April Current Affairs...

29 / APRIL / 2011 Politics & the Nation PAC does not endorse MM Joshi's draft report on 2G scam The United Progressive Alliance on Thursday prevented the adoption of the draft report on 2G spectrum allocation scandal by Parliament’s Public Accounts Committee by managing the support of the Samajwadi Party and the Bahujan Samaj Party in the committee. The PAC meeting which witnessed unprecedented scenes — heated arguments, adjournments and even ‘expulsion’ of Chairman Murli Manohar Joshi by members belonging to the UPA and supporting parties — pointed to the worsening of relations between the ruling side and the Opposition. Although the meeting did not adopt the report, there is room and precedence for Joshi to present the report to the Lok Sabha Speaker. The rules of PAC allow the chairman to present the report after conclusion of discussions and circulation of the report among panel members. What could also strengthen the hands of Joshi is a precedent set by former PAC chief Buta Singh. In 2004, Buta Singh tabled a report on the coffin scam without even perfunctory discussions with panel members. It would be interesting to watch how Speaker Meira Kumar responds if Joshi decides to present the report on Friday. Finance & Economy Percentage of people filing IT returns in India It is just 3%. On the status of women and undernourishment in children in India India is home to about a third of the world’s underweight and stunted children under the age of 5. What explains undernourishment in children of this age group (even in children from well to do families) in India? Surveys suggest that this has got to do with our traditional social and cultural values and practices that hurt the health and welfare of our children. In India, a third of the children have low birth weight. A child’s birth weight is an indicator of the health and nourishment of the mother when she is pregnant as well as her overall health and nourishment as a child and while growing up. Only a third of the breast-fed children aged 6 to 9 months receive complementary foods in India. This results in retarded growth. Most of the retardation in the growth of the child in India occurs either during the pregnancy or during the first two years after birth. A sustained long-term dent in child undernourishment can only be achieved by improving the health, opportunities and rights of the mother, the primary caregiver of children. Not just legislative rights but rights to participate in decision-making both at home and outside it, opportunities for social interactions, rights to improve their lives through education and employment. The historical pattern of the state and status of women in India reveals that it is largely unrelated to economic growth. Let’s look at sex ratio — a number that has been much discussed since the release of the provisional 2011 census results. At 914 women per 1,000 men, the sex ratio at birth is the lowest since Independence. Debate on banning endosulphan We have noted about this raging controversy a few days earlier too. Today’s face-off has a good debate and presents two contrasting views on the subject. Well worth our attention. Take a look and draw your own conclusions. In this context it is interesting to note what POP stands for. Persistent Organic Pollutant. If a pesticide / insecticide is declared as POP under the Stockholm Convention, then the signatory countries to the Convention ban the item. The Stockholm Convention was adopted in 2001 and entered into force in 2004. It requires Parties to take measures to eliminate or reduce the release of POPs into the environment. The Convention is administered by the United Nations Environment Programme and is based in Geneva, Switzerland. Meanwhile it is reported that India has agreed to phase out endosulphan at the ongoing meet in Geneva of the Stockholm Convention. This means endosulphan will be listed in Annexe A of the Stockholm Convention on Persistent Organic Pollutants but exemptions will be allowed for crop-pest combinations. It will allow India to continue to use this broad spectrum pesticide. Chemicals listed in the Annex A of the Convention are banned for production and use due to the threat they pose to living beings, particularly the environment. This will not come as good news for the Left parties or the Kerala government, both of which have been actively seeking an immediate nation-wide ban on endosulphan. All exemptions sought by India have been accepted. The listing in the Annexe will take one year to be effective, and the exemptions are valid for five years, with the provision for renewal for another five years. Thus, making the time-frame for the global phase 11 years. International Some of the quirky commemorative days that the US follows National Pretzel Day (April 26) National Potato Chip Day (March 14) Pizza Day (February 9) Hamburger Day (December 21) Pak favouring MFN status to India? India and Pakistan announced a path-breaking blueprint to spur trade between the two nations at the end of a two-day meeting of the commerce secretaries of the two countries on Thursday in Islamabad. Pakistan said it would take immediate steps to ensure that non-discriminatory trade regime is operationalised at the earliest. India has been seeking MFN status from Pakistan for a long time, which would lead to the country getting the same treatment as other countries in terms of allowing exports. Pakistan so far has been allowing exports from India on the basis of a small positive list of items instead of trading the normal way using a negative list of excluded items. Pakistan said it will move to a system of trade-based on negative list as opposed to the current positive list. India has already given the MFN status to Pakistan, allowing trade to be done on the basis of a negative list. Pakistan said consultations with business chambers have already begun on replacing the positive list with a negative list and the process would be concluded by October 2011. The two countries will also set up groups of experts for expanding trade in petroleum products and to enable trade in electricity. 27 / APRIL / 2011 Politics & the Nation Government to go ahead with Jaitapur nuclear park The Centre will go ahead with the 9,900 MW Jaitapur nuclear power park in Maharashtra. A high-level meeting convened by Prime Minister Manmohan Singh on Tuesday decided to set up an autonomous Nuclear Authority of India to address people’s safety concerns. The proposed Nuclear Regulatory Authority will be an autonomous body answerable to Parliament. It will subsume the Atomic Energy Regulatory Board. The government will introduce a Bill to this effect in the monsoon session of Parliament. The meeting also decided to provide a higher compensation for displaced people. Following the Fukushima disaster, there have been apprehensions about the safety of nuclear plants and this added fuel to protests in Jaitapur. The meeting acknowledged the need for better safety standards and decided to put each of the six reactors at Jaitapur under their own operations system. Government leaders said the operational safety review team of the International Atomic Energy Agency will be invited to conduct safety reviews and audit of all nuclear plants. At present, India operates 20 small nuclear reactors at six sites with a capacity of 4,780 MW, or 3% of total power capacity. It hopes to increase nuclear capacity to 7,280 MW by next year, more than 20,000 MW by 2020 and 63,000 MW by 2032, adding nearly 30 reactors. Justice PD Dinakaran moves SC to stay probe against him Sikkim High Court Chief Justice PD Dinakaran has asked the Supreme Court to stay an inquiry against him by a Parliament-appointed panel. The panel, appointed by the Rajya Sabha chairperson Hamid Ansari after the House initiated impeachment motion against him, had asked Dinakaran to respond to the 16 charges framed against him. The panel is examining charges of corruption, land grabbing, abuse of judicial office and amassing wealth disproportionate to known sources of income against Dinakaran. The three-member panel headed by Justice Aftab Alam of the SC, Karnataka High Court Chief Justice JS Khehar and senior advocate PP Rao had rejected Dinakaran’s plea seeking stay on proceedings till he is supplied with all documents being looked into. Dinakaran sought quashing of the panel’s order, which rejected his appeal, seeking recusal of PP Rao alleging that he was biased. Dinakaran had said he apprehended that there was likelihood of bias in the proceedings as Rao had earlier campaigned against him when his elevation to the SC was under consideration. Charges against Justice Dinakaran, who is due to retire on May 9, 2012, were levelled when he was Chief Justice of the Karnataka HC. He was subsequently transferred to the Sikkim High Court. The only Indian Prince who has been invited to the Prince William and Kate wedding Raghav Raj Singh, the current maharajsahib of Shivrati, a jagir in the former princely state of Udaipur, is the only Indian aristocrat to be invited to the wedding of Prince William and Kate Middleton in London on Friday. He is a good friend of Prince William. Singh, a Sisodia Rajput, has played with William at the famed Cirencester Park Polo Club and Windsor Polo Club, both favourites of the Wales brothers. Wearing a resplendent traditional Mewari sherwani and colourful headgear, he will stand out among the grey morning suit clad men in the congregation. His wife, Shelja Kumari, from the thikana of Umaidnagar in Jodhpur, draped in a classic sari favoured by Indian nobility and heirloom family jewellery is equally likely to stand out. An alumnus of Mayo College, Ajmer and St Stephen’s, Delhi, Singh did a stint at Cheltenham College in Gloucestershire as an exchange , which should come in handy for his future foray into healthcare and wellness segment in Rajasthan and Delhi. Finance & Economy Is it the right time to allow export of food grains? Yes, argues today's ET editorial. Look at its reasoning: First, India’s stockpile of foodgrains is now around 45 million tonnes, double the buffer stock that is mandated for food security. A bumper harvest is forecast, after which the government will add another 25 million tonnes to this pile. Second, the government and its main procuring and stocking arm, the Food Corporation of India (FCI), have proved that they cannot handle such large food stocks. In many places, grains are piled high under plastic sheets, exposed to the weather and rodents. Even after distributing rice for as low as Rs. 1 or Rs. 2 per kilogramme in states like Tamil Nadu and Andhra Pradesh, stocks stubbornly refuse to run down. It is likely that by the time the government decides to do something about this food mountain, worth around Rs. 40,000 crore, much of it would have become dinner for rats. Three, food inflation is not being driven by foodgrains, but by the spiralling prices of vegetables, edible oil, pulses and milk. Exports of foodgrains will not add to food price inflation at home; indeed, it might help to increase farmers’ incomes. Finally, the most compelling argument is about prices. The glut has pushed market prices of wheat to below the minimum support price (MSP) of Rs. 1,170 per quintal. Indeed, in states like Uttar Pradesh, wheat is being sold for Rs. 1,050 per quintal, a substantial discount to the MSP. In global markets, wheat is being traded at around Rs. 1,530 per quintal. So, if India lifts its export curbs on foodgrains, imposed after the food price scare last year, exporters can make a nifty profit, storage costs would come down and farmers’ incomes would go up, yielding some incentive to invest in technologies to boost productivity. RBI fines 19 banks for selling complex derivatives to corporates State Bank of India, ICICI Bank, Citibank and Axis Bank are among 19 lenders penalised by the Reserve Bank of India for violating currency derivatives norms and selling products to companies