Finshastra March Issue-I

8/7/2019 Finshastra March Issue-I

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Information Technology SolutionsFINShastraNews letter offinance cell , Master of International Business

Volume IX |ssue II

March 1 ,2010

Team Finshastra

Ankit

Anuratn

Mansi

Kamal

Sunita

For any query or suggestion email us at [email protected]

ffffdgfYour gateway to the world of finance

Your Finance Vocab

Exotic CurrencyMean?A foreign exchange term for a thinly traded currency. Exotic currencies areilliquid, lack market depth and trade at low volumes. Trading an exoticcurrency can be expensive, as the bid-ask spread is usually large.What Does Spot NextMean?A term used in foreign-currency trading. "Spot next" denotes the delivery ofpurchased currency on a day after the spot date. Spot-next contracts come

in many lengths, such as spot one week, which implies delivery of thecurrency one week following the trade date.What Does CableMean?Slang used among forex traders referring to the exchange rate between theU.S. dollar and the British pound sterling. Because it is the norm in forexfor most major currencies to be quoted against the U.S. dollar on a regularbasis, "cable" is a commonly used term.What Does Zero UptickMean?

A transaction executed at the same price as the trade immediately precedingit, but at a price higher than the transaction before that. For example, ifshares are bought and sold at $47, followed by $48 and $48, the last tradeat $48 is considered to be a zero uptick. This distinction can be importantfor short sellers trying to avoid shorting an ascending stock. Also known asa zero-plus tick.What Does Demo AccountMean?

A trading account that allows an investor to review and test the features of atrading platform before funding the account or placing trades. A demoaccount is typically "funded" with simulated money, which allows theinvestor to conduct fictitious trades in order to become familiar with the insand outs of the platform.

What Does Indicative QuoteMean?In forex trading, a currency quote that is provided by a market maker to atrading party but that is not firm. In other words, when a market makerprovides an indicative quote to a trader, the market maker is not obligated

to trade the given currency pair at the price or the quantity stated in thequote. Contrast this to a firm quote, in which a market maker guarantees aspecified bid or ask price to a trader up to the maximum quantity specifiedin the quote.


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What Does Nominal QuotationMean?A quote generated by a futures exchange or broker for contracts that havenot traded for a specific period of time.

pip

Pip or "percentage in point," refers to the very last digit of a currency price.

As an illustrative example, take EUR/USD at 1.2635. If the sell price were to

increase to 1.2636 we have a one pip increase. Should the EUR/USD sell

price move from 1.2635 up to 1.2735, we say EUR/USD increased 100

pips.

? WhipsawA condition in a highly volatile market characterized by a sharp pricemovement quickly followed by a sharp reversal

? Short SellingTo sell an instrument without actually owning it in hopes that the price willdecline so it can be bought back in the future at a profit.

Put-call-forward exchange parity (PCFP) theory

A relationship between a call option and a put option established throughthe forward

market. The theory holds that the option of buying the domestic currency

with a foreign currency at a certain price X is equivalent to the option ofselling the foreign currency with the domestic currency at the same price X.Therefore, the call option in the domestic currency becomes the put optionin the other, and vice versa


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Trading foreign currency has advantages over equities and futures trading.The global, around-the-clock nature of the Forex market gives traders theunique advantage of reacting to news and worldwide developments as theyhappen. Exchanging currencies in real time, on the largest trading marketin the world, allows Forex traders to manage their trades as global eventsaffecting the Forex market occur. Quite often, equities and futures tradersmust wait until their markets open for business before they can see howworld events affect their investments and trading. With currency trading,Forex traders frequently manage their investments without having to waitfor a market to open.

ForexTrading

EquitiesTrading

FuturesTrading

Typical

Leverage200:1 2:1 15:1

Liquidity DailyVolume: $3Trillion

LimitedLiquidity

LimitedLiquidity

Commissions NoCommissions

Commissionsand ExchangeFees

Commissionsand ExchangeFees

TradingActivity

24 HourActiveMarket

7Hours/LimitedAfter Hours

7Hours/LimitedAfter Hours

The carry trade is a popular trading strategy used in the FX market. Itguarantees traders at least some return on their medium and longer term

positions.

In the Carry Trade, speculators buy high interest currencies and sell

currencies with low interest rates. These positions ensure that each trading

day rollover-interest will be posted to the trader's account. Thus the Carry

Trade has the potential to significantly enhance a trader's return.

CARRY TRADE AND TRADING IN FOREX and Futures Tra


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Carry Trade Example

Below is a chart illustrating a typical example where the carry trade strategy

could have been best applied. The chart shows a steady increase of the

GBP/JPY pair in 2005 and 2006, spawned, among other things, by carry

traders going long to obtain the interest rate differential.

A carry trader who took advantage of the interest rate differential in the

GBP/JPY would have had the following profit, had he/she bought one

standard lot of the GBP/JPY at about the same time last year, and decided

to sell a year later.

