By

A V Ramanathan avramani2002@hotmail.com 2012

Sincere and idealistic Involvement in nations glory

A political storm is brewing over the Country, may be rightly, on

the massive Corruption issue which has erupted last year and many skeletons have dropped off the cupboard. Action were inevitable, and quick decision taking was desirable, but the Government dithered saying Coalition dharma, contradictions in the coalition parties which comprised the constituents of UPA II It was the mere strength of numbers of the Left Parities which restrained and constrained the Government and the bereft of checks and balances in the UPA II Coalition made the political will of the Government weak, with the Political and Governmental wings going parallel as far as Policy issues are concerned. Lack of statesmanship saw the Government complicating the governance and action during Crisis after crisis. Government did not have a crisis management team which could diffuse crisis by timely action. Let me not go cynical. People of India, disgusted and despaired with scams after scams, that have emptied the exchequer, and governments apathy to take concrete and timely action have energized peoples anger and manifested itself in full outcry when Anna Hazare, a Gandhian, took on the government single-handedly with his fight against corruption which took to gigantic proportions. It has swelled to every village after village after engulfing the towns, and Indias future generation of students are out on the streets. A crusade is on. When Anna Hazare, announced a fast on August 16th well in advance, the callous attitude of the Government and its spokesmen created distrust and divide which grew wider and wider. Invoking Sec 144 of IPC, government went for Preventive detention of Anna which showed political brinkmanship. Government should not pretend not to see the outpouring of protest against its inaction and call the crusade as misconceived. The growing blunders Government committed including constituting a drafting Committee consisting of only 5 nominees suggested by Hazareji, and Government nominated 5 nominees to make the total number of representatives in the drafting committee to ten. This was the first undemocratic step. India has very tall civic activists, public spirited citizens, and retired bureaucrats known for their integrity and performance, brave retired military personnel who won great honours, tall and patriotic newspaper editors, spokesmen of many NGOs, legal fraternity (Bar Associations), doctors, service organization

heads, etc. None of them were involved in the drafting committee, because government wanted to diffuse the situation out of the earlier fast by Anna Hazare, by constituting a Drafting Committee. This was ill advised and adhoc decision with short term implications. Now the draft given by the Jan Lokpal, is drafted by the team headed by Anna Hazare, and may be mostly by Shanti Bushan and Prasant Bushan, who are fighting many PIL in the Courts against Government, Court etc. Their bias would definitely echo in the draft prepared by them. Why did Government compress the drafting Committee? You called it a new experiment, which was devoid of practical common sense. Secondly, Government could have easily sought a consensus amongst the Opposition parties, political parties, all of them would have provided a Wall against criticism like the one that has emerged today, due to Governments inept handling of issue after issue. In a Parliamentary democracy, the leader of the Opposition holds a Cabinet rank. All agitations grow out of a strong mind set of one or two intellectuals in the movement who articulate the strategy and act as inventors of the theory of agitation and its issues. Coming back to the Jan Lokpal Bill, the gamble took by Anna Hazare paid off, because Indian democracy has become so corrupt and criminalized that it was endangering the constitutional systems that were set up under the theory of separation of Powers. Parliamentarians, bureaucrats, Police, have gone high handed, and it is high time that they reformed themselves. The anger of people across the Country was so instantaneous that when Hazareji was arrested, there was large outpouring of support which has led to the present stalemate. After all this venture and adventure, Government wants to initiate dialogue with Anna Hazare Team. But, he would be stubborn, as people from across the Country have overwhelmingly placed their trust which is visible. Peoples anger is justified that one scam named the 2 G scam was equivalent to Indian Governments investment in American treasury Bills (Rs 1.81 lakh Cr). Yet, in spite of vehement criticism, government sat tight for 2/3 years, not ventilating action even once. Why? Suresh Kalmadi looted Crores of rupees of public money and purchased defective lights which are lying in the PWD Godowns of Delhi Government worth Crores of Rupees in foreign exchange. He has also produced bills regarding purchase of costly equipments which is physically not found! A Government which says, rotten rice and wheat stored in FCI Godowns which have become unfit for human consumption, cannot be distributed free to the poor people and made a comment that the Executive Policy implementation be left to Governments where Courts should not give opinions. By the same yardstick, Crores of Rupees of Indian exchequer squandered and plundered, the Executive arm of the Government did not initiate even 3

