Indian Economy - Depreciating INR

I came across an article , providing the details about fall of INR in recent time. The illustration and explanation was excellent however outflow of FII Debt funding alone may not be the only reason towards fall in INR value. India had been a closed economy till 90's and was forced to open up the economy in early 90's due to balance of payment crisis at that point of time. In a 'open' economy the many factors contribute or triggers such fall . 

To me, the other factors which is contributes to depreciation of INR can be,

 Foreign Equity inflows (FII and  FDI) are good for open economy, not only from investment perspective it is also said generate employment. But, then at the some pint of time, there is bound to be repatriation of profit in form of dividend or other investment. So naturally there would be an outflow. No business man would like to keep the equity for ever, without appropriate returns. 

Corporate Debt: It is said debt content with major corporate has increased over the years. More importantly about 40 to 50% of debt is in foreign currency. Now with dollar appreciating, the Indian corporate have to burn more money not only in form of interest, principle but also due to depreciated INR. This would certainly increase outflow of foreign exchange in future.

Oil import: There is no respite for oil bills import expenses or rather the outgo of foreign exchange on Y-n Y basis. It has been on increase always. Just look at the number of vehicles registered in an RTO in metro’s, one could judge the increase in vehicle registered, so naturally consumption of fuel is bound to increase, unless the country has efficiently planned public transport. 

Gold Import: Amid all the efforts being made by the Government to curb gold imports, demand for the precious metal in India zoomed to a 10-year high (310 tonnes) in the three-month period ending June 30, according to the World Gold Council. Gold is very dear to Indian families and it is said to be second to China in import of precious metal. With return from Indian stock market not looking good in last few years and gold returns looking good in the last few years, the gold is also looked upon as an investment these days. However, this causes stress on foreign exchange due to import of gold. 

One may not know which factors can trigger a fall in exchange rate at any point of time in a global economy, unless there is a well planned and coordinated execution of growth oriented policies towards development of economy. Hence, is India really prepared for 'Open' Economy?

Also, at same time, fail to understand as how some of the developed countries even though have a higher deficit budget and with higher content of debt as percentage of their GDP has better currency exchange rate when compared to India?

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Petrol price reduction - May 2013

In May 2012, the petrol price was about INR 77.00 Per litre and Diesel was about INR 44.00 per litre at Chennai , a whopping difference  of about INR 30. In fact, I heard petrol car manufacturing was almost stopped due to slump in demand around same time and many were focused on buying diesel car, in spite of paying higher upfront cost of more than INR 1,00,000, even though their car usage was low.

Last year May 2012, had made some basic calculation comparing year 2008 price peak barrel price of oil, exchange rate against market petrol price and posted about the about the increased price of petrol. My observation was based on the  chart below in May 2012 (i.e INR 77 /litre) is higher or overpriced by about  INR 13 then.

A year later now, there is not much change in situation, barrel price is around USD 100 and USD exchange rate is almost same. However, the petrol price at Chennai is now dropped to INR 65 and diesel per litre is in range of INR 50, with a difference of only INR 15. This should bring some cheer to petrol car users and it could well mean, my earlier calculation on petrol (overpriced) right???!!! :-)

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Water finds it way and so do the currency

It’s a known fact, that water finds it way when there is a gradient difference between two points.
One can still store the water in dam, but for any productive work like generation of electricity or towards use in agriculture or even for industrial development one needs to release water from dam.

In a globalized economy, the currency is like water and particularly when there is a marked exchange rate difference between currencies. Almost all the developed economies have very strong currencies and these currencies had become very strong in last 2 or 3 decades. Hence, like water, strong currencies are finding its way into weaker currency country for productive work, particularly when the weaker currency country has a reasonable political stability and infrastructure. The weaker currency countries, termed as developing country naturally has a higher GDP compared to developed country.

The only difference is that water cannot be manufactured, while currency can always be printed legally by Government or a government debt ceiling increased towards retaining strong currency. Though there can be short term correction to foster economic development of developed country, in long run, the strong currency would act like water in a globalized economy.

Like water flooding low lying areas, when it finds the way. The global currency, once it find its way into weaker currency country can flood it, which lead to higher rate of inflation in the weaker or developing country.

On a lighter side, none is stronger than nature.