Setting Up The Carry TradeTo become a successful carry trader, understanding the role that interest

rates play in the FX market is a crucial task. A country offering high interestrates will attract more capital as investors seek to capitalize higher returns.

As interest rates rise, investment will follow, which can in turn increase the

value


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of the currency. Carry trader's main focus becomes the expectation on the

direction of a country's interest rate, to ensure their high rate of return.

NZD7.25%

AUD6.25%

GBP5.00%

USD5.25%

CAD 4.25% EUR 3.50%

CHF1.75% JPY 0.25%

Generally, traders seek to buy countries with high interest rates, and

seek to short currencies who offer low interest rates.

The carry trade works best under certain market conditions, and the

selection of the currency pair can make the difference between a

losing and a profitable trade. When selecting the currency pair,

traders want to observe two things. On the one hand, the trader wants

to make sure he is buying the currency that has the higher interest

rate and is selling the currency that has a lower interest rate in

comparison. On the other hand, the trader also wants to view the

health of the economy for the currency pair to ensure the market will

move to his/her favor. Essentially, the trader will be buying a

currency with a stronger economy and selling the currency with a

weaker economy. Some currency pairs that are usually selected to

apply the carry trade strategy are: GBP/JPY, GBP/CHF, AUD/JPY,

EUR/JPY, CAD/JPY, and USD/JPY.

Flexibility to trade

Forex market is characterized by high liquidity and high flexibility and

as such traders get

the freedom to make choices as per their wishes. They are not bound

by the whims of the

markets.


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So, when you try to determine the best time to trade the forex marketthis information

would prove very useful. Trades have almost always the same relative

frequency and till

the forex market remains open, the probability of finding a trade

whenever you look is

almost the same. This is all about volume of trade. It is determined by

the number of

markets that are open and the number of times each of these markets

overlap with each

other.

Keeping in mind the forex volume is extremely essential. It is generally

seen that the

volume of transactions remains high all through the day but when

does it peak? The

answer is when the Asian markets with Australia and New Zealand,

the European

markets and the US markets open simultaneously. And this is the

best time to trade the

forex market.

Market times

Let's have a look of the timings of some of these markets.

New York Market : 8 am 4 pm EST

London Market : 2 am - 12 noon EST

Great Britain Market : 3 am 11 am EST

Tokyo Market : 8 pm 4 am EST

Australian Market : 7 pm 3 pm EST

Just have a look at the above schedule carefully. What do you see?

Yes, there are towtimes when two of the major markets overlap during the trading

hours-between 2 am and

4 am EST (Asian/Europe) and between 8 am to 12 pm EST

(European/N. American).

This is the time you have to target to make profits, the best time to

trade the forex

markets.


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Forex Tips and Tricks for Beginners

forex

forex tips

Forex

currency trading

Stepping onto the forex arena for the first time might feel a bit daunting,but keep these currency trading tips in mind and you'll soon findyourself running with the pack.

Casinos are for gamblers. The markets are for traders whoare interested in the investment, not the big win. Study and analysiswill prove a far better ally than long odds or luck.

Practice makes perfect. Before you start throwing your money intoan account, practice with one or more of a variety of demo accounts.This the most critical of all for the new trader. Get good at

analyzing and actual trading before you start plunking down our ownfunds.

Find a good broker. Do your homework and find a broker that fitsyour trading style and philosophy and offers the features and servicesyou want.

Don't buck the trend. Trends mean that more of the same is upahead. Keeping with a trend will help you continue to make a profit.Generally, when the trend is up don't sell; when the trend is down,don't buy.

Check your emotions at the door. is about methodical

analysis of the market trends, not about searching for the next hottrade. The trader who lets his or her emotions take control is the onewho will watch profit drop and losses skyrocket.

Overwhelmed traders make mistakes. If you find the data sittingin front of you is too much to handle, stand up, walk out and take abreak. Then, back up a few steps and go to a place in the processwhere you feel comfortable. Stay there for a while, and take baby-steps when you're ready to move up.

Guarantees are like unicorns and leprechauns they don't existin this world. If someone tries to tell you that they have forex secrets,

like a system, trick or bot that guarantees a profit, you have only onething to do: Run away far, far away.

Patience really is a virtue. Of all strategies, this lasttip is one of the most important. Don't expect to make your money allat once. Build it slowly over a large spread, by using consistent moneymanagement, and you'll be able to weather almost any forex storm.
http://www.forextips.com/featured/forex-education/forex-tips-and-tricks-for-beginners/http://www.forextips.com/featured/forex-education/what-is-forex/http://www.forextips.com/featured/forex-education/forex-tips-and-tricks-for-beginners/http://www.forextips.com/featured/forex-education/forex-myths/http://www.forextips.com/featured/forex-education/what-is-currency-trading/http://www.forextips.com/featured/forex-education/what-is-currency-trading/http://www.forextips.com/featured/forex-education/forex-myths/http://www.forextips.com/featured/forex-education/forex-tips-and-tricks-for-beginners/http://www.forextips.com/featured/forex-education/what-is-forex/http://www.forextips.com/featured/forex-education/forex-tips-and-tricks-for-beginners/


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The origin of FOREX trading traces its history to centuries ago. Different currencies and

the need to exchange them had existed since the Babylonians. They are credited with

the first use of paper notes and receipts. Speculation hardly ever happened, and

certainly the enormous speculative activity in the market today would have been

frowned upon.

