One fine day one contingent of police led by one inspector reported to him at his residence at Ralegan. Anna very politely asked inspector purpose of his visit. The inspector informed Anna that Chief Minister had detailed him with 20 Sepoys saying that Anna was under threat in view of his role in unearthing Telgi Scam. Anna very politely told the inspector that he had died long back while serving in Army during 1965 Indo Pak War and if anyone wants to pump some bullets into a dead body let them. He asked the inspector to go back and inform the CM that he needs no protection.

PADMABHUSHAN SHRI ANNA HAZARE - A ONE MAN ARMY - THE BEGINNING OF A NEW SOCIAL REVOLUTION

PADAMBHUSAN VETERAN SHRI ANNA HAZARE

A write up by Brig Nawab Heer (Retd)

There is a small village named Ralegan Sidhi in Ahmednagar district of Maharastra. A young boy hailing from this village joined Indian Army as a driver in Army Supply Corps. He was on convoy duty during INDO-PAK War In 1965, in Shakargarh Sector. In course of his duties as a driver, while taking Army Supplies/ stores from Pathankot for fighting troops in Shakargarh sector these convoys used to be under heavy air attacks from the Pakistan Aircrafts. One day Naik (Nk) Anna Hazare was driving his vehicle as part of the convoy across international border when, their vehicular column came under intense attack of fighter aircrafts of PAF. The attack continued for 10 to 15 minutes. All drivers under took all passive measures to ward off the attacks. Once the attack was over, Nk Anna Hazare got up from the road side deep pit a shelter which he had taken to save himself, visited other vehicles and found that all other drivers and co-drivers had been killed due to Pakistan Air Force air strafing and he was the sole survivor. Anna was deeply shaken and questioned him as to why only his life had been spared among all his colleagues, however, he got no answer. As the Indo-Pak war came to an end, Anna Hazare requested for some leave .While moving back the question as to why only he survived never left his psyche. At Pathankot railway station he purchased one book on life of Swami Vivekananda which he read and re -read throughout his journey back home. One particular thought in the book really hit his mind hard that was, Swami Vivekananda propagated that we human being are meant to live for others not for themselves as most of the humans are doing presently which is next to animal behavior.

On reaching his village whose economic status and social status was very low. The whole village had no cultivable land, they had only 20 odd cattle’s for milking, there was no source of drinkable water and the general area around the village was devoid of trees. His village was located in rain shadow area which was draught stricken.  The villagers were very poor and their only source of income was sale of locally brewed illicit liquor. There was not even one concrete house in the village and all were living under thatched huts. There was no school in nearby areas up to 20 kms. Drinking water used to come once in a week in water trailers sent by the Collector from Ahmednagar 60 km away. In general, villagers were living under very poor and pathetic conditions. Anna Hazare decided to do something for his village and at that stage he did not know as what he will do; nevertheless he decided to do something. He took premature discharge from the Army and came and settled in his village.

Anna only received Rs 25000/- from the Army as lump-sum payment for pension which he pooled in and jumped in to improve the village. There was one temple in the village Anna improved the temple and started living there. He vowed to remain unmarried and dedicate his life for the up liftment of the villagers. He motivated some young persons of the village and first undertook the task of watershed management for the village. Prior to the rainy season they made bunds so that water did not flow away. They planted trees, ensuring cleanliness in the village and organized classes in a make shift classroom at the temple. The village had almost 2500 acres of land out of which only few acres was cultivable. Through sustained efforts of Anna and his team, the water table started rising, land bank of cultivable land increased, children started learning, and people purchased few buffalos and cows.

Today the Anna Hazare, s village displays a different story.  All 2000 acres of land is being cultivated, village has 3000 cattle, all houses in the village are pucka and per capita income of villagers has gone up by many folds. There is one school which is of international standard. This school apart from taking students of the area also admits students who have been dropouts or failures. The School is being run like military schools and it produces very good results. All areas around 40 kms of Ralegan Sidhi have green cover, water table has come up and water is being conserved through water shed management techniques. He accomplished all this through “Sharam Daan”, motivating villagers to work on the rolling landscape of the area around his village. He developed a very innovative bunds and small reservoirs along the contours which were designed to hold almost every drop of whatever scanty rainfall the parched land received. Soon the subsoil water reserves reached a level sufficient to cater to the agricultural and drinking needs of the village even if it did not rain for two consecutive years. There is one institute come up in the village being supervised by Shri Anna Hazare which conducts classes for students and farmers from all over the globe. They come to learn techniques of rural development and watershed management. Today Anna has been asked by the Maharashtra Government to bring up 300 villages of the state on model village like Ralegan Sidhi. Shri Anna is on advisory in agriculture and rural development of five states and has got 45 awards to his credit out of which 30 are international awards.

