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FROM THE EDITOR
The Financial Bulletin Money Matters Club IBS, Hyderabad Estd.—2005
Dear Readers,
Editorial Enquiries Contact Money Matters Club Contact No 09704996750
It gives me the immense pleasure to come up with the July 2015 issue successfully. We are
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Month” award , Rochelle Lewis & Marushka D’Silva from XIMR, Mumbai for their
Newsletter Swarnendu Coordinator Chakravartty
outstanding write up on “Implementation of
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FB
The Journey of the “People’s President” By Vivek Pudota, Kedar Chinchanikar, Archit Athani, IBS Hyderabad
“The man who acted as a powerful filter to the
Kalam earned money for the first time when he
dreams of youth, he made us to learn how to balance
was eight years old, he used to collect tamarind
our dreams and become successful”. He guided and
seeds and sell them to a provision store on Mosque
inspired not only the youth of this country but the
Street. A day’s collection would fetch him one An-
entire world.
na. He also delivered newspapers to the households of Rameshwaram and earned money. He felt surge of pride in earning his own money for the
Birth of The future scientist who changed the fate of this country’s technology and ignited minds of youth: It might be a day where another boy was born in this great country, but no one ever thought he would
first time. Abdul Kalam experienced the taste of social inequality when he was studying fifth standard at Rameshwaram elementary school, a new teacher who came to his class noticed that Abdul Kalam
become a great teacher, scientist and a leader, who
wearing a cap is sitting next to his best friend Ra-
lifted the country on his shoulders by being the
manadha Sastry who wore a sacred thread. The
mastermind of the most important technological
teacher could not digest the scene of a Hindu
innovations and research developments of this
priest’s son sitting with a Muslim boy. So he asked
nation.
Kalam to go and sit in the back bench. Kalam felt
Avul Pakir Jainulabdeen Abdul Kalam was born on
sad and after school both of them informed to their
15 October 1931 to a Tamil Muslim family in the
parents and they summoned the teacher and
temple town of Rameshwaram in the state of Tamil
warned him not to spread social inequality and
Nadu. His father's name was Jainulabudeen, a boat
communal intolerance in the minds of young chil-
owner, and his mother Ashiamma, a housewife. He
dren. Later, the teacher regretted his behaviour and
lived in an ancestral house along with his parents in
the strong sense of conviction conveyed by the
the mosque street, and the famous Shiva temple of
Lakshmana Sastry reformed the young teacher.
Rameshwaram was just a ten-minute walk from his
The youth of this nation are indebted to Kalam for
house. Even then people of both religions live very amicable with each other. The high priest of Rameshwaram temple and Abdul kalam’s father
his role as a teacher and guide for his messages and ideas, on how the students should work hard to become successful. He always travelled through
were very good friends. One day Kalam asked a question to his father about the relevance of prayer and he replied “When you pray,” he said, “you transcend your body and become a part of the cosmos, which knows no division of wealth, age, caste or creed.” 3
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FB every part of India visiting many educational
Here it laid the foundation for Abdul Kalam’s
institutions to give guest lectures to students and
fascination to fly, He used to watch the cranes and
sharing his insights and his future dream of Vision
sea gulls and was fascinated by mysteries of skies
20-20 for the aspirations of millions of Indians.
and convinced himself that one day he too would
Abdul Kalam always mentioned that in his life teachers played a very important role. Kalam mentioned that his First teacher Sri Siva Subramania Iyer, a science teacher who taught him in Fifth
standard, One day after the class he asked students whether they had understood the topic or not, when they said they didn’t, He invited the entire class to the sea shore of Rameshwaram and explained them through practical examples which made students to understand more and loved the teacher who influenced him greatly and helped him to shape his life.
Abdul Kalam went on to quote in his book “Indomitable Spirit” that “Learning needs freedom to think and freedom to imagine, and both have to be facilitated by the teacher”. After the Second World War was over and India’s freedom was imminent Gandhiji declared “Indians will build their own India”. The whole country filled with unprecedented optimism and this inspired Kalam to move from his hometown Rameshwaram
to District Headquarters Ramanthapuram for better education.
soar up into the skies. After completion of his secondary education at Schwartz Kalam had taken the decision to go for higher secondary education and in 1950 he joined St. Joseph’s College, Trichy.
Kalam was self-confident with determination to succeed by the time he joined the college. It was here Kalam acquired a taste for English Literature and he began to read great classics such as Tolstoy, Scott and Hardy. He also developed a great interest in Physics, He looked at it “As the path of science can always wind through the heart.” He always felt that for him “Science has always been the path to spiritual enrichment and self-realisation”. Kalam joined B.Sc. degree course at the same college after his secondary education as he was unaware of any other option of higher education. As soon as he obtained B.Sc. degree Kalam realised that Physics was not his subject as it didn’t reach his heart. So, he decided to join engineering in one of the prestigious colleges in those days i.e. Madras Institute of Technology (MIT), which was regarded as the crown jewel of technical education in South India. But admission to this institution is an expensive affair, at that time his sister Zohara
He felt that his enthusiasm has increased once he joined
the
Schwartz
High
School
in
Ramanthapuram, There he had another Teacher Iyadurai Solomon who acted as a perfect guide to students with eager young mind that was yet uncertain of the possibilities and alternatives that lay
before it. 4
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FB came to his rescue mortgaging her gold ornaments
declared it dismal and disappointing. Kalam
to arrange money for his admission into MIT.
