Saturday, February 27, 2010

NASA contracting, ISRO expanding !!!

We truly live in surprising times. A decade ago, no one dreamt that apart from Russia and US anyone would succeed in space technology. Japan did succeed, but to expect from China and India was an exaggeration. Now, it is no longer so. China is way ahead and India is in the process of catching up. China and India both are leading players in remote sensing satellites. The areas where China has leaped ahead is manned space launches in 2003 (India is doing in 2015) and anti-satellite missile to destroy in 2007. Clearly, India is a decade behind China as far as manned space mission is concerned. Apart from manned missions and anti-satellite program, INDIA AND CHINA ARE ROUGHLY THE SAME IN SPACE CAPABILITIES....Hats off to ISRO....READ THIS INTERVIEW TO CONFIRM THIS as mentioned by Director of Human Space Exploration in Washington D.C. 

India and China can never match what US and Russia have in terms of technology. However, if NASA continues to contract and Russia doesn't expand, India and China will take a clear lead. As it is, China is the leading player in space after US and Russia. Both India and China learnt a lot from Russia and the US. and then moved towards indigenous technological development. If not for these 2 powers, India and China would not be anywhere.

Recently, NASA's much hyped moon mission was terminated and around 3,000 people were laid off at Huntsville and 400 people were laid off from Boeing space shuttle program at Kennedy Space Centers(Florida). NASA has even stopped all of its programs and have asked private companies to develop rockets and send astronomers on it. Around 6,500 workers and several contractors and sub-contractors were laid off recently.  A complete list can be found in the attached articles in the link here. While NASA is unable to complete the space station, China is working towards it and of course, India has a long way to go, but given another decade it will be able to do. 

On the other hand, ISRO has opened recruitment of people. They have received a major boost after Chandrayan-1's success. ISRO's Chandrayaan- 1 has given itself and our country a major boost to go ahead with space exploration. Unlike China that is gearing itself up to militarization of space, India doesn't want to be a part of it. ISRO's current and short term future plans are geared towards missions that offer greater value to common people in the country.

NASA outsourced?

It looks like the outsourcing has hit even the space program. Now, India and China continue to offer cheap space launches. India and China have been launching several foreign player payloads onto their spacecraft saving billions of dollars to the foreign players. India has achieved a rare feat of launching 10 nano satellites in one spacecraft (PSLV). Some claim India copied Russia. This was a precision which just cannot be achieved even if one claims copied Russia's. Implementation of spacecrafts just cannot happen by copying. You need great planning and skills to have an accurate launching the first time you ever do something. India's image has greatly enhanced in this particular endeavor which only Russia had so far.
ISRO helping the common man? Yes, read below...

One might wonder how much has ISRO helps common man? There are several facts to support the statement that ISRO does help the common man. 

  1. An excellent example is Oceansat-1 launched in 1999 that continues to help fisherman save a lot on diesel (boats they use to go for fishing). This is possible because Oceansat-1 relays continuous information on where the fish is more in the open sea. The information relayed from the satellite is converted into numerous local languages and are distributed to fishermen.  Here's what the Director of Vikram Sarabhai Space Center remarked on Oceansat-1.

  2. New applications of INSAT connectivity have emerged. One such application is the tele-medicine that makes specialised medical expertise available to people in remote areas. So far 46 tele-medicine nodes have been set up connecting 34 rural and remote hospitals with 12 super specialty hospitals. These include hospitals in Tripura. Leh in Jammu and Kashmir and Port Blair in Andaman and Nicobar.
  3. The INSAT system is used to track cyclone formations and their movements and issue warnings to the affected population in the coastal zones through the cyclone warning receivers.
  4. Almost 40 Doordarshan channels and several private players provide DTH (Direct-to-Home) services to several cities and villages. If there was no INSAT, there would have been no doordarshan or cable TV expansion in India.
  5. Sun, Zee TV depend on ISRO's Insat 4B without which Indian homes would not have access to several channels.

ISRO, in Sept 2009, launched Oceansat-2, replacing Oceansat-1. To know more about Oceansat-2, click here.

This has 3 major components (ocean colour monitor (OCM), scatterometer and radio occultation sounder (ROS) for atmospheric studies -- have been successfully turned on. The OCM, a multi-spectral imaging radiometer, provides information on chlorophyll concentration and helps locate potential fisheries zones. The scatterometer, an active microwave sensor, facilitates retrieval of sea-surface wind speed and direction, and monitoring polar sea-ice. The ROS measures parameters pertaining to lower atmosphere and ionosphere. The data provided by the different sensors on-board Oceansat -2, will also facilitate monitoring of turbidity and suspended sediments, sea-state and sea-surface winds, and meteorological/climatological studies. The satellite collects data over the entire globe once in two days.)

ISRO has been doing a fabulous job being a Govt organization is actually everyone needs to be proud of. While NASA gets about $17 billion, India gets $1 billion and yet ISRO has had a tremendous track record of putting satellites and space program to good use.

