FDI vs FII

The difference between FDI and FII.

Foreign direct investment (FDI) flows into the primary market whereas foreign institutional investment (FII) flows into the secondary market, that is, into the stock market.

All other differences flow from this primary difference. FDI is perceived to be more beneficial because it increases production, brings in more and better products and services besides increasing the employment opportunities and revenue for the Government by way of taxes. FII, on the other hand, is perceived to be inferior to FDI because it only widens and deepens the stock exchanges and provides a better price discovery process for the scrips.

Besides, FII is a fair-weather friend and can desert the nation which is what is happening in India right now, thereby puling down not only our share prices but also wrecking havoc with the Indian rupee because when FIIs sell in a big way and leave India they take back the dollars they had brought in.

Courtesy: The Hindu

Monetary policy: Get facts right (Courtesy: ET)

How does a central bank signal its monetary policy objectives ?

Going by convention, a central bank has two sets of tools — quantitative and qualitative — to signal easing or tight money conditions, depending on its policy objective. While quantitative tools would include, imposing cash reserve requirements (CRR) for banks, fixing the repo or reverse-repo rates, the bank rate and prescribing the level of Statutory liquidity ratio, or SLR, to signal the level of growth in the financial markets, pursuant with its growth objective for the economy. Popular qualitative measures would include imposing margins on certain loans and moral suasion. However, RBI often tweaks only the repo or reverse-repo rates and CRR.

What is Cash Reserve Ratio?

Banks are required to maintain a part or portion of the deposits they mobilise as cash with the central bank as CRR. Banks are required to park these funds on the average daily deposit mobilised on a fortnightly basis. This measure serves the policy objective instantly as liquidity is either infused or impounded almost immediately.

However, this is not a very popular tool with central banks globally, though used by RBI often. Back home, even though SLR (the portion of deposits raised by banks that needs to be parked in government bonds, effectively controlling the amount of lendable funds in the system) is a tool that is in vogue. However, it is not often that RBI revises the SLR.

What is repo rate?

It is essentially a short-term policy signal, the discount rate at which the central bank buys securities from commercial banks and infuses liquidity into the system. In other words, it is the rate at which the central bank lends to commercial banks to manage their daily liquidity. The intent is to signal the cost of funds in the system and indirectly influence the quantum of growth in funds while the bank rate is a signal for long-term rates and is a refinance rate for commercial banks, However, the bank rate has not been revised by RBI for over a decade now.

What is the reverse-repo rate?

Conversely, the reverse-repo is the rate at which the central bank sells securities to banks in order to suck out excess liquidity from the system. If RBI wants to discourage banks from piling up idle cash, it reduces such rates. This will then force banks to look at other options to deploy their funds and earn better returns. Under its current liquidity management strategy, the repo and reverse-repo rates serve as a corridor for the movement of the overnight call money rates for banks.

What are the other tools that a central bank has to signal its policy intent?

Under exceptional circumstances, like during the crisis in the global financial markets after the collapse of investment bank — Lehman Brothers — RBI not only took recourse to conventional tools, but also used other measures such as extending credit lines to sectors hit by the crisis and by easing certain provisioning norms for banks for lending to a few sectors.

It imposes margins on lending to sensitive sectors such as commodities and stocks to restrict disbursal of loans by banks. The central bank issues special bonds with a specific intent in mind. For example, bonds under the Market Stabilisation Scheme (MSS) were issued only to suck out excess liquidity generated due to the surge in capital inflows.

COMMONWEALTH GAMES AND CONCERN

After the 1982 Asian Games, our next big date with sports is October 2010, when we host the 19th Commonwealth Games (CWG) in Delhi. Hosting such prestigious event is certainly a great honour and a matter of pride for us. At the same time, it is a challenge for the government to get the requisite sports infrastructure and other amenities ready in time to stage the Games successfully.

But it seems "We are in a state of last minute panic. There is a legitimate concern on whether the infrastructure necessary for the Games will be completed on time. We got the project in 2003 and the international committee visited India in 2005. I don't understand why the stadium construction should have started as late as 2008. The conflict between the international committee and ours was also evident by Mike Fennel and Kalmadi goof-ups."

Federation president Mike Fennell said in December he was distressed by a report by the CGF evaluation commission that two major venues would not be ready until June, barely three months before the opening ceremony. The commission said that work on the Nehru stadium, where the opening and closing ceremonies and the athletics programme will be held, and the swimming complex, was way behind schedule.

Reminding that time was running out fast, Fennell said, "Two years before the Games, I had told the OC that time was not your friend and now one year before it, I say time is your enemy. But together, we can defeat it."

Steps against security concerns

Before the games, City will be secured by CCTV cameras at 58 important markets and 27 border checkpoints.

C4i is being set up at Police headquarter for use during CW games and beyond. C4i is a control room linked with cyber highway, an integrated communication network for use in convergent services and a central command operations. The C4i will be linked to all the staff on the ground and subsidiary bases on wireless sets, tetranet, mobile phones and landlines.

According to the plan, the police will install intelligent traffic system (ITS) on the routes that would be in use during the Commonwealth Games for effective monitoring of traffic. In the first phase, 87 roads covering about 210km of road length and 220 intersections will be covered. There are also plans to start e-challaning scheme.

The traffic police is also in the process of acquiring modern enforcement equipment like hand-held radar runs with night vision facility, lux meters and driving simulators.

An automated fingerprint and palm identification system, the first for the country, will be installed at 135 police stations in the city to provide ink-less scanning, paper data capturing, transmission and query of rolled finger and palm prints.

The process of issuing biometric identification cards for security reasons to all taxi drivers operating at IGI Airport have already kicked off. Delhi Police commissioner YS Dadwal said the scheme will be extended to all taxi and auto drivers in the city before the Games. The IDs will ensure security of passengers hailing cabs and autos in the city that is expecting a huge influx of foreign and domestic tourists during the Commonwealth Games in October.

