RIYADH: Saudi Arabia, with its close ties with Islamabad, could be a "valuable interlocutor" in improving India's ties with Pakistan, minister of state for external affairs Shashi Tharoor said here on Sunday. However, MEA sources made a quick clarification later that there is no possibility of any third party mediation. “India is even against a suggestion of any third party mediation in Indo-Pak relations,” MEA office sources told Times Now. "We feel Saudi Arabia has a long and close relationship with Pakistan and that makes Saudi a more valuable interlocutor to us," Tharoor told Indian journalists. According to IANS, he was responding to a question on whether India will seek Saudi Arabia's support to influence Pakistan to address India's concerns over terrorism emanating from Pakistani territory. Tharoor added that Saudi Arabia has its own issues with al-Qaida. "We expect to have a constructive conversation on the issue. The tentacles of terror have already spread from Afghanistan to Iraq, Lebanon and Palestine, and latest is Yemen," he added. Saudi Arabia, the Gulf's most influential country, was the first to recognise the then Taliban regime in Kabul in the mid-nineties and enjoys enormous leverage with Pakistan. Prime Minister Manmohan Singh is currently on a three-day trip to Riyadh, a path-breaking visit that is likely to see the signing of an extradition treaty paving the way for greater counter-terror cooperation between the two countries.
Sunday, February 28, 2010
Saturday, February 27, 2010
Friday, February 26, 2010
Astro_Soichi
South Patagonia. One of the most beautiful glaciers of the world. 800mm lens will take you there
Ryuhyo (floating ice) on Okhotsk sea, north of Japan
Wednesday, February 24, 2010
The world economy has no easy way out of the mire
By Martin Wolf– –
Anybody who looks carefully at the world economy will recognise that a degree of monetary and fiscal stimulus unprecedented in peacetime is all that is prodding it along, not only in high-income countries, but also in big emerging ones. The conventional wisdom is that it will also be possible to manage a smooth exit. Nothing seems less likely. So let us consider the endgame, instead.We must start from the reverse side of the stimulus coin: the private sector is now spending far less than its aggregate income. Forecasts in the Organisation for Economic Co-operation and Development’s latest Economic Outlook imply that in six of its members (the Netherlands, Switzerland, Sweden, Japan, the UK and Ireland) the private sector will run a surplus of income over spending greater than 10 per cent of gross domestic product this year. Another 13 will have private surpluses between 5 per cent and 10 per cent of GDP. The latter includes the US, with 7.3 per cent. The eurozone private surplus will be 6.7 per cent of GDP and that of the OECD as a whole 7.4 per cent.
Moreover, the shift in the private sector balance between 2007 and 2010 is forecast to exceed 10 per cent of GDP in no fewer than eight OECD member countries (see chart). It is also forecast to exceed 5 per cent of GDP in another eight. In the US, it is forecast to be 9.6 per cent of GDP. In the eurozone, it is forecast at 5.5 per cent of GDP and in the OECD at 7.3 per cent. Depression threatened.
The Economists’ Forum
Have your say on Martin Wolf’s column and read contributions by leading economists
Note that such huge shifts towards frugality will have occurred, despite the unprecedented monetary loosening. While the latter helped prevent a still-greater collapse in private spending, the huge fiscal deficits, largely the result of automatic stabilisers, have been no less important. If governments had tried to close fiscal deficits, as they attempted to do in the 1930s, we would be in another Great Depression.
So how do we exit? To answer the question, we need to agree on how we entered. A big part of the answer is that a series of bubbles helped keep the world economy driving forward over the past three decades. Behind these, however, lay a credit super-bubble, which burst in 2008. This is why private spending imploded and fiscal deficits exploded.
William White, former chief economist of the Bank for International Settlements, is a leading proponent of the view that monetary policy errors, particularly by the Federal Reserve, have driven the world economy. Richard Duncan offers a similar, but more radical, critique in his thought-provoking new book, The Corruption of Capitalism.
