Tuesday, February 1, 2011

India at Davos: Story of Corruption and Governance Deficit

Brand India has lost its luster at Davos in 2011!

Poor governance and corruption are endemic in India, and have been the talk of the town at Davos this year, tarnishing the meticulously crafted image of "Shining India" at the World Economic Forum since 2006. The immediate effect is that that India's foreign direct investment (FDI) is already down by a whopping 36% in 2010 from 2009, and there is no recovery in sight yet. Meanwhile India's current account deficit is exploding, accounting for about 3.5% of GDP.

In 2006, the "India Everywhere" campaign orchestrated by Indian planning commission officials and the Confederation of Indian Industry (CII) dominated the ambiance of the World Economic Forum at Davos, Switzerland. They spent two years and more than $4 million and put together an elaborate marketing and PR campaign to ensure that the "India story" got prominent play and did not get drowned in the noise at Davos. The success of the initiative was apparent by the dramatic increase in FDI inflow to India which doubled from less than 1% of GDP to nearly 2% of the expanded GDP in 2008.

Here is how Times of India reported the scene from Switzerland in 2006:

For once, India is really everywhere at Davos. With the 35th World Economic Forum (WEF) opening at the Swiss mountain resort, one cannot help but notice India Everywhere.

Right from the moment you step off the aircraft at Zurich airport, big hoardings proclaiming India greet you. Upon reaching Davos, located about 150 km from Zurich, the Indian colours are just about everywhere.

In fact, you see more of India than Switzerland in Davos this year.

The buses wear Indian colours, the bus shelters have Indian advertisements, and key bars, pubs and hotels in the city where the economic meet began Wednesday evening are serving up Indian snacks and Indian wines and beer.

Reports from the World Economic Forum at Davos in 2011 offer a very different narrative.

Coming after the massive multi-billion dollar telecom corruption scandal in 2010 and expression of deep concern by some prominient India businessmen about the nation's governance deficit in 2011, India's presence at the World Economic Forum 2011 was decidedly lower key when compared with the heady days of 2006.

Summing up the sentiment at Davos, an Indian journalist opined as follows: "..such a forthright disregard for the so-called "India story" may understandably offend nationalist sentiments and bring on the "west versus rest" polarization that keeps many public intellectuals in business. But the harsh truth is that India has been sold, resold and re-re-sold in so many samosa and Sula evenings that it has lost novelty."

Here's a video clip on India's massive corruption:

Related Link:

Haq's Musings

Indian Economy: Hard or Soft Landing in 2011?

Pakistani Economist Saadia Zahidi at World Economic Forum

Inaction Against Corruption in South Asia

2G Corruption Scandal in India

Musharraf at Davos 2008

Imran Khan at Davos 2011

Delhi in Davos: How India Built its Brand at the World Economic Forum

FDI India, Pakistan, China and Vietnam 2003-2010

China's Trade and Investment in South Asia

India and Pakistan at Davos 2009

India's Twin Deficits

Pakistan's Economy 2008-2010

Inflation Hits India

Goldman Sachs India Warning on Twin Deficits

India's Nov 2010 Imports, Exports


Anonymous said...

riaz jee
Davos 2011 was a crisis sumit!In case you didn't notice.
Not ONE single country was feted at the summit.

We don't need to do another blitz at davos because
1.The time isn't right world economy wise
2.India is already perceived as a major player and a future power by the people that matter.

Rahul said...

Why do you compare with China. Compare with your own country. What were the comments on Pakistan in Davos. Can you enumerate....

Riaz Haq said...

Rahul: "Why do you compare with China. Compare with your own country. What were the comments on Pakistan in Davos. Can you enumerate.... "

Unlike India with its expensive "India Everywhere" and "India Shining" campaigns, Pakistanis have never paid much attention to World Economic Forum. Nor has China. While India sends hundreds of people to court attendees at WEF, China sends only about a dozen, and Pakistan sends even fewer.

AFAIK, the only Pakistanis who attended WEF at Davos this year are Imran Khan, the cricketer turned politician-philanthropist and Saadia Zahidi, a Pakistani economist.

Imran was there at the invitation of Davos organizers to speak, and Saadia is a director at WEF leading its gender parity program.

Rahul said...

If Pakistan is not sending its delegates to WEF then its doing a pretty big mistake.(But thinking about, that what it will say about itself) As for China's presence you might have missed the news. China was very much there and was trying to attract foriegn investment. because its not illeterate like Pakistanis not to attend WEF

Riaz Haq said...

Rahul: "As for China's presence you might have missed the news."

Read the following from Indian Express on the Chinese team of less than 20, vs hundreds from India:

"When put in the China-context, the India story looks even grimmer. The dragon slalomed past the tiger in Davos 2011. China did not have to announce its presence from a restaurant corner, offering samosas as fondue; its aura was felt everywhere. The China-focused sessions spoke more about what China could do for the world than about itself, or its potential. There was no China hoarding visible anywhere. Their delegates numbered just over 20. But hardly a session went without a Chinese face on the podium, or a deferential mention of the country in the proceedings. It was ironic when Min Zhu, a Chinese special adviser to the IMF, not only stole the show in a discussion on India — addressed among others by Chidambaram and ICICI Bank chief Kochhar — but also advised Indians quite magisterially on how serious they ought to get on the inflation problem."

Rahul: "If Pakistan is not sending its delegates to WEF then its doing a pretty big mistake."

Without much effort at WEF, Pakistan did pretty well in attracting FDI at higher levels than India as perecent of GDP, until the current political, economic and security crisis started in 2008.

Example: While India got FDI at only 1.7% of its GDP, Pakistan got FDI of 2.8% of its GDP in 2007.

It's a miracle that Pakistan still get over $2 billion in FDI and FII in spite of all its current problems.

And Vietnam does little hype at WEF to consistently get FDI of more than 20% of its GDP.

Read the following:


sohail Khan said...

This is a good post because now truth is coming out for India. All the media people make Pakistan look bad and they don't know India is more corrupt and democracy is fraud. one day everyone will know the truth about India becuase it is the main sponsor of troble in Pakistan and also the world.

Riazbhai i also called Templeton about Karachi stock but they charge 5% and no garantee. They can also use my money to invest in India which i dont like. Maybe it is secret.

Please tell me how you made so much money in Karachi stock. I cant find info in newspaper or internet. Maybe all the Indian media dont want money going to Pakistan because then more money will go to India!
Please put info on your webpage about Karachi stock. Thank you very much.

Anonymous said...

Cherry picking news articles seems to make you happy.
Actually its getting a bit boring.Davos or no Davos PAkistan is currently in a lost decade with NEGATIVE percapita income growth since 2008.

India is now the world's 10th largest economy (nominal) and will be 3rd or 4th largest by 2020.

Unfortunately there is pecious little your blogging can do to these facts on the ground.

Incidentally Riaz our merchandize exports will increase 35% this year even though FDI has fallen which means that our domestic industry like Japan/South Korea DOES NOT NEED FDI to export.

We CONCIOUSLY protect our domestic industry by LIMITING FDI which is why we have TATA ,Larsen and Toubro,MAhindra,CG,Thermax etc etc and you don't.

Riaz Haq said...

Anon: "We CONCIOUSLY protect our domestic industry by LIMITING FDI which is why we have TATA ,Larsen and Toubro,MAhindra,CG,Thermax etc etc and you don't."

Unlike China or Pakistan, India's economy depends heavily on FDI and FII to fund its growing trade deficit and overall current account deficit.

India's current account deficit is being increasingly funded by short-term capital inflows (FII) rather than more durable foreign direct investment (FDI), posing a risk to external balance and funding of gap, according to a recent warning by Goldman Sachs. "Nearly 80 per cent of the capital inflows are non- FDI related. Given the excess spare capacity globally, FDI may remain weak going forward," the Goldman note said.

Riaz Haq said...

SK: "Please tell me how you made so much money in Karachi stock. I cant find info in newspaper or internet. Maybe all the Indian media dont want money going to Pakistan because then more money will go to India!
Please put info on your webpage about Karachi stock."

First, let me dispel the notion that I have made a lot of money in stocks in Karachi or anywhere else.

Second, I don't think there are any pure-play mutual funds or ETFs for Pakistan yet, but I have heard of plans for launch of such products this year.

Anonymous said...

Pakistan doesn't have a CAD because its economy is in a coma.

For eg if PAkistan seriously thinks of addressing its power shortfall it must import coal fired plants worth atleast 20-30 billion from China.

But its economy is so paralyzed that the economy is on a per capita basis contracting for the past 3 years and looks set to continue to do so this year.

India on the other hand doesn't really need to worry exports growth>>Import growth for past 4 months so CAD should stablize somewhere this year at below 3% GDP.

Riaz Haq said...

India's corporate mafia is fuelling corruption, says Prashant Bhushan, according to newKerala.com:

"The corporate mafia has come to control every institution of power and governance, be it politicians, bureaucracy, police and, to an extent, judiciary also," Bhushan told IANS in an exclusive interview.

"The corporate houses have become monstrously large and a law unto themselves. They get the law and policies made and decision taken including judicial decisions," he said, adding "very often they decide what the media will report or not report".

Bhushan, the son of eminent jurist and former law minister Shanti Bhushan, said any fight against corruption and for redeeming democratic institutions had to commence with transparency.

"The situation today is much worse than what it was in the early 1970s. At that time we did not have the corporate mafia controlling all the institutions. That was a situation when a powerful prime minister temporarily choked off democracy. Today, this corporate mafia is accountable and more dangerous," Bhushan asserted.

"This system is so bad. There is no point in preserving the illusion of functional democracy when it is clear that most institutions of democracy have crumbled or are non-functional. We need to restore proper democracy in the country and not preserve an illusion of democracy."

The lawyer said the only prescription for rescuing Indian governance from "corporate mafia" was "transparency" and people's right to know about the functioning of the state apparatus.

"Unless we wake up and start engaging in public issues and affairs, we are heading towards disaster," said Bhushan, who is facing contempt of court proceedings for highlighting the alleged misconduct of an apex court judge.

