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'Essays for IIM' brings to you a holistic e-book on Current Essays/Notes with topics ranging from Political, Economic to Business Affairs. Some sample essays can be read on the following pages. The essays have been written and compiled after extensive analysis by our research team. For ordering the complete package (Rs. 675/-) call us on 098204 04720/ 078388 33575. Visit www.essaysforIIM.com for more information.

JUDICIAL ACTIVISM
Judicial activism is a philosophy of judicial decision-making whereby judges allow their personal views about public policy, among other factors, to guide their decisions. It can be narrowly defined as one or more of three possible actions: overturning laws as unconstitutional, overturning judicial precedent, and ruling against a preferred interpretation of the constitution. (For instance widening the right to life to include right to free legal aid, right to privacy, right to healthy environment etc) The chief instrument through which judicial activism has flourished in India is Public Interest Litigation (PIL). In normal course of law, an individual can approach the courts only if he/she has been personally aggrieved. But in the case of PIL, the case is filed not by the aggrieved persons but by others on their behalf. Many public spirited citizens and voluntary organisations (eg. Center for PIL - CPIL represented by Prashant Bhushan and Shanti Bhushan) sought judicial intervention for protection of existing rights, betterment of life conditions of the poor, environment etc. Detractors of judicial activism charge that it usurps the power of the elected branches of government or appointed agencies, damaging the rule of law and democracy. They argue that an unelected or elected judicial branch has no legitimate grounds to overrule policy choices of duly elected or appointed representatives, in the absence of a real conflict with the constitution. In some instances, government regulation by appointed officers in government agencies are overturned by elected judges. Defenders of judicial prerogatives say that many cases of so called "judicial activism" merely exemplify judicial review, and that courts must uphold existing laws and strike down any statute that violates a superseding law. Some recent instances of Judicial Activism can be o Distribution of food under Public Distribution System to poor free-of-charge instead of letting it rot in godowns o The SC ordered the Delhi Government not to demolish night shelters in Delhi for the homeless in the midst of winters as it is against the right to life. The court had taken suo moto cognizance from news paper reports o The brawl on the appointment of CVC PC Thomas In India, even as Prime Minister Manmohan Singh frowned upon judicial overreach, Supreme Court former chief justice K G Balakrishnan had welcomed its outcome as a desirable tension between the judicial and the legislative and executive branches. The source of the tension, however, lies in the vacuum created by the lapses of both the legislative and executive branches. The judiciary is giving the impression of stepping in to fill the vacuum by often forcing the executive to take action (against the privileged sons of politicians, as in the Jessica Lal case) or compelling Parliament to enact laws (for example, to curb sexual harassment at workplaces). This has encouraged the Indian urban middle class to repose its faith in the new-found concept of judicial activism, and to wish that the judiciary replaces the corrupt legislature and bureaucracy as the benevolent authority. But http://www.essaysforIIM.com

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there is a catch in this wishful belief. Barring a few recent cases of judicial intervention, which have had some positive effect on governance, the Indian judiciary on the whole has not displayed any spontaneous will to act on behalf of the common people. Even though this phenomenon has been welcomed by many, it has many negatives o It has overburdened the courts leading to delayed justice for normal cases o It has blurred the line of distinction between the legislature on the one hand and the judiciary on the other. o It has made the balance among the three organs of government very delicate. Democratic government is based on each organ of government respecting the powers and jurisdiction of the others. Judicial activism may be creating strains on this democratic principle. Even though Judicial review is essential to maintain the fundamental rights of citizens, the constitution clearly defines the legislature as the law making body. Any aberration in either of these will be against the spirit of the constitution. The two parts should try to work together without stepping into the jurisdiction of each other for the benefit of the nations common man.

IMPACT OF RUPEE DEPRECIATION

There are three important effects: 1. Some people had borrowed in dollars, and left it unhedged since they were speculating that the INR would appreciate. They get hurt in the process. But this is fine as in a market economy, many people place bets about future fluctuations of financial prices, and half the time the speculator loses money. (If the rupee had not depreciated sharply, these speculators would have been gained). 2. When the rupee depreciates, imports become costlier and India's exports become more competitive. So exports (X) gradually start going up and imports (M) gradually start going down. The net gain in X-M is increased demand in the local economy. Hence, INR depreciation is good for aggregate demand (and conversely INR appreciation pulls back demand). However, we have to bear in mind that these effects are small and take place with long lags. 3. Many things in India are tradeable. It is important to focus on the things that are tradeable and not just on the things that are imported. As an example, there are many transactions between a domestic producer of steel and a domestic buyer of steel. The buyer and seller are both in India. But the price at which they transact is the world price of steel (which is quoted in dollars) multiplied by the INR/USD exchange rate. This is called `import parity pricing'. Through this, the domestic prices of tradeables goes up when the rupee depreciates.

