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When the general price level rises in a country because of the rise in prices of imported commodities, inflation is termed as imported. India imports about three quarters of its total crude oil consumption. Therefore, if the oil prices go up in the international market, inflation in India will also go up due to higher prices of the petroleum products. Fuel and power has 14.91% weightage in the Wholesale Price Index in India. However, it is not always necessary that only rise in the price of a traded commodity in the international market fuels imported inflation. Inflation may also rise because of depreciation of the domestic currency. For example, if the rupee depreciates by 20% against the US dollar in a particular period, the landed rupee cost of oil will also go up by the same proportion and will affect the price levels and inflation readings. The fluctuation in global commodity prices works both ways. In fact, it is argued that low-priced exports from China resulted in low inflation over the years in the developed world, which allowed central banks such as US Federal Reserve to keep interest rates low for too long leading to an asset price bubble in the real estate market. The policy response Should central banks react to inflation going up or coming down because of price movement in the globally traded commodity? It is prudent on the part of the central bank to take imported inflation into account in policymaking as it affects the inflationary expectations in the country. RBI raised interest rates when oil prices were rising before the financial crisis of 2008. The Federal Reserve also raised interest rates in the 1970s to fight inflation when it was primarily driven by rising energy prices in the international market. If the central banks decide not to intervene because of the imported nature of inflation, inflationary expectations will drive prices to much higher levels at which the central banks may lose control of the situation.
rise in public debt is not always a bad thing. will leave so much little for the private sector to borrow for investment. The current debate In an influential paper in 2010. recently found that Reinhart and Rogoff have made calculation errors and the finding does not hold. noted that the median growth of a country begins to fall after public debt reaches the threshold level of 90%. In case the government runs a deficit on a regular basis and keeps borrowing to finance its expenditure. . the cost of money will go up. average (mean) growth rates are several percent lower. noted: “A higher public debt-to-GDP ratio is associated. Interestingly. A working paper. The money that government owes is known as public debt or national debt. Higher government expenditure will generate demand and help revive economic growth. The implications A higher level of public debt can lead to a number of negative consequences. two economists who published the 2009 best seller. published by the European Central Bank in August 2010 that analysed the impact of government debt on growth in 12 euro counties. on average. which could affect its other development commitments. Higher public debt also means that the government will spend a large portion of its budget on interest payment. Reinhart and Rogoff are not the only ones to have arrived at such a conclusion. There is a chance that government increases its spending in an environment of general economic slowdown. “Our main result is that whereas the link between growth and debt seems relatively weak at „normal‟ debt levels. it keeps adding to the total stock of debt. referred to as debt to GDP ratio. However. Higher borrowing by the government. median growth rates for countries with public debt over 90% of GDP are roughly 1% lower than otherwise. With competition in the debt market. Higher interest rates will affect investment and consumption and will result in lower growth. The total stock of public debt of a country is normally expressed in terms of its size of the gross domestic product (GDP). This Time Is Different: Eight Centuries of Financial Follies. However.What is public debt? The government in any country borrows from the market or other sources in order to bridge the gap between its revenue and expenditure.” The bottom line Although the jury is still out on the subject. for example.” Reinhart and Rogoff noted in the paper. it makes more sense to be prudent and restrict government deficit and the stock of public debt at comfortable levels as high debt normally affects market confidence and induces financial instability. with lower long-term growth rates at debt levels above the range of 90-100% of GDP. Carmen Reinhart and Kenneth Rogoff. The findings became a major tool in the hands of those in the developed world who want governments to cut expenditure and bring down the level of debt stock. researchers at the University of Massachusetts. Amherst.
It will also affect other domestic industries as imports will become cheaper. it is normally associated with new-found natural resources. . extraction and production of natural resources such as oil and gas is capital intensive and does not require a large number of people. This could displace people in different industries and affect employment and income. and there have been a number of studies on the subject ever since. the state can make investments in order to develop sectors. In such situations. Peter Neary in their paper: Booming Sector and De-Industrialisation in a Small Open Economy (1982). suppose India finds large quantities of crude oil near its shores and. Also. even though the national income would be going up because of the rise in oil exports. it will result in higher supply of domestic currency and would be inflationary. presence or new findings of natural resources is no guarantee to prosperity. Max Corden and J. Dutch disease is basically a condition when exports in one sector affects activity in other sectors. It can carefully choose to allow higher imports without causing too much damage to the domestic industries. Dutch disease can be avoided with the help of a carefully crafted policy. For example. A similar story played out in Netherlands in the 1960s when it found a large amount of gas in the North Sea. other things being equal. instead of being a large importer of crude oil. Its exports started affecting other sectors as the currency appreciated. becomes a large exporter. India will earn a large amount of foreign exchange. if the central bank intervenes to buy foreign currency. Can it be avoided? The Dutch disease was first modelled by W.What is Dutch disease? This term was first coined and used by The Economist in 1977. So loss of employment and its impact could be far bigger than the gains from exports. Foreign currency inflow. Therefore. If it also tries to absorb the excess liquidity by issuing bonds. which are not tradable. will result in appreciation of the Indian rupee and start affecting exports from other sectors as they will become uncompetitive because of the expensive rupee. For example. Naturally. it will raise interest rates and attract more flows.
