Economic Policy News And Views October 2009
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PMO moots cell banking for masses
PMO asked the department of telecommunications to find ways to expand mobile banking services to the remotest corners of the country.
This in our view is a welcome announcement by the PMO and is a step to ensure financial inclusion. Given that limited access of the poor to established financial channels exposes them to financial risks and less secure transactions, several developing countries have introduced simple, low-cost mobile systems for transferring funds. The G-CASH system, launched in the Phillipines in 2004, is a pioneer in enabling mobile phone users to send remittances, make donations, settle loans, and pay bills with a simple text message. M-PESA, introduced in Kenya in March 2007, also uses SMS to support financial transactions, including depositing and withdrawing money, transferring money to another party, or buying prepaid airtime. India needs to put in place a regulatory system that encourages m-banking for the unbanked. The regulatory system has to ensure security of such transactions and also the Central Bank does require that the amount of m-money in circulation should always be backed up with an equal amount by its issuer. Banks should see it as an exciting chance to exploit telecom firms’ vast retail networks and powerful brands to reach new customers. Tie-ups between banks and operators will help reassure regulators. The regulatory ecosystem has to evolve to allow such exciting innovations and should not act as a constraint
Government to hold 3G spectrum auction on December 7
The government will hold the much-awaited 3G spectrum auction for GSM operators on December 7.
In our view delaying spectrum allocation has meant that services to consumers are held up by the government resulting in a potential loss of consumer surplus. Moreover, too high a reserve price might drive away potential international bidders. There have been complaints that the licensing process already favors established domestic players. Under these circumstances one must take into account the actual likelihood of collusion as well as the nature of the players that may or not be affected by how the reserve price is set. The fact that capital is very scarce at the moment may also be worth considering in setting auction terms (i.e. look at the ability to pay of different parties). So what matters is how the auction designed. Poor designPoor outcomes. The auction has become a mere budgetary exercise!
States resent BPL numbers ‘thrust’ on them by Centre
The States have called upon the Centre to allow States to have their own lists pertaining to the BPL category and also desist from targeting the public distribution system (PDS).
Our view is that in the spirit of decentralization of the PDS, the beneficiaries of the PDS should be identified by the states. In fact the Food Security Act is in an imbroglio as the issue of contention is who should be the beneficiaries. The problem arises as there are disparate numbers when it comes to the number of BPL households. Moreover, a centralized targeted scheme has been prone to corruption and leakages. Under these circumstances universalizing food security as has been achieved by the states of Tamil Nadu and Kerala has to be seriously considered. This may be a feasible option if the PDS system is revamped to address the problems of leakages, such that costs of a universal system are minimized. Food stamps may be one such solution.
COMPETITION POLICY AND REGULATION
CCI cries foul over shipping firms’ lobby for anti-trust immunity
The ship liners association has approached the corporate affairs ministry seeking exemption from competition law, a move that is being severely opposed by the
Competition Commission of India (CCI).
Shipping carriers are often members of several consortia. Mostly the carriers also offer services, both individually and within a consortium. However, these practices may have impact on the competitive o
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