Indian Economy: News and Discussion (Apr 1 2011)

[Suraj]

??? I was referring to the hyposrisy of the argument, not of you (or anyone else)as an individual making that argument! I take a lot of care to not make debates personal, and there was none here, not sure which part was..

I am not debating "relative hypocirsies", only pointing out "the hypocrisy" of an argument

Please, enough of nitpicking semantics. You've a significant accumulated history of post reports centering on implying hypocrisies against others, having been characterized as, among other terms, "pompous". What you say and how you say it both matter. I've tried to give you fair notice, rather the blindside you when you find a formal warning against your record after a particularly ugly debate.

You're not dealing with merely my perspective here on this matter - as a moderator who has access to both posts here and reports, I'm pointing out your general record. I appreciate your enthusiasm in this thread and your bringing new perspectives, and would like to avoid having to see a debate dissolve into petty wrangling that results in warnings being assigned.

[sugriva]

Deleted tag-teaming post.

[Singha]

per TV reports bihar is in grip of power crisis. 400mw is kept for patna and 375mw for essential services. that leaves 40mw for the 1800mw demand from rural areas!

[RamaY]

RamaY-ji, the concept of self sustained "village republics", articluated by Gandhi, is as much a chimera as "all men should be born equal"...Urbanisation is an inevitability for progress...Seen globally, including in our own instance - the Indus Valley civilisation was an urban phenomenon (you should know better than me! )...Economies, industries and markets develop around clusters - you look at the IT cluster in B'lore, the textile one in Tirupur, autos in Gurgaon/Chennai and many others...These clusters genertae employment..Isolated villages cannot partake in the forward movement of these clusters, not with the # of people they have...

While India urbanises, there will be people left behind...for us, unfortunately that number is unconscionably large...Cash transfer is a way of mitigating that...

Two fundamental gaps between what I say and what you understand.

1. My recommendation is not at all in the lines of Gandhijis ideas. I was proposing spreading the industrial/infra development to large villages or small towns with population ranges of 50,000 to 500,000. This will keep the life style costs low (for the same reason why towns have lesser cost of living than large cities) and IMHO the civic infrastructure costs (How much a mass transit system in a town with 0.5 mil population vs a city with 10mil population) and so on.

2. Nothing wrong in giving cash aid to BPL families, as long as it improves their skills, employment opportunities and eventually pulls them above BPL. The NREGS does nothing of this sort (as explained by Suraj above). This program already incurred $40-$50Bil costs (50% of GoI's estimate for Delhi-Mumbai industrial corridor = 5 mil jobs out of total 10mil job projection). The saddest part is that an administration famous for its economic-leadership credentials.

Perhaps GoI thought they cannot leave BPL population behind till the industrialization spreads all over Bharat. But it goes against your point that India doesn't have the money to spend its way out; while wasting $40-$50 bil (=Rs 2-3 Lakh crores) on a program with no tangible benefit to the population it is targeted for. This $40-$50B outlays are not including the money that is lost in various scams in the past decade (a loss of at least another $100B). All this is happening at the same time when you and ShyamD garu types claim that India doesn't have any money and need lots of FDI at the cost of India's long-term national interests. The situation is exactly like the analogy I gave a while ago - "The head of the family is wasting his income on daaru, where as his wife and daughter are asked to trade away themselves so the rest of the family can survive".

The fact is that todays rural:urban population ratio is 70:30. India cannot sustain cash transfer schemes to 70% of its population based on tax revenues from 30% of the population. Blind relocation of rural population to urban centers does not solve this problem either as we have seen in the NM's demand to extend NREGS to urban centers. This proves what I have been saying all along, that population migration to urban centers is not a panacea to the economic problems. And this is in noway proves the success of NREGS (it in fact failed to achieve its goal of keeping the rural population in their home regions).

[svinayak]

What kind of arguments are still going on here. Please take some break and come back later

[Jaspreet]

The fact is that todays rural:urban population ratio is 70:30. India cannot sustain cash transfer schemes to 70% of its population based on tax revenues from 30% of the population.

Very true.
But is the dole given to 100% of rural population? Isn't it for those 18 years and older? Out of these, there must be some number who will not receive this money (perhaps because they're better employed). So the actual number is not 70% of the population, since that includes children, and the old and the infirm, but less than that. A large number in any case.

[RamaY]

It just shows the ration. If you observe not every individual in urban area pays taxes.

[Theo_Fidel]

Jaspreet,

It doesn't matter. The young and old populations in both areas is proportionate so the number of working age population is still 30:70. It is a very valid point that 30% of the population can not sustain the dole to 70% of the population.

I remember reading recently that listed companies generate 70% of India's private sector wealth using just 2% of the working population or something like that. The rest of the nation depends on that 2%. This is why we are so poor.

I try to hold my tongue but the Jean Dreze types really push all my 'wrong' buttons. Charlatans, such as him try to convince us that we can end poverty by instituting a dole to 80%+ of the population. This is a complete lie.

The dole has not even ended starvation. All it can be is a last resort back stop. Instead these snakes try to claim that it is a part of normal society. It is not. Some form of cash transfer that targets the truly destitute is the only thing that might produce some results. All else is maya. Of course this would require some real hard work on the ground. Work that does not agree with these kool-aid types.

[somnath]

This will keep the life style costs low (for the same reason why towns have lesser cost of living than large cities) and IMHO the civic infrastructure costs (How much a mass transit system in a town with 0.5 mil population vs a city with 10mil population) and so on

In fact the unit cost of a mass transit system in a small town will much higher than the unit cost in a larger city - economies of scale..And that goes for most services...The reason why small towns have lower cost of living is simple - they have lesser paying jobs all around...A driver in Calcutta earns 4-6k a month, one in Mumbai 8-10k a month, while the same chap in Kanpur earns 2-3k a month..The moment the city is "scaled up" economically, the costs of livig will rise, as demand for everyhing goes up and people have better paying jobs - Bangalore is the classic case - a sleepy pensioner's paradise converted to a high cost big city in 20 years...Or Pune in the last 10 years..

Most employment is generated in SMEs, everywhere in the world..But these SMEs depend on an ecosystem spawned by large companies based in cities, and hence these SMEs too cluster around the same cities...The concept of idyllic mofussils is nice only if you have a "Ruskin Bond" life (BTW,I absolutely love him), or for that matter one for the Vedic ages...But for most people (and economies) urbanisation is inevtible..

