Niveshak THE INVESTOR



VOLUME 4 ISSUE 2



February 2011

THE EGYPTIAN RENAISSANCE



INflation pg. 08

ISLAMIC BANKING PG. 19

FROM EDITOR’S DESK Dear Niveshaks

Niveshak Volume IV ISSUE II February 2011 Faculty Mentor Prof. N. Sivasankaran

THE TEAM Editor Rajat Sethia Sub-Editors Alok Agrawal Deep Mehta Jayant Kejriwal Mrityunjay Choudhary Sawan Singamsetty Shashank Jain Tejas Vijay Pradhan Creative Team Vishal Goel Vivek Priyadarshi

All images, design and artwork are copyright of IIM Shillong Finance Club ©Finance Club Indian Institute of Management Shillong

It’s back to February, the month of Union Budget. As the day of budget is approaching, expectations of the industry and common man have started to build up regarding the various policy measures that government will take to alleviate the various problems that our economy is facing currently. The Indian economy with sinking stocks, skyrocketing inflation and moribund industrial output certainly doesn’t present a rosy picture and the Finance Minister, Mr. Pranab Mukherjee has a tough task ahead in tackling all these issues. Clearly, the biggest of these issues is the inflation, particularly that of food items. Although, the food inflation has eased a bit in early February, it still remains at a high double digit. The RBI has raised short term interest rates seven times since the last budget and is expected to do so for the eighth time in the coming March. While the monetary measures didn’t help much in controlling the supply side driven inflation, it certainly had its effect on the industrial output which has fallen to a very low level as indicated by the latest IIP numbers. The corrective policy measures taken by the government to balance growth with the inflation will be something to watch out for in this budget. Another major issue to watch out for will be the diesel price deregulation. The petrol price deregulation that the government undertook last year helped in reducing the fiscal deficit and minimizing the losses of oil marketing companies. But it is the prices of diesel that constitutes a major share of fuel subsidy bill and hence a diesel price decontrol is urgently needed in order to reduce the fiscal deficit. However, given the current inflationary environment, the step seems to be difficult. The month of February has been one of the worst for the Indian stock market in the recent times. The benchmark Sensex fell to its seven month low on February 11 before recovering from the shocks of Egypt crisis and weak IIP numbers. Just three months ago, when the US government had announced its monetary easing policy, financial experts had predicted a tsunami of foreign fund inflows leading to a rise in the stock markets in emerging countries. However, nothing of that sort has happened till now. Infact, the foreign institutional investors who had pumped close to 29 billion dollars in 2010 have already withdrawn 1.4 billion dollars from the Indian markets this year till the mid of February. If trends are to be believed, then the Indian stock markets are headed south. However, we all know the inexactness of stock market forecasts and it would be interesting to find out the direction of stock markets in the coming months. A major issue that dominated the headlines this month was the Egypt crisis. This month’s cover story goes deep into what went wrong in Egypt and the effect it is having on the rest of world. The “Article of Month” is on the burning issue of inflation and the measures government should take in order to control the same. The present issue also features an article on MNREGA, the impact it had and the way ahead. Another interesting article in this issue is on Islamic Banking, issues and concerns surrounding it and the benefits of adopting it in India. Finally, don’t miss the interview of Mr. Himadri Bhattacharya (Executive Vice President at Tata Capital) where he shares his views on varied issues such as the Euro crisis, inflation and the things to watch out for in global and Indian economy in the year ahead. Stay Invested.

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Rajat Sethia (Editor -Niveshak)

Disclaimer: The views presented are the opinion/work of the individual author and The Finance Club of IIM Shillong bears no responsibility whatsoever.

CONTENTS Niveshak Times

04 The Month That Was

finsight

19 Islamic Banking

Cover Story 13 THE EGYPTIAN RENAISSANCE PERSPECTIVE

16 NREGA and Unemployment

He speaketh

11 Mr Himadri Bhattacharya, Executive VP, Tata Capital

08

22

Article of the month Inflation

FINLOUNGE Fin-Q

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The Niveshak Times

EVERY COUNTRY IS TO ADJUST ITS CURRENCY WHICH IS MARKET RELEVANT AND WHICH SHOULD BE DRIVEN BY THE MARKET FORCE AS FAR AS POSSIBLE

TEAM NIVESHAK

IIM, Shillong DOMESTIC BUSINESS

INTERNATIONAL NEWS

The Month That Was

23 infra stocks hammered…Anil Ambani Moser Baer enters new territory: Information and Web Security Solutions Group seeks probe It was overall a bad month for ADAG group stocks, World’s 2nd largest optical storage media manufacwith all of them getting hammered by the bears. turer plans to offer indigenous solutions covering This prompted Reliance Infra to seek an Intelligence design, development and manufacturing to enable Bureau probe into the decline of 23 infrastructure data and information security to increase data sestocks. Some of them were Reliance Power, Reliance curity for e-commerce transactions. The company Infra, NTPC , BHEL and NHPC, L&T, JSW Energy, Adani initially plans to include end-to-end data security Power, Tata Power and Voltas Ltd. There are claims solutions, namely ‘Authentication Keys’, ‘Licensing that an illegal bear cartel run by a stock market op- Tokens’, ‘Mobile solutions’ and ‘secure storage’ in erator has caused a loss of over Rs 300,000 crore its product portfolio. The solutions will be provided from the infrastructure sector stocks in a short pe- through USB pen drives, SD and micro SD cards and in the form of software. riod of less than 90 days ending February 9.

4

Silver Silver all the way!! The metal hits 31- Japan and India sign trade pact, Malaysia follows year high with improved investments Silver touched $31.95, its highest since 1980, rising In order to revive its weak economy, Japan signed a 14 per cent so far this month. Demand for the pre- free trade agreement with India by lowering barriers cious metal was fuelled by on-going unrest in the to trade and deepening its economic ties with the Middle East region. The gold: silver ratio - the num- fast-growing nations of emerging Asia. The economic ber of ounces of silver needed to buy an ounce of partnership agreement was signed by Japanese Forgold, dropped to its lowest in 13 years at around eign Minister Seiji Maehara and Indian Commerce 43.5. Holdings in the world’s largest silver-backed, Minister Anand Sharma. It will slash tariffs on goods exchange-traded fund, iShares Silver Trust, edged up from DVD players to shrimp and lumber, and introduce measures to promote investment and deal to 10,438.56 tonnes. with intellectual property rights. This was important Government scraps ISRO S-Band spectrum for Japan, which sees itself falling behind regional rideal with Devas Multimedia val South Korea in the area of free trade agreements. In the wake of raging controversy, the S-Band spec- India signed a comprehensive economic cooperation trum deal between ISRO’s commercial arm Antrix and agreement (CECA) with Malaysia too. This pact gives private firm Devas Multimedia has been scrapped. Indian doctors, accountants, two-wheelers, etc. The annulment comes for handing over 70 MHz of S- greater access to the Malaysian market. But there is Band spectrum to the private firm for Rs 1,000 crore a price associated with it. This is in return for faster which may have resulted in a loss of Rs two lakh duty cuts for refined palm oil and binding tariffs on crore to the exchequer. CAG has already initiated ac- other palm products along with a freer entry to Mation over the deal. laysian engineers, accountants coming in India on Food inflation hits a 9-week low at 11.05 %

temporary contractual assignments.

