The Deregulation Gimmick

Deregulation is surely going to help the global market forces in determining the petrol prices in India. Post deregulation the international oil prices is going to be the determining factor for the price of petrol we pay in pumps.
As per the Kirit Parikh committee report the benefits of deregulation of oil prices far exceeds the pain the society has to bear for the spike in oil prices. The oil marketing companies should reduce the losses which in turn should increase the revenue receipts for the government and decrease the expenditure. This increase in revenues/reduced expenditure can be utilized to fund the various social sector schemes undertaken by the government.
Many may agree with the above analysis but there are a few facts that we need to consider before we give the credit to the government. Let's calculate the cost price for 1 liter of petrol.

CRUDE OIL Rs. 22.5 p/l (@$80 per barrel )
Refining cost Rs. 3.5 p/l (@$0.07 refining cost)
Marketining expense Rs. 1.05 p/l
Shipping & Transport Rs. 6.00 p/l
---------------
Total Rs. 33.05 p/l

After going through these facts we may realize that never in the last decade we have paid less than Rs. 40 for 1 liter of petrol. What's even more interesting is that despite the subsidies we have been paying more than the cost price of petrol (Cost price as per $80 barrel.However avg. crude oil price in this decade should be lesser than $80 per barrel).
The reason why we have been paying such high prices for petrol is because of the heavy taxes levied on it. Here is how the cost price post tax looks like

CRUDE OIL Rs. 22.5 p/l (@$80 per barrel )
Refining cost Rs. 3.5 p/l (@$0.07 refining cost)
Marketining expense Rs. 1.05 p/l
Shipping & Transport Rs. 6.00 p/l
Excise Duty Rs.14.35 p/l
CESS Rs. 0.43 p/l
VAT Rs. 3.50-5.50 p/l
customs Rs. 2.64 p/l
-----------------
Total price Rs. 53.97-55.97 p/l

It can be concluded that prior to deregulation the tax paid on petrol was greater than the subsidy provided by the government. Interestingly except for VAT all the other taxes are under the purview of the Central Government. It is going to be difficult for the state governments to reduce VAT on petrol, since there are not many heads under which they can make up for the loss they will face after reducing VAT on petrol. Hence blaming the state governments would be unfair. Deregulating without making any changes to the existing tax structure is surely going to be very unfair on the common man.
This high rates of taxation is in turn used to compensate for the under-recoveries arising from sale of kerosene and L.P.G. It is going to be difficult if not impossible to sell LPG and kerosene at market price, however it would have been better if the prices would have been hiked as per the recommendation of the committee. The government lacks political will and the guts required to touch the LPG and kerosene prices.
Looking at the government's functioning it can be said that the entire act of deregulation was mainly undertaken to increase the revenues to reduce the deficit. If this entire process of deregulation has been undertaken to reduce the deficit then I am quite sure that subsidies will be re-introduced by the U.P or L.S elections or by the next oil bubble (The government would have managed to bring down the deficits by then). The biggest beneficiaries are the oil marketing companies. However its very early to comment, its better to make conclusions only after the government meets its promise of deregulating the diesel prices and raising the LPG and kerosene prices. Finally the timing was very interesting. Bihar is the only state to go for elections this year, Congress surely is not expecting much from Bihar. So going by this logic will the government find an appropriate time to deregulate diesel and raise the prices for L.P.G and kerosene???

