Inclusive Growth – Role of Financial Sector

Below are some excerpts from a lecture at a University by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India on Inclusive Growth – Role of Financial Sector

• Here he talks about Inclusive Growth what it means ? why is it important ?. Inclusive growth means allowing people to contribute to and benefit from economic growth.
• Off late it has caught policy makers attention because the benefits of economic growth happened in the past few years are not shared equally among people.
• Growth is inclusive when it creates economic opportunities along with ensuring equal access to them.
• The Indian economy, though achieved a high growth momentum during 2003-04 to 2007-08, could not bring down unemployment and poverty to tolerable levels.
  
• Further, a vast majority of the population remained outside the ambit of basic health and education facilities during this high growth phase
• Over 25% of Indians continue to live in abject poverty. As a result, Inclusive growth has become a national policy objective of the Union Government.
  
• Govt has identified agriculture, infrastructure, health care and education as critical areas for achieving higher inclusive growth.
  
• The policies aim at increasing the income and employment opportunities on the one hand and on the other; it tries to finance programmes which are capable of making the growth more inclusive.

Financial Inclusion--Financial inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream institutional players

Role of Financial Sector

• Banks and other financial services players largely are expected to mitigate the supply side processes that prevent poor and disadvantaged social groups from gaining access to the financial system.
  
• Access to financial products is constrained by several factors which include: lack of awareness about the financial products, unaffordable products, high transaction costs, and products which are not convenient, inflexible, not customized and of low quality
• The empirical evidence shows that countries with large proportion of population excluded from the formal financial system also show higher poverty ratios and higher inequality.
• However, we must bear in mind that apart from the supply side factors, demand side factors, such as lower income and /or asset holdings also have a significant bearing on inclusive growth.

Bottlenecks

• The gigantic nature of the task, keeping in view the number of financially excluded people.
• Lack of proper Business Models. Banks still perceive this as a burden and an imposition and not as a viable Business Model
• The costs of administering low value transactions and of financial intermediation are perceived to be on the higher side.
• Lack of cost effective scalable Delivery Models.

Strategy

• Banks must view Financial Inclusion as a huge business opportunity and perfect their Delivery Models. BC based delivery model has been made more flexible and inclusive
• Involve all the stakeholders in the process. Governments, both Central and State, NGOs, technology vendors, Industry Associations, Insurance and Mutual Fund companies, society at large

Myths about Financial Inclusion

• It is not their willingness but the lack of ability to deliver which is coming in the way

And he concludes that current policy objective of inclusive growth with stability is not possible without achieving universal Financial Inclusion.

Whats Ahead for Markets from Options Data

Concerns of Debt Crisis in Ireland along with expectations of a Rate hike in China in coming days(might be this week) prompted investors across the market to liquidate there positions and looking  for safer assets.

Irish banks have there own problem of debt caused by the housing bubble and similar is the case with portugal. Even EU and IMF are trying for bailout but markets are concerned that the problems might be spread to other peripharel countries.

Nifty Shed 132 points and settled at very crucial support point of 5980 . On the Equity Side we have

FII

16-Nov-2010

3157.02

3353.71

-196.69

DII

16-Nov-2010

1542.54

1092.95

449.59

FII were Net Sellers and DII were Net Buyers.
On the other Side if we see the options Data where all the action happens moreover most of the action over there is done by FII's.

• Nifty call options added 57.75 lakh shares in open interest whereas put options shed 4.00 lakh shares in open interest.

Options Data on 16-10-2010

There is lot CALL Writing happened at 6000 Levels with increase of  Open Interest of 27Lakhs meaning it will take RESISTANCE at these levels in coming days and also OI got increased for 6100 and 6200 means in coming days it will be tough to reach those positions.

In the PUT Side we have increase of OI at 5900 with Put Writing seen at 5900 and 5800 coupled with increase in OI expecting market not to go down and Taking a SUPPORT at these levels, though 6000 PUT writing happened many positions were closed as can be seen with decrease in OI of 8 Lakhs,similarly 6100 PUT and 6200 PUT had seen Decrease in OI .That means many PUT Writers closed there positions expecting that market might head south and there by limiting there loses.

Similarly we have seen Lot of CALL Writing at 6100,6200 meaning thatWriters are not expecting to go above in coming days...

