Friday, November 30, 2012

Ah! Chuck freedom!

Rate cuts imposed on all banks isn’t the right move for the moment...

RBI has never been so active before, and it is this very enthusiasm that unquestionably highlights the severity of the financial crisis that is becoming more visible in the country, every passing day. With a slew of measures including the 350 basis points (bps) slash in the Cash Reserve Ratio (CRR), reduction in the Statutory Liquidity Ratio (SLR) by 100 bps et al, it has been successful in infusing enough capital into the financial system, thereby bringing about an unprecedented change in the dynamics of the banking business. Banks on the behest of the FM have readily agreed to slash the interest rates by 75 bps and this raises an extremely pertinent question – should bankers have the first say on interest rates or should the ministers and bureaucrats?! True that with improved liquidity condition and rate cuts, the confidence in the banking system can be shored up, but excessive loosening could also boomerang by igniting fears about the soundness of the economy and fundamentals of the financial system.

It is also true that higher lending rates dent the borrowers’ abilities to repay and the probability of default rises, but providing money at lower interest rates (thereby decreasing the risk spread) could very well hurt the profitability of the banks. As a warning, Sherman Chen, Economist, Moody’s Economy puts his fears in words as, “Cutting rates now and rapid capital outflows could lead to disastrous outcomes such as a further tumble in the stock market and a deep depreciation of the domestic currency.”


Source : IIPM Editorial, 2012.

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Thursday, November 29, 2012

Pollution is not a natural outcome of evolution...

The best environmental practices of leading countries, should be replicated in India too...

In developing the list of 25 pollution control and natural resource management metrics that comprise the Environmental Performance Index (EPI, we made a careful review of the scientific literature as well as a broad-based understanding of the challenges that face environmental policymakers. We developed a “model” based on six core categories of environmental activity with a set of six additional sub-categories on which we also report results. This framework was peer reviewed by leading environmental scientists.

With a set of issues to track defined by the theory and practice of environmental science, we then looked to see which of these areas of concern had data to allow us to track results. Where data was limited, we looked for “proxy” variables that provided some gauge of the issue in question. In each case, we look for “output” measures based on actual, on-the-ground environmental results, measured in terms of the distance from established policy targets, such as those set out in the Millennium Development Goals. We draw data from a wide variety of sources including international organisations such as the World Health Organisation, the World Bank, the UN Environment Programme, and the UN Development Programme as well as leading universities and research centres. In every instance, we rely on the best available data in the world. Our effort remains hampered, however, by a lack of reliable metrics available on a comprehensive and methodologically consistent basis across the nations of the world. We are unable to track important categories such as chemical exposures, proper waste disposal, and protection of wetlands due to a lack of data collected across countries on a comparable basis. In other important areas of emphasis like water quality, we rely on data sets that are shockingly incomplete and poorly constructed. As a result, one of our core conclusions is that the world community needs to invest more in developing a solid data foundation for environmental decision making at every level from the community scale to the state, national, and global levels.


Source : IIPM Editorial, 2012.

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Monday, November 26, 2012

Who re-coded the world...?

steven philip warner, assistant editor, b&e, collides with many people within the gates fraternity for a stunning insider account of the man who re-coded the world... and we follow it up by a smashing one-on-one interaction with the man himself, the one they call...

Having said that, the question always remained in my mind, why would a man like Gates – who was not so far back criticised ad nauseum for being a ruthless competition slayer and monstrous wealth collector “whose sole objective was to rule the world” [I read that amusing one too] – decide on turning full circle [or ‘half’, for those thousands of logical binary nerds in Microsoft who’ll read this piece and jump on the first logical mistake] to donate almost all his billions? Why in heavens would Buffett, the world’s richest individual [as on September 6, 2008, Buffett had $62 billion; Bill is 3rd richest with $58 billion] trust this man who’s well known for only making money, not giving money? Would the minutes of the meeting hold the answer?

