FDI in India and Ruckus against the Foreign Players!

Inherently, all the economic policies made in India are for self-sufficiency. There is a subtle feeling that importing things from abroad or depending on other nations is to be the slaves of these nations.This imagery of slavery is quite colorful, but it is precisely how we, as society view ourselves during under the British rule- as slaves (read: Swadeshi Movement¹). And so, with the primary objective of being economically independent, India (the policymakers) set out to establish avenues for its self-sustenance, above all else.

 If we consider this argument, most of the oppositions against the new economic policies become clear. Apart from all the logic of making India a dumping ground or those small businesses will extinguish with the entry of retail giants like Walmart, TESCO etc., this inherent ‘prudence’ also contributes to the dilemma.Needless to say, that India was a Socialist economy rather than a pro-market economy.

In retrospect, beginning in the late 1940s, the Indian government sought to achieve economic independence by protecting and controlling everything around the economy, including both external and internal competition. In forging this command economy, the government removed control from individuals, initiative from entrepreneurs, and responsibility from firms and planners. Moving on, in 1960s, due to the process of Nationalization², the country turned even further inward. This resulted in the remaining foreign firms leaving the country and prevented large firms from investing in any core segments in India, and destroyed further efforts to expand or grow in scale and productivity.

In 1980s, the inefficiency of the Indian Economy and its unattractiveness to capital inflows, led to India losing access to foreign markets. By 1985, the gross fiscal deficit rose to 10.4% and by 1990-91, it had risen to 12.7% of the GDP. The government was close to default, its central bank had refused new credit and foreign exchange reserves had reduced to such a point that India could barely finance three weeks’ worth of imports. The gravity of the situation could be judged by the fact that India had to airlift its gold reserves to pledge it with International Monetary Fund (IMF) for a loan³. Clearly, India was in a deep crisis.

It was then that the leaders of our country felt the need to revamp the economy. In June 1991, the then prime minister P.V. Narsimha Rao along with the then finance minister Dr Manmohan Singh, opened the economy to trade, reduced License Raj, and begin a phase of liberalization that has transformed the nation.

Reforms are very much necessary in this age of Globalization. Without reforms, we risk a sharp and continuing slowdown of the economy which we cannot afford given the imperative need to generate jobs and incomes for a large population.

Currently, FDI limit (with much hue and cry) has been increased in India. FDI helps to bring in greater capital, liquidity, increased efficiency and superior technology which help an economy to further grow. And the biggest beneficiaries of this all would be we- the consumers as we would get the best of the goods at competitive prices.As for the small businesses- Pop’s & Mom’s stores, majority of them will still be there and sooner or later will learn to coexist.

References:

*With inputs from ‘China, India and the United States – The Future of Economic Supremacy’ by Dr Peter Rodriguez, Darden School of Business, University of Virginia.

1,2. Wikipedia.org

3. “I think a stimulus package is necessary, yes. Bailouts, no” by LordDesai, in business.rediff.com 25 May, 2009

_________________________________________________________________________________

wirtten by Shantanu Kumar (shantanu.pgdm14c@greatlakes.edu.in)

IT-BPO industry in Philippines is fast growing Alternative to India

IT-BPO industry in Philippines is seen as the fuel that is boosting its economy, generating nearly $11 billion revenues in 2011. It is growing at 19% in 2012. There are more than 600000 people employed in more than 600 IT-BPO companies spread across the country.

Philippines is becoming the destination of choice for voice and is the second preferred destination, after India for BPO and other software services. Talent availability, high quality services, and cost-effectiveness are driving the outsourcing industry. Companies who outsourced to India, with rapidly increasing salaries in India and the retention problems at Indian BPO centres have started realizing the benefits of choosing to outsource the work to Philippines.

The Philippines government has been stable for more than a decade. Is an open economy which allows 100% foreign ownership in almost all sectors. The industry has become one of the main revenue generators of the country, due to which the government is fully supporting its endeavours. They have set up many Philippines special economic zones and made a Philippines Economic Zone Authority which grants fiscal and non-fiscal incentives of nearly 4 to 8 year income tax holiday to BPO players. Philippines is well-positioned to become one of the best offshore outsourcing destinations in the world. Capital Manila gets the highest concentration of BPO activities of nearly 80%.

Business Processing Association of the Philippines is the primary outsourcing industry body of Philippines. They have also implemented industry specific training programs to improve the skills of workers and train them suitable for BPO work.

