Modern services offered to customers by modern banks

In the new era of banking, banks in India shower their customers in India with a plethora of services to attract customers. Online banking and virtual banking are the latest offerings by the banking services in India.

Below mentioned are some of the services offered to customers by modern banks: Continue reading “Modern services offered to customers by modern banks”

The importance of the travel sector to a country’s economy

A big part of a country’s exports come from service in the travel industry and tourism. In some cases such as the UK it can account for more than half the exports of others services in the country, according to new research conducted by the World Travel and Tourism Council and World Travel & Tourism Council (WTTC). This goes to show how important work in the travel sector is. Continue reading “The importance of the travel sector to a country’s economy”

The Rise Of The Baltics – Home To The Most Active Entrepreneurs In Europe

The Baltic nations of Estonia, Lithuania and Latvia were some of the hardest hit during the global financial crisis. The region suffered from both economic and political crises that shattered their once booming economy. Faced with few prospects and high rates of unemployment, the Baltic people have taken matters into their own hands and have created one of the most active areas in Europe for startups and entrepreneurs. Continue reading “The Rise Of The Baltics – Home To The Most Active Entrepreneurs In Europe”

Managing Cash and Risk Has Never Been Easier – INFOGRAPHIC

Advancing cloud technology has made it easier than ever for companies to properly manage their risk and cash. Software-as-a-Service Treasury and Risk Management (SaaS TRM) is a comprehensive solution that gives company treasurers the information and resources they need to bring true value to their company. Continue reading “Managing Cash and Risk Has Never Been Easier – INFOGRAPHIC”

5 Ways that Global Monopolies Can Damage Human Existence

Monopolies have been made illegal in the United States as it destroys any chance for competition and creates dependence upon a particular company for goods and services. Throughout the years, monopolies of varying degrees have been attempted and challenged. However, the damage that can be wrought on a global scale is much different than what it would be in a local community. More facets of humanity come into play and could greatly disrupt the way of life for many people. Continue reading “5 Ways that Global Monopolies Can Damage Human Existence”

The Economics of Olympic games

A comprehensive research conducted by Goldman Sachs titled “The Olympics and Economics 2012” precisely attempts to answer this question. The researchers analyzed the Olympic Games which were conducted in Beijing and Sydney, few years ago, and thus made a few projections for London 2012. What is of significant interest is that a lot of these projections are destined to come true and revitalize the economies, which are somewhat in a sombre mood in early 2012. Even the Prime Minister of United Kingdom, David Cameron, thinks that the Olympics will roll in 13 Billion pounds for the nation (even though that may help little to douse the fire burning within the economy).

The British economy really needs a boost, thanks to a protracted double-dip recession that has pushed down GDP for three quarters without even an inkling of a  break. The Olympic Games hosted in London 2012 (underway currently) have been projected to be extremely profitable for the “British Empire”,  and the revenues have been forecasted to exceed the operating cost of hosting the major event. Tickets sales are expected to generate over 500 million pounds or 785 million dollars and generate direct revenue for the management. This itself is a huge amount for a nation trapped in a continent facing rampant economic slowdown at large.In addition, a short-term financial boost in the third quarter of 1.2–1.6 percent of GDP at an annualized rate has been forecasted. This will also generate a lot of employment to a nation strapped with excess workable hands with very little to do. In addition, the tourism industry will get a healthy dosage of fuel to the slumbering embers, and this may just be sufficient to the industry slowly lumbering to a dormant stage.

With such a concern over economic health revision, a public-private partnership to ensure the success of such grand fiestas could be a shot for success. While such boost is sure to affect many sections of the society both directly and indirectly, the long term boon of employing workers for digging a trench and employing another set of workers to fill it up, are also evident in this case, though the analogy may be less fitting. Considering Ireland, which is in dire straits, will the benefits of the Olympic games overflow to Britain’s closest neighbor?

What is more important at this stage that will Brazil also benefit in the same big way, in 2016? With so much focus on her economy, will the benefits boost Brazil’s stake in the cake as an economic superpower? Only time can tell more how this story unfolds itself.

Global financial & economic crisis in 2011

The financial crisis in late 2000, sometimes referred to as the Credit Crunch or the Global Financial Crisis, is generally considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. The financial meltdown resulted in the collapse of super Financial institutions with power status, the bailout of mega-banks by the central governments, and plummeting stock markets around the world. However, in 2011, the world may be witnessing something which may be equally big, or maybe even bigger.  The WWII economic crisis and conditions are still extremely fragile. Probably turning short-term debt into long-term loans was the biggest trigger for this economic recession in 2011.

Some may call me to be somewhat more pessimistic in my outlook than is required, but here are my reasons to believe so.

