FDI in Retail Sector

UPA government has indeed taken a bold step in deciding to open up Indian retail sector to foreign players. This bold move has come in the wake of need for economic reforms to safeguard the falling rupee. The decision assumes importance since it has been taken in the atmosphere marked by vociferous opposition voiced by not just oppostion parties but also by the allies of congress in UPA government. Here, a sincere attempt has been made to concisely discuss the issue.

The Issue

The cabinet has approved to allow FDI in multi-brand retail with a majority of 51% stake and 100% stake in single-brand retail.

First, let us understand what this FDI is. FDI stands for Foreign Direct Investment. It implies the investment of a firm in a company other than from its own country in return for a management stake.

Since foreign players are allowed FDI in retail sector, they are motivated to invest in Indian retail sector. This implies more super markets, departmental stores and retail outlets. Since these retail outlets operate on large scale, they are in a position to enjoy economies of scale (benefits arising from operating on a large scale) and hence can offer goods at a lower price in relation to Kirana shops. The advantage of finding all the requirements under a single roof induces customers to prefer these super markets to Kirana shops. This is likely to be a big blow to petty merchants. But the Government claims that it has formulated adequate provisions to safeguard small merchants. Let us now briefly examine the provisions of the proposal to opening up retail sector.

However, the opening up of retail sector is not without advantages. It is claimed that the new proposal would help farmers by offering better prices and eliminating middlemen. The advantages also encompass increased employment opportunities and reduced prices and increased choice to consumers.

• The minimum investment limit has been kept as high as $100 million(Rs 500 crore). This is to ensure that only serious players will invest in the sector and the investment shall not be withdrawn in short-run.

• It is mandated for foreign players to invest atleast 50% of investment in back-end infrastructure. This primarily means half the money will go in creating logistics, supply chain, processing of fruit-based products, development of farm produce along with farmers. The rationale behind this stipulation is that the investment will also be in physical assets. Investment in physical assets would leave behind infrastructure even when the investment is withdrawn.

• The proposal also mandates that there shall not be branding of fresh agricultural produce, fresh poultry, fishery and meat products. The idea is to offer these products at a lower price by doing away with price premium associated with branding.

• The policy also makes it compulsory for foreign retail players to source atleast 30% of manufactured goods from small and medium-scale units in India. This norm is applicable to single-brand retail as well. This is an impressive condition given the fact 60% of retail sales comes from food products which have to be procured locally and of the balance, 30% will have to be sourced from local manufacturers.

• The FDI proposal stipulates that retail sales locations can be set up in cities with more than one million population based on 2011 census data. Accordingly, only 53 cities will qualify for foreign retail stores. This provision is to insulate small merchants located in small towns.

It is too early to decide whether FDI in retail would benefit Indian economy and contributes to the well-being of its citizens. The utility of safeguards to protect petty Kirana merchants will have to be decided only by time.

Why is Inflation Unabated?????

Being a Finance Student, the phenomenon of Inflation has always been of interest to me. I ever wonder why the measures initiated by RBI to curb inflation have not been successful in bringing down the Inflation. Small research into the topic has lent me rich insights. This write-up is a sincere attempt to share those insights with you.

Inflation and Interst Rates Relationship

Inflation means a sustained raise in the prices of commodities. The raise in prices could either be due to raise in costs (Cost-push inflation) or excess of demand over supply (demand-pull inflation). The central Bank of any nation, RBI in case of India, alters the interest rates in bank to curb inflation. The rationale is that, "Increase in interest rate would discourage borrowing of loans which in turn reduces the purchasing power of people. Reduction in purchasing power reduces the demand and the prices come down".

Interest Rate- a Bane to Inflation!!!!!!!!!!

But the present scenario seems to prove this hypothesis wrong. Despite 12 times hike in the interest rate in span of 18 months, inflation has not subsided. The reasons for this anomaly could be summarized as below.

• Raising interest rates push up cost of production. The hardening of interest rate would result in higher cost of finance, resulting in higher EMI on the loans taken. This reduces the buying power of the customer. The reduced demand growth results in higher inventories leading to higher overhead cost per unit. The obvious consequence is raise in price
• Increase in interest rates lead to decline in profitability. This causes fall in stock prices. Continuously falling stock prices erode the capability of firms to raise funds at a lower rate of interest. Resort to the expensive sources of finance again spirals up the cost of production and prices in turn.