In those days, the values of goods were expressed in terms of other goods (also called

as the Barter System). The obvious limitations of such a system encouraged establishing

more generally accepted mediums of exchange. It was important that a common base of

value could be established. In some economies, items such as teeth, feathers even

stones served this purpose, but soon various metals, in particular gold and silver,

established themselves as an accepted means of payment as well as a reliable storage of

value. Trade was carried among people of Africa, Asia etc through this system.

Coins were initially minted from the preferred metal and in stable political regimes, the

introduction of a paper form of governmental I.O.U. during the middle Ages also gained

acceptance. This type of I.O.U. was introduced more successfully through force than

through persuasion and is now the basis of todays modern currencies.

Before the First World War, most Central banks supported their currencies withconvertibility to gold. However, the gold exchange standard had its weaknesses of

boom-bust patterns. As an economy strengthened, it would import a great deal from out

of the country until it ran down its gold reserves required to support its money; as a

result, the money supply would diminish, interest rates escalate and economic activity

slowed to the point of recession. Ultimately, prices of commodities had hit bottom,

appearing attractive to other nations, who would sprint into buying fury that injected the

economy with gold until it increased its money supply, drive down interest rates and

restore wealth into the economy.. However, for this type of gold exchange, there was

not necessarily a Centrals bank need for full coverage of the government's currency

reserves. This did not occur very often, however when a group mindset fostered this

disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on

banks " The combination of a greater supply of paper money without the gold to cover

led to devastating inflation and resulting political instability. The Great Depression and

the removal of the gold standard in 1931 created a serious lull in FOREX market activity.

From 1931 until 1973, the FOREX market went through a series of changes. These

changes greatly affected the global economies at the time and speculation in the FOREX

markets during these times was little.

In order to protect local national interests, increased foreign exchange controls were

introduced to prevent market forces from punishing monetary irresponsibility.

Near the end of World War II, the Bretton Woods agreement was reached on the

initiative of

The History of FOREX Trading


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the USA in July 1944. The conference held in Bretton Woods, New Hampshire

rejected John Maynard Keynes suggestion for a new world reserve currency in

favor of a system built on the US Dollar. International institutions such as the

IMF, The World Bank and GATT were created in the same period as the emerging

victors of WWII searched for a way to avoid the destabilizing monetary crises

leading to the war. The Bretton Woods agreement resulted in a system of fixed

exchange rates that reinstated The Gold Standard partly, fixing the USD at

$35.00 per ounce of Gold and fixing the other main currencies to the dollar,

initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national

economies moved in different directions during the 1960s. A number of

realignments held the system alive for a long time but eventually Bretton Woods

collapsed in the early 1970s following president Nixon's suspension of the gold

convertibility in August 1971. The dollar was not any longer suited as the sole

international currency at a time when it was under severe pressure from

increasing US budget and trade deficits.

The last few decades have seen foreign exchange trading develop into the

worlds largest global market. Restrictions on capital flows have been removed in

most countries, leaving the market forces free to adjust foreign exchange rates

according to their perceived values.

The European Economic Community introduced a new system of fixed exchange

rates in 1979, the European Monetary System. The quest continued in Europe

for currency stability with the 1991 signing of The Maastricht treaty. This was to

not only fix exchange rates but also actually replace many of them with the Euro

in 2002. London was, and remains the principal offshore market. In the 1980s, it

became the key center in the Eurodollar market when British banks began

lending dollars as an alternative to pounds in order to maintain their leading

position in global finance.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new

relevance with the events in South East Asia in the latter part of 1997, where

currency after currency was devalued against the US dollar, leaving other fixed

exchange rates in particular in South America also looking very vulnerable.


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While commercial companies have had to face a much more volatile currency environment

in recent years, investors and financial institutions have discovered a new playground. The

FOREX exchange market initially worked under the central banks and the governmental

institutions but later on it accommodated the various institutions, at present it also includes

the dot com booms and the World Wide Web. The size of the FOREX market now dwarfs any

other investment market. The foreign exchange market is the largest financial market in the

world. Approximately 1.9 trillion dollars are traded daily in the foreign exchange market. It

is estimated that more than USD 1,200 Billion are traded every day. It can be said easily

that FOREX market is a lucrative opportunity for the modern day savvy investor.

