The IBS Times; 205th Edition

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Team IBS Times Shilpam Dubey (Editor in Chief) Sneha Tibrewal (Managing Editor) Antra Bharti Debanjan Paul Dixita Reddy Gagan Kapoor Radhika Gupta Shreya Rani Smriti Patodia Srujana Naik Utsav Changoiwala Aarushi Jandrotia Aishwarya Siram Amit Shovan Mandal Ayush Thalia Ishaan Sengupta Kartik Grover Nishika Tatiya Noel Mathew Sambhav Jain Srivatsasa Sripujitha Tanay Sood Designed By : Gagan Kapoor & Sneha Tibrewal 2

Exciting 2017...

Plethora of questions today surrounding Bitcoins—whether there is a bubble or not, what is its fundamental value, should regulatory bodies treat Bitcoins as currency or financial asset or a commodity derivative—are unanswered.

Last year has been exciting, particularly for cryptocurrencies and fintech, has been a stellar year for stock markets, with Sensex and Nifty crossing historic 34,000 and 10,500 respectively. India got a thumbs up from credit rating agencies, international bodies and foreign institutional investors, for its arduous structural reforms, also took a leap by thirty ranks in ‘ease of doing business’. The year has been exciting, for these and a lot more reasons that we in cover in this edition...

Please write to us and become of part of these discussions.

Email id : editor.ibstimes@gmail.com Shilpam Dubey Team IBS Times

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CONTENT

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COVER STORY - The Battle Over BITCOIN Bubble.

The Monopoly Rule of CREDIT RATING Agencies.

India's Leap of THIRTY. India’s Role in WTO. CATALONIA : Calls for Independence.

ISIS : The State of Terror.

DELHI : Under Siege of Sombre Politics.

CRUDE OIL Price: Effect on Indian Economy.

INDUSTRIAL ANALYSIS - Evolution of Asset Management Companies in India.

MARKET WATCH - The Election Fever.

REPORT– India’s Sovereign Credit Rating : In a Comparative View.

The Battle Over BITCOIN Bubble - Aishwaya Siram Bitcoin is a currency that was created in the year 2009. Transactions are created with no middlemen – no bank. Bitcoins can be used for many purposes i.e from booking hotels to shopping and many more. But much of the hype is about getting rich by trading it. The price of bitcoin skyrocketed into the thousands in 2017.

Various reasons have converged to make bitcoin currency a real media sensation.

From 2011-­2013, illegal traders made bitcoins famous by buying them in batches on millions of dollars which helped them to move their money outside the eyes of the law enforcement.

Subsequently, the value of bitcoins skyrocketed. There have been many scams in the crypto-­currency world. Naïve investors lost hundreds or thousands of dollars to these scams. Ultimately, Bitcoins are highly controversial because they take the power of making money away from central federal banks and give it to the general public.

Bitcoin accounts cannot be frozen or verified by tax men and middlemen banks are completely not necessary for bitcoins to function. Law enforcement and bankers treat bitcoins as ‘gold’ as they

are beyond the control of traditional police and financial institutions. Once a person owns bitcoins, they possess value and trade as if they were gold. Bitcoins are also used to purchase goods and services online, or one can hold them and hope that their value increases over the years. Bitcoins trading is from one personal 'wallet' to another. Hence, they are forgery-­resistant.

It is so computationally-­intensive to create a bitcoin, because of which it isn't financially worth it for counterfeiters to manipulate the system.

Currently, there exist more than two billion dollars’ worth of bitcoins. Bitcoins will stop being created when total number reaches 21 billion coins, which will be around the year 2040. As of 2017, more than half of those bitcoins had been created.

However, Bitcoin currency is not regulated and completely decentralized.

There is no national institution or a depositor insurance coverage. The currency itself is self-­valued and un-­ collateral which means that there is no precious metal behind any of the bitcoins, the value of each bitcoin resides within the bitcoin itself.

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A Bitcoin holds a very simple data ledger file referred to as a blockchain. Each blockchain will be different to another individual user and his/her personal bitcoin wallet.

All bitcoin transactions are logged and made available in a public ledger, this helps to ensure authenticity and prevents fraud. This process helps to prevent transactions from being duplicated and people from copying bitcoins. Also every Bitcoin records the digital address of every wallet it touches, the bitcoin system does not record the names of the individuals who own wallets. In practical terms, this means that every bitcoin transaction is digitally confirmed but can be completed anonymous at the same time. This further states that bitcoins are not always unsecured or unsafe transactions. However, people cannot easily see your personal identity, the history of your bitcoin wallet is visible.

This is a good thing, as a public history adds transparency and security, helps deter people from using bitcoins for dubious or illegal purposes. There already exist illegal transaction, following this method it can be under control.

Bitcoins can be 'minted' by anyone in the general public who has a strong computer. Bitcoins are made through an interesting and self-­limiting system called crypto-­currency mining and the people who mine these coins are referred to as, ‘miners’. It is self-­limiting because only 21 million total bitcoins will ever be allowed to exist, with approximately 11 million of those Bitcoins are mined and are in current circulation

Bitcoin Security It is true that hacker intrusion exists.

However, more than that is the real loss of risk that revolves around not backing up the wallet with a failsafe copy. Every time one receives or send bitcoins, there is an important .dat file that is updated.

This .dat file should be copied and stored as a duplicate backup every day you do bitcoin transactions.

Bitcoin Issues : Time lag in confirmation -­ Technical hindrance: Bitcoins can be double-­spent in some rare instances during the confirmation period. For a transaction to get confirmed by the P2P swarm of computers it takes several second as bitcoins travel from peer-­to-­peer. During these few seconds, a dishonest person who employs fast clicking will be able to submit a second payment of the same bitcoins to a different recipient.

Pool organizers take unfair amount of profits -­ Bitcoin mining is best achieved through pooling (to join a group of thousands of other miners), the organizers of each pool gets the privilege of choosing how to divide up any bitcoins that are discovered. Bitcoin mining pool organizers can dishonestly take more bitcoin mining shares for themselves.

Human mismanagement -­ online exchanges: There might also be those traders who run unregulated online exchanges that trade cash for bitcoins can be dishonest or incompetent.

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Why Bitcoins Are Such a Big Deal?

There exist no banks tracking your money movement, and government tax agencies and police cannot track your money. This is bound to change eventually, as unregulated money is a real threat to government control, taxation, and policing.

There are no middleman bank to state control on. Bitcoins are transferred via a peer-­to-­peer network between individuals.

No bank or law enforcement can seize or audit any of the bitcoin wallets. Bitcoin wallets cannot have spending and withdrawal limits imposed on them.

Since the advent of printed and eventually virtual money, the world has handed over the power of currency to a central authority and various banks. These banks print our virtual money, store our money, move our virtual money, and charge us for their middleman services. Bitcoins are thus designed to put the control of personal wealth back into the hands of the individual. Instead of paper or virtual bank balances that promise to have value, Bitcoins are actual packages of complex data that have value in themselves.

Conventional payment methods, like a credit card charge, bank draft, personal cheque, or wire transfer, do have the benefit of being insured and reversible by the banks involved. However, in the case of bitcoins, every time bitcoins change hands and change wallets, the result is considered to be final.

