Friday, May 20, 2011

Monetary Policy and its implication on Indian Economy

The recent time has seen a dynamic change in India’s macroeconomic health. The inflationary tendency either caused by supply side elements or the food commodities has impacted on India’s rising as economic superpower. The economic survey of 2010-11 attributes a 9% growth of Indian economy. In the era of globalisation no economy can be isolated or completely shielded from the global trends of the market. But the severity of effect can be controlled through the tools of monetary policy. The reserve bank of India utilises the tools i.e. both quantitative and qualitative to influence interest rates, inflation and credit availability through changes in the supply of money available in the economy.

In the current monetary policy released on May 3rd 2011 RBI has increased the Repo rate to 7.25%, a 2 percentage point increase from the earlier 5.25% of the last year. It has also increased the reverse repo rate to 6.25% and more importantly ceased its independent nature as now reverse repo is linked to repo rate i.e. it shall be 100 points below it.

The RBI's objective as per the statement issued on May 3rd 2011 notes:

“Over the long run, high inflation is inimical to sustained growth as it harms investment by creating uncertainty. Current elevated rates of inflation pose significant risks to future growth. Bringing them down, therefore, even at the cost of some growth in the short-run, should take precedence.”

An increase in international commodities price backed by strong demand has indeed spread its effect on the national economy. The investment-led-growth has resulted into increase in inflationary tendencies which certainly can put a speed breaker in the growth of Indian economy.

As a result the increase in repo rate, the cost at which RBI lends short-term capital to banks, might lead the banks to increase their lending rate for their customers. This in turn might impact on the commercial interest rates banks propose for their customers. Thus lead to reduction in inflation by absorbing more liquidity from the market. All this while we assume the demand remains strong as it is now.

The present action has its impact in the long run of overall economy. Thus shifting the target of various government funded programs, including the 11th Five year plan. Analyzing present situation and learning from the past trends of our economy. The new scenario certainly would put new challenges in our growth.  

Presently, the Indian economy is overflowing with liquidity as a result of massive inflow of foreign capital. The ability of banks to lend has encouraged them to seek out potential borrowers and increase product in the retail loan category. In the event, even at a time when GDP growth had been accelerating, credit had grown at an even faster rate.

The schedule commercial bank credit-to-GDP ratio in the country, which rose from 20.4 per cent in 1990-91 ( reforms in India ) to 25.3.4 per cent in 2001-02, had risen to 52.1 per cent by 2009-10.* (RBI Handbook of Indian Economy 2009-10).

Accompanying this rise in credit provision was an increase in loans to individuals and professionals (Personal Loans and Professional Services), whose share rose from 9.4 per cent to 16.8 per cent between end-March 1990 and end-March 2002, and then shot up to 27 per cent by end-March 2005. This is the direction in which credit had moved, accounting for a substantial part of excess credit growth.

This is where the effects of the rise in interest rates over the last year are bound to be felt. Those taking on these loans would have in recent months been faced with significant increases in the equated monthly installments they pay. This would not only discourage further borrowing and new borrowers, but can lead to defaults. It may also involve lending without adequate scrutiny of income documents. The result would be an increase in the proportion of risky borrowers in a situation of rising credit provision. As most loans are addressed to housing sector the danger of future defaulter looms over real estate sector.
Defaults and foreclosures could increase. Such defaults are likely to significantly higher in a period of rising interest rates, with adverse consequences for bank profitability and even viability. A tight monetary regime would hamper the money movement thus affecting the rising corporate sector and stock markets.

This is only one side of the story as it sticks to the monetary implication from the consumer side only. The fiscal side too has a large role to play when the task of controlling inflation has to be considered. The governmental action of raising the administered price of food distribution through public distribution system, frequent hiking the price of petroleum products, high dependency on fertilizers thus increasing the cost of agriculture which are all subsidized in nature in turn aggravates inflationary tendencies.

 The money poured in the Flagship programs and the new food security programs would definitely lead to demand- supply imbalances. Ultimately leading to a large public debt and creating huge fiscal gap. These are some of the speed breakers which might slow down the pace of growth in short-run.

