Indian Economy: News and Discussion (Jan 1 2010)

Abhijeet
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Abhijeet » 10 Mar 2011 23:06

The Norwegian model of putting away oil revenue into a fund and only using the returns from that every year sounds very civilized and far-thinking. But isn't it more appropriate for a developed country where today's needs are not that pressing, and it is a good idea to keep money for later? In the case of India, today's needs are so urgent that the result of not using any money available to improve our situation immediately may mean another generation condemned to poverty.

Of course, using one-time revenues to fund wasteful government programs is one thing. But surely it is a question of diverting any money available today to better use (schools, hospital, other infrastructure) rather than keeping it aside for a rainy day.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 11 Mar 2011 06:32

Abhijeet wrote:The Norwegian model of putting away oil revenue into a fund and only using the returns from that every year sounds very civilized and far-thinking. But isn't it more appropriate for a developed country where today's needs are not that pressing, and it is a good idea to keep money for later? In the case of India, today's needs are so urgent that the result of not using any money available to improve our situation immediately may mean another generation condemned to poverty.

Abhijeet-ji, that is a very good point..Which is precisely the argument that successive FMs have used to not explore this idea...the issue is however that no Finance Minister (in any country to be honest) would ever look beyond the next election...Depending on the political exigencies of the day, the FM can use the inflows from asset sales to simply fund more subsidies, or cover the deficits arising out of committed expenditure (which is what Pranab-da has done this time)...If we could legally mandate a funding stream for specific projects out of high importance, this would perhaps not be required...But we have seen that projects with the highest level of political will behind them (NREGA, Right to Education, GQ) could not get a legally binding revenue stream...So we have NREGA, which is a constitutional mandate, but the funding of which is dependent year-to-year on the budget...If tomorrow there is a govt that is less keen on the programme, it will just die off...

A national wealth fund hat generates an annuity with a legally mandated usage takes the budgetary discretion out...That is at least the idea..

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Cosmo_R » 11 Mar 2011 06:57

somnath wrote:
Theo_Fidel wrote:Total internal debt has decreased from about 65% to 50% over the same period.

UPA's record on deficits isnt too much different from NDA's..If anything ratios have improved somewhat under UPA as growth has become faster...50% is only central govt debt though - adding in states, the debt-to-GDP is ~70%..Adding in the oil subsidies that are parked with oil companies, the numbers could be more like 75%...Not dangerous given that a very small % is external, ~8-9%..As long as we are funding it internally and generating growth, it isnt really a big problem...


"Not dangerous given that a very small % is external, ~8-9%..As long as we are funding it internally"

This was the Spanish model. Just that the banks that held the government debt wound up as targets in the markets.

On another note, one 'Hasan Ali' is said to have to $8 bn in Swiss accounts. Wonder what that is as a % of the deficit?...

We can laugh at Paki Elites for not wanting to pay IT but the amount of 'undisclosed earning' from India that is held abroad is staggering.

Question: Do you know what the % of earners in India who pay IT is? I had heard around 12%. Low by (developed) world standards.

Appreciate your take.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 11 Mar 2011 07:04

vina wrote:Haaaawww.. The value of the equity of the govt in the paper you pointed to lists it at around Rs.4,84,321.62 crore for the 35 odd listed govt companies. Just getting that down to zero govt equity would free up something like $95b per my Madrass Mat @ Rs 50/USD exchange rate . No chump change. And this is just the tip of the iceberg in terms of assets of govt companies.

Vina-ji, too many erroneous assumptions...The M-cap of PSUs, including banks, is much higher than that - my bloomerg tells me its 400 billion odd...But, and its a big but, its all paper money...Unless we are trying a Yegor Gaidar-style firesale, there is no way such an amount can be sold off in quick time..We struggle to sell off even 10-15 billion in a year...Plus, a lot of the companies are strategically important - oil exploration/refining companies, banks are clear examples....

vina wrote:How boring. The 80/20 rule (or 75/25 rule or whatever) seems to apply rather well, with bulk of profits coming from govt monopoly sectors (petrol, coal, electricity, steel.. some total five) and the overwhelming bulk of profits while the contribution of all the others is rather pitiful. So any good YumBeeYea trained monkey would automatically cull the pitiful 75% and sell it off and take in the cash and put it to better use.

Didnt know petrol, steel and electricity were "monopolies"!! Maybe in 1975, actually not even then...The reason why bulk of the profits come from these so-called core sectors is because bulk of the investments (in value terms) have also gone in there...At least you have graduated form saying they generate -ve returns to saying only "some" generate most of the return :wink: And yes, "monkey" MBAs would do what you are saying - sell ALLL the profitable ones off...The "elite" ones would take a more nuanced view :wink: ...Check what these companies do...Importantly, go the budget documents to check what % of the govt's planned capital expenditure is through investments by PSUs (I had referenced the data sometime back in this thread)...Its 60-65% of the total capex of the union govt...Most of them are in "core" areas like oil, highways, mineral exploration and refining/processing..And banks, state owned banks are an absolute sine qua non to support both infra projects as well as overseas asset acquisition by Indian companies (esp in resources)...

vina wrote:The first thing you do in Phynance during Valuashun per the Madrassa thumb rule is to see all the "one time items" and if they are like a every year occurance, average them out and consider them as recurring items (one time items eveyr year make them recurring.. smart huh?) and consider them as costs/revenues as the case may be!

