Sunday, 26 April 2009

Economic recession - Longish this time!!!

All indications are that the current global economic crisis is the worst since the Great Depression of the 1930s, in terms of geographical spread, intensity and duration. No country is spared, although some countries will feel the heat more than some others. Open economies with small domestic markets, in particular, seem most vulnerable.Growth forecasts for the world economy this year range between 0.5% and 0.9%. Many individual country GDP (gross domestic product) forecasts are negative. Economies already slipping into recession include the United States, Britain, Euro-zone members, Russia, Japan, South Korea, Taiwan, New Zealand and Singapore.One cannot rule out the possibility of these dismal numbers being revised further down before long, as the crisis is still unfolding. The worst is yet to come. Worse still, there are no quick fixes for the global slump, which means that this crisis will stick around stubbornly longer than most.

One explanation for this frightening prognosis is that this crisis does not represent a purely cyclical phenomenon of the usual boom-bust roller coaster variety, where ups and downs are dramatically swift. This crisis has been brewing for a long time unnoticed by analysts who were focused on short-term fluctuations.Serious fault lines have developed in the world economy over the years, with severe imbalances of sorts between savings and investment, production and consumption, revenue and expenditure, as manifested in widening current account imbalances and growing budget deficits, not to mention unstable exchange rates, interest rates, and asset prices.This crisis is a combination of both cyclical and structural problems. The latter require painful microsurgery, including major institutional reforms, which take time, quite unlike macroeconomic countercyclical interventions. What’s more, studies have shown that economic crises preceded by financial crises tend to drag on and on. The task for policymakers in such tough circumstances is daunting. Even the relatively easier macroeconomic policy interventions are not going to be that easy, as policymakers have fewer options.The three tools used during economic meltdowns are monetary, fiscal and exchange rate instruments to stimulate a faltering economy.

For the monetary policy, the central bank reduces interest rates and relaxes statutory reserve requirements so that banks can lend more, resulting in increased consumer spending and investment expenditure, augmenting economic growth.

Fiscally, the treasury reduces taxes and increases public expenditure at the risk of budget deficits, not only to increase the disposable income of the people so that they will spend more, but also to pump-prime the economy through increased government expenditure that will take up the private sector slack.

An appropriate foreign exchange rate policy in such circumstances will be to opt for a weaker currency, as this renders exports competitive and divert domestic demand away from imports to local substitutes.

Unfortunately, the reality on the ground now in most countries, especially the US, is that all three instruments are somewhat blunt. Interest rates are already close to zero in Japan and the US, while in many other countries, they hover at historically low levels.Interest-rate cuts will work only if rates are high to begin with and the cuts are substantial. Given near-zero interest rates, further rate cuts can only be marginal, with little impact, for nominal interest rates cannot fall below zero.In the US, real interest rates are negative, given the higher rate of inflation relative to the nominal interest rate. In a recession, inflation tends to give way to deflation, with falling prices, in which case the interest rate will rise in real terms by becoming less negative than previously, thereby raising the cost of borrowing.

In other words, the result will be the opposite of what monetary easing is supposed to accomplish.The picture is quite similar for fiscal instruments as well. Many countries, including Japan, India, Malaysia and the US, have been running large budget deficits even in good times year after year. Increased budget deficit through tax reductions and/or expenditure hikes, in such cases, may only have limited impact due to fiscal fatigue. A budget deficit of, say, 5% of GDP will have significant impact in an economy with a balanced budget, but not for an economy with a deficit of four per cent of GDP.Where monetary and fiscal measures do not work well, the foreign exchange rate mechanism can help if there are no constraints on exchange rate changes. Thus, an exchange rate devaluation or depreciation will increase demand for a country’s products at home and abroad by making exports cheaper and imports dearer.In theory, a country’s currency will depreciate in the wake of an economic slump, but this is not the case with the US dollar, which has been strengthening in recent times. The dollar is able to stay strong, despite US economic woes, thanks mainly to massive capital inflows into the country, as the US continues to borrow, with others wanting to keep the dollar strong so that they can continue to export to the US and at the same time protect their reserves from a possible collapse of the greenback.No way can the US economy recover rapidly so long as its currency remains unrealistically strong. The dollar will have to depreciate significantly for the US to produce more for exports and to divert its insatiable demand towards American products.Thus, exchange-rate corrections are needed, not only to reduce the US current account deficits but also to stimulate domestic production for both external and internal consumption. This is unlikely to happen anytime soon, however, given the global addiction to the greenback, and hence the failure of the exchange rate instrument.

With all three major policy tools- monetary, fiscal and exchange rates-under heavy sedation, the chances of a quick recovery are quite slim. The writing on the wall suggests the crisis will stick around for at least two years, if not longer.