THE RED INDIANS

Last month we witnessed one of the most dreadful naxal attack since the 60 years of independence.76 CRPF jawans lost their lives fighting against the naxals.The media has been calling P.Chidambaram the best home minister India ever had,but I can say this with great amount of certainty that "India's best home minister" was completely shaken after this incident.He offered his resignation which was not accepted.Opposition had a valid point that,the Home minister by offering his resignation,is sending wrong signals to our enemy.
Naxals claim to be fighting for the rights of the poor in the rural areas of India,but the question is-Do the rural people really consider the naxals their messiah???
In the last decade the naxal recruits have increased tremendously.These recruits are mainly from the rural areas.Some of them fight for the ideology and most of them fight for the money.However it is certain that naxals do receive public support.Jharkhand CM Shibu Soren won elections in few constituencies with the help of naxals.Nitish Kumar has always been against the use of force on naxals.Recently Railway Minister Mamta Banerjee went on record to say that there were no naxals in Lalghar.There were rumors circulating in the media that Mamta Banerjee had sought help from the naxals to carry out her protests in Singur against the Tata's.The reason why naxals have been receiving support from these politicians is because of their popularity amongst the locals. Hence we cant outrightly reject the possibility of naxal's receiving support from the poor in rural areas.Naxals have been targeting the corporates and they have been vocal against the illegal mining activities carried out in the backward areas.Their presence has been observed in areas where illegal mining activities are widely carried out.In the past they have been attacking few industrial units in Bihar and Orrisa,they also had kidnapped a group of Posco executives who visited India after signing a MOU with the Orissa Government.Naxal ideologues are of the view that the presence of these corporates would hamper the lives of the tribal people.The naxals claim that they are against the signing of these MOU's which would eventually lead to the depletion of mineral resources and forest cover making life difficult for the tribals in these areas.In all debates it has been clearly evident that the so-called human right activists bring all these arguments forward to defend the maoists.
The naxal sympathizers must understand that these are just tactics used by the naxals to prevent any kind of development in these backward areas.MP's and MLA's refrain from visiting their constituencies because of their fear of the naxals,this prevents any possibility of carrying out developmental activities in these backward areas.People in these areas are generally isolated from the outside world,and eventually they are forced to support the naxals due to the lack of availability of external help.
So therefore it has to be understood that eliminating naxals is the only way through which developmental activities can be carried out in these areas.The CRPF jawans and the local police should be provided with proper training,logistics and weapons to fight the naxals.It is necessary for the CRPF and the police force to work together,this clearly did no happen in dantewada.It should be a collective responsibility of the state and center to eliminate these anti-nationals.Air force should be used for logistical support since these areas are highly inaccessible.Post-Dantewada its evident that negotiations with the naxals should be of no use,naxals may probably use the cease-fire time to strengthen their army.The government should look into the channels through which these naxals receive their funding,it has been widely speculated that they receive their funding from China.This angle must be seriously probed into,because China can use these maoists to fight a proxy war against India,and of course lets not forget that the maoists in Nepal have openly said that they would support the Indian naxals.The Indian government should take the right steps to prevent the naxals from seeking help from the other side of the border.In a recent article in the DNA it was mentioned that there have been instances in the past where Christian Missionaries operating in the remote areas have provided support to the naxals.This probably justifies the naxal aggression against the RSS social workers.
It has been encouraging to watch the opposition parties promising unconditional support for government on this issue,but sadly there seems to be difference of opinion amongst the members of the UPA.The recent article by Digvijay Singh in the Economic Times clearly highlights this difference in opinion,Mamta has always been against the use of force against the naxals.The face of the Gandhi's are always brought forward when it comes to fiscal spending,but unfortunately when it comes to issues such as naxailsm and terrorism the Gandhi family chooses to remain silent.Sad that media never questions the "YUVRAJ"of Indian politics on these issues,but I am quite sure that if he is asked questions on this issue,he would go ahead and blame the system-conveniently forgetting the fact that the system has been designed by his great grand father,grand mother and his father.The reason I have brought Rahul Gandhi into picture is because it is very well known that Digvijay singh has been Rahul Gandhi's mentor.Digvijay through his article in ET has asked the government to negotiate with the maoists,whereas P.Chidambaram has initiated the operation Green Hunt.The whole country would like to know which side the Gandhi family is in,and as always the Gandhi family chooses to remain silent on issues which would fail to garner any political mileage-"Power without Responsibility"
To conclude I would only say that it is time the government gets its act together on this issue.The government must speaking in an united voice.I am saddened by the recent difference of opinion between ManiShankarAiyyer and Digvijay Singh v/s P.Chidambaram.