OPTIONS BEFORE RBI AGAINST A FALLING RUPEE

Problem: The falling rupees 18% decline since August has made it the worst-performing Asian currency this year. This is worrying policymakers, not least because a steady drop in the countrys foreign exchange reserves and a worsening current account deficit make it vulnerable in a tough global environment. Extent: Indias foreign exchange reserves have fallen in recent months, dropping to a nine-month low of http://www.essaysforIIM.com

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$304 billion on November 25. The country had repayment obligations worth more than $100 billion in the 12 months to June 2012, data released earlier this year showed. Currency strategists at HSBC and CLSA have forecast the rupee slipping another 13% from its present levels to 58 per dollar in the next few months. Why the problem arose: 1. The Euro zone crisis has triggered risk-aversion among investors and slowed capital inflows 2. pressure on the economy and the currency from a slowing economy, a widening trade deficit amid high contractual repayment obligations. 3. Dollar liquidity crunch globally in the wake of downgrades by ratings agencies of European countries and banks. Measures Taken: The government has already taken measures to boost capital inflows. These include raising the foreign institutional investment limit in government securities and corporate debt, raising borrowing limits for banks and companies and asking companies to quickly bring back home funds raised overseas. Measures which are being considered: 1. 2. 3. 4. 5. 6. Imposing restrictions on overseas investments by local companies curbing pre-payments of foreign loans Enforcement or revision of prudential limits on currency positions Strong communication to cool markets Steps to curb speculation Ease overseas borrowings for corporates and banks

Long term measures 1. Assess preparedness to deal with any financial crisis 2. Freeze the contours of the proposed Crisis Management Group with more clarity on its role and powers

INFLATION IMPACT ON ECONOMY

Inflation has an adverse impact on the real economy. The following points are worth noting 1. High and persistent inflation imposes significant socio-economic costs. Given that the burden of inflation is disproportionately large on the poor, high inflation by itself can lead to distributional inequality. Therefore, for a welfare-oriented public policy, low inflation becomes a critical element for ensuring balanced progress. 2. High inflation distorts economic incentives by diverting resources away from productive investment to speculative activities. 3. Inflation reduces households saving as they try to maintain the real value of their consumption. Consequent fall in overall investment in the economy reduces its potential growth. 4. As inflation rises and turns volatile, it raises the inflation risk premia in financial transactions. Hence, nominal interest rates tend to be higher than they would have been under low and stable inflation. http://www.essaysforIIM.com

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5. If domestic inflation remains persistently higher than those of the trading partners, it affects external competitiveness through appreciation of the real exchange rate. 6. As inflation rises beyond a threshold, it has an adverse impact on overall growth. 7. RBI's current assessment suggests that the threshold level of inflation for India is in the range of 4-6%. If inflation persists beyond this level, it could lower economic growth over the medium-term. Hence there is a need for a monetary policy response by the Central Bank to control inflation MICROCREDIT What is micro-credit? Micro-credit institutions would make small loans to groups of women at rates lower than what moneylenders charge. The microfinance business model is designed to address the challenges faced by the traditional financial services sector in fulfilling the credit requirement of the low income segment at an affordable and sustainable cost. Most MFIs follow the Joint Liability Group (JLG) model. A JLG consists of five to ten women who act as co-guarantors for the other members of their group. This strategy provides an impetus for prudent self-selection of reliable and fiscally responsible comembers. Moreover, the JLG has an inbuilt mechanism that encourages repayment in a timely fashion as issuance of future loans is contingent upon the prior repayment record of the group. Today, its reckoned that womens self help groups (SHGs) reach about 50 million people. Another 20 million are covered by microfinance institutions (MFIs). That leaves about 100 million people who still rely on moneylenders or relatives for loans. By market standards, the SKS IPO was a great success. Institutional investors over-subscribed their allocations by 13 times, and the companys valuation of USD 1.5 billion came in at the top end of the offer band price.

