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18TH JULY, 2012

THE FINANCIAL BULLETIN FROM THE EDITOR’S DESK A WARM WELCOME TO ALL OUR READERS… ISSUE 1, VOLUME 14

Fresher's mood is on and the college vibrates with the energy of new students. With the clans all gearing up to show their best and prove their mettle , do not stay back on any area, be it finance or international news. Know more about the hot debates on the international front and increase your knowledge on the topics that disturb India. Exclusive articles on how Mahabharata is closely related to MBA and are we on the verge of a Breakdown? Ponder your mind with the 360 degree view of events never thought of before. HAPPY READING!!!

This issue covers     

Deregulation of oil in India Constant proportion portfolio insurance Mahabharata Country of Zeus in financial dues Impact of Greece crisis on the economy of perceptions

Laptop or literacy? Need of the hour News

Crossword


NEWSLETTER TEAM ADVISORS: Dr. V. Narendra FACILITY CO-ORDINATOR: Dr. S. Vijaylakshmi STUDENT CO-ORDINATOR: Roshni nair EDITORIAL TEAM : TANUJ KOLHI  KESHAV JHA  MANALI DEBROY  Anju maurya  Chaitalee kumara  Anurag singh chauhan GUEST CONTRIBUTION  NEERAJ BHARTI  PIYUSH KUMAR CHANDAK COMPILED BY: Roshni Nair


Deregulation of oil in India

Deregulation means that the government will no longer be subsidizing oil prices and the prices will be purely linked to the International crude prices. In the case of diesel, though, it will be only partially regulated – the reason being an attempt to avoid sudden spike in inflation. But it is not easy with diesel as farmers use it, railways depend on it, our surface transport - both freight and RTCs (road transport corporations) run on it and they all will get adversely affected by this deregulation. In India, the government decides the rates of LPG, kerosene and diesel, which usually results in a large budgetary expenditure on subsidies. According to the financial stability report (or FSR) of the RBI released earlier, the December trade deficit gap for the year would broaden from $155 billion to $160 billion, a significant rise from $104.4 billion in the previous year. The Fiscal deficit has already gone up to 4.6% in the

current

financial

year.

Also, the increase in fiscal deficit could potentially crowd out credit to the private sector. Moreover, slippage in the fiscal deficit has been adding to inflationary pressures and it continues to be a risk for inflation. The deregulation of petrol prices has definitely increased the rate of inflation in short term. Virtually there has been immediate price rise in commodities and other consumables. However, for long term it is a good move because at the end it will definitely reduce our long term debt and fiscal deficit, overall economy will get stable in this case.

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But in to particular diesel, LPG and kerosene are heavily subsidized and hence, put tremendous pressure on the Indian exchequer. If the prices instead are deregulated, they will be brought in tandem with the international prices which can be beneficial to both the fiscal policy and the consumers in general. It can be seen that nothing is further from the truth if we look at the petrol prices, which is the only product which has been deregulated. It is clear that the petroleum sector is not a drain on the Indian exchequer but let us also address the issue of under-recoveries which becomes the sore point for the government and the media. The difference between the cost price and the realized price represents the under-recoveries of the oil marketing companies (OMCs). The realized price is the post-tax price. In a period of inflation, such increase in prices would bring the demand down and, hence, would put a downward pressure on inflation but, it is found that despite deregulation of petrol, the prices in India are significantly higher than the world prices because a large portion of the retail prices that the consumers end up paying consists of taxes levied by both the central and state governments.

As per the discussion and findings, the Government of India can consider deregulation of prices only when the inflation rate comes down to 5%. The Economic advisory council and the Reserve Bank of India have suggested this change so as bring the fiscal deficit down.