It was Bhushan who convinced the Supreme Court to monitor the Central Bureau of Investigation (CBI) probe into the allocation of 2G airwaves to telecom companies. He also spoke on his fight against corruption and allegations against Central Vigilance Commissioner (CVC) P.J. Thomas.

He said India was in a "very serious situation" and the "biggest threat was corruption that had spread in every vital sphere of the state's functioning".

The crumbling democratic institutions could be "repaired and restored" provided there was a "very strong people's movement in the country that would bring pressure on the institutions".

"Though the judiciary can play a useful role in that process", in the final count it needed the backing of a strong people's movement, he said.
"I think all problems have to be dealt with simultaneously. You cannot shut your eye to a problem in one institution in order to highlight it in another institution. This is a shortsighted policy which does not pay in the long run," he said.

Advocating an independent media, he said that the media should not be controlled by corporate houses or those who have a direct or indirect interest in other business.

Unknown said...

Lets see if you'll allow this or censor it -

A bird, a plane? No, it`s inflation

FIRST, the good news. The reforms package mooted by the PML-N and to be `implemented` by a bipartisan committee has some good stuff in it.

Now to the bad news: even if implemented fully, something only the chronically delusional could hope for, the reforms package doesn`t even begin to address the immediate, and far more dangerous, economic threat.

Essentially, the government is in desperate need of money. Lots and lots and lots of money; perhaps as much as a trillion rupees in the year ahead.

(It`s simple math, really: the government spends twice as a much as it earns. For various complicated reasons, the spending side isn`t the fundamental problem — government spending of around 20 per cent of GDP is par for the course for a country with Pakistan`s economic profile. The revenue side is the main problem, hovering as it is around 10 per cent of GDP, putting us in the league of economic basket cases.)

Scan through what`s been mooted by the PML-N and the measures the bipartisan PPP-PML-N committee is supposed to debate, though, and there`s nothing meaningful about revenue generation.

Which means the government is still left with a VERY, VERY BIG PROBLEM: where will it find a trillion rupees?

Good ol` Zardari asked Obama for a bail-out, hoping to cash in on the ultimate moral hazard with Uncle Sam. Except it didn`t quite work: get real, Zardari was told, we`ll help you guys out when you guys get serious about reforms. So, tail between its legs, the government will end up pounding on the doors of Shahid Kardar. Print us some more money, it will demand of the State Bank, or else we`ll find someone who will.

But here`s the problem. In December 2009, a certain esoteric piece of data read Rs1.35 trillion. That, for simplicity`s sake, was pretty much the currency in circulation in the economy.

In December 2010, this figure had gone up to Rs1.6tr. Rumour has it that the State Bank may be pumping as much as Rs2bn a day into the economy at present.

Quick back-of-the-envelope calculations reveal the full horror of what is in store for Pakistan. Between the end of 2009 and the end of this year, the currency in circulation may well double. But the size of the economy won`t have grown by more than a smidgen.

Twice the money, the same amount of goods and services — figuring out the impact on prices isn`t very difficult.

Plan A is a bailout from the Americans or the IFIs. If Plan A doesn`t work, there`s Plan B: shell out patronage.

Not enough cash to feed the mouths at home? No problem, Benazir Income Support Programme to the rescue. A couple thousand bucks every other month, and don`t forget to vote for the party of Shaheed Mohtarma.

Next, you, your home got damaged in the floods? Lost your goat and sickly cow? Here, take a Watan Card. Twenty thousand cash down, eighty to come. Remember, Shaheed Mohtarma made it all possible. Including the eighty thousand that will come later…

Village needs a road? Here`s a few million for a shoddily built one, enough to drive wagons full of voters to the nearest polling booth come the next election. Gas connection? Local school? Irrigation project? Cheque, cheque and cheque.

Actually, to figure out the PPP`s road map to the next election, look no further than the Musharraf strategy in 2007-08. Subsidies ballooned as the prices of electricity, petrol and other commodities were frozen. `Project money` was thrown around willy-nilly, political expediency trumping economic sense.

But wait, wouldn`t throwing around even more money only compound the problem when too much spending and too little earning was the problem in the first place?

The future is another country. Right now, there are votes to be won.


Anonymous said...

A Lovely Piece

A worldwide survey was conducted by the! UN.

The only question asked was: "Would you please give your honest opinion about solutions to the food shortage in the rest of the world?"

The survey was a huge failure, In Africa they didn't know what 'food' meant, In India they didn't know what 'honest' meant,

In Europe they didn't know what 'shortage' meant, In China they didn't know what ' opinion' meant,

In the Middle East they didn't know what 'solution' meant, In South America they didn't know what 'please' meant,

And in the USA they didn't know what 'the rest of the world' meant!

Bhimsen said...

NEW DELHI: Buoyed by steady recovery in demand for technology services, the Indian IT-BPO sector is estimated to have grown 19% in 2010-11 to $76 billion in revenues, software industry lobby Nasscom said on Wednesday.

“Pent-up demand for IT-BPO services and return of discretionary spending in the market were the key drivers for the industry performance,” Nasscom president Som Mittal told reporters.

Exports continued to be the mainstay of the industry with revenues of $59 billion, growing at 18.7%. Domestic market, on the other hand, grew 16%, to aggregate rs 78,700 crore (about $17 billion).

For FY12, the software and services growth is expected to grow at 16-18% with $68-70 billion in revenues. The domestic market is estimated to grow by 15-17% with revenues of Rs 90,000-92,000 crore (about $19-20 billion).

Riaz, what about the private sector?

Mayraj said...

"Wipro Chairman Premji, who along with a number of eminent personalities had recently written an open letter on a "governance deficit", said they would focus on the "complete breakdown in public governance across the board".
"I am extremely disappointed. I think it is a national calamity and is personally very devastating because one had so much confidence when they (UPA-II) came in," he told television channels when asked whether the present government was "unable to deliver".

"We think it is important. We focus attention on the complete breakdown in public governance across the board, whether it is government, or businessmen, or traders...," he said.
"One has reached a point in public governance where one has to take stock... Enough is enough, we have to reform ourselves. If we don't do that, we are not going to leave children behind us proud of the country, despite 8-9 per cent (economic) growth."

Enough is enough, have to reform: Premji on governance deficit

Riaz Haq said...

Mayraj: "Wipro Chairman Premji, who along with a number of eminent personalities had recently written an open letter on a "governance deficit", said they would focus on the "complete breakdown in public governance across the board".

Azim Premji stands alone in the midst of corrupt and rapacious Indian business and government leaders.

Unlike Ambanis and Tatas, Premji has already given a billion dollars for philanthropy, and he has criticized Indian government on rampant corruption and increasing governance deficit.

But he is a lone voice drowned out by the loud noise of the "India Shining" crowd.

Anonymous said...

Thank you for highlighting the corruption in India. The article by The Conservative BJP leaning Indian Express author is more aimed at the current Congress government. I doubt however that it is your intention to rectify the current level of corruptio that exists.
Your target is to make
Pakistanis feel better by presenting selected issues that serve your purpose

Anonymous said...

RBI knows its stuff!

I think a throttling back of growth by 1-2% points for 1 year is perfectly acceptable after all even china's growth is now 9% down from 12% and likely to decrease further by 1-2% points this year.

Anonymous said...

Actually the situation is complicated inflation in India is rising so much partly because 70% of the inflation index is food related and food prices have been rising globally thanks to erratic weather in russia and australia thanks to la nina..
non food inflation is actually not that bad indicating that the economy is not per se over heating
and thus higher interest rates may be counter productive.

Still given its record one should give RBI the benefit of the doubt.

Riaz Haq said...

Anon: "Actually the situation is complicated inflation in India is rising so much partly because 70% of the inflation index is food related and food prices have been rising globally "

Yes, it is hard to fight food and fuel inflation...particularly fuel because India has to import it and its price depends on global suply-demand situation.

And RBI's monetary policy alone is not enough; it'll take a combination of monetary and fiscal discipline whch is lacking in India due to large and growing budget deficit and curret account deficit.

Anonymous said...

And RBI's monetary policy alone is not enough; it'll take a combination of monetary and fiscal discipline whch is lacking in India due to large and growing budget deficit and curret account deficit.

How ?
current account deficit /surplus has zero impact on inflation in any country.Neither does budget defecit infact if anything a large budget deficit causes deflation as governments borrow money from financial markets and institutioanl lenders to make up the shortfall thus taking liquidity out of the market.

Fundamentally even with food inflation indian food prices are low on an absolute $/tonne relative to the rest of the world on most food items.

The problem is due to growth demand for food is increasing far in excess of farm output due to economic growth. This currently cannot be adjusted with imports as external prices of food is much higher than indian prices.

So my prediction is food inflation will continue till indian prices are nearly at par with world prices after which it will plateau out and rise/fall with world prices.

Riaz Haq said...

Anon: "How ?
current account deficit /surplus has zero impact on inflation in any country.Neither does budget defecit infact if anything a large budget deficit causes deflation as governments borrow money from financial markets and institutioanl lenders to make up the shortfall thus taking liquidity out of the market"

All spending, public or private, is stimulative, which stimulates aggregate demand that causes inflation.

If the RBI jacks up interest rates to cool private borrowing and spending, and the governmemt continues its spending spree, the two will cancel each other, the economy will not slow, nor will inflation come down.

Riaz Haq said...

FII inflows (aka hot money) into Indian stock markets surged 66% from $17.4 billion in 2009 to $29 billlion in 2010, according to The Hindu newspaper:

Mumbai, Dec. 31 Year 2010 saw foreign institutional investors buy Indian stocks for $29 billion net. This is the most that they have pumped into the Indian market in a single year despite the market-indices here being fairly range-bound during this period.

This is also much more than the inflows ($17.6 billion) seen in 2007, when the Sensex was on a gaining streak.

The markets did surge a little in 2009, too, when FIIs were net buyers for a total of $17.45 billion.

