The IBS times DEDICATED TO VICTIMS OF #CHENNAIRAINS
December 2015, Issue No. 186
DRAGON’S ABORTION OF ONE CHILD POLICY
DISTURBING THE DECENDANTS BY PRATEEK PANDEY
FRAUD-U-LEND BANKING FRAUD BY ANUPAMA KUMARSWAMI
NO CALM IN STORM MARKET WATCH BY ISHAN GUPTA FROM PINNACLE TO DEBACLE
BIHAR DRUBBING BY JATIN SHARMA
SURGE IN IPO’S, A BONANZA FOR PE FUNDS MONEY PERUSAL BY SANDHYA ADHAVAN
1|DECEMBER2015
FinStreet, IBS Hyderabad
ISSUE NO. 186, DECEMBER 2015
What’s Inside
2|DECEMBER2015
INTELLIGENCE BEYOND SUCCESS
LETTER FROM THE EDITOR TEAM IBS TIMES KAUSHIK CHANDELL (EDITOR-IN-CHIEF) AVIK CHAKRABARTY (MANAGING EDITOR) ALISHA SINGH APOORVA ANUSHA
KOLISETTY AISHWARYA MANJARI SHARMA NAVJOTH SAHU PRIYANKA MALIK RAHUL MISHRA RIPU TANDON SACHI KHESKANI SAMEENA USMAN SRISHTI KARMAKAR ABHINAV BANERJEE
Dear Readers, Greetings from Team FinStreet. Team FinStreet dedicates this issue to Chennai Flood Victims and offers to support the victims in every possible way. We present to you the 186th edition of The IBS Times.
This issue shares the insight on the ongoing Make in India campaign. We have also shed some light on aftereffects of Bihar Elections named as ‘Bihar Drubbing’. Also, in this issue we have discussed about recent banking fraud ‘Fraud-U-Lend’ along with a report on India Africa Third Summit. Our most famous Market Watch goes with the name of No Calm in the Storm again trying to bring the best speculative report for you to invest. We also bring to you an article on FDI Inflow in brief stating about the recent peaks achieved in FDI. This issue further brings for its new readers a comprehensive report on Dragon’s Abortion of 1 Child Policy which will focus on recent policy change in China. Hope you have an enriching experience reading The IBS Times. Your feedbacks and opinions will help us make it better. Kaushik Chandell Team FinStreet
ANUPAMA KUMARSWAMI CHESTHA KUMAR EYAMINI N HEMLATA HAJONG ISHAN GUPTA JATIN SHARMA JHARNA SONI PRATEEK PANDEY RANU SARUPRIA ROHIT TILLU SANDHYA ADHAVAN SUPRIYA GAUR SWARUPA ROY
3|DECEMBER2015
-MARK TWAIN
CONCERNS AND EXPECTATIONS
MAKE IN INDIA- ARE WE READY?
-Supriya Gaur
A Portuguese proverb states “There’s a long way from
government expenditure, investments and net
saying to doing”. This holds true for the vision and
income factor which is given by exports minus
mission of our Prime Minister Mr. Narendra Modi.
imports. Even the logo of the campaign denotes
During his maiden Independence Day speech on 15th
dynamism, progress, strength and courage which
August, 2015, he openly welcomed foreign companies
itself explain the intention of the campaign. The
to manufacture in India saying, “Sell anywhere you
purpose of Make in India is to fuel the manufacturing
want but come, make in India”. That moment aimed at
sector thus putting down the unemployment rates by
creating the platform to attract foreign investors and
creating job opportunities. It also focuses on
companies to sail to India for business. We undoubtedly removing certain rules and regulations pertaining to have the most flamboyant person ruling our nation and tax, import and export to provide the ease for doing he has proved it many times by bringing into action
business which in turn will help to give global
various schemes such as Pradhan Mantri Jan Dhan
recognition to India. The campaign focuses on 25
Yojna, Digital India, Soil card health scheme, PAHAL,
sectors including automobile, defense, electronics,
Atal Pension Yojna and Smart City Program. Among
railways and aviation which have enormous growth
this list of initiatives the one which caught everyone’s
options.
eye was the Make in India campaign which aims at
“We have a pool of talent, what they need is the place
creating opportunities for youth and thereby leading to
to grow”, this is the belief of the man behind this
the development of economy. But the dilemma lies in
mission who aims at creating 100 million jobs in the
the fact that whether such an initiative will be fruitful
manufacturing sector by 2022 so that every budding
from the point of long term profitability and economic
talent of the nation is trained and assigned the work
development.
of his expertise in order to ensure that each and every
In order to encourage foreign and domestic companies
minute of work contributes to the GDP growth. The
to manufacture in India, Mr. Narendra Modi launched
current contribution of manufacturing sector to the
the Make in India campaign on 25th September, 2014
GDP is 16 per cent which is expected to rise to 22
with the objective to increase the contribution of
per cent by 2022. Along with this, major cost cutting
manufacturing sector to the gross domestic product
measures are to be adopted in the defense sector by
(GDP) of India, boost foreign direct investment(FDI)
emphasizing on manufacturing the equipments in
and foster innovation. Gross Domestic Product is the
India. Similarly other areas of development such as
final value of all goods and services produced within a
space and construction have been spotted which will
nation in a specific time, usually during a year and it
help in achieving the ultimate aim of growth.
includes
consumption,
What looks easy when written down in terms of facts
government expenditure, investments and net income 4|DECEMBER2015
and figures is actually a humungous task not because
factor which is given by exports minus imports. Even
it is at such a large scale but simply because there are
all
public
and
private
which in no way can be a favorable aspect. Moreover business consent is lacking between other countries. Deregulation and tax concession alone will not solve the problem. What needs to be done next is development on the technological front. India still lacks way beyond other economies such as China and Japan when it comes to implementation of new techniques of growth. A particular method adopted in United States today will reach India 3-5 years down the line. So the flaw is basically in research and had been wiped out due to the drop in equities in the past two weeks across the world.
development which needs to be fastened. Infrastructure
poses
another
problem.
Land
While the rupee slid to a two -year low on Monday,
acquisition issues hinder the development of world
stock market investors in India lost, Rs. 7 lakh crore in
class infrastructure and are a source of threat for
the big What looks easy when written down in terms of
expansion and setting up of new business. The
facts and figures is actually a humungous task not
interested parties will have to pay high rents or buy
because it is at such a large scale but simply because
expensive properties thereby increasing the overall
there are some hidden challenges which are crawling
cost of production and manufacturing. This scenario
side by side with the campaign objectives. One of the
will never favor the Make in India initiative.
most striking problems is the deregulation which will definitely hinder the progress of the project. Indian business environment is bounded by such a large number of regulations that setting up even a small manufacturing unit requires approval and clearance of many authorities. To make this environment business friendly, there needs to be the elimination of these hindrances so that attracting the foreign investors and building more startups becomes easier.
Although there are some in hand problems regarding the implementation of the initiatives but a few steps have already been taken which gives the campaign a positive response. Beginning with the electronics sector, Foxconn, the manufacturer of Apple’s iPhones has agreed to sign a contract by the end of 2015 for the establishment of 10-12 facility and data centres in India. Mercedes Benz, a renowned name in the automobile industry has decided to
Low tax rate has always been the point of attraction for
manufacture its luxury car components and luxury
general public as well as the entrepreneurs. To set up a
buses in India which will be exported to Africa and
new business unit tax concessions are required which
South East Asian markets. Manufacturing in the
needs the revision of the entire tax system and it is not
defense sector is the need of the hour as it has 60
an easy task. Currently there exists dual tax liability
yundai Heavy Industries and Samsung will build
which 5in| no aspect. Moreover D Eway C E Mcan B Ebe R 2a0favourable 15
warships and LNG tankers in collaboration with
business consent is lacking between other countries.
Hindustan Shipyard Vizag and Kochi Shipyard
Negative aspects cannot overshadow the efforts of people who pursue Make in India not only as an initiative but a dream that is to be made true. When we know what our weakness is, we can make an attempt to transform it into our strength. Whether we will fall in the lap of success or will be slapped by failure, that is completely the different aspect but now what we require is to unite and contribute our part towards the success of this initiative to give our nation a global recognition.
percent imports. Hyundai Heavy Industries and Samsung will build warships and LNG tankers in collaboration with Hindustan Shipyard Vizag and Kochi Shipyard respectively. Various other big names such as Spice Group, Lenovo, Motorola and Boeing have already put a foot forward in support of the Make in India campaign. Apart from that the government of India itself has planned to form a Delhi Mumbai Industrial Corridor (DMIC) which will create new manufacturing hubs and attract foreign investment. Also 13th-18th February, 2016 has been announced as the Make in India week to be organized in Mumbai. Negative aspects cannot overshadow the efforts of 6|DECEMBER2015
people who pursue Make in India not only as an initiative but a dream that is to be made true. When we
BANKING FRAUDS
FRAUD-U-LEND
-Anupama Kumarswami
++
It was the fine summery morning that Bank of Baroda
amount paid by way of custom and excise duties on
was experiencing. Daily customers used to go visit its
the raw materials used and service tax used for the
Ashok Vihar branch in Delhi. The employees and the
manufacture of exported goods. The problem here
customers hardly knew what was happening within the
was that the accused traders evaded the custom
company fortifications. During its usual business, Bank
duties, taxes and over-claim duty drawbacks to
of Baroda noticed some unusual transactions from its
generate slush funds. The accused had plotted of
Ashok Vihar branch. This branch was relatively new,
forming fake companies and business entities world-
had obtained permission to accept Forex transactions in
wide, particularly in Hong Kong by over valuing the
2013. Within a time span of 1year, the Forex business
export value and then successively claiming the duty
of this branch had shot up to Rs.21,529 crore. There
drawbacks.
were obvious undertones of fraud somewhere within the bank’s branch. What exactly happened? The culprits had opened up some 59 accounts in Ashok Vihar branch of Bank of Baroda under the names of various different companies and started multiple remittance transactions to these accounts. There were illegal remittances of Rs.6,172 crore to Hong Kong between 1st August 2014 and 12th August 2015. In the first transaction, dummy companies were opened in Hong Kong. The exporter, who had foreign exchange black money collected and stored abroad, used these entities as clients who sent the black money to India to make the transaction look genuine and keep it secured. Government of India on receiving the foreign exchange disbursed the duty drawback money to the exporter
Not only that, Bank of Baroda had even found out that there were 5,853 outward foreign remittances of Rs.3,500 crore, mainly for the purpose of ‘advance remittances for import’. These funds were sent through 38 current accounts to various overseas parties numbering to 400, mainly based in Hong Kong and one in UAE. Advance remittances for imports are those part payments that an importer makes to confirm his imports. As per the banking systems, rules and regulations, a remittance of up to $1,00,000 does not raise an alarm and is automatically cleared without supporting documents of imports. The money launderers exploited this loophole by smartly selecting the commodities which are prone to cancellations on account of quality or sharp price fluctuations.
since the entire transaction was closed as per the bank.
