Indian Economy: News and Discussion (Apr 1 2011)

Supratik · Post by **Supratik** » 20 May 2011 15:34

Somnath,

Please clarify how you are going to improve outcome with "universal welfare" when the existing welfare is 60% leaky?

somnath · Post by **somnath** » 20 May 2011 17:21

Supratik wrote:Somnath,

Please clarify how you are going to improve outcome with "universal welfare" when the existing welfare is 60% leaky?

I thought its been discussed a few times..."Outcome" in a welfare programme has 2 variables - minimising leakage and maimising coverage of the relevant groups...

One, make programmes that have universal coverage, with self targeting coverage models...The most successful programmes, like NREGS have this feature...PDS doesnt (its based on an inherently flawed BPL-card based system), hence you have "60% leakage"...In future, UID/bank a/c/smart card-based conditional/unconditional cash transfers will take the targeting model forward...

Two, decentralised model of execution, left to the state govts...Given that execution has to be at state govt level, micromanagement by Centre makes little sense...Smart states will deliver to reap electoral dividends..And civil society and enabling legislations like RTI will ensure greater vigilence..Again, the NREGS model of roping in IIT/IIMs for continuous, random ground-level audits is a good model to follow...

Whether World Bank or Jean Dreze - most people are suggesting measures around these basic principles..

WElfare has many connotations - but in most cases, it means programmes that look to directly intervene as various sorts of income support to the poor...It doesnt include expenditure on social sector like education and health...Some people tend to mix the two up...

Supratik · Post by **Supratik** » 21 May 2011 15:53

We already know what is required for improving efficiency and transparency in our welfare programs.
So we have to wait till we put in place infrastructure to get better outcome. I think the argument that Suraj is making is that there is no point in increasing the welfare budget without any improvement in outcome or alternatively improving outcome itself is going to put more resources in the hands of target population. This arose from the issue that Drez and colleagues were asking for ten of thousands of crores more money to be put into our welfare programs and there was disagreement between NAC and PMO + Planning Commission. IMO we must be patient and try to get the UID universalised in say 15 years and use this time to put in place a Social Security Authority. In the meantime we can run the existing programs with leakages but frankly I don't see any benefit in expanding welfare many-fold as Drez is demanding. We may end up with 80-90% leakage instead of 60% leakage and the same amount of resources in the hands of the target population. IMO there is no guarantee that more people will get welfare just by increasing the amount of welfare. Things like Universal PDS as Drez is asking for has failed in the past and the mistake should not be repeated. We will get better outcome if we just put more money into the mid-day meal scheme and take it to high school.

somnath · Post by **somnath** » 21 May 2011 16:45

^^^First, things are not as bad as that...Well funded programmes with imaginative execution models are delivering results...NREGS is one example, where a different model and well-funded programme has made a difference ...Primary education is another - the expanded outlays in the last 5-6 years have made a discernible difference to enrollment ratios - the data is there for those who want to see...

The argumetn of "oh the system is bad, so no point giving more" is extremely self serving..First you emasculate a regime by decades of insufficient allocation, which (along with leakages) result in suboptimal outcomes, and then you refuse further outlays on the same ground! There is really no choice - we need to have better execution AND higher outlays..

The political economy does not afford "patience"..Even our broader macroeconomy cannot afford delays while all the "ideal" infrastructure is in place....there isnt a single example, not a single example of any country having graduated to even middle income status with the sort of HDI metrics we have...I would be interested if there is even a single robust theoretical construct of how India can graduate to a 6000 dollar PCI country without dramatically improving our HDI variables...

PDS/NREGS of course are "support" programmes, designed to support the poor..Forget Jean Dreze, Raman Singh is as opposite Jean Dreze as someone can be - check his opinions on PDS...

I keep reminding - its funny the amount of money that is lost on tax exemptions every year to the middle class, rich and crooks of this country...There isnt a iota of regret for that!

Supratik · Post by **Supratik** » 21 May 2011 19:37

The resources were constrained in the first place because of faulty economic policies. If we had proceeded with a non-ideological common sensical economic policy we would be in the 1970's where we are today. Anyway, irrespective of whether Drez or Raman Singh is proposing it I don't think under the current system a manifold increase in welfare is going to deliver the results. Instead we should put more money into education and health care (my favorite is mid-day meal scheme upto high school as nothing much is going to be achieved by studying upto Class 3 0r 4). We agree that without substantial improvement in HDI, improvement in economic well-being of a overwhelming majority of people will not be achieved. Where we disagree is how is it going to be done. Drez and NAC should think of out-of-the-box solutions rather than regurgitate old solutions some of which have failed in the past.

