India Economy Thread II

[afako]

Originally Posted by MeMumbaikar

rupee has been in decline for a long time now.

quite frankly exports should have risen by now. Its nearly 6 months since the rupee is at 55 to the usd (or around that region)

The Real Reason is the $10-$20 Billion the delhi thugs poured down in NREGAs since 2005, A $10 Billion could get you 1000 Km 8 Lane Expressway connecting entire UP. Unless and unless you build a Highway Network like US Interstate System and Ports Infrastructure to berth 500,000 DWT Ships, you can never achieve the Economies of Scale of Mass Industrialization.

[karkal]

Rs 600/month enough to feed family of 5: Sheila Dikshit

http://timesofindia.indiatimes.com/i...w/17631343.cms

[generalmaximus]

I found this article on www.investopedia.com that discusses the 6 determinants of a country's exchange rate relative to another. A few notes. While in theory it is possible to analyze the effect of one variable effecting the exchange rate ceteris paribus (holding all else constant) in reality these factors interact in the market making it difficult to predict where exchange rates are headed, or how central banks can influence them. Most industrialized countries have focus primarily on inflation targeting or interest rate manipulation to indirectly effect the exchange rate rather than direct manipulation these days. Here is the article.

"July 23 2010| Filed Under » Bonds, Economics, Investing Basics
Aside from factors such as interest rates and inflation, the exchange rate is one of the most important determinants of a country's relative level of economic health. Exchange rates play a vital role in a country's level of trade, which is critical to most every free market economy in the world. For this reason, exchange rates are among the most watched, analyzed and governmentally manipulated economic measures. But exchange rates matter on a smaller scale as well: they impact the real return of an investor's portfolio. Here we look at some of the major forces behind exchange rate movements.

Overview
Before we look at these forces, we should sketch out how exchange rate movements affect a nation's trading relationships with other nations. A higher currency makes a country's exports more expensive and imports cheaper in foreign markets; a lower currency makes a country's exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country's balance of trade, while a lower exchange rate would increase it.

Determinants of Exchange Rates
Numerous factors determine exchange rates, and all are related to the trading relationship between two countries. Remember, exchange rates are relative, and are expressed as a comparison of the currencies of two countries. The following are some of the principal determinants of the exchange rate between two countries. Note that these factors are in no particular order; like many aspects of economics, the relative importance of these factors is subject to much debate.

1. Differentials in Inflation
As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies. During the last half of the twentieth century, the countries with low inflation included Japan, Germany and Switzerland, while the U.S. and Canada achieved low inflation only later. Those countries with higher inflation typically see depreciation in their currency in relation to the currencies of their trading partners. This is also usually accompanied by higher interest rates. (To learn more, see Cost-Push Inflation Versus Demand-Pull Inflation.)

2. Differentials in Interest Rates
Interest rates, inflation and exchange rates are all highly correlated. By manipulating interest rates, central banks exert influence over both inflation and exchange rates, and changing interest rates impact inflation and currency values. Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise. The impact of higher interest rates is mitigated, however, if inflation in the country is much higher than in others, or if additional factors serve to drive the currency down. The opposite relationship exists for decreasing interest rates - that is, lower interest rates tend to decrease exchange rates. (For further reading, see What Is Fiscal Policy?)

3. Current-Account Deficits
The current account is the balance of trade between a country and its trading partners, reflecting all payments between countries for goods, services, interest and dividends. A deficit in the current account shows the country is spending more on foreign trade than it is earning, and that it is borrowing capital from foreign sources to make up the deficit. In other words, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate until domestic goods and services are cheap enough for foreigners, and foreign assets are too expensive to generate sales for domestic interests. (For more, see Understanding The Current Account In The Balance Of Payments.)

4. Public Debt
Countries will engage in large-scale deficit financing to pay for public sector projects and governmental funding. While such activity stimulates the domestic economy, nations with large public deficits and debts are less attractive to foreign investors. The reason? A large debt encourages inflation, and if inflation is high, the debt will be serviced and ultimately paid off with cheaper real dollars in the future.

