climate change : hoax or reality.!!

There has been increase in public awareness about issues related to climate change and the steps needed to mitigate the impact of climate change. However,its not for the first time that the surface temperature of the earth has increased. Our earth has faced several cycles when the temperature of the earth has risen on account of changes in solar activity and such events have often been accompanied with fall in temperatures which resulted in ice ages. The last ice age on this earth occured around 10000 BC. Therefore , we need to be sure whether the recent increase in earth's temperature is due to human activity or some natural phenomena. Otherwise, we may end up spending huge sums of money trying to tame some unknown phenomena.

However, recent evidences indicate that human activity is one of the primary reason behind the increase in earth's temperature in the last couple of decades and these are largely attributed to the growing presence of greenhouse gases in the atmosphere. We need to take steps to avoid our reliance on fossil fuels and there should be binding emissions norms for industrialized countries of the world. On the other hand, more funds should be allocated to research activities for the development of renewable sources of energy. The kyoto protocol was a significant step in this regard and the entire world is banking on the Copenhagen summit in Dec, 2009 for some concrete outcomes whereby different countries are given targets for reduction in their greenhouse gases depending upon their abilities. Otherwise, the day is not far off when our greed for development will become one of the reasons for the destruction of human species.

india & capital account convertibility

Indian currency is partially convertible. It means that indian rupee is convertible on current account but not on capital account. There has been talks in academia and industry that it should be made fully convertible which will allow free movement of capital. Moreover, it will raise the status of indian currency and it may become one of the reserve currencies in a decade or so. But ,there are some concerns about flight of capital from this country which will aggravate the situation in a capital scarce country.

The issue came in the merger talks between India based Airtel and Africa based MTN. There was stress on dual listing by the south african government as one of the conditionality for merger. The dual listing would have meant capital account convertibility and its not allowed in India. Thus, we have missed several business opportunities due to lack of capital account convertibility.

The government needs to implement capital account convertibility in a time bound manner. We need to fulfil the criteria before we can go for full convertibility. First of all, we should have sufficient foreign exchange reserves to avoid getting trapped in a situation where we dont have foreign exchange reserves to finance our imports as there may be temporary flight of capital. Secondly, we should get our infrastructural bottlenecks removed to ensure good investment opportunies for our investors. Such precautions, if taken ,will enable us to have a smooth ride to full convertibility

india & china..!!

China has once again raised the issue of arunachal pradesh by protesting the visit of Indian prime minister to the state during an election campaign. India has reponded to this provocation by insisting its inalienable right over the state. Moreover such war of words are inconsistent with the long term relations between the two asian giants. It has been china's strategy to use offence as an instrument of state policy. The pace with which china has been strengthening its military is not hidden from the world. The attitude of china towards taiwan is well known and there has been attempts by china to force its neighbours into submission. However, it begins to cry foul when the issue of Tibet is raised in international forums.

India needs to adopt a proactive approach towards china. It should be made clear to china that there is no point in cribbing about arunachal pradesh and both countries need to adopt a realistic approach to solve this border dispute. India needs to be assertive about its right over aksai chin,a disputed region in kashmir.

This 21st century belongs to these two countries and they should not squander away the opportunity by just focussing on border disputes. It will pay rich dividends if they can work together in soving major problem confronting humanity like terrorism,climate change, energy security etc.

stability vs efficiency..!!!

There has often been trade off between stability on one hand and efficiency on the other hand in many physical systems and its true even in the case of financial systems. Lets explore it in the case of banks and the reason why they are bound to fail from time to time . Banks have often been leveraged to the extent of 10:1. Banks require huge capital to enable them to have size which ensures profitability.

It is difficult to fund such high capital requirements only through equity. Moreover,a complete equity funded bank will have its cost of capital too high that it will not be able to compete with other banks which have lower cost of capital on account of leverage . An equity funded bank can easily withstand losses as it has no debt obligations.Thus a bank which is entirely funded by equity will be most stable ,i.e it might never fail but it will be inefficient as it might not be able to compete in the market.

On the other side of the spectrum, we have high leveraged banks which have debt to equity 10:1 . Such banks are highly competitive in the market but are highly unstable as they are quite liable to fail as even a small loss can erode equity base and make it default on its external obligations. Such high leverage also enables them to produce high return for their equity investors. The pressure to produce higher returns often induce Boards to go for higher leverage.

Its for society to decide whether they want a system which is highly stable but may not fulfil their expectations or a system which has an inherent risk built into it but is efficient in serving the people at large.

India needs dictatorship..!!!

Do we deserve democracy in this country? It appears that our country has not graduated to the level to have a democratic form of government. We have implemented a highly distorted form of democracy where the freedom to bypass laws and norms of a civilized society is equated with personal liberty. People who get elected are often found to be champions of corruption and they have more of a presonal agenda rather than the desire to serve the country. Often, votes are asked on the basis of caste , colour, sex and religion and sometime it arouses a feeling of sympathy for these countrymen who have been exploited by our political honchos with their carefully crafted oratory .
In same cases whenever they did come with some good acts like enacting of anti smoking legislation, our citizens hardly have any problem in flouting such rules. Somehow, its in our culture, might be to do with our colonial past ,that we dont follow laws unless forced to do so by coercion. It does not mean that we indulge in human right violations as is the case in China but human rights shouldnt become a signal for the mess of corruption and chaos which we have created in this country where hardly any person occupying high office is prosecuted for any offence all in the name of our so called "fundamental rights". Its high time we change our habits or be prepared to suffer in this system till perpetuity.

financial tsunami..!

Its sure that the world will not see another "great depression of the 1930s". The massive stimulus package implemented by the different countries at the right time has been able to lift this world from this financial mess. Its estimated that the world will witness GDP growth rate of about 3% in 2010. The stock markets have risen almost 50% since march 2009 in anticipation of economic recovery. However, the recovery is going to be weak for a year . There will not be sufficient reduction in the unemployment till 2011.

Moreover,this flood of cash has overliquified the system. i.e there is excess liquidity in the system,which if not managed properly can give rise to another economic crisis in the future. Already, there is talk of impending inflation in many developing countries. The world leaders will have to devise a right strategy to close the tap ,i.e tightening of the state expenditure once the world economy gets on track.

However, it must be ensured that there is no premature removal of stimulus package as it may prolong the recovery process. However, the countries which are running huge fiscal deficit must get their house in order at the appropriate time so as to avoid getting caught in another crisis in an attempt to mitigate the impact of this tsunami.

decline of a civilization...!

The Indian civilization has been under decline for about 1000 years. No wonder we have been under foreign rule for 700 years until 1947 when we managed to regain our independence. Initially we failed to face the challenge from foreign muslim invaders who who took advantage of persistent disunity among our countrymen and ruled us till 1757. Therefter we had to face the music under the British rule. There was belief in those times that Indians lack the capabilities to rule themselves.

Its the same country which had given birth to scientists like Aryabhatt, Brahma Gupta, Varahamihir who made significant discoveries in the field of science, mathematics, astronomy etc. A sense of reasoning used to dominate public debate rather than following old dogmas. Our country used to account for 25% of the world's GDP. We had strong trading relations with Europe, gulf countries and china. We were the pioneers in number of industries in that era.

But as time passed ,we lost our sense of reasoning ,became attached to superstitions. People fought with each other on petty issues like caste and language. The process of decay accentuted with the resulting poverty as it corroded our moral system as people resorted to all sorts of ways to meet their basic needs. The present state needs no explanation.

Lets hope that we regain our former position and rise above the humiliating mess of archaic systems which we have created for ourselves.