And, newly set-up UIDAI (Unique ID Authority of India) may play a vital role in making the Capital ‘secure’ by issuing biometric ID cards to all the citizens of Delhi-NCR , well before the Games start. As per the time line of the UIDAI project, the first UID numbers will be issued over the next 12-18 months counted from August 2009. The first number would be issued between August 2010 to February 2011. Over five years, the Authority plans to issue 600 million UIDs. The numbers will be issued through various ‘registrar’ agencies across the country.

Other Aspects in CW games

As an allied beneficiary, tourism ministry is actively promoting its Atithi Devo Bhavah (Guest is God) campaign to sensitise the stakeholders towards tourists, through a process of training and orientation. It is busy creating awareness about the positive impact of tourism on local economy, building importance of basic hygiene and hospitality and emphasising the need for preservation of our rich heritage and culture.

Moreover, HDTV broadcast (high definition TV) is scheduled for launch by 2010 to bring lively coverage of the event to our living rooms. 3G (third generation) telecom services are also expected to be fully operational by then to provide a similar experience to its ‘users on the move’. Both these technologies will offer ‘near-live experience’, “at a distance”, indirectly bringing down some burden on the transport system.

For the sake of CWG and our sportspersons, it is high time that we get the focus of our sports policy right. We must get out of controversies like ‘stand on WADA (World Anti Doping Agency) guidelines’, selection of injured players, pay-offs for selection in teams etc and draw-up an event-wise plan to hit a century of medals at XIX Games.

The plan must be made public, coaches and selectors should be given targets and state-wise implementation programme must be monitored to achieve the targets.

It is also important that our focus on games infrastructure readiness and event organisation must not end up in “we also participated in the sports event”.

Our performance in the last few Games has been fairly ordinary and far below our stature. We only managed to get 4th rank from 71 participating nations, by winning 7% medals from around 250 events, in the last two editions. Prior to that, our record was poorer with merely 3.5% of the medals to our credit. As against that, Australia has been on top every time, winning 25-30 % of the medals. And, top three nations – Australia, England and Canada, together claimed around 60% medals on each occasion.

IPCC Himalayan Fiasco

IPCC's HIMALAYAN FIASCO (Courtesy: Swaminomics)

My concern is that the news of Himalyan Glaciers melting at alarming rate comes from western scientists ... it is high time India makes an investment in understanding what is happening in the Himalayan ecosystem.”

The Indian panel, headed by V K Raina, looked at 150 years of data gathered by the Geological Survey of India from 25 Himalayan glaciers. It was the first comprehensive study of the region. It concluded that while Himalayan glaciers had long been retreating (1970s), there was no recent acceleration of the trend, and nothing to suggest that the glaciers would disappear. In short, the IPCC had perpetrated an alarmist hoax without scientific foundation.

Various green NGOs — including one I respect, the Centre for Science and Environment — backed the IPCC against the Raina Panel. They blindly echoed western scientists with less intimate knowledge of the Himalayas than our own scientists.

Stalin would have called this a case of Indian compradors acting as the lackeys of western imperialists, and on this occasion I would find it hard to disagree with him.

The present rise in food prices (Courtesy: TK Arun, ET Bureau)

The conventional wisdom is that high food prices make the poor worse off. India’s growing prosperity and welfare schemes such as the employment guarantee scheme turn conventional wisdom on its head. When people who could never afford to eat their fill suddenly get purchasing power in their hand, the first thing they buy is more food, and better kinds of food. Because the poor are better off, food prices are going up.

In the eighties, the Soviet Union had a food crisis, when their grain output was double India’s, for a population that was one-third or so India’s. Why did India, with a per capita grain output that was about one-sixth the Soviet Union’s, not have a crisis, while the Soviet Union was pushing up world grain prices with panic buying? Because most Indians ate mostly grain, while most Soviet citizens ate mostly meat — in other words, they fed their grain to animals and ate the animals. This is how the bulk of the developed world lives.

Consumption patterns are changing in India, too, with people eating less of cereals and more of pulses, vegetables, milk, meat and eggs. Even the NSSO surveys that sadly underestimate total consumption and yield the horror tales of poverty that warm the cockles of reform critics’ hearts show that consumption across the board is undergoing a shift to higher value foods and processed foods. That shift raises the total food demand, even as people consume fewer calories, thanks to ever-diminishing dependence on manual labour.

GOLD: China Overtakes India (Courtesy:Nidhi Nath Srinivas, ET Bureau)

In 2009, China bought more gold than India, making it the world’s top consumer. China pipped South Africa in 2007 as the world’s largest gold producer.

Since 2003, Beijing has been buying most of the gold excavated and refined locally. It was a perfect strategy. No one in the international market became the wiser and the bill was paid in yuans. Today, China has more than 1,000 tonnes in its official vaults, up 75% in six years. Its gold reserves are now the fifth-largest among national central banks after the US, Germany, France and Italy. This insurance helped mandarins in Beijing sleep easier at night.

Of course, each Chinese family is still buying only a few grams, given high prices and limited incomes. But added up, consumption would cross 430 tonnes this year, 10 tonnes more than India, says consultancy GFMS. Over the next decade, more Chinese will buy gold, at a time when inflation is almost certain to be high, adding to its appeal. In short, China can permanently alter gold’s global demand-supply equation.

A climate summit that matters little (Courtesy: Swaminathan S Anklesaria Aiyar, ET Bureau)

Through history, treaties have been junked if they become politically inconvenient.

In 1947, India signed treaties guaranteeing 500-odd princes privy purses and tax exemption in perpetuity, in return for their accession to India. Yet, when Indira Gandhi felt it politically convenient, she abolished the privy purses and tax privileges. International law allows sovereign governments to scrap any prior treaty.

In the Kyoto treaty on climate change, 37 rich countries pledged to reduce their carbon emissions to 5% below their
1990 level. But most actually increased their emissions. These very treaty-breakers now propose another treaty!