Monday, 6 April 2009

How China sees the world!!!

And how the world should see China

IT IS an ill wind that blows no one any good. For many in China even the buffeting by the gale that has hit the global economy has a bracing message. The rise of China over the past three decades has been astonishing. But it has lacked the one feature it needed fully to satisfy the ultranationalist fringe: an accompanying decline of the West. Now capitalism is in a funk in its heartlands. Europe and Japan, embroiled in the deepest post-war recession, are barely worth consideration as rivals. America, the superpower, has passed its peak. Although in public China’s leaders eschew triumphalism, there is a sense in Beijing that the reassertion of the Middle Kingdom’s global ascendancy is at hand.

China’s prime minister, Wen Jiabao, no longer sticks to the script that China is a humble player in world affairs that wants to focus on its own economic development. He talks of China as a “great power” and worries about America’s profligate spending endangering his $1 trillion nest egg there. Incautious remarks by the new American treasury secretary about China manipulating its currency were dismissed as ridiculous; a duly penitent Hillary Clinton was welcomed in Beijing, but as an equal. This month saw an apparent attempt to engineer a low-level naval confrontation with an American spy ship in the South China Sea. Yet at least the Americans get noticed. Europe, that speck on the horizon, is ignored: an EU summit was cancelled and France is still blacklisted because Nicolas Sarkozy dared to meet the Dalai Lama.

Already a big idea has spread far beyond China: that geopolitics is now a bipolar affair, with America and China the only two that matter. Thus in London next month the real business will not be the G20 meeting but the “G2” summit between Presidents Barack Obama and Hu Jintao. This not only worries the Europeans, who, having got rid of George Bush’s unipolar politics, have no wish to see it replaced by a Pacific duopoly, and the Japanese, who have long been paranoid about their rivals in Asia. It also seems to be having an effect in Washington, where Congress’s fascination with America’s nearest rival risks acquiring a protectionist edge.

Reds under the bed

Before panic spreads, it is worth noting that China’s new assertiveness reflects weakness as well as strength. This remains a poor country facing, in Mr Wen’s words, its most difficult year of the new century. The latest wild guess at how many jobs have already been lost—20m—hints at the scale of the problem. The World Bank has cut its forecast for China’s growth this year to 6.5%. That is robust compared with almost anywhere else, but to many Chinese, used to double-digit rates, it will feel like a recession. Already there are tens of thousands of protests each year: from those robbed of their land for development; from laid-off workers; from those suffering the side-effects of environmental despoliation. Even if China magically achieves its official 8% target, the grievances will worsen.

Far from oozing self-confidence, China is witnessing a fierce debate both about its economic system and the sort of great power it wants to be—and it is a debate the government does not like. This year the regime curtailed even the perfunctory annual meeting of its parliament, the National People’s Congress (NPC), preferring to confine discussion to back-rooms and obscure internet forums. Liberals calling for greater openness are being dealt with in the time-honoured repressive fashion. But China’s leaders also face rumblings of discontent from leftist nationalists, who see the downturn as a chance to halt market-oriented reforms at home, and for China to assert itself more stridently abroad. An angry China can veer into xenophobia, but not all the nationalist left’s causes are so dangerous: one is for the better public services and social-safety net the country sorely needs.

So China is in a more precarious situation than many Westerners think. The world is not bipolar and may never become so. The EU, for all its faults, is the world’s biggest economy. India’s population will overtake China’s. But that does not obscure the fact that China’s relative power is plainly growing—and both the West and China itself need to adjust to this.

For Mr Obama, this means pulling off a difficult balancing act. In the longer term, if he has not managed to seduce China (and for that matter India and Brazil) more firmly into the liberal multilateral system by the time he leaves office, then historians may judge him a failure. In the short term he needs to hold China to its promises and to scold it for its lapses: Mrs Clinton should have taken it to task over Tibet and human rights when she was there. The Bush administration made much of the idea of welcoming China as a “responsible stakeholder” in the international system. The G20 is a chance to give China a bigger stake in global decision-making than was available in the small clubs of the G7 and G8. But it is also a chance for China to show it can exercise its new influence responsibly.

The bill for the great Chinese takeaway

China’s record as a citizen of the world is strikingly threadbare. On a host of issues from Iran to Sudan, it has used its main geopolitical asset, its permanent seat on the United Nations Security Council, to obstruct progress, hiding behind the excuse that it does not want to intervene in other countries’ affairs. That, sadly, will take time to change. But on the more immediate issue at hand, the world economy, there is room for action.

