Save Kingfisher; Dump Mallya: Swaminathan S. Anklesaria Aiyar

Kingfisher Airlines is deep in the red. Should the government organize its rescue? When millions of small businesses are allowed to go bust when banks cut off credit to thousands of smaller defaulters, rescuing Kingfisher will smack of crony capitalism.

The airline has defenders too. Kingfisher has justly earned a reputation for excellent service standards. Quality is always worth preserving. We need to save Kingfisher without saving Mallya.

Its main competitor in quality, Jet Airlines, has frequently made good profits, while Kingfisher never has.

Kingfisher has already been rescued. Banks converted unpaid loans to Kingfisher into equity at a very favourable premium of 62% to the ruling market price, a tribute to Mallya’s political clout rather than company’s future prospects . Even after that the company has sunk deeper into the red. Even after being restructured and slashed, its debts exceed Rs 7,000 crore. Government concessions to the industry may save other airlines, but not Kingfisher.

A failed management must be changed. That’s normal in a market economy.

If Mallya really wants yet another chance, he must be told to bring in at least Rs 3,000 crore of fresh equity. If he cannot entice the investing public—which is probable--he must sell his other assets. Apart from liquor company UB Holdings, he owns stakes in the cricket team Royal Challengers, Bangalore; the Kolkata football teams Mohun Bagan and East Bengal; and the Formula 1 team Force India. In many other countries his bankers would force him to sell these.

If Mallya will not sacrifice his other assets for Kingfisher , then he cannot ask others to sacrifice their financial interests for him. His creditors should acquire the company and auction it.

Swaminathan S. Anklesaria Aiyar in The Times of India. Here and Here

Occupy Dalal Street in India

The screaming headlines provide insight into the dichotomy that prevails in our society. It is reported that in Chandigarh alone (in northwest India) Rs 80-crore worth of gold ornaments and nearly 800 cars were sold on the occasion of Dhanteras. Far away in Patna, Rs 400-crore were withdrawn on the same day from ATMs. It seems buying metals on this auspicious occasion had beaten all records.

Most families consider Dhanteras to be an auspicious occasion to buy gold and silver. Unfortunately for them, the prices of these precious metals have gone through the roof in the last few months, making it difficult for many to buy even a coin of few grams. Completely unable to comprehend the reasons behind such high price-rise, many of them can be heard asking, “Why have gold prices increased so much”?

Little do they know that the unprecedented escalation in gold prices is only because of speculation in which just one per cent of the investors are raking in huge profits while 99 per cent end up paying through the nose. This in short is the essence of the slogan, ‘We are the 99 per cent’, that is sweeping across the continents. More than 950 cities in 82 countries have seen thousands of people streaming in to the roads, squares and the parks to protest against economic inequalities. What began as a silent sit-in by a handful of protesters in the Wall Street -- the financial capital of the world -- New York a month back, has now spread like a wildfire.

In India too, some groups, including the Communist Party, have launched of the Indian version ‘Occupy Dalal Street’ from Nov 4.

Well, before we follow the global trends let me take you back to the days when petrol price internationally had shot up to $ 140 a barrel. This was barely two years back in 2009, just before the world witnessed an economic meltdown. I remember even Prime Minister Manmohan Singh saying that he wasn’t sure whether it was because of a slump in production or rise in demand. The fact is the stupendous rise in oil prices was not because of supply-demand constraints. It was simply because of speculation in trading. The companies which have invested in its stocks on the Wall Street try best to garner more profits.

Oil prices subsequently slumped to a low of $ 40 a barrel. From $ 140 a barrel to $ 40 a barrel certainly proves that demand had nothing to do with prices. It was all in the game of speculation.    

Devinder Sharma in Ground reality. Here

After Greece, Portugal it is the turn of Italy now

Italy and Spain insist that they are secure, but their economies are increasingly seen by markets as the next in a line of dominos: yields on both of their 10-year bonds are now hovering around 6%, meaning the interest rates on their debts are twice as high as those on Germany's. They are nearing the unaffordable levels that could trigger talk of default. Despite this, Spain's Finance Minister Elena Salgado insisted on Monday that Italy and Spain have "strong economies" and that there is no logic to them being affected by market instability.

The case of Italy is particularly worrisome for the euro zone: the country is a founding member of the European Union, a member of the G-8 and, by most accounts, the world's eighth biggest economy. Italian officials point to their large, diversified economy and their high savings rate as reasons to dismiss the market jitters. But not only does the country have a debt-to-GDP ratio of 120%, economic growth is anemic: In the first quarter of this year it was just 0.1%, well below the euro zone average of 0.8%. That helps explain why the odds are shortening on Italy being the next European economy to receive a bailout — literally: Irish bookmaker Paddy Power says Italy is now odds-on to be bailed out by the end of this year, along with Spain.

Leo Cendrowicz in Time Here

Occupy Wall Street : "Why are they upset?"

After a couple days of hemming and hawing, I decided to join the protesters of Occupy Wall Street. I was hesitant to go because until very recently, I worked as an administrative assistant at a prominent Wall Street law firm. I didn’t know how, in good conscience, I could rail against The Man when my primary responsibility had once been to keep track of incoming phone calls from Goldman Sachs. But then I heard one of the protest’s organizers on the radio saying that the Occupy movement wasn’t against capitalism, corporations, or even big banking. He was for income equality. And democracy. The reporter pressed him to be more specific, but he refused.

“Why do they have to be more specific?” I yelled at the radio. “Isn’t it obvious why they’re upset?”

Hannah Gersen in The Millions. Here

What can replace the dollor?

For more than a half-century, the US dollar has been not only America’s currency, but the world’s as well. It has been the dominant unit used in cross-border transactions and the principal asset held as reserves by central banks and governments.

