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December, 2012 Hey all, Amidst the plethora of activities buzzing around in campus, we extend our best wishes to the senior batch for their ongoing placements. Club EcoBizz, hereby comes up with the December 2012 issueof its ever old, yet still young magazine, ‘THE FOCUS’. Read on to find out the Cover story on “US Elections: Cliff or Slope for India”. This vivid issue also deals with diverse topics ranging from role of IT in economics as whole, present status of Indian economy to economics at organization level.
Citation preview
2
From The Editor’s Desk
IBS Hyderabad
Nov-Dec Vol 1, 2012. The Ecobizz Newsletter
Inside the Issue:
THE HUG CAMPAIGN
A CSR INITIATIVE
The “D” Effect
-Hiren Shamnani
Wall Street to Fall Street : Gambling it all the
way
-Graceson Binu Sebastian
King of Good Times Into Bad Times
- Brundha Ayyanar
COVER STORY
US Elections: Cliff or Slope for India
- Ashwini Iyer, Swarna Aparajita
India on a brink of Recession?
-Bhaavya Grover
Where IT and Economy Meet!!
-Het Mavani
IBS Happenings!!
- AAVEG 3.0
- IBS Alumni Meet- NOSTALGIA
-Brundha Ayyanar
Editor’s Desk
Hey all,
Amidst the plethora of activities buzzing
around in campus, we extend our best wishes to
the senior batch for their ongoing placements.
Club EcoBizz, hereby comes up with the De-
cember 2012 issue of its ever old, yet still young
magazine, ‘THE FOCUS’.
Read on to find out the Cover story on “US
Elections: Cliff or Slope for India”. This vivid
issue also deals with diverse topics ranging
from role of IT in economics as whole, present
status of Indian economy to economics at or-
ganization level.
The first ever club at IBS launching a CSR initia-
tive, within the campus—The ‘Hug Campaign’
is starred upon. And not to forget to mention
about ‘Xtasy’-an event conducted dedicated to
betting. The event was a hit among non-cricket
lovers too. A huge turn-up for the event, like
other events conducted by us, motivates to cater
to new demands of the students.
As always, we are open for feedback and sug-
gestions. We also take the opportunity to thank
our readers and cherish their continued associa-
tion with ‘FOCUS’ .
Here’s hoping that you have an augmented
reading.
Warm Regards
Brundha Ayyanar
3
THE HUG CAMPAIGN
A CSR INITIATIVE
As a part of Club EcoBizz’s CSR initiative, the HUG Campaign was kick-started on 8th November,2012.
It was the club’s way of giving thanks to our college for their unabashed support. It was a very humble
attempt at spreading happiness in the college on the eve of Diwali.
The club members were present in Black attires wearing the EB badges so that the students could recog-
nize them and approach them for a the “Happy Hug”. The initiative was carried out for two days. The
Club also had a contest which entitled the winner Rs.100 worth of gift voucher, which could be re-
deemed at “Bingers”, the college’s most sought after eatery at which is open through the wee hours of
the morning. The contest was thrown open to the public, and they had to HUG every member of the
EcoBizz team within the two days, and the person who got to every member the fastest would win the
contest.
The campaign ended on a very happy note on 9th November,2012 with fond memories of the club
working as team to spread happiness. The club has the mental picture of the beautiful journey em-
barked by them, and also the actual pictured clicked by all the members.
To view the pictures of the” HUG CAMPAIGN” please visit:
EcobizzFREEHUGSCampaignSpreadingHappiness | 116563904868952477562
IBS Hyderabad CSR Initiative
Nov-Dec Vol 1, 2012. The Ecobizz Newsletter
4
Devaluation is a move by the Government of a
country in response to the financial crisis, trade
and current account deficit, inappropriate bal-
ance of payments. While devaluation is an inten-
tional move, depreciation depends on the de-
mand and supply of the currency in international
market. The prices of currency keep fluctuating
due to changes in demand and supply of cur-
rency.
Both affect the economy in various ways. If we
talk about the benefits
arising from devaluation;
they include increase in
exports and decrease in
imports, inflow of foreign
currency, decrease in
trade deficit etc. The ad-
vantages an economy may
get from the depreciation
are like foreigners coming to India who find
cheaper to come to India which in turn benefits
the hospitality sector. Exporters like IT compa-
nies are benefited because of rupee deprecation
as they receive more rupees per dollar which re-
Depreciation, Devaluation of currency, these two
hefty variables in the history of economics have
left economies to go merry-go-round since times
immemorial. In general sense we know depre-
ciation means decrease in value of particular as-
set. Basically, Depreciation of Currency is decline
in the value of currency because of market forces.
Whereas, decline in value of a currency with re-
spect to other currencies, which is done by cen-
tral bank is called Devaluation of Currency. The
difference here between devalua-
tion and depreciation of cur-
rency is that there is no govern-
ment intervention in Deprecia-
tion of currency; while devalua-
tion of currency is done by the
government itself.