In the 2013 Finance Bill.017% of the premium and on buying options you pay 0. STT will be included in the purchase price itself and the cost will increase by the amount of the tax. where redemptions happen at the counter the new rate is . 0. you will now pay 0. the existing rate of securities transaction tax (STT) is proposed to be changed. This tax was introduced in the Union budget of 2004 and was made effective from 1 October 2004.017% to .1%. The rate applicable on delivery-based transactions is different from intra-day transactions. STT on equity transactions for delivery remains at 0.025% on the turnover.1% is charged on the turnover.001%. STT is believed to reduce the inflow of speculative money in the equity market. For equity intraday trades.1% STT is charged on the turnover (total number of shares multiplied by the per share price). This also means that your stock broker or MF will pass this amount to the taxman.01% of turnover. STT is mentioned along with other charges on your equity contract note or on the MF transaction slip. .001% on redemption. This means. if you are buying an MF unit or a share of a company. The thought behind introducing this tax was to ensure that profits arising from transactions in securities are taxed at source and evasion of tax is minimized. Similarly. Apart from that. For sale of these shares. On mutual funds (MFs) and exchange-traded funds (ETFs). What is STT? It is a tax levied on the sale and purchase of securities on stock exchanges in India. The current rates For purchase of delivery-based equity shares.1% to 0. STT is included in the price of the security at the time of transaction. Globally. The rate is set by the government and depends on the type of security and whether the transaction is a purchase or a sale.01%. but on sale you pay 0. How do you pay it? Typically.125% settlement price at the time of exercise. there is no STT on buying.001% as opposed to the earlier 0. On selling options you have to pay STT of . On equity futures transactions the STT applicable is at the time of selling at a rate of . The proposal is to reduce the existing rate of STT on equity futures from . there is resistance to such a tax as individual investors feel that they are unduly burdened to cater for speculative trading practices in which institutional investors indulge. For equity MFs. STT is deducted at source by the broker or the asset management company (for MFs).25% and where transactions happen on the exchanges the applicable rate has changed from 0. at the time of sale. 0.
Similar to the services PMI. hence. responses are taken from monthly questionnaires sent to purchasing executives of around 500 manufacturing companies. personal services. employment index. which is done quarterly.5 weighted or half of those responses reporting no change. deterioration or no change. the PMI is used to gauge the level of confidence or sentiment among those who are part of the industry as opposed to an outside analyst evaluation. no change 0. financial intermediation. Is this relevant? The indices are considered lead indicators or forward looking representations of economic activity in a particular sector. Responses are weighted according to the size of the company and as per the proportion of the total services sector output contributed by the industry or sub sector to which the company belongs.Purchasing Manager Index The India Services PMI includes six industries in the sector—transport and communications. A level of 50 reflects no change in activity for the segment and an index reading above 50 indicates an increase in activity. computing and IT and hotels and restaurants. Weights are then assigned to the percentages. each index is a sum of the positive responses plus 0. improvement is given a weight of 1. In case of the Manufacturing PMI. the final index is a composite index that reflects five individual indices in pre-determined weights. business services. Analysts then look upon this number to interpret economic and financial market activity . output index. A survey questionnaire is sent to specific companies in each industry every month. suppliers delivery times index and stock of items purchased index. one can get a sense of growth in earnings linked to economic activity ahead of the actual reporting. These five are: new orders index.5 and deterioration a weight of 0. However. anything higher shows a growth in activity and anything lower is akin to slowdown in activity. The survey is conducted monthly. This is done in such a way that a level of 50 says that there is no change in activity. The results essentially show what percentage reported an improvement in activity. Mostly. The companies and the final panel of purchasing managers chosen are spread out across the country and are based on industry contribution to the overall gross domestic product.
What is the platform? Firstly.5 crore and multiples.1 crore and Rs.1 crore. SEBI issued new guidelines for debt trading on exchanges. . investors can come through registered broker members and attempt a trade. If liquidity is not built. The National Stock Exchange (NSE) is the first to launch a dedicated trading platform for corporate bonds. So far trading volume is low and only once trading is regular. Institutional investors as of now don‟t have a settlement guarantee. Institutional investors such as mutual funds and insurance companies can trade in lot sizes of Rs. The advantage for retail investors comes from the transparency in pricing of bonds and the small transaction size which can be undertaken. Here are some features of the recently launched segment on NSE. It is essentially like a central meeting point for institutions or corporates who issue these bonds and investors who buy them. you will receive your money from selling securities or bonds within a period of two days.There’s a dedicated debt segment on NSE In January this year. Settlement guarantee for institutional investors is not present at the moment and its introduction may help in further developing the market for direct trades through big investors such as mutual funds and pension funds. we will know if this latest attempt at bringing depth to the bond market will work. which means that the clearing corporation. there is a settlement guarantee. So. The lot size for a retail investor is as low as one bond up to an upper limit of Rs. Once a bond is listed. The settlement for retail investors will be on T+2 basis and for institutional investors it will be on T+1 basis. This is 10% (of the trade value) in case of securities with a rating of AA or above and 25% for all other securities. regardless of size of transaction and with the ease of execution through an exchange. As a result there is a margin requirement which you have to maintain through your broker. Margin requirement For retail investors. conforming to the guidelines. guarantees settlement or pay out in case for transactions from this category. NSE has two separate platforms for retail and institutional investors. it may take some time before bonds are traded in small quantities which aids retail investors. among others. there is no uniform margin here and its applied on the basis of settlement as per Sebi guidelines. Mint Money Take The use of this platform by institutional investors is what will help develop the depth and aid the liquidity growth. With the new guidelines for a dedicated debt segment on stock exchanges. SEBI hopes to make this part of the market more liquid and transparent. National Securities Clearing Corporation Ltd.
