Re-inventing the motive of profit – “ Conscious Capitalism “

A synonym being used for the free Enterprise economy in today’s time is popularly known as “Entrepreneur “ – A mastermind behind creativity, imagination, and generation of ideas with driving progress in business, society and world.  Using their imaginative diagnosis they come out with remedies and possibilities that never existed before to embellish the lives of billions.

Taking this picture of an entrepreneur in mind, I intend to introduce a new thinking which has been evolved by John Mackey , Co CEO , Whole foods Market and Raj Sisodia  in their  popular  book “ Conscious Capitalism.”

Before we explore this concept lets us go back in history and understand the meaning of capitalism. Traditionally we have heard capitalism as an economic system which underlines ownership of means of production or privately controlled economy and always been characterized by fact that companies exist only for profit motive. Concept of capitalism has never been in the good books of intellectuals, who often have described capitalism with words like cheating consumers, spreading inequality, increasing the gap between rich and the poor.  Capitalism role as a villain for masses has been created due to the myth of profit maximization, which originated with the industrial revolution earliest economist due to incomplete information on business success.

However this book on “conscious capitalism” is an initiative to break this myth by making the entrepreneurs a true hero of free capitalist economy who starts business not only to maximize profits but utilize their energy and enthusiasm as fuel to generate extraordinary value for the customers, team players and stakeholders. The crux of the book lies in to restore the true meaning of capitalism, which has been damaged by misconception of profit maximization.  To reestablish its true essence one need’s to understand the meaning of being “conscious”.

As said by Fred Kaufman “To be conscious means to be awake, mindful. To live consciously means to be open to perceiving the world around and within us, to understand our circumstances, and to decide how to respond to them in ways that honor our needs, values, and goals.”

The same need to be applied to business and institutions. A conscious business is one that is beyond the return on investment, which exists for a purpose, a predefined goal and which is responsible to deliver value to all is stakeholders.

It is not always necessary for a business to have a purpose for making the world better place, but a conscious business have to reflect something of , value that it stands for and promises to its stakeholders. Bill gates did not start Microsoft with the goal of becoming the richest man in the world. He saw the potential of computers to transform our lives and was on fire to create software that would make them so useful that eventually all of us would own one.  He followed his passion and in the process became the richest man in the world – but that was the outcome, not his goal or purpose.

By rendering services to its stakeholders a business strengthens involvement and loyalty with its stakeholders and builds connection based on reciprocity rather than a transaction or manipulation. They exist in the real world, by dozens today but soon to be by hundreds and thousands. And this defines this new age concept of “ Conscious Capitalism”  – a growing epitome for business that simultaneously creates multiple kinds of value and well being for all stake holders: financial intellectual , physical , ecological , social , cultural , emotional , ethical and even spiritual . It reflects a deeper consciousness about why business exists and how they can create and build more value.

John Mackey and Raj Sisodia base the concept of capitalism on its four principles or tenets:

·      Higher purpose: A motive much beyond the profit maximization, integrating the interest of stakeholders.

·      Conscious leadership: Conscious minds to understand relationships between all of the interdependent stakeholders.

·      Conscious culture and management:  Popularly can be called as CAT – C- care , A – Authenticity , T – transparency . Three are very important for employees and stakeholders.

·      Stake holder integration: Positive –sum thinking – positive sum game to create win for all stakeholders of the business.

One should not consider conscious capitalism as similar to corporate social responsibility. A successful business does not necessarily need to do anything different to be socially responsible.  When a business aims to build value for it stakeholders it is itself acting in a socially responsible way.  To put this in a different way let me take the example, which is very well quoted and explained by John Mackey and Raj Sisodia on “HCL technologies” one of renowned organization in Information Technology . The company was recording good profits but at one point in time was not growing in terms of its market share. The challenge to put the company on growth trajectory was taken up by Vineet Nayar , CEO with many radical ideas about leadership and management.

He initiated this on the basis of his three growth Mantras which brought in the change in the culture of the organization and which in turn reflected in their increased profits and market share. Out of these three the first one was radical transparency- HCL initiated a system on their intranet site where in any team member is free to ask question of the leadership team at anytime , the idea behind this was to create more transparency in the organization , where everybody is aware of the challenges being faced by the company. Second mantra of Vineet Nayar was open 360 degree feedback, anyone is free to give feedback on anyone else in the company which helped the company in identifying good candidates to be promoted to broader roles and the last but not the least was the reinventing the role of CEO – Nayar using the intranet site opened up a section called as “My Problems” which was the platform for all team members to read the strategic challenges being faced by the company and freedom to respond to them with solutions. This helped him in bringing the culture of fresh and strategic thinking, which led HCL to be the company recording a profit of $3.53 billion in 2011, despite of the difficult global economy.