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In the present fiscal year, India is expected to grow at a rate of 7 –8 %. Due to rising expectations from India, many foreign investors are pumping their money into the economy. The foreign direct investments as well as foreign institutional investors have been upbeat about the Indian market for a long period of time. But, lately, due to the latest developments like increase in inflation, fiscal deficit, interest rate fluctuations have led to a negative impact on the entire economy. The investors have developed an outlook in which they have started doubting the policies adopted by the Indian government. To avoid this kind of a situation, the government has to adopt certain measures so that the faith of the investors has to be maintained. The first important step is to allow the deregulation of diesel prices in India. Such a policy can help to reduce fiscal deficit as the government will be able to bring down its expenditure on oil subsidies. This can eventually lead to a decline in the inflation rate in the long run. As these issues are resolved, the investors will gain back their confidence in the Indian economy.

TANUJ KOHLI (IBS, HYDERABAD)

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Constant Proportion Portfolio Insurance

CPPI stands for Constant Proportion Portfolio Insurance. It is basically Dynamic portfolio hedging strategy. CPPI was developed by Black and Jones of Goldman Sachs in 1986. It is a dynamic asset allocation strategy which increasingly participates in any upside movement of the performance assets (equity or other riskier assets) but at the same time ensures a minimum guaranteed return through safe assets (bonds or cash). It enables maximum stock market exposure while maintaining the minimum guaranteed return at the end of the period. These new generation products provide minimum guarantee immediately as investors do not have to wait till the maturity i.e. generally 4 to 6 years. When markets are falling, majority is invested in the capital protected component, and when markets are rising majority is invested in the risk assets.

The CPPI strategy guarantees a minimum payout at some future date. The present value of this minimum payout is termed as floor. It is the amount which if grown at certain rate will meet future liability. The floor is a threshold below which the investor does not want the NAV to fall. The difference between value of portfolio and floor is called cushion. It is basically , the maximum loss the investor can sustain before breaking the floor.

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Cushion = Portfolio-Floor A positive cushion ensures portfolio value will never fall below floor. A negative cushion does not give the return. Hence, we can say that cushion gives the maximum possible return that a portfolio can take. The amount invested in performance asset is called exposure. Rest of the portfolio is invested in safe asset. Exposure= (Cushion* Multiplier) The multiplier should vary according to the risk of underlying assets. With high risk, the multiplier should be less. High multiplier on a risky asset will never deliver a positive return. The investor will make a beginning investment in the risky asset equal to the value of: (Multiplier) x (cushion value in dollars, rupees) , and will invest the remainder in the riskless asset (Safe asset). As the portfolio value changes over time, the investor will rebalance according to the same strategy. Typically, M varies between 2 to 6.

Algorithm of CPPI: With undulations in the market, following rebalancing algorithms will continue till the termination. Step 1 : Net asset value (NAV) is calculated = E(t) + B(t) Step 2: New Cushion C(t) = NAV(t) − F(t) Step 3 : Amount invested in Equity = (M · C(t)) − Costs Step 4: Amount invested in cash/bonds = NAV − E(t) Step 5: Wait t and go back to step 1. (M=Multiplier ,E = Equity ,B=Bond, F=Floor)

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When markets follow a downward trend , investors invest a large part of their portfolio in bonds or cash. This causes a gradual lowering of their exposure to the risky assets. If the downward movement continues, investors end up investment in cash as the cushion will become infinitesimally small. If the markets subsequently turn around again this would leave no way to get back in the risky asset. This is known as being "cash locked". Ending up in a cash lock situation can be avoided by setting a minimum exposure lock-in of for instance 10 percent of the total asset value. This is an important concept in case of CPPI investment. The greatest advantage of using CPPI is that unlike options its does not have any time constraint. Also, it can be used for portfolios of all types. But one of the biggest disadvantage using CPPI is that it does not work very well for small cushions as in such cases where exposure to the performing assets is very small .