Now the basic question comes
into mind is that why the de-
valuation and depreciation of currency takes
place? Well, the devaluation of currency is
mainly done in developing countries which don’t
want the currency prices to be decided by market
forces. To cope up with financial crisis, develop-
ing countries try to minimise the exchange rate to
save or earn foreign reserves. Here exchange rate
between the two currencies is the rate at which
one currency will be exchanged for another.
While depreciation of currency depends on mar-
ket fluctuations, if market conditions are good,
currency will be appreciated. On the other hand,
insufficient market forces lead to currency depre-
ciation.
IBS Hyderabad Economic ‘D’s
Nov-Dec Vol 1, 2012. The Ecobizz Newsletter
THE “D” EFFECT
-Hiren Shamnani
“A deliberate downward adjustment to a country's official exchange
rate relative to other currencies—contrast to
revaluation”
5
facing financial problems today. United States is
trapped into the great recession. The country is
struggling to balance its economy. USA is plan-
ning to devaluate its currency Dollar. Previously
in 1934 USA had devaluated its currency and it
had seen the great results of devaluation on the
economy. The reasons for which USA is cur-
rently planning to devaluate its currency are the
collapsed banking system, shocking house prop-
erty prices, unemployment, low interest rate and
less investment.
Another scenario which we can observe in the
world trade market is that the countries which
previously used to trade in US currency are now
shifting towards inter change currency concepts
which means; if China is exporting its goods to
Japan, then the currency truncations will be done
in terms of China and Japan’s currency rates.
This change in international trade market af-
fected Dollar’s position. There is no other way
US government can pay its $15+ trillion debt ex-
cept devaluation. If the devaluation takes place
the US is expecting to clear its debt in next 5
years and to see positive impacts of it on the
economy. US still speculates on whether to de-
value dollar or not!!
IBS Hyderabad Economic ‘D’s
Nov-Dec Vol 1, 2012. The Ecobizz Newsletter
sults in more net profits for them.
Inspite of the rosy scenario of these two very
similar yet distinct situations, there have been
negative impacts, which by and large have been
faced by the economies time and again with
acute intensity. Depreciation hits importers very
hard who pay more for the products or raw ma-
terials they purchase for their economic activity.
Students going abroad for further studies face
the extra burden of payment due to change in
rupee value. The substantial effect which pinches
any economy is on the oil industry in terms of
hiking oil prices and hence inflation. The disad-
vantages of devaluation are like if the currency of
any country is devalued, the other countries
goods become costly to import from that country.
As effects of devaluation are for short time pe-
riod in nature, it increases the foreign debt bur-
den in terms of home currency.
USA – a country which was said to be the great
6
Preet Bharara said before handing out the convic-tion "Mr. Rajat Gupta once stood at the apex of the international business community. Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away." The court is set to announce the sen-tence on18'" of October, 2012. For someone of Mr. Gupta's stature, when the world is your oyster-why gamble it all away? Is Insider trading simply the manifestation of greed or the inherent desire in every man and woman
to gamble? What then went wrong? For the uninitiated, insider trading is simply the mali-cious use of non- public in-formation by a company insider to earn brownie points on the stock market.
This illegal practice raises cost of capital securi-ties and thereby shows a false rate of growth. United States of America takes a harsh view on insider trading with severe punishment for the same unlike our country, where being related to any politician or industrialist allows corporate criminals to go scot-free. One reason for insider trading to go unnoticed in India is the late ap-pearance of this phenomenon (first case cropped up in 1992) as compared to USA where the first case of insider trading came to light as early as 1929. India has tried to follow in the wake of USA by trying to tighten SEBI provisions that govern in-sider trading. However, it is too tough to bring the culprits to light, as it is difficult to ascertain such unethical activity. Some eminent econo-mists like Milton Friedman have presented an
Modern society thrives on knowledge. The more knowledge you amass, the more wealth you stand to create and the lesser your chances of getting misled in the financial world are. Another commonly accepted desire in today's time is to not just get rich but get rich fast and get rich fast in style. So keeping these truisms in mind, corpo-rate honchos woke up with a jolt when they real-ized that Rajat Gupta was convicted by a federal jury of leaking inside information to hedge-fund manager Rajaratnam. Mr.Gupta lived the Indian dream as well as the American dream. True rags- to- riches tale, his personal life is no less than a Cinderella story with a freedom fighter father, dis-agreeable siblings and an in-opportune orphan, he decided early on to live "on his own". Cracking the IIT entrance exams comfortably and a cozy college romance with his now wife, Mr. Gupta bid farewell to a plush job offer from IIT to settle in at Harvard Business School where he became a scholar. He went onto become one of the most successful and brilliant Indians on Wall Street, serving as the chairman at McKinsey as well as other renowned institutions like Gold-man Sachs, Procter & Gamble, The Gates Foun-dation as well as advising the United Nations Secretary General Kofi Annan and co-founding the prestigious Indian School of Business. So, the business world was naturally appalled when Mr. Gupta, an industry veteran, was con-victed on three counts of securities fraud and on account of passing confidential insider informa-tion about Goldman Sachs and Procter & Gam-ble. Indian-origin chief Manhattan prosecutor
