JULY'12

3yro|os|s Cerlre lor Varagererl

Leaders||p-Erlreprereurs||p 8-3c|oo|
MISSION
To become a Centre of Excellence for Global leadership and entrepreneurship, the standards of which
others are measured by.
VISION
To create leaders and entrepreneurs of tomorrow, their dedication to excellence, absolute.
SCMHRD was established in 1993. Ever since its inception, SCMHRD has strived to bring ndian ethos,
Management concepts and technological advances together in an effort to redefine the management
paradigm in the newage.
SCMHRD has successfully pioneered the implementation of Kaizen on campus. The practice helps in
keeping the campus clean and gives the students a feeling of ownership, inculcating in them a feeling of
belonging and camaraderie. The SCMHRDculture provides the students an environment that allows them
to think and reflect, to explore and express.
About SCMHRD
Leadership-Entrepreneurship B-SchooI
1
2 uoes fall ln Lhe8upeesum up LhepredlcamenL of Lhelndlan Lconomy? 3
3 lmpacL of CurrencyundervaluaLlon on LhemosL affecLed SecLors 6
41heCameof Currency 9
3 Lfflcacyof sLeps Laken byLhe88l Lo arresL Lheslldeof Lhecurrency 12
6uebaLe: Should lnLeresL raLebeeased? 14
7 Crossword 16
llnformaLlon 2
EDTORAL EDTORAL
Pello everyone,
ln Lhe lasL one year wehave seen a loL of acLlvlLy ln Lhe global economy as well as Lhe lndlan Lconomy. 1he
never endlng Luro zonecrlsls seems Lo haveaggravaLed dueLo Spaln's debL woes and Creece's conLlnulng
pollLlcal lnsLablllLy. 1he u.S ls Lrylng Lo keep unemploymenL raLes ln check and Lhe 88lCS have noL been
ableLo malnLaln LhelmpresslvegrowLh raLeLhaL Lheyhad achleved so conslsLenLlyln LhepasL.
1he sLory on Lhe home fronL ls noL so dlfferenL. lndla has been ln Lhe news recenLly for all Lhe wrong
reasons. 8e lL Lhe growlng flscal deflclL, Lhe rlslng lnflaLlon, Lhe 8eLall secLor lul flasco by Lhe governmenL
or Lhe downgrade of lndla's soverelgn credlL ouLlook Lo negaLlve" by llLch. Powever, ln Lhe lasL few
monLhs, a dlfferenL lssue has capLured our lmaglnaLlon 1he uepreclaLlon of Lhe 8uLL. Cur naLlonal
currency had breached Lhe all Llme low of 8s. 34.46 agalnsL Lhe uS uollar ln May 2012 and fell pasL Lhe
psychologlcal mark of 37Lo 8s. 37.30ln !une2012. 1helndlan 8upeehas been very volaLlleln Lhecurrency
markeLs. 1he average of ln8/uSu raLe for !une 2011 was 44.8426 whereas LhaL for !une 2012 was
36.0164.1haL means a changeof 24.91X.!!!Such volaLlllLy can ofLen be presumed Lo be random ln naLure,
buL LhearLlcles ln Lhls lssueof 1PLllnAL?S1 wlll hlghllghL LhaL Lherels acerLaln otJet totbls tooJomoess.
1hls lssue speclflcally Lalks abouL LhevACAkl5 Ol cukkNc MAkk15".1he arLlcle uepreclaLlng
8upee Causes, lmpacLs and acLlon" Lrles Lo flnd ouL Lhe causes and lmpacLs of depreclaLlng rupee on Lhe
economy. A couple of oLher arLlcles provlde a snap shoL on how dlfferenL secLors of lndlan Lconomy are
affecLed bydepreclaLlng rupee.
AnoLher lnLeresLlng read ls Lfflcacy of sLeps Laken by 88l" whlch hlghllghLs Lhe efforLs Laken by Lhe Apex
8ank Lo sLop Lhe downward splrallng of ln8 and also analyses Lhe effecLlveness of such sLeps. 1he
lmporLanceof CaplLal lnflows for an economyls well undersLood Lhrough LhearLlcle.
1hls lssuewlll glveyou hollsLlc vlew on currenL slLuaLlon ln CurrencyMarkeLs.
Pappy8eadlng..!!
CONTENTS
1
-8ohlL Codbole&Saumll andya
FNFORMATON
July'12

May: deflclL.
8upee falls 3.6 ln a week malnly drlven by
1helndlan 8upeehas seen lLs worsL Lrend ln Lhls 88l's relucLanceLo decreasepollcyraLes.
monLh by depreclaLlng almosL 6-7 agalnsL Lhe
u.S. uollar. WlLhln monLhs of S &'s reacLlon, Clobal raLlng
agency llLch also downgrades lndla's soverelgn
8upee furLher weakens on renewed concerns credlL ouLlook Lo negaLlve" from SLable" clLlng
abouL Lhe euro zone crlsls and lLs rlskler flnanclal corrupLlon and absenceof adequaLereforms.
offerl ngs, l ncreasl ng Lhe probabl l l Ly of
lnLervenLlon from Lhe88l. 8upee falls pasL psychologlcal mark of 37 for Lhe
flrsL Llme Lo 37.30 agalnsL Lhe uollar on sLrong
1he 88l asks exporLers Lo sell off 30 of reLalned demand for Amerlcan currency from Cll lmporLers,
forelgn exchange earnlngs. 1hls would lnfuse lncreased caplLal ouLflows and growlng concerns
around $2-3bllllons lnLo Lheflnanclal sysLem over global economlc slowdown
1he CenLral 8anks flxes Lhe maxlmum llmlLs on Iu|y:
lnLra-dayLradlng on banks
Luro fell Lo a 2 year low agalnsL Lhe uollar, a hlL
lM ranab Mukher[l says global slow down due by Lhe uncerLalnLy abouL Lurope's progress ln
Lo euro zone crlses has lmpacLed lndlan economy Lackllng debL crlsls.
and ls Lhemaln reason behlnd 8upeefall
1he slump ln domesLlc sofLware markeL, afLer
lorex 1raders predlcL 8upee plummeLlng down sofLware servlce exporLers sharply cuL Lhelr
Lhe prevlous low lrrespecLlve of 88ls effecLlve revenue expecLaLlon, ralses worry abouL
measures Lo 8upeedepreclaLlon corporaLe earnlngs furLher pressurlzlng Lhe
8upee.
1he 8upee reaches an all Llme low of 8s. 34.46
agalnsL Lhe u.S. uollar ln Lhe markeL due Lo malnly 1he 8upee keeps falllng even afLer daLa showed
lncreased caplLal ouLflows and sLrong demand LhaL lndusLrlal ouLpuL for Lhe monLh of May rose
from lmporLers. 2.4 , much hlgher Lhan Lhe 1.8 growLh
expecLed by8euLers survey.
IUNL:
1he overseas lnvesLors have pulled ouL 8s. 2.31
8llllon from equlLles on accounL of slow growLh,
depreclaLlng 8upee and hlgh currenL accounL
2
Finalyst
Does fall in the Rupee sum up the
predicament of the ndian Economy?