Falling again for the second straight week, food inflation stood at 11.05 per cent for the week ended February 5. It was mainly due to declining prices of pulses, wheat and potato. Food inflation for the week ended January 29 was 13.07 per cent. Pranab Mukherjee also expects inflation to be 7 per cent by March.

Nokia and Microsoft on way to embarking historic software deal

NIVESHAK

Windows Phone software would now be available across all Nokia smartphones replacing its homegrown platform. The deal is expected to be through in a couple of months according to Nokia CEO Stephen Elop. Though Nokia shares took a beating of

VOLUME 4 ISSUE 2

february 2011

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The Niveshak Times WE CAN GIVE THE CENTRE GOOD GOVERNANCE AND THEY SHOULD TELL US WHAT THEY EXPECT OF US. - NITISH KUMAR

more than 20 per cent after the strategy turnaround, Monetary Fund. Japan’s real gross domestic product industry executives have lauded the new alliance as slipped by an annualised 1.1 per cent in the OctoberDecember quarter as the expiration of auto subsidies good for competition and innovation. Fed is fast pacing on financial revamp says Ben hit car sales, a new tobacco tax sapped cigarette demand and a strong yen hurt exports. Bernanke The central bank is working in tandem with other regulators to implement the biggest overhaul of the U.S. financial rules since the 1930s according to the Federal Reserve Chairman. The main aim of the policy makers is to enact laws that would protect the country from another financial crisis like the one that hit in 2008 and plunged the economy into a deep recession.

Two Global heavyweight stock market operators set to merge

© FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

The Month That Was

Trumping a tie-up between London and Toronto, Deutsche Bourse and NYSE Euronext announced plans to build the world’s largest stock exchange, and sparking speculation about who might be next. The merger appears set to capitalise on the revival of the Equity markets after the slump of 2008. This trans$3.73 trillion budget plan unveiled by Obama action creates a group that is both a world leader for 2012 in derivatives and risk management and the premier U.S President Barack Obama unveiled a $3.73 trillion global venue for capital raising. budget pledging $1.1 trillion in deficit savings over the Easier to track foreign black money: Swiss next decade through spending cuts and tax increases. Gov. relaxes rules The deficit for the current year is expected to surge to an all-time high of $1.65 trillion. It reflects a sizable tax- Switzerland relaxed norms for sharing information on cut agreement reached with Republicans in December. secret bank accounts of overseas tax offenders by For 2012, the administration sees the imbalance de- allowing varied modes of identification, a move that clining to $1.1 trillion, giving the country a record four could help India in its black money trail. At presstraight years of $1 trillion-plus deficits. Obama aims ent, only name and addresses are accepted as valid to achieve two-thirds of his projected savings through identity modes. The Indian government is facing intense pressure from Opposition, as also courts, to act spending cuts that include a five-year freeze on many tough against those who have amassed illicit wealth domestic programs. The other one-third of the savings in foreign countries that have strict secrecy rules. The would come from tax increases, including limits on tax Swiss Parliament is debating a treaty between India deductions for high-income taxpayers. and Switzerland to pave the way for authorities here China surpasses Japan’s economy in 2010 to seek details of illicit wealth stashed away by IndiJapan surrendered its 42-year ranking as the world’s ans in Swiss banks. second-biggest economy to China in 2010, after data on G-20 reaches compromise deal on tracking imMonday showed a fourth-quarter contraction caused balances by weaker consumer spending and a strong yen. NomFrench Finance Minister Christine Lagarde said the inal GDP of $5.474 trillion in 2010 put it behind China’s world’s dominant economies have reached a compro$5.879 trillion, the data showed. While Japan was exmise deal on how to track imbalances in the global pected to fall behind a surging China in the year, the economy that have been blamed for exacerbating the data underlined the weak state of the Japanese econofinancial crisis. China was persuaded to agree on a my burdened by deflation, soft domestic demand and list of five yardsticks for imbalances, by softening pressured by the industrialised world’s biggest debt. the criteria for measuring current account surpluses. While China’s leap forward reflects a shift in economic The other four indicators are public and private debt power as the country transforms itself from poverty- levels, currency reserves and real effective exchange hit communist state to global heavyweight, it high- rates. The summit was attended by Finance minislights the need for Japan to re-energise its economy. ters and central bank governors from the Group of However, Japan remains around 10 times richer on 20 rich and developing countries. a per-capita basis, according to the International

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FinSight

Perspective TheFinGyaan Month That W as

AoM

Market Snapshot

Source: www.bseindia.com www.nseindia.com

MARKET CAP (IN RS. CR) BSE Mkt. Cap Index Full Mkt. Cap Index Free Float Mkt. Cap

65,28,596.17 27,90,579.85 14,74,649.07

Source: www.bseindia.com

CURRENCY RATES INR / 1 USD INR / 1 Euro INR / 100 Jap. YEN INR / 1 Pound Sterling

45.11 61.70 54.24 73.25

BSE Index Sensex MIDCAP Smallcap AUTO BANKEX          Consumer Durables Capital Goods FMCG Healthcare IT METAL OIL&GAS POWER PSU REALTY TECk

Open 19,095.69 7,191.87 8946.17 9325.95 12417.62 6054.34 13538.18 3701.64 6535.00 6630.33 17727.53 9745.48 2788.04 8824.22 2496.12 3888.37

Close 18,438.31 6659.18 8121.26 8614.90 12543.13 5831.88 13207.34 3326.77 5981.75 6399.59 16734.02 9498.56 2619.85 8573.66 2064.67 3724.80

% change -3.44 -7.41 -9.22 -7.62 1.01 -3.67 -2.44 -10.13 -8.47 -3.48 -5.60 -2.53 -6.03 -2.84 -17.28 -4.21

Source: www.bseindia.com Data from 24th January 2011 to 21st Feb 2011

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VOLUME 4 ISSUE 2

February 2011

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Market Snapshot RESERVE RATIOS CRR SLR

6% 24%

Base rate Savings Bank rate Deposit rate

POLICY RATES

7.6% - 8.5% 3.50% 7% - 8%

Bank Rate Repo rate Reverse Repo rate

INR 20575.00 / 10 grams

FinSight

India is ranked 21st while USA and China are 14th and 15th respectively.

