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According to the state government, about 2.5 lakh people in 320 villages of 44 mandals
(blocks) in the districts of Visakhapatnam, Vizianagaram, Srikakulam and East Godavari
are affected by the cyclonic devastation. The cyclone claimed 21 lives, damaged as many
as 6,836 houses while the number of boats missing or damaged has been put at 181.
About 16,000 electric poles were knocked down by cyclone fury that also left around 6,000
transformers damaged. Damages to Rashtriya Ispat Nigam Limited (Vizag steel plant)
were estimated at Rs 1,000 crore, Indian Navy Rs 2,000 crore, Andhra University Rs 300
Relief Operations:
More than 1.35 lakh people have been rehabilitated at 223 medical teams equipped relief
camps, where 5.62 lakh persons are being provided food.
Prime Minister Narendra Modi inspected the cyclone-hit areas to assess the situation and
announced Rs 1000 crore-aid as an interim relief for the cyclone affected areas by the
Centre.
As many as 24 National Disaster Response Force (NDRF) teams, two Army columns, 56
boats/launches and six helicopters were deployed for relief measures.
Andhra Pradesh Chief Minister Chandrababu Naidu asked the Centre to declare the very
severe cyclone storm Hudhud that hit the states coast as a national calamity and also
sought an ad hoc relief package of Rs 2,000 crore.
The WMO/ESCAP Panel on Tropical Cyclones at its twenty-seventh Session held in 2000
in Muscat, Sultanate of Oman agreed in principal to assign names to the tropical cyclones
in the Bay of Bengal and Arabian Sea. The eight countries - India, Pakistan, Bangladesh,
Maldives, Myanmar, Oman, Sri Lanka and Thailand - took part and came up with a list of
64 names - eight names from each country - for upcoming cyclones in the spirit of cooperation and consensus.
The last cyclone in the region was Nanauk in June, 2014 a name contributed by Myanmar.
The next cyclone in the northern Indian Ocean region will be named Nilofar by Pakistan
followed by Priya (Sri Lanka) and Komen (Thailand).
What is a Cyclone?
The word cyclone has been derived from Greek word cyclos which means coiling of a
snake. The word cyclone was coined by Heary Piddington who worked as a Rapporteur in
Kolkata during British rule. The terms hurricane and typhoon are region specific names
for a strong tropical cyclone. Tropical cyclones are called Hurricanes over the Atlantic
Ocean and Typhoons over the Pacific Ocean.
A tropical cyclone is a rotational low pressure system in tropics when the central pressure
falls by 5 to 6 hPa from the surrounding and maximum sustained wind speed reaches 34
knots (about 62 kmph). It is a vast violent whirl of 150 to 800 km, spiraling around a centre
and progressing along the surface of the sea at a rate of 300 to 500 km a day.
Thirteen coastal states and Union Territories (UTs) in the country are affected by tropical
cyclones. Four states (Tamil Nadu, Andhra Pradesh, Orissa and West Bengal) and one UT
(Puducherry) on the east coast and one state (Gujarat) on the west coast are more
vulnerable to cyclone hazards.
The India Meteorological Department (IMD) is the nodal government agency that provides
weather services related to cyclones in India.
Year of Occurrence
12 October 2014
25 November 2013
21 November 2013
October 2012
May 2010
November 2008
June 2007
Cyclone Nilam (2012) - Cyclonic Storm Nilam was the deadliest tropical cyclone to
directly affect south India that made landfall near Mahabalipuram on October 31 as a
strong cyclonic storm with peak winds of 85 kmph. Nilam caused economic losses of
around Rs 100 crore because of torrential rain.
Cyclone Thane (2011) - Thane was the strongest tropical cyclone of 2011 that became a
very severe cyclonic storm on December 28, as it approached the Indian states of Tamil
Nadu and Andhra Pradesh and made landfall at north Tamil Nadu coast between
Cuddalore and Puducherry on December 30. Thane left at least 46 people dead in Tamil
Nadu and Puducherry. Cuddalore and Puducherry were the worst affected areas.
Cyclone Laila (2010) - Severe cyclonic storm Laila made a landfall in Andhra Pradesh on
the 20 May 2010 and caused major flooding and damage along its path. Ongole in Andhra
Pradesh recorded heavy rainfall of about 460 mm in just two days. Another town Addanki
received the highest rainfall of 522 mm. The state government faced a loss of over Rs 500
crore due to Cyclone Laila.
Cyclone Jal (2010) - Cyclone Jal killed at least 54 people in India alone. About 300
thousand hectares of cropland was devastated by the cyclone. The remnants of Jal
continued to move northwest, brought light to moderate spells of rain in India's warmest
state of Rajasthan and also in Gujarat.
Cyclone Phyan (2009) - Cyclonic Storm Phyan developed as a tropical disturbance in the
Arabian Sea to the southwest of Colombo in Sri Lanka on November 4, 2009 and made
landfall in south India on November 7. Massive damage to property was reported in
coastal districts of Maharashtra, such as Ratnagiri, Raigad, Sindhudurg, Thane and
Palghar.
Cyclone Nisha (2008) - Over 180 people were killed in Tamil Nadu alone due to heavy
rain and floods caused by the cyclone. Orathanadu, in Thanjavur District in Tamil Nadu
received over 990 mm of rain within 24 hours. The total amount of rainfall received from
Nisha was about 1280 mm. The damage caused by the cyclone was estimated to be
about 3789 crores.
Year
1970
1737
1881
1839
1584
1876
1897
1975
1991
2008
1882
Ocean Area
Bay of Bengal
Bay of Bengal
West Pacific
Bay of Bengal
Bay of Bengal
Bay of Bengal
Bay of Bengal
West Pacific
Bay of Bengal
Bay of Bengal
Arabian Sea
Deaths
500,000
300,000
300,000
300,000
200,000
200,000
175,000
171,000
140,000
140,000
100,000
12.
13.
14.
15.
15.
15.
15.
19.
19.
19.
22.
23.
24.
25.
26.
26.
28.
29.
30.
1281
1864
1922
1822
1699
1833
1854
1942
1912
1919
1862
1767
1831
1780
1977
1789
1965 (11 May)
1828
1965 (31 May)
West Pacific
Bay of Bengal
West Pacific
Bay of Bengal
Bay of Bengal
Bay of Bengal
Bay of Bengal
Bay of Bengal
Bay of Bengal
Bay of Bengal
West Pacific
Bay of Bengal
Bay of Bengal
Atlantic
Bay of Bengal
Bay of Bengal
Bay of Bengal
Western Pacific
Bay of Bengal
65,000
60,000
60,000
50,000
50,000
50,000
50,000
40,000
40,000
40,000
37,000
30,000
22,000
22,000
20,000
20,000
19,279
15,000
12,000
campaign.
Modi highlighted the cleanliness thrust of the Father of the Nation and said India must
realise his unfulfilled dream of a clean country, by 2019, the year of Gandhi's 150th birth
anniversary.
