Its Not Easy

1.
FINANCIAL SECTOR: TRANSFORMING TOMORROW
1. FINANCIAL ADVISORS:
A new approach to learning
The country’s economic growth has accelerated to 8.6% for four years in spite of major problems with
policies, institutions, and governance (and infrastructure too). This is a feat rarely achieved in history.
Textbook theories cannot explain this. We are left with sundry explanations that are at best partial
truths. Given that economists admit they cannot explain complex realities, it is the time to develop a
new holistic approach to economics.
Also we need a new approach to learning – less reductionist and more systematic, less arrogant and
more humble, more willing to listen to people – to address the challenges our world faces.
A new approach to retailing
Currently, we are entering the fourth stage in the evolution of retailing. The first stage “A Necessity”,
up to the 1950s and 60s, was producer driven. This was when retailing was reactive to consumer needs.
It was about brands you recognise. It was driven by product.
The second stage “A Nicety”, from the 60s through to the 80s, was retailer driven. Retailing became
pro-active to customer needs, national chains developed, marketing became multi-channel, and
retailers talked about “fulfilment of desire”. This stage was about brands you want. It was driven by
the market and finance.
The third stage “An Event”, from the 90s, until now was consumer driven. Retailers began to
anticipate consumers’ needs, multi-channel marketing made its debut, relationship promotions by
CRM, and above all brands are now selling lifestyle.
So what does the fourth stage brings us? The fourth stage in retailing will be more than consumer
driven – it will be consumer created. The consumer will create brands and products. This may be part
of the retail future in which we will operate. This new relationship is in user-generated content. Brands
are turning to the users themselves to create content, designs and even brands.
An alternative area of creativity
The little magazine movement: There can be many answers to this question but a vital consensus can
be drawn from the fact that little magazines are the alternative arena of creativity, voice and rebellious
ideology. They are struggling for literary renaissance in a time when commercialism is gnawing all the
sensibility and austerity of our life.
Their interventionist role can hardly be ignored. They are very grand in their perspective and big in
their roles. Varied and diverse, most of these magazines have a life due to sheer independent efforts.
Naturally, difficulties are not strange to them. The first of which is that of raising funds. Creating a
distribution network is another problem. Despite these problems, editors and readers of such
magazines are unanimously defending their cause and spirit.
FINANCIAL SECTOR… 2
2. WEALTH MANAGERS
Pension fund managers
India’s pensions watchdog (PFRDA) signed up with NSDL for acting as the central record-keeping
agency for New Pension Scheme (NPS). NSDL, which helped change the face of the Indian securities
market, will provide the backbone for the new pension scheme. NSDL will put in place the
architecture for the scheme including the call centre for handling the quarries of the subscribers to the
scheme; and will keep tabs on Rs 2200 crore corpus - available now from the contribution of 500,000
government employees - offered to fund managers.
What is more striking is the way the contracts with Pension Fund Managers (PFMs) have been
designed which, once operational, could change the very structure of the local asset management
business. Of the three pension fund managers - SBI Mutual Fund, UTI AMC and LIC MF - the largest
share of the pie will go to fund manager who has quoted the lowest management fee. The corpus will
hinge on the cost of funds for management and the returns to the subscribers. A clear built in incentive
for them to pare costs and focus on performance.
Venture capitalists
VC is a business of fantastic opportunities and big challenges. Venture capitalists get to work with
remarkable people everyday, and entrepreneurs who are pursuing big ideas that will change the world.
Human capital is as important for VCs as financial capital. Going back to school helps a great deal in
sharpening skills and coming up with killer ideas.
For instance, the goal of the prestigious Kauffman fellow programme – run by Centre for Venture
Education – is to identify, develop and network with leaders in venture capital. The programme
through structured and unstructured events, teaches you the technical skills of being a VC. Another
part comes from the focused leadership development that the programme provides.
The 24-month Kauffman fellowship is a forum to learn, share, and sharpen the ideas, skills, and
experiences that go into making a great venture capitalist, but more importantly, provide a forum
through which you can develop your own networks of peers to grow and learn from. The fellowship is
designed to develop, and build networks between, emerging leaders in the VC industry globally.
Foreign institutional investors
The Spain-headquartered IOSCO is the international standard setter for securities markets, regulating
more than 90% of the world’s securities markets. All IOSCO members have to sign a MoU, follow the
principles endorsed by the body, and facilitate exchange of information among the international
community of security regulators. The organisation follows a comprehensive methodology that
enables an objective assessment of the implementation level of IOSCO principles in the jurisdictions
of its members and the development of practical action plans to correct identified deficiencies.
The finance ministry wants to restrict investments by foreign institutional investors (FIIs) from
countries whose market regulatory structure is not compliant with principles laid down by the IOSCO.
It is important to ensure that an entity investing in India is regulated by a credible regulator back home
that follows internationally-accepted principles of due diligence. This is likely to be a part of the future
blueprint for FII investments in the country.
3. FINANCIAL PLANNERS
Adequate disclosure on key numbers
Investors who bid for 5.9% of ICICI Holding Company structure are seeking greater disclosure on the
underlying subsidiaries of the bank. International investors will be looking at greater disclosures about
the motive of the holding company. Some of the bidders have expressed concerns on the lack of
adequate disclosure on key numbers of the insurance subsidiaries – ICICI Prudential Life Insurance
and ICICI Lombard General Insurance.
On what basis will an investor evaluate the holding company? Valuation of the underlying companies
is crucial. It is more important when insurance companies are being routed through holding
companies. The valuation of these holding companies depends to a large extent on the valuation of its
insurance venture. If insurance ventures are overvalued then holdings companies may also be
overvalued.
ICICI Financial Services, the proposed holding company, has been valued at more than $ 10 billion
post issue. Over 75% of the value of this holding company is estimated to be on account of ICICI
Prudential Life, in which ICICI Financial Services will hold 74%, thereby placing an implied value of
approximately $ 10 billion on the life business.
Investors would want to know what is driving these valuations. Experts say that valuing a life
insurance business in India presents challenges given the paucity of actuarial disclosure such as
embedded value measures and the limited number of reference points like listed insurers or transaction
precedents.
Maintaining, creating and marketing indices
The BSE has sought trademark protection for its various indices, including the flagship market index
the Sensex. The protection should enable the exchange to leverage the Sensex more than what it has
managed so far. Sensex is by far the most widely followed benchmark. Every milestone the Sensex
achieve is cheered by investors and chronicled by the media, in huge headlines.
Managing indices has become big business with specialised entities maintaining, creating and
marketing them to the users the world over. For instance, Standard and Poor’s has a large indices
business and owns the popular S&P 500 index in the US. Back home, the NSE’s indices are managed
by IISL, a joint venture of NSE and Crisil. The BSE has over 6,000 listings. A business-like focus
should thus enable the exchange to create many more indices from that universe than it has till now.
Dealing corruption in governance
The introduction of smart cards to distribute subsidised food items during the Eleventh Plan period
will allow smart card holders to buy goods from fair price shops that opt to supply subsidised goods to
poor against the subsidy that can be reclaimed later. The smart cards to be used for buying subsidised
goods and services including education should be given to all residents with a Unique Identification
Number. The smart cards will contain data on subsidies given and availed by the beneficiaries. It will
also help the government to monitor and evaluate the subsidy schemes and find out whether the
targeted people are receiving the benefits of the welfare schemes.
4. INCLUSIVE CEOs
Listening to employees directly
The Indian CEO, long used to the advice of the ivory tower, is beginning to listen to the wisdom of
crowds as well. Heads of companies are informally meeting with employees to get on the ground
information and sense about how the organisation actually works.
The initiatives go under different labels, such as Chairman’s Tea (Godrej), Let’s Talk (P&G) or Pizza
Lunch (LG), Bluechip Mantra (M&M) but the purpose is same: listening to employees directly.
Flighty employees, a competitive marketplace and soaring opportunities are forcing heads of
companies to break down the walls of communication barriers.
Indian CEOs are taking leaf out of New Yoker columnist James Surowiecki’s book ‘The Wisdom of
Crowds” which explores a sensational idea that large group of people are smarter than elite few, no
matter how brilliant – better at solving problems, fostering innovation, coming to wise decisions. This
is very useful bottom-up feedback tool, which is then used to formulate policies.
Learning the lessons of democratisation
In order to enhance the management’s credibility and infuse transparency, scores of companies are
sharing goals, targets and Key Results Areas (KRAs) of their CEOs and function heads with
employees through the internet or face to face. And, if there’s scope for democratisation of
management, India Inc is rapidly learning’s the lessons.
For instance, CEOs and all functional heads present their draft objectives for the following year, to
employees down the line. HR department facilitates the process to evaluate interdependency of
departmental goals and align them across the company. Once it is done, HR Department put a
scorecard on the internet in a quantifiable format that everyone can access. It brings openness in
employees’ aspirations about moving forward and how to deliver. It allows course correction and
gathering feedback through a healthy criticism. And bare their performance.
All this has a wider implication for the organisational work culture. The days of bureaucratic
management have gone, where employees were not at the level of the management. Today, power and
creativity lies within employees and one has to leverage that by giving them a sense of ownership and
get their buy-in into the organisation’s goals.
Working on developments
Now, a happy constellation of forces are ushering in change:
Runaway growth has ensured that corporate coffers are bursting at its seams, and some of that money
is flowing into philanthropy. The bill and Melinda Gates Foundation or even the Azim Premji
Foundation has billion dollar kitties and the monies to attract the best minds.
More skilled business professionals are keen to move into development. The work on development –
and the opportunity to make a difference to the world – is suddenly catching the fancy of well-trained
business professionals from the world of practice.
5. MICROFINANCE PROFESSIONALS
Informal lenders extend loans for full-range of borrower needs
Indian banks may be hard at work on financial inclusion. They are wooing customers with lower
interest rates, but they are still up against stiff competition from informal lenders. Nearly 33 million
bank customers borrowed funds in the past two years, but only 43% sourced these loans with their
banks, according to a survey by Invest India Foundation.
Banks obviously still face stiff competition from traditional, informal lending sources, even though
interest charges from non-banking sources are significantly higher in most cases. The story is almost
the same, when it comes to both urban and rural lending segments. Moneylenders continue to maintain
a strong position in the loans space. They extend loans for the full-range of borrower needs including
housing loans. Most of the loans, accessed outside the banking system, are consumption loans rather
than production loans.
The major reasons for 50% of the borrowings from non-banking sources, according to the survey, are
financial emergency and medical expenses. The reason they avoid banks on such occasions is that
money is required at very short notice, and at times. Banks do not offer loans at such short notice
without any collateral.
Financial exclusion of non-farm unit in unorganised sector
The National Commission for Enterprises in the Unorganised Sector (NCEUS) said that only 4 out of
100 non-farm units in the unorganised sector receive bank credit. It was indeed shocking that micro
enterprises that contribute up to one-third of the national GDP receive just 5% of the bank credit. The
present flow of credit to small units is due to government-sponsored programmes; otherwise the
unorganised sector is by and large left to fend for itself.
Mostly, banks flouted the RBI guidelines (on credit small enterprises). The banking system is
insensitive to the needs of the unorganised sector and entrepreneurs. It criticised recent policy changes
that have shortened the period for declaring a loan an NPA, which can spell death knell to many one-
person enterprises in the unorganised sector. Also, small and poor borrowers have to compete with
large and strong borrowers such as corporate houses and institutions.
Poor institutional infrastructure available for credit has made the matter worse. In recent years, the
number of commercial bank branches in rural area declined from 35,134 in March 1991 to 30,572 in
March 2006. Many vacancies remain unfilled in rural areas and new generation banks have been
hiring employees on contract. These unhealthy practices could prove to be counterproductive to the
long-term creditability of banking institutions.
The RBI’s Priority Sector Lending Policy has set a target of 40% of the Adjusted Net Banking Credit
(ANBC) for Priority Sector (PS) lending by banks. The fault, NCEUS has charged, lies with
policymakers, who refused to reduce the 40% (of ANBC) target set for PS lending despite the
difficulties of banks in achieving it. What the authorities did, instead, was to “nullify, through the back
door, the operational relevance of the PS target by including many items, which can be conceived of
as belonging to the weaker section. They diluted the definition of priority sector to suit the
achievement of statistical targets.
6. RISK MANAGEMENT CONSULTANTS

Prisoners of debt
In a financial version of “Night of the Living Dead”, debts forgiven are springing back to life to
haunt consumer. Fuelling these miniature horror stories is an unlikely market in which seemingly
extinguished debts are avidly bought and sold.
For instance, you are asked to pay a debt of a Credit Card Company, forgiven earlier, when you are
finalising a mortgage deal for purchase a new house from a would-be lender. And you eventually did
what many consumers in this situation do. You pay the debt of that Credit Card Company.
Traditionally, discharged/forgiven debt was seen as not worth the paper it’s written on. But,
discharged debts have attracted the attention of little-known firms’ expert at buying and selling a range
of delinquent consumer obligations. Back-due bills with a face value of billions of dollars change
hands at a steep discount every year.
Recession obsession
We are all waiting; it seems, for the next recession. Everyone knows that recession is inevitable sooner
or later. Indications now suggest that it might be sooner. First, housing; its collapse deepens; second,
oil prices; they’re approaching $ 100 a barrel; third, credit problems; as lenders and investors have
suffered losses on subprime mortgages.
By and large, recessions are problems, not tragedies. Since World War II, there have been 10 of them,
or one about every six years. On average, they’ve lasted 10 months (indeed, a common definition of a
recession is at least two quarter of declining output).
Recessions also have often-overlooked benefits. They dampen inflation. In weak markets, companies
can’t easily raise prices, or workers’ wages. Similarly, recessions punish reckless financial speculation
and poor corporate investments. These disciplining effects contribute to the economy’s long-term
strength, but it seems coldhearted to say so because the initial impact is hurtful.
Moral hazard
Moral hazard is now a much-bandied-about phrase. Its initial meaning stem from insurance: If you
over insure someone against risk, you may encourage undesirable behaviour. Example: Cheap flood
insurance will spur home building along vulnerable coasts.
The Fed faces a similar problem. If it tries too hard to prevent a recession – through easy-money
policies – investors, businesses and workers may conclude they have nothing to fear. They then
engage in precisely the risky and inflationary behaviour that makes markets worse, perversely
resulting in an even larger bubble and a large subsequent recession.
7. CREDIT COUNSELORS
The Credit Information Act
The Act, which was passed in May 2005, came into force in ’06, has defined the legal framework,
within credit information bureaux can collect process and share credit information on borrowers of
banks and FIs. Credit Information Bureau (India) (CIBIL), which was incorporated in 2000, was the
first to enter the credit information market. With growing consumerism, credit information market has
grown tremendously and more players, including credit rating agencies, are eyeing the market.
The International Monetary Fund (IMF)
IMF’S new managing director Dominique Strauss-Kahn said he had lobbied for the job promising
reforms and would now have to deliver change quickly at the global institution. IMF faced critical
questions about its relevance and effectiveness in a changing world economy. However, changing the
63-year old institution would not happen overnight. There are definite questions, which are at stake for
the institution. What we are going to do in a changing world and how can we do that. The changes
which have been brought on by the fast rise of emerging powers such as China and India that are now
source of economic growth and stability while the US and Europe grapple with slowing economic
growth and the effects of recent credit and liquidity problems in world markets.
But that shift has never been reflected in the voting power of the 185-member fund, Strauss-Kahn
said, suggesting the IMF’s reform had to go beyond simply increasingly the stake of emerging
economies. A shift has to be significant from the developed and rich countries to the low-income and
emerging market countries; that is clear. But it is not enough and so on my agenda we cannot stop
with only the quota question, the legitimacy of the institution must go much further.
Curbs on capital inflows
IMF’s new chief Dominique Strauss-Kahn has cautioned India that curbing capital inflows too much
could undermine confidence in the country’s “very brilliant economy” with consequences beyond
India itself. It was important to enhance the transparency of the capital flowing into the country but
limiting it may not always be good. It will have an influence certainly on capital inflows but not
always a good influence. I think the Indian authorities should think over several times before
implementing this kind of instrument.
The rupee’s appreciation to record highs reflected strong economic fundamentals and a keen interest
by foreigners to invest in the country. A lot of countries want to invest in India, a lot of companies
want to have not only their back office now but much more than that, research labs and so on in India,
and that reflects the way the Indian economy has grown and developed during the last years. The
appreciation of the rupee is driven by a lot of international capital flow to India, and that is the good
news. So an inevitable consequence of that, an unavoidable consequence of that, you have an
important inflow of capital to India with a consequence on the rupee.
Even if it is not always easy to deal with an appreciation of your currency, as a European I can tell
you, nevertheless it reflects good fundamentals. You do not to do anything, which in one way or
another undermines this good luck or the good appreciation, good forecast on your national economy.
8. TECH SAVVY PROFESSIONALS

