Legalizing betting: Morality over-powering economic gains?

I remember betting with my sister on small small things. As trivial as who will reach home first from tuition classes, who will beat whom in the game of chess, to whom does mummy loves more, etc. The winner’s take away use to be a Kismi-toffee bar or a Dairy Milk or a Fruit and Nut. Mostly we ended up sharing the chocolates 50-50 percent, that too with a fight on who got a little bigger! Small things are so beautiful! But as the stake increases, the gravity of situation gets compounded.

In the on-going IPL saga revolving around Mr. Lalit Modi and the allegations put on him, some where it was mentioned that he was also involved in betting matches and tarnishing the face of cricket further. And then I thought why isn’t betting legalized in India? And then I thought why should it be legalized, in the first place? Does it exist (legally)? O yes! It does! We have legalized betting in horse races, gambling in casinos and can easily find lotteries up for sale outside temples and in busy markets, especially during festival times.

Gambling/ betting is defined as wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. Typically the span of time between speculation and outcome is very short.

In developed countries like US gambling is legalised but not all forms and with heavy restrictions. In the year 2006, gaming activities itself generated gross revenues of $90.93 billion. In states like Nevada, casino is legalized but with heavy state restrictions. Both state and local governments impose licensing and zoning restrictions. Economy of Las Vegas is thriving predominantly on the gaming and tourism business. The story is no different in Louisiana, Illinois, Detroit, New York, California and many other places and countries. But the system is so efficient that if try to dig, we wont find a politician or a state minister holding stake in the business illegally. The policing is very strong and efficient.

In India gambling and bookmaking is not legal per say. Few exceptions are there like limited number of casinos is allowed to operate in Goa and Sikkim. Betting in horse racing is legal and can easily be witnessed in Mumbai and Pune circuit. Pretext for legalizing it was horse racing involves skills and isn’t mere speculation. In the 1970s and 1980s, Mumbai saw Matka gambling a form of gambling until police broke down the illegally operating establishment in 1990s. Lotteries are legalized but are controlled by the state or central government.

I think betting should not be legalized. It is like a short cut route for making big money. Since the demography of India comprises youth in majority, legalizing might paralyze the “working psyche” of the country. When we are young we believe we can do any and everything. Sky is the limit and barriers are just like commas and not full stops. Such confidence will back fire in the game of speculation. We Indians are proud of its rapidly growing middle class. The growth is majorly because of the hard working nature and ability to set targets and achieve them. Betting, where entry barrier is least, can challenge the foundation of our strong economy. No doubt it will churn huge amount of money for the government and such money can be used for the infrastructural growth. But it is not worth having a developed nation with paralyzed future.

fOoD fOr ThOuGhT: Considering the fact that the demography of India is dominated by young and working class people, legalising can cripple the economy. 'Hard working' psyche might get replaced by 'making shortcut' psyche. In the long run, it would prove more of  a hazard rather than any positive for the society.

The dancing elephant needs support for some more time!

The global recession which started hitting countries from Oct 2008, was a blessing in disguise for the Indian corporates. The world started looking India from different angle. The traditionally conservative banking system was appreciated world over. The regulators shared limelight like never before. It was difficult time but, it brought a lifetime opportunity for Indian behemoths. They became more cautious. They started cutting on cost, deferring capital expenditure, realigning their business and consolidating their operations.

The Indian government provided stimulus package in installments. Rate cuts, plan -unplan expenditure of $60Bn, cut in central VAT, incentives to export industries, refund of service tax paid by exporters to foreign agents, Incentives for loans on housing, Limits under the credit guarantee scheme for small enterprises doubled, Export duty on iron ore fines eliminated, Export duty on lumps for steel industry reduced to five percent.

Largely speaking, Indian economy was never hit by recession. We never neeeded a stimulus package of any sort. But the aggressive move by the government ensured that the interest of SMEs is maintained. The exporters are not hurt significantly due to falling demand and delay in payments. Withdrawal of funds by FII also created a credit crunch situation. India clocked a growth of 6%-7% in the midst of adversity around the world. This was possible due to strong and growing rural demand. The consumer spending has been increasing on month-on-month basis.