requested a month’s time but he was given only 3
At MIT Kalam was fascinated by the sight of the two decommissioned aircraft displayed there for demonstration of the various sub systems
days’ time to finish the design and submit it to the professor. Kalam was dumbstruck as if he couldn’t meet the deadline his scholarship would be stopped. But Kalam proved himself
of flying machines. He felt a strange
that he is capable of doing a task in
attraction towards them and sat near
much lesser time, on the third day
them for long hours. This admiration
when Kalam was near completion
towards skies made him to choose
Prof. Srinivasan came to his room,
Aeronautical Engineering.
after examining his work he hugged
During his course duration at MIT, Kalam
him affectionately and said “I never
mentioned that three teach-
expected you to perform so well.”
ers had shaped his thinking and he felt
Here we can see Kalam’s dedication
that their contributions formed the foun-
and hard work which made an impos-
dations of his professional career which
sible task as possible.
later he built from these experiences and
learning. The Teachers were Prof. Spander, An
After his graduation from MIT Abdul kalam
Austrian with rich practical experience in aeronauti-
Joined Hindustan Aeronautical as a trainee in
cal engineering who taught technical aerodynamics,
Banglore. He got 2 opportunities to grow his
Prof. KAV Pandalai who brought a fresh approach
carrier one was carrier in Air Force in Dehradun
to the course of aero-structure design and analysis
and the other one was a job at Directoorate of
and Prof. Narasingha Rao a Mathematician who
Technical Development and production DTD&P
taught theoretical
aerodynamics. Kalam always
(air) at ministry of Defence in Delhi. Kalam was
felt that Aeronautics is a very fascinating subject
very keen to join the Air Force so he went to Deh-
and he felt “it contained promise of freedom”.
radun for the examination and stud 9th among 25
Dr. Kalam mentioned in his autobiography that his final year at MIT was a year of transition and was to have a greater impact on his later life. When Kalam finished his course work, he was assigned a project to design a low-level attack aircraft along with four other colleagues. Kalam took up the responsibility
candidates but the slots available were only 8. He was
Disappointed,
discouraged
he
visited
Rishikesh for some peace and quiet. He was aquiented with Swami Sivananda.who encouraged him and motivated him to pursue his carrier in other potion.
of preparing and drawing the aeronautical design.
A teacher plays a very important part in a person’s
One day, the design teacher, Prof. Srinivasan, then
life.All his life Dr. Kalam gave importance to
director of MIT reviewed Kalam’s progress and
teaching and mentoring of young minds it might be
5
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FB because he received the guidance and mentoring
During this period Dr. kalam was under the men-
from right people at the right time who made him
torship of Dr. sarabhai. He had a very strong im-
best at what he do.
pact on Abdul kalam. While describing Dr.
After Dehradun Abdul kalam opted for the second
Sarabhai kalam used to say,” He was an ideal ex-
option
perimenter and inventor.”
which
was
DTD&P
at
Ministry
of
Defence.He was selected as Senior Scientific
India was not very progressed nation about the
Assistant in the year 1958.in his first year under the
missile and its technology. Before British rule in
supervision of R.Varadharajan he designed
1799,when Tipu Sultan was killed in the battle of
a
Supersonic Target Aircraft.
Thurukhanahally by British, they captured 700
Looking at his potential he was included in the
rockets and 900 subsystems of rocket. After that
design of DART team. Government of India
the initiative to progress in the field of missiles
established
Development
was taken by Pandit Javaharlal Nehru and Dr.
Establishment (AED) at Banglore. Kalam was now
Sarabhai. they decided to make Rockets, Satellite
working for 3 years and hence he was posted to
Launch Vehicles (SLV) and satellites.
AED. There they undertook the project to design
sarabhai had his eye on kalam who was being nur-
hovercraft. they named it “NANDI” after the mount
tured under his wing. He entrusted Kalam and a
of Lord Shiva. Former Defence Minister Mr.
team with Rocket Assisted take-off System
Krishna Menon took an avid interest in this small
(RATO) for military aircraft. Dr. Abdul Kalam
project. When the project was completed he took the
was also inducted as a Member of Missile Panel.
ride on the hovercraft despite being warned by the
The year 1963 to 1980 was a very tough path in the
Group Captain, and the driver of the hovercraft was
life of Abdul kalam. He joined Indian Space Re-
none other than Abdul Kalam.
search Organisation (ISRO) and over the years
Mr. Menon recognized the hidden potential in Abdul
held many positions. He became the Project Direc-
Kalam and sent him a call for an interview for the
tor of the SLV-3 project.
post of Rocket Engineer for Indian Committee for
On 10th august 1979,Dr. Kalam faced with one of
Space Research (INCOSPAR).t he interview was
the biggest disappointments of his life. It was the
taken by Mr. Menon and Dr. Sarabhai. Abdul Kalam
launch of their first SLV-3. SLV has 4 stages, first
was selected.
stage was very smooth but the second stage failed
Aeronautical
Dr. kalam worked at NASA at Langley Research Centre (LRC) in Hampton, Virginia and from there he went to the Goddard Space Flight Centre (GSFC) at Greenbelt Maryland. Kalam was in charge of rocket integration and safety for the first launch of
Nike-Apache Launch. The launch was a success. 6
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Dr.
