Thursday, December 27, 2007

Depression, Recession, Stagflation, Hyperinflation, Life as usual

We are living in an interesting time. Depending on who you read, you can conclude that the US economy is going to experience

  1. Depression
  2. Recession
  3. Soft landing. i.e cooling of the current growth. with no major problems. Life would be as usual
  4. Stagflation
  5. Hyperinflation
The proponents of each of these scenarios have convincing arguments. Surely some one is right and the rest are all wrong.

Here is my take on what will happen.
The Fed seems more comfortable fighting inflation than deflation. So they would rather err on the side of inflation. So scenario 4 or 5 is more likely. Ideally they would like to pull off a scenario 3, but given the extent of the losses in the banking and the shadow banking system, the over stretched consumer debt, the tottering real estate sector and very high trade deficit, Scenario 3 seems more of a hope. The Fed is more likely to let the dollar depreciate further ( By increasing money supply to ward of any deflation and cutting rates to stimulate growth ) . The resulting high inflation will probably need a Volcker like response down the line, but that would be a battle for another day.

Occurrence of Scenario 4 or 5 is going to depend on how much confidence the rest of the world has on the US dollar( A rapid fall of the US dollar can trigger hyperinflation), the extent to which the foreign holders of US dollars/ exporters to the US can break away from the impact of the fall of the US dollar, and how quickly the US economy will get back on its feet & start producing goods & services needed by the rest of the world.

What does this mean for an investor in India ? I do not know. Just make sure you only have that much money in the stock market that you can afford to lose.

Wednesday, December 19, 2007

Cassandra's predictions for 2008

Cassandra's predictions for 2008. Good stuff.
Link via naked capitalism

Friday, December 14, 2007

Callous leaders -2

From The Telegraph

“I told them I had been invited to come here and I should be given a chance to speak,” she told The Telegraph later. “The event is held each year to honour the men who saved Parliament, but no minister has the time to even speak to us. What is the point of calling us all this way, if they don’t even want to ask us how we are?”

She levelled a graver — but not unusual — charge. “There were ministers who were laughing during the function. How can they do that? This is about dignity.”

Is too much to expect that these folks will behave in a dignified manner? I thought the example on my blog was an one off. Apparently it isn't. And of course none of the national newspapers reported any one laughing.

From Times of India
Petroleum Minister Murli Deora was quoted as saying that the retail outlet allotted to Ganga Devi was commissioned on January 25, 2007. In the statement, Deora said that the "outlet is functioning smoothly...and the allottees has not approached BPCL (Bharat Petroleum Corporation Ltd) officials with any problem so far.''

Insisting that the government had given "top priority'' in providing relief to the families of the victims, Deora said out of nine cases, three retail outlets were commissioned in 2003, one in 2006 and four in 2007.
Why does it take the government 5+years to allot a petrol pump? BTW who among these nine "cases" has not yet been provided relief ? and why ?

Wednesday, December 05, 2007

Combating competitive tissue papering

The RBI appears to have done a good job in limiting the amount of tissue paper denominated securities that it holds. The worry is that the other currency denominated securities that it holds may soon turn to tissue paper if the US can convince all the central banks to drop rates. What should RBI (or rather India ) do to hedge against this scenario ?

  1. RBI can follow the follow the policy of competitive tissue papering ( Thanks Nitin). This would result in high inflation. A politically unacceptable solution for a government that always seems to be on the verge of an election.
  2. Slow down the growth of forex reserves. It could choke the inflows or increase the outflows. Choking inflows through blunt weapons like Tobin Tax or curtailing investments comes with its own set of problems. Encouraging outflows seems to be a better option.
What can RBI do to encourage outflows without hurting the Indian industry too much.

  1. RBI/GOI could encourage outflows on the capital account by removing the current investment caps for individuals & firms. There will not be any immediate impact for these moves ( I doubt if a large number of people are even investing to the current limit of 100,000 dollars ) but it will create some uncertainty in the minds of FIIs who are making a one way bet on the rupee.
  2. Remove wealth tax on gold. Indian gold demand would go up & we would end up exchanging tissue papers for gold, which is not a bad bargain
  3. Increase the strategic reserves of oil. India is doing that, may be it is time to accelerate the whole process.
  4. Lower customs duties. Domestic industry seems to be doing well. It is probably a good time to usher in more competition

Added on Dec 6th 14:20 PM IST
Disclosure : I have some investments in gold through ETF & some oil company stocks

Friday, November 23, 2007

Where are the dollars ?

