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Volume 7|Issue 2 An initiative by IBS@SIMSR

Nov – Dec 2016


Foreword Dear Readers, We are elated to bring to you the October-December 2016 – anniversary edition - issue of the quarterly epublication of International Business Society (IBS@SIMSR) – e-GlobuzZ. We started off in December 2009 with an endeavour to acquaint management students across B-schools with the dynamics of our VUCA world. IBS@SIMSR aims to supplement the courses students of SIMSR take on International Business and Strategy. With this vision in mind we hosted our flagship International Business Conference monikered “Pangea” where the students interacted with several industry doyens. Students were sensitized to cross culture dealings and the importance of sensitivity to other culture while engaging in international business. The importance of cultural similarities and dissimilarities was the focal point of the event. Further, students were acquainted with marketing in international business, and how culture plays an important role in determining marketing techniques. MBA lays great emphasis on peer to peer learning. With that in mind- since knowledge knows no bounds – we have maintained the trend of inviting students from across B-schools to contribute to our magazine and share their opinions on global issues and their impact on India and our current issue is enriched with the same. We invite esteemed faculty members, students and alumni to contribute articles on any topic in International Business for our next issue of e-GlobuzZ i.e. January – March 2017. Happy Reading! Prof. Dr. Thomas Mathew Asst. Professor (Sr. Sc) (Strategy, International Business & General Management) Centre of Excellence – Chairperson IBS @ SIMSR Program Co-Coordinator Second Year PGDM (IB)


CONTENTS Country in Focus – Russia

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Company in Focus - Amazon

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Cover Article – Financial Inclusion and Beyond

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India rewrites Mahabharata

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Discounted Cash flows in the times of low interest rates

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Cash or Cashless?

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Game of Surgical Strikes

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India’s admission in NSG

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Dream 2047

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IBS Puzzle

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Faculty Mentor: Prof. Thomas Mathew Editor-in-Chief: Mansi Mahajani Editors: Aloka Chhatani, Anshul Barve, Nehal Mittal, Nupur Grover, Urvashree Bohra Designer: Nupur Grover Did You Know? : Anshul Barve Crossword : Aloka Chhatani All the views expressed in this magazine reflect the personal opinions and views of the authors and do not reflect IBS@SIMSR views.


Country In Focus

Russia Nehal Mittal (KJ SIMSR) History of Russia is also very vivid.

Russia also officially known as the Russian Federation is a transcontinental country in Eurasia. At 17,075,200 square kilometres (6,592,800 sq mi),Russia is the largest country in the world, covering more than one eighth of Earth's inhabited land area, and the ninth most populous, with over 146.6 million people at the end of March 2016.The European western part of the country is much more populated and urbanised than the East, about 77% of the population live in European Russia. Russia's capital Moscow is one of the largest cities in the world, other major urban centres include Saint Petersburg, Novosibirsk, Yekaterinburg, Nizhny Novgorod and Samara.

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According to the Russian Constitution, the Russian Federation consists of republics, krais, and oblasts, cities of federal importance, an autonomous oblast, and autonomous okrugs, all of which are equal subjects of the Russian Federation. Three Russian cities of federal importance have a status of both city and separate federal subject which comprises other cities and towns (Zelenograd, Troitsk, Kronstadt, Kolpino, etc.) within federal city keeping old structure of postal address. In 1993, there were 89 federal subjects listed. By 2008, the number of federal subjects had been decreased to 83 because of several mergers. In 2014, Sevastopol and the Republic of Crimea became the 84th and 85th federal subjects of Russia.

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Country In Focus - Russia Every federal subject has its own head, a parliament, and a constitutional court. Federal subjects have their own constitution and legislation. Subjects have equal rights in relations with federal government bodies. The federal subjects have equal representation—two delegates each—in the Federation Council, the upper house of the Federal Assembly. They do, however, differ in the degree of autonomy they enjoy (asymmetric federalism).

Exports of Russia: Russian main exports are energy (oil and petroleum products, gas, coal), rolled steel, ferrous and nonferrous metals and minerals. The greater part of Russian exports belongs to oil and petroleum products. Other leading exports are natural gas, timber, fertilizers, machinery and equipment, armaments. Imports of Russia : Russia imports machinery and equipment, vehicles, consumer goods, foodstuffs, chemical products, industrial consumer goods.

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International Membership: Worldwide Membership’s United Nation Security Council World Trade Organization (WTO) (since 2012) World Intellectual Property Organization (WIPO) International Maritime Organization World Tourism Organization International Organization for Standardization Hague Conference on Private International Law Country Specific Membership’s BRICS (since foundation in 2009) Shanghai Cooperation Organisation (SCO) (since 2001) Asian Pacific Economic Cooperation (APEC) (since 1998) European Nation Specific Membership’s EU Customs Union (since 2010) Eurasian Economic Union (EEU) (since 2015) Black Sea Economic Cooperation Organization (BSEC) Council of Europe (since 1996) Commonwealth of Independent States (CIS) (since foundation in 1991)

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Country In Focus - Russia Free trade agreements: Has FTA’s only with CIS except Ukraine Currently Expanding EAEU – Vietnam & India-Customs Union of Russia, Belarus, and Kazakhstan FTA Part of APEC, SCO(Long Term Objective) India-Russia Relations: Traditionally, the Indo-Russian strategic partnership has been built on five major components: politics, defence, civil nuclear energy, anti-terrorism cooperation and space. These five major components were highlighted in a speech given by former Indian Foreign Secretary Ranjan Mathai in Russia. However, in recent years a sixth component, economic, has grown in importance with both countries setting a target for US$30 billion in bilateral trade by 2025. In order to facilitate this target both countries are looking to develop a free trade agreement. Bilateral trade between both countries in 2012 grew by over 24%. Political: India’s Ally Since 1950 Along with Japan only country to hold annual ministerial level defence reviews with India under IGIRC Military: FGFA, MTA to be produced jointly with Russia BrahMos & Sukhoi co-jointly produced with Russia Joint bi-annual military exercise INDRA & Avia-INDRA

