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The Rupee to USD value will hover around the 75 mark in the short run. As economist Jayathi Ghosh rightly termed, the Indian economy is like “a house of cards.“ The U.S Federal Reserve plays with the fan switch The recent announcement by Fed Chief Ben Bernake about the tapering of QE has left the developing economies around the world in shambles. Speculating the beginning of the end of the massive bond buying program during the Federal Reserve’s September 1718 meeting has sent stock markets into the doldrums This storm has knocked the rupee down almost 25% in two months The Rupee’s value is also fluctuating because of our weak fundamentals and the capital flight in the form of FII’s and FDI’s of around 3 billion USD. This is due to the policy paralysis and land acquisition issues the country battles Because the QE taper has already been factored in for this sudden and substantial decline. The market sentiment has already reacted to the QE taper. It is highly unlikely for the Rupee value to hit 80 Another factor is that the Food security Bill will be implemented soon enough. The Bill will keep the domestic demand for foodgrains high thereby increasing imports due to focus on wheat and rice and not the cash crops. Constant trading in the Non Deliverable Forwards has degraded the rupee. The Syrian Oil Crisis may also cause a surge in the oil prices. Our import bill comprises of food and fuel. Two of the most essential commodities that can’t afford to be any reduction in import quantities. But the stances to curb gold imports is admirable and may reduce the widening CAD to an extent.
In the medium term, the Rupee will fluctuate at Re.70. By then Dr.Raguram Rajan would have come into power, worked his magic and charmed the Indians with his new policies and his foreign accent. Dr.Raguram Rajan has already been appointed as a panel member in a committee that will discuss enhancing domestic oil and gas production. With India sitting on 527 trillion cubic feet of shale reserves we could be looking at shale as a new fuel source. Thereby reducing our depends on crude oil that has increased from 5500 Re per barrel to 7000Re per barrel. The markets will start to look up because of new reforms and policies that Dr.Rajan brings to the table. The excitement about the new shale gas reserves may suddenly induce capital influx. Another important factor is the rain gods have been generous this year and the monsoon harvest plentiful. But the results will be seen only in the second quarter of the current fiscal year.
Finally, the Fed may plan on pushing back QE tapering because of the recent Syrian Crisis. The world is awaiting a US invasion into Syria. If QE taper is postponed we are less likely to see a market crash and the Indian economy has ample time to cushion the blow it will likely receive through the impending QE taper. In the long term, the Rupee will stabilize at Re.65 In the years to come, the Government will take a stand to aggressively curb the widening CAD by improving the exports. The country may also face serious structural reformations. There is a strong chance for the revival of the manufacturing sector under Dr.Raguram Rajan’s influence. India is a fundamentally weak economy that boasts of a growing IT sector but with an obvious lack of a manufacturing sector. Currently it takes 2.52 Re lacs to produce a container which can imported from China at 1.7 Re lacs (inclusive of import duty and charges).This is the reason for the increased imports which ultimately widens the CAD. Owing to the above factors and lack of demand, the Industrial output has fallen by 2.2 percent . The rupee will fall and find it’s own way. The Indian Government needs to focus on developing infrastructure and removing the policy paralysis conditions. “Hot Money” in form of FDI s and FIIs will come sailing in when we fix these issues. And ,fingers crossed we will be able to upgrade our sovereign rating to something above the dreaded BBB- that is imprinted on us.
2.Out of the companies mentioned in the RSDT report, pick any one company that is affected by global scenarios. Explain how it’ll be affected positively and negatively by Indian and global factors such as the Re. falling, Indian interest rates rising, dollar strengthening, Sensex falling, Eurozone stabilizing etc. You could begin this answer by quickly summarizing the profile of this company, its products/ services and its global exposure.
Wipro is a global leader in providing IT services, outsourced R & D, Infrastructure services and Business consulting.It is one of the pioneers of the offshore development centre (ODC) model that propelled the growth of the Indian IT services business to a global scale. Wipro demerged the Diversified Business in March 2013, to focus solely on Information Technology. Azim Premji has been turning revenues of over 6.9 billion and the company has it’s presence in 57 nations. The Rupee Depreciation has had an overall positive impact on the IT sector.The Sector is primarily export driven and hence with falling rupee levels export has been stimulated
The surge in interest rates do not affect such companies as they are primarily zero debt companies and they have no fixed assets to finance like in the case of manufacturing companies Hence they have no borrowings and therefore are not impacted by surge in the interest rates. Regardless of the black Fridays the stock market has seen, the IT stocks have reacted seemingly indifferent to falling stock prices The share prices of Wirpo Limited have been increasing steadily. IT stocks are the hot pick this Rupee fall. With Europe beginning to look up, Wipro has just acquired a 200million USD technology contract. The deal, described as a "strategic partnership" to provide information technology infrastructure to a European telecom equipment-maker, is spread over five years. It will also give innovation support to the company's research and development. There is positivity and growth of a potentially untapped market
The appreciation of the USD has led to higher stock prices for companies such as Wipro The reason is simple: the total foreign exchange earnings of these firms are far greater than their forex spends. The more the rupee falls, the more these companies gain, other things remaining constant.
