Life Exclusive
US presidency: A clash of constitutional values

The battle lines are being drawn and it is Equality Vs Liberty. In the Red Corner (Republican) Liberty. In the Blue Corner (Democrat) Equality. Sometimes to get elected you have to start a war

I realized that president Obama was being seriously underestimated when I read a pundit—in the Time magazine accusing Obama of playing small ball in the election campaign—no big ideas only the minutiae of governance and a pundit on CNN saying that the Obama campaign has finally found its theme—the Buffett Rule but it was the wrong theme. As the Buffett Rule will only provide revenues of $47 billion of revenue over ten years whereas the total budget expenditure would be $45 trillion i.e. the president was playing small ball. 

The campaign has hardly begun and the punditry is coming thick and fast. I personally doubt that a billion dollar war machine (that is what the President's Campaign Fund is expected to be) is going to restrict itself to a small hall. Anyway, the theme of the Obama campaign seems to be already emerging and the Buffett Rule is only part of it, as is the theme of the Romney campaign. 

It seems to be a clash of two basic values of the US Constitution. Liberty and Equality. In the Red Corner (Republican) Liberty. In the Blue Corner (Democrat) Equality. Just as in the French Constitution, Liberty, Equality and Fraternity are central to the US Constitution The president has already been taking the side of the little guy and the middle classes and is likely to paint himself as their champion. And his attempt to introduce the Buffett Rule should be seen in that light. The Buffett Rule (named after the billionaire Warren Buffett) is based on the idea that the Warren Buffett pays less tax (at a lower tax rate) than his secretary which is basically unfair. I suppose what that would mean is that while in most countries around the world the higher your income the higher your tax slab, in America the higher your income your tax slab goes down (with all the tax exemptions). That seems to be prima facie unfair. Hence the Buffett Rule provides that people earning more than a million dollar a year (around Rs5 crore) should pay as much tax as people with lower incomes. The commentators carp. 

They say that it raises only $50 billion which is chicken feed in terms of the trillion dollars and counting the budget. They miss the point completely. It’s all about the symbolism. It also about president Obama saying that yes, you may be super rich but I will treat you the same as the little guy. The wisdom of such a move may be in doubt but not the symbolism. It is meant to empower the middle classes. And it plays perfectly into the biography of his Republican opponent Mitt Romney who is a millionaire several times over and was the president and head of Bain Capital, a large venture capital firm. His Republican contenders during the Republican primaries hit out at Mitt Romney for being a vulture capitalist rather than a venture capitalist.

Newt Gingrich was particularly harsh. But Romney is personally enormously rich and famously out of touch. He famously said that corporates are people too and said that he wasn't really concerned about the very poor of America. This biography will play directly into president Obama’s campaigning for the middle classes and the little guy. And Obama care as well as president Obama’s plans on contraception have to be also seen in this light as empowerment. And do remember that the middle classes outnumber the rich several times.

Mitt Romney has already taken up the gauntlet. While celebrating victory in New Hampshire after winning five states including New York, Mitt Romney spoke up for freedom. America he said was a land of freedom where people could achieve what they wanted to—the freedom to reach for the skies and to achieve your dreams. Curiously that too will dovetail into his biography. His father famously started by selling paint from the boot of a car and ended up as the governor of Michigan. He further said that getting rid of Obama care was about the freedom of choice as opposed to being governed by czars, boards and bureaucracy. And of course in any Republican campaign the Right to Bear Arms is bound to feature. Further he framed the women and contraception issue as a question of freedom of religion.

So the battle lines are being drawn and it is Equality Vs Liberty. Some are accusing Obama of starting a culture war. Sometimes to get elected you have to start a war.

(Harsh Desai has done his BA in Political Science from St Xavier’s College & Elphinstone College, Bombay and has done his Master’s in Law from Columbia University in the city of New York. He is a practicing advocate at the Bombay High Court.)



Life Exclusive
Introduction of textile quota for the US

The UAE government should be credited for pushing the industry hard so that they established themselves well and secure a good name overseas. The 28th part of a series describing the unknown triumphs and travails of doing international business

Some six weeks or so after the surprise visit of the American Textile Delegation, we were all subject to various rumours in the market. For one thing, the closed-door discussions in the Free Zone as well as various chambers of commerce and industry in all the Emirates continued.


In fact, the first major move was made by the Dubai Chamber. Our director general Abdul Rehman had called for a brief talk over the phone, after which I alerted all the JAGTA members to attend. A lot of manufacturers outside the JAGTA were also associated with it, because they had registered for getting regular reports from our lobbyist in Washington DC, which JAGTA had arranged. Their reports were regularly transmitted by fax to all registered manufacturers in the country and this service was done from Finetex office, as I was operating from here. The Dubai Chamber meeting, attended by manufacturers from every Emirate was the first major get-together of its kind, where they were assured that the government was fully aware of the growth of the industry, and every possible support will be given to strengthen the same.

All the chambers of commerce, ministry for industry and the Free Zone had a fairly good idea of the machinery capacity of all the plants in operation. They also had the full human resources data of the number of visas issued to each of the plant. Additionally, they had compiled the statistical data of the type of finished garments that was being exported out of the country. Because of the meticulous record kept in the Free Zone, they had a good idea about the quantum of import of fabrics and accessories; besides, when their inspectors regularly visited various plants, they had acquired a good knowledge of plant capacities. Records were kept of every fabric received in-house, in the Free Zone, and when this was transported to another plant in the country for conversion. This was done to arrive accurately an estimated production capacity of the each plant and the type of garments they would be able to make, visa-a-vis what they were actually shipping.