Anna sahib spearheaded “Bharastachar Nirman Andolan”, a movement aimed at cleansing the society of the malaise of corruption in public life. Anna Hazare was the person who initiated the Right to Information act first time in Maharashtra. He had to agitate for a very long time to get this act through in Maharashtra against all the opposition from the politicians and beuaurecrats; thereafter heagitated to get it through at National level. He was the force behind getting Telgi Stamp scam unearthed and later investigated in which number of ministers had to resign and many Babu's were suspended.

One fine day one contingent of police led by one inspector reported to him at his residence at Ralegan. Anna very politely asked inspector purpose of his visit. The inspector informed Anna that Chief Minister had detailed him with 20 Sepoys saying that Anna was under threat in view of his role in unearthing Telgi Scam. Anna very politely told the inspector that he had died long back while serving in Army during 1965 Indo Pak War and if anyone wants to pump some bullets into a dead body let them. He asked the inspector to go back and inform the CM that he needs no protection.

While serving as Commandant Mechanized Infantry Regimental Centre at Ahmednagar; I came very close to Shri Anna Hazare. Once I invited him to our regimental centre to address 5000 soldiers posted there and large number of them was under training. Anna accepted our invitation; most interesting part of his one hour talk to them was that out of 5000 persons not even single person dosed off, which used to be normal phenomena since training schedule for the soldiers used to be very hard and invariably some of them used to fall asleep in the mass lectures. All men identified themselves with Anna Hazare since he was Ex soldier were highly motivated with his talk to them.

HE IS ON HUNGER STRIKE TO ERADICATE CORRUPTION IN PUBLIC LIFE- LET US SUPPORT OUR OWN CAUSE 

BANKS,BUILDERS,BORROWER AND LOAN- COLLUSION BETWEEN BANK OFFICIALS AND BUILDERS-SAFEASI ACT

Collusion between Bank Officials and Builders – SARFAESI Act – a Case Study

THE ULTIMATE VICTIM IS THE BUYER!!!!!!!!!!!!!!!

ARE YOU THE ONE?

It is strongly believed that implementing the provisions of the SARFAESI Act, 2002 making a good balance between the object and the interests of the borrower is a very complicated exercise. There are so many judgments on the provisions of the SARFAESI Act, 2002 and still certain areas remain complicated. I would like to share a typical case presented to me in the recent past and the facts of the case are as follows:

Facts:

Mr.A is a Senior Software Engineer working in a reputed Company and by availing a loan from “L” Bank; he has purchased a building property in a City (hereinafter referred to as “first loan”). Mr.A was paying all his installments to the Bank in respect of his first loan. Thereafter a builder has approached Mr.A to purchase another property through the Bank “L”. Though the documents were presented by the builder to Mr.A, Mr.A has believed the Bank Officials and requested the Bank officials to look into all the legalities and details about the property. Mr.A was assured by the Bank Officials that he can buy the property. After the specific assurance from the officials of the Bank “L”, Mr.A has purchased another property in the City through the Bank “L” (hereinafter referred to as the ‘second loan’). While Mr.A was paying all the installments in respect of the two loans, he has received a notice from a third person and in respect of his second property and he was shocked to know that his second property doesn’t actually belong to the builder. Apart from the loan amount, Mr.A has also paid substantial amount of money to the ‘builder’. Though Mr.A was not used to do enquiries and not faced with any litigation in life, Mr.A is forced to do his independent enquiry regarding the second property and he finally found that he was cheated by the Bank Officials and the Builder. Mr.A found that the Bank Officials of “L” has actually helped the builder knowing fully that the builder can not sell the property and do not possess any title over the property. Immediate to the occurrence of fraud, Mr.A has approached some professionals to file a criminal case at the Bank Officials and the real estate people, but, soon he has realized the difficulties in approaching the authorities and getting justice from the Courts. Mr.A has also spent substantial amount of money on the litigation to bring the fraudulent officials of “L” and the builders to book. While the process of pursuing a criminal case against the Bank Officials of “L” and the builder was going on, surprisingly Mr.A has received a notice from “L” bank asking to repay the loan amount in respect of the Second Loan and he has also seen a demand in the demand notice from the Bank that if Mr.A does not pay the Second Loan Amount, then, they proceed against the First Loan Property. Mr.A is literally shocked as to why he has to pay the Second Loan Amount as he was literally cheated by the Bank Officials itself and he is also shocked as to how the Bank can proceed against his First House Property as he was paying all the installments in respect of his First Loan. Mr.A expressing an opinion that all his hard earned money is invested in the property and he can not venture loosing the property. Mr.A has come to the stage that only suicide will be a solution for him under these circumstances.