As for tax breaks to middle class and corporates, back in the old days the amount of taxation was unsustainable and were one of the chief reasons for crippling growth. SEZ's are meant to accelerate industrial activity and get around a whole slew of regulations including labor laws. The same people who are crying hoarse about SEZ's will be the first to cry hoarse if these regulations are reformed.

Suraj · Post by **Suraj** » 22 May 2011 01:55

Quite amazing... I didn't realize GoI made scooters!
Govt to sell off entire stake in Scooters India

The government today decided to divest its entire 95% in Scooters India (SIL), which primarly manufactures three-wheelers, with an aim to revive the company that has been incurring losses since 2002-03.

"Union Cabinet decided to revive SIL. It is being proposed to revive the company through induction of strategic partner by off loading the entire government equity of around 95%," Information and Broadcasting Minister Ambika Soni told reporters after the meeting.

The balance 5% equity will remain with banks, financial institutions, corporate bodies and others.

She said the selling of stake will be done through the Department of Disinvestment. The government will seek approval of Parliament to get the authority to identify and induct a strategic partner. Besides, the cabinet also gave approval for continued extension of salary support and clearing of balance sheet.

KrishG · Post by **KrishG** » 22 May 2011 03:56

Rupee as the new dollar

INDIA IMPORTS 16 per cent of its fuel oil from Iran. Iran holds second largest reserves of oil in the world. It is necessary to ensure continued supply from this source in order to safeguard energy security of India. But, the recent decisions taken by the Indian government and the Reserve Bank India (RBI) over confusion over the currency of payment are hinting towards a solution in the opposite direction, which can have far-reaching consequences. Ever since Iran has offered to accept payment in rupees for selling oil, the Indian government has been unnecessarily needling it, instead of strengthening cooperation with it.

The matter is connected with Iran’s effort to dethrone the United States as the kingmaker of the global financial system. Most of the global trade was conducted in US dollars
before the financial crisis of 2008. This provided huge benefits to the United States, because most countries had to maintain huge balances of their currencies with US banks to undertake these dollar-denominated transactions.

Parking money at a bank leads to multiple benefits for the bank. Say, a supplier insists that they will accept payments only through cheque issued on a State Bank of India account. As a result, the businessperson opens an account with the State Bank of India. They keep a large amount in their current account to enable these transactions. They are required to go to the bank frequently, which may lead them to have the saving accounts of their family in the same bank to save time. This may further lead to having fixed deposits through which they can start making payment to other suppliers from the same bank. All these tasks can easily be undertaken at another bank but are done at the same bank because one supplier has triggered the process. Of course, the bank benefits in the process.

The oil trade undertaken in US dollars provided similar benefits to the US and its banks. The countries that started investing in the US stock markets, buying US properties and goods from the US simply because their foreign exchange reserves were held in US banks, and it was convenient to undertake these activities in the US rather than elsewhere. They were also encouraged to buy Treasury Bills issued by the US Federal Reserve to maintain their foreign exchange reserves.

Developing countries often found it difficult to maintain such huge dollar balances in US banks. The United Nations Economic and Social Commission for Asia and Pacific helped establish the Asian Clearing Union (ACU) to help the developing countries overcome this difficulty. The members of the union are Bangladesh, Bhutan, India, Iran, Nepal, Pakistan, Maldives, Myanmar and Sri Lanka. Trade among these countries, including imports of oil from Iran, was conducted through the ACU for some time. It meant that the member countries did not have to maintain balances in New York banks for trading among themselves. They were required to pay to the ACU only the net balance after setting off transactions among them. The ACU works like the clearing house for local cheques run by the scheduled commercial banks.

The whole controversy started taking shape when, in December, the Reserve Bank of India issued instructions that payments for imports of oil from Iran would no longer be made through the ACU. The RBI did not give any reasons for issuing this order. Many analysts and I believe that this was done at the behest of the US. The reason seems to be that the ACU made it convenient for member countries to import oil from Iran rather than other countries. Just as the United States was benefitting from the dollar-denominated trade, Iran had started benefitting from the ACU-centric transactions. Many countries now did not have to have dollars in their New York bank accounts to buy oil from Iran. They could make the payment to the ACU at the end of the settlement period. The US wants to discourage this practice to subdue Iran. Therefore, the RBI, acting at the behest of the US, has put a spanner in the pipeline.

