Making banks safer

Following its mandate of a five-year time frame for Indian banks to achieve compliance with the Basel-III prudential norms, the Reserve Bank of India (RBI) has now announced a stricter capital requirement for banks that it deems to be domestic systemically important banks (D-SIBs), or banks "too big to fail". This could at best be a pious wish.The root of all troubles is the Capital induced growth , the core of a neo-modern  global financial framework , led to insatiable demand for credit .That made banking as exciting as it was risky.19 th century bankers  matched the value of their deposits with their own capital even up to  a 50/50 basis,there being no concept of a limited liability .As limited companies ,ownership and control were separated , ownership widely dispersed in shareholders and  risks  capped by limited liability enabling  banks to  assume far greater risk even as they took on more debt to boost their returns. In due time  banks  were permitted to deduct their interest payments from their tax liabilities , a  subsidy for financial risk-taking ! The hubris continues,as under the Basel framework, government debt of developed countries are assigned a risk weight of zero. That meant that with  hardly any capital, major banks could hold unlimited amounts of the sovereign debt of such nations and still pass the credit test .The rules that allowed sovereign debt ,say of Greece that lost 70%  face value and yet carry zero credit risk , set up a fiscal tsunami across eurozone  leading to global repercussions. Globally banking  is perhaps already on a  wilder path  beyond rules and regulations ,where both risks and returns have soared and failures written into  the DNA of too many of them ,the risks  being always borne by the wider society.
Pub Fin Express July 28 
http://www.financialexpress.com/news/letters-banks-must-be-made-safer/1274430

Executive hubris

Such issues and the recent one of appointing a SC judge ought to be seen   beyond their  present context.That we have been treating  constitutionally installed institutions with less than due regard ,has been the bane of this nation.In too many an  instance we have tried to  circumvent legal estoppels  If the basic  pillars of our national edifice were to endlessly seek to demonstrate their superiority over the other ,the rules of the game will never be defined. We will be constantly running into one or the other problem  .That in six decades we have amended the Constitution 118 times, only highlights   our legislative preponderance and an executive hubris. The USA in over 226 years has brought in changes to its constitution just 17 times..The British are doing fine for centuries without a written constitution. They chose to operate on mutual faith and respect, commodities that have ever been in short supply in our polity, particularly in the last three decades.
Pub Deccan Herald ;July 1

Support systems for the farmer

As urban areas exploded their peripheral farmer  was displaced away from the epicenter of mass demand as also from water sources that were commandeered for the city.The hapless farmer was hence forced to look up to someone who would meet his needs of transport, ready cash  and prompt off take of produce in the absence of adjacent storage facilities.The wholesalers provided him all this and extracted his cost from both the producer and consumer.Without him a farmer would be handicapped on all three counts.The end consumer in the city would like to see his vegetable spread at dinner come cheaper but merely de-listing fruits and vegetables from APMC Act,even if States are willing,do not take away the basic logistics that the distant  farmer will continue to contend with.Setting up  self-contained farmers Kibbutz that would  provide him storage, processing and direct market access at designated  locations across the nation, is one sensible way to profitably bridge centers of production and demand and cut on waste and delay.All other steps can be only be temporary

Pub : Hindu Businessline ;July 5

Leader of Opposition

An unseemly sparring is on between the Government and its Opposition The BJP leading a NDA government has little reason to deny a LOP for the Congress led UPA that  with  60 MPs, meets the conventional numeric of a tenth of Lok Sabha strength.Should the BJP harp on the count of 44 of Congress as justifiably inadequate for it to qualify ,it can do so in all fairness,by re constituting a stand alone BJP government with its majority count of 282 MPs  and thus negate a coalition both in the government  and the opposition . To further bring credence to its stand on the exclusivity of the Lok Sabha arithmetic and extend its ethical logic, BJP ought to shed   ministers from its allied parties and those from the Rajya Sabha, limiting it to the LS. No doubt the PM  enjoys  a constitutional  prerogative to choose his cabinet for  optimum governance , but he and his party have  the onus as well  to serve a higher cause, that of a truly democratic functioning of the legislature, by positioning without delay a LOP in the lower House.

