Politics & the Nation- An interesting debate on whether or not the accused should be jailed before trial and conviction
- Take a look at this debate by two eminent personalities on the issue. Worth our attention.
Finance & Economy- Credit default swaps to be allowed in India
- Credit default swaps, an insurance instrument partly blamed for the credit crisis and the near sinking of US insurer AIG, will be permitted in India from October with banks, primary dealers and non-banking financial companies’ participation and some strict rules to prevent abuse.
- The instrument, popularly known as CDS, which promises the holder payment of money to the insured amount of bond holding in case of a default, is aimed at developing the domestic corporate bond market.
- The new guidelines that will come to force from October 24, is framed with safeguards to prevent abuse of position by financial intermediaries to boost their revenues as it happened with currency derivatives that sank many small companies.
- Only the market makers or commercial banks will be allowed to buy and sell credit default swaps while the ‘users’ can only buy credit protection, but will not be allowed to sell them. Users may be insurance companies, housing finance companies, provident funds, listed corporates and foreign institutional investors. RBI, which received comments from public, has built-in protection for naive and put the onus on the sellers of CDS to ensure that they educate the buyer on what they are getting into.
- The users cannot hold these contracts without having eligible underlying bonds, though the market makers can buy protection without having the underlying bond. The users cannot buy CDS for amounts higher than the face value of the corporate bonds held by them.
- Though credit default swaps is only allowed on listed corporate bonds, the central bank has made an exception for rated but unlisted bonds of infrastructure companies.
- Some titbits relating to retail in India
- It is estimated that about 40% of all farm products in India rot by the time they reach the final point of sale.
- India today allows 51% FDI in single brand retail and 100% for wholesale.
- The share of organised retail in India is a tiny 4% of the total, opposed to 20% in China, 30% in Indonesia and 55% in Malaysia.
- India is facing a problem of plenty in respect of foodgrains
- As of May 1, India’s food stocks stand at 27.8 million tonnes of rice, 31.4 million tonnes of wheat and 0.1 million tonnes of coarse grains, adding up to a food mountain twice as large as is required by official buffer stocking norms.
International- What is becoming of the Pakistan state?
- Take a look at this assessment from Pervez Hoodbhoy, Professor of Nuclear Physics at Quaid-i-Azam University, Islamabad:
- Now, while it is true that the al Qaeda is losing support in Pakistan, this country has become a battleground in which there are several contending jihadi groups. Some are pro-Saudi and pro-Pakistan, like the Lashkare-Toiba, Jaish-e-Muhammad, and Hizbul Mujahideen. Others, like the Tehreek-e-Taliban and the Al-Qaida, are fully engaged in fighting the Pakistani and Saudi establishments. Still others, like the Lashkar-e-Jhangvi and Sipah-e-Sahaba, are largely focused upon killing Shias. In the Federally Administered Tribal Areas, there are many more groups, some of which are more criminal than ideological. It is a terrible mess. Clearly, Pakistan is becoming a dangerous place for many groups. It is most dangerous for Ahmadis, followed by Hindus and Christians. But even for Shias, who had initially been enthusiastic about Islamisation of Pakistan, things have become very difficult. Pakistan has slowly turned into a religious extremist country, although there are still islands of tolerance left here and there. This is the direct consequence of the Pakistani state's desire in earlier decades to breed militancy within its borders.
Language Lessons- hoity-toity: Adjective
- Affectedly genteel
- eg: The staff found it difficult to deal with the hoity-toity snooty clients.
- hoi polloi: Noun
- The common people generally
Finance & Economy- The case for deregulating savings bank interest rates
- Savings bank (SB) deposits interest rate is the only regulated rate and has remained unchanged at 3.5% since March 1, 2003 even as the RBI’s policy rates have moved up and down over time.
- Savings deposits account for about 13% of financial savings of the household sector. Presumably, deregulation will improve monetary transmission. In the present context, it will raise both real and nominal rates. It will also encourage product innovation as banks will try to compete, not only on rates, but also on product design as, for instance, by offering differentiated rates depending on the size of the deposit (something they are not allowed to do at present).
- Is there a compelling opportunity for India from China?
- You must take a look at this interesting op-ed from Manish Sabharwal. It discusses the issue at great length and very convincingly at that. A must read.
- Some interesting statistics that he reels out in his article for buttressing his argument deserve a look from us:
- Five labour market megatrends that can reward politicians:
- The demographic dividend (one million people joining the labour force every month), the increasing unviability of agriculture (56% of our people produce 18% of our GDP), the high incidence of poverty among the self-employed (50% of the labour force), the stagnation of organised employment (8% of the labour force) and the low share of manufacturing employment (12% of the labour force).