A United Nations report in May said half of India's population still practice open defecation
- putting them at risk of cholera, diarrhea, dysentery, hepatitis A and typhoid. The resulting
diseases and deaths cause major economic losses, and a World Bank report in 2006
estimated that India was losing 6.4 percent of GDP annually because of poor access to
sanitation.
According to Water Aid research, about 16 million Indians a year gain access to a basic
toilet. This will need to increase to more than 100 million a year if the whole population is
Industry chamber CII has announced it would mobilise its members to build 10,000 toilets
across the country by 2015-16.
The government has also set up a Swachchh Bharat Kosh, encouraging companies to
donate funds from their CSR budget to improve sanitation facilities in the country.
Aid workers said that while increased investment in infrastructure was important, there
must also be a change in attitudes.
One Hundred Forty Five million people in rural India gained access to improved
sanitation between 1990-2008
Two hundred and Eleven Million people gained access to improved sanitation in
whole of India between 1990-2008
India is home to 594 million people defecating in the open; over 50 per cent of the
population.
In Bangladesh and Brazil, only seven per cent of the population defecate in the
open. In China, only four per cent of the population defecate in the open.
Water
88 per cent of the population of 1.2 billion has access to drinking water from
improved sources in 2008, as compared to 68 per cent in 1990.
Only a quarter the total population in India has drinking water on their premise.
Women, who have to collect the drinking water, are vulnerable to a number of
unsafe practices. Only 13 per cent of adult males collect water.
Sixty seven per cent of Indian households do not treat their drinking water, even
though it could be chemically or bacterially contaminated.
Hygiene
Only 53 per cent of the population wash hands with soap after defecation, 38 per
cent wash hands with soap before eating and only 30 per cent wash hands with soap
before preparing food.
Only 11 per cent of the Indian rural families dispose child stools safely. 80 per cent
children's stools are left in the open or thrown into the garbage.
Only 6 per cent of rural children less than five years of age use toilets.
There are five subspecies of the Ebola virus: Zaire ebolavirus (EBOV), Bundibugyo
ebolavirus (BDBV), Sudan ebolavirus (SUDV), Ta Forest ebolavirus (TAFV) and Reston
ebolavirus (RESTV).
Ebola first appeared in 1976 in two simultaneous outbreaks, in Nzara, Sudan, and in
Yambuku, Democratic Republic of Congo. The latter was in a village situated near the
Ebola River, from which the disease takes its name. Although non-human primates have
been a source of infection for humans, they are not thought to be the reservoir but rather
an accidental host like human beings.
Transmission
Ebola is introduced into the human population through close contact with the blood,
secretions, organs or other bodily fluids of infected animals. In Africa, infection has been
noticed among those handling infected chimpanzees, gorillas, fruit bats, monkeys, forest
antelope found ill or dead or in the rainforest. Ebola then spreads in the community
Health-care workers have frequently been infected while treating patients with suspected
or confirmed EVD when infection control precautions are not strictly practiced.
Diagnosis
Before a patient is diagnosed as infected with EVD, one should rule out malaria, typhoid
fever, shigellosis, cholera, leptospirosis, plague, rickettsiosis, meningitis, hepatitis and
other viral hemorrhagic fevers like dengue, yellow fever and kyasanur forest disease etc.
As this viral outbreak in pigs and monkeys have preceded human infections, the
establishment of an active animal health surveillance system to detect new cases is
essential in providing early warning for veterinary and human public health authorities.
In the absence of effective treatment and a human vaccine, raising awareness of the risk
factors for Ebola infection and the protective measures individuals can take is the only
way to reduce human infection and death.
imported to India. Government has advised against all non-essential travel to the four
countries, and authorities will screen travelers who originate from or transit through
affected nations, and track them after their arrival in India.
The government will also set up facilities at airports and ports to manage travelers
showing symptoms of the disease. State authorities have been instructed to designate
hospitals with isolation wards for response to possible cases and to stock personal
protective equipment.
The countrys space agency successfully completed the Mars Orbit Insertion (MOI)
manoeuvre and with this, it joins the elite set of the US, Europe and Russia in successfully
sending probes to orbit or land on Mars.
India becomes the first Asian country to go to the Red Planet, beating even China. The
first sign of success on the very last leg came when ISRO announced that at the end of
four hours, the burning of engines on Indias Mars orbiter had been confirmed.
For the next six months, the MOM will move in an elliptical path around the planet
studying the Mars surface and scanning its atmosphere for methane. It will not land on
Mars.
The Mars Orbiter Mission (MOM) of the Indian Space Research Organisation (ISRO) is
100 per cent designed and developed in India.
Private partnerships
At least six ISRO labs collaborated with many private sector companies in the country to
design and develop scientific equipment to deliver this sterling performance.
ISROs satellite, which has five scientific payloads, has travelled nearly 214 million km
calculated under radio distance. Measured in heliocentric (solar) path, MOM has travelled
nearly 660 million km. in transmission of satellite date to the earth ISRO took help of the
US, Spain and Australia
(2) In particular, the responsibility of the Governor shall extend to matters such as law and
order, internal security and security of vital installations, and management and allocation
of Government buildings in the common capital area.
(3) In discharge of the functions, the Governor shall, after consulting the Council of
Ministers of the State of Telangana, exercise his individual judgment as to the action to be
taken:
Provided that if any question arises whether any matter is or is not a matter as respects
which the Governor is under this sub-section required to act in the exercise of his
individual judgment, the decision of the Governor in his discretion shall be final, and the
validity of anything done by the Governor shall not be called in question on the ground that
he ought or ought not to have acted in the exercise of his individual judgment.
(4) The Governor shall be assisted by two advisors to be appointed by the Central
Government.
2.
Governor will act in accordance with the advice of the council of Ministers of the
Telangana state.
3.
But he is free to use his discretion i.e. the governor can over ride the advice of the
council of ministers.
4.
5.
6.
The governor has been given powers to ask the state government to requisition additional
forces for deployment. In case the State government takes a divergent view, the
Governors decision will be final. The governor can also call for a report or assessment
from the Telangana government on any acts of omission and commission by any official
and direct the government to conduct an enquiry and take appropriate action as per law.
The governor will also have powers to issue necessary directions to the officials of the
Telangana government for the protection of the property rights of the people residing in the
common capital of Hyderabad.
In its letter, the ministry has listed 11 critical powers vested in the governor which include
power to call for any record or information or decision of the Council of Ministers or any
authority relating to law and order, internal security and security of vital installations, and
management and allocation of government buildings in the common capital of Hyderabad.
Entrusting the Governor with special powers is against the spirit of the Constitution
of India.
2.
3.
4.
Such sweeping powers to the governor will amounts to Governors rule in the State.
5.
make the laws and issue directions to the states in performing this task. Therefore state
list is often called as the second concurrent list.
