Wednesday, November 19, 2008

Sub prime Crisis-AMERICAN DREAM AND GLOBAL NIGHTMARE

The current upheaval in the global financial markets has caused more mayhem in a fortnight than the world has seen in its entire economic history. Although there are many reasons responsible for bringing the world to the doorstep of financial doom, the main cause of this financial disaster is said to be the ?sub-prime loan. So what is this sub-prime loan? And why has it caused global panic? If it is related to the American housing sector, why should it affect Indian and other markets?
A sub-prime loan: Sub-prime mortgage loans (or housing loans or junk loans) are very risky. But since profits are high where the risk is high, a lot of lenders get into this business to try and make a quick buck. Sub-prime loans are dicey as they are given to people with unstable incomes or low creditworthiness. These individuals are not financially sound enough to be given a loan when judged under the strict standards that should normally be followed by a bank or lending institution. However, there's more to it. Let us simplify this issue to understand better how sub-prime loans work and how they brought the world down to its knees.
It all begins with an American wanting to live the famed American dream.
So he seeks a housing loan to give shape to his dream home. But there is a slight problem. He doesn't have good credit rating. This means that he is unable to clear all the stringent conditions that a bank imposes on an individual before it sanctions a loan. Since his credit is not good enough, no bank will give him a home loan as there is a fear that the chances of a default by him are high. Banks don't like customers who default on their payments.
But the turning point is that, before the American dream can fade away, there enters a second American -- usually a robust financial institution -- who has good credit rating and is willing to take on some amount of risk. Given his good credit rating, the bank is willing to give the second American a loan. The bank gives the loan at a certain rate of interest. The second American then divides this loan into a lot of small portions and gives them out as home loans to lots of other Americans -- like the first American -- who do not have a great credit rating and to whom the bank would not have given a home loan in the first place.
The second American gives out these loans at a rate of interest that is much higher rate than the rate at which he borrowed money from the bank. This higher rate is referred to as the sub-prime rate and this home loan market is referred to as the sub-prime home loan market. Also by giving out a home loan to lots of individuals, the second American is trying to hedge his bets. He feels that even if a few of his borrowers default, his overall position would not be affected much, and he will end up making a neat profit.
Now if this home loan market is sub-prime, what is prime? The prime home loan market refers to individuals who have good credit ratings and to whom the banks lend directly.
Now let's get back to the sub-prime market. The institution giving out loans in the sub-prime market does not stop here. It does not wait for the principal and the interest on the sub-prime home loans to be repaid, so that it can repay its loan to the bank (the prime lender), which has given it the loan.
Now what????? ……..So what does the institution do?
It goes ahead and securitises' these loans. Securitization means converting these home loans into financial securities, which promise to pay a certain rate of interest. These financial securities are then sold to big institutional investors.
Many investment banks (or institutions like the second American' in our story) sold complicated securities that were backed by debt which was very risky.
And how are these investors repaid? The interest and the principal that is repaid by the sub-prime borrowers through equated monthly installments (EMIs) is passed onto these institutional investors.
The institution giving out the sub-prime loans takes the money that it gets by selling the financial securities and passes it on to the bank he had taken the loan from, thereby repaying the loan. And everybody lives happily ever after. Or so it would have seemed.
The sub-prime home loans were given out as floating rate home loans. A floating rate home loan as the name suggests is not fixed. As interest rates go up, the interest rate on floating rate home loans also go up. As interest rates to be paid on floating rate home loans go up, the EMIs that need to be paid to service these loans go up as well.
With US interest rising, the EMIs too increased. Higher EMIs hit the sub-prime borrowers hard. A lot of them in the first place had unstable incomes and poor credit rating. They, thus, defaulted. Once more and more sub-prime borrowers started defaulting, payments to the institutional investors who had bought the financial securities stopped, leading to huge losses.
The problem primarily began with the United States keeping its interest rates very low for a very long time, thus encouraging Americans to go in for housing loans, or mortgages. Lower interest rates led to buyers wanting to take on bigger loans, and thus bigger and better homes.
But life was fine. With the American economy doing well at that time and housing prices soaring on the back of huge demand for real estate and bigger and better homes, financial institutions saw a mouthwatering opportunity in the mortgage market.
In their zeal to make a quick buck, these institutions relaxed the strict regulatory procedures before extending housing loans to people with unstable jobs and weak credit standing.
Few controls were put in place to handle the situation in case the housing? bubble’ burst. And when the US economy began to slow down, the house of cards began to fall.
The crisis began with the bursting of the United States housing bubble.
A slowing US economy, high interest rates, unrealistic real estate prices, high inflation and rising oil tags together led to a fall in stock markets, growth stagnation, job losses, lack of consumer spending, a virtual halt to new jobs, and foreclosures and defaults.
Sub-prime homeowners began to default as they could no longer afford to pay their EMIs. A deluge of such defaults inundated these institutions and banks, wiping out their net worth. Their mortgage-backed securities were almost worthless as real estate prices crashed.
The moment it was found out that these institutions had failed to manage the risk, panic spread. Investors realised that they could hardly put any value on the securities that these institutions were selling. This caused many a Wall Street pillar to crumble.
As defaults kept rising, these institutions could not service their loans that they had taken from banks. So they turned to other financial firms to help them out, but after a while these firms too stopped extending credit realizing that the collateral backing this credit would soon lose value in the falling real estate market.
Now burdened with tons of debt and no money to pay it back, the back of these financial entities broke, leading to the current meltdown.
The problem worsened because institutions giving out sub-prime home loans could easily securitize it. Once an institution securitizes a loan, it does not remain on the books of the institution.
Hence that institution does not take the risk of the loan going bad. The risk is passed onto the investors who buy the financial securities issued for securitizing the home loan.
Another advantage of securitizations, which has now become a disadvantage, is that money keeps coming in.
Once an institution securitizes the first lot of home loans and repays the bank it has borrowed from, it can borrow again to give out loans. The bank having been repaid and made its money does not have any inhibitions in lending out money again.
Given the fact that institutions giving out the loan did not take the risk, their incentive was in just giving out the loan. Whether the individual taking the home loan had the capacity to repay the loan or not, wasn't their problem.
Thus proper due diligence to give out the home loan was not done and loans were extended to individuals who are more likely to default.
Other than this, greater the amount of loan that the institution gave out, greater was the amount it could securitise and, hence, greater the amount of money it could earn.
After borrowers started defaulting, it came to light that institutions giving out loans in the sub-prime market had been inflating the incomes of borrowers, so that they could give out greater amount of home loans.
By giving out greater amounts of home loan, they were able to securitise more, issue more financial securities and earn more money. Quite a vicious cycle
And so the story continued, till the day borrowers stop repaying. Investors who bought the financial securities could be serviced.
Well, that still does not explain, why stock markets in India, fell? Here's why. . .
Institutional investors, who had invested in securitised paper from the sub-prime home loan market in the US, saw their investments turning into losses. Most big investors have a certain fixed proportion of their total investments invested in various parts of the world. So.
Once investments in the US turned bad, more money had to be invested in the US, to maintain that fixed proportion.
In order to invest more money in the US, money had to come in from somewhere. To make up their losses in the sub-prime market in the United States, they went out to sell their investments in emerging markets like India where their investments have been doing well.
So these big institutional investors, to make good of their losses in the sub-prime market, began to sell their investments in India and other markets around the world. Since the amount of selling in the market is much higher than the amount of buying, the Sensex began to tumble.
The flight of capital from the Indian markets also led to a fall in the value of the rupee against the US dollar.
Any other reason, apart from sub-prime crisis?
Of course! Sub-prime crisis alone could not have caused such mayhem, although it is to blame for the beginning of the end.
This crisis has spreads it’s tentacles from sub-prime to prime mortgages, home equity loans, to commercial real estate, to unsecured consumer credit (credit cards, student loans, auto loans), to leveraged loans that financed reckless debt-laden leveraged buy outs, to municipal bonds, to industrial and commercial loans, to corporate bonds, to the derivative markets whose risk are indeterminate, etc.
It has been a total systemic failure that has its roots in the US real estate and the sub-prime loan market.