Graduated employees with degrees from reputable college can be hired at about $300 per month. Every year there are more than 350000 graduates enriching the professional pool adding to the skilled workforce. Wages are less than one fifth of the U.S employees. Costs of Local communication, electricity and housing are half compared to other countries.

India has healthy relations with Philippines since 1949, both countries have signed the agreement to establish joint commission to increase trade and acknowledge more avenues of cooperation. Indian foreign direct investments in the Philippines count to $500,000.  Its investments in Philippines are mainly in the areas of textiles, IT, steel and Business Process Outsourcing. Several Indian companies like WIPRO, TCS, HTMT, L&T InfoTech, Adyta Birla Minacs and Enact have already set up their BPO operations in the Philippines

Total trade with India has reached   $ 865.12 million which is just short by $ 135 million of the bilateral target of US$ 1 billion of total trade between the two countries. With positive economic environment, Gross domestic product has increased 6.4% in the first quarter and manufacturing index was an impressive 7.1% year on year in April. S&P has recently raised its rating to BB+.

________________________________________________________________________________

Written by Gautam Malhotra (gautam.pgdm14c@greatlakes.edu.in)

The Kolaveri – Gangnam Juxtaposition: Comparison of Indian-Korean Economies

Many people all around the world believed that the world would end in December 2012. Perhaps that maybe one of the reasons for people liking songs and making it go viral on social networking sites. The year 2012 has seen two such videos go viral from two extremely different countries.  I am of course talking about “Why this kolaveri di?” from India and “Oppa Gangnam style” from the Republic of Korea (South Korea). While the former gained a viewership of 50 million users across the globe, the latter gained a viewership of 400 million users. Now this huge difference might surprise a huge number of Indians but this was expected of the Koreans. Why? Because the Koreans have created a brand for themselves: The hardworking East Asian who never stops even after reaching the peak. If it has been possible for a small country of 50 million people, what went wrong in a country of 125 million? Let us analyze their past and see what has happened.

1. Export Promotion vs Import Substitution

Like most of the countries, South Korea was devastated post World War II. Adding on to the misery was the Korean War which extended till 1953. But unlike most of the developing companies, Korea adopted a policy of Export promotion against Import substitution. India started to follow Import substitution in the early 1950s but soon realized that Import substitution didn’t boost the domestic market as expected. The main idea of introducing the import substitution was to introduce imported products and replace them with domestic products in due course of time. But the replacement phase failed to come into existence at the projected rate. On the other hand, the Export promotion strategy adopted by Korea bore fruits and it helped develop their economy. Although the balance of exports was never attained, this strategy nevertheless helped in recovering the Korean Economy and made a positive impact in its growth rate. When India adopted the export policy, it was already entering into the 70s and entered into a trade agreement with USSR virtually confining itself from the rest of the world.

2. Dictatorship vs Nepotism

From 1961, Korea was ruled by Park Chung Hee, a military General. He was brought in key economic development agencies like Economic planning Board, Ministry of Trade and Industry and Ministry of finance.  His iron clad rule brought about the huge transformation of a Korean economy with a Per capita Income of $ 72 to a per capita income of above $ 20,000 today. On the other hand, India has been ruled by the Nehru-Gandhi dynasty for almost 2 decades post independence during which little transformation took place. Park was succeeded by a series of autocratic leaders who continued Park’s good work. Back in India, The Nehru-Gandhi family devised a series of complicated policies which failed to promote trade and commerce. To top it, the Emergency period between 1975 to 77 turned out to be a nightmare for the Indian citizens.  During this phase, a strong flavor of dictatorship was in the air but it dampened at the end of 1977. One of the highly criticized policies was the Permit Raj system which was introduced by Nehru. Though it was introduced to bring in fair practices in trade, it later turned out to be a reason for corruption.

3. Chaebols vs Crony capitalists

The Chaebols are the name given to the industrial conglomerates of Korea.  These conglomerates are family owned and include world renowned brands such as Samsun, Hyundai, and LG etc. The chaebols together single handedly contributed to more than 30% of the country’s GDP. Back in India, the industries were dominated by the Tatas and Birlas. These were also family owned conglomerates but the flaw in the plan was these conglomerates developed close relationships with the ruling politicians and this relationship reflected on the success of their businesses. They were more profit oriented and unlike the chaebols, turned out to be crony capitalists. This statement is evident from the fact that the number of billionaires who own more than $10 billion are most in India next to Russia. Thus, it was Advantage Korea.

