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From the Editor It gives us the immense pleasure to come up with the November issue of 2013 successfully. We are happy to announce the winner of “Article of the Month" award, Molshree Jain and Rahul Shukla from Symbiosis Institute of Management Studies, Pune for their outstanding write-up on “FINANCE OF GEOGRAPHY: SIGNIFICANCE OF GEODEMOGRAPHIC ANALYSIS IN FINANCE”. This issue highlights talks about Geographic Information System (GIS) technology implementation which can be very beneficial for banking sector at the time when RBI is planning to issue new banking licenses. Another nicely written article “Turmoil of Indian Currency" talks about Rupee depreciating against Dollar and the measures taken by Government authorities to curtail further fall in rupee.
The secret of success is learning new things in different ways. Quiz at the end of the issue gives a platform to enhance knowledge through the same.
Sahil Kakwani
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CONTENTS Sl. No.
Particulars
Page No.
1.
Finance of Geography: Significance of Geodemographic Analysis in Finance - Molshree Jain and Rahul Shukla, Symbiosis
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2.
3. 4.
Institute of Management Studies, Pune Turmoil of Indian Currency - Priya Singh and Abhishek Joshi, CCS National institute of agricultural marketing , Jaipur Enron Scam : Mark-to-Market Concept - Aman Jain, SBM, NMIMS(Mumbai) FCNR
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07 10
- Anirudh Mittal, PGP-IIM, Indore 5.
6.
Tourism Industry: a potential for reviving India’s economic growth story - Souvik Dhar and Priyanka Hazarika , NIT SILCHAR, Department of Management Studies Are literate, financially literate? - Hiral Modi, N.R.I.B.M., Ahmedabad
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7.
Mobile Banking: Its Future and Impact On Telecom Sector In India - Ramesh Chandra Pradhan,S ymbiosis Institute of Management Studies, Pune
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8.
Stabilizing Indian Currency: Trade Payments - Manasi Mishra, IBS Hyderabad
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9.
Let’s Find the Correct One
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Let’s go ahead … 3
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Finance of Geography: Significance of Geodemographic Analysis in Finance Molshree Jain SIBM, Pune
Rahul Shukla
SIBM, Pune
“If the Indian banking system is to remain competitive over time, there should be no bar on the entry of new banks. A closed system can only become oligopolistic.” C. Rangarajan At the time when RBI is contemplating giving new banking licenses and big corporate houses are foraying into banking sectors, it’s becoming important for banking and financial institutions to maintain their existing customer base and also explore new growth areas. In such a situation, application of a concept like Geographic Information Science (GIS) has become more relevant. It can help a bank retain the best clients, serve them more efficiently and find more customers. In this highly competitive
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business environment banks need every advantage they can get. A thorough knowledge of customers' needs and requirements gained from GIS analysis underlies the geographic advantage. It’s a science which provides specialized knowledge about spatial data collection, data processing and data modeling for analysis purposes, helping banks and financial institutions to understand their customers geographically.
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Money and finance are basics to create and operate the economic landscape. ‘Place’ is one of the 4 Ps of Marketing but it is as important in finance as it is in marketing. Place is concerned with exploring an underdeveloped area and constructing a new economic geography of money. The aim is to bring an awareness that the spatial structure of the financial system influences the allocation or funds, capital and credit across regions and localities. We need to understand how location remains key to the conduct of financial transactions. To comprehend how financial decision-making and allocation of finance remain concentrated in the major money centers, with the implication that regions and locations lacking such centers could well be at a disadvantage in accessing finance; we shall look at the concept of GIS.
With the computer technologies developing rapidly, new forms of analysis and modeling methodologies have become feasible. Commercial issues and spatial analysis technology is becoming a main area for new business development and growth planning. GIS overlaps with research fields like statistics, mathematics and management which helps banks in understanding their customers with respect to their location, their demands and helps in prioritizing their preferences. 4
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Few questions which these sectors need to think about for better market prospects are:
Which customer contributes to profitability and which one doesn't?
Who has potential to do more business and who doesn't?
How can my bank acquire new customers while retaining established ones?
Where to open new branches?
What services to be provided and which ones not to be provided?
How to attract industries to do business with our bank?
GIS can help bank perceive market geo-demographics and to correlate loan and deposit data with income demographic information. The bank can see where the customers, the competitors and the prospective customers are. They can then compare this data to build new branch locations or which existing locations to focus on. Here is how GIS helps in key decisions: 1. Location for new branch
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Integrating geographic distribution with the economic demographic allows the bank to understand which customers could provide more business and what kind of services they need. Even geographic distribution of industries helps banking and financial institutions to come up with special branches with special services as per the industry specification. 2. Resource allocation
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Demographic data can also help in institutional planning such as anticipating workforce requirements to serve minority population and multilingual needs before specific branch locations are
approved or opened. By analyzing the population density a bank can better anticipate expected
business volume and need for more staff. 3. Market profiling When there are no changes to a branch network even after long time, simply knowing the regions served can help bank in fine tuning their services and market efforts. GIS helps in identifying the difference between the demographic information that organization already has and prevailing demographic equation. 4. Customer Service Understanding where customers live and where they perform specific activities such as cash withdrawals or deposits, allows a banking institution to more appropriately align services and resources with need and market demand. Rather than requiring customers to go to their home bank or take time out from work to visit an alternative location, a bank, credit union or other financial service organization can be seen as bringing the services to customers that fit into their lifestyle.
