InFINeeti March2014 Edition 4.0

InFINeeti | Budget Issue | March 2014


Dear Friends,

Greeting from Team InFINeeti…

It has indeed being an interesting year till now! With election results to be declared in the latter half of May, we enter the finan

cial year with high hopes and expectations. Our usual budgetary edition has been modified to give special emphasis on the Interim

budget, so presented by the outgoing Finance Minister- Mr P Chidambaram. We will be discussing on how relevant an interim

budget is and its implications on the future proceedings. Let us have a peek into the topics we have covered in this edition.

The recent phenomenon of Bitcoins has taken the world for a surprise. Does it have the potential to change the way we deal with

currency or is it just another bubble, waiting for getting burst?

It has been an active time in the World of Mergers & Acquisitions! With the Facebook-WhatsApp deal creating a lot of buzz, back

home, we recently saw Sun Pharma acquiring Ranbaxy- in a $4 billion deal which would make them the 5th largest drug maker in

the world!

The world has always followed the U.S economy closely. Over the years, things have drastically changed, and we will be providing

an analysis on the American Economy from 2014’s perspective.

Inflation has persistently been high from quite some time now and it has eroded the savings at a much faster rate than people

thought it would. So, in order to find ways to protect the savings of common man we have explored the option of inflation in

dexed bonds. We have presented an expert view on this topic.

Education is the burning issue in India right now. There is a visible skills gap seen on the front of primary and secondary education.

In this edition we have presented a comprehensive analysis of The Education Sector.

Also, more than five years have gone by since the financial crisis. So, we have presented the analysis of its implications and what

are the learning’s and takeaways from the crisis- which we should keep in mind to avoid a similar situation in the future.

We have also looked at Argentina’s economic problem from a historical perspective as well as its current problem on the currency

front and tried to understand the Argentine economy in a holistic way.

Besides the insightful articles, the edition also features regular columns like FIN Trivia, FIN-lingos and News Chronicles.

When we will meet for the next time a lot would have changed. A new government would have been formed, a full budget would

have been presented and we would cover all of it in our next edition.

Till then we hope that you will enjoy reading this interim budget edition. Wishing you a very Prosperous and a Happy New FISCAL

Year!

Happy Reading!!!

FROM THE EDITOR’S DESK 3


CONTENTS 2 CONTENTS 4

>>> Page 8 >>> Page 26 >>> Page 35

America recovers :

A comprehensive analysis of effects of recovery in America

5

Five years of finan-cial crisis: Learning's and Takea-ways

8

Faculty speak— inflation index bonds in India : Recent perspective of IIBs

19

Top events of 2014: Review of important events of 2014

25

Facebook-WhatsApp deal :

Analysis of FB-WhatsApp deal. Whether it is justified at $19 billion or not

26

COVER

STORY

ANALYSIS OF THE

INTERIM BUDGET

“Has it provided the right prescription needed for the ail-

ing economy”

14 The bitcoin bubble:

Contains analysis of

whether bitcoin has a fu-

ture as a alternative to

currencies

32

FIN Trivia

Fin lingos 12

News chronicles 37

39

Sector analysis : education sector

An Analysis of India’s Education sector

35

Regulars

Argentine paradox :

An economic timeline

and the way forward

29


5

INTRODUCTION

As much the economies of the world bore fruits of the increasing

globalisation and inter-linking of the world economies, so much

have they suffered. The financial crisis of 2008 had a grave im

pact on the economies of the world, most of which haven’t yet

recovered fully from the effects of it. America is at the nucleus of

globalisation. If America defaults, the world economy goes for a

toss. This has been a statistically verified phenomenon and eve

ryone felt the tremors post the financial crisis of 2008. But an

other dimension which has emerged lately out of the recent

recovery of US is that if America recovers from the cold, the

world sneezes frantically. Let’s explore this statement and see

how the economic recovery of US off late has been affecting the

economies of other countries.

EFFECTS OF US RECOVERY

US accounted for ~13% of the world’s imports in 2012. America

also ranks second in world’s exports, accounting for 8.56% of the

world’s total exports next only to China which accounts for

11.35% of world’s imports. However, the main figure for our

concern is US imports. US is the largest importer in the world.

Let’s take a look at some of the figures of US imports over the

last 3 months of US recovery (Oct’13 – Dec’13). Total imports

recorded an 11.3% drop between October 2013 and December

2013.

Many factors have contributed to this reduction in imports by

US. One of the most important factors is US dependence on en

ergy resources. Shale gas resources have reduced the energy

requirements for US and hence the fund freed up from import of

crude oil and gas can now be utilised to give a thrust to the local

manufacturing industries. This is making US more of a competi

tor rather than a consumer of imported goods. The new-look

America is focused on greater demand and production at home

and taps more of its own energy, paring the need to buy over

seas.

A 1 percentage point pickup in US GDP growth typically meant a

0.4 point spillover for the rest of the world. These statistics

alone indicate to loss in world GDP is America’s gain.

Another major reason leading to a slowdown is the withdrawing

of monetary stimulus by the US FED on accounts of the picking

up of the US economy and as a consequence of which currency

depreciation of other developing countries. FII investors have

started taking out money they had invested in the emerging

economies resulting into depreciation in currency for these

countries.

Many Asian countries during this period of post FY2008 till date

had increased their External Commercial Borrowings due to

cheaper interest rates in the developed economies especially

the United States. Hence, many Indian conglomerates found it

favourable to raise loans in US rather than domestically. Now,

when US gets back on the track to recovery, US currency will

appreciate which could very well mean an increase in dollar de-

WHEN AMERICA SNEEZES; THE WORLD CATCHES A COLD.

IT’S A THING OF THE PAST. NOW “THE WORLD CATCHES A COLD

WHEN AMERICA RECOVERS FROM IT”.

BY-GAUTAM BABBAR

IIFT, DELHI

Oct-13 Nov-13 Dec-13

World 2118,27,33 1934,99,556 1873,02,60

India 38,42,865 29,67,370 31,36,656

China 437,35,242 417,72,404 390,81,551

Japan 121,56,430 119,37,880 115,42,915

Germany 111,40,064 105,99,657 97,17,847

US Imports from different countries

Source : Trademaps


6

nominated interest payments to US thus, leading to lower reali

sations in profit for Indian or Asian companies at large.

EFFECT OF US RECOVERY ON EQUITY MARKETS

Let’s now take a look at the effect of US recovery on equity mar

kets of mainly the developing economies. Indian equity market

indexes have had a positive correlation with the FII inflows.

The given table shows the net FII inflow in the past 1 year and

the graph shows the performance of BSE Sensex over the same

duration. We can clearly see that the negative inflow during the

months of Jun-13, Jul’13 and Aug’13 clearly led to fall in BSE

Sensex whereas positive inflows during the latter part of the year

have raised the index. Thus, strengthening US equity markets

will lead to greater investments in US due to increase in returns

and shielding from currency exchange rate fluctuations. This

would clearly mean a weakening equity markets of developing

countries.

However, different side of the coin is if America recovers, the

spending power of middle class consumers will rise due to an

increase in employment. The effect of this would be more im

ports for the American economy which would lead to a gain in

world’s GDP. For India in particular, US is one country with

whom we have had a trade surplus in the past and continue to

enjoy it. Increasing demand among US consumers will lead to an

increase in India’s exports thus leading to an improvement in

Current Account Deficit as well as a favourable Rupee against

Dollar.

The net effect can only be determined by the Growing invest

ments in US economy vis-à-vis growth in imports from other

countries. The trade ratio for America if decreases, and the do

mestic demand is met by domestic production, American econo

my will reduce its dependence on the foreign markets.

Month Net Investment(Cr)

Jan-14 714.3

Feb-14 1,404.30

Mar-14 20,077.20

Dec-13 16,085.80

Nov-13 8,116.10

Oct-13 15,706.20

Sep-13 13,057.80

Aug-13 -5,922.50

Jul-13 -6,253.30

Jun-13 -11,026.90

May-13 22,168.60

Apr-13 5,414.10

Mar-13 9,124.30

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2014/January

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2014/February

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2014/March

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/December

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/November

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/October

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/September

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/August

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/July

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/June

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/May

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/April

http://www.indiainfoline.com/MarketStatistics/FII-Activity/2013/March


This will definitely give a boost to the domestic industry and

would result in a favourable Return on total assets (RoTA).

Domestic firms rather than going for acquisitions or subsidiaries

abroad will prefer investing locally resulting in a net increase in

FDI inflow as compared to previous years. A lot depends on the

policies drafted by the US government to boost the domestic

industry in the past. For example, we saw in Obama administra

tion, the tax cuts being given to firms which had their operations

in US and increase taxes to firms outsourcing their operations.

This led to many countries suffering due to decreased outsourc

ing by US companies.

CONCLUSION

Analysing both the scenarios, we can safely assume that the net

effect on the world economy might be detrimental but surely

would not lead to another parallel crisis. The world does not

have to worry so much about it in the near future!

7


ABSTRACT

This article maps the 2008 financial crisis in terms of its causes,

effects and recent regulatory interventions that it has entailed.

Looking at these aspects, we gain insights into five key learnings

from the crisis that involve incentive dynamics, policy, regula

tion, risks, and globalisation.

INTRODUCTION

The events leading up to the fall of Lehman Brothers show us

how over-speculation in financial markets, combined with be

havioural failings like risk-taking, greed of individuals and of be

hemoth financial institutions, amplified by confusing overlaps

and perilous gaps in regulation, globalisation and inter-linkages

among economies, have led to one of the greatest financial cri

sis of all times.

Almost over five years after the crisis, we have ample opportuni

ty to look at what can we learn from it and what should be our

takeaways for the future. However, let us first take a broader

view into what led to the credit crisis and what were its implica

tions. This is an important step which will help us in identifying

red flags in the system, and ensuring that these are prevented in

the future.

The lull before the storm – the universal principle of

cause and effect

We are aware that the 2008 financial crisis was exemplified by

the fall of Lehman Brothers, housing bubble burst in the US

while many banks and financial institutions went bankrupt.