By: Ankit Singh

(MIB 2010-12)


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Q.1 Which Indian was honoured with the crystal award of World Economic Forum in 2011

for his work related to welfare of children?

Q.2 Who has taken charge as the fourth deputy governor general of RBI?

Q.3 Who has been appointed as SEBIs next chairman

?

Q.4 Regulators in which country have okayed the agreement between Yahoo Japan and

Google Inc.), which enables the former to use Google technology to power its search services

in the country?

Q.5 Who is appointed as the first woman secretary general of SAARC?

Q.6 Which product has just been given protection by the European Union?

Q.7 What has Apple Inc this week refused to reveal on the grounds that it would give

competitors an "unfair advantage"?

a)The names of its suppliers in China

b)How much profit it makes on each application download

c)Leadership succession plans

d)The price of the new iPad2

a)Arbroathsmokies

b)Cornish pasties

c)Danish pastries

d)Cheddar cheese

Q.8 Which business is to make a total payout of 500m to 300,000 customers after admitting

a promotional error?

a)Thomas Cook

b)Rentokil

c)Burger King

d)Halifax Bank

Quiz


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Q.9Name the multinational that has agreed to buy Turkish firm MeyIcki for 1.3 billion

a)Diageo

b)Accenture

c)Avensys

d)Aviva

Q.10 Thai company SSI has agreed to spend 291m buying?

a) Tata's steel mill at Redcar

b) The Williams F1 team and factory

c) The media rights for the 2011 Royal Wedding

d)Juventus FC from President Gadaffi

Contributed BySunita AroraMIB 1st year


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Forex Market In India

13

Introduction

Forex (Foreign Exchange) is the international financial market used for trade of

world currencies. It is a place where various currencies are traded. Foreign

exchange or forex means a market place where one currency is traded for

another. The major players of this market are banks, financial institution, large

companies, financial brokers and individuals. In the recent years forex trading

has gained tremendous popularity. These are unique by its large volume,

extreme liquidity, 24 hour trading availability and various types of optionsavailable.

The most important characteristic of forex is the impact on various currencies

by the change in one currency rates. Any economic activity in world affects the

forex market immediately.

Forex Market and India

Indian forex market is small when compared with other developed countries.

However, with the multinationals coming up and new government policies, the

path of expansion of Forex in India is picking up.

India's share in world forex market has shown growth of 0.9% in 2010 and is

expected to grow further1. It is among the fastest growing Forex market in the

world. It has been observed that the recent growth rates of forex markets in

developed countries are much lowercompared with developing countries.

Countries like UK and US in the recent years have shown the lowest change incontribution of foreign exchange. The trends in Forex Trading like derivative

markets, options, swapping, and hedging are picking up in India.

The overall approach to the management of Indias foreign exchange reserves

takes into account the changing composition of the balance of payments and

endeavors to reflect the liquidity risks associated with different types of flows

and

1

As per the latest data available at nriinvestindia.com


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other requirements. As capital inflows during 2007-08 were far in excess of the

normal absorptive capacity of the economy, there was substantial accretion to

foreign exchange reserves by US $ 110.5 billion. The foreign exchange reserves

declined by US $ 23.4 billion from US $ 309.7 billion as at end-March 2008 to

US $ 286.3 billion by end-September 2008 largely reflecting valuation effects.

Excluding valuation effects, the decline was US $ 2.5 billion. Between October

2008 and January 16, 2009 foreign exchange reserves declined by US $ 34.1

billion to US $ 252.2 billion, including valuation effects. However, Indias

current level of foreign exchange reserves remains comfortable.

Forex watch window on nseindia.com


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Factors

The factors which influence the forex market in India are government policies

and rules, tax structure, inflation rates, RBI rates and interest rates, foreign

trade policies, World Bank interest rates and economic growth and health.

Determinants of exchange rate in India

In a floating exchange rate mechanism, foreign exchange rate is determined

much in the same way as the price of any commodity in a free market

economy. Appreciation or depreciation of the domestic currency thus depends

on the supply of foreign exchange reserves, liquidity conditions in the economy

as determined by money supply, central banks policy intentions and

differences in the interest yield on dated securities of the concerned

economies. The determinants of exchange rate are:

The Bank Rate

Interest Yield Differentials

Liquidity

External Shocks

Currency Futures Trading in India

There has always been a big debate about whether forex trading is legal or illegal in India. It is very

much legal to trade FX in India if one is doing it through the NSE. Earlier, there were markets for non-

deliverable forward trading offshore with the RBI monitoring domestic forward trading in currency.

But currency futures were banned until the RBI decided to go ahead with the idea after Indian rupee

futures began trading on the Dubai Gold and Commodities Exchange (DGCX). Now forex traders are

easily trading US dollar against the rupee online.