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5. Merger and Acquisition Evaluation It helps us analyze the location pattern of branches of an acquisition candidate. For example, a bank can determine the overall "geographic fit" in relation to its own branch network. Suppose acquired bank is operating in region in which we don’t have any operation then this might open up new market for us. GIS helps in validating this observation. 6. Performance management Depending upon the branch location, one can estimate the branch performance and volume of business it can bring to organization. GIS helps in strategic location of branches and performance evaluation with other branches and taking rectifying measures if required in order to enhance the performance. With stiff competition in today’s economic environment, customer base might narrow down for a bank if it does not meet the customer needs at various points via various channels like mobile banking, ATM services, internet banking and traditional teller window. At the core of all banking businesses, data is plentiful but customer knowledge is scarce. Mining for the right information requires skill and experience that banks may not have. Customer records enriched with demographics and consumer spending,
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geographic, and segmentation data enable the enterprises to make smarter strategic decisions. The more banks understand about who their customers are and how they live, the more they understand about their needs and how best to serve them. And the better customers can be served, the more they can be acquired, developed, and retained, leading to greater profitable relationships.
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Turmoil of Indian Currency
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Priya Singh, National Institute of Agricultural Extension Management
Abhishek Joshi, National
Institute of Agricultural Extension Management
The recent buzz in the financial markets is all about our very own Rupee depreciating against the Dollar. Reasons may be many but it is all a case of demand and supply. The supply of dollar in market is less because of lesser exports from India, lesser foreign investments and more of the import of gold and oil. The rupee is has depreciated to 23% since May ’13, led to worst performer currency among Asian countries. It last time peaked in February 2008 at Rs 39.40 against the US currency. The situation
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became worst in the month of August- September (Table No. 1). With the policy changes by RBI stabilized the rupee to some extent. Of course a number of factors are playing behind this and can be listed as CAD (Current Account Deficit), GDP (Gross Domestic Product) Growth Rate, Inflation, Economic Growth Rate, Global Economic Slowdown, The Dollar Carried Trade, International Politics as well as Indian Politics.
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Date 1USDINR
1
Aug. 16
Aug. 23
Aug. 30
Sep. 6
Sep. 13
Oct. 4
Oct. 25
Nov. 1
61.82
64.69
66.57
65.96
63.79
61.41
61.63
61.9
Table No. 1 (Source: www.rbi.org )
The Economic Concerns: CAD touched a record high of $88 billion, 4.7% of GDP and the Foreign Exchange Reserve
Commodity-
dipped to $292.0 billion which could cover only
Group
7 months import. Major contributor to the widening CAD is our Oil and Gold import, accounting for $144.29 billion and $53.6 billion respectively. The total imports increased to US$ 489.2 billion with a 7
growth of 32.3 percent in 2011-12.
2012-13 (up 2010-11
2011-12
to nov.)
products Fuel
2.9 30.9
3.1 37.4
3.5 38
Gold & silver
11.5
12.6
10.5
Capital Goods
13.6
14.1
11.9
Food and Allied
Table No. 2 (Source: www.indiabudget.nic.in )
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The import of petroleum, oil and lubricant (POL) increased by 46.2 percent. The gold and silver imports grew by 44.5 percent. These imports have contributed to CAD to a larger extent as Fuel has 37.4 percent share in total imports while Gold & silver having 12.6 percent share (Table No. 2) This much high CAD is not sustainable under current growth rate. The IIP (index of industrial production) is also showing decreasing trend i.e. 164.3 which is 2.2% lower compared to the level of June 2012. Inflation and Investment WPI (Wholesale Price Index) inflation for all commodities increased to 5.79%, while GDP at factor cost (Rs13.71 lakh Crores) is showing the growth of 4.4%. (As per Central Statistics Office Report) Global ratings major Standard & Poor’s has forecasted India’s GDP growth to be 3.7% for 2013
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-14. These all factors are creating a very negative impression of Indian market and are leading to lesser foreign investments a major source of
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Dollars. The year 2012-13 saw a decline in 38 Graph No. 1 percent of the foreign direct investment (Graph No
Source: Department of Industrial policy and promotion
1). Issues in Oil producing countries Military intervention by US in Syria is causing rise of Oil prices in the international market. This will impact the inflation as most of Indian currency is used to import oil and with this rise in oil prices coupled with fall in value of rupee is going to worsen the situation further. According to the petroleum ministry’s estimates, for every rupee fall against the dollar, the under-recovery price for oil will increase by Rs 8,000 crores. Hence, the fall of rupee may also push the overall under recovery figures above by Rs 1,50,000 crores which was earlier pegged to be around Rs 80,000 crores. Market concerns The exchange traded currency derivative market is now at a huge volume of Rs 234 billion in June 2013 from Rs 2.6 billion in September 2008.
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As per RBI annual report, there is strong correlation between NDF (Non-Deliverable Forwards) and the spot market of Rupee. There are many MNC banks which have made short positions in the NDF market and are gaining from it, while weakening the rupee further. Sudden exit of Foreign Funds also drives their position in NDF market. Offshore NDF drive the rupee-dollar exchange rates. Except South Korea none of the central bank has intervened in the NDF market till now. The revival Though these concerns are there but still many things are being done to curtail the further fall in rupee. Government recently increased the custom duty on gold to 10 % from 8 % and the commodity costlier by Rs 600/10 gram. It has also imposed a ban on import of gold coins and gold medallions. Due to this measure gold imports have curbed down to 7.2 tonnes in September from 162.4 tonnes in May. RBI opens special forex swap window for three major oil marketing companies (OMCs) - Indian Oil, HPCL and BPCL which accounts for 56% of crude oil import in the country. This move will reduce the monthly dollar demand by $9 billion from the currency markets. This amount is to be returned by the OMC at later
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date. All these corrective measures have started showing the results as there has been an increase in Dollar exports by 13.5 percent since last October and decrease in imports by 14.5 percent. The performance of the core sector if improves as the trend shown in last four months will certainly help the
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economy grow as it accounts for 38% weight in IIP. The good monsoon is a big ray of hope and will lead to increase in agricultural productivity and further exports. RBI further hopes to reduce the CAD this year at $56 billion. The depreciation has certainly exposed the weakness in Indian financial structure in form of higher CAD and Trade account deficits which needs to be taken care of by the policy makers!