  • The economy in US is in dire straits. The housing sector is yet to recover and high unemployment is troubling the super-power. The US is drowning in negative equity and job-less homes. Tax cuts may be short term evasive measure, medium and long term fiscal reforms may be necessary to pull US economy through this period. The recession in 2008-2009 is still making its presence felt in US, by depleting the reserves of the economic super-power. The tremble caused by BNP Paribas and Lehman Brothers is yet to subside full. Recently, US has been downgraded from its rating by Standard and Poor. The economists are suggesting long term reforms in banking,  such as raising capital ratios and switching from wholesale to retail funding, while filling in short-term gaps in capital. However, the banking industry would be subjected to a slow recovery in this track.
  • Japan has lost its AAA rating long back. The growth prospects for the once economic super-power is pretty poor.  Currently Japan’s national debt actually in excess of 200% of its GDP but its bond yields remain extremely low, since the growth prospects are not looking bright. As an effect of this, Japanese production has declined by over 15% in recent times.
  • The major debt that Greece is facing and the crisis thereof  not cured by the massive Eurozone and IMF bailout. The current bailout support may expire by 2013, and there has been no major financial restructuring in Greece. While the Greece government is sold out to Germany, this is even a bigger cause of concern because now the government will not even be able to print bills to increase inflation to depreciate its own assets. With the huge debt on Greece, the rest of EURO-Nations are equally strapped in the rear to come out with policy changes that may liberate them from this dire straits.
  • The crisis in the Irish national banking sector far from over. Even after receiving a staggering level of bailout assistance from the EU and IMF to cover the country’s insolvency, thanks to the Anglo Irish Bank and the other minor Irish banking institutions, the Dublin decision makers were forced to inject nearly $5 billion into Allied Irish Banks, another bankrupt institution. Ireland policy makers really need to figure out how to service this public debt, without triggering a shiver down its economy.
  • Europe in general is under severe economic stress. Without a major restructuring of debt, progress seems almost impossible. Debt burdens may continue to spiral upwards, and in several EURO using nations a debt write-down is very likely. German, French, and British banks hold most of the national debts, and a shiver there may trigger a collapse of the balance which apparently is resting on a spindle.
  • China, which seemed apparently less touched by the economic crisis in the west, is suddenly increasing its interest rates in an almost desperate effort to control price inflation. While China, the manufacturing super-power of recent times, strives to control the inflation within, this is almost an indicator of less attractive options to invest, outside the country, and even maybe within the country. Are we witnessing a scenario where the market demand has been saturated and the manufacturing sector is growing wary of the same?
  • India, which is evolving as an open market economy is not free from the crisis. Although Agriculture is still India’s most engaging “career”, most of the recent economic growth has been fueled from the services sector (IT, ITeS, Banking, or even tourism in few states). The welfare of these industries thrive heavily on the welfare of the counterparts in USA and to an extent in Europe, whose needs the service. The IT and ITeS alone has an average exposure of exceeding 52% to US markets and 34% to European markets, as per a report in Financial Times. On an average the services sector enjoy an exposure exceeding 82% to European and US markets. The meltdown of the economy in the western powers may be sufficient to trigger one in India.
  • With the advanced economies under such severe stress, emerging economies, may be slightly  insulated from major impacts, which can cause a huge eruption of their regular life. Worldbank says that the financial stress for the emergent economies may be over. However, since the development in these economies are heavily dependent on foreign direct investments from the economic super-powers, the development is likely to hit a stagnation. Is this an indication that the next financial tremble will arise from the developing economies?

Who knows how deep we actually are in this mess? Commodity prices are coming down, but that is probably the only brighter news in this downcast. Do let us know what you feel.

More plight to common man

Being a tax professional going through the budget changes is what we have to do as a part of our job. When the government presents a budget, the Finance Minister tries to convince that they keep the best interest of the common people in mind while imposing tax on the general public. This year through budget 2011, the Finance Minister of India has levied service tax on A/c hospitals having 25 or more beds.
The Federation of Indian Chambers of Commerce and Industry along with several prominent health care institutes throughout India has raised a voiced against this measure. In India it is impossible for a blood bank or operation theatre to function without proper air-conditioning. Further, the life of several patents would be at stake if they get admitted in a hospital without an A/C. The Government has proposed that they are levying such tax only on people who can afford it. But most importantly, i think the Hon’ble Finance Minister, however educated he might be has forgotten that nobody goes to hospital to relax. Most people who are admitted in hospitals are facing a life and death situation. Further, there are so many unprivileged people who put everything at stake, sale or mortgage their fixed assets to save their beloved ones.
The entire liability of service tax would be passed on by the clinics to their patients. What appears to the Government to be a mere tax collection , can make a lot of people beg on streets just to add a few more days to the life of their dearest one.
According to FICCI, India today is in dire need to expand its healthcare infrastructure which is extremely inadequate. The quantity of bed allocated is 0.9 for every 1,000 people in our country when compared to the global average of 2.7, or 3.0 in China and 2.4 in Brazil.
I really pray that the Government bows in front of the combined pressure from all areas and removed this clause from the Finance Bill. If they cant control inflation, they better not make sure to add more plight to the poor and ailing who are already being neglected by our so called “Prospering Country”.
Signing off for today