• Increased interest rates, as stated earlier, would lead to decline in demand growth for products and services. This would lead to a falling behind tax collection targets. The government, in its attempt to make good the loss in tax collection, increases tax and cess levied on petrol prices. Needless to say the result.

Other adverse effects of raising Interest Rates

• Reduction of tax revenues expand fiscal deficit. Raising prices demand higher subsides, again burden on public expenditure, more fiscal deficit.

• Higher interest rates and declined profitability leads to reduced viability for new projects and modernization of existing units. Domestic companies fall back foreign companies in technological advancement leading to further erosion of profitability.

• Increase in interest rate leads to reduction in demand for funds, both from buyers and manufacturers. Banks will have to put money in reverse repo thus reducing Net Interest Margin. Banks' profitability will automatically erode.

• In aggregate, continuous interest rates will turn Inflation into Stagflation - a state of economy characterized by both inflation and Stagnation.

Something About Financial Instruments-1.

Here is a sincere attempt to share a few interesting things about Financial Instruments.

• Samurai Bond is a yen-denominated bond issued by a foreign company in Jan.
• Sweat Equity refers to the equity shares issued to promoters, directors and employees of the company for value addition.
• Yankee Bonds are the US dollar-denominated bonds issued by a foreign borrower in US.
• The shares whose prices fall when the market is raising and rise when the market is falling are called Contrarian Shares.
• Collecting old share certificates and bond certificates as a hobby and investment is called Scripophily.
• Government Securities are called Gilt-Edged Securities.
• The process of fraudulently altering the amount for which a cheque is drawn is called Raising the cheque.

Impending Recession????

The downgrade of US credit rating from AAA to AA+ by S & P, accompanied by the slow growth rate (0.2%) in Euro Zone is pointing at one more recession. This recession is expected to be more dangerous and long-lasting than the previous one.

This article seeks to discuss a few related aspects.

This recession is expected to be long lasting because of one prime reason - Structural defects in Capitalism having no external Prop in the current economic scenario.

Structural Defects in CAPITALISM

The recession is remotely attributed to the structural defects in CAPITALISM. Capitalism, as we know, is a form of economic system in which the government intervention is very minimal.

Under Capitalism, it is the private investment that produces goods and contribute to the GDP and in the process it is responsible for the employment status of that economy. Thus, the working and well being of an economy depends on the 'investor confidence'.

If investor confidence is high, they invest more. Their more investment creates more employment which leads to better income and better standard of living. More income leads to more demand for goods which, in turn, stimulate more investment.

On the other hand, low 'low investor confidence' leads to withdrawal of investment, reduction in employment, low income, less demand for goods and withdrawal of more investment. Thus, it is a vicious circle.

Lack of EXTERNAL PROP

Whenever a recession was hit previously, there used to be some EXTERNAL PROP for capitalism that would to help CAPITALISM come out of Recession.

• Colonial Rule provided such a PROP in the past. The companies in recession-hit countries could sell their products in colonies at the expense of local goods. But such readily available colonial markets are not to be existent now.
• During later years, state intervention in demand management provided such an external prop. State intervention in demand management is a brain-child of Keynes. The Great Depression of 1929 was overcome by this Keynesian philosophy. Keynes suggests to increase the Fiscal deficit by increasing public expenditure. With the increase in public expenditure, the money at the disposal of people increases and the investment is stimulated. But unfortunately, this Keynesian philosophy cannot be applied for the present situation because of the following reasons.

Reasons for not employing Keynesian philosophy

• In haste to bail out drowning companies in December 2007 recession, sovereign governments across Europe have incurred so much of debt that they are not in a position to service those debts now. For example, net debt-to GDP ratio in Greece stood at 152%. The meager growth rate registered in these countries has eroded their ability to service debts. So government is unable to raise any more public debt to bail out drowning companies now.
• In US, the situation is no less worse. The downgrade of sovereign credit rating of US from AAA to AA+ by S & P has shaken the investors' confidence to investment in US. The US Government is under pressure to cut its fiscal deficit since its current fiscal deficit is too high that it could push US into bankruptcy. This fiscal deficit could be reduced in two ways - increasing the tax rates and reducing the public expenditure. From the point of view of fighting recession, public expenditure should not be cut. But lack of political will has forced US senate to adopt more austerity measures by cutting public expenditure to reduce fiscal deficit. Thus, Keynesian philosophy is not being applied in US.

