Okay, there is a clear mandate. Now what?

The Loksabha Election of 2009 have got over. None of the four alliances, leave alone national parties in the fray, got even a simple majority of their own. But the tilt was clearly in favour of the Congress-led UPA. The rest of the contenders remained just that. Compared to their pre-poll brashness, the vanquished have ceded that the UPA has got the clear mandate to form the next government. Some of them have even offered 'outside' support to the UPA government.

A few hours from now, the UPA government's council of Ministers led by Dr. Manmohan Singh as the Prime Minister will be sworn in.

The last few days of parleys and negotiations for cabinet berths have not borne fruit to the DMK party. Dr. Singh seems to have stuck to his guns in not taking in, proven non-performers and those that got into controversies, even if a strong pre-poll ally is to be accommodated out of political compulsions. The DMK has said today morning that they too are going to be extending outside support and not join the cabinets by taking up the ministerial berths offered by the Congress to them. The DMK appears to be miffed. But hats-off to Dr. Singh and the Congress top brass for not bending over backwards to give in to DMK. The Congress appears to have drawn a line and appears to be not letting itself being blackmailed by allies. Lessons appear to have been learnt well, going by the history of previous UPA government.

This elections probably mark Indian voter's shift in preference towards a two party system at the national level.

Some of my prescriptions for the new UPA government would be these:

1. Focus on clean governance
2. Focus on inclusive growth to reduce the urban-rural divide and minimise migration.
3. Focus on managing the economic downturn
4. Focus on infrastructure, telecom, power, employment generation
5. Focus on legislative reforms and administrative reforms
6. Bring in checks and balances in loan-waiver & NREG kind of schemes and pricing of agricultural produce, procurement etc
7. Fulfill the promises made on internal security post 26/11
8. Avoid sycophancy and
9. Do not engage in remote control of (Prime-) ministerial decisions.

Now that almost every party is offering outside support, it is possible that some pro-growth initiatives / reforms the government undertakes may run into rough weather by such supporters. So, whatever the aggressive reformist moves the new government makes, they have to be made in the first two years of its rule while the 'outside' allies are still amenable. If it is done that way and done right, even if government falls thereafter, the Congress (/UPA) would have enhanced its chances of gaining majority on their own for the next elections.

Here is hoping for good governance and growth...

Power to the people :-) NSG Waiver for India

Okay. The India specific NSG waiver is done and over with. The waiver brings with it a host of controversies.

The powers-that-be in New Delhi may do well to take what Ms. Rice assures with a pinch of salt. She has a history of double talk on the Nuclear deal with India. While the NSG waiver implies that India is now free to do nuclear trade (for peaceful purposes) with other countries (of NSG) too even before the 123 agreements gets passed in the US Congress, courtesy would demand that India wait till that takes place - so that the right of first bite of the nuclear trade pie goes to the US suppliers. One sincerely hopes that the whole intention of the Indo-US nuclear deal is not to help the suppliers from US to make more money but to give power to the people - of the 'electricity kind' at least :-)

Let us applaud the hard-work that has gone in to ensure nuclear club inclusion. Let us welcome the chance to generate cleaner energy. Let us be sensible with what we do with the technology that we gain access to.

And let us be very clear in our minds that we can and we must if need be, walk out of the deal if the country's security is under threat warranting a nuclear test detonation. While it may not come to that state, in case it happens, it won't hurt if we are to be opportunistic in the mean-time.

Let us make the best of technology access and expertise that opens up after more than three decades of denial. And let us make the best use of opportunity to export Thorium on same or better terms than the terms under which nuclear trade is opened to us. Let us do it with pride.

I wonder how many of our analysts and politicians out there anticipate a smoother ride forward within India - even assuming US Congress passes the 1-2-3 Act. Setting up nuclear power plants require huge contiguous land...there are bound to be hurdles - local body oppositions, NGOs, Environmentalists, PILs etc., it may boil down to how well we are able to sell the benefits to the masses.

Let us hope for the best.
Cheers

RBI Credit Policy and impact on you and me

Well, Dr. Y V Reddy, the RBI Governor did what no one thought he would at this time, in increasing the Repo Rate by 50 basis points. He says to bring down inflation, he is willing to sacrifice growth in the short-term as his move will bring down (growth of) money supply as well as demand for credit.

Probably even before he finished saying "the cost of rice has gone up...so has the cost of dal...is not it necessary for the cost of money to go up to ensure balance", the decision makers in the banking community, the opportunists that they are, must have rubbed their hands in glee and let out, "Oh, yes...here we go...". Promptly they come on business channels and said, PLR will have to be revised. What they did not say was "Oh, yes...Now I can

While all this is may be by the book - if my purchasing costs (cost of raising funds) go up my selling price (lending rates) would have to go up, what beats me is this.

If the idea of the RBI intervention is to bring down rate of growth in credit (which is due to fresh demand), why should it in anyway affect existing loan-book. If the banking system has already disbursed say 1000 Crores as loans - it implies it has raised its resources in the past and the cost of the same is known to it and it has been factored into the price of the loan. Rate revision by RBI should in effect be neutral on what the bank has already spent (while raising funds before disbursal) or agreed to spend.