Perhaps GoI thought they cannot leave BPL population behind till the industrialization spreads all over Bharat. But it goes against your point that India doesn't have the money to spend its way out; while wasting $40-$50 bil (=Rs 2-3 Lakh crores) on a program with no tangible benefit to the population it is targeted for. This $40-$50B outlays are not including the money that is lost in various scams in the past decade (a loss of at least another $100B). All this is happening at the same time when you and ShyamD garu types claim that India doesn't have any money and need lots of FDI at the cost of India's long-term national interests

You didt read my previous posts...If the idea is to provide a backstop cash transfer to the poor, infrastructure projects are not always terribly efficient..

One, the wages-to-outlay ratios in normal real estate projects is very low..Hence, the absolute amount of money required will be larger by a factor of 6-7...
Two, there may not be viable bankable projects in all areas that need coverage..Not on a sustained basis in any case...

About money, we are far better off than we were 10-15 years ago...But it doesnt mean we have become an OECD country..We still need lots of investment, including foreign.....When you say that NREGS has not had "tangible benefits" to the population, how do you quantify that? The supporters of the programme have clear data to support - it was the NREGS backstop that sustained consumption demand during the crisis..It was the NREGS programme that is putting affordability in the hands of milions of people..Heck, even the nayasayers give evidence only in support - it is supposedly the NREGS that is increasing farm labour wages! Give me some data on how NREGS is not providing any benefit, or how the money can be used better somewhere else (for the saem intended outcome, ie increasing incomes) -then we can talk..

The fact is that todays rural:urban population ratio is 70:30. India cannot sustain cash transfer schemes to 70% of its population based on tax revenues from 30% of the population

This is very facile..Just look at the "coverage" ratios of NREGS - the number of people participating is ~100 million at its peak...Nowhere close to 70%..Fact is there is employment being created by investment and growth..NREGS is a backstop for those with no skills to hook themselves up...BTW, the # of taxpayers is no more than 2-3% of the population...

The reason why Narendra Modi is asking for an urban NREGS is that there are lots of people who are poor even in urban areas, ythough proportionately less tha rural...Remember, for those at the margin, destitution is only a marriage/sickness/death/economic crisis away...

[lakshmikanth]

Folks,

I am doing some research and I need some numbers on the number of people displaced each year due to development projects in areas that are primarily dependent on Farm labor. Where can I find this info?

Any pointers appreciated.

Thanks in advance

[somnath]

Folks,

I am doing some research and I need some numbers on the number of people displaced each year due to development projects in areas that are primarily dependent on Farm labor. Where can I find this info?

Any pointers appreciated.

Thanks in advance

LN-ji, UNDP should be a good source - go to their website and do a search in their "working papers" section, you shold get something..this is right up their alley..

[somnath]

Was talking to a friend/counterparty who is travelling to Sydney to hawk his stuff to superann funds there..Was reminded of the India's long-pending pensions reforms...

the PFRDA has been setup and working for 6 years now, but without an enabling legislation - thorugh executive orders..the latest draft bill was introduced in Parliement this year (again)..Is pending..

http://www.prsindia.org/uploads/media/P ... 202011.pdf

Unfortunately, the record of the PFRDA hasnt been inspiring..they havent goofed up, but havent really blazed any trail either..995 of pension accounts belong to Central govt employees (who are mandatorily in this scheme from 2003) and those of state govts that have opted to join NPS..For the rest of the public, its "voluntary"...Just not good enough really...

Australia is the poster boy of pensions..They introduced the "superannuation" concept way back in the '80s (called super collqiually), and today is perhaps in the only Western country which does not face a pensions liability trap..The total Asset under Management (AUM) of super is 1.3 trillion dollars...Yes, you saw that right, 1.3 trillion - thats about 40% greater than the size of Oz GDP..

the trick was in the formulation - they just mandated that every employer needs to contribute to super a crtain % (its 9 I think) of salaries to super..And moved the entire concept of pensions from Defined Benefit to Defined Contribution...But the individual had the flexibility to choose where he wanted to invest...That % is going up now, to AFAIK 12% - they will be adding 100 billion dollars to that pool every 3-4 years now...

PFRDA should have done something similar..Just mandated employers to put aside a certain sum in the NPS and let the individual manage the money..Today, the rule is to put aside the money in EPF/GPF - which is wasteful and that entity is a terribly inefficeint setup...

As a country, we dont face a pensions issue in the foreseeable future (though the govt does for its own employees)...But compulsary pension fund savings creates a pool of investors ina vested interest in the country's capital markets...Creates a larger constituency of reforms..and above all, creates an alternate source of long term funding for infra..Today, with the demise of the erstwhile DFIs, the only sources of long term funding is insurance, PE and FDI (which anyway is small), besides govt..Banks cannot do too much term funding because of the very nature...Not entirely sure, but total salaries paid out in the top 500 companies in India should be at least 15-20 billion dollars every year? 10% of that to NPS is 2 billion dollars every year..The govt should also add in its own controbutions for public sector employees, and carve out a portion from cash transfer welfare programmes like NREGS as controbution...In 5-7 years time, there would be a very large corpus available for long term funding...and a large pool of people with a vested interest in keeping reforms going in a certain direction..

[RamaY]

Somnath,

1. The mass-transit system in a town costs less because it doesn't need underground metros. It can be handled using on-road bus system.

2. Salaries in cities are more because the cost of living is high, not the other way around.

3. What is the definition of urbanization, > 1 million people or >10 million people in a single city? How many jobs can a cluster of large industries create, 10K-100K or in millions?

4. There are two infra requirements for job creation - (A) training the population and (B) defining the projects to develop. You are still in the mindset of using manual labor for infrastructure projects. The labor can be trained in operating machinery within little time. Pay them full salaries during the training periods and you have better trained operators, welders and so on to take up infra projects. Do it smart.

5. The 70:30 ratio is indicative. It is not absolute numbers. Since majority of rural population have no vocational skills, they will remain a burden for themselves and economy. NREGS will not give any long-term benefit.

[Vipul]

Per capita income in FY11 at Rs 54,835.

Per capita income of Indians grew by 17.9% Rs 54,835 in FY11 from Rs 46,492 in the year-ago period, according to the revised data eleased by the government today.