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Economic: CECA being worked out with Russia Space Research: Chandrayan – 2 with ISRO & RKA Signed Treaty for Use of GLONASS Energy: 2 more nuclear power units in Kudankulam & via 13th annual summit till 2030 roadmap of 16-18 nuclear power plants each of capacity 1,000 MW. Science & Technology Formation of Integrated Long-Term Programme of Co-operation (ILTP) Construction of North-South Transport Corridor The powerful IRIGC is the main body that conducts affairs at the governmental level between both countries. Both countries are members of many international bodies where they jointly collaborate closely on matters of shared national interest. Important examples include the UN, BRICS, G20 and SCO where India has observer status and has been asked by Russia to become a full member. Russia has stated publicly that it supports India receiving a permanent seat on the United Nations Security Council. In addition, Russia has expressed interest in joining SAARC with observer status in which India is a founding member. India is the second largest market for the Russian defence industry. In 2004, more than 70% of the Indian Military's hardware came from Russia, making Russia the chief supplier of defence equipment. e-GlobuzZ


Company In-focus - Amazon

Amazon Urvashree Bohra (KJ SIMSR)

‘Aur Dikhao’ is a hashtag/tagline which has drawn much attention and has hit the right chord with the Indian sentiments. While brands struggle for years to successfully tap the right pulse of their audience, Amazon India’s hit tagline ‘Aur Dikhao’ suggests it has finally arrived and how is what we discuss in this article. Amazon is an American multinational electronic commerce company headquartered in Seattlle, Washington. It is the largest Internet-based retailer in the world with respect to total sales and market capitalization. Amazon has separate retail websites for different countries namely United States, the United Kingdom and Ireland, France, Canada, Germany, Italy, Spain, Netherlands, Australia, Brazil, Japan, China, India and Mexico.

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In the year 2015, Amazon surpassed Walmart as the most valuable retailer in The immense potential in India in terms of the market size and the growing economy attracted Amazon and the company launched its India marketplace, ‘Amazon.in’, in June 2013 offering books, movies and television shows for sale. The company predicts that India will be its biggest market after the United States within a decade and that the Indian ecommerce market as a whole is and will be gigantic. Diego Piacentini, Amazon’s senior vice president for international retail once quoted - “The size of opportunity is so large it will be measured in trillions, not billion, trillions of dollars, that is, not rupees,”. India’s population of 1.25 billion is four times as big as that of the United States and more than double that of Europe’s and the country boasts of a young population with a median age of only 27, ten years younger than Americans. This explains why Amazon sees a huge market in the country and this also reveals that e-commerce in general and Amazon in particular will have to deal with a different set of challenges to be able to succeed here.

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Company In-focus - Amazon Amazon India has the benefits of a very young populace which can easily adapt to e-retailing, rising levels of disposable income among the middle class of India , and ubiquitous cell phone ownership. However, the hurdles the company faces includes that 67% of the population lives in rural areas that has underdeveloped infrastructure, only about 35% of the Indian poulation is connected to the internet and Indian shopping is still dominated by cash payments and not credit card payment. Further, India has a rigid FDI policy in place that restricts foreign multibrand retailers from selling directly to consumers online. This implies any venture would be a third-party seller for Indian-made products. Thus, Amazon India had to be innovative in terms of their business model to be successful in India, beginning with finding products to sell. There is no dearth of goods produced by Indians, but most of these vendors are small. In the year 2013, very few retailers sold their products online as they believed that ecommerce is too complex and time consuming. Further, India’s cash economy also did not facilitate online transactions. These issues that the company were facing in India led to amazon developing a program that recruited an army of suppliers and also convinced them to partner with Amazon to increase the market share of their products.

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Amazon led a program called Amazon Chai Cart: mobile tea carts that navigated through city streets, offering refreshments to small-business owners while teaching them about ecommerce. The Chai Cart team was found to have travelled more than 9,400 miles across 31 cities and engaged more than 10,000 sellers. To help the sellers get online quickly and address their queries Amazon created Amazon Tatkal, a self-described “studio on wheels” that provides launch services, such as registration, imaging, cataloging, and sales training. Besides the aforementioned innovative initiatives, Amazon also had to adapt delivery and fulfillment. Amazon implemented Fulfillment By Amazon in India and till date has built nearly two dozen warehouses . The company has localized its fulfillment platform in India by introducing Easy Ship and Seller Flex. Through Easy Ship, Amazon couriers pick up packaged goods from a seller’s place of business and delivers them to consumers. In Seller Flex, vendors designate a section of their own warehouses for products to be sold on Amazon and then Amazon coordinates the delivery logistics. Seller Flex has benefited Amazon by speeding up delivery of some products.

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Company In-focus - Amazon Amazon has set up a subsidiary, Amazon Transportation Services Private Limited, to speed up delivery. It also has contracts with a number of delivery services in the country, including India Post and cargo airline Blue Dart. India has millions of mom and pop stores and when ecommerce started out in India , Indians feared that mom and pop will be put out of business. However, Amazon had a different initiative. Under this initiative, in rural areas where very few people have access to internet , residents can go to their neighbourhood store and use the store’s internet connection to browse and select goods from Amazon. Mom and pop stores earn some handling fee through this and also report an increase in sale of their own goods because of this.

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From product to delivery, Amazon has reinvented its ecosystem to address the challenges it faces in India. In 2016, Amazon has witnessed a 250 per cent year-on-year growth in bringing new sellers on board and has 85,000 sellers on board.85000 sellers indicate a huge catalogue of products justifying the tagline that the company swears by “Aur Dikhao� . Thus Amazon India has come a long way since 2013 and this is only the beginning of a success story for a humongous company like Amazon.

