26th February

No easy answers

The article tries to explain the pros and cons of presence of foreign banks in the country and any decision regarding their presence should be based on the cost-benefit tradeoff rather then any populist belief.

Recently, the chief economic advisor to the finance ministry, Arvind Virmani, stated that opening of banking sector to foreign players is not the area currently under focus. The step seems very pragmatic in the current scenario where some of the biggest names in the West have failed or on the verge of nationalization. But RBI was severely criticized for its conservative approach by the free-market fundamentalists prior to crisis. Two months are left for the April deadline of the review of roadmap and there are no easy answers about the roadmap RBI should look for in future. While foreign banks have advantages like high financial intermediation, low cost of financial services and reduced solvency risks, they also bring in disadvantages in terms of increased credit risk and potential for capital flow volatility and cross border contagion. Besides this, there are other pros and cons of large presence of foreign banks. 

Thus, presence of foreign banks is a mixed blessing as concluded by the recent BIS conference paper. So, when the government decides for the future roadmap for the foreign banks in India it should be based on the cost-benefit trade-off.

Step up hydel power

The article talks about the merits of stepping up the medium hydel power stations on a large scale to harness the potential it has to solve the energy problems of the country. It advocates for a proactive policy for setting up several medium-capacity hydel plants.

Medium scale hydro-electric plants have several benefits like flood control, shorter gestation period and provide environmentally benign energy at very low marginal costs. They have 95% efficiency in converting the kinetic energy of water into the electrical energy. There is also a need to improve the hydel:thermal mix in the power generated in India. Hydel power stations have an ability to improve power system reliability and the generation cost, besides being inflation proof, declines along with time. However, still the hydel:thermal ratio is low which is why the NHPC-OHPC tie-up is a welcome step. Currently the medium hydel projects fall between two stools namely small-mini-micro hydel projects that enjoy high financial support while the large hydel projects in the North-East are viable and enjoy fiscal benefits. 

The medium hydel power projects are an attractive investment proposition since the national policy mentions that 56 sites for pumped storage schemes with potential capacity of 94k MW have been identified and only a tiny fraction of that has been harnessed. Thus, it is a time for some proactive policy.

Gastronomic Racism?

The article talks about the recent ban on foreign cuisine restaurants imposed by the centre-right coalition in the Italian city of Lucca near Florence and advocates openness to other flavors as the world diet becomes multinational in nature.

Rightly said by the left-wingers in Italy as Gastronomic Racism, mushrooming foreign cuisines is inevitable since the average diet of family all over the world is becoming multinational. But the situation becomes hard when the local cuisines feel that the “foreign” ones are swamping them. But the question here is that is it culpable to demand for a foreign cuisine anywhere in the world. The problem is that the economic downturn has forced people to buy “local” and also exposed the boom-inspired tendency of sellers of local cuisine to overprice their culinary offering and thereby enhancing the demand for inexpensive “foreign” options. 

However, what’s needed for Lucca’s leaders is to check the pricelist and quality of local restaurants and for rest of the world to look at the foreign influences in their own cuisine and be open to other flavors when travelling.