Current Affairs April 12th 2010

April 12^th 2010

 

Politics & the Nation

• Multi-brand retail FDI out of deep freeze
• The government has launched discussions between ministries about opening multi-brand retail to foreign direct investment (FDI), stepping gingerly into an issue that has been gathering dust for fear of triggering a political whiplash.
• The government allows up to 51% foreign investment in single-brand retail, but has so far been skittish about opening up multi-brand retail. The rules allow foreign multi-brand retailers only through franchise agreements with local players.
• Big retailers such as US-based Wal-Mart and Germany's Metro AG that operate in the so-called cash-and-carry ventures in India have long been clamouring for opening up front-end retail.
• The government has always been ticklish about retail because of its standing as the country's second-largest employer.
• There is all-round fear that opening up the sector will bring in extreme competition and lead to job losses. Indeed, a parliamentary panel headed by BJP leader Murli Manohar Joshi had called for a blanket ban of FDI in retail.
• In recent months though, the government has been airing its views on opening up retail, dwelling on its benefits, possibly to deflect the storm of protests it could set off. The government has said in various forums that FDI in multi-brand retail will enhance supply-chain efficiencies, give farmers better earnings and reduce wastage.
• FDI in defence production to be upped too
• On defence production, the government's plan to further liberalise the sector stems from its objective of eliminating middlemen in arms deals. FDI in defence production is capped at 26%.
• The department has circulated a note recommending 100% FDI in defence production after getting an okay from either the FIPB, the nodal agency for foreign investments, or the Cabinet Committee on Economic Affairs.

Finance & Economy

• What's the fracas between IRDA and the SEBI over Ulips?
• Last year, life insurance companies, including LIC, were served show-cause notices by SEBI, questioning them on sale of Ulips without obtaining the market regulator's approval. The insurance regulator responded broadly saying SEBI did not have the remit or the jurisdiction to regulate Ulips. The turf war took a fresh twist on Friday when Sebi issued orders to 14 life insurance companies, banning them from selling new policies or renewing existing ones. The market regulator said these companies have to register with SEBI for marketing and servicing such products. SEBU's order may compel investors to surrender their policies prematurely, leading to a significant loss to both investors and insurers.
• The issue came to a boil over IRDA telling insurance firms to continue selling Ulips, a day after capital market watchdog Sebi barred 14 insurers from selling these products without its approval. Ulips are similar to mutual funds with an added life cover.
• There have been regulatory turf battles in the past, but it has never quite come out in the open like this. The stakes are high considering that the interests of lakhs of unitholders have to be protected while the stock markets are bound to be impacted given the substantial investment in equities from Ulips.
• What makes the issue complicated is the fact that both the regulators have armed themselves with legal opinions supporting their case to regulate Ulips. SEBI had reportedly obtained the views of the Attorney General of India on the powers vesting with it to regulate Ulips while IRDA is learnt to have sought a legal opinion from NKP Salve, eminent jurist and former Union minister, before clarifying its position.
• The battle between two financial regulators may now prompt the government to step in to resolve the issue. The government may be compelled to act, considering that some insurers are planning to approach the court, and also given the fact that the sovereign is the guarantor of every policy sold by the country's biggest insurer, the stateowned Life Insurance Corporation of India (LIC).
• Do take a look at this Q&A session to get more clarity on the matter.
• It is not regulators alone who are sparring
• Even the stock exchanges are sparring with one another.
• The Competition Commission of India is reported to have taken up a complaint by the MCX against NSE. The accusation is that NSE was indulging in unfair practices by waiving the transaction fee on currency derivatives.
• NSE and MCX have been sparring with each other for some time now. Last year, NSE wrote to all its members saying that Financial Technologies, MCX-SX's promoter, had been placed on its watch list for "performance and system issues on multiple occasions". In November, MCX-SX filed a complaint with CCI against NSE, alleging that it abused its dominant position and resorted to predatory pricing. MCX-SX has said that NSE has waived its transaction fee on currency derivatives and instead, charges a fee of Rs 2 per lakh on the turnover in its derivatives segment.
• On food security bill
• Here is an excellent graphic that gives us a better perspective on the proposed food security bill and its attendant challenges. Take a look.

Space research

• ISRO looks at space tourism
• Even as countries are vying to grab a share of the tourism pie, Indian Space Research Organisation is aiming at the skies, literally. The spacy agency is seriously taking up the challenge of pursuing space tourism in a big way.
• Newly-appointed chief of Isro, Dr K Radhakrishnan, says ISRO is exploring new strategies and technologies for human space flight programmes, low-cost access to space tourism and the colonisation of Mars and the Moon.
• As of 2009, space tourism opportunities have been limited and expensive, with the Russian Space Agency providing this facility. The price for a flight brokered by Space Adventures to the International Space Station aboard a Soyuz spacecraft is $20-35 million. Space tourists usually sign contracts with third parties to conduct certain research while in orbit. This helps minimise their own expenses.
• Countries, such as the US, Russia and Japan, have already started work to have a habitat in Mars by 2030 and are devising a transportation system to reach Mars.