The new per capita income figure estimates on current market prices is over Rs 8,000 more than the previous estimate of Rs 46,492 calculated by the Central Statistical Organisation.

Per capita income means earnings of each Indian if the national income is evenly divided among the country's population.
However, the increase in per capita income was only about 6.5% in FY11 if it is calculated on the prices of FY05, which is a better way of comparison and broadly factors inflation.

Per capita income (at FY05 prices) stood at Rs 35,917 in FY11 as against Rs 33,731 in the previous year, the latest data on national income said.

The size of the economy at current prices rose to Rs 73,06,990 crore in FY11, up 19.1%nt over Rs 61,33,230 crore in FY10.

The country's population increased to 121 crore at the end of March 2011, from 117 crore in FY10.

[Nihat]

India's GDP growth slows to 7.8% in Q4

New Delhi: Poor showing by manufacturing and mining sectors pulled down the country's economic growth to 7.8 per cent in the fourth quarter of 2010-11, with the Government saying the declining trend might continue in the current fiscal as well in view of inflationary pressure.

The GDP for the entire 2010-11 fiscal stood at 8.5 per cent, marginally lower that the earlier estimate of 8.6 per cent.

"Growth (in the current fiscal) would suffer if inflation continues to remain high... there may be little less (growth) if inflationary pressure continues," Finance Minister Pranab Mukherjee said while commenting on the GDP data Indian economy had recorded a growth rate of 8 per cent in 2009-10. The growth in the last quarter of 2009-10 was 9.4 per cent.

According to Reserve Bank projections, the growth rate during 2011-12 could moderate to 8 per cent.

This is really not good news, especially about the 2011-12 projections

What are the reasons that even the "Core inflation" is rising rapidly???

[somnath]

This is really not good news, especially about the 2011-12 projections

What are the reasons that even the "Core inflation" is rising rapidly

Unfortunately what a lot of people feared is happening..RBI's ultra hawkish monetary stance in the face of a supply-constrained inflationary syndrome is achieving the worst of both worlds - pushing growth down, while doing almost nothing to contain inflation..

"Core inflation" is basically inflation stripped off volatile stuff like oil...There, prices are going up on two counts - 1) imported inflation, as inflation globally is rising and getting exported out to everywhere else, and 2) supply side bottlenecks, especially in food...It is the latter that is the big culprit, and there is nothing that RBI's rate hikes can do about it...

People might refer to the post I made just after the last rate hike (a few weeks back)...Duvvuri Subbarao is not just doing the wrong thing by raising rates so rapidly and so much (there was an article yesterday that the majority on RBI's board wanted a lower rate hike in the last cycle - DS went with the minority view), he is also undermining that effort himself by coming out and saying that rate hikes cant solve the inflation problem! the markets therefore are not responding to rate hikes in the manner they would otherwise ordinarily do...

In the meanwhile, in true Indian tradition, the overall numbers for 2010-11 have been decalred to better than initially anticipated..GDP growth numbers for all three quarters were estimated upwards, and fiscal deficit has been rended downwards consequently..
http://business-standard.com/india/news ... 11/437404/

For all the fiscal deficit wallahs - should warm the cockles of their hearts!

[vina]

Ah the genius of the JNU/DSE/ ding-dong commie /socialist economics of fiscal deficits don't matter, keep 'em printing presses running folks .

Well this is what happens when they unfortunately can't print. So what happened in Kerala earlier (with Congress govts cleaning up the muck of the Commies) getting repeated in Bengal.

State to Borrow Rs3500 crore to clear left govt's unpaid bills .

Ah, more Anhui Accounting and Shanghai stats I guess. Small savings depositor's money is counted as "Revenue" and of course, Payables in your accounting books are not considered a liability! Nice onree. Jai Hu and all the rest of it.

[Singha]

Mamata didi's economic philosophies are not much removed from the Left Fronts I hear...however looking at the complaints by this commie pamphlet about Amit Mitra who is the state FinMin, there is some hope he might convince her into a reasonable path.
http://www.pragoti.org/node/4351

[vina]

Haw.. Yawn.. Babus monkey around with gas prices and pull prices like $4.2 out of their Musharrafs and lookie what happens.

LNG imports rise 40% on RIL D6 shortfall . But hold your breath. Imports happened at $14 a unit, approx 3 times Reliance price. No wonder, Reliance wont pump gas!

Customers are willing to pay $14 per unit and buy gas, but babus are stuc at $4.2 , or else, how else can they "subsidize" their fertilizer and power and "priority sector" plants and get subsidized inputs which can then be passed on to consumers as "subsidized" products, hence dispensing welfare and all that is dear to those in the Dilli ding-dong schools!

Mark my words. Hare brained baboon policies like these will ensure that gas in India stays there till kingdom comes. Even for much of the NELP, the response so far has been pathetic, which most of those blocks receiving only SINGLE bids and that too from the incestous PSU cabal (ONGC etc) and the private sector guys like reliance and a token 2nd or 3rd level gora!

Infact, in the NELP, the Oil that gets discovered if any , is sold at import parity prices, while gas, is at babu prices! Obviously baboons haven't heard of "substitutes" and that gas can be used to drive autos, cars, buses and taxis and for cooking, just as well as petrol, diesel , kerosene and other distillate fuels!

This summer, It think we are going to see the exact same idiocy as last year when thanks to baboon pricing, low grade fuels like naptha (maybe even bunker oil) became more expensive than diesel (it is a can you believe it, only in India kind of thing) and smart folks substituted diesel for naptha and other fuels, leading to diesel shortages (the apt folks were whining about not being able to get diesel to run generators) and more losses for the oil marketing companies and more "bonds" and other wampum from the govt (aka running deficits) to perpetuate that idiocy.

Ah. Anyways, what goes my father's. I am thinking of swapping my car for a diesel one and I anyway have Indane and get 2 cylinders for approx Rs 360 each . Thanks.

Indeed. Jai Hu. Jai Socialism..

[somnath]

LNG imports rise 40% on RIL D6 shortfall . But hold your breath. Imports happened at $14 a unit, approx 3 times Reliance price. No wonder, Reliance wont pump gas!

