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5/22/2014 Mrunal [Current] April -Week2-P2: Economy: IMF Reforms, SEBI guideline on Crowdfunding, Public-Sector Banks CMD post bifurcation, IRDA ambu

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[Current] April-Week2-P2: Economy: IMF Reforms, SEBI guideline onCrowdfunding, Public-Sector Banks CMD post bifurcation, IRDA ambulance

project, mains answerwriting practice

1. Prologue

2. E1: IMF Quota & Governance: Need for reforms3. E2: Crowdfunding- Need SEBI guidelines

4. E3: Bifurcation of CMD post in Banks

5. E4: IRDAs highway ambulance pilot project

Prologue

Current events in 2014 April Week2 (8-15th)

1. Part 1/3: Environment, Polity, Polity, History and Culture: Coming soon.

2. Part 2/3: Economy= youre here. (nokia taxation deserves separate article, comingsoon)

3. Part 3/3: Diplomacy-international relations. Done click me

Before reading further, answer following questions:

UPSC Mains General Studies Paper 2 (200 words and 7 minutes for each

question):

1. Examine the need for reforms in IMF. What will India gain from this?

2. Explain Crowdfunding and examine the need for SEBI regulation of this activity inIndia.

Interviews:

1. Whats the difference between Crowdfunding and Crowdsourcing?

2. What are the limitations of crowd funding?

3. Whats the difference between Chairman and MD?4. Why is Raghuram Rajan insisting that Public sector banks should keep the post of

Chairman and MD separate?5. Why is Chindu opposed to Rajans idea?

6. Recently IRDA launched highway ambulance pilot project in Hyderabad. Whyshould IRDA bother with such things? Shouldnt this be left to health department?

E1: IMF Quota & Governance: Need for reforms

Topic in news because G-20 countries gave an ultimatum to USA to bring reforms in IMF.

Q. Examine the need for reforms in International Monetary Fund (IMF). What will

India gain from this? (200 words)

IMF was born from Bretton Woods conference to stabilize currency exchange rates and helpmembers during Balance of Payment Crisis. But given its unequal voting power mechanism,

IMF doesnt always serve the interests of poor & developing countries, hence requires two setof reforms:
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#1: IMF quota reforms

IMF Executive board decides the Quota of each member based on various parametersincluding GDP and tariff barriers.

Higher quota gives higher voting rights and borrowing permissions.

But formula is designed in such way US has ~18% quota, G7 collectively own >40%while India and Russia have barely ~2.5% each.

BRICS, G20 and emerging market economies are against this scheme especially after

Subprime crisis and declined economic strength of USA & G7.2010: Board increases quota of developing countries albeit mainly by decreasing the

quota of poor countries.Obstacle: 70% votes required to implement this reform. Not 70 nations, but the

nations who collectively own 70% quota- USA, Germany, Japan et al. Hence quota

reform is pending.

#2: IMF governance reforms

Currently in Executive board, 5 out 24 directors are permanently decided by five largest

quota holders.2010: new reforms proposed:

Board composition will be reviewed every 8 years.

All directors be elected, no permanent chairs.

Obstacle: Requires 85% votes in favour, hence governance reform is pending as well.

#3: Indias Gain

India wants IMF to raise the fund resources, give higher quota and powers to BRICS

nations.

If 2010s quota & governance reforms are implemented, Indias quota will rise from2.445 to 2.75% i.e. 11thrank to 8thrank, thus giving more voting rights, borrowingcapacity and more say in the Decision Making.

~240 words.


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PS: the slow pace of reforms in IMF = one of the reasons why India and BRICS setup that

separate BRICS bank. (recall fed tapering article)

E2: Crowdfunding- Need SEBI guidelines

Q.Explain Crowdfunding and examine the need for SEBI regulation of this activity inIndia. (200 words)

Meaning:

Crowd funding is the process of soliciting money from general public, for businesspurpose.

But outside the traditional mechanism to raise capital i.e. Debt or Equity.