The RBI has been furiously buying dollars to stem the rise of the rupee. It has bought over 84 Billion since Jan 2007. Where are these dollars going ?
From the historical data from US treasury India had about 15 Billion US dollars invested in US treasuries. The latest data shows that India is not even on the list. So it has less that 11 billion dollars of US treasuries.
So where are the dollars going ? Is RBI buying other countries treasuries and thus insulating itself from any weakening of the dollar ? If RBI is doing that, hats off to it. It is passing on the role of managing the dollar depreciation to other central banks, while keeping the rupee from appreciating.

Friday, November 16, 2007

Michael Lewis on "Why I'm Ready to Be New Citigroup CEO"

Micheal Lewis column: "Why I'm Ready to Be New Citigroup CEO".
Fun stuff! Here is an excerpt.

The Wall Street CEO must possess an extraordinary ability to be paid huge sums of money each year without losing composure.

This isn't as easy as it sounds, especially when the firm is losing billions. Imagine if some board handed you $40 million or so a year (before benefits) and tossed in a nine-figure severance package. If you're like most people, you'd dance around the kitchen naked with the drapes wide open -- until you realized what people who raised you would say when they read about it in the paper.

Wednesday, November 14, 2007

AP tops the chart

Andhra Pradesh has the distinction of topping the chart on the number of NGOs blacklisted by CAPART. Of course the data can be interpreted in many ways. May be the blacklisting criteria was tougher for AP, the AP based NGOs were stupid enough to get caught etc. The lesson to be learnt from this exercise is, if you plan to donate to NGOs, do your homework before giving away the money.

Here is the state wise list that I have compiled.

Andhra Pradesh 176
Bihar 123
Tamilnadu 75
Karnataka 71
Uttar Pradesh 69
Kerala 33
Rajasthan 33
Delhi 21
West Bengal 21
Haryana 20
Maharashtra 19
Orissa 19
Madhya Pradesh 14
Manipur 11
Nagaland 10
Gujarat 8
Jharkhand 8
Himachal Pradesh 6
J&K 4
Mizoram 4
Assam 2
Pondicherry 2
Chattisgarh 1
Meghalaya 1
Uttaranchal 1

Tuesday, November 06, 2007

Erosion of core constituency ?

How much the CPI(M)/CPI's core constituency has been eroded can possibly be gauged from the JNU elections . Its student wing ( SFI-AISF) supported candidates finished 3rd in three of the four central panel posts and just about managed to cling on to second position in the other post. JNU has always considered a bastion for SFI, with both Prakash Karat & Sitaram Yechury being past presidents of the JNU students union. Does this election provide a pointer to the direction in which the wind is blowing ?

Wednesday, October 31, 2007

Mr Prime Minister, Did you sleep well last night ?

Mr Prime Minster,
Did you sleep well last night ? If you did , was it because you stopped watching television? Was it because the Indian media chose not to highlight the plight of families of over 4000 workers detained in Dubai ? Was it because these 4000 odd people were not accused of terrorism and therefore did not deserve to have their share of your sleepless nights ? Was it because these poor workers had no articulate English speaking wives, to explain their viewpoint to media?

ps : Is it surprising to see that the BBC does not seem to report that any one was detained. It has a bland news item. What a contrast to its coverage of the Gurgaon Honda Strike

Tuesday, August 28, 2007

Callous leaders ?

How callous can our leaders get ?

Here is an illustration. From Deccan Chronicle - epaper : Page 4

This comes a couple days after the bomb blast in Hyderabad. It was in a all party meeting to discuss the blast. Wonder if the Chief Minister & his colleagues would be laughing so loud if their friends/family had been victims?

Thursday, August 09, 2007

Markets headed further down ?

From Forbes : BNP Paribas Freezes Funds

One of Europe's largest banks, France's BNP Paribas, said on Thursday it had frozen three of its investment funds, citing volatility in the U.S. asset-backed securities market. The funds' exposure to risky subprime loans means the bank can no longer calculate their net value.

BNP Paribas blamed "the complete evaporation of liquidity" in certain areas of the U.S. securities market for its inability to calculate the fair value of the three funds in question
Hmm.. So any fund that has invested in these three funds will now no longer be able to accurately calculate their net value. So should they also be frozen ? That would trigger a cascading effect, which likely will result in no mutual fund any where in world being able to calculate their net value.

