Arbitrage Magazine - December 2019 - Finance & Investment Club | IIM Rohtak

December 2019 Vol 4 Issue 9

Article of the month: THE FALL OF TURKISH LIRA

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INDEX

S.No.

Article

Page No.

1

The fall of Turkish Lira

3

2

IPO Mania

10

3

Mystery behind Rate cuts

12

4

India’s stance on Regional Comprehensive Economic Partnership

16

5

Gig Economy: A work in and for Progress

20

6

Potential of Externally oriented Sovereign Wealth funds to boost India’s Economy

22

7

Can Financial Literacy solve financial fragility

24

8

Synergies of Merger (In Beauty Industry)

26

9

Universal Basic Income

28

10

Theoretical framework of NPA

31

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THE FALL OF TURKISH LIRA

By Harsh Jain and Nidhi Mishra (IIM Shillong)

Overview The Turkish currency crisis has become a primary concern all over the globe due to the risk of financial contagion. The country faced a steep depreciation in Turkish Lira of 56.8% (as on 22.08.2018) since the start of the year. The country had accumulated vast piles of Debt with domestic as well as foreign exposure. The private and public sectors, are suffering from high debt accumulation leading to high insolvency risk accompanied by high inflation primarily due to policy stimulus and Turkey as a net importer. Turkish inflation was in the range from 10.23% - 25.24% during the year. Apart from internal vulnerabilities, the US fueled Turkey’s crisis through the economic sanctions by making tariffs on the import of steel and aluminum 2x, i.e.

50% and 20%.

Sub-prime Crisis When the advanced economies were confronted with the sub-prime crisis, their central banks healed their economies with extraordinary monetary easing programs. The US Fed as well as Bank of England brought their policy rates down. Additionally, Bank of Japan and European Central Bank reduced their policy rates to negative levels. US Fed was aggressive in injecting liquidity through QE regime. The total influx of liquidity from these major central banks was around 20% of world GDP i.e. USD 11.5 trillion.

With the advanced economies flooded with liquidity the investors were searching for the avenues to generate higher yields and Turkey was one of the prime destinations for the same. This easy money led to the easy expenditure and in turn higher prices and reducing the purchasing power. The country ends up with following: Current Account Deficit Fiscal Deficit High External Debt High inflation Low Reserve Ratio

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But QE mechanism was kicked off by the end of 2014 and Fed started to increase policy rates thereby increasing the borrowing costs for concern borrowers and at same time dollar also started getting stronger resulting in increased external debt for turkey. Now turkey was facing tougher to borrow due to higher costs, large accumulated debts and higher existing repayment costs which ultimately led to unfold of the crisis.

Turkey: A Debt Mismatch Outlier?

A crucial financial principle that is ignored by the businesses all around the world is that the right debt for a company should match its asset characteristics which means that the long term projects should be financed by the long term debt and assets generating cash flows in say dollars should be funded by debt in dollar. The likelihood of default increases when debt mismatch (in terms of currency, maturity) increases. There are ways in which mismatch can be fixed- first is to issue the debt that is reflective of your assets and projects and second is to issue swaps and derivatives- by this we mean that a company having cash flows in rupees but has a dollar debt can hedge itself from currency movements through currency options and futures.

Turkish businesses are ranked worst when it comes to debt mismatching by currencies, i.e. using foreign currency debt (euros and dollars primarily) to finance the domestic investments. Given in fig4 is the graph on the currency breakdown of borrowings by Turkish firms. The graph depicts the foreign exchange assets and liabilities, for non-financial Turkish companies, from 2008-2018.

We see that FX imbalance at Turkish Non-Financial firms exceeded FX assets by $211 billion in September 2018, up from $70 billion in 2008. Much of the Foreign exchange debt has come from Turkish banks and not any other foreign banks. In September 2018 Turkish banks accounted for 59% of all FX debt up from 38% in 2008 which can be seen from the graph below in Fig 5.

The mismatch is not just in currencies but also in terms of maturity. The graph below in fig 6 shows the temporal mismatch between short term FX Assets and liabilities. In September 2018, while about 80% of FX Assets are short term but only 27% of them are being financed by the short- term liabilities, reflecting a large temporal imbalance.

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The Turkish government pressurized the Central bank to prevent them from forcing debt payments, in the light of crisis but looking at the debt owed to the foreign borrowers which is due, we see: % of FX debt due in 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030+ Weighted Maturity

Banks 20.25% 21.8 8.67 8.16 11.05 9.85 5.41 3.81 1.94 3.85 1.67 0.17 3.38 3.84

Non-Bank Financials 14.72% 27.03 28.04 13.24 4.33 7.19 2.76 1.30 0.31 0.15 0.20 0.22 0.51 2.67

Non-Financials

All Firms

7.36% 15.93 15.29 12.32 9.94 8.10 7.06 6.91 2.43 2.59 2.38 1.34 8.36 5.07

13.48 19.30 13.39 10.59 9.99 8.79 6.02 5.15 2.06 2.95 1.91 0.75 5.61 4.36

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The above debt maturity schedule implies default risk. About 50 % debt owed by Domestic Turkish banks and 40% debt owed by Non-Financial Turkish firms is due by 2020 and if the collapse in Lira is not reversed then the consequences will be disastrous for these firms.

From the data we can clearly see that Turkey has a serious debt mismatch problem but still the companies seem to revel in this mismatch and the institutions which are supposed to keep a check on this seem to have worsen the problem. It’s not that the problem has been recently identified, Turkey has been plagued with the mismatch crisis since 1994 but still keep on repeating the same mistake over and over again. The plausible reasons can be- subsidized mismatch debt, domestic debt markets are moribund and rigid, speculation on currency, lower interest rates.

Inflation (% YoY) CAD (% GDP) Fiscal balance (% GDP) Reserve to short term Debt (times) External debt (% GDP)

200 200 200 201 201 201 201 201 201 201 201 7 8 9 0 1 2 3 4 5 6 7 8.8 10.4 6.3 8. 6.5 8.9 7.5 8.9 7. 7.8 11.1 6 7 -5.8 -3.4 -2.2 - -7.5 -4.1 -6.4 -5.8 - -3.6 -6.9 7.

3.

4 4 -1.6 -1.8 -5.3 - -1.4 -1.9 -1.1 -1.1 - -1.3 -1.6 3.