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Enron Scam : Mark-to-Market Concept
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Aman Jain, SBM, NMIMS (Mumbai) Any large scam is not a result of single misdeed rather is a consequence of series of events both intentional and unintentional which causes wealth erosion at a large scale. This article talks about one such part of Enron Scam. Enron adopted Mark-To-Market accounting principle and what followed was a catastrophe. It leaves one dumbstruck as to how a company being run by professionals fall into such kind of fallacy. On top of it was the fact that Arthur Andersen (their auditors) and SEC approved it too.
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Investopedia defines Mark-To-Market as: 1. A measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution's or company's current financial situation. 2. The accounting act of recording the price or value of a security, portfolio or account to reflect its current
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market value rather than its book value. Let us take an example to understand this concept. An individual purchases 1 share of XYZ Ltd. for Rs. 100 on January 1,2013 and sells it for Rs. 120 on January 5, 2013.
Date
Closing Price
P/L under MTM
P/L under Historical
January 1,2013
Purchased for = 100
-
Price -
January 2,2013
120
20
0
January 3,2013
90
(30)
0
January 4,2013
80
(10)
0
January 5,2013
Sold for = 120
40
20
* P/L - Profit or Loss Under the Mark-To-Market Concept, the individual will book profit/loss on the share each day. For example on January 2, 2013; the individual will book a profit of Rs. 20 on the share and his Balance Sheet 10
will show the value of Share as Rs. 120 and not Rs. 100 at which the share was bought.
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Similarly on January 3, 2013; as the price of share drops, the individual will book a loss of Rs. 30 and the value of share in his Balance Sheet will be Rs. 90. So, each day the individual will book a profit/loss and show the asset (share in this case) at the Market Value in the Balance Sheet. On the day the stock is sold, the individual will book profit/loss in the same manner as discussed above. Individual will not be concerned with the purchase price at all. The Net Profit/Loss to the individual = 20-30-10+40 = Rs. 20 Under the Historical Price concept, the individual does not book profit/loss each day. Rather profit/loss is equal to the difference between the cost price and the selling price. In case of the above example, Profit = 120-100 = Rs. 20 Both the methods provide exactly the same net profit. So use of Mark-To-Market in place of Historical Price seems good enough. No troubles at all! But that’s not the case in all situations. The market for securities like equity shares, listed debt is matured and has enough liquidity. The prices are determined by market forces of Demand and Supply and are free from any kind of interference. It makes
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sense when Investment Banks or Mutual Funds use MTM to value their portfolios. But how can a company like Enron use it? Consider a scenario where Enron commissions a power plant in India with cash flows as follows:
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Year Fore-
0 (8)
1 1.2
2 1.4
3 1.3
4 1.8
5 2.0
6 1.8
7 1.6
8 1.4
casted Cash Flow (in $ bn) * Hypothetical Case for explanation of concept Now technically, Enron should record the outflow of $10 bn as capital expenditure which should be shown under assets in its Balance Sheet and should be written off over the life of the project. Subsequent cash inflows should be recorded in each year when they are received as revenue and Profit/Loss should be booked each year accordingly. For example: If Enron decides to write off $8 bn capex over the next 8 years using straight line method. The amount of depreciation in the first year will be $1bn and it will receive $1.2 bn as revenue. The profit/loss for the year will be $1.2bn – $1 bn = $0.2 bn which the company will book in the first year. Similarly, 11
company will book profit/loss every year by matching its revenue with the expenditure.
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Year
1
2
3
4
5
6
7
8
Profit *
0.2
0.4
0.3
0.8
1
0.8
0.6
0.4
(in $ bn) * It is assumed that actual cash flow = forecasted cash flow This is what companies generally do. This is simple accounting. By adopting MTM, Enron changed the entire scenario. Enron adopted MTM concept of accounting and found out PV of all future cash flows from a project by using an appropriate discount rate (on the basis of cost of capital employed in the project). After calculation of PV, Profit/Loss = PV of all future cash flows – Cost and this profit/loss was booked in the first year of commissioning itself.
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Extending the above example and assuming discount rate = 7%
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FCNR
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Anirudh Mittal, PGP-1 IIM, Indore Preface: This article delves into one of the policy changes made by our RBI Governor, Raghuram Rajan on September 6th 2013, one of his first as the head of the central bank of India. The change was made to control the burgeoning foreign reserve outflows and ensure foreign currency inflows. The article at the beginning explains the mechanics behind an FCNR Account and how it works. Written in a question and answer format it attempts to explain basics of an FCNR Account to the layman. Later it explains how an FCNR account can be used by foreign nationals for arbitrage and earns higher risk free returns on investment. Most importantly an attempt is made at the end to capture risks and benefits of FCNR. What is FCNR (B)?
