It seems there is no respite for the Indian consumer (especially the middle-class) from back-breaking inflation with the latest hike in oil (petrol and diesel) prices coming into effect from 04 November, 2011. There is some noise in the media about a partial rollback, though something like that seems highly unlikely despite the fact that international crude oil prices have softened of late.
If we look at the situation dispassionately, the reasons for this recurring phenomoenon are not difficult to comprehend. India imports about 79% of its oil and the sharp depreciation in the value of rupee against the greenback has offset the gains from the softening of crude oil prices internationally. The rupee has dipped from Rs. 46.29 to a dollar at the time of the last hike (on September 16) to Rs. 49.40 making oil imports costlier.
To put things in perspective, a change in the value of the dollar by one rupee leads to a loss of 90-95 paise per litre of petrol.The Indian consumer has become used to (rather fed up with) frequent interest rate and oil price hikes. Both burn a hole in her pocket. The Opposition along with the Left have decided to take the government to task as the latter battles to save its face in the wake of rampant corruption and a slowing economy. The interesting thing to note here is the withdrawal of support by UPA allies like Trinamool Congress lately.
According to Jayati Ghosh, the prominent Left-leaning JNU-based economist, an increase in oil prices will not just have a direct effect on prices (estimated by the Finance Ministry to add just below 1 per cent to the existing rate of inflation). It will also have a cascading effect – as all goods have to be produced using some energy, usually oil or equivalent, and then transported, so all of their prices will increase subsequently. So the country will have to face a further onslaught of inflationary pressure which is this time entirely policy-induced.
However, chairpersons of state-owned oil marketing companies have enough justification to hike the oil prices citing rupee depreciation. The government had decontrolled petrol pricing in June last year and given oil companies freedom to fix rates at retail level.
All this leaves the common man with a heart full of discontent which might have electoral repercussions in the future. However, for the time being the only avenue at his disposal is increased usage of public transport.The only people cheering at this scenario will be the ecofriendly green campaigners!
A platform where I will share my views on topics and issues that interest me deeply (with a strong business bias, of course)and chronicle the major events in my life beginning 2010.
Showing posts with label Alokonomics. Show all posts
Showing posts with label Alokonomics. Show all posts
Monday, November 7, 2011
Tuesday, June 14, 2011
Greatest American business leaders and entrepreneurs
Nitin Nohria, the current dean of Harvard Business School (HBS)in his JRD Tata Memorial Lecture, which he delivered in 2010, mentions about the following American leaders who form a part of the "Greatest business leaders" course being taught at HBS.Most of us are aware of Steve Jobs, Bill Gates and Jack Welch. To know more about the men who built the world's largest economy, read on. For the entire speech, click here
Andrew Carnegie, who at the turn of the 20th century built the steel mills that provided the raw material for the railroads and transportation infrastructure that connected America and made it the world’s largest integrated domestic economy.
CW Post, who during the 1910s and 1920s introduced Post Cereal and launched the consumer packaged goods industry in America
Walt Disney, who during the 1930s built one of the great media and entertainment companies, even though he started during the depths of the Great Depression
Henry Kaiser, who helped build the Hoover Dam and many other extraordinary infrastructure projects including a shipyard that, during the height of World War II, was completing three Liberty Ships every day.
William Levitt, who created Levittown, the first mass-produced postwar American suburb, in the 1950s and built houses that redefined the American real estate landscape;
Sam Walton, who started building one of the biggest discount retailing companies in the 1970s;
Bill Gates and Steve Jobs, who ushered in the personal computer revolution in the 1980s;
Jack Welch, who transformed GE during the 1990s so that it remained an iconic company, and the only company that was on the Dow Jones Industrial Average for the entire 20th century.
Andrew Carnegie, who at the turn of the 20th century built the steel mills that provided the raw material for the railroads and transportation infrastructure that connected America and made it the world’s largest integrated domestic economy.
CW Post, who during the 1910s and 1920s introduced Post Cereal and launched the consumer packaged goods industry in America
Walt Disney, who during the 1930s built one of the great media and entertainment companies, even though he started during the depths of the Great Depression
Henry Kaiser, who helped build the Hoover Dam and many other extraordinary infrastructure projects including a shipyard that, during the height of World War II, was completing three Liberty Ships every day.
William Levitt, who created Levittown, the first mass-produced postwar American suburb, in the 1950s and built houses that redefined the American real estate landscape;
Sam Walton, who started building one of the biggest discount retailing companies in the 1970s;
Bill Gates and Steve Jobs, who ushered in the personal computer revolution in the 1980s;
Jack Welch, who transformed GE during the 1990s so that it remained an iconic company, and the only company that was on the Dow Jones Industrial Average for the entire 20th century.