Moneylenders are not a declining lot inspite of MFIs: Numbers from the Reserve Bank of India (RBI) show that over 53% of loans there are sourced from moneylenders. Tamil Nadu follows, with moneylenders accounting for 40% of all borrowings. Moneylenders account for more than 30% of all lending in four more states: Bihar, Manipur, Punjab and Rajasthan. Interest rates charged by MFIs: MFIs borrow from banks at around 12% and lend at anything between 25% and 30%. The return on assets a ratio used to measure profitability of financial institutions is 6.8 for SKS Microfinance; its 1.7 for HDFC Bank and 1.1 for SBI. Microfinance institutions typically charge a higher rate of interest to their clients than traditional commercial banks as the administrative costs of servicing smaller loans is far higher in percentage terms than the cost of servicing larger loans. Additionally, MFIs provide doorstep services to their customers, a strategy that has a high cost associated with it, especially in rural areas where population densities tend to be low. Problems in the sector: Recently, the MFI sector has come under increasing attack. Some of the problems being pointed out are: 1. High interest rates being charged from poor people. The rates are considered to be predatory http://www.essaysforIIM.com

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2. Coercive recovery tactics: Many MFI institutions are resorting to coercive recovery tactics. This has led to wide spread antagonization among the rural people and the government alike. 3. Multiple lending practices: Many borrowers have many simultaneous loans from MFIs. Further, there is no credit check being done at the time of sanctioning the loan. Many times the loans are given for consumption purposes rather that investment purposes. This affects their repayment ability. 4. Suicides by borrowers: Due to all the aforementioned reasons, farmer suicides related to MFI loans is becoming increasingly common. This is especially true in Andhra Pradesh. Regulation of the MFI sector

The finance ministry could move a bill in the winter session of Parliament that will make Nabard responsible for regulation of all non-profit microfinance institutions structured as trusts, cooperatives, or mutual benefit societies. As many as 15 states already have laws on money lenders in place under which they attempt to regulate the high interest rates and usurious practices followed by micro-lenders. The state governments say although the RBI protects the interests of the depositors, there is no framework to safeguard the interests of the borrower who are at times charged interest rates as high as 30%. The finance ministry wants to prepare a comprehensive law after discussing the issue with the regulators.

AP passes microfinance bill in December 2010 to regulate interest rates

Andhra Pradesh, the nations biggest market for microfinance companies, passed a law to regulate interest rates and recovery practices among companies that offer loans to the poor. The act makes it mandatory for companies to collect payments once a month instead of weekly. The new law is expected to raise costs for companies. Microfinance companies in Andhra Pradesh, which account for a third of Indias microfinance market, collected less than 20% of loan repayments from 98% after the state ordinance was introduced in October (Which had similar provisions to those that are passed in this act). This shows that while the consumers will get a better deal, the bottomline of the MFI companies is set to take a hit.

MALEGAM COMMITTE REPORT ON MFIs 1. Limit the total loans to an individual to Rs 25,000 2. Cap the interest rate at 24% 3. Suggested that bank loans to MFIs should continue to be treated as priority sector loans, but with a higher capital adequacy ratio of 15%. 4. More than two MFIs cannot lend to the same person 5. The repayment tenure should be less than 12 months for loans below Rs 15,000 and less than two years for loans above Rs 15,000. Minimum period of moratorium of loans. 6. Borrowers should be allowed to choose a weekly, fortnightly or monthly repayment schedule. 7. At least 75% loans should be for income generation purposes http://www.essaysforIIM.com

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8. Severe penalties for coercive collections 9. Solvency - maintain an aggregate provision for loan losses which shall be the higher of 1% of current loan portfolio or 50% of the aggregate loan installments that are overdue for 90-180 days, and for 100% of aggregate loan installments that are overdue for 180 days or more. 10. If MFI doesnt comply with the norms being set for the sector they should be denied priority sector lending 11. NBFC-MFIs should be exempted from the purview of the Moneylending Acts, and that Andhra Pradesh should withdraw its controversial Andhra Pradesh MFI (regulation of moneylending) Act 12. Establish a credit information bureau

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PIIGS DEMYSTIFYING THE CRISIS

Portugal, Ireland, Italy, Greece and Spain share a currency and an acronym PIIGS. Each lost cost competitiveness after 1999, seeing prices and wages rise more rapidly than the Euro area average. As members of the Euro zone, they cannot devalue their currencies, making the struggle out of recession harder. Thus they need internal devaluation which means falling wages, and falling GDP (Due to fiscal consolidation). But, as GDP falls, the tax collections will drop too and the deficit will not get reduced as much, thus a further fall in GDP is necessitated. As the trouble brewed, the symptoms varied in each country. Greece and Spain sucked in cheap imports and ran-up huge current account deficits. They at least enjoyed prosperity for a while unlike Portugal and Italy whose economies were held back by high wage costs and poor productivity. Irelands export-led success gave way to a bubble economy built on low interest rates.