Article 371 (F) (g): The Governor of Sikkim shall have special responsibility for peace and
for an equitable arrangement for ensuring the social and economic advancement of
different sections of the population of Sikkim and in the discharge of his special
responsibility under this clause, the Governor of Sikkim shall, subject to such directions as
the President may, from time to time, deem fit to issue, act in his discretion;
Article 371 (H) (a) : The Governor of Arunachal Pradesh shall have special responsibility
with respect to law and order in the State of Arunachal Pradesh and in the discharge of his
functions in relation thereto, the Governor shall, after consulting the Council of Ministers,
exercise his individual judgment as to the action to be taken.
Note: The wording under Article 371 (A) (b) with reference to state of Nagaland
and Article 371 (H) (a)with reference to state of Arunachal Pradesh are more or less
similar to section 8 of the AP Reorganization act 2014.
According to Article 365, if any State has failed to comply with, or to give effect to, any
directions given in the exercise of the executive power of the Union under any of the
provisions of this Constitution, it shall be lawful for the President to hold that a situation
has arisen in which the Government of the State cannot be carried on in accordance with
the provisions of this Constitution.
It implies that, if a State does not follow the directions of the Union government that will be
treated as the failure of constitutional machinery in the state, which means possibility of
imposing Presidents rule in the state. This is intended to protect the national unity and
integrity.
Even the Inter State Council meeting in 2003, has agreed with this provision under article
365. Earlier the Sarkaria Commission on Union State relations (1983-88) and Second
Commission on Union State relations under the chairmanship of MM Punchi Commission
(2007-10) have also did not disagree with this stand under article 365. The Supreme Court
in the SR Bommai Case (1994) has not rejected this view.
Dr. Ambedkar said, article 356 should be used only as a matter of last resort. It should first
be ensured that the Union had done all that it could in discharge of its duty under article
355, that it had issued the necessary directions under articles 256-257 and that the State
had failed to comply with or give effect to the directions.
Final Observation:
Two aspects are visible from the above discussion
1.
Union has not encroached in to the federal spirit by issuing guidelines to the state
because the guidelines are in accordance with 2014 Andhra Pradesh reorganization
act.
2.
The new born state of Telangana has its own apprehensions regarding Union
domination over the law and order is a clear vision of violating the spirit of federalism.
FDI
What is FDI?
Foreign Direct Investment is the investment which is done in productive assets and
participation in the management of the company as the stake holders by a company which
is based in one country, into a company based in another country. Recently the cabinet
said OK for 51% FDI in multi-brand retail sector & 100% FDI in single brand. Foreign
Investment in India is governed by the FDI policy announced by the Government of India
and the provision of the Foreign Exchange Management Act (FEMA) 1999. RBI also
issues notifications which contains the Foreign Exchange Management (Transfer or issue
of security by a person resident outside India) Regulations, 2000 and had been amended
many times. The Ministry of Commerce and Industry, Government of India is the nodal
agency for motoring and reviewing the FDI policy on continued basis.
Ways of investment?
The investing company may make its overseas investment in a number of ways - Joint
Ventures, merger, Franchising, Sourcing of Supplies from small-scale sector, Cash and
Carry whole sale trading, Non-Store Formats, Strategic Licensing Agreements, either by
setting up a subsidiary or associate company in the foreign country, by acquiring shares of
an overseas company.
The foreign retail chains will need to make very expensive real estate investments which
may or may not be feasible in the long run.
brand retail outlet was also permitted in 2006. India being an open economy with skilled
workforces and good growth prospects tend to attract larger amounts of foreign direct
investment among other growing and emerging markets.
Advantages of FDI:
1.
There would be increase in revenue to the state exchequer in the form of taxes
2.
Counties which have shortage of funds for developmental activities would find it
beneficial if they go for FDI thereby improving the country's "shunned sectors" -infrastructure and logistics. So in order to grow faster and compete with the other
countries foreign investment would turn out to be very fruitful.
3.
4.
All multi brand products are available under one roof and there would be greater
range and variety of products for sale and increased consumer choice
5.
Competitive spirit and good managerial skills would be introduced in the country
6.
7.
Many under developed and developing countries will be benefited with the
introduction of FDI.
8.
9.
Services at large would be benefited to people belonging to urban and semi urban
areas
2.
Many fear that a time would come when these MNCs making direct investments
start dictating terms over the company into which the investment is made may
influence the political system in the country. And many politicians felt allowing FDI in
retail will push the country towards economic slavery
3.
Small vendors and hawkers feel that these big giants would badly affect the
domestic industry, thereby affecting their livelihood.
4.
The items which these Multinational companies introduce in the market are beyond
the competitive capacity of the small venders.
5.
6.
Due to increase in multi brand products and increased purchasing power people are
introduced to a new kind of lifestyle which they are not used to may force to change
their lifestyle which may affect their future economically.
7.
Unlike in America where the shopping malls are in the outskirts of the city and the
family shops for a month and it is considered as a family activity. Whereas in India
food items are purchased in small quantities as many do not have adequate money to
buy for a month nor do they have massive storage facilities at home. Unlike
Americans, Indians do not drive miles and do bulk purchasing.
Small traders feel they will not be able to withstand the competition. self employed
indigenous retailers who provide employment to many will be forced to close down
their shops, unable to face the highly unhealthy competition from the MNCs
2.
Some felt that the government should impose a blanket ban on foreign retailers from
entering into retail trade
According to the Investment Commission of India, the retail sector is expected to grow
almost three times its current levels of $250 billion to $660 billion by 2015. The Indian
Retail Industry is the 5th largest retail destination and the second most attractive market
for investment in the globe after Vietnam as reported by AT Kearneys seventh annual
Globe Retail Development Index (GRDI), in 2008 Retail sector contributes to maximum
percentage of employment after agriculture. In spite of the recent developments retail
sector is assumed to possess huge growth potential. The retail industry is mainly divided
into:-
1) Organised and
2) Unorganised Retailing
Organised retailing- refers to trading activities undertaken by licensed retailers, that is,
those who are registered for sales tax, income tax, etc. These include the corporatebacked hypermarkets and retail chains, and also the privately owned large retail
businesses. In India 97% of the business is done by organized sector.
Unorganised retailing - refers to the traditional formats of low-cost retailing, for example,
the local kirana shops, owner manned general stores, paan/beedi shops, convenience
stores, hand cart and pavement vendors, etc.
Small kirana stores all available at almost every street in villages and cities and both
seller and buyers share a special bondage because of proximity in living in same area
which is absent in the big shopping malls.
2.
Kiranas are patronized by the local folks due to personalized human touch which is
not available in the malls as they possess more of business oriented approach.
3.
4.
Due to acquaintance with the people in locality the kirana shops allow credit for
certain periods of time.
5.
6.
Large Bargaining Power is available whereas in malls there is no scope for bargain.
7.
Not much of an investment is needed and can be established every where. Even in
the front yard of the house a shop can be established whereas malls cannot be
established every where as they need big space.
8.
Less manpower is required, less infrastructure and shops are generally established
at a walk able distance.
9.