Domestic institutions, on the other hand, were net sellers of equities for Rs 19,503 crore in calendar 2010.

FIIs were also net buyers in equities in all months this calendar, except in January and May. August saw the highest net purchases in a single month this year for $13 billion.

On a year-to-date-basis, the Sensex and the Nifty returned 15 per cent and 16 per cent, respectively.

It was this relentless buying from the FIIs that pushed up the Indian markets in 2010.

Though the Sensex did reach an all-time high this year, it was quite range-bound. The benchmark has been trading between 17,000 points and 21,000 points right through 2010.


The buying spree on the part of FIIs slowed down in the last month amidst all the scams and the routine FII year-end exits when they need to pay their investors. Their net purchases during December has so far amounted to $0.3 billion only.

“Part of this pullback is because India is perceived to be overvalued vis-a-vis other emerging markets.

“Indian markets have enjoyed around a 30 per cent premium to the other emerging markets. But what has happened this year is that the scams have made FIIs start to question the rich valuations here,” said Mr Saurabh Mukherjea, Head of Equity at Ambit Capital. He added that the next year might see a moderation in FII inflows into the country.

Domestic institutions were net buyers of equity during December and November after being net sellers for five consecutive weeks. Mr Mukherjea said that insurance companies have been seeing inflows trickling in during December and that the fund houses here are also in “slightly better health”.

Mr K. Ramanathan, Chief Investment Officer at ING Investment Management, said that mutual funds faced a lot of redemptions this year and they did not get much incremental net inflows.

“The changes in the regulatory framework too hurt the mutual fund industry. Distributors find it better to sell insurance products as the brokerage there is better than from distribution of mutual funds,” he added.


Bhimsen said...

Economics 101:
There are many causes for inflation, depending on a number of factors. For example, inflation can happen when governments print an excess of money to deal with a crisis. As a result, prices end up rising at an extremely high speed to keep up with the currency surplus. This is called the demand-pull, in which prices are forced upwards because of a high demand.

Another common cause of inflation is a rise in production costs, which leads to an increase in the price of the final product. For example, if raw materials increase in price, this leads to the cost of production increasing, which in turn leads to the company increasing prices to maintain steady profits.
Increased government spending and the resulting higher deficit DOES NOT directly cause inflation unless additional liquidity is injected into the economy by printing money. Too much money chasing fewer goods and services. If the government simply BORROWS money or raises money via BONDS it will not cause inflation - but it may impact future growth!

Anonymous said...

It is very similar to sponsoring an trade show event in Las Vegas. The confederation of Indian Industry decided to sponsor the entire event promoting many aspects of the Indian private sector in 2006.
Once you get the necessary exposure, the various industries count on the multiplier effect which my company got before we sold it to Wipro.

The event was sponsored by the private industry and not the government.

Anonymous said...

Yes, it is hard to fight food and fuel inflation...particularly fuel because India has to import it and its price depends on global suply-demand situation.

not really fuel prices in india are administered and something like 50% of retail prices are due to taxes.

Therefore subsidizing fuel is operationally simple cut taxes to balance out high feed stock prices and direct subsidies to downstream compoanies who import oil

Food inflation on the other hand is more complicated....

Riaz Haq said...

Anon: "not really fuel prices in india are administered and something like 50% of retail prices are due to taxes."

Reducing or removing fuel taxes will make India's budget deficit (already at 5% of GDP) a lot worse, forcing the govt to borrow even more than its is already.

Anonymous said...

Reducing or removing fuel taxes will make India's budget deficit (already at 5% of GDP) a lot worse, forcing the govt to borrow even more than its is already.


tax is a percent of feedstock price say oil is @50/barrel and u tax 20% u get $10

If feedstock is at $100 and u cut tax to 10% u still get $10.

The sensitivity of retail petrol to crude price is not 1:1.

bhimsen said...

After reading some of your previous "musings" I have made some conclusions.

In general you tend to have a bias against India which prevents you from an accurate analysis. The topics you choose are contrived to appease Pakistanis who are ready or waiting for any "ills" of India they can get their hands on.

You accuse a number of magazines of bias reporting but, yet you continue to do the same.
Your investment ideas are often misleading (KSE article) to people you are trying to appease (Sohail, eg).
I understand that you may be trying to "help" Pakistanis by making them feel better by highlighting the ills (and there are many) of India. However, you often propagandize such information at the expense of misleading them.
India has myriad of problems no doubt and any attempt to solve them begins by thoroughly understanding them.
The same goes for Pakistan.

Care to respond?

Riaz Haq said...

Bhimsen: "In general you tend to have a bias against India which prevents you from an accurate analysis"

The fact is that your reading is selective, and you are easily offended when I criticize India based on published data and sources that I cite, but you readily accept all of my frequent criticisms of Pakistani leadership for their corruption, incompetence, poor governance, etc.

And I bet you also think that all of the analysis and reports of the organizations such as UNICEF, UNDP, WHO, IFPRI, OPHI, British intermational aid dept, India's Planning Commission,etc. also have a bias against India for finding that Indians are poorer, hungrier and sicker than Pakistanis and even some of the sub-Saharan African nations.

Bhimsen: "Your investment ideas are often misleading (KSE article) to people you are trying to appease (Sohail, eg)."

I do not offer any investment ideas or advice to anyone; I simply offer publicly-availabl data that shows that the KSE has outperformed BSE over the last one year, five years and ten years.

There is no need or reason for me to appease anyone.

Riaz Haq said...

Hot money inflows now account for 58% of India's forex reserves, reports The Financial Express:

The ratio of volatile capital flows—defined to include cumulative portfolio inflows and short-term debt—to the country’s forex reserves increased to 58.1% in March 2010 compared to last year’s 47.9%.

According to the Reserve Bank of India (RBI), the ratio of short-term debt to the foreign exchange reserves declined from 146.5% in March 1991 to 12.5% in March 2005, but increased slightly to 12.9% in 2006.

However, with expansion in the coverage of short-term debt, the ratio increased to 14.8% in March 2008, to 17.2% in March 2009 and 18.8% in March 2010.

The country’s foreign currency assets are invested in multi-currency, multi-asset portfolios as per the existing norms which are similar to the best international practices followed in this regard. At end of March 2010, out of the total foreign currency assets of $ 254.7 billion, $ 132.1 billion was invested in securities, $ 117.5 billion was deposited with other central banks, BIS and the International Monetary Funds (IMF) and $ 5.1 billion was placed with the External Asset Managers (EAMs).

A small portion of the reserves has been assigned to the EAMs with the main objective of gaining access to and deriving benefits from their expertise and market research, said RBI.

The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82% in July 2007-June 2008 to 4.16% in July 2008-June 2009.

The RBI held 557.75 tonne of gold forming about 6.0%of the total foreign exchange reserves in value terms as at the end of March 2010.

Of these, 265.49 tonne are held abroad (65.49 tonne since 1991 and further 200 tonne since November 2009) in deposits / safe custody with the Bank of England and the Bank for International Settlements.

In November 2009, the RBI concluded the purchase of 200 metric tonne of gold from the IMF, under the IMF’s limited gold sales programme. The purchase was an official sector transaction and was executed over a two week period during October 19-30, 2009 at market-based prices. As a result of this purchase, the RBI’s gold holdings have increased from 357.75 tonne to 557.75 tonne.

Following the commitment made by India as part of the G-20 framework, the RBI has agreed to purchase SDR denominated notes from IMF up to $10 billion. As on March 31, 2010, $317.9 million was invested in notes of the IMF.

International Monetary Fund designated India as a creditor under its Financial Transaction Plan (FTP) in February 2003. During April 2009 to March 2010, SDR 130 million was made available to Romania, SDR 50 million to Sri Lanka and SDR 117.93 million to Belarus.

The total purchase transactions amounted to SDR 1194.16 million as at the end March 2010. India was included in repurchase transactions of the FTP since November 2005. There were no repurchase transactions during the half year ended March 2010.

The traditional trade-based indicator of reserve adequacy- import cover of reserves- which fell to a low of three weeks of imports at end-December 1990 reached a peak of 16.9 months of imports at the end of March 2004. At the end of March 2010, the import cover stands at 11.2 months.

Anonymous said...


Riaz basically what you are saying if every single dollar of hot money is repatriated today India will still have around $120 billion out of its $300 billion FX pile to finance its CAD at current rates for 3 years assuming not one additional cent comes in way of FII/FDI for the next 3 years.

I think that's a good thing.

Riaz Haq said...

Anon: "India will still have around $120 billion out of its $300 billion FX pile to finance its CAD at current rates for 3 years assuming not one additional cent comes in way of FII/FDI for the next 3 years."

You are assuming that nothing else is affected by it. But that's not how economies work.

First, $120 billion is only enough for just four months of imports for India, an alarming indicator for any nation's balance of payments situation, and its ability to produce goods and services for domestic consumption and exports.

Second, , it'll significantly cut India's economic growth rates which result from significant FII and FDI.

Third, sudden withdrawal of hot money will cause a major Indian stock market crash that can easily destroy overal economic confidence and bring down the rest of the Indian economy dramatically...similar to what happened in the late 1920s depression in America.

Anonymous said...

A sudden withdrawl of all FII from any economy on the planet will wreck it.
That's hardly news.

The point is sudden withdrawls of large amounts usually happen in economies with tiny FX reserves and artificially manipulated exchange rates as the arbitrage opportunities is kind of obvious.

In India on the other hand the RBI doesn't artificially peg the currency to any other aka Yuan to USD.So the rupee is more or less trading at fair value.
In addition the FX pile means the Rupee won't collapse if there is a sudden reversal of flows of FII like 2009 so I think cautious optimism in in order...

Anonymous said...

Riaz ji

You are very worried about India's FII investments and that they pose a threat to our stability

Actually it is a problem of plenty

We dont want excessive investments .Our Rupee is stable at 46 to a USD

The Global volume of FII capital
which runs into a few trillions NEEDS India

FIIs have to invest somewhere They are looking for attractive places like India and China

India's domestic economy is very strong and the 8.5 % growth will continue

Since FII s look out for attractive places with high growth they will keep coming to India

Riaz Haq said...