Entrepreneurs sooner or later
Inspired by the Narayana Murthys and L N Mittals, Indian tech savvy students are willing to forego
salaries and overseas postings in pursuit of entrepreneurial dreams. Industry sees this attitudinal
change as a big milestone. The Indian economy growth story has all the ingredients to stimulate youth
entrepreneurship. Entrepreneurship ambitions as a characteristics of more basic trend of wealth
generation, has become an underlying theme in the economy. There’s a greater appetite for risk taking
and a belief that there are significant career gains even from a venture that doesn’t turn out as planned.
Options within corporate world will always be open. That is giving youngsters some comfort level to
think different.
Structure products to suit people
Understanding the needs and barriers that had kept the people outside the formal sectors was a must.
India Inc should size and structure their products to suit people. These people were on the cusp of high
growth and consumption, but their demand was not being met by suitable products/services.
Countrywide network of higher learning
Education software providers should provide interactive technology for countrywide network of
virtual education centres. These would be interactive centres much in the line of a movie theatre,
which would provide educational concepts for higher learnings.
State-of-art tuition centres
There is a serious need beyond just neighbourhood tuitions centres. The branded tutorial centres are a
great way to deliver high quality tutoring to students by combining the effective use of technology.
What one has is a state-of-art tuition centre with digital white board, which can store and transmit
whatever is written on it to students, rich multi-media set up along with online content.
Serve huge Indian diaspora worldwide
What some people may call brain drain may rain business for some others. Tech savvy professionals
are planning businesses, which are heavily dependent on the huge Indian diaspora worldwide. Keep in
mind the 22 million Indians living away from their homeland and design products/services to suit the
global Indian community.
NRI have strong cultural roots and family bonds. Those catering to the diaspora realised the business
potential owing to the size of this segment and the demands this size could generate. With the India
shining story, the country is becoming a hot spot for investment, especially, for property followed by
equity and mutual funds.
Indian tech savvy professionals are planning programmes for high net worth individuals (HNIs)
providing personalised services; and specialising in catering to the needs of the student community
across the world.
9. ONE-STOP-SHOPS
Mission of developing country’s infrastructure: IDFC
It’s easy to say that you need $ 500-billion worth of investments over the next five years to support the
country’s infrastructure needs. It is perhaps not so easy, but not impossible to find the money. But we
have to make sure it is channelled in the right way so that it doesn’t end up in gold, property or stocks.
There have to be good quality, productive, viable and sustainable projects that are being prepared on
the ground. And there should be financial institutions and other intermediaries, which are able to
channel these funds into these projects in an intelligent way. It’s not just the volume of resources and
investment, but also the structure of the financial system in the country.
IDFC’s ambition is to become a better one-stop shop for anyone who wants to invest or do anything in
infrastructure, and in the process, provides services and products relevant to every part of the
infrastructure value chain. IDFC now own investment bank, engineering services company, and a
couple of infrastructure-focused asset management arms. So, we have the ability to provide any class
of capital, from the senior-most debt to the junior-most equity to any client in infrastructure. Further,
IDFC has ability to provide any agency service, from M&A to advisory, to raising money for them
through an IPO, and the ability to provide meaningful consulting services.
Data bank of directors
IPOs of many PSUs are facing hurdles because the companies do not have the required number of
independent directors on board. According to clause 46, companies desirous of seeking listing on
bourses should have at least 50% independent directors on their board. Also, according to the norms of
corporate governance prescribed by the government, central public sector enterprises (CPSEs) are
required to have at least 33% or one third of independent directors on their board.
The need for a data bank was felt by the department of public enterprises (DPE) as many (CPSEs)
have been facing difficulties getting them listed on the bourses as they did not have enough
independent directors. So, the DPE is planning to formulate a data bank of directors being employed
by CPSEs, in order to put pressure on them to have the stipulated number of independent directors on
their board. The data bank will help the government in knowing the status of the board of all the 245
CPSEs and equip it to take action against the erring companies.
Information and communication technology (ICT)
One of the few things on which there is consensus across the entire ideological spectrum in economics
and politics is that literacy and education are perhaps the most significant drivers of development and
democracy. For societies to improve their literacy levels and the quality of their education, multiple
complex factors must be worked upon. ICT can facilitate improvement on several of these dimensions.
ICT provides an effective tool for connecting with a large number of remotely located learners at a
low cost. It is about providing alternative learning experiences other than textbook. It create
responsiveness and open windows for new thinking, an atmosphere of innovation; an alternative
paradigm in pedagogy – interactive, away from chalk and talk, self paced and contextualised learning;
an attempt to achieve equity; and bringing excitement and motivation.
10. CONTINUING LEARNING CENTRES

New derivative products
The slew of products Sebi had announced is expected to go a long way in deepening the market and let
investors to aggressively hedge their stock bets. Sebi Chairman said, “We are trying to see that the
Indian market becomes largely onshore and parts of it do not continue to be indefinitely offshore.
Details of the products will be put up on Sebi’s website for a wider discussion before the exchanges
introduce these products. These products will attract more investors into India. Right now, a lot of
such products are available outside. What we are saying is let us have these products, let people come
to our products. More products will bring in more investor interest. It will lead to growth and
development of the market and more investor protection.”
The products include mini contracts on equity indices which will enable efficient hedging of smaller
portfolios, options with life/tenure much more than the currently allowed three months, and volatility
Index that enables a market player to judge the expected volatility in the near future. This will also
include currency futures and options that will allow exporters/importers to trade foreign currency
derivatives in local bourse.
The Sebi’s in-principle decision to launch new derivative products would provide investors more risk
mitigation options and encourage overseas players to participate in the Indian market through the front
door. These products would fill the gap created by the virtual ban on P-notes, but with a difference;
that they would be available onshore, under Sebi’s jurisdiction. From the longer-term perspective, the
proposed products would attract sophisticated investors, who would have more hedging options. These,
measures are important because they address some serious shortcomings in the derivatives market –
more speculation and arbitrage – than directional hedging bets.
Currency futures
The central bank released a report by an internal panel, which has recommended introduction of
currency futures to be traded on dedicated exchanges. The recommendations could spark a turf war as
it proposes that RBI will retain the right to regulate all aspects of trade even though securities
exchanges are the domain of Sebi.
A currency futures contract is one where two parties agree to buy and sell the currency at a future date,
at a pre-determined price. The futures market is sought out primarily by three sets of market users –
people seeking information on price, speculators and hedgers. Exchange-traded currency futures will
be highly beneficial for those who have a currency exposure. There could now be some respite from
the appreciating local currency, given that Indians may now be able to hedge their positions.
The panel recommends that even though the introduction of currency futures could involve the role of
different exchanges, which would be regulated by the Securities Exchange Board of India, the central
bank should continue to act as the regulator. The penal also calls for RBI to have the right to specify
participants or even fix position limits for them. The RBI panel has suggested that to ensure a clean
regulatory and supervisory structure, it is preferable to have an exchange, which is exclusively
dedicated to trading in currency futures.
11. GLOBAL OUTLOOK

Subprime mortgage crisis
Merrill Lynch
Turmoil in subprime mortgages and credit markets has possibly claimed its first victim: resign of
Merrill Lynch chairman O’Neal. The company announced it wrote down $ 8.4 billion in the third
quarter and posted the biggest quarterly loss in the company’s history. O’Neal admitted he misjudged
the company’s exposure to subprime mortgages. O’Neal also floated a merger proposal with
Wachovia Corp. Analysts said what O’Neal did is put his company and the whole industry in play.
Wachovia does not make sense in any way, shape or form.
Citigroup
And its second victim: resign of Chairman and chief executive of financial giants Citigroup Charles
Prince in face of fresh losses from distressed mortgage assets leading to a $ 5-billion write-down and
sharp drop in profits. Prince’s exit would end a tumultuous four-year reign at the bank, where he won
over the board with an aggressive growth strategy but failed to convince Wall Street investors. It
would also set off a new round of calls to dismantle Citigroup’s sprawling empire.
Morgan Stanley
Morgan Stanley has lost $ 3.7 billion on sub-prime mortgage linked investments. Merrill Lynch and
Citi were both big underwriters of collateralised debt obligations backed by sub-prime mortgage
securities and were left with big inventories when demand dried up.
The subprime aftermath
The morning after the subprime crisis is turning out to be more painful than what was initially thought.
The crisis has already taken a toll of the chief executive of two of the icons of American capitalism –
Citibank and Merrill Lynch. The damage caused to the health of the banking system is already
substantial. No wonder the US treasury is worried and is nudging the big banks to come together to
establish a $ 80 billion ‘Master Liquidity Enhancement Conduit’ (M-LEC), also referred to as the
‘superfund’ that could bring some order to the credit markets.
All countries, irrespective of their stage of development, realise the importance of markets that
function in an orderly manner. Government seeks to intervene when the orderly functioning of
markets is threatened. Whether it is the Southeast Asian economic crisis or the stock market crisis in
Hong Kong in the late nineties, government responded to the crisis in a predictable manner. The
subprime meltdown, if any-thing is likely to be on a scale that is much bigger. The M-LEC proposal
currently being pushed under the benign eyes of the US treasury does not appear to be much different.
The debate therefore should be whether a free market solution is preferable to the government-
sponsored scheme that rescues speculators from the consequences of their reckless lending. The
marketplace rewards a bank that has managed its subprime exposure prudently in contrast to another
that has such exposure to the extent of several times its capital. The government intervention can end
up with the wrong incentive structure involving ‘socialising’ losses while ‘privatising’ profits.
12. ISSUES OF THE PRESENT

Living under growing uncertainty
THE YEAR 2007 has turned out to be quite uncomfortable, and the discomfort continues. As expected,
more bad news keep coming in as the excesses of the credit market splash more pails of red ink on big
names in the financial sector. There is quite a bit more to go, as governor Kroszner of the US Fed put
his case in a speech: “On average, from now until the end of 2008, nearly 450,000 subprime
mortgages per quarter are scheduled to undergo their first reset.
Credit turns shy
When the crisis begin, initial estimates of ultimate losses were in the region of $ 250 to $ 300 billion
and these may still be right. Banks on both sides of the Atlantic are going to suffer. They have the
capital to absorb the loss – that is not the issue. The problem is that it will come in instalments, quarter
after painful quarter. It will serially pound upon the willingness of the institution to take credit risks.
The quarterly dosing is akin to medieval torture and the effects can be expected to be considerably
more debilitating than simply starting afresh after taking hit would be.
As the US Fed has pointed out, the economy is not doing badly; there is both investment and growth.
The problem, of course, is that as credit turns shy, this cannot but compress US domestic personal
consumption demand, which has traditionally been fairly highly leveraged.
The Consumer Crunch
It’s been a glorious run for the consumers. In the past 25 years, Americans have kept shopping through
good times. Mostly, in every quarter, consumer spending rose over the previous year, adjusted for
inflation. The main fuel for the spending was easy access to credit. Banks were willing to lend
households ever increasing amount of money. Any particular individual might default, but the
aggregate, loans to consumers were viewed as low-risk and profitable.
However, the long awaited, long-feared consumer crunch might finally be here. That might not mean
an economy wide recession, but the pain for American households will be deep. The subprime crisis,
however, marks the beginning of the end for the long consumers borrow-and buy boom. The financial
sector, wrestling with hundreds of billions in losses, can no longer treat consumers as a safe bet.
Already, standards for real estate lending have been raised. Credit cards still widely available, but it
may only be a matter of time before issuers get tougher. Reduced access to credit will combine with
falling real estate values to hit poor and rich alike.
We’re in uncharted territory, says David Rosenberg, chief North American economist at Merrill Lynch,
who’s forecasting a mild drop in consumer spending in first half of 2008. It’s pretty rare we go
through such a pronounced tightening in credit standards. Don’t expect the spending to come to a
screeching halt, however. Remember the stock market peak in early 2000? It wasn’t until a year later
that tech spending fell off the cliff and the sector didn’t hit bottom until 2003. The same delayed
impact holds true here. Next year will be much tougher; the consumer slump may be deep and long
lasting, and the political implications could be enormous.
Slow down in China’s exports
Chinese commerce ministry has warned of a sharp decline in exports due to anticipated global
slowdown stemming out of a dim outlook for the US economy. In the latest outlook, the Ministry said
there was a possibility of slide in international demand with an anticipated global slowdown.
According to China’s central bank, when US economic growth slows by one percentage point, China’s
exports decline by six percentage points. The US is China’s second largest export destination. In the
first three quarters of ‘07, exports to the US accounted for 19.4% of China’s total, closely behind
export figures to European Union. China’s exports to the US in the first quarter saw a 20.4% jump
year-on-year but decelerated to 15.6% in the second quarter and 12.4% in the third.
Besides the US and Chinese interest rates are moving in opposite directions, which could cause
disruptions in China’s financial markets and offset the Chinese government’s efforts to rein in
inflation. China’s ballooning trade surplus has emerged as a sensitive issue stoking protectionist
sentiments among its major trade partners who accuse Beijing of consciously keeping the value of its
currency Yuan low, giving an unfair price advantage to its exporters.
World economy
If the US demand fall, it would impact regions with close links to the US such as the European Union
and East Asia. There is a possibility of slide in international demand and slow down in world economy.
In mid-2007, the United Nations forecast that the world gross product growth would slow down to
3.4% for 2007 as a whole, from 4% in 2006.
That, however, looks less than likely to be next year’s story. More possible is the US economy may
not slow down enough. More likely than not, China will continue to furiously create new fixed assets
and grow on the strength of its domestic demand. So will India and many other countries. The vast
wealth accumulated by oil exporters in west Asia and Russia will continue to finance much economic
activity. Even Europe, despite painfully expensive currencies, will most likely continue to stay well
out of recession. Thus the world will not cease to grow.
2
SECURITIY MARKET
A trillion-dollar market-capitalisation
A growth propelled largely by the service and manufacturing sector, coupled with an appreciating
rupee, has catapulted India into an elite league – that of a trillion-dollar economy club, thereby making
it only the 12th nation to reach this milestone. Even better, post-April 2007, the Indian market cap has
crossed $ 1.5 trillion.
What’s interesting is that membership to the club comes with certain benefits for the nation as a
whole. In a report, Credit Suisse, adding some history trivia, says that eight out of 10 economies had
their stockmarkets rise in one-year period after they first crossed the $ 1 trillion-mark in GDP. In
China and Germany, this led to the markets reversing directions from negative returns in the year of
the $ 1 trillion-mark to positive returns in the following year. Experts though argue that these numbers
are irrelevant for any fundamental analyst.
Sachchidanand Shukla, economist at Enam Securities says “We must remember that markets discount
these factors much in advance and expressing economic size in dollar terms may actually understate
India’s economic size. As for economy (size and structure) driving the markets, empirical evidence
has been mixed globally, and the opposite can also be argued – that markets drive economic growth.
One has seen that in countries like China, despite higher economic growth and large size of economy,
the markets remained moribund for a long period of time and has moved only lately. He adds that the
markets discount a myriad of factors and economic growth is one of them. For markets to go up, it is a
necessary but not sufficient condition. Valuation, corporate fundamentals, conducive-policies, polity
and liquidity, etc, too are equally important conditions.
Ajay Bagga CEO Lotus India AMC: “The expectations of a sustained economic growth, risk premium
and interest rates decide the direction of the markets. In India, the trillion-dollar effect has added a
‘halo’ to the markets, encouraging record-breaking inflows into the country. The trillion-dollar twin
statistics have lent a size and respectability to both the economy and the market, attracting both FDI
and FII flows in India.” He feels that the economy as the “source of wealth” has contributed to and
has, in turn, been catalysed by the stockmarkets that serve as the “measure of wealth”. The interplay of
real and nominal GDP, inflation, earning per share (EPS) and price to earning (PE) ratio has meant
that at first the markets rose due to an EPS expansion. Over the last 15 years, the 6% average real
GDP growth has translated into a three times, 18%-plus EPS growth in India. He says that post-April
2007; the PE segment has witnessed a substantial expansion. The trillion-dollar effect will build on
this EPS effect by adding the PE effect as well.
He adds that big deserves better pricing. This will attract investors of size and commitment. The
Brazilian case is very comparable. “We remain bullish on both the Indian economy and the
fundamental re-rating story of the Indian markets which will lengthen this secular bull-run, a la the US
from 1982 to 1998. India as a nation of economic and capital markets magnitude has arrived.
Trillion dollar club: (Country – Date first crossed $ trillion-mark on) – (US – 31/12/69), (Japan –
31/12/80), (Germany – 31/12/87), (France – 31/12/89), (Italy – 31/03/1990), (UK – 30/09/1990),
(China – 31/12/98), (Spain – 31/12/2004), (Canada – 3101202005), (Brazil – 29/09/2006), (India –
25/04/2007), (Russia – N/A),
SECURITY MARKET…15
Indian market situation is not as gloomy as it seems
The Morgan Stanley report says that the Indian Market’s absolute performance could be intricately
tied to the outcomes in global financial markets, but the situation is not as gloomy as it seems. With
the probability of a recession in the US rising, developed markets are likely to come under pressure.
Morgan Stanley points out that Indian equity has a high co-relation and beta with the rest of the world,
due to high dependence on portfolio flows. This sets Indian equities up for a steep correction when
US/Global equities fall.
A slightly comfortable factor is that many other emerging markets have a higher co-relation and beta,
than India. On a 12-month trailing India ranks only 16th and 13th on correlation and beta respectively
in the emerging market universe of 25 countries. This only appears logical given that these countries
have larger linkage with the world. But there are reasons to worry as well: that India’s beta and
correlation tends to rise when global market fall. Consequently, India tends to underperform emerging
market equities during prolonged bear markets. Though, each of corrections in the ongoing bull
market has been of short duration. Even so, India’s beta has expended in eight out of the ten
corrections of 5% or more and thus Indian equities have underperformed emerging equities.
If the world suffers a US recession-led sell off, Indian equities will not be able to decouple at least in
the short run. The three critical forces behind an underperformance by Indian equities under such
circumstances are:
The premium valuations at which Indian equities trade at;
The large scale speculation which seems to be driving the market at this point of time: and
The tendency of India’s beta to rise in falling markets
Also, Sebi’s move to restrict investments through the participatory notes route is viewed as one of
the reasons for a marked slowdown in foreign fund inflows.
However, the good news is that as and when the valuations correct on the back of sell off, Indian
equities could outperform emerging market equities helped by India’s long term structural story and
strong corporate balance sheets. On a brighter note, Morgan Stanley feels four tailwinds could still
drive up the performance of Indian equities in the medium term. These include:
• Effective liquidity management by the Reserve Bank;
• Higher inflows from domestic investors;
• Structural shift in global fund flows in favour of BRIC economies; and
• The seasonality factor: Indian equities tend to do very well in period between November and
February. Going back 25 years, Indian equities have delivered an annualised return of over 40%
during this period with positive returns 75% of the time with not a single negative return period in
the past nine years.
Indian equities vulnerable to US subprime crisis
Concerns over US subprime credit defaults will continue to nag Indian equities market in 2008. The
point of debate for 2008 would be how a booming Indian economy counters the economic slowdown
in the US, a prime supplier of capital to India. Morgan Stanley analysts said the coming year is likely
to witness:
Compression in India’s relative equity valuations;

