Reflections on the Rising Rupee

The Indian Rupee (INR) has appreciated vis-a-vis the US Dollar considerably in the recent period. It has gained almost 13 per cent since July-Aug last year. Even as recently as a month ago, it was moving in the range of Rs 44-45 per Dollar; now it is between Rs 40-41. Who all are happy and who all are worried?
 
The government is obviously happy, for two reasons. One, politically speaking, it gets some bragging brownie points. Though Finance Minister P Chidambaram said, “The government has no view on exchange rates”, the ruling class can afford to say that the stronger INR is all due to their ‘efforts’, especially when elections are on in the all-too-crucial UP. May be, just may be, the guilt of mismanaging the economy in the late 80s and early 90s and having had to devalue INR is still there in the minds of Congress people (Oh, yeah?! You sure?!!!) and the gains made by INR may help assuage such feelings! Second, the government has been able to tame inflation at least a bit: WPI based headline inflation has come down to 6.09% from 6.72%, but is still far too above RBI’s comfort levels.
 
Besides all these, a Credit Suisse report released recently has said that the rally in INR has made India a Trillion Dollar GDP economy. India’s GDP has been put at Rs 41,00,000 Crore, which at Rs 40.72/$ translates to a little over $1 trillion. With this, India becomes the 12th member of the Trillion Dollar Club, the others being the US, Japan, Germany, China, the UK, France, Italy, Spain, Canada, Brazil and Russia. According to the same report, the Indian stock market capitalization too is closing fast on the trillion dollar level. Music to stock brokers’ ears!
 
Another set of people who are rejoicing are the importers, in general and oil companies, in particular. Rising Rupee will help improve their margins. It remains to be seen whether they will pass on the benefits to the consumers.
 
In this context, the role of the RBI is surely worthy of a mention. Though our exchange rate mechanism is said to be market-determined, it was an open secret that RBI discreetly controlled it. All along, RBI used to buy up all dollars coming into the economy and this used to get added to our forex reserves, which recently crossed the $2 billion mark; the Rupee that were issued instead were mopped up by what was called ‘sterilization’ using government bonds under the Market Stabilization Scheme (MSS). However, many questioned this intervention of RBI and the effectiveness of its sterilization operations. The recent bout of high inflation was at least partly due to this, it was alleged. What has happened now? Though the RBI maintains that there has not been any change in its external sector management policy, the RBI has been conspicuous by its absence from the market in recent times. Is it because it has not enough MSS bonds or is there an ace up its sleeve? No one knows. Also, the RBI has concerns about the quality of the money coming into the country. It is now acknowledged that at least part of the dollar inflows is speculative in nature, called by different names like ‘carry trade’, ‘private equity’, ‘hedge funds’, etc. In a recent interview, the RBI Governor Dr YV Reddy hinted at RBI’s helplessness in controlling such inflows which arise from policy flaws.
 
Rising Rupee has implications for India’s Balance of Trade (BoT) position too. Unlike most other Emerging Market Economies (EMEs), India has a significant deficit in its Current Account. Coupled with a surplus in the Capital Account, a substantial portion of which is a mere mouse click away from flying out, it presents a tricky situation. The need for export competitiveness cannot be overemphasized. Appreciating INR will make it difficult to achieve the export target of $160 billion laid down in the recently released Annual Supplement to Foreign Trade Policy. Naturally, the exporters are a worried lot. If INR gains, it will eat into their wafer-thin margins and many will be forced to down their shutters. Then again, the sunrise IT sector feels threatened as most of their clients are US-based. Bigger firms which have the professional competence and access to hedging tools are better off, but it is the smaller firms that will be hit hard the most. In this context, the RBI’s move to allow companies categorized as SMEs to book forward contracts without any past records of forex trade or any underlying exposure, is commendable. The RBI has also taken measures to ease Rupee outflows. All these have to be supplemented with activities to educate the small and medium exporting units on using hedging tools effectively.
 
Finally, amidst all this is a report (by JP Morgan? I’m not sure) that the INR is overvalued by about 11 per cent at current levels. This complicates the situation. Is the appreciation temporary? Will the Rupee plunge below the 50/$ mark? Only time will tell. Another aspect that calls for immediate attention is the need for cost reduction in all sectors of the economy. Though cost control and cost reduction are essential ingredients for the success of any organization, its significance becomes manifold for export-oriented enterprises, especially in the context of a rising Rupee. It is both an opportunity and a challenge for Cost and Management Accounting professionals. There is this dire need to instill cost consciousness in our economy and the rising rupee is the perfect excuse to initiate a cost reduction drive in all industries and sectors. Cost reductions and innovations are necessary to stave off the challenge posed by other low cost destinations like Philippines.

