Thursday 17 March 2016

March 17, 2016: U Htin Kyaw elected Myanmar’s president

March 17, 2016: U Htin Kyaw elected Myanmar’s president

General Studies: Daily Capsule

Curtain Raiser –News Update (March 17, 2016)

U Htin Kyaw elected Myanmar’s president:

U Htin Kyaw has been elected Myanmar’s president. He is a close ally of Aung San Suu Kyi. Myanmar’s Constitution prevents anyone whose children are foreign citizens from assuming the highest office. As Ms Suu Kyi’s sons are British citizens, she is not eligible for the post of the president.

“Mr. Htin Kyaw’s government would be its most democratic administration since 1962 when the military seized power.”[1]

The system of election of the president:

“The president is chosen from candidates put forward by each of the two houses of parliament, in addition to a third nominee from the military.”[2]

Olive homes of the Guardian writes:

“Htin Kyaw was elected under a complex system in which the two chambers of parliament nominated two presidential candidates and military MPs nominated a third, assuring the army continued influence.

The army also retains 25% of seats in parliament under a 2008 constitution that it drafted, giving it an effective veto on constitutional change. It also keeps key ministerial portfolios related to security.” [3]

The election method can further be amplified in these words of Suhasini Haider:

“With U Htin Kyaw, the National League for Democracy candidate, being elected on March 15, the country will have a new President, a civilian Vice-President, and a Vice-President from the military, under the supervision of the Tatmadaw or Myanmar’s military, which retains a quarter of the seats in Parliament and the power to nominate the three most important ministers: Defence, Home Affairs and Border Affairs.”[4]

Tasks at hand for new government:

“The new government has to address the deep economic problems. Myanmar is placed 149 among 186 nations in the 2013 Human Development Report of the United Nations Development Programme. For getting economy on track, Myanmar will have to take regional as well as global assistance.” [1] & [4]

References:

1. 1. A new chapter in Myanmar, March 17, 2016, The Hindu

world-asia-35808921

3. Myanmar parliament elects Htin Kyaw as first civilian president in 53 years, by Oliver Homes, March 15, 2016, http://www.theguardian.com/world/2016/mar/15/myanmar-parliament-elects-htin-kyaw-as-first-civilian-president-in-53-years

4. 4. A new beginning in Myanmar by Suhasini Haider, March 16, 2016, The Hindu

March 16, 2016: What is Hydraulic Fracturing or Fracking?

March 16, 2016: What is Hydraulic Fracturing or Fracking?

General Studies: Daily Capsule

Curtain Raiser –News Update (March 16, 2016)

What Is Hydraulic Fracturing?

Hydraulic fracturing is a process used in nine out of 10 natural gas wells in the United States, where millions of gallons of water, sand and chemicals are pumped underground to break apart the rock and release the gas.

https://www.propublica.org/special/hydraulic-fracturing-national

March 15, 2016: Low Retail inflation and demand for a rate cut

March 15, 2016: Low Retail inflation and demand for a rate cut

General Studies: Daily Capsule

Curtain Raiser –News Update (March 15, 2016)

Low Retail inflation and demand for a rate cut:

I would like to quote a few statements from the article titled “India raises interest rates to combat inflation” that appeared in the Financial Times dated January 28, 2014 so as to appreciate the current scenario of low Retail inflation and demand to rate cut.

“Announcing the 25 basis point rate hike to 8 per cent, which surprised markets, Mr Rajan insisted that reducing consumer prices was essential, even as he admitted that the slowdown of the country’s growth was “increasingly worrisome”. [statement 1]

“However, Mr Rajan’s argument is that over the long-term, keeping a lid on inflation would help the economy expand. “The so-called trade off between inflation and growth is a false trade-off in the long-run,” he said in a televised statement after announcing the rate rise. “Elevated levels of inflation erode household budgets and constrict the purchasing power of consumers. This in turn discourages investment and weakens growth.” [statement 2]

“The rate decision was not welcomed in the business community, which argued that rate rises were hampering demand and hurting investment and therefore growth.” [statement 3]

“Late last week, the RBI committee appointed by Mr Rajan recommended the central bank adopt an inflation target of 4 per cent, with a band of 2 per cent on either side. It has also proposed what Mr Rajan called a two year “glide path” to bring down retail inflation to below 6 per cent.” [statement 4]

“In his statement, Mr Rajan said he was still studying the proposal to move the RBI to formal inflation targeting, with policy decisions taken by a binding vote of a Monetary Policy Committee. But he said he believed the plan of cutting the retail inflation rate to 6 per cent within two years was a reasonable goal that the bank would try to meet.” [statement 5]

What we can infer from above statements?