which did not understand them. This ends a three-year dispute between banks and small companies burnt by derivatives. The penalty may be small, ranging from 5 lakh to 15 lakh. But the ruling was a blow to banks since it vindicated the claims of tiny companies that claimed banks sold meaningless contracts to earn fees to boost earnings. The RBI has been scanning the derivative books of banks for more than a year and had sought information from 22 lenders about these transactions. The RBI order vindicates the stand of corporates, some of whom had sued banks on grounds of misselling. Others had claimed that some of the contracts were contrary to law, particularly the FEMA. Already, most matters had been settled out of court with banks picking up 25-50% of the losses. This order will hasten the settlement of remaining disputes. Banks had sold currency derivatives to allow corporates to either improve the earnings on their exports, lower the outgo on imports, or cut the interest and repayment cost on loans. The better exchange rates that such swaps and options offered always came with risks that most corporates either ignored or thought were academic — eventualities that are unlikely to materialise. Several bets backfired when currencies like euro, swiss franc and yen surged in 2007. By late 2007 and early 2008, when corporates were asked to pay up after the markets moved against them, there was a hue and cry. Private lenders, including ICICI Bank, HDFC Bank, ABN Amro (now RBS), Axis and Kotak were sued by companies. Most cases were settled out of court. Amid court feuds between banks and corporates, the RBI appointed an inter-departmental group to inspect the trades. The group spotted transactions where the underlier was inadequate while in some cases multiple transactions were done against photocopies of the same document that served as an underlier. In such situations derivative deals are no longer hedges, but pure currency bets. In some cases, documents on a company’s past export performance that is used to arrive at a hedging limit was not certified by the auditor. The RBI decision will be followed by parties in the case pending before the SC. International Compulsory sectoral talks not acceptable, says India India is examining the latest draft proposals circulated by the World Trade Organisation to bring to life the deadlocked Doha round of global trade talks, but will continue to oppose the US move to make participation in sectoral talks compulsory. Disagreement between the US and large developing countries, including India, China and Brazil, over sectoral negotiations to eliminate duties on select industrial goods has been identified by WTO director general Pascal Lamy as the biggest issue blocking the progress of the round. The US has been insisting that large developing countries should agree to eliminate tariffs on some industrial goods through compulsory participation in sectoral negotiations while the opposing countries maintain that it is outside the mandate of the Doha round. US charges 4 Pakistan based LeT men for 26/11 attack The US federal prosecutors have charged four Pakistanis — Sajid Mir, Abu Qahafa, Mazhar Iqbal (also known as Abu al Qama) and ‘Major Iqbal’, all from the Lashker-e-Taiba — as conspirators in the 26/11 attacks on Mumbai. The charges filed before an Illinois court on Tuesday mentions an unnamed individual, ‘Lashker member D,’ as co-conspirator. The accused face six counts of aiding and abetting the murder of US citizens in India, and three of the conspirators named in the indictment —Mir, Qahafa and Mazhar Iqbal — have been charged with conspiracy to bomb public places in India. The charges against the four LeT men carry a maximum statutory penalty of life imprisonment or death. 26 / APRIL / 2011 Politics & the Nation Kanimozhi booked by CBI in the 2G spectrum case The Central Bureau of Investigation (CBI) on Monday accused Kanimozhi, the daughter of Tamil Nadu Chief Minister Karunanidhi, and Sharad Kumar—both shareholders in broadcaster Kalaignar TV—of conspiring with former telecom minister A Raja to obtain a bribe from entities linked to DB Realty, whose telecom arm (Swan Telecom) is alleged to have received airwaves at below market prices during Raja’s tenure. All the accused have, in the past, asserted that it was a normal business transaction. They have claimed that DB Group was looking to buy a stake in Kalaignar, but the deal fell through because of valuation differences. But the CBI has refused to accept this account. The chargesheet claims those charged could not produce any agreement or contract to substantiate their claim that the money was meant to acquire an equity stake. The agency also alleges the 'loan' was extended without any collateral. Securities were created only after the CBI registered an FIR. Further evidence of the irregular nature of the transaction stems from the fact that DB Realty and Dynamix Realty had borrowed from IL&FS Financial Services at interest rates ranging from 13.5% to 16%. But the loan to Kalaignar TV was at an interest rate of 10%, a fact the agency claims buttresses its case that the transaction was tainted. The money was repaid by Kalaignar between December 2010, just after Raja was questioned by the CBI for the first time, and February 2011, around the time Raja was arrested. Kanimozhi and Sharad Kumar have been charged under sections of the Indian Penal Code (IPC) and Prevention of Corruption Act, or PCA, pertaining to criminal conspiracy to obtain illegal gratification. Raja, in this case, has been booked for allegedly obtaining illegal gratification. The promoters of DB Realty, Kusegaon and Cineyug have been charged under a section of the PCA relating to abetting the act of obtaining illegal gratification. Suresh Kalmadi is put behind bars On Monday afternoon, the long arm of the law finally caught up with Pune Congress MP Suresh Kalmadi, who was arrested by the CBI for conspiring to award the contract for timing, scoring and result (TSR) system for the 2010 Commonwealth Games to a Switzerland-based company, Swiss Timing Ltd-Omega, at an inflated cost of Rs. 141 crore, causing a loss of some 95 crore to the exchequer. For Kalmadi, who had earlier this year been sacked from the chairmanship of the Commonwealth Games Organising Committee (OC), the political fallout of the development was immediate. Anxious to limit its political cost, the Congress acted with alacrity and suspended him from the party. He had earlier been removed from the post of secretary of the Congress parliamentary party. There are reports that the former Games OC chairman may be stripped of the chairmanship of the Indian Olympic Association too. The charge against Kalmadi and his accomplices in the OC is that they had awarded the contract to the Swiss company in a pre-meditated and calculated manner, brushing aside the claims of a competitor, MSL-Spain. The Spanish company, which had quoted a price of about Rs. 46 crore for installing the TSR project at various venues, had provided the system to the 16th edition of the Asian Games held in the Chinese city of Guangzhou last year. The Swiss company, keen on bagging the contract, had enlisted the services of Faridabad-based company, Gem International, to win over the OC bigwigs. The CBI has collected evidence suggesting that AK Madan, the promoter of Gem International, was the main conduit between Kalmadi and the Swiss firm. The Swiss company, it is learnt, paid Rs. 23 crore as an initial payment to Gem International for the services rendered by it. It was to pay an additional Rs. 7-8 crore to the Faridabad-based firm, but the filing of the case in the TSR scam put paid to the move. Finance & Economy What is the agitation about Endosulphan? Endosluphan is is an insecticide belonging to the class of compounds called organochlorines. India is one of the largest global producers of endosulfan. It is the supplier of 70% of the world’s endosulfan needs — a market valued at $300 million (Rs. 1,340 crore). Out of the 9,000 tonnes India produces every year, half is bought by the country’s 75 million farmers, making it the world’s largest consumer of endosulfan as well. But endosluphan is reportedly very toxic and causes lot of collateral damage. Some of the ill effects attributed to endosulphan include disease and birth defects, among humans and animals. The toxicity caused by it is stated to result in cancer, allergies and hypersensitivity, damage to the central and peripheral nervous systems, reproductive disorders and disruption of the immune system. Though more than 80 countries have banned endosulfan our country has not yet banned endosulphan. It is not approved to be used in rice fields in several other countries. The use is severely restricted in others. Now the agitation in Kerala against the use of endosulphan is gaining momentum. But the Centre had stated that it is not in favour any ban on the insecticide. Let's wait for more press to roll out. Then we can think for ourselves to take a stand. SEBI asks CCI to adopt its buyout norms Taking note of conflicts in takeover laws, capital markets watchdog Sebi has sought alignment of norms set by the competition regulator with its own regulations. It has written to the corporate affairs ministry and Competition Commission of India, or CCI, to address the issue and prevent chaos. The Sebi takeover norms for listed companies make it mandatory for an acquirer, who has triggered an open offer under Sebi rules, to inform the regulator within four days the timeline of the offer. Under the rules prescribed by the CCI, the acquirer has up to 30 days to announce the details of the offer. The regulator has also flagged the need for reconciling the time given to the acquirer to make an open offer. Under the competition law, the commission can take up to 210 days to clear an acquisition, which would mean that open offer can happen only after the clearance. Sebi’s regulations give an acquirer 55 days to complete the open offer once it is announced. In absence of an asset transaction thresholds every asset - current assets or fixed asset - that is acquired after 1 June 2011, would have to be notified to the Competition Commission and it could also include issue of bonus, rights shares or even stock or stock-in trade. The CCI norms also require every deal to be intimated to it even if controlling stake is not being acquired. The new IIP to has some of the same old problems that beset the old IIP The new index for industrial production, or IIP, that is expected to be launched soon has not enthused economists as they expect it to have one major flaw of the old index, month-on-month volatility. The source of this volatility is largely from the capital goods segment, a flaw that the new index has not addressed. The reason lies in the way the index has been formulated -- it takes into consideration the end product manufactured by companies, including those products that have a manufacturing cycle extending to a quarter or more. This results in sharp spikes in months in which manufactured products reach the factory gate while equally sharp dip in other months. These spikes and dips are not necessarily consistent with the investment or demand patterns in the economy making it difficult for analysts to exclusively rely on factory output numbers given by the IIP. The current IIP series is based on data received from 3,900 sources. The new series will get information from around 4,800 sources and the coverage will expand to 300 items from a current 213 items. The base of the index will be revised from the current 1993-94 to 2004-05. Investors to get emails as India Inc is set on a green drive The government has asked corporates to communicate with their shareholders electronically in order to cut down on the use of paper. The move is part of the latest ‘green initiative’ by the ministry, but could also help companies cut costs by obviating the need for paper-based communication. Under the