one act against the loot! Prime Minister increased the budget of Commonwealth manifold. Was it Right of discretion? The contentious issues between Government representatives on the Lokpal drafting Committee narrowed down to two- one, bringing the Prime minister under the ambit of the Lokpal Bill and secondly, bringing the judiciary under Lokpal. India has a written Constitution. The preamble of the Constitution says, We, the people of India, have given unto ourselves this Constitution. and it has a republican character though India continues to be a member of the Commonwealth. Under Chapter III of the Indian Constitution, Fundamental Rights are prescribed. In the Keshavananda Bharati Vs Govt of Kerala case in the Supreme Court following Golaknath Case, the Honble Supreme Court has clearly indicated that the fundamental rights are absolute rights (Honble Shri Kapil Sibal says fundamental rights are not absolute rights?) granted to Indian citizens under the Constitution and their abridgement is subject to conditions stipulated under Art 356 of the Constitution in case of internal disturbance, external emergency or war. The fundamental basic structure (character) of the Constitution cannot be altered, stated that Judgement which is the present Law. Under the Constitution, the power of appeal, and final settlement of a Case, invoking its power to suo moto take up a Case etc(Original Jurisdiction, Appellate jurisdiction, transfer a Case from any Court in India to itself) is vested in the Supreme Court of India, based on the Indian Constitution, which is an infallible clause. If the version of Jan Lokpal prepared by the Civil society which was represented in the drafting Committee has to be conceded that the Judiciary be brought under the ambit of Jan Lokpal, then the Right of the High court/Supreme court, to hear an appeal against any order of Tribunal, Committee set up by an Act of Parliament, legality of the punishment or otherwise granted, Constitutional validity of a Bill passed by Parliament into an Act is against the spirit of separation of Powers, and Parliament being one of the wings of Seperation of Powers cannot pass a Constitutional Amendment Bill which takes away the right of constitutional institutions set up 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, it becomes ultra virus of the constitution because it infringes on the basic structure of the Constitution, the theory of separation of Powers is taken into the hands of legislation like Right of disposal of appeal is taken away, and the Courts are rendered redundant. How can Legislature which has an independent slot with the Judiciary introduce 4

such a clause and take away such a Power? Parliament can pass Judicial Accountability Bill, but cannot take away by any Law, the Judiciarys right to intervene in any decision of anybody including the President 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 reasonableness of the arbitary decisions of Lokpal. There is always a clause for appeal otherwise it will smack of dictatorship. Such a conferred power created by Indian Parliament is ab initio void. Will Shanti Bushan or Prasant Bushan clarify? Second, the inclusion of the Prime Minister in the Bill. He is the executive Head of the State. The Courts have decided in a Judgement (Supreme Court), that there shall always be a Council of Ministers to advice the President. President can go by the advice rendered by the Council of Ministers headed by the Prime Minister. The only condition that is imposed by the Constitution is that he shall command the majority of the House. Suppose, hypothecatically, he is brought under the Lokpal Bill and he is accused, until the Lokpal disposes off the Case, he would be under a cloud unable to perform his normal duties. There is no provision in the Constitution which makes the Prime Minister come under a cloud, he is tried and then he is exonerated or punished and he has no right of appeal? Moderates and Radicals in the Civil Society are right in demanding a Lokpal Bill which has gone beyond proportions. It is also the duty of the Government to punish anybody found guilty of corruption without 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 Anna Hazare that is the greatest veneration the Gandhian could get. I request the Government to convince Shri Hazareji to be reasonable in his hour of fame, withdraw the fast, allows the Government to pass the Bill into an Act 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-

Wake up to the dark reality?