IBS Hyderabad Business and Finance
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
WALLSTREET TO FALL STREET: -
GAMBLING IT ALL AWAY
-Graceson Binu Sebastian
“Insider trading to go unnoticed in India is due to the late appearance of the
phenomenon”
7
ployee tells the same to his spouse or family member, that also falls under the purview of in-sider trading. It was no wonder that the world sat up and took notice when Rajat Gupta was convicted speedily and harshly despite the evidence against him being, for the most part, circumstantial. The equation becomes even more complex when we realize that stock markets thrive on tips that drive the trading. If information is unscrupulous and widespread at the same time, it is difficult to estimate the rare gems of genuine insider infor-mation. Often, culprits are bought to the book (as in the infamous Enron scandal) when they get too big for their boots. The primary reason why insider trading is hot to trot currently is due to improved technology and positive press. It has become slightly easier to capture culprits with the advent of technology, say, in the Rajat Gupta case, the presence of re-corded conversations rather than just circumstan-tial presumptions. So, in all probability Rajat Gupta fell prey to the overzealous guardians of law. Not to mention Gordon Gekko, as always when it comes to the stock market, 'greed is good' until you get caught. And in the end, you always do.
alternate view of insider trading citing rationale that justifies the good aspects of increased trad-ing. Most people are unaware that insider trad-ing is partly legal as several employees do pos-sess stock of the company and indulge in trading. Therefore it is often difficult to discern between trades by employees and insiders on the basis of public information or secret private knowledge. The Securities and Exchange Commission (SEC) enforces a simple guideline to distinguish be-tween legal and illegal insider trading by segre-gating what constitutes 'special' knowledge from knowledge available to insiders. Also, if an em-
IBS Hyderabad Business and Finance
Nov-Dec Vol 1, 2012 The EcoBizz Newsletter
8
tional routes and finally acquired.
The initial cause is attributed to different kinds of
aircraft each possessed, introducing new opera-
tional difficulties. Some companies do fail to
learn from the past. And same is the instance
with KFA. The time when KFA acquired was a
perfect time for the recession to take over the
economy. And so it went on to debt.
Adding to it, the fuel prices soared. And hence
less earnings earned by the company. With that,
the company had to pay huge taxes and airport
charges. As a ripple effect, flights started cancel-
ling and the passengers were not refunded. Sala-
ries not paid to employees and staffs and hence
they expressed a rude behaviour. One instance
after the other was reported against and people
lost faith in KFA. A saying goes this way, “A
company that forgets its employees, is soon for-
gotten”, and so has happened.
In spite of these turbulent times, Mr.Mallaya and
his son, spend a huge amount sponsoring F1
race. To add on to the bad time of the Kingfisher
family, Mallaya had to sell 49% of his ownership
from Force India(F1 car), to keep the airlinr run-
ning.
The present scenario goes as father apologises to
the government, banks and the AAI, where as
son tweets “Await Kingfisher calendar with
spicy girls”. There is any hope left with the gen-
eral public that the chairman and his son are
even trying to bring back the health of airlines
back to normal.
Every one of us would remember the goodies
that we used to get while travelling by Kingfisher
airline. The king of good times, was a dream for
aspirants of various disciples due to high salary
packages and now, the staffs already employed
are not paid.
“I am taking things personally”, Vijay Mallaya,
chairman of Kingfisher Airlines, says when it
comes to running his airline. Running a business
is not easy, and that too airline business, which
are known for making losses, needless to say.
Kingfisher Airlines initially operated as a single
class aircraft, Economy class, after a year shifted
to concentrate on luxury. And this is the time
when yummy meals were given, toys for chil-
dren, chocolates and goodies. Customers were
treated as Kings. When all was fine and well,
there came a twist in the story, when KFA de-
cided to merge with Air Deccan, to cover interna-
IBS Hyderabad The troublesome Indian conglomerate
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
KING OF GOOD TIMES INTO BAD TIMES
- Brundha Ayyanar
9
them immerse their hands in soil is what the per-
ception of public. What happened to the role of
government? Even if they did interfere, why did
it not make any difference? These questions were
answered as Poor government policies with re-
spect to the aviation industry.
In a way, the fall of KFA is considered good by
various policy makers. Since this led to re-
framing the policies of aviation and led to stricter
regulations. Moreover, this episode is one of the
major reasons to allow FDI in high yielding and
sensitive sectors like that of aviation. Again it has
been encouraging many new players to enter in
the market. Budget airlines like that of SpiceJet
and Indigo, has made air travel inexpensive, fa-
vouring middle class families too.
