CURRENT NATIONAL AFFAIRS : AUGUST 2009

DEFENCE
Revised Maritime Policy

Just six months after the Indian Navy was given charge of the country’s entire
coastal security, it announced a revised maritime policy on August 28, 2009. The
Navy will now have an even sharper focus on the neighbourhood of the country.
This means securing the trade routes in the Indian Ocean region; extending the
reach of the Navy to project India as a major force and also preventing Mumbai-
style sea-borne invasions by terrorists.

The 2009 edition of the Indian Maritime doctrine was released by the Chief of
Naval Staff, Admiral Suresh Mehta. The original doctrine was published in 2004
to provide a common understanding of universally applicable maritime concepts,
not only for the forces but also for the public at large. This revision was needed
on account of the rapidly changing geo-strategic environment and
transformational changes in the maritime domain.

The earlier doctrine was more generic in nature; this one will provide a sharper
focus. The Indian Navy’s role in the Indian Ocean has changed in the past 12
months. It has been sent out to patrol the pirate-infested Gulf of Aden area to
ensure safety of international sea trade routes. Indian sailors have successfully
foiled at least five bids by pirates to take over ships and brought down instances
of pirates using choppers stationed on the ships. After the Mumbai attacks in
November 2008, the government handed over the entire command and control
of the coast to the Indian Navy that has been installing high-tech sensors along
the coast. In coordination with the coast guard, it is also buying fast-attack crafts
for shallow waters.

JUDICIARY
PM for war on judicial backlog

Promising the judicial system that his government would “match each step of the
judiciary with two of our own”, Prime Minister Manmohan Singh has asked the
Supreme Court to play a “vital role” in the “war on arrears” of cases and wiping
“every tear of every waiting litigant”.

Addressing the day-long Joint Conference of Chief Ministers and Chief Justices,
he, however, made it clear that increasing the court strength to improve the low
judge-population ratio would depend on High Courts filling all 3,000 existing
vacancies in the lower judiciary.

Describing the executive and the judiciary as “two vital wheels of the chariot of
good governance”, Mr Singh said India suffered from “the scourge of the world’s
largest backlog of cases and time-lines that generated surprise globally and
concern at home. The expeditious elimination of this scourge was the biggest
challenge for such conferences and should constitute the highest priority for all of
us”. Over 30 million cases are pending in various courts across the country.
Calling for an “arrears-free judicial institution”, he expressed concern over under-
trials languishing in jails for unduly long periods. “Many such under-trials have
been in jails for periods longer than they would have served had they been
sentenced. This is indeed very disturbing,” he said.

The road map for judicial reforms, suggested by President Pratibha Patil in her
address to the joint session of Parliament in June 2009, was under preparation
and national-level consultation with jurists and stakeholders in that regard would
be held very shortly, Prime Minister said.

Further, there was need for comprehensive computerisation and ultimate linking
of all courts in the country into one “mega judicial information grid” for screening
all pending cases and disposal of “many old cases as moot or infructuous”.

In his address, Chief Justice of India KG Balakrishnan said there had been a
“chronic shortage” of judicial officers, especially at the subordinate level. There
were also some “structural obstacles that discouraged talented law graduates”
from joining judicial services. However, he did not elaborate on the issue. Citing a
Law Commission report, he said the judicial system had to be expanded at least
five-fold in order to match the judge- population ratio of developed countries.
SC judges to disclose assets

Bowing to intense public pressure and faced with division in their ranks, Supreme
Court judges have finally agreed to take a belated step towards transparency and
make public their assets and liabilities. Details of judges’ holdings will now be
posted on the website of the apex court. However, the landmark decision comes
with a caveat: The judges will not entertain any query relating to their assets and
liabilities and how their wealth has increased or decreased.

The decision to make public personal assets and liabilities as well as those of their
spouses and dependants was taken by Chief Justice of India K.G. Balakrishnan and
the judges at a full court meeting, marking a major climb-down on the part of the
higher judiciary. The outcome of the meeting was influenced by the growing
pressure from within for disclosure of assets with Justice D. V. Shylendra Kumar of
the Karnataka High Court publicly taking issue with the CJI for his stand that
judges should not be required to disclose assets. The CJI even described Justice
Kumar as ‘publicity crazy’.

The judges have been declaring these details to the CJI since 1997 under an
internal resolution. But these remained a closely guarded secret with neither the
head of the judiciary nor the apex court entertaining any query, even under the
RTI Act, relating to these details.
PLANNING & ECONOMY
India ranks low in public health spending

As per a WHO study, India ranks 171 out of the 175 countries in the world in
public health spending. This is less than some of the sub-Saharan African
countries. For a country of one billion, India spends 5.2% of the GDP on
healthcare. While 4.3% is spent by the private sector, the government continues
to spend only 0.9% on public health. When the economic growth index is moving
forward, the wellness index is dipping.

While India ranks among the top 10 countries for communicable disease, it is,
today, world leader of chronic diseases like diabetes, hypertension and coronary
artery disease.