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Cover Article

Financial Inclusion and Beyond Kareena Irani (KJ SIMSR) Because traditional financial services are not designed for small depositors and borrowers, several non-traditional models have been able to scale up rapidly in this untapped market. But, without a strategic policy roadmap to guide further financial-technology (fintech) development, these new “connector” models will remain limited in terms of the services they can provide. Goals set by the United Nations The United Nations defines the goals of financial inclusion as follows: Access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance; Sound and safe institutions governed by clear regulation and industry performance standards; Financial and institutional sustainability, to ensure continuity and certainty of investment; and Competition to ensure choice and affordability for clients. Former United Nations SecretaryGeneral Kofi Annan, on 29 December 2003, said: ”The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance.

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The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.” In partnership with the National Bank for Agriculture and Rural Development, the UN aims to increase financial inclusion of the poor by developing appropriate financial products for them and increasing awareness on available financial services and strengthening financial literacy, particularly amongst women. The UN's financial inclusion product is financed by the United Nations Development Programme. Approaches adopted by various Developing Countries In Kenya, the success of M-Pesa, a mobile payments app, has been nothing short of transformational. It took PayPal two NASDAQ listings and almost two decades operating in the world’s largest economy to reach 188 million active customers and $282 billion in annual payments. Although M-Pesa has been operating for less than a decade in a much lowerincome market, it had nearly 17 million active users conducting more than $50 billion in cashless transactions last year.

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Cover Article

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Cover Article Similarly, bKash now dominates the payments system in Bangladesh to such a degree that “bKashing” has become common Bengali parlance, just as “Xeroxing,” “Hoovering,” and “Googling” are in English. Other models, such as Microensure and Bima, have also gained ground, offering micro-insurance solutions in emerging countries. Jan Dhan Yojana, a high-priority Indian federal-government program that provides access to the banking sector for the poor, has enabled 250 million new bank accounts to be opened in less than two years. The program has mobilized an estimated $6 billion from newly acquired customers, which could be used to provide additional tailored products. Indian Prime Minister Narendra Modi announced this scheme for comprehensive financial inclusion on his first Independence Day speech on 15 August 2014. The scheme was formally launched on 28 August 2014 with a target to provide 'universal access to banking facilities' starting with Basic Banking Accounts with overdraft facility of Rs.5000 after six months and RuPay Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan Card & in next phase, micro insurance & pension etc. will also be added. In a run up to the formal launch of this scheme, the Prime Minister personally mailed to CEOs of all banks to gear up for the gigantic task of enrolling over 7.5 crore (75 million) households and to open their accounts.

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In this email he categorically declared that a bank account for each household was a "national priority". Hurdles faced New fintech products will have to clear several hurdles to move beyond just improving access to financial services. Services fostering financial-inclusion must deliver a high volume of low-value output, which means they often have to rely on partnerships to meet certain consumer demands. Problems arise when these partners have their own constraints or different priorities. For example, Microensure and Bima have made insurance solutions available to millions of people; but their services ultimately depend on independent insurers to allocate capital and underwrite insurance policies. Likewise, while there are green shoots of insurance-industry growth in regions like Sub-Saharan Africa, global insurers must constantly adapt to regulatory changes in their primary or home markets, and it is unclear if they have the capacity to expand meaningfully into low-income countries. Or consider M-Pesa itself. Four years ago, it formed a partnership with the Commercial Bank of Africa to add a lending tool, MShwari, to its suite of products. It has since opened more loan accounts than any Kenyan bank. But such accounts still number less than a quarter of active MPesa users, and M-Shwari still supports only small 30-day loans. M-Shwari is not a core part of either partner’s business.

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Guest Article Nor is it the only product of its kind on the market. The most recent competitor to challenge M-Pesa is mVisa, a partnership between Visa Inc. and two other Kenyan banks. With $400 million in 2016 revenues at stake, Safaricom – MPesa’s parent company – will likely focus on defending its core offering before it tries to introduce new products. In Safaricom’s current list of new product priorities to expand financial inclusion, saving-and-loan products are ranked almost last. A recent Indian Express investigation revealed what can happen when access to financial services is provided in a vacuum. The paper found several instances where officials at Indian public-sector banks were depositing one rupee into customer accounts without customers’ knowledge. These officials were apparently under pressure to reduce the number of zero-balance accounts, all of which, it turns out, were related to the Jan Dhan Yojana program. Similar chicanery, we now know, was a routine practice at the US bank Wells Fargo. The difference is that customers at the bottom of the pyramid have few banking alternatives. Financial-services access is a much needed start, but it must lead somewhere. Advantages Major macro benefits are : Higher and better productivity; faster growth in economy; reduction In income inequalities; widespread development

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braking the barrier of location specific and centres specific development; global admiration and recognition; reduction in poverty; likely increase in national income; increase in employment and income opportunities; help in more effective distribution of subsidies; helpful in implementation of social security schemes, such as old age pensions, window pensions and so on; helpful in shifting to direct distribution of subsidies by way of crediting bank account of targeted beneficiary rather than indirect distribution of subsidies; helpful in plugging the leakage through distribution channels. Major micro level benefits are : Smoothing consumption; buffer against avoidable expenditure; safety of assets from major disruptions; better incomes; rational utilization of saving; freedom from clutches of moneylenders; increase in risk taking ability; enlarges livelihood opportunities; saving of time in collection of periodic social security payments by state and central governments; improved self esteem and sense of elevation. Need for Financial Inclusion Unfettered innovation and entrepreneurship are necessary for connecting the poor to the formal financial system; but, from a policy and development perspective, we need to shift our efforts toward improving the larger ecosystem to realize new fintech products’ full potential. For example, M-Pesa’s cashless transactions are underpinned by cash contributed by its customers, which is held in trust at any given time.

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Cover Article Interest income from these funds is currently disbursed through the M-Pesa Foundation. With a carefully constructed system, this money could be put to even greater productive use. Emerging fintech services can take a lesson from the Chinese e-commerce company Alibaba, which was quick in leveraging its payments platform, Alipay. After Alibaba launched its money market fund, Yu’e Bao, in June 2013, it began reinvesting its Alipay customers’ unproductive micro-deposits. By the end of 2015, the Yu’e Bao fund manager was overseeing $165 billion in assets and had converted Alipay’s millions of small, financially unsophisticated savers into investors collecting respectable returns. To develop its platform, Alibaba relied on big data to manage the fund’s unique liquidity dynamics; and it benefited from China’s unsettled regulatory framework, though this could change in the future.