The RBI green signal led to the start of the first currency futures trading at the


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National Stock Exchange (NSE) in India launched by the then Finance Minister, P Chidambaram. He

spoke about developing the bond and derivatives market with interest rate futures in and secure

credit derivatives market. As it got launched on August 29, 2008, interest was up and running with

nearly 11 banks and 300 trading members registering and transacting nearly 70,000 contracts in a

single day, with great fluctuations in the Indian forex rates. East India Securities conducted the first

trade and among the banks, HDFC was the first to transact business. Of the total business done on

that day, transactions by banks accounted for 40% of the total trade.

The Reserve bank of India (RBI), satisfied with the proceedings went on to allow currency futurestrading at the selected exchanges across India. Later, a plan was drawn up for setting up a futures

market for currency with the help of RBI and the capital market monitoring organization, Securitiesand Exchange Board of India (SEBI).

It was the NSE that first allowed trading in futures although applications were sent in by the Bombay

Stock Exchange (BSE) & MCX or the Multi Commodity Exchange. Primarily, the step to open up

futures trading in currency was taken to provide companies with increasing flexibility and infuse

more liquidity into the market.

Rules and Regulations

Indian forex market is regulated by FEMA (Foreign Exchange Management

Act), 1999. It controls, regulates and manages the activities of forex market in

India. All the queries, petitions come under it.

RBI Advisory on Overseas Forex Trading through Electronic / Internet Trading

Portals

RBI has very severe laws if one trades INR against any other currency without

prior permission from RBI. A trader needs to have a forex trading lisence fromRBI.

RBI regulations state that remittance in any form towards overseas foreign

exchange trading through electronic/internet trading portals is not permitted

under the Foreign Exchange Management Act (FEMA), 1999. It also states that

the


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existing regulations under FEMA, 1999 do not permit Indian residents to trade in

foreign exchange in domestic / overseas markets.

However, Indian residents are permitted to trade in currency futures and options

contracts, traded on the stock exchanges recognized by the Securities and

Exchange Board of India (SEBI) in India, subject to the conditions specified by RBIfrom time to time.

Not only this, RBInotices advertisements issued by electronic / internet portals

offering trading or investing in foreign exchange with guaranteed high returns.

This is needed as many companies even engage agents who personally contact

gullible people to undertake forex trading and investment schemes and entice

them with promises of disproportionate or exorbitant returns.Hence, RBI cautions

general public not to invest money for such unauthorized transactions.

To sum up

The emerging growth of forex trades in India has proved the upcoming power and

will India will soon be seen asan investment hub. The scope of forex market is

very huge in India as it is in its initial stage. New developments are in row and

very soon Indian market would emerge as a high potential foreign exchange

market place.

By: Mansi Gupta

(MIB 2010-12)


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CEO CORNER

18

Bart Becht

Bart Becht's Education

University of Chicago

MBA, Business

1980 1982

Erasmus Universiteit Rotterdam

MBA, Business

1977 1980

RSM Erasmus University

MBA, Business

1977 1980

Chief Executive Officer, Executive Director, Chairman of Executive Committee and

Member of Nomination Committee, Reckitt Benckiser Group plc

9

Age Total Annual

Compensation

53 4,510,000 GBp

As of Fiscal Year 2009

Bart Becht serves as the Chief Executive Officer of Reckitt Benckiser Group PLC since

December 1999. Mr. Becht served as the Chief Executive Officer of Reckitt Benckiser

Pakistan Limited. He served as Chief Executive Officer of Benckiser N.V. since September

1997 and as a Member of its Management Board since August 1997 He joined Benckiser

N.V. in 1988 and served as General Manager in Canada, the UK, France and Italy. He served

as the Chief Executive of Benckiser Detergents. Mr. Becht has been an Executive Director of

Reckitt Benckiser Group PLC since December 1999. He served as a Director of Prudential PLCfrom May 2002 to August 31, 2004. He was a Director of Grocery Manufacturers

Association.


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Becht, who is married and has three children, gives many of the shares he is awarded to a

charitable trust that donates primarily to humanitarian causes. A frequent flyer as a result of

Reckitt's global business, his home is a mansion overlooking the Sunningdale golf course in

Berkshire.

He's acquired a reputation of being obsessed with cleaning and of course, running a tight

ship at Reckitt Benckiser. But CEO, Bart Becht says he doesn't have a passion for

cleaning, but what he does have is a keen interest in talking to consumers and picking uptips that help him in his business .

In markets like India, Reckitt has introduced power brands like Veet, Easy Off Bang

and Air Wick in the last five years. Why has the company taken so long to introduce

these brands?

The timing depends on how ready the consumer is and what it takes to bring products to

them. Building categories requires consumer insights like how people use the products, what

their habits are and how it fits into their routine. We cannot say that just because we have a

brand in North America, we want to introduce that in India. It's got to fit in the routine.