No doubt the booster hasnt come for free. The fiscal deficit is close to 12% of GDP. Rate cuts and incentives to boost growth has resulted in inflation. Government has to play a balancing act between maintaining growth and containing the inflation. But, if the stimulus package is rolled back now, it would create a recession like situation in India. Infrastructure projects worth billions are underway. They need extended incentives. Large projects might get delayed and cause cost overruns. Various sectors are still in consolidation phase. The results declared are volatile. Industries are yet to experience stability.

fOoD fOr ThOuGhT: The dancing elephant needs stimulus support till 2nd quarter of the FY2010-11. We are targetting a growth of 8%+ now. So if roll back is done in phased manner, we will have our average growth of 6.5% without hurting any industry. Untimely removal of ladder might enforce few to fall.

Economic recession - Longish this time!!!

All indications are that the current global economic crisis is the worst since the Great Depression of the 1930s, in terms of geographical spread, intensity and duration. No country is spared, although some countries will feel the heat more than some others. Open economies with small domestic markets, in particular, seem most vulnerable.Growth forecasts for the world economy this year range between 0.5% and 0.9%. Many individual country GDP (gross domestic product) forecasts are negative. Economies already slipping into recession include the United States, Britain, Euro-zone members, Russia, Japan, South Korea, Taiwan, New Zealand and Singapore.One cannot rule out the possibility of these dismal numbers being revised further down before long, as the crisis is still unfolding. The worst is yet to come. Worse still, there are no quick fixes for the global slump, which means that this crisis will stick around stubbornly longer than most.

One explanation for this frightening prognosis is that this crisis does not represent a purely cyclical phenomenon of the usual boom-bust roller coaster variety, where ups and downs are dramatically swift. This crisis has been brewing for a long time unnoticed by analysts who were focused on short-term fluctuations.Serious fault lines have developed in the world economy over the years, with severe imbalances of sorts between savings and investment, production and consumption, revenue and expenditure, as manifested in widening current account imbalances and growing budget deficits, not to mention unstable exchange rates, interest rates, and asset prices.This crisis is a combination of both cyclical and structural problems. The latter require painful microsurgery, including major institutional reforms, which take time, quite unlike macroeconomic countercyclical interventions. What’s more, studies have shown that economic crises preceded by financial crises tend to drag on and on. The task for policymakers in such tough circumstances is daunting. Even the relatively easier macroeconomic policy interventions are not going to be that easy, as policymakers have fewer options.The three tools used during economic meltdowns are monetary, fiscal and exchange rate instruments to stimulate a faltering economy.

For the monetary policy, the central bank reduces interest rates and relaxes statutory reserve requirements so that banks can lend more, resulting in increased consumer spending and investment expenditure, augmenting economic growth.

Fiscally, the treasury reduces taxes and increases public expenditure at the risk of budget deficits, not only to increase the disposable income of the people so that they will spend more, but also to pump-prime the economy through increased government expenditure that will take up the private sector slack.

An appropriate foreign exchange rate policy in such circumstances will be to opt for a weaker currency, as this renders exports competitive and divert domestic demand away from imports to local substitutes.

Unfortunately, the reality on the ground now in most countries, especially the US, is that all three instruments are somewhat blunt. Interest rates are already close to zero in Japan and the US, while in many other countries, they hover at historically low levels.Interest-rate cuts will work only if rates are high to begin with and the cuts are substantial. Given near-zero interest rates, further rate cuts can only be marginal, with little impact, for nominal interest rates cannot fall below zero.In the US, real interest rates are negative, given the higher rate of inflation relative to the nominal interest rate. In a recession, inflation tends to give way to deflation, with falling prices, in which case the interest rate will rise in real terms by becoming less negative than previously, thereby raising the cost of borrowing.

