Joint economic zone opens in Pakistan

China has opened its first overseas joint economic zone in Pakistan in a bid to accelerate domestic enterprises' overseas investment.

The joint economic zone, covering 1.03 square kilometres at Manga Mandi, 40 kilometres south of Lahore, was established by China's leading home appliance maker Haier and Pakistani firm Ruba.

Haier has a 55 per cent stake in the joint venture, while Ruba holds the remaining share in what will be Pakistan's largest home appliance production base and the first Sino-Pakistani joint venture of its kind.

"China attaches great importance to economic relations with Pakistan. Investment in Pakistan benefits both nations," Chinese President Hu Jintao said after inaugurating the Haier-Ruba Economic Zone.

The two sides are expected to invest around US$250 million in the construction of the zone over the next five years. here.

the world believes china's ministers have had tremendous success with their ability to promote chinese enterprise. now, they want to help pakistan to do the same. this would be an interesting space to watch!

India tops in using anti-dumping probes

Business Line reports

The number of initiations of new anti-dumping investigations worldwide continued its recently noticeable declining trend during the first half of this year. But India keeps its head high on deploying this trade defensive measure with its new initiations of dumping probe during January-June 2006 standing by far the highest at 20.

According to the Geneva-based World Trade Organisation Secretariat, during January-June 2006, 20 members reported initiating a total of 87 new investigations, down from 105 initiations in the corresponding period of 2005. But the number of new final measures increased to 71 during this period, against 55 such measures applied during Jan-June 2005.

Members reporting the most new initiations during the period under review were in descending order: India, with 20 new investigations, up from 14 during the corresponding period of 2005; the European Union 17, Australia nine and Argentina, Indonesia and Turkey at five each.

India's finance and commerce ministers love to point out that tariff rates in India have come down - and that consumers have gained. At the same time, you have these anti-dumping measures that stand in the way of free trade and of customers getting the benefit of lower costs. FE today carries an Economist piece on a paper (by a University of California at Davis political science professor) that makes this contradiction less obscure. Here is the abstract:

A growing body of research shows that democracies have more liberal trade policies than do autocracies. I argue, in contrast, that democracy has contradictory effects on different types of trade policies because electoral competition generates more information about some than about others. It generates considerable information about policies whose effects on consumer welfare are easy to explain to voters, but less information about policies whose effects are more complex. By increasing the transparency of some policies relative to others, democracy induces politicians to reduce transparent trade barriers but also to replace them with less transparent ones. I test this hypothesis by examining the impact of democracy on tariffs, “core” nontariff barriers (NTBs) such as quotas, and “quality” NTBs such as product standards in 75 countries in the 1990s. I find that democracy leads to lower tariffs, higher core NTBs, and even higher quality NTBs. I conclude that democracy promotes “optimal obfuscation” that allows politicians to protect their markets while maintaining a veneer of liberalization.

Here is the Economist on the connection between free trade abd anti-dumping measures:

In other cases, however, governments have promised to fight dumping in order to win support for radical trade reform. Several of Latin America's young democracies, for example, were keen to slash tariffs and peg their exchange rates to fight inflation. They promised to defend companies against super-cheap imports as a way to sugar this free-trade pill. Mexico, for example, launched 83 antidumping investigations in 1993, more than any other country. But this was partly to shore up support for the North American Free-Trade Agreement.

Liquor

S Anand writes in Outlook:

Both retail and wholesale vending of liquor in the state is controlled by the Tamil Nadu State Marketing Corporation Limited (Tasmac), launched in 1983. During MGR's chief ministership, the state decided to control all wholesale vending of India-Made Foreign Liquor (IMFL). In October 2003, the J. Jayalalitha government took over retail vending as well, ostensibly to put an end to the "cartelisation in the liquor trade". The M. Karunanidhi-led DMK government has found no reason to reverse the policy since revenue from the sale of liquor has broken a 23-year-old record.

'Drinks are bad for you, your home and the nation'. This is a warning you will see prominantly displayed in all liquor retail shops in Tamil Nadu. I am not sure, but i think it's mandatory for them to do so - like the health warning on cigarette covers.

(While we are on that subject, bidi makers in andhra pradesh are up against a rule that asks them to display a danger symbol (skull etc) on beedi covers. Their voices are louder now because there is an election around the corner. I read in BL yesterday that the government might relent because it thinks the rule would affect the livelihood of beedi workers.

I wonder if you still need magnifying glasses to read the statutory warning on cigarrette packets. Compare this to the large photos of decomposing lungs you get to see on them in developed countries. I don't know what to make out of such government rules - but, clearly, the question in this case is why impose it on beedis and not on cigarettes, or for that matter on cigars. Lobbying power?)

Back to alcohol, the irony about the gloomy warning is that those shops are run by the government itself. If government thinks that alcohol is bad for home and the country, and yet has no qualms about selling the stuff to fill its own coffers, what happens to the leftist argument it's the market that doesn't care about what's good and what's bad, and that the market needs government intervention to make it behave?

I dont see any point in government banning alcohol, or for that matter, drugs. (That people will find a way around them is just one of the reasons. Medical shops in Tripura place huge orders for cough syrup, only to send them across the border to Bangladesh and sell to people who see cough syrup as an alternative to alcohol, banned in B'desh for religious reasons. Btw, India is building a huge fence between the two countries - not to stop the movement of cough syrup, but, it says, to stop illegal immigrants. But that's a different story.) Less so in a government selling them.

In any case, it's doing a bad job even in that. Anand goes on:

Not only are Tasmac outlets filthy, they also force brands like Cosmopolitan whiskey and Day & Night rum on buyers. Sometimes even Romanov and Blue Riband are unavailable. Says veteran journalist Sam Rajappa: "These rotgut, local brands are badly distilled molasses. Tasmac peddles arrack packaged as IMFL." Breweries in TN ensure that other brands don't get a foothold in the state.

