Ramanathan's Essays

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By

A V [email protected]

2012


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Sincere and idealistic Involvement in nationsglory

Apolitical storm is brewing over the Country, may be rightly, onthe massive Corruption issue which has erupted last year and manyskeletons have dropped off the cupboard. Action were inevitable, andquick decision taking was desirable, but the Government dithered sayingCoalition dharma, contradictions in the coalition parties which comprisedthe constituents of UPA II It was the mere strength of numbers of theLeft Parities which restrained and constrained the Government and thebereft of checks and balances in the UPA II Coalition made the politicalwill of the Government weak, with the Political and Governmental wingsgoing parallel as far as Policy issues are concerned.

Lack of statesmanship saw the Government complicating thegovernance and action during Crisis after crisis. Government did nothave a crisis management team which could diffuse crisis by timelyaction.

Let me not go cynical. People of India, disgusted and despairedwith scams after scams, that have emptied the exchequer, andgovernments apathy to take concrete and timely action have energizedpeoples anger and manifested itself in full outcry when Anna Hazare, aGandhian, took on the government single-handedly with his fight againstcorruption which took to gigantic proportions. It has swelled to every

village after village after engulfing the towns, and Indias futuregeneration of students are out on the streets. A crusade is on. WhenAnna Hazare, announced a fast on August 16th well in advance, thecallous attitude of the Government and its spokesmen created distrustand divide which grew wider and wider. Invoking Sec 144 of IPC,government went for Preventive detention of Anna which showedpolitical brinkmanship. Government should not pretend not to seethe outpouring of protest against its inaction and call thecrusade as misconceived.

The growing blunders Government committed including

constituting a drafting Committee consisting of only 5 nomineessuggested by Hazareji, and Government nominated 5 nominees to makethe total number of representatives in the drafting committee to ten.This was the first undemocratic step. India has very tall civicactivists, public spirited citizens, and retired bureaucrats known for theirintegrity and performance, brave retired military personnel who wongreat honours, tall and patriotic newspaper editors, spokesmen of manyNGOs, legal fraternity (Bar Associations), doctors, service organization

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one act against the loot! Prime Minister increased the budget ofCommonwealth manifold. Was it Right of discretion?

The contentious issues between Government representatives onthe Lokpal drafting Committee narrowed down to two- one, bringing

the Prime minister under the ambit of the Lokpal Bill andsecondly, bringing the judiciary under Lokpal.

India has a written Constitution. The preamble of theConstitution says, We, the people of India, have given untoourselves this Constitution. and it has a republican characterthough India continues to be a member of the Commonwealth. UnderChapter III of the Indian Constitution, Fundamental Rights areprescribed. In the Keshavananda Bharati Vs Govt of Kerala case inthe Supreme Court following Golaknath Case, the Honble SupremeCourt has clearly indicated that the fundamental rights are absolute

rights (Honble Shri Kapil Sibal says fundamental rights are notabsolute rights?) granted to Indian citizens under the Constitutionand their abridgement is subject to conditions stipulated under Art 356of the Constitution in case of internal disturbance, external emergencyor war. The fundamental basic structure (character) of theConstitution cannot be altered, stated that Judgement which isthe present Law.

Under the Constitution, the power of appeal, and final settlementof a Case, invoking its power to suo moto take up a Case etc(OriginalJurisdiction, Appellate jurisdiction, transfer a Case from any Court in

India to itself) is vested in the Supreme Court of India, based on theIndian Constitution, which is an infallible clause. If the version ofJanLokpal prepared by the Civil society which was represented in thedrafting Committee has to be conceded that theJudiciary be broughtunder the ambit of Jan Lokpal, then the Right of the Highcourt/Supreme court, to hear an appeal against any order ofTribunal, Committee set up by an Act of Parliament, legality ofthe punishment or otherwise granted, Constitutional validity ofa Bill passed by Parliament into an Act is against the spirit ofseparation of Powers, and Parliament being one of the wings ofSeperation of Powers cannot pass a Constitutional Amendment

Bill which takes away the right of constitutional institutions setup by the Constitution and assigned powers as envisaged in it.It is against the dictum of Rule of Law. If such a Law is passed, itbecomes ultra virus of the constitution because it infringes on thebasic structure of the Constitution, the theory of separation of Powers istaken into the hands of legislation like Right of disposal of appeal istaken away, and the Courts are rendered redundant. How canLegislature which has an independent slot with the Judiciary introduce

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such a clause and take away such a Power? Parliament can passJudicial Accountability Bill, but cannot take away by any Law, theJudiciarys right to intervene in any decision of anybody including thePresident of India in a matter where equality before Law is justified.

