Chaanakya 4_09

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volUME

4.09

ISSUE

71

Jly 31h, 2010

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about us02 - News

Ninl & Inerninl even in

the world of nance.

03 - Monetary Policy Review

For the First quarter of 2010-11.

05 - RIL Investors Check

RIL net rises 32% but still recom-

mended Neutral from Buy.

07 - GST in India

Gain from GST to propel Indias

economy to $2 trillion.

10 - Did you know

all y wned knw

Noise Trader.

12 - Indian Currency

The unique Indian currency provides a

new brand image for INDIA.

14 - Alumni Speak

A peek into the corporate world

through our Alumnis experience.

18 - Quiz

Check your Financial Quotient.

contents

CHAANAKYA is the ofcial

Finance Newsletter, released

fortnightly. Its objective is to

keep each & everyone abreast

with the activities & events in

the world of nance.

CHAANAKYA VOL4_09

students cartoon

By Sachin, MBA - M

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Repo

Reverse RepoCall rate

Ination (as on 14 July)

Forex Reserve (as on 30th July)

91day T-Bill

IIP (as on 11th July)

6.90 GS 2019

5.75 %

4.50 %3.30-5.30%

10.55 %

$ 282.938 billion

5.7364 %

11.5 %

8.0907%

1

QUOTES

rates

GraPHs

A liberal is a man whois willing to spend somebodyelses money

~ Carter Glass

Money is like manure.You have to spread it around

or it smells.

~J. Paul Getty

CHAANAKYA VOL4_09

46

46.4

46.8

47.2

47.6

15-Jul 18-Jul 21-Jul 24-Jul 27-Jul 30-Jul

Rs/$

Rs/$

72

74

76

78

80


Oil ( $ per bbl)Oil(per bbl)

17500

17700

17900

18100

18300


Gold(per 10 gram)Gold(per 10 gram)

7000000

14000000

21000000

28000000

35000000

5200

5300

5400

5500

5600


future rates

open interest

5200

5300

5400

5500

5600

17,500

17,700

17,900

18,100

18,300

15 -Ju l 1 8-Jul 21- Jul 24 -Ju l 2 7-Jul 30- Jul

sensex

nifty

If you think nobodycares if youre alive, try missinga couple of car payments.

~Earl Wilson

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international news

The Basel committee on banking supervision softened some of its proposed capital and

liquidity rules while introducing new restriction on how much lenders can borrow as part

of an effort to rein in their risk taking.

The IMF and EU suspended a review of Hungarys funding programme,set up in 2008

tosavethecountryfromnancialmeltdown,sayingitmusttaketoughactiontomeet

targetsforcuttingitsbudgetdecit.

Nokia Siemens Networks (NCN) the worlds second largest maker of wireless phone

systems will pay $1.2 billion for wireless network assets from Motorola Inc to expand in

North America and Japan.

General Motors will buy Auto Finance company AmeriCredit Corp for $3.5 billion in a

cash deal to boost sales and remove investor concern ahead of a planned stock list-

ing.

The Reserve Bank of India (RBI) raised repo rate by 25 basis points from 5.5 % to

5.75% and reverse repo rate has been hiked by 50 basis point to 4.50 per cent. The

cash reserve ratio or CRR and bank rate have been kept unchanged at 6 per cent. RBI

will review monetary policy every six weeks.

RBIraisedeconomicgrowthforecastto8.5percentfor2010-11scalfromearlier8per

cent.

Inationisexpectedtocomedownatsixpercentbytheendofthisyear.Thepresent

highrateofinationismainlyduetofoodpriceination.Thegovernmenthastakena

numberofstepstocurbination.

The government approved the symbol of the Indian currency ( ` ) which will differentiate

it from currencies used in countries such as Pakistan, Nepal, Sri-lanka and Mauritius.Two parallel lines crossing Ra in Devanagiri script or Rin Roman denote the symbol

isequaltooneIndianRupee.

2

national news

CHAANAKYA VOL4_09

By Elisabeth Merin Mathew, MBA-L

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Policy Stance of the RBI:

Tocontaininationandbepreparedtoanyfurtherbuildupininationarypressures. To maintain an interest rate regime consistent with price, output and nancialstability. Toactivelymanageliquidityandtoensurethatexcessliquiditydoesnotharmtheeffectiveness of policy rate actions.