The Dragon Tactics

Pegging is the  process of stabilizing a particular currency.Yuan is a fixed currency  and it  is  pegged against the US dollar.The six month  high for Yuan is 6.83 and the six month low for the currency is 6.82.The people's bank of China has successfully managed to keep the yuan between these levels.So how is pegging helping China?
China undervalues its currency,this makes the Chinese exports to the US cheaper.This has been one of the main reasons the Chinese manufacturing industry has flourished.In India we often come across reports of the textile industries being badly hit due to Rupee appreciation,This is because the Rupee is not a fixed currency(however Nepalese rupee is pegged against the Indian Rupee),R.B.I enters the currency markets generally to reduce the volatility,to reduce the losses for the importers and the exporters.The RBI perceives that long run equilibrium is different from the actual  values.However in the past we have seen RBI allowing the Rupee to appreciate and depreciate up to10% over a period of 12 months(we have seen the rupee fall from 39 to 44 in 2009),and I am of the view that these actions are quite justified in case of a developing nation,comparing the fluctuations in the Yuan and Rupee it can be said that RBI has not been as aggressive as the People's bank of China.We have to appreciate RBI for  letting the market forces determine the movement  in the Rupee.
Having said that we have  to  understand the fact that  a fixed Yuan actually benefits the exporters  in China,and therefore may have a negative impact  on the exporters in India.For instance when it comes to pricing we can say that the Chinese textile industry has an upper hand over the Indian textile industry because of the fixed Yuan and the floating Rupee.Unfortunately Indian government has always been in the back foot when it comes to raising its voice against China.
For a brief period the Yuan was allowed to appreciate,and during this period the Yuan appreciated by 20%.Most analysts today are of the view that Yuan is undervalued by 10%-50%.So if the central bank stops pegging we can say that the Chinese manufacturers will be forced to raise their prices in proportion with the appreciation in Yuan.
Recently many senators in the US congress have been protesting against this policy of China.A group of senators in the US are planing to bring in a legislation which would impose taxes on Chinese imports.Increase in Chinese imports  has made  life difficult for the local US manufacturers,this legislation should certainly help the US manufacturers compete with their Chinese counterparts.However any aggressive step  taken against China will have a  negative consequence on the US considering the fact that China is currently sitting on 2.4 trillion of foreign reserve,most of which is US T-bills.This is one of the main reasons why the recent statements by the treasury secretary T.Geithner does not sound threatening towards China.It is going to be interesting to see if US is going to accuse China for  being a currency manipulator considering the fact that China is currently having T-bills worth trillions.Let us also not forget that the US consumers are the major beneficiaries of these low priced Chinese products.So any action against China can potentially affect the US bond market and the US consumers.
Coming back to China-to prevent the Yuan from appreciating the Chinese central bank sells Yuan.The Chinese central bank may increase the supply of Yuan to prevent it from appreciating,this may in turn lead to a rise in inflation in China.Looking at the broader picture we can actually say that the Chinese central bank is helping the Chinese manufacturers sell their products in the US markets,but what is unfortunate is that these benefits does not get transferred from the employers to the employees.Workforce in China continues to be exploited to meet the rising demand,and we come across cases of workforce exploitation in China on a regular basis.
Considering  all this it should be interesting to see how the US and China deal with this issue.

