Tackle Negative Marking in IAS Prelims

Now that the Prelims are just a fortnight away it makes sense to focus on tacklingnegative marking which was first introduced in the 2007 IAS Prelims. First things first. Don’t fear negative marking, in fact, negative marking complements the new IAS pattern to be introduced from 2011 Prelims. And how’s that you may ask.

Let’s start out with the facts first. Each question in the Prelims carries one mark for every right answer and minus (-) 0.33 marks for every wrong one. So let’s say you get one right answer and three wrong ones, then the net score for these four questions would be zero. Fine?

• You now need to solve 200 questions in 120 minutes as compared to 150 in the past. This means you need to be more selective in attempting the questions. And negative marking enables you to do just this. As I said in the first point, every correct answer will fetch you one mark. But as you only have 120 minutes to attempt 200 questions, in the first run go for those questions whose answers you’re sure of and also those questions that you may not be 100 % sure but still feel that you know the right option. Guess what, most of the time you will be right in such scenarios.
• But skip questions answers to which you have no idea about and questions where you know only one of the four options but not the rest three. So basically what I’m saying is leave those questions where you know only two or less options out of four.
• Now let’s assume you are fairly confident of 110 questions and attempt these in the first run. Then, assuming that you get at least 85 correct out of the 110 questions you’re at the provisional score of 85-25/3= 76.67 (as each wrong answer receives a penalty of 1/3 marks). At this stage you should have about 50 minutes remaining. In these 50 minutes or so go for those questions of which you have some clue about. Maybe you know 2 out of 4 options but not the rest 2. So you can still take a chance as a right answer will fetch you one mark as compared to a penalty of -0.33 marks for every wrong attempt.
• There should be 60 odd questions that fit this category and even if you get 35 correct out of 60, you reach 76.67 + (35 – 25/3) = 103.34 marks. This is quite good for clearing the Prelims. Obviously, I assume you will score about 100 marks in both the papers to get a total score of 200 marks out of 400. And believe me, to crack the IAS Prelims, especially, from 2011 onwards, a 50 percent score in each paper is good enough. Don’t think you need to get 160 or 170 in both the papers. With the introduction of negative marking, you don’t.
• As far as the remaining 30 questions are concerned about which you’re totally clueless just skip them. You don’t and should not attempt the entire 200 questions as this can lead to heavy negative marking penalty overall.

I hope this cleared some of the confusion about how to tackle negative marking in the IAS Prelims and what score is adequate to crack the Prelims. But don’t think you need to stick just what I said. The more right answers you know the easier it will be tackle the answers that fit into the 50-50 category.  I hope you found this guide to tackle negative marking in IAS prelims helpful.

Getting start up IAS :

Getting start up IAS :

To get started with IAS preparation you should first have some idea about the service itself. This will ensure your IAS preparation efforts are channelized in the right direction. The Indian Administrative Service (IAS) is a career nonpareil – one that cannot be compared to other jobs or services. True, it doesn’t offer the best salary; still the salary of an IAS officer is nothing to laugh at.

But people aspire to IAS for reason  much more than just remuneration. For instance, the IAS is a means to perform noble deeds like serving the nation and humanity at large. Now how many jobs or careers provide this opportunity? Along the way, there are attractive privileges, perks and career goals that you can achieve. In fact, the IAS is the perfect harmony of social and personal good, an opportunity, that only few can careers can provide. Be inspired.

But to aspire for this golden service you need to prepare for IAS smartly, persistently, andpatiently. The 3 golden tips for IAS preparation. You may have heard a thousand and one times from friends, IAS exam veterans, mentors and assorted coaching institutes that you require smart hard work to crack the IAS. But exactly is smart hard work?

IAS Preparation Tip 1 – Work Smart Not Just Hard

Most of us are used to working hard. Our education system is such that unless we cram tens of books each year, whether or not we understand what’s inside the book is immaterial, we cannot progress to the higher level. So most of us are accustomed to working hard which in the context of ias preparation refers to studying 10 hours or more, every day. So much for hard work.

Now comes the smart part. Smartness could mean different things to different readers. It could mean reading selectively but reading well, reading many books selectively, mixing books and notes, making micro notes, proper time management, taking mock tests and so on.

Smart work is all this and more. In fact smartness is the approach you adopt in aparticular situation. To prepare for IAS smartly requires you to be flexible as opposed to rigid, to experiment as opposed to sticking with the familiar, to plan ahead as opposed to the short term only.

Let’s say you plan to appear for the 2013 Prelims. The right approach would be to start preparing for the IAS prelims at least 10 months in advance. 10 months’ time is just right to crack the prelims. Neither too much nor too less. With too much time in hand, just like other things in excess, we tend to waste it. In fact, we should always have a little less time in hand to feel some sense of urgency to get things done. Most people tend to work best under reasonable pressure. Neither too much nor too less.

The next step when starting your IAS preparation is to get familiar with the Prelims syllabus. Doing this you will know exactly what you need to cover within this time frame to crack the prelims. The good part about the new CSAT syllabus is that optional subjects have been done away with. So you can just concentrate on General Studies. And if you’re like me then studying GS is like listening to music; there’s no hard work involved. Just pure fun. Preparing for IAS need not necessarily mean monotony. The more you enjoy preparing GS the easier the Prelims goal will become. That’s smart.

Once you know the syllabus get started with the actual preparation. Obviously everyone can’t prepare for 10 hours, particularly working people. But even working people can crack the IAS. The exact time is not important here. Some can achieve in 6 hours what others can in 10 hours. It depends on you. If you’re just starting out I’d suggest you start with 4-5 hours and scale up gradually.

IAS Preparation Tip 2 – Try Single-tasking it’s more efficient than Multi-tasking   

Yes I know you need to prepare history, geography, current affairs, mental ability etc. Only thing is don’t prepare all at once. Chunk it down. Pick one subject, let’s say Polity and combine it with current affairs which you should cover for some time everyday. Current affairs preparation consists of reading the newspaper, a good current events magazine and a year book.

You can read a good news paper like The Hindu, magazine like Civil Services Chronicle or Pratyogita Darpan and the Manorama Year Book. Schedule a particular time for newspaper reading, but in any case, don’t read the newspaper for more than an hour. It’s not required.

Next, you can continue with the year book or start off with Indian polity. Whichever topic you choose get the right books only. Don’t refer more books than are absolutely essential. You don’t want a PhD in General Studies, just need to clear it.

But before you start with the topic get the past 5 year’s solved question papers and combine it with the syllabus as the question papers and syllabus are your best guide for IAS preparation.

Once you have started with polity or any other topic see it through completion. Don’t try to multi-task. Mixing polity with history and geography will lead to loss of concentration and lower your output. Besides it will make your progress lower. On other other once you’ve covered a topic in full you will gain confidence as you’ve pocketed x number of marks beforehand.