The US signed an anti-ballistic missile treaty with the USSR during the Cold War. But subsequently the US scrapped the treaty, with impunity. The Maastricht Treaty, setting up the European Union, mandated a fiscal deficit ceiling of 3% of GDP for member states. But several members, including Germany and France, have been running deficits far higher than this, with impunity. When political and economic conditions change, treaties hardly matter.

Now, research may yield technological breakthroughs - or steady, major improvements - that curb carbon emissions at modest cost, or even with a saving of costs. Aerosol cans once used CFCs. When these were phased out by the Montreal protocol, companies found it was actually cheaper to use natural gas in place of CFCs.

IPCC scientists may be the best in the world, yet they cannot predict the weather more than five days ahead. Can they predict the next drought in India? No. The next El Nino? No. The number of hurricanes in the Caribbean next year? No. So, can they accurately predict the weather 100 years hence? Surely not. When we know very little about a problem, we tend to worry endlessly about worst-case scenarios. That does not make the worst case certain, or even probable.

Despite climate uncertainties, it makes sense to mitigate emissions as insurance against a disaster that may never happen. Treaties are often signed to provide mutual insurance against political and economic risks. But if the insurance premium becomes costly enough to threaten economic distress, governments will abandon the treaties (a la Maastricht). No government will create a recession today to avoid a future disaster that may not happen anyway.

The lesson for Indian strategy at Copenhagen is clear. India should talk tough and not worry about being called a deal-breaker. When a deal's value is so uncertain, it matters little whether it's broken or not. India should keep its commitments light, and be ready to jump ship if others do. Never assume that others will actually implement climate pledges.

Education: creativity is missing, (Courtesy : The Hindu)

Given the Darwinian principle of survival of the fittest in this competitive world of marks and examination, social status and financial stability, the process of meaning making, action and reflection, the development of critical consciousness, or the right to choose a vocation rather than a profession gets totally lost. Thus as Krishna Kumar, Director NCERT, says: "There is a ‘sense of hollowness’, which a lot of young people today find in our institutional life. They find that nobody cares for them, the learning game is essentially a marks-examination game and the success game is essentially a game which is being played to eliminate a lot of people from the race. Thus, students do not associate purposiveness and integrity to education." There is need for a paradigmatic shift from the ‘banking or depository’ form of education where students are ‘passive containers or recipients’ to more participatory or dialogical ways.

It is important that we recognise the learner as a ‘resource’ and not just a ‘recipient’ of information so that we do not annul the process of creativity and critical consciousness that play an important role in giving meaning to human relationships and, consequently, to education itself.

The farce of commissions of enquiry (Courtesy: The Hindu)

The Nanavati Commission on the 1984 anti-Sikh riots, the Srikrishna Commission of enquiries into the anti-Muslim Bombay riots of 1992-93, the M.S. Liberhan Commission, which probed the demolition of Babri masjid in Ayodhya, and many others set up during the last three decades, have been a monumental exercise in obfuscation to pull the wool over the eyes of the gullible people. Setting up of commissions of enquiry is the legacy bequeathed by our colonial masters. We have adopted and perfected it as an art.

Spiraling Food Prices and The Economic Recovery of India (Courtesy: Career Launcher)

India is in a midst of an economic recovery and there are expectations that the economy will grow by more than 7 percent in the year 2009-10. But the bad news is that spiraling food prices have far outstripped the (expected) growth rate of India.

The wholesale food prices in India touched a 10-year high with food inflation coming at 19.95% for the week ended December 5, 2009.
The key reason cited for the spiraling food prices is the bad Monsoon in India. But, bad Monsoon is just one of the many reasons responsible for prices that go through the roof for most of the Indians. Some of the lesser-known reasons for the spiraling food prices are as follows:

•We are one of the worst managers of food crops: In 2008, it was estimated that India loses INR 58,000 crore worth of agricultural food items due to lack of post harvesting infrastructure such as cold chains, transportation, and storage facilities.

•Sixty percent of the total cropped area of India is not irrigated: The Indian farmers are largely dependent on the four-month monsoon season during which 80% of the year’s total rainfall takes place. These facts don’t point to any meaningful efforts to help farmers in a country where over 10,000 farmers have committed suicide over the last decade.

•The per hectare agricultural yield in India is half that of China. This again points of inefficiency and the failure to help the farmers adopt latest technology in order to increase the crop output.


However, some ways to ease food prices would be:

•Crackdown on hoarders and black marketers could help prevent prices from rising further. This step might not significantly reduce prices but will ensure that prices don’t escalate further.
•The Government should allow the private sector to import and store the primary agricultural commodities at zero import duty. This will help east the prices to a large extent.

The politics of language in India (--NDTV)

The Maharashtra Assembly witnessed ugly scenes when newly-elected MLAs of the Raj Thackeray-led Maharashtra Navnirman Sena (MNS) attacked Samajwadi Party's Abu Azmi for taking the oath of office and secrecy in Hindi.

MNS chief Raj Thackeray had warned the newly elected legislators, asking them to take oath only in Marathi. The ruckus took place after Azmi refused to bow to Raj's demand, categorically stating that it was a privilege to take oath in the national language.

The strong sentiment over regional languages is not new in India. States have been reorganised on linguistic basis and Andhra Pradesh and Tamil Nadu have seen vociferous protests in the past over imposition of Hindi as the national language. Should Hindi be made compulsory? Is language being used as a tool for political gains?

The Naxal Menace (Courtesy-- NDTV)

Prime Minister Manmohan Singh has described Naxalism as the biggest internal threat. The note of caution comes even as the four-decade old movement gains momentum and establishes a red-corridor cutting across several states.

The Naxalites claim to represent the most oppressed class, those who are often left untouched by India's development and bypassed by the electoral process. Naxalites thus are getting more involved in local struggles, often feeding on the perceived lack of development.