But, already before the recent debt-ceiling imbroglio, the dollar had begun to lose its luster. Its share in the identified foreign-exchange reserves of central banks, for example, had fallen to just over 60%, from 70% a decade ago.

The explanation is simple: the United States no longer dominates the world economy to the extent that it did in the past. It makes sense that the international monetary system should follow the global economy in becoming more multipolar. Just as the US now has to share the world stage with other economies, the dollar will have to make room for other international currencies.

What’s different now is that a pox has been cast on both houses. The US debt-ceiling fiasco has raised doubts in the minds of central bankers about the advisability of holding dollars, while Europe’s failure to resolve its sovereign-debt crisis continues to fuel doubt that the euro can survive. Once upon a time (less than a year ago), it was possible to imagine international-reserve portfolios dominated by the dollar and euro; today, anxious central bankers are desperate for alternatives to both sick currencies.

Barry Eichengreen in Project Syndicate. Here

If you are born rich, choose India, if you are born poor, choose China

Though it is generally held that while primary education in India stinks, higher education is brilliant, this is not entirely true. The top elitist institutions are second to none, for sure, but many – in fact the majority – who graduate from mainstream institutions of “higher learning” are considered unemployable.

Growth has allowed the rich to acquire more private gains, but has hampered the poor by neglecting social public goods, including the very basics of health, nutrition, education and shelter.

Pallavi Aiyar, author of “Smoke and Mirrors: An Experience of China,” wrote that if you are born rich, choose India, if you are born poor, choose China – because of higher levels of basic education in China, there is correspondingly much more social mobility. Indian thought leaders also bemoan the fact that contemporary Indian society suffers from a compassion deficit and widespread insensitivity, especially among the new brash business and finance elites.

The situation is grim; as is the outlook if present trends continue.
 
Jean-Pierre Lehmann in Wall Street Journal. More

Quality of Life: India Vs China

When we consider the impact of economic growth on people’s lives, comparisons favor China over India. However, there are many fields in which a comparison between China and India is not related to economic growth in any obvious way. Most Indians are strongly appreciative of the democratic structure of the country, including its many political parties, systematic free elections, uncensored media, free speech, and the independent standing of the judiciary, among other characteristics of a lively democracy. Those Indians who are critical of serious flaws in these arrangements (and I am certainly one of them) can also take account of what India has already achieved in sustaining democracy, in contrast to many other countries, including China.

Not only is access to the Internet and world opinion uncensored and unrestricted in India, a multitude of media present widely different points of view, often very critical of the government in office. India has a larger circulation of newspapers each day than any other country in the world. And the newspapers reflect contrasting political perspectives. Economic growth has helped—and this has certainly been a substantial gain—to expand the availability of radios and televisions across the country, including in rural areas, which very often are shared among many users. There are at least 360 independent television stations (and many are being established right now, judging from the licenses already issued) and their broadcasts reflect a remarkable variety of points of view. More than two hundred of these TV stations concentrate substantially or mainly on news, many of them around the clock. There is a sharp contrast here with the monolithic system of newscasting permitted by the state in China, with little variation of political perspectives on different channels.

Freedom of expression has its own value as a potentially important instrument for democratic politics, but also as something that people enjoy and treasure. Even the poorest parts of the population want to participate in social and political life, and in India they can do so. There is a contrast as well in the use of trial and punishment, including capital punishment. China often executes more people in a week than India has executed since independence in 1947. If our focus is on a comprehensive comparison of the quality of life in India and China, we have to look well beyond the traditional social indicators, and many of these comparisons are not to China’s advantage.

 Amartya Sen in The New York Review of Books. More

BRICS and the China Trap

Earlier this month the BRICS countries (Brazil, Russia, India, China, South Africa) agreed at their summit meeting in Sanya, China, to establish mutual lines of credit in local currencies. On the face of it, this is an innocuous effort by the world's fastest growing countries to strengthen their mutual relationship. However, in the context of the emerging global power relations, this is yet another important step in the Chinese initiative to end the reign of the dollar as the world's single reserve currency.

Two years ago I wrote about the Chinese campaign to dethrone the dollar. Shortly before the G20 London summit, China's central bank governor announced that the dollar should be replaced by SDRs. This was a shrewd approach. About half of China's foreign exchange reserves of $2 trillion are reportedly held as dollar denominated assets, as indeed are large chunks of the reserves of many central banks. This large exposure implies that any major depreciation of the dollar would severely erode the value of these assets. At the same time, large diversification of these reserves away from the dollar is not an option. Such a move itself would trigger a sharp depreciation of the dollar. But the exchange rate of SDR is a weighted average of a basket of convertible currencies, and a swap of dollars for SDRs at a pre-determined exchange rate would allow China, and other countries, to significantly reduce their dollar exposure without any erosion of the value of their reserves. Of course, it would also end the reign of the dollar.

At the time, most analysts dismissed the Chinese initiative as impractical and unworkable. However, China has taken several strategic steps to carry forward its agenda through alternative routes. It has established currency swap arrangements with several developing countries, which protects their trade with China against the risk of their currencies depreciating. The initial value of these arrangements was quite modest, less than $100 billion. However, during the past two years, the volume of these arrangements would have grown significantly and could eventually cover the entire trade of these countries with China. 


How should India prepare for such an outcome? India should embed itself in the currency arrangement being forged for the BRICS countries, and strive to join the embryonic Asian Monetary Fund to take full advantage of opportunities arising from these initiatives. At the same time it must remain mindful that North America and the EU will remain important trading partners in the foreseeable future.


Sudipto Mundle in The Times of India. More Here.