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The Chinese context may be unique; and, indeed, there are growing concerns about risks inherent in the Yu’e Bao model. But regulators and fintech firms should take note of examples like Alipay to develop rational strategic possibilities for this emerging sector. Most important, they should remember that access to finance is not an end in itself, but a means to improve one’s lot. Financial inclusion is no longer a fringe subject. It is now recognized as an important part of the mainstream thinking on economic development based on country leadership.

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India rewrites Mahabharata in waging war against Black money Rahine Bose & Vijay Verma (ISB Hyderabad) Not only Mr.Qazi , the meticulous nature of the move will go a long way in creating a milestone in the “Kala Dhan Swadhinta movement” with a magnanimous global impact .

(India is always known for its epics and 8th November was no different and is a day to reckon with in times to come. At the stroke of midnight on 8th November 2016, all 500 and 1000 rupee notes burn to ashes. It’s Mr. Modi’s surgical strike to counter financial terrorism through Black Money trade. Mr.Qazi , an arms trader operating from Srinagar ,who was about to execute a big bucks deal with a terrorist outfit in Iraq receives a huge punch which is powerful enough to thwart his Hawala money transfer plans . He makes frantic calls to all his accomplices but alas!!, a solution is difficult to come by. With banks closed for the next two days , his last attempt to translate the unaccounted money into(to) the regulated channel meets with failure and dejection is all what he experiences.

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If we dive deeper we can see that the move has impacted 86% of money in circulation which amounts to 14 Lakh crore or $217 Billion 1. The Government's bold and courageous step to weed out unaccounted money flow will have massive long term benefits for the economy. It will help to curb the most haunting terminology of the current world economy “Money Laundering” the concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses.

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Guest Article Some Analysts forecast that the government’s move will unveil black money to the tune of Rs 4,60,000 crore(s) 6.Through this move, the quantum of India's economy moving through the digital pipes will witness a massive growth. Also with limited tax arbitrage between organized and unorganized markets, India is all set to experience a much sharper move from unorganized to organized segment. Consequently this move will give an impetus to the mission of moving to a cashless economy and the new age digital and e-transactions enabled banking will get the necessary boost. People today have understood the need of e-wallet and online payments with cash not available in abundant supply. Some of the finance pundits are also up with their share of arguments that the move will have little impact as they draw the example of demonetization drives undertaken during the time of Moraji Desai in 1978, when such a move did not account much towards such erosion.

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They argue that at that time the shadow economy was around 16.5% which has grown over the years to touch 25% of India’s GDP as of 2016. Considering India’s nominal GDP closer to a mammoth $2.384 Trillion, as per IMF, this 25% is a number to reckon with. Apart from the historical facts they also bring to the table the logic that with large denomination currency like Rs 2000, it will be easier for hoarders to transmit large funds into cash of lesser volume . They also argue that the unaccounted cash in all likelihood would find an accomplice in the glittering metal “Gold”. There are obvious disruptions, but one has to appreciate that none of the impactful steps ever taken in history has ever been without its share of disruptions. “Change is Constant” they say, and demonetization is a sheer reflection of that theory. Analysts have given contradicting views but their views seem to concur on the point that in the short term this move is going to be detrimental to the GDP. It is likely that in the next 6 months, the consumption pattern in the economy is going to be dented but one has to shed the myopic lens and put a punt with a long term perspective. Industries like FMCG, automobile, oil & gas, consumer durables which are expected to depict a negative trend in the short run will rebound with a vengeance over long term.

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Guest Article As per recent data, the total inflow of deposits into the banks has been over INR 5 Trillion with an outflow of just about(not required) a trillion rupees. These net deposits of INR 4 Trillion, which are mostly low cost deposits will have a major impact on the profitability of the banks and reduce their cost of funds. With the current mandate rolled out by RBI, wherein a bank has to use its Marginal Cost of Fund based lending rate, the lending rates are expected to come drop significantly. Cheap availability of credit with abundant flow of money will give a huge fillip to investment and consumption leading to positive effect in the economy in the medium to long term. With RBI also set in to reduce Repo rates further there will be enough ingredients to turn the economy into a buoyant one. Reduced asset servicing rates and deposit rates will drive incremental domestic flows into the stock markets and reduce dependence on foreign institutional investors. Shock in black economy will push more business in the official economy leading to buoyancy in tax revenues for the government. The results are already beginning to show with tax collections increasing by 270% at 47 urban local bodies in November 2016 as compared to last year.

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Against a base collection figure of INR 3607 Crore last year these units have already muscled collections over 13,000 crore till November. Taking some examples, Mumbai municipality has collected around Rs 12,000 crore in November as against Rs 3000 crore last year , likewise Surat Municipality collected over Rs 100 crore as compared to a mere 7 crore last year3 . This will boost up the government coffers and will give it a cushion to spike up the Public expenditure. Additional resources will also augment government’s capacity to undertake public spending and implement social sector schemes and will also help to reduce the budgetary deficit over(in) a long term(run). Today all the critics who are opposing the bold step by government, by pointing to the cash crunch and the turmoil and hassle for masses, should take inspiration from Akodara village in Gujarat. This village adopted e-payment environment long back which was set up by the State Government in co-ordination with ICICI Bank. All transactions are executed through mobile e-transfers and online. Adaptability to change and embracing new practices is the key. Apart from transacting through SMS, the people of this village also use Unstructured Supplementary Services Data (USSD) on the National USSD Platform (NUUP) with their registered mobile numbers to avail additional banking facilities. This is a live example of a village embracing \s technology and change and should serve as a role model for other villages and urban areas in India.