International

• The Greek tragedy
• Here is an excellent article by UR Bhat that describes the current situation in Greece and also discusses the possible solutions to the present crisis. A must read. Hence no excerpts for you; but some other related info that appeared in the papers:
• Meanwhile it is reported that the Euro zone got its act together and offered Greece a $41 bn (€30 bn) lifeline.
• The euro zone loans would carry an interest rate of about 5% — well below current market rates of over 7%.
• Greece needs to borrow about €11 billion by the end of May to refinance maturing debt and interest charges. Its overall 2010 borrowing requirement is €53 billion.
• Scepticism over Greece's ability to manage its € 300 billion ($401.2 billion) debt pile, more than its € 240 billion annual economic output, grew last week when investors dumped Greek stocks and bonds and ratings agency Fitch downgraded Athens by two notches. Fitch dropped Greece's credit rating to BBB-, the lowest investment grade just above junk, saying a deepening recession and rising debt service costs would make it even harder for Athens to meet its budget deficit reduction target.

• BTW we learn of a new acronym: PIGS. This refers to the countries -- Portugal, Italy, Greece and Spain. All these countries are going through a bad phase in their financial situation right now.

Language Lessons

• turnstile: Noun
• A gate consisting of a post that acts as a pivot for rotating arms; set in a passageway for controlling the persons entering
• whiplash: Noun
• An injury to the neck (the cervical vertebrae) resulting from rapid acceleration or deceleration (as in an automobile accident); A quick blow delivered with a whip or whiplike object
• wangle: Verb
• Achieve something by means of trickery or devious methods; Tamper, with the purpose of deception
• Noun: An instance of accomplishing something by scheming or trickery
• eg: The board has deferred a decision on the rate of interest the Fund should pay this fiscal, because it needs time to try and wangle a subsidy from the government to pay a rate at least a tad higher than the 8.5% the Fund would be able to manage on its own.
• affiance: Verb
• Give to in marriage
• eg: Rumours are rife that Britain's eligible but balding prince charming, William, may soon be affianced to his longtime girlfriend Kate Middleton, of solid middle class stock.

 

Current Affairs April 10th 2010

April 10^th 2010

 

Politics & the Nation

• Chidambram offers to quit; but Congress won't accept it
• The Dantewada massacre (wherein more than 75 CRPF personnel were killed by Maoists) appears to be causing political convulsions at the Centre with home minister P Chidambaram offering to quit. But Prime Minister Manmohan Singh has rejected his resignation.
• Mr Chidambaram, who has been using the latest variation of the phrase "buck stops here" to describe the leadership's responsibilities to tackle internal security issues, on Friday made it plain that he will not engage in buck passing and accepted the full responsibility of the Dantewada massacre.
• According to sources, Mr Chidambaram had also written a letter to Ms Sonia Gandhi expressing his willingness to step down.
• On the need to revisit basics for fighting Naxalism
• In this excellently written article, Ajit Doval former director, IB gives an incisive analysis on the Maoist problem. A must read for everyone of you. Some excerpts, in no particular order:
• Naxalism is a variant of Fourth Generation Warfare (4GW) in which civil society is the critical element of war. This war is to protect the civil society and at the same time fought in the battle ground of civil society.
• The modern day guru of 4GW William Lind aptly observes that, "If nation states are going to survive, people in power must earn and keep the trust of the governed." He further said: "The heart of Fourth Generation Warfare is a crisis of legitimacy of the state".
• Majority of Maoist supporters or even their cadres have little to do with Maoism. They are only frustrated and angered people with a perceived sense of injustice, oppression and indignity. Maoists are cleverly exploiting this sentiment to their advantage — caste conflicts in Bihar, resentment against landlords in Andhra, discontent against forest laws in tribal areas, unemployment amongst youth and radicalism amongst Muslims prescribing capture of power through gun as solution of all their grievances. The local grievances need to be effectively addressed through improved governance and ruthless accountability.
• The tendency to underplay the role of intelligence and doing little to strengthen it is largely responsible for recent tactical setbacks. The tendency to raise additional battalions without corresponding accretion in intelligence network creates little pressure on the extremists and only provides them more visible targets to hit.
• To meet the challenge India has to raise its level and style of governance, build capacities and raise legitimacy of the political class.
• The immediate need in India is for all the political parties, national or regional, to realise that Left wing extremism is a political plan to acquire power through blood bath and it is their politics which is responsible for it. Maoists feel and are able to sell that ousting their form of polity is doable as the political class is fast losing its legitimacy and credibility due to its subordinating national interests to electoral policies, craving for power only to make money and perpetuate themselves, allowing vested interests to undermine the civil society at the cost of justice and fair play and using their political genius to fragment the society on all conceivable fault lines to gain power. All this provides the right recipe for a 4GW and in a setting like this any external adversary will exploit it as a low cost and sustainable option to bleed India.