Anon: "Since FII s look out for attractive places with high growth they will keep coming to India"

If India is so attractive, why are Indians net sellers?

Domestic institutions were net sellers of equities for Rs 19,503 crore in calendar 2010, according to the Hindu Business.

And why has Sensex been range-bound. The benchmark has been trading between 17,000 points and 21,000 points right through 2010?

Anonymous said...

Riaz ji

You have just said that The sensex is range bound .That is true .It will stay around 18500 for a year because of Inflation

Inflation creates savings oppurtunity because the interest rates become high

Since inflation is high at present ALL Commercial banks in India are offering interest of 9.5 % PA on fixed deposits

Even NRIs are investing in Bank deposits

Since Bank deposits are safe middle class is liquidating their Mutual Funds investments and putting it in Bank deposits

But the gross domestic capital formation ie INVESTMENT in the
economy is high at 39 % of the GDP

Since the Foreign Investment is still coming in good quantities the Forex reserves are high

Similarly the Exports are doing well. 215 Billion this year

Then there are Remittances ,Tourism Earnings ,Services exports like IT

SO this year Current Account Deficit will be 3.5 % which is manageable

Our Fiscal deficit is High BUT the very strong Domestic Economy can Absorb it

The food and fuel inflation will NOT stop our Growth of 8.5 %

As our PM recently Inflation has risen because Purchasing Power And Incomes have gone up

Riaz Haq said...

Ashmit: "KSE vs BSE...really?! the KSe has a ridiculously puny market cap of 35 billion USD. Reliance Industries alone has a market cap that is 3-4 times the cap of the whole of KSE. BSE's market cap is 1.6 TRILLION USD. How do you even compare the two? "

Stock markets and companies' shares are investment vehicles and they should be compared based on current valuations and performance, not just size.

It is these criteria that are used by international and domestic investors, not current market cap per se.

The market cap is only relevant when a market like BSE gets so ridiculously overvalued by an avalanche of hot money that it exceeds the India's GDP, and KSE remains cheap and and attractive because it is trading at about 50% of the PE at BSE, and KSE market cap is only a fraction of Pakistan's GDP, a healthy sign that shows potential.

Ashmit: "And as for the link you had posted about FDI as a percent of GDP - the same chart shows FDI as percent of fixed investment. You had chosen 2007 as the year to project the gap b/w pak and ind in terms of FDI as percent of GDP. well the same year stats show that pak needed FDI for 12.7% of gross fixed investment as opposed to india's 5.2%. So...really, who needs it more?"

This is nonsense. India needs FDI more than Pakistan because of its massive current account deficits. And India's FDI's drop of 30% last year is hurting it.

Anonymous said...

Riaz ji

Your Last statement that drop in FDI is hurting India is Completely baseless .

How Exactly is it hurting Please clarify

Our growth IS 8.5%

Our rupee is quite stable at 46

Foreign Investment comes in India through various routes

FDI FII Private equity Firms ,Venture Capitalists ,Export proceeds ,Remittances ,Services Exports and Tourism Earnings

Indian Companies Raise GDR and ADR and also foreign currency loans in various global Capital Markets

The various points that you have raised like Hot Money , Drop in FDI, Inflation ,Corruption ,Income disparities are all true

But the overall macro economic picture is fine

What really matters is the strength of India's Domestic Economy which helps us to face challenges

This strength is reflected in
1.A well diversified economy and Industrial Base
2.Growth rate ,3.Exports , 4.Savings rate and
5. FDI plus FII taken together

Finally Brand India is as strong as ever

The Global concern expressed at Davos shows that that the world WANTS India to have a high growth rate so that recession hit western economies are also benefitted through more trade

Anonymous said...

Stock markets and companies' shares are investment vehicles and they should be compared based on current valuations and performance, not just size.

Really riaz then why do most international news channels only mention the biggies and not tiny ones like KSE...

The market cap is only relevant when a market like BSE gets so ridiculously overvalued by an avalanche of hot money that it exceeds the India's GDP, and KSE remains cheap and and attractive because it is trading at about 50% of the PE at BSE, and KSE market cap is only a fraction of Pakistan's GDP, a healthy sign that shows potential.

India's valuations are due to the high ROCE of Indian corporations.Incidentally since Pakistan economically is not doing anywhere close to half as well as India I think the KSE is hopelessly overvalued and being pumped up by hot money.

comparing KSE $35 billion market cap is less than something like 10 TATA group subsidiaries(individually each of these are valued more than 40 billion TCS,TATA motors,TATA steel etc)

Riaz Haq said...

Anon: "Your Last statement that drop in FDI is hurting India is Completely baseless .How Exactly is it hurting Please clarify"

It's forcing India to take huge risks by relying on hot money to fund its large and growing current account deficit.

India's FDI has declined by a third from $34.6 billion in 2009 to $23.7 billion in 2010. Its current account deficit is being increasingly funded by short-term capital inflows (FII up 66% from $17.4 billion in 2009 to $29 billion in 2010) rather than more durable foreign direct investment (FDI), posing a risk to external balance and funding of gap, according to a recent warning by Goldman Sachs. "Nearly 80 per cent of the capital inflows are non- FDI related. Given the excess spare capacity globally, FDI may remain weak going forward," the Goldman note said.

Read more at: http://www.riazhaq.com/2010/12/indian-economy-hard-or-soft-landing-in.html

Riaz Haq said...

Anon: "India's valuations are due to the high ROCE of Indian corporations.Incidentally since Pakistan economically is not doing anywhere close to half as well as India I think the KSE is hopelessly overvalued and being pumped up by hot money."

Is that why Indians are net sellers of Indian equities?

The fact is that the 66% spike last year of hot money into India unleashed by the US Fed is building a bubble in Bombay that can burst any moment....Chinese are smart and they have already imposed severe limits on hot money inflows there.

Joseph Stiglitz, a Nobel Laureate Columbia University economist, has argued that India is more vulnerable to an asset bubble than China, saying that “strong economies that don’t yet have capital control become the focal point” for the liquidity injected by the US Federal Reserve. Stiglitz thinks that India, more than China or Brazil, should watch out for the tidal wave of money made available from the Fed’s quantitative easing.

Ashmit (India) said...

firstly, the vigour and fervour with which you incessantly sell the same arguments, is commendable. Secondly, for someone who appears to be reasonably well informed of contemporary issues, the way you choose to NOT take cognisanze of the pakistan's pitiable position - fiscally, too, is perplexing.

At the risk of sounding redundant, I have already conceded to your arguments about the nervous situation that India has landed herself in. But, i don't susbscribe to the idea that pakistan fares any better. My contention is simply that India is not great, but Pakistan is far worse.

Now speaking of deficits. How does it feel, as a pakistan supporter, to have matters of cabinet being orchastrated by international agencies? Pakistan's federal ministers have been made to resign, after pressure from the IMF. IMF threatens to choke the credit flow and Pakistan's representatives are seen jumping through hoops.

Reason - fiscal DEFICIT, expected to climb baloon to 8 percent. With tax earnings marginally up by roughly 6% and and non-tax revenues slipping by a huge 35%, the situation looks grim for pakistan.

meanwhile, to quote a online newspaper report (thenews.com/pk) - " The public debt has crossed the red mark of more than 60 percent of the Gross Domestic Product (GDP) or 10 trillion rupees. Hard times and a grim future! A large budget deficit is considered the mother of economic problems. It multiplies public debt, increases interest rates and reduces fiscal space. That’s what has been happening in Pakistan where social sector and development spending have taken a deep cut."

As your govt borrows more, credit becomes more expensive impairing the already slow growth, pushing up inflation to new highs. Leading economists and even the SBP think so (http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=29597&Cat=3&dt=2/6/2011).

And i have come across your jeers about India's CAD while citing a surplus for pakistan (which really doesn't even qualify as pocket change). Well the SBP, itself, doesn't seem to share your sense of optimism. With imports likely to pick up momentum, whatever advantage that the country gained will be dented severely (http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=29064&Cat=3&dt=2/3/2011).

And what about the brent crude going past the 100 dollar mark. Does Pakistan have the wherewithal to weather the storm? The numbers don't think so.

Moreover, debt ratings looks miserable. S&P rates pakistan's sovereign credit as B-, and a short term sovereign credit rating of C. Both significantly lower than the "investment grade".

The picture looks dismal. Its not UTOPIA, here either, but India fares better.

So, yes. I'll concede that grave economic threats confront india, if you concede that pakistan has a lot more to worry about.

And finally, Egypt, Tunisia, have been making headlines for uprisings due to various reasons - but at the risk of sounding simplistic, one of the strong causes being the prevailing situation of economic distress. I came across this interesting read (cant find the link right now). That article showcased how all of those nations, had infact, a track record far superior to that of pakistan. So...is pakistan heading the egypt way? Just some food for thought. Not drawing any analogies.

Anonymous said...


Riaz Haq said...

Anonymous: "http://online.wsj.com/article about car sales"

The January 2011 double digit increase in car sales in India is a clear sign of an over-heating economy due to unrestrained credit expansion that is fueling double-digit inflation.

Riaz Haq said...

Ashmit: "My contention is simply that India is not great, but Pakistan is far worse. "

Judging from the perspective of a few Indian billionaires and their urban middle class supporters, India is doing quite well.

However, from the point of view of the poor South Asians, Pakistan is well ahead of India in meeting the basic needs of the poor.

There are some arrogant Indians in cyberspace as well as the physical world who contemptuously dismiss any comparison of India and Pakistan. However, the responsible Indian and UNICEF officials concur that Indians are much worse off than Pakistanis and Bangladeshis in terms of basic nutrition and sanitation.

India is worse than Bangladesh and Pakistan when it comes to nourishment and is showing little improvement in the area despite big money being spent on it, said India's Planning Commission member Syeda Hameed.