Analysis:

 If we look at the problem above it is really complicated. The Bank Officials or the Bank is concerned at getting the installments or getting the outstanding due in respect of the two loans sanctioned to Mr.A. The Bank is not concerned at the fraud played by some of their officials while getting the loan sanctioned to Mr.A. The Bank sought to blame Mr.A for not scrutinizing the papers presented by the builder carefully. In the given case above, Mr.A has in fact received a notice under section 13 (2) of SARFAESI Act, 2002 in respect of the second loan, however, the First House Property is shown as liable to be attached in the event of failure to pay the outstanding due. On this point, “L” Bank may not have any point as there is no secured asset in fact to straight away take possession of the First House Property of the “A” as he has not defaulted any installments and the Bank is only concerned with the Second Loan. But, the larger issue is as to what is the remedy available to the Borrower Mr.A and is it correct to say that the DRT is not concerned with the fraud played by the Bank Officials if the appeal is presented to the DRT finally. The settled legal position under section 17 of SARFAESI Act, 2002, as perceived, is that the DRT will only look into as to whether there are any procedural lacunae on the part of the Bank while invoking the provisions of the SARFAESI Act, 2002. If we apply that yard-stick, Mr.A may have to face numerous problems and may be confused as to how to expose his case and get justice. If Mr.A approaches the High Court, the High Court may say that alternative remedy is available and Mr.A can not approach Civil Court in view of the specific bar under section 34 of the SARFAESI Act, 2002.

SALE AGREEMENTS-

ONE SIDED AGREEMENTS-UNFAIR AGREEMENTS-BIASED AGREEMENTS, ILLEGAL AGREEMENTS, UNFAIR CLAUSES - BY DEVELOPERS AND BUILDERS

IS YOUR BUILDER/DEVELOPER/MARKETING AGENCY COMPELLING YOU TO SIGN OR ENTER INTO SALE AGREEMENTS ON CERTAIN CLAUSES WHICH ARE AGAINST YOUR INTERESTS OR UNFAIR OR ONE SIDED AGREEMNTS OR DOES NOT AGREE TO MODIFY IT AND IT IS IN TOTAL INTEREST OF ONE OF THE PARTIES (BUILDER) ?

YOU HAVE A SAY NOW!!!!

THE CCI HAS COME OUT WITH HEAVY PENALTY AGAINST DLF REALTY AND FINED THEM TO THE TUNE OF RS630 CRORES.

Changing Inflation Dynamics in India

(Speech by Deepak Mohanty, Executive Director, Reserve Bank of India, delivered at the Motilal Nehru National Institute of Technology (MNNIT), Allahabad on 13th August 2011)

I thank the Motilal Nehru National Institute of Technology (MNNIT) for giving me this opportunity to address this distinguished gathering. I propose to speak on inflation which is a matter of concern to all of us. What is inflation? Simply put, inflation is the sustained increase in the overall price level. Relative change in prices of goods and services is a desirable attribute of market economy as it reflects productivity changes as well as demand and supply conditions. However, when this process transforms into an acceleration of the overall price level, we need to worry as inflation imposes many socio-economic costs.