Who is to be blamed? Whether the company, that
took immature decisions while implementing
policies for itself and found itself dumped or to
blame the loopholes in the government regula-
tions in the aviation sector, and the system as a
whole? A two way process is always encourage,
whether it is class for CP or in a system. A proper
communication in the system and learning from
others mistakes would prove to be wise.
Another sponsorship, that Kingfisher is famous
for, is IPL. The team that the Mallya family spon-
sored is dissolved and is been taken over by the
SUN Group. It is high time that both dad and
son, get serious about the problems and start act-
ing on the situations than spending time at night
clubs and pubs.
United Breweries, the group under which King-
fisher Airlines do fit into, has various other busi-
nesses as that of electrical, liquor, education and
more. But as the name “Kingfisher” is pro-
nounced, the item that comes to any person’s
mind would be Alcoholic Beverages, which the
group is famous for. The UB group initially
started its operations in liquor and then diversi-
fied. Sadly, it had to sell its stakes from the liquor
business as well to repay the debts. But the debt
was so huge, that they could not even pay 25% of
the debt.
The decisions of the KFA authorities has made
IBS Hyderabad The troublesome Indian conglomerate
Nov-Dec Vol 1, 2012 The EcoBizz Newsletter
10
11
History has depicted the fact that Republicans
and Democrats are always at loggerheads, and
trust only themselves to do right by the country.
The Republicans are viewed as dominated by far
right conservatives who are determined to main-
tain and preserve the existing antiquated institu-
tions at any cost under the guise of protecting
traditional values. Their economic philosophy
would entail belief in free market and strong in-
ternational alliances, the belief that it is the re-
sponsibility of the citizens to run the govern-
ment, and that people deter-
mine their own destiny and
hence fruitlessness of wel-
fare programs. On the other
hand, the Democrats gener-
ally believe that it is the re-
sponsibility of the govern-
ment to take care of the citi-
zens, believe in a structured
regulated market with mini-
mum external entangle-
ments, and that the people
should share the economic burdens and gener-
ally support welfare programs for the aid of the
poor. However they are also viewed as far left
liberals whose every manoeuvre is bent on politi-
cal correctness, careful not to offend anyone.
In the light of these differences generally it is pre-
sumed that the Republican policies favour Indian
interests and are more amicable to our economic
policies and relations as compared to the Democ-
rats. However, surprisingly in today’s political
After the furore of the US Presidential elections,
US is now facing the looming ‘FISCAL CLIFF’.
Though many institutions would steer clear of
the term ‘FISCAL CLIFF’, thanks to Federal Re-
serve Chairman Ben Bernanke who coined the
term while urging Congress to avoid a steep
drop of the economy at the end of the year,
thanks to tax increases and automatic budget
cuts, the term is here to stay. The Center on
Budget and Policy Priorities would like to believe
that it is more of a slope.
With merely three weeks to
2012’s credit, all eyes and
senses are at Washington’s
Capitol Hill and the FISCAL
CLIFF negotiations. Let’s see
what fiscal cliff really is- An
Inapt Metaphor for the loom-
ing consequences of some very
bad congressional decisions. In
a sentence the most appropri-
ate way to explain fiscal cliff
would be “much too much
austerity, much too quickly-Austerity crisis”
The tax hikes are the centerpiece of attention as
the largest tax hike in American history is pro-
posed to take effect from January 1st, 2013. Let’s
look at the taxes more closely. Five tax measures
are expiring at the end of this year. They are
namely the 2001-2003 BUSH TAX CUTS, 2009
STIMULUS, PAYROLL TAX HOLIDAY, ALTER-
NATIVE MINIMUM TAX and EXTENDERS.
IBS Hyderabad World Politics
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
US ELECTION:
CLIFF OR SLOPE FOR INDIA
- Ashwini Iyer
If US goes over the Fiscal
cliff , it will be nothing short
of a nuclear weapon-a fiscal
nuclear weapon !
- Swarna Aparajita
12
IBS Hyderabad World Politics
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
marginal tax rates, oppose this move.
Republicans on the other hand want to make dra-
matic reforms in the field of Medicare, Medicaid
and other entitlement programs, and higher cuts
to domestic discretionary spending. The recent
proposal by the Republicans calls for raising the
eligibility age for Medicare ,the government
health care program for the elderly and lowering
cost-of-living hikes for Social Security, the Fed-
eral Pension program, while the plan offered by
Obama would raise taxes by $1.6 trillion over a
period of 10 years but it largely exempts Medi-
care and Social Security from the budget cuts.
