@[580057:maverik02]

Just want to add and correct a few things...

CPI is not used in India because frequency of data collection for WPI is far higher than CPI. And CPI has multiple indices while WPI has one.

GDP looks at the geographic area of production while GNP looks at the ownership of production

GNP = GDP + Income earned by citizens/companies abroad - Income earned by foreign citizens/companies domestically

'C' is not a part of GDP or GNP. It is called Remittances and forms a part of capital inflows into an economy. For e.g. Remittances to Africa is far higher than the foreign aid that they receive !!!

Cheers :-)

@krishna581 said: @maverik02 thnkx dude for lucid explanation. But it looks like u have not finished your full post! Much helpful if you complete the same!

@[580057:maverik02] thnkx dude for lucid explanation. But it looks like u have not finished your full post! Much helpful if you complete the same!

[Economy] Inflation, Policy Paralysis some more fodder material


Just some more fodder for Essay and Group Discussion (GD) taken from IE (Indian Express). Many ideas repeated.

1. What is the problem?
2. What is inflation?
3. Why do we have inflation?
4. What is the solution?
5. What are the problems faced by Indian Businessmen?
6. Chief Economic Adviser Kaushik Basu gives some wisdom
7. China’s official news agency Xinhua gives even more profound wisdom

What is the problem?

Among the major developing nations, Only Russia has higher inflation than us.
India has the second highest inflation with an average inflation of close to 7 per cent estimated during the seven years from 2005-12.

What is inflation?

Inflation rate refers to a general rise in prices measured against a standard level of purchasing power.

Why do we have inflation?

High inflation generally signifies that too much money is chasing too few goods, essentially implying that the demand for goods and services is much higher than the supply, resulting in an increase in the prices of goods and services. (More on supply-side inflation, explained in older articles. See the archive on www.mrunal.org/economy

What is the solution?

massive investments to ease the supply side problem [such as lack of 24/7 electricity and water supply to factories, cold storage for agro-products, smooth road-connectivity between villages and cities and so on]
Government should cut down the subsidies (because they’re mostly misused for example cheap diesel for running generators that power unnecessary Airconditioners in shopping malls)
Government should try to divert the public savings into infrastructure, agriculture, human resource development and so on. [at present public savings go mostly in gold, real estate, share market speculation]
Private investments from India and abroad will have to be poured in large amounts.

What are the problems faced by Indian Businessmen?

High inflation = raw material is expensive : steel, cement, petrol everything.
Sluggish policy making environment,
High interest rates and
Uncertainty in global economy, particularly Europe.

Chief Economic Adviser Kaushik Basu gives some wisdom

Common man will have to live with high prices for another two-three months as inflation is expected to come down only by September.
Rupee is weakning against Dollar because when there is uncertainty in global market, investors look for safe havens (to invest) like the US treasury bonds, German bonds and Gold. You find the entire world’s money is going to all three of these.
Indian industrialists should make use of the opportunity because
In china, labour wages are on rise, so their manufacturing cost will increase.
When rupee is weak (+ our labourers are cheaper than Chinese) then our exports can become cheaper and attractive in international market.
Foreign direct investments must be allowed in retail sector for it would be "highly beneficiary" for the farmers and be a major thrust to Indian exports.
And most importantly India needs governance reforms and corruption control.

China’s official news agency Xinhua gives even more profound wisdom

From a Column “Indian Economy: The myth is shattered”

weakness of the Indian government cannot be changed for a long time…This means that after the 2014 elections, India could still have a weak coalition government, which is definitely bad news for reform…Indian political weakness will lead to a weak economy for many years.
In these two years, most politicians have to fight for votes and therefore, reforms will be set aside”.
Rahul still “does not have a dazzling performance”
Sonia has been “sick recently”
Mohan has become “conservative” and is facing criticism for his “complacency”.
opposition BJP too has its own “internal contradictions”.
It has used phrases like
“farewell to incredible India”,
“miracle has become a mirage”,
“from bullet train, the economic growth has become express train”
“reforms: an empty slogan”
once illustrious Indian economy is suddenly faced with numerous questions and has become a loose brick among BRICS countries
Incidentally, India played host to the BRICS summit in Delhi in March, which was attended by Chinese President Hu Jintao.
Giving the example of the stalled reform over allowing FDI in the retail sector, Xinhua says that India’s economy has not only lost direction but even its growth has lost impetus.

And finally, the most profound wisdom on Indian Education and Career system
I would like to coach the Indian Cricket team but I don’t have the level 1, 2, 3 certificates that people want sometimes.

-Rahul Dravid

Briefly...

Excerpt from ET Article

@krishna581 said: hi friends, what is meant by wholesale price index? what is its significance and how is it calculated? please give the same information on consumer price index. And suggest some tips how to know the various terms that are treated as key indicators that define and frame the status of our economy and GDP? Regards, krish

hi friends,

what is meant by wholesale price index? what is its significance and how is it calculated?

please give the same information on consumer price index.

And suggest some tips how to know the various terms that are treated as key indicators that define and frame the status of our economy and GDP?

Regards,

krish

@susmita89 said: Can someone please explain how is rise/fall in interest rate connected with forex rates?also, how will full convertibility of currency help us?

Can someone please explain how is rise/fall in interest rate connected with forex rates?also, how will full convertibility of currency help us?

this is gem of a thread! heartfelt thanks for starting it and making it so Good!subscribng!

@[553630:conVict] here you go.
http://www.pagalguy.com/forums/chit-chat/equity-markets-t-2924

can sm1 plz mention some strategies 4 investing in share market like what are the thing to look in a company .n where can find that info....

Important topic particularity for Asst.Provident Fund Commissioner (APFC) Exam

1. What is Social Security?
   
2. History of Social security
   
3. Historical Background: Social Security in India
   
4. Social Security: Constitutional Provisions
   
5. Concurrent List
   
6. Part IV Directive Principles of State Policy
   
7. Difference between Organized and Unorganized Sectors
   
8. SOCIAL SECURITY LAWS in India
   
   1. Employees State Insurance Act, 1948 (ESI Act)
      
   2. Employees Provident Funds Act, 1952
      
   3. Workmens Compensation Act, 1923 (WC Act)
      
   4. Maternity Benefit Act, 1961 (M.B. Act)
      
   5. Payment of Gratuity Act, 1972 (P.G. Act)
      
   
   
9. Social Security In India : Different From Developed Nations
   
10. Provident Fund
    
11. Mock Questions for APFC 2012 Exam
    

What is Social Security?