The US-PAK nuclear deal

US has shown its willingness to sign a nuclear deal with Pakistan,it should be quite similar to the Indo-US nuclear deal.IAEA approved India's safeguard agreement treaty.One of the main reasons India got this approval was because it has successfully managed to safeguard its nuclear secrets.Whereas in case of Pakistan we are very much aware of A.Q Khan's case.A.Q Khan had sold off nuclear weapons technology to Iran and Libya.The wealth he would have amassed through this  transaction would have made him the richest man on the planet.
Past has shown us that Pakistan has a poor history when it comes to safeguarding its nuclear secrets,despite this well known fact we are seeing the Americans willing to  sign a nuclear treaty with Pakistan.One of the main reasons for American willingness is because of the war in Afghanistan.The Obama administration plans to increase the troops deployed in Afghanistan.In such a scenario US would be needing Pakistan's help,besides it is going to be difficult to win the war on terrorism without Pakistan's help.Pakistan in the past  has expressed its displeasure over the  Indo-US nuclear deal.So this move is mainly aimed to satisfy the ruling Pakistani administration.
This deal should certainly increase the security concerns of several nations,and lets not  discount the possibility of this technology falling into the hands of the terrorists.US and Pakistan have been allies since Pakistan's independence in 1947.Similarly during the post independence period India and the Soviet Union were seen as great allies(mainly due to Nehru's  inclination towards socialism),But we had seen a dramatic change in foreign policy when the NDA government came into power.We had actually seen the Vajpayee Govt. taking the initiative for the Indo-US nuclear deal.It was during the NDA regime that we had seen the Indian Govt negotiating with the US.
Recently US ambassador rejected the possibility of US providing access to Headley,US may prevent India getting the custody of Headley since it would help India prove the involvement of Pakistan in 26/11.Giving custody of Headley to India can potentially hamper the US-PAK relation.
Coming back to the US-PAK nuclear deal,I doubt if Pakistan would receive the support of the nations in IAEA due to its poor history when it comes to safeguarding it nuclear secrets.
This is my first post on foreign policy/politics.I often get criticized for being biased towards a particular ideology,which prevented me from making posts on these topics.Please comment if you feel this post is biased.

Its all Greek and goldman

Was researching on the recent crisis in Greece.Recently people in Greece have been protesting against the government for the hikes in taxes and reduction in spendings.pay cuts have been announced for the people working in the government sector and subsidies for the farmers have been reduced substantially.These austerity measures have made the farmers and the citizens of Greece to raise their voice against their government.

What has forced the government to adhere to such strict measures?

A recent report suggests that Greece's debt to GDP ratio is set to touch 120% and next years fiscal deficit is set to touch 13%.These figures should certainly scare all investors investing in Greece.The volumes in the bond market has fallen by more than 10% and the yield spreads have risen by more than 50 basis points last week,besides Euro has been under performing most of the currencies in the last couple of months.

Lets now look at the performance of the investment Bank.....oops sorry commercial Bank Goldman Sachs.Goldman has reported a profit of 4.78b USD.The gross income is as much as the income of the 5 big US banks combined.We haven't seen any significant improvement in the US economy, in spite of this Goldman has managed to post a 5b bottom line figure,a great achievement.But looking at the recent reports of Goldman's involvement in the Greek crisis I have my doubts on how Goldman has managed to post such a high profit figure.

Recently came across a article about the deal between Goldman and Greece.The article said that in the beginning of this decade prior to the Athens Olympics,Goldman helped Greece borrow billions,what was interesting was the method used by Goldman to fund Greece.Goldman provided cash upfront,but it was not reported as it was treated as a currency swap.Greece in return would have to forgo some of its future earnings.

Hmmm....now I wonder how much of this revenue has managed to find its way into Goldman's profits.In the past we have several countries seeking support from IMF, isn't it possible these countries would have approached Goldman prior to approaching IMF,isn't it possible that Goldman would have bailed out many such countries using such unethical practices.It may be unethical but unfortunately its not illegal,so we cant say for sure unless these countries voluntarily inform us about such transactions. Until then these government would continue to cheat its citizens and Goldman's profits should continue to move up.

BUDGET 2010

Budget has been a non event for the past few years,but this years budget is certainly something that cannot be ignored,I am saying this even after considering the fact that there are hardly any positive or negative surprises in the budget.However,now that the event is over, I expect the focus to shift to monetary policy and the crisis in Europe.