IAS Preparation Tip 3 – Adopt the Just in Time Approach

The JiT (Just in Time) Approach says we should seek information only when required at that moment. In this hyper-connected world there is an overdose of information and if you seek to acquire all information and knowledge before starting a task, you can never get started as you will lose yourself in the information maze.

Applied to IAS preparation what this implies is don’t try to cover all the books referred by your friends on a given topic, say GK. Since GK is so vast and constantly expanding you can never hope to “master” it. Rather, refer a good book like Manorama Year Book and a magazine along with the daily newspaper to build up your knowledge base.

If, while referring the past Prelims papers, you come across a new topic you can quickly refer the reference books at hand or head over to the library or internet and find out more. This way you retain the information for a much longer time rather than by trying to read everything at one go.

Smart IAS Preparation Tip 4 – Test Yourself Constantly

Taking the above JiT approach further let’s apply this to evaluating yourself. Instead of waiting till the last few days to take mock tests you should evaluate yourself right after completing a particular section in a topic. For instance refer the previous year’s question papers before starting Quit India Movement in Modern Indian History and after completing it. I’ve already written about the benefits of this approach so I need not repeat it here.

Adopting this JiT approach you know exactly where you stand, which topics have been covered well and which require more consideration. But more importantly it removes the uncertainty and anxiety to a certain level, if not completely. Before entering the examination hall you know what kind of questions to expect and this will boost your confidence and calm your nerves so you perform better than expected.

Prepare for IAS Tip 5 – Make Micro Notes 

Notes help us to revise quickly before the Prelims; the last 15 days that can determine whether or not you will appear for the mains that year. These micro notes can be on current affairs, GK, as well as other GS and optional topics. In fact I’ve already shownhow to make notes for IAS exam preparation. Learn from it and profit.

IAS Preparation Tip 6 – Shoot then Aim

Most IAS aspirants prefer to wait till the end moment to take mock tests or prepare for 2-3 years before making their first attempt waiting for the perfect preparation level. Unfortunately your preparation can never be perfect no matter how hard you try. The latest syllabus is such that questions will always be unpredictable. Gone are the days when you could rely on certain number of questions from a particular topic.

So instead of preparing for 2-3 years during which time the pattern (not the syllabus) could change so many times prepare for a year and jump into the fray. You can improvise along the way.

This also holds true for taking practice tests. I suggested constantly evaluating yourself after going through every topic rather than waiting till the end hoping to finish the entire syllabus before going through the question papers.

Guess what, we are never able to finish the syllabus completely. There’s always something left in the end, some topics that we wish we should have prepared differently. So shoot first then aim.

Smart IAS Preparation Tip 7 – Read Only What’s Absolutely Essential

Your friend tells you to refer THM GS manual because that’s the best one around, another refers Unique, while a third one suggests XYZ classes notes. And you unwittingly jump from book to book hoping to cover every source that’s considered important for that subject. Stop taking this information overload that you will never be able to process within the limited time at your disposal.

Refer the standard books and supplement the missing information from other book for notes. Instead of reading three books for polity stick to one for detailed explanation and one for the bare acts. Similarly, I suggest just NCERTs for Ancient and Medival Indian History. No need for epic titles.

Whether it’s books for prelims, or public administration, sociology, political science orgeography books stick to the above strategy.

You’ll discover you can extract so much more by re-reading limited number of books than running after the next shiny book just launched.

ALL THE BEST ASPIRANTS......

$163-billion EU GROWTH PLAN

$163-billion EU GROWTH PLAN

Current affairs:

• The leaders of France, Germany, Italy and Spain agreed to push for a growth package worth up to $163 billion at a key EU summit next week aimed at kickstarting the economy and safeguarding the currency bloc.
• President Francois Hollande of France, German Chancellor Angela Merkel, Spanish Prime Minister Mariano Rajoy and Italian Premier Mario Monti, playing host, provided few concrete details beyond agreement on pursuing a financial transaction tax something that Germany has championed.
• Perhaps the biggest breakthrough of the brief summit was Ms. Merkel’s acknowledgement that austerity alone won’t cure the euro’s woes. Ms. Merkel has come under increasing pressure to give ground on key pro—growth measures such as jointly—issued debt. “We say that growth and solid financials are two sides of a coin. Solid financials are not sufficient,” Merkel said.
• Mr. Monti is trying to build a bridge between Ms. Merkel’s insistence on fiscal discipline and the focus on growth by recently elected Mr. Hollande.

Russia completes india's submarine modernisation program

Russia completes india's submarine modernisation program

CURRENT AFFAIRS:

• Makes a pitch for its Amur-1650 subs under the Indian Navy’s P-75 (I) project
• The INS Sindhurakshak submarine came off the slips at the Zvezdochka shipyard in Severodvinsk on Saturday, marking the completion of a mid-life refit programme for the Indian Navy’s Kilo-class diesel-electric submarines in Russia.
• During a two-year in-depth modernisation the torpedo-firing INS Sindhurakshak, built in 1997, has been equipped with the tube-launched Club-S cruise missiles effective against surface vessels and submarines at a range of about 200 km. It has also been provided with some Indian-made systems, including a hydro-acoustic "USHUS" complex, a CCS-MK radio-communication system and Porpoise Electronic Support Measures. After going through sea trials and firing tests the submarine will be handed over to the Indian Navy later this year.
• The INS Sindhurakshak is the seventh and the last of the 10 Kilo-class submarines that India bought from Russia between 1986 and 2000 to have undergone mid-term repairs and modernisation in Russia. Of the remaining three submarines one was repaired in India and the two others are currently under repair in India.
• Even as Russia prepares to deliver the last retrofitted submarine to India, Russia’s top shipbuilding official has come up with the idea of a second mid-life repair of the Indian Navy’s Kilo-class submarines.
• “A second repair will add another 5 to 7 or even 10 years to the submarines’ scheduled 20-year service life,” said Andrei Dyachkov, Director General of Sevmash shipyard, who is expected to take over as the head of the United Shipbuilding Corporation, which controls 70 per cent of Russia’s s shipbuilding assets, next month. “This will help the Indian Navy maintain its submarine strength in view of delays in the induction of French-built Scorpene subs and in floating a tender for six more diesel-electric submarines,” he said.
• The Indian Navy issued Request For Information (RFIs) under the P-75 (I) project way back in 2008. However, it is yet to open a global tender for the submarines. Russia is expected to take part in the tender with its new Amur-1650 submarines, along with France’s Scorpio, Germany’s Type-214 and Spain’s S-80 submarines.
• Mr. Dyachkov, who also heads the Rubin Naval Design Bureau, which designed the Amur-1650, thinks the Russian submarine stands a good chance of winning the Indian tender.
• “We hope for success and are confident of fulfilling all terms of the tender in the required timeframe,” he told The Hindu.
• The Amur-1650 makes far less noise than the Kilo-class submarines, which the NATO nicknamed “Black Holes” for their stealth qualities.
• The shipbuilder denied media reports that said Russia was trying to have the demand for the submarines to have onboard Air Independent Propulsion (AIP) system removed from the tender requirements.
• “We have designed and built an advanced and safe AIP that generates hydrogen onboard and enables the submarine to stay underwater for much longer time,” Mr. Dyachkov said.