- India accounted for only 1.8% of global manufacturing value added (MVA) last year versus China at 23.3%. Our per-capita productivity was a disappointing $107 versus China at $842.
- Budget 2011 plans a new manufacturing policy that aims to raise the share of manufacturing in GDP from 16% today to 25% in 10 years.
- Trends: Users snap deals on discount sites
- You would have most probably heard or experienced group buying by now.
- Collective buying through the Internet, originally started during the dot-com boom, took off in late 2008 when startups such as Groupon and Tippr offered discounts on small local businesses in US cities. Since then it has become a rage. Today, there are more than 500 group-buying sites worldwide. Internet giants Google and Facebook recently entered the field with Google Offers and Facebook Deals.
- Some other sites that enable group buying include: mydala.com, snapdeal.com, taggle, deals and you, sosasta.com, groupon, and tippr.
- If you want to check them out, Google for them and explore. This graphic will help you more.
- Is moving to a consumption based economy good for India?
- No, says Chandran Nair, an Indian origin Malaysian based out of Hong Kong, who shot to prominence with his concept of ‘constrained capitalism.’
- His world view deserves our attention and thanks to ET, we have this very well conducted interview. Take a look. Shouldn’t miss this.
International- IMF Chief Strauss Kahn arrested in a sexual assault case
- Dominique Strauss-Kahn, the head of the International Monetary Fund and a potential candidate for the French presidency next year, was charged with attempted rape and a criminal sex act on a woman in a New York hotel.
- The charges stem from an incident that allegedly occurred on Saturday against a 32-year-old female at a Sofitel hotel in midtown Manhattan. The alleged victim is a maid at the hotel.
- Strauss-Kahn was arrested aboard an Air France flight at John F Kennedy airport. Strauss-Kahn, 62, denies the charges and will plead not guilty, according to reports.
- Strauss Kahn is a leading contender for the post of French President.
Language Lessons- egress: Noun
- (astronomy) the reappearance of a celestial body after an eclipse; The becoming visible; The act of coming (or going) out; becoming apparent
- Verb: Come out of
- claque: Noun
- A group of followers hired to applaud at a performance
- conurbation: Noun
- An aggregation or continuous network of urban communities
- outre: Adjective
- Conspicuously or grossly unconventional or unusual
Politics & the Nation- Some very good commentary on the Allahabad High Court's judgement on Ayodhya dispute
- Yet, the Allahabad High Court tried to clothe a compromise as a form of legal resolution, relying on faith as actionable evidence and doing damage, in the process, to the law and to vital political values. It is necessary and sufficient that the Supreme Court should undo this damage done by the high court. If it can delineate the boundaries of judicial action and leave needed further resolution to the political process, that would be what is required.
- What is the best way to compensate the landowners from whom land is taken away for urbanization needs?
- While it is true that there is no one ideal solution, what ET suggests in its editorial today is worth our attention:
- A viable form of stakeholdership is to transfer ownership of the land in question to a special purpose vehicle (SPV) in which half the ownership is vested in the original owners of the land, while the other half vests with the project developer. The project could pay the SPV lease rentals that reflect the commercial value of the new activity coming up on the land, offering landlosers a steady, certain stream of income. The value of the SPV’s shares would increase as the land rises in value over time and the erstwhile farmers would share in the upside. Further, the landlosers could be organised into production units that deliver assorted services to the new project, adding to their incomes. These should be an integral part of the project.
- Supreme Court rules out corrective action in Bhopal gas case
- The Supreme Court has refused to change its mind about a 1996 judgment and allow stricter punishments for seven corporate executives convicted for their role in the world’s worst industrial disaster.
- Dismissing the curative petition filed by the CBI, it observed “No satisfactory explanation is given to file such curative petitions after about 14 years from 1996 judgment of the Supreme Court.”
- In 1996, the Supreme Court diluted the charges against the accused from culpable homicide not amounting to murder to criminal negligence.
Finance & Economy- What went wrong with Economics and Economists?
- You must read this op-ed by Bradford Delong. It tries to answer this question in the context of the recent financial crisis that the globe had witnessed. A very interesting read.
- Know what is ‘middle income trap’?
- This refers to countries that have grown out of poverty and can no longer compete with low-cost producers, but cannot also make the leap to an advanced economy. ADB says that many Asian economies are in danger falling into this kind of trap now.
- Managing farm inventories
- Today, about 60% of the produced wheat enters the market as marketed surplus. Hence, of the 84 million tonnes, about 50 million tonnes enter the market. About half of this is absorbed through the procurement process by the government, thus leaving just 25 million tonnes for private traders.
International- Personality
- Haruhiko Kuroda: Is the President of Asian Development Bank
- Is a Lehman moment immanent in Greece?