At the 75th birthday conference of the Reserve Bank of India this month, Mr White gave a lucid version of his critique. With inflation kept down by supply shocks, inflation-targeting central banks kept interest rates too low too long. The result, he argued, was a series of imbalances, not dissimilar to those in the US in the 1920s and Japan in the 1980s. In particular, with the real interest rate well below the rate of growth of economies, the expansion of credit was effectively unconstrained. Debt duly exploded upwards (see chart).
Mr White pointed to four imbalances: asset price bubbles, notably of stocks in the 1990s and houses in the 2000s; the explosion of the balance sheet of the financial sector and increase in its exposure to risk; what “Austrian school” economists dub “malinvestment” – soaring consumption of durables in high-income countries and booming construction of housing and shopping malls in countries such as the US, and of export-oriented factories in China; and, finally, trade imbalances, with capital pouring into the US and other high-spending countries.
I do not agree that monetary policy mistakes were responsible for all of this. But they played a role. In any case, all this had to end. Now, after the implosion, we witness the extraordinary rescue efforts. So what happens next? We can identify two alternatives: success and failure.
By “success”, I mean reignition of the credit engine in high-income deficit countries. So private sector spending surges anew, fiscal deficits shrink and the economy appears to being going back to normal, at last. By “failure” I mean that the deleveraging continues, private spending fails to pick up with any real vigour and fiscal deficits remain far bigger, for far longer, than almost anybody now dares to imagine. This would be post-bubble Japan on a far wider scale.
Unhappily, the result of what I call success would probably be a still bigger financial crisis in future, while the results of what I call failure would be that the fiscal rope would run out, even though reaching the end might take longer than worrywarts fear. Yet the big point is that either outcome ultimately leads us to a sovereign debt crisis. This, in turn, would surely result in defaults, probably via inflation. In essence, stretched balance sheets threaten mass private sector bankruptcy and a depression, or sovereign bankruptcy and inflation, or some combination of the two.
I can envisage two ways by which the world might grow out of its debt overhangs without such a collapse: a surge in private and public investment in the deficit countries or a surge in demand from the emerging countries. Under the former, higher future income would make today’s borrowing sustainable. Under the latter, the savings generated by the deleveraging private sectors of deficit countries would flow naturally into increased investment in emerging countries.
Yet exploiting such opportunities would involve radical rethinking. In countries like the UK and US, there would be high fiscal deficits over an extended period, but also a matching willingness to promote investment. Meanwhile, high-income countries would have to engage urgently with emerging countries, to discuss reforms to global finance aimed at facilitating a sustained net flow of funds from the former to the latter.
Unfortunately, nobody is seized of such a radical post-crisis agenda. Most people hope, instead, that the world will go back to being the way it was. It will not and should not. The essential ingredient of a successful exit is, instead, to use the huge surpluses of the private sector to fund higher investment, both public and private, across the world. China alone needs higher consumption.
Tuesday, February 23, 2010
Monday, February 22, 2010
20 Interesting Facts
1. A zebra is white with black stripes. 2. All the planets in our solar system rotate anticlockwise, except Venus. It is the only planet that rotates clockwise. 3. Hummingbirds are the only animal that can also fly backwards. 4. Insects do not make noises with their voices. The noise of bees, mosquitoes and other buzzing insects is caused by rapidly moving their wings. 5. The cockroach is the fastest animal on 6 legs covering a meter a second. 6. The word "listen" contains the same letters as the word "silent". 7. The only 2 animals that can see behind itself without turning it's head are the rabbit and the parrot. 8. A 'jiffy' is an actual unit of time for 1/100th of a second. 9. India invented the Number System. Zero was invented by Aryabhatta. 10. The whip makes a cracking sound because its tip moves faster than the speed of sound. 11. A hippopotamus can run faster than a man. 12. India never invaded any country in her last 10000 years of history. 13. 'Hippopotomonstrosesquippedaliophobia' is the fear of long words. 14. Didaskaleinophobia is the fear of going to school. 15. A snail can sleep for 3 years. 16. The names of the continents all end with the same letter with which they start. 17. In 1883 the explosion of the volcano Krakatau put so much dust into the earth's atmosphere that sunsets appeared green and the moon appeared blue around the world for almost two years. 18. "Almost" is the longest word in the English language with all the letters in alphabetical order. 19. Twenty-Four-Karat Gold is not pure gold since there is a small amount of copper in it. Absolutely pure gold is so soft that it can be molded with the hands. 20. Electricity doesn't move through a wire but through a field around the wire.