Bad news: world is sliding into a new recession

Bad news: world is sliding into a new recession

• Many rich countries have struggled for three years to emerge fully from the Great Recession of 2008-09. Alas, the world is slipping into a new recession. No global authority has dared say so, but the writing is on the wall.
• A classic lead indicator of a global recession is a crash in commodity prices, which is evident today. Brent crude, the benchmark variety that determines Gulf oil prices for India, has fallen from $125/barrel in January to barely $ 90/barrel. Major global commodity indices have slumped over 20%. Mittal and Tata are closing some global steel plants because of falling demand. Prices of non-ferrous metals, cotton, coal and iron ore have crashed.
• This reflects decelerating or falling GDP growth across the globe, and growing realization that conditions will remain depressed for some time. Europe has long been a troubled zone, but the US economy is stalling while ominous negative signs emanate from China. The Eurozone was predicted to have a mild recession starting October 2011 and ending by the summer of 2012. The region slid down in the October-December quarter and then, thanks to a good German performance, stabilized in the January-March quarter. But the latest data show European growth plummeting in the April-June quarter, with even German factories suffering the sharpest contraction since June 2009. The UK, which is outside the Eurozone, is deeply in double-dip recession.
• Optimists think that even if rich countries get into trouble, the strength and resilience of fast-growing emerging markets — above all China — will stem the rot. Alas, China is slowing down too. The HSBC Purchasing Managers’ Index shows that Chinese manufacturing has actually fallen in May and June.
• China’s slowdown has hit Japan, which depends on exports to that destination. Japan is now running trade deficits month after the month, for the first time in decades. This is a game-changer.
• The global fall in commodity prices has sent shock waves through all countries that prospered by riding the commodity boom, including Brazil and Russia. India, a net commodity importer, should gain from falling prices. Yet its GDP growth has plummeted too.
• There is a standard remedy for recessions. Governments cut interest rates, provide easy money, and run large fiscal deficits to revive demand. Alas, these strategies have very limited scope today because the world is already replete with loose monetary and fiscal policies thanks to attempts to regain momentum after the 2008-09 Great Recession. Interest rates are at or below 1% in Europe, Japan and the US. The US Federal Reserve and European Central Bank (ECB) have injected trillions of dollars and euros respectively into their regions, breaking all records in easy money.
• Recent elections have brought to power parties in France and Greece saying there is too much austerity, so the region must aim for growth too. The IMF and several economists across the world echo this sentiment. Yet the claim of excessive austerity has been debunked by Josef Joffe in the Financial Times. The ECB Bank has injected trillions of euros into the region, including ultra-cheap money to banks, massive contributions to rescue funds, and large-scale purchases of government bonds.
• In 2011, fiscal deficits as a proportion of GDP were 13% in Ireland, 9% in Greece, 8.5% in Spain, and 4% in Portugal and Italy. Even France and Holland, supposedly non-crisis countries, had fiscal deficits of 5%. The Maastricht Treaty forbade anything over 3%. When Maastricht rules are so massively violated, is the problem really excessive austerity? No, the real problem is the structural madness of creating the Eurozone, a monetary union without a political union.
• This fundamental blunder remains intact with no prospect of early resolution. A Eurozone break-up would cause massive chaos and misery for a year or two, after which economies would pick up. Trying to save the Eurozone will mitigate immediate misery, but ensure that it continues for years till it becomes politically intolerable.
• Europeans refuse to confront the dilemma squarely. Instead, they are devising quick-fixes for the immediate problems of Eurozone banks and governments. Germany may approve some growth measures, and relax objections to direct ECB lifelines to stricken banks and debt-ridden governments. This can put off the day of reckoning, but cannot cure the underlying disease of an ill-conceived monetary union.
• Many analysts have said that India’s GDP growth slump to 5.3% in the January-March quarter cannot be blamed on the Eurozone crisis alone, and reflects paralysis and bad policy at home. This will now be compounded by a new global slump. We can hardly expect any miraculous action from the moribund UPA government. We need a fresh election and fresh government.

sunita williams heading back to space again

sunita williams heading back to space again

• Indian-American astronaut Sunita Williams is all set to return to to the International Space Station, where she spent a record six months in 2006.
• Daughter of an Indian American father from Gujarat and a Slovenian mother, Williams is currently making final preparations for a July 14 launch from the Baikonur Cosmodrome in Kazakhstan, according to a NASA announcement.
• She will be a flight engineer on the station’s Expedition 32 with Flight Engineers Yuri Malenchenko of the Russian Federal Space Agency and Akihiko Hoshide of the Japan Aerospace Exploration Agency. On reaching the space station she will take over as commander of Expedition 33.
• Williams and her colleagues will be aboard the station during an exceptionally busy period that includes two spacewalks, the arrival of Japanese, US commercial and Russian resupply vehicles, and an increasingly faster pace of scientific research, the US space agency said.
• Williams is the second woman of Indian heritage to have been selected by NASA for a space mission after Kalpana Chawla and the second astronaut of Slovenian heritage after Ronald M. Sega.
• She holds three records for female space travellers: longest spaceflight (195 days), number of spacewalks (four), and total time spent on spacewalks (29 hours and 17 minutes).
• A 1987 graduate of the US Naval Academy, Williams served in various roles as a Navy officer before being selected as an astronaut candidate by NASA in 1998. She received a master’s degree from the Florida Institute of Technology in 1995.

Greece needs growth

Greece needs growth:

• By returning a verdict for a coalition of mainstream parties in Sunday’s poll, viewed widely as a referendum on Athens’ continuation in the eurozone, the Greeks have shown they have not lost hope in the politics of moderation. 
• In an encouraging show of sagacity this time, traditional rivals — the rightwing New Democracy (ND) and the Pasok socialists — are putting their heads together to provide what everyone hopes will be a stable government. 
• There are already signs that Europe’s leaders are inclined to ease the terms of the Greek bailout. Sunday’s elections, the second in as many months, saw a surge in support for the radical left — a 10 per cent rise in vote share over the May polls. 
• For the first time since Greece’s return to democracy in the 1970s, the far-right has also been catapulted into Parliament. The erosion of the political middle-ground in Greece mirrors what has been happening elsewhere in Europe as the continent grapples with the harshest economic crisis since the Great Depression. While ND was in power in the early years after Athens joined the eurozone and enjoyed a credit boom, it failed to undertake crucial reforms that were needed to check rampant tax evasion and other administrative lapses. 
• Greece made headlines when it came to light that its growth figures were inflated in order to show compliance with European Union stipulations. When the debt crisis gripped Greece in 2010, the incumbent socialists were blamed both for the country’s bloated public sector and for the extremely stringent bailout conditions imposed on Greece by its European and international partners.
• Both ND and Pasok had, in the latest elections, campaigned on a platform of broad support for the EU bailout moneys in return for fiscal consolidation and austerity measures. But as Prime Minister Manmohan Singh noted in his speech to the G-20 on Tuesday, austerity is of little help if it chokes growth. 
• The leaders of Greece, and the EU, must accomplish the task of pushing structural reforms while simultaneously taking steps to bring unemployment down from the current high level. In the run up to the recent elections, the European Commission, the European Central Bank and the International Monetary Fund appeared impatient for Athens to speed up long overdue reforms. 
• But the troika would do well to weigh the political cost of ramming through unpopular measures that have driven the country to a state of near paralysis. 
• The last thing Greece, Europe and the world need is the instability of another election. Equally, the perpetual threat of exit of one of the member states is the least desirable scenario for the decade-old eurozone.