Gates comments therein, “We’ve known Warren since 1991 and it was his thought that wealth should go back to society that got us thinking about doing our foundation in the first place... I hope people have learned from Warren’s philosophy about how we really owe it to society to give the wealth back... When I think about Warren’s record in business, I think the impact is much more than the specific returns he’s had but the way he goes about business, the integrity, the belief in people. You know, that’s a huge impact... I hope that today when the world looks back 50 or 100 years from now, they think about the Oracle of Omaha [Warren Buffett] as being the most generous philanthropist... Warren will not only be known as the world’s greatest investor, but also the world’s greatest investor for good.”

Melinda Gates adds, “I just wanted to start by saying Bill and I are absolutely honoured and humbled by Warren’s gifts. It’s really unprecedented in terms of what we can do to do good in the world, and it’s something that we take very seriously. We feel an incredible responsibility. I think when you give away your own wealth it’s one thing, but to give away the body of somebody else’s life work is really quite something. So, it’s something that we look forward to working with Warren on as a Trustee.”


Source : IIPM Editorial, 2012.

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Sunday, November 25, 2012

Let’s head to a ‘Spice’y Hot Spot

After selling off his telecom business to Idea and speculations rife on the sale of his mobile business to Sony Ericsson, B. K. Modi is still betting big on mobile retail. surbhi chawla analyses what makes this business worth keeping for the Modi camp?

It couldn’t have been easy for Bhupendra Kumar Modi, the man who brought mobile phones to our country, to exit the telecom sphere, and that too at a time when the sector is growing exponentially. But even after selling Spice Communications to Idea Cellular, he stands tall and states unabashedly that, “Our Spice brand and the mobile retail chain – Hot Spot would remain with us.” In fact, B. K. Modi is so bullish about the mobile retail venture that big plans are being charted out and an IPO by the end of this year is also on the cards.

With India becoming the second largest telecom market of the world with about 212 million GSM connections (for June 2008 by COAI), and still growing steadily at 18% per annum, there seems to be plenty of scope for the handset market too. The market is pegged at Rs.750-Rs.1000 billion and is growing at a whopping CAGR of 60%. Little wonder that players like The Mobile Store (promoted by Essar & Virgin) Motostore (promoted by Motorola), mbazaar (promoted by Future Group), RPG Cellcom and Subhiksha Mobile have already joined the mobile retail bandwagon.

The handset retail market in India is largely unorganised. According to Mohit Khattar, President Marketing, Subhiksha Trading, “The organised mobile retail market is still small in comparison to overall mobile retail market at a national level. In metros, however, 30-40% of mobile retail is now happening through modern trade.” This untapped potential was first realised by B. K. Modi in 2005 who started Hot Spot with only 15 employees. In less than three years, Hot Spot now boasts of 357 mobile stores in the country with plans to take this number up to 1,000 odd stores by the end of this year. In the National Capital Region alone, Hot Spot has a dense network of 116 stores – by far the largest number of stores by any retail network in a state. What’s more? Hot Spot plans to be a Rs.10 billion company by the end of 2008. But the company seems to have lost the first mover advantage. Given the growing competition from other players & margins in the handsets segment shrinking to less that 3-4%, it could be as tough than the mobile communication business, or tougher.


Source : IIPM Editorial, 2012.

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Saturday, November 24, 2012

How will they manage nuke power?

Our policy makers can’t even manage thermal power. How will they manage nuke power?

There are even more scandalous facts. Of all the major nations of the world, India boasts of the worst Transmission & Distribution (T&D) systems. Even in the capital city of Delhi, T&D losses are in excess of 40%. If you give up the jargon, T&D losses simply mean outright theft of power. When power supply was privatised in Delhi in 2002, theft and loot accounted for almost 50% of the total supply. Six years after ‘efficient’ operations by private players and umpteen hikes in rates, theft and loot in Delhi is still more than the national average of about 30%. In effect, honest households are paying higher tariffs to subsidise thieves and inefficient private players, who cannot or will not stop the loot. The total installed power capacity in India is more than 1,40,000 MW at the moment. If T&D losses are brought down to global levels of about 10%, there will be 28,000 MW more of electricity available to honest users. Ask our ‘power’ hungry politicians why they don’t allow this to happen by shielding thieves.