In other words, the result will be the opposite of what monetary easing is supposed to accomplish.The picture is quite similar for fiscal instruments as well. Many countries, including Japan, India, Malaysia and the US, have been running large budget deficits even in good times year after year. Increased budget deficit through tax reductions and/or expenditure hikes, in such cases, may only have limited impact due to fiscal fatigue. A budget deficit of, say, 5% of GDP will have significant impact in an economy with a balanced budget, but not for an economy with a deficit of four per cent of GDP.Where monetary and fiscal measures do not work well, the foreign exchange rate mechanism can help if there are no constraints on exchange rate changes. Thus, an exchange rate devaluation or depreciation will increase demand for a country’s products at home and abroad by making exports cheaper and imports dearer.In theory, a country’s currency will depreciate in the wake of an economic slump, but this is not the case with the US dollar, which has been strengthening in recent times. The dollar is able to stay strong, despite US economic woes, thanks mainly to massive capital inflows into the country, as the US continues to borrow, with others wanting to keep the dollar strong so that they can continue to export to the US and at the same time protect their reserves from a possible collapse of the greenback.No way can the US economy recover rapidly so long as its currency remains unrealistically strong. The dollar will have to depreciate significantly for the US to produce more for exports and to divert its insatiable demand towards American products.Thus, exchange-rate corrections are needed, not only to reduce the US current account deficits but also to stimulate domestic production for both external and internal consumption. This is unlikely to happen anytime soon, however, given the global addiction to the greenback, and hence the failure of the exchange rate instrument.

With all three major policy tools- monetary, fiscal and exchange rates-under heavy sedation, the chances of a quick recovery are quite slim. The writing on the wall suggests the crisis will stick around for at least two years, if not longer.

How China sees the world!!!

And how the world should see China

IT IS an ill wind that blows no one any good. For many in China even the buffeting by the gale that has hit the global economy has a bracing message. The rise of China over the past three decades has been astonishing. But it has lacked the one feature it needed fully to satisfy the ultranationalist fringe: an accompanying decline of the West. Now capitalism is in a funk in its heartlands. Europe and Japan, embroiled in the deepest post-war recession, are barely worth consideration as rivals. America, the superpower, has passed its peak. Although in public China’s leaders eschew triumphalism, there is a sense in Beijing that the reassertion of the Middle Kingdom’s global ascendancy is at hand.

China’s prime minister, Wen Jiabao, no longer sticks to the script that China is a humble player in world affairs that wants to focus on its own economic development. He talks of China as a “great power” and worries about America’s profligate spending endangering his $1 trillion nest egg there. Incautious remarks by the new American treasury secretary about China manipulating its currency were dismissed as ridiculous; a duly penitent Hillary Clinton was welcomed in Beijing, but as an equal. This month saw an apparent attempt to engineer a low-level naval confrontation with an American spy ship in the South China Sea. Yet at least the Americans get noticed. Europe, that speck on the horizon, is ignored: an EU summit was cancelled and France is still blacklisted because Nicolas Sarkozy dared to meet the Dalai Lama.

Already a big idea has spread far beyond China: that geopolitics is now a bipolar affair, with America and China the only two that matter. Thus in London next month the real business will not be the G20 meeting but the “G2” summit between Presidents Barack Obama and Hu Jintao. This not only worries the Europeans, who, having got rid of George Bush’s unipolar politics, have no wish to see it replaced by a Pacific duopoly, and the Japanese, who have long been paranoid about their rivals in Asia. It also seems to be having an effect in Washington, where Congress’s fascination with America’s nearest rival risks acquiring a protectionist edge.

Reds under the bed

Before panic spreads, it is worth noting that China’s new assertiveness reflects weakness as well as strength. This remains a poor country facing, in Mr Wen’s words, its most difficult year of the new century. The latest wild guess at how many jobs have already been lost—20m—hints at the scale of the problem. The World Bank has cut its forecast for China’s growth this year to 6.5%. That is robust compared with almost anywhere else, but to many Chinese, used to double-digit rates, it will feel like a recession. Already there are tens of thousands of protests each year: from those robbed of their land for development; from laid-off workers; from those suffering the side-effects of environmental despoliation. Even if China magically achieves its official 8% target, the grievances will worsen.

Far from oozing self-confidence, China is witnessing a fierce debate both about its economic system and the sort of great power it wants to be—and it is a debate the government does not like. This year the regime curtailed even the perfunctory annual meeting of its parliament, the National People’s Congress (NPC), preferring to confine discussion to back-rooms and obscure internet forums. Liberals calling for greater openness are being dealt with in the time-honoured repressive fashion. But China’s leaders also face rumblings of discontent from leftist nationalists, who see the downturn as a chance to halt market-oriented reforms at home, and for China to assert itself more stridently abroad. An angry China can veer into xenophobia, but not all the nationalist left’s causes are so dangerous: one is for the better public services and social-safety net the country sorely needs.