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Guest Article The demonetization drive has disrupted the traditional way of transacting and has forced people to look at other technology enabled options. Consequently, digital wallet transactions have increased the velocity of monetary flow through the eplatform. E-Banking also indirectly has a positive impact on the GDP and is explained in the adjoining graph. This also helps in boosting the Net Interest of the Banks by bringing in the unaccounted cash into the system. Further graphs below show the relationship of demonetization with factors like Inflation, GDP, Budget deficit, Terror Financing, Lending rates, CASA, NII. There is a clear positive relationship with factors like GDP and CASA & NII and inverse relationship with issues like inflation, terror financing, budget deficit, provisioning against NPA and lending rates.

7 6 5 4 3 2 1 0

Provisioning against NPA CASA & NII Lending Rates Period Period Period Period 1 2 3 4

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Some interesting data also reveals that the impact of the move will help in reducing the under the cover drug deals across the country especially in areas like Malda in West Bengals and certain parts of Punjab. Even the terror units have taken a hit and the news mills are ripe with figures that predict a depletion of about 20% to 30% in terms of terror financing .Outfits like The Northeast insurgent groups and CPI (Maoist) have taken a hit close to Rs 780 crore and the Pak militant groups like Lashkar-e-Toiba, Jaish-e-Mohammed and Hizb-ul-Mujahedin have got a blow close to Rs.20 crore9. This bold move by the Modi administration is going to have a tectonic impact on the parallel unscrupulous economy . The GDP is likely to see a jump of 1.4% over the long term and touch 8.6% to 9% p.a . We are also witnessing a spike in the Jan Dhan Yojana accounts which have garnered over Rs 27000 Crores and the over 45% dormant accounts of PMJDY have become active post the announcement. This will also help the cause of Financial Inclusion being undertaken by the exchequer in a big way.Also with less pressure of inflation the G-Sec Bond are witnessing a bull market further helping banks make nominal gains on their substantial fixed income securities holdings. To infuse money flow in the economy the RBI is likely to conduct Open Market Operations wherein it is further expected to buy –in bonds to push up the prices . The graphs below have beed derived to reflect this bond market phenomenon.

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Guest Article

Credits- Chess & Fun If we closely analyse we can clearly see that the interest rate(has) gets relaxed from I1 to I2 with the increase in Money supply from MS1 to MS2 and the Bond Prices on the other hand increased from P1 to P2 , with the purchase of bond in open market and thereby providing the thrust to bond investors.

Explanations are not enough, neither are graphs but we should be confident that this move from the government will stand through the test of time and impact the Indian economy in a positive way. Just hold your breath! If you haven’t watched Vishwanathan Anand making his chess moves … you’ve just witnessed one of the best ones from Modi. “Checkmate-Black Money”

DID YOU KNOW??  Coca-Cola ran a campaign called H2NO that trained restaurant servers to dissuade people from ordering tap water!  In Japan it is acceptable to fall asleep on the job; it shows you're working hard  The world’s largest package delivery company UPS was founded by two teenagers with a bicycle and $100 borrowed from a friend.  In Switzerland there are more banks than dentists, more Starbucks Coffee shops than banks.  Adidas was named after founder brothers Adolf Adi Dassler and Rudolf Rudi Dassler, who later went on to found his own shoe company called Ruda, which later became Puma. IBS@SIMSR

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Discounted Cash Flow in times of low-interest rates Sagar Aggarwal (IIM Calcutta) Discounted cash flow needs no introduction. It’s one of the most valuable and globally accepted methods used for valuation of new project or enterprise, however, in times of low discount rates the model is fighting for(its) relevance in the financial world. Discounted cash flow or DCF, is a method of arriving at a net present value for companies or projects based on the estimated evolution of their cash flows over the life of their project. Future earnings potential or cash generated is “discounted” with a presumption that receiving a dollar today is usually more valuable than a dollar tomorrow. Discount rate: The interest rate charged to commercial banks and for loans received from the Federal Reserve Bank’s discount window.

“In a world where the risk-free rate is close to zero then the errors in such models will explode.” If the interest rates drop and one keeps the risk premium and cash flow unchanged, the effect on the value of the project is unambiguously positive. Making the projects that were not viable earlier now attractive for investments just due to fall in interest rates. So when the discount rate collapses the inherent issue with the DCF is exposed. Also, the majority of the net present value of the company/project comes from cash flow projections that will evolve for 5 to 10 years from now. The analyst can be expected to have inaccurate projections of the cash flow for a longer horizon. These forecasts will lead to flawed valuations for any project.

Years of ultra-low borrowing costs mean that many governments — and even corporates — are no longer paying much for the time. “The problem is that majority of financial models were invented and historically used in a world where risk-free rates averaged five percent or more,”” writes a Bernstein team led by Head of Global Quantitative and European Equity Strategy Inigo Fraser-Jenkins.

Use of DCF’s would continue as there are very few alternatives available. But one has to be very careful when using the model for valuation purpose. One thing an analyst could do is to predict future course interest rates or reexamine the cost of capital and set higher hurdle rates for terminal value or normalize the interest rates with a presumption that the low-interest rate won’t continue to last longer.

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Guest Article Re-examine the cost of capital: As the management teams cannot freeze the low cost of capital available today for the long term, companies must be careful in examining projects potential value. The assessment should not only take both the real cost of capital and estimated inflation cost but also make sure the same inflation cost is taken into consideration while projecting cash flows along with the cost of capital. This is to ensure that the project is not attractive just because of the drop in interest rates. Companies tend to overlook the fact that lower inflation rates produce lower nominal cash flow forecast, offsetting lower discount rates. Another critical point often overlooked by business is that lower real interest rates on government bonds will not always lead to lower real costs of equity.

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Set higher hurdle rates: Simply setting hurdle rate higher or lower than the cost of capital won’t be a rational approach. Instead, the company should set the hurdle rate based on the assessment of micro-economic and macro-economic factors influencing the returns for the industry in the appropriate cycle. Hence different industries would have a different discount rate. This approach will help in eliminating the project that would be a potential risk when the interest rates began to rise. In times of this low-interest-rate environment, companies require a realistic assessment of their investment costs, their breakeven points, and hence need to carefully consider the discount rate in discount cash flow model for arriving at a fair valuation of the project.

