Citizens' Issues
CBI registers fresh case in coal scam

A CBI probe revealed several irregularities in the allotment of a coal block to Jharkhand Ispat Private Limited, for its sponge iron plant

The Central Bureau of Investigation (CBI) on Monday carried out searches in five cities after registering a new case against Jharkhand Ispat Private Limited for alleged irregularities in the allotment of coal blocks.


CBI sources said that Jharkhand Ispat Private Limited, a company of the RC Rungta Group, was allotted North Dhadu coal block on 13 January 2006 for its sponge iron plant.


They said the agency detected several irregularities in the allotment after which a case was filed against it and unknown public officials.


The sources said details of the FIR could not be revealed as searches were still going on at Varanasi, Hazaribagh, Kolkata, Ranchi and Delhi.


The CBI has so far registered 10 FIRs, including this one, in connection with the coal scam.


The agency had earlier also booked some companies for alleged cheating, forgery and misrepresentation of facts in their applications for coal blocks.


RTI Judgement Series: How MCD officers kept pushing papers for three years

In one representative case it was revealed how officers from the MCD kept pushing papers from one desk to another for over three years without any productive work. This is the 53rd in a series of important judgements given by former Central Information Commissioner Shailesh Gandhi that can be used or quoted in an RTI application

The Central Information Commission (CIC), while disposing off an appeal, stated that this was a representative case of how officers from the Municipal Corporation of Delhi (MCD) kept pushing papers from one desk to another without any productive work.
While giving this important judgement on 30 September 2009, Shailesh Gandhi, the then Central Information Commissioner said, “The deemed Public Information Officer (PIO) showed that a number of man-hours in the MCD are being wasted by moving the files from one table to another."
Bahadurgarh (Haryana) resident Vipin Gupta, on 20 April 2009 sought information related to payment of bills from the Municipal Corporation of Delhi. Gupta was also a contractor of the MCD. Here is the information he sought and the reply given by the PIO...
1. Face-lifting of maternity centre & child welfare centre Dr. staff Qtrs. in Old Rajinder Nagar in C-127/KBZ/Div. now EEM-I/KBZ H/A XVI.J. VII.I W.O. No.-10/EEI/TC/KBZ/05-06 dt.1/04/05.  What is the Status of above said H/A.
PIO's reply- Non Plan demands under all heads of accounts received in this office up to October 2008 have already been released. Status of Head of Account pertains to DHA.
2. The above said work was completed in 2005 & bill was passed on 28/03/2006.  How long you will take to release the payment.
PIO's reply-Non Plan demands under all heads of accounts received in this office up to October 2008 have already been released. However, details regarding passing of bill, whether send in demand etc. can be given by EE-M-I/KBZ.
Due to non-receipt of information from the PIO, Gupta filed his first appeal. The First Appellate Authority (FAA) in his order directed the Executive Engineer-I to ensure that the pending payments of Gupta are released at the earliest, under his intimation.
Not satisfied with the reply, Gupta then approached the CIC with his second appeal.
During the hearing, Gupta said he was contracted with the MCD and raised a bill of Rs1.39 lakh in March 2006 which was not paid. The PIO and FAA, both admitted that the amount was due to Gupta.
However, Gupta contended that since the budget of the particular head had been exhausted in 2006, the MCD was unable to make the payment even three years later.
During the hearing, the PIO also showed Mr Gandhi, the then CIC, the number of man hours wasted in MCD by moving the files from one table to another.  
“This is a representative case of how MCD officers keep pushing papers from one to another without any productive work. The respondent states that the payment will be made soon but he is unwilling to define how much time ‘soon’ means," the CIC said while disposing the appeal.
Decision No. CIC/SG/A/2009/001933/4973
Appeal No. CIC/SG/A/2009/001933
Appellant                                                         : Vipin Gupta
                                                                               Bahadurgarh, Haryana
Respondent                                                     : Suresh Chandra
                                                                               Municipal Corporation of Delhi
                                                                               Office of the CA cum FA
                                                                               Town Hall, Delhi-110006


Fat tails have a tale to tell

Between 1998-2013, out of a total of 3,785 days, movement in the CNX 500 was outside 3 sigma on 60 occasions, that is 1.59% of the total. By normal distribution, less than 0.03% observations should fall outside the 3 sigma

In the world of investments, returns are measured by the first moment of prices (mean) and the risks are measured by the second moment (standard deviation or sigma). Most of the classical theories of finance are based on the assumption that the returns are normally distributed. In the probability theory, the normal distribution is a bell shaped curve of probability values for various natural events—hence the word ‘normal’. This distribution assumes that the tails or the ends are flatter and extreme events are rare. For example, this means that the probability of returns moving more than three standard deviations beyond the mean is 0.03%, or virtually nil. But what is ‘normal’ in markets?

In the Indian context, taking daily CNX 500 data from 1 January 1998 to 28 February 2013 (more than 15 years), 99.73% of the daily returns should ideally fall within -4.97% and 5.09%. Or less than 0.03% observations should fall outside the 3 sigma.

Out of a total of 3,785 daily observations during the period of analysis, 60 times the returns were outside 3 sigma in the case of CNX 500, that is 1.59% of the total observations. Clearly much more than we bargain for. The rule book says that if we are looking at daily events, a 5 sigma event would occur once in 4,776 years. A 6 sigma event would occur once in 1.388 million years and after that, the numbers are, let's just say too big to bother.

On 17 May 2004, the financial market experienced a more than 7 standard deviation fall, when markets crashed due to political uncertainty. Markets fell more than 5 to 6 standard deviations many times in 2007 and 2008, owing to global melt down. Similarly, the market posted a more than 9 standard deviation gain, once again due to the political scenario in the country at that time.

In reality, we have experienced 5, 6, 7 or even more than that, sigma events more frequently than what the normal distribution suggests and we dare to accept.

This is true globally, not just in India. For instance, Goldman Sachs, Citigroup, UBS, Merrill Lynch, all experienced large (as large as 25) sigma events on multiple days in 2007 and 2008. There was the South East Asian crisis, the 11 September 2001 attacks on the World Trade Centre, the Euro crisis, all in the past two decades.

It is not just that these events occur more frequently, these events have greater impact, as well. The impact is, in fact, higher due to the surprise element attached to them. It hits one at the place where it hurts the most and makes it very difficult to recover.

Our observations suggest that the distribution is more leptokurtic in nature, with fatter tails. This means that more observations are concentrated around the mean and tails are fatter, or have greater number of observations than suggested by the normal distribution.

So what we must do is first, acknowledge the limitation of our knowledge that we cannot explain everything and second, we must believe that such events occur more frequently than we had thought. This must call for better risk management systems. Perhaps these events indicate that we must prepare for more incorrigible things that will happen.

What this also points to is that the assumption of normal distribution does not hold. Hence, financial mathematicians must look at distributions with fatter tails for building their theories and models.

Additionally, Daniel Kahneman’s prospect theory says that humans are more likely to act to avoid loss than to achieve a gain, articulated very well in his book “Thinking fast and slow”. If we accept this to be true, then it becomes all the more important for the theorists and professional money managers to rethink the way they build models or the appropriateness of the models which they use.

As for the investors, it would be wise to question their financial advisor on the soundness of their advice during a large sigma event!

(Nupur Pavan Bang is a senior researcher at the Centre for Investment, Indian School of Business, Hyderabad. Khemchand H Sakaldeepi is a researcher at the Centre for Investment, Indian School of Business, Hyderabad.)


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