- Many an expert is speaking of a possible “Lehman moment” — a shock so severe that it would cause banking crises and domino bankruptcies throughout Europe -- for Greece.
- The fears are genuine. Greece’s debts are officially forecast to hit 159% of GDP in 2012. Sustaining such a burden would require so much austerity that the economy would be crushed for years. Though the country is supported by a 110 billion-euro European Union/International Monetary Fund programme, it is only funded until early next year, and will need to raise 27 billion euros in 2012. The logic for restructuring is compelling because with every month that passes, more bailout money gets used to pay off private debt, helping those who lent to it foolishly at the expense of taxpayers in other countries.
- But how to prevent a restructuring becoming a Lehman moment?
- First, haircut Greece’s debt by about 40%, so that its peak borrowings are just under 100% of GDP. This will help maintain pressure on the Greek government to go ahead with a privatisation programme that could cut the ratio by another 20 points. It will also serve as an incentive to further reform.
- Second, recapitalise the Greek banks. A failure to do this would destroy the country’s financial system and cause depositor runs elsewhere.
- Third, recapitalise weak banks elsewhere as soon as the latest Europe-wide stress tests are published next month.
- Finally, provide banks with medium-term funding if they can’t raise money in the market.
Language Lessons- cloying: Adjective
- Overly sweet;
- Verb: Supply or feed to surfeit; Cause surfeit through excess though initially pleasing
- praxis: Noun
- Translating an idea into action
- eg: The EC might, during polls, do a good job of keeping parties and candidates on a leash to end the prevalence of practices like sops-for-votes or plain intimidation, but changing the wider political praxis calls for a re-envisaging of how politics is conceived of, and practiced.
- Cry havoc and let slip the dogs of war: Idiom
- The military order Havoc! was a signal given to the English military forces in the Middle Ages to direct the soldiery (in Shakespeare's parlance 'the dogs of war') to pillage and chaos.
- The term is the predessor of 'play havoc' (with). This is now more common than 'cry havoc' but has lost the force of the earlier phrase - just meaning 'cause disorder and confusion'.
Finance & Economy- Should savings bank interest rates be de-regulated?
- The savings bank (SB) deposits interest rate is the only regulated rate and has remained unchanged at 3.5 % since March 1, 2003 even as the RBI’s policy rates have varied. The RBI is reportedly toying with the idea of de-regulating SB interest rates. It is interesting to note in this connection that SB deposits account for about 13% of financial savings of the household sector and for 22% of total deposits of scheduled commercial banks.
- Deregulating the SB interest rate could enhance asset-liability mismatches, as banks treat a large part of these deposits as ‘core’ deposits and use them to make long-term loans. The share of term loans increased over 2000-09 even as the share of term deposits came down, suggesting maturity mismatches have increased.
- The other consequences of deregulation are more competition and volatility. More competition is good and volatility is part of the game.
- Some banking stats
- Currently, India has 89 scheduled commercial banks— 27 public sector banks, 31 private banks, and 31 foreign banks. Together they account for about 53,000 branches and 17,000 ATMs.
- PSU aided SWF in the works
- A government panel is considering forming an investment fund bankrolled by state-run companies to help India acquire large natural assets abroad.
- The committee of secretaries, which has members from various ministries, department of public enterprises and the Planning Commission, will discuss the composition and size of this fund later this month.
- Large state-run companies have huge free cash. Coal India, for instance, could have as much as $10 billion at the end of the 2010-11 financial year.
- The finance ministry is also not averse to the idea of setting a sovereign wealth fund given that India’s foreign exchange reserves now stand at about $300 billion. Last year, the government had abandoned its proposal for a $5b sovereign wealth fund, or SWF. Such funds invest globally and are usually funded by foreign exchange assets.
- China has aggressively backed its companies in their attempt to acquire natural assets abroad. It has a $300-billion sovereign wealth fund, China Investment Corp.
- At present, there are around 50 sovereign wealth funds managing assets worth nearly $3 trillion, the most notable ones being from Singapore, Kuwait and Norway.
Language Lessons- bromide: Noun
- A trite or obvious remark; Any of the salts of hydrobromic acid; formerly used as a sedative but now generally replaced by safer drugs
- eg: Despite rhetorical bromides about requiring “ministers to unlearn ingrained habits and focus on substance, not rhetoric,” and about “business associations engaging with the granular detail of what companies want”, this proposed Plan B would strengthen the bilateral and regional trade initiatives that have diverted energy and attention from Doha and the WTO.
- landau: Noun
- A four-wheel covered carriage with a roof divided into two parts (front and back) that can be let down separately
- straight as an arrow: idiom
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