PS: The tax structure of the Union Budget 2011

Live to earn and die saving

People spend a third of their lives learning to earn money, a third to earn money and another third of their lives to save their money. It is a matter of debate which third of their lives is more important than the others. No risk no return is the fundamental law of money, if you have less qualifications to earn good money, chances of good income are still there but people will agree that probability is low and risks are high.

What we consider here is the government’s role in defining someone’s savings pattern? The government allows a person to hoard only a certain amount of cash or assets, the rest has to be either paid in taxes or locked into the free market or with the government. While this is a fundamental reason that keeps the economy running from an individual’s point of view, it is highly perplexing what to do with his money.

On one hand the government gives you the option of depositing your money with it and losing your money like slow poisoning thanks to higher inflation rate than deposit interest rate, or losing it altogether if you belong to one of those countries whose government is more unstable than a twig in a storm. On the other hand, the government encourages you to invest in the stock market and also incentivizes you by offering tax savings on long term capital gains, the catch being you can’t get out of the market without losing if you are caught in a downturn and anyways in the long term a balanced portfolio will give you an inflation-adjusted return of only around 10% on an annual basis. A lower than 10% return with the half dozen hedges so that you don’t get a heart attack when you are being hit left, right and centre makes a common man a most unlikely candidate to succeed in saving his money too much.

While GDP defines the spending power of a country’s population is it really good to have a population which spends all of its money for goods and services, or a population which saves and increases its asset base? The answer to the question is same as whether it is better to have a perfect process line producing output from input with zero inventory, or to have some inventory in place. A perfect system is only good as long as it lasts, in an imperfect world concessions have to be made, only time will tell if the concessions provided by the government to save our income can really boost the country to the status of most desirable place to live in or just a huge economy.

With Regards,

Arindam Acharyya

SME Lending : A Growth Strategy

SME lending in India has been a neglected target market since the independence. Though, government tried to propagate SME lending using regulations and incentives, however, somehow beneficial impact was never visible and SME lending always remained a poor cousin to other activities of lending institutions.

It needs to be initially identified what the current constraints are existent for the SME lending. It is recognized that Government should take initiative to operationalize SFCs in big Scale, and professionally run rather than bureaucratically. Subsequent sections focus on how SFCs or financial institutions need to first evolve a strategic focus on the sector by understanding the client & his needs. The SFC needs to re-engineer the SME lending value chain with the intention to develop a long standing relationship with the SME clientele set. The modifications needs to be executed across the critical areas via marketing execution, product development , streamlining of operations through internet integrated delivery channels & application of advanced risk modeling techniques.
As the relationship evolves over time, the firm is able to indulge in relationship lending due to reduction of information asymmetry which lowers supervisory costs & increases account profitability for the firm. Through retrained & empathetic staff dealing with SME clients, the interaction level deepens. Finally the SFC by donning the role of a Financial Consultant transforms from a lending institution into a one stop solution for all the financial needs of the SME client.
At the end the concept of Fund Financing is also suggested as an approach. The focus in the further studies has been made on traditional sources of Financing as SIDBI, is coming out with processes to replicate and innovate the present schemes to suit SME needs.


This article is authored by Mukesh who is an alumni of Indian Institute of Management, Lucknow. He has been associated with Crisil and has been recognized as a young thought leader of India.

FDI and Economic growth

The past decade was marked by the increasing role of foreign direct investment (FDI) in total capital flows. In the late 90s, FDI accounted for more than 50% of all private capital flows to developing countries. This growing change in the composition of capital flows has been synchronous with a shift in emphasis among policymakers in developing countries to attract more FDI, especially following the 1980s debt crisis and the recent turmoil in emerging economies. The rationale for increased efforts to attract more FDI arises from the belief that FDI has several positive effects which include productivity gains, technology transfers, the introduction of new processes, managerial skills, and know-how in the domestic market, employee training, international production networks, and access to markets.