Whenever there is rise in interest rate, the business community will be worried. As the popular perception is that rate rise hampers demand and hurts investment and therefore growth [statement 3].

Changes in monetary policy aimed at contracting aggregate demand can be described as raising the interest rate; and Changes in monetary policy aimed at expanding aggregate demand can be described as lowering the interest rate.

So the popular perception that increase in interest rate will hurt growth is true but one side of the coin.

The other side of the coin is beautifully explained in the above [statement 2. : keeping lid on the inflation would help economy expand….. “Elevated levels of inflation erode household budgets and constrict the purchasing power of consumers. This in turn discourages investment and weakens growth.”

This is the basis for inflation targeting. And the RBI committee’s recommendation to the central bank to adopt inflation target of 4 per cent, with a band of 2 per cent on either side was the right direction in inflation targeting. Further RBI Governor’s assertion at that time that inflation target of 6 per cent is achievable in two years has come true.

Now the Retail inflation has come down to 5.2 per cent for Feb 2016 from 5.7 per cent in the preceding month. The condition Mr. Rajan was waiting for has arrived. And perhaps it is the right time to lower the interest rate.

References:

1. 1. India raises interest rates to combat inflation, dated January 28, 2014, Financial Times

https://next.ft.com/content/18dc0d04-87e7-11e3-a926-00144feab7de

2. 2. Retail inflation at four-month low, spurs calls for a rate cut, March 15, 2016, The Hindu

Monday 14 March 2016

March 14, 2016: The shutdown of Unit-1 of Kakrapar Atomic Power Station

March 14, 2016: The shutdown of Unit-1 of Kakrapar Atomic Power Station

General Studies: Daily Capsule

Curtain Raiser –News Update (March 14, 2016)

The shutdown of Unit-1 of Kakrapar Atomic Power Station:

The Kakrapar atomic power plant consists of two units of pressurized heavy water reactors (PHWR) of 220 MW each. These units are more than 20 years old (Date of commercial operation: Unit-1— May 6, 1993 and Unit-2— September 1, 1995). Unit-1 of Kakrapur Atomic Power Station (KAPS) had to shutdown on March 11, 2016 following some leakage of heavy water that is used for cooling reactor core. This incidence coincides with the fifth anniversary of Japan’s Fukushima nuclear disaster.

India’s installed nuclear power capacity stands at 5,780 MW currently. It is to be raised to 10,080 MW by 2017 and 20,000 MW by 2020. Independent assessment of the situation by Atomic Energy Regulatory Board (AERB) and all necessary steps to avert such incidence in the future is essential to meet the planned target.

Some Facts about PHWR:

· Indian Pressurized Heavy Water Reactor (PHWR) are similar to CANDU Reactor (CANada Deuterium Uranium).

· The use of heavy water moderator is the key to the PHWR system.

· It enables the use of natural uranium as fuel

· Hence reactor can be operated without expensive uranium enrichment facilities

Source: Transparency at any cost, March 14, 2016, The Hindu & other sources

Saturday 12 March 2016

March 9, 2016: Climate Engineering Efforts to fight Global warming

General Studies: Daily Capsule

Curtain Raiser –News Update (March 9, 2016)

Climate Engineering Efforts to fight Global warming:

Climate Engineering Efforts can be divided into two categories: the management of carbon and the management of sunlight

The management of carbon is directed towards removing greenhouse gases from the atmosphere. A prominent example is carbon capture and storage (CCS). Another method for removing carbon dioxide from the atmosphere is to increase forest cover as plants will absorb some of the unwanted carbon dioxide.

The management of sunlight i.e. Solar Radiation Management: Here the plan is to reduce global warming by cutting down the heat absorbed by our planet from the sun. Stratospheric Aerosol Injection (SAI) is one of the examples under this category.

Stratospheric Aerosol Injection (SAI): involves spraying into the stratosphere fine, light coloured particles designed to reflect back part of the solar radiation before it reaches and warms the earth. SAI research is still at a theoretical and laboratory level.

Source: Cooling the earth down by R. Rajaraman, March 9, 2016, The Hindu

March 12, 2016: Industrial Output contracts 1.5%

General Studies: Daily Capsule

Curtain Raiser –News Update (March 12, 2016)

Industrial Output contracts 1.5%:

“The Quick Estimates of Index of Industrial Production (IIP) with base 2004-05 for the month of January 2016 have been released by the Central Statistics Office of the Ministry of Statistics and Programme Implementation.