India makes a telling presence in G20

India makes a telling presence in G20

• The Summit declaration includes investment in infrastructure in developing countries in the preamble. India has reason to be pleased with the outcome of the Seventh G20 Summit, which concluded here on Wednesday. 
• First, Prime Minister Manmohan Singh ticked the Europeans off for landing themselves and the world economy in such a big mess and then expecting handouts from even poor countries. Second, the Prime Minister’s consistent stand, that growth and austerity have to be combined, has also finally found favour.

Growth emphasis

• The 14-page Declaration strongly emphasises the need for growth because, by itself, austerity will not solve the debt problem of the Eurozone. Britain and Germany have been insisting on austerity first to set Eurozone in order. Third, the Summit declaration included for the first time investment in infrastructure in the developing countries in the preamble. India has been pushing for this at the last three Summits. 
• Fourth, the Declaration has also called for ending what it calls mechanistic reliance on credit rating agencies, and encouraging transparency and competition amongst them. Fifth, although no one is saying it openly, there is a distinct sense amongst the officials that the developing countries have improved their clout this time. 
• This is evident from, amongst other things, agreement that IMF quota reform should be speeded up from 2013. Overall, the non-European members of the G20 have succeeded in sending a strong message to Europe that enough is enough and that it has to end its nationalistic bickerings so that the Eurozone’s finances can be supervised by a triumvirate comprising the European Central Bank, the IMF and the EU. 
• Key to this is the acceptance by European countries to subordinate their financial institutions to an outside agency. 
• The G20 has also explicitly recognized the progress made by China in market-determined exchanged rates, and the gradual appreciation of the Renminbi. 
• The U.S. will now stop targeting China’s exchange rate policies. The next G20 Summit is in 2013 with Russia as the new chair. Reacting to the Communique, the Prime Minister has said, ``Eurozone leaders… recognize the need to move beyond the present monetary union towards unified banking supervision and adoption of common and enforceable fiscal rules.’’

Naxalites recruiting children: UN report

Naxalites recruiting children: UN report

• A United Nations report has accused the Maoists of recruiting children, especially in Chhattisgarh, and indoctrinating them as part of mass mobilisation in the areas affected by left-wing extremism. “Maoist [Naxalite] armed groups were recruiting and indoctrinating children, and had constituted children’s squads and associations [Bal Dastas, Bal Sangham and Bal Manch] as part of mass mobilisation,” said the 2011 Annual Report of the U.N. Secretary-General on Children and Armed Conflict titled, ‘Children and armed conflict.’
• The information was supported by a 2010 National Commission for Protection of Child Rights report, which indicated that children were being recruited by the Naxals through intimidation and abduction. 
• It said they were used in support roles such as lookouts, messengers, porters and cooks. However, the UN report cited some special initiatives taken by the government for children in the left-wing extremism-affected areas. One such initiative, Bal Bandhu, the report said focused on children’s needs such as protection, education, health, nutrition, sanitation and safety aspects through local community participation. 
• It was being implemented in 10 districts of Andhra Pradesh, Assam, Bihar, Chhattisgarh and Maharashtra. It also said the Central government, together with affected State governments had undertaken specific actions to conduct awareness programmes through the media, establish new schools under the Sarva Shiksha Abhiyan in all village and ashramschools, and strengthen its Integrated Child Development Services and pre-school education centres in all areas.

Competing exemptions

Competing exemptions

How far should Competition Commission's powers extend?

• India’s laws governing competition are being overhauled currently, with the ministry of corporate affairs spearheading proposed amendments to the Competition Act. 
• At present with a group of ministers (GoM), the amendments reportedly seek to extend the scope of the Competition Commission of India (CCI) across all sectors. 
• This is in spite of calls from various industries and government divisions associated with sector regulators – telecommunications, banking and insurance, among others – that their particular sector be exempted from the CCI’s ambit. 
• The ministry of corporate affairs, this newspaper has reported, is standing firm, insisting that the CCI be given overall responsibility, but that coordination between it and sector regulators be imposed by a Cabinet-level committee on competition. The argument runs that, while specific sector regulators act pre-emptively to encourage competition, the CCI will have powers to take action after the event, once the economic effects of a particular action have had time to play out. 
• This, it is claimed, is the global best practice on the subject. Others, including the telecom ministry, have said that sector regulators such as the Telecom Regulatory Authority of India have specialised knowledge that will allow them to take more informed decisions.
• There are arguments on both sides. In particular, there is the general rule that special case laws, such as those empowering sector regulators, should not be overshadowed by overall laws. 
• This suggests that wherever a statutory regulator is already functioning effectively, the CCI should have its jurisdiction correspondingly reduced. There are, however, instances to show that sectoral regulators are not always exempt from capture by existing players in the industry that they are regulating. Moreover, the law and economics of competition is a very specialised field. In the United States, for example, the most celebrated act of the federal “antitrust” division was to break up the monopoly over long-distance telephony held by AT&T; this was in spite of the presence of an active sector regulator, the Federal Communications Commission (FCC). The FCC only changed its long-distance regulatory paradigm after the federal competition body stepped in. 
• Yet the argument that an effective statutory regulatory body should be allowed to decide on competition-related issues in a sector under its purview remains largely valid.
• Even more questionable is the move to extend the CCI’s ambit to cover mergers and acquisitions in banks. The Reserve Bank of India and the Department of Financial Services of the central government have correctly argued that banking mergers should be kept out of the CCI’s purview. This makes more sense than for other sectors; the uniqueness of the banking sector is a well-understood economic notion.
•  In particular, mergers have to be evaluated not just from the point of view of competition, but from whether they make macro-prudential sense: do they add to the riskiness and fragility of the banking system, or do they make it more stable? In a post-financial crisis world, the importance of this criterion is generally appreciated. The GoM must not reopen the issue and seek to further expand the CCI’s ambit.
• The finance ministry is working on a new policy framework for the country's banking sector that will provide a clear roadmap for regional rural banks,cooperative banks and other regional banks to grow to the next level. 