One of the key findings of the commission was that by improving the health
condition, the economy of the country will improve. But it has been reverse in
India. There is growth in GDP but there has been no increase in healthcare
spending. This inadequate public health spending has forced the public to depend
on private sector.

India’s health scenario currently presents a contrasting picture. While health

tourism and private healthcare are being promoted, a large section of Indian
population still reels under the risk of curable diseases that do not receive ample
attention of policy-makers.
New Direct tax code

Making the process of paying taxes simpler for the common man has always been
on top of the UPA’s agenda. This was amply demonstrated today with the
government initiating radical tax reforms by releasing the direct tax draft code
that aims to moderate tax rates and at the same time tries to make it easier for a
layman to understand and calculate his tax liability.

The reform of the tax regime introduced in 1961 is based on the objective of
having a tax system that is simpler, fairer, and easy to administer. The specific
objectives of the measures are to improve the responsiveness of the tax system,
that is, to enhance the automaticity in the increase in tax revenues with increases
in economic activity; improve tax administration by simplifying the tax system;
and, lastly, promote tax compliance objective as to reduce the scope for disputes
and minimize litigation.

The goal of the new tax code is to consolidate and amend all direct taxes and
simplify language to ensure that the law can be reflected in the return form. The
aim is also to reduce scope for litigation and provide flexibility in accommodating
changes without need for frequent amendments.

Key gains from the new tax code will be:

(a) Deduction (the popular section 80C) increased to Rs 3 lakh from present Rs 1
lakh. Thus, a person with taxable income of Rs 10,00,000 is likely to save approx
Rs 1,20,000 annually.
(b) Corporate tax rates, including for foreign companies, reduced to 25% from
34%.
(c) Net wealth tax exemption limit increased to Rs 50 crores from Rs 30 lakhs.
(d) Wealth tax rate cut to 0.25% from 1%.
(e) Indefinite carry forward of tax losses.
(f) Deduction for donation towards scientific research @ 125%.
(g) Agriculture income stays outside tax net.
(h) Deductions for Royalty income of authors who are individual residents up to
Rs three lakhs and deduction for Royalty income on patents for individual
residents up to Rs three lakhs.
(i) STT to be abolished.
(j) Cost inflation adjustment to be available for transfers anytime after one year
from end of year in which asset is acquired (earlier 3 yrs, except for shares).
(k) Base date for capital gains tax shifted from April 1, 1981 to April 1, 2000—
capital appreciation up to 2000 not taxable.
(l) Maximum penalty down to two times tax amount (from three times tax)

Key pains will be:

(a) Branch profit tax to be introduced @ 15%.
(b) Reintroduction of capital gains tax on listed shares & MF units.
(c) Tax saving schemes like PPF and retirement benefit schemes to be taxed on
withdrawal time on “Exempt, Exempt, Tax” (EET) methodology of taxation, for
savings done after introduction of the new code.
(d) Deduction for rent paid restricted to Rs 2,000 per month.
(e) Profit-linked incentives dropped.
(f) Period consumed in recovering all capital and revenue expenditure same as tax
holiday.
(g) Area based exemptions given earlier to continue.
(h) Definition of income to include all accruals and receipts of revenue and capital
nature unless otherwise specified.
(i)Receipt of LIC policy taxable except for pure life insurance policy.
(j) Distinction between short term and long term assets done away with.
(k)Cost of acquisition/improvement nil if not determinable.
(l) Roll over benefits for capital gains tax exemption trimmed to only one
residential house.
(m) Profits on sale of business capital assets/undertaking no longer treated as
capital gains, but as business income.
(n) Loss on sale of business capital assets not allowable, to be only depreciable.
(o) Presumptive rent to be calculated at 6% p.a. of rateable value when higher
than contractual rent to compute income from house property.
(p) For self occupied property, no deduction for interest and principal loan
repayment.
(q) Income from letting of machinery, plant, furniture included if letting of
building is inseparable from the same.
(r) Rent free accommodation to govt employees made taxable.
(s) MAT linked to gross assets rather than book profit @ 0.25% for banking
companies and 2% for others.
(t) No carry forward credit for MAT in later years. (u) In case of conflict between
double tax treaty and code, the one that is later in point of time shall prevail.
Some new concepts have also been added to the code. These are:
(a) Tests for residency changed.
(b) Foreign companies, even if partly held/managed from India, will become
“resident”.
(c) Concept of ‘resident but not ordinarily resident’ dropped.
(d) Income from business to be computed separately for each business.
(e)Income-expense model based on US, Canada, Australia and most Asian
countries.
(f) Three types of biz expenses allowed: Operating expenditure, permitted
financial charges and capital allowances.
(g) Scope of weighted deduction of 150% to be extended to all industries.
(h) ‘Scientific research’ to be defined.
(i)Presumptive taxation for certain business to continue.
(j) Separate income determination regimes provided for hospitals, SEZ,
infrastructure, etc.
(k) MF, VCF, Pension Fund etc. To be taxed as pass through entities. (l) New tax
regime for trusts, institutions carrying on charitable activities.