If foreign firms introduce new products or processes to the domestic market, domestic firms may benefit from accelerated diffusion of new technology. In other situations, technology diffusion might occur from labor turnover as domestic employees move from foreign to domestic firms. These benefits, in addition to the direct capital financing it generates, suggest that FDI can play an important role in modernizing the national economy and promoting growth. Based on these arguments, governments often have provided special incentives to foreign firms to set up companies in their country.

While it may seem natural to argue that FDI can convey greater knowledge spillovers, a country’s capacity to take advantage of these externalities might be limited by local conditions. In an effort to further examine the effects of FDI on economic growth, research indicates the same from the recent emphasis on the role of institutions in the growth. In particular, there is great emphasis on the role of financial institutions and many economists argue that the lack of development of local financial markets can limit the economy’s ability to take advantage of potential FDI spillovers.


This article had been written by Rajeev Malhotra and edited by Arpan Kar. Rajeev has done his Masters in Financial Engineering from an Ivy League B-School from the United States. Besides his MBA, he also holds a CA and a CFA degree. He is currently working with DSP Meryll Lynch, USA.

Impact of Economic recession on Chinese energy markets

The energy sources of China are extremely rich in natural gas and coal, but relatively sources are lower in petroleum. Thus, today China is over increasingly getting more an more dependent on coal, which accounts for 68.7% of total energy that is consumed in the country.On the positive side, the renewable energy segment has increased from 8.8% in 2008 to 9.9% in 2009, but coal is still an essential player and irreplaceable in the Chinese energy market. (Source: Frost and Sullivan Research)

The global economic recession impacted the Chinese energy markets in multiple ways. Demand and supply was affected as the Chinese were forced to change their coal export policies in line with the slump. By reducing the degree of coal exports, the stock and the supply side of coal developed a large surplus over the demand, which decreased the price of coal in the Chinese markets for local consumption. These pulses left by the economic recession have been felt by other industries that are also related to the coal industry, like the thermal power generation and cement industries. Due to this recession in the energy markets and the decrease of the profitability of those 2 industries, China was forced to limit production, thus reducing the use of coal.

Our verdict is in order to follow the rest of the world in energy development, China has to make more use of sustainable energy.

Economic recession’s impact on Chinese solar power market

With the support of the Chinese government, the solar power industry has rapidly grown into the one of the largest industries in the world. However, the solar power industry’s structure and technology have not kept up with the rapid growth. As a result, problems have creeped into this sector in China. Thus surprisingly, cost is high in China for the generation of solar electrical energy. Furthermore, a minuscule civil market exists and the technology is grossly outdated. Thus the Chinese solar power market may face several industrial problems due to the economic situation.

The biggest barrier to further development as faced by local Chinese solar power companies is financing. Although the solar power sector in China is among the fastest growing sector in the world, to develop this emerging sector, the country needs to dedicate a lot of financial resources. Many different solar power projects can only continue with a large dedicated monetary commitments in R&D. The economic recession badly affected the solar power companies. The securities market and banks are the major financial source for such high technology companies. After the economic crisis, the level of supervision and control for Chinese securities market was promoted for issuing IPO and the banks also increased the requirements for credit. This will continue to impact the supply side of the Chinese solar power market. If companies cannot keep their liquidity, they will face bankruptcy.

Another impact of the economic recession is the reduction of foreign dependencies in the solar market. Chinese solar power industry is mainly dependent on foreign sales. The economic slowdown has influenced the sales of Chinese manufacturers. When the USA entered the economic downturn, foreign trade with other countries decreased, specifically for China and the export of solar power products. Additionally, other factors to slow down Chinese solar power market developing speed are the inferior technology and high production price.

Economic recession’s impact on Chinese wind power market

The Chinese wind power market has not been heavily influenced by the world economic recession. The wind power market can be considered the most mature among the renewable energy sectors because of its early development, relatively mature technology, and widespread application.

Still it was seen that the economic recession did have significant impact on international market demand; but the market for Chinese wind power is mainly local and the percentage of wind power produced is relatively small when compared with total electricity production using thermal power and hydro-power. Thus the situation for the Chinese wind power market is different from the solar power market, which is mainly located at the beginning of the value chain. The margin for Chinese solar power manufacturers is low enough that the solar power manufacturers could easily go bankrupt due to a poor economic situation. Also the major source of capital investment in the Chinese wind power market is from government funding. Even if many foreign investments quickly drew out from Chinese companies, it would not impact the entities’ normal operations. Overall, the wind power market would likely keep growing, but at a lower speed than before due to the influence of economic recession.

