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.

What’s wrong with having a work exp?

The last week has been a happening week in the campus with summer placements on at full throttle. Though many of my batch mates managed to get themselves an internship at reputed firms my experience was disappointing. The most disheartening aspect was the discrimination meted out to people with prior work experience by most of the companies which visited our campus. Most of my batch mates with work experience of more than two years weren’t picked up by any of the firms.

I was told before joining my MBA that how work experience would add a lot of value, increase pay packages blah blah. However, I was dumbstruck to know that companies preferred freshers rather than people with prior work experience. There are still people who try and console us by saying that it’s just the scene at summers. They claim that the summer jobs being offered are supposedly menial jobs which are not suitable for people with work experience and the scene would perk up greatly in the final placements. I have decided to observe the final placements of my senior batch with earnest to affirm the veracity of the claims.

I find it difficult to comprehend as to why companies would discriminate against people with prior experience. I wouldn’t have had any qualms had they not prized our work experience and treated us at par with freshers. The thing which irks me the most is the bigotry being meted out. Work experience is considered as if it is something which is too horrific to be having in your CVs however in my opinion people with work experiance have an better understanding of corporate culture, show greater maturity.

The only advice I would give for MBA aspirants is to study hard during their graduation and crack CAT, XAT etc and join a b-school as a fresher. If one fails at his/her first attempt they will have to make sure that they make through in the succeeding year. People with less than a year of experience are usually considered as freshers and one’s chances wouldn’t be affected adversely. My opinion though is bound to change depending on the way the final placements of my senior batch progressess.

Do we need earth hour?

For those who have read my previous posts would be well aware that I am not a very big fan of the global warming or climate change phenomena. One of the activities espoused by the doom-sayers is the observation of earth hour. Earth hour is an exercise wherein people turn off lights and other equipment which consume electricity during a stipulated time. This time is different for different regions of the world. The big question is do we need to observe earth hour? We here means Indians,as I feel that almost all of my readers are Indians. Coming back to the question the answer from my side is vehement NO.

Few reasons why I don't like observing earth hour in India are,the first and foremost being my scepticism towards the global warming or climate change phenomena. The second reason would be that we already have our electricity guzzlers turned off,though involuntarily in the name of power cuts. Depending on the region were people dwell, electricity is not available for about an hour or two in a metropolis and anywhere between ten to eighteen hours in the rural areas. The situation worsens in the summer months as the demand for electricity spirals up way above the supply and states have no other option other than resorting to scheduled or unscheduled power cuts. In such a scenario it makes no sense for us to turn off the lights.

Another reason why I wouldn't advocate observing earth hour is we don't achieve anything by just switching off our refrigerators or lights or fans for a few hours.The effect of such an initiative is going to be minuscule and I see no point in participating in it.

So the next time I hear people saying they are going to observe earth hour I simply wouldn't give a damn and turn on all the acs and fans , in assurance that I can enjoy them as the demand for electricity would have come down in my neighbourhood.