This entire fraud came in the spotlight only because
These duty drawback schemes are used by the
Bank of Baroda pointed out the suspicious treading
Government of India to promote exports in which the
to the investigating agencies. But, there were
refunds is given by the government to recoup the
mistakes at Bank of Baroda’s end too. Banks are
amount paid by way of custom and excise duties on the
expected to raise exceptional transaction reports and
raw materials and tax used for the 7 | D E C Eused MBER 2 0 1service 5
suspicious transaction reports with the RBI in case of
manufacture of exported goods. The problem here was
any discrepancy if found out. The delay in pointing
CBI and other central investigating agencies have set upon to understand the modus operandi of how the scams are committed as well as where they make mistakes and the how those loopholes can be corrected. RBI is set to red-flag all those accounts where the value of the transaction-single or multiple, exceeds the $1 lakh threshold per day. Central Vigilance
commission,
Central
Bureau
of
Investigation and Enforcement Directorate have come together to formulate the plan to tackle these frauds and then recover those money lost and book the perpetrators. These three agencies along with the expected to raise exceptional transaction reports and
CBI analyzed 10 frauds to get to the root cause of
suspicious transaction reports with the RBI in case of
these top bank frauds as well as to recover funds and
any discrepancy if found out. The delay in pointing out
book the culprits. These changes were brought about
these discrepancies made the matter even worse and
to consideration to the Bank of Baroda case and
thus giving the scam a momentum. This was not the
Dena Bank case. They have requested the RBI to
only largest scam that occurred. In 2010, CBI excavated
ensure tracking of even smaller transactions and also
a corporate loan racket in Mumbai, where officials of
where the total value of such multiple transactions
various state-run banks and middlemen were arrested
crosses $1 lakh in a day from an account. Not just the
for sanctioning loans to particular corporates and
agencies but also the Reserve Bank of India and
violated the prudential norms. In 2010 again, Citibank
Indian Banks Association are working on the details
detected a scam in its Gurgaon branch committed by
of arrangement to monitoring of such transactions.
one of its employees. Early this year, investigating agencies had initiated preliminary enquiries against officials of several financial institutions, including Dena Bank and Oriental Bank of Commerce with a connection of fixed deposit fraud involving Rs.700 crore. Still scams are being committed and to tackle that, Public Accounts Committee (PAC) is likely to order the Comptroller and Auditor General (CAG) to probe the fraudulent practices reported in various public sector banks. These scams allegedly run into crores of rupees. 8|DECEMBER2015
With respect to Bank of Baroda case, the magnitude of fraud may not be that big as it was an advance remittance for imports. The bank, CBI and ED are working together on this to identify how much import actually happened, how much import is still pending and how much money has been squandered away. CBI has been enhancing its capabilities to curb banking fraud in the country as the situation on bad debts and non-performing assets is worsening. To augment the skills and capabilities of investigators and prosecutors, the first batch of 30 CBI officers have begun
and prosecutors, the first batch of 30 CBI officers have
key details of previous frauds. The creation of such
begun training in handling advanced financial crimes at
database will provide banks with information before
IIM Bangalore. These are among 185 officers who are
the beginning of their banking relationships,
to be trained at IIMs and Law schools. The CBI is also
extension of credit facilities or at any time during the
under process of setting up a centralized technology
operation of an account. This will be a big step
department to support investigations in areas of cyber
towards to the cleansing of major loopholes by
forensics,
fraud
providing the banks with necessary information and
examinations. With increasing amount of Bad debts and
thus by helping the investigating agencies to trace the
Non-performing assets, there have been also under
culprits. With increasing amount of availability of
reporting of frauds for variety of reasons linked to
information, it is also important that it be used in a
larger issues of corporate governance in banks.
more productive manner. With more power comes
mobile
forensics
and
forensic
As a result, RBI is in the process of designing a Central Fraud Registry, where banks would be able to access key details of previous frauds. The creation 9|DECEMBER2015
more responsibility.
COMPARISION
GOVERNMENT BONDS FAVORED OVER CORPORATE BONDS
-Eyamini N
It is seen that the investors are showing more preference
Maturity ranges from of 2-30 years.
towards government bonds than that of the PSU in the
Securities qualify as SLR (Statutory Liquidity
recent past in order to meet the challenges in the
Ratio) investments (unless otherwise stated)
disinvestment target. The disinvestment process is challenging right now mainly because of the global commodity slowdown and the companies we are considering
for
disinvestment
are
mainly
in
commodities industry, which are affected by global
Foreign investors prefer Indian Government bonds with shorter maturities, indicating that they are bullish for the next three to four years when falling rates would lead to capital gains. They are unlikely to invest in a country with a volatile exchange rate
commodity prices.
impacting their investment gains. Indian government A government bond is a bond issued by a national government, generally with a promise to pay periodic interest payments and to repay the face value on the maturity
date.
Government
bonds
are
usually
denominated in the country's own currency.
bonds are more likely to attract more investors due to stable currency, growth coming back, stable government, investor-friendly policies, sovereign, very liquid and you can any day buy any amount and The secondary market [in corporate bonds] is not
Major advantages as to why government bonds are
very liquid compared to government bonds. So, in
preferred are:
the corporate bond market, from June-July onwards
No default risk as the securities carry sovereign guarantee.
Ample liquidity as the investor can sell the security in the secondary market
Interest payment on a half yearly basis on face value
we see a about USD 1.5-2 billion inflows every month from FIIs. That has contracted the spreads between government securities and corporate bonds. It used to be about 70-80 basis points historically, they have now come down to 30-40 basis points. These FIIs are coming either from the European countries, US or the South Asian countries like
No tax deducted at source
Can be held in Demat form.
Rate of interest and tenor of the security is fixed
corporate bonds are not as high as it is in India, these
at the time of issuance and is not subject to
are available at a yield of 8.25-8.40 levels whereas
change (unless intrinsic to the security like
globally these are traded at yield of 1.5-2 percent
FRBs - Floating Rate Bonds).
levels.
Redeemed at face value on maturity
government yields in Asian emerging markets after
Maturity ranges from of 2-30 years.
Indonesia: around 8.16 per cent for a 10-year bond,
Singapore, Hong Kong and all. The yields in other countries, especially on government-sponsored
Indian states pay the second-highest
10 Securities qualify (Statutory Liquidity |DECEM B E R 2as 0 1SLR 5
much higher than Indian federal debt and nearly two
Ratio) investments (unless otherwise stated)
to three times the yield on Philippines and Thai
Indonesia: around 8.16 per cent for a 10-year bond,
This year in the budget plan of 2015-16 Arun Jaitley
much higher than Indian federal debt and nearly two to
(Finance Minister) set an disinvestment target of
three times the yield on Philippines and Thai paper.
69,500,even though they missed the previous year target by half. Government has reached upto 12,700
Facts
crore in the first half of the fiscal year which is the
Foreign Portfolio Investors have lapped up government
highest in the past seven years record despite market
debt securities, including state bonds, worth nearly Rs
volatility. Despite auctions of G-secs, government
15,000 crore within days of limits being hiked for these
bonds have been subscribed multiple times, given the
instruments.
huge interest among foreign investors comparatively
RBI and SEBI earlier this month allowed greater
demand for corporate bonds have been less. The
foreign fund flows into government securities, which
government has a pipeline over a dozen PSUs for
are generally favored by FPIs over the corporate bonds
stake sale which includes RINL, NMDC, SAIL, Coal
in India. Following this, additional limits have been
India, BHEL, OIL and ONGC, MMTC, Nalco and
available.
Hindustan copper.
1. In further opening up, the limits would be enhanced by another Rs 16,600 crore from January 1 onwards. 2. The cap has been now raised to Rs 1, 70,000 crore from Rs 1, 53,569 crore previously. As against the previous limit, the total investments by FPIs in government bonds stood at Rs 1, 66,956 crore as on October 16.
3. In comparison, the total investments by FPIs in corporate bonds stood at Rs 3, 54,505 crore as against a cap of Rs 4, 14,323 crore.
4. The enhanced limits include a first-ever separate category for state development debt securities where FPIs can invest up to Rs 3,500 crore with effect from October 12. This would be doubled to Rs 7,000 crore from January 1.
India is likely to sell extra government bonds made available for foreign institutional investors last week through an auction rather than on demand as of now. The Reserve Bank of India said a week ago that it would gradually increase the limits it sets for foreign investors buying government debt by up to 1.2 trillion rupees ($18.37 billion) by March 2018. In order to manage the exhaustion of limit, RBI have shifted a part of the limit, which was not utilized on the sovereign wealth fund and pension fund and the central bank quota [which was a separate USD 10 billion], it has reduced USD 5 billion from there and shifted to the normal quota and it was very quickly exhausted.
