The NREGS is taking serious proportions...

...according to this article in the Financial Express. Some of the interesting points from the article are:

• Expenditure on the NREG has gone up from Rs 12,074 crore in 2006-07 to Rs 19,279 crore in 2007-08, and further to Rs 36,153 crore in 2008-09.
  

• There were 2.12 crore households demanding employment in 2006-07. The numbers rose to 3.43 crore in 2007-08 and to 4.52 crore in 2008-09.
  

• Total person days of employment created have shot up from 90 crore in the first year to 144 crore in the second, and 339 crore in the third.

I think the above are serious numbers and maybe they had a significant impact on the results of the just concluded General Elections. In 2004, when the NDA ran its India Shining campaign, a large part of that shine was confined to urban areas, leaving the rural folks wondering whether they really lived in such a shining India? The result of which was there for us to see...NDA lost heavily despite almost everyone on the street predicting a win for the NDA.

Fast forward to 2009 and I think we have a repeat, although the shining and the non-shining parts seem to have switched corners. It's the rural India that is really shining today. Multiple years of decent precipitation, substantial increase in MSPs, debt loan waiver and now this super cool NREGS (which in fact in my view is the second best thing to have happened to our country since the Right to Information Act!). This is because, it is a well known fact that most of the small and marginal farmers or farm labourers are hugely underpaid in India. Till the NREGS came to existence, most of such farmers workers were paid in the range of Rs.40-60 per day! Imagine, any of us living in this part of the world earning that kind of a salary and compare it with the kind of work & effort being undertaken in return? It's a joke really. However, with NREGS, the government in one shot has more than doubled the average remuneration paid to farm workers to above Rs.100 per day. Now because the government offers atleast Rs.100 per day, private employers have to offer more than that to attract workers. And they are doing exactly that; in some parts of the country, private employers are now offering Rs.120-130 per day plus food to hire contract farmers/labourers. It a significant change, and a good one!

Banks take the hit, say both Chidrambram and Bernanke

Ben Bernanke, the Fed Chairman, made a surprising statement the other day. It reads something like this -

"In my view, we could also reduce preventable foreclosures if investors acting in their own self interests were to permit servicers to write down the mortgage liabilities of borrowers by accepting a short payoff in appropriate circumstances . For example, servicers could accept a principal writedown by an amount at least sufficient to allow the borrower to refinance into a new loan from another source. A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default. This arrangement might include a feature that allows the original investors to share in any future appreciation, as recently suggested, for example, by the Office of Thrift Supervision. Servicers could also benefit from greater use of short payoffs, as this approach would simplify the calculation of expected losses and eliminate the future costs and risks of retaining the troubled mortgage in the pool."

Source: [http://bigpicture.typepad.com]
Link to the original article [click here]

This sounds so similar to what Mr.Chidambaram proposed in his Budget Speech for 2008-09. However, in this case, unlike the US, it is the taxpayers money that will be used to make good bank's losses.

The point really is - Are we setting poor precedents, when it comes to public borrowing?

While on this topic you may want to read two insightful articles by Dr.Ajay Shah [link] and Andy Mukherjee [link].

Readings: Do Capital Controls Work? by ILa Patnaik

ILa Patnaik has an insightful article on Capital Flows in India. The article appeared in the Indian Express on 8th Jan, 2008.

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India has witnessed a capital surge in recent months. Even though there was a reversal of reforms on several fronts with the re-introduction of capital controls, there was a $17.4 billion increase in net capital flows in the Jul-Sep quarter when compared with the previous one. India is too integrated into the world economy, today, for capital controls to be brought back.

The latest quarterly balance of payment data released by the Reserve Bank of India shows that the country saw a surge in capital inflows in the period July to September 2007. Net capital flows in a single quarter of USD 34 blllion dollars has been unprecedented in the history of India. This figure was nearly 4 times that of the rather meek USD 8.7 billion that came into India in the same quarter last year. The flows in July-Sept 2007 were more than double the USD 16.5 billion the amount that came into India in the previous quarter, April- June 2007. What is equally striking is that this surge in capital was not caused by a sudden change in policy to open up to inflows. No, indeed, it was the opposite. It was witnessed when India had started moving towards restricting capital inflows such as the restrictions on ECB flows.

Read the entire article here.