1. any of the measures established by legislation to maintain individual or family income or to provide income when some or all sources of income are disrupted or terminated or when exceptionally heavy expenditures have to be incurred (e.g., in bringing up children or paying for health care)
   
2. social security may provide cash benefits to persons faced with sickness and disability, unemployment, crop failure, loss of the marital partner, maternity, responsibility for the care of young children, or retirement from work
   
3. Social security benefits may be provided in cash or kind for medical need, rehabilitation, domestic help during illness at home, legal aid, or funeral expenses
   
4. It acts as a facilitator it helps people to plan their own future through insurance and assistance.
   

History of Social security

1. Social security scheme was first introduced in Germany in 1883. Under the scheme, each member of a particular trade (blacksmiths, painters, weavers etc) was required to contribute at regular intervals; such funds were originally used for hospital and funeral expenses and for food and lodging for aged and disabled members.
   
2. In USA, Social Security Act came into existence in 1935. (years not important)
   

Historical Background: Social Security in India

1. India has always had a Joint Family system that took care of the social security needs of all the members provided it had access/ownership of material assets like land and gold.
   
2. However with increasing migration, urbanization and demographic changes there has been a decrease in large family units.
   
3. This is where the formal system of social security gains importance.
   

Social Security: Constitutional Provisions

Concurrent List

Social Security and labour welfare falls under Concurrent list, it means both union and state Government can make laws regarding these topics.

1. (List III in the Seventh Schedule of the Constitution of India)
   
2. Item No. 23
   
   1. Social Security and insurance,
      
   2. employment and unemployment.
      
   
   
3. Item No. 24
   
4. Welfare of Labour including conditions of work,
   
5. provident funds,
   
6. employers liability,
   
7. workmens compensation,
   
8. invalidity and old age pension and maternity benefits.
   

Part IV Directive Principles of State Policy
Article 41

1. Right to work, to education and to public assistance in certain cases
   
2. State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want.
   

Article 42

1. Provision for just and humane conditions of work and maternity relief
   
2. State shall make provision for securing just and humane conditions of work and for maternity relief.
   

Difference between Organized and Unorganized Sectors
Organized sector

1. includes primarily those establishments which are covered by the Factories Act, 1948, the Shops and Commercial Establishments Acts of State Governments, the Industrial Employment Standing Orders Act, 1946 etc.
   
2. This sector already has a structure through which social security benefits are extended to workers covered under these legislations.
   
3. Examples: employees of union and state Government, army, navy, airforce, Multinational companies, Infosys, TCS and so on.
   

Unorganized sector

1. Examples
   

Rural Areas

1. landless agricultural labourers
   
2. small and marginal farmers
   
3. share croppers
   
4. persons engaged in
   
   1. animal husbandry
      
   2. fishing
      
   3. horticulture
      
   4. bee-keeping
      
   5. toddy tapping
      
   
   
5. forest workers
   
6. rural artisans
   

Urban Areas

1. street vendors
   
2. hawkers
   
3. head load workers
   
4. cobblers
   
5. tin smiths
   
6. garment makers
   
7. Construction workers
   

1. Unorganized sector is characterized by the lack of labour law coverage, seasonal and temporary nature of occupations, high labour mobility, dispersed functioning of operations, casualization of labour, lack of organizational support, low bargaining power, etc
   

SOCIAL SECURITY LAWS in India

Employees State Insurance Act, 1948 (ESI Act)

1. covers factories and establishments with 10 or more employees and provides for comprehensive medical care to the employees and their families as well as cash benefits during sickness and maternity, and monthly payments in case of death or disablement
   

Employees Provident Funds Act, 1952

1. applies to specific scheduled factories and establishments employing 20 or more employees and ensures terminal benefits to provident fund, superannuation pension, and family pension in case of death during service.
   

Workmens Compensation Act, 1923 (WC Act)

1. Requires payment of compensation to the workman or his family in cases of employment related injuries resulting in death or disability.
   

Maternity Benefit Act, 1961 (M.B. Act)

1. provides for 12 weeks wages during maternity as well as paid leave in certain other related contingencies.
   

Payment of Gratuity Act, 1972 (P.G. Act)

1. provides 15 days wages for each year of service to employees who have worked for five years or more in establishments having a minimum of 10 workers.
   

Social Security In India : Different From Developed Nations

1. We do not have an existing universal social security system
   
2. 92% of the workforce is in the informal sector which is largely unrecorded
   
3. today 1/8th of the worlds older people live in India. The overwhelming majority of these depend on transfers from their children.
   
4. Addressing social security concerns with particular reference to retirement income for worker
   
5. In India the coverage gap i.e. workers who do not have access to any formal scheme for old-age income provisioning constitute about 92% of the estimated workforce of 400 million people.
   

Provident Fund

1. Here the employers to contribute to a provident scheme providing a lump-sum payment in the event of death or disability or on retirement.
   

Three disadvantages of Provident Fund

1. Money is inadequate for risks occurring early in working life.
   
2. Provident funds are generally invested in government stock with a rate of interest fixed in money terms that may be below market rates.
   
3. Real value of the accumulated savings may thus be substantially eroded by inflation by the time of retirement.
   

But From the point of view of government, Provident Fund is attractive because it generates forced savings that can be used to finance national development plans.
Mock Questions for APFC 2012 Exam
Q1 Which of the following statements are correct?

1. Social security falls under the purview of Union Government only.
   
2. Social security is a fundamental right enshrined in the Constitution of India.
   
3. Employees State insurance Act applies to any establishment with 5 or more workers.
   
4. Workmans Compensation Act requires payment of compensation to the worker or his family in cases of employment related death only.
   