These are generally run by people of low income groups and it is a good source of
self employment and an avenue for employment generation.
10. There would be long operating hours, strong customer relations, convenience and
hygiene.
Disadvantages of Mom-and-Pop Retail outlets:
1.
Not much of range and variety of goods are available resulting in less choice
2.
Generally kirana stores are small and there is no scope for a good ambience
The Legislative Council of Andhra Pradesh on 2 December 2012 had passed the historic
Andhra Pradesh Scheduled Castes Sub-Plan and Tribal Sub-Plan (Planning, Allocation
and Utilization of Financial Resources) Act, 2012. Through the passage of this bill Andhra
Pradesh had become the first state to make such legislation, of all the states in the
country by giving statutory status to the scheduled castes and scheduled tribe sub-plans
by ensuring allocation of funds to these sections in proportion to their population. The
legislation would be helpful in ensuring the right to equality for SC and ST community
apart from being effective in ensuring social security and a comprehensive development of
the people of the community.
Historical background of the sub plan: The demand for according legal status to the
Sub-Plans was made on states for a long time by the Planning Commission of India and
National Development Council (NDC). The ST sub-plan was introduced by Indira Gandhi
during 1975-76 and the SC sub-plan during 1979-80. In Andhra Pradesh after Sustained
struggle waged by the Kulavivaksha Vyatireka Porata Sangham (Struggle Committee
against Caste Discrimination) and the CPI (M) has resulted in the enactment of a
legislation to ensure proper implementation of SC/ST Sub-Plans.
also a mandatory provision for allocation of almost a fourth of the States annual plan of
the budget for SC, ST. The legislation will also ensure total utilization of funds allocated to
these sections in the planned budget. A state council headed by the chief minister will
release the funds and review the progress of utilization of funds. The council will meet at
least twice in a year. State-level and district-level SC and ST sub-plans will also be
prepared. Last year the state spent only 12.24 per cent for SCs and 5.98 per cent for STs.
In the plan budget for 2012-13, as against the state allocation of Rs 8,657 crore under SC
sub-plan and Rs 4,060 crore under ST sub-plan. The law would facilitate comprehensive
development of SCs and STs and provide them protection and equality on par with other
sections of society.
of preparing the budget itself with a mandate to spend them exclusively for the welfare of
Dalits and Tribals.
Objectives:
1.
2.
3.
4.
5.
Provision of drinking water facility to nearby villages through ring wells/tube wells,
etc
7.
8.
9.
10. Vocational training guidance to enable the SC/ST persons become self reliant under
the scheme Earn while you learn. Training are arranged in various trades, like basket
weaving, coir-rope making, sewing, poultry training, fishing, tailoring, typing, motor
driving as well as supply of necessary tools, machines, etc
11.
12. Welfare programmes such as distribution of seeds and fertilizers free of cost to
needy SC/ST farmers and distribution of smoke less chulas and solar cookers to
SC/ST women and also construction of approach roads and adoption of villages.
13. Social forestry schemes like distribution of fruit bearing seeds, sapling and other
plants etc
Issues raised before and after the passage of the bill:
The opposition sought an amendment that the allocation of the funds should be based on
ABCD groups within the SCs based on their populations and socio-economic conditions.
The chief minister pointed out that in 2004 Supreme Court had struck down the
classification of SCs into sub-groups as unconstitutional and said no fresh law could be
passed in any form on the issue.
APCC president said that he would raise the issue of separate sub-plans for Backward
Classes and the Minorities in the Assembly. He said that the BCs and the minorities
should get their fair share in budget. His support for the separate budgetary allocation is
similar to the demand by the MIM asking for sub-plan for the minorities.
By all accounts the 2008/09 crisis has been the deepest financial crisis of our times. It has
taken a devastating toll on global output and welfare. Arguably, the fundamental causes of
all financial crises are the same - global imbalances, loose monetary policy and high
levels of leverage driven by irrational exuberance. In that respect, this crisis has been no
different.
5. Where this crisis has been different, however, is in its manifestation. Most recent crises
had occurred in individual emerging economies or regions, and they were, at their core,
traditional retail banking or currency crises. The countries in trouble could be rescued by
multilateral interventions; besides, the advanced countries provided a buffer for trade and
financial support. In contrast, this crisis originated in the most advanced economy, the
United States, and hit at the very core of the global financial system. With virtually no
buffers to fall back on, the crisis rapidly engulfed the whole world. Much to their dismay,
emerging market economies too were soon pulled into the whirlpool.
9.5 per cent per annum during the three year period 2005/08 dropped to 6.8 per cent in
the crisis year of 2008/09. Exports that grew at 25 per cent during 2005/08 decelerated to
12.2 per cent in the crisis year (2008/09) and declined by 2.2 per cent in 2009/10. In the
pre-crisis years, we had capital flows far in excess of our current account deficit. In
contrast, during the crisis year, net capital flows were significantly short of the current
account deficit and this put downward pressure on the rupee. The exchange rate
depreciated from ` 39.37 per dollar in January 2008 to ` 51.23 per dollar in March 2009.
Notwithstanding our sound banking system and relatively robust financial markets, India
felt the tremors of the tectonic shocks in the global financial system. The first round effects
came through the finance channel by way of sudden stop and then reversal of capital
flows consequent upon the global deleveraging process. This jolted our foreign exchange
markets as well as our equity markets. Almost simultaneously, our credit markets came
under pressure as corporates, finding that their external sources of funding had dried up,
turned to domestic bank and non-bank sources for credit.
By far the most contagious route for crisis transmission was the confidence channel. For
weeks after the Lehman collapse in mid-September 2008, everyday there was news of yet
another storied institution crashing. In this global scenario of uncertainty, the lack of
confidence in advanced country markets transmitted as hiccups to our markets too. The
net result was that all our financial markets - equity, debt, money and foreign exchange
markets - came under varying degrees of pressure. Finally, the transmission of the crisis
through the real channel was quite straightforward as the global recession that followed
the financial crash resulted in a sharp decline in export demand for our goods and
services.
Indias two way trade (merchandize exports plus imports), as a proportion of GDP, more
than doubled over the past decade: from 19.6 per cent in 1998/99, the year of the Asian
crisis, to 40.7 per cent in 2008/09. Note that global trade declined by 11 per cent in 2009
as a result of the crisis in contrast to a robust average growth of 8.6 per cent during the
previous few years 2004/07. Such a sharp collapse in world trade had an impact on our
export demand demonstrating that our trade integration was quite deep.
If our trade integration was deep, our financial integration was even deeper. A measure of
financial integration is the ratio of total external transactions (gross current account flows
plus gross capital account flows) to GDP. This ratio had more than doubled from 44 per
cent in 1998/99 to 112 per cent in 2008/09 evidencing the depth of Indias financial
integration. In sum, the reason India was affected by the crisis, despite mitigating factors,
is its deepened trade and financial integration with the world.
Managing Globalization
What the experience of the crisis demonstrated clearly was the power of globalization.