Slower earnings growth;
Peaking in corporate activity;
Record equity issuances; and
Lower trading volumes
Our base case still calls for downside to equities and is premised on disappointment in US growth and
its related impact on risk appetite. Indian equities are vulnerable to underperformance if the US
macros stumble. Volatility would continue as the forecast range for the Sensex is going to be in the
range of 11,022 to 28,000.
Morgan Stanley suggests that the current valuations at 20k Sensex may not really excite the bulls. The
MSCI India index is trading at a trailing P/E multiple of 30 times and a trailing P/B multiple of 5.9
times, both around 2 = sigma above average, the market does not look cheap. India started the year ’07
with a trailing P/E of 23 times (MSCI India) and is now trading at 30 times consensus earnings. All of
the equity markets relative gains this year have come from a P/E expansion. Against this backdrop, it
will be hard to predict another year of P/E gain for Indian equities.
Where things are heading in 2008
Choosing investments for 2008 is like trying to find a decent Christmas tree in a nearly empty lot.
Stocks: Not with earnings expected to fall. Bonds: The safe ones are overpriced. Real estate: With a
credit crunch in full boom, housing still on the skids. And with a recession threatening, this is a bad
time to be hunting for assets that you can brag about owning a year hence. Puzzling out a strategy for
dealing with it requires some hard thinking. The most important influence on the 2008 investment
outlook will be the continuing turmoil from the bursting of the credit bubble. The problems began in
the housing market, where prices had been pumped up by super-easy financial terms such as no-
documentation loans and subprime mortgages with below-market teaser rates. The pain spread to the
financial sector, which had underestimated the risk of profligate lending.
Unsold Houses
For investors, the chief risk is that the credit crunch will claim more victims in 2008. Nearly 3% of
housing units that are intended for homeowners rather than renters are vacant, which is most since
record-keeping began in 1956. Many economists think the glut of unsold homes will cause a further
5% or 10% decline in prices in the coming year or so. As prices fall, the ranks of homeowners who
owe more on their mortgages than their homes are worth will swell. Experts feel “You’ve got a $ 23
trillion asset class (housing) that is in deflation mode.” Even though job growth has remained
respectable, the price decline in real estate to date has caused an outbreak of bankruptcies,
foreclosures, and multibillion-dollar writedowns. It stands to reason that further price drops will bite
far more deeply, especially if they’re coupled with job losses.
There is a growing risk that 2008 will see the first consumer-led recession since 1990-91. Interest rates
have steadily declined since the early 1980s, but consumers, rather than using the lower rates as a
chance to get out of debt, have taken on more and more. According to Federal Reserve, households’
financial obligations were 19.3% of their disposable income in the third quarter of 2007, which was a
hair below the 2006 record but well above the 1980 level of around 15%. That may be unsustainable.
Defaults on auto-loans have begun to rise, and troubles in credit cards could be next.
How to play this treacherous situation?
Unless you have a strong tolerance for risk, it makes sense to go conservative by investing in
companies that have strong balance sheets and are relatively insulated from the woes of the
American consumer. Health care, for example, rolls along in good times and bad.
Challenging times favour investors who focus on companies with abundant free cash flow. Such
companies can survive even if debt markets shut down and no one wants to buy their equity.
Seek stocks whose prices are justified by solid, ongoing businesses rather than market speculation
about riches to come.
Stockpickers have to understand companies’ competitive positions, nor just how they stack up by
accounting metrics. More than ever, “a business analyst is worth a lot more than a financial
analyst. Financial leverage has gone from being the key to wealth to a big fat mistake.
Only way is up?
All hopes are not lost. Many analysts are advocating defensive strategies that focus on preserving
wealth in trying times. A few, surprisingly, think 2008 might turn out to be a pretty good year for the
markets after all. And optimists dispute the notion that US consumers are bound to quit in 2008. When
Americans are happy, they spend money. When they are depressed, they spend even more money, as
long as they aren’t losing their jobs.
And still, there’s a bullish case to be made for the US stocks in 2008, if the economy manages to
dodge a recession. For one, strong growth abroad could help prop up earnings. 3M (MMM), for
example, forecast on December 12 ’07 that its earnings per share in 2008 would rise by 10%, thanks in
part to emerging markets.
Meanwhile, the Federal Reserve will probably cut rates further if the US economy continues to
weaken, which could give stocks a shot in the arm.
There could be more fiscal stimulus, too, if the White House tries to amp up growth ahead of the 2008
President election. Here’s a bit of trivia:
According to Stock Trader’s Almanac 2008, the Standard & Poor 500-stock index has risen in the
final seven months of every election year since 1950 except one.
3
INDIA
A trillion-dollar economy
Round numbers are always false; Samuel Johnson’s famous quote could have inspired many
companies to end the price of their products with number 9. But some of the round numbers inspire
confidence. India’s gross domestic product crossing that magical trillion-dollar mark was one such
number. With this India also joined the elite club of select countries the US, Japan, Germany, China,
UK, France, Italy, Spain, Canada, Brazil and Russia, which have already managed the feat.
Incidentally, this trillion-dollar GDP feat came alongside the Indian stock market crossing the trillion-
dollar mark in market capitalisation. For a country’s stockmarket to have market cap equal to its GDP
is also andaccomplishment’ which select few stockmarkets have been able to achieve.
This exerts point, only adds to the overall investor sentiment prompting foreign investors to pump in
money in the Indian stock, which was giving them better returns than they would have got in an
advanced market. So far so good; but the ‘copious’ capital flows have not just boosted the morale of
the stockmarket leading to rise in Sensex, but also added to worries of the central banks and the
government – a kind of Catch -22.
Moot point; will the entry into the select club change anything on the ground or have some
implications in the future? Experts take diametrically opposite views. In fact, breaching of this
magical rounded figure has been termed by many as a “statistical blip”, while some call it is
achievement of a significant milestone.
Significant milestone – It’s a milestone; that psychological benchmark which spreads the feel good
factor. Numbers have a significant mass impact. These figures are morale booster for some. In the new
world system they give credence to claims of policy makers. Earlier, it was said, we are a large
country, but a small economy. But now we are a large country and a large economy.
Being a trillion dollar economy even in that number sense does brings some fruits alongwith. “When
you are a small economy in the group of 200 countries, you cannot have global influence on
currencies. Being a large economy, you can manage your own currency strategically; can have
geopolitical influence; and you are large player who is a price influencer.
Statistical blip – GDP growth in foreign currency denomination on account of exchange rate
fluctuation is not real growth. It’s just accounting. In fact, the GDP is now more than the magical
mark, since the rupee has appreciated to breach the psychological Rs 40 to a dollar. In rupee terms,
things are very much the same. Per capita income has not gone up because of this euphoria mainly
because of exchange rate.
The pitfalls, which could be in store, both on economic and sociological levels have to be kept in mind
and dealt with. “For those who are still in the queue and have not yet reached there, it could lead to
frustration”. On the economic side, the biggest challenge confronting the economy is sustainability of
the high GDP growth trajectory. The potential dangers are many starting from a recession hitting the
US economy, rising crude prices, high global commodity prices, industrial growth pulling down
overall growth, overall monetary situation. In the meantime, join the celebration as the world says
cheers to the India story.
INDIA…19
Sustaining the growth momentum
The last three years have been seen a dramatic change in the trend of market returns largely on the
back of accelerated foreign portfolio inflows. On the macro economic front, the situation appears
satisfactory with benign inflation and interest rates, better tax compliance and an improved fiscal
situation. Foreign portfolio investors have been directing increasingly larger inflows into the Indian
market and the surfeit of liquidity thus created is bolstering all asset prices including stocks and real
estate. An appreciating rupee has added to the general sense of confidence in the economy and it
appears that the “India Shining” montage is back with renewed vigour. However, it is essential to dig a
bit deeper to analyse the undercurrents that are at the root of long-term bull markets that frequently
escape the cursory examination.
The finance minister, in an unusually candid confession, lamented on the lack of progress on the
reforms front and regretted that the government has failed to deliver results in key areas like irrigation,
education and health, even after more than doubling the spending in these areas. He said the
government is totally dependent on tried-and-failed systems to deliver results and need to look at
alternatives to the rigid bureaucracies that have been nurtured over several decades.
The lack of progress on irrigation has left a large portion of the two-third of the population that is
dependent on agriculture at the mercy of the monsoon. It is precisely this segment of the population
that nurtures the grievances of not being able to realise the fruits of a decade and half of reforms.
Access to water and irrigation is the key determinant of land productivity given that the productivity
of irrigated land is at least twice that of rain-fed land. Several cross-country studies have established
that GDP growth originating from agriculture is at least twice as effective in reducing poverty as
growth in non-agriculture GDP.
The sloth in governance is not restricted to the agriculture sphere alone. The state of urban
infrastructure – whether roads, power, affordable housing and office space, drinking water and other
municipal services – continues to be dismal despite the 40% + growth in tax revenues. Policy paralysis
on the once deregulated retail oil pricing mechanism, the inability to reign in mounting non-merit
subsidies, the capriciousness in the telecom policy regime and the backlog in financial sector reform
are just a few instances that require peremptory government action.
What do these factors have to do with possible course of the market for 2008? While the proximate
factors only how the top few companies appropriate all the emerging opportunities or how a handful
of institutional investors buy and sell stocks among themselves does not determine that influence stock
prices are the four critical equity market variables – liquidity, earnings, interest rates and valuations –
the course of equity markets. The market has been delivering dream returns on the back of copious
liquidity, robust earnings growth, benign interest rates and reasonable valuation for the last three
years. At close to 20 times FY09 earnings, around 20% earning growth and near 8% 10-year gilt
yields, it is hard to argue that valuations alone can drive market in 2008.
At current levels, there is a significant value ascribed to the long-term sustainability of the economic
growth momentum and it is difficult to imagine that this hope can be met without some peremptory
action in pushing through the much-needed economic reforms, improving governance and achieving
demonstrable success in poverty alleviation. It is about time we bid goodbye to gesture politics and get
down to the serious task of converting the hopes of a billion Indians to real economic and social
progress on the ground. This alone can deliver on the promise of India.
INDIA…20
A new Middle Path to development
Prime Minister Manmohan Singh pushed for “a new Middle Path to development” that combines the
efficiency considerations of the market with the equity considerations of a liberal polity. The new path,
through increasing private-public synergy has to sustain the momentum of growth by accelerating
investment and saving rates, increasing investment in social and economic infrastructure and
providing focused attention to agriculture sector and energy security issues.
India’s experience of mixed economy: India’s initial search for ways to address these challenges led to
the country looking “mixed economy” models. Mr Singh said ‘regrettably the mixed economy often
became a “mixed-up economy”. But this experience of the past should not discourage us from once
again looking for a new Middle Path to development that combines the efficiency considerations of the
market with equity considerations of a liberal polity.
Need to relook at subsidies: Equity does not always imply offering subsidies. If such subsidies do not
reach the poor, they do not in fact address the objectives they are meant to address. He underlined the
need for a re-look at subsidies. We spend far too much money funding subsidies in the name of equity,
with neither equity objective nor efficiency objective being met.
He made it clear that agriculture cannot provide livelihood to over two-thirds of the country’s
population. Therefore, the nation needed new policies and long-term development strategies to
encourage non-farm employment. The long-term development strategies should focus on
agriculture development and agrarian changes in addition to labour-intensive industrialisation.
Need to reduce imbalances: We need rational solutions to reduce two kinds of imbalances – rural-
urban divide and inter-regional divide – in order to make the economic growth more widespread.
What should be pathways to progress – that can reduce the persistent imbalances in development,
increase rural incomes and modernise the rural economy, empower farming community and invest in
its capabilities and productivities – Mr Singh said: I think we need a new wave of creative thinking on
these issues. Old ways of thinking seems to have run their course. We should find more rational
solutions to the problems of imbalances and inequalities in growth.
Equally, I would say, moving from one straight jacket into another, from the ideology of the “State” to
that of the “Market”, may also not help, especially in addressing these kinds of challenges. The
country has to move from a situation in which “people are migrating to places where jobs exist
towards a situation where jobs migrate to where people live.” It would a Himalayan task to reduce
regional imbalances. The state government could learn from the experience of the developed regions,
while contributing their bit to reduce the development gap.
Mr Singh also felt optimistic about India’s ability to catch up with the South-East Asia and East-Asia
if it stays on course and implements the growth strategy spelled out in the Eleventh five-year Plan
(2007-12) by sustained the momentum of by accelerating investment and saving rates, increasing
investment in social and economic infrastructure and providing focused attention to agriculture sector
and energy security issues. Such an approach was also necessary to address the major concerns
pertaining to rural-urban divide and inter-regional imbalances. Often frustrations results from
government’s inability to meet expectations. So, we need rapid expansion of labour-intensive
manufacturing industries. We need now path ways to increase agriculture output and productivity.
4
INDIAN
Looking beyond mere ideas
It is the dawn of the golden age of entrepreneurship in the country. From farmers to government
servants to management graduates, a growing legion of aspirants is getting hooked on to the thought of
bossing their own business. There are thousands of novel ideas floating about in the ether, and one
might expect to see as many new businesses to start any moment.
After all, money is no longer a problem. Even a decade ago, raising funds for a new business was a
frustrating uncertainty, but today, venture capitalists, bankers and angel investors are vying with each
other to hunt down the next big idea. The domestic market for goods and services is growing rapidly
and so are export opportunities. Internet has simplified the business of business. All this, naturally,
must lead to an explosion in the start-up scene across the country.
Well, the reality is less rosy. The hurdle is the lack of a hard nose; a street sense of converting a rich
idea into a viable business. An eye for execution, that’s the key. In fact, many entrepreneurs in India
are very protective of their ideas and sit on it afraid to share it only to see someone else execute it.
Entrepreneurship begins by sharing your idea and getting someone else as exited about it as you are.
The social fabric in our country, which glorifies success and ridicules failure, presents a contrast to the
culture in the West where no such stigma surrounds a failed entrepreneur. This shapes the mindset of
an average youngster who might dream of several start-up ideas, but settle for the reality of a 9-to5 job.
Ironically, hefty salaries in corporate jobs are weakening away bright minds.
Despite the hurdles, experts assert, the rise of start-up culture in the country is a robust phenomenon.
We Indians are the most entrepreneurial people in the world. Innovation is in our blood. But the
biggest challenge lies in converting it into an enterprise. Before you approach an angle investor, you
need a well thought out idea or business model, some validation by potential customers or market
space, an appreciation of the need for and the ability to build a team and mostly a passion to succeed.
Self-made billionaires
The Forbes list of the top 20 Asian self-made billionaires includes six Indians. Bharti Air boss Sunil
Mittal is in third place. The others are Tulsi Tanti, Ramesh Chandra, G M Rao, Uday Kotak and
Gautam Adani. All of them are children of liberalisation. In almost all cases the sectors from which
they had made their wealth were opened to the private sector only after 1991. More recently the bull-
run has clearly helped boost individual wealth.
India’s reasonably high representation in this list is a consequence of the dynamism and openness of
the Indian economy compared to some of the Southeast Asian economies. In Malaysia, Thailand,
Indonesia and the Philippines, for instance, there is a strong link between business and politics,
leading to accusations of crony capitalism. Malaysia, for instance, has built up indigenous elite
through affirmative action. Singapore may host a very larger number of MNCs but its big homegrown
companies are largely state owned. Even in resolutely free market Hong Kong property tycoons such
as Li Ka Shing have benefited from government control over land. Indian business, on the other hand,
has become much less of an aristocracy.
INDIAN … 22
An alternative career in development:
Nachiket Mor, former executive director ICICI Bank, was a hard-charging banker, who was seen as
heir apparent to ICICI Bank supreme K V Kamath. Suddenly one day, decided to opt out the corporate
race to pursue an alternative career in development. Since then, there has been more question than
answer. Why did he quit? What does he now want to do? The reasons for the intense curiosity are
understandable. At the age of 43, he is easily one of the country’s brightest finance professionals. The
decision to give up all the trappings of power and position, least of all, a cool Rs 1.36-crore salary plus
stock options – second only to Mr Kamath’s – would seen clearly out of the ordinary.
The truth is that many corporate professionals today find themselves trapped inside careers that are no
longer fulfilling or meaningful. Again, the truth is that only a few can muster up the courage to walk
away from six-figure, fancy mansions and fast cars. It is increasingly becoming hard to wish away the
Other India outside. People of high capacity and high potential feel that their skills and abilities are
being used for a very narrow objective in corporate lives. There is a huge canvas that exists outside
corporate life and we can better utilise our skills there. Money after a while has no meaning. Once
basics have been met and we have taken care of the future, what more can we do with money. So what
is the motivation to just work for earning more money?
When Nachiket completed 20 years at the bank the question began to gnaw inside his brain: how
would he want to spend the next 20 years of his career? He saw the original vision of what he would
like to do in ICICI is now complete? The answer is that the organisation has now acquired momentum
and it is consistent with what a commercial bank can do. It is now in good hands.
When Mr Kamath announced the decision to start the ICICI Foundation by contributing 1% of the
bank’s profits to the corpus every year, Nachiket decided that the time was ripe. He went to Mr
Kamath and volunteered to move to the foundation. So how did his bosses react? “They told me that I
should think carefully on what I am doing. The ultimate test in their mind was: is it really what I
wanted to do? Once they were convinced, they were very supportive.”
It isn’t as if Nachiket can rest easy in his role. The mandate, which I have been given, is to focus not
on ICICI Bank’s commercial interest, but what would be eventually good for ICICI Bank. The money
to the foundation is money that belongs to the shareholders. The link to the shareholders is that a bank
like ours needs to grow deeper into the economy, and it will benefit if the economy does well and ours
ideas work out. Mr Kamath clearly sees this as an effort that will benefit the company as a whole.
These are strict targets and goals that have to be met. In roll like this, we bring all our skills to the
table; it is a multi-disciplinary role. I have been applying all that I learnt: basic accounting, basic
performance measurement, and development of people all that is needed here. Many times people get
stuck with the ideological and philosophical nature of socially relevant work. It is not about ideology,
it is about finding solutions to issues, so the approach is still the same needed in a corporate job. The
other crucial learning will be managing projects of scale. Most NGOs will talk about ten to twenty
thousand numbers and Mr Kamath keeps saying unless you know how to execute to scale you haven’t
even begun. Unless you have targets and numbers and clearly defined points and places that you want
to go to, you can spend a lifetime. The ambition that I certainly have is to try and touch hundreds of
millions, not directly but catalyse activity that has the impact.
5
INDIA INC
Fortune at the bottom of the pyramid
More than two decades have flown by since Maruti drove in its affordable 800cc hatchback in India,
but the impact it left on the economies of pricing can still not be ignored. The people’s car, as it was
known then, became a famous case study for management students. Corporates finally started looking
at the mass market as a potential target for successful business models.
Taking a cue, companies such as, Motorola, Xenitis, Intel and Tata decided to think out of the box.
And now a sub-1k mobile handset, sub-20k bike, sub-5k PC, sub-10k laptop, or even one-lakh cars do
not look like a distant dream. These products would create their own niche in the market
notwithstanding competition from top-notch brands.
Analysts believe that there is no reason why the hoi polloi in the country should not expect a sub-2k
refrigerator or a sub-5k air conditioner or a sub 2k colour television set in the near future. It’s another
thing that you already have sub-5k home theatres and sub-2k DVD players in the market already if
you are not very choosy about the brand that is. Moser Bear has already created waves in the home
entertainment segment by offering VCDs for Rs 28 and DVDs for just Rs 38.
So if Rs 1 sachets brought about a revolution in pricing and packaging of FMCG products, the new
millennium saw the Kolkata-based Xenitis group, owners of Amar brand, turn common perceptions
about pricing on their heads. Personal computers were launched for below Rs 10,000. And then
continuing to break price barriers, Xenitis launched a sub-20k 100cc bike – Rock 100 – in the market.
Santanu Ghosh, chairman, Xenitis Group, reckons that there has to be a product for the common man.
By playing in volume, we have been able to produce better quality products at an affordable price. It is
not that we have decreased the prices to set a trend but there exists a market, which demands such
pricing patterns and is willing to go for it provided the quality matches international standards.
Experts feel that increasing affordability with a larger number of people in the middle and lower end
spectrum enabled by development and advancement in technology has led to the current state of
affairs. “Quality is a relative term”. So it will be unfair if you say that these companies are
compromising on quality for producing low-cost products. What else should a person expect from a
thousand rupee mobile handset, it offers all the basic services that helps you to communicate in the
same way as you do with an expensive, high end mobile phone. Mr Mathias from Motorola takes the
argument a bit further. “Our focus is to take customers from the bottom of the pyramid and upgrade
them to mid-level phones. Now if we compromise on quality, then we lose our customers as well.”
The success of Maruti attested to the fact that there is a market in the entry segment, which needs to be
tapped and companies will have to adjust their pricing as per their needs. If you are ready to shell out
extra; you’ll get the added benefits even though the base product remains the same. The Tatas have
already taken the first step. On the much-touted Rs 1-lakh car, the company claims that there would be
no quality issues and promises the car will be a pleasure to drive, as it will meet all safety standards
that pertain to the automobile sector in India.
There is no reason that new pricing barrier will not be broken in other categories as well. If National
Housing Bank has its way; even flats could come at the price of Tata’s proposed car. The NHB is
working out a project to launch Rs 1 lakh houses for people on a massive scale across India.
INDIA INC… 24
Creative capitalism
Bill Gates’ address at Harvard’s commencement ceremony brought much-needed attention to the idea
of ‘creative capitalism’. Talking about the world’s sharpest inequalities, Gates convinced his audience
that the answer to them lies in making markets work better for the poor. In his words, creative
capitalism is about “stretching the reach of market forces so that more people can make a profit, or at
least make a living, serving people who are suffering from the worst inequalities.” The need for
creative capitalism arises from the basic workings of free-market corrupt-state economies – most
developing world economies – where the poor have neither any power in the market nor any voice in
the system.
In India 125,000 children lose their lives every year to Rotavirus, a preventable disease, vaccination
against which costs a few thousand rupees. This is 300 times the number of people who die in a plane
crash worldwide every year. While Boeing and Airbus spend millions of dollars and work relentlessly
to make their aircraft safer, no company is rewarded immediately for investing heavily in research that
makes vaccination affordable to the mass potential consumer base in the developing world. A shining
example of creative capitalism in public health is the concept of an ‘Advance Market Commitment,’
an advance bulk order for drugs and vaccines that are today nonexistent. Such a financial commitment
from philanthropies and government allows pharmaceutical companies to hedge the economic risk in
making heavy R&D investments for risky third-world markets.
Another important dimension of creative capitalism is heavy innovation to create low-cost high-
utility products for poor subsistence-market consumers. Rather than treat them as beneficiaries of
donors’ noble gesture, it’s time to view the world’s 1.3 billion people making under $ 1/day as a
mammoth potential consumer base in a ‘low-margin high-volumes’ market – what some call the
fortune at the bottom at the pyramid. As, Julia Novy-Hildesley of the Lemelson Foundation, a leading
promoter of inventiveness, rightly puts it, “People are most likely to use and benefit from a product
they’ve invested in themselves.” The capitalist model is “very empowering” compared with traditional
giveaways.
The drip irrigation system, designed by International Development Enterprises (IDE), is a classical
example of low-cost high-utility product. This simple device, which starts at Rs 250, consists of an
elevated bag that uses gravity to distribute water to crops via a network of plastic pipes, and can
increase crops yields by more than 50% while reducing total water use.
Private philanthropists and government can play a big role in fostering such “humane
entrepreneurship” by rewarding entrepreneurs who use creative ideas to serve under-privileged
communities. Support from philanthropic sector could be in many forms including professional and
technical support, resource mobilisation for seed capital or other forms of funding, membership and
net-working assistance, or simply community recognition. One such successful initiative is Bill
Drayton’s global organisation called Ashoka, which has recognised and supported more than 1,800
local entrepreneurs – with astonishingly powerful ideas, most of which are both sustainable and
replicable – from more than 60 countries so far. Astonishingly, when it comes down to the basics of
improving people’s lives most solutions are striking in their simplicity. But often it’s seeing the
obvious that’s most challenging. The biggest challenge is reducing a known technology to its most
basic elements to keep costs down. It’s a tad bit ironical, but it seems that the world is beginning to
look out for answers to many of humanity’s oldest, toughest, messiest populist problems in market-
based free-enterprise approaches. Bill Gates would call this social development v2.0.
INDIA INC… 25
India’s Corporate Social Responsibility Index
Infosys, Tata Steel and Tata Motors from Tata Group, Reliance Industries and ICICI Bank rank at the
top of Nielsen India’s Corporate Social Responsibility Index. India Inc is fast realising that when it
comes to building corporate image, nothing is more effective than high scores on the corporate social
responsibility (CSR) scale, says the Nielson Corporate Image Monitor 2007 (CIM) study.
The CIM is at aimed measuring people’s perceptions of the image and reputation of India’s leading
companies. The CIM found that overall; the impression of the top 20 companies among people
surveyed had improved significantly in 2007. The average Net Image Goodwill of the top 20
companies saw a sharp improvement from 29% in 2006 to 41% in 2007.
Companies showing sharp improvements were Tata Steel, Tata Motors and Bharti Airtel. While ICICI
Bank was the sole entrant from the banking sector, not a single FMGC major featured in the top 10
list.
The results are an indication as to how Indian companies have become more aware of their role in
CSR initiatives in the last few years. Environmental consciousness in the form of maintenance of
parks and roads, primary education and training are the top investment areas for corporations.
However, the study reveals that these initiatives fall short of stakeholder expectations and their vision
for real social responsibility. While India is on a high growth trajectory, there are many areas of
society in need of drastic improvement to sustain growth. There appear to be gaps between what
Indian companies currently spend in support of CSR compared to their stakes holders’ expectations.
6
INDIAN CURRENCY
Rising rupee spins a magical spell
It is not just Indian stockmarkets that have topped bourses across Asia in terms of returns to investors;
the local currency is also regarded as one of the best performer. Whether such a sharp appreciation is
good for the economy is a matter of debate. However, the gains on account of rupee appreciation do
show the economy in much better light.
According to a report by HSBC, there is strong statistical evidence that the rupee has big effects on the
manufacturing wholesale price index (WPI) – a 1% rise in the trade weighted rupee cuts 0.7
percentage point from the inflation rate over the following 12 months. If the high price of oil has not
hurt the Indian economy as badly as before, it is partly because of a stronger rupee. The stronger rupee
has improved the value of India gross domestic product to above $ 1 trillion.
Post-liberalisation in the ‘90s, the general approach of a policy maker has been to ensure that the
domestic currency remain competitive. In other words, the Central Bank intervened by buying dollars
every time the rupee showed signs of appreciation. This stockpile of dollars turned out to useful
whenever there was short-term volatility in the forex market.
But this policy of keeping the rupee undervalued has failed due to the strength of foreign exchange
inflows, which comprise foreign investment (direct or portfolio) and remittances (exporters and NRIs).
We all concerned – whether academies, economists, forex dealers or hedge fund managers – were of
the opinion that India would now have to live with an appreciating currency.
A host of measures taken by the government to help exporters protect their balancesheet will help
them live with a stronger rupee. The measures include liberalising hedging of foreign currency risks.
There is much in store for the Indian forex market, which is spearheading itself to welcome currency
futures and fuller convertibility of the capital account. Making rupee a freely traded currency across
the globe will soon see the light of the day, given that rupee futures are already traded both in the
market for negotiated deliverable forwards and on Dubai Gold and Commodity Exchange.
Says Ajit Ranade, chief economist, AV Birla group and member of the committee on fuller capital
account convertibility: “Moving towards fuller capital account convertibility will help deepen the
forex market. But this progress is contingent on the concomitants, which are described in the Tarapore
committee report. The continual challenge, however, is to enable small and medium enterprises to use
hedging instruments and inculcate a risk management culture within their organisations.”
As of now, the Indian forex market is a managed float market. Periods of tranquility are typically
followed by volatile phases. Volatility exposes the exporters and importers to an inordinate amount of
risk as far as managing exchange rates are concerned.
Says ICICI’s chief economist Samiran Chakraborty: “Rather than the direction in which the rupee is
headed to, volatility is what needs to be studied. This will be a key factor in determining the cost for
different agents in the economy. There should be some amount of stability and rather than a one-sided
movement of the rupee against the dollar, there should be a two-way movement for better pricing.”
INDIAN CURRENCY… 27
The rules of the game need to adapt in order to keep pace
The European Central Bank (ECB) has said that it is not campaigning for the international use of euro,
reacting of a strong pitch by trading nations to shift their billing from a weakening dollar to strong
euro. European Central Bank president Jean-Claude Trichet said, “Since the beginning of the euro, we
can say that we are not campaigning for the international usage of the euro.” He also said that the
sharp and abrupt moves in foreign exchange were not in the interests of the global economy.
Mr Trichet pointed out that emerging markets have become one of the main engines of world growth,
with a projected contribution of over a half during the year 2007. “The vigour of growth in emerging
markets and their resilience are good news for all of us. It suggests that the world economy may be
better able to rely on the dynamism of these economies, in particular should growth in other regions
lose momentum. Mr Trichet said that while emerging markets gaining importance, they also have
more responsibilities in the global arena and that the rules of the game need to adapt in order to keep
pace.
He called for greater co-operation between mature and emerging markets to ensure global stability. Mr
Trichet said, “Many initiatives have been taken and implemented. Altogether, this should help make
the global economic and financial system more resilient. But we have also learned that it is not the
time for complacency. The next crisis is always different from the previous one.”
He called for the need for both industrialised and emerging countries to continue to work to cope with
new developments and challenges. Efforts to ensure global stability and prevent crises have to be
made constantly by all of us, and should be guided by the principles of transparency, good practices
and dialogue between relevant players.
He warned that today’s developments are likely to be the precursor of a profound rebalancing in the
distribution of world output tomorrow. Therefore, they call for constant monitoring and co-operation
by the international community. The process of rebalancing, in turn could trigger another financial
crisis. “It cannot be excluded that this process of rebalancing might be “non-linear”, with episodes of
discontinuity, perhaps also including economic and financial crises somewhere down the line.”
Underscoring their role in the global financial system, Mr Trichet said, “Emerging market countries
are increasingly important global players an all dimensions be they economic, financial, cultural or
scientific. This is a welcome and systematic development. In turn, this has important implications for
the governance of the global economic and financial system.” It is evident that the systemic evolution
we are witnessing in the global economic and financial system calls for systematic changes in the
global policy framework.
There are new players. They are gaining importance. This means that they also have more
responsibilities in the global arena and that the rules of the game need to adapt in order to keep pace.
Exotic forex option trading
Rupee isn’t the only currency that’s hurting Corporate India. Several bets on euro, yen and swiss franc
have also gone wrong. And it is burning a hole in the books of many corporates. According to market
sources, several companies, taking bets that euro and yen will slip against dollar, have struck
derivatives deals to cut cost and prop up revenue without assessing the hidden exchange risks.
Vanilla Vs Exotic
Plain vanilla forex options have a definite expiration structure, payout structure and payout amount.
Exotic forex option contracts may have a change in one or all of the above features of a vanilla option.
Unlike stock or regular dollar-rupee trades, this is a more opaque, synthetic market where corporates
punt on currencies through one-to-one deals with banks. And they are sold in exotic names like ‘target
redemption notes’, ‘range accruals’ and ‘options barrier’.
A growing inclination among international investors to switch to non-dollar assets has stoked the
demand for other major global currencies. And the rise in euro, swiss franc and yen against the dollar
has rattled many corporates. There are concerns... It may not be alarming. But companies are sitting on
large derivative positions that are out of money.
Kuwait’s decision to drop the dollar peg and instead link dinar to a basket of undisclosed currencies
has also fuelled rumours about other economies in the Middle East taking a similar step. Coupled with
a general decline in dollar and the combinations of these factors have strengthened the other
currencies. The market has seen an unprecedented level of volatility. Some things, which were thought
to a rare possibility, have become real, leading to such situations.
Bankers fear that some of the corporate have gone for pure bets and have done deals far in excess of
their underlying liability (like the loan amount). While such naked bets are in violation of rules,
corporates often hide the position by cutting deals with multiple banks.
It’s may be the first victim being hit by such transactions, Hexaware Technologies which has made a
provision of $ 20-25 million towards possible losses on these deals. Hexaware chairman Atul Nishar
said “We don’t have any need to get into these structured option deals. The company policy does
permit these kinds of deals – we only need a simple forward cover.” An external forex expert has also
been roped in. The options contracts were in swiss franc, yen and euro. The company intends to
continue with normal hedging strategies to protect against the rupee appreciation.
Future shock
Countless companies are cutting new deals with banks to hide the losses from currency bets that have
gone awry, in the face of volatile global markets. Caught on the wrong foot, corporates are now doing
what it takes to sweep the dust under the carpet. Many firms, that have taken a hit as euro and yen rose
against the dollar, are entering into offsetting transactions in an attempt to neutralise the original deals.
Managing risks through derivatives
Legendary investor Warren Buffet, in 2002, said “in my view, derivatives are financial weapons of
mass destruction, carrying dangers that, while now latent, are potential lethal. “That statement had
created a tremendous amount of buzz in the business world. Over the last two decades, huge losses
reported by Procter & Gamble, Barings Bank, Long Term Capital Management and Enron, among
others, somehow seemed to corroborate Mr Buffet’s statement.
These events led to fierce debate among market participants and people started questioning the
usefulness of these financial instruments called derivatives. Some of the common concerns were:
• Are derivatives really that risky that they can be classified as weapons of mass destruction?
• Do they no longer serve the purpose of hedging the underlying exposures, a purpose for which
they were supposedly created?
• Are they actually destroying value by exposing companies to huge financial losses as opposed to
preserving value by mitigating risks?
The answer to above questions is:
• It depends. Derivatives, if judiciously used, with the sole intention of mitigating underlying
exposures, can act as a boon, but if used for speculative purposes, can often has disastrous results.
Current Indian scenario
Due to the increased effects of globalisation, last couple of years has seen the Indian companies being
increasingly exposed to global market factors and are faced by rising levels of complexity of risks. To
mitigate the effect of these underlying risks, Indian companies are increasingly using highly complex
hedging strategies with the help of exotic derivative instruments.
The sheer explosive growth in volume of total derivative contracts outstanding validates the
heightened interest of Indian companies for such products. To satiate this heightened interest for
derivative instruments, banks have readily agreed to structure and offer these contracts to their
corporate clients by focusing more on the returns rather than stressing on the potential downside risks.
However, banks should undertake derivative transactions, particularly with companies with a sense of
responsibility and circumspection that would avoid, among other things, mis-selling. Under such
circumstances, it has become imperative for Indian companies to adopt and demonstrate a pro-active
(but disciplined) approach towards financial risk management.
Challenges faced by Indian companies
Putting the right hedging strategy in place is only half the battle won: companies need to continuously
monitor and assess the effectiveness of the hedging strategies and ensure that they are in sync with the
underlying risk profile. However, this is easier said than done. Some of the key challenges that Indian
companies face when confronted with such complex hedging strategies are as follows:
INDIAN CURRENCY…30
Lack of a clear and well thought out hedging policy with clearly defined permissible instruments,
allowing hedge ratios, prudent limits and maximum tenors;
Lack of technical expertise to evaluate the complexity of the hedge transactions and ability to
identify, understand and quantify the risks by performing periodic Mark-to-Market calculations;
Inability to closely match the hedge transactions with the underlying exposures, thereby causing
ineffectiveness;
Lack of understanding of the accounting treatment to be used for both effective as well as
ineffective hedge relationships;
Limited or no access to risk measurement tools as well as market data systems to independently
validate the Mark-to-Market numbers reported by counterparties;
Limited band width in terms of skilled man-power to perform Mark-to-Market calculations of the
derivative transactions on an ongoing basis;
Inability to build – in worse case scenarios in the valuation models to incorporate sudden and
adverse price movements;
Inability to quantify counterparty risk exposures in the event of defaults;
Limited ability to factor – in liquidity premiums for unwinding the hedge transactions prematurely
in times of adverse market conditions;
Increased scrutiny and regulatory pressure requiring companies to evaluate and document their
quantitative methodologies, supporting processes, underlying systems and adherence to strict
reporting guidelines.
Ten Commandments for Board
In order to institute a robust governance framework and have a better understanding of risk-return
profile, it is imperative that Board members have answers to the following questions –
1. How many people in our organisation, especially the Executive Management Members of the
Audit Committee as well as the Independent Directors of the Board themselves are aware of and
understand the derivative transactions and its impact on underlying exposures?
2. To what extent have these transactions mitigated or reduced underlying transaction risk?
3. What is the cash flow and Profit and Loss impact as of date on account of these derivatives
positions?
4. What is our credit exposure with various banks on account of the derivative transactions?
5. Do we have a robust and comprehensive risk management policy and are we complying with it
and with other regulatory guidelines?
INDIAN CURRENCY…31
6. Is the derivative portfolio being independently reviewed or validated by competent third-party