Here is the normal way in which this would have been handled. These funds would probably treat their entire sub prime mortgage investments as wiped out and calculate their net asset value accordingly. Investors would be allowed to redeem at this calculated net value. New investment in the funds would be stopped to allow existing investors to gain if there is any value left in the sub prime mortgage investment.

The fact that this wasn't done leaves room for speculation that losses from the sub prime part of the funds could have been unbounded i.e the entire net value of the funds could have been wiped off. A scary thought for markets already under some strain.

Disclosure : I have no short position in any markets.

Disclosure vs License permit raj

Business Standard today has a wonderful editorial on higher education. This is the first time that I have heard of any one advocating a disclosure based approach to institutions of higher education.

The basic idea is straight forward. Instead of the mandarins of the HRD & its affiliates deciding who should offer, what courses, to whom and for what consideration, it is left to consumers of education to decide. To enable the consumer to make a rational choice, the editorial calls for disclosures from institutions that offer education. The idea has been borrowed from the Indian capital markets, which has moved from a restrictive Controller of Capital issues to a SEBI mandated disclosure rules for companies raising money in the capital markets. And the results are there to see.

Tuesday, July 31, 2007

Direct transfer is the way to go

From the Indian Express

To a question by Lord Meghnad Desai — why can’t we transfer money, say a dollar a day, directly to the poor? — Chidambaram said, “Cash transfer Publish Postdirectly in the hands of poor is the single most popular program to poverty alleviation until we provide them jobs. But we need to have the money for it. We will need to dismantle the existing schemes and the system. I will do my sums tonight to see if we have the money.”
Mr. Chidambaram need not do the math. He can have all the information here
My calculations shows that each BPL (below poverty line) family can get Rs 2500 per month by cutting the subsidies which have been instituted to alleviate poverty. An biometric based Unique Identification Number is the way to go to prevent fictitious claimants for these transfers. Tying this to PAN & making PAN mandatory for all financial saving transactions can weed out the pretenders.

Monday, July 23, 2007

Regional Parties Bachao Front

There has been a call from the highest level for a two party system in the country. This has set alarm bells ringing in the head quarters of the regional parties. They have now united under a single banner to safe guard their interest.

The Regional Parties Bachao Front ( RPBF) have been strongly opposed to the unrestricted entry of national parties in elections. Meanwhile several national parties have entered the election frey and are expanding their operations aggressively. These developments in the regional politics are having an adverse impact on a large section of people who are represented by regional parties across the country. In this backdrop the Regional Parties Bachao Front is putting forward a proposal to adopt stringent regulations on the entry on national parties in various states.

  • The RPBF proposes that a system of licensing should be introduced for national parties. Any national party contesting more that a specified number of seats needs a license from local licensing board.
  • A dedicated committee/board/department should be set up by the local bodies, with representation from regional parties, which should be empowered to grant licenses to national parties.
  • Licenses should be given on the basis of a population criterion, i.e. not more than X number of national party candidates per Y population. The criteria may vary between states and cities depending upon the nature of the elections and the votes needs.
  • Besides a system of licensing for national parties, a number of steps need to be taken by the Government to prevent the emergence of monopolies of national parties in elections. A single national party should not be allowed to capture a large vote share share. For this it is important to restrict the number of candidates that a single party can field in a city, state as well as region.
  • In order to prevent the development of big national party monopolies, it is also important for the Government to ensure its presence in the elections. Several regional parties have become defunct , which need to be revived. Government should fund these parties. Partnerships between existing regional parties can also be considered, in areas where synergies exist.

I can already hear screams from my fellow country men that this restricts the choice that our voters will have. My fellow country men would also argue that the intelligent Indian voter can be trusted to keep the regional parties alive, just to keep the national parties in check etc.

So my question to my fellow country men is, if the above proposal sounds ridiculous from the voters view point why is not this proposal ridiculous?. This restricts the voters ( and non voters) economic choice. Why are we slow to condemn proposals that restrict choice in the economic space, but are quick to condemn restrictions of choice in the political space?

Wednesday, June 27, 2007

We the people need some answers

The image below says it all. We would like to hear from our candidate what she has to say about these allegation. If they are a part of a smear campaign, let her say so. We do not want to hear from spin masters Jayanthi Natarajan, Abhishek Singhvi etc . Let the candidate speak !

Dawood Ibrahim's RTI plan

Here is how Dawood Ibrahim should plan his RTI ( Return to India, quite a few NRIs seem to have been bitten by this bug ).