FB and the result was failure to launch. Dr. kalam took
country, dedication, hardwork is an inspiration to
the responsibility of the failure and face a lot of
the youngsters.
criticism. Dr. Dhawan was the person who stood by Abdul Kalam and gave him strength and motivated him.
When K.R Narayanan’s presidency rule came to an end; the nation was looking for an inspirational leader and in came Dr. APJ Abdul Kalam. Famous
th
And on 18 july 1980 India launched its first ever
for his works as a scientist in the field of
satellite into the orbit successfully. It was named ”
Aeronautics, India made him the president for a
ROHINI”. The whole country was
overjoyed.
period of 5 years. In the 2002 election, he
Every Indian was proud of being an
Indian. Dr.
surpassed Laxmi Singhal to become the 11th
Abdul kalam was awarded Padmabhushan in year
President of India. It was an easy win for Abdul
1981 for his achievements in the field of Science
Kalam.
and Technology. Dr. Kalam was Appointed as DRDO Director in
Kalam moved into the Rashtrapati Bhavan on 25th
1982.Indian government decided to implement
July 2002. He was the third president who was
India’s
Missile
honored with the Bharat Ratna, India’s highest
Development Programme (IGMDP). Under this
civilian award before being a president. Known to
programme DRDO was going to design 5 missiles
the world as the Missile Man from India, Kalam
PRITHVI, TRISHUL, AKASH, NAG, AGNI.
did some exceptional work in the Parliament for 5
prestigious
Integrated
Guided
years.
First missile to launce was TRISHUL in September 1985.
It is very difficult to describe a
The launch was a success. After
man who has so many things to
the success of TRISHUL, AGNI
talk on. Though, there are certain
and AKASH were also tested and
moments and stories which stay
they were also a success.
with us for a long time. Kalam
There was no one else more deserving
for
the
Padma
was known as the “People’s President”. The toughest decision he ever took
Vibhushan in the year 1990.
during his reign as a president was the “Office of
In the year 1991 Dr. Abdul Kalam wanted to retire
Profit Bill.” However, there were people, me, you,
and planned to start a school for the less privileged
we who criticized him for inaction taken for 20
children.but he was not relieved by the Government.
mercy pleas out of 21. The one of that 21 was of
Dr. APJ Abdul Kalam was awarded India’s highest civilian award Bharat Ratna. His work for the
7
rapist Dhananjoy Chatterjee. One famous mercy plea was that of Afzal Guru. I don’t think Afzal Guru deserves any introduction when I am talking
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FB about such a humble person. Afzal Guru was
In 2012, social media created a lot of buzz saying
sentenced to death by the Supreme Court in 2004.
that APJ Abdul Kalam would be nominated for his
The sentence was scheduled to be carried on 20
th
second term after Pratibha Patil’s term expiry. BJP
October 2006 but as Guru’s mercy plea had no
said that it would support Kalam id Congress,
action on it, he was kept in the death row. His
Samajwadi Party or Indian National Congress
controversial decision regarding the President’s Rule
proposed him for president election. Mulayam
in Bihar in 2005 also brought a lot of criticism.
Singh Yadav and Mamta Banerjee also gave support. After some days, Mulayam Singh backed
However, Kalam was seen as an inspiration for
out leaving Mamta Banerjee the sole supporter for
many. People from all over the world wanted to hear
Kalam’s president election. However, the hopes of
from him. He did not stop giving lectures in colleges
the young people on social media were dashed
and universities. In 2003, during a lecture at PGI
when Abdul Kalam expressed his view of not
Chandigarh, Kalam supported the Uniform Civil
contesting in the 2012 president election poll. He
Code in India looking at India’s population.
said “Many, many citizens have also expressed the
Abdul Kalam was a very humble person. You can
same wish. It only reflects their love and affection
ask anyone who has interacted with him. He was
for me and the aspiration of the people. I am really
such a down to earth person and his writings, quotes,
overwhelmed by this support. This being their
speeches, voice suggested everything the man he
wish, I respect it. I want to thank them for the trust
was. He had a lot of belief in the youngsters. He
they
have
in
me.”
loved them and had great expectations from them calling them the future of India. With maximum of
Kalam was a vegetarian and also read “Bhagavad
India’s population in 15yrs to 40yrs, he believed that
Gita”, which is supposed to be the holy book for
India will be a super power if the young generation
Hindu’s. This showed that he isn’t a man who
worked
discriminates on the basis of religion. He might
for
the
betterment
of
the
nation.
have been a Muslim by religion but he was an th
Abdul Kalam left the president’s seat on 20 June
Indian
by
heart.