The headline wholesale price index (WPI) inflation averaged 9.6 per cent in 2010-11 as compared with 5.3 per cent per annum in the previous decade. Similarly, the average consumer price inflation, measured by the consumer price index for industrial workers (CPI-IW), was even higher at 10.5 per cent in 2010-11 as compared with 5.9 per cent per annum in the previous decade. Moreover, this elevated level of inflation also persisted through the first quarter of 2011-12. In response to inflationary pressures, the Reserve Bank has raised the policy repo rate 11 times bringing it up from a low of 4.75 per cent in March 2010 to 8.00 per cent by July 2011. It is expected that inflation should come down towards the later part of this year.

Why has inflation been so high and persisted for so long? This is the theme of my talk today. In my presentation, I propose to address the following questions: Is India an outlier among major countries in terms of recent inflation performance? Has the inflation process changed? What are the causal factors – global and domestic as well as supply and demand? I will conclude with some thoughts on managing the inflation dynamics on the way forward.

Is India an outlier in the inflation performance among major countries?

It is important to appreciate the global backdrop in which we are experiencing a resurgence of inflation now. In the last decade, inflation was low, both in advanced countries as well as in emerging and developing economies till the global financial crisis unfolded. Consequently, global economy got into a recession and global output declined by 0.5 per cent in 2009. However, global output growth rebounded to 5.0 per cent in 2010.

As the global economy recovered from the worst effect of the global financial crisis, inflation picked up in emerging and developing economies. This was because the global recovery was largely driven by emerging market economies (EMEs) what was termed as a two-speed recovery – a faster growth in EMEs accompanied by a slower growth in advanced economies. As output gaps closed, there was increasing inflationary pressure in EMEs, particularly in Asia. According to the International Monetary Fund (IMF), consumer price inflation in developing Asia almost doubled from 3.1 per cent in 2009 to 6.0 per cent in 2010 and is projected to be around the same level in 2011. Latest data suggest that inflation in rapidly growing BRICS¹ remains elevated (Table 1).

Table 1: Inflation* in BRICS Countries
Country	2010 (Average)	2011 (Latest)@
Brazil	5.0	6.9
Russia	6.9	9.0
India	9.6	9.4
China	3.3	6.5
South Africa	4.3	5.0
* WPI for India and CPI for other countries. @ June/July (year-on-year)

Global factors

With recovery, global commodity prices rebounded given the higher level of commodity intensity of growth in EMEs. There was also an element of financialisation of commodities given the global excess liquidity². Crop loss due to adverse weather conditions in many parts in the world coupled with increased diversion of foodgrains towards biofuel exerted added pressure on global food prices. Thus, global commodity prices including food prices rose sharply. For example, the IMF Commodities Index rose by 24 per cent in 2010 on top of an increase of 43 per cent in 2009. It further rose by 20 per cent in December 2010–April 2011, before moderating by about 2 per cent during June–July 2011. Notwithstanding some softening in the last few months, it is important to recognize that the current level of commodity prices is almost double of that two and half years ago (Table 2).

Table 2: Global Commodity Prices (IMF Primary Commodity Index: 2005 = 100)
	Dec-08	Dec-09	Dec-10	Apr-11	Jul-11
All Commodities	98.4	140.9	174.7	209.9	198.9
Food	119.6	139.5	176.4	190.9	180.3
Beverage	132.5	176.7	192.6	216.6	210.0
Agricultural Raw Materials	87.6	111.2	146.9	171.6	161.5
Metals	107.5	176.8	233.6	250.1	242.2
Energy	91.6	137.9	167.1	212.6	200.7

The increase in commodity prices has affected different countries differently depending on whether they are net importers or exporters of commodities. India being a net importer of commodities, the adverse impact on domestic inflation has been stronger. Inflation increased in developing and emerging economies with a combination of closing of output gaps and sharp increase in commodity prices. In this regard, India is not an exception. But the level of inflation in India has been high compared to those in many EMEs. This suggests that apart from global factors, domestic factors have had a significant influence on the inflation trajectory in India.

Has the inflation process changed?

In India, we have multiple price indices – 6 consumer price indices and a wholesale price index (WPI). While the Reserve Bank examines all the price indices both at aggregate and disaggregated levels, changes in the WPI is taken as the headline inflation for policy articulation. Within the WPI, non-food manufactured products inflation is considered the core inflation³.