How can one treat ignorance? There is no way in reality....So spot price of natgas should be the same as a 17 year contract (which was the original RIL-NTPC contract, struck @ 2.3 dollars in an open auction)? Maybe Rasgas is also doing "ding dong" and everything else by supplying gas at 3 dollars (or some such number) to Dahej! Maybe playing footsie with honouring contracts is also kosher, which is what Reliance is doing, or trying to..

how else can they "subsidize" their fertilizer and power and "priority sector" plants and get subsidized inputs which can then be passed on to consumers as "subsidized" products

Ahh, subsidy..Obvioulsy, as according to you the contracts were not according to NELP guidelines (which expressly talks of arms-length price discovery mechanisms), but "myriad different" ways..Still waiting for the bespoke (non-NELP) contract that RIL entered into which not only didnt have profit petroleum commitments to the govt, but also mandated "govt set" prices!

I could go on about what arms length price discovery means, and what "prioritisation" in natgas means - but given that there are enduring misconceptions on the structure of the natgas market irself, its likely to be useless..

[somnath]

Mamata didi's economic philosophies are not much removed from the Left Fronts I hear...however looking at the complaints by this commie pamphlet about Amit Mitra who is the state FinMin, there is some hope he might convince her into a reasonable path.
http://www.pragoti.org/node/4351

She has no philosophy beyond the populist...Whether Amit Mitra has any political clout is an open question - he derives his legitimacy from Mamta (evderyone in TMC does, but he has zero political base)...

Unfortunately, I am not even sure that Mamata has the right instincts - her multiple stints in the Railway ministry have been singularly uninspiring...But then, maybe he can do a reverse of Laloo, who knows?

[vina]

How can one treat ignorance? There is no way in reality....So spot price of natgas should be the same as a 17 year contract (which was the original RIL-NTPC contract, struck @ 2.3 dollars in an open auction)? Maybe Rasgas is also doing "ding dong" and everything else by supplying gas at 3 dollars (or some such number) to Dahej! Maybe playing footsie with honouring contracts is also kosher, which is what Reliance is doing, or trying to..

Oh, all knowing one, if you sign a 17 year contract for anything, especially for something as volatile as energy, no idiot ,both from the producer and the consumer side will sign anything that has a fixed price for the duration of the contract. There will be price reset clauses based on appropriate bench marks baked into the contract.

As for our Rasgas supplying gas at $3 to Petronet, that is so much, pardon the pun, "gas" . I opened a spreadsheet and per the financial statements of Petronet,working backwards I calculated the cost of gas to Petronet at around $7.2 per mmbtu for the quarter ended 30/3/11 and for the year 2011 as a whole approx $6.4 per mmbtu! If Petronet actually supplies some domestic gas , then the figure is a consolidated number, the import price is much higher.

Danke, Dhanyavad, Thank. You. Have a good day.

[sugriva]

Oh, all knowing one, if you sign a 17 year contract for anything, especially for something as volatile as energy, no idiot ,both from the producer and the consumer side will sign anything that has a fixed price for the duration of the contract. There will be price reset clauses based on appropriate bench marks baked into the contract.

True. So by that logic is it babu's fault that RIL agreed to supply gas at fixed price of 4.2$ (initially 2.4$) without any price reset clauses. Give the babu's some credit willya. They are also as skin flint SDRE banias as you and me and wanted the best deal. However RIL now wants to go Paki and has a) used the family split to extricate itself from the contract b) ramped down on production.

Added later :
Somnath-ji,
Thanks for the explanation. Clears up a lot of things.

[somnath]

if you sign a 17 year contract for anything, especially for something as volatile as energy, no idiot ,both from the producer and the consumer side will sign anything that has a fixed price for the duration of the contract

Again, basics of commercial contract...There are fixed price contracts, and variable price contracts...There is no question of whether someone is "an idiot"..The fact is they were "idiots", using your definition...Its a strange way of making up a viewpoint, on the basis of "what should have beens" ...

RIL's position wasnt even that there was a price escalation (it couldnt have, given that it reneged on the contract even before it had suplied a single cubic metre of gas!)...It took a funny position that somehow NTPC did not "sign" the agreement..

http://articles.economictimes.indiatime ... ion-kg-d-6

I opened a spreadsheet and per the financial statements of Petronet,working backwards I calculated the cost of gas to Petronet at around $7.2 per mmbtu for the quarter ended 30/3/11 and for the year 2011 as a whole approx $6.4 per mmbtu

I thought you said you were in India! Obvioulsy tabloids didnt cover the sector as wel as I thought they would...There isnt one contract with Rasgas that Petronet has, it has multiple long term contracts..The first one was a fixed price contract for 5 years @ 2.53, in 2004, then there was another one strck in 2009 @ 3.12, and there were more in the last year and a half at higher prices...Further, Petronet would be buying gas @ spot all the time from Rasgas and others...Doesnt meant that Rasgas sudenly says that it cannot honour the 2009 contract @ 3.12..
http://www.iemr.in/userfiles/Pricing%20 ... 0India.pdf

For the first five years, Petronet paid a fixed-price agreed in the contract (USD 2.53/MBtu for 5 mtpa). In January 2009, this price was raised to USD 3.12/MBtu while volumes increased to 7.5 mtpa in Q4 2009.

Crunching some numbers on the P&L without knowing the basic facts doesnt help...

the paper gives a reasonably good account of the progression in gas sector liberalisation as well..Sarcasm goes only so far in discussion, a bit of openness in learning goes a lot farther...

[somnath]

So by that logic is it babu's fault that RIL agreed to supply gas at fixed price of 4.2$ (initially 2.4$) without any price reset clauses

ACtually its more complicated than that - I listed down the chronology earlier..The initial contract with NTPC was "arms length" @ 2.4...Then RIL took the eggergious ploy that the contract was never signed by NTPC(!!!)...Both went to court, as did RNRL (which had a similar, but "non-arms-length" contract for the Dadri plant), and then all 3 parties and the court asked the govt to step in and resolve..Which is when the 4.2 price was set...the basic premise that RIL then had was to fix Anil - and guess what stance they took in the court? "Ohh, gas is a national resource, cannot be done on the basis of "family agreements", the govt should decide a "fair" price...For good measure they themselves did a buyer's auction, which set a price @ 4.9...