Sunday, February 21, 2010
Sunitha Krishnan | Profile on TED.com
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Thursday, February 18, 2010
Economy Stagnant When Action Is What Is Needed
Probable head count in Census around 320 Million, What is Bernanke hiding at the Fed? No end to zero interest rates after 14 months, China to change some things, Greek basket case, California even worse than Greece, home owners stuck with houses worth less than what they paid
When the next census is over America will probably have 320 million people. The number of Americans 50 years ago was about 184 million. Our budget then was about $100 billion. Today it is supposed to be $3.8 trillion. We call that spending gone wild. Government control of the economy has become bigger and all consuming at what will prove to be an unsustainable pace. Markets are telling us the world has serious sovereign debt problems as witnessed recently with the financial debacles in Ireland and now Greece with others to follow. Arrogant government, Fed officials and Wall Street telling us the borrowings are necessary to save our economy, when in fact just the opposite will prove to be true. Chairman Bernanke tells us inflation expectations are stable and will be subdued for some time to come. Our big questions are what is he hiding at the Fed? Why doesn’t he want an audit? What has the Fed been doing that it doesn’t want us to know about? Could it be the funnel of insider information flowing to Wall Street and banking or the operations of the “Presidents Working Group on Financial Markets”? In their minutes it would be found that inflation is recognized as a friend not an enemy. The independence Mr. Bernanke speaks about is a subterfuge to keep what the Fed is doing away from prying eyes. We do not believe this is any way to run a monetary system.
As we forecast Fed Chairman Bernanke was reconfirmed as the Republican National Committee doled out campaign contributions (payoffs) so that Senators could see their way to confirming Ben. Treasury Secretary Geithner and former Secretary Paulson lied before the congressional committee and as usual nothing happened. Again three illuminists waltz free to again rape our financial system. Democrats in scumbag fashion didn’t seat the newly elected Scott Brown and was able to increase short-term government by $1.9 trillion, so they wouldn’t have to increase it before the November elections. What a wonderful government we have. If Americans do not dump the incumbents of both parties our country is doomed.
It should stand foremost in everyone’s mind that we have had zero interest rates for 14 months and there is no end in sight. The Fed in its secrecy, because you do not have a need to know, won’t admit that they paid banks, Wall Street firms, insurance companies, other corporations and foreign banks 100 cents on the dollar for virtually worthless bonds. The Fed saved the financial system and the US taxpayer will pay for it. Incidentally, these recipients are all back doing the same thing they did before, which brought the financial system down. The Fed created more than $2 trillion for this bailout, as well as via the purchase of Treasuries and Agencies.
In this process the Fed lost control of the Fed funds’ rate, a new rate process will probably be interest paid on excess bank reserves. This could lead to a drain in reserves of $1 to $2 trillion. Part of those reserves are toxic garbage that the Fed has to find a way to get rid of at $0.20 to $0.30 on the dollar and in process not let anyone know what the publics’ losses are. Keep in mind that if these securities had not been “purchased many banks, brokerage houses, insurance companies and transnational conglomerates would have been bankrupt by now.
China expanded bank loans in January by a phenomenal $200 billion plus. This is in addition to $1.3 trillion in previous expansions. As a result house prices rose 9.5% year-on-year. Their manufacturing fed giant oil and copper imports rose 33% to 25%, as consumption rose 40%.