Given the lack of external prop to capitalism, there is no sign to fight recession and restore boom. So friends, this recession is more dangerous. Let us pray the Almighty to rescue us.

Something About Stock Exchange (Part-1)????

Stock Exchange has always been a store house of interesting things. A few terms used there have always aroused interest in me as to their meanings. Here is an attempt to share some interesting facts about stock exchanges.

• Low grade investment quality issues of companies which have a poor record of earning and dividend payments are called cats and dogs in stock market parlance.
• The stock market operator who believes that the prices of securities will fall at a later date is a Bear and the one who believes that the prices of securities will raise at a later date is a Bull.
• The particular situation in which a particular types of securities are suddenly offered in large numbers in a stock market is known as Banging.
• Stag is an investor who subscribes to new issues of share to sell them off immediately at a profit.
• The convertible part of a partly-convertible debenture is known as KHOKA on dalal street.
• New York Stock Exchange is nicknamed Big Board.
• The market condition wherein the price of futures or forward contract(Forward or future contract refers to the contract wherein the the commodity being traded on is agreed to be delivered at a future date at the price determined at the time of contract.) is trading above the expected spot price at contract maturity is called Contango. It is called Seedha Badla in Dalal street slang.
• The carry over charge paid by the broker to the seller to carry over his transaction to the nest accounting period is called Badla. However Badla was banned by Securities Exchange Board of India (SEBI) in 1993.
• In Stock Exchange terms, unofficial market of dealers who deal in new issues of shares before they become officially available on stock exchanges is called Grey Market.

Diners club?????

The birth of a business need not always be planned. Some business ideas sprang up suddenly with the occurrence of some incidents. It's always been interesting to note the stories behind the setting up of businesses.

One of such interesting beginning is associated with Diners Club Credit Card.

Diners Club is the first multi-purpose credit card company in the world. It is direct banking and payment services company. It revolutionized how consumers made payments. It serves the payment needs of rich and affluent consumers.

It was established in 1950. Its co-founder Frank McNamara had been to a posh restaurant in US but unfortunately had left money in another suit. So he felt embarrassed and resolved not to be embarrassed again. It was in his determination to help others who could face such embarrassments was conceived the idea of a payment mechanism when money is not carried physically. It was how Diners Club Credit Card was born. Indeed Interesting!!!!!

Intel and its branding strategies?????

Intel, as we all know, is the market leader in microprocessors. The strength of Intel is reflected in the ingredient brand equity it has created for itself.

Ingredient Branding refers to the process of crafting a separate brand equity to the ingredient of a product. The ingredient brand equity must contribute to the brand equity of its master product. For example, Laptop is a product, of which microprocessor is a part. If microprocessor creates brand equity for itself and contributes to the brand equity of laptop, then microprocessor is said to have ingredient brand equity.

Intel has always striven to enhance its brand equity by positioning its new products very consciously.

Intel was naming its microprocessors as x86, like intel 386, intel 486 etc. But it did not continue this naming pattern for its next product but instead named it Itanium. Because it wanted to position it as the processor for the new millennium.

S&P's credit rating??????

Newspapers on August 6 carried the story of genesis of storm that has sent ripples across the financial markets around the world. Here is a sincere attempt to narrate, in simple words, what is this storm all about.

Before getting into the actual discussion, let us understand the meaning of a few required concepts.

Credit Rating - Credit rating implies rating the credit worthiness of a debt instrument (Corporate Credit Rating) or a national government (Sovereign Credit Rating). It is an index of the degree of risk of investing in the debt instrument or a nation. A better credit rating would mean higher creditworthiness and a lower risk of default and thus ensures the safety of principal invested. A lower credit rating would imply exactly the opposite. Credit rating is positively related to investor's confidence in investment.

Credit Rating Agency - Credit Rating Agency is an organization which assigns rating to the debt instrument or the nation, as the case maybe. It is to be noted that the credit rating is not the product of any mathematical computation but the outcome of long-standing experience of the agency. The credit rating agency evaluates the creditworthiness on the basis of qualitative and quantitative information gathered by the agency.