Is lack of development in these areas responsible for the spread of the Naxal movement? Have the Naxals succeeded in exploiting the marginalised tribals and landless peasants?

India and Israel (courtesy- expressbuzz)

The relationship between India and Israel has grown to be of much importance, particularly in arms sales. India has become Israel’s largest customer, acquiring about $1.5 billion in weapons every year. Only Russia sells more arms to India. Bruce Riedel, a former South Asia analyst at the CIA, said the Indian space agency launched a highly sophisticated Israeli spy satellite a year ago, the first of what is expected to be three such launches.

Israel’s ambassador to India, Mark Sofer, declined to discuss the security relationship between the countries, saying Israel never talks about it publicly.

But Sofer acknowledged that they had grown closer in non-military areas in recent years, noting that Israeli-Indian trade has increased from $80 million in 1991, the year the nations established diplomatic ties, to more than $3.5 billion last year.

Israeli companies also have invested heavily in India, particularly in the real estate and agriculture sectors, and India, especially Goa, has become a prime tourist destination for Israelis.

According to data compiled by the tourism ministry, the number of Israelis visiting India has more than quadrupled over the last decade, to more than 40,000 annually.

How do oil bonds work? (courtesy-- wiki answers)

The govt. of India (GOI) issues special oil bonds to govt. owned oil marketing companies to compensate for the losses they incur due to the administered pricing regime. What exactly are these oil bonds and how exactly do they compensate the oil marketing companies?
I will work out the answer to this question by using the financial statements of Indian Oil Corp. (IOC) for 2007-08.

IOC makes a loss selling petroleum products due to govt. restrictions on pricing (i.e. due to the administered pricing regime). The govt. of India compensates this loss by issuing special oil bonds.

IOC shows these bonds as income on its P&L (the IOC P&L for 2007 - 2008 shows an income of Rs.13,943 CR this way), thus converting the loss into a profit.

IOC also shows these bonds as investment on its balance sheet (Schedule G of IOC balance sheet for 2007 - 2008 shows investment worth Rs. 14,308 in these GOI special bonds). This means that without paying a penny for these bonds, IOC has invested in these GOI bonds! If you think about it, the real investment is the losses IOC incurred to oblige the GOI.

Now, if IOC just sits on these bonds, it will get a cash flow (around 7% - 8%) from GOI by way of interest payment on these bonds. Also upon maturity, the GOI will have to redeem these bonds from IOC (maturity periods are anywhere from 2009 to 2026 as per Schedule G). i.e. upon maturity the GOI has to cough up cash compensation for the losses IOC has incurred in 2007 - 2008!

Instead, what IOC does is, it sells these bonds in the secondary bond market to mutual funds, insurance companies and other such financial institutions (http://www.thehindubusinessline.com/2008/05/02/stories/2008050250780600.htm). Thus, the bonds are converted into hard cash (Schedule G says IOC made Rs. 6,503 Cr this way in 2007- 2008). This is how IOC gets hard cash to compensate for its losses immediately. (Of course, upon maturity the GOI has to still pay cash to whoever holds these bonds at that time).

The interesting part is this: GOI has issues bonds without actually borrowing from anybody. Does this run counter to the very definition of a bond? Not really.

The GOI has issued bonds to IOC without directly borrowing any money from IOC. The borrowing is indirect - IOC made a loss to oblige the GOI and that is akin to the GOI borrowing from IOC and hence the GOI issues these bonds to IOC. This is the crux of the matter.

Bottom line is, the oil bond is a GOI bond and hence is a govt. debt which has to be repaid some day. Interestingly, this debt stays off-budget and does not reflect in the revenue or fiscal deficit of the GOI (http://www.business-standard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=323750)!

ECONOMICS PART-3

CURRENT CHALLENGES FACING THE INDIAN ECONOMY

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. ---Adam Smith

-------India is poor(effect) because it is poor(cause)-------


What is Poverty?
Two scholars, Shaheen Rafi Khan and Damian Killen, put the conditions of the poor in a nutshell: Poverty is hunger. Poverty is being sick and not being able to see a doctor. Poverty is not being able to go to school and not knowing how to read. Poverty is not having a job. Poverty is fear for the future, having food once in a day. Poverty is losing a child to illness, brought about by unclear water. Poverty is powerlessness, lack of representation and freedom.

Parameters: Food, education, health, water supply, sanitation, Unemployment or under employment, nature of employment, ownership of land etc

The rural poor work mainly as landless agricultural labourers, cultivators with very small landholdings, landless labourers who are engaged in a variety of non-agricultural jobs and tenant cultivators with small land holdings. The urban poor are largely the overflow of the rural poor who had migrated to urban areas in search of alternative employment.

HOW ARE POOR PEOPLE IDENTIFIED?

In pre-independent India, Dadabhai Naoroji was the first to discuss the concept of a Poverty Line. He used the menu for a prisoner and used appropriate prevailing prices to arrive at what may be called ‘jail cost of living’. This is how he arrived at the factor of three-fourths; (1/6)(Nil) + (1/6)(Half) + (2/3)(Full) = (3/4) (Full). The weighted average of consumption of the three segments gives the average poverty line, which comes out to be three-fourth of the adult jail cost of living.

Post independence in 1962, the Planning Commission formed a Study Group. In 1979, another body called the ‘Task Force on Projections of Minimum Needs and Effective Consumption Demand’ was formed. In 1989, an ‘Expert Group’ was constituted for the same purpose.

Categorising Poverty: There are many ways to categorise poverty. In one such way people who are always poor and those who are usually poor but who may sometimes have a little more money (example: casual workers) are grouped together as the chronic poor. Another group are the churning poor who regularly move in and out of poverty (example: small farmers and seasonal workers) and the occasionally poor who are rich most of the time but may sometimes have a patch of bad luck. They are called the transient poor. And then there are those who are never poor and they are the non-poor.