The next move was made by Iran, when it agreed to accept payment for oil in rupees. This was wholly beneficial to India. Say, if Indian Oil Corporation imports a barrel of oil from Iran valued at US $100. Previously, Indian Oil Corporation would be required to deposit an amount of `4,500 with the ACU, the value of a dollar being `45. Iran suggested that Indian Oil Corporation could directly deposit this amount in the account of Iran’s company in a bank at Mumbai. Iran proposed to use this amount to import other goods from India or sell the currency to other countries.

Such payment would not have had any impact on the health of Indian Oil Corporation whatsoever. This practice should have been beneficial to the Indian economy as well. India imports goods from Iran valued at $12 billion a year against exports of only $1 billion. The rupee payments can encourage Iran to import more goods from India and reduce this trade imbalance. But, the Reserve Bank has now refused to accept this offer after dilly-dallying for about six months. Instead, it has chosen to pay Iran in multiple currencies, including rupee and euro, for the monthly oil import of 12 million barrels. The RBI has said that it will not be beneficial to make rupee payments in view of the large trade imbalance. This, however, defies logic, as the rupee payments can only help reduce the imbalance.

There is a possibility that the RBI does not want to place huge amounts of Indian money in the hands of Iran. India may perceive threat that Iran could hold this money as reserves and use it to destabilise rupee if the relations between the two countries soured. The US faces exactly this threat from China, as China holds almost US $1.4 trillion.

I find this fear unfounded. We should aim for the rupee to become a global reserve currency. All countries of the world, including Iran and Pakistan, will then hold huge amounts of Indian currency. Holding of rupee reserves by Iran should be seen as a first step towards the globalisation of the rupee. Yet, the RBI has declined the offer that came its way. Iran is understandably upset. It had earlier agreed to accept payments from the Indian companies through the Iran-owned European-Iranian Trade Bank AG in Germany as a temporary measure in January.

The pressure from the US appears to be working here again. The US has asked major US and European banks to reduce business with Iran. Some Iranian banks have been blacklisted by the US on the ground that they are involved in supporting terrorist and nuclear proliferation activities.

Iran has been long making efforts to denominate its oil exports in a currency other than the US dollar. The dollar has been weakening since the onset of the global crisis in 2008. It is expected to decline further. Many countries are shifting their trade and foreign exchange reserves in other currencies. Venezuela and the United Arab Emirates have decided to hold their reserves in non-dollar currencies. Russia has started accepting payments of oil in rubles. Japan is making payments for oil imported from Iran in yen. The hegemony of the US dollar is declining. The ability of the US to raise monies for its overseas operations, such as terror wars, is declining due to these processes. The US is trying to push Iran in the corner to make an example out of it, and India is being used by it as a weapon in this pursuit.

anupmisra · Post by **anupmisra** » 22 May 2011 17:50

vina wrote:[youtube]UnYktYuvIZM&feature=related[/youtube] .

This song reminds me of a song from another Hindi film:

[youtube]http://www.youtube.com/watch?v=_n3rj-FMN9E[/youtube]

somnath · Post by **somnath** » 22 May 2011 18:33

^^^^Its interesting the question of disproportionate rupee balances with a foreign country. Rupee as dollar is misleading, but last time there was discomfort with such large rupee balances with a foreign country was the US, when they accumulated large rupee balances for pl480 wheat. It gave rise to quite a bit of brouhaha , and was finally resolved when the US used that money for a bunch of "social" projects. Part of tht money went in as funding to the first IITs and IIMs.

Its interesting how people are quick to accuse the yanks of perfidy and our leaders as "sellouts". A tricky situation was resolved with a lot of long term sagacity.

somnath · Post by **somnath** » 22 May 2011 18:40

SEZ's are meant to accelerate industrial activity and get around a whole slew of regulations including labor laws. The same people who are crying hoarse about SEZ's will be the first to cry hoarse if these regulations are reformed.

I wish they were achieving any of that. SEZs do not have any special labour laws, have not set up any game changing infra either. It's simply a tax exemption policy scam, enabling Indian industry continue on it's record of underpaying on tax. Worst, those exemptions are given to crooks like kp singh fr selling luxury apartments. Thankfully pranabda has recognized this, PC was always against, and a MAt has been imposed now.