Over the past quarter-century no country has gained more from globalisation than China. Hundreds of millions of its people have been dragged out of subsistence into the middle class. China has been a grumpy taker in this process. It helped derail the latest round of world trade talks. The G20 meeting offers it a chance to show a change of heart. In particular, it is being asked to bolster the IMF’s resources so that the fund can rescue crisis-hit countries in places like eastern Europe. Some in Beijing would prefer to ignore the IMF, since it might help ex-communist countries that have developed “an anti-China mentality”. Rising above such cavilling and paying up would be a small step in itself. But it would be a sign that the Middle Kingdom has understood what it is to be a great power.

From The Economist print edition

Sunday, 5 April 2009

AIRCEL: Another "Big Boy" in the making!

I have been pushed to ponder again and again of the company with long ads aired on television with Dhoni trying to sell the features of the service provider. The ad isnt impressive, though the desperation of the company to get accepted by masses is very much visible.
So, is another "Big Boy" in the telecom industry in the making???


The Aircel Group is a joint venture between Maxis Communications Berhad of Malaysia and Apollo Hospital Enterprise Ltd of India, with Maxis Communications holding a majority stake of 74%.

Aircel commenced operations in 1999 and became the leading mobile operator in Tamil Nadu within 18 months. In December 2003, it launched commercially in Chennai and quickly established itself as a market leader – a position it has held since.

The company has now stepped out of its comfort zone and into the big league by aiming to make itself a national player.

I think the company has got its initial foot right. It needs to be aggressive in marketing. It has to provide better connectivity and services in order to come anywhere close to the likes of Airtel, Reliance and Idea. If the company is able to add subscribers month on month at a health rate, it might attract lot of investors putting their confidence.

With Dhoni as brand ambassador, company has been able to make the brand heard. Now, what would be worth watching is does the brand get recognised and accepted by the masses.

11 digit mobile number for you!

The Indian Telecom department, in 2003, had planned for 10 digit mobile numbering that would last for 30 years, but given the meteoric rise in the number of mobile subscribers, the quota seems to be over within 5 years. The growth in mobile subscribers has been nearly 100% year on year reaching 250 million by the end of last month.

The tele-density in the country is more than 25 per cent now, with the average monthly mobile growth at over 8 million. The government has set a target of 500 million phone subscribers by the year 2010.

To accommodate this growth, the DoT plans to introduce an additional prefix of 9 to every mobile number taking it to 11 digits. So, `99’ will be the first two digits in every mobile number, in the 11-digit regime.
TEC (Telecom Engineering Centre) has recommended a timeframe of six to nine months, for converting the existing 10-digit mobile numbers to the 11-digit format. The shift to 11-digit number will apply to all mobile users-GSM (global systems for mobile communications) and CDMA (code division multiple access), old and new subscribers.

Nine mobile operators were recently given over 120 telecom licenses to offer services across many circles. Currently, the established players offering mobile phone services include Bharti, Reliance Communications, Vodafone Essar, Idea Cellular, Tata Teleservices, Aircel-Maxis, Bharat Sanchar Nigam Ltd (BSNL), Mahanagar Telephone Nigam Ltd (MTNL) and Spice.

The new telecom operators will be allotted the spare levels of 90 and 91 in the 10-digit series. But, they too will have to migrate to 11 digits, by prefixing '9', in the same timeframe as the existing telecom companies

However, the fixed line phone numbers would continue to remain as is it is. While all GSM and CDMA subscribers whether old or new, would now have 11 digit numbers.

Apart from India, China and UK follow 11-digit numbers, while USA has a more integrated pattern of common numbering plan with similar numbers for mobile as well as landline numbers, much like Tata ‘Walky’ and Reliance ‘Hello’.

Saturday, 4 April 2009

Summer is here: Tata Tea forays in soft drinks.

Summer is here and all the Food and Beverages companies are gearing up to increase their product's visibility. Companies are ready to tap the huge huge potential market and the competition is all set to become stiffer between local and international players.

Tata Tea, a premiere Indian tea company, has made its foray into the branded cold drink market with the launch of T!ON. The launch took place in Chennai, targeting youth. T!ON is available in three exciting flavours, Mango Rush, Peach Punch and Apple Buzz, the 400 ml pet bottle is priced at Rs. 22.

Tata Tea Executive Director Sangeeta Talwar calls it a defining moment in her company’s history and something that is all about “disruptive innovation”.

The beverages market size is almost double that of branded tea, in which Tata Tea currently operates. Tea contributed close to 80 per cent of the Rs 4,366 crore company’s sales in the last financial year and the company is conscious of the warning signals.