So if you say that a regular annuity "profit petroleum" is going to come in from the private sector EP companies (while the fat PSU get to eat and slumber, just like BSNL did from cash flows from private players for the USO fees), it is really annunity flows and not one time

More wrong assumptions...Since the NELP guidelines came in, all companies, PSUs incl bid for oil properties on same terms...So ONGC too would need to make the same profit petroleum payments to the govt...

Back to "MBAs and Finance"..Yes, the mediocre ones would treat one-offs hapening with some periodicity as regular, the "elites" would take them off and treat them as one-offs! :wink: Because there is nothing too consistent about these cash flows - this year for example was a blip - the one-offs would be down by 60-70% next year even if the full disinvestment budget is met...Profit petroleum, too is one-off - the chunky payments are back-ended and given India's reserves (we are not Saudi Arabia) would be pretty short term..
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somnath
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 11 Mar 2011 07:14

Cosmo_R wrote:This was the Spanish model. Just that the banks that held the government debt wound up as targets in the markets.

On another note, one 'Hasan Ali' is said to have to $8 bn in Swiss accounts. Wonder what that is as a % of the deficit?...

We can laugh at Paki Elites for not wanting to pay IT but the amount of 'undisclosed earning' from India that is held abroad is staggering.

Question: Do you know what the % of earners in India who pay IT is? I had heard around 12%. Low by (developed) world standards.

Cosmo_R-ji, the Spanish and Indian economic models are very different..the issue with Spain is that the banks have a ton of mortgage assets on their books, and the Spanish economy grew primarily on the back of real estate through the 2000s...Ergo, with real estate prices dropping like a stone, the banks have become incredibly vulnerable...And the capacity of the spanish govt to provide any kind of support is very very limited, as it has fairly high levels of debt already...More generically, SPain also suffers from the Euro-area flexibility issues - a common ccy without a common bond market - which means individual countries cannot "print money", or devalue its ccy or take recourse to the standard mitigants when faced with a debt problem...Neither the Indian govt nor Indian banks face similar issues (the biggest factor of course is that GOI does not borrow overseas to fund its deficits, all funding is done locally)...

About Income tax, you are right...The number is incredibly small for a country of our wealth..Of course, some people like Surjit Bhalla say that the number of taxpayers is not wholly wonky..Here is an interesting piece on the topic by him..

http://www.business-standard.com/india/ ... th/273478/

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby vina » 11 Mar 2011 09:48

somnath wrote:Vina-ji, too many erroneous assumptions...The M-cap of PSUs, including banks, is much higher than that - my bloomerg tells me its 400 billion odd...But, and its a big but, its all paper money...Unless we are trying a Yegor Gaidar-style firesale, there is no way such an amount can be sold off in quick time..

Nothing "erroneous" . That is why I said that around $80 to $90b per year is eminently doable, if you are willing to give up control to private guys (heck just stuff like phiv ishtaar hotels like Ashok and bread making and other sundry stuff, which are asset heavy ..probably prime real estate ..hint NTC mills etc) will see a pretty packet and plus you can stop the cash hemorrhage from those losses, all will add up to a pretty packet. That land bank alone will make the "land bank" of folks like DLF and everyone else whose wampum value on paper is 400000000 crores look like peanuts.

Plus, a lot of the companies are strategically important - oil exploration/refining companies, banks are clear examples....

Ah.. Back to the commanding heights dribble from the ISE/DSE/JNU ideologues . Nice. But hello, this is 2011, not 1950!. You forgot to add Air India and Indian Airlines to that "strategically important" list . Pray do enlighten me what is so "strategically important" about those worthies. After all these years of struggling to understand, I have simply given up.. (and their accumulated losses and networth is what?). Notice how all these years, we were told that "Airlines" were strategically important along with bread making (from subsidized grain), oil exploration ,oil refining, oil marketing and banks !

somnath wrote:Didnt know petrol, steel and electricity were "monopolies"!! Maybe in 1975, actually not even then...The reason why bulk of the profits come from these so-called core sectors is because bulk of the investments (in value terms) have also gone in there


Why until very recently they were , and the reason why they make profits are still entry barriers, govt regulations and legislative fiats that ensure that they make profits and are shielded from competition! The jury is out on their competitiveness. Give another 15 years and a true market with higher competitive intensity and the likes of ONGC will go the way of the dodo or rather ECIL and ITI .


And yes, "monkey" MBAs would do what you are saying - sell ALLL the profitable ones off...The "elite" ones would take a more nuanced view :wink: ..
.