As a result the People’s Bank raised reserve requirements by 50 bps, or 1/2%. Whether this becomes an isolated event or whether it is the beginning of real tightening, remains to be seen. If they are serious they will need higher rates than that. This tactic is used rather than raising interest rates, which will attract additional hot money flow. The bank says they are guiding the economy back to normality. They are expecting other countries to follow their lead in ending stimulus. The question now for China and the rest of the world is will world stock and bond markets, as well as asset values fall as the stimulus and quantitative easing ends? Our forecast is a fall in GDP, higher unemployment, an easing to a very small degree in inflation and a big fall in stock, bond and real estate prices. The temporary palliative will not carry their economy ahead on a permanent basis.
China can act aggressively because their enormous Forex position of some $2.4 trillion; a luxury not available to many countries. In addition we now have recognized sovereign debt problems mainly so that the dollar could rally and for other currencies to fall to make them more competitive. That is the price to be paid – recognition. Those conditions were well known long before the open exposure of Greece, Ireland, Portugal, Spain and Italy. The magical exposure was all prearranged. We could tell that was the plan by the long dollar positions of Goldman, Morgan and Citi, and in reverse their massive short positions in gold and silver bullion and shares that still as yet have only been partially covered.
China will tighten up but not in a big way, because others won’t and can’t without their economies coming unglued, especially in the category of unemployment. World monetary authorities are hoping the deflationary underflow will in total or at least in part ward-off the inflation caused by monetized stimulus. That is wishful thinking. What is in motion is very dangerous, especially for the US, where the federal deficit has gone ballistic, probably reaching $1.5 to $2.0 trillion by September 30, 2010, the end of the fiscal year. Then there is the matter of debt that last year saw the Fed service 80% via monetization. This cannot persist indefinitely. As you can see the US and other economies are very vulnerable.
As all attention has been drawn over the past few weeks to Greece, Europe and China, it went almost unnoticed that the US had the largest trade deficit in a year, and that Freddie Mac will purchase hundreds of billions of dollars of toxic waster better known as collateralized debt obligation, in behalf of the American taxpayer. There is no end to America’s financial problems.
This is the result of the market’s reluctance to purchase these securities. These publicly supported bankrupt entities will spend another $200 billion buying these securities. This is an add on to the Fed’s program of purchasing $1.25 trillion of these home loans, a program that is supposed to end next month.
If this is part of the Fed’s exit strategy we are in serious trouble. These purchases are not going to solve the problems. The Fed is just moving these wasteful assets from one place to another. Under these circumstances how can there be a recovery and how can the dollar maintain its current strength? Leverage is still the method of speculators and inflation is still with us.
It looks like global financial and economic problems are not going to disappear anytime soon. Over and over again nations paper over problems never attempting to solve them. The current dilemma in Greece and at the Fed are perfect examples.
Observers are going to be shocked when China’s stock market and real estate bubbles burst. The ramifications of these Chinese failures will resound worldwide. The biggest question is will China have to start selling off its $2 trillion dollar hoard to straighten out its problems? Only time will tell. What is important is that these problems exist. They are not being addressed and in time will resurface in a more virulent manner.
We see Greece as a reflection of where America is headed. Greece and America have many things in common, one of which is their governments consistently lie about everything. The EU and eurozone solution for Greece are budget cuts of 8.7% this year and down to 3% of GDP in three years. Can you imagine the US going through this? Well, get ready for it because this is where the US economy is headed. Instead of $780 billion stimulus plans we will have $780 billion in budget cuts. Not only would government start cutting staff, but also there would be major cuts in Medicare, Medicaid, Social Security, wages, etc. Yes, taxes would rise, as tax cuts would not be renewed.
We hear all about the corruption in Greece, but we are not surprised. They just copy what they see in the US. It is a revelation when we are told 30% of Greece’s economy is underground. It has been a dark secret for many years that 30% of the US economy is underground as well. This began in the Vietnam era, and has gone on ever since. Today people say if illegal aliens do not have to pay taxes why should they. It is a government-sponsored program to do little or nothing about this problem, so what can government expect from the public?