SUBSCRIBED...............

Subscribed...............

Thanks for this wonderful thread!! Can anyone of you suggest me any online websites or resources where I as a person who does not know anything about finance, economics and markets can get started with?? It should be for a layman. I googled but not able to get a good website.

Thanks in advance

You can browse through investopedia.com. But then you would have to know what to look for. I suggest you start reading a financial newspaper ( I recommend MINT ) and as you come across unknown terms, look those up and the related terms on investopedia. That is how you will learn the best.
Apart from that investopedia also has basic sections for terms like Inflation, Bond Markets etc

Happy Learning !!!

There are many resources on the net. You can start with

Investopedia
Wikipedia

But do not take these as the ultimate sites. Remember that these are just pointers in a direction.
Google will help you, as will reading a pink paper in the morning. Watch UTV Bloomberg / CNBC and talk to people in the Finance Industry.

And most important, read books.

Thanks for this wonderful thread!! Can anyone of you suggest me any online websites or resources where I as a person who does not know anything about finance, economics and markets can get started with?? It should be for a layman. I googled but not able to get a good website.

Thanks in advance

Thanks for this wonderful thread!! Can anyone of you suggest me any online websites or resources where I as a person who does not know anything about finance, economics and markets can get started with?? It should be for a layman. I googled but not able to get a good website.

Thanks in advance

the best place is to read mrunal patel 's blog

if u are a first timer and don't know him go through this thread

u will realize who he is and what brilliant info and knowledge his blog has to offer

i remember being an engineer and nil in economics terms i had bookmarked his blog on my browser for getting info on basic economic concepts when preparing for GD/PI

p.s. "lassi zabardast hai "


p.s.

Thanks for this wonderful thread!! Can anyone of you suggest me any online websites or resources where I as a person who does not know anything about finance, economics and markets can get started with?? It should be for a layman. I googled but not able to get a good website.

Thanks in advance

leolazer Says

Balance Sheet is like a Bikini - What it reveals is interesting; what it conceals is vital.

IF you get IT RIGHT then the experience is AMAZING & the feeling is like that of a HERO & if you make a BLUNDER you keep regretting IT forever for not getting IT RIGHT

Balance Sheet is like a Bikini - What it reveals is interesting; what it conceals is vital.

@Mrunal sir-

Hw 2 read a balance sheet.xplain in simple words.

As per my knowledge, i think its been used taking into the current political scenario. I've read an article on firstpost.com wherein it was written that
""So Manmohan Singh, who seemed to be sleepwalking through much of UPA-2, wants to revive the animal spirits of the economy and reverse the climate of pessimism in the country.""
This was said when A day after he assumed additional charge of the finance ministry hinted at corrective action on the tax front. That indicated the government might re-look at the implementation of retrospective legal amendments to tackle the Vodafone tax case and the General Anti-Avoidance Rule (GAAR).
Also, as per the investopedia its a term used by John Maynard Keynes used in one of his economics books. In his 1936 publication, "The General Theory of Employment, Interest and Money," the term "animal spirits" is used to describe human emotion that drives consumer confidence. According to Keynes, animal spirits also generate human trust.

nowaday term "animal spirits " is mentioned frequently in news.what does it mean?

@Mrunal sir-

Hw 2 read a balance sheet.xplain in simple words.

Reading any balance sheet is a simple thing.
Complex part is Ratio Analysis( for beginners ).
There are 2 formats - Horizontal and Vertical.
Naga French has already given u horizontal format
Also go thru vertical format wich companies use these days.

@Mrunal sir-

Hw 2 read a balance sheet.xplain in simple words.

At the basic level , this article should help you :

Reading The Balance Sheet

@Mrunal sir-

Hw 2 read a balance sheet.xplain in simple words.

mrunal patel



saar u r a legend

photo bahut achchi aur apt hai

manmohan yahi keh raha hoga

Definition of 100+ (A-Z) Terms of Economics from BBC
Click ME to download the PDF file (Size less than 200 KB, Pages:28 )
Preview of PDF File

1.Why prices of oil in international market slipping?does this help India reduce its import bill?
I fail to see the co relation between stock market plummeting and increase in foreign investment limit in government bonds.


PS-come on guys post sm query plz continue this amzing thread.very fw post in recent times.

What is G20?

1. Group of 20, An international body created in 1999
   
2. It provides a forum for strategic economic communication between industrialized (1st world) and developing countries.(3rd world)
   
3. G20 originated as a response to the economic crises of the late 1990s;
   
4. The G20 limits its discussion to economic matters.
   
   1. They've discussed the reduction of financial abuses and terrorist funding .
      
   2. They donot talk about Indo Pak / Indo-China border disputes.
      
   
   

Members of G20

1. 19 Countries + 1 EU = 20's group
   
2. IMF and World Bank also participate.
   

Which 19 countries are members of G20?

1. Argentina
   
2. Australia
   
3. Brazil
   
4. Canada
   
5. China
   
6. France
   
7. Germany
   
8. India
   
9. Indonesia
   
10. Italy
    
11. Japan
    
12. Mexico
    
13. Russia
    
14. Saudi Arabia
    
15. South Africa
    
16. South Korea
    
17. Turkey
    
18. United Kingdom
    
19. United States
    

1. Countries are represented by finance ministers and central bank governors
   
2. EU is represented by the European Central Bank and a rotating council presidency.
   

Describe the Organizational Structure of G20

1. G-20 operates without a permanent secretariat or staff.
   
2. The chair rotates annually among the members and is selected from a different regional grouping of countries.
   
3. The chair is part of a revolving three-member management group of past, present and future chairs referred to as the Troika.
   
4. Current chair of the G-20 is Mexico; the next Chair will be Russia.
   

What is Sherpa's Track and Finance Track?

G20 Summit's background agenda/preparation is made through two tracks.
Sherpa's track and Finance Track

Sherpa's track

1. focuses on non-economic and financial issues, such as development, anti-corruption and food security,
   
2. carry out important planning, negotiation and implementation tasks continuously.
   