Fundamentaly though, people don't have an issue with reduction of tax rates. The issue is with exemptions, and revenue losses on account of that - exptions are economically inefficient and only exist to facilitate rent seeking, mostly.

Aditya_V · Post by **Aditya_V** » 22 May 2011 20:30

Suraj wrote:Quite amazing... I didn't realize GoI made scooters!
Govt to sell off entire stake in Scooters India
The government today decided to divest its entire 95% in Scooters India (SIL), which primarly manufactures three-wheelers, with an aim to revive the company that has been incurring losses since 2002-03.

"Union Cabinet decided to revive SIL. It is being proposed to revive the company through induction of strategic partner by off loading the entire government equity of around 95%," Information and Broadcasting Minister Ambika Soni told reporters after the meeting.

The balance 5% equity will remain with banks, financial institutions, corporate bodies and others.

She said the selling of stake will be done through the Department of Disinvestment. The government will seek approval of Parliament to get the authority to identify and induct a strategic partner. Besides, the cabinet also gave approval for continued extension of salary support and clearing of balance sheet.

In the 1970's my dad told me this company had 3000 employees manufacture 300 scooters a year. i.e he speculated each employee signed turned one screw for 2 minutes and then left for the day. Talk about effciency!

vina · Post by **vina** » 23 May 2011 09:08

In the 1970's my dad told me this company had 3000 employees manufacture 300 scooters a year. i.e he speculated each employee signed turned one screw for 2 minutes and then left for the day. Talk about effciency!

That kind of thing was considered as the right thing to do,because it doled out "welfare" to a lot of people! In fact, there was economic justification for that by some totally hokey and phoney theory called "double bottom line" (ie, since the Indian PSU were also carrying a "social burden", their performance should not be measured by financial metrics such as profitability alone, but also by some "social benefits" function) and ergo by "double bottom line" accounting,the performance of worthies such as scooters india, air india etc, would be among the greatest in the world.

Now google around and find out who were the intellectual progenitors and purveyors of this double bottomline thing ?

Singha · Post by **Singha** » 23 May 2011 12:26

bangalore mirror.

Adani acquires Australian port for $2 billion

PTI

Posted On Tuesday, May 03, 2011 at 03:17:27 PM

Ahmedabad: The Adani Group-owned Mundra Port and Special Economic Zone Ltd (MPSEZL) on Tuesday announced $2 billion acquisition, on lease of 99 years, of Abbot Point Port in Queensland, Australia, marking the beginning of company's business expansion outside India.

Talking to media persons here, chief financial officer of MPSEZL B Ravi said that the size of balance sheet of the company would be doubled after the acquisition.

"We have acquired 100 per cent stake in Abbot Point Port," he said.

"This an all cash deal duly funded by an acquisition debt. The assets base at Abbot Port allows us to have a take out finance at the assets level very soon," Ravi said.

The deal was signed in Brisbane, Australia between the company officials and the Queensland government this morning, he said, adding that they have also intimated the Bombay Stock Exchange (BSE) about the new development as per rules.
The port known as Abbot Point X50 Coal Terminal (APCT), was mostly coal export port in Queensland and is owned by North Queensland Bulk Port Corporation Limited (NQBP).

"The sale of ACPT is through 99-year-lease of existing coal terminal facilities and associated infrastructure. It presently has two berths capable of handling cape-size vessel of over two lakh tonnes dead weight with annual installed capacity to load 50 million tonnes," Ravi said, adding that takeover would be complete by June 1.

Singha · Post by **Singha** » 23 May 2011 12:29

pix of the port http://www.airviewonline.com.au/aerial/ ... Point.html

amit · Post by **amit** » 23 May 2011 12:57

Singha wrote:pix of the port http://www.airviewonline.com.au/aerial/ ... Point.html

A coal handling port. Must say smart buy!

shyamd · Post by **shyamd** » 24 May 2011 00:05

^^ Benefit from the upcoming FTA? Strategic move. If rumours are to be believed, Adani has strong ties with UPA establishment.

ramana · Post by **ramana** » 24 May 2011 00:54

Suraj, In the early 70s the Innocenti plant in Italy that made Lambretta was going out of business. India bought that plant and called it Scooters India Ltd. Their job was to supply engines and some other parts to various plants alround the country to make the Lambretta scooters in India. The plant did its bit to get India moving on two wheels. Now its obsolete and past its purpose. The rival scooter then was the Piaggio's Vespa which was made in India by Bajaj.