Jan Lokpal Bill takes on itself the power to receive complaints,investigate, and prosecute. But who will adjudicate the reasonablenessof the arbitary decisions of Lokpal. There is always a clause for appealotherwise it will smack of dictatorship. Such a conferred power createdby Indian Parliament is ab initio void. Will Shanti Bushan or PrasantBushan clarify?

Second, the inclusion of the Prime Minister in the Bill. He isthe executive Head of the State. The Courts have decided in aJudgement (Supreme Court), that there shall always be a Council ofMinisters to advice the President. President can go by the advice

rendered by the Council of Ministers headed by the Prime Minister. Theonly condition that is imposed by the Constitution is that he shallcommand the majority of the House. Suppose, hypothecatically, he isbrought under the Lokpal Bill and he is accused, until the Lokpaldisposes off the Case, he would be under a cloud unable to perform hisnormal duties. There is no provision in the Constitution which makes thePrime Minister come under a cloud, he is tried and then he is exoneratedor punished and he has no right of appeal?

Moderates and Radicals in the Civil Society are right indemanding a Lokpal Bill which has gone beyond proportions. It is also

the duty of the Government to punish anybody found guilty of corruptionwithout mercy. But an Act to deal with Corruption should be stringent,legal, lawful and neutral.

People of this Country have placed their trust and faith in AnnaHazare that is the greatest veneration the Gandhian could get. I requestthe Government to convince Shri Hazareji to be reasonable in his hour offame, withdraw the fast, allows the Government to pass the Bill into anAct without the two issues which are contentious and unconstitutional.Gandhians are reasonable to accept facts if explained to them.

Mere Bharat Mahan. Jai Hind.

-o-o-o-o-o-o-o-o-o-

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Wake up to the dark reality?

We have today in India, doomsday Economic rule by the theory lurkEconomists who are far out of reality. India has unique features, more,geographic and economic frames than that is visible on the surface. When thegong is good, every body tributes, when the going is to backwards, we move tothe bullock cart age. The Planning Commission, emerged as a most powerfulbody, but little can be said about its performance, way ward laid back attitude,

insipid outlook on an Economy which was forecast to be the most emergingeconomy of the third millennia. India is on the verge of a crucial fall, and thefall out will be a limping India, which may not regain momentum andequilibrium in the fast moving world economy. We have a weak PMO, which donot have inter-personnel and task master qualities. Most of the problems havebeen energized, and ha its beginning here. The administration disarray canhave its origin in the corridors of South block

Let us look at some of the incidents to get a feel of the governments(dis)unity. March 25, 2011 consolidated note cataloging the chronicle of eventsand the inference that Chidambaram could have done more is based on thehypothesis of the various elaborations of events and conclusions, which are

interpretations and conclusions. This resulted in the sparring match betweenthe governments top two ministers who were the eyes of the Government anduproar asking for the head of the Minister. The genesis to the whole cause ofdiscomfort is the CAG Report which fixed the loss of CAG Scam at Rs 1.76 lakhCr. The Opposition made it an issue, the media made it a greater issue, and thehighest Court made it an issue. It set in motion proceedings which have rockedthe government. In the case of this sort, loss is presumptive, imaginary orunreal. First and foremost was, 2 G spectrum was not known in India thatwidely. Market perception was there was a possible market but whether itwould result in landslide sale could not have been anticipated. Secondly, theentire market was the rural centric. Now to jell the figures on an offer of S Telwho asked for a pan India license of Rs 13,752 Cr, and the price fetched by 3 G

auction in May 2010 (2 G offering were made on January 10, 2008) amountingto Rs 1,02,497 Cr, the price of additional load of equity, mind you, not off-loading the existing equity of Swam and Unitech (2008-9) fetched around Rs9,000 Cr(USP was Spectrum as the mover of the share sale), cannot pre-fix theimaginary sale price of 2 G Spectrum. A realization of a Post event, cannot beequated with a back dated event, and economics does not run that way. YetAudit fixed the loss at Rs 2,645 Cr while CAG Final report quantified the loss atRs 1.76 lakh Cr. Was it deliberate, or did it have mathematical assumptions, or

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dissentions, should be first probed. Both the ruling party as well as theopposition should weigh the scales and do a independent honest exercise.