consulting / auditing firms?
7. Do we have sufficient technical expertise and tools to evaluate measure and monitor risks from the
derivative transactions on periodic basis?
8. Are our processes and MIS in place with sufficient internal controls?
9. What can be the possible impact on financial statement? Are they transparent enough in disclosing
the fair value of the Company’s assets and liabilities as well as financial profit and losses?
10. Will our investors be satisfied with our actions on account of derivative transactions?
These days, numerous hedging strategies are available to Indian companies to help them manage their
foreign exchange exposures. Each strategy has its own upsides and downsides. Increased complexity
of the derivative instruments, compounded by high levels of regulatory scrutiny is compelling
companies to adopt and demonstrate a more disciplined approach to risk assessment, measurement and
financial disclosure. The aforesaid developments have led to increased challenges in the areas of
quantification of risk, recognition of exposures, monitoring the effectiveness of hedges vis-à-vis the
underlying exposures, mark-to-market of outstanding derivative contracts as well as settlement and
accounting of exposures.
With the impending Accounting Standard 30 on the horizon, the need to assess the effectiveness of the
hedging strategies and quantifying the risk from the use of complex financial instruments and
derivative transactions becomes even more pronounced.
7
CENTRAL BANKS
Independence of central banks
Jean-Claude Trichet – the man who heads the European Central Bank (ECB) – is considered to be
second most powerful central banker in the world after Fed’s Ben Bernanke. In a rare interview to an
Indian publication the ECB president, who was in India on a short trip, spoke on role of central bank
and range of issues to the global financial markets and economy. Excerpts:
First of all, I would say that we are observing an ongoing significant market correction with episodes
of turbulence, high level of volatility and episodes of overshooting of number of markets. In these
circumstances, all parties have to be up to their responsibilities, whether public authorities, banking
surveillance authorities, central banks certainly and all the more of course private financial institutions
whether commercial banks or other financial institutions.
In our own understanding, all central banks I know have done their job. There we are receiving
various signals. They are all not in the same circumstances and they have a connection to the global
financial markets. They also have various instruments at their disposal. All said and done, they have
done their job. The ECB is independent from all pressures according to our own treaty and everybody
knows the world over that we are fiercely independent. The credibility of the ECB depends very much
on that. But let me say that the credibility of all central banks is associated with their independence.
We have a primary goal, which is price stability, delivery of price stability and anchoring of inflation
expectation. That is all the more important in a period of significant correction. This calls for certain
levels of interest rates and certain monetary policy stance.
We have major responsibilities to pave the way for the correct functioning of the money markets. We
have to care for inflation expectations and care for appropriate functioning of the money markets. But
we don’t mix the two. There are no trade offs in our opinion. You have to do both. The situation is
always multidimensional and you always have to balance the risks. Eventually, you have to make a
judgment which is in the best of appreciation on the basis of multi dimensional inputs.
It is my opinion that we should not let any particular area or piece of overall global finance and all that
influence global finance apart. We must look at and improve the overall functioning of rating
agencies, the highly sophisticated structured finance products, core intermediaries, and commercial
and investment banks and in particular how to assess the model of originate and distribute.
I would only say that we are watching with great interest the study that has been started at the request
of the international community on benchmark best practices and best behaviour. And we will see
which kind of principles and benchmark for best practices will be produced by the industry itself.
It is striking to see that emerging markets are very resilient and not touched by the recent crisis. India
in particular, I think it is an additional argument to say that when you have an issue, which is
important, you candidly look at all possible improvements. After the Asian crisis emerging markets
did a lot of good work, and that is why we have the present resilience and so it is good example of
doing job.
CENTRAL BANK… 33
Looking hard at inflation
The Federal Reserve’s past emphasis on core inflation, which strips food and energy from the price
indices in order to gauge the underlying trend of prices, has always confused both Wall Street and
Main Street. How can the Fed make monetary policy while ignoring two items that make up 23% of
the consumer price index? As the old complaint goes core inflation makes sense only for people who
don’t eat or drive; now, as part of a communication overhaul, Fed policymakers are finally giving total
inflation its due. Beginning with the minutes of the October 30-31 policy meetings, released on
November 20, 2007 the Fed is offering the public its forecasts of both total and core inflation instead
of only the latter.
The change is part of the central bank’s new transparency effort “to improve the accountability and
public understanding of US monetary policy.” The Fed will publish its economic projections for
growth, inflation, and unemployment four times a year instead of two. It will extend its forecast
horizon to three years, from two. It also will offer a “narrative” to explain the consensus judgment, as
well as differences among the policymakers.
The new attention to total inflation comes at a tricky time for the Fed. In the coming months, while
growing evidence of a weak economy is likely to bolster arguments for further interest-rate cuts,
overall inflation is expected to speed up to a pace far greater than the core rate. Except for the period
after Hurricane Katrina in 2005, the gap could be the widest since 1980. The Fed often has expressed
concern that costlier energy and food have the potential to lift other prices. Indeed, over long periods,
total and core inflation have moved roughly together. The upward push from energy and food was
evident in the October consumer price index 2007. The total CPI jumped 3.5% from a year ago, up
from September’s 2.8% clip, while the core rate edged up to 2.2%, from 2.1%. Food inflation, at 4.4%
in October’07, has doubled since the end of 2006 and is the highest in 16 years.
Based on the Fed’s preferred measure, the price index for personal consumption expenditures, most
policymakers expect overall inflation to end 2007 between 2.9% and 3%, with core prices rising 1.8%
to 1.9%. In the long run, given ‘appropriate’ policy, the Fed foresees total and core inflation
converging to between 1.6% and 1.9% by 2010. Policymakers hope investors will see these outer-year
projections as a target for price stability that will guide policy and anchor inflation expectations. If
people expect low inflation over the long haul, they won’t let transitory jumps in energy and food
alters their pricing, buying and wage-setting behaviour.
Still, the Fed must make policy decisions in the short run and the crosswinds building up for its
December 11 ’07 meeting are the stiffest in years. In addition to the uncomfortable level of overall
inflation, reports show the economy is slowing sharply. Despite strong exports, domestic demands are
too weak to support production gains.
Also, a growing number of influences on inflation are beyond the Fed’s control. In recent years,
policymakers have expected oil prices to moderate, yet strong global growth has pushed them higher.
The dollar’s plunge is another factor. Higher food prices partly reflect the shift to ethanol production,
but prices of imported foods and feeds are up nearly 10% over the past year, and the prices of Chinese
imports are accelerating. Also, productivity has slowed and is not providing the same inflation cushion
as earlier in the decade. Current tame reading on core inflation would no longer offer the same
comfort to policymakers they once did. The growing pressure on total inflation is a new risk that could
rob the Fed of some maneuvering room.
CENTRAL BANK… 34
Unwinding of global imbalances
For a long time the behaviour of the dollar seemed to defy macroeconomic gravity. It kept
strengthening despite a growing US current account deficit. Several inventive theories were postulated
to explain this anomaly. Perhaps none was more inventive than the ‘dark matter’ that enabled the US
to earn higher returns on its overseas assets than what the rest of the world earned on dollar assets. The
dollar was perceived as the ‘primus inter pares’, a singularly strategic and relatively risk-free reserve
currency that found universal favour with central banks despite its low returns.
Unlike most countries, the US seems to be perfectly happy with strong dollar. Cheap Chinese imports
counter the political backlash stemming from greater integration that increases domestic inequality by
rewarding capital and penalising labour. Muck of the increase in inequality in the US over the past two
decades is attributed to the entry of a vast pool of cheap labour in developing countries into the global
market.
At the heart of the current global macroeconomic imbalance is the burgeoning US current account
deficit that is roughly equal to the current account surplus of the rest of the world, mostly deriving
from the trade surplus of developing countries. What this means is that the US over-consumes –
relative to its domestic production – by roughly the same amount that the world overproduces. The
expanding US trade deficit is widely seen as the engine of growth for developing economies. A
strange new mercantilism informs their economic policy. The recipe for high growth is to tap export
markets through managed exchange rates. Undervalued exchange rates, however, suppress domestic
demand as they erode the purchasing power of domestic residents by keeping the price of tradable
goods high. China consumes only about half its national income.
The long-term outcome of neo-mercantilist policies has been to push developing countries as a group
from a cumulative current account deficit of around $ 100 billion in 1990 to a huge current account
surplus of over $ 600 billion in 2006. This flies in the face of conventional wisdom that developing
countries should run current account deficits to leverage foreign savings to supplement domestic
savings and enhance growth and development. Far from leveraging foreign savings to boost
development, developing countries have been exporting their own surplus to finance excess of
consumption in the US, even as their median per capita incomes remain low. Household savings in
developing countries are unusually high by western yardsticks because there is no credible tax-funded
social security or pension system in place for vast majority of people.
On the relatively unsung corollaries of the subprime crisis and financial turmoil in the US is that the
dollar at last appears to be succumbing to macroeconomic logic. While the trade-weighted dollar index
has been declining steadily since its peak of 2002, till recently the decline was much sharper against
euro and yen, than against Asian currencies from which the US sources much of its imports. The
decline in 2007 has been precipitous, with the dollar falling to its lowest level in decades. The fast
declining dollar is now lowering the US trade deficit and the US draft on developing country surpluses
to finance consumption.
As the dollar weakens, the value of the international reserves of developing countries, currently
heavily over-weighted in dollars, is declining. Unless this is compensated through higher interest
rates/monetary tightening by the US Fed, sovereigns could seek to park reserves elsewhere,
aggravating the dollar decline. The dollar may be America’s currency, but it is other countries’
problem!
CENTRAL BANK… 35
If US growth were to revive, consequential monetary tightening by the Fed could lead to a renewed
demand for dollars that would stem the trend towards dollar depreciation and restore the status quo
ante. If, on the other hand, global imbalances continue to unwind, developing countries would need to
increase their own demand to sustain growth, especially since several emerging economies,
particularly China, are dependent on US markets. How would this decoupling play out? By boosting
incomes through lower taxes, or through fiscal and monetary loosening, and getting people to spend
more by putting in place comprehensive social security and pension systems such as those prevailing
in developed countries?
The US faces a trade-off between cheaper imports and a competitive dollar that would reduce the huge
trade deficit and raise domestic savings to prudent levels. The subprime crisis in US is now
compelling households to save more since borrowings is becoming more expensive and rating
sensitive. External markets – especially fast growing economies like China and India – would
consequently become a more important source of sustaining US growth.
The possibility of this happening hinges on the response of developing countries to the current surge
in capital flows and currency appreciation. The response so far has been mostly a combination of
capital controls and sterilised intervention. There is general reluctance to let currencies appreciate,
especially in China. A less timid policy may, however, be necessary if the US in particular were to
enter into prolonged recession.
Currency appreciation would no doubt mean that exporters in developing countries would lose pricing
power, but if this appreciation were to be smoothened by central banks, exporters would get more time
to adjust and effect productivity improvements. Consumers – many of whom have modest incomes –
and those relying on imports in their production process would gain in purchasing power. A decline in
the price of tradable would tend to raise real household incomes, expanding domestic demand. The
export of valuable capital from poor developing countries and fiscal losses stemming from excessive
intervention would decline. By keeping a lid on inflation, stronger currencies also permit lower
interest rates, which can in turn stimulate a virtuous cycle of investment, domestic spending and
inclusive growth and development.
It is interesting to place global imbalances in historical perspective. The first major phase of
globalisation, culminating in colonisation, resulted in heightened income disparities between western
nations and the rest of the world. This phase was broadly characterised by imports of primary products
from the rest of world to the industrialising west, which in turn exported manufactures to the colonies.
The second major phase of global integration beginning in the 1970s, and accelerating from the 1980s
with the entry of first China and then India, saw a narrowing of incomes between developed and
developing countries after several centuries.
The strategy of manufacturing export-led growth in the erstwhile colonies has, however, kept median
per capita incomes in developing countries low, since it largely targeted consumption in the west. A
major shift to domestic demand-led growth in developing countries, which is what unwinding of
global imbalances would entail, would at last tend towards greater convergence of median per capita
incomes between west and the erstwhile colonies.
CENTRAL BANK… 36
The Fed’s new rescue plan
Give Federal Reserve Chairman Ben S. Bernanke an “A” for creativity. As the credit crunch worsened
this fall, Bernanke saw a financial system in shock but an economy that seemed relatively healthy. He
wanted to restore confidence in the banks without flooding the system with money, which would risk
an outbreak of inflation.
Term Auction Facility
His solution: First, on Dec 11 ‘07 the Fed cut rates by a modest quarter point. Then on December 12
the central bank unveiled a brand-new monetary tool – a periodic auction of loans to banks. These will
be secured by a wide variety of collateral, including mortgage-backed securities. By lending freely to
beleaguered banks, the Fed is sending a signal: We won’t let this credit crunch spiral downward into
an outright crisis.
Whether it works depends on how you define success. The so-called Term Auction Facility should
help relieve the stresses in the financial system that has left banks afraid to lend even to one another
because they don’t trust the quality of borrowers’ collateral. With the December 12, ’07
announcement, the possibility of a financial-sector meltdown has diminished.
For the overall economy, though, it’s no miracle cure. It’s specifically not intended to expand the
supply of money in the economy. And it does nothing to strengthen banks’ weakened balance sheets.
So even with the new Fed backstop, lenders may remain reluctant to lend. To revive economic growth,
more action will likely be required: bigger rate cuts, stronger government measures to clean up the
subprime debacle, or some combination of the two.
How it will work
The Fed will lend up to $ 20 billion at each of two December Auctions, with two more scheduled for
January ’08. Rates will be set through bidding. The key is that the Fed will lend to any healthy bank
and will accept many types of collateral, perhaps placing a higher value on it than the banks would be
able to get on the open market. The Fed also arranged to swap currencies with European Central Bank
and the Swiss Central Bank, allowing those institutions to lend up to $ 24 billion to banks that have
trouble borrowing dollars on the open market. The market’s reaction to the Fed’s latest actions was
mixed to negative. Traders thought there was a good chance that the Fed would cut the discount rate
by a half point, and some were holding out hope for a half-point cut in the funds rate as well.
Not Enough
What’s becoming clear is that market frenzies take its own course, and there’s no easy remedy. The
core problem remains: Many banks loaded up on iffy assets such as subprime loans that are continuing
to lose value as the US housing market keep sinking. They’re reluctant to make new loans because
they don’t trust their borrowers, and they want to husband their cash in case they have to make further
writedowns. The Fed December 12 plan, while it should ease stress in the system, “does not fix in any
shape or form the source of the problem.”
8
FOREIGN INSTITUTIONAL INVESTORS