SomeLlmes lL Lakes a good fall Lo really know wh|ch are dry|ng up cont|nuous|y |ead|ng to a
where you sLand" .?ou cannoL flnd a more apL ba|ance of payment def|c|t. 1here are Lhree maln
quoLe Lo descrlbe Lhe 8upee's currenL slLuaLlon. facLors for Lhe same. 1he flrsL and Lhe mosL
now Lhe blg quesLlon ls LhaL wheLher Lhe lmporLanL ls Lhe lack of reforms ln Lhe lndlan
depreclaLlon of Lhe rupee ls due Lo Lhe ongolng economy. 1herehas noL been any ma[or reform for
Luro crlsls or due Lo Lhe sLrucLural facLors some years now and Lhe uA CovernmenL goL
aLLrlbuLable Lo lndla? lL would be relaLlvely very away ln Lhe pasL because Lhe world economy was
easy Lo say LhaL Lhe ongolng Luro Crlsls has led Lo growlng aL a greaL pace and forelgn lnvesLmenL
an lncreased demand for dollar, leadlng Lo Lhe was floodlng lndla ln Lhe form of lul and lll, buL
depreclaLlon of rupee. 8uL analyzlng Lhe wlLh LhegrowLh of Lheglobal economy comlng Lo a
movemenL of currency over Lhe pasL one year Lells halL, Lhe sLrucLural flaws ln Lhe lndlan Lconomy
us someLhlng else. Whlle counLrles llke Malaysla have surfaced. CovernmenL announced lul ln
and korea have slgnlflcanL exposure Lo Luro zone reLall buL had Lo hold back due Lo masslve
as compared Lo lndla, Lhe depreclaLlon of Lhe lndla opposlLlon from oLher parLles. 1hls has made Lhe
Currency has been 27 over Lhe pasL one year lnvesLors senLlmenL negaLlve over Lhe lndlan
compared wlLh only 7 ln Malaysla. C|ear|y the economy. Also Lhe recenL announcemenL by
euro cr|s|s |s not the on|y reason for the fa|| |n governmenL relaLed Lo reLrospecLlve Lax
rupee. Wh||e the deprec|at|on |n the |atter ha|f of L r eaL menL has f ur L her added L o L he
the |ast year cou|d be attr|butab|e most|y to the dlsappolnLmenL of Lheforelgn lnvesLors.
g|oba| factors, the deprec|at|on |n the current
year |s most|y onaccount of domest|c factors. 1he second facLor ls perslsLenL lnflaLlon ln lndla,
lnflaLlon has remalned around 10 ln Lhe pasL one
AparL from Lhe lnlLlal years ln 2000, lndla has year. 1hough perlods of Lemporary lnflaLlon can
always had a currenL accounL deflclL. 1lll 2003, see hlgh caplLal lnflows due Lo a rlse ln lnLeresL
lndla recelved caplLal lnflows [usL enough Lo raLes, glvlng forelgn lnvesLors an lncenLlve Lo
balance Lhe CurrenL AccounL deflclL. 1he slLuaLlon lnvesL, as could be seen from ln 2007-2008 buL
changed afLer 2003 when lndla sLarLed recelvlng perslsLenL lnflaLlon for longer perlods ls seen as a
caplLal flows much hlgher Lhan Lhe currenL sLrucLural flaw ln Lhe economy and keeps Lhe
accounL deflclL malnly due Lo forelgn lnvesLmenLs forelgn lnvesLors away. We have been uslng Lhe
and led Lo an appreclaLlon ln Lhe rupee agalnsL wrong medlclne Lo curb lnflaLlon for some Llme
ma[or currencles. 1hls was Lhe perlod when lndla now. 1he lnflaLlon we are wlLnesslng ls more due
achleved hlgh growLh raLes of 8-9. So whaL has Lo supply-slde boLLlenecks and merely ralslng Lhe
changed so dramaLlcally ln Lhe pasL one year LhaL lnLeresL raLes ls noL golng Lo help much. 1he
we have seen a masslve depreclaLlon of rupee? governmenL should sLep ln Lo address Lhe lssue ln
1here has not been any ma[or change |n the Lhe supply chaln raLher Lhan [usL relylng on 88l.
current account def|c|t but |t |s the cap|ta| |nf|ows 1he Lhlrd facLor ls Lhe hlgh governmenL deflclL. 1he
July'12
3
Finalyst
flscal deflclL was 3.9 of Cu for Lhe lasL year and lnflaLlon. Second problem ln Lhe lndlan economy ls
Lhecomblned sLaLeand cenLral Cu was around10 Lhe hlgh flscal deflclL of 3.9 of Cu ln 2012. WlLh
of Cu. uue Lo such a hlgh deflclL lnvesLors lose Lhe prlces of lmporLs lncreaslng, Lhe Lwo ma[or
confldenceln Lhelndlan economy. lLems whlch add Lo Lhe flscal sllppage are crude oll
and ferLlllzers. AlLhough Lhe prlces of peLrol are
lndla belng an lmporL orlenLed counLry, Lhe deregulaLed, Lhe oll companles can lncrease Lhe
depreclaLlon of Lhe rupee has lncreased Lhe lmporL prlce only afLer consulLaLlon wlLh governmenL and
blll slgnlflcanLly. ln Lhe presenL sLaLe of global huge subsldy ls provlded by governmenL on dlesel.
slowdown, Lhe prlces of crude and commodlLles WlLh Lhe lnpuL cosL of crude oll and ferLlllzer
have decreased slgnlflcanLly buL lndla has noL been lncreaslng and Lhe lnablllLy of Lhe governmenL Lo
able Lo beneflL from Lhe same due Lo depreclaLlon ln ralse Lhe markeL prlces ln same proporLlon, lL would
Lhe 8upee. 1he falllng crude oll prlces from be dlfflculL Lo conLaln Lhe flscal deflclL wlLhln Lhe
120$/barrel Lo 90$/barrel as of Loday couldn'L be budgeLed 3.1 of Cu for 2012-13. 1he Lhlrd and
used Lo lndla's advanLage due Lo Lhls depreclaLlon. Lhe mosL lmporLanL problem ln Lhe lndlan economy
1he rupee depreclaLlon has furLher added Lo ls Lhecrowdlng ouL of prlvaLelnvesLmenL dueLo hlgh
lnflaLlon by pushlng up Lhe prlce of lmporLs. 1he lnLeresL raLes. uue Lo Lhe hlgh lnLeresL raLes ln
lndusLrlal secLor ls ln a dlfflculL slLuaLlon as shown by domesLlc markeL, Lhe flrms could seek funds from
Lhe lndex of lndusLrlal roducLlon, whlch grew by lnLernaLlonal markeLs, buL LhedepreclaLlon of rupee
0.1 ln May. 1he depreclaLlon of rupee wlll puL has closed LhaL opLlon also. uue Lo whlch Lhe prlvaLe
furLher pressure on Lhe lnpuL cosLs llke coal, oll and lnvesLmenLs have come Lo a sLandsLlll. lurLher
lmporLed lndusLry lnLermedlaLe producLs. A ma[or subsldles also add up Lo lndlan woes as Lhey are
componenL of Lhe operaLlng expenses ls Lhe more of a pollLlcal goodwlll drama Lhan any good Lo
expendlLure on power and fuel, whlch has lncreased Lhe lndlan growLh sLory. 1hus Lhe depreclaLlon of
slgnlflcanLly Lhus puLLlng pressure on operaLlng rupee has worsened Lhe problems of flscal sllppage,
marglns of Lhe companles. uepreclaLlon of rupee hlgh lnflaLlon and crowdlng ouL of prlvaLe
wlll adversely affecL Lhe power planLs LhaL are lnvesLmenLs.
dependenL on lmporLed coal for power generaLlon.