MANALI DEBROY (IBS, HYDERABAD)

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MahaBharatA Dr. Devdutt Patnaik graduated in medicine (M.B.B.S.) from Grant Medical College, Mumbai and worked in the Parma and Healthcare industry for 14 years. He is working as the Chief Belief Officer of Future Group, one of India’s largest retailers. Well, it’s a new term for us at B-schools where we constantly dream of becoming CEO, CFO, COO, and CMO but never heard of anything like CBO. Dr. Pattnaik is not just a mythologist but a veteran in leadership and management lessons from Indian mythology. His work is appreciated worldwide and he is one of the most famous ted speakers from India who has authored many management books from Mahabharata and Ramayana. I wonder if we can read a case study on Jack Welch’s management of lakhs of GE’s employees why we are missing a case study on management of kaurava’s army of 11 Akshauhini under one leader called Bhisma Pitamah. (1 Akshauhini =21,870 chariots, 21,870 elephants; 65,610 cavalry and 109,350 infantry). I believe that Mahabharata and Ramayana have more management

lessons

than

any

book

written

on

strategy/management. Concepts like M&A, MBO, and ethics are more apparent in these texts than any case written on them. A kingdom in those days is similar to a company today in many forms. The king is replaced by the chairman and “Mahamantri” is replaced by acronyms like CEO and CFO. Literature in accounting as well as Mahabharata says, A CEO/King has different entity from his Company/Kingdom. His objective is not person welfare but the welfare of the company and its employees. And whenever the King/CEO fails to perform his duties, either it ends with Dhritrasta’s loss of sons or Ramalinga Raju’s pain in jail.

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Science was advanced then and so does today and there’s no reason to believe that the world was different and scientifically on a back stage. We had nuclear weapons in the form of Bhramhastra and other Divyastras which had agreement with a superpower that these weapons will be used for national security and welfare of people. We had aeroplanes bigger than Airbus 380. We had not named it internet but Sanjay had better technology to telecast every incident of the Kurukshetra war without any complex thing like satellite. The values have not changed in India but definitely there is a change in the way of education. I believe western education is necessary for running a company in European style but one must not forget that people working in these companies are still Indians who are culturally very different from western world. Modern management theories are based on strong assumptions of objectivity and logic but in India, the influence of culture is very high. Decisions are often intuitive and are based on one’s belief. Hence it’s necessary for students and teachers to study and teach factors that influence our belief. The ancient texts of India have thousands of lessons on life management, ethics, branding and management. Belief can be secular as well as religious but as a part of management students and teacher’s one must look at things from secular perspective.

The above quote from Bhagavad-Gita is applicable to every aspect of life management.

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Today, India has more than 3900 B-schools with more than 3.5L seats offered every year. How many of these graduates are successful managers? How many of them will be able to repay their loan amounts? How many of them will be happy working? How many will become a leader? How many will say “I will change the world”? Henry Mint berg of McGill University, Montreal, devoted a book to his contention that "conventional MBA programs train the wrong people in the wrong ways with the wrong consequences". India is a unique nation and still “A GOLDEN BIRD”. The problem is that we give more importance to European education system rather than making a balance with our own rich ancient texts like Vedas, Mahabharata, and Geeta. The need of hour is to relook at management training system. Lessons should be globalised in order to make them simple so that students can carry them beyond exams and scores.

KESHAV JHA (IBS, HYDERABAD)

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COUNTRY OF ZEUS IN FINANCIAL DUES

THE BEGINNING Greek economy had been one of the fastest growing economies of Eurozone during the 2000s; growing at an annual rate of 4.2% during 2000 to 2007 on huge capital inflows in the country. A strong economy with falling bond

12% 10% 8%

public sector jobs, pensions, and other

6%

social benefits. Over the past ten years the

2% 20 10

20 09

20 08

20 07

20 06

20 05

20 04

20 00

fiscal deficit and total debt of the Greek

4%

20 03

of huge public borrowings to finance

14%

20 02

to run large structural deficits on account

16%

20 01

yields allowed the government of Greece

Fiscal Deficit

government burgeoned as shown in Fig. 1 and 2: During the 2008 financial crisis, amidst huge deficit and borrowings economy slowed down, the Greek Government had no other option but either to ask for bailout packages or default on its debt. In May 2010, the euro zone