Apart from internal situations the global scenario has its challenges to throw at Indian economy. The recent crisis in middle-east and North African countries has been linked to un-precedent hike in petroleum prices. The burden of which has been felt by frequent increase in petroleum prices. As 70% demand of crude oil is met by imports. International oil prices fluctuations are reflected in our economy. This has the potential to affect the largest section of consumers as every commodity available feels the heat and hence leads to further increase in price.

The rising international trade has exposed us to international markets, if the present facilities given to enhance the industrial setup across India bear a cost cut scenario in the name of bridging the fiscal gap. International challenges might directly affect our industrial output which in turn has the ability to change equation of our internal market.

As comparison to China, our industries are yet to pick up the pace to deliver global demands and meet international expectation. Chinese economy, being a controlled regime, has extended facilities to meet the global manufacturing demand. Indian industries are now changing their mode from supplement to complement the global manufacturing demand. Hence a large investment is need of the hour. India is 2nd most favored destination for investment today. Thus a tight monetary market can play with the aspiration of Indian industries.

Moreover as our economy is still agriculture based which serves income to largest section of population. Any impact on the agro-economy might result in more distraught in overall economy. The monsoon and crop production are the only beacon of hope to come out of vicious cycle. A timely monsoon would help in good crop yield which in turn would yield to more income at the bottom end. But a bad monsoon would lead to more dependency on electric power (Mostly diesel generators) to pump water. This would increase the cost of agriculture production and might turn the commercial farming to a subsistence farming activity.

The new monetary policy declares that RBI will have only one single policy rate, the repo rate, to indicate the rate changes in the banking system. Further, this would enhance the transmission of monetary policy and reduce volatility in overnight call money rates.

The reverse repo rate (the rate at which banks park their funds with the central bank) will continue to be operative, but it will be pegged at a fixed 100 basis points below the repo rate. Hence, the reverse repo rate will no longer be an independent variable.

RBI has instituted a new Marginal Standing Facility (MSF) under which banks can borrow overnight from the MSF up to one per cent of their respective net demand and time liabilities (NDTL). RBI will receive requests for a minimum amount of Rs 10 million and in multiples of Rest 10 million thereafter. The central bank has the right to accept or reject partially or fully, the request for funds under this facility.

Rising commodity prices, increased fuel subsidy, subsequent risk of overshoot in government borrowing and pressure on trade gap are factors which would make the central bank's task more difficult.

The present policy directs to control inflation to a more controllable margin. Hence a little slow down is still acceptable rather than a long run gap by the inflation. The action taken by RBI is unique and it is only after the next quarter a visible result can be expected. Till then the uncertainty in the market shall remain as a threat.

Sources: RBI website, The Hindu Business Line

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The Monetary Policy is an extremely important factor in regulating the health of the economy. Abhilash Mohapatra has expressed his views on its implications and preferred stance. You can reach him at
indianpolicy2010@gmail.com

Monday, May 16, 2011

NAPCC

National Action Plan on Climate Change

NAPCC document released by PM on 30th June,2008
Comprehensive framework with approval of the PM’s Council on Climate Change
Relates to sustainable development, co-benefits to society at large, focus on adaptation, mitigation, and scientific research

Principles of NAPCC

Protecting the poor through an inclusive and sustainable development strategy, sensitive to climate change
Achieving national growth and poverty alleviation objectives while ensuring ecological sustainability
Extensive and accelerated deployment of appropriate technologies for adaptation and mitigation
Effective implementation through unique linkages – with civil society, LGUs, and public-private partnerships.

Eight Eight National Missions

National Solar Mission
National Mission for Enhanced Energy Efficiency
National Mission on Sustainable Habitat
National Water Mission
National Mission for Sustaining the Himalayan Ecosystem
National Mission for a Green India
National Mission for Sustainable Agriculture
National Mission on Strategic Knowledge for Climate

National National Solar Mission

A National Solar Mission will be launched to significantly increase the share of solar energy in the total energy mix while recognizing the need to expand the scope of other renewable and non-fossil options such as nuclear energy, wind energy and biomass.
Need to enable creation of more affordable and more convenient solar power systems and enable storage of solar power for sustained, long-term use

National Mission for Enhanced Energy Efficiency

Enhancing cost effectiveness of improvements in energy efficiency in energy-intensive large industries and facilities, through certification of energy savings that could be traded
Developing fiscal instruments to promote energy efficiency.