New Foreign Trade Policy

India has extended tax holiday and duty refund for exporters, while allowing duty-
free capital goods import under its Foreign Trade Policy to insulate them from
protectionism induced by recession abroad. The new five-year policy was released
on August 27, 2009 by Commerce Minister Anand Sharma. It sets a target of $200
billion worth exports for 2010-11, a feat that India failed to achieve in 2008-09
due to a slump in global demand in the face of financial crisis.

Extension of income tax holiday for export units for one more year and
continuance of duty refund scheme till December 2010 and enhanced assistance
for the scheme for development of markets are among the measures in the FTP.
The aim of the policy, which would be reviewed after two years, would be to
"arrest and reverse declining trend of exports”.

Exports have been on a decline for the past 10 months. Exports in FY'09
amounted to $168 billion and the country hopes to maintain the same level in
2009-10.

The government would encourage exports through a “mix of measures including

fiscal incentives, institutional changes, procedural rationalisation and efforts for
enhance market access across the world and diversification of export markets”.
The policy would provide a special thrust to the employment-oriented sectors
which have witnessed job losses in the wake of recession, especially in the fields
of textiles, leather and handicrafts.

Highlights

 Aims annual growth of 15 pc in 2010-11.

 Double India’s exports of goods and services by 2014.
 A high-level panel to look into dollar needs of exporters.
  Six 'Made in India' shows to promote Brand India.
 Directorate of Trade Remedy Measures to safeguard exporters.
 Duty Entitlement Passbook Scheme extended till December 2010.
 A single window system for export of perishable agricultural produce.
 Value addition norm for tea halved to 50 per cent.

POLITICAL
Government to scrap Darjeeling Gorkha Hill Council

The Centre, West Bengal government and the Gorkha Janmukti Morcha (GJM)
have agreed to scrap the Darjeeling Gorkha Hill Council (DGHC) and bring in its
place an alternative administrative framework for the hill district to be finalised
through mutual consultation and agreement. At a tripartite meeting of
representatives of the Centre, led by Union home secretary G.K. Pillai, of West
Bengal government led by chief secretary A.K. Chakrabarty and of GJM led by
Anmole Prasad, it was decided that the DGHC Act, 1988 would be repealed and
the proposal for establishment of a hill council under the Sixth Schedule of the
Constitution be dropped.

The press statement, however, makes no reference to the GJM’s central demand
for a separate Gorkhaland: a pointer to such a drastic concession being almost
ruled out. The alternative administrative framework to be worked out by the yet-
to-be-named interlocutor for the Gorkha talks will have due constitutional status
and will be supported by a full-fledged Act. It is also likely to be given more
powers than DGHC. However, working out its terms is likely to be a long-drawn
affair, and, in all probability, the new framework may come well after installation
of the new government in West Bengal.

During the tripartite talks, the Centre extracted an assurance from the GJM that it
would help maintain a peaceful and conducive atmosphere during the
negotiations. GJM has agreed to work along with the other parties “in a spirit of
constructive cooperation to carry the talks forward”.

The Centre also decided to push administrative works in the hill district by
sending a team of its officials to Darjeeling to review development works. Both
the Union and the West Bengal government suggested that elections to the
panchayat samities, gram panchayats and municipalities be held in the hill district
“as an interim measure and to restore the democratic process”. The GJM team
offered to consult its brass on the proposal and revert to the state government.

With nearly Rs 70 crore worth of special central assistance and even portions of
the Calamity Relief Fund lying un-utilised, it was agreed at the tripartite meeting
that the West Bengal government would send across a team to Darjeeling to
discuss fund utilisation.
FOREIGN RELATIONS
India, ASEAN ink free trade deal

In a major success in its ‘Look East' policy, India, on August 13, 2009, signed a Free
Trade Agreement (FTA) with the 10-member Association of South East Asian
Nation (ASEAN) bloc that would eventually eliminate duty on 80% of the goods
traded at present by 2016. The two sides have set an ambitious target of
achieving an increase of $10 billion worth of trade in the first year after the
agreement comes into force from January 2010. India's current bilateral trade
with the ASEAN bloc is worth $40 billion.

The agreement was signed by Commerce and Industry Minister Anand Sharma
and Economic Ministers of ASEAN in Bangkok. Considered as a major
breakthrough, the pact comes after six years of intense negotiations. The FTA
would bring down tariffs on electronics, chemicals, machinery and textile goods.

However, talks on software and information technology services have been

postponed for December 2009. This is one area where Indian exporters of
services could have brought in good business and also offset setbacks received in
the European and US markets during the downturn. Of the total $936 billion
worth of ASEANn imports, services import account for $180 billion which is the
primary focus of Indian industry.

ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the

Philippines, Singapore, Thailand and Vietnam.
Lobbying from the domestic industry has led to India excluding 489 items from
the list of tariff concessions and 590 items from the list of tariff elimination to
address sensitivities in agriculture, textiles, auto, chemicals, crude and refined
palm oil, coffee, tea, pepper, etc.