4. Heavy Industries vs Versatility

Perhaps the one field where India has an advantage might be the versatility of the industries present in India. India has a wide range of industries present from heavy industries to light industries, and from large scale to small and medium scale. Also, the expansion of services industry is a huge advantage for the Indian economy. The Koreans have been indifferent towards the service industry, for unknown reasons. While the versatility has been good for India, It is yet to capitalize the advantage. But the Koreans have got a liking for the heavy industries such as ship building and automobiles. The world’s 3 largest ship-building companies are Korean companies. Also, Koreans are pioneers in oil platform constructions. Though Korea doesn’t have Oil reserves, it helps build the oil platforms in the pacific coast and the Indian Ocean.  The Koreans are also experts in the Architecture. The Korean firms are responsible for decorating the Dubai skies with high rises.  Going by the statistics, the Heavy industries such as Automobile and Ship-building contribute to 25-30% of the GDP. While India is yet to take charge in the heavy industry sector, Korea has taken a giant stride forward and is moving on, widening the gap.

5. Discipline vs Carefree attitude

One of the interesting features which has had a tremendous impact on Korea’s growth is the disciplined attitude of the people. The Koreans are filled with pride. They are very proud of their nation and they are bound to do anything for the sake of the nation. This can be observed by their behavior during the 1998 Asian financial crisis. When Korea was asked to pay back the outstanding debt, millions of Koreans lined up outside the government agencies to deposit their gold so that they can save the face of their country. But the Indians are contrasting to these characteristics. They are never serious about deadlines, work targets, lethargic in all kind of work. But the fact is that Indians are used to this kind of behavior that it is now expected from everyone. This kind of attitude has to change and unless we change, we are bound to get lose the competition. As on 2011, Every Indian has a debt of US $263 on him. How would you react to this?

India got independent on 15th of August 1947. South Korean government was proclaimed on 15th august 1948. Both these countries were in a similar state: Poor infrastructure, huge deficit and food shortage.  Both these countries have overcome the food shortage but India is still developing its infrastructure and trying to lower its deficit. The Golden quadrilateral project, Mumbai – Delhi Industrial corridor projects look promising but they are yet to materialize. Meanwhile Korea can boast about hosting international events such as the FIFA world cup (along with Japan, 2002) and the Olympics, (1988, Seoul, XXIV Olympiad). Seoul along with Tokyo (1964) and Beijing (2008) are the only Asian cities to have hosted Summer Olympics till date. India’s nearest hope of bidding to host an Olympics is for the 2024 Olympics. Will India become an economic superpower by then? The answer remains with its people and politicians.

References:

1. Vietor, Richard H. K, Thompson, Emily J.,"India on the Move" , HBS Case, Mar 2008

2. Sharma, Ruchir, "Breakout Nations", Penguin India, 2012 

3. www.finmin.nic.in

4.en.wikipedia.org/wiki/Economy_of_South_Korea

  ____________________________________________________________________________

written by Vijay Krishnan A (vijay.pgdm14c@greatlakes.edu.in)

Outsourcing in Emerging Markets

The IT-BPO industry is one of the strongest sectors of India and other emerging economies.  Creating value through outsourcing has emerged as a popular competitive strategy for firms in various industries. In order to survive in the domestic and international marketplaces, firms, especially in developed countries, are using outsourcing to accomplish a variety of tasks.

In the last few years, offshore outsourcing has emerged as a popular competitive strategy and emerging markets viz India, China, Malaysia has become increasingly attractive locations. As firms in developed countries like the US, UK and other European countries continue to face enormous challenges to sustain competitive advantage, outsourcing to emerging markets is becoming an increasingly important source of business renewal and corporate transformation.

Companies favor outsourcing owing to the fact that they are available at much cheap rates. There are also few other influential factors like lack of resources and Companies may seek internal savings to focus money and resources towards core business. Also when a job is outsourced it becomes easy to manage and companies have better control over their workforce since they are on contract basis. On the flip side, outsourcing has some disadvantages like delays in deliverables as more number of people gets involved, lack of interest and commitment in outsourced workforce, lack of communication.

As "Outsourcing" became a popular political issue in the United States and the European countries, Co-sourcing is catching up. Co-sourcing is a business practice where a service is performed by staff from inside an organization and also by an external service provider. It can be a service performed in concert with a client's existing internal audit department. The scope of work may focus on one or more aspects of the internal audit function. Co-sourcing can serve to minimize sourcing risks, increase transparency, clarity and lend toward better control over the processes outsourced.