National Mission National Mission on Sustainable Habitat

Energy Conservation Building Code to be extended in its application, and incentives to be provided for retooling existing building stock
Recycling of materials and urban waste management; technology development for producing power from waste

National Water Mission

Focus on ensuring integrated water resource management to conserve water, minimize wastage and ensure equitable distribution across and within states
Recycling of waste water to meet large part of water needs of urban areas

National Mission National Mission for Sustaining the Himalayan Ecosystem

To evolve management measures for sustaining and safeguarding the Himalayan glacier and mountain eco-system
Mission would seek to understand whether and the extent to which the Himalayan glaciers are in recession and how the problem can be addressed

National Mission National Mission for a Green India

To reach national target of 33% land area under forest and tree cover from the current level of 23%
Initial corpus of over Rs 6000 crores ($1.5 bn) earmarked for CAMPA (Compensatory Afforestation Fund Management and Planning Authority) to commence work; scaled up activity

National Mission for National Mission for Sustainable Agriculture

Mission to devise strategies to make Indiian agriculture more resilient to climate change
Identify and develop new varieties of crops (thermal resistant crops, alternative cropping patterns, capable of wiithstanding extreme weather)

National Mission on National Mission on Strategic Knowledge for Climate Change

Mission to identify the challenges off and the responses to climate change
Funding of high quality and focused research into various aspects of climate change

BPL norms ...


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Planning Commission asked to revise BPL norms
Court wants Centre to “distribute foodgrains on an individual basis” 
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New Delhi: The Supreme Court on Saturday asked the Planning Commission to revise the per capita norms to determine below poverty line looking to the price index of May 2011 or any other subsequent dates.

A Bench of Justices Dalveer Bhandari and Deepak Verma, at a special sitting to hear the case relating to streamlining of the public distribution system, pointed out that according to the parameters of the Planning Commission, Rs.15 per capita per day in rural areas and Rs. 20 in urban areas was the yardstick for evaluating “who is Below Poverty Line.”

It noted that the BPL population “is anchored on a norm of 2400 calories per capita per day for rural areas and 2100 calories per capita per day for urban areas. According to the Tendulkar Committee, with the price level of 2011, it is impossible for an individual in an urban area to consume 2100 calories on Rs.20 and an individual in a rural area to consume 2400 calories on Rs.15.”

“A large section of the population which has marginally higher income than Rs. 20 in urban areas and Rs. 15 in rural areas also deserves food at subsidised rates. The Wadhwa Committee has referred to this group as “Marginally Above Poverty Line.” We have no objection to the Government of India providing universal food security. However, they must first ensure food security for more vulnerable sections of society.”

The judges wanted the Centre to distribute foodgrains on an individual basis rather than on a family basis.

The Bench said: “There seems to be no justification for the present approach which gives the same 35 kg foodgrain allocation to a family of 10 persons as it does to a single person. The single man is likely to sell his excess grain for a profit, while the parents in the family of 10 are forced to purchase additional grain at non-BPL prices in order to feed their children. The Wadhwa Committee observed this situation as ‘rather incongruous.' ”

“Tamil Nadu is successfully distributing foodgrains on individual basis. Perhaps the Union of India may consider the Tamil Nadu pattern for the entire country. In the public distribution system, subsidised food is primarily meant for the very poor, weak and vulnerable sections of our society. Admittedly, there are some districts and/or small pockets in our country where the majority of people of that district live in penury. They do not have financial capacity to buy adequate foodgrains for their survival. Subsidised food is really meant for this section of our society.

The Bench requested the Wadhwa Committee “to identify the poorest districts or poorest segments of our society and ensure that additionally allocated foodgrains reach this segment from time to time. The additional 5 million tonnes which has been reserved by the Union of India may be allocated to the 150 poorest districts or other poorer segments of society on the recommendation of the committee from time to time. The exercise may be done by the committee in consultation with the representative(s) of the Government of India and the petitioners.”