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Stagflation

Had seen news papers reporting stagflation of Indian economy by Moody's Analytics. First time, I was hearing the word Stagflation (off course, I am not a economist!!?!). The means, the economic growth or GDP is less or getting down, while inflation is still going strong.

 Hmm..., though not surprised, more than an year back had written a post about Indian economy 's GDP Vs Inflation compared to US and Chinese economy. In that post had mentioned that all may not be well even with higher GDP. 

 With GDP also decreasing now, reduction of interest rate could fuel inflation further. It could well be a double whammy for Indian economy.

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Oh!..Not again... Petrol price increase May 2012.

My previous post was about depreciation of INR against USD and pointed out that petroleum product prices are bound to increase if depreciation continues,
While posting, my previous post, one of the factor, which I thought would be in our favour was that, crude oil price per barrel was still hovering around 100 USD and not at its worst. At one point of time in 2008, the crude oil per barrel was around 147 USD. Hence, I thought it may take some more time before any kind of increase.

  Hmm… however was shocked and surprised that only petrol price was increased by 7.50 INR per litre. Interestingly, petrol is environmental friendly when compared to diesel.

Made an attempt to compare & compute estimated prices, by considering the international prices of barrel of crude oil in year 2008 and 2012, the actual exchange rate and inflation.

Going by my calculation, it seems like we are being over charged by about 14 Rs.

It was said the government has decentralized and do not control oil company and its prices. Hence, are we being overcharged, with profit motive?.

There could be another debate, that Indian government is looking for ways to decrease or remove the subsidy over period of time and subsidy is being reduced further now. But, then how are our neighbors like Pakistan and Srilanka are in position to provide petroleum product price at better rate compared to India and still survive !!?!!. The point to note here, is that both Pakistan and Srilankan currency (Rupee) is weeker when converted to Indian Rupee.

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Depreciating INR… Gainers & Losers

With Indian rupee depreciating, it grim picture painted out on our economy. The instability is attributed to many factors including Euro crisis. Since 2006 economies around world is in turmoil, if one country attempts to come out, it impacts directly or indirectly the other country. It started of with US mortgage crisis in 2006/07, which was followed by Lehman brothers and other financial institution collapse in 2008, then came crash of stock markets, Euro crisis which was followed by appreciation of gold. The news coming out these days is quite conflicting, on one month one would see economic recovery being projected and the following month, one would see depressing news about economy.  
 What does rupee depreciation mean to Indian economy and who could be the probable Gainers or Losers?.

The Gainers: 

Exporters, particularly who are using the resource and raw materials by paying them in INR and getting return in USD. Companies earning in USD and reporting and exchanging to INR would stand to gain 

Indian Origin people sending foreign currency to India and converting into INR and making permanent investment in India. The reason being they would be getting more INR for lesser amount of USD. A 100 USD with exchange rate of 56.5 will fetch more INR compared to 100 USD with exchange rate of 40 INR.

 The Losers: 

Importers, more particularly India Government importing large volume of oil are bound to suffer. Normally such increase in Oil cost is passed on to the customer and naturally people of India would have to burn the money more. This would eventually continue spiraling of inflation, which is already high. 

Foreign equity investors who are looking for gains might lose, if attempt to pull out money. They now have to think or hold it for some time. The reason being, assume a foreign investor had invested in company ‘X’ in India when exchange rate was INR 45.00 (1 USD) and if he had invested USD 100, would exchanged to INR 4500 and invested the same. If there is a lock in period of 3 years and due to company profits the amount becomes INR 5700 in 3 years time, which is around 10% in ROI per year. However if the Foreign equity investor attempts to repatriate the investment back, due to prevailing exchange rate of 57 INR per dollar, the FI would get only 100 USD, in spite of money being invested for 3 years. 

In short term for India, it’s good that money does not flow out of India remain within India, however, in long run if INR is volatile and continue to depreciate the foreign investor would lose interest in Indian market.

Hence naturally, there is more to lose as for as India is concerned and lets hope INR bounces back in exchange rate.

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Why rent is better deal than mortgage?.

Recently,read this article on "mortgage loan" and felt worth sharing.

