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presents
December 2020 Vol 4 Issue 10
Our best read - World’s Largest Trading Bloc: Dissecting India’s Stance
Special Mention: Big data and its applications in the banking industry ; and Microfinance Institutions – A Vision Of Rural India
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INDEX S.No.
Article
Page No.
1
World’s Largest Trading Bloc: Dissecting India’s Stance
3
2
Big data and its applications in the banking industry
7
3
Microfinance Institutions – A Vision Of Rural India
10
4
Can Bad Banks Be A Good Solution for India’s NPA Problems
12
5
Our India with ‘Vocal For Local’
16
6
India – A Currency Manipulator?
18
7
The Impact of COVID-19 On Global Economy
20
8
How India Can be a Competitive Player in the International Fruits Market
23
9
Dumping, Tariffs and the Neighbours
26
10
Is India in the Mode of Recovery and will the 2021-22 Budget be able to revamp the economy?
29
11
Data Analytics in Trade: Portfolio Construction Using R
36
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World’s Largest Trading Bloc: Dissecting India’s Stance By: Deepansh Bhati (Shaheed Bhagat Singh College DU) The Regional Comprehensive Economic Partnership (R.C.E.P) is a Free Trade Agreement (F.T.A.) between 15 Asia Pacific Nations which was initiated by Indonesia at the rise of the second decade of twenty first century. The member states accounts for nearly 30% of the global population and 32% of the global G.D.P, making it the largest ever free trade bloc on the face of the earth. The primary rationale behind the world’s largest trade bloc is to eliminate the duties and tariffs and create a free trade regime without any restrictions on trade and investments among the member states. The idea is to create a borderless world for the movement of goods among the member states. Other objectives entail establishing UNIFIED RULES OF ORIGIN on investments, trade competition and protection of intellectual property rights. India’s stance on being a member state of RCEP has been consistent since its inception. There should be a state of economic equilibrium between the associated costs and benefits which the central government found absent and gave it a red light. There were several grounds on the basis of which India refused to accede to the accord. India is an open economy with several bilateral and free trade agreements already in place with the principle motive of letting our domestic industries prosper. But the past experiences have not manifested encouraging outcomes. India has FTA’s with many of the RCEP member states but rather than prosperity of our industries, our trade deficit has been consistently rising. Right from the liberalization and globalization in India, without scope of a doubt, our exports have risen but concomitant spur in the imports has been higher eventually ending up at a negative trade balance. As per the data released by NITI AAYOG (Erstwhile Planning Commission), India’s trade deficit was 6 Billion Dollars in financial year 2000 – 01 which rose to 109 Billion Dollars in financial year 2016 – 17. This clearly indicates the fact that import surge has been higher than the rise in exports. This has also led to the process of de-industrialization in Indian context. With foreign goods entering Indian markets and enjoying a higher demand due to their cheap prices, our domestic firms have been confronting setbacks. Majority of our domestic industries are not yet ready to confront the severe global competition. In a bid to protect our producers, India’s stance has been to restrict imports and substitute them with domestic production which will eventually end up strengthening our domestic industries. Therefore, India’s past experience of FTA’s have reinforced the protectionist ideology.
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Source: https://niti.gov.in/writereaddata/files/document_publication/FTA-NITI-FINAL.pdf
Another major concern pertains to the practice of dumping of goods in Indian market especially by the People’s Republic of China (PRC). Being the second most populous country, India has been consistently exploited as a market by other major economic powers with vested interest of profit maximization. India’s past trading experience reflects, that China exports massive quantity of cheap goods to India thereby pushing our domestic industries in the loss making arena. These goods are not of industrial nature but are finished and sophisticated goods which enjoy huge demand in India owing to their low prices. This sort of dumping is definitely not in India’s advantage. Apart from China, New Zealand and Australia may also use Indian market to park off their excess production and destabilize the competition in India. For instance, New Zealand produces eight times the milk it is capable to consume, rest is exported at profit. Australia and New Zealand are the states with well developed primary sector. With RCEP in place, these states can prove to be direct threats to our agriculture and primary industry since more than 60% of Indian farming is done on subsistence basis.
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The threat from China’s dominance cannot be shunned. With all other major economies like the United States out of the ambit of RCEP, China is the only powerful economic giant among all the member states. This poses a threat of Chinese dominance in the rule making regime of the RCEP. China is India’s largest trade partner which contributes to about 55% of India’s trade deficit with negative trade balance being 53 Billion Dollars with China itself. Majorly this is because the nature of trade baskets of India and China. Indian exports to China include raw goods and industrial goods while Chinese exports to India entail finished and sophisticated goods which have a greater extent of diversity than Indian Exports. As a political concern, China’s dominance in the region and RCEP and on the other hand, India’s border conflicts with China, this may be disadvantageous for India. The policy makers reckon that joining RCEP would lock India into global commitments among which many are not of her advantage. After signing the partnership, India wont be able to protect the industries and inflow of foreign goods wont be controlled. On the other hand, Indian industries are not yet strong enough to confront the competition. After import surge begins in India, the union government wont be able to impose import safeguards thereby leaving the industries in the pool without life jackets. This will eventually spur up the already high trade deficit. In the backdrop of negative impacts of the covid 19 pandemic and India is not in the position to afford a further negative trade balance. The government believes the fact that the economy already under the arrest of covid 19 pandemic wont be able to recover if India becomes a member of RCEP. Such a free trading bloc with unified rules of trade, investment and intellectual property rights, core capitalism would be promoted leaving no space for industries to grow and compete in the globalized arena, rather deindustrialization might follow. Apart from this argument, India’s exports are more responsive to income level changes rather than price level changes, hence reduction or elimination of duties and tariffs wont make India’s exports to outperform rather they depend on income which is comparatively inelastic. Another pressing concern for India pertains to the comparative advantage which is one of the primary pillars of economics. India’s strength lies in the service sector which is beyond the ambit of the RCEP free trade agreement. As per the World Trade Organization, India is the 8th largest service provider (exporter) and can be called as a Powerhouse of Information Technology. Therefore, for India to be at an advantageous position with RCEP in place, service providers need concessions in the form of Business Visa Rule Relaxations, Statutory Compliance Costs and Domestic Tax Regimes which were rejected by the RCEP. This steers this massive agreement as a ONE SIDED AGREEMENT as the strength of the other member states lies in MANUFACTURING and not Service. The government believes that the service professionals should be freely allowed without restrictions and services to be traded as commodities. The intransigence of India is not very surprising, India has always followed the policy of protectionism. It was only once in the backdrop of the worst economic crisis of 1990’s, that India opted globalization and liberalization. This is even manifested by the reforms such as Make In India and Atmanirbhar Bharat. The pre existing ideology is reinforced in the context of RCEP after observing the past trade experiences of India.