In the worst case scenario, a government may print money to pay part of a large debt, but increasing the money supply inevitably causes inflation. Moreover, if a government is not able to service its deficit through domestic means (selling domestic bonds, increasing the money supply), then it must increase the supply of securities for sale to foreigners, thereby lowering their prices. Finally, a large debt may prove worrisome to foreigners if they believe the country risks defaulting on its obligations. Foreigners will be less willing to own securities denominated in that currency if the risk of default is great. For this reason, the country's debt rating (as determined by Moody's or Standard & Poor's, for example) is a crucial determinant of its exchange rate.

5. Terms of Trade
A ratio comparing export prices to import prices, the terms of trade is related to current accounts and the balance of payments. If the price of a country's exports rises by a greater rate than that of its imports, its terms of trade have favorably improved. Increasing terms of trade shows greater demand for the country's exports. This, in turn, results in rising revenues from exports, which provides increased demand for the country's currency (and an increase in the currency's value). If the price of exports rises by a smaller rate than that of its imports, the currency's value will decrease in relation to its trading partners.

6. Political Stability and Economic Performance
Foreign investors inevitably seek out stable countries with strong economic performance in which to invest their capital. A country with such positive attributes will draw investment funds away from other countries perceived to have more political and economic risk. Political turmoil, for example, can cause a loss of confidence in a currency and a movement of capital to the currencies of more stable countries.

Conclusion
The exchange rate of the currency in which a portfolio holds the bulk of its investments determines that portfolio's real return. A declining exchange rate obviously decreases the purchasing power of income and capital gains derived from any returns. Moreover, the exchange rate influences other income factors such as interest rates, inflation and even capital gains from domestic securities. While exchange rates are determined by numerous complex factors that often leave even the most experienced economists flummoxed, investors should still have some understanding of how currency values and exchange rates play an important role in the rate of return on their investments."

[karkal]

del

[karkal]

Gold-based financial plans to get a push to curb import

By KR Sudhaman, Sangeetha G. Dec 17 2012 , New Delhi/Chennai
Tags: Personal Finance

RBI has also proposed gold-linked funds similar to ETFs

With high gold imports being a major contributor to the deterioration in India’s current account deficit (CAD) after crude oil imports, the government has hinted at pushing for more and more gold-based schemes to encourage investors to join them without investing in the physical commodity.

The mid-year economic analysis tabled in Parliament on Monday said such gold-backed products would allow investors to gain the benefits of investments in the high-yielding commodity without actually investing in the physical commodity.

“Gold-backed financial instruments in the form of modified gold deposits and gold accumulation plans are being considered to reduce attraction of a direct investment in bullion and jewellery in the domestic market,” the mid-year analysis said.

These schemes included gold deposits, accumulation plans, gold-linked accounts and pension products.

However, gold-linked investments would have to be monitored to see whether the overall demand for the metal actually falls, it said.

India’s chief economic advisor Raghuram Rajan told reporters: “We are worried about gold imports. It is an unproductive instrument. The way to curb holding of gold is to create more attractive financial instruments. “Some gold linked instruments have been talked about by the RBI but potentially there could be other financial instruments to attract investment.”

The current account deficit has been rising on the back of record trade deficits that jumped in October to a 12-year high of $ 21 billion on the back of rising oil and gold imports. In 2011-12, the CAD was at $78.2 billion that was 4.2 per cent of GDP, much higher than the comfort zone of 2.5-3 per cent of GDP. This is expected to be brought down to $70.3 billion, 3.7 per cent of GDP.

Reserve Bank of India (RBI) has put up several curbs on gold purchases and financing as imports touched a record high last year. Gold imports stood at $60 billion at 1,067 tonnes in 2011-12.

There were signs of gold imports moderation that would help in narrowing current account deficit this year.

In the April-June quarter, gold imports had contracted by 18.4 per cent year-on-year to Rs 71,912 crore ($13 billion). Banks have been coming out with schemes to attract gold investors from time-to-time.

“In the modified scheme, banks might get deposits in the form of gold coins or bars. This would probably be supplied to gold funds like ETFs. The interest could be added in the form of gold and returned at the end of the tenure,” said Anil Rego, CEO, Right Horizons.

In this way, the idle gold with individuals, trusts or other institutions would continue to grow. The ETFs too can cut their imports by procuring gold available domestically. At a fixed interest rate, the product would be suitable for risk-averse investors. “Getting back principal and interest in the form of gold should lure the investor,” said Rego.