5. The auction conducted by the BSE had attracted bids
Under Indian rules, government debt is usually sold
of staggering Rs 17,266 crore from FPIs, three times
via auction - rather than "on tap" for most foreign
higher than securities put on offer valued Rs 5,600
investors once they use more than 90 percent of the
crore.
total debt limits. Foreign institutional investors have already used up almost their entire $25 billion 11 | D E C E M B E R 2 0 1 5
allocation of government debt. After the 90 percent limit it will be sold on auction basis. India has
more attractive comparatively. Government is taking all necessary measures to enhance the investment on corporate bonds as well, as the limit to Government bonds have almost filled up. Indian government has also decided to issue long term bonds of 40 years tenure in the FY16 in order to meet the increasing demand. The utilization of corporate bonds must be increased or the investors must wait till the next auctions or till the limit enhancement made by SEBI.
Fig: Government Bond
Fig: Corporate Bond already used up almost their entire $25 billion allocation of government debt. After the 90 percent limit it will be sold on auction basis. India has increased its debt limits for the category of investors composed of foreign institutional investors (FIIs) by 55 billion rupees ($842.11 million). FIIs, which include several kinds of investors like mutual funds, pension, insurance funds, hedge funds, central banks and banks typically account for the overseas investments into India. Thus it is seen that the Spreads on Indian bonds are more attractive comparatively. Government is taking all necessary the investment on 12 | measures D E C E M B to E R 2enhance 015 corporate bonds as well, as the limit to Government
MONEY PERUSAL
SURGE IN IPOS A BONANZA FOR P.E. FUNDS
-Sandhya Adhavan
“Overall, it looks like a healthy time to exit investments
who invested heavily in distressed companies before
through public share sale, and next year will be even
the crisis, had to hold their investments for a period
better than this year as more companies are being
much longer than the global norms of 4 years, as the
groomed for their listings,” said Vishal Tulsyan,
market sentiments were poor and the economic
managing director and chief executive, Motilal Oswal
growth was slow. Because of these factors, the
Private Equity Advisors Pvt. Ltd.
market share price went down putting the investors under pressure. A McKinsey & Co. report observed
Initial Public Offering (IPO) is a process by which a private company, small or big, in order to raise huge capital, go to general public by listing itself in the stock exchange. There are basically two reasons why the companies go public. Through an IPO, a company can raise funds from millions of regular people which enables them to sell the stocks in the stock market immediately, rather than approaching individual investors to invest. Another reason is, people who have invested in the company are actually holding a ‘restricted stock’ (stock that cannot be sold for cash easily as it is not verified by the government). By going for IPOs, these stocks become a liquidity event – easily convertible into cash.
that the average gross returns to private equity investors before 2007 was 21 percent and after 2008 it plunged to just 7 percent. Not only the returns, but also the holding period of such investments increased from 3.3 years to 5.7 years, exceeding the global norm. For the past three years, there has been a significant increase in the companies opting for IPOs, creating a favorable situation, as the private equity funds who are holding the restricted stock, wants to liquidate their investment by selling these shares so as to reduce their stake in the respective company. An analysis of nine private equity funds shows that average returns generated through selling their
Why the private equity funds were idle for a long time?
investments partially through IPOs are above 24 percent. This analysis is based on the price at which
In the present scenario, many companies are going for
the private equity investors invested and sold their
IPO. This is a favorable situation for the private equity
shares.
investors. Before shedding light on why it is favorable
Private equity exits after IPO launch
to them, let us understand who are Private Equity (PE) funds. Private equity funds are those who pool in money
The nine private equity funds that made partial exits
from retail and institutional investors to invest into
through IPOs this year include New Silk Route,
companies- mostly distressed ones, to get returns. But
Providence Equity Partners, Jacob Ballas India,
due to the 2008 Global crisis, many private equity funds
Motilal Oswal Private Equity, Zephyr Peacock India,
who invested heavily in distressed companies before
Xander Group Inc., Norwest Venture Partners and
13 | D E C E M B E R 2 0 1 5
the crisis, had to hold their investments for a period
Rabo Equity Advisors-managed India Agri Busines 3s Fund.
Xander Group Inc., Norwest Venture Partners and Rabo Equity Advisors-managed India Agri Busines 3s Fund.
average of Rs.63.72 a dollar this year. Prospective outlook for the private equity funds
The investor Zephyr Peacock India, which is the private equity arm of New York-based Zephyr Management
As the market sentiments has improved, many
Lp. registered the highest return of 55 percent, partially
companies have decided to go for IPOs to provide
exiting its investment in Pennar Engineered Building
the investors an exit option and also to raise capital
Systems Ltd. It had invested in the company at Rs.58.20
from public. Around seventeen companies have
per share in 2013. During its public issue, Pennar sold
raised more than Rs.10,000 crore through IPOs. And
shares at Rs.178 apiece. New Silk Route, a private
more than 30 companies have filed draft IPO papers
equity investor, who has partly exited two investments
with the capital markets regulator, Securities and
through recent IPOs, made a return of 40% on its
Exchange Board of India (SEBI), which aggregates
investment in Hubli-based VRL Logistics Ltd.
to Rs.20,000 crore by next year. But not all investors
However, a compounded annual return of just 8.79%
who are going for IPOs are getting the expected
was given by its seven-year-old investment in Ortel
return. Jacob Ballas made 8.7% (from PNC
Communications Ltd.
Infratech), and Norwest Ventures Partners and Xander Group gained only 10.84% returns (from
Motilal Oswal Private Equity, which had invested in Power Mech Projects Ltd in portions, sold a part of its
Sadbhav Infrastructure Project) from IPOs in which they partly exited their investments.
investment in the company at Rs.640 a share. Its initial investment in the company was made at a price
Sanjeev Krishan, leader (transaction services and
of Rs.159.82 in the year 2009.
private equity), PwC India said that secondary sale has been a preferred option for PE funds and most
Another private equity fund which has made good returns is Rabo Equity Advisors’s India Agri Business
well-run businesses have seen a secondary sale. “We have noticed that IPO is only a fallback option.”
Fund. They partly exited its investment in Prabhat Dairy Ltd at a price of Rs.115 per share compared to its
Even though there are certain investors who are
initial entry price of Rs.49.1 per share. These private
unable to get fair returns through IPOs, the very fact
equity funds are focusing on issuing the shares at higher
that they are exiting their stakes in the company after
price so as to compensate for their depreciation in
holding the investments for a long period comes as a
Indian currency as the Investments made in the 2008-
relief to them. The sudden surge in IPOs were after
09
all a bonanza for the private equity funds.
period
(the
rupee
traded
at
an
average
of Rs.43.39/dollar) are at a drawback since the currency has now weakened. The Indian currency traded at an average of Rs.63.72 a dollar this year.
14 | D E C E M B E R 2 0 1 5
MARKET WATCH
NO CALM IN STORM
-Ishan Gupta
The markets have been in a downward trend since the
26800
last week of October due to the the uncertainty around
26400
8100 8000
the Bihar election. The markets were jittery from the start and the exit polls did not give any cheer to the market. With our political class fate sealed on Sunday,
Sensex
26000
7900 7800
Nifty
25600
7700
the future course of action of the market was visible. With NDA losing in Bihar it was clear that the road
25200 2-Nov-15
5-Nov-15
8-Nov-15
7600 11-Nov-15
ahead will be tough. The government will not have enough numbers to muster the support in the upper house and as a result will not be able to pass crucial
Simply put the euphoria around the Indian economy might start subduing.
reforms. The government now driven into a corner
This was witnessed on 9th November when the
decided to announce some reforms for FDI on the
market fell flat within minutes of the opening bell.
following Tuesday. Due to this and the ritual of muhurat
Muhurat trading
trading, the BSE SENSEX snapped its five day losing The concept of muhurat trading is unique to the
streak.
Indian markets. It is auspicious stock market trading Equity markets
for an hour on Diwali. It is a symbolic and old ritual
The market continued its sluggishness in the beginning
that has been retained and observed for, by the
of the month. The pace of economic reforms has been
trading community, for ages. As Diwali also marks
slowing down and questions are being raised over the
the beginning of the New Year, it is believed that
government’s ability. The Bihar election was definitely
muhurat trading on this day brings in wealth and
not what the market was hoping for. The election raises
prosperity throughout the year. The time of the
quite a few questions:
muhurat trading is specified by the stock exchange
each year. Since it marks the beginning of the New
The hopes raised by the Modi government of bringing the economy back on track have taken a hit.
The government which is already in minority in the upper house is going to face a tougher time in the parliament.
The government has to develop a working relation
Year, some also refer to it by the year as per the Hindu calendar. This muhurat trading marked the beginning of Samvat 2072. Muhurat trading turned out to be auspicious for the community as the markets ended their losing streak and the SENSEX gained 124 points.
with the opposition to pass essential reforms. 15 | D E C E M B E R 2 0 1 5
Gold Market
Gold Market It is considered auspicious to buy gold, silver or utensils
106.0 104.0 102.0
during the time of Dhanteras. However, jewelers and
100.0
gold traders have reported a lower than expected sale of
98.0
gold this season. They attribute this to a slowdown in
96.0 2-Nov-15
the economy and a poor monsoon season which directly
S&P 500
affects the rural market’s demand for the precious metal. Also, this time the competition comes from an unexpected source, the gold monetization scheme. To
5-Nov-15 FTSE
8-Nov-15 Hang Seng
11-Nov-15 Nikkei
steady gains during the period. Sectors & stocks
stop the excessive import of the yellow metal and to channelize these investments into productive savings
Finally, we would like to highlight the sectors and
the government launched this scheme. These schemes
the stocks to look out for:
are being currently sold by the banks and it will be
TOP SECTOR PICKS
interesting to see how much value these schemes have
Financial Services
Aurobindo Pharma
been able to generate and if they could be a force to be
Automobiles
Britannia
reckoned with for your everyday jeweler or trader.
Industrials
Berger Paints
Currency market
I.T.