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The stand of the union government cannot be called the ideal one as far as the contentious issue of RCEP is concerned. As India is one of the signatories of the agreement, it had all the rights to play a leading role in the rule making regime. On the other hand, rejecting RCEP India has sought to reset its approach by shifting focus from ASIA to US, UK and EU. This is the argument of the government when questioned on isolation. But clinching a free trade deal with Euro-American nations is not an easy task. Therefore it can be rightly said to be a gambling on the front of the government. On a concluding note, there is a dire need for Indian policy makers to relook its policy as staying out is not the appropriate answer. Source: https://niti.gov.in/writereaddata/files/document_publication/FTA-NITI-FINAL.pdf
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Big data and its applications in the banking industry By: Ajita Ranade (Jamnalal Bajaj Institute of Management Studies, Mumbai) “Information is the oil of the 21st century, and analytics is the combustion engine.” – Peter Sondergaard, senior vice president, Gartner Research. Mr. Peter could not have represented the crux of the matter in a more succinct way. In this age of information, millions of data points are generated every second. Such data points, which are huge in number, make sense when collated and analyzed can be used to provide insights which can aid in decision making. What is big data? Big data is a collection of data, that is voluminous, and exponentially growing in time. The data is of such a he size and complexity, that none of the traditional data management tools can process it efficiently. For example, The New York Stock Exchange generates about one terabyte of new trade data per day. Statistics have shown that 500+terabytes of new data get ingested into the databases of social media websites such as Facebook, daily. This data is mainly generated in terms of photos, videos, messages and comments. This data is so complex and huge that traditional data analysis tools would fail if they had to analyze such a huge data day in and day out and find patterns. Such a huge set of structure, unstructured or semi structured data would undoubtedly provide insights which businesses can utilize while taking decisions. Banks and financial institutions would be able to understand their customers better and provide customized solutions and run targeted campaigns, which in turn can contribute to their bottom line. Applications of big data in banking Imagine a customer, walking into a bank branch around three decades ago, to withdraw money. The customer would know the teller, the manager and other clerks working at the bank and he would go about his business happily. Fast forward to the year 2020, when an MNC hires an employee, who is offered jobs across continents. Such a branch and a teller would be of no use to that customer. No single teller would be able to keep up with his historical financial dealings and be able to provide solutions. For customers such as these, big data plays a key role in helping the bank to keep a track of the trail of financial transactions and making banking a highly personalized experience. The power of big data can be harnessed in banking to provide insights on consumer behavior, enabling banks to customize their product offerings to provide custom made products and services. The power of big data can be harnessed to provide a fuller banking experience as follows –
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Customer profiling Big data helps banks to profile customers based on their age, gender, demographics, number of bank accounts, history of transactions, behavioral patterns, service preferences, loans and credit cards currently being availed, etc. Customer profiling gives the banks a 360 degree view of the customers, enabling them to understand their billing history, preferred method of communication, products used, etc. Banks can use this data to their advantage by identifying ways in which customer needs can be identified and catered to and provide a personalized experience. Customer profiling allows to predict the products or services customers are most likely to be interested in (i.e. predictive analysis) for their next purchase, thus allowing to determine next-best-offers (next-product-to-buy) and what his/her most likely next action will be. Identifying opportunities for upselling and cross selling By analyzing customer transactions, banks can identify and leverage opportunities for cross selling. For example, for a salaried employee, banks can offer tax payment services annually at the time of tax filing, or if the customer has significant amount of cash lying in the bank account, the wealth team can reach out to the customer to explore wealth opportunities. Conversely, if the customer has less than usual closing balance in his account, the bank can send messages or emails informing the customer of their overdraft facility. Opportunities for cross selling are many if data is analyzed effectively. Banks can also offer home redevelopment loans for customers who have availed of housing loan. Armed with such information, banks can stop spamming customers and send targeted messages, which would ensure a higher hit rate Performance analytics Big data driven tools allow banks to analyse the revenue generated per branch by slicing and dicing data available in terms of revenue per employee, employee efficiency and turnover, etc.
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Bog data gives both a birds eye and a drill down view of the metrics of branches, which in turn gives data for informed decision making. Improved risk management Big data-driven tools help banks study the behavior of their customers, particularly their spending habits, in detail. Based on the history of a customer’s transactions, banks are able to define and establish a normal baseline activity. Any deviation from this baseline may be indicative of fraud. Such an alert would send a red signal to the concerned relationship manager, who in turn would try to contact the customer and seek corrective action. If a customer usually makes payments by credit and debit cards, then an attempt to withdraw significant amount of cash from the ATM would also raise an alarm. Conclusion Although prima facie big data seems to be a great tool to make sense of the data that is collected every day, banks need to be aware that their legacy systems struggle to keep up with the data and their latest softwares. A conscious effort has to be done to integrate the data in one form which enables the software to mine the data and look for patterns. An important aspect is management buy-in and financial commitment for the big data project. Once that is achieved, sky is the limit for the applications of big data! References – 1. http://www.bbc.com/storyworks/banking-oninnovation/bigdata#:~:text=Financial%20institutions%20are%20putting%20Big,and %20relevance%20to%20their%20choices. 2. https://global.hitachi-solutions.com/blog/big-data-banking 3. https://easternpeak.com/blog/big-data-in-the-banking-industry-the-main-challengesand-use-cases/
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MICROFINANCE INSTITUTIONS – A VISION OF RURAL INDIA By: Irashi Jha (SIIB, Pune) Give a man a fish; he’ll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime.” - Bono Microfinance Institutions are doing a phenomenal job in providing credits, loans, insurance and other associated benefits to the borrowers of the lower pyramid, and have covered around 64 million unique people all around the globe. These are mainly those underprivileged people who are left behind by the traditional giant financial banks. 80% of these borrowers are women of which 65% have a rural background. Today, the global microfinance industry worth is INR 8.90 trillion and is continuously growing at the rate of 11.5% over the last 5 years. South Asia has named itself ahead in the queue, that too, particularly India, which is heading at 13.8%. Institutions that lend to the Indian borrowers are mainly Banks, MFIs, NBFCs, and Not for Profit MFIs. The largest loan share is disbursed by MFIs that stands at INR 681 Billion or 38% of the total, which is further followed by Banks and SFBs. These multiple players have their own share of strengths and weaknesses, thus there was a need for a better collaborative approach. RBI in 2018 issued a circular for co-working of the banks with NBFCs/MFIs. NBFCs would benefit the banks by bringing liquidity in the market, as the people in this organisation are closer to the rural mass and value their culture; whereas the banks would be the risk bearer of the credits because of their work culture and high money deposits. One of the successful examples being, Shared Agent Banking System (SABS), Uganda created a joint venture between Uganda Bankers Association and Electrics International for a centralised connectivity among the institutions. Today, there are two models which are prevalent in India for the disbursement of loans, Self Help Group (SHG) and Joint Liability Group (JLG). SHGs provides micro financing that mainly focus on generating savings, has an average size of 10-20 members which mainly includes women and is less scalable than JLGs. JLG on the other hand, is a micro credit organisation that focuses on credit generation, has a size of 3-10 members per group and is more scalable. Since JLG has a more commercial approach, has faster turn-around, and a joint liability approach that helps in mitigating risks, hence is preferred by the NBFCs. There has been a great upsurge by 46% in the total number of JLGs from FY18 to FY19, and is greatly supported by NABARD. In the FY19, NABARD entered into 7 MoUs with SBI for initiating training, capacity building and skill development for promoting JLGs. India, since it is dominated by the marginal income population, hence provides a great opportunity for these micro financial institutions to flourish. Due to various Government schemes and interventions and the Micro finance Institutions, 67% of the rural Indians have already been benefited, but this percentage is not uniform all across the country. Karnataka, Andhra Pradesh, Maharashtra, Tamil Nadu and few other Southern states constitute around 80% of it, while only the rest mere percentage is constituted by the northern states of the nation. People there still believe in taking loans from informal distributors like moneylenders and relatives. Yet there is a high