In 2003, the Parliament passed an Electricity Act that required all state governments to reform their bankrupt and moribund electricity boards. The Act also required that consumers must pay for electricity consumed. Five years down the road, the boards remain unreformed and bankrupt and politicians keep announcing new schemes to give ‘free’ power. That’s a joke because bankrupt boards have no power to supply.

Then again, regulation is routinely caught up in corporate feuds. The huge reserves of gas found in the Krishna Godavarai basin will be a crucial raw material for new power plants being planned. Anil Ambani wants to use gas to produce 15,000 MW of power as soon as he gets his hands on gas supplies. But elder brother Mukesh Ambani is not happy and the Ministry of Petroleum has jumped into the fray, prohibiting Mukesh from supplying cheap gas to Anil. The matter is in Supreme Court and all gas-based power projects have been stalled. 


Source : IIPM Editorial, 2012.

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Thursday, November 22, 2012

Sorry, you injuns

An apology is good; money, better

Like the US, Canada’s treatments towards its aboriginal people was equally harsh, cruel and inhuman. But unlike them, Canadian President Stephen Harper (above) made a formal apology to his nation’s natives followed by Australian Prime Minister Kevin Rudd [who also apologized February this year to Australian aboriginals].

Indigenous people, whether they are Canada’s 1 million aboriginals, Mexico’s 6 million indigenous people or over half of Latin American indigenous population, have a similar story of torture, harassment and exploitation.


Source : IIPM Editorial, 2012.

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SUB-PRIME LENDING: ECONOMIC PARADOX

The occurrence of the sub prime crisis and oil price hike at the same time defies conventional theory and logic

Things wouldn’t have been as bad, had the US not failed to invade Iran and finish off the remaining threats to its dollar hegemony – as Iran too has been planning to trade in the euro. But the US found the Iranian resolve a bit too tough to handle. Further, its anti ballistic systems, for all their hype, might be good for outdated Iraqi Scuds, but not for Iranian systems.

A control over Iran would have made the US control on global oil trinity absolute. What happened instead was the sub-prime crisis leading to the losses of more than a trillion dollars (IMF data) for US financial giants, with many on the verge of bankruptcy. A closer look at the chronology of the oil price hike in the last one year reveals that it has gone hand in hand with the sub prime crisis. Rationality would demand that a near $1 trillion loss in sub prime would invariably mean economic slowdown and the eventual fall in the price of oil as demand recedes. But that didn’t happen. And incidentally, some of the biggest losers in the sub-prime crisis, like CitiGroup, Morgan Stanley, Merrill Lynch and JP Morgan are also some of the biggest players in the oil futures markets. Noted analyst Michel Morkos writes in Dar Al-Hayat, “Oil price speculations are a security valve for financial institutions, speculators and oil companies even. Through long-term deals, speculators cannot but pass through a financial institution, which opens credits, turning buying and selling into book activities. Hence, profits go to credit-opening institutions.”

He further states, “Hence, we cannot ignore daily heated speculations of oil, led by major financial institutions, aiming at compensating their losses.” It’s quite evident that all this is happening in open political connivance with Bush and Saudi Arabia, who are quite content waltzing around while their cohorts loot the world. And if the world smells something fishy anytime in the future, be sure, they’ll just blame it all on Bush’s bad breath! And all he requires for resolving that is mint... a money mint for Chrissake!


Source : IIPM Editorial, 2012.

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Wednesday, November 21, 2012

GENERAL MOTORS: RESTRUCTURING

GM’s in big trouble with collosal value eroded. Will the rescue team get this American out of troubled waters?

