Its about money, Honey....

The budget is due next week and recent rise in CPI and WPI must have given our own finance minister sleepless nights. The huge task at hand will be to keep the Inflation within acceptable limits of 5-5.5%.
The debate over inflation has pestered me to reasearch on the Indian currency: rupe and its stability vis-a-vis other currencies in the world. The currency system can be broadly classified into six groups i.e

Dollarization: When a country adopts a foreign currency for its transaction within
Currency Board: When the convertibility between the foreign and local currency is unlimited
Pegged: When local currency is pegged at foreign currency
Crawling Pegged:When currency is adjusted periodically based on foreign currency
Managed Float: Centrally managed but dependence on foreign exchange market
Full Floating: Dependence on foreign exchange but not managed centrally.

Indian rupe comes under Manged float type and it is one of the strongest managed floating currency in the world. The currency has dependence on the foreign exchange market however Central Bank has control over this dependence. In our case RBI acts as the central bank and keeps a close vigil on the excessive apprciation and deprication. Due to its dependence several factors are responsible for the value of the currency i.e Inflation, Interests levels, Income, Purchasing power, Productivity and Trade. The first four are interdependent while the last two effect each other.
If India's Inflation levels are higher than US which in the present scenerio is quite true then Indian Rupe face devaluation, and will effect interests rates adversely. High interests rates are detremental to investments which effect might curtail the growth momentum.
Income and purchasing power are correlated and end up depreciating the rupe against the dollor but this dependence is in less productive economies because it strains the resources and balance of payment sheets.
High productivity and International trade enp up appreciating the currency as it brings foreign exchanges and strengthens the currency in the global market.

Its high time Mr PC takes a stand on the FTA agreements with ASEAN and bring the tariff levels close to ASEAN levels so that India can boost its International Trade. Implementation of GST should be expidited so that Inflation can be curbed, with ofcourse rise in productivity in agricultural commodities. The talk of the town is sustainable growth and with rising Inflation inspite of (low crude oil prices) let alone being a superpower it will hard to even sustain till 2020

Its all about the GAME!!!

Jon Forbes Nash Jr....The name reminds us of Oscar winner Hollywood blockbuster "A beautiful mind" and to an extent superb role play by Russle Crowe, but what we often forget is the true picture of schizophrenic and his popular “Game theory” which has its application spanning across economics, biology, politics and philosophy. When I finished reading the life history of Sir John Nash, I was tempted toward Game theory the aspect which remained largely untouched in the movie.
It is the concept used in the strategy based game where the outcomes are known to all the players and they play in actual conditions to maximize their chances of winning the game often forgetting that the most mutually favorable outcome is not the beneficial to both(or all) the players individually. Lets take most popular “prisoner dilemma” problem and try to illustrate the solution

“Police have detained two criminals accomplice in a grave crime. But due to lack of evidence the personals decide to question each of them individually. The options with both the prisoners are to either accuse or not to divulge any details. The matrix below shows the possibilities and the outcomes

both the prisoners together serve minimum imprisonment of an year when they remain silient which is highly enlikely since if the other betrays then the law hit the silent prisoner hard.

one more example to illustrate the "Game Theory" is the "The ultimatum game" in which the sample space of the possible outcomes is infinite as aginst the one given above with sample space as 4 possible outcomes. This game involves dividing the share onto two parts with the the first gamer given the option of choosing the share fot both of them and the other given the liberty to reject knowing that both will not be given any share if it leads to rejection. Here the outcome favourable to both of them is that the second player accepts whatever is offered since(other than a zero) the desicion to reject will leave nothing to their disposal.

When a study is incorporated amonsgst many games played then a 50:50 share is most favourable amongst the players since all the other outcomes invauriably are more favourable to the first player dividing the share since he will keep his share to be more or equal to the second player.

the extensive representation of the conditions are shown as tree diagram as against the normal diagram shown for the "prisoners dillema" game above.

The MRI scan of the brain of second player in the study dipicts that the rejection is more often the result of revenge which is disastrous to both the player.