From the whole renewable energy sector point of view, the economic recession had some impact on the development of the renewable energy, but it was a relatively small effect because using renewable energy has been recognized as the best known practice to ensure sustainability worldwide. The Chinese government pushed out more and more stimulus and subsidies policies to encourage investment in renewable energy. Also, the particular nature of the Chinese renewable energy sector have played a part in helping China avoid serious pressures from the economic slowdown. For those reasons, the issues of how to help China maintain their strength in this segment should be the core for the future development of Chinese renewable energy sector.

In order for China to remain a strong market player in the renewable energy industry the following strategies are suggested:

  • First, the manufacturers must increase innovation in an effort to move into a more profitable area on the value chain.
  • Meanwhile, the standards and regulations will play an important role in protecting and regulating the industrial participants.
  • Finally, the government stimulus and subsidies will aid in attracting more FDI, venture capital investment, etc. Chinese manufacturers will have to enhance enterprise competitiveness, especially technologies with proprietary intellectual property rights, to prevail in the intensive competition with foreign companies for Chinese renewable energy market, because enterprise competitiveness is the basis of the survival and development.

This Article is authored by Jake Mazan, who is a guest author at Business Fundas. He is a Senior Research Analyst at Frost and Sullivan. He takes a keen interest on Asian Markets and their impacts on Global Markets.

United States’ Strategic Sourcing Initiative using e-Governance

USA, the largest economy in the world is facing a fiscal crisis, even now. Ever since 2003, its major economy bearer states like California, there was a major projected budget deficit. The Government took adequate care to approach the problem and to tackle the imminent crisis, but even though the black ages are gone, the repercussions from the shock still exists. The goverment launched many programs, one of which is the majorly popular California Strategic Sourcing Initiative, to control spending and stimulate the revamp of the economy. These focused primarily on the way the state purchased goods and services.

These programs aimed to identify saving opportunities. The focus to do so was through strategic sourcing. This was achieved by establishing new contracts or renegotiating existing ones. A team consisting of key professional procurement staff was created to achieve this goal, and not only at a short term goal, but to look towards achieving this as a sustainable long term process. Rather than a one time program, these initiatives were designed as an ongoing program to save money in the long term and position the United States to com out of the economic slump.

e-Governance played a crucial role in the revamp of the economies. Information Technology was widely used to issue electronic RFPs and conduct reverse auctions. The usage of these technologies also helped to streamline processes and speeded up the savings potential. Consulting firms like A.T. Kearney helped in the processes by developing cross-agency and departmental training programs, in which the procurement staff members were taught new skills in the area of spend analysis, e-sourcing, reverse auctions and e-negotiations. This training, which took place in classrooms and on hands, ensured that the team was well positioned for the change. Change management was the crucial success factor in this initiative.

In the coming few years, these strategic sourcing initiatives are expected to create savings in the tune of billions of dollars. The first wave of the program is already completed, and thus the spend categories have been identified, addressed and initial savings have been achieved which helped to forecast future savings. This e-governance strategic sourcing initiative has demonstrated how economies can be revamped using e-governance and information technology.

FIFA 2010 the other side

Madness. That’s the only word to describe FIFA World Cup 2010 South Africa. Making the headlines have been the big strikers, players who in days will become larger than life personalities & coaches with their strategy. All of a sudden football fanatics have left hearing Pink Floyd or Metallica and drudging themselves downloading the Kaans football song. From T-shirts of once favorite footballer to wrist bands and bandanas. People debating their hearts out over football statistics. Its all happening here. When wise men proclaim of football being the religion I can evidentially understand why.

The world cup for the first time is being hosted on African soil. More reason for South Africa to rejoice over Morocco & Egypt who also were in the run to host the world cup. But lets look at the other side of this entire event. The side less talked about, the economic side.

FIFA 2010 the other side

In choosing South Africa to bring the World Cup to Africa for the first time, FIFA was not only looking at what the country already offers – world class transport, telecommunications, tourism and sporting infrastructure, and people renowned for their passion and hospitality. They were looking ahead.

South Africa is reported spending in the tunes of R5 billion on building and renovating the ten stadiums where the games are to be staged and R5.2 billion on airport up gradation and R3.5 billion on improvement on road and rail network. The country has also put in significant efforts to ensure that the Gautrain, a high- speed rail link between Johannesburg, Pretoria and Johannesburg International Airport is completed.

Consulting reports speculate that the World Cup will inject approximately R21.3 billion into the South African economy, while generating as estimated R12.7 billion in direct spending and create an estimated 159000 new jobs. This sure is to do South Africa more good than just for the game.

With the estimated 3 million visitors for the tournament, the tourism industry will be on a all time high. This apart all the infrastructural developments carried on are benefiting the various constructions and engineering companies in the region. They all will get a slice of the cake.