 Though the article had been written with US market in mind, the points mentioned would very well be applicable for Indians as well. On top of this, Indian system is suppose to have additional drawbacks,

 Indian interest rate is almost twice when compared to US, which mean higher out go of cash towards interest component in earlier years. Another point is that, one who invest money in mortgage, would have invested all his earning and he has to keep paying the interest component for the first few years. After few years, if one is able to make saving or his income increases and decides to pay back or part pay the home loan, its going to only reduce the principal amount for which the interest component is already paid during earlier years of loan.

 Hence, the real benefit is for the mortgage company or financier.

Finally, the cost of real estate in India seems to much higher than developed economies. An article related to " India property bubble".

Is worth to think through and decide before investing. 

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Good bye, 2011... Welcome 2012.

As 2011 come to a close and a new year begins, wishing you all a very happy and prosperous new year!

Looking back at 2011 from economic perspective, we have seen reports, that the world had not come out fully from recession and some even predicting a double dip recession. 'Gold' has out shined all other investments in the year. From about 1900 INR (22 carat) towards close of 2010, it had reached to about 2600 INR, a whopping 40% return on investment.

Had predicted and written in my blog in Sep 2010, that gold will continue to raise and the same happened. However, along with gold, the USD appreciated against INR towards close of 2010, the likely reason provided by experts is the slowing down of Indian economy in the last quarter of 2011. In spite of repeated raise in the interest rate by RBI, the inflation refused to come down, which can also be the possible cause of slowdown in the economy.

While developed countries real estate sector woes continued, I would say, India real estate market was able to sustain in 2011. However, I read an article about the challenges in Indian real estate sector and hence one need to see, which way it would go in 2012.

Indian automotive sector which had  been reporting increase in sales even during 2008-09 recession period had for the first time  reported a dip in the sales towards in last couple of months of 2011. So, would this be the indicator for Indian economy in 2012?.

Lastly, the Indian IT sector had been able to sustain its growth, though it did not have an exponential growth. The operating model might see a change in coming years. To me, the word onsite, offshore or near shore might disappear in few years time and the focus would be towards ' Cloud' computing.

Well, time is the answer..... For the moment lets be optimistic, welcome year 2012, which is my 4th year in blogging as well ....

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Cascading effect of Debt.

In the next few weeks, there are two issues watched closely.

i. Raising of debt ceiling by US.
ii. Bail out package for Greece.

About two years back (2008-09), financial institution and banks were in trouble, which required to bail out and so was the Greece. Money had been pumped in to save them, but still money or 'wants' (you may call it Debt is not fading) has kept growing.

I would say 'Debt' is spending future money for present, whether it's for government or as an individual who seek Debt. One the factors which influence 'inflation' is Debt. This means 'Debt' allows free flow money in the hands of government or an individual, who would naturally look at way on investment for better returns or asset creation, so that one can pay back the debt at later point of time.

For a moment, lets compare early days, whether its government, financial institution or individual the debt content was well in control or meaning people showed reluctance or thought twice before taking the debt route of financing. This made asset prices look more realistic in earlier days, without causing bubble every now and then.

Naturally, it looks like the usage of 'future money' or debt is creating financial tsunami every now and then as well.

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GDP Vs Debt... How does one classify a country rich?

If anyone is asked with a question as which are the richest countries, the answer would normally be any developed country like US, UK, Japan, Netherlands etc. Even, I was thinking in the same way till, I hit upon some articles which showed the public and external debt content in some of the developed countries.

Interesting the top developed countries seems to have high content of public and external dept when compared to their GDP.

List of countries with high Public Debt

List of countries with high External Debt.

So as per wikipedia report, interestingly Libya and Algeria have low external debt whereas external debt are highest with US and UK.

If external debt is high, then how come the exchange rate of these country currency is strong when compared to other countries whose external debt is very low meaning well under control?.

Would be quite happy to receive an explanation from whoever is knowledgeable on world economy and currency exchange rates.

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GDP Vs Inflation.

Whenever, one talks about country's economy, the two parameters GDP and inflation plays important role in determining country's economy. Before getting into the details, lets look at brief definition of GDP and Inflation.

GDP: The gross domestic product (GDP) is the amount of goods and services produced in a year, in a country. It is the market value of all final goods and services made within the borders of a country in a year. It is often positively correlated with the standard of living, alternative measures to GDP for that purpose.

Inflation: The consumer price index (CPI) calculates the change in consumer price of a set of goods and services such as food, clothing, fuel, housing, medical, transport, education etc.