1.

6 1 2.6

2.2

2.3

1. 1.3 1.3 1.1 1.0 1. 1.3 1.2 4 2 36.6 36.4 41.4 37.6 36.7 39.0 41.3 43.3 46.6 47.4 53.3

Turkey as among the riskiest economies Given the following 5 conditions turkey was experiencing 4 conditions: Twin deficits- On the current account the turkey runs persistent deficit. The largest part is of trade deficit that’s why Turkey needs foreign funding for their over spending leading to high level of foreign liabilities. Like private sector, the government also runs fiscal deficits causing a twin deficit problem.

High external debt- Cheap US rates then domestic rates led to high external debt for turkey. External Debt rose from USD 281 billion to USD 467 billion in Q1-2018. The external debt ratio also increased from 36.6% of GDP in 2007 to 53.3% of GDP. This implies that half of the revenue is used in servicing of external debt only.

High inflation- Inflation in Turkey never stayed within the inflation target of 5% which itself is very high target as compared to other countries target of 2%. Especially in 2018, headline inflation jumped sharply due to which central bank almost doubled the policy rates from 8% to 17.75%.

Low reserve ratio- The central bank was short of international funds. International reserves were consistently low since subprime crisis. The ratio before subprime crisis was at 2.6 times to short-term external debts. The

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ratio was at 1.2 times during the crisis. This implies that country will not be able to repay its short-term debt if any shock comes.

Turkish President President Erdogan was determined to agree with the terms of US. He asked his citizens to sell their gold and dollar reserves to buy Turkish Lira. He showed no sign of backing. The fundamental problem was that President Erdogan fundamentally misunderstood the role of Central bank in setting policy rates to curb down inflation. Ironically, the central bank of turkey held its benchmark rates with just a meagre increase of 125bps hike in June due to presidential elections. This signaled that central bank of the country was not serious about inflation. Post his re-election, President portrayed himself as enemy of enemy of interest rates and not allowed central bank to increase policy rates. US Sanctions have put a very high dent on confidence of both investors and consumers as there were serious concerns about the debt borrowing capacity of government and corporate.

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Meanwhile the 5-year CDS had jumped higher and sovereign debt yields between Turkey and US widened drastically to almost a decade high, reflecting higher costs for the former.

Conclusion In conclusion, turkey seems to be moving toward the stagflation, i.e., high inflation coupled with a contracting economy. The central bank has come to a consensus to lower the outflow of foreign capital, decrease the tax rate on domestic currency deposits, but only hike in interest rate can be a strong and fundamental solution else Turkey will fall into recession. To solve the crisis, Turkey was recently offered emergency funding by Qatar of USD15 billion, but the sad thing is that approx. USD16 billion debt is payable in the year 2019.

Sources http://aswathdamodaran.blogspot.com Bloomberg https://www.tcmb.gov.tr BIMB Securities Research Kasikorn Bank

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IPO MANIA By: Nilomee Savla (K. J. Somaiya Institute of Management Studies and Research)

INTRODUCTION The year 2019 saw a high volatility in the secondary market in India as uncertainty around the economic slowdown, deteriorating private consumption and a troubled NBFC sector -all took their toll.

But despite the dismal economic indicators, the primary market held its ground and emerged to be the cash cow for the investors. About 70 per cent of the new entrants have been trading well above their issue prices, with some issues giving more than 100 % returns to the shareholders. The S&P BSE IPO Index, a gauge of shares in their first two years of trading, has climbed 36% in 2019, as compared to S&P BSE Sensex Index which made a gain of 13%.

A BRIEF SUMMARY OF THE PERFORMANCE OF THE TOP IPOS THAT GOT LISTED IN 2019The primary issue of IRCTC emerged as the clear winner amongst the IPOs that got listed this year. Issued in October this year, the IPO got oversubscribed 112 times and the stock more than doubled on its listing day, giving a return of 128% to the investors. Ujjivan Small Finance Bank Ltd. was another noteworthy listing. The company was oversubscribed 166 times, the most for an IPO this year and it got listed on both NSE and BSE earning a 60% gain on its debut. Other stocks which performed well were CSB bank Ltd., IndiaMART InterMESH Limited, and Polycab India Limited opening at 53.90%, 33.87% and 21.75% respectively, more than their offer price.

SR NO. 1 2 3 4 5

COMPANY NAME IRCTC Limited Ujjivan Small Finance Bank Ltd CSB Bank Limited IndiaMART InterMESH Limited Polycab India Limited

LISTING DAYGAIN/LOSS 127.69% 51.08% 53.90% 33.87% 21.75%

PROFIT/LOSS 178.27% 40.68% 20.90% 116.92% 82.47%

SO, WHAT WORKED FOR THE INDIAN IPOS? 1. Niche stocks An online marketplace, a railway monopoly, a diagnostics chain and a micro-finance lender were among the 11 companies that got listed this year.

State-run Indian Railway Catering & Tourism Corp. more than doubled on its listing day. Investors offered to buy the entire firm 14 times over, lured by its monopoly over the ticketing, catering and supply of packaged drinking water to Indian Railways, Asia’s largest rail network. India Mart InterMesh Ltd., the country’s largest online platform for businesses, is trading 78% higher than its July IPO.Metropolis Healthcare Ltd., an operator of medical diagnostic centers backed by Carlyle Group, has soared more than 60% from its offer price in April.

Though the capital raised by these companies was relatively small, they offered a unique business proposition for which a similar peer company in the listed space was rare or absent. The near-monopolistic

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and unique businesses of these companies that are professionally run, are cash positive and carry almost no debt won the hearts of the investors.

2. Attractive Valuations Although each IPO should be judged on a case by case basis, majority of the IPOs that got listed this year offered attractive valuations. One of the many reasons why IPOs did well this year was their valuations. 14 out of the 16 IPOs that went public this year are significantly above. One of the newly listed companies that offered a great valuation was Ujjivan Small Finance Bank that got listed in December on both the BSE and NSE with a 60% gain on its opening day. Ujjivan Small Finance Bank IPO saw the highest subscription among all IPOs since January 2018 as investors found the valuation attractive and asset quality strong. The company has a PE of 16.5 which is half of its listed peer AU SFB and PB of 2.3 where AU SFB is trading at PB of 6.9.