FinGyaan Month That Was

Silver 49400.00 / kg WPI 8.23% Crude Oil $92.70 Index of Industrial Production (IIP) 1.60%

Perspective The

Gold

6% 6.5% 5.5%

AoM

LENDING / DEPOSIT RATES

Countries between Saudi Arabia to Kazakhstan are ranked from 1 to 10 respectively

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Inflati n AoM

Gunjan Seth & Snehal Punjani

Indian food prices have hit their highest level in the fiscal year 2010-11, rising at an annual rate of 18 per cent. These exorbitant prices have hurt urban and rural poor, and especially the large numbers of marginal farmers, landless labour, tribal people, etc. The article talks about the measures government should take to control the food inflation in our country.

Narsee Monjee Institute of Management Studies

India with over 270 days of sunshine, 900 mm of annual rainfall, varied agro-climatic conditions, hundreds of rivers kissing its soil and the huge agrarian population has all ingredients for it to be an agricultural power. Yet India faces the daunting task of taming Inflation.

etables, eggs fish and meat in last two months of 2010. Significant price increase has been observed in commodities like onions, tomatoes, garlic and rice which are key ingredients in a common man’s daily meal. The key reason cited for this food price inflation is the bad monsoon in India (See Table 1).

Fig.1: Key drivers of annual primary food inflation

Fig.2:Price trends in Primary food articles

Introduction

Figure 1 shows the key drivers of annual primary food inflation where we can observe that vegetables, rice, eggs, fish, meat and milk have contributed the most to the inflation. From Figure 2, we can also see the rise in prices (WPI) of fruits, veg-

Wheat Rice Coarse Cereals Cereals Pulses Food Grains Oil Seeds

There has been a significant decrease in the sown area of rice and coarse cereals. Though, the others show a miniscule increase, it is not enough to sustain or meet the growth in the population and demand. The high food price inflation is having a significant impact on the Indian consumer, the “Aam Aadmi”

Rabi Area Sown (in mn Hectares) 2009 - 2010 2010 - 2011 27.91 28.84 1.27 0.92 6.36 5.88 35.54 35.65 13.69 14.53 49.23 50.18 8.73 8.94

Difference 3.33% -27.56% -7.55% 0.31% 6.14% 1.93% 2.41%

Table 1

The key reason for significant price increase in commodities like vegetables and rice is the bad monsoon in India.

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VOLUME 4 ISSUE 2

february 2011

Fig.3: Average Indian Household spending across all categories

Reasons for Inflation

A number of reasons other than erratic monsoon behaviour mentioned earlier can be given as: 1. India lost around INR 58,000 crore worth of agricultural food items due to lack of post agricultural harvesting infrastructure. If the government made efforts for the proper storage of these food items, the price rise could have been well under control. 2. The Indian farmers are largely dependent on the monsoon season for the irrigation of the crops. The Government talks about inclusive growth and stress on rural India. However, it has not helped the farmers in anyway as the suicide rate has been on the peak in the recent past. 3. Productivity issues are also prevalent in India. The per-hectare agricultural yield in India is half that of China. This again points to the inefficiency and the failure to help the farmers adopt latest technology in order to increase the crop output. Indian Government has never really tried to ad-

AoM

as we know him. As we can see from Figure 3, approximately 42.8% of the average household spending goes into food products. With India facing high food inflation, the consumers have to cut their spending on other non food items and thus affecting the total GDP of the nation( as the consumption part goes down). As our traditional Indian culture believes in investing their savings in gold and fixed deposits which yield around 8-10%, inflation being around 1214% is hurting the common man and Middle class consumer.

dress these issues although it talks about inclusive growth and developing the country. There are a number of things into which the government can look into such as control on hoarders and black marketers, allowing the private sector to import and store these goods at low import duties and also release its large wheat storage into the market. Though these are not major factors, Government of India can adopt such kind of measures to control the food inflation to some extent. However, inflation in an economy like India has become a common phenomenon; hence natural fallout of this has been that we, as a nation, have become virtually intolerant to inflation. While inflation till the early nineties was primarily caused by domestic factors such as supply unable to meet demand, the situation has changed significantly today. Today it is caused more by global rather than by domestic factors. Naturally, as the Indian economy undergoes structural changes, the causes of domestic inflation too have undergone drastic changes. Needless to emphasise, causes of today’s inflation are complicated. However, it is indeed intriguing that the policy response even to this day unfortunately has been fixated on the traditional anti-inflation instruments of the pre-liberalisation era like negative, or slightly positive, real short-term interest rates. The only effective anti-inflation strategy entails aggressive monetary tightening that takes policy rates into the restrictive zone. There is only one way out for India a significant increase in real, or inflation-adjusted, policy interest rates. Considering these factors, it is very important for the Government to try and control the inflation or at least try and ensure that these circumstances do not arise again in the future. As mentioned above, there are several ways of curbing food inflation. It is only that the Government needs to be more proactive rather than being reactive. Inflation that stood at around 8% twelve months back is still hovering above 8% mark presently and central government which initially expected inflation to moderate by itself due to base effect finds itself in a soup. Inflation has not subsided primarily due to its incidence across different commodities. Pulses

As the Indian economy undergoes structural changes, the causes of domestic inflation too have undergone drastic changes © FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

9

AoM

and potatoes were the drivers of Inflation a year back while onions, milk and dairy products have been the main culprits today. Erratic rains in three major onion producing states (Maharashtra, Karnataka and Gujarat) delayed the Kharif crop and led to the spike in Onion prices ( Rs.80kg ) which in turn led to rise in food inflation(18.32% from 14.4%). Food articles that have a weightage of 11.05% have led to the spurt in overall inflation (8.23%). Composition of the items driving the inflation has changed but Inflation continues to haunt the common man.