Meanwhile ET reports:

THE European Union (EU) has challenged the Tamil Nadu government’s policy of prohibiting sale of imported liquor in the state claiming that the provision went against India’s obligations under the World Trade Organisation (WTO). The EU’s complaint against the state’s retail policy for liquor is in addition to its other accusation that the actual import duties charged by the country on wines and spirits is much higher than the level at which the country has bound its duties at the WTO.

The EU has sought consultations with India at the WTO on both the issues and if the two fail to reach an amicable solution to the problem, it could blow up into a fullfledged dispute.

In a submission made to the dispute settlement body of the WTO, the EU pointed out that measures taken by the Tamil Nadu government to establish a legal basis for awarding licences for the sale (including wholesale and retail distribution) within the state of wines and spirits produced in other Indian states, but not for sale of wines and spirits imported into India from other WTO members. Therefore, state authorities do not issue licences for sale of imported wines and spirits.

Pressure mounts for corn export ban

FE reports:

‘‘Exports have really picked up in the past two weeks,’’ Amol Sheth, president of the All India Starch Manufacturers Association said on phone from Ahmedabad, citing exports of 100,000 tonne in the past 15 days.

‘‘If India doesn’t ban exports, it could touch one million tonne as all of southeast Asia is short of the grain.’’

The real question to ask is what would be the stage two/stage three impact if government decides not to impose a ban.

Taxing the poor

Subir Roy makes a superb point in Business Standard today:

The government should remove all duties on the import of ingredients and manufacture of vital medicines. Devi Shetty, an iconic evangelical doctor, makes the startling point that “22-25 per cent of the money spent by a person in pain goes to the government. Every policy of the government is made looking at corporate hospitals in Delhi, Madras.” This is clearly an area where the government can and must act. By all means tax the incomes of corporate hospitals but why levy indirect taxes on medicines for the poor?

Power entrepreneurs step in to keep Baghdad humming

BAGHDAD — Some people never complain about Baghdad's daily power outages.

Wathiq Hassoun, 31, is one of a number of entrepreneurs who operate large generators and sell electricity to entire neighborhoods. "It's a great business," says Hassoun, who started his career shortly after the U.S.-led invasion in 2003. His profits have allowed him to buy two houses, one of which he rents out. here

maybe parts of india need this service too!

GM rice

FE reports:

Indian rice exporters are concerned over the growing rejection of genetically modified (GM) across the world. Recently producers in major rice exporting countries - Thailand and Vietnam -signed agreement to keep GM rice out of cultivation. The All India Rice Exporters Association (AIREA) has woken up to the situation and have asked the government not to allow any field trials or commercial cultivation of GM rice in the country. They say that the retention of the country’s image as producer of non-GM foods would largely boost the prospects of rice exports.

“Country earns millions of dollars in foreign exchange due to export of rice. India’s long grain aromatic rice - basmati has a premium market abroad,” said RS Seshadri of Tilda Riceland - a major exporter of basmati rice.

Concerns are probably real, but i wonder what's the need for government to step in and stop field trials or commercial cultivation?

Throwing rocks in our harbours

Business Standard reports:

Accusing developed countries of using the issue of protectionism as a bogey’, Commerce and Industry Minister Kamal Nath said on Monday that India’s annual increase in imports of over 30 to 35 per cent from the United States and the European Union was proof that the Indian economy was not ‘protectionist’.

“Barring some items like wines and spirits where India does have high tariffs, largely tariffs in India are not high. We are unilaterally bringing down our imports duties on manufactured goods from an average 12.5 per cent at present to Asean levels. We can do more, but I want to see what we can get in return [at the World Trade Organisation]. When we unilaterally reduce duties, it is pocketed very easily [by the developed countries],” Nath said at the India Economic Summit.

I will just quote Jagdish Bhagwati (2002) here: But you don't get ripped off. I think that's the wrong way to look at it. My old teacher, a great radical, Joan Robinson at Cambridge used to say, if you throw rocks into your harbor, that's no reason for me to throw rocks into my own. Essentially what she was saying was that it's good for me to have no restrictions--or reduced restrictions on trade because trade leads to gains--true. If your door is closed, you know, I would get less by their trade. But it doesn't mean that I should then close my own door because then I get doubly hurt.

Well, well, it's not just India. FE reports:

Speaking on the sidelines of CII-WEF India Economic Summit, US deputy trade representative Karan Bhatia said, “We are prepared to engage with anyone and everyone on topics like domestic support or on any other subject in the Doha round to resolve problems. But there is no basis for expectations that somehow the US would come forward with a new unilateral offer without seeing any other movement by anybody else.”

Pollution

Anti-dumping duties

Today's BL has an interesting example anti-dumping duties imposed by India on application by, whoelse, other businesses. Here, All-India Rubber Industries Association wants to review the duties because one company which wanted the anti-dumping duties has closed down seven years back, and another which won a anti-dumping case more recently is down because of a fire. Taxes continue.

BL writes:

[out] of the four types of synthetic rubbers as made in India, (SBR-1900, HSR, NBR and EPDM), antidumping duties are levied on three of them.

Mr Thomas said anti-dumping duty was levied on SBR-1900 at the instance of Synthetics and Chemicals Ltd, and the company was wound up some seven years ago, though the levy still continues. It is learnt that while levy on SBR-1500 and 1700 has been withdrawn, that on SBR-1900 still continues.

Asked on EPDM, anti-dumping duty on which was imposed from July 2006 on an application by Unimers India Ltd, the sole manufacturer in the country, Mr Thomas said the quality of the indigenous variety was not up to the standard and supplies to consumers too were quite erratic. He said the availability was just 5,000 tonnes per annum against the industry requirement of around 16,000 tonnes.

The Unimers India plant is now said to be out of operation owing to a devastating fire at the factory premises recently, and that the anti-dumping authority has assured suspension of levy of anti-dumping duty till such time as Unimers is able to commence full production.

Indians love anti-dumping duties. Remember the Friedman quote a few posts back?

Foriegn bank CEOs come together

BS reports

India CEOs of 12 banks form pressure group within IBA.

To make sure their voice is not lost in the corridors of power, the India CEOs of 12 banks have formed a pressure group within the Indian Banks’ Association (IBA).