Planning Commission seems to be creating definitions out of the sky.One Tendulkar Committee appointed by it set poverty cut off at Rs 20 percapita in urban area and Rs 12 per capita in rural area. The Commission, the

Commission used to define poverty using minimum food intake criteria of2,400 calories (rural) and 2,100 calories (urban). In 2004, 24% of thepopulation was BPL according to this formula. Tendulkar definition whichprescribed expenditure on food, education and housing, which was acceptedby the Plg Commission, saw the figure of Below Poverty population to increaseby 10% to make it 37%. The affidavit filed by the Plg Comm on 20-9-2011 saysexpenditure of Rs 965/pm (urban) and Rs 761/pm(rural) cannot be deemedPoor hence security schemes should not be provided to them. The rest, 32% ofthe population is targeted as Poor, whose annual income is Rs 4800 per month(urban), and Rs 4,000 (rural) with 5 in a family as unit. A Chawl costs Rs 1000/-pm (Mumbai), subsidized monthly pass for BPL(at Bangalore) costs Rs 700/-,factoring this, the available balance with the BPL family in a urban area is Rs

3,000 pm. Government is presuming Education and Healthcare to be Free.Medicine costs, school books, have to borne by the families themselves. Poorhouseholds are on the rise. World Bank puts Poverty line as income of US $1.25. If this analogy was accepted, 41% of Indian families are in the Povertyline, while the Comm pegs it at 32%. It is for the wise in the ruling party andOpposition to demand the working from the Planning Commission

Today crisis stem out from the fact that the political party which isgoverning the nation does not have second rung leadership. Prime ministerbeing a non political person does not have the Political will. Opportunisticministers are on one up-manship to show their rudder. Planning Commission isdoing little planning these days and is more interested in creating problems

than solutions. PMO also has people who do not do proper homework and donot vibe with the people to understand matters at grass root level. The Statesare on the reckoning as power bases, does everything to confront the Centrefor the least small thing. This is not good. When re-organization of states onNov 1, 1956, a written commitment was given by all the leaders of Andhra thata unified Andhra be created, even though Andhra state came into being in1952 with Kurnol as headquarters, how could political parties go against awritten promise? Bifurcation and Trifurcation of States will increaseadministrative expenditure, and you cannot split riverines, resources, cities.

Prime Minister of India should wake to the dark reality. India cannot paya price of drifting, when all the others are concentrating on creating a strongeconomy. A prosperous India has been the dream of our national leaders.Cheap politics have no place.

-o-o-o-o-o-o-o-o-o-

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The shy and the mute middle-class

The middle class is any class of people in the middle of a societalhierarchy. In Weberian socio-economic terms, the middle class is thebroad group of people in contemporary society who fall socio-economically between the working class and upper class.

Could the Great Indian Middle Class be the Great Indian Mythical Class? A

persistent source of confusion surrounding the term "middle class"

derives predominantly from there being no set criteria for such a

definition. From an economic perspective, for example, members of the

middle class do not necessarily fall in the middle of a society's income

distribution. Instead, middle class salaries tend to be determined by

middle class occupations, which in turn are attained by means of middle

class values. Thus, individuals who might fall in the middle ground on a

societal hierarchy as defined by sociologists do not necessarily fall into a

middle ground on an economic hierarchy as defined by economists. As aresult, intuitive colloquial and journalistic usage of the term casts a wide

net and does not necessarily coincide with an academic sociological or

economic definition.

National Council of Applied Economic Research (NCAER) has held

that a family with an annual income between Rs 3.4 lakhs and Rs 17

lakhs (at 2009-10 price levels) falls in the middle-class category.

Applying this arithmetic, NCAER hold that the middle-class households

would be 53.3 million (267 million people). This unwieldy definition base

puts the statistics to ridicule. The same way, Planning Commission

calculated poverty as per day spending equivalent to Rs 32/- in urban

and Rs 26/- in rural area. The absurd methodology adopted by these

bodies to calculate the basic statistics is to arrive at a high figure in the

case of middle-class and a lower figure at the Poor category of the

Population. Growth rate has never been able to reduce the

unemployment rate which stood at 9.4%(2009-10) while average

quarterly growth rate has been averaging around 7.45 % between 2000-

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11, even though in Q3 of 2003, the growth was 11.8%, Q3 of 2002 was

1.6%.

Rob Peter to pay Paul. This seems to be the economic philosophy

of the Government. In spite of persistent, consistent, aimless designed

social security programmes with outlay of Rs 1 lakh Crores have beenear-marked end up neither incomplete with neither the physical nor the

monetary targets accomplished. The Policy editors have narcissist

temperament, deceptive assumptions and outrageous greed. Against

laudable objectives with which the Scheme was ambitionally lodged the

Result is dismal emptiness, creating an un-necessary class war. The Poor

continues to be poor, and the generation gap sees another poor taking

over from his ancestor (Munishi Premchands famous story), when our

well worked Planning Economics take us half way to zero, mathematics

no longer work as predicted by our Vice Chairman of the Planning

Commission.