Steps taken by Government Government has added to the woes by not dampening the prices through large foreign exchange reserves and by exhibiting a lackadaisical approach. It failed to realise that inflation was more of a generalised problem than supply-demand problem. Also, certain policies of government that were introduced to appease certain sections of society have worked against the very purpose for which they were introduced. Hiking of minimum support prices for cereals (from 49% to 73%), pulses and oil seeds (by up to 83%) have added to the problem of inflation. Food articles which are the main drivers of the inflation numbers are prone to speculation and speculation can be responsible for pushing up the prices even if there are only minor demand- supply imbalances. Speculation is a real concern in deregulated and liberalised economy like that of India. The margins between wholesale and retail prices have increased in recent times stressing the role of speculation on food and commodity prices. One of the most important food items that have had a strong impact on current inflation situation was onions. Onions at a price of Rs.80/kg did trouble the common man more than any other commodity as it forms the integral part of an Indian diet. Onions therefore are most significant politically and government has thus sprung into action with several measures which are mentioned below: 1. NAFED, to sell onions at the retail outlets at Rs.35 /kg and government will compensate loss through budgetary support .However its reach is

limited. 2. Government to ban food exports and liberalise imports to boost domestic supply. Ban can prove to be counterproductive as imports have become costlier. 3. PDS to be strengthened through computerisation and other steps. However it will remain ineffective unless infrastructure for storage and transportation is overhauled 4. Government to take stringent action against hoarders and black marketers under Essential Commodities act. But this falls within the purview of the states and district magistrates, who lead the drive, rarely get a free hand However they have hardly been effective in taming the rising prices. Thus dealing with inflation systematically is the order of the day.

Conclusion Government needs to come up with structural reforms that can help it in reforming agricultural infrastructure and the distribution system. Farmers need to be included in the formal agribusiness networks. Private mandis offers a route for inclusion of farmers in this system. Private mandis are private players buying directly from farmers. But APMC Act restricts farmers only to the government regulated mandis and thus needs a change to bring this reform. Besides this an efficient and seamless transportation is a must in order to stabilise the prices. This will ensure connectivity between food surplus region and food deficit region and also increase the fuel efficiencies of transporting vehicles and in turn stabilise the prices. Concerns of wastage should be dealt with effective Stock Rotation policy. Buffer stocks should be rotated regularly in order to stabilise the prices and storage systems should be effective in preventing the wastage. All these measures may not be able to give immediate results but will provide a solution to an issue that has to be dealt in a systematic manner. However If government continues with its current attitude, it will never be able to catch hold of the Inflation problem.

An efficient and seamless transportation is a must in order to stabilise the prices.

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VOLUME 4 ISSUE 2

February 2011

Mr Himadri Bhattacharya

Executive Vice President, Tata Capital

Niveshak: Sir, Can you tell us something about the nature of your work at RBI and Tata Capital? How different is the experience of working in public and private sector? Mr. Bhattacharya: Well in RBI, I performed many functions which included managing the country’s external funds. At the time, I left RBI, the size of the reserves were about 300 billion dollars. Essentially, my job was that of a portfolio manager, but like any other manager, I was involved in several other functions. Coming to the second question of the difference in working in public and private sector, I would say that working in RBI is not like working in government. RBI is an autonomous body. The overall ecosystem of any function in RBI is very different from what happens in government. In the function of managing foreign exchange, where I worked, we had specific objectives to be achieved and there was accountability at each stage. There was very little bureaucracy and I would say that the environment at RBI was very similar to any other private enterprise. One of the important differences between the government and RBI is that in government everyone will introduce himself/herself by the designation he/she holds, while in RBI designation is important, but more important is your competency. The work that you perform is more important than your designation. My change to private sector was therefore without much of a hiccup and the kind of things I handle at TATA Capital bears a resemblance to my work at RBI. Niveshak: Having worked at RBI

for so long, does it become easy for you to predetermine the actions of RBI in a particular situation? Mr. Bhattacharya: To an extent, I can anticipate the thinking that goes in RBI. It’s impossible for anyone, howsoever long he has worked in RBI, to correctly predict the monetary policy action of RBI in a particular situation. The important thing is that I can understand the mechanism of way things happen at RBI, but it would be unfair on my part to say that just because I have worked in RBI, I can forecast or predict specific action that RBI is going to take.

In a candid interview with the Team Niveshak, Mr. Himadri Bhattacharya shares his views on the Euro crisis and inflation scare in emerging markets. Also, he tells us the things to look out for in the global economy and the Indian economy in the year ahead.

He Speaketh

Mr. Himadri Bhattacharya is a risk management professional with over thirty years of experience in banking and finance. Mr. Bhattacharya has worked in the Reserve Bank of India as the head of the reserves management. Currently, he is at TATA Capital where he is involved in the treasury operations, including the derivatives desk, international operations, financial advisory services and private equity.

Niveshak: Given the on-going Euro crisis, what do you think are the pros and cons of having a common currency like Euro? Mr. Bhattacharya: I have studied Euro for many years and to understand the pros and cons of Euro, we have to understand that different countries in Europe have looked at Euro very differently right from its origin. For powerful countries like Germany and France, it was more about extending their reach and economic influence. For smaller countries it was more about ending their isolation and join mainstream Europe. The basic purpose of Euro was to have a powerful monetary union. The problem however is this - If you have a monetary union, you should have a strong fiscal framework also, if not a fiscal union. There should be good fiscal management amongst the member countries. There are vast differences amongst all member nations’ w.r.t natural resources, industrial productivity, etc. You just cannot compare any two countries. For example, In India, you cannot compare states such as Gujarat and Tripura. There is monetary Union between Gujarat and Tripura and the lat-

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11

He Speaketh

ter will always face a balance of payment deficit w.r.t Gujarat. If both sates were to be countries outside the monetary Union, first thing that Tripura would do is to devalue its currency w.r.t Gujarat, which is not possible in a monetary Union. Thus, it’s clear that in a union, the less developed country will always face a deficit and hence a strong fiscal discipline has to be instilled among all member countries. In absence of a good fiscal framework, countries like Greece were able to borrow at rates comparable to that of Germany and France. The policymakers of these countries encouraged it too, thinking that capital flow inside the nation would help balance of payment. The main flaw is the rate of interest that financed the balance of payment, which in absence of a monetary union would have been much higher. It is over borrowing that did it - over borrowing at a rate which did not reflect the macroeconomic factors in the less developed countries. Niveshak: Do you see Euro getting dissolved in the future? Mr. Bhattacharya: No. I don’t even see any member country getting expelled or leaving the union. This crisis will help the leaders across the monetary union to install mechanisms for more fiscal consolidation. Having said that, let’s understand this – the lesson from the whole thing is that in order for a monetary union to be successful amongst disparate nations, fiscal discipline is a must. Also, there is a need for some kind of fiscal union which provides for transparent fiscal transfers between countries which have surplus and the ones that have deficit. Niveshak: Sir coming to India now, with the problem of rising inflation and slump of Industrial Production, how do you see India balancing growth with inflation? Mr. Bhattacharya: For now the focus will be on curbing inflation and not on growth. So far as the monetary policy of India is concerned it has been balancing between growth and Inflation. For now inflation is the number one issue and it has to be controlled even if growth takes a back stage for a while. Niveshak: There has been an unprecedented rise in prices of agri commodities over the last few months. Do you think that mechanism like price control and minimum support price will help in controlling these prices? Mr. Bhattacharya: No, price control or MSP wouldn’t help. The issue is slightly more complex than it has been reported in the media. If you look at the prices of food items globally, it has been on a rise. The food price index globally or country wise has been going up. The point is it that the reason behind the rise in prices is not just supply side issues. My feeling is that while there is no de-emphasizing of supply side situation but if we blame only on supply side we will