Determining the poverty line: One way is to determine it by the monetary value (per capita expenditure) of the minimum calorie intake that was estimated at 2,400 calories for a rural person and 2,100 for a person in the urban area.
Amartya Sen, noted Nobel Laureate, has developed an index known as Sen Index. There are other tools such as Poverty Gap Index and Squared Poverty Gap.

When the number of poor is estimated as the proportion of people below the poverty line, it is known as ‘Head Count Ratio’.

The state level trends reveals that five states — Uttar Pradesh, Bihar, Madhya Pradesh, West Bengal and Orissa — account for about 70 per cent of India’s poor. You will also notice that during 1973-74, about half the population in most of these
large states was living below the poverty line. In 1999-2000, only two states — Bihar and Orissa — were left near that same level. Though they also reduced their share of poor, compared to other states, their success is marginal. If we look at Gujarat, it reduced its people below the poverty line from 48 per cent to 15 per cent
during 1973-2000. During this period, West Bengal has been just as successful; from nearly two-third, i.e. 63 per cent of the population below the poverty line the same was reduced to about 27 per cent.

Examples of selfemployment programmes are Rural Employment Generation Programme
(REGP), Prime Minister’s Rozgar Yojana (PMRY) and Swarna Jayanti Shahari Rozgar Yojana (SJSRY). The first programme aims at creating selfemployment opportunities in rural areas and small towns. The Khadi and Village Industries Commission is implementing it. Later, through banks, the government provides partial financial assistance to SHGs which then decide whom the loan is to be given to for selfemployment activities. Swarnajayanti Gram Swarozgar Yojana (SGSY) is one
such programme.
Three major programmes that aim at improving the food and nutritional status of the poor are Public Distribution System, Integrated Child Development Scheme and Midday Meal Scheme.
Pradhan
In August 2005, the Parliament has passed a new Act to provide guaranteed wage employment to every household whose adult volunteer is to do unskilled manual
work for a minimum of 100 days in a year. This Act is known as National Rural Employment Guarantee Act–2005.National Food for Work Programme (NFWP) and Sampoorna Grameen Rozgar Yojana (SGRY), Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Gramodaya Yojana, Valmiki Ambedkar Awas Yojana are also attempts in the same direction.

India to overtake China in 2020: Swaminathan Aiyar FEATURED

In the past decades, India has been world number one in starvation deaths, foreign aid and bribery. In the 2000s, it was transformed from a chronic under-performer to a potential superpower. Here are eight predictions of what it will look like in 2020:

1. India will overtake China as the fastest-growing economy in the world. China will start ageing and suffering from a declining workforce, and will be forced to revalue its currency. So its growth will decelerate, just as Japan decelerated in the 1990s after looking unstoppable in the 1980s. Having become the world’s second-biggest economy, China’s export-oriented model will erode sharply — the world will no longer be able to absorb its exports at the earlier pace. Meanwhile, India will gain demographically with a growing workforce that is more literate than ever before. The poorer Indian states will start catching up with the richer ones. This will take India’s GDP growth to 10% by 2020, while China’s growth will dip to 7-8%.
2. India will become the largest English-speaking nation in the world, overtaking the US. So, the global publishing industry will shift in a big way to India. Rupert Murdoch’s heirs will sell his collapsing media empire to Indian buyers. The New York Times will become a subsidiary of an Indian publishing giant.
3. In the 2000s, India finally gained entry into the nuclear club, and sanctions against it were lifted. By 2020, Indian companies will be major exporters of nuclear equipment, a vital link in the global supply chain. So, India will be in a position to impose nuclear sanctions on others.
4. India, along with the US and Canada, will develop new technology to extract natural gas from gas hydrates — a solidified form of gas lying on ocean floors. India has the largest gas hydrate deposits in the world, and so will become the biggest global producer. This will enable India to substitute gas for coal in power generation, hugely reducing carbon emissions and making Jairam Ramesh look saintly.
5. India will also discover enormous deposits of shale gas in its vast shale formations running through the Gangetic plain, Assam, Rajasthan and Gujarat. New technology has made the extraction of shale gas economic, so India will become a major gas producer and exporter. Meanwhile, Iran’s mullahs will be overthrown, and a new democratic regime will usher in rapid economic growth that creates a shortage of gas in Iran by 2020. So, the Iran-India pipeline will be recast, but in reverse form: India will now export gas to Iran.
6. More and more regions of India will demand separate statehood. By 2020, India will have 50 states instead of the current 28. The new states will not exactly be small. With 50 states and a population of almost 1.5 billion, India will average 30 million people per state, far higher than the current US average of 6 million per state.
7. China, alarmed at India’s rise, will raise tensions along the Himalayan border. China will threaten to divert the waters of the Brahmaputra from Tibet to water-scarce northern China. India will threaten to bomb any such project. The issue will go to the Security Council.
8. Islamic fundamentalists will take over in Afghanistan and Pakistan. The US will withdraw from the region, leaving India to bear the brunt of consequences. Terrorism will rise in India, but the economy will still keep growing. How so? Well, 3000 people die every year falling off Mumbai’s suburban trains, and that does not stop Mumbai’s growth. Terrorism will bruise India, but not halt its growth.

courtesy :

Swaminathan S Anklesaria Aiyar, ET Bureau

Fast growth trickles up from the states

Few will be surprised that Gujarat is on top and Madhya Pradesh at the bottom. But many will be astonished that Bihar has skyrocketed to share the lead with Gujarat, with Kerala close behind in third position. Indeed, Bihar’s growth average of 11.03% is almost China-like. The state has done so badly for so long that it may just be enjoying catch-up gains whose sustainability remains to be established. Nevertheless, for Bihar to top the growth league is revolutionary.