• The North Block has already begun discussion with the central bank on the framework that will prescribe profit, capital adequacy, size and any other condition it deems fit for such banks to graduate into full-fledged banks. "We have written to the RBI asking for a clear roadmap for the smaller banks that want to expand," a senior finance minister official told ET.  
• Experts say such a policy can ensure that these entities have clear performance benchmarks fitted well into their own growth plan and hope to grow. "A clear policy will help incentiwise better players.. It would improve access to banking in states and regional centres that have low credit penetration now," said Vibha Batra senior vice president, co-head, financial sector ratings, ICRA. The government had in its 2010-11 Budget announced its intention to allow more bank licences, but progress has been slow because government has been unable to amend the banking regulation act.
• The Reserve Bank of India is ready with the new bank licensing rules but is waiting for the changes in the banking law to be approved by parliament that will and empowers to supersede a bank boards.  In such a situation, the finance ministry feels a well laid out growth map for the smaller banks can help the cause of financial inclusion just as well. 
• The finance ministry is already begun work on Regional Rural Banks (RRBs) attaining some traction in size in their geographic region. The ministry has said that geographically contiguous RRBs sponsored by different banks within a state could be amalgamated with single sponsor bank to help optimizie use of modern technology and give adequate muscle to expand coverage in the region. RRBs, are jointly owned by the centre, the state government and the sponsor bank. Out of the 82 RRBs,81 have already switched to core banking solutions and national electronic fund transfer system. The cabinet last Thursday cleared 632 crore worth capital infusion into RRBs.

 

MORSY IS PRESIDENT, CLAIMS BROTHERHOOD

MORSY IS PRESIDENT, CLAIMS BROTHERHOOD

• Egypt’s Muslim Brotherhood has claimed victory for its presidential candidate Mohamed Morsy who had been pitted against Ahmad Shafiq in a bitterly contested runoff that took place in the midst of an assertion of political power by a military group, marked by the dissolution of an elected Lower House of Parliament and an attack on civil liberties.
• “Mohamed Morsy is the first popularly elected civilian president of Egypt,” read a brief but triumphant message on the official website of Brotherhood’s Freedom and Justice Party (FJP).
• Later, flanked by senior leaders from the FJP at a press conference in the early hours on Monday, Mr. Morsy pledged inclusivity and called for unity. “I will be a brother and servant to all Egyptians,” he said. He added: “Thanks be to God who has guided Egypt’s people to the path of freedom and democracy, uniting the Egyptians to a better future.” During his interaction with the media at the party’s Cairo headquarters, he promised “to build a democratic and modern state with a constitution”. As he concluded his address, Mr. Morsy’s supporters broke into the national anthem — a carefully choreographed exercise to symbolise national unity and pride.
• By daybreak, Mr. Morsy’s jubilant supporters had taken to the streets, in convoys of cars that honked in unison and chanted their candidate’s name. As the morning mist lifted over the Nile, houseboats played loud music in celebration of a historic event. Small crowds, waving Egyptian flags, also began to gather at Cairo’s Tahrir square, the icon of the Egyptian uprising, where Mr. Morsy was later scheduled to make and appearance.
• The Brotherhood claimed that Mr. Morsy had won 52.5 per cent of votes while Mr. Shafiq, a former aviator and the last Prime Minister of ousted President Hosni Mubarak, secured 47.5 percent. Mr. Morsy’s campaign official Ahmed Abdel Atti said the FJP was claiming victory after 98 per cent of the votes had been counted. But supporters in Mr. Shafiq’s campaign headquarters deplored the Muslim Brotherhood’s triumphalism. Ahmed Sarhan, Mr. Shafiq’s campaign spokesperson described the Muslim Brotherhood’s claims as “absurd’”’ and an exercise in “media manipulation”.
• However, Reuters quoted another campaigner acknowledging that their leader was unlikely to make it past the finishing line.
• Despite the conclusion of its first presidential election, Egypt’s fledgling democracy suffered a grave setback on Sunday when the Supreme Council of the Armed Forces (SCAF), a military clique that has been in charge of the country’s post-Mubarak political transition, issued a decree that severely curtailed presidential powers. With Parliament already dissolved last Thursday, SCAF would now be in charge of making laws and controlling the budget. The President has also been denied powers to declare war, unless the decision has the approval of SCAF — a move that implied that the military would not function under pervasive civilian control.
• The decree issued on Sunday night as the counting of votes proceeded was denounced by pro-democracy Liberal and Islamist groups as a “military coup”. “The ‘unconstitutional declaration’ continues an outright military coup,” tweeted Abdel Moneim Abul Fotouh, a moderate Islamist who had lost elections during the first round of the presidential vote. “We have a duty to confront it.”
• Elder statesman Mohamed ElBaradei said the military’s declaration was a “grave setback for democracy and revolution”. “SCAF retains legislative power, strips President of any authority over army and solidifies its control,” he tweeted. The Muslim Brotherhood condemned the decree as “null and unconstitutional”.
• At the Brotherhood’s campaign headquarters, Mr. Ahmed Abdel Atti said the SCAF’s ruling was likely to trigger “popular action,” setting the stage of yet another round of confrontation between the pro-democracy campaigners and an authoritarian military top brass.
• (comment on this pls..)

WHAT IS THE BASIS FOR MINORITY QUOTA, ASK's SC:

WHAT IS THE BASIS FOR MINORITY QUOTA, ASK's SC:

• It won't stay A.P. High Court order
• The Supreme Court on Monday refused to stay the Andhra Pradesh High Court order that quashed 4.5 per cent sub-quota for minorities in the Central educational institutions, such as the IITs, and ticked off the government for the way it had handled the “complex” and “sensitive” issue.
• The court expressed its “unhappiness” that the Centre was blaming the High Court when it had itself failed to produce documents to support its case.
• A Bench of Justices K.S. Radhakrishnan and J.S. Khehar was critical of the Ministry of Human Resource Development rushing to the Supreme Court with the appeal against the May 28 order without documents to justify the policy of carving out 4.5 per cent sub-quota from the 27 per cent OBC reservation.
• Without issuing any notice, the Bench asked Attorney-General G.E. Vahanvati to produce before it the supporting documents on the issue by Tuesday and posted the matter for hearing to Wednesday.
• The Bench said it could not stay the order “unless the government produces material to show a detailed exercise was undertaken to carve out the sub-quota.”
• Mr. Vahanvati started submissions by taking the “blame on his shoulders” for the outcome of the sub-quota policy in the High Court by saying the “argument was not the most brilliant.”
• He sought some protection in view of the ongoing counselling for IITs for which 325 candidates had qualified under the 4.5 per cent sub quota and that their career and future could be jeopardised if they were not allowed to appear for the counselling.
• When Mr. Vahanvati said there was need for some protection, the Bench said: “We will not order stay.”
• “First of all you have not produced any documents in the High Court. We would have been happy, if you had done so,” the Bench said.
• The Bench wanted to know from Mr. Vahanvati as to what was the basis and how did the government determine 4.5 per cent sub-quota for minorities.
• When he sought to point out errors in the High Court order, the Bench said it was natural for the High Court to ask questions on which the Centre was complaining. The Bench, which was not in agreement with Mr. Vahanvati that the “High Court has gone completely wrong,” said that “when the December 22, 2011 Office Memorandum [on 4.5 per cent sub-quota] reflected nothing, the High Court will ask questions.”
• “Without placing documents, how can you find fault with the High Court [order],” the Bench asked, adding: “Where is the material, and the High Court says nothing is produced.” When Mr. Vahanvati said the High Court also missed the 1993 notification on caste identification, the Bench wanted to know whether it was placed before it or not.