2007. He expressed his views of standing for the election again in the initial days; however, 2 days
After leaving the Office of Parliament, Kalam did
later, he decided that he won’t contest for the Presi-
what he loved to do the most. He became a visiting
dential election. He wanted to avoid Rashtrapati
professor at the Indian Institute of Management
Bhavan from any political processes. He also lost his
Shillong, the Indian Institute of Management
support from the left out parties which would have
Ahmedabad and the Indian Institute of Manage-
renewed
ment Indore, an honorary fellow of Indian Institute
his
mandate.
of Science, Bangalore, Chancellor of the Indian 8
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FB the Indian Institute of Space Science and
Technology Thiruvananthapuram, professor of Aerospace
Engineering at Anna University and an adjunct at many other academic and research institutions across India. He taught information technology at the International Institute of Hyderabad
and
technology
at
Banaras
Hindu
Information
University
and
Anna
Technology, University.
A programme for the youth was launched in 2012 by Dr. Kalam, “What can I give moment� with a central theme of defeating corruption. Kalam enjoyed
writing poetries in Tamil and also loved to play the veenai.
He also used to listen to Carnatic devotional music every day. He was awarded the MTV youth icon of the
year in 2003 and 2006. While doing his thing which he loved the most, i.e. inspiring the youth, he left the world awestruck after a cardiac arrest in IIM Shillong took him away from the World forever.
9
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FB
China's Growth Story By Sarfaraj Khwaja, IBS Hyderabad economy. It has implemented changes like free market
reforms
and
liberalization,
so
it
significantly affected the market. To improve its firm's performance and economic growth it has continued with privatisation. so, here major question arises after beating Japan's economic policy that would China be able to overtake US...! It actually depends upon the ability of the government to implement wise economic reforms and also its free market condition in dealing with the world.
China's large scale capital investment and
balancing between imports and exports had highly China is among the world's fastest growing
affected in growing rapidly. China's large scale
economies with an average of 10% GDP growth
capital investment and
yearly. In recent times, China is investing billions of
exports had highly affected in growing rapidly.
dollars in foreign investments. Also China is one of
Though China's increasing population may result
the world's top exporters. The China's success story
in higher unemployment and can affect negatively
is due to economic reforms and trade liberalization
to its economic growth but still China's improved
in the past decades. Chinese economy when
economic policy has
balanced these things.
considered the GDP shown the growth at an average
However the global
economic crisis that
rate of 9.25% annually between 1979 and 2006 after
occurred in 2008 negatively affected to China,
above mentioned reasons.
during that time imports and exports had majorly
So, what was the real story behind China's rapid
affected and many people had lost its jobs also but
growth rate, growing at such a rate means it is just
by government's positive
a little bit behind from U.S.'s
increased lending and
incentives schemes to the
beating Japan at a second place in the world. Can we
local consumption
managed to control the
determine what
situation.
economic growth
reasons are there behind China's
story, there are several factors that
balancing imports and
policy regarding banks
affected
In conclusion, by seeing China's statistics of
discussed first
economic growth, we can say that it will be able to
reason was reforms and trade liberalization, also
catch up with US and will be able to grow at
after
double rate in next decade, if the policy will be
positively to its economy. As
initiating reforms, China has made
significant changes in its economic policy, before
managed properly according to market's position.
because of its unfavourable policy, it kept its economy poor and isolated from the global 10
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FB
Make In India By Koushik, IBS Hyderabad
“Make in India”, brainchild of Mr. Narendra Modi and launched on 25th September, 2014 is a
marketing
However, in India, the companies will not be all
project to make India the new Manufacturing hub. The
Indian companies. The net effect is that India will
symbol is a striding lion (taken from India’s National
not have money
emblem) made of cogs which
The government will subsidise these
symbolizes strength,
making Industries of its own. factories to
manufacturing and national pride. This implementation
keep them running here. Indians will pay more
was followed by China’s policy of “Made in China”.
taxes to
The main objectives of “Make in are
India”
facilities. The whole game is about the
generation of jobs, eliminating
unnecessary laws, time bound is
jobs. India gets lots of jobs,
economic growth and
Investors will be rich.
project clearances. This project
Space,
Automobile,
Foreign Government
gets more income tax. But as a nation, we
targeted to benefit 25 Indian sectors
namely
compensate that and still have poor
will still have an identity crisis.
Aviation,
There goes a saying that IBM has more
Defence and so on.
than half of its employees in India. But
This policy has been designed by a creative
still, IBM has
always been an
agency known as ‘Wieden and Kennedy’. The
American company.
companies make
backend is an agency called ‘Invest India’ which is a
money in the process. Foxconn makes profits on
joint venture between Federation of Indian Chambers
every Iphone and Samsung phone they make.
of
Commerce and Industry, Department of
Industrial
Promotion and Policy and
State
However, in India, the companies will not be all
Governments.
Indian companies. The net effect is that India will
Make in India applies to any product of domestic or
not have money making Industries of its own. The
foreign based corporations as long as it was made in
government will subsidise these factories to keep
India.
them running here. Indians will pay more taxes to compensate that and still have poor facilities. The
The end result is that India will be dominated by
whole game is about the jobs. India gets lots of
overseas global corporations and they will take all the
jobs, Foreign Investors will be rich. Government
profits.
gets more income tax. But as a nation, we will
It is a common misbelief that we will have the same
still have an identity crisis.
success
India".
