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Op-ed: The New Indian Politics: No Slowdown, No Panic

Op-ed: The New Indian Politics: No Slowdown, No Panic

The Spectre of No Reforms !

The Specter of No-Reform The specter is hunting Indian ruling classes. That is the specter of no further reforms. This is what crossed my mind while I am gluing to the TV channels on the day the Honorable Prime Minister addressed the nation and the panel discussions that were followed the Address. After carefully following the Prime Minister Manmohan Singh’s Address to the Nation, I felt that in the name of cautioning the people from getting carried away by misinformation campaign, the government itself unleashed such a campaign at the national level. The whole logic of the Prime Minister, well prepared by a team of properly qualified economists, ask us to believe that the rapid growth is required which will increase the government resources and in turn those resources will be spent to embark upon the inclusive growth trajectory. Let me come back point by point. Encouraged by the Prime Minister’s vitriolic, his argumentative cabinet colleagues such as Kapil Sibal and Salman Kursheed, Chidambaram are on the high way gunning for the heads who opposes the recent measures. Now it is clear that the UPA – II came under pressure from domestic and international pressure groups that are self styled ‘ Think Tanks’ which played their role in molding the opinion with in the policy circles who are hesitant to proceed with the reforms with pace. The neo-liberal think tanks asks to believe that unless the government goes for overhauling reforms, the country won’t sustain its course of development and has to face the 1991 like situation or a situation similar to that of European Union nations. First of all, the so called inclusive growth trajectory which became a campaign slogan for UPA during the 11th Plan failed in showing the desired effect. At the outset, the inclusive trajectory, after considering all the plans to expand the financial markets, products, financialisation of economy, is merely in the direction of expanding the clutches of finance capital on day to day life. Except this there is no other reason in substituting the food subsidy and fertilizer subsidy with the cash transfers. This change necessitates the beneficiaries to get involve themselves with the financial products that will surely circumvent the advantages of being in the net of financial inclusion. Another point also needs to be mentioned here. Since the day when the government adopted market linked pricing mechanism for petroleum products, on number of occasions, the government hiked the prices of petroleum products, at all occasions its argument runs in the similar lines. This is reinforced by the argument extended by Planning Commission Deputy Chairman, Dr. Montek Singh Ahluwalia, the blue eyed boy of Manmohan Singh. Over the last one year due to such price hikes, government / OMCs scaled up their incomes. Despite that in the last budget, government refused to share these incomes generated in this manner with the public be extending the subsidies. This shows how the government is playing with the notions on subsidy to reassert its class interests and also lso, the attempt to lure the public by saying that all these burdens will in turn comes back to them at a later point of time, would defy the sound logic. While expressing the willingness to shoulder the responsibility to save out the world from economic crisis, the Prime Minister categorically states, that these steps are necessary in order to restore the confidence of investors, (the sensitized term for the class rule represented by global MNCs in collaboration with indigenous companies that have enhanced their financial influence beyond the boarders) domestic and international. In line with this contention, on Saturday while addressing a conference on Economic Growth in Asia, he attempts to enthuse confidence that, “ As Asian governments, we in the have responsibility to ensure that corporate laws match up to international standards.” He even went on to say, “ the regulation of our stock exchanges comes up to the expectations of global investors and that our banking and financial sectors are examples of both efficiency and stability.” He also eulogizes the fact that but because of his daring initiation of reforms, the Indian companies today are competing with their big brothers across the world to garner the markets. Also he cries foul by saying that unless the government opts for the increasing the prices of petroleum products, the under recoveries will reach to the level of 2 lakh crores. Similarly he extends the argument that all the diesel is being consumed by the rich class which roams around black cobra like sprawling national high ways. On the face of it, it looks that the government is sensitive to the class bias of the diesel subsidies. There is an underlying fault line to this