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be missing on something. The inflation expectation in general has gone up which is typically the case when supply side constraint persist over a time. Supply chain constraints increase the inflation expectations and everyone increases the prices around in general. Then it becomes extremely difficult to dampen those inflationary expectations through monetary policy measures without impacting growth opportunities substantially. Niveshak: Sir, seeing the growth and boom don’t you think that commodity prices are bound to rise and it is something normal? Mr. Bhattacharya: They are bound to rise that is a different issue let us not go into that. There are several issues: demand related factors, the supply situation, climate and so on and also substitution cost depending on outlook of rate of return. But what is more important is once we allow the supply side things to effect the inflationary expectations than we get into a very different situation. There is another issue if we assume the prices are rising globally than also the rise in prices in India is far ahead than the global average. My feeling is that the income inelasticity of even various small products like sugar has grown high. So income disparity is an issue. Seeing the agriculture sector grow by 2% and service sector by 10% eventually this imbalance will be reflected in demand supply situation particularly in regard to essential commodities. So the only solution to this in the long run is to supply side response. Niveshak: Sir, which sectors do you see to be in the limelight in the year 2011. Mr. Bhattacharya: Chemical, fertilizer, infrastructure look good given their huge impact in the development of economy. Niveshak: Do you see India leading the global growth charts in 2011? Mr. Bhattacharya: If you are talking about the Indian equity markets or Indian currency, outperforming its Asian counterparts I don’t think so. There are several reasons including high inflation requiring larger doses of monetary tightening, our fiscal situation, and currency being at a comparative disadvantage with Korea, Indonesia, and China. Niveshak: Going forward what are the things you would be keenly looking forward about India and the world? Mr. Bhattacharya: Well, I am keenly looking forward to the World Cup! (Smiles). The other things that I look forward to from a global perspective are the resolution of the crisis in Europe, and the effect of bold fiscal correction steps by Osborne in UK. So far as India is concerned, I would very much look forward to the government’s fiscal and monetary policy and easing of inflation.

VOLUME 4 ISSUE 2

February 2011

MRITUNJAY CHoudhaRy & Vivek Priyadarshi

Team Niveshak

INTRODUCTION

What went wrong?

Most of Egypt’s economic worries can be attributed to President Hosni Mubarak’s ruling style. The country’s trade was completely cutoff from the rest of the world. Whatever little foreign investment that Egypt had, was from the large business houses in Saudi Arabia. Egypt

Fig 1. Projected real income growth for different income groups in Russia, India, Egypt and Saudi Arabia (next 12 months)

The spirit of revolution in Egypt has caught the attention of people worldwide. The spillover of this movement to the surrounding Arab countries with similar autocratic setups may pose a credible threat to the political stability in the Arab world. The rest of the world is also anxiously keeping track of the day to day happenings in this region given its far reaching global ramifications.

Cover Story

It would be wrong to say that the reasons for restoring the democracy in Egypt were completely economic or financial. But the two mentioned factors had a significant role to play in the struggle. Egypt, being the most populous Muslim country in the Arab world with a population just under 80 million, has immense potential to change the economic and financial scenario of the Middle East and surrounding regions. Countries such as United States and Israel that have vested interests in Egypt are watching the latest developments very closely.

ranks 137 in the world in terms of per-capita income. The country ranks 98 in terms of level of corruption along with Mexico according to the study by Transparency International Corruption Perception Index 2010. Despite having access to major trade routes and abundance of natural gas and tourism opportunities, the real household income is forecasted to decrease over the next 12 months as shown in Fig.1. The Egyptian economy primarily depends on agriculture, petroleum exports and tourism. Egypt has huge reserves of natural gas that is exported. The wealth of the nation does not trickle down to the common people. About 40% of the population (currently 80 million) lives with under $2 a day. The spiralling price of basic items is another matter demanding immediate attention. Egypt has constantly been receiving foreign aid from the US at an average of $2.2 billion since 1979. But all this aid did not translate into pros-

Fig 2. Monthly spending by category (in percentage)

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Cover Story

perity for the Egyptian economy. With the global food inflation on the rise, Egypt faces a dangerous problem of food inflation as well because food occupies the highest share (40%) of the country’s consumption pattern as shown in Fig 2. The crisis has also broken down the backbone of the financial system of the country. The Government stopped all banking and stock market activity as local and foreign investors queued up to withdraw their savings and investments. The Egyptian stock market lost $12 billion dollars approximately 16% of its value. The Egyptian pound fell to a six year low (1$/5.88 Egyptian Pounds). The tourism sector acted as a cushion for the Egyptian economy earning the valuable foreign reserves. In 2010, about 15 million foreign visitors visited Egypt generating $12 billion in revenues. Tourism employs 12.6% of Egypt’s workforce and contributes 11% to the country’s total economic output. With the starting of the revolt, tourism came to a standstill. The two important factors that blew the lid off, was the chronic problem of unemployment and the failure to promote upward mobility. Even though Egypt ranks 16th in terms of population, the nation’s GDP per capita is just $6,200 and in terms of output, Egypt ranks 136th in the world. Mubarak’s regime had initiated a set of economic reforms but they were put on hold because of global economic recession of 2008 and could not be started again. HOSNI MUBARAK – THE RICHEST MAN ON EARTH!

The ongoing Egyptian crisis has brought into limelight a very interesting fact. The iron-fisted military ruler of Egypt, Mr. Hosni Mubarak has amassed wealth between $40 billion and $70 billion as quoted by the British Newspaper Guardian. This could thus shift the current positions of world’s richest billionaires Carlos Slim (at $ 54billion) and Bill Gates ($ 53 billion) Such disproportionate wealth accumulation was possible because the constitution was suspended for 30 long years and all business proposals for the country right from development projects in the Nile basin to the transit projects in the Suez Canal which accounts for 4% of world’s oil shipment, had to be approved by the President without any accountability and transparency.