Visit of Defence Minister A.K. Antony to Maldives

Defence Minister A.K. Antony went on a three-day official visit to Maldives from
August 20, 2009. He led a high-level delegation comprising Defence Secretary
Pradeep Kumar; DG, Armed Forces Medical Services, Lt Gen N.K. Parmar; DG,
Coast Guard, Vice Admiral Anil Chopra and Deputy Chief of Navy Staff Vice
Admiral D.K. Joshi.

During his visit, Mr Antony held bilateral discussions with his counterpart Ameen
Faisal on ways of expanding defence cooperation between the two countries. He
also attended the closing session of the India-Maldives Friendship function,
besides paying a visit to the Indira Gandhi Memorial Hospital, the most visible
symbol of Indo-Maldives cooperation and friendship.

In a move that will serve security interests of both India and Maldives, the two
countries in the Indian Ocean region agreed on a series of measures to step up
defence cooperation. At discussions with Maldives defence forces, the emerging
security challenges in the region and the need to strengthen joint and collective
mechanisms to mutually counter them were highlighted. The purpose of his visit,
Mr Antony said, was not to enter into any agreement, but to expand cooperation
within the existing robust framework.

Visit of Nepalese Prime Minister

Amid an uncertain political situation back home, Prime Minister of Nepal, Mr

Madhav Nepal arrived in New Delhi on August 7, 2009 on a five-day visit to
India—his first to the country since he assumed office nearly three months ago.
Several important bilateral issues, including the proposed revision of the
friendship and trade treaties and the finalisation of a revised extradition treaty
figured prominently in the discussions between the two sides.

Besides meeting Prime Minister Manmohan Singh, the Nepalese Prime Minister
also meet President Pratibha Patil, UPA chief Sonia Gandhi, External Affairs
Minister S.M. Krishna, Finance Minister Pranab Mukherjee and Home Minister P.
Chidambaram.

Prime Minister Manmohan Singh extended India’s full support to the peace
process in Nepal and also discussed the broad contours of a proposed revised
trade treaty between the two countries. The two leaders had a one-on-one
meeting lasting about an hour during which they discussed the entire gamut of
bilateral relations as well as international issues.

Intensifying economic partnership between the two countries remained at the

centre of the discussions with the focus on investment in hydro power sector. The
issue of the misuse of Nepal's territory by anti-Indian forces also came up during
the talks.

Nepalese Prime Minister also addressed captains of the Indian industry, inviting
them to invest liberally in the Himalayan Nation in various sectors. He assured
them of conducive atmosphere for industrial growth. The visiting dignitary
identified hydro power, roads, bridges, infrastructure construction, tourism, agro-
processing and financial services as potential areas of investment.

Political events in Nepal since May this year had shaken the confidence of Indian
entrepreneurs after attacks by militant trade unions on a few firms, including a
well-known fast moving consumer goods firm. With India-Nepal trade expected to
touch Rs 15,000 crore ($3 billion) in 2009-10, the commerce ministers of the two
countries discussed the proposed revised treaty to widen the scope of bilateral
trade.

Nepal Prime Minister Madhav Kumar Nepal assured Indian investors that his
office would coordinate to ensure that investments coming from India get
priority. Regarding the ongoing violence and unrest in the country, the Prime
Minister said the general law and order condition in the Himalayan Kingdom was
returning to normalcy. He said his government would shortly unveil its security
plans in consultation with all Nepalese political parties, which would offer security
to investments and ensure manufacturing without interruption. The new security
plan will address the issue regarding strikes and disruptions, so that industrial
production is maintained at steady pace and investors’ interests are adequately
protected.

In a bid to support Nepal’s beleaguered peace process and check China’s growing
influence, India has decided to pump in crores of rupees into the neighbouring
nation’s infrastructure. The Indian government has taken a decision to fund three
large infrastructure projects, which will increase border connectivity and increase
trade between the two countries. The government has quickly pushed through
funding for the projects to show that India is serious in its efforts to help Nepal
through the transitional period.

With the development mantra in mind, the government will put in around Rs 200
crore to set up the first two state-of-the-art integrated Customs point along the
border at Raxaul-Birganj and Jogbani-Biratnagar. The idea is to set up the ICPs so
that trade between the two countries becomes smoother, cutting down on
current procedural delays at the border. After the first two sites are set up, the
two countries will then look at setting up ICPs at Sunauli-Bhairahawa and
Nepalgunj-Nepalgunj points.

The Indian government will also fund the first phase of the Terai road project at a
cost of around Rs 700 crore and set up two rail links worth Rs 700 crore. The Terai
road project looks at upgrading around 1,500 km of roads in the Terai region, with
the first phase covering 657 km. Additionally, India will also fund a Nepal Police
Academy worth Rs 300 crore in what is a capacity-building exercise. These
infrastructure projects were at the conceptual stage for the last couple of years
but have not gotten off the ground for one reason or another. By funding road
and rail projects, India hopes to start a new era of cooperation and send a strong
message of support to Nepal and its government, which has been struggling to
push forward the peace process in the face of Maoist opposition.

India’s current push for Nepal’s infrastructure also comes in the backdrop of
China’s continuing efforts in Nepal. China is currently helping Nepal build a cross
border road linking Nepal to the Tibetan Autonomous Area to improve trade and
tourism. China has put in vast amounts of money into Nepal in various sectors
including hydropower, health and IT.