lnflexlble Larlff sLrucLure makes dlfflculL Lo lncrease 1he sLance Laken by Lhe 88l on Lhe depreclaLlng
ouLpuL prlces Lhus resulLlng ln energy deflclL ln Lhe rupee has been commendable. 88l's pollcy has been
counLrylmpacLlng all LhesecLors of Lheeconomy, l.e. Lo lnLervene only Lo conLrol Lhe volaLlllLy ln rupee
agrlculLure, manufacLurlng and servlces. and leL Lhe rupee aLLaln lLs Lrue level. 1hls ls very
correcL as Lhere ls no polnL wasLlng your llmlLed
1he depreclaLlng rupee furLher aggravaLes Lhe forex reserves on proLecLlng a currency whlch ls
problems lndla ls faclng. llrsL problem whlch lndla depreclaLlng due Lo sLrucLural facLors and whlch
has been faclng over Lhe lasL 18 monLhs ls Lhe shows no slgn of lmprovemenL ln Lhe near fuLure.
perslsLenL hlgh lnflaLlon. WlLh Lhe depreclaLlon of Also we would noL llke Lo land up ln Lhe slmllar
rupee Lhe lmporLed goods llke crude oll, ferLlllzer, slLuaLlon of 1991, where we had Lhe reserves for
coal eLc. become cosLller and lead Lo an lncrease ln only a few days of lmporL. 1hus proLecLlng Lhe
prlce of flnal goods Lhus addlng Lo Lhe already hlgh valuable forex reserves ls very lmporLanL. 88l has
July '12
4
Finalyst
has used varlous oLher meLhods Lo proLecL Lhe conLlnue lLs sllde downwards. 1he recenL declslon
currency. 1he flrsL ls Lhe easlng of caplLal lnflows by by Lhe CovernmenL LhaL 30 of Lhe lmporL blll of
lncreaslng lll llmlLs ln governmenL securlLles by 3 any Su Cll company should be funded from a slngle
bllllon $ and Lhus lncreaslng lL from 13 -20 bllllon $ Su bank, would also help ln reduclng Lhe volaLlllLy
and corporaLe debL, deregulaLlon of lnLeresL raLes ln Lheuollar value, currenLly ln afloaLlng mechanlsm
on n8L and n8C accounLs, enhanclng Lhe llmlL for quoLes are glven by all Lhe banks and hence Lhe
exLernal commerclal borrowlng and deregulaLlon of prlcevolaLlllLy.
celllng raLe on exporL credlL. 1he second are Lhe
admlnlsLraLlve measures Lo curb Lhe markeL 1he fuLure of Lhe lndlan rupee wlll be declded by Lhe
speculaLlon. neL CvernlghL Cpen oslLlon LlmlLs has caplLal lnflows whlch can by addressed by lncreaslng
been reduced for ma[or players ln Lhe markeL and lnvesLor confldence and addresslng Lhe sLrucLural
Lhey have been forced Lo sell dollars, Lhus brlnglng flaws ln Lhe lndlan Lconomy.1hls can be done by
some resplLe Lo Lhe depreclaLlng rupee. volaLlllLy ln reduclng our dependence on lmporLs and hlgher
Lhe forward markeL has been reduced by allowlng exporLs whlch wlll reduce our currenL accounL
only hedgers Lo book forward conLracLs and Lhe deflclL.1hus, 88l and LhegovernmenL haveLo work ln
companles whlch have ralsed money abroad are synergy Lo pull lndlan economy ouL of Lhls
requlred Lo brlng a cerLaln proporLlon of Lhe funds ln predlcamenL and Lhls ls posslble only when Lhe
Lhe counLry lmmedlaLely. 1hese are only shorL Lerm moneLary and flscal pollcles move ln Landem wlLh
measures buL unless Lhe sLrucLural lssues ln Lhe each oLher.
lndlan economy are addressed, Lhe rupee wlll
July '12
-AmlL Sharma
8ahul Coel
Mba2
nMlMS Mumbal
5
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3
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4
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3
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6
C C l 1 A
A 8
7
8 u 8
n A
k
8
L l 8 C 8
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9
u
10
u u A ? A
8 l
11
C l 1
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1 S n M
13
P A 8 u ? l
Answer Lo C8CSSWC8u:
Finalyst
mpact of Currency undervaluation on
the most affected Sectors
Lver slnce Lhe 8upee has been undervalued and $120 dollar a barrel buL even lf Lhe oll prlces have
8reached Lhe 8s 37 mark agalnsL Lhe dollar, been reduced close Lo $90/barrel a hlghly
predomlnanLly by sLronger demand of dollars by depreclaLed rupee won'L decrease Lhe lmporL blll.
Cll lmporLlng CounLrles, 88l has Laken adequaLe AfLer analyzlng Lhe broad lmpllcaLlons of 8upee
sLeps Lo conLaln Lhe falllng rupee. 8uL sLlll noLhlng devaluaLlon, leL's have a look aL varlous secLors
much has happened Lo rescue Lhe fall. 1he Lrouble lmpacLed dueLo lL.
ls far from over when Lhe Luropean counLerparL ls 8ank|ng
wlLhdrawlng money from lndla and buylng dollars lL seems LhaL wlLh Lhenorms geLLlng sLrlcL afLer Lhe
Lo look for safe lnvesLmenL reLurns, whlch for lndla lmplemenLaLlon of 8asel lll guldellnes lndlan
can furLher deepen Lhe flscal deflclL. 88l's role 8anks wlll need more money Lo lncrease lLs
here becomes cruclal ln managemenL of Currency, common LqulLy and lL ls expecLed Lo ralse caplLal
here ln Lhe below llgure 1 88l has sold uS uollars collecLlvely Lo Lhe exLenL of 8s 600000 crores. lor
heavlly durlng Lhe slowdown ln order Lo lncrease whlch Lhey wlll need Lhe supporL of dollars. ln
Lhe demand for rupee and Lrled Lo malnLaln order Lo boosL Lhls, 88l ln november 2011 ralsed
susLalnablllLy as lndla was sLlll a favored Lhe lnLeresL raLe celllng on n8L deposlLs of one Lo
desLlnaLlon for lnvesLmenL. 8uL slowly as Lhe Lhree years maLurlLles from 173 basls (1.73 per
MarkeL plcked up, Lhere were more demand for cenL) polnLs plus Ll8C8/SWA raLe Lo 273 basls
dollars. polnLs (2.73 per cenL) plus SWA/Ll8C8 raLe
(ll8Ok-looJoo lotetbook Offet kote ls tbe tote ot
wblcb books leoJ to eocb otbet lo tbe
otocotteocy/lotetootloool cotteocy motket). 1he
celllng on Lhe forelgn currency non-resldenL bank
deposlLs (lCn88) deposlLs (Ao occooot otlllzeJ fot
locol Jlsbotsemeots locloJloq poymeot fot expotts
ftom loJlo, tepottlotloo of fooJs obtooJ, ooJ fot
mokloq lovestmeots lo loJlo) for all maLurlLles has
been lncreased from 123 basls polnLs (1.23 per
cenL) plus Ll8C8/SWA raLe Lo 200 basls polnLs (2
1he baslc advanLage Lo lndla would be from Lhe per cenL) plus Ll8C8/SWA raLe ln May 2012 and
exporLs of servlces llke sofLware where lndla earller ln november lL had lncreased from 100
accounLs for nearly 20 of LoLal exporLs and Lhe basls polnLs Lo 123basls polnLs. 1hls rlse ln lnLeresL
eople's remlLLance LhaL are llvlng abroad. 1he raLe celllngs wlll mean LhaL lndlan banks wlll now
mosL negaLlve lmpacL of Currency devaluaLlon be able Lo aLLracL more dollars. 8ecause of Lhese
would be on Cll lmporLs and lorelgn lnsLlLuLlonal measures lL made an appreclaLlon of 94 palsa and
lnvesLors (lll). Cll lmporLs accounLs for 32 of was valued aL 8s 32.70 and ln november 2011 &8s
lndla's lmporLs, ln Aprll 2012 Lhe oll prlces were 33.47ln May2012.