However, these were just effects of causes that had been in the

making for years.

Expansionary monitory policy and capital market regulation:

Federal bank reduced the interest rates drastically after dotcom

crash to boost the economy; it had come down to 1% in 2004.

This made the credit cheaper, hence, led to creation of securi

ties based on sub-prime mortgages. These sub-prime securities

had high interest rates, higher risks and lesser supervision. Vari

ous institutions like Fannie Mae and Freddie Mac opened up to

sell these securities. Muni and Kothari (2006) report that the

proportion of full documentation loans declined from 81 per

cent in 2002 to 69 percent in 2005. Hence, the investments in

these securities increased and this process slowly led to this

bubble.

In the regulatory environment, one of the major changes was

the replacement of Glass-Steagall Act of 1933 by the Gramm-

Leach-Biley Act of 1999, which allowed banks to offer commer

cial , investment banking and insurance services under one intu

ition.

MAPPING THE FINANCIAL CRISIS :

LEARNING’S & TAKEAWAYS

-By Anuradha Dhote & Usha Bhakuni

IIM, Kozhikode

8


This created complex financial instruments and led to greater

interdependency in the market. The American Dream Down

Payment Act of 2003 allowed $200mn to be paid annually as

assistance to low income people and increase the loan limit for

the first time house buyers. While these acts were meant to

make it easier for people to own homes, it led banks to extend

loans to people with less credit-worthiness. The BASEL II Stand

ards of 2004 reduced the capital adequacy ratio requirements

for banks, which enhanced the risk taking behaviour. Also, the

hedge funds were made self-regulated by the Securities and

Exchange Commission (SEC) and there was no restriction on the

amount of money that these could borrow.

While government policies and regulations created a platform

for the crisis, the high executive compensations and financial

innovations were the individual and organizational incentives

that set the wheel rolling. Executive incentive schemes may

award bonuses in the short-term, which emphasize immediate

revenue-generation and eventually, lead executives to ignore

risks that become apparent only later. The securitization of sub-

prime mortgages, and the “financial alchemy”, that was used

by Lehman Brothers and other investment banks to project

themselves to be financially healthy - contributed in the build-

up to the crisis. We saw increased financial leverage of banks,

mostly consisting of bad assets pile up and bad credit. The pan

icked depositors withdrew money in huge volumes, further

leading to a liquidity crunch in the system.

CHANGES IN FINANCIAL INDUSTRY AND REGULA TORY

LANDSCAPE

There has been significant discussion over causes and learning

from the crisis, and various government interventions have

been introduced, that range from bailouts that prevent a col

lapse of the financial system in the short term, to international

conferences and regulatory interventions that aim towards

preventing such crisis in the long term.

The $700 billion troubled assets release program (TARP) that

offered to buy mortgage backed securities (CMOs) and equity

from the banks in order to increase their lending power and

Quantitative Easing stimulus that purchased $85 Billion of fixed

income securities per month. These measures spark a rally in

financial markets and higher money supply drives the growth

engine, but these are hardly sustainable in the long term.

An ongoing set of reforms aimed towards addressing regulatory

system’s weaknesses that caused the crisis include a set of new

banking standards, the so-called Basel III framework which rais

es minimum capital requirement for the banks, gives a wider

risk coverage and a counter cyclical buffer to limit excessive

credit growth. The Dodd-Frank Wall Street Reform and Con

sumer Protection Act established government agencies like

Financial Stability Oversight Council, which monitors perfor

mance of companies in order to prevent a large scale economic

crisis, while Consumer Financial Protection Bureau (CFPB)

9


10

prevents predatory mortgage lending. Each country and area

has also initiated reworking of its legislative framework for fi

nancial activities, for e.g. setting up of institutions which moni

tor systemic risk.

LEARNING FROM THE CRISIS - AND WHAT REMAINS

UNADDRESSED?

Let us try to dig a level deeper and conceptualize some com

mon themes around the crisis. This will help us in identifying

the threads and unaddressed issues that that run between vari

ous causes and implications of the crisis.

Banks re-packaged risk from sub-prime mortgages into instru

ments called collateralized debt obligations (CDOs), which were

marketed to investors as high yielding bond investments. The

credit rating agencies failed to take notice and gave these in

vestments a high rating in exchange for a fee from the banks.

The incorrect application of these products led to the crisis.

While traditionally, risks are diversified, selling these risks to

hedge funds consolidated the risk. As such, the 2008 financial

crisis also have valuable risk management perspectives.

Organizations are aware that they can win business from com

peting organizations by condoning misrepresentation of repu

tation and documents of prospective clients. While commis

sions to agents are paid upfront, the managers feel that they

are compromising short term revenue of the firm by not being

a party to questionable deals. This creates a chain of incentive

conflicts in the financial and regulatory system. Such inceptive

conflicts lead to greater moral hazards. Investor education,

transparency, and information asymmetry in financial transac

tions also have a major role to play. So, what has been our

learning from this crisis?

Lesson one: Lack of regulation and over-regulation need to give

way for smarter and dynamic regulation. The financial crisis

makes a legitimate case for tighter norms that reduce regulato

ry arbitrage. However, financial regulation also imposes costs

on the economy and may exacerbate the effects of the crisis.

Hence, we need a dynamic approach to regulation that stands

ground, especially when markets fail.

Lesson two: Dealing with creation of crisis management and

resolution mechanism, especially for large banks that pose sys-

temic risk. This step is crucial to address failure of banks classi

fied as “Too Big To Fail” (TBFT). The government bails out these

banks as because of their sheet size, they pose a systemic risk

for the entire financial system. However, bailing out such banks


will only create more moral hazard as creditors and owners of

these banks will have no incentives to avoid excessive risk tak

ing.

Lesson three: Incentives trump regulation. Interest conflicts

should be resolved and incentives that support systemic stabil

ity, discourage excessive risk taking and lessen moral hazard,

should be encouraged.

Lesson four: Past does not predict the future. Why did large

financial institutions bet so heavily on rising prices in the real

estate market? Treasury secretary Hank Paulson said that they

looked at data since 1945, and concluded that house prices

couldn’t go down. Traditional, backward looking risk measures

based on returns from spreadsheet averages failed to predict

the crisis. Typically crises happen in times of economic boom,

coupled with regulatory oversight and with everyone willing to

jump on bandwagon, fuelling the trend and hoping to jump off

before the bubble burst.

Lesson five: Don’t turn back on globalisation. Financial and

trade links between global economies led to the spread of the

crisis across borders, however, it wasn’t a root cause for the

same. What is entails is global standardisation of accounting

standards, stronger nationa and sectoral regulators and inter

national cooperation.

OPPORTUNITY AMIDST DIFFICULTY

More than five years after the crisis, it is important that we

learn from the past and work towards better policy implica

tions, regulatory interventions, and changes in the way a finan

cial system operates, so that crises of such a scale could be pre

vented in the future. The 2008 financial crisis has given all

stakeholders, including governments, regulators, financial insti

tutions and investors an opportunity to rethink the idea of capi

tal markets. It is time that we make the most of it.

11


12

AC-DC Option

A derivative that gives an inves

tor the right - but not the obliga

tion - to buy (call) or sell (put) a security at a certain

price (strike), and in which the investor makes the buy

or sell decision at a specific time after the option is in

force, rather than at the time of purchase. The AC-DC

option is basically an option, which on a future date can

become a call or put option at the buyer's discretion.

Abusive tax shelters

An investment scheme that

claims to reduce income tax with

out changing the value of the us

er's income or assets. Abusive tax

shelters serve no economic purpose other than lower

ing the federal or state tax owed when filing. Often,

these schemes channel funds through trusts or partner

ships to avoid taxation.

Accounting Hall Of Fame

A prominent award in the field of

accounting. The Accounting Hall of Fame was started by

Ohio State University in 1950. The award is highly selec

tive, and is given only to very prominent accountants

who have made "lasting contributions to the field."

Balloon Option

An option contract where the

strike price increases significantly

after the underlying asset's price reaches a predeter

mined threshold. A balloon option increases the in

vestor's leverage on the underlying asset

Killer Bees

The merger and acquisition boom of the

late 1980s forced companies to develop

strategies to thwart would-be takeovers.

Killer bees, named for the insect that ag

gressively swarms and overpowers its victims with hun

dreds of stings, act aggressively on behalf of a firm that

is under the threat of an unfriendly or hostile takeover.

The killer bee may employ tactics such as making the

target company less attractive or more difficult to ac

quire.

Kiwi Bond

Retail stock offered directly to the public

and available only to New Zealand resi

dents. Application forms and investment statements

are available from the new Zealand Debt Management

Office (NZDMO) Registry, as well as some registered

banks, NZX firms, NZX brokers, chartered accountant,

solicitors, investment advisors and investment brokers.

Pirate Bank

A type of offshore savings account used

by a wealthy individual to hide assets,

typically to evade taxes and/or commit

illegal acts such as money laundering. A pirate bank is

different from a traditional offshore account in that it

uses advanced technology to make it more difficult to

track down the account. The account may also be un

numbered and have a chain of ownership that is diffi

cult to trace.

Fin Lingo


Saber Currency

A proposed Brazilian currency that

would be handed out by the Min

istry of Education to 7-year-olds to

be redeemed only for university

tuition. Saber currency is a complementary currency

that was proposed by Bernard Lietaer to help Brazilian

schools offer more educational opportunities, regard

less of a lack of available funds. A type of educational

voucher, the Saber is intended to facilitate more learn

ing opportunities for a larger number of students, with

out adding any new financial pressures to the economy.

The planned Saber currency has three capacities:

The Ministry of Education allocates Sabers to the

youngest students (for example, 7-year-olds) in

schools in economically disadvantaged areas. The

young students must choose an older student (10

years old, for instance) as a mentor, and pays the

mentor with the Sabers. The 10-year-old then does

the same, finding an older student to mentor him

or her. Down the line, 17 year olds will have collect

ed the Sabers to be used towards university tuition.

Redeemed Sabers are reallocated to young stu

dents.