Directive to Chief Secretaries:

It directed the Chief Secretaries of all the States/Union Territories to ensure that the foodgrains allocated to those States were lifted and distributed immediately and a copy of this order be sent to all the State Governments/Union Territories.

The Bench asked the Wadhwa Committee to submit a small summary report on or before July 22, when the matter would be listed for further hearing.

Wednesday, May 4, 2011

RBI policy rates..

Dr. D. Subbarao yesterday in a press release announced the RBI’s monetary policy for 2011-12. This is an excerpt of the press release.


The Annual Policy for 2011-12 is set in conditions significantly different from those a year ago. Last year’s policy was made in an environment of incipient domestic recovery and uncertainty about the state of the global economy. While signs of inflation were visible, they were driven primarily by food items.

Throughout last year, the goal of monetary policy was to nurture the recovery in the face of persistent global uncertainty, while trying to contain the spill-over of supply side inflation.

The Reserve Bank followed a policy of calibrated tightening last year. This was justified by the trend of moderating inflation and consolidating growth in the second and third quarters of 2010-11. However, the resurgence of inflation in the last quarter of last year became a matter of concern.

Demand has been strong enough to allow significant pass-through of input price increases.

Three factors have shaped the outlook and monetary strategy for 2011-12.

First, global commodity prices, which have surged in recent months are, at best, likely to remain firm, and may well increase further over the course of the year. This suggests that higher inflation will persist, and may indeed get worse.

Second, headline and core inflation have significantly overshot even the most pessimistic projections over the past few months. This raises concerns about inflation expectations becoming unhinged.

The third factor, one countering the above forces, is the likely moderation in demand, which should help reduce pricing power and the extent of pass-through of commodity prices.

Changes in Operating Procedure of Monetary Policy:

Last July, the Reserve Bank constituted a Working Group to Review the Operating Procedure of Monetary Policy. The report of the Group, chaired by our Executive Director, Deepak Mohanty, was put out in the public domain in March 2011 inviting feedback and comments.

Based on the Group’s recommendations, and in light of the feedback received, it has been decided to make the following changes to the operating procedure of monetary policy -->

First, the weighted average overnight call money rate will be the operating target of monetary policy of the Reserve Bank.

Second, there will henceforth be only one independently varying policy rate, and that will be the repo rate. This transition to a single independently varying policy rate is expected to more accurately signal the monetary policy stance. 

Third, the reverse repo rate will continue to be operative, but it will be pegged at a fixed 100 basis points below the repo rate. Hence, the reverse repo rate will no longer be an independent variable.

Fourth, we will be instituting a new Marginal Standing Facility (MSF). Banks can borrow overnight from the MSF up to one per cent of their respective net demand and time liabilities or NDTL. The rate of interest on amounts accessed from this facility will be 100 basis points above the repo rate.

As per the above scheme, the revised corridor will have a fixed width of 200 basis points. The repo rate will be in the middle. The reverse repo rate will be 100 basis points below it, and the MSF rate 100 basis points above it.

These changes in the operating framework, except that pertaining to the MSF, will come into force immediately. The MSF will come into effect from the fortnight beginning 7th May, 2011.

Monetary Measures:

The repo rate under the liquidity adjustment facility (LAF) has been increased by 50 basis points. Accordingly, it goes up from 6.75 per cent to 7.25 per cent.

As per the new operating procedure, the reverse repo rate under the LAF, determined with a 100 basis point spread below the repo rate, will stand adjusted at 6.25 per cent.

The Marginal Standing Facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, gets calibrated at 8.25 per cent. 

The Bank Rate remains at 6.0 per cent.

The cash reserve ratio (CRR) remains unchanged at 6 per cent of NDTL of scheduled banks.

Savings Bank Deposit Interest Rate:

Pending a final decision on that, it has been decided to increase the savings bank deposit interest rate from the present 3.5 per cent to 4.0 per cent with immediate effect.

Monday, May 2, 2011

Obituary: Osama Bin Laden


Thorn in America's side Osama Bin Laden came to the world's attention on 11 September 2001, when the attacks on the United States left more than 3,000 people dead and hundreds more injured.

In a matter of three years, the Saudi-born dissident had emerged from obscurity to become one of the most hated and feared men in the world.