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The Monopoly Rule of Credit Rating Agencies -

Ayush Thalia

The big “THREE” of the credit rating agencies;; Standard and Poor’s, Moody’s and Fitch are still trying to recover their reputation as being a level-­headed, sharp-­pencilled bunch prior to the collapse of the Lehman Brothers. These agencies are conclusively criticized for not only failing to warn investors of the risk of investing in many of the mortgage-­ backed securities at the epicentre of the financial crisis, but being on the advantageous side by not pointing out the deficiencies. It was not the initial or the end when these agencies were put under suspicion, there were multiple such instances when the investors felt the necessity of a much transparent system to evaluate the ratings of the financial instruments.

The big three credit rating agencies hold 95% of the ratings market and in addition, approximately 100 other CRAs are marked in ratings of various financial instruments, industries or national markets. The fundamental work of CRAs are to rate credit worthiness, which is a measure of the ability of a debtor to back the debt. A credit rating is not a measure of the merit or profitability of a financial instrument or of the debtor. Credit ratings are convenient to the investor as they serve a globally accepted, standardized

scale of creditworthiness across industries, financial instruments and even countries. These agencies are examined as gatekeepers as they issue ratings which further helps the investors to determine whether a company is worth lending to, and at what cost.

CRA expertise in creditworthiness has become further valuable as the financial market has raised in complexity with new players and instruments. Earlier, the financing was done through commercial banks. For an example, if a customer would go to a commercial bank to obtain a home loan, the banker would sit down with the customer to determine his creditworthiness. The bank decided whether the customer was creditworthy or not, and hence would issue the mortgage.

The scenarios have changed. Today, most of mortgages do not remain with the bank, as they are sold to an investment banker and pooled with other debt obligations in complex financial instruments which are later sold to investors. The final holders of the mortgage lack the opportunity to meet the debtor to determine his creditworthiness to repay back the loan. Furthermore, these financial instruments are complex and contain bits and pieces of many loans and mortgages. Most of the individual 9

investors have neither the time nor the ability to investigate the creditworthiness of the loans in these instruments.

Each Credit Rating Agency has its own rating scale. Moody’s and S&P use the two principal scales to rate the securities.

Moody’s highest rating is AAA, and anything allying AAA and Baa3 is termed as “investment grade.” S&P and Fitch share the same scale with AAA being the highest rating. Ratings between AAA and BBB are “investment grade.” Ratings below these levels are termed as “speculative,” a label that signify a risky investment.

The Role of CRAs in 2008 Financial Crisis : The magnitude of requests for rating structured for financial products such as mortgage-­backed securities (MBSs) and collateralized debt obligations (CDOs) elevated between 2004 and 2006, so did the complexity of the rated products. In the hindsight, it appears that the structure of the financial products hype caused the CRAs to lose their clench on reality.

Lehman Brothers had an A rating prior a month of its collapse. Worst of all, the CRAs rated numerous of derivative securities backed by subprime mortgages as AAA which meant high on creditability.

Not only did the CRAs fail to react to fluctuating market conditions on time, but they played a median role in creating those market conditions. The ratings played a vital role in the marketing of the MBS, such as CDOs, which helped bring the U.S. financial system down to its knees. Investment banks had bundles of collected individual mortgages which themselves can be hard to trade into the baskets that could be bought and sold like any other bonds.

These financial instruments were then sold to investors convincing them of high returns. But to sell, the investment bankers counted on them of receiving stellar ratings from the agencies to persuade investors starved for return. The subprime mortgage crisis ultimately caught up with Lehman Brothers when they wrecked an unprecedented amount of money as they held positions in subprime mortgage loans and other low-­rated mortgage backed securities and by securitizing the underlying existing mortgages. This resulted in loss of 8 million jobs in excess, it eradicated more than $16 trillion in household wealth and more than 12 million homeowners were left underwater of owing more on their mortgages than their homes were worth.

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Impact on the Eurozone Crisis : The criticism from the Europe was focused on the sovereign debt rather than private mortgage securities. European Union governments and ECB policymakers accused the Big Three credit rating agencies of being hostile in rating the eurozone countries’ creditworthiness and intensified the financial crisis. They claimed that negative evaluations by the CRA escalated the European sovereign debt crisis. The crisis spread across Greece, Ireland, Portugal, and Spain—all of which received EU-­IMF bailout package.

Standard and Poor’s April 2010 decision to downgrade Greece’s debt weakened the investor’s confidence for the country, raised the cost of borrowing, and made a financial rescue package in May 2010.

Later when it was considered as the largest sovereign default in history, Standard & Poor’s lowered Greece to the second lowest rating. With odds of a deeper crisis, the composition went smoothly, and S&P raised the Greece’s sovereign credit rating back to B-­. In January 2012, as the borrowing costs continued to rise in the eurozone, S&P downgraded the credit ratings of 9 eurozone states except Germany as the only country with a AAA rating. After a year, S&P reduced the EU debt creditworthiness, which drew high protests from European officials who pointed the difficulty to from budgetary reforms as an evidence that the region would uphold its financial commitments no matter what.

would be wise not to rely solely on their opinions on investments. The agencies are quick to point out their ratings are only opinions and, according to Standard & Poor's, "the ratings should not be viewed as an assurances of credit quality or an exact measure of the likelihood of the default." It advises the clients of its ratings to consider it a commentary on relative levels of credit risk.

Irrespective of the ratings agencies failure in their roles to provide accurate credit ratings on a timely basis, most investors 11

A Leap of Thirty : How easy is the “Ease of Business” in India?

-Aarushi Jandrotia India has evolved a lot in last 70 years of independence and has seen many drastic changes from Nehruvian socialism to License Quota Raj, to liberalization, to demonetization and then to now most recently GST. With changes in these economic ecosystem we could see the changes in the growth of the business as well. In socialism there was less entrepreneurial opportunity and competition and had slow economic growth. Then the economy moved to License Quota Raj. In 1973, the foreign exchange regulation act (FERA) came into picture and became the primarily law responsible for foreign exchange control regime. When foreign exchange reserve were low, FERA made it mandatory for foreign companies engaged in low priority, low technology industry to transfer 60% of the shareholding and no harms to Indians. A regulation that would cost India’s foreign investments in years to come.

and production to industries and also increase in the investment limit of the small industries. The liberalization of import and export transactions, encouragement of new innovations and increase in foreign investment. With this we could see the expansion in market and development of services sectors. But with all these we could also see the disadvantages as well. There was an increase in unemployment, loss to domestic units, problem of financing, increased dependence on foreign nations and unbalanced development. So, for the betterment of the economy the Govt. came up with more policies to encourage entrepreneurs and small and large size business. Today, On the World Bank’s ‘ease of business’ index India has jumped up 30 notches into the top 100 rankings.

This is the result of the improvement in different indicators such as paying taxes, protecting minority investors, getting credits and resolving insolvency.

In 1991 when India almost got bankrupt, Narsimha Rao’s Govt. adopted the LPG policy, under the pressure of IMF. It includes deregulation and initiation of privatization and tax reform and opening of international trade and investment. This resulted in the freedom for expansion 12

Government Policies and Startups: Initiatives taken by government helped in improving ‘ease of business’ index.

Government recognized the true potential of new businesses and announced “Startup India” as an initiative which could create a favorable environment for startups in India. In India startups preferred to keep their distance from starting operations. This happened because of the factors that came in their way. They faced challenges like high tax demands, systematic inefficiencies and corruption-­related complications.