Horizontal organizing, democratic decision making challenges,

technocratic governance driven by credentialed experts, takes Indian

economy to the dark jungle economy of wealth for all!

The term middle-class is a classical example of a semantic plot! It is a widely

misused term. People of the cattle class, legacy of the Victorian era, is it not linguistic

outrage? The rich are busy counting their cashes. The Poor, darling of the political

class, social scientists and so called intelligentsia, while, the middle-class forlorn and

uncared is without a Patron or a God-father but increasingly, the Finance Minister

wants him to buckle his shoes by making him pay dear. His salary is cut in the mode of

Tax deducted at source, service tax clamped while he is lax in collecting taxes from his

favourite Corporates who enjoy plethora of tax concessions and benefits and in case of

trouble can approach the settlement commission

The income earned by the Cricket Board which vulgarly displays wealth is

exempt from taxes. What public purpose they serve, only the North Block die herds

know. Tap funds from these people who figure in Forbes list, increase the tax slab for

the high rich, those who build houses worth Rs 250 Cr or something less. Float high

interest Government bonds and compulsorily make these corporate houses to

purchase them, so that the additional income earned can be used for reducing fiscal

deficit. World Bank has pointed out that Indian Government is very liberal with only

some low taxation base at the higher income slab- only some 15-16% of the GDP is

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collected as direct taxes, mostly they are the middle class who can be meddled in any

way to shell out, as compared to 25-40% in developed countries, enough taxes from

the taxable lot. But the Corporate rich, who play the victim card, say that the jealous

Indian Middle mentality in them feel that they want to take somebody elses Cadillac

for nothing!

In India, the middle class is a neglected constituency. Hike, hike,hike in the domestic interest rate on a regular level, while allowing theCorporates the luxury of availing Credit from External markets at lowrates, increasing the prices of petrol incessantly, not because of highcrude world prices but for making the Public sector navaratna bulgetheir profits, tinkering with indirect taxes, and reducing the taxableportion of income from the Corporates while hiking the rate for themiddle-class.

The population share of the rich is shrinking, the Poor is shrinkingbut the middle-class is growing. This augurs well for the prophets ofhigh, higher, highest growth in the Indian Economy.

-o-o-o-o-o-o-o-o-o-

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Rule of Law is natural Justice without discrimination

Judicial activism is desirable in a democracy, but it should notwater down the Natural Justice which forms the core and crux ofRule ofLaw. The Law holds no discrimination and equality of all persons beforeLaw is a basic right, a human right, a fundamental ingredient of Natural

Justice.

The established principle of Criminal jurisprudence that in theabsence of specific countervailing factors, there is a general perceptionin favour of bail in all cognizable cases. This legal covenant is a naturalextension of Rule of Law that presumes that all are innocent until provedguilty. The maxim let hundred guilty escape punishments, but not asingle innocent be found guilty.

In a recent case, the CBI Court despite not opposing bail of oneaccused woman was denied bail by stating that the benefit of Sec 437

Cr.PC was not available to her as she belonged to the upper strata of theSociety. Sec 437 Cr.PC does not differentiate between classes of women.The benefit of gender justice seems to have been interpreted differentlyby the Judge when there is no distinction in the Constitution or the codeof Criminal procedure regarding class distinction. This is a mistakenconclusion. Further, the Judge says that the ends of Justice would bebetter served, by incarceration in jail during the trial as the accused caninfluence the witnesses. The charge sheet is filed, and the case againsther is mostly circumstantial, evidence being the various records whichare in Courts custody, and the chances of intimidation of witness looksfar fetched. Further more, the Supreme Court had asked her to appeal

for bail after the filing of the charge sheet. The same judge who deniedher bail gave her good certificate by saying that he had to reluctantlydeny her bail as he found her dignified in her conduct within the Courtroom.

The Judge has quoted the Sathyam judgement of the SupremeCourt for refusing bail. The same Supreme Court has enlarged all theaccused in Sathyam case including Ramalinga Raju. Therefore, the ends

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of Justice would be better served, The judiciary should not get swayedby public opinion, and public sentiment, as Public perception is based onignorance.

-o-o-o-o-o-o-o-

You too, Can accomplish miracles?

Many people believe that their best creative days are behind them-- that they could have accomplished great things if only they hadstarted sooner and that they are "too old" to take on a big, hairy project.

Try to get a whiff of what some extraordinary peopleaccomplished late in life. You may not be a Michelangelo or Stradivarius,but so what? You can still accomplish miracles. All you need to do isbegin (and let go of the thought that "it's too late.")

Nothing is late to make a new beginning.