Despite the economic and other hiccups the IT service industry continues to grow as the software industry becomes more competitive and companies from advanced countries try to reduce overhead.

________________________________________________________________________________

Written by Meena (meena.pgdm14c@greatlakes.edu.in)

Emerging Markets - The Game Changers

Emerging markets …. developing nations …. whenever these words flash into our minds we get reminded of bloody histories, inefficient governments, military coups, humungous debts among many other not so encouraging facts, the Asian tigers and dragons were just figments of imagination and a fool’s hope, but, the last decade changed everything. The global power houses changed, balances shifted, these emerging markets now became integral and important players in the world economy.

The “developed” economies are now looking at weaker shadows of themselves, unemployment levels on a high, consumer confidence on the decline, and no beacon of hope for the near future. Whereas, these emerging economies have now come back in full glory from the hit they took during the 2008 crisis. Some of these economies like China, India and Brazil are riding waves of success, due to strongly export driven economies, huge capital inflows and strong financial institutions to back them up.

For understanding what makes these markets, what they are, one must understand the strengths these markets possess. High incomes, higher saving rates, well-educated populace, competitive wages, strong and stable political and economic systems, abundant resources and the ever expanding middle class are but some of their over whelming strengths.

There are certain trends seen in these emerging markets, like:

·     Population growth

·     Market vitality

·     Middle class

·     Purchasing power

·     Consumer connectivity

·     Product innovation

·     Women consumers

·     Young populations

Taking everything into consideration what one can state is that, these markets are growing and will continue to do so, in fact there are views which support the fact that some of these markets are no more “emerging”, but that they have already emerged. Ultimately whatever be the status that would be bestowed upon them, the only fact that remains is, these nations are changing the name of the game, they are the quintessential game changers, the underdogs, and they have just snatched the game away from the “advanced” nations from under their noses and, there is nothing that these nations are able to do about it. These emerging markets are the change and the world is yet to witness their complete potential. The world better watch out.

_________________________________________________________________________________

Written by Sushama Vasudevan  (sushama.pgdm14c@greatlakes.edu.in)

Emerging Markets vs USA

The emerging markets are important to U.S. because collectively they are now major source of growth for the world economy and of stimulus and economy and financial opportunity for the U.S. economy, investors and business. We studied in all the 11 countries the effect of U.S. on it. As per our studies we come to know that US has some role playing in every country. U.S. plays game with every country and tries to dominate their presence.

If we see the emerging market individual can also have some effect on the market. Mexican external financial crisis in 1994-1995 which disrupt the international financial system also U.S. had an adverse effect because of this. Chinas limit to their currencies can also impact many sectors of U.S. Many observers say that individual emerging market can in future be the competitor of U.S.

Now let us come to the political front of U.S. with this emerging market. It has for the most part dealt with individual Emerging nation in isolation. For example nuclear deal with India, trade openness with Brazil and human right policy with china. When we studied china we came to know how plays a major role in china they are adopting the same rule they used in Russia. But china has got one benefit they have invested their money worth in U.S. bonds. As discussed earlier U.S. competitors will be these emerging nations. If we see how U.S. is worried about Chinas military development this means china has already stepped in the competition.

One demerit is that if there is any crises in U.S. this country also get affected a lot if we see the 2008 crisis. It affected most of the emerging nations market. The main reason is the percentage of foreign investment by U.S. based companies is more than that of the other country companies. Other major issue is U.S. as the major trading partner of most of the emerging nation.

_____________________________________________________________________________________________

written by Ankit Jain (ankitjain.pgdm14c@greatlakes.edu.in)

Here Comes the World of New Insights!!!

Hi Guys,

Of late, Emerging Markets have become an integral part of our life with Case studies and Presentations on many countries. Here is one boy deeply engrossed with the subject and it has come out in the form of a beautiful poem.