Misinterpreting Indian Constitution

‘Yours truly’ is not an expert in the complexities of Indian Constitution. However, that should not prevent him or anyone for that matter from airing one’s views on the same. On the basis of this belief, the following is a take on the tendency on the part of some of the stakeholders of Indian polity to interpret the constitution to suit their vested interests.
 
First is about the controversial topic of reservation. The Constitution, of course, provides for reservations for the disadvantaged and backward sections. Take a closer look: does the word ‘caste’ appear anywhere in the Constitution? No! It speaks of only ‘class’. Then who is the ‘erudite a*****e’ who decided that reservations should be based on caste? Some people say that ‘Class = Caste’ if caste excludes the well-off within. However, that is a mistaken notion. If the objective is to keep out the well-off, then why is not reservation given on the basis of economic status alone? Even after some 57 years of independence, the quota system appears nowhere close to being phased out. It is to be remembered that even the SC/ST reservations were supposed to last for just 10 years. It was intended that this practice will be reviewed and measures taken to set it in tune with the changing times. Every ten years, the Parliament decides that SC/ST reservations be continued for another decade. When will this stop? True, caste-based atrocities are reported even today from different parts of the country. But that signals the existence of a malaise entrenched far deeper in the psyche of some people. Does reservation remove it? Again, no.
 
It is time we scrapped caste-based reservations and came out with an objective mechanism that takes cognizance of one’s social, economic and physical weaknesses to help them realize their true potential. A targeted ‘Help & Nurture System’ for such people should be put in place. To make use of an analogy, in a 100 m race, the weak people need not be given the option to run just 70 m; they have to be given extra training to run the full distance. More than anything else, it will do wonders to their own sense of self-respect.
 
Second issue is another hot potato, ‘minority rights’. The term ‘minority right’ itself is wrong; it is ‘minority protection’. The controversy over this issue has two aspects. First is the lack of a precise definition of the term ‘minority’. It is generally agreed that minority-ism is of two types: linguistic and religious. However, the problem is with the level at which we are to assess it – at the state level or at the national level? A minority in a state may be a majority in another. Therefore, logic states that minority status should be assessed at the state level. Another aspect of the controversy stems from Article 30 of our Constitution which provides that minorities will be free to run and promote their own educational institutions, etc. This provision is made to ensure that minorities do not suffer any discrimination in running such institutions and are thus able to protect and promote their unique culture, practices and customs. It is to be remembered that this provision does not give them any special privilege which is not available to others, the majority; in other words, the intention behind the provision is to have the minorities treated at par – not above or below others. However, this Article has now been sought to be interpreted as giving some special rights to the minorities, as if they are free from all rules and regulations. This hots up as a big issue especially when the minorities are perceived to be economically and politically strong, as is happening in Kerala.
 
The bottom-line is that all special provisions made in the Constitution to benefit any group of individuals are ultimately aimed at their economic and social upliftment and preventing / ending discriminations against them. Once this objective is achieved, these are to be scrapped. Again, if the mechanisms to ensure this have not produced the desired results or are proving to be the divisive forces in the country, it is time we revisited them and made them work the way they are expected to. Unfortunately the courage / willingness to do so is terribly lacking in India’s political class.

The Supreme Court strikes again

The Supreme Court of India, in its interim order, has stayed the implementation of the reservation of 27% of seats in central government-run educational institutions including the IITs and IIMs. Basically, the SC has agreed to two of the points raised by the petitioners: One, how was the figure of 27% arrived at? In other words, what scientifically-gathered data is there which puts the figure of OBCs at 27% of India’s population? Definitely not a 1930 census! Second, why should the ‘creamy layer’ be given the benefit of reservation? It has also made the caustic observation that the Central Government should not use votebank politics to divide the country. The Government has been given time to come up with supportive documents by August.
 
This interim order is sure to hog the headlines in the coming days. The HRD minister Arjun Singh, who was the man behind this Act, has expressed ‘hope’ that the final order will be in government’s favour. The ‘Mandal’ man VP Singh has called for a referendum on reservations.
 