Conscious capitalism thus view business as an ongoing and adaptive system, which aligns profitability through higher synergies unlike CSR, where share holders have to sacrifice for the society adding a ethical burden to business goals.

To sum up when we talk about conscious business building value for stakeholders is treated as one of the core business philosophy and operation model. This model of conscious business brings in the system of social cooperation, which tends to transform lives and bring opportunity for billions on planet still living in poverty.

The whole premise of conscious capitalism lies on a business which views its human capital as resources but not as sources; A resource is like a lump of coal you use and its gone. A source is like the sun – virtually inexhaustible and continually generating energy, light and warmth. A conscious business endows people and captivates their best contribution in service for its noble higher purposes.

                              

Taking Economics to Next Level

In my last post we had discussed about the meaning of the economics. This post will take it up to its next level, where we make the readers introduce to the two broad divisions of economics. Microeconomics and Macroeconomics.

ICICI Banks net profit for current quarter increased by 40% , Production runs at Tata motors plant to get reduced in the coming year , Indian steel industry aims to boost investment in new plants in the current year. All these statements mentioned either talks about one company or one Industry in relation to company or industry product prices, cost, production or investment.  Broadly Microeconomics is the study of individual behaviour of company, industries or consumers in terms of their interaction with each other in market. Micro conics is concerned with how decrease in price of Maggie or LG television discount sales will affect the buying behaviour of consumer and how competitors will react to this decrease in price of Maggie or LG television sets .

India Gross domestic product forecasted to be 8% for the next financial year. To tame the on-going inflation RBI has hiked the interest rate from 50 basis points, Aggregate production level has shown consistent decrease in the third quarter of 2010. All the above statements have one thing in common i.e aggregate level of prices , aggregate interest rates , aggregate production, which represents the economy as a whole rather than a consumer , company or industry. A study of aggregates is called as Macroeconomics. For eg. Comparison of  GDP of GDP of emerging economies like China and India is macroeconomics.

In recent years the dimension between microeconomics and macroeconomics have reduced to great extent . For e.g taking the example of GDP comparison of China and India , before we can the compare the GDP of two countries, the prerequisites to  these is understanding of firms , consumers , workers and investors of these countries. Macroeconomist are nowadays concerned with microeconomic foundation of aggregate macroeconomic phenomenon. Therefore a manger who needs to decide on the price of the new small car manufactured by his company needs into take consideration the study of his company , automobile industry , consumer behaviour , competitor pricing as well as aggregate income and income of the population of the country as a whole. Therefore both microeconomics and macroeconomics become essential to set up the pricing strategy of the company

Economics

Introduction to Economics

In order make this initiative successful let us begin this journey by introducing what is economics.

Before economics help make this start let me assure you that, the blog will not define economics in bookish language but will try to give you an insight that how this economics is useful in our daily life.

Idea behind this learning is that after reading, reader is able to relate to this vision from a point of view of a household, a manager working in a company, a bank manager, CEO of an MNC or may be a Finance Minister of India.

Economics  is usually associated with words like

E – Equal ,

C – Choice  ,

 O –opportunity ,

 N – next best ,

O – optimum  ,

 M – monetary ,

I – insufficient

C – cost

S – Scarce

These are some words which everyone of us use in our daily life and that is what economics associated with OIKONOMOS ( in greek it means who manages a household). As a household we face many decision such as , how much and what to buy , what to cook and not to cook, how to utilize all ingredients efficiently .

Similarly a manager in a FMCG company working at an operational level has many such decisions to make , like how many bottles of shampoos to be produced , whether 200 ml or 500 ml , whether to produce more hair fall protection shampoos or dandruff protection shampoos .

A financial Manager might be trying hard to decide in the beginning of the month whether to put his client funds in stock market or debt market.

A marketing manager while deciding the allocation of salesmen in different territories is in a fix how many salesmen in a territory to get highest sales revenue.

A  CEO of a hospital who needs to decide whether to build neonatal care facility or not.

Government needs to decide whether to invest more in agriculture or industry or services.

In all the above examples thing come out to be common is , making a choice between two or more alternatives. Why one has to make alternatives? The answer is Scarcity.