Near-zero interest rates and their impact
I was brooding over the question as to why the US, Japan and Germany have near-zero interest rates and how it impacts the global financial markets. The following post is the answer to this question by Mr.Harshil Dave, one of my seniors at SDMIMD, Mysore. He is an MBA Finance guy working as a consultant at Oracle Financial Services. I agree with whatever he wrote about this topic on Facebook and I would welcome comments from my readers as well.
"In order to spur the GDP growth rate and reduce unemployment in their economies they need to provide incentive to businesses to borrow money from banks. By having near zero interest rates, the central bank is trying to encourage existing businesses and budding entrepreneurs and luring them by cheap credit. In theory, near-zero interest rates are supposed to help increase GDP growth rate (By capacity expansion and increased spending by businesses and households) and reduce unemployment (which stands at 9.8% in the US at present). After the crisis when major economies across the world were dragged into recession (which is characterized by multiple negative GDP growth rate quarters according to NBER definition of recession) the monetary policy makers had to cut down the interest rates to bring back the economy on positive GDP growth track. Near zero interest rates are also meant to restore confidence in the dried up inter-bank money market lending. This was in context of the US.
Coming to Japan, they have been a zero interest rate regime since a long time, you can refer to 'Yen carry trade' and 'Asian currency crisis' to go to the origins of the same!
Germany, had to follow France's footsteps of lowering the interest rates after Sarkozy accused Merkel of not taking adequate measures to combat recession!
Low interest rates increase liquidity in domestic economy, as in the case of the US what has happened is that since you can borrow money at virtually zero interest rates from commercial banks, the proprietary trading arms of big multinational banks have borrowed from their commercial banking arm and invested money in emerging economies like India, China and Brazil. Because of this we observe a surge in FII inflow led by prop trading desk activities and also by 'Dollar carry trade' (Selling short dollar against other currencies expecting dollar to depreciate on account of slow growth and more dollar bills being printed, and then investing that money made by shorting the dollar contract into other asset classes in Emerging economies).
Consider it as a tap of water (liquidity) opened by the Fed to aid the domestic economy, but the water (liquidity) spilled more in other places (Emerging Economies)! We see benchmark indices go up by 10-15% in matter of few months because of such liquidity. When the interest rates in the US will go up there is very high likelihood of reversal in this fund flows which can cause markets to crash in matter of few weeks!"
"In order to spur the GDP growth rate and reduce unemployment in their economies they need to provide incentive to businesses to borrow money from banks. By having near zero interest rates, the central bank is trying to encourage existing businesses and budding entrepreneurs and luring them by cheap credit. In theory, near-zero interest rates are supposed to help increase GDP growth rate (By capacity expansion and increased spending by businesses and households) and reduce unemployment (which stands at 9.8% in the US at present). After the crisis when major economies across the world were dragged into recession (which is characterized by multiple negative GDP growth rate quarters according to NBER definition of recession) the monetary policy makers had to cut down the interest rates to bring back the economy on positive GDP growth track. Near zero interest rates are also meant to restore confidence in the dried up inter-bank money market lending. This was in context of the US.
Coming to Japan, they have been a zero interest rate regime since a long time, you can refer to 'Yen carry trade' and 'Asian currency crisis' to go to the origins of the same!
Germany, had to follow France's footsteps of lowering the interest rates after Sarkozy accused Merkel of not taking adequate measures to combat recession!
Low interest rates increase liquidity in domestic economy, as in the case of the US what has happened is that since you can borrow money at virtually zero interest rates from commercial banks, the proprietary trading arms of big multinational banks have borrowed from their commercial banking arm and invested money in emerging economies like India, China and Brazil. Because of this we observe a surge in FII inflow led by prop trading desk activities and also by 'Dollar carry trade' (Selling short dollar against other currencies expecting dollar to depreciate on account of slow growth and more dollar bills being printed, and then investing that money made by shorting the dollar contract into other asset classes in Emerging economies).
Consider it as a tap of water (liquidity) opened by the Fed to aid the domestic economy, but the water (liquidity) spilled more in other places (Emerging Economies)! We see benchmark indices go up by 10-15% in matter of few months because of such liquidity. When the interest rates in the US will go up there is very high likelihood of reversal in this fund flows which can cause markets to crash in matter of few weeks!"
Saturday, October 9, 2010
Vital Stats! (Vol-I)
Compiled a few vital statistics from various sources to aid my memory.Happy reading and please add to the figures with your comments.
