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Today's Hot Stories - March 21, 2011

10 Headlines for Today

(1) Millionaires to ex-militants, Assam elections have it all
(2) Many Dantewada kids lost in transit
(3) Libya declares new ceasefire amid fresh Western attacks
(4) Jyothy Laboratories eyes Henkel stake at discount
(5) GM curtails spending, travel on Japan crisis
(6) Economic stimulus raises 3.6 million jobs in US
(7) India beat West Indies, face Australia in World Cup quarterfinals
(8) Saina Nehwal wins Swiss Open Grand Prix
(9) Djokovic and Wozniacki win at Indian Wells
(10) Actor Bob Christo Passes Away

5 Stories for Today

(1) Enrolment in primary schools plunges 2.6 million in 2 years
(2) Missiles and planes strike Libya
(3) Loss-making companies want PF relief
(4) M&A-rich i-banks give lean bonus
(5) Japan crisis adds to volatile mix of global growth threats

(1) Enrolment in primary schools plunges 2.6 million in 2 years

It is a lesson in misplaced enthusiasm. While the Centre has been busy tom-tomming its efforts to send more children to school, enrolment in primary classes across the country has, in actuality, dropped since 2007. Between 2008-09 and 2009-10, enrolment in classes I to IV in Indian schools dropped by over 2.6 million.

The biggest setback was witnessed in Uttar Pradesh, where admissions plummeted by over a million in the last two years, according to the latest data released by the ministry of human resource development.

The slide in national figures began between 2007-08 and 2008-09 and became, ironically, steeper between 2008-09 and 2009-10, when the Centre cleared the Right to Education Act making education a fundamental right.

After years of ignoring the worrying statistics, the central government has finally decided to wake up and take action. It recently pulled up state governments and demanded reasons for the decline in numbers.

Most large Indian states, including Maharashtra, have seen student numbers come down in classes I to V, though Assam has been one of the biggest offenders.

"This definitely cannot be just a demographic change. In fact, in Uttar Pradesh, enrolment has come down in just about seven to eight districts. The state government has been alerted and it is investigating what went wrong," said R Govinda, vice chancellor of the National University of Education Planning and Administration. Experts are at a loss to accurately explain the drop in enrolment in northern states, where birth rates have essentially remained the same. In some southern states, where population planners had predicted a slowdown in birth rate, primary school enrolments have unsurprisingly declined. In other states like Delhi, Tamil Nadu and in the northeast, the figures have begun to plateau. In Bihar, Rajasthan, Assam, the struggle stems from ground-level problems like data keeping, children moving out, introduction of new schools and rationalization of data, said Madhav Chavan, the founder of educational non-profit group Pratham.

(2) Missiles and planes strike Libya

The UK, the US and France have attacked Libyan leader Col Muammar Gaddafi's forces in the first action to enforce a UN-mandated no-fly zone.

Pentagon officials say that the US and the UK have fired more than 110 missiles, while French planes struck pro-Gaddafi forces attacking rebel-held Benghazi.

Col Gaddafi has vowed retaliation and said that he would open arms depots to the people to defend Libya.

Cruise missiles hit air-defence sites in the capital, Tripoli, and Misrata.

Libyan state TV broadcast footage says that it showed some of the 150 people wounded in the attacks. It said that 48 people had been killed. There was no independent confirmation of the deaths.

Hundreds of Col Gaddafi's supporters have gathered at his Bab al-Aziziyah palace and the international airport to serve as human shields, state TV said.

The AFP news agency reports that bombs were dropped near the palace, which the US also attacked in 1986.

In the early hours of Sunday morning, heavy bursts of anti-aircraft fire arced into the sky above Tripoli and several explosions were heard.

Sources in Tripoli told BBC Arabic that the attacks on the city had so far targeted the eastern areas of Sawani, Airport Road, and Ghasheer. These are all areas believed to host military bases.

The Western forces began their action on Saturday, after Libyan government forces attacked the main rebel-held city of Benghazi - Col Gaddafi's allies accused the rebels of breaking the ceasefire:

A French plane fired the first shots against Libyan government targets at 1645 GMT on Saturday, destroying military vehicles near Benghazi, according to a military spokesman

At least 110 Tomahawk cruise missiles were fired from US destroyers and submarine, said a Pentagon officialA British submarine and Tornado jets fired missiles at Libyan military targets, the UK Ministry of Defence saidThere were also strikes near the western city of Misrata

France has denied Libyan claims to have shot down a French plane

Canada is also sending warplanes to the region, while Italy has offered the use of its military basesA naval blockade against Libya is being put in place.

"It's a first phase of a multi-phase operation" to enforce the UN resolution, said US Navy Vice-Adm William E Gortney.The BBC's Kevin Connolly, in the rebel-held eastern city of Tobruk, says that once the air-defence systems are taken out, combat aircraft can patrol Libyan airspace more widely and it will then become clear to what extent they will attack Col Gaddafi's ground forces.