"There has been an enormous infusion of funds. But the National Family Health Survey gives a different story on malnourishment in the country. We don't know, something is just not clicking," Hameed said.

Speaking at a conference on "Malnutrition an emergency: what it costs the nation", she said even Prime Minister Manmohan Singh during interactions with the Planning Commission has described malnourishment as the "blackest mark".

"I should not compare. But countries like Bangladesh, Pakistan and Sri Lanka are better," she said. The conference was organized in 2008 by the Confederation of Indian Industry and the Ministry of Development of Northeastern Region.

According to India's National Family Health Survey, almost 46 percent of children under the age of three are undernourished - an improvement of just one percent in the since 2001.

India might be considered an emerging economic power, but it is way behind Pakistan, Bangladesh and even Afghanistan in providing basic sanitation facilities, a key reason behind the death of 2.1 million children under five in the country. Lizette Burgers, chief water and environment sanitation of the UNICEF, has said India is making progress in providing sanitation but it lags behind most of the other countries in South Asia.

While a mere 14 percent of people in rural areas of India - that account for 65 percent of its 1.1 billion population - had access to toilets in 1990, the number had gone up to 28 percent in 2006. In comparison, 33 percent rural Pakistanis had access to toilets in 1990 and it went up to an impressive 58 percent in 2006.

Similarly in Bangladesh, 36 percent of rural people have access to proper sanitation. The corresponding figures for Afghanistan and Sri Lanka were 30 percent and 86 percent respectively.

So I'd encourage you to think about the 75% of Indians surviving on less than $2 a day (vs 60% of Pakistanis) and the families of the 7000 Indians who starve to death every day, and the survivors of the 200,000 farmers who have killed themselves over the last ten years.

Ashmit: "So...is pakistan heading the egypt way? Just some food for thought. Not drawing any analogies."

Pakistanis have already gone through the struggle that Tunisians and Egyptians are going through now.

It's unfortunate that even the elected leaders in developing nations, such as India and Pakistan, are corrupt and incompetent and serving their people badly.

Anonymous said...

overheating chinese economy

Unknown said...


Malnutrition cannot be the only parameter to measure quality of life.

The most reliable statistic for comparison is the Human Development Index that gives a score of 0.585 for India and 0.527 for Pakistan.

Also as far as corruption goes, the top coterie of decision makers in India is far far cleaner today than at any time in the past. And far more capable as well. Men like Dr. Singh, P. Mukherjee and P. Chidambaram belong to an outstanding calibre with unquestionable personal credentials. A few ministers from regional parties like the DMK and NCP that the Congress relies on for power have been irritants but thanks to overwhelming media exposure, even that is set to become a thing of the past. Also another very positive trend in the states, is that honest and efficient leaders like Nitish Yadav in Bihar, Modi in Gujarat(as much as I dislike the fellow), Shiela Dikshit in Delhi etc have been repeated been re-elected, proving that good governance pays off. Overall if one were to look at the bigger picture instead of individual corruption cases, it would certainly make the unbiased observer feel optimistic.

With the most powerful men in Pakistan being Asif Zardari and Nawaz Sharif, I don't think you're being fair in drawing parallels here.

Riaz Haq said...

Here's a NY Times story on how Azim Premji's foundation is helping improve primary education in India:

PANTNAGAR, India — The Nagla elementary school in this north Indian town looks like many other rundown government schools. Sweater-clad children sit on burlap sheets laid in rows on cold concrete floors. Lunch is prepared out back on a fire of burning twigs and branches.

But the classrooms of Nagla are a laboratory for an educational approach unusual for an Indian public school. Rather than being drilled and tested on reproducing passages from textbooks, students write their own stories. And they pursue independent projects — as when fifth-grade students recently interviewed organizers of religious festivals and then made written and oral presentations.

That might seem commonplace in American or European schools. But such activities are revolutionary in India, where public school students have long been drilled on memorizing facts and regurgitating them in stressful year-end exams that many children fail.

Outside of India, many may consider the country a wellspring of highly educated professionals, thanks to the many doctors and engineers who have moved to the West. And the legions of bright, English-speaking call-center employees may seem to represent, to many Western consumers, the cheerful voice of modern India.

But within India, there is widespread recognition that the country has not invested enough in education, especially at the primary and secondary levels.

In the last five years, government spending on education has risen sharply — to $83 billion last year, up from less than half that level before. Schools now offer free lunches, which has helped raise enrollments to more than 90 percent of children.

But most Indian schools still perform poorly. Barely half of fifth-grade students can read simple texts in their language of study, according to a survey of 13,000 rural schools by Pratham, a nonprofit education group. And only about one-third of fifth graders can perform simple division problems in arithmetic. Most students drop out before they reach the 10th grade.
Narayana Murthy, a friend of Mr. Premji and chairman of Infosys, a company that competes with Wipro, said he admired the Premji Foundation’s work but worried it would be undermined by the way India administers its schools.

“While I salute Azim for what he is doing,” Mr. Murthy said, “in order to reap the dividends of that munificence and good work, we have to improve our governance.”

Mr. Premji says his foundation would be willing to work with private schools. But he argues that government schools need help more because they are often the last or only resort for India’s poorest and least educated families.

Mr. Premji, whose bright white hair distinguishes him in a crowd, comes from a relatively privileged background. He studied at a Jesuit school, St. Mary’s, in Mumbai and earned an electrical engineering degree at Stanford.

At 21, when his father died, Mr. Premji took over his family’s cooking oil business, then known as Western Indian Vegetable Product. He steered the company into information technology and Wipro — whose services include writing software and managing computer systems — now employs more than 100,000 people. He remains Wipro’s largest shareholder.
After visitors left a classroom at Nagla school, an instructor began leading more than 50 fifth-grade students in a purely rote English lesson, instructing the students to repeat simple phrases: Good morning. Good afternoon. Good evening. Good night. The children loudly chanted them back in unison.
Underfunding is pervasive in the district. But so are glimmers of the educational benefits that might come through efforts like the Premji Foundation’s.

Anonymous said...

Tunisia, Egypt, Bahrain... Sonia & Rahul Gandhi's Corrupt Indian Family next ?


Riaz Haq said...

Soutik Biswas of BBC on "Why India's big, fat weddings will never stop":

The big, fat Indian wedding returned to the front pages of newspapers this week: reportedly a $55m gig with 20,000 guests, a Bell helicopter as dowry, a 100-dish menu, a dozen TV screens showing a video feed of the proceedings, and even a $5,000 tip for the groom's barber. The groom's father - a rich Congress party politician and real estate magnet, exemplifying the intersection of politics and new money in India - wryly remarked that the media reports of the wedding were speculative.

For the Congress party-led government whose credibility is battered by a tsunami of corruption scandals, the hugely ostentatious wedding by a party member should come as an embarrassment, many here feel. One minister is reported to have said recently that nearly 15% of India's grain and vegetables is wasted through "extravagant and luxurious functions". Party chief Sonia Gandhi has pleaded with her workers to be frugal and her MPs to fly economy class. The embattled PM, Manmohan Singh, had feebly exhorted businessmen to refrain from ostentatious displays of wealth because such "vulgarity insults the poor". But what he possibly forgets is that the poor in India are actually insulted every day by many of the men and women they vote into power.

The government is apparently working on a law to curb waste at extravagant weddings and functions. No law will be able to change soon a people and society that remain deeply hierarchical, feudal and class-conscious. At one end of the scale a hapless farmer may take ruinous loans from money-lenders to host a wedding beyond his means. At the other end a billionaire unabashedly builds the world's priciest home (more than $1bn) in Mumbai where half the people live in slums. All this is symptomatic of a society which thrives on perpetuating inequity. With near double-digit growth, there's going to be more money to throw around and flaunt. So don't expect any lame law to curb India's vulgar, overblown weddings any time soon.

Riaz Haq said...

Ashmit: "I did run your views by some practiciing and successful economists, CAs, CFPs, brokers and analysts. ..."

Your experts are wrong. The investors look at multiple criteria that include current market cap, equity valuations and performance over 5, 10 and 15 year periods. KSE-100 index has outperformed not just BSE but all BRIC exchanges and its price-earning multiples are about half of those in Mumbai, Shanghai, etc.

If you had invested $100 in KSE-100 stocks on Dec. 31, 1999, you'd have over $1000 today, while $100 invested in Mumbai's Sensex stocks would be worth about $400. Investment of $100 in emerging-market stocks in general on Dec. 31, 1999 would get you about $300 today, while $100 invested in the S&P500 would be essentially flat at $100 at the end of 2010.

Going forward, here's how I would argue the opportunities offered by KSE:

1. KSE has a strong track record of investor returns over the last one year, five years an ten years.

2. KSE-100 index has outperformed other emerging markets, including BRICs, by a wide margin for over a decade.

3. The worst case investment risks in Pakistan are already reflected in the deep discounts of valuations of Pakistani shares in terms of price-earnings multiples.

4. KSE-100 shares are trading at price-earnings multiples (P-E ratio) of less than 8, about half of other Asian markets in the region.

5. Pakistanis are a young, resilient nation. The people of Pakistan have defied the dire forecasts made after Swat violence in 2009, and massive summer floods of 2010.

6. After the deluge of Aug-Sept 2010, Pakistan's rural economy has bounced back as reflected in rising tractor sales and bumper crops.

7. The KSE selloff during floods has attracted foreign buying, with over a billion dollars pouring in in 2010.

In the end, I would quote Mark Bendeich of Reuters who wrote on Jan 10, 2008:

"A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.
They should have. Their clients could have made a fortune.
Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.
As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."

And in spite of the 50% drop in KSE-100 2008,, those who invested and held their shares made a 5X return at the end of 2008, not bad.

And, even after the 50% drop in KSE-100 in 2008, any one who bought in year 2000 and held on till 2010, the return would be a whopping 12X, far outpacing returns on BRIC markets or anywhere else.

Riaz Haq said...

