Simplifying Management
Google
 

Tuesday, September 11, 2007

India:An economic superpower:Challanges and role RBI and Fin Min can play

RBI is getting eroded in a big way by the forex reserve they are holding due to rupee appreciation. Strong Indian economy, a strong rupee, a week dollar, a week euro, make Indian currency play a very important role in the basket of currencies in the global financial market by 2015.As finance minister and as RBI Governer,what should be done and not to be done in order to achieve this strategic objective.

Any appreciation in the rupee results in an erosion in the value of the RBI’s foreign exchange reserves in its balance sheet. To neutralize the impact of the flow of foreign money coming to India on rupees appreciation, the RBI had been buying US dollars when it was valued at Rs 49 till the present valuation of Rs 42. Thus it has already lost 20 per cent on the dollar value.The value of the central bank’s holdings in foreign currency assets and gold fluctuates, depending on the exchange rate and gold prices. These fluctuations are reported under the head Currency and Gold Revaluation Account in the central bank’s balance sheet. According to an estimate in a recent report by Kotak Mahindra Bank, the balances under CGRA has eroded approximately Rs 36,080 crore and now stands at Rs 50,709 crore.

A strong Indian Economy, A strong rupee, a weak dollar, a weak Euro, Basket of currencies in global financial market by 2015

A strong Indian Economy:

What does it mean to India:

A strong Indian economy means a robust industrial growth, strong pool of foreign capital pooled with RBI, sound Infrastructure, better standard of living, better per capita income, a comparable standard of living, better employment opportunity for all, mature financial markets,100%financial inclusion, better amenities and hygiene facilities.

Do we have that?
No, we stand 148 in global Human Index. We are supposedly slightly better than African countries and at par with South Americans.
Our Infrastructure is poor, unemployment is high, government’s initiatives and 5 years plans are pathetically failure.

What does a strong Indian Economy mean to World Economy?

It is the need of the hour. World is now swiftly entering into another kind of Cold War and is again heading towards a bi-polar world order. Of course this polarity is not for the political supremacy but for Economy prowess. The poles are American interest and Euro Zone emergence. The fight is day by day getting lethal and is taking its toll of stability in world’s financial and monitory stability.

So where does India fit into this neo world order?

The role is going to be same as we did for political bi-polarity of last century. A new Non alignment movement is in the making and India along with China and other emerging economies are going to champion that cause again, albeit subconsciously because the clash of interests even in this so called third economic world is vital.
This third front in global economy is apparent from the unison of these emerging economies in world trade talks like Doha ,Qatar and Montreal where G20 has clearly defined a new world order not being driven by US might or Euro ambitions.

In this new order, India can play a most crucial role, even far more crucial than China, the new superstar.

The competitive advantages of India over China are as follows:

Democracy: It brings with it long term stability in policies, strategies and polity along with greater faith among market participants about robustness of the system. It will need just one weakness from the part of China’s Communist strategists (The Chinese think tanks) to collapse the entire economical eco system. One single step, in a wrong direction and Chinese economy in rashes. Even now, the Chinese economy is full of criticalities and there seems to be so many hidden bubbles in the economy those can give potential bust and burnt to Chinese Econo-system.

In contrary to that, India poses one of the most robust and stable growth opportunity in terms of longevity and inherent strength. Its comparatively slower growth and tortoise steps seem to be very cautious and long term perspectives.

A strong Indian economy can guarantee a more stable and risk free world economy. This is being proved these days when Indian capital markets are sterilizing US economy from the burnt of US Mortgage crisis. India has been biggest fund source for compensating and minimizing the losses for big financial Institutions trapped in US Sub prime market. The interesting part of story is that Indian economy and equity markets are still bullish and on a long term positive trend line.

Indian economy has a rare blend of success factors.

  • It has following key factors which guarantee a strong fail safe system:
    a) A large domestic market immune to world market which can sustain growth even in case of world recession.
    b) Strong and bourgeoning middle class with its reach not just in Indian or US market but involved with all world markets. This class has its reach in Japan, Middle East, Far East, Euro zone, South Asia, South America and even in Africa. This class of entrepreneurs, investors and intellectuals can very easily shift in any market, economy and is uniquely adaptive to any system, be it democracy, autocracy, communism, socialism, so on and so forth.

    A very strong Indian economy can guarantee these things both for India and for world:

    a) An alternative platform and economic-system in case of failure of US, Euro or Chinese system. Ideally a strong India offers and can support entire world in case of recession.
    b) An Indian economy can support all the poles and centers of world establishment. It supports a stronger America, A stronger Euro, and Stronger Asean and is compatible to all these strategic groups.