argument and also an attempt to shield the siphoning of much more valuable national treasures by the so called Big Boys in the form of Public Private Partnerships. Even for a moment, if we accepts that the oil marketing companies are experiencing under recoveries, there is a public utility aspect to that. Let us accept the fact that 2 lakhs crores of income that should come to the oil marketing companies if they opt for market based pricing mechanism with out any subsidy component, all these 2 lakhs crores is being directly apportioned by crores of people who uses the petroleum products such as diesel, kerosene, petrol and LPG in the form of using the public, private transport as well as using the diesel to fuel the pump sets that brings out water from the bore wells. In that sense whole nation is getting benefit from the non-earnings of oil marketing companies. Means in effect, each Indian got benefit of a minimum 2000 rupees. Against this the whole policy establishment is up its ante and cry foul and they won’t subside till the complete elimination of subsidies. In this context Hon’ble Prime Minister is asking the nation “ Where does money come from? It does not grow on trees.” Now let us consider other avenues of under recoveries. As we know over the last five years since the beginning of the crisis of Global Capitalism, the government extended 5.50 lakh crores concessions “( here the policy makers are careful to replace the term subsidy with concession) to the industrial classes. Another 1.76 lakh crores of under recoveries has been proved by the CAG in case of Telecom scam and another 1.86 lakh crores is lost and can effective termed as under recovery from the Coalgate scam. Adding to this another 29000 crore income is lost which should have been accrued to the government coffers from Ulta Mega Power Projects coal allocation and 24000 from DIAL Airport income sharing mechanism, which adds up to a whopping sum of 9.65 lakh crores of rupees. Except in the case of under recoveries by oil companies, in the remaining all cases the beneficiaries can be head counted and won’t cross more than a 10,000 in numbers in majority cases. Particularly in case of 2G and Coalgate scams the beneficiaries are below 50. Even if we assume that there are hundred beneficiaries per capita benefit handed over to them comes to 8000 crores on an average per beneficiary. Mr. Prime Minister, will you please dare to tell now, “Where would the money for this have come from? Money does not grow on trees.” !!!

Credit Rating Agencies and International Finance Capital

Credit Rating Agencies and International Finance Capital Veeraiah Konduri, New Delhi http://indiacurrentaffairs.org/credit-rating-agencies-and-international-finance-capital-veeraiah-konduri/ The reentry of Mr. P. Chidambaram, in to the North Block building that homes the Ministry of Finance, has to acknowledge a strange welcome from international rating agency, Moody’s Analytics. In its recent assessment on India titling “ India Outlook : Below the Potential “ lowered the GDP forecast for the FY 2012-13 to 5.5 % from its previous assessment of June 2012 where it expected the GDP growth rate for India will be 6.5 - 7 % with a warning “ The impacts of “The impact of lower growth and still-high inflation will deteriorate credit metrics in the near term, but not to the extent that they will become incompatible with India’s current rating”. This will be a steep 1 percent cut in the forecast which will have its consequences on the investment bodies, both domestic and foreign. During the month of June 2012, another credit rating agency Standard & Poor, commented, “(Brazil, Russia, India could be the first among the so-called BRIC India, China) nations to have its investment-grade rating lowered to junk status because of slower growth, ballooning deficits and political roadblocks to economic policymaking.” Immediately, with guns in hand to fire from the shoulders of computed statistics, started asking the governments to remove the policy obstacles that are hindering the nation from obtaining the investment grades. It is interesting to know the probable causes in the view of so called rating agencies for giving negative rankings. With the slightly differences on the stress here and there, the argument of rating agencies runs like this. India’s fiscal deficit is beyond the international standards, subsidies are high, inflation is peaking through the roof, no credible steps to reduce the subsidies, inability to open the sectors for more FDI, like the ongoing FDI in retail controversy, policy paralysis, policy under achievement, lack of reforms in labor laws etc. Similar to the Time magazine cover story, the Moody’s report titled “ India Outlook : Below the Potential” refers to more expectations from India policy establishment. Who wants all these to be met as per the prescriptions ? To elicit answer to this question, first we need to know for whom exactly the rating