Weakening Rupee in the Current Markets

INR has been dipping few points in the recent trading sessions as a consequence of the fall in Indian Stock Markets in last few weeks. There's an immense selling pressure on rupee in light of the fact that the FII's (Foreign Institutional Investors) are pulling out their investments from the market. 

Lets just see where this all started..... Whats the reason for the fall in Indian Markets ???? ...

The entire country was delighted when Mr. Manmohan Singh in 1991 (then Financial Minister) has announced the Globalization & Liberalization policy. But one should accept that it has now become the main reason for the downfall of Indian Markets. The underlying truth of the fall in our economy recently is interdependence on global economy. Our economy is so tightly coupled with the global indices that there can be no resistance to any disturbances (Economical, Financial, Communal etc) any where in the world. 

Does this mean Globalization & Liberalization policy was a curse ??? ..... not at all.

India's GDP growth averaged about 4% for nearly 40 years since independence but it nearly doubled in the last 20 years courtesy the globalization policy. However the adverse effects would have been lower if Indian Economy would have strive for self sustenance to a greater level than interdependence.

The weakening rupee is however a short term phenomenon being witnessed due to selling pressure for the FII's quitting the market. Once the dust settles, world shall witness a pullback in INR and other Asian country currencies while the dollar & European currencies need a miracle to bring them out of this deepening crisis.

FBI -- For Better India

Democracy & Youth In Politics

Democracy is the buzz word for our political system. But is it really so? Is it democracy that a nation where a majority of population is below 40 elects a majority of people above 60 to power? Are we really satisfied with the way our country is being governed? Should it not bother us that at the age people generally take retirement and rest, our politicians actually become eligible to be at the helm of affairs? Why is it so that people below 50 years are considered as political ‘kids’?

The youth of this country are now beginning to ask this question. Have they been fooled into voting for the Congress-led coalition government into power for the second time? The average age of the Cabinet today is more than 67 years with the “eldest” being Foreign Minister S M Krishna just a whisker away from his 80th birthday. His age has just shown up in the UN meet recently when he read out the speech of another President embracing the country.  Railway Minister Mamata Banerjee is the youngest at 55.

Nowadays we have only a handful of young leaders like Rahul Gandhi, Sachin Pilot, Varun Gandhi etc, but they are in the political scenario because they belong to influential political families. It is next to impossible to find a young leader with no political family background in the dream a career in politics.

The country desperately needs some young leaders who personify energy, enthusiasm, morality, and diligence. No doubt we have progressed a lot in the last 62 years but the development pace would have been completely different had some young torchbearers led this process of development.

There can be two reasons for this deplorable scene of Indian politics. One may be that the youth today are not interested in actively participating in the political field. They are content with what they are doing and how the country is being governed. But this reason seems to hold no ground seeing the discontent shown by the youngsters towards cases like reservation, Jessica lal murder case etc. The youth of modern India are aware of the problems facing our country and the world at large. Given a chance they would be ready to change the political condition of the country for better.

Second reason may be that young people are not given opportunities to prove themselves claiming that they are not equipped with experience to participate actively in the governance of the country. This reason seems to be more logical seeing the monopoly of old leaders in almost all the major political parties of the country. Old people should realize that proper development can take place only when they make way for younger people to take control of the activities.

There are few things which need to be clarified. One that youngsters do not mean people who are 20 years old with no experience at all. Youth in this context is meant to refer people in their 30’s or early 40’s with a good mix of energy and experience. Two, it is not intended to mean that old people should leave the political scene and rest. What is wanted is that they should be there but for guidance because they are treasures of invaluable experience.

There are a few things which I would like to suggest. There should be a retirement age for politicians as well which may be around 65 years. There should also be some educational qualification for politicians. How can we give those illiterates the key to our country whom we can not give the key to our house? People with serious criminal background should not be allowed to contest elections.

As for the youth of our country, they can contribute in more ways than just contesting elections. Much can be done in areas like educating people, raising awareness about various social ills, and many other areas.

We can just wish that the next time we go to vote we find more names of youngsters who can make our country a better place to live in. 

A better option could also be to see ourselves in the list .... What say guys ... ready for the challenge ???? 

FBI - For Better India

India's Fiscal Deficit

Finance Minister Pranab Mukherjee announced in his budget speech, India's fiscal deficit for the year ending March 31, 2010, is expected to jump to 6.8% of the country's gross domestic product. The central government's deficit is much higher than the 5.5% deficit forecast by Mukherjee in an interim budget in February, and also larger than the 6.2% deficit recorded by the government in the previous year ended March 31, 2009. The 30-stock Sensex was down 2.9% at 14,487.37 following the budget announcement. It had left the equity market shivering. In fact, the Sensex declined by 870 points. Though rise in Fiscal deficit may not be the only reason for it, it was nevertheless a major contributor for this massive fall.