In order to implement all the above examples, one requires the use of various resources in term of material for cooking, raw materials to manufacture shampoos, funds or money to invest and government needs to check the availability of land and labour. All these resources used for different activities are limited in supply. Due to this scarcity of resources the decision maker resort to only left one method of making choices which in best terms utilizes all these resources.

Therefore economics is a study how society, household , government , a manager manages its scarce resources in making decisions.

Key Words : Resources , scarcity , choices

New : About Economics

Hello to all

About Economics would like to thank all readers , to give it a good response to information shared by the blog.

The blog will again be coming up with lot of information for you all.

Blog will be upgraded with new terms and terminologies to share the applications of Global Economy and Financial world.

About Economics will now be starting to build a glossary of all possible words and week by week the blog will update you with new terms with simple language.

Apart from that blog will revive its latest economic news and other sections.

New thing which blog introducing is readers choice : Readers can ask questions related to economics , finance any aspect the blog will answer to all queries.

Looking Forward for your response

You can mail your queries at : bhumika4@gmail.com

Enjoy Reading

Protect from Protectionism

Virus of global meltdown has made world to dance over its tunes. In amidst of all this, western countries are resorting to an antivirus called “protectionism” to fight this financial meltdown.

Before going into gist of this post, Lets have brief look on Protectionism:
According to Wikipedia : Protectionism is the economic policy of dampening trade between states through methods such as tariffs on imported goods , restrictive quotas and various other government restrictions aimed at discouraging imports and prevent foreign take over of local markets and companies. In short it is the opposite of free trade and globalization.

History
Being the” super power”, all good and bad things related to world economy are initiated by USA. In one of my earlier post “fight of words: R vs. D” I had mentioned about Hawley –Smoot Tariff, which came into forth during times of great depression of 1930’s. As business were slowing down in order to protect its own industries American government created “Hawley –Smoot Tariff in 1930’s , which meant to charge high import tariffs on imports , this led to deterioration in global trade leading to economic retaliation.

Present situation
Free movement of goods and services across nations was one common link on which all economists since World War II had agreed upon. Current crisis have hiited so hard that western nations: the leaders of globalization and free trade, are spreading a new wave of isolationism.
With Barrack Obama admistration coming with a stimulus package of $ 800 billion which contains a clause “Buy America” has led to agitation among other economies. This “buy American clause which has taken heap all over imposes restrictions on use of non- American material in all public work programmes that will be funded by stimulus package. Similar sort of protectionist policies are also be followed in Britain with government infusing funds in banks to keep them solvent and insisting that funds to be used nationally.

This sort of protectionism will have adverse impact on world trade. For short term countries mite benefit from such measures but in long run this would impede their global competitiveness. Protectionism will increase cost of production and will result in inefficient allocation of resources. End result of such a policy would be only benefit incompetent industries which can’t compete at international level, whereas efficient industries will loose the most out of them.
For instance it mite be the case that, that steel, cement manufacturers may benefit from the “buy American” clause but technology sector which consists of biggies like Microsoft, Intel, Apple, General Electric and so on will take a back seat if in retaliation countries like China, India and other emerging markets who have trade relation with America impose tariffs on goods produced by these companies.

In comparison to 1930’s protectionist policy, present day policy is more discerning. Though in current slowdown fewer tariffs have been raised, but modern protectionism comes with tighter licensing requirements, import bans and anti dumping measures. Rich countries have played clever by introducing discriminatory procurement provisions in their fiscal stimulus bills and offered subsidies to ailing national industries.

International trade has covered a long journey from 1930’s period to current day crisis. And we all believe that world has less to fear from protectionism in present times. Over the period a strong safeguard system in terms of international agreement has been built which maintain tariffs in limit. The global supply chains which have integrated national economies together tightly have made it difficult for government to raise tariffs without harming producers in their own country. However these safeguard systems may fail when there is intense use of anti dumping, use of domestic subsidies and other kinds of swarming protection. Most of the countries are in position to raise tariffs as their applied rates are below maximum allowed by WTO commitments. They may tend to do so on risk of disrupting the global supply chains.

U- Turn of Globalization

It’s a well known fact that slowdown in trade is result of ongoing global recession. Even in earlier slowdowns trade has fallen on account of slowdown in demand , but current downfall in trade is arbitrary i.e. that though trade has fallen in volume , the striking feature is that it has depressed on account of falling prices and stronger dollar.

Most economists argue that tremendous growth in global supply chains is responsible for such fast dropdown in global trade. It means that countries not specialize in final products but in products used in process of production. For e.g. in earlier times truck made in America which had used American steel and parts would enter trade data only it was exported. But now if that truck uses Indian, and processed in other country then slowdown in demand in America would effects its counterparts also.