Friday, October 3, 2008

An Haunted History is going 2 Repeat

They have waited until something has cracked and then at the last moment have sought to prevent total collapse." Those words, which could so easily have come from one of the congressional representatives who this week voted down the proposed federal bail-out of the American banking industry, were spoken by Franklin D Roosevelt in 1932.
A precipitous collapse in stock market prices, millions defaulting on mortgage repayments, an unpopular president blamed for neglecting the plight of ordinary Americans. As the current economic crisis in the US unfolds, many people are asking whether this is history repeating itself. Are we witnessing a rerun of the stock market crash and subsequent Great Depression? What lessons can be, or should have been, learned from that earlier national emergency?
"The past," once observed Pulitzer prizewinning author Robert Penn Warren, "is always a rebuke to the present." And there are certainly clear parallels between the present crisis and events of eight decades ago. In both cases, the economic collapse came after a period of political dominance by the Republican party. The 1920s saw three successive Republican politicians elected to the White House: Warren G Harding, Calvin Coolidge and Herbert Hoover. These administrations shared a fervent commitment to laissez faire capitalism, encouraging growth through tax cuts, low interest rates and minimum business regulation. Coolidge encapsulated Republican faith in the free market economy in the aphoristic observation: "The business of America is business."
Similarly, the last three decades have been a period of renewed Republican party hegemony, interrupted only by the two terms that Bill Clinton served as president. Successive administrations have championed the growth of commerce unfettered by government regulation. Even Clinton, a political centrist who abandoned many of the progressive legacies of Democratic presidents such as Roosevelt and Lyndon B Johnson, did little to control the excesses of Wall Street.
In the 1920s, as now, political leaders created the conditions that precipitated economic crisis. In both instances, a lack of effective regulatory oversight fostered a climate of reckless speculation on the stock market. And just like the federal government in 1929, the current administration failed to see the emergency coming.
"I have no fears for the future of our country," boasted Hoover at his inaugural address in March 1929. "It is bright with hope. We shall soon be in sight of the day when, God willing, poverty will be banished from this nation." Seven months later, the stock market crash precipitated an economic crisis unprecedented in the nation's history.
In a speech last November, George Bush emphasised the continuing growth of the American economy. "Sure, there's some challenges facing us," he complacently suggested, "but the underpinnings of our economy are strong." Even as warnings that the country was heading towards disaster became louder, the president emphasised his administration was "on top of the situation". Given his earlier optimism, the recent televised address in which Bush predicted that the US faces a "long and painful recession" was a painful admission of his lack of foresight.
The American economy still has a long way to fall before it reaches the depths of the Great Depression, of course. The US is technically still not even in a recession, and only just over 6% of American workers are out of a job. The economic situation is nonetheless hurting many ordinary Americans who are losing their jobs, finding themselves with little disposable income and defaulting on mortgage loans. It is also important to recall that Americans did not experience the worst excesses of the Great Depression until some years after the stock market crash. We may not yet have felt the full force of the current crisis.
The suffering that followed the crash of 1929 was appalling. From 1929 to 1933, farm income halved, industrial production stood at 40% of capacity and unemployment rose to one in four Americans. Hungry men and women lined the streets for their next meal from the local soup kitchen, homeless people huddled in hastily erected shantytowns on the outskirts of many cities, and thousands hitched rides on railroad cars in search of a job.
The collapse of the agricultural economy drove farmers from the land. Dust storms and evictions displaced more than a million rural labourers, whose plight John Steinbeck portrayed in The Grapes of Wrath. Industrial and manufacturing workers fared no better. The coal and textile industries were first to suffer, but were soon followed by other sectors of the economy. Homeless families in Arkansas huddled in caves; others in California found refuge in sewers. "We saw want and despair walking the streets," observed a Chicago social worker, "and our friends, sensible, thrifty families, reduced to poverty." The American birth rate fell to its lowest level while the suicide rate reached its highest.
The anguish of the American people is captured in the thousands of letters they wrote to the White House in search of help. One woman from New York State sent a letter to Eleanor Roosevelt in which she asked for a loan to buy clothes for her new baby. "Please, Mrs Roosevelt," she begged, "I do not want charity, only a chance from someone who will trust me until we can get enough money to repay the amount spent for the things we need." As proof of her sincerity, she enclosed in the envelope two of her dearest possessions, a ring worn by her mother and another given to her as a gift by her husband.
For African Americans things were even bleaker. The collapse of the cotton market led to the displacement of thousands of black sharecroppers in the southern states. Many migrated to urban areas but racial discrimination restricted their access to jobs and government relief programmes.
Once again, minorities, still overrepresented among America's poor, have borne the brunt of the economic burden that now afflicts Americans. Sub-prime mortgage lenders aggressively targeted minorities who otherwise were unable to afford their own homes. According to the Harvard University's Joint Centre for Housing Studies, 55% of African Americans and 45% of Latinos who became homeowners in 2005 did so through sub-prime mortgages, compared with only 17% of whites.
The sub-prime mortgage crisis has hit minorities hard, with many suffering foreclosures. Last year, the National Association for the Advancement of Colored People filed a lawsuit against sub-prime mortgage lenders it accuses of "institutionalised racism" because of their predatory behaviour. Janet Murguia, president of the National Council of La Raza, a Latino civil rights organisation, similarly affirms that high-interest loans to poorer minorities are "eroding the hard-earned wealth our communities spent decades fighting for".
In 1929, there were few safety nets to catch people whose livelihoods collapsed. With his New Deal, Roosevelt revolutionised the role of government as a provider for the dispossessed through the introduction of such measures as the minimum wage, unemployment relief and aid to dependent children. Despite swingeing cuts to the provision of welfare in recent times, there are now far greater protections in place for ordinary people than in the 1930s.
Perhaps as a result, there are also no indications that the current economic crisis is tearing at the social fabric of the US in the same way as the Great Depression. Demonstrations by unemployed and homeless people shook many cities during the 1930s. Fears grew that a fascist demagogue could use grassroots unrest as a means to seize power in Washington, a scenario enacted in Sinclair Lewis' satirical novel It Can't Happen Here. While the US is not about to become a fascist dictatorship, there is a possibility of more serious social unrest should the crisis deepen further.
The stakes are high. Bush's handling of the economy may prove decisive to this year's presidential election, as was true in 1932. The dour President Hoover appeared to many Americans uncaring and unable to appreciate the scale of the problem that beset the country.
In 1930, Hoover introduced higher trade tariffs to protect American manufacturers from foreign competition. The Smoot-Hawley Act led to a protectionist war between the US and other countries. American exports and imports fell sharply, crippling businesses, which laid off workers in ever higher numbers. The president became so unpopular that the shantytowns erected by homeless people became known as "Hoovervilles" and an empty pocket turned inside out a "Hoover flag".
The public perception that Hoover had failed either to avert or remedy the economic crisis led to his resounding defeat to Democratic challenger Franklin Roosevelt in the presidential election of 1932. Roosevelt won a landslide victory with 22.8m votes to Hoover's 15.7m. How the US government acts now is very important, but while Bush is unlikely to repeat Hoover's mistakes, so far he has lacked the vision of Roosevelt.
One of the most striking contrasts between the past and present economic crises concerns presidential rhetoric. "The only thing we have to fear," proclaimed Roosevelt in his inaugural address of January 1932, "is fear itself." The Great Depression had a profound psychological as well as material impact on Americans, shattering their individual and collective self-confidence. In times of unprecedented trouble, Roosevelt sought to restore public optimism through his regular radio broadcasts, the "fireside chats" in which he presented himself as not only a politician but a personal friend to ordinary Americans.
In sharp contrast, the address that Bush delivered to rally support for the bail-out plan exploited public fears. "Our entire economy is in danger," the president warned. "Without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold." If the strategy was to scare Congress into endorsing the plan with little or no amendments, it clearly failed. Although the Senate approval of an amended plan places members of the House of Representatives under increasing pressure to support the administration, the outcome of a further vote is still not certain.
With his poll rating already disastrously low because of his mishandling of the Iraq war, Bush has suffered a further blow to his credibility as a result of the economic collapse. According to a poll conducted by the American Research Group last month, only 19% of Americans approve of how the president is handling the economy, while 76% disapprove.
Unlike Hoover, Bush is not seeking re-election. The crisis in the financial market has nonetheless similarly undermined popular trust in the Republicans while providing political capital for the Democrats. John McCain, who concedes his limited expertise in economic matters, has attempted to reinvent himself as a populist champion against Wall Street. His efforts to dissociate himself from the pro-business policies of the Bush administration appear, however, to be in vain.
With the economy now the central issue in the election, Americans are increasingly placing their faith in Barack Obama to deliver the country from its current crisis. In what has been a tightly contested race, that advantage could prove decisive when Americans go to the polls on November 4.
A fundamental weakness of the American economy in the 1920s was the unequal distribution of wealth. Although the average wage of workers increased during that decade, the economic elite benefited far more from cuts in personal and corporate income taxes. Rather than borrow more, ordinary Americans cut back on consumer purchases, creating chronic deflation. The situation is strikingly similar today. Millions of debt-ridden Americans cannot afford to repay mortgages, triggering a collapse in the housing market.
During the presidential campaign of 1932, Roosevelt gave a speech in which he spoke of the failure of the federal government to address the needs of the Forgotten Man. Washington, he asserted, had "sought temporary relief from the top down rather than permanent relief from the bottom up". This is precisely the criticism that many Americans are now making about the plan to bail out the banking industry.
There is one further lesson from history that the federal government will need to consider should economic conditions deteriorate further. Although much of the blame for the current crisis is attributable to the recklessness of Wall Street, bailing out the economic elites will not address the problems that afflict Main Street. The New Deal programmes of the Roosevelt administration represented an unprecedented expansion of government intervention in the economy. Yet they failed to work. Although Washington provided relief and opportunities to millions of Americans, the country remained in a perilous state. On the eve of US intervention in the second world war, nine million Americans were still out of work.
Perhaps the most frightening lesson of history is that the mobilisation for war and the factory-employment opportunities it created accomplished what government economic reform programmes could not. By contrast, the current military conflict in which the US is embroiled only compounds its economic problems. The expenditure of billions of dollars on the war on terror drains resources that could be spent on the domestic economy, imposing a tax burden on ordinary people that restricts their disposable income. Nothing less than a radical restructuring of the economy, from the grassroots up, will fix today's mess.

