Current issues

Mains
Mayhem in the financial world

o It was just yesterday that a reader was asking me whether

sensex would touch 20K. Read my answer in the shout-
box. It could not have been more prophetic. The very next
day, we find all the financial world shocked!
o "Lehman failed, Merrill sold and AIG trying to raise $50
billion before the opening bell” -- this was the sum and
substance of the mayhem that has been unleashed on the
financial world.
o Writings about Wall Street being never the same again are
only betraying the fears. But it is a matter of time before
the shreds are picked up and the markets take these
developments in their stride and move ahead. Sure, it will
take time. Don't jump and ask me when? My answer for
such a question would be "the wise never time the
market."
o The oldest and the fourth-largest investment bank Lehman
Brothers Holdings filed for bankruptcy, while Merrill Lynch,
famous for its iconic bull statue in the New York City
financial district, sold out before it was too late. With
stunning speed, two of the most storied investments banks
faded into history, with Lehman headed for the biggest
ever bankruptcy filing and Bank of America (BankAm)
buying Merrill in a $50-billion stock deal. Another world
titan, the largest US insurer, American International Group
(AIG) has been given special permission to access $20
billion of capital in its subsidiaries to free up liquidity. AIG
had asked the US Federal Reserve for a bridge loan.
o If you are asked to comment on the impact of the subprime
crisis on the financial world, could you have guessed that
such high street financial institutions as Lehman, Merril
and AIG would be hit? Hardly likely. It will be a couple of
years before the crisis runs its course and the financial
world finds its feet again.
o BTW who is the CEO of the troubled Lehman Brothers?
Richard Fuld.
• I have my sympathy for Mr. Sivraj Patil
o News reports about his donning three different suits on a
single day (in a space of just a few hours) while appearing
before TV cameras and that too when there were terrorist
attacks in Delhi, appear to have done him in.
o On this count alone he ought to have qualified for the
gubernatorial appointment in Raisina Hill! Instead of
 choosing him for that post, Congress party thought
otherwise. Isn't it paying the price?
o Today's ET editorial gives us a good titbit in this context:
The novelist Gavin Lyall once wrote that “if you can remain
calm when everyone around you is losing his head, then
you obviously don’t have a clue of what’s going on!”
• What next on the nuclear deal front?
o Now that the deal is likely to go through the US Congress,
what next? What steps should India take to derive the
maximum benefit out of this? An excerpt from a very good
article that appeared in today's ET is worth our noting:
o While doing business with Russia and France, it is also
important for India to get American companies like General
Electric and Westinghouse to do joint ventures with Indian
big business so that they develop a long-term stake in, and
a revenue stream from, nuclear commerce. That is the only
way to evolve a stable long-term relationship of trust,
which will lead to easier flow of both nuclear fuel and dual
use technologies.
o For this India will have to further open up its nuclear
energy industry to the private sector, and even joint
ventures with established foreign companies. We could
even consider giving foreign companies a stake in the
nuclear energy projects in which the Nuclear Power
Corporation could be majority stakeholder. Long-term trust
in nuclear commerce cannot be built by suspicious State
players. It can only come from credible interaction between
business entities across nations who, in turn, demonstrate
to their people and elected representatives that such
relationships are possible.
o Finally, India must think big and see itself as a civil nuclear
exporter in future. Nothing stops India from collaborating
with Russia or France to develop on a commercial scale its
thorium to uranium technology and reap huge benefits in
future.
• Remember the Khairlanji incident?
o This is a small village in Bhandara district of Vidarbha that
was exposed to the worst-ever communal killings on
September 29, 2006 when a mob of about 50 villagers
attacked the house of Bhaiyyalal Bhotmange, a Dalit
farmer, over a petty land dispute. The violence ended only
after four of his family members, including his wife
Surekha, daughter Priyanka and sons Dilip and Roshan,
were stoned and then burnt alive. Mr Bhotmange survived
as he managed to flee to a neighbouring village.
 o Now, nearly two years later the trial court on Monday held
eight of the 11 accused guilty. Three people were
acquitted after the court deduced that the killings were not
the result of caste atrocity.
• What is MNS? Managed Netword Services, in the context of
telecom and IT.
o Managed network services typically include voice/data
integration services, virtual private network (VPN) services,
network management, performance management,
guaranteed service levels, fault management,
o change management, configuration management, security
(firewalls), application outsourcing and data centre
services.
• Clinical research segment in India to get a booster dose from
government
o THE government has begun speeding up approvals in the
area of clinical research which is set to boom in India.
o The clinical research industry in India is currently $200
million, but is expected to reach $1.5 billion in just two
years.
• Alexandra Kosteniuk
o "Beauty with brains" is an apt description of this petite
woman. She stormed into the finals of the finals of the
Women’s world championship in Nalchik, Russia. It is very
rare to see beauties in the game of chess. But she is a
model too.

• Harley Davidson to enter India

o Perhaps every youngster’s dream, driving a Harley
Davidson is likely to be within the realm of possibility. But
what held it back so far?
o One word describes it all: homologation. Remember, we
noted about this word sometime back? While dealing with
Project Natrip and ARAI.
o India’s policy hitherto had been that the tests needed to be
carried out (homologated) only in the ‘country of origin’ of
the product. But now the DGFT has relaxed the testing
norms that allow US made bikes to be tagged with a EU
homologation certificate for sale in India.
• Some wonderful thoughts on economic reforms
o The champions of reform often fail to come up with any
clear articulation of what they mean by reform. Reform is
presented as a series of discrete policy changes – tax
reform, capital market reform, trade and investment
liberalization, labour market flexibility, deregulation of
banking, opening up to foreign investment, privatization of
 public enterprises, cutting wasteful government
expenditure, etc – rather than as a coherent strategy
aimed at generalized emancipation of the people.
o The ultimate goal of reform must be understood as
liberating human productive potential from assorted
constraints, to help every man, woman and child realize
his/her capacity to create something new.
o The ability to translate an idea into reality depends on
three things:
 Physical infrastructure: power, roads, telecom etc.
 Institutional support: a supportive rather than stifling
administration, security of life and property, a
financial sector that mediates savings efficiently to
those who would generate additional incomes using
the capital, sufficient supply of talent, ability to forge
and enforce legal contracts
 A culture that encourages entrepreneurship instead
of playing safe all the time.
• “The financial sector can take a big leap forward in the next
couple of years in terms of financial inclusion.” Comment.
o Yes, it can for two reasons:
 One is the penetration of mobile telephony. Nimbler
banks feel that mobile phones would take banks
closer to the customer than a ‘no frills’ account.
 Closing of the technology gap. The mobile handsets
will be seeing a glut of java-based applications which
will provide the interface for facilitating banking
transactions on ordinary handsets.
• Chief of IEA
o Nobuo Tanaka
• India’s solar energy potential
o India has about 300 clear, sunny days in a year. According
to CII estimate, most parts of the country receive 4 to 7
kwh of solar radiation per square meter per day making it
over 5000 trillion KW per year. This is far more than the
total consumption of the country.
• Entry loads on mutual fund schemes
o Entry load is a charge levied by mutual funds when an
investor steps in.
o Open ended mutual funds charge between 2 and 2.5% of
the amount invested as entry load to meet their marketing
costs, distribution commissions, etc.
o Close ended schemes are permitted to charge up to 6% as
initial issue expenses that are amortized over the life of the
scheme.
 o SEBI is reportedly toying with the idea of doing away with
the entry loads on open-ended schemes.
• CBSE Chairman
o Ashok Ganguly
• What would be the benefits of adopting IFRS by India?
o Apart from becoming a part of the international movement
in adopting the standards, the significant benefits include:
 Encouraging capital flows
 Reduction in cost of compliance for enterprises
 Lower cost of capital
 A boon to professionals enhancing their status,
acceptability and mobility across the globe
 KPO/BPO businesses will flourish
• It’s been a long time since we read a piece from Bradford
Delong. Writing about the subprime consequences he talks of
three crises and their cures. The piece may be too much for non-
finance guys.
o A full scale financial crisis is triggered by a sharp fall in the
prices of large set of assets that banks and other financial
institutions hold. This can happen in three possible ways
and the cure is different for each.
o First, when investors refuse to buy assets at normal prices
not because they suspect the economic fundamentals, but
because they fear other will panic, forcing everybody to
sell at fire-sale prices.
o Second, when investors recognize the asset prices should
never have been as high as they were, or that future
productivity growth is likely to be lower and interest rates
higher.
o Third, a bursting bubble or bad news about future
productivity or interest rates drives the fall in asset prices.

• On Competition Commission
o Want to get a lowdown on what this body does? Can’t have
it better, as it comes straight from the horse’s mouth viz.,
Vinod Dhall, the Acting Chairman of the Commission.
o One important thing that his writing clears the air over is
about mergers and acquisitions.
• The finance guys amongst you will love this. It is a challenge to
really understand the causes of the subprime crisis. Take a look
at “The Bear Flu: How it spread” that appeared in today’s ET,
which is a reproduction from Businessweek.
o You are forewarned. It is for finance guys. Have appetite
for understanding CDOs and Klios? Be my guest. Wade
through this article and try to get a hint of what it is trying
to say.
 o Those of us who can’t appreciate all this gibberish, will
realize one thing: how finance guys keep inventing
complicated things to make our lives miserable; and their
lives pleasurable!
• Climate change
o The UNDP’s Human Development Report 2007-08 identifies
2 degrees celsius as the threshold, above which the
damages of the global climate changes will be irreversible.
o If the world wants to avert a climate crisis, it has to live
within the carbon budget of 14.5 gigatonnes of CO2 per
annum for the remaining years of the 21st century.
• Significance of the Bali meet
o For the first time the deliberations were dominated by the
findings of the IPCC report. There was a complete absence
of any questioning of the scientific assessment of climate
change.
o Though a couple of countries questioned the extent of
required cuts that a new global agreement should
incorporate, a compromise was reached supporting deep
cuts in emissions and a timetable for a draft plan of action
to be completed.
• Today, being very light on us, it is time to have some fun. Let's
watch Dilbert, the Engineer!!!

• DNC directory a failure?

o The do-not-call (DNC) registry reportedly attracted only
about 2 mn enrollments, as against the 5 mn that
appeared to have shown an inclination for registering in it.
o Initial predictions were that about 50 to 100 mn cellular
phone users would register. The slow registrations are
reportedly due to:
 The non-effectiveness of the DNC which has resulted
in even registered users continuing to be troubled by
telemarketers. (I can personally vouch for it.)
 Lackadaisical attitude of the service providers for this
service. (I second this too. Personally I had to call up
my service provider four times to register my
number with the service.)
o To the above reported reasons I would like to add my own:
the general apathy of the Indian consumer for such
services. Registering the number is seen as a hassle. And
then quite many amongst us would be content to howl at
the tele-marketer when disturbed, rather than taking the
trouble of registering the number with the DNC registry.
o Nevertheless I think it is too early to write the epitaph of
the DNC registry.
• When did decimalization of Indian rupee occur?
o It is an interesting story that appeared in today’s ET. A
must read for those with an eye on history.
o It was 10 years after Independence that our currency came
to be decimalized. Before that it was 1 rupee = 16 annas =
64 paise. This system was perhaps based on the pebble
based system of valuation (prevalent in Indus Valley
Civilisation) in which pebbles were chosen to be weights in
the pattern of 1,1,2,4,8, and 16. The new weights are a
sum of all the previous weights.
• What is a salami attack?
o It is a type of online fraud in which the criminal deducts
small sums of money from the accounts of various victims
in a way that doesn’t get detected. The hacker uses it as
the safest tool for earning large sums of money without
getting even noticed.
• Polio eradication failure
o It was over a year ago that we noted about this subject.
Even after a year, we seem to have not made any progress
on this frontPolio is decisively back and India is only one of
the four countries in the world where the disease is
endemic. This year an estimated 500 children in the
country have been diagnosed with paralytic polio.
o The rise of polio has much to do with the prevalence of the
virus in two states – UP and Bihar.
o The failure is largely attributed to the wrong choice of
immunization made by India. Experts argue that the OPV
(Oral Polio Vaccine) immunization choice was not suitable
for India and that this was known even at the time the
choice was made. India made this choice in 1978 following
an advice from WHO (World Health Organization). In
contrast, the other choice was the IPV (Injectable Polio
Vaccine), which was 50 times more expensive than the
OPV.
o There are three types of polio virus: P1, P2 and P3. Of
these, the P2 type is reportedly eradicated. P1 is reportedly
more contagious of the three varieties. While the earlier
OPV drops were designed to immunize against all the three
varieties, switching to a monovalent form (which targets
only the more contagious P1 form) of the drops in UP and
Bihar in February 2005 proved to be a mistake. Because
the recent outbreak is of the P3 variety.
• Why the apparent all-round welcome of the SEBI’s guidelines on
REITs?
o Real Estate Investment Trusts (or REMFs – Real Estate
Mutual Funds) offer individuals a wider choice of
 investment, especially in the booming realty sector. But
the complication, unlike in the equity mutual fund market
for the small investor, is that the NAV (Net Asset Value) of
an REMF will not vary on a daily basis. This is because the
underlying asset is direct ownership of land and built-up
property, whose values will not fluctuate on a daily basis.
So the investor would have a reduced choice of exit. Hence
it calls for a slightly different rigour in monitoring the
operation and performance of these REITs. The valuation of
the assets should be on acceptable standards for all the
stakeholders. The ICAI and AMFI have done well to firm up
on these standards. Secondly, the SEBI guidelines have
now mandated that 90% of the post tax profit of these
REITs should be distributed as dividends.
• What is wrong with our agrarian model?
o Watching his writings over the last couple of years, I began
to appreciate the off-tangent thinking of V. Raghunathan.
o Many of us would be wracking our brains on finding
measures to improve the lot of our farmers. Here is one
radically different way of looking at the solution.
o As India has many small and marginal land holdings, which
do not allow any scale economies to come into play, he
suggests that corporate leasing of farm lands from these
small and marginal farmers should be allowed. This will
have two more added benefits:
 One, the farmer never loses his ownership of the
land, where lot of sentiment is attached to it.
 Secondly, he can leverage the only profession that
he knows best – farming, by finding employment in
these corporate farms. This would supplement his
income from the lease rental. A win-win situation
both for the corporate and the farmer.

• Mrs. Bhutto is no more

o It is so sad that the most leading moderate voice of
Pakistan is put to silence by terrorists of Al Qaeda. An
editorial comment in today’s ET on the traditional jirga-
based tribal system of governing FATA and Waziristan in
Pakistan is worth our note:
o Islamabad should realize that it cannot enforce the writ of
the constitution in those areas through force alone. Of
course, Islamist militancy would, in the first instance, have
to be countered through military might. But the backward
social consensus that supports such terror can be
transformed only through a truly democratic political
process.
 o What better bet could have been there for Pakistan than
Mrs. Bhutto for a truly democratic political process?
• What would be the size of the resulting behemoth if SBI carries
out the merger of its subsidiaries with itself?
o The new entity will have 14,030 branches (almost 30% of
scheduled commercial bank branches), 6441 ATMs (a little
less than 25% of the country’s ATM network) and an asset
base of Rs. 8,05,795 crores (more than all of the private
sector banks).
o Get a picture of what ‘size’ means? Even then, compared
with the global biggies, this is still miniscule. For example,
take Citigroup’s figures:
 Total Net Revenues: $89.6 bn
 Assets: $1884 bn (as against SBI’s $200 bn approx.)
 Market capitalization: $274 bn
 Employees: 3,27,000
 Operations: In over 100 countries worldwide
• Can you give some strong reasons why the STPI scheme should
not be continued? Look at these points from today’s debate:
o Research shows that, for maximizing the effects of tax
incentives, they should be offered for a limited period.
o Continued tax exemptions to STPIs, due to their revenue
implications, would make difficult meeting of the targets
set by the FRBM Act, thwarting prudent fiscal policy.
o Such sops are effectively subsidies to exporters, and are
challenged in international fora such as WTO.
o Many of the Indian software sector’s problems span
beyond tax exemptions. They include workforce shortages,
rising costs of real estate etc. Tax exemption is like
treating the symptom while ignoring the underlying
disease.
• “Development” as defined by Amrtya Sen
o Development is an enabler of human freedoms and well-
being, rather than a mere enhancement of inanimate
objects of convenience. It is inseparable from
environmental and ecological concerns such as clean air
and water, epidemic-free surroundings, and the
preservation of all life forms.
• South Asia’s first underground LPG storage facility
o It is commissioned at Visakhapatnam. It is a 50:50 joint
venture between HPCL and Total of France. It is a Rs. 333
crore project designed on ‘water containment principle.’

• Infrastructure funding progress

o You might remember the noting we made about an SPV
that would be established specifically for funding
 infrastructure requirements of the country using the huge
forex reserves that are built up with us.
o The government and the RBI have now formally approved
formation of the SPV in London. It will be a fully owned
subsidiary of the IIFCL – India Infrastructure Finance
Company Limited. It will access part of the forex reserves
and then lend it to Indian companies for funding their
capital expenditure abroad.
o RBI agreed to set aside $5 bn for this purpose. The SPV will
borrow from RBI in the form of long term securities issued
in foreign currency. RBI will subscribe to these securities
and the SPV will then provide foreign currency funds to
Indian companies engaged in the infrastructure sector. .
• Why are hotels likely to face labour problems in future?
o So far hotels have been out of the purview of the Factories
Act, 1948. They are regulated through Shops and
Establishments Act. The definition of a ‘factory’ in the
Factories Act excluded hotels, restaurant or eating places
and railway sheds.
o Once they are brought under the purview of the Factories
Act, they will not be able to retrench their employees or
shut down their operations without the approval of the
authorities.
• Government plans exclusive streets and arcades for designers to
promote special interest shopping among foreigners
o This is as part of its efforts at promoting top end retailing.
It is expected to increase the per capita revenue
expenditure by foreign tourists generating greater foreign
revenue earnings for the government.
o Indian fashion design sector is expected to reach about Rs.
750 crores by 2012 from the present Rs. 270 crores.
o The country accounts for barely 0.2% of the international
industry’s estimated size of about Rs. 1,62,900 crores.
• Picocells
o This is a technology that creates micro cellular sites called
‘picocells’ within an aircraft, without interfering with the
airplane’s communication or other systems and will make
cell phone calls possible for travelers.
• Japan plans world’s fastest maglev train
o Estimated to cost $45 bn and to be operational by 2025,
this is expected to travel at 500 kmph.
o At present the only maglev train that is operational is in
China (Shanghai).
o Maglev (magnetic levitation) trains travel above ground
through an electromagnetic pull.
• 2007 was a record year for equity mop ups
 o Equity mobilization in 2007 was the highest ever in the
Indian capital market’s history. The market mopped up Rs.
45,137 crores compared to Rs. 24,679 crores in the
previous year.
• Update on telecom density numbers
o Just recently we noted these numbers. I found that the
figures noted earlier by us are a little dated. Look at the
figures as of October 31,2007:
 Total number of phones in India: 256 mn
 New phones added per month: 6.65 mn
 Tele-density: 22.52 per hundred persons.
o Tele-density was barely 0.6 in March 1990. In that year,
India had barely 5 mn phones in total.
• List out a couple of important steps that have ushered in a
changed telecom sector in India.
o Passage of the TRAI (Amendment) Act, 2000, which split
regulatory and dispute settlement roles of the original
TRAI. Assignment of the latter role to the newly created
TDSAT (Telecom Dispute Settlement and Appellate
Tribunal).
o Transferring the service providing function of the DoT to
the newly created BSNL.
o We can also add the Unified Access Service Licence regime
that allows the holder to provide fixed line as well as
cellular service in an area.
• Ever the optimist, TT Ram Mohan while giving his take on why we
should cheer up and look up for a good 2008, explains how a
banking crisis is not likely in spite of the subprime crisis:
o Banks’ losses are expected to rise in the months to come
as the crisis unfolds. Many of the off-balance sheet vehicles
floated by banks are now coming on to their balance
sheets. As banks are expected to carry a minimum of
regulatory capital against balance sheet assets, it is
argued that their ability to extend credit will be impaired
and we could see a credit crunch.
o This is true, of course, but a credit crunch does not imply a
banking crisis. A banking crisis involves the failure of
several banks, that is, the net worth of several banks gets
wiped out. There is nothing so far to suggest that such a
crisis threatens American banking. Large banks operate
with a capital adequacy ratio of over 12% against the
regulatory minimum of 8% or so. They are well placed to
absorb the impact of the subprime crisis and also to boost
their capital. That is because, as Citibank and UBS have
shown, there are overseas investors willing to provide
capital.
• Mobile Fisher Friend project
o It is a unique project launched by the MS Swaminathan
Research Foundation. In a tie up with telecom and software
majors, this project developed applications to provide
fishermen with up-to-date information of relevance to
them.
o At the press of a button, fishermen now can gain access to
information on wave height, weather, potential fishing
zones, news flashes, government schemes and latest
market price.
• Akshardham temple complex in Delhi sets world record
o The Guinness Book of World Records has recognized this
complex as the world’s largest Hindu temple complex.

• Mobile STD calls to become cheaper?

o The 225 mn cellular users of the country can perhaps
expect 5 to 10% reduction in usage charges. This is
because the ADC (Access Deficit Charge) regime is likely to
go w.e.f. April 1, 2008.
o You might remember that the ADC is used basically to fund
state-owned BSNL’s operations in rural India.
o Telecom regulator TRAI has already decided that ADC
cannot continue in perpetuity as the idea behind the levy
was to have it only for a limited period, mainly to give time
to incumbent operators to rebalance their tariff during the
transition. The regulator also said if the DoT feels that
BSNL requires further financial support for its unviable rural
landline services after March, 2008, the PSU can be funded
from the USOF (Universal Service Obligation Fee).
o All the telecom companies pay 5% of their total revenues
towards the USOF. This fund has now become a sizable Rs.
10,000 corpus. DoT is contemplating using this substantial
fund towards encouraging R&D and increasing the tele-
density in the country. At present the country’s tele-
density stands at about 22%. Rural tele-density is still
under the 10% mark.
o Look at the details of the slashed ADC charges in March,
2007
• Hand-in-Hand 2007
o This is the code name given to the first ever Indo-Chinese
military exercise on anti-terrorism conducted recently at
Kunming in China.
• TVS comes out with ABS for two wheelers
o In a first of its kind in the world, TVS is set to launch Anti-
lock Braking System in two wheelers.
 o ABS is a high-tech feature that helps avoid skidding of
vehicles and allows sure stopping on wet and slippery
roads. It reduces the chances of crashing, the severity of
the impact by instantly locking the multiple wheels of the
vehicle at a time.
o This technology is already there in four wheelers.
• Country’s metros and growth of financial services
o According to the 2001 census, there are 35 cities that are
classified as metros in India and they have a population of
108 million.
o The country’s top 6 metros account for only 10.5% of
population but consumed 61% of bank credit in 2006-07
against 55% in 1999. They are responsible for 46% of the
total bank deposits – a rise of 10% over the corresponding
figure of 35.6% in 1999.
• Game theory and spectrum auctions
o Remember our noting about the 2005 Nobel laureate
Robert Aumann? He was awarded the prize for his
contribution to game theory. A look at the basics of game
theory.
o It had been first launched by John Von Neumann and Oskar
Morgenstern, who had argued that this theory would help
economists find a way to investigate how each economic
player’s actions influence those of others. Though their
work was basically confined to two player ‘zero-sum’
games, it was John Forbes Nash who extended the concept
to any finite game (not just zero sum games) and proved
that games with more than two players must have at least
one strategic equilibrium, the Nash equilibrium.
o It was this that was widely used in the 1994 spectrum
auctions in US. The FCC (Federal Communications
Commission) turned to the economists to understand the
economic principles of auction and in designing a good
auction for auctioning spectrum. In the year 2001 alone,
more than $100 bn was realized by way of spectrum
auctions all over the world by governments.
• An interesting tidbit about Russia’s “Winter Palace and
Hermitage”
o This is the world’s largest art gallery and houses more than
30 lakh art pieces. If you want to see all these at a stretch,
you will have to walk a total of 24 kms!!!