The group had its first meeting today and will henceforth meet once every quarter.

Sanjay Nayar, CEO of Citigroup in India, is the chairman of this standing committee of foreign sector banks.

The other banks in the group are HSBC, Standard Chartered, Deutsche Bank, BNP Paribas, ABN Amro, Bank of America, American Express, DBS Bank, JP Morgan, Barclays, and Calyon.

On the agenda for today’s meeting were the recent draft guidelines issued by the Reserve Bank of India (RBI) on non-banking finance companies (NBFCs) and priority sector lending, among other issues, banking sources said.

Fine, they have come together to lobby against unfair regulations. But, let's also remember Adam Smith: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."

Steel makers succeed

BS reports:

The Centre may impose export duty on iron ore exports at a level acceptable to steel makers, said Anwarul Hoda, member Planning Commission and head of committee set up to review the minerals and mining policy.

He said that the level of export duty would be determined after a consultation process. Hoda was speaking on the sidelines of IMME 2006, a mining summit organised by the Confederation of Indian Industry.

The Hoda committee has recommended that export duty be levied on exports of iron ore in lump form with iron content above 65 per cent. However, the steel industry wants duty on ore having iron content of 62 per cent and above.

Or may be no!

Another report says

A high-powered Committee of Secretaries (CoS) has failed to arrive at a consensus on the controversial issue of restricting iron ore exports from the country and has put the ball back in the government’s court.

In a recent CoS meeting, “it was decided that since it is not possible to reach a consensus on restricting ore exports, the same may be decided by the government appropriately,” official sources said.

Sweeping powers for govt in drug law: HT

HT reports:

A planned law to control drug prices which raised fears of backdoor nationalisation in the industry seeks to confer the government with sweeping powers to regulate the production, supply, distribution and the maximum retail prices of both bulk drug intermediates and end-use formulations. Differences have already erupted within the government over the Bill.

The Chemicals and Fertiliser Ministry has come out with the draft Drugs ( Price Regulation and Control) Bill, 2006, a copy of which was obtained by Hindustan Times.

The Bill categorically states that “government, by order, may provide for regulating the production, supply and distribution” of bulk drugs or formulations if the government feels that it is necessary to do so.

Section 3 of the Bill also seeks to confer the government with powers to impose a ceiling on the maximum sale price or control the price in any manner of "any individual, class or category of drug or formulation" for any period of time. This is irrespective of whether a drug is manufactured in India or outside.

Subsidies and cotton

FE reports:

Strongly defending farm practices in the US, Johanns (the secretary in the US department of agriculture) said that in the US about 60% of farmers did not depend on any subsidy. There was no subsidy for beef, poultry, pork, fruits and vegetables, he said, adding that only 40% of farmers get the benefit of the subsidy regime.

In the US, it was the soybean and cotton growers who take the chunk of 93% of the subsidy, he said

When pointed out that Indian farmers would be adversely affected by opening up of markets to the cheap subsidised goods, Johanns said: “Indian textile industry imports cheap subsidised cotton from the US and make huge profits.”

Subsequently, when he was told that it was the industry that had prospered on account of cheap imports while the Indian cotton growers were in distress, Johanns did not have any satisfactory answer.

I am not sure if the distress of cotton growers is because of cheap imports. Anyway, those who have been complaining that US has been throwing billions of dollars to protect 0.7% of labour force, can now take some consollation that it's actually 40% of that 0.7%

India open to halting corn exports

FE/Bloomberg reports:

India may accede to a demand from poultry farmers and other users of corn to ban exports of the grain amid a domestic shortage caused by a fall in production, trade minister Kamal Nath said on Friday.

India may import corn for the first time in five years to meet a shortfall of at least 1 million tonne.

Production may fall 15% from a year earlier to 12.8 million tonne, Amol Sheth, president of All India Starch Association said on November 13.

“I’m open to it. The agriculture ministry is looking at production figures,” the trade minister told reporters in New Delhi.

Government jumping in everytime someone complains about rising prices will result atleast in one big problem. It would discourage development of the institutions, the financial infrastructure that might help people to take on these risks.

Milton Friedman d.2006

Favor and harassment are counterparts in the Indian economic scheme. There is no significant impairment of the willingness of Indian capitalists to invest in their industries, except in the specific industries where nationalization has been announced, but they are not always willing to invest and take the risks inherent in the free enterprise system. They want the Government to support their investment and when it refuses they back out and cry "Socialism".

Thus Milton Friedman, back in 1956. The entries in this blog show not much has changed.

Do check out his memorandum to Indian government.

state backed enterprises beating global competition

"The rise of mega companies is also part of a concerted Kremlin effort to lend a competitive edge to Russian industry and extend its reach into global markets.

Back in the 1990s, way before he became Russia's leader, Mr. Putin wrote a paper for his Candidate of Science degree where he argued that globalisation "demands all possible state support for creating strong financial-industrial corporations with an inter-sector profile on the basis of resource extraction enterprises." These entities should be "capable of competing on equal terms with Western multinational corporations." It is this programme that Mr. Putin is implementing today. He has consistently pushed for consolidation in "strategic sectors" under state control."

"The idea is to create 30 to 40 large holding companies in a range of fields in which the state will control at least 50 per cent of the shares." an article from The Hindu.

the words sound nostalgic to me. russia is today trying why india tried and failed - and india got the idea from russia in the first place and russia had failed in its earlier attempt!

are most humans wired in such a way that they can learn from history!

Tax to punish?

MJ Antony makes a case against Madhya Pradesh Motor Karadhan Adhiniyam which imposes a tax of Rs 1500 a seat a month on motor vehicles without permits, and those that run on unauthorised routes or make authorised trips, saying that there is a distinction between fees and taxes. And that taxes should not be used as a penalty.

What about taxes on polluters? It's also tax as a penalty; tax as a fee for negative externalities, is it not? Your thoughts.

Here is an interesting news, by the way, also from BS

In a novel way to check factories from flushing waste into a river, it has now been made mandatory for industrial units in the Baddi and Barotiwala industrial towns of Himachal Pradesh to build fish ponds.