3. Growth outlook Companies with strong potential business dynamism and growth outlook did well in the listing this year. Many of the companies have witnessed a growth of two digit in the last 3 years. Also, the IPOs that got listed in 2019 were more from the services and financial sector rather than manufacturing which witnessed the worst hit during this year’s economic slowdown.

4. Past IPO listings success The heavy demand that the IPOs have seen is, in fact, a derivative of the listing performances that earlier IPOs in 2019 have delivered for investors. Having made good returns, investors seem to be coming back for more.

In 2019, a very few companies got listed. But the IPO experience has been great for the investors. Because one or two unsuccessful listings, every other issue has performed phenomenally well. So, investors have had a positive view towards investing in IPOs in the Indian markets.

THE FUTURE OUTLOOK FOR THE IPO MARKETS. A lesson learnt from 2019, is that investors will definitely reward IPO listings whose business models are proven and that show continued profitability alongside ongoing predictable growth.

The Indian initial public offering (IPO) market is expected to achieve a higher pace in 2020 as compared to this year.

The capital market participants are expecting a larger number of financial companies to list shares next year to raise funds or meet regulatory requirements. A total of 21 companies like SBI Cards and Payment Services Ltd., UTI Asset Management Co., Computer Age Management Services Pvt. and Fincare Small Finance Bank Ltd have filed documents with market regulator Securities & Exchange Board of India for planned IPOs and are looking to raise a total of about 300 billion rupees. Out of a total 21 companies, 11 have already been given the nod to tap the market for next year.The consumer, real estate and aviation sectors could also see significant IPOs, and the market will likely witness it’s second REIT IPO and first REIT qualified institutional placement (QIP) in the first half of 2020.

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Mystery behind Rate cuts By: Krishna Lakshmanaperumal (IFMR GSB) On 5th December 2019 Monetary Policy Committee had announced that the policy repo rate will remain unchanged. In the past one year alone RBI had reduced the 135 bps to revive the economy from the slowdown.

But Despite an expectation of 25 bps rate cut, MPC maintained status quo on repo rate at 5.15%. But why?

And what could be the reasons behind expectations?

Lower GDP growth?

Many economists believed that Monetary Policy Committee would lower the interest rate once again as GDP growth in the Q2 fall to a six-year low of 4.5%. There is a steady and constant slowdown in the GDP growth rate for the past six quarters from 8% to 4.5%. Especially in manufacturing and Auto mobile sector, currently manufacturing sector facing a negative growth rate of 1.6%, 4%, and 2.1% from July to October even after the corporate tax cut. This is a clear indication that the overall GDP growth may be positive but not all the sectors are growing positively. So, there was an expectation that further interest rate cut will put the money on the common man which will lead to increase in consumption and demand can be created which can boost to the current growth rate. Though there are so many valid reasons and expectations in the current economy MPC had announced that the policy repo rate will remain unchanged.

8 7 6 5 4 3 2 1 0 Q2-2018

Q3-2018

Q4-2018

Q1-2019

India’s GDP Growth Rate

Q2-2019

Q3-2019

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Increased inflation?

Whenever there is a high interest rate cut people will barrow more and spend more. So liquidity in the market will increase so there will be an increase in inflation. Because of the continuous reduction in interest rate inflation crossed RBI’s mid-term target of 4% and reached 5.54% for the period of November 2019. Increase in onion price gave a boost to food inflation and reached 9.8% for the same period from 7.2% (October 2019).

YOY inflation increasing at a faster rate than in the past. Data shows that after the August interest rate cut of 35 bps the inflation started rising at a much higher phase. 5.54% (Nov 2019) was the highest inflation rate since July 2016. Increase in prices especially food prices put pressure on MPC. High inflation is generally coupled with a fall in exchange rate, so we need to pay more for imports in rupees when our currencies fall against other currencies.

Year on year inflation rate - 2019

6

5

4

3

2

1

0 Jan

Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

Nov

Increase in unemployment rate?

Unemployment Rate in India increased to its all-time high of 8.50% in October from 7.20% in September of 2019. The average Unemployment Rate in India is 5.16% from 1983 until 2019. The current unemployment rate is 3% than the average unemployment rate. This unemployment rate numbers are indirectly proportional to the GDP growth rate. The steady slowdown in GDP growth rate is a key reason for increase in unemployment rate. October data of 8.5% is a clear reflection of slowdown of growth rate from 5% to 4.5%.

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Should we bother about GDP growth rate?

Reduction in 1% of GDP growth rate will approximately affect 1.5 million direct jobs and 4.5 million indirect jobs. If you assume that each of these 6 million people have 5 members to feed in their family. Then every 1% reduction in GDP growth rate will affect 30 million people. In the past six quarters alone growth rate reduced by 3.5% which means we are talking about the life and pain of 105 million Indians approximately. It is a very crucial time for both government and MPC to consider further rate cuts.

Unemployment Rate -2019 9 8 7 6 5 4 3 2 1 0 JAN

FEB

MAR

APR

MAY

JUN

JULY

AUG

SEP

OCT

Conflict of interest?

Though MPC had reduced interest rate for the past six quarters. Banks have not reduced the interest rates in the same ratio. Which means the benefit of reducing interest rates are not transferred to the common man or barrowers. In this case MPC reduced the interest rates to increase the money lending but banks are not ready to do so. Banks are not ready to lend more money because of the current economic slowdown. There is a high chance that barrowers may not be able to pay back the loan amount because there are no significant signals in the economy for future growth. So before reducing the interest rate further RBI and MPC should make sure that banks pass the rate cut benefits to barrowers. Another important factor to consider is reducing in interest rate also affects the senior citizen who completely depends on the interests from their savings.

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Expectation on FISCAL policy?

As mentioned earlier, already MPC reduced 135 bps interest rate cut in the past one year but still there is no improvement in the economy or GDP growth. Even after the corporate tax cut there is no significant growth in the GDP and now MPC is forced not to reduce the interest rate further because of the increased inflation.

So MPC may be waiting for the response from the government in the annual budget. There is a high chance of rate cut that during next MPC meet depending on the central government’s fiscal policy.