Greece is a basket case, as are many other governments. The more we research the more we are convinced Greece is a setup and trial run to take other governments under, one at a time. This in part was done to boost the dollar’s value versus other currencies. This could be the second inflationary leg of the depression similar to 1933. Again the only safe haven is gold and silver related assets.
As we mentioned before, Greece could well be a distraction so players would lose sight of US problems. A strong dollar does not mean the America’s problems are over. Others’ problems are not worse than ours. By the looks of things the Illuminists are not as yet ready to pull the plug on Europe. If they were they would have already pulled it. The EU, but in particular the eurozone, has become a failed experiment. Greece may be bad but California is going to be much worse. It represents 13% of US GDP and is the 7th largest economy in the world. They owe the federal government $6 billion and have a budget deficit of more than $6 billion. Then there are the $500 billion in municipal bonds they have outstanding, that could go into default. Then there is New Jersey with an $11 billion deficit. Pennsylvania hs talked about bankruptcy. Then come many others. Yes, Greece could be a diversion. If it is it will be a long-term diversion that could last 20 years. For those who do not know Greece has been in default in 105 of the last 200 years.
The bottom line is there is a limit to the amount of debt a sovereign country can handle. The Illuminists are setting the world up for a long string of sovereign defaults. Now you can better understand why you need gold and silver related assets.
The latest G-7 meeting in N. Canada was another non-event. They reaffirmed that stimulus has to keep flowing or the seven major world economies won’t be able to make it. Little of what really went on got into the media, which is usually the case. Governments in recent years have become more and more secretive. Most nations generally want lower deficits, but in reality never practice what they preach. That gives us a bottom line as we are left with little more than blatant hypocrisy. It has simply become a pure political game and as a result there is no path back to economic and financial normality. No one wants to purge a system that no longer functions properly. The looting goes on unabated. They are all a disgrace, but we know exactly what they are up too. Thank goodness for newsletters, talk radio and the Internet, otherwise we’d still have darkness being only able to access the controlled media.
Last week the Dow gained 0.9%, S&P 0.9%, the Russell 2000 3% and the Nasdaq 1001.9%. Banks fell 0.2%, broker/dealers rose 1.3%, cyclicals 2.5%, transports 2.5%, consumers 1.6%, as utilities lost 1.3%. High tech rose 1.8%, semis 4%, Internets 1.8%, as biotechs fell 0.2%. Gold bullion rose $27.00, the HUI gained 3.2%, as the USDX dollar index fell 0.3% to 80.22.
Two-year Treasury bills rose 5 bps to 0.74%, 10-year notes rose 13 bps to 3.70 and 10-year German bunds gained 7 bps to 3.19%.
Freddie Mac 30-year fixed rate mortgage rates declined 4 bps to 4.97%. The 15’s fell 6 bps to 4.34% one-year ARM’s jumped 9 bps to 4.33% and 30-year jumbo’s rose 2 bps to 5.92%.
Fed credit increased $1.8 billion last week. It is up 22% yoy. The Fed foreign holdings of Treasury and Agency debt jumped $9.3 billion to $2.956 trillion. Custody holdings, for foreign central banks yoy are up $395 billion, or 15.4%.
M2 narrow money supply increased $7 billion to $8.471 trillion yoy; it has expanded 1.8%.
Total money market funds assets fell again $6.7 billion to $3.198 trillion. Year-on-year they have fallen $705 billion, or 18.1%.
China’s lending surged to 1.39 trillion yuan ($203 billion) in January and property prices climbed the most in 21 months as banks extended more credit in anticipation the government will tighten monetary policy. Lending was more than in the previous three months combined. Property prices in 70 cities rose 9.5% from a year earlier… China’s 9.35 trillion yuan of loans in the past year has added to the risk that the world’s fastest-growing major economy may overheat.