    Scenario: Strong Indian economy, strong rupee, weak dollar, weak Euro:

    This scenario, in the period 2015 onward looks quite challenging both from Indian as well as world perspective. The balance of trade would shift towards India and Indian currency would probably assume the role of one of the key currencies in the basket of world currencies. Global payments and exchanges would take place in rupee as well along with gold standards and contemporary Yuan, US dollar, Euro and probably Yen.

    But is it feasible?

    In 2015? Probably not. In 2025-30? May be.

    There are certain bottlenecks in Indian Economy or better said Eco-system those need to be removed if India has o emerge as a central leader in world stage.:

    The bottlenecks in the Indian system:

    Infrastructural bottlenecks:

    a) Very weak infrastructure: We need to invest around 100 billion USD in infrastructure for capacity expansion, roads, transport facility, communication facility, power and electricity, connectivity through roads, air,and trains.
    b) Weak urban utility system
    c) Low capacity utilization in the production /manufacturing system.
    d) Low investment in manufacturing system
    e) Low entrepreneurial activities

    Technological bottlenecks:

    f) Technological backwardness
    g) A weak R & D,Incubation activities
    h) Energy security: Very low, largly dependent on Oil, coal and natural gas, largly imported. India’s 70 % import bill comes only from crude
    i) Non-utilization of alternative sources of energy



    Financial bottlenecks:

    j) Low financial inclusion: Around 60%population without bank accounts
    k) Weak banking and financial system
    l) Exposure to equity market: Less than 1 %
    m) Exposure to life insurance : less than 30%
    n) No world class financial institution, bank or market

    Human resource bottlenecks:

    o) Number of graduates : Less than 5 %
    p) Literacy : 64%
    q) Poor health, hygiene and medical facilities
    r) Poor education system: 6 IITs,6 IIMs ,1 AIIMS catering to 1 billion population

    Governance/policy bottlenecks:

    s) A very incompetent, incapable and corrupt bureaucratic system which is highly influential. This is eating away all our potentials and trying to push us backward.
    t) A very dysfunctional governance both at center and more so in states.
    u) A very non conducive investment and market policy regime.

    Social bottlenecks:


    v) Fragmented social structure: divides society: A threat to nation’s existence. The country is sitting on the pile of explosive. Can explode very easily.

    There are several other bottlenecks in the system which poses very serious threats to India’s emergence as a global superpower and a world economy. However, it is not very difficult to eliminate these loopholes in a time span of 15 years. All it needs is a concerted and planned approach.

    A strong rupee, a weak dollar, a weak Euro will shift the balance of trade in India’s favour.Backed by strong financial markets, world class financial institutions, banks and strong economy(of the tune of 20trillionUSD) would bring India on the centerstage.The number 20trillion USD is very crucial because any thing less tan that would not do. US economy is of 17 trillion USD now and the size does matter for influencing world order in any way. Huge trade surplus would make Indian rupee highly appreciated and India would ten become net consumer for all the wealth, the world produces.

    Finance Minister’s strategies:

    Investment in Infrastructure
    Energy security
    Technological & D investment
    A more prudent and investment friendly Tax regime
    FDI Friendly regime
    Sectoral reforms
    Export enhancement schemes
    Industry incubation centers
    Growth oriented policies
    Strategic alliance with South American and African countries where markets, economies and societies are still untapped and competition is low. These are strategic countries and a strong relationship with them would give India a strategic and first mover advantage. It will also give us a vast, unexplored market and natural resources


    The world economy is day by day getting organized and is being grouped in camps and groups through FTAs,Special zones,Inter state groups like asean,opec,apec,safta,Eurozone,etc.

    India needs to make special relationships with all such groups because these groups are emerging very crucial factors in bilateral and multilateral trade talks and negotiations.

    Some of the economic groups are:

    · Euro Zone
    · ASEAN
    · SAARC
    · South American free trade agreement
    · Sanghai Cooperation Caucasus
    · Asia pacific economic cooperation APEC
    · G8

    RBI’s strategies for a Super power India:

    · A more robust and prudent monitory policy
    · Market driven monitory system
    · Banking sector reforms
    · Allowance to private and foreign banks(Removing the cap on FDI in Banking sector)
    · Strong vigilance and regulatory mechanism
    · Interest rate and currency exchanges wherein derivative trading on currencies and interest rates would be allowed. This is very important to provide a platform to all participants to hedge (minimize) their risk from Fluctuation in interest rates and currencies.
    · Investment in Indian market rather than US Treasury bills which gives a very less return and in turn strengthens US economy not Indian economy.