I believe, any country is considered to be in growth path, if year on year GDP% growth is greater than inflation % otherwise inflation is bound to eat up into the growth. Towards, comparison of GDP & inflation parameter, I have taken 3 countries. US which was most affected by economic downturn and China & India, which is claimed to be least affected economic downturn.

USD GDP:

US GDP annual rate for 2010 is 2.6%

US inflation rate :

US inflation rate for 2010 is 1.1%

This means, GDP growth is much higher than inflation which is a positive sign for US towards growth. As per the graph, it was only for few months in the year 2009, growth was around -6% and inflation around -2%, which mean inflation was higher than GDP, this period could well be termed at the worst period in US economy due to recession.

Now let's look at China's GDP and Inflation

China's GDP:

China's GDP growth percentage is around 10% for year 2010.

China's Inflation:

China inflation rate was in range of 3 to 5%. However, comparatively GDP rate of 9% is higher when compared to inflation, which I believe is a positive sign.

Moving on, let compare India's GDP Vs inflation.



India's GDP:



India's GDP rate is for 2010 is around 9%.



India's Inflation
India's inflation rate is 9.7% around October 2010. As per an article in a leading daily, the food inflation has said gone beyond 14% in the later part of 2010. Interestingly, all through 2008 to 2010, the inflation has always scored higher percentage when compared to GDP percentage. If this is true, I do not understand on what basis, India is claiming to have withered recession with minimum impact ?

Again, with inflation galloping in India, are we moving towards hyper inflation ?, on which I had written an article earlier.

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Rebalancing Global Economy.

While browsing through some of the economy blogs, I hit upon this link, which details about rebalancing global economy

The above link also offer free ebook and hence, nice to go through it when you find time. Some interesting points I found out, while reading it...

The US, with a population of around 300 million people, less than 5% of the world’s population –up until the crisis-was consuming more than20% of the world’s output. China, with about 20% of the world’s population was consuming somewhere between 2-3%.

US currency has to devalue against most of the G-20 currencies, except Australia and South Africa OR G20 currencies have to appreciate against USD. Highest appreciation required from China, Indonesia, Korea, Japan, India currencies against USD.

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Currency Exchange wars ! ! ! !?

As per a recent article in the leading news paper, "Global imbalance" is the cause for economic crisis. The US is running huge trade deficits whereas country such as China due to its vast exports across the globe had generated trade surplus.

The surplus money had found its way into US and since the interest rate was low, it inflated the real estate prices, shares and asset and finally the bubble burst. This rather, I would say as one dimension of economic problem. How was China able to achieve this surplus? Is it because China being technologically superior compared to other nation like US?

I believe one of the root causes of the problem is the currency exchange rate. There are accusations that China is undervaluing its currency to increase its export and remain competitive, on other hand US Dollars, Euro and Japanese Yen are strong compared to Chinese and Indian currencies, but unfortunately the job losses seems to be maximum at in the countries where currencies are stronger. Also, the economy is still in bad shape in developed countries.



Ideally, if a country’s economy is in bad shape, then, I believe the currency exchange rate should depreciate. This, I believe is logical, any kind of asset like real estate, share market takes a beating when a country faces economic crisis. If the currency is strong, this is bound the multiply the problem, as import will look cheap compared to domestic production. At same time, can US think about depreciating its USD against other world currencies? May be not, since USD is considered as Global reserve currency in the world, the moment there are indication that US would devalue its currency, it might result in a catastrophe, particularly with most of the countries across the world still holding USD as their foreign exchange reserve, they might end up selling USD for other safer investments. Euro and Yen is also considered as foreign reserve currency though at a distant second. This is one of the reasons, as why developed countries might not be in position to depreciate its currencies.



Why does import look attractive when currency is strong? With 1$, one could get much higher value commodity/service in countries like India , China compared to what the money can buy in US, UK or Japan, naturally any business man would like a source his goods or service from that part of the world.

Even in one’s house, if one look around you would only see international brand electronic products, hence with world becoming flat and small , due to faster information exchange , easier air travel , GATT/WTO agreements any commodity particularly consumer electronics, which has price tag above $100 and less than 10 kgs in weight (call it 100/10 rule? - had earlier written in my blog on similar lines) has to mass produced and entire world is the market and if the manufacturer concentrate a particular region, then the manufacturer could become extinct or acquired due to competition. Hence, product manufacturer has to optimize all categories of cost; this would naturally lead to locating manufacturing plants and jobs in low cost countries.