The huge injection in the economy has been good but what is more meaning full is the indirect benefits that the region will experience. This will help in a sustainable economic lift in subsequent years. This event will change the perception that a large number of foreign investors hold of South Africa and Africa as a whole. This event will not only contribute hugely to South African socio economic growth, but to the development of the continent as a whole.

This merely is not just going to a sporting event where 90 minutes decide the fate of a team. Where impulse run high, adrenaline starts pumping when at the last minute the striker takes a shot at the goal. Beyond all this high tension entertainment that will merely last for 1 month is a strong economic connotation. It is a way to bring economic prosperity to a country or more so a continent as a whole that has been neglected for ages now.

Corruption is Business:Part 2

This is a sequel to the article with the same name and is meant to provide some of the possible counter-arguments to the arguments provided in the previous article. Thus this article is meant to prove why the practices like black-marketing of movie tickets and forced donations demanded by some schools are corrupt practices.

The solution to the first issue is about authorization. When a company is selling packaged food to customers at a higher price than what food of that sort would cost the customer, it is providing a service to a section of the market that are pressed for time. While the ticket-blacker does the same, he does so without the authorization of the people who are providing that piece of paper with its value. While even the Railways have such service for people who book tickets late, the benefit is going to the Railways, but the ticket-blacker does not share his profit with the movie theatre or the producers of the movie. Neither does he have a contractual permission to sell the tickets to the customers at a higher price than what the movie theatre has decided.

Coming to the second case, a high-profile school would generally have a higher fee as compared to other ordinary schools, but if they are demanding a donation on top of that it is like the waiter at a posh restaurant asking for a huge tip even before the customer has been served. Whether the exact value of tuition or other fees charged by the school is appropriate or not is a different issue, but if the school demands a donation for providing the candidate with the opportunity of getting a better education, then they must remember that they have not provided a service yet. A waiter can’t ask for a tip without providing some service first. Similarly a school can’t ask, leave alone demand, for a donation without providing the satisfactory service to the student for which he wants to go there.

These are but some of the possible arguments and I will be glad if the readers can provide even other arguments to validate these points.

Corruption is Business – Part 1

Before I dive into the depths of this somewhat perceived as a dirty topic, I feel a disclaimer is appropriate that the text you find below is just a scientific and logical analysis of data and need not necessarily be considered as my personal opinion to influence the opinion of others.

Consider this; a ticket-blacker secretly buys some tickets from the clerk at a movie theatre which is running a show which is hugely popular. Mr. XYZ has some work to do and reaches the theatre late to be greeted by a long queue and slim chances of getting a ticket. So he can either go home sad, or purchase a ticket from the blacker at a higher price. Now compare this with Mr. ABC who has hectic work and can’t cook his own food, hence has to buy packaged food and somehow manages to eat them on the way to office, of course the packaged ready-to-eat food is much more expensive than normal food. Are the 2 situations very different? One might argue that the ones last in the queue missed the tickets because of the blacker. I ask: how many people miss their bus or train because they finished cooking late?

Let’s analyze another example. Mr. UVW wants to get his son admitted to a high-profile reputed school, but he needs to pay a donation for the same. This might be denying admission to some other meritorious student, but of course it’s up to the school authorities to decide if they need meritorious students or money to maintain their profile and infrastructure. Compare this to a posh restaurant, which sacrifices the opportunity of attracting a large number of people by offering ego-satisfaction to select few. Just as the quality of education in the corrupt school maybe better than other schools, the quality of food and service of the posh restaurant maybe better than other restaurants. However in neither case do the huge premiums paid justify the benefits? Also why is the first case considered corruption and the second case business? Isn’t the restaurant depriving someone who is as good a man as anyone else but has less money a chance to taste its cuisine?

Corruption can be categorized in different ways, just two examples are reflected above, and I will come up with more examples in subsequent part(s). However I once again stress that this article does not deal with whether corruption is good or evil, but only links it to business.

Negative Elasticity of Money

Most people are aware of Price Elasticity of Demand, even if they don’t know the term. The logic is simple, if you raise the price of your product I won’t buy your product. This is however not the case with some special kinds of products. I will classify these products whose consumption increase in case of price hike into three categories.

Giffen goods: Common examples are food grains and similar essential commodities. When their prices increase it indicates severe shortage. However for the poorer class food is the most essential product and forms the bulk of their monthly expenditure. So, even if such goods are considered inferior in nature, they can’t be substituted and as long as other basic needs are being met, are purchased in even larger quantities as a security against a worse future. These are the kinds of goods which are most important to a certain class of people even if they maybe required by all classes of people.