Now, a lot of questions remain unanswered. As the Left says, how can the SC which upheld reservation of 27% to government jobs now trounce this? Then again, as one student representative said on one of the TV channels, caste in isolation is not a criterion for determining backwardness. There are other barriers also, like the gender divide, the rural-urban gap, the inter- and intra-regional imbalances which all cumulatively determine backwardness. Just the reason that someone is born into a particular caste does not automatically entitle him to work less than others!
 
A crucial question that everyone conveniently skirts around is this: How effective is reservation / quotas as a tool for the amelioration of the sufferings of millions? Agreed, we need to have an inclusive growth. But, is reservation the only mechanism? No!! Reservation can at best be cosmetic. It does not treat the underlying disease. An analogy comes up in my mind. If two athletes are competing and if one belongs to a backward caste, do we say that he needs to run less distance? No, but we need to give the right kind of nurture and equip him to put up a better performance. One hopes that the SC will give due consideration to all these in its final verdict.
 
The world around us is marching ahead. Also, there are growing inter-linkages between the global affairs and what happens in India. We’re no longer an island that we once were under the likes of Nehru and Indira Gandhi. The world does not tolerate mediocrity. It needs fighters. Need proof? Look at India’s ignominious exit from the World Cup Cricket. We should not be resting on past laurels, but we need to keep achieving more, small or big.
 
Finally, why did I say that the ‘SC has struck again’? Yes, the first time was when it ruled that all laws put under the 9th schedule of the constitution after the verdict in the Kesavananda Bharathi case (1973) are open to judicial review. The said schedule was being used as a mechanism to dodge uncomfortable questions in the form of judicial review. By asserting that all laws are open to question in the court, the SC only reiterated the ‘basic structure doctrine’.

Budget 07 – A short note!

A long distance travel followed by a bout of serious illness and a pre-occupation with an exam result saw to it that there was a break in my posts, extended to more than a month. In this intervening period, there were some significant developments on the economic front. Inflation is soaring, Economic Survey and the biggie, Budget 07 were presented, EASIEST was introduced, CRR was hiked, etc. Surely, my blog missed out on all the heat and action!!
 
It’s been close to three weeks since the presentation of Budget 07. I’m still not ready for a full-fledged reflection on it; still two points are worthy of immediate mention.
 
First is the proposal to formulate a scheme of ‘Reverse Mortgage’. “In the scheme, being conceptualized, a senior citizen of 62 years or more, who owns a house, can be given loan up to a fixed amount worked out on the percentage basis of the market value of the house owned and given on mortgage. They can, if they so desire, opt for receiving the amount in monthly installments also. In such a case, the amount admissible will be spread over in 15 years in the form of annuity….The loan amount need not be repaid in the lifetime of person / spouse…..In the event of their death, the institution will realize the amount through selling the property or their progeny can take it back paying the necessary amount.” It surely does look good, theoretically, I hasten to add. The reason is simple: it’s the Indian psyche! Our customs and mindset are against taking up a liability as we age. Moreover, the scheme applies only to self-acquired property and not ancestral property (that’s as I understand it). Besides, the children of the loanees may be against foisting another liability upon them.
 
Second, “Finance Act section 83 made an amendment in Service Tax and now Central Excise Section 14AA is also made applicable to service tax provisions for the purpose of Audit. Now the Cost Accountants empowered to conduct audit in service tax also as referred in section 14AA Central Excise Act.” This is music to the ears of Cost Accountants in practice, given the growing scope of service tax. This amendment is all the more heartening since the amendment (I was told) was made despite strong lobbying by ICAI. The crucial question, as raised by a member of the Chapter in my home town, is about how many Cost Accountants would be ready to rise to this. Hope there will be many….
 
More in next….

 
 

Three burning problems..

As I see now, there are three problems that require the immediate attention (and action) on the part of the Govt of India. If there is failure to act on these, the economic growth of the kind we witness now in India will surely lose its steam. And that, is bad news!
 
First of course is the rising inflation. The WPI based inflation rate is high and so are the CPIs too. The government has tried to bring it down by reducing the import duty on food items and the RBI has, in its Q3 Review of Monetary Policy, tried to strike at the demand side of inflation. The measures taken by the RBI officials especially are to be appreciated, as they have tried to target specific segments which, in their view, are fueling the inflationary pressures – like increasing the provisioning for segments like credit card outstandings, capital market exposures, real estate financing and personal loans. As Governor YV Reddy pointed out, inflation is always harmful to growth as it leads to volatility in the economy.
 