Therefore in this sense Buy America clause mite turn out to be bust for American economy. For instance if take a look at auto sector. The American government is working hard to provide big stimulus to save its auto industry. However most of these manufacturers have global businesses and to protecting an automobile company in one country would affect its operations in others as well. For e.g. if us government did not provide any rescue package for general motors its worldwide operations, including business that it outsources in India, would be affected.

Therefore the it mite be the case that in era of global supply chains in international trade , this rescue plan of America mite turn out to be another problem for them.

Curse of Indian SME’s

Over the years Indian Small Scale Sector has been able to create a significant position for itself in the Indian industrial economy. By employing around 28.3 million people it becomes the second highest source of employment in India. Apart from this it accounts for 49% of overall exports.

SME’s in India are dominant in sectors like textiles, chemicals, auto components, leather and machine tools. With the current slowdown mounting, this sector scores high rank of coming into its grip. This is evident from the fact that despite of 2 fiscal packages announced by government and easing of interest rate by RBI to infuse much needed liquidity in this sector banks are still hesitant to lend them due to their low creditworthiness.

Let’s look at the better picture of it:

Leather Industry
For instance let’s look at the case of leather industry; this sector was registering growth of about 20% in second half of 2008 but got crumpled by global slowdown. The main reason is accounted as slowdown in orders from western markets like UK & USA. The European Union and US markets contributes to about 25% to 65% of Indian export revenue.
Apart from this competition from china is becoming tough as Chinese government helping them to follow aggressive export policy which in turn helping them to bag more orders. If such scenario continues it is estimated that about 2-3 lakhs of jobs will be lost out of 25 lakhs of total workers employed and number can further increase.

Small service industry
In this aspect there is one interesting example to watch out; we all know how radio cabs industry has gained momentum in past few years. Estimates show that chauffeurs use to earn around 15000 per month around few months back, but with downfall in business their incomes have scaled down to 3000-4000 per month. This drastic decline in incomes of these chauffeurs is due to decline in number of duties on daily basis and burden of daily subscription of Rs 700 which is mandatory for them to pay.
If we need to check out an example of particular industry this one I Found out in one of the newspapers was of Chakradhar Chemicals Pvt Ltd, a medium-sized 13,000-tonne capacity micronutrient fertilizer company based in Uttar Pradesh. Company employs around 70 people and has been hard hit by rising cost of raw material and transport while salary expenses have increased by 16% on year-on-year basis.

Textile Industry
If we go 2 years back i.e. around 2007 Indian textile industry was on brink of rapid growth. However in present day the industry is pleading for urgent help for its resurrection. India is the world’s second largest exporter and consumer of cotton. In past few months cotton prices have surged nearly by 30% which has wiped of the demand for cotton textiles and garments from international markets. This has resulted in workers of textile industries to go for forceful voluntary retirement.

As discussed above major demand for Indian textile comes from US and Europe, with these countries battling the slowdown demand has been completely wiped of, this is despite of rupee depreciation, which is beneficial for exporters.
Numerical estimates show that Indian exports declined from $3.9 billion to 3.8 billion from the month of January to August, which was before US meltdown in September. The overall drop in value terms was 1.6 percent, with the drop in exports of garments a much higher 4.8 percent. The situation has worsened; total output of the textile sector has dwindled down to 10%. Study conducted in November by the Federation of Indian Chambers of Commerce and Industry (FICCI) pointed out that investments in the textiles industry were falling and so was its profitability.

I figured out few examples which have been hardly hit by this recession. While traveling by train in state of Punjab , as soon as train arrives in city Ludhiana , the recorded voice says city’s textile industries contributes about 80% of the country’s wool production. However but present day situation is different , most of the garment companies in city have suffer losses more than 50% over the last year , which creates 4,00,000 jobs in Ludhiana itself.

Remedy for This!
According to estimates of ASSOCHAM (Associated Chambers of commerce and industry of India) the SME’s were becoming tender during its first quarter with both manufacturing and hiring dwindling down to 10% and 7% respectively.

Therefore need of the hour is to restructure loan repayment plans for textile companies. According to most of the experts the medicine which can heal this bruised industry is easier terms for bank credit and reduction in taxes for textiles.

Let’s hope the new government which will form after upcoming general elections provide some respite to this beated down sector

Perspective of Fiscal Multiplier

Though we are in amidst of a severe financial turmoil, but this gives us opportunity to learn the working of various concepts of macroeconomics in reality , which we have always studied in books. One of such interesting concept which strikes my mind recently was how is fiscal multiplier working when governments of all countries are resorting to massive bailouts.