This was a formidable task but the staff of the zone and the ministry was fully up to the mark and kept pace with the developments. So, when the overall quota was received by the UAE, we did not know how this was divided among the Emirates or by the established production capacity of the plants, in the manner described above. The distribution was fair and equitable.

For example, both Palmon and Atraco were fully-equipped and organized to make all kinds of shirts; so, if they had the need, they would be able to switch over to make basic ladies blouses, though, they would rather make shirts, which they knew best. Wellworth, made a lot of children’s garments, though, they did make other products also. Finetex made both shirts and blouses, though a large capacity was assigned for the production of jackets, trousers and shorts.  They made different kinds of T-shirts too. Singleton specialized in shirts too.

Yet, when the notification came, all of us had a fair distribution in terms of quota allocation, based on what we had produced and exported in the past two years and our own installed machinery capacity. Naturally, the tendency was to ‘buy’ the quota from another manufacturer of the items one was interested in and ‘sell’ what they preferred not to make. If Palmon or Atraco sold their shorts quota, it was done in such a fashion to acquire their shirts quota, and so on. At the end of the day, I do not think anyone was upset about the quota distribution made by the government. Many swapped their quotas.

On the top of it, we later on discovered that we were able to approach the ministry for special or additional allocations, if we had exhausted our allocated quota and had to complete our orders. Also, as the ministry was keeping a very close watch on the quota situation; they were also effectively following up with manufacturers to consume the quota. They knew full well that at least a lead time of four months was required, if one had to secure an order, place the fabric requirements, acquire the accessories and manufacture for the shipment.

In every way, I would credit the government authorities for pushing the industry hard so that they established themselves well and secure a good name overseas.

As we were struggling with this situation, we had the surprise visit from the Canadian government, who too wanted to verify the existence of the textile industry in the UAE, and establish a similar quota procedure for their country.

Having gained the confidence of our well established relations with the US market, we were able to convince the Canadian team as well that the industry has come to stay and are in fact helping to employ a large number of people from the Asian countries, classified as LDCs.

Enterprising manufacturers, meanwhile, had made some headway in establishing beach-heads in UK, France and Germany; it was not practical to break into the East European Block, but a beginning was also made in Australia.

All the manufacturers in the Free Zone, who were procuring overseas orders directly for a variety of garments, were left over with excess production in varying numbers from each order. I think, it was around this juncture, when the UAE Industrial Exhibition was organized in Dubai. I think it was inaugurated by the then defence minister, HRH Sheikh Mohammed (who is the ruler of Dubai now), and was well received. All the manufacturers were permitted to offer their excess production to the local market and this was an unexpected bonanza for the industry.

It must be remembered that such a large working population for this industry alone was making a sizeable contribution to the UAE economy and the government gave full support in every way possible.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts. From being the advisor to exporters, he took over the mantle of a trader, travelled far and wide, and switched over to setting up garment factories and then worked in the US. He can be contacted at [email protected].)



ICICI, 2 other banks on Moody’s notice for possible downgrade

Moody’s Investors Service said it has placed on review for downgrade three banks in India (ICICI Bank, HDFC Bank and Axis Bank), whose standalone credit assessments are currently positioned above India’s sovereign debt rating

New Delhi: Global ratings agency Moody’s on Monday placed credit ratings of leading private sector banks, ICICI Bank, HDFC Bank and Axis Bank, on watch for a possible downgrade within three months, reports PTI.

Moody’s Investors Service said it has placed on review for downgrade three banks in India (ICICI Bank, HDFC Bank and Axis Bank), whose standalone credit assessments are currently positioned above India’s sovereign debt rating.

The announcement reflects Moody’s revised assessment of the linkage between the credit profiles of sovereigns and financial institutions globally.

“Consistent with this guidance, Moody’s expects to position the standalone credit assessments of most banks globally at (or below) the rating of the sovereign where the bank is domiciled,” Moody’s Investors Service said adding “Moody’s expects to conclude the reviews within approximately three months”.

In its reaction, ICICI Bank’s spokesperson said: “The rating action by Moody’s is not a change in the sovereign rating of India and not affect ratings of any instrument issued by ICICI Bank (bonds or deposits).

“Our ALM (Asset Liability Management) is well matched with asset repayments in FY 12-13 broadly covering our bond and loan repayment obligations. We do not need to access bond markets for refinance. We will look at accessing the markets to raise funds for new lending depending on the cost and the rates at which we can deploy the funds,” ICICI said.

Moody’s has also placed the insurance financial strength rating of Life Insurance Corporation of India (LIC) under review for possible downgrade.

The announcements come close on the heels of lowering of rating outlook of 11 financial institutions, including these three private banks, by Standard and Poor’s.

All the three banks have ‘baa2’ foreign currency long-term ratings from Moody’s, which reflects medium-grade investment rating with some speculative elements and moderate credit risk.

Another statement said that “Moody’s has placed the insurance financial strength rating of Life Insurance Corporation of India (LIC) (Baa2/stable) under review for possible downgrade”.

Moody’s said that the review for downgrade reflects LIC’s direct exposure to the Indian sovereign risk in terms of its investment portfolio and business profile.

As of 31 December 2011, government securities and government guaranteed bonds represented 54% (Rs6 lakh crore or about $111 billion) of the insurer’s total cash and invested assets and 764% of adjusted shareholders’ equity, the statement said.

It said almost 100% of its net premiums earned are from India.

“Furthermore, LIC has been increasing its exposure to public sector banks through equity investment, in addition to the purchase of shares in Oil and Natural Gas Corporation which is 69.14% owned by the Indian government in March 2012,” it added.


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