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An FCNR Account or a Foreign Currency Non- Resident (Bank) Account is a term deposit (read fixed deposit) maintained by a PIO (Person of International Origin) or NRI (Non-Resident Indian) in foreign currency. The funds in an FCNR account must necessarily come from your overseas funds. FCNR deposits can be maintained in 'permitted currency' which means any a foreign currency which is freely convertible and includes US dollar, Pound Sterling (GBP), Euro, Japanese Yen, Australian dollar, Canadian dollar, Danish Krone, Swiss Frank and Swedish Krona
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Eg. Person A who is an NRI living in the USA deposits 1,000$ in an Indian Bank Account and gets a fixed return in $ Features and benefits: The current FCNR window opened in India allows depositor’s to deposit the money for a minimum period of 3 years and earn a fixed interest of 3.5% per annum. The interest is paid in the foreign currency which is the main benefit as it removes the currency risk aspect from the investment. That is the depositor will be repaid at a sum of 3.5% irrespective of the change in the currency. This is especially advantageous as the return on a term deposit investment in the US is around 1%. What is the FCNR Bank Swap Deal? What are the advantages for Banks? Banks raise FCNR funds in various foreign currencies. They then sell the foreign currency in exchange for Indian rupees at the prevailing exchange rate and use the Indian rupees for domestic lending. When the FCNR deposit becomes due for maturity, banks would need foreign currency to pay the depositor. Waiting until the date of maturity to purchase foreign currency would leave the bank open to exchange rate risk. In order to protect this risk, banks hedge their FCNR commitments by entering into forward contracts. To explain with an example, if an FCNR deposit was opened today for a term of 1 year, the bank would enter into a forward contract to buy the foreign currency after a year at a fixed exchange rate. Currently the forward rate is at a premium of around 7% per annum. That means, if the exchange rate today is Rs 65 per dollar, banks would enter into a forward contract to buy the dollar at Rs 69.55 per dollar. This way, the bank hedges any uncertainty arising out of exchange rate risk.
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The swap deal introduced by RBI encourages banks to attract more US dollars into India. The RBI has promised banks a forward rate at a premium of 3.5% per annum for all fresh 3-year FCNR deposits raised between now and November 30, 2013. So instead of hedging at the rate of 7% per annum, banks are getting this swap deal at 3.5% per annum. This acts as an incentive for banks to raise fresh FCNR funds as it lowers the cost of hedging. So, instead of buying the $ at a rate of about INR 69.55 they can buy it from the government at INR 67.275 or a saving of Rs. 2.275 on every $ bought. The banks can now eliminate Currency Risk at 3.5% and borrow at a rate from foreign lenders which is much cheaper than the current rate of about 10% that they have to pay on domestic term deposits. It’s a Win-Win for both the bank (reduced cost of borrowing by about 7-8%) and the depositor (higher return of about 2.5%). Features of a Swap Deal 1. Depositor deposits an amount of say $100 in an FCNR Account at a rate of 3.5% for a term of 3 years. The bank gets $100 right now and is liable to pay a sum of $110.5 (Simple Interest for simplicity) at the end of three years. 2. The bank enters into a deal with the RBI for obtaining $110.5 after 3 years at a cost of say 3.5% hence it has to pay the RBI equivalent of $126.75 at the current rate of the dollar. The bank is saved from the cur-
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rency risk. This swapping of risk from bank to RBI is known as a swap deal. 3. Salient Features of the FCNR Swap:-
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Minimum tenor of deposit should be 3 years and denominated in USD $
Interest in compounded semi-annually
Swap window closes on 30th November 2013
Banks need to mobilize atleast USD$ 1 Million before entering into a swap deal and can enter into swap deal with RBI in multiples of the same
How can you arbitrage using FCNR? 1. An NRI would invest $100 of his own funds and make a term deposit with an Indian bank at a rate of 3.5% 2. US Banks allow leveraging on this deposit as it is guaranteed by the RBI so he can borrow another $100 from the US branch of his bank. The interest rate on the loan would be say 1%. 3. The NRI would then open an FCNR account in the Indian branch of the bank and earn interest of 3.5%. 4. He could repeat this process say 5 times and at the end of year 1 his cash flow would be:
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An inflow of interest of $3.5 on his original investment
An inflow of $14 through his leveraged investment (Step 2)
An outflow of $4 for his borrowing in step 2
So the NRI would end up earning an interest rate of 13.5% on his investment of 100$.
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5. So the NRI would end up earning an interest rate of 13.5% on his investment of 100$. For banks too, this is a win-win as their loan gets covered by the FCNR deposit and they get access to funds at a lower cost. Effect on India and Risk Involved RBI expects the banks to bring about USD $10billion worth of foreign currency through the FCNR route. This amount will be locked in for a period of 3 years and will help the government in fight the CAD problems. It will also prevent a sovereign bond issue by the RBI to raise foreign funds. Amount collected as of now is around USD 5.6 billion (source: Moneycontrol) The foreign banks are promoting leveraged term deposits in India inflating the inflow. The central bank is liable to return the amount at 3.5% and it bears the currency risk, hence a sudden appreciation of the USD can cost the RBI a big buck. Keeping all of this in mind it has had a good effect on the rupee which is touching levels of 61-61 against the dollar something unimaginable when it surged to levels of INR67-68/$
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Tourism Industry: a potential for reviving India’s economic growth story Ritu Aggarwal and Rohit Matta, IIM Lucknow Abstract: The economic growth story of India has suffered huge setback due to many factors. Thus to provide a platform for the revival of our economy a more pragmatic approach needs to be adapted. Thus focus should be shifted from the core processes to other non-core areas to stimulate the growth story. Tourism Industry can be one of the crucial sectors having the potential for reviving back India’s economic growth story. And the fact that despite of challenging global economic environment UNWTO forecasted an increase in International tourists all over the world is really boosting the hope. Thus India needs a better strategic approach to develop its tourism industry for promoting inclusive growth.
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The Tourism Industry in India has great prospect but due to lack of strategy and coordinated efforts from all the stakeholders it didn’t prospered to the extent of its potential. Thus as India is facing economic crunch with rising fiscal and current account deficit and adding to the woes with a steady fall of our currency against the dollars more alternatives are searched to balance the whole scenario. Thus in these crisis situation Tourism Industry can be one of the better alternatives for reviving the economic growth
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story of India. Overview of Tourism Industry: In these passing decades Tourism Industry experienced continued expansion and diversification and thus eventually becoming one of the largest and fastest-growing economic sectors in the world. Thus leaving aside few occasional slowdowns the facts and figures suggests that International tourist arrivals has registered a virtually uninterrupted growth story – from 25 million arrivals in the year 1950, to 278 million in 1980, 528 million in 1995, and finally touching 1,035 million in the year 2012.