Debt as % of GDP

countries and the International Monetary

150%

Fund agreed to a â‚Ź110 billion loan for

140% 130%

Greece,

120%

conditional

implementation

110% 100%

of

harsh

on

the

austerity

measures, increased taxation, deep wage 10

09

08

cuts, structural reforms and a fresh

20

20

20

07 20

06 20

04

03

02

01

05 20

20

20

20

20

20

00

90%

suggestion of Privatization of the Public units. As per the 2010 estimates the fiscal deficit and public debt were expected to be around 14% and 140% of its GDP, a major concern for the world economy as country's sovereign debt, issued in Euros, was being held all over Europe.

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STATUS UPDATE Even with the European Union Bailout package, the current situation has worsened with Greece missing the target deficit ratio of 7.4% and its public debt inflating to a whopping 158 percent of its GDP for the FY 2011-12. The yields on the Greek Bonds have almost doubled over the past one year complicating its â‚Ź27 billion requirement for the next year as it needs money for rollover of its debt. We can see how the bond yields have shot up in the past five years with the emergence of crisis. 10 Year Greek Bond Yields 18 16 14 12 10 8 6 4 2 0

05-19-11

01-19-11

09-19-10

05-19-10

01-19-10

09-19-09

05-19-09

01-19-09

09-19-08

05-19-08

01-19-08

09-19-07

05-19-07

01-19-07

Yield

The choice that Greece now faces is again the same, either it goes for bailout package or default on its debt. Further bailout packages would add to its debt, worsening the situation as it happened due to the earlier package. Bailouts would again be conditional to additional austerity measures, wage cuts, raised tax rates etc. leading to a slowing economy with rising unemployment amidst public distress. The second option is drastic and has potential systemic effects for the world economy. If a default takes place on behalf of the Government, the investor sentiments in the world could be shaken, with disastrous consequences for banks and financial institutions that have their major investments in Greek Sovereign Bonds. This may bring the world economy to the brink of another meltdown. This newsletter is for internal use at IBS, Hyderabad only and not for sale. Page 11

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The World economic History quotes similar instances of sovereign debt crises. An equivalent situation was seen in the 70s and 80s with Mexico, whose sovereign debt soared on similar grounds in boom time but eventually resulted in a default when the economic slowdown hit the Latin Economies. Argentina also went through similar state of affairs in 2002 when it had to partially default on its external debt positions due to economic stagnation. These economies being smaller in size and their debt being limited to fewer financial institutions, the effect of their default on the world economy was minimal. As per the recent developments the Greek government has chosen to implement drastic austerity measures. The austerity measures include reduction in the tax free threshold, rise in tax rates, special levies on businesses and households etc. There has been significant planned reduction on health, defence and education expenditure. Further the government has also decided to go for privatization to raise additional funds to tame the inflating debt. In reaction to these measures, Greek people came out on the streets to revolt and protest against the strict actions with the working class also going on mass strikes across the country. Were this 28bn-euro austerity package to be rejected, Greece could run out of money within weeks, as the European Union and the International Monetary Fund want the measures implemented before they release more funds to help Greece pay off its vast debts. With the recent developments in Greek polity, it is evident that for the former option would be a matter for choice ensuring that there isn’t any radical impact on the European and eventually the world economy resulting into Greece ensuring its membership in the Eurozone.

SHOULD INDIA WORRY? It is expected that any impact on the Indian Economy would be of temporary or short term nature as there hasn’t been any major direct exposure to Economy of Greece. The effects can be studied with a focus across three areas, viz. the stock markets, foreign trade and the currency movements.