Ceat
Pharmaceuticals
SKS Microfinance
The rupee witnessed a strong depreciation over the
TOP STOCK PICKS
period. The downfall of the rupee has been attributed to a variety of reasons. The most prominent among them
The markets have been volatile and unpredictable
is the possibility of a fed hike in December. This
over the period and with a number of factors
assumption is not only weakening the rupee but the
remaining inconsistent and unpredictable anything is
entire lot of emerging market currencies. The other
possible. The start to the New Year has been positive
factor includes the defeat of the NDA government in
and the sentiments are bullish. It will be interesting
Bihar.
to see how the markets turn out in the next year and
Global markets The global markets have been volatile and have been giving mixed signals. In the US, the S&P has remained flat for the period. The FTSE has also been volatile and has seen a downward trend over the period. The Hang Seng index also witnessed a volatile session. The Nikkei was the only exception in the list, locking in steady 16 gains | D during E C E Mthe B E period. R2015 Sectors & stocks
how the global and political factors run their course.
BANKING SECTOR ANALYSIS
MONITORING THE BANKERS
-Rohit Tillu
The Banking sector of any country is paramount for its
the company. Now, for dilution of government stake
survival in this era of tough competition and mammoth
in any public sector bank, the Government has to
financial scams. The Banking sector is virtually the
take a parliamentary approval. The IDBI bank is set
backbone of any economy. Without the help of banks,
up under a special act of parliament which entails
the flow of money and credit cannot be controlled thus
that it is not required to take any parliamentary
leading to chaos and mayhem.
approval for stake dilution in IDBI. The Ministry of
Coming to India, the World’s largest democracy, the banks indeed have a very big role to play. Be it the 1991 meltdown or the Subprime crisis of 2008, the Reserve Bank of India has actively taken charge in wiping off all the repercussions that hit the Indian economy. The vast geographical area makes it very difficult to include each and every individual to under the umbrella of banking, but the Government of India and some private players have assigned themselves to this mission of banking inclusion across the country and they have achieved great results. The Pradhan Mantri Jan Dhan Yojana was one such initiative by the Modi government to achieve maximum Banking and Financial inclusion. The government of India also has a controlling stake in various banks with which they control the flow of money in the economy. Let’s take up few banks where the Government of India has its controlling interests.
Finance feels that it is time that the Government dilutes its stake in IDBI. They wish to function on the same model in which they had divested their stake in the UTI (Unit Trust of India) bank, thus privatizing its operations. The Government still owns 29% stake in the Axis bank, but all the operations and the decision making has been taken up
by private
players.
After
the
proposed
disinvestment, the Government ownership would come down to 51% from the current stake of 76.5%. But S Nagrajan, the President of All India Banker’s Association feels that the Center should not take such action. The IDBI comprises of three bodies namely: IDBI (A development financial institution), IDBI Bank (A commercial bank) and Western Bank (amalgamated with IDBI in 2006). There is no problem in handling over the operations of IDBI bank to private players but giving the control of IDBI, which is a development financial institution,
The Industrial Development Bank of India or the IDBI
defeats the purpose with which it was set up. It was
bank as it is popularly known is in the news for quite
set up to extend a helping hand to Medium and Small
some time now. Headquartered in Mumbai, the
enterprises so that they don’t get knocked out of the
Government owns 76.5% of the total capital of the
market due to the intense competition with the bigger
bank. For having controlling interest, any organization
players of the market.
should have brought up minimum 51% of the capital of
There’s also a flipside to this saga. IDBI bank has
the company. Now, for dilution of government stake in
been performing very poorly year over year. One of
17 | D E C E M B E R 2 0 1 5
any public sector bank, the Government has to take a parliamentary approval. The IDBI bank is set up under
the biggest reasons is its burgeoning bad loans. The
been performing very poorly year over year. One of the
during August 2014 and 2015. The Central Bureau
biggest reasons is its burgeoning bad loans. The NPA
of Investigation has reported that these remittances
(Non-performing Assets) are those loans which have
were made using 38 current accounts and
not been repaid till date, have increased from ₹11,599
establishing Fake corporations to execute the
crore to ₹14,758 crore. These figures have been taken
transactions. It has also been found out that ₹3,500
for the period covered under June 2014 to June 2015.
crore worth of remittances have been made during
The bank will be facing huge losses if these NPA
the period claiming as advance payments for the
figures continue to increase. Under the Banking law, a
upcoming imports. It has been opined that these
bank is supposed to make a provision for all the
foreign remittances were systematically used to fool
unsecured loans that it has lent. IDBI’s provisions have
the
risen from ₹990 crore to₹1,290 crore citing an increase
unaccounted money into legitimate.
in the unsecured loans granted which lands them into
The Indian arm of the alleged had marked up the
greater danger. Also, the net profit margin, which is an
price of the goods they exported so that they can
indicator of the bank’s operational efficiency, has also
avail all the duty drawbacks offered by the
gone down from 4.5% to 3% indicating the bank’s poor
government. The players set up in Hong Kong used
performance.
these entities as clients to send money back to India.
government
officials
and
convert
the
The government, on receiving the foreign exchange, disbursed the duty drawback as the transaction seemed to be closed. The agenda of the modus Bank of Baroda, or the BoB, as it is popularly known is
operandi was to generate slush funds which can be
another public sector bank which has been doing well
further used. Some top executives of BoB have been
from the past few years. The Government of India holds
taken into custody by the CBI to further investigate
a 59.25% share in the Bank of Baroda. The bank has
this matter. It seems that this issue has some political
seen a slump in its performance when compared to the
implications too as the commencement of these
previous financial year. The NPA (Non-performing
remittances date back to the time when the new
Assets) have shot up from ₹6,034 crore in March 2014
government had just come to power. This scam has
to ₹8,609 crore in March 2015. Also the net profits have
tarnished the bank’s image big time and its impacts
fallen from ₹4,541 crore to ₹3,398 crore indicating
seem to be hurting for the bank as the share prices
falling productivity of the bank. The return on their
have been constantly fluctuating on a daily basis and
assets has gone down from 0.75% to 0.49% indicating
it has also resulted in loss of confidence in the minds
the same. The stock prices have also seen a constant
of the account holders.
tumble due to the recent forex scam of 2015. The scam siphoning off roughly ₹6,172 crore to Hong Kong during 18 | D E C E M B E R 2 0 1 5
With all this going on the background, we can also see a ray of hope. Recently, The Reserve Bank of
FROM PINNACLE TO DEBACLE
BIHAR DRUBBING
-Jatin Sharma
The Bihar drubbing, yet another debacle of the ruling
patience. The big bang reforms needed to make India
NDA (national democratic alliance) after the Delhi
the centre of economic activities, promised by Indian
elections, is raising serious questions about public
polity, do not seem coming anytime soon.
confidence in the central government. The NDA, which
Implementing GST, a single tax for the entire
came into power in 2014 on promise of big bang
country, received a severe blow. Resignation by
economic reforms, has not been able to deliver after 18
K.M. Mani (Ex-finance minister of Kerala) on
months in office. Most of the breakthrough reforms like
corruption allegations, head of the empowered
GST (goods and service tax) and land acquisition bill
committee of state finance ministers, which is
have remained stuck. Even after a landslide victory in
overseeing the implementation of GST, will delay
2014, the ruling coalition does not have a majority in
the most highly awaited reform further. Not just
Rajya Sabha (upper house of the Indian parliament).
stock
The Bihar election gave an opportunity to NDA to
weakening of sentiments and dropped 20% against
improve their representation in Rajya Sabha, which The
dollar to sub Rs. 66 level. Foreign institutional
BJP (Bhartiya Janta Party) lost.
investors (FIIs) have remained net sellers leading to
Economic Impacts of Bihar elections The impact of election result, announced on November th
8
markets,
even
currency
experienced
massive outflows from Indian economy. However, the turbulence is based on investor’s sentiment and not fundamentals. To arrest the slide of investors,
was observed the very next day when markets
finance minister Arun Jaitley has come up with
opened. A Lot of people were expecting a BJP victory,
assurance that the pace of reforms is not going to be
a belief cemented by exit polls, and a push to economic
affected by the results, GST is only a matter of time.
reforms. This belief received a severe dent. Hastening
Even P.M. Narendra Modi has issued statements in
reforms is necessary to create a positive investment
which the BJP party accepts the mandate of the
climate congruent with the recent monetary loosening
people of Bihar and the centre will work in
by RBI (repo rate cut by 50 basis points). Bihar defeat
coordination with the state government to ensure
led to a rapid fall in both BSE (Bombay stock exchange
economic growth of Bihar.