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ITA – International Tourist Arrivals – 1035 million ITR- International Tourism Receipts- US $ 1075 billion
Figure 1: International Tourism 2012
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The year 2012 became significant for Tourism Industry as inspite of economic slowdown, International Tourist Arrivals worldwide exceeded the 1 billion mark for the first time. And the growth in Tourism receipt too matched with the growth of arrival as International Tourism Receipts worldwide reached to its new record at US $ 1075 billion.
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17 Figure 2: Forecasted Growth of Tourism Industry
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UNWTO in its new study i.e., “TOURISM TOWARDS 2030” forecasted that international tourist’s arrivals worldwide will increase by an average 3.3% a year over the period from 2010 to 2030. And with these projected pace of growth tourist influx will touch 1.8 billion by the year 2030. Indian Tourism Industry and its impact on its economy:. Tourism Industry is the most attractive and fastest growing service industry in India. The tourism industry in India is substantial and vibrant, and the country is fast becoming a major global destination. India’s travel and tourism industry is one of the most profitable industries in the country, and also credited with contributing a substantial amount of foreign exchange. This is illustrated by the fact that during 2012, 6.58 million tourists visited India and spent US $17.74 Billion. Tourism industry has become an integral part of the Indian economy. Its contribution to the GDP and to the employment in the country is very significant. The World Travel and Tourism Council (WTTC) calculated that tourism generated $121 billion or 6.4% of the nation's GDP. And also it provided 393
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million jobs i.e., 7.9% of its total employment. The GDP of the tourism sector has expanded 229% between 1990 and 2011. The sector is predicted to grow at an average annual rate of 7.7% in the next decade. This gave India the fifth rank among countries with the fastest growing tourism industry.
15 Figure 3: Foreign Tourist Arrivals in India (1997 – 2012)
According to the ASSOCHAM report India has huge potential for the growth of medical tourism. As ASSOCHAM predicted in its report that Medical Tourism Sector is expected to grow at an estimated rate of 30% annually. And by the end of the year 2015 it would reach to about 9,500 crore. Low cost, World class service, language compatibity, and low waiting period are the boosting factors for the rise of medical tourism in India. 18
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The Tourism Industry must be utilized as a vehicle for economic development of our country. It is a noted fact that International tourism is an invisible export that creates a flow of foreign currency into the economy of a destination country and there by contributing directly to the current account of the balance of payments. Thus in these current scenario where India is facing a huge current account deficit Tourism Industry might play a crucial role in reducing it and bringing back India’s economy in the right track. Tourism industry is one of the major foreign exchange earners in India. This sector of the economy is found effective in generating the foreign exchange reserve. Thus the contribution by earning foreign exchange is one of the most beneficial factors of Tourism Industry for the economic growth of our country. Also the revenue generated by this sector has been found successful in minimizing the foreign exchange crisis of India.
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Figure 4: Foreign Exchange Earnings from Tourism in India (1997 – 2012)
The tourism sector is also linked to various allied sectors of the economy and thus affecting the growth and employment of those sectors too. It is a multi-segment industry comprising of hotels and restaurants, transportation services, tourist resorts, amusement parks, entertainment centers, sales outlets of handicrafts and jewelleries etc. Thus Tourism Industry can be considered to be an economic bonanza due to the fact that it includes various positive economic effects like generation of national income, expansion of employment opportunities, rising of tax revenue, generation of foreign exchange and transformation of regional economy. Tourism Industry can it be a potential driver for reviving India’s economic downturn?
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As India has embraced globalization and reaped its benefits thus with changing times it has to face its hazards too. Thus any slight changes in global market shows its negative impact in Indian economic
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totally but should give stress to new avenues and sectors to make our economy more or less near to self-reliant. Thus if we analyse the existing market scenario we can perfectly judge that Tourism Industry has the brightest prospect to offset the current crisis. There are several factors which supports the idea that Tourism Industry can be a potential source for India’s restructuring efforts: 1. In spite of global economic recession the growth of Tourism Industries showed that it has the potential to become one of the major sources of revenue earning for any country. 2. India vast pool of diversified resources can be showcased in front of the world in a more presentable way to attract foreign tourists which would really boost the exchequer. 3. Tourism Industry growth can be beneficial for India specially in creating new employment avenues in rural India. 4. The focus on Tourism Industries will include developing various tourists’ destinations and thus the infrastructure in and around those destinations would be improved. 5. The business of allied industries of Tourism like hotels, traveling agencies etc. will also boom up with the growth of Tourism sector.
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The Tourism Industry can be a potential source for revenue earning of any country as visitors expenditure on accommodation, food and drink, local transport, entertainment and shopping, is an important contributor to the economy of many countries, creating much needed employment and opportunities for development. Thus India can invest in developing tourist destinations to attract international as well as
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domestic tourist thus turning tourism sector into a key driver of socio-economic progress through export revenues, creating new jobs and enterprises and infrastructure development. The Tourism Industry can be a potential source for revenue earning of any country as visitors expenditure on accommodation, food and drink, local transport, entertainment and shopping, is an important contributor to the economy of many countries, creating much needed employment and opportunities for development. Thus India can invest in developing tourist destinations to attract international as well as domestic tourist thus turning tourism sector into a key driver of socio-economic progress through export revenues, creating new jobs and enterprises and infrastructure development. Accelerating the Tourism Industry in India:
Government of India should encourage the big Corporate giants and key private sector players to invest specially for improving the required facilities to boost up the Tourism Industry in India. Thus this joint venture between the Governments and Private players would really enhance the facilities at the ground level and be a catalyst in accelerating the Tourism in India.
