30.12.2006

• Volatility coefficient for sensex
• The annualized volatility coefficient for BSE sensex stood at 26% for 2006, compared to 17% and 25% during 2005 and 2004 respectively.
• This coefficient indicates the amount of fluctuation in market movements during the year.
• It is calculated by taking the standard deviation of daily returns for either the stock or the index and then annualizing it over the total number of trading days during the year.
• Call money rates hit a 9 year high
• Call money means the money on call or overnight funds borrowed by banks to meet their daily asset liability mismatches. The money is lent by other banks with surplus funds and bond houses with a specific mandate to lend in the call money market. Banks can also borrow from the RBI by pledging their surplus government bond holdings.
• These rates have touched a high of 18 to 19% on fund crunch.
• Quantitative restrictions on agricultural exports may go
• The government’s motivation on banning farm exports is to hold their prices domestic market.
• The government is signaling that these restrictions will be replaced with tariffs; a measure which will have huge impact on farm incomes and commodity prices in general.
• India’s current policy on agricultural exports is simple: the government decides from time to time and ‘in public interest’ whether any commodity can be exported at any point of time.
• Schedule of assembly polls in three states
• The Election Commission has announced that elections to the state assemblies of Punjab, Uttarkhand and Manipur will be held in Febrary, 2007.
• Demand for return of Kohinoor diamond
• The diamond was gifted to Queen Victoria by 9 year old last Sikh ruler of Punjab, Duleep Singh in 1849.
• There were claims from Pakistan, Iran and India on Britain for the return of the diamond.
• What are interconnect user charges? Is service tax leviable on such charges?
• Interconnect user charges are charges paid by one telecom service provider to another for enabling calls to move from one network to the other.
• The Attorney General of India has opined that service tax cannot be levied on such charges. This is because interconnectivity is a service provided between telecom operators and not between the telecom company and the subscriber.
• Hutch shareholding pattern
• Hutchison Telecom and associates hold 67% in Hutch Essar. While 52% is directly held by Hutchison Whampoa, the balance 15% is held indirectly through associates like Telecom Investments Inida and subsidiaries and Indusind Telecom Networks.
• Of Essar’s 33% holding, a 22.02% block is foreign controlled.
• Managing Director of NABARD: Mr. K.G. Karmaker.
• Balance of payments surplus helps the country brave the current account deficit
• The country’s current account deficit touched $6.9 billion during the quarter ended September, 2006. The capital account has seen a surplus of $8.6 billion during the same period. Hence the balance of payments, which is the sum of the current and capital account transactions in a given period showed an overall $2.2 billion surplus.
• The country’s trade deficit is at $17.9 billion on an exports figure of $30.8 billion and imports of $49 billion.
• Management of external debt
• India’s external debt has increased to $136.5 billion in the quarter ended September, 2006. The country’s foreign exchange reserves stood at $165.3 billion for the same period.
• Foreign debt management policies administered by the government include:
• Placing of emphasis on raising funds at concessional terms and from less expensive sources with longer maturities
• Monitoring short-term debt
• Prepayment of high-cost loans
• Rationalization of interest rates on NRI deposits
• Restrictions on end-use of external commercial borrowings (ECBs)
• Limiting of trade credits
• Encouraging non-debt creating capital flows
• Indo-Asean FTA talks
• ASEAN has not responded positively to India’s revised negative list of 490 items in place of its earlier 560 items.
• ASEAN’s primary interest lies in the area of palm oil where it has demanded that duties should be pruned to 30% to 40% within 5 years of the implementation of the free trade agreement instead of the 50% within 10 to 12 years as suggested by India.
• ASEAN, which has initially produced a negative list of 600 items, has later hiked it to 1000 items.
• What is competitive advantage?
• Competitive advantages are the firm specific set of capabilities that enable individual firms to perform well in open markets.
• Changing composition of our exports during the period 2000 to 2006
• Exports can be grouped into three broad classes on the basis of primary factors affecting the competitive process in each activity and the technological characteristics.
• The first is the resource intensive product category whose major competitive source is access to abundant natural resources – like aluminium smelting, oil refining etc. The share of these products has remained stagnant and did not show any definite trend over the period.
• The second is labour intensive exports where the main competitive advantage is labour costs – garments, clothing, footwear, toys etc. The share of these products in our exports has gone down from 26% to 21%.
• The third is knowledge and technology intensive product category. There has been a substantial increase in the share of this category of exports from 24% in 2000-2001 to 29% in 2005-2006.
• Thus India’s current export boom is not labour-based as is revealed by the composition of merchandise exports. The results show that India’s exports have shifted towards more value-added, science and technology based products and there again has primarily come at the cost of labour intensive products.
• What does El Nino have to do with tyre prices in India?
• The El Nino effect, created by the abnormal warming of waters in the Pacific Ocean around the equator, usually results in drought in Australia, Indonesia and Phlippines along with flooding in the Americas.
• Thailand, Indonesia and Malaysia account for more than 70% of the world’s natural rubber output.
• Since rubber tress are impacted by warm weather, availability of natural rubber is also reduced. Since production of synthetic rubber will not increase dramatically from crude oil, in view of the volatility in prices of crude, rubber prices are set to rule firm. This leads to an increase in prices of rubber products like car tyres.
• Joseph Stiglitz on why interest rates as a tool for managing monetary policy are less important now.
• The objectives of the monetary policy are achieving growth and stability. These objectives can be achieved by a adopting a multiple indicator approach and the central bank should focus on a plethora of tools.
• The focus should be on credit markets. With new technologies, money is not required for transactions, only for credit. Most transactions are not income-generating, but simply exchange of assets. The ratio of exchange of assets to income is not stable. This has changed the velocity of money. This in a way, has restricted the effectiveness of interest rates as a tool of monetary policy.