    These are few very basic steps that can yield very good results in order to achieve our strategic objective and so called VISION 2020.

There is a very strong India in the offing .

Are we ready to give it a way?

Are we ready to give it a trial?

16 comments:

Anonymous said...

Its a nice post. exact picture of India & its loophole each part of system. Such a great deep insight...
Its like RAM BAAN of all issues

icecool said...

A birds-eye view at where India is headed. Prem u sound pro-India and anti-china, the way u say India has advantage over china. I would really like to know abt the bubbles in the Chinese environment u r talkin abt. As u mentioned tht China is accelerating like a hare and India is slow paced like a tortoise. I look at it from a different perspective. China being a communist regime has a tighter control on its economy. In a controlled environment change is a much easier phenomenon, which is a lot difficult in a democratic environment. What do u have to say about that?

Akshar Prem said...

Dear ICECOOL
Neither am i pro Indian nor Anti chinese.
I have no intetion to pictue India at an advantage over China.Contrary to that,i have shown so many loopholes in Indian system which pose great threat to even our survival,let alone being superpower.
When i said an advantage over china,i meant ,there is an inherent strength in democracy and Indian model of growth.Well it is a huge subject to discuss Indian model of growth,but surely i would deal with it in coming issues.

For the time being,China's rapid growth is indeed very inflated and can possibly cause a backfire-effect on chinese system.This possibility is indeed very great because collapse of a single sub system in chinese econology would destroy entire structure of system...Its very critical...China is exposed to a real denger and one of the biggest is its political control which often surpasses market wishdome and true economic sanses..Its working as long as it works..One single wrong step and economy doomed....

India because of its unintentional cautious approach and fregmented growth model is immune to all such threats.Remember one ruppee added to Indian economy is worth more than 6 Yuan added to chinese economy in real terms.India is growing relatively slower.But this growth is sustainable and without any inflating(bubble) effect.Even if a part of Indian system fails,effects would not be so harse on entire economy and repercussions would be self contained.....

And believe me...i am not saying this because i am an indian...Its economics and time would varify it.

Untill then..keep enjoying my articles

icecool said...

i really enjoyed ur article and ur comment too... u did hit the bullz eye. Eagerly waitin for ur next post.

Anonymous said...

Супермаркет. Только зашёл в зал. Сзади окрик охранника - «Молодой
человек!!! ».
Оглядываюсь. Сразу у входа, возле ящиков с водкой, двое подростков,
16-17 лет.
Взяли большой пузырь и пошли дальше в зал.
Значит сзади им окрик охранника - «Молодой человек!!! »
И охранник идёт к тому что водку держит.
Сразу подумал — молодец! Блюдёт службу!
Но как не посмотреть на бесплатный цирк?
Но...
Я даже не мог представить, что дальше будет.
Итак.
Окрик охранника - «Молодой человек!!! »
Подходит.
«Вы ценник видели? »
Это водка акционная. Возьмёте две, третья бесплато.
У меня падает челюсть.
Но и это не всё. Знаете ответ?
Один посмотрел на другого и произнёс «А на ху... нам столько водки? »

p.s. если понравилось пиши в лс, буду радовать еще)

Anonymous said...

Вышла я недавно из офиса на улицу покурить.
Зашла в уголок за крыльцом, чтобы ветер не мешал прикуривать, и тут
прямо на тротуар, прямо на меня наметившись, заезжает на приличной
скорости мужик на мотороллере. Живописный такой: пузико приличное,
длиннющие полуседые волосы собраны в хвост, мятая майка и шорты а-ля
семейные трусы.
Т. к. выражения его лица было не видно за шлемом, я предпочла на всякий
случай, всем своим видом выказывая опасения, сделать шаг назад,
практически коснувшись лопатками стены...
Тут мужик слазит со своего пепелаца, снимает шлем, под которым
обнаруживается ослепительная улыбка, и говорит:
- Не бойся! Я знаю туеву хучу вещей, которую можно сделать с женщиной,
кроме как её переехать!..

p.s. чёрный юмор) если понравится буду радовать еще

Anonymous said...