and) and NSE (National stock exchange). NIFTY and SENSEX were both down two new lows. SENSEX breached 26000 on Nov 9th, a low seen after a long time. NIFTY went below the 8000 mark. Sentiments have weakened immensely and the international diaspora of investors are losing confidence in India and running out patience. The big bang reforms needed to make India 19 | of D Eeconomic C E M B E Ractivities, 2015 the centre promised by Indian
polity, do not seem coming
Infrastructural bottleneck is the major hurdle in realizing our full potential. The government is well aware of it. The key reforms that are required to address this problem will be delayed further as the opposition that outnumber the ruling NDA in the upper house of the parliament will make it difficult for BJP to get bills passed. The address this issue the government is changing strategy, urging opposition
upper house of the parliament will make it difficult for
realize that they cannot keep on riding the Modi
BJP to get bills passed. The address this issue the
wave forever and their tried and tested strategy of
government is changing strategy, urging opposition to
Using PMs brand value needs a relook. The rising traded in US currency, an increase in value of dollar voices of fixing responsibility for the loss of Bihar accompanies a decrease in its price. within the party also needs to be handled with The crisisThe in international market has also negatively caution. rift between the neglected octogenarian
allow hassle free conduct of the winter session of parliament, from November 20 to December 23. The government has also cleared an FDI proposal of Rs. 40,000 crores by GE and Alstom for Bihar, initially made during Lalu Prasad Yadav’s tenure as a Railway minister, to woo the incumbent Mahagadhbandhan. The government eased FDI norms in 15 major sectors including strategically important areas like defence and aviation to show its commitments towards reforms. PM Narendra Modi also announced that there would be no more retrospective taxes to gain the dwindling confidence of international community. In the medium term, the markets should see correction, as the fundamentals are still strong. IIP (Index of industrial production) has declined this quarters mainly
affected the Advani, price of Murli gold. The downfall the Trio (LK Manohar Joshiin and Chinese hasthe ledDuo to massive selling of 30 Yashwanteconomy Sinha) and of P.M. and President tonnes Gold Exchange because (of BJP)gold willatdoShanghai no good to the party. These issues people in market wanted to pay off the debts and should be dealt privately and not politicised liquidate they become had done.a publically.every Thepossible veteransinvestment support will As a result the price of relatively gold dipped to its lowest due guiding force for the unexperienced top to excessive supply than demand and(Uttar forcingPradesh) people brass in these turbulent times. UP to sell at are lower prices.upIran’s nuclear with BJP the elections coming next year anddeal a united West has led to reduction in conflicts those will have a better opportunity to putinan endregions to this which in turn indicated the gold prices to be lowered. losing streak. This opportunity comes along with its Further, has asbeen theisdanger of being share of Greece challenges well.inUP a Stronghold of removed Euro list. hugeleader amount of debt BSP and from SP, absence ofIta has tall aBJP in UP and
because of a below normal monsoon. Automobile
which dealt with by sealingina certain last minute deal with strong itpresence of Congress constituencies its creditors gold. defeat would makethus lifeimbibing difficult less for value BJP. of Another
sector has picked up pace due festive season and lower
could betothe rattle for NDAs second inningthe in Moving thedeath factors internal to Indian economy,
EMIs because of base rate cuts by major banks last
power. The honeymoon NDA (RBI) is overhave and government and Reserveperiod Bank of India
month. PMI (purchase managers index), which shows
it’s high timemeasures to perform. GSTgold is slated to be passed taken several to curb imports resulting
the status B2B buying, has also shown improvement
next month and if the and NDAmaking wants to come anywhere in lowering its prices it as an option for
from last quarter. Service sector has posted a higher
close to passing thisThis bill, then it will have lose its investment asset. reduction has toattracted
than average growth rate. These are indications towards
dictating attitude more demand compromising and consumers leadingand to be healthy and high
an improvement and Manufacturing should soon pick
ready to workThe in unpredictable a cooperativepattern manner with all consumerism. of monsoon
up with the yearend festive demand.
stakeholders. is also a matter of concern. India is the second largest
due reduced demand caused by clipped rural income
consumer of gold out of which rural population How costly was Bihar loss?
contributes to about 60% of overall buying of
The real impact of Bihar loss will unfold in some time.
products. With a good monsoon over the year the
The government would now have to push harder its
demand for gold would increase especially during
reform agenda with a touch of diplomacy. They have to
the festive season. On the other hand, lower levels of
realize that they cannot keep on riding the Modi wave
monsoon would negatively impact the demand for
20 | D E C E M B E R 2 0 1 5
forever and their tried and tested strategy of Using PMs
gold thus leading to an increase in its price.
brand value needs a relook. The rising voices of fixing
According to the facts, India has been the world’s
SLASHING GIFTING BUDGET THIS DIWALI
DIWALI NOT “DIL-WALI”
-Abhinav Banerjee
“Depreciating rupee, weak consumer demand showing
monsoon rains, depreciating rupee, weak market,
up in sluggish sales, muted wage growth, impact of
and impact of instability in global markets are the
turbulence in global markets are certain key factors
key factors to create an upheaval in the market. The
forcing corporate to slash their Diwali gift budgets
recent results of Bihar assembly elections have also
significantly,” states a quick survey by apex industry
added a lot of confusion and uncertainty in the
body ASSOCHAM. Diwali market plays an important
consumers mind. Also cost of living and prices of
role in the economic growth of a company, especially
food items have grown faster than earnings,
companies
and
compelling people to refrain from overspending
automobiles. A lot of budgetary planning depends upon
during the festive season, highlighted the survey
this fact. At the same time the purchasing power of
conducted under the aegis of ASSOCHAM Social
consumers
Development Foundation.
dealing
depends
with
upon
consumer
many
goods
factors
which
ultimately affect the Diwali sale. It has been a trend in
Though in recent times festivals give a platform to
the recent past to provide lucrative offers during Diwali
exhibit the financial status but this year there is a
to attract the consumers. In fact it is a two way business
bleak business trend as the Government failed to
procedure; consumers looking for better bargain and
ascertain a study economic growth. The cost of
companies looking for better returns and in return
living and prices of FMCG like pulses, edible oil and
companies provide corporate gifts.
others due to poor monsoon rains, have grown faster
The newly elected Government last year spread a lot of
than the predictions and earnings, compelling people
positivity in the market through their projected policies.
to concentrate on routine expenditure and refrain
Some positive steps taken by the Government boosted
from overspending on luxury items during the festive
optimism and as a result there was a rise in consumer
season, highlighted the survey conducted under the
confidence together with improved job security and an
aegis
insightful improvement in business sentiment which
Foundation. ASSOCHAM said it interacted with
encouraged companies to increase their festive budgets
about 1,000 working people and 500 companies'
by 10-15 per cent last year during Diwali, ASSOCHAM
representatives from diverse sectors during past three
secretary general D S Rawat said.
weeks across 10 cities including Ahmedabad,
of
ASSOCHAM
Social
Development
Bengaluru, Chennai, Delhi-NCR, among others to On the other hand the ground reality is altogether different. There seems to be a lot of difference between
ascertain the festive plans of individuals and companies.
theory and practice; lack of intention and control over hoarding catalyzed by poor production due to uncertain
Majority (about 60 percent) of the people said they
monsoon rains, depreciating rupee, weak market, and
have shelved plans for expenditure on big ticket
E C E M B EinR 2global 0 1 5 markets are the key impact 21of| Dinstability
items be it automobiles, consumer durables and other
factors to create a upheaval in the market. The recent
non-essentials fearing their companies might cut
recession and turbulence in the international economy and similar orthodox factors affecting the economy of a country. In this age of supercomputers, monsoon can be predicted better than ever before and the Govt. must be able to timely review its import policies to cope up with the shortage of food items. The economy of a strong country willing to survive in the crisis of global recession needs to speculate the condition beforehand and take remedial steps in this regard. have shelved plans for expenditure on big ticket items be it automobiles, consumer durables and other nonessentials fearing their companies might cut bonus as they have witnessed a lull in most of this year. Decline in profits owing to a lull season, poor monsoon, global slowdown, sluggish domestic investment scenario, high prices, interest rates, weak consumer sentiment, rupee devaluation and others are key reasons highlighted by the companies for cutting their corporate gift budgets, noted the ASSOCHAM survey. 500 companies’ representatives that Assocham interacted with said they plan to cut their festive budgets by at least about 20 per cent as compared to last year. Others said they plan to reward only performing employees and premium clients this Diwali. Slashing corporate gifts is an indication of bad economic condition. Downtrend in the graph of economic growth in any form is an alarming situation. The national economic policies supported by quality surveys and predictions should be strong enough to be unaffected by the common disturbances in terms of poor monsoon, productivity and shortage of food items, recession and turbulence in the international economy and similar orthodox factors affecting the economy of a country.22In| D this monsoon can be E Cage E MofB supercomputers, ER2015 predicted better than ever before and the Govt. must be
WAY TO PROGRESS
INDIA AFRICA THIRD SUMMIT
-Ranu Sarupria
India and Africa constitutes one third of the total
Reasons for Tie Up
world’s population. A large majority of them is youth.
Africa’s development in recent years has been
India and Africa has a significant part of the total global
impressive. First and foremost, it is the result of
youth population in this century. Their future will shape
African vision, leadership and efforts to strengthen
the course of this world to a large extent. Africa has a
peace and support economic development in the
rich history of accomplishments; abundant natural
continent. There are many inspiring models and
resources; and, a large and talented youth population.
examples of African success stories in sustainable
Africa has 60% of the arable land in the world, but
development
produces 10% of the global food output.
especially youth and women .India is privileged to
Development of the agriculture sector can not only
be a development partner for Africa. From the time
drive Africa’s economic development, employment and
African nations started gaining independence, India
food security, it could also turn Africa into the food
has been supporting human resource development in
bowl for the world. African achievements in recent
African countries. Our cooperation now takes many
times give us confidence in the future of agriculture in
forms. India has the distinct advantage of being
Africa. India has made considerable progress in
endowed with human resource skills and technology
agriculture and dairy sectors over the last few decades.
which are relevant and can be applied to the ecological
We are among the leading global producers in these sectors. Indian success has taken place in the context of low capital intensity farming and varied biodiversity conditions, which can be of great relevance to Africa. The Summit is a testimony to the deep bonds of friendship and mutual faith between India and Africa. It is a relationship with a strong emotional link. It has been forged by our centuries-old ties of kinship, commerce and culture; our common struggle against
and
and
empowerment
geographic
of
people,
conditions
of
Africa. India has emerged as a major source of Foreign Direct Investment in Africa. Indian tourist flow to Africa also increased. Africa’s development is a huge opportunity for India, just as Africa’s resources, including oil, power India’s economic growth and create wealth and jobs in Africa. The continent’s progress will add great stability and momentum to the global economy and benefit India as well.
colonialism, our quest for equality, dignity and justice among all people and, our shared aspirations for our
How is it Helpful
progress and a voice in the world. This will be the
While India and Africa both performed on their own
foundation of our partnership in the years ahead.