The treated waste water flowing out from each factory in these towns will now have to flow into a fish pond. And only if fish survive in that water will it be allowed to flow into the nearby Sarsa river.

I know i am being cynical, but i wonder how scientific it is, and if it will have any unintended consequences. Some questions: First of all, what about the dilution that takes place once the treated water flows into the river? Then, are there some kind of fishes which are more resistant to pollution than others? Suppose fishes can survive polluted water for lets say two three days, Will we be seeing a story sometime in the future that fish sales go up in Baddi and Barotiwala, say every 15th because that's around the date when PCB guys come to check?

Heard about rat farms? I dont know how true the story is, but when a state government wanted to eradicate rats and offered to give money for every rat that was pelted, people in that area actually started rat farms!

Watchmakers dont want us to buy watches

BS reports

The domestic watch industry has demanded sops from the government to help it improve its competitiveness and achieve its objective of every Indian having at least one watch.

Among the demands of the industry are increase in abatement rate on watches from 35 per cent to 50 per cent, rationalisation of duty structures and curbing of illegal imports.

Fairer taxes are fine, but I cant understand how buying watches can be illegal! I mean, why should there be any restriction on importing watches in first place?

Steel makers want to ban iron ore exports and steel imports

PTI reports (in BS):

The government will soon formulate a policy on export of iron-ore but has ruled out imposing a blanket ban as demanded by the domestic steel industry.

“The government is very concerned about the issue but it is not possible to put a blanket ban,” Union Minister of State for Steel Akhilesh Das said today.

He, however, said a policy would be framed soon to keep export of the raw material to the bare minimum.

Another report, also by PTI in BS, says

Steel Minister Ram Vilas Paswan today favoured framing a policy specific to the entry of Chinese steel companies into India, amid concerns in domestic industry about the market being flooded with cheaper steel.

“The government should frame proper policies on the entry of Chinese companies into India. They (Chinese steel firms) could be looking for opportunities here,” he said after inaugurating the Ministry of Steel’s pavilion at the India International Trade Fair.

Given the capacity of Chinese companies to manufacture and sell steel at cheaper rates, the domestic steel industry is apprehensive that allowing entry could threaten their existence.

What else can you ask for?

Log-unrolling

BS reports

The finance ministry has turned down Railway Minister Lalu Prasad’s proposal to set up a coach factory at Rae Bareli, the constituency of Congress President Sonia Gandhi.

In addition, the ministry has also questioned the plan to manufacture diesel locomotives at a new manufacturing facility at Chapra, Prasad’s constituency.

“Setting up a third coach factory at Rae Bareli is not financially viable, as the railways already have two factories in Chennai and Kapurthala, which at present produce 2,300 coaches annually and will be able to meet the demand of nearly 4,550 coaches by the end of the Eleventh Five-Year Plan,” a government source said.

An investment of Rs 1,685 crore is envisaged for the Rae Bareli factory, which aims to manufacture 1,150 state-of-the-art passenger coaches every year. In fact, the railway ministry did not agree to set up the project under the public-private partnership route.

Lazy capitalism

FE says,

The commerce secretary’s statement that free trade agreements (FTAs) would drive domestic reforms, and not vice-versa, indicates that India, making the best of a bad multilateral trade situation, is following the successful approach taken by the likes of Japan and Korea. Both countries used FTAs to break the stranglehold of pressure groups on trade policy and domestic reforms, even in sensitive sectors. Japan’s new FTA with Mexico, which not only opened up the Japanese market to cheaper agricultural imports but also blunted opposition from that country’s powerful agriculture lobby, best exemplifies this. Clearly, a country-based approach to opening up the economy makes pressure groups more amenable to persuasion. Moreover, given the Doha round’s virtual demise, FTAs are probably the best way to open up the Indian economy further.

Not everyone feels that way, though. Jagdish Bhagwati for one. He says,

We are thus (through these FTAs) reproducing in the world trading system, in the name of free trade but through free trade areas that spread discrimination against producers in non-member countries, the chaos that was created in the 1930s through similar uncoordinated pursuit of protectionism that discriminated in favour of domestic producers. In both cases, the preferred solution would have been non-discriminatory pursuit of freer trade.

It's interesting to see how the special economic zones are so much like free trade agreements. Like FTAs, SEZs are created in the name of friendlier policies (better infrastructure, less constraining labour laws, lower taxes etc), and like FTAs they discriminate against non-members. And yes, like FTAs, SEZs have support from reformers.

Education

Business Standard says

A government-sponsored Public Report on Basic Education in India, for example, has disclosed that teaching goes on in only 53 per cent of government schools in the villages of MP, Bihar, UP and Rajasthan. Teachers were found absent in one-third of the schools; many were found to have brazenly closed their schools and were busy running shops. Yet, governments continue to be hostile to the idea of private institutions, of public-private partnership, and of a suitable incentive system to make the public education system work better. Some state governments in the southern cone have taken the attitude that private educational institutes should be liberally allowed; this explains the sharp increase in supply of engineers in the south, though all the privately-run institutions cannot lay claim to providing quality education. Indeed, some of them already face a shortage of students, but this situation has the virtue of being a problem of excess supply and therefore student choice. In most places, however, it is still a case of supply shortage.

I think the piece confuses between primary and higher education, but raises a valid point. Wonder why the government is reluctant even to try something like a voucher system, at least in a couple of districts, see how it works, and if it's satisfied expand it to more locations.

National security is the last resort of protectionists

Business Standard reports:

Tata had written to the minister in October on various issues related to Press Note 5, including the suspension of Para 2, which said conditions related to security issues were also to apply to existing telecom operators with an FDI cap of 49 per cent.

The note puts various restrictions on telecom companies with foreign direct investment, on issues such as having foreigners at key management positions and remote access.

With uncertainty prevailing for around two years now, the telecom industry has urged the government to go back to the earlier regime that had an FDI cap of 49 per cent.