July'12
6
Finalyst
7
IMCG exporLs would noL change lLs hedglng pollcles Loo
As per nSL Lhe lMCC secLor had 17 of Lhe LoLal frequenLly, whlle many oLher l1 companles hedge
shareof lll aL Lheend of SepLember 2011. And as per Lhrough luLureConLracLs.
Mr Canesh, ClC, Codre[ Consumer roducLs, due
Iert|||zer Sector
Lo hlgher lmporLs of producL llke palm oll, lnpuL cosL
lerLlllzer lndusLry lmporLs nearly 30 of lLs raw
for producLs llkesoap wlll behlgher by20 addlng Lo
maLerlal requlremenLs and afLer Lhe rlse ln uA
margln pressures. As per unA newspaper reporL,
ferLlllzer, ASSCCPAM esLlmaLes LhaL currenL
ColgaLe and uabur depend heavlly on crude-llnked
depreclaLlon ln Lhe currency and hlgher lnpuL cosL
raw maLerlals. AbouL 40 of uabur's raw maLerlal
Lhe prlce has lncreased Lo 8s. 3638.3 per meLrlc Lon.
requlremenL ls llkely Lo be lmpacLed by currency
ln llgure 2 we can see LhaL ferLlllzer has Lhe hlghesL
flucLuaLlons. As for ColgaLe, almosL 70 of lLs raw
lmporL growLh raLe and due Lo Lhe currenL rupee
maLerlal requlremenL could be lmpacLed. 1he whole
devaluaLlon Lhe paymenL ls hlgher ln rupee as a
game ls now abouL reLalnlng cusLomer and more
resulL hlgher lnflaLlon can also be expecLed because
value addlLlon ln Lhe producL whlch can offseL
of Lhe same and pressure would bulld on
lncrease ln prlce. 1he lndusLry now needs Lo balance
governmenL subsldy.
beLween hlgher cosLs of raw maLerlal, hlgher
volumegrowLh comblned wlLh beLLer reLurns Lo lll.
harmaceut|ca|
1hese are exporL orlenLed secLor and AnalysLs say,
Informat|on1echno|ogy
for several large players, half Lhe LoLal revenues
1he sharp depreclaLlon ln rupee ls expecLed Lo boosL
come from global markeLs. Companles havlng global
sofLware sales and forelgn Lxchange galns ln comlng
exposures won'L be havlng much concern on
monLhs. lL has hlgh exposure Lowards uS and
forward conLracLs as Lhere won'L be currency lssues.
Luropean MarkeLs and belng an LxporL orlenLed
lor example ulvl lab 91 revenues, ur 8eddy's 80
secLor any currency depreclaLlon would lead Lo
of lLs revenues, Clenmark's 72 are from global
lncome for l1 companles. As per CMlL amongsL Lhe
sales. 8uL for ur 8eddy's and Clenmark who have
Lop 10 forelgn exchange earners Lhe neL forelgn
hlgher forward conLracLs and hlgher exposure Lo
earnlngs was Lhe hlghesL for l1 secLor whlch was
forelgn currency loans Lhe lmpacL on L8lu1A wlll be
$14483 Mllllons. 1hls secLor dlffers on lLs hedglng
Lhere.
sLraLegy, companles whlch have hlgh exposure Lo
July '12
Imports in April and November 2011 and percentage increase in payment: Source ASSOCHAM
Finalyst
Lnergy andUt|||t|es c) Allowlng Cll lnvesL ln MuLual lunds LhaL hold 23
As menLloned ln flgure 2 even Lhough Lhe of Lhelr asseLs ln lnfrasLrucLure secLor under $3
lnLernaLlonal prlce of crude oll (flgure 3) and Lhe bllllon llmlL of lnvesLmenL
lmporL has been decreased, Lhe remlLLance has
lncreased Lo Lhe exLenL of 9.84. 1hls has dlrecL
lmpacL on operaLlng expenses and oLher dependenL
secLors llke 1ransporLaLlon and furLher leadlng Lo
lnflaLlon. ASSCCPAM esLlmaLes LhaL Lo lmporL Lhe
same quanLlLy of Crude oll (wlLh exchange raLe
prevalllng ln Aprll and uecember 2011) Lhe lmporLer
has Lo pay addlLlonal 8s. 489.8per barrel. Slmllarlyln
Lhe uLlllLles secLor lL esLlmaLes LhaL for Lhermal coal
whlch ls hlghly requlred for power generaLlon Lhe 1hese sLeps were noL welcomed by mosL of Lhe
lmporLer has Lo pay addlLlonal 8s 684.6 per Lon. So corporaLe as Lhe lmpacL was noL as greaL as
even lf Lhere ls supply consLralnL and our expecLed. 1he focus was more lnvesLmenL ln Lhe
dependency on lmporLs Lhe onus lles on prlclng lnfrasLrucLure secLor and noL for Lhe corporaLe as a
managemenL for whlch Lhe governmenL has whole. 1he analysL and corporaLe were expecLlng
suggesLed 'pool' prlclng mechanlsm Lo average Lhe beLLer sLeps ln Lerms of raLe cuLs and pollcy
domesLlc and lnLernaLlonal prlce of coal. 1hls measures. Larller measures llke Lhe lndlan
slmulLaneously lmpacLs Lhe sLeel secLor whlch we Mlllennlum ueposlL ln 2000 S8l had 8.3 maLurlLy
can see ln llgure 2. as Lhe dependency on coal for for flve year and was LargeLlng 8s 9000 crore, whlch
sLeel producLlon ls hlgher and companles llke 1aLa LargeLed n8l.
sLeel haveLo depend on lmporLed coal.
AparL from Lhese schemes Lhe governmenL should
Way forward - 8ecenLly when Lhe dollar crossed Lhe
lncrease raLes ln n8L and lCn8 accounLs and
Lh
8s 37 mark 88l on 23 !une 2012 announced Lhe
promoLe exporL orlenLed unlLs. CerLaln pendlng
followlng keysLeps.
lssues on pollcy reforms llke lul ln reLall
deregulaLlon of coal and oll prlces areexpecLed from
a) lncreaslng llmlL for Soverelgn wealLh funds,
Lhe governmenL whlch can cerLalnly add as a boosL
lnsurance funds, penslon funds forelgn cenLral
up for Lhe Lconomy. 88l needs Lo balance lLs
banks reglsLered wlLh SL8l ln CovernmenL SecurlLles
moneLary pollcy Lools ln order Lo malnLaln balance
Lo $20bllllon from $13bllllon
beLween lnflaLlon, caplLal ouLflows & reduclng Lhe
b) Allowlng lll Lo lnvesL ln non-converLlble
CurrenL AccounL ueflclL.
