Sunday, March 31, 2013

Cyprus has cracked; will India implode?

It is odd to compare India and Cyprus. Cyprus is a small Mediterranean country with a currency common with 16 other nations. Its banks unwisely (in hindsight) over-invested in Greek sovereign bonds and suffered huge haircuts. Laiki Bank is being wound up. Bank of Cyprus is getting restructured. Cyprus would have become bankrupt but for bail-out by the troika of  European Central Bank, IMF and European Union.

India's Current Account Deficit in the latest quarter was ominously high at 6.7% of GDP. CAD and Fiscal Deficit are our Achilles' heels as of now. Our CAD at present is higher than what it was in 1991 when India was on the brink, about to default.

In World Bank's 2013 "Doing Business" Rankings, Cyprus is 36th out of 185 economies. India is 132nd ! (Pakistan is better placed at 107.) In 'ease of enforcing contracts', India is 184 i.e. last but one!

In World Economic Forum's competitiveness table for 2012-13, Cyprus is ranked 58th out of 144 nations. India is 59th, so ominously close to Cyprus!

Of course, India is totally dissimilar to Cyprus in terms of per-capita income and corruption levels. According to WEF, India's per capita PPP GDP is US $ 3,400 as against Cyprus' US $ 29,000. 15.8% of respondents feel India is characteristically corrupt whereas the figure for Cyprus is 3.4%

India's penury is so deep and widespread that any incremental economic misery makes no difference. It is this dubious advantage that keeps India afloat.

Friday, March 29, 2013

FSLRC's Recommendations

The Financial Sector Legislative Reforms Commission headed by Justice B.N.Srikrishna has submitted its report after working on it for about two years.

The Commission has made a far-reaching recommendation to clip the powers of RBI and to further empower Finance Ministry. "The rules on capital account transactions for all inward flows will be made by the central government in consultation with the regulator. The rules on capital account transactions for all outward flows will be made by RBI in consultation with the central government."

This nefarious recommendation has attracted notes of dissent by three eminent members who perhaps are the only ones in the Commission who understand its implications! Y.H.Malegam, K.J.Udeshi and Dr.P.J.Nayak have disassociated themselves from this recommendation; it is unfortunate that in a Commission of this importance, knowledgeable members are unable to prevail upon others. This perhaps indicates the existence of some external influence.

Y.H.Malegam argues forcefully that Finance Ministry must take decisions only on FDI-related inward flows and that other inflows be they portfolio ones or ECBs or NRI investments should be subject to RBI's control.

Malegam also dissents from the Commission's proposal that NBFCs and Housing Finance Companies should be regulated by the proposed Unified Financial Agency and not by RBI. The proposal is very retrogressive.

The Commission has proposed dismantling of SEBI, IRDA and PFRDA. P.J.Nayak reminisces correctly that when the Finance Ministry was administering through Controller of Capital Issues or the Stock Exchange Division of the Finance Ministry, new capital issues were continually grossly mis-priced and malpractices in the functioning of brokerage firms were commonplace. Therefore SEBI etc. were formed. As Nayak wisely asserts, "The Commission now arrests and partly reverses the directional movement and it is with this apprehension that one must view the very substantial statutory powers recommended to be moved from the regulator (primarily RBI) to the Finance Ministry."

It is a pity that members who are in the know of things can only whistle in the dark while the Commission carries out its assigned job of enfeebling the regulators and empowering the Finance Ministry.

Sunday, March 24, 2013

Levy on bank deposits

Cyprus, a tiny Mediterranean island is in throes of a serious financial crisis. It is nicknamed Eurogeddon because it poses a threat to faith in a common currency like the Euro.

If Cyprus had a currency of its own, it could have depreciated the currency and improved its balance of payments and recovered from the crisis. The only solution now is tightening of its domestic belt and to look for aid from the European Central Bank and IMF.

It is estimated that Cyprus needs Euro 17 billion to get bailed out of the crisis. Germany, the most potent Euro power, resists outside assistance more than Euro 10 billion for its own political reasons. This means that Cyprus needs to generate savings to the extent of Euro 7 billion.