Veblen goods: These are the goods where all the marketing efforts are directed. They are mostly “fashion” items and can range from pens and goggles to wines and cars. They keyword here is branding. While in the previous example it was the poorer section of the society which contributed to increased consumption, in this case it’s the upper middle class and richer people in the society who lead the increase in consumption. To the richer section these add to the snob-effect and are symbolic of status, while to the upper middle class these are aspirational goods. A higher price leads to exclusivity, while a price-cut would make the possession of these goods look less valuable. Its apt to try and compare the consumers of these goods to be among the achievers and experiencers in the VALS framework.

There is still a third category of goods which are neither inferior nor snobbish, and there might be ample scope for argument but the hike in consumption of these goods is mainly due to the middle class. Consider LPG as an example. In India LPG was not freely available for a long time for domestic purpose, with the increased availability the consumption levels have gone up in the middle class irrespective of price hikes year after year. The reason is not that LPG is price inelastic, rather the logic is, purchase it while you can. Its common knowledge that such a fuel source won’t last forever, but it’s more convenient and hygienic hence as long as it’s affordable, the consumption keeps increasing. Another example is bottled water, although considered price inelastic in many places, where unbottled water is potable to a considerable extent, a Kinley or Bisleri bottle at a lower price will increase suspicions about its purity and lower consumption. The two examples here, LPG and bottled water are somewhat opposed in the sense that LPG is kind of a Giffen good for the middle class (though its neither inferior nor short of alternatives), while bottled water is kind of a Veblen good for the middle class (without the snob effect). Since these do not fit exactly in either of the above two classifications, I have classified them differently.

The way ahead for Indian sports-Public Private Partnerships

There are certain factors external to the performance of sports-persons which defines the performance of a country in an international sports meet. According to the study, it is poor social mobility because of poor infrastructure that leads to poor performance at the Olympics. It cites the example of Portugal where improvement in radio communication supposedly improved Olympics performance due to increased social mobility, which allowed the exposure of rural talents to international sports.

Consider this, in the Beijing Olympics the Chinese government had invested around Rs 2030 billion for the event. According to officials about 95% of this amount was spent on infrastructure, energy, transportation and water supply projects. Whereas, Finance Minister P. Chidambaram had allocated Rs.11.12 billion as the total sports budget for 2008-09, with special provision of only Rs.6.24 billion for preparations for the 2010 Commonwealth Games.

Improvement of infrastructure is one area where Governments worldwide have often resorted Public-Private Partnerships. Examples related to such infrastructure development linked to sports are also not rare. In preparation for the 2010 Winter Olympics in Vancouver and Whistler the Government of British Columbia has resorted to PPP. Examples of projects in the region include highway construction projects and the building and operating of health care facilities. The private partner’s tasks are design, construction, finance and operations with minimal involvement by the government. The private entity earns returns through use fees or other revenue-generating or expense recouping features over a period of 25-40 years. Although such projects are very long-term and require heavy investment, the private partner receives a long stream of steady cash-flows and also earns new business opportunities.

Similarly, there are examples of private partners building and operating stadia as part of a PPP project. One notable example is the 90-feet tall Rice & Arlington Sports Dome in St. Paul, Minnesota. Inside Sports, a St. Paul-based company initially formed for building the dome, leases the facility and manages its day-to-day operations. Soon after opening, several softball, soccer, and baseball leagues were formed to play in the new dome. The dome was also used for private lessons, clinics, parties, and batting practice. Thus not only did the private entity earn a steady source of cash-flows, the new structure was a boon to the development of a culture for sports which otherwise would have struggled to develop.

These are but instances of ways that have the scope of improving the current status of how sports are treated in India. Such investment in sports-related infrastructure will imbibe a sport-centric culture, identify new talents and allow them to grow to meet international standards. Although the impact of such investments can’t be realised in the immediate future, but in the long-term this seems to be the most feasible option that is available. Also, PPP seems to be the most secure, fast and cost-effective way of such infrastructure development given the low levels of investment and involvement that the Indian government has traditional shown towards sports.

A BUDGET FIVER – thumbs up to Pranab da..!

Well, Well, Well….If it isn’t that time of the year again!! The Finance Minister has just presented the 2nd budget of his reign and everyone queues up for their share of the sops. It’s not quit the rain of blessings that we have come to expect from the UPA government over the last couple of budget presentations, rather a more balanced and well thought out effort on the most. Let me focus on the more positive aspects of the budget, for it is always difficult, nay impossible to please everyone all the time.

