G20 Summit And Impact of Financial Turmoil on India
First thing first!
Congratulations Mr. Barack Obama for the history making thumping victory and become the first colored President of the United States of America. My best wishes for your successful Presidency
. May you make historical judgments in this difficult situation and shape a brighter future not only of America but also the whole world. No wonder the most challenging task by the new US Administration will be to bail out the US economy which is in tatters. It is another matter altogether that Nobel Laurette Dr. Amartya Sen thinks Obama is little bit of a protectionist for comfort!
Amidst this global financial turmoil and looming recession, countries around the world are trying to make the impact as less painful as they can. In a recent G20 (a group of developed and emerging economies that represent almost 90 percent of the world economy) meeting finance ministers, advisers and central bank governors of the member countries gathered and tried to find a solution in the Brazilian city of Sao Paolo. The US is again mulling a proposal of $700 billion bailout bill which was not approved by the congress initially. China has already announced a plan worth to the tune of $600 billion to stimulate the economy by supporting domestic demand. The European Union is not far behind. More is expected to come out a the following G20 summit in Washington in a couple of days time from today
So what has been the impact here in India and what is it doing?
Well, due to the nature of Indian economy which has been a closed one till few years back and only recently opening to the world slowly but surely, there was little immediate impact in the financial and banking sector. But it has taken its tool on stock trading and export figures. The benchmark indicator, the Bomaby Stock Exchange Sensex has crashed to bellow 10000 mark from a high of 21000 plus in January. The government has already trimmed the expected GDP growth to seven percent while leading consultancy firm Goldman Sachs put the figure at 6.7 percent. These figures are still very good compared to other countries which are already experiencing contraction in their growth rate. The Indian government has also taken measured and responsible steps to thwart the impact of the turmoil. It has already released huge funds in the financial market by way of bringing down interest rates in order to induce demand and thus stimulate and maintain current rate of growth. So, one can hope that India could escape with fewer scars in the immediate future.
On the other hand Indian Inc. is nervous about the long-term impact of the current phenomenon. Ratan Tata, Chairman of the $62 billion Tata Group of Companies has already asked his CEOs to put off new acquisition plans unless it is highly strategic in nature. Software companies like Wipro Ltd. has already made plans to emphasize on the domestic market rather than depend on exports to the US and the EU.
One industry that has taken most of the pinch is the BPO industry. As global financial giants like fall, their outsourcing and call centers which cater to jobs such as credit card processing and factoring loans are in danger of closure. Already, there are media reports that workers in those centers are spending sleepless nights and suffering from depression.
One can only hope that leaders at the G20 summit, where Indian Prime Minister Dr. Manmohan Singh is also attending, find a suitable solution to the crisis.
May The Festivals Bring Cheers to The World Economy including Nervous Indian Financial Market
It has been quite long that I posted and I am sorry for that. Actually, it has been quite hectic few weeks not only in my personal life, but also the world financial market where the ever so known face of the Wall Street as giant investment banks collapsed like pack of cards thus triggering a world financial crisis.
But first thing first – it is festival season in my place and we got 2 weeks holidays for it. This is the time when many Hindu Goddesses get worshiped with much fun and flair. Although I am not Hindu by religion, still I grew up in close proximity with them and know most things. Mythologically, the Hindus have hundreds of Gods but out of them only few are worshiped in big way. And also the enormity of festivals depend from region to region. For example, Durga Puja is the biggest festival for Bengali community whereas it is Ganesha Puja in Mumbai. As I live in an area dominated by Durga Puja worshipers, our school has been closed since 3rd October and will open only on 17th. I do not like the crowd – and so took refuge in my village house for 9 days. All those days were spent without accessing the NET.
Today is the Laxmi Puja or festival of the Goddess of wealth. Hence, my best wishes to all those managers of mutual funds, investment banking who have been going through stress since the crisis started. Most analyst say that it is a result of the sub-prime crisis that engulfed the US market few months back. It is being seen as the greatest economic crisis since the great depression days of 30′s.
Europe has already felt the effect and now Asia too is feeling it with Pakistani financial market on the verge of collapse. India is getting very nervous which has been proved by the government constituting a crisis committee headed by finance secretary Mr. Arun Ramanathan to tackle any crisis that may start in India. The committee is working overtime and leaving no stone unturned to toss options including revising the Cash Reserve Ration (CRR) by 150 point basis which will make more funds available to financial institutions.
However, governments in Europe are not sitting idle as they got together to fund a multi-billion dollars bail-out plan for banking and financial sectors. Britain has already called for a new Bretton Wodds agreement to give a new direction and shape to the world financial system. This has lifted the spirit of the stock markets which went tumbling over last couple of weeks.