Globalization is a double edged sword; it opens up incredible opportunities but also poses
immense challenges. India surely benefitted from opening up to the world but had also
incurred costs on that count. The challenge for India, and indeed for all Emerging Market
Economies (EMEs), is really to minimize the costs and maximize the benefits of
globalization.
Lessons of Crisis
A lot is being written about how this crisis has been too important to waste, how we should
learn the lessons of the crisis and apply them in a Schumpeterian creative destruction
mode. Some people have, however, questioned the wisdom of drawing lessons even
before the crisis is fully behind us. When Zhou Enlai, former Chinese Prime Minister, was
asked what he thought of the French Revolution, he said it was too early to say. Historians
who take a long view may agree with Zhou Enlai but practical policy makers do not enjoy
that luxury. So, let me use the opportunity of this platform to draw out eight big picture
lessons of the crisis.
15. Some analysts argue against such an outright dismissal of the decoupling hypothesis
and suggest a more nuanced evaluation. Recent IMF research2 in fact illustrates that the
transmission of distress from advanced economies to EMEs took place in three distinct
phases. The first phase runs from the time early signs of the crisis appeared in mid-2007
till the Lehman collapse in September 2008. During this period, the growth performance of
EMEs outshone that of advanced economies indicating decoupling. The second phase,
starting with the Lehman collapse till the first quarter of 2009 was one of recoupling when
advanced economies pulled EMEs too into the downturn. The third phase started in the
second quarter of 2009 when EMEs started recovering from the crisis ahead of advanced
economies suggesting a shift once again to decoupling.
So, have EMEs decoupled from the advanced economies? The answer has necessarily to
be nuanced. A useful way to visualize decoupling in the wake of the crisis is to distinguish
between trend and cycle decoupling. Trend decoupling is reflected by the widening gap
between the trend rates of growth of EMEs and of advanced economies. This is evidently
owing to the growing weight of domestic factors, mainly consumption, in the EMEs growth
process. However, given that there is still significant integration between the two groups of
countries, cycles are still coupled. From a lessons perspective, what this means is that
EMEs should focus on strengthening domestic drivers of demand and instituting automatic
stabilizers to buffer themselves against cyclical shocks from advanced economies.
Lesson 2: Global imbalances need to be redressed for the sake of global stability
No crisis as complex as this has a simple or a single cause. In popular perception, the
collapse of Lehman Brothers in mid-September 2008 will remain marked as the trigger of
the crisis. At one level that may well be true. Indeed, I can visualize future text books in
finance dividing the world into before Lehman and after Lehman. But if we probe deeper,
we will learn that at the heart of the crisis were two root causes - the build up of global
imbalances and developments in the financial markets over the last two decades. And
received wisdom today is that these two root causes are interconnected, and that financial
market developments were in a sense driven by the global imbalances. Global macro
imbalances got built up because of the large savings and current account surpluses in
China and much of Asia in wake of the East Asian Crisis a decade ago. These were
mirrored by large increases in leveraged consumption and current account deficits in the
US. In short, Asia produced and America consumed. Between the US consumption boom
and the Asian savings glut, there is a raging debate on what was the cause and what was
the effect. Regardless, the bottom line is that one was simply the mirror of the other and
the two share a symbiotic relationship.
And how did these imbalances build up? The answer lies in globalization - globalization of
trade, of labour and of finance. The world witnessed a phenomenal expansion in global
trade over the last three decades; global trade as a proportion of global GDP increased
from 34 per cent in 1980 to 51 per cent in 2007, just before the crisis hit us.3 Globalization
of finance was even more prolific, especially over the last decade. For the world taken
together, the ratio of foreign assets and foreign liabilities to GDP rose from 133 per cent in
1994 to over 300 per cent in 2008.4 The impact of globalization of labour was by far more
striking. Emerging Asia added nearly three billion to the worlds pool of labour as it
integrated with the rest of the world over the last two decades thus hugely improving its
comparative advantage. Together, the three dimensions of globalization - trade, finance
and labour - helped emerging Asia multiply by a factor its exports to the advanced
economies. The result was large and persistent current account surpluses in the Asian
economies and corresponding current account deficits in the importing advanced
economies.
The chain of causation from these imbalances to the financial crisis is interesting although
not obvious. As Asia accumulated savings and simultaneously maintained competitive
exchange rates, the savings turned into central bank reserves. Central banks, in turn,
invested these savings not in any large, diversified portfolio but in government bonds of
the advanced economies. This in turn drove down risk free real interest rates to historically
low levels triggering phenomenal credit expansion and dropping of the guard on credit
standards, erosion of credit quality and search for yield, all of which combined to brew the
crisis to its explosive dimensions.
It is argued that if the US Fed had refused to supply the incipient demand for liquidity in
the late 1990s and early 2000s, higher interest rates could have prevented the borrowing
boom and the follow on widespread deterioration of financial standards and the
subsequent melt down. But this also would have meant lower growth in the US and the
rest of the world. The short point is that even as macroeconomic imbalances should not
be allowed to proliferate, it is necessary to balance the need for global economic growth
against the disruptions which follow the unwinding of such imbalances.
So, where do we go from here? The G-20 is now actively engaged in the challenging task
of redressing structural imbalances in the global economy. At their Pittsburgh Summit in
September 2009, the G-20 leaders agreed on a Framework for Strong, Sustainable and
Balanced Growth and committed to a Mutual Assessment Process (MAP) which is a peer
review of each countrys progress towards meeting the shared objectives underlying the
framework. Recognizing that global imbalances which had narrowed during the crisis
started widening again in the exit phase, driven mainly by the uneven recovery around the
world, the G-20 resolved that promoting external sustainability should be the focus of the
next stage of the MAP and entrusted this task to a Framework Working Group (FWG).
India is privileged in co-chairing, together with Canada, the FWG for managing the task of
developing the indicative guidelines for assessing and addressing persistent global
imbalances. The FWG has adopted a two-stage approach: a limited number of indicators
will guide the initial assessment process, while a broader set - including qualitative ones will be used in the second stage to inform an in-depth external sustainability assessment.
The success of this initiative is critical for redressing the problem of global imbalances.
From that perspective, the London G-20 Summit in April 2009 will go down in history as a
clear turning point when the leaders of the world showed extraordinary determination and
unity. Sure, there were differences, but they were debated and discussed and
compromises were made without eroding the end goal - that is to end the crisis. This
resulted in an agreed package of measures having both domestic and international
components but all of them to be implemented in coordination, and indeed in
synchronization where necessary. The entire range of crisis response measures accommodative monetary stance, fiscal stimulus, debt and deposit guarantees, capital
injection, asset purchases, currency swaps - all derived in varying degrees from the G-20
package.
