Do we need a committee for this?

A recent panel constituted by the government to recommend rules for pricing natural resources in the future has managed to come up with a phenomenal, path breaking and pioneering methodology for retailing airwaves which would maximize the benefits that will accrue to the exchequer. The path breaking proposal is nothing but to auction out the airwaves and let the market decide the appropriate rates. The committee needs to be lauded for proposing such an exceptional idea. Now we know how our hard earned money paid to the government in the form of taxes is floundered. 

The basic law of economics dictates that when the supply for a commodity or service is constrained and the demand is far greater than the supply, the best way to allocate resources is to auction them out. The government incidentally headed by an economist, needs to constitute a committee, squander tax payers money on them to reveal something which is plain common sense. Outrageous.

The rise of right wing religious extremism in Pakistan

The assassination of the governor of Punjab, Mr. Salman Thaseer, by one of his bodyguards, Malik Mumtaz Hussain Qadir, marks another incident where right wing religious extremism has raised its ugly head in Pakistan. Mr. Thaseer has been one of the few astute politicians lending active support to the moderate voices in Pakistan. Mr. Thaseer, as an individual does not quite fit the bill of a typical Pakistani politician. A modern, educated and tech-savvy individual, he has often earned the wrath of the religious fanatics for his actions. The latest of such actions was him meeting with Ms.aasia Bibi, the Christian woman convicted of blasphemy and sentenced to death after arguing with Muslim fellow workers who refused to share a bowl of water with her, saying it would be “unclean”. Mr.Thasser called for the annulment of the blasphemy law, under which there is a mandatory death sentence for the offence of blasphemy against the Prophet, and also urged President Zardari to pardon her. The blasphemy laws were enacted by Zia-Ul-Haq to appease the hardliners and they have proven to be the biggest impediment to the moderate voices in Pakistan. Time and again there have been cries for the withdrawal of these laws; however, none in the political establishment so far has proven to be audacious enough to initiate such a move.

The rise of right wing religious extremism has its genesis during the rule of the late dictator Zia-Ul-Haq. Zia’s military regime was characterized by state-driven Islamisation, including reforms to the legal and education systems; support to rightwing religious parties and their madrasas; and creation and patronage of Islamist extremist groups for the U.S.-supported anti-Soviet jihad in Afghanistan. Since then many of the hard-line religious groups have been part of the various governments thus jeopardizing any moves to restore normality. The hard line right wing political parties received a further fillip under Mushraff when he started appeasing them to keep his political boat sailing. Musharraf supported religious rightwing parties at home to offset his popular moderate political opposition. Numerous parties propagating a hard line extremist ideology where brought into the fold to provide political support. After a rigged election in October 2002, a six-party alliance of rightwing religious parties, the Muttahida Majlis-e-Amal (MMA) formed a majority government in the Northwest Frontier Province (NWFP) and a coalition government with the Musharraf-backed Pakistan Muslim League (Quaid-i-Azam) (PML-Q) in Balochistan. After his inglorious exit, there seemed some hope for the return of a moderate political climate. The assassination of Ms. Bhutto brought the two erstwhile foes PPP (Pakistan’s Peoples Party) and PML-N (Pakistan Muslim League- Nawaz) together and they formed a coalition government. However, differences soon crept up amongst them and PML-N withdrew support to the PPP government. Mr. Zardari, who was at the helm, then followed Musharaff by seeking the support of the religious parties to stay in power. Such stratergies of political appeasement have certainly increased the clout of the religious fanatics.

The reactions that followed the death of Mr.Thasser stand as a testimony to the clout they enjoy. The immediate support the assassin received, revels the firm entrenchment of hard line feelings in the minds of many Pakistanis. Qadir was declared a martyr and a facebook page created which had innumerable likes and comments celebrating his actions. President Zardari did not attend the funeral, no leading cleric was prepared to perform the last rites for Mr. Thaseer and few Pakistani politicians came forward to condemn his murder and some 500 religious Pakistani leaders praised his killer and urged Muslims not to mourn Thaseer’s death.

However, the widespread condemnation of the killing in the social media and the huge crowds which gathered to mourn Mr. Thaseer’s death provide the only silver lining in an otherwise bleak Pakistani political society. Such actions provide a great hope that moderate voices are still alive in Pakistan and Pakistan won’t turn into another Afghanistan. The onus now lies with the moderate political parties like PPP and PML-N to restore normalcy. To start with they should distance themselves with parties promulgating hard line extremism. They should lend their support to the moderate voices and shouldn’t blink in expressing their condemnation to any fanatical events. More work should be done at the grass root level to obliterate extremist feelings from the minds of the Pakistanis. In short, we need more Salman Thaseers.

Stop Kidding Mr. Sibal

I was simply stupefied when I read reports of Mr. Kapil Sibal, criticizing the CAG for the methodology they had adopted in estimating the losses incurred to the exchequer on account of the 2G spectrum scam. Mr. Sibal has managed to pull out a few numbers out of his hat and has tried to prove that there were no transgressions involved in the 2G spectrum allocation. The whole nation is well aware of the irregularities committed and it is high time that the UPA government stops fooling around and launched a full- fledged investigation. Companies made huge profits (close to 400 %) by just selling their procured 2G spectrum licenses within a week and many other companies which were willing to shell out close to 13500 crore for securing 2G licenses, were offered licences for just 1/6^th of that price. All these generate enough doubts and it’s the responsibility of the government in power to clear the air. However, the UPA government has been trying to deflect the attention of the public away from the injudiciousness in the procedures adopted by its government in spectrum allocation. They started with Raja being targeted because of his dalit background, passing the buck by lambasting the policies followed by the previous BJP government and now to top it all questioning the methodologies adopted by CAG.