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Indian Stock markets have felt the heat of euro insecurity as it affected the global investors’ sentiments with institutional investors withdrawing funds from the Indian Markets. Similar actions may be seen in the near future as problems in other European economies like Italy, Spain etc. unfolds. But then the long term outlook remains positive as India as an investment destination becomes attractive with the deterioration of the European economies. Another question one needs to ponder on is whether Greece matters from a trading perspective. Greece is not one of the larger trading partners of India. Around 0.05 per cent of India's exports go to Greece which is not significant and Indian banks have virtually no direct exposure to Greece. But subsequent concerns of the crisis spreading to Italy, Spain and Portugal may result in larger implications for India. Then the focus has to be on India’s trade with the Euro-zone region. Three of the largest trading partners of India are from the continent, and Germany is one of them, incidentally one of the rescuers for Greece in this crisis. If the contagion spreads to Germany, the effect on India would amplify. Any long term economic downturn or instability in Europe is bound to affect India’s trade position. Thus its effect on foreign trade can’t be fully ignored. Exchange rate of Indian Rupee with Euro is also an area of concern. We have seen recently the currency fluctuations with rupee appreciating vis-à-vis Euro. This may continue in future if the contagion is not controlled, thus hurting Indian Exports and overseas cash flows of Banks and companies. The valuations of securities, inventories, intangible assets etc. that are linked to euro would also be impacted. For example, Banks would be affected on mark-to-market losses on the sovereign assets they own. Credit losses can lead to drying up of bank funding, raising solvency and liquidity concerns.

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LESSONS TO LEARN Looking relative to the Indian Scenario we don’t have many things to bother. The Indian Debt to GDP ratio is 56% (as per IMF estimates) which is significantly lower among the world countries. Majority of it is financed from internal debt (close to 90%). The Indian government has also been expected to control its fiscal deficit to 5% for the coming fiscal year from 5.5% as in the previous year which is also a healthy sign. The core lesson that has to be learnt from the situation is the need and importance for prudent fiscal planning which was missing in case of Greece and other European economies in distress.

NEERAJ BHARTI MANAGER (MMGS-II), BANK OF INDIA email: neerajbharti86@gmail.com

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Impact of Greece crisis on the Economy of Perceptions

Economy of perceptions is the term which can be coined for the Indian Economy. Indian economy started suffering FII rollbacks and domestic investor disbelief since the S&P rating downgrade in India. The inference of this downgrade was that the Indian Markets are not conducive for investments. In a very lay man term it said that the Indian Government’s Debt paying capacity was questionable, the Indian bonds were risky assets to invest in. India being a country ranked as third best economy to park your money or rather one of the best economy where in the time of doldrums all could rely upon with your investments was bought into question. The S&P downgrade was followed in a few days by our Prime Minister Dr. Manmohan Singh announcing a bailout package of $ 10 billion for the Greece crisis. The reactions were witnessed largely in stock markets and the currency fluctuations as well. The irony being that the anticipation of Greece crisis having huge Impact on India, being a major contributor to these turn of events. When some data provided by Department Of Commerce & Import and Export Bank of India were analysed it was seen that 1.There was a downfall in the Indian Exports in the year 2011-2012 and that took a large dip but the reason behind this downfall was never the Greece Crisis or the downgrade it was the global economic scenario which in the coming days does not seems to ease up. For a matter of fact Greece contributes only 0.2526% of total Indian Exports which did notice a minute jump from the previous year. 2.Greece ranks 83rd amongst top 100 countries with which India has trade relations. Total trade being 2058.00 crores where as India’s total trade amounts to 2,826,102.04 crores This newsletter is for internal use at IBS, Hyderabad only and not for sale. Page 15

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DATA AS PER DEPARTMENT OF COMMERCE So for a country of India’s calibre which has continuously witnessed a decline in the External Debt to GDP Ratio over a period of last decade and a half being downgraded and a country’s people which will be, by far very mildly hit by a country’s crisis to fear in a big way is so very perceprtional. Looking at the Indian Economy today we can see that we are surrounded by too many pressures of High

Inflationary Problems

Large

amount of Scams

Black

Money

Political

Instability of our country

It is mere perceptions of the people of India that a slowdown is on the cards due to the expected downfall of Greece and some signals of the negative macroeconomic conditions in our country like expected slowdowns in many countries , distrust of people in their own economy and several other issues which is affecting India’s Trade Balances.