Finance Track

1. focuses on economic and financial issues.
   

Write a note on G20 Leaders Summits

2008: 1st Summit, Washington

1. First Summit was hosted by the US President in Washington in November 2008 to develop a coordinated response to the global financial crisis
   
2. At the First Summit, the Leaders discussed the causes of the global economic and financial crisis and agreed to implement an Action Plan around three main objectives
   

1. Restoring global growth
   
2. Strengthening the international financial system
   
3. Reforming international financial institutions
   

2009: 2nd Summit in London

1. stimulus package of US$ 1.1 trillion to restore credit and growth
   
2. expansion of Financial Stability Forum (renamed as 'Financial Stability Board' or FSB)
   
3. Basel Committee on Banking Supervision (BCBS)
   
4. commitment against protectionist trends (including trade, investment and services)
   
5. commitment to reform of International Financial Institutions.
   

2009: 3rd Summit in Pittsburgh

1. It designated the G20 as the 'premier forum' for international economic cooperation
   
2. Framework for Strong, Sustainable and Balanced Growth' in the 21st century
   
3. sound macroeconomic policies that prevent cycles of boom and bust through a Mutual Assessment Process (MAP) or 'peer review' which is co-chaired by India
   
4. decision to reform the International Financial Institutions by
   
   1. shifting IMF's quota share to dynamic Emerging Markets and Developing Countries (EMDCs)
      
   2. adoption of a dynamic formula for the World Bank to generate an increase of at least 3% voting power for developing and transition countries that are under-represented;
      
   3. ensuring that World Bank and Regional Development Banks (RDBs) have sufficient resources to address global challenges.
      
   
   

2010: Fourth Summit in Toronto

1. Recovery and New Beginnings' focused on the 'Framework for Strong, Sustainable and Balanced Growth
   
2. Phase-I work comprising MAP (or 'peer review') by groupings of countries.
   
3. Advanced economies have committed to fiscal consolidation,
   
   1. halving of fiscal deficit by 2013
      
   2. stabilizing debt by 2016 as part of internal re-balancing
      
   
   
4. differentiated approach to consolidating growth and recovery versus exit strategies and fiscal consolidation, i.e. 'growth-friendly fiscal consolidation'.
   
5. Development' was introduced for the first time on the G20 agenda to be addressed through a High-Level Development Working Group (DWG).
   

2010: Fifth Summit in Seoul

1. theme 'Shared Growth Beyond Crisis'
   
2. Multi-Year Action Plans (MYAP) under the nine development pillars
   

1. Infrastructure (including a High-level Panel on infrastructure financing)
   
2. Human Resources Development
   
3. Trade
   
4. Private Investment and Job Creation
   
5. Food Security
   
6. Growth with Resilience
   
7. Domestic Resource Mobilization
   
8. Knowledge Sharing
   
9. Financial Inclusion
   

2011 Sixth G20 Summit in Cannes

1. Reviewed the global economic situation in the backdrop of the Eurozone/Greek crisis
   
2. regulation of commodity derivatives markets,
   
3. Action Plan on Food Price Volatility and Agriculture
   
4. increase in transparency of energy markets
   
5. Declaration' titled 'Building our Common Future: Renewed Collective Action for the Benefit of All'
   
6. Cannes Action Plan for Growth and Jobs
   

2012 Seventh G20 Summit Los Cabos, Mexico

1. promote economic stabilization and structural reforms
   
2. Strengthening the financial system
   
3. fostering financial inclusion to promote economic growth
   
4. Improving the international financial architecture in an interconnected world;
   
5. Enhancing food security
   
6. addressing commodity price volatility
   
7. promote sustainable development,
   
8. green growth and the fight against climate change.
   

India and G-20

1. As a major developing economy India has a vital stake in the stability of the international economic and financial system.
   
2. Therefore, India been actively involved in the G20 preparatory process both at the Sherpas Track and the Financial Track since its inception.
   
3. Our Mohan has participated in all six G20 summits
   
4. Our Agenda at the G20 Summits is
   

1. bring in greater inclusivity in the financial system,
   
2. to avoiding protectionist tendencies (that is Obama mustnot put heavy tax on firms outsourcing their work to Banglore and EU doesn't put heavy tax on our medicines.)
   
3. ensuring that growth prospects of developing countries do not suffer.
   

1. We've welcomed the inclusion of development as an agenda item of G20 process at the Seoul Summit
   
2. We have supported the Seoul Development Consensus and the associated Multi-Year Action plans
   
3. Mohan has called for the recycling of surplus savings into investments in developing countries. (Our own savings are around 25% of GDP! All tied up and saved in gold and real-estate.)
   
4. Reforming Bretton Woods's institutions (that is IMF and World Bank)
   
5. Facilitating trade finance, pushing forward the Doha agenda. (that is WTO agreement and India's problem with agro subsidies given to American farmers)
   
6. We remain committed to the G20 process for achieving a stable, inclusive and representative global economic and financial system.
   

2->Currently most of the international payments are done in USD ,what is the criteria for a currency to be used for payment, why not EURO or YEN?

Because at the time of Bretton Woods conference, both European countries and Japan were devastated by WW2 and didnot have the capacity to back their currency with gold. Therefore US stole the opportunity and became globally accepted currency.
Now the gold standard has been removed, but still it continues to be the world currency, because everybody got used to accepting dollars.

For more, read this
http://mrunal.org/economy/bretton-woods

Recently a news came that we will paying IRAN in INR , how this thing will be beneficial to IRAN , i mean why it want to do business in INR when it has option of taking USD?

Because US has put sanction against Iran, that if any country does oil trade with Iran, its Central bank will be banned from participating in America's financial market. Therefore EU and many countries stopped buying crude from Iran.

So, although Iran would love to have dollars, it'll accept Rupee payment because beggars can't be choosers.

Hi Puys ,

I have few doubts, please pour in your views about the same:

1->China is widely accused of manipulating its exchange rate, if it is really beneficial then why don't we do the same?

I have answered this question in this thread.