Those of us who cried foul when businesses and governments abroad seemed to be against Mittal's bid for Arcelor, should also take a look at our views on foriegners.

Some, however, say being cautious is not protectionism.

Log-unrolling?

Business Standard reports

Union civil aviation minister Praful Patel today put his weight behind Jet Airways' application seeking to fly to the US and said the issue of security clearance by home ministry to the country's largest carrier is unnecessarily delayed.

"The home ministry has given the security clearance to Jet to fly domestic routes. Why can not the carrier be given permission to fly to the US.

"If it cannot be given security clearance to fly to the US, then it should also not be allowed to operate in domestic routes," Patel said adding that the issue should be put to rest by the home ministry at the earliest.

Strange are the ways ministers behave. Or may be not. We have instances of logrolling when politicians try to cooperate with each other to pass laws that might satisfy each other's constituencies, but perhaps not the society at large. And you have such instances as above when ministers, even of the same government, don't.

Tit for tat regulations

FE reports,

The foreign banks from many countries may be pressing hard for liberalised Indian banking rules to venture into or expand in the domestic market, but it has not been an easy task for State Bank of India, the country’s largest bank, to set up normal banking activities in some developed countries.

Of late, the bank, which has a presence in 30 countries, has faced regulatory resistance in three countries -- US, Singapore and Australia – in its foray into full-fledged banking operations.

More interesting part here

In the US also, the bank’s long-drawn efforts to expand its operations have not succeeded so far. Earlier, US authorities had not allowed the bank’s move a few years ago of expanding its activities saying that it has to put up a complete secured system to prevent money laundering and fraudulent activities.

Though the bank has already complied with the US authorities’ instructions on this front, there is no change of stance by the authorities.

“They are not telling us clearly what is preventing them from giving us more freedom to expand our activities,’’ said sources at SBI.

In fact, observers point out that the attitude of several banking regulators towards Indian banks in recent times has compelled Reserve Bank of India (RBI) to adopt counter measures by not allowing foreign banks to expand their operations in domestic market.

“It is ok, if it is a tit for tat by the RBI. But RBI should allow expansion of at least those banks which belong to countries where Indian banks are not facing any problems,’’ commented a prominent foreign banker.

The last comment by the prominent foreign banker reminded me of prisoners dilemma ( Wikipedia). I would suggest you to read the whole thing, or atleast this

In his book The Evolution of Cooperation (1984), Robert Axelrod explored an extension to the classical PD scenario, which he called the iterated prisoner's dilemma (IPD). In this, participants have to choose their mutual strategy again and again, and have memory of their previous encounters. Axelrod invited academic colleagues all over the world to devise computer strategies to compete in an IPD tournament. The programs that were entered varied widely in algorithmic complexity; initial hostility; capacity for forgiveness; and so forth.

Axelrod discovered that when these encounters were repeated over a long period of time with many players, each with different strategies, "greedy" strategies tended to do very poorly in the long run while more "altruistic" strategies did better, as judged purely by self-interest. He used this to show a possible mechanism for the evolution of altruistic behaviour from mechanisms that are initially purely selfish, by natural selection.

The best deterministic strategy was found to be "Tit for Tat", which Anatol Rapoport developed and entered into the tournament. It was the simplest of any program entered, containing only four lines of BASIC, and won the contest. The strategy is simply to cooperate on the first iteration of the game; after that, the player does what his opponent did on the previous move. A slightly better strategy is "Tit for Tat with forgiveness". When the opponent defects, on the next move, the player sometimes cooperates anyway, with a small probability (around 1%-5%). This allows for occasional recovery from getting trapped in a cycle of defections. The exact probability depends on the line-up of opponents. "Tit for Tat with forgiveness" is best when miscommunication is introduced to the game — when one's move is incorrectly reported to the opponent.

I dont know if this is also an example of Beggar thy neighbour policies.

Socialised healthcare

When someone asked Gandhi what he thought about western civilisation he famously replied 'it will be a good a idea'. I guess you can use the same answer if someone were to ask what you about public health system in India. (We stand 126th among 159 countries according to the latest Human Development Report.)

Check this out. In villages near Madurai people go to primary health centres in good number only when crops fail, and they cant afford Rs 10 to private doctors, sending signs to HLL salesmen about how his business going to be in that season, and making a bigger statement about the state of free healthcare in the country.

A July 2005, report on Delhi doctors by World Bank says "doctors in the fee-for-service private sector are closer in practice to their knowledge frontier than those in the fixed-salary public sector. Under-qualified private sector doctors, even though they know less, provide better care on average than their better-qualified counterparts in the public sector." I know i am being unfair to thousands of healthcare professionals in government run hospitals, but i dont think i would be wrong in joining those who criticise how these hospitals and healthcare centres are run.

So, does that mean we will be better off if they are all run by private sector? It might be instructive to compare countries which provide socialised healthcare with those that dont. This piece from Economist website's new feature CORRESPONDENT'S DIARY does just that:

America is the only advanced country that does not have universal health care, with a "single payer", the government, organising the system. Instead, America argues that competition between private-sector insurance companies will cut costs and improve services. If only...

As Paul Krugman, an economist and a New York Times columnist, has pointed out, universal health-care systems minimise their risk by covering everyone, ill and healthy alike. Private-sector insurers minimise theirs by avoiding the sick. So woe betide you if you have a pre-existing condition. Bad luck, too, if you have a catastrophic illness and then lose your job.

At some point, surely, a tipping point in public opinion will be reached. It would help if America's bosses lent a hand: after all, $1,500 of the price of a car from loss-making General Motors goes to pay for health care. I remember interviewing Howard Schultz, the boss of Starbucks. Mr Schultz gives his employees, including part-timers, good health cover, but he also lobbies for the burden of care to be taken off employers' backs, and he cannot understand why so few other bosses are willing to join his campaign.

Perhaps the reason is that the obvious alternative would be "socialised medicine", a phrase that sets alarm bells ringing for the average American. But, as I say in arguments with bemused American friends, the country seems happy enough to have "socialised" roads, schools and armed forces. And what do they get with their present health system? They get lower life expectancy than in most of Europe, and higher infant mortality than in Cuba―even though, at around 15% of its GDP, America's spending on health care is the highest in the world.