The restructuring includes a closure of four SUV-making North American units in Oshawa (Canada), Mexico, Moraine (US) and Wisconsin (US). Then there was a new motivation voiced over GM’s small car dreams (thank God it’s finally focussing on fuel efficiency!) with plans to unleash a second generation Chevy small car by 2010. This project is part of the new ‘Global Architecture Strategy’. There was also a reference to selling off the oil-guzzling Hummer brand. Analysts are also optimistic about the same as they believe that the move will help GM in projecting a fuel-efficient image; an urgent need.

So, will this move make a difference? Greg surely believes so as he explains, “Talking about perception, I think GM is still a very strong global brand both in Asia & US. And surely, improvement is on the cards with the change waiting to happen...” Further up the value-chain, GM is also gearing-up to redefine the ultra-competitive luxury segment & wants to produce a version of its up-market Cadillac brand based on a Saab platform in Sweden (where 10,000-11,000 workers are to be ticked off). The yet unnamed product will compete head on with the likes of Audi A4 and BMW 3 series. However, this move is questionable, as it comes at a time when a depreciating dollar has actually forced German manufacturers to shift production to US. Additionally GM, it seems is still quite content with its light truck and crossover businesses, which increased by 4% over last year. “After Toyota launched the Tundra and Honda is ready with its Pilot, the light truck market is alive in the US. To be competitive, we at GM are focusing more on quality and reliability, more as ‘fuel efficiency’ in trucks is not a major deciding factor,” added Martin. Right he might be, yet GM needs to forget that non-fuel efficiency and trucks were the real rebels responsible for the near-murder of GM.


Source : IIPM Editorial, 2012.

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Tuesday, November 20, 2012

BHARTI AIRTEL: MTN DEAL

...a tourist spot. Not much more for Bharti!

Therefore, the deal falling flat means Bharti still has ‘young’ international intentions left. As Santana Krishnan, Analyst, Spark Capital opines, “With the deal failing, its balance sheet looks good. But Bharti may soon roll out their operations in other emerging markets.” On news of the same, Bharti’s share price on BSE rose by 3.1% to touch Rs.890.95 (after a fall of 10% since the deal was announced); surely a good omen!

But there’s more to the war left. Post Bharti’s exit, speculations are rife that the $42 billion-worth RCom Ltd. is readying itself to make a $20 billion bid for the African elephant. Whoever gets MTN, one thing’s for sure – South Africa has a telecom CAGR of 22.5% and a high penetration of 70%; a sure inferior investment compared to India (CAGR of 60% & 22% penetration)?! Wonder what’s the logic in risking billions in sour grapes; or do they make better wine?!


Source : IIPM Editorial, 2012.

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Sunday, November 18, 2012

Unwilling contestant

The AICC General Secretary tours the country to enlarge his constituency

For four years Rahul Gandhi did what he felt was right. He seemed oblivious to advice from partymen. He concentrated on Amethi and his mother’s constituency, Rae Bareli and refused to look beyond these two constituencies. He delivered simple speeches. Unlike other politicians, he has refused to make empty promises in his speeches. And in an effort to take the higher ground, he has refused to play politics with the dead body of a farmer.

It is only after four years that an extremely adamant Rahul Gandhi has come out of his constituency to ‘Discover India’. This is again purely his decision. According to Congress sources, it is Rahul who has now realized that in politics one can not survive without playing mind games and do it all over the country.

Politicking may not be his cup of tea, but now it appears, Rahul is learning. From a man who believed in being a silent worker, the Gandhi scion is turning another leaf. Seeking to expand the Gandhi Nehru magic, he now spends nights with Dalit families, plays around with their children and enjoys photo-ops with Dalit children on his shoulders.

His visits, mostly low-profile and sans publicity, is aimed at attracting the soul of India, in the words of his planners. In his own way, he enquires about the implementation of the National Rural Employment Guarantee Scheme (NREGS) and other developmental schemes and loan waiver for farmers. Party workers believe that even though he is a late starter, he has started off well.


Source : IIPM Editorial, 2012.