Osama Bin Laden was born in 1957, apparently the 17th of 52 children of Mohamed Bin Laden, a multimillionaire builder responsible for 80% of Saudi Arabia's roads.

His father's death in a helicopter crash in 1968 brought the young man a fortune running into many millions of dollars, though considerably less than the widely published estimate of $250m.

Mujahideen

While studying civil engineering at King Abdul Aziz University in Jeddah, Saudi Arabia, Bin Laden came into contact with teachers and students of the more conservative brand of Islam.

Through theological debate and study, he came to embrace fundamentalist Islam as a bulwark against what he saw as the decadence of the West.

The Soviet invasion of Afghanistan in December 1979 changed Bin Laden's life forever. He took up the anti-communist cause with a will, moving to Afghanistan where, for a decade, he fought an ultimately victorious campaign with the mujahideen.

Intelligence experts believe that the US Central Intelligence Agency played an active role in arming and training the mujahideen, including Bin Laden. The end of the war saw a sea change in his views.

Lucrative investments

His hatred of Moscow shifted to Washington after 300,000 US troops, women among them, were based in Saudi Arabia, home of two of Islam's holiest places, during the 1991 Gulf War against Iraq. Bin Laden vowed to avenge what he saw as blasphemy.

 Bin Laden was the chief suspect behind the Nairobi embassy bomb Along with many of his mujahideen comrades, he brought his mix of fighting skills and Islamic zeal to many anti-US factions within the Middle East.

American pressure ended brief sojourns in Saudi Arabia - which removed his citizenship in 1994 - and then Sudan, and Bin Laden moved back to Afghanistan in January 1996.

The country, in a state of anarchy, was home to a diverse range of Islamic groups, including the fundamentalist Taleban militia, which captured the capital Kabul nine months later.

Though geographically limited, Bin Laden's wealth, increasing all the time through lucrative worldwide investments, enabled him to finance and control a continuously shifting series of transnational militant alliances through his al-Qaeda network.

Sometimes he worked as a broker, organising logistics and providing financial support. At other times, he would run his own violent campaigns.

In February 1998, he issued a fatwa - or religious edict - on behalf of the World Front for Jihad Against Jews and Crusaders, stating that killing Americans and their allies was a Muslim duty.

'Most wanted'

Six months later, two bombs rocked the US embassies in Kenya and Tanzania. Some 224 people died and nearly 5,000 were wounded. He was indicted as chief suspect, along with 16 of his colleagues.

 The 9/11 attacks targeted New York's financial district Almost overnight, Bin Laden became a major thorn in the side of America. A byword for fundamentalist Islamic resistance to Washington, he soon appeared on the FBI's "most wanted" list, with a reward of up to $25m on his head.

The US fired 75 sea-launched cruise missiles into six training camps in eastern Afghanistan in a failed attempt to kill him. They missed their target by just one hour.

As well as the African bombings, Bin Laden was implicated in the 1993 bombing of the World Trade Center in New York, a 1995 car bomb in the Saudi capital Riyadh and a truck bomb in a Saudi barracks, which killed 19 US soldiers.

"I always kill Americans because they kill us," he said. "When we attack Americans, we don't harm other people."

In the case of the bombs in Nairobi and Dar es Salaam, his words rang hollow. The vast majority of the dead and injured were African, not American.

The arrogance of wealth saw Bin Laden make the government of Kazakhstan a multi-million dollar offer to buy his own tactical nuclear weapon.

It comes as no surprise, then, that both the US and Israel are believed to have sent assassination squads after him.

Cult status

Then came the events of 11 September 2001. Two hijacked aircraft smashed into, and destroyed, the twin towers of the World Trade Center in New York.

Bin Laden exhorted all Muslims to wage war against America Another aircraft ploughed into the Pentagon in Washington and a fourth crashed in a field in Pennsylvania. Altogether more than 3,000 people died in the attacks, which led to the US-led operation against the Taleban.

Allied forces moved into Afghanistan late in 2001. At the time, it was believed that Bin Laden might have been killed during the battle for the Tora Bora cave complex.

In reality, he had slipped across the border into Pakistan, a country in which he achieved the sort of cult status usually reserved for pop stars or film actors.