Information Technology Act, 2000 service of documents in electronic mode is considered valid delivery. The ministry of corporate affairs has directed all companies to maintain a formal register of valid e-mails of all its shareholders where key communication like notices of company meetings can be sent. Currently, companies are required to communicate with their shareholders through the postal route. The trigger for the move came from a decision of the country’s postal department has decided to discontinue their postal facility under ‘certificate of posting’ route, which allowed companies to send out bulk mails. On self help groups Look at this ET in the Classroom column that explains about them. Language Lessons adumbrate: Verb Describe roughly or briefly or give the main points or summary of; Give to understand eg: For instance, back in the 1950s, it was purposefully adumbrated that we were drawing up five-year plans so that... 25 / APRIL / 2011 Politics & the Nation Sri Satya Sai Baba is no more Sri Sathya Sai Baba, whose message of love, peace and humility, resonated with millions of people including politicians, dictators, businessmen and cricketers, breathed his last on Sunday. He was 85. We deeply mourn the loss of this great soul which taught humanitarianism to one and all irrespective of caste, colour, creed and religion. Baba, as he was popularly called, was in poor health for the past one month and died after multiple-organ failure. He leaves behind an enormous spiritual legacy, a wide network of charitable institutions, hospitals, schools, colleges, which some estimate to be worth about Rs. 40,000 crore, and a void in the hearts of many people who consider him to be a living god. Sai Baba was born on November 23, 1926 in Puttaparthi, but his spiritual journey actually began 14 years later when he announced to his stunned villagers that he was the reincarnation of Sai Baba of Shirdi, who had passed away in 1918. The story quickly became legend andBaba acquired God-like status after he started performing miracles which drew enormous number of followers. Controversy ensued when rationalists and scientists questioned the basis of his miracles and his refusal to allow himself to be tested. An incident at his ashram when police killed four intruders into his room and a BBC documentary which alleged widespread incidents of child molestation at his ashram threatened to sully his image. Fortunately for him and his ashram, the controversies died down and a number of social service activities,such as free treatment to the poor through his hospitals, the education provided by his network of schools and colleges, ensured a steady growth in followers. The poor and the wealthy in India were now joined by western celebrities such as Hollywood actress Goldie Hawn, Sarah Ferguson and Hard Rock Cafe founder Issac Tigrett, who sold his iconic restaurant chain and invested the fortune in Baba’s social activities. Ironically, the fame and fortune built up by Baba, could now prove problematic as he has died without announcing a successor to his Sri Sathya Sai Central Trust. Speculation has mounted in recent weeks that there will be bitter fight to control the fortune and that the government may step in to take over and run the trust. In an attempt to calm such fears, the trust issued a four-page release last week detailing how it receives money and listing the names of its trustees. All the institutions are controlled and run by the central trust which has six members, including Baba as the founding trustee. In addition, the council of management of the trust has four advisors. Dispelling rumours of any differences within the trust, the trustees who had a meeting with the governor,the chief minister and other state authorities on Sunday, assured the government that no interference was required and that the trust’s activities will continue normally without any impediment. The AP government has already said that it is not interested in taking over the affairs of the trust, which means that the trustees and other important followers will decide on the successor and the future course of action. Is Civil society's participation in law-making enshrined in the Constitution? If it is, then why question Lokpal Bill drafters? This is the question that is posed by Pradeep Mehta in his article today in reaction to the articles that appeared in the Press arguing about how the law making process is being taken away from Parliament et al. World over, including India, the civil society is engaged in law-making, which only enriches the tapestry of a participatory democracy. Drafting a law is the duty of the executive either suo moto or under an international treaty obligation or when Parliament directs it. This is done through a consultative process to get views of all sections. It is the organised civil society that inputs in the process sometimes as part of a committee or through memoranda and/or hearings. Mass movements, like the one launched by Hazare, too work as catalysts and input providers. The civil society typically comprises of business chambers, trade unions, professional associations and non-government non-profit organisations (NGOs). On all economic legislations, whether new or amendments, often all the four actively participate in the formulation depending on their interest. Business chambers are best endowed in advocacy but the others, including NGOs, are also able to make their views heard. Indeed, it is the legislature that takes the final call, and that process cannot be usurped by any other process, except in cases where international treaty obligations reduce the space, like WTO agreements or UN conventions. In fact, the parliamentary standing committee system practised in India and other countries invite views of the civil society and citizens on Bills that come up for discussion before being sent back to the House for being adopted. The process does not end there, as the government keeps the power of notifying the law in full or parts, depending on the influence of the vested interests. Take a look at Article 51A of the Constitution. It says that the fundamental duties of citizens as, inter alia, to develop scientific temper, humanism and the spirit of inquiry and reform; and to strive towards excellence in all spheres of individual and collective activity so that the nation rises to higher levels of endeavour and achievement. This is the article which enshrines the participation of civil society in the law making process of the country. Finance & Economy GHMC and OSRT Read this op-ed by Sameer Sharma in full. Worth a read. It explains how GHMC (Greater Hyderabad Municipal Corporation) has successfully deployed the ubiquitous mobile phone cameras as a tool for improving efficiency of the municipal workers. They have come up with an innovative usage of the cameras for creating an off-site raltime data (OSRT) for the purpose. Some research stats btw that will be of interest to us: Jensen, an economist from Harvard University, has found that access to mobile phones had increased fishermen’s profits in Kerala by 8% and brought down consumer prices by 4%. Additionally, studies by Leonard Waverman (London Business School) and Christine Zhen-Wei Qiang (World Bank) have found that a 10% increase in mobile phone adoption in developing countries increases GDP growth by 0.8%. On boosting manufacture in India This is a very good article that has some concrete ideas on the subject. Well worth our attention. Some excerpts for us: To boost manufacturing, two policy areas deserve attention, in addition to infrastructure, skills and the ease of doing business — restricted FDI in retail and undirected government procurement. The condition of value addition within India for FDI in multi-brand retail can act as a fairly effective instrument for giving a push to globally-competitive manufacturing. Public procurement is the other lever that can be used selectively in strategic areas to create manufacturing capability. One instance where this approach is being tried is the bulk tender for super critical thermal power plants by NTPC with the condition that the successful bidders should do manufacturing in India. Another example is the solar mission. The guidelines stipulate that in the first year modules and in the second year, modules and cells should be made in India for plants being put up by private developers. The policy of defence offsets is another policy instrument for leveraging government procurement. There have, of course, been enormous benefits from global competitive tendering and this should continue to be the norm. The one area where we have surely missed the bus in leveraging our humungous business potential to nurture local manufacturing is telecom sector. The status of Casinos in India While Sikkim and Goa permit gambling and casinos, union territory of Daman plans to have casinos soon. Sikkim has one casino and has issued letter of intent for one more. Goa has seven offshore casinos operating on vessels and more than a dozen onshore casinos housed in the numerous five-star resorts. There is no law anywhere in the country that regulates casino culture. In the absence of that, the activity is regulated through executive orders that create uncertainty. Though Sikkim government had enacted a law in 2008, it has to amend it in line with the deficiencies pointed out by FATF (Financial Action Task Force) that recently reviewed India’s money laundering laws. In what may bring to an end the legal uncertainty around casinos, the centre has asked states to put in place a clear and transparent regulatory framework for gambling and other gaming activities. The centre has told the states that the legislative framework should provide for a regulator or a commission too. The regulator would also be empowered to issue licences to casinos. The centre is keen that the legal framework is put in place at the earliest. The urgency to implement comes after the Financial Action Task Force (FATF), a global agency to monitor illicit flows, pointed to the uncertainty regarding regulation of casinos. The FATF had pointed out that the current regulations did not provide for the statutory fit and proper tests for owners, operators and managers of casinos. Doubts have also been expressed about the authorities, in current situation, to enforce compliance with antimoney laundering rules. Companies use LLPs as tax smokescreen Corporates are masking their true identities to jump regulatory hurdles and form holding entities that help them lower their tax burden. Promoters of at least 30 companies have formed limited liability partnerships (LLPs) by suppressing the information that the newly-floated LLPs would serve as group investment companies — a disclosure that would have called for a no-objection certificate from the Reserve Bank of India (RBI). Instead, they have tweaked the object clause to claim that the LLPs are into businesses like consultancy and broking — a simple manipulation that quickens clearance from the registrar of companies (RoC), the final authority that approves the formation of an LLP. In 2008, Indian businessmen were allowed to form LLPs, an internationally followed tax-efficient structure that is spared of dividend distribution tax and minimum alternative tax (MAT) on gains from sale of shares. Though the new law was aimed at making life easier for smaller businesses and such ventures as law and audit firms, there was nothing to prevent business houses from converting their investment companies into LLPs. But when businesses houses applied for such conversion, the RoC insisted on a noobjection certificate from the central bank. Most companies hit a wall as RBI was unwilling to comply with their requests. The banking regulator is keen to monitor corporate investment firms just as it keeps an eye on non-banking finance companies. And allowing them to transform into LLPs would mean losing control over these firms. Now, corporates