ranks will be useful. Credit rating agencies are primary tools of international finance capital and became essential part of the financial landscape. They used to provide expert opinion in terms of assessing the credit risk for those who are seeking loans. Over the period of time, they are entrenched in to the system of credit market so much that unless the borrower or recipient has a credit rating tag, the lenders and investors won’t come forward to invest in that particular country. Basing on the rating tags, the investors and lenders used to determine their rates of return. Over a period of time, “these private rating agencies assessments, which are designed for private financial markets” have been inserted in to public domain. According to Finance & Development magazine of IMF ( Rating Games – March 2012), these agencies changed the nature of banking regulation from reliance on static, fixed percentages to use of dynamic scores that can change according to assessment of risk. This also resulted in greater sophistication as well as complexity. Secondly, which has more important policy implications, it led to the entrenchment of private entities in to regulation of financial markets and entities. What they do ? Globalisation has changed the international financial landscape dramatically. Till the advent of globalization, liberalization in 80s, the sources of credit and consumers of credit are primarily centered in sovereign nations. The domestic savings and government bonds used to be the primary sources of domestic capital formation. Internationally interconnected financial, credit, consumer markets are one important feature of the financial globalization. This lead to the accessibility of credit market beyond the boarders became a practicality. Thus the regularly floating, fluctuating international finance capital needs certain ground level information basing on which the IFC designs certain structures to be followed by the recipient countries in order to protect the interests of IFC. Mobilising such an information became all the more important task. These so called credit rating agencies are supposed to supply such information which will be factored-in while designing the investment policies and choosing the investment destinations. For this, the rating agencies should get accessibility to the bank portfolios and this access was facilitated through the Basel II accord. For tThis exercise reached to such a stage that the international watchdogs such as IMF and World Banks started ranking the countries according to the ability to attract the international finance capital. In a sense, as rightly felt by Panayotis Garvas ( Finance & Development, March 2012) “ using of such ratings in the financial regulation amounts both to – privatization of regulatory process – inherently a government responsibility – and to abdication by the government of one of its key duties in order to obtain purported benefits.” These ratings impacts the markets, affects the value of assets and thus capital requirements. The crux lies in here. When a country is being downgraded, that gives dual benefits for international finance capital. These dual benefit are in fact collateral advantages for international finance capital. As the world economy is depressed, the so called credit market in the West collapsed, the international finance capital is looking for alternative avenues to invest its profits stashed away from the world markets. In that process, these ratings will be act as coercive instruments in prize opening up of capital markets in other countries. These opening up of capital markets happens at two stages. First through direct investments in certain profitable sectors and secondly through the investments in stock markets and commodity exchanges. That is why opening up of new sectors, such as civil aviation, retail for foreign direct investment became a hot topic and all the neoliberal intellectuals are bating against those who are opposing entry FDI in retail as enemies of growth. Because of political nuances, the ruling UPA II is unable to give a final goahead for FDI in retail, reason behind branding the government affected by policy paralysis, and PM as underachiever. Secondly, As per the market practice, markets reacts to the rating tags. For example, in June, when the Standard & Poor, downgraded India, the Bombay Stock Exchange reacted negatively and lost the market value of shares meaning that the assets of the companies listed in BSE lost their worth. This gives an opportunity for the international finance capital to buy (in the official parlance, investing through instruments like FIIs, Portfolio investments, FDIs) the assets of Indian companies at a much lower price than the actual. Thus in effect the credit rating agencies are working at the behest of international finance capital and advancing the interests of the same hence not serving the larger good as neoliberal advocates asks us to believe.