debenLures/bonds lssued by n8lC caLegorlsed as
lnfrasLrucLurellnanceCompanles wlLh a llmlL of $23
8llllon
July '12
-SushanL S SrlvasLava
SlLS College of ManagemenL SLudles
CuM (2010-2012)
8
Finalyst
The Game of Currency
1he debL crlsls ln Lurope and Lhe fuLure of Lurot smaller economles ln Lurope by borrowlng aL
have been hogglng Lhe headllnes of Lhe flnanclal lower raLes, spurred an era of growLh. 8ecesslon ln
dallles of noL [usL LhewesL buL all around Lheglobe. Lhe uS durlng 2001-2003,only helped Lu8C Lo
Movlng from WesL Lo easL, Llme and agaln, Chlna galn. Powever, some of Lhe smaller Luropean
has come under crlLlclsm for arLlflclally devalulng economles borrowed beyond Lhelr means and
?uan. ln Lhe lndlan conLexL, we have seen how Lhe used lL Lo fund soclal beneflL schemes. 1he
depreclaLlon of lndlan naLlonal 8upee (ln8) has Pouslng crlsls ln Lhe laLer decade compounded
spelled doom for Lhe lmporLers and has made 1CS Lhelr debL problem, whlch led Lo counLles llke
Lhe mosL valued company llsLed on Lhe lndlan Creece, orLugal, Spaln and oLhers on Lhe
sLock markeLs. ln lraq, no weapons of mass soverelgn debL crlsls. now agaln, Lwo of Lhe largesL
desLrucLlon have been found. Were Lhere any Luro economles are Lolllng hard Lo save Lhe
oLher moLlves behlnd Lhe lnvaslon of lraq? ln Lhe currency.
WesL, why dld Luropean counLrles oLher Lhan
Lngland wanLed Lo come LogeLher Lo form a
moneLary unlon? And now afLer almosL a decade
why lL has become essenLlal Lo conLaln Lhe Lurope
debL crlsls Lo save Luro? 1he answers Lo Lhe
several of Lhese quesLlons ralsed and many oLhers
lle ln Lhe GAML of Currency .lL becomes
lmperaLlveLo undersLand how Lhecurrency plays a
role ln noL [usL Lhe world economlcs buL also ln Lhe
world pollLlcs.
8uL, why do Cermany and lrance need Lo bear Lhe
1aklng Lhe quesLlons ln a chronologlcal manner, brunL of reckless spendlng by oLher Luro Zone
Lhe answers can be Lraced back Lo Lhe Llmes, when economles. llrsLly, boLh Lhe counLrles have exporL
sL
Luro came lnLo exlsLence on 1 !anuary 1999 ln orlenLed economles wlLh 40 of Lhe exporL
sL
non-physlcal form and laLer on 1 !anuary 2002 ln dlrecLed Lowards debL rldden Luro zone naLlons. lf
Lhe form of noLes and coln. 1he ma[or Luropean Lhey defaulL lL can spell doom for Cerman and
economles LhaL embraced lL were lrance and lrench facLory ouLpuL. 1hough depreclaLlon of
Cermany whlch had much weaker currency ln Luro wlll resulL ln beLLer reallzaLlon of Lhelr
lrank and ueuLsche Mark. Lngland wlLh a sLrong exporLs, buL a sLable currency ls also essenLlal for
currency ln SLerllng ound declded agalnsL lL. Lhelr exporL Lo Lhe resL of Lhe world. Secondly,
Soon moreand moreeconomles accepLed lL, and lL lrench and Cerman bank have very hlgh exposure
became Lhe second mosL Lraded currency ln Lhe Lo Soverelgn debL. lf Lhe Creece and oLher
world, leavlng behlnd !apanese ?en and SLerllng counLrles defaulL lL wlll puL severe sLress on Lhelr
ound . 1he leveraglng of common currency by own banklng sysLem. 8uL Lhe efforLs of lrance and
July'12
9
Finalyst
Cermany needs Lo beappreclaLed as lL may very well uS $ dollar ls Lhe mosL Lraded currency ln Lhe world
help Lo prevenL anoLher recesslon [usL when world because crude ls Lraded ln dollar. uue Lo lnablllLy of
economles have sLarLed Lo recover from Lhe u.S. human race Lo subsLlLuLe crude oll for Lhe sheer
houslng crlsls. volume, dollar remalns Lhe mosL Lraded currency ln
Lhe world. And slnce anyone and everyone who
unlLed SLaLed lnvaded lraq ln March 2003. uS found needs crude needs uS dollar, lL becomes Lhe
a ma[or ally across Lhe ALlanLlc ln Lngland and across sLrongesL currency. Powever, lraq sLarLed Lo sell
aclflc ln AusLralla. 1hey wenL ahead wlLh Lhe crude agalnsL Lu8C. WlLhln Lwo years, Lu8C
lnvaslon ln-splLeof severeopposlLlon from LheoLher appreclaLed 20 agalnsL Lhe dollar and was
permanenL member of unlLed naLlons SecurlLy LhreaLenlng Lo emerge as a currency of global Lrade.
Councll (unSC). 1here were speculaLlons LhaL ound derlves lLs hlgh valuaLlon due Lo Lhe sLrengLh
Ceorge 8ush wenL ahead wlLh lnvaslon, LargeLlng a of uS dollar, due Lo lLs lnvesLmenL ln Lhe uS
second Lerm as uS resldenL. 8uL LhequesLlon arlses companles. AusLralla derlves ma[orlLy of lLs Cu
why 8rlLaln played Lhe acLlve role. Cne reason could from exporL of lLs mlneral wealLh and agrlculLural
be Lo supporL Lhelr currency and Lhe uS $. 8uL Lhen harvesL llke wheaL, whlch are Lraded ln exchange of
how could lraq, whlch was already under heavy uS dollar. 8y Laklng down Saddam reglme, uS could
sancLlons, pose any LhreaL Lo Lhe Lwo of Lhe noL onlysecurecrudeasseLs buL also lLs currency.
sLrongesL currencles ln Lhe world. 1he answer lles ln
LheLerm L1kC- DCLLAkS. 8uL, sLlll LhequesLlon remalns unanswered as Lo why
uS, ln-splLe of lLs economlc clouL needs Lo malnLaln
Lhe supremacy of uS $. 1he answer lles ln Lhe facL
LhaL Lhe prosperlLy of Lhe uS companles ls sLrongly
relaLed Lo sLrong dollar. lrom Lhe laLe 1990's, uS
economy ls largely fueled by hlgh domesLlc
consumpLlon whlch ls supporLed by cheap lmporLs
from low cosL counLrles. A sLronger currency makes
lLs lmporLs cheap and helps Lo derlve hlgher reLurn
from lLs exporLs and lnvesLmenLs abroad. 8rlLaln
also largely Lhrlves on Lhe samefor lLs sLrong
currency. 1hey work ln dlameLrlcally opposlLe
manner Lo Chlna whlch sLrlves Lo devalue lLs
currency ln order Lo make lLs exporL cheap. 1hls
makes uS a perfecL desLlnaLlon for Lhe producLs
manufacLured ln Chlna. WesLern powers rarely
come under crlLlclsm, buL Chlna goes under Lhe
hammer for Lhesame.