Change in Key rates and policies:

RATES AND POLICIES CURRENT PREVIOUS

Repo 5.75% (up 25 bps) 5.5%Reverse Repo 4.5% (up 50 bps) 4%

Cash Reserve Ratio 6% 6%

Bank Rate 6% 6%

Policy Review Every 6 weeks Once in a quarter

Why a rise by 50bps in the Reverse Repo rate?

The RBI raised the Reverse Repo by a higher than expected 50 bps to narrow the LAF(Liquidity Adjustment Facility) corridor from 150 bps to 125 bps. It is narrowed down toreduce instability and volatility in markets.

Why didnt the RBI touch the CRR?

An increase in CRR would reduce the lendable funds to various sectors and thus curbgrowth. The RBI is constantly aiming at domestic growth which would be hindered with anincrease in CRR.

Projections as of year end:

GDP 8.5%

Ination 6%

Money supply 17%

Deposits 18%

Non food credit 20%

3

By Venita Sequeira, MBA-N

MonetarY PolicY reView-First Quarter 2010-11

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Outlook on ination will be shaped by 3 factors:

The monsoon at home;The policy rests all its expectations on the monsoon, as it can increase the food output andthusbringaboutacheckontheinatingfoodprices.

Trends in global energy and commodity prices;

Global energy prices are showing a decline and if they continue to decline further, it woulddenitelyreducetheinationaryimpactofthefuelpricehike.Commoditypriceswillalsodecline if the idle global capacity is utilized for imports and to ease the pressure on domesticprices.

Domestic demand side pressures;It is clearly evident that the demand side pressures are building up because of the constantstrengthening of the key domestic growth drivers.

Factors contributing to the rise in ination:

Non food items contribute 70% to the WPI;TheNon-fooditemsinationwhichwasnearto0inNovember2009rosesharplyto10.6%inJune2010indicatingthatinationisnowverymuchgeneralized,unlikeearlier.

Rise in prices of fuel products, iron ore and electricity ;Thepartialderegulationoffuelpriceswilldenitelyhaveaninationaryimpactintheshortrun.

Impact:

The Indian currency appreciated by 0.8%, the most since June, to 46.665 perdollar. TheIndianbenchmark10-yearbondyieldwasat7.67percent,steadyatMondayscloseaftereasingbrieyto7.66percent. ThebankindexoftheBombayStockExchangefellby0.08percentaheadoftheReserve Banks quarterly review of the monetary policy.

Conclusion:

BynarrowingthegapintheLAFcorridor,theRBIhopestostabilizeovernightratesacrossliquidityconditions,stabilizeovernightrateexpectationsandresultinnerpricingfor the term structure. Asthedemandforcreditincreasesandtheliquiditytightens,boththedepositandlending rates are expected to go up. For ex, a number of banks like HDFC, Central Bank ofIndiaandLakshmiVilasBankhavealreadyincreasedtheirinterestratesonxeddeposits,following the policy review. The policy has condence in growth while at the same time focusing on price

stability.

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ril inVestors cHeck

RIL net rises 32% to Rs. 4851 crore but still recommended NEUTRAL fromBUY

INTRODUCTION

HighergasvolumesfromitsKrishnanGodavarieldsontheeasterncoasthaveledMuke -sh Ambanis Reliance Industries (RIL) to one of its best quarterly performances till date.

Beatingmarketexpectations, itshoweda32percentincreaseinnetprotatRs.4851croreforthequarterendingJune.ThecompanyhadrecordedanetprotofRs.3666crorein the corresponding quarter last year.

FACTORS FOR SUCCESS

The company had yet another record quarter dueto high operating rates and improving marginsacross all their business. Reliance embarked ontwo major initiatives to create incremental value.They entered into a joint venture in shale gasto internationalize and diversify the upstreamportfolio. Reliance has also committed itself to

participate in high growth and exciting area ofbroadband wireless. Both these initiatives arein line with the strategy to indentify and invest innew, value-creating businesses.

RIL earned $7.3 (Rs. 341) on turning everybarrel of crude oil into fuel during the quarter,against $6.8 (Rs. 318) per barrel during the cor-respondingpreviousquarter.Thereningmar-

gins have moved up and the petrochemical cycle has improved. This is one of the RILsbest quarterly results in the recent past.

Thereningmarginshavebeenintherangeexpected.Theonlypositivesurprisecameinthe result in the petrochemical volumes that have improved.

RIL is producing about 60 million standard cubic metres of gas per day (mscmd) from theKG-D6elds.ThecompanybegangasproductionattheeldslastApril.DuringthequarterendedJune30,productionfromKG-D6was304,349tonnesofcrudeoiland5,376mscmdof natural gas with a growth of 207 percent and 210 percent, respectively, as the oil and

gas production was under ramp-up during the corresponding period of the previous year.