Thursday, October 2, 2008

SEZ and Rural Development.........

We have two kinds of rural development: One, the traditional variety; it targets the very poor. Two, the latest fad, the special economic zone (SEZ); it takes very rich investors to poor villages. The former has failed again and again but its sponsors will not concede defeat. The latter is evoking bitter conflicts. Even so, the powers that be will not concede that the scheme is flawed.It must be admitted that both schemes have their uses. Unfortunately, their flaws outweigh their good points. That is why, in the previous article, I argued “Existing rural development schemes are so badly riddled with corruption and inefficiency that they will not remedy the ills of even our well-off villages, let alone those of Naxal infested ones.”Vocal and socially powerful groups have emerged in recent years that strongly oppose development of almost every type. Often, the government is no match for these activists. The activists succeed and governments lose because of the different natures of politics and development.
Politics is about “Who?” and development is about “What?” Politics concentrates on the miseries and travails of the poor; development concentrates on the hopes and aspirations of the poor. The two, politics and development, should complement each other but in practice they are often in conflict.For activists, modern development (implying increasing incomes) is a threat to existing order. In 1974, Easterlin demonstrated that “higher income was not systematically accompanied by greater happiness.” He found that people in Japan became no happier after a fivefold jump in incomes.A recent study by Justin Wolfers at the Wharton School modifies this finding: It reports that growing incomes do increase happiness but mainly in poor countries. That is not unreasonable: For the poor, even a small improvement in income can lead to big jumps in welfare; for the rich, even a big jump in income fetches little extra of real value. Therefore, development is more important for India than for the US or Japan.
Development need not necessarily be expensive. How little an increase in investment is enough to make a large difference was brought out in a recent seminar in Ahmedabad. Dr Amarjit Singh, a medical doctor-turned IAS officer of Gujarat, explained that in his State, the total number of gynaecologists in all of its health centres in 25,000 villages is seven — that is right, the number seven that you can count on your fingers.He described how he roped in over 800 private partnerships in a Public-Private Partnership. Last year, the scheme, Chiranjeevi, supported private doctors to attend 1,31,329 child births of poor (mainly tribal) mothers. Dr Singh claimed that, as a result, both maternal mortality and infant mortality came down by over 90 per cent, producing results better than even Sri Lanka. In this scheme, as against the usual expenditure of about Rs 4,000 per delivery, poor families spent Rs 727 on an average — not for medical treatment but on medicines and transport. The scheme has been implemented mainly in four of the most backward districts of the State and cost Rs 11 crore last year. If extended to the whole country, it will cost no more than Rs 1,000 crore.
In a similar low-cost effort, the CAP Foundation in Hyderabad is providing accelerated training in lifestyle skills (spoken English, computer literacy and work skill) to school dropouts. It has a success rate of better than 90 per cent in placing its students in skilled jobs.
The cost is between Rs 3,500 and Rs 6,000 per candidate. If this technique is extended to train school dropouts who seek non-farm employment, the cost for the entire country will be no more than Rs 1,200-2,000 crore a year.
Instead of treating Naxals as incurable criminals, we should concede their reasonable demands. Of these, two stand out: healthcare and life skills. That is where the Chiranjeevi Scheme of Gujarat and the CAP Foundation programme in Hyderabad can be useful.
Both have done well because they are paid by results instead of for inputs, the way state schemes do. Admittedly, Gujarat has a culture of both entrepreneurship and social service. Hyderabad too is advantageously situated. Such favourable conditions are not easy to find elsewhere. Hence, these two examples may not be replicable everywhere. Yet, their success shows that powerful programmes can be devised at very low cost through Public-Private Partnership. In contrast, state-managed schemes or the latest SEZs are expensive. They do not make people happy; they spawn Naxals.
In recent years, India has been growing economically faster than most other countries. Yet, its Human Development Index has not improved because its social development is lagging behind. Till the 1990s, we invested in social development at the expense of economic growth. Nowadays, we concentrate on economic growth at the expense of social development. Either way, it has been unbalanced development. The Centre has sanctioned over 600 SEZs. At the same time, the Government of Goa has cancelled all of its own SEZs. The Centre has argued that the State government has no powers to do so. That is legally correct but politically untenable: In ignoring local opposition to SEZs, the Centre is taking the State down a slippery, violent path.
Businessmen too should rethink; stop thinking of quick bucks and start thinking of peaceful, long lasting development. Suppose they offer to adopt one village (population 1,500-2,000) for each acre of land they acquire. That is, fund one class room and one trainer in life skills as well as one hospital bed plus one doctor/nurse per acre of SEZ. That will cost them a fraction of what they are paying out now if they follow the CAP Foundation, Chiranjeevi example. Will not that social development inspire confidence among local people and halt their violent opposition to SEZs?
Actually,introducing one teacher or one doctor in any village does not work in practice. Social development will be viable only when a number of teachers or medical specialists are concentrated in one place. Hence, it is necessary to provide public transport to help villagers reach relatively large, well-located training schools and hospitals. Then, each SEZ should also provide one bus per acre, not a big one, a small one will do.In brief, I propose that promoters of SEZs donate one class room, one hospital bed and one small bus for each acre of land they acquire, that they also support one trainer of life skills, one doctor or nurse and one bus driver. The government should chip in by subsidising social service providers by results: for each maternal/infant death prevented, for each job filled, for each km travelled by the buses.
SEZ developers have three options: One, lean on government patronage. Two, buy off rich landlords ignoring their poor neighbours. Three, include all neighbours by contributing to local social development. If developers are not penny wise and pound foolish, they will choose option three: Invest Rs 30 lakh per acre in social development and contribute a fraction of that amount annually. The expense will be worth the trouble: Human capital will accumulate; Naxalism will stop spreading. Above all, that will fetch goodwill, invaluable goodwill.