Michelangelo designed the dome in St Peters basilica when hewas 72 years old; Frank Lloyd Wright designed Guggenheim Musuemwhile he was 91; Gold Meir became Prime Minister of Isreal at 72, PeterDrucker wrote the Management Change for Turbulent Times at 89,Gandhiji won freedom for India when he was 77; Nelson Mandelaascended the President ship of South Africa at 75(Courtesy: TheCreative Age by Gane Cohen)

My only Love sprung from my only hate! Too early seen,unknown, known too late! Prodigious birth of Love it is to me, that I mustlove a loathed. (Romeo & Juliet by William Shakespeare). Juliet is

saying, My only love springs from my only hate! I saw him too earlywhen I didnt know him, and now I realize who he is too late...

We learn about ancient cultures in our History classes. Most ofthe old civilizations are gone. Some have left little behind except ruinsand rubble. What happened? Where are the people, their music andideas? Why are they nothing more today than a collection of stonesvisited by tourists, anthropologists and curious historians? The

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answer, of course, is not the same the world over. But Arnold Toynbee,in his work The Study of History (1987), says that the great lesson ofhistory is this: civilizations that changed when confronted withchallenges thrived. Those that did not change died. In other words, whenlife got hard, it killed off those who didn't make needed changes. The

key to survival is often about "change."

What about us and the need to change in contemporary ages.What about all of us? It's good to accept ourselves as we are, but whenan unhealthy attitude or a destructive behavior gets in the way, whenwe wish we could change something about ourselves, we had betterchange. People who embrace change thrive; those who resist it do notshine!

If you have been waiting for a propitious time to make thatneeded change, this may be apt moment to usher in that change. It isnever too late to be the person you might have been. It's never too lateto be happy. It's never too late to do something different or to dosomething better. It's never too late to change a habit. It's never too lateto do anything that brings a sustainable change.Begin making that necessary change today. Then tomorrow, and everytomorrow thereafter, can truly be different.

All of us feel in one way or the other that if we are given a newlife, we could start fresh altogether new. It is Too late now to alter ourlife Course feel most of us who missed one or the other opportunity. Aschool drops out rues his decision when in his mid life he does not get

good jobs. I wish I could go back to School to study, he laments. But heconsoles himself saying, it is too late now. Somebody who had drinkingproblem wanted to conquer alcoholism and begin again. But, she wasaffected by an incurable disease and so he felt that it is too late now.When two thick friends break away, both do not take the initiative tohold out an olive branch. Then the rift becomes unrepirable. It is too lateto patch up by making amends feel both of them.

But this is escapism. It is never too late to begin anything.It has been said that, Nobody can go back and start a new beginning,but anyone can start today and make a new ending."

The rest of your life is not yet written - it can be whatever you want it tobe!

-o-o-o-o-o-o-o-

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Empowering Corporations (Municipalities) to raiseFunds to meet their Development Needs through Muni

Bond

Local bodies are Executive bodies, and the elected Councils serveas miniature Parliaments. Grass root democracy, or local self governingbodies created by Lord Mayo in 1870 is a constitutional device thattakes democracy to the door of the Common man. This body is betterequipped to understand the grass root level needs of the local populace,better implement various developmental plans necessary at the local

geographical level. Lord Ripon improved upon the local governance.There have been changes that were ushered after Indian independence.

The budgets of the various Corporations or Municipalities are verylittle or negligible, hence need state support from the State budget.Most of the state budgets are already deficits, with a wide gap betweenrevenue, central funding and expenditure, that they fail to pass oncertain or sufficient outlay to the local Governments, municipalities orCorporations, leaving them with less funds to execute developmentactivities like flyovers, improve sanitary conditions, look after watersupply to every household, provide electricity to all homes, run Schools,

Colleges, create greenery, repair roads, pot holes, conduct health campsduring epidemics, provide support systems during floods and naturesfury, provide civic amenities to its citizens. But the income fromproperty tax which is assessed quin quinnially is inadequate to meet theneeds even though it is done quiet professionally. But the inefficientand unscientific way, in which values are cut, may be due to politicalreasons, deprive the Corporation or municipality of its rightful income.

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Justice Shri V R Krishna Iyer, one of Indias greatest Judges,in a landmark judgment(SC) in Ratlam Municipality Vs Varachand &Other, observed that inadequate coffers of the Municipality is no reasonwhy civic body is found to be incompetent in providing proper civicservices. He reasoned that failure to provide civic services by the

Municipality would cause inconvenience to the people. He said Sec 133Cr.PC could be invoked before an Executive Magistrate who can orderthe Municipality to address the grievance within a tight time schedule.So, the onus is on the Corporation or Municipality to provide properservices at the appropriate time, to meet the grievance of the people,otherwise it would be treated as negligence.