Thequartersawthecompanystotalincomeincrease84.8percenttoRs.58,950crorefromRs.31,896croreintheAprilJunequarterof2009-10.Theincreaseinvolumesac-

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counted for 48.4 percent of the growth in revenue exports where higher by 103.5 percentatRs.32,849croreasagainst16,145croreinthecorrespondingpreviousquarter.

During the quarter, revenue for the petrochemical segment increased by 18.8 percent fromRs.11,707croretoRs.13,903crore.Increaseinvolumesaccountedforabout60percentof this rise and higher prices for the rest.

RILs international operations during the quarter included farming out 30 percent of its par-ticipating interest in Oman Block 18 and 25 percent Oman Block 41 to Oman Oil CompanyExploration and Production. The company also farmed out 20 percent of its participatinginterest in Colombia Borjo North and Borjo South to Ecopetrol.

Through its subsidiary, Reliance Marcellus LLC, it entered into a joint venture with USbased Atlas Energy and acquired a 40 percent interest in Atlas core Marcellus Shale acre-age position. In a similar deal through its subsidiary Reliance Eagleford Upstream Hold-

ing LP, it took a 45 percent stake in US based pioneer natural resources companies coreEagleford Shale acreage position.

For the quarter ended June 30, RIL had cash and cash equivalents of Rs. 26,407 crore.RILs scrip gained 0.14 percent to close Rs. 1,053.50 on the Bombay Stock Exchange.

Conclusion:

Motilal Oswal Cuts RIL from buy to neutral:

IndianbrokerageMotilalOswalcutRelianceIndustriestoneutralfrombuy,astheen -ergy giants gas production from KG-D6 block was unlikely to be ramped up for next 6-12months.

As against the earlier expectation of KG-D6 gas production reaching 80 mscmd (millionstandard cubic meters of gas a day), RIL indicated that the production is unlikely to in-crease for the next 6-12 months.

Relianceschiefnancialofcer,AlokAgarwal,toldreportersonTuesdaythatReliance

would not increase output at its KG D6 block off the east coast of India until a full reviewofthereservoiriscompleted.ThusinspiteofRILdoingwell,brokeragermsdowngradedandratedneutralforthescripsastheEPSestimatesbeingdowngradedby3/9%.

6 CHAANAKYA VOL4_09

All riches have their origin in mind. Wealth is in ideas - not money.Robert Collier

Before borrowing money from a friend its best to decide which you need most.

Joe Moore

Being rich is having money; being wealthy is having time.Margaret Bonnano

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Goods and serVices tax in india

7

On 21st July, Finance minister Pranab Mukherjee unveiled a three-year plan for moving toa single rate - Goods and Services tax regime of 16% for the centre as well as states by

2014 starting with 20% in year one.

GainfromGSTtopropelIndiaseconomyto$2trillion.Pranab Mukherjee

Why GST?

The shortcoming in the present VAT structure is that it does not include the central taxessuch as customs duty, surcharges and at the state level also it does not include luxury taxandentertainmenttax.Thisiskeepingthetaxpayersawayfromthebenetsofcompre-hensive input tax and service tax set-off.

The proposed GST will give more relief to industry, trade, agriculture and consumersthrough a more comprehensive and wider coverage of input tax set-off and service tax set-off by inclusion of several taxes.

Structure of GST:

Many countries are following a single GST

model. But for country like India dual modelis supported. Dual GST means the proposedmodel will have two components-CGST - Central goods and service tax leviedby the central governmentSGST - State goods and service tax levied bythe state government.The centre and state will be currently lookingat three categories of GST after the exemptionof99commodities-1. A lower rate for basic goods.2. Standard rate for all the other goods.3. Rate for services.

First year: The standard GST will be 20 percent with both centre and state levying 10 per-cent each on goods. For products which will attract lower rate, the total GST burden will be12 percent if centre and state agree to levy 6 percent each on these products.

Second year: Theplanistoreducestandardrateforgoodsto9percentforbothcentre

and state so that GST comes to 18 percent.

Final year: If there is not much burden on the government for compensation, all rates forgoods and services could converge at 8 percent resulting in 16 percent GST.

By Pottim Sahiti Reddy, MBA-K

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Rate for services is 16 percent right from the year one with centre and state levying 8 per-cent each.