None of this convinces my friends. They counter with horror stories about Britain's National Health Service, or the growing queues in the Canadian system. I cite France and Belgium in retaliation. The fundamental problem, of course, is that no health-care system can be perfect when demand is infinite and supply is not. But America sees itself as a moral country. Can it be morally right that someone hit by accident or illness should then be hit by an enormous hospital bill?

Your thoughts?

Life insurance for HIV sufferers

Economist writes

DIAGNOSED with HIV 23 years ago, David Patient thought he would never see the day when he could insure his life. Until the launch late last year of AllLife, an innovative insurance newcomer, the few life insurers taking on clients with HIV offered very limited cover and charged prohibitive premiums. But AllLife is specifically targeting customers carrying the virus, offering them more affordable insurance for up to 3m rand ($410,000). They are now able to protect their loved ones and get mortgages. This is changing perceptions of a disease often considered to be a death sentence.

The average probability of AIDS death in South Africa would appear to make life cover prohibitively costly for people with HIV. But extremes rather than averages apply to HIV/AIDS: people who monitor their health and are treated tend to do well; most of the rest die quickly when AIDS sets in. The first group's risk profile is no worse than diabetics', according to AllLife. To maintain their cover, clients have to go for regular blood tests and take antiretroviral medication when needed. AllLife sends reminders for tests and monitors results. This helps clients to stay alive—and AllLife to keep risks down. Although its cover costs two to five times more than standard life insurance, it is much cheaper than what was available before.
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Life insurance remains beyond the means of millions of South Africans—whether they carry the virus or not—and very few apply for cover. Many of those who discover they are HIV positive withdraw because of confidentiality fears. But according to the Life Offices' Association, an insurance body, some established firms will soon come up with affordable products, too. It took decades before diabetics could insure their lives; let's hope people with HIV do not need to wait much longer.

Reading about AIDS, its public health implications, socio-economic profile of its victims and all the calls for donations to help them, i had always assumed that treating aids is a perfect example for a justifiable government intervention - and that private sector had little role to play, except in terms of charity. Bill Emmott, former editor of the economist once said that a key function of journalism is to challenge assumptions. This piece certainly challenged mine.

Even now, I don't, in any way, think that governments should keep away from dealing with AIDS. But, i look at this as an example of problems that businesses can address - even if they have to work a little harder for it.

And CK Prahlad has more examples in Fortune at the Bottom of the Pyramid.

People bought sugar; government sour

Business Line reports

The Centre has issued show-cause to four mills in western Uttar Pradesh (UP) that have been found to have sold sugar in excess of the free sale quotas (FSQ) allocated to them.

"We have sent show-cause to four mills and they have been given three weeks' time to reply to the notices," a top Food Ministry official told Business Line.
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Under the Sugar Control Order, the Centre decides how much sugar a mill can sell in the open market during any particular month. Mills are not allowed to dispose of or even remove sugar from their bonded godowns without an FSQ release order from the Directorate.

"The mills to whom the notices have been sent sold excess sugar during the festival period last month. They wanted to make the maximum out of the peak festival demand in the Delhi market and dispose of stocks before the start of the new crushing season," the official said. In UP, mills begin crushing operations from early November.

Meanwhile FE reports, "Bajaj Hindusthan Ltd, the country’s biggest sugar maker, and rival mills plan to more than double sales of ethanol to meet government alternative fuel targets, helping boost earnings as prices of the sweetener slump."

protection from destruction is creation

when we look at markets - we look at what it creates. from food to telecom, the fruits of production are easy to identify.

but what about destruction.
dont markets have a role to protect people from destruction. often, when calamity strike when we think it is solely the duty of the government to come to aid of the people. surely non profits do play a role but that does not take away the a fraction of the responsibility the government of the day faces

but what if there is no proper government ??

here is a sadly interesting example of the flood in somalia.
"Hassan said the problem lies in the fact that the country has been without a government since 1991. No one has been able "to de-silt the riverbed or manage the sluice gates on the rivers or adjoining canals. We had one canal but it is no longer functioning". the entire story is available here.
if any of the few readers do come across interesting examples of how markets work or mostly dont work in times of destruction, pl. do leave a comment or mail us!

Vanaspati producers complain buyers are getting a good deal

Financial Express reports,

In a memorandum to the finance minister P Chidambaram and the commerce minister Kamal Nath, the executive director of Indian Vanaspati Producers’ Association (IVPA) IV Mehra said, “Under the free trade agreements with Nepal and Sri Lanka vanaspati, margarine and bakery shortening are against zero duty. These are the products produced by vanaspati industry in the country. Therefore, the industry is adversely affected by cheap imports of these finished products.”

Imports of wheat affects salt production!

Business Standard reports

With the heavy import of wheat and fertiliser at the Kandla port, salt manufactures here are suffering a production loss of 8,000 tonnes per day (tpd) due to unavailability of wagons for the transportation of salts.

Hiralal Parakh, president of Kandla Salt Manufacturers Association (KSMA), said, "The salt manufacturers in Kandla are suffering losses due to the diversion of railway wagons for transportation of imported wheat and fertilisers."

He further said that the KSMA does not oppose the import of wheat or fertilisers but the government authorities as well as the Centre must take due steps to safeguard the interest of salt manufacturers in Kandla.

According to Parakh, the association had approached the railway authorities as well as the Centre but no positive steps had been taken by any of them.

"Accumulation of 20 lakh metric tonnes of salt due to unavailability of enough wagons from the Indian Railways, has compelled the salt producers to reduce the production," he adds.

It's interesting to see why wheat imports shot up in the first place. Indiatogether blames US. Do check this, this and this

Extend tax benefits to IT companies, a committee says

Financial Express reports

A high-level committee constituted by the PM has recommended that income-tax sops for software technology parks (STPs) be extended beyond the March 31, 2009, deadline, by another 10 years.