India, Singapore ink pact on tourism

On August 4, 2009, India and Singapore signed a joint action plan on tourism
cooperation. Minister of Tourism Kumari Selja and Singapore Senior Minister of
State for Trade and Industry and Education S. I swaran witnessed the signing by
tourism officials of India and Singapore. The plan reiterates provisions of
cooperation enshrined in the bilateral agreement on tourism signed between
India and Singapore on January 24, 1994.

India, South Korea ink free-trade pact

India and South Korea have signed a comprehensive economic partnership

agreement which will make Korean consumer products and auto parts cheaper in
India. The deal excludes fully built-up vehicles and provides for easier movement
of contractual service providers and professionals between the two countries and
treatment of investments from one another’s country on a par with domestic
investments.

This is the second CEPA signed by India, the other being with Singapore. This is
also India’s first bilateral trade agreement with an OECD country.

As per the agreement, South Korea will eliminate duties on 93% of its industrial
and agricultural products and India will do the same on 85% of its goods. India has
excluded sensitive items such as farm products, textile items and built-up
automobiles from tariff elimination commitments. Duties will be phased out on
most products in the next eight years.

TERRORISM
Death sentence for 2003 Mumbai blasts

On August 7, 2009, a special POTA (Prevention of Terrorist Activities Act) court in

Mumbai awarded death sentence to the three accused held guilty last week for
the 2003 blasts that killed over 50 people. Six years after two blasts at the iconic
Gateway of India and Zaveri Bazaar, three Lashkar-e-Toiba members—
Mohammed Hanif Sayeed (46), his wife Fahmida (43) and Ashrat Ansari (32)—
were sentenced to death. This is for the first time that a couple has been
convicted by a POTA court for carrying out blasts.
The special court judge observed it had been proved beyond reasonable doubt
that they had committed heinous acts resulting in numerous deaths. The court
agreed with special public prosecutor that this was a rarest of the rare case where
capital punishment was justified.

The trio was held guilty of planting two bombs in taxis that exploded at the
Gateway of India and Zaveri Bazaar on August 25, 2003, claiming 52 lives and
injuring 244. They had also planted a bomb on July 28, 2003, in a municipal bus in
suburban Ghatkopar which killed two persons. The three were given death
penalty under section 3(2) of POTA, and IPC sections 302 (murder), 307 (attempt
to murder) and 120(b) (conspiracy).

Fahmida had played a major role in these bomb blasts. She had planted a bomb in
a bus on July 28, 2003, along with her husband’s friend Ashrat and on August 25,
2003, she and her husband Hanif planted bombs in taxis at the Gateway of India.

Along with the couple Hanif and Fahmida, their 16-year-old daughter was also
arrested for her alleged involvement in the blasts. However, she was discharged
since the prosecution chose not to investigate the charges against her as she was
a minor. Two other accused, Mohammed Ansari Ladoowala and Mohammed
Hasan Batterywala, were also discharged from the case by the POTA court after
the Supreme Court upheld a POTA review committee report that said there was
no case against the duo.
 CURRENT INTERNATIONAL AFFAIRS

AFGHANISTAN
Elections to elect President

Taliban threats kept voter turnout low in the Kabul and the militant south on
August 20, 2009, as Afghans voted to choose the next President for their deeply
troubled country. Militants launched scattered rocket and bomb attacks but no
major assaults.

Taliban militants had pledged to disrupt the vote and circulated threats that those
who cast ballots will be punished. However, voters throughout Afghanistan came
out to cast their ballot, even if not in large numbers.

President Hamid Karzai, who has held power since the Taliban was ousted in late
2001 by a US-led invasion, is favoured to finish first among 36 official candidates,
although a late surge by former Foreign Minister Abdullah Abdullah could force a
run-off if no one wins more than 50 per cent.

Since Hamid Karzai’s election in 2004, violence in Afghanistan has increased more
than seven times, and particularly in the provinces of Helmand, Nangarhar, Zabul
and Kandahar where he had got over 80% of the votes.
Karzai’s closest rival in the elections was Abdullah Abdullah, a confidant of
Northern Alliance leader Ahmad Shah Masood.

India played safe and distant in these elections. There is a clear recognition that
despite India’s huge stakes in Afghanistan, there are no gains to playing sides in
these elections. No matter who wins, India will have a substantive playing field,
except of course if the Taliban return.

Karzai has been close to India, and even when the US was trying to dislodge him,
India stood by him. Abdullah is an old India hand, having lived in India with his
family during the Taliban years, with full support of the then Indian government.

Nearly 7,000 polling centres across Afghanistan were set-up for a total electorate
of 17 million people. Ballots were counted by hand at each polling centre as soon
as voting came to a close. Counting process, however, is expected to be
completed in September only. To win the election, a Presidential candidate must
get over 50% of the votes cast. If no one receives this, a runoff election will be
held within 2 weeks of the announcement of the results.