Benets of GST:

1. GST provides a comprehensive and wider coverage of input credit setoff; service taxcredit can be used for the payment of tax on sale of goods etc.2. CST will be removed. At present there is no input tax credit available for CST.3. Instead of all the Centre and State indirect taxes, only a common GST needs to bepaid.4. Uniformity of tax rates across all the states.5. Ensures better compliance due to reduction in the aggregate tax rate.6. By reducing the tax burden, the competitiveness of Indian products in the internationalmarket is expected to increase.

7.Pricesofgoodsareexpectedtoreduceinthelongrunasthebenetsoflesstaxburdenwould be passed on to the consumer.8. Overall tax compliance cost will reduce for the government and can concentrate onGST.

Does GST design require changes?

Thethree-wayclassicationwouldinducescope for classicationand valuation dis-putes between the Centre and state andmay substantially increase the compliancecost for tax payers. It is also providing astimulus to lobbying lower rates by states.Given a time line reducing the rates, its notclear why both centre and state need tomaintain this distinction in the rates.

Suppose one level of government decidesto divide the tax base into three categories,

the overall rates will get differentiated. Evenif the centre were to opt for two rates by merging the rate for services with standard ratefor goods, the differential between the categories would have been reduced.

\Itwouldbeusefultoreconsidertheadvantagesoffewerratesbeforenalizingtheratestructure for GST in India.

The states losing autonomy in tax powers, especially in determining rates is another is-sue. The proposed draft of the constitutional amendment suggests that subsequent to theintroduction of GST, any changes in the design of the tax would require the consent oftwo-thirds of the members of the Council of Ministers, as well as the assent of the Unionnanceminister.Mostofthestatesarenothappywiththisapproach.

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Asnancialservicesandlocalsalesofcomputersaredifculttotaxandifthesetwosec -tors are excluded from the base, number of states requiring standard rates higher than 15percent will come to nine. Even if tax net is expanded to include these services, atleast fourstates would require standard rates higher than 15 percent for revenue neutrality. Some ofthe states are losing more from Central Service Tax than they could gain from inclusion ofservicesinthebase.Thisisastructuralissueandmostofthestatesmaynditdifculttoaccept compensation.

Conclusion: The goal of GST is to bring India together into a common market. GST ismeanttobetaxonnalconsumption.Itisstructuredasadestination-basedtaxandsoratesneednotbethesameacrossallstates.Itwouldbeimportanttoprovideaoorrateon both the standard rate and lower rate of tax to further prevent wars. Uniformity in formsand procedures such as one registration and one return will also contribute to reduction incompliance costs.

CHAANAKYA VOL4_09

Buzzwords

Drill-Bit Stock

A term used to describe shares that trade for prices less than one dollar. The fractionalprices are comparable to the diameter measures of drill-bits found in a hardware store.

Dog And Pony Show

Aslangtermreferringtoanancialseminarthatpresentsnewproductsorissuesofsecuri -ties to potential buyers.

Fast Tape

A type of futures market that occurs when a single traded price is unavailable because ofthe rapid and large number of transactions occurring in the pit or ring.

Fallen Angel

1. A bond that was once investment grade but has since been reduced to junk bond sta-tus.2. A stock that has fallen substantially from its all time highs.

Dividend Clawback

Anarrangementunderwhichthosenancingaprojectagreetocontribute,asequity,anyprior dividends received from the project to cover any cash shortages.

Double Barreled

Bonds secured by the pledge of two or more sources of repayment.

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Noise Trader- What is It???

In simple terms, Noise Trading can beconsidered to be the opposite of tradingbased on News (Facts, Figures, etc). Rationaltraders trade based on information while theNoise traders do not. Black (1986) denesNoise trading as trading on noise as if itwere information. In addition, he notes theimportance of noise trading in capital markets:Noise makes nancialmarkets possible but

alsomakesthemimperfect.Thatis,inaworldwithout Noise traders, all trading is motivatedby informational advantages. Recognizing theywill be trading against another informed investor, traders will be reluctant to transact. Noisetradersprovidethenecessaryliquiditytonancialmarkets.Inprovidingliquidity,however,they also provide noise.

Why Do Noise Traders Trade?

