August 27, 2012
There is an unhealthy reliance among several Indian policymakers, companies and financial investors on the flows coming into India from foreign companies and foreign investors. Just as Government of India provides maximum sops, open and hidden, to large Indian corporates the same is done for all foreign investors.
Here is something connected to this issue I wrote earlier this month in an editorial contribution to the newspaper I work for.
Don't revive redundant P-notes
Re-look into recent tax policy measures should not end up prodding regressive foreign flows through P-notes
Nothing can be more un-healthy if the consequences, intended or un-intended, of the finance ministry's assurances to foreign companies investing in India of re-examining recent tax policy announcements such as the general anti avoidance rules (GAAR) if it leads to encouragement of illegitimate and tax-avoiding fund flow in the Indian securities market and financial system.
The rise in foreign institutional investors' participatory notes exposure in June after a couple of months of subdued levels, as reported in this paper on Monday, points potentially to such an adverse encouragement. A controversial matter such as retrospective taxation has merit in being debated and revisited but surely the country can ill-afford to play a cheerleader to those who use double taxation avoidance treaties more as tax-avoiding means than as facilitators of legitimate exchange of trade and business between countries.
The new finance minister, P Chidambaram, is an old hand in the finance ministry having been the FM during 2004-08 and earlier during 1996-97. It will be most unfortunate if he is does not sift the chaff from the wheat. He did issue a lengthy official statement on Monday with regard to bringing economy back on desired track and laying down a map for recovery and touched upon all aspects including taxation and foreign investment flows. While it is hard to predict what will be the final outcome of various recent policy measures hanging in limbo one hopes the clock is not turned backwards.
At least on the participatory notes issue Chidambaram is on familiar ground. After all, he was the finance minister when the capital market regulator, Sebi, in October 2007, tightened the screws on FIIs issuing participatory notes. P-notes are nothing but non-exchange-traded derivative instruments issued offshore by FIIs, mostly FII sub-accounts. These have Indian equities traded on domestic exchanges as their underlying and are issued to investors and funds who for reasons good and bad do not want to go through the process of registering themselves as FIIs with Sebi and then invest directly in Indian equities. Back then their share in total FII investments exceeded 35 per cent and was generally considered a backdoor route for Indian black money flowing in from P-notes which were largely issued by Mauritius-based FIIs.
Various analyses had at that time indicated that FIIs issuing P-notes had major investments in stocks beyond Nifty or Sensex stocks. Way back in 2006, Reserve Bank of India had in a dissent note to an government-appointed expert group's report on encouraging FII Flows and checking the vulnerability to speculative flows recommended winding down of P-notes. Sebi's later restrictions proved effective in curbing the extent of P-notes and its share to total FII investments is currently hovering between 10 and 15 per cent.
Given that Sebi has recently opened the doors to qualified foreign investors and made it possible for genuine foreign investors to invest in Indian equities without having to register as FIIs. It is time P-notes are made redundant completely through a regulatory ban on its issuance by Sebi. But the FM in his Monday's statement has already linked exchange rate stability to a rise in capital flows through FDI and FII route and gone on to state that his ministry intends to fine tune policies and procedures that will facilitate capital flows into India.
This may make it difficult for Sebi to hammer the final nail on the P-notes coffin. Even in October 2007 it was a fast-strengthening rupee that was hurting exporters and prompted the curbing of foreign flows through the P-note restriction. Should we keep fiddling with policies to encourage or rein in capital flows or should we have a stable regime based on intrinsically sound principles?
August 21, 2012
A couple of weeks ago, I contributed an editorial, for the newspaper I write for, on the issue of power/electricity crisis in India. I share it below:
Go for new bright solutions
Power crisis must push government and users to moderate demand and use renewable energy
The severe two-day power crisis that enveloped half of India earlier this week led to the torchlight falling upon the usual suspects -- severe shortage of coal for power plants, supply not keeping pace with demand leading to overdrawing of power by some states from the national grid. Most solutions to the power crisis tend to veer around rapidly increasing coal production in the country to meet the relentless growth in demand. But the time has to come to inculcate fresh thinking in the matter.
