Sunday, March 29, 2009

End Of Dollar Dominance

There is now an important new addition to the list of global currency enthusiast, the Chinese Central Bank. According to the Governor the world needs a common currency managed by International Monetary Fund(IMF).

Leaders of G20 are to meet in London to discuss on the Global Economy along with it they are to discuss the new issue of Global Currency.

As in my previous post(Petro-Dollar) I have emphasised on how the US got hand on the Currency business and how the strength is going down. The report has come somewhat true.

Thats why I usually say:
"Bloggers are never WRONG".

Dollar Dominance is likely to be under threat as world economic power gets disbursed.

According to experts setting an all together new currency wont be that easy. For this to happen, all the countries will have to converge to similar levels of public debt and inflation.

To jump-start a new global reserve currency, economists say, it would require someone effectively subsidizing the cost of bringing buyers and sellers together for the time it takes the currency to get the traction.

Benefits of a global currency would be independence of countries on one separate national currency, because as USA falls the currency may weaken in global market leading to the weakening of other nations(especially Developing) for no fault of theirs.


Wednesday, March 18, 2009

India Healing From Recession

With the world's most developed economies reeling under the incubus of what is already being called the Great Recession, India at the beginning of the year took stock and issued a revised estimate for Gross Domestic Product(GDP) growth in the 2008-2009 fiscal year. Its projection came out at a healthy 7.1 percent. But the last quarter yielded some drastic results.

Looking at the Pre-Globalization times, the Hindu Country was way behind the rest of Asia having a very small growth rate of about 3%.
But after liberalization Indian Economic Recovery was phenomenal. T
he country's tech-savvy information-technology pioneers, software engineers, and call-center operators have made the country an economic success story. India has managed to multiply its per capita income levels many times over since 1950, and has done so far faster in recent years than the United Kingdom or the United States did during and after their industrial revolutions.

India's financial system suffers from few of the creative and risky derivative instruments that caused such problems in the Western economies. A tradition of conservative banking regulation and the presence of a tough-minded governor of the Reserve Bank (India's central bank) ensured that the Indian banking system did not acquire the toxic debts flowing from sub-prime loans, credit-default swaps, and over-inflated housing prices that assailed banks in Western countries.

The negative effect of the United States' financial setbacks on Indian stock markets, therefore, have made little sense, since they bore no relation to the real value of Indian companies. Instead to say it was the Liquidity Crunch which was present from the side of Foreign Investors.

India had and will have a big pool of Foreign Money(Forex) so the M-o-M(Market-To-Market) ratio will always confront as a strong point to any economy having a good pool of Forex money.

Indian Private Sector was the most hit, but the system in India will bounce-back faster than expected due to reforms by RBI and Government. The recovery has started with major bail-outs being canceled and companies becoming strong again with projects from all round the world.

According to a report, Indian Economy can triple in the next 15 to 25 yrs making it a super-power likely to surpass USA.

Tuesday, March 17, 2009

China- The new SUPERPOWER

The global economic downturn, and efforts to reverse it, will probably make China an even stronger economic competitor than it was before the crisis.

"China has bittered all odds and has emerged as a super-power."
G7 Summit

The third largest economy of world has already become more assertive; now it is exploiting its unusual position as a country with piles of cash and a strong banking system, at a time when many countries have neither, to acquire natural resources and make new friends for fresh investments.

"China's leaders are turning economic crisis to competitive advantage"

Friday, March 13, 2009

Satyam Bidding Process

At last 8 bidders have entered the bidding fray for the Indian Enron- Fraud hit Satyam Computer Services. Among the 8 bidders are some of the top multinational companies including L&T, Spice Comm. and Tech. Mahindra.
Tare MNC suitors, who have entered the fray through special purpose vehicle (SPV) structures in an apparent move to insulate themselves from future legal risks. The structure and exact nature of the SPVs are not clear at this stage.
The next stage in the bidding process is the submission of the expression of interest (EoI) along with proof of $300 million cash. This is supposed to happen by March 20. At this stage, the bidders will have access to a ‘broad set of numbers’, as they get ready to put in a price bid.