Looks like it might Trade in 5900+ to 6100 in coming days

On making good decisions..Norway Bank

Norway Central Bank Deputy Governor Jan F. Qvigstad gives a superb speech on the "On making good decisions". The speech revolves around how central banks make decisions and what makes a decision good or bad .
It cover the following areas:

• Independence provides a sound framework for interest rate decision

Most countries have now delegated the task of ensuring price stability to the central bank. The government has set an inflation target for monetary policy and delegated the operational conduct of monetary policy to Central Bank

The Norwegian economist Finn Kydland received the Nobel Prize for economics in 2004 for having shown that on the whole, monetary policy decisions are better if policymakers delegate interest rate setting to an independent central bank under a clear mandate

• We make decisions under uncertainty

Independence alone does not guarantee good decisions. Even if an independent central bank is better positioned to avoid having short-term expediency and changing preferences dictate interest rate policy, its decisions must be made under considerable uncertainty.

“Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape”....Alan Greenspan

• Groups often make better decisions than individuals

Contestants on the television game show Who Wants to Be a Millionaire? have various so-called “lifelines”, including telephoning a smart friend or asking the studio audience for help. It has transpired that the studio audience is the contestants’ absolute best bet. The majority of the studio audience votes for the correct answer nine out of ten times, beating out smart friends, who provide the correct answer only 65 per cent of the time

• But groups are no guarantee for good decisions

The deliberative process does not necessarily lead to a better decision. When the group members share the same world view and thinking, groupthink can lead the members astray. There is typically little dissent in discussions where participants think alike. The group can therefore be convinced that their common standpoint must be right.

• How do we arrive at a decision?

There two approaches: premise-based or conclusion-based. The two approaches may have different outcomes. Many will favour the premise-based approach because it gives weight to the underlying basis for the decisions we make.

• Was the decision good?

The objective of monetary policy is a natural place to begin our assessment. Have we or have we not achieved price stability? Even if we make our best efforts, there is no guarantee that we will succeed in reaching this objective. The key policy rate is not the only factor affecting the economy and that can disturb the outcome.

Telecom Scam---Part1

Though am not interested in reading political news (waste of time) this particular telecom scam made to look a bit into Google and find what happened and happening with scam. It’s high time to look into evidence of Telecom Scam which is rocking the parliament for couple of days.

Here is article by Canary Trap time line of events:

August 28, 2007: In 2001, there were only 4 million cell phone subscribers; whereas by 2007-2008, the number of cell phone subscribers was around 350 million. Thus by fixing license fees at 2001 prices, the Telecom Ministry enabled companies that were allotted licenses to command huge premia.

Company	License Paid	Sold to
Swan	1537	45 % sold to Etisalat for 4200 cr
Unitech	1661	60 % sold to Telenor
Tata	--	26 % sold to Docomo

Based on the aforesaid sale of shares by Unitech and Swan, the market value of these 9 new 2G licenses amount to a total of Rs 70,022.42 crores, for which these 9 companies/conglomerates had paid DoT a total of Rs 10,772.68 crores.

October 21, 2009: The CBI registered an FIR in the scam.

April 28, 2010:Details of tapes establishing Raja’s dubious role in the scam surfaces in the media. Opposition parties demanded that the PM sack Raja.

A little bit of digging the information led me to this page where the reporter of magazine gave confidential information which main stream media never talked.

Some excerpts from it:
Radia close associate of Raja has been key in getting license and spectrum to the following telecom companies 1) swan2) aircel3) Unitech wireless4) Datacom

• Datacom was setup by HFCL group along with Mr.Dhoot of Videocon is alleged to be having funding through Mukesh Ambani group through a employee Manoj Modi

•  Swan on paper is backed by Mumbai based real estate Company Dynamix Balwas group of companies and it was moved up the priority list of spectrum allocation by DOT

•  UAE telecom giant Ehtisalat controls about 45% of swan telecom and for this they paid $900million.

•  This deal make Swan at $2 Billion and at present Mumbai based Delphi investments holds 9.9% stake in Swan.90.1 stake in Swan Telecom is owned by Tiger Trustees which in turn is 99.8% owned by Dynamix Balwas Ltd.

•  Seems that Raja and Radia have interests in Swan and there associates are on board of Swan

CBI registered a case against conspiracy between few public officers and private persons in grant of telecom license in 2007-08.It is learnt that certain individuals like Ms Radia of Noesis consultancy were involved in the above mentioned criminal case and DGI and Income Tax authorities tapped the wires of Radia to get some information.