Children or adults who help elderly or handicapped

individuals can also earn Sabers.

Certain laborers could elect to be paid in the stand

ard pay for the job, or at a reduced pay plus addi

tional Sabers, an incentive for parents of children

planning on attending university

Wall of Worry

The financial markets' periodic tendency to surmount a

host of negative factors and keep ascending. Wall of

worry is generally used in connection with the stock

markets, referring to their resilience when running into

a temporary stumbling block, rather than a permanent

impediment to a market advance.

Ghosting

An illegal practice whereby two or more

market makers collectively attempt to

influence and change the price of a

stock. Ghosting is used by corrupt companies to affect

stock prices so they can profit from the price move

ment.

Dash-to-Trash

When investors flock to a class of securi

ties or other assets, bidding up prices to

beyond what can be justified by valuation

or other fundamental measures. While the

dash-to-trash effect can occur within any type of securi

ty, the phrase is typically used to describe low-quality

stocks and high-yield bonds, both of which can be sub

ject to periods of overbuying in the markets.

Fin Lingo

13


COVER STORY 14

ANALYSIS OF THE

INTERIM BUDGET

“Has it provided the right pre-scription needed for the ailing

Indian economy?”


COVER STORY 15

WHAT IS INTERIM BUDGET?

The budget of a government that is going through a transition

period is known as national interim budget. Practice of inter

im budget is very common in most of the democracies, since

the fiscal priorities of coming government may differ from

the existing government, the duration of the budget is cut

shot and a new budget is created afterwards. The duration of

interim budget may spread up to one month, one quarter or

more, depending upon the length of the transition period

required by the new and old government, but the duration

cannot exceed the upper cap of one year. This budget is cre

ated out of necessity, so that government can function during

the transition period.CD Deshmukh on February 29, 1952

presented the first interim budget of independent India.

WHAT IS VOTE ON ACCOUNT?

According to the Article 266 of the Indian Constitution “to

draw money from the consolidated fund of India, govern

ment requires parliamentary approval” and article 144(3)

states that “withdrawal of funds from consolidated fund re

quires enactment of law and this should be done through an

appropriation bill”. The process of presenting the budget,

discussing it, presenting the finance bill and appropriation bill

requires long time. To address this, a provision has been

made in the constitution which empowers Lok Sabha to make

grants in advance through ‘Vote on account’. In a normal year

‘Vote on account’ is taken for two months which allows the

government to spend the one sixth of the total planned ex

penditure of the fiscal year. However in election years the

duration of the ‘Vote on account’ may increase. First VOA in

India was presented in year 1952-53. Since then there are 12

in total VOAs have been presented; six by the outgoing gov

ernment(In remaining 6 cases government decided to go for

election immediately after or before the end of financial

year) and six by the new government as they did not have

enough time to present a full budget.

DIFFERENCE BETWEEN VOTE ON ACCOUNT AND BUDGET

The main different between the Vote on account and Budget

is, VOA deals only with the expenditure side of the govern

ment, on the other hand a budget deals with both expendi

ture and revenue collection side of the government.

VOA cannot alter the structure of direct taxes as this requires

parliamentary approval through finance bill. The government

in its interim budget may alter indirect tax structures without

parliamentary approval, through a notification. In 2004, just

before the dissolution of National Democratic alliance,

BY– ROSHAN KHATRI

-IIFT, KOLKATA


COVER STORY

finance minister Jaswant Singh announced series of indirect tax

cuts on the eve of VOA. In case of normal union budget govern

ment can alter both direct and indirect tax structure.

SIGNIFICANCE OF VOTE ON ACCOUNT

The technical significance of VOA is; current government

gets access to funds before the full budget is passed. In the

election year it signifies that it is the prerogative of newly elect

ed government to prioritize its earning and spending, and it

cannot be burdened by the previous government’s expendi

ture.

Many experts look Vote on account as an election rhetoric.

The government through VOA highlights its achievements just

ahead of elections, as the voter reward the work done by gov

ernment in the first four years.

INDIA VOTE-ON-ACCOUNT/INTERIM BUDGET 2014

On February 17, 2014 incumbent finance minister

Palaniappan Chidambaram presented the interim budget for

fiscal year 2014-15. It was his 9th such exercise, just one short of

the magic number of ten budgets presented by Morarji Desai.

On expected lines, Finance minister discussed about the

achievement of his government over the last two terms, and

there was no change in the direct tax structure. Apart from

counting the achievements of his government in his speech; he

also discussed (in great details) about the issues concerning the

growth of Indian economy such as infrastructure, manufactur

ing, power, foreign trade and foreign direct investment. Below

are the key highlights on the score card of the government and

interim budget.

ECONOMIC INDICATORS

GDP Growth likely to be less than 5 percent in 2013-14: The

financial year started with decadal low growth rate of 4.5 per

cent in Q1 2014.Growth rate improved in the second half of the

year with improving macroeconomic factors such as easing in

flation, increasing exports and decreasing current account defi

cit. Some announcement such as curbing the gold import, re

laxed external commercial borrowing norms and increased FDI

in sectors such as Insurance, Aviation and Retail also had some

positive impact. The major concern was lack of change in the

credit ratings despite slew of reforms announced by the gov

ernment. The reformed announced by the government were

insufficient to bring the Indian growth story back to the 8 per

cent growth trajectory. High interest rates (despite of easing

inflation), depreciating currency, uncertainty pertaining to the

result of the general election have derailed the recovery of the

Indian economy.

SECTORAL GROWTH: Different sectors of the Indian economy

presented a mix bag of performance. Agriculture sector outper

formed the growth in Q2 2014 with record growth of 4.7 per

cent pertaining to good monsoon .Manufacturing sector growth

contracted in Q1 2014 because of very high interest rates and

low investment. Service sector maintained its growth rate of

6.6 percent in Q1 2014, while it decelerated in Q2 2014 be

cause of slow demand in social and personal services.

INDIRECT TAX PROPOSALS: On the expected lines, finance min

ister announced some changes in the indirect tax such as excise

and customs.

EXCISE: Largely the excise duties remained same; however

there are some changes which will benefit the common man.

Excise duty on equipment, appliances and machineries

has been reduced from 12 per cent to 10 per cent. This

will benefit consumer durable segment such as CD, DVD,

washing machine personal computer set top box and

capital goods such as electric motors, printing devices

and generators. The concession will be available from

17th Feb 2014 to 30th June 2014

Imported cellphones and smart phones now cost more.

According to the revised duty structure all imported

handsets will attract duty of 6 per cent. Earlier the duty

was calculated on recommended selling price (RSP). For

RSP greater than 2000, excise duty was six percent and

for RSP below 2000 it was only one percent.

Depending upon the nature and configuration of the motor

vehicle the excise duty has been reduced, this reduction varies

16


COVER STORY 17

from 3 to 6 percent. Refer the table below.

CUSTOMS AND SERVICE TAX: Service tax remained unchanged

at 12 percent. There are some minor changes in the basic cus

tom duties (BCD).BCD on import of non-edible grade industrial

oil used in soaps manufacturing and fatty alcohol and acid man

ufacturing has been reduced to 7.5 percent from existing 10 to

20 percent.

AAM AADMI AND INTERIM BUDGET: Like any other budget

announcement, common man had lots of expectation from the

interim budget. Being election budget expectations were even

higher. Let us evaluate the gain and loss of the common man.

EDUCATION LOAN: Student who took education loans before

March 31, 2009 and owed interest on it have reasons to cheer.

Interest on their loans it till December 31, 2013 has been waived

by the government. Government has set aside sum of $419 mil

lion for this scheme and this is going to benefit around 90000

students.

VEHICLES: Finance minister addressed the concern of both auto

mobile sector and growing numbers of vehicle owners. Reduc

tion in the excise duty on car, scooters, trucks, motorcycles and

sport utility vehicles is a much needed relief to the ailing auto

sector of the country. Reduced excise duty will indeed benefit

the new buyers.

CELL PHONES: The revised duty structure is a mix bag. On one

hand this will increase the cost of imported hand sets and on the

other hand it will provide much needed boost to the domestic

mobile manufacturing industry. This move will encourage large

multinationals to think about India as potential manufacturing


COVER STORY

destination.

DEFENSE PERSONNEL: Contrary to the opinions, finance minis

ter raised the outlay by 10% percent to $36 billion. Government

addressed the much awaited “One-rank one pension” clause.

The defense personnel will now get the pension on the basis of

their ranks at the time of retirement, regardless of time of re

tirement. The increase allocation will be spent of modernization

of army and pension disbursement.

FINAL WORDS: Known for his political and financial acumen,

finance minister Palaniappan Chidambaram presented a bal

anced interim budget. He successfully balanced the pressure of

election budget and concerns of fiscal consolidation. Unlike

2009 budget, he avoided big soaps to voters and at the same

time he lured the first time voters by education loan interest

waiver (as the number of first time voters is highest in this gen

eral election). To address the concern of the slowing growth

rate, India needs balanced and growth promising union budgets

in coming years. The responsibility lies on the shoulders of up

coming government to continue the path of fiscal consolidation

and promote growth prone policies.

Goods Existing Excise Duty Proposed Excise Duty

Motor vehicles of engine capacity exceeding

1500 cc, popularly known as SUVs including

utility vehicles. 30 per cent 24 per cent

Small cars, Motor Cycle, Scooters, commer

cial vehicles, trailers 12 per cent 8 per cent

Large segment car 27 per cent 24 per cent

Mid segment car 24 per cent 20 per cent

Hybrid Motor Vehicle 12 per cent 8 per cent

Three wheeled vehicles for transport of not

more than seven persons 12 per cent 8 per cent

18


INTRDUCTION

RBI has been talking about introducing Inflation Indexed Bonds

(IIBs) in India for quite some time now. An earlier version called

Capital Indexed Bond with original maturity of 5 years with in

dexation of capital only was issued in 1997. Since then, no fur

ther issue of inflation-protected government debt has been

made in India. However, an initiative was taken by the RBI and/

or Ministry of Finance by way of a discussion paper for re-

introducing IIBs in 2004. It was understood that the authorities

decided against such a move, and if the proof of pudding is in

eating, the pudding was never served on the table (till date).