Prem · Post by **Prem** » 24 May 2011 02:48

There was 3-5 year wait period to buy VESPA unless you could pay in $ or Pound Sterling and get one in six month..... ( and sell it with premium)

somnath · Post by **somnath** » 24 May 2011 05:39

vina wrote:In fact, there was economic justification for that by some totally hokey and phoney theory called "double bottom line" (ie, since the Indian PSU were also carrying a "social burden", their performance should not be measured by financial metrics such as profitability alone, but also by some "social benefits" function) and ergo by "double bottom line" accounting,the performance of worthies such as scooters india, air india etc, would be among the greatest in the world

Well I dont know who you are alluding to as progenitors of "double bottom line", but the concept is hardly antediluvian..Its actually quite "cool" in corporate circles, with companies icnreasingly trying to undertake initiatives with double bottom line impact..The UN has now come up with a "triple bottom line" (TBL) concept as well, adding ecological as the third leg...There are dedicated PE funds that invest in so-alled DBL companies..So whoever you think came up with the idea, came up with a "hip hop" corporate concept, if anything...

The concept is hardly new though...there are lots of areas where a positive ROI could only be shown by taking into account additional "social network externalities", if the service were to be priced @ a reaonable level...Mass transit is a typical example..Railways in many areas is another...They are treated likewise globally...

Issue with the likes of Scooters India and its ilk is that they didnt achieve any of the "bottom lines", economic or social...The most glarign example is of Heavy Engg Corp, Ranchi, which for many years had capacity utilisation in single digits..These companies quickly degenrated into rent seeking on one side, and pagtronage dispensing on the other for poltiicans...In terms of size, the biggest anachornism was the nationalised textile companies - thankfully that was taken care of in the first flush of reforms...

vera_k · Post by **vera_k** » 24 May 2011 06:50

shyamd wrote:^^ Benefit from the upcoming FTA? Strategic move. If rumours are to be believed, Adani has strong ties with UPA establishment.

That's a surprise. News reports were saying how Adani was under the gun -

CBI arrests Adani

Adani group companies challenge imposition of MAT on SEZs

Adani denied security clearance to operate Mumbai's JN port

I figured the port buy is happening because Gujarat is short of coal, and what Indian coal is available is close to being as expensive as imported.

Give us coal from western fields

somnath · Post by **somnath** » 24 May 2011 07:13

vera_k wrote:I figured the port buy is happening because Gujarat is short of coal, and what Indian coal is available is close to being as expensive as imported

I doubt the Aussie port is for coal shipments to Gujarat...Would be too expensive, Aussie coal is largely used in projects on the eastern seaboard...But then, who knows, given the supply issues with domestic coal..

The Adanis are politically well connected, but to the BJP, Narendra Modi in particular...I dont know about the port SEZ, but they tried (though Sea King Infrastructire) a large scale luxury housing project in the garb of SEZ in Mumbai (the fund was fully taken over by Mukesh Ambani later)...No doubt he is sqeualing against MAT on SEZs..

vera_k · Post by **vera_k** » 24 May 2011 07:46

Adani gets coal from eastern mines, and their plants were idling.

Adani plans entry into coastal shipping

coastal shipping makes business sense for the group which has its mining operations located on the east coast while the power plants use the coal are located on the west coast

Tiroda (Maharashtra) project stuck for want of coal

vera_k · Post by **vera_k** » 24 May 2011 07:51

Meanwhile the joys of PSUs -

Thermal power cos grope in dark as states cut buys despite shortage

State power utilities, which buy the entire output of thermal power generators such as NTPC, Adani Power and Monnet Ispat, have cut off take because of a cash crunch and are resorting to load shedding

vera_k · Post by **vera_k** » 24 May 2011 08:24

Probably relevant to this discussion is this quote about demand from Gujarat getting big enough that it has to look for power sources free from Central control.

LNG terminals to dot Gujarat coastline

"While price of the imported gas is linked with international oil prices, on the plus side, there are no central controls over its supply."

The officials say, at present the Centre's control over LNG produced at home is already proving to be counterproductive for a state which wants to depend heavily on gas for industrial and domestic purposes.

Virupaksha · Post by **Virupaksha** » 24 May 2011 10:40

X-post

http://www.eenadu.net/archives/archive- ... panel4.htm

on top of the 1.7 lakh crore scam by UPA, another 85000 crore Coal scam by UPA.
BJP wants it to be probed like 2G.