The Republicans are of the opinion that, the re-
climate it is more difficult to separate the phi-
losophies of either party from the issues. Even
the average Americans today find themselves
voting for a candidate on how they view a single
issue or a group of issues rather than on the ide-
ologies of a particular party. Keeping those dif-
ferences in the back-burner, the regulators of the
country have to work towards the betterment of
the economy. But the going is getting tougher by
the day as the both the parties are nowhere near
a compromise. What the two parties agree on is
that doing nothing and letting all the scheduled
tax hikes and spending cuts to take effect for all
of 2013 would be a horrifying thing for the econ-
omy. They want to do away with the sequester’s
indiscriminate, across the board cuts. Both sides
agree that to reduce the fiscal deficit, a deficit
plan should include both tax-revenues and enti-
tlement cuts. Thus the discussions are mainly
pointing towards REPLACING one deficit plan
with the other.
The main disagreements are taxes; Democrats
a.k.a. the erstwhile President Barack Obama
want to hike taxes on the wealthy by about $1.6
trillion and they want approximately $1 trillion
to come from letting the top tax marginal tax rate
to be that of the Clinton –era i.e. a whopping
39.6%. Republicans who have never been a fan of
tax hikes and particularly not the increases in
13
It is feared, and not without reason, that a fall of
the world’s largest economy, off such a cliff,
could have an impact on the global economy
which would be no less dramatic than the
Obama and Romney elections were. And the dra-
matic outcome would also entail the adverse im-
pact on Asia’s export industries.
However, the good news for the investors and
the emerging markets would be, that over the
years there has been a comparative decline in the
dependence over exports to US, meaning there
has been a diversification in the export base,
which has now come to include countries other
than the US or the European countries. For in-
stance, China today has become the largest desti-
nation of exports from a number of South East
Asian countries.
Nevertheless, the fact remains that even today
the US is the world’s largest economy. And
though China’s exports to the US represent only
5% of its GDP, trade with US becomes important
in the light of the fact that China is United States
second largest trading partner. Also, China
might come in the category of major exporter
nations, but the fact that it imports US goods
which were approximately worth US $100 billion
is equally worth keeping in mind while deliber-
ating upon any Balance of Trade issues. So even
though there might be an increase in dollar pay-
ments in absolute terms, these factors cannot be
cent proposal offered by them provides a
“reasonable solution” and that the White House
should respond in a timely and responsible fash-
ion. The republicans have also held steadfastly
that, though this deficit plan would bring in $800
billion in tax revenues as opposed to $1.6 trillion,
it would keep the BUSH TAX CUTS even for the
wealthier lot which has an annual income of
$250,000. Dismissing the idea of raising any tax
rates, the Republicans said the new revenue
would come from closing loopholes and deduc-
tions while lowering rates.
President Bush is of the opinion that if the Re-
publicans do not arrive at a compromise he
would take the country OVER THE CLIFF, even
though it would be detrimental to the economy.
Lets scrutinize as to what will happen if US goes
over the CLIFF?
Millions of families and individuals will be
forced to pay the alternative minimum tax. Death
knell would be sounded for the farmers and
ranchers by the tax. And the average middle
class family will see their taxes go up by at least
$2,000 dollars. If US goes over the Fiscal cliff , it
will be nothing short of a nuclear weapon-a fis-
cal nuclear weapon. There is a possibility of capi-
tal gains taxes and the marginal taxes increasing.
The Congressional Budget Office has estimated
that the US might take out 4% of the GDP if a
deal is not reached before 31st Dec this year.
The solution to this problem is boundless, but the
effects are abysmal. One such solution is post-
poning the fiscal cliff till 2013 or 2014. There is
nothing that is stopping the Congress to vote to
extend some or all of the Bush TAX CUTS and
PAYROLL TAX CUTS. The sequester can be
overthrown and none of the domestic and de-
fense spending cuts becomes effective, thereby
postponing the CLIFF. The upside would be that
there won’t be recession but on the flipside the
deficit will continue to grow.
IBS Hyderabad World Politics
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
14
economic growth appear to significantly influ-
ence the growth in the other economies. Some
investors believe that much of the recent stock
market decline has to do with this looming fiscal
cliff. However some others believe that it’s not
just this cliff, but the entire macroeconomic fun-
damentals of the economy which will determine
how the markets move in the coming year.
It’s believed that the impact of it on India is likely
to be a mixed bag, both positive and negative.
The good news for India would be that the com-
modity prices would ease off and the oil prices
might stay significantly
lower than they have been
in the recent past. In fact it
has been observed that the
fear of the fiscal cliff has
already driven down com-
modity prices, starting in
October. The World Bank
estimates that the fall in
energy and non-energy
prices during the same
month has been of 2.4% and
1.6% respectively. This indicates that India’s in-
flation rate might come down fast enough for the
apex bank to bring down interest rates quicker
than anticipated to stimulate growth.
over looked either.
As far as the foreign policies are concerned,
President Obama’s policies have been oriented
toward an idea of “leading from behind” with co
-operation from allies and an open-minded ap-
proach toward verbose with perceived “foes”.
He has recognized what other historians couldn’t
that power alone cannot protect the US. He
seems to be looking to see changes in America’s
global economic role in an era where partner-
ships are more important and negotiation is
more effective than threats and exerting military
power. This attitude will
help maintaining relation-
ships with emerging coun-
tries in terms of investments.