After India witnessed a phase of unusually high inflation over

the last few years (along with slowing growth) that succeeded a

period of about five years of unusually high growth rates (2003 –

08), the media have reported several statements of intent by

RBI officials to issue inflation-indexed government bond (IIGB) in

India in recent past. This is also in line with global experience of

the last sixty-odd years wherein most countries (including the

UK) have introduced IIGB for the first time following period(s) of

high inflation.

STRUCTURE OF AN IIB

An IIB links the payment of either interest, or principal, or both

to a pre-determined index of inflation while determining the

nominal cash flows to the holders of such bonds. If both coupon

(interest) and principal are indexed, or if only coupon is indexed,

a real rate of return (real coupon) is announced (or determined

INFLATION INDEXED BONDS

IN INDIA : RECENT PERSPEC-

TIVE

BY– TRIPTENDU PRAKASH-

GHOSH

ASSISTANT PROFESSOR, IIFT

19


through auction) at the time of issue, and investors receive cou

pons calculated as the real rate plus the reported (known) infla

tion of immediate preceding period, while the principal gets

notionally increased by the rate of inflation (in case principal is

also indexed). The indexed principal is returned to the bond-

holder at the time of maturity. It is also possible to have an IIB

with indexation of principal only, in which case the announced

coupon determines the fixed interest payment to the holders

during the tenure of the bond, with protection of real purchase

price (or face value).

IIBS IN OTHER COUNTRIES

In modern times, Finland introduced inflation indexed bonds for

the first time in 1945. High-inflation Latin American countries

introduced such bonds in the 1960s. Among the more developed

countries, UK introduced government IIBs in 1981 (though non-

tradable IIBs for retail investors were issued since 1975), with US

being the latest entrant in this arena in 1997 (see table).

TABLE: INTRODUCTION OF IIBS ACROSS THE WORLD

CAN NON-GOVERNMENT PLAYERS ISSUE IIBS?

Though there have been instances of IIBs issued by private play

ers in the past, most such issues had prices of specific commodi

ties or services (like oil, metals, electricity) as the basis for index

ation (instead of an overall price index – wholesale or retail).

This is precisely because the revenue of a commodity-firm is tied

to the price of that commodity (or service), enabling it to service

a higher interest/ capital outgo when commodity prices rise.

Such a firm is obviously not in a position to issue an IIB indexed

to an overall price index simply because it doesn’t have any con

trol over the prices of a vast range of products. Only the govern

ment (including the monetary and fiscal authorities) has control

ling power over inflation. Thus the sovereign government of a

country alone is in a position to issue IIBs with indexation tied to

an overall price index.

INDEXATION LAG – CANADA MODEL

UK launched its first issue of inflation-indexed public debt in

1981, with an indexation lag of eight months – 2 months for

reporting lag and six months for institutional lag. Reporting lag

refers to the time gap between when price data are collected

from markets (say June 15) and when the same is made public

(August 15, if lag is 2 months). Structural or institutional lag re

fers to the lag arising out of the practical requirement that trad

ers must know on or before an interest-payment (IP) date what

will be the exact compensation (calculation of accrued interest

and/or indexed principal) for any of the trading days till the next

IP date. Since most govt. debt pays interest semi-annually, this

lag is usually six months.

Canada came out with an alternative structure of indexation

resulting into a shorter (3M) lag in 1991. This has since become

the standard across countries, with UK debt management office

(DMO) shifting to this model in July 2005. Currently, most coun

tries issuing IIGB follow this model.

CHOICE OF INFLATION INDEX

Issuers of IIB will attempt to match assets with liabilities. That’s

why a private player cannot issue IIB tied to an overall price in

dex. A Sovereign Government is in a position to issue IIGBs

Country Year of Introduction

Finland 1945

Israel 1955

Iceland 1955

Brazil 1964

Chile 1966

Colombia 1967

Argentina 1972

UK 1981

Australia 1985

Mexico 1989

Canada 1991

Sweden 1994

New Zealand 1995

US 1997

20


tied to an overall price index due to two factors. First, its tax

revenues are also tied to overall prices (through direct and indi

rect taxes). Second, the government (combination of fiscal and

monetary authorities) has (at least some) power to control over

all inflation.

On the other hand, more investors will buy such bonds the more

the price index chosen match with inflation of the basket of

products they consume. That’s why most countries have chosen

indices of consumer or retail prices as the basis of inflation in

dexation for the IIGBs, even when the bonds are auctioned to

institutional investors. Wholesale prices involve a shorter re

porting lag than retail/ consumer prices in India. However, if

wholesale prices are chosen as basis for an IIB, only supply side

will be taken care of. It is everybody’s knowledge that retail pric

es consistently diverge from wholesale prices in India.

BENEFITS OF IIGBS

There exist at least two benefits to a sovereign government issu

ing IIGB. First, while the yield of a nominal coupon bond is deter

mined through an auction process, the bidders (investors) factor

in an expected inflation into the yield they demand. Investors

are also aware that actual inflation may differ from the expected

inflation, and they seek a premium for this risk. Inflation indexed

bond precisely avoid this risk premium. John Y. Campbell and

Robert J. Shiller estimated the size of this risk premium to be

about 50 basis points for the US economy (before US introduced

IIGB). Size of this risk premium is most likely to be higher in In

dia, as inflation volatility in India is much higher than that of the

US. Thus, IIGB is likely to reduce the cost of government borrow

ing by at least 50 basis points (bips).

Second, almost all countries that issue IIGB also issue nominal

bonds. Yields on both types of bonds are determined through

auction. A simple comparison of market-determined auction

yields on the two types of bonds will help the government

(monetary and fiscal) authorities to reliably estimate the infla

tion expectation of economic agents, which is not possible in the

absence of any issuance of IIGB. Being able to obtain accurate

estimates of inflation expectations of economic agents on a con

tinuous basis is a great advantage for both the monetary and

fiscal authorities, sharply enhancing the efficacy of their respec

tive policy instruments.

From the point of view of investors, IIB offers a near perfect

hedge against inflation, inducing greater flow of savings into

financial assets (IIBs), and thereby at least partially reducing de

mand for gold especially in times of high inflation, when real

rates offered by nominal bonds (and bank FDs) turn negative..

IIGBS AND TAXATION ISSUES

Taxation of indexed interest makes post-tax yield uncertain – in

fact it re-introduces the inflation risk. For a person facing 30%

21


22

% tax bracket, with real return of 4% and inflation of 11%

(nominal return 15%), the post-tax yield will be 10.5%

(=0.7*15%), thereby making the total nominal yield lower by 50

basis points lower than the rate of inflation (i.e., ─0.5% real rate

of return). However, if the actual inflation turns out to be 7%

instead, the post-tax yield (30% bracket) will be 7.7% (=

0.7*11%), making realized real yield of 0.7% (rather than 4% real

coupon on the IIB in this example). Thus, not only the inflation

uncertainty is re-introduced back due to taxation of interest in

case of IIGBs, the realized real yield can be negative for investors

in highest tax brackets especially during times of high inflation.

This implies that IIGBs are likely to be more attractive to individ

ual investors in the zero or lower tax brackets, as well as institu

tional investors (e.g., pension funds) which enjoy special tax ex

emption on interest income from such bonds by virtue of the

nature of their business.

Most countries treat increase in principal due to inflation as tax

able income, apart from the indexed interest. This is in line with

the principle of taxing interest income of a conventional bond

and taxing capital gains. However, to what extent the increase in

capital (face value) due to inflation indexation should be consid

ered as capital gains for taxation purpose is doubtful, simply be

cause such capital gains are not real.

Besides, chances of IIGBs reducing gold demand in India are ra

ther small since post-tax yield is not only uncertain, but even

may turn negative in real terms. It is only from the nil or low-tax

bracket population that demand for gold may come down, un

less a tax-free investment limit specifically for IIGBs is introduced

for individuals across income categories (beyond the Rs. 1 lakh

limit).

LIQUIDITY OF IIGB

Secondary market liquidity of IIBs/IIGBs is very poor across coun

tries with decades of experience of this instrument. This is not

surprising. Investors who buy this instrument need inflation pro

tection, whether on asset side or liability side. They are not in

terested in trading gains. Hence, secondary market liquidity of

IIGB will be poor in India, and that should not be construed as a

criticism against IIGB.

PRODUCT DESIGN OF IIGB IN INDIA

RBI has launched two types of IIGBs in 2013 – one for the institu

tional investors, and the other for the retail investors. Here the

product design of the latter will be discussed.

The IIGB for the retail investors has been christened “Inflation-

Indexed National Saving Securities – Cumulative” (IINSS-C). The

interest rate on these bonds will be linked to the consumer price

inflation (CPI). The real component is fixed at 1.5%, and interest

will be computed on half-yearly basis. The bond will not pay any

annual or half-yearly interest, and the entire interest earned by

the bond during its tenure will be paid on maturity. The tenure

of the bond is 10 years, with senior citizens allowed to redeem

the bond after one year, and others after 3 years. In case of early

redemption, investors will be charged a penalty (equal to half of

the coupon payable for the last-half year). Such early redemp

tion is allowed only on coupon payment dates.

The bond is distributed through State Bank of India (along with

its associate banks), all Nationalized banks, three private sector

banks (HDFC Bank, Axis Bank & ICICI Bank), and Stock Holding

Corporation of India. RBI will act as the central depository for the

bond, and the investor will be issued a certificate of holding.

LUKEWARM RESPONSE

While launching the bond in December 2013 (for the retail inves

tors), RBI in consultation with the Government of India, specified

that the bond would remain open for subscription between 23rd

December and 31st December, 2013. By the end of December,

the subscription period was extended to 31st March 2014. It is

clear the response was far less than what was expected at the

time of the launch of the product.


Not only the subscription period, RBI has also allowed a commis

sion of 0.5% to the banks selling the bond (to the retail inves

tors) in around middle of March 2014. This is in addition to 1%

handling commission that the banks were allowed to begin with.