INDIA RISKS LOSING INVESTMENT GRADE RATING

INDIA RISKS LOSING INVESTMENT GRADE RATING

Cites division of roles between “powerful”Sonia and “unelected” Manmohan for impasse

• In an unprecedented broadside at the UPA-II government's style of functioning, global rating agency Standard and Poor's (S&P) on Monday pointed to the operational roles of Congress president Sonia Gandhi and “unelected” Manmohan Singh as Prime Minister for the current economic impasse and threatened to downgrade India's sovereign credit rating to ‘speculative' from the lowest notch of ‘investment' grade.

• In its report, ‘Will India be the first BRIC fallen angel,' S&P said: “Slowing GDP growth and political roadblocks to economic policy-making could put India at the risk of losing its investment grade rating” and pointed out that the crux of the current political problem in going forward with economic liberalisation was the nature of leadership within the Central government and not “obstreperous” allies or an “unhelpful” Opposition.

• Having scaled down India's rating outlook to ‘negative' from ‘stable' in April this year, the S&P report, authored by its credit analyst Joydeep Mukerji, highlighted that the Congress was divided on economic policies, and there was substantial opposition to any serious liberalisation. It pointed to the division of roles between a politically “powerful” Congress president and an “appointed” Prime Minister as having “weakened the framework for making policy, in our view.”

• “Moreover, paramount political power rests with the leader of the Congress, Sonia Gandhi, who holds no Cabinet position, while the government is led by an unelected Prime Minister Manmohan Singh, who lacks a political base of his own,” it said.

  

WORTH READING

Eliminate petroproduct subsidies: 

• Firm decision will improve the health of OMCs RK Pachauri Global oil prices have been high in recent years even as our oil imports keep rising. Plunging value of the rupee adds to this import burden. Government's decision to raise petrol prices is merely the thin end of the wedge, revealing an aspect of irrational pricing that has afflicted the country for much too long. 
• Meanwhile, the daunting challenge of bringing down our fiscal deficit looms large. Against this background, the burden of government subsidies has been discussed extensively, but little done to arrest the increasing trend of pricing distortions in the country. 
• By far the most important challenge in these relates to the energy sector. It is for this reason that The Energy and Resources Institute (Teri) has brought out A Citizen's Guide to Subsidies in India. Let us look at prices of petroleum products. In 2010-11, the figures estimated for subsidies on petroleum products were staggering, and are getting worse. 
• The accompanying graphic shows the break-up of these subsidies and their volumes. Three petroleum products - kerosene for the public distribution system (PDS), domestic LPG and diesel - are sold at far less than international market prices with the government providing a fiscal subsidy. However, this subsidy provides only part of the difference between the cost price (including marketing costs) and the selling price of these petroleum products - resulting in under-recoveries for the oil marketing companies (OMCs) - which are calculated as the difference between the cost price and the regulated price at which the petroleum products are sold by OMCs to retailers after accounting for subsidies paid by the government. 
• The argument for providing subsidies on LPG is totally irrational, given that LPG is largely the preferred domestic fuel used by the rich and the middle classes, and that too mainly in urban areas.With kerosene, the perverse nature of subsidies is highlighted by the fact that every reliable survey has found 40-50% of the subsidised kerosene produced going into adulteration of other petroleum products. Two bright young officers of the OMCs were killed for whistle-blowing on acts of adulteration, and possibly hundreds may be keeping mum under threat of a similar fate.The political argument for subsidies on kerosene advanced by those favouring status quo is that kerosene is the poor man's fuel for lighting in a large part of rural India. It is unfortunate but true that almost 400 million people in India have no access to electricity, and kerosene is used by a large number of them for lighting.
• But if a subsidy is justified for that very reason, which in itself is highly questionable, why is it that a country as advanced in electronics and smart technologies cannot come up with a system of smart cards that could target subsidies only for those below the poverty line and do away with subsidised kerosene in the open market? It is also relevant to observe that recent research shows emissions from kerosene lanterns in homes as harmful and, in fact, worse, than emissions from cooking with inferior quality biomass burned in inefficient stoves. If the human and health costs of this pollution were beaccounted for, the questionable benefits from kerosene subsidies would appear negative.
•  It is also significant that in Bangladesh, our neighbour with a lower per-capita income than ours, kerosene is priced at a much higher level than here. Policies such as subsidising kerosene have become holy cows that politicians are afraid to touch, and which undesirable elements, such as those in the business of adulteration, are delighted to benefit from. Public initiatives have largely ignored the fact that lanterns based on solar energy are now a viable technology that can compete effectively even with subsidised kerosene, as Teri programme, Lighting a Billion Lives, has established. This option is pollution free, vastly more reliable and devoid of the danger of accidental fires from kerosene. Subsidies on diesel also result in growing distortions. First, the move towards passenger diesel vehicles, often the most expensive brands, is only subsidising the rich. At the macro-level, rational pricing of diesel would certainly make railway freight and passenger options relatively attractive. It is, of course, true that the Indian Railways has for long shown a lack of vision in expanding and modernising its services. 
• Its shortcomings only compound the incentive that diesel subsidies provide for a shift to greater road transportation even as air pollution in our cities and highways is becoming worse. Overall, the total value of under-recoveries on petroleum products and the manner in which these have changed in recent years are shown in the accompanying graphic. 
• The spurt in values during 2008-09 was the result of a sudden spike in global oil prices during that period. A similar spike in future cannot be ruled out even as our dependence on oil imports keeps growing rapidly. The problem with oil subsidies is also leading to haemorrhage of the OMCs that would otherwise be expected to generate healthy surpluses to facilitate improving their infrastructure and, thereby, reducing the cost of marketing for the benefit of the consumer.
• Successive governments have failed to bite the bullet, ironically, even as the administered pricing mechanism was officially dismantled in 2002. When will disastrous politics in this area give way to sensible economics?