So with Vanish stain remover, the product performance needs to be slightly different becausein some geographies the stains are very tough. For instance turmeric is used in India and it's

difficult to remove. The same is the case with air fresheners. Sandalwood would not be

popular in the US but it is accepted in India.

Rivals like P&G and HUL are talking about acquiring the next billion consumers from

emerging markets. Which spectrum of consumers are you looking at?

Our products in general start on top of the pyramid especially in developing markets. Even in

developed markets we are geared towards higher income groups. That's logical because we

are creating new categories and they tend to be more expensive because they offer better

solutions.

In India, we started with urban and have gradually moved into rural markets. Harpic is a

classic example, where we started with very few outlets but today we have a massive amount

of distribution even outside urban areas. It's true even for markets like Brazil where with

brands like Vanish we are gradually acquiring rural consumers and moving down the

pyramid. But we are not starting at the bottom, we start at the top.

Compiled by

Anuratn

MIB 1 st year ( Interview from ET)


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UNION BUDGET 2011-12: HIGHLIGHTS

20

Following are the highlights of the budget:

TAXES

* Standard rate of excise duty held at 10 percent; no change in CENVAT rates

* Personal income tax exemption limit raised to Rs 180,000 from Rs 160,000 forindividual tax payers*For senior citizens, the qualifying age reduced to 60 years and exemption limit raised toRs 2.50 lakh.

*Citizens over 80 years to have exemption limit of Rs 5 lakh.

* To reduce surcharge on domestic companies to 5 percent from 7.5 percent.* A new revised income tax return form 'Sugam' to be introduced for small tax papers.

* To raise minimum alternate tax to 18.5 percent from 18 percent

* Direct tax proposals to cause 115 billion rupees in revenue loss

* Service tax rate kept at 10 percent

*Customs and excise proposals to result in net revenue gain of 73 billion rupees

* Iron ore export duty raised to 20 percent

*Nominal one per cent central excise duty on 130 items entering the tax net. Basic food

and fuel and precious stones, gold and silver jewellery will be exempted.

*Peak rate of customs duty maintained at 10 per cent in view of the global economic

situation.

*Basic customs duty on agricultural machinery reduced to 4.5 per cent from 5 per cent.*Service tax widened to cover hotel accommodation above Rs 1,000 per day, A/C

restaurants serving liquor, some category of hospitals, diagnostic tests.

*Service tax on air travel increased by Rs 50 for domestic travel and Rs 250 for

international travel in economy class. On higher classes, it will be ten per cent flat.

* Electronic filing of TDS returns at source stabilised; simplified forms to be introduced

for small taxpayers.

* Works of art exempt from customs when imported for exhibition in state-run

institutions; this now extended to private institutions.

SUBSIDIES

* Subsidy bill in 2011-12 seen at 1.44 trillion rupees

* Food subsidy bill in 2011-12 seen at 605.7 billion rupees

* Revised food subsidy bill for 2010-11 at 606 billion rupees

* Fertiliser subsidy bill in 2011-12 seen at 500 billion rupees

* Revised fertiliser subsidy bill for 2010-11 at 550 billion rupees

* Petroleum subsidy bill in 2011-12 seen at 236.4 billion rupees

* Revised petroleum subsidy bill in 2010-11 at 384 billion rupees

* State-run oil retailers to be provided with 200 billion rupee cash subsidy in 2011-12

FISCAL DEFICIT

* Fiscal deficit seen at 5.1 percent of GDP in 2010-11* Fiscal deficit seen at 4.6 percent of GDP in 2011-12

* Fiscal deficit seen at 3.5 percent of GDP in 2013-14


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20

SPENDING

* Total expenditure in 2011-12 seen at 12.58 trillion rupees* Plan expenditure seen at 4.41 trillion rupees in 2011-12, up 18.3 percent.

REVENUE

* Gross tax receipts seen at 9.32 trillion rupees in 2011-12* Non-tax revenue seen at 1.25 trillion rupees in 2011-12

* Corporate tax receipts seen at 3.6 trillion rupees in 2011-12* Tax-to-GDP ratio seen at 10.4 percent in 2011-12; seen at 10.8 percent in 2012-13

* Customs revenue seen at 1.52 trillion rupees in 2011-12

* Factory gate duties seen at 1.64 trillion rupees in 2011-12*Service tax receipts seen at 820 billion rupees in 2011-12* Revenue gain from indirect tax proposals seen at 113 billion rupees in 2011-12

* Service tax proposals to result in net revenue gain of 40 billion rupees in 2011-12

GROWTH, INFLATION EXPECTATIONS

* Economy expected to grow at 9 percent in 2012, plus or minus 0.25 percent

* Inflation seen lower in the financial year 2011-12

DISINVESTMENT

* Disinvestment in 2011-12 seen at 400 billion rupees

* Government committed to retaining 51 percent stake in public sector enterprises.