Post the crisis Mubarak’s assets have been seized in Switzerland. But this doesn’t mean that the money would be returned to the Egyptian people. The Egyptian government has requested some EU members to freeze the assets of some high ranking officials under Mr. Mubarak but does not include the name of Mr. Mubarak or his family members. Effect on the world

Crude oil prices broke the $100 per barrel mark to reach an all-time high levels of 2008. The price rose on account of the fear of the unrest being spread to North African and Middle East nations that account for more than 50% of the world’s fuel supplies. Also the Suez Canal is one of the main routes for oil transportation as 3 million barrels of crude oil pass through it every day. Such a situation of uncertainty has caused the institutional investors to be up on their feet. Apart from the increase in the oil prices, the Egyptian crisis did not have any serious implications on the world economy in the short run. This is so because Egypt had kept itself away from the International Finance System. Its banks were not connected to the International Banking System. It had very few Government bonds that were held by investors abroad because they were classified as junk bonds even before the crisis. The huge drop in the stock market(16%) would also not affect the global economy because most of the investors were local. Egypt would require huge restructuring costs and might turn to United States, International Monetary Fund and the World Bank for help. There is huge pressure on Egypt’s foreign currency reserves because tourism the hard cash earner (11% of the GDP) has come to a halt. But if democracy is guaranteed Egypt might become the hottest destination for international investment due to its promising sectors such as agriculture in the fertile Nile valley, trade through the Suez, oil and Natural gas reserves and tourism. Middle East

The middle-east countries are not sure as to how much impact the stand-off would have on their equity, debt and currency markets. But this incident has sent an alarm signal to all the countries, especially Algeria, Jordan, Morocco and Syria, to take up the issues of unregulated markets, unemployment

Speculation surrounding oil prices are gaining strength as the crisis deepens in the region.

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and income levels seriously. Autocratic rulers in the region are under pressure to ensure proper functioning of the economy under free and fair market forces. The cost of debt insurance through credit default swaps has increased significantly. Many investors in the Gulf countries had invested in Egypt in sectors such as real estate, construction, banking and telecom. Saudi Arabia is the major trading partner of Egypt exporting Saudi Riyal 8.34 billion and importing SR5.37 billion worth of goods. Around 1.4 million Egyptians work in Saudi Arabia underscoring the importance of Egypt in determining Saudi Arabia’s GNP. Israel

line with the global trend then it will foment further inflation. However not doing so will put further pressure on the margins of oil marketing companies (state utilities) which have already been bearing a loss of Rs 1.90 a litre on petrol, Rs 9.20 a litre on diesel, Rs 21.60 a litre on kerosene and about Rs 400 per cylinder on cooking gas. Impact on domestic companies

The domestic FMCG companies having manufacturing facilities in Egypt for catering to the consumer base in MENA (Middle East and North Africa) region may see a dip in their bottom line as sales from this region account for 7 to 8% of total revenues of these companies. Work at the manufacturing setups in Egypt have been stalled for the time being and meeting the demand will pose a problem if the shutdown continues long enough to allow depletion of existing inventory.

Cover Story

The stepping down of Mubarak has economic and political implications in the Middle East. Israel will be impacted the most by this event. Egypt was the first Arab country to be friends with Israel. Egypt has been a mediator between Israel and the Palestinians. The Gaza Strip, which is the bone of conten- Impact on trade tion between them lies between Egypt and Israel. Although commerce minister Anand Sharma Egypt also supplies natural gas to Israel through a has expressed confidence that situation in Egypt is pipeline called the “Pipeline of Peace”. not likely to impact trade given the status quo of the The United States of America shipment of Indian goods through Suez Canal but The United States was very helpful to the auto- it is prudent for the commerce ministry to keep a cratic government of Hosni Mubarak as was evident close watch over the situation and be prepared with by the heavy economic aids and grants. Egypt has a contingency trade plan. Around one fifth of India’s a key strategic location that influences countries in exports amounting to $40 billion (approximately) are North Africa and the Middle East. If the US Govern- routed through the Suez Canal, so closure of the ment does not have an Egyptian Government that canal will create a bottleneck for India’s sea borne speaks its language then the US might lose a strate- trade to Europe and east coast of America. The Apex export promotion organisation of India, FIEO has gic advantage in the region. suggested an alternative trade route around South Concerns for India Africa in such an eventuality. However the alternaThe limited trade connection between India tive route will prolong the shipping time by 15-20 and Egypt may lead one to mistakenly assume insu- days resulting in shipping delays and even cancellalation of Indian economy and trade from the Egyp- tion of orders. tian unrest. However given the complex set of interconnections characterising the global market it is Conclusion The common man has been disillusioned by highly unlikely that a major player like India may afford to remain aloof from the deepening crisis in the economic empowerment façade foisted upon the West Asia. Even though there may not be a direct them by the despotic regime and its high time that impact on Indian economy but domestic market and the current regime gives way to a democratic setcompanies will in all likelihood be affected by the up. The future story of Egypt would determine a lot changes in global market ensuing from the ongoing changes in the Middle East, the most important being the stability of oil prices and trade in the region. Egyptian crisis. Impact on crude oil prices

Given the fact that India imports three fourth of its crude oil requirements and two thirds of the world’s explored oil reserves reside in West Asia makes it imperative for India to ensure a speedy and stable resolution of the political upheaval looming large in the region. The uncertainties surrounding oil supply following the political turmoil in Egypt have already begun to push up the global crude oil prices. If Indian government raises the domestic prices in

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NREGA and Unemployment Ankita Agarwal

XLRI Jamshedpur

Perspective

The NREGA has been the flagship program of the UPA government since its launch in 2005. In this article we assess the impact this has had on the unemployment in India and also the way ahead.

EMERGE

The Mahatma Gandhi National Rural Employment Guarantee Act (previously National Rural Employment Guarantee Act) provides a legal guarantee for one hundred days of employment in every financial year to adult members of any rural household willing to do public workrelated unskilled manual work at the statutory minimum wage of Rs. 100 (US$2.17) per day. It is essentially a job guarantee scheme. In standard economic policies, when cost pressures rise, the central bank tightens interest rates, creating a buffer stock of unemployed people, which reduces wage demands, and ultimately inflation. When inflationary expectations subside, these people get their jobs back. In a job guarantee program, a buffer stock of employed people (employed in the job guarantee program) provides the same protection against inflation while ensuring full employment.