References: • • • • •

Tradingeconomics.com -Centre for monitoring Indian economy - Unemployment Ministry of statistics and programme implementation- GDP Ministry of statistics and programme implementation - Inflation Fifth Bi-monthly Monetary Policy Statement, 2019-20 – Interest rates Investopedia

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India’s stance on Regional Comprehensive Economic Partnership By: Biswadeep Ghosh Hazra (XIMB) India recently walked out on the Regional Comprehensive Economic Partnership deal and this article will serve to look at the critical aspects of India’s exit and explain the consequences in a broader aspect.

Coming to what Regional Comprehensive Economic Partnership is, a free trade agreement between several countries in the Asia Pacific region that includes member nations of the Association of Southeast Asian Nations (ASEAN); namely Indonesia, Brunei, Myanmar, Singapore, Thailand, Philippines, Laos, Malaysia, Vietnam and Cambodia. The ASEAN also includes five partners namely Australia, Japan, South Korea, China, and New Zealand. India which was supposed to be the sixth partner opted out of the agreement on November 4th, 2019.

The RCEP countries had a combined GDP at Purchasing Power Parity of $49.5 trillion and accounted for half of the world’s population and almost 40% of the world’s GDP, according to 2017 figures. RCEP was basically an answer to combat the already powerful NATO and G-8 countries’ influence throughout the world in terms of trade and influencing power.

Source The agreement was primarily formed to increase the free trade between the member nations by reducing trade barriers which would consequentially improve the economies of these countries.

Advantages and Disadvantages To begin with, India's businesses would have access to a huge market that accounts for 40% of the International Trade. And with the little to no trade barriers, Indian products can easily penetrate the deep reaches of these countries giving the country a much-needed economic boost.

With the factors of production on a full drive, the country's GDP would improve exponentially, that is what basic Macroeconomics dictates. But there is a catch here, and that catch is a huge economic powerhouse by the name of China.

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Source The opening of markets is a dual effect, that is in reciprocation of other countries opening their markets to India, it is expected that India will do the same. The problem is that China is extremely good at flooding any country with its low-cost goods and at the present moment, over 60% of India's trade deficit is on account of China. The situation is further complicated by the fact that India exports services (like IT/ITES services) and these services do not feature prominently in the RCEP agreement.

Source RCEP would bring in opportunities and growth in manufacturing through the process of GVC or Global Value Chain where big corporations delegate production to multiple countries like Vietnam, India and Thailand. But because of a lack of infrastructure, experts think that this benefit would be nullified in India. With labor costs

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rising in China (as it progresses), companies are looking to shift their bases of production to other countries.

Chinese corporations could use this window to dump in extensive products in the country. In addition, India currently has a running trade deficit with the RCEP countries and RCEP countries account for almost 27% of the trade that India does throughout the world. This puts India in further peril as India exports than imports when ideally, it should be the other way around.

Source Modi’s stance on the agreement Prime Minister Modi, in his address at the RCEP summit held in Bangkok said, “The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP,”(ref).

Piyush Goyal, our commerce Minister also lauded the Prime Minister’s decision and said that the move would develop the domestic industry under the “Make in India” campaign.

"Today, when we look around, we see during seven years of RCEP negotiations, many things, including the global economic and trade scenarios, have changed. We cannot overlook these changes. The present form of the RCEP Agreement does not fully reflect the basic spirt and the agreed guiding principles of RCEP. It also does not address satisfactorily India's outstanding issues and concerns In such a situation, it is not possible for India to join RCEP Agreement," (ref) Modi added in the Bangkok RCEP summit.

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Goyal, in a meeting with the MPs, explained that while several small countries have only opened 50% of their markets to foreign players, India opened 74%. Thus, it is easily understandable that with foreign players looking to expand into India, the domestic players would be highly underplayed in the process.

Source “India has maintained that we will not be a signatory to the RCEP unless our domestic concerns have been addressed. We are just one among the 16 countries who have not signed. We were able to take this firm stand because of our strong and stable leadership,”(ref) Goyal said in his meeting before the BJP Parliamentary Party.

To conclude India is a big market and a global economic powerhouse and without India, the whole FTA (Free Trade Agreement) within the RCEP countries would fall short of the ultimate objective of mutual progress. It remains to be seen whether India can convince the other member nations to put pressure on China to accept its terms.

But for the time being, the remaining 15 member nations are ready to seal the deal coming year (tentative) and India as of today is out of the RCEP deal. India should use this opportunity to improve its uncompetitive export market which is the primary reason for a huge trade deficit with any advanced economy country in the world.

Where Modi’s decision is right, however remains to be seen. As the proverb goes, “Time will tell”.

Sources• https://economictimes.indiatimes.com/news/economy/foreign-trade/india-decides-to-opt-out-of-rcepsays-key-concerns-not-addressed/articleshow/71896848.cms • https://niti.gov.in/writereaddata/files/document_publication/FTA-NITI-FINAL.pdf • https://www.indiatoday.in/india/story/india-pm-modi-decide-to-not-join-rcep-agreement-16156552019-11-04 • https://economictimes.indiatimes.com/news/economy/foreign-trade/india-decides-to-opt-out-of-rcepsays-key-concerns-not-addressed/articleshow/71896848.cms • https://foreignpolicy.com/2019/11/19/modi-pull-out-rcep-india-manufacturers-compete-china/

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Gig Economy: A work in and for Progress By: Vanshika Giria & Shivaditya Bechan (Delhi University) With every passing day “Gig Economy” is becoming a rapidly acknowledged term. Gigs are short term, paid, professional assignments that are displayed on an online platform through an intermediary. We are all aware of the huge changes that is driving in our lives as workers, consumers and citizens. This change is possible due to technological advancement. Technology has not only accelerated economic growth but also opened avenues to new and better kinds of work. It rapidly made obsolete the older modes of work modes. The thriving segment of workforce, roughly known as the “Gig economy” is one such result. What differs between gig jobs and freelancers is the use of online platforms to discover work. Unlike gig workers, Freelancers do not actively use online platforms to look for work. Some examples of Freelance jobs include swimming and music teachers. Freelancing, like other types of short-term work relationships, will tend to be more “transactional” rather than “relational” with more straightforward exchange and less focus on mutual trust and commitment.

Gig platforms do not give the employee status nor the obligations that would come with such a relationship.