Thursday, September 25, 2008

Build a dream, not a nightmare

In the latest issue of Tehelka, the Finance Minister, P.Chidambaram, has said: “My vision is to get 85 per cent of India into cities.” Professor Tarun Khanna, the Harvard don who has made a name for himself through his comparative studies of China and India, has a chapter in his latest book Millions of Entrepreneurs entitled “Why can China build cities overnight while Indians have trouble building roads?” It appears there are prob lems with the Finance Minister’s dream.
Some problems are self-inflicted. For instance, there is no city in India where footpaths are usable. Much space is allotted for them; much money is spent on them. In Delhi, for inscrutable reasons, footpaths are routinely ripped open every year and rebuilt. That must be costing a lot of money and effort. Even though the footpaths are rebuilt every year, they remain unusable.
It is not that our municipal engineers do not know how to build usable footpaths: The Marina in Chennai, Mahatma Gandhi Road in Bangalore, Marine Drive in Mumbai, Connaught Place in Delhi are examples of eminently usable footpaths. Yet, the same engineers that built those worthy footpaths ensure that footpaths are unusable everywhere else.
There is no secrecy about footpaths. Ministers may be too important to walk in our streets, but they can see that they are unusable everywhere. At the other end of the power structure, municipal engineers should be equally aware that they are wasting a lot of precious space and money for nothing. Therefore, it is worth asking, if the state cannot build even footpaths, how will it manage other more complex urban infrastructure?Refusing to reform
For example, consider the problem of drinking water in the city of Bangalore. Nature is not ungenerous to Bangalore. Rainfall over the city amounts to, on an average, 220 litres of water per day per person. That is quite a luxury. It does not require a great feat of engineering to harvest and distribute that copious supply of water. In fact, Bangalore used to have large numbers of lakes to store rainwater. Almost all of them have been built over. The same greed is manifest in all our towns and cities — our town planning systematically destroys water bodies and then commandeers — at great financial, political, social and environmental cost — water from faraway rivers. I mention footpaths and drinking water as illustrative of urban governance that refuses to reform. Mountains of garbage, horrendous public transport, virtual absence of space for children to play, growing insecurity are other crosses our city dwellers are condemned to bear. Then, is there not a risk of the dream of urbanising 85 per cent of our population becoming a nightmare — unless we rethink our urban policy?
Let us not be carried away by Chinese achievements either. They may build cities overnight but they make a shoddy job of it: Chinese cities are notorious for being environmental disasters. It was not an accident that in the recent earthquake children were the largest casualties — their schools had been built sloppily.
Gigantism is the fashion these days. We want the biggest, the tallest and the most expensive artefacts to bolster our ego. Multi-storey apartments look nice in photographs but they do not promote neighbourliness. The next-door flat is a number, not even a name, let alone a known family.
One can walk an hour in a crowded market of a metro without seeing a familiar face but you cannot walk down a village lane without recognising everyone you come across.
As Jane Jacobs has explained eloquently, criminals fear not so much the armed guards at the gate as the prying eyes of neighbours. In spite of elaborate security systems, elderly people are murdered every week in the impersonal flats of Delhi. Only designs that promote good neighbourliness will make our cities safe.
Gigantism has other problems. Multi-storey buildings are beyond the reach of the poor. Thousands died in the Bhopal disaster because the offending factory was inside a city. If such a disaster were to occur near high-rise cities, casualties can rise to tens of thousands.A plan worth remodelling
For these reasons, I suggest that our city planners take a second look at the way Mr Jag Mohan, former Vice-chairman of the Delhi Development Authority (DDA) conceived the idea of low-rise, high-density habitation.
Till recently, most of Delhi was developed to that specification with four-storey walk-up flats. His design, which is a cross between a city and Mahatma Gandhi’s ideal of India living in villages, is worth a re-look. However, as the design is over four decades old, it requires changes to meet the changed environment. For instance:
It makes no provision for water harvesting and recycling.
It has no provision for waste management.
The design is pre-automobile; streets are too narrow for cars.
It is designed as an isolated dormitory and not integrated with the work place of residents.
It is not inclusive; it does not include all the poor.
Further, it would be worth copying the child-friendly play spaces that the PWD colony in Vasant Vihar, New Delhi, abounds with.
Hence, I suggest the following modifications:
Each DDA colony has several open spaces. Convert a couple of them into water bodies to harvest and store rainwater.
Use part of open space to treat sewage and to separate different types of waste locally. That will aid their recycling and enhance environmental quality for the whole city.
Raise minimum width of streets to 12-15 metres.
Allocate space for work and employee residences jointly and within walking distance of each other.
Mix dwellings for the poor with those of the middleclass.
Cluster flats round child-friendly courtyards. Overcome the intractable 5
These changes will overcome the five intractable problems that bedevil modern Indian cities — water supply, waste management, daily commuting, slums and insecurity. It is not impossible to ensure, in future extensions of our large cities, abundant water supply, clean environment and greatly reduced burden on local transport.
With sewage treated within each neighbourhood, pollution of rivers and other water bodies can be avoided at relatively low expense. These cost savings can be used to fund affordable housing for the poor. We can also minimise the ever-mounting problem and expense of landfills. With neighbour-friendly designs, security can also be improved dramatically.
It is not clear what kind of cities Mr Chidambaram has in his dreams. He has seen the kind of cities India has built in the past five-six decades. If he is content with the present style of urbanisation, we will end up with a nightmare and not a dream.
Our urban policy needs drastic revision that will ensure the five cardinal features of good urban design, namely, ample water, cleanliness, non-congestion, civilised existence for the very poor, and security.
Planners forget that good design is never expensive and bad design is ever costly. They do not give up outmoded designs because they think that accepting change means loss of face.
As an outsider to urban management, Mr Chidambaram does not bear that handicap. As Finance Minister, he can gently but firmly redirect the future course of urbanisation into directions that will be more human, less expensive, cleaner and more secure too.

Sunday, September 21, 2008

US is going to be neo-USSR..what u say?