Finally, on 26th March 2014, RBI has increased the limit of invest

ment by individual investors (including HUF etc.) from Rs. 5 lakh

to Rs. 10 lakh.

All these modifications are clear indication of a near complete

absence of investor interest in the bond.

WHY THE BOND HAS FAILED SO FAR?

In the absence of readily available statistics, one can make some

logical guess about the factors behind such poor investor re

sponse, especially during a period which has witnessed high and

persistent consumer price inflation over years together.

First, distribution is likely to be a factor. A quick search on the

websites (on March 27, 2014) of a few public sector and the

three private sector banks (which are mandated to sell the bond)

reveals an interesting facet. The private sector banks are retail

ing the bond from selected branches (e.g., HDFC bank from 1381

out of 3062 branches, Axis Bank from 219 out of 2225 branches,

ICICI Bank from 1232 out of 3100 branches), while most of the

public sector branches are selling the bond from all branches (a

notable exception is the Corporation Bank, which is selling the

bond from 55 out of 1707 branches). Thus, it appears that the

problem is not due to lack of geographical reach.

\However, the problem is probably due to lack of promotion. A

search into the websites of a few public sector banks reveals

that for most, the information about IINSS-C is very difficult to

find, and for others the information is simply not available. For

all the three private sector banks, information about the instru

ment is easily available (from the Investment section).

Second, the instrument has not been widely publicized in the

media (print or broadcast) by the RBI or Government. Neither

there has been much promotion in the vernacular media. Only a

few articles in the financial press is almost all that have come

through the press. The banks are unlikely to be interested in

promoting the product, in lieu of marketing their own deposit

schemes, in spite of the 1.5% commission. This is simply because

banks will earn about 3% (the net interest margin) of every ru

pee of additional deposits. Consequently, lack of awareness

about the product among the mass along with absence of sales

pitch and effort by banks to sell IINSS-C is very likely be a major

factor.

Third, one aspect of the product design has certainly put off a

significant segment. The retired people without a formal pension

plan would have been the most important target group for such

an instrument from the point of view of old-age income security.

It is inflation that is the biggest enemy to retired people who are

forced to depend on a constant interest income for 15 – 20 years

after retirement. Consequently, the purchasing power of the

post-retirement income comes down with every point of infla

tion each year. An inflation-protected bond is like a god-sent gift

to this class of citizens. But the IINSS-C plans to pay the interest

at the end of the tenure (10 years). No retired person would be

interested in this. Even very few working people will be interest

ed to lock-in the money for 10 years. In fact, a window for sec

ondary market trading could have made the situation better.

This leaves us with the working age population. This population

category is more interested to grow their savings corpus than

protecting the purchasing power of their savings. Regular inter

est payment might have still evinced some interest among them,

because such a bond (with regular interest payment) would have

at least maintained the purchasing power of that portion of their

income that is spent on consumption basket. The cumulative

option has knocked off the segment.

23


24

A more important factor for the working population is the re

quirement to walk into the branch of a bank to buy this bond.

Had it been available for purchase online through demat ac

counts (the way equities and corporate bonds are purchased and

sold), RBI could have still sold more of these bonds.

Fourth, IINSS-C does not provide indexation benefit to the princi

pal. Consequently, this portion, when received on maturity, will

have a far lower purchasing power. Similar bonds issued by the

US treasury (Treasury Inflation Protected Securities or TIPS) pay

interest on a regular (half-yearly) basis at a fixed rate, but on a

principal that is indexed to inflation. This serves the purpose of

protecting the real value of the principal. This has the additional

possible advantage in India (if allowed by income tax rules) that

real taxable capital gain due to indexation will be nil. This will

also broadly nullify the adverse effects (risks) arising out of taxa

bility of inflation-indexed bonds discussed earlier.

RECOMMENDATION

In the light of the above discussion, the recommendations that

follow are:

The bond should be available round the year, on-tap basis,

with annual limit on individual purchase (as is the case now)

The bond should pay regular half-yearly (indexed) interest

to the investors

Investor should be able to buy this bond online (RBI may

have to involve mutual fund distributors, demat account service

providers, on-line trading platforms, and so on, and design a

mechanism) so that people can buy the bond online

RBI should allow the ability to sell the bond before maturity

to anybody other than the government; this will infuse liquidity,

and will make the bond more attractive to the investors, and a

secondary market may develop.

RBI and the Government of India may think of adopting the US

TIPS model for indexation of capital (along with suitable modifi

cation in taxation rules).


25

TOP FINANCIAL HAPPENINGS OF 2014

1 Rupee ends below 60/$ after 8 months on 28th March, 2014

2 RBI extends Basel III Capital deadline to March 2019

3 CAD narrowed to $26.9 billion (3.1% of GDP) from $37.9 billion (4.5% of GDP) in the first half of 2012-13

4 SEBI tightens leash on Sahara Group– Subrata Roy jailed for failing to refund Rs 20,000 crore to

investors

5 Facebook acquires Whatsapp for USD 19 million

6 Janet Yellen took over from Ben Bernanke as the new US fed chief


INTRODUCTION

Iceland, Large Hadron Collider, Hubble Space Telescope, London

Olympics , US Ford Aircraft Carrier. What is the significance of

the above mentioned in the context of discussion. Think for a

minute!!!!.

All of the above are valued much lower than the Facebook

WhatsApp deal. Coco Chanel a famous French designer once

said ““The best things in life are free. The second best things

are very, very expensive.” If you look at the social media cartel,

firms like Facebook, twitter offer their services(their USP) for

free but are the highest valued firms in the world both in mone

tary and usage terms(second best option if you are a competi

tor). With WhatsApp jumping onto this bandwagon we have a

social media behemoth netting a fast-growing, international

user base in the burgeoning global-messaging market, where it

was a marginal player until now. No wonder Zuckerberg had the

chutzpah of acquiring someone who as tech experts say “was

eating his lunch”.

In order to have an unbiased analysis of whether this is a pru

dent or a naïve investment we look at the major stakeholders

and view the deal from their perspectives. By doing so we get a

fair idea of how this deal will affect Facebook, WhatsApp and

more importantly the end user.

THE FACEBOOK PERSPECTIVE: For Facebook this acquisition

makes sense for several strategic reasons, first is opportunities;

Facebook would be able to tap fast growing emerging markets

like Asia, LATAM, Africa where WhatsApp has huge penetration.

Through this, Facebook would be able to diversify its revenue

sources away from US and Canada which now accounts for

nearly 50%.

Secondly after the emergence of messaging apps, especially

WhatsApp, the engagement rate of Facebook started to decline

rapidly. It currently stands at 70% for WhatsApp on a daily basis,

while it’s around 60% for Facebook. This mainly we feel is be

cause of privacy related concerns that users had. Facebook has

effectively plugged the gap with this acquisition.

Third would be that WhatsApp comes with a revenue model

that’s very different from Facebook. Facebook would not toy

around with that model, rather would experiment the same

model for its other ventures.

VALUATION OF WATSAPP-FACEBOOK DEAL FOR $19 BILLION : IS IT

JUSTIFIED?

BY– PRATHEEK PS & ABHIJIT MITRA

FROM– TAPMI

26


WHATSAPP PERSPECTIVE: Here we feel that WhatsApp can rap

idly move into the voice space by the technological prowess and

the amount of capital that Facebook can use. Presently,

WhatsApp’s discrete growth in connecting consumers on data

networks has not been fully scrutinized and screened by regula

tory bodies internationally. Now with FB's staggering acquisition,

WhatsApp could be now thrown into the spotlight and would

open a few questions on data sharing and its carriage across

networks.

INVESTOR PERSPECTIVE: While the only ever acknowledged

funding to WhatsApp was the $8 million series-A funding led by

Sequoia Capital, not many know the overall funding did add up

to $1.3 billion over the years again led by Sequoia through series

of investments. Corresponding to a stake about 20% in

WhatsApp this is worth $6.4 billion today; which corresponds to

5X return on investment in the company.

However there is a more sinister and ironical angle to this whole

episode. About 10 years back in 2004 Zuckerberg was talking to

venture capitalists about raising money for his new firm Wire

hog. When Sequoia reached out to him, Zuckerberg rejected

their investment on the advice of his friend Sean Parker who had

a bad experience with Sequoia for his startup Plaxo. After all this

was a matter of bad blood.

But it didn’t end there. Zuckerberg being the guy he was inten

tionally turned up late for the meeting with Sequoia in Pajamas

armed with a Powerpoint Deck titled “The Top Ten Reasons You

Should Not Invest”. Of Course Sequoia did not invest in either

Wirehog or Facebook. How ironical would it then be to see the

same firm make a fortune on the Facebook WhatsApp deal for

its Investment?

USER PERSPECTIVE: Although it is a bit early to gauge the impact

of this acquisition, the fact remains that WhatsApp users will

become a part of Facebook whether they like it or not. The is

sue for the 450million WhatsApp users goes well beyond adver

tising. Privacy concerns loom at large over the sharing of their

online conversations and multimedia with Facebook; which in

itself is not a good Samaritan of User Privacy (based on its Histo

ry)

But then this is not Facebook’s first acquisition. In the past it had

acquired Instagram. Similar concerns were raised at that time

too; but Facebook, true to its promise, kept Instagram inde

pendent from Facebook. Such is the independence that the only

way to tell Instagram belongs to the social network is to visit its

help pages.

THE FINANCIAL PERSPECTIVE: IN a lot of ways Facebook has

always emulated Google’s business model, may it be in finding

new streams for revenue generations(e.g.: mobile) or tapping

existing resources for revenue generation (e.g.: focused adver

tising). However unlike Google which achieved a cumulative

eight year CAGR of 30% after its IPO(Facebook’s being 12.5%),

Facebook shares dropped by 43% after its IPO in 2012 from $38

to $18. Hence in order to emulate Google’s growth model Face

book share price must increase from $38 to $302 by 2020.