There goes a saying that IBM has more than half
Made in China products are all made by Chinese
of its employees in India. But still, IBM has
factories
always been an American company.
as
China
which
do
with contract
"Make
in
manufacturing
foreign product companies. This means that
for
Chinese
companies make money in the process. Foxconn makes
profits on every Iphone and Samsung phone they make. 11
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Net Neutrality
FB
MMC Diaries, IBS Hyderabad
In a very simple language, the practice of putting
regulations on the speed of internet as well as
dis-
crimination in providing the data services by the adept telecom service providers is known as net
neutrali-
ty. They change the speed of the site
business
depending on the payment they receive from the
owners who make their websites. So the reach of the site depends on how much you have paid. This is collaboratively controlled by the
Internet Service Providers and Telecom companies who have crowned them-
selves as the gatekeepers of internet services. But another side of the story is how we perceive this issue? A question that arises here is whether
boon? The not so tech-savvy people
a bane or
generally have no idea about what this issue is other than the
understanding that they should have equal speed for all the sites. But at the same time these sly owners of telecom company have been earning huge sums of money taking the advantage of little enlightenment of people. So we assume that science and technology is awareness of all the people in the society. This is a clear manipulated
12
progressing but it is not keeping pace with the example of how the people have been artfully
by
THE FINANCIAL BULLETIN | JULY 2015| www.moneymattersclub.com
the
system.
FB
Is it smart to pay bills with your credit card………..??? By Akanksha Yadav, IBS Hyderabad
In the 21st century, you might have hardly seen for shopping or for that matter any other pay bills is becoming less
anyone paying with cheque or giving cash whenever going
reason. Sitting down with your checkbook and a book of stamps to
common. Not only are an increasing number of people paying bills online
through their bank or the biller's website, more people are also choosing to pay bills with credit cards rather than direct debit from a checking or savings account. For many of us, we think Credit Card is a recent term. But, the term Credit Card was used in 1887 for the first time. It was used by Edward Bellamy in his novel Looking Backward, and he used this term for eleven times in the novel. From then till now, the definition of credit card has a revolutionary era. It kept on changing time and again. A credit card is a payment card issued to users as a system of payment. It allows the cardholder to pay for anything he buys based on the holder’s promise to pay for them. The card has a minimum balance to be maintained by the holder and to pay consequently in case of default. Paying through a credit card is a smart way of
paying. Smart pay involves a simple standing
instruction
on your credit card to ensure that you pay your bills on time every month. Using a credit card comes with it’s own
expenses.
So, before you decide to pay your bills with a credit card, it’s a good idea to consider the pros and cons of using it. THE PROS : It’s quick, convenient, and you can do it almost anywhere. Once you've used your credit card online to pay a bill, most websites allow you to securely store your payment information so you don't have to re -enter it next time. You can also set up automatic credit card payments to avoid late payments and interest charges. Most companies accept credit card payments for bills online and over the phone, so you can
13
pay
bills
when
and
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where
it's
most
convenient.
FB
The Harshad Mehta Scam By Archit Athani, IBS Hyderabad
The mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. The bank lends against government securities. The borrowing bank sells the securities to the lending bank and buys them back at the end of the period
of
the
loan,
at
a
higher
price.
A RF deal involved two banks brought together by a broker in lieu of a commission. Deliveries of securities and payments were made through the broker. The seller handed over the securities to the broker, who passed
them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. Another instrument used in a big way was the bank
receipt (BR). In a RF deal, securities were not moved
back and forth in actuality. Instead, the borrower, i.e. the seller of securities, gave the buyer of the securities a BR. A BR confirms the sale of securities. It acts as a receipt for the money received by the selling bank. It promises
to
deliver
the
securities
to
the
buyer.
Metha needed banks, which could issue fake BRs, Two small and little known banks came in handy for this
purpose. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, assuming that they were lending against
government securities. This money was used to drive up
the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and
the
money
due
to
the
bank
was
returned.
The game went on as long as the stock prices kept going up, and no one had a clue about Mehta’s works. Once the scam was exposed, a lot of banks were left holding BRs of Zero value; the banking system had been swindled of a whopping
14
Rs 4,000 crore.
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Fall in oil prices – Its impact on global economy By Atul Dhule,DMS, Pune University
Falling oil prices is one of the biggest event in the
of total revenues from oil exports, also not cut the
world influencing the global economy in both ways,
production.
positive and negative. The more prominent cause for the fall in the oil prices is excess supply of oil which in addition is fuelled by weaker demand.
Russia and Iraq announced that they were exporting more oil than ever. This further reduced the
Lower demand from Europe, China and Japan due to slowing down and the start of the shale oil production in North America resulted in lower oil prices. The falling oil prices could have been controlled to some extent if supply had been reduced. OPEC countries which contribute about 40% of the world oil production having influencing on oil prices by cutting or boosting the
The surprises have gone other way - in January,
power
production
also decided not to reduce oil
prices to record low of $49 per barrel.
These falling oil prices impacted most of the economies. Biggest gainers are the emerging markets like India and China. These countries import major portion of their oil requirement. Because of the lowered prices, import bills are reduced, CAD is narrowed down and foreign exchange reserves are increased due to less spending on import bills. Inflation is also reduced
production even though the
as prices of most of the
prices are falling, due to fear of
commodities and wages
losing market share to
are directly or indirectly
players in North America.
dependent on oil prices.