The companies which she and co consult are not only for telecom, aerospace, power and infrastructure but also influence and change policies of government to suit commercial requirements of various clients.
From the conversations it appears that she had role in telecom license and guides a newly formed telecom company to delay the stake sale and not to look at it as a windfall gain. There are some direct conversations of her and telecom minister. In some other conversations she boasts of herself for obtaining telecom license for few companies.
June internal evaluation report from DGI
Totally 9 lines were kept under surveillance during the month of June 2009 belong to two separate groups. First group relates to a PR agency.

• The conversations indicate money laundering and structured payoffs transactions and liaison for projects of telecom and power.

•  Also indicate cross borer transactions related to telecom, petroleum and media.

Second group comprises of 3 members

•  And calls to this group appear relate to financial transactions ranging in crores including foreign bank accounts

• Unauthorized international derivative transactions

• In fact there appears some calls related to cricket betting and some other sports (ohhh I was under impression that betting happens only in cricket, seems now cricket has a rival)

July internal evaluation report from DGI
First group: As per conversations

• The associates have apparently fronted for someone (Mukesh Ambani) to acquire a news channel (9X) in India and there appears some cross border transactions.

•  Conversations of target (Radia) with a businessman (Tarun Das FICCI Chair and Government Nominee…Mukesh Ambani) who is also a government nominee on a State PSU (haldia Petro) appears to suggest that a target along with business man is trying to facilitate a take over of this PSU by a large client (RIL) of target.

•  The Target as per telephone conversations facilitated for a few filing PILs by NGO to hurt the business interests if the rival clients (Anil Ambani ADAG)

Reports on news in whispers in Corridor:

•  Reports that Sunil Mittal is also banking on with Radia to make peace with Raja on foreign take over and his interests in spectrum

•  Neera Radia is chief of Vaishnav Corporate Consultants Pvt Ltd, Noesis Consulting Vitocom and Neucom Consulting. Vitocom has been handling the business of NDTV Imagine.

• Neucom was set up to handle affairs of Mukesh Ambani Group.

• Vaishnav handles the affairs of Tata, Unitech, and Star TV along with other clients.

• Noesis officially comprises of retired senior bureaucrats and controlled by Radia.

• There is long conversation between Ratan Tata and Radia which establishes that Tata does not want Maran to be Telecom Minister at any cost.Tata felt the need to exit telecom if Maran becomes Minister.

•  Looks like Radia is also in touch with Neera and Ratnam CA of Karunandhi wife (wovvvv…first time I heard of this…).

•  Radia and Kanimozhi behalf of Burhka Dutt(NDTV fame..I guess now she is in CNN IBN) and Vir Sanghvi (Not Sure of this Person) were negotiating minister berths for DMK members.

•  Sunil Mittal lobbied to prevent Raja to become telecom minister and Tata Lobbied to prevent Maran from becoming Telecom Minister. (Another wovvv)

•  In Jharkhand Tata’s need lease of to extend for which the great madhu koda (1000 crore scam) asked for 180 crores. Radia got the lease extension from governor for which ratan Tata sanctioned 1 crores as reward for the team

• FICCI chief Tarun Das is chairman of haldia petro corp. and Mukesh wants to take over it. With help of Radia they are handling the matter

•  As per conversations there appears RIL purchasing a house for VK Duggal, Director General of Hydrocarbons News

•   9X was controlled by Mukesh Ambani

If this is real then all credibility gained by Mr Clean MM Singh are thrown into dustbin.
Moreover none of the news papers are willing to post the news related to it. Seems government is denying that it never allowed wire tapings.

An Open Letter to Ben Bernanke

This is Open Letter to Chairman Ben Bernanke

Dear Mr. Chairman:

We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

We subscribe to your statement in The Washington Post on November 4 that "the Federal Reserve cannot solve all the economy's problems on its own." In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed's purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

Respectfully,
Cliff Asness

Michael J. Boskin

Richard X. Bove

Charles W. Calomiris

Jim Chanos

John F. Cogan

Niall Ferguson

Nicole Gelinas

James Grant(yes u saw it right he is from Grants interest rate observer)
Kevin A. Hassett

Roger Hertog

Gregory Hess

Douglas Holtz-Eakin
Former Director, Congressional Budget Office
Seth Klarman

William Kristol

David Malpass

Ronald I. McKinnon

Joshua Rosner
Dan Senor

Amity Shlaes

Paul E. Singer

John B. Taylor yes you saw it right he is the one who  proposed the Taylor rule, which provides a guide to central banks on how to determine interest rates.

Peter J. Wallison

Geoffrey Wood