Going by any measure of inflation, India comes out as a moderate inflation country, though occasionally inflation crossed the double digit mark. The historical average long-term inflation rate was around 7.5 per cent. But significantly, there was substantial moderation in inflation in the 2000s. The annual average inflation rate was around 5.5 per cent irrespective of the inflation indices taken, whether WPI or CPI. This raises the question: did the inflation dynamics change in the 2000s? Monthly WPI inflation data  suggest that there was a structural break⁴ around the mid-2000s with the inflation rate during the latter half being higher (Chart 1).

Average WPI inflation increased from 5.2 per cent in the first half of 2000s to 5.5 per cent in the second half. This was largely contributed by primary food inflation. In fact, the core non-food manufactured products inflation moderated from 4.2 per cent to 3.9 per cent. What did cause the structural break in the mid-2000s? A disaggregated assessment suggests that protein items largely contributed to this change in trend (Table 3).

Table 3: Average WPI Inflation
(In Per Cent)
Group/Sub-Group	2001- 2010	2001-2005	2006-2010	2010-11	Q1:2011-12
WPI	5.4	5.2	5.5	9.6	9.4
Primary Food Articles (14.3)	5.8	2.4	9.2	15.8	9.1
Protein (6.4)	6.3	3.5	9.0	20.5	5.9
Milk (3.2)	6.3	4.5	7.9	20.6	7.3
Egg, Meat & Fish (2.4)	5.6	2.3	8.8	26.6	9.0
Industrial Raw Materials (16.2)	7.9	8.4	7.4	17.2	16.5
Non-Food Manufactured Products (55.0)	4.0	4.2	3.9	6.1	7.2
Figures in bracket indicate weights in WPI.

Not only did the average food prices rise during the second half of 2000s but they were more volatile (Table 4).

Table 4: Average and Volatility in WPI- Inflation
Groups/ Sub-groups	Mean		Standard Deviation		Coefficient of variation
	Prior to break	Post break	Prior to break	Post break	Prior to break	Post break
Primary Food Articles	3.5	10.6	0.4	3.8	11.6	35.9
Protein	3.8	9.9	1.3	4.8	33.6	48.3
Milk	4.3	10.3	1.5	5.0	35.4	48.4
Egg, Meat & Fish	2.6	12.0	1.2	6.4	45.5	53.5

Structural food inflation

Food prices being subject to supply shocks tend to be volatile. For example, the performance of monsoon has a significant bearing on the trend of domestic foodgrain prices. Spikes in food prices normally subside as they are transitory. However, empirical analysis suggests that inflation in protein items has become persistent⁵. This suggests that protein inflation has assumed a structural character and is partly driven by demand factors. Within the protein group, persistence was lower for pulses as well as ‘egg, meat and fish’, but it was markedly higher for milk. Thus, the persistence of protein inflation has changed the inflation dynamics in the latter half of the 2000s. Increase in demand for protein appears to be an inevitable consequence of rising affluence (Gokarn, 2010)⁶. This process was further accentuated by renewed global food price shock during 2010-11. Among the processed food items, the persistence of inflation for edible oils was high (Table 5).

Table 5: Persistence of Inflation
Commodity/Subgroup	Sum of AR Coefficients
Food
Protein Items	0.58
Milk	0.81
Edible Oils	0.56
Non-Food
Non Food Manufactured Products	0.69
Industrial Raw Materials	0.55
Non-Food Articles	0.56

International price pass-through

While the persistence of inflation on protein items has increased, it still has a relatively smaller share in overall WPI inflation. What matters more for the overall inflation trajectory is the non-food manufactured products inflation which has a higher weight of 55.0 per cent in the WPI. It averaged 4.0 per cent in the 2000s with a moderation in the second half (Table 3). Subsequently, there has been a sharp increase in 2010-11 and 2011-12 so far. The non-food manufactured products inflation shows a major structural break towards the middle of 2009-10 around the time the global commodity prices rebounded (Chart 2). This has also raised the question: is the non-food manufactured products inflation an imported inflation?

Further, analysis suggests that industrial raw material⁷ prices also showed a structural break in early 2009 and the average price increase has been high and volatile (Chart 3). Moreover, the pass-through from non-food international commodity prices to domestic raw material prices has increased particularly in the recent years reflecting growing interconnectedness of domestic and global commodity markets (Chart 4).