To begin with, we have to be open to embracing the idea of moderation in the demand from everyone except those who have yet to enjoy the benefit of electrification and those who receive electricity but only rarely. We should not forever remain a hostage to the pressure of high GDP growth since that is based on extremely high consumption of power.
A 10 per cent moderation in demand is possible overnight if users simply do not waste electricity due to carelessness in switching off when not using it and due to wrong or frivolous usage. Due to lack of sensitivity among users, whether retail, corporate, businesses, industrial or government this quick reduction is not happening currently.
Awareness and sensitisation campaigns by government and private sector need to get going right away. Another 10 per cent reduction in demand can take place with the use of energy-efficient appliances. Urban usage of power-hungry incandescent light bulbs should not be tolerated any more. Fluorescent tubes are giving way energy-efficient compact fluorescent lamps but the pace ought to be accelerated. Corporate offices should, in fact, be goaded to graduate to LED lights which, though more expensive than CFLs, consume the least power among all types of lighting. Only five-star rated air-conditioners should be allowed for commercial customers.
With government intervention and voluntary contribution by users, a 20 per cent reduction in power demand is very much possible. Power demand that can not be curtailed need to increasingly use renewable sources of energy no matter their high costs.
Due to frequent power cuts, majority of households, shops, corporate offices, industrial establishments and agricultural tractors and pumps are anyway forced to depend on diesel-powered power generators. This leads to high cost anyway. If and when subsidies on diesel go the cost will go up still more.
Cost of solar power is increasingly coming down and the difference between diesel and solar is bound to get bridged very soon. The government's solar mission, although flawed and myopic in some implementation areas, is increasingly providing cost subsidies to solar equipments.
Solar lighting is already a hit with widespread small and big manufacturers and consumers. Innovation in solar energy field is taking place every single day. Just the other day a large-sized energy equpiment manufacturer began advertising for a hybrid solar-grid UPS where its battery, once fully charged from solar panel or power grid, will block power flow from main grid and run appliances on solar power.
This is just one of several innovations already available in the marketplace. Cost subsidies from government will make more users switch to them and reduce the pressure on the power grid. When demand gets controlled supply-related problems will not result in a crisis in the conventional power grid.
August 20, 2012
I just stumbled upon a news report that saddened me. I know that that incident which the news report covered is not the first of its kind but it does not pain any less. The news report, which I provide below in full, was about a few young men setting on fire a 11-year old girl in Bangalore because they had a dispute with the girl's father.
This is a murder most terrible. I pray for the soul of the little girl to heal. My heart goes to the girl's family.
I really hope and pray for violent-minded individuals in our society to shed their violence. And if they don't then I really wish that the laws of the state and the state enforcement machinery provide stringent deterrents to violence and murder. In the case of this little girl, the onus is on the police of Bangalore to ensure a watertight case is built on the actual murderers and the planners of the murder.
11-yr-old girl set ablaze loses battle for life
- August 19, 2012
An 11-year-old girl, who was set ablaze by a gang and battling for life at Victoria Hospital, Bengaluru for the last two days, died on Saturday morning. Kavitha had sustained 90 per cent burns after she was set ablaze by four to five people early on Thursday morning. Kavitha, a resident of Weavers’ Colony in Hulimavu and a fifth standard student at the Bannerghatta Government School, was on her way to school with her younger sister, eight-year-old Kavya. Her sister asked Kavitha to go ahead as she wanted to meet some friends and go to a temple. No sooner than they parted, the gang caught hold of Kavitha, doused her with kerosene and set her ablaze. Kavitha’s father Venkatesh, a cab driver with a travel agency, who was washing his car hardly 500 feet away from the scene of the incident, saw his daughter on fire and rushed to her rescue. He
put out the fire, and immediately shifted her to Victoria Hospital. Venkatesh told Deccan Chronicle that he suspected area rowdies behind the incident. “They were extorting money from me for years. They came around asking for Rs 1,000, and sometimes their demand went up to Rs 3,000. When their visits became too frequent, I lodged a complaint with the Hulimavu police.” But after a year, some influential people from the area pressured Venkatesh to withdraw the complaint. “I never thought that filing a complaint would lead to such a tragedy and I would lose my daughter one day,” said an inconsolable Venkatesh.