One of my most fav. article by S. Gurumurthy
If the ongoing debate initiated by Martin Wolf, associate editor and chief economic commentator in Financial Times and Prof. Nouriel Roubini, professor of economics at New York University, is to be given a title, that could be this.
Wolf, whose Wednesday columns in FT are discussed by fifty most influential economists of the world, is a mainline economic thinker. Roubini, who has held different positions in US government, now occupies important seats in academia and runs Roubini Global Economics [RGE] Monitor, an influential Web site.
In July 2006 itself, Roubini had predicted that US was in recession. But, like others had, Wolf had ignored Roubini for nearly 20 long months. But, as the unfolding events were proving Roubini right, Wolf wrote [FT, February 18, 2008] that Roubini deserved to be taken seriously.
March towards disaster
Wolf also held Alan Greenspan, who had dismissed the housing issue “as not a bubble but a froth”, wrong. Wolf pointed out how Roubini has [on February 5, 2008] predicted a 12-step march towards a ‘catastrophic’ financial and economic outcome as a “rising possibility”.
In his column, Wolf recalled Roubini’s 12-step recipe for disaster, including:
Housing recession that wipes out family wealth of $4-6 trillion, forces a million to surrender house keys to lenders, and turns home builders bankrupt;
Home loan losses that exceed the estimated $250-300 billion and, together with consumer loan losses, spread credit crunch across;
Top-rated credit insurers get downgraded, causing a further $150 billion loss;
Commercial property market melts;
A large bank goes bankrupt;
Big losses in leveraged buyouts, with hundreds of billions of dollars of bank funds stuck;
Corporate bond defaults force losses of $250 billions on credit default swap insurers and bankrupt many;
With meltdown of hedge funds delinked from central banks, further collapse of the stocks force huge fall in security prices;
Acute illiquidity dogs financial markets with jump in concern about solvency; and
“A vicious circle” of deep recession makes financial losses “more severe” and “financial losses and meltdown” make the recession “even more severe.”
Roubini estimates $1 trillion loss in the meltdown. “Is this scenario at least plausible?” asks Martin Wolf, and answers, stunningly, “It is”. [This was on February 18. But the loss meter in March projects $3 trillions loss!] If this “nightmarish scenario” lasts for six quarters, Roubini warned on February 5, it would be too late for other nations to devise ‘policies’ to ‘de-couple’ from US.
But can the US Fed head off this danger? Roubini says ‘no’ for many reasons. Two of them are important. One, the Fed can deal with liquidity, but, not solvency, which is the real issue. Two, the transactions-oriented financial system itself is in deep crisis. This second one is critical and needs some explanation.
Derivatives in control
The world of finance which Roubini calls as transaction-oriented system looks a bizarre, dollar jungle now. A peep into this mind-boggling labyrinth will unnerve even the most diehard among optimists. The world of finance today is controlled by derivatives. What is a derivative? ’Derivatives are financial Weapons of Mass Destruction [WMD]’, ‘now latent’ but ‘are potentially lethal’. This is not socialist Fidel Castro, but, capitalist Warren Buffet speaking recently (on March 10, 2008). Yet, the most among those who count in the world seem unaware of this WMD. ‘Politicians, senior executives, regulators, even portfolio managers have limited knowledge’ about it, says an expert Web on derivatives. Derivative is a financial instrument whose value is not its own, but derived from something else, on some underlying asset or transaction, such as commodities, equities (stocks) bonds, interest rates, exchange rates, stock market indexes, why, even inflation indexes, index of weather!
The CDOs (collateralised debt obligations), by which the underlying US local subprime loans were palmed off to other continents, was, till the fraud was not out, a reputable credit derivative. So derivative is not only a WMD but also an ICBM, an Inter Continental Ballistic Missile, that hits across continents!
Also, the virtual derivative economy is gradually decoupling itself from the actual in quality as well as size. Hundreds of exotic derivative products have been innovated and innovations by the best minds are continuing.
Mind-boggling size
The population of these beastly financial products has grown to gigantic levels that is beyond the competence of any system, mind, or force to deal with. The sheer collective size of these modern financial beasts is terrifying. According to the Bank of International Settlements [BIS], the aggregate derivative positions of banks grew from $100 trillion in 2002 to — believe it — $516 trillions in 2007, that is over 500 per cent in five years!
Yet they do not appear in bank or corporate balance sheets. Some of the vital actuals seem pygmies in comparison to these virtuals. The total derivatives are more than ten times the global GDP [$50 trillion]; some seven times the world’s estimated real estate value [$75 trillions]; more than five times the world’s stock values [$100 trillions]; more than 33 times the US GDP [$15 trillions] or the US money supply [$15 trillion]; 172 times the US federal budget [$3 trillion] — it can go on. The size of the virtual economy is indeed petrifying. Worse, it unpredictably targets, yet accurately eliminates, the distant and the unwary as the CDOs did.
A decade earlier, Long Term Capital Management [LTCM] a hedge fund co-promoted by two Nobel laureates, collapsed. Its loss of $5 billion was peanuts compared to the trillion dollar-plus loss that is forecast now. Yet the LTCM fall nearly snuffed out the global monetary system. The derivative economy was much smaller then. When billions could devastate the world market then, what could trillions not do now? It is so huge now that, no one, not even all governments and central banks in the world put together, can control this huge and growing population of derivatives. This is what Akio Morita, the former Sony Corporation chairman, told the Group-7 leaders as far back as 1993, when the size of the derivative population was far less. With the derivatives growing so malignant, it is not the actual finance which controls its derivative, but, the other way round – the virtual controls the actual. What, if this off-balance-sheet virtual architecture collapses?
It is so fragile that it can. Martin Wolf warns “the connection between housing bubble and the fragility of the financial system has created huge dangers, for the US and for the rest of the world.” If a collapse starts, it is beyond any known power’s power to stop or repair it. The balance sheet of the whole world is too small for it and the actual will too meet the fate of the virtual.
Roubini’s caveat regarding transaction-oriented financial system being in crisis and Warren Buffet’s warning about derivatives as financial WMDs, expose how fragile is today’s virtual financial architecture, which is several times the actual.
A way out?
What is the way out? And is there a way out at all? There are ‘ways out’, claims Martin Wolf, but, warns, ‘they are poisonous ones’. Wolf says, “In the last resort governments resolve financial crisis. This is the iron law.” And adds, “The US public sector is coming to the rescue.” Public sector? To the rescue of world’s most efficient financial market? In the freest economy in the world? Yes. And Wolf hopes, “In the end, they will succeed.” This was Wolf on February 20, 2008. The state in US as the answer to the mess created by the free market? Confession indeed from a diehard capitalist!
Some 18 years back, market was touted as the answer to the mess created by the state in USSR. A 360-degree turn now. Read on, it is more interesting.
Nationalisation of losses?
In his later article on March 11, 2008, Wolf says, “The government would have to mount a rescue. The most plausible means of doing so would be via nationalisation of all losses.” Nationalisation? And of losses? In free market US, which pontificates on privatisation of public sector and government works the world-over?
But how to nationalise only losses? To keep the ownership with those who lost others’ money? Roubini also says that some market observers are already talking about nationalisation of the US banking system — first covert and then explicit — as the next step to the financial meltdown.
Obviously the US Government is seen as the saviour for the faltering — or better, collapsing? — financial market of the US. So, massive state penetration of Wall Street seems inevitable. And it is already happening. And that will be a topic by itself.
What then is its consequence? If the banking system in US, which holds the Capital of capitalism, is nationalised, what will be left of capitalism in US? Capitalism without Capital ’C’? If US nationalises capital, will US capitalism remain market capitalism or become State Capitalism? Will the US be US then? Or will it become a neo-USSR? No seer is needed to give the answer. It’s obvious.