Fannie Mae and Freddie Mac’s plan to step up purchases of delinquent loans may boost prepayments on their securities. Freddie Mac said yesterday that it would buy ‘substantially all’ loans with payments late by 120 days or more from its securities in the next month. Fannie Mae said later that it will ‘increase significantly’ its buyouts, setting a less aggressive timeline. The value of Freddie Mac’s delinquent loans is $70 billion, while Fannie Mae has $130 billion of the debt. ‘This is going to be a wad of cash coming into the fixed- income markets and it’s not immediately clear where it’s going to be reinvested,’ said Jim Vogel, head of agency-debt research at FTN Financial.
More than a fifth of U.S. homeowners owed more than their properties were worth in the fourth quarter according to Zillow.com. In the fourth quarter, 21.4% of owners of mortgaged homes were underwater, up from 21% in the previous three months.
Like millions of American households, the Mortgage Bankers Association found itself stuck with real estate whose market value has plunged far below the amount it owed its lenders. On Friday, CoStar Inc., a provider of commercial real estate data, said it had agreed to buy the MBA’s 10-story headquarters building in Washington, D.C., for $41.3 million. That is well below the $79 million the trade group agreed to pay for the glass-walled building in 2007.
Senator Evan Bayh of Indiana announced yesterday that he will not seek a third term in November, a decision that, combined with other Democratic departures, could imperil the party’s prospects of retaining control of the Senate.
Bayh cited the lack of bipartisanship on Capitol Hill as his main reason for leaving, adding to skepticism that the fractiousness in Washington can be repaired and undermining President Obama’s efforts to build bridges.
Wednesday, February 17, 2010
Innovation and research to steer India's knowledge economy
In order to be part of the future world order India is working towards a knowledge economy. In keeping with its mission, the government has set a target to create a critical mass of people that would propel the knowledge economy. This critical mass is envisaged as the wealth of the nation and needless to say education will drive this wealth creation. However, Kapil Sibal, union human resource development minister, pointed out that at the outset it is important to have a precise understanding of the concept of wealth in the context of knowledge economy. "The real success of the knowledge economy would depend on the quality of wealth and not the quantity. And quality can only be achieved by having people who have an orientation towards research and innovation," Sibal said while speaking at a session on ‘Changing face of Indian Education System’ organised by FICCI Ladies Organisation (FLO). To promote innovation and research, it is important to improve access and quality at the university level. "We have failed to understand the basic difference between a college and a university which led to a confusion about deemed-tobe-universities . An institute which is not creating wealth through research, interdisciplinary studies and does not have centres of excellence cannot be called a university," Sibal said. He also alluded to the need of reducing the number of affiliating colleges with respect to individual universities. Going forward the government will appoint a body to deal with education malpractices. "This body will make sure that the claims made in an institute’s prospectus are implemented in reality ," Sibal informed. There will also be a National Accreditation Authority (independent of government representatives) for constant monitoring of quality. But will additional bodies compound the already chaotic situation that is now apparent in our education system as far as regulation is concerned ? "We want to do away with the inspector Raj. We want to create a regulation system where norms and standards are set. Adherence to these norms will automatically determine the players who can survive in the long run," informed Sibal. Also there is need to ensure access to higher education. "Many people are expecting that the government will create 35,000 colleges and 1,000 universities. This is an impossible task. To achieve this the role of public-private partnership has to come into play. However, we shall ensure that the private sector in higher education does not enter for profit making," said Sibal. According to Sibal the bill to regulate entry of foreign institutions will also aim at making quality education available to Indian students. "But there are apprehensions about this bill as quality foreign institutions are not yet ready to set up their campuses in India. At present, most foreign institutes are eager to collaborate and go for joint programmes or research. Hence, we want to create an atmosphere of confidence wherein these institutes feel assured of India’s potential to create wealth, which is competitive and accrues to international standards," he added. For all this to happen, the most important task is to improve quality and quantity at the school level. "Around 93% of investment in school education comes from the government sector. Only 7% of investment is met by the private sector. We need to realise that school education will remain a prerogative of the government for many more years. Along with changing curriculum and teaching methodology, we also need good leaders to run the schools," observed Sibal. "The government is planning to appoint people from IITs and IIMs to run schools. We will also ensure that every university has a centre for education to create leaders in school education," he concluded.