JAPAN
Landslide win for Democrats

Japanese voters swept the opposition to a historic victory in an election on August

30, 2009, ousting the ruling conservative party and handing the untested
Democrats the job of breathing life into a struggling economy.
The win by the Democratic Party of Japan (DPJ) ended a half-century of almost
unbroken rule by the Liberal Democratic Party (LDP) and breaks a deadlock in
Parliament, ushering in a government that has promised to focus spending on
consumers, cut wasteful budget outlays and reduce the power of bureaucrats.

Democratic Party leader Hatoyama, grandson of a former Prime Minister, will

take over as the new Prime Minister.

The ruling party loss ended a three-way partnership between the LDP, big
business and bureaucrats that turned Japan into an economic powerhouse after
the country’s defeat in World War II. That strategy foundered when Japan’s
“bubble” economy burst in the late 1980s and growth has stagnated since. The
Democrats will have to move fast to keep support among voters worried about a
record jobless rate and a rapidly ageing society that is inflating social security
costs.

The Democrats have pledged to refocus spending on households with child

allowances and aid for farmers while taking control of policy from bureaucrats.
The Democrats also want to forge a diplomatic stance more independent of the
United States, raising concerns about possible friction in the alliance.
MYANMAR
Suu Kyi convicted as global outrage grows

Myanmar democracy icon Aung San Suu Kyi and her US co-defendant are to
appeal against their convictions as the ruling junta faced a global wave of anger
over her extended detention. US president Barack Obama led worldwide outrage
at the military regime’s decision on August 12, 2009, to give Suu Kyi another 18
months of house arrest, a verdict that shuts the Nobel peace laureate out of
elections in 2010.

A prison court sentenced her to three years of hard labour after finding her guilty
of breaching the terms of her incarceration, but junta strongman Than Shwe
commuted the punishment to a year and a half under house arrest.

In Washington, Obama called for Suu Kyi’s “immediate, unconditional release”

and for the freeing of more than 2,000 other political prisoners held in Myanmar.
The US president said the “unjust” sentence against Suu Kyi would never be able
to stamp out the people of Myanmar’s desire for freedom, accusing the regime of
“continued disregard” for UN Security Council statements.
NEPAL
Gurung is army chief

Lt Gen Chhatraman Singh Gurung, who received training at the Indian Military
Academy, Dehradun, was appointed to head the Nepal Army on August 9, 2009,
after his controversial predecessor General Rukmangad Katawal went on a
month-long leave ahead of his retirement in September. Gurung is the first from
the rank of commoners to head the army, which has been led by the country’s
elite and the aristocracy. The change of guard at the helm of 95,000-strong Nepal
Army came amid a continued blockade of Parliament by the Maoists demanding
Katawal’s removal. The Maoists, whose eight-month-old government fell in May
2009 after the reinstatement of Katawal, had sought his dismissal and a debate in
Parliament on the issue of “civilian supremacy” in the country.

PAKISTAN
Politics allowed in Taliban land

On August 14, 2009, Pakistani President Asif Zardari lifted a ban on political
activity in the ethnic Pashtun tribal belt on the Afghan border, in an apparent
move to loosen the grip of militants on the lawless area. Pakistan’s seven tribal
regions, known as the Federally Administered Tribal Areas (FATA), are semi-
autonomous and have never been fully integrated into the country’s
administrative and political system.
The FATA is a major sanctuary for al-Qaida and the Taliban plotting violence in
Pakistan, Afghanistan and beyond and analysts have long argued for it to be fully
integrated with the rest of Pakistan and brought under government writ. Zardari,
speaking at a ceremony to mark the anniversary of Pakistan’s independence from
Britain in 1947, said Pashtun tribesmen deserved to be treated the same as other
Pakistanis.

The FATA is governed under a system inherited from British colonialists with a
government-appointed political agent ruling through the tribes, which observe
their centuries-old codes, not Pakistani laws. Political parties have not been
allowed to operate in the FATA which analysts say helped to create a vacuum for
hard-line Muslim clerics to exploit.

ECONOMY
World financial crisis costs $11.9 tn

The world has earmarked a staggering $11.9 trillion to wriggle out of the financial
crisis, the sum which is enough to finance a $1,779 handout for every person
living on the planet, according to the International Monetary Fund.
Most of the cash has been handed over by developed countries, for whom the bill
has been $10.2 trillion, while developing countries have spent only $1.7 trillion
the majority of which is in central bank liquidity support for their stuttering
financial sectors.
The whopping total cost of crisis is equivalent to around a fifth of the entire
globe's annual economic output and includes capital injections pumped into
banks in order to prevent them from collapse, the cost of soaking up so-called
toxic assets, guarantees over debt and liquidity support from central banks.

Japan comes out of recession in Q2

Japan's economy climbed out of year-long recession in the second quarter, the
government said on August 16, 2009, expanding 3.7% at an annual pace and
joining Germany, France and other regions that appear to be emerging from the
global financial crisis. But economists and politicians sounded cautious, noting
that the main driver of growth was exports and that domestic consumer spending
remained fragile amid plunging incomes and rising unemployment.