Step 1: Float a party. Use the usual technique of bribes & intimidation (carrot & stick ?) to win a few Lok Sabha seats.
Step 2: Bargain with parties that want your support for Governor posts. Yes that is right, forget bargaining for ministries etc. Since political parties have not much use for Governor's role, they will happily give you as many as you want.
Step 3: Get your self appointed as a Governor.

Now you are done. You can now come to India, run your empire from the hallowed portals of the Raj Bhavan without any fear that any one can stop you or your activities. You cannot be prosecuted for activities in the past too!!. So as long as you are a governor you should be safe.

And here is why you can do it
From Article 361(2) of the Indian Constitution. [ Thanks realitycheck for pointing that out ]

No criminal proceedings whatsoever shall be instituted or continued against the President, or the Governor of a State, in any court during his term of office.

Did our founding fathers envisage such a scenario ? They did not. They expected Presidents & Governors to be above board. They envisaged this more in the context of the Raj Pramukh.

Here is an excerpt from the discussions of the constituent assembly

Shri V.S. Sarwate (Madhya Bharat):

Coming to the Constitution itself I may say that every man residing in Indian State would have been happy if the Rajpramukh had not been linked with the Governor and the President. I am reminded of a jibe at Panini, the Sanskrit Grammarian and in one of the aphorisms he had said:

Shwa yuvam dyonah (original in Devanagari)

He applied the same rule to a dog, to a young man and to God Indra. Something like this has happened in this Constitution. I would refer to article 361. The section says: "No criminal proceedings whatsoever shall be instituted or continued against the President or the Governor or Rajpramukh of a State in any court during his term of office". It was quite all right as far as the President or the Governor was concerned; but the clause does not fit in with the Rajpramukh, whose office terminates only with his life. Take a worse case. Supposing a Rajpramukh commits a murder. There is absolutely no remedy against this in this Constitution.

Shri T.T. Krishnamachari (Madras: General): May I point to my honourable Friend that the Rajpramukh will hold his office only subject to the President allowing him to do so and if he commits a murder, he will be removed from the office

Ps : I think Shibu Soren should fire his legal team & his advisors.. Instead of bargaining for coal ministry he should have asked for post of governorship of some state.

Thursday, June 21, 2007

55 Million new jobs and not a whimper

It looks like the OECD report, which concluded that India on an average created over 11 million net new jobs a year between 2000 and 2005, got buried under a ton of debris that passes of as news in India. All major newspapers ( barring the Hindu, which seemed to have ignored this story altogether) ran a story about this in the inside pages. Google blog search throws up very few references to this.
This has triggered my curiosity. 1) Where did OECD get its data from ? 2) Why is the Indian political class ignoring this ?

The answer to the first question is simple.
From Page 30 of the report.

Data reported in the tables and figures are from successive five-yearly rounds of the National Sample Survey – a country-wide survey of households – covering the months of July to June, for the following years: 1987/88, 1993/94, 1999/2000 and 2004/05

So it is from data released some time back. The reports uses the current weekly status as the data to measure unemployment. One could quibble about the specifics, but over all data seems good enough to make estimates

2) The second question is more puzzling. One would have expected our politicians to have been the first to jump in and claim credit for the employment growth. The Congress is understandably hamstrung in claiming this credit. It was in power for very short time during this period and more over it mistakenly believes that it got voted in because the 'aam aadmi' did not see any progress in the early 2000 period. Statistics seems to fly against this belief, but the Congress is unlikely to publicly move away from its belief.

The BJP on the other hand should be jumping in and claiming credit, so why is it not doing so ? Has it also been brainwashed into believing the 'aam aadmi saw no progress' theory peddled by the Congress & the Left ? Can any blogger, who may have an insight into how the BJP thinks, explain this puzzling behaviour by the BJP ?

Sunday, May 13, 2007

Arjun SIngh : Time to take a bow

This is my comment in response to offstumped's post on Mayawati's victory

I think we are not giving enough credit where it is due. Arjun Singh should be credited with destroying BJP in UP. His Mandal 2 forced BJP to side either with their traditional upper caste votebank or to pick the emerging OBC votebank. BJP picked the OBC, paving way for Mayawati to run away with the upper caste votes. If this upper caste disenchantment with the BJP spreads to the rest of the North India, BJP may increasing start looking like the Congress, a party in the wilderness.

