Is monetary policy over-rated?

Monetary policy contributed little to the “Great Moderation”. Changes in the volatility of structural shocks did.

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Ajit Ranade: A spat swallows RBI's autonomy Downgrading RBI's standing is an unwitting collateral damage of the ordinance

A year ago, the capital markets regulator, Securities and Exchange Board of India (Sebi), asked that mutual funds not charge any entry load for investments by their subscribers. This was quite a revolutionary regulation, since it changed the incentive structure of the way mutual funds were sold to investors. Sebi was guided by two things: the cost of brokerage and distribution were anyway declining due to technology; and investors could now pay directly to distributors for services rendered, rather than have a commission sliced off their investments by the mutual fund. Prima facie this new regulation would discourage selling funds simply because they paid high brokerage or commissions to the distributor. Distributors would henceforth have to “earn their keep” by not merely pushing high-commission products as in the past, but also by becoming financial advisers to their clients. Distributors and, to some extent, mutual funds protested against this diktat, since it upset their business model. The Sebi view was that the mutual fund industry was now mature enough to be able to separate the “manufacturer” (the mutual fund itself) and the “distributor”, and there was no need to keep the cost structure opaque and clubbed together. Before the dust could settle down on this no-load rule, the rules of financial “physics” had started working.

Surjit S Bhalla: RBI 1, Subbarao 0 Unfortunately, with RBI, history repeats itself as both farce and tragedy much too often

For a moment, it looked like Indian monetary policy-making would step out into the modern world. The job of monetary policy is to be forward-looking, to anticipate future possibilities, rather than practise “rear window” economics. And, as financial and product markets around the world globalise and integrate, so should monetary policy divine not only what is happening and will likely happen in India, but also infer the same about the economies of the western world and that of our competitors in Asia. Very likely, this is what D Subbarao had in mind when he joined RBI as governor in September 2008.

Obama's window dressing US financial reforms Bill falls short of original aim

US President Barack Obama has signed into law the US Financial Reforms Bill. The debate on the Bill has been going on for quite some time now and, as usually happens in such politically charged debates, the original purpose and objective of the Bill has gotten lost in various compromises. It was important for Obama to keep his promise of financial reforms and so he came forward with an Act that introduces some reforms. Unfortunately, as is the case in most democracies with less-than-strong and visionary leadership, what one ends up with is very different from what one started with. For example, the Act does nothing to restrict the size of banks, a major objective of the original reform proposal. Admittedly, while the US could regulate the size of its own banks, it could do very little to cap the size of foreign banks. Since the US and foreign banks operate in the same global and national space, it is difficult to restrict the size of US banks if they are to compete with their bigger foreign counterparts. This once again highlights the necessity to coordinate financial market reforms across countries, something the emerging countries have been aware of ever since they were hit by the crisis they did not bring upon themselves.

Games politicians play Will CWG 2010 cross new frontiers or win new friends?

There are mind-boggling estimates of cost over-runs, with the total cost estimated to be anywhere between Rs 10,000 crore and Rs 30,000 crore, depending on what elements are included as cost of the Games. This is at least one reason why the Games continue to attract hostile media attention. The Delhi government has been increasing tariffs of public utilities and raising revenues in the name of the Games without explaining why the taxpayer has to cough up so much.

The changing climate Global slowdown and politics weaken emission reduction resolve

The decision of the US Senate not to ratify the American Clean Energy and Security (ACES) Act, 2009, passed last year by the US House of Representatives in the run up to the Copenhagen Climate Summit, is a reminder of the evaporating support for tough measures to deal with climate change and carbon emissions in developed economies. For all the brouhaha and the bravado of the past decade, and the pressure on India and China to make binding commitments on emission reduction, developed economies, in particular the United States, have not yet demonstrated their commitment to emission reduction. Two factors seem to have shaped political opinion in the US between last July and now.

Disasters sow seeds of success

Great disasters occur constantly. The Asian financial crisis blasted the miracle economies of Asia. The Great Recession of 2007-09 led to the bankruptcy/rescue of the five top investment banks on Wall Street, the biggest bank (Citibank), the biggest insurance company (AIG), the biggest auto manufacturer (General Motors) and the biggest mortgage underwriters (Fannie Mae and Freddie Mac). The BP disaster in the Caribbean is the greatest environmental disaster in history. Some people fear that global warming will be the biggest manmade disaster of all.

Oil Spill’s Lessons

BP failed to cap an exploration well it was drilling in the Gulf of Mexico; it continues to spill crude. The dirty oil has been fatal for much marine life. Now the black, tar-like blobs are spreading up the Texas coast and disfiguring the shore for miles. BP has not been able to find a solution; for now it looks as if the spill could continue for years and devastate the coastline for hundreds of miles.

The Folly Of Prudence Countries of southern Europe may be on way to collapse, but it would be worse if they tightened their belts

He said that the Euro was an incomplete currency to begin with; the European Union created a common currency, but not a common treasury. So every member country was free to run whatever deficits it liked, and to run up any level of national debt. The market ignored this because the European Central Bank was prepared to buy the bonds of any member government. It preferred the bonds of southern European countries because they ran bigger deficits and hence paid higher interest. European Banks stacked up on these bonds; of the Spanish sovereign debt of a trillion Euros, a half is held by French and German banks. Hence if a south European country reneges on its debt, the banks of the strongest countries would get into trouble: they cannot afford to let their banks fail, and would be bound to bale them out. That is why Germany baled out Greece, and would have to bale out Spain and Italy if the government of either failed to honour its debt repayments

High Expectations Investor concern is only on RIL's near-term cash flow, not on its cash base

The Krishna-Godavari (KG) basin gas output seems to be the biggest concern among investors, which is expected to stay at 60 million standard cubic meters a day (mscmd) for at least a year. The investors expected a rise to 80 mscmd this year, adding $1.1 billion (Rs 5,100 crore) to the revenue at the current natural gas price.