Let’s first have a brief look on concept of fiscal multipliers:
According to Wikipedia Fiscal Policy Multiplier refers to the idea that the initial amount of money spent by government leads to an even greater increase in national income. In other words an initial change in aggregate demand causes a change in aggregate output for the output that is multiple of the initial change.

In view of government bailouts, where government is trying hard to provide stimulus to their respective economies in order to increase aggregate demand, we need to analyze role of these fiscal multipliers.

As we know major fiscal policy instruments are government spending and taxation, which impact aggregate demand, resource allocation and income distribution. In current slowdown when worldwide governments are resorting to excessive government spending in order to raise demand, multiplier effects of spending on economic output turns out to be small.

First lets analyze the case where fiscal multiplier is 1, what does this imply- this simply means that an increase of one unit in government spending will lead to an increase by one unit in real gross domestic products (GDP) .Therefore , added public goods are provided free of cost to the society. This outcome is no magic but optimal utilization of resources like labor and capital, which add to production of more good and services.

If multiplier is greater than 1 , ( multipliers via government spending range usually between 1.5 to 2 ) in this gross domestic product rises more than government expenditure. Thus we have additional goods and services which give the room for to raise private consumption and investment.

Historic view
We all know about the great depression of 1930’s, it was the time when the Keynesian tonic was applied to the much damaged US economy. It is much evident from past experience that government spending is linked to overall business fluctuations in the economy. In times of World War II enormous fiscal expansion was done in terms of increased defense expenditure, which led to freedom of global economy from grip of great depression. This in turn proves the existence of large multipliers.

But going by studies of economists some flaws of Keynesian theory come to highlight. According to them the increase of US defense expenditure led to a large multiplier of 0.8.However if we analyze it the other way round, it gives us a very practical and real picture. Accordingly, the increase in war expenditure led to erosion in other components which comprises the GDP. There was massive down surge witnessed in private investment, nonmilitary government expenditure, and net exports. This resulted in a depressive effect rather than a multiplier effect. However in times of peace increase in government expenditure had led to large multipliers. All growth from 1941 to 1945 cannot be attributed to military outlays, many economists believe that multiplier during peace time was significantly different from zero.

Current scenario
The major question comes back to the current crisis, with global economy facing a severe downtrend; will government stimulus lead to large multipliers?

If we compare American economy of 2001 with today we will get a much clearer picture. In 2001 though economy was in recession but at that time there was room for households to use their tax cuts as down payment for car or cover their costs of mortgage refinance.

In current phase credit markets are bruised badly, therefore financial institutions won’t be able to take advantage of income generated by increased government spending to the same extent leading to much smaller multipliers.

Markets Free Fall: Despite of RBI rate cut & low Infaltion

Tackling the global finacial meltdown , RBI yestrday came with the move of cutting repo rate and reverse repo rate by 50 bs points. Currently Repo Rate ( the rate at which RBI lends to commercial banks) stands at 5% and Reverse Repo rate ( the rate at which banks lend to RBI) stands at 3.5%.

The move was taken in view to ease lending rates for corporate india and individiual borrowers in order to create demand in economy. however markets responded negatively to this move by plunging in red , falling by 261.14 points ending at 8185.35. lot of selling pressure came in from largecap stocks all making new 52 weeks low.

Even low inflation numbers couldnt turn up the market sentiments. Inflation came down to 3.03% for the week ended feburary 21.

Renewed FII selling is taking our markets down. However, next week a global rally can be expected as the US markets are in the highly oversold zone.

Gold Exchange Traded Funds

Gold has remained one of the favorite avenues of investment for Indians. Around 23% of investment is done in gold by Indians.

Amid the current global turmoil and the bear run share-market scenario, people are going for the traditional and safer option of investment: gold. They are investing in the yellow metal in a significant volume. With the advantages of gold over any other form of investment — security being the most desired — people are buying gold in all forms, be it coins, biscuits or jewellery, besides exploring new options like Exchange Traded Fund (ETF).
I have seen many people are not familiar with gold ETF, which have become quite significant in past few years. So this post in brief will provide readers to explore this avenue of investment in this downturn.