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Wednesday, November 14, 2012

CORRUPTION: SPORTS

All forms of bribery present here

Bidding for 2012 Olympic Games in London is also riddled with corruption, with so-called “agents” promising to deliver dozens of IOC votes in return for bribes, an undercover BBC TV programme claimed. After Los Angeles made $215 million profit from 1984 Olympic Games by selling exclusive rights to various corporate sponsorship categories –a scramble began between cities for the right to host the games and secure profits that could be made in tourism, construction, transport, and other industries. As competition between companies and cities increased, and profit climbed, so did opportunities for bribery and corruption, for IOC and indiviudals.

IOCs nepotism, vote-selling and other forms of corruption are now coming to light with no surprise. They are infact inevitable by-products of vast sums of money and multi-million dollar profits surrounding the event.


Source : IIPM Editorial, 2012.

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Sunday, November 11, 2012

Game, Set, Catch!

The kind of hype and money generated by Indian Premier League (IPL) is simply astounding. Even better, it is becoming a classic case of Bollywood and Cricket merging to propel Indian sports towards the league of really big bucks. But are things as rosy as they look?

Just imagine this tantalising scenario. Mahendra Singh Dhoni, the new rock star of Indian cricket, marries Deepika Padukone, the new rock star of Bollywood. As a honeymoon gift, Dhoni gives Deepika the Mohali IPL team. A consortium led by Dhoni and Anil Ambani has persuaded the current owners of the team, Ness Wadia, Mohit Burman and Preity Zinta to cash out. Don’t think for a moment that this is fantasy. Bollywood and cricket have well and truly married each other to propel the business of sports towards the big boys club in India. And why not? Shahrukh Khan has paid $75 million for the Kolkata team led by Saurav Ganguly. Preity and her partners have forked out $75 million for the Mohali team. Akhsay Kumar has become the brand ambassador for the Delhi Daredevils led by triple centurion Virendra Sehwag. And the list just goes on and on… At one stroke, the Board of Cricket Control of India (BCCI) has generated $1.5 billion through the launch of the Indian Premier League (IPL) that will oragnise 20-20 matches that start on April 18.

In an exclusive interview to B&E, Shahrukh Khan says, “I have invested a big stake, and as an investor, I am concerned about every move of the team…overall the business of sports is very interesting and profitable, both for businessmen and for our country.” Shahrukh’s co-star in quite a few Bollywood blockbusters, Preity Zinta has this to say about her new found zeal as an investor, “You know that for me, money is very important… we are looking at a long term plan. We have a professional set up, so it is not a child’s game.”

And it’s not just cricket that is using Bollywood and entertainment to promote itself and generate the real big bucks. The ‘King of Good Times’ Vijay Mallya has vowed to bring the phenomenal Formula One racing into India. Simultaneously, he has promoted and launched the Force India team that now participates in F-1 races across the world.


Source : IIPM Editorial, 2012.

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Saturday, November 10, 2012

How ‘Cowboy’ Bush actually won the Iraq war (sic)!!

Hillary Clinton just two days back said that the Iraq war can’t be won. I really hope you didn’t get carried away reading it and started taking her seriously! She is still a first generation dynastic hopeful with her husband having no war experience. George Bush on the other hand is a seasoned second generation warring cowboy!! And trust you me he knows the game better than you can imagine. Let me explain you how the smoke ‘em out cowboy has actually won the war on Iraq... well at least as far as his schemes were concerned!!

It has been exactly five years since the time President George Bush went on a rampage on Iraq, hunting for those world threatening WMDs!! In these five years the world is testimony to the fact that the US could neither find any WMDs, nor could their intelligence establish any links between the Late Saddam Hussein and Al-Qaida, but in effect, on account of the ongoing American engagement, Iraq got completely devastated. Over 1.1 million Iraqis have been killed, some 2.2 million displaced, and more than 40% has been pushed to abject poverty. The worst affected are the children, 28% of whom are malnourished and some 11% are underweight.