On 16th January 2016, Government declared the Startup Action Plan which supports several measures including simplifying existing laws for startups. This includes: ● Exemption from labor laws: Startups are allowed to self-­certify compliance with 9 labor and environmental laws. For a period of 3 years no inspections will be conducted in case of the labor laws. ● Environmental laws: Random checks would be carried on startups which fall under the ‘white category’ and would be able to self-­certify compliance.

Fast-­ tracking of patent applications has been made and startups are provided an 80% rebate in filling of patents vis-­à-­vis other companies. ● Tax exemption: Person who have capital gains during the year, exemption is given to attract more funds. This helps in enlargement of the funds available to various VCs/AIFs for investment.

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Income tax exemption: For a period of 3 years startups are exempted from income-­tax.

For the establishment of new incubators, Central Government provides funding support of 40% (subject to a maximum of INR 10 crore) and 40% funding by the respective State Government and 20% funding by the private entity.

Boost of the Indian Startups : The investors’ outlook towards funding the India startups seems to be strong.

Investments from industry veterans such as Ratan Tata helps enhance the overall scenario of the startup ecosystem in India. Startups are getting funds by better-­funded companies such as Snapdeal and Flipkart. Since there has been a surge in the mergers and acquisitions among startups it has attracted more investors in Indian startups. Purchase of One Mobikwik at US$ 41 million and the acquisition of ZipDial Mobile Solutions at $31 million is one of the top deals. Byju’s an edtech startup based out of Bangaluru is looking to expand internationally through acquisition as it has acquired significant funding from investors. Indian startups have been selected in the Google’s accelerator programme. They are also raised funds from the Chinese investors.

Silicon Valley has been interested in Indian startups since long. They have raised around US$74 million in funding.

We could see that the government is also encouraging startups and with this India has made a name of itself in the global startup ecosystem.

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Recently, On November 28th-­30th,2017 held in Hyderabad, NITI Aayog in partnership with the Government to the United States of America hosted GEN (Global Entrepreneurship Summit) which connected top entrepreneurship talent with investors and startup ecosystems across the globe to innovate the world’s most exciting solutions. This event was inaugurated by Indian PM Narendra Modi and Advisor to US president Donald Trump, Invanka Trump by pressing a button on an indigenously developed robot called Mitra. It was developed by a Banglore-­based startup Invento Robotics, set up in October 2015. With over 1500 attendees which includes entrepreneurs, educators, investors, government officials and business representatives represented the full measures of entrepreneurial talent from diverse backgrounds across nation and world. This gave a boost to entrepreneurs to pitch their ideas, secure funding, and build partnership, and innovative products and services that could transform societies for better tomorrow.

67.26 billion to USD 110.12 billion.

Another initiatives of the government is the country’s official agency dedicated to investment promotion and facilitation named ‘Invest India’. This has been set up as a joint venture between DIPP (35% equity held by the Department of Industrial policy and Promotion, Ministry of Commerce & Industry), FICCI (51% equity, The Federation of Indian Chambers of Commerce and Industry), and State Governments of India (0.5% each). It provides granulated, sector-­ specific and state-­specific information to a foreign investor, assists in expediting regulatory approvals, and offers hand-­ holding services. Its mandate also includes assisting Indian investors make informed choices about investment opportunities overseas.

Government and FDI : FDI (Foreign Direct Investment) are considered essential for India, and needs around USD 1 trillion for revamping its infrastructure sector such as airports, highways and ports to boost growth. A strong inflow of foreign investment will help improve the balance of payments situation of the country and will also strengthen the rupee value against other global currencies. Government is taking initiatives to increase foreign inflows, ‘Make in India’ is one of the initiatives which increased foreign inflows from USD 14

India’s Role in WTO - Sambhav Jain Why does any country become a member of WTO? We need an organization that promotes free trade between nations. So, World Trade Organization acts as an umbrella to all its members by governing the rules of trade between them. All the members are bound to follow the trade agreement as decided by WTO. Established on 1stJanuary, 1995 World Trade Organization is the successor to General Agreement on Trade and Tariffs (GATT).

It has its headquarters in Geneva, Switzerland. Currently, it has 164 members (84 percent of the 196 countries in the world).

most recent round of negotiations took place in Bali. Membership also lowers the cost of doing business by bringing price stability. Apart from these WTO also offers three specific benefits to all its members which are listed below: First, WTO offers “Most Favored Nation” status to all its members, which means all its members are treated equally. No preferential trade benefit is given to any nation.

Second, number of trade barriers like: tariffs, import quotas and regulations between member nations have been reduced. Lower trade barriers give members larger access to the market.

Benefits to member nations : There are some general benefits which extend to all its members. WTO helps in smooth flow of trade through its trade agreements. There are set rules which every member has to follow and penalties for breaking the rules. So, this guarantees safe trading to all its members. It also provides fair method to resolve trade disputes. Members need not indulge in violence or war.

WTO negotiates improved trade arrangements among its members. Its

About two-­third of the members are developing countries. So, they get immediate access to developed markets at lower tariff rate.

India and WTO : India has been a member of WTO since 1st January 1995 and a member of GATT since 8th July 1948. India is one of the founding members of WTO along with 134 other countries. India's participation would lead to prosperity of the nation.

Various trade disputes of India with other ,

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nations have been settled through WTO. India is also playing an important role in formulation of trade policies. By being a member of WTO several countries are now trading with India, thus giving a boost to production, employment and improved standard of living. India’s role in WTO can be explained as below: Incorporating Livelihood Clause : For a developing country like India, food and livelihood security is must. So, India is giving suggestions like allowing developing countries to maintain appropriate level of tariff bindings.

India is also seeking a separate safeguard mechanism like provision for imposition of quantitative restrictions, particularly in cases of sudden increase or decrease in prices;; exemptions for developing countries to minimum market access and exemptions of all measures taken by developing countries for poverty alleviation, rural development and rural employment.

India favours extension of higher levels of protection to the products like Basmati rice, Darjeeling tea, and Alphonso mangoes at par with that provided to wines and spirits under the Trade-­related Aspects of Intellectual Property Rights (TRIPS) agreement. In the TRIMS (Agreement on Trade-­Related Investment Measures) review India wants flexibility for developing countries in adopting appropriate domestic policy and permitting foreign investment.

WTO and Indian Industries : Indian industry had to face greater competition in the wake of globalization.

But it has successfully competed as there was no increase in imports. As per the provisional data for 2000-­01 our non-­oil imports declined by 14 per cent while our exports rose by over 20 per cent in the same period.

The apex Indian organisations representing various industries are sincerely working towards ensuring a gainful transition with least disadvantage into the global economy. The government also has to strive to improve infrastructure and provide a facilitating environment for acceleration of trade.

In the past, developed countries have been putting pressure on WTO to include non-­trade issues such as labour standards, environment protection, human rights, rules on investment, competition policy in the WTO agreements. This is because some developing countries are not implementing the rules regarding non-­ trade issues. But India is against any inclusion of non-­ trade issues.

Recent WTO Meet : All the members of WTO met for the Eleventh Ministerial Conference (MC11) which took place from 10-­13 December 2017 in Buenos Aires, Argentina. It was chaired by Minister Susana Malcorra of Argentina. A number of ministerial decisions were taken which included fisheries subsidies, work programme on e-­ commerce and small economies,

TRIPS non-­ violation and situation complaints and creating a working party on accession for South Sudan. The conference opened with the signing of a presidential declaration in support of WTO. This was signed by President Macri of Argentina, President Temer of Brazil, President Cartes of Paraguay and President Vázquez of Uruguay as well as by representatives of Colombia, Guyana, Mexico, Peru and Suriname. On the first two days, opportunity was given to ministers representing 164 members of WTO to make prepared statements. On the final day of the Conference, there were talks on the issue of electronic commerce, investment facilitation and micro, small and medium size enterprises(MSMEs).