Example- Standard & Poor's (US), Moody's Investors Service (US), Fitch Ratings (US/UK), Japan Credit Rating Agency Ltd. (Japan), CRISIL (India) etc.

Fiscal Deficit - Fiscal deficit refers to excess of expenditure over income in the budget. A country with high fiscal deficit implies more of spending from the borrowed funds and vice versa. Investors would like to invest in those countries where fiscal deficit is low since the country, having less of borrowed funds is evaluated to have high credit worthiness.

The Issue-

Standard & Poor's is a high-ranked credit rating agency in the US. has downgraded the ranking it has assigned to US for the first time since 1917. US had been rated AAA, the highest of the ranking S&P gives to any entity. But now S&P has lowered the rating to AA+, one notch less than AAA.

The reason for the downgrade being the budget of US government. US govt proposed to reduce its fiscal deficit by $2.1trillion over 10 years. But S&P is of the opinion that the US govt should have proposed for the reduction of fiscal deficit by $4 trillion which is quite higher than the actual cut. This has made S&P feel that the US runs a high risk of public debt burden and downgraded the rating.

The downgrade has shaken the investor's confidence and given the focal point which US economy assumes in the world economy and the inter-linkage of financial markets, thanks to globalization, this downgrade has sent ripples across the financial markets around the world.

Friends for Ever!!!!

To everyone who made my life beautiful,

To everyone who have left sweet memories,

To everyone who made us laugh twisting abdomen,

To everyone who nick-named me,

To everyone who irritated me just to have fun,

To everyone who fought with me just to make me realize how important are they in my Life,

To everyone who get a smile on their face when they remember me,

To everyone who will not forget me in their life,

I wish a very very happy and prosperous Friendship Day.

Vim - energy???????

Branding a product is all the more important. The companies take utmost care to name its products. The names have to be meaningful, memorable.

VIM, detergent brand from HUL means Energy and Enthusiasm, signifying the energy and enthusiasm of the brand to remove dirt and stains.

First Indian actress to endorse LUX

Hindustan Unilever Ltd has the tradition of getting its products endorsed by film actress.

Leela Chitnis is the first Indian actress to endorse LUX soap. She featured LUX ad in the year 1941.

Humble Start - Huge Success!!!

All great things in this world have started as tiny endeavors. Small always has the potential to be humongous in future.

Bombay Stock Exchange (BSE) is the largest stock exchange in India and 8th largest in the world. Where do you think that BSE must have been established? A big Bunglow? A villa? A multi-storey building? Atleast at a small building? No. It is interesting to note that it was established under a Banyan Tree!!!!! Surprising but true.

In 1850s, four Gujrathi and one Parsi stockbroker used to gather under banyan trees in front of Mumbai Townhall. Later the places constantly got shifted with the increase in the number of brokers and finally got moved to Dalal Street. Today it is housed in Phiroze Jeejeebhoy Towers, Dalal Street, Fort Area.

First insurance company in India

Insurance business is not new to India. In fact, it is a matter of pride that Indians had the idea of insurance as early as Manu. The sense for insurance among Indians emanated from the the willingness of Indians to always stay protected from Risks and Uncertainties. However, the first Insurance company was established only during the beginning of 19th century.

Oriental Life Insurance Company can boast of being the first insurance company in India. It was established in 1818 by Anita Bhavsar to cater to the needs of European widows. Readers are hereby cautioned not to confuse the currently existing ORIENTAL INSURANCE COMPANY with this Company.

Volkswagen - a phoenix????????

The life is so mysterious that it offers opportunities whose value is realized only after it is turned down. It is not the case only with ordinary individuals; even well established companies falter by making wrong decisions.

Volkswagen means PEOPLE'S CAR in German. The company experienced unbelievable hard times during 1940s. The Volkswagen factory was attacked by Allied Forces during World War 2. It was partially destroyed. The British Government took control of the factory to produce light transportation for military and was put under the leadership of IVAN HIRST.

The British sought to give control of the company to the able hands and offered the factory to Ford Motors. Truth. The offer was turned down by Ford Motors, since the company thought it was waste of money!!!!!!! It was indeed fortune thrown away. Then the control of Volkswagen was relinquished to the German Government which put the company under the able leadership of Heinrich Nordoff who turned the company around and by 1950, Volkswagen started exporting to neighboring countries. Indeed Volkswagen personifies the quality of Phoenix. Phoenix raises from ash. So did Volkswagen.