to advance prosperity and peace for their people, their partnership can be a source of great strength for each other, both to
23 | D E C E M B E R 2 0 1 5
each other, both to reinforce and accelerate each other’s economic development. Both the countries have complementary resources and markets; and, the power of our human capital and shared global vision. This helped people of Africa to make their own free choices and the capability to shoulder the responsibility of their continent’s development. Our relationship with Africa is unique and does not need any point of reference. Previous Summits In 2008, Delhi hosted the first India-Africa forum summit (IAFA). Aim was to meet India’s rising demand for energy, food, and minerals with the help of Africa’s rich but relatively untapped natural and human resources. The second IAFA held in Addis Ababa in 2011 also had a similar targets to achieve. . Since 2008, India has pledged over $8.5 billion in Lines of Credit for different development projects all across Africa; almost 65% of this loan package has been disbursed. In the last two summits, India had also promised to set up a more than 100 training institutes in different African countries, areas ranging from agriculture and food processing to information technology.
countering terrorism. The third Summit, which will see the participation of all African nations for the first time, will launch a new era of India-Africa partnership. India Africa Third Summit The
Third
India
Africa
Summit
is
the
consultations between the heads of government of 54 nations across Africa and the Indian government to give a new thrust to our age-old partnership. It has been billed as the biggest gathering of foreign dignitaries in New Delhi since the 1983 Non
At the third India-Africa Forum Summit in Delhi, to set
Aligned Summit. The aim of the summits has been
substantially higher and ambitious targets. As in the
to re script the New Delhi’s Ties with Africa. The
past, primary aim was to support. African partners in
aim of the summit was to establish theme of
their efforts to accelerate the momentum of their
‘Partnership of prosperity’ between India and
development. It will also address key challenges of our
Africa. India Africa Forum Summit 2015 has
times, including food, health and environmental
major contributions.
security. Conditions that stimulate trade and investment flows between countries were created. The summit also reinforce partnership on the global platform and deepen security cooperation, including on maritime security, countering terrorism. The third Summit, which will see 24 | D E C E of M all B E African R 2 0 1 5nations for the first time, the participation
will launch a new era of India-Africa partnership.
P.M. Narendra Modi announced $10billion in new concessional credit to Africa an attempt to boost ties. At the opening session of the third India-Africa summit in New Delhi, around $100billion to Africa Development Fund and $10billion to an India Africa Health Fund. Also inclined towards education,
will always be there, as a friend and partner, to share our experience, expertise and resources to support African nations in whatever manner they want.. The summit will witness an elevated partnership between India and the African countries and will aim to tap opportunities and expand two-way engagement in varied sectors. Africa Development Fund and $10billion to an India Africa Health Fund. Also inclined towards education, 50,000 scholarships has been provided to African students. Also Lines Of Credit are being restructured to better suit the African partners. The new credit is to be disbursed in the next five years. This is in addition to the $7.4 billion in soft loans and $1.2 billion in aid India has provided since the first India-Africa summit in 2008. African countries are invited to join an alliance of Solar rich countries. Modi has also promised to connect Africa, from Marrakesh to Mombasa and Cairo to Cape Town, assist in infrastructure, power and irrigation development and set up industrial and information technology parks. Conclusion Unsurprisingly, the 2015 summit has been seen as India’s way of competing with China in world’s most resource-rich continent. India can’t counter China’s increasing influence in Africa, but the Indian government wants to ensure that it doesn’t get left too far behind. . India has been trying to regain the ground it has lost in Africa to China and other Asian nations, positioning itself as a partner of choice in areas such as healthcare, education and investment and trade India will always be there, as a friend and partner, to share our experience, 25 | D E C E expertise M B E R 2 0and 1 5 resources to support African nations in whatever manner they want.. The
FOREIGN FUNDS FLOW
FPI INFLOW AT 7 MONTHS HIGH
-Hemlata Hajong
With the introduction of RBI’s rate cut policy and
the two. Firstly, FPI investors do not actively
positive macroeconomic numbers the country has seen
participate in the day-to-day operations and strategic
the highest investment by FPI since March when they
plans of the home company whereas FDI investors
had poured in Rs20,723 crore into Indian markets. Till
participate in the day-to-day activities. Secondly, FPI
now overseas investors have invested ₹27,697 crore in
has high degree of volatility and uncertainty whereas
equities and ₹55,096 crore in the debt market. This is
FDI is much more stable and very easy to sell off the
good news for the country’s economy especially after
assets. Lastly, FPI has larger net inflows than FDI.
the economic slowdown in China, which brought about
Benefits of FPI
global cash out. The Indian economy will grow if there is such high foreign investment inflow. When the magnitude of inflows and outflows are steady and stable India runs smoothly.
Foreign investment inflow is always beneficial to a country as the risk is shared. It is very easy to sell off securities and end the Foreign Portfolio Investment. FPI can bring about rapid development for a growing
What is FPI?
country. Not only this but it also creates many new
Foreign Portfolio Investment like Foreign Direct
jobs and wealth.
Investment is a common method or a route to bring in
Why the change in the net inflow happened?
money from overseas investors to invest in an economy. Both Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) regulate FPI. FPI and FDI are similar but not completely same. If the investment is 10% or more of a company’s equity, it is classified as Foreign Direct Investment as per OCED norms. Whereas, Foreign Portfolio Investment is the purchase of a company’s stock through the stock markets. Apart from these two there are other forms of foreign investment like Foreign Institutional Investors (FII) and Foreign Venture Capital Investors (FVCI). But FDI and FPI are the most common ones.
FPI investors poured in over ₹22,350 crore (USD 3.44 billion) in the Indian Capital Markets in October. The net inflow in equities was ₹6,650 crore last month, while it was ₹15,700 crore for debt. This is the highest in seven months because due to the economic downfall of china FPI investors pulled out over ₹23,000 crore from the capital market in the past two months. They withdrew ₹5,784 crore in September and ₹17,524 crore in August. This is the highest net outflow in a single month since 1997. ₹5,173 crore was withdrawn on the “Black Monday” (BSE Sensex had crashed over 1,624 points while
Difference between FPI and FDI
50-share NSE Nifty dropped 491 points) alone. Last
There are some very fundamental differences between
this was seen in the aftermath of Lehman Brothers
the two. Firstly, FPI investors do not actively participate
collapse when there was global financial crisis. FPIs
in the day-to-day operations 26 | D E C E M B E R 2 0 1and 5 strategic plans of the
had then offloaded a net ₹15,347 crore from the
home company whereas FDI investors participate in the
markets in 2008. But the huge inflows during
had then offloaded a net ₹15,347 crore from the markets
pulled out ₹4,300 crore from the Indian markets in
in 2008. But the huge inflows during October reversed
the past five trading sessions. As per the data, net
the outflows seen during the past two months. Only due
outflow in equities stood at ₹2,667 crore between 2-
to Reserve Bank Governor Raghuram Rajan’s surprise
6th November and ₹1,689 crore for debt. This
rate cut inflow started back on its track. RBI eased the
happened right after the inflow hit of October and
interest rates by 50 basis points to 6.75 percent in late
announcement by US Fed chairperson Janet Yellen
September. In four and a half years this is the lowest
that US might hike its rates in the month of
RBI has eased on the interest rates. Also, RBI’s
December.
announcement of increase in FPI limit in government
Future Plans
securities has attracted overseas investors to invest more money in the debt market. FPI can now invest into government securities to 5% of the outstanding stock by March 2018, which is ₹1.53 lakh crore or $30 billion.
As a part of pre-budget 2016-17 exercises, the Finance Ministry interacted with over two-dozen FPIs such as Citibank, Deutsche Bank, Goldman Sachs, Blackrock and Fidelity. The Government
Apart from the rate cut macroeconomic factors also
wanted to know from FPIs about the strategies
played a major role in attracting the FPI-
needed to implement by them so that they set up
trends,
business in India. Currently, foreign investors
infrastructure, inflation, foreign exchange controls.
collecting funds from countries like India, which has
Incentives for foreign investors.
Double Taxation Avoidance Agreement (DTAA) are
Government’s policy, political stability, etc.
exempted from paying short-term capital gains tax.
Labor, business opportunities, competition.
Economic
factors-
GDP
growth
But if the foreign fund houses establish their business in India, they are liable to pay capital gain tax as per
RBI is quite comfortable with the present interest rates.
the domestic taxation law. Global rating agency
Even when Government’s chief economic adviser
Standard and Poor’s (S&P) has announced that there
urged the RBI governor to take into account wholesale
would be no revision in India’s ratings for two years.
price inflation in monetary policy decision, Rajan was confident that consumer inflation was a more appropriate measure given its higher weighting of food prices and services.
The Indian economy is doing better than almost all the countries. It is expected that India would grow above 7.5% this fiscal year. The Government has already started with their new reforms to improve the
Current Status
country’s economic condition and has promised to
November again saw net outflow of equities due to
resolve concerns of FPI. The rate cut policy to attract
muted quarterly earnings and fears of a possible rate
more foreign investors being a major step.
hike by the US Federal. Foreign investors have again pulled out ₹4,300 crore from the Indian markets in the past five 27 trading | D E C Esessions. M B E R 2 As 0 1 per 5 the data, net outflow in equities stood at ₹2,667 crore between 2-6th
ICICI SETBACK
ICICI BANK ASSET QUALITY SLIPS IN Q2
-Jharna Soni
ICICI Bank, India’s second largest bank in terms of
will keep on rising looking at the fact that ICICI bank
asset, is facing a major setback in handling its asset
is planning to strengthen its network in due course of
quality. Explaining what asset quality is, it is an
time. All these concerns have kept analyst perplexed
evaluation of asset to measure the credit risk associated
regarding the future performance of the company.
with it. Investors have been worried looking at the asset
The bank does not have an array of assets to be
situation in the banking industry and their concerns
restructured neither it is selling any loans to asset
have been proved correct by looking at the September
reconstruction companies during the September
quarter earnings of ICICI Bank. If we look at the bank’s
quarter, but it has refinanced Rs. 2000 crore loans
gross bad loan ratio ostensibly, it has inched up to
under
3.77%, demonstrating an increase of only 9 basis points
underlying stress in balance sheet, if not the fear of
since June. By large it computed Rs.720 crore to its
these loans turning bad. Looking at the overall
gross bad loans, but the bank disclosed slippages (fresh
number of restructured and bad loans, they together
loans turning bad) of Rs. 2242 crore. These slippages
account approximately 6.7% of ICICI Banks loan
were much inflated than Rs.1,672 crore seen in the June
book. This high percentage of stressed assets in the
quarter. Furthermore about Rs 931 crore of these NPA,
loan book is very large for a private sector bank.
the 5/25 scheme.