Other notable events at the Conference included the publication of the Buenos Aires declaration on Women and Trade, launch of “Enabling E-­commerce” initiative and announcement of Google as the WTO-­ ICC first Small Business Champion.

The 'ICC-­WTO Small Business Champions' is an initiative that will provide a platform to companies and private sector organizations around the world to encourage micro, small and medium-­sized enterprises (MSMEs) to do business across borders.

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CATALONIA: Calls for Independence - Nishika Tatiya Spain is in the middle of the political battle that threatens to split the country. The region of Catalonia held a referendum on 1st October to decide if they wanted to become an independent state. And therefore, separate from Spain. The Spanish constitutional courts ruled the referendum illegal and the central government tried to stop it from happening. They arrested government officials who were planning on holding the vote, confiscated ballots and closed all polling stations. Undeterred the regional Catalan government announced that voters could print their ballots at home and vote at any open polling station. It didn’t take long for the situation to escalate. Nearly 1000 people were injured in the violence, 5 of them serious. As for the results, 90 percent of the participants voted to secede. This would seem like almost unanimous approval, but less than half of all eligible voters in Catalonia turned out to vote. Based on the results, the Catalan government has declared independence from Spain unilaterally on 27th October.

enough that they have their own languages as well as culture, cuisine and literature. They even have their own education system, their own healthcare and their own police force. Catalonia is reasonably a large region as you can see in the map with a population of 7.5 million and it always had quite a difficult relationship with the rest of Spain. There are a lot of historical and cultural differences between Catalonia and the mainland Spain and these have always led to certain number of disparities and disconnects between the sort centralized power in Madrid and Catalonia itself.

Spain is a decentralized unified state.

That means that autonomous regains like Catalonia, are governed according to the national constitution as well as laws enacted independently by each regional government. But it wasn’t always this way.

How did they get here?

Spain is made up of 17 semi – autonomous regains each with their own identity. Some, like Catalonia, are distinct 18

From 1939 to 1975 Spain lived under a fascist dictatorship . Francisco Franco was a fascist dictator who ruled Spain along this time. He repressed Catalonian language and Catalonian culture. He also eliminated democratic liberties, freedom of the press and political opposition. He also crushed regional diversity around the country to impose a single national identity. So, for Catalonia, they meant suppressing the Catalan language as well as local traditions. It was a big blow to the Catalan culture.

When Franco died in 1975, Spain transitioned into a democracy and the newly created constitution expanded autonomy in the regions. The new Constitution allowed Catalonia’s self-­ Governance. It recognised Catalan as an official language of Catalonia. And while specifically recognising autonomy in the regions that comprise Spain, it also cemented that Spain was indivisible. The Catalan people said, “We are Catalan, we feel Catalan, we speak Catalan and it’s another culture. Then for the first time in 2006 since the constitution was created, Catalans tried to expand their autonomy.

The 2006 referendum called for many things, including: ● To create a new economic model for Catalonia ● To define Catalonia as a nation ● And to privilege the Catalan language over the Spanish After four years of legal battles the constitutional court struck down some of the amendments. When the constitutional ruling was announced, one million Catalans went to the streets of Barcelona, where they carried signs that read “We

are a nation, we decide.” There are economic motivations for independence too. Catalonia is one of the mots prosperous regions in Spain. It takes up only 6 percent of the country, but it accounts for one fifth of Spain’s economic output. In 2016, nearly 21 percent of Spain’s tax revenue came from Catalonia. The people of Catalonia got frustrated and they said, “We pay a lot of taxes, they take them away and they don’t return it in better infrastructure or better loving conditions.”

Pro-­independence Catalans believe Catalonia pays too much money into the Central government compared to what it gets in return. Catalonia, like Madrid and other richer regions, support the poorer parts of Spain.

“Although we feel solidarity, we need to have enough for ourselves.”

This sentiment grew during the European economic crisis during 2010 when a wave of unemployment hit Spain. But despite growing support, the majority of Catalans don’t want independence. And while support for independence has been close to 50 percent, the majority of Catalans do not want to leave Spain. They think that being independent from Spain is not a good idea, not because we depend on Spain, but because we depend on Europe. Low income families are less likely to support independence than those who are well off. As are Catalans who live in cities compared to those who live in rural areas. Which brings us back to today. Banks and multinationals have 19

started to move their headquarters out of Barcelona to other Spanish regions.

Catalan separatists have turned to Europe for support, but most European union leaders have sided with the central government. They have made it clear that an independent Catalonia would have to apply for EU membership, a process that would take years. After the Catalan government declared independence on 27th October. By 31st October, the declaration of independence was fully suspended by the Spanish constitutional court. Spain’s senate-­ the upper house of the Spain’s parliament voted, shortly after the Catalan independence vote, to trigger article 155 of the constitution and allow the imposition of direct rule. The use of article 155 could lead to constitutional crisis and mass protests in Catalonia. To restore legality in the self-­government of Catalonia, Spain’s central government would continue with the procedure laid down in article 155 of the constitution.

The Spanish government has called for new elections in Catalonia on 21st December, with the official aim of re-­ establishing stability and the rule of law after the referendum on independence organised by the regional government of Catalonia.

and economic and remain a major power within Europe.

It is time to realise for the Spanish government that their country, like any other democracy can’t be maintained harmoniously only with a threat of the use of force and prison sentences. They will have to convince the several million people of Catalonia who want independence that Spain would once again be a welcoming place for them.

Spain would have to do this if they wish to regain stability, political as well as social 20

ISIS : The State of Terror - Srivatsasa Sripujitha The invasion of Iran by U.S. in 2003 gave birth to ISIS. The U.S administrators decided to “de-­Bathify” the Iraqi civil and military services. Paul Bremer ordered the administrators to create a situation where hundreds of thousands of Sunnis formerly loyal to Saddam Hussein were left without jobs and there was chaos in the state. Al Qaeda chose to capitalize on their anger and established al Qaeda in Iraq (AQI) to wage an insurgence against U.S troops in Iraq. They waged a sectarian war against Iran-­backed Shiite militias in central Iraq and they were quite active in bombing hotels in neighboring Jordan. Most of their members were imprisoned in U.S “Camp Bucca,” where they were able to meet up and radicalize.

In 2007, U.S installed Shiite government in Baghdad. This “Surge” started by U.S began reaching out Sunni tribes, encouraging them to reject AQI. By that point of time AQI was basically defeated and it looked like peace coming to Middle East (Kinda). Contemporarily there was Arab Spring and uprising against Syrian dictator Bashar al-­Assad. During the Iraq war, AQI would frequently go back and forth between Syria and Iraq to resupply, so it had a lot of contacts in the country.

AQI established its presence by taking

s the opportunity when Assad began hooting and gassing his own people.

ISIS moved into Syria and renamed itself as Islamic state of Iraq and Syria (ISIS), and merged with Syrian counterpart. This issue heated Qaeda’s HQ, because they were already establishing a separate al Qaeda in Syria (aka al-­Nusra front) and wanted it to remain separate. The two groups fought amongst themselves and officially separated with AQI rebranding itself into ISIS. The most important aspect of this intra-­jihadi battle were globally concerned because the limelight was on some practical things like al Qaeda should rule territory or kill Sunnis, and ego matters like if Osama Bin Laden’s lieutenants who have been on run since 2001, should be the ones calling the shots. This battle between two groups waged in the in jihadi forums on the darknet in the battlefields of Syria, Iraq, Somalia, and northwest Africa.