Further, the DG Hydrocarbons (the regulator) was pointing questions @ the level of capex in the project, which they said was too high, basically implying that RIL is jacking up capex in order to jack up the ROI boundaries, and hence less profit petroleum to the govt (so much for "myriad" non-NELP cpontracts, aas alleged by sarcastic Vina-ji)..Which is when mysteriously the production from D6 started going down..

Admoittedly, gas regulation is enormously tricky - the structure of the market and the commodiy is such..All countries have gone through pains of liberalisation..We are too, but crony capitalism is a constant feature, thats the story right now..

[vina]

Again, basics of commercial contract...There are fixed price contracts, and variable price contracts...There is no question of whether someone is "an idiot"..The fact is they were "idiots", using your definition...RIL's position wasnt even that there was a price escalation (it couldnt have, given that it reneged on the contract even before it had suplied a single cubic metre of gas!)...It took a funny position that somehow NTPC did not "sign" the agreement..

More rubbish. Get a "fixed" rate loan in India 6% from SBI and tell me what happens when the interest rate goes to 9%!

The real fixed rate contracts are in financial markets where loans of that kind happen in US where you get a 30 year T-Bond (the fed abolished it and dont know what happened later, there was talk of reintroduction) and there are 30 year mortgages, and commerical and other banks spend a lot of time worrying about asset liability (and hence portfolio duration .. google for that if you dont know) mismatch. For commodities, there are always resets for long duration contracts.. (sort of like the TIPS of old ..sorry my exp is Massa, google for TIPS if you dont know what those are , where the coupons reset) .

I thought you said you were in India! There isnt one contract with Rasgas that Petronet has, it has multiple long term contracts..The first one was a fixed price contract for 5 years @ 2.53, then there was another one strck in 2009 @ 3.12, and there were more in the last year and a half at higher prices...Further, Petronet would be buying gas @ spot all the time from Rasgas and others...Doesnt meant that Rasgas sudenly says that itcannot honour the 2009 contract @ 3.12..

Yawn.. You were the one who quoted a 17 year contract at $3 and I pointed to you that life is actually different!

Crunching some numbers on the P&L without knowing the basic facts doesnt help...

Facts are facts! Repeat after me. The avg price in quarter ended Mar 2011 is $7.XX ! Now let us see how and where someone signed a contract to deliver gas at $3 or any price without resets for 17 years!

[somnath]

More rubbish. Get a "fixed" rate loan in India 6% from SBI and tell me what happens when the interest rate goes to 9%

Unfortunately, you use your personal experience as a proxy for everything in the markets (and your personal experience doesnt seem to be much in the markets, given the sort of stuff you say on things as disparate as arbitrators to what "should" be a fixed price contract)...If you are a Reliance, or an NTPC - you can absolutely get not just SBI, but a whole lot of other fellows commiting a fixed rate for 10, 15 or even 100 years for a loan/bond - and no, they wont turn around and ask for more when rates go up...But you are not RIL or NTPC, and you have no clue on how bond markets work (just as you have no idea on natga market), so obviously, well.....

The real fixed rate contracts are in financial markets where loans of that kind happen in US where you get a 30 year T-Bond (the fed abolished it and dont know what happened later, there was talk of reintroduction)

Some more anecdotal rubbish...there are any number of fixed price long tenor vanilla bonds in the market, there is a whole market segment comprising of it - forget biletral contracts, which will run literally into millions..30 year US govies - when did the Fed abolish it?!

Not sure how portfolio duration et al is relevant to a discussion on natgas contracts, actually just the facts as they are known..

Yawn.. You were the one who quoted a 17 year contract at $3 and I pointed to you that life is actually different

You are losing respect now -this is just plain lying..the 17 year contract was between NTPC and RIL, the fact is captured in the news report referenced. the 5 year contract is by Rasgas with Petronet, the data on which too is there in the study I referenced...

Facts are facts! Repeat after me. The avg price in quarter ended Mar 2011 is $7.XX ! Now let us see how and where someone signed a contract to deliver gas at $3 or any price without resets for 17 years!

go through the post - you will get your answer...Petronet has multiple contracts with Rasgas, incl one that runs @ 3.12...there are others that run @ 6 or 7..and they import large volumes @ spot prices, which are 11-15 thse days...So obvioulsy the average will look, well, a weighted average of all of them! I am sure you dont have to google to udnerstand the concept of weighted average...

Anyways, as I said before, there is no cure for ignorance, and absolutely none indeed for one tinged with false superiority...Therefore, my last 2 pence on this...

[vina]

True. So by that logic is it babu's fault that RIL agreed to supply gas at fixed price of 4.2$ (initially 2.4$) without any price reset clauses. Give the babu's some credit willya. They are also as skin flint SDRE banias as you and me and wanted the best deal. However RIL now wants to go Paki and has a) used the family split to extricate itself from the contract b) ramped down on production.

You simply don't seem to have a knowledge of how Reliance works, how it is a past master of navigating, nay using the labyrinthine boor-o-crazy, baboon crazy and mantri crazy to it's advantage and shafting others.

Go back to the old license permit Raj days. Reliance shafted everyone else who played fair and built massive capacity beyond what it's "license" allowed . That was also days of import restrictiosn of machinery and everything. In fact, Reliance had insider intel on which commodities had demand supply gaps, which had imports necessary, where would investments be a sure shot success etc. etc. because, everyone had to submit their capacities and plans and import licenses to babudom for "approval".

Telecom. The current mess is a direct function of some absolute hare brained baboon decision making. CDMA and GSM are competing technologies for exactly same thing, ie wireless.Baboons, pulled out of their musharrafs a policy saying that if you choose CDMA, you could offer "wireless in local" at land line rates , while GSM guys had to pay huge tarrifs and spectrum and other fees! Guess what reliance did, got the WLL "license" , used CDMA and bypassed that "local" restriction and giving multiple numbers and automatic forwarding and undercut all the GSM guys massively and gave phones to every abdul from an autorick driver to maid to anyone and very low rates and grabbed a big market share before anyone could say WTF (thanks to the gent who was the telecom minister under Vajpayee, who got killed by his bro, the entire thing stank so much that Shourie had to be brought in to replace him)

Similar thing they did when petroluem retailing was opened up. Ask insiders on how they grabbed close to 18% of diesel sales before this episode of oil price spikes and subsidy to PSUs onree happened.