Second problem is the inadequate infrastructure. As correctly identified in the Mid-Year Review of the Economy by the Ministry of Finance, if infrastructure problems are not addressed properly and in time, it can prove to be the Achilles’ Heel in our economic growth. So, what all comes under the generic term ‘infrastructure’? It includes roads (highways), ports, airports, uninterrupted supply of power and water, housing facilities and telecommunication facilities. In the post-reforms era, we have seen tremendous improvement in telecommunication facilities and, to some extent, transportation facilities. It can easily be seen that whichever sector was opened up to private participation, with commensurate and competent regulatory mechanism, has shown good results. In fact, the single biggest factor behind the growth of IT & ITES sector, in my view, is the unprecedented improvement in telecom facilities resulting in the lowest charges in the world. It is mostly in the power sector that we have ended up laggards. And, that is the area where there have not much reforms and opening up. In recent times, there seems to be some improvement, what with the bidding for some mega power projects resulting in very competitive tariffs.
 
In PM Manmohan Singh’s view, we need a whopping US$ 350 billion as investment to spruce up our infrastructure. Where will it come from? Of course, partnering with the private sector is the solution. For this, appropriate homework needs to be done and it may also be necessary that user charges may have to be imposed. A good way to raise at least a part of the funds is to revive the debt market segment. One hopes some concrete measures will be undertaken in this connection.
 
What is the third problem?  It is agriculture. Agri-sector contributes around 22 per cent to India’s GDP but employs more than 60 per cent of our population. But look at the growth rate: just about 3 per cent. And, farmer suicides are going on at an alarming rate. It naturally means that for growth to be more equitable, the fruits of reforms should reach the millions of farmers in our country. Only then will our dear politicians be able to ‘sell’ reforms to their constituencies. [More on agri-sector in a separate post, coming soon!]
 
 

Two composers I expect a lot from….

I had, in one of my previous posts, talked about my music preferences. To the list of the composers I like, I would like to add two more names: GV Prakash Kumar and Rahulraj T.
 
GV Prakash Kumar probably needs no introduction to ARR fans. He has sung a number of songs for ARR. Perhaps more than this fact, it is this factoid that will pop some eyeballs: he is ARR’s nephew. He started off singing with ‘Chikku Bukku Raile’ (Gentleman); he went onto sing a number of other songs for ARR. In the meanwhile, he took up Audio Engineering and has worked as programmer for a number of music directors, viz Vidyasagar, Harris Jayaraj, etc. He has worked as a programmer for ARR from Swades onwards. Meanwhile, he also sang the hit number ‘Kadhal Yanai’ (Anniyan). IMO, his most notable work as an assistant is the recently-released Hindi flick ‘Jaanemann – Let’s fall in love again’. Yes, the music was by Anu Malik, but it was GV Prakash’s music arrangements that stood out. The songs ended up sounding like ARR’s and till one newspaper highlighted the contribution of GV Prakash, everyone was under the impression that Anu Malik had improved! GVP has made his filmy debut as composer through director Shankar’s production ‘Veyil’. The songs were good and became hits too. Of course, he teamed up with ARR’s crew (notably ‘flute’ Naveen and H Sridhar) and there are some who say his real skills will be on display only if gets a team of his own. I see promise in this guy.
 
Rahulraj too would require no introduction to the Mallu fans of ARR and to observers of music scene. He is the one behind the soulful theme of Amrita TV and also some programmes on the same channel. He has also given music to some album tracks, most notably Tom George’s ‘En Jeevane’ and Sreenivas’ ‘Aaril Aaro’. He has composed some jingles too. His filmy debut will be the Mohanlal-starrer ‘Chotta Mumbai’. He has a voice very much similar to ARR’s and that’s why I said he is no stranger to ARR fans; his rendering of the Amrita TV theme had many wondering whether it is not by ARR himself. I have had the good fortune to get in touch with this talented young man and it was a wonder to learn about his musical sojourn. I look forward to his works eagerly.
 
What is common to both GV Prakash Kumar and Rahulraj is that both of them are good singers, but with voices that are slightly different from what we usually consider normal. Another common factor is the ARR connection. They are both talented and no lover of good music will dismiss their works lightly.