ISIS became the first rebel group to capture major cities (Raqqa and Deir ez-­ Zor) as the Syrian war broke out in the summer of 2014. It captured Mosul in Iraq and drove south until it was on the boarders of Bahdad. After few weeks it rebranded itself as a Caliphate and 21

demanded that all Muslims pledge allegiance (bay’ah). At this point, groups like Ansar Beit Al Maqdisin Egypt and Boko Haram in Nigeria began pledging allegiance and flew the black flag of ISIS. They also established their presence in other countries. ISIS grew notoriously through aggressive social media and viral video strategy that had it engage with glorify violence and sympathizers. It institutionalized slavery and rape of the Yazidi minority when it captured the northern Iraqi ton of Sinjar which is considered to be barbaric terror.

There are a number of forces that can explain its strength: ●

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There was a feeling of disenfranchisement where Sunni communities in Iraq and Syria felt alienated by Shiite and Alawite led governments. Pushing forward a sense of victimhood and giving these communities a means to feel in control through violence ISIS played on their feelings.

Following Unlikely bedfellows, ISIS partnered with the lieutenants of Saddam Hussein’s secular regime to perfect the tools of regression along the same path Saddam travelled.

The money ploughed by U.S allies like Saudi Arabia, Qatar and Turkey in the Syrian civil war ended up in the hands of ISIS. U.S was over-­equipped and underprepared to deal with ISIS, after the withdrawal from Iraq, much of the weaponry ended up in ISIS’s hands.

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Racketeering and extortion were under the Iraqi government before ISIS formally controlled. Businesses and individuals had to pay them a “protection fee” to stay safe.

ISIS controlled the territory and it began taxing the people in the territory like any state would do.

Properties of religious minorities or regime sympathizers were looted.

Technically Middle East was shut out from international markets, ISIS could still find ways to sell its oil.

Recently Baghdad Prime Minister declared “end of war against ISIS” by signaling victory in a three-­year war by Iraqi forces to expel the Islamic state jihadist group that its height endangered Iraqi’s very existence.

The Victory was declared at the end of August in Tal Afar, the last major IS urban stronghold in northern Iraq, before a final military operation launched against IS in a vast desert region of western Iraq.

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DELHI : Under Siege of Sombre Politics - Kartik Grover A news report in January guaranteed that President Obama's life expectancy endured a six-­hour cut in under three days amid his excursion to Delhi, and the guilty party was none other than the city's air, accepted to be the most dirtied on the planet. Regardless of this disturbing actuality, Delhi's garrulous government officials scarcely articulated a word regarding the matter in the as of late closed race battle.

In May 2014, a WHO investigation of information from 2008 to 2013 announced that out of 1600 urban communities in 91 nations, Delhi has the most exceedingly bad air quality on the planet with the most elevated focus (measured in micrograms per cubic meter of air or µg/m³) of PM2.5 and PM10 -­ suspended particulate issue (SPM) under 2.5 microns and 10 microns in distance across separately that can cause heart maladies, respiratory illnesses and in the long run, unexpected losses. Delhi bested its most despised adversary Beijing by an incredible edge with the yearly mean centralizations of PM2.5 at 153 µg/m³ and PM10 at 286 µg/m³. These are 15 and 14 times the cutoff points set by the WHO, which are 10 and 20 µg/m³ yearly for PM2.5 and PM10 individually India's contamination

observing and standards upkeep body, the Central Pollution Control Board (CPCB), has set yearly mean PM2.5 and PM10 fixation limits at 40 and 60 µg/m³ separately. Particulate Matter levels in Delhi were more than eight times the principles, according to the System of Air Quality and Weather Forecasting and Research (SAFAR) record of the Union Earth Sciences Ministry. Actually, the Air Quality Index, according to the Central Pollution Control Board, ascended from Wednesday, staying in the 'serious' classification.

Talking at the initiation of 20 new air quality observing stations, Delhi Chief Minister Arvind Kejriwal by and by said edit consuming in Punjab and Haryana was the primary purpose for Delhi turning into a "gas chamber" for about a month consistently. The JNU consider refered to above presumed that vehicles are in charge of 63% of Delhi's air contamination, while two different examinations (see here and here) express that cars contribute in the vicinity of 30% and 36% of PM2.5 discharges.

The JNU ponder additionally says that ventures contribute 29% to air contamination took after by household toxins at 8%.

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The Punjab Chief Minister, in any case, emphasized his stand that the Center needed to give remuneration to ranchers to stop stubble consuming, in a letter to Prime Minister Narendra Modi. Haryana Health Minister Anil Vij put the ball in the Delhi government's court, saying it ought to remunerate Haryana's ranchers as Delhiites additionally devoured the sustenance grains delivered in his State.

In the meantime, taking cognisance of the circumstance, the National Human Rights Commission on Thursday issued notification to the Union, Delhi, Punjab and Haryana governments, requesting covers the means taken to address the issue inside two weeks.

all Delhi vehicles more seasoned than 15 years -­ there are 2.9 million such vehicles. In any case, the issue of how to remunerate proprietors with no motivation in tax cuts on the off chance that they offer them as scrap or buyback bolster and so forth has made this another cerebral pain. On account of vehicles from outside Delhi, the Environment Pollution Control Authority (EPCA), a body made by a request of the Supreme Court, expressed that a 2001 Supreme Court prohibition on every interstate vehicle not implied for Delhi from going through the city has not been actualized by the vehicle partnerships, Delhi Police or the vehicle office.

In 1999, CNG vehicles were presented after a Supreme Court administering which had some constructive outcomes amid the 2000s. In any case, today, in spite of more than 0.7 million CNG vehicles running on Delhi NCR's streets, the sum total of what picks up have been invalidated by the taking off number of private vehicles. More than 8.1 million vehicles are as of now enrolled in Delhi out of which 6 million are private, including 2.5 million four-­wheelers. The most exceedingly bad has been the blast in diesel (which is a class 1 cancer-­ causing agent) vehicles. As far back as oil value deregulation in 2011, diesel vehicle deals have soar in urban areas like Delhi.

Also, business vehicles, around 2.5 million of them, a significant number of them not implied for Delhi go through Delhi's fringes each month including a huge number of trucks.

While Delhi has a portion of the world's most reduced stopping charges, a convoluted assessment structure wherein there are five to seven times higher street imposes on transports than autos, gives minimal impetus for governments or private administrators to dispatch quality transport benefits inside Delhi. Going to the second huge supporter: industry.

Delhi and also whatever is left of the National Capital Region (NCR) requires a complex authoritative and political exercise in careful control. According to CPCB, in 2009, Ghaziabad was the third most basically contaminated mechanical region in India and stayed one of the nation's eight most fundamentally dirtied regions (CPAs) in 2014. Be that as it may, in July 2014, a September 2013 restriction on mechanical extension and new enterprises in these eight CPAs was questionably lifted by the Modi government.

In November 2014, the National Green Tribunal (NGT) requested a restriction on 24

Additionally, a satellite-­based investigation of the mist concentrates in Delhi-­NCR's air by NASA and University of Miami reasoned that the air quality has been intensifying since 2002 in Noida, Gurgaon and Faridabad fringes. This is on the grounds that post a Supreme Court arrange in 2004, the movement of near 25,000 enterprises from Delhi to encompassing NCR urban communities saw a surge in air contamination in them.

