Daily News Mail - News of 03/03/2015

RBI and government inked pact to set inflation target of 4%

On 20 February, 2015, RBI and Center have signed Monetary Policy Framework Agrrement under which following shall be the target:

• The Reserve Bank will aim to bring inflation below 6% by January 2016.
• The target for financial year 2016-17 and all subsequent years shall be 4% with a band of +/- 2%.

The bank will have to explain to the government the causes, and what steps it intends to take to steer inflation back within a given time if it misses the target.

• The Consumer Price Index (CPI) based inflation rose to a 5.11% in January, from 4.28% in December. This takes into account the change in base year for measuring inflation to 2012 from 2010.
• The Agreement, in line with the recommendations of the RBI’s Urjit Patel committee, will smoothen the monetary policy scene. It will provide a predictable policy stance on inflation, helping investors, especially in the debt market.

Consumer Price Index : 

• The CPI (base year - 2012 (revised in January 2015)) shows the change in prices of a standard package of goods and services which Indian households purchase for consumption. 
• These indices will be available for five major group: 1. Food, beverages and tobacco(weight - 49.71%); 2. Fuel and Light; 3. Housing(weight - 9.77%); 4. Cloth, bedding and footwear (weight - 4.73%); 5. Miscellaneous (services like education, medical care, personal care, transport & communication) (weight - 26.31%).

Factors that cause inflation:

• Increase in demand for goods and services.
• Decrease in supply of goods and services, cases happen for industrial disputes, shortage of factor of production, natural calamities and hoarding of goods.
• When government increases public expenditure then the purchasing power of households increases and hence inflation increases.
• Increase in private expenditure: when the market is favourable for private expenditure then many businessman and entrepreneur venture their capital to set up business or company and this leads to increase the cost of factor of production - rents, wages, labours and interest, and commodities like fabrics and food grains. Hence income of production increases and this leads to rise in the cost of products 
• Increase in consumer spending
• Reduction in taxation
• Repayment of past internal debts : when government pays its past internal debts to the public, it transfer money to the public. This transfer increases the purchasing power of the public and hence demands for goods and services increases.
• Increase in population: if population increase, the requirements for goods and services will also increase.
• Increase in exports: export creates shortage of the good for home consumption.
• Deficit financing: Deficit is a condition where we spent more than our earnings. The Deficit financing of budget is when the expenditure is more than earning for the current fiscal year. This deficit is balanced by using the cash balances of RBI or by taking loans. This leads to increase in supply of money, thereby raises the demand for goods and services.

Jagmohan Dalmiya is the new President of BCCI

• Jagmohan Dalmiya was elected unopposed president of the Board of Control for Cricket in India at its annual general meeting.
•  The 74-year-old former BCCI and ICC president said, “It’s a victory for the cleansing of cricket.” Mr. Dalmiya had been backed by N. Srinivasan, former president.

Jagmohan Dalmiya

Iraq launches major assault to retake Tikrit from Islamic State

• A Mosul preview(an opportunity to view something before it is acquired or becomes generally available) : Iraq Government Launches Attack on Tikrit.
• A force of 30,000 Sunni and Shi‘ite fighters, both soldiers and militia, launched a large-scale offensive on 2 March, 2015 to push the Islamic State of Iraq and Greater Syria out of Tikrit, Saddam Hussein’s hometown.
• Eighty miles northwest of Baghdad, Tikrit could serve as a model for the coming — and much bigger — battle to retake Mosul. ISIS seized Iraq’s second largest city, as well as Tikrit, last summer(in June) in a humiliating defeat for the U.S.-trained Iraqi forces.
• Whether a person is a Shia or a Sunni Muslim in Iraq can now be, quite literally, a matter of life and death. As the militant group the Islamic State in Iraq and Syria, or ISIS, has seized vast territories in western and northern Iraq, there have been frequent accounts of fighters' capturing groups of people and releasing the Sunnis while the Shias are singled out for execution. 
• ISIS believes that the Shias are apostates(a person who renounces a religious or political belief or principle) and must die in order to forge a pure form of Islam. The two main branches of Islam diverge in their beliefs over who is the true inheritor of the mantle of the Prophet Muhammad. The Shias believe that Islam was transmitted through the household of the Prophet Muhammad. Shi'a is the short form of the historic phrase Shīʻatu ʻAlī (شيعة علي) meaning "followers", "faction" or "party" of Muhammad's son-in-law and cousin Ali, whom the Shia believe to be Muhammad's successor in the Caliphate. Sunnis believe that it comes down through followers of the Prophet Muhammad who, they say, are his chosen people. Sunnī (Classical Arabic: سُنِّي /ˈsunniː/) also commonly referred to as Sunnīism is a broad term derived from sunnah (سُنَّة /ˈsunna/, plural سُنَن sunan /ˈsunan/) meaning "habit", "usual practice",[6] "custom", "tradition". The Muslim usage of this term refers to the sayings and living habits of the prophet Muhammad. Sunni Islam is the world's second largest religious body (after Christianity). As of 2009 Shia Muslims constituted 10-13% of the world's Muslim population, Shias comprised 11-14% of the Muslim population in the Middle East-North Africa region,, and between 68% and 80% of Shias lived in four countries: Iran, Pakistan, India and Iraq.