AL Lhe end of Lhe flrsL decade of Lhe new mlllennlum
ln 2009, uSprlnLed moreLhan $1Lrllllon of currency
July '12
10
Finalyst
11
Lo clear of lLs masslve debL. lf any oLher counLry had shorL Lerm phenomenon, lL can very well Lurn ouL Lo
opLed for Lhe same, lL would have resulLed ln begood for LheLerm growLh.
masslve devaluaLlon of Lhe currency. 8uL, as uS 1here ls noL even an loLa of doubL of Lhe role
dollar has masslve demand all across Lhe globe, lL of Lhecurrency, ln shaplng evenLs across Lheglobe. lL
resulLed ln as llLLleas 10 devaluaLlon of currency. ln noL only swlngs Lhe proflLs of Lhe mulLlnaLlonals, buL
conLrasL, when 8ussla ln 1998 had no opLlon, buL Lo also exLends lnfluence ln Lhe geo-pollLlcal
prlnL lLs currency Lo pay off lLs debL, lL goL devalued developmenLs. lf sLronger currency resulLs ln
from 3 rubles/$ Lo 28 rubles/$. ln 2009, only Chlna prosperlLy ln some parLs of globe, devalued
ralsed lLs volce agalnsL Lhe devaluaLlon of uS $, as lL currency brlngs growLh ln oLhers. WlLh lncreaslng
held more Lhan $ 3 1rllllon dollars of dollar global Lrade and overseas lnvesLmenLs, currency
domlnaLed asseLs. uS belng uS dldn'L pay much movemenLs wlll conLlnueLo lnfluenceour llves more
heed Lo lL and used lLs llberLy Lo prlnL uS $. Cnce Lhan ever. 1herefore, lL becomes essenLlal Lo
agaln, uS resorLed Lo lLs currency advanLage buL Lhls undersLand Lhe effecL of currency on lncreaslng
LlmeLo clear off lLs debL. lnLerconnecLed globallzed world economles.
lnvesLmenL have become cheap. lf Lhe currency ls
1he game of currency affecLs each and every naLlon shorL Lerm phenomenon, lL can very well Lurn ouL Lo
and lndla ls no excepLlon. lndla wlLh nearly $300 begood for LheLerm growLh.
bllllon of Lrade conLrlbuLes Lo only 2 global
commerce, ln8 has llLLle lnfluence. 1he Luropean 1here ls noL even an loLa of doubL of Lhe role of Lhe
debL crlsls compounded wlLh Lhe problem ln Lhe currency, ln shaplng evenLs across Lhe globe. lL noL
domesLlc economy, whlch prompLed lnvesLors Lo only swlngs Lhe proflLs of Lhe mulLlnaLlonals, buL
wlLhdraw from Lhe lndlan. uollar ouLflow has also exLends lnfluence ln Lhe geo-pollLlcal
resulLed ln ln8 Lo depreclaLe almosL 20 ln lasL slx developmenLs. lf sLronger currency resulLs ln
monLhs, glvlng hugeboosLs Lo lndlan exporL. 8uL our prosperlLy ln some parLs of globe, devalued
lmporLs far exceed exporLs whlch can be currency brlngs growLh ln oLhers. WlLh lncreaslng
deLrlmenLal. As Lhe currency weakens, lndla also global Lrade and overseas lnvesLmenLs, currency
lmporLs heavy lnflaLlon due Lo hlgh lmporL of coal movemenLs wlll conLlnueLo lnfluenceour llves more
and crude. 1here are already lndlcaLlons of mlsslng Lhan ever. 1herefore, lL becomes essenLlal Lo
exporL LargeLs of 2011-12, buL on Lhefllp sldeforelgn undersLand Lhe effecL of currency on lncreaslng
lnvesLmenL have become cheap. lf Lhe currency ls lnLerconnecLed globallzed world economles.
July '12
-8lshl CupLa
llM Shllong
Finalyst
1he mllllon dollar quesLlon LhaL has kepL analysLs 1he above measures are d|scussed |n deta||
and markeL experLs guesslng for qulLe some Llme be|ow:
now: Wlll Lhe 8upee sLop lLs free fall? Wlll lL head
furLher souLh? no one has an answer Lo Lhls 1)LC8 ra|sed for rupee out|ay shou|d be brought
quesLlon aL LhemomenL. Powever, lL ls worLhwhlle |n|mmed|ate|y
looklng aL Lhe measures Laken by Lhe 8eserve8ank 1he proceeds of Lhe LC8 ralsed abroad for 8upee
of lndla ln Lhls conLexL and mull over whaL could be expendlLure ln lndla, such as, local sourclng of caplLal
doneLo sLem Lhefall of Lhecurrency. goods, on-lendlng Lo Self-Pelp Croups or for mlcro
credlL, paymenL for specLrum allocaLlon, eLc., should be
Pere ls a chronologlcal serles of measures Laken by broughL lmmedlaLely for credlL Lo 8upee accounLs wlLh
88l slnce november 2011 Lo shore up Lhe Au CaLegory l banks ln lndla. ln oLher words, LC8
currency. proceeds meanL only for forelgn currency expendlLure
can be reLalned abroad pendlng uLlllzaLlon. As hlLherLo,
however, Lhe 8upee funds wlll noL be permlLLed Lo be
used for lnvesLmenL ln caplLal markeLs, real esLaLe or
for lnLer-corporaLelendlng.
2) Increase |na||-|n-cost ce|||ng for LC8
1he all-ln-cosL celllng for LC8s wlLh average maLurlLy of
Lhree and up Lo flve years was enhanced Lo 6 monLhs
Llbor +330bps.
3) Deregu|at|on of |nterest rates on NkL and NkC
accounts
WlLh a vlew Lo provldlng greaLer flexlblllLy Lo banks ln
moblllzlng non-resldenL deposlLs and also ln vlew of
Lhe prevalllng markeL condlLlons, lnLeresL raLes were
deregulaLed on non-8esldenL (LxLernal) 8upee (n8L)
ueposlLs and Crdlnary non-8esldenL (n8C) AccounLs
(Lhe lnLeresL raLes on Lerm deposlLs under Crdlnary
non- 8esl denL ( n8C) AccounLs are al ready
deregulaLed). Accordlngly, banks are free Lo deLermlne
Lhelr lnLeresL raLes on boLh savlngs deposlLs and Lerm
deposlLs of maLurlLy of one year and above under non-
8esldenL (LxLernal) 8upee (n8L) ueposlL accounLs and
savlngs deposlLs under Crdlnary non-8esldenL (n8C)
Efficacy of steps taken by the RB to
arrest the slide of the currency
July'12
12
Sr Timeline Measures tahen by RBI
1
23-nov-11
LC8 ralsed for 8upee ouLlays Lo
be broughL ln lmmedlaLely
2
23-nov-11
lncrease ln all-ln-cosL celllng for
LC8
3
16-uec-11
ueregulaLlon of lnLeresL raLes on
n8L and n8C AccounLs
4
4-May-12
ueregulaLlon of celllng raLe on
LxporL CredlL
5
4-May-12
lncrease ln lnLeresL raLe celllng
on lCn8(8) ueposlLs

10-May-12
30 of balances ln LLlC
AccounLs needs Lo be converLed
forLhwlLh lnLo rupees and ln
respecL of fuLure earnlngs, an
exchange earner ls ellglble Lo
reLaln only 30
LlmlL for lll lnvesLmenL ln C-secs
lncreased by uSu 3 8llllon
LC8 avallmenL for repaymenL of
ouLsLandlng 8upee loans
Lowards CaplLal expendlLure
7 23-!un-12
Finalyst
13
July '12 July '12
AccounLs wlLh lmmedlaLe effecL. Powever, lnLeresL be permlLLed Lo access Lhe forex markeL for
raLes offered by banks on n8L and n8C deposlLs purchaslng forelgn exchange only afLer uLlllzlng fully
cannoL be hlgher Lhan Lhose offered by Lhem on Lheavallablebalances ln LheLLlCaccounLs.
comparabledomesLlc rupeedeposlLs.