But one thing is sure – the crisis has shaken up the world financial system! Though it might not affect immediate cash flow in developing country looking for foreign direct investments (FII), it will slowly dry up funds from the markets thus causing somewhat of deflation.
Anyway, lets just hope with our fingers crossed and let our planner
A Tale of Land, Tatas, Mamata and Communists
Can you do business in India? – Probably yes.
Can you do business in Bengal? Keep reading the post ….
I thought I would not cover this story as it is so controversial and getting huge media coverage. But now I think I should do my bit of .the story.
It seems Communism has come full circle in India and West Bengal in particular. It was during 60’s and 70’s that the communists took the nation by storm with their war against then existing feudal system and were instrumental in the introduction of Land Reform Law in West Bengal after they came into power for the first time in 1967. They have been ruling the state continuously since 1977.
The turning point came in 2000 when the Patriarch of the party Jyoti Basu retired from Chief Ministership and handed it over to Buddhadeb Bhattacharya, a young and energetic leader with an eye for development. It must be noted that between 1977-2000, almost all industrial and business houses left Bengal and it became a industry back-burner from a leading state. Soon after assuming office Mr. Bhattacharya decided to correct it and started to transform the government into a business friendly one. His government were now wooing foreign investors and promoting Bengal as a favored business destination to set up industries. Business man too got impressed by his genuine attitude and signed lots of Memorandum of Understandings with the government. So came big business houses like Tata! The Tata Automobiles choose to set up their pet project of Rs. 100,000 car Nano factory in Singur.
The Nano is arguably the most inexpensive car in the world conceived in 2003 by the Tata Group Chairman Ratan Tata and aimed primarily to give a city car to millions of Indian middle class families who can’t afford other cars but can afford motor bikes and scooters. Presented for the first time in the 9th Auto Expo in Delhi in January 2008, the car has already created huge excitement among prospective consumers.
But the reason of this post is not about the car – rather its about the proposed manufacturing unit. In a state where land is of prime with a population density of 904 per square kilometer, the West Bengal government allocated 997 acres of land for the factory in a fertile agricultural area and about 15,000 farmers have been dislodged. Now they fear that the government will not compensate them and they would thus loose their livelihood. Enters Mamata Banerjee, the nemesis of the ruling communists and firebrand leader of Trinamul Congress, the main opposition party in the state. It seems her only goal in politics is to oust the communists from power, by hook or by crook. She immediately grabbed the opportunity at Singur (after she fought a prolonged battle with the ruling party at Nandigram where the Selim group was allocated thousands of acres of farmland for a proposed SEZ) and was now giving the same medicine like Hartals (strike), blockade to the communists who used these as their main weapons during the land reform movement in the state few decades back. The Tatas had to stop construction work due to continuous disturbance and finally announced on 2nd September that they were pulling out the project from Bengal! Continue reading
India To Benefit As Global Crude Prices Tumble
The Indian stock market is back to its normal bullish run again after a prolonged dull run. The BSE Sensex gained 551 points to close at 15049.86 on Monday, single largest gain in a day since July 23rd, 2008 when the index surged 838 points. The index has been hovering around 14000 mark for long time. This bullish run has been due to rate-sensitive stocks and that of state owned oil and gas companies gaining ground as news of Hurricane Gustav sparing major US oil fields caused a further collapse of international crude price. The price of crude oil has been cooling down steadily after it hit high of $147.27 per barrel on 11th July as Russia’s conflict with Georgia disrupted supply of oil and gas. Demand of fuel in US and China, the two biggest energy consumers has also softened the international market.
More than anything else, international oil price has single most important bearing on Indian economy as India’s 90 percent energy consumption depends on crude oil exports. Since oil prices started to soar, the country’s trade deficit has also been widening every month and it touched a record $10.80 billion for the month of July on higher oil import bill. Inflation has also been rising rampantly despite the government raising interest rates to check it. It also came down to 12.34, the first time in moths after a prolonged series of increase.
Now that everything is over, we can hope the inflation to come down to normal (4 to 5 percent), the trade gap to decrease, stock market to be buoyant and the overall health of the economy to become better.
Despite the decrease in the international crude price, the government has ruled out any slash in the existing fuel price. In a meeting with the media, Petroleum Minister Murli Deora told reporters
“Where is the scope for reducing prices? Oil companies are still making losses,”
Petroleum Secretary R.S. Pandey said that
“Oil companies continue to lose money on petrol, diesel, domestic LPG cylinder and kerosene. There has not been a substantial reduction in global prices to warrant a price cut,”
Airlines also announced that the fall in Air Turbine Fuel will not see an immediate reduction in air fares.