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possibility of getting this gap filled if these institutions carefully address needs and problems underlying rural India. As the purchasing capacity of Indians is slowly heading ahead, there’s a need to look outside the credit-savings balance and enter into the consumption based needs like the hospital fees, education loans, marriage funds, etc. But before that, bringing in financial service literacy among the rural should be the priority. According to the executives of the microfinance institutions, 37% of the people are left underserved due to the lack of transfer of information. They must also analyse all the costs associated with taking the financial services, loans, transportation cost, and interest poured in case of delay of instalments. And then introduce their products and services at a cost which would benefit the farmers by giving a sufficient return. There are lots of constraints to be witnessed along with the rising height of microfinance industries, majorly fraud, security risk, credit risk, inefficiency and what not. Also, over-borrowing, regulatory changes (example being AP Crisis 2010), and income incompetency among the rural households is another major fear which resides with any of these industries. There are around 35% borrowers who borrow from 2 sources. This leads to over borrowing and increased risks for the institutions. The loan officer plays a major role in bringing more customers, giving training to the borrowers and selling their own products and services. But high operational cost, inefficient technologies and lack of infrastructure leads to less penetration of the information from these organisations to the farmers. “Technology is at its best when it brings people together.” There’s a high demand for technology not only for bringing in new customers, but also for making connections with the old ones. The technology needs to be very accessible so that the people get to know all the loan portfolios and information about other services at their doorstep. This would help in declining the operational cost, thereby decreasing the rate of interest which is charged today, hence increasing the customer base. Women are the best managers. As microcredits are mainly taken by the women, there becomes a higher possibility for the repayment of loans. Also, this creates a wave of women empowerment, brings in trust and loyalty and helps in uplifting the overall society. India aims to become a 5 Trillion economy by the end of year 2025. And there would surely be a big role of these institutions in achieving the same. But as these organisations are speeding and scaling up, there is a high need to regulate them via digital medium. Also, there needs to be strong governance and regulatory practices for those availing these services so as to mitigate the risk of fraud. The future would be in the hands of those groups that could provide varied types of financial assistance and associated products at a lower cost, entertain new products, involve in strategic partnerships and involve technology to cater to the demands of people.
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Can Bad Banks Be A Good Solution for India’s NPA Problems By: Aritra Banerjee (NMIMS Mumbai) The years leading up to 2008 witnessed stupendous economic growth in India. The economy was in an upturn and investments by the firms were pouring in freely. The banks matched this with aggressive lending practices as firms buoyed by the positive sentiments were less risk averse and willing to increase their leverage to fund growth and new projects. And then came the global financial crisis of 2008, that roiled economies around the world and put an end to this period of high growth. As growth rates plummeted, the revenues from investments were hammered. Firms that banked on high growth rates to pay off their debts were now in a soup. As revenues went down, many firms found themselves unable to service the high amounts of debt that they had undertaken in the period of economic boom. What this basically meant was there was accumulation of high debts on the balance sheets of firms and since many of them failed to pay back what they borrowed, there was an accumulation of bad debts on the books of the banks that had lent the money. This is popularly known as the “Twin Balance Sheet Problem” that many believe marked the start of the current Non-Performing Assets (NPA) crisis that has plagued the banking industry in India for more than a decade now.
Source: Business Standard | insightsonindia.com In 2020, with the onslaught of the COVID-19 pandemic, this problem of the banking industry was exacerbated. Due to a stringent nationwide lockdown in place, many businesses were
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badly hit and their revenue streams were obliterated. It is reasonable to expect that this would have adverse effects on the ability of the borrowing firms to service their debt and therefore magnify the NPA problem facing the banks. According to RBI estimates, the gross NPA ratio for Scheduled Commercial Banks can increase from 8.5% in March,2020 to as much as 14.7% by March,20211. Given that the banking industry will play an integral role in the revival of the Indian economy, it is of utmost importance that an effective solution to arguably its biggest problem, the NPA mess, is found at the earliest. Eminent economists across the country have all suggested various innovative solutions to this mammoth problem and one of them is the use of Bad Bank. While many have championed such a solution, many others have unequivocally spoken against it. While it is definitely worthwhile to examine the effectiveness of such a solution in the Indian scenario, it is imperative to first understand what a bad bank exactly is. What is a Bad Bank A bad bank, technically speaking, is an Asset Reconstruction Company (ARC) that stores the bad loans or NPAs. Such a bad bank buys bad loans from commercial banks at a discount and attempts to recover the amount from the defaulter through the provision of a systematic payment solution over a time period. By separating the good and the bad assets of a bank, a bad bank actually allows the investors to assess the bank’s financial situation more clearly and also enables the bank to grow. In the wake of the global financial crisis of 2008, many nations considered the creation of bad banks. Ireland, Finland, Germany, Belgium, Sweden and Indonesia have implemented the setting up of bad banks in the past. Government-led initiatives make it more attractive for investors to invest money in a bad bank. According to the initial estimates of the Indian Banking Association (IBA), a bad bank in India would require around Rs 10,000 crores as initial capital and will store around Rs 70,000-75,000 crores of bad loans at book value. However, the million dollar question is whether such an arrangement would actually be successful. Why Bad Banks Can be Effective In the early 2000s, the NPA levels in large banks in China had almost touched 30% of assets. China formed 4 ARCs that were jointly backed by the People’s Bank of China and the Chinese government. These ARCs acquired bad loans from the banks and through the
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issuance of bonds against the assets acquired, they operationalized themselves. Since the balance sheets of the banks were free of NPAs, they could lend and finance expansion in China again. Back then the size of China’s economy was comparable to the size of India’s present economy and this entire exercise cost China around $500 billion. Similar exercises have been successfully conducted by other Asian countries like Thailand and Japan as well in the time of crises. Many believe that India too can replicate the success stories of its Asian peers. The Confederation of Indian Industry (CII) too has suggested that the government should consider setting up bad banks to combat the problem of mounting NPAs in state-owned lenders. According to CII president Uday Kotak, due to the huge liquidity that is present both globally and domestically, multiple bad banks can combat the problem and revive the credit cycle. Additionally, many believe that a strong market-based mechanism would enable the Public Sector Banks to sell their bad loans and would help them to raise capital from the market since their balance sheets would be cleaner. This will be beneficial for the government as well since it will reduce the need for the government to recapitalize the PSBs. As a result, it would reduce the government’s expenditures, which has already been high this year due to COVID-19 related packages. However, while the upsides seem attractive, many experts throw caution to the wind and claim that the cons of a bad bank measure would render it ineffective. The Bad about Bad Banks Raghuram Rajan, the former RBI governor, had said that a bad bank may actually give rise to a moral hazard and enable the banks to continue reckless lending activities. The implementation of bad banks is also a complicated process as a banking institution would have to consider the choices of assets that are to be transferred into the risky category, portfolio strategy etc. Each choice would have a repercussion on the funding, capital relief and cost. The complications of the process make the entire idea unviable according to many. The pricing mismatches between the buyer and seller would still exist in a bad bank structure. Finally, the NPA losses do not vanish with a bad bank and the losses ultimately have to be shared between the investors and the taxpayers. These factors associated with a bad bank structure make it an unattractive strategy to many.