Lies, Damn Lies and LIBOR Author: London Banker · July 10th, 2012 I’ve been hesitant to write about the LIBOR scandal because what I want to say goes so much further. We now know that Barclays and other major global banks have been manipulating the calculation of LIBOR through the quotation data they provided to the British Bankers Association. What I suspect is that this is not a flaw but a feature of modern financial markets. And if it was happening in LIBOR for between 5 and 15 years, then the business model has been profitably replicated to many other quotation-based reference prices. Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable. Over the past 25 years the forces of regulatory liberalisation and demutualisation of markets have allowed the largest global banks to set the rules, processes and infrastructure of global markets to their own self-interested requirements. Regulatory complexity and harmonisation benefit the biggest banks disproportionately, eroding the competitive stance of smaller, local banks and market participants. This has led to a very high degree of concentration in a very few banks in most markets that determine global reference rates for interest rates, currencies, commodities and investments. If those few collude with each other – as Adam Smith warned was always the result – then they impoverish us all. We have allowed markets to evolve in ways that make supervision of markets almost impossible. Many instruments trade off-exchange or in multiple venues, making it nearly impossible for any single investor or regulator to supervise trading to prevent or detect manipulation or abuse. Many financial instruments are now synthetic compilations of underlying assets and derivatives, with multiple pricing components determined by reference to other prices or rates. Demutualisation and regualtory reforms stripped exchanges of the self-regulating interest in preventing manipulation and abuse by their members as mergers, profits and market share came to dominate governance objectives. Off-exchange trading has been allowed to proliferate, creating massive ill-transparent and largely illiquid markets in almost every sector of finance. Pricing in these markets is based around calculated reference rates which, like LIBOR, are open to abusive quotation and data input practices. Many OTC derivatives are priced and margined using reference rates calculated against quotations unrelated to actual reported transactions. Synthetic securities such as ETFs are another example of an instrument that prices off a reference rate rather than the actual contents of an underlying asset portfolio. These instruments are open to consistent abusive pricing as a means of incrementally impoverishing those market participants who are the krill on which the global banks thrive. How has it been possible for banks to grow from less than 4 per cent of the global economy to more than 12 per cent of the global economy without impoverishing others? How has it been possible for profits in the financial sector to be consistently higher than profits from other human endeavors with more tangible products or impacts on our daily lives – such as agriculture, transport, health care or utilities? How has it been possible that banks derive their profits not from the protected and regulated activities of deposit-taking and lending, but from the unsupervised and often unknowable escalation of off-balance sheet assets and liabilities? How has it been possible that pension savings have increased while pension returns have declined to the point where only bankers can expect a comfortable old age? Global banks have built the casinos and tilted the odds in the house’s favour by rigging the data that determines the outcomes of most of the bets on the table. Every one of us that sits at the table long enough – whether saver, investor, borrower, taxpayer or pensioner – will be a loser. It is not a flaw; it is feature. There is a reason that financial infrastructure used to be dominated by mutuals. Mutual gain and mutual liability created a natural discipline on excess and on rogue elements that would impoverish their peers. There is a reason why trading was restricted to exchanges, and exchanges and clearing houses used to be self-regulating, and even had responsibility for resolution and liquidation of their members. Direct responsibility, authority and financial control meant that they could exert very powerful and immediate consequences on those members identified as abusing the market or investors. The investigations into market rigging are just beginning. Paul Tucker opened the box yesterday when he admitted that he could not know whether the abuses discovered in setting LIBOR had spread to other synthetically calculated reference rates. As events unfold, it may be that we begin to appreciate just how deeply vulnerable we have become to predation by bankers with no stake in a local economy or in the local quality of life of the people they impoverish. A reckoning is needed, and then a rebalancing toward more local and mutual provision of essential services and market infrastructure that servers markets rather than those few bankers on the board. As a start, regulators should consider punitive restrictions on the sale of instruments which price on reference rates unrelated to reported market transactions or underlying asset portfolios. Pricing should reflect real market transactions rather than guesstimates talking the banker’s book. We need to rethink as a society what banks are for, what exchanges are for, and what clearing houses are for. If they are for the profit of the few at the expense of the many now, that is because it is the business model we have permitted. If banks, markets and clearing are protected because they have a social function, we should make certain that social function is adding value. If it isn’t, then we need some new models and some new rules. This post originally appeared at London Banker and is posted from EconoMonitor weblistigns.