Today, more than a third of Indians are working in the gig economy-mixing together short-term jobs, contract work, and freelance assignments. There is a little stopping the gig economy now; it will likely diversify and spread. But can the rise in gig-based labour compensate for the crunch in the formal labour market?

Food or Mood: Gig and the Youths The recent Periodic Labour force survey from the ministry of Statistics and Programme Implementation shows unemployment rate at 45 year high, at 6.1%; the highest level of joblessness is among urban youth. This is when they shift to uncertain but ultimately rewarding gig world. While embracing the independent and selfsufficient world of freelance, they learn how to construct a life based on their priorities and vision of success, cultivate connections without networking, create their own security, build flexibility into their financial life, and face their fears by reducing risk and much more. A worker or independent contractor has the choice of selecting his or her work hours and at times, even the mechanism through which he or she wishes to complete the work. Such workers or independent contractors can work from home, especially when the project is related to arts and design, information technology or creative writing. Companies are also ready to welcome freelancers as they can accommodate temporary workforce, according to the customer requirements or business needs, leading up to saving administrative and compliance costs that they would otherwise incur if they choose to hire full time or regular employees, especially in cases where business models do not involve the engagement of permanent workforce. Also, it may not be possible for companies and start-ups to afford skilled professionals as full-time employees. In such situations, companies may choose to enter into contracts with the professionals for a specific time period.

Learn and Earn: Gig and the Students The trend of micro tasks is gaining popularity among students looking for different career options, make money and build their portfolio. To experience the benefits of gig economy, they choose gigs that suit their profile from the wide-ranging options available on the platform and enter the professional world without going daily into an office. Parents are open to the idea of their kids going gig, as it makes them proud that their kids are following their passion and earning from it too. The income earned is generally spent on shopping or having a coffee at Starbucks but for a few it’s a source to support the daily bread & butter of the family.

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A few known freelancing websites that hire freelancers to exhibit their talents and find prospective clients include-Upwork,Truelancer,99designs,Toptal,Fiverr,Wishup,SimplyHIred,WorknHire,Guru etc.

Second glance at freelance Not everything is good with gig workers too. They suffer from job insecurity, intensified by complex contracts, the volatile rate of incentives, weak or no commitment from contractor and stringent deadlines with longer working hours. In the absence of an employer-employee relationship, such workers are mostly not entitled to any social benefits, such as provident fund, gratuity, annual leaves, sick leaves and overtime, besides a severance compensation. Formal employment, which comes with job security that allows personal and professional investment is missing in Freelancing work culture. Also due to lack of proper regulation, the gig economy offers both the employer and the gig worker, many challenges to deal with. Indians will soon need to grapple with the question of whether the ease and flexibility provided by the gig economy is worth the psychological costs attached to it.

Conclusion Given the rapid growth of India’s working population, the employment generation capacity of a gig economy has helped many within the labour markets to become employed. Gig workers, at this stage, may not be eligible to avail any legal or statutory claim. However, given the continuous growth of the gig economy, it is possible that some benefits may be extended to them even if not at par with the regular or contractual employees of an organisation. Combination of being overworked with mismatch between promise and reality has caused high attrition in the gig economy. This is not, however, an argument to back through time. To navigate the scarce corporate jobs and seize the plentiful opportunities offered by new technologies, we must start mapping out our place in the gig economy today! Whether we like it or not, change is coming, and the worst move of all would be to ignore it.

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Potential of Externally oriented Sovereign Wealth funds to boost India’s economy By: Manisha Singh (Fore School of Management) What is a sovereign wealth fund?

The IMF defined the Sovereign Wealth Funds as special Investment funds that are created and owned by the government with the intention to use them to hold foreign assets for long-term purposes. Most SWFs are funded by revenues from commodity exports or from foreign-exchange reserves held by the central bank. It represents a large and growing pool of savings. SWFs can be created to promote the growth of domestic companies, meet import necessities, attract foreign direct investment and increase government revenues.

Traditionally, the creation of SWF was “supply-driven”, the result of excess reserves from natural resources e.g. Norway, Qatar, Kuwait, etc. or non-commodity capital flows e.g. South Korea, China, Singapore, etc.

Recently it has been observed, many newly established or announced funds are “demanddriven”, created with the objective to accelerate domestic development together with infrastructure development. SWFs typically invest in multiple asset classes including public equities, fixed income, private equity, private debt, real estate, infrastructure, natural resources, and hedge funds.

India’s SWF - National Investment and Infrastructure Fund (NIIF) In Union Budget 2015-16, Finance Minister, Arun Jaitley declared the creation of the National Investment and Infrastructure Fund. It was proposed to be set up as an Alternative Investment Fund to provide long term capital for infrastructure projects. National Investment and Infrastructure Fund Limited (NIIFL) is an investorowned fund manager, anchored by the Government of India in collaboration with leading global and domestic institutional investors. It manages over USD 3 billion of capital commitments across three funds (Master Fund, Fund of Funds and Strategic Fund), each with its distinct investment strategy.

NIIF is a combination of alternative investment funds and fund-of-funds for investing and co-investing with foreign partners in India’s infrastructure, hence giving the economy a boost while also generating returns.

Recently, NIIF has entered into an agreement with the National Highways Authority of India to invest equity in road projects, a move that will help this sector to meet its large funding requirements.

Risk of Domestic Investment by NIIF Domestic investment by the SWF risks to:

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• De-stabilize macroeconomic management and • Undermine both the quality of public investments and the wealth objectives of the fund.

The source of these risks is that the SWF is owned by the same entity which is the government that seeks to promote the domestic public investments. These risks may be mitigated but not eliminated. The link between investment and growth is neither automatic nor guaranteed. Public investment poses significant management and governance challenges, including low capacity, weak governance, and regulatory frameworks and a lack of coordination among public entities. Furthermore, multiple institutions can have overlapping investment mandates, leading to fragmented programs and inefficient use of public funds. Domestically-oriented SWFs face the difficulty of separating SWFs’ domestic investment decisions from political interference. Careful coordination is necessary when multiple entities carry out public investment programs.