have today in India, doomsday Economic rule by the theory lurk Economists who are far out of reality. India has unique features, more, geographic and economic frames than that is visible on the surface. When the gong is good, every body tributes, when the going is to backwards, we move to the bullock cart age. The Planning Commission, emerged as a most powerful body, 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 emerging economy of the third millennia. India is on the verge of a crucial fall, and the fall out will be a limping India, which may not regain momentum and equilibrium in the fast moving world economy. We have a weak PMO, which do not have inter-personnel and task master qualities. Most of the problems have been energized, and ha its beginning here. The administration disarray can have 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 events and the inference that Chidambaram could have done more is based on the hypothesis of the various elaborations of events and conclusions, which are interpretations and conclusions. This resulted in the sparring match between the governments top two ministers who were the eyes of the Government and uproar asking for the head of the Minister. The genesis to the whole cause of discomfort is the CAG Report which fixed the loss of CAG Scam at Rs 1.76 lakh Cr. The Opposition made it an issue, the media made it a greater issue, and the highest Court made it an issue. It set in motion proceedings which have rocked the government. In the case of this sort, loss is presumptive, imaginary or unreal. First and foremost was, 2 G spectrum was not known in India that widely. Market perception was there was a possible market but whether it would result in landslide sale could not have been anticipated. Secondly, the entire market was the rural centric. Now to jell the figures on an offer of S Tel who 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) amounting to Rs 1,02,497 Cr, the price of additional load of equity, mind you, not offloading the existing equity of Swam and Unitech (2008-9) fetched around Rs 9,000 Cr(USP was Spectrum as the mover of the share sale), cannot pre-fix the imaginary sale price of 2 G Spectrum. A realization of a Post event, cannot be equated with a back dated event, and economics does not run that way. Yet Audit fixed the loss at Rs 2,645 Cr while CAG Final report quantified the loss at Rs 1.76 lakh Cr. Was it deliberate, or did it have mathematical assumptions, or

We

dissentions, should be first probed. Both the ruling party as well as the opposition 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 per capita in urban area and Rs 12 per capita in rural area. The Commission, the Commission used to define poverty using minimum food intake criteria of 2,400 calories (rural) and 2,100 calories (urban). In 2004, 24% of the population was BPL according to this formula. Tendulkar definition which prescribed expenditure on food, education and housing, which was accepted by the Plg Commission, saw the figure of Below Poverty population to increase by 10% to make it 37%. The affidavit filed by the Plg Comm on 20-9-2011 says expenditure of Rs 965/pm (urban) and Rs 761/pm(rural) cannot be deemed Poor hence security schemes should not be provided to them. The rest, 32% of the 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. Poor households 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 Poverty line, while the Comm pegs it at 32%. It is for the wise in the ruling party and Opposition to demand the working from the Planning Commission Today crisis stem out from the fact that the political party which is governing the nation does not have second rung leadership. Prime minister being a non political person does not have the Political will. Opportunistic ministers are on one up-manship to show their rudder. Planning Commission is doing little planning these days and is more interested in creating problems than solutions. PMO also has people who do not do proper homework and do not vibe with the people to understand matters at grass root level. The States are on the reckoning as power bases, does everything to confront the Centre for the least small thing. This is not good. When re-organization of states on Nov 1, 1956, a written commitment was given by all the leaders of Andhra that a unified Andhra be created, even though Andhra state came into being in 1952 with Kurnol as headquarters, how could political parties go against a written promise? Bifurcation and Trifurcation of States will increase administrative expenditure, and you cannot split riverines, resources, cities. Prime Minister of India should wake to the dark reality. India cannot pay a price of drifting, when all the others are concentrating on creating a strong economy. A prosperous India has been the dream of our national leaders. Cheap politics have no place.

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The shy and the mute middle-class The middle class is any class of people in the middle of a societal
hierarchy. In Weberian socio-economic terms, the middle class is the broad group of people in contemporary society who fall socioeconomically 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 a result, 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 20008

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 been ear-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