Saturday, September 20, 2008

INFRACTRUCTURE SECTOR IN INDIA: ITS GROWTH AND EMPLOYMENT POTENTIAL

India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, India has emerged as the second fastest growing major economy in the world.
India's infrastructure has been expanding at a rapid pace to support the economic growth rate of over 9 per cent. The six core-infrastructure industries, which account for a combined weight of 26.68 per cent in the index of industrial production (IIP)
[1], registered a growth of 8.6 per cent in 2006-07 as against 6.2 per cent during 2005-06. On the back such a robust growth in the previous year, the six-core infrastructure-industries index rose by 5.6 per cent during April-February 2007-08. Significantly, electricity generation, petroleum refinery production and cement production grew by 6.6 per cent, 7.2 per cent and 7.5 per cent, respectively. For example, industrial and services sectors have logged in a 10.63 and 11.18 per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and 2006-07 and transport, storage and communication recorded a growth of 14.65 and 16.64 per cent, respectively.
Growth Potential: A massive US$ 494 billion of investment is proposed for the eleventh plan period (2007-12), which would increase the share of infrastructure investment to 9 per cent of GDP from 5 per cent in 2006-07. For this, the government has already enacted many proactive measures like opening up a number of infrastructure sectors to private players, permitting FDI into various sectors, introducing model concession agreements, taking up new projects like the National Highway Development Project, National Maritime Development Programme among others. Some of the projects planned for the next five years include:
§ Additional power generation capacity of about 70,000 MW
§ Constructing Dedicated Freight Corridors between Mumbai-Delhi and Ludhiana-Kolkata
§ Capacity addition of 485 million MT in Major Ports, 345 million MT in Minor Ports
§ Modernization and redevelopment of 21 railway stations
§ Developing 16 million hectares through major, medium and minor irrigation works
§ Modernization and redevelopment of 4 metro and 35 non-metro airports
§ Six-laning 6,500 km of Golden Quadrilateral and selected National Highways
§ Constructing 1,65,244 km of new rural roads, and renewing and upgrading existing 1,92,464 km covering 78,304 rural habitations
Investment: With such huge opportunities opening up in this segment, private investment has been growing at a scorching pace. Already, telecommunications, construction and power together have attracted a combined cumulative foreign direct investment of US$ 7.553 billion over the period April 2000 to December 2007. In fact, these three account for about 16.68 per cent of the total FDI in to the country during this period. Significantly, India Inc invested an overwhelming 81 per cent of their planned total investment of US$ 104 billion during April-December 2007-08 in developing core, physical and service infrastructure. While steel (US$ 31 billion) accounted for the largest share of total investment, other industries attracting substantial capital expenditure include oil (US$16 billion), power (US$ 13 billion), telecom (US$ 8.2 billion), real estate (US$ 6.2 billion) and cement (US$ 4.8 billion), among others.

Indian companies are keenly looking for cooperation with and investments from the global players to beef up its infrastructure and energy sectors as it considers creation of essential infrastructure such as roads, ports, railways and airports and meeting its energy needs as critical not only to boost economic growth but also for enhancing competitiveness in the global market. In the energy sector, EU could help India in clean coal technologies, augmentation of oil and gas reserves, gas pipelines, power transmission and distribution, R&D, training and capacity building for energy companies, energy conservation, new and renewable energy sources and nuclear power.

According to FICCI, India’s spending on infrastructure is expected to go up from US $ 24 billion in 2005 to US $ 47 billion in 2009. The government of India has indicated that India has the potential to absorb US $ 150 billion of FDI in infrastructure sector over the next five years. For bringing in greater efficiency in the process and mobilizing this huge resource requirement, the government has provided a large number of incentives to attract private sector investment. This includes creation of Special Purpose Vehicles
[2] and a Viability Gap Funding scheme[3] for financing infrastructure projects. Barring aviation, all infrastructure sectors have also been opened up for 100 per cent FDI. There is a growing trend of Public-Private Partnership (PPP) in implementation of infrastructure projects in India.

Huge Investment opportunities are seen with respect to the roads and highways sector are primarily in terms of: investment in major highway projects on toll based BOT and Annuity collection agreements including: NHDP Phase IV: Upgradation of about 20,000 km of single/intermediate lane National Highways to 2- lanes to be implemented on annuity basis with estimated cost of about US $ 5.702 billion. NHDP Phase V: Widening of about 5,000 km of National Highways to 6-lanes on BOT basis with an estimated cost of US $ 3.991 billion. NHDP Phase VI: Development of 1,000 km Expressways with an estimated cost of US $ 3.422 billion, and NHDP Phase VII: Construction of Ring Roads, bypasses, and flyovers in several important cities, on BOT basis with an estimated cost of US $ 3.422 billion; manufacture and supply of construction equipment and participation in construction of bridges, bypasses and expressways; technical consultancy in the field of design, supervision and carrying out traffic studies; Intelligent Transport System Companies; and
Ø under Operation, Maintenance and Transfer (OM & T) contracts, stretches of about 500 to 1000 km would be given out to the private sector for operations and maintenance for 5-10 years.

Ø In airport infrastructure, EU companies would be interested in construction, up gradation and operation of new and existing airports including cargo related infrastructure; outsourcing of some of the operation and maintenance functions such as cargo handling services and commercial development; consulting opportunities for airport management, airport design and architecture, traffic studies and project supervision; setting up of non-aeronautical activities like shopping complex, golf course, entertainment park and aero-sports near airports; up gradation of smaller airports through private sector participation and opportunities for airport and avionics equipment manufacturers and service providers.
The Planning Commission has earmarked a whooping sum of Rs. 3,20,000 crore (US$69 Billion) for modernization, up gradation of ports, airports and highways for the 11th Plan Period to make India as world-class manufacturing hub with the best of infrastructure facilities

Giving sector-specific details for the 11th Plan Period, while releasing the ASSOCHAM Study on `Infrastructure : The $ 150 Billion Growth Story’ Rs. 40,000 crore has been specifically earmarked for modernization of leading airports and Rs. 60,000 crore for the upgradation of ports. Rs. 2, 20,000 crore has been earmarked for building highways across the country, 75% of which resource generation would come through public-private partnership, announced.

Employment potential

The Indian infrastructure Sector has undergone a revolutionary change and is now emerging as a propellant of Indian economy. It is one of the fastest growing industries with promising career opportunities hidden in it. The industry is growing at 30 per cent per annum and is expected to soar further. It is the second largest employment generator of the country. Due to restructuring, the sector has witnessed sea level changes in its modus operandi, management practices and employment trends.
To begin with employment opportunities, the sector is over flooded with innumerous career opportunities. The sector presently employs 15 percent of educated Indians and has the capacity to provide jobs to over two billion people in the coming five years. The housing sector alone is likely to generate 40 lakh new jobs within ten years. The prime reason for such a huge demand of personnel has been due to great demands for residential and commercial real estate projects. Moreover, the sector offers attractive opportunities to people with roles such as developers, architects, strategy and urban planners, civil engineers, and contractors. It also offers a plethora of opportunities which are not confined to profiles of contractors and builders only, but extend up to professionals including people with marketing, law, finance, and advertising backgrounds. Many property management companies also work tightly with the sector, thereby, resulting into indirect generation of employment.
Coming to the trends of talent acquisition, most real estate firms are becoming proactive in terms of hiring and are adopting latest talent acquisition and recruitment trends like on-campus recruitments, e- recruitments using recruitment portals, executive search and so on. To meet the demands for highly skilled professional, The job options range from real estate appraisal to property managers, advisors, investment bankers, entrepreneur, retail buyers and merchandisers, visual merchandisers, supply chain distributors and logistics and warehouse managers.
Talking in terms of compensation, the realty or infrastructure sector offers attractive packages even at the entry levels. The sector has seen highest salary increases (25%) during the last year, leaving IT and BPO sector far behind. The compensation offered by the sector is at par with what other sectors like IT and Pharma are provide. As the sector is facing an immense shortage of trained personnel, companies are offering lucrative compensation packages to new graduates and other experienced professional. The sector offers a lot of challenges and the salary levels are four-five times as compared to the manufacturing sector. Salaries of chief executives in real estate firms range between Rs40 lakh and Rs4.5crore a year, far higher than salaries for CEOs in more established sectors. Junior managers are seeing highest salary hikes with 15.9% increase while middle-level managers witness a significant hike of 15.7%. For the general staff and manual workforce, the hikes are predicted to range between 11 to 13.5 per cent in coming years. Challenges for HR:
Lack of quality talent: There is a gap between the requirements and the availability of quality manpower. The sector is growing quickly and the amount of human resources available is not at par with the rate at which the sector is growing. A large amount of talent is absorbed in mega infrastructure projects. However, the continued growth of the industry is adding to the dearth in the existing talent pool within the country.
Less supply of freshers from educational institutions: Since real estate sector is a burgeoning one, not every one was earlier attracted to it. Students were lured by other sectors like IT who offered better salary packages than real estate. As a result, people with high potential opted for computer science degrees rather than civil engineering courses. Recently some of the institutions have started offering diverse courses in infrastructure (real estate, civil aviation).Moreover, candidates are now recognizing the opportunities real estate sector provides.
Retention:It is becoming increasingly difficult for the companies to retain talent with them. The attrition levels in the sector have touched 12.08 per cent in last year. To retain the potential, companies are paying hefty amounts to their employees. The salary hike was recorded at 25.2 per cent in 2007 and is expected to be followed in coming years.
Inculcating values: Times have been changing for the real estate sector and earning profits has become top priority for every company. With respect to this, the companies often forget to comply with quality norms or ensure integrity in practices. It becomes a challenge for the HR to inculcate values of integrity and commitment towards customer satisfaction in all the employees. A majority of companies now also emphasize on transparent dealings and methods while doing business. This will be an on-going challenge since the sector has enough weak links outside their companies, which also need to be changed.
Lack of second line leadership: By MNCs entering the realty markets take away the cream of talent at the first level. Other players thus look for candidates with high leadership skills. The challenge for HR, here, becomes to develop the second line of management and if possible even the third line, which is capable of undertaking enormous work pressure from the top line.
[1].Index of industrial production IIP: An economic indicator that is released monthly by the Federal Reserve Board. The indicator measures the amount of output from the manufacturing, mining, electric and gas industries. The reference year for the index is 2002 and a level of 100.
[2] Specially Purpose Vehicle: A financial special purpose vehicle (SPV) is to fund projects in the infrastructure sector. The proposed SPV is expected to lend funds, especially debt funds of longer maturity, directly to eligible projects to supplement loans from banks and financial institutions. The SPV, according to the proposal, will become a vehicle for channelising funds for projects in the roads, ports, airports, and tourism sectors
[3] Viability Gap Funding Scheme: The VGF scheme provides financial support in the form of capital grant for public private partnerships (PPP) in various infrastructure sectors. Eg. in transportation, power,urban inf..