How extreme the test is for the unpracticed AAP government can be measured from a couple of articulations of the NDA government at the middle.

Condition Minister Prakash Javadekar as of late said that a spotless domain must be the bequest of each national. Be that as it may, it was he who had given a composed answer to the Lok Sabha in December 2014 expressing that there was no arrangement to boycott Delhi's diesel vehicles or change over them to CNG and that India's vehicles have ideal norms in outflows and fuel productivity.

This in spite of the EPCA's proposals to change over Delhi's diesel vehicles to CNG and casing harder standards for future buy or section of diesel vehicles in Delhi.

Subsequently, the new AAP government has a difficult, but not impossible task ahead. It should utilize all of tact and statesmanship to work with the inside to scrub Delhi's air. Something else, Delhi-­ NCR will soon be minimal superior to a goliath, toxic gas chamber.

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CRUDE OIL PRICE : Effect on Indian Economy - Noel Mathew Crude oil price plays a very important role in the economy of any country. It is one of the most important commodities in the world. Crude oil not only serves as a source of energy but also as a major raw material to various industries. The recent increase in the price of crude oil has drawn everyone's attention towards the major role that it plays in the economy of any nation. The impact of increasing oil prices on the economy varies from country to country depending upon energy supply and demand structures.

India is the third largest importer of crude oil in the world with m more than 4 million barrels per day. Here we will look at the impact of rising crude oil price on the Indian economy.

Increase In Price : Oil is a commodity which shows larger fluctuations in price than more stable investments like stocks and bonds.

OPEC, Organisation of Petroleum Exporting Countries, is the main influencer of oil price fluctuations. OPEC is a consortium made up of 13 countries.

It controls production levels to meet global demand and can influence the oil and gas price by increasing or decreasing production. OPEC always focused to keep the oil price above $100 a barrel but

in mid-­2014 the price of the oil started to decline. It fell from $100 a barrel to a below $50 a barrel. OPEC was the major cause of cheap oil. It refused to cut oil production, which led to the decline in oil prices. OPEC has been battling with U.S. shale oil producers for market share but the shale producers pushed the oil production to 9.4 million barrels per day in 2014. Thus the oil prices fell as the supply rose. The decrease in the oil price helped many countries to increase their revenue and maintain a stable economy.

But since 2016 the oil price started to increase at a slower rate. This is because OPEC decided to extend production cuts through 2018. On November 30, 2016, OPEC agreed to cut production by 1.2 million barrels per day from January 2017. In response to this traders bid oil prices $65 a barrel, a two year high. The purge in Saudi under King Salman has created a political disorder leading to the rise in crude oil prices. Most of the oil contracts in the world are traded in dollars. As a result, oil exporting countries exchange their currency to the dollar. As dollar declines, so do the revenue from oil, which will result in higher cost. This will force OPEC to raise the oil price to maintain its profit margins and keep costs of imported goods constant.

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Impact on India : As a large importer of crude oil, India benefited significantly from lower prices.

The government was able to raise more revenue from the public during this period. It helped to maintain a low inflation and rein in government expenditure. But the rising oil prices will affect the country in an opposite way compared to the last three years. With India importing 157.5 crore barrels of crude annually, an increase in one dollar on the price would increase the annual bill by about Rs.10000. Even though India is in a strong macroeconomic position higher oil prices may pose challenges for policymakers. It is observed that for every $1 rise in crude oil prices, the impact of Current Account Deficit will be up to $1 billion (Rs6500). There are chances that the Forex reserves may come under pressure if the oil price remains above $60 a barrel and the economy can move into danger zone if prices move beyond $65. In the financial year 2017, the oil import bill was about $86 billion, averaging $55 per barrel. If the price goes above $60 (Rs.3924) a barrel, the import bill would increase by $8-­10 billion, that is there would be an increase up to Rs.65,395 crore.

It is observed that for every $10 increase in oil price there is an increase in consumer price inflation by 0.6-­0.7 percentage point. It is also estimated that a similar rise would worsen India's current account balance by 0.4% of the GDP. As the government raised excise duty during price fall, it could come under pressure to reverse the price hike if the oil prices continue to rise. The latest monetary policy report of the Reserve Bank of India (RBI), shows that the central bank has assumed the crude oil price to be an average around $55 per barrel in the second half of the current fiscal year. If the oil prices move up to $65 per barrel, there are chances that the inflation could go up by 30 basis points for the fiscal year and the real gross value added growth would get reduced by 15 basis points. Higher oil prices may also affect India's corporate profit margins.

Conclusion : At the moment the situation is not alarming for India looking at the macroeconomic position of the country. Policymakers would remain watchful to maintain a stable economy and control the inflation. RBI's monetary policy committee may come up with a feasible solution to cope up with the price hike. The government would try to avoid duty price if the price remains at a higher rate. This will be a crucial factor which will measure the efficiency of the current government. Higher revenue would be needed to push capital expenditure and move forward with fiscal consolidation. It is very important to keep fiscal deficit in control in order to protect the macroeconomic stability. Will oil price affect growth in the Indian economy?

Time will determine it.

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Industry Analysis : Evolution of Asset Management Companies in India - Tanay Sood Indian financial system has always made headlines whether it was in the year 1980-­ 1990s to 2016 the announcement of demonetisation and introduction of Good and Service Tax regime, the establishment of National Company Law Tribunal (NCLT), from the formulation of Insolvency and Bankruptcy Code 2016.

All the measures are directed towards having a strong a financial system in the country and develop an eco-­system whereby the country’s equity is not leveraged.

anticipated there would a regular interest payment in favour of the sum borrowed, but when there is a discontinuation of the interest payments for a duration of more than 90 days, it is classified as ‘Non-­ Performing Asset’.

So is the infusion of ₹ 2.11 Lakh Cr stimulus package through the issuance of ‘recapitalisation of bonds’, announced by the Ministry of Finance to boost the banking sector and develop a strong financial infrastructure which encompasses of cleaning dis-­stressed balance sheets and increase in the capital adequacy, and the huge chunks of issuance of long terms loans, which are referred as Non-­Performing Assets (NPAs) because of their incapability of being recoup. Thanks to the Mallya saga, our financial administration system realised the importance of the capital drain being conducted in our country.

Theoretical, a long-­term loan is termed as an ‘Asset’ for the bank, because it is

So how is the mutual fund industry changing the Indian investors’ appetite?

The financial instruments which have made progress in the last decade are the mutual fund industry. They have registered an approximately six-­fold increase in assets under management (AUM) over the last ten years.

Asset management is managing client’s investments and providing them with strategy and expertise, which would allow them to achieve their goals and secure their financial future. Indian consumers are steadily increasing their appetite for saving and investing. More than 50 years ago since Unit Trust of India(UTI) started its first sale in July 1964. Introduction of economic reform policies through liberalization, privatisation and globalisation have transformed the Indian capital market where players are making their presence felt. The country’s mutual 28

fund (MF) assets logged the growth of around Rs 17 tn, despite lack of growth in the equity market and sluggish economic growth conditions due to demonetisation and a surge in commodity prices with global oil prices taking the centre stage.