RBI imposes penalty on ICICI Bank, StanChart

"The RBI has imposed a penalty of Rs 5 lakh on ICICI Bank... For violation of the guidelines on Know Your Customer (KYC)/Anti Money Laundering (AML) standards," the central bank said in a statement.

Autonomy of regulators

Are the government's efforts to limit RBI's autonomy aimed at taking power away from Mumbai to Delhi?

Four banks to join Bharti loan syndication

At least four more banks are slated to join the core group of lenders that syndicated a $7.5 billion (around Rs35,475 crore) loan for Bharti Airtel Ltd, India’s largest mobile telephony firm by subscribers, to acquire the African asset of Kuwaiti Mobile Telecommunications Co. KSC (Zain), according to an official of Standard Chartered Bank Plc (StanChart), the lead arranger of the loan.

Products made in China often cost more there than in the West

The laptop computer Luo Guangli carried out of the Apple flagship store in Beijing was no different from the models sold in the United States. It had the same high-resolution screen, an identical processor and the same printed label on the back: "Assembled in China."

Understanding Russia’s Approach on Afghanistan, Pakistan

US President Barack Obama’s June 24 meeting in Washington with his Russian counterpart, Dmitry Medvedev, focused mainly on trade and economics. They did not spend much time on security issues, such as Afghanistan. That means an opportunity to gain better mutual understanding about a crucial strategic matter may have been missed.

What you need to keep in mind when filing ITR

Make adequate disclosures

Don’t forget to claim

With the last date of filing income tax returns (ITR), 31 July, nearing, a common question these days is: “Am I required to file my ITR?” This question is most commonly raised by salaried employees, who believe that all taxes they need to pay have been deducted at source by the employer, and by senior citizens, who believe that they are now too old to be paying taxes. In most cases, the answer to this question is: “Yes, the law requires you to file your ITR.”

 

Nokia India workers agree to wage pact

Some 4,000 workers at mobile phone maker Nokia India Pvt. Ltd’s Chennai factory agreed to call off a two-day strike after meeting the state labour minister and management representatives on Wednesday, the company said in a statement.

Credit-deposit ratio of banks high at 73.4%

It’s not just loans to the telecom sector, of course, that is driving credit growth; with the economy growing at a scorching pace, bank lending, too, has picked up. Moreover, unlike during the early part of the recovery, when most of the growth had been in non-bank sources of funding, such as the equity markets, the primary markets have been more subdued during the last few months.

New FDI policy norm may not handicap ICICI, HDFC banks

Large private sector banks such as ICICI Bank Ltd and HDFC Bank Ltd, which have been categorized as foreign-owned entities, may be given some leeway in their downstream investments, a senior official indicated on Wednesday even as he maintained that such lenders are not handicapped by the new foreign direct investment (FDI) policy regime.

What Would Be The Impact Of Fuel Price Hikes?

The government has moved to ease price controls on petrol and raise other fuel rates. Here are some questions and answers about the implications.

LIC's investment in markets may cross Rs 2-lakh crore this year

Our gross investments last year were Rs 1,93,000 crore; this year, they should cross Rs 2-lakh crore. The investments will be across government securities, state and corporate debt, project loan infrastructure, equity,” said N Mohanraj, ED-investments at LIC.

Inflation as a solution for Europe

Blanchard said that if 2% inflation was the norm, and interest rates were around the same level, central banks could not cut interest rates by more than 2% in a slump: they could not go below zero.

U.S. Debt and the Greece Analogy

Don't be fooled by today's low interest rates. The government could very quickly discover the limits of its borrowing capacity.

BP Relied on Cheaper Wells

In recent years, oil giant BP PLC used a well design that has been called "risky" by Congressional investigators in more than one out of three of its deepwater wells in the Gulf of Mexico, significantly more often than most peers, a Wall Street Journal analysis of federal data shows.

Obama's New Approach to Missile Defense in Europe

he Obama administration's recently announced "Phased, Adaptive Approach" to missile defense in Europe will strengthen ties with European allies and will provide for better security, explains CDI Research Assistant Jenny Shin.

Budget Nightmare at the Pentagon

An extremely broad right-left coalition may be forming to bring real change to the Pentagon. Such change is not coming otherwise, explains Straus Military Reform Project Director Winslow Wheeler.

Very nice letter

The Honorable Alan Simpson
Mr. Erskine Bowles
National Commission on Fiscal Responsibility and Reform
1650 Pennsylvania Avenue NW
Washington, DC 20504

Nine Questions (and Provisional Answers) About the Spill

The sea is slow to reveal its secrets, and so is BP. The regulators and other companies caught up in the Gulf of Mexico oil disaster are almost as opaque. Whether motivated by the need for self-protection, the desire to get it right before releasing information, or the inevitable fog of a shape-shifting crisis, the sometimes conflicting statements released by BP, the Minerals Management Service, and others have left a raft of unanswered questions. How much oil is spewing into the Gulf each day? How much damage is it doing, and will the ecosystem ever recover? Who made the decisions that led to this nightmare?

Green Solutions

Siemens continues its traditional partnership with World Expos and offers its green solutions to Shanghai

Solutions for the Green Economy

Government officials, scholars and business leaders gathered in Beijing to discuss a roadmap to the globe's low-carbon future