Here is the reformatted version

There are 3 different types of exchange systems - fixed/pegged, managed, market-float. In the first, the central bank, through buying/selling on a daily basis to keep the exchange rate pegged at the particular. e.g. China. The second type , e.g. India, Malaysia where central bank interfers ( buys/sells forex ) only if exchange rate goes beyond a certain range. In the third type, there is barely any intervention by the central bank to manage currency, e.g. US

India typically has low forex reserves, slightly below $300 billion. On the other hand, China has huge forex reserves $3 trillion. That is India cannot trade on such frequent basis like the Chinese to be able to peg its currency against the USD.

China has not 'manipulated' its exchange rate. It is known as pegging the currency and China has undervalued the yuan to increase export competitiveness

Hi Puys ,

I have few doubts, please pour in your views about the same:

1->China is widely accused of manipulating its exchange rate, if it is really beneficial then why don't we do the same?
2->Currently most of the international payments are done in USD ,what is the criteria for a currency to be used for payment, why not EURO or YEN?
3->Recently a news came that we will paying IRAN in INR , how this thing will be beneficial to IRAN , i mean why it want to do business in INR when it has option of taking USD?

Thanks,
Jokafreak

1. India is sitting on one of the largest reserves of Shale gas. The only other countries with competing natural shale gas resources are China and US. India can solve its energy crisis by tapping into its vast shale gas reserves but unfortunately it does not have the technology for its extraction. Is India doing anything about developing it or is it going to grovel to Washington in giving it to them ?
   

Good analysis
Shale gas transforms geopolitics, energy Swaminomics

Quoting a few things from the article

India has huge shale deposits spread across the Gangetic plain, Assam, Punjab, Rajasthan, Gujarat and southern coastal areas. All these are potentially gas bearing. The government has no policy framework for shale gas, and needs to devise one quickly so that exploration can begin. Seismic surveys on a massive scale are needed to produce basic data. If these data are then made available to bidders, prospective shale gas deposits can be put on the bidding block.

A series of regulatory measures from India's central bank have failed to stop the decline of the rupee, which hit a new all-time low Friday as worries mounted over the health of the global economy.

Friday's selloff affected many emerging-market currencies and was hardly specific to the rupee. But analysts say that to turn around the rupee's fortunes, the government in Delhi will have to focus more on the deeper structural problem undermining the currency -- India's gaping current account deficit.

To fix that, the government will need to take proactive steps to cut spending, particularly on fuel subsidies. With presidential polls due in just over a month, however, analysts don't expect the ruling Congress Party to take tough economic decisions that could rile its coalition partners.

That means the rupee--Asia's worst-performing currency so far this year--faces continued rough seas ahead.

"Given the political uncertainty, it would be optimistic to expect the government to take any major steps that will help the rupee right now," said Vivek Rajpal, a strategist with Nomura Securities............"

India's widening current account deficit is the main cause. India's trade balance is very unfavourable at this moment. India has always had policy paralysis, underdeveloped infra and manufacturing sector. These are classical signs of a developing economy but the point of concern is that they are showing no signs of improvement.

Cutting Fuel Subsidies

Cutting down on fuel subsidies is not an option that the government has. The most immediate effect would be the tremendous rise in prices of a huge basket of goods. Leaving aside the political implication of that, the economic implications are severe. The steep rise in prices will lead to a rise in inflation. This will lead to a cut on consumer spending ( whether RBI hikes interest rates or not ).
Looking at the contribution of consumer spending on our GDP -

( Calculated from RBI database )

Private final consumption expenditure as % of GDP
Year Constant Prices Current Prices
2004-05 59.1% 59.1%
2005-06 58.7% 58.3%
2006-07 58.2% 57.7%
2007-08 57.9% 57.0%
2008-09 59.4% 58.4%
2009-10 58.5% 57.7%
2010-11 58.3% 57.2%

Close to 60% of our GDP is from consumer spending, the rising cost of goods as a result of lack of subsidies ( esp fuel ) will cripple our GDP numbers. On top of this if the RBI hikes interest rates then we will see a drop in Consumer spending as well as business investments, both are GDP components.

Structural Changes

We will cannot have a quick fix solution to this. Fiscal inaction and lack of organic growth has eventually shaken India's economic fundamentals. India has been riding on the global wave of growth since the year 2001-02 until now. India's growing services sector has been relying on US and Europe demand for almost a decade and this growth and the obsession with GDP growth has blinded the policymakers from looking at the fundamentals
Few pertinent questions come to my mind as India struggles to implement any structural changes in the economy

1. Why dont the India Oil Cos in India get aggressive in acquiring fuel sources knowing very well that we have been and will be suffering for energy shortages ? The other major energy consumers are very proactive in this regard like US hammering down on Middle East, UK exploring tidal power & China rampaging through Africa and Latin America
   

1. Mint reports, India loses 7-9% of its exports due to lack of processes and facilities in port clearances. What is stopping the government for being active and ensure better processes and smooth clearance procedures ?
   

1. The depressing IIP numbers are a major cause of worry. It hinders our manufacturing competitiveness, export competitiveness. It would also allow the diversification of India's export portfolio which is right now majorly dominated by IT services. This will also generate domestic demand and reduce our dependence on US and Europe.
   

1. India is sitting on one of the largest reserves of Shale gas. The only other countries with competing natural shale gas resources are China and US. India can solve its energy crisis by tapping into its vast shale gas reserves but unfortunately it does not have the technology for its extraction. Is India doing anything about developing it or is it going to grovel to Washington in giving it to them ?
   

A series of regulatory measures from India's central bank have failed to stop the decline of the rupee, which hit a new all-time low Friday as worries mounted over the health of the global economy.

Friday's selloff affected many emerging-market currencies and was hardly specific to the rupee. But analysts say that to turn around the rupee's fortunes, the government in Delhi will have to focus more on the deeper structural problem undermining the currency -- India's gaping current account deficit.

To fix that, the government will need to take proactive steps to cut spending, particularly on fuel subsidies. With presidential polls due in just over a month, however, analysts don't expect the ruling Congress Party to take tough economic decisions that could rile its coalition partners.

