Will higher taxes on financial firms fuel another crisis?

Policy makers in the UK and Europe are contemplating higher taxes on financial firms anticipating that it will curb the kind of reckless financial creativity which is now widely recognised as one of the root causes of the recent crisis. The bankers’ prolonged over optimism not only triggered the crisis but now also has the whole population reeling under the austerity measures. An unfair situation? Hmmm...  yes, according to many. But if this is the general belief then the representative of the people, our Gov., has to do something about it. The world should be made fair at least the population should feel so. Why should the bankers’ responsible for all the crisis get away with so little punishment and again get back to the hay days of high bonuses while the unemployment level still remains too high for comfort? A fair and popular decision should entail greater punishment for the bankers. The poor, the homeless, the jobless, the middle class working hard to make ends meet must not bear the brunt of the crisis. It should be the responsibility of the bankers who are responsible for the situation. I think the Gov. is doing just that. Higher taxes on financial firms. Sounds fair, makes the junta feel happy and vindicated.

So far so good. However, is this really a solution or just a popular step to please the voters? Or should I say it’s another popular step of a popular government to remain popular?

India: Tackling recent surge in inflation... Circa Sep 2010

This is just a continuation of my previous post in Dec 2009 Click Here

As feared in my previous post, the Indian Gov. has tried to hide its impotency against the rising food prices (and inflation in general) behind the innocuous step of monetary policy tightening. RBI has yet again raised the interest rate despite continued failure in taming inflation. But what can the Gov. do other then putting pressure on RBI to play with the monetary policy? Gov. has not done enough to meet the supply side challenges. In fact the food grains are rotting in the depots. The level of wastage is evident from the Supreme court's order to distribute food grain for free if Gov. can't store food grain (Click). This Gov. is trying to solve the supply side challenges through demand side tools. 

Reasons for time and cost overruns in capital projects

In addition to the Challenges in front of Indian Infrastructure Sector here are some important points which I came across in an informative article from Institute of Defence Studies and Analysis.

Many studies have been conducted on capital intensive projects, bringing out a host of factors that cause delay at different stages of projects starting from pre-commissioning to implementation. The points mentioned below are typical reasons why we see delay in capital intensive infrastructure projects in India.

"Some of the important factors include changes in scope, alterations in design, delay in procurement of equipment, shortage of materials like cement, steel, explosives, etc., difficulties in transporting equipments to site, shortage of key personnel during the implementation stage, inadequacies in planning, problems in land acquisition and rehabilitation, climatic and environmental factors, lack of monitoring, contractual problems, poor performance of consultants, vendors and contractors, law and order problems, inadequate infrastructure support, etc. In addition to these factors, risk assessment at the stage of project implementation is required on a regular basis to take timely remedial action. "

Well, this post focussed on the operational side of challenges. Please do read my post on many other challenges being faced by the Indian Infrastructure Projects here.

Budget Deficit and Interest Rate

Recently I came across a problem which questioned how a country can increase budget deficit (through Gov. Spending) without increasing the interest rate. It asked its readers to solve it using IS-LM model and figure out two ways of achieving it. Surely a pertinent question in today’s scenario when central banks have pumped in lot of liquidity in the market but are afraid of hiking/rising interest rates so as to keep the recovery on a smooth track.

Well, I would try not to use any model and still explain you the ways in which it can be achieved. But let’s first understand why increase in Gov. Spending (without proportional increase in Gov. Earning) leads to the rise in interest rate.

UK Budget Deficit

I recently wrote an answer/comment on the burgeoning UK budget deficit and what can be done about it. You can have a look at Ning or Guradian .

Or click the read more button below to read the post here and also to see the pdf of the image shown above.

FT.com / Commodities - Steel prices set to soar after iron ore deal

In line with the my post on Challenges before Indian Infrastructure Industry, the high and continued demand for steel from developing countries specially China has brought about a momentous change in the way steel industry buys its most important raw material, iron ore.

Below is the link and excerpt from the article published in FT on 31st March 10.

FT.com / Commodities - Steel prices set to soar after iron ore deal: "Steel prices set to soar after iron ore deal.....

The deal by Vale of Brazil and Anglo-AustralianBHP Billiton with Japanese and Chinese mills marks the end of the 40-year-old benchmark system of annual contracts and lengthy price negotiations. The industry instead agreed to move to quarterly contracts linked to the nascent iron ore spot market....

The balance of pricing power has shifted in the miners’ favour due to the emergence of China as a voracious consumer over the past 10 years....

The new price system will lift the cost of iron ore to Asian steelmakers to about $110-$120 a tonne during the April-June period, up between 80 and 100 per cent from the $60 level at which the 2009-10 annual contracts were settled....

The steelmakers said they would compensate for the increase in raw materials costs by raising steel prices by up to a third. Some companies have already raised their prices in anticipation of the move in iron ore. The cost of the benchmark hot rolled coil steel is likely to hit $725-$750 a tonne by the end of next quarter, up from $550 in January. It traded as low as $380 a tonne last year...."

Infrastructure bonds finally

In one of my previous posts, I explained the challenges in front of Indian infrastructure sector where I pointed out the difficulties faced due to the absence of strong corporate bond market in India.

Thankfully, the FM has now come up with the idea of opening the bond market to Indian infrastructure corporates (Public as well as Private players). Read more about it here.

Software Product Pricing

Here is an informative article on software product pricing.

http://www.pragmaticmarketing.com/publications/topics/02/0208ds/?searchterm=pricing

Below are couple of links from Linkedin where the issue was discussed.

Linkedin 1

Linkedin 2