National Affairs
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January 2011 NATIONAL AFFAIRS RBI’s Mid-Term Policy Review On January 25, 2011, the Reserve Bank of India raised its policy interest rates by a quarter percentage point, squeezing money supply again in the economy in its battle to control price rise. It also upped its inflation forecast, underlining a grim posture. The RBI raised the repo rate, at which it lends to banks, by 25 basis points to 6.5%, while the reverse repo, at which it takes bank funds, rose by the same measure to 5.5%. Such squeezes are aimed at making loans costlier to control demand, and thus, inflation. The RBI kept options open for a further squeeze on rates, even as it maintained that GDP growth would be a strong 8.5% in 2010-11, although it might ease the following year. It revised up the benchmark inflation estimate based on wholesale prices to 7.0% at end- March from 5.5%. “Inflation stemming from structural demand-supply mismatches in several non-cereal food items such as pulses, oil-seeds, eggs, fish, meat and milk is likely to persist till supply response kicks in," said the RBI. Rural job Plan turns five but a lot needs to be done The Mahatma Gandhi National Rural Employment Guarantee Act, UPA’s flagship aam admi scheme, turned five on February 2, 2011. However, more than 30% of the rural India working under the right-to-work act continues to receive wages below the guaranteed minimum as per the minimum wages act. On January 14, the Ministry of Rural Development issued a notification revising the wage rates under the MNREGA from Rs 100 per day to between Rs 117 and Rs 181 (17-30 % hike) in different States. The revision under Section 6(1) of the 2005 Act, coming in wake of inflationary pressures on the poor, adjusts the wages by indexing it to the Consumer Price Index of Agricultural Laborers (CPIAL). Though the Ministry claims the revision takes NREGA wages above the minimum wages in 26 States and Union Territories, analysis shows the other eight States that continue getting less than minimum wages constitute 1.3 crore households or 31% of the total 4.1 crore households provided work till January 31, 2011. The eight include smaller States such as Goa and Mizoram, which have less number of workers under the scheme. But, the States also include the two showpieces under MNREGA—Andhra Pradesh and Rajasthan—that brought in reforms like social audit, post office-bank payments into the mother of all schemes with a budget allocation of Rs 40,100 in 2010-11. Though numerous villages, like Saru in Udaipur district of Rajasthan, have benefited from MNREGA, the average they receive is under Rs 100 a day, forcing many to go in search of work as far as Ahmedabad, Surat where they Rs 200 to Rs 250 per day. Srikrishna panel report The Justice B.N. Srikrishna Committee report was made public on January 6, 2011. It has strongly advocated maintaining united Andhra Pradesh along with creation of statutory Telangana Regional Council to address the core socio-economic concerns of the backward region. “This is the most workable option in the given circumstances and in the best interest of the social and economic welfare of people of all the three regions in the state,” the committee said in its 500-page report. The five-member panel was set up in February 2010 to examine the competing demands for carving out a separate Telangana State and maintaining the status quo. After an elaborate exercise involving interactions with various groups, field visits and examining over 2.50 lakh petitions, the committee presented a set of six options and discussed their pros and cons in great detail. The stress on maintaining unity formed a common thread that ran through the report. On bifurcation, which has been the single point agenda of Telangana protagonists, the Committee said it was the “second best option” but could be recommended “only in case it is unavoidable and if this decision can be reached amicably among all three regions.” However, the committee warned that division of the State would have repercussions in other regions. “If earlier agitations are anything to go by, this decision will give rise to serious and violent agitations in coastal Andhra and Rayalaseema regions where backlash will be immediate, the key issues being Hyderabad and sharing of water and irrigation resources,” the report said. Elaborating further on consequences of splitting the State, the Committee said: “The division will also have serious implications outside AP. It will give fillip to other similar demands. The matter should also be seen in the larger context of whether a region can be allowed to decide for itself what its political status should be, as that would only create a demand for a great number of smaller States resulting in problems of coordination and management.” The panel said: “We are convinced that