One way by which the Corporations and Municipalities could beempowered to issue debt instruments for which the Stategovernments could give sovereign guarantee, so that with the proceeds

received from public debt, Municipalities can plan their developmentalactivities, and keep away a sizable sum from its overall income to repaythe debt on maturity. If 5% of its budgetary allocation is ear-marked forinterest, it would be sufficient to pay the annual accrued interest. If welook to United States, there are more than 50,000 bond issuers whohave sold approximately $ 3 trillion in bonds, mostly to individuals,mutual funds and money market funds. A good portion of tax free bondswere to fund local government worthy projects.

Another problem that affects the income of the Municipality orCorporation has to rise at the rate of inflation. Secondly, home values

are cut on political grounds which make other homeowners to createrevolt against unfair valuation and litigating to drive their property taxbills down.

Bonds are issued by public authorities, credit institutions,companies and supranational institutions in the primary markets. Themost common process of issuing bonds is through underwriting. Inunderwriting, one or more securities firms or banks, forming a syndicate,buy an entire issue of bonds from an issuer and re-sell them toinvestors. A bond is a debt security, in which the authorized issuer owesthe holders a debt and, depending on the terms of the bond, is obliged

to pay interest (the coupon) and/or to repay the principal at a later date,termed maturity. A bond is a formal contract to repay borrowed moneywith interest at fixed intervals. Thus a bond is like a loan: the issuer isthe borrower (debtor), the holder is the lender (creditor), and the couponis the interest. Bonds provide the borrower with external funds tofinance long-term investments, or, in the case of government bonds, tofinance current expenditure. Certificates of deposit (CDs) or commercial

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paper are considered to be money market instruments and not bonds.Bonds must be repaid at fixed intervals over a period of time

. A municipal bond is a bond issued by a city or other local

government, or their agencies. Potential issuers of municipal bonds

include cities, counties below the state level. Municipal bonds may begeneral obligations of the issuer or secured by specified revenues.

The interest income received by holders of municipal bonds isoften exempt from the income tax and service tax or/any other tax invogue.

Unlike new issue stocks that are brought to market with pricerestrictions until the deal is sold, municipal bonds are free to trade atany time once they are purchased by the investor. Professional traders

regularly trade and retrade the same bonds several times a week.TheBonds may be tied to an Exchange in the state of domain.

Municipal bonds provide tax exemption from income tax, servicetax and many state and local taxes. Municipal securities consist of bothshort-term issues (often called notes, which typically mature in one yearor less) and long-term issues (commonly known as bonds, which maturein more than one year). Short-term notes are used by an issuer to raisemoney for a variety of reasons: in anticipation of future revenues suchas taxes, in lieu of Bank Guarantees and future bond issuances; to coverirregular cash flows; meet unanticipated deficits; and raise immediate

capital for projects until long-term financing can be arranged. Bonds areusually sold to finance capital projects over the longer term.

There area no of developers who want to develop variousproperties within the Municipal limits with Crores of Rupees investmentagainst which huge advances are taken from the soliciting Public. Thesedevelopers need to take Municipal bonds equivalent to 5% of theirProject cost. Various other licenses which Municipalities provide can beoff set against these Bonds. Road side Publicity Boards, Cinematheatres, Shop licenses, Property taxes of high magnitude, Stadia, andthe like, may be brought under the purview of purchase of municipal

bond and off-setting their cost against these.

Principal and interest are secured by revenues derived from tolls,charges or rents from the facility built with the proceeds of the bondissue. Public projects financed by revenue bonds include toll roads,bridges, water and sewage treatment facilities, hospitals and subsidizedhousing. Municipal bonds are securities that are issued for the purposeof financing the infrastructure needs. The bonds are issued by the

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Municipality/Corporation needing public funding, after getting theapproval of the State Government through legislation. .

Most municipal notes and bonds are issued in minimumdenominations of Rs. 5,000 or multiples of Rs 5,000/-.

Municipal bonds are securities that are issued for the purpose offinancing the infrastructure needs of the issuing municipality (eventhough the State Government issues the Bonds). These needs varygreatly but can include schools, streets and highways, bridges,hospitals, public housing, sewer and water systems, power utilities, andvarious public projects.

Municipal bonds are issued by states, the municipal /Corporationto raise funds. The methods and traces of issuing debt are governed byan extensive system of laws and regulations, which vary by state. Bonds

bear interest at either a fixed or variable rate of interest, which can besubject to a cap known as the maximum legal limit.

The issuer of a municipal bond receives a cash payment at thetime of issuance in exchange for a promise to repay the investors whoprovide the cash payment (the bond holder) over time. Repaymentperiods can be as short as a few months (although this is rare) to 20, 30,40 or 60 months or even longer.

