next wave of financial sector reforms..!!

The first wave of reforms introduced in early 1990s helped us to achieve high GDP growth rates. Our economy became competitive and there was significant increase in our exports . The inflow of FDIs and FIIs has promoted the growth of our industries. The opening of the insurance and telecom sectors were major decisions in the last decade. The reduction of import and export duties resulted in increased trade and made our economy more competitive.

However, a lot of reforms are yet to be initiated . First of all, our banks are highly incompetitive and operate on old business model. Most of our banks in the public sector are highly inefficient and the presence of large number of small banks makes it difficult to achieve economies of scale . we require few banks which are large in size and can compete on the global scale and thus reforms in our banking sector are long overdue.

Secondly , we need to rationalise our indirect tax system. Different rates of taxation across our states keep us away from having a single economic market and make it difficult to optimize our logistics .It is hoped that GST will go a long way in establishing a common market . The direct taxes like income and corporate taxes should be moderated to give a boost to entrepreneurial activity. The labour reforms are equally important but a sensitive issue in a developing country like india. The capital account convertibility can be attempted in a gradual manner. The rationalization of huge subsidies granted on oil and fertilisers should be pursued without politicizing it . All this requires a strong political leadership and willingness to work for our long term interests rather than playing

votebank politics

higher education in india..!

The state of higher education in india is highly deplorable. The course curriculum of most of the universities are not updated regularly and the lackadaisical attitude of students and faculty have given rise to a system which is basically concerned with clearing exams .Neither students nor teachers have desire to delve deeper into a topic and in most cases ,the so called learning is superficial. There are universities where same questions keep appearing in exams year after year.

We cannot expect decent R&D with this state of higher education. Most of the government labs are practically defunct and the research undertaken is for namesake only. Moreover, the state of our country has given rise to a culture where our so called bureaucrats are held in higher esteem rather than people involved in science and technology. Its no wonder that a large section of our youth dream to become a bureaucrat rather than a scientist involved in pursuit of knowledge.

Our higher education is in urgent need of reform. There should be stress on concept building and real life applications rather than cramming facts . Otherwise, our huge demographic dividend can turn out to be a nightmare as we will never become competitive in the absence of indigenous innovation.

the scourge of naxalism..!!

Naxalism seems to be on rise in many parts of eastern and central india. There has been a spurt in naxal-related violence in recent times . Some parts of west Bengal and jharkhand have emerged as epicentres of naxal related activities. It has emerged as some sort of national movement against the state whereby poor people in remote villages are indoctrinated with their philosophy. The struggle is somewhat motivated by the communist ideology of establishing a nation where resources are equally shared by all people. However, the method which these people have chosen is certainly not in good taste. The incidents like violence in lalgarh or the recent stopping of Rajdhani express does not find favour with the common man.

The issue needs to tackled from various angles. First of all, a serious attempt should be made by the government to bring these people into the main stream of the nation by providing education and other infrastructural facilities in the underdeveloped areas. Secondly, the government should seek to identify and monitor the sources which fund these naxalite activities. Finally , we should be ready for swift and strong retaliation in case of violence by these groups.

japan: in perpetual recession.!!!

The Japanese economy seems to be in a state of constant recession for last two decades. All attempts by the government to stimulate the economy have failed. There was an asset bubble which burst in the late eighties and it led to accumulation of toxic assets in the books of many Japanese banks. The Japanese government was slow to react to the crisis as there was reluctance on the part of the government to accept the gravity of the situation . The initial response was to sweep it under the carpet . However, what followed was something unparalleled in economic history of the post world -war world.

The economic problems have been compounded as a result of deteriorating demographic profile of the country. The population of Japan has been declining since 2006. The burden of ageing population has placed heavy burden on state finances.

The interest rates in Japan are close to 0 % and even such monetary tools have failed to stimulate the economy. Japan needs to do a serious thinking about its future if it wants to preserve its status as a world economic giant. Otherwise, this great nation of hard working people will get relegated to the list 2nd tier countries.

the building of the next oil bubble..!

Oil has risen to $80 per barrel in anticipation of economic recovery in the US and Europe. There appears to be an element of speculative activity behind the recent rise. Much of the excess liquidity has been used to for speculation in the oil market. Its not a good sign for the world economy as high oil prices can derail the recovery process. It appears that there are some vested interests in middle east and Russia which are behind the recent rise in oil price. Such high oil prices provide them with windfall profit which in turn is used to inflate the oil bubble. It appears that with this pace oil may touch 200$ per barrel by 2012.

The international community should join hands together to help the world get rid of oil mafia. Moreover , a forum of oil producing countries can be created for ensuring the stability of crude prices. Such steps can help the world economy in the short run whereby poor countries are protected from recurring oil shocks. However, in long term we need to develop alternative sources of energy to avoid our reliance on oil. Solar and nuclear energy have huge potential and they can even reduce our emission of greenhouse gases and may go a long way in providing us a clean source of energy.

disinvestment..!

The new government has realised the merits of disinvestment and has sold stakes in NHPC and oil india limited through an IPO offer. It has plans to sell 10% stake in SAIL. BSNL is expected to come up with an IPO within 6 months. The earlier left supported government couldn't proceed on disinvestment due to strong protest from left-wing parties. Such funds generated can be spent on social sector whereby the benefits can directly reach the masses. The proceeds from the stake sales are deposited in a special purpose vehicle known as National Investment Fund. Such stake sales subject these firms to market discipline and increase their market capitalization. It puts management to constant scrutiny as they can be judged on parameters like share price and EPS.

However, there are certain issues which need to be considered to make this disinvestment story a real success. First of all, it should be ensured that state assets are not sold at thrown away prices. Secondly, employees of such companies must be taken into confidence before such stake sale as fear of job loss often make them oppose such disinvestment. Thirdly, government should try to have its IPOs priced in a way such that retail investors realize listing gains on the first day of trading.It will increase the marketability of new IPOs.

india's telecom story..!!

Telecom sector has been undergoing a revolution for last few years. Its an example of what competition and right regulatory framework can do to a sector. At present, India has more than 400million mobile subscribers and it has become the fastest growing market of mobile phones in the world with 10 million additions each month. The appropriate regulatory framework allowed private sector firms like Airtel and Reliance to play leading roles in shaping up the mobile telephony business in india. In recent times we have seen many foreign companies having plans to start operations in india. This sector can serve as an example to other sectors as how the judicious combination of right policy and environment can help to achieve accelerated growth.

However, the slow pace of bureaucratic decision making has affected the technological upgradation of the sector. We are still caught up in the 2G mobile telephony and the introduction of 3G technology seems to be trapped in red tapism. Moreover, there appears to be some discretion on the part of ministry as far as allocation of spectrum is concerned and it is not a good sign if we want to promote our country as an ideal business destination.