In my opinion, when there are job losses and the economy is showing shunted growth, and if the country currency is strong it might end up in creating multiple problems.

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USD vs GOLD - Who is winning?

The last two decades, the heavy weight battle is gaining momentum, the trend shows its between USD Vs Gold, particularly when compared with India currency.

The early ninties, India had balance of payment crisis, which made them to pleadge gold to IMF for a loan. I still remember, the exchange rate of US Dollars was in the range of INR 20 per dollar and we used to fill motorcycle tank at Rs 20 per litre and 1 gram of 22 carat gold was in the range of 200~250 INR. The early nineties was the time, when talk of globalization started and India started opening up its market. The telecommunication started picking up, the snail mail OR postal mail gave way to Fax mode of instant communication.


If one looks at the chart, the gold prices in US Dollars from 1985 till about 2002, it was relatively stable. It had been in the range of 200 US Dollars to 400 US Dollars per ounce (10 to 14 USD per gram). This had been the period when US Dollars was considered precious, every country wanted to boast its foriegn reserve currency in USD and interestingly this also made US Dollars to claim high which kept gold rate in check. In the period of 1990 to year 2002, USD had appreciated almost 2.5 times, from about 18 INR in 1990 to about 48 INR per dollar in 2002.


Following period of 2002 to till date US Dollars has been losing stream and more or less a cooling off period for USD. Again, this is when the other heavy weight commodity like gold started gathering stream and winning the price war against USD. Its was about 10~14 USD per gram even in 2000, now its has claimed to be at all time high of about 40~42 US dollars per gram.




For a common man in India, he does not invest in US Dollars, so he is not really bothered about US Dollars flactuation but he does invest in gold and real estate. Question in any Indian mind is will gold prices reduce or stabilize in near future? looking at the trend it does not look so, with the world reserve currency - US Dollars seems to have lost out the race. Not only individuals, but even country governments consider gold as the safe bet, now. So till a time, there is an alternative to gold, where money can be parked as reserve currency, the "Gold" should be winning, the price war.

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Alternative Reserve Currency

Recently, read an article about Global reserve system - A Asian perspective by Asian Development bank



This seems to be in line with my thoughts, as why a weaker currency countries will continue to grow as compared to stronger currency like USD or Euro.

In the article, according to Barry Eichengreen, after World War II, when the United States accounted for the majority of the industrial production of the non-Soviet world, it made sense that the dollar was the principal unit in which exporters and importers invoiced and settled their trade, in which international loans were extended, and in which central banks held their reserves. But this situation makes less sense today when the US accounts for only some 20 per cent of the combined output of countries engaged in international transactions. Because habits die hard, the dollar continues to play a disproportionately important role. But simply because this is true today does not mean that it will be true tomorrow. Countries that trade with and borrow from the euro area will increasingly seek to hold euros as reserves. Countries that trade with and borrow from the People’s Republic of China will similarly seek to hold renminbi, if not today then in the not-too-distant future.

Somewhere, I read 18th century belonged to France/Germany, 19th to Great Britain, 20th to USA and 21st to Asia. Well, if you consider BRIC (Brazil, Russia, India & China) only Brazil, is away from others geographically. If RIC (Russia, India & China) can form a trilateral ally, then undoubtedly 21st century can belong to Asia.

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Game called 'Globalization' - Part2

This post is in continuation of my earlier post, If you have not read my earlier post you can read the same here

Indian Economy was in a pretty bad shape in early 90's, many public sector promoted post independence turned loss making one . This is primarily because since India was a closed economy, the companies had not bother much to improve them self on the technology front and were more complacent. I still remember those days, when people use to wait for 7 years after booking a Bajaj scooter or pay a premium to get through alternative means, get a land line was even more worse, the wait was endless. Well, "it was owner pride, neighbours envy", whenever a home had Bajaj scooter, TV and phone. Since it was considered as a luxury, as pay scales was almost 1/10 of what people used to get these days.