Point is, Reliance knows how to use and abuse the baboons and mantris and their decision making . And thank God, they do it. If they hadn't there would be the giant there is today. If Dhirubai hadn't shafted the baboons and went to build world sized and world class plans. Thank god they did what they did in Telecom and blew that Baboo Musharrafian CDMA/GSM alternate reality make believe to kingdom come. If that hadn't happened, the Telecom penetration would never reach the levels it did today. And thank god they are blowing up the baboon make believe in Oil&G.

Reliance would be perfectly happy if there was a sane and level playing field for everyone and they would have to compete with everyone on strengths. However, they would be absolutely delighted if there was a baboonish musharrafian muddle like the current one, because, they can use and navigate that better than anyone else.

Moral. Have a clean baboonish free policy and open markets, things will be fine. Try doing this command and control and make believe, well, the old Indian industry knows how to use and abuse it, some better than others , and the consumer gets shafted.

As for Baboons shafting reliance, the history is actually of Reliance shafting the baboons throughout it's history and I am willing to put money on it doing it again this time.

[somnath]

Reliance would be perfectly happy if there was a sane and level playing field for everyone and they would have to compete with everyone on strengths. However, they would be absolutely delighted if there was a baboonish musharrafian muddle like the current one, because, they can use and navigate that better than anyone else

Abosolutely..The issue wasnt about the GOI wanting to "set prices" etc.the real issue was about miinsters facilitating cronyism hile policy was changing - Murli Deora being the obvious culprit...Else, isnt it amazing that there was no such shenanigan with pre-NELP contracts (like Ravva), ut the first NELP gas contract turned foul?

[vina]

Unfortunately, you use your personal experience as a proxy for everything in the markets (and your personal experience doesnt seem to be much in the markets, given the sort of stuff you say on things as disparate as arbitrators to what "should" be a fixed price contract)...If you are a Reliance, or an NTPC - you can absolutely get not just SBI, but a whole lot of other fellows commiting a fixed rate for 10, 15 or even 100 years for a loan/bond - and no, they wont turn around and ask for more when rates go up...But you are not RIL or NTPC, and you have no clue on how bond markets work (just as you have no idea on natga market), so obviously, well.....

Oh all comprehending one, which part of fixed rate contracts usually exist in financial markets don't you understand and that dont exist in commodity markets without resets?

That said, I seriously doubt that an SBI or any other domestic institution will be able to write a long term fixed bond/loan, purely because AFAIK, there does not exist an interest rate swap market in India! It is impossible to manage such risks otherwise, there isn't even a barely functioning bond market here. I would love to see a domestic institution writing such a loan/bond and if you know of a long dated fixed rate deal, do post it here and I would be interested in knowing .

Even most of India Inc's External Commercial borrowings IIRC,, especially the long dated ones are bencmarked to Libor or equivalent and nearly none is pure fixed (if you know of such a deal let me know.. the closest I can think of is the 99 year bond sale that Reliance made). Even otherwise, there will be very few deals happening percetage wise globally that are fixed with very long durations (leaving out perpetual bonds, which anyway are quite miniscule).

.30 year US govies - when did the Fed abolish it?!

There was talk around 1999 to 2000 range. Google for it. I think it got done and was reintroduced again recently maybe.

Anyways, as I said before, there is no cure for ignorance, and absolutely none indeed for one tinged with false superiority...Therefore, my last 2 pence on this...

Indeed for that and alternate realities either. Goodbye.

[vina]

Abosolutely..The issue wasnt about the GOI wanting to "set prices" etc.the real issue was about miinsters facilitating cronyism hile policy was changing - Murli Deora being the obvious culprit...Else, isnt it amazing that there was no such shenanigan with pre-NELP contracts (like Ravva), ut the first NELP gas contract turned foul?

Indeed it is. It is like saying , the command economy would have worked fine, if only. ... or the religious fundamentalists saying.. it would have worked fine.. if only the people were pious enough.

The problem was fundamentally with policy. The trying to be half virgin wont work. You cannot have markets and also command economy kind of make believe to "dispense welfare, socialism, protect poor from global price levels.. balderdash.. fill in the blanks", without introducing the price and market distortions and of course the cronyism and the abuse of power given the discretionary power that gets built into such a system.

So, it is the policy itself that is the root cause. The mantri and baboons are not the problem . Even if the Mantri and Baboons "were more pious and perfect" to use a religious fundamentalist ideology, the problem would persist and things will be exactly as they are. So dig deeper. How do these policy contortions come about, from the "ideology" from the Dilli ding dongs.

[somnath]

which part of fixed rate contracts usually exist in financial markets don't you understand and that dont exist in commodity markets without resets

I work in the markets, I know quite a bit of fixed rate instruments, as well as variable rate ones...It is you who is making the point that a long term fixed rate contract does not exist! The number of vanilla bonds (>10 yers) underlying runs into hundreds of billions..

I seriously doubt that an SBI or any other domestic institution will be able to write a long term fixed bond/loan, purely because AFAIK, there does not exist an interest rate swap market in India

???Again, just because you dont know deosnt mean they dont exist? Out of curiosirity, I did a basic search on my BBG for >10 years fixed coupon INR debt - it shows up 600 securities...

Fundamentally, ever heard of this animal called "sub debt"? by definition they are long tenor, and almost always fixe coupon..

Of course, SBI and others can write these offshore as well, no reason for them to limit themselves to onshore only..

Globaly, the number of long tenor fixed rate publicly traded bonds run into lierally millions, including bileteral loans it would run into many more millions...

So take a deep breath, try to learn....

About the policy, I actually quite agree with you...But when policy is changing on a completely new animal, a plicymaker with vested interest can wreck the thing...Just as Raja didnt have any "socialist" aims, Murli Deora (and dare say, some other bigger names in the cabinet) didnt have socialist sympathies when they waded into policymaking on oil....

[vina]

]I work in the markets, I know quite a bit of fixed rate instruments, as well as variable rate ones...It is you who is making the point that a long term fixed rate contract does not exist! The number of vanilla bonds (>10 yers) underlying runs into hundreds of billions..

Per what I talk to folks here in India, most don't want to give out any loans for greater than 15 year duration max. 10 years is really not long tenor.