• Indian Trusts Act, 1882 to be amended

o The government is contemplating to amend this Act to
allow trusts to invest in securities, including shares and
 bonds, of listed companies. This move is expected to
further charge up the booming stock market.
o There are reportedly a few thousand trusts in the country,
of which about 400 are very big with phenomenal
resources.
o Section 20 of the Act which prescribes the investment
options is proposed to be amended.
• Thermal efficiency to boost low emissions
o All across India, thermal efficiency (which denotes the
percentage energy content of fuel being converted into
electrical energy) rate in coal-fired power plants is a low
28%.
o In contrast, average thermal efficiency levels abroad, in
routine commercial operations, is in the range of 42-44%.
o A one percentage point increase in thermal efficiency
reduces CO2 emissions by over 3 percentage points.
• World Bank’s ICP report says Indian economy is only 5th largest;
not 4th largest
o ICP: International Comparison Programme.
o This downsizing is on PPP (Purchasing Power Parity) terms.
The country’s GDP in PPP terms for 2005 is estimated to be
only $2.34 trillion compared to $3.8 trillion computed
earlier. This revision occurred because the price data used
by the Bank to estimate PPP has been changed to the year
2005, as against the year 2000 used in other World Bank
reports.
o PPP expresses the value of national currencies in terms of
a common currency, and in this report the US dollar value
in 2005 has been used as the common currency.
• Americans are now tripping on their credit card payments
o Americans are falling behind on their credit card payments
at an alarming rate, sending delinquencies and defaults
surging by double-digit percentages in the last year. This is
largely attributed to financial deterioration in many
households due to mortgage woes.
o 325 million individual accounts are held in trusts that were
created by credit card issuers in order to sell the debt to
investors. Together they represent about 45% of the $920
bn the Federal Reserve counts as credit card debt owed by
Americans.

o Over Rs. 1000 crores is lying with banks in India in the

form of unclaimed deposits in 1.03 crore inactive accounts.
o Banks term money lying in accounts that have been
inactive for over 10 years as unclaimed deposits.
• Language lessons
 o A sentence in today’s ET:
 There has always been an unresolvable tension
between the party’s hardline and the ecumenical
demands on its non-Hindutva allies.
o What is meant by ‘ecumenical’ here?
 It means: concerned with promoting unity among
religions
o What is meant by skulduggery?
 Trickery: verbal misrepresentation intended to take
advantage of you in some way.
• Nuances in taming inflation
o In a very good article on suggesting the course of action
that the RBI should take in the ensuing year, Rohit Prasad
gives us some good opinion:
o CPI (Consumer Price Index) places a much greater
emphasis on food (46% weight) as opposed to 15% in WPI
(Wholesale Price Index). Therefore, CPI tends to be less
interest rate sensitive and more affected by supply side
movements than the WPI. In other words, the problem of
inflation has partly already been solved (since WPI is down
and CPI follows WPI with a lag), and the portion remaining
cannot be solved through monetary tightening since the
CPI is affected by non-monetary measures far more than
by monetary measures. In other words, as far as
controlling inflation is concerned, it is time for Reddy (RBI
Governor) to take a bow and Chidambaram to enter the
stage.
• Ever heard of “regulatory capture”?
o It describes a situation in which the regulator does not act
in the public interest but is instead driven by concerns of
the entities that it regulates.
o What should be the relationship between the regulator and
the regulated? How do vested interests seep into
regulations, blurring the line between both groups? When
does regulation begin to get dictated by interests of those
who are being regulated? When does a regulator exactly
forfeit its autonomy? Concerns such as these point to what
is referred to as ‘regulatory capture’.
o According to public choice theory, the regulated will find
ways to capture decision-makers directly or indirectly. The
theory of regulatory capture was proposed by Nobel
laureate economist George Stigler. The concept found
roots in the economics of regulation – where the
government is responsible to protect and distribute public
goods.
• No more ‘outsourcing’, it is ‘worldsourcing’ that we should learn
now. So says William Amelio, the CEO of Lenovo.
o What it refers to is the fact of a product being labeled as
‘Made in India’ or ‘Made in China’, but containing
components manufactured in many places all across the
globe.
o He feels that this is a powerful emerging market force that
can help India set itself on a new course to prosperity and
its fair share of the global economy.
o He sees this as a business strategy that smart, ambitious
companies use to take the underlying forces of
globalization and shape them to maximize the value and
quality they deliver to customers worldwide.
o Differences between outsourcing and worldsourcing:
 While the former is a centralized, top-down strategy
designed to save money on non-core operations by
handing those operations to a third party evaluated
by a single criterion: the lowest price, the latter is a
global, decentralized strategy designed to drive
greater value and quality by distributing an
organization’s core functions across multiple global
hubs of excellence located wherever the best
resources, talent, ideas, and efficiencies exist or can
be created.
o The benefit of worldsouring?
 Global companies that worldsource their goods and
services are exposed to the probing light and
criticism from demanding customers and
government regulators in many diverse countries.
They create trusted brands by adhering to the
highest standards of governance, transparency,
compliance and quality.
• Some lucid commentary on the off-budget liabilities
o We have noted about the issue of oil bonds to OMCs on a
couple of occasions earlier. Let us look at some
commentary on that practice:
o Most of the states having enacted fiscal legislations (FRBM
Acts), cannot take recourse to accounting jugglery like
issuing bonds to take their subsidies out of their budget
books. So, after this fiscal’s performance, it is likely that
Centre will be on a weaker wicket when it comes to taking
the high moral ground, as it used to do in the past, when it
talks of fiscal prudence.
o Issuance of bonds helps fiscal managers to postpone
liability to a future date. Over the last decade or so this has
been resorted to.
 o In effect, this translates to inter-generational inequity – the
future generations pay for such acts of fiscal jugglery.
Some argue that issuance of oil bonds is a violation of the
basic tenets of FRBM Act. Perhaps not in letter, but in
spirit.

• Short selling on our bourses allowed

o SEBI formally laid down the framework for short-selling and
the SLB (Securities Lending and Borrowing) scheme for all
market participants.
o With this any non-institutional investor (that means small
investors, day traders and high net worth individuals) can
now short sell securities. FIIs/MFs will be allowed to short-
sell once SEBI specifies the date.
o However naked short-sales won’t be allowed. Naked short-
sales are sales that are not backed by delivery.
• Scorpene submarine deal gets CBI probe
o The Delhi High Court has ordered a CBI probe into the Rs.
16,000 crore deal as there were allegations of kickbacks in
the deal.
• Yuletide keeps market in low spirits
o So reads a news headline. What does ‘Yuletide’ mean?
 It refers to Christmas, the period extending from Dec.
24 to Jan. 6. There is an interesting background.
 Yule is a winter festival associated with the winter
solstice celebrated in northern Europe since ancient
times. Its Christianized form is "Christmas", which is
essentially the symbology and traditions of Yule with
the Christian story of the birth of Jesus of Nazareth
superimposed upon it. Yule traditions include
decorating a fir tree, burning a Yule log, the hanging
of mistletoe and holly, giving gifts, and general
celebration and merriment.
• IFCI strategic sale fiasco
o The government’s attempt at selling 26% stake in IFCI to a
strategic investor ended up as a farce.
o There was confusion over whether the strategic investor
would get management control. The investor was getting
only two out of eight board seats and had no right to
appoint the CEO. Usually the world over, a strategic
investor gets management control.
• India goes ‘open source’ in drug discovery
o I think this is one measure which should take us to a
different league altogether.
o The idea is that all relevant data and accumulated
intelligence on a particular disease, would be hosted
 online. We are starting with TB. Researchers and experts
then would be encouraged to come forward and solve
specific problems, which would largely be chemical in
nature, essentially figuring out mathematical algorithms to
make protein to bind to the target. Promising solutions
would then be assigned to research organizations for
clinical testing and validation. The multi-stage problem
solving approach should logically yield a cure.
o The consequences of this would be:
 It is nothing short of taking drug discovery away from
the exclusive preserve of a few MNCs with deep
pockets.
 Though primarily directed at promising markets,
typically diseases common in rich countries, some of
the third world ones such as TB are also included.
 The drugs developed through the process would not
be IPR- protected and would, therefore, become a
low-cost generic from day one.
• Putin is TIME’s Person of the Year
o You know, this selection has become politically sensitive in
the US?
o On its part the TIME magazine said it is not an honour, not
an endorsement or a popularity contest. It is a clear-eyed
recognition of the world as it is and of the most powerful
individuals shaping the world – for better or for worse.
• South-South cooperation (From Anthony de Sa’s article)
o December 19 is observed as the South-South Cooperation
Day.
o The essence of this cooperation is that the wealth of
knowledge and capacity in developing countries, when
systematically mobilized and shared, can be a powerful
tool for their effective participation in the global economy.
o How is an industrial economy better than a commodity
exporting economy?
 Commodity export (or unprocessed agriculture)
confers disproportionate profit on landowners and
traders, with practically no spin-off benefits – in fact,
sometimes with the negative effect of starving
domestic industry of raw materials. One the other
hand, industrialization makes profit for factory
owners, no doubt, but it also gives rise to a host of
upstream and downstream ancillaries that provide
year-round employment, availability of consumer
goods to raise the standard of living, and all-round
empowerment.
 o Functional literacy plays an important role in the making of
an industrial economy.
 Functional literacy is not just those who are literate,
but rather the percentage of literates equipped with
relevant production skills and production-related
service capabilities, actively involved in design,
processing, manufacturing and marketing.
• Now that the tax revenues are very buoyant, is it time to reduce
the tax rates in India?
o Gist of arguments put forth by two experts:
 The idea being floated about to reduce the rates
from 30% to 26% needs to be viewed with some
circumspection. This is because a 4% to 5%
reduction in the rate could translate into a 13%
reduction in corporate tax collections.
 A pure and simple reduction in rates with no
accompanying rationalization would amount to a lost
opportunity.
 Will the reduction induce a Laser-curve effect? What
this means is, would it result in higher collections
through better compliance?
 Whether a reduction in tax rates is the best way to
use the present expanded collections? Perhaps it
could be better used to improve our infrastructure or
something else. Need it be used for just give-aways?
• What is the ‘zeroing’ principle adopted by the US in dumping
cases, that is raising the ire of the rest of the world?
o What the US does while calculating the average dumping
margins is ignore (thus zeroing) the negative dumping
margins. Dumping margin is the difference between the
normal price of a product in the market of the exporting
country and the export price. When the average dumping
margin on a number of similar products is calculated, if the
negative margins (where the local market price is more
than the export price) are ignored (zeroed) this results in
an inflation of the anti-dumping duty.
o That’s why the exporters to the US are up in arms against
this method of calculation of the anti-dumping duties.
• While writing today’s notes, I was listening to “Move ya body”
song from Johny Gaddar. Felt like giving a link of the video. What
a remarkable lady? From the days of “Glassy” to this one. As
good as Nina Sky for me. Here it goes…

• Akash test fired successfully

 o India’s multi-target medium range missile with a strike
range of 25 kms and capable of carrying warheads of 50
kgs was test fired successfully again.
o In these trials Lakshya, the PTA (Pilotless Target Aircraft)
was used as the support system for the target.
• Some details about steel making
o Ever heard of the TMT steel bars?
 TMT stands for thermo-mechanical treatment
process, used in making the steel.
 What goes on in this manufacturing process is
quenching and tempering of the steel. In this
process, steel bars are passed through a specially
designed water-cooling system where they are kept
till the outer surface of the bars cools down while the
core remains hot. When the bars are withdrawn from
the cooling system, heat flows from the core to the
outer surface, further tempering the bars, which
helps them attain higher yield strength. The resulting
heat treated structure has superior strength and
toughness.
o This technology patented by HSE (Hennigsdorfer Stahl
Engineering) Gmbh, a German company.
o Earlier to this CTD (Cold Twisted Deformed) bars, a
technology developed sometime in 1970 was being used in
Europe. But it fell into quick disuse there. But in India this
was being used.
o A transition from CTD to TMT is considered a sign of
progress for a country. Nowadays TMT bars are widely
being used in the construction industry.
• Why are air travel agents angry?
o They are upset with airlines and the government. They are
losing about Rs. 25 crores per month which is not paid by
airlines to them. This is due to the fact that airlines are
excluding fuel and congestion surcharge (Rs. 1800) from
the airfare. It is only on airfare that commission (about 5%)
is paid by airlines to the travel agents.
• Certified market participants
o SEBI is planning to make the life of the retail investor
easier by coming up with a database of certified market
participants. This certificate is issued by its NISM – National
Institute of Securities Management after the participants
clear exams conducted by it.
o SEBI is also stated to be having plans of grading these
market participants to give some additional comfort level
for the retail investors.
 o Don’t get confused by the phrase market participants. It is
nothing but stock brokers.
• Bond market to see lot of action
o This is due to the fact that banks need to raise about Rs.
30,000 crore to meet their Basel II commitments.
• Defaults on the vehicle loans on the rise
o The mean delinquency figure, 12 months after
securitization, stands at 4.92% for loans originated in
2006. This is double the figure of 2.10% for loans that
originated in 2003.
• Land acquisition and SEZs
o Can you reel out two problems with the issue of
establishing ‘market value’ of the land that is about to be
acquired for an SEZ?
o In an article on the subject Prabhu Ghate gives two of
them. Take a look:
 First is not knowing the counterfactual – what would
the value of the land have been in the absence of the
project? Large projects affect land prices for miles
around. A mechanical tying up of the land price to
the stamp duties assessed on sales at the time of
mooting the project is unfair, because it penalizes
persons for land undervalued by others so as to save
on stamp duty.
 Secondly, it understates the increase in land in
values that would have taken place even without the
project, especially in areas which are nearer to large
cities.
• Subprime’s lessons on socialism .
o He argues that the subprime fiasco has taught some
socialistic lessons to us. In the process he also gives a very
neat account of the how the mess unfolded itself. Does
help us get a clearer picture of what (or how it) went
wrong.
o His argument is that the unfolding mess has added lot of
housing stock to the market. This has resulted in some
people getting highly cross subsidized housing at the
expense of the government and shareholders of banks
which have burnt their fingers in the mess. He wonders
whether or not this is a kind of socialism. .
• While on the subject let us see on more casualty
o Morgan Stanley reported its first every quarterly loss in 73
years!!!
o Led by a $9.4 bn writedown, it lost $3.61 bn in the fourth
quarter.
 o Though John Mack, its CEO is still retaining his job, it may
be a matter of time before there will be calls for his
resignation.
o Morgan Stanley is the second largest investment bank in
the US.
• Our PM also worries about recession in the US
o With the external sector accounting for almost 40% of GDP,
the country cannot be immune to international
developments, he feels.
• How much does it cost to administer subsidies?
o According our FM, the centre spends Rs. 3.65 to transfer
Rs. 1 to the poor in subsidies.
• Mobile bank branches
o TMB (Tamilnadu Mercantile Bank) will be perhaps the first
bank to launch these mobile branches. It is essentially a
van which will have a computer connected to the bank’s
server through a VSAT, two staff and a security guard. It
could cover about 6 to 7 villages in a day.
o Looks like a perfect solution for making headway in
banking penetration.
o Only about 59% of adult population in India has bank
accounts. In rural areas, this is just 39%.
• Classical language status to Telugu
o The Centre gives this status to a language which is 1000
years old. Recently it seems to have revised this qualifying
period to 1500 to 2000 years.
o But Telugu, according to ASI (Archaeological Survey of
India) studies is now about 2400 years old.
o Three inscriptions recovered in Bhattiprolu (Guntur District)
contained several Telugu roots or words. These inscriptions
date back to 400 BC.
o Telugu language was found in a more refined form in
Kantamnenivarigudem (West Godavari District) and
Gummadidurru and Ghantasala (Krishna District), dating
back to 2nd century AD.
• Pest in Areca nut
o One of the important pests of this crop is spindle bug.
o These bugs feed on the top most regions of the leaf axils
by injecting toxic saliva, producing elongated necrotic
lesions, shredding and short holes in the leaves.

• What is the most urbanized state in India?

o Tamilnadu. It has 44% of its population living in urban
areas.
• How does world insurance market impact Indian insurers?
 o In 2007, the insurance sector worldwide suffered a loss of
$25 bn.
o Indian insurers are impacted in two ways:
 Large risks with a sum insured of over Rs. 10,000
crores are reinsured directly by local companies. As a
result, the pricing in their contracts reflects the
position of international markets.
 Cheaper availability of reinsurance increases the
capacity of local insurers and therefore increases
competition. When this is not the case, even small
ticket insurance deals are impacted negatively.
• Language lessons:
o I came across a phrase in today’s ET editorial:
 “The credit markets in the major economies remain
gummed up.”
o What is meant by ‘gummed up’?
 It means ruined or bungled up.
• Listing of PSEs
o There are nearly 250 PSEs (Public Sector Enterprises) but
only about 50 are listed. At the end of March 2006, 157
PSEs (out of 215 surveyed) were profitable, against 120 in
2001-02.
o As most of the PSEs are in a profit making mode, ET argues
that this is the right time for listing these PSEs. Divesting a
small stake in these PSEs will unlock lot of value.
• Rise of the rupee and the bunkum of losing jobs
o SSSA Aiyar, as is his wont debunks the theory that the
rising rupee is costing India in millions of lost jobs..
o If we look at rupee’s value vis-à-vis other major currencies
in Asia from July 2005, it is clear that it appreciated much
less than the other currencies. It has risen only 9.4%
against the dollar whereas China (10.9%), South Korea
(11.1%), Malaysia (12.6%) and Thailand (20.2%) have
appreciated much higher.
o With many a corporate taking a beating because of the
rising rupee, another column in today’s ET suggests that
corporate India should start using ‘constant currency’ to
report its results. “Constant currency’ is when a company
reports its results, stripping the effect of changes in foreign
exchange rates.
o For eg., if a company sold goods worth $100 in 2006 at Rs.
40 to a dollar, its sales would be worth Rs. 4000. In 2007, if
the sales rose to $120 and the dollar fetched Rs. 30, then
sales in rupee terms would be Rs. 3,600, a 10% decline.
But in constant currency terms, the sale would grow by Rs.
20%.
• About the 11th Plan
o Many a time when we are asked to say a few words on the
current or ensuing five year plan, we don’t know where to
begin and where to end.
o Look at this on the 11th Plan:
 The plan envisages an investment of Rs. 36 lakh
crores in various sectors, with special emphasis on
equitable growth. Important targets in the plan
include:
• Reduction of poverty by 10 percentage points
• Generating 7 crore new employment
opportunities; and
• Ensuring electricity connection to all villages.
 The plan targets a 9% growth rate for the economy.
 The GBS (Gross Budgetary Support) for the Plan has
been fixed at Rs. 10 lakh crores.
• Gujjar agitation and Chopra committee
o The Justice (Retd.) Jas Raj Chopra committee that has been
constituted to go into the issue of declaring Gujjars of
Rajasthan as a scheduled tribe has submitted its report.
o The committee felt that the community’s demand for
enlistment in the ST category could not be met, as such a
step would require the abrogation of the criteria set by the
Centre for the process. It said “Passing judgment on the
candidature of a particular group for the ST status in terms
of presently used criteria is very difficult.”
o The Gujjars are obviously unhappy with this. Their leader
Kirori Singh Bainsla termed the report as a ‘deceit’ on the
part of the Rajasthan CM.
o But the Meena groups, which till now have been opposing
the ST status to the Gujjars, spoke in somewhat
conciliatory tone about the government’s decision to refer
the matter to the Centre.
• FIFA world player of the year
o Is Kaka, the Brazilian midfielder.
o For him, it is the third accolade this year. He won European
football’s Golden Ball and World Soccer magazine’s Player
of the Year award.
o He is the fifth Brazilian to win this title. The others are:
Ronaldo, Ronaldinho, Romario and Rivaldo.
• Sudoku
o Ever played this game?
o It was invented by Swiss mathematician Leonhard Euler in
the late 1700’s.
 o Now a colourful and easier version of this game is invented
by a doctoral student (Antony Harfield) at the University of
Warrick in Britain.

• Respectable progress in innovation and R&D from India

o In recent years India has made enormous strides in
innovation and research as the driver of economic growth.
This has also given a boost to the patenting activity in the
country. The number of research publications from India
had been stable at around 15,000 papers per year until
2000, when there was a pronounced upturn. In the last five
years, they have grown 45% to cross 25,000 mark. Since
the late 1980’s the citations India receives has
considerably increased. For instance, research papers from
India received 256,253 citations in the last five years
showing a fourfold increase since the 1980’s.
• Some facts and figures about our transport sector
o The growth in commercial vehicle segment in the recent
years (2002 to 2007) has been partly due to Government’s
highway building programme. Yet only 7,500 km of the
planned 25,000 km has been built.
o State transport corporations have a total fleet strength of
just over 100,000 in a country where 1.4 mn cars and multi
vehicles are sold each year.
o Of a total truck fleet of 2.8 mn, around a million are
estimated to be more than 12 years old indicating a huge
potential for replacement demand though the realization of
this demand would depend on how strict regulators are
about phasing out ageing vehicles.
• On judicial activism
o Recently we noted the contents of a Supreme Court
judgment about judicial activism. A topic like this is bound
to generate lot of heat and did for sure.
o There are strong views expressed both for and against the
issue. Striking a judicious balance by the Court while taking
up issues that will have a potential of trespassing the
jurisdictions of the executive and legislature, will remain a
challenge for it as long as it exists. While we cannot find
any fault with a legal luminary like Justice (Retd.) VR
Krishna Iyer describing judicial activism as the ‘oxygen of
rule of law’, how many of the legal fraternity can this
‘oxygen’ be trusted with, without their trampling on the
domains of the other two pillars of democracy?
o I explained to you what is ‘obiter dicta’ while noting on this
subject earlier. One more legal phrase that is worth our
 attention is ‘ratio decidendi.’ It means the reason or
rationale behind the decision in the judgment.
• We have heard of hybrid vehicles. But hybrid ships?
o Their time too appears to have come.
o A giant kite designed to help slash the spiraling cost of fuel
consumption could herald these hybrid ships.
o This kite is tethered to the bow of the ship. Flying at a
height of 100 to 300 meters, this will tug the ship along,
allowing it to operate its engines at reduced speeds, thus
cutting back on fuel consumption.
• Language lessons
o W00t: Merriam Webster’s dictionary has selected this as
the word of the year.
o This is often used in the online gaming world. It is used to
express joy – it could be a triumph or for no reason at all.
o It stands for “we owned the other team.”
o Notice that the word has zeroes between the letters ‘w’
and ‘t’ in it.