27


Assuming that Facebook net profit margins remain the same

at 27%, its revenue must grow from $3.7 billion to $107 bil

lion in 8yrs period.

Regarding its acquisition WhatsApp has about 450 million

users—paying .99 cents per app install, it’s already got $445

million in gross revenue. So Facebook paid 42x total reve

nues. That’s extremely high, but uncommon in the tech

space, where revenues can grow at a high year-over-year rate

for some time. For instance, Facebook itself saw ad revenues

grow by 70% last quarter. A 70% CAGR growth rate sustained

over two years would mean WhatsApp will get annual reve

nues of $715 million in 2016. It would still take Facebook

roughly 27 years for revenues to match its investment—

longer to get its money back.

Another way of looking at this is to then see if we get our

investment back sooner. WhatsApp saw an exponential

growth rate in the past year, effectively doubling its installa

tion base from early 2013 to today. Assuming WhatsApp

grows to have 1 billion users worldwide in five years lets as

sign a dollar value to each user. Every year Facebook in its

annual report, gives an annual revenue per user (ARPU) fig

ure which calculates how much revenue they get per user on

average. Worldwide, Facebook’s ARPU was averaging around

$8.5 in 2013 and grew 39% year over year. Pessimistically

assuming it grows by 10% year over year, we’ll get to $13.8 in

5 years. Annualizing it by multiplying it with user base we get

a revenue figure $13.8 billion.

So given all these perspectives, is the deal still irrational? The

answer is no, not at all! Facebook cannot risk WhatsApp's

450m monthly and 315m daily active users falling into the

hands of a competitor, such as Google. WhatsApp is growing

faster than Facebook, adding more than 1 million users per

day catering to wide range of customers. What makes the

deal even sweeter is the operational efficiency of WhatsApp

and its lean structure. It employs 55 people and hasn’t spent

a penny on advertising.

Businesses now are leveraging on WhatsApp for sales, cus

tomer service, client relationship and internal communica

tion. Therefore, as a separate entity, WhatsApp has a lot of

profitable relevance to companies and brands. Say suppose

WhatsApp decides to open a brand channel and integrate it

with Facebook fan page, this would open up a whole new

tailored communication channel for brands to reach out to

fans on their mobile devices; meaning companies can market

their brands, display promos and even use it as a channel for

customer service with a click of a button. This opens up a new

revenue channel for WhatsApp.

CONCLUSION

Concluding our view, though our forecasts may project a de

layed payback period for Facebook on their investment, the

qualitative view presents significant benefits to Facebook in

the future. All of this will depend on whether Zuckerberg de

cides to keep WhatsApp a separate entity like Instagram and

conform to the initial vision of WhatsApp founders (Jan Kuom

and Brian Acton) which was so strikingly pinned onto their

workstation. “No ads! No Games! No Gimmicks!”.

28


INTRODUCTION

Argentine economy is in trouble – again. Argentine Peso fell 12%

in a day to 7.8825 per U.S. dollar on 23rd January as Argentina’s

central bank withdrew efforts to support the currency. This was

the biggest decline the currency had seen since its devaluation

in 2002. In fact, it has recently been the worst performing cur

rency in the developing world, having fallen by over 24% since

the appointment of Axel Kicillof as the Minister of Economy in

November last year. The foreign currency reserves have fallen

by more than 30% YoY to $27.85billion which is alarmingly low

for a $475billion economy. Prices have soared sharply with infla

tion rising to 28% for the month of December, according to pri

vate economists. Note that the previous official index which

showed inflation to be 10.9% for the same month had already

lost its relevance since the government’s intervention in 2007

and has been replaced by a new Consumer Price Index unveiled

by the government on February 20.

Though the currency has stabilized since February’s first week,

the investor and consumer sentiments are running low. But how

did it come to this? Yes, there are external factors like US Fed’s

tapering of the monetary stimulus and fears of a slowdown in

China which have taken their toll on other emerging markets

too but what has pushed Argentina to the brink of a balance of

payment crisis is the economic mismanagement of the past cen

tury. But this looming crisis is not a rare oddity for Argentina. A

cursory glance at the economic history of Argentina reveals that

the country has probably seen more economic crises than most.

In fact, since 1975, the country has spent more years in a state

of economic turmoil than in a state of relative prosperity. Ar-

gentina’s unique condition as a country which achieved ad-

vanced development in the early 20th century but experienced

a reversal has been widely studied and even has a term coined

for it – “Argentine Paradox”.

ARGENTINE PARADOX : AN ECONOM-

IC TIMELINE AND THE WAY FOR-

WARD

-By Ashutosh Agarwal

- IIFT, Delhi

Figure 1: ARS/USD

29


A CENTURY OF ECONOMIC TURMOIL

Argentina, which is traditionally a commodity export driven

economy, was one of the wealthiest countries at the beginning

of 20th century with only 6 countries in the world having a high

er per capita GDP. In 1909, per capita income in Argentina was

1.5 times of that in Italy, 2.8 times of that in Japan, and almost

500% of that in neighbouring Brazil.

By the end of the century, its per capita income was about half

of that of Italy or Japan.

The first major crisis occurred in 1890 with the collapse of Ar

gentina’s banking system. However, the economy was back on

track by 1903 and in 1906 the country re-entered the interna

tional bond market. The crisis also served in fostering the rise of

industry. With the beginning of World War I, Argentina again

entered into recession and during the course of the war foreign

investment dried out as Great Britain amassed heavy debt which

had investments of more than 150m pounds in Argentina in

1890. Exports reduced drastically as the Great Britain imposed

restrictions on import of frozen beef which was a major export

of Argentina. The country escaped the Great Depression rather

unscathed with unemployment remaining below 10%. This was

largely due to the abandonment of gold standard and subse

quent devaluation of Peso which kept Argentina’s exports com

petitive. Post Great Depression, the Argentine governments

intensified the policy of import substitution industrialization

which had been in effect since the beginning of the 19th centu

ry.

The Peronist era witnessed increased government intervention

and protectionism leading to stagnation of agricultural produc

tion and trade. High levels of public spending funded by infla

tionary taxes led to inflation. The extent of intervention can be

gauged from the fact that the government went as far as setting

the prices and menu for restaurants in 1947. The 1950s saw

slight opening up of markets for international trade by means of

trade agreements with Britain, Soviet Union and Chile and policy

shift from industry to agriculture to revive the competitive ad

vantage in commodities. But the growth rate remained much

lower than the rest of the world. The wage spiral pushed aver

age inflation up to 30% during early 60s. The respite came with

a coup in June 1966 which put Adalbert Kreigert Vasena in

charge of the Economy Ministry. Under him, the GDP growth

averaged 5.2% while the inflation came down to 7.6% by 1969.

Also, the protectionist trade policy saw a reversal and the cur

rency was devalued by 30% to make exports competitive. But

with removal of Kreiger in 1970, the economic conditions deteri

orated and a wage-price spiral lead to an uncontrolled rise in

inflation.

The period between 1975 and 1990 was an era of hyperinflation

in Argentina. The inflation averaged 300% per year during 1975-

1990 and the real per capita income fell by more than 20%. The

complete loss of control on wages led to the failure of all

attempts to curb inflation. The budget deficit grew to 16% of

GDP in 1989. The breakthrough of reform came in 1991 under

Economy Minister Domingo Cavallo who pegged Peso to Dollar

under a currency board mechanism. The inflation came down

and GDP rose gradually until the contagion effect from Mexican

Peso crisis of 1994 pushed Argentina into recession yet again.

This was followed by the economic crisis of 1999-2002 caused

Figure 2: GDP per capita of Argentina (% of US)

30


31

by appreciation of US dollar to which peso was pegged and de

valuation of Brazilian Real. By the end of crisis, Argentine econo

my had shrunk by 20% and 54.3% of the population was living

below the poverty line.

THE SITUATION TODAY

After defaulting on its debt in 2001, the Argentine economy has

seen a relative recovery since 2002 riding on the back of a boom

in commodity prices especially soybeans and soybean oil. How

ever, the debt has piled up again due to deficit financing and the

foreign capital is flowing out because of loss of investor confi

dence due to government policies such as price controls and

nationalization without compensation. Expectation of a slow

down in China which will affect the demand of commodities has

also added to the woes. With only $30bn of reserves and in

creasing demand for dollars even in the local market, Argentina

had no option but to devalue the peso and some analysts are of

the view that the currency may be devalued by a further 50% by

the end of 2014. This will only worsen the inflation which is al

ready around 28%. Argentina’s dollar denominated bonds too

have plunged 8.2% this year and spread between yields on Ar

gentine bonds and US Treasuries has surged to 975 basis points.

THE WAY FORWARD

The first thing that the Argentine government needs to do is to

acknowledge its role in making things as they are instead of

blaming banks and “greedy capitalists” for its woes. Getting the

economy out of the turmoil caused largely by a century of misdi

rected policies calls for drastic measures. One such measure can

be to allow the Peso to float freely. It will be a major shock ini

tially as the currency may fall as low as 14 per dollar (according

to some analysts), but it will give Argentina the independence to

pursue its own monetary policy with free flow of capital. The

black market rates of dollar are already hovering around 13 per

dollar and a floating currency at the same rate will only add to

the government’s credibility which will result in inflow of capital

apart from making the exports more competitive. An independ

ent monetary policy will also allow Argentina to boost interest

rates to stem outflows.

Curbing inflation is probably the biggest challenge of all and it

can only be done through a credible central monetary authority.

The credibility of central bank will depend on whether it’ll be

able to keep the expected inflation targets realistic and achieve

them. Having faced censure from IMF in 2013 for low quality

data, the new CPI is a positive step towards building confidence

in government reported data, though some economists still

don’t agree that the new index shows the true picture. A strong

monetary authority will also help the country in negotiating with

its debtors better.

