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On This Day - 29 JANUARY 2013
Why US will always be the innovation capital of the world
In this issue:
The US in the past several years has received considerable flak. Not only did the roots of the global financial crisis begin there, but the country is also now grappling with massive debt and recession. It has become increasingly hard for the country to display any meaningful recovery. Moreover, the government and the US Fed has only made things worse by resorting to reckless money printing.
Perhaps this is what induced some of these senators to fall back upon what the US does best i.e. innovation. In the past, the US became a force to reckon with largely due to its pioneering spirit and the entrepreneurial skills of its people. That is why the Senate framework stresses on the fact that the US must do a better job of attracting and keeping the world's best and brightest. What is more, the idea is to make sure that this talent stays back and contributes to the growth of the economy. This plan if implemented should find a lot of takers and Indians stand to benefit considerably. The quality of education in US universities and institutions is quite unmatched anywhere in the world. Thus, reforms of this kind in US' immigration laws will certainly see a lot of talent from the emerging countries including India making a beeline there.
What does this mean for India? The country's demographic dividend has been highlighted as a major growth driver several times. But again the quality of its workforce is what matters. Thus, the increasing possibility of Indian students flocking to the US in droves cannot be entirely ruled out. Especially since the standard of institutions in the country (barring the IITs and the IIMs) leaves a lot to be desired. And it does not seem likely that much headway will be made in this regard in the near future. All of this means that the US will still retain its status as the innovation capital of the world.
These rates now stand at 4% and 7.75% respectively. The CRR is currently at its lowest level since December 1974 and the cut will release an additional Rs 180 bn of liquidity into the system. In order to spur loan book growth towards the end of the fiscal, banks may now start cutting lending rates. But, further monetary policy movement will depend on the government's stance. Recent government reforms especially the diesel price deregulation has staved off near term risks on the fiscal front. However, sustained fiscal consolidation is needed in order to create room for further monetary easing. Well, all eyes should now be on the Annual Budget due at the end of Feb.
The few that did decide to payout a good sum were those who were involved in the high profile deals during the year. This included Goldman Sachs and Citibank. Given the depressed macroeconomic conditions, companies that have cash are reluctant to spend this on acquisitions. Those who do go ahead with it appear to be restricting the deal size. As deals get smaller or start disappearing altogether, investment banks have been finding it harder to increase revenues. Therefore it makes sense to cut back on costs if they wish to protect their margins.
Another side of this is why incentivize so highly in the first place? Would higher incentives not create a conflict of interest for the bankers? This is a question that has been raised repeatedly by the lawmakers. Unfortunately no major laws have been passed to discourage this practice as of now.
A special tax on diesel run cars however would further increase the price gap between petrol and diesel cars. And this poses great risk to the huge investments that diesel manufacturers have made in diesel engine capacities. Not to forget the uncertainty it puts in mind of auto companies keen to set up capacities in the country.
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