Finance & Economy

• RIL set to buy 40% in Atlas shale gas arm for $1.7 bn
• Reliance Industries (RIL) has agreed to buy a 40% stake in a US shale gas venture of Atlas Energy for $1.7 billion, joining Exxon Mobil and France's Total in the race for a fuel that may change the global energy economics.
• The nation's biggest company will invest $340 million in cash for the stake and pay Atlas' drilling expenses of up to $1.36 billion over the next five-and-a-half years. The deal values per acre of shale at $14,167, compared with $14,000 an acre paid by Japan's Mitsui & Co in a similar deal.
• Shale gas represents a growing source of energy and is expected to constitute 20% of the overall gas production in the US over the next 10 years.
• Gas locked in shale formations is expected to account for 50% of US supply by 2035, up from 20%.
• Extracting gas from shale rock formations is accelerating in the US, which is looking for ways to reduce the dependence on Middle-East oil and cut pollution by limiting coal-fired power plants. Hydraulic fracturing and horizontal drilling are the two methods used to release natural gas trapped in shale rock formations.
• Under the fracturing method, chemicals and other materials are blasted into the rock to create cracks that lead to gas flowing to the well.
• Horizontal drilling penetrates the earth vertically before moving sideways for thousands of metres.
• Although some US companies began shale gas exploration nearly two decades ago, they did not become a success due to lack of technology and interest form big energy companies. Given the stagnant reserves, many oil companies now see shale gas as a major source for the future.
• Floating rate borrowers to benefit from base rate regime
• In its final guidelines on the base rate — the new benchmark that banks will use to price loans — the RBI has made it clear that any change in the base rate will apply to new as well as old customers. Banks often offered lower rates and even teaser-rate schemes to attract new customers. However, existing customers were left out of these schemes, even though they had taken loans at floating rates. As a result, floating-rate borrowers did not get the full benefit of falling rates. This is expected to change, with the new guidelines on base rate coming into effect from July 1.
• The regulator had said that the base rate system was aimed at enhancing transparency in lending rates and would lead to a better assessment of monetary policy transmission. According to the RBI formula, the base rate factors in only cost and profit margin while risk and tenure premia will be charged over and above the base rate. However, RBI has given banks the freedom to use any other methodology, provided it is consistent and is made available for supervisory review or scrutiny when required.
• Base rate will replace BPLR. Banks will be allowed to use the BPLR system till December 2010. However, during the six months (till December 2010), banks have been allowed to change the benchmark and the methodology till the system stabilises. Thereafter, they are required to review their base rates at least once in three months.
• 3G auctions rake in big moolah for the government
• The keenly-awaited 3G airwaves auctions began on a rousing note on Friday with the government receiving bids worth Rs 3,919 crore for one slot after five rounds, in line with all-round expectations that telcos will shell out record amounts to offer faster data services.
• Analysts said the final bid price is likely to settle at about Rs 9,000 crore a slot and Rs 45,000 crore overall, including revenues from sale of broadband spectrum, helping the government curb record fiscal deficit that leaped to a 16-year high last year.
• Still, India's 3G auctions are unlikely to match the record prices in Europe and the US. The UK, for instance, raised $35 billion from a spectrum auction while Germany collected $67 billion from its UMTS licence auctions in 2000. The US raised $18 billion from a spectrum auction two years ago.
• 3G services were originally due for launch in India in 2007 but have repeatedly been deferred amid troubles over freeing up airwaves and setting bid prices. Telcos now offer services on 2G spectrum, but further allocations in this medium have been on hold till the government finalises a new allotment methodology. Before March 2009, when the allocations were stopped, telcos got spectrum based on subscriber numbers.
• Poverty meter: Govt works out new formula to count the poor
• The government is likely to fix the poverty line based on the criteria suggested by the S D Tendulkar headed task force last year after the new survey for identifying below poverty line households is complete.
• The new survey methodology to identify the poor is yet to be finalised, though recommendations made by the NC Saxena committee and eminent economists like Jean Dreze are likely to be the basis for it.
• The Planning Commission's earlier estimate of the poor has been criticised for being based on an outdated poverty line and commodity basket that date back to 1970s. Even the survey methodology has been faulted for leading to the inclusion of several non-BPL families and exclusion of many BPL families.
• The Tendulkar committee has pointed out that rural poverty was under-stated because it was based on 1973-74 prices and a dated consumption basket. The committee has recommended changes in the price index and also widening the consumption bundle to include expenditure on items such as health and education. As per the committee's estimates, the number of poor in the country was a high 37.2% of the population in 2004-05 as opposed to the Planning Commission's estimate of 27.5%.
• The NC Saxena committee has recommended a score-based ranking, besides recommending parameters for "automatic inclusion" and "automatic exclusion" for some categories of households.
• The alternative methodology, suggested by Dreze, deals with an "exclusion approach", whereby all households are entitled to social support except if they meet pre-specified exclusion criteria.