IIP is compiled using data received from 15 source agencies viz. Department of Industrial Policy & Promotion (DIPP); Indian Bureau of Mines; Central Electricity Authority; Joint Plant Committee, Ministry of Steel; Ministry of Petroleum & Natural Gas; Office of Textile Commissioner; Department of Chemicals & Petrochemicals; Directorate of Sugar & Vegetable Oils; Department of Fertilizers; Tea Board; Office of Jute Commissioner; Office of Coal Controller; Railway Board; Office of Salt Commissioner and Coffee Board.” [1]

“Industrial output shrank for the third straight month, contracting by 1.5 per cent in January 2016. The 1.5 per cent fall in Industrial Output this January was against 2.8 per cent growth in January 2015. Industrial output growth during April 2015-January 2016 was flat at 2.7 per cent.” [2]

“The manufacturing sector, which accounts for nearly 75 per cent of the industrial production index, recorded a fall of 2.8 per cent compared with 3.4 per cent growth in the same period a year ago.” [3]

“In terms of industries, ten out of the twenty two industry groups in the manufacturing sector have shown negative growth during the month of January 2016 as compared to the corresponding month of the previous year. The industry group ‘Electrical machinery & apparatus ’ has shown the highest negative growth of (-) 50.3 percent.”[1]

“Capital goods output— an indicator of investment demand— contracted by 20.4 per cent in January as against a growth of 12.4 per cent a year ago.”[3]

References:

1. http://mospi.nic.in/Mospi_New/upload/iip_11mar16.pdf

2. http://www.thehindu.com/business/Industry/industrial-output-contracts-15-shrinks-for-a-third-straight-month/article8342721.ece

3. http://indianexpress.com/article/business/business-others/iip-shrinks-1-5-on-poor-capital-goods-manufacturing-show/

March 11, 2016: Rajya Sabha (RS) passes Real Estate Bill

General Studies: Daily Capsule

Curtain Raiser –News Update (March 11, 2016)

Rajya Sabha (RS) passes Real Estate Bill

“Rajya Sabha approved the Real Estate (Regulation and Development) Bill, 2016 that seeks to protect the interests of the large number of aspiring house buyers while at the same time enhancing the credibility of construction industry by promoting transparency, accountability and efficiency in execution of projects. The Bill seeks to put in place an effective regulatory mechanism for orderly growth of the sector which is the second largest employer after agriculture.” [1]

“The Bill requires setting up a new regulator for the real estate sector. Just as you have SEBI and IRDA for the capital markets and insurance industry respectively, an authority will be created to help frame policies for the real estate sector.

And as real estate comes under the purview of state governments, individual States are responsible for setting up the Regulatory Authority at the State level. State-level authorities, called Real Estate Regulatory Authorities (RERAs), will now regulate transactions related to both residential and commercial projects. “ [2]

Other Features:

—It’s mandatory for developers to deposit 70% money from buyers in a third-party bank account

— Regulatory authorities have 60 days to dispose of complaints

— Bill has a provision for imprisonment of up to 3 years in case developers are found guilty of fraud

References:

1. http://pib.nic.in/newsite/PrintRelease.aspx?relid=137670

2. http://www.thehindubusinessline.com/economy/more-power-to-the-home-buyer/article8337416.ece

Wednesday 9 March 2016

March 10, 2016: Backdrop of Budget 2016-17 and Doubling Farm incomes in 5 years

March 10, 2016: Backdrop of Budget 2016-17 and Doubling Farm incomes in 5 years

General Studies: Daily Capsule

Curtain Raiser –News Update (March 10, 2016)

Backdrop of Budget 2016-17 and Doubling Farm incomes in 5 years:

Backdrop of Budget 2016-17	--- domestic economy confronted with adverse global environment --- agriculture sector reeling from two successive years of drought --- slow down in manufacturing sector
Overall state of economy	Universal feeling that the economy was in a vulnerable state
General Approach to Budget Design	--- Expansionary budget designed to stimulate aggregate demand --- Budget keeping the fiscal deficit in control

The Budget 2016-17	--- embraces fiscal prudence (fiscal deficit to be 3.5 % of GDP for 2016-17) but not at the cost of a cut in government expenditure --- significant increase in the allocation to agriculture and rural development, as well as infrastructure

Optimism behind achieving the fiscal prudence and increased government expenditure:

Basic assumptions on achieving both, the fiscal prudence and increased government expenditure

--- steep fall in crude oil price, and not passing savings achieved on the import bill to consumers

--- optimism

(… significant increase in revenue from personal savings

…. Divestment and the strategic sale of public sector enterprises will fetch the exchequer the sum of Rs. 56,000 crore (unreasonable as revised estimate for 2015-16 is less than half this figure)

…. Hopes to exploit non-budgetary sources of financing infrastructure projects

(…. Some infrastructure projects will be funded through public-private partnerships)

…. National Investment and Infrastructure Fund (NIIF) allocated Rs. 4,000 crore, hoping NIIF can leverage this to raise additional funds through the bond market

…. Approved market borrowings of around Rs. 30,000 crore for several financial intermediaries

Fallout of public borrowings

Public borrowings will crowd out private borrowing if overall credit scenario is not satisfactory

The target of doubling farm incomes within five years: how realistic?