Asset Management Company (AMC), have observed an increase in inflows via monthly investments into equity MF schemes with exchange-­traded funds(ETFs) outperforming, the most to the asset growth. So how the investor takes advantage of the current scenario and makes money from the available channels? As the interest rates have come down, fixed income instruments and commodities such as real estate and gold are no longer favourites among the cautious investors. Retail investors are inclined more towards economic prospects in the long term and have learnt to overcome the market’s short-­ term movements. Hence, it could be witnessed with MFs outperforming and reporting an inflow of Rs 1.26 tn in November 2017 to an all-­time high of Rs 21.8 tn. Apart from this, institutional investors had bestowed investments, thus taking the total of inflows to Rs 9.39 tn from Rs 7.28 tn.

Rapid technological advancements and urge among the cautious citizens of this country to save is galloping. Securities

and Exchange Board of India (SEBI), the market regulator has laid down rules and regulations under Securities and Exchange Board of India (Mutual Funds) Regulations,1996. It ensures the mutual fund trust which comprises of a sponsor, trustee, AMC and custodian. AMC is approved by SEBI, who manages the funds by making investments in different types of securities.

The basic concept behind investing in the mutual fund is the quantum of investment, as individuals irrespective of their net total income, it encourages them to save on day to day or monthly basis. Secondly, it is the different backgrounds and profession we come from, investments in mutual funds are assured that our hard-­earned investments would be safe and secured with the qualified asset managers. With the prime objective of experts to gain good returns from the market fluctuations and economic decisions, they adhere that the risk is diversified and a strong portfolio is maintained.

India is an inclining towards a developed economy and sentiments of investors are becoming stronger due to financial markets rapidly growing and gaining importance at the global platform. AMC’s plays the important role of bridging the gap between idle funds of retail investors and plot them in the correct securities.

Future of Asset Management Company in India, and breaking the myths of Mutual Funds: ●

Zero-­Risk of Losses: in the world of investments, there is no such thing as zero-­risk. Therefore, 29

doing a quality research and observation before entering the mutual market can prove to be fatal. Thus, it is very important for AMFI to continuously educate the customers, which they have undertaken under various programmes. ● Share Investments are Cheap: every transaction in the securities are charged, from buying to selling commonly known as brokerage and other charges. Thereby it is important to focus on risk mitigation and comparative benefits. ● Assured of Guaranteed Returns: it is not necessary MFs guarantee returns. There is always the risk of losses when mutual fund units are purchased. ● High-­NAV Means Growth Prospects: a security with a low unit price is not necessarily a bad investment. Similarly, NAV cannot be used to determine the future prospects of the fund.

schemes from the same fund houses.

Yes, these steps are in the right direction to bring the Rs 20 tn mutual fund industry standard in place.

The future of mutual fund is well predicted and many financial institutions have stated ‘FY2018: The year of the mutual fund’. Looking at the current market situation and ease of norms regarding the procurement of funds has certainly cheered the retail and institutional investors, by having investor friendly disclosures and regulatory measures in place. Secondly, the regulator has made a firm statement that it would merger similar schemes, too many schemes are launched to harvest new fund related charges which have resulted only in the takeover of the fund houses. Not only does investor, but the seller finds it difficult to make the overabundance, 30

Market Watch : The Election Fever - Ishaan Sengupta It was a saffron sea when it came to the results of the elections which saw the ‘pro-­growth’ party come into power, showering optimism in the stock markets.

But that wasn’t all. We have seen influences of both monetary policy and fiscal policy affecting the indices as well.

This edition’s market watch will encompass a correlation between the stock prices and all that was ‘expected’ from the factors affecting the volatility in the market. We have also come across a quaver in the Bank and consumer goods scrips coupled with a dip in cryptocurrency value. Surely, the market had a lot of meat to offer on the bone.

And here is the analysis of the same.

Election Results : The Gujarat and Himachal Pradesh Election results led to a surge in Sensex by 235.06 points, amounting to 33836.74 points at 3:30 PM 19th December 2017.

The market had already gained a cumulative 1000 points owing to the exit polls and general optimism about the BJP returning to power and claiming it, in Gujarat and Himachal Pradesh respectively. Owing to this the, Market investors and traders are primarily expecting to see the budget being released by February 2018. This win has

also shifted the focus of the Government to infrastructure work in the North East, leading to optimism in the cement industry and the real estate sector.

The Auto Boom : SIAM, the automobile industry body, has submitted a proposal of two separate GST rates for electric and hydrogen fuelled vehicles – 12% rate and a 28% for petrol or diesel variants. The expectation of an acceptance from the Finance Minister seems to have had the market all geared up, leading to all auto stocks to surge higher. Maruti touched 10,000 points, hauling other auto stocks to do well. The BSE auto index rose 884 points.

Hero Motocorp., Tata Motors, M&M as well as Bajaj Auto were the top gainers.

Another reason behind the rise is the fact that Auto dealers are offering discounts and other offers, in the range of Rs 25,000 and Rs 8.85 lakh, on certain vehicles. The benefits include cash discounts and exchange bonuses on select variants.

Bitcoin and YouBit : South Korean Bitcoin Exchange, YouBit, declared its bankruptcy after a major hack that purported around 17% of the Bitcoin 31

Reserves of the Exchange Stolen, it had to mark down, customer assets to 75% of their market value. This has led Bitcoin to plunge around 15% at the Asian markets.

This has completely demoralized occasional investors who have bought units rather than bitcoins. Some early bitcoin investors have claimed that the cryptocurrecy’s value may further fall in the coming boom period. Sticking to India, the value of the Bitcoin depreciated by 5 Lakhs INR and cryptocurrency investors are very jittery about the same.

Monetary Policy of the RBI/ Rising Retail Inflation : On December 3rd, after a Monetary Policy Committee meeting, the RBI kept the Repo rate unchanged at 6% and the Repo Rate at 5.75% owing to inflation worries. It is being forecasted that the RBI will keep repurchase rates unchanged for the whole year, because the retail inflation rate surpassed the RBI’s target of 4% to 4.88%. This has made the stock market very volatile. The Rupee has also depreciated in comparison to the dollar by a few paise on an average, owing to these issues.

FRDI Bill : The Nifty Bank and Bankex have been volatile owing to the sentiments of the public towards the FRDI bill. When the bill had been decided to be tabled, the market sentiments sank terribly. On December 6th the market plunged followed by a poor indices growth over a week. However, after it was heard that the Bill would most likely be tabled even after the budget session in 2018, the bank indices started showing some positivity from December 17th. The private banks fared better than public banks. This is because 2 days later, one RBI decision took a toll on Public banks.

RBI’s check on NPAs : On the 19th and 20th of December, the PSU bank stocks fell. Including, Bank of India, Punjab National Bank, Indian Overseas bank and others with an average fall in prices of 3 points. This is technically due to the imposition of the RBI of the Prompt Corrective Action (PCA) on the Bank of India and United Bank of India, which has led to the overall investor sentiment in the market to be 32

very selective when it comes to investing in Bank scrips. These stocks are unlikely to perform well in the short run. The fear of the other PSU banks being reigned in might lead to more fall in prices of these stocks.

can be capitalized on but there is long term down trends in certain sectors like Banking and Consumer Goods due to NPA and inflation worries respectively.

Bitcoins seem to be the choice for risky investors. Finally, the indices will grow and they will grow with varying paces. It is important to therefore capitalize on everything inch by inch and decision by decision.

Technology Boom : On an average, all technology stocks have been rising owing to the cash flows being reinvested into the business.