This
would
lead
to
that is non-performing assets, were from loans that have already been restructured. There has be a sudden uplift
Concentration Risk
of higher margin unsecured loan which further leads to
Concentration risk is the risk directed to a financial
pressure over asset quality.
institution by any single or group of exposures which
Moreover there are norms where banks are required to set aside huge lumps of money to cover bad and restructured loans. The deepening concerns for asset quality might also impact the overall profitability of ICICI Bank. “The delinquency breakup of the standard loan book suggests that early delinquencies (31-90 day due) have almost doubled from 3.6% of loans as at
have the potential to produce losses large enough to threaten the ability of the institution to continue operating as a going concern. In other words, it's the opposite of a diversified portfolio. ICICI Bank is showing a build-up of concentration risk in its book of accounts. There has been an increase in this risk both in percentage terms as well as absolute terms
FY14 to 6.4 per cent of loans as at FY15,” a report from
over the past year.
brokerage ambit capital said. This report raised
A report again by the ambit group pointed out that
concerns
operating
ICICI Bank’s capital funds as of 2014-2015 has
expenses also remain another major problem for ICICI
increased to 32.8%, as it has been exposed to a single
Bank. There is a high possibility that these expenses
corporate group. If we compare it to the previous
will keep 28 |on D Erising C E Mlooking B E R 2 0at 1 5the fact that ICICI bank is planning to strengthen its network in due course of
year 2013-2014, the capital funds had increased only
furthermore.
Accumulating
about 29.1 %. According to a report by CNBC tv-18
corporate group. If we compare it to the previous year
Bank and HDFC Bank (23-28 per cent), it is still
2013-2014, the capital funds had increased only about
about 9 percentage points higher than the industry.
29.1 %. According to a report by CNBC tv-18 on junky
Its high margin retail loans that grew 25 per cent in
25th, ICICI Bank has an exposure of Rs 5,780 crore to
the September quarter, compares well with the 27-29
debt-ridden infrastructure firm, J P Associates. In fact,
per cent growth of peers in this space.
the bank has the largest exposure to the group among a host of lenders, including State Bank of India and IDBI Bank, among others. The share price of the bank has also decreased to 17 percent due to weak asset quality, making the investors risk averse. Stake Sale The increase in FDI (Foreign direct investment) limit in insurance from 26 per cent to 49 per cent will help key players in the financial services space unlock value in their insurance subsidiaries through a stake sale. ICICI Bank along with its joint venture that is, Fairfax Financing Holdings has approved the sale of 9 per cent stake in ICICI Lombard. This unlocking of value is an added advantage for the investors. But in contrast to companies such as Max India, Reliance Capital and Bajaj Finserv that obtain a chunk (44-85 per cent) of their implied stock value from the insurance businesses, banking stocks such as SBI and ICICI Bank obtain a lesser share. ICICI Bank’s proposed sale values the insurance company at Rs.17,225 crore, which is about 10 per cent of the bank’s current market capitalisation. Conclusion ICICI Bank’s performance has been advantageous on other sphere when compared with its peers. While the bank’s 17-per cent growth in overall domestic loans has been less than that reported by Axis Bank and HDFC Bank (23-28 per cent), it is still about 29 | D Epoints C E M Bhigher E R 2 0than 1 5 the industry. Its high 9 percentage
margin
Even though it still seems like ICICI will not get over with its asset quality woes, it is doing well in other sectors like insurance. Its asset quality will still need watching as its stressed assets i.e bad loans and restructured loans are very high when compared with other private sector banks in the country. All these slippages, fresh loans turning bad will have a huge impact on the banks stock performance. ICICI banks needs to pull up its socks and needs to get over this situation soon, if it still wants to be the leading bank in terms of assets.
ED TO PROBE?
BIG GIANTS FLOUTING RULES
-Chestha Kumar
One of the most popular activities on the Web is
commerce companies and located in Seattle,
shopping. It has much allure in it- you can shop at your
Washington. According to the research conducted in
leisure, anytime, and in your pajamas. Literally anyone
2008, the domain Amazon.com attracted about 615
can have their pages built to display their specific goods
million customers every year. The most popular
and services. History of e-commerce dates back to the
feature of the website is the review system, i.e. the
invention of the very old-notion of “sell and buy”,
ability for visitors to submit their reviews and rate
electricity, cables, computers, modems, and the
any product on a rating scale from one to five stars.
internet. E-commerce became possible in 1991 when
Amazon.com is also well-known for its clear and
the Internet was opened to commercial use. Since that
user-friendly advanced search facility which enables
date thousands of businesses have taken up residence at
visitors to search for keywords in the full text of
web-sites.
many books in the database. One of the more company which has contributed much to the process
At first, the term commerce meant the process of execution of commercial transactions electronically with the help of the leading technologies such as Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) which gave an opportunity for users to exchange business information and do electronic transactions. The ability to use these technologies appeared in the late 1970’s and allowed business companies and organizations to send commercial documentation electronically. E-commerce
of e-commerce development is Dell Inc., an American company located in Texas, which stands third in computer sales within the industry behind Hewlett-Packard and Acer. Dell.com was the first company to record a million dollars in online sale. The company’s unique strategy of selling goods worldwide with no middlemen and with no retail outlets has been admired by a lot of customers and imitated by a great number of e-commerce businesses.
is unthinkable without the Amazon and E-bay which were among the first Internet companies to allow
Creating an e-commerce solution mainly involves
electronic transactions. Thanks to their founders we
creating and deploying an e-commerce site. The first
now have a handsome ecommerce sector and enjoy the
step in the development of an e-commerce site is to
buying and selling advantages of the internet. Currently
identify the e-commerce model. Depending on the
there are 5 largest and most famous worldwide Internet
parties involved in the transaction, e-commerce can
retailers: Amazon, Dell, Staples, Office Depot and
be classified into 4 models. These are:
Hewlett Packard.
Business-to-Business (B2B) model
Amazon.com Inc. is one of the most famous e-
Business-to-Consumer( B2C)model
commerce
companies
and
located
in
Seattle,
30 | D EAccording C E M B E R to 2 0the 1 5 research conducted in Washington.
2008, the domain Amazon.com attracted
Consumer-to-Consumer (C2C) model
undertake B2B e-commerce exercise and never B2C.
Consumer-to-Business( C2B) model
The stated ads addressed to the general public basically tantamount to retail buying and selling”.
The B2B model involves electronic transactions for ordering, purchasing, as well as other administrative
CAIT stated in a letter to the Department of Industrial Policy and Promotion (DIPP) secretary
tasks between houses. It includes trading goods, such as
Amitabh Kant. The CAIT’S argument is that since
business
services,
the possession of stock shouldn’t be held by the
manufacturing, and wholesale dealings. Sometimes in
stated corporations, they cannot supply ‘sale’ or
the B2B model, business may exist between virtual
‘reductions’ in totality on their on-line portals. Doing
companies, neither of which may have any physical
so establishes that they don’t seem to be market and
existence. In such cases, business is conducted only
as such brazenly flout FDI coverage.” it added. The
subscriptions,
professional
through the internet. For e.g. Amazon.com
commerce ministry has requested the Enforcement
The B2C model involves transactions between business
Directorate (ED) and RBI to look at whether or not
organizations and consumers. It applies to any business
e-commerce majors violated FDI rules by partaking
organization that sells its products or services to
in enterprise-to-shoppers (B2C) exercise. Sources in
consumers over the internet. These sites display product
ED stated such instances are already underneath
information in an online catalog and store it in a
probe. CAIT appealed that the three on-line retailers
database. The B2C model also includes services online
must be restricted to conduct such gross sales and
banking, travel services, and health information.
fast instructions could also be handed to them for
The C2C model involves transactions between consumers. Here a consumer sells directly to another consumer. For e.g. EBay.
violation on the Consolidated FDI policy. ”It requested that the matter could also be examined and applicable motion could also be taken,” stated a letter by the ministry addressed to ED and RBI.
The C2B model involves a transaction that is conducted between a consumer and a business organization. In this case, the consumer is the seller and the organization is the buyer. The consumer decides the price of a particular product than the supplier.
According to the Consolidated FDI policy circular 2015, e-commerce exercises refer to the considered one of shopping for and promoting by an organization via the e-commerce platform. Such corporations would interact solely in B2B e-
E-commerce websites Flip kart, Amazon and Snap deal,
commerce and never in retail buying and selling,
which just lately carried out mega sales, solicited most
inter alia implying that present restrictions on FDI
of the people via massive commercial marketing
home buying and selling will probably be relevant to
campaign in print, digital and social media. “Since they
e-commerce.
have acquired overseas funding, they are allowed to undertake B2B e-commerce exercise and never B2C. 31 | ads DEC E M B E R to 2 0the 1 5general public basically The stated addressed
tantamount to retail buying and selling”. CAIT stated in
RAISING THE STAKES
TATA GROUP- THE NEW ENTRANT IN THE E-COMMERCE SECTOR
-Swarupa Roy
We all have experienced change at some or other point,
by e-commerce sites were not so high, but now in the
but the interesting thing about it is that change is not
last few years, the sector is expanding at remarkable
restricted to our life only. Everything around us, known
rate. In the year 2014, the entire Indian e-commerce
and unknown, are undergoing change and evolving
industry stood at a total worth of INR 81,525 Crore
either for the best or worse. For example let’s take the
as compared to just INR 26,263 Crore in 2010. As
market, earlier 20 years ago things were way different
seen, just in a span of 4 years the value of the e-
with people trading in the stock market by being
commerce sector has tripled but then this is just the
physically present, but today, most of us can easily do
beginning. According to industry experts, digital e-
that sitting at our home or office. So what led to such
commerce in India is set to touch the bench mark of
change in just 20 years? All the answers lead back to
INR 1,05,808 crore by the end of 2015. The rapidly
just one word, Technology.
changing consumer behavior and the increasing
Technology has now installed Internet, Smartphone, laptops and highly advanced gadgets in our life which has not only made things easier but also have carved the way for many new changes surrounding several small and big things. And, the best illustration of this is the rapid growth of e-commerce all over the world and the high inclination of society towards it. With the busy
number of e-commerce sites on the internet can be quoted as the main reasons behind such large growth in less time. Plus, the ‘Digital India’ initiative of the government in the nearer future will definitely play a vital role in uplifting the e-commerce industry of India to new heights, with even the rural population having proper access to the services and facilities.
work life and the high technology adoption, people find
While e-commerce is very much more than just
it simple and hassle free to meet their daily
online retail shopping, it’s the shopping websites like
requirements through the internet on their phones or
Flipkart, Amazon, Snapdeal, Jabong, Ebay and many
laptops. And hence, there is a boom and demand in the
more that have the major role in such high turnover
e-commerce sector which can be witnessed in its
of the industry. And, the success of these established
unprecedented
and
sites has only proved how the Indian consumers are
availability of more customer choices is now leading to
quickly accepting e-commerce over the traditional
the brick-and-mortar stores being slowly and gradually
methods of services or shopping. For any business it
replaced by the online stores and services.
has now become important to go digital to ensure
growth.