Lets understand the relation between market and fiscal deficit.

What exactly is the Fiscal Deficit?

The fiscal deficit, as the name suggests, is the difference between the government's total expenditure and its total receipts (excluding borrowing). The elements of the fiscal deficit are the revenue deficit, which is the difference between the government’s current (or revenue) expenditure and total current receipts (excluding borrowing) and capital expenditure.

The fiscal deficit can be financed by borrowing from the Reserve Bank of India (which is also called deficit financing or money creation) and market borrowing (from the money market, which is mainly from banks).

Effects of financing Fiscal Deficit:

Financing of fiscal deficits has two significant negative impacts like inflation and rise in interest rates. Because of these impacts, stock market reacts sharply to the news of increasing fiscal deficits.

A high fiscal deficit is generally linked to inflation. This is because that the part of the fiscal deficit which is financed by borrowing from the RBI leads to an increase in the money stock and a higher money stock automatically leads to inflation since "more money chases the same goods".

Another fiscal deficit financing effect is rise in interest rates. To reduce the Fiscal Deficit government borrows from the money market. Large amount of borrowings by government results in higher interest rates. Higher interest rates crowds out the private investment. This rise in interest rate in turn impacts sectors like realty. Also, higher borrowings by Govt. suck out liquidity, leaving less scope for banks to lend to private players.

Impact of the Fiscal Deficit Policies

There are two ways in which the fiscal deficit can be reduced, by raising revenues or by reducing expenditure or both. To increase the revenue Government has to increase the taxes or sell off the PSUs (disinvestment). However the government always finds it difficult to increase revenues through taxation. In fact, in every year’s budget, the government has actually given away tax cuts. So, only option left with government to raise revenues is through means like disinvestment. Even disinvestment of PSUs has not been fully implemented.

Thus, the main impact of the policy of reduced fiscal deficits has to be on the government's expenditure. This policy has a number of effects. For example, government investment in sectors such as agriculture goes down. Besides that, expenditure on social sectors like education, health and poverty alleviation also gets reduced leading to greater hardship for the poor.

Current Situation and Implications:

India's fiscal deficit has risen sharply in recent years on loan waivers for poor farmers, subsidies and stimulus packages to boost the economy. The present fiscal deficit number (forecast) is big and worrisome. While market participants were expecting fiscal deficit in the range of 6-6.5 per cent of the gross domestic product (GDP), the finance minister put the number at 6.8 per cent of GDP. For the year ending March, 2010 Fiscal deficit would increase to 6.8% of the GDP as compared to 6.2% of the previous year. Besides that, adding the total state deficits (which is 3.5% of GDP) to the fiscal deficit will lead to a total of around 10% which is very high, creating a huge debt burden for the next generation of the country. This will put further pressure on limited resources available in the market.

Bankers predict pressure on interest rates saying huge borrowings will suck out liquidity resulting in reduced lending. The large government borrowing is expected to put pressure on interest rates. For the current financial year, the government’s budgeted borrowing is Rs 4,00,996 crore, 22.81 per cent higher than the revised estimate of Rs 3,26,515 crore in the last financial year and over three times the 2007-08 borrowing. Compared with the estimate of Rs 3, 32,835 crore in the Interim Budget, presented in February, the total borrowing is expected to be 20.47 per cent higher.

As government borrowings go up, it will crowd out private borrowing and push up interest rates. But how the monetary policy deals with the situation is the other aspect. It depends on how the government and the RBI manage the borrowing plan. It can be managed through measures such the market stabilization scheme, open market operations and timing the borrowings. According to Kaushal Sampat, chief operating officer at Dun & Bradstreet-India, “As economic revival sets in and high fiscal deficit becomes a potential bottleneck, monetary policy may have to be adjusted to take care of issues pertaining to fund availability.

We can just hope that Govt and RBI handle the situation with utmost care.

FBI - For Better India

Demographic Dividend - Unveiling the Positive Side of Population Growth

We have always thought that the tremendously growing population of any country is a setback on its road to social and economic growth. With huge population come huge responsibilities and challenges set in front of any state. Growing population needs more food, more land, more water, more and more scarce resources. But the concept of Demographic Dividend unveils the positive side of the population growth.

'Demographic Dividend' is defined as "the rise in the rate of economic growth due to rising share of working age population (15-59 years)…" The demography of a state transits from one phase to another and the dividend can be reaped by the country when the percentage of workforce in the population increases, leading to more output and hence economic growth with a ‘multiplier effect’. Further the dependency rate in the population decreases owing to relatively less number of people and old age population. The economic growth is further accelerated as less dependency rate amplifies individual savings thereby surging the investments. It also becomes convenient for women to join the workforce as due to decrease in family responsibilities (they marry late and hence have fewer children) and more freedom.