Basic economic freedom: why can't we get it done
In a country of 1.2 billion individuals, if we exclude children, we should at least have 900 million bank account holders before we can say the job of basic inclusion in banking is complete. No matter how we count, however, the actual number of bank account holders do not seem to cross 200 million. This is appalling to say the least—and may also, in part, explain why we escaped the subprime crisis; many people were simply outside the financial system. The real mystery is why this should be the situation at all?
India has a concentrated banking system, which means that if five individuals decide that this needs to be done, it will be done. These five are the finance minister, the Reserve Bank of India (RBI) governor and the chief executives of the top three banks. Prompted by proactive statements by the finance minister in his 2006 budget speech, RBI allowed banks the use of business correspondents to expand rapidly their outreach in a low-cost manner. (Business correspondents are intermediaries who carry out banking functions in villages or areas where it is not possible to open a branch.)
The technology and the on-ground capability to make this possible with virtually no frauds, complete with smart cards and fingerprint readers, came soon thereafter and have existed for a while now. Most major banks—certainly the top three—have acquired full familiarity with the system, and are using it, though in isolated pockets, producing a daily issuance rate of at least 50,000 new accounts and 300,000 transactions.
Brazil, using similar legislation and far more primitive technologies, was able to go from financial access statistics similar to ours to over 80% penetration from 2000 to 2005. Given that all the enablers are in place in India, why are we dragging our feet? Why has this effort reached out to only around 10 million individuals in the last three years against the 900 million that it needs to?
One issue that has clearly emerged as a barrier is the cost of providing this service and, more importantly, who will bear it. To provide business correspondent access at each of the 300,000 gram panchayat (village council) points, we estimate a one-time cost of around Rs1,000 crore (including the provision of biometric readers) and an annual recurring cost of around Rs4,000 crore for the 300,000 business correspondents (one for eachpanchayat).
There is a potential additional cost on smart cards that may be needed if the USO (universal service obligation) fund available to the telecom sector is unable to provide reliable Internet connectivity to every gram panchayat; with in excess of Rs18,000 crore at their disposal, in our view, this connectivity is something the telecom sector should be able to provide, or, in the interim, use USO funds to pay for the smart cards.
This estimate is indeed a large number, and on the face of it, represents a barrier. However, on closer examination—even if we discount the considerable value-add for the 900 million citizens when they get such an account (such as a far superior transmission of monetary policy and far better allocation of systemic savings) and the enormous expansion in the opportunity set for multiple stakeholders across the country—there are several directly connected sources of revenue that each of the stakeholders could put on the table to defray these costs, obviating the need to play musical chairs.
RBI with close to Rs7 trillion of issued currency notes alone makes in excess of Rs45,000 crore (estimated using an interest rate of 7%) annually from what is referred to as seigniorage—the net revenue derived from the issuing of currency. This high income is almost directly a result of the need to hold a large amount of cash. On the over Rs4 trillion of annual payments (at a 5% saving in the cost of making these payments), the Union and state governments alone stands to benefit up to Rs20,000 crore annually if these payments become completely electronic. Banks with over Rs5 trillion of demand liabilities (deposits) raised at very low costs on account of controlled interest rates on them (controls designed specifically so that they may be able to pay for the provision of financial services to unprofitable areas) would have a guaranteed profit of Rs15,000 crore on a 3% annual savings in the cost of resources, apart from the substantial profits from lending to at least a fraction of the newly banked customers.
If RBI, for example, were to take the lead and agree to directly pay the business correspondents Rs50 for every account that is made available by them, the annual sum of Rs4,500 crore that this amounts to would reduce its seigniorage income by less than 10%. If it chooses to, it could also recover this amount using various instruments at its command from the government and the banking system.