Characteristics:

1. Entrepreneur retains 100% ownership, patents and copyrights.2. Ideal for startup tech/IT entrepreneurs, budding music composers and authors- who may

not get easy access to capital via traditional sources viz. IPO, Venture fund, Angel

investor or Bank loans.3. Crowd doesnt always receive share in the profit, dividend or interest.

4. Often rewards are symbolic e.g. patron photo on the company website, free sample

products, software copies, concert passes etc.

Need for SEBI regulation:

1. In India, crowd funding was on small scale mainly for artistic ventures- music CDs,

novels, documentary movies etc.2. But recently, entrepreneurs seeking funds for renewable energy projects, IT-gadgets and

even promising guaranteed returns to public after break-even point.

3. Scamsters may enter this field for money-laundering and dupe gullible small investors.4. We already have SEBI ordinance, Prevention of Fraudulent and Unfair Trade Practices
http://mrunal.org/2014/03/fed-taperingpart2-2-measures-immunize-indian-economy-negative-impacts-fed-tapering-currency-swap-dollar-swap-fcnr-swap-brics-bank-explained.html#bricshttps://www.flickr.com/photos/97816112@N02/13997455825


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Regulations to deal with them. But since crowdfunding is mainly done via social

networking sites and foreign web platforms such as kickstart.com, hence separateguidelines necessary.

5. Young entrepreneurs should get easy access to capital but simultaneously we need a safe

environment for small-investors: post Sahara, NSEL and Saradha scams.6. Even International Organization of Securities Commission (IOSCO) recently called for

greater checks on Crowdfunding.7. Consequently, SEBI, as a member of IOSCO began framing guidelines for crowdfunding.

~250 words

Crowdfunding vs Crowdsourcing

(Interview Q) Whats the difference between Crowdfunding and Crowdsourcing?

Whatre the benefits and limitations of Crowdfunding?

CROWDFUNDING CROWDSOURCING

crowd + funding = pooling juntas

fund to launch a business =crowdfunding.

crowd + out sourcing= outsourcing the work of atraditional employee to aam-juntaa

Profit motive is present in most cases

Ill sell this product/technology atlater stage.

Profit motive may or may not be present. Example-

seeking public help to prepare tsunami missingpersons database.

You seek cash from juntaa to startnew business.

Here youre not seeking cash from juntaa but givingthem some work to perform.

What are the limitations of crowd funding?

#easier said than done


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The conventional method of operating crowd funding is following:

you open an account at a crowd funding site such as kickstarter.comThere you Post an article/video explaining your business project and write an amount say

I need 1000 $.kickstart.com will let you use their advertisement platform for a fixed deadline (e.g. 30

days)

Within that much time if juntaa doesnt pledge total 1000$ then youregonecase. Youdont get a single penny.

If you decide to run Solo campaign e.g. open your own blog/website and seek funding=

hard to gain google search engine visibility quickly. In that case even 10$ wont come ina year.

>50% of the projects fail to attract the minimum investment required.

Some Backers dont give money but pledge support in other forms e.g. Ill ask myfacebook friends to read about your products, Ill post review video on youtube etc. But

often their enthusiasm fades away after few weeks.

#social media following

You need high presence on facebook/twitter/social media to attract such juntaa.

Therefore, its easier for Yoyo Honey Singh to get crowdfunding for his next musicalbum than Anoop Jalota.

#hard to get advice

For business loans, project financing- chartered accountants can help you.

For IPO- investment bankers and underwriters can help you.But similar consultancy services is absent in crowdfunding, especially in Third World
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countries

So, you have to go by trial and error and google searching- which is not always suited toyour requirements.

Much of your time and creative talent is wasted in attracting in the juntaa to fund your

project rather than working on the project itself.

E3: Bifurcation of CMD post in Banks

(interview)

1. Whats the difference between Chairman and MD?2. Why is Rajan insisting that Public sector banks should keep the post of Chairman and

MD separate?

3. Why is Chindu opposed to Rajans idea?

CHAIRMAN MANAGING DIRECTOR (MD)

IPO => Shareholders=> general meeting=>

Board of directors elected.the chairman = head of the board of director

they form overall policies of the company,

decide how much of the profit should be re-invested in the company and how much should be

given to shareholders as dividend.