While L&T being the most powerful contender with nearly 1800cr+ Rs inventory to show, Spice Comm. has entered the bidding by selling its 40.8% stakes in Spice to Aditya Birla Group's Idea Cellular last year making its bid strength to increase to 2720cr Rs.
Another entrant to bidding is Tech. Mahindra which currently is not having sufficient balances
to bid and would require to raise another 1000cr+ Rs. so as to be in the bidding arena.....

Thursday, March 12, 2009

The Global Crisis And Indian Finance

Initially, it was speculated that India would be totally immune to Global Financial Downturn. It is clear that important elements of the balance of payments and the domestic financial sector have been affected. The impact of such imbalance lead to implications in banking sector and has consequently lead to credit crunch.

The Chinese government, seriously noting the collapse in imports, has brought in a range of extensive fiscal and monetary measures designed to counteract the effects of the global downturn. As explained in my previous Post.

Recession has lead to downturn in many of the highly "Trade Integrated" economies of Southeast Asia that has sent in alarming signals and harsh indicators in those countries with no fault of theirs.

The current slowdown in Gross Development Product (GDP) is sharper than the Government would like to admit, and more significantly it has been accompanied by a much steeper than expected reduction in employment, especially in export sectors leading to volatility in economic infrastructure.

Some of the most important effects have been:

Decline in Foreign Exchange Reserves.

Decline in Stock Market Indices (BSE).

Weakening of Rupee in consideration to US Dollars.

Foreign Institutional Investors and Stock Market.

Monday, March 9, 2009

China- The New Super-Power as India Degrades!

It seems like everything is turning upside down. America was considered the center point of the economic universe. They could save anything... anybody... any country. But not any longer. The U.S. is in the middle of one of the worst recessions ever experienced. Meanwhile, on the other side of the world, China's economy seems to be heading in the right direction. Since November, the Shanghai Index has outperformed the S&P by 75%. And China's banks are more solid than those in the U.S. They weren’t loaded with sub-prime toxic loans.

You could even say China is the U.S.'s biggest banker. That's because China has been buying up U.S. dollars. In fact, it now owns nearly $1 out of every $10 in U.S. public debt. China maintains the world's largest cash reserves of roughly $1.9 trillion. And you know what they're doing with some of that money? They're buying up oil assets at pennies on the dollar.

Needless to say, the speculators once said that China would be the first country to get hit as mostly every single penny Chinese earn is derived from USA. But China has emerged stronger than USA and is ruling the Economic markets all-round the world.

Coming on to India, India will be the next big thing, but at this moment all the strength which was commanded by Indians has been thrashed due to their over-dependence on Exchanges around the world, leading to devaluation of their assets in a sharp free-fall.

India was the most isolated country as far as Sub Prime market was concerned but had its major Forex shares derived from US Majors which have either declared Chapter 9 Bankruptcy or have been bailed-out, hitting Indian Economic Market hardly and ruining the Standard currency.

Saturday, March 7, 2009

Budget of India

Divine Interception believes in promoting the right to speech that Indian constitution provides every Indian with, and as a testimony to the same, we know present you with Poonam Thanvi, the first guest blogger on Divine Interception.

A budget is an itemized summary of probable expenses and income for a given period. References to budget can be found in Kautilya's Arthashastra. It states:

"Chancellor should first esimate revenue from each place and sphere of activity under different heads of accounts and sphere of activity under different heads of accounts
and then arrive at a grand total"

The below link from Wikipedia can be useful for getting gist of Arthashastra.

The term budget has been derived from the old French word "bougette", which means a leather bag or wallet. Initially, budget referred solely to the Chancellor's annual speech on the nation's finances. Now, the term is used for annual financial statement of income and expenditure of a government.

Indian Budget is one of the biggest budget presented by Union Finance Minister. The FM is made responsible by the President Of India to prepare the "Annual Financial Statement" or the budget, and present it in the Parliament every year on 28th Feb or last working day of February.