Details: Portugal It seemed to have exhausted the benefits of Euro even before it was launched. Its boom in the second half of 1990s was fed by a sharp decline in borrowing costs, based on the mere prospect of Euro membership. Rapid wage inflation eventually made it harder for local firms to compete with foreign rivals. By http://www.essaysforIIM.com

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2000, Portugals current account deficit had widened to a deficit of 10% of GDP. The emerging economies of Eastern Europe and Asia have further dulled Portugals appeal as a low-cost producer. Its poor education system keeps it trapped in low-skilled work, which can be done more cheaply by others. Ireland Ireland had a more ruinous credit boom that even America or Britain. Bank lending was heavily tilted towards mortgages and construction. One legacy is the bad commercial-property loans that have crippled its banks. Another is the stockpile of household debt, mostly mortgages that exceeded 100% of GDP. The regulation of banks was also an issue. There was huge and wasteful investment in real estate sector, financed by banks by borrowing from non residents and capital markets. At one time, 60% of bank assets = 250% of nominal GDP = loans to real estate sector. (Infact, it had a current account surplus so that was not part of the problem) The government guaranteed all liabilities of Irish banks including private sector banks against defaults. But, those banks were not facing a liquidity problem but a solvency crisis. Thus, the problem could not be solved. Finally, IMF and EU bailout became necessary. The bailout was of Eur 85 bn. Ireland seeks to return to export-led growth that was once its key to success. To do so, it must lower its wages relative to its trading partners in euro area. For many households, that means wages will fall, making debt looms larger. One salve is that mortgage rates in Ireland are linked to the European Central Banks main interest rate, which is set to remain low. Italy- Italy had a nasty recession but unlike others was not pulled out of shape by a big credit boom or housing boom. Between 2002 and 2007, Italys current account deficit averaged less than 2% of GDP compared with between 7% and 9% of Greece, Spain and Portugal. Yet Italy suffers many of the same problems. Like Spain, its productivity growth is dismal. Like Greece, it has huge public debts and trouble collecting taxes. That is in part due to the countrys vibrant North that the levies raised there help pay for the many failures of the poorer south. Spain- Spains economic trouble is closely tied to its housing bust. The unemployment rate is close to 20% and many of the newly idle had been construction workers. Spains poor productivity growth is partly the result of the housing mania.(construction booms are labour-intensive). Yet much of the fault lies with Spains labour market rules. Wages are set centrally and most jobs are protected, making it hard to shift skilled workers from dying to blooming industries. (Most job losers were low skilled temporary workers, who are hard to reemploy). Recession revealed how dependent public finances had been on housing-related tax revenues. House prices have further to fall. On one measure, the ratio of house prices to rent, Spanish property is more than 50% above its face value. Greece- Public finances are in a mess in most rich European countries, but Greece is in by far the worst shape. There was fiscal and financial irresponsibility resulting in ultra loose fiscal policy and a huge Current account deficit. In 2009, the government ran a budget deficit of 13.6% of GDP. Greeces debt stood at 115% of GDP last year and is likely to top 120% by the end of 2010. Among OECD countries, only Japan has a higher burden. Public spending was 51% of GDP last year bloated by the standards of America, but broadly in line with the average for Euro area countries. Greeces main fiscal problem is collecting revenues. Tax evasion is endemic, contributing to Greeces low tax/GDP ratio of 31% in 2008. Among Euro area counties, only Irelands figures are lower. http://www.essaysforIIM.com

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All this necessitated a record 110 bn euro ($147 bn) bailout for debt-stricken Greece after Athens committed itself to years of painful austerity. It is a three-year package of emergency loans. In exchange for by far the largest bailout ever assembled for a country, Prime Minister George Papandreou announced further spending cuts and tax increases totaling 30 billion euros over three years on top of tough measures already taken. Telling angry Greeks to choose between the painful rescue or economic collapse, the government now aims to bring its towering budget deficit back to the EU limit by 2014, two years later than originally promised.

'Essays for IIM' brings to you a holistic e-book on Current Essays/Notes with topics ranging from Political, Economic to Business Affairs. For ordering the complete package (Rs. 675/-) call us on 098204 04720/ 078388 33575. Visit www.essaysforIIM.com for more information

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