:rotfl: :rotfl: :rotfl:

Monkey YumBeeYeas know stuff like stars, dogs, cash cows and kweschun marks and they are trained to get rid of the 75% dogs and recycle the dog capital to more optimal use. They will clear out the dogs not the profitable ones.

Only the oh-so-soup-e-rear "elites" with "nuanced views" will sell the profitable stars and keep the dogs (just what they have been doing all along until now. The only dog ridder was a Mr Arun Shourie and even he couldn't get rid of the AI/IA dogs thanks to Dilli Billis and their "strategic" sector balderdash) ! Sure, keeping dogs must be the done thing in posh Dilli society and dinned into the heads in Dilli Schools, but from a business perspective that is a pretty dumb thing to do, unless somehow the dogs morph by magic into fairies in the stars the day after you get rid of the stars! Fact is dogs like IA/AI continue to chomp and gorge on tons and tons of expensive dog food like Pedigree and drink up high fat cows milk by the gallons!


Back to "MBAs and Finance"..Yes, the mediocre ones would treat one-offs hapening with some periodicity as regular, the "elites" would take them off and treat them as one-offs! :wink:

Oh. The "elites" obviously never have heard about courses like Financial Statement Analysis and Earnings Kwality and red flags dont rise and alarms go woot..woooot when they see "one time" items charged against earnings or gains from "one time" items in the statements consistently year on year. Good. Very Good.

Congratulations! You just lost your shirt with bad valuation of and you over paid massively. Or you undervalued the deal so much that you got kicked out because the valuation you came up with was nonsense and a better Eye Pank with saner folks and a more strategic investor valued it correctly. There goes your bonus! Have a nice day! :P :P

.Profit petroleum, too is one-off - the chunky payments are back-ended and given India's reserves (we are not Saudi Arabia) would be pretty short term..


Sure , in a civilization going back over multiple millennia , 40 years is a blip. But for mere mortals it is close to half or more of their lifetimes! In fact, the basic assumption penciled in is close to 30 to 40 years as life of asset for stuff like oil wells, gas fields and their associated downstream stuff like powerplants, fertilizer plants etc . That investment is usually amortized over 30 to 40 years cash flows. Now if you consider 30/40 years to be "short term" , all I can say is that you are probably a Turtle with a life span of 450 years! But for us mere mortals, 5 years on the spread sheet is "long term" and I personally discount anything with huge stochastic factors for anything above 2 years in terms of cash flow visibility! In Tamil, the word is Naatu Aamai.. ie old wizened salt of the earth, usually a very respected village headman who has seen and experience everything including times of Haider Ali and the Brits and 60 years of independence and everything and drops pearls of wisdom to the young uns!

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 11 Mar 2011 12:29

Vina-ji,

vina wrote:That is why I said that around $80 to $90b per year is eminently doable, if you are willing to give up control to private guys (heck just stuff like phiv ishtaar hotels like Ashok and bread making and other sundry stuff, which are asset heavy ..probably prime real estate ..hint NTC mills etc)

Ahh - so you thought 80-90 billion of stock could be sold off in one year! Thats not what came across. Anyhow, On the number, I am sure you know the size of the Indian primary market to conclude that 80-90 billion dollars of govt equity sell-off is "eminently doable"! Second, the distress assets are being disposed off - whether its NTC mills (obviously you are not from Mumbai!), or other BIFR companies...They dont consitute a large part of that 400 bill valuation...

vina wrote:Why until very recently they were , and the reason why they make profits are still entry barriers, govt regulations and legislative fiats that ensure that they make profits and are shielded from competition! The jury is out on their competitiveness.

I am sure you would educate us on the entry barriers etc for pvt companies in steel and oil refining/exploration in the last 15 years...

vina wrote:In fact, the basic assumption penciled in is close to 30 to 40 years as life of asset for stuff like oil wells, gas fields and their associated downstream stuff like powerplants, fertilizer plants etc

Again, you have obviously not studied the way "profit petroelum" works to conclude that the cash flows come in for 40 years...Bulk of the profit petroleum is back-ended (towards the end of the life of the resource) and will be possibly disbursed in 4-5 years....

As for the rest, its a POV you are welcome to - in any case, the discussion was not about merits or demerits of PSUs...

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby SwamyG » 12 Mar 2011 03:21

Dharavi, India: The Most Entrepreneurial Slum In The World?

I had the opportunity to take a tour through the area with a local guide who showed us a sampling of the various enterprises. Befitting India's industrial heritage, there are a large number of small garment manufacturing shops in which men and women work sewing machines and do hand finishing work. Weaving and embroidery businesses are clustered nearby.

Far less expected is the number of recycling businesses. For such a dirty place, Dharavi is a mecca of "clean" industry. If a product can be reused, someone is probably recycling it there.

Plastic comes in myriad forms from all over the Mumbai region. Scores of workers sort the plastic into different types and colors and use machinery that is produced in the slum to process plastic pellets and plastic wire. These pellets and wire are then sold in bulk back to larger industrial users in India.

Industrial sized cooking oil tins arrive by the truckload on a daily basis to be scrubbed, sanitized (frighteningly, often by someone hand-dipping the can into a boiling vat of water), and reshaped before a return trip to local food processors.