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Conclusion Therefore, while the bad bank mechanism may indeed be a worthwhile solution to explore, there are huge complications regarding its implications that policy makers would need to sort out to ensure effectiveness of the mechanism. However, the bad bank would not solve the root cause of the NPA problem in India. Therefore, any solution to alleviate the immediate NPA problem should also be accompanied by suitable frameworks that ensure banks have lending practices that have minimum exposure to exceptional risk and align their lending strategies with their abilities. References https://www.business-standard.com/article/news-cm/gross-npa-of-banks-could-escalate-to14-7-by-march-2021-under-severely-stressed-scenario-rbi-financial-stability-report120072700174_1.html#:~:text=%C2%ABBack,Gross%20NPA%20Of%20Banks%20Could%20Escalate%20To%2014.7%25%20By%20Ma rch,Scenario%20%3A%20RBI%20Financial%20Stability%20Report&text=The%20overleve raged%20non%2Dfinancial%20sector,risks%20to%20global%20economic%20prospects. https://www.livemint.com/news/india/multiple-bad-banks-needed-to-solve-npa-problem-cii11608484588060.html https://www.acuite.in/editorial-01.htm https://www.timesnownews.com/business-economy/economy/article/what-is-a-bad-bankhow-it-can-fix-npas-and-why-the-idea-is-back-in-the-time-of-coronavirus-pandemic/591093
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Our India with ‘Vocal For Local’ By: Ritoriddha Dasgupta (IMI Kolkata)
By ‘Vocal’ we can understand the voice which is coming out from our inside. Rather we often refer it as ‘from the core of our heart’. So, are we actually signify the same which we commonly refer to? There lies the big question! As per the burning topic we have found that our Hon’ble Prime Minister Mr. Narendra Damodardas Modi had stated the ‘popular’ phrase to rejuvenate the people India, whose main highlight is to reduce unemployment as much as possible despite the pandemic scenario. If the phrase or its true essence can be put into reality, then undoubtedly, India can go to the top. But why and how? Yes, it’s possible. India is the 2 largest country in the world with respect to population and it can be her biggest asset as well as strength if proper guidance is given without making ‘cheap’ discriminations and corruptions. Being Citizen of India, the respective authorities along with the mass of India must understand and imbibe honestly that the nation cannot grow with so much of corruptions and scams in almost each and every sectors. nd
The goal can achieved very systematically as India is one of the nation who has produced ‘nnumber’ of entrepreneurs and philanthropists such as Mr. Dhirubai Ambani, Mr. JRD Tata, Mr. Aditya Birla naming a few and in our recent times, Mr. Ritesh Agarwal, Mr. Avelo Roy and the list continues. The one thing all the budding entrepreneurs required immensely is the support of the respective state as well as central government to expand their horizons and visions to do those jobs that are not yet done, with a completely innovative and holistic approach which most of the common people ignores. Let us now take a practical illustration. ‘Bollywood Music’ which is commonly stated as “The Imitator’s Den” since a long time. But the negative stereotype can be changed as the Indian Classical Music as well as the Indian Folk songs are world famous which bears the strong and rich culture of India which can be implemented in the modern songs with of course a bit of innovations without doing more and more “Recreations/Remixes/Re-editions”. Eventually, that can give rise to more employment opportunities in the music industries. But, the big Indian music labels always try to remake the old popular songs which already did a good business globally for the albums. Rather they prefer not to make the original creations (tracks) mostly with a view that if they do so, the song(s) may not be as popular as the old popular songs where another recent trend for the same is the
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YouTube views (in Millions or Billions). Here, we can really find that ‘quantity matters over quality’ where a lot of fresh and talented artists feel the pain of depression and could not get the opportunities to come in limelight showcasing their talents. To be more specific Film & Entertainment industry creates an assortment of multifarious sectors and perhaps the biggest area to promote goods and services. On the other hand, “Make In India”, “Skill India” etc. campaigns need to implemented more scientifically at a faster rate to cope up with the current economic scenario where Recession is officially declared in the nation. Another point should be taken into consideration is that ‘Vocal For Local’ campaign can be more easily implemented if the so called ‘Celebrities’ of different fields endorse it and promote it for their motherland. It can be more acceptable to the common mass through those means of publicity as in India, the common people overall treats the Celebrities almost like God and always try to follow them, whether they are from Sports or Films or any other creative environments. Lastly, the Government along with the NGOs should take more and more initiatives to literate especially the BPL cardholders and the major rural population who are yet to receive the light of education in the 21 Century and cuddle them more as the famous concept “Survival of the Fittest” is still applicable in the society. Then only the motto “Vocal for Local” can be fruitful in actual sense. st
We, The Citizen of India, thereby need to be optimistic and hope for the best reminiscing the famous words of Rabindranath Tagore:-
“If you cry because the sun has gone out of your life, your tears will prevent you from seeing the stars.”
India – A Currency Manipulator?
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By: Dhivya G (IIM Kozhikode) Currency manipulation is a way in which the country can gain an unfair advantage over its trading partners. It happens when a country keeps the value of its currency artificially low to make its exports cheaper and imports more expensive in hopes of building a trade surplus. So, how does the country do this? The country sells its currency and buys other currencies mainly dollars on the open market. Let us understand its impact on a much bigger scale. Between 2003 and 2013, 20 countries engaged in excessive and often repeated purchases of foreign currency. Research indicates that the driving cause of record trade imbalances during this period was due to currency manipulation by China and other countries. For example, if China had not manipulated its currency, it would have not had a large trade surplus. And if China and other countries had not intervened so much the US trade deficit would have been 35% smaller. As the Federal Reserve sought to keep the US economy at full employment despite losing export jobs it kept interest rates low which made the housing bubble larger and the resulting recession more severe. Currency manipulation cost the US more than 1 million jobs after the housing crash because of the slowed down economic recovery. Recently, the US has put India Back on the Currency Manipulation Watchlist. What does it mean for Rupee? When the Reserve Bank of India (RBI) shows a pressing desire to buy the Indian currency by selling the US Dollar, eventually it leads to an appreciation in its value. And when they start selling the rupee in exchange for dollars, then the value of the rupee depreciates. It’s a simple thought process. US added India to the watchlist after the RBI made continual dollar purchases, leading to forex reserves rising by $100 billion this fiscal. How is the scenario perceived and what is its impact on the economy? Bankers expect that it could lead to the rupee appreciating as the RBI would possibly back away from its dollar purchases. In the economic context, a stronger rupee would partially counteract the impact of rising oil prices on imports. Devaluing the rupee helps India to further open the economy to foreign investors. Thereby, it poses a way for India to support economic recovery and bolster long-term growth. As per the Treasury, India’s huge domestic demand decline and slower recovery in comparison to its key trading partners contributed to the economy’s first four-quarter current account surplus since 2004. For many years, India has maintained a remarkable bilateral goods trade surplus with the United States, which added up to USD 22 billion in the four quarters through June 2020. Even the US treasury praised the RBI for being transparent about its intervention. According to RBI’s statement, rupee value is chiefly determined by the market, and intervention is used only to curb disproportionate volatility in the exchange rate.