Indian Economy (Eco.Survey FY10 and e-newspapers)
1. GDP growth rate in India in FY10: 7.4%
2. GDP growth rate projected for FY11: >8.5%
3. Fiscal deficit of FY10 : 6.9% of GDP (budget estimate, according to new series)
4. Global rank in terms of nominal GDP ($1.25 trillion,FY09): 11th
5. Global rank in terms of PPP: 4th
6. FDI inflow in FY10 : $ 49.30 billion (RBI)
Business India
7. Interest rate on Employees Provident Fund (EPF) for FY11 : 9.5% (+1%)
8. Number of EPF subscribers : almost 5 crores
9. Interest rate on Senior Citizens’ Savings Scheme : 9%
10. Bank deposits offer up to 7.5%
11. Total size of the workforce in India: 38 crore
12. Organized workers in India constitute around 15% of the total workforce : 5.7 crores
Business Line
13. Wireless subscriber base in India as of August 2010 : 67.06 crore
14. Wireless teledensity stands as of August 2010: 56.61%
15. Bharti Airtel market share as of August 2010 : over 20%
16. Total broadband subscriber base as of August 2010: over 1 crore
Income Tax rates FY 11:
17. Rs. 160,001/- to Rs. 500,000/- 10%
18. Rs. 500,001/- to Rs. 800,000/- 20%
19. Above Rs. 8 Lacs 30%
Indian Economy (Eco.Survey FY10 and e-newspapers)
1. GDP growth rate in India in FY10: 7.4%
2. GDP growth rate projected for FY11: >8.5%
3. Fiscal deficit of FY10 : 6.9% of GDP (budget estimate, according to new series)
4. Global rank in terms of nominal GDP ($1.25 trillion,FY09): 11th
5. Global rank in terms of PPP: 4th
6. FDI inflow in FY10 : $ 49.30 billion (RBI)
Business India
7. Interest rate on Employees Provident Fund (EPF) for FY11 : 9.5% (+1%)
8. Number of EPF subscribers : almost 5 crores
9. Interest rate on Senior Citizens’ Savings Scheme : 9%
10. Bank deposits offer up to 7.5%
11. Total size of the workforce in India: 38 crore
12. Organized workers in India constitute around 15% of the total workforce : 5.7 crores
Business Line
13. Wireless subscriber base in India as of August 2010 : 67.06 crore
14. Wireless teledensity stands as of August 2010: 56.61%
15. Bharti Airtel market share as of August 2010 : over 20%
16. Total broadband subscriber base as of August 2010: over 1 crore
Income Tax rates FY 11:
17. Rs. 160,001/- to Rs. 500,000/- 10%
18. Rs. 500,001/- to Rs. 800,000/- 20%
19. Above Rs. 8 Lacs 30%
Thursday, June 17, 2010
Where is all the money in the world, when all the nations are in debt?
An interesting question indeed raised by my friend Vivek Jain on Facebook.Thanks VJ!
Here are my two cents on this.I am open to insights from economics enthusiasts and others.
If we look at the fiscal health of all the major economies in the world, as well as the emerging economies like the BRICS (Brazil,Russia,India,China and South Africa, for the uninitiated), one can find a common link and that is all are in debt, to a varying extent.The US, which is the largest economy in the world (GDP approximately $ 14 trillion), is the most indebted country.The Chinese hold trillions of dollars of American treasury bonds.The American fiscal situation has been described as precarious and unsustainable by many economists.China however has a massive trade surplus and hence has little to worry about w.r.t. its debt burden.
Coming to the question in hand,all of us know that the central banks hold billions of dollars in terms of cash and other securities besides gold.So do the multilateral institutions like the World Bank, IMF and the Asian Development Bank in their coffers.Besides, a huge amount of cash is also with the large companies, hedge funds,private equity firms etc. and billionaire investors like George Soros and Warren Buffet.Add to that all the cash in the Swiss banks which only God knows!
Still all this doesnt count for the entire debt of all the nations.The reality is all the debt doesn't exist in physical form.A lot of it just exists on paper i.e.sovereign guarantees by nations.Nations are indebted to each other apart from institutions like the WB,IMF etc.Hence to consider that all the debt is kept in the coffers of central banks or some other institution for that matter would be naive.
Keep smiling and stay tuned!!
Here are my two cents on this.I am open to insights from economics enthusiasts and others.
If we look at the fiscal health of all the major economies in the world, as well as the emerging economies like the BRICS (Brazil,Russia,India,China and South Africa, for the uninitiated), one can find a common link and that is all are in debt, to a varying extent.The US, which is the largest economy in the world (GDP approximately $ 14 trillion), is the most indebted country.The Chinese hold trillions of dollars of American treasury bonds.The American fiscal situation has been described as precarious and unsustainable by many economists.China however has a massive trade surplus and hence has little to worry about w.r.t. its debt burden.