, collien fernandes nude, %DDD, keri russell nude, 423, judy greer nude, klzhe,

Anonymous said...

comment2, vanessa marcil nude, =-[[[, zac efron desnudo, lrvb, selena gomez nip slip, 666, patsy kensit nude, cevk,

Anonymous said...

comment3, monica keena nude, 3400, billie piper nude, 382076, emily mortimer nude, 293, christina hendricks boobs, zor,

Anonymous said...

free adult dating westchester ohio http://loveepicentre.com/ male male dating

Anonymous said...

[url=http://loveepicentre.com/articles.php][img]http://loveepicentre.com/uploades/photos/1.jpg[/img][/url]
dating silvertone amp [url=http://loveepicentre.com/faq.php]spicy sweet dating[/url] who is mayor villaraigosa currently dating
gay chubby dating [url=http://loveepicentre.com]free to message sex dating[/url] pregnant women dating
insest dating site [url=http://loveepicentre.com/testimonials.php]adult dating comparisons[/url] father phenotype in female dating preferences

Anonymous said...

[url=http://loveepicentre.com/success_stories.php][img]http://loveepicentre.com/uploades/photos/12.jpg[/img][/url]
dating elliston virginia [url=http://loveepicentre.com]dating funda powered by vbulletin[/url] best sugar daddy dating sites
dating websites for disabled lesbians [url=http://loveepicentre.com]diana taurasi dating[/url] who is sarah shahi dating
online dating schemes or crooks [url=http://loveepicentre.com/articles.php]college dating[/url] dating sites acronyms

Anonymous said...

ebook reader creator http://audiobookscollection.co.uk/Critical-Companion-to-George-Orwell-A-Literary-Reference-to-His-Life-and-Work/p223135/ nick hornby slam ebook download [url=http://audiobookscollection.co.uk/Capillary-Electrophoresis-of-Nucleic-Acids-Introduction-to-the-Capillary-Electrophoresis/p148297/]christifideles laici ebook[/url] illiad ebook reader

Anonymous said...

3 day potty training ebook copy http://audiobookscollection.co.uk/Text-Speech-and-Dialogue-9th-International-Conference-TSD-2006-Brno-Czech-Republic-September-11-15-2006-Proceedings-Lecture-Notes-in-Computer-Lecture-Notes-in-Artificial-Intelligence/p209813/ ms ebook ereader [url=http://audiobookscollection.co.uk/es/Derecho-Administrativo/c1079/]cake decorating ebook[/url] who are we ebook

Anonymous said...

[url=http://onlinemedistore.com/products/zyloprim.htm][img]http://onlinemedistore.com/11.jpg[/img][/url]
pre pharmacy programs in maryland http://onlinemedistore.com/products/clarinex.htm gulf shores osteoporosis pharmacy [url=http://onlinemedistore.com/catalogue/t.htm]pharmacy technician position[/url]
order check customer number pharmacy http://onlinemedistore.com/products/uroxatral.htm pharmacy 1 billings montana [url=http://onlinemedistore.com/products/mentax.htm]mentax[/url]
pharmacy penegra silagra silagra cum with uscom http://onlinemedistore.com/products/terramycin.htm pharmacy technician national certification [url=http://onlinemedistore.com/products/cardizem.htm]post explain crdrx meds time emails pharmacy subject complaint[/url]
naval base groton ct pharmacy http://onlinemedistore.com/products/amaryl.htm ave maria pharmacy [url=http://onlinemedistore.com/products/ceftin.htm]ceftin[/url]

Anonymous said...

[url=http://certifiedpharmacy.co.uk/products/apcalis-oral-jelly.htm][img]http://onlinemedistore.com/2.jpg[/img][/url]
ovations pharmacy solutions http://certifiedpharmacy.co.uk/products/provigrax.htm any cod payment on line pharmacy [url=http://certifiedpharmacy.co.uk/products/sinemet.htm]pharmacy estrogen[/url]
kroger pharmacy generic drugs http://certifiedpharmacy.co.uk/products/himplasia.htm budget pharmacy [url=http://certifiedpharmacy.co.uk/products/nolvadex.htm]nolvadex[/url]
casodex canada internet pharmacy http://certifiedpharmacy.co.uk/products/kamagra.htm pharmacy school rancho cordova california [url=http://certifiedpharmacy.co.uk/products/tricor.htm]zostavax san diego pharmacy[/url]
mcwhorter school of pharmacy http://certifiedpharmacy.co.uk/products/lotrisone.htm how to design a pharmacy from scratch [url=http://certifiedpharmacy.co.uk/products/glucotrol-xl.htm]glucotrol xl[/url]