In February 2003, an audio tape, purporting to be of Bin Laden, was delivered to the al-Jazeera television company.

Of the impending US-led invasion of Iraq, the voice said: "This crusaders' war concerns, first and foremost, all Muslims, regardless of whether the Iraqi socialist party or Saddam remain in power.

"All Muslims, especially those in Iraq, should launch a holy war."
The US conceded that the voice was probably Bin Laden's.

Careful timing

The last known sighting of Bin Laden by anyone other than his very close entourage remains in late 2001 as he prepared to flee from his Tora Bora stronghold.

He was widely assumed to have travelled east, across into Pakistan to be given hospitality and shelter by certain local Pashtun tribesmen loyal to the Taleban and opposed to their own government led by President Pervez Musharraf.

 Bin Laden has carefully timed his media appearances The hunt for Bin Laden took a dramatic turn with the arrest in Pakistan, in 2003, of Khalid Sheikh Mohammed.

The head of al-Qaeda's operations and the suspected mastermind of the Twin Towers attack, it seemed as though the net had begun to close in on Bin Laden himself.

A major offensive to capture Bin Laden was launched by the Pakistani army along the Afghan border in May-July 2004.

But a year later, Mr Musharraf admitted the trail had gone cold.

Though al-Qaeda has been prolific in issuing audio messages, often on the internet and featuring the network's second-in-command, Ayman al-Zawahiri, videos of Bin Laden himself have been rare.

His appearances have been carefully timed and aimed, analysts say, at influencing Western public opinion by driving a wedge between citizens and their leaders.

One such video was issued in 2004 - the same year as the Madrid bombings - and days before the US election.

A second surfaced as the sixth anniversary of the 11 September attacks approached, timed to quell rumours that he had been dead for some time.

To his supporters, Bin Laden was a fighter for freedom against the US and Israel, not, as he was to many in the West, a terrorist with the blood of thousands of people on his hands.

Obama killed Osama


Osama bin Laden killed in Pakistan 

US president confirms al-Qaeda leader's death, saying he has been killed in firefight following US raid in Abbottabad.

Afghan officials confirm that al-Qadea leader Bin Laden has died.

US president Barack Obama said bin Laden, the most-wanted fugitive on the US list, has been killed on Sunday in a US operation in the Pakistani city of Abbottabad, about 150km north of Islamabad.

"Tonight, I can report to the people of the United States and the world, the United States had carried an operation that has killed Osama Bin Laden, a terrorist responsible for killing thousands of innocent people," Obama said in a statement.

"Today, at my direction, the United States carried out that operation... they killed Osama Bin Laden and took custody of his body.

"The death of Bin Laden marks the most significant achievement to date against Al Qaeda.

"We must also reaffirm that United states is not and will never be at war against Islam. Bin Laden was not a Muslim leader, in fact, he slaughtered many Muslims," Obama said.

US celebrations

As the news of bin Laden's death spread, crowds gathered outside the White House in Washington to celebrate. 

Former US president George Bush called his death a "momentous achievement".

"The fight against terror goes on, but tonight America has sent an unmistakable message: No matter how long it takes, justice will be done," Bush said in a statement.

According to Al Jazeeera's Rosalind Jordan in Washington, the operation had been in the making for the last 9 or 10 months.

"The fact that it happened inside Pakistan, there have been suggestions that Pakistani intelligence may have been protecting them," she said.

Reporting from Pakistan, Al Jazeera's Kamal Hyder said the development had caught a lot of people by surprise.

"He was considered by many as a hero, but not to the extent that people would come out on the streets. The reaction so far not likely to be strong on the streets, perhaps a protest here or there by the religious parties,." he said.
'Symbolic victory'.

Qais Azimy, Al Jazeera's correspondent in Kabul, said Afghan officials described bin Laden's killing as a "symbolic victory", since he was no longer directly connected to the group's field operations.

It is, however, a major accomplishment for Obama and his national security team. Obama's predecessor, George Bush, had repeatedly vowed to bring to justice the mastermind of the September 11, 2001, attacks on New York and Washington, but never did before leaving office in early 2009.