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Guest Article

CASH OR CASHLESS?PAPER OR CODE? STATUS QUO OR REVOLUTION? Revanth Vishnuvajhala (NIT Karnataka) “Cash in my breath Cash in my eyes Cash in my heart” SunidhiChauhan in the song “Cash” Indeed, when cash has such a deep rooted presence in your system, it becomes an increasingly uphill task to find a good replacement to it. But, a cashless replacement has to be found for the following reasons:

Firstly, as a business, you are giving more choice to your consumer with respect to how he/she chooses to pay for your product/services. Secondly, a cashless system is one with improved cash flow practices and efficient financing. Thirdly, everybody in the supply chain of an economic process is equally and significantly benefitted in a cashless ecosystem. Most importantly, you are building an environment run by transparent transactions, eliminating corruption in the process. The prospects of a cashless economy, worldwide, are rather confusing.

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While half the world has no idea how a credit card or a smartphone works, the other half is paying its grocery bills with smart wristwatches, jackets, bangles and even rings. Which is why a study of a cashless future must be done in different contexts, in my case, with the help of three different countries, two developed and one emerging. Let us begin with the United Kingdom. The country’s cash problems emerge primarily as a result of human error. The small and medium business population is estimated to have lost 9.4 billion pounds every year on account of human error or theft. In a survey, 56% of small and medium business owners said that they spent an hour or more counting and transporting cash to the bank each time. But, fortunately for them, the cashless transition has been rather smooth, still having a long way to go. There has been a 234% increase in contactless cards between 2014 and 2015 in the UK. Furthermore, 38% of consumers carry contactless cards with them. Mobile payments are on the rise too, with 69% of the population using mobile payment systems, generating 67 contactless payments every second in the country.

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Guest Article If predictions are to believed, the country will see a 67% rise in credit card transactions and 44% increase in credit card purchases in the next 10 years. Clearly, all forms of cashless transactions have good, busy days ahead. One would expect every country with a digital infrastructure and economic status akin to the United Kingdom to respond to cashless technology in similar manner. But, the non-uniform pattern in countries like the United States is what makes the study so intriguing. The US is seeing near zero growth in usage of cashless technology. According to Accenture, 56% of North American consumers are aware of mobile payment options from 52% in 2015, and yet, the usage remains flat at 19%. 60% of the consumers continue to actively use cash for day-to-day payments. To make things worse, tech startups dealing in this field have a trust rating of about 24% from their consumers. Analysts paint a more merry picture for a cashless future. They predict 60% increase in use of mobile wallets by 2020 and 19% increase in bank branded mobile wallets by 2020 from 14% currently. But, why hasn’t the change happened yet, even when 92% of the country has a bank account?

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Cash offers no real incentive to move, especially when the existing system is near perfect and nowhere close to breaking from a consumer point of view. Besides that, consumers are not willing to register payment credentials into mobile phones, fearing unauthorized transactions from cybercriminals. The solutions are challenging, yet obvious. You have to generate value out of these payments for the ones who make them, by strengthening digital commerce using activity, behaviour, devices, locations and offers. The millennials, earning more than $100,000 a year, do not mind adapting to wearables or giving in their account details. Combine strong digital commerce with the teaming millennials, and you’ve got yourself a growth story. In an emerging economy like India, cashless technology, while distant and far-fetched, can be a catalyst to growth and development. It can enable the country to grow at a pace that is unprecedented in human history. I say this with so (NOT NEEDED )much confidence because of the story that the village of Akodara narrates to me. The village was adopted by ICICI bank in 2015, and is now, virtually cashless.

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Guest Article With 87% of residents having a savings account and a near 100% literacy rate, it should come as no surprise that the village even has a Wi-Fi tower. The primary, secondary and high schools are endowed with smart boards, computers and tablets. The village panchayat has access to latest prices of agricultural commodities via NCDEX. This is not Europe or North America, it is only a tiny village in a poor country that has used a robust digital infrastructure to pay for products and services, in the process learning how technology works and using it as a tool to attain development. If Akodara can, then each one of India’s 6 lakh villages can. Such a transition is particularly desirable in India, given the fact that we have one of the highest cash to GDP ratios in the world, making it a costly affair, summing up to Rs 21,000 crores annually for the RBI and other banks. Once attained, it would be difficult for tax evaders to hide their income for long.

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We are, in broad terms, in the right direction, with respect to intention, at least. The government is pushing towards opening bank accounts for the unbanked. Licenses are being given to new age small finance banks. Financial inclusion and innovative banking solutions are finally getting the importance they always deserved. The future of cash transactions seems bleak, but not to a point of oblivion, for cash will probably still dominate majority of transactions in the near future. Even if attempts are made to shift to a new system, it is not certain that the market and public with will embrace the change despite the presence of required infrastructure and accessibility. The well-off economies can go cashless to modernise and make life easy for businesses and consumers alike, while the poor nations can use this technology to get rid of corruption and encourage use of technology. Either ways, the less bright the future of cash transactions looks, the better it is, even though, Cash is in my heart.

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Guest Article

Game of Surgical Strikes Nakul Yadav, IIM Calcutta As the tension between India-Pakistan rises it reminds me(us) of the journey that India has gone through to reach where it is in term(s) of its foreign policy. It is difficult not to see the analogy between the growing power of India and that of Khaleesi, the mother of Dragons against the already powerful Cersei of Westeros, in our case Pakistan. Fall of the House of Targaryen (Indian Might across LOC): Let the aftermath of Kargil be the starting point of the story. After the war ended, the Targaryen (India) lost leader to lead itself and come(came) out of the after rubbles of war. For years the Targaryen’s struggled to give a leader worthy of its name. Aemon Targaryen (Manmohan Singh) was too old to lead and Viserys Targaryen (Rahul Gandhi) was politically not mature enough to handle the atrocities committed by Cersei (Pakistan). Ray of Hope, Daenerys Targaryen (Narendra Modi): The rise of Daenerys brought a sense of pride and hope for The House of Targaryen. As she amassed power, people believed in her, trusted her. She was the one who heard her subjects, tried to understand their worries, their pain, and their anger. She made them believe that they don’t have to bow down to the evil Masters (terrorists).