That means the rupee--Asia's worst-performing currency so far this year--faces continued rough seas ahead.

"Given the political uncertainty, it would be optimistic to expect the government to take any major steps that will help the rupee right now," said Vivek Rajpal, a strategist with Nomura Securities.

The Indian currency on Friday hit a new record low against the U.S. dollar at 57.33 rupees. The rupee has fallen more than 21% against the dollar over the past 12 months. The dollar was trading at 57.25 rupees as of 0730 GMT Friday.

The rupee's plunge is the starkest symbol of the reversal in fortune for India's economy, which was once on the cusp of double-digit growth and was seen as a regional counterweight to China.

But a combination of high interest rates as the Reserve Bank of India sought to stem inflation and a weak global economy have crimped India's growth. Gross domestic product in the January-March quarter grew 5.3% on-year, its slowest pace since 2003.

So far most measures to support the rupee have come from the RBI. Aside from direct intervention in the currency market, the central bank has sought to attract deposits from overseas Indians, forced exporters to convert half their foreign currency holdings into rupees and clamped down on perceived currency speculation.

But the real problem is what RBI Gov. Duvvuri Subbarao calls India's "worrying" current account deficit. After staying below 3% of GDP since 1991, the current account deficit likely swelled to above 4% in the fiscal year to March 2012 as imports--mainly commodities--remained high, while weak global growth hurt exports.

Unlike most emerging markets, India's imports far exceed its exports, especially as it brings in more than three-fourths of the crude oil it needs. A weakening rupee makes those imports more expensive.

The government also subsidizes "common man's" fuel products such as diesel, cooking gas and kerosene, allowing them to be sold to the public below cost. The subsidies to state-run oil companies widen the federal deficit, which rose to 5.8% of GDP last fiscal year, from 4.9% a year earlier.

The government has said it may raise the price of diesel to rein in the deficit. But that could rile voters, as well as the Congress Party's partners.

Bad economic news has made matters worse for the ruling party, whose record has been tarnished by a series of corruption scandals. The party is hesitant to confront coalition allies that are stalling economic reforms, such as allowing more overseas participation in the retail and insurance sectors.

India has traditionally relied on foreign investment in Indian stocks and bonds to supply the additional foreign exchange required to pay for imports. But Europe's sovereign debt crisis has scared foreign investors away from risky emerging markets.

Any major slowdown in capital inflows could quickly translate into much sharper depreciation in the exchange rate, stressing the external balance, said Chetan Ahya, managing director of research at Morgan Stanley.

"India's fundamental woes require a fiscal solution," Priyanka Kishore, a strategist with Standard Chartered Bank wrote in a recent research note. "However, with the policy paralysis persisting since mid-2010, such a breakthrough appears unlikely anytime soon."

The rupee experienced its biggest drop in nine months on Friday when it closed at an all-time low of 57.16 against the dollar - 1.5% lower than its previous close of 56.57. In intra-day, the local currency fell to a low of 57.33 following a rush for dollars from importers after rating agency Moody's downgraded major international banks.

Despite the steep fall there was no panic in the markets as the depreciation was partly offset by good news of oil prices continuing to be low. Oil constitutes almost a third of India's import bill and demand from oil companies could subside once the Reserve Bank of India implements a government proposal which involves RBI selling dollars directly to State Bank of India which would in turn sell them to oil companies. Although this would deplete RBI's forex reserves, it would bring stability into the forex market and may even reverse the sentiment vis-a-vis the rupee.

"I feel that there has been a bit of an overshoot in sentiment which can happen in any market," said Harihar Krishnamoorthy, treasurer, First Rand Bank. He added that if there was any improvement in capital flows it could act as a catalyst for the trend to reverse. He pointed out that sentiment was causing rupee to weaken although several factors have gone in favour of the local unit in the last two months; gold imports have collapsed, crude oil prices have crashed and NRI deposits have grown after RBI eased the ceiling on foreign currency deposits. "There is a self-correcting element in the market because of the overshoot. An improvement in capital flows, for any reason, could act as a catalyst for the trend to reverse," he added.


Data released by RBI showed that foreign exchange reserves rose by $2 billion to $289.39 billion in the week to June 15. The increase in reserves was on account of appreciation of assets in non-dollar currency such as euro and UK pound, dealers said. Bankers also said that absence of dollar supply in the international market was forcing Indian companies to replace dollar loans with rupee debt as a result of which credit growth during the current fiscal up to (June 1) continued to be high at 18.3% .

The rupee's fall also took its toll on the sensex which closed 60 points lower at 16,972 after touching an intra-day high of 17,016. In the absence of capital flows and a continuing current account deficit, dealers are saying that there is no telling how low the rupee can go. Although foreign institutional investors have been net buyers this year in recent days they have been selling stocks.

For India the bad news this week has been a warning from Fitch which revised the outlook for the country to negative. The Fitch action comes on the back of a warning from Standard & Poor's that India could be downgraded to junk status. The rupee traded at 58.14 in %the three-month forward market compared to 57.36 on Thursday. In the offshore non-deliverable forward market (where forward contracts on the rupee are settled in dollars) three month deals were struck at 58.34 indicating that foreign investors expect the currency to weaken further.

@Mrunal Sir,(U rock sir)
1.what does Liberalisation means?
2.What is counter.I heard it on Business channel.
3.Target and stop loss.
4.Good shares to invest in and why?
5.What shud be strategy of invester?.
TIA

1) what does Liberalisation means?

Ans: Liberalization (or liberalisation) refers to a relaxation of previous government restrictions, usually in areas of social or economic policy.

Economic liberalization of India means the process of opening up of the Indian ecomony to trade and investment with the rest of the world. Till 1991 India had a import protection policy wherein trade with the rest of the world was limited to exports. Foriegn invetment was very difficult to come into India due to a bureaucratic framework. After the start of the economic liberalization, India started getting huge capital inflows and it has emerged as the 2nd fastest growing country in the world.

2) What is counter.I heard it on Business channel.