The biggest negative surprise is that Punjab, once the growth leader, has dropped to near the bottom. Assam was always in the lower half of the growth table, but has slipped further to second-last position.
In the past, the richest states often grew fastest and the poor ones slowest. Not any more. The accompanying table shows that poor states are no longer clustered at the bottom of the growth league, they occupy several positions high up. Four of the poorest states — Bihar (11.03%), Orissa (8.74%), Jharkhand (8.45%) and Chhattisgarh (7.35%) — now qualify as miracle economies, going by the international norm of 7% growth. And, wonder of wonders, Uttar Pradesh at 6.29% is now quite close to the miracle growth norm.

The sudden high growth in Bihar, Kerala, Orissa, Jharkhand and Chhattisgarh cannot be attributed to New Delhi. It arose from changes at the state level. Central policies certainly improved growth potential after 1980, and more substantially after 1991. But only in the last few years did slow-growing states develop local leadership and policies that converted potential into growth.

Their widespread participation is confirmed by the rapid rise in rural sales of motorcycles and branded consumer goods. Even stronger confirmation comes from the spread of the cellphone revolution. The rate of new cellphone connections has risen steadily to touch 12-15 million per month in 2009. Hundreds of millions earlier excluded from telecom are now getting included.

As of September 2009, urban tele-density in Rajasthan (104.4%) and Orissa (101.59%) exceeded the national level of 101.38%. Bihar and Jharkhand (99.41%) were almost on par, with Uttar Pradesh and Uttarakhand (88.13%) not far behind. Rural tele-density in these states is still low. But thousands of tele-towers are coming up, so rural tele-density is rising fast from a low base.

--- Courtesy : Swaminathan S Anklesaria Aiyar, ET Bureau

India and US: then and now

Former president Bush used his limited political capital to push through the historic nuclear deal with India. Although India is far behind China in economic and military terms today, Bush pushed for a special relationship with India as a long-term democratic partner that could counter China in Asia.

Since Obama took over, the mood in Washington has changed palpably. During his recent visit to China, Obama praised Beijing and downplayed old criticisms of China’s human rights violations and currency manipulation. This fuelled US media speculation about a new G-2 consisting of just the US and China, and reversed the Bush attempt to promote India at China’s expense.

Notwithstanding the nuclear deal, Obama has severely restricted US export licensing for dual-use technology to India.

He does not wish to sell India equipment for nuclear enrichment or reprocessing. An agreement on spent fuel was expected to be signed when Manmohan Singh visited Washington, but could not be finalised.

--Courtesy :Swaminathan S Anklesaria Aiyar, ET Bureau

IPCC imperialism on Indian glaciers

International Panel on Climate Change, saying Himalayan glaciers might disappear by 2035, was not science at all but idle, unsubstantiated speculation.

The Indian panel, headed by V K Raina, looked at 150 years of data gathered by the Geological Survey of India from 25 Himalayan glaciers. It was the first comprehensive study of the region. It concluded that while Himalayan glaciers had long been retreating, there was no recent acceleration of the trend, and nothing to suggest that the glaciers would disappear. In short, the IPCC had perpetrated an alarmist hoax without scientific foundation.
Scotching IPCC claims that the Gangotri glacier was retreating at an alarming rate, the Raina Panel said this glacier, the main source of the Ganges, actually receded fastest in 1977, and “is today practically at a standstill”.

--courtesy : Swaminathan S Anklesaria Aiyar, ET Bureau

Bihar 2nd fastest growing state, GDP grew by 11.03%

NEW DELHI / PATNA — Bihar is India’s new miracle economy. In the five-year period between 2004-05 and 2008-09, Bihar’s GDP has grown by a stunning 11.03%, way beyond the definition of 7% growth for a “miracle economy”.
In this period, Bihar – traditionally a laggard state that actually saw a 5.15% negative growth in 2003-04 – is the second fastest growing state, just a shade behind Gujarat’s well-publicized growth of 11.05%.

Among the 18 states and UTs of which data is available, Bihar recorded the highest State SGDP of 11.44% in 2008-09.

Cyber attack on India

• Stealing valuable intellectual property
• Stock exchange
• Banking transactions
• Telecom infrastructure
• Few engineering colleges in India offer courses on cyber security
• It's considered normal for most Indian government websites to get hacked regularly.

Indian Hockey Story, Jan 2010 (Courtesy: Shanu Prasad)

Today, the Royal Bengal Tigers are on the verse of extinction. What we did. We started the "Project Tiger" in order to safeguard our national symbol. Why didn't we thought of changing the national animal from tiger to dog or say any xyz animal. The A.R. Rahman's "Jai Ho" won the Oscars and was highly acclaimed globally. And I think it is much more popular than our national anthem. Can we think of changing our national anthem to Jai ho. Can we ? What should we do then?

ECONOMICS PART-2

Chapter 3: India 1991- LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL

There is a consensus in the world today that economic development is not all and the GDP is not necessarily a measure of progress of a society. ---K.R. Narayanan

• In 1991, India met with an economic crisis relating to its external debt — the government was not able to make repayments on its borrowings from abroad; foreign exchange reserves, which we generally maintain to import petrol and other important items, dropped to levels that were not sufficient for even a fortnight.
• The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. Neither was an attempt made to reduce such profligate spending nor sufficient attention was given to boost exports to pay for the growing imports.
• India approached the International Bank for Reconstruction and Development (IBRD), popularly known as World Bank and the International Monetary Fund (IMF), and received $7 billion as loan to manage the crisis. For availing the loan, these international agencies expected India to liberalise and open up the economy by removing
• restrictions on the private sector, reduce the role of the government in many areas and remove trade restrictions. India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP).
• This set of policies can broadly be classified into two groups: the stabilisation measures and the structural reform measures. Stabilisation measures are short term measures, intended to correct some of the weaknesses that have developed in the balance of
payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices
under control. On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy. The government initiated a variety of policies which fall under three headsviz., liberalisation, privatisation and globalisation.