Three Issues.....


issues:Biotechnology and Human Development in Developing Countries:
Throughout the past century, humankind has made a tremendous effort to understand the biological intricacies of nature. It started with the traditional fermentation of food to the commercial exploitation of all types of biological cells. The most incredible advances occurred since the mid 1940s with the discovery of the life saving antibiotics, followed by the green revolution in agriculture in the 1950s to the present rapid progress in understanding the genetic basis of living cells. The latter progress has given us the ability to develop new products and processes useful in human and animal health, food and agriculture, and the environment It appears, however, that at no stage have we been able to integrate these enormous discoveries into the natural cycles of matter. As a consequence, prevention is being replaced by curing continuously occurring medical and agricultural ailments. This can easily be visualized by the enormous over- and misuse of antibiotics causing a lowering of the immune systems and an ever increasing resistance against these drugs amongst microorganisms, which in turn requires the never ending search for new antibiotics. The intensification of agriculture during the green revolution with its the reliance on antibiotics and hormones in feeding animals in so-called animal factories (i.e. chicken, pigs) as well as on irrigation and chemical inputs in crop fields has led to serious health and environmental problems. Much of Asia, for example, faces problems of severe salinity, pesticide misuse and degradation of natural resources. It is therefore not surprising to see the ever increasing development of opposition against any further biotechnological applications, especially those arising from genetical modification of microbial, plant and animal cells.. The reason for this unfortunate development must be sought in the fact that research and development, personnel and finance are concentrated in rich countries, led by global corporations and following the global market demand dominated by high-income consumers ….. Although people are the real wealth of nations, we have not been able to create an environment in which people can develop their full potential and lead productive lives in accordance with their needs and interests.In order to establish the real need for what type of biotechnology is required for developing countries, one has first to realize that there exist three major climatic zones, namely:a. the temperate zones of the developed world;b. the tropical zones of developing countries; andc. the arid zones of developing countries.Moreover, there is no escaping the fact that over 90% of biotechnological research and development are occurring in the temperate zones of our world.Secondly, the most serious problems in the developing countries concern:HealthIt is very hard to understand why our International Agencies have failed to eliminate the health problems in developing countries. Biotechnologists and in particular microbial technologists must fail to comprehend why the numerous existing technologies have neither been supported nor implemented. Basic sanitation should be made available as a first priority in human development. It is well known that the handling of human and animal excreta or manure depends on and varies with the social and religious background of a particular society, but the technologies available today caters for all aspects of human society.The basis for socio-economical integrated biosystems, recently referred to also as 'ecological sanitation'PovertyThe term poverty is very often misinterpreted with starvation. Whereas poverty is flourishing in most developing countries, this is certainly not the case with lack of food causing starvation. However, poverty may cause starvation, as the people are not able to buy the available food. Poverty is mainly caused through strong increases in urbanization, as low income rural farmers stream into the cities to find work and a better income. This depletes very efficient and productive rural agriculture, and reduces the possible maximal agricultural food or crop production. Whereas the green revolution technologies resulted in increased food production in favorable and irrigated environments, they had little impact on the millions of smallholders living in rainfed and marginal areas where poverty is concentrated in Asia. The reasons for this trend are manyfold, but can mainly be traced to changes in farm management (single crop production) as well as farm mechanization (big farms) resulting in a severe reduction of small farm holders, and a severe reduction of funding and investment into agriculture. In order to alleviate poverty and make certain that we are able to continue with feeding an ever increasing population, we need a socio-economic biotechnology revolution realizing that we have to learn from the mistakes of the green revolution and secure a proper income to the farmer. One major problem of the green revolution was that the farmers were made to believe in the production for markets, forgetting their own consumption. It is evident that farmers in some developing countries grow crops solely under contract for supplying processing factories, while they have to buy the food for their own consumption. Traditional food was demoted, whereas canned and bottled food was promoted. Local (traditional) wisdom and knowledge in food preservation and medicine were treated as an 'uncivilized way of life' and is disappearing, so the younger generation is not practicing it anymore.Such a new biotechnology revolution has to take into consideration:that farming in developing countries is profoundly different from developed countries with crops like cassava, rice, soybean, sago, etc;that farms are small and should stay small with minimal mechanization but more intensive and integrated farming;that single crop production must make way to a multi-product farming, including livestocks on the farm;that we use existing biotechnological techniques to develop biotechnological industries using locally grown biomass such as sago palm and cassava;combine the biomass waste, excessive amounts of agro-industrial wastes with human and animal waste treatments for novel product and renewable energy production.Such a sustainable socio-economic biotechnology revolution can best be established in form of so-called 'biorefineries', whereby all the biomass is used to improve the living standard of the people. Such biorefineries require a host of different biotechnological and physical techniques ranging from anaerobic digestion of wastes to surplus biomass conversion to renewable energy, food, feed and commodity product formation. All biotechnological and physical techniques are readily available and can immediately be implemented.The additional incorporation of aspects of modern biotechnological techniques will come as soon as society has learned the advantages of the existing technologies. Some biotechnological issues such as pest-resistant plants and organic fertilization will involve some GMO plants. However, one should always be aware and not forget that local breeding experience may be a better way to go initially than GMO introduction.It is very surprising, for example, that agricultural biotechnology development sofar has totally ignored plants such as cassava and the sago palm as a starch resource, as they are hardly known in developed countries. Cassava can yield up to 65 t/ha with a 65% starch content in marginal soils and the sagopalm can easily produce 25 t of starch/ha in swampy areas unsuitable for any other crop. Since the average intake of food for human is, in general, about 250 kg of grain per year, one hectare of sago plantation can feed 100 people and a 1000 ha sago plantation can subsequently save 100,000 humans from hunger, a clear example of the potential of sago as a major starch crop of the world. Both crops are ideal for obtaining a variety of bioproducts ranging from biofuel, bioplastics, biodetergents, biolubricants to bio-pharmaceuticals .The establishment of biorefineries will diversify rural farming, keep people employed in the rural areas and will also increase the income of the individual farmer, helping in the alleviation of poverty.StarvationThe elimination of starvation in the arid zones of the world is the biggest challenge to agricultural biotechnology. Much more effort should be put into the breeding or genetic modification of crops for drought resistance. Improvement of soil condition using treated human and animal manure should go hand-in-glove with the introduction of drought resistant or at least drought tolerant crop varieties. The most beneficial aspect of GMO crops in these areas would immediately improve livestock and food production. However, one has to be aware that different regions have different types of crop demands. Genetic modification for drought resistance should occur with local plants and crops used by the local societies. We should stop introducing GMO plants from temperate zones in developed countries and respect the local food demand and varieties. Such a project would cause much less opposition than genetically modified foreign crops.The elimination of starvation in arid zones could become an ideal place for combining 'old' biotechnological concepts of soil fertility improvement with 'new or modern' biotechnological concepts of increasing crop and livestock production. Soil fertility improvement should also go hand in hand with a reduction or elimination of rain and other forest clearings, which in turn would stop the expansion of the arid zone areas. Such a combined concept would create more small holding farms with a proper income, helping to stop the development of further poverty.ConclusionsThe biotechnology issues for developing countries in future requires a change from the presently commercially driven to a more human development, combining 'old' and 'modern' biotechnological techniques for the improvements in the health and living conditions of 80% of our world population It is a great opportunity for the International Organizations UNDP, WHO, FAO, etc. to take up the challenge and realizing that the so-called 'modern biotechnology' alone cannot solve the problems. As long as the present biotechnology development is driven only by commercial enterprise, human development in developing countries will lag increasingly behind and cannot progress as it would with the application of a total biotechnology concept, such as a socio-economic sustainable bio-integrated system. Sustainable development and human development should not and can not go separate directions. Technology transfer in agriculture There is every sign that agricultural productivity is stagnating and food production flatteningTHE PRIME Minister has again spoken of a second Green Revolution. The Planning Commission maintains that 4 per cent growth in agriculture is essential for making a steady GDP growth rate to 8 to 10 per cent. . The call of the Prime Minister is to revive production, and improve the value chain thereafter.What ails Indian agriculture is well diagnosed — there is low public investment, productivity stagnation, soil deterioration, post harvest waste, low value addition, low technology application in rain fed areas and appropriation of value by market intermediaries at the cost of farmers.Knowledgeable committees have given their recommendations, at the Central and State levels on reversing the trend. In the last few years, in every budget, the Finance Ministers have spoken of the need and steps proposed to be taken to improve agricultural production. But why are things not moving even after 5-6 years of public discussion?To usher in a second Green Revolution, we should recollect and learn what was the process that made the first Green Revolution possible. It was a huge collaborative effort over three decades among the Central, State governments, agriculture universities, research stations, input suppliers, particularly the fertilizer industry, community extension services of the government et al to pass on the first generation technologies of fertilizer application, use of high yielding varieties of seeds, plant protection and water management by direct farmer level contacts.The sixties and seventies were dark ages, compared to the present day, in information technology, communication facilities, research infrastructure and financial resources. The transformation of Indian agriculture was led by leaders like C. Subramaniam, scientists like M.S. Swaminathan, Nobel laureate Norman Borlaug and others.The missionary zeal seen then is absent in the present efforts. In the absence of a real food crisis (though imports are taking place), a syndrome of satisfactory underperformance has overtaken the administrators and political leadership.Indian farming is the largest or the second largest in the world in terms of population dependency (650 million people live off the farms), its arable land and land under permanent crops 169 million ha, comparing well with China's 135 million ha. There is no development model available for such a farming system. We have to shape our own model.The National Commission on Farmers has given a model for the second phase of India's agricultural revolution. Leadership with fire in the belly has to emerge at all levels to start and carry forward the second revolution. The Indian state has to take the initiative. We cannot leave the second phase of our agricultural development to domestic or multinational retail chains, or to corporatisation of agriculture, and hope for the best.There is a need to transfer the next level of technology using the bio sciences, space science, experience of countries such as Israel in water conservation and precision agriculture, biotechnology, etc., to the farmers and to establish market linkages.In this IT age, perhaps, only a fraction of the effort of the past is needed to usher in a second revolution in Indian agriculture.


