Important News of the week

The government has decided to hike the prices of diesel by Rs. 5 and capped the limit of then number of unsubsidized LPG cylinders to 6 per household. This would push up the price in New Delhi to Rs. 47 per ltr for diesel and 750 per cylinder for LPG. It has also decreased the Excise duty on petrol by Rs. 5.30 but this benefit is not being passed on to the consumers. This decision has come after increasing demands for the same by the oil marketing companies whose under-recovery would be reduced by 20,300 crore.

Just after the outcry over the hike in fuel prices, the government has come up with another politically and socially controversial policy of allowing 51% FDI in multi brand retail, though 30% of its supplies have to be sourced from MSMEs. It has also allowed a 100% limit in single brand retail, 74% in broadcasting, 49% in Power Exchanges and 49% in domestic aviation. This slew of reforms has come after a long struggle for the government to balance between the demands of the industry and those of the people and the other political parties. And it is finally the industries which prevail.

After politically turbulent week where Mamata Banerjee withdrew support from the government, Finance Minister P. Chidambaram has come up with even more reforms, this time in the form of tax reliefs. After the partial non subsidization of LPG, import and excise duty on it have been waived. This has resulted in a 30-40 rupee decline in the prices. The withholding tax on foreign currency borrowings has also been lowered to 5% from 20% with a view of lowering the borrowing cost by up to 70 basis points.  The government has also allowed a deduction of up to Rs. 25,000 from taxable income for the first time investor into mutual funds and exchange trade funds, undaer the Rajiv Gandhi Equity Saving Scheme.

"BRICS vs G5" New Delhi 2012 Summit: Creation of a New Economic World Order

IMT-H organised it’s first mock global summit titled “Creation of a new economic world order”. The event started with summit co-ordinators briefing about the flow of the summit. Then each side was invited to the podium to present their agenda to the audience.

Agenda presented by BRICS (represented by the Indian Prime Minister)

·         Multilateral Institutional reforms i.e. in WB, IMF, etc

The countries called for a review of the current representation in the international institutions and enhance the voice and representation of emerging market and developing countries, including the top level posts in these institutions, by selecting through an open and merit-based process.

·         Free trade agreements

To promote free trade, even in other developing economies like that of Middle East nations; also for the development of those areas.

Issues raised by G5 (represented by the French President):

·        Energy crisis in BRICS countries

Being the emerging economies, BRICS nations are harming the environment in order to meet the demands of energy for the production rate in order to develop their economy. 

·        Political and social instability

Lack of proper structure and administration, occurrence of crisis has made the nations unstable. 

·        Lack of openness in economy 

There is very little freedom in the economies with regards to doing business. 

·        Asymmetric intra-BRICS trade

There are no proper trade tie-ups between the nations themselves, which need to be fixed or channeled first before demanding for free trade agreements. 

·        No sense of geographical unity

The location of the nations is too diverse to actually have a sense of unity for a common cause.

The summit was then open to the house for a healthy discussion over the various issues of the summit. A lot of key points regarding the qualifications to the participation to the global institutions, the law structure in BRICS nations regarding trade, participation of the BRICS nations in global GDP, the erratic bi-lateral trade ties among the BRICS nations, etc. were brought forward.

Later the house was open to the audience, where in the G5 was questioned about the social instability, unemployment issues and the high national debts prevailing in the G5 nations, the non-compliance to the global environmental norms by G5 nations, etc. BRICS nations were asked about the rate at which they are implementing the various laws to make their states stable, and the substantial contribution towards global development, etc.

Meanwhile, the various institutions present in the summit viz. World Bank, IMF, ECB and WTO, pitched in clarifying the various issues between the two sides. They accepted the contributions of the BRICS and graciously applauded their willingness to participate in decision making but reiterated that it can’t be done overnight and over the years, the inclusion of emerging nations in decision making would definitely be considered.

Finally, the summit was concluded by the Indian Prime Minister, who on a hopeful note stated that it is for an even development of all the nations and they are concerned about it, they also look forward towards proper steps by the global leaders and institutes in this respect.

Country/Institution heads’ role enacted by:

BRICS:

Brazil-Siddharth Jaiswal

Russia-Manish Bhalla

India-Nidhi Yadav

China-Rishav Jindal

South Africa-Prateek Gupta

G5:

Japan: Aakansha Mintri 

Germany: Amrutha Ghali

USA: Akshay Bhandari

UK: Gaurav Surana

France: Vineet Kulria

Institutions:

World Bank: Udit Luthur

IMF: Indu Makhija

European Central Bank: Vaibhav Chabbra

WTO: Lokesh Sikhwal

Contributed by Prateek Mukherji

India's Need For Research

Languishing at yet another bottom of the pyramid, India is ranked 119^th in the world for the significance of the research papers published by its top Institutes, according to the Science Citation Index. This acute lack of research is essentially because of the lack of funds available. The annual research budget of USA and China is US$250 and US$60 billion respectively compared to India’s special US$1 billion “Inclusive Innovation Fund” announcement this year. According to the Organization for Economic Co-Operation and Development(OECD) data India has a mere 119 researchers per million of its population, compared to 1,564 in China, 2,706 in the UK, 4,605 in the US and 6,807 in Iceland. Even in terms of the number of researchers per 1,000 employed personnel, India with 24 researchers ranks below China (115), Japan (131), the European Union (231) and the US (324).

In the World Universities Ranking by Thomson Reuters and Times Higher Education, the only Indian university to feature in the top 400 is IIT Bombay on the 317^th place(which is outside the top 50 for engineering and Technology). To be fair to them, their annual research budget is 100 times lesser than that of Massachusetts Institute of Technology (MIT).

The implications of this grim scenario on Business are serious. Status Quo and the world may no longer be flat. If the constant need for upgradation is not met then apart from the established businesses losing share to their global counterparts, the new entrepreneurs will find it harder to absorb the cost of foreign technology against the opportunity cost of the underdeveloped indigenous ones. In the short run it seems cheaper to outsource technology from the recession affected west and fundamentally inexpensive China against establishing fully functioning active Research and development (R&D) divisions in Universities, Government owned facilities and small businesses, but it increases the foreign dependence of the nation. With the economic improvement of the western world in the long run there will be a restoration of bargaining power and will also lead to worsening of balance of payment deficits. India is already the largest importer of defense equipment.

The only respite is the interest shown by the MNCs to innovate, reflected in the substantial increase in the FDI inflow for R&D which was US$4 billion in 2010. The number of research divisions has gone upto 750 from 40 in the last decade. Companies like Yahoo have started offering five times the salary to a research scholar than what IITs and IISC offer. HP Labs is offering doctoral programs in collaboration with BITS Pilani for its R&D scholars. Initiatives like the development of Swach Water Filter by Tata Chemicals in collaboration with MIT, which is 50% more cost effective than its nearest rival, need to be replicated far more frequently.

But the government needs to pull up its socks if the country wants to become a self sustainable economy and strive towards achieving Dr. APJ Abdul Kalam’s vision 2020. The ‘Research Culture’ also needs to be developed so that there is an increase the number of the ‘Masters’ minds that move up to the PhD level and add to the intellectual capital of the country.