have found a way out. An entity that claims to be carrying out consultancy is not required to approach RBI. Since its business is unrelated to activities like share investment, banking, insurance and finance, it can directly approach RoC. An entity that attains LLP status by falsely declaring consultancy as its main business activity is subsequently capitalised by the partners to buy out the shares that is held by the original group investment companies. However, the possibility of RBI coming out with new rules to stop LLPs from bypassing it is not being ruled out, more so, given its intentions to monitor investment companies. A year ago, RBI announced new rules which meant that group holding companies and investment firms would have to get themselves registered with RBI, fulfil certain criteria and share information on a regular basis. Amid corporate lobbying, the rules were later diluted to an extent to exclude investment companies which do not raise funds. But finance professionals said that even the diluted rules would cover a significant number of companies. International India to export petro products to Pakistan The thaw in relations between India and Pakistan, which started with cricket diplomacy at Mohali last month, could soon see India exporting petroleum products to its neighbour. India, which has surplus refining capacity, has agreed to export fuels such as petrol and diesel to Pakistan to help the neighbouring country meet its fuel shortfall and open up a new market for large refineries of Reliance Industries, Essar Oil and a new unit in which the LN Mittal Group is a co-promoter. India imports about three quarters of the oil it consumes, but its refining capacity has expanded rapidly, making it a key player in the international market. Exports of refined products have risen to 51 million tonnes in 2009-10 from 746,000 tonnes in 1999-2000 according to government data. Commerce secretaries of the two sides are meeting in Islamabad on April 27-28 to renew trade ties between the two countries, which have been at a standstill since November 2008 after the Mumbai terrorist attack. The acrimonious relations between the two neighbours eased last month when Prime Minister Manmohan Singh and his Pakistani counterpart Yusuf Raza Gilani watched the India-Pakistan World Cup semi-final together at Mohali. The two countries have fought three wars since both attained independence in 1947, besides a major skirmish in Kargil between May and July 1999. Indian officials said increased trade inter-dependence would force the two nations to keep friendly relations, and India was in a position to meet Pakistan’s fuel demand. Pakistan has about 12-milliontonne refining capacity, which meets only half of its annual requirements, while India exports about 25% of its 185-million-tonne refining capacity. Talks between India and Pakistan to start trade of petroleum products were initiated in 2005 by the then oil minister, Mani Shankar Aiyar, who favoured diesel supply to the neighbour. India had exported some petrochemicals such as PTA and LOBS to Pakistan through the sea route. Politics & the Nation More criticism about the anti-corruption agitation led by Anna Hazare Take a look at this op-ed in today’s ET by Kuldeep Kumar. While this is pointed out to you to know the counterpoint, you have to draw your own conclusions. India’s influential in Time 100 Take a look at this. Five Indians figure in the top 100 influential people in the world. Dhoni beats them all hands down with his top ranking. Narendra Modi will surely have some explaining to do Look at this report. It says that a senior IPS officer, Sanjiv Bhatt, had stated in his affidavit that Modi had issued instructions to Police to the effect that Hindus be allowed to express their anger against Muslims for the Godhra carnage. 23 / 04 / 2011 Finance & Economy Buoyant tax collections The Centre’s tax collection for 2010-11 has reportedly exceeded the revised estimates by about Rs. 12,000 crore to hit Rs. 7.92 lakh crore. Some coarse grain related statistics From the 1970s, as government policy, pricing and procurement heavily favoured wheat, rice and sugarcane, farmers took the rational decision to grow more and more of these, so land under coarse grains shrank rapidly: falling by as much as 1.3% every year through the 1980s, and by 0.76% every year through the 2000s. About dedicated freight corridor The Rs 77,000 crore dedicated freight corridor project, scheduled to be built by 2016/17, is expected to ease infrastructure bottlenecks and boost industrial development and international trade as existing railway lines in these regions are running up to 50% more than the designed capacity. The choked railway lines have encouraged a rapid shift to road transport from railways. The National Highway Authority of India's plan to expand the Delhi-Mumbai highway to six lanes would accelerate the shift of cargo from goods trains to trucks, but the new freight corridors are expected to reverse the trend as the railways would be able to offer faster and cheaper transportation. Look at this graphic for some more details of the project. Chairman PFRDA Is Yogesh Agarwal. Banks betting big on consumer loans Bank credit to consumers for personal consumption has increased 12.6% to ` 1,17,919 crore as on February 25, 2011, from 1,04,715 crore a year earlier, RBI data show. Loans outstanding on credit cards increased to 6,212.92 crore at the end of February 2011, from 4,923.11 crore a year ago. Credit card spend increased 26.9% in the same period. Industry estimates show average monthly spending on cards averaged 3,000-3,900 this year, up from 2,200-2,400 last year. Banks are returning to consumer lending after getting hurt during the credit crisis when many customers defaulted. But this time things appear to be different, with better credit information and banks avoiding third-party salesmen who did not do their due diligence. Finance & Economy Should licensing period for telecom companies be halved? Here is a very good debate that is well worth our attention on the issue. Interesting. First principle on FCNR accounts Banks allow non-resident Indians to open FCNR, or foreign currency nonresident accounts. An FCNR account is maintained only in term deposit. The account can be maintained only in pound sterling, US dollar, euro and the Japanese Yen. The deposit is accepted for a period not below six months and not above three years. Remittances from abroad are made in foreign currency, in which the account is desired to be maintained. The balances and the interest on this account are exempt from tax. The exchange rate risk is borne by the bank. Repayment of deposit and interest thereon are allowed to be repatriated without any loss due to exchange rate fluctuations for the depositor. Reflecting pension liabilities and profitability of state run banks State run banks reportedly are about to take about a Rs. 4,000 cr hit this fiscal with the RBI directing them to provide for the pension liabilities of their retired staffers in the balance sheet for FY10-11. Banks had made out a case to RBI to amortise the pension liabilities over the next five years to ease the strain on their books. But the regulator does not appear to be convinced by their argument and directed that lenders would have to set aside funds for their pension liabilities in one shot rather than spreading it out. In February, RBI allowed banks to amortise pension liabilities for serving employees over five years. However, in the same circular, the central bank stated that all amounts relating to retired employees need to be provided in 2010-11 itself. Following this, IBA requested RBI to allow banks to amortise the pension liabilities of retired employees as well. While rejecting the proposal, RBI told the banks that the norms cannot be eased as in its view, banks should have anticipated the impact and were even aware of these liabilities during wage negotiations. The total pension liability for serving and retired employees was estimated at Rs. 20,000 crore. However, since money needs to be set aside for only those retired employees who had opted for the pension scheme, the impact on the bottomline could be much lower at around Rs. 4,000-4,500 crore. Lt. Governor of Puducherry to be questioned by ED The Prime Minister’s Office has cleared an Enforcement Directorate request to question Puducherry Lt Governor Iqbal Singh for facilitating issuance of passport to Pune-based businessman Hasan Ali Khan who faces charges of laundering black money. The file granting clearance will be sent to the President, who as the Lt Governor’s appointing authority will grant ED permission to question Singh. The questioning will take place in the Puducherry Raj Bhawan. Even as Singh faces questioning by ED in Puducherry, there are few indications of his impending resignation or removal over the Khan passport case. He has already clarified in a letter to Chidambaram that he had no links whatsoever with the Pune-based stud farm owner and had already recommended his case to the Ministry of External Affairs on the request of senior Congress leader Amalendu Pandey. Singh said that when he was a Rajya Sabha member from 1992 to 1998, on April 4, 1997, Bihar Congress leader Amalendu Pandey approached him for issuance of passport for someone from the Passport Office Patna on compassionate, health ground as the brother of person seeking passport was ill abroad and the presence of the applicant for looking after his brother was extremely essential. International If the US's AAA rating is to be downgraded, what could happen? Take a look at expertspeak: Firstly, if the US loses its AAA rating it could prove to be the turning point in a loss of confidence that starts a debilitating move out of not only Treasuries but dollar assets. After all, the US won’t default on debts which it can erase with the flick of the switch on the printing press, but it may well inflate its way to making dollar holdings very bad investments. Secondly, the lack of alternatives means that a move out of Treasuries, if it ever came, would be hugely distorting for the rest of the world’s debt ecosystem. There simply aren’t enough “safe” alternatives. Thirdly, the most likely outcome is that the US enjoys a long, slow slide from being everyone’s favorite debt issuer and owner of the main reserve currency to something a whole lot less. After all, being free to borrow cheaply and almost without limit has hardly been an unalloyed blessing. This implies losing the AAA-rating, but maybe only for long enough to teach itself and the rest of the world not to be so dependent upon it. The transition from a uni-polar financial world to something with more checks and balances will be painful, but in the end beneficial. BTW the net external debt, a measure of US dependence on foreign creditors, is now at 300% of current account receipts, among the highest of any sovereign. Pulitzer Prize Indian American Doctor wins Pulitzer prize Indian American cancer specialist Siddhartha Mukherjee has bagged a Pulitzer prize for his book “The Emperor of All Maladies: A Biography of Cancer”. Mukherjee won the prestigious prize in the general non-fiction category. The book has been described as “an elegant inquiry, at once clinical and personal, into the long history of an insidious disease that, despite treatment breakthroughs, still bedevils medical science”. It is a warm, erudite and engaging book. The book is a panoramic history of the disease of cancer and its treatment that is infused with meticulous details. An assistant professor of medicine at Columbia University and a staff cancer physician at Columbia University Medical Center, Mukherjee had advocated a strong anti-smoking campaign and breast cancer screening to battle the growing incidence of the disease in India. Less than a month after it appeared, Mukherjee’s book, published in the US by Scribner, featured among “The 10 Best Books of 2010” in the New York Times Book Reviews Sunday, a rare feat for a work of non-fiction. Mukherjee, 40, grew up in New Delhi’s Safdarjung Enclave. A Rhodes Scholar, Mukherjee graduated from Stanford University, University of Oxford and from Harvard Medical School. He was a Fellow at the Dana Farber Cancer Institute and an attending physician at the Massachusetts General Hospital and the Harvard Medical School. Three eminent personalities of Indian origin have previously won a Pulitzer. They include Gobind Behari Lal for journalism in 1937, Jhumpa Lahiri for fiction (‘Interpreters of Maladies’) in 2000 and Geeta Anand in 2003 for her work on Pompe disease. 