Here is the poem for you
_________________________________________________________________________________

From the land of people who eyed the sides,

Comes the world of new insights,

China by name, shot to fame

The world envies them all and glories the Wall

 

Poles apart, lay the country

The next door neighbour, Russia by name

From Slavs to Czars to Putin put to pain,

All evils slain, lives the Kremlin in all the hearts

 

With outstretched arms, redeeming the glory of the tragic past

Christ the Redeemer stands tall,

‘Ordem e Progresso’ being their motto

Brazil by name, progress is their foot game

 

Apartheid and racism led affront,

Life at the land was all affrays,

Led by a man of wisdom and might,

The Rainbow Nation saw it all

The cradle of humankind still plays its lullabies

And shelters them all irrespective

As the name of the cape beseeches hope and faith

 The land at the tip of the dark continent outshines the past

 

Beyond the Pampas, there lies a history,

A civilization that led light,

Argentina was a name of the men,

Valorous by all means and it shall remain

 

Sizzling Mexican salsa sauces to the platter,

Foodies all the life, way ahead in the minds

Lies the blood curdling wails let aloud by a tragic past,

No longer remains the darkness but the glow that leads kindly light

 

Where 18000 islands are separated at a distance,

Where Flora and fauna thrives in abundance,

Lies the epicentre of the turbulences of the world,

But binding by heart is way what Indonesia is

 

The home of the entity that was bitten by an apple,

The land of the morning calm keeps its calm,

Be it during the black memories with the invaders

Or with like-named sibling

South Korea has it all with its S(e)oul at the helm

To climb the peak of the world with all its grace

 

Christened from the name of the king himself,

Was born a country in the east of the world

They know life’s upside down when at war

Digging deep into the history is

The country of invasions with a blood spilled history

Philippines by name, they shall win

 

History seems the same for them all,

He too lived a life of turmoil

Being the reason of the change, here lies a glorified tradition

This is Malaysia, truly Asia

 

The grandeur of the Arab charms is nowhere to be seen,

The land, sacred for the Jews, lay a path for the astray

The brilliance of the nation lies within

In the hearts and minds of them, the Israelis

 

Divided amongst the two continents

Lies a land of wonders and East’s mercenary to the West,

With a vast cultural diversity and profound integrity,

Turkey by name, lies within is centuries of richness

 

-        Anand K V

______________________________________________

written by Anand KV (anandkv.pgdm14c@greatlakes.edu.in)

Blackberry focusing on Emerging Markets

As I am an avid user of blackberry smart phones, I was searching the net recently for some latest news on the same. Interestingly, I found out that Research In Motion, the maker of Blackberry smart phones is now focusing more on emerging markets.

RIM is focusing more on countries like Indonesia and South Africa. The Blackberry 10, due in 2013, will be launched in a big way in African countries as well as other important global markets.

The reason why BlackBerry might be extremely popular in emerging markets is because its data usage plans are reasonable, its BBM messaging service is a big hit, and its phones are cheaper than competitors such as the iPhone.

For these reasons, The Wall Street Journal recently reported that the number of BlackBerry users in Indonesia have more than tripled in the past year alone.

At the recent the Mobile World Congress event in Barcelona, Gregory Wade, RIM’s head in Southeast Asia, said the company “will increase the number of BlackBerry sales points in Indonesia to 4,000; that includes flagship stores, store-in-stores and kiosks in the country.”

Even though it might be true that the main reason for blackberry to shift its focus to emerging markets is that RIM is looking for places to replace its market share lost in the US, it is still very nice to see that Major telecommunication companies like Research in Motion are now finally realizing the huge potential of Emerging Markets.

Sources:

http://blogs.ft.com/beyond-brics/2012/09/24/rim-taking-africa-seriously/#axzz27TxotAyh

http://www.worldwideworx.com/nokia-blackberry/

http://www.cantechletter.com/2012/03/the-blackberry-in-emerging-markets-how-research-in-motion-can-rebound/

________________________________________________________________________________________

written by Pulkit Kohli (pulkit.pgdm14c@greatlakes.edu.in)

Fund Managers magnifying glasses on Emerging Markets

Why is it that fund managers (‘Asset management companies’) look at companies and emerging markets with a magnifying glass? Isn’t it the same models and analytical techniques used when investing in developed markets?  Why do Asset Management companies always require a higher return from their investments in developing nations?

Although the fundamental behavior of participants in capital markets towards emerging and developed country’s is the same, fund managers tweak the models of analysis and investment strategy for emerging markets to incorporate the unique government and other institutional factors, that are specific to that emerging country. WHY?

Information Inequalities: one unique feature of emerging markets is the presence of significant information inequities between investors. (By Information inequities we mean different information is available to investors at different periods of time). The traditional developed markets view is that news is distributed widely and instantaneously so prices reflect all public information. However in the stocks of companies in developing markets, there is asymmetry of information available and very limited information available in public domain. This leads to an uneven playing field for taking investing decisions as insiders know considerably more than do outside investors and thus Asset management companies require a higher compensatory return.