Noise trading arises due to many reasons. Some investors may simply enjoy trading orerroneously believe they have unique information or insights. In addition, some tradersmay tradeonsentiments. Evidence fromsocial psychology, sociology,andmarketingsuggeststhatindividualinvestorsdecisionsarelikelytobeinuencedbyfadsorfashion.Alternatively, institutional investors may be more inclined to trading on sentiments due tothe close-knit nature of the investment community, the importance of performance relativeto other institutional investors and the asymmetry of the incentives. Investors may tradeon the same signal, but the signal need not be related to fundamental value (e.g. technicalanalysis). Trueman (1988) suggested that institutional investors may engage in noisetrading because it provides an imperfect signal to clients that the manager is informed. In

a nut shell, noise trading may result from perceived information advantages, sentiments,trading appearing in the utility function or agency problems.

The Impact of Noise Trading on Prices

Noise trading can explain excess volatility in security prices (i.e. prices will be more volatilethan value), temporal patterns in stock prices (e.g. momentum) and the use of technicalanalysis and positive feedback trading. The magnitude of Noise traders impact on securityprices will depend on both the degree of Noise trading in the market and the systematicnature of Noise trading. Greater the degree of Noise trading greater will be the deviation

between price and value. As the deviation between price and value increases, rationalarbitrageurs should work to push prices toward fundamental value. In real markets, however,arbitrage is costly (e.g. short sale proceeds are not available for investment). Moreover, inaworldwithnoisetradersandnitehorizons,arbitragecanberisky.Forexample,rational

10

By Amar G M, MBA-M

did You know ?

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arbitrageurs with limited horizons may be forced to unwind their positions in a period whenNoise traders have pushed prices even further away from fundamental values. If Noisetrading is cross-sectionally independent, then the impact of noise traders on a securitysprice is likely to be small relative to a world in which noise trading is cross-sectionallycorrelated. That is, if orders from noise traders are equally likely to buy or sell initiated ata point in time, then many noise traders orders will cancel out and the impact on priceshould be relatively small. Alternatively, if the noise traders orders generally come from

the same direction (i.e. primarily buy initiated or primarily sell initiated), their impact ona securitys price is likely to be large. A similar argument holds for the expected impactof noise traders on the market. If noise traders orders are cross-sectionally correlatedacross securities, then they are likely to impact market averages. That is, if noise traderssystematicallyenter(orexit)nancialmarkets,marketaveragesmaybeaffected.

Can Noise Traders Survive?

Historically, the impact of Noise trades has been assumed to be minimal since Noise traders

should lose wealth (and therefore eventually become unimportant) when trading againstrationalsmart-moneyarbitrageurs.However,thereislittlereasontosuspectthatrationalsmartmoneyspeculatorsdominatenancialmarketsdevelopformalmodelsthatallowfor the survival of Noise traders. Noise traders systematically underestimate variances ofrisky assets and therefore invest a greater fraction of their wealth in the risky asset thanwould an otherwise equally risk-averse rational investor. Their excessive risk-taking maynot only allow Noise traders to survive but they may also come to dominate the market.Alternatively, the actions of Noise traders are cross-sectionally correlated (systematic) andinuenceassetprices.Likeanyothersystematicrisk,theriskimpoundedbytherandomsentiments of noise traders should be priced. Thus, Noise traders may be compensated

for a risk that they create.

Moreover, even though the model predicts that Noise traders will lose (on average) whentrading against rational arbitrageurs, Noise traders may garner higher rates of returns thansophisticated investors if they concentrate their holdings in assets that have a greatersensitivity to innovations in noise trader sentiment. The issue of whether investors arecompensatedforbearingnoisetraderrisk.Specically,assetswithgreatersensitivitytonoise-traderriskwilltendtosellbelowfundamentalvalues(reectingthepricingofnoisetrader risk). They suggest that such a scenario can explain the fact that most close-endedfunds sell at a discount to their underlying assets (assuming individual investors are noisetraders).Specically, the discount from fundamental values reects the additional riskfrom the ownership structure: close-ended fund shares are held primarily by Noise traders(individual investors), but Noise traders play a less important role in the underlying assetsof the funds.

Thus, under these conditions, passive close-ended fund shareholders should garnerlarger returns than passive investors of the underlying assets as compensation for bearingnoise trader risk. Despite selling at discounts, (passive) closed-end fund shareholdersdo not garner larger returns than the holders of the underlying assets. In fact, discounts

are just large enough to cover the expenses incurred by the funds. In addition, holdingcapitalization constant, NYSE stocks with greater exposure to individual investors (andpresumably greater exposure to noise trader risk) earn lower returns than stocks withgreater exposure to institutional investors.