According to government officials, the committee, chaired by Rajiv Ratna Shah, member-secretary, Planning Commission, has said this would prevent any relocation of infotech units from export-oriented units (like STPs) to SEZs. Around 6,500 infotech companies in 47 STPs across the country stand to benefit if the finance ministry agrees to the proposal. According to the officials, the tax benefits beyond 2009 for units in STPs will be at par with SEZs: 100% I-T exemption for the first five years, followed by a 50% exemption over the subsequent five years.

India it appears would continue to be the only country in which a sector is not taxed because its not doing well (agriculture), and another because it is doing well (IT). And India has one of the lowest tax to gdp ratios in the world. IT companies, first to complain about lack of infrastructure, say they dont want to be taxed because they employ people, and pay salaries to them. Tell me, which company doesnt. It might be odd for a blog on free markets to be complaining about government not imposing taxes. But this blog is also about the lobbying power of businesses. And look at the things that goverment can do with the money forgone - how many rural roads, primary health centres, schools (or ideally, education vouchers)

Somalia - the perfect lab to test free market theories?!

free market theories are mostly based on logic and inference from select situations. economists generally lack the luxury of other scientists - to create a condition in a country to test a hypothesis like say a physicist does in his laboratory.

but what if a whole economy by some quirk in the governance chain was filled with free market experiments and the results available to all to interpret?

while it may sound perverse, improvised Somalia should logically be a free market economists delight. we can search for answers why the market does a great job in areas like telecom and works rather inefficiently in infrastructure creation like roads.

" Somalia has lacked a recognized government since 1991—an unusually long time. In extremely difficult conditions the private sector has demonstrated its much-vaunted capability to make do. To cope with the absence of the rule of law, private enterprises have been using foreign jurisdictions or institutions to help with some tasks, operating within networks of trust to strengthen property rights, and simplifying transactions until they require neither. Somalia’s private sector experience suggests that it may be easier than is commonly thought for basic systems of finance and some infrastructure services to function where government is extremely weak or absent." says the finding from a World Bank report tiltled "Anarchy and Invention: How Does Somalia’s Private Sector Cope without Government?"

telecom in Somalia seems to be a great success story with the country enjoying one of the lowest rates in Africs as this article illustrates. "Three phone companies are engaged in fierce competition for both mobile and landline customers, while new internet cafes are being set up across the city and the entire country." the rather old BBC story adds ( i coundnt google out anything more recent), "It takes just three days for a landline to be installed - compared with
waiting-lists of many years in neighbouring Kenya, where there is a stable, democratic government. And once installed, local calls are free for a monthly fee of just $10. "

now, i guess , in india, we shouldnt be as liberal as we are in our praise for the govt and the entrepreneurs for the success in the sector but just cheer everyones invisible hands!!

i wonder how economics plays out in countries where governance is almost non existent - where market or others beastly forces reign - the areas the invisible hands works but is paralyzed elsewhere. -- in Markets sans ministers.

ICICI Bank wants level playing field

BS reports

ICICI Bank Managing Director and CEO K V Kamath on Wednesday said there is need for level playing field for banks to compete with other institutions, such as mutual funds and insurance companies, for mobilising more deposits.

“A level playing field will enable banks to have their rightful share of deposits. And for this, a facilitating environment is needed,” Kamath said, declining to specify whether the facilitating environment includes tax incentives.
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K Unnikrishnan, senior vice-president, IBA, said “We will look at the issues concerning bankers. A lot of money is flowing into mutual funds and that doesn’t augur well for banks. The 80(L) benefits available on bank deposits earlier have been withdrawn.”

A lot of money is flowing into mutual funds. That's bad, is it not?

Cost of love for language

ET reports

THE Tamil film industry, which even a few months back considered English titles for their films as fancy, has suddenly developed a new found love for Tamil as a language. But, in reality, it is turning out to be more out of love for money than on the language itself. And the industry is laughing is all the way to the bank.

Many Tamil political and linguists leaders were up in arms against the Tamil film industry for having English titles for Tamil films like ‘Red’, ‘King’, ‘Three Roses’, ‘Citizen’, ‘Chocolate’, and ‘Samurai’.... The present DMK government solved the whole issue in a jiffy. It simply decided to waive entertainment tax for films with Tamil titles.

Earlier, the film industry had to pay 15% of the ticket price in the case of urban markets and 10% in the case of rural segments as entertainment tax. Just by having a Tamil title for their film, they get to pocket this 15% and 10% as additional revenue, which could be shared by the producer, distributor and the exhibitor.

“While this will benefit the industry to a large extent, the state ex-chequer stands loose over Rs 50 crore per annum on account of this concession,” say sources in the state tax department.

One of the problems with government intervention in businesses is that it generally takes govt's attention away from what its supposed to be doing. The time and effort a government spends on these things have an opportunity cost. Amartya Sen once said that Indian government has been overactive where it should not have been active at all, and underactive where it should have been active. I guess we can add that government has been underactive in some areas because it has been overactive in others.

The one above is a good example. If a penny saved is a penny earned, a penny forgone is a penny spent. Imagine what it could have done with Rs 50 crore - how many primary health centres, how many schools!

Do lobbyists cancel out each other

Reuters reports

India plans to lift a ban on sugar exports in the next fortnight with the country poised to produce a record harvest of the sweetener this season, Agriculture Minister Sharad Pawar said on Wednesday.

He said India's sugar production in the season that began in October would likely reach 22.7 million tonnes, up from about 19 million tonnes in the last season.

"We are seriously considering lifting the sugar export ban in the next two weeks as availability of sugar is not a concern now," Pawar told a conference of economic editors.
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India banned exports in July to help check inflation as prices soared, and said the restriction would last until the end of the financial year in March.

But traders have been clamouring for the ban to be lifted so they can capitalise on favourable global sugar prices.

A couple of posts back we saw starch manufacturers lobbying to ban exports of maize. And here, the traders want a ban on sugar exports to be lifted. Now, it's a right time to ask this question - wouldnt these pressures and counter-pressures lead to kind of happy equilibrium for everyone. Sadly no.