Annual growth required to achieve doubling of farm incomes within five years	Around 14 percent
Challenge	Agriculture Output in India during any five-year period has not even touched half this level
How to meet the challenge?	Magic wand needed to achieve this miraculous feet of 14 per cent growth in Agricultural Output
What if double Agricultural output achieved?	Who will buy double the current volume of agriculture output given the low income elasticity of demand for agricultural output?

Indirect Taxes are also supposed to serve an allocative purpose: Taxes on diesel cars have been increased in order to discourage their use.

Source: Good economics is good politics by Bhaskar Dutta, March 10, 2016, The Hindu

Tuesday 8 March 2016

March 8, 2016: Full marks on adhering to fiscal deficit road map

March 8, 2016: Full marks on adhering to fiscal deficit road map

General Studies: Daily Capsule

Curtain Raiser –News Update (March 8, 2016)

Full marks on adhering to fiscal deficit road map:

Fiscal Deficit for 2016-17	3.5% of GDP
Goal of the Government	Accelerating growth under macroeconomic stability
Questions arise on	· the credibility of commitment · adherence to fixed road map
On credibility front	· underestimation of expenditure* · overestimation of revenue*
Effects of sustained High Fiscal Deficit	· rise in Debt-GDP ratio · increase in interest payments as a proportion of revenues, leaving less for productive expenditure
Impact of High Fiscal Deficit	· Mandated target of Fiscal Deficit under FRBM Act 2003, is 3% of GDP for the Central Govt. · The states taken together will also take 3% of GDP · Combined Fiscal Deficit of the Centre and the States will be 6% · Both private business and government invest more than they save · They draw on the surplus of the household sector · Household sector savings in financial assets are also called transferable savings · Household savings in financial assets have come down to almost 7.3% leaving very little for sectors other than government to draw on the surplus of the household sector · Thus, there is considerable merit in favour of moving towards the target of 3% of GDP

*Fiscal Deficit: Expenditure and Revenue

Total expenditure’s projected increase	10.8%
Burden of the Seventh Pay Commission	· Not clear to what extent has been taken into account · It appears a significant part has been left
So total expenditure will rise	Resulting into underestimation of the expenditure

Gross Tax Revenue Projected to grow	By 11.7%
Receipts from Disinvestment estimated for 2016-17	Rs. 56,500 crore (actual collection of Rs. 25,300 crore in 2015-16)
Projected receipt from Spectrum auction in 2016-17	Rs. 99,000 crore (way above what was obtained in 2015-16)
Thus overestimation of revenues

Source: Full Marks on fiscal deficit by C. Rangarajan, March 8, 2016, The Hindu

March 7, 2016: Centre’s Fiscal Consolidation Road map – a bumpy ride

March 7, 2016: Centre’s Fiscal Consolidation Road map – a bumpy ride

General Studies: Daily Capsule

Curtain Raiser –News Update (March 7, 2016)

Centre’s Fiscal Consolidation Road map – a bumpy ride:

Fiscal Responsibility & Budget Management Act, 2003 (FRBM Act)
Documents to be tabled annually in the Parliament with regard to Fiscal Policy	· Medium-term Fiscal Policy Statement · Fiscal Policy Strategy Statement · Macro-economic Framework Statement
Reset of Fiscal Deficit target in 2008-09	Following global financial crisis
Why review of FRBM Act needed?	Has the law allowed the government the elbow room needed to use all the fiscal tools at its command to ensure that the growth momentum is maintained, without either significantly fuelling inflation or curtailing spending on vital and socio-economically relevant development programmes? If it has not, this may be the time to review the Act, and if necessary, amend it significantly
Arun Jaitley’s Budget proposal to have a committee review the implementation of FRBM Act
Possibility of adopting a target range than a specific number
Benefit of target range	It would give the necessary policy space to deal with dynamic and volatile situations such as the one India faces – global economic and financial market uncertainty, a slowdown in China and tepid private investment demand domestically

Fiscal Deficit Road map: depicting elusive target of 3% of GDP

Source: Review the fiscal consolidation path, March 7, 2016, The Hindu

& Elusive 3% Fiscal Deficit Target, January 15, 2016, Business Standard

http://www.business-standard.com/article/economy-policy/elusive-3-fiscal-deficit-target-116011500032_1.html