To conclude putting India back on the list, the US Treasury used three criteria to judge currency manipulators.
1. A bilateral trade surplus with the U.S. of more than $20 billion over 12 months.
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To put it in simple words, if India exports more to the US and then don’t import a lot, India has to make sure that the difference doesn’t go beyond $20 billion. The crux here is to understand that if India exports its products at cheap prices in the US, then it hurts local manufacturers in America. 2. A current account surplus exceeding 2% of GDP Implying, if India’s exports far exceed its imports, it might be a potential sign of using a devalued currency to export cheaper goods. 3. Net purchases of foreign currency exceeding 2% of GDP over 12 months Meaning, India is buying a lot of foreign currency and selling too little. Overdoing the same can be an indication that the country is deliberately strategizing to devalue the rupee according to the US. India has breached the limits concerning the first and third criteria. The country has not yet been branded as a currency manipulator. They have just put the country on the watchlist which also includes other countries like China, Japan, Korea, Germany, Italy, Singapore, Thailand, Taiwan, and Malaysia. So, what could be the consequences after a country gets branded as a currency manipulator? Let’s consider the US and India, the current scenario itself. Mostly the US would work with India in a bid to correct this disparity. If their suggestions aren’t followed, then there will be some backlash. According to a report by Reuters, there is a possibility that the US could ceil access to government contracts and development loans to India in the event of violating the tacit arrangement.
It is clear that it is not a good thing to be on this list. Let’s wait and see how India continues to look after its interest without breaching the other criteria.
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The Impact of COVID-19 On Global Economy By Abhimanyu Mukherjee (KIIT School of Management) The global pandemic of COVID-19 has created a human and financial emergency like never before. The global economy is encountering its most profound recession since World War II, upsetting financial balance, travel, supply chains, and that's only the tip of the iceberg. Governments have come up with lockdown actions and stimulus plans, yet these activities' effectivity has been erratic across nations. The most vulnerable communities have been severely influenced, both with respect to losing their jobs and the virus's spread (Jurczenko, 2020). The ill-effects of COVID-19 was first suffered by China, the second-largest economy across the world. The radical lockdown, which required various reputed manufacturing and retail organizations to shut or diminish their business operations, has awfully hindered the Chinese economy. As indicated by the China Enterprise Confederation (CEC) report on March 6, more than 95 percent of the 299 huge manufacturers scrutinized have seen a fall in revenue. As far as consumption, retail sales in January and February decreased by 20.5 percent. Although the consumption began to be affected by the pandemic in January, all retail sales excluding essential commodities were suspended as of February for nearly the entire month (Jurczenko, 2020). In the USA, with the quarantine measures persistently diminishing financial activities, the financial specialists of Morgan Stanley have anticipated a drop of 30% in consumption. Besides, unemployment is coming to roughly 12.8 percent in the following quarter. Undoubtedly, the impact of the pandemic can't be trifled with as it influences everybody. The tourism industry is likely to face the toughest challenges because of governments' travel restrictions around the world (Canuto, 2020). With the vulnerability lying behind COVID-19, the global industry will become volatile this year, with no global progress. As indicated by the Organization for Economic Cooperation and Development (OECD), in 2020, the global economy will face a sharp decline of 2.4 percent, followed by a growth of around 3.3 percent in 2021. Tom Rafferty, Chief financial expert of The Economist Intelligence Unit, China, opines that by one year from now, the global demand and supply should become normal once again. However, to accomplish this outcome, policymakers must scrutinize strategies to moderate the austerity of the impact. Yet, the virus remains the last factor to enable nations to return to their normality. The pandemic will keep on upsetting the global market, and hence, it is crucial for us to traverse this difficult time effectively (Abodunrin et al., 2020). The following is a review of industries we expect will be influenced most severely by the Covid flare-up. Hospitality, Tourism and Cruise Ships Many nations keep abridging inbound the travel industry, particularly from countries with a high number of COVID-19 cases. The European Union's industry chief evaluates â‚Ź1 billion losses for
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every month in the travel industry because of the COVID- 19 impact. The most significant loss, felt globally, comes from a decrease in tourists from China, which delivers a lucrative market for the travel industry and a massive populace of luxury product buyers (Macksoud & Schrag, 2020). Cruise operating companies expect a greater hit than envisioned because of travel restrictions in Asia. In case the suspension of cruise operations in Asia endures throughout the year, losses will add up to $385 million to $445 million. Operators not dropping trips have adjusted itineraries because of the COVID-19 (Ozili & Arun, 2020). Eatery and Entertainment Restaurants and the food business will be enormously impacted. A few huge chains have cumulatively shut their outlets in China since the flare-up. Suppliers anticipate that price of the raw materials and protein will go up significantly (Macksoud & Schrag, 2020). Venues for mass gatherings, for example, museums, halls, and galleries will likewise be impacted. The Louver in Paris is shut as a Covid safety measure. An important rugby match between Italy and Ireland was postponed and rescheduled. A prominent global furniture fair in Milan has been rescheduled as well as the nation has executed stringent travel restrictions to stop the spread of COVID-19. Some even anticipate the cancellation of the Olympics. Medicines and Healthcare The US Food and Drug Administration (FDA) requires cultivators, suppliers, and manufacturers under its control to report the agency regarding possible supply disturbances. The FDA's statement revealed that due to the COVID-19 pandemic, one drug is already facing issues with supply. But the FDA did not reveal its name, the producer, or where the medicine or its ingredients are made, referring to "confidential business data." India's drug industry expects supply issues associated with the Covid. The Trade Promotion Council of India calculates that 85 percent of India's active drug ingredients are from China. Also, 66% of imports of bulk medications and medication intermediates in 2018 and 2019 were from China (Macksoud & Schrag, 2020). Airlines With international air travels expected to succumb, the International Air Transport Association (IATA), the global airline industry's trade body, expects falling tourist demand to result in $29 billion in lost profits this year alone (Ozili & Arun, 2020). As a result of the dropped flights to and from China, several significant airlines have carved out strategies to cut costs, drop some pipeline projects, and offer intentional, unpaid leave to workers.