So China is in a more precarious situation than many Westerners think. The world is not bipolar and may never become so. The EU, for all its faults, is the world’s biggest economy. India’s population will overtake China’s. But that does not obscure the fact that China’s relative power is plainly growing—and both the West and China itself need to adjust to this.

For Mr Obama, this means pulling off a difficult balancing act. In the longer term, if he has not managed to seduce China (and for that matter India and Brazil) more firmly into the liberal multilateral system by the time he leaves office, then historians may judge him a failure. In the short term he needs to hold China to its promises and to scold it for its lapses: Mrs Clinton should have taken it to task over Tibet and human rights when she was there. The Bush administration made much of the idea of welcoming China as a “responsible stakeholder” in the international system. The G20 is a chance to give China a bigger stake in global decision-making than was available in the small clubs of the G7 and G8. But it is also a chance for China to show it can exercise its new influence responsibly.

The bill for the great Chinese takeaway

China’s record as a citizen of the world is strikingly threadbare. On a host of issues from Iran to Sudan, it has used its main geopolitical asset, its permanent seat on the United Nations Security Council, to obstruct progress, hiding behind the excuse that it does not want to intervene in other countries’ affairs. That, sadly, will take time to change. But on the more immediate issue at hand, the world economy, there is room for action.

Over the past quarter-century no country has gained more from globalisation than China. Hundreds of millions of its people have been dragged out of subsistence into the middle class. China has been a grumpy taker in this process. It helped derail the latest round of world trade talks. The G20 meeting offers it a chance to show a change of heart. In particular, it is being asked to bolster the IMF’s resources so that the fund can rescue crisis-hit countries in places like eastern Europe. Some in Beijing would prefer to ignore the IMF, since it might help ex-communist countries that have developed “an anti-China mentality”. Rising above such cavilling and paying up would be a small step in itself. But it would be a sign that the Middle Kingdom has understood what it is to be a great power.

From The Economist print edition

Indian Economy on slow track...

India's economy grew at the slowest rate in almost six years, 5.3% in the quarter ended Dec. 31 2008, signaling the global downturn's impact even in a nation less dependent on exports than others in Asia. Gross domestic product grew 8.9% in the same period the year before and 7.6% in the previous quarter, according to the Central Statistical Organization.

Some of the key issues the economy is facing are:

• Recessions in key export markets such as the U.S. and Europe have prompted Indian exporters to cut production and lay off workers.
• Manufacturing output dropped to 0.2%.
• Capital inflows have all but dried up as risk-averse investors shun emerging markets.
• Drop in farm production.
• Indian rupee weakening on daily basis now.
• Liquidity crunch is affecting infrastructure and capital intensive projects.
• Country's debts are swelling, that might affect the investment grades of the country.
• Scheduled elections.

All these issues on a short term seems to be towering on growth meter. My view is economy will be back on track only in the year 2013. It might improve by 2010 but the boom would be witnessed only by the end of fiscal 2013.

The US Sub prime - In graphics

The US sub-prime mortgage crisis has lead to plunging property prices, a slowdown in the US economy, and billions in losses by banks. It stems from a fundamental change in the way mortgages are funded.
THE NEW MODEL OF MORTGAGE LENDING

Traditionally, banks have financed their mortgage lending through the deposits they receive from their customers. This has limited the amount of mortgage lending they could do.
In recent years, banks have moved to a new model where they sell on the mortgages to the bond markets. This has made it much easier to fund additional borrowing. But it has also led to abuses as banks no longer have the incentive to check carefully the mortgages they issue.

Defence Pensions : Worrying Signs

The total strength of the defence employees has risen from nearly 362,000 in 1960 to 1.3 million today. The defence pensions bill, which is over 50 percent of the central government’s pensions bill, has also risen exponentially since the 1960s. It has grown nearly tenfold from Rs. 1670 Crore in 1990-91 to Rs. 15,244 Crore in 2007-08; and is currently over two-thirds of the military salary expenses. The subterfuge of removing defence pensions expenditure from the overall military expenditure, in vogue since 1985, has turned the spotlight away from this issue.