Computer keyboards sit in large piles, waiting to be picked apart to sort the plastic from the metal parts that get sent to different recycling facilities.

The Guardian reports that in all, Dharavi has an estimated 5,000 businesses and 15,000 single-room factories that produce somewhere between $700 million and $1 billion a year in revenue.

As these businesses continue to expand, Dharavi has become a community linked and supported by entrepreneurship. The local businesses are providing small but significant income improvements to tens of thousands of families. Electricity, running water and televisions are now available to an increasing number of households.

But where do the majority of the increased incomes go? According to our tour guide, most families use the money to pay for private school education for their kids. Often illiterate parents are making an investment in the future. And local entrepreneurs are developing schools that far surpass the quality of local public education. Dharavi may not change much in this generation, but the power of entrepreneurship offers great hope for the next.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 12 Mar 2011 08:22

SwamyG-ji,

Good article..Sparks off a diffeent chain of thought...

Urban slums are a result of complex issues, but getting rid of them isnt easy, hasnt been...

Over the last couple of decades, the idea of giving property rights to urban slum dwellers as a move towards "cleaner" cities has gained momentum...Cheer leaded most visibly by Hernando De Soto, who is the high priest of the movement...

The UPA II regime floated the idea of the Rajiv Awas Yojana (RAY) to act along similar premises...

Currently, the preparatory work for a bill to be presented in Parliament in on...In the meanwhile, initial work has started, with budgetary provisions made under the JNNURM programme to fund states that allot property rights to slum dwellers...

Here is a status update report..
http://mhupa.gov.in/W_new/NOTE_RAJIV_AWAS_YOJANA.pdf

Its an interesting initiative - would be interesting to see how this can change the dynamics of our cities...

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby chaanakya » 12 Mar 2011 09:19

http://www.thehindu.com/todays-paper/tp ... 530708.ece

The Chief Election Officer, Tamil Nadu, Praveen Kumar, has warned that the preparation of false muster rolls to make payments which are not due, under the Mahatma Gandhi National Rural Employment Guarantee Scheme, would be punishable under the Indian Penal Code.

Besides being a violation of the model code of conduct, it would also be considered a corrupt electoral practice that would invite action under the IPC.

He has instructed the Commissioner, Rural Development, and District Collectors to ensure that such incidents, which affect the poll process, do not recur.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Ambar » 12 Mar 2011 10:38

X-Posting from TSP thread :


in comparison, andhra pradesh budget is Indian Rs 128000 crores =28 b$ (at 45 exchange rate)

we are quite near the indian defence budget = total pakistan budget

The union budget 2011-12, presented to the parliament on February 28, 2011, increased the defence allocation to Rs 1,64,415.49 crore ($36.03 billion)


If the numbers quoted above are indeed true, then i'd love to know where this staggering amount (28 billion$) goes into ? But before that, what are the revenue sources that contributes towards such a large budget? Surely the sales tax and the state government run agencies could not be bringing in such sum ? So how do they make up for the short fall ? Is it through central government or some other sources?

I couldn't help but compare our richest state budgets to that of Virginia - arguably one of the best run state in the US with a balanced budget. VA has a annual budget of around 35 billion$. It currently has a budget surplus .The largest components of state budget goes towards education (some of nation's best public schools are in NoVA) ,health and human services,transportation and public safety. The first two components are virtually non-existent in most of our states. And the last 2 are barely functional. So where does our 28 billion$+ budget goes into?

This also brings another question, why the lack of bond market at muni/state level?

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 12 Mar 2011 10:59

Ambar wrote:If the numbers quoted above are indeed true, then i'd love to know where this staggering amount (28 billion$) goes into ?

Ambar-ji, the numbers are indeed true...India is a far larger economy than many of us think it is!

The AP state Budget at a glance..
http://budget.ap.gov.in/bib.htm

AP is one of the better managed states, both financially as well as in terms of economic indicators...It runs a revenue surplus, and 65% of its expenditure goes into "development services"...Including some fairly innovative cash transfer schemes introduced by the YSR regime...

Comparison between Virginia and AP are a tad unfair -population of AP is 76 million, Virginia is about 7-8 million...Therefore, on a per capita basis, each citizen in VA has 10 times the money spent on him compared to AP....It shows in various ways...

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Suraj » 12 Mar 2011 12:09

Industrial growth quickens in January
India’s industrial output grew more than analysts expected in January, supporting economic growth and giving the central bank scope to increase interest rates and fight inflation.

Output at factories, utilities and mines rose 3.7 percent from a year earlier after a revised 2.5 percent gain in December, the government said in a statement in New Delhi today. The median estimate of 24 economists in a Bloomberg News survey was for a 2.9 percent increase.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Ambar » 12 Mar 2011 12:13

Somnath, yes ofcourse our economy is large and everything. My question was about the visibility of such a massive expenditure. The govt of Karnataka says their have a annual budget of around 17 billion USD with a deficit of around 2 billion $. Atleast according to the government report, the largest component of their budget goes to education and urban development ! The state of government schools and our public infrastructure where some of the largest cities are not connected through highways baffles these figures on the paper. And if we are calculating it per capita, then why drop the PPP adjustment ?