• Payback time for scamsters

o There is hope at last for investors who have been
defrauded in IPO scams.
o The Justice Wadhwa committee that has been constituted
by SEBI to compensate individual investors has worked out
a compensation of Rs. 92 crore for investors who had
applied for shares in the retail category in 21 IPOs during
2005-06.
o A recap about how the IPO scam was unveiled by the
perpetrators:
 Operators put in thousands of fictitious applications
in IPOs in retail category.
 Thousands of bank and demat accounts were opened
in the names of fictitious entities.
 Post-allotment, operators transferred shares to
another set of players.
 The players in turn transferred shares to financiers
who had provided funds for investing in the IPOs.
 Shares were then sold on the first day of listing,
making huge gains.
• What is a reverse merger?
o When a listed company acquires an unlisted company
giving the unlisted company the status of a listed
company, that is called reverse merger.
o India has not been having many such reverse mergers. But
in US it is quite common.
o But of late we are seeing such transactions in India also.
• Low penetration of households in equity culture
o A mere 5% of household financial savings are in stocks and
debentures in India.
• Exploration of oil and natural gas blocks
o We have noted on this subject recently while covering
about NELP VII. Something more worthwhile coming our
way includes:
o The unavailability of oil rigs seems to have curtailed the
blocks on offer. Only about 18 new blocks have been put
up for bidding this time, as 24 of the blocks were
relinquished by earlier bidders and another 15 blocks have
had no takers in previous bidding rounds.
o What is meant by more transparent bidding conditions?
 For example, declaring upfront the numerical
weightages for different bid criteria and various sub-
parameters.
o Just over a third of the country’s sedimentary basins have
been explored to any real extent. Estimates suggest in situ
crude of over 1 bn tonnes. We need to have in place a
world class regulatory regime to coagulate funds flow in
the sector.
• The new buzzword: de-coupling
o While globalization was the buzzword till recently, it
appears to be the turn of ‘de-coupling’ this time.
o It refers to the apparent disconnect between how the rest
of the world sees the future and how we (India) see it. The
world is no longer one big global village; the belief that
India and other emerging markets can go their own way
regardless of what happens in the advanced world, is
gaining ground.
• A very good piece from Rahul Bajaj
o Many a time he is dubbed as the leader of the ‘Bombay
Club’ and a retrograde person when it comes to his views
on opening up of our economy and further liberalization.
But if you read his today’s article, he surely comes off as a
reasonable person. He gives irrefutable evidence of the
double standards that the west and developed world
follow. I am convinced of his arguments. Take a look at
some excerpts and my interpretation of his argument.
o The focus of his argument is that the cause of the
appreciating rupee is not any sound strengthening of the
economy. A rise of the currency backed by a consistent
strengthening of the economy over the longer run can
never be found fault with. But the rupee’s rise is
attributable to the massive inflow of foreign funds – the FII
inflows, which are short term and speculative in nature.
 o When the Asian financial crisis occurred, IMF advice made
matters worse. But in tackling the recent subprime crisis,
the developed world had done just the opposite of what it
advised the developing world during the Asian financial
crisis. It bailed out the Northern Rock bank in England and
infused liquidity by establishing a $100 bn bailout fund;
measures which it would have seen as moral hazards, had
they been done by the developing world.
o So, it would be unwise not to keep any checks on capital
inflows into the country at this juncture.
o Experience in Chile (where it mandated that a certain
portion of the inflows would be retained with the Central
Bank in non-interest earning deposits) and the findings of
the NBER (National Bureau of Economic Research of US)
that the capital controls placed by Malaysia and Thailand
have helped in reducing the real exchange rate pressures,
confirm that we should find solutions to our problems
rather than follow someone else’s prescriptions.
• Detonators in mining and security
o I was recently on a visit to a detonator manufacturing
company. I found that most of the employees are not
highly educated and could perhaps be easily carried away
by some misguided elements into following some wrong
philosophies. I was shuddering at the possibility of the
detonators being smuggled out by the employees of the
company and quizzed the head of the company about it.
Though he showed the systems that are there in place to
ensure strict accounting; I remained a bit skeptical.
o Today’s news item which is reporting the possible
separation of possession and sale of explosives does point
to the right direction. The proposed changes in law mean
that the company licensed to sell explosives would not be
allowed to use them and a company licensed to use
explosives would not be allowed to sell them. This can put
a lid on the possible ‘leakages’ that can occur in the
system.
• Protection of public servants
o With the recent spate of attacks on junior doctors and the
resultant strikes by them in AP, the issue of protection of
public servants while performing their duty has occupied
public mind.
o Section 353 of Indian Penal Code laid down that assault or
use of criminal force to deter a public servant from the
discharge of his duties was a punishable offence with
imprisonment of a term of two years or with fine.
• Integrating EU
 o The EU is on course to extending the Schengen borderless
area to 9 more countries this week.
o EU citizenship guarantees right of entry into all the 27
members states regardless of one’s circumstances.
o The 1985 Schengen Agreement is an agreement among
some European countries which allows for the abolition of
systematic border controls between the participating
countries. It also includes provisions on common policy on
the temporary entry of persons (including the Schengen
Visa), the harmonisation of external border controls, and
cross-border police co-operation. By the 1999 Treaty of
Amsterdam, the agreement itself and all decisions having
been enacted on its basis had been implemented into the
law of the European Union.
o A total of 30 states, including all European Union states
and three non-EU members (Iceland, Norway, and
Switzerland), have signed the agreement, and 15 have
implemented it so far. The Republic of Ireland and the
United Kingdom only take part in the police co-operation
measures and not the common border control and visa
provisions. Border posts and checks have been removed in
the Schengen area states and a common 'Schengen visa'
allows tourist or visitor access to the area.
• Surprising but true!!!
o The bald or hairy rule; the rule of thumb for Russian
leaders.
o In the last 130 years of Russian history, the position of the
head of state, has religiously alternated between a bald
person and a hairy person.
o This was from 1881 when the balding Alexander III took
over from his hairy father.
• India’s F1 win
o Narain Karthikeyan won his maiden A1 GP race at the
Zhuhai International Circuit in China yesterday.
o The last time he won a race was when he clinched the
Spanish leg of the Nissan World Series in October, 2004.

• Information on energy conservation

o Once in a way some articles appear in papers that are
simply worth a read. They give you lot of information and
perspective which is very difficult to get by going through
notes prepared by somebody else. I would add today’s
article by Gem Paul on energy conservation that appeared
in today’s ET to this category.
• India in the top bracket when it comes to small car segment
 o It has shown 18% CAGR (Compounded Annual Growth
Rate) in passenger car sales over the past four years. This
has placed India among the top three compact markets
globally, behind Japan and Brazil.
• The DMIC control to be offered to private sector
o The government is planning to offer up to 51% stake in the
$90 bn Delhi-Mumbai Industrial Corridor to financial
investors.
o About 4% equity stake in the company would be held by
the six states (which are stakeholders in the project: UP,
Delhi, Haryana, Rajasthan, Gujarat & Maharashtra) each
and 25% would be held by the Centre.
• About NELPs
o NELP: New Exploration and Licensing Policy. It is through
the NELP rounds of bidding that the government is offering
various blocks in the country for oil and natural gas
exploration.
o So far six rounds of NELP have been taken up. About $8 bn
investments have been committed in these six rounds so
far. Of this about $4 bn has been spent till March 2007 by
exploration companies. A total of 162 blocks have been
awarded in these six rounds. About 49 oil and gas
discoveries have been reported, accreting over 600 mn
tons of reserves.
o Through the currently ongoing NELP VII round of bidding an
investment of $3.5 bn is being expected by the
government.
• IRRI warns of global rice crisis
o A global rice shortage is possible in the short run unless
cultivation is improved, says IRRI, the International Rice
Research Institute based in Manila, Philippines.
o The world is already eating more rice than is harvested
annually, because of rising populations and economic
growth.
o Nearly half the planet’s 6.6 bn population depends on rice
to survive and demand for the grain is expected to
increase by 50% by 2030.
o Average rice prices have nearly doubled to around $325
per tonne in the past six years.
• More info on Bali meet
o REDD: Reduced Emissions from Deforestation in
Developing countries.
o Under this scheme, preservation of forests could become a
tradable commodity with the potential to earn poor nations
billions of dollars from trading carbon credits.
• Comment on campus rage
 o Recently a class VIII student in a Gurgaon private school
has shot his classmate that resulted in the death of the
latter. This brought images of the US based school/college
shooting incidents that killed many people, to our minds. A
couple of editorial comments in The Hindu on this incident
are worth noting:
o Although the Arms Act is silent on the penalties for failing
to secure a weapon, Section 340-A of the Indian Penal
Code provides for punishment for causing death by
negligence. This comment is in connection with the
reported fact that the boy had taken his father’s revolver
from home to shoot his school mate.
o The Arms Act provides for strict licensing procedures:
licences are given after an inquiry, as deemed necessary
by the licensing authority, and need to be renewed every
three years. But there are clearly problems of
implementation. Not changes in the law, but strict
enforcement of existing regulations and exercise of great
responsibility by gun licence holder should be the first
steps if Indian schools are not to endure similar horrors in
future.
• A special coin - Shahenshah
o It is a pure gold coin weighing 100 tolas (1166 gms). It was
got minted by Shah Jahan and presented to the Caliph.
o He did so to get the pardon of Caliph as the latter had
excommunicated his father, Jehangir and his successors as
he had issued coins bearing his (Jehangir’s) portrait and
violated the tenets of Islam.
o This coin has had an interesting journey. It was inherited
by an Arab princess who brought it as dowry when she
married the Nawab of Bahawalpur. Later, their daughter
took it to London, from where it came to Mumbai. It is
currently with numismatist Dinesh Mody.

India urges the rich to walk the talk on climate change; at the Bali meet

o India with more than a billion people, is the world’s fourth

largest emitter behind the US, China and Russia, and is
projected to account for a rising share of global carbon
emissions as it burns more fuel to try to end poverty.
o But India defended its policies, saying its per capita
emissions were far below the global average. India has
promised that per capita emissions will never reach those
of developed nations.
 o The country’s per capita emissions were low at 0.25 tonnes
of carbon in 2001, a quarter of the world average and 22
times less than the US.
o While this is so, the US is blocking progress at Bali says Al
Gore, the former US Vice President and Nobel laureate. He
was referring to the US refusal to accede to the guidelines
being proposed for adherence by 2020. He was hoping the
new treaty to be completed by December 2009 in
Copenhagen.
o Sweden is the first country to impose a carbon tax in 1991.
• Yet another Indian heads an MNC; this time the Citigroup
o The Citigroup which has been in the news of late for the
wrong reasons – it got mauled by the subprime mess – will
now be headed by an Indian, Mr. Vikram Pandit. He joins
the ranks of Indra Nooyi (Pepsi) and Arun Sarin (Vodafone)
on the international corporate scene.
• Voices of customers and investors vs. those of citizens
o Writing about Indian democracy, Arun Maira explains how
what is good for stock markets and corporations is not
necessarily good for a majority of the people. Look at the
following excerpt:
o An analysis by Robert Reich runs like this: The institutions
of capitalism that enable masses to participate in the
economy as customers and investors — business
corporations, investment funds, etc — have progressively
gained power. Whereas institutions that aggregate their
interests as citizens — labour unions, neighbourhood
associations, etc — have withered. Therefore voices of
customers and investors are heard more loudly, and voices
of citizens are drowned out. Thus, ‘capitalism has invaded
democracy’, and the calculus of economic efficiency has
replaced judgements of social harmony. Almost everyone
in the US is a customer of many corporate products and
services and by 2005, the majority of US households also
owned company stocks. Therefore, even if their voices as
citizens are not heard, almost all Americans participate in
the economy as customers and investors.
o On the other hand, less than 5% of India’s population
participates in the stock market, and many millions are not
even customers of large corporations. Therefore, what is
good for corporations and stock markets in India cannot be
presumed to be good for the majority of people. For more
economic progress with less friction, and more social
harmony, the voices of the citizen within all Indians must
be heard, not just the demands of customers and
investors.
• Oil regulator writes to government about price tampering
o The newly constituted petroleum and natural gas regulator
has written to the government against tampering with fuel
prices and distortion of market forces.
o The prices of petroleum products are kept artificially low
for about 18 months, impacting the health of oil marketing
companies. The price of auto fuel was last increased in
June 2006. While public sector OMCs are losing Rs. 6.34
per litre on the sale of petrol, they are losing Rs. 7.88 per
litre on sale of diesel.
• Price preference for SMEs to get legal cover
o Public sector companies and state agencies may soon be
legally bound to give preference for SMEs in bidding
process. While a 15% price preference is given to SMEs
under NSIC (National Small Industries Corporation)
Scheme, some PSEs and states are not extending the same
to them.
o Some of the preference provisions include: issue of tenders free of cost,
exemption from payment of earnest money deposit, waiver of security
deposit up to a certain limit and price preference of 15% over the
quotations of the large scale industries.
o
o Geothermal energy

o In India the places that have geothermal potential include

Ladakh, Himachal Pradesh and Andaman islands.
o Geothermal plants produce electricity by tapping heat in
the steam hidden beneath the surface of the earth.
o The capital requirement for geothermal energy works out
to Rs. 10 to 12 crores per MW compared to Rs. 6 to 7 crore
per MW for hydro power.
o Geothermal plants typically have a high plant load factor of
80 to 85% and there is hardly any operational cost
involved in running these plants.
• Human evolution is happening fast
o People today are genetically more different from people
who lived 5000 years ago. They in turn were different from
Neanderthals who vanished 30,000 years ago.
o The changes have been driven by colossal growth in the
human population – from a few million to 6.5 bn in the past
10,000 years – with people moving into new environments
to which they needed to adapt.
o Most of the evolutionary changes happened in the last
10,000 years basically corresponding to population growth
after agriculture is invented.
• PSEs and bonus issue
 o Of the 83 listed PSUs, 52 companies have reported
accumulated reserves and surplus that were more than
three times their respective paid up capital during the
financial year 2007.
o This, when viewed in the backdrop of the DPE (Department
of Public Enterprises) guidelines and the government’s
instructions to IOC, may hint at a possibility of bonus
announcement by these PSUs.
• Supreme Court notices judicial activism with caution
o While passing a judgment in the golf club case (wherein it
struck down the Punjab and Haryana High court decision
directing a golf club to create a formal post to which a mali
should be appointed), the Supreme Court has called for a
halt to excessive judicial activism. The observations of the
Supreme Court are called ‘obiter dicta’ in judicial parlance.
That means that these observations will not have the
strength and force of a judgment. But nevertheless they
make clear to the country the ‘sense’ of the court.
o Do you remember the phrase ‘sense of the house’ being
used in the context of the Indo US nuclear deal? It is
something akin to that.
• On SSI de-reservation
o The list of items meant for exclusive production by SSI
sector has come down from 836 items in 2001 to 114 at
present.
o In many categories where capacity constraints exist, there
has been a pruning down of key items from the domain of
restrictions.
o The result of de-reservation has been broadly positive.
Experience shows that companies engaged in small-scale
production, which have survived the downturn of the ’90s,
have emerged stronger and even outperformed their
counterparts in the large industry by a huge margin. This is
confirmed by the Economic Survey which mentions that,
between 2001 and 2005, average production in the SSI
unit increased by 10.6% while employment actually grew
by 4.4% unlike the case of medium and large industry
during this period. Similarly, smaller companies have done
better than larger ones in terms of growth in net sales and
operating profits. In fact, companies with net turnover of
Rs 1 crore to Rs 50 crore have reported a 701% profit
between 2001 and 2006 as compared to 169% for large
companies. And all this growth has taken place at a time
when items were being taken off the reserved list.
o Yet complete de-reservation may neither be feasible nor
desirable as reservation may still be meaningful for items
 such as agarbattis produced in the cottage industry.
Hence, it would be beneficial to ascertain and evaluate the
worth of each item and assess its likely impact before
going in for de-reservation. And this should be completed
within a certain time frame. This would help small-scale
capital, labour and entrepreneurship to rearrange,
amalgamate and build economies of scale as also develop
the requisite strength to compete.
o The process of de-reservation should be accompanied by
provision of requisite infrastructure and institutional
support which will help SSIs to effect vertical integration
with larger units. Its problems of technology, skills,
marketing and finance deserve special consideration. After
all, SSIs offers huge employment and export potential,
which could be ignored only at our own peril.
• The Benami Act is in for a overhaul
o Enacted by the Parliament about 19 years ago (1988), the
Act has still not come into effect because the CBDT
(Central Board of Direct Taxes) which was entrusted with
the task of framing the rules has not yet done so.
o The government is considering changes to the Act
following pressure from international quarters on India to
tighten its anti-laundering Act.
o A tightened Benami Act can aid the PMLA (Prevention of
Money Laundering Act) to fight terror-funding effectively.
o A ‘benami transaction’ is one in which property is
transferred to a person for a consideration paid or provided
by another person essentially.

• RIL goes to Australia in search of Uranium

o Reliance Industries has struck a deal to explore uranium in
Australia as soaring demand and prices turn the yellow
metal into a lucrative commodity.
o It has acquired a 49% stake in eight exploration blocks
owned by Uranium Exploration Australia.
o India bans private sector participation in uranium
exploration and mining.
• Retail market set to double in 3 years to $30 bn
o The organized retail market is set to touch this figure in the
ensuing three years. At present its share is a meagre 5% of
the total retail market in the country.
• What is a 419 fraud?
o This is also known as the advance fee fraud, or more
commonly the Nigerian email fraud.
o Most people with an email account would have at some
point received an email seeking assistance in transferring
 money belonging to a deposed/dead politician overseas.
The writer claims to be an associate of the account holder
and often seeks a relatively small amount to be remitted
towards fees. The fraud gets its name from Section 419 of
Nigerian Criminal Code, which refers to obtaining property
under false pretenses.
• RBI warns against fraudulent remittance offers
o Of late another type of email that we receive is announcing
our email having been declared a winner in an online
lottery. The ultimate aim of the sender is to collect some
money from us towards the costs of claiming the prize
money in the lottery.
o RBI clarified that remittance in any form towards
participation in lottery schemes is prohibited under the
FEMA.
• IOC bonus issue
o According to government guidelines, PSEs (Public Sector
Enterprises) should consider a bonus issue if reserves to
equity ratio exceeds three.
o As IOC is reportedly struggling with over Rs. 200 crore a
day loss because of government mandated pricing of
petroleum products, it does not make sense to force it to
issue bonus shares.
• Why are small savings deposits in Post Offices (National Small
Savings Fund) important for state governments?
o A decline in the growth of the fresh accretions to the post
office savings schemes has implications for financially
week state. States are mandatorily required to borrow from
the NSSF to part finance their annual budget and the share
of state’s borrowing from the NSSF depends on fresh
collection in that state. To cover shortfalls in their
expenditure plans, many states may be forced to borrow
from the open market. For a state with a poor financial
record, such market borrowings would be more expensive
than loans from the NSSF.
o The government’s decision to restore bonus at the rate of
5% on the 6 year 8% monthly income schemes upon
maturity will make returns on such deposits comparable
with the yield on bank deposits and government securities.
o Do you know how much money is invested all over the
country in such post office deposit accounts?
 Rs. 4.59 lakh crores. This is invested in about 16
crore accounts.
• Another way of looking at carbon trading
o It is a good article which gives a different perspective on
carbon trading. Look at it here. Some excerpts from it:
 o The global community led by the Intergovernmental Panel
on Climate Change agreed upon the Kyoto Protocol in 1997
(ratified in 2005) where Annex I countries (38
industrialised/developed countries) agreed to reduce their
GHG emissions by 2008-2012 to an average of about 5%
below their 1990 levels.
o The Kyoto targets range from +10% (Iceland) to -8% (EU).
The developing countries were exempt from targets at
Kyoto. This indicates differentiated responsibility. However,
the basis for targets seems to be emissions in a predefined
base year. This implies that countries that have higher
emissions due to higher per capita energy use would be
entitled to higher targets.
o At present, the volumes of certified emission reductions of
carbon dioxide (CERs) recorded annually by the UNFCCC
(UN agency regulating the emission reduction) are 174
million tonnes. The price for CERs is kept quite low (less
than $20 per CER).
o India, a country hosting 17% of the world population has
contributed only 2.4% to the total accumulated emissions
since 1750. The annual per capita energy consumption in
the country is very low (0.53 tonnes of oil equivalent per
person), whereas the average per capita electricity
consumption in India is about 450 kWh per year — less
than 1/5th of the world average and 1/30th of the US
average. The economy is growing at the rate of 8%-10% in
the past few years and the energy demand is on the rise.
o The article asks a very pertinent question:
 There is a belief that carbon trading offers a golden
opportunity for developing countries like India to get
foreign funds. However, is it ethical for richer
countries to continue to contribute more than their
share of global carbon emissions by buying ‘cheaper’
emission reduction opportunities in poorer countries?
• “Whenever you see rubber, think of Kerala”
o The above can perhaps be the tag line that all of us can
find some reason in. (I was just recollecting the Jenson and
Nicholson ad.)
o But Tripura? I was surprised to know that it is the second
largest producer of rubber in India.
o India’s second rubber-based industrial park is being set up
in this state to bring about a natural revolution in the
elastic polymer industry.
o It is moves like these that will ultimately integrate the
northeast into the mainstream. These will deliver what
could not be delivered by all the talks with the insurgent
 groups operating in the NE region. Such development
results in a Win/Win situation for the country as well as the
locals there. Then surely their disgruntlement will
disappear and they would want to remain as part of India.
• Remember the Poabs estate?
o It is the only Demeter-certified biodynamic organic coffee
estate in India.
o Its 350 acre Thuthampara estate is on a lease from the
government of Kerala since 1995. Now the Kerala
government does not want to renew the lease.
o This is one of the two largest biodynamic organic estates in
the world. The other is in Mexico.
• Infrastructure status to coal
o With the ECC (Energy Coordination Committee) headed by
the PM himself favouring this move, the ensuing budget is
expected to extend infrastructure status to coal.
o What does it mean?
 It would entitle companies in the sector for a 10 year
tax holiday period. Under section 80-IA(2) of the IT
Act a deduction of 100% profit is available to
companies for any 10 consecutive years out of the
first 15 years.
o The other sectors that are already awarded this status
include: road, railway, oil and oil and gas pipeline
industries.
• Maintenance of the Welfare of Parents and other Senior Citizens
Bill 2007
o It was passed by both the Houses of Parliament last week.
o An earlier enactment that is there on the subject was the
Parents Act which provided for the maintenance of those
over 60 years of age by their adult children, grandchildren
and legal heirs.

• India among the top 10 intangible economies of the world!!!

o In the knowledge driven global marketplace, where
intangible assets such as intellectual property, brand,
customer relationship and talent hold much more value
than tangible ‘value’ assets such as capital, land, building,
factories et al, India emerges at the top of the podium,
head and shoulders above all developed countries and
blocs, barring the US and Switzerland.
o This is according to a report by Brand Finance Institute
titled “Global Intangible Tracker 2007.”
o India has an estimated intangible asset component of 74%
(equal to Switzerland’s) compared to 75% of the US.
• Company secretaries to advertise their services
 o We have noted sometime back that our lawyers cannot
advertise their services.
o But the Institute of Company Secretaries of India (ICSI), the
regulatory body that governs the profession is going to
allow company secretaries to advertise in print, electronic
and internet media from January 1, 2008.
o ICSI President: Priti Malhotra.
• Utilizing JNNURM funds
o To access these funds, states would have to show some
reforms such as reduction in stamp duty to a maximum of
5%.
o Ever wondered what is a ‘master plan’ for a town/city?
 It should detail the course it wants to take over a
period of time. It must ensure adequate public
spaces, good intra-city and suburban transport and
housing for different strata of society to build
harmonious cities.
• Some good commentary on subsidies from UR Bhat
o If the nation has to make headway in the fight against
poverty, the way out is not more subsidies but executing a
concerted plan of action to improve the productivity,
profitability and sustainability of the small farmer.
o Several cross-country studies have established that GDP
growth originating from agriculture is at least twice as
effective in reducing poverty as growth in non-agricultural
GDP.
o What can sustain a bull run in the long term?
 The ability of governments to reform their
economies, build efficient and sustainable
institutions and free up the corporate sector to
develop and make profits.
• Some more important snippets that appeared in another article
today
o Aggregate employment in large private sector industries
increased by an annual compounded rate of 0.9% during
1993-94 to 2001-02, whereas it declined by 0.4% in the
public sector.
o The private sector’s share in the country’s organized sector
employment increased from 25.6% to 27.6% over this
period, whereas the public sector’s share declined from
71% to 69%.
o Currently 50% of India’s GDP is generated in its cities,
which is expected to reach 65% by 2011. (Should we take
this an indicator of more urbanization? Or should we see it
as a pointer to making rural India the focus of our economy
expansion initiative?)
 o There are currently 73 municipal corporations, 1770
municipal councils and 229 town area committees and 717
notified area committees in the country.
o Two of the unique experiments done by some cities in
India:
 Ahmedabad Municipal Corporation was the first local
body to tap the capital market to obtain funds
through issue of a bond. It did it 1996.
 Indore has come up with a programme of 50:50
funding, in which citizens of a jurisdiction get their
roads revamped from a private contractor by
mobilizing 50% of the bill and municipal corporation
foots the remaining 50% of the bill.
• See how unnoticed can developments go?
o The 8th EU India annual summit was held recently in Delhi.
It was devoted to a reaffirmation of the common
foundations of pluralism, democracy, respect for human
rights, and multilateralism.
o It was noticed more for the absence of a high profile
character of the previous summit.
• Understanding Russia
o .
o See how deftly Vladimir Putin seems to be moving ahead
with his political agenda. Perhaps we should expect him
back in the saddle circa 2012.
o I think we should be working more vigorously with Russia
on improving the ties. Russia has always been a very
reliable partner in progress with our country. The recent
blips that are noticed are a cause for worry. We should
never allow the relations to drift further apart.
• Is it time for NPT’s obituary?
o It is one more very important article for Political Science
students.
o The NPT was agreed to by 188 countries and embraces
almost the entire comity of nations. It deserves to be
denounced more for its emphasis on containing
proliferation than for its commitment to disarmament of
the existing nuclear powers.
• India’s 17th GM in Chess
o It is Abhijeet Gupta. He achieved it in the Parvsnath
Commonwealth championships at the Siri Fort Sports
Complex, New Delhi.
o Sahaz Grover, the 12 year old kid has earned the IM norm
in the same tournament.
• Cricket
 o At last Ganguly seems to be gaining his form back as a
batsman.
o He made a good 239 runs against Pakistan in Bangalore’s
Chinnaswamy Stadium in the third test.