Private Equities’ good intentions act
The concerns of the government and Reserve Bank of India are at the heart of an ongoing debate
within the government establishment about the ‘colour’ and the ‘tenure’ of foreign capital flows.
Arguing one side of the debate are the private equity (PE) funds who insist they are the real things; the
guys who will stand by India when few others will. The government officials have taken an opposite
line and believe there is not much evidence to prove this, and the investment style shown by many of
the funds is no different from mutual funds or even hedge funds. The truth is a little more nuanced.
Colour
Take, for instance, the key doubt “The finance ministry officials wanted to know how we could be
categorised as foreign direct investment (FDI).” Consider Genpact’s case. Genpact was General
Electric’s FDI – GE Capital International Services (GECIS) – in India in 1997. In 2005, GE sold
GECIS, renamed as Genpact, to two private equity firms, Oak Hill and General Atlantic. In 2007,
Genpact listed on NYSE and its operations again became FDI. The PE guys are still invested and will
perhaps remain so for a while.
Something similar happened to Hughes Software Systems, an FDI, which became Flextronics, another
FDI and became a PE investment when it was purchased by KKR, the 800-pound gorilla of PE funds.
Many funds in India – hedge, mutual or private equity – look alike because they all invest in listed
companies. That’s an accident of history. Because of its capital markets, India has more than 5,000
listed companies of all shapes, size and sectors. It would be foolish to ignore this and the liquidity
available because of their listed status. But once the officials see past that the difference amongst
investors will become fairly clear.
Tenure
This is another important point; GE’s FDI had a life of 8 years while Hughes Software was an FDI for
15 years. Most investments from PE funds will be at least half that duration. The average holding
period of a PE fund in India will be between 4 and 5 years and in certain cases 7-8 years. For instance,
Warburg remained in Bharti for almost 6 years, from 1999 to 2005. General Atlantic is still invested in
Patni after 5 years.
We will typically invest for 4-5 years and then sell over the next 2-3 years or longer and return the
money, says the head of a PE Fund. Most people who invest in PE fund, like pension funds, sign legal
documents that ensure they remain invested for 7-8 years.
But how can Indian officials be sure of this because PE funds never collect all its money it say it will
manage and keep it all in a bank. This is the point with which RBI seems to have problem. RBI is right
about the fact, but their interpretation is a bit different. Most PE funds in India do have a company
registered in Mauritius, which hardly has any capital. Each time a deal is about to be done, all the
investors wire in their share of funds into this company. The PE fund managers than transfer this
money to the Indian company in which they invest.
FOREIGN INVESTORS… 38
Is this suspicious? Not really. Unlike mutual funds or hedge funds that have shorter time horizon, PE
funds don’t need to have money sitting in their bank account. “Idle money is a drag on the returns,”
say a PE fund manager. An analogy is hiring a taxi two hours before you start the journey; you just
end up accumulating unnecessary waiting charges. In the PE fund’s case the longer the money sits
undeployed, the worse it is for rate of return calculations. So what they have is a “drawdown”. You
ask your investors for money only when you are ready to do the deal. Instead of money, the fund has
legal commitment to invest.
If the investors renege on their commitment the PE fund can take these investors to court.
Alternatively, there are huge penalties. Let us say a US pension fund has committed $ 100 million to a
PE fund but backs out after investing $ 25 million. It then stands to lose all the $ 25 million it has
invested and does not get its money back, says a PE investor. Most PE investors believe that if the
government officials were to scrutinise the fund document they would realise that even if the
Mauritius Company has little capital there would be little to worry about. Once you know who the
anchor (main) investor is – it could be the Harvard Endowment Fund or GIC Singapore – you know
that others will be credible and long-term, say the head of a PE fund.
Show me the money
The days of one-dollar companies floated by foreign venture capital (VC) funds to enter India are
over. Reserve Bank of India (RBI) has spelt out that these funds will get registration to invest in India
only if they chip in a part of the investment upfront. RBI wants some credible investment
commitment, in the sense that a part of the proposed investment should lie in a Mauritius bank account
before registration is granted. The condition now being lay down relates to some credible capital
commitment before a formal registration can be obtained. The central bank, which has the final say on
all cross-border flows, may be driven by the urgency to curb inflows.
Earlier, the regulator has been insisting on end-use restrictions. This only meant that foreign funds
have to give undertakings that they will not invest in the Indian property market.
Typically, a new foreign venture capital fund first forms an investment holding company in Mauritius
with rudimentary capital, often not more than a few dollars. The investment company then files for
registration with Indian capital market regulator Sebi, which then refers the application to RBI. The
registration once granted can be used indefinitely and no periodic renewals are required. Once it gets
the approval, overseas investors are gradually roped in.
While filing for registration they do disclose their investment strategy, possible investment corpus and
the period over which the money will come in. But no foreign investor actually signs a cheque till the
Mauritius Company gets officially recognised by Indian authorities as a VC fund in India. So, the new
condition being insisted by RBI may discourage many foreign investors who are unwilling to park
money unless the investment vehicle gets regulatory approval.
9
KNOWLEDGE ECONOMY
www.mi7safe.org
UNFOLDING OF AN EDUCATIONAL REVOLUTION