issues:Poor most vulnerable to diabetes:
Most people have the misconception that diabetes is a disease that affects only the affluent. Quite contrary to this, it is the poor that are most vulnerable to diabetes and least equipped to seek care and prevent the onset of complications, according to the World Health Organisation.This year, the theme for World Diabetes Day is "Diabetes Care for Everyone."According to the International Diabetes Foundation, the number of people with diabetes will increase to over 350 million by 2025. Of this, 80 per cent people live in low and medium income countries. "The healthcare delivery system has to address the needs of poor people with diabetes. In India, although a lot of emphasis is placed on communicable diseases, we have a huge burden of non-communicable diseases such as diabetes, heart disease and blood pressure that have to be addressed,"India’s 2nd Quarter GDPFiled under: Business, Growth — Edward @ 12:43 pmJust following up briefly on this post on India’s industrial output, second quarter GDP results are now out. India grew at an annual rate of 8.9% between April and June, just down a touch from the 9.3% annual rate in the first quarter. This suggests that the economy is slowing slightly, but with higher energy costs and rising interest rates this is not surprising. Also the global economy is definitely slowing, so this downward movement may continue, although I wouldn’t anticipate anything dramatic. The future looks good.India has maintained its position as the second-fastest growing major economy after China as rising consumer and government spending drove manufacturing output to a six-year high.Asia’s fourth-largest economy expanded 8.9 percent in the three months to June 30 from a year earlier, after a 9.3 percent gain in the previous quarter, the Central Statistical Organisation said in a statement in New Delhi. The median forecast of 15 economists was for a gain of 8.4 percent.Wal-Mart Stores Inc. and Carrefour SA, the world’s two largest retailers, are vying to set up in a nation of 1.1 billion people where retail sales are expected to more than double in the next decade as incomes rise. India is stepping up spending on ports, power and other infrastructure to attract more investment in factories and lift manufacturing to a quarter of the economy from the current 17 percent, half China’s level.“Consumption and infrastructure spending are driving growth,'’ said Sundaresan Naganath, who manages the equivalent of $2.4 billion in Indian stocks and bonds as chief investment officer at DSP Merrill Lynch Fund Managers Ltd. in Mumbai. “If India is growing at 8 percent with poor infrastructure, then with great infrastructure it can even grow at 12 percent.'’

issues:GLOBALISATION AND POLICIES TOWARDS CULTURAL DIVERSITY:
Globalisation is responsible for the erosion of indigenous communities across the developing world, yet the policies of majordonors towards them are in disarray. Only when there is opposition to major infrastructure projects is notice taken, althoughthis is a minor element in a broad process of mining natural resources and cultural assimilation. Diversity in indigenouscommunities tends to correlate with biological diversity and to support it therefore offers more than just cultural value.Globalisation is a major cause of the rapid erosion of cultural diversity, which should be as much a source of concern as the lossof biological diversity.• Development agencies give low priority to maintenance of traditional cultural values, and these are usually decoupled fromconservation of biological resources. Ethnic diversity is strongly correlated with biological diversity at present, although this linkis being eroded wherever indigenous peoples inhabit environments with high resource-values. Valuable indigenous knowledge isbeing lost with this erosion.• The United Nations and the World Bank have recently been developing their policies on strengthening indigenous rights, whilesome national governments such as Canada, have been building participatory mechanisms for determining resource access andceding territory to indigenous communities.• A global rights-based framework for ethnic minorities that recognises issues of both control of natural resources and culturaltransmission remains to be developed. Donors should support national governments to maintain the habitat of indigenous peoplesand reinforce cultural values through promotion of educational materials in minority languages. Controls on multinationals andexploitative tourism can assist the effective adaptation of such communities to the external world.