Category: Investment models – GS3J

AIR INDIA ARM’S PRIVATISATION HITS A BUMP

why in news:

  • The government’s effort to privatise Air India Air Transport Services Ltd., Air India’s ground handling arm, has run into a stone wall, with potential bidders raising concerns over the Airport Authority of India’s plan to award ground-handling work at 76 of its airports to vendors.

Background: / What is the present condition of Air India?

  • Air India had accumulated debt of more than Rs.50,000 crore as of the end of the 2015-16 fiscal year.
  • Flights are routinely delayed, the equipment is old and mouldering, and the service is poor. The airline has become a platform through which politicians and officials enjoy the perks of office.

What are the advantages of privatization?

  • A privatized Air India will cease to be a drain on the exchequer.
  • The theory of economic policy establishes that government intervention in the economy is warranted only in the event of market failure or of an overarching non-economic objective. Going beyond conventional tools of intervention, such as regulation, taxes and subsidies, nationalization and monopolization of an industry only makes sense in the rarest of cases.
  • e.g Situations in which the private market cannot deliver, such as a case of catastrophic market failure. So logically the government should not be in the commercial airline business. It might support flights to commercially unviable areas, subsidies, etc, not nationalization. Competing with private airlines, Air India is not doing a good job of it.
  • Its domestic market share dropped to about 13% as of March 2017.

What should be done?

  • The best way to turn Air India into a great global airline would be to cut it loose from the clutches of the government. It can be done either by fully privatizing the airline or reducing the government’s stake to a minority interest. e.g Following the privatization, British Airways rose to become the world’s “favourite airline”. The experience of other countries, from Kenya to Canada to Singapore shows how successful is privatization.
  • Disinvestment of Air India would send absolutely the right message, that India is now a market economy.
  • If that happens, we will know that the old era of central planning is, just maybe, genuinely behind us after all.

MASALA BONDS LISTED AT LSE

Why in News:

  • Kerala becomes first sub-sovereign entity in country to access global market

Background: / Kerala masala bonds:

  • The State has turned out to be the first sub-sovereign entity in the country to access the international market by listing masala bonds issued through its
  • off-budget mechanism, the Kerala Infrastructure Investment Fund Board (KIIFB).
  • Chief Minister Pinarayi Vijayan has become the debutant head of state in the country to open trading at the London Stock Exchange.
  • KIIFB has raised ₹2,150 crore through masala bonds at a fixed interest rate of 9.723% per annum.
  • The resources earned through the bonds would be channelised for funding a clutch of infrastructure development projects cleared by the KIIFB director board. KIIFB had decided to garner ₹3,500 crore from the international market in the initial phase. It plans to list the bonds at the Singapore stock exchange too.

What is Masala bond:

  • Masala Bonds are rupee denominated bonds issued for funding Indian companies using foreign investor’s money.
  • They are issued by International Finance Corporation (IFC )- a part of World Bank Group.

What is so special about them?

  • Since these bonds are rupee denominated, burden of debt repayment due to fluctuating of currency falls on funders and hence Indian companies are expected to benefit from them.

How they help in meeting housing and infrastructure development

  • Indian construction companies have big problems in getting domestic capital and it is a big challenge for getting foreign investor to come to India.
  • Therefore, funders can buy bonds in their own stock exchange (London stock exchange , in this case ) without facing hassle to register here first
  • Since denomination ensures good profit to Indian companies, this would create a healthy environment for other infrastructure companies to follow suit too and provide for necessary capital for Housing for all.

Challenges

  • Though Real estate bill, prevention of corruption act and black-market bill will help in suspicious money to be reduced to large extent, much more needs to be done to boost consumers and investors’ confidence

CBI SEARCHING FOR EVIDENCE ON ELEVEN ‘MURDERED’ GIRLS

Why in News

  • The Central Bureau of Investigation (CBI) is searching for evidence related to the 11 girls believed to have been murdered in shelter home in Muzaffarpur district of Bihar. CBI files 7th status report in Muzaffarpur shelter home case

Details:

  • The agency got wind of the alleged murders from the rescued children.
  • In its seventh status report to the Supreme Court, the CBI, which is facing allegations that its probe into the grisly case is “hogwash”, said a scrutiny of the girls’ home register at Muzaffarpur had so far revealed that a total of 35 girls with identical or similar names had lived there at one point of time or the other. A “field-level verification” of the existence of these girls is also under way.

CBI

  • The CBI was established as the Special Police Establishment in 1941, to enquire into cases of corruption in the procurement during the Second World War.
  • With time the Santhanam Committee on Prevention of Corruption recommends the establishment of CBI. The CBI was then established by a resolution of the Ministry of Home Affairs. The Ministry of Personnel eventually took over the responsibility of CBI and now it plays the role of an attached office.
  • The CBI is the premier investigating agency of the Central Government. It is not a statutory body; it derives its powers from the Delhi Special Police Establishment Act, 1946.
  • The important role of CBI is prevention of corruption and maintaining integrity in administration.

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