More than three percent of defence employees retire every year. The bulk of this group is of soldiers, who constitute 85 percent of the defence forces. There is an average in-service death rate of 1.2 percent for the defence employees, largely due to counterinsurgency operations. Early induction age and early retirement age implies a younger age cohort for 90 percent of the defence employees compared to their civilian counterparts.
Due to early retirement, the defence employees do not fulfill the government criteria of 33 years service to earn a full pension. This ought to reduce the defence pensions bill significantly. However, the high ratio of 1.68 defence pensioners per defence employee implies an extended period of pension payments, which offsets the lower rates of defence pensions. The other civil departments, incidentally, have a ratio of 0.55 pensioners per employee.
Moreover, Indian population above 60 years of age is growing at a rapid pace, at an annual growth rate of 3.8 percent per annum in the period 1991-2001, as against the annual growth rate of 1.8% for the general population. The improved health care and increased life expectancy will skew the pensioners to employees ratio even further.

The recommendations of the Sixth Pay Commission are likely to push the defence pensions bill further northwards, if the example of Fifth Pay Commission is anything to go by. The implementation of Fifth Pay Commission recommendations had led to an increase in the defence pensions bill from 4947 Crore in 1997-98 to 10770 Crore in 2000-01.

It is believed that the defence pension bill has the potential to reach an unsustainable level, and perhaps even exceed the wage bill. This is borne out by the recent trends and is indicated by realistic assessment of such liabilities in the future years. The government has decided against introducing pension reforms in the defence services.

There is an immediate need to reduce the defence pension bill, which will otherwise continue to be a big drain on the national exchequer. This can be achieved by reducing the minimum military service requirements, pushing for early retirements with lateral absorption schemes and identifying a new model for defence pension reforms. These are desirable not only on the grounds of fiscal prudence and equity, but also to keep the military lean and young.

Economics and US Presidential Candidates

As the US enters recession, I believe it has already, and I would be substantiating it in my subsequent posts, and as the US elections campaigning is charging up, I see a contrasting difference between how elections are fought in India and in US. Though as US is a developed country the political parties never have roti, kapda or makaan on their agenda. Surely, they do not have to promise such basic necessities to their citizens.
In India, elections are mostly fought luring voters by giving them liquor, money or increasing quotas to gain minority vote banks. You see different shades in different region in India. In recent past, you get to hear 'India shining' as the buzz word. Infrastructure Development is the fresh dish on the menu in Indian political scenario. Increased corporate support, encouraging entrepreneurs, favorable policies can be seen as trump cards now. With elections coming in 2009, surely all parties are gearing up.
On the contrary, in US you can see candidates promising high speed internets, cut in power bills and heat bills or even support to families that are finding difficult to pay their obligations.

I read an article which asked the candidates about their understanding of ‘Economics’. It’s a surprise that they are so blind about the issue. This is because Americans focus more on trying to divine the candidates’ characters by scrutinizing their tone of voice and facial expressions. Let’s see what some of the candidates feel about their economic policy.

John McCain admitts that economics isn’t his thing. “The issue of economics is not something I’ve understood as well as I should,” he says. “I’ve got Greenspan’s book.”
Alan Greenspan is the same person who refused to regulate the subprime lending.

Rudy Giuliani's answer to the economy’s short-run problems is a huge permanent tax cut, which he claims would pay for itself. Surely, he wants the entire American to get broke.

Mike Huckabee — well, what can you say about a candidate who talks populist while proposing to raise taxes on the middle class and cut them for the rich?

According to Mitt Romney, Republican, low taxes and a pro-business environment is what he feels would solve the problem. Safe bet isn’t that. But in the long run US economy would never be able to recover if his proposals are accepted.

John Edwards, Democratic Party, proposed aid to unemployed workers, aid to cash-strapped state and local governments, public investment in alternative energy, and other measures.

Hillary Clinton offered a broadly similar but somewhat larger proposal.

Mr. Obama seems to be very confused. Initially proposing for tax cut, as a measure for recession then came out with offerings similar to that of democrats.

Its fun to know what the “going to be president” of largest economy feels about economy. It would have been a better article if I would have discussed about their tone, facial expressions, their hair style or clothes.