Insider Trading Regulation: Any information that is very sensitive to the price of stock is called Material Information. Further if this Material Information is not yet available in public domain it is called “material non public information”. Let me illustrate this with the help of an example

If Mr. Arun is the head of finance of Reliance Industries Limited (‘RIL’) and has 5000 shares of RIL. Since he is an employee of the company he would obviously be having sensitive information such as EPS, profits and other sensitive information. If Mr. Arun trades (sells or buys RIL stock) on this information before the news of EPS and profits is distributed to the public it is called trading on material non public information and he can be prosecuted for this.

As we studies in all our cases, legislation and regulation are not easily enforceable in developing nations as in developed markets and that’s why Asset Management companies demand a higher rate of return and premiums on their investments made in these countries.

Financial Disclosure: Another reason, for demanding higher returns by Asset Management Companies is lack of transparency of earnings resulting from poor accounting standards, biased accounting view of Independent Accountants and perverse management motivations. As majority of the analysis done by Asset management companies is by using Annual Reports, regulatory filings and other relevant information. The lack of financial disclosure within these documents mentioned above and the added perceive risk by these Asset Management Companies require them to earn a higher rate of return in these emerging markets. 

Market Illiquidity and High transaction cost: As stock markets are not well developed and integrated into the global financial system there is the presence of abnormal illiquidity and other form of transaction costs that asset management company’s factor in their increasing demand of return. There are few countries which further discriminate on transaction cost between domestic and foreign investors – thereby requiring the Foreign Asset managers to further increase their expected rate of return from the developing markets.

However majority of the Assets Management companies have invested in emerging markets recently and have made exponential return on their investments.

Further this is not an exhaustive list of the reasons why Asset management companies require higher returns – but just a small snapshot will be back soon with a working model. 

Cheers!

_____________________________________________________________________

written by Tarun Ajwani (tarun.pgdm14c@greatlakes.edu.in)

MCX (MUTI COMMODITY EXCHANGE) Stock Exchange Limited

This is another rag to riches story, but the founder of MCX the newest stock exchange in India enriched himself as a byproduct and has made thousands of people, and society itself to create massive wealth.

Jignesh Shah studied at the University of Mumbai and did his Electronics Engineering. After his brief stint in the BSE, the behemoth in trading he went on to fill the institutional voids which we talk about so much in Emerging Economies.

MCX replaced the age old regional commodities exchange prevalent in various states and unified them by providing a nationwide electronic trading platform for futures trading in both agricultural products and metals.

The going was tough, but Jignesh Shah fought all odds by taking on the BSE and the NSE. He had to run behind bureaucrats and RBI officials before he got the official nod to start MCX. Today, MCX is a powerful brand and the revenues are growing at a huge rate. Started only in 2008 it has become one of the most powerful brands in the trading space.

Jignesh Shah has also been approached by many foreign countries to start an exchange looking at the success of MCX. The identification of an institutional void is paramount and he reaped benefits by filling that void.  

At the end of June 2012, MCX-SX had 750 members and saw participation from 707 towns and cities across India. Adhering to its philosophy of ‘Systematic Development of Markets through Information, Innovation, Education and Research,’ MCX-SX’s mission has been to promote Financial-literacy-for-Financial InclusionTM, as is envisaged by the Government of India. MCX-SX till date has conducted more than 1300 investor education programmes across the country, averaging almost one such programme per working day.

The FMC, which regulates commodity exchanges, said the turnover in the bullion segment rose more than two-fold to Rs 87.58 lakh crore during the April-January period of the 2011-12 fiscal from Rs 42.91 lakh crore in the corresponding period last year.

In a similar fashion, business from agri-items like guarseed increased by 52 per cent to Rs 16.95 lakh crore from Rs 11.14 lakh crore.

While the turnover of energy items like crude oil increased by 32 per cent to Rs 24.23 lakh crore from Rs 18.38 lakh crore, business from metals like copper rose marginally by 6 per cent to 23.11 lakh crore from Rs 21.82 lakh crore during the review period.

During January 2012, the maximum turnover of Rs 12, 20,860 crore was posted by MCX.

MCX has got a great future ahead of it as the commodities market is bigger than the equity market and other Emerging economies can follow this model to ease transactions and by developing model institutions to monitor these transactions.