Now, as we exit from the crisis, there are concerns and apprehensions that the vaunted
unity that the G-20 had shown during the crisis is dissipating. But might it also be a tad
unrealistic to expect the degree of unity shown in managing the crisis to also be shown in
addressing peace time issues? The focus of G-20 now is to flesh out the agenda for
economic and financial restructuring at national and international levels so that the world
can prevent, or at any rate minimize the probability of, another crisis of the type we have
gone through. Differences of opinion, when the agenda is so broad, are not only to be
expected, but may in fact have a positive influence in determining what is collectively
optimal.
The common thread running through the entire G-20 agenda is the need for global
cooperation in solving our most pressing problems of today. The crisis has taught us that
no country can be an island and that economic and financial disruptions anywhere can
cause ripples, if not waves, everywhere. The crisis also taught us that given the
deepening integration of countries into the global economic and financial system,
uncoordinated responses would lead to worse outcomes for everyone.
The global problems we are facing today are complex and not amenable to easy
solutions. Many of them require significant and often painful adjustments at the national
level. Because short-term national interests conflict with globally optimal solutions, it is
quite understandable that there are differences of views within the G-20. We must
remember though that in a world divided by nation-states, there is no natural constituency
for the global economy. At the same time, the global crisis has shown that the global
economy as an entity is more important than ever and that global coordination to solve
global problems is critical.
That sense of triumph was deflated by the unravelling of the crisis. As the global financial
sector came to the brink of a collapse even in the midst of a period of extraordinary price
stability, it became clear that price stability does not necessarily guarantee financial
stability.
Indeed the experience of the crisis has prompted an even stronger assertion - that there is
a trade off between price stability and financial stability, and that the more successful a
central bank is with price stability, the more likely it is to imperil financial stability. The
argument goes as follows. The extended period of steady growth and low and stable
inflation during the Great Moderation lulled central banks into complacency. Only with the
benefit of hindsight is it now clear that the prolonged period of price stability blindsided
policy makers to the cancer of financial instability growing in the underbelly.
A dominant issue in the wake of the crisis has been the role of central banks in preventing
asset price bubbles. The monetary stance of studied indifference to asset price inflation
stemmed from the famous Greenspan orthodoxy which can be summarized as follows.
First, asset price bubbles are hard to identify on a real time basis, and the fundamental
factors that drive asset prices are not directly observable. A central bank should not
therefore second guess the market. Second, monetary policy is too blunt an instrument to
counteract asset price booms. And third, central banks can clean up the mess after the
bubble bursts. The surmise therefore was that the cost-benefit calculus of a more activist
monetary stance of leaning against the wind was clearly negative.
The crisis has dented the credibility of the Greenspan orthodoxy. The emerging view postcrisis is that preventing an asset price build up should be within the remit of a central
bank. Opinion is divided, however, on whether central banks should prevent asset bubbles
through monetary policy action or through regulatory action. On one side, there is a purist
view questioning the efficacy of resorting to monetary tightening to check speculative
bubbles. Opposed to this is the argument that a necessary condition for speculative
excesses is abundant liquidity, and that controlling liquidity which is within the remit of
monetary policy should be the first line of defence against irrational exuberance. No
matter how this debate settles, a clear, if also disquieting lesson of the crisis is that price
stability and macroeconomic stability do not guarantee financial stability.
That a bubble that started in the US housing sector snowballed into a major crisis is a
vivid illustration of the risks arising from the interconnectedness of the global financial
system and the risks of procyclicality. The lesson clearly is that as much as
microprudential supervision is necessary, it needs to be supplemented by macroprudential
oversight to prevent systemic risk building up.
Lesson 6: Capital controls are not only unavoidable, but advisable in certain
circumstances
As EMEs started recovering from the crisis earlier than advanced economies, they also
began exiting from the crisis driven accommodative monetary stance ahead of the
advanced economies. This multi-speed recovery and the consequent differential exit have
triggered speculative capital flows into EMEs resulting in currency appreciation unrelated
to economic fundamentals. This poses complex policy management challenges. Currency
appreciation erodes export competitiveness. Intervention in the forex market to prevent
appreciation entails costs. If the resultant liquidity is left unsterilized, it could potentially
fuel inflationary pressures. If the resultant liquidity is sterilized, it puts upward pressure on
interest rates which not only hurts competitiveness, but also, in a curious variation of the
Dutch disease, encourages further flows.
Capital inflows far in excess of a countrys absorptive capacity could pose problems other
than currency appreciation. Speculative flows on the look out for quick returns can
potentially lead to asset price build up. Also, in the current juncture, one of the driving
forces behind hardening commodity prices in recent months is the excess liquidity in the
global system which has possibly triggered financialization of commodities.
Quite unsurprisingly, the old debate about whether capital controls are a legitimate policy
option has resurfaced again. This debate has traditionally frowned on moderation. Critics
maintain that capital controls are distortionary, largely ineffective, difficult to implement,
easy to evade and that they entail negative externalities. On the other hand, supporters of
capital controls argue that controls preserve monetary policy autonomy, save sterilization
costs and tilt the composition of foreign liabilities toward long-term maturities and ensure
macroeconomic and financial stability.
The debate on capital controls resurfaced after the Asian crisis of the mid-1990s,
especially as one of the root causes of the crisis was the open capital accounts of the East
Asian economies. However, as the Asian economies recovered in quick order, regained
their export competitiveness and started building up external reserves for self-insurance,
the debate was not pursued to its logical conclusion, and the orthodoxy that capital
controls are undesirable persisted.
The recent crisis has, however, been a clear turning point in the worldview on capital
controls. Notably, the IMF put out a policy note in February 2010 that reversed its long
held orthodoxy that capital controls are inadvisable always and everywhere. The note has
referred to certain circumstances in which capital controls can be a legitimate component
of the policy response to surges in capital flows. The World Bank and the Asian
Development Bank Outlook - 2010 too echoed these views.
swings in capital flows during the crisis, the pressure to use tactical controls did not build
up because the strategic controls provided automatic buffers.
Even as we debate what EMEs should or should not do to manage excess capital flows,
we should remember that to the extent that lumpy and volatile flows are a spillover from
policy choices of advanced economies, managing capital flows should not be treated as
an exclusive problem of emerging market economies. How this burden is to be shared
raises both intellectual and practical challenges. The intellectual challenge is to build a
better understanding of the forces driving capital flows, what type of policy instruments,
including capital controls, work and in what situations. The practical challenge is the need
to reach a shared understanding on a framework for cross border spillovers of domestic
policies in capital-originating countries, and the gamut of policy responses by capital
receiving countries.
exactitude than they actually did. Admittedly, in a limited sense there may be some
parallels between economics and physics. But similarity in a few laws does not mean
similarity in the basic nature of the academic discipline. The fundamental difference
between physics and economics is that physics deals with the physical universe which is
governed by immutable laws, beyond the pale of human behaviour. Economics, in
contrast, is a social science whose laws are influenced by human behaviour. Simply put, I
cannot change the mass of an electron no matter how I behave but I can change the price
of a derivative by my behaviour.