Finally, the country needs to make major changes in its trade

policy and capital restrictions. Fortunately for Argentina, its en

trepreneurial sector continues to demonstrate a great ability to

innovate and succeed. Google made Buenos Aires its Latin

American headquarters precisely because of the strength and

innovation of Argentina’s software industry. This strength

should be leveraged by the government to bring in more FDI

and increasing exports. This can be done by implementing fa

vourable policies and providing incentives conducive to invest

ment in the software industry in the country. Also, there is a

need for disinvestment in sectors like oil and energy to pay off

the towering foreign debt just like the privatisation of pension

industry which yielded $29b to the government in 2008.


32

INTRODUCTION

From barter to banknotes to bitcoin, our medium of exchange is

taking a major shift from tangible currency to virtual one. Bitcoin

is the new kid on the currency block which started merely five

years ago by a person under a pseudonym Satoshi Nakamoto.

Since its inception this volatile digital currency Bitcoin has

caught the fancies of common mass. Revered by computer pro

grammers and censured by economists in equal breath, bitcoin

demands further investigation into validity of its application.

FORMATION OF BUBBLE:

The success story of bitcoin and analysing the formation of this

bubble is very significant since the 2008 financial crisis which

witnessed a similar scenario. Bitcoin is continuously expanding.

Investors/Speculators are putting their money into this digital

currency which is not issued by a central bank, but is rather

made up of cryptographic software and supported by a peer to

peer network similarly in nature to BitTorrent and Skype.

THE BITCOIN BUBBLE : WILL IT FINALLY BURST OR DOES IT HAVE THE POTENTIAL TO PROVIDE AN ALTERNATIVE TO THE GLOBAL CURRENCY?

BY– Anirudh Harsinghaney

& Gaurav Vivek Arora

IMI-Delhi


33

The wild fluctuations in the price of the bitcoin have made it a

favourite among the economists who think it as another bubble

– that is a special kind of mania which the people are investing in

expectation of immediate appreciation. The following graph

shows the wild gyrations in the prices of bitcoins in a two year

span from 2012 to 2014.

According to Jean – Paul – Rodrigue, a Ph.D. professor at Hofstra

University, following graph defines the stages of an investment

bubble. Now compare this graph with the data from Splitcoin a

leading bit coin exchange.

From the comparison of the above two graphs, it seems we have

come up to “new paradigm” stage and that investment in many

bitcoin companies like Coinbase, Splitcoin is a testament to that

fact. Similarly, we can see a “return to normal peak” as well. But,

so far all we have seen is capitulation and despair stages of Ro

drigues model a mountain from the fear caused due to Mt. Gox’s

meltdown.

Bitcoin has always been prone to fluctuation in its price through

out its brief history. From being priced less than $15 in January

2013, it zoomed to $1000 in November 2013 and then plummet

ed to $260 after the Mt. Gox meltdown (popular bitcoin ex

change in Japan).

“BITCOIN IS EVIL “

Nobel Prize winning economist and New York Times writer Paul

Krugman has termed the bitcoin as “evil”. According to him for a

currency to be successful, it must both be a medium of exchange

and should have a store of value. He thinks that bitcoin cannot

be used as a medium of currency but it’s the second aspect, the

store of value, where proponents of bitcoin differ from econo

mist around the world. Krugman asserts that for value to be

attached to a currency there should be some central authority

backing it up just like the Federal Reserve does for the Dollars or

in case of gold something which can be converted into some

other form say jewellery and still be valuable. Bitcoin neither has

a central authority nor an intrinsic value associated with it and

hence Krugman predicts that bitcoin is at death’s door. On the

other, the supporters of bitcoin argue that since computer pro

grammers can change the price of materials and value associated

with them, bitcoin does not need to have a stable value associat

ed with it. But the risk of using bitcons for the purpose of busi

ness is huge because of the volatility inherent to the bitcoins. For

a commodity trader a huge depreciation in the value of a bitcoin

can make him virtually penniless and vice versa, a huge apprecia

tion can make him as rich as Croesus.

SAFETY ISSUES

The Mt. Gox debacle is not the first issue of theft of bitcoins. It is

just one event in a series of safety issues that has plagued the

bitcoins ever since its inception.


34

bitcoins ever since its inception.Mt Gox ,the now erstwhile larg

est bitcoin exchange lost 8,50,000 due to hacking out of which

7,50,000 were of users. This has been followed by Flexcoin,

which announced itself as the “first bitcoin bank” when launched

in 2011.Flexcoin closed down in early March when it found out

the theft of 896 bitcoins worth close to $6, 00,000. Silk Road 2.0 ,

a black market drug trading site reported the stealing of 4744

bitcoins worth $2.4 million. The thefts are mostly due to a phe

nomenon called ‘transaction malleability’ wherein a hacker can

repeatedly withdraw coins from the system until it becomes

completely empty. This flaw in bitcoin protocol enables the hack

er to hide the transaction ID .These stolen bitcoins are then

transferred to an escrow account where they are safely stored.

So what do we do now? Do we just think of bitcoin of being in its

infancy and forget about these thefts? Well, according to Micky

Malka, board member of the Bitcoin Foundation, no one should

be investing an amount that they cannot afford to lose.

WILL THE BUBBLE BURST ?

It can be dangerously easy to dismiss the bitcoin phenomenon as

another bubble waiting to burst. With everyone from Nobel Lau

reates to traders washing their hands away from this virtual cur

rency, it becomes very easy to overlook it. A virtual currency

invented in 2008 , that sees its total value multiply fivefold to

reach 10 billion simply begs for the word ‘bubble”. Many people

compare bitcoin to the “tulipmania” of the 17th century to estab

lish the fact that it is indeed a bubble. But most of these argu

ments seem to be a part of the hyperbole surrounding bitcoin.

What we tend to forget is that bitcoin is only 5 years into its in

ception. It is bound to take time to stabilize and establish its cre

dentials as an alternate form of currency. What is does is – it

allows for individuals and organizations to do business without

the interference of the state. The sudden increase in the price of

bitcoin to $1000 in November, 2013 did raise lot of eyebrows

and makes the bitcoin overvalued.

Also initially , there used to be quite a phenomenal concentra

tion of bitcoins in hands of a few, but this scenario is rapidly

changing. Within 3 months in January, 0.5 million more coins

have moved down in to the general circulation. This deconsolida

tion of ownership goes against Robert J. Shiller’s “Central Prob

lem Thesis” which said that bitcoin is nothing but a speculative

bubble without any utility.

We should think of it as an equivalent to Netscape browser. In

1998 the browser space was dominated by Netscape and now

anyone knows about it. Nevertheless , browsers are still in use.

Likewise even if Bitcoin Bubble burns out, it will definitely ce

ment the concept of crypto currency in the world. Don’t know

how Adam Smith would have reacted to this new concept? May

be another book would have sufficed.

EPILOGUE

Bitcoin has become a fascinating free market experiment and

could rival the traditional currencies all around the globe. If that

happens, there will be more informed and constructive discus

sions on volatility. But for now, the talks on volatility are just a

cliché which is being overused in the realms of crypto-currency.

Bitcoin may be at the present a flash in the virtual pan but it

holds great significance symbolically. Castigating it is very easy

but dealing with it and resolving the issues that is hard, and nec

essary.


35

OVERVIEW

In 2012, with a recorded population of 1.22 billion, more than

50% of India’s population was below the age of 25. Of this popu

lation about 30% is in the age bracket of 0-14 years, which is the

size of the segment that will be seeking higher education in the

next decade. India in the past decade has positioned itself in the

world as a knowledge-based economy, churning out bright and

educated professionals. Hence it is no wonder that the Educa

tion Sector has grown in leaps and bounds over the last decade.

However, there are gaping pitfalls in the Indian Education sys

tem.

STRUCTURE OF INDIAN HIGHER EDUCATION SECTOR

According to a report by Deloitte, the Indian Higher Education

Sector can be broadly divided into 4 segments:-

GROWTH DRIVERS

Indian Higher Education Sector is the third largest in the world

in terms of enrollments after China and US. Factors leading to

the growth of the sector are:-

Growing Indian middle class

Increasing Disposable Income

Services Sector’s increasing contribution to the GDP re

quires educated manpower

Reforms to the Education Bill is giving a push to the sec

tor

12th Five Year Plan targets an expenditure of INR 1107

billion on higher education

100% FDI allowed through automatic route

CHALLENGES IN THE SECTOR

ACCESS – In the past years there has been significant pro

gress in the primary education segment in India. How

ever, the number of students who remain in the educa

tion system till higher education is alarmingly low. The

Gross Enrollment Ratio (GER) in India is about 15%

which is far behind the figures in developed nations.

Disparity is GER across states and communities are as

SECTOR ANALYSIS : A COMPREHENSIVE

ANALYSIS OF EDUCATION SECTOR

-By Abhinav Gupta & Debleena Banerjee

IIFT, Kolkata


below:-

State Disparity — 47.9% in Delhi vs 9% in Assam

Urban vs Rural Disparity — 30% in urban areas vs 11.1%

in rural areas

Community Disparity —14.8% for OBCs, 11.6% for SCs,

7.7% for STs and 9.6% for Muslims

Gender Disparity — 15.2% for females vs19% for males

With increasing output from the primary education, the demand

for higher education is on the rise. The supply for the same falls

short miserably and the government resource allocation is in

sufficient to meet its own targets, thereby creating a huge scope

for private participation.

QUALITY – Education is a holistic process and hence the

quality aspect of it encompasses everything from content

to infrastructure. This is one of the foremost challenges

faced by the sector as very few institutes of higher edu

cation in India are at par with global excellence. Criticized

on grounds of outdated course curriculum, lack of tech

nology-enabled delivery of content, poor infrastructural

facilities, faculty shortages, lack of industry interaction,

low employability quotient and negligence towards re

search, the sector has a lot to improve on quality.

OPPORTUNITIES

India presently has 11 million students in the higher education

system. This figure is a mere 11% of the 17-23 year old popula

tion. The government’s target of 21% by 2017 is still short of

world average. Indian society bestows a premium on knowledge

and its acquisition. Consequently, spending on education is the

3rd largest expense for an average middle class household after

food and groceries. However, there is a glaring deficit in the

supply of quality education. Only 1 in 150 applicants gets into an

elite institution such as an IIM. On the other hand, it has been

reported that 450,000 Indian students spend about 13 billion

USD, annually, in acquiring education overseas.