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Virupaksha » 12 Mar 2011 16:37

Ambar,

in the AP budget dont forget to look at the budget estimates of last year and actuals of last year :rotfl:
Budget Estimates 1.11 lakh crores
Actuals 0.85 lakh crores

Unfortunately in AP, bigger budget than last year has been made into a d*ck measuring contest in the recent years, so as to on paper allocate and announce money to their projects.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 12 Mar 2011 17:45

ravi_ku wrote:in the AP budget dont forget to look at the budget estimates of last year and actuals of last year
Budget Estimates 1.11 lakh crores
Actuals 0.85 lakh crores

Raviku-ji, there is a lot to criticise, par theek se padh to lein!

The ACtuals" are for FY2009-10, the BE are for 2010-11..The "performance" can be judged by the Revised Estimates (RE) of 2010-11 - its pretty decent - 1.11 lac crores compared to a BE of 1.13 lac crores..When the "actuals" get in next year, the numbers should be higher (at least thats the typical trend)...

Ambar wrote:My question was about the visibility of such a massive expenditure

Well no doubt execution is a challenge in India - leakages are only too well documented...At the same time, even taking into account PPP (its about 2.5 times nominal these days), the per capita differences are huge...Plus the "last mile" costs of reaching large rural areas is a lot more than the last mile costs of reaching organised urban agglomerations...

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Virupaksha » 12 Mar 2011 19:17

Oops my bad,

But I am sure that 1 lakh budget was presented much before. I tried for getting the budget size for 2009-10, couldnt get it.

But any way, the budget estimates for 2008-09 themselves crossed 1 lakh crores, forget 2009-10.
http://www.business-standard.com/india/ ... et/314053/

generally for Andhra Pradesh, decrease the size by 15-20% to get a realistic picture. 2010-11 year was a very difficult one financially and even for some highly visible projects, even 20% of money wasnt released inspite of protests.

Infact govt recently has come out with a coupon scheme to pay last years debt for a student fee waiver program. costs around 1-2000 crore. so yup that figure when thrown in TSP thread :mrgreen: is good but not if you want to have a realistic picture of Indian economy.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 13 Mar 2011 07:15

Back to the topic of property rights for slum dwellers...Some progress is happening..AP has put out a draft legislation 'Andhra Pradesh Slum (Identification, Redevelopment, Rehabilitation and prevention) Act, 2010'...

http://www.fullhyderabad.com/hyderabad- ... -poor-1489

Among other things, this enables AP to access central funds under RAY - similar model to JNNURM.

Separately, Sanjeev Sanyal is one of the most insightful commentators on urban planning related policy issues..A slightly dated analysis by him..

http://www.business-standard.com/india/ ... ts/388087/

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 14 Mar 2011 05:57

Montek Ahluwalia makes an intresting, if somewhat disengenuoous point, opposing the new profit sharing bill for mining profits..The current draft bill proposes either 26% profit sharing or 26% equity in favour of the local populace..

http://www.indianexpress.com/news/monte ... ts/762036/

The fact that mining of mineral resources should involve a substantial payment to the state is unexceptionable - India's royalties on non-oil mining is criminally low...

But Montek A makes a valid point

there would be no plan discipline on the use of these resources and the funds would be invested without reference to any development plan for the region”.

“More importantly, there is no guarantee that this expenditure will be additional since states can divert resources they would have spent on the district to other areas

One can argue though that the democratic political process should take care of this, but we know that its not so simple..Maybe the bill should also prescribe some sort of legal g'tees for the royalty cash flow usage, without making it too straitjacketed..
Last edited by somnath on 14 Mar 2011 10:04, edited 1 time in total.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby vera_k » 14 Mar 2011 06:09

Depends on what is meant by the "local populace" and who controls the money. If the intent is to use the 26% to set up trusts and tribal councils like those set up for the Native Americans, then the tribe will take care of the problem.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 14 Mar 2011 06:40

vera_k wrote:Depends on what is meant by the "local populace" and who controls the money. If the intent is to use the 26% to set up trusts and tribal councils like those set up for the Native Americans, then the tribe will take care of the problem.

Well, in a perfect world the panchayat should be able to take care of it..Unfortunately the amounts of money being talked about here (18k crores in mostly 5-6 states) would probably have most panhayats completely out of their depths to manage...Some sort of institutional frameworks need to be set up for the panchyats to work off...

And the point on the definition of "local populace" is equally important...And is prone to political manipulations...

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Virupaksha » 14 Mar 2011 06:43

Another way to understand what Montek is saying that the local people cannot be trusted and are corrupt. So giving them a share from mining their land is wrong.

But the scheme like NREGS does exactly the same.