LIBERALIZATION and PRIVATIZATION:
• Deregulation of Industrial Sector: Industrial licensing was abolished for almost all but product categories — alcohol, cigarettes, hazardous chemicals industrial explosives, electronics, aerospace and drugs and pharmaceuticals. The only industries which are now reserved for the public sector are defence equipments, atomic energy generation and railway transport.
• Financial Sector Reforms: Financial sector includes financial institutions such as commercial banks, investment banks, stock exchange operations and foreign
exchange market. The financial sector in India is controlled by the Reserve Bank of India (RBI). One of the major aims of financial sector reforms is to reduce the role of RBI from regulator to facilitator of financial sector. Foreign investment limit in banks was raised to around 50 per cent. Those banks which fulfil certain conditions have been given freedom
to set up new branches without the approval of the RBI and rationalise their existing branch networks. Though banks have been given permission to generate resources from India and abroad, certain aspects have been retained with the RBI to safeguard the interests of the account-holders and the nation. Foreign Institutional Investors (FII) such as merchant bankers, mutual funds and pension funds are now allowed to invest in Indian financial markets.

• Tax Reforms: Tax reforms are concerned with the reforms in government’s taxation and public expenditure policies which are collectively known as its fiscal policy. There are two types of taxes: direct and indirect. Direct taxes consist of taxes on incomes of individuals as well as profits of business enterprises. Since 1991, the rate of direct taxes has been gradually reduced. Efforts have also been made to reform the indirect taxes, taxes levied on commodities.
• Foreign Exchange Reforms: the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange. (* please study devaluation of currency)
• Trade and Investment Policy Reforms: Before 1991, India was following a regime of quantitative restrictions on imports. This was encouraged through tight control over imports and by keeping the tariffs very high. After 1991, Import licensing was abolished. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed from April 2001. Export duties have been removed to increase the competitive position of Indian goods in the international markets.
• Privatisation of the public sector undertakings by selling off part of the equity of PSUs to the public is known as disinvestment.
• The first set of navaratna companies included Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), Oil and Natural Gas Corporation Ltd (ONGC), Steel Authority of India Ltd (SAIL), Indian Petrochemicals Corporation Ltd (IPCL), Bharat Heavy Electricals Ltd (BHEL), National Thermal Power Corporation (NTPC) and Videsh Sanchar Nigam Ltd (VSNL). Later, two more PSUs—Gas Authority of India Limited (GAIL) and Mahanagar Telephone Nigam Ltd (MTNL)—were also given the same status.

GLOBALIZATION:
• It involves creation of networks and activities transcending economic, social and geographical boundaries.

Global Footprint!
Owing to globalisation, you might find many Indian companies expanding their
wings to many other countries. In 2000, Tata Tea surprised the world by
acquiring the UK based Tetley, the inventor of the tea bag, for Rs 1,870 crore.
In the year 2004, Tata steel bought the Singapore-based Nat steel for Rs 1,245
crore and Tata Motors completed the buyout of Daewoo’s heavy commercial
vehicle unit in South Korea for Rs 448 crore. Now VSNL is acquiring Tyco’s
undersea cable network for Rs 572 crore, which will control over 60,000 km
undersea cable network across three continents. The Tatas also plan to invest
Rs 8,800 crore in fertiliser, steel and power plants in Bangladesh.
Source: Business Today, 22 May 2005.

World Trade Organisation (WTO):

The WTO was founded in 1995 as the successor organisation to the General Agreement on Trade and Tariff (GATT). GATT was established in 1948 with 23 countries as the global trade organisation to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market for trading purposes.
The WTO agreements cover trade in goods as well as services to facilitate international trade (bilateral and multilateral) through removal of tariff as well as non-tariff barriers and providing greater market access to all member countries.

The foreign investment, which includes foreign direct investment and foreign institutional investment, has increased from about US $ 100 million in 1990-91 to US $ 150 billion in 2003-04. There has been an increase in the foreign exchange
reserves from about US $ 6 billion in 1990-91 to US $ 125 billion in 2004-05. At present, India is the sixth largest foreign exchange reserve holder in the world.

Globalization: dark side of it

1. The removal of fertiliser subsidy has led to increase in the cost of production
2. Indian farmers now have to face increased international competition.
3. Because of exportoriented policy strategies in agriculture, there has been a shift from production for the domestic market towards production for the export market.
4. Cheaper imports have, thus, replaced the demand for domestic goods.
5. Although all quota restrictions on exports of textiles and clothing have been
removed from our side, U.S.A. has not removed their quota restriction on import of textiles from India and China!

.... example:- Siricilla Tragedy!
As a part of liberalisation, privatisation and globalisation, the government
started to reform the power sector. The most important impact of these reforms
has been a steep hike in power tariff. Since the powerlooms, on which a large
number of industrial workers in cottage and small-scale sector depend, are
driven by power energy, the impact of high tariff on them has been very serious.
Further, while the power sector reforms have led to hike in tariffs, the power
producers have failed in providing quality power to the powerloom industry.
Since the wages of the powerloom workers are linked to the production of
cloth, power-cut means cut in wages of weavers who were already suffering
from hike in tariff. This led to a crisis in the livelihood of the weavers and fifty
powerloom workers committed suicide in a small town called ‘Siricilla’ in Andhra
Pradesh.

ECONOMICS PART-1

CHAPTER 1 : India 1947

1. Obviously, the colonial government never made any sincere attempt to estimate India’s national and per capita income. Some individual attempts which were made to measure such incomes yielded conflicting and inconsistent results. Among the notable estimators — Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai.

2. The French traveller, Bernier, described seventeenth century Bengal in the following way: “The knowledge I have acquired of Bengal in two visits inclines me to believe that it is richer than Egypt.

The Bengal famine of 1943 is one amongst the several famines that occurred in British administered Bengal. It is estimated that around 3 million people[1] died from starvation and malnutrition during the period.

3. The Tata Iron and Steel Company (TISCO) was incorporated in 1907. However, there was hardly any capital goods industry to help promote further industrialisation in India. Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.

4. More than half of India’s foreign trade was restricted to Britain while the rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and Persia (Iran).