The recovery in the April-June quarter was driven by robust demand for cars,
video recorders and other electronics goods, according to government data.
Shipments to China and other emerging markets were particularly strong,
although exports to the US and Europe also showed modest recoveries. Exports
grew 6.3% from the previous quarter, the highest rate in seven years.

Government stimulus measures have also helped, such as cash handouts and
incentives to buy ecological products. But economists said, the nascent recovery
could quickly run out of steam because domestic demand remains weak. Salaries
are falling and the unemployment rate has risen to a six-year high of 5.4% as
companies such as Toyota Motor Corp and Sony Corp have cut thousands of jobs.
The rebound in the world's second largest economy came after a steep, year-long
contraction in gross domestic product, including a worst-ever drop in the final
quarter of 2008, when the economy shrank at a 13.1% pace. The news from Japan
comes amid signs that the global economy may be recovering from its slump.
Earlier, France and Germany, Europe's two biggest economies, said they resumed
growing in the second-quarter, while Hong Kong also said it expanded after a
year-long recession.

Economic recovery has begun: IMF

The global economic recovery has begun but sustaining it will require refocusing
the United States toward exports and Asia toward imports, according to the
International Monetary Fund’s chief economist, Olivier Blanchard.

"The turnaround will not be simple," Blanchard said. "The crisis has left deep
scars, which will affect both supply and demand for many years to come." He said
US consumption, which accounts for about 70 per cent of the US economy and a
large chunk of global demand, would not quickly return to pre-crisis strength as
households cope with trillions of dollars in losses from the falling housing and
stock markets.

He said the financial crisis had made Americans more conscious of "tail risks"—
events that are unlikely to occur, but when they do have devastating
consequences. That means US consumers are unlikely to return to their free-
spending ways, and both the United States and its trading partners will have to
adjust. Emerging Asian countries, especially China, must play a big role.

ENVIRONMENT
India, China unite to take on West

India and China have agreed to jointly fight any attempt by Western nations to
link trade with climate change and impose trade-related penalties on developing
countries that fail to meet environmental standards.

India and China have agreed to coordinate their views on different aspects of
climate change before every major international meeting on the subject. These
are expected to be spelt out in form of an agreement. Both countries want to
negotiate with West for higher levels of financial assistance and technology
transfer in return for promises to do their best to tackle environmental problems.
But they would not agree to any legal binding on reducing emission norms
because it would come in the way of their development goals. India and China will
also not agree to the creation of any trade barriers on the excuse of climate
change. India has also suggested China to consider reducing carbon dioxide levels
in power plants supplied by it to India. This would be part of the mitigation
activities that the two countries expect to carry out jointly.
INTERNATIONAL RELATIONS
Pak has modified Harpoon, India under threat: US

The US has accused Pakistan of illegally modifying the Harpoon anti-ship missile,
sold to it as a defensive tool by the Reagan Administration, to expand its
capabilities to strike land targets, a potential threat to India. The Obama
Administration, reported 'The New York Times' in a front page story, lodged its
protest with Pakistan Prime Minister Yusuf Raza Gilani in June, adding to the
tension between the two countries.

Quoting unnamed officials from the Administration and the US Congress, the daily
said Washington has also accused Pakistan of modifying American-made P-3C
aircraft for land-attack missions, another violation of United States law.

The Obama Administration's accusation confirms New Delhi's assertion that the
US military aid is primarily used by Pakistan to strengthen and build up its army
against India.

The newspaper said Pakistan has refuted the charge that it modified the missiles
and claimed that it developed this itself. Between 1985 and 1988, the US had
provided 165 Harpoon missiles to Pakistan.

Given the strong protest lodged by the Obama Administration, Pakistan has taken
the unusual step of agreeing to allow American officials to inspect the country’s
Harpoon inventory to prove that it had not violated the law. he latest round of
dispute between the US and Pakistan, however, reflects the “level of mistrust”
between them.

TERRORISM
Pak Taliban chief Mehsud killed
Chief of Tehrike Taliban Pakistan (TTP) Baitullah Mehsud, who led a deadly
campaign of suicide bombs and assassinations in Pakistani cities, has been killed
in a US drone attack in first week of August 2009.

Intelligence officials said Mehsud was killed in a missile attack from an American
drone while he was having dialysis. Mehsud’s death means a spectacular
development in the campaign by Pakistan and the US against the Taliban and Al-
Qaida fighters along the border on Afghanistan. He was declared enemy No. 1 by
Pakistani authorities for his terrible suicide attacks that played havoc in Pakistan.

WORLD TRADE
China becomes Japan’s biggest trading partner
In a first, China has surpassed US to become Japan's largest trading partner. The
move is expected to have a softening effect on China-Japan disputes over an
island and have wide implications in Asian region including India. Japan's trade
with the US accounted for just 13.7% of its total world trade in the January-June
period. Its trade with China accounted for 20.4% of the total trade volume giving
Beijing tremendous clout over its neighbour's economy. South Korea, another
neighbour, accounted for 6.1%.
Extra - GK

The Solar Mission under the National Action Plan on Climate Change has got an
in-principle nod from the Prime Minister with an ambitious target of 20,000 MW
solar power by 2020 being accepted.