The issuer typically uses proceeds from a bond sale to pay forcapital projects or for other purposes it cannot or does not desire to pay

for immediately with funds on hand. Tax regulations governingmunicipal bonds generally require all money raised by a bond sale to bespent on one or many capital projects within three to five years ofissuance.

Because of the special tax-exempt status of most municipalbonds, investors usually accept lower interest payments than on othertypes of borrowing (assuming comparable risk). This makes the issuanceof bonds an attractive source of financing to many municipal entities, asthe borrowing rate available in the open market is frequently lower thanwhat is available through other borrowing channels.

Municipal bond holders may purchase bonds either directly fromthe issuer at the time of issuance (on the primary market), or from otherbond holders at some time after issuance (on the secondary market). Inexchange for an upfront investment of capital, the bond holder receivespayments over time composed of interest on the invested principal, anda return of the invested principal itself.

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Repayment schedules differ with the type of bond issued.Municipal bonds typically pay interest semi-annually. Shorter term bondsgenerally pay interest only until maturity; longer term bonds generallyare amortized through annual principal payments. Longer and shorterterm bonds are often combined together in a single issue that requires

the issuer to make approximately level annual payments of interest andprincipal. Certain bonds, known as zero coupon or capital appreciationbonds, accrue interest until maturity at which time both interest andprincipal become due.

A bond measure is an initiative to sell bonds for the purpose ofacquiring funds for various public works projects, such as research,transportation infrastructure improvements, and others. Thesemeasures are put up for a vote in the Council and recommended to theGovernment (State). The State Government after getting the Centralapproval issues the Bond.

One of the primary reasons municipal bonds are consideredseparately from other types of bonds is their special ability to providetax-exempt income. Interest paid by the issuer to bond holders is oftenexempt from all federal taxes, as well as state or local taxes dependingon the state in which the issuer is located, subject to certain restrictions.Bonds issued for certain purposes are subject to the alternativeminimum tax.

The type of project or projects that are funded by a bond affectsthe taxability of income received on the bonds held by bond holders.

Interest earnings on bonds that fund projects that are constructed forthe public good are generally exempt from income tax.

The Central Government should pass an Act exempting all theMuncipal Bonds from Income Tax or Service Tax or any other Tax, asthey are meant for public utility projects for which public is participatingas Investors.

The risk ("security") of a municipal bond is a measure of how likely

the issuer is to make all payments, on time and in full, as promised inthe agreement between the issuer and bond holder (the "bonddocuments"). Different types of bonds are secured by various types ofrepayment sources, based on the promises made in the bonddocuments:

General obligation bonds promise to repay based on the full faithand credit of the issuer; these bonds are typically considered the most

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http://en.wikipedia.org/wiki/Initiativehttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Fundshttp://en.wikipedia.org/wiki/Public_workshttp://en.wikipedia.org/wiki/Votehttp://en.wikipedia.org/wiki/General_obligation_bondhttp://en.wikipedia.org/wiki/Initiativehttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Fundshttp://en.wikipedia.org/wiki/Public_workshttp://en.wikipedia.org/wiki/Votehttp://en.wikipedia.org/wiki/General_obligation_bond


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secure type of municipal bond, and therefore carry the lowest interestrate.

Revenue bonds promise repayment from a specified stream offuture income, such as income generated by a water utility from

payments by customers.

Assessment bonds promise repayment based on propertytax assessments of properties located within the issuer's boundaries.

In addition, there are several other types of municipal bondswith different promises of security.

The probability of repayment as promised is often determined byan independent reviewer, or "rating agency". These agencies can behired by the issuer to assign a bond rating, which is valuable information

to potential bond holders that helps sell bonds on the primary market.

Municipal bonds have traditionally had very low rates of default asthey are backed either by revenue from public utilities (revenue bonds),or state and local government power to tax (general obligation bonds).

Key information about new issues of municipal bonds (including,among other things, the security pledged for repayment of the bonds,the terms of payment of interest and principal of the bonds, the tax-exempt status of the bonds, and material financial and operatinginformation about the issuer of the bonds) typically is found in the

issuer's official statement. For municipal bonds issued, the issuer is alsoobligated to provide continuing disclosure to the marketplace, includingannual financial information and notices of the occurrence of certainmaterial events (including notices of defaults, rating downgrades, eventsof taxability, etc.).

This relationship can be demonstrated mathematically, as follows:

whererm = interest rate of municipal bondrc = interest rate of comparable corporate bond

t= tax rateFor example if rc = 10% and t = 38%, then

A municipal bond that pays 6.2% therefore generates equalinterest income after taxes as a corporate bond that pays 10%(assuming all else is equal).