The BBC is reporting that widespread corruption in India costs billions of dollars and threatens to derail the country's growth, according to a survey.

The report by consultancy firm KMPG said that the problem had become so endemic that foreign investors were being deterred from the country.

It was compiled by questioning 100 top domestic and foreign businesses.

Its release comes as Prime Minister Manmohan Singh struggles to cope in the battle against corruption.

Earlier this month the head of the country's anti-corruption watchdog was forced to resign by the Supreme Court on the grounds that he himself faces corruption charges.

Over the last six months India has been hit by a series of corruption scandals including a multi-billion dollar telecoms scandal, alleged financial malpractices in connection with the Commonwealth Games and allegations that houses for war widows were diverted to civil servants.
Mega scams

"Today India is faced with a different kind of challenge," the report said.

"It is not about petty bribes (bakshish) any more, but scams to the tune of thousands of crores (billions of rupees) that highlight a political/industry nexus which, if not checked, could have a far reaching impact.

"Corruption poses a risk to India's projected 9% GDP growth and may result in a volatile political and economic environment."

Critics of the government say that recent scandals point to a pervasive culture of corruption in Mr Singh's administration - adding to the difficulties of a politician once seen as India's most honest.

The government denies the claims and has set up a parliamentary inquiry into corruption.

The BBC's Sanjoy Majumder in Delhi says that most Indians routinely pay bribes for a number of services such as getting a driver's licence or a passport.

But, our correspondent says, the KPMG survey makes clear that corruption is now no longer about such petty bribes but mega scams where billions of dollars are siphoned off by government and industry.

The worst-hit areas as identified by the report were real estate and construction - a priority for Delhi which plans to spend $1.5tn over the next decade to improve its over-burdened infrastructure.

The report said that the country's telecommunications industry was also badly affected.

Telecoms Minister Andimuthu Raja resigned in November, denying allegations that he had undersold billions of dollars worth of mobile phone licences. He is now under arrest.

However the KMPG report was not all gloomy. It said that despite the murky regulatory environment, business remained active in India with more than half of those surveyed saying they were unaffected by corruption.

More than 80% of respondents disagreed that corruption had reduced their ability to access domestic or foreign funds, while 55% disagreed that corruption had affected their business.

Riaz Haq said...

Here's an excerpt from BBC's Soutik Biswas on corruption in aviation licensing in India that risks lives:

...some recent disquieting developments have rattled air passengers and raised serious doubts about the quality of the people who are flying what most believe are reasonably well-maintained machines.

Federal aviation authorities say they will be checking the licences of some 4,000 pilots flying commercial aircraft after allegations that at least four were found to have fake documents. Two have been arrested for using fake certificates to obtain licences.

The first, a pilot from the perpetually ailing, state-owned Air India, apparently fabricated his qualifications. The other, who was arrested last week after damaging the aircraft during landing, was found to have used fake documents to get her licence. The licences of the other two pilots are apparently riddled with irregularities, and both have reportedly disappeared.

According to one report by news channel CNN-IBN, a pilot who was caught cheating during a flying test in the US in 2000 and denied a licence, got a commercial licence on his return to India by forging his qualifications and has since been working as a senior pilot with Air India. Air India spokesman Kamaljeet Rattan would not discuss that particular case with the BBC. But he tells me the airline is scrutinising the papers of a dozen pilots. "It's nothing very serious, and not at all scary," he says. "These are routine checks."

Senior aviation officials echo the views of Mr Rattan. "Fake licences are very few so there is no need to panic," says Bharat Bhushan, India's most senior civial aviation official. But there are suspicions that pilots cannot be faking their papers without some inside help. And aviation analysts believe this is the time to crack down. "This is a very serious issue," Kapil Kaul of Centre for Asia Pacific Aviation tells me. "When pilots are faking their certificates it is a criminal offence. It points to a systemic failure. Airline operators also cannot absolve themselves of responsibility. They need to have more vigorous checks. And decisive action needs to be taken against the pilots."

As if all this was not enough, last week the government announced that 57 pilots reporting for duty had tested over the limit for alcohol in the past two years. All were prevented from joining their aircraft. The issue was raised in parliament - according to a parliamentary document I have seen, the pilots were employed by every leading private airline as well as Air India. Ten were sacked; others had their licences suspended or were taken off the flight roster.

The airlines have been keeping a low profile on this - like Mr Rattan want to play down the severity of the problems. By and large Indians appear to have been reassured by the government announcement. There's been no public outcry. But concerns about the quality of some pilots have been around for a while. Last August former civil aviation minister Praful Patel was asked in parliament whether commercial pilots had been drunk on duty. He replied there had been no such incident. Another MP actually asked Mr Patel this year whether "under-trained pilots are flying commercial flights... risking the lives of hundreds of passengers". Again the minister denied any such possibility.

Riaz Haq said...

Latest publication of Wikileaks by The Hindu reveals vote buying by India's ruling party in a 2008 confidence vote:

The ghost of bribes for MPs’ votes returned to haunt the government on Thursday with the entire Opposition demanding its resignation over allegations that UPA-I purchased the support of lawmakers to survive the trial of strength at the height of crisis over Indo-U.S. nuclear deal in 2008.

On top of several scams that had surfaced in the last few months, the government faced a torrid time in Parliament on Thursday with Opposition targeting it on the manner in which it won the vote of confidence in 2008 after the Left parties had withdrawn support to it opposing the Indo-U.S. nuclear deal.

Both the Houses of Parliament were repeatedly rocked by uproar and adjournments by the Opposition members who demanded the resignation of Prime Minister Manmohan Singh and his government saying it did not have any right to continue even for a moment as it was surviving on “political and moral sin“.

The Right and and the Left combined in Parliament whenever it met during the day to launch an assault armed with the claim in a U.S. diplomatic cable revealed by WikiLeaks that an aide of former Union Minister Satish Sharma had shown to the diplomat currency chests that were part of Rs.50 crore to Rs.60 crore money collected by Congress for purchase MPs for the vote in the Lok Sabha.

The only defence that the government came out with was when Finance Minister Pranab Mukherjee told Parliament that a diplomat’s cable enjoyed immunity and he could not confirm or deny its contents.

Riaz Haq said...

Here's a BBC report on pregnant women's deaths in Rajathan due to tainted UV fluids:

..The (three) doctors have been charged with negligence and irregularities in purchases of medicines.

The women died after they were given infected intravenous (IV) fluids at two hospitals in Jodhpur city.

Laboratory tests had confirmed that IV fluids supplied by a local company were "tainted", officials said.

The women died after severe haemorrhaging after they were administered with the IV fluids, authorities say.

India accounts for the highest number of maternal deaths in the world, with tens of thousands of women dying every year due to pregnancy-related problems.


Here's a Deccan Herald story on tainted medicines in India:

It is said that roughly 10 per cent of the medicines available in the market are counterfeit, contaminated or substandard. Profits are huge in the trade. This is a massive racket that involves not just illicit manufacturers but a long chain that includes distributors and then, of course, the shops and hospitals through which these spurious medicines are pushed. It is alleged that pharmacists selling counterfeit drugs profit from doing so. If manufactures are able to push their contaminated drugs easily, it is because hospital authorities are not vigilant. They prefer to purchase medicines from those who grease their palms rather than trusted manufacturers. The problem of contaminated medicines is not one that is confined to allopathic medicines. Testing of some samples of ayurvedic or homeopathic medicines has revealed presence of toxic metal.

Indian pharmaceutical companies export medicines to Africa and Latin America. Therefore, the manufacture of substandard drugs and contaminated fluids poses a grave public health threat that extends far beyond India’s borders. Stern action against those responsible for Jodhpur tragedy is welcome. But it must not stop there. The government must act against other manufacturers of counterfeit and contaminated medicines. The crime they are engaging in is not a minor one. It cannot be brushed aside as mere negligence as they are causing the death of people. They cannot be allowed to play with people’s lives. It is undermining the legitimacy of our medical system.

Riaz Haq said...

Here's a Guardian Op Ed by Indian journalist Pankaj Mishra:

Food prices become intolerable for the poor. Protests against corruption paralyse the national parliament for weeks on end. Then a series of American diplomatic cables released by WikiLeaks exposes a brazenly mendacious and venal ruling class; the head of government adored by foreign business people and journalists loses his moral authority, turning into a lame duck.
Even the western financial press, unwaveringly gung-ho about the money to be made in India, is getting restless. Early this year, the Economist asked: "Is Indian capitalism becoming oligarchic?" – a question to which the only correct response is "Hell-ooo". Recently in the Financial Times' Indian business dynasties have been described as "robber barons".

The intimate details about politicians revealed by WikiLeaks still leave you speechless. What can one say about the former cabinet minister, a fervent spokesman for low-caste Hindus, who demanded a large bribe from Dow Chemical Company, which is being helped by senior American officials to overcome its association with the gas leak at the Union Carbide factory in Bhopal that in 1984 killed and maimed tens of thousands of Indians?

Indeed, the cables reveal US business and officials to be as embedded in India's politics as they are in Pakistan's. In 2008, the aide to an old courtier of the Nehru-Gandhi family showed a US diplomat two chests containing $25m in cash – money to bribe members of parliament into voting for an India-US nuclear deal, itself a prelude to massive US arms sales to India. Publicly opposed to the nuclear deal, the leaders of the Hindu nationalist BJP are at pains to reassure American diplomats of their pro-US credentials, even dissing their murderous Hindu nationalism as opportunistic, a mere "talking point".

The cables offer many such instances of the ideological deceptions practised by the purveyors of "Rising India". Virtually all economic growth of recent years, a senior politician admits, is concentrated in the four southern states, two western states (Gujarat and Maharashtra) and "within 100km of Delhi". But why worry? He has nieces and sisters living in the US, and "five homes to visit between DC and New York". As for the entry of retailers like Walmart into India, oh, that "should not seriously hurt the mom and pop stores that form a BJP constituency".