I will try and elaborate this point in a post in the near future

Wednesday, May 09, 2007

With great power comes great responsibility

From the Editorial of The Hindu 09 May 2007

However, the order of a local court asking the police to register a case against the Minister on the charge of culpable homicide not amounting to murder is another instance of misplaced judicial activism. The Minister has been named as the seventh accused in the case filed on the orders of Additional Chief Judicial Magistrate S. Gopalakrishnan. Others named as accused include doctors, nursing superintendents, and a labour room cleaner. Ministers and administrators must certainly be held accountable but little is achieved by pinning over-the-top charges against them before the investigation is complete. On the same principle, will a Railway Minister be prosecuted for culpable homicide not amounting to murder when there is a train accident causing multiple deaths? Or a Prime Minister or Defence Minister for a military operation gone wrong? Or a Chief Minister or Home Minister for fake encounter killings by the police? What is needed is exemplary action that addresses the issues at stake, including issues of legal culpability — not a witch-hunt.
Hmm.. I wonder if the Editorial team at The Hindu looked at this judgement delivered on the 19th of April 2007.
The Supreme Court has ruled that top rung officials like chairpersons, managing directors and directors of a firm can be held liable for criminal prosecution if a cheque issued by their company bounces at the bank.
The burden of proving that they were actually not in charge of the company at the time when the cheque was issued would rest on the officials, a bench of Justices Tarun Chatterjee and P K Balasubramanyam said while upholding an appeal filed by public sector BSNL.
So if top officials of a company are responsible for what the company does, why should not the honourable minister be held accountable for his/her department. If one wants to enjoy ministerial perks, one better be prepared for being accountable for one's actions/inactions while holding that office.

To take the editorial's argument forward, does this mean that The Hindu feels that we should absolve Warren Andersen of culpable homicide in Bhopal Gas case? After all the poor guy was only the Chairman of the holding company, sitting thousands of miles away, and many levels of hierarchy away from the scene of the action.

Perhaps Hindu in its urge to rush in and defend a member of the party it supports, forgot to think through the whole issue. It should remember that with great power comes great responsibility. If Ministers can't handle the responsibility they should not hanker for the power.

Monday, April 23, 2007

Time to relearn 5th standard civics ?


It is the duty of the Parliament to legislate and the duty of the executive to implement and the judiciary's duty is to see it is implemented,'' said Sitaram Yechury, Leader, CPI(M).
For a moment consider this situation. Tainted legislators rises from the the current 25% to say 51% and then they pass a law to provide immunity to legislators from charges of "human trafficking" . Would we expect the judiciary to ensure its implementation ? or would we expect the judiciary, as the safe keeper of the constitution, to throw this law into the dustbin it belongs ?

If the above quote of Honourable Member of Parliament Sitaram Yechury conveys the understanding that an average parliamentarian has about the roles of the branches of government, it is not surprising that we constantly hear that the legislature & the judiciary are on collision course.

Perhaps Mr Yechury should take a little time off from his busy schedule and relearn his 5th standard civics lessons.

Tuesday, February 06, 2007

Water Woes

The Cauvery tribunal took 16 years to reach a verdict and as expected it hasn't satisfied all the parties concerned. Karnataka feels let down, so does Kerala. So far Tamil Nadu seems happy with the verdict but I expect in the coming days they too will feel cheated ( or at least pretend to feel cheated). The verdict is in, but the issue has not gone away and it would be a miracle if it goes away. At the root of the dispute, is the question of how the water in river should be shared.

My take on the issue is that there are two different questions in this issue and resolution is possible if they are separated. The first question is who owns the water ? The second question is who should be allowed to use it ?

The answer to the second question is simpler. People who are willing to pay get to use the water. There are broadly two types of users. Those that use the water for navigation, fishing, recreation etc and those that use for irrigation,industry and domestic purposes. The first set of users do not lessen the quantity of water by their usage. The second set do lessen the quantity of water by using it. The first set should probably be pay an annual fixed price and the second set should pay in proportion to the usage.

The first question is more complex. Going forward, we can expect water to become a sufficiently scarce commodity. The aim of defining the ownership of water, should be to encourage increasing the amount of water that is available in the river. The main contributors to increasing the amount of water in the river would be communities in the catchment area & communities in the flow area. These communities should own the water in the river. They should be allowed to manage the flow ( through Dams etc ), use the water & sell the water. Land ownership in these areas could be used as proxies for arriving at water ownership with higher weight given to lands in catchment areas.