What are ETF’s?
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

What is Gold ETF?
Gold ETFs provided investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that participation through the trading of a security on stock exchange. Gold ETF would be a passive investment; so, when gold prices move up, the ETF appreciates and when gold prices move down, the ETF loses value.
Gold ETF provides return that before expenses closely corresponds to the returns provided by physical gold. Each unit is approximately equal to price of 1 gram gold. But, there are Gold ETFs which also provide a unit which is approximately equal to the price of ½ gram of Gold.

Brief history
The first proposal of a gold exchange traded fund was originated by an Indian company called Benchmark Asset Management; a proposal was launched with the SEBI (Securities Exchange Board Of India) in 2002. This proposal was not approved at that time.
The Australia Stock Exchange was the first to launch a gold exchange traded fund in 2003 by Gold Bullion Securities under the symbol ‘GOLD’. This fund was fully backed, insured and deposited by gold bullion.

Difference between Gold Etf’s & Mutual Funds
Disparate Asset Classes
It is the nature of asset classes which differentiate gold etfs and mutual funds from each other. While former falls under the category of commodities, later comes under equity category. In Gold Etfs investor is vested with the opportunity, to invest in units of gold, which are traded on exchange as single stock. The units issued under the scheme represent the value of gold held in scheme. However in case of mutual funds, fund mangers invest in equity and equity related securities of gold mining companies. Since gold mining companies are not listed on Indian stock exchanges, the gold mutual funds invest in world gold funds that invest in gold mining companies across the world.

Returns attainable
Basic motive behind any investment is to gain high returns. The world gold fund has given absolute returns of 31.9% in the period since its inception in August 2007 to July 2008. Most financial advisors advise that investment in gold must be made for the purpose of diversification and at any point in time, about 10-15% of your assets must be invested in gold.

Nature of funds
Basic aim of both the funds is another important point which differentiates both the funds from each other. “The fund simply buys and holds gold on behalf of the investor without actively managing it. The aim is to give returns as close as possible, post-expenses, to that given for gold as a commodity,” however when investing in a mutual fund, the investor can rely on the expertise of a fund manager who indulges in active portfolio management and is able to make crucial decisions regarding selecting stocks of gold companies.

Benefits of trading in ETF’S
In ETf’s investors have the opportunity of buying as less as 1 unit on the exchange. Investors don’t have to pay entry or exit load and expenses on brokerage are less. Here gold etf’s score over mutual funds as in case of later investor has to bear defined load structure, entry and exit loads and other expenses.

There are five gold ETFs in the market today, namely Gold BeEs, Kotak Gold, Quantum Gold, Reliance Gold, and UTI Gold ETF. According to data published by Value research online, the returns from all the gold ETFs over the last one year have been practically identical.

IF you take a look at gold prices in the past few months, they have been moving in just one direction-- upwards. From Rs 10, 650 for 10 grams last January 2008, the price has moved to Rs 15,490 today. Gold price is at a seven month high and is up by 10% since January this year. The World Gold Council reports that global demand was up by 4 per cent in 2008.

Gold and stock markets have negative correlation, which can be witnessed in current scenario where volatility in stock markets have led to sky rocketing gold prices.

In 2009 itself Gold etf’s have outperformed gold mutual funds. ETFs have given 29 per cent returns in 2008 and over 8 per cent till now in 2009. In this current financial turmoil investing in shining yellow metal turns out to be the safest bet!!

Inflation slided to 3.92%

Inflation eased to a 13-month low of 3.92% for the week ended February 7 on the back of a sharp fall in the prices of edible oils and
manufactured products. An ET poll had forecast that the inflation would fall to 3.91% for the week from 4.38% in the week before and 4.97% in the corresponding week last year. Inflation based on the wholesale price index has eased sharply from a 16-year peak of 12.91% in August 2008, due to a sharp fall in commodity prices
and a slowing demand. The drop in inflation has led to renewed calls for aggressive rate cuts to boost the flagging economy.

Fight of words: R Vs D

We all are familiar with ongoing financial crisis, but most of us don’t know whether to call it a financial recession or depression. I have seen many articles, papers where there is confusion between with what to quote current crisis with “recession or depression”.

Before finding an answer to this, let’s find out difference between the two:
On searching on various search engines the basic difference which, I got is as follows:
Recession: an extended decline in general business activity, typically three consecutive quarters of falling real gross national product.
Depression: a decline in real GDP that exceeds 10%, or one that lasts more than three years.

Therefore the above definitions indicate that the basic criteria of indentifying depression or recession are to measure extent of economic decline. A depression is simply a magnified version of recession. The last two depressions in the U.S. were both in the 1930s. From August of 1929 to March 1933, real GDP declined by approximately 33%. There was a period of recovery following this depression, but in 1937-38 the economy dipped again in a less severe depression. All other economic downturns since that time have been recessions or just plain old tough time.