3.What in your opinion can the new Government (which will come in some time) do to strengthen the fundamentals of India? I am talking about the ” Government” and not a particular political “party”, though you may want to ideate on how different parties may look at the issue differently. The country is looking at an “ old wine new bottle scenario” . There are striking similiarities to the economic conditions back in 1991.The government needs to devise a plan as under if they want to being the country’s progress back on track Need for transperancy : India, the global software power, should be the global leader in ensuring transparent e-governance. We do not need technology from outside, we just need the will to change age-old and opaque processes. The Government needs to make its demand for this change loud and clear. Need for innovation and research The future belongs to technology. There is a need to develop technologies that suit us. Research in frontier areas of science and technology should become a national priority. There are innovators at every level in India. Quite often their work goes unnoticed. They can make a difference to our lives. The Government needs to create a simple and useable platform for them to collaborate. All of us cannot be innovators, we must become adept at adopting innovations. Care for the environment. While we are in a hurry to grow faster, we often forget concerns of sustainability. Our ability to sustain our resources over a longer period is key to our growth. And it’s a critical issue the Government must look into Equality : There are many in India who are poor and disadvantaged, mostly for reasons beyond their control. While policy interventions need to take care of those, to ensure that they do not feel left out, be it the economically weaker sections, women or socially or educationally backward classes. Release the energy of India's youth to generate growth and prosperity : Look at the educated young man or woman in India today. There is a new level of confidence, a confidence to take up a challenge to better the best in the world, provided they are supported with education and infrastructure. They are willing to work extra hours, learn new things, and innovate. It is this confidence and the attitude of "we can do it" that is India's most valuable capital today. The Government needs to support this with the best quality education, infrastructure and training and research facilities, be it in the private or public sector. Most of these youngsters are above the issues of caste, region, language or religion. They are focused on their careers and their growth, which will in turn be India's growth.
Get the infrastructure right. Young India is impatient, and rightly so. They want to get going. Inadequate infrastructure, whether it is physical or social, is holding them back. Roads, power, basic services like water and sanitation, social infrastructure like healthcare, education need urgent attention if we want India to grow. Many of these could come through private sector investment, innovation and efficiencies. The government will still play a major role both in terms of providing funds, encouraging investments and ensuring regulation. Instead of focusing on ownership issues, we need to focus on quality and cost of services Increase trade with it’s neighbours : Indian exports have not been able to rise to the occasion with falling rupee levels. Our exports to China will reach 1 trillion USD by 2050 but we have no or very little trade with Bangladesh and Pakistan.T he Government needs to use measures to improve this and tap into various markets Instead of implementing schemes such as the Food security Bill the Government can provide people below the poverty line with subsidized yet consumable food grains.This allows people to have access to quality food grains at competitive prices Innovations in farming : Agriculture contributes a majority to the Indian GDP. But with erratic monsoon weather the country sees falling levels in agricultural output.The Government needs to aggressively look into new innovations to help farming .Thereby improving our overall GDP.
4.Write what went wrong with Greece in 2008-09 and summarize how the European economies are trying to tackle the issue. Our story begins in 2001 when Greece joined the EU , adopting a single currency and now party to finance cheap debt capital . As a nation Greece began borrowing over and above their limits, Financial leverage per se. The government spending was an appalling 12.9% of the country’s GDP(Almost 4 times more than any other EU nations 3 % limit) Because of the problem of a socialist structure Greece was heavily investing in it’s public sector, which began failing because of the situation of policy paralysis in the country This increased their further cost of financing future capital due to fear of inability to repay their previous dues In the wake of the crisis the public debt had reached 126% of the GDP Credit rating agencies who had previously warned Greece of this impending danger downgraded the country to lowest among EU nations, dipping investor’s confidence even lower In 2010, Greece announced austerity measure to convince the rating agencies And the EU godfather the ECB and the world’s rich uncle : the IMF introduced bailout packages of 240 billion euros The economy now had to reduce tax revenues to repay it’s debt Banks began failing. Unemployment rose to 25 % and the infamous Greek riots lead to fall of the Greek economy Statistics show by 2012, the debt rose to 175 % of the country’s GDP Economy wasn’t as fundamentally strong as France and Germany that derived it’s revenues from exports Greece was backed by it’s tourism and shipping industry which had taken a beating at the wake of the crisis If Greece were to leave EU it would have a cascading impact on the investors and other EU countries Taxes will increase by 3.38bn euros in 2013, following a 2.32bn euro increase in 2011 The increase includes a solidarity levy of between 1% and 5%, a cut in the tax-free threshold, a rise in VAT rates, and luxury taxes on yachts, pools and cars In the public sector, pay will be cut and many bonuses scrapped Some 30,000 public sector workers are to be suspended, wage bargaining will be suspended and monthly pensions of above 1,000 euros cut by 20%. The government also aimed to raise about 50bn euros by 2020 from privatisations by selling land, utilities, ports, airports and mining rights, but recently this target has been revised down substantially because of the worsening economy. The Euro is sitting on a ticking timebomb . The chances of Greece defaulting puts the entire ECB in the jeopardy as a large portion of the ECB’s debt has Greece’s name on it
The US a major contributor to the ECB’s funds, will also be affecting if the Greek economy defaults per se Greece has reduced trade barriers to provide a stimulus for growth and trade thereby reducing it’s deficit balance The OECD boasts of the chance of revival of the Greek economy thanks to the austerity measures The country has adopted the commission on growth and jobs. Jose Manuel, President of the European Commission, believes that if properly implemented Greece could unlock growth and jobs would open up for Greece and Europe as a whole