But he could sense that the rowdies were following him and keeping a watch on him for the last 15-20 days. Kavitha, in a moment of consciousness, told Venkatesh that her attackers had dyed their hair blond. Venkatesh’s younger brother Shiva said: “Venkatesh is innocent and sincere in his work. Kavitha was a friendly and jovial child. She was very active in sports and studies.” Dr Ramesh, head of the plastic surgery department in Victoria Hospital, said: “Kavitha had sustained over 90 per cent of burns all over her body, and we had treated her on an emergency basis. We put her on oxygen support, and administered painkillers and antibiotics. She was not fully conscious, but was responding to some queries. But since the injuries were deep and her neck and parts of her brain were burnt, her chances of survival were very less.”
The Hulimavu police have arrested Kavitha’s uncle Harish (32), his friend Srinivas (26), and seven others for the crime. They suspect a family dispute behind the incident. They said Harish allegedly asked Srinivas to carry out the attack along with his associates. The other arrested, who are all residents of Pinaganahalli, are: Manjunath (28), Babu (24), Raghu (21), Raju (24), Puttaraju (26), Ramesh (26) and H. Harish (25). The accused have been sent to judicial custody.
August 06, 2012
MCX Stock Exchange Ltd has reported a loss for financial year April 2011 to March 2012. The exact amount of loss is, however, not known as yet.
In a recent statutory filing, the company stated "The Exchange has commenced charging transaction fees since August 22, 2011 and has been making month-on-month profits ever since. However, there was still marginal loss during the financial 2011-12 since the commencement of transaction fees levy started after nearly five months of commencement of the financial year."
The stock exchange company's filing also gave an account of its past financial performance. It stated, "As per the audited figures for the period ended March 31, 2011, the Company had a total income of Rs 39.15 crore and incurred a net loss after tax of Rs 57.80 crore."
In a recent move, MCX Stock Exchange increased the remuneration of its managing director-cum-chief executive officer (MD-cum-CEO), Joseph Massey to Rs 2.4 crore per annum from Rs 1.8 crore.
The stock exchange company's statutory filing of the EGM (extra-ordinary general meeting) resolution of June 2, 2012, in this regard, stated "Resolved that... consent of the Company be and is hereby accorded for the re-appointment of Mr. Joseph Massey as the Managing Director and Chief Executive Officer of the Company for a further period of three years with effect from June 1, 2012 on a remuneration in the range of Rs 2.4 crore per annum to Rs 3.5 crore per annum (cost to company basis), with the starting remuneration being Rs 2.4 crore per annum."
As per the explanatory statement to this resolution giving in that filing, Joseph Massey was drawing a remuneration of Rs 1.8 crore in his first term as MD & CEO that was from June 1, 2009 to May 31, 2012.
Labels: Stock Market
August 05, 2012
A few places in the state of Assam in India has been witness to extreme form of violence against certain sections of the population recently.
The ones doing the killing felt justified in their action on account of various perceived wrongs done to them by the community whose members bore the brunt of the violence.
But their reasoning is horrendously wrong as it usually is, whether it is violence in Delhi in 1984, or in Bombay, Surat etc in 1993, or in the whole of Gujarat in 2002. Perceived wrongs, whether accurate partially, fully or not at all, gives no one the license to take the lives of others and destroy their property.
Below is a detailed news feature by Outlook magazine on the recent happenings in Assam. It offers some useful information and insights.
A Bridge Too Far
The state and civil society need to mount a Herculean effort to bridge the chasm between Bodos and others