Externally-oriented Sovereign Wealth Funds It has been observed that not every country will find it most favorable to build up an SWF saving fund that invests abroad. If the risk-adjusted rate of return on investment is higher on domestic investments than that on foreign assets, the favorable strategy might involve boosting domestic investment rather than accumulating long-term foreign assets. SWF’s asset allocation is driven by its risk-adjusted return preference. Asset allocation is driven by several factors including the country’s strategic requirements for resources, technology, foreign exchange, recurring income in the form of dividends and interest and capital appreciation.

SWF as a means to avoid recessionary cycles Creating a Sovereign Wealth Fund can be a means to avoid boom/ bust cycles, such as those experienced during the 1970s, by accumulating sufficient international assets. Moreover, a well-managed and effective SWF can help protect the economy's non-commodity sectors from destabilizing currency fluctuations and may facilitate the spread of the country's wealth more equitably across generations. Sovereign Wealth Funds additionally aim at developing a broader base for economic growth. Developing an efficient and diversified economy reduces the impact of commodity price volatility and helps to prepare the economy for a postcommodity era focusing more on services and manufacturing activities linked to value chains. Recent crosscountry evidence suggests that SWFs are successful in achieving efficient resource management when they have well-designed funding and withdrawal rules that are consistent with their stated goals. SWF should be underpinned by well-framed corporate governance arrangements and clear accountability procedures in order to prevent misuse of public resources and to gain public support for the Fund and its objectives.

Sources: https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp090308 https://niifindia.in/ https://www.researchgate.net/publication/320474749_Sovereign_Wealth_Funds_and_LongTerm_Development_Finance_Risks_and_Opportunities

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Can Financial Literacy solve financial fragility?

By: Divya (Ethiraj College for Women) Money is better than poverty if only for financial reasons - Woody Allen. Financial Literacy amongst people is necessary for better financial planning and financial management at the grassroot levels so that the economy as a whole becomes financially strong and robust. Financial Literacy is a continuous learning cum updating process of following economic and financial trends and parameters, exploring and experimenting investment avenues which builds with experience. This is the viable phenomenon that can help translating what is learnt to what is to be done with funds.

But, is Financial Literacy only restricted to ensuring safety of funds, have a better tax planning and making investments for steady returns in the short and long run? This is a thought-provoking question since in case of India, a booming economy, people prefer investing in gold, real estate, fixed deposits, provident funds over share markets though there is significant shift in portfolios than earlier decades. With bank runs die to their commitment device and wait for government bailout, defaulters being established companies leading to spiral of economic implications notably inflation, it raises concern and the need for people to begin investing in share markets for which financial literacy must be imparted amongst in the coming generations, so that the economy crawls to strike a balance with different types of investments with burden reduced to government and banks alone and increase of risk takers for returns to subsequently follow in the years ahead.

In case of Japan, a deflationary economy, people invest in securities more since, bank deposit interests are lesser with no guarantee of prospective returns to anticipate in terms of capital appreciation. Developed nations like U.K and U.S.A are supposed to be the highly financially literate nations with their currencies being highly correlated against its global contemporaries.

But, the Depression in 2008,a classic example of financial fragility and systemic risk, which occurred in United States of America, with the domino effect of home loan sanctions and investment banker's anticipation towards more returns and profits with crash of share markets, real estate prices, currency value, implications on global markets raises the question about whether financial literacy can be the solution to financial fragility, United States of America being strong in financial literacy for decades and till date, a service economy being the foreign exchange management hub and hotspot for trading, a rarer sense indeed a delusion.

So, does that mean even financially strong economy can collapse? And, does financial literacy ensure scale up of developing economies? Financial literacy can help in uplifting from crisis faster catalyzing resiliency, which is why, it is always a requisite for economies in large. Whether it is a Trillion grossing GDP economy, Millions grossing GDP - growing economy, literacy is required whether economies are fragile or not to strengthen the economy with application of the financial knowledge, with one to many contributing to better financial robustness of the nation and also to bolster financial resiliency to drive out from financial crisis at the earliest paving way to enhanced financial management.

Literacy about channeling Investments at the right avenues and Choosing appropriate sources of Finance go in tandem when Financial Literacy grows and slowly permeates into the related frontiers with adept solutions to financial problems stretching wings to better banking and financial services. Several economies notably, Singapore and Italy have shown tremendous and consistent economic development from their history of far fetched conditions to achieve the same which on giving emphasis to financial literacy and management which

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drove them out of what they were to what they are now. There are also on the other hand, stories of economies that are still struggling namely Venezuela, Brazil which has not tried in focusing on Financial Literacy tool to cope with the crisis. But there is a warning issued by the United Nations that there is a long list of struggling economies with respect to the current status more precisely 2019 which includes U.S.A, U.K, China, Germany, Italy, Japan, Singapore, Mexico that a depression can be anticipated in 2020.

So, it's precarious that any preposterous delusion is embraced rather than facing the occasional bleak truth.

So still hangs the question whether Financial Literacy can drive out Financial Fragility?

Moving into the case closer for more clear picture, misuse of financial literacy and globalization have become the reasons for mismanagement of finance, erratic financial decisions and trade and commerce downswings that it rings the wake up alarm across the globe of what would happen if a Great Depression engulfs any financial strength all of a sudden in one day?

Will there be a blame game amongst countries, governments and their people for such an irking situation and involve intervention of International organizations to solve it and ensure worldly peace?

There could be no trace of a particular reason or anticipated solution even if it occurs that the bottom line is economies have to work together towards any global financial crisis hand in hand so that there is an early bird relieve with trade, finance, commerce and investments enjoyed in the right way across the globe.

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Synergies of Merger (In Beauty Industry) By: Anant Tyagi (Bennett University) Beauty brands are distinctive, relative to clothing and footwear brands. They bring with them a physical, experiential element that is difficult to replicate on a phone, or a laptop. Thus, they appear to be more resilient to the withering of the brick and mortar retail channel as we see in other sectors. At constant time, this is an industry where the giants, like Estee Lauder, Revlon, Coty, and Proctor & Gamble, have held their market positions for so long by out-marketing smaller, independent brands. Digital, and particularly social media is levelling the playing field. Independent brands now have the ability to capture the consumer cheaper and faster by delivering timely, relevant, not to mention – cool, content.