Adieu, Sidney Sheldon…..

Been and am a little too busy….after all, life is all about giving priorities to different things, right? So, naturally, the time I spend online, in general, and blogging, in particular, has taken a hit….However, this is something I want to type in a few words on……
 
Sidney Sheldon, the popular novelist, passed away. He’s authored a number of best-sellers, starting with The Naked Face. I’ve been a fan of his ever since I first read If Tomorrow Comes. I then went on to read almost all of his works. In fact, his works, to some extent, rekindled my interest in reading; from his novels, I moved on to the more serious stuff and learnt to appreciate literature for what it is worth.
 
What was special about Sheldon’s works? For a beginner, they offer decent thrill. Of course, some passages might seem to give a ‘cultural shock’, but once you are familiar with the milieu in which the stories are set, you are able to overlook these. Secondly, the language he used is simple and easy on eyes and brain. Yes, it’s meant for leisure reading. The stories take you to different parts of the world and you feel you are actually seeing all with your own eyes.
 
However, there is something more to his works than what meets the eye in the beginning. That is the powerful characterization of the female protagonists. Be it Tracy Whitney (If Tomorrow Comes) or Ashley (Tell Me Your Dreams), they do what they do for a reason. They are not cowed down by the adversities of life, but take up the challenge of fighting the odds and seeking revenge. That is the specialty of all of Sheldon’s works.
 
In Sheldon’s death, we have lost a wonderful novelist….Sheldon, RIP!!!!

Indian Stock Markets – Who is the Fool?