While T!ON’s success is yet to be seen, Tata Tea has been firmly on course to being a brand-centric beverage company for some time now. It has in the past made acquisitions like Tetley, Good Earth (herbal, medicinal and traditional teas), Eight O’ Clock Coffee and Himalayan Water to diversify its range.

Germany moves toward bank nationalization.

Germany stepped up efforts to stabilize its banking sector, approving a draft law allowing forced nationalizations and saying it would use its new powers to take control of lender Hypo Real Estate.

The German step is the latest example of state intervention in the banking sector as countries across the globe abandon free-market principles and move to shore up institutions seen as crucial to the functioning of their broader economies.

The new German legislation, which was backed by Chancellor Angela Merkel's cabinet, but must still be approved by parliament, breaks a postwar taboo in giving Berlin the right to expropriate, or dispossess, shareholders in domestic banks.

Merkel's "grand coalition" agonized for weeks before choosing this path, aware that it is linked in the minds of many Germans to Nazi seizures of Jewish property in the 1930s and East Germany's assault on private business after World War II.

In the end it decided it needed the "Enteignung" option to ensure it could take control of Munich-based Hypo, but imposed strict time limits on any expropriation to make clear it was not mulling similar moves with other banks.

"We examined this very carefully and I don't believe we have any alternative," Merkel told reporters.

Hypo has received 102 billion euros ($128.4 billion) in guarantees from the state and fellow banks over the past year but remains in dire financial straits.

Berlin has said the bank, which was hit hard by its exposure to the collapsing U.S. mortgage market a year ago and has spiraled downwards since, cannot be allowed to fail because of its key role in the German Pfandbrief, or covered bond, market.

But taking control of Hypo and preventing it from sucking in more taxpayer money has been complicated by the fact that U.S. private equity firm JC Flowers owns a quarter of its stock.

Berlin has been negotiating with Flowers, which bought the stock June 2008 for 22.50 euros only to see it plummet to just above 1 euro, but has yet to reach a settlement.

Last Resort

Before taking a decision to expropriate, Berlin has vowed to explore all other options.

The favored solution appears to be to take control through a simultaneous capital reduction and increase which would push up the state's holding and allow it to squeeze out other shareholders.

The new legislation makes this possible by reducing the threshold needed to inject fresh capital to 50% plus one share from a previous threshold of just over 75%.

"Only if this does not work would the last resort come into play, and that is an expropriation," Merkel said.

Hypo Real Estate is not the only German bank that has been hit hard by the global financial crisis and forced the government to intervene.

Last month Berlin took a 25% stake in Commerzbank, the country's second biggest bank.

Sources: CNN Money

Obamania: rebuilding regional relations!

April 2009
US to Lift some curbs on travel to Cuba.

President Barack Obama plans to lift longstanding U.S. restrictions on Cuba, allowing Cuban-Americans to visit families there as often as they like and to send them unlimited funds.

The gesture, which could herald more openness with the Castro regime, will fulfill a campaign promise and follows more modest action in Congress this year to loosen travel rules.

The president has authority to loosen the restrictions on travel and remittances to Cuba on his own. The new rules will affect an estimated 1.5 million Americans who have family members in Cuba. Other Americans are allowed to travel to Cuba but only if they qualify through certain cultural, educational and other programs.

It will come amid a series of international gestures by President Obama recently.
  • Obama moved to improve relations with Russia...
  • Told an audience in France recently that he was there to listen them.
  • Previously, he made an outreach to the people of Iran, sending a video message calling for a "new day" of relations between Washington and Tehran.
Last May in a campaign speech in Miami, Mr. Obama said, "It's time to let Cuban-Americans see their mothers and their fathers, their sisters and their brothers. It's time to let Cuban-American money make their families less dependent on the Castro regime."

The travel and remittance restrictions stem from the embargo, put in place in 1962 after Fidel Castro came to power in Cuba. President Jimmy Carter allowed the travel ban to lapse.
But President Ronald Reagan reinstituted the travel ban with some exceptions. Under President Bill Clinton, Cuban-Americans could visit family once a year. President George W. Bush's policy was at one point even looser, but in 2004, he tightened the rules, allowing family trips once every three years, and narrowing the definition of who qualified as family. Sisters, brothers, mothers, fathers and grandparents qualified, but uncles, aunts and cousins did not.

Some Cuban-American circles have pressed to maintain U.S. restrictions because of their antipathy for Fidel Castro and his brother, Raul, who replaced him as leader after Fidel became ill. "How do you help people speak out about human rights violations if you're basically extending the dictatorship abroad?" said Mauricio Claver-Carone, director of U.S. Cuba Democracy PAC.

Source: WSJ


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