The laws of physics are universal in space and time. The laws of economics are very
much a function of the context. Going back to the earlier example, the mass of an electron
does not change whether we are in the world of Newton or of Einstein. But in the world of
economics, how firms, households and governments behave is altered by the reigning
economic ideology of the time. To give another example, there is nothing absolute, for
example, about savings being equal to investment or supply equalling demand as
maintained by classical economics but there is something absolute about energy lost
being equal to energy gained as enunciated by classical physics.
In natural sciences, progress is a two way street. It can run from empirical findings to
theory or the other way round. The famous Michelson-Morley experiment that found that
the velocity of light is constant led to the theory of relativity - an example of progression
from practice to theory. In the reverse direction, the ferocious search now under way for
the Higgs Boson - the God particle - which has been predicted by quantum theory is an
example of traversing from theory to practice. In economics, on the other hand, where the
human dimension is paramount, the progression has necessarily to be one way, from
empirical finding to theory. There is a joke that if something works in practice, economists
run to see if it works in theory. Actually, I dont see the joke; that is indeed the way it
should be.
Karl Popper, by far the most influential philosopher of science of the twentieth century,
propounded that a good theory is one that gives rise to falsifiable hypotheses. By this
measure, Einsteins General Theory was a good theory as it led to the hypothesis about
the curvature of space under the force of gravity which indeed was verified by scientists
from observations made during a solar eclipse from the West African islands of Sao Tome
and Principe. Economics on the other hand cannot stand the scrutiny of the falsifiable
hypothesis test since empirical results in economics are a function of the context.
The short point is that economics cannot lay claim to the immutability, universality,
precision and exactitude of physics. Take the recent financial crisis. It is not as if no one
saw the pressures building up. There were a respectable number of economists who
warned of the perilous consequences of the build-up of global imbalances, said that this
was simply unsustainable and predicted a currency collapse. In the event, we did have the
system imploding but not as a currency collapse but as a melt down of the financial
system.
We will be better able to safeguard financial stability both at global and national levels if
we remember that economics is a social science and real world outcomes are influenced
at a fundamental level by human behaviour.
Lesson 8:
Having a sense of economic history is important to prevent and resolve financial crises Let
me finish with the last lesson that is on a larger canvas - that having a sense of economic
The headline wholesale price index (WPI) inflation averaged 9.6 per cent in 2010-11 as
compared with 5.3 per cent per annum in the previous decade. Similarly, the average
consumer price inflation, measured by the consumer price index for industrial workers
(CPI-IW), was even higher at 10.5 per cent in 2010-11 as compared with 5.9 per cent per
annum in the previous decade. Moreover, this elevated level of inflation also persisted
through the first quarter of 2011-12. In response to inflationary pressures, the Reserve
Bank has raised the policy repo rate 11 times bringing it up from a low of 4.75 per cent in
March 2010 to 8.00 per cent by July 2011. It is expected that inflation should come down
towards the later part of this year.
Why has inflation been so high and persisted for so long? This is the theme of my talk
today. In my presentation, I propose to address the following questions: Is India an outlier
among major countries in terms of recent inflation performance? Has the inflation process
changed? What are the causal factors global and domestic as well as supply and
demand? I will conclude with some thoughts on managing the inflation dynamics on the
way forward.
As the global economy recovered from the worst effect of the global financial crisis,
inflation picked up in emerging and developing economies. This was because the global
recovery was largely driven by emerging market economies (EMEs) what was termed as a
two-speed recovery a faster growth in EMEs accompanied by a slower growth in
advanced economies. As output gaps closed, there was increasing inflationary pressure in
EMEs, particularly in Asia. According to the International Monetary Fund (IMF), consumer
price inflation in developing Asia almost doubled from 3.1 per cent in 2009 to 6.0 per cent
in 2010 and is projected to be around the same level in 2011. Latest data suggest that
inflation in rapidly growing BRICS remains elevated.
Global factors
With recovery, global commodity prices rebounded given the higher level of commodity
intensity of growth in EMEs.
There was also an element of financialisation of commodities given the global excess
liquidity. Crop loss due to adverse weather conditions in many parts in the world coupled
with increased diversion of foodgrains towards biofuel exerted added pressure on global
food prices. Thus, global commodity prices including food prices rose sharply. For
example, the IMF Commodities Index rose by 24 per cent in 2010 on top of an increase of
43 per cent in 2009. It further rose by 20 per cent in December 2010April 2011, before
moderating by about 2 per cent during JuneJuly 2011. Notwithstanding some softening in
the last few months, it is important to recognize that the current level of commodity prices
is almost double of that two and half years ago.
The increase in commodity prices has affected different countries differently depending on
whether they are net importers or exporters of commodities. India being a net importer of
commodities, the adverse impact on domestic inflation has been stronger. Inflation
increased in developing and emerging economies with a combination of closing of output
gaps and sharp increase in commodity prices. In this regard, India is not an exception. But
the level of inflation in India has been high compared to those in many EMEs. This
suggests that apart from global factors, domestic factors have had a significant influence
Going by any measure of inflation, India comes out as a moderate inflation country,
though occasionally inflation crossed the double digit mark. The historical average longterm inflation rate was around 7.5 per cent. But significantly, there was substantial
moderation in inflation in the 2000s. The annual average inflation rate was around 5.5 per
cent irrespective of the inflation indices taken, whether WPI or CPI. This raises the
question: did the inflation dynamics change in the 2000s? Monthly WPI inflation data
suggest that there was a structural break around the mid-2000s with the inflation rate
during the latter half being higher.
Average WPI inflation increased from 5.2 per cent in the first half of 2000s to 5.5 per cent
in the second half. This was largely contributed by primary food inflation. In fact, the core
non-food manufactured products inflation moderated from 4.2 per cent to 3.9 per cent.
What did cause the structural break in the mid-2000s? A disaggregated assessment
suggests that protein items largely contributed to this change in trend.
Not only did the average food prices rise during the second half of 2000s but they were
more volatile.
smaller share in overall WPI inflation. What matters more for the overall inflation trajectory
is the non-food manufactured products inflation which has a higher weight of 55.0 per cent
in the WPI. It averaged 4.0 per cent in the 2000s with a moderation in the second half.
Subsequently, there has been a sharp increase in 2010-11 and 2011-12 so far. The nonfood manufactured products inflation shows a major structural break towards the middle of
2009-10 around the time the global commodity prices rebounded. This has also raised the
question: is the non-food manufactured products inflation an imported inflation?
Further, analysis suggests that industrial raw material prices also showed a structural
break in early 2009 and the average price increase has been high and volatile. Moreover,
the pass-through from non-food international commodity prices to domestic raw material
prices has increased particularly in the recent years reflecting growing interconnectedness
of domestic and global commodity markets.
This trend is also corroborated by corporate finance data which show that the share of raw
material costs as a percentage of both expenditure and sales has been rising.