This will determine the outcome of the campaign, he adds.

Russia and China, which abstained from the UN Security Council resolution approving the use of force in Libya, have urged all parties to stop fighting, as has the African Union.

After the missile bombardment and the air strikes, Col Gaddafi made a brief speech calling on people to resist.

"Civilian and military targets in the air and sea will be liable to serious danger in the Mediterranean," he said.The Libyan leader called the attacks "a colonialist crusade of aggression. This can lead to open a new crusade war."Our correspondent says that it is now clear that Col Gaddafi's strategy is to portray the attacks as an act of colonialist aggression and rally enough of the Libyan people behind him to maintain his grip on power.

'Legal and right'

Gaddafi: Libyans should defend themselves against "international aggression"

US President Barack Obama, speaking during a visit to Brazil, said that the US was taking "limited military action" as part of a "broad coalition".

"We cannot stand idly by when a tyrant tells his people there will be no mercy," he said.

He repeated that no US ground troops would take part.

UK Prime Minister David Cameron said that launching military action against Libya was "necessary, legal and right".The international community was intervening to stop the "murderous madness" of Col Gaddafi, French President Nicolas Sarkozy said.

"In Libya, the civilian population, which is demanding nothing more than the right to choose their own destiny, is in mortal danger," he warned. "It is our duty to respond to their anguished appeal."

Rebels in the city said that thousands of people were fleeing the attack, heading east, and the UN refugee agency said that it was preparing to receive 200,000 refugees from Libya.

Col Gaddafi has ruled Libya for more than 40 years. An uprising against him began last month after the long-time leaders of neighbouring Tunisia and Egypt were toppled.

(3) Loss-making companies want PF relief

Confederation of Indian Industries (CII) has sought a relief from Employees' Provident Fund Organization (EPFO) for loss-making companies that run their own PF trusts.

As per the rule, companies that run their own PF trusts would not get exemption if they are in the red for three consecutive years. Several firms, including a well-known oil company, have urged EPFO to extend the benefit. But, PF officials say, the organization will not accede to the request.

"We have received a representation from CII, and also from several companies. They have argued that though they are making losses for three years, the workers' monies are safe. However, we have made it clear to all the companies and also to CII that such a request is not in the interest of the workers," said an official.

As many as 2,775 companies — called exempted establishments in PF parlance — enjoy a special status under which the money from their employees' provident fund is not given to EPFO, instead invested through trusts formed by the companies. The exemption, however, can be withdrawn if a company makes losses for three years.

EPFO suspects that the loss-making firms may dip into employees' dues because of financial constraints.

(4) M&A-rich i-banks give lean bonus

India's robust merger and acquisition (M&A) activity in 2010 may have buoyed sentiments but it did not perk up bonuses at investment banks. Bonuses doled out by foreign banks have been flat, and mostly had an overhang of deferred stock options, when compared with last year. While bonuses ranged from $300,000 to $600,000 at the level of vice-president, managing directors took home between $1.2 million and $2 million.

The Indian arms of StanChart, JP Morgan, UBS, Deutsche and Citi have announced bonuses, while banks like Nomura will declare payouts in April. Most of them declined to comment on the matter.

"Bonuses in India for 2010 are flat from last year. But some banks have paid more than last year," said Namrita Jhangiani, Partner, Egon Zehnder International, one of the top executive search firms in the country.

Fancy million-dollar bonuses drew the ire of the US and European governments following the credit crisis when they were forced to bail out several banks. They placed restrictions on bank bonuses including a cut in the cash component. Indian employees at MNC banks too felt the impact despite the return of deal activity in the region.

"Of the total payout for 2010, deferred stock accounted for 60%, while the rest was in cash," said Ajit Premkumar of EAL Consulting hires for the financial services industry. "Before the crisis, the stock component was 25%."

"This (increase in stock component) is to align banker's compensation and incentive structure with the long-term performance of the company and to ensure that they do not trade off the short-term revenue with the longer-term health of the company," Jhangiani said.

Deutsche Bank now has a new compensation structure globally, where bankers will lose a significant part of their bonus if their department or the bank as a whole fails to make profits. For 2010, its corporate and investment banking division was paid nearly $5 billion as bonuses. At Swiss bank UBS, the 2010 bonus pool was down 11% compared to $4.5 billion last year. India's deal activity stood at $96 billion in 2010, according to Dealogic, a firm that tracks M&As and industry. It predicts that this year will be much better than 2010. Banks earned over $700 million as fees from advisory, equity and debt issuances last year.

Despite robust deal activity, investment banks are going slow in hiring. This is because a lot of vacancies were filled last year. "Selective and focused hiring is happening. Banks are hiring people with experience and strong relationships in certain sectors like natural resources, metals," Premkumar added. Last year saw several high-profile bankers changing their office address. While Sonjoy Chatterjee joined US-based Goldman Sachs after a 16-year stint with ICICI Bank, Vedika Bhandarkar moved to Credit Suisse after being with JP Morgan since its inception in the country.