BORROWING

* Net market borrowing for 2011-12 seen at 3.43 trillion rupees, down from3.45 trillion rupees in 2010-11

* Gross market borrowing for 2011-12 seen at 4.17 trillion rupees* Revised gross market borrowing for 2010-11 at 4.47 trillion rupees

POLICY REFORMS

* To create infrastructure debt funds* FDI policy being liberalised.

* To boost infrastructure development with tax-free bonds of 300 billion rupees* Food security bill to be introduced this year

* To permit SEBI registered mutual funds to access subscriptions from foreigninvestments

* Raised foreign institutional investor limit in 5-year corporate bonds for investment ininfrastructure by $20 billion

* Setting up independent debt management office; Public debt bill to be introduced inparliament soon* Bills on insurance, pension funds, banking to be introduced.

*Constitution Amendment Bill for introduction of GST regime in this session.*New Companies Bill to be introduced in current session


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Continued...

20

SECTOR SPENDING

* To allocate more than 1.64 trillion rupees to defence sector in 2011-12* Corpus of rural infrastructure development fund raised to 180 billion rupees in 2011-12

* To provide 201.5 billion rupees capital infusion in state-run banks in 2011-12* To allocate 520.5 billion rupees for the education sector. Rs.21,000 crore for Sarva

Shiksha Abhiyan.* To raise health sector allocation to 267.6 billion rupees

* Rs.500 crore more for national skill development fund.* Rs.54 crore each for AMU (Aligarh Muslim University) centres at Murshidabad and

Mallapuram.* Rs.58,000 crore for Bharat Nirman; increase of Rs.10,000 crore.

* Mahatma Gandhi National Rural Employment Guarantee Scheme wage rates linked to

consumer price index; will rise from existing Rs.100 per day.* Increased outlay on social sector schemes.

* Infrastructure critical for development; 23 percent higher allocation in 2011-12.

AGRICULTURE* Removal of supply bottlenecks in the food sector will be in focus in 2011-12

* Agriculture growth key to development: Green Revolution waiting to happen in easternregion.

* To raise target of credit flow to agriculture sector to 4.75 trillion rupees* Gives 3 percent interest subsidy to farmers in 2011-12

* Cold storage chains to be given infrastructure status

* Capitalisation of National Bank for Agriculture and Rural Development (NABARD) of 30billion rupees in a phased manner

* To provide 3 billion rupees for 60,000 hectares under palm oil plantation* Actively considering new fertiliser policy for urea

* Food storage capacity to be augmented - 15 more mega food parks to be set up in 2011-12; of 30 sanctioned in previous fiscal, 15 set up.

* Comprehensive policy on further developing PPP (public-private-partnership) model.* Farmers need access to affordable credit.

* Moving to improve nutritional security.

* Necessary to accelerate production of fodder.

ON THE STATE OF THE ECONOMY* "Fiscal consolidation has been impressive. This year has also seen significant progress in

those critical institutional reforms that will pave the way for double digit growth in thenear future."

* "At times the biggest reforms are not the ones that make headlines, but the onesconcerned with details of governance which affect the everyday life of aam aadmi

(common man). In preparing this year's budget, I have been deeply conscious of this

fact."* Food inflation remains a concern

* Current account deficit situation poses some concern

* Must ensure that private investment is sustained* "The economy has shown remarkable resilience."* Setting tone for newer, vibrant economy.

* Economy back to pre-crisis trajectory.


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20

ON GOVERNANCE

* "Certain events in the past few months may have created an impression of drift in

governance and a gap in public accountability ... such an impression is misplaced."* Corruption is a problem, must fight it collectively

MORE

*Govt to move towards direct transfer of cash subsidy for kerosene, LPG and fertilisers.*Financial Sector Legislative Reforms Commission, to be headed by former Supreme

Court judge B Srikrishna, to complete its work in 24 months; to overhaul financialregulations.

* Five-fold strategy against black money; 13 new double taxation avoidanceagreements; foreign tax division of CTBT strengthened; strength of Enforcement

Directorate increased three-fold.

* Bill to be introduced to review Indian Stamp Act.* New coins carrying new rupee symbol to be issued.

* Anganwadi workers salary raised from Rs.1,500 to Rs.3,000.* Mortgage risk guarantee fund to be created for economically weaker sections.

* Housing loan limit for priority sector lending raised to Rs.25 lakh.


24/27

ANSWERS

20

Ans: A. R. Rehman

Ans: AnandSinha

Ans: U K Sinha

Ans: FathimathDhiyanaSaeed

Ans: Japan

Ans: Cornish pasties

Ans: Leadeship succession plans

Ans: Halifax Bank

Ans: Diageo

Ans: Tatas steel mill at Redcar


25/27

NEWS

21

Credit Suisse Analysts Say Nasdaq May Bid for TMX, CBOE Holdings

Nasdaq OMX Group Inc. may bid for TMX Group Inc. to block London Stock Exchange Group

Plcs agreement to buy the Toronto bourse, or pursue a deal with CBOE Holdings Inc.,

according to Credit Suisse Group AG.