The rise of social media has become a driving and, in some cases, instrumental considering the success of rising cosmetic corporations. Glossier is a clear example of a brand that has garnered a cult-like following through their predominant and expert use of social platforms like Instagram and Facebook. What these smaller, independent brands have mastered is the ability to build a culture of beauty: 1. They use social media to promote relevant content that inform consumers on beauty trends, posting educational tutorials that serve the dual purpose of acting as a tutorial and simultaneously generating interest and hype around a product.

2. They get YouTubers, vloggers and trusted influencers with media clout to review and endorse their products. As a recent example, MAC a popular makeup brand is an excellent example of this shift in preferences. MAC is long known for its association with celebrities like Mariah Carey and Rihanna, but this year it has decided to collaborate with influencers to help market their brand across social media.

3. They integrate values and social responsibility into their brand, their products and packaging, that resonate with their core demographics. This can be witnessed by the rise of cruelty-free and chemicalfree products.

These factors have the combined effect of creating a communal experience that fosters an emotional connection with the audience through every picture, post, or snap. They are able to establish and grow a fiercely loyal customer base, which has resulted in double digit growth between 2010 and 2016, outperforming the overall beauty industry’s growth four times over.

Retail is undergoing significant disruption – possibly in no sector more than in beauty, both multi-brands and independents should be addressing the disadvantages inherent in their position. Consolidated brands will continue to look for digital transformations to compete with the marketing and user experience benefits held by niche competitors. Conversely, the smaller brands will be looking for solutions on managing cost despite their smaller scale - be it through supply chain efficiency and responsiveness, superior supplier/manufacturing relationship management, automation through back-office operations, SKU rationalization, or any other optimization initiative through operations excellence.

In 2016, Unilever acquired Dollar Shave Club for 1 billion dollars as a way to inject itself more actively into “Generation Z.” to help it reach the ever-elusive millennial and post-millennial audience. It’s clear that this is no longer an age where only a handful of household names hold all the power. The rate at which small businesses are emerging is impossible to ignore. The question is: does it make sense for a large corporation to

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pour time, resources, people—and most importantly, money-into a brand-new product on its own, or is it best to look outside for innovative opportunities?

The answer is a definite yes. Large beauty corporations have gotten artistic and adding social media-endorsed freelance cosmetic brands to their portfolios through M&A transactions. This allows companies to reach and interact with a younger customer base of millennials and Generation Z, an audience that bases its purchasing decisions on likes, follows and reviews rather than being tethered to a sole brand. These smaller companies are more agile and more responsive to millennials’ and Generation Z’s ever-changing desires. Larger brands are looking for ways to create excitement and engagement with consumers on social media, which can be achieved through acquiring younger brands with a growing digital footprint. It’s no wonder that companies are having make-up artists with a strong social media presence step into the shoes of celebrities as a way to reach a new and broader audience.

Companies are realizing that they are better off capitalizing on key synergies and combining forces with other companies. This trend has rolled over into the fashion space as well, with brick and mortar retail stores struggling and a drastic expansion in e-commerce, brands and retailers are having difficulty surviving on their own.

More recently Kylie Jenner sold 51% of her Kylie Cosmetics to Coty for $600 million, Unilever acquired Tatcha for a reported amount of $500 million and Japanese beauty giant Shiseido bought Drunk Elephant a US skincare brand for $845 million, which increased its relevance in the market, a tremendous boost for the struggling company.

M&A activity is a trend that will continue to rise as the ability to gain differentiating products through acquisitions is far less time consuming than starting from scratch.

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Universal Basic Income

By Sujeet Kumar Pal (IIM Rohtak)

Imagine a scenario in which the state took care of your expense of living, would regardless of you get down to business. Return to class? Not work by any means? What might you do? This idea is called Universal Basic Income, and it's nothing not precisely the most goal-oriented social approach of our occasions. In 2017, the essential salary was picking up energy around the globe. First trails are going or on their way, and a developing number of nations are thinking about UBI as an option in contrast to welfare. At present, individuals can't generally concur. What general essential salary is or ought to be. Some need to utilize it to wipe out welfare and Cupp administration. Others need it as a free extra for existing projects or even need it to be high to such an extent that work itself ends up discretionary. For this, we have to think about the essential base salary, enough cash to be over the neediness line. In the US, this implies about $1000 per month. In India, Government also announced Rs.6000 yearly for poor formers. The cash would not be burdened, and you could do anything you desired with it. In this situation, UBI is a method for moving the abundance of a general public while as yet keeping the free market flawless. Be that as it may, if we hand out free cash, will individuals simply spend it on liquor and quit working? A recent report by the World Bank explicitly inspected if needy individuals squander their freebees and tobacco and alcohol if they get it in the type of money. The reasonable answer, No, they don't. The inverse is valid. Different examinations have demonstrated that the more extravagant you are, the more medications and liquor you expend. The apathetic and alcoholic destitute individual is a generalization as opposed to the real world.

Shouldn't something be said about laziness? Widespread fundamental pay trials done in Canada in the 1970s demonstrated that around 1% of the beneficiaries quit working, generally to deal with children. All things considered, individuals decreased their working hours by under 10%. The additional time was utilized to accomplish objectives like returning to class or searching for better employments. Be that as it may, if lethargy and medications are not an immense arrangement, for what reason doesn't our present welfare state fathom destitution? Welfare for joblessness programs regularly accompanies a lot of Strings Attached, like participating in courses applying to a specific number of occupations a month or tolerating any sort of employment bid regardless of if it's a solid match, or what it pays. Other than the loss of individual flexibility, these conditions are frequently a colossal exercise in futility and just served to make the joblessness insights appear to be less terrible regularly. Your time would be vastly improved spent searching for the correct activity containing training for beginning a business. Another undesirable symptom of numerous welfare projects is that they trap individuals in poverty and advance latent conduct. Imagine an advantage of $1000 every month.

In a ton of projects on the off chance that you acquire a single dollar extra, the entire thing is removed. On the off chance that you accept a position, that paying $1200, you may lose your advantages, but since of your assessments and another cost like transportation, you may wind up having less cash than previously. So on the off chance that you effectively attempt to better your circumstance and your full pay isn't improving or even contracting welfare can make a roof that traps individuals in neediness and prizes inactive conduct. An essential pay can never be cut, and along these lines finding a new line of work and extra salary would consistently improve your monetary circumstance. Work is remunerated continuously as opposed to selling it

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makes a story from which individuals can lift themselves. Be that as it may, even UBI is the better model, is it monetarily practical?