Thursday, February 01, 2007

An ill advised ordinance

From The Hindu Govt clears ordinance to ensure sports feed on DD

With just weeks to go for the cricket World Cup, the government today approved promulgation of an ordinance, making it mandatory for private broadcasters to share live feed of important sporting events with public broadcaster Prasar Bharati.
The decision will ensure that millions of cricket lovers in non-cable houses and radio listeners would receive live feed of Indian team's one-day matches, wherever it plays. However, for test matches, the government has said live feed would be required only for matches played in India while for those played abroad, the highlights would be sufficient.
Time for the cricket/sports fans to celebrate? Not really. The government may succeed ( if it can defend the legal challenges that are bound to follow) in creating an illusion, that it has got sporting action to everyone who has access to a TV set for free. But did any one tell them that there are no free lunches? The likely result of this move, would be lesser money in the hands of sports bodies. Is any one going to bid fancy prices for sporting events in India in the future? Lesser money in the hand of sports bodies means either lower spending on developing the sport or larger handouts from the government to keep the sport going.

Is any one going to try developing a PHL type tournament in any other sport ? No ! For the moment it is successful, DD will walk in and take away the advertising rupees that one was counting on. So Indian sports, like Indian education, can now wait for philanthropic hand outs.

Monday, January 22, 2007

The loot in the name of the poor

It is budget time again and most of the focus seems to be on where the tax concessions are going to be or where the tax increases are going to be. News papers the day after the budget, headline with the tax concessions given or the increases. There is focus on new schemes, but there is very little focus on where the money goes & for whom. The Government when it doles out subsidies, often claims that it is for the poor. A short analysis below tries to to figure out some of the amounts involved.

Subsidy from the Central Budget 2006-2007
Food : 24,200 Crores ( From
Fertilizer : 17,252 Crores ( From
Petroleum : 27,863 Crores ( From the previous blog post )

Subsidy from the State Budgets 2006-2007
Education : 93767*(100-1.2)/100 = 92641 Crores ( From RBI & RBI ) . 1.2 = % of cost recovered from users
Electricity : 35,632 Crores ( From RBI
Health : 25775*(100-4.8)/100=24537 Crores ( From RBI & RBI )
Irrigation : 14911*(100-16.9)/100 = 12,391 Crores ( From RBI & RBI )

Just these expenses add up to 2,34,517 Crores. This translates to Rs 31,980 per family per year for the bottom 1/3 of the population [ Assuming population of 110 Crores & family size of 5 ]. This is just a fraction of the money allocated & spent in the name of the poor, none of which seems to have much impact on poverty. A very large loot, in a country which has so many poor people.

And we have not even touched on such heads like Social Security (13,171 Crores) [No, Social Security is not employee pension] , Nutrition (5148 Crores), Transportation & Communications ( 13,957 Crores), Agriculture (23,634 Crores).

Would it not be better if we just scrap these schemes and instead transfer the money to the poor families? With Rs 31,980 a year or an extra Rs 2,500 a month these families will definitely have a greater chance of pulling themselves out of poverty ( If they do not automatically come out of it by just this transfer)

The biggest issue with doing some thing like this would be to correctly identify the beneficiaries. Technology could help us here. I see having a single unique biometric based national identity as the starting point, something like the US social security number. More on this in a later post.

Thursday, January 18, 2007

Domestic Fuel : A case for targeted subsidy

From The Hindu

The government plans to restrict subsidised domestic cooking gas (LPG) and kerosene to poor people only, Petroleum Minister Murli Deora said today.

"Yes, we are in agreement with the suggestion that there should be dual pricing (subsidised price for poor and market price for the people who can afford) for cooking fuels," he told reporters here.

Public sector oil firms sell kerosene at just over Rs 9 a litre, cheaper than a bottle of mineral water, he said, adding kerosene was being subsidised by over Rs 15 a litre while LPG was being sold at a discount of Rs 155 per cylinder.

"Why should subsidised LPG cylinder come to my home or to any other people who can afford it," he said.

This is a welcome move. I do not see why the government should subsidize the rich or for that matter parts of the Hotel industry that thrives on diverted subsidized LPG.

What is the size of the subsidy bill we are talking about ?
From Business Line 23 March 2006

The Ministry hopes to deliver domestic LPG and PDS kerosene to households across the country at affordable prices during 2006-07.