In early 90's , Indian Government was facing the balance of payment crisis and with high debt in place, it had to pledge gold to IMF towards loans, this was been the starting point towards globalization. Terms were put in place towards Economic reforms, which called for liberalization of foreign companies to make investment and operate in India to facilitate their operation import custom duty were reduced across the board starting in 90's. This paved the way to foreign companies to start operation in India. Indian companies were either acquired and went out of operation, there were more companies which went out of operation rather been acquired. There were lot more pain particularly when companies go out of operation as the promoter lost their money, employee lost their job and Bank started accumulating the non performing assets. So I would say 90's was the pain period for India, though there was growth, in some form or other.

Apart from technology, it was money power which made Indian made companies to vanish. The cost of capital in developed economy was much cheaper as compared to India, the bank interest rates where in the range of 18% to 21%, whereas foreign grown companies can get this capital with interest rate of less than 5 %. Naturally, very few Indian companies associated with strong capital and a good product mix where able to compete with foreign operated companies. The early nineties was a transition period and off course India did grow with foreign investment brought inside India. As India progressed into the later part of 90's, US were looking for severe shortage of people towards the computer hence came the H1 visa and this was followed by outsourcing activity to Offshore as cost cutting measure, so called optimization of cost.

At the same time, if you look at the high end FMCG market we had multi national companies operating, Indian companies vanished and so was the slogan 'BE INDIAN, BUY INDIAN'. From 2005, onwards, foreign invested companies found operating in India and elsewhere in the developing economies more competitive as compared to their operation in developed countries. Interestingly, there were statement from developed economies like 'We want to create jobs in Buffalo, rather than Bangalore', we need to see whether this really takes off, as the developed economies are under severe stress now.

Well, the world is getting flatter and small, with telecommunication facilities, faster transport it does not matter whether goods and services are offered from a developed nation or from under developed nation. As long as prices are competitive and the consumer is in position to get comparable quality and features, they would naturally opt for the best. Ultimately, Darwin theory holds good " Survival of the fittest".

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Game called 'Globalization' - Part 1

The other day, I watching a Business TV program with group of elite people and one of the comments was that, "though people feared about globalization right from start in 90's it has done more good to India and we continue to grow in the GDP". I am trying to find answer for this, Is it true that globalization brought more benefit to India ? was it true the transition to globalization smooth with any pain ?.

My thoughts went back to 80's & 90's, hmm... brings back the nostalgic memories of those days...

As a school going kid I still remember slogan in back of the city buses or in public transport vehicles, which were normally, "BE INDIAN, BUY INDIAN" , well it looks like this slogan was the first victim of globalization in late 80' or early 90's. I don't remember seeing this slogan in from early 90's onward.

I tried to recollect the consumer brand in the Indian house hold in 80's and 90's, I could remember following brands .

Car - Ambassador, Primier Padmini.
Two wheelers - Bajaj, Lambretta, Jawa, Enfield.
Fridge - Allwyn, Kelvinator.
TV - Solidaire, BPL, Dynora, Onida, Videocon(still present).
Soft drinks - Gold spot, Limca (still present).
Phone - ITI.

It looked like, we were truly standing by the slogan of those days "BE INDIAN, BUY INDIAN", as they were mainly Indian promoted companies, so what happened to those companies which manufactured these products in the last one or two decade?

I do understand those days Indian economy was a closed economy the import tariff was very huge and hence the Indian consumer had to contend with what was offered by the manufacturers. Since my father was into business, I still remember the difficulties he used to face if he had to start an industry/business or if he had to import any component from abroad.

Globalization were unheard till early 90's, India was more contended with what it produced. So when did the game of globalization start?.

Well, will continue it in my next edition :-)...

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We are not Greece OR US.

There seems to be no respite from Economic woes the world is facing these days.

US economic downturn was followed by Bankruptcy filling by quite a few corporates then came Dubai international corporate crisis and now Greece seems to have got into the economic mess. Its pointed out huge Budget deficit and maturity payment of Government bonds seems to be the main issue.

Can a similar situation happen to Indian Economy?. As there are lot of similarities between India and Greece has higher budget deficit (approx 7% of GDP), external debt, large scale tax evasion so the common question will be whether India would got into a similar situation. Most likely not,

Greece is part of European union and hence it does not have its currency and has only Euro, so naturally, it will not be in position to devalue its currency on its own will. The European Union and IMF and in the process of bailing out Greece with funding arrangement, but not without imposing certain conditions.