Gold pension plan will most probably work like reverse mortgage schemes. This mainly targets senior citizens who would like to have a regular income from their asset. Customers can mortgage their gold with a service provider and receive regular pension.

Reverse mortgage schemes have not been of much success in the Indian context till now. However, in case of gold pension plans, it could draw a little more investor interest for elderly people, as keeping gold at home is risky and using lockers carries a cost.

RBI has also proposed gold-linked funds similar to ETFs that will be operating outside the country. This will avoid import of physical gold. “There are several companies like Anglo Far East and American Estate and Trust that provide custodial service of precious metals for ETFs, gold funds, banks and individual investors. Indian financial institutions can use their vaults to store the physical gold overseas and operate the scheme in India,” said Rego.

Gold accumulation plan will most probably help an investor make systematic investments in gold. This could work very much like the gold fund of funds or gold savings plans. In this case too, the fund will be held overseas and the investors can benefit from the movement in gold prices.

Gold-linked account and gold accumulation plan will cater to the increasing investment demand for gold.

Arnav Pandya, certified financial planner, told Financial Chronicle that the basic principle is to free the gold locked-up in households and elsewhere by providing a regular income for it. The modified deposit scheme could lure people who buy bars and coins from banks. Banks do not buy them back and jewellers levy wastage and other charges. The old deposit scheme had promised a low interest rate and bonds, at that time, were giving much higher rates. The interest rates will be critical to attract the investor.

[karkal]

Only 14.6L Indians have income above Rs 10L; unrealistic, says FM

http://economictimes.indiatimes.com/...w/17680527.cms

Interesting to see how many of us (upper middle class) don't pay taxes.

[gentem]

that is mostly because of complications of income tax. there is exemption for car depreciation, home loan interest, food coupons etc etc. DTC should be introduced.

The target for collection of direct taxes for the current fiscal is fixed at Rs 5,70,251 crore, he added.

The Finance Minister informed the members that department had refunded Rs 57,000 crore till this time during the current fiscal against Rs 70,000 crore in the same period of the previous fiscal.

[engineer.akash]

Originally Posted by karkal

Interesting to see how many of us (upper middle class) don't pay taxes.

My feeling there are many who evade taxes on ssci, hypocrites basically...

[karkal]

IKEA to government: Reconsider bar on cafe and sale of certain products

http://economictimes.indiatimes.com/...w/17699168.cms

On the one hand we have allowed WM to do anything under the sun.....but put idiotic restrictions on IK....No hope with this bunch of jokers.

[harshkalra]

Originally Posted by karkal

IKEA to government: Reconsider bar on cafe and sale of certain products

http://economictimes.indiatimes.com/...w/17699168.cms

On the one hand we have allowed WM to do anything under the sun.....but put idiotic restrictions on IK....No hope with this bunch of jokers.

Ikea is coming to India with 100% stake. So they can only have products of a single brand. If they choose to have an Indian partner with at least 49% stake in the Indian operations then they will be allowed to open a cafe and sell other products. The ban is only on those products that are not of the Ikea brand.

Nobody is the joker here, they are following the law. And as per the law 100% FDI is allowed in only Single Brand retail not multi-brand retail, that is why WM will have Bharti as their partner.

[gentem]

havent u heard of ikea coffee? they dont sell ccd coffee. their own branded coffee they want to serve whats the problem? Ikea burger also they want to sell there for customers who come from far away for shopping. nice touch


http://sarahmarchildon.blogspot.in/2...-in-japan.html



115 cos still to meet holding norm
Promoters Of These Firms Need To Offload 26K Cr Shares By June ’13
Reeba Zachariah TNN