OPEC countries, specifically
So, central banks also
Saudi Arabia, hope that, if oil
eased
prices remain low for longer
policy
time, these new players will
boosting the investments
to meet break-even and they
oil
and hence the growth.
production. This
Government
regaining the
prices. Saudi Arabia can
bear less revenue as they have huge foreign exchange reserves (approximately $750 billion in Jan’15, $685 billion in June’15) to finance deficits, but other OPEC members will not prefer low oil prices for longer time as they don't have deep pockets and they may think of
has
also
taken benefit by cutting the oil subsidies and increasing the oil taxes to improve public finance. Negative impact for India, if these low oil prices continued for significantly longer duration can be lower revenues from export of refined oil products.
cutting the production. Russia, which has around 12% 15
reduced
extent which will help in
returns will not be sufficient
will result in
and
monetary
Interest rates to some
not be able to sustain as their
will stop
the
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FB The economies which are greatly impacted in negative way are the oil exporting countries like OPEC countries (Saudi Arabia, Iran, Venezuela, Iraq etc) and Russia. The impact is more significant as compared to that for oil importing countries. This is because; all these countries are more dependent on oil revenues. For example, Saudi Arabia has 90% of their revenues from oil. Russia has 45% of their revenues from oil. Russia lost its revenues through oil exports. According to some estimates, its GDP will shrink at 4% in 2015 if oil prices continue at $60 per barrel. Also, falling oil prices caused the value of Ruble to collapse, imports to become expensive, inflation to rise. So, central bank intervened and interest rates are raised to 17% from 10.5%. This again created volatility in the stock markets all over the world. The interest rate hike may slow down the Russia's growth even further because higher
cost of capital will reduce investments. Other economies which are negatively impacted are the Euro countries and Japan. These economies are already facing problem of deflation. And low oil prices will further aggravate the situation. Interest rates in EURO area and Japan are already zero, so the capability of this tool (interest rate) is limited. So, rise in oil price will help to create inflation. So, rise in oil prices will be helpful to improve the situation in these econo-
Another economy which benefited from lowered oil prices is
mies.
the US. Because of low oil prices, people will have more
Taking holistic view of the impact of falling oil prices
money to spend on other things which will boost the growth.
on world economy, central banks and governments
US may have negative impact, if this fall in prices continued.
will have to make cautious policies which will be ben-
The oil producing states in US will stop producing, which
eficial for achieving global economic stability. While
may result in loss of revenue and
doing so, one of the most volatile factor or one of the
economic activity.
greatest risk i.e. geopolitical happenings in Gulf region needs to taken into account.
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FB Japan’s social problem has somehow resulted in this economic problem. Japan’s declining birth rate has been one of the concerns. Since women are opting for less number of children, it is directly impacting the population and will soon be shrinking its GDP. The major cause of population (of age 0-65) decline are: The rising cost of child birth and raising a child. Women preferring to work more and avoid social life. Increasing number of unmarried people.
So the social and demographic issue have resulted
Japan has relatively a higher suicide rate (of people
into an economic problem. Despite government’s
between age 20-44)
major steps like incentives to child birth, there is
Natural disasters like earthquake and Tsunami (as in
same continues, government wouldn’t be able to
2011).
decrease its debt in future too.
The second issue is the demographics. Japan has 25.8%
Both China and Japan are two major economies of
of population with the age more than 65 and is
the world. If these economies suffers a financial
considered as oldest country in the world. In last few
crisis, it could impact at a global level and give rise
decades the social security budget has increased 15%.
to another global crisis like US 2008 or Eurozone
Japan also has the highest number of centenarians of
in 2012. Thus countries should deleverage or
about 54397 in 2014 (2nd largest in the world). With
not much improvement in Japan for now. If the
should learn to live with debt.
the rising population of senior citizens against those of declining young population and decreasing birth rate, the government tax collection (source of revenue) in declining. So now Japan Government has less revenue being collected from people of age 0-65 but simultaneously expenses are being increasing on social security services provided to senior citizens. For social security of seniors government is forced to borrow funds, which in return has increased the debt of government immensely since 2008.
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Why Private Banks have lesser NPA compared to Public Banks? MMC Diaries, IBS Hyderabad
An asset becomes a non-Performing when it ceases to generate income for the bank. Accounts in which there is default in payment of interest and /or repayment of principal are treated as Non-Performing Assets. Existence of Non-Performing Asset is an integral part of banking and every bank has some Non-Performing Assets in its advance portfolio. However, the high level of NPA is a cause of worry to any financial institution.
The asset classification as per the prudential norms enabled a proper assessment of the external level of NPAs in the Indian Banking System. Asset quality of banks has deteriorated post recession and public sector banks (PSBs) are worst hit. PSBs accounted for 85% of total NPAs. This in contrast to new private sector banks who’s NPAs decreased over time from 14% to 8%. The rising NPAs in recent period are mainly due to global
recession coupled with internal factors like the slowdown in the domestic economy that adversely affected the performance of corporate as well as small and medium enterprises. The asset quality of PSBs was worse compared to private sector banks as big corporate loans form a larger share of the credit portfolio for PSBs. Few big companies alone owe a huge amount to PSBs. Another reason for sudden rise in gross NPAs of PSBs was on account of a shift to system based recognition of NPAs from a manual one. Prior to this the computation for most banks was worked out manually at branch level and was therefore subject to discretion of managers. Moreover PSBs have high exposures to stressed industrial sector like Infrastructure, Iron and Steel, Textiles, Aviation, and Mining. As PSBs dominate the Indian Banking Sector and increase in the NPAs of PSBs is matter of concerns, therefore steps are being taken to improve the situation.