As Greece situation is similar to other European countries like Spain, France, Ireland or Portugal can the European Union depreciate the Euro? It may be a solution to depreciate Euro, but Euro is considered as reserve currency and however far behind USD as reserve currency and so if it tries to depreciate it might even lead to a collapse, if the Government holding Euro tries to en cash it to a different currency.

Similarly, for US though it has its own currency, it difficult for it to think about depreciating its value in cause of a crisis, this is due to the fact 70% of the reserve currency is in form of USD. Hence, a slightest indication might result in problem for USD exchange rate.

Considering all, the options looks to be limited, Greece and European countries has work towards not only bringing down its Fiscal deficit but also look at the ways to improve its balance of trade in the future. This mean Greece has to cut government expenditure including imposing additional taxation.

The same situation may not arise for India , as India has it own currency, it can devalue as needed, on top of it INR is never considered as Reserve currently. Hence, India can print money and devalue on its own. More importantly more than just export, India remittance by expatriate is a quite significant amount compared to any other country with only China being better. Hmmm.... benefit of brain drain !!!?!....

Having a stronger currency has its own peril...these days weaker currency seems to suit the world better this has been the case of India, China and other developing countries.

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Is India inching towards hyperinflation.??*!!?....

I was just browsing the web today, got across an article which was mentioning about inflation of 14 to 15% in Jan 2010.


Couple of years before, there use to be regular report in the newspaper of inflation week on week basis and inflation were in range of 5~8%. Somehow, this is not being reported these days.

Last two years, inflation has been on the raise again, commodities and real estate have been on raise again, but clearly getting away from the reach of normal decent earning of a person.

The main cause of these inflation is a massive and rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services. This could result in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money. The inflation can be considered as a hyperinflation once the inflation gets beyond 20%.

I believe such inflation could also cause, hoarding of commodities as people hoarding commodities get higher return in a shorter time without any additional effort, disparity in distribution of wealth across the general public, with rich becoming more rich and poor becoming more poor.

India has claimed to have been least affected by recession, however the side effects pumping more money into the system to overcome the recession seems to have triggered inflation, so unless Indian government brings in better control mechanism, we might be having challenges in the near future.

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US - India Partnership: It Matters

When I came to know about a the blog contest on "US - India Partnership", more than just participation, I thought its need of the hour to foster a strong relation, otherwise I believe its a missed opportunity for ever. Frankly, this partnership should have emerged long back, but didn't.

If one looks at history about couple of decade back or prior 1990's relationship where not so great or harmonious as they should have been, they are so many reason to it like snail paced communication erstwhile USSR was a superpower and considered closer ally to India, politically and distance wise.

Radical changes started happening the Indian economy from early 90's,, when India opened its doors and made liberation by doing away the 'licence Raj' and making it easier to start or operate business. Almost at the same, time information technology was growing leaps and bounds. Since information technology required manpower, US trusted largest Indian skilled force due to its maths, science skill which was required for programming and the English speaking skills, this was just a beginning, but now India has made its mark clearly in the world economy and further there are prediction that India would become a "Super Power" in the near future and there are vision dreams ignited by former President and eminent Scientist Dr. A.B.J Abdul Kalam to take India as a developed nation by 2020.

Economy, Trade and investment:
Its a known fact that US is a developed economy with huge market potential due to sheer size on the other hand India is an emerging economy with huge market potential due to size of population, and continuing to have economic growth at the rate of 6%.

US had all along inclined towards capitalism, however last couple of years has not be so good for US and other developed economies, sub prime crisis followed by few companies filling bankruptcy petitions triggered economic crisis which had resulted in job losses and shunted growth of US economy. US went on to identify the problem and announced a TARP (Troubled asset relief program) funding to the tune of 700 Billion US$ in the year 2008 to bail out particularly financial companies. With such a magnitude of money pumped into the system, its natural for any country, not to let its citizen suffer or the money to move out of US shore and hence US seems to be inclined towards a protectionist mode and had its policy and procedure in place to stem the job loses. Job loses are painful, but at same time US should also look at the , business viability of US enterprises, with the current prevailing market condition even mid sized technology company with more than thousands of employees cannot just operate in isolation at US alone, to make it viable, it it has to try out various options, due to low cost skilled workforce, one of the option is to have some work based out of India or low cost countries. If these US business tries to run operate within US only, it could very well turn out to be economically not viable.