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Despite so many issues concerning our economy there are so many companies in India which still finds India as a land of opportunities as for example Coco –Cola plans has planned an investment of $5 billion (Rs.28000 crores). India Inclusive Growth story is not hidden from anyone. It may be on a decline due to many factors but “India Inclusive Wealth”. INCLUSIVE WEALTH REPORT2012 recently published by the United Nations under the supervision of Sir Partha Dasgupta of Cambridge University has found India amongst top 5 countries in creating Inclusive wealth. In the time where Samsung SIII sales (Rs 38000 mobile) is leading in handsets being sold in India we are asking a question whether India has what it is required to sustain. India’s biggest problem today is the perception of its country’s people towards its economy. Despite steady growth in GDP at a pace of 5%. India which is regarded as one amongst the top havens of investment is witnessing FII rollbacks and declining currency. The most perfect example of a “PERCEPTIONAL ECONOMY”

PIYUSH KUMAR CHANDAK (IBS, HYDERABAD)

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LAPTOP OR LITERACY? NEED OF THE HOUR..

While addressing citizens on a republic day or independence day, our leaders- honorable president, chief ministers, paint a very rosy picture of the country and their respective states. They boast about achievements in reducing poverty, providing employment, increasing the GDP, enhancement in nuclear power etc. and honour all those who brought laurels to the country in the field of literature, science, economics, social services or defense. Only positive facets are highlighted and celebrated but is it true that we are really in race of development? Economists say India is living in villages .A nation of 0.6 million villages in which access to electricity is to the 60 % of population only. A nation in which 8% of rural population and 22.1 % of urban population is dependent on water sources away from their houses and a nation where cell phones are buzzing but lack of infrastrucure is visible everywhere. Average literacy is 67% and there is huge variation : Kerela leads the continuum with 95% literacy and Bihar, Jharkhand, Rajasthan are last at the ladder. What can one say when given to analyse the situation, about need of the hour? Should it be efforts of women and children empowerment, efforts of increasing literacy, electricity , medical facilities or free distribution of laptops and tablets?? Surprising but true. This is the story of Uttar Pradesh -a state comprising 199 million of population ( about 16.49 % of total Indian population) average literacy rate of 64% in rural areas and 77.01% in urban area ,electricity access to only 36.8% households. lighting for 61.9% of households in U.P and atleast 20000 homes still continue to live in complete darkness. In this scenario, a leading party declared , rather promised to distribute free laptops to 12th pass students and tablets to 10th pass students of state board .Elections were round the corner during exams so this formula was more than enough to lure the voters which comprised a large chunk of youth population. Consequence was in favour of the party as it was able to form its government alone. This newsletter is for internal use at IBS, Hyderabad only and not for sale. ISSUE 1, VOLUME 14

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The state has rural population of 77.78%; in which agriculture is the major and only source of income which means development of all sorts are highly sought after. Availability of gadgets like this will, undeniably, result into increase in awareness and use of information technology. But, does it make sense children using laptops and tablets without electricity! It is like selling comb to a bald person! There are countless unavoidable issues which must be dealt with immediately like increasing records of crime and corruption, not only by politicians but by bureaucrats also ( as they are the one who are permanently in power), poverty and unemployment. On top of that on count of hunger index , the state stands on 10th out of 17 postion while country ranks 23rd. Primary schools are functional but they are out of reach of ordinary people. Condition of education imparted in government schools has its own horrible story- either teachers are there or building is standing and no wonder if both are not there. Computer education is out of question. Using gadgets without proper education, instruction and electricity will lead to a doubtful situation which may end up in black marketing of these gadgets. With the booming IT industry, it may be a golden approach to all those companies to which UP government will place the order but from where the government will fund such an exorbitant amount which has a debt of more than 1 lakh crores? And even if all the allotted funds from the central government is utilized for this “revolutionary� cause, then what about all those concerns whose resolution is indispensable? The actions are very similar to euro zone crisis which resulted due to unplanned expenditure

in

spite of prevailing unstable economic condition. The consequences can be very much similar that is coming out of the widening ditch of debt and slowing growth rate would be almost inevitable.