He had been the subject of a search since he eluded US soldiers and Afghan militia forces in a large-scale assault on the Tora Bora mountains in 2001. The trail quickly went cold after he disappeared and many intelligence officials believed he had been hiding in Pakistan.

While in hiding, bin Laden had taunted the West and advocated his views in videotapes spirited from his hideaway.

Besides September 11, Washington has also linked bin Laden to a string of attacks -- including the 1998 bombings of American embassies in Kenya and Tanzania and the 2000 bombing of the warship USS Cole in Yemen.

Having the body may help convince any doubters that bin Laden is really dead.

Sunday, May 1, 2011

May Day ...



May Day:

International Workers' Day (also known as May Day) is a celebration of the international labour movement and left-wing movements. It commonly sees organized street demonstrations and marches by working people and their labour unions throughout most of the world. 

It is the commemoration of the 1886 Haymarket Massacre in Chicago, when, after an unknown person threw a dynamite bomb at police as they dispersed a public meeting, Chicago police fired on workers during a general strike for the eight hour workday, killing several demonstrators and resulting in the deaths of several police officers, largely from friendly fire. In 1889, the first congress of the Second International, meeting in Paris for the centennial of the French Revolution and the Exposition Universelle, following a proposal by Raymond Lavigne, called for international demonstrations on the 1890 anniversary of the Chicago protests. May Day was formally recognized as an annual event at the International's second congress in 1891.

Subsequently, the May Day Riots of 1894 occured. In 1904, the International Socialist Conference meeting in Amsterdam called on "all Social Democratic Party organizations and trade unions of all countries to demonstrate energetically on May First for the legal establishment of the 8-hour day, for the class demands of the proletariat, and for universal peace." The congress made it "mandatory upon the proletarian organizations of all countries to stop work on May 1, wherever it is possible without injury to the workers."

May Day in India:

The first May Day celebration in India was organised in Madras by the Labour Kisan Party of Hindustan on May 1, 1923. This was also the first time the red flag was used in India. The party leader Singaravelu Chettiar made arrangements to celebrate May Day in two places in 1923. One meeting was held at the beach opposite to the Madras High Court; the other meeting was held at the Triplicane beach. The Hindu newspaper, published from Madras reported,

"The Labour Kisan party has introduced May Day celebrations in Chennai. Comrade Singaravelar presided over the meeting. A resolution was passed stating that the government should declare May Day as a holiday. The president of the party explained the non-violent principles of the party. There was a request for financial aid. It was emphasized that workers of the world must unite to achieve independence."

In Maharashtra and Gujarat, May Day is officially called Maharashtra Day and Gujarat Day respectively, since on this day in 1960 each attained statehood, after the old Bombay State became divided on linguistic lines.

Rosa Luxemburg on May Day:

The Idea of May Day on the March (1913)

Written: First published in Liepziger Volkszeitung, April 30, 1913.

In the middle of the wildest orgies of imperialism, the world holiday of the proletariat is repeating itself for the twenty-fourth time. What has taken place in the quarter of a century since the epoch-making decision to celebrate May Day is an immense part of the historical path. When the May demonstration made its debut, the vanguard of the International, the German working class, was breaking the chains of a shameful law of exception and setting out on the path of a free, legal development. The period of the long depression on the world market since the crash of the 1870s had been overcome, and the capitalist economy had just begun a phase of splendid growth which would last nearly a decade. At the same time, after twenty years of unbroken peace, the world breathed a sigh of relief, remembering the period of war in which the modern European state system had received its bloody baptism. The path seemed free for a peaceful cultural development; illusions, hopes of a reasonable, pacific discussion between labor and capital grew abundantly like green corn in the ranks of socialism. Propositions like “to hold out the open hand to the good will” marked the beginning of the 1890s; promises of an imperceptible “gradual move into socialism” marked its end. Crises, wars, and revolution were supposed to have been things of the past, the baby shoes of modern society; parliamentarism and unions, democracy in the state and democracy in the factory were supposed to open the doors of a new, better order.

