Mmc july 2015 edition

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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

09903606380

happy to announce the winner of “Article of the Faculty Co-ordinator Dr. Sudhakar Reddy

Month” award , Rochelle Lewis & Marushka D’Silva from XIMR, Mumbai for their

Newsletter Swarnendu Coordinator Chakravartty

outstanding write up on “Implementation of

09903606380

GST: What it means for the Indian Economy?”

For Advertising Contacts Vinit Verma 09603689844

We dedicate our first issue of this year to our beloved teacher Late Dr. A.P.J. Abdul Kalam. This Can we help?

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further

queries,

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year our organization is celebrating its decade of and

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excellence. We are highly indebted to our encouraging readers and to the participants of National Article Writing Competition.

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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.”

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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.

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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

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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.

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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.

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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.

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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

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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

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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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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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