WORTH READING

•  IITs not for social engineering R. SRINIVASAN The IITs have won recognition through one of the most ruthlessly competitive selection systems. Fairness or unfairness has nothing to do with it. Imagine the furore if the Indian cricket team was to be picked on the basis of who can run 400 m the fastest! An ability to sprint fast is undoubtedly required to play any competitive field sport, but that alone, as anyone with even nodding familiarity with the game will tell you, is not enough to turn one into a cricketer. 
• Yet, the Union Human Resources Development Minister, Mr Kapil Sibal's bullying persistence in ramming through his pet ‘single entrance test' plan for all engineering and science courses in the country —including those offered by the elite Indian Institutes of Technology (IITs) — is based on just such quixotic reasoning. For a self-declared democrat and someone who is dependent on winning elections in order to hold the office which gives him the power to take such decisions — which necessarily implies at least a modicum of people skills — Mr Sibal has shown a remarkable ability to not listen to the public. 
• He has turned a blind eye to the logic advanced by those opposing the move and simply shut out the chorus of voices raised in opposition from stakeholders one would have thought had an equal, if not greater say in such a decision — the students themselves, their parents, the IIT faculty, the worthies who administer them, distinguished alumni and even industry, which ultimately employs the output of the IITs. 

• On the face of it, the plan ticks all the right emotional boxes. Mr Sibal says the move is aimed at reducing the burden of multiple entrance tests on the student, something which no one has any quarrel with. Then come the twists in the tale. The test will be one, but 50 per cent weight will be given to the 12th standard examinations. Which means that we already have multiple exams, not one. Then there will be a second test — an ‘advanced' one — for entry into the IITs itself. Presumably, there might be similar advanced tests for those wanting to do science, say. So we have a multiplicity of tests.
•  There will be quite another test for those wanting to do medicine, for example, and yet another ‘advanced' test for those wanting to do medicine in the IIT-equivalent medical institutes such as AIIMS or the PGMER in Chandigarh (since Mr Sibal's writ does not run in the Health Ministry, which administers the medical tests). There is yet another test for those wanting to do law, and so on. 
• It is not inconceivable that the same student might want to take a shot at all three. At 17 or 18 — the age when students complete their 12th standard — they are still largely unformed buds, with their true potential yet to be explored, leave alone exploited. And given the reality of the lack of quality higher education opportunities in the country, vis-à-vis the quantity of students aspiring for such education, wanting to have chance at one or the other is but natural. So, one exam for engineering is not going to reduce the burden by much. The real agenda, it appears, is to cloak the degraded and devalued state education board scores with the legitimacy of academic excellence furnished by the IITs. 
• This is akin to killing the goose that lays the golden egg. The IITs are in a position to be exploited for such purposes precisely because they have managed to sustain an island of excellence amid an ocean of mediocrity. This is not to say that the current system of selecting candidates for IITs is perfect. Far from it. There have been growing murmurs from the IIT faculty itself about the quality of students filtering through the system. A thriving industry has sprung up in coaching and training aspirants to crack the IIT entrance. So you have a growing number of students who have managed to score outstandingly in the entrance exam — by simply familiarising themselves with the pattern of questions — and yet flounder in actual coursework. There is also considerable ground for questioning the existing board level examination system in the 12{+t}{+h} standard. They have become mere tests of rote learning and memory power, prone to manipulation, illogical marking and political and other interference. But two wrongs cannot be made into a right by steamrolling a new exam. Mr Sibal's dream is to have a system of collegiate education similar to the US. But the solution is not to introduce a SAT analogue in India and ignore the reality of the system underlying it. There is also the question of the de-branding of the IITs. 
• The IIT, it can be reasonably argued, is the one sole government-created, government-owned brand which has managed to win global recognition and accolades for quality, consistency and excellence. Hardly anything else sporting a ‘Made in India' label can have the kind of automatic access which an IIT degree gives its holder. The kind of ‘soft power' wielded by IITs extends far beyond the realms of academia. IITs have contributed the cream of managerial talent to India Inc. There is hardly any BSE 100 company which does not boast of IITians in positions of power. More than any other collegiate group, IIT grads have helped script the India success story. Indeed, many distinguished alumni are heading, or have helmed, giant transnational corporations and have, directly or indirectly, helped focus attention on the potential of India and Indians. That kind of recognition and access was hard won, earned on the back of one of the most ruthlessly competitive selection systems. 
• To now dilute the essence of that system is shooting oneself in the foot. Fairness or unfairness has nothing to do with it. The IITs are about excellence, not social engineering. School exams are used as a qualifier, even in the US, which Mr Sibal so clearly wants to eliminate. Other systems which have produced excellence — our medical colleges, the IIMs, even the hallowed Indian Administrative Service — use the school or college exam results as a pre-qualifier and rely on their own system to pick the right candidate. Why can't the IITs be allowed to do so as well? Why try to fix something which isn't broken?

WORTH READING 

•  Y. Mallikarjun Physical and mechanical properties of rocks before, during and after a quake will be measured What kind of physical and chemical changes take place in the earth's crust during an earthquake? How does the temperature change and will there be some melting of the rock? Answers to such fundamental questions are expected from the results of a unique Rs.300-crore project under which scientists will drill a seven-km deep borehole into an earthquake zone for an on-the-spot measurement of various physical and chemical changes.
•  Under the project — Deep Scientific Drilling into Earthquake zone of Koyna-Warna region (Maharashtra) — seismologists and other scientists from the National Geophysical Research Institute (CSIR-NGRI) plan to establish a deep borehole observatory in the seismically-active intra-plate fault zone in Koyna-Warna region. Former NGRI Director and currently a member of the National Disaster Management Authority (NDMA), Prof. Harsh K. Gupta is the advisor of the project. Continuous monitoring of this borehole at seven-km depth would enable measurement of physical and mechanical properties of rocks, hydrology, temperature and other parameters in the near-field of earthquakes before, during and after their occurrence. “It is expected to lead to a better understanding of the mechanics of earthquake faulting and the physics of reservoir trigger mechanism” said the project leader, 
• Dr. N. Purnachandra Rao. He said the Koyna-Warna deep drill hole would be the first of its kind in the world to directly investigate earthquakes in a stable continental crust, unlike the deep borehole drilled on a plate boundary fault In San Andreas Fault in California. Besides, that was up to a depth of three km, “whereas what we are going to get here is the representative earthquakes of the region within a depth of seven kilometres,” Dr. Rao added. Pointing out that Koyna-Warna region was known for Reservoir Triggered Seismicity (RTS), he said that triggered earthquakes have been occurring regularly in an area of 20 x 30 sq.km ever since the impounding in Koyna reservoir in 1962. While the largest earthquake in that region was of 6.3 magnitude on Richter scale, hundreds of others of varying magnitude have been recorded. “Since there is no other source of seismic activity within 50 km of the Koyna-Warna region, it forms an excellent natural laboratory for earthquake studies,” 
• Dr. Rao said. Explaining the importance of the project, he said so far scientists have been drawing indirect inference from measurements on the surface of the earth. “We have been measuring from the surface and trying to understand what is happening inside. But now we will measure right at the spot.” This would be extremely valuable knowledge for whole world and has the potential to facilitate earthquake forecasts in future. A seismic network of 15 sensors operating in the region for the last six years helped the scientists to precisely locate the area where the earthquakes are occurring. “This would help us to plan the exact location for drilling”, Dr. Rao said. While earthquakes normally occur in the crust down to 35 km depth, the drilling could be done only up to a depth of 12 km with the present technology.
•  Dr. Rao said that most of the earthquakes in that region were occurring within seven km and there was no need to go beyond that depth. Besides, they would be drilling into hard granite rock and the cost of the drilling would go up exponentially as they go down further. “We are not simply drilling up to seven km. It is going to be a permanent observatory and we will be monitoring for several years,” he said. Koyna-Warna region was like a laboratory where earthquakes were constantly occurring within a shallow depth range. 
• “It makes it feasible for drilling and setting up an observatory for earthquake studies,” he added. Dr. Rao said NGRI would be installing seismometers, temperature loggers, strain meters (to measure deformities in the rock) and some instruments to measure physical parameters like density all along the borehole at different depths up to seven km. 
• He observed that in plate boundary zones where the earthquakes were usually extensive and deeper, it would be difficult to pinpoint an area for drilling. In a bid to supplement these studies, a new institute, Seismological Research Laboratory was being established by the Ministry of Earth Sciences at Karad, Maharashtra. It is planned to develop into a centre of excellence in earthquake and related studies.