Not surprisingly, the Americans have developed contempt for such representatives of the world's largest democracy, who seem to validate Mahatma Gandhi's extreme denunciations of parliament as a "prostitute". Hillary Clinton gets right to the point in a cabled inquiry about Pranab Mukherjee, the finance minister widely tipped as India's next PM: "To which industrial or business groups is Mukherjee beholden? Whom will he seek to help through his policies? Why was Mukherjee chosen for the finance portfolio over Montek Singh Ahluwalia?" – the last named is a reliably pro-US technocrat.


Visiting the White House in 2008, Singh induced a nationwide cringe when he blurted out to the most disliked American president ever: "The people of India deeply love you." (Even George Bush looked startled.) This love unblushingly speaks its name everywhere in the WikiLeaks cables; even the racketeers of Pakistani military and intelligence appear dignified when compared with the Indians stampeding to plant kisses on US behinds. Singh has presided over an ignominious surrender of national sovereignty and dignity.

Riaz Haq said...

Wikileaks' founder Julian Assange has told Times of India that rich Indians are stashing money in Swiss bank accounts:

Julian Assange, made a stunning disclosure, that there could be Indian names in the data that WikiLeaks would publish. In the course of the interview, Assange appealed to Indians to absolutely not lose hope that the names of those with secret Swiss accounts will come out at one point in the future. Hinting that Wikileaks might work with specialized agencies before releasing the Swiss bank data he pulled up the Indian government for not being aggressive like Germany in going after the list of Indian account holders. In fact he said India should be more aggressive because India seems like it is losing per capita more tax money than Germany

This is the first time Assange has spoken about Indian accounts in these Swiss banks, and comes at a time when the national debate over Swiss Bank accounts has sharpened.

Arnab Goswami: You have strong views on it. And I completely appreciate that you can't talk about it in detail. But let me ask you more generically, that is your heart, you would like to reveal the details...in your heart. I am not asking you when and under what circumstances, but having known about it, you would like to reveal details of how the system operates, wouldn't you?
Julian Assange: Well, we have various types of information about different banking operations in the world. Over time, we have revealed those. In fact, most of the legal attacks on us have been from banks. Banks in Scotland...banks in Dubai...banks in Iceland. We all received legal attacks from these banks. And we will continue publishing data on these banks as soon as we are able to do so.

Arnab Goswami: Have you encountered any Indian names? I am not asking you to tell me where, which banks...
Julian Assange: Yes there are Indian names in the data we have already published or going to publish. I can't remember specifically whether there are Indian names in the upcoming publication. But I have read Indian names. Similarly, in these private Swiss banking concerns, where you need at least a million dollars...which is a significant amount of money...Not an average Indian.

Arnab Goswami: And it is difficult to identify those names. Anything else you can tell us?
Julian Assange: I can't tell you anything more at this stage. As we go through the process of releasing data, as always we have to do extra research. And once we understand which media organizations are best placed to help us with that research, then we operate with them. But we are not at that stage yet that I know all the research that is going on.

Riaz Haq said...

Here are a few excerpts from Wall Street Journal story titled "India's Boom Bypasses Rural Poor":

The Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGA), as the $9 billion program is known, is riddled with corruption, according to senior government officials. Less than half of the projects begun since 2006—including new roads and irrigation systems—have been completed. Workers say they're frequently not paid in full or forced to pay bribes to get jobs, and aren't learning any new skills that could improve their long-term prospects and break the cycle of poverty.

In Nakrasar, a collection of villages in the dusty western state of Rajasthan, 19 unfinished projects for catching rain and raising the water table are all there is to show for a year's worth of work and $77,000 in program funds. No major roads have been built, no new homes, schools or hospitals or any infrastructure to speak of.

At one site on a recent afternoon, around 200 workers sat idly around a bone-dry pit. "What's the big benefit?" said Gopal Ram Jat, a 40-year-old farmer in a white cotton head scarf. He says he has earned enough money through the program—about $200 in a year—to buy some extra food for his family, but not much else. "No public assets were made of any significance."

Scenes like this stand in stark contrast to India's image of a global capitalist powerhouse with surging growth and a liberalized economy. When it comes to combating rural poverty, the country looks more like a throwback to the India of old: a socialist-inspired state founded on Gandhian ideals of noble peasantry, self-sufficiency and a distaste for free enterprise.

Workers in the rural employment program aren't allowed to use machines, for example, and have to dig instead with pick axes and shovels. The idea is to create as many jobs as possible for unskilled workers. But in practice, say critics, it means no one learns new skills, only basic projects get completed and the poor stay poor—dependent on government checks.
But shortly after the program started in February 2006, workers complained that local leaders were docking pay and asking for money in return for job cards. The central government responded in 2008 by sending money directly to workers' bank accounts. But according to workers and auditors, the money takes so long to reach those accounts—up to 45 days—that workers are often forced to accept lesser cash payments from local leaders on the condition that they repay the money at the full amount.

Audits of the program in the southern state of Andhra Pradesh found that about $125 million, or about 5% of the $2.5 billion spent since 2006, has been misappropriated. Some 38,000 local officials were implicated, and almost 10,000 staff lost their jobs.

In one study of eastern Orissa state, only 60% of households said a member had done any of the work reported on their behalf. Earlier this month, the central government gave the green-light for the Central Bureau of Investigation, India's top federal criminal investigation body, to launch a probe into alleged misuse of program funds in Orissa.

In other states, audits are nonexistent or have faced a backlash. Non-governmental groups that have tried to carry out audits in Rajasthan have complained that village leaders often refuse to hand over documents about the employment program. At times, auditors say, they have faced harassment and physical intimidation.

In Nakrasar's one-room village council office, people continue to sign up for the program—many of them women whose husbands have gone to work in urban areas. Shilochandra Devi, a 37-year-old with her program work book in hand, said she could buy more spices because of the program. "And anyway, we're not doing anything else. So why not?"

Riaz Haq said...

Here's an opinion by Taran Marwah of Afund India for July 2011:

All the “reform processes” are on hold in India for the past six months due to scams in various sectors in the Indian economy. Reforms in FDI in Retail, Insurance and Defense etc are in the “cold storage” since January 2011. FDI into India for the period - January to June 2011 is one-ninth than that of China in the same six month period. Plus Indian fiscal deficit is ballooning due to high crude oil prices and Indian Government’s inability to dismantle APM for petroleum products as mentioned above. Such low level of FDI is not a good sign for the Indian Economy. JFI - Indian trade account deficit for last financial year was US $ 105.00 billion. We predict that RBI will further raise interest rates, when its Board meets for monetary policy discussion in the last week of July 2011. We expect a 50 bpts hike in Repo rates by RBI in the last week of July 2011. Analysts feel that the hike will only be to the tune of 25 bpts. Let us wait and see. RBI is willing to sacrifice GDP growth in India at the cost of reining in inflation.

The BSE SENSEX will be bullish if it closes convincingly above 18190. There have been net FII flows into the Indian Equities and Asian Equity Markets in June 2011. If the trend continues in July 2011, then the levels for BSE SENSEX to watch for July 2011 are as follows :
R1 18800 R2 19340 R3 19500
S1 18500 S2 18190 S3 15960 (subject to closing below 18190 for fifteen consecutive days)
We predict that Indian equities will be range bound for the month of July 2011, with a bearish undertone. The levels are as per above figures. But we are bearish for the Indian equity markets for August and September 2011. We will see BSE SENSEX levels lower than 15960 in Q3 2011. By the way Credit Suisse said in its report of June 2011 to its investors that it predicts BSE SENSEX to be around 16000 in Q3 2011 ? We said this or near about (15960) in Q1 2011 ? AOTC – my problem !


Riaz Haq said...

The Indian economy is in trouble, says Ramtanu Maitra:

Although the economy continues to show high GDP growth, there is a growing disparity between India's sea of poor people and the few at the top of the heap. Out-of-control inflation, caused by the inflow of billions of dollars in hot money, combined with poor productivity due to weak physical infrastructure has resulted in corruption of unimaginable proportions, which has eaten away the gains made earlier. Prime Minister Manmohan Singh, who heads a group of disparate political parties under the banner of the United Progressive Alliance, is busy keeping the coalition government in power by doing little to prevent further deterioration of the nation's economy.
On June 16, the Reserve Bank of India (RBI) raised its benchmark lending rates for the tenth time in 18 months, as a monetary measure to slow down the rampaging inflation monster, which has already greatly hurt the poor, and is now beginning to hit the middle class, which had benefitted in recent years from the GDP growth and wage rise. The earlier nine such monetary measures within the past 18-month period did not slow down inflation. It is inevitable that the high interest rates will attract more short-term hot money into the country, spurring a faster rate of inflation in the coming days.
India has earned the distinction of incurring the highest inflation of major emerging markets. On June 14, the Singh government said inflation had increased 9.1% in May, compared with a year earlier, a rate higher than expected. High inflation was first observed two years ago in the rise of food prices that affected India's poor the most. But since India's hundreds of millions of poor have little voice in directing New Delhi's economic policies, for the greater part of the last two years such inflation was pooh-poohed by Indian economists, accusing the growing army of the middle class of "over-consumption of food." Now, inflation has shown up everywhere, once again, proving the shortsightedness of those economists.
What this picture, which I elaborate below, underscores, is the inescapable truth that if a fundamental shift away from the monetarist system is not initiated in the United States, and soon, we are looking at the literal devastation of the largest population centers in the world, such as India and China. This is, in fact, the concern of all humanity - and must be stopped.
The Growing Anti-Poor Bias Unwilling to change course, and stubbornly defending the failed economic policy, New Delhi is still harping on India's high GDP growth rate. The New York Times reported on June 15, that Kaushik Basu, the government's chief economic advisor, said, in an interview on June 13, that inflation was a problem that all developing countries were facing. "If you look at emerging economies around the world," Basu said, "India's performance looks pretty run of the mill."
But, neither Basu nor others in the Singh government are interested in taking a good look at the damage done by their strictly money-obsessed policies. "The last two years have been a lost opportunity" for India's governing United Progressive Alliance party, Citigroup said this month in a research report.
This monetarist obsession has given rise to full blown inflation across the spectrum. The unprecedented price rise in basic food items is severely impacting hundreds of millions of Indians. Despite the shouting by the globalizers, investment bankers, and their followers within India, millions of Indian families live on a daily diet which consists of cereal - rice, or wheat flour, or both - some vegetables, including onion, and a variety of lentil, or other similar items. Lentils provide the only significant source of protein they have access to, since they cannot afford to buy other high-protein foods, and this includes a large number of people who are non-vegetarians.. .....