While bulge bracket firms like Goldman Sachs and Morgan Stanley have all built their India teams in the last few years to benefit from the booming Indian market, the industry is now seeing several global boutique firms like Bryan, Garnier & Co entering the domestic market.

(5) Japan crisis adds to volatile mix of global growth threats

The decision by G7 countries to intervene against the yen reflects growing concern that Japan's nuclear disaster and conflicts in Libya and the oil-rich Middle East could turn back the global economy at a time when recovery remains extremely fragile.

Private economists have been largely sanguine about the global repercussions of the devastating earthquake and tsunami that hit Japan's northeast coast a week ago, killing thousands and sparking the worst nuclear accident in a quarter century. In a research note published on Friday, Deutsche Bank said that the impact of Japan's triple-disaster on global growth was likely to be so negligible as to be "caught in rounding error."

But top policymakers from the world's richest nations are sounding a very different note, even if they have largely steered clear of voicing their concerns about systemic risks in public until now.

One senior official from a G7 country who requested anonymity dismissed the benign forecasts of many banks on Friday with an air of disgust, pointing to the nuclear threat in Japan, the acute market volatility it has produced and risks associated with bloody conflicts in the Middle East.

A top G7 central banker told earlier this week that he feared that the world economy was headed "right down" at a time when financial markets are still fragile, in the face of an unresolved European debt crisis and high oil prices.

Spooked by events in Libya and Bahrain, traders have pushed oil up to levels not seen since shortly before the collapse of Lehman Brothers in 2008.

The United Nations approved military action to contain Libyan leader Muammar Gaddafi on Thursday and OPEC's largest oil producer Saudi Arabia has sent troops into the Gulf Arab island state of Bahrain to quell unrest.

Indeed, it is the still-fresh memory of Lehman's bankruptcy, and the speed with which it sent markets and economies spiralling downwards, that has many officials on edge now even if the world economy has rebounded and is projected to grow by 4.4 percent this year and 4.5 percent in 2012, according to the latest IMF projections.

The "known unknowns" -- in the words of former U.S. Defense Secretary Donald Rumsfeld -- have multiplied exponentially in recent weeks, unsettling the sense of comfort that had returned to G7 capitals over the past year.

That may have ramifications for the speed at which central banks tighten monetary policy this year. While China moved again on Friday, there are growing suspicions that the European Central Bank could hold off on an interest rate hike expected for April.


Perhaps the clearest concrete consequence of Japan's disaster for the broader world economy has been disruption to the global supply chain.

Manufacturing plants across the world's third largest economy have been forced to shut down or work well below capacity -- either because of physical damage from last Friday's 9.0 magnitude earthquake or due to power outages, shortages of raw materials, or logistics problems.

Japan's grip on the global electronics supply chain -- it exported nearly a $100 billion worth of electronic parts last year -- is causing particular concern.

"When a wrench is thrown into a global supply chain which is as globally integrated and run as tight as ours currently is, it is very hard to predict what the consequences will be," strategists at Gavekal said in a note to clients on Friday. "For example, who would have immediately thought that the Lehman bust would trigger a freeze in trade finance, which, in turn, led to a prompt collapse in global trade of a magnitude not seen since the 1930s Great Depression?"

The senior G7 official said fears that financial markets might get out of control and spark a real-economy backlash were a key factor behind the overnight decision to pursue joint intervention for the first time since central banks came to the aid of the newly-launched euro in 2000.

Global stocks surged and the yen, which hit a record high against the dollar earlier in the week, fell sharply as central banks in Tokyo, Washington, Frankfurt and London joined forces to push down the Japanese currency.

A strong yen would prevent Japan's heavily export-reliant economy from bouncing back rapidly, as a broad spectrum of private economists are now predicting.

Drawing on the lessons of the Kobe earthquake in 1995, most are calling for a sharp slowdown in output over the coming months, followed by a robust rebound in the second half of 2011, with only marginal consequences for global growth.


The wild card in those projections is Japan's nuclear crisis.

On Friday, Japanese engineers acknowledged for the first time that burying the crippled Fukushima plant in sand and concrete -- the method used to seal Chernobyl leakages in 1986 -- might be a last-resort option to prevent a catastrophic radiation release.

"We are still hoping for an only temporary slump in output, which will be followed by a later recovery triggered by reconstruction," economists at Unicredit said on Friday.

"If, however, the nuclear catastrophe were to spin completely out of control, recession and deflation fears would also resurface around the globe -- transmitted via the international growth and sentiment correlation, the global capital nexus, and rapidly rising risk aversion."

Even in the absence of a worst-case scenario, Unicredit said, the downside risks for financial markets and growth had "increased enormously."

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