PhD- child's play?????!!!!!!

How many years does an average individual need to complete his PhD?

Yeah.. U're right.. 5 hard years.

But can you believe that that if you have will, you can finish it off in as early as 2 years? You have no choice. You need to believe.

Dr.Parvinder Singh scripted history when he shattered all records at the University of Michigan when he completed PhD in Pharmacy in just years.!!! Indeed a source of inspiration.

Dr. Parvinder Singh immediately employed by Ranbaxy in 1967. he constantly scaled new heights in his career that he took over as Chairman and Managing Director in 1993.

Ranbaxy achieved stupendous growth during his tenure as its CEO. Its turnover rose exponentially from Rs 36 crore to 1400 crore. He foresighted the impending competition to his company with theonset of LPG policy and set up state-of-the-art R&D facility which helped Ranbaxy to tide over competition and retain its market share.

Indeed a source of inspiration to all youngsters!!!!!

Evil or Shoe??????

Christening a Brand depends on careful selection of brand elements. Brand elements chosen must be meaningful and reflective of the product features and usage. Inappropriate Brand manes could prove disastrous as happened to Reebok.

Reebok launched a women's shoe brand called Incubus in the year 1997. After shipping about 53000 pairs of shoes, the company was horrified to learn the real meaning of Incubus.

Inquisitive of its meaning?

The Webster's dictionary defines Incubus as "the evil spirit that..... has sexual intercourse with women when they are sleeping"

Reebok wasted no time in seeking public apology and modified the name.

Digboi- Mystery of its History?

As we all know, Digboi is the first oil well in India. It also has the rare distinction of being the oldest running oil well in the WORLD. The etymology of its name is indeed interesting.

McKillop Stewart & Co was the first company that drilled Oil well at Digboi. Its officer Mr.Goodenough used to urge the workers "Dig boy, dig" to motivate and excite the workers. Surprising. The place later came to be known as DIGBOI.

The discovery of oil at Digboi is also coincidental. In 1882, The Assam Railway and Trading Co was extending Dibru-Sadiya railway line to Ledo. The elephants were used for haulage purpose. One engineer, Mr. WL Lake noticed that a few elephants had oil stains on their foot. retracting the footprints, he found oil seeping to the surface. Oil was discovered!!!!!!!!

Bollywood stars or Perfumes?

Who are Sharukh Khan and Zeenat Aman?

If you are answer is Bollywood stars, you are only partially correct.

A french Perfume brand Jean Atheaus has named two of its perfumes after these two stars.

When quarrel is good!!!!

The success of the global management consulting, technology consulting and technology outsourcing company "Accenture" could be partly attributed to its tussle with its parent company Andersen Worldwide Societe Cooperative (AWSC), a Swiss-based entity which managed the global offices of the accounting firm Arthur Andersen.

Accenture originated as a business and technology division of Arthur Andersen. In 1989, that division split from Arthur Andersen and began using the name Andersen Consulting. Through 1990s, there was a increased tension between Andersen Consulting and Arthur Andersen since the latter started competing with the former by establishing a new entity called Arthur Andersen Business Consulting. The Dispute came to a head in 1998 when Andersen Consulting claimed breach of contract against AWSC and Arthur Andersen. In August 2000, as a result of conclusion of International chamber of Commerce, Andersen Consulting broke its all contractual ties with AWSC and Arthur Andersen. As a part of arbitrary settlement, the Andersen Consulting was required to change its name and the entity was renamed ACCENTURE.

This quarrel helped Accenture in more ways than one. Arthur Andersen was implicated in the Enron Scandal and was forced to surrender its license to do business to Certified Public Accountants in US. This led to loss of reputation to Arthur Andersen. Since Accenture did not carry any reference to Arthur Andersen in its name now, it remained immune from the reputation loss. Quarrels are good too!!!!!!!!

Poets @ B-schools!!!!!

Do you think poets are found only in the language Post-Graduate courses????? If your answer is yes, then you are mistaken. Poets are found in B-schools as well.

The students at the B-schools who are weak in Quantitative techniques because of their humanities background are dubbed "POETS".

Hot Desking

Hot Desking is a practice whereby the desks are allocated to staff whenever required on a rotation basis because of paucity of resources and cramped space. Funny but True!!!