Riaz Haq said...

Here's a Times of India story about the impact of corruption on "Brand India":

BANGALORE: Anna Hazare's anti-graft campaign has pushed corruption to the fore again. Corporate honchos say businessmen overseas have been vexed with corruption here for a long time, and this movement addresses their worry too.

Kris Gopalakrishnan, executive co-chairman, Infosys Technologies, said Brand India is affected because of the perception that we can't solve the problem of corruption.

Kiran Mazumdar Shaw, CMD, Biocon, said India has an outstanding business reputation. But people outside feel the cost of doing business in the country comes at a price that may require underhand dealings to get things done. "This perception needs to change," she said.

Krishnakumar Natarajan, CEO, MindTree, echoed that feeling: "Outsiders feel the government is not transparent and India is not an easy place to do business. There is discomfort, especially on issues related to infrastructure," he said.
* Anti-corruption watchdog Transparency International placed India at 87 among 178 countries in the 2010 corruption index. India scored 3.3 on a scale of 10

* Janaagraha initiative ipaidabribe.com shows Bangalore at the top with maximum number of bribes paid. Earlier this week, the site showed 3,641 instances of bribe that amounted to Rs 10 crore. Police, followed by the registration department and municipal services, sought the maximum number of bribes. The site depends on people logging in their bribe-paying details, and therefore is limited to that extent.


Riaz Haq said...

Indian rupee hit record low amidst high inflation and high twin deficits, according to Wall Street Journal:

The Indian rupee fell to a record low against the U.S. dollar Tuesday as high inflation and a gaping current-account deficit weighed on demand for the local unit, before a recovery in global risk appetite helped trim the greenback's gains.

The dollar was at INR52.30 late Tuesday, up from INR52.16 late Monday, after rising to as much as INR52.725 during the session, its highest ever. The dollar's previous high was INR52.1950 on March 3, 2009.

The pace of the rupee's fall caught most market watchers off guard, forcing firms with unhedged overseas debt to rush for cover, accelerating the fall.

Adding to this, exporters have been wary of locking into a dollar rate for their future revenue, when the dollar's rally may well have more steam.

"The rupee is being swept by a self-fulfilling squeeze--capital is being pulled from hot money markets in Asia, and the rupee is just far more vulnerable than other Asians with its trade deficit," said Sean Callow, a Sydney-based currency strategist at Westpac Bank.

But some argue that the rupee's slide could be on its last legs. UBS, for example, argues that the rupee's fall has less to do with local factors such as inflation and slowing economic growth in India, and more to do with re-rating the rupee to a basket of currencies that's more sensitive to the global economy. The Swiss house advises buying the rupee at this point, as a bet on a global cyclical rebound.

Rupee bulls got a boost when a federal government official told Dow Jones Newswires that the central bank was planning to offer a dollar liquidity window to oil importers. Under the planned window, oil importers would be able to pay for their greenback purchases by selling the central bank the so-called oil bonds, which are issued to them by the government in exchange for selling fuel products at below-market prices.

If this window comes into effect, it would take a key source of greenback demand out of the currency market, helping to ease the rush for the dollar, said the treasury head of a foreign bank.

In the sovereign debt market, Indian government bonds were under pressure on the growing view that the federal government would struggle to stick to its fiscal deficit target.

The benchmark 8.79% 2021 bond ended at INR99.64, from Monday's INR99.76.

Royal Bank of Scotland reckons India's fiscal deficit will overshoot its target of 4.6% of gross domestic product by at least one percentage point because of rising subsidies on food and fuel and dwindling tax revenue.

Traders say an overshoot of the fiscal deficit of that magnitude could push the benchmark bond yield beyond 9%.


Riaz Haq said...

Results of PISA international test released by OECD in Dec, 2011, show that Indian students came in at the bottom of the list along with students from Kyrgyzstan:

Students in Tamil Nadu-India attained an average score on the PISA reading literacy scale that is significantly higher than those for Himachal Pradesh-India and Kyrgyzstan, but lower than all other participants in PISA 2009 and PISA 2009+.
In Tamil Nadu-India, 17% of students are estimated to have a proficiency in reading literacy that is at or above the baseline needed to participate effectively and productively in life. This means that 83% of students in Tamil Nadu-India are estimated to be below this baseline level. This compares to 81% of student performing at or above the baseline level in reading in the OECD countries, on average.
Students in the Tamil Nadu-India attained a mean score on the PISA mathematical literacy scale as the same observed in Himachal Pradesh-India, Panama and Peru. This was significantly higher than the mean observed in Kyrgyzstan but lower than those of other participants in PISA 2009 and PISA 2009+.
In Tamil Nadu-India, 15% of students are proficient in mathematics at least to the baseline level at which they begin to demonstrate the kind of skills that enable them to use mathematics in ways that are considered fundamental for their future development. This compares to 75% in the OECD countries, on average. In Tamil Nadu-India, there was no statistically significant difference in the performance of boys and girls in mathematical literacy.
Students in Tamil Nadu-India were estimated to have a mean score on the scientific literacy scale, which is below the means of all OECD countries, but significantly above the mean observed in the other Indian state, Himachal Pradesh. In Tamil Nadu-India, 16% of students are proficient in science at least to the baseline level at which they begin to demonstrate the science competencies that will enable them to participate actively in life situations related to science and technology. This compares to 82% in the OECD countries, on average. In Tamil Nadu-India, there was a statistically significant gender difference in scientific literacy, favouring girls.


Riaz Haq said...

Here are some excerpts of BBC's Soutik Biswas's review of Pulitzer-winning New Yorker reporter Katherine Boo's "Beautiful Forevers":

"We try so many things," a girl in Annawadi, a slum in Mumbai tells Katherine Boo, "but the world doesn't move in our favour".

Annawadi is a "sumpy plug of slum" in the biggest city - "a place of festering grievance and ambient envy" - of a country which holds a third of the world's poor. It is where the Pulitzer prize winning New Yorker journalist Boo's first book Behind the Beautiful Forevers is located.

Annawadi is where more than 3,000 people have squatted on land belonging to the local airport and live "packed into, or on top of" 335 huts. It is a place "magnificently positioned for a trafficker in rich's people's garbage", where the New India collides with the Old.

Nobody in Annawadi is considered poor by India's official benchmarks. The residents are among the 100 million Indians freed from poverty since 1991, when India embarked on liberalising its economy.
She used more than 3,000 public records, many obtained using India's right to information law, to validate her narrative, written in assured reported speech. The account of the hours leading to the self-immolation of Fatima Sheikh derives from repeated interviews of 168 people as well as police, hospital, morgue and court records. Mindful of the risk of over interpretation, the books wears its enormous research lightly.
The local councillor runs fake schools, doctors at free government hospitals and policemen extort the poor with faint promise of life and justice, and self-help groups operate as loan sharks for the poorest. The young in Annawadi drop dead like flies - run over by traffic, knifed by rival gangs, laid low by disease; while the elders - not much older - die anyway. Girls prefer a certain brand of rat poison to end their lives.
Boo has an interesting take on corruption, rife in societies like India's. Corruption is seen as blocking India's global ambitions. But, she writes, for the "poor of a country where corruption thieved a great deal of opportunity, corruption was one of the genuine opportunities that remained".

On the other hand, Boo believes, corruption stymies our moral universe more than economic possibility. Suffering, she writes, "can sabotage innate capacities for moral action". In a capricious world of corrupt governments and ruthless markets the idea of a mutually supportive community is a myth: it is "blisteringly hard", she writes, to be good in such conditions. "If the house is crooked and crumbling", Boo writes, "and the land on which it sits uneven, is it possible to make anything lie straight?


Riaz Haq said...

India on verge of financial crisis, says The Guardian:

The Reserve Bank of India (RBI) in Mumbai. The country is facing its own financial crisis. Photograph: Vivek Prakash/REUTERS
India's financial woes are rapidly approaching the critical stage. The rupee has depreciated by 44% in the past two years and hit a record low against the US dollar on Monday. The stock market is plunging, bond yields are nudging 10% and capital is flooding out of the country.

In a sense, this is a classic case of deja vu, a revisiting of the Asian crisis of 1997-98 that acted as an unheeded warning sign of what was in store for the global economy a decade later. An emerging economy exhibiting strong growth attracts the attention of foreign investors. Inward investment comes in together with hot money flows that circumvent capital controls. Capital inflows push up the exchange rate, making imports cheaper and exports dearer. The trade deficit balloons, growth slows, deep-seated structural flaws become more prominent and the hot money leaves.

The trigger for the run on the rupee has been the news from Washington that the Federal Reserve is considering scaling back - "tapering" - its bond-buying stimulus programme from next month. This has consequences for all emerging market economies: firstly, there is the fear that a reduced stimulus will mean weaker growth in the US, with a knock-on impact on exports from the developing world. Secondly, high-yielding currencies such as the rupee have benefited from a search for yield on the part of global investors. If policy is going to be tightened in the US, then the dollar becomes more attractive and the rupee less so.

But while the Indonesian rupee and the South African rand are also feeling the heat, it is India – with its large trade and budget deficits – that looks like the accident most likely to happen. On past form, emerging market crises go through three stages: in stage one, policymakers do nothing in the hope that the problem goes away. In stage two, they cobble together some panic measures, normally involving half-baked capital controls and selling of dollars in an attempt to underpin their currencies. In stage three, they either come up with a workable plan themselves or call in the IMF. India is on the cusp of stage three.