Coming to the question in hand,all of us know that the central banks hold billions of dollars in terms of cash and other securities besides gold.So do the multilateral institutions like the World Bank, IMF and the Asian Development Bank in their coffers.Besides, a huge amount of cash is also with the large companies, hedge funds,private equity firms etc. and billionaire investors like George Soros and Warren Buffet.Add to that all the cash in the Swiss banks which only God knows!
Still all this doesnt count for the entire debt of all the nations.The reality is all the debt doesn't exist in physical form.A lot of it just exists on paper i.e.sovereign guarantees by nations.Nations are indebted to each other apart from institutions like the WB,IMF etc.Hence to consider that all the debt is kept in the coffers of central banks or some other institution for that matter would be naive.
Keep smiling and stay tuned!!
Monday, February 8, 2010
Rollback of fiscal stimulus
This year’s Union Budget is certainly not the appropriate time to roll back the fiscal stimulus packages. It is indeed true that the worst phase of economic slowdown is behind us and demand has picked up substantially across sectors like IT/ITeS, cement, steel, auto etc. Bottomlines of companies have been improving since the Q3 of this fiscal, some of which were drastically hit by the slowdown. GDP has expanded by 7% in the first half of this fiscal (2009-10) and exports are slowly turning positive. With industrial production and services sector gaining strength, business sentiment and consumer confidence have just began to improve. The economic recovery, however, is still very much a work-in-progress and the green shoots need continued nourishment in the form of fiscal stimulus and expansionary monetary policy measures. A sudden and complete withdrawal may push the manufacturing and services sectors into another deep slump.
The ballooning fiscal deficit of 6.8% in 2009-10 (estimated) is ominous and India is far short of its FRBM (Fiscal Responsibility and Budget Management) targets. The fiscal deficit is supposed to remain high even in the next fiscal as the government may fall short of its target revenue collections. Withdrawal of fiscal stimulus is inevitable but the timing has to be right. Overall levels of inflation still don’t justify the withdrawal of stimulus packages though food prices are at an 11-year high, primarily owing to severe supply-side constraints in the agricultural sector. Hence there is need for a phased withdrawal from the beginning of Q2 of 2010-11.
The ballooning fiscal deficit of 6.8% in 2009-10 (estimated) is ominous and India is far short of its FRBM (Fiscal Responsibility and Budget Management) targets. The fiscal deficit is supposed to remain high even in the next fiscal as the government may fall short of its target revenue collections. Withdrawal of fiscal stimulus is inevitable but the timing has to be right. Overall levels of inflation still don’t justify the withdrawal of stimulus packages though food prices are at an 11-year high, primarily owing to severe supply-side constraints in the agricultural sector. Hence there is need for a phased withdrawal from the beginning of Q2 of 2010-11.
Friday, January 22, 2010
IPE Paper Presentation (from my Wordpress blog)
Hi folks,
This was our paper (Robin,a batchmate and I) which was shortlisted for presentation at Institute of Public Enterprise,Hyderabad.
Executive Summary:
The global financial crisis and the subsequent recession in the Western economies led to an economic slowdown in India. The slowdown which started in July 2008 still continues and has been tackled reasonably successfully, thanks to the concerted efforts of the central government and Indian corporates. Exports were badly down and lakhs of Indian workers lost their jobs. Credit crunch and low domestic demand further aggravated the woes of Indian companies. Fiscal stimulus packages along with drastic cost management helped India Inc to register a healthy growth of 6.7% in the last fiscal. A strong and conservative regulatory mechanism along with a sound banking system, little exposed to the toxic assets of US banks, saved India from further doom. The sensex has risen to 17000 in December 09 from 8000 in February 09 clearly indicating the rebounding confidence among domestic and foreign investors in the India growth story.
The next 18 months pose significant opportunities as well as challenges. Challenges include a high cost of borrowing, corporate governance, leadership and the same old infrastructural bottlenecks. Most of the major companies have improved their toplines and profitability in some way, though some sectors like real estate are yet to turn on the significant volumes.FDI and FII flows have resumed interest and ample liquidity exists in the system. The focus of India Inc needs to be on implementing corporate governance standards,inclusive growth, skill-building and “going green”. Political will and a pragmatic approach to policy-making would do wonders to further the sustainable growth of Indian companies. Any amount of complacency in reformist policy-making and subsequent implementation can severely jeopardize India’s chances, as it can’t take its place as the second fastest growing economy for granted.
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