Volvo to Invest Up to $11 Billion in Next Five Years to Tap Luxury Demand

Volvo Cars, the Swedish automaker acquired by Zhejiang Geely Holding Group Co., plans to

invest as much as $11 billion worldwide over the next five years to tap rising demand in

markets including China.

Econ survey sees FY12 GDP growth at 9 pct

The Economic Survy by India's finance ministry on Friday gave a series of economic forecasts

and recommendations, ahead of the annual budget that Finance Minister Pranab Mukherjee

will present on Feb. 28.

Budget may lay ground for FDI in multi-brand retail

The government is likely to indicate a road map for allowing foreign direct investment (FDI)

in multi-brand retail in the Union Budget 2011 , which according to two policy-makers, will

tame surging food prices and help farmers realise better prices for their produce.

Oil surges to near $120, then eases on Saudi assurance

Oil surged to 2-1/2-year highs near $120 a barrel on Thursday as the revolt in Libya choked

exports, then eased as Saudi Arabia assured European refiners the kingdom could step in to

fill any supply shortfalls.

GM in first full-year profit since 2004

General Motors said it was girding for shifting consumer demand in the wake of the run-up

in fuel prices as it reported its first annual profit since 2004.

Pfizer Teams With India Brewmaster in Return to $14 Billion Insulin Market

Biocon Ltd. founder KiranMazumdar- Shaw learned the intricacies of enzymes while

studying how to make beer. Now Pfizer Inc., the worlds largest drugmaker, is tapping that

knowledge to revive its insulin business.

TCS appointed tech partner to Garmin-Cervelo

TCS' portfolio of sports partnerships includes tie-ups with Formula 1 racing team Ferrari and

marathons in major cities worldwide including Boston, Chicago, Mumbai and New York.


26/27

22

About 20 bidders circle AstraZeneca unit

About 20 bidders are readying offers for all or parts of Astra Tech, the dental and medical

devices unit that AstraZeneca Plc (AZN.L) hopes could fetch $2 billion, people familiar with

the matter said.

Aston Martin co-owner plans $1.7 bln in asset sales

Kuwait's Investment Dar, owner of half of luxury carmaker Aston Martin, proposed asset

sales of about $1.69 billion over three years to creditors to restructure its debt pile, banking

sources said Wednesday.

NYSE expects full antitrust inquiry into D Brse merger

Exchanges consider it could take up to a year for European competition regulators to decide

whether to clear their proposed tie-up.

ICICI, HDFC Bank hike lending rates by up to 50 bps

ICICI, HDFC Bank hike lending rates by up to 50 bps. The rate hike by the two follows a

similar move by others, including the largest bank SBI, following tightening of monetary

policy by RBI.

Saudi, Indian firms sign mega deal; more in line

Saudi Arabia's Al Qahtani Sons Group signed a joint venture agreement with Indian firmSledgeHammer Oil Tools to build one of the largest manufacturing plants for oilfield and

drilling equipment in the Gulf nation.

India's trade deficit may become unsustainable

The Indian government flagged "serious concern" over a trade deficit that could jump nearly

2.5 times to $278.5 bn in three years and may cause an unsustainable current account

deficit.

Egypt Sells $1.1 Billion Bills, First Sale Since Mubarak Ouster

Egypt sold 6.5 billion Egyptian pounds ($1.1 billion) of treasury bills in the North African

countrys first auction after the resignation of Hosni Mubarak. The yields held around the

highest levels in two years.

Retail Sales Probably Rose in January as Promotions Enticed U.S. Shoppers

Retail sales probably climbed in January as shoppers took advantage of post-holiday

promotions before winter storms covered much of the U.S., a sign the economy is on the

mend, economists said before a report this week.

Treasury Yields Reach Highs on Better Economic Growth, U.S. Debt Auctions

Treasuries fell, with 10-year notes touching the highest yield since April, as the U.S. sold $72

billion of debt amid data showing the economy is gaining steam.


27/27

China denies rumors of losing $450 bn in Fannie, Freddie debt

China's foreign exchange regulator has refuted media reports that the country may lose up

to $ 450 billion by holding bonds of Fannie Mae and Freddie Mac, the US mortgage giants,

which according to speculation may be phased out by the US government.

Indian power cos may shift focus to African continent for coal

After scouting for coal in Indonesia and Australia, Indian power companies may now shift

their focus to countries like South Africa and Botswana for sourcing the raw material needed

to feed their thermal projects.

SAIL FPO in March, investment banks asked to give undertakings

The government today said state-run SAIL''s proposed Rs 8,000-crore follow-on public offer,

which has got delayed due to issues with merchant bankers, will now hit the capital markets

in March.

Ankit Singh

(MIB 2010-12)

Documents

Finshastra March Issue-I