This trend is also corroborated by corporate finance data which show that the share of raw material costs as a percentage of both expenditure and sales has been rising (Chart 5).

Demand factors

Price pressures can emanate from the supply side but it will be difficult to sustain it without rising demand. In this context, important information on recent trend in expenditure pattern and wages is available from the 66th round of NSSO consumption survey and Labour Bureau. The average annual monthly per capita expenditure has increased at a faster pace in the second half of 2000s as compared with the first half, both in nominal and real terms (Table 6).

Table 6: Monthly Per Capita Expenditure (Average Annual Growth)
(Mixed Reference Period basis)
	2000-05	2005-10
Nominal Growth
Rural	3.6	10.5
Urban	5.3	10.9
Real Growth*
Rural	0.2	1.2
Urban	1.3	2.0
*Real growth for Rural and Urban population are worked out using CPI-AL and CPI-UNME respectively, with base 1999-00.

While the share of per-capita expenditure in food has gone down, as could be expected from rise in income levels, both in rural and urban centers, the dietary pattern has shifted in favour of protein items whose share has gone up markedly in the second half of 2000s (Chart 6).

The sharp increase in rural consumption of protein seems to have been sustained by increase in wage rates of the unskilled rural labourers both in nominal and real terms (Chart 7).

In the formal sector, company finance data suggest that the wage bill has risen at a faster rate since the middle of 2009-10 (Chart 8).

As per the NSSO surveys (61st round and 66th round), nominal wage rates of skilled workers in both rural and urban areas increased much faster in the second half of the 2000s than in the first half. While the real wage rates declined in the first half, it increased significantly in the second half of 2000s (Charts 9 & 10).

There has also been added stimulus from the crisis driven fiscal expansion as the fiscal consolidation process was reversed in 2008-09 and continued through 2009-10 (Chart 11).

These evidences taken together suggest that sustained rise in real wages both in the formal and informal sectors in the recent years contributed to increase in demand.

Conclusions

The recent surge in inflation has become more generalised. Food inflation, prone to supply shocks, is also assuming a structural character given the change in the dietary habits and high demand, in absence of adequate supply response. Sharp increase in non-food manufactured product inflation suggests that producers are able to pass on the cost increases, given higher demand. While the persistence in non-food manufactured products inflation is high, the persistence of food inflation has increased making the overall inflation rate sticky. The current inflation process, therefore, is an amalgam of both supply constraints and demand pressures.

Prolonged high inflation even if originating from supply side would give rise to increased inflation expectations and cause general prices to rise. Poorly anchored inflation expectations make long-term financial planning more complex with potential adverse effects on investment and growth. Moreover, high inflation is the most regressive form of taxation, particularly on the poor. It is, therefore, important to contain inflation and keep inflation expectations anchored so that consumers do not mark up their long-run inflation expectations by reacting to a short period of higher-than-expected inflation.

Keeping in view the costs of inflation and the fact that high inflation is inimical to sustained growth, the medium-term objective of the Reserve Bank is to bring down inflation to 3.0 per cent consistent with India’s broader integration with the global economy. In this direction, monetary policy aims to contain perceptions of inflation in the range of 4.0 – 4.5 per cent with a particular focus on the behaviour of the non-food manufacturing component, which is considered as core inflation given its high degree of persistence. Going forward, both global and domestic factors will shape the inflation outlook. With increasing global integration, global commodity prices are having an increasingly significant influence on domestic prices. It is expected that global commodity prices will peak in 2011 which should provide some relief to domestic inflation scenario.

The Reserve Bank signaled the reversal from its crisis driven expansionary monetary policy stance in October 2009. Since then, the cash reserve ratio (CRR) has been raised by 100 basis points. The policy repo rate has been raised by a cumulative 325 basis points. As the liquidity in the system transited from surplus to deficit, the effective tightening has been of the order of 475 basis points. Thus, the cumulative monetary policy action would have the desired impact on inflation.

While inflation is expected to moderate towards the later part of the year reflecting monetary tightening and likely softening of global commodity prices, fiscal policy needs to be supportive in containing aggregate demand. In addition, there is an urgent need to address the issue of structural supply constraints, particularly in agriculture, so that these do not become binding constraints in the long-run hampering the task of inflation management.