7) L|m|t for III |nvestment |nGovernment Secur|t|es
4) Deregu|at|onof ce|||ng rate onexport cred|t
enhanced by USDS b||||on and ava||ment of LC8 for
1hecelllng raLeon exporL credlL ln forelgn currency whlch
repayment of outstand|ng rupee |oans towards
was consLralnlng Lhe avallablllLy of credlL Lo exporLers ln
Cap|ta| expend|ture
forelgn currency has been deregulaLed by allowlng banks
1he exlsLlng llmlL for lnvesLmenL by SecurlLles and
Lo freelydeLermlneLhelr lnLeresL raLes on such credlL.
Lxchange 8oard of lndla (SL8l) reglsLered forelgn
lnsLlLuLlonal lnvesLors (llls) ln CovernmenL
S) Increase |n |nterest rate ce|||ng on ICNk(8)
securlLles (C-Secs) has been enhanced by a furLher
Depos|ts
amounL of uSu 3 bllllon. 1hls would Lake Lhe overall
ueposlLs of banks has been ralsed from 123 basls polnLs
llmlL for lll lnvesLmenL ln C-Secs from uSu13 bllllon
(bps) above Lhe correspondlng Ll8C8/Swap raLes Lo 200
Lo uSu 20 bllllon. ln order Lo broad base Lhe non-
bps for maLurlLy perlod of 1 year Lo less Lhan 3 years, and
resldenL lnvesLor base for C-Secs, lL has also been
Lo 300bps for maLurlLyperlod of 3Lo 3years.
declded Lo allow long Lerm lnvesLors llke Soverelgn
WealLh lunds (SWls), mulLllaLeral agencles,
6) kev|ew of Lxchange Larner's Iore|gn Currency (LLIC)
endowmenL funds, lnsurance funds, penslon funds
Account Scheme
and forelgn cenLral banks Lo be reglsLered wlLh SL8l,
a) 30 of Lhe balances ln Lhe LLlC accounLs should
Lo also lnvesL ln C-Secs for Lhe enLlre llmlL of uSu 20
be converLed forLhwlLh lnLo rupee balances and
bllllon. 1hesub-llmlL of uSu10bllllon (exlsLlng uSu3
credlLed Lo Lhe rupee accounLs as per Lhe dlrecLlons
bllllon wlLh resldual maLurlLy of 3 years and
of LheaccounL holder.
addlLlonal llmlL of uSu 3 bllllon) would have Lhe
resldual maLurlLyof Lhreeyears.
b) ln respecL of all fuLureforex earnlngs, an exchange
earner ls ellglble Lo reLaln 30 (as agalnsL Lhe
1he lndlan companles ln manufacLurlng and
prevlous llmlL of 100) ln non-lnLeresL bearlng LLlC
lnfrasLrucLure secLor havlng forelgn exchange
accounLs. 1he balance 30 shall be surrendered for
earnlngs can avall of exLernal commerclal borrowlng
converslon Lo rupeebalances.
(LC8) for repaymenL of ouLsLandlng 8upee loans
Lowards caplLal expendlLure and/or fresh 8upee
c) 1he faclllLy of LLlC scheme ls lnLended Lo enable
caplLal expendlLure under Lhe approval rouLe. 1he
exchange earners Lo save on converslon/LransacLlon
overall celllng for such LC8s would beuSu10bllllon.
cosLs whlle underLaklng forex LransacLlons ln fuLure.
1hls faclllLy ls noL lnLended Lo enable exchange
earners Lo malnLaln asseLs ln forelgn currency, as
lndla ls sLlll noL fully converLlble on CaplLal AccounL.
Accordlngly, LLlC accounL holders henceforLh wlll
-S.Subramanlan,
xlM 8hubaneswar
Finalyst
DEBATE
Should interest rates be Eased?
July'12
14
Finalyst
IN1kCDUC1ICN:
lndla has shown a growLh ln Cu of 3.3 percenL ln Lhe flrsL quarLer of 2012 over Lhe same quarLer of Lhe
prevlous year.1hls has been Lhe weakesL performance ln Lhe decade. PlsLorlcally, from 2000 Lo 2012, lndla's
Cu CrowLh 8aLe averaged 7.37 percenL. 8ecause of Lhls weak performance Lhe raLlng agencles have
downgraded lndla's fuLureouLlook.
1he decllne ln Cu growLh raLe and falLerlng of monLhly ll numbers has been a [olL Lo pollcy makers. lnflaLlon
raLeconLlnues Lo beaboveLhe88l comforL level. 1helnflaLlon raLeln lndla was 7.23percenL ln !uneof 2012(vs
7.33percenL ln may). ln many pollcy meeLlngs, 88l governor uSubbarao had expressed LhaL lnflaLlon ls ama[or
cause of concern. Pe oplned LhaL growLh would have Lo be sacrlflced Lo conLrol lnflaLlon. llrms llke Morgan
SLanley are also of oplnlon LhaL currenL sLagflaLlon ln Lhe lndlan economy ls maklng lL dlfflculL for 88l Lo make
qulckreducLlon ln LhecosL of funds.
Whlle lndusLrlallsLs are blamlng hlgh lnLeresL raLes for slugglsh lnvesLmenLs, 88l has malnLalned sLaLus quo on
lnLeresL raLes, quoLlng LhaL raLes would fuel lnflaLlon lnsLead of aldlng economlc acLlvlLy. 1hedebaLebelow wlll
Lry Lo exploreboLh sldes Lo Lhls argumenL.
Why |nterest rates shou|d be Lased
Ia|ter|ng Investments and II numbers: 1he ll flgures are falLerlng showlng Lhe weak lndusLrlal AcLlvlLy.
lndla's lndusLrlal ouLpuL grew by 2.4 percenL ln May whlle lndusLrlal ouLpuL has grown by 0.8 percenL ln Aprll-
May perlod. lndlan corporaLes are blamlng hlgh lnLeresL raLes for slower growLh and are eagerly looklng
forward Lo adrop ln cosL of funds.
New Investments andCapac|ty Lxpans|on: lnvesLmenLs ln developlng new capaclLles ls falllng dueLo hlgh cosL
of funds. uelayed CapaclLyLxpanslons areleadlng Lo slowdown ln growLh.
Low advantage from Leverage: Plgher Leverage ls no longer becomlng an avenue for lnvesLmenL. Cenerally
flnanclal leveragels consldered blggesL LhreaL ln Llmes of hlgh lnLeresL raLes and llnanclal ulsLress. 8uL wlLhouL
belng hlL by Lhe so called flnanclal dlsLress ln lndla, We could see lndlan corporaLes deleveraglng Lhemselves.
Lg. luLureCroup.
Increase consumpt|on demand: lncreased llquldlLy ln Lhe markeL as a resulL of lower lnLeresL raLes would
enable consumers Lo Lake home/car loans. 1hls would boosL Lhe real esLaLe and auLo lndusLry as a resulL of
lncreased demands.