The course of events has submitted all of these illusions to a fearful test. At the end of the 1890s, in place of the promised, smooth, social-reforming cultural development, began a period of the most violent and acute sharpening of the capitalistic contradictions – a storm and stress, a crashing and colliding, a wavering and quaking in the foundations of the society. In the following decade, the ten-year period of economic prosperity was paid for by two violent world crises. After two decades of world peace, in the last decade of the past century followed six bloody wars, and in the first decade of the new century four bloody revolutions. Instead of the social reforms – conspiracy laws, penal laws, and penal praxis; instead of industrial democracy – the powerful concentration of capital in cartels and business associations, and the international practice of gigantic lock-outs. And instead of the new growth of democracy in the state – a miserable breakdown of the last remnants of bourgeois liberalism and bourgeois democracy. Specifically in the case of Germany the fate of the bourgeois parties since the 1890s has brought: the rise and immediate, hopeless dissolution of the National Socialists; the split of the “radical” opposition and the reunification of its splinters in the morass of the reaction; and finally the transformation of the “center” from a radical peoples’ party to a conservative governmental party. The shifting in the development of the parties was similar in other capitalist countries. In general, the revolutionary working class sees itself today standing alone, opposed to a closed, hostile reaction of the ruling classes and their malicious tricks.

The sign under which this whole development, both economic and political, has been consummated, the formula back to which its results point, is imperialism. This is no new element, no unexpected turn in the general historical path of the capitalist society. Armaments and wars, international contradictions and colonial politics accompany the history of capitalism from its cradle. It is the most extreme intensification of these elements, a drawing together, a gigantic storming of these contradictions which has produced a new epoch in the course of modern society. In a dialectical interaction, both cause and effect of the immense accumulation of capital and the heightening and sharpening of the contradictions which go with it internally, between capital and labor; externally, between the capitalist states – imperialism has opened the final phase, the division of the world by the assault of capital. A chain of unending, exorbitant armaments on land and on sea in all capitalist countries because of rivalries; a chain of bloody wars which have spread from Africa to Europe and which at any moment could light the spark which would become a world fire; moreover, for years the uncheckable specter of inflation, of mass hunger in the whole capitalist world – all of these are the signs under which the world holiday of labor, after nearly a quarter of a century, approaches. And each of these signs is a flaming testimony of the living truth and the power of the idea of May Day.

The brilliant basic idea of May Day is the autonomous, immediate stepping forward of the proletarian masses, the political mass action of the millions of workers who otherwise are atomized by the barriers of the state in the day-to-day parliamentary affairs, who mostly can give expression to their own will only through the ballot, through the election of their representatives. The excellent proposal of the Frenchman Lavigne at the Paris Congress of the International added to this parliamentary, indirect manifestation of the will of the proletariat a direct, international mass manifestation: the strike as a demonstration and means of struggle for the eight-hour day, world peace, and socialism.

And in effect what an upswing this idea, this new form of struggle has taken on in the last decade! The mass strike has become an internationally recognized, indispensable weapon of the political struggle. As a demonstration, as a weapon in the struggle, it returns again in innumerable forms and gradations in all countries for nearly fifteen years. As a sign of the revolutionary reanimation of the proletariat in Russia, as a tenacious means of struggle in the hands of the Belgian proletariat, it has just now proved its living power. And the next, most burning question in Germany – the Prussian voting rights – obviously, because of its previous slipshod treatment, points to a rising mass action of the Prussian proletariat up to the mass strike as the only possible solution.

No wonder! The whole development, the whole tendency of imperialism in the last decade leads the international working class to see more clearly and more tangibly that only the personal stepping forward of the broadest masses, their personal political action, mass demonstrations, and mass strikes which must sooner or later open into a period of revolutionary struggles for the power in the state, can give the correct answer of the proletariat to the immense oppression of imperialistic policy. In this moment of armament lunacy and war orgies, only the resolute will to struggle of the working masses, their capacity and readiness for powerful mass actions, can maintain world peace and push away the menacing world conflagration. And the more the idea of May Day, the idea of resolute mass actions as a manifestation of international unity, and as a means of struggle for peace and for socialism, takes root in the strongest troops of the International, the German working class, the greater is our guarantee that out of the world war which, sooner or later, is unavoidable, will come forth a definite and victorious struggle between the world of labor and that of capital.