19 / APRIL / 2011 Politics & the Nation Election economics The number of voters in each Lok Sabha seat has shot up from around 3,50,000 in 1951 to 1.3 million in 2009. For an assembly seat you can legitimately raise and spend Rs. 16 lakh; if you’re fighting the Lok Sabha polls, the number mandated by Parliament goes up to Rs. 40 lakh. Anecdotal evidence suggests that in the last Lok Sabha polls, candidates spent anything between Rs. 4 crore to Rs. 40 crore to fund their campaigns. Finance & Economy On Torrens system In this system the ownership of land is directly registered by the state. In the system in force now, title instruments are registered, still leaving scope for multiple deeds and unregistered instruments. In the Torrens system, the sovereign is the keeper of all land and title records and the land title serves as a certificate of valid ownership. Torrens system is considered a better bet to curb benami transactions in properties. Problems of plenty Take a look at this op-ed about our rich wheat harvest and how wheat is being sold below the MSP in our mandis in the North. It is reported that we have about 46 mn tonnes of wheat in our granaries, which is more than double the buffer stock norm prescribed. The question is -- will the government wake up in time? BEE plans incentives for energy efficient devices The Bureau of Energy Efficiency (BEE), an agency of the power ministry, is set to launch a 'super efficient equipment programme' to encourage manufacture of products that are 30-50% more efficient than fivestar labeled goods, considered to be most energy efficient in the country. This programme seeks to promote domestic manufacturing of energy-efficient gadgets by reducing their cost through market incentives. The bureau, which is in the process of defining specifications for super-efficient refrigerators, air conditioners, television sets and other appliances, will kick off its initiative with companies making fans. It will seek quotations for expected incentives under an open bidding programme and offer cash incentives for each fan to those who qualify. A super-efficient fan should consume just 25-30 watts per hour against 50 watts for a normal fan. At present, BEE rates electrical appliances on a scale of 1 to 5, with higher star ratings implying more energy savings, or efficiency. Five-star labeled products are costlier by Rs. 2,000-3,000 than four-star labeled products, depending on the product and model. The super-energy-appliances scheme is part of the government's national mission on enhanced energy efficiency that seeks to achieve annual savings of 19,598 MW of power and 23 million tonnes of fuel and greenhouse gas emissions reduction of 98.55 million tonnes. The mission is one of the eight under the prime minister's national action plan on climate change. On the inflation spiral and RBI's failure Central banks the world over, as does our own RBI, do have lot of constraints. After the loosening of the taps on spending by way of fiscal stimulus it is the banks that are left to pick up the pieces. Add to this the constraints that are there, as on our RBI, on the degree of independence they can exercise in their functioning, do add to the cup of woes. But no central bank keeps the real interest rates negative for so long and yet expect to get away from the consequences. That is what has caused the inflation spiral in our country. In addition, the combination of rising commodity prices, a spillover of the reckless quantitative easing by the US Federal Reserve, structural bottlenecks and a government unwilling to share the burden of reining in prices through tighter fiscal management have contributed their own share for the spiral. Tax breaks on water conservation on the anvil In an effort to promote judicious use of water, the government is planning to offer incentives, such as tax breaks, to big industrial users if they are able to reduce wastage of water. The incentives may feature in the new National Water Policy, which is being prepared by the water resources ministry and the Planning Commission. The policy is likely to be introduced next year. The new policy will encourage sustainable use of water by reducing wastage and promoting recycling. Industrial wastage of water has emerged as a big concern amid a growing realisation of an imminent water crisis. The per capita availability of water in India is 1,600 cubic metres. A level of less than 1,700 cubic metres is considered a ‘water stressed’ condition and less than 1,000 cubic metres is a ‘water scarcity’ condition. As many as nine out of the country’s 20 river basins are now in a water scarce situation. India has 2.4% of the world’s area, 16% of the world’s population but only 4% of the total available fresh water. India gets proactive about attracting SWFs Sovereign wealth funds (SWFs), which have emerged as formidable global investors and often evoke concerns in countries where they put in money, will soon have a greater play in India. The finance ministry and regulators will change the rules to give these investment funds floated by governments of rich countries more headroom when they buy shares in listed Indian companies. Also, local authorities will treat SWFs emanating from the same country independent of each other—a proposal that is expected to go down well with the two Singapore government owned funds, Temasek and GIC. The 50-odd SWFs registered in India invested between $8 billion and $10 billion last year. The proposals were recently discussed by the board of capital market regulator Sebi. It was proposed that SWFs belonging to countries that have signed treaties or agreements with India should be allowed to buy up to 20% shares of a listed company without making an open offer to existing shareholders. At present, all entities, except banks and financial institutions like LIC, have to make a minimum 20% open offer after their holding touches 15%. The suggestions reflect the terms of economic co-operation treaties that India signed with countries like Singapore. It has, however, not been able to implement the terms following resistance from the Reserve Bank of India (RBI), which among other things viewed that funds like Temasek and GIC, owned by the same government, should be treated as investors belonging to the same group. Most sovereign funds investing in India are registered with Sebi as foreign institutional investors (FIIs). Since no FII or FII group can hold more than 10% in a single company, RBI had said the combined investments of Temasek and GIC should not cross the stipulated limit in India’s second-largest lender, ICICI Bank. Some notable SWFs operating in India include China's National social Security Fund, Abu Dhabi Investment Council, Australia's Future Fund Board of Guardians, Ireland's National Pensions Reserve Fund, Brunei Investment Agency, New Zealand Superannuation Fund, and Canada Pension Plan Investment Board. All about the public debt office Look at this ET in the Classroom column. While on the subject, did you notice the phrases “merchant banking” and “investment banking” in the column? Do they mean the same? Or do they denote two distinct activities? Can be confusing for experienced people too at times. Take a look at this investopedia writeup on the subject. An interesting read. International In defence of nuclear power A very able defence put up by Bjorn Lomborg. It is a must read. Do so here. Some excerpts worth our attention: It is worth noting that the worst nuclear disaster in history directly caused only 31 fatalities. The World Health Organization estimates that 4,000 deaths could be linked to the disaster over 70 years, whereas the OECD projects a range of 9,000-33,000 deaths during this period. But consider that, according to the OECD, every year, nearly a million people die from fineparticle outdoor air pollution. Yet, the massive death toll provokes no discernible fear in the developed world, and receives almost no news coverage. We see coal as a polluting but reasonably ‘safe’ energy source compared to nuclear energy. Yet, in China alone, coalmining accidents kill more than 2,000 people each year — and coal is a leading cause of smog, acid rain, global warming and air toxicity. Why is decommissioning of nuclear plants wasteful? Decommissioning of nuclear reactors may make us feel safer, but we should acknowledge that this will often mean compensating for the lost output with more reliance on coal, meaning more emissions that contribute to global warming, and more deaths, both from coal extraction and air pollution. Moreover, given that the plants are already paid for, waste facilities are already in place and the high decommissioning cost will have to be paid regardless of timing, the actual operating costs are very low — half or lower per kilowatt-hour than the cost of the cheapest fossil fuels. 16 / APRIL / 2011 Politics & the Nation Hijacking Parliament’s role Anna Hazare’s campaign against corruption has received very wide support all over India and even from Indians residing abroad. The country certainly seems to have missed a point in celebrating Hazare’s victory. CL Manjo brings that out very well in his op-ed today. Take a look. Very well articulated. It is not Manoj alone who has such reservations. Even the former Speaker of the Lok Sabha Mr. Somnath Chatterjee too has some serious reservations and has articulated his concerns quite well in his piece. A must read. While on the subject of corruption one more excellent debate Take a look at this face-off column in today’s ET. It debates whether or not the Lok Pal institution will be sufficient to fight corruption. Some strong views there. Worth our attention. Some noteworthy thoughts on philanthropy (Excerpted from an op-ed in today's ET) The distribution and proper utilisation of wealth has engaged the human mind almost as much as its creation. How to ensure an equitable social order in which there is no exploitation and in which wealth is used not only to take care of the poor and needy, but also to bring beauty, art and knowledge to all, continues to be a vexed question. Philanthropy, defined as the creative use of wealth for the long-term benefit of society, without any expectation of a quid pro quo, has been considered a way to take the sting out of the inequitable distribution of wealth. Binayak Sen gets bail from Supreme Court The Supreme Court has granted bail to civil rights activist Binayak Sen, awarded life imprisonment on charges of sedition and for having links with Maoists by a Raipur sessions court. The bench said, “no case of sedition is made out,” during the course of the hearing in the case. “We are a democratic country. He may be a sympathiser (of Naxalites) but it did not make him guilty of sedition”. It rejected the plea of Chhattisgarh government which had opposed Sen’s bail saying that the documents and pamphlets found in his house suggested that he was actively associated with Maoists. Finance & Economy Oil economics It is very well known to us that our PSU oil majors keep losing lot of money on account of their supplying fuel at subsidized prices. Usually it is the Centre which keeps pumping some money into them so that they don't go into the red. Now, the Centre is moving a proposal whereby the States too will have to contribute something for the PSU majors. In