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uniQue sYMBol For indian currencY

By Emili Mathew, MBA-N

Sanjeeb Saha, MBA-K

12 CHAANAKYA VOL4_09

The Indian rupee is going to have a unique symbol soon. The new symbol is designed byBombay IIT post-graduate D Udaya Kumar and has been approved by the cabinet headedbyPrimeMinisterManmohanSinghon15thJuly2010.Thejury,whichhadsenttheveshort-listed entries for the cabinets approval, was headed by a Reserve Bank DeputyGovernor.ThiswillmakeIndiancurrencytobeonlythefthonetohaveadistinctidentity.The others are US Dollar, Euro, British Pound and Japanese Yen.

ThisisareectionofthefactthattheIndiancurrency,backedbyoveratrilliondollarecon -omy, is making its presence felt on the international scene with its increasingly highlightedstrength and global representation.

The decision to have a symbol for the Indian rupee was taken by the government last year.Thenanceministrywantedthesymboltorepresentthehistoricalandculturalethosofthecountry and called for entries from the public. Udaya Kumars entry was chosen from 3,000designs competing for the currency symbol.

The design is based on the Tricolour, with two lines at the top and white space in between.ItrepresentstheIndianagandisablendofIndianandRomanletters;acapitalRandDevanagari ra, which stands for rupiya. The symbol will help to distinguish the currency

from the rupee or rupiah of other countries like Pakistan, Nepal, Sri Lanka and Indonesia.Kumar will get an award of Rs 2.5 lakhs for his effort.

The symbol will not be printed or embossed on currency notes or coins. Among currencieswith distinctive identities, only the pound sterling has its symbol printed on the notes. Tostart with, the symbol will be included in the Unicode Standard and major scripts of theworld to ensure that it is easily displayed and printed in the electronic and print media. Uni-code is an international standard that allows text data to be interchanged globally withoutconict.AfterincorporationintheglobalandIndiancodes,itwouldbeusedbyallindividu-als and entities within and outside the country. The symbol is likely to be adopted in a span

of six months in the country, and within 18 to 24 months globally.

The symbol has been created to recognize the increasing linkages between India and theworld. It would further highlight the strength and robustness of the Indian economy as a fa-voured destination for global investments and standardize the expression of Indian rupeein different languages.

HavingadistinctsymbolforIndiancurrencycanbeseenasabrandingeffortwhichreectsIndias craving to be recognized as one of the most robust and stable economies that has

successfully sailed through the recent world wide recession and emerged as a fascinatinggrowth story in the global scenario. It is likely to receive a huge response in India as it isattached to a lot of public pride and sentiments.

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GoVt not to extend suGar Futures Ban BeYond sePteMBer

By Hardik Karia, MBA-M

CHAANAKYA VOL4_09

In the past decade we have seen that Forward Markets Commission (FMC) has imposedbans over various commodities like wheat, rice, urad and tur. These regulations are made

from time to time, in order to control and keep a grip over the movement of derivatives. Theforces of Demand and Supply in the market sometimes make it essential for the authoritiesto take such decisions.

Why is it done?The Centre had banned futures trading in wheat, rice, urad and tur two years ago dueto increasing prices. Similarly last year, it banned futures trading in rubber, soybean oil,potato and chickpea (chana) because the prices were shooting up. Each time, the Centrewas concerned with the rising prices as they thought the forward trading was promot-

ing speculation. Thus, the above examples prove that the Centre is concerned about thespeculationsdoneinthemarket,whichaffectsthemarketefciency.Butthisdoesnotap-ply to sugar.

Case with SugarPricesofsugar in the year2009werenot over-valued, neitherany speculationswerebuffering. Then the question arises, what were the bars for? Sugar prices have been rul-inghigherduetohighproductionduringtheyear2008-09andgainedover20percentsincethebeginningoftheyear.Reportssays,Sugarproductionintheseason(2009-10)isexpectedtobelessthan160lakhtonsagainst263lakhtoneslastseason.Inviewof

the lower production, the Centre has allowed duty-free imports of raw and white sugar,besides curbing its exports and banning the sugar futures on exchange.

Revoking sugar trade banInMay2009,themarketregulatorshadbarredthelaunchofnewsugarfuturescontracts.As the crop avereage is higher this year with a better production estimate, the ban wont beextended beyond September 31, 2010. Initially, nine contracts of the commodity may belaunched.Ofcialsexpectsugarproductiontotop24milliontonsinthesugaryearbegin-ning in October 2010, higher than the domestic demand of about 23 million tons.