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Implementation of GST: What it means for the Indian Economy? By Rochelle Lewis, Marushka D’silva ,XIMR
Goods and Services Tax (GST) was initiated in the Indian Budget of 2006-2007. In common parlance, it is the tax imposed on supply of goods, or services or both. The proposed implementation of the harmonized indirect tax in 2016 will add India to the league of 160 countries that have already implemented it. The current indirect taxation scheme in India propels a division of power to the Centre and the States. This resulted in multiplicity of taxes followed by a series of business costs for compliance, administration, complexities in tax credit computations, cumbersome distinction between goods and services etc.
justify-
ing the implementation. The macroeconomic expectations are growth, a transition from an income to a consumption based tax structure, a metamorphosis from an origin based to a destination based tax regime etc.
Figure 2: Actual and Estimated GDP growth owing to GST
GDP Growth
2013-14
2014-2015 F
2015-2016 F
2016-2017 F
Actual
Base Case
Base Case
Base Case
4.7
6.0*
6.3
6.5
Source: Budget Documents, CRISIL Research Note: *A below normal monsoon could lower GDP growth to 5.5%.
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FB POTENTIAL BENEFITS OF GST ON THE INDI-
Impact on Retail Prices
AN ECONOMY
The proposed GST paid by the end consumer is im-
expected to decline. They could then produce and
plementation tends to enhance a country’s GDP by 1-
sell more to meet the increasing consumption
1.5 percent (Rajiv Memani, 2014-2015). GDP growth
needs. Inflationary pressures would also tend to
could conservatively reach 5.5% levels with a below
reduce and manifest a boost to the long term con-
average monsoon. An ongoing recovery in GDP is ex-
sumption
pected over the next few years as seen in Figure 2 be-
tor. FMCG stocks are expected to be bullish given
low. The extent of fiscal consolidation would occur
this
faster if the government curtails
productive spend-
that a higher tax rate, around 24%-27%, would be
ing. This is also critical for a lower debt ratio, which
detrimental due to erosion in demand if passed on
currently stands at 48.2%. (CRISIL Research, June
to consumers. Marico hopes that the tax rates are
2014).The fall in the ratio will lead to a decline in the
below 20% to ensure competitive pricing for its
primary deficit of GDP from 1.2% at present.
products else there would be an inflationary ex-
GDP Growth and Fiscal Consolidation: GST
effects especially to the FMCG secimplementation. Dabur India envisages
pectation. (Pinto, 2014). Replacing Cascading Effect Currently the load of CENVAT is included in the value for taxation as per State laws. By replacing the cascading effect, GST would ensure compliance, reduced production and distribution costs. At current levels, the cascading effect for a multiplicity of
indirect taxes
could be as high as 25% for business (Rajiv Memani, 2014-2015).
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FB POTENTIAL
DOWNSIDE
ON
IMPLEMENTATION OF GST IN INDIA
istration faces several problems. Lack of IT preparedness of certain states is a bottleneck to GST implementation. CONCLUSION:
Revenue Loss for States The centre has proposed that the States can levy 1% additional tax on inter-state trade. For the fiscal year of
implementation, the states are promised INR 11,000 crore as a compensation for losses due to CST decline
GST will have a huge impact on the macroeconomic environment in terms of growth effects, price
effects, current account effects and ef-
fects on the budget balance.
(TOI, 2015). States like Tamil Nadu, Maharashtra and
It will foster a common market across the
Gujarat still fear revenue losses.
country, reduce compliance costs, facilitate
Incidence of GST on Specific Products The Centre has maintained powers to levy additional excise duty on tobacco products though certain states insist on levying an additional tax through the GST
framework. The Centre has also insisted that GST on petroleum crude products will be avoided. Tax on alcohol is excluded from the
investment decisions made purely on economic concerns, independent of tax considerations etc. Fiscal consolidation for this government will be difficult as overall expenditure has already been trimmed sharply in the last 2 years.
purview of GST.
Administrative Mechanism Integrating the revenue collection services of 28 odd states and incorporating a good administrative mechanism is a big task. Even today, the indirect tax admin-
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COAL SCAM BY TAUSEEF NAWAZ
Miracles happen every day in this world but
sometimes we are deaf to hear that, but this famous move has
been in everyone’s mind and soul throughout the years. Gandhiji said “An eye for an eye will make the whole world blind.” Really the thirst and hunger for money has engraved in making the
everyone’s desire and this thirst is
society wounded by the acts and moves .The famous coal allocation scam (Coalgate) is a major
political scandal concerning the Indian government’s
allocation of nation’s coal deposits to public sector
enterprises and private companies. It is amazing what you can accomplish if you do not care who gets the Credit. The coal allocation process was
initiated in July 1992 where the ministry of coal, issued the instructions for a screening
committee for pri-
vate power generation companies. The committee was composed of govt. officials from the ministry of coal, railways and the state govt. Nearly 143 coal blocks were identified which were not in the production of CIL. Some standard guidelines were also issued for coal companies for licensing. By way of comparison, the entire world produces 7.8 billion tons annually, with India
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being responsible for 585 million tons of coal.