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Airliner producers are likewise impacted because of the closure of manufacturing plants in China that produce parts and complete facilities (Abodunrin et al., 2020). Containership administrators have dropped plenty of sailings from China.
Shipping The global shipping market has been influenced by the Covid pandemic and delayed shipments to and from China. Container-ship administrators have dropped more than 40 sailings that were supposed to show up at the Port of Los Angeles between mid-February and April 1, 2020, bringing about a 25 percent drop in container volumes. Even though force majeure statements are conjured by shippers and charterers, such provisions are not accessible to specific proprietors who control their own vessels (Macksoud & Schrag, 2020). Final Words Although it is hard to decide the specific impact the Covid will have on the world's economy, it is clear the effect will be inescapable. Regardless of whether the tide changes rapidly and the infection's spread is abridged, its effect will probably remain for a long time. Economists must find a way to traverse this hard time effectively by addressing liquidity issues or supply chain or merchant interruptions. References Macksoud, L., & Schrag, S. (2020). Covid-19 and its impact on the global economy. Retrieved 25 December 2020, from https://www.dentons.com/en/insights/alerts/2020/march/11/covid-19-andits-impact-on-the-global-economy Jurczenko, E. (2020). What is the Impact of COVID-19 on Global Economy? | By Emmanuel Jurczenko – Hospitality Net. Retrieved 25 December 2020, from https://www.hospitalitynet.org/opinion/4098208.html Ozili, P. K., & Arun, T. (2020). Spillover of COVID-19: impact on the Global Economy. Available at SSRN 3562570. Canuto, O. (2020). The Impact of Coronavirus on the Global Economy. Abodunrin, O., Oloye, G., & Adesola, B. (2020). Coronavirus pandemic and its implication on global economy. International journal of arts, languages and business studies, 4.
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How India Can be a Competitive Player in the International Fruits Market by Attiso Bhowmick (University of Agricultural Sciences, Bangalore)
PRODUCTION VOLUME (MILLION METRIC TONNES)
When the horticultural sector is Production volume of fruits in considered at par with the industrial sector India(Source: National Horticulture with its 30 percent share in the nation’s GDP, Board) it may come as a surprise to know that the 120 international export of fruits is not a major 100 source of revenue for the country. Although 80 the heightened awareness about immunity 60 during the COVID pandemic has increased 40 20 the demands for fresh fruits, it has still not 0 translated into changes in export trends of fruits. Being amply blessed with its rich agroclimatic diversity, India’s climate LAST TEN FISCAL YEARSFigure 1 provides an intrinsic potential to grow a wide rage of tropical, sub-tropical and temperate fruit crops across the subcontinent. With the vegan lifestyle becoming popular in the west, it seems to be a prime time for India to strengthen its fruits exports.
Constraints for Fruit Export Gaining a competitive advantage in the global markets is crucial to a country that is a major fruit producer. While the studies show a healthy and steady growth in domestic fruit production over the last years (Figure 1), India’s contribution to the global market still remains a meagre one percent. For instance, while India holds the position of the largest banana producer in the world, it doesn’t share a place among the top exporters globally. So, where lies the shortcomings? The dominant reason why Indian fruits fail to make an impact on the global fruit market is the dearth of standard protocols for post-harvest processing, and the supporting infrastructure and logistics to handle the large produce.
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AVERAGE PERCENTAGE OF EXPORT
Avera ge co nt rib utio n o f d i ffere nt fo o d co mmo d i t i e s t o exp o rt. (So ur ce: RB I ) 20 18 16 14 12 10 8 6 4 2 0
18 14
13 9
13 10 5 2
3
4
6 3
The supply chain in in the horticulture industry is highly decentralized. This results in lack of adequate regulations on the production of high-quality fruits pertaining to international standards. There is very little consistency between the supply and quality. The post-harvest technologies are not developed enough to handle the stringent quality checks in the foreign market. Limited capacity of warehouses and overall lack of technical support results in significant wastages and deteriorating quality of the produce.
Meat and meat products Fish and Fish Products Fruits Vegetables and oils Dairy products Milled Grain Products Industrial Starches Animal feed Bakery products Sugar Chocolate Others
Figure 2
Unfortunately, the fruits export doesn’t receive the attention it deserves. The export percentages of other processed foods, like meat and fish products, are far higher and also continue to increase at a high rate (Figure 2) when compared to the fruits export. This causes India to lose a potential advantage in international fruit markets, where it already has a niche for superior exports, if properly developed. This may seem queer where a commodity with low FOOD COMMODITIES FOR EXPORT domestic production value is given a higher priority than another one with suitable capacity for the international demands. A suitable farm size is required to consistently maintain a suitable quality and adhere to standard management practices. Small land holdings lead to lesser returns and thus decreases the quality of the overall crop. As a result, productivity becomes low which increases the cost of production and reduces the profits. This causes an erratic trend in case of export of fruits (Figure 3), although the production of fruits domestically follows a steady growth trend.
Potential Solutions
However, the vast array of complex constraints is hardly an excuse, to not scale-up India’s position in the global fruits industry. Usage of targeted products can be the primary focus to gain production advantage for specific products. Efforts are required to change the fruit industry from supply-based to demand-based. Introduction of disruptive innovations in processed fruit products, like frozen fruits and fruit juices, can offer a competitive asset in terms of pricing.
WEIGHT OF FRUITS EXPORTED (1000 TONNES)
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Exp o r t o f Fr u its fr o m In dia (So u rc e: Anan d Agric u lt u r e Un iver s it y , Ha nd b o o k of Ho r t ic u ltu r e 2 016) 3000 2500 2000 1500 1000 500 0
FISCAL YEARS
Currently the network of exporters is highly decentralized and there is no direct link between the producers Figure 3 and the exporters. Institutionalizing the scattered network of exporters and correspondingly setting up of associated infrastructure for quality control, sample testing for optimum TSS content, and certification following international norms can significantly increase the volume of exports. Amendments of the APMC Acts to better strengthen the farmer-exporter relationship can result in better quality produce.
Conclusion Excelling in the International Fruits Market offer better trade alternatives for diversification of Indian Agriculture as a whole. This can serve as dual benefits of reviving India’s position as a key exporter and can also serve as a source of more income for the farmers, thus paving the way for sustainable rural development. This can serve a key role to boost the country’s revenue and bottleneck the adverse economic effects of the post-pandemic recession. At a time when India is deeply involved in an agrarian crisis, it seems that strengthening India’s position as a Global Fruit Bowl can shift the paradigm for a better look more towards an international outlook.