Also, if one looks at the top technology companies operating out of US, apart from US their next largest operation would most likely be in India, this bring out the fact, partnership has clearly matured. This shows, the business acumen of US business and this I believe is mutually beneficial for India in the form of employment and for Indian economy as well. Moreover, if a business is looking at 24 hours of operation, than having operation in India is beneficial since when US sleeps, India is at work.

There are prediction that next round of innovation like Yahoo, Google is bound to happen from BRIC (Brazil, Russia, India & China) countries. US and India can work together in bring out the innovations, US and India are the largest democratic countries and off course India has the largest English speaking country among the BRIC countries. The Indian skills, attitude to work is tried and without hesitation has been proved the best, hence a combined effort between US & India can go a long way to produce innovative products in the technology front in this ever changing global market front. Such collaborative effort would be mutually beneficial.

Due to streamlining of the procedures and substantial liberalization has been done since 1990, there are substantial investment in US from India as well. India and the US have do have multi faceted relations ranging from political, strategic to economic and commercial. USA is the largest investing country in India in terms of approvals, actual inflows, and portfolio investment

FDI investment in India from US have been on the increase as Indian embassy site and so is the India investment in US according to same site . According to bloombergutv website , India is emerging as the second fastest investor in US. Further, it has been reported that, Ohio Governor Ted Strickland , had provided with $19 million in tax credit to TCS for expanding its operations in the Cincinnati suburb of Milford. This will allow the Indian tech company to ramp up its head count from 300 to 1000 and majority of them expected to be people from US.

The India-US partnership, has vast potential for expansion of cooperation in key areas ranging from agriculture, education, infrastructure development, energy to space, nuclear & defence, and Medical 'outsourcing'. By Medical 'outsourcing' I mean, with Obama administration, coming out with new medical bill, which will cover insurance for more people, probably US can look at the option of utilizing Indian medical facility, which can be cost effective.

Fight against terrorism:
Recently, I read an article in news site (courtesy Rediff) which quoted Timothy J Roemer, United States Ambassador to India that, Terrorism, the common enemy of India, US.

I also believe this is where India and US has to work in tandem if they want to achieve success against war of terrorism.

US had the first impact of terrorism by 2001 (9/11), whereas India has been target of terrorism for the last two decade and to me it seems the cooperation on war of terrorism is more at the talks level between two countries and not able see a real collaboration in tackling terrorism. There is no iota of doubt in any one mind about US determination in fighting terrorism, but it need to go all out to fix it, its something like fixing number of holes in drain tank. There is no point fixing some of the hole in the tank and leaving the other holes of drain tank open and trying out a different strategy in fixing the hole, it only going to prolong the leak and if strategy does not work the leak is going to continue instead get into the root cause and fix it.

Roemer, further added that, the bilateral strategic partnership between the two countries was the strongest ever and they were working at an 'unprecedented level' on counter terrorism and regional security along with various other issues.

To me, if India had got the required support from US, terrorism would have almost been wiped out from India by now.

Friendship: Some of the events in the post did boast the outlooks of friendship between two countries, it ideally started with Clinton period, in year 2000 he was on a 5 day state visit to India, further push was given by Bush administration, which was followed up by visit of Secretary of state Mrs Hillary Clinton in year 2009. Privately, Bill Gates through his foundation is focusing on betterment of AIDS Victims.

Its time to put words into actions one of the suggestion towards fostering relationship, is to form a high power committee comprising of eminent people drawn from business, social welfare, global economics, defence etc. The high power committee should periodically meet to discuss and plan for the future relation and cooperation between two countries and make unified recommendation to US-Indian leaders from time to time, to act upon.

The world's two largest democracies can work together on global issues like climate change and in facilitating a global economic recovery and also apart from countering terrorism, building an cohesive atmosphere for cooperation in the Asia-Pacific and establishing a stable balance of power in Asia.

'Partnership' has a slightly different meaning when compared to relationship or friendship, its an association of two parties which has mutually benefits to each other. In any partnership the expectation may vary and for the partnership to work both the parties have to discuss and come to an understanding on all subjects of interest for both countries. Yes, if this partnership can blossom well, it would not only benefit both the countries but also the other countries as well.

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