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THE GREAT DEPRESSION By Prakhar Agrawal
October 19, 1929 is referred to as Black Tuesday! Why? Because it was the day when the world’s economy acknowledged the beginning of THE GREAT DEPRESSSION. Worldwide GDP fell down by 15%. Starting with the crash of the most powerful economy the USA it expanded to China, France, Australia, Germany even the Great Britain wasn’t spared. So questions arise are –Why did it happen? Why they couldn’t retain it? Why such countries didn’t see it coming? Let’s have a look. Reasons Some believe that it occurred because 1/3rd of the banks vanished from the market due to low liquidity and
high lending rates. While Federal Reserve System didn’t took any aggressive measures to provide the much needed liquidity. However, it was John Maynard Keynes, who in his General Theory of Employment Interest and Money gave an insight to the cause. So what actually happened? According to him There was a low aggregate expenditure(investment) on the part of the government and private sector leading to, High level unemployment. Unemployment means less income.
Low demand because of low income.
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FB
Is Investing In Mutual Funds Better Than Investing in Direct Equity By Raviteja, IBS Hyderabad
Normally equity means when we put some money on assets or in some shares in stock market the return what we get is called
equity, but here we are considering in the case of shares because we are comparing
with mutual funds. But in the case of
mutual funds here they will take money from us they will invest
in the stock market. By comparing these two we can make out some differences, in equity we will invest some money in a specific public company there the risk is high because there is chance of both increase in stock price and de-
crease in stock price, we may get profits or loss it depends on lot of factors like
sentiments of market and
changes in the company. In the case of mutual fund, they will invest our money, they will divide our money into some equal parts and they will invest in multiple companies where the risk is less compared to ty, and moreover in mutual funds knows
directly investing into equi-
everything about stock markets they are experts in investing.
By considering above differences we can say that investing in mutual funds is safer and better than investing
directly in equity. But when we are investing in mutual funds we should know everything about it
whether it is trustworthy or not.
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Transfer Pricing By Akarshan Behera, IBS Hyderabad
Transfer pricing happens whenever two companies
part of the firm deals with the other on 'arm's
that are within the same multinational group trade
length' (market price) basis also called transfer
with each other and the setting of the price for goods
cost.
and services sold between controlled (or related) legal
The effect of transfer pricing is that the parent
entities within an enterprise. In other words, when
company or a specific subsidiary tends to pro-
Commercial transactions between the different parts
duce insufficient taxable income or excessive loss
of the multinational groups may not be subject to the
on a transaction. For instance, profits accruing to
same market forces shaping relations between the two
the parent can be increased by setting high trans-
independent firms then one party transfers to another
fer prices to siphon profits from subsidiaries
goods or services, for a price. That price is known as
domiciled in high tax countries, and low transfer
"transfer price".
prices to move profits to subsidiaries located in
Suppose a company X purchases goods for Rs 100 and
low tax jurisdiction. It can be used as a profit allo-
sells it to its subsidiary company Y in another country
cation method to attribute a multinational corpo-
for Rs 200, who in turn sells in the open market for Rs
ration's net profit (or loss) before tax to countries
400. Had X sold it direct, it would have made a profit of
where it does business. Transfer pricing is the
300 rupees. But by routing it through Y, it restricted it
major tool for corporate tax avoidance also re-
to 100 rupees, permitting Y to appropriate the balance.
ferred to as Base Erosion and Profit Shifting
The transaction between X and Y is arranged and not
(BEPS).
governed by market forces. The profit of Rs 200 is, thereby, shifted to the country of Y. The goods are transferred on a price (transfer price) which is arbitrary
or dictated (Rs 200), but not on the market price (Rs 400). Transfer price policy is generally aimed at evaluating financial performance of different business units (profit centers) of a conglomerate, and/or to shift earnings from a high tax jurisdiction to a low-tax one. Tax authorities usually frown upon transfer pricing aimed at tax avoidance and insist that each internal 25
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FB Base Erosion and Profit Shifting (BEPS) is a technical term referring to the negative effect of multinational companies' tax avoidance strategies on national tax bases. BEPS can be achieved through the use of transfer pricing, or, more correctly, "transfer mispricing". BEPS is used in a project headed by the Organization for Economic Co-operation and Development (OECD) which produced detailed reports in September 2014 in response to seven actions agreed previously. BEPS is said to be an attempt by the world’s major economies to try to rewrite the rules on corporate taxation to address the widespread perception that the corporations don’t pay their fair share of taxes. A company should adopt those transfer prices that result in the highest total profit for the consolidated results of the entire entity. Almost always, this means that the company should set the transfer price to be the market price of the component, subject to the issue just noted regarding the recognition of income taxes. By doing so, subsidiaries can earn more money for the company as a whole by having the option to sell to outside entities, as well as in-house. This gives subsidiaries an incentive to expand their production capacity to take on additional business.
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