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Dumping, Tariffs and the Neighbours By Devansh Gupta(SGGSCC) Dumping – a rather common practice in international trade – simply stated, is a transaction where a country exports its products to another country at a price which is below the price expected by the latter country. However unfair for an economy, “dumping is legal under World Trade Organization (WTO) rules unless the foreign country can reliably show the negative effects the exporting firm has caused its domestic producers.” The process of dumping is advantageous for the exporting country, but only in the short term, since, in the long run, the cost starts to increase. There is no advantage for the importing country. Talking of disadvantages, the exporting country faces the risk of getting blacklisted in the trade market for excessive and routine dumping of goods, and the importing country, clearly, has a direct negative impact on its domestic markets. The Neighbours, which the title talks about, are none other than Republic of India and People's Republic of China. The two countries have recently been in a defence spat over tensions at the border. This has further led to economic tensions between the two economies and has disrupted their trade practices. While China finds itself on the podium of leading economies of the world, India stands three positions below. China accounted for over 5% of India’s total exports in financial year 2019-20 and more than 14% of imports, Bloomberg reported. In the financial year 2019-20. In other words, India is running a massive trade deficit with China, India's largest exporter. According to the Ministry of Commerce, the goods that are imported into India comprise of smartphones, electrical appliances, power plant inputs, auto components, finished steel products, capital goods like power plants, pharmaceuticals
and chemicals, among others. Chinese FDI into India has also increased over the years, pertaining to the rise in possible growth of startups that Chinese firms have accessed in Indian markets. Although, this being a positive characteristic for the macro economy, it sometimes negatively results into increased control of Chinese firms over Indian companies, and also the dominance of such firms in Indian goods’ markets. This is evident from the recent ban on Chinese Apps by the Government of India, which
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were being used by a majority of Indian population. “Such Chinese apps harvest more than normal amounts of data as compared to other social media apps, posing security concerns for India,” the Gateway House said. Major start-ups running in India are backed by investments and funding from Chinese investment and finance giants, like Alibaba, Tencent and ByteDance. China mainly enters the Indian FDI market through these funding and ventures. Another case in point is the smartphone industry, 72% of whose share is led by companies like Oppo, Vivo, Realme and OnePlus; all of them being of Chinese origins. The companies have proven a tough competition for Indian smartphone manufacturers like Micromax and Intex, which have almost been thrown out of existence.
Another crucial aspect of International Trade is Tourism. And, the tourism industries of both countries have seen growing numbers with respect to travel. The main traffic comprises of businessmen and working professionals, while a smaller portion is of students and casual tourists. However, the percentage of tourists coming from China is very small. Statistics reveal that foreign exchange earnings from Tourism in India have shown a rising trend, with figures for 2019 being around $30.6 Billion. Countries use Tariffs in the form of anti-dumping duty, to protect their domestic markets from the negative influence. These tariffs are applied to foreign imports of various goods, which are deemed to be dumped in the importing country. The Directorate General of Trade Remedies of India releases notifications regarding such cases. On as recent as 2 October 2020, numerous notifications were released for products ranging from Décor Paper (by ITC Limited) to Float Glass (by AIFGMA). China's trading policies in India stand as a testimony to Beijing's unfaltering take on foreign trade – exporting its over-supply to another market, crushing prices and crippling indigenous manufacturing. A Parliamentary Standing Committee on Commerce said in its report, “At a time when there is an urgent need to stimulate our manufacturing sector to at least 25% of the country’s GDP, Chinese imports have thrown a spanner in the wheel of India’s economic progress per se and industrial manufacturing in particular”, which is a very valid observation. The report went on to cite solar panels as the main product being dumped into India. China is the world’s largest producer of photovoltaic solar panels. The talks on dumping by China cannot be complete without talking about Pharmaceuticals. Recently, evidence has been found against China for dumping “Ciprofloxacin”, an antibiotic used to treat a number of bacterial infections. Compared to Chinese imports, the domestic drug has a
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price disadvantage of up to $3.3 per kilogram, which is quite substantial. The DGTR has recommended anti-dumping duty of $0.94 per kg to $3.29 per kg.
I would like to conclude this article by mentioning that dumping as a concept is indeed a harmful practice for international trade, and should be minimised, for the sake of all economies and to promote the practice of fair trade.
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Is India in the Mode of Recovery and will the 2021-22 Budget be able to revamp the economy? By Rashmi Padmawar(IIM Rohtak) RBI states that India will enter the Positive zone in Quarter 3 of the current financial year and is coming out of the pandemic faster as compared to the predictions made. Due to the deadly coronavirus, the Indian economy dipped by 23.9% in the first quarter of 2020 and by 7.5% in the following quarter. Real GDP is expected to be positive for Quarter 3. The Finance Ministry indicated that easing of the contraction from 23.9% to 7.5% indicates a growth of GDP of around 23%. As per the Finance Ministry’s Department of Economic Affairs (DEA), India will experience a V-shaped recovery which is evident at the halfway stage of 2021, indicating the resilience of the Indian Economy.
Recession
The pandemic posed a supply-side shock due to the lockdown which then caused demand-side shocks. The imposition of strict rules devastated the supply chains and caused various manufacturing centers and factories to shut down. This resulted in high levels of unemployment
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which reduced the labor force. Also, the pandemic led to the drying of the cashflows and investments reduced. The demand-side shocks were the aftermath of the supply-side shocks. As per Economic times, more than 19% of people lost their jobs whereas only 16% have reported having received the same salaries as earlier. Higher unemployment led to income and reduced discretionary spending. The marginal propensity to consume reduced and there was a weak sentiment in the minds of the people. The demand from all parts of the globe reduced dramatically.
Unemployment Rate
There is a sense of optimism with the significant progress in vaccines, the contact intensive sectors adapting to the virtual environment and a lower chance of the economy going back to the full lockdown with steep plunges like the ones in April - June 2020. The growth drivers have received substantial support from agriculture, construction and manufacturing. The contact-sensitive service sector has also offered support through communication and logistics. Demand for labor has increased due to a surge in Rabi sowings which has increased their income anchored by a rise in employment generation under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Inflation has been on the rise in emerging economies like India which is a challenge for the recovery to gain momentum.
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Inflation
The unemployment rate has declined from 23.5% which was the 45 years high in April to 7% in October. The Purchasing Manager’s Index (PMI) which indicates the business activity in the manufacturing and service sector, has been on a decadal high in October and the Sales numbers have revealed robust growth. India’s Industrial Output is measured using the Index of Industrial Production (IIP) which rose by 0.2% in September after successive contractions for six months. In October, there is a rise of 18% in the retail sales of two-wheelers and minuscule growth in passenger vehicles as well when compared to September. The increase in power consumption is also an indicator of the industrial and commercial activities revamping themselves.
IIP- Index of Industrial Production
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Sales of Two-Wheelers and Passenger cars
Power Consumption
The low consumer confidence has reduced the risk appetite of the consumers has reduced consumer spending. The consumer spending will recoup itself and grow in 2021 by 6.6%, as per Fitch Solutions. The retail inflation had reached 7.61% in October which was the highest since May 2014 when it had reached 8.33% but has now reduced to 6.92% in November. The high inflation rates are a major concern in emerging economies. The Consumer Price Index (CPI) has been out of the RBI’s bounds of 2-6% for a long time and needs to be controlled. The inflationary pressures hinder the Reserve Bank of India’s efforts to bolster the economy by cutting down the
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interest rates. The fiscal deficit is another challenge that makes it difficult to give money to the hands of the people.