Indian Budget was previously declared at 5 pm, but since 1999 General Budget is being presented at 11 am.
Normally Budget-making starts in the 3rd quarter of the Financial year.
Indian Budget has four stages:
  1. Estimates of Expenditure and Revenues.
  2. First estimate of Deficit.
  3. Narrowing of Deficit.
  4. Presentation and approval of Budget.
When signed by President of India, Bill becomes an Act.
FM is assisted by number of advisors and bureaucrats. Various accounting and finance related organizations send in their opinion and suggestions.
The main players in Formulation are:
  1. Ministry of Finance
  2. Administrative Ministries
  3. Planning Commission
  4. Auditor General.
Thank you Poonam, that was one informative post. I hope you keep writing for Divine Interception, and all you readers keep encouraging her!

Want to write as well?! Mail me your entry on

Thursday, March 5, 2009

Global Symbol for Indian Rupee

India has started a contest to design a global symbol for the rupee so that the currency can join the likes of US$, Yen, Euro, Pound etc.

The new symbol will be the "identity of the Indian currency". The currency is at present denoted simply by "Rs" or "INR" which is short for Indian rupee.

Guidelines for the contest listed on the finance ministry website stipulate the "symbol should represent the historical and cultural ethos of India."

According to the stated link the symbol should be applicable to the standard computer keyboard.

Though it is true that the Rupee may be weakening, but this is a time for celebration for an Indian National.

Indian Rupee Weakening!!

Not only Indian currency, all the Asian currencies are going down. They have started to doubt their strength.

If we compare the rupee with dollar it has come down at their 2 year low. The declining rupee is affecting the economy. Indian companies are losing huge chunks money. Many companies have recorded mark to market losses running on their foreign currency liabilities.

Using the Keynesian Graph, the demand-supply curve shows a very high demand of US$ but a limited supply is available leading to higher price of Unit Dollar present thus weakening the Indian Rupee.

In this graph Demand and supply both meet at a lower margin indicating a lesser requirement of $ in that economy. This means "An economy having a lower margin with Dollar has a stronger currency making and demand of $ lesser in such an economy".

In this graph the demand is more depicting a weaker currency with a huge demand of $ to satisfy its internal working structure.
This case aptly corresponds to India.

So as to strengthen Indian Rupee, Reserve Bank of India(RBI) has started to sell dollars but it is not making any difference. Demand of dollar is so high that it is not easy to control their appreciation. Oil companies have to make their payment in dollars. They are making huge demand of dollar.

The impact of weakening rupee share market is also in turbulence. Investors have started to think on strength of the economy.

It is still unclear, when this weakness will come to an end. But this is not an indication of a strong economy. People are in hope that it will take some time to be settled down.

Tuesday, March 3, 2009

GDP to go down to 3%

The much discussed GDP and its value has shocked a million of them leaving the values rock-bottomed to a value 20% below the speculated and the fight is not yet over(it may be the beginning).

The Financial last Quarter GDP seem to take a toll of misery with a strange value of 5.3%.

According to the reports

"Based on bull-bear case outlook for G7 (club of developed countries), we see bull scenario growth for India at 5 per cent in 2009 and 7.4 per cent in 2010 and bear case at 3 per cent in 2009 and 4.5 per cent in 2010".

Being a possible G7 entrant India has to keep its pace and reduce the Fiscal Deficit hampering the overall effect of positive Monetary Benefits to the Economy.

With the inflation bottomed at a 4 year low the pressure would now be on the upcoming government to take steps in order to reduce Fiscal deficit and cope up to the standards of G7 countries.

It is been speculated that India to surpass US by 2050, but for now the main concern is to stabilize the internal working of the economy.

However the average projected GDP for year 2009 will be 4.3% with a 25% increment in the next financial year.

The third quarter growth (October-December 2008) rate has been estimated at 5.3%, down from 8.9% posted during the corresponding period last year.

Adding to the misery is the Stringent Industrial Development with a record of 16-year low of 2% this may further increase burden of loans leading to further pressure on GDP.