The obvious question then is that when there weren’t any WMDs, any Al Qaida links, and on top of that, of late, there had been glimpses of apparent acceptance of mistake of engaging with Iraq by the President Bush himself, then why is it that American troops are still occupying Iraq? And why on the earth am I trying to say that George Bush has won the Iraq war? Well, the answer to this complex question lies in the burgeoning budgets of Pentagon and the financial statements of few of the biggest corporations of America – because all wars aren’t always won on the battlefields. The fact is that from almost USD 300 billion in 2001, the defence budget of the US has grown to a staggering USD 670 billion in 2008.


Source : IIPM Editorial, 2012.

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Thursday, November 8, 2012

Daring to reform

Seven major sectors reviewed

Of late, a historical Foreign Direct Investment (FDI) policy was announced. With liberalisation of the norms in the seven major sectors, the government has not merely made a desperate attempt to win the lost trust of its vote bank, just before the announcement of annual budget, but also signaled that economic atmosphere is further going to be conducive for the multinationals.

For the first time, 49% FDI in Commodity Exchanges & Credit Information Companies (CICs) were permitted. For Commodity Exchanges FDI upto 26% & FII upto 23%, with a 5% cap on single entity has been allowed. The new policy for CICs has also allowed sub-cap of 24% for FIIs. Moreover, the cap for petroleum refining by PSUs has too been increased to 49% from 26% previously. “The move would definitely augment the potential of the market places, to help the rural areas unlock values in their economy and help spread benefits of economic growth,” said Joseph Massey- DMD-MCX. Besides, other sectors like aviation, real estate & Titanium mining industries too have their share of pie. The government has not made it mandatory for FIIs to invest for a lock-in period of three years, in real estate sector. It has further sanctioned 100% FDI in areas like Titanium mining and setting up of Maintenance Repair & Overhaul (MRO) facilities and aviation training institutes.


Source : IIPM Editorial, 2012.

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CREDIT POLICY: RESERVE BANK OF INDIA

RBI’s cautious stance on managing inflation is all the more welcome

CII feels that “in uncertain times, this is strategically a good stance, as long as the RBI explicitly makes it known that it can take any action pertaining to key rates if the situation demands” whereas ASSOCHAM feels that the restraint shown by RBI would make it difficult for some industry segments to cope up with slackening demands, rising imports and high borrowing costs.

The standstill approach as adopted by RBI will provide it with the flexibility to move either ways based on domestic & global developments for it provides ample scope for future rate cuts as well as sufficient liquidity for business to avail loans and pursue growth. The RBI is in wait & watch mode and is in no hurry to pare rates, given the vulnerability of Indian economy at this stage on imported crude & potential food imports.


Source : IIPM Editorial, 2012.

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Wednesday, November 7, 2012

Maddening déjà vu

Mr. Chidambaram faces stark choices all over again

As Dalal Street – along with many other streets from Tokyo to New York – started behaving like a new jet aircraft whose pilot has lost control, one couldn’t but help wondering about the days in mid 1990s when the C. R. Bhansali scam had put paid to the hopes raised by Mr. P. Chidambaram as Finance Minister. The stock market scam then was also associated with two things. First, it was tantalisingly close to and linked with the East Asian melt down of 1997. Second, elections were in the horizon and Mr. Chidambaram threw fiscal caution to the winds by announcing huge Fifth Pay Commission hikes for government servants. Back then, the US economy was still not as profligate a borrower as it is today. Nor were China, Russia, Iran and Venezuela swimming in dollars.

It is 2008 now and there is a strong sense of déjà vu. Stock markets around the world – particularly in Asia – have been tumbling like nine pins on fears of a recession in the US economy. India is no exception except the fact that the economy and Dalal Street are far more integrated with global financial markets than they were in 1997. It will probably be a matter of time before the latest Indian stock market scam is unveiled.


Source : IIPM Editorial, 2012.
An Initiative of IIPMMalay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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