It plans to make available 118 lakh kl of PDS kerosene and 74.42 crore domestic LPG cylinders to households at subsidised prices.

LPG subsidy alone would be 150*74.42 = 11,163 Crores. & subsidy on kerosene works out to 1180*15= 17,700 Crores. That is a total subsidy bill of 27,863 Crores.

A simple back of pad calculation shows that this amounts to Rs 3800 per family per year if targeted at the bottom 1/3 of the population ( Assuming pop=110 Cr & avg family size=5 ). This is a significant sum of money. It makes immense sense for the Government to target this subsidy at the poor instead of handing it over to every one in the country.

One way of operationalizing this, would be to restrict LPG subsidy to those families that possess a white ration card/Below the Poverty Line ( BPL) ration card. The scheme could be that if you possess a white ration card & want to avail of the LPG subsidy, you need to register that card with your Gas supplier. The gas supplier can then endorse your card. This would mean that you will get a lower supply of subsidised kerosene. So the BPL family can decide whether they want to take the fuel subsidy in the form of Kerosene or LPG. All the others would be supplied unsubsidized LPG and Kerosene. To prevent subsidy leakage, you would still need to impose rules that limit the number of subsidized refills that one can avail in a year, the gap between each subsidized refill etc.

What are the major weaknesses in the above scheme?
  1. BPL card administration is weak. It is possible for the undeserving to get hold of these cards
  2. BPL card administration is a state subject. One would need to convince states to fall in line with the above plan
The first weakness is manageable. After all instead of subsidizing every one, you are now subsidizing all the deserving & some undeserving. The second weakness will be quite tricky to overcome. One option could be the Central government restricts supply of subsidized LPG to each state. So states that are unwilling to implement that plan can devise their own ways of targetting who should get the subsidy.

If there is no after life

Part of the answer from person posting using profile "Should I" to the question that President Kalam asked on Yahoo Answers . [ Got this link via Desipundit ]

Education also provides the opportunity for us to instill the idea in children, early on, that killing human beings is cheating others of their opportunity to exist and fulfill their function in this world. Children need to be taught, with great repetition, that we have only one life... and thus, we must not take any persons life away from them, prematurely, because that is their ONLY life. Once again, this flies in the face of religion which often distorts the truth by telling children and adults that there is a "second" life, or an afterlife, "heaven", etc. There is no evidence of secondary lives or secondary existences... and this fact should be taught to children. If they realize they have one life, and the same applies for everyone, then they will be forced to deal with that fact when deciding whether, or not, to join a movement, such as that which we loosely refer to as terrorism

That life is precious is instinctively understood. We know that people who die , don't ever come back. But would this realization that there is no after life have impact on how precious we consider life to be? Would this also mean that people will be less inclined to sacrifice oneself to say rescue another human?

Tuesday, January 16, 2007

Light at the end of the tunnel ?

Just read on Apmedia that the Supreme Court has turned down the various objections (excuses ?) that the State Governments had come up with, as to why they could not implement the September 22 judgement on police reforms. The September 22 judgement was given wide publicity, and then we heard that States would be filing an appeal. What was not widely reported, was that the Supreme Court had turned down the appeal by the State Governments. It looks like the long over due reforms in the police force will finally see the light of the day.

Friday, January 12, 2007

End of Legislative Majoritarianism ?

The judgement of the nine judge constitution bench of the Supreme Court, regarding the acts in ninth schedule, has now opened the acts that were beyond judicial scrutiny to judicial challenges. The Bench held that all such laws included in the Ninth Schedule after April 24, 1973 would be tested individually on the touchstone of violation of fundamental rights or the basic structure doctrine.

From what I can glean, the land ceiling acts of Andhra Pradesh, Bihar, Gujarat, Haryana, Kerala, Madhya Pradesh, Himachal Pradesh,Karnataka, Punjab, Rajasthan, West Bengal, Maharashtra, Orissa, Uttar Pradesh, Dadra & Nagar Haveli, Tamil Nadu, Gujarat, Assam (or shall I say every state's land ceiling act ? ) is now open for scrutiny. So too are the urban land ceiling acts (ULCA) . The fifty year saga of curtailment of property rights now has some hope of being reversed.