The Death of Capital, by Michael Lewitt Michael E Lewitt is that rarest of birds, an honest and public spirited Wall Street fund manager, and this book is his attempt to make sense of what happened in the 2008 financial crisis, and outline some steps to prevent it happening again. The Death of Capital might seem like an ominous title, but Lewitt’s logic is that money is only worth anything if it is moving. In 2008 it stopped moving – those that needed it couldn’t get it, those that had it weren’t sharing. Despite poking it with the pointy stick of government intervention, capital did not respond. To all intents and purposes, it was dead. It died for two main reasons. First, because too much money was being pumped into speculation rather than productive enterprise; and second, because we insist on believing that markets are rational, despite all the evidence to the contrary. Add in a move towards ever greater secrecy, a relaxed attitude to debt, and stubbornly pro-cyclical government policy, and finance was a disaster waiting to happen. In some ways that disaster is a good thing, because it forces us to confront the underlying problems of the financial sector as it is currently configured. It gives us the opportunity to fix it.“The growth of finance has contributed to a deeply unfortunate trend in Western societies,” writes Lewitt, “in which an incalculable amount of brain power and economic power are devoted to activities that do not contribute to the productive capacity of the global economy or to the improvement of the human condition.” Finance was never meant to be an end in itself, it’s meant to resource business and development. To analyse where things have gone wrong, the book re-reads four important thinkers who understood how markets function. From Adam Smith we are reminded that all markets are made up of relationships. From Marx we see how capital is a process, not a thing – it is a moving, fluid process, inherently unstable. Important psychological lessons are drawn from Keynes, who understood the herd mentality and recognised that “the primary objective of investors is not to determine the fundamental value of an investment; rather, it is to determine what other investors think the value is.” Hyman Minsky is less well known, but has been rediscovered post-crash. His work shows that every bubble is essentially a ponzi scheme, and he unashamedly dismisses much modern banking as ‘ponzi finance’. On these foundations of the market as a network of human relationships, prone to emotional swings and far from rational, Lewitt offers some suggestions for making it more stable. These can be summarised in six headings, which bear repeating here: Taxing speculation Creating a unified regulator Addressing ‘too big to fail’ Improving capital adequacy Reforming monetary policy Improving transparency I won’t go into all the details of these, but it’s a compelling argument for common sense and honesty. There are excellent chapters on debt, and some useful explanations of how derivatives work, or rather why they don’t work. And there’s an underlying plea for socially productive and fair banking, an end to a system that “socializes risk and privatizes reward.” His honesty is also refreshing. The book discusses lobbyists and the huge obstacles to reform, and claims there are good reasons to tax speculation. “As someone who has worked in these markets for two decades, I can assure readers that Wall Street arguments to the contrary are both self-serving and false.” The book is not without its flaws. Lewiit admits the possibility of climate change and resource depletion, but only in passing, in a box entitled ‘future black swans?’ Since a black swan is a low-probability high-impact even, the answer to Lewitt’s question is no, these are not future black swans. They are high-probability, extremely obvious high-impact events, and sooner or later they will rock his investment business if he treats them as anything less. In that sense the book lacks the bigger picture thinking and would build a truly sustainable financial system. However, those oversights needn’t detract from what is an excellent book in its own field. We will need finance going forward, the productive kind that raises capital for business. We’ll need it to fund the radical changes that climate change and resource depletion demand. If it is run by people like Michael Lewitt, we’d be able to have a lot more confidence in its fairness and stability.