the development aspect is of utmost importance for the welfare of all the three regions and could best be addressed through a model that includes deeper and more extensive economic and political de-centralisation.” The OPTIONS —Maintaining status quo but allow economic and political de-centralisation. —Bifurcation of the State into Seemandhra and Telangana; with Hyderabad as a Union Territory. The two States will develop their own capitals in due course of time. —Bifurcation into Rayala-Telangana and coastal Andhra regions with Hyderabad being an integral part of Rayala-Telangana. —Bifurcation into Seemandhra and Telangana with enlarged Hyderabad Metropolis as a separate Union Territory. This Union Territory will have geographical linkage and contiguity via Nalgonda district in the south-east to district Guntur in coastal Andhra and via Mahboobnagar district in the south to Kurnool district in Rayalaseema. —Bifurcation into Telangana and Seemandhra as per existing boundaries with Hyderabad as the capital of Telangana and Seemandhra to have a new capital. Historical Timeline —Andhra, Rayalaseema were part of Madras province. —Telangana was part of the Hyderabad State for 400 years. —In 1953, Andhra and Rayalaseema separated from Madras. —In 1956, Andhra merged with Telangana. —1969: Telangana Praja Samiti was formed. —1972: Jai Andhra movement in Rayalaseema and coastal Andhra. —2000: TDP opposes creation of Telangana. —2001: K. Chandrashekhara Rao forms Telangana Rashtra Samiti (TRS). Visit of President of Indonesia History met geography when Indonesian President Susilo Bambang Yudhoyono took the salute as the Chief Guest at India’s 62nd Republic Day parade on January 26, 2011. President Soekarno, whose close friends Jawaharlal Nehru and Biju Patnaik helped defy the Dutch colonial embargoes of the late 1940s that enabled Indonesia gain independence, was the Chief Guest at the founding of the Indian republic, in 1950. President Yudhoyono came to Delhi with a large business delegation and witnessed the signature of a clutch of agreements, including between private enterprises. New investment commitments worth $12 billion were signed, with the Indians looking to put their money in infrastructure projects such as airports, railways and ports. Indian business interest in Indonesia is kindled not only by the fact of its large, 238 million population, and therefore, a large market, but also because it is the gateway to the ASEAN, a region of over 300 million people that spans 10 States from Myanmar to the Philippines. India and Indonesia signed nearly 30 agreements, including an extradition treaty and a mutual legal assistance treaty, and pledged to achieve a bilateral trade target of $ 25 billion by 2015, from about $ 11 billion in 2009-10. The main accords signed by the two sides were: MOU for cooperation in the field of education; MOU on the establishment of biennial trade ministers’ forum; protocol for extension of the MOU on cooperation in marine and fisheries; MOU for the development of urea manufacturing plant in Indonesia; air services agreement; MOU on cooperation in oil and gas; MOU on cooperation in the field of micro, small and medium enterprises; MOU on cooperation in science and technology; and MOU between the Press Council of India and the Press Council of Indonesia. In a joint statement issued after the talks between the Prime Minister and the Indonesian President, the two countries unequivocally condemned terrorism in all its forms and manifestations and stressed that there could be no justification whatsoever for any act of terrorism. In the field of tourism, the two leaders recognized that a quantum leap in tourism between India and Indonesia was desirable to strengthen vibrant and long-standing people-to-people ties. As a step towards this objective, the Prime Minister announced a scheme of granting visa on arrival to the citizens of Indonesia. India, Italy to set-up joint trade panel On January 31, 2011, India and Italy decided to set up a Joint Business Council (JBC), a bilateral trade cooperation body, to work together in areas like ICT, infrastructure and manufacturing. The decision was taken during the meeting of India’s Commerce and Industry Minister Anand Sharma and Italian Minister for Economic Development Paolo Romani, in Rome. The JBC will be managed by FICCI from the Indian side and by CONFINDUSTRIA from the Italian side. It will meet once a year, coinciding with the bilateral ministerial meeting. The two ministers also discussed the importance of SMEs and it was agreed that soon industry chambers of both the countries would organise workshops and seminars. Seeking closer cooperation in infrastructure sector, Sharma informed Romani that India would soon come out with a manufacturing policy aimed at increasing the contribution of manufacturing to 24 per cent of the GDP, from 16 per cent now.