this context, it is interesting to note that the oil sector pays Rs. 110,000 crore in taxes to the Centre and Rs. 81,000 crore to states. BRICs alternative to the dollar? (Excerpted from today's ET editorial) BRICs have reportedly reached an agreement to provide credit to each other in local currencies and collaborate in capital markets and other financial services. This is no doubt a step towards finding an alternative to the dollar. But the demand for credit in local currencies within the group is small and is unlikely to be cost-effective either given the dollar’s pre-eminence. Reserve currencies are not created by fiat; they emerge from historical forces of trade and investment. The dollar is the world’s favourite currency because it is simply the most traded, circulated and accepted currency in the world. Brics or others hoping to supplant the dollar will have to develop large and deep markets, first within their own national economies and then across the world for bonds in those currencies. Spectrum's potential to GDP According to a report by Analysys Mason, a 1% increase in broadband penetration could lead to Rs. 162 billion being added to the country’s GDP by 2015. The report suggests that even releasing 5 MHz of additional 3G spectrum per licensee could lead to a 3.3% rise in broadband penetration — which would contribute Rs. 538 billion to the country’s GDP by 2015. Normal monsoon forecast India is likely to receive a normal monsoon this year, the South Asia Climate Outlook Forum (SACOF) said in Pune on Friday, providing some cheer to the economy battling rising inflation and high food prices. The forecast says likelihood of below normal rainfall over the north-western parts and some north-eastern parts of South Asia, but normal rainfall over the southern parts of South Asia, including the islands. SACOF is an initiative of the World Meteorological Organisation to provide regional information. India receives most of its rains in June-September, which is crucial for both the immediate kharif crops and also the rabi crops as the quantity of rain decides the moisture content of the soil for the winter crop. India’s weather department, the India Meteorological Department (IMD), will put out its official forecast on April 19. Initial indications suggest that IMD will also put out a normal monsoon forecast. 11 / APRIL / 2011 Finance & Economy Employability of our engineering graduates Software body Nasscom estimates that only a quarter of all engineering graduates are readily employable in the IT sector. Their percentage has grown by a meagre 1% over the past six years. Policy tiff holds up city-side work at regional airports The process of developing commercial activities at regional airports has got delayed as the Planning Commission does not agree with the Airports Authority of India’s (AAI) view of keeping the airports’ terminal building out of the scope of commercial development. The delay is also hitting the Authority's plans to augment revenues. There are two sides to an airport: the airside and the city-side. The airside is directly involved in the arrival and departure of aircraft and includes the runway, aprons, control towers, hangars, aircraft maintenance and refueling facilities, whereas the city-side constitutes commercial facilities around the airport for the benefit of passengers like development of property on the airports’ land, building and maintaining car parking and cargo operations. In case of privatised airports like in Delhi and Mumbai, the terminal building has also been given to the private investor for development and maintenance. However, in this case, the intent is not to privatise these non-metro airports and retain the terminal building. For undertaking city-side or commercial development of non-metro airports through private participation, the AAI, along with the Planning Commission and the Department of Economic Affairs (DEA) has been preparing a concession agreement, which is getting delayed because of the Plan panel’s reservations. Last November, the government approved undertaking city-side development of 24 out of 35 non-metro airports. Together they have about 300-400 acres of land. The AAI is looking to fetch Rs 150-300 crore annually from commercial or city-side development. Initially, city-side development of 10 airports will be undertaken in Phase-I. The AAI plans to give land around the airports on a lease of 30 years, extendable by another 30 years, on an upfront payment and the remaining part or rentals will be charged in a staggered manner. Some of the 10 non-metro airports where city-side development will begin in the first phase include those at Ahmedabad, Jaipur, Lucknow, Amritsar, Indore, Vishakhapatnam, Guwahati and Bhubaneshwar. According to the international airports association Airports Council International (ACI), a minimum of $10 billion of investment in the airports sector is required in India over the next 5-10 years and development of commercial activities at regional airports is a big attraction for investors. Money laundering watchdog to track all realty deals All real estate transactions will have to be reported to the country’s anti-money laundering agency once the government amends a key law that seeks to curb black-money transactions. The government plans to amend the Prevention of Money Laundering Act, which will require property registrars to file data of transactions recorded by them with the Financial Intelligence Unit, or FIU. FIU is the national agency responsible for processing and disseminating information on suspect financial transactions to enforcement agencies across the world. The government may also bring several other transactions under the anti-moneylaundering act. These may include futures and options trade in commodities. Real estate transactions in excess of 30 lakh are already reported to the Income-Tax Department, but the government wants to tighten scrutiny of the sector, often accused of rampant use of black money and moneylaundering. At present, many states rely on circle rates to check the use of black money in land deals. A circle rate is the minimum rate fixed by the government for valuation of a property. But it is not considered foolproof as the rate leaves scope for intra-region variations. The amended law will help track transactions involving funds from tax havens or territories named as “risky” by the financial action task force, or FATF. FATF is an inter-governmental body set up by the Group of Seven (G-7) nations for creating global policies and framework to combat moneylaundering and terror-financing. India became its 34th member last June. Performance of ports in India Performance of India's major ports during the fiscal year 2010-11 was rather pathetic, to put it in brief. The year on year performance of the 12 major ports of the country has registered a mere 1.57% growth, according to data available with Indian Port Association (IPA), the umbrella organization representing the major ports. Non-major ports in Gujarat have registered a traffic growth of 12.34% over last year with cargo handling rising from 206 million tonnes in 2009-10 to 231 million tonnes in 2010-11, Gujarat Maritime Board (GMB) said. While major ports claim a capacity of about 642 MT, the combined port capacity of the country stands at 1017 MT as on February 28, 2011. Among major ports, Kandla has retained the top slot in cargo throughput for the fourth year in a row, handling a whopping 81.88 MT of cargo throughput during FY 2010-11, registering an increase of 23.80 lakh metric tonnes, i.e. 3%, over the last year's traffic of 79.5 MT. Vizag port came second in the pecking order with the port registering a traffic of 68 MT. During the last financial year (2009-10), the port had handled 65.54 MT against a target of 67 MT. Among the best turnaround performers, Tuticorin has put forth the best show, registering the highest growth of 8.19% during the year with the port handling 25.72 million tonnes compared with last year traffic. Jawaharlal Nehru Port (JNP) came up second at 5.82% with the port handling 64.30 MT during the year. Indian containerization has put forth 12.64% jump in container traffic at the major ports. The country's premier container port, Jawaharlal Nehru Port handled a record 4.27 million TEUs during 2010-11 surpassing the previous record of 4.06 million TEUs during 2009-10 by 2.1 lakh containers. International India keeps its foot down on sectoral talks Despite mounting pressure on the member countries to take the stalled global trade talks forward, India is resisting developed world’s attempts to force negotiations on import duties on specific goods, or sectorals. The US, backed by the EU and Japan, has been pushing for sectoral negotiations if talks are revived, which would force the member countries to completely remove tariffs on a number of products, including machinery and chemicals, which are of interest to advanced nations. This could adversely affect the developing countries. The chairpersons of the negotiating groups on agriculture and industrial goods of the World Trade Organization, or WTO, are trying to prepare draft negotiating texts by Easter (April 24) that will be starting points for talks. But a lack of consensus on sectoral talks is sure to put a question mark on the chances of members wrapping up the Doha round of negotiations by the year-end, as targeted earlier this year. India and other big developing countries, such as Brazil and Argentina, have argued that the mandate of the ongoing Doha negotiations was to keep sectoral negotiations voluntary. For all other goods, tariffs have to be brought down as per the reduction formula agreed upon by all members of the WTO. It's 50 years since man stepped into space Tuesday will be one of the most important days in civilization’s calendar. Fifty years ago, on April 12, 1961, cosmonaut Yuri Gagarin stepped into a bus that took him to the then top-secret Baikonur launch pad in Kazakhstan’s desolate grasslands. There, he boarded the Vostok 1 and shot into outer space – the first human being to do so. Jim Lovell is the first to journey to the moon twice. He is best known as the commander of Apollo 13, which was launched exactly 40 years ago to this day. Meant to land on the moon, Apollo 13 suffered a catastrophic explosion that prevented it from reaching its destination. Under Lovell’s heroic leadership, the crew squeezed themselves into the spacecraft’s lunar module, using it as a “lifeboat” — which provided oxygen, power and the necessary propulsion — to return safely to Earth. The dollar being nibbled away at its roots One must read this development. It has really missed international headlines. But this is one development that is going to have a long term effect on the strength of the dollar. 