Slowly but certainly a quiet revolution is taking place
India has experienced, encountered and lived with several revolutions. Beginning with industrial
revolution about a hundred years ago, which today is thriving to the green revolution, to the white
revolution, to IT revolution to India standing at the threshold of educational revolution for achievement
and performance, to education as a means for job and occupation to now education as a learning
process for a holistic development and growth of an individual.
In small ways beginning with and few learning institutions the focus is on perspectives in addition to skill
building; philosophical understanding in addition to analytical abilities; a process of learning in addition
to memorising and exams; and most important to engage and relate to the whole person.
Here the student learns to integrate thoughts (Knowledge), behaviour (including emotions and feelings),
and actions.
Educational institution of such a nature focuses on the processes of growth; makes the learning
interactive and participative; involves the various constituencies viz., students, teachers, administration
staff and the external environment in a coherence, convergent and vibrant setting.
This means there is time space and people who discover values to live by; who engage with other,
groups and systems with respect and dignity; who learn to make tough choices and not compromises;
and who work with self discipline as well as rigor of learning which creates excellence in innovators and
entrepreneurs. Such a process has begun in India.
Such learning institutions are taking small steps towards creating new knowledge relevant for times,
evolving new frameworks and theories, understanding the global context and insights into the strengths
of the socio-cultural collective psyche which can be mobilised for a learning process where the individual
student and the teacher discover the magic of the learning experience and translate into wisdom.
KNOWLEDGE ECONOMY 40
POWER THROUGH KNOWLEDGE
A story goes that the Maharaja of Mysore was on a visit to Germany in the last century and when
introduced as the Maharaja of Mysore, he was surprised to learn that some in the audience knew of
Mysore, not from his kingdom but for one Shama Sastry of Mysore. On return, the Maharaja made
enquiries and find that Shama Sastry was working quietly on a manuscript called ‘Arthasastra’. It was
published in 1909. It was through the momentous discovery of this text that Kautilya’s Arthasastra –
the foundation of India’s thoughts on economic theory and practice – became known to the world.
In India, intellectual power was regarded more important than material wealth. Down the centuries,
India recorded its knowledge through a rich corpus of literature, which was initially passed down
through oral tradition, but was later recorded in manuscripts. The ancient formulation on the different
branches of knowledge were contained primarily in sutras – as theoretical aphorisms – which were
explained, evaluated and expanded by later writers through writing commentaries and interpretations.
This resulted in an enormous textual tradition consisting of commentaries and sub-commentaries,
which explained, interpreted and developed earlier thought. In this manner, a rich corpus of texts in
different branches of knowledge emerged in India.
This treasure of millions of such manuscripts lies scattered all over the country. Belonging to different
periods of history and representing different cultural domains and knowledge systems, they are in
libraries, archives, museums, temples, madrassas, mathas, as well as in the possession of scholars and
in ancestral homes. While a good number of such texts are known to the world and have been
critically edited, translated and available in the published form, there are still thousands of texts across
India representing different branches of knowledge, which have not come to light.
The survey of National Manuscripts Mission has widened and information on more than one million
texts that has been unearthed and placed in the public domain on its website www.namami.org.
To take one example, in the area of medicine, until now the world knew of Indian knowledge of
medicine through classics like Charakasamhita and Susrutasamhita but the new search has thrown
open thousands of manuscripts. Texts like Garbhinivyakaranam on parental care, Apasmarachikitsa
on epilepsy, Netraprakashika on ophthalmology, Vandhyatvachikitsa for infertility, Vrikshayuveda
(care of trees, plants and herbs), Gajayuveda (treatment of elephants), and Asvayurveda (care and
treatment of horses) are only a few of others.
A veritable mine has been opened up for scholars across the world to interrogate the contemporary
relevance of knowledge contained in these manuscripts. There is a need to conserve through scientific
methods, digitise them for protecting the knowledge content, take up critical editing and translation of
unpublished texts, and engage in research and fresh evaluation of important texts. This will lead to a
reassessment of our knowledge reservoir, a major portion of which has so far not been accessible.
KNOWLEDGE ECONOMY 41
BREAKING THE HIGHER EDUCATION LOGJAM
Experts argue that inclusive growth requires the universal dissemination of primary and high school
education rather than higher education. In this, the government is well equipped to do the needful as
more than 90% of the (primary) school-going population is enrolled in government schools. But,
crucially, enabling participatory growth requires basic skills. The inability to appreciate this has led to
a situation of a lack of skilled workforce where there is a growing army of the educated unemployed
in most states. This is a problem of ‘inappropriate’ higher education.
Distance education mode
To the government, the solution to higher education seems to lie in increasing expenditure; so the
adoption of distance education models. Typically, distance education is a means of reducing the
expenses of face-to-face education without reducing the value of the basic degree. And, the distance
education is supposed to be the alternative to setting up a host of geographically separated universities
– as there is no need to set up an open university for each state.
Classical university mode
India has one of the best structures of higher education, at least among the developing countries.
However, state universities have become highly politicised. To many students, university life has
become a way of promoting their political careers with little regard for academic excellence. The state
universities need to be given greater autonomy from state (and hence political) control – replacing it
with one of dedicated institutes. The aim should be to further the R&D requirements of the country.
Anyone who has followed the history of inventions will observe that more than 90% of such
inventions first happened in universities and reported in scientific publications. It is only later that the
private sector came in to fund the application of such inventions to everyday life.
Minister for human resource development Arjun Singh is now focusing on ‘turning around’ the higher
education system – as it is not serving the cause of the young people in India. The academic world
needs to come to terms with today’s reality and Eleventh Plan gives us enough elbowroom to
experiment. He added that research has been one of the weak areas that confront higher education. The
lack of trained teachers is another area of concern as it was affecting the quality and expansion of
higher education. Poverty is another bottleneck in education sector in the country. There should be
proper match between the modern ideas and the reality.” Mr Singh suggested that it was time for a
“new turn in higher education” and an effort to draft curricula that was different like done for school
education in the National Curriculum Framework be undertaken. To prescribe is not my ideology. Let
us now inscribe. Give the country a road map of higher education…keeping the divide in view; we
should define what should be the content, extent, methodology and basic ingredients of higher
education. Inclusion and access with equity are the core issues that confront us today.
Public Private Partnership
Deputy Chairman of Planning Commission Montek Singh Ahluwalia is a strong votary of private
participation and PPPs. The Commission maintains that there was a need to review the system
comprehensively to introduce greater clarity and transparency if we want to see healthy development
of quality private sector education.
KNOWLEDGE ECONOMY…42
The HRD ministry has acknowledged looking at private participation. But this has to happen within
the existing framework of the National Policy of Education. So join forces to serve backward areas of
the country, and the not-for-profit variety is acceptable in certain segments of the sector. HRD
minister had earlier expressed that our experience with providing self-financing higher education is
not entirely encouraging, forcing even the Supreme Court of India to observe the need for appropriate
legislation for regulating fees in order to prevent commercialisation of education.
Management Education Entities
In a letter to Prime Minister Manmohan Singh, the National Knowledge Commission (NKC) chairman
Sam Pitroda wrote, “NKC advocates good governance rather than the prevalent system of a priori
control being exercised by the All India Council for Technical Education (AICTE) in management
education institutes. The current regulatory regime focuses on punitive actions rather than on nurturing
institutions. NKC proposes that an autonomous Standing Committee for Management Education be set
up under Independent Regulatory Authority for Higher Education.
The Standing Committee’s main role would be to “exercise due diligence at the point it approves a
licence to grant degree/diplomas. In doing so, it would assess the academic creditability and the
financial viability of the proposed institutions. It would in addition, license agencies to take care of
accreditations. Other responsibilities of the Standing Committee will be to collate as well as
communicate information on Management Educational Entities (MEEs); set up an information
exchange; conduct demand forecasting of managerial manpower and develop and maintain a low cost
e-monitoring system.
The Commission is of the view that in view of the mushrooming of private MEEs, a reliable rating
system is required to “help the market function better, enabling students and employers to compare
different MEEs. The commission has also suggested that board of governors of each of these
institutions comprise of 50% of independent members, in the same manner as the Company Law
requires companies to have 50% independent directors. The appointment of directors of public MEEs
should be freed from direct and indirect interventions on part of the governments, for these should be
based on search processes and peer judgments alone.
Private equity players
Private equity (PE) players appear to have shifted focus to educational firms targeting the domestic
market by setting up vocational training and coaching centres. PE expects the demand for services
from such firms to pick up. Already, the sector has seen a number of PE deals and the trend is likely to
continue. For example, PE Gaja Capital partner invested $ 8.25 million in education and career
counseling entity Career launcher. Similarly, Helix investments pumped in $ 12 million into
preparatory education company Mahesh Tutorials and SAIF partners invested $ 10 million in English
training academy Veta, plus an undisclosed sum in vocational training co, ICA Infotech.
Mr R Ramaraj, senior advisor, Sequoia Capital India, said that there is huge potential in the education
space because there is opportunity for scale and a huge need to fill the gap between students and
employment. Sequoia has invested in two e-learning companies – TutorVista and Brainvisa. Retail,
insurance and IT sector face a huge need for people where such institutes can make a difference, in
areas such as vocational or soft skills.
RE-ENGINEERING ROLE MODELS
Mother Teresa syndrome: Mother Teresa was the magical, always-correct answer to almost any
question (who is your role model, whom do you admire most, etc.) at beauty contests in the 1990s.
Kalam syndrome: Today’s equivalent at student contests seems to be (ex) “President Kalam”. This
was evident in interviews for a prestigious scholarship. Applicants were the top first-year students
from the very best engineering institutions in the country, and came from very diverse backgrounds.
The uniformity of answers and outlook were, therefore, both surprising and disturbing. This reinforces
broader concerns about the homogenising efforts of the education system.
Homogenising education system
Much has been written about the poor quality and unemployability of most graduates of our
universities. These are, undoubtedly, very serious issues and are symptoms pointing to a deeper
malaise – one that calls for radical reforms in our overall education system and policy. There is,
however, another problem, which affects our best institutions: one that is not widely known and hardly
discussed. This is the unidimensional outlook and personality being fostered by the admission criteria
of these institutions, as reflected in the “Kalam syndrome” referred to earlier.
This nomenclature is used as shorthand for the propensity to give desirable answers and – more
importantly – the uniformity of perception as to what is desirable. It also indicates that the selection
process – through its multiple filters – tends to select a standardised individual, resulting in students
who are, in many ways, clones of each other. Coaching classes that train youngsters for the entrance
examinations have understood this end, therefore, seek to inculcate the “correct” response – and
thinking – amongst their trainees.
Not only aspirants but, those selected for admission to our premier institutions (such a IITs), are from
all parts of the country. At interviews for the prestigious scholarship mentioned earlier, one was
pleased to see that the candidates came from a vast variety of backgrounds. This crème de la crème – a
selected few from that infinitesimally small percentage of bright youngsters who had won admission –
included the offspring of a school teacher from Arunachal, a bus conductor from Jharkhand, a farmer
from Punjab and, of course, professors and professionals from the bigger cities. We can justly be
proud of how our socio-economic and educational systems, despite their many drawbacks, provide
opportunities to such a wide range of persons.
Given this diversity of social, cultural, economic and geographical backgrounds, it would seem
inevitable that their outlook and thinking, their aims and aspirations, their hobbies and interests, would
be varied and different. However, one was surprised by the similar and standardised response to a
variety of questions, including the question of their role model and hero (the “Kalam syndrome”).
It would seem that either their training indoctrinates them to this level of similarity, or the selection
process picks only those who give the “correct” answer. It is likely that these two possibilities feed on
each other, with coaching institutions (and/or knowledgeable guides) inculcating the same fixed
approach and answers, which the selection process has deemed to be appropriate. This learned-
sameness was very evident amongst those coming from the successful training institutes (e.g., the
“Kota factory”, famous for the high proportion of its trainees who get admitted to the IITs).
Thus, the process of training and selection apparently seeks to neutralise the diversity of background.
While areas like large-scale manufacturing prefer – and, therefore, seek – standardised input, so that a
fixed process can be used, this is because they want standardised output. Our education system, and
especially the “high-end” institutions, should not be geared to producing a standardised output. Yet,
this is what the training-selection process seems to be driving it towards. This could have a serious
impact on innovation. To promote innovation, we need to build and capitalise on our inherent diversity,
not seek to nullify it by transforming our brightest youngsters into clones who think alike.
Acknowledge variety in human resources
There is also a broader dimension. It was dismaying to see the large proportion of people with varied
interests – in science, literature, and sports – who opted to take up engineering only because it is
perceived as being the course-of-choice for brilliant students. One is dismayed to see the parental (and
teacher) pressure on youngsters with great talent in other fields, to seek admission only in engineering
(and, later, in management) institutions. While the IITs may be happy to attract the brightest in the
land, this is major loss for other fields. From the viewpoint of the country, it is as necessary to have
topflight writers, scientists, sport-person or musicians, as to have excellent engineers; to acknowledge
variety in human resources to be as vital as bio-diversity. The flight of talent to engineering should be
of as much concern as the use of engineers for code writing by the IT software industry, or the grossly
inadequate numbers pursuing Master/ Doctoral programmes, research or teaching careers.
Acknowledge people who will innovate
India’s sunrise industries – IT, pharmaceuticals, biotechnology, and next-generation manufacturing –