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In lieu of the truth that Uttar Pradesh is hurtling towards a fiscal crisis, mainly due to the gap between revenue receipts and expenditure, this fulfillment of promise made by present government may lead to further worse situation but it could be made better if promised for free distribution of books. Provision of employment, education and free medical services are old ideas which cant be replicated anymore to lure vote bank. Hands of hungry, deprived people want food, uneducated need proper education facilities and guidance, sick need medical facilities within reach, impoverished want their basic amenities to be fulfilled at this moment. An electronic gadget cant fulfill these needs at least now, may be later.

ANJU MAURYA (IBS, HYDERABAD)

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NEWS

Rate rigging probe escalates in UK and Germany A global investigation into manipulation of interbank lending rates widened with Britain's fraud squad taking up the case and sources telling Reuters that Germany's markets regulator had launched a probe into Deutsche Bank. Authorities in the United States, Europe, Japan and Canada are examining more than a dozen big banks over suspected rigging of the London Interbank Offered Rate (Libor). Britain's Barclays has so far been the only bank to admit wrongdoing, agreeing last week to pay a fine of more than $450 million. Barclays CEO Bob Diamond was forced to resign and told a parliamentary committee that some of his firm's former staff could face criminal charges. In Britain, the lack of criminal prosecutions of the rate fixing has been one of the issues infuriating politicians, after e-mails were published showing bankers boasting of fiddling figures and congratulating each other with offers of champagne. Germany's BaFin regulator has initiated a "special investigation" into Deutsche Bank, a process which is more severe than a routine investigation initiated by a third party.

Indian Government may not dilute sourcing norms on Single-Brand Retail FDI The ministry of micro, small and medium enterprises (MSMEs) is opposing any dilution in the 30% sourcing clause for retailers in the single-brand format, arguing that small players would be hit hard. The only concession that the ministry is willing to provide is drop its insistence on shifting a vendor if it crosses the $1 million (around Rs 5 crore) threshold set for the small scale sector. While this will come as a relief to companies such as IKEA that have sought a dilution of this clause, it is unlikely that the government will do away with the 30% sourcing clause. This newsletter is for internal use at IBS, Hyderabad only and not for sale. Page 21

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Also, one company owns several brands and in its present form, the rules will restrict the entry of such firms. Further, there may be a clarification regarding the value of products sold to an international retailer for its Indian operations. An official pointed out that the government needs to clarify on whether the sourcing clause will apply on an aggregate basis or on individual units. In case of IKEA, which intends to invest euros 1.5 billion (over Rs 10,000 crore), the government has held detailed discussions and the Swedish retailer has pointed to eight areas of concern. The retailer has also sought clarification on whether "small industries" include farmers as well. The government is showcasing IKEA's proposal as a stamp of approval from foreign investors who still view India as an attractive investment option.

Market Is Bully Again The BSE benchmark Sensex ended in green for the fifth consecutive week on persistent buying mainly in realty, banking and metal counters, on the back of good capital inflows and expectations of measures from the government for reviving a slowing economy. Continued buying in small-and mid-cap shares by retail investors played a major role in extending the rally. The BSE Mid-Cap index rose by 2.60 per cent, while BSE Small Cap index gained 4.26 per cent, outperforming the Sensex. The 30-share Sensex rose 91.14 points, or 0.52 per cent, to end the week at 17,521.12. The S&P CNX Nifty of NSE gained 38.05 points, or 0.72 per cent, to settle at 5,316.95. Sensex has gained 1,555.96 points, or 9.75 per cent, in the last five weeks, while the 50-unit Nifty firmed up by 475.35 points, or 9.82 per cent, in the same period. Foreign Institutional Investors (FIIs) have bought shares worth net Rs 4,755.70 crore in July 2012 so far (till July 4). Prime Minister Manmohan Singh, who also holds the Finance portfolio, said last month that he is chalking out plan for the country's economic revival. However, rupee's weakness remains a major concern.