Mumbai: There may be still some time for companies to comply with Sebi’s minimum public shareholding norms, but data shows that only a handful of firms have met the rules, with most tapping the Offer-for-Sale (OFS) route. While Wipro took the restructuring path, Godrej Properties opted for the Institutional Placement Programme (IPP) and Westlife Development, parent of McDonald’s south and west India franchisee, is in the process of issuing bonus shares to non-promoting shareholders that would aid in complying with the 25% minimum public shareholding requisites.
There are some 115 companies where promoters are yet to pare their shareholding to 75% level, reveals New Delhi-based brokerage SMC Capital. Promoters of these companies will have to offload shares worth Rs 26,158 crore, according to current valuations. The rules have to be adhered to by June 2013, failing which action will be taken against the promoters by the market regulator.
In the last few months, Honeywell Automation, Blue Dart, JP Power, DB Corp, Reliance Power, Eros International, Hindustan Copper, ONGC and NMDC have taken the popular OFS route, while Adani Enterprises have announced OFS plans to increase public float.
So far, only the large companies have taken the OFS route, and this may not be the case for smaller companies, which may be forced to take the IPP route or other options, said Amitabh Malhotra, MD, Rothschild India, a UK-headquartered M&A advisory firm. “OFS is restricted to the top 100 companies based on average market cap of the previous quarter. Hence this method wouldn’t be available for most of the companies, particularly small and mid cap companies,” Malhotra said.
While private-sector firms have another six months to meet the deadline, state-owned units have more breathing time, which is August 2013. And unlike private sector firms, PSUs have to meet only 10% public shareholding level.
Some of the other options that companies could look at includes Follow-on Public Offer (FPO), rights issue and bonus shares. In case of rights and bonus issues, promoters have to let go of their entitlement. Market analysts argue that FPO makes sense for large issuances, while there are some who say a bonus issue scores over other methods as it is not dependent on market conditions. And a rights issue could be the preferred option for a company that requires capital, and since there is pricing flexibility, it becomes all the more attractive for non-promoting shareholders.
Sources said that a good number of companies have conveyed to Sebi that they would meet the changed shareholding norms. If companies fail to meet the June 30, 2013 deadline, then the possible legal consequences could be compulsory delisting, ban on promoters and companies from accessing the capital market and moving stocks to the trade-for-trade segment, which automatically bars day-trading in the counter.
Apart from the already listed ones, companies that have tapped the capital market for the first time, for instance, Bharti Infratel, will get three years from the time it gets listed to meet the new public shareholding norms.

[harshkalra]

Originally Posted by gentem

havent u heard of ikea coffee? they dont sell ccd coffee. their own branded coffee they want to serve whats the problem? Ikea burger also they want to sell there for customers who come from far away for shopping. nice touch


http://sarahmarchildon.blogspot.in/2...-in-japan.html



115 cos still to meet holding norm
Promoters Of These Firms Need To Offload 26K Cr Shares By June ’13
Reeba Zachariah TNN

Govt. officials have already made it clear that if there are restaurants and cafe for consumption inside the stores then there is no problem. But they cannot sell other brands, as clear as that.

[MeMumbaikar]

why the hell would you want to sell coffee in a furniture store?

[skdubai]

Originally Posted by MeMumbaikar

why the hell would you want to sell coffee in a furniture store?

In most ikea stores they have a restaurent which. that is just their setup in all the countries they set up in.

[MeMumbaikar]

i see

well considering furniture in india (atleast in mumbai) is ridiculously expensive, I think they can make a big profit.

Maybe they can have two things. Ikea restaurant next to Ikea furniture store.

[mihir1310]

Originally Posted by MeMumbaikar

i see

well considering furniture in india (atleast in mumbai) is ridiculously expensive, I think they can make a big profit.

Maybe they can have two things. Ikea restaurant next to Ikea furniture store.

Wont make any sense. The idea is to enable you to take a break while shopping. So you can literally take your shopping cart into the dining area and take your coffee, cinnamon buns or meals.

[MeMumbaikar]

hmm its going to be hard for them to operate then.......

maybe in india they can have only furniture.

[ssusa]

Their restaurant is not that great, at least in USA. Its just convenient for the shoppers who can eat before, during or after shopping. IMO their coffee is not that great neither if you compare with Starbucks or Dunkin Donut.

[Master of Disguise]

Ikea Bar is pathetic....I am sure people in India wouldn't like it....

However, Ikea furniture department might just work in India...they've some brilliant concepts

[MeMumbaikar]

well its cheap furniture

and a do it yourself attitude.


Furniture like i said in mumbai is shit expensive. Ikea will actually undercut local producers by quite a bit.