Australia has decided to provide more than 80 lakh dollars to set up Australia
India Institute in Melbourne. A joint project of the University of Melbourne, La
Trobe University and the University of New South Wales, the new Institute will
help Australians to know and understand India better.

India ranks 171 out of 175 countries in public health spending.

International Youth Day is observed on August 12.

88 years ago, during a meeting of the Indian National Congress (INC) at

Vijayawada in 1921, an Andhra Pradesh youth approached Mahatma Gandhi and
showed him design of a flag. Thus was born the Tricolour. But, it was over 88
years later that the designer of the National Flag, Pingali Venkaiah, finally got his
due: A commemorative postal stamp has been released in the memory of the
freedom fighter. India Post (Philately) division has honoured Venkaiah by
releasing the stamp, priced at Rs 5, on the occasion of his 132nd birth
anniversary.
Madden-Julian oscillation is a weather phenomenon that brings clouds and rains
in the tropics. Lasting between 30-50 days, this eastward moving system travels
along the equator and its flows generate cyclonic activity that at times perk up
the south-west monsoon in India.

The Centre has announced an increase of Rs 100 (per quintal) in the minimum
support price (MSP) of paddy for the 2009-10 fiscal. While the MSP for common
paddy variety has been increased to Rs 950 from Rs 850 per quintal, for grade ‘A’
type it would be Rs 980, up from Rs 880 per quintal in 2008. Among pulses, the
new MSP for arhar is Rs 2,300, a hike of Rs 300 (15 per cent). The MSP for moong
has seen a hike of Rs 240 (9.52 per cent); it now stands at Rs 2,760 per quintal.
Sesame MSP, too, has been increased by Rs 100 and will now be Rs 2,850 per
quintal.

For the fourth straight year, German Chancellor Angela Merkel has been ranked
as the most powerful woman in the world by Forbes magazine, while the US First
Lady Michelle Obama made her debut in the top 100 list. The US Federal Deposit
Insurance Corporation chairperson Sheila Bair is ranked at the second place and
India-origin chief executive of Pepsico Indra Nooyi at the third. Led by Indian
National Congress president Sonia Gandhi at the 13th spot, the list has three
Indians. While ICICI Bank CEO and managing director Chanda Kochhar has made
her debut in the list at 20th position, Biocon's chairman Kiran Mazumdar-Shaw is
at the 91st place.
Reserve Bank of India (RBI) has put a cap on third-party ATM withdrawal (when a
cardholder is using other bank’s ATM) at Rs 10,000 per transaction and also
limited the number of such transactions to five in a month. For more than five
third-party transactions in a month, one has to pay Rs 20 per transaction.
However, there will be no such limit when a card-holder is using his/her own
bank’s ATMs.

IISc has been ranked the number one engineering/ technology institute among
top 67 science institutes in the country. IIT-Kanpur comes in at second place,
followed by IIT-Bombay, IIT-Kharagpur and Delhi at third, fourth and fifth position,
respectively. The ranking has been published in the Current Science. The other
institutes within top 10 include Jadavpur University ranked 6, IIT-Madras 7, IIT-
Roorkee 8, Anna University 9 and IIT-Guwahati ranked 10.

Power outagesnationwide cost Indians a staggering Rs 100,000 crore—enough to

put up power plants with a capacity of 25,000 MW of electricity, or almost 20% of
the present generation level. That’s what a survey by a big power company has
found. Besides, Indians spend Rs 30,000 crore every year maintaining and
operating inefficient back-ups like gensets and inverters, which substantially
increase the carbon footprint. The study claims back-ups release an additional
1.9m tonnes of carbon dioxide into the atmosphere. According to one projection,
the value of the lost opportunity due to outages in 2008-09 was Rs 2,89,000
crore.
An empowered Group of Ministers has fixed Rs 3,500 crore as reserve price for
3G spectrum to be given to a maximum of five players initially. The eGOM has
also decided a base price of Rs 1,750 crore for pan-India WiMax (Wireless
Internet) spectrum.

Sera the Tiger is the mascot of 2010 Commonwealth Games to be hosted by India
in New Delhi.

The economic upturn appears to have truly begun. The latest government data on
Monday showed the economy growing by 6.1% year-on-year during the first
quarter (April-June) of the fiscal—the fastest for any quarter since the global
financial crisis began almost a year ago—making officials expect 6.5% growth this
year. This growth rate means India remains the second-fastest growing major
economy after China, which notched almost an 8% growth rate. More
importantly, it’s an improvement over the 5.8% notched up by India in the
previous quarter and 5.3% recorded in the quarter before that.

Engineers in Kochi are giving final touches to the 4.62-km-long rail bridge
connecting the mainland to the proposed international container trans-shipment
terminal on Vallarpadam island across the Vembanad lake in Ernakulam district of
Kerala. Due to be commissioned in November 2009, it will be the longest rail
bridge in India. Currently, the record is held by the Nehru Sethu near Dehri-on-
Sone. Located on the Kolkata-Delhi Line, the Nehru Setu is 3.065-km long.