ISRO's future plans:

  1. ISRO plans to lauch Cartosat 2B which will enhance urban planning by getting clear cut images from satellite with extremely high resolution.
  2. ISRO plans to create Moon's environment in the labs to experiment the behaviour of rovers on Moon when Chandrayaan - 2 will be launched.
  3. Plans to launch GSLV which is the advanced rocket launching vehicle required for Chandrayaan-2 and further deep space exploration missions.
  4. Develop Indian Regional Navigational Satellite System <=> GPS of USA. So that we don't have to depend on GPS (which is owned by the US).
  5. Human space mission by 2015 for which recruitment has begun with a new training facility coming up in Bangalore.
  6. MISSION ADITYA: To study sun's corona and solar flares which destroy several satellites. This was one of the reasons why ISRO lost communication with Chandrayan-1.
  7. New satellite to power Satellite phones instead of depending on foreign satellites as of now.
So, let's hope for the best for ISRO and our country.

Thursday, February 18, 2010

How is the price of petrol and diesel fixed?

How many of us ever analyzed why petrol and diesel vary across all states in India? It is not that it should not vary, but why is the variation caused and what factors play into the price fixation?

India still has Oil prices and the Oil sector under Government monopoly. Unlike several sectors opened for reforms, Oil is still under Govt radar. Just a decade ago, one path breaking reform process was initiated by the then NDA Govt way back in 2001. The process of decentralization of oil prices and allowing international crude prices to play a direct role without Govt's intervention. Govt would intervene only if there is a oil shock or shortage. However, it did not work because there was widespread opposition from all states and some of its own allies, and the implementation was not complete. Now, almost after a decade, UPA Govt is under the same pressure from its own committee head Kirit Parikh who was asked to look into the same. His sharp and urgent recommendation is that Govt should allow market forces and not subsidies and vote bank politics to dominate oil prices.

Even before we understand why this recommended, let us look as to how petrol and diesel prices are fixed and who earns what out of this money.

The picture below explains this very clearly.

Let's take the price of Petrol in Delhi as Rs. 37.97.

Basic Price
Customs Duty
Excise Duty
Sales Tax
Dealer Margin

Note: Basic price includes cost of refining, transport, insurance and marketing margins


It is clear that taxes and duty constitute so much(almost 55% in the case of petrol) that this goes on increasing even if international crude prices go down. This is because Excise Duty which goes to center is its single largest source of income. Sales tax is imposed by the states and that also varies across states and no one is bothered to alter it as is a huge source of income. In states like Karnataka it is just too high. This causes huge disturbance in inflation as well. 

Let's explore some pricing mechanisms used:

Administered Price Mechanism - APM (1970-2001):

In 1970, APM was introduced by which govt would insulate the impact of international crude oil by maintaining an Oil Pool Account (OPA). This Account was filled by people paying excise duty, customs duty and sales tax included in the petrol price. So, using this Oil Pool Account (OPA), the Govt gave money to oil companies to maintain their under-recoveries (because LPG and diesel are sold by Govt at subsidized prices). Till 1990, OPA was positive and Govt was able to maintain balance with domestic prices and oil company costs. In 1991, post liberalization, consumption pattern increased and in late 90's OPA became OPD i.e Oil Pool Deficit running into thousands of crores. This forced Govt to increase petrol and diesel prices and yet running subsidy program for kersoene and LPG. The subsidy program is itself not helping those who have to get it. While kerosene reaches adulterated (done by middlemen) and LPG helps only urban and not rural people, the subsidy runs anywhere between 10,000 - 20,000 crores. The problem with this mechanism is that even if oil prices reduced in the international market, Govt was forced to increase prices just to maintain Oil Pool Account

Import Price Parity (done by NDA Govt in 2001)

In 2001, The NDA Govt led by Vajpayee took a major breakthrough decision of dismantling APM and allowed market prices (international market) to determine domestic prices.  Although this mechanism dismantled Oil Pool Account concept, Govt did not rationalize taxes imposed on states. The result: Increase oil prices again. The Oil Pool Deficit was merged with General Budget and govt began to issue Oil Bonds whenever there was crisis. It is really hilarious that Import Parity Price began to be used when not petro products but only crude oil was imported. The Import parity price (is the price at which the seller exports to another country including cost, insurance and freight expenses) for crude oil is much less than petro products.  So, if Govt was serious it would have reduced this , but it did not do so. And, further, the rule was every 45 days or so, prices will be revised. However, it was a politically sensitive matter to any party to mess with petrol prices as it affects the entire economy.

Trade Parity (2006-till present)

When International prices began to increase, the import parity pricing mechanism never helped us. It just began to increase and increase crossing 120$ a barrel. This had a disastrous effect. So, the Govt led by Manmohan Singh under the recommendation of the economic expert Rangarajan decided to use trade parity mechanism wherein the price will fixed as 80:20 ratio i.e 80% import parity and 20% export parity. The export parity price could be incorporated because Indian began to export certain petro products. So, by shifting to this mechanism, there was a considerable reduction in prices. However, the taxes induced were not changed resulting in the same situation.