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She made them believe that for every life of an innocent that the evil Masters take, she will take revenge. Surgical Atonement: A night came when Cersei (Pakistan) was shamed for her deeds. Walked through the streets of Westeros, everyone pointing fingers at her. The question was raised on the credibility of the Westeros army (Pakistan Army). Are they not capable enough to guard their borders? The whole political structure of Westeros denied the Surgical Atonement. They were not ready to accept that they were reaping the fruits of their own harvest. To them, this was shameful, to Cersei (Pakistan) this was shameful. Gregor Clegane, The Mountain (China): Shamed by her own deeds, the only thing that gave Cersei a sense of self-worth is her sole protectionist, Sir Gregor. Built huge like a mountain, he was stronger than anyone in the seven kingdoms (South Asia). The mountain has had many rough relationships, one with its similar and equally powerful brother Sandor Clegane, or famously known as the hound (Russia). But many did not understand his support for Cersei. But one thing was very clear, Cersei and Gregor had a very symbiotic relationship.

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Guest Article Future and Fate: A strike has already been conducted. Cersei has walked the walk of shame. She in her anguish, has taken lives of many (Soldiers on border) to keep her strong-hold on the throne. Every day while we sit here in the amicable ambiance of our four walls, soldiers die. The throne will come at a cost, Daenerys knows that all well too, but Cersei will not give it up, as it is all that she cares about. Even if her interest in thrones (POK) leads to devastation of Westeros’ (Pakistan) economy, its trade, its political stability. And Daenerys is resolute in her own right. She will do everything in her power to protect her subjects. Horrible times are on the horizon. Blood will be shed, lives will be lost, over a throne, a piece of land. A war awaits.

Cersei gave Gregor whatever resources (Balochistan) he wanted and in return, The Mountain gave her protection. The Dragons (Ajit Doval, Manohar Parrikar, and Indian Army): Her dragons were what gave Daenerys (Modi) the power and confidence to take over the obstacle that came in front of her. They spoke to her in their own languages, they let her know what she was capable of. Only with the power and will of these three, was Daenerys capable enough to take on Cersei and claim her throne (POK) back. A throne that has been occupied by Cersei for a long time.

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Guest Article

India’s admission in NSG Armin Z Pastakia (We School, Mumbai) “Nuclear weapons can be dismantled but they cannot be uninvented” – Unknown Imagine a world without nuclear weapons - a little tough isn’t it? Especially today, when every country is in a race to be the next super power, thriving without nuclear armaments cannot be dreamt of. A nation without nuclear armaments is vulnerable to any future global / political developments. A security need every state has felt since ‘Trinity’ (the first detonation of a nuclear weapon on 16 July 1945, by the United States Army). As the proverb goes, “It is not the strongest that survives, nor the most intelligent but the one most responsive to change” – Charles Darwin. India in its bet to retort to the nuclear race, conducted its first ever Pokhran test in May 1974. It was in response to this that the Nuclear Suppliers Group (NSG) was created as countries already part of the Nuclear Non – Proliferation Treaty (NPT) saw the requirement to further limit the trade of nuclear equipments and technology. As India was not a part of the NPT there was a global concern for development and export of nuclear technology by a non-member state.

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The 48-member nation group today comprises of the big five nuclear weapon state – USA, UK, Russia, France and China. The story since 2008 India since 2008 has been trying to obtain NSG membership and in the recent years has secured the backing of the US and majority of the NSG members based on the non – proliferation record maintained as compared to Pakistan. Pakistan over the years has faced some serious allegations of nuclear proliferation especially in regards to its nuclear scientist Dr. A. Q. Khan. For which chances of Pakistan obtaining membership stands weak against India. Benefits of being a member We as an energy hungry nation have plans to expand our nuclear power in the wake of a constant surge in the electricity demand A better access to the international market for import – export of nuclear raw materials India becomes eligible to obtain advanced nuclear technologies that could be used to enrich uranium or reprocess plutonium from 48 members of the Group.

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Guest Article Currently all nuclear programs are run on indigenous technology An NSG membership, will provide access to sophisticated technology and at the same time help India promote its indigenous technology thereby giving Make in India a facelift A boost to Make in India program will help create new jobs and also develop a new IT industry segment which would help India leverage on the same With a commitment of meeting its climate change goals and a reduced dependence on fossil fuels, India has to step up its nuclear power production Lastly, an NSG membership can help us block Pakistan’s membership to the Group similar to how China is blocking our entry to the Group The dragon story China has always wanted to gain the MTCR (Missile Technology Control Regime) membership. In the year 2004, the fastest growing economy was denied membership on account of its dodgy non-proliferation record. MTCR members have always been concerned that the Dragon nation provides sensitive technologies to countries that develop ballistic missiles like South Korea. Since, China in May 2004 gained the NSG membership currently it arm-twists India for its MTCR membership against NSG China being the close ally of Pakistan has outrageously supported the inclusion of Pakistan in the NSG group.

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Majority of the member nations have opposed this idea due to Pakistan’s obvious global image. China in the first round of NSG talks blocked India’s entry on the grounds that India has not signed the NPT If India enters the NSG club Asia’s top most nuclear power – China would lose out on its full position in Asia. The road ahead Despite of the persuasive efforts by our diplomats, India failed to secure the NSG membership due to overtly forceful opposition from China and Turkey. As the opposing nations were of the view that India is yet to sign the non-proliferation treaty, India in its defence has always maintained that NPT membership was never the criteria for joining the NSG, similar to the France case. In the meanwhile, India has signed a civilian nuclear cooperation deal with the US and Japan. The deal is restricted to peaceful purposes and are not aimed to be diverted to other purposes. India’s ambitions to join the NSG Group need to wait for a while longer, as the meeting convened in Vienna held for considering India’s membership in the elite Group did not go in India’s favour. India as a rising super power definitely sees this as a major foreign policy setback. On the other hand, most member nations are clear of the view that it is important to maintain cordial relations with the rising super – power and hence keeping India away from the elite Group would do no good.