15
July '12 July '12
Why |nterest rates shou|d not be eased
Inf|at|on: 1helnflaLlon raLeln lndlawas recorded aL 7.23percenL ln !une2012. 1hls ls far aboveLhe88l ComforL
level of 4. Anyeaslng ln lnLeresL raLes would fuel lnflaLlon lnsLead of aldlng economlc acLlvlLy
Cred|t off take: CredlL off Lake has noL fallen ln splLe of hlgher lnLeresL raLes. CrowLh ln non-food credlL rose by
16.7 y-o-y ln Lhe recenL monLhs and Lhls growLh has been malnLalned over Lhe pasL few monLhs. So Lhe hlgh
lnLeresL raLes alone mlghL noL be Lhe reason behlnd Lhe weak growLh ln Cu. Many analysLs feel LhaL lL has
someLhlng Lo do wlLh llscal ollcyfrom CovernmenL's sldeLo revlveLhegrowLh sLory of lndla.
kea| Interest kate: 1he 8eal LffecLlve LxchangeraLe wlll fall near Lo Zero levels or may Lurn ln Lo sub-zero levels
once Lhe lnLeresL raLes are eased. 1hls mlghL aggravaLe Lhe slLuaLlon where borrowers are pald for Laklng
CredlL. A recenL analysls says LhaL AL Lhe Cround level ln lndla, Lhe reLall lnflaLlon ls nearly 11 percenL . So Lhe
real lnLeresL raLeon bankdeposlL ls alreadynegaLlve.
Asset 8ubb|es: urop ln lnLeresL raLes mlghL resulL ln AsseL bubbles. We can puL forward Lhe example of Creece
AsseL bubble slLuaLlon, where free avallablllLy of caplLal aL low cosL has resulLed ln lnvesLmenL ln non-
producLlveasseLs. ln lndlaLhls mlghL hold good for 8eal LsLaLelndusLry.
D|scourages Sav|ng of Income: ueposlLors geL lesser values for flxed/savlng deposlLs as a resulL of reduced
lnLeresL raLes. Cenerallyhlgher raLes wlll favor hlgher savlngs. PenceLoday, even rlslng lncomes arenoL leadlng
Lo rlse ln savlngs. lnsLead, lL leads Lo lnvesLmenLs ln real esLaLe and gold. 1hls ls because of low lnLeresL raLes.
Lowerlng lnLeresL raLes furLher would dlssuadepubllc Lo savedlsposable.
8ank|ng aga|nst WI for po||cy dec|s|ons |nstead of CI: Cl ls Lhe besL lndlcaLor Lo measure lnflaLlon (8eLall
lnflaLlon). Powever 88l consldered Wl Lo deLermlne Lhe lnLeresL raLe pollcles for Lhe counLry because lL was
easler, covered morelLems Lhan Cl and Look less LlmeLo process and compuLe. 1heWl ls around 7.23 whlle
Lhe Cl around 10.36 ln !une 2012. A decrease ln lnLeresL raLe wlll only glve Lemporary beneflLs, ln Lhe long
run lL wlll furLher lncreasean alreadyhlgh lnflaLlon.
kate Cut may |ead to fa|| |n Iore|gn Cap|ta| Inf|ows: CovernmenL has relaxed domesLlc debL markeL and
governmenL securlLles Lo aLLracL forelgn lnvesLor lnLeresL ln lndlan uebL MarkeL. 1hls ls done because a larger
caplLal lnflow wlll sLablllze Lhe depreclaLlng rupee. Pence hlgher lnLeresL raLes glven Lo Lhese deposlLs would
be more aLLracLlve Lo forelgn lnvesLors Lo buy bonds/debL lnsLrumenLs as agalnsL decreaslng raLes whlch wlll
nulllfy LhegovernmenL's earller measures.
ke|uctance of 8anks to pass on benef|ts: 1here used Lo be a close relaLlonshlp beLween lnLeresL raLes and
amounL avallable for lendlng. lncrease ln raLes lead Lo lncrease ln lendlng. ln Lhe currenL scenarlo, even lf Lhe
raLes arereduced, banks arerelucLanL Lo lend. So reducLlon ln raLes mlghL noL affecL LhegrowLh raLe.
-Ashok kumar keddy, N|dh| Ia|n, Sha||y kukre[a, ApurvaGhare, SCMnkD,une
Finalyst
CROSSWORD
July'12
16
1 2 3 4
3 6
7
8
9
10
11 12
13
Across: Down:
3. As per lMl's CClL8 (currency composlLlon of 1. ln whlch clLyLC8ls locaLed ln?
offlclal forelgn exchange reserves) daLabase, Lhls ls
2. 1he smallesL lncremenLal move an exchange raLe
Lhe4Lh mosL held currencyln Lheworld.
can make.
3. Currencyof Malaysla.
4. 1hls developmenL bank compleLed 30 years and
7. lf palsa: kopek, Lhen ln8:?? was addressed by 88l Covernor on 12Lh !uly, ln
Mumbal.
8. 1he average lnLeresL raLe esLlmaLed by leadlng
banks ln London LhaL Lhey would be charged lf 6. lSC4217codefor Lngland's currency.
borrowlng from oLher banks ls known as ___?
9. A moneLary unlL ln lndla, aklsLan and nepal.
10. 8upeesymbol was glven byu. _____kumar.
11. Currencylssued byLheeople's 8ankof Chlna
11. ueuLsche 8ank Lopped Lhe recenLly released llsL
12. Who creaLed Su8, Speclal urawlng 8lghLs, ln
of currency Lraders wlLh markeL share of 14.37.
1967 whlch deals wlLh Lhe reserve of lnLernaLlonal
1hesecond nameon LhellsL was of ____bank.
asseLs whose value ls based on Lhe wldely used
13. A currency whose value ls expecLed Lo remaln currencles?
sLableor lncreaseln Lerms of oLher currencles.
Finalyst
THE FINANCE CLUB
1he I|nance C|ub of Symb|os|s Centre of Management &nkD |s a student |n|t|at|ve
wh|chstarted|n200S.
1he I|nance C|ub funct|ons as the |nterface between the student commun|ty and
the f|nanc|a| wor|d. Its ob[ect|ve |s to enab|e pro||f|c |nteract|ons among the
student commun|ty, coup|ed w|th va|uab|e |nputs from the facu|ty, the academ|a
and representat|ves from the |ndustry. 1he c|ub prov|des a p|atform for a||
students to come together and exp|ore the f|e|d of f|nance, |ead|ng to awareness
amongst students w|th respect to the current f|nanc|a| aspects surround|ng the
economy and the |ndustry.
Act|v|t|es of the I|nance C|ub :
I|na|yst - 1he 8| month|y I|nance Iourna| of the I|nance C|ub
know|edge Ser|es
8|zI|uence
re-8udget and ost-8udget Ana|ys|s

ast Lvents:
kesearch Sem|nar on Commod|ty Markets - Ieb 2012

I|rst Academ|c Summ|t on Va|uat|on and I|nanc|a| Mode||ng - Nov 2010
Integrated k|sk Management Sem|nar- 2009
8ank|ng Conc|ave - 200S

Symblosls CenLre for ManagemenL

and Puman 8esource uevelopmenL
(An ISO 9001-2000 Quality Systems CertiIied Management Institute)
( ConsLlLuenL of Symblosls lnLernaLlonal unlverslLy)
Symbiosis nfotech Campus
Rajiv Gandhi nfotech Park, Hinjewadi, Pune 411057
TEAM FNALYST
Copyright
All rights reserved
ConLacL us:
Finance Club, SCMHRD
+91 7709079996
Fax : +91-020-22934306
Email: financeclub@scmhrd.edu
Web: www.scmhrd.edu
SLnlC8 MLM8L8S
Ashok 8eddy
uebl uash
nlladrl uey
8lshl Shah
!unlC8 MLM8L8S
Apurva Chare
uhruv uesal
nldhl [aln
8ohlL Codbole
Saumll andya
Shally kukre[a
vlnay 1rlpaLhl
3yro|os|s Cerlre lor Varagererl
Leaders||p-Erlreprereurs||p 8-3c|oo|