Stock exchanges are one among the various financial intermediaries. A stock exchange may be defined as a place or market where securities (ownership or debt) of joint stock companies and of government or semi-government bodies are dealt in. It is an essential concomitant of the capitalist system of economy. It is indispensable for the proper functioning of corporate enterprise. It brings together large amounts of capital necessary for the economic progress of a country. It provides necessary mobility to capital and directs the flow of capital into profitable and successful enterprises. It acts as the barometer of general economic progress in a country and exerts a powerful and significant influence as a depressant or stimulant of business activity. It is often the platform where one can obtain an accurate or near-accurate valuation of corporate enterprises.
For many years since independence, the Indian financial system was caught in the vice of narrow, inflexible regulations that made it tough to maneuver. Real change started when the then RBI Governor RN Malhotra kicked off a gradual deregulation in 1988. Matters came to a head on September 23, 1991 when India’s foreign exchange reserves touched rock-bottom levels of US$ 0.93 billion – barely enough to cover even 14 days’ oil imports. The nation suffered the ignominy of pledging 65 tons of gold with the Bank of England to raise US$ 445 million which helped it tide over the worst-ever forex crisis in its history. Eventually, the agreement signed with the IMF ushered in a wave of reforms and the winds of liberalization, privatization and globalization blew through the length and breadth of Indian economy and its financial system. Indeed, the financial system in India at present is a far cry from the regulated system in vogue in the 1960s and 1970s.
It needs to be highlighted that stock markets were in operation in India for a long time prior to the reforms. Stock trading began in India on July 9, 1875 when native brokers formed The Native Share and Stock-Brokers’ Association in the then Bombay. In fact, it was the first such exchange in the whole of Asia. However, it was only in the post-reforms era that stock markets began to get their rightful share of limelight. Today, the Indian stock market ranks among the best in the world in all respects – be it market capitalization, number of companies listed, regulatory framework or transparency. Again, India has the only-one-of-its-kind T+2 settlement system and steps are underway to move to real-time settlements. The Bombay Stock Exchange Ltd (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary stock exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and the NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. Due to the existence of the Futures and Options (F&O) segment in the NSE, it tops in terms of the volume of transactions, though it is the BSE which has the largest number of listed companies. The two key stock indices are the BSE Sensex – for Sensitive Index, as coined by Deepak Mohoni – comprising 30 top stocks and the NSE’s S&P CNX Nifty – for NSE Fifty – comprising 50 top stocks.
With the opening up of the economy and aided by stellar performance of the economy, the stock markets have wrested their rightful share of limelight, so to speak. The stock markets have set a scorching pace of growth. Also, there were the series of reforms unleashed, starting with giving teeth to SEBI, allowing foreign institutional investors to invest in India, introduction of rolling settlement, banning the badla system, moving to screen-based trading, introduction of new instruments, internet trading, and finally, demutualization of the exchanges. That today Indian stock markets are on solid grounds is borne out by the fact that within just two weeks of RBI allowing FDI & FII in stock exchanges, NYSE have acquired a stake – of 5 per cent, the maximum allowed for any single investor – in NSE. LSE and NASDAQ are in talks to acquire a similar stake in BSE. Even on the basis of stocks traded, there has been tremendous improvement. From around 1000 points or whereabouts in July 1991, the BSE Sensex is now at levels of 14000+. Then again, the market cap (of BSE stocks) is now more than Rs 35 Lakh Crore; but the P/E ratio has actually come down from 40 in 1991 to between 19 and 23 today.
That brings us to the issue of stock prices. What drives stock prices? Fortunately or not, and like everything else in this world, there is no crystal ball that can show the future price of any stock. Theories on stock price movements are galore and studies on the same can be grouped under three broad headings, viz. fundamental, technical and efficient market hypothesis. All the three together are able to explain away most of the price movements, but uncertainties still remain. It is now accepted that stock prices are a reflection of expectations of investors and changes in the same lead to changes in the prices. And, these expectations are based not just on a particular company’s or even domestic economic fortunes, but also on global events. In a way, it can be said that the uncertainty surrounding stock prices is the charm of the game! However, too much of uncertainties is harmful and leads to violent fluctuations in prices. Here, Indian markets score badly – it is leader with respect to volatilities! And, that is the inadequacy of Indian markets…What is the cause for this volatility?
Unarguably, the Indian stock market saga is built on institutional funds. It is a show run by financial institutions. Foreign Institutional Investments in the Indian capital market, which commenced in January 1993, have shown significant increase over the subsequent years. Cumulative net FII investments increased from US$ 827 million at end-December 1993 to US$ 45.3 billion at end-March 2006 and further to US$ 46.9 billion as at end-September 2006 (Source: RBI). On a year-on-year basis, in the year-ended December 2006, FIIs pumped in US$ 8 billion on top of the US$ 10 billion brought in, in 2005. Domestic institutions are also not far behind. Domestic mutual funds, led by UTI and banks have been aggressive buyers all along. However, they have not been of great help when foreign funds are withdrawn, as has been demonstrated quite a few times in the past. A word also needs to be said about the role of Participatory Notes – freely transferable instruments issued by FIIs to its clients who are otherwise not eligible to enter Indian markets (like Hedge Funds) or who wish to remain anonymous. Many a time, RBI and SEBI have expressed their concerns over them and Tarapore-II Committee even recommended its phase-out. The fears expressed by these agencies about PNs – that it helps money-laundering and round-tripping of capital – cannot be dismissed lightly.
The sort of big ticket buying and selling by institutions keep retail investors away from the stock markets. Not that there is anything wrong in institutional investments, but the sheer enormity of the funds at their disposal makes retail investors jittery and gives them sleepless nights! Though the late Dhirubhai Ambani (now immortalized on the celluloid by Mani Ratnam’s Guru, aided in no small measure by the riveting performance of Junior B, Abhishek Bachchan) is often credited – rightly or mistakenly – with encouraging the growth of equity cult in India in a big way, the fact remains that the retail investor base has not grown to attain that ‘critical mass’, the over 9.9 million demat accounts (as at end-Dec 06) notwithstanding. After all, according to the 61st round of NSS, 64.75 per cent of Indians are still illiterate and 52 per cent are unemployed. Low retail participation may partly be attributed to lack of awareness about the stock markets as an investment alternative. The tendency on the part of even educated Indians to derisively dismiss stock markets as ‘gambling centres’ is strange indeed! It points to the terrible gap in investor education and financial counseling in India. Then again, the cause of equity is not helped in any way by the tendency of some retail investors to enter and exit the stock markets at the wrong times and burn their fingers. Also, there are some too-ignorant-to-be-fit-as-MPs who raise a hue and cry whenever there is a stock market crash. The real fools are the ones who think they can make some quick bucks from the stock market! Add to that the scams – remember Harshad Mehta and Ketan Parekh – and it can be seen that low retail investor participation is both a cause and an effect of volatility in Indian stock markets.
What can be done to boost retail participation? One solution that seems likely to materialize soon is the spread and reach of internet trading. Since its introduction in February 2000, internet trading has grown by leaps and bounds. Data till November 2006 show that trading over the Net formed about 14 per cent of the total turnover. It’s still small change when compared to South Korea’s 75 per cent, but shows its potential.
Another solution lies in revitalizing the moribund debt market. It will address the concerns over regular returns. It can also, at least partially, meet the requirements of infrastructure funding. SEBI can simplify the trading rules further and at the same time needs to guard against the actions of vested interests. It also needs to take a final view on the fate of regional stock exchanges, which as of now do not seem to have any way forward.
If all these are done, there will be no stopping the Indian stock market zoom! Vrooooom!!!!