Better
convenience
As of 2015, India has an internet base of more than 300 million and this is an indicator of a strong opportunity for the Indian e-commerce. Earlier, the market tapping by e-commerce sites were not so high, but now in the 32 | D E C E M B E R 2 0 1 5
last few years, the sector is expanding at remarkable
maximum
market
penetration
and
customer
awareness which in turn would help the business to not only grow but survive in the high competitive market. Speaking of such high competitive market, some of the very established names in the Indian industry market have now finally chosen to venture
market. Speaking of such high competitive market,
online retailers and offline retailers to present
some of the very established names in the Indian
something unusual from the existing online retailers.
industry market have now finally chosen to venture into the digital e-commerce. Recently, the successful and popular Aditya Birla Groups launched their own ecommerce site of shopping, and now the biggest conglomerate of India; Tata Group
have also
announced their decision to be a part of the growing ecommerce bandwagon.
The market capitalization of Tata Group as of March 2015 is $134 billion. Of all the Tata ventures, Tata Consultancy Services (TCS) alone forms nearly twothird of its market value. Owing to this, as compared to its main competitor Reliance, Tata Group has managed to remain the top conglomerate in country with the trust of more than 3.9 million investors. Its
Tata Group is a name known to all and is India’s first
new decision to launch its own e-commerce venture
and most successful conglomerate. Dealing in more
has created more discussion and curiosity among the
than 13 industrial sectors, Tata Group has its business
people. Earlier, Ratan Tata had invested in online
spread vastly over six continents and more than 100
retailer like Snapdeal and Bluestone, which initially
countries. Over its 146 years of service, the Tata Group
sparked debate of the venture of Tata Group in this
has made a big name in steel, services, electrical,
sector.
automobile,
consumer
products
and
hotel
and
hospitality sector to name a few. Many of its brands and associated brands are well-known and one of the most preferred name not only in India but abroad also. Such a success has only helped reach this Indian conglomerate to new heights, and adding one more feather to its cap, the current chairman of Tata Group, Cyrus Mistry recently announced the plan of the company
to
enter
into
e-commerce
industry.
Developing its own new venture for this sector, the Tata Group promises to launch something entirely new and different which will not only connect its online and offline businesses but will also be a unique venture than its other counter parts. All set to bring out an Omnichannel branded marketplace, according to the Executive director of Tata Group, K.R.S Jamwal, the consumers and the market are set to witness an E-retail version 2.0. The company is planning to merge both its online retailers and offline retailers to present 33 | D E C E M B E R 2 0 1 5
something unusual from the existing online retailers.
The new online enterprise is expected offer the retail products of Tata Group companies along with different other retailers. To make this marketplace venture a success, Tata Group have begun hiring experienced people who earlier have been a part of many big e-commerce sites. While all the possible steps are being made by this company to ensure a performer in e-commerce sector, there are other developments that it also needs to consider. Tata groups competitors, Reliance and Aditya Birla Groups have also announced their interest and plans to venture in this sector with the latter already launching a fashion shopping site. In such circumstances and the rapidly increasing Indian ecommerce sector, it is to be seen how the biggest Indian conglomerate places it e-commerce project in the market and what role it plays in the development of Indian e-commerce Industry.
DISTURBING THE DECENTDANTS
DRAGON’S ABORTION OF ONE CHILD POLICY
-Prateek Pandey
China has decided to scrap its 35 years old one-child
if they attempt to do so. It's unlikely that much will
policy. This controversial policy was not only
improve
associated with overseas criticism but also ranklement
acknowledges that its crisis is not one of flawed
from home for decades. The news of abolishment of this
actuarial tables, but rather a flawed ideology in
policy came in form of a single line tweet from a state
which utility and efficiency predominate, and human
based news agency after the annual four-day plenum of
beings are treated merely as means of production
the Chinese Communist party’s Central Committee.
instead of the end purpose of development.
This tweet failed to provide information on timeframe
Strategy behind the move
until
the
Chinese
government
as to when this policy would be enforced or other details 1. China has been facing problems of aging population for that matter. from a long time, some experts say that “China could One child policy was introduced in 1979 by the be the only country to become old before it becomes Communist party to put the saddle on the runaway
rich”. This aging population is considered to be the
population growth of the country. This stringent policy
depreciating China’s biggest asset i.e its workforce.
faced
of
Some major cities like Shanghai and Guangzhou
reproduction. But, the same policy aided China
already have a top-heavy population structure similar
preventing 400 million births and helped the nation
to that in developed Western economies like the
rapidly improve its economic fortunes and limit even
United States. – leading to an increasing burden on
greater strains on natural resources. Also, two years
those of working age, and a shortfall in the nation's
ago, government allowed couples in which one partner
pension fund. Due to one child policy, country have
was an only child to have two offspring, and in most
been going through a large number of forced
rural areas, if the first child was a girl or disabled,
abortions and sterilizations thereby increasing the
parents were allowed to have a second child to try for a
number of depression patients and in some cases
boy or a healthy infant. Ethnic minorities were also
death. Another potential plus for the nation is
allowed more children. But now, Even though one child
righting China’s skewed gender balance. Since many
policy is getting abolished, people of China are still
families, particularly in rural areas, still subscribe to
restricted to go beyond two children. By relaxing its
the traditional Chinese belief that a son is more
child quota, the Chinese government hasn't abandoned
valuable than a daughter, many parents have, over
its reliance on force to ruthlessly control its citizens'
the past two decades, aborted female fetuses, leading
reproduction. Women who wish to have three or more
to gender imbalance with birth ratio of some 118
children will presumably face the same brutal
boys to every 100 girls.
domestic
resentment
over
consequences if they attempt to do so. 34 | D E C E M B E R 2 0 1 5
freedom
2. China’s exports have slumped to a six-year low, manufacturing output is falling, and GDP growth fell to 6.9 percent in the last quarter – the first time it has
5. China’s exports have slumped to a six-year low,
appreciable rise in fertility. The effect will be
manufacturing output is falling, and GDP growth fell to
temporary, over the next five years that will lift the
6.9 percent in the last quarter – the first time it has
annual birth rate from 13 million this year to almost
dropped below 7 percent since early 2009. The Party
16 million in 2018. But that increase won't do
reiterated its goal of doubling GDP and incomes
anything to halt the long-term decline in births,
between 2010 and 2020 - entailing a medium-high
because the age profile of China's current population
economic growth target. The move is designed to show
means the number of women of child-bearing age is
that the Chinese authorities can take decisive and
destined to fall by a third over the next 20 years,
effective action, in sharp contrast to their clumsy
regardless of any new policy initiatives from Beijing.
handling of a boom and bust on the country’s stock
As a result, moving to a two-child policy will only
market, and the surprise devaluation of China’s
delay the peak in China's population by some five
currency, the Yuan.
years from 2019 to 2025, before it goes into long-
6. China’s economy had been going through an
term decline. Nor will relaxing the rules do much to
insufficient growth in terms of infrastructure from a
boost China's workforce and alleviate the strain of
long time. Discarding the one child policy will give rise
supporting a growing population of the elderly.
to population and thereby increasing the much awaited
Besides this, many couples would hesitate to giving
demand in infrastructure sector of the country. Thus
birth to the second child because raising another
‘Make more babies, so they buy more houses’.
child in terms of lifestyle and education would be
7. Inadequate health care and educational facilities in rural
expensive.
areas and small cities have long been a problem in China
Also, in the near term, it will cause workforce
and because of that the government will have to take the
numbers to fall as more women take time off to have
lead by making fresh investments in these areas to
babies. And in the longer run it will lead to an
reassure parents that proper facilities would be available
increase, not a decrease, in the dependency ratio, as
if they opt for a second child. Increase in number of
working-age couples find themselves supporting an
population will create a demand which as a result will
extra child, as well as four retired parents of their
catch the investor’s eye making the country committed
own. For all that, any move to loosen the current
to liberalizing its service sector to foreign investment. It
rules should be applauded.
said it would accelerate implementation of free-trade zones, and intervene less in the pricing of goods and services. 8. The Road Ahead 9. China can expect a baby boom. But although relaxing family
planning
restrictions
could
trigger
an
appreciable rise in fertility. The effect will be temporary, 35 | Dover E C E the M B next E R 2 0five 1 5 years that will lift the annual birth rate from 13 million this year to almost 16
“FINANCIAL TRIVIA” The stock market is named after former Boston Bruin enforcer P.J. Stock’s great, great, great grandfather, when he started selling chunks of a company that didn’t actually exist. The company was named Stocks.
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36 | D E C E M B E R 2 0 1 5