05.02.2009

Finance & Economics

• Can you outline as to how was India well placed to derive the full benefits of globalisation?
  
• Arguing that substituting the dollar with an international currency  will transform the global economic architecture, the way the fall of the Berlin wall did to the political architecture of the world, Sameer Sharma, explains thus:
  
• First, India was fortuitously placed twelve hours away — while the west slept, India worked. 
  
• Second, the Y2K scare focused research attention on IT and led to the creation of tools that accelerated services outsourcing. 
  
• Third, privatisation of higher technical education during the 1990s fulfilled the desire of Indian parents to make their children engineers, ensuring that sufficient numbers of willing technical personnel were available to work in the IT sector.
• Slowdown in India affects 5 lakh jobs
  
• It appears that India has lost about 5 lakh jobs during October - December period.  Gems and jewellery industry took the maximum hit.
• This is what is stated by a labour ministry's report.
• Singur pullout and JLR-Landrover acquisitions take a toll on Tatas financially
• Tata Motors appears to be facing payment problems.  The company started feeling the pinch about four months ago when demand for vehicles plunged. Its sales for the October-December quarter declined by 32% to 98,760 vehicles from 1,44,608 units in the corresponding quarter last year. The company operates five large commercial vehicle and passenger car plants in India and has an upcoming plant at Sanand in Gujarat that will produce Nano, the world’s cheapest car. 
  
• This is a very rare instance of a Tata group company facing payment problems.
• Why are budget deficits bad?  (Excerpted from an article by Martin Feldstein, Professor of Economics at Harvard)
  
• Government borrowing to finance budget deficits can crowd out private investment that would raise productivity and the standard of living. 
• Budget deficits automatically increase government debt, requiring higher future taxes to pay the interest on that debt. 
• The resulting higher tax rates distort economic incentives and thus weaken future economic performance.
  
• The manifestation of current recession in the US
  
• The 40% decline in the US stock market and the dramatic fall in house prices have reduced American households’ wealth by more than $10 trillion, which is likely to reduce annual consumer spending by more than $400 billion. And the collapse of housing starts has lowered construction spending by another $200 billion. 
  
• Credit flow figures into the housing sector
• PSBs had a total exposure of about Rs 162,500 cr as housing loan at the end of Dec 2008 
  
• All commercial banks in total had an exposure of Rs 2,71,683 cr as home loan till Dec 19, 2008 
  

International

• Russia gets a downgrade from Fitch
• This downgrade of Russian debt from Fitch Ratings brings back memories of the 1998 collapse.
• The basic reason for the downgrade appears to be the fact that the Russian central bank is perceived to be no longer in a position to defend the Ruble.  Ruble appears to be fast becoming rubble.  The Russian central bank has spent more than $210 bn defending the Ruble since August.  This is more than a third of its foreign currency reserves.  Foreign investors are reported to have pulled out about $290 bn during the same period.
• It is feared that the central bank may not be having any cash to defend its Ruble now.  Hence the downgrade from Fitch.  
• Collpase of a single country -- whether big or small -- is worrisome; because it affects other countries too.