This has been by far the largest rural development project in the history of India. As of 2010-11, it covers 41 million households across 625 districts. The government has given it prime importance & increased its funding over the years. Though the main emphasis is on providing employment, the law also aims at raising the productivity, increasing the purchasing power, reducing distress migration and creating durable assets in rural India. The present recession is a promising moment to expand the programme with greater emphasis on the second objective of building social capital in a big way. GROW

Unlike in other social schemes, here participants have come forward with projects which are locally beneficial to the community but may not necessarily be prescribed. The scheme is increasingly being pulled by the beneficiaries rather

Total outlay on the NREGA scheme over the years

This has been by far the largest rural development project in the history of India covering 41 million households across 625 districts. 16

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HURDLES

From its inception, NREGA has been plagued with numerous problems: 1. Shoddy implementation: Decline and degeneration of the administration at all levels, particularly at the block level, and the lukewarm, half-hearted approach to democratic decentralization. 2. Delays in wage payment: Even small delays

often cause enormous hardship to workers who live on the margins of subsistence. A recent investigation of hunger deaths in Baran district, Rajasthan, found that delays in NREGA wage payments were partly responsible for the tragedy. Different reasons behind this failure are: a. Lapses in the banking system – The current infrastructure of banks and post offices in rural areas is unable to handle the mass payments of NREGA wages. b. Inefficient local administration - Very often, it takes more than 15 days for “payment orders” to be issued to the banks by the implementing agencies like the gram panchayat. c. Distance – Most villages are very far away from the nearest concerned financial institution. d. Deliberate slowing down of wage payments - Delays in work measurement, bottlenecks in the flow of funds, irresponsible record keeping, bank payments - these make workers turn against the programme. It is a convenient way for local influential people to sabotage NREGA & stop the developmental work thereby preventing empowerment of the poor people. 3. Refusing to recognize problems: The entire administration from the central, state governments and the rural development ministry right down to the district level officials are in a constant denial mode to save face. 4. No grievance redressal mechanism: Programme Officers at the block level typically have no data on delays in wage payments. The workers, for their part, have no way of airing their grievances. 5. Removal of minimum wage payment: On January 1, 2009, the government froze the (then) NREGS daily wages at Rs.100 and delinked it from the sacrosanct Minimum Wages Act, 1948. This was a big blow to the poor workers, who had always been underpaid in the Indian labour market.

Year

Total Households Covered

Households providing 100 days employment

Percentage

2006-07 2007-08 2008-09

20983491 33889122 44940870

2159201 3599025 6507438

10.29 10.62 14.48

Perspective

than being pushed by the administrative machinery. Some prominent examples are:1. Convergence of schemes - In Cuddalore, Tamil Nadu worksites double up as class rooms, healthcare centres and nurseries for SHGs. In Kammapuram Block, four SHGs got together to set up a kiln and trained 40 NREGA workers, who have produced and sold 5 lakh lamps during Diwali, earning an extra Rs 10,000 per family. 2. Wasteland to mango orchards – In Dharwad, Karnataka the local SC/ST community planted mango trees over 7,500 acres of wasteland as part of NREGA work. They have sought an SHG loan to set up a processing unit. The additional income could be Rs 40,000 per hectare. In Bhilwara, Rajasthan a social audit of MNREGS activities was done by social rights activists led by Mazdoor Kisan Shakti Sanghatan’s stalwart campaigners Aruna Roy and Nikhil Dey, NGOs, State government officials and Ministers, and observers from the office of the Comptroller and Auditor General of India. They carried out spot inspections, gathered feedback from beneficiaries, and took complaints right down to where it mattered — to the local post office that blocked payment of wages and to the sarpanch who, villagers fearfully whispered, had siphoned off NREGA funds. The whole hearted support of the govt. was also commendable. The social audit created amongst the poor beneficiaries the confidence to hold the programme’s managers to account.

Participants have come forward with projects which are locally beneficial to the community

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As a result, the coverage of the program has been below expectations as shown above. PROSPER

Perspective

NREGA was modified to MNREGA in 2009. More than just a name change, it was a set of tweaks aimed at addressing some of these problems:-

government service or may move on the jobs of their own choice. c. Deputing young officers from the state services and public sector banks to work as BDO’s for a fixed period after a short orientation course. 3. District officer: He can be made the chief executive of the panchayats in the district. This will go a long way in ensuring accountability of the panchayati raj.

We propose a few more recommendations:1. National Rural Development Board: It should be properly empowered to take responsibility of this project. Possible changes:a. Should be clothed with adequate statutory powers b. Lean organization responsible for policy and overall guidance. c. Well staffed regional office for each major river basin to provide technical guidance and supervision, maintenance of assets etc. d. Panchayats should work in close tandem with the board 2. Block development officer: A survey done by a collector of north Bihar showed that there’s requirement of about 6000 bright young men and women to work as BDO-s. One of the chief problems of NREGA has been inadequate number of BDOs. Possible solutions to this: a. Mandatory BDO service for a fixed time period(say 2 years) for all new civil service recruits b. Recruiting from IIT’s, regional engineering colleges, national law schools etc. through short term contract. Later, they may be absorbed in the

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4. Wage payment: a. The grievance clause (section 25) of NREGA which provides penalties on anyone who does not do his or her duty under the law, should be enforced much more stringently. b. Replace piece work rate with daily wages in drought- affected areas c. Buffer funds gram panchayats and post offices to avoid bottlenecks d. Partial advance in cash at the worksite can be provided.

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February 2011

ISLAMIC Banking Akhilesh Shenoy & Kartikey Seksaria

FinSight

Islamic banking is based on the principles of Islamic economics — an economic framework in accordance with Islamic law (Shariah). Shariah prohibits usury / payment or acceptance of interest on specific term loans. Islamic banks would never knowingly have anything to do with companies involved in gambling, alcoholic beverages or porcine food products. To ensure Shariah compliance, Islamic banks usually have boards of religious scholars. However, Islamic banking is not only for Muslims. Anyone can participate in Islamic Banking provided he/she has faith in Shariah. In 1994, Malaysia created the world’s first Islamic interbank money market. Now, nearly one-quarter of all Islamic banking business in Malaysia is transacted by non-Muslims. Some Islamic banking services are Islamic charge and debit cards, Islamic debt investments, Convertible bonds, Islamic bonds. Caliphate is the absolute Islamic rule, wherein the economy focuses on distribution of resources in order to meet the basic and luxurious needs of individuals in society, and the state has a clear role in policing, taxation, managing public assets, and ensuring the circulation of wealth. Such a political framework in its true form does not exist in to-

Welingkar Institute of Management, Mumbai day’s world. The non-Islamic poIslamic finance has litical framework simply proposes two main tenets: no interest can been gaining mobe earned on loans and socially mentum on a global responsible investing. This is the scale for the last way conventional banking is Is- few years. Today, lamized—the first step towards Islamic Banking is an Islamic economic framework. sought by Muslims Modern day Islamic scholars and academics have developed vari- and non-Muslims ous modes of Shariah compliant due to the benefits financing that are designed to it offers. While the work within the prevailing capi- conventional banks talist economic framework. In were in bad shape order to achieve this balance nuduring recession, merous concessions have been afforded to financial institutions Islamic banks were that would not apply if a viable unscathed due to interest free economic system ex- their unique lending isted. The intention behind mak- practices. The article ing these concessions is to en- goes in details about courage the evolution of this type the benefits of Islamof alternative system. ic banking and what Financial institutions around the globe are trying to keep pace that means for India. with the growing demand for Shariah compliant products and services. As many as 75 countries all over the world have recognized the need for Islamic banking and opened doors for it. The segment constitutes nearly 22% of the total banking in Malaysia, which is considered as hub of Islamic banking. It has been growing at nearly 20% in countries like Kuwait, Bahrain and Saudi Arabia.