Shouldn't something be said about inflation? Won't cost simply rise to make everything like it was previously?

Since the cash isn't being made by printers, it should be moved from someplace. It's more office move of assets than the making of new ones. Subsequently; no inflation. Alright, yet how would we pay for it? There's no correct answer here in light of the fact that the word is too various how well of the nation is the thing that the nearby qualities are. Are things like high expenses for cutting the guard spending plan politically satisfactory or not? What amount of welfare state is as of now set up, and is it viable? Every nation has its own individual way of UBI. The most effortless approach to pay for a UBI is to end all welfare and utilize the free assets to fund it. In addition to the fact that this would cause various government organizations to vanish, which in itself sets aside cash, it would likewise dispense with a ton of administration. Then again, cutting them could leave numerous individuals more regrettable off than previously. On the off chance that the objective is to have an establishment of everyone, there still should be projects or some likeness thereof in light of the fact that merely like nations, individuals are not the equivalent — the second way higher expenses particularly for the exceptionally well off. In the US, for instance, there's been a great deal of financial development, yet the majority of the advantages from it have gone to the most extravagant couple of percent. The riches hole is quickly extending, and many contend that it may be an ideal opportunity to disseminate the crown jewels all the more equally to protect the social harmony. There could be charges on money related exchanges, capital, land worth, carbon, or even robots. However, UBI isn't really costly. As per an ongoing report, UBI of $1000 every month in the US could really develop the GDP by 12% more than eight years. It would empower destitute individuals to spend more and increment in general request.

Shouldn't something be said about the individuals who do the dirty work? Who will work in the fields, slither through sewers, or lift pianos? In the event that you don't a requirement for survival, will individuals still do hard exhausting and unfulfilling work? UBI may give them enough influence to request better pay and working conditions. A study determined that each additional dollar going to workers would add about $1.21 to the national economy, while each extra dollar going to high salary Americans would include just 39 cents. There would, in any case, be extremely rich and destitute individuals; however, we could take out dread, enduring, and existential frenzy for a critical piece of populace. Improving poor residents off could be a brilliant monetary strategy. For some, this isn't sufficient. They need a UBI enormous enough to live an executive class presence. On the off chance that we put the monetary deterrent in a safe spot, this thought in general sense difficulties, how our general public is built. By acquiring cash, you procure the conceivable to participate in the public arena. This decides your status and alternatives; however, it additionally powers numerous individuals into investing gigantic lumps of their energy in the things they couldn't care less about. In 2016 just 33% of US representatives were locked in at work, 16% were effectively quantifiable, and the staying 51% were just physically present. Would 67% of individuals quit working on the off chance that they could?

It is unjustifiable to depict work at only an errand. There are different worries with UBI if all welfare projects were traded for or one single installment, this gives the legislature a ton of influence. Individual plans are simpler to assault or cut than a vast number or populist destroy exceptional guarantee changes to the UBI to get into power, and a widespread essential salary doesn't handle all issues with regards to uniformity. For

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instance while $1000 may be incredible in the field, it is anything but an excellent deal for costly metropolitan territories which could prompt destitute individuals moving outwards and the distinction among rich and poor winding up significantly increasingly outrageous and obviously, for specific individuals, the idea of work itself not being basic for endurance is shocking.

Is universal basic income a good idea? The honest answer is that we don't have a clue yet. There should be much more research more and more significant trials. We have to consider what sort of UBI we need and what we were set up to offer up to compensation for it. The potential is huge. It may be the most encouraging model to wipe out neediness reasonably. It may genuinely reduce the measure of distress in the world and make every one of us substantially less worried.

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Theoretical Framework of NPA

By Anjali (IIM Rohtak)

The loans are given out by the commercial banks in order to earn interest income but when the borrower fails to repay the amount after a fixed period of time then it is referred as Non Performing Assets. In order to explain the rising the effect of Non Performing Assets through ISLM , the money market has been replaced with debt market lead by commercial banks real sector as goods market.

First let us focus on the loan market: LSt= dDt-dRt LSt refers to the supply of loans dDt refers to the change in deposit stock with commercial banks dRt refers to change in reserves help by commercial banks with central bank

Now let r be the required reserve ratio such that Rt.= Dtr

………1

Assuming that the reserves held with the central bank is lent to government such that: …….2 dRt=Gt

Now the loan supply equation becomes: LSt= dDt-dDtr LSt= dDt (1t-tr) LSt =(1-r)dRt/r =(1-r)Gt/r

(From 1 and 2)

The loans extended are used for investment therefore the equilibrium in the loan market will be I(it)=(1-r)Gt /r Where i= interest rate

Now we come to the goods market Yt=ADt=C(Yt -Tt)+I(it)+Gt

Replacing investment with (1-r)Gt /r Now, Yt=C(Yt -Tt)+Gt /r

…………Equilibrium condition

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Here in the above figure the goods market is in equilibrium at a point where 45Âş line intersects the AD line generating the equilibrium output Y* which therefore is a function of G, T and r.

Thus, a rise G leads to an upward shift in the AD line indicating impact of expansionary Fiscal Policy while a rise in r leads to the downward shift in AD line implying the contracting effect of tight monetary on the real aggregate output and income Effect of G, an increase in G requires an increase in the borrowings of the Central Bank leading to the expansion of monetary base that leads to the fall in the interest on loans. As results the firms find more incentive to invest and thereby allows for the expansion AD and hence the equilibrium aggregate real output Y*.

Effect of r, A cut in reserve ratio r will lower the portion of increased deposit available to the commercial banks that to be held as reserve with the Central Bank leading to the expansion the commercial bank’

33 | P a g e credit creating capacity. This makes borrowing less costly inducing more investment leading to the rise in the real aggregate output.

In case of NPA’s LSt=(1-r) Gt/r-Pt Pt is the provision due to the in default on the new loans made in the period t-1 This is because due to increasing NPA’s the banks credit capacity will reduce as they will have to keep provision for the defaults of loans.

Now the new equilibrium is Thus increase in interest rate will retard the momentum of investment affecting the production and real aggregate output.

Thus accumulation leads to the contraction of real output and thereby can catapult the economy into recession.

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