• IOC to issue bonus shares

o Government is the biggest shareholder in IOC with over
80% stock.
o Its reserves and surplus have mounted to Rs. 33,689 crores
– almost 29 times over its paid up capital of Rs. 1168
crores.
o Bonus shares are additional shares issued to the existing
shareholders free of cost. They are issued by cashing in on
the company’s free reserves. A company accumulates
reserves by retaining part of its profit (not paying as a
dividend) over a period. When free reserves increase
beyond a certain level, the company issues bonus shares
by converting part of its reserves into capital. Issuance of
bonus shares would mean more number of IOC shares
would be traded in the market.
o But with the national oil companies losing about Rs. 240
crores a day on retail fuel sales, does this make sense?
• Ownership, road space restrictions in the pipeline for cars?
o A committee chaired by Planning Commission member
Anwarul Hoda is proposing the setting up of a regulatory
transport body, which would have the power to enforce
physical restrictions on the use of personal vehicles and
limit the availability of road space for them. The regulator
would set a cap on the number of cars per household by
restricting ownership of vehicles and also wield powers to
suspend and cancel licenses in case of traffic violations
and accidents.
o Are you game?
• US attempts at tackling the subprime mess
o The US government is proposing a rate freeze that will be
available only to people who have not missed any
mortgage payments. It will also apply only to loans taken
out between 2005 and July 31, 2007, and are scheduled for
rate boosts between January 1, 2008 and July 31, 2010.
o According to estimates only about 145,000 households will
qualify for this rate freeze. The plan is aimed at stemming
foreclosures that have shot up to record highs. The idea
behind the plan is that the 5-year rate freeze will buy time
for housing sales and prices to start rising again. Such a
 rebound would enable home-owners to refinance their
current ARMs (Adjustable Rate Mortgages) into fixed rate
loans with more affordable monthly payments. But some
people who want to buy homes and have been priced out
of the market are upset there is no help in sight for them.
• The rise of forex reserves slows down
o The rush of foreign capital into the country has slowed
down. The reserves accretion is now less than $1 bn dollars
in a single week. After SEBI tightened the norms for foreign
investments through P-notes in October end, FIIs have
gone slow in their investments. Also inflows through the
ECB route have slowed down after government imposed
end-use restrictions.
o The reserves are currently at $273 bn.
• More on textile industry owes
o That a 15% appreciation of the rupee against the dollar has
severely dented the industry’s competitiveness speaks
volumes about the poor fundamentals of the textiles
sector. This is largely why despite having an abundant raw
material base, broad range of fabric production, cheap
labour and large domestic demand, the industry has not
benefited from the opening up of the global textile trade to
the extent expected.
o A recent CII-Ernst & Young study shows that while China’s
share in apparel imports into the EU has risen 11
percentage points in the post-quota regime, India’s is up
only three percentage points to 9%. In the case of the US,
the gulf is even wider, against 16% earlier, China now has
50% market share.
o The lack of competitiveness of the Indian textile sectors is
largely due to lack of scale. This increases production costs
and makes technology-adoption difficult. The result: the
sector is stuck at the low end of the value chain, making it
difficult for it to weather even small shocks.
• Why is the government’s reported decision to enforce
“uniformity in curriculum” bad?
o It would inhibit innovation and obstruct democratization of
knowledge as well.
o The government would do well to learn a few things from
the Bologna Process that envisages a common European
educational area. The process seeks to preserve the
specific nature of every higher education system in the
Continent while standardising the system of awarding
degrees.
o But such an open education system would, in the long run,
be sustainable only if the economy has the capacity to
 diversify in tandem with the ever-increasing variety of
knowledge.
• States may be asked to lower sales tax to cool ATF rates
o At present the sales tax on ATF averages 23% for domestic
flights.
o There is a demand from the airlines that ATF should be
given a ‘declared goods’ status, thereby attracting a
uniform 4% tax across the country.
o ATF price in the country includes customs duty of 10%,
excise duty of 8% and sales tax on an average at 23%
across the country.
o ATF rates for domestic operations in India are priced 70%
more than international benchmarks. The aviation fuel
contributes 40% of the operational cost of the airlines.
o The Centre is floating the idea that those states that bring
it down will benefit from increased sales happening within
its borders. But, will the states bite the bait?
• OP Arya committee
o It was set up to consider the takeover of closed tea
gardens in Kerala, West Bengal and Assam. The takeover is
not nationalization of the tea estates; but is expected to
find new owners for the estates, as the estates have been
lying closed for a long period.
• Bali meet on climate change; some snippets
o This meet is being attended by 190 nations to launch
negotiations that will eventually lead to an international
accord to succeed the Kyoto Protocol, which expires in
2012.
o The 175-nation Kyoto Protocol requires 36 industrial
nations to reduce GHG emissions, by an average 5% below
1990 levels by 2012.
o Saudi Arabia and the US are worst ‘climate sinners’
according to an annual index ranking 56 nations which
together account for more than 90% of global CO2
emissions.

• India’s interceptor missile test successful

o India test fired an advanced anti-ballistic interceptor
missile successfully.
o The target surface to surface missile (a Prithvi missile) was
fired first. Then at a little under 3 minutes an interceptor –
Advanced Air Defense (AAD) missile – was launched to
destroy it at an altitude of 15 km in mid air. At these
altitudes it is called an endo-atmospheric intercept.
 o India successfully tested an exo-atmospheric interceptor
missile PAD-01 in November 2006. It destroyed an
incoming missile at an altitude of 50 km.
• Andhra Pradesh aims to be the first WiMAX connected state
o It plans to invest around Rs. 200 crore over the next one to
two years to ensure vertical and horizontal connectivity in
the state departments.
o WiMax is a long-range system, covering many kilometers
that typically uses licensed spectrum to deliver a point to
point connection to the Internet from an ISP to an end user.
o Wi-Fi is a shorter range system that uses unlicensed
spectrum to provide access to a network, typically covering
only the network operator’s own property.
• Coke’s CEO
o Neville Isdell is set to hand over charge to Muhtar Kent on
July 1, 2008. Kent is currently the COO of the company.
• More subprime figures
o More than 30% of borrowers with subprime adjustable rate
mortgages are behind on their payments before their loans
reset higher, according to estimates from analysts. It is
projected that about 775,000 homes with $143 bn of
mortgage debt will go into foreclosure in the next two
years.
o Typically a foreclosure is seen as bringing the
neighbourhood prices down by about 20%.
• Backtesting
o As new mutual funds don’t have any past performance to
show for their potential investors, they resort to this. Under
this they calculate and show what their results would have
been had they been around longer.
• Number of tax payers on the rise in India
o It is a good sign. Tax compliance in the country is going up.
The number of tax payers has increased from 301.78 lakhs
(2003-04) to 319.26 lakhs in 2006-07.
o The number of people filing IT returns has increased from
234.25 lakhs to 275.44 lakhs during the same period.
o Some factors that the FM attributes to this rise are:
 TDS administration, refund bankers, tax return
preparers scheme, large tax payers unit, E-filing of
taxes and business process reengineering.
• Solutions to our health care problems
 Our policy has got fixated unduly on drugs, which
account for only about 15% of total healthcare costs,
to the exclusion of spiraling costs of healthcare
services, diagnostics and in-hospital treatment.
  What is needed more urgently is a functioning public
health care system, which can be leveraged for
large-scale drug purchases by government at lower
prices, provision of public health insurance and some
checks on private healthcare providers. This would
ensure that healthcare, and not just medicines,
becomes affordable.
• Jaywalkers
o This is a slang used to mean pedestrians who are rather
cavalier about traffic rules, but basically means a dull,
stupid person, or one who is unsophisticated, inferior or
poor.
• What is wrong with our agricultural marketing system?
o We have been noting from time to time that the APMC Acts
of the States need to be done away with or reformed.
o The present day mandis (agricultural markets) are a legacy
of the 1960’s and the era of perpetual shortages. While it is
possible for the manufacturer of industrial goods and
services to sell a product anywhere in the country, the
farmer is forced to offer his produce to a mandi within a
fixed geographical area, usually no larger than a district.
The competition in the mandi is tightly controlled by a
select group of traders. Price discovery is opaque and the
infrastructure barely adequate.
o Once elected, a market committee (comprising of traders
and farmers) performs a unique 3-in-1 role: it is at the
same time a licensing authority, the regulator and a player
in the market. Its tenure is 5 years.
o The balance of power is always in favour of the traders in
these committees. This is achieved by limiting the number
of market players and exercising bizarre controls over the
movement of agricultural commodities from the command
area of the mandi. The fee levied by these bodies is
actually a tax on farmers, since traders factor this in as a
transaction cost to be passed on to the farmer in the form
of lower prices.
o It results in lower prices for the farmer, an unduly long
chain of intermediaries with concomitant cost escalation
and ultimately higher consumer prices of agricultural
goods. While the primary producer of agricultural goods in
Western Europe and North America usually receives 50% of
the supermarket shelf price of a commodity, the average
realization of farmer in India ranges from 15 to 20% of the
consumer price.
• Malaysian Indians problem
 o The demonstrators were protesting at the failure of colonial
Britain, at the time of Malaysian independence, to protect
the rights of ethnic Indians brought in as indentured
labourers. Organised under the umbrella of the Hindraf
they were trying to link their marginalization in Malaysia to
that failure.
o The agitation is against what it feels is the unofficial policy
of temple demolition and the steady introduction of Sharia
based law. The desecration of Hindu temples began in
1978. Hindraf alleges that it is going on without any
hindrance.
• Year of Russia
o It is about to be organized in India with about 150 events in
2008.
o The organizing committee has approved its logo – a white
stork pictured with the colour of the flags of the two
countries in the background.

• See how air carriers are profiteering!

o Almost all airlines show fuel surcharge – which now stands
at Rs. 1650 – under the head of ‘taxes and levies’ though
this amount is not deposited with the government. Similar
is the case with congestion surcharge of Rs. 150. The
actual amount passed on to the government is only the
passenger service fee of Rs. 225 per sector.
o Now, as passengers have complained that they are forced
to pay Rs. 2025 under the head of ‘taxes and levies’ the
government has asked the airlines to either deposit these
monies with the government or return them to the
customers.
• About the NFS network
o It stands for National Financial Switch. It comprises of the
national network of ATMs of 27 banks totaling about
16,891 ATMs. It simplifies inter-bank transactions. It picks
up transactions from the banks’ respective switches and
not from particular ATMs.
o The NFS still does not include SBI and its subsidiaries which
have the largest ATM network in the country.
o The NFS was set up in 2004 by IDRBT – Institute for
Development of Research in Banking Technologies. IDRBT
itself was set up in 1996 by the RBI.
• Problems with the textile sector in India
o It is a very good article which explains the problems
besetting the textile sector in India.
o Status:
  Though initially targeted exports for the current year
are at $25 bn, it is likely that they will barely touch
$18 bn.
 India is the third largest cotton producer in the world.
Second largest producer of cotton yarn and textiles.
Over 60% of world’s installed looms are in India. 22%
of the global spindleage is in India. Its wage rates are
barely 40 to 50% of the wages in developed
countries.
 But current share of India in global apparel and
textiles market is only $14 bn compared to a global
market of $450 bn – which is a paltry 3%.
o Why is this so?
 Our industry is too fragmented and consists of too
many small players who have not bothered to either
create sustainable and strong bonds or even create
markets for themselves.
 Our industry comprises mostly small-scale, non-
integrated spinning, weaving, finishing and apparel
making enterprises.
• Errors of public health movement
o The social, economic and political context during the public
health revolution in the west, when public health became
part of their way of life, differed markedly from the
situation in developing world. The differences include:
 The antibiotic era: The public health revolutions in
the west were completed before the introduction of
antibiotics.
 The illusions of curative medicine: The west won the
war over ill-health through provision of adequate
housing, reduction of over-crowding, and improved
nutrition.
 The challenge of the pharmaceutical industry: It
profits from disease and ill-health. The developing
countries are not able to sustain the onslaught of this
profit driven industry.
 Vaccinations as a panacea: Vaccination plays into the
hands of the pharmaceutical industry.
 Medicalisation of public health: Engineering, political,
economic, educational, and religious, in addition to
medical field, played a key role in establishing public
health in the west. That is not happening in
developing world.
o The errors of not taking our peculiar context obtaining in
India include:
  Employing urgency-driven curative medical solutions
instead of long-term public health policies.
 Mistaking primary care for public health.
 Reducing public health to a bio-medical perspective.
o India should be focusing on the following alternatives:
 Social justice and the production of an egalitarian
society.
 Water, sanitation, housing, nutrition, education, and
employment as basic rights.
 National statistics and the evaluation of government
policies and programmes.
 Public health as national interest.

• Some facts and figures about new banking channels

o The mobile subscriber base in India has touched 250 mn
now and is growing at a scorching pace.
o At present nearly 23% of banking transactions are done
through ATMs.
o Around 50 bn ATM transactions were done across the world
last year.
o Around $300 bn goods and services were purchased
online.
• Intellectuals and mass base
o SSSA Aiyar on “Why intellectuals have no mass base.” He
basically attributes two factors for this:
 One is the erosion of the rule of law. We have
legislatures, bureaucracies, police and courts to
provide voice and justice to the people. But these
institutions are corrupt and dysfunctional. For results,
you often need money, muscle and influence. Thus
when rule of law broke down, people need influence
outside the formal institutional framework.
 The first reason gave rise to identity politics. National
parties claiming to represent all identities have lost
ground. In the 1950’s political parties represented all
rival ideologies. But recent decades have seen the
rise of parties based on caste (BSP, SP, RJD, PMK),
religion (BJP, Shiv Sena) and region (TDP, AGP, BJD).
In addition to these some other identity based
parties are found in Punjab (Akali Dal), TN (the two
DMKs) and Kerala (the Christian and Muslim parties).
o Then one more aspect is the transformation of caste
system.
  It is not simply an instrument of oppression, as city
intellectuals sometimes think. Jatis, the operative
caste groups at the local level, are self-help groups
socially bound to assist members in times of need.
They have elaborate internal norms for such
assistance. Most jatis are occupational groups and
this buttresses their social cohesion. These have
become building blocks of mass politics.
o Had India’s organs of state delivered justice and voice
regardless of identity, the traditional identity groups may
have withered away. In fact, they have got stronger with
the erosion, sometimes paralysis, of formal processes.
o Can anybody from sociology background throw in some
inputs on this analysis?
• Chairman of NABARD
o Umesh Chandra Sarangi
• Overseas borrowings for power may not pay withholding tax
o Withholding tax is levied on interest payments on overseas
borrowings. Depending o the lender’s domicile, the tax rate
could be as high as 20%. The tax is intended to counteract
tax evasion and tax avoidance either by domestic or
international tax payers.
o The power ministry has proposed that the sector be
exempted from this tax as well as tax on interest and other
payments made to non-residents or a foreign company.
o The above measures are expected to lessen the borrowing
costs of the power sector by about 20%.
• A recap of the systems of taxation
o EEE: Exempt-exempt-exempt. In this, the contributions, the
interest earned and the final redemptions are tax free. Eg.,
PPF and GPF.
o EET: Exempt-exempt-taxable: In this, the contributions and
the interest earned are exempt from tax while the final
redemptions are taxable. Eg., NPS (New Pension Scheme)
o Now the pension regulator wants the NPS also to be
included under the EEE regime.
• Fried food may hike cancer risk in women
o Acrylamide is a chemical produced when the food is fried,
grilled or roasted. Research shows that women who take
40 micrograms of acrylamide a day – equivalent to half a
pack of biscuits, a portion of chips, or a single packet of
crisps – were twice as likely to fall prey to cancer as
compared with those who ate much less.

• Unorganised workers’ bill

 o In its current form the bill covers only those workers who
are living below the poverty line. This will thus cover only
26 crore workers. There are 40 crore workers in the
unorganized sector constituting more than 94% of
country’s total workforce.
o Hence the Left parties have ensured that the bill is taken
back to the drawing board by not allowing it to pass the
muster of the parliamentary standing committee looking
into it.
• Benefits of CFL
o Compact Fluorescent Lamps help save energy and the
cause of environment conservation.
o A CFL that replaces an incandescent lamp can save up to
8.21 units per month.
o While regular lamps last for 1000 hours, CFLs could last for
6000 to 8000 hours.
o A 20 watt CFL would emit around the same amount of light
as a 100 watt bulb.
o New generation CFLs last for an average of 3 years and
provide a saving of 80% in energy consumed.
o While CFLs are significantly costlier than incandescent
bulbs, the additional investment typically pays back in less
than 3 to 4 months through savings on electricity bills.
• Pass-through status for power sector funding
o The last budget allowed pass-through status under Section
10(23FB) of the IT Act, only to VC funds (Venture Capital
funds) investing in nine sectors. The funds operating in
power sector, which used to get pass-through status till
last fiscal, lost this facility. The status was allowed only for
VC funds investing in biotechnology, information
technology, nano-technology, seed research and
development, R & D of new chemical entities, dairy
industry, poultry industry etc.
o But with a view to ensure adequate funds for the power
sector, the government is thinking of restoring this pass-
through status to VC funds operating in the power sector.
This may happen in the ensuing budget.
• Junk bond market
o We have noted time and again about deepening of the
corporate bond market. Type “corporate bond” in the
search box of the blog and it will take you to all the posts
where we have noted about this.
o SEBI is considering allowing corporates to issue bonds after
obtaining ratings from a single rating agency and may also
allow a disclosure-based regime.
 o At present the guidelines require that the debt instruments
issued through a public/rights issue shall be of at least
investment grade. In a disclosure based regime, it should
be left to the investor to decide whether or not to invest in
a non-investment grade debt instrument.
o Corporate debt accounts for as much as 25 to 30 percent
of GDP in countries like UK and the UK. In our country is
very meager.
• World Economic Outlook
o In today’s centre page article, an excellent graphic
appeared. It is very educative. From the 90’s onwards, it is
the emerging market economies that are showing a
consistent upward trend. Europe’s has remained flat or
declining, while that of Japan’s has been declining. From
the beginning of the 21st century the US economy has been
on a downward hill.
o Another excerpt worth our attention includes:
 THE US economy’s natural market dynamism is best
illustrated by the massive churn in its labour market.
What analysts tend to focus on is the net number of
new jobs added every month, which in recent times
has averaged around 200,000. However, the more
telling statistic is that over four million people leave
their jobs in a single month in the US while nearly 4.5
million new jobs are added. In effect, 3% of the 135
million strong labour force is turned over every
month — a staggering number.
• GHG emission cuts – a different take
o Take a look at today’s article by Kendra Okonski of
International Policy Network. We have been consistently
fed on the argument that emission cuts are the solution.
But read his article in full and you will find a strong
argument in favour of adaptation.
o Remember Darwin’s theory? At one time it struck me too,
but I was rather shy of suggesting it. Had you seen Kevin
Costner’s movie “Water World” you would understand what
I mean. People develop gills to breathe in a catastrophic
world filled with water.
o Similarly adaptations – natural and man-made will ensure
that the side effects of emissions are handled in ‘their own’
way.
• What is the polluter-pays norm?
o The assumption that someone who makes something that
releases GHGs into the atmosphere – the producer – ought
to be penalized, not the consumer.
 o However, India and China for example, are making
products for western consumption. Then according the
polluter-pays principle, the manufacturers are the polluter
and not the people who are consuming. To punish those
countries for making the products that consumers in the
north want to consume doesn’t sound exactly fair; does it?
So asks Yvo De Boer.
o Yvo De Boer who? You should be kidding. He is the
Executive Secretary (Chief) of UNFCCC.
• What is embedded reporting?
o It is providing news media not just with access to the
battlefield but actually including them in with troops.
o It has, however, subjected journalists to some severe
restrictions, a certain degree of prior-restraint, and
cultivated a narrow, fragmented view of the war, raising
issues of professional freedom and responsibility.

• Banks refuse dollar loans to exporters

o The subprime crisis is having its impact finally on our
exporters. Let’s take a look at how.
o Indian banks draw foreign currency credit lines from
international banks to lend to local exporters. These credit
lines have now dried up with the subprime fiasco severely
impacting the global money market.
o With high-street banks in the US and Europe even reluctant
to lend to each other in the term-money market, they are
in no mood to extend credit lines to Indian banks. And even
if they do, it will be at a price that the local banks can’t
afford.
o So what gets affected badly is the PCFC – Packing Credit
Foreign Currency -- loans that are badly required by our
exporters. Exporters use these loans to process goods and
also to import raw materials. As interest on such loans
usually was lower than the rupee loans it helps them to
lower cost.
o This is an example of systemic impact. Now perhaps you
may appreciate well what I meant by systemic impact
sometime back while noting on this issue?
• Subprime crisis is a systemic crisis and a global contagion
o So says CRL Narasimhan in The Hindu today.
o As the crisis rolls on engulfing the broader credit market,
there are definite indications that it has acquired all the
characteristics of a systemic risk calling for coordinated
action by the policy makers. Banks with lesser capital
would obviously lend less to the more productive sectors. It
 is not just the housing sector but the whole economy that
may suffer for want of bank loans.
• Japan’s robots lock horns for world champ title
o Tokyo is hosting the 12th Robo-One Grand Championship
match.
o To win the tournament and the title of the strongest two-
legged fighting robot, contestants need to able to keep
their balance while punching and dodging blows, and get
up when pushed down.
• More about Islamic banking
o Want to know more about it? Then you must read today’s
interview with Hussein Hamid Hassan, who is considered as
the father of Islamic finance. We have noted some basics
about it sometime back in our blogs. Some additional
points worth our noting are:
o Conventional banks are not permitted to invest deposits at
all, but can only lend them to investors. Islamic bank
doesn’t receive deposits with fixed interest rates. Rather,
the deposits are in the form of equity from depositors to be
invested, along with shareholder’s equity in one common
pool.
o The first Islamic bank was set up in 1975.
• Competition Commission of India
o Its acting Chairman is Vinod Dhall.
• FM Chidambaram admits to some failures
o He said that the financial sector reform is one area of
disappointment in an otherwise praiseworthy reform track
record of the ruling coalition. The failures as noted by him
are:
o Raising of FDI investment limits in insurance from the
present 26%.
o The banking reforms bill.
o The bill to give statutory powers to the pension regulator
PFRDA.
o The gap between the outlays and outcomes. Here he was
referring to the fact that outlays have increased four times
in education and two times in health between 2004-05 and
2007-08. But he says he has some reservations on their
outcomes.
• The case for OPCs
o OPC: One Person Companies.
o Today’s ET editorial makes a strong case for them.
o The world over, OPC structure is favoured by top
executives striking out on their own after exiting full-time
employment with a company. This enables an
entrepreneur to take more risks, given that the
 shareholder’s liability is limited to his equity investment in
the venture.
o It allows tremendous flexibility to the entrepreneur as he
need not find another shareholder or director. The existing
Companies Act mandates that a private limited company
needs at least two shareholders.
o It allows for easier and faster decision making.
o It also enables lower tax liability.
o As the JJ Irani committee on overhauling the Companies Act
has recommended this new structure in its 2005 report, it
needs to be given a leg up. Countries such as China and
Qatar have allowed the creation of such companies over
the past couple of years.
• Biopiracy
o The practice of patenting properties of products like neem
and turmeric which have been used for centuries.
o India has been a victim of biopiracy as there have been
several attempts, especially in the US, to patent such uses.
o So developing countries actively aided by the LDCs (Least
Developed Countries) are seeking incorporation of
disclosure norms in the TRIPS agreement to counter
biopiracy.
• Indian Register of Shipping
o It is facing some trouble as a substantial number of
employees are leaving it enmasse, protesting against some
management decisions.
o Its Chairman is Capt. JC Anand.
o It is India’s one and only ship registry. It has been
undertaking certain flag state control functions such as
surveys and certification and some other statutory
obligations on behalf of the DGS – Directorate General of
Shipping.
o It was set up in 1975. It has become one of the top 10
classification societies in the world. Over 1100 ships are
classed with IRS, including some from Greece, Thailand
and Sri Lanka.
• EFA – European Film Academy awards
o Helen Mirren won the best actress award for her
performance in “The Queen”. She won the Oscar and also
at the Venice Film Festival earlier in the year.
o The uniqueness of EFA awards is that they are held in their
home city – Berlin in odd years and in different European
cities in even years.
• Goa and Portugal connection
 o The Portuguese colonized Goa in the early 16th century
after Vasco da Gama discovered a sea route to India in
1498. Their rule ended in 1961.
• Russia goes to polls
o The party backed by President Putin – United Russia – is
tipped to win a majority of the seats in the 450 member
State Duma (Lower House).
o Vladimir Putin’s second and last term as President is due to
expire next year and Russians will be choosing their next
President in March.
o But President Putin is largely expected to retain some
control over his successor.
• Gillian Gibbons
o She is a British school teacher who is sentenced to 15
days’ imprisonment in Sudan for allegedly “insulting” the
Prophet by allowing her pupils to name a teddy bear
Muhammad.
o This incident has received lot of condemnation from many
muslims from across the world.
• Russia seeks to reassert itself on the world stage
o It is a very good article that appeared in today’s Hindu. A
must read for students of Political Science and
International Affairs.
• Behind the Adivasi unrest in Assam
o It is yet another important article that appeared in today’s
Hindu. Explains the reasons behind the unrest.
o The main problem appears to lie with the rules which say
that a person’s tribal identity is irrevocably and forever
linked to her or his place of origin. So when a person
migrates to another area, she stands to lose her tribal
identity. For a non-tribal, such migration doesn’t result in
her losing her socio-cultural coordinates of her identity.
This appears to be at the root of the disenchantment of the
Adivasis.
• Cricket
o Muthaiah Murlitharan (Sri Lanka) has equaled the record of
Shane Warne in taking 708 test wickets. In the test match
against England at Kandy.