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 the Corporates the luxury of availing Credit from External markets at low rates, increasing the prices of petrol incessantly, not because of high crude world prices but for making the Public sector navaratna bulge their profits, tinkering with indirect taxes, and reducing the taxable portion of income from the Corporates while hiking the rate for the middle-class. The population share of the rich is shrinking, the Poor is shrinking but the middle-class is growing. This augurs well for the prophets of high, higher, highest growth in the Indian Economy.
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Rule of Law is natural Justice without discrimination Judicial activism is desirable in a democracy, but it should not water down the Natural Justice which forms the core and crux of Rule of Law. The Law holds no discrimination and equality of all persons before Law is a basic right, a human right, a fundamental ingredient of Natural Justice. The established principle of Criminal jurisprudence that in the absence of specific countervailing factors, there is a general perception in favour of bail in all cognizable cases. This legal covenant is a natural extension of Rule of Law that presumes that all are innocent until proved guilty. The maxim let hundred guilty escape punishments, but not a single innocent be found guilty. In a recent case, the CBI Court despite not opposing bail of one accused 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 the Society. Sec 437 Cr.PC does not differentiate between classes of women. The benefit of gender justice seems to have been interpreted differently by the Judge when there is no distinction in the Constitution or the code of Criminal procedure regarding class distinction. This is a mistaken conclusion. Further, the Judge says that the ends of Justice would be better served, by incarceration in jail during the trial as the accused can influence the witnesses. The charge sheet is filed, and the case against her is mostly circumstantial, evidence being the various records which are in Courts custody, and the chances of intimidation of witness looks far fetched. Further more, the Supreme Court had asked her to appeal for bail after the filing of the charge sheet. The same judge who denied her bail gave her good certificate by saying that he had to reluctantly deny her bail as he found her dignified in her conduct within the Court room. The Judge has quoted the Sathyam judgement of the Supreme Court for refusing bail. The same Supreme Court has enlarged all the accused in Sathyam case including Ramalinga Raju. Therefore, the ends 11

of Justice would be better served, The judiciary should not get swayed by public opinion, and public sentiment, as Public perception is based on ignorance. -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 had started sooner and that they are "too old" to take on a big, hairy project. Try to get a whiff of what some extraordinary people accomplished late in life. You may not be a Michelangelo or Stradivarius, but so what? You can still accomplish miracles. All you need to do is begin (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 he was 72 years old; Frank Lloyd Wright designed Guggenheim Musuem while he was 91; Gold Meir became Prime Minister of Isreal at 72, Peter Drucker wrote the Management Change for Turbulent Times at 89, Gandhiji won freedom for India when he was 77; Nelson Mandela ascended the President ship of South Africa at 75(Courtesy: The Creative 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 must love a loathed. (Romeo & Juliet by William Shakespeare). Juliet is saying, My only love springs from my only hate! I saw him too early when I didnt know him, and now I realize who he is too late... We learn about ancient cultures in our History classes. Most of the old civilizations are gone. Some have left little behind except ruins and rubble. What happened? Where are the people, their music and ideas? Why are they nothing more today than a collection of stones visited by tourists, anthropologists and curious historians? The 12

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 of history is this: civilizations that changed when confronted with challenges thrived. Those that did not change died. In other words, when life 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 when an unhealthy attitude or a destructive behavior gets in the way, when we wish we could change something about ourselves, we had better change. People who embrace change thrive; those who resist it do not shine! If you have been waiting for a propitious time to make that needed change, this may be apt moment to usher in that change. It is never too late to be the person you might have been. It's never too late to be happy. It's never too late to do something different or to do something better. It's never too late to change a habit. It's never too late to do anything that brings a sustainable change. Begin making that necessary change today. Then tomorrow, and every tomorrow thereafter, can truly be different. All of us feel in one way or the other that if we are given a new life, we could start fresh altogether new. It is Too late now to alter our life Course feel most of us who missed one or the other opportunity. A school 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 he consoles himself saying, it is too late now. Somebody who had drinking problem wanted to conquer alcoholism and begin again. But, she was affected 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 to hold out an olive branch. Then the rift becomes unrepirable. It is too late to 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 to be! -o-o-o-o-o-o-o-