Private sector in defence resurgence

This article is written by Anil Dhirubhai Ambani and i have picked up some of the key paragraphs from article.

When I once met Prime Minister Narendra Modi, I was struck by a telling comment he made during our conversation. He said, “Anil, do you know that even the tears we shed in this country are not our own? Every tear gas shell used by our security agencies is actually imported!” - Anil Ambani

• We live in a troubled neighbourhood and defending our borders has become a huge challenge. There are frequent exchanges of fire with Pakistani troops along the Line of Control (LoC), infiltration attempts, and frequent face-offs with China on the Line of Actual Control (LAC). Growing military and political relations between China and Pakistan continue to define our strategic vision to counter this joint threat. One of the most illustrative examples of how our defence preparedness has suffered is the fact that for 25 years, the Indian Army has not been able to replace the Bofors 155 howitzer gun, a vital force multiplier in our artillery arsenal. This was because no Indian firm made similar weapons. Thus, the new policy of opening up the defence sector to private players will go a long way in ending such self-imposed handicaps imposed on our defence forces.
• Unfortunately, borders in today’s world cannot be defended by strength of character nor wars won by dedication, training, discipline and bravery alone. Without technological superiority, our country remains vulnerable, entailing disproportionate levels of sacrifice on the part of our valiant armed forces. The Kargil war exemplified this harsh reality. For far too long, indecisiveness in defence procurements, based on a play safe approach, has resulted in the armed forces suffering with suboptimal hardware. This is truly a travesty.
• The outcome of war is never certain. However, success in warfare in our age is greatly aided by technological superiority, information systems and the quality and precision of weaponry. We owe it to our men and women in uniform to give them the best-of-class military hardware.
• Most submarines currently operated by the Indian Navy are past their operational life, while the Indian Air Force is still saddled with MiG-21 aircraft of 1970s vintage. India has great power ambitions, and with justification. We are seeking a permanent seat in the UN Security Council and India is projected to be the world’s third largest economy by 2024. Yet, unlike all other major powers in the world, India remains the largest importer of defence hardware in the world. Nearly three-quarters of all our critical defence equipment is sourced from abroad.
• So, what’s the way forward? The Prime Minister has outlined a bold new vision for India’s defence resurgence. Underlying the many policy changes that his government has announced — starting with the raise in the foreign direct investment (FDI) cap in defence from 26 to 49 per cent and, with cabinet approval, even to 100 per cent in identified areas of critical technologies — is the recognition that what we need most of all is a total change of mindset and approach to boosting this vital sector. I have listed some urgent points that need to be addressed to make this change work for India.There is need to acknowledge at every level of government that the private sector in India can be trusted to play as important a role in the modernisation of India’s defence capabilities as the public sector.
• We need a common framework for defence procurement across research establishments, ordinance factories, defence Public Sector Units (PSU) and the private sector. Decision making needs to be simpler, faster and transparent.
• There’s an urgent need to address and improve the ease-of-doing-business. The Ministry of Defence is the sole customer for the defence industry in the country. Without long-term contracts, certainty of volumes, a quick selection process, transparency and fair payment terms, there will be little incentive for private players to invest the huge resources required for defence production.
• There is a compelling case for creating a single window for defence licensing and FDI approvals. For example, the Department of Industrial Policy and Promotion (DIPP) and the Foreign Investment Promotion Board (FIPB), which are currently under different departments/ministries, ought to be brought under one umbrella.