Also it opens up for scrutiny The Industries (Development and Regulation) Act, The Monopolies and Restrictive Trade Practices Act,The Foreign Exchange Regulation Act,The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,The Essential Commodities Act. It also potentially nullifies Tamil Nadu's law to circumvent the 50% reservation limit. Here is a complete list ( Word Doc) of acts in the ninth schedule. My interpretaion is that all acts, starting with 67. The Andhra Pradesh Land Reforms (Ceiling on Agricultural Holdings) Act, 1973, would be open for scrutiny.

The worst acts in India, in terms of curtailment of freedom have always found their way into the Ninth Schedule. Any one remember the dreaded MISA (The Maintenance of Internal Security Act) ? It was under this schedule that it found sanctuary. So too the The Prevention of Publication of Objectionable Matter Act, 1976, which attempted to curb the freedom of the Press.

This judgment taken along with the famous basic structure of the Constitution judgement ensures that the Constitution of India will be not be subject to legislative majoritarianism. It adds some welcome rigidity to the Constitution as far as guarantee of Fundamental Rights are concerned. If this judgement were not there, nothing really stops, say a fundamentalist party with a brutal parliamentary majority, from changing India's constitution to make it less secular & hiding that piece of legislation under the ninth schedule.

Just as the abrogation of property rights has come back to bite the very people it was supposed to help [ Refer earlier post on property rights ], any attempt to undermine the spirit of these judgements, will come back to bite at a later date.

Wednesday, January 03, 2007

Who is the Knowledge Commission working for ?

From Zee News: Knowledge Commission against inviting foreign universities

The move to invite foreign universities to offer education in India today came under attack from Vice Chairman of National Knowledge Commission P M Bhargava who said it would lead to commercialisation of higher education.

"This move is to commoditise education. Education is not at all a commodity," Bhargava said at the seminar on "Education Commission: Revisiting the Commission's Premises, Vision and Impact on Policy Formulation," organized by National University National University of Education Planning and Administration here.

What is commoditization? Wikipedia has two answers. (It redirects commoditization to Commodification)
  • In the business world, commodification is process that transforms the market for a unique, branded product into a market based on undifferentiated price competition. Consumers usually benefit from commodification, since perfect competition usually leads to lower prices.
  • In Marxist political economy, commodification takes place when economic value is assigned to something that traditionally would not be considered in economic terms, for example, an idea, identity, gender.
I presume Dr. Bhargava did not mean the first option. So let us assume that he was using "commoditise" in the Marxian context. In simple terms this boils down to higher education being a public good & hence needs to be supported out of Governmental revenues.

Given that in India, access to even secondary education is extremely limited, [Refer page 5 of Secondary Education in India - Investing in the future By Wu & Dar] this subsidized higher education is unlikely to reach the bottom quintile and more likely to be grabbed by the middle class & the rich. So why is the Knowledge Commission fighting for the rich & middle class?

From the same article
"I strongly oppose the move of Commerce Ministry to invite the foreign universities into the country," he said.

Bhargava said the move will facilitate the second grade and third grade universities in abroad to come and set up their shops here.

"No good university will come. The second grade and third grade university will come and make profits in the name of quality education," he told a news agency later.

We have heard this story before. Remember the early 90's stories of Indian software engineers only working on low end maintenance projects? Or the early 2000 stories that only low end call center work is outsourced to India? What Dr. Bhargava says is likely to happen. The first that will test the waters are going to be younger educational institutions, those that have little to lose & a lot to gain. The Ox-Bridge/ Ivy Leagues will come in much later. But why should we quibble? Does the color of the cat matter as long as it catches the mice? If the new entrants offer value, they will have a market. If not, they will need to go back to the drawing board and rework their India strategy. Any one who is under the mistaken belief, that all a foreign university needs to do is to set shop in India and every one will flock to it, needs to read about the struggle of MTV, Pepsi, Coca Cola, Pizza Hut etc. to gain market share in India. India is an extreme value conscious market. You need to get your value proposition right to crack the market and the same will apply to higher education.

Who is the Knowledge Commission helping by keeping out foreign Universities? The immediate gainers are our private colleges, mostly owned by our ruling elite. They can continue getting away with providing third rate education in a controlled environment. The biggest losers are our middle class students ( who can't afford to study abroad) , our Professors ( who have fewer employment opportunities ) & our nation as the rich opt to study abroad spending over Rs 3000 Crores a year. So is the Knowledge Commission working to help India's elite maintain their stranglehold on education business?

PS : If Dr Bhargava is speaking in his personal capacity, then I would like to know why he thinks education should not be "commoditised" but egg/sperm donation can be ?