If you have ever written out > 15 year bond in India, I am curious to know how you managed the basis, credit and duration risks in India. Most of the instruments how those are managed in Massa/London dont exist in India. I

???Again, just because you dont know deosnt mean they dont exist? Out of curiosirity, I did a basic search on my BBG for >10 years fixed coupon INR debt - it shows up 600 securities...

10 years is not really long tenor . If you really want long tenor, try > 30 years. I dont have BBG access anymore (I am not willing to pay that kind of money now that I am on my own), but if you can search and find, > 15, >20 >30 tenor INR bonds do let me know how many you can find. I doubt you will find many.

Fundamentally, ever heard of this animal called "sub debt"? by definition they are long tenor, and almost always fixe coupon..

Of course, SBI and others can write these offshore as well, no reason for them to limit themselves to onshore only..

Globaly, the number of long tenor fixed rate publicly traded bonds run into lierally millions, including bileteral loans it would run into many more millions...

So take a deep breath, try to learn....

I chose my words carefully. I am well aware of those. As a percentage of the overall bond markets, those kind of fixed long tenure loans/bonds you are talking about are quite small . Not that they don't exist. They do in financial markets. In commodities, they dont. SBI operating offshore is a different animal. In India, I would be very surprised indeed if they wrote out a pure fixed really long tenor > 15 year and upwards.

About the policy, I actually quite agree with you...But when policy is changing on a completely new animal, a plicymaker with vested interest can wreck the thing...Just as Raja didnt have any "socialist" aims, Murli Deora (and dare say, some other bigger names in the cabinet) didnt have socialist sympathies when they waded into policymaking on oil....

It doesn't matter which baboon or mantri you put there. The thing is fundamentally a muddle with room for abuse and pure bumbling, both of which happen to great measure.

[somnath]

Per what I talk to folks here in India, most don't want to give out any loans for greater than 15 year duration max. 10 years is really not long tenor

Duration?! I thought we were discussing maturity! BTW, Now you have a self-defined definition of "15 years" for long tenor? And a little earlier you were caviling over whether Rasgas entered into a 5 year fixed rate contract with Dahej?! BTW, in the markets, anything >5 years would be taken as "long"..

If you have ever written out > 15 year bond in India, I am curious to know how you managed the basis, credit and duration risks in India. Most of the instruments how those are managed in Massa/London dont exist in India

First, banks are not the only buyers of financial instruments..the othe big daddies are the Isnurance companies and Pension/Provident funds - and they need really long tenor stuff, to match their liability profiles..Banks too would have long tenor bonds in their portfolios, typically in their trading books...Longer the duration (yes, duration), better the MTM profits when rates go down, given constant credit spreads..

Lastly,

Most of the instruments how those are managed in Massa/London dont exist in India

They do, less than offshore, but they do, as I said...And the "Indian" market is not just INR, just as virtually the entire commodity market is USD, not INR (even domestic gas is priced in USD)..

As a percentage of the overall bond markets, those kind of fixed long tenure loans/bonds you are talking about are quite small . Not that they don't exist. They do in financial markets. In commodities, they dont

Now again, what is "small % of bond markets"...I mean, by that logic, bank deposits in India are about 5 times the total holdings in mutual funds..Does it mean mutual funds dont exist, or are insignifcant? For that matter, turnover of the Fx markets globally is about 5-10 times the turnover of equity markets - so global equity markets are "small"? From "they dont exist" to "they are very small" is quite an ingenious shift...
And despite there being published info on actual commodities contracts, if you refuse to agree, what can I say...BBG again gives an indicative list of LNG contracts between parties - has about 300-400, obviously its an incomplete list..all of them 5-20 years in tenor...

It doesn't matter which baboon or mantri you put there. The thing is fundamentally a muddle with room for abuse and pure bumbling, both of which happen to great measure

the policy isnt made in "air", it has to be a baboon only, no?

[vina]

Duration?! I thought we were discussing maturity! BTW, Now you have a self-defined definition of "15 years" for long tenor?And a little earlier you were caviling over whether Rasgas entered into a 5 year fixed rate contract with Dahej?! BTW, in the markets, anything >5 years would be taken as "long"..

Nope. In fact, the 30 Year US T-Bond was known as the "Long Bond" . That is the convention for "Long" as in LOOONG. It is only in corp valuation spreadsheets that > 5 years is "long" . What you are talking of is medium term bonds .

First, banks are not the only buyers of financial instruments..the othe big daddies are the Isnurance companies and Pension/Provident funds - and they need really long tenor stuff, to match their liability profiles..Banks too would have long tenor bonds in their portfolios, typically in their trading books...Longer the duration (yes, duration), better the MTM profits when rates go down, given constant credit spreads..

Dude. Cut that patronizing rubbish. I know duration , maturity, convexity and all the rest of it quite well, thank you . Don't try to teach bond basic math to me, rather go teach your granny how to suck eggs.

I asked you a simple question. How many > 15, >20 and >30 maturity INR bonds you could find (preferably issued by someone like a financial institution that needs those kind of bonds and risk exposure). I take it the answer is ZERO , if you cant come up with otherwise. Else, just keep quiet and stop filibustering.

Most of the instruments how those are managed in Massa/London dont exist in India

They do, less than offshore, but they do, as I said...And the "Indian" market is not just INR, just as virtually the entire commodity market is USD, not INR (even domestic gas is priced in USD)..

Err. I didnt' get an answer , but more filibustering. Tell me how you will manage basis, credit and duration risks of really long bonds in India in the absence of a CDS and interest rate swap market and a very limited bond market in general!

And despite there being published info on actual commodities contracts, if you refuse to agree, what can I say...BBG again gives an indicative list of LNG contracts between parties - has about 300-400, obviously its an incomplete list..all of them 5-20 years in tenor...

Surely, you didnt bother to read up any of those contracts to find out contract details, but assumed that the price is fixed througout! Nice try.

the policy isnt made in "air", it has to be a baboon only, no?

Indeed, behind the baboon is the conditioning of the Dilli ding dongs!

[somnath]

Nope. In fact, the 30 Year US T-Bond was known as the "Long Bond" . That is the convention for "Long" as in LOOONG. It is only in corp valuation spreadsheets that > 5 years is "long" . What you are talking of is medium term bonds

Doesnt matter what the semantics are - market convention's different, I see even 30 year note issuances out of "medium term notes" programmes, but let that be...You were caviling over a 5 year fixed rate contract, in the face of published evidence, and saying that that creture does not exist in the financial markets...When pointed out that even vanilla publily traded bonds run into billions of dollars, you get into cavlling over whether 10 years is long term enough...At least you agree that there are 10 year fixed rate contracts now? Ok, a simple BBG search of >15 year bonds throw up 20k securities, and this is superficial search, a complete search will yield many more...