Half of SC/ST teaching posts unfilled in Central varsities Rahi Gaikwad From The Hindu.com July 2nd 2012 In the filled slots, SCs constitute just 12% against the stipulated 15% and STs 5% instead of 7.5% Among the ills that plague the Indian higher education system is the continued poor stake of the Scheduled Castes and Scheduled Tribes in it. Year on year, the huge backlog of vacancies in teaching positions in SC/ST categories remains a constant concern with little change in its position. Nearly half the teaching positions for SCs and STs in Central Universities are still unfilled. According to the data provided by the government of India in December 2011 to a Right to Information query by Lucknow-based activist Mahendra Pratap Singh, 48.5 per cent of posts in these two categories in 24 Central varsities were vacant during 2010-2011. The stipulated quota for SCs and STs in Central institutions is 15 per cent and 7.5 per cent respectively. For the year, 2010-211, the total backlog in SC category at the entry-level position of Lecturer was 341 out of 740 required posts. Thus, 46 per cent of these posts were unfilled. In the ST category, 197 or 53 per cent of posts were vacant out of the required posts of 369. Under-representation The huge gap points to the under-representation of these marginalised communities in educational institutions. The SCs constitute 12 per cent of the total filled positions in Central Universities and STs constitute five per cent of the filled posts. Climbing up to the prestigious ranks of Reader and Professor, their share gets alarmingly dismal. Over 84 per cent of posts for Readers in the SC-ST category were vacant in 2010-2011. And, over 92 per cent Professor’s positions in these categories are vacant. The Banaras Hindu University (BHU) has consistently had the poorest record of clearing the backlog. There was a whopping 59.7 per cent of SC and ST vacancies in lecturer positions itself in 2010-2011. A BHU source confirmed the situation remained the same in 2012 as well, since the University had not undertaken a recruitment drive in the past few months to clear this backlog. In fact, the current position is as bad if not worse, compared to previous years. As per the 2007-08 figures, obtained by The Hindu under RTI, SC-ST vacancy in BHU for the lecturer position was at 52 per cent. “The problem,” remarked Subhash Lakhotia, Professor Emeritus at BHU, “is that candidates are often not found suitable.” — a reason cited across the board for poor implementation of the reservation policy. “The university has to consider certain minimal requirement. Many teaching positions are for specialised candidates. The quality of degrees our education system gives is not [of a very high standard]. So, although candidates meet the eligibility criteria, they are not found suitable. A large number of open posts are also vacant,” Mr. Lakhotia told The Hindu on the phone. “The fallacy lies in the system. The graduates coming out today are unemployable,” he pointed out. The overall concerns over standards notwithstanding, the approach to implementation of reservation is complicated by a notional linking of the reservation policy with impoverishment of “quality” of education. “I would not like reservation anywhere. Higher education is about quality. The government says launch a special drive to fill posts; it is in their interest. But in the process you lose out on quality,” remarked Mr. Lakhotia. “Reservation has made things worse,” remarked a source from BHU. “You don’t get quality people. SC/ST candidates are competent. The ones from Maharashtra and the northeast are good. Tezpur University is doing very well. That’s because their graduates return to their native place.” Another reason cited by BHU was the increase in the retirement age to 65 years (as per 2006 UGC recommendations). “For some years, no one retired and then there were mass retirements creating a sudden vacancy. In Banaras, availability of housing and other facilities is a major problem. So no one wants to take up jobs here,” an official remarked. Making matters worse, the quota policy itself is looked upon as a benevolent act towards the lower sections, rather than an affirmative and necessary provision to ensure the fair share of SCs and STs in education, long denied due to the caste system. “Let me point out,” said a BHU professor in a letter to the BHU Vice-Chancellor, obtained through RTI by Mr. Singh, “that we are aware of our social responsibilities and compulsions which implies some reservation to be done for [the] weaker section.” Arguing for “phased reservation,” he wrote that the university must ensure that “the weaker sections get advantage at the entry level through phased reservation, but at the same time the academic profile/glamour/reputation of the university remains intact.” ‘Centre of excellence’ One argument put forth by the BHU is also that it is considered a “centre of excellence.” Therefore, it should be excluded from the reservation policy. Dr. Vikas Gupta from the Delhi University said that filling posts roster-wise would help ease the backlog. That entailed marking posts in departments as per each category and so on. “Roster implementation takes care of many of the [gaps] in filling reserved posts. Every department has to maintain a roster of posts to ensure full reservation and avoid manipulation. Rosters should be made public by all universities.” According to Mr. Gupta, earlier universities in their advertisements would mention only the number of reserved posts without specifying which post was for which community — SC/ST/OBC. So, a candidate did not know which post she/he was applying for. This way, universities “got the free ground to keep people confused.” Everyone is applying for everything. After the interview, the decision is made [on selection for a particular department post]. “This is unfair. This is how it is manipulated,” Mr. Gupta said. He remarked the situation was changing with universities going in for the roster system. Despite, repeated attempts, the University Grants Commission did not respond to The Hindu’s queries on the issue.