This is a tough call. It is proposed to impose a one-time levy of 9.9% and 6.75% on bank deposits depending on their size. More than 40% of bank deposits are held by Russians. Difficult situations may call for difficult solutions. But the problem here is that such a remedy may become a precedent and may discourage bank deposits not only in Cyprus but elsewhere too.

Saturday, March 23, 2013

Subversion of justice

Justice Chandru of the Madras High Court in a recent judgement admonished Justice S.Mohan, a former judge of the Supreme Court for taking up an assignment which a retired judge of the SC was not expected to handle. Chandru's courage and passion to uphold law deserve commendation.

When a retired judge of the highest court in the land keeps commenting on judgements and intervenes in the execution of the sentence pronounced by the court, it is a cause for serious concern. If, in addition, there is no justification for what the former judge demands, it becomes the duty of the judiciary to silence the loose cannon. Justice Katju is one such former judge.

Katju wants Sanjay Dutt to be pardoned by the governor of Maharashtra. Reasons? He has two young children. He has suffered a lot in the last 20 years attending the courts. He is connected with films on Mahatma Gandhi. His parents were 'patriots'. These reasons are as puerile as you can get.

Justice Katju cannot be unaware that the Supreme Court has held Sanjay Dutt guilty of a 'very serious crime' including possessing huge arms and ammunition without licence. It cannot be the case of any prudent person that such a crime which facilitated serial bomb blasts is pardonable. Demented judges, retired or otherwise, are dangerous to society.

Tuesday, March 19, 2013

Book review oddly timed

The Hindu has published today a flattering review of the book authored by Tamal Bandyopadhyay on HDFC Bank. The book is titled "Bank for the Buck". The review is written by N.S.Vageesh who heads the Mumbai bureau of Business Line.

The book is in total praise of Deepak Parekh and Aditya Puri. The hagiographic book creates a false impression in the minds of readers that these two leaders can do no wrong. This was taken as an acceptable exaggeration till the Cobrapost revelations about HDFC Bank (and two others of lesser repute) became public. Not any longer!

The Hindu could not have chosen a more inappropriate time for publishing this "you scratch my back, I will scratch yours" review. The writer seems to be in total awe of the author of the book.

Bankers have started renaming the book as "Bank for the false Buck". Unbounded flattery usually backfires.

Saturday, March 16, 2013

Has RBI started blinking?

It appears that many banks are having a free run in facilitating money-laundering. HDFC Bank, ICICI Bank and Axis Bank are the recent ones whose feet of clay have been exposed.

Is RBI really unaware of this pernicious practice or is it turning a Nelson's eye? It is either inefficient or lacking in ethical standards. This is a far cry from the reputation garnered by this regulator in the tumultuous days following the American sub-prime crisis. It may also mean that we gave too much credit for the capacity of RBI whereas events were working out serendipitously in favour of the sheltered Indian economy.

The RBI Governor has recently shifted his stand on interest rate reduction. It seems that the Finance Minister has forced the Governor to discover the salubrious impact of interest rate reduction. Drop in interest rates will no more aggravate inflation! Demand side pressures will be adequately taken care of by supply side enhancement!

It is a revelation to know that economic consequences are thought to be guided by Finance Minister's optimism and RBI Governor's meek submission! We are in for more economic shocks.

Tuesday, March 12, 2013

Italian politics

Instability is commonplace in Italian politics. Predictably the recent election did not throw up any party with working majority.

Beppe Grillo, a comedian, however caused a surprise emerging as a popular leader who garnered 26% of total votes for the party that he leads, namely Five Star Movement referred to as M5S. What is even more surprising is that he himself could not contest in the elections as his own party does not allow candidates with criminal record.

Grillo is fond of walking barefoot. Occasionally he wears a T-shirt that proclaims Mahatma Gandhi's words "Be the change you wish to see in the world". Signs of hope?

Saturday, March 09, 2013

Rahul Gandhi's giveaway on CBI

According to media reports, Congress vice-president met the wife of recently slain DSP in UP and assured her that she would get justice. He also assured that the CBI would conduct an impartial probe into the cruel murder of the DSP.