So whether there is a fall off
the cliff or just a slope, either
way, investing in equities of
the emerging markets would
remain a safe option at least
for the coming year.
Impact of the Fiscal Cliff on
India
Now a view shared by the most analysts is that
the US is the world economy’s engine, and that
there is a close correlation between the US and
the world output. Also, the movements in the US
IBS Hyderabad World Politics
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
“India is in a high opportunity and high risk position. Any fallacious
strategy or policy can crumble down everything !”
15
On the flip side the potentially adverse impact on the Indian economy would be in the form of reduction
in trade and investment. Our merchandise exports now account for almost 16% of the GDP, while the
total exports account for nearly 24% of the GDP. With India’s major trading partners in hot soup, India’s
exports are expected to take a hit.
The fundamentals of the Indian economy are far weaker today than they were in 2008, meaning that the
ability of the policy makers to intervene is less than before. The most glaring indication of this is the fact
that the level of FOREX reserves in the form of import cover has almost halved in the past four years
from 12 months to 6 months and the firepower to battle any attack on rupee is far less impressive than it
was in the aftermath of the Lehman collapse.
However the most likely outcome still seems that there might be some last moment political deal lead-
ing to a modest fiscal consolidation rather than allowing the occurrence of something brutal enough to
destroy the fragile global recovery. The more pertinent issue for us here is to see how India- both the
public and private sectors- manages to negotiate and chart through the volatility accompanying every
twist and turn in the US fiscal politics.
We can conclude here by keeping in mind the words of Albert Einstein: “We cannot solve our problems
with the same thinking we used when we created them”.
IBS Hyderabad World Politics
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
16
phase in the economy. Additionally, with US
reporting a GDP growth rate of 1.5% on quarter 2
of 2012 a large number of Indian investors are
beginning to wonder what a global recession
would mean for the Indian economy and Indian
stocks.
Before we determine whether India is heading
towards recession, we need to understand the
meaning of recession and the
impact of recession in the In-
dian economy. The technical
definition of recession may be
defined as following:
A recession occurs when a de-
cline initiated or instigated
occurs in some measure of eco-
nomic activity and causes fur-
ther decline in other key meas-
ures of activity. Considering
an example of decrease in sales
causes a drop in production, declining employ-
ment and income level in the economy, which in
turn feed back into a further fall in sales, this vi-
cious cycle results into recession and downturn
in the economy.
Since liberalization India has experienced two
short recessions which occurred from March
1991 to September 1991 and from May 1996 to
November 1996. Despite the recent malaise of US
crisis which has negatively impacted the Indian
economy, single digit GDP growth can never be
interpreted as a recession. During 2008 crisis,
A few years back when India was about to make
a mark by reaching a double digit GDP growth
rate and it was believed by the world that India
is set to become the next superpower nation by
2050, when everything was moving in the right
direction then a sudden external factor destroyed
the dream of India , though the 2008 US financial
crisis were not that strong enough to shake the
root levels of Indian fi-
nancial system but they
certainly left some nega-
tive impact on our econ-
omy and because of
which some analyst be-
lieve that after 4 years of
US recession in 2008, now
India is on a brink of a
recession.
In keeping with market
expectations and factored
in by stock investors, India‘s GDP (Gross domes-
tic product) growth dipped to 5.3% in the second
quarter (July-September) from 6.7% in the same
quarter of last year’s fiscal, the factors contribut-
ing to such slow growth is the downturn in the
different sectors of the economy.
Eurostat reported that quarter 2 of 2012 GDP
growth was just 0.2% for entire Eurozone, which
was a decline from 0.0% growth reported in
quarter 1 2012. With almost 17 countries contrib-
ute towards 25% of global GDP in the Eurozone,
it is clear that Europe is going towards a bad
IBS Hyderabad Indian economy
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
INDIA ON A BRINK OF
RECESSION ??
-Bhaavya Grover
“Economic conditions are in
nobody’s hand but to take
remedial measures is in our
hand”
17
lack of funds to cover the problem of debts by
them as well as by government. Lack of infra-
structural growth plans by government and re-
strictions of people for not allowing FDI to flow
into India which could be of a great help to the
economy to boost their growth might lead India
to move towards recession in the coming two
years.
Lower growth rate in the economy is not just the
signal of lower productivity and lack of opportu-
nities available it is also a signal of increasing
unemployment rate and increasing poverty. Mr.
Montek Singh Ahluwalia, the Deputy Chairman
of Planning Commission of India says that India
needs to increase its GDP growth rate to reduce
poverty at a faster rate.
Therefore we cannot predict the time recession
might hit India and situations may turn out to be
even more difficult for us, it is high time that
Government of India should start thinking and
applying for some reforms that save India from
recession and take India 10 years back from
where everything started.