• GDP growth
o For the second quarter is at 8.9%. A sluggish
manufacturing sector pulled down economic growth. The
rate recorded during the corresponding period of previous
year was 10.2%.
• Dr. C. Rangarajan
o Apart from being the head of the Economic Advisory
Council to the PM, he is also the Chairman of a pan-Asian
commission studying the impact of HIV/AIDS in the Asian
region.
o The commission’s study has been sponsored by UNAIDS,
the joint UN programme for HIV/AIDS.
o The commission is due to submit its report in the month of
January 2008.
• Malaysian Indians issue
o The Hindu Rights Action Force (Hindraf) organized a rally
on November 25, seeking the support of Queen Elizabeth II
for a class action suit filed in the UK against the
exploitation of Indians who were brought to Malaysia as
indentured labour.
o The top leaders of the activists of the rally were reportedly
charged with sedition. Though the court has ‘discharged’
them from the sedition charges, the issue at heart appears
to be not so simple. Malaysia enforced the exclusionary
Bhumiputra policy – which discriminates against citizens of
other ethnic vintage, vis-à-vis native Malays, in distribution
of social goods and even economic opportunities. Active
Islamisation of the public sphere by the Malaysian state
also appears to be at the heart of the social strife.
o This organization (Hindraf) is headed by one Mr. P.
Waythamoorthy.
• Taslima Nasrin deletes controversial portions from her book
o Bowing to the extremist view that certain paragraphs in
her book “Dwikhondito” have hurt the sentiments of some
people, she decided to delete them from the book.
o This book was an autobiographical book written in 2002 in
memory of Bangladesh in the 1980’s when military was
ruling the country.
o It was banned by the Bengal government on November 23,
2003 but the Kolkata High Court lifted the ban after 22
months.
o Following her decision, Jamait Ulema-e-Hind said that the
author was free to return to West Bengal.
• Compulsory rural service for medical graduates
o The Planning Commission has made a strong case to make
a few years of public service compulsory for all graduates
from government medical colleges. This is with a view to
improve government’s health care services to the public.
• Want to get a lowdown on the way the CDM market is operating?
o “The Carbon Gold-diggers.”
o Some excerpts follow:
 o The Kyoto Protocol was ratified by 41 countries. They
agreed to use market-based methods to make an effort to
reduce the GHG emissions. The idea is that companies that
cannot reduce emissions, buy carbon credits from
someone who has set a plantation or created an industrial
process that reduces carbon emissions. The trading unit for
carbon credits is the CER (Certified Emission Reductions),
which helps reduce the emission of 1 metric tone
equivalent of carbon dioxide. Eventually, the ‘polluters’ get
tired of parting with their money and reform their
production process. On the face of it, this should have
worked, but this market mechanism got embroiled in a few
controversies.
o The ensuing meeting at Bali is expected to tackle four
major problem areas with this protocol. Look at the full
article to understand the issues involved.
• Falling like 9 pins?
o The world of Finance CEOs looks very charming from the
outside for mortals like us. But look at the kind of pressure
they take and how they fall by the wayside in just a
moment!!! The finance people (especially the IIM types
amongst you) should brace up for this kind of life. Looks
like CEOs are ephemeral; why think of immortality?
o The subprime crisis has the following high-profile
casualties:
 The latest to join the club is Morgan Stanley’s Zoe
Cruz. She was known as the ‘Cruz Missile’ in the Wall
Street!
 E-Trade Financial’s CEO Mitch Caplan would be
stepping down.
 Bearn Stern’s head James Cayne will be forced to
retire early. He forced President Warren Spector to
leave after two hedge funds the firm controlled
collapsed from links to subprime mortgages.
o Today’s report says that about $890 bn of subprime US
mortgages will have their rates reset next year, peaking in
March. That’s close to a tenth of the US GDP!!!
• China fires on all cylinders for nuclear power
o It is making an investment of about $61 bn to become the
world’s top nuclear power producer by 2020.
o It plans to build about 30 new reactors.
• Engaging CBI for investigation
o CBI derives its powers from the Delhi Special Police
Establishment Act, 1946. Section 6 of the Act lays down
that the CBI shall take up investigation of conventional
crimes such as murder, kidnapping and rape, either on
 reference from the state governments or when directed by
the Supreme Court/high courts.
• Why is Black Friday so called?
o It was so named because many retailers only become profitable for the
year after that day’s revenue.

• OLPC programme
o One Laptop Per Child project is the brainchild of MIT
professor Nicholas Negroponte.
o The project envisages supply of laptops for less than $100
to each school going child in developing countries. Pricing
is currently set to start at US$188 and the goal is to reach
the $100 mark in 2008.
o Called the XO it is about the size of a textbook and lighter
than a lunchbox. It easily assumes several configurations:
standard laptop use, e-book reading and gaming.
o It can be solar or foot powered. It will come with at least
two of three options: a crank, a pedal, or a pull-cord.
o It has no internal hard disk, has only two internal cables.
Creates its own mesh network out of the box, as it is a full-
time wireless router. Its life expectancy is about 5 years.
o But most of the sales so far have been in developed
countries. Schools in developing countries still lack basic
amenities like building, blackboards and benches. People
connected with the education sector in developing
countries (especially the poorer ones in Africa) are highly
skeptical about its success.
o Ever heard of a file called the robots.txt? It is used by web
sites to control access by search engines to the hosted
content. Though not an official standard, it has become an
industry standard by practice since 1994, following
concerns that some crawlers were taxing web sites by
visiting them repeatedly.
o Now the proposal is to provide extra commands to this text
file which could limit how long a search engine can retain
copies of content in their indexes, or tell the crawler not to
follow any of the links that appear within a web page.
• What is the equivalent of ‘subprime’ category of borrowers in
India?
o It is called the STPL – Small Ticket Personal Loans.
o Banks, especially the private sector ones have been
aggressive in giving such loans. But because of the uproar
made about the methods and processes of recovery being
adopted by some of the over-enthusiastic recovery agents,
banks have developed cold feet now and are going slow on
these loans.
 o This is sure to drive the borrowers into the hands of the
money lenders again.
• SPV (Special Purpose Vehicle) for coal acquisition
o Coal Ventures International, is being setup by PSUs – NTPC,
SAIL, RINL, NMDC and CIL.
o This would scout for coal deals globally by pursuing an
aggressive merger and acquisition strategy.
o The Cabinet has cleared the proposal for setting up this
entity. It would have a war chest of Rs. 10,000 crores.
o It will have greater powers for making investments. As
against navaratna companies’ limit of Rs. 1000 crores, this
entity is given the power to invest upto Rs. 1500 crores at
the board level itself.
• About MCPs!!
o Male chauvinist pigs? No just kidding. I am talking about
Mobile Command Posts. These are the high-tech heavy-
duty trucks equipped with GPS-based satellite navigation
system, satellite phones, TV cameras and monitors to aid
safety measures at the airports.
o These are being deployed at all the 66 airports to tackle
aviation emergencies.
• Indo-ASEAN FTA talks
o how India has been very reasonable in accommodating the
concerns of ASEAN nations in the FTA talks
o It argues that supply of food items in general will need to
be enhanced substantially over the next decade as more
and more Indians will rise above the poverty line. India will
need to end up producing more and may be importing
even more, to provide food security. Hence haggling over
bound rates, in these talks may not be making sense; when
we can actually appear more magnanimous and strike
deals with the ASEAN nations.
o Actual weighted average duties on imported food items is
less than 35% but bindings are over 100%.
• The Annapolis conference
o the Palestine issue. The US has organized a Mid-East peace
conference in Annapolis in USA. The joint understanding of
all the participants was that Israeli and Palestinian
governments must negotiate a peace treaty by the end of
2008.
• Peter Mandelson praises India’s role in world economy!!
o In an article arguing for a EU-India FTA, the EU Trade
Commissioner has eulogized Indian economic
achievement. Look at the substance of his averments:
 o It is a mark of India’s growing weight in the world,
alongside China, that a healthy economy will be a key
artery in a healthy global economy.
o India gets a 10th of the FDI that flows to China. Further
improving the investment climate can only open the tap
wider.
o Increasingly, India’s growing economy will be one of the
world economy’s important sources of demand. An EU-
India FTA can help strengthen that demand.
• NREG beneficiaries to have smart cards by March
o This flagship programme of the government will soon
receive a technological facelift to plug some loopholes
noticed in its implementation.
o The programme aims to enhance livelihood security of
people in rural areas by guaranteeing 100 days of wage
employment in a financial year to a rural household, whose
members volunteer to do unskilled manual labour.
o Starting with 200 districts across the country in phase I in
2006-07, it was expanded to cover 130 districts in phase II
in 2007-08 and from April, 2008 it is slated to cover the
whole of rural India.
o When extended to the whole of the country, it is expected
to require about Rs. 1,50,000 crore per annum as funding.

• Something about ballooning

o The DGCA is set to notify guidelines for ‘balloon aircraft’
and incorporate them in the CAR (Civil Aviation
Requirements).
o A company starting ballooning is required to have a start-
up capital of Rs. 25 lakh.
o A hot air balloon travels by moving with the wind. An
airship on the other hand is a buoyant aircraft which is
propelled through the air in a controlled manner.
o A hot air balloon varies in cost from Rs. 30 lakh to Rs. 3
crores. The ideal weather for flying these machines is
winter when outside temperature is low and air-pockets are
rare. While a small balloon can take off with two
passengers in its bucket, a bigger balloon may fly with 25
passengers.
• World’s largest SWF
o The Abu Dhabi Investment Authority is the world’s largest
sovereign wealth fund with about $650 bn in its corpus.
• BRPSE Chairman resigns
o Mr. Prahlad K Basu has resigned.
o Mr. Nitish Sengupta has taken over as the Chairman
BRPSE.
 o BRPSE: Board for Reconstruction of Public Sector
Enterprises.
• “Open Interest” in derivatives markets
o Open interest is the total number of outstanding futures
and options contracts at any point in time. In other words,
these are open or yet to be settled contracts. The level of
outstanding positions in the derivatives segment is one of
the parameters widely tracked by the market.
o In the futures segment, open interest data need to be read
along with price changes in the futures contract. A rise in
open interest in a futures contract along with its price
indicates bullishness, which means investors are creating
long positions. Investors may benchmark the price changes
in the futures contract to the underlying (the cash market).
o In the options segments, a change in open interest in put
or call options enables traders calculate the put call ratio –
a popular sentiment indicator of options traders world-
wide, which is the number of puts divided by the number of
calls.
• New credit scoring model launched by CIBIL along with
TransUnion
o This model will predict the likelihood of a customer
becoming a defaulter in more than 91 days on one or more
lines of credit.
o The scoring model factors in the payments history,
outstanding debt, credit account history, recent credit
inquiries and the different types of credit the borrower has
availed of.
o An individual should have availed at least one loan six
months ago for CIBIL to rate the borrower under this new
model. The scoring will range from 300 to 900 points,
where 300 is for the worst-rated individual, while the best
rate would be 900 points.
o CIBIL: Credit Information Bureau of India Limited. Its
Chairman is V. Santhanakrishnan. At present, CIBIL
members include 77 banks, 32 NBFCs, 6 State Financial
Corporations, 10 Financial Institutions and 2 Credit Card
companies. There is a move to allow the RRBs also into the
fold sometime soon.
• India’s Uranium needs
o The mines at Jaduguda have a uranium content of just
0.6% while the one that is coming up at AP is expected to
yield 0.3%. But internationally commercial ores have up to
15% Uranium.
o Till now, our nuclear power plants have looked economical
because of huge, bomb-related implicit subsidies. But to
 produce large-scale nuclear power on commercial terms,
India requires high-grade uranium ore, or enriched
uranium. This is a key reason why India needs clearance
from the Nuclear Suppliers Group for imports.
• About wealth inequalities
o Do you remember we noted something about the Gini
coefficient sometime back in our blogs? Today a very good
article titled “Rise of billionaires: Threat to growth?”
appeared in ET. I recommend reading it at least once.
o It argues that inequalities in wealth in not as bad as it may
appear after all. Especially in the context of India. Let’s
look at the arguments:
o Though the real wealth at the top has risen sufficiently to
cause a significant increase in wealth inequality in the
country, the consumption based Gini coefficient was
approximately the same in 2004-05 as in 1983 and 1993-
94.
o There is no case for leveling the billionaires of India for at
least three reasons:
 Replacing a billionaire by 1000 millionaires may
reduce wealth inequality but it is almost sure to
increase conspicuous consumption that is regarded
as socially repulsive. The thousand millionaires are
likely to have much greater propensity and time to
spend their money on fancy cars, homes and
gadgets than one billionaire.
 For poverty alleviation, the ownership of wealth
matters far less than how it is invested and spent. A
billionaire is far more likely to invest his billion
proactively and use it for philanthropy than a
thousand millionaires.
 The presence of a few billionaires is a powerful
inspiration to other entrepreneurs.

• SBI follows US diktats and refuses to honour Iranian LCs

o SBI has refused to honour LCs (Letters of Credit) issued by
Iranian banks following US diktats that have to be followed
by all banks operating in the US.
o The US is able to thus hurt the trade between India and
Iran, as the trade is carried out in dollars and all dollar
trades are ultimately settled in US. This makes it
mandatory for SBI to follow the US diktats.
• UNDP targets 50% emission cut by 2050
o The UNDP has asked nations in its latest report on climate
change to reduce GHG emissions by 50% over the 1990
levels.
 o It has also recommended the creation of a Climate Change
Mitigation Facility to mobilize between $25 to $50 bn per
year to support low carbon transition in developing
countries.
o Our planning commission has rejected this report outright.
Planning Commission Chairman MS Ahluwalia pointed out
that the recommendations of the UNDP ought to be based
on per capita emission figures and not on total emission by
a single country.
• Economicspeak!!
o I am referring to the coverage on BANCON 2007 given in
today’s ET.
o Want a high funda, one sentence definition of carry trades?
Look at this:
 Carry trades are leveraged cross-currency positions
designed to take advantage of interest rate
differentials across currencies.
o Domestic liability dollarization
 It is defined as the domestic bank’s foreign exchange
denominated loans as a share of GDP and is a
considered risk factor because systemic sudden
stops are associated with large real devaluations,
increasing the chances that foreign exchange
denominated loans will be defaulted.
• India’s largest ever securitization deal
o ICICI Bank is reported to have carried out a transaction of
securitizing Rs. 1929 crores of its used and new car loans.
o Coming as it does in the backdrop of the subprime crisis; it
is certainly an eyebrow raising move on the part of the
bank. You may remember that the securitization is one
financial aspect that is being blamed for the emergence of
the crisis.
o The problem with this is – though the credit rating agencies
may rate it very well – it is very difficult to know how much
of the portfolio is subprime in nature.
• US housing may be facing subprime woes; but in India it is a
different story
o There will be demand for over 24.3 mn new dwellings in
urban India, and over half of this will come from outside
top 100 cities, according to a study “Housing Skyline of
India 2007-08”.
• Curbs likely on CCDs with put option
o CCDs: Compulsory Convertible Debentures. These are
basically in the nature of equity.
o Realty companies are found to be structuring the issuance
of CCDs to foreigners in such a way that it resembles debt
 issuance rather than equity issuance. At the time of
issuance itself, the issuer undertakes to buy (put option for
the foreign buyer) the CCDs at a later date.
o Real estate companies are barred from tapping debt
through ECB route. But there is no restriction on pure
equity investment. Hence the real estate companies are
found to be circumventing this restriction by a clever
structuring of the issuance.
o Government may come out with some measures to plug
this.
• Unique water conservation method
o The Orange County Water District in US has come out with
the world’s largest plant devoted to purifying sewage to
step up drinking water supplies.
o The finished product though will not be directly fed into the
kitchen and bathroom taps. Instead it will be injected
underground to form a barrier against seawater intrusion
and recharge underground aquifers.
o Namibia’s capital Windhoek is reported to be the only place
in the world where recycled water is put to ‘direct potable
reuse’.
• Administrative Reforms Commission’s VI report
o The commission headed by Veerappa Moily submitted its
6th report to the Prime Minister.
• India’s interceptor missile to be tested in December
o This will intercept and destroy an incoming missile. It will
reportedly help India into developing a full-fledged Ballistic
Missile Defence shield.

• What is Seigniorage?
o When one of you asked me this question, at first I mistook
it for the royalty on sand. When I Googled for an answer,
this is what I found on Wikipedia:
o Seigniorage, also spelled seignorage or seigneurage, is the
net revenue derived from the issuing of currency.
Seigniorage derived from coins arises from the difference
between the face value of a coin and the cost of producing,
distributing and eventually retiring it from circulation.
Seigniorage is an important source of revenue for some
national banks. Seigniorage derived from notes is the
difference between the interest earned on the
government's securities portfolio, and the costs of
producing and distributing bank notes.
o Very interesting; know? This was simple in enough in
language. Hence I didn’t bother to elaborate it further.
• Kamlesh Sharma is Commonwealth Secretary General
 o India’s High Commissioner to UK, was selected to this post
by the Commonwealth.
• Tea production
o it is reported that we produced about 965 mn kgs of tea
and exported 219 mn kgs last year.
• Ever heard about Magitti?
o This is a software being made for mobile phones. This will
enable your phone to be aware of your position,
preference, time of day and schedule to produce a location
specific help, to find out just about whatever you are
looking for.
o Sounds like a dream or something out of a sci-fi movie?
Well that is what would be staring at us possibly in the year
2009.
• Indian highways and accidents
o An average of 365 accidents happen a day on Indian
highways.
o We have a network of 66,590 km of national highways.
• About medical tourism potential and investments
o Our government is making a total investment of about $6.5
bn to encourage the medical tourism industry in the
country. This will be used for setting up affordable
hospitals and budget hotels for patients’ relatives in the
country.
o The size of this industry stands at Rs. 1200 to 1500 crores.
• Some extreme sports
o Are you a sports-loving person? If so one of the following is
sure to thrill you; just to know. Imagine the kick when you
actually indulge in them!!!
o Pocket bikes
 These are available with 2 stroke and 4 stroke
engines with capacities ranging between 47 cc to
100 cc. The power varies between 5 hp to 14 hp.
 These are pint sized variants of the normal bikes; but
are used for sport.
 Pocket bike racing is known as Mini-moto or Mini GP
racing.
o Cliff jumping
 Jumping from a high cliff into a water body down
below.
o Zorbing
 Originated in New Zealand in the early 90’s.
 A zorb is a translucent PVC sphere about 7 feet in
radius, inside which two persons are strapped and
then rolled downhill.
o Quad bike safari
  Traversing through a desert or mountains on a four-
wheeled all-terrain vehicle.
o Abseiling
 Descending a cliff with a rope.
o Tobogganing or sledging
 Sliding down snowy hillsides on a toboggan, a flat
wooden sledge curried up at the front end.
o Kite surfing
 A large power kite propels a rider through the water
on a small surfboard.
o Sand boarding
 Like snowboarding, but done on sand. The rider
stands on a board and cascades down a sand dune.
o Potholing
 Also called caving, spelunking or speleology, this is
essentially exploring caves.
o Shark diving
 Done under expert supervision, this is a real thriller.
The diver goes into the sea inside a top open cage
while the sharks take a close look.
• What is Black Friday shopping?
o Black Friday is the day after Thanksgiving in the United
States, where it is the beginning of the traditional
Christmas shopping season.
o This is when consumers do lot of festive shopping and the
stores announce big deals for consumers.
o Thanksgiving, or Thanksgiving Day, is a traditional North
American holiday to give thanks for the things that one has
at the conclusion of the harvest season. Thanksgiving is
celebrated on the fourth Thursday of November in the
United States and on the second Monday of October in
Canada.
• A bit about Timbuktu
o Few places in the world have an air of mystery as alluring
as Timbuktu. The name of this city in the West African
country of Mali is so wrapped in legend that many people
think of Timbuktu as a mythical, timeless land rather than
a city with a real history.
o In many cultures, Timbuktu is used in phrases to express
great distance and to suggest something beyond a
person's experience. Popular sayings such as "I'll knock
you clear to Timbuktu" suggest that, for many people,
Timbuktu has existed more as an idea of the remote and
mysterious than as an actual place.
 o Two British environmentalists have started an adventurous
journey to this place in a lorry powered by biofuel made
from renewable sources, including recycled chocolate.

• Reliance Petroleum Limited

o Its market cap is bigger than the market cap of all the
three public sector majors -- IOC, BPCL and HPCL – though
it has no fully functioning operating asset.
o Its 580,000 barrel per day refinery is the 6th largest in the
world and is being built in a special economic zone in
Jamnagar.
• Pakistan suspended from Commonwealth
o This is the second time that it is being suspended from the
53 nation grouping.
o It was suspended in 1999 when General Musharraf seized
power. It was readmitted in 2004.
o Secretary General of Commonwealth: Don McKinnon.
• Top 1 to hit India
o This is a car race with a difference. Instead of specially
built formula one cars, this one is competed with purpose-
built normal cars.
o Another such similar contest is NASCAR. Normally a
NASCAR event is conducted over an oval-shaped circuit.
o Top 1 structure is currently divided into two categories –
Series 1 featuring 2000 cc cars and Series 2 with its 1600
cc line up.
• Diabetes causing genes
o HLA-A and HLA-B are the genes that help the body to fight
infection. Their faulty versions lead the immune system to
destroy insulin-producing islet cells in the pancreas.
o Type 1 diabetes, also known as juvenile diabetes, is caused
by the destruction of cells in the pancreas.
• Something about REITs
o REIT – Real Estate Investment Trusts.
o Typically they pay out at least 90% of their net income as
dividends to investors. Rentals from properties owned and
managed by these vehicles form a significant portion of
their revenue stream. Therefore, their business model is
based on investment in income-yielding commercial
property such as business parks, office buildings, shopping
malls and hotels.
• Indian power sector’s losses
o The official T&D (Transmission & Distribution) losses are at
35%. Compare this with China and Japan! It is 3% in China
and 4% in Japan.
 o As the demand supply gap is presently at 13%, unless the
power supply growth exceeds 14% it would be impossible
to support a growth rate of 10% in GDP.
o Estimates of expanding and upgrading electricity
transmission and distribution network during 2007-12 put
the investment requirement in the range of Rs. 400,000
crores.
• How many states in India have restructured their electricity
boards?
o Reportedly 13. The overall impact is reported to be
positive.
o Restructuring usually involves separating the functions of
the board into transmission, distribution and generation
activities by forming dedicated companies for carrying out
those activities.
• Impact of spectator sports on a country’s economy?
o England’s failure to qualify for Euro 2008, the premier
international football tournament in Europe, is estimated to
have set back the UK economy by 1 bn pounds.
o The impact will be especially felt by way of sales in pubs
where those fans who could not get tickets would gather to
cheer their side over drinks.
• Divestment proceeds to the government
o Since 1991, the government earned about Rs. 51,600
crores through divestment of its stakes in Central Public
Sector Enterprises.
• Tea estates and social security
o Ever since the 1951 Plantations Labour Act was enacted,
the plantations have to provide for the welfare of the
workers working on the plantations. The welfare included
housing, medical facilities and education. This is reportedly
due to the State not having developed infrastructure and
delivery systems at that time in those areas. These social
security measures add about Rs. 4 to 5 per kilogram of
tea’s cost.
o But now the plantations are demanding and the
government has also veered round to the view that the
government should bear a portion of this cost.
o India produces about Rs. 6,500 crore worth of tea at
factory gate level.