Shares like Infosys are expected to rise and hence it is a prudent to time to invest in a bearish time. The new technology business is growing at 25% per year and over a period of 3-­4 years it is expected to grow in compounded fashion at around 40%. So, if you are a delivery investor or a mutual fund investor, feel free to put your money in these stocks. While these companies face minor shocks, they contribute heavily to the shareholders capital. The business environment provides a good modicum for them to capitalize on.

Overall, the market seems to be ridden with medium term expectations and concerns. The only way to capitalize on this volatility is to invest carefully and selectively. Mutual funds seem like the safest bet for elementary investors. There are short term booms and shocks which 33

A Report on India’s Sovereign Credit Rating : A Comparative View - Amit Shovan Mandal A credit rating is an assessment by the third-­party organisation for an entity who is willing to seek a credit rating for itself with respect to a particular debt or financial obligation to assess their creditworthiness i.e. ability to repay the borrowing amount on time. The entity can be individual, company or sovereign government etc. So, a credit rating plays an important role while investors take a decision whether they should buy a particular security or not. Investors always want to invest their money in the highly rated security as those are very less risky.

India’s sovereign credit rating is low compared to other developing counties in the context of its significance to the global economy, strong macroeconomic performance, improving governance and regulation, and strong growth prospects.

In Economic Survey 2016-­2017, Dr Arvind Subramanian highlighted the POOR STANDARDS of credit rating agencies and he also felt that this sovereign rating doesn’t justify the country’s economic growth and has been stagnant for a long time. Though Moody’s recently upgraded its rating for India from Baa3 to Baa2 with a stable outlook. But still, it is low when we compare it with other developing countries.

Except for Spain (Developed country) all six countries are developing countries, but their sovereign ratings are better than or equal to India’s. But the question is that why rating agencies are so pessimistic about India that they rated India as the lowest in investment grade except Moody’s. (Moody’s rating is second lowest in the investment grade) For these, we need to know about various determinants which are used by rating agencies to assess a sovereign body.

There are various factors economic, social, and political factors that underlie their sovereign credit ratings. In the table there are few economic factors are discussed with a comparative view.

From the table we can see that India is the second highest in both Gross Domestic Product (a sum of private and household consumption(P), investment(I), Govt. expenditure(G) and net export (X-­ M, export-­import)) and Gross National 34

Income (a sum of GDP and net factor income from abroad) among these seven countries but when it comes to per capita measurement, India has the lowest value among these seven. So, we can tell that huge population is a major problem in India. As India falls in the lower-­middle-­ income category, so its average growth of GDP per capita will be 2.45%. At this rate, a lower-­middle-­income category will take

57 years to reach upper-­middle-­income category. Therefore, GDP per capita is very slow-­moving variable. So, low per capita income is one of the major reasons for India for getting a lower credit rating.

From the table, we also see that GDP growth rate in India is the highest among all the six developing countries, though due to some govt. policies growth rate of

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GDP gets declined.

When it comes to Inflation(CPI), it is quite high compared to other developing countries except for Brazil and Indonesia.

But from 2016 average inflation rate started to decline and record an all-­time low at 1.54% in June 2017. Also, the IMF’s inflation forecast for India will be under 5.0% till 2022 which is equal to the other developing economies. Higher inflation is also a drawback for getting a lower credit rating.

The budget deficit is a financial health indicator of a sovereign country which indicates how much expenditure exceed from revenue. From the table, we can see that India stand 5th in this parameter. It improved from -­7.8% in 2009 to -­3.5% in 2016 where China degrade in this parameter from -­1.1% in 2011 to -­3.8% in 2016. Comparatively higher budget deficit causes lower credit rating.

In current A/C balance parameter India is again ranked 5th among seven countries.

Comparing with Indonesia which carries the same rating is also 43% (on an avg. between 2014 and 2016) lower than India. A current account balance is a sum of the Balance of trade(difference between export and import),Net factor income from abroad(difference between Gross National Product and GDP or difference between Gross factor income from abroad and Gross factor income to abroad) and Net current transfer (a transaction in which resident entity in one nation provides a non-­resident entity with an economic value, such as a real resource or financial item, without receiving something of economic value in .

exchange). When current A/C balance is positive then it’s called Current A/C Surplus and when negative it’s called Current A/C Deficit.

By debt to GDP ratio it indicates a country’s ability to repay the loan with its GDP. Lower the ratio makes ability higher. From the table, we see the debt to GDP ratio India has the highest ratio among all six developing countries.

Therefore, it is another cause of getting a lower credit rating.

Apart from its economic development, political stability, default history are also playing an important role in the assessment.

Govt. of India takes initiatives to reform the economy by introducing GST, bankruptcy code, FDI liberalisation etc.

These initiatives definitely help India to receive more investment from foreign countries, to improve taxation inefficiency, for better governance and govt. revenues.

Gini Coefficient (income distribution parameter, if perfectly equal then G=0, if perfectly in equal then G=1) of India (0.339 ,in 2011)also better than China(0.422, in 2012), Malaysia(0.463, in 2009), Philippines(0.401, in 2015).

Now if we assume an equal weight to all nine parameters and measure all countries on a scale of 1 to 7 we will get the following table (see next page) From the table, China ranks first among all seven countries. If we look again to the table of the countries’ credit rating, China’s rating is highest and from this table, it is justified.

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Though Spain and Philippines score better than Malaysia, due to 2nd highest GDP per capita and GNP per capita and highest current A/C balance(Surplus), their credit rating is second best among seven countries.

Rating for Brazil is little confusing as it’s score is the lowest, but credit rating is higher than Spain. Brazil has 3rd highest GDP per capita. It ranks 3rd among these countries.

Despite having highest per capita GDP & GNI and being a developed country, Spain ranks 4th among seven countries.

Spain has also the highest debt to GDP ratio.

Philippines is a developing country and score 2nd highest but due to low GDP, GNI and per capita national income it ranks 5th among these countries. (If we consider all three rating agencies).

Though India ranks second in GDP & GNI and highest growth rate of GDP but due to lowest per capita income, high debt to GDP ratio, high current A/C deficit, it ranks 6th among these countries. (As Moody’s recently upgrade their rating for India).

Due to low GDP, low per capita GDP, low per capita national income, high current A/C deficit it ranks 7th.

From this table, it is very clear that ‘per capita GDP’, ‘per capita GNI’, ‘current A/C balance’, ‘Debt to GDP ratio’ are playing a most vital role in credit rating assessment.

As we mention it before that due being a lower middle-­income economy, to improve GDP per capita is a too much long-­term procedure as it is a very slow-­ moving variable. Moreover, except Moody’s, other two rating agencies rated India 3-­4 years ago. But from past few years, India’s economic growth is excellent. They should reassess India based on its present scenario. Finally, they should find out (a) parameter(s) by which they can assess developing (lower-­ middle income) countries more specifically an emerging country like India apart from per capita GDP/GNI to justify their growth and strength in the economy.

For India, they should be more focused on socio-­economic growth for lower income level category peoples, population control awareness campaign etc.

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FINANCIAL TRIVIA The inventor of Bitcoin is a mystery. Strangely, it's still unknown who invented Bitcoin. Since the inception of Bitcoin in 2009, there have been several speculations about who the father of Bitcoin is. The Bitcoin whitepaper was made open to the public under the pseudonym of Satoshi Nakamoto. The identity of “Satoshi� is still a mystery yet to be solved.

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