Demand factors
Price pressures can emanate from the supply side but it will be difficult to sustain it without
rising demand. In this context, important information on recent trend in expenditure pattern
and wages is available from the 66th round of NSSO consumption survey and Labour
Bureau. The average annual monthly per capita expenditure has increased at a faster
pace in the second half of 2000s as compared with the first half, both in nominal and real
terms.
While the share of per-capita expenditure in food has gone down, as could be expected
from rise in income levels, both in rural and urban centers, the dietary pattern has shifted
in favour of protein items whose share has gone up markedly in the second half of 2000s.
The sharp increase in rural consumption of protein seems to have been sustained by
increase in wage rates of the unskilled rural labourers both in nominal and real terms.
In the formal sector, company finance data suggest that the wage bill has risen at a faster
rate since the middle of 2009-10 .
As per the NSSO surveys (61st round and 66th round), nominal wage rates of skilled
workers in both rural and urban areas increased much faster in the second half of the
2000s than in the first half. While the real wage rates declined in the first half, it increased
significantly in the second half of 2000s.
There has also been added stimulus from the crisis driven fiscal expansion as the fiscal
consolidation process was reversed in 2008-09 and continued through 2009-10.
These evidences taken together suggest that sustained rise in real wages both in the
formal and informal sectors in the recent years contributed to increase in demand.
Conclusions
The recent surge in inflation has become more generalised. Food inflation, prone to
supply shocks, is also assuming a structural character given the change in the dietary
habits and high demand, in absence of adequate supply response. Sharp increase in nonfood manufactured product inflation suggests that producers are able to pass on the cost
increases, given higher demand. While the persistence in non-food manufactured
products inflation is high, the persistence of food inflation has increased making the
overall inflation rate sticky. The current inflation process, therefore, is an amalgam of both
supply constraints and demand pressures.
Prolonged high inflation even if originating from supply side would give rise to increased
inflation expectations and cause general prices to rise. Poorly anchored inflation
expectations make long-term financial planning more complex with potential adverse
effects on investment and growth. Moreover, high inflation is the most regressive form of
taxation, particularly on the poor. It is, therefore, important to contain inflation and keep
inflation expectations anchored so that consumers do not mark up their long-run inflation
expectations by reacting to a short period of higher-than-expected inflation.
Keeping in view the costs of inflation and the fact that high inflation is inimical to sustained
growth, the medium-term objective of the Reserve Bank is to bring down inflation to 3.0
per cent consistent with Indias broader integration with the global economy. In this
direction, monetary policy aims to contain perceptions of inflation in the range of 4.0 4.5
per cent with a particular focus on the behaviour of the non-food manufacturing
component, which is considered as core inflation given its high degree of persistence.
Going forward, both global and domestic factors will shape the inflation outlook. With
increasing global integration, global commodity prices are having an increasingly
significant influence on domestic prices. It is expected that global commodity prices will
peak in 2011 which should provide some relief to domestic inflation scenario.
The Reserve Bank signaled the reversal from its crisis driven expansionary monetary
policy stance in October 2009. Since then, the cash reserve ratio (CRR) has been raised
by 100 basis points. The policy repo rate has been raised by a cumulative 325 basis
points. As the liquidity in the system transited from surplus to deficit, the effective
tightening has been of the order of 475 basis points. Thus, the cumulative monetary policy
action would have the desired impact on inflation.
While inflation is expected to moderate towards the later part of the year reflecting
monetary tightening and likely softening of global commodity prices, fiscal policy needs to
be supportive in containing aggregate demand. In addition, there is an urgent need to
address the issue of structural supply constraints, particularly in agriculture, so that these
do not become binding constraints in the long-run hampering the task of inflation
management.
I. Introduction:
OPEC :
A.Origin :
The Organisation of Petroleum Exporting Countries (OPEC) is a permanent
intergovernmental organisation which was formed at the Baghdad Conference of
September 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
B.Members :
Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Indonesia, Libya, United Arab
Emirates, Algeria and Nigeria. Saudi Arabia is the biggest producer of oil and the dominant
partner in the cartel.
Analysts point out that speculators made big bets on the future delivery of oil which was one of the causes
of the sharp increase in global oil prices.
e.Investment Flows into Oil :
Analysts point out that the flow of investments from pension and hedge funds into commodities including
oil have increased leading to the surge in crude oil prices.
f.Concern over Supply Disruptions from Iran :
Oil consumers are concerned about the supply disruptions from Iran which is locked in a confrontation
with the West over its nuclear programme.
g.Poor Supply from Iraq :
The oil industry in Iraq is still struggling to reach peak production after decades of war, sanctions and
under investment.
h.Cut in Supply from Nigeria :
Crude oil production has been cut in Nigeria since February 2006 due to militant attacks on the country|s
oil industry.
4. Global Economic Impact of the Rise in Oil Prices :
A.Increase in Inflationary Pressures :
According to analysts the increase in global oil prices added to the inflationary pressures in various
countries.
B.Increase in Interest Rates :
Economists point out that a mismatch between global oil price and domestic selling price can push up the
subsidy from the government and public debt which in turn can put pressure on interest rates and reduce
the capital available to more productive borrowers.
C.Slowdown in Economic Growth :
Increase in oil prices coupled with inflationary pressures will slowdown the economic growth in these
countries. The World Bank has already revised the economic growth projections in these countries by
reducing one percentage point.
D.Not a Full-fledged Oil Crisis :
Analysts point out that the current rise in oil prices is not a full-fledged oil crisis on the lines of the 1970s
and 1980s. The reasons being the developed countries are now less dependent on oil than they were in
1979. Adjusted for inflation the crude oil prices are still below the $101.70 peak reached in 1980, a year
after the Iranian revolution.
5. OPEC to Keep the Crude Output at Current Levels:
Despite pressure from the US and other countries to increase production, the OPEC special meeting in
Vienna in February 2008 decided to keep the crude oil production at the current levels of around 30 million
barrels a day.
6. Conclusion :
Disaster Management
I. Introduction:
India in Andhra Pradesh, Karnataka and Tamil Nadu, cities like Bangalore and Chennai also came to a
standstill.
3. Disaster Management:
Experts point out that disaster management is like a military operation where speed, accuracy,
technological sophistication, communication and motivation of the people involved are very important.
Therefore combat preparedness has to be there.
B.Assistance by the Armed Forces Should be Requisitioned Only for Special Purposes:
Military analysts, however, point out that assistance by the Armed Forces should be requisitioned only
when it becomes absolutely necessary, and even then only for such special purposes which cannot be
handled by the State Government.
In July 2005, Centre constituted the seven-member NDMA under the Chairmanship of the Prime Minister
to provide requisite institutional mechanism to deal with natural as well as man-made calamities, including
chemical, biological or nuclear disasters. Gen. N.C. Vij, the former Chief of the Indian Army was appointed
as the Vice-Chairman of the NDMA.
giving the exercise a legal framework. So far, disaster management was done through an executive order.
As the National Disaster Management Bill comes into effect, the various agencies do not have to wait for
an executive order to act since they will have a legally laid down procedure to follow.