5. 1921, The various social development indicators were also not quite encouraging. The overall literacy level was less than 16 per cent.

.........................................................................................................................................................................
Chapter 2 : Indian Economy 1950-1990


The central objective of Planning in India is to initiate a process of Development which will raise the living standards and open out to the people New opportunities for a richer and more varied life. (First Five Year Plan)

• Types of Economic Systems
  Every society has to answer three questions
  1. What goods and services should be produced in the country?
  2. How should the goods and services be produced? Should producers use
  more human labour or more capital (machines) for producing things?
  3. How should the goods and services be distributed among people?
  One answer to these questions is to depend on the market forces of supply and demand. In a market economy, also called capitalism, only those consumer goods will be produced that are in demand, i.e., goods that can be sold profitably either in the domestic or in the foreign markets.
  In a capitalist society the goods produced are distributed among people not on the basis of what people need but on the basis of what people can afford and are willing to purchase. This means that a sick person will be able to use the required medicine only if he/she can afford to buy it; if they cannot afford the medicine they will not be able to use it even if they need it urgently. Such a society did not appeal to Jawaharlal Nehru, our first prime minister, for it meant that the great majority of people of the country would be left behind without the chance to improve their quality of life. A socialist society answers the three questions in a totally different manner. In a socialist society the government decides what goods are to be produced in accordance with the needs of society. It is assumed that the
  government knows what is good for the people of the country and so the desires of individual consumers are not given much importance. The government decides how goods are to be produced and how they should be distributed.
  Most economies are mixed economies, i.e., the government and the market together answer the three questions of what to produce, how to produce and how to distribute what is produced. In a mixed economy, the market will provide whatever goods and services it can produce well, and the government will provide essential goods and services which the market fails to do.


• Ownership and Incentives
  
  It was not uncommon to see farmers packing rotten fruits along with fresh fruits in the same box. Now, every farmer knows that the rotten fruits will spoil the fresh fruits if they are packed together. This will be a loss to the farmer since the fruits cannot be sold. So why did the Soviet farmers do something which would so obviously result in loss for them? The answer lies in the incentives facing the farmers. Since farmers in the former Soviet Union did not own any land, they neither enjoyed the profits nor suffered the losses.( Source: Thomas Sowell, Basic Economics: A Citizen’s Guide to the Economy, New York: Basic Books, 2004, Second Edition.)
  


• In India plans are of five years duration and are called five year plans (we borrowed this from the former Soviet Union, the pioneer in national planning). Our plan documents not
  only specify the objectives to be attained in the five years of a plan but also what is to be achieved over a period of twenty years. This long-term plan is called ‘perspective plan’. The five year plans are supposed to provide the basis for the perspective plan. The ‘Industrial Policy Resolution’ of 1948 and the Directive Principles of the Indian Constitution reflected this outlook. In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson. The era of five year plans had begun.
  


• The GDP of a country is derived from the different sector’s of the economy, namely the agricultural sector, the industrial sector and the service sector. The contribution made by each of these sectors makes up the structural composition of the economy.
  
  Goals of five years plans:
  1. Growth
  2. Modernization
  3. Self Reliance
  4. Equity
  


• Equity in agriculture called for land reforms which primarily refer to change in the ownership of landholdings.
  Land ceiling was another policy to promote equity in the agricultural sector. This means fixing the maximum size of land which could be owned by an individual.
  Land reforms were successful in Kerala and West Bengal because these states had governments committed to the policy of land to the tiller. Unfortunately other states did not have the same level of commitment and vast inequality in landholding continues to this day.
  


• The first phase of the green revolution (approximately mid 1960s upto mid 1970s), the use of HYV seeds was restricted to the more affluent states such as Punjab, Andhra Pradesh and Tamil Nadu. Further, the use of HYV seeds primarily benefited the wheat growing regions only. In the second phase of the green revolution (mid-1970s to mid-1980s), the HYV technology spread to a larger number of states and benefited more variety of crops.
  
  The portion of agricultural produce which is sold in the market by the farmers is called marketed surplus.
  


• In India, between 1950 and 1990, the proportion of GDP contributed by agriculture declined significantly but not the population depending on it (67.5 per cent in 1950 to 64.9 per cent by 1990). Why was such a large proportion of the population engaged in agriculture although agricultural output could have grown with much less people working in the sector? The answer is that the industrial sector and the service sector did not absorb the people working in the agricultural sector. Many economists call this an important failure of our policies followed during 1950-1990.
  


• Industrial Policy Resolution 1956 (IPR 1956): This resolution classified industries into three categories. The first category comprised industries which would be exclusively owned by the state; the second category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new units; the third category consisted of the remaining industries which were to be in the private sector. No new industry was allowed unless
  a license was obtained from the government.
  


• The production of a number of products was reserved for the small-scale industry; the criterion of reservation being the ability of these units to manufacture the goods. They were also given concessions such as lower excise duty and bank loans at lower interest rates.
  


• Trade policy: In the first seven plans, trade was characterised by what is commonly called an inward looking trade strategy. Technically, this strategy is called import substitution. This policy aimed at replacing or substituting imports with domestic production. The effect of tariffs and quotas is that they restrict imports and, therefore, protect the domestic firms from foreign competition.
  


• It is now widely held that state enterprises continued to produce certain goods and services (often monopolising them) although this was no longer required. An example is the provision of telecommunication service. The government had the monopoly of this service even after private sector firms could also provide it. Due to the absence of competition, even till the late 1990s, one had to wait for a long time to get a telephone connection. Another instance could be the establishment of Modern Bread, a bread-manufacturing firm, as if the private sector could not manufacture bread! In 2001 this firm was sold to the private sector. The point is that no distinction was made between (i) what the public sector alone can do and (ii) what the private sector can also do. For example, even now only the public sector can supply national defense and free medical treatment for poor patients.

PO

Mission PO is a name given to a Mission taken up by two young men :
Major P and Major O