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http://en.wikipedia.org/wiki/Revenue_bondhttp://en.wikipedia.org/w/index.php?title=Assessment_bond&action=edit&redlink=1http://en.wikipedia.org/wiki/Property_taxhttp://en.wikipedia.org/wiki/Property_taxhttp://en.wikipedia.org/wiki/Rating_agencyhttp://en.wikipedia.org/wiki/Bond_ratinghttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Revenue_bondhttp://en.wikipedia.org/w/index.php?title=Assessment_bond&action=edit&redlink=1http://en.wikipedia.org/wiki/Property_taxhttp://en.wikipedia.org/wiki/Property_taxhttp://en.wikipedia.org/wiki/Rating_agencyhttp://en.wikipedia.org/wiki/Bond_ratinghttp://en.wikipedia.org/wiki/Primary_market


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Alternatively, one can calculate the taxable equivalent yield of amunicipal bond and compare it to the yield of a corporate bond asfollows:

Because longer maturity municipal bonds tend to offersignificantly higher after-tax yields than corporate bonds with the samecredit rating and maturity, investors in higher tax brackets may bemotivated to arbitrage municipal bonds against corporate bonds using astrategy called municipal bond arbitrage.

Some municipal bonds are insured by insurers that take on thecredit risk of these bonds for a small fee.

It is suggested in order to make a beginning; LIC Mutual Fund maybe entrusted with the task of introducing Municipal Bonds, with properchecks and Balances. Municipalities which intend to avail publicsubscription to raise funding may approach LIC Mutual Fund which mayarrange to issue the necessary Municipal Bond for subscription by thegeneral public. It is for the Municipality Body and LIC to discuss themodalities of requirement, maturity period, value, total outlay, etc. Thiswould make the issue, use and redemption of Bonds transparent. Atleast Rs 10,000 Cr per annum be raised from the discerning Public, sothat Civic benefits would not suffer lack of funds for carrying out theircivic responsibilities.

Notes:The Municipality/Corporation Act need to be amended;A separate state Law be passed permitting raising of debt through

Bonds by Corporations/Municipalities;Income-Tax, Service Taxes Act needs to give exemption for

municipal bonds;Any other amendment to the relevant Central/State ActThe issue of Bond should be subject to approval by SEBI

The Government can also arrange a Mutual Fund like LIC inthe Public sector to manage the issue, generic for the entire

Municipalities in India. This could be transferred to the needyMunicipalities on Demand/Request through the State Government.

[Amutual fundwhichinvestsinmunicipal bonds. Thesebond fundswillbe popular among investorsin highincome taxbrackets ]

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http://en.wikipedia.org/wiki/Arbitragehttp://en.wikipedia.org/wiki/Municipal_Bond_Arbitragehttp://en.wikipedia.org/wiki/Monoline_insurancehttp://t.pm0.net/s/c?u.kp1g.10.7521.2isoehttp://t.pm0.net/s/c?u.kp1g.11.7dc3.2isoehttp://t.pm0.net/s/c?u.kp1g.12.9har.2isoehttp://t.pm0.net/s/c?u.kp1g.13.9qc0.2isoehttp://t.pm0.net/s/c?u.kp1g.15.86bo.2isoehttp://t.pm0.net/s/c?u.kp1g.16.9qc1.2isoehttp://en.wikipedia.org/wiki/Arbitragehttp://en.wikipedia.org/wiki/Municipal_Bond_Arbitragehttp://en.wikipedia.org/wiki/Monoline_insurancehttp://t.pm0.net/s/c?u.kp1g.10.7521.2isoehttp://t.pm0.net/s/c?u.kp1g.11.7dc3.2isoehttp://t.pm0.net/s/c?u.kp1g.12.9har.2isoehttp://t.pm0.net/s/c?u.kp1g.13.9qc0.2isoehttp://t.pm0.net/s/c?u.kp1g.15.86bo.2isoehttp://t.pm0.net/s/c?u.kp1g.16.9qc1.2isoe


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-o-o-o-o-o-o-o-o-o-

[About the author: Post Graduate in Economics, International Trade, has 41 years of

working experience in various Chambers of Commerce, industry associations. RegionalSecretary, Indo American Chamber of Commerce, Executive Secretary, Tirupur Exporters

Assn, Export promotion Advisor, Coir Board (MSME,GoI), Coconut Development Board

(MoA, GoI), Senior Consultant, Institute of Small Enterprises & Development,Advisor(Coir), PricewaterhouseCoopers]

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Ramanathan's Essays