Sources: http://en.wikipedia.org/wiki/MCX_Stock_Exchange

               http://articles.economictimes.indiatimes.com/2012-02-19/news/31077143_1_guarseed-forward-markets-commission-mcx

           http://articles.economictimes.indiatimes.com/2012-02-19/news/31077143_1_guarseed-forward-markets-commission-mcx

 _______________________________________________________________________________

written by Santosh Krishnan (santosh.pgdm14c@greatlakes.edu.in)

Why Argentina Downgraded from an Emerging Market to a Frontier Market?

After the Argentina case study I was very curious to know its situation in the last decade or so.

I went through various interesting articles which could throw light on the current economical and political situation within in the country. I am writing this blog compiling the best possible information from all the sources I have gone through (Sources which I have mentioned at the end) & my understanding from them.

Till 2008 Argentina was clinging onto its emerging market status. MSCI Barra, (MSCI Inc., trading as MSCI Barra, is a provider of investment decision support tools to investment institutions) whose stock indexes are tracked by investors with $3 trillion in funds, downgraded Argentina to a “frontier” economy from an “emerging market” in February 2009, citing its restrictions on foreign capital. (Frontier markets are countries with investable stock markets that are less established than those in the emerging markets. They are also known as "pre-emerging markets”). That put South America’s second-biggest economy, after Brazil, in a category with Sri Lanka and Kazakhstan.

On March 20, the Merval stood at 672.31, down more than 50 percent from a year earlier. By comparison, Brazil’s Bovespa and Mexico’s Bolsa declined about 40 percent during the same period. After more than five years of annual economic growth faster than 8 percent under Kirchner, it shrank to 1.1 percent this year, putting it on track for the first recession since 2002.

Access to fresh international loans was blocked by lawsuits from holders of $20 billion of bonds the country defaulted on in late 2001; an additional $140 billion of outstanding debt trades at default levels.

Some of the reasons can be attributed to the following events of the past:-

Protest Against Dictatorships

Protests against the government and banks left more than two dozen people dead in December 2001. Within a few weeks, Argentina had five different presidents, and the following year the poverty rate rose to 50 percent while the economy shrank 10.9 percent.

Kirchner won the presidency in May 2003 with 22 percent of the vote after his opponent, former President Carlos Menem, declined to compete in a runoff.

Controversial Policies

Kirchner’s policies were controversial. Ignoring advice from independent economists and the International Monetary Fund, he fought inflation by prodding supermarkets to cut prices. He told domestic business leaders to “share” more of their wealth.

Underestimation

Kirchner’s former economy minister, Roberto Lavagna, and research institutes including the Buenos Aires-based Latin American Economic Investigations Foundation, or FIEL, said that the government numbers underestimated inflation by at least half.

Snubbing Leaders

Kirchner was also famous for snubbing visiting dignitaries including former Vietnamese President Tran Duc Luong and former Hewlett-Packard Co. Chief Executive Officer Carly Fiorina when they visited Argentina.

Souring Relations with the U.S

Argentina’s relations with the U.S. soured after prosecutors in Miami said they’d arrested four people for being illegal agents of Venezuela’s Chavez. Their alleged mission was to cover up the $800,000 donation to Fernandez’s presidential campaign.

30 Cents on the Dollar

He offered foreign investors who held Argentina’s defaulted bonds 30 cents on the dollar -- the worst terms since at least World War II -- and refused to negotiate.

Fernandez, who became a senator from Buenos Aires after the couple moved to the capital, shepherded his legislative efforts through the Senate. She also backed laws overturning amnesty for military officers accused of human rights abuses during Argentina’s 1976-1983 “Dirty War” and helped extend emergency economic powers for the president that allowed Kirchner to redirect government spending without consulting Congress.

One way in which Kirchner used his authority was to designate his successor. On July 2, 2007, Kirchner announced that his wife Fernandez would be the Peronist party’s candidate to succeed him in October elections. The popularity of her husband’s policies carried the day, and she won 45 percent of the vote -- double the amount received by her closest rival, former lawmaker Elisa Carrio.

 ‘Prospects Weren’t Good’

President Fernandez repeatedly clashed with the country’s powerful soybean farmers, whose crops are the country’s biggest source of export revenue.

With inflation quickening and the government still blocked from international credit markets, in March 2008 Fernandez turned her eyes toward agriculture to raise funds. Argentina is the world’s third-biggest soybean exporter and prices for the crop were booming. A bushel of soy that cost $11.25 on the day Fernandez took office surpassed $15 per bushel barely two months later -- a windfall for the government, given a tax rate of 35 percent on exports.