  • First, the return to fiscal responsibility; the government has tried to return to the path suggested by the 13th finance commission on the FRBM front on two accounts. One, to include the oil bonds and fertilizer bonds in the overall deficit accounting calculations, and second by eliminating bond-based subsidies going forward and reverting to ‘cash-only’ method of subsidies. The first measure presents a true picture of the overall deficit (as opposed to the under-reported figure in the earlier practice) and the second measure promotes a higher level of fiscal propriety – expenditure tends to pinch you more when its cash straight from your wallet rather than mere promissory notes (bonds !?) The government proposes to bring down total deficits to around 5.5% of GDP and a further roadmap of 4.8% and 4.1% in subsequent years – a critical development keeping in mind the sovereign debt crises engulfing the major European economies such as Spain, Portugal and Greece. This will in turn lead to greater confidence in Indian markets, increasing the FDI and FII inflows (compensating for the current account deficit) as well as help out with the burgeoning import bill for Oil imports and heavy capital equipment required for the building of infrastructure in the country (although the appreciating currency will be bad for exports – the above effects will compensate….I guess the exporters will have to focus on improving business efficiency to give them the competitive advantage…not too bad a side effect eh! J)
  • Second, the thrust on infrastructure development with almost 46% of the total planned expenditure being spent on various infrastructure development schemes. All this infra-spending will lead to stimulus for sectors such as steel, cement, hardware and their associated industries upstream and downstream and allow the country to accelerate its rate of growth in the future by providing the basic amenities required for leveraging the growth momentum. This, along with the ‘progressive’ (pay based on ability to pay) direct taxation regime will prevent unnecessary over-heating in the economy, the signs of which are showing their ugly heads in the form of high inflation rates and excessive dependence on the service sector.
  • Thirdly, shifting to a more progressive direct taxation regime by increasing the taxation slabs. This will not only leave more spending power in the hands of the people, it will leave spending power in the hands of the ‘right’ people. Its very similar to the ‘income effect’ in the classical theory of demand. The majority of people falling in the affected slab-group are the burgeoning young middle class with more appetite for consumption. With a reduction in taxation, the effective ‘real’ income of the youth rises, for every rupee left in the hands of the youth, a major proportion is going to be spent on goods and services and the accompanying trickle-down effect ensures that the wheels of the economy keep turning. The alternative to letting the people spend, is to let the government mop up disposable income and spend on behalf of the people – but the inherent inefficiency associated with government spending in terms of cost of tax-administration, leakages, corruption, red-tapism and time-delays in fund disbursal, etc mean that there is a significant lag before the government spending takes effect, as opposed to the faster and more efficient way of private consumption expenditure (although allocative efficiency in terms of where the money ought to be spent is a completely different matter as you cannot stop individuals from spending on undesirable commodities!)
  • Fourth, the recapitalization of the banking system, especially the rural banking system and the thrust on RRB’s will not only help develop the rural and agrarian economies but also indirectly provide a thrust to the growth momentum. The entire process behind the macro-economic move translating to micro-economic stimulus is ingenious in its operation. With cheaper credit available to rural population and self-help groups, they have more avenues of adding to their agricultural income such as trading in spices, local jewelry, vermi-compost farming, poultry farming, brick-manufacturing, etc. This not only allows the village economy to thrive but raises their standard of living making growth more inclusive. The self-help groups also put pressure on the village members to pay back the loans and this peer-pressure ensures a level of financial propriety in the micro-finance system. Also, notice that these are marginal income group people and their marginal propensity of consumption is very-very high and hence every rupee of their income will lead to a greater factor of growth (the multiplicative factor being [1-MPC]) further strengthening the growth momentum.
  • Fifth and finally, I must conclude with what I perceive to be the major disappointment of the budget. No, it is not the raising of indirect taxes and partial withdrawal of the stimulus package, nor is it the raising of import duty (and excise duty) on petroleum products – although it could prove inflationary in the short run. Favourable movement in exchange rates as discussed above could mitigate this impact and coupled with steps to counter speculation in food products could help in bringing down the inflation in these items. The major worry for me, was the absence of financial and insurance sector reforms. This was the second budget for this government, and a golden chance to further de-regulate the business environment as well as make India a better place to conduct business was missed. Generally in the fourth and fifth budget of its tenure, the measures are more populist in nature as the government tries to strengthen its voter-base before the impending elections. It is the second and third budgets where the government has a chance to take some tough decisions as it knows it still has a few more years in power yet. Although the government may be given the benefit of the doubt on this count as this time the priority was fiscal consolidation and maintaining the growth momentum while simultaneously managing the inflationary expectations.

~Abhay Bhaniramka

Abhay Bhaniramka (CA and CS inter) has done his business management (Finance & Economics) from XLRI, one of the top B-Schools of Asia. He works with the management of Tata Steel, strategic finance group, and focuses on financial planning. His hobbies include soccer (ManUtd), blogging and playing chess.