Some state governments currently pay a fee to banks for establishing business correspondent networks. This process would be far more uniform and timely if brought within the ambit of RBI. The finance minister, in the forthcoming Budget, could make a commitment in this regard and also mandate that all government payments henceforth be made only through the business correspondents, and that all participating banks would need to commit to making an automated access point available to every client within 1km of their homes. We have all but achieved this feat for our primary schools; it would be far easier and quicker to do so for financial access with business correspondents.
If, as we have argued, cost is not an issue, then what is preventing this access? Could it be that despite the fact that each of the five individuals referred to earlier has sufficient resources at their command to get the job done, if need be entirely on their own, none of them views this as their problem to solve? Just as microcredit on its own does not represent full financial inclusion, it is our view that neither do business correspondent accounts.
However, as a recent book—Portfolios of the Poor, Daryl Collins et al, Princeton University Press, 2009—points out, the poor lead such uncertain lives that something available to them on a reliable basis becomes a pillar around which they can finally start to build a more stable and predictable life. In our view, while such access to finance is not by itself sufficient to eliminate poverty, it is a necessary precondition and a right every citizen of our country has.
Definitive progress on this count would also obviate the need to allow thinly capitalized entities to accept bank deposits on their own balance sheets; permitting this would do nothing to reduce the costs of access on a systemic level discussed here but, as we have seen in the past, would substantially increase systemic risk and the risk to which these deposits are exposed.
It would be a matter of great shame if, as one of the few nations in the world capable of launching its own satellites, we remain the sole country that is unable to provide all its citizens with the basic means to economic freedom.
Bindu Ananth is president of the IFMR Trust and Nachiket Mor president of the ICICI Foundation for Inclusive Growth.
New jihadist group claims responsibility for Pune attack
Even as Maharashtra police investigators said little progress was made in identifying the perpetrators of Saturday’s bombing of the German Bakery in Pune, an unknown Pakistan-based jihadist group has claimed responsibility for the attack that claimed 10 lives.
Identifying himself as a spokesperson on behalf of a group calling itself the Lashkar-e-Taiba al-Almi, an individual using the code-name ‘Abu Jindal’ said the bombing was carried out because of India’s “refusal” to discuss the Kashmir issue in the coming talks with Pakistan.
‘Abu Jindal’ said he was calling from Miramshah in North Waziristan, and the telephone number used to make the call carried an area code common to the Waziristan tribal area and Bannu, the adjoining district in the North-West Frontier Province. When The Hindu tried calling back, though, a recorded voice message said the number was temporarily not in use.
No past communiqué was issued by the Lashkar-e-Taiba al-Almi, and terrorism experts in New Delhi told The Hindu that no such group was known to exist.
However, the caller — who appeared to be educated — said the group had split from the Lashkar-e-Taiba because it took orders from Pakistan’s Inter-Services Intelligence.
Earlier, al-Qaeda affiliated jihadist leader Illyas Kashmiri was reported to have sent an e-mail to a Pakistani journalist, claiming responsibility for the attack.
Indian intelligence sources said the claims appeared intended to deflect attention from the Lashkar-e-Taiba, which is emerging as the principal suspect for the attack. In the wake of the Lashkar’s 2008 attack on Mumbai, Pakistan had come under intense pressure to dismantle the terrorist group as well as its political-religious organisation, the Jamaat-ud-Dawa. It has, however, rejected international calls for such action. Despite official claims, Maharashtra police sources say there is little evidence as yet to link the bombing of the German Bakery with any perpetrator.
Tuesday, February 16, 2010
Bharti readies debt financing for Zain buy: source Standard Chartered and Barclays are advising India’s largest telecoms firm on both the merger and its funding
New Delhi/Mumbai: Bharti Airtel, which has offered $10.7 billion for Kuwaiti telecom Zain’s African assets, is likely to finance nearly all the deal’s purchase price with foreign currency loans, a person familiar with the matter said on Tuesday. Standard Chartered and Barclays are advising India’s largest telecoms firm on both the merger and its funding, the person said. Television channel ET Now said Bharti was in talks with Barclays, StanChart, State Bank of India, Goldman Sachs and Nomura on funding the deal.
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