WORTH READING 

•  Reforms yes, but of the right type N. S. Siddharthan The path to higher growth lies in promoting manufacturing through transparent governance and better infrastructure, not in increasing foreign investment in retail trade, insurance and other service sectors Slowdown in the growth of gross domestic product (GDP), a virtual stagnation in industrial production and the risk of losing investment grade rating by international rating agencies like Standard and Poor's has rattled the government, industry and policymakers. 
• The dominant view — as expressed by influential members of the government and other policymakers — favours the introduction of major liberalisation policies aimed at facilitating the entry of foreign direct investment (FDI) in service sectors like retail trade, insurance, legal and other services as a means of reversing the slowdown. In my opinion, such an approach is flawed. Sustained growth is not possible without a healthy and growing manufacturing sector; attracting FDI in the services sector would at best play only a minor role. Indeed, India's overdependence on the service sector and the neglect of its manufacturing sector is partly responsible for the deceleration in growth. Results from most research studies show that for India, the service sector cannot be the engine for a sustained growth of income and employment. Like China, India should also concentrate on the manufacturing sector, for, in the long run, the growth of the service sector would also depend on the manufacturing base.
•  Real constraints Research studies, by and large, zero in on two sets of constraints that stand in the way of the development of Indian manufacturing sector: physical and government infrastructure. These two are, in a way, related and could reinforce each other. In the last few years, India has not invested sufficiently in physical infrastructure like electricity, roads, ports and railways. This has resulted in huge shortages in electricity supply relative to demand, leading to long hours of load shedding, power holidays and even closure of several manufacturing units. Some of the large enterprises have opted for captive electricity generating plants, resulting in high costs and making their products globally non-competitive. Small and medium enterprises cannot afford captive power units and they are the main victims of power shortage. Likewise investments in roads and railways have been inadequate, hampering the development of the manufacturing sector by increasing the cost of transportation. 
• The presence of corruption and bad governance has made the situation worse. It is common knowledge that only a fraction of the investments on roads and other infrastructure projects actually reach the targeted projects as the leakages are large. This leads to the second set of constraints for manufacturing growth, namely, governance infrastructure. Numerous studies show a strong relationship between good (corruption free) governance and investment climate. In the current globalised investment and trade regime, the same set of variables influences both foreign and domestic investment. At present, faced with 0.1 per cent growth rate in the industrial sector, the government is planning to offer interest rate and fiscal incentives to reduce costs and stimulate investment. In this context, it is important to note that corruption is also like a tax that pushes up the costs — the only difference being the sums collected through bribes do not go to the government but to private individuals. 
• Thus, given the high levels of corruption, merely reducing interest rates might not be effective in making Indian enterprises more competitive. High levels of corruption, in addition to pushing up costs, also adversely affect the quality of investment. It is now fairly well established that corrupt countries mainly receive investments from other corrupt countries, which does not result in technology transfer leading to global competitiveness. Thus, bad governance affects both the quantity and quality of investment. Moreover, even medium sized Indian enterprises are now investing in other countries and import products from their foreign units into India. Last year, the FDI outflow from India was more than 60 per cent of the FDI inflow into India. Newspaper reports indicate that this year FDI outflows from India could be equal to or even exceed FDI inflows into India. Indian enterprises find it difficult to do business in the current Indian environment and prefer to set up units in other countries and import the products into India. Furthermore, while the manufacturing sector dominates Indian investments abroad, foreign investments in India are mainly in the service sector, construction activities and real estate.
•  This alarming situation cannot be reversed without major reforms that target good governance and removal of corruption. Scams and reforms In the last few years, major scams have broken out in resources sectors that are mainly owned by the government — like real estate, mining and ores, and spectrum. Quite a lot of individuals who have obtained government permission to enter and exploit these resource sectors have amassed billions of rupees. In other words, under the existing business environment, the path to amass wealth is not through manufacturing but through exploitation of resources under government ownership. This needs to change. It is alleged that as a result of these scams, decision-making in the government has come to a standstill as bureaucrats are afraid to take decisions. It is strange that officials have been vested with many discretionary powers which they now rightly refuse to exercise. 
• Corruption mainly takes place where important discretionary powers are vested with the decision maker and where rules are not clear-cut and decision making is not transparent. The way out of the mess is to reform the decision-making process by making it transparent and rule-based and by drastically reducing the discretionary powers of officials. So far, despite brave declarations of intent, no serious attempt has been made in this direction of administrative reforms. In addition to administrative reforms, the government should also introduce rules and laws to drastically discourage cash transactions and cash holdings. Corruption cannot be reduced so long as cash transactions dominate. Newspapers frequently report police and income tax raids and the discovery of huge amounts of cash kept at home, offices and lockers. Subsequently, in many instances, the cases are dropped as the individuals succeed in explaining the source of their cash holdings. In this context, it is vital to introduce laws that discourage cash transactions. Drastic situations need drastic remedies. 
• To discourage cash transactions, the government could place a limit on cash transactions. For example the government could declare that any transaction, say, above Rs. 5000 should be a bank or credit card transaction and not a cash transaction. This will bring huge expenditures on items like consumer durables, hotels and resorts under bank transactions and increase accountability. Likewise, the government could place a limit to cash holdings at homes, offices and lockers. The limit could be as low as one or two lakh rupees. 
• To conclude, a high growth rate for the Indian economy cannot be sustained without a vibrant and growing manufacturing sector. A policy aimed at GDP growth based mainly on attracting investment in the services sector will not succeed. Moreover, a thriving manufacturing sector is vital for employment generation. Under these circumstances, reforms should be aimed at good governance, transparent and time bound decision-making, reduction of currency transactions and holdings, and the rule of law.