Pub: Hindu Businessline; July 9

A re-look at savings

Overall savings in the economy peaked to 36.82% of GDP in 2007-08,falling to 32.3% in 2010-11, Gross domestic savings in 2013-14 est,have since fallen  7.1 percent from its peak of 2007-08 .Having large resources in savings can provide more capital than itself as it can be used as collateral or security for loans, providing more funds for investment and potential business ventures and hence, growth.  Studies show  that higher growth generally tends to precede higher savings. Our enviably high savings rates have traditionally been  financing our economic push of the past two decades. What gives stability and strength to India’s position is that around 70 percent of the country’s savings comes from the household sector, that have since sadly dropped to below 10% of gross domestic product, for the first time in 13 years. Inflation eating into disposable incomes could be one factor and precisely why we ought to promote more savings to spur growth. That said ,savings must be channeled to investment not to underwrite expenditure.There could be attractive new look Infrastructure savings schemes  for domestic investors that  could be held in Escrow towards targeted set of projects.This closed system of funding while boosting savings per se can help endemic monitoring of specific projects for delays / cost over run.

Pub Fin Express; July 8

Say no to urban-rural divide

Bulk of the services sector operates from urban locations.This sector covers a wide range of activities, such as transportation, communication, trading, finances, real estate and health, among others. In 2012 its income was at 56.9% of GDP while its  share  in employment was a low 28.1%.In contrast, Agriculture had a share of 13.9 % of GDP but  contributed to  54.6 % of employment ie. half the  nation's workforce provided  just a seventh of the GDP .  It is relevant to note that whereas in 2001-2011 population rose by 20 Cr but that of cultivators declined by 1.14 Cr.. While the far  higher  urban income generation would justify greater attention and resources towards its infrastructure, it must be conceded that the center for mass employment still remains non-urban .We must find means of augmenting rural employment , be it food processing  and such other related industries, firstly to retain existing agro- labour and secondly to reverse the urban efflux. We need an holistic approach to  the agro sector to sustain the marginal farmers who are its backbone.Else over time ,entry of big farming will  render  the traditional farmers unemployed in their own homes as also  unemployable to urban requirements for want of education and skill.Our farmers require to be helped out on both counts. Urban income generation could influence higher urban resource allocation but can not come at the cost of healthy levels of employment of the average rural  cultivator.. 

Railway Budget 2014

Governance being the lead slogan of the current government,one would have expected the Budget 2014 to lay out broad contours of improved standards in each of the distinct elements of operation of the IR . Passenger related concerns that remain largely un -addressed are :-Transparent and easy  ticketing; Safety;Cleanliness , Hygiene and ease of passenger movement inside stations;Punctuality and Law and Order.All these are directly linked to  governance and superintendence of day-to-day operations.Wages form a very  large chunk of revenue.To ensure commensurate returns, the wage needs to be split into salary and performance incentive.. Incentives be based on an algorithm of base operating elements and relative performance assessed twice a year.This would have been difficult earlier but with extensive computerisation now available it can be handled .This could be be applicable Division wise.Very large PSUs  has been doing this for long in routine and ensuring continuous improvement.Improved efficiency through employee empowerment and incentives will in itself  enable  ushering  in  increased and faster haulage and wagon turn around.Such a well oiled organisation can then be utilised to meet the higher levels of operational competency  for proposed high speed rail movement. Bullet trains are no anathema but operational excellence in the IR must be in place well before this hardware rolls out.Obviously the intention is not just one show piece train but many more to follow.

Pub : Economic Times ;July 10

Budget 2014

Arun Jaitley's budget 2014, is practically the same as the interim budget of the outgoing UPA-II .as there was hardly any time to recast it  for a newer dispensation. In gross Jaitley surrenders revenue of 22000 Cr in direct taxes and  makes up  27000 Cr in the indirect ones.Some customary tweaks have been applied in customs and excise, for smaller aims.With a large middle income electorate in view ,the budget has a bias on urban up scaling with housing sector related loan and tax sops.The future contours of NDA regime are  seen drawn in light pencil ,on  token allocations to  newly proposed schemes and  ideas, addressing skill and employabilty..These must be forged to shape in due course to aid growth trajectory.

       With no changes in revenue the confidence of the FM to contain fiscal deficit  comes from the strength derived from the  Modi mantra of governance and the hope to reach far higher level of   divestment in this fiscal ,given an animated  market. The Sensex has reacted positively though with more than usual caution ,as the day progressed.Budget 2014 needs to be largely seen as a trailer for the main feature slated for 2015.The NDA would need to ride out this year as much on hope as it must on  execution of intents,in contrast to UPA-II that had relied more on providence.

 Pub : Economic  Times ;July 14
          Hind Business Line ;July 11
          Asian Age   July 11