Two reasons.

Lobbying power varies. Unlike the theoretical 'voting power' (one man, one vote), lobbying power is not equally distributed. The most powerful pressure groups - the rich, the well connected, the elite - tend to dictate policies.

Policies, in most cases, are the same for every one, unlike the market for goods and services. In the market for goods/services there is a chance that you get the benefit of long tail (which says odd demands can not only be met, but can also be met profitably). When it comes to policies, if it's a ban, it's usually a ban for all. This brings to us another crucial difference between the two. In goods/services market if you are among 1% of population which prefers blue tie with yellow dots (against the majority preference for blue tie, with say, red dots) you have a good chance of getting the tie you want. But when it comes to policies, you don't. As Milton Friedman pointed out in his superb television show Free to choose, 'they come in packages'.

Fixing red gram prices

The Hindu reports

The official said the Union Government had fixed the MSP (minimum support price) for red gram at Rs. 1,410 a quintal this year. The State Government would fix a higher support price like it did last year, he said.

Last year, while the Centre fixed the MSP at Rs. 1,400 a quintal, the State Government fixed it a Rs. 1,740 for grade I and Rs. 1,690 for grade II.

Mr. Venkataiah said that unlike in the past, the market intervention by the board would be more effective this season and red gram procurement centres would be set up in Gulbarga, Bidar and Raichur districts, well before the second week of December when fresh stocks start arriving in the market.

I am sure there is no dearth of good intentions behind government interventions such as these. But such policies demand too little to think up (farmers are getting too little money, fix a minimum support price), and too much to put through (look at this, "the market intervention by the board would be more effective this season".) It should be the other way. Ideas?

Retailing freedom

Economist writes

Retailing is one of the last big sectors of the Indian economy to open up to FDI. Previous attempts by foreign retailers to start businesses were blocked by successive governments. In the 1990s opposition from traders and local shopkeepers was enough to convince politicians. Later on the government was persuaded by the political left, and also by the Indian business lobby. The current government now has no hope of allowing FDI into general retailing by the end of this year.

Telgu film makers want to ban dubbed movies

BusinessLine reports

The Telugu film industry is in for a fresh row with Producers' Council deciding to impose curbs on dubbing movies, taking a cue from neighbouring Karnataka.

The council has also called for putting a full stop on dubbing films. It, however, has given a reprieve for those who have already bought rights for dubbing at a very huge consideration.

Such producers are supposed to produce relevant papers within a week. Those films will be released at a later date. "We will not consider any plea later on," the council warned its members.

The argument in favour of the decision is that dubbing movies would destroy the original movie-making in Telugu.

Government might lower petrol prices

FE reports

Petrol and diesel consumers need not expect any immediate cut in fuel prices as the government will consider a reduction only when international crude oil prices fall further and the Indian basket of crude oil touches the $52-a-barrel level.

Politicians may not love markets, but they love to play it

Starch manufacturers want to ban maize exports

FE reports

The All-India Starch Manufacturers’ Association has asked government to ban maize exports and allow imports on user basis due to shortfall in the country, association president Amol Sheth told Crisil MarketWire. Excessive rainfall in maize growing regions in the country this year has impacted production and has widened the supply shortfall by 1.2 million tonne (mt), he said. “Unless the government bans maize exports on lines of wheat and simultaneously allows imports as per user basis requirements, the threat of layoffs cannot be ruled out,” he said.

One good thing is, they are lobbying for imports!

Bad losers

FE writes on Anil Ambani group’s petition challenging the award of the Mumbai and Delhi airport privatisation contracts to the GVK- and GMR-led consortia:

The story of opening up India’s infrastructure sector has been marred often by unnecessary litigation and unfounded allegations of corruption. Every sane Indian knows that rapid and massive growth of infrastructure, through public investment, public-private partnerships and privatisation, lies at the core of India’s sustaining and accelerating its economic growth. Yet, time and again, politicians with deluded ideologies, and private players who have not got some contract for legitimate reasons, have tried to delay the process.

Tough to pay tax

BS reports

India is home to the most burdensome tax administration, as measured by the number of pages of central tax laws, among the world’s top 20 economies, a new study has revealed.

India, ranked 10th among the world’s 20 biggest countries in terms of GDP, has 9,000 pages of primary tax legislation, global accounting major PricewaterhouseCoopers said in a joint study with World Bank.

Cut it further, says Paswan

BS reports

Reacting to widespread criticism of the “farcical” price cut on the 886 generic drugs, Union Minister for Chemicals & Fertilisers Ram Vilas Paswan has expressed disappointment over the industry’s failure to take a substantive step in making the drugs affordable.

“They gave an assurance of a price cut on drugs. The ministry will speak to them as there has been a let-down,” said Paswan while responding to reporters’ observation that the 886 drugs were neither manufactured nor sold by the companies.

Well, well. Healthcare in a country that has poor social development indicators is not that simple. But politicians love to play the role of markets in setting prices

Bombay club

AKB writes in Business Standard:

"Who is opposed to higher FDI limits in retail and insurance? Going by public pronouncements, the Left parties are the most vocal about opposing any relaxation in the FDI policy for these two sectors. They fear that opening up the retail sector to unrestricted foreign players would take away jobs and sound the death knell for millions of small shops in this country. Similarly, a further opening up of the insurance sector, the Left fears, would undermine the interests of the state-owned insurance industry and the country’s economic sovereignty. And since the Left wields considerable influence over the Manmohan Singh government, most analysts believe that any forward movement on these fronts will happen only after the Left is convinced of the proposed changes.

But if you talk to those who deal with such policies in the government, you might come back with a different perception. It is the large Indian retail players who are more worried about the entry of the foreign players if and when the FDI policy is relaxed for the retail sector. It is not just the fear of the small retail shop-owners. The big Indian retail chains also want a little more breathing space to grow and expand their businesses without any competition from the foreign retailers.

Similarly, it is the relatively big insurance players who are not completely open to the idea of a higher FDI"

Save capitalism from capitalists!