The difference is this mining money may have to be given to state govts while NREGS comes from centre.
It is not an economic position but a INC political postion he is taking. Basically NREGS money is eaten mostly by party in power at centre and this mining money if given to state might be eaten by those power in that state, mostly not INC. and there in lies his predicament.

The amount of money eaten for a project in a particular state may or may not vary if it is a centre or state project, but who eats it will be radically different. In short he wants central control over the money and doesnt want state govt control.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 14 Mar 2011 07:53

^^^Ravi_ku-ji, I wouldnt conclude that...

NREGS monies too have to "go to" the state govt..The Central govt doesnt execute anything - it has to be executed through state govts..

The issue is of the "management" of the monies...In NREGS, state govts (primarily) need to identify areas where the works need to be organised, plan the works activities and pay people who turn up to work...In the mining bill, the state govt needs to set up institutional frameworks wherein the monies collected out of mining royalty are used for the "local community"..And also define projects that are "beneficial" to the "locals"..So in terms of pure discretion, there is a lot more in the latter case...

I would however put one step forward and say that let the political process take care of that..If a state govt consistently misspends royalty monies , it will get punished in the electoral hustings...The primary point that Montek A is making - it will "dter" investments etc - is not valid though...There is absolutely no reason for pvt companies to get windfall profits out of a finite resource under the ground which belong only (and only) to the people of India...

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 14 Mar 2011 10:12

Interesting letter by Arun Agarwal, who has fought endlessly against private mining companies in the Supreme Court..

http://www.scribd.com/doc/36586702/Arun ... on-Dollars

Ignore the ideologican biases against the pvt sector...Just take the data in - only 1.5% of the turnover is currently paid as royalies!

He is essentially right, natural resources are not any pvt individuals', cannot be - they belong to the nation...PSU ownsership is one way of ensuring that..But a more "market friendly" way would be to impose windfall profit taxes or stiffer royalties of the sort that the new bill is proposing..

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Arjun » 14 Mar 2011 10:24

somnath wrote:Interesting letter by Arun Agarwal, who has fought endlessly against private mining companies in the Supreme Court..

http://www.scribd.com/doc/36586702/Arun ... on-Dollars

Ignore the ideologican biases against the pvt sector...Just take the data in - only 1.5% of the turnover is currently paid as royalies!

He is essentially right, natural resources are not any pvt individuals', cannot be - they belong to the nation...PSU ownsership is one way of ensuring that..But a more "market friendly" way would be to impose windfall profit taxes or stiffer royalties of the sort that the new bill is proposing..

Hadn't we discussed sometime back the GOI announcing 10% royalty rate on iron ore?

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 14 Mar 2011 11:31

^^^Yes, the govt had, way back in 2009...But it isnt working - too many loopholes it seems..

For example - look at Sesa Goa' financials - http://sesagoa.com/images/stories/sesag ... FY2010.pdf

For a sales turnover of 4900 crores, it pays roaylty and cess of 112 crores, or about 2%..Criminal!

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Arjun » 14 Mar 2011 12:16

somnath wrote:^^^Yes, the govt had, way back in 2009...But it isnt working - too many loopholes it seems..

For example - look at Sesa Goa' financials - http://sesagoa.com/images/stories/sesag ... FY2010.pdf

For a sales turnover of 4900 crores, it pays roaylty and cess of 112 crores, or about 2%..Criminal!

The report mentions that government came out with a new ad valorem structure which started implementation in Aug '09 - so I presume '11 financials should show full 10% royalty.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Chinmayanand » 14 Mar 2011 16:15

somnath wrote:^^^Yes, the govt had, way back in 2009...But it isnt working - too many loopholes it seems..

For example - look at Sesa Goa' financials - http://sesagoa.com/images/stories/sesag ... FY2010.pdf

For a sales turnover of 4900 crores, it pays roaylty and cess of 112 crores, or about 2%..Criminal!

If the govt gets so less, the babus and ministers must be getting more.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 14 Mar 2011 18:51

The NAC released sections of the draft Food Security Bill..Along with an explanatory note...

http://nac.nic.in/foodsecurity/nfsb.pdf
http://nac.nic.in/foodsecurity/explanatory_note.pdf

Must say that there is no beating the intellectual rigour of these guys, even if one doesnt agree with teir formulations!

It is open to public debate and feedback...It would be interesting to debate it here as well..

the Rangarajan committee (C Rangarajan is head of the PM's EAC) prepared a report that substantially diluted the above provsions...Cant get it online...

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby vera_k » 14 Mar 2011 21:32

somnath wrote:He is essentially right, natural resources are not any pvt individuals', cannot be - they belong to the nation...PSU ownsership is one way of ensuring that..But a more "market friendly" way would be to impose windfall profit taxes or stiffer royalties of the sort that the new bill is proposing..


This is very convenient logic. In many cases, tribal land and the resources found on it have been stolen by the Indian state by the refusal to recognize tribal land rights. It makes no difference to the tribals whether one set of fat cats (Indian PSUs i.e. Congress party) benefits more or less than another set of fat cats (state governments i.e. BJP).