have succeeded mainly on the basis of lower costs and an abundance of technically qualified human
resources. However, the key to their competitive advantage and to sustained growth is innovation.
Promoting innovation is, therefore, critical to their future. Even these industries, whose present
success has been based on the “standardised” professional produced by the better institutions, have
now to look for people who will innovate – individuals who think differently and teams with diverse
backgrounds, different perspectives and thought processes.
Need for wider spectrum of diversity
At the macro-level, the country needs an even wider spectrum of diversity. This means that we must
encourage each youngster to take up subjects and work that is of interest to him/her; be it poetry,
music, art or philosophy. The government has a role in creating well-funded institutions in different
subjects. Why are there almost no equivalents of the IITs in social sciences, humanities or the creative
arts? We certainly need many more technologies and managers of the highest calibre, but the all-round
development of the country also require emphasis on art, culture and the humanities.
Meanwhile, educational institutions need to change their entrance tests and criteria to ensure wider
diversity in the psychographic profile. Corporates must recognise the importance of variety, and
support this broadening of diversity. They could, for example, provide scholarships and chairs in
universities for areas beyond those of immediate business interest. All this could help to create more
role models in different fields. In a country with thousands of gods, surely we can have – and need –
more than a handful of mortal heroes? As we seek to move to the next stage of growth, it is essential
that we broaden the expertise base of top-drawer talent.
IT”S TIME FOR TEACHERS TO TAKE LESSONS
A good teacher explains, a superior teacher demonstrates and a great teacher inspires. However, in
India we can only dream of having the third category of educators. Reality for them shows teacher to
be someone who reads out lessons and explains how make grades. If what India Inc is doing is any
indication, things could change in future. Scores of companies in India – homegrown and global –
have taken up the initiatives to train teachers so that aspirants get better educators.
Intel’s ‘Intel Teach’, Wipro’s ‘Applying Thought in Schools’, Microsoft’s Shiksha, Agilent’s Quest or
Infosys’ Campus Connect are some of the corporate initiatives that are setting templates for many
more to follow. These companies are using their own models to help teachers to better hone their
pedagogic skills and introduce innovative ways in their teachings.
Intel has already reached out 7.5 lakh teachers including over 6 lakh from government schools. The
chip maker has also offered its leadership programme to 30,000 principals under Intel Teach.
Teaching through innovation means help in churning out better students, which is not possible in the
absence of right teachers.
Microsoft has trained over two lakh teachers under project Shiksha. Microsoft has planned an
investment of $ 20 million over a period of five years, starting from 2003, for Partners-in-Learning
initiative in India. Shiksha is a core program under Microsoft’s Partner-in-Learning programme.
Shiksha is designed to deliver comprehensive IT training to students and teachers across government
schools. It is based on DIET module (District Institute for Education and Training) where the
infrastructure is provided by the government and trainers and curriculum by Microsoft.
Teachers’ training has a long way to go as companies are looking at it in a bigger way. Wipro has
trained more than 6,500 teachers under its year long “Teacher Empowerment Programme (TEP)”.
TEP is a comprehensive development programme for in-service teachers. Through this programme,
the company has reached in 250 schools across the country. The company see teacher training in the
context of school reform rather than just a tool to enhance teaching skills. Wipro is working on
developing a network wherein, teachers can get together, exchange thoughts and share experiences.
CHANGE LAW TO ALLOW FOR-PROFIT EDUCATION
What do private equity players know that our judges do not? It is that the production of skills is
immensely important, and requires the same incentives as the production of machinery. India’s GDP
growth rate of 8-9% has led to an acute shortage of human skills across the board, from software
engineers and construction workers to mechanical engineers and blue-collar IT graduates. The need of
the hour is to expand education and skill creation of all sorts at a break-neck pace.
The big hurdle is that the judicial system has interpreted the law to mean that for-profit education is
banned. Hence private colleges can come up only on a non-profit basis, greatly restricting the pace of
expansion. The law is helpless to stop non-profit colleges that make money through dubious means.
Yet for-profit education through legal means is banned; while for-profit tuition and training
institutions are legal. Surely, it makes no sense to allow for-profit skill creation through tuition classes
and aviation academies, but not through schools and colleges. Both are ways to create human capital.
NKC FAVOURS ONLINE RESOURCE TO PROMOTE HIGHER EDUCATION
The National Knowledge Commission (NKC) has suggested use of broadband internet connectivity
for dissemination of high quality educational resources. The NKC has also suggested that India should
use the educational content developed for the purpose outside the country as well.
NKC chairman Sam Pitroda writes, “One of the most effective ways of achieving this would be to
stimulate the development and dissemination of quality open access materials and open educational
resources through broadband internet connectivity.” This would facilitate easy and widespread access
to high quality educational resources and “drastically improve teaching paradigm for all our students”.
The NKC working group on open access and open courseware has suggested that India leverage on
existing international and national initiative offering quality educational content as open resources; “It
is vital for India to leverage these initiatives as they are readily available for adoption and adaptation
and to serve as model for further indigenous content production.”
It has also recommended that all research articles published by Indian authors who receive substantial
government or public funding should be available under the open access format. Alongside it has
suggested that the government invest in the digitization of books and journals, which are outside
copyright protection.
Key institutions and experts need to be identified to develop standard-based content in areas such as
agriculture, engineering, medicine, arts, humanities, sciences, and education. The NKC has suggested
that the content developed should not be limited to use within India but also pushed globally.
NO TEACHERS FOR POLL DUTIES ON WORKING DAYS: SC
The Supreme Court asked Election Commission not to employ teaching staff for poll duties on
working days as it will adversely affect the right to education. For the purpose of holding of an
election of the children cannot be neglected, said the apex court, dismissing an appeal of the Election
Commission. The Commission, challenging an order of the Delhi High Court, had said the election
process being the hallmark of the democracy should not interfere with.
A bench comprising Justice S B Sinha and Justice H S Bedi said, “We direct that all teaching staff
shall be put on the duties of roll revisions and election works on holidays and non-teaching days.
Teachers should not ordinarily be put on duty on teaching days and within teaching hours.”
The court said though the provisions of the Representation of People Act were enacted in terms of
Article 324 of the Constitution, the same must be given restricted meaning. Holding of an election is
no doubt of paramount importance. But for the said purpose the education of the children cannot be
neglected. It is necessary to maintain a balance between the two constitutional rights.
Senior Counsel KK Venugopal, appearing for the Commission, had said in terms of the provision of
clauses (1) and (6) of Article 324 of the Constitution, it is mandated that whenever the poll panel asks
for deployment of staff for the purpose of conducting election, it is obligatory on the part of the
President of India or the governor of the states to make such number of staff made to it, and with a
view to fulfill the said constitutional object. Parliament amended Section 159 of the RPA Act, 1951 so
as to provide staff of certain authorities to be made available for election work.
Against it, judicial interference in the matter was unwarranted, Mr Venugopal had said. Rejecting the
plea, the court said, if right to exercise the franchise is an important one, the right to education is also
no less important as it also a fundamental right. Zeroing in on technological advancement, the court
said, “The Election Commission and its officers, in our opinion, can formulate an effective scheme to
see that the services of a large number of teachers are not required.”
GLOBAL LITERACY
United Nations Literacy Decade
India is committed to universalising primary education by 2010, said Congress president Sonia Gandhi
while inaugurating a meet on global literacy. Ms Gandhi also underlined the need for achieving the UN
Millennium Development Goals (MDGs) by 2015.
This will include greater focus on information and communication technologies and linking education
with job opportunities (Vocational education). We are at a moment of convergence between technological
development and educational need, as well as between educational need and political will. Let us grasp
this moment.
Human Resource Minister Arjun Singh said “The challenge of literacy is not just of finding the means. It
is one of commitment and perseverance. Literacy has to be brought to the centre stage not just in our
respective countries but also amongst the comity of nations.” The minister added community
mobilisation, social awareness, national commitment and international understanding are needed to
achieve full literacy.
10
KNOWKEDGE RESOURCE
SERVICE-DELIVERY MISSION
1. Tried and failed system