Transpose of Recession to Depression
Recessions gets transformed into depression, when government applies wrong measures in controlling it.
According to James Pethokoukis, "4 Ways to Turn a Recession into a Depression (U. S. News 11/4/08), there are ways that good and bad policy can effect an economic downturn.
· Bank closures
Although the American taxpayer may well have to provide what is being called, "the mother of all bailouts" the Federal Reserve has already committed $7 billion to prevent the collapse and run on the banks. It has also raised the federal deposit insurance (FDIC) from $100,000 to $250,000 to discourage shaking depositors from withdrawing their cash.
· Increasing of taxes
During the period of great depression, according to the revenue act tax rate was raised from 25% to 63%. Economists regard this as one of the most inaccurate steps taken.
· Hawley –Smoot Tariff
As businesses were slowing down, to protect its own industries American government created a Hawley-Smoot tariff in 1930, which meant to charge high import tariffs on imports, this led to deterioration in global trade leading to economic retaliation.

New distinction between Recession & Depression
However there are economists who differ from above definitions of recession and depression. in present times they believe that difference between a recession and a depression is more than simply one of size or duration. In making distinction between the 2, cause of the downturn should also be taken into account. A standard recession usually follows a period of tight monetary policy, but a depression is the result of a bursting asset and credit bubble, a contraction in credit, and a decline in the general price level.
If we go back in past, economic downturns that followed the collapse of the Soviet Union and those during the Asian crisis were not really depressions according to this criterion. Another significant aspect of this distinction between a recession and a depression is that they call for different policy responses. A recession triggered by tight monetary policy can be cured by lower interest rates, but fiscal policy tends to be less effective because of the lags involved. By contrast, in a depression caused by falling asset prices, a credit crunch and deflation, conventional monetary policy is much less potent than fiscal policy and one tends fall into what is called as a “ liquidity trap”.
Present day situation
After all this discussion, the only question dwindle in our minds is “where we are today’? Well if we go by all definitions, America’s GDP may have fallen by an annualized 6% in the fourth quarter of 2008, and cause of this downturn is the largest asset-price and credit bubble in history—even bigger than that in Japan in the late 1980s or America in the late 1920s. So this means we are back to 1930’s?
Well many economists tend to deny this notion of 1930’s depression, because policymakers are unlikely to repeat the mistakes of the past. Though we are far off from situation of great depression, and policymakers won’t make same mistakes. But you never know they commit some new one’s as these are same policymakers who predicted that nationwide housing bubble burst is impossible, but today nothing is hidden, we all know the truth and truth is always bitter…..

Low Inflation Offset by Low IIP numbers

The lower inflation numbers failed to boost sentiment in the markets, which were dragged by the negative industrial numbers. The Sensex remained in the negative territory amid weak Asian markets.
The Sensex was down 62 points at 9556 levels.
The rate sensitive sectors realty, auto and banking stocks were mostly in the green in anticipation of a rate cut by the RBI. On the other hand, metals, IT and oil & gas stocks dragged the benchmark index.
The industrial production for December contracted by 2 per cent, as compared to 8.6 per cent growth a year earlier. The fall was led by a led by a 2.5 per cent contraction in the manufacturing output. Inflation for the week ended January 31 was at 4.39 per cent as compared to 5.07 per cent a week earlier

Soruce : NDTV Profit

Unhealthy Report Card of Corporate India

With the outburst of satyam saga, New Year also started with quarter 3 results of corporate India for FY 2008-09. With global meltdown riding on peaks, doleful results of major companies all over the world were predicted and result of Indian companies are no exception.

Global financial markets from past few quarters have been posting unhealthy performance. Despite of various fiscal bailout packages announced by economies, there impact on combating this ongoing recession is yet to be seen.

Coming back to India, the 3 quarter earning season was gloomy for the economy, as all major companies showed losses in their balance sheets. On the basis of sectoral performance, the major hit sectors are the export oriented, gems and jewellery and textiles. Battling with low demand, slowdown hitted real estate and infrastructure have passed on their negative fortunes to also cement and steel industry. These two segments have shown dejected performance on account falls in prices of finished goods and low demand from key user segments.

Also interest rate sensitive sectors like automobile are facing bad times. A leading two-wheeler company has not only posted a decline of 17% in net sales but also a whopping 25% decline in net profit for the Q3 FY09. Major commercial vehicles players have also shown dismal performance for the quarter. Moreover, the numbers released Society of Indian Automobile Manufacturers , on production and sales gives a gloomy picture of this sector.