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Empowering Corporations (Municipalities) to raise Funds to meet their Development Needs through Muni Bond Local bodies are Executive bodies, and the elected Councils serve
as miniature Parliaments. Grass root democracy, or local self governing bodies created by Lord Mayo in 1870 is a constitutional device that takes democracy to the door of the Common man. This body is better equipped 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 very little or negligible, hence need state support from the State budget. Most of the state budgets are already deficits, with a wide gap between revenue, central funding and expenditure, that they fail to pass on certain or sufficient outlay to the local Governments, municipalities or Corporations, leaving them with less funds to execute development activities like flyovers, improve sanitary conditions, look after water supply to every household, provide electricity to all homes, run Schools, Colleges, create greenery, repair roads, pot holes, conduct health camps during epidemics, provide support systems during floods and natures fury, provide civic amenities to its citizens. But the income from property tax which is assessed quin quinnially is inadequate to meet the needs even though it is done quiet professionally. But the inefficient and unscientific way, in which values are cut, may be due to political reasons, 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 reason why civic body is found to be incompetent in providing proper civic services. He reasoned that failure to provide civic services by the Municipality would cause inconvenience to the people. He said Sec 133 Cr.PC could be invoked before an Executive Magistrate who can order the Municipality to address the grievance within a tight time schedule. So, the onus is on the Corporation or Municipality to provide proper services 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 be empowered to issue debt instruments for which the State governments could give sovereign guarantee, so that with the proceeds received from public debt, Municipalities can plan their developmental activities, and keep away a sizable sum from its overall income to repay the debt on maturity. If 5% of its budgetary allocation is ear-marked for interest, it would be sufficient to pay the annual accrued interest. If we look to United States, there are more than 50,000 bond issuers who have sold approximately $ 3 trillion in bonds, mostly to individuals, mutual funds and money market funds. A good portion of tax free bonds were to fund local government worthy projects. Another problem that affects the income of the Municipality or Corporation has to rise at the rate of inflation. Secondly, home values are cut on political grounds which make other homeowners to create revolt against unfair valuation and litigating to drive their property tax bills down. Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors. A bond is a debt security, in which the authorized issuer owes the 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 money with interest at fixed intervals. Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance 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 be general obligations of the issuer or secured by specified revenues. The interest income received by holders of municipal bonds is often exempt from the income tax and service tax or/any other tax in vogue. Unlike new issue stocks that are brought to market with price restrictions until the deal is sold, municipal bonds are free to trade at any time once they are purchased by the investor. Professional traders regularly trade and retrade the same bonds several times a week. The Bonds may be tied to an Exchange in the state of domain. Municipal bonds provide tax exemption from income tax, service tax and many state and local taxes. Municipal securities consist of both short-term issues (often called notes, which typically mature in one year or less) and long-term issues (commonly known as bonds, which mature in more than one year). Short-term notes are used by an issuer to raise money for a variety of reasons: in anticipation of future revenues such as taxes, in lieu of Bank Guarantees and future bond issuances; to cover irregular cash flows; meet unanticipated deficits; and raise immediate capital for projects until long-term financing can be arranged. Bonds are usually sold to finance capital projects over the longer term. There area no of developers who want to develop various properties within the Municipal limits with Crores of Rupees investment against which huge advances are taken from the soliciting Public. These developers need to take Municipal bonds equivalent to 5% of their Project cost. Various other licenses which Municipalities provide can be off set against these Bonds. Road side Publicity Boards, Cinema theatres, Shop licenses, Property taxes of high magnitude, Stadia, and the 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 bond issue. Public projects financed by revenue bonds include toll roads, bridges, water and sewage treatment facilities, hospitals and subsidized housing. Municipal bonds are securities that are issued for the purpose of financing the infrastructure needs. The bonds are issued by the 16