India has failed to reform the delivery of public goods and services, and kept expending the old “tried
and failed system”, said finance minister P Chidambaram and we could not agree more. When
teachers do not teach, health workers do not show up for work, and doctors prescribe mostly wrong
remedies if at all they attend clinics, the problem is not lack of funds. Central budget outlays on
education and health have increased fourfold and twofold respectively since 2003-04, yet educational
and health outcomes have not visibly improved.
Need for a deep administrative reform

By implication, the Common Minimum Programme of the government and the Left front has flopped.
This aimed to double or triple outlays in education and health to reduce disparities. In fact it has
increased government employment without ensuring better outcomes. The answer is obviously deep
administrative reform. Unfortunately, existing service deliverers want to sabotage reform. In Punjab,
industrialists have agreed to contribute 30% to the creation of new quality schools called Adarsh
schools. But government teachers have launched an agitation against these schools.
Need to encourage new innovations

Since the tried and tested system has failed, we need to encourage new innovations. Public-private
partnerships have been tried, but with mixed results. Many industrialists are keen but complain that the
government-aided school system is rife with intolerable bureaucratic interference. Some are setting up
completely private schools, but these are costly and cannot be scaled up fast.
Let us have a service-delivery renewal mission

Another way forward is to provide the bait of additional funds to states willing to experiment with
better delivery systems. A straw in the wind is Maharashtra’s decision to finally abolish its Land
Ceiling Act, since this is a condition for receiving funds from the Urban Renewal Mission. Let us have
a service-delivery renewal mission, analogous to the urban renewal mission, with additional funds
given on the condition of delivering reforms. Experiment should be encouraged. That might finally
boost outcomes and not just outlays.
No room for extravagance

The finance minister said “Any further delay in addressing the unfinished financial sector reform
agenda will jeopardise future growth. “All segments of the financial sector would have to be tuned to
fire on all cylinders – be it the capital market, banking, insurance or pensions. Each one is crying for
more reforms and the common need for all these segments is capital”. We must get on with the job of
creating world class architecture for these markets. According to him, Indian banks would need
around Rs 100,000 crore as additional Tier I capital over the next three years. The same arguments
would apply to health and insurance. The pension fund industry and the capital markets too would
need capital. These sectors cannot raise extra capital unless they are perceived to be well regulated and
governed. The Left parties have opposed the financial sector reforms and the government has been
unable to hike the foreign direct investment (FDI) limit in insurance from 26% to 49%. The pension
bill that proposes to allow 26% FDI is also pending in parliament.
SERVICE-DELIVERY MISSION…49
2. New models for executing infrastructure projects
Finance minister said, there is huge resource gap in the infrastructure sector of abound Rs 170,752
crore that has to be bridged. One way is to experiment with new models for executing infrastructure
projects.
Foreign investment & private funds

A public-private-partnership (PPP) seemed to be answer to almost every infrastructural woe dogging
India at the moment. And the only way to build it is through the PPP model, said Buddhadeb
Bhattacharjee, Chief-Minister, West Bengal, i.e., foreign investment, private funds, and the need for
freeing up the economy across sectors. He referred to China’s success story in infrastructure noting
that huge amounts of foreign investment had contributed to this success. “China’s spending on
infrastructure is seven times that of India.” The one thing that came out of his wordings was an air of
positivity and his firm belief that he had the right formula to take his state forward despite the stinging
criticism that he and his government have been faced with on virtually every issue in recent times.
Domestic investment & public sector

I don’t believe in the PPP model which has become the mantra for infrastructural project in India, said
Jairam Ramesh, Union Minister of State for Commerce. PPP to the business community at large
means public funding of private projects. But it should ideally be private funding of public projects,
otherwise the PPP model will always remain a non-starter as it had remained in the last ten years or
more. He felt that truly radical – and rational – solution to India’s infrastructure deficit is domestic
investment (DI), which will largely come from the public sector. For a country like India, DI is the
only answer to infrastructure growth. We need to come up with a new PPP model for infrastructure
projects.
Land, finance & political will

Mr B Muthuraman, MD, Tata Steel said “Fundamentally, I think there are three important things that
need to be done for creating infrastructure: Land, finance & Political Will –
First, there are issues regarding land acquisition and the government needs to get them sorted out.
Land forms the basis of infrastructure, be it roads, ports or power plants. Yet land acquisition is
getting increasingly difficult in our country. This could hinder infrastructure growth. The second point
I wish to make is on financing of infrastructure projects. By their very nature, money invested in
infrastructure projects is locked in for longer periods of say 10-20 years. There is money in insurance
and pension funds that are invested in inherently low yielding assets. We need to evolve a mechanism
within financial markets, so that these funds can be invested in infrastructure projects. For this to
happen, we need maturity of financial markets. Finally, to achieve both these, political consensus is
needed. So, it is the third thing perhaps that is somewhat axiomatic towards achieving of the other two.
Look at soft issue to drive performance

Percy Siganporia, MD, Tata Tea predictably had an offbeat idea to solve India’s infrastructural
problems. What we really should look at right now is that the soft issues will drive performance. We
have seen states with better terms suck commerce and soft intellectual capital from the rest of the
country like magnets. In the process, states already move ahead and those behind languish. Hence
states need to plan not quarter to quarter as we as CEO’s do but address key investment requirements
to built-up minimum qualified benchmark. Then we seek fund if so desired.
3. Mid-Term Review 2007-08
Capital inflow
In the Mid-Year Review tabled by Finance Minister in Parliament, the government said, while there
are international experiences in this regard with some successful and painful adjustment processes, the
specific Indian context requires innovative policy responses. Going forward will be a major challenge.
The Centre further said in the report that the cost of sterilising a part of the capital inflows will
increase substantially during the current financial year. The fiscal cost of sterilisation envisaged at Rs
3,700 crore in the budget estimates of 2007-08 is now being supplemented with Rs 4,500 crore.
Export of goods & services

Accepting that the appreciation of the rupee has adversely impacted the export sector, the report said
the medium- and long-term solutions lies in improving productivity in exports and increasing
competitiveness. During the current financial year, the rupee appreciated by 9.7% against dollar
between April 3 and October 31. On a year-on-year basis (October 2006 over 2007), the rupee
appreciated by 15.1% against the dollar.
Revenue & fiscal deficit

The comptroller and auditor general of India (CAG) asked the Centre to make more efforts to meet its
target of eliminating revenue deficit by March 31, 2009.
The CAG in its report on Union Government Accounts for 2006-07, presented in Lok Sabha, said the
figures of Centre’s revenue deficit and fiscal deficit at 3.22% and 4.43%, respectively, for fiscal 2006-
07, which exceeded the government’s target for the same fiscal by 1.12% and 0.63% respectively,
instead of indicating a decline at least by a minimum rate of reduction. These are against the Centre’s
target of bringing revenue deficit down to zero and fiscal deficit to 3% of GDP by the end of next
fiscal.
The Prime Minister’s Economic Advisory Council C Rangarajan had also pointed out that reducing
revenue deficit to zero by the end of 2008-09 would be a difficult task. However, Finance Minister P
Chidambaram has maintained the government would adhere to these targets.
Budget management
The government should avoid incorrect budgetary assumptions. CAG has also flayed the government
for incorrect budgetary assumptions by discouraging “injudicious” reappropriation to sub-heads and
“unnecessary” supplementary grant. In some cases the government has to reappropriate funds, while it
could not use the appropriated funds properly. This type of mismatches between the budget estimates
and the actual expenditure creates a roadblock in the way of the government achieving its fiscal
targets.
Asset-liabilities
The annual report has also warned the government against using borrowed funds for meeting the
current expenditure requirements, which has resulted in widening of the asset-liabilities mismatches
for the government. It is essential to eliminate the revenue deficit and generate sufficient revenue
surplus, which may be utilised for asset creation without creating liabilities.
4. A new Middle Path to development
Prime Minister Manmohan Singh pushed for “a new Middle Path to development” that combines the
efficiency considerations of the market with the equity considerations of a liberal polity. The new
path, through increasing private-public synergy has to sustain the momentum of growth by
accelerating investment and saving rates, increasing investment in social and economic infrastructure
and providing focused attention to agriculture sector and energy security issues.
Industrialisation is a national necessity

Prime Minister said that industrialisation is a national necessity and that a fair compensation would be
paid to all those displaced by industrialisation. It must be kept in mind that industrialisation is a
national necessity, if we have to reduce the pressure on agriculture and provide gainful, productive
employment to millions of our youth who see no future in agriculture. It is with this view that a
forward looking liberal relief and rehabilitation policy has now been put in place and necessary
amendments are being made to our laws. This would enable a fair compensation to all displaced
persons.
Industry has to grow

Planning Commission deputy chairman Montek Singh Ahluwalia explained that as cities expand, there
would be some shrinkage of agriculture land although not a highly productive agriculture land. If 10
crore people have to get higher earnings and better living standards, then the industry has to grow. We
cannot assume that it will happen without the industry getting some additional land. He said the
country could create more number of better-paid jobs in non-agriculture sector and it will help in
raising the quality of life of the rural population.
4. Use fruits of growth for public services
Economist and Nobel laureate Amartya Sen said: “The government needs to allocate more funds
towards primary education and healthcare to achieve its target of inclusive growth and ensure greater
efficiency and accountability in delivery of public services through organisational reforms”. Resources
generated from economic growth should be used for public services and public goods in general,
rather than being absorbed only in private consumption.
There has been slow progress on the education front, despite the economic reforms in the country.
Primary teachers are very efficient but are not using their capabilities well, negligence and
absenteeism being the reason for this drawback. He suggested collaboration with social groups and the
unions of primary school teachers and healthcare workers to tackle the various problems in the areas
of education and healthcare. Unions in such a situation can help bring extraordinary changes as these
teachers themselves would be the members of it and involving them would bring a sense of
empowerment and a drive to become more efficient in their work.
There is no room for imaginative thinking when one is struggling with the basics. So, a computer per
child should not be the target, bringing in more teachers to primary schools, updating the basic
infrastructure like providing reading material and laboratories in every school should be the first step
in this direction. The contribution of basic education to development is not confined to economic
progress only. There are other rewards of schooling. Education can have powerful effects on quality of
life. So, he emphasised the importance of female literacy. “Female literacy can enhance woman’s
voice in family affairs; reduce gender inequality and child mortality.”

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1.

FINANCIAL SECTOR: TRANSFORMING TOMORROW

A new approach to retailing

An alternative area of creativity

Foreign institutional investors

Maintaining, creating and marketing indices

Dealing corruption in governance

Learning the lessons of democratisation

Now, a happy constellation of forces are ushering in change:

Financial exclusion of non-farm unit in unorganised sector

6. RISK MANAGEMENT CONSULTANTS

The International Monetary Fund (IMF)

Curbs on capital inflows

8. TECH SAVVY PROFESSIONALS

Structure products to suit people

Countrywide network of higher learning

State-of-art tuition centres

Serve huge Indian diaspora worldwide

Data bank of directors

Information and communication technology (ICT)

10. CONTINUING LEARNING CENTRES

11. GLOBAL OUTLOOK

The subprime aftermath

12. ISSUES OF THE PRESENT

Credit turns shy

The Consumer Crunch

Slow down in China’s exports

Indian market situation is not as gloomy as it seems

The premium valuations at which Indian equities trade at;

The tendency of India’s beta to rise in falling markets

• Effective liquidity management by the Reserve Bank;

• Higher inflows from domestic investors;

• Structural shift in global fund flows in favour of BRIC economies; and

Indian equities vulnerable to US subprime crisis

Compression in India’s relative equity valuations;

Where things are heading in 2008

How to play this treacherous situation?

Only way is up?

Sustaining the growth momentum

A new Middle Path to development

An alternative career in development:

India’s Corporate Social Responsibility Index

The rules of the game need to adapt in order to keep pace

Exotic forex option trading

Managing risks through derivatives

The answer to above questions is:

Current Indian scenario

Challenges faced by Indian companies

Inability to quantify counterparty risk exposures in the event of defaults;

Ten Commandments for Board

6. Is the derivative portfolio being independently reviewed or validated by competent third-party

Looking hard at inflation

Unwinding of global imbalances

The Fed’s new rescue plan

Term Auction Facility

How it will work

FOREIGN INSTITUTIONAL INVESTORS

Show me the money

UNFOLDING OF AN EDUCATIONAL REVOLUTION

POWER THROUGH KNOWLEDGE

BREAKING THE HIGHER EDUCATION LOGJAM

Distance education mode

Classical university mode

Public Private Partnership