• FIIs, sub-accounts told to lay bare investment structure
• Foreign institutional investors and their sub-accounts will have to disclose the investment structure in India, say the new guidelines from the regulator, Sebi, as it looks for ways to identify the eventual beneficiaries.
• Existing FII and sub-accounts too will have to make necessary changes in line the new disclosure norms.
• These foreign investors will now have to disclose to the regulator whether they are a multi class vehicle (MCVs), segregated portfolio company (SPC) or a protected cell company (PCCs) and whether they maintain segregated or a common portfolio.
• SEBI action comes in the backdrop of alleged misreporting of transactions by some large blue-chip FIIs such as Barclays Bank and Societe Generale (SocGen).
• A multi-class structure allows distinct pools of investments, akin to various schemes of a Mutual Fund, under an umbrella asset management company.
• Investors deploying funds in the various pools, called cells, can have different fund managers pursuing different investment strategies.
• There were concerns that investments through such a structure can slip out of the regulatory radar. They could also be used as a conduit for round tripping, or Indian money being invested through foreign entities to avoid tax.

Environment

• Taking stock of climate negotiations
• As climate negotiators again converge in Bonn this week, it is appropriate that we take stock of the key issues that must be resolved if climate negotiations are to yield an equitable solution that is also acceptable.
• The most critical unresolved issue vexing the negotiations is the issue of accepting and interpreting historical responsibility. The touchstone of "common but differentiated responsibilities" under the Framework Convention embodies the historical responsibility of the developed world that is home to less than 20% of humanity but responsible for almost 80% of the current greenhouse gas concentration of our planet.
• Agreement on the level of mitigation actions within the borders of the developed countries is the second major unresolved issue.
• The third area of discord that must be addressed is the negotiating forum and the enforceability of the negotiated outcomes under international law.
• The fourth area of disagreement that must be addressed is the issue of Shared Vision. The long-term global goal is not as important nor is it essential to cast it in stone. Given knowledge gaps in climate science and the impossibility of predicting the potential and timing of new and disruptive technologies, what really needs to be agreed is committed actions by different countries in the next 10, 15 and 20 years.
• For a detailed explanation of each of the above issues, do read today's op-ed in ET by Surya Sethi.

International

• EU to rescue Greece as Fitch downgrades debt
• European Union officials said they are ready to rescue Greece, if needed as Fitch Ratings cut the country's credit rating to the lowest investment grade. Greece's long-term foreign and local currency issuer default ratings were cut to BBB from BBB+ by Fitch Ratings.
• Greece will need to seek emergency funding now to make debt repayments of more than € 20 billion in the next two months.
• Greece still needs to raise € 11.6 billion to cover debt that is maturing before the end of May and plans to sell bonds to US investors in the coming weeks. The country's debt agency announced on Friday it would offer € 1.2 billion of six-month and one-year notes on April 12.
• Chinese imports surpass its exports!
• China may post its first trade deficit in six years after a surge in imports of commodities and consumer goods, weakening US arguments that the nation is keeping its currency undervalued to gain an advantage.
• Imports probably exceeded exports by $390 million in March after a $7.6-billion trade surplus the previous month, according to the median estimate in a Bloomberg News survey of 26 economists. Part of the shift into deficit is likely due to rising commodity prices, economists said.

Language Lessons

• mollycoddle
• Noun: A pampered darling; an effeminate man
• Verb: Treat with excessive indulgence
• eg: Why mollycoddle tax evaders who fuel growth of a parallel economy and impede provision of public goods?
• Identikit: Noun
• A likeness of a person's face constructed from descriptions given to police; uses a set of transparencies of various facial features that can be combined to build up a picture of the person sought
• eg: Identikit politicians may be the dream creation of media managers and party bosses who do not want their candidates to put their feet anywhere near their mouths, but they are killjoys from an electorate's point of view.
• anodyne: Adjective
• Capable of relieving pain
• eg: The new breed of British politicians better watch out: the brooding, dour, lumbering incumbent may just strike gold with voters simply because he has none of those anodyne attributes that characterise those ranged against him.