Let us put in Reddy-speak...say the bank has given me Rs.250 to buy 5 Kgs of Rice and 5 Kgs of Dal. I had agreed to pay back the bank Rs.25 every month for 12 months - works out to 20% p.a. in simple terms. Now the bank has made me a one-time disbursal - to make that, let us presume the bank had borrowed from RBI (or other sources at LIBOR+ etc) at say 12% p.a. In simple terms, bank has locked in an 8% Net interest margin. In real terms, it would be higher because my payments to the bank are in monthly installments - meaning if it wants to, the bank can repay to its lender every month the money it recovers from me and bring-down its outstanding liability.

In such a case, if RBI says henceforth its lending rate is going to be 15% p.a. (from earlier 12%), it is reasonable to expect that it applies to future borrowings of the bank from RBI. The bank is in no need to fund its 'previously fully disbursed loan to me' with new borrowings. Is it? So why does the bank feel compelled to raise interest rate applicable to me from to 25% (from earlier 20%)? In my view, not only is this practice unjustified it is always disproportionate.

While the tweaking of CRR will sure have an impact on the 'directly attributable cost' of already disbursed loans - If RBI assigns a higher risk weightage for loans given for purchase of rice and dal as in my example, then the Bank has to set aside higher amount of cash aside - unless the bank decides to pass on effect of CRR hike to future loans, it would be working in cross-purposes with what RBI intended.

By recovering more money from me each month the bank is able to fund its CRR requirements while keeping its existing cash available for new disbursals. Add to this the effect of disproportionate increase in rate. Where has the money supply for credit come down, which is what RBI intended to do in the first place. With supply side of money protected and remaining more or less static, the bank lends that to 'desperately-starved-for-cash' cases at higher rates. Makes more money (higher interest margin). Generates more money to lend...And laughs all the way to itselves :-)

Till RBI wakes up to this kind of opportunism (scam anyone?), people like you and me who take loans on 'floating rate of interest' just as the interest rate trend starts moving upward, would only suffer. Some would default. Some would go broke. Quality of assets on bank's books would start turning bad - meaning more NPAs on the books of banks.

RBI must ensure any CRR or Repo rate interventions have prospective effect - on fresh loans / advances / credit disbursals and not on existing loans / advances. In the name of 'choice in the hands of retail loan-seeker in going for floating or fixed rate loans', unsophisticated typically middle-class first-time home-buyers / asset buyers end up getting smooth-talked into availing floating rate loans.

What do you think?

Biting more than one can chew...

May be the title of the post should have been "How to shoot yourselves in your foot"!

That is exactly what the BJP and the Left seem to have done in aligning themselves with Ms. Mayawati of BSP. While the much smaller regional parties such as RLD and JD(S) would definitely gain by the alliance with BSP votebank in their respective states, it is beyond understanding what BJP has got itself into.

No doubt Ms. Mayawati is a shrewd politician, extremely talented rabble-rouser, a crowd puller and a widely accepted leader of the Dalit / oppressed class. If one goes by press reports, she has been pulling unprecedented crowds wherever she goes, including the Southern States of India, where historically the Dalit-centric parties have been relatively marginal in size, reach and leadership.

But time and again Ms. Mayawati has been accused of opportunism and corruption. And her playing the communal or casteist or 'class' card is reaching its pinnacle now with her claiming that the Nuclear deal is 'anti-Muslim' and if US or Israel bomb Iran, India signing the nuclear deal would be the cause!

She has gone to town now stating "single point agenda is to bring down the UPA government". Does the nuclear deal come anywhere in the picture.

It is a pity seasoned political parties such as BJP or the Left (CPI, CPI(M)) have not realised the significance of propelling Ms. Mayawati. By her timing and Left-BJP's internal agenda, the hitherto regional leader Ms. Mayawati has been brought to considerable limelight and national political scene. Without realising it, the Left + BJP combine have accelerated her ascension.

The next Loksabha elections would see a huge swing of votes / loss of seats in favor of Ms. Mayawati and the parties that are likely to be most affected are the BJP and to some extent the Congress (I).

The bottle has been uncorked...the genie is out...is it a friend or foe ? Is it selfish or selfless ?

Only time shall tell.

Etymology of the word 'Politics'

Ok.

One can say 'poli' means 'many' in Latin and "tics" means 'blood-sucking creatures'. So we have 'politics' to mean 'many blood-sucking creatures'.

While that may seem figuratively apt, the word 'politics' actually has its roots in the Greek word 'politikos' that means 'pertaining to citizens or affairs of the state'.

:-) The above was courtesy a post I chanced upon at http://www.word-detective.com/051600.html

This blog politicus-indicus.blogspot.com is at the moment intended to be a general commentary of Indian political scene and policies of the government on various issues. While every effort would be made to keep this a neutral, it is likely some 'from within the heart' comments may skip through. I hope it does not.

Cheers