Wiki says that the present minister of coal is Shri MMS himself.

read about this in a blog around 1 month ago. Slowly it seems it is coming to mainstream. Have to see when the english DDM picks them up

Akshut · Post by **Akshut** » 24 May 2011 17:50

http://profit.ndtv.com/news/show/land-a ... ers-155942
Land Acquisition Bill: Developers to share 80% profit with farmers

This would ensure that farmers don't end up selling land at a bargain, which is then exploited by commercial developers, Mr Deshmukh added.

Vasu: But will people be willing to accept that Mr Deshmukh? Will the entrepreneurs, the private sector or even government agencies accept this because that 80 per cent is a very high amount?

Vilasrao Deshmukh: That’s what we have proposed and once it is provided in the act there is no question, it has to be done.

80% seems like just too much. 5-10% would still seem feasible for an entrepreneur, but who in their right mind would just give away 80% of thier earnings apart from all the Taxes and all the gifts to babus?

Theo_Fidel · Post by **Theo_Fidel** » 24 May 2011 19:20

vera_k wrote:Probably relevant to this discussion is this quote about demand from Gujarat getting big enough that it has to look for power sources free from Central control.

That's all well and fine, but what happened to the 20 tcf? Godavari discovery by Gujarat Gas.

Also I wouldn't worry too much about the 80% profit demand, see miraculously the declared company profit will drop to 10% or less, maybe even yearly loss. This is India onlee, our private sector is not for the faint hearted.

somnath · Post by **somnath** » 24 May 2011 19:48

Akshut wrote:80% seems like just too much. 5-10% would still seem feasible for an entrepreneur, but who in their right mind would just give away 80% of thier earnings apart from all the Taxes and all the gifts to babus?

Vilasrao Deshmukh is clueless, and so is NDTV..What is being talked about here is the "real estate" profits..In other words, if a developer buys land from farmers @ X and sells it off to (say) Tata Motors for Y, then 80% of X-Y would go to the farmer...Not 80% of the money that Tata Motors would make...Even though 80% looks high...

RamaY · Post by **RamaY** » 24 May 2011 19:55

newbie question...

In massa, if corporations are like individuals (and are given constitutional rights to support political parties and movements) then why shouldn't they pay income tax for all the income they earn instead of just profits? or Vice versa where as a family pays income tax only on their gross savings after cost of running the family?

For example: If a company makes $1M revenues with a profit margin of $100K it pays tax only on $100K, where as mango-yankee pays tax on his gross income (after deductions of course) even though he pays for various services?

Virupaksha · Post by **Virupaksha** » 24 May 2011 20:00

There are different interpretations for a "judicial" person versus "taxable" person.

vera_k · Post by **vera_k** » 24 May 2011 20:07

Theo_Fidel wrote:That's all well and fine, but what happened to the 20 tcf? Godavari discovery by Gujarat Gas.

That one was formally sized at 3.6 tcf, and one of the links says production is to start in 2012. Contract for the offshore platform has been awarded to L&T.

somnath · Post by **somnath** » 24 May 2011 20:13

RamaY wrote:In massa, if corporations are like individuals (and are given constitutional rights to support political parties and movements) then why shouldn't they pay income tax for all the income they earn instead of just profits? or Vice versa where as a family pays income tax only on their gross savings after cost of running the family?

Goes back to the basics of corporate taxation policies! The basic reason is simple - these tax breaks incentivise corporations to invest more and generate more employment...There is also the principle of "double taxation" - salaries paid by the corpoation to its employees are taxed in the hands of the employee, so naturaly the corporate gets a tax break..

Individuals too get tax breask on various things - investment in property for example...

The issue is when such tax breaks start goin beyond the "normal", rules based regime, which is what happnes a lot in India...

Theo_Fidel · Post by **Theo_Fidel** » 24 May 2011 20:51

That's good to know about GSPC, so now the dinosaurs PSU's are the only only ones sitting on their haunches. They have the time & energy to knit pick Reliance's production however...

somnath · Post by **somnath** » 25 May 2011 07:26

Theo_Fidel wrote:That's good to know about GSPC, so now the dinosaurs PSU's are the only only ones sitting on their haunches. They have the time & energy to knit pick Reliance's production however...

Some more uninformed conclusions...Do you knwo the issue with Relaince's KD basis gas? On how the dispute between the brothers is being tried to be used to get out of supply contracts, so that the gas can be sold at market prices to other consumers? Or the mini scam attempted at boosting capex, in order to pay less profit petroleum to the govt?