The whole issue of spectrum allocation brings out the farce in the policies being followed by our governments. How could resources such as spectrum which are of massive economic value to the nation be allocated on the basis of the whims and fancies of a single individual? The spectrum issue clearly brings out the numerous loop holes that exist in our system and how canny politicians like Mr. Raja have exploited them to siphon off public money.

The year of 2010 has been baptized has the year of scams and it calls for the establishment of sufficient checks and balances in the system to prevent such misdeeds in the future.

A Blog dedicated to cricket

The gamut of issues I am wanting to write is expanding by the day. To make it easier to I am starting on my first dedicated blog bat the talk. This will be a blog solely dedicated to my musings on cricket. Since cricket is a field I am extremely passionate about, expect to see a lots. Hope you enjoy reading it.

http://batthetalk.blogspot.com/

Minimum support price- A form of government sponsored inflation

Minimum support price (MSP) is a mechanism to regulate prices, wherein trading below an administered floor price in a commodity is prohibited. This is done to ensure that farmers get a minimum price for their produce and can at least recover their costs. However, lofty the idea may sound, the floor price fixed by the government for various agricultural commodities, provide valuable insights as to how minimum support price is acting as a means of government sponsored inflation. The MSP for most of the agriculture commodities has been steadily increasing. The quantum of increase is usually colossal in election years as governments want to project such increases in MSP as pro-farmer schemes and thereby, capture a greater share of the vote bank. The UPA government even takes pride in the fact that it had hiked the MSP for agricultural commodities for a greater number of times than the previous NDA government and included this as part of its election campaign.

The MSP for rice has increased from 650 per quintal in 2005-06 to 1030 per quintal in 2009-10 and for wheat it has been increased from 570 per quintal in 2005-06 to 1080 per quintal in 2009-10.The MSP for other commodities have also increased by a similar margin. When India is aspiring to lower inflation rates to about 4%, such mammoth increases in MSP seem unacceptable.

Since trade below MSP is prohibited, any increase in the MSP is bound to contribute to an increase in the price of the commodity in the market and hence an increase in food inflation. Theoretically if the MSP is above the equilibrium price determined by the forces of supply and demand, MSP is supposed to be unavailing. However, since MSP also represents the price at which government procures commodities from the farmers, farmers would never part with their produce for a price below the MSP, as they can sell to the government at the MSP. Hence, in practise the MSP represents the minimum price at which trade on a particular commodity would occur irrespective of whether the MSP is greater or lesser than equilibrium price. Further, equilibrium prices established by market forces are bound to vary year on year. There might years where equilibrium prices of agricultural commodities would plummet. However, due to political compulsions no government would revise the MSP downward and reluctance to hike the MSP, even in a good monsoon year is considered an anti-farmer measure and the party at helm faces heavy rebuttal.

While a host of factors are being cited for the high levels of food inflation, the contribution of the government to the cause cannot be ignored. As long as the governments at helm continue to indulge in inflating MSP, food inflation is here to stay.

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Quantitative Easing and its Implications

The United States administration has embarked on a new tactic to tide over the sub-prime economic crisis that originated in the year 2008 and one which it continues to reel from till date. The US economy has been characterised by high levels of unemployment (about 10 %) and stumpy economic growth (just 2%). Accordingly, to achieve higher growth rates, the policy makers are of the view that the amount of money flowing in the system should be enhanced. In order to increase the money supply, the Fed lowered the interest rates to record levels in addition to the enormous amount of money it pumped into the system through stimulus packages. It pumped in close to $1.75 trillion into the system. However, all these measures have failed to stimulate the economy and now it has resorted to quantitative easing to spur growth.
Quantitative easing is a mechanism through which the Fed prints fresh money to the tune of $600 billion and through open market operations wherein it would purchase financial assets and thus infuse money into the system. The increased money supply is supposed to bring a raise in the level of economic activity.
The policies of the current US government are strongly influenced by Neo-Keynesian economists lead by Nobel Laureate Paul Krugman. The fundamental assertion of Keynesian school of economics is that spending is imperative for the economic vigour of a nation and whenever private sector spending plummets due to an economic predicament the public sector has to intervene and spend money so that the level of economic activity doesn't fall. However common sense would dictate that saving is more important than spending. This unreasonable emphasis on spending encourages the government to spend more than it earns, which in turn drives the government to print more money to avoid a sovereign debt crisis and this increased money in the system creates inflation.
The major implication of quantitative easing is that the increased money supply in the system is bound to produce another bubble. If one were to examine the sub-prime crisis of 2007, it is amply clear that the causes for the crisis were the policies the US government followed on the aftermath of the dot com bust in 2001. The policies were aimed at increasing the amount of money circulating in the system. This massive infusion of money went straight into the real estate sector as it was perceived by the bankers as the most attractive and this resulted in the creation of a huge housing bubble. In fact even the dot com bust was due to the infusion of money that went into the technology enterprises as they were perceived as the most attractive then. However, now the banking system is uncertain of where to invest its money. That's the major cause for the liquidity crisis that the US economy is suffering from.
Another major implication of quantitative easing is that the increased money supply would create high levels of inflation. When there is more money in the system without a proportionate raise in the goods and services there is bound to be an increase in the price levels.
From an Indian perspective FII inflows are bound to increase further as the cheap money available can be invested in the Indian markets which offer the investors higher level of returns.
It is amply comprehensible from the policies being followed by successive US governments that that the government is yet to learn any lessons from its past mistakes. Instead of setting right the blemishes of the past the Fed seems to be continuing with the same path of action. I hope the US government realizes its folly and starts acting more responsibly.