Ans: 1st would like to inform you that its called as Over-The-Counter. Here is the definition:
A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.
3) Target and stop loss?
Ans: Its Target Price & Stop Loss. A stop-loss becomes a market order once the stock price falls below that price level. This is typically understood as the most you're willing to lose on a trade, but realize that if the market gaps down then you could be filled much lower for a larger loss.

Target price has different meanings. If you mean a price target per your trading plan then it is the price at which you would go to sell out of a long position to lock in profit.

4) That is tricky question as 1 has to study the market pattern & do a little research to get this right. There are many shares in which you can invest but would suggest you to check www.moneycontrol.com.

5) Same as the above & you can google it to know more about it. You also have lot of good books on the topic that tells you how to be a smart investor.

Would also request Mrunal if he can suggest some.

FEAR of being forced out of the euro was slightly stronger than anger over continuing austerity at Sundays Greek election. It propelled the centre-right New Democracy party into first place, just ahead of Syriza, the radical-left coalition. With 97% of the vote counted the conservatives won 29.7% compared with 26.9% for the leftists. The PanHellenic Socialist Movement (PASOK) came a distant third with 12.3% after a large chunk of its voters (public sector workers, trade unionists and pensioners) had defected to Syriza, lured with promises that the state would not be shrunk if the left came to power.

Antonis Samaras, the 61-year-old centre-right leader, was set to receive a mandate to form a government at midday today from Karolos Papoulias, Greeces president. After two general elections in six weeks (coalition talks failed after an inconclusive vote on May 6th) a sense of urgency is evident. Global leaders who are gathering in Mexico for a meeting of the G20 group of rich and emerging countries will be watching Greek developments closely. Some see a stable coalition government in Athens as critical for European efforts to prevent the eurozone from falling apart.

Mr Samarass refusal to support Greeces first bailout in 2010 means he will have to work hard at convincing eurozone leaders he is serious about completing fiscal and structural reforms required by the second 130 billion bailout, which the previous coalition government was too timid to undertake. On Sunday night, Mr Samaras sounded statesman-like. Instead of claiming victory in the election, he said: There will be no new adventures, Greeces position in the eurozone will not be put in doubt.

Coalition talks were expected to start later today. The Democratic Left, a moderate leftwing party that won a modest 6.25% of the vote, is seen as a possible third partner for a pro-European coalition of New Democracy and PASOK. Fotis Kouvelis, a low-key Athenian lawyer who is the partys leader, could prove helpful in averting potential collisions between Mr Samaras and Evangelos Venizelos, the leader of PASOK. Mr Samaras and Mr Venizelos were clearly uncomfortable with each other in a previous coalition government headed by Lucas Papademos, a technocrat and former vice president of the European Central Bank. New Democracy advisers said they hoped a government would be in place by mid-week. If all three parties participate, the governing coalition would have a comfortable majority of 179 seats in the 300-seat parliament. New Democracy would take 130 seats, thanks to a 50-seat bonus for the winning party, PASOK 33 and the Democratic Left 16 seats.

Alexis Tsipras, the Syriza leader, said he would not participate in a government of national salavation as proposed by Mr Samaras on Sunday night. His party would serve as the official opposition, he said, while carrying on a continuing struggle to overthrow the bailout agreement. He can afford to wait, after seeing his party surge from a small alternative group polling around 4% of the vote in 2009, to second place in parliament with 71 seats. Unsurprisingly, Mr Tsipras presented his election defeat as a triumph, telling an unscheduled midnight rally of cheering supporters on Sunday that overturning the bailout is the only viable solution for Greece.

Three other smaller parties will also enter parliament: Independent Greeks, a nationalist rightwing splinter group (7.5% of the vote); the neo-Nazi Golden Dawn group (6.9% of the vote); and the Greek Communist Party that received 4.49% of the vote.

Some Greeks were clearly exhausted, or bored, by two months of unrelieved politicking. The abstention rate on Sunday rose to an unprecedented 40%, up from 34% at the May 6th election. They do not hold out much hope for a betterment of their plight from the new government.

@Mrunal Sir

can you explain about EUROPE crisis...how it started and measures taken by EU ,i do nt get many terms as austerity...
pls help

@Mrunal Sir,(U rock sir)
1.what does Liberalisation means?
2.What is counter.I heard it on Business channel.
3.Target and stop loss.
4.Good shares to invest in and why?
5.What shud be strategy of invester?.
TIA

Really nice article, really liked it.

What If Greece Exits from Eurozone? Implications on Indian and World Economy

1. How does Government finance its operations?
   
   1. What is Sovereign Debt?
      
   2. Then what is Sovereign Debt Crisis?
      
   3. What is a government bond?
      
   4. What is a bond market?
      
   5. Why do bond markets matter?
      
   6. Borrowing beyond the Aukaat
      
   
   
2. Why is Greece such a messed up Economy?
   
3. TimeLine of Events
   
   1. January 2010
      
   2. February 2012: The Auserity Bill
      
   3. May 2012: Elections in Greece
      
   
   
4. What's the EU Exit Rumor?
   
5. What're the consequences IF Greece Exits Eurozone?
   
   1. Lines at the Banks
      
   2. Loan Default by Greece
      
   3. Meltdown
      
   4. Businesshouses go Bankrupt
      
   5. Sovereign Debt Crisis for Weak Eurozone Nations
      
   6. Good for US and Japan
      
   7. Political Turmoil in Europe
      
   8. Recession in Europe
      
   
   
6. Why Greece Exit =Trouble for India?
   

mrunal patel zindabad


:clap::clap::clap::clap::clap::clap::clap::clap::clap:

Hello People!

First of all, I'd like to congratulate each one of you contributing to this threads. This is a goldmine of some very pertinent, most practical and possibly the most useful gyaan on PG. This is also my favourite thread to stalk. :). Keep them coming guys. :clap::clap:

Here are the links to the critically acclaimed and one of the most eye opening documentary series that I have come across -the Money as Debt series. It gives a lowdown on how banking runs and how the economy REALLY functions. Do find time to go through the whole trilogy. :cheers:

1. Money as Debt- Money as Debt Watch Free Documentary Online

2. Money as Debt 2: Promises Unleashed- Money as Debt 2: Promises Unleashed | Watch Free Documentary Online

3. Money as Debt 3: Evolution- Money as Debt 3: Evolution Beyond Money Watch Free Documentary Online

The documentaries are Youtube based, so I am sure access will not be a problem. Let me end with an economics joke. :)

"A mathematician, an accountant and an economist apply for the same job.

