23.10.2008

• How many in India have invested in stock markets?
• Household savings invested in shares and debentures are less than 2% of India’s gross output and only about 10% of household financial savings.
• How does a falling stock market affect the economy as a whole?
• Afalling stock market makes it difficult for companies to raise fresh capital by way of equity. Such a market dries up domestic liquidity and blocks access to foreign debt as well.
• Fear of further losses on Indian stocks forces foreign investors on our bourses to sell out and repatriate their money. When they buy dollars and take their money out, they reduce domestic liquidity and depreciate the currency.
• How would rupee depreciation hurt domestic liquidity?
  
• Unwarranted depreciation of the rupee will hurt domestic liquidity in three ways. Few fresh external loans would be contracted. External loans accounted for over Rs 80,000 crore last fiscal.
  
• Indian companies that have to roll over their existing foreign loans would take rupee loans in India, convert the money into dollars and take out this money. This would suck out liquidity and further depreciate the rupee.
  
• A declining rupee would make the Indian stock and debt markets unattractive for fresh foreign flows. The return in dollars on their investment would be the rupee rate of return less the rate of depreciation of the rupee. All the government’s plans to bump up domestic liquidity by allowing greater FII flows into the domestic market for corporate as well as government debt would come unstuck.
• ECB (External Commercial Borrowing) norms relaxed
• With a view to help the corporates overcome the liquidity crunch the government has relaxed the ECB regime.
  
• The revised rules provide for companies to pay a higher interest of upto 500 bps (5%) over the six-month LIBOR (London Inter Bank Offer Rate) on external commercial borrowings (ECBs).
  
• Companies can bring in the proceeds immediately and can also use dollar borrowings for rupee expenditure. ECBs up to $500 million per borrower per financial year would be permitted for rupee expenditure or foreign currency expenditure for permissible end-uses under the automatic route. The norm of a minimum average maturity period of seven years for ECBs of more than $100 million for rupee capital expenditure by borrowers in the infrastructure sector has been dispensed with.
• For the fiscal ended March 31,2008, Indian corporates had made overseas borrowings of $ 30.95 billion. This is as against borrowings of $25.35 billion in the previous fiscal. In the current fiscal, between April and August, corporates had borrowed $8.12 billion.
• We may not after meet the fiscal and revenue deficit targets. Admits the finance minister.
• As per the Budget estimates, the government should reduce fiscal deficit — excess of total expenditure over total income, excluding market borrowing — to 3% of GDP and revenue deficit — difference between the current expenditure and current receipts — to 1% of gross domestic product.
• The Fiscal Responsibility & Budget Management (FRBM) Act mandates the government to cut fiscal deficit to 3% of GDP by 2008-09, or 0.3% every year. The Act also mandated scrapping revenue deficit by 2008-09.
• By August, the government’s fiscal deficit had touched 87.7% of the fiscal target while revenue deficit has exceeded the target by 77.4%.
  
• Mr Chidambaram admitted that all states have fared better than the Centre in terms of reducing fiscal and revenue deficits. The combined fiscal deficit of all states stood at 2.7% by March 2008, well below the 3% target. States together have a revenue surplus of 0.56%.
• A look at banking statistics for a bird's eye view of the lending and deposit scenario
  
• Loans given by banks rose by Rs 64,937 crore to Rs 26,07,404 crore during the fortnight ended October 10, deposits raised went up only Rs 27,221 crore to Rs 34,69,359 crore. Investments in government bonds, on the other hand, dipped Rs 6,324 crore to Rs 9,80,916 crore.
• A look at government's initiatives for improving higher education in the country:
• The government will create 12 Central universities, adding to the existing 18. Rs. 3,280 crore (about $73 million) has been allocated from the budget for this. It announced that it would create 30 “world-class” universities, eight new Indian Institutes of Technology (IITs), and seven Indian Institutes of Management (IIMs) in the coming five years. Other plans include enhancing the salaries of college and university academics — by as much as 70 per cent.
• But none of India’s 348 universities is ranked among the top 100 in the world.
• Take a look at this very good article that gives a glimpse of the challenges being faced by higher education in India and what needs to be done before spending money on it.