Some areas that needs improvement are the poli-
cies adopted by the government such as FDI
should be uniformly allowed by all the parties to
come into India , this will not only bring invest-
ment but would create new employment oppor-
tunities for people and better salaries thus im-
proving the overall standard of living of the peo-
ple staying and working here. Inflation is another
factor that government should take concern for is
that, everyday increasing prices of food and oil
has made it very difficult for people to have a
nutritious meal , which is further worsening the
conditions of poor’s.
India didn’t experienced a recession but rather a
milder form of recession called as a slowdown,
which is simply a decrease in growth of produc-
tivity and other allied activities in the economy.
There are a number of reasons which have re-
sulted in the recent trend of declining growth
rate including negative attitude towards allow-
ing foreign retail investment, a continued budget
deficit, poor energy infrastructure and a contin-
ued price control on natural gas and coal. India
has experienced four slowdown in the economy
since 90’s. Now India is experiencing a hard time
in stock markets as we see another recession in
2012. Investors who are looking at the capital
appreciation shall see it for long term perspective
as there is a big chance that India might experi-
ence a recession soon in the coming period.
Inflation is one of the many reasons that have
slowed down the growth prospects in India, cur-
rently India is experiencing an inflation rate of
7.4% which shows there is an increase in fuel and
food prices, people have started spending less
thus in turn consumption has reduced and pro-
duction in the economy has reduced in turn. An-
other aspect that could lead to recessionary con-
ditions is the increasing trade deficit. India’s
trade deficit has started getting worse; the differ-
ence between India’s import and export’s has
widened to $21 billion mostly because of India’s
weak exports and increasing imports. Huge cor-
porate debts like that of kingfisher is one such
example of corporate closing down because of
IBS Hyderabad Indian economy
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
18
WHERE INFORMATION TECHNOLOGY
AND ECONOMY MEET!!
so fast these days that
the man who says it can't be done is generally
interrupted by someone doing it.” Indian Econ-
omy has developed to a great extent due to com-
puter technology. But US economy became a
world power with this technology, because they
invented it in the first place.
An economy is a cycle through which resources
and capital flow from one stage to another. Basi-
cally, it is a cycle between households and firms.
Households provide employees for the firms
through Factor markets and the firms provide
goods and services to the households through
Product Market. And within this economy, there
is an integrated financial
market to ease the transac-
tions among various mar-
kets. Of course, there are lots
of other factors involved in
this cycle, but this is the ba-
sic framework. The speed of
the flow of factor inputs and
outputs in the cycle deter-
mines the strength of the
economy. This is where IT
becomes important, because
the speed of the cycle can be
accelerated with the technology that IT provides.
For example, a manufacturing firm requires stor-
ing data related to its suppliers, distributors,
workers etc. It can use traditional system of files
and cabinets to hold this data, but searching
through it for relevant data and storing it safely
becomes difficult. When a number of such firms
“Information Technology” - whenever we hear
or see this word, the first thing that comes to our
mind is computers. Although IT wouldn’t exist if
it weren’t for computers, but that does not mean
that IT means only computers. Any technology,
when used to preserve, enhance, or transfer in-
formation may come under Information Technol-
ogy. Now, since a postman taking mails to indi-
vidual locations or a cabinet used to preserve
files is not technologically advanced, we do not
include them under IT. So we are just left with
the computers (along with network infrastruc-
ture) as the most technologically advanced sys-
tems that are used in preserving, enhancing and
transferring information. But are these the last
creations of mankind in the
world?
“Everything that can be
invented has been in-
vented." - Charles H. Duell,
Commissioner, U.S. patent
office, 1899.
"I think there is a world
market for maybe five com-
puters" - Thomas J. Wat-
son, Founder, IBM, 1943.
“Nobody could possibly
need more than 640k of memory” - Bill Gates, Co
-founder and Chairman, Microsoft, 1981.
These quotations has been proved wrong along
with those people who think that the world is at
its best state and it cannot be improved any fur-
ther. Elbert Hubbard said “The world is moving
IBS Hyderabad IT and Economics
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
-Het Mavani
“Use of smart devices and digital content, digitization of
cable TV and rise in cloud computing to overcome
network bottlenecks have revolutionized the telecom
sector “
19
operating systems used today (Microsoft Win-
dows, Mac OS, Solaris, UNIX, LINUX, etc.) are
developed outside India.
India has a huge potential to invent and develop
its own technologies. Bharat Operating System
Solutions (BOSS) is an open source OS devel-
oped by National Research Centre for Free/
Open Source Software (NRCFOSS) of India.
‘SixthSense’ is a wearable gestural interface de-
vice developed by Pranav Mistry (an Indian).
India has the third highest number of Internet
use these traditional techniques, the speed of the
cycle in the economy slows down and the growth
is affected. Implementation of IT in the economy
not only helps in speeding up this cycle, but also
securing it from theft and accidents. This
strengthens the economy and the country as a
whole.