Political ApproachTheannualrateoffoodinationhasmovedupto12.92percentfortheweekendedJune19,2010duetohighpricesofessentialitems.Thepoorandthenotsopoorarehitthemost. Sugar is the most politically sensitive of all commodities and also has the highestweightage in the wholesale price index (WPI) which is why it was put on the banned list.

There is general belief among the masses that futures trading of food articles, especiallysugar,onthe commodityexchanges leadstopriceriseand ination. Inationcrossingdoubledigitshasaddedoiltothere.Politicalpartiesareraisingtheirvoiceagainsttrading

while business lobby FMC says there is no need to extend ban on Sugar Futures after thedeadline of September 2010.

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By SMITHA JOSEPH

CLIFFORD CARDOZA

MOHIL KAPOOR

aluMni sPeak

In this edition, we have with us Mr. Venkat Raju V.

ThefollowingareexcerptsfromaninterviewwithMr.VenkatRajuV,anancealumnuswho passed out in the year 2006. He is currently the Director for Bagalur Cross VinayakaEducation Society. He has been the director for this organization for the past one and ahalf year.

Chaanakya: What does your present job involve?

Mr. Venkat Raju V: This job involves interacting with parents, co-ordinating with the schoolprincipals, keeping tab on day to day activities happening in school, strategic planning,formulating short term and long term goals, managing human resource. The present jobinvolves all the functions of a company at its own capacity.

Chaanakya: What kind of challenges does your job bring up?

Mr. Venkat Raju V:Schooling isasaverycompetitiveeldinthecityoutskirts,with nnumber of schools competing to mark their presence and with a minimum of 2 or 3 newschools starting every year offering free admissions as an introductory offer. Scarcity ofGood Teaching staff, matching with the parents and students expectations, providing bestfacilities at low cost of fee structure are some of the grave challenges that come up. Tosustain and grow in these kinds of markets is a real challenge.

Chaanakya: How did you prepare yourself for your present job?

Mr. Venkat Raju V:Mypreviousjobwasasaseniornanceexecutiveworkingonprojectcosting,analysingordersforprots/losswithrespecttoconsumables,manpower,time,


Mr. Venkat Raju VDirector

Bagalur Cross VinayakaEducation SocietyBatch: 2004 06

CONTACT DETAILSMobile no: +91-9880422455

Email id: [email protected]

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machinesavailabilityandsoon.Myjobwaswelldenedtochoose,prioritiseandexecuteorderswithrespecttoprotabilityandmyjobwasconnedtoverysimilarparametersdayin and day out.

My present job offers to handle wide functionalities in its own capacity and wide perspectiveand challenges of managing a company all by myself.

Chaanakya: What kind of expectations does your organization have of you?

Mr. Venkat Raju V: My organization expects overall development of child through qualityeducation at any cost and sustainable growth year on year.

Chaanakya: What qualities do you think a fresher must possess to perform efcientlyin the eld you are into?

Mr. Venkat Raju V: Since I have an experience of both Employee as well as an employer,

I personally feel one should always try to understand merits, demerits, challenges of theindustry or the company with respect to ones own interests before getting into the industryhe/she chooses. I personally feel one should always think and act in investors point of viewtobeasuccessfulemployeeinanychoseneld.

Chaanakya: Finally, any message for the students............

Mr. Venkat Raju V: My Message to students in the market out here, employer wants youstudents very badly; they are very desperate to have a right candidate at any cost so it isup to you to matchup their expectations

All the Very Best for your future.

Thanks!


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structure oF Pension Funds

Aneconomy, apart from everything else, isa highly uid transmissionmechanism. Itsbeauty lies in how the smallest of changes have the most complex trickle-down effects.

Areforminthepensionsystemtacklestheprimaryproblemofthenancialsectorinadual manner. Introduction of private pension fund managers will ensure the large-scalemobilisation of savings. This would increase the rate of savings, which would lead to ahigher rate of capital accumulation, crucial for a developing country like India. It has beenproved statistically that private managers are in a position to earn greater returns from theirsources. So in effect privatising the pension system would place a large pool of fund in thehandsofefcientmanagers,specialisinginthisformofactivity.

Current Systems in India

The EPF programme,established in 1952, is acontributory provident fundproviding benets uponretirement, resignation or deathbased on the accumulatedcontributions plus interest, fromemployers and employees.

Subscribers to the EPF havethe option to make partialwithdrawals for speciedpurposes such as houseconstruction, higher educationfor children, marriage, andmedical expenses associatedwith illness.

In India the EPF, has been used more as medium of tax evasion by the salaried classes asthe entire amount deposited in EPF is deductible for income-tax estimation purposes.