India facing the second-highest number of Covid-19 cases around the world, in spite of strict lockdown measures, has lead to the Indian economy to contract by 10% for the financial year 2020-21. Higher spending in the budget for the financial year 2021 will lay the foundation for the resurgence of the Indian economy which will resemble a launchpad for the years to come. Nirmala Sitharaman, the finance minister of India suggested that the government will ease the spending because if spending isn’t fueled it indicates deferment of the revival. The government will boost public spending by rolling the highest ever outlay of capital expenditure and it is also likely that the Budgeted Capex exceeds by 6-7 lakh crores. The government aim on large infrastructure projects which will create jobs and reduce unemployment. They aim to invest money in the economy so that high-quality spending creates a multiplier effect and the economy is revitalized. The ballooning fiscal deficit may not pose a huge problem because the GDP contraction this year will lead to a smaller base for the subsequent year leading to the debt-GDP consolidation. The investments in the farm infrastructure spending and healthcare spending with the augmentation of cold chain facilities will fortify the Indian agriculture and healthcare sector.
This is the time to focus on revamping the economy and fiscal discipline may be on tradeoff but this will underpin the demand and may aid use to bring the economy back to normal. Once the economy is set to its track of recovery, the crowding in effect will do its wonders, and lure firms to invest more creating new opportunities. Hence, if these measures are taken into consideration and implemented as per the plan, India will soon be soon set on the road to recovery and this will strengthen the Indian economy in the long run.
References:
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1. https://www.thehindu.com/business/Economy/indias-consumer-spending-to-return-togrowth-in-2021-fitch-solutions/article33213500.ece 2. https://www.businesstoday.in/current/graphics/is-indian-economy-in-recoverymode/story/422896.html 3. https://timesofindia.indiatimes.com/business/india-business/indian-economy-reviving-atunforeseen-pace-rbi/articleshow/79937543.cms 4. https://economictimes.indiatimes.com/news/economy/indicators/indian-economyreviving-coming-out-of-pandemic-slowdown-at-unforeseen-pace-saysrbi/articleshow/79937379.cms 5. https://economictimes.indiatimes.com/news/economy/policy/indias-next-budget-to-focuson-boosting-growth-says-finance-minister/articleshow/79551411.cms 6. https://www.moneycontrol.com/news/business/economy/exclusive-budget-2021economic-revival-top-priority-modi-govt-plans-public-spending-boost-6202471.html 7. https://economictimes.indiatimes.com/news/economy/policy/indias-next-budget-to-focuson-boosting-growth-says-finance-minister/articleshow/79551411.cms?from=mdr 8. https://www.livemint.com/news/india/why-india-needs-more-than-liquidity-dreams11589906290239.html 9. https://www.business-standard.com/article/economic-revival/india-s-economy-isreviving-and-festive-season-s-online-sales-show-it-120111300183_1.html 10. https://www.financialexpress.com/budget/budget-2021-expectations-where-will-modigovt-raise-money-from-where-will-it-spend/216049/ 11. https://www.financialexpress.com/budget/union-budget-2021-india-plans-spendingboost-to-revive-covid-19-hit-economy/2160651/
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Infographic:
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Data Analytics in Trade: Portfolio Construction Using R By Aparna Pathak (Goa Institute of Management) Data science is math that is sprinkled with an understanding of statistics and programming. The impact big data in the financial world is more of a splash than a ripple. The technology is advancing at an exponential rate and the consequences are far-reaching. Increasing complexity and massive data generation is changing the way industries operate and the financial sector isn’t an exemption. Finance and trading rely on precise inputs into business decision-making models. A few years ago, numbers were crunched by humans and decisions made based on inferences drawn from calculated trends and risks. Today, this functionality is usurped by computers. They can compute at mammoth scale, and draw from a multitude of sources to come to more accurate conclusions instantaneously. Leveraging data analytics in trading Financial analytics is no longer just the analysis of prices and price behavior but integrates the principles that affect prices, political and social levels. Big data analytics can be used in trading for construction of optimal portfolio. Increasing access to big data results in more precise predictions and thus the ability to more effectively alleviate the inherent risks associated with financial trading. Earlier, trade experts crunch data in order to make an effective portfolio. The paradigm is changing though. As traders realize the value and advantages of accurate extrapolations, they achieve with big data analytics. Portfolio optimization using R I tried to optimize a portfolio using excel as part of my second-year project in MBA. But as a student of Big Data Analytics, I tried to leverage data analytics for optimizing the same portfolio but this time instead of using excel, I used R and the results were quite fascinating. I first installed the required libraries for the portfolio construction
I took the following stocks for analysis Abbott India Ltd.
Reliance Industries Ltd.
Marico Ltd.
Kotak Mahindra Bank Ltd.
After that, I downloaded three years’ stock prices of these companies
Pfizer Ltd.
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Next, I calculated the monthly returns for these stocks. I have used the logarithmic returns.
Since the data was in tidy format, I have used the spread () function to convert it to a wide format. Tidy data is a specific way of organizing data into a consistent format. And, I also converted it into a time series object using xts () function.
Next, I calculated the mean monthly returns for each asset.
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After calculating the mean monthly returns, I calculated the correlation matrix for all these stocks and then annualize it by multiplying by 12 (since I have taken monthly returns).
Variance-covariance matrix
Correlation matrix
To calculate the portfolio returns and risk (standard deviation), first I created the random weights
Since the sum of weights is more than 1, I divided each weight with sum of wights to get a sum of 1
After this, I calculated the annualized portfolio returns
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Portfolio risk (Standard deviation).
Sharpe Ratio
Running this code on 4000 random portfolios. I ran this code on 4000 portfolios. But, before that, I created empty vectors and matrix for storing the values. The first few values are
Now there are weights in each asset with the risk and returns along with the Sharpe Ratio of each portfolio. I tried to compute the values and graphs of the following  
The minimum variance portfolio The tangency portfolio (the portfolio with highest Sharpe Ratio)
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AS per the graph, the Minimum variance portfolio has minimum weight allocation to Reliance. The majority of the portfolio is invested in Marico and Abbott. The tangency portfolio
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This portfolio has most of the assets invested in Kotak bank. One of the best performing stocks over few years. Finally, I plotted all the random portfolios and visualized the efficient frontier.
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A risk averse investor will demand a highest return for a given level of risk. In other words, s/he will try to obtain portfolios that lie on the efficient frontier. I got the same results using both excel and R. But, undoubtedly constructing an optimal portfolio in R is much easier and more interesting than in excel. The empire of R language is increasing day by day, and it has been extensively used in Finance sector. Since R is one of the latest cutting-edge tools, it’s used by millions of analysts, researchers, and brands such as Google, Facebook, Bing, Accenture, Wipro to solve complex issues.
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