Studying these two games brings out a very interesting fact, in almost all the games played the most favourable outcome to all the player is often not the final outcome since it involves the rational thinking of maximizing the overall outcomes rather than the involving maximizing the indivisual outcomes.

This is one form of game theory in which the opponent is known. The other being rather unconventional in which the theory becomes complex in finding the outcomes.

CRR demystified.

After the recent hullabaloo about the RBI CRR hike by 50 basis points to curb inflation the first thing which comes to mind is what is CRR. Cash Reserve Ratio is the percentage of total money that Banks have to retain with themselves from the total deposits.
Lets take a simple example to take the inside view of CRR
Suppose a depositor has 20 bn $ as bank deposits. Lets assume bank invests the money and that same money again gets deposited in the bank. So essentially bank has now 40 bn $ assuming CRR as nil. If this money travel the same route then the money will keep multiplying infinitely.

Let the CRR is x% (x<1).>

In the actual scnerio this hike of 50 basis points from the current 5.5% to 6% will drain about 27,000 crore (5.4 bn $) from the market. In the next post it will be effects of the CRR hike on the interests rate, bond market and share market.

Keep smiling….

Valentine’s day :– commercialization of love.

A special article for a special day.

I am living the globalized era of 21 century with supporters of this day in aplenty. The proponents would argue that it’s their freedom of expression which is at stake when the bajrag dal activists take charge against this day. I do not support the shiv sainiks neither do I support the bajrang dal activists but I stand by the argument that these days do sow seeds of consumerism in the minds of innocent young couples.
. When a guy of 8th class of a reputed private school visits a hallmark gift shop on the eve of valentine’s day, he is amazed by the world engulfed in the small enclosure. The big corporate houses in their vested interests eye this innocence and trap the poor soul with their web of marketing stunts. The result is evident. If he finds his valentine the day after its happy ending alike a shah-rukh bollywood blockbuster, if he doesn’t then he moves on forgetting the day. But whatever be the outcome what is often overlooked is that he is traped in that seemingly harmless web and soon a victim of consumerism.
. It might be a happy valentine’s day at a posh upper class market in affluent corner of delhi but the outcome might be different for girl standing at the bus stop. The sentiments becomes so strong that a thin line between a proposal and eve-teasing is crossed by many.
It might be happy valentine’s day for a newly wed couple but will it be of same outcome to a debt ridden farmer in vidarbh who can think of a suicide because he cannot pay back Rs 2000 which is shade less than expenses equivalent to a evening show at PVR.
. It’s time we understand our responsibilities because this day has come in our lives not because we can afford it but because our country has toiled hard to make us afford this day.
Happy Valentine’s Day.

what India stands to gain from CORUS

31 January, i may be late but the limelight hasnt faded yet. Mr Ratan Tata, chairman Tata group (now the biggest group as per sales) must have come out of his plush room at Taj, Mumbai with more than a smile to his face. Reason, the biggest ever clinched deal by an indian company in the global arena. An anonymus line in biggest economics daily quoted "India needed a six on the last ball, batsman Ratan Tata did the needful by straight bat shot". Quite rightly so, there is more to it than just the 12 billion tag.
It will prove to be more than just an aquisition for India Inc. The manufacturing industry of India has been away from its growth story by miles crippled with the cliched problems of infrastructure clubbed with aversion of Indian minds towards innovation. It will put Indian manufacturing industry in the driver's seat. Tata's with their presence in manufacturing, power, IT and automobile have time and again proved their mettle by soaring profits in all the sectors despite the prevalent problems.
The deal has proved that despite being the consumer economy since 60 years, India Inc has courage and power to talk of billions worth of gobbling. India has proved its hegemony in the knowledge sector. Now it was time to prove a point or two in the manufacturing sector.
As if this was not enough, Mr kumarmanglam Birla went on to aquiring Atlanta based Novelis. What could be worse than this, his 6 billion seemed peanuts face to 19 billion worth Hutch buy out by UK telecom major Vodafone. Poor Birla, it will take him half a decade to come out of his agony, his deal of 6 billion was overshadowed. Hope this SAGA continues unabated.........

comments welcome.