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Spain Is Champion Again The final blow of the whistle brought tears of joy for the Spanish outfit and probably relief for the Italians. The defending champions rewrote history by becoming the only team to defend a Euro Cup title. La Furia Roja became the first team to win three consecutive major international titles, adding Euro 2012 to their World Cup 2010 and Euro 2008 championships. What was expected to be an intriguing encounter proved to be a totally one-sided affair for Italy as Spain, who was seeking their third European Championship, ruthlessly demolished their opponents with a humiliating 4-0 defeat. A feat; which only the German team had managed to achieve in the past. Spain carried the burden of playing boring football for most part of the tournament with their ‘false nine’ strategy. But they took everyone by surprise in the historic final. It looked as if all the eleven men on the field were determined to show that they were the deserving champs since they could accelerate their game when it matter the most. From ‘tiki-taka’ football, their midfielders showed immense aggression, whereas the likes of Balotelli, Pirlo and Cassano couldn’t even

target the goal from a scoring position. After the final match one may wonder

whether the 65,000 thousand fans that gathered at the Olympic stadium in Kiev along with millions of viewers would have experienced a thrilling grand finale had the Germans made it to the final. No one can take the credit away from Spain, who probably is on their journey towards becoming the greatest team of all times with their consistent dominance at the international level by clinching back-to-back titles.

India showing lagged effects of anti-inflation policies: Fitch Global rating agency Fitch on Thursday said India, China and Korea — three biggest emerging Asian economies — are showing lagged effects of tight monetary policies embraced in 2010-11 to fight inflation. Fitch also pointed out that slow improvement in financial position of countries including India and China has come in the way of positive credit rating momentum in emerging Asia.

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Stressing that there are also home-grown sources of weakness, Fitch in a statement said that China, India and Korea are showing the lagged effects of counter inflationary policy tightening in 2010-2011. Fitch’s latest observation comes less than two weeks after it downgraded India’s credit outlook to negative citing corruption and lack of reforms. Fitch had cut GDP growth forecast to 6.5 per cent in 2012-13, down from a previous projection of 7.5 per cent. Meanwhile, Fitch said that positive rating momentum in emerging Asia has stalled amid slower improvement in sovereign balance sheets and for some countries, concerns over high and rising leverage in the private sector. The entity has a negative outlook on China but it is positive for Korea .

ANURAG SINGH CHAUHAN (IBS, HYDERABAD)

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CROSSWORD

Across: 1. A method of selling in which goods, securities, rights, etc are sold in public to the highest bidder 4. A fund set up to rescue dealers on an exchange or banks in the event of a market collapse and the ensuring insolvencies 5. The striking of a balance by a bank between its assets and liabilities, taking risk factors into account 6. The current status of the options a traded option, in terms of its being, in the money, at the money or out of the money 7. An agreement between a creditor and a debtor to allow additional time for the settlement of a debt 9. A triple option on a share or commodity market, consisting of one call option and two put options at the same price and for the same period 10. A person who is responsible for looking after the money and other assets of an organization

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Down: 2. An association of independent companies formed to regulate the price and sales conditions of the products or services they offer 3. A bond that offers high rate of interest because it carries a higher than unusual probability of default 4. A fund set up to rescue dealers on an exchange or banks in the event of a market collapse and the ensuring insolvencies 8. A limit placed by an exchange on the exposure that any single transactor may undertake

Answers 1. Auction 2. Cartel 3. Junk Bond 4. Lifeboat 5. Matching 6. Moneyness 7. Moratorium 8. Position Limit 9. Strip 10. Treasurer

CHAITALEE KUMARI (IBS, HYDERABAD)

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