Unfortunately.Agflation An increase in the price of food that occurs as a result of increased demand from human consumption and use as an alternative energy resource. This creates more demand for these products. . Furthermore. While the competitive nature of retail supermarkets allows some of the effects of agflation to be absorbed. these price increases spread to other non-fuel related grains (such as rice and wheat) as consumers switch to less expensive substitutes for consumption. manufacturers need to use food products such soybeans and corn. which causes their prices to increase. The term is derived from a combination of the words "agriculture" and "inflation". agflation will also affect non-vegetative foods (eggs. Interest in alternative energies contributes to agflation. meat and dairy) as the price increases for grain will make livestock feed more expensive as well. In order to produce biofuel (such as biodiesel and ethanol). the price increases that agflation causes are largely passed on to the end consumer.
5% of a company‟s equity shares. look at block and bulk deals as investment cues. Sebi also states that a block deal is a single transaction of a minimum quantity of 500. However. has to provide details of the trade to the stock exchanges whenever it happens. did you know that there is a difference between the two even though the terminology used may seem to mean the same? Bulk deals A bulk deal is said to have happened if a single investor in a single or multiple transactions has either purchased or sold more than 0. Who can go for such deals? Taking into considering the percentage of shares and the amount required to carry out such transactions. This window is open for only 35 minutes. Block deals A block deal happens through a separate window which is provided by stock exchanges. retail investors cannot participate in such transactions. The broker. the share price go up or down.000 shares or a minimum value of Rs. financial institutions. A block deal happens when two parties agree to buy or sell shares at an agreed price among themselves. A bulk deal can be done any time within the trading hours. banks and foreign institutional investors. Promoters also use this window to deal with issues related to cross-holding. The Securities and Exchange Board of India (Sebi) rules state that block deal orders should be placed for a price not exceeding +1% to -1% of the previous day‟s closing or the current market price. . Bulk deals are market driven. However. insurance companies. even retail participants. What does it mean for an investor? It is often seen that investors. one should keep in mind that a block or bulk deal in a particular scrip doesn‟t necessarily mean that the stock price of the specific stock will increase. It is institutional investors who participate in these transactions.Block and bulk deals happen regularly on stock exchanges. who facilitates the trade. You would have noticed that due to such transactions.5 crore and is done between two parties. These include mutual funds.
In April. The stock exchanges advice trading members to take “adequate precaution” while trading in these scrips “as the settlement will be done on trade-to-trade basis and no netting off will be allowed”. effective 19 July. transferring scrips on a trade-to-trade settlement basis and so on. Some of these stocks include Kingfisher Airlines Ltd. price variation vis-a-vis market movement. The exchanges have a price monitoring cell that detects potential market abuses (such as unwarranted volatility or speculation in scrip) at a nascent stage to reduce the ability of market participants to unduly influence the price of the scrips traded. BSE had shifted 104 scrips. For instance. BSE has moved 62 scrips and NSE has shifted 36. Reliance MediaWorks Ltd. volume variation. A stock moved to this category can be moved back if it is found on review that there is no manipulation happening in that counter. The cell takes surveillance actions such as reduction of circuit filters. These stocks are reviewed at periodic intervals (fortnightly and quarterly) based on market capitalization. Why does the transfer happen? According to a release by BSE. or the trade-to-trade group. . no speculative trading is allowed and delivery of shares and payment of consideration amount are mandatory. And on 2 July. the exchange transfers various scrips for settlement on a trade-to-trade basis. as part of a surveillance measure. number of non-promoter shareholders and so on. it had shifted 35 scrips.Trade-to-trade category BSE Ltd and the National Stock Exchange (NSE) on 15 July moved some stocks to the restrictive trading category. United Breweries (Holdings) Ltd and Varun Industries Ltd. the stocks recently moved to the restricted list on the BSE will have a price band (or circuit filter) of 5% within which the share price can move. KS Oils Ltd. These stocks will have a reduced circuit filter. volatility. What happens in this segment? In the trade-to-trade segment. price-earnings multiple. So it is not an one-off thing. imposition of special margin.
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