Board of director appoints the

MD.MD looks after day to dayoperations of the company-

just like chief Secretary looks

after state administration.

long term vision Day to day firefighting.


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https://www.flickr.com/photos/97816112@N02/13997893504


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In public sector banks of India- the post is combined: Chairman + MD = CMD.

favour against CMD post

simplicity in managementefficiency in decision

making

Conflict of interest. Chairman needs to see theinterest of shareholders, while MD has to see the

interest of company. Often both are not the same.

example company wants bigger portion of the

profit should be re-invested while shareholder wantbigger portion of the profit as dividend.

Two power centres

(Chairman vs MD)= lack ofcoordination, powerplay,

Someones ego gets hurtlike JaiKant Shikre. Hence

better let only one person

have both posts.

Same person is holding two seats= Leads todictorship.

Eliminates possible politics and

ego clash between two people atthe top

Germany, Netherlands have laws that same personcannot hold both posts.

in USA many high profile scams by CMD=

government looking to bifurcate the post.

Why does RBI Governor Raghuram Rajan want CMD to be bifurcated into two

separate posts?

1. The CMD of Indian PSU banks enjoys absolute powers.

2. in Public sector banks, board of director mere rubber stamps of CMD. Hence

bifurcation of CMD post = Board will be empowered.3. Once RBI allowed Global Trust Banks chairman to hold MD position as well=> bank

gets involved in Ketan Parkesh Scam=> collapse and merged with Oriental Bank ofCommerce.

4. 2004: RBIs A S GangulyCommittee recommended the bifurcation of the CMD post in

Banks.5. Private sector banks started implementing.

6. But Finance ministry didnot implement it in Public sector banks.

Why did Chindu reject Rajans idea?

1. CMD of public sector banks does not enjoy absolute powers. Theyre accountable togovernment of India (because government is majority shareholder).

2. CMDs of public sector banks are thorough professionals, having long experience in the

banking sector. Theyre not scamsters like Rajan believes!3. Bifurcation of CMD post may lead to Sonia vs Mohan rubberstamp situation like Sanjay

Baru explained in his book The Accidental Prime Minister : The Making and Unmaking of

Manmohan Singh.

E4: IRDAs highway ambulance pilot project

Background
http://www.flipkart.com/accidental-prime-minister-making-unmaking-manmohan-singh/p/itm9780670086740?pid=9780670086740&affid=mrunalrugm


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http://mrunal org/2014/04/current apri l week2 p2 economy imf reforms sebi guideline crowdfunding public sector banks cmd post bifurcation irda ambula 9/9

Road accidents = loss to all type of insurance companies: vehicle insurance + health

insurance + life insurance.For every 100 rupee premium earned, the insurance companies end up paying 140

rupees.

Hence IRDA started this project

IRDAs ambulance project

1. pilot study @ Hyderabad- Vijaynagar highway2. Collaboration with insurance company, NHAI, police, doctors and IT professionals.

3. 24/7 mobile police van with speed gun, breath analyzer and other gadgets to prevent rashdriving under the influence of desi liquor.

4. High-tech ambulance to provide emergency relief during highway accidents.

5. Both Police van and ambulance available at every 50 km of this route. Centralizedcoordination via call centre @Hyderabad- even tie up with insurance companies for

quick clearance of claims.

Benefits of this pilot project:

1. understanding accident patterns in India2. Design long term solution for accident prevention, medical relief and insurance claims.

Visit Mrunal.org/CURRENTfor entire Archive weekly current affairs compilations published

so far.

URL to article: http://mrunal.org/2014/04/current-april-week2-p2-economy-imf-reforms-

sebi-guideline-crowdfunding-public-sector-banks-cmd-post-bifurcation-irda-ambulance-

project-mains-answerwriting-practice.html

Posted By Mrunal On 24/04/2014 @ 23:22 In the category Current Affairs Weekly
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