Now, future? Deregulation and rationalization of taxes?

This year, the PM Singh got the expert advice of Kirit Parikh who has sharply recommended Govt to dismantle any interference in pricing mechanism and rationalize taxes across the country. Which means prices will be in tune with international prices in a transparent manner and at the same time, Govt will have uniform tax structure across the country. However, it is a very challenging decision which Govt has not yet taken

This decision itself is not going to help unless Govt decides to be flexible in tax imposition. Govt should be ready to have a uniform tax structure and when international prices increase, govt should reduce the tax.

The picture below indicates what happens if we allow our market open to international markets. It can be very deadly. Just see what happens if oil reaches $150 a barrel, petrol will be Rs.76/liter or so.


Wednesday, February 10, 2010

Understanding Inflation through Graphs

Our demand has increased, but productivity is still 2,200 kg/hectare w
hile China uses hybrid rice that allows it to produce 10,500 kg/hectare (ALMOST 5 Times as India's). Look at the price rise over 10 years

Our wheat production has increased but no proper storage mechanisms allow it to rot and the corrupt PDS won't let it reach the poor thereby spiralling prices.



Pulses required : 18 million tonnes Pulses Produced: 13 million tonnes
India is the LARGEST PRODUCER,  IMPORTER AND CONSUMER of pulses. The middle east and other countries produce < 5 million tonnes. Hence, when we import global prices and local escalate.
We never have increased productivity and is the same output as in 1951.

GOVT Decides the price, sale and if sugar needs to be imported or exported.  India is 2nd largest producer of sugar and when we import, global prices escalate. Best thing to do is decontrol sugar.

 We could have been self-sufficient with edible oil, but due to poor oil seeds and low productivity, we are seeing the crisis.

Shortfall : 11 lakh tonnes to 43 lakh tonnes (from 1996-2008)
Our Consumption increase: 76 lakh tonnes to 120 lakh tonnes (from 1996 - 2008)

Output: 175 million tonnes and is 2nd largest producer in the world.
However, 70,000 Crore worth of produce is wasted because of storage issues and Govt not opening to retail reforms by which foreign companies can start processing the fruits/vegetables and ensure farmers get good price and there is no artificial scarcity. Retail outlets are much better than middlemen in many ways esp w.r.t prices.

When govt manipulates MSP (Minimum Support Price) prices of the essential items increase or decrease. this has to increase so that farmers get a fair share. Some figures:
Rs.580/quintal to Rs. 1030/quintal => Price increased from Rs.13 to Rs.23/kg
Rs.620/quintal to Rs.1100/quintal => Price increased from Rs.8 to Rs.14.5/kg

This subsidy bill  - i.e giving lower price to Below and Above poverty Lines costs the Govt Rs.90,000 Crore every year

Govt should really do contract farming, allowing companies to lease the land, ask farmers to grow and give them a fair price based on rates in the market. Pretty much like Public private participation that has boomed highways sector.

  Board of India Today Economists gives its views on how to bite the bullet on runaway inflation
• Industrial production
capacity exhausted
• Controls on imports
of agro products
• Real estate, capital,
skills in short supply
• Lack of agri reforms
• Expectations fuel
further inflation
• Zero growth in food
• Money supply up on
rise in capital inflows
• Inflation is a global
• Rising input costs
• Inflation in services
like education, health
• Low foodgrain
• Overheating in some
industrial sectors
• Accumulated impact
of fuel prices
• The impact of VAT
• Global inflation in inputs such as steel, zinc
• Excess demand
• Supply rigidities,
poor output, imports
• Income growth is
driving food demand
• Global inflation in
raw material cost
• High petro tax robs
low crude price benefits
• Accelerated growth
and demand pressure
• Medium-term weakness
in agri growth
• Mismanagement of
wheat stocks
• Global price rise due
to growth in China
• Expectations fuel rise

• Don’t over-react and
jack up interest rates
• Free up agri trade
• Introduce farm
sector reforms
• Eliminate middlemen
in agriculture
• Free up real estate
sector, privatise PSUs
• Reduce import,
excise duties, taxes
• Make rupee stronger
• Lower money supply
• Free up food imports
• Open up supply
bottlenecks in sectors
—from real estate to
food products
• Raise farm
• Cut non-agri
import tariffs
• Monitor buoyant
capital inflows
• Get set for CRR hike
• Enable food imports
for price control
• Remove supply side
• Higher collections
should enable tax cuts
• Invest in agriculture
• Use imports to
tackle speculation
• Calibrate demand
• Measured approach
to monetary policy.
• Import foodgrains,
on public account
• Avoid adhocism like
petrol price cut
• Cut customs on final
consumer products
• Avoid panic reaction