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Enhancing the coordination between the different stakeholder groups involved in Tourism Sectors
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directly or indirectly so that the plans can be effective at the ground level. The Visa on Arrival program should be improved by Government of India so that International tourist can easily visit India without any hassle. The raising of FDI cap on Hotels , Aviation’s and other allied sectors of tourism will influx foreign investment and will definitely boost up the competitiveness as well as growth of the sector. Focussing on promotion of Tourism Industry in India should be more effective as more similar campaign like that of “INCREDIBLE INDIA” and “PARADISE UNEXPLORED” should be carried out to highlight the prospect of Indian Tourism Sector. Developing a wide range of product portfolio to target various segments of tourists to increase the influx of international as well as domestic tourist. Thus developing various sub segments which includes:
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Domestic Tourism
Education Tourism
Eco-Tourism
Medical Tourism
Golf tourism
Luxury Trains
Tea Tourism
Sports Tourism
Conclusion:
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Tourism Industry seems to be more effective than other industries in generating employment and income at a bulk pace. Thus we should give more focus on developing the tourism sector of India as it has the tremendous potential to uplift the economic growth story of India back to the track.
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Are literate, financially literate? Hiral Modi , N.R.I.B.M., Ahmedabad
As we have seen substantial amounts of private capital have flowed into emerging markets in the last 15 years. In addition to lending provided by commercial banks and direct investment from multinational corporations, an increasingly diverse range of investors—including pension funds, mutual funds, insurance companies, and hedge funds—have built portfolios of emerging market debt and equity securities. However, these private flows frequently have been interrupted, with periods of retrenchment by international investors and creditors that have generally reflected inconsistent economic performance by emerging market economies and shifts in the global environment. The financial crises that have occurred over the past decade have galvanized actions by the international financial community to limit their severity and frequency of such crises and to bolster the financial system more broadly.
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To avoid the gaps between the investors and management best practices for investor relations (IR) and data transparency are not only important pillars for helping avoid crises but also are crucial building blocks for a more effective approach to managing them. As such they are key elements for the Principles. In fact, an increasing number of emerging market authorities and market participants agree that IR
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programs are the proven vehicles for advancing dialogue with investors, building on the delivery of data on key economic and financial policies and performance. Regular, proactive strategies of IR enable country authorities to understand and communicate better with their investor base, address concerns or questions, and shape market-informed policies. Regular interaction with key officials regarding economic data, financial policies, and economic performance enables investors to make sound lending and investment decisions and provide feedback to country authorities. Such programs can also help authorities navigate through turbulent periods of market sentiment. “Which of the following statements best describes your investor relations function?”
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In fact, the majority of countries surveyed do not have a discrete group dedicated to IR. They integrate IR functions with other areas of the business or consider broader communications as serving an adequate and relevant IR role. Generally, few countries are legislatively required to produce publications. Most documents are produced for general information purposes and, to a slightly lesser extent, for IR. Debt management reports, debt management strategies, auction calendars, and fiscal and economic updates were reported most frequently for general information. The Investor Relations function is integrating into the highest levels of company management, contributing more analysis to their boards (86% in 2012, up from 73% in 2011), and more IROs are presenting more frequently at board meetings (21% in 2012, up from 15% in 2011). In addition, Investor Relations Officers are giving more frequent counsel to senior executives on a regular and informal basis (26% in 2012, up from 11% in 2011). Investors are asking for more information, most notably Cash Flow Projections, reported by 64% of corporates, and Future Funding (62%). The percentage of corporates providing guidance to investors in one or more categories has now
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reached 91%, up from 85% in 2011 and 82% in 2010. Guidance on Capital expenditures is most common (64%), followed by Revenues (62%). The goal of increasing international
54% of CEOs’ Communications time devoted to Current Investors in 2012 47% in 2011
42% in 2010
shareholder ownership has risen as an Investor Relations priority, named by 33% globally, up from 20% in 2011 and 17% in
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2010. The majority of corporates worldwide (59%) do not engage with investors on non-financial metrics such as Environmental, Social & Governance.
Why are corporate not educating the investment community and engaging investors on these nonfinancial metrics more actively? According to corporates, an increase in investor demand will be the primary driver for more active engagement on ESG matters. This is true in Western Europe, the leading region in this regard, where 43% of corporates have responded to the investment community and are actively engaging with investors on ESG as a matter of routine. Latin America is next most active, with 40% of corporates communicating on ESG with the primary goal of reaching long-term investors. In contrast, 80% of corporates in North America do not include engaging investors on ESG matters as part of their Investor Relations strategy. The majority of corporates (58%) say that the effectiveness of their IR performance is evaluated internally 23
using informal feedback from the investment community, followed by the quality of information in analyst
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ranked higher than the absolute number of meetings. The use of quantitative metrics to evaluate IR performance has been falling steadily over the past three years, for example, relative valuation/stock performance was used by 42% of corporates in 2010, 35% in 2011, and 29% in 2012. Together these signal that a more sophisticated analysis of IR success may be becoming the norm, looking at factors where Investor Relations has the most potential influence
26% use stock valuation to measure IR results down from 35% in 2011 down from 42% in 2010
Conclusion: Most of the investor who are literate are actually not literate while dealing with the financial matters. In such a cases the role of investor relationship committee plays a vital action in sharing the information between the company and the investor. Although, the investors are also becoming active for their rights and playing their role for better functioning of the company through raising questions on various aspects and workings of the company. Companies also now a day’s take various measures to inform their investors through social media, road show, conferences, etc. major IR committee’s across the world are
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taking various steps to safeguard the rights of the investors. In India, SEBI does the same work of educating the investors. But the companies can achieve this role through the IRO. Many companies are not aware with the role of IRO and they don’t engage with such functions. In India the companies are now appointing to investor relationship committee to make good relation with their investor.
