03.03.2011

Politics & the Nation

• US Court summons Congress for Sikh genocide in 1984
• A US court has issued summons to the Congress in connection with the 1984 anti-Sikh riots, acting on a Sikh rights group's petition which accused it with "conspiring, aiding and abetting" organised attacks on the Sikh population of India in November 1984.
• The US district court for the southern district of New York issued the summons on Tuesday in a class action law suit filed by Sikhs For Justice (SFJ), a US based community group, along with several Sikh survivors of the 1984 attacks. The proceedings are still at the pre-trial stage in New York.
• According to the Government of India's record, a total of 3,296 Sikhs were killed while a total of 35,535 claims for deaths and injuries were received throughout India.

Finance & Economy

• Why are export taxes bad? (Excerpted from today’s ET editorial)
• The recent budget has proposed to levy export tax on  coffee, tea, pepper, cardamom, jute, coir, wool, cotton, groundnut, oil cake and animal feed, apart from assorted ores, pig iron, steel and steel products.  Why is the move bad?
• Primarily, these export taxes penalise some domestic producers, those who do the primary value addition, and favour others, those who perform later-stage value addition using the primary produce as inputs.
• The idea of squeezing out surplus from the farm sector to agglomerate investible surpluses in industry is a Soviet-era strategy that was imported into the Mahalanobis model that guided the second Five-Year Plan. Farm prices were repressed and industrial prices inflated through protection, to turn the terms of trade against agriculture and transfer value from farmers to industrialists. One of the great achievements of economic reform has been to halt this process and stimulate private investment in the farm sector. Now, at a time when high global agricultural prices offer themselves as an opportunity to tackle the country’s rural poverty far more directly and aggressively than is possible merely from the trickle down of fast growth in urban India, policy should seek to boost farm output to meet global demand. The Budget’s export taxes seek to throttle that chance.
• Is this year’s budget a good one?
• Yes, feels Prof. TT Ram Mohan, whose articles we follow quite regularly.  Take a look at his assessment.

• Why is it that we may have to settle for higher inflation in the coming years? (Medium term)
• First, financial inclusion, by bringing savings held as cash into the financial system, enlarges the pool of money supply.
• Secondly, as per-capita incomes rise with growth, prices of non-traded goods and unskilled labour tend to catch up with those in industrialised countries. Both factors are inflationary.

• Yet another critique of the recent budget
• This time from an international observer: Derek Scissors, who is Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation in Washington, DC
• He says that the problem with Indian budget goes beyond the noble intentions of controlling deficit.  The problem is more fundamental. His criticism is basically about:
• 1.  The budget anticipating lower deficit based on the faster growth bringing in more revenue.  He questions the assumption and says that countries that cannot control budget deficits in times of high growth are invariably humbled.  
• 2.  Lack of market-oriented reform, which previously created high growth with little inflation.  Dependence on state-led infrastructure spending to boost growth is not wise, he says.  Because, infrastructure development can be an excellent response to growth, but it cannot be the principal driver of growth.  
• 3.  He also finds fault with the dependence on public-private partnership for funding infrastructure.  He says that such partnerships are fraught with corruption.  
• 4.  He further castigates the country for conducting high-profile violations of property rights of multinationals such as Cairn and Vodafone.  Yet the country is puzzled, surprisingly, over foreign disinterest in infrastructure.  
• 5.  The country's record in fighting inflation is poor.  He says that a new baseline of much higher prices and 7 percent inflation is no victory and leaves the country far more vulnerable to developments beyond its control.

• Plan allowing banks to back local bonds put on hold
• The finance ministry has shelved a proposal that sought to allow banks to guarantee bonds issued by local firms. The ministry had proposed the move in 2010 to support the credit enhancement process.
• Now the government would like the bond market to develop on its own. The Reserve Bank of India does not want banks to expose themselves to any undue risk.
• Banks had earlier argued that there was little or no risk in guaranteeing corporate bonds as they have been subscribing to bonds issued by corporate groups, which indicates that they are well aware of the risk factors involved.
• According to RBI data, the total investment by schedule commercial banks in corporate bonds was Rs. 37,240 crore as of March 2010 as against Rs. 19,454 crore worth of bonds issued by public sector companies.

International

• Fear of Indian professionals holding up services deal with ASEAN
• The proposed agreement between India and the Association of Southeast Asian Nations (Asean) to open up investments and services sector has met with resistance from some members of the 10-nation bloc who are concerned that free movement of professionals will impact their own workforce.
• India and Asean implemented a free trade agreement in goods last year. The pact seeks to eliminate duties on more than 4,000 products over six years. The two sides had agreed to extend the agreement to services and investments and were hoping to implement it by the end of 2010.
• The country, however, is not placing all its bets on the India-Asean free trade agreement to make inroads into the services market. While it already had a comprehensive trade agreement covering services with Singapore, it has signed another one with Malaysia and agreements with Indonesia and Singapore are in the pipeline.

• Now it's the turn of Md. Yunus
• Nobel laureate Muhammad Yunus has been removed from his position as head of microlender Grameen Bank, following allegations of irregularities in its operations.
• Yunus, 70, set up Grameen Bank and has been its managing director since 2000. Lauded abroad by politicians and financiers, he has been under attack from Prime Minister Sheikh Hasina’s government since late last year, after a Norwegian documentary alleged Grameen Bank was dodging taxes.
• Yunus has denied any financial irregularities and his supporters say he is being discredited by the government because of a feud with Hasina dating back to 2007, when he tried to set up a political party while Bangladesh was ruled by an interim military government.