The Finance Minister needs to be praised for giving a proper road map to tackle fiscal deficit.The gradual removal of stimulus should help the growth in the economy.This should help prevent a double dip recession.The F.M has announced to divest upto 40k crores,however looking at the primary market,it is certainly going to be a tough task to raise funds through the primary market.Some money must be left on table for the investors,to successfully raise funds.Most of the analysts dint expect the finance minister to touch the corporate tax rates,but MAT was raised to 18% from 15% which did come as a negative surprise.This should increase the tax liability by 241cr,219cr,183 cr. for Reliance ind. Infosys and Bharti Airtel respectively.Reduction in surcharge should reduce this liability to some extent.Raise in MAT rates is in line with D.T.C which seeks to end exemptions.

The revised income tax slabs should certainly increase savings and spendings which will therefore fuel growth.This should also help the middle class tackle inflation,further a deduction of 20k can be claimed by investing in infrastructure bonds.The revised slabs will also help the middle class to cope up with the interest rates which are set to rise in the future.

Allocations in NREGA and Rajiv Gandhi yojna have not been raised significantly.There are not many steps taken to help the poor in urban and rural areas.The hike in import duty and excise duty on petrol and diesel is going to fuel the inflation.The revised income tax slabs too can fuel inflation,which may eventuaaly lead to a widening of gap between the rich and the poor.The budget has not provided much help to the poor to tackle inflation.The loan waiver has been extended by six months,but the agri sector has recorded a fall of 2.5% for the previous quarter.Due to the lack of initiative towards the farm sector the prayers to lord Indra is going to get louder.

No significant reforms have been mentioned in the budget.The past has shown us that government generally does not use the budget as a platform to announce reforms.Looking at the minister's statements ,I can say with some certainty that Kirit Parikh committees recommendations would be taken seriously.Non banking financial institutions can now get banking license,it is certainly a great move since it will increase competition. Few months back there were rumors in the street about Reliance Capital taking control of Dhanlakshmi Bank,after this announcement R-cap was amongst the top performers in yesterdays market.NBFS's such as IDFC and IFCI moved up after this news.

Finally to sum up I would say it was a great budget for the middle class.The corporates would not be complaining,but it is certainly a bad budget for the poor since much of their problems have not been addressed.The focus of the budget seems to be to increase growth ie. G.D.P but it would be better if the focus shifts to increasing our H.D.I ie. inclusive growth.

INDIA-the socialist democratic republic

Received a phone call from Satan a couple of days back.By listening to his voice I could make out that he was upset with something.When I probed into it ,he told me that he was going through a really bad phase because Jyoti Basu has managed to form a union .

Socialism has been one of the most important reasons why India has failed to progress after independence.Nehruvian socialism is one of the most commonly used jargon in the news studios,and I personally feel that Nehruvian socialism still seems to play an important role in our foreign policy.

Many may argue by saying that Nehru was a great leader and it was socialism that made him a great leader.I do not disagree with this view,but through this post the message that I wish to convey is that socialism is all about providing best possible solution in the short term by turning a blind eye to the future.

Let us take the case of a group of workers going on strike.A leftist government more often than not would come to the support of the workers i.e their electorates.This may help to solve the problems of the workers in the short run,but in the long run investors would prefer to stay away from such states/nations.

After jyoti Basu's death I came across an article by a famous journalist-Kanchan Gupta-Through the article he described the journey of Kolkatta towards darkness(after the left's tenure began in mid 1960's ).The city was blessed wit great infrastructure but the leftist ideology prevented the city from moving forward.Kolkatta would have been a mumbai if not for jyoti basu..

Jyoti Basu and Nehru have been loved by the public because of their inclination towards socialism,but in the long run there are not many takers for their ideology.A leftist govt generally maintains a low tax rate which again makes them popular among the electorates,but this is what spoils the fiscal policy of the country.insufficient fund allocation towards the society causes deaths due to hunger,poor infrastructure(roads,rail etc.)If you sum up this figure it should be 100 times more than the deaths during the Godhra riots.These lives have been lost because of our inclination towards socialism.

off late I have been praying regularly...I dont want to meet Jyoti Basu!