It is noteworthy that by 2020, Indian average age population is estimated to be 29 years as against 37 years in US, 45 years in Western Europe and 48 years in Japan. This is good news as the younger generation with reservoirs of human capabilities can really change the face of the country with energy, enthusiasm, labor power and vibrant ideas.

Though this makes us a lot more jubilant, it perhaps is just one side of the story. The continuation of the following facts can result in the reversal of the entire dividend. In India 35% of the population do not pass middle schools, only 25% take admission in universities and only 12% of the total workforce is skilled.

No gain has ever come without a pain. To reap the best harvests, the crop needs to be taken good care of. So India cannot benefit unless it invests qualitatively and quantitatively in sectors such as education, health and infrastructure to improve them from the grass root level. A lot of economists question the very capability of India to reap the benefits of demographic dividend. There may be workforce ready for use, but till the time economy has enough jobs to offer, the entire purpose gets lost. So job creation is one of the biggest challenges in India. But this cannot come about with the improvements in the education sector – which is the most important ingredient to develop human capital and capabilities.

Question is with 35% of the people not even completing education at middle school level, still so many out of reach of secondary and university education and deplorable government school standards, will India be able to take full advantage of the demographic boom? So there is a huge responsibility of imparting quality education as many of those few still educated fail to bear any practical skills. National Association of Software and Service Companies (NASSCOM) has reported that only 20% of Indian new Engineering Graduate students are employable. Businesses should come up investing in this social sector and Public Private Partnership in the education sector, which can help India overcome this problem.

Even the health sector that has long been neglected should see a huge surge in investments to keep the population working in its full capacity.

Infrastructure is also a potent sector (especially infrastructure in agriculture) where huge investments should be made which would lead to growth in industries, hence employment. Though with Public Private Partnership, infrastructure has grown by leaps and bounds, there is a huge scope for improvement in India.

Further sector specific investment is the need of the hour to make the economy open to every job opportunity with workforce available for each of them. If our country is not able to create employment opportunities to tap the workforce’s abilities, there would inevitably be sky rocketing unemployment, giving rise to its vicious web. The future of our country seems prosperous if only it is handled well by the government and various sectors. Huge efforts need to be made to avoid converting India’s ‘demographic dividend‘ into a ’demographic nightmare’.

Will we be successful ??? Will the Government do enuf ??? .... Few questions can only be answered by time.

Jai Hind .. FBI -- For a Better India

Railway Budget 2011-2012 - Boon or Bane ???

Union Railway Minister Mamata Banerjee, while presenting her third Rail budget, not only kept fares and freight rates untouched, but also promised to invest Rs 57,630 crore in the network in the financial year 2011/12. As expected, she barely attended to the mounting deficit of the transportation institution and instead yielded to gimmicks that befits a politician eyeing the polls—in this case, the West Bengal Assembly.

The Indian Railways in facing a financial crisis. Quite unlike the previous Indian Railways Minister Lalu Prasad yadav, who announced a surplus of Rs 25,000 crore (2008), this year things are going to be quite different.Total revenues from passenger and freight this year for Indian Railways has been around Rs 92,000 crore. Forbes says that it could fall short by Rs 4000 crore. However Didi concludes saying that there will be a surplus of 5250Crores this year which doesn't look probable at all. 

The Finance Department released a report urging the Railways to hike fares in 2004 which is still unattended & surprisingly the fares have dipped by about 20% since then.

My Verdict:

Considering an average inflation rate of 10-12% prevailing in the last 5-6 years, prices of any commodity is expected to double by now. However our Railway Fares from 2004-05 have always seen a declining trend (I Seriously Wonder How). 

A person earning Rs.1000 in 2005 now earns almost Rs.2000 on an average but pays the same Railway Fare. The logic is quite simple, The deficit in managing the Indian Railways is met by funds loaned out from World Bank or other foreign Monetary organization. In thirst for power our politicos are piling up a heap of debts on the name of the country. These debts are finally the burden of the Country & the citizens at large.

I seriously feel that these Common Man Budgets ( as they are popularly called as) are not a Boon but a Bane to us. There is a need to raise the prises steadily at a healthy rate without effecting the financials of a common man.

I was very much disturbed with all these thoughts & now feel relieved after sharing them in my blog. Hope the people in WB use they metal & vote against Mamta in the upcoming elections. I am eagerly waiting for the one tight slap on Didi's face.

Jai Hind... For a Better Nation