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Double deal - Views on News from Equitymaster
 
 
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  • Oct 3, 2008

    Double deal

    Sweeteners for a bitter medicine
    The US House of Representative re-votes on the US$700 bn (and counting) bailout package today. The US Senate has already passed the bill and has added sweeteners for the House of Representatives for good measure. The modified package hikes the limit on federal bank deposit insurance and authorises regulators to shelve asset valuation rules.

    The deal enables the government to purchase distressed assets from financial institutions struggling under unprecedented home foreclosures. Interestingly, the House of Representative might be more willing to pass the package after the market's reaction to their earlier refusal. The Dow had fallen a record 778-points in the wake of the rejection.

    It may be noted that given the severity of the credit crisis, most observers believe that it is inevitable that the bailout package will be passed. In fact, Warren Buffett has gone on record saying that his recent investments are to an extent based on the expectation that the government will eventually pass the bill. While short to medium term measures are indeed necessary, we believe the long-term solution to the crisis lies in avoiding the excesses witnessed in the financial system over the past few years.

    N-clear path now opens
    US senators have also passed the much-awaited Indo US nuclear cooperation accord. The deal will allow American companies to sell nuclear fuel and technology to India in return for safeguards and UN inspections at its civilian nuclear facilities. The senate also rejected an amendment that provided for the end of civilian nuclear trade if India detonated a nuclear device.

    As per the Nuclear Power Corporation, India's state run monopoly, India plans to buy nuclear equipment to the tune of US$ 14 bn next year. As per the US-India Business Council, Indian will spend at least US$ 175 bn in the next 30 years. It is widely believed that the deal creates economic links between the two countries far beyond the nuclear power sector and helps the US promote India's role as a source of stability in Asia. It may be noted that India has recently signed an agreement with France for cooperation on civilian nuclear technology.

    We believe the real test for the nuclear energy programme in India is not in getting agreements signed. At a time when even much hyped thermal power projects are way behind schedule, the challenge for the country clearly lies in implementing the plans.

     

     

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