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Guest Article

DREAM 2047 Abhinav Malik (IFMR, Sricity) “At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom”- this was one of the sentence said by the first Prime Minister of Independent India on 15th August 1947. Our freedom fighters, who dreamt of a country, free from oppressors who ruled for almost 200 years, could see India breathe freely posthumously. After completing 70 years of independence, do we see their efforts go in vain? Are we completely free from oppression and disputes? Surely the country got its freedom, but people have misused it and neglected the motherland. When India will enter its 100th year of Independence, I would want to see a nation which is united by people from diverse regions. Currently, this unity is seen only in the Indian cricket team in which Bihari, Punjabi, Marathi play together. After few years of independence, when independent states were being made, they started to follow their own set of rules. This led to rifts between one state and the other. In unison only, we can accomplish tasks of making India the number one country in the whole world.

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We have 29 states and 7 union territories, with each state comprising of a chief minister to govern it. In order to maintain peace and equanimity, all states should work together and keep aside their differences and join hands together to fight against all odds. There has always been tension with India’s neighbouring country, PAKISTAN. Pakistan got its independence a day before India, but this independence came at a cost because India got partitioned and Pakistan was created. Partition was a horrifying moment for many of the families who got displaced from their homes. While some people were celebrating postindependence success, many were trying to save their lives from the unrest that were created. Till now the tension has not been reduced between the two countries. Both the countries have been countering a common enemy- TERRORISTS, who are trying to keep the unresolved conflicts in continuation. When I open my eyes on 15th August 2047, I would want to see an amiable relationship between the two countries and the long-lasting gesture of greetings exchanged at WAGAH BORDER to continue.

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Guest Article India is a developing country. It is not a country which lacks resources, be it technology, capital or human. Most of the Indians are at respectable positions not only in the home country, but also in foreign companies, like Sundar Pichai , CEO of Google and Satya Nadella, CEO of Microsoft. But still, 25.96 percent of India’s total population is still in the trap of illiteracy. It is important to spread awareness about the importance of education and how it can change the lives of the people and their thought process. Also, India should focus on encouraging more women to study and be educated. Awise person rightly said IF YOU EDUCATE A WOMAN, YOU EDUCATE THE WHOLE FAMILY. And if a woman can give birth to a child, then nothing is impossible for her to accomplish. The gap between the rich and the poor has widened a lot.22 percent of population is below the poverty line. One of the reasons of this wide gap is corruption. India has been a victim of corruption right from the year 1948, when the first scam of Rs. 21 lac took place. Today, India ranks 76th out of 175 countries in Corruption Perception Index. The rich are getting richer and the poor are getting poorer. Where we expect infrastructure to grow, poverty stricken people struggle to have a shelter for themselves. Corruption is an issue which needs to be eliminated.

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The recent NDA government, led by Mr. Narendra Modi is taking preventive steps to slash out black money from offenders who refuse to pay taxes and return the money to India. Also, to alleviate poverty, government carries out schemes like MNREGA, Jawahar Gram Samridhi Yojana. India in 2047 would be seen as a progressive nation if all its people are able to afford to eat 3 meals a day, have a place to reside and are employed.

Also, what I look forward to see when India celebrates its 100th independence day is that people develop a broad minded approach and move past their conservative thinking. For instance, in sports, only cricket is dominant. Other sports are being ignored and not given much respect and attention that they deserve. India should be ready in such a way that they are able to compete in world Olympics and stand in top 5 positions among the countries participating in the tournament. If all these things happen synchronously, then no force can stop India from being one of the emerging economies in the world. As Swami Vivekananda said- “IT IS THE DUTY OF EVERY PERSON TO CONTRIBUTE TO THE PROGRESS OF INDIA”. As a proud Indian, I hope I am able to see my country in 2047 a healthy, prosperous and a favouring nation and protected from all odds.

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Event Update

PANGEA 2016

IBS@SIMSR has been trying to enrich the experience of the students at SIMSR by trying to connect them with people related to international business through various avenues. One such event is PANGEA which is held annually by IBS@SIMSR wherein speakers holding positions related to international business come and deliver talks to the students and faculty. This year PANGEA was held on the 19th of November and the speakers that graced the occasion were Mr. Sanjay Jain – CFO and head of IB at IndiaCast Media Distribution Pvt. Ltd., JV of Viacom 18 and TV18, Ms. Vaishakhi Bharucha – founder and CEO of Abacus Yellow, Mr. Manish Pathak – President-Startegy Welspun Corporation Ltd., and Mr. NC Narayanan – Founder & Chairman of SSA Business Solutions Pvt. Ltd.

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After the guests were welcomed and the event started with our very own campus prayer, Ms. Vaishakhi took to the stage and delivered her talk on Cross Cultural Communication. How global is your organization? She compared Indians’ working style with the rest of the world. The highlight of her talk was that Indians lack the ability to say “No” in the professional world, lag behind a little in communication skills but are very hard working. The next speaker was Mr. Manish who spoke about international marketing perspective at Welspun. He opined that there is nothing like a domestic market because even domestic goods have to be sold in a market where relatively low priced Chinese and Korean products exist. So everyone competes in global markets only.

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Event Update

Mr Sanjay Jain’s topic was ‘Experiences on media distribution channels overseas’. He spoke about the recent merger of Viacom18 and Prism TV Pvt. Ltd. The highlight of his speech was that digital marketing and retailing is the future. Last to speak was Mr. Narayanan.

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He spoke about challenges of growing in the GCC region given the current oil crisis. All the speakers were enthusiastic in interacting with the audience and answering their questions. The event turned out to be a great learning experience for the students and faculty present and a satisfying interaction with academics for the speakers.

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Across: 1) Hierarchically 2) Boston 3) Dominos 4) Clickthrough Down: 1) James 2) South Korea 3) Ad valorem 4) Bridge 5) Counter 6) Chevrolet

IBS Puzzle


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