Plagiarism? No! Inspired? Yes!

Well, it seems I need to emphasize that I scribble over here primarily to help me hone my writing skills – to take what I consider as two of my dream-exams, to enter the organization / set-up of my dreams. To that end, what I put here as ‘Current Affairs Commentary’ are not all of my own scholarly insights, but to a large extent, a reiteration of all that I collate from a diverse range of sources. If you may, it can be called ‘inspired’; but it’ll be painful if the word ‘plagiarism’ is used…..

Orgnaised retail – Challenges for the players

Well, I have already given my take on the prospects of organised retail in India. Taking it a bit further, today let me look into the challenges for all the players involved.
 
For any serious player in the organized retail space – regardless of it being an Indian or foreign one – space is a serious issue. Yes, the kind of space that is required for setting up a mall is a premium in India, especially now as the realty sector is witnessing an unprecedented boom, amidst fears of a ‘bubble in the housing sector’. Land prices are shooting through the roof, not only in Tier I cities, but also in Tier II and, to some extent, Tier III cities. Increased prices mean that the players will have to invest a lot more in land (if they want to own the space) or fork out more as lease rentals.
 
Then there are the much-talked-about supply chain deficiencies in the Indian agri-sector. Procuring all the necessary agri-products, grading them, and transporting them to the various cities can all be logistical nightmares for the players. Rural connectivity in India is, at best, literally a bumpy ride and at worst, non-existent. The players will have to invest heavily in all these support structures.
 
All these inadequacies can be reasonably assumed to find a reflection in the costs of operations of all players. Thus, higher costs to the end-consumer seems inevitable at least in the short-run, unless the retailer – with deep pockets – decides to bear it all (Highly unlikely, let me add!).
 
Next comes the biggest challenge of all – winning over the Indian consumer. Wal-Mart or Reliance or anybody else, will find this the most daunting task. Understanding the consumer psychographics and acting on them is a must to succeed. Indians are a discerning lot and cannot be taken for a ride. The footfalls have to be translated into sales. To assume that it is a cake-walk will be like lulling oneself into complacency. It is not to be forgotten that Wal-Mart had bit the dust in countries like Germany and Korea. Biggies like Reliance need to take caution, because this is a new business for them. Players like Shoppers’ Stop and the Futures Group too need to tread carefully as they expand into new locations.
 
As outlined in an earlier post, local mom-and-pop shops are already feeling threatened by organized retailing. News reports suggest that some kirana-wallahs are up in arms against a Reliance store in Ahmedabad. There are also reports that prices of some grocery items are rising as the biggies are doing bulk purchases (As an aside, if that is indeed the case, it calls the bluff of all those who said India is self-sufficient as regards food; is the supply so short as to get exhausted on bulk purchases by someone?).
 
In my view, organized retail will have the immediate effect on a consumer state like Keralam. Here, very little production takes place and people will be ever-ready to switch over to a lower-cost alternative. What can the kirana-wallah do? A lot, if you ask me.
 
As with everything else, there is already a trade union for small traders in Keralam, viz. Kerala Vyapari Vyavasayi Ekopana Samiti. It is a cash-rich organisation. It can bring together all its members’ shops and give them a new brand identity. With the cash available, it can contribute to sprucing up all the shops and endow them all with some distinctive features. It should try to replicate the operations of organized retailers in procuring materials and thus exploit the scale efficiencies. Quality has to be ensured and a new brand shop can be created. With the right ideas and will, sky is the limit and they can pose a veritable challenge to organized retailers. The office-bearers of the Samiti should realise that unionism is to be used for activities like these and not for downing shutters on every hartal day and on silly grounds!
 
If this succeeds, it can be replicated in other states too, right?