The interviewer calls in the mathematician and asks "What do two plus two equal?" The mathematician replies "Four." The interviewer asks "Four, exactly?" The mathematician looks at the interviewer incredulously and says "Yes, four, exactly."

Then the interviewer calls in the accountant and asks the same question "What do two plus two equal?" The accountant says "On average, four - give or take ten percent, but on average, four."

Then the interviewer calls in the economist and poses the same question "What do two plus two equal?" The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says, "What do you want it to equal"?"

naga25french Says

As far as i know , Open Market Operation helps in achieving fixed exchange rate with respect to foreign currency

Puys,

OMO is used to manage money supply in an economy. It is not a tool for managing the exchange rate.

sab_farjee_hai Says

how doea IPO help a budding entrepreneur ?

Buddy it actually doesn't help a budding entrepreneur specially in India as there are certain rules in India , before a company can go public in terms of prev 3 years of revenue , profitability , turnover .. etc

Initial Seed capital are obtained from angel investors or Venture capitalist from there on , private equity can be obtained if the business model is attractive enough for investors

Typically these private investors look at a return of 25-40% in period of 5 years , after which they try exit the firm by either selling it off to other investors or if the firm is profitable and now is eligible for an IPO , then the company goes public ..

So IPO is an exit strategy for many and is also a integral part of a going concern

severus "snits" Says

Isnt the Open Market Operation of government bonds a preferred way of managing currency ?

That is for managing money supply in the economy and not foreign exchange.
That is what I know

As far as i know , Open Market Operation helps in achieving fixed exchange rate with respect to foreign currency

sab_farjee_hai Says

how doea IPO help a budding entrepreneur ?

hey there! Like OrganizedChaos has already pointed out, there are two primary ways of raising capital to fund expansion - debt and equity.

the advantage of issuing debt is that you get tax benefits on the interest payments. the disadvantage is that if your projected cash flows are not upto the mark, you may not be able to make timely interest and principal payments and you would have to default with significant severe legal ramifications (like Greece defaulting on its bonds)....

option two is equity. IPO would mean distributing equity shares of your company among the general public. the disadvantage is that dividends are double taxed - both at the company level and the shareholder level.

the big +ve of equity is that a company DOES NOT HAVE TO pay dividends whereas it HAS to pay interest if it has issued debt. this is how an IPO,equity helps a company.

in addition it creates a lot of liquidity & does not have restrictive covenants - rules that lenders of debt to a company lay down, among others.

Cheers

(PS: the above argument holds for normal dividends and not for preferred dividends which are treated differently)

sab_farjee_hai Says

how doea IPO help a budding entrepreneur ?

There are two ways of raising capital

1. Debt - This is by borrowing from banks and other sources

2. Equity - By giving people a share in your company. IPO is a form of raising capital through equity.

Typically , capital that can be raised through equity is far more than that can be raised through borrowings i.e. debt.
Every company has a debt-equity ratio. You can get that information from the balance sheet of a company.

OrganizedChaos Says

Which part ?

how doea IPO help a budding entrepreneur ?

suppose I am a new company , now I want rapid expansion , my business is picking up and i can quantify that, will it be helpful if i go for a IPO, considering that the business needs a lot of liquid money on a day-2-day basis?

veterans if you can please help in understanding this thing?

Which part ?

but going by Supply/demand curves , lets take a case where Rs is sliding downwards.

Central bank sells Govt Bonds in market and in turn absorbs Rs from market. Now this in turn decreases the supply of Rs and hence increasing its value or price ( assuming that demand side factors arent affected).

This is what came into my mind, not sure though..

That is correct. And that is called managing the money supply i.e. controlling the amount of money in the economy.
But exchange rate is value w.r.t to foreign currency. As you can see, in your example there is no foreign currency involved. It is just domestic valuation.

Although it might happen that say, increasing money supply ( by increasing monetary base or changing the multiplier whichever ) the central bank stokes inflation and it hinders growth ( dropping consumer confidence and business confidence ) and then we have investors moving to safer currencies like USD. The INR-USD exchange rate then spikes.

In this whole scenario we cannot say managing money supply is a tool for managing currency. It might affect exchange rate through numerous intermediate steps but its not a tool for managing exchange rate.

suppose I am a new company , now I want rapid expansion , my business is picking up and i can quantify that, will it be helpful if i go for a IPO, considering that the business needs a lot of liquid money on a day-2-day basis?

veterans if you can please help in understanding this thing?

That is for managing money supply in the economy and not foreign exchange.
That is what I know

but going by Supply/demand curves , lets take a case where Rs is sliding downwards.

Central bank sells Govt Bonds in market and in turn absorbs Rs from market. Now this in turn decreases the supply of Rs and hence increasing its value or price ( assuming that demand side factors arent affected).

This is what came into my mind, not sure though..

another point that we may have missed is the creation of an oil purchasing window for our oil companies. the RBI has done this in the past and are exploring the option of doing this now as well (maybe they already have, im not sure).

Indian Oil Cos purchase crude in dollars and when they need to make such purchases, if they dont have the reserves, they will have to first buy dollars from the market and then pay up. this means that the already weak rupee rate will weaken severely compared to the dollar as they would be selling a LOT of rupees and buying a Lot of $$$$$.

To prevent this from affecting the market, the RBI, in the past, has asked oil cos to purchase dollars in a special window, seperate from the forex market so that there purchases dont further weaken the rupee!

Cheers! (PS: I was asked about how RBI controls currency rate in my XL interview. future aspirants, take note :D)

Very well pointed out.

severus "snits" Says

Isnt the Open Market Operation of government bonds a preferred way of managing currency ?

That is for managing money supply in the economy and not foreign exchange.
That is what I know