Islamic law prohibits usury, the collection and payment of interest, also commonly called riba.

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Opportunity for India

With the present set of banking regulations in India, Islamic banking cannot be implemented because many of the banking principles in place are based on interest payments. Making a strong plea for launching Islamic banking, Muddassir Siddqui, an authority on the subject, said that India should open interest-free banking windows in conventional banks as a pilot project. Currently, close to one trillion US Dollars are being managed by about 400-500 Islamic banks worldwide. Interest free banking system would offer a great opportunity to attract substantial investments from countries in the West Asian region to India as the institutions and high net worth individuals there were looking forward to investment opportunities in India. According to Abdur Raqeeb, general secretary and convener of National Committee on Islamic Banking of Indian Centre for Islamic Finance, India can attract a good portion of investments from Islamic countries by developing an appropriate regulatory framework.

FinSight

Benefit of Islamic Banking for India

Islamic Banking as its fundamental principle provides interest free loans. It can be a boon for poor farmers struggling to repay debt and looking for cheaper sources of credit. Presently there are abundant cases of financial exploitation of farmers who are charged exorbitant interest rates by money lenders and by profit MFIs. Struggling to repay these huge loans limits their borrowing capacities & hence as a result their investing capabilities. Farmers borrowing from Islamic banks can prove beneficial for the economy as it will pump in more money via increased investments by the farmers themselves. As their investing capacities increase,

the farmers will invest in more capital goods & better technology, thereby increasing agricultural produce & as a result bring down raging food inflation prevalent in the economy. By introducing interest free loans vis-à-vis Islamic banking we can also arrest the depressingly regular cases of farmer suicides in vidarbha & elsewhere. One can argue that Islamic banking can bring about more inclusive economical growth by providing inclusive banking. Muslims, who are the second largest community by religion in India, constitute over 15 per cent of the population in India but they hold only 12 per cent of the accounts in the 27 public sector banks as far as priority sector advances are concerned. The share of other minority communities, which form roughly 6 per cent of the population, is 8 per cent. These figures become even more disappointing in the 44 minority-dominated districts in the country. Muslims, who form over 33 per cent of the population there, hold only 21 per cent of all public sector bank accounts, while other minorities, who form only 2 per cent of the population, hold 5 per cent of all accounts. The main reason why Muslims do not hold accounts or borrow from conventional banks is because of interest which is charged and given by such banks. Giving or taking interest is against the Islamic religious principles. Bringing about Islamic banking will ensure considerably higher participation by Muslims in the banking sector. Also as lending by Islamic banks is not restricted to Muslims alone it will no doubt benefit marginalized sections of society as well A further benefit of Islamic banking is the potential accessibility to $1.5 trillion worth of Shariah-compliant funds from the Gulf countries. Such funds do not come into India because of

Islamic banks have over 60% excess liquid funds which cannot be properly utilized due to non-availability of Shariah Compliant products and instruments. 20

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absence of Islamic banking as a banking option. At a time when India is looking to make huge investments in development of infrastructure and is looking out for sources of funds, these funds seem too attractive to be avoided. One last plus point of Islamic banking was experienced during the financial crisis of 200809. While most conventional banks went bankrupt or were on the verge of bankruptcy, not a single Islamic bank went through such a crisis. While conventional banks with their huge amount of reserves were willing to invest in any venture regardless of the levels of risk involved thereby increasing chances of incurring bad debt, Islamic banks follow strict rules against lending to companies with any risk involved thereby incurring close to zero debt. Assuming any future financial crisis was to hit India causing most conventional banks to go bankrupt, Islamic banks would help in tiding over the inevitable liquidity crunch thereby helping in speeding up economic recovery. All in all implementing Islamic banking in India seems to be a viable & a wise option both economically & politically.

CROSSWORD SOLUTIONS JANUARY 2011

Across 1 GLB 5 BSE PSU INDEX 6 FUTURES CONTRACT 8 P NOTES 9 BRIDGE LOAN

Down 2. BEHAVIORAL ECONOMICS 3. VOLATILITY INDEX 4. MSB 5. BWS 7. LEVERAGE

FinSight

..

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FIN-Q 1. An underwriting agreement that allows the underwriter to buy up to an additional 15% of shares at the offering price is known as___________ 2. Which country’s coin has the following line imprinted on it, 'This is the root of all evils' 3. This synonym for the US Dollar was coined in the 1800s when it was not paid at par 4. Name the Indian “Scamster” who propounded the infamous “replacement cost theory” for valuing stocks? 5. The effect refers to the fact that the merger of two firms decreases the probability of default on either's debt

FinLounge

6. The practice of buying initial public offerings at the offering price and then reselling them once trading has begun, usually for a substantial profit. 7.

The term used for buying a company to sell its assets is ____________

8.

Identify the famous Wall Street Personality

9. ‘X’ is an account that one bank holds with a bank in a foreign country usually in foreign country’s currency. Identify ‘X’

All entries should be mailed at [email protected] by 5th March, 2011 23:59 hrs One lucky winner will receive cash prize of Rs. 500/-

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ANNOUNCEMENTS

ARTICLE OF THE MONTH

The Article of the Month winners for February 2011 are Gunjan Seth & Snehal Punjani of NMIMS Mumbai They receive a cash prize of Rs.1000/-

Crossword Winner

The Crossword Winner for the month January 2011 is Rahul Agrawal of MDI Gurgaon He receives a cash prize of Rs.500/CONGRATULATIONS!!

ALL ARE INVITED

Team Niveshak invite articles from B-Schools all across India. We are looking for original articles related to finance & economics. Students can also contribute puzzles and jokes related to finance & economics. References should be cited wherever necessary. The best article will be featured as the “Article of the Month” and would be awarded cash prize of Rs.1000/Instructions »» Please email your article with the file name and the subject as