Rahul Gandhi has the practice of visiting families in distress and no one can take exception to this. Critics may say it is only a political gesture, but so be it. Every politician does this. But what is perplexing is Rahul Gandhi's ability to guarantee an impartial probe by CBI. The investigative agency is not supposed to be in his / his family's/ his party's control.

It is obvious that the factual position is different from what is supposed to be. If the ruling party (at the centre) or the ruling family is not involved in a matter under investigation, the CBI is 'permitted' to conduct an impartial probe.

Friday, March 08, 2013

Political charlatan

Headlines Today featured Arvind Kejriwal and Mani Shankar Aiyar in a programme yesternight. The former referred to massive unlawful acquisition of land in Rajasthan by Robert Vadra and subsequent amendment of state laws to legitimise the acquisition retrospectively. Details of lands and transactions were provided.

Mani Shankar Aiyer's response was shocking. He claimed that being more intelligent he became an IFS officer rather than an IRS official which Kejriwal was. Aiyer's arrogance is atrocious. One may remember that the super-intelligent Aiyer predicted victory for Congress + DMK combine in the last state elections in Tamil Nadu. On the specific complaint of land acquisition spree by Robert Vadra aided and abetted by the state, Aiyer observed that proof was absent (this is exactly what Pakistan says about Indian allegations of Pak involvement in terrorism) and it is Arvind Kejriwal's duty to investigate fully (as if Kejriwal has the wherewithal and will be allowed to do what even the CBI is prevented from doing) and then come back. Such insolence is typical of M S Aiyer's boorish behaviour.

That is not all. When Kejriwal opined that Caesar's wife must be above board, Aiyer's brilliant response was he does not know who is Caesar and who is Caesar's wife. This only betrays the tragic frustration of Aiyer who has been denied ministership and even party spokesmanship inspite of his shameless defence of the Gandhi family whatever the allegations be. M S Aiyer is articulate but articulation is not the same as intelligence. Standing Defence Counsel for the first family pretends to be unable to distinguish between what is right and what is wrong; this is what a political charlatan does.

Wednesday, March 06, 2013

Rahul Gandhi's shibboleth

Rahul Gandhi who will be our next prime minister, if we are 'lucky', has expounded a new theory. "If I get married and if I get children, I will only be a status-quoist. I will only try to make my children take my position. Therefore, I will not get married." He is clairvoyant enough to foresee that his children will be the next generation of congress netas.

With just a few sentences, Rahulji has demolished the institution of marriage. He says he does not want to give up the task of reforming the party and hence no marriage for him. Have you ever come across a married person who is also a reformer? Atleast our leader has not.

Sadly, he does not want to be prime minister also. He has started talking about 'nishkama karma' and Bagavad Gita also. The essence of the Gita is that one need not renounce family in order to be of service to society. A leader should set up a good example because a lot of people will follow what he does. There should be consistency among what one thinks, says and does. Vagabondism and hypocritical altruism are not desirable qualities.

Saturday, March 02, 2013

Faulty assumption in the Budget

In the Budget presented on 28th February, Mr.P.Chidambaram claimed that he believed that there is a bit of Azim Premji in every one of us. It would have been more truthful to say that there is a bit of A.Raja and P.Chidambaram in each of us. We are more acquisitive than sacrificing, more possessive than philanthropic.

The Budget abounds in tokenism. An exclusive Bank for women! What an idea! This precedent will have to be religiously followed. Forthcoming Budgets will announce opening of exclusive Banks for minorities, linguistic and religious. It is easy to open the floodgates.

10% Surcharge on the income tax paid by the super-rich, all 42800 of them! There is no estimate of how much it will yield.

Investment Allowance of 15% will be allowed if machinery worth Rs.100 crore and above are bought by a company in the next two years. Why insist on minimum of Rs.100 crore? This is our kind of socialism favouring bigger companies as against the smaller ones.

The government continues to follow the cash system of accounting instead of accrual system. It is therefore easier to window-dress deficit ratios simply by postponing cash outflows into the next financial year.

One of the most meaningful couplets in Thirukkural says that even if income is minimal, it does not matter so long as the expenditure is not in excess. This is a couplet that Mr.Chidambaram would prefer not to quote.