I asked you a simple question. How many > 15, >20 and >30 maturity INR bonds you could find (preferably issued by someone like a financial institution that needs those kind of bonds and risk exposure). I take it the answer is ZERO

Again, how is it relevant to the discussion? Anyway, a basic search throws up 200 INR securities >15 years..But whats the point?

Tell me how you will manage basis, credit and duration risks of really long bonds in India in the absence of a CDS and interest rate swap market and a very limited bond market in general

First, how is it relevant? Second, thats a different discussion, around management of insruance/pension asset liablity management, as well as bank prop book management...We can have it, but why here? The fact is contrary to what you think, a) they exist in India and b) they exist in a MUCH bigger avatar globally (commodities too are "global" assets, not onshore assets)..

Surely, you didnt bother to read up any of those contracts to find out contract details, but assumed that the price is fixed througout

you assume too much, these were precisely the contracts that were either fixed rate or had fixed rate commitments for the first 2-7 years..

Lastly though..

Don't try to teach bond basic math to me, rather go teach your granny how to suck eggs.

I would ordinarily report this post, but dont indulge juvelinity...From now, you are on ignore...

[vina]

Doesnt matter what the semantics are - market convention's different,

Ah. But you were the one who asked who defined "long bonds". That is the market convention in Europe as well.

Again, how is it relevant to the discussion? Anyway, a basic search throws up 200 INR securities >15 years..But whats the point?

Point is such markets if it shows up just 200 securities is very thin indeed. Those long term fixed contracts are very rare.That is the pont.

First, how is it relevant? Second, thats a different discussion, around management of insruance/pension asset liablity management, as well as bank prop book management...We can have it, but why here?

Well, HOW Exactly will they do it is the question. In the absence of such markets for the long end risk management, those contracts are usually not entered into in India . That is why!

You assume too much, these were precisely the contracts that were either fixed rate or had fixed rate commitments for the first 2-7 years..

Err. Fixed for a few years! So they are not fixed to the perpetuity of the contract! Touche. Classic definition of a variable clause! Sometimes NatGas and other contracts are entered into for 30-40 years /for the life of the asset!

Lastly though..

I would ordinarily report this post, but dont indulge juvelinity...From now, you are on ignore...

I do hope you had reported this. The admins would have had a good laugh at it!

This is pretty standard English I assure you . Just google for it.
Teaching Grandma to suck eggs
Teaching grandma to suck eggs
Grandma to suck eggs

Oh well, what can I say.. The "posh" Dilli school you went to doesn't seem to have been posh enough to have taught you idiomatic Inglees, unlike the boonies I went to in Bangalore Kerala.

Ignore list. What a great idea. You get on mine as well. Adios.

[vina]

Yawn..
Reliance Asks Oil Ministry To Review Priority of KG-D6 Gas supply

Ah..Baboons doing what they do best. Create artificial scarcities, then "manage" the scarcity by "rationing", "price controls", "priority list" , fiat, King Canute like waving at the seas. Back to old old normal I guess. Jai Ho, Jai Socialism.

Remember the days of Milk Monopoly Procurement Order , or Modern Bread (see Dilli Billis eat bread, while the rest of the unwashed eat chappatis), so "priority" for Modern Bread for Dilli Billis to have breakfast with "price preference" , Billis need to drink milk in the morning from "Mother Dairy" (coin/token operated onree.. so posh.. so advanced na, the rest of the country , dhoodwala brings cow and it does gobar and he milks the cow in front of you..chee chee.. how backward, so Dilli Billis need to grab milk from others via MMPO for posh coin operated machines. Shades of "Tatcher Tatcher Milk Snatcher"?) . Old habits die hard sirs. So back to the command , shortage, rationing, priority (Daaktur Kota, YummPeas Quota , PissNessman quota for Indian Telephones with Rs 3000 baksheesh) onree. Nice.

As the old saying goes.

plus ça change, plus c'est la même chose

Jai Ho.

[sugriva]

Reliance is the big bad galactic empire and us dhoti shivering SDRE types have no choice but to cower in dark corners, or said vina the great in 500 words

I know well about Reliance's shenigans and about how it has broken every rule in the book to get to where it is today. However how is all of this relevant to forcing RIL to supply gas at agreed price of 4.2$ and of RIL now acting Paki and underproducing. Great dhoti shivering post BTW. I am praying to my 33 crores devatas in dark corners of dark caves now.

[vina]

I know well about Reliance's shenigans and about how it has broken every rule in the book to get to where it is today.

Reliance is actually the light sword wielding Jedi Knight(s) who battle against the evil Federation (Gubmint) and it's storm troopers (baboons) and the elite (Mantris).

If not for them, you would be covering in a NTC produced Dhoti that should have been discarded long ago, but you couldn't buy a new one because they are out of their production "quota", instead of the shiny new polyester dhoti at a quarter of the original NTC dhoti prices!

Moral.What is good for Reliance is good for India! Jai Ho.

Fair disclosure : I own & also inherited some Reliance stock which my parents bought at par long long long ago, along with the shares they got when their debentures and others converted.

However how is all of this relevant to forcing RIL to supply gas at agreed price of 4.2$ and of RIL now acting Paki and underproducing.

You dont pay the market price, you don't get supplies. Classic command economy problem of playing with price signals. By doing Pakiness and underproducing, Reliance is doing every E&P a service by blowing up that Baboonness and make E&P reneumerative by getting more investments and the top tier E&P guys in when that changes. All for the good only long term.

But Baboons rather want the current gas to be used to produce subsidized fertilizers and power and LPG and whatever they decided is the "priority"

Great dhoti shivering post BTW. I am praying to my 33 crores devatas in dark corners of dark caves now.

Fear not, you wont have to shiver in the dark corners of dark caves while praying to the 33 crore Devata. The Reliance Jedi knights will soon slay the evil in O&G and you will get all the light and hight to light up the dark corners of the dark caves and oh, you will also get shiny new polyester dhotis in case you wet them in all the shivering..