There is an urgent need to: Reducegovernmentburden:InIndiathenumberofelderly(personsaged60andabove) is expected to increase by 107%, to 113.0 million by 2016.

Involveunorganisedsector:Barely34million(or less than11%)oftheestimatedworking population in India is eligible to participate in formal provisions meant to provide oldageincomesecurity.Therefore,almost90%ofIndiasworkforceisnoteligibletoparticipate

in any scheme that enables them to save for economic security during their old age.

AtpresentthepensionSocialSecuritysystemisbasedonemployerandemployeecontributions, which largely excludes the unorganised sector.

By Prateek Singla, MBA K


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Changes recommended Private management of accretions through Pension Fund Managers: It isrecommended the establishment of 6 Pension Fund Managers (PFMs) so as to simplifychoice for individuals. But this objection is misplaced, as, even if individuals themselves donotpossesstheknowledgeofnancialinstruments,themarketforceswouldenablethemto decide to employ a PFM who would make these choices on their behalf. Hence, this

number should be determined by the free interplay of market forces.

Roleofgovernmentguarantees:Toreassurethepeopletoswitchtothenewsystem,government guarantees play a vital role

Administrative authority: The IndianPensionsAuthority (IPA)wouldoversee theentire working of the system and handle the administration. CII, in a recent press releasesuggested that the insurance regulator could also supervise the pensions sector.

Removalofsubsidies:Thepresentcontributionof1.16%ofwagesbytheGovernmentto the Employees Pension Scheme should discontinue. Instead, this contribution shouldbechannelledintotheNationalSeniorCitizensFundasinitialcorpusfortherst3yearsofincorporation of this Fund. Thereafter, this contribution should be discontinued. In addition,25% of the premature and lump sum withdrawal tax on provident funds under the new IRAsystem should be transferred to this Fund annually.

Roleoftheinsurancesector:Thereforminthepensionsectorisalsocloselyconnectedwith the insurance sector. Hence a reform carried out in one of them will necessarily havea positive external effect on the other and as such both share a symbiotic relationship.

Earlywithdrawals:Thesuggestionistoabolitionthetaxonearningsofover12percent in Provident Fund and levy of tax, at least of a 10 per cent, on early withdrawal fromProvident Funds.

Financingthetransitioncost:Thetransitioncostforanewpensionsystemmaybethree-fold:1. Cost of paying the workers who chose to remain within the old system.2. Cost of reimbursing those who chose the new system.3. Cost of the safety net provided by the government.

Inationindexing:Itwouldbeabetteralternativetoenabletheoldtomaintaintheircurrent consumption bundle by indexing pensions to prices. Using price rather than wageindexation would also help dampen the contribution rate increase and the wage increasesmay be put to use for other purposes.

CONCLUSION

Thekeywordforpensionreformisexibility.Thisimpliesthatmaximumroomneedsto

be provided for local experiments. Rules need to be laid down clearly, but their numberand level of stringency should not be overwhelming. In the long run, there needs to be acommitment to phase out most of the detailed rules, leaving only a broad framework to actupon.


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Across

3. An increase in price and trading volume in a

particular sector of the economy that occurs as aresult of a recent takeover, which initiates a changein sentiment towards the sector.

5. The behaviour of a company that chooses tofocus only on high-end ,high-margin products evenif customers show an inclination towards value-ori-ented products.

6. The bank which has joined the United StockExhange shareholder base by acquiring a 1.33 per-cent stake.


crossword

Down

1. The state leading in the implementation of projects related to the Delhi-Mumbai In-dustrial Corridor.

2. Goods that are perceived to be exclusive as long as prices remain high or in-crease.

4. AbonddenominatedinCanadiandollarsthatissoldinCanadabyforeignnancialinstitutions and companies.

1. Who was the chairman of Union Carbide when Bhopal tragedy occurred on 3 De-

cember1984?

2. If we consider that BSE Index has increased from 17000 to 17170 today, it would

mean that __________

3. Revenue-neutral rate (RNR) is a component of ___________ taxes in India?

4. What is the free look period given to the consumers to bring in more transparency,

discourage mis-selling of Ulips & other insurance policies and help investors take informed

decisions?

5. Who is the current Chief Economic Adviser to the Government of India?

Quiz

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answers

Q


c

1. Warren Anderson

2. Total value of the securities which constitute

the index has increased 1%

3. Goods and Services Tax (GST)

4. 15 Days

5. Kaushik Basu

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