-turned-legislator and campaigner against corruption, Dr N Jayaprakash Narayan, the president of the Lok Satta Party, was the other casualty of the Telangana agitator’s ire.  Soon after the governor performed his usually one-hour long ritual in 14 minutes, only reading out six pages out of the 32-page speech copy, TRS legislators hit Jayaprakash Narayan, for denouncing the Telangana MLAs stand.
• Except TRS, all the parties unanimously and unequivocally condemned the attack on Jayaprakash Narayan. Chief Minister N Kiran Kumar Reddy apologized to the Governor for being responsible for the bitter experience caused to him. Also condemning the attack on Jayaprakash, he described it as a black day in the history of AP Assembly whose parliamentary practices hitherto were well acclaimed by the rest of the country. Opposition leader Chandrababu Naidu said the attack on Jayaprakash Narayan as `undemocratic and unethical.’
• February 17 will go down in AP's history as a black day.

Finance & Economy

• Official definition of CSR
• The World Business Council defines CSR (Corporate Social Responsibility) as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.
• Accordingly, corporate responsibility involves a commitment by a company to “manage its role in society as a producer, employer, marketer, customer and a citizen in a responsible and suitable manner”.

• Government moves on making CSR mandatory
• The Companies Bill 2009, which is likely to be tabled in the forthcoming budget session, has proposed that companies will have to earmark 2% of their average net profits during the preceding three years for corporate social responsibility spending or disclose to their shareholders if they fail to do so.
• The government had earlier taken a similar stance before the Parliamentary Standing Committee on Finance. It had told the panel that it could ask companies having a minimum net worth of Rs 500 crore, or an annual turnover of Rs 1,000 crore, or a net profit of Rs 5 crore in a year to spend at least 2% of their average net profit during the three preceding fiscal years on CSR. However, later the ministry diluted the proposal following intense lobbying from the industry.
• In an earlier presentation to the government, the Confederation of Indian Industry had demanded that the new law should not specify an amount to be spent on CSR, and that a decision on the actual spend be left to company boards. The industry body had suggested that CSR should be voluntary and backed by a system of state recognition and honour.
• To check non-compliance, the parliamentary committee had recommended separate disclosures by companies in their annual reports through a CSR statement indicating the company policy as well as specific steps taken.

• Vegetables help bring down food inflation to 11.05%
• Food inflation eased to a nine week low in the first week of February as prices of vegetables came down sharply from the previous week.
• It stood at 11.05% for the week ended February 5 down from 13.1% a week earlier and economists expect a further easing as vegetable prices at the wholesale level come down further.
• Inflation in vegetables was down to 23.99% during the first week of February from 44.34% in the previous week. Onion prices contracted sharply by 26.85% during the week and inflation in onions was down to 31.33% from 78.64% in the last week.
• Food has a share of 14.34% in the overall WPI, which stood at 8.23% in January primarily due to high inflation in food products. Inflation in primary articles stood at 14.59% for the current week down from 16.24%.
• Fuel inflation increased to 11.92% from 11.61% in the previous week.

• Are external factors fuelling inflation in the country?
• Yes, according to Indranil Sen Gupta of BofA Merrill Lynch.  Look at his reasoning.
• The present round of inflation really stems from an unfortunate confluence of global liquidity and weather shocks rather than domestic monetary or structural factors.
• The reasons for the extended period of inflation:
• First, this is because the world is recovering sequentially - emerging markets in 2010 and the US in 2011 - from the 2008 shock as opposed to a simultaneous recovery (like, say, in 2004). Commodities, therefore, are re-pricing recovery in two phases in contrast to only once earlier. Besides, India's ability to insulate domestic inflation has also come down with import tariffs already pared to deflect earlier commodity price shocks.
• Second, this has led to asynchronous monetary policy. Many central banks, such as the People's Bank of China and the Reserve Bank of India (RBI), followed the US Fed into tightening during the 2004 recovery to rein in commodity price inflation. This time round, effect of monetary action by the RBI and other EM central banks are largely negated by the G-3 easing.
• Finally, the ongoing switch from a very deep El Nino to an equally extreme La Nina is impacting harvests globally. This is naturally fuelling agflation given the backdrop of rising food demand driven by higher incomes and easy G-3 liquidity. In India, for example, the El Nino brought a drought which led to higher food prices in the mid-2009. And in end-2010, just when a good south-west monsoon was about to harvest a good kharif crop, aseasonal winter rains damaged the vegetable crop spiking vegetable prices.

• New geothermal policy likely to spur investments into the sector
• India may have a geothermal energy policy by March, spurring investment from companies including Tata Power and Thermax that aspire to build the nation’s first electricity plant tapping underground heat.
• The country, which imports more than 75% of its crude oil and burns polluting coal to generate more than half of its power, first needs a framework agreement with Indian states to ensure they don’t contest the right to allocate geothermal fields.
• Geothermal’s advantage over wind and solar power lies in its potential to generate round the clock.  Electricity from harnessing underground heat currently costs about twice as much as conventional coalbased energy.
• The government has identified 10,600 mw of power that could be generated from underground heat trapped in rocks, less than the nation’s power capacity shortfall of almost 15,000 mw as of January 2010.
• The cost of generation plus an equity return of 10% for geothermal can go as high as $114 per mw-hour compared with $55 per mw-hour on average for conventional power plants in India.

International

• On the reducing importance of the West in the Middle East scheme of things
• The three pillars upon which Western influence in the Middle East was built – a strong military presence, commercial ties, and a string of dollar-dependent states – are crumbling. As a result, the Middle East that emerges in the weeks and months ahead may become much harder for the West to influence.
• The first pillar – military presence – dates back to French and British occupation of parts of the Ottoman Empire after World War I, and was reinforced by the Cold War-era military links forged by the United States and the Soviet Union. In 1955, the West was even strong enough to sign up a remarkable cast of Turkey, Iraq, Iran, and Pakistan in a kind of West Asian NATO known as the Baghdad Pact.  But this military pillar has been steadily eroded. An early sign was the failure of “Operation Eagle Claw” to rescue US hostages in Iran in 1980. Another crack appeared with the 1983 Hezbollah attack on the US Marine barracks in Beirut, which triggered an abrupt US withdrawal from Lebanon. Since the invasion of Iraq in 2003, US forces have withdrawn from Saudi Arabia and discovered that their conventional military potency does not necessarily translate into impact on the ground.
• The second pillar of the West’s Middle East role – commercial ties – has also been weakened. America used to be the essential trade partner for the Gulf countries, but this has now changed. In 2009, Saudi Arabia exported 57% of its 2009 crude oil to the Far East, and just 14% to the US. Responding to this underlying shift, King Abdullah has been pursuing a “look East” policy since 2005, resulting in trade worth more than $60 billion.  This eastward shift has made China a bigger trading partner than the US for both Qatar and the UAE. And almost a quarter of Qatar’s trade is with China, compared to just over 5% with the US. Likewise, 37% of the UAE’s trade is with China, India, and South Korea. To many Middle East states, what China wants is now just as important as US interests.
• Finally, the US no longer has a string of relatively stable clients in the region. The US believed that the massive amounts of aid that it doled out to Egypt, Israel, and Jordan guaranteed both stability and cooperation on issues of American interest. This worked for three decades, but now the link is weakening.