• Why are banks not selling their NPAs (bad debt)?

o Even when the defaulting companies are not coming out of
the red, bankers are betting that the real estate locked up
in sick companies would fetch far more than the sale of
NPAs to ARCs (Asset Reconstruction Companies).
 o The other reasons supporting such decisions are:
 NPA levels are at record levels of less than 1% of
total advances.
 New rules by RBI which have set a floor price for
banks selling off a portion of the sick loan. Since this
price is significantly higher than the heavy discounts
offered to the ARCs in earlier deals, they are finding
that the deals are no longer attractive.
 Government’s decision to treat OCDs (Optionally
Convertible Debentures) and preference shares as
ECBs. This has put off many vulture funds which
were using these instruments to buy bad loans from
Indian banks. Since ECBs have a cap on interest,
foreign funds no longer find such deals as attractive
as before.
• Pesticide free crops get a leg up in Andhra Pradesh
o It is a very interesting article that appeared in today’s ET. It
is about how AP is encouraging pesticide free farming and
how it is benefiting farmers in reducing their input costs
tremendously. .
• SAT strikes down SEBI’s disgorgement order
o Remember the first ever disgorgement order given in India
by SEBI?
o Now SAT (Securities Appellate Tribunal) has struck down
this order. The order was passed by SEBI in the IPO
multiple demat scam.
o It said that the order passed without giving a reasonable
opportunity of being heard to the affected parties. It also
found some inconsistency in the order in so far as the
sequence of findings was concerned.
• Inflation in the future
o An estimate by FAO (Food and Agriculture Order) has
predicted that food prices would be rising at a higher rate
in the next 5 to 10 years than in the past, adversely
impacting those economies that have recorded higher
weights to the food index in the inflation basket.
o What is the composition of our inflation basket? Food items
account for 57% of the CPI (Consumer Price Index) and
26.94% of the WPI (Wholesale Price Index).
• More on the unfolding subprime crisis losses
o From now on till the end of 2008, nearly 4.5 lakh suprime
mortgages per quarter are scheduled to undergo their first
reset (that is unable to pay the mortgage amount, the
borrower seeks rescheduling of the loan amount). That
adds up to $300 bn or more of mortgage loans poised to
sour, and a fair part probably will.
 o When the crisis began, initial estimates of ultimate losses
were in the region of $250 to $300 bn and these may still
be right. Only it will come in installments, quarter after
quarter.
• How to cope with an appreciating rupee?
o In a very good article Rajrishi Singhal gives out some
excellent suggestions
• Cosmic question over the longevity of the universe
o The universe is believed to have been created in the ‘Big
Bang’ sometime back – about 13.7 bn years ago.
o Two US Astronomers are now saying that astronomers may
have unwittingly hastened the end of the universe by
simply looking at it!!!
o Couldn’t really make sense of what was reported about it
in the Hindu today. If you care to look at it; do let me know
when you understand it.
• Taslima Nasrin hounded yet again
o This time from Kolkata. To Jaipur.

• Commonwealth Summit
o It is scheduled to commence from tomorrow in Kampala,
Uganda.
o It appears to be divided on the issue of suspending
Pakistan from the Commonwealth. But some countries are
insisting that Pakistan should be suspended because of the
imposition of emergency in that country. These countries
base their argument on the fact that Zambia and Fiji were
suspended when there was a reversal of democracy in
those countries.
o India did not take any overt stance and is reported to have
said that it is for CMAG (Commonwealth Ministerial Action
Group) to take a call on the issue.
• Composition of the Nobel committee
o Though since 1977 members of Parliament have not been
allowed to sit on the committee, it tends to be made up of
former politicians or those with looser ties to their parties.
It currently consists of one member each of the five
biggest parties in the Norwegian Parliament.
• India’s infrastructure funding issues
o During the 11th and 12th plans, the envisaged investments
are to the tune of Rs. 20.18 lakh crores and Rs. 40.55 lakh
crores respectively.
o The capacity of the economy to absorb investment of this
scale is dependent on:
  The regulatory environment for attracting private
investment
 The intellectual capacity of managers – both public
and private – to structure projects in a transparent
and achievable way; and
 A ‘fire-in-the-belly’ attitude to deliver quality
products before deadlines.
o Some good initiatives taken for streamlining contract
award procedures include:
 Formulating model concession agreements
 Building viability gap funding windows; and
 Finalizing a panel of advisers to structure projects for
the private sector.
• Some good political comment from TK Arun on Nandigram
o To equate Nandigram with Gujarat is absurd. Nandigram’s
violent one-upmanship is localized, it does not lead to
violence or insecurity and effectively disenfranchisement
outside Nandigram. The politics of identity-based hatred
that led to the savage, organized attack on Muslims in
Gujarat in early 2002 perpetuates a social divide across the
country, in whose cracks fester toxins that can yet
consume the entire body politic. Nothing of the sort applies
to Nandigram, however condemnable the killings there.
o Nandigram throws the spotlight on the failure of Left
politics in India, failure to construct an emancipatory
project within the framework of liberal democracy and
participatory growth. One segment of the Left still
eulogizes the authoritarian state capitalism of China and
the erstwhile Soviet Union, and are determined to swim
against the current of history. At the other end of the Left
spectrum the Naxalites violently shrink whatever
democratic space exists in rural life, instead of building on
and expanding the freedom promised by the Constitution.
• Centre considering regulation of Sovereign Wealth Funds
o Since these are controlled by governments, it is felt that
they would follow the agenda set by the country
concerned. Management control of an Indian company
slipping into hands of a fund owned by a hostile country
could pose an enormous problem. There is also the issue of
some of the countries promoting SWFs not enjoying
market-economy status.
o Concerns about such investment entering into the country
are expressed by the national security adviser.
• Most Gulf bonds don’t comply with Islamic law
o Known as sukuk (Islamic bonds), these are sold with a
repurchase undertaking – a promise that the borrower will
 pay back their face value at maturity or in the even of
default, mirroring the structure of a conventional bond.
o A promise to pay back capital violates the principle of risk –
and profit-sharing on which the Islamic bonds should be
based.
o Islam bans lending on interest as usury. What is allowed is
risk-sharing and profit-sharing.

• Branch and ATM licensing to be liberalized

o Banks planning new branches and ATMs may no longer
require a mandatory approval from RBI. The government is
considering a proposal to de-license bank branches and
ATMs in the country.
o The move is in tune with the likely findings of the
committee on financial sector reforms headed by
Raghuram Rajan.
o The opening of bank branches is governed by Section 23 of
the Banking Regulation Act, 1949. Banks cannot open a
new place of business in India or abroad unless RBI
approves it.
• Romulus and Remus cave may have been discovered
o These are the twin founder of the city of Rome.
o Italian archaeologists believe that they found the cave
where a she-wolf suckled Romulus and Remus.
• Carrefour’s entry into India
o The world’s second largest retailer and Europe’s largest
has made an entry into India. It is expected to choose an
Indian partner early next year and plans to launch a wholly
owned Indian cash-and-carry business in 2009.
• Sortino Ratio
o Frank Sortino developed this ratio. Many global MF (Mutual
Fund) rating agencies prefer this risk-adjusted return
measure over the Sharpe ratio, because it is simple and
easy. This classifies risk in terms of upside and downside
risk. It arrives at a minimum acceptable return (MAR) for
an investor. Whenever the fund return is less than MAR, it
adds the underperformances, but does not add
outperformances. This is a better measure of risk than
volatility, used by Sharpe ratio. The latter tends to value
consistency in the form of good or bad performances.
• Mastercard and mobile banking
o Mastercard plans to use the mobile phone customer base
to reach the unbanked population. According to its
estimates banking penetration is under 30%. There are
 more people in the country with mobile phones than with
bank accounts.
o According to a recent BCG report there are about 135 mn
households in India which do not have access to basic
banking services and this constitutes about 65% of the
total population.
• What are the factors that led to India getting exposed to the
global shocks in food supplies?
o India was largely immune from global price fluctuations
earlier due to tight government control on supply and
prices and rising production. But increased integration with
global markets, through export of value-added products
such as processed foods, and recourse to imports due to
stagnant production (of wheat, pulses and oilseeds in
particular) has exposed India to global shocks.
• A bit about Vijay Kelkar’s background
o He was recently appointed as the Chairman of the 13th
Finance Commission. He is not an IAS officer, but an
engineer by training and a Ph.D in economics.
o He headed the task forces on direct and indirect taxes, and
also the one on implementation of the Fiscal Responsibility
and Budget Management Act. He is largely credited with
the drafting of the Goods and Services Act that is expected
to be implemented all over the country from 2010.

• FDI in cable TV set to touch 74%

o The government is set to allow FDI up to 74% FDI in cable
TV services and the HITS satellite-based platform to
distribute television signals. This move is expected to
intensify competition between telecom companies and
cable operators.
• NHRC equates Nandigram with Godhra
o Look at a quote attributed to the NHRC Chairman, S.
Rajendra Babu:
 Both the incidents were a severe assault on the face
of democracy and inflicted the worst scars on the
face of the nation. The state human rights
commission is actively involved in taking the case to
its logical end.
• What should be India’s stand be at Bali climate meet?
o This is a very important debate that appeared in today’s
ET. You may be aware that he UN conference on global
warming is to be held in Bali, Indonesia in December. Some
important points out of this excerpted below:
 o The vital question that hangs like a Damocles’ sword over
India’s head is whether India will be forced to accept
legally binding emission targets by developed countries of
the west. Such targets would be at the cost of growth of
India’s GDP and at the cost of employment. There is no
free lunch in reducing carbon emission and mitigating
pollution.
o No wonder the United States introduced air and water
pollution control laws after a 100 years of rapid
industrialisation. The effective amendments to the Federal
Water Pollution Control Act came as late as 1972 and Clean
Air Act was given teeth in 1970. The per capita income of
the US had already reached $5,000 by then.
o A glaring case of this trade-off between reducing pollution
and extinguishing livelihoods of people comes from the
action taken to preserve the Taj, resulting in the closure of
metal foundries, glass factories and brick kilns in Agra.
Each small unit was asked to shift from coal to natural gas,
which meant an expenditure of Rs 30 lakh to 40 lakh per
unit. Obviously, the small units closed and 100,000
workers lost their jobs.
o Greenpeace recently released a survey based report
named “Hiding behind the poor” which revealed that the
highest income group in India, constitution merely 1% of
the population, emits 4.5 times as much CO2 as the lowest
income group consisting of 38% of the population.
• India’s Uranium mining scene
o India recently commenced work at Tummalapalle mine and
processing mill in Cuddapah district of Andhra Pradesh. It is
being set up by the state-owned Uranium Corporation of
India Limited (UCIL) at a cost of Rs. 1106 crores.
o With a capacity to process 3,000 tonne of ore daily, the
plant will be the third in India and the first in Andhra
Pradesh. Two other mills with a total capacity of 5,090
tonnes per day operate in Jharkhand. A crippling shortage
of fuel has resulted in India’s nuclear power generating
stations operating at about 50% of their capacity.
o The country’s 17 nuclear power plants have a total
generating capacity of 4,000 MW. India aims to increase
this to 20,000 MW by 2020.
• PFC mulls overseas arm to power infrastructure needs
o The Power Finance Corporation is set to establish an
overseas financial company for the development of
infrastructure needs of the power sector in India.
o This overseas firm will borrow foreign exchange to the tune
of about $5 bn a year from RBI. The forex money would
 then go into the corpus of PFC arm for providing foreign
currency loans to Indian power companies for meeting
their requirement of raw material machinery imports.
o Financing is expected to be a big problem for the growing
power sector in coming years. The sector needs
investment of about Rs. 10.30 lakh crores in the 11th Plan.
A shortfall of over Rs. 4.5 lakh crores is expected. PFC’s
efforts are expected to make good some of this shortfall.
• Woman in news
o Micheline Calmy-Rey
 She is the President of Swiss Confederation, who was
on a recent visit to our country.
• India seems to have become the breeding ground for
international chess Grandmasters!
o With the Kochi boy G.N. Gopal having officially become the
16th Grandmaster of the country, this feeling is not
incorrect.
o India also added two more players to its list of International
Masters. Tamilnadu’s P. Sethuraman and Aswin Jayaram
received confirmation of their titles.
• Did Jesus visit India?
o It appears that according to the Bible, the life of Jesus
between the ages of 13 and 30 remains untouched by
gospels.
o “The Aquarian Gospel” is a movie being made that
portrays Jesus as a holy man and teacher inspired by a
myriad of eastern religions in India. The movie takes its
name from a century old book that examined Christianity’s
eastern roots.
• Diplomatic gaffes too can be money spinners
o The Spanish King Juan Carlos recently turned to
Venezuelan leader Hugo Chavez at a public event and was
reported to have said to him, a bit irritably, “Why don’t you
shut up?”
o This breach of diplomatic protocol became a smash hit
across Spain today. A multi-million euro business selling
ringtones, mugs, T-shirts and websites has resulted from
this dialogue.

• More controls on FIIs

o The government is thinking of restricting investments by
FIIs from countries whose market regulatory structure is
not compliant with principles laid down by IOSCO. This is in
line with the recommendations made by Ashok Lahiri
committee.
 o IOSCO is the Spain based international standard setter for
securities markets regulating more than 90% of world’s
securities markets. All IOSCO members have to sign an
MOU, follow the principles endorsed by the body and
facilitate exchange of information among the international
community of securities regulators. The organization
follows an objective assessment of the level of
implementation of the IOSCO principles in the jurisdictions
of its members.
• WHO (World Health Organization) may remove India from
vaccine source list
o This follows the inspection by WHO of some GMP approved
units in both private and public sector companies in India.
The agency was not satisfied with what it saw and has said
so in its report that has been submitted to the health
ministry a couple of months ago.
o GMP stands for good manufacturing practices. WHO has
found problems with India’s drug regulator and some
Indian pharma companies during the inspection over the
implementation of the GMP.
o In India the GMP standards approval is given by the state
drug regulators and the DCGI – Drug Controller General of
India.
o Unlike other drugs, vaccines are mostly sourced by
governments and institutions in bulk. Indian vaccine
makers export around Rs. 1,500 crores every year, a large
amount of which are sourced by global agencies such as
WHO.
• An interesting Mexican bull
o This bull named El Zalamero, aged about 17 (considered
equivalent to 70 years in humans) is known for its bravery
and virility. In just 6 years, it has sired more than 25 calves
of the fighting breed and even in this old age, it is the stud
for about 15 cows that it lives with.
o When it was just 4 years old, it debuted on the world’s
largest bull ring viz., Monumental Plaza de Toros of Mexico.
• An interesting issue about Indian pharma companies following
best practices in India
o Recently Ranbaxy has recalled over 73 mn tablets
(gabapentin) from the US market as they reportedly
contained higher levels of impurities than legally
permitted.
o This has raised a question as to why we don’t see such
recalls in India? The sad fact is that quality standards are
flouted day in and day out with impunity in our country.
 The speed with which trials are conducted in the US and
damages/punishment are awarded is not seen in India.
• Indo US differences over WTO talks
o The points of contention between the two were high levels
of trade distorting farm subsidies provided by the US and
India’s relatively high tariffs on industrial products. India
wants the US to commit to lower farm subsidies before it
demands more market access for its farm products from
developing countries. US has agreed to marginally reduce
its subsidies, but could agree for more only when
developing countries make more concessions.
o In the area of NAMA (Non-agricultural market access)
negotiations, the US wants India to make real cuts in
tariffs, instead of just lowering the bound rates. India
argues that since WTO negotiations take place on the basis
of bound rates (the levels beyond which members cannot
increase tariffs at any point), it is unfair to demand cuts on
the applied rates.

• Language lessons:
o What does a Requiem mean?
• Japanese set to hunt the humpback whale for the first time in
decades
o These whales were hunted to near extinction four decades
ago. They have been off-limits since 1963 except for a
small number caught under subsistence whaling
programme by Greenland and the Caribbean nation of
Saint Vincent and Grenadines.
o Estimates put their global population at 30,000 to 40,000.
o Japan is about to break the decades old moratorium on
hunting these whales ostensibly for scientific research. Its
whaling fleet is leaving for south pacific with orders to kill
up to 50 of these whales.
o Japan says that whaling is a Japanese tradition since the
early 1600’s.
o Since 1986 there is a moratorium on commercial whaling
imposed by the IWC.
• Online advertising markets
o Globally the digital advertising market is worth $30 bn and
in India it is about Rs. 500 crores and is growing at 50%
annually.
o Worldwide, interactive ads account for 8% of media spend.
• US slowdown and impact on China
o If the US economic growth slows by a percentage point, it
will result in a decline of 6% for Chinese exports.
 o UN estimates put the world GDP growth to be at 3.4% for
2007. This is less than the 4% recorded in 2006.
• Credit rating for Indian cities
o Currently there is an ongoing exercise of credit rating 63 of
the Indian cities. Four credit rating agencies viz., Crisil,
Care, ICRA and Fitch are undertaking the exercise.
o The higher a city’s rating the better its bonds
subscriptions. Under the JNNURM, the Centre has promised
to dole out Rs. 50,000 crore (approximately 50%) of the
total requirement of funds. A city with better ratings will be
able to issue bonds through the PFDF.
• DGCA – Director General of Civil Aviation
o Mr. Kanu Gohain.
o He is likely to get a six month extension in service. He will
be in service till June 30, 2008.
• Planning Commission proposes National Electricity Fund
o This is to generate resources for improving power
distribution network in the country.
o Some proposals under consideration include:
 Granting priority sector lending status to power
projects in the country.
 Raising the income tax exemption limit for
investment in infrastructure bonds from Rs. 1 lakh to
Rs. 1.5 lakh.
• India’s demographics
o By 2050, about 32.8% of the country’s population will be
over 50 years old.
o The country needs 3 mn nurses by 2017. Annually about
80,000 students are enrolling for nursing courses.
o Is it only IT that is an employment generator?
• From the Open Space column of TOI
o Titanium toothbrush
 It was invented in Japan. They help do away with
toothpaste.
 One variety of this uses titanium dioxide, which
causes an electrochemical reaction while brushing
and this helps remove plaque.
 The other variety uses titanium bristles that last for
several years.
o White holes
 These are the opposite of black holes.
 They eject matter and anti-matter instead of sucking
them as done by black holes.
 A Schwarzschild wormhole has two ends. One end is
a black hole, sucking in matter and other end is a
white hole, ejecting matter.
• Currency futures soon?
o Indians may soon be allowed to participate in exchange
traded currency futures.
o These are instruments that allow them to take positions in
future value of the rupee. A currency futures contract is
one where two parties agree to buy and sell the currency
at a future date at a pre-determined price.
o This follows the recommendation made by an internal
panel of the RBI on this.
o But these recommendations also could possibly spark a
turf war between the RBI and SEBI. The recommendation is
that the RBI should retain the regulatory aspects of the
trade even though securities exchanges are the domain of
SEBI.
o See what we noted about this topic earlier on 30th June and
7th June.
• When is a book considered a best seller?
o When it sells 3000 copies.
o Heard about Chetan Bhagat’s “Five Point Someone”? It
seems to be making waves.
o It sold over 50,000 copies.
• Finally the government gets the go ahead for talks with the IAEA
o The Left parties gave a conditional go ahead to the
government to approach the IAEA to discuss draft
safeguards agreement.
• India’s cryogenic engine test successful
o These engines are used in launching the GSLVs. This
technology was so far confined to Russia, Europe and the
US.
o Sometime earlier on 29th October,2006 to be precise,
papers reported this fact a little differently.
• Forex reserves at $270 bn mark
o At the current level the reserves are close to a third of the
size of the country’s economy.
• SBI’s Janata depositors issue
o The scheme was launched way back in 1971 to inculcate
the habit of savings, especially among middle and low
income groups.
o This began running losses due to the hefty commission
paid to the deposit collectors (3.5%) and also due to the
heavy expenses attributable to the scheme. Hence SBI
decided to discontinue the scheme.
o The deposit holders have approached the Supreme Court
against the discontinuance.
• How many varieties of CPI (Consumer Price Index) are there?
o Four:
 UNME: Urban Non Manual Employees
 IW: Industrial Workers
 AL: Agricultural Labour
 RL: Rural Labour
• Strike by WGA – Writers Guild of America
o The 12000 members of the WGA are on a war path. They
are demanding that the residual payments for re-use
movies and shows on DVDs and newer channels like
Internet and mobiles be hiked from 5 cents to 8 cents.
o The Association of Motion Picture and Television Producers
is not willing for it.
• A look at the write-downs by global companies in the aftermath
of the subprime crisis
o A write down (reducing the recorded value of an asset in
an account) represents the decline in the value of assets
related to the house mortgages held as assets by these
firms:
 Citigroup: $8 to $11 bn
 Merril Lynch: $7.9 bn
 Morgan Stanley: $3.7 bn
 UBS and HSBC: $3.4 bn each
 Bank of America: #3 bn

• More on Volatility Index (VIX)

o Sometimes called as “the investor gauge of fear”, it has
developed over time to become one of the highlights of the
modern day financial markets.
• Airport policy: Government may allow multiple airports in metros
o A new policy on the Greenfield airports in the country is in
the final stages of preparation and is likely to be put in
place by the first half of 2008.
o The existing guidelines require a minimum distance of 150
km between an existing airport and a new one. The
distance is stipulated at 150 km in case of international
projects.
• India’s steel sector likely to go places
o The domestic steel sector is on a roll. From being the 5th
largest steel producer, the country is all set to become the
second largest producer globally by 2015-16. This would be
a major leap for the sector.
 o During the year 2006, it is the 5th largest producer of crude
steel.
o At present while India is producing about 56 mn tonnes,
the global pecking order is like this:
 China – 422 mn tonnes (mt)
 Japan – 116 mt
 US – 98.6 mt
 Russia
• OECD Secretary General
o Angel Gurria
• OPEC Secretary General
o Abdalla Salem el-Badri
• Pakistan names interim prime minister
o Mohammedmian Soomro, the Chairman of the Pakistan
Senate is named as the interim prime minister.
• India’s first teraflop super computer
o PARAM Padma. Made in 2003 by CDAC
• US slowdown’s global impact
o One consequence of a US slowdown would be a falling
dollar. Because of the falling dollar, it is quite likely that
the European exports will be priced out of important
markets, including the US and China.
o It is also likely that many countries will stop financing the
US current account and budgetary deficits. This structural
readjustment will be painful.
o A weaker dollar makes US exports more competitive and
makes the Chinese exports to US more expensive.

• India to retain BPO edge

o Though there is fair bit of hype around China and other
cheaper destinations taking over India in the BPO game,
many industry leaders disagree. India is expected to retain
its advantage in terms of cost, scalability, English speaking
population and domain expertise. Though the rising rupee
is expected to make a dent in their profitability, grapevine
has it that even at Rs. 30 a dollar, our BPO segment will
continue to make money.
• Indians going places!!
o Indian American, Shantanu Narayen is now the President
and CEO of Adobe Systems. This company is known for its
Acrobat Reader software.
• On revenue neutral rate (RNR) for GST
o It is a very good article that appeared in today’s ET.
Recommend reading it once. This would give you a peep
into how experts work their way through to making
recommendations. Some points worth our noting:
 o The Kelkar task force report suggested that the GST rate
would need to be levied at 20% -- 12% to Centre and 8% to
States.
o While this suggested rate falls below the present statutory
rate of 28.5% (Cenvat of 16%, and VAT of 12.5%), it is
expected to raise the hackles of the consumers.
o The total excise/service tax/ VAT/sales tax revenues of the
Centre and the states in 2005-06 were Rs. 134000 crore
and Rs. 139000 crore respectively.
o Assuming that approximately 40% of the central excise
revenues and 20% of the state VAT/sales tax revenues are
from motor fuels, the balance of the revenues from other
goods and services that need to be replaced by the GST
are Rs. 89000 crore for the Centre and Rs. 111000 crore
for the states, making up a total of Rs. 200000 crore.
o In 2005-06, the total private consumer expenditure on all
goods and services was Rs 2,072 thousand crore at current
market prices. Making adjustments for sales and excise
taxes included in these values and for the private
consumption expenditure on motor fuels, the total tax base
(at pre-tax prices) for all other goods and services is Rs.
1,763 thousand crore.
o These values yield a revenue-neutral GST rate of
approximately 11% (200 as per cent of 1,763 is 11.3%).
The RNR for the Centre is 5% and for the states 6.3%.
Allowing for some leakages, the combined RNR could be in
the range of 12%.
• The slowing IIP figures do not point to a trend
o With the government’s indirect tax collections growing
18.6% in October, the belief that the slowdown noticed in
September IIP figures is only blip and not a trend.
• M. Rammohan Rao committee of SEBI
o Constituted by SEBI, this committee on derivatives
recommended introduction of mini contracts on equity
indices, options with longer life/tenure, volatility index and
futures and option contracts, options of futures, bond
indices and F&O contracts, exchange traded currency
(forex) F&O and exchange traded products to cater to
different investment categories.
• India’s seafood exports market
o It is a Rs. 8,300 crore market.
o India is a leading exporter of Black Tiger shrimp to the US.
But this market is threatened by the cheap Vannamei
shrimp from other Asian countries.
• 15 International Children’s Film Festival
th
 o Started off in Hyderabad. About 115 films from 30
countries will be screened.
• 13th Finance Commission
o Constituted by the President under Article 280(1) of the
Constitution, with Mr. Vijay Kelkar, former Finance
Secretary as the Chairman. Other members are:
 Indira Rajaraman, Professor, NIPFP
 Abusaleh Shariff, Chief Economist, NCAER
 Atul Sharma, former Vice Chancellor of Rajiv Gandhi
University
 BK Chaturvedi, Planning Commission Member as part
time member
 Sumit Bose as Secretary of the Commission.
o It will make recommendations for the period 2010 to 2015.
It is expected to submit its report by October 31, 2009.
o It will look into:
 Principles governing grants-in-aid of the revenues of
States out of the Consolidate Fund of India
 Measures needed to augment the Consolidated Fund
of a State to supplement resources of panchayats
and municipalities
 Review of the finances of the Union and States and
recommending steps for maintaining a stable and
sustainable fiscal environment consistent with
equitable growth
 Review of the existing arrangements for financing
disaster management
 The need for improving the quality of public
expenditure to obtain better outputs and outcomes
• Bunchy top disease in banana plants
o It is caused by a virus that spreads by the banana aphid.
o Infected plants are dwarfed in nature and their emerging
leaves are small and narrow with yellow edges. The leaves
grow upright and have a stunted, bunched appearance.