08 / APRIL / 2011 Politics & the Nation Long live Anna Hazare Take a look at this very well written ET editorial on what Anna Hazare is trying to do and how the government should respond. Agree fully with the views of the editorial. A couple of excerpts worth our noting: True, any government can rightly assert that it cannot be coerced into accepting wholesale the demands of activists of any hue, whether it be, as in this case, about defining and enshrining the structure and purview of a national anticorruption ombudsman or anything else for that matter. But it is equally true that the very idea of a social contract includes a government’s authority stemming from the consent of those it governs. Representative democracy, in other words, doesn’t mean that solely those elected to office can claim representative status. Reforming the IIMs Recently (sometime in last week of March) we noted about a very critical article that lampooned the government efforts at trying to reform the IIMs. It articulated a fear that they are about to be privatized in the name of reform. Today, we have a very well written piece by the Director of IIM, Kozhikode presenting a counterpoint. Very well written and worth deserving our attention. You should read it in full. Do so here. Finance & Economy On excessive usage of ground water in India Goldman Sachs estimates that the global water consumption is growing at an unsustainable rate, doubling every 20 years. This situation is particularly precarious in the north-western parts of India, comprising Delhi, Haryana, Punjab and Rajasthan. This unpleasant development is caused by excessive pumping of ground water for irrigation. The estimated rate of depletion of groundwater in north-western India is 4 cm of water per year, equivalent to a water table decline of 33 cm per year. Of the 1,065 (out of a total of 5,723) assessment units declared critical or over-exploited in the country, almost two-thirds fall in these four states. Water-hungry farms of the region account for over 90% of the ground water use. Satellite imageries show that this region is experiencing an acute decline in the groundwater table. Studies carried out by the Goddard Space Flight Center of Nasa show that 109 billion cubic metres of groundwater disappeared from the aquifers in the region between 2002 and 2008, which was not expected when monsoon was quite normal. Annual extraction of ground water in India is to the extent of 210 bcm. It is the highest in the world. Groundwater irrigates over 60% of net area, meets 90% of drinking water needs. International The Muslim world and democracy What is the reason behind democracy not taking roots in the Muslim world? What caused the rise of religious fundamentalism in the Muslim world? The following excerpts from today's Cursor column in ET give a plausible explanation. Take a look: Modernity confronted the Muslim world as colonial rule, cultural domination and religious challenge. A tiny elite colluded with the West and eventually stayed on as rulers and the West’s stooges. More often than not, Sovietbacked Left, if not radical, movements sought to give voice to democratic urges in the Muslim world, inviting repression backed by western powers. Democracy in the Muslim world, in other words, died in the crossfire between superpowers, whose self-referential description of their rivalry as the Cold War ignored the fiery heat that consumed nations, lives and democracy in swathes of the so-called third world. Absence of democracy and authoritarianism were made somewhat palatable, after the sharp oil price hikes of the 1970s, by improved living standards. But then, the collusion of the authoritarian Arab regimes in the institutional injustice suffered by Palestinians at the hands of Israel accentuated popular resentment. The West used Israel as the visible symbol of its hegemony in the region, converting the tiny state into a lightning rod for Arab anger, bearing the brunt of generalised anti-West sentiments. And since democratic forms of popular expression were banned, collective anger found a religious idiom, feeding all sorts of Islamist movements. Al Qaeda’s founder Osama bin Laden’s original grouse, let us not forget, was US military presence in Saudi Arabia, the land of the holiest two mosques of Islam. Ever heard of the concept of 'subsidiarity'? It is the principle of organising functions in a hierarchy of responsibility that devolves power to lower level structures to tackle problems best handled by them, leaving only subsidiary functions to higher levels. 06 / APRIL / 2011 Politics & the Nation Anna Hazare's fast unto death on corruption moves crowds all over the country Social Activist Anna Hazare launched an indefinite hunger strike against corruption in New Delhi on Tuesday. He asked the government to include more stringent measures in the Lokpal Bill, 2010, meant to tackle corruption in public life. The ‘fast-unto-death’ by the 73-year-old social activist pushes the government into a corner at a time when it is facing an integrity crisis, following a series of ‘big ticket’ scams and the imprisonment of a cabinet minister. Hazare and his fellow activists demand that civil society members be made part of the panel that drafts the bill, a demand the government will find extremely difficult to accept, both due to the technicalities and for the uneasy precedent that will be set by such an arrangement. Hazare’s struggle aims to revive and strengthen the idea of the institution of Lokpal, or a public ombudsman. In 1969, following the success of the office of Ombudsman in eradicating corruption in Scandinavian countries, a Lokpal Bill was introduced in the Lok Sabha. It was, however, not passed by the Upper House. Since then, the Lokpal has been unsuccessfully introduced in Parliament on nine different occasions. The latest iteration is the Lokpal Bill, 2010, drafted by Law Minister Veerappa Moily. The bill is under consideration by a group of ministers headed by finance minister Pranab Mukherjee. The Jan Lokpal bill seeks overarching powers for the institution of Lokpal at the Centre and Lokayukta in the states. The bill seeks the merging of the Central Bureau of Investigation (CBI) and the Anti-Corruption Bureau into the Lokpal and Lokayuktas. It envisages enhanced punishment (minimum of five years of imprisonment and maximum of life imprisonment) for those found guilty and provides for investigating corruption charges against judges as well as the officers of investigating agencies such as the CBI. PAC may question Congress Congress’ rhetorical onslaught against Public Accounts Committee (PAC) Chairman Murli Manohar Joshi and its charge that the body was overstepping its brief in the 2G spectrum allocation investigation has pushed the ruling side into a difficult corner with members of the panel seeking action against the party. The PAC is getting prepared to submit its report by this month end. Narmada Andolan faces perjury charges The Supreme Court has asked the Narmada Bachao Andolan (NBA), why perjury proceedings should not be initiated against it for providing false information under oath. The court issued the notice on a petition by the Madhya Pradesh government accusing it of making ‘wrong statements’ on land acquisition for Omkareshwar dam Project in Madhya Pradesh. The Madhya Pradesh government had sought initiation of legal actions against NBA for submitting ‘false information’ to the court on the issue of land acquisition from five villages — Dhardi, Nayapura, Guwadi, Kothmir and Narsinghpura. The petition on behalf of the MP government said NBA had filed an affidavit in February, 2010, making a “wrong” statement that the authorities have taken possession of the disputed 284.03 hectares falling within the five out of 30 villages affected by Omkareshwar Dam Project. The Madhya Pradesh government maintained the land acquired in the five villages were denotified and returned to the villagers who were using them for agriculture. Finance & Economy On identification of the poor The census to identify the below poverty line (BPL) population is scheduled to take off this year and will aid the government’s public distribution system, proposed national food security scheme and other subsidy-based schemes for the poor. The census identified the BPL beneficiaries, so far, by using a 'scoring method.' This method is supposedly having a higher error rate. The scoring system involved ranking households which were not automatically excluded or included, on a scale of 0 to 10 based on caste, religion, employment, literacy, and presence of debilitating illnesses such as tuberculosis, leprosy and HIV/AIDS. The households were to be placed in descending order, with those with the highest score coming in first. Now the government is reportedly considering an alternative method of identifying the BPL beneficiaries. It is the ranking of households by a set of deprivation indicators as suggested by the Planning Commission. This also grades the villages by their level of deprivation and provides a map of poverty levels in the country. It ranks the households using seven pointers, of which states will decide on three, to capture poverty in the state. The level of deprivation of a household will govern its position on the BPL list, with those with high deprivation coming in first. Inclusion in the list will continue till the cumulative percentage of households is less than the state poverty ratio ceiling fixed by the Plan panel based on the recommendations of committee headed by Suresh Tendulkar. For households that are a point below the deprivation cut off, in case of states where the deprivation cut off does not equal state poverty ceiling, a geographic ranking system has been proposed. In that, villages will be ranked according to average deprivation points. Households would then be included village-by-village, starting from the most deprived till the state poverty ceiling is reached. 05 / APRIL / 2011 Politics & the Nation There simply was no case for the government to exempt ICC from tax Today's ET editorial, very rightly, took note of the issue and came out with the opinion that the government should not have exempted ICC from its tax obligations. We strongly support such a line of argument. Sport is not just celebration of human athletic prowess. It is also business, very prosperous business. There is no reason to exempt sport as business from tax. Cricket has become a money spinner for cash-rich ICC that prides itself as a truly global business organisation. It also earns huge revenues through sponsorship and media rights. And this is not small change. So, there is simply no reason why ICC should not contribute to the tax kitty. Such tax exemptions are arbitrary and provide political patronage opportunities. They must be eschewed. Similarly, there is no logic in exempting the Indian Premier League (IPL), an arm of the Board of Control for Cricket in India (BCCI), from paying tax on its income. The BCCI has ceased to promote cricket as a ‘charitable’ activity. It has become a commercial entity with huge revenue streams. Revenue generated from the IPL is shared between the umbrella cricket body and its franchisees. The BCCI also uses only 10% of the surplus money on promoting cricket and the balance is shared with players. Cricketers pay tax on their income from IPL matches. So do franchisees, but not BCCI. When individuals with even Rs. 3 lakhs as income are paying tax, why shouldn't rich sporting bodies be paying tax? This is atrocious! The definition of a soft state India has, for long, been regarded as a soft state. Gunnar Myrdal is credited with inventing this term, intended to mean a country where law enforcement and social discipline are low; by extension, one that is as timid and diffident in its dealings with other nations as with its own citizens. Finance & Economy The minimum wages and MNREGS imbroglio Look at this detailed article that reports about the issue. Well worth a read. India's external liabilities India’s external liabilities rose by $22.7 billion in the quarter ending December 2010, over the previous three months, to $628 billion, mainly on account of increase in portfolio investment, FDI and debts. The country’s increase in external liabilities rose to $628.6 billion as on December 31 from 605.9 billion at the end of September, according to RBI data. Inflation worries Even as food prices have started to moderate, inflation has now spilled over to manufactured products and is yet to peak, say economists. Overall inflation as measured by the wholesale price index was 8.31% for February, above the most aggressive estimates of economists, who now believe that it is the start of a phase of generalized inflation. Core inflation, which excludes more volatile food and energy price changes, is a rough indicator of underlying long-term inflation. While economists agree that inflation is going to remain high in the coming months, its trajectory has been difficult to predict. The Reserve Bank revised its estimates upwards, for the second time, to 8% for March end. In February, the Prime Minister's Economic Advisory