Though IT companies have posted good results in Q3 FY09, it can be partly attributed to the rupee depreciation. Going ahead, the weak guidance given by IT companies indicates a rough ride in global markets. Though banking sector have posted positive results but surging NPA’s can prove out to be trouble in coming quarters.

Oil marketing companies benefited through artificially propped up petro product prices, while pharma and FMCG companies continued with their standard 5%–15% growth pattern.
Despite of the measures taken via monetary and fiscal policy, slowdown is evident in all the sectors, and deteriorating job scenario in 2009 is painting a picture of slowdown in quarters to come.

Inflation at 5.07% on Jan 24

IInflation for the week ended Jan 24 slipped to 5.07% from 5.64% as prices of food items eased after rising for two consecutive weeks.

This was lower than a forecast 5.21 per cent in the wholesale price index in the 12 months to Jan. 24, compared with 5.64 per cent in the previous week. It would be the slowest annual rise since Feb 9 last year when inflation was at 4.98 per cent. Inflation had fallen to an 11-month low of 5.24 per cent on Jan. 3, but it rose in the next two weeks following an eight-day nationwide truckers' strike that pushed up food prices.

source: Economic Times

The classical school

Classical economics is a school of economic thought whose major developers were William Petty, Adam Smith, David Ricardo and John Stuart Mill. Classical economists attempted to explain growth and development. During the time when capitalism was emerging from past feudal society these great economists came with their theories which marked the era of industrial revolution and bringing about major changes in society. Classical economists reoriented economics away from an analysis of the ruler's personal interests to a class-based interest.

Publishing of book wealth of nations by Adam Smith gave birth to modern economics in 1776. The book identified land, labor and capital as three factors of production and major contributors to nation’s wealth. Smith for e.g. identified the wealth of a nation with the yearly national income, instead of the king's treasury. Smith saw this income as produced by labor applied to land and capital equipment. Once land and capital equipment are appropriated by individuals, the national income is divided up between laborers, landlords, and capitalists in the form of wages, rent, and profits. Wealth of nations highlighted a disproportionate number of ideas about the organizations and markets that survive today –nearly 300 years later, and an economic revolution or two after publications. Adam Smith was regarded as “Father of Modern Economics”.

The centeral thesis of welath of nations is that capital is best employed for the production and distribution of wealth under conditions of governmental non-interference , or laissez-faire, and free trade. In Smith's view, the production and exchange of goods can be stimulated, and a consequent rise in the general standard of living attained, only through the efficient operations of private industrial and commercial entrepreneurs acting with a minimum of regulation and control by the governments.in order to prove this ,he came out with a theory of invisible hand, which highlighted that market system appears to organize itself and even after an unexpected economic crash returning to pre-disastrous state with no intervention by greater body or so.
In today’s time book can be a difficult read for modern economists. Much of what is discussed in the book makes very little sense in a modern context - but still, the concept of an equilibrium market, where various negative forces may be applied, generally from interventionism and negative economic situations, holds strong to this day.

Evolution of Economics

The word “economics” is derived from oikonomikos, which means skilled in household management. As the western world began its transition from agrarian to industrial economy, modern economic thought came into being. Before modern economics which came into being around 1th century there existed number of economic thought particularly European Mercantilism, and French Physiocraticism. Of which, neither fall in to the classification of formal economics, and both lack the structural and systematic processes required for formal knowledge creation.

Mercantilists’
This was the economic philosophy adopted by merchants and statesman during the pre-classical era started after 1500. Mercantilists’ believed that nation wealth came primarily from accumulating gold and silver. Their philosophy can be summed up in following manner:
1. All available land should be employed for agriculture, manufacturing and mining.
2.Exports of monetary items such as gold and silver should be banned, such that mechanisms of trade stay within the country.
3. Imports should be grossly frowned up and when need arises should be traded in exchange for other goods.
Mercantilism introduced the concept of double entry accounting, which is a primary form of bookkeeping in today’s time. This system represented the pinnacle of commercial interest to level of national policy.

Physiocrats
Idea of economy as a circular flow of income and output was developed by group of French philosophers in 18th century known as physiocrats. They believed that only process that yield net result is agriculture. According to them agriculture is sole source of wealth in an economy. In an opposition against mercantilist trade theory, the physiocrats propounded a policy of laissez-faire, which meant minimal government interference in the economy.

Introduction