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Mobile Banking: Its Future and Impact On Telecom Sector In India 25
Ramesh Chandra Pradhan, SIMS Pune It’s quite obvious to an Indian citizen that telecom sector is the one of the most rapidly burgeoning sectors and rightly has got bright prospects in the times that lie ahead. With the emergence of new players in the telecom sector after the 1991 reforms the growth has only increased. In the last two decades , the telecom sector and mobile telephony in particular has revolutionized the way we communicate and share information. One of the main reasons of this staggering growth being the competition-induced tariffs acting as catalysts. The fact that this sector is expected to cross $100 billion mark in the coming five years underlines the growth prospects it has to offer. Also the mobile penetration in India which currently stands at 80% is a luscious figure for the telecom companies to thrive upon.
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With the advent of smartphones in the recent years its been a general trend that people are switching to smartphones rather than using ordinary mobile phones because the multi-functionality that a smartphone offers. Thus , the mobile app industry has emerged and growing big too. This has made it imperative for all the major banks to come up with their mobile apps. Like for example ICICI , CITIBANK or SBI have mobile banking apps of their own. Such is the flexibility with the apps that they are available for different
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platforms be it iOS, Android or Windows, catering to the needs of all the customers. Also the newer versions are released time to time with improvements so as to make it easier for the end users and making it a good experience. Now the question arises as to why would a person use a mobile banking app? The answer to this question lies in the fact that how busier and faster our lives have become. Do we really bother to visit a bank every time we have to make a transaction ? Do we have that much time in our hands ? The answer is a blunt NO. As we have found solutions for every need of ours , so how far-fetched could this need be. The mobile apps mainly target to the urban and semi-urban users to some extent as the nature of work and lifestyle is vastly different from that of an individual living in a rural area. So with growing number of smartphone users the mobile banking apps have made a niche of its own in the apps market. A staggering figure of $2.7 billion speaks volumes of how big the Mobile Value Added Services(MVAS) industry is in India. Of course out of these, mobile banking apps has a big chunk. With multitude of apps available in the apps market its quite a task for an user to select the relevant apps that he or she can make use of. An iPhone for example provides an user with many inbuilt apps ranging from personalisation to games to other trivia. In addition to this it has also Apple iStore for the user to choose apps from. The telecom companies directly benefit from this as for downloading an app from the
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app market a user has to connect to the mobile internet which needs packet data connection availability on the mobile. So for this the customer has to pay an amount for a particular validity period. We also see nowadays that there are tie-ups between mobile companies and telecom companies which is a trend that followed in the US. For example the launch of iPhone 4S in the Indian market came up with a tie up between Apple and Airtel , India’s leading telecom network. The contribution of the m-banking apps to the growth of telecom sector cannot be neglected. Airtel Money itself has got a tremendous response and deservingly so, considering the new features it came up with like Online Movie tickets ,Online Money Account and Bill Payment. All these made it easier for the users to make their transactions as and when required. Using a handheld device for making day-to-day transactions has led people to think in that direction where you don’t have to visit a bank every now and then with the amount of transactions taking place nowadays. This is giving a whole new definition to banking as a sector. On the hindsight of it the telecom sector is also getting benefited, which in economic parlance can be termed as spill-over benefit.
Mobile Internet Users Urban:85 million Rural : 25 million
Source : IMRB The Indian government is also getting is act together by giving impetus to the growth of telecom sector by
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bringing about timely adjustments and amendments to the tariffs and the rules respectively. The FDI in telecom sector being 74 percent is subject to some conditions by the FIPB (Foreign Investment Promotion Board) and the TRAI. So now shifting back our focus on as to how m-banking is going to impact the telecom sector , the statistics
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are there for everyone of us to see. The ever increasing number of subscribers has really given a push to both the app market as well as the telecom sector per se. And the vibes are quite good about what’s in the store for the future that lies ahead. All being said and done the onus is now on the customers or the end users to see m-banking as a great tool and accept for their own benefits. All that needs to be done is making this growth a holistic one so that the waves of m-banking touch the rural sector as well because that is where real India lives. How great that would be for an economy like ours ? That will be a resounding answer. But for that proper awareness and knowledge needs to planted in the minds of the rural denizens in the first place. Making the m-banking apps available in different languages will be a good initiative in this direction. So, English as a language would not be a deterrent for such a revolution to take place in out rural India. And of course there is always scope for growth in every sector. We do believe it’s just a matter of time before that really happens. Fingers crossed as of now !!
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Stabilizing Indian Currency: Trade Payments Manasi Mishra, IBS Hyderabad India is organizing to lobby major trading partners comprising of Iraq, Japan and Venezuela to agree to take rupee payments for some of their exports, one of a series of moves to steady the volatile currency and make it more globally acceptable. Constraints on large transactions of rupees against foreign currencies are envisioned to protect India from continued speculative assaults, but they also bound interest in the rupee and foreign investment flows. A committee is set up in August to study currency swaps has now won backing from the finance ministry, the commerce ministry and the RBI to aim about 10 countries for such deals, concentrating on oil exporting nations and others that run large trade surpluses with India.
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The committee is expected to agree within the next few days on the magnitude of the swap deals it will seek and finalise which countries to aim first. The finance ministry has already fixed in principle to lobby Venezuela to take rupees for some oil transactions. Another idea is to take some partners' currencies for trade.
