28th March

Sleepless in Mint Street

The article talks about the dismal state of government finances and the implications of recent borrowing announcements made by the government. RBI’s confidence to manage borrowing program is commendable but it’ll still give some sleepless nights to the governor.

The announcement to borrow 2.4 lakh crores in the first six months of the next fiscal year led the gilt prices fell over the fears of over supply. The yield on govt bonds have increased from 4.86% in January to 7.18%. Govt’s inability to manage its finances during boom time would cost them dear now. Not only in terms of high debt burden or debt servicing costs but also in terms of interest rates which are unbearably high even today. RBI interest rates are the risk free rates to which the final borrower pays the market risk premium. If risk free rates itself would be high then the final rate of borrowing ought to be high. This could jeopardize govt’s own effort to recovery besides inflicting capital losses to banks’ investment portfolios. RBI is confident about managing to borrowing program but there is a limit to what the bank can achieve especially when it wants to remain loyal to the fiscal reform process under which RBI keyed up the govt securities market. 

But given the quantum of the funds needed, and the prospect that it can grow larger when govt issues fresh freebies post-elections, RBI is in an unenviable position which could bring sleepless nights to the governor. 

A question of chemistry

The article talks about the emerging trend among the chemical companies to offload their pharmaceutical business. The article also discusses the reasons for the same.

Oil and gas major Reliance industries has gone low profile over its venture into the pharma space. In 90s however the trend was other way round when chemical majors ventured into the pharmaceuticals big time and into drug discovery and research-based growth. On the other hand, ‘big pharma’ also found it profitable to venture into the larger chemicals domain and sheer volume-based growth. However, the trend reversed off late since chemical companies plan to divest their pharma arm. BASF, Europe’s largest chemicals company, offloaded its Knoll drug division while DuPont sold its drug division quite recently. One of the major reasons for this is the difference in skill sets and the work cultures in the two businesses. While pharma industry is far more research intensive which 15% of the revenue going into R&D, for chemicals it’s no more then 1%. The challenge for pharma industry is to keep up their R&D in pharma business while running the cash-guzzling chemicals business. While for chemical companies, the research suggests, their pharma divisions often lack the scale of multiple products to offset the risk. 

Perhaps that is why the idea of Reliance Pharma to keep its large-scale formulation development on back burner makes a strategic sense. 

How to be Obama

The article talks about different faces of Obama that is seen almost every day ever since he took the seat for the first citizen of US. 

While he has been under the scanner for every action and speech he has delivered so far, some people are less convinced about his connectivity with his new community. People want to him to confine himself to White House and ponder about bringing out the country from recession instead of cheering and hooting for Chicago Bulls in basketball matches. His pre-election smile has withered away as his face now looks grim and tight in every press conference he arranges. While the next day he would go out for a nearby hotdog joint when people expect him to bother about banks, bonuses and bonds. It’s surprising how a President can be gourmet when all he should be worried about is innards of fast gutting economy. While all these must be making Obama tensed he must be learning how to face adversities. But what’s unnecessary is a cheerful face one day and churlish on the other. 

He should remember his unclenched fist metaphor he used on his inaugural and substitute his face there.