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Showing posts from July, 2010

Stay The Course - Deregulation of transport fuels is a bold, welcome move

A Times of India Article (Mon, June,28)
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After an aborted attempt by the NDA regime in 2002 to deregulate fuel prices, the UPA administration has finally bitten the bullet and moved on implementing the Parikh committee recommendations. True, this is still a first step. While petrol price has now been pegged to the international market, diesel remains partly controlled and LPG and kerosene wholly so. But given the price hikes across the board and the planned deregulation of diesel that is to be implemented in phases it is a crucial one. The first beneficiaries will be state-run oil companies with under-recoveries dropping from Rs 770 billion to Rs 530 billion. But the ripple effect will, in actuality, spread far beyond that with benefits accruing to consumers in the long term. The challenge now is for the government to stand firm against the inevitable political backlash and populist demands.

Given that inflat…

Sports Commercialism and India

Our fluent English-speaking and computer savvy population have made India world’s favorite IT-BPO destination. But IT-BPO business can accommodate only a very insignificant percentage of our entire population. India must ensure its people have more ways of productive growth than just the IT-BPO industries. More sectors which can accommodate common Indians need to take off.

One of such promising sectors is ‘Sports’ which is so far relatively neglected (except cricket) in our country. Near-absence of sports commercialism has retarded India's sporting prospects. Sports commercialism can have very powerful positive impact towards nation’s growth because it can create numerous associations between sport and commerce including huge employment opportunity (as sports volunteers, trainers etc), infrastructure development, athlete welfare, sports advertisement, conduct of big sporting events and of-course glory for the country.

What are the lessons that India should draw from the Eurozone crisis that is unfolding now?

First, fiscal deficits do indeed matter. They matter less when a country has underperformed for so long that it has big catch-up possibilities that fuel growth, and this explains why India has not suffered like some other countries. Yet the taming of fiscal deficits and inflation in 2004-09 led to sharply reduced interest rates that were crucial in making India competitive in its 9% growth phase. The Fiscal Responsibility and Budget Management (FRBM) is a crude tool, yet did indeed help cut the fiscal deficit. The FRBM target of lowering the fiscal deficit to 3% of GDP is sensible in good times, leaving scope for expanding it to 6.5% in a recession without causing a Greek tragedy.

Second, Greece and Portugal have demonstrated that fiscal deficits in countries with structural problems can send the debt/GDP ratio skyrocketing without stoking growth. India has many structural problems despite having advantages too, and so should beware fiscal excesses.

Third, Greece has shown that a monet…

Is China the next bubble?

If you look at the following assessment from Sumant Sinha, that looks quite probable:

For many years China has been growing rapidly. Its stock market has been among the best performing in the world. On the back of a deliberately cheap currency policy China's exports have swamped the world. It will shortly cross Japan to become the world's second largest economy. Per capita income has almost trebled in the last 10 years. Infrastructure has boomed and the country is unrecognisable to those who revisit it after a gap of afew years. In many sectors China adds capacity in a single year equivalent to India's cumulative installed capacity. It has become the world's largest consumer of many commodities (and the world's largest polluter). By any measure, these are phenomenal achievements.

And yet uneasy lies the crown. Much of the capacity that has been created is not being used. In sector after sector, there are excess capacities. The currency cannot be kept cheap forever an…