Its a policy issue, nothig to do with efficiency..But of course, why care for data when slogans are easier, isnt it?

Theo_Fidel · Post by **Theo_Fidel** » 25 May 2011 09:39

RamaY wrote:For example: If a company makes $1M revenues with a profit margin of $100K it pays tax only on $100K, where as mango-yankee pays tax on his gross income (after deductions of course) even though he pays for various services?

Mango Yankee gets the right to vote, said corporation must purchase its votes... ..this called the circle of life...

Marten,

It is easy to talk airy fairy about other peoples money esp. from far of lands. Now that I'm burdened with property of my own in desh attitudes change double quick. It is so hard to accumulate wealth in desh for any investment. GOI, commies, local gownder, etc is always trying to take even the small scraps of money available away. Most years I don't even break even. Like this year I'm yet again having to think long and hard about whether to plant rice yet again and lose money yet again. And this with my airy fairy college education. I'm so tempted to chuck in the towel and all the fat cats can get their rice from elsewhere, import it from TSP if you must.

Commies love PSU's and government 'guided' development, with your and my money. Truth is on the ground no one cares about free TV's, Rs2 rice or even the state of schools. The number one concern is jobs and having enough money for tomorrow. Everything else can be acquired if that is fixed.

There is this thru and thru corrupt IAS officer in town. Some how he has managed to stay in the same posting for 25+ years. I won't mention his name but you can google it. I hate the black guard. He has acquired crores in property. Some years back he offered to purchase mine as well. About 10 years back he opened a small auto repair shop. Over time he has invested crores of rupees into a small chain of them. Excellent service, oil change for my Enfield for Rs180. One of my cousin's, 5th standard fail (I know), works there now and earns a decent living. Goes to work in sparkling blue uniform every day and is happy to have the job.

I don't even look down on black money so much any more. Truth is most of it gets spent in the local economy any way. I just think of it as a direct stimulus. If it was up to the commies, they'd hang him high and confiscate all his money for yet another dinosaur PSU. Or even better set up yet another 'welfare commission'. He is always careful to stay away from SRK border.

vina · Post by **vina** » 25 May 2011 09:54

somnath wrote:Some more uninformed conclusions...Do you knwo the issue with Relaince's KD basis gas? On how the dispute between the brothers is being tried to be used to get out of supply contracts, so that the gas can be sold at market prices to other consumers? Or the mini scam attempted at boosting capex, in order to pay less profit petroleum to the govt?

Its a policy issue, nothig to do with efficiency..But of course, why care for data when slogans are easier, isnt it?

True. But what is the root cause of all this. Isn't that due to policy distortions about so called "priority sector" and "priority pricing" which is a totally laughable ridiculous pricing which they are supposed to sell gas at, rather than at global prices ?

Again it goes back to the dilli billi /babus waving a king canute like wand and hoping that by their red tape and rule books and "NOC", the natural laws of economics can be held back. Well, do that king canute like weaving, you have these kind of perverse incentives to cheat and distort and all that kind of thing which both the politicos and businessmen thrive in.

Totally free the pricing mechanism, remove the APM immediately in petroleum products and the energy markets in general (the price controls in the energy markets are the last vestiges of the socialist days, along with the license permit raj in spectrum.. and you saw the scam there) with free imports at international prices and yes, then you will see the real dynamism in the sector.

Other wise it will be the usual mai baap corruption and distortion and make believe world of you should sell $9 per unit worth of stuff at $4 to A,B &C of a quantity close to your total production before you can sell to anyone else!

sugriva · Post by **sugriva** » 25 May 2011 10:20

Other wise it will be the usual mai baap corruption and distortion and make believe world of you should sell $9 per unit worth of stuff at $4 to A,B &C of a quantity close to your total production before you can sell to anyone else!

And, why is the above so bad, given that the GOI, through one of its agencies, ONGC, took the business risk and expense of exploring for gas in that region. GOI turned over known gas reserves to RIL and as a quid pro quo can demand that it be given gas at below market prices.

Theo_Fidel · Post by **Theo_Fidel** » 25 May 2011 10:59

Vina,

I was thinking some more about that song from Bhama Vijaiyam and K.Balachander. Now there was a through and through Congress wallah and commie basher. Of course there is a streak of misogyny in his movies but all his movies addressed social themes and attempted some form of social reform. From marriage abandonment in Apoorva Raagangal to cross community marriage in 'Ek Duja Kay Liye' (yes the very one and with a social message as well) to 'Sindhu Bahiravi' and the nature of love in marriage and the insanity of turning women into baby machines. Suhasini is mesmerizing in this one.