The Government’s resource allocation to bridge this gap is still

inadequate despite raising the allocation in the Eleventh five

year plan (2007-2012) almost nine fold to $18.8 billion from

$2.1 billion in the Tenth five year plan. This leaves ample scope

for participation by private players. The government has also

allowed 100% FDI in this sector to promote foreign investments

in this sector. The major bottleneck to foreign participation so

far has been the “not-for-profit principle”. However, this is only

a hindrance in setting up educational institutions in the regulat

ed sector where institutions have to be registered with bodies

such as UGC, AICTE etc. as the case may be. The unregulated

sector is a very different story. Institutions in this sector can be

registered as private/public companies that can legitimately

distribute dividends. This sector includes institutes which pro

vide innovative services to educational institutes like schools,

colleges etc. These services may include language training, tuto-

Formal Education Technical &

Professional Education

Skill Development Vocational Training

Composition Universities

Colleges

Polytechnics

Engineering colleges

ManagementSchools

Law, Medical, Pharmacy

ITIs

ITCs

Private Skill Develop

ment Centers

Finishing schools

English training

Air hostess

Academies

Key Regulators UGC

State Govt.

IGNOU

AICTE

Bar Council of India

Medical Council of India

ICAI

DGET for ITIs/ITCs

Unregulated for oth

ers

No regulator

36


37

rials, content provision, corporate trainings etc. As long as these

institutions do not award degrees, they can be incorporated as

companies. We have seen the emergence of players like Edu

comp solutions in this sector. Besides the unregulated sector,

there are also opportunities for foreign players in the regulated

sector as they may tie-up with Indian universities, technical in

stitutes and colleges and provide course content or even a for

eign degree (with affiliation to a local university).

the ratio of government schools to total number of schools in

the country as corporates are showing a growing interest in the

primary and secondary education sector. “Not for Profit”, quo

tas on student intake and complex regulatory frameworks is

internal weaknesses that the sector is grappling with. However,

the huge demand and potential present in the sector will surely

attract private capital, which shall take Indian Education at par

with its global counterparts.

The government is actively considering participation of the pri

vate & foreign sector via the PPP model. The various models

possible under this scheme are summarized here:

CONCLUSION

India has unsaturated demand for quality education and this is

not limited to the higher education sector. There is a decline in

Model à Basic Infrastructure Outsourcing Equity/Hybrid Reverse Outsourcing

Infrastructure In-

vestment

Private sector Private sector Private + Govern

ment

Government

Operations and

Management

Government - makes

annualized payment

to private investor

Private sector – re

ceived payments from

the government for

specific services

Private sector Private sector


MARKETS IN THE TIME OF ELECTIONS

The Lok Sabha elections euphoria grips the Indian stock market

and seems to have spread to the mid-cap space. While the pack

was lagging the blue-chip Sensex since mid-February, hopes

that the BJP-led National Democratic Alliance is likely to steer

the poll tally have pushed the mid-cap index to match the BSE

Sensex returns.

According to Deutsche Bank, mid-cap stocks tend to rally sharp

ly when economic growth is expected to be at an inflection

point.The brokerage says that while the jury is still out on the

pace of economic recovery, the mid-cap rally is likely to extend

further, given that growth has bottomed out, currency has sta

bilised and the twin deficits have shown a marked improve

ment.

TIME IS MONEY - BASEL III DEADLINE EXTENSION AND PSU

BANKS GAIN

After RBI extended the deadline for meeting the Basel III norms

by a year to March 31, 2019, shares of PSU banks rallied on the

bourses.

According to experts, its harder for PSU banks trying to raise

capital to meet the Basel III norms. "The key issue with SOE

(PSU) banks over the next 2-3 years is likely to be lack of capital.

The starting point of tier 1 ratios is well below our view of

steady state tier 1 for SOE banks under Basel 3 (above 10%),"

Morgan Stanley said in a report.

State Bank of India (2.96%), United Bank of India (3.41%), Pun-

jab National Bank (4.14%), Bank of Baroda (2.33%) were trad

ing higher on the BSE at 1.15 pm IST.

ACTIONS MAY BE TAKEN IF INFORMATION NOT SHARED

Risk of Switzerland being labelled a tax-non-cooperating juris

diction and of subjecting all payments from India to that coun

try to a 30% withholding tax . Worried over Switzerland's un

willingness to share tax information, finance minister P Chidam

baram has threatened action against the European nation un

der Indian law.

38

http://www.financialexpress.com/stocks.php?EXCHNG=NSE&cocode=1375




39

“In the event of continued denial of access to vital information

under the Double Tax Avoidance Convention, India may be con

strained to actively consider the options available under our

domestic laws,” Chidambaram said in the letter.

$5 BILLION OVER CARD SWIPE FEES, WAL-MART SUES VISA

INC

Visa Inc. was sued by Wal-Mart Stores Inc this week for $5 bil

lion, for charging excessively high card swipe fees, several

months after the retailer opted out of a class action settlement

between merchants and Visa and MasterCard Inc.

SPORTS AND MONEY - ITS BIG MONEY

While Multi Screen Media, the host broadcaster for Indian

Premier League (IPL), could turn out to be the biggest loser if

IPL7 is scrapped since it was hoping to earn close to Rs 1,000

crore in advertising revenues, the Board of Control for Cricket

in India (BCCI) stands to lose Rs 150 crore as do sponsors. The

fate of the tournament hangs in balance with the Supreme

Court proposing on Thursday that Chennai Super Kings (CSK)

and Rajasthan Royals(RR) be suspended; without Mahendra

Singh Dhoni, the tournament will lose much of its appeal

RE HIT 59.94/$

The rupee breached its crucial resistance level of 60 per dollar

for the first time in eight months on the back of strong dollar

inflows on 28th March, 2013 .

The Indian unit touched an eighth-month high of 59.94 in trade.

However, the upside in the rupee may be capped due to month

-end demand from importers.

RBI LIKELY TO KEEP RATES UNCHANGED IN MONETARY POLICY

The Reserve Bank of India (RBI) is likely to keep interest rate

unchanged in the upcoming annual monetary policy on April 1

as the retail inflation is yet to show definite signs of modera

tion.

In its third quarter review of monetary policy, the Reserve Bank

of India (RBI) in January raised the key repo rate by 0.25 per

cent to 8 per cent in a bid to curb inflation.

Although inflation has eased both in terms of consumer price

index and food, the RBI would look at other factors including

the exchange rate, HSBC country head Naina Lal Kidwai said.


40

Bill Gates told his Harvard University professors that

he would be a millionaire by age 30. He became a bil

lionaire at age 31 .

Three of the world's 50 largest economies don’t have a

dedicated exchange-traded fund (ETF) listed on a U.S.

exchange: Iran, Saudi Arabia and Pakistan.

The average credit card holder has 3.5 credit cards, ac

cording to the Federal Reserve. Credit cards were not

always made of plastic. There have been credit tokens

made from metal coins, metal plates, and celluloid, met

al, fiber, and paper cards.

Bread,” the slang word for money, comes from an old

Cockney rhyme, “Give me your money. Give me your

bread and honey.”

The first Indian commercial bank which was wholly

owned and managed by Indians

-Central Bank of India

http://www.investinganswers.com/financial-dictionary/mutual-fundsetfs/exchange-traded-fund-etf-805

http://www.investinganswers.com/financial-dictionary/debt-bankruptcy/credit-5244


At the end of 2011, three companies had total

debt loads of more than $500 billion: JPMorgan

Chase ($684 billion), Bank of America Corp. ($622

billion) and Citigroup ($560 billion).

The first Indian bank to have been started solely

with Indian capital-Punjab National Bank

Legendary investor Warren Buffett bought a 40-

acre farm at age 14 with $1,200 in savings from

delivering newspapers

In 1984, MasterCard® was the first to use a holo

gram on its cards to deter fraud

If each currency note printed in the U.S. were laid

end to end, the bills would stretch around the

earth’s equator 24 times

The first bank to be managed entirely by women?

First Woman’s Bank of Tennessee, founded in

1919. Unfortunately, its founder, Brenda Vineyard

Runyon, was unable to secure a successor after

her health began to fail and it was eventually ab

sorbed by First Trust and Savings Bank of Clarks

ville in 1926

Manmohan Singh is the only Prime Minister of

India to have held the post of governor of RBI

41

http://www.investinganswers.com/financial-dictionary/personal-finance/savings-6081


MEET THE TEAM 42 CREDITS

EDITORIAL TEAM

Ankit Tiwari

Ashutosh Deshpande

Sanket Tandon

Sobhit Agarwal

FEEDBACK/QUERIES

[email protected]

[email protected]

Published by students of

Indian Institute of For-

eign Trade

New Delhi | Kolkata

ALL RIGHTS RESERVED

ANKIT TIWARI is a software engineer and comes with

a prior work experience in Infosys Limited . He in

tends to specialize in Finance & Marketing. He

wants to pursue his career in Banking industry. Addi

tionally, he is an avid reader, likes writing in his spare

time , loves reading newspaper and also loves play

ing and watching Cricket .

ASHUTOSH DESHPANDE has completed his graduation

in Computer Engineering from Mumbai University,

post which he has worked with Mahindra Holidays.

The author has inclinations towards Finance and

Strategy. The author, an avid writer, has written for

various blogs, football sites and magazines on topics

ranging from Politics, Current Affairs to European

Football.

SANKET TANDON is a software engineer and has

prior work experience with Infosys Limited. He in

tends to specialize in Finance and wants to pursue

his career in the same domain. He is an ardent Man

chester United fan. Apart from following football he

likes to read and travel in his spare time

SOBHIT AGARWAL has completed his B.tech in Elec

tronics and Communication engineering from NIT

Surat in year 2012. Before joining IIFT ,he worked as

Marketing Manager at Endeavor Careers Pvt. Ltd.

for 12 months. Moreover , he has a keen interest in

finance and wants to pursue a career in the same

domain.

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