• Is our economy slowing down?

o The IIP for September grew at a snail’s pace of 6.4%; its
slowest in 11 months as rising interest rates pinched
consumer demand and exports wilted under the weight of
a strengthening rupee.
• Number portability from next year?
o The government has decided to introduce number
portability for cell phone users from the next year onwards.
To start with this facility will be introduced in the four
metros.
• Excide duty on petrol and diesel may be reduced
 o With a view to offset flaring oil effect on consumers and
companies, the government is toying with the idea of
reducing or bringing to zero the excise duty on petroleum
goods.
o At present the excise duty of petrol and diesel has two
components – an ad-valorem duty of 6% and a specific
duty of Rs. 13 for petrol and Rs. 3.25 for diesel.
o The government seems to be toying with the idea of doing
away with the ad-valorem component altogether and
retaining the specific duty, albeit at a lower rate than
existing at present.
o The Centre’s total revenue earning in 2006-07 on
petroleum is about Rs. 93,800 crore. Of this over 55% is
from excise duty.
• India-Russia sign four major agreements
o India and Russia seemed to convey that their friendship is
far stronger than what is made out to be in the recent
press reports. Both the countries have signed a total of 4
agreements including the vexed issue of utilization of the
rupee debt fund totaling to a whopping Rs. 80 bn (8,000
crore) for Russian investments and trade.
• Unified Communication software
o Microsoft is coming out with this software. This enables
communication and collaboration through emails, phone
calls, instant messaging and video conference seamless
and efficient.
• India-ASEAN FTA not likely to take off
o The hopes that this agreement could be ready for signing
during the ensuing East Asia Summit at Singapore are
receding by the day. It is the ASEAN’s insistence on
reducing the import duties on four products – palm oil,
pepper, coffee and tea – to 30% on palm oil and 20% on
the remaining three items, by India that is coming in the
way. India has agreed to bring it down to 50% from the
present levels.
o East Asian Summit comprises of ASEAN+3 and India,
Australia and New Zealand.
• Spectrum allocation and GoMs
o The issue of spectrum allocation is generating lot of heat
between industry circles and government on the one hand
and between industry circles themselves on the other.
o The law ministry suggested that a GoM be constituted to
go into the whole gamut of issues that need to be sorted
out. But the DoT is unwilling as it feels that this allocation
is nothing but a simple procedural issue.
 o The case in favour of a GoM stems from the fact that
earlier too there were two GoMs that have gone into
telecom issues:
 A GoM headed by Yashwant Sinha looked into the
New Telecom Policy of 1999.
 A second one headed by Jaswant Singh looked into
the issue of allowing telecom players to offer mobile
services without participating in the mobile entry
process. This arose when Tata and Reliance wanted
to make, what was perceived as a back-door entry to
offer full mobility to their landline users.
• Secured credit cards
o These are cards which are backed by a deposit account in
a bank. Usually the card holder is not credit-worthy or has
no credit history. Hence the credit card issuers issue this
type of card which has his deposit account as a security for
the funds being used by the card holder. The deposit
serves as a collateral.
• Some interesting facts and figures about heavy power plants
o A generation set of unit size 600 MW would weigh 1,500
tonnes while an 800 MW unit weighs about 2000 tonnes.
Units of 500 MW size weigh less than 1000 tonnes. The
dimension of the units also is larger by anywhere between
25 to 50%.
o These weights and sizes can pose a problem in
transporting this equipment to the place where it is to be
erected. Hence the government is planning to introduce
new norms that will make ministry of surface transport’s
clearance mandatory before starting construction of large
sized thermal power projects.
o Though this can be perceived as one more bottle-neck, the
ministry argues that the aim is to take appropriate
advance action for augmenting the road infrastructure to
facilitate transportation of heavy equipment.
• 82 Coastal police stations to set up
o These are being set up with a view to curb piracy and
cross-border terrorism. They will undertake surveillance
along the coastal belts of the country.
• A very good essay on Academic Freedom
• New Director General for CSIR
o Samir K. Brahmachari
• Tennis
o Fernando Gonzalez making waves!! He beat Roger Federer in Shanghai
Masters Cup final.

• Prime Minister Manmohan Singh heads for Russia

 o Perhaps this is one Prime Ministerial visit that is attracting
lot of negative press about there being a chill in the
relations between India and Russia.
o Russian insistence on our PM meeting his ‘counterpart’
(PM) Viktor Zubkov is not helping to set matters at rest
either. They dropped hints that if our PM doesn’t meet his
counterpart there, the visit would then be classified as
‘working’ and not an ‘official’ visit.
• Pakistan’s suspension from Commonwealth
o Following the imposition of emergency in the country,
Pakistan faces the prospect of being suspended from
Commonwealth again.
o Earlier it was suspended in 1999 soon after General
Musharraf overthrew prime minister Nawaz Sharif in a
bloodless coup. At the insistence of Britain, Pakistan was
allowed back into Commonwealth in 2004 on the promise
that Gen. Musharraf would shed his uniform.
o Let’s wait and watch what will happen this time round.
• Notable reforms in education
o The Government is coming out with a scheme called the
“Credit Transfer Scheme.” Under this students pursuing
graduation and post-graduation from one university can
now continue their education in another university without
a break. Marks obtained by the student while studying in
one university will be transferred to another university if
the shift is made. The programme is aimed at bringing
about convergence between conventional and distance
modes of education and help attract more students to
higher education.
• China confirms toxic substance in toys
o Chinese made toys were found to be coated with the
industrial chemical 1.4-butanediol. This chemical when
ingested metabolises into the ‘date-rape’ drug, gamma
hydroxyl butyrate (aka GHB), which can cause breathing
problems, loss of consciousness, seizures, drowsiness,
coma and death.
• Plan panel for ‘open skies’ with more nations
o So far, India’s open skies policy is confined to cargo
operations.
o An open skies policy means foreign airlines from various
countries would get to launch unlimited services to Indian
cities, provided the countries concerned agree to reciprocal
rights for designated Indian carriers.
o As of now, India has open skies policy for passenger traffic
with the US and UK.
• Oil companies want to promote rickshaws?
 o Fuel retailers are planning to adopt cycle rickshaws under
Mission Indivelop – an initiative based on Prof. CK Prahlad’s
development model of “The Fortune at the Bottom of the
Pyramid.”
o Public sector oil companies are losing about Rs. 240 crore
everyday because of under recoveries.
o While APM for fuel retailing has been dismantled, the
government still regulates pricing of petroleum products
sold by the PSUs. Private retailers like Reliance and Essar
are free to charge market price from customers.
• Governor’s gaffe on Nandigram
o The violence in Nandigram has not been seeing any decline
in spite of the February 2007 government decision not to
establish the chemical hub. The campaign spearheaded by
BUMC (Bhumi Ucched Pratirodh Committee) has brought
administration and development work to a halt, and has
sought to cut off the area from government and state
power.
o The Governor’s public airing of views has invited
opprobrium from the press. Look at this extract from
today’s Hindu editorial on the subject:
o The classic 1867 exposition of the role of the British
monarch by Walter Bagehot applies equally to the office of
the President and the Governor: “To state the matter
shortly, the Sovereign has, under a constitutional
monarchy such as ours, three rights — the right to be
consulted, the right to encourage, the right to warn. And a
king of great sense and sagacity would want no others. He
would find that his having no others would enable him to
use these with singular effect.” The right to advise and the
right to warn are to be exercised in private and in
confidence, and not through public statements. This
restraint required of the head of state is not a mere
constitutional formality but is based on sound democratic
principles. In the first place, the head of state must not,
through statements critical of its functioning, place himself
or herself in conflict with the representative government,
which has a greater democratic legitimacy. Secondly, the
head of state should appear non-partisan and remain
above the fray when controversial and divisive questions
are being debated in the political sphere, and avoid any
public statements that could give comfort to one side or
the other. The Governor’s public statements on Nandigram
both challenged the wisdom of the government’s approach
and came down on the side of the critics of its action.
Further, Mr. Gandhi laid himself open to the charge of
 remaining silent when the supporters of the Left Front were
at the receiving end. His conduct through this crisis has
been constitutionally indefensible.

• Companies are looking at virtualization to cut IT costs and cope

with increasing workloads
o Increasing workloads are a phenomenon witnessed
typically by web sites like www.cricinfo.com which see
tremendous increase in traffic on specific days – say when
a cricket match is going on. But such traffic is transient and
will not be there in the following days. It doesn’t make
sense to invest in a permanent increase in IT infrastructure
to meet such transient jumps in traffic. So what do they
do? Go virtual.
o But what is virtualization? It refers to the techniques that
help extract the most out of the computing resources. It
does this by making a single physical resource like a
server, an operating system appear to function as multiple
logical resources.
• Highest polling stations in India
o Ladakh (J&K) is the country’s highest polling station (17000
ft above sea level). It is followed by Hikkem in the Spiti
valley of Himachal Pradesh at about 15,000 feet from the
sea level.
• Mr. Noriaki Kano
o He is a Professor Emeritus at the Tokyo University of
Science. He is the 1997 recipient of the Individual Deming
prize.
o He is best known for the product development model he
developed in the 1980’s, popularly known as the Kano
Model. It classifies customer preferences into five
categories and offers insights into the product attributes
perceived to be important to customers.
• Private airlines not happy with the proposed ground handling
policy
o The proposed policy allows only three agencies in ground
handling at the airports – the airport operator, subsidiary
companies of Air India, Indian or their joint ventures, and
any other ground handling service provider selected
through competitive bidding on a revenue sharing basis.
This will be effective January 1, 2009.
o Ground handling work includes two basic activities –
passenger handling at the land side and ramp, including
loading and unloading of aircraft and aircraft handling.
 o The airlines want to handle all the activities involving
customer interface to be within their hands instead of
hiving to off to third parties.
• About Polo
o India is considered the cradle of modern Polo. Babar the
Mughal emperor of the 15th century has established the
sport’s popularity.
o But the sport saw a decline following the death of Sawai
Man Singh, the Maharaja of Jaipur who died while playing in
England in 1970. By the mid-eighties it has seen its nadir.
o The turning point came in 1987 with the arrival on the
scene of Arvind Singh Mewar of Udaipur, who promoted it.
o A thoroughbred horse costs about Rs. 4 lakhs to own and
another Rs. 2 lakhs per annum to maintain. Each player
needs to maintain about 6 or more horses!!
• Bungee jumping
o This sport originated in New Zealand and was made
commercially successful by A.J. Hackett. His was the
original bungee jump from Greenhithe, Auckland.
o The first modern bungee jump was made on April 1, 1979
from the 250 ft Clifton Suspension Bridge in Bristol by four
members of the Dangerous Sports Club. The jumpers were
arrested shortly after. But by 1982 they were jumping from
cranes and hot air balloons and putting on commercial
displays.
• Leonardo da Vinci’s Last Supper
o This famous painting was painted from 1494 to 1498 in
Milan’s Church of Santa Maria delle Grazie. It depicts a key
moment in the Gospel narrative: Jesus’ last meal with the
12 Apostles before his arrest and crucifixion, and the shock
of Christ’s followers as they learn that one of them is about
to betray him.
• World Bank to replicate Bhutan’s GNH model
o Bhutan’s unique concept of Gross National Happiness to
measure a country’s wealth is now being adopted by World
Bank as opposed to the measure of GDP alone.
o The policy of GNH was decreed by King Jigme Singye
Wangchuck to try and reflect the true quality of life in a
more holistic manner.
• Norman Mailer, the two-time Pulitzer winner dies at 84
o Hailed as the macho prince of American letters and author
of such books as “The Naked and the Dead”, he was
credited for insight, passion and originality.
• Difference between a tortoise and a turtle?
o Tortoise’s body is enclosed in a hard shell. Turtles are fresh
water or marine reptiles whose body is protected by a
 shell. When in danger, a tortoise withdraws its head and
limbs into the shell. Turtles cannot retract their head into
their shells. Tortoises are herbivores and do not have
teeth. Turtles are omnivorous. Tortoises lay eggs in warm
earth and are not incubated by the mother. Turtles lay
eggs often on beaches where they are born. Turtles are
excellent swimmers, having legs that resemble oar-like
flippers. Tortoises do not swim.
• 2nd Asian Ministerial meet on Disaster Risk Reduction
o Held in Delhi, it has adopted 26 action points.
o The declaration called for taking action along the Hyogo
framework.
o The biennial conference which started in Beijing in 2005 is
to be expanded into a regional platform for disaster risk
reduction.
o The conference will be held once in two years by rotation in
different Asian countries to review the action taken by the
national governments and other stakeholders for
implementing the Hyogo framework.
o The next conference will be held in Kuala Lumpur.

• What is Dhanteras?
o It is a Hindu festival falling on the 13th day of the month of
Ashwin. Also known as Dhantrayodashi, it takes place two
days before Diwali, in honour of Dhanvantari, the physician
of gods and an incarnation of Vishnu.
o On this day women purchase gold or silver or at least one
or two new utensils.
• More on UAE immigrants’ problem
o UAE announced an amnesty and regularization scheme to
address the problem of unacceptably high number of
expatriate workers staying on in violation of its residency
laws.
o By November 3, when the amnesty ended, some 95,000
illegal residents including 40,000 Indians had secured
regularization, many of them getting reabsorbed in the
workforce.
o The genesis of the problem lies in employees moving away
from their contracts in a bid to beat a bad deal.
Unscrupulous agents, unkept promises on wages further
compounded the problem.
o The government’s long pending move to give more teeth
to the Emigration Act, 1983 should be pursued to ensure
that our workers are not shortchanged by unscrupulous
agents and foreign employers.
• The ill-effects of bio fuel promotion
 o While we have been noting from time to time the benefits
of bio-fuel programmes, an article in Hindu argues that the
bio-fuel hunger of the North (meaning developed countries)
is fuelling the South’s (meaning poor and developing
countries) starvation.
o FAO estimates that the world is facing the lowest ever food
reserves in 25 years this year. About 850 mn people are
going hungry because they could not afford to buy food.
Taking land out of food production exacerbates the effects
of bad harvests and rising demand for food.
o It argues that the bio-fuel programme ultimately will be
causing more global warming than petroleum. Nitrogen
fertilizers (used in raising bio-fuel crops) generate
greenhouse gases – nitrous oxide that is 296 times more
powerful thatn CO2. Ethanol from maize causes between
0.9 to 1.5 times as much warming as petrol and rape seed
oil (the source of more than 80% of the world’s biodiesel)
generates 1 to 1.7 times the impact of diesel.
• RBI to seek curbs on automatic ECBs
o In a bid to control the flood of forex inflows into the
country, the RBI is proposing to the government that the
limit for ECBs through automatic route (i.e., without prior
RBI approval) be reduced from the present $500 mn to
about $20 mn.
• India and financial inclusion: a BCG study
o Only one out of three people have access to formal
banking. India is home to the second largest number (135
mn) of financially excluded households.
o Barely 34% of its population is availing formal banking.
o Penetration of savings accounts in rural India is about 24%
compared to 56% in urban India.
• India’s place in trade development index
o It is an annual index measured by UNCTAD. The index is a
measure of the degree of integration between trade and
economic and social development. It was launched in 2005
as a benchmarking tool monitoring changes across various
factors.
o India is at the 86th place in this index behind smaller
countries like Botswana, Algeria, Ecuador and Sri Lanka.
• Finally NSDL gets to act as the CRA for the New Pension Scheme
o Successfully wading through the objections raised by SEBI,
NSDL is finally given the nod to act as the Central
Recordkeeping Agency of the NPS.
• An alternative to privatization of Public Sector Enterprises
o The central idea of the suggestion is that government
should divest 74% shareholding to retail investors.
 Whatever can’t be absorbed by them can be sold to
government financial institutions. Out of the balance 26%,
government may sell about 5% to the employees and give
them a small percentage as sweat equity.
o When this is implemented, as government’s shareholding
falls below 51%, these PSEs shall cease to be ‘state’ under
Article 12 of the Constitution and their decisions will not be
subject to judicial review in terms of Article 14. They will go
out of the jurisdiction of the investigative agencies,
parliamentary committees, vigilance and CAG, problems
which have paralyzed them for long.
• Helping Pakistan cope with its problems
o If you need examples of lateral thinking, I would suggest
SSSA Aiyar as one who displays it. While everyone the
world over seems to be obsessed with lifting the
emergency imposed in Pakistan, he is suggesting that India
should encourage the shift in mind-set that is currently
going on in Pakistan. That shift is about treating jehadis as
liabilities, not assets. India can help in the following ways:
 It needs to talk to Pakistan on partial demilitarization
on the western border so that it will be able to
redeploy in full strength in NWFP without having to
worry about weakness on the Indian front. This will
constitute Indian cooperation in helping it overcome
its internal jehadi problem and can be an important
building block of a future anti-jehadi common
program.
 It needs to show flexibility and eagerness in resolving
Kashmir issue. Perhaps the LOC can be treated as an
international border and an autonomous Kashmir
region formed.
 India should not gloat over Pakistan’s miseries.
o A destabilized, nuclear Pakistan with lot of jehadis roaming
around the country is not in the interest of India. Pakistan
failed to recognize this when it encouraged Taliban and
jehadis. India should learn from its mistakes.
• Researchers find hunger switch
o Australian doctors said they had found a molecule that
suppresses appetite. They found out that MIC-1 protein
targets the receptors in brain that switch appetite on or off.

• Communist China’s company is the world’s most valuable

company!!
o What a contrast? Petrochina beat Exxon Mobil in valuations
and became the world’s first company worth more than $1
trillion.
 o This follows Petrochina’s shares tripling in value on the
very first day of their trading in Shanghai following an IPO
that raised 66.8 bn yuan.
• China, US to set up military hotline
o Amid US apprehensions on China’s military modernization,
the two countries agreed to establish a defence hotline and
deepen military-to- military dialogue, including on nuclear
policy strategy and doctrine.
o This is the first hotline ever established by China with any
country.
• Railways to go high-tech with control charting system
o Estimated to cost Rs. 86 crores, this IT enabled system
monitors and controls the movement of all trains across
the country. Till now the system for announcement and
departure of trains was disjointed as the data had to be fed
manually, causing a considerable time gap.
• KS Sastry Committee
o It has recommended that the insurance regulator should
mandate licensed health insurers to provide all senior
citizens access to health insurance, implying universal
coverage.
o IRDA, acting on this recommendation has mandated
accordingly. Therefore people of 65 years and below – and
those above 65 years at the discretion of the insurer –
should now be allowed by insurers into health insurance
system. The only exception is terminally ill cases.
• Food shortage alarm
o Since the mid-1990’s there is a stagnation in global
agricultural production.
o India’s agrarian order is primarily subsistence based,
where the average farm size is 4 acres.
o While efforts at land consolidation should be pressed on in
the longer term, what needs to be done in the medium to
short term is to figure out ways by which small farms can
increase their productivity. Simple and low-cost
technological innovations such as gravity-fed drip irrigation
kits, and human-operated treadle pumps can reportedly
increase the earnings of quarter-acre farms by as much as
Rs. 22,000 a year.
• ICICI Bank fined Rs. 50 lakh for employing goons as recovery
agents
o The Delhi Consumer Commission has fined the bank and
deplored the practice of intimidation resorted to by banks
for affecting recoveries of loans.
 o It said that there was a civil legal remedy for recovering
loans. Employing goons for this was beyond the parameter
of the law.
• Why is there no panic in the context of crude prices touching the
$100 mark per barrel?
o One expert’s view is that unlike in the 1970’s when there
was a supply crisis, this time it is not the supply crisis that
is taking crude prices higher. It is more a reflection of
strong economic cycle (demand). Hence this is not likely to
be seen as an ‘oil shock’ as was the case in 1970’s.
• Citigroup announces Robert E Rubin as its next Chairman
o Following the resignation of Charles Prince, the bank
announced that Robert Rubin, the former US Treasury
Secretary will be chairing the beleaguered bank.
• Are the days of advertising coming to an end?
o In the context of the companies finding new ways to
connect directly to customers, some are asking the
question “Who needs advertising?”
 Media experts are suggesting that the explosion of
online interactive media such as blogs and social
networking sites are taking the companies ever
closer to the customer. This phenomenon is bound to
negatively impact the advertising industry.
o Worldwide ad spend is reportedly about $448 bn per
annum.
o Online ad spends are growing at about 19% per annum
globally.

• RIL-RNRL dispute revisited

o According to the family dispute settlement, RIL (Mukesh
Ambani group) has to supply 28 MMSCMD (40 MMSCMD if
the NTPC contract does not materialize) of gas from the KG
Basin discovery to RNRL (Anil Ambani group) at $2.34 per
mmBtu for 17 years. RNRL also had the right to over 40%
of future gas reserves of RIL at market prices.
o With soaring gas prices and the government fixing a price
of $4.2 per mmBtu, RIL may be unwilling to sell it at the
concessional rate.
o RNRL has gone to court contesting that RIL was not
implementing the demerger scheme between the two
groups approved by the court. The demerger scheme was
based on the family settlement between the two brothers
in June 2005.
 o Now with the court directing both the groups to thrash out
the deal within a time frame of 4 months, both the groups
are about to sit for discussions.
• India’s migrant workers in demand back home
o Many of our workers working abroad – especially in Gulf
countries are likely to be employed back home by big
realtors like DLF in view of the looming labour shortage.
o Our companies are on a hiring spree of foreign workers to
meet the skills shortage. A case in point is the employment
of workers from China for laying a gas pipeline by Reliance
Industries Limited.
o As companies are finding that obtaining visas for them is
proving to be difficult, they are now setting sights on our
own workers working abroad in Gulf countries.
o DLF, the country’s biggest realtor is planning to bring
about 20,000 workers from Gulf countries at competitive
salaries.
o Manpower makes up less than 7% of building cost of
residential projects. It is much lower for commercial
projects.
• Route dispersal guidelines to pack more ‘must’ sectors for
airlines
o Government is planning to usher in new guidelines that
would double the mandatory capacity deployment on
category-IIA routes to 2%. Existing guidelines require all
scheduled carriers to deploy 10% of the total capacity on
trunk routes (category-I routes) on category-II sectors such
as Guwahati and Srinagar. Besides, 1% of the capacity
deployed on category-I routes has to be deployed on
category-IIA routes such as Lakshadweep and Andamans.
• Codex standards
o These are laid down by the Codex Alimentarius
Commission, which was created in 1963 by FAO (Food and
Agricultural Organization) and WHO (World Health
Organization). The purpose of this programme includes
protecting the health of consumers, ensuring fair trade
practices in the food trade, and promoting coordination of
all food standards work undertaken by international
governmental and non-governmental organizations.
o Recently the Commission has emphasized that there is an
urgent need to follow Codex standards with regard to
infant foods.
• Banks’ investment accounting in for changes
o The RBI has appointed a committee to examine the
differences between its norms and the ICAI’s norms on
financial instruments, called the AS 30-31, which allows
 investments to be valued at the fair market value as
against the existing practice of reporting the historical cost
of acquisition. This is based on the international financial
reporting standards (IFRS39).
• Rising crude prices and criticism on oil subsidies
o Estimates suggest that under-recoveries in domestic sale
of oil products could add up to Rs. 70,000 crores in the
current year.
o Government’s refusal to increase the cost of fuel products
is resulting in fiscal imbalances. Latest figures suggest that
the government has breached the half-yearly targets on
both the revenue and fiscal deficit. The revenue deficit has
risen to over Rs. 61,000 crores or 85.5% of the budget
estimates in the first six months of the fiscal. The fiscal
deficit stood at 53.8% in the same period adding up to
more than Rs. 81,000 crores.
o Some excellent editorial comments on why politically
mandated oil prices are regressive:
 Such a price regime provides a perverse incentive to
recklessly boost consumption subsidies. It implies
stubborn disinclination to levy proper user charges
and account for international scarcity value.
 And it means persistent lack of transparency in the
oil economy, high taxes and much scope for cost-
plus pricing. To insist on the extant, subsidy-heavy
policy — targeted essentially at the non-poor — and
voice apprehension over high poverty ratios and
increasing income inequality is patently
disingenuous. It needs to be junked.
• Infrastructure deficit in India
o In a very good article written in today’s ET, World Bank’s
Vice President for South Asia Region Mr. Praful Patel makes
some forceful arguments. A discussion about the amount
of resources needed (Planning Commission estimates that
close to $500 bn is needed for financing infrastructure
needs of the country during the ensuing plan) to close the
infrastructure deficit detracts from the real problem with
India’s infrastructure, which is the under-pricing of utilities.
Unless this problem is addressed, even $500 bn may not
be enough.
o An example illustrates the under-pricing issue. Three
Indian cities have 8 hours a day of water, but their supply
of water ranges from 106 litres per capita per day to 341
litres per capita per day. Compare this with that of Paris
where there is 24 hour supply with 150 litres per capital
daily, which is close to the median of Indian cities. So while
 the per capita supply is the same, Paris supplies 24 hours
while Indian cities see an 8 hour supply.
o The subsidized rates of supply of infrastructure services
leads to:
 Neglect of maintenance of the network when
subsidies are not received;
 Favouritism shown to vote banks and contratctors;
and
 Overstaffing in utilities.
• Stephen Roach on US recession and its likely impact on Asian
economies
o He is the Chairman of Morgan Stanley Asia.
o US consumers have been asset dependent over the last 5-
6 years, leveraging ever-rising housing values and
extracting equity from those assets to fund current
consumption. This has taken the US consumption to a
record 72% of the GDP. In the wake of the subprime crisis,
such high levels cannot be sustained the result is a definite
downward trend in the US consumption. This is what is
going to push US into recession.
o Impact on Asian economies: The idea that Asian economies
have decoupled from the US and that whatever happens in
the US doesn’t matter for Asia, is wrong and will be tested.
So far the US slow down has not had an impact on Asia
largely because it has been concentrated in home-building
activity, which is not a global sector. But as the weakness
there moves from home-building to consumption, then we
will have a more legitimate test of the decoupling notion.
The export led Asian economies will be certainly hit by the
slowing US consumption. India is far less exposed to that
given its relatively lower linkages with US and market
demand.
• Latest sequel to “Gone with the wind”
o It is a classic novel from Margaret Mitchell.
o “Rhett Butler’s People” by Donald McCaig is both a prequel
and a sequel.
o In 1991 Alexandra Ripley published the first sequel called
“Scarlett” which was excoriated by critics, but sold 6 mn
copies and was turned into television mini-series.
• Ramakrishna Math chief passes away
o Swami Gahanananda, the 14th President of the Math and
Mission passed away due to ageing related complications.
He was 91.
o The Mission will announce the next chief after a month.
• Tennis
 o Paris masters won by David Nalbandian by beating Rafael
Nadal.
• Cricket
o India wins the Guwahati ODI against the visiting Pakistani team.