Council had admitted that the sustained increase in food prices has spilled over to other areas in the economy. Around the globe, advanced economies have been following loose monetary and fiscal policies in an attempt to bolster growth in their respective economies. As more money chases the same amount of goods, the threat of inflation is imminent. India returned to its growth trajectory fairly quickly, which meant that demand for manufactured and primary goods picked up soon enough. Economists say prices of manufactured products could see a spurt in the coming months, which would push the WPI upwards. Non-food manufactured products have a weight of 55% in the WPI. Economists also note that the elevated prices of crude oil have not been passed through and are a threat to inflation. And when the international prices are passed on, it would provide a further upward push. Government moves to fine tune job survey The government has set up an expert committee of economists and statisticians to fine-tune the labour department's annual employment survey launched last year to enhance its accuracy and effectiveness. Consultations with the expert group on sampling design and survey, scheduled to start later this month, would result in more than a month's delay in the commencement of the survey, but the results are expected to be out on time by the end of the calendar year. The expert committee, headed by S P Mukherjee from the Calcutta University, has members from various institutions including the NCAER, Institute of Economic Growth, the Planning Commission and the NSSO. Nation-wide employment and unemployment survey has so far been the domain of the National Sample Survey Organisation (NSSO) which brings out the data on a five-yearly basis. Prompted by reports of growing unemployment in specific sectors of the economy worst-affected by the global economic crisis, the labour department decided to carry out a country-wide survey on an annual basis last year to monitor the situation closely and take corrective actions. Results of the first labour department survey for the period April-March 2009-10 announced in October 2010 revealed a much higher unemployment rate of 9.4% for India's over 400 million workforce compared to 2.8% arrived at by the NSSO survey of 2004-05. To widen its survey base, the labour bureau this year plans to cover all 629 districts in the country as opposed to only 300 last year and would interview 1 lakh respondents, more than double of last year's numbers. It would also look at expanding the scope of the survey by including migrant workers and other categories, but a call on this will be taken by the expert group. Obituary Sohan Qadri Sohan Qadri, one of India’s greatest abstractionists in the genre of meditative moorings passed away early in March. Growing up in northern India, Qadri was exposed to Sufism, Hinduism, and Sikhism. He was initiated into yogic practice at the age of seven. His stay at a Tibetan Buddhist monastery in search of higher truths shaped his sensibility and gave him a Zen facet. He was particularly inspired by Vajryana or Tantric Buddhism which emphasised the notion of sunyata or emptiness. Qadri was born in 1932 in Punjab, India. He received his MFA from the Government College of Art in Simla, India. He left India in 1965 and travelled through East Africa, North America and Europe. He eventually set up a studio in Zurich before settling in Copenhagen where he lived for 40 years. Take a look at this full piece in today's ET to have a look at his abstract art. 04 / APRIL / 2011 Politics & the Nation What's wrong with our Tiger census? When minister for environment and forests Jairam Ramesh proudly announced the gain of 225 tigers last week, it made happy headlines. Accounting for the Sunderbans figures (70) that were not available in 2008, the minister preened, the population gain was a healthy 295. But these figures are now suspect and the World Life Institute of India (WII) had admitted that quot;
there has been a mistake in the computation of the standard error for the tiger numbers for the state of Maharashtra.quot;
 For decades, foresters studied pugmarks and usually counted more tigers per tiger. Then, in 2002, Project Tiger (now National Tiger Conservation Authority) and Wildlife Institute of India (WII) began replacing the human error-prone pugmark census method with a scientific estimation protocol. It was a landmark initiative. Nine years later, however, India’s tiger numbers remain equally suspect. So far, more than Rs. 22 crore has been spent during two all-India estimation drives, in 2006-07 and 2010-11, to scientifically evaluate the status of the tiger. And yet all the government churned out were a few gospel figures for media consumption. Back in 2006, an international team of experts led by John Seidensticker from the department of conservation biology at Smithsonian’s National Zoological Park in Washington, DC did a peer review of the new estimation method. In its report, the team questioned the feasibility of the exercise given that more than 40,000 forest units would have to be sampled, adding that the new method, too, relied on the “integrity of the primary data collectors, data compilers and their supervisors.” For the record, the new method breaks down the estimation process in three phases. Phase one involves data collection (signs of tiger presence, prey abundance and canopy status) across the tiger landscapes. In the second phase, satellite data is used to assess conditions of habitat. Phase three requires camera-traps to be set up in selected pockets for capturing tiger images to identify the number of individuals in a sampled area. Next, the camera-trap data is extrapolated to arrive at numbers for entire landscapes. Phase III of the latest count was compromised by too many malfunctioning camera-traps. WII purchased around 500 Moultrie camera-traps for the second all-India estimation, out of which 300-odd malfunctioned. WII used about 100 cameras to cover just 120 sq. km of Nagarjunasagar-Srisailam tiger reserve in Andhra Pradesh. Only seven tigers were identified in that area. Based on these seven tigers in just 120 sq. km, somehow the estimate extrapolated a figure of 60 for a 2342 sq. km-area of this reserve. If data was compromised, the analysis was suspect, too. On the extrapolation process, the 2006 peer review cautioned that “there is also no detailed write-up of the technical analysis, explicitly identifying the analytical techniques to be used in each phase of the framework.” In simple terms, it means different results at different estimation attempts, resulting in unreliability. The official count only referred to standard errors of estimated densities and population sizes while offering a range of 1165–1657 tigers. The report did not use the appropriate confidence intervals, which if standardised, would have stretched the limits to roughly 900-1900 tigers, an embarrassingly unreliable range. While the number game continues, it is important to note that the new protocol does not allow comparison of subsequent results. Cleansing Ritual A 5000 year old vedic ritual is about to be performed in a Kerala village -- Panjal in Thrissur District. The Athirathram was last conducted 35 years ago. It is a 12 day ritual that was officially discontinued in the late Vedic period at a time when Buddhism and Jainism were on the rise in India. Nevertheless, a few Namboodiri Brahmin families in Kerala kept up an unbroken 3000 year tradition and this edition of the ritual begins today. A few individuals have come together to form a trust to put the clock back 5,000 years to perform rituals that many scholars regard as inseparable from the myth surrounding athirathram. There are many including the one called Putrakameshti (blessing the childless couples). But that isn’t first on the priority list of the members of the Varthathe Trust, formed by a group of individuals from India and abroad who think alike. The yagna has more universal ideas to implement in its wish list. The yagam hopes to achieve two goals — propitiate world peace, and energise and protect the environment by destroying undesirable elements. Fire is believed to cleanse, and that is what this ritual is all about. It involves the chanting of selected mantras from three Vedas, the ancient sacred texts of Hinduism — Rig, Yajur and Sama. Beginning today, the yagna will be conducted by the best in the business — where ‘best’ means the only ones who can recite the mantras impeccably. The athirathram, which will cost an estimated Rs 1 crore, is likely to draw more than 15,000 people from all over the world including not just devotees and believers but also scientists, scholars and critics. The star attendee of the event will be Indologist and heritage crusader Johan Frederik ‘Frits’ Staal, a driving force behind the preservation of the world's oldest surviving Vedic ritual athirathram. Staal, emeritus professor of Philosophy and South & Southeast Asian studies at the University of Berkeley in California, announced the existence of this ritual to the world by documenting it in his seminal treatise ‘Agni: The Vedic Ritual of the Fire Altar’. A team of scientists led by VPN Namboodiri, former director, International School of Photonics, CUSAT, will monitor and analyse the beneficial impact of the historic fire ritual to the environment and people. Whether it is the shape of the main fireplace or the kind of utensils and ingredients used, every aspect of athirathram stands apart. For example, the main fireplace is in the shape of a bird. 1,000 specially designed bricks are made, special pottery and vessels are designed, darba grass is acquired and so on. The most important offering is somarasa, extracted from somalatha, a herbal plant (Sarcostemma acidum) believed to be the nectar of life. The fire itself is created by rubbing two pieces of wood. Each day will commence with Vedic chanting and homam. On the last four days, the rituals will be held throughout the day and night without a break. In 1975 as soon as the ritual was over, “a heavy downpour fell over the area which the sponsors claimed was true to tradition and marked the 'success of the ritual”, says Krishna Kumar Namboodiri of the Varthathe Trust. Finance & Economy IMF and its double standards Our politicians and quite a few intellectuals have been crying hoarse for a long time about IMF's double standards. A report by the IEO (Independent Evaluation Office) of the IMF itself now confirms that IMF does indeed follow double standards and suffers from other malaises like toeing the line of the bigger donors, developed countries, groupthink and intellectual capture. Let's know a bit about these new phrases groupthink and intellectual capture. Groupthink is the tendency among homogeneous, cohesive groups to consider issues only within a certain paradigm and not challenge its basic premises. When you are overly influenced (or over-awed) by somedbody's reputation or expertise, you tend to develop a stance which doesn't question their actions, howsoever wrong they may be. That is intellectual capture. An excellent explanation of how liquidity squeeze reduces inflation (Excerpted from Bradford Delong's op-ed) The Fed would then cause a liquidity squeeze and so distort asset prices as to make much construction, sizable amounts of other investment, and some consumption goods unaffordable (and thus unprofitable to produce). The resulting excess supply of goods, services, and labour would cause inflation to fall. As soon as the Fed had achieved its inflation-fighting goal, however, it would end the liquidity squeeze. Asset prices and incomes would return to normal. And all the lines of business that had been profitable before the downturn would become profitable once again. From an entrepreneurial standpoint, therefore, recovery was a straightforward matter: simply pick up where you left off and do

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