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby RamaY » 14 Mar 2011 22:17

somnath wrote:Well, in a perfect world the panchayat should be able to take care of it..Unfortunately the amounts of money being talked about here (18k crores in mostly 5-6 states) would probably have most panhayats completely out of their depths to manage...Some sort of institutional frameworks need to be set up for the panchyats to work off...

And the point on the definition of "local populace" is equally important...And is prone to political manipulations...


I thought you were supporting NREGA for the specific reason that the money went directly to the panchayats and thus avoiding the traditional corrupt channels. Please refer to your earlier posts.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Theo_Fidel » 15 Mar 2011 02:46

While there is nothing wrong in increasing the royalty on minerals, it is just another tax. It is not blood money or 'compensation to the nation', etc. It is a tax the company will pass on to the end user. Once we increase our steel production and no longer export this will be Indians who use steel, i.e. everyone. While the minerals are in the earth the minerals have Zero value. The mining, extraction and processing adds value. The royalty is a tax on a value add process. Again nothing wrong in this.

The organizations who demand payments to locals are mostly just rent seeking. Not very different from a mafia. Not that this is wrong in a democratic society. Let us not be sentimental about this. The locals mostly don't have the technical skill to work at these plants though their children increasingly do. For instance at Kudankulam I heard that the average age of recruits is 23! All engineers.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 15 Mar 2011 06:17

Theo_Fidel wrote:While there is nothing wrong in increasing the royalty on minerals, it is just another tax. It is not blood money or 'compensation to the nation', etc. It is a tax the company will pass on to the end user. Once we increase our steel production and no longer export this will be Indians who use steel, i.e. everyone. While the minerals are in the earth the minerals have Zero value. The mining, extraction and processing adds value. The royalty is a tax on a value add process. Again nothing wrong in this.

The organizations who demand payments to locals are mostly just rent seeking. Not very different from a mafia. Not that this is wrong in a democratic society. Let us not be sentimental about this.

The "value added" in a mineral extraction process is typicaly very low..Which is why the concessions need to be priced approriately - it is a "price" to be paid to the nation...A mine exploited can ravage the local area completely - and once the mine is fully exploited, the operator will pick up and go, leaving the local community to pick up the tab...

there are two elements to the equation:
1. Price to be paid for extracting and selling a fnite natural resource...We have got this policy right for petroleum, but it is all over the place for almost everything else...
2. Compensation to locals for a major disruption in the ecological construct of the area...This is a more problematic area, and needs strong institutional mechanisms to be in place...

However, none of the above can be described as "rent seeking" at all...

RamaY wrote: thought you were supporting NREGA for the specific reason that the money went directly to the panchayats and thus avoiding the traditional corrupt channels

Well, no money can go "directly" from the Centre to the Panchayat, it has to be routed through the satte govt - the basis of the federal structue of India...the beauty of NREGA is that it tries and maximise the cash transfer component in the outlay directly to the targeted individual (preferably in his bank account), and not spend a lot of money in creating an elaborate wealfare monolith structure that takes away too much of the outlay...

Not sure if the administration of NREGA funds is delegated to the Panchayat though - I thought its carried out by the district administration...

vera_k wrote:This is very convenient logic. In many cases, tribal land and the resources found on it have been stolen by the Indian state by the refusal to recognize tribal land rights. It makes no difference to the tribals whether one set of fat cats (Indian PSUs i.e. Congress party) benefits more or less than another set of fat cats (state governments i.e. BJP).
somnath wrote:He is essentially right, natural resources are not any pvt individuals', cannot be - they belong to the nation...PSU ownsership is one way of ensuring that..But a more "market friendly" way would be to impose windfall profit taxes or stiffer royalties of the sort that the new bill is proposing..


This is very convenient logic. In many cases, tribal land and the resources found on it have been stolen by the Indian state by the refusal to recognize tribal land rights. It makes no difference to the tribals whether one set of fat cats (Indian PSUs i.e. Congress party) benefits more or less than another set of fat cats (state governments i.e. BJP).

Oh absolutely..Regardless of whether the operator is public sector or private, the local tribals (or even non tribals) generally have gotten a raw deal (Raniganj is a prime example)...One can argue though that a public sector operator retains all the profits out of this within the "public" domain, hence the nation as a whole benefits..But it is increasingly a tenuous argument, given the shoddy efficientcy record...PSU or pvt, mineral extractor needs to pay a very large sum of the windfall beig generated to the state, and the state should spend a significant portion of that in the local community..

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby ShauryaT » 15 Mar 2011 07:37

Opportunity Forgone
Those who earn income above a threshold must pay income taxes. Taxes are not fees. Fees involve quid pro quo. They are paid for specific services. There is no such quid pro quo for taxes. They sink into the Consolidated Fund and notwithstanding the parliamentary scrutiny about expenditure out of this Consolidated Fund, there is tax-payer fatigue and apathy about payment of taxes, since no such benefits are seen to flow. These benefits can be in the form of either public goods or collective private goods. Alternatively, these benefits can be equitable considerations of cross-subsidisation. Taxes collected from the relatively rich are used to subsidise the relatively poor. Unfortunately, tax and expenditure policy have been cluttered up and made non-transparent, with confusion about what is being done and for whom

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 15 Mar 2011 08:14

^^good article - Prof Debroy is one of the most insightful of public intellectuals - a breed quite rare in India..