Fernandez’s popularity plummeted to 20 percent during a face- off with farmers in 2008. It stood at 29 percent in February, according to Poliarquia Consultores, a polling organization in Buenos Aires.

Cash Beneath Mattresses

The slump was the latest in a series of economic crises Argentina had faced since the Great Depression. Today, middle-class and wealthy families keep thousands of U.S. dollars in cash stuffed under mattresses or in home safes for just such emergencies.

Fernandez, who gives hour-long speeches without notes, relies in part on a shrinking list of defectors from opposition parties to form a majority. Even her fellow Peronists had been deserting her, leaving her with a slim one-vote margin in the upper house of Congress.

‘Oligarchs’

Fernandez attacked the farmers, calling them “oligarchs” who drove expensive sport utility vehicles and supported the country’s military dictatorships in the 1970s.

On the rural highways of Argentina, farmers manned roadblocks, letting passenger cars go by while trucks were left idling. They held roadside prayer services and cooked midnight barbecues to get through the winter nights.

Shift in Momentum

Facing a stalemate, Fernandez sent her tax proposal to Congress, counting on her ruling coalition’s support to step up pressure on the farmers.

Senate debate began on July 16, 2008, and continued past midnight. Vice President Cobos, a member of the Radical party who served as a president of the Senate, oversaw the deliberations.

In the early morning hours, sensing that momentum was shifting against the government, Cobos sat in his offices trying to convince Fernandez’s cabinet chief that a final vote should be delayed, he says. The idea was rejected.

Call for Voting

In the ornate Senate chamber, Fernandez’s coalition was crumbling. Cobos rejoined the debate and, after all the senators had spoken, called for the voting to begin.

Ten seconds later, an electronic scoreboard read 36-36. Cobos called for a second vote.

Again, it was a tie.

“I don’t believe in backing a law that won’t help resolve this situation,” Cobos told the hushed chamber. “I can’t go along with this. ... My vote isn’t for, it’s against.”

At a public park in Buenos Aires, where they had gathered to watch the proceedings on a giant outdoor screen, farm leaders and their supporters burst into celebration, dancing and praising Cobos.

Two weeks after the vote, Fernandez told him that their relationship would be purely “institutional.” It was the last time they spoke.

‘Instability’

Amid the controversy, Fernandez had been making herself scarce in the capital. Rather than coming to the presidential palace, she prefered to do her day-to-day work at home with Kirchner, who handpicked her to be his successor.

She also made frequent visits to a vacation home in her husband’s native Patagonia. The newsweekly Noticias branded Fernandez the “Part-Time President” for her travel and work schedule in a February 2008 cover story.

Grab for Pensions

With the tax increase on soybeans scuttled, Fernandez needed other sources of cash. The government’s borrowing needs totalled about $20 billion in 2009, up from $7 billion in 2008.

So Fernandez turned to the country’s private pension system, managed by companies such as Bilbao, Spain-based Banco Bilbao Vizcaya Argentaria SA and London-based HSBC Holdings Plc. About 3.6 million Argentines kept their retirement savings in the private system and 450,000 received monthly payments. In addition to $24 billion in assets, the pension funds also took $4.5 billion in contributions that year.

Trumpets and Drums

“While the world’s biggest economies are undertaking policies to protect banks, we’re doing this for our retirees and our workers!” Fernandez said. The crowd blew trumpets and banged on drums.

Citigroup Inc. strategist Geoffrey Dennis called the decision the death knell for Argentina’s equity markets. That day, Argentine bond yields soared above 24 percent from 8.3 percent on the day Fernandez took office.

Pedrajo, the foreign investor, says. “This isn’t a model for growth. It’s not a model for sustained health. And it’s a very bad model for attracting new private capital.”

There again, Fernandez changed her tune. She was now willing to consider a deal with holders of about $20 billion in defaulted debt. Barclays Plc, Deutsche Bank AG and Citigroup submitted a plan to Fernandez that aims to resolve the outstanding claims.

With Fernandez in charge, the only thing worth betting on was that the outcome will not be what anyone expects.

Sources :- Bloomberg  &  frontiermarkets.wordpress.com

_________________________________________________________________________________

written by Tejas Nahar (tejas.pgdm14c@greatlakes.edu.in)