His movies did more to reform Tamizh society than all the HDI induced fantasies of GOI. People of my and my fathers generation behaved differently to women because of him. This is the number one reason TN is different from other states. My wife always comments on how different she feels in TN after her upbringing in MP/UP. It did not use to be that way. Sadly they don't make them like that any more. Thankfully the younger generations have moved much beyond depending on GOI for anything.

One other thing with respect to the Oil PSU's. I've pointed this out before but 90% of the lease area in the KG basin is actually held by the dinosaur PSU's. India's gas shortage is a direct result of this crazy madness to have the PSU in 'commanding heights' when they can't command anything, leave alone their own unionized workforce. The faster they are all disbanded and dispersed the better off we will all be.

somnath · Post by **somnath** » 25 May 2011 11:09

sugriva wrote:And, why is the above so bad, given that the GOI, through one of its agencies, ONGC, took the business risk and expense of exploring for gas in that region. GOI turned over known gas reserves to RIL and as a quid pro quo can demand that it be given gas at below market prices

Sugriva-ji, thats not quite correct. There is oil/gas property auctioned periodically, under the programme called NELP..Reliance bought parts of the KG basin in that auction...A lot of geological data is given by the govt during the auction for the company to make an informed judgement..But the risk of exploration lies with the company...the rub though is elsehwere..

All natural resources belong to the people, or the state...Private companies helping in its exploitation can have part of the profits from its exploitation, but the primary beenficiary has to be society at large..For oil/gas (and also for other minerals) that is the basic principle accepted globally - from Europe to Middle East to Australia (maybe not in Russia!)..India's oil policy is structured similarly..the private company is allowed to make a certain ROI on his capital invested, and the balance is paid as "profit petroleum"...In short, more the production for a given level of investment, more share of govt in the revenue...Hence, operators try to "show" higher investments....Which is precisely what RIL tried to do on the garb of increasing production, especially when it was trying to cock a snook at Anil Ambani and its power plans...

vina wrote:Isn't that due to policy distortions about so called "priority sector" and "priority pricing" which is a totally laughable ridiculous pricing which they are supposed to sell gas at, rather than at global prices ?

There is no "distortion" in that sense...Gas is a scarce commodity, and has multiple users..the KG-D6 gas, once RIL confirmed the discovery, was sold out via a transparent auction process to a clutch of users, not all them PSU (the fertiliser companies were largely pvt sector, as were the LNG fuel companies)...This again, is the norm globally...India had a similar contract with Rasgas years back as a customer - the benefits of which are still acruing to us..Iran reneged on a similar contract with us, which was an eggregious exception...Given the price differential between the then-contracted price of gas and market price today, RIL is trying to wriggle out of these contracts (primarily through a loophole of its own creation - RNRL, which is today an Anil Ambani company, wasnt so when the gas was originally bid for) in order to sell to other consumers at a higher price...

Gas globally is traded through long term contracts (unlike oil)...contracts linked to a new discovery end to be really long tenor as the customer is not really sure of the quantum and hence likes to lock in a price for the long term...Nothing "anti market" in the equation...

the whole story is quite standard - RIL as a company is trying to wangle the best deal for itself..the govt as a custodian of natural resources is trying to max its own returns..On natural resoruces, it is absolutely critical that we do not have pvt sector super normal profits for essentially an extinguishing resource - basic formula world over...

But its much easier to simply take off with abuses without either data or knowledge of the markets or basic economics, isnt it? Its standard fare for certain people..

vina · Post by **vina** » 25 May 2011 11:40

sugriva wrote:And, why is the above so bad, given that the GOI, through one of its agencies, ONGC, took the business risk and expense of exploring for gas in that region.

Did you just wake up with a nice dream / walk out of a socialist propaganda film of glorious patriotic PSUs running "commanding heights" and developing the nation kind of thing.. AFAIK, ONGC has not produced a single foot of gas yet from KG basin!

GOI turned over known gas reserves to RIL and as a quid pro quo can demand that it be given gas at below market prices.

All the GOI did under NELP was open ares under KG basin to EP bidding (which none of the global biggies participated mind you, for good reason).All that does is that if you bid and win, you get the right to explore and produce Oil & Gas in that particular block you won the bid for! The gas finds were made by Reliance and not by ONGC or anyone else.