Note the point on tax exemptions as well - we were discussing this some time back here..As well as on direct cash transfers...Mind you, he is as "rightist" as any born-again rightist (his post grad was from Moscow State Uni :twisted: ) can be :wink:


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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 15 Mar 2011 12:51

Back to the Food Security Bill...

the explanatory note of NAC says that once implemented fully, they expect an incremental food subsidy burden to be about 20k crores..The amount is large, but not unduly so if the full implementaion is 2 years down the road (tax revenues would have grown 30-40% by then as well)..

To me though, the key irritants are:

1. Procurement and storage..The current govt procuremtn of food, @ about 55 million tons, is a strategy of procuring in 3-4 states (basically Punjab, Haryana, UP) and then distributing all over the country...Logistics are a huge challenge therefore - which is why we have this anomalous situation of foodgrains in storage and the govt failing to move them to the "needy" places....The costs of logistics is very high...Under this bill, the total demand is estimated to be ~60-65 million tonnes...While the procurement can be achieved, how will they tackle the logistics? The explnataory note deals with it very perfunctorily...For a true universal coverage, the entire procurement and distribution needs to be revamped - cant be a quick job..

2. How does this dovetail with the new initiatives on cash transfers? As announced in this budget, food and fuel subsidies will be transferred to the BPL family directly as cash...If that is going to be the end state, how do you at the same time provide subsidised food as well?

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby somnath » 16 Mar 2011 07:55

Initial reactions already coming in on the Food Security bill..

http://www.indianexpress.com/news/too-b ... w/763070/0

The article is largely critical of the current avatar, but the key point IMO is
The world over, social programs have made dramatic progress with direct cash transfers. Here the subsidy is directly transferred to the consumer who uses it to buy food (and not necessarily just rice and wheat).
----------------
The Central government does not and cannot deliver food subsidies. For this reason, successful interventions have happened at the initiative of state governments — mid-day meals, cheap rice, universal access, supply-chain computerisation. The food subsidy bill should not restrict potential innovations by states because of mindless adherence to a Central formula.
--------------
The food subsidy bill should be rewritten to confine itself to norms regarding coverage, entitlement and its financial equivalent and grievance mechanisms. States should be allowed to make subsidiary laws and administrative notifications.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby Suraj » 18 Mar 2011 00:21

Interesting analysis of GSDP growth rates in the most recent two 5-year periods:
Indicus Analytics: Two sides of the growth story
Graph: State GSDP growth 2000-01 to 2004-05 and 2005-06 to 2009-10 (PDF)
According to the provisional estimates by the Central Statistical Organisation (CSO) as of March 8, 2011, Maharashtra has been among the top growth performers. In the five-year period between 2005-06 and 2009-10, the state grew at an annual average rate of 10.10 per cent, with most of the surge in the first three boom years. Meanwhile, Uttar Pradesh grew at 7.14 per cent every year — an improvement over the previous five years’ performance, but still much lower than the national average of 8.33 per cent. Gujarat and Andhra Pradesh bettered the national average while West Bengal and Tamil Nadu gave lower growth performances.

According to the latest data released by the CSO, Uttarakhand was the top growth performer between 2005-06 and 2009-10 — its 12.82 per cent annual average was higher than its growth in the previous five years. The second highest performance comes from Bihar at 11.74 per cent every year — the turnaround in the state from 2006-07, with construction as the leading sector, is a well-known story. The state has moved dramatically from being the economy with the slowest growth in the period 2000-01 to 2004-05, though it has a huge backlog to overcome. Chhattisgarh and Orissa are the other large states that have grown at a fast double-digit clip over the period, while Haryana, Jharkhand and Gujarat have all turned in growth rates exceeding 9 per cent.

At the other end of the table is Assam, at 6.03 per cent every year, though its growth performance has actually improved consistently over the years from 3.4 per cent in 2005-06 to 8.08 per cent in 2009-10. Growth rates of Madhya Pradesh, Uttar Pradesh and Rajasthan have been in the range of 7 to 7.5 per cent. These are states with large populations and need to catch up with the rest of the country.

Of the 30 states/Union Territories for which the CSO has given estimates for the period 2005-06 to 2009-10, nine have average annual growth rates exceeding 9 per cent and five have growth rates less than 7 per cent. Clearly, almost all states have shown higher growth in recent times, but some states continue to lag and this unevenness can be addressed only by identifying the potential sectors in each state.

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Re: Indian Economy: News and Discussion (Jan 1 2010)

Postby vera_k » 18 Mar 2011 07:20

If the source is CSO, then its not worth much. Their GSDP estimates tend to be flakey. There are obvious errors even in the GSDP tables on indiabudget.nic.in.


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