Municipality/Corporation needing public funding, after getting the approval of the State Government through legislation. . Most municipal notes and bonds are issued in minimum denominations of Rs. 5,000 or multiples of Rs 5,000/-. Municipal bonds are securities that are issued for the purpose of financing the infrastructure needs of the issuing municipality (even though the State Government issues the Bonds). These needs vary greatly but can include schools, streets and highways, bridges, hospitals, public housing, sewer and water systems, power utilities, and various public projects. Municipal bonds are issued by states, the municipal /Corporation to raise funds. The methods and traces of issuing debt are governed by an extensive system of laws and regulations, which vary by state. Bonds bear interest at either a fixed or variable rate of interest, which can be subject to a cap known as the maximum legal limit. The issuer of a municipal bond receives a cash payment at the time of issuance in exchange for a promise to repay the investors who provide the cash payment (the bond holder) over time. Repayment periods 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 for capital projects or for other purposes it cannot or does not desire to pay for immediately with funds on hand. Tax regulations governing municipal bonds generally require all money raised by a bond sale to be spent on one or many capital projects within three to five years of issuance. Because of the special tax-exempt status of most municipal bonds, investors usually accept lower interest payments than on other types of borrowing (assuming comparable risk). This makes the issuance of bonds an attractive source of financing to many municipal entities, as the borrowing rate available in the open market is frequently lower than what is available through other borrowing channels. Municipal bond holders may purchase bonds either directly from the issuer at the time of issuance (on the primary market), or from other bond holders at some time after issuance (on the secondary market). In exchange for an upfront investment of capital, the bond holder receives payments over time composed of interest on the invested principal, and a 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 bonds generally pay interest only until maturity; longer term bonds generally are amortized through annual principal payments. Longer and shorter term bonds are often combined together in a single issue that requires the issuer to make approximately level annual payments of interest and principal. Certain bonds, known as zero coupon or capital appreciation bonds, accrue interest until maturity at which time both interest and principal become due. A bond measure is an initiative to sell bonds for the purpose of acquiring funds for various public works projects, such as research, transportation infrastructure improvements, and others. These measures are put up for a vote in the Council and recommended to the Government (State). The State Government after getting the Central approval issues the Bond. One of the primary reasons municipal bonds are considered separately from other types of bonds is their special ability to provide tax-exempt income. Interest paid by the issuer to bond holders is often exempt from all federal taxes, as well as state or local taxes depending on the state in which the issuer is located, subject to certain restrictions. Bonds issued for certain purposes are subject to the alternative minimum tax. The type of project or projects that are funded by a bond affects the taxability of income received on the bonds held by bond holders. Interest earnings on bonds that fund projects that are constructed for the public good are generally exempt from income tax. The Central Government should pass an Act exempting all the Muncipal Bonds from Income Tax or Service Tax or any other Tax, as they are meant for public utility projects for which public is participating as 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 in the agreement between the issuer and bond holder (the "bond documents"). Different types of bonds are secured by various types of repayment sources, based on the promises made in the bond documents: General obligation bonds promise to repay based on the full faith and credit of the issuer; these bonds are typically considered the most 18

secure type of municipal bond, and therefore carry the lowest interest rate. Revenue bonds promise repayment from a specified stream of future income, such as income generated by a water utility from payments by customers. Assessment bonds promise repayment based on property tax assessments of properties located within the issuer's boundaries. In addition, there are several other types of municipal bonds with different promises of security. The probability of repayment as promised is often determined by an independent reviewer, or "rating agency". These agencies can be hired 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 as they 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 taxexempt status of the bonds, and material financial and operating information about the issuer of the bonds) typically is found in the issuer's official statement. For municipal bonds issued, the issuer is also obligated to provide continuing disclosure to the marketplace, including annual financial information and notices of the occurrence of certain material events (including notices of defaults, rating downgrades, events of taxability, etc.). This relationship can be demonstrated mathematically, as follows: where rm = interest rate of municipal bond rc = interest rate of comparable corporate bond t= tax rate For example if rc = 10% and t = 38%, then

A municipal bond that pays 6.2% therefore generates equal interest income after taxes as a corporate bond that pays 10% (assuming all else is equal). 19

Alternatively, one can calculate the taxable equivalent yield of a municipal bond and compare it to the yield of a corporate bond as follows:

Because longer maturity municipal bonds tend to offer significantly higher after-tax yields than corporate bonds with the same credit rating and maturity, investors in higher tax brackets may be motivated to arbitrage municipal bonds against corporate bonds using a strategy called municipal bond arbitrage. Some municipal bonds are insured by insurers that take on the credit risk of these bonds for a small fee. It is suggested in order to make a beginning; LIC Mutual Fund may be entrusted with the task of introducing Municipal Bonds, with proper checks and Balances. Municipalities which intend to avail public subscription to raise funding may approach LIC Mutual Fund which may arrange to issue the necessary Municipal Bond for subscription by the general public. It is for the Municipality Body and LIC to discuss the modalities of requirement, maturity period, value, total outlay, etc. This would make the issue, use and redemption of Bonds transparent. At least Rs 10,000 Cr per annum be raised from the discerning Public, so that Civic benefits would not suffer lack of funds for carrying out their civic 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 Act The issue of Bond should be subject to approval by SEBI The Government can also arrange a Mutual Fund like LIC in the Public sector to manage the issue, generic for the entire Municipalities in India. This could be transferred to the needy Municipalities on Demand/Request through the State Government. [A mutual fund which invests in municipal bonds. These bond funds will be popular among investors in high income tax brackets ]

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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. Regional Secretary, 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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