• Emergency in Pakistan
o President Parvez Musharraf has declared emergency in
Pakistan citing a rapid deterioration in the security
situation amid growing uncertainty over his position in the
face of legal challenge to his re-election in uniform.
• Subprime’s second casualty
o The turmoil in the subprime mortgages and credit markets
has claimed its second casualty. Charles Prince, the
Chairman and CEO of the Citigroup is reported to be
planning to resign at a board meeting in the face of fresh
losses from distressed mortgage assets leading to a $5 bn
write-down and sharp drop in profits.
o You might remember that the CEO of Merril Lynch, Stan
O’Neil was the first to lose his job in the wake of the
subprime crisis.
• Why Jodhpur is called the “Blue City”?
o Most of the houses that can be seen from the top of the
fort have a blue tinge to them and that’s why it is called
the Blue City.
o It is home to the famous Mehrangarh fort and the Umaid
Bhawan Palace.
• Duty-free industry’s problems being taken up by government
with ICAO now?
o The government is likely to take up the issue of the EU ban
on LAGs from India with the International Civil Aviation
Organization.
o EU has banned the carriage of Liquid, Aerosols and Gels
(LAGs) from India as it has not yet signed a security
agreement with the union. The move is an attempt to curb
any nefarious plans on-board the flights.
o This move has adversely affected the Rs. 300 crore Indian
duty-free industry. Currently around 50% of the sales at
duty free shops in India fall under the LAG category.
• Subsidy to boost orthodox tea plantation
o The government has cleared a subsidy programme of Rs. 3
for every kg of orthodox tea produced. If the tea maker
produces any extra orthodox tea from his current
production level, he will get an additional Rs. 2 per kg as
subsidy. The scheme will be operational during the 11th
Plan from 2007 to 2012.
 o India produces 80 mn kg of orthodox tea. The total
production of tea is expected to be about 950 mn kgs in
the current year.
o Orthodox tea is consumed by European Union markets –
especially Germany, the Middle East and the CIS bloc.
• India is the favourite of donor agencies and banks
o India has been the largest recipient of Japanese ODA
(Official Development Assistance), UK’s official grants and
the largest cumulative IBRD/IDA borrower in fiscal 2007
accounting for about 15% of the Bank’s new commitments
worldwide.
o From Japan we got yen loans worth Rs. 7,000 crores over
the last three years at an interest rate of 1.3% for periods
ranging up to 30 years.
• More on Toilet statistics
o 63% of households do not have access to a toilet. The
position is worse in rural areas where 80% do not have
access.
o Look at what we noted about the World Toilet Summit
currently going on in New Delhi.
• ETFs?
o “All that glitters is not gold…”. It is an excellent primer on
Exchange Traded Funds.
• Indonesia’s Mount Kelud volcano erupts
o Seismographic signals picked up the eruption; but no signs
of ash or lava are seen.
o When it erupted in 1990 at least 30 people were killed. In
1919, about 5,000 died when it erupted.
o Incidentally Indonesia has the highest number of active
volcanoes, sitting as it is on a belt of intense seismic
activity known as the “Pacific Ring of Fire”.
• Indian space developments – reusable launch vehicles and
Chandrayaan
o ISRO plans to flight test Reusable Launch Vehicle
Technology Demonstrator in December 2008. A successful
reusable launch vehicle is expected to bring down the
costs of access to space from around $20,000 a kg to
about $200 to $500 a kg.
o Air breathing engines play a vital role in such a
demonstrator. They do way with the need to carry oxygen
onboard the rockets and provide far greater propulsion
efficiencies.
o India plans to develop operational reusable launch vehicles
by 2025.
o Chandrayaan I is slated for launch on April 9, 2008.
  Onboard this mission is a 20 kg Moon Impact Probe.
Once ejected from the spacecraft from the space, it
will head towards the moon. Video-cameras on board
the probe will take pictures of the moon’s surface. A
mass spectrometer will ‘sniff’ the tenuous
atmosphere above the moon to find out what it is
made of.
o Charndrayaan II could take place around 2011-12.
o Moon is at a distance of 3.84 lk km from earth.
• Navy looks for alternatives to Dhruv
o Unhappy with the indigenously developed Dhruv
helicopters, Indian Navy is looking for alternatives. It is
badly in need of replacements for various helicopters – Sea
Kings, Chetaks, Dhruvs and Kamov-25s.
• IMSA honorary fellowship to Justice K. Narayana Kurup
o The International Medical Sciences Academy has conferred
this fellowship on him. He is the second non-medical
person to get this fellowship. The first one was the inventor
of CT scan Dr. G.N. Hunsfield.
o Justice Narayana Kurup’s contribution to the field of
medicine was from a classic judgment on banning smoking
in public places. It has been hailed by the international
community as a unique contribution by the Indian judiciary
to protect human rights to health.
• Tidbits from Open Space column of Times of India
o South Africa is known as a Rainbow Nation to describe the
unity of various cultural, racial or ethnic groups in the
country. This phrase was coined by Archbishop Desmond
Tutu.
o The first Asian to win a Nobel for literature is Rabindranath
Tagore in 1913. The second is Shmuel Yosef Agnon of
Israel in 1966, when he shared the honor with Nelly Leonie
Sachs, a German-Swedish poet.
o Difference between an alligator and a crocodile
 Crocodile has a very long, narrow, V-shaped snout,
while the alligator has a U-shaped snout.
 Crocodile’s upper and lower jaws are nearly the same
width. Alligator has a wider upper jaw; so when the
mouth is closed the teeth in the lower jaw fit into the
sockets of the upper jaw. This hides them from view.
 Alligators prefer fresh water while crocodiles like brackish water.

• 120 combination drugs to be recalled from the market

o As against the government’s demand of withdrawing 294
combination drugs the pharmaceutical industry has agreed
to withdraw 120 combination drugs from the market.
 o A combination drug consists of two or more molecules
used to treat multiple ailments. For eg., pills which cure
cold and also act as pain killers.
o The total pharmaceutical industry size in India is Rs.
30,000 crores. Compare this with the global size.
• Developments on subprime fiasco
o The US and European banks have reportedly suffered
about $20 bn loss so far.
o While the subprime fears have not totally faded away and
the losses are still being counted, the fears of recession are
not being fuelled partly because US employment scene has
been rosy in the last couple of months. Payrolls climbed a
steep 166,000 in October.
• India and innovation
o It is a well-known fact that a country’s economic progress
hinges a lot on its innovative capabilities. India’s luck on
this count seems to be improving over the last couple of
years with many companies doing cutting edge research in
the country.
o US patent filing and approval is a long drawn process and
takes anywhere between 36 and 48 months.
o The top 5 emerging markets (including India) have filed
over 3,500 patents between 1999 and 2003.
o A US report says that patent applications from China, India,
Singapore, South Korea and Taiwan rose 759% from 1981
to 2001, compared with a rise of 116% from the US during
the same period.
• Indian power sector scene and Gujarat
o Gujarat has reportedly been able to effectively tackle the
power problem to deliver reliable power to all, aided by its
Jyoti Gram Yojana. It is the only state in India to have
provided access to each of its 17,940 villages.
o The country’s AT&C losses (a euphemism for loss of
electricity largely due to theft and partly due to genuine
technical transmission losses) are way ahead of the global
average of 5 to 10%.
o The pace of reforms in the country also has not picked up
with the fund releases for APDRP during the 10th Plan being
a paltry Rs. 1575 crores against the planned Rs. 20,000
crores.
o An industry study reveals that every 1% reduction in T&D
loss can save additional capacity of 800 MW.
• Hypertension control
o Recent research suggests that hypertension (commonly
known as Blood Pressure) is controlled by a protein
complex in the kidneys.
• Why did the immigrant workers in Gulf (UAE) go on strike?
o It is a manifestation of the growing social inequity caused
by the frenzied expansion of the emerging economies.
o The vast numbers of immigrant workers are treated
unfairly, with about half their salary impounded for
providing food for them. Their average salaries are also
very meager at about $163 to 272 per month compared
with the $400 prescribed by the protocols signed by the
Indian government with the Gulf countries. In contrast the
average monthly salary in UAE is about $2,800.
• Rowling’s new offering is fairy tales
o The author of the wildly popular Harry Potter series has
come out with “The Tales of Beedle the Bard”. Only 7
copies of the handwritten book are reportedly made. She
plans to auction one of them to raise money for children’s
charity. The other 6 will be given away as gifts.
o The copy to be auctioned is expected to fetch more than
$62,000.
• National food security mission
o It aims at increasing production of rice by 10 mn tonnes,
wheat by 8 mn tonnes and pulses by 2 mn tonnes in the
next 4 years.
o It is a Rs. 4,882 crores scheme and was launched in 305
districts of 16 states.
o The strategy is to bridge yield gaps by introducing modern
technologies and improved agronomic practices.
• Alonso leaves McLaren
o The 2005 and 2006 Formula One champion has decided to
leave McLaren following his stormy relationship with the
team. He worked only for one year of his 3 year contract
with the team.
• World Toilet Summit asks Indian Railways to be responsible
o Experts participating in the summit urged the Indian
Railways to stop trains scattering lakhs of litres of human
waste across the country every day.
o The world’s largest network of railways transports 16 mn
passengers on 8000 trains daily, spreading an estimated 3
lk litres of human waste from ‘open discharge’ toilets.
o The experts at the summit suggested that it should adopt
the aircraft-style vacuum system to replace these old
fashioned toilets in trains that contaminate soil and water.
It is estimated that it would cost approximately about $1
bn to fit coaches with vacuum toilets and storage tanks.

• Crude is testing $100 per barrel

 o Crude oil futures on Nymex have begun trading at $125
per barrel and beyond.
o This is a strong indication that the spot prices will breach
the $100 mark in the near future.
o The Indian crude basket, calculated as a mixture of
Dubai/Oman and Brent is above $85 per barrel. The
present fuel prices in India are frozen when the basket was
at $55 per barrel.
• PMC – new technology for had disk storage
o It stands for Programmable Metallization Cell.
o Likely to hit the markets in the next 18 months, if
successful, this will probably replace hard drives, flash
memory and RAM used in PCs.
o The technology uses nanowires created from copper atoms
to record binary data. It stores information by rearranging
atoms to form stable and extremely small memory cells.
Each cell can potentially store multiple bits of information.
• Dinosaur extinction linked to volcanic eruptions in India?
o Recent research suggests this possibility. Huge volcanic
eruptions in the Deccan plateau might have killed the
dinosaurs about 65 mn years ago. The eruptions are
believed to have released more climate altering gases into
the atmosphere than the widely believed cause hitherto.
o So far, researchers believed that the Chicxulub meteor
impact in the Gulf of Mexico would have killed all the
dinosaurs.
• India is becoming a hot destination for CDM investments
o About $4.2 bn are expected in the country over the next
few years for development of technologies that reduce
GHG emissions.
o Several western countries are looking for opportunities of
investing in cleaner technologies in developing countries.
o Out of a total 819 projects registered by the CDM executive
board, 283 are from India, the highest by any country.
• ARCIL
o Asset Reconstruction Company India Limited. It is company
sponsored by leading players in the Indian financial sector
– SBI, ICICI Bank, IDBI and Punjab National Bank.
o It is an Asset Reconstruction Company (ARC). ARCs act as
debt aggregators and engage in acquisition of NPAs. Thus
ARCs take away the distraction by isolating NPAs from the
banking system and act as "bad bank". This leaves rest of
the banking system free to act as "good bank" and return
to equity markets and normal banking business.
Governments encourage transfer of assets to ARCs through
creation of supportive environment. Governments may also
 provide special powers to ARCs that are not otherwise
available to banking system.
o Indian banking system has NPAs of over Rs. 4 lakh crores.
• What is ‘market risk’ for banks?
o The BIS (Bank of International Settlements) defines this as
risk that the value of ‘on’ or ‘off’ balance sheet positions
will be adversely affected by movements in equity and
interest rate markets, currency exchange rates and
commodity prices.
• HHI and ‘contestable markets’
o Herfindahl Hirschman Index (HHI) is a commonly accepted
measure of market concentration. It is used to determine
the extent of competition in an industry. It takes into
account the relative size and distribution of the firms in a
market and approaches zero when a market consists of a
large number of firms of relatively equal size. It increases
as the number of firms in the market decreases and/or the
disparity in size between these firms increases.
o Another measure used as a benchmark of competition in
markets is the contestability of markets espoused by
William Boumal. A contestable market is one in which entry
and exit of firms are free. It never offers more than a
normal rate of profit and is characterized by the absence of
any sort of inefficiency in production.
• Can the states levy tax on Central government’s properties?
o Article 285 of the Constitution prohibits tax on Central
government properties by any state government.
o But this does not include charges for services rendered. For
eg., when water is supplied, sewerage facilities are
provided etc.
• What is meant by parole?
o A convict in a murder case can be released on parole, if he
finishes serving three years sentence. Parole is like leave
earned; but it is not a leave/remission from the sentence.
For every six months of sentence served, it appears that
about 15 days’ parole can be given. Parole for a month (if
accumulated balance is available) can be granted by the
Government on a case to case basis.
o But the prisoner will have to serve the period of parole
availed in addition to the sentence period.
• Pilot of Hiroshima bomber dead
o Paul Tibbets died at the age of 92.
o He was the pilot for the B-29 bomber (Enola Gay) that
dropped “Little Boy” nuclear bomb over Hiroshima on
August 6, 1945. It killed 70,000 to 100,000 people and
injured countless others.
• Martina Hingis quits tennis
o The five time Grand Slam champion was reported to have
tested positive for cocaine usage at Wimbledon. She
denied using cocaine. The 27 year old Swiss player lost in
the third round of Wimbledon this year.
o She announced retirement from competitive tennis.

• Now it is time for sterilization tax

o The RBI and the Finance ministry are working on imposing
a sterilization tax on the ECBs.
o Another measure under consideration is the auctioning of
foreign loans’ quota to help moderate the inflow of ECBs.
o Currently foreign borrowings are about $25 bn a year.
o I am sure you would remember that the RBI loses about 3%
on sterilization. This 3% is the difference between what it
earns by deploying the forex reserves in US treasury bills
and the interest it pays in the domestic market for sucking
out liquidity through the issue of government securities.
o What’s your take on this? What impact will it have on FII or
FDI inflows and with what result? Think through and
discuss in our shout-box.
• Status of India’s nuclear power production
o India’s current nuclear power generation set-up is just
about half of what the country’s domestic uranium
reserves can support. At present, only 4,190 MWe of power
is generated by nuclear plants, and another 1000 MWe
capacity is under construction. The country reportedly has
enough resources of natural uranium to support operation
of 10,000 MWe of pressurized heavy water reactors
(PWHR).
o It has been estimated that the existing uranium reserves in
the country are approximately 78,000 tonnes, which is just
sufficient to power 10,000 MWe capacity.
o India has 17 nuclear reactors, of which two are light water
type and the remaining 15 are PWHRs.
o Latest uranium mining sites include: Chitrial in AP and
Gogu in Karnataka.
• US economy’s expected performance
o It is forecast that the GDP growth will be about 1.5% for
the current quarter and will be about 1.3% in the first three
months of next year.
• Textile sector sops
o With a view to ameliorate the worsening conditions of the
textile sector because of the appreciating rupee, the
government is considering the following measures:
 Restructuring of the TUFS scheme
  5% interest reimbursement
 10% capital subsidy
o Why is textile industry the worst hit in a rupee appreciating
scenario?
 Being competitive mainly on account of the labour
cost arbitrage, this is highly vulnerable to exchange
rate swings.
 About 85% of the trade is invoiced in dollars.
o The ripple effects will be felt in:
 Textile machinery industry
 Cotton farmers
• Foreign funds may be allowed in to our bond market
o At present there is a cap on FII investments in the bond
market. It is pegged at $4.7 bn. Out of this $3.2 bn is for
government securities and $1.5 bn is for corporate debt.
o Hope you understand what it means. It means that no
foreign fund can hold more than $3.2 bn in our government
debt. Sounds curious; isn’t it? While on one hand we want
more money to bridge our deficits, we seem to be very
choosy! A contradiction; isn’t it?
o Both the Tarapore committees have recommended
scrapping of caps on FII investment in rupee-denominated
debt.
• EPF interest question
o We all know that the government is afraid of taking a firm
stand on declaring interest EPF corpus. Most of the EPF
corpus (about 65% of it to be precise, amounting to about
Rs. 95,000 crores) is invested in SDS. It earns 8% interest.
But the EPF board announced 8.5% rate. The Trade Union
leaders demand that the interest on SDS should be
enhanced to 9.5% by the government.
• India’s Energy Exchange
o It is likely to commence operations from November.
o Short-term trading currently accounts for 3% of the total
power market in India, which is close to Rs. 1.25 lakh crore.
Globally the figure is between 30 to 40%.
o This power exchange will enable a customer having
demand of more than 1 MW to buy power through the
exchange.
• Size of India and China economies
o India: $906 bn
o China: $2.7 trillion
• Sovereign wealth funds
o These are huge pools of capital built up by a small group of
mainly oil-rich countries to invest their assets around the
world.
 o They control an estimated $2.5 trillion investments across
the globe.
o Many developed nations are getting uncomfortable with
these funds as they fear that these funds will slowly take
over the corporates in those countries. But experts say
that these fears are unfounded. They argue that when this
money is good for the foreign governments (as a lot of it is
invested in their securities to finance their deficits) why
should it be bad for the corporate sector?
• Research on fear
o In humans the fear hot-spot is the amygdala, an almond
shaped part of the deep brain.
o It is not responsible for all of people’s fear response, but it
is like the burglar alarm that connects to everything else.
• Asian Indoor Games at Macau
o Chatholi Hamza and Sinimole Paulose won gold in the men’s and
women’s 1500 metres respectively.

• Key points in RBI’s credit policy

o CRR hiked by 0.5 % to 7.5 per cent from 10th November
o Bank, repo, reverse repo rates unchanged
o GDP growth outlook unchanged at 8.5% for 2007-08
o Inflation to be contained close to 5 per cent in FY'08
o Inflation expectation in range of 4-4.5 per cent
o Medium term objective on inflation is 3 per cent
o Oil companies permitted to hedge foreign exchange on
overseas OTC exchange.
o Importers and exporters allowed call, put options
o Authorised dealers permitted to offer American Options
o Working group on RRB, core banking roadmap
o Financial aid to RRBs for IT implementation
o Action plan for National Electronic Clearing Service
o Hi-level committee to review lead bank scheme
• NDS – Negotiated Dealing System
o It is the official computer screen based trading system in
government securities managed by RBI. All the banks and
other allowed institutions (Primary Dealers) take part in
trading through this system. These ‘members’ have an
account (current account) with RBI. These members can in
turn open what are called the SGL (Subsidiary General
Ledger) accounts with their clients who are interested in
taking part in this market.
• Do you know how much it costs to purchase an Airbus A-380
plane?
 o The catalogue price of this plane is about $320 mn. That is
Rs. 1280 crores if we assume an exchange rate of Rs. 40
per dollar!!
• What would happen if India doesn’t clear the Indo-US nuclear
deal now?
o If India doesn’t take the agreement to its logical
conclusion, then the deal with US will have to be started all
over again. Under the American process, any legislation
that doesn’t go through cannot be carried over to the next
Congress.
• GAP to return Indian garment shipments
o GAP is a big US fashion company and is believed to have
sourced around $800 mn worth of clothes from Indian sub-
continent last year.
o There were allegations that the Indian suppliers engaged
child labour in one of their factories. This has led to an
international uproar and the consequence is that GAP is
likely to return those shipments.
• Broadband penetration in India
o According to the latest figures, India has just about 2.3 mn
broadband subscribers. That translates to a penetration of
just 0.2% for broadband compared to 19.6% in the US,
20% in the UK and 32% in Denmark and Iceland.
o India has 39.5 mn wireline telephone subscribers
compared to Denmark’s little over 3 mn.
o Despite having over 100 mn PCs (which hardly translates
to about 3% PC penetration), 40 mn Internet users and 70
mn cable and satellite homes, broadband reaches only 2.3
mn users in India.
o PC penetration is 8% in China, 14% in Brazil and 15% in
Russia.
• NELP VII
o New Exploration and Licensing Policy (NELP) VII round is
due to be announced. It appears that the government is
thinking of making it mandatory for Indian companies to
have some foreign joint venture partners who have
experience in deep sea exploration.
o The foreign partners should be those operators producing
oil and gas from deep waters beyond 400 meters
bathymetry (ocean depth).
• Standby mode turns an energy sucker
o Latest estimates show that 5% of electricity used in the US
goes to standby power – ‘vampire electronics’, a
phenomenon energy efficiency experts find terrifying as
energy prices soar and the planet warms.
 o About 40% of the electricity being used to power a home
electronics is consumed while they are in the standby
mode.
• China’s interesting name
o In Mandarin (the Chinese language) it is called Zhongguo.
o It roughly translates to ‘Middle Kingdom’.
• Brazil to host the 2014 World Cup Football?
o The South American country is the only nation bidding to
host the tournament which is due to be staged on the
continent under Fifa's rotation system.
• Is Mukesh Ambani the richest person on earth?
o Billionaire Mukesh Ambani on Monday became the richest
person in the world, surpassing American software czar Bill
Gates, Mexican business tycoon Carlos Slim Helu and
famous investment guru Warren Buffett, courtesy the bull
run in the Indian stock market.
o His net worth rose to $63.2 billion (Rs 2,49,108 crore).
o But Mukesh is disputing these calculations. He says he is
worth about $50 bn. Let’s wait and watch what Forbes or
Fortune have to say in this matter.