According to NASSCOM, the IT sector revenues
have grown from 1.2 per cent as a proportion of
national GDP in FY1998 to an estimated 7.5 per
cent in FY2012. The IT–BPO sector’s aggregated
revenues was US$100 billion in FY2012, where
export and domestic revenue stood at US$69.1
billion and US$31.7 billion respectively, growing
by over 9%. The industry’s share of total Indian
exports (merchandise plus services) increased
from less than 4% in FY1998 to about 25% in
FY2012.
These facts indicate how Information Technology
has contributed to the Indian Economy. The IT
industry in India was born in 1960s, whereas in
US and European countries, this industry was
invented during the World Wars. The Internet, as
we see it today, was actually ARPANET in USA
and NPL in UK (some other networks also con-
tributed to making of The Internet). Most of the
IBS Hyderabad IT and Economics
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
20
of the key factors of IT-enabled healthcare facili-
ties.
Although India is developing at a fast pace, it
requires an alternative to the current IT infra-
structure. Apart from the current investments in
making the whole system computerized, India
needs a different platform to make its mark. The
next generation of Indian Youth will give a new
dimension to the IT industry in India, which is
unimaginable as of now. It may even be called by
a different name than, but this new face of Infor-
mation Technology will make India unique in its
progress towards a developed nation.
Users after China and USA, yet there is only one
Web Browser developed in India (Epic Browser).
Of the many sectors, manufacturing sector indus-
tries are implementing IT infrastructure for the
flow of information for orders, order status, and
deliveries. Use of cloud computing, Supply
Chain Management (SCM) System and Business
Intelligence (BI) System has enabled Indian
manufacturing firms to increase efficiency in
their production.
Apart from manufacturing, Banking Sector has
also been revolutionized through the use of IT in
Communication and Connectivity and Business
Process Reengineering. Information Technology
enables sophisticated product development, bet-
ter market infrastructure, implementation of reli-
able techniques for control of risks and helps the
financial intermediaries to geographically distant
and diversified markets.
Information Technology is now integrated into
every sector. Use of smart devices and digital
content, digitization of cable TV and rise in cloud
computing to overcome network bottlenecks
have revolutionized the telecom sector which is
growing at a rate of over 26 per cent. Use of vid-
eoconferencing through Internet kiosks, Elec-
tronic Medical Records, Telemedicine Softwares
and sharing of these medical records through
various hospitals for efficient diagnosis are some
IBS Hyderabad IT and Economics
Nov-Dec Vol 1, 2012. The Ecobizz Newsletter
21
way. The effort put in by the team was visually
felt all around the campus.
As icing on the cake, there was a finishing touch to the story with prize distribution and DJ night.
AAVEG 3.0 the inter B school sports extrava-
ganza, hosted by IBS, Hyderabad on 7th, 8th and 9th of December 2012. .It was a platform to ex-hibit skills and to test them against the best in pursuit of the glory to be called CHAMPIONS. AAVEG symbolising flow and meaning Impulse, redefining the concept of Sports, where students from B-Schools all across India come together to compete, face challenges and work in teams to achieve the Ultimate Prize – Excellence among the best B-Schools in India in Sports!
Three days at college were like spending in a fair
or a fest with stalls ranging from pani puri to
pizzas. There were games organised by the team
VAPS, that encouraged and held the crowd with
them. The most interesting aspect was the
Pahsha’s den where various fun events were wit-
nessed.
This three day event started its promotion cam-
paign around twenty days before the event, leav-
ing no space for other clubs to promote their
products, was highly commendable. It set an ex-
ample for all the events to be promoted in such a
IBS Hyderabad IBS Buzz
Nov-Dec Vol 1, 2012. The Ecobizz Newsletter
AAVEG 3.0
22
IBS ALUMNI MEET
‘NOSTALGIA’
IBS celebrated “Happy Birthday” to its Alumni Relations Club and organized NOSTALGIA, an alumni meet at the campus. Alumni, working all around the world, made their presence and shared contacts for finals placements as well.
IBS Hyderabad, maintains a strong relationship with its alumni. Year by year the base of alumni is getting diversified, with students of IBS in vari-ous organizations, various fields and various parts of the world. Every year, this strong force is in-vited by the college, with the main aim of interact-ing with the current stu- dents and to provide them with insights of in- dustrial experience.
Similarly, this year, the meet was organized by a dedicated club for alumni relations. As the name suggests, their were nos- talgic feelings with the alumni, remembering their past at the college. The interactions went up to such a level that current students were ready to join as the interns at the company started by their seniors.
Adding a touch and feel to the event, a stage performance was organized, which the students as well as alumni enjoyed and the show ended with a ‘to be continued’ notation with a rocking DJ. The DJ lasted long for the people in the campus to enjoy and for the alumni to cherish these moments, until next alumni meet.
IBS Hyderabad IBS Buzz
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
23
For Reader’s
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IBS Hyderabad
Nov-Dec Vol 1, 2012. The EcoBizz Newsletter
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