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There is a broad treaty between the commerce and finance ministries and the Reserve Bank of India to push currency swap agreements, principally with the countries with which India runs a large trade deficit. China is already interested to start yuan-rupee trade, and India is optimistic that Japan may show an interest in accepting rupee payments. The idea to aim oil producers Iraq and Venezuela stems from a rupee payment programme already in place with Iran. It is still doubtful, how much appetite there will be from the oil nations for the plan -- Iran only agree to take rupee payments because sanctions by Western nations limit its options for payment in other currencies. India's imports from Venezuela were $14 billion during 2012-13, mostly oil, while exports were a scanty $235 million. India's exporters consider a rupee payment arrangement could drive exports of medicine, engineering merchandises and IT services to Venezuela, reflecting trade with other Latin American countries. Japan lately settled to extend an emergency currency swap facility with India to $50 billion from $15 billion. The new plan would be distinct from that deal and would emphasis on trade. India has over a period of years remained loosening capital controls and allowing foreigners to invest in more rupee assets. The step to full convertibility got new drive when the rupee crashed 20 per cent counter to the dollar earlier this year. It is still down nearly 12 per cent. This probably is a strange time to talk about rupee internationalization, but we have to ponder beyond the
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next few months. As our trade expands, we will impetus for more clearance in rupees. A significant step
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towards internationalization came earlier this week when the World Bank's IFC arm allotted its first rupee bond to the value of $160 million, part of a new $1 billion offshore rupee bond agenda. Bond was strongly oversubscribed. Trade Deficit The strategy to aim more countries for rupee payments is also part of India's efforts to tap new markets for exports, which forms nearly a quarter of the $1.8 trillion economy. India's trade deficit amplified to a record $190 billion during 2012-13 fiscal year as the gap with major trade partners such as China soared to $40 billion, and the combined shortfall with Japan, South Korea and Venezuela reached $30 billion. There will be lessen pressure on the volatile rupee and a win-win situation provided we have bilateral currency swaps. However, it seems cynical to have fast progress on the plan. It has long way to go and it can take at least of six months to operationalise a swap agreement, adding swap deals required political commitment and an impetus from the RBI.
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The drastic reduction in India's currency value and economic slowdown could disappoint oil-exporting nations from making swap deals. Notwithstanding importing $2.5 billion of goods between April and September via the rupee channel, Iran lately asked India to pay for oil in other currencies.
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Let’s find the correct one
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1. Which of the following credit card users is likely to pay the greatest dollar amount in finance charges per year if they all charge the same amount per year on their cards? a. Barbara, who always pays off her credit card bill in full shortly after she receives it b. Ellen, who generally pays off her credit card in full but occasionally, will pay the minimum when she is short of cash c. Nancy, who pays at least the minimum amount each month and more when she has the money d. Paul, who only pays the minimum amount each month 2. Jack and Ron are young men. Each has a good credit history. They work at the same company and make approximately the same salary. Jack has borrowed $2,500 to buy a car. Ron has borrowed $2,500 to take a foreign vacation. Who is likely to pay the lowest finance charge?
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a. They will both pay the same because they have almost identical financial backgrounds b. Ron will pay less because people who travel overseas are better risks c. Jack will pay less because the car is collateral for the loan d. They will both pay the same because the rate is set by law
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3. Inflation can cause difficulty in many ways. Which group would have the greatest problem during periods of inflation? a. Young couples with no children who both work b. Young working couples with children c. Older working couples saving for retirement d. Older people living on fixed retirement income 4. Which of the following statements is not correct about most ATM cards? a. You must have a bank account to have an ATM card b. You can generally get cash 24 hours a day c. You can generally obtain information concerning your bank balance at an ATM machine d. You can get cash anywhere in the world with no fee 5. If your credit card is stolen and the thief runs up a total of $1,000 but you notify the issuer of the card as soon as you discover it is missing, how much will you be responsible to pay? a. None b. $50 c. $1,000 d. $500 6. Retirement income paid by a company is called:
a. Social security b. Rents and profits 29 c. Pension d. 401(k)
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7. Wendy worked her way through college earning $15,000 per year. After graduation her first job pays $30,000. The total dollar amount Wendy will have to pay in Federal income taxes in her new job will: a. Be lower than when she was in college b. Stay the same as when she was in college c. Go up a little from when she was in college d. Double, at least, from when she was in college 8. Which of the following statements is true? a. Your bad loan payment record with one bank will not be considered if you apply to another bank for a loan b. People have so many loans it is very unlikely that one bank will know your history with another bank c. Banks and other lenders share the credit history of their borrowers with each other and are likely to know of any loan payments that you have missed d. If you missed a payment more than two years ago, it cannot be considered in a loan decision 9. Which of the following best describes the primary sources of income for most people aged 20-35?
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a. Profits from business b. Dividends and interest c. Rents d. Salaries, wages, and tips
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10. Heather and Alexis are employed by the same company and earn the same pay. Heather spends her free time taking work-related classes to improve her computers skills, while Alexis spends her free time socializing with friends and working out at a fitness center. After five years, what is likely to be true? a. Alexis will make more because she is more social b. Heather and Alexis will continue to make the same money c. Heather will make more money because she is more valuable to her company d. Alexis will make more because Heather is likely to be laid off
Answers will be available in December issue. Kindly write us your answers on our email-id. October Issue: Quiz answers
1. False, 2. True, 3. True, 4. True, 5. False, 6. False, 7. False, 8. False , 9. False, 10. True
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THE FINANCIAL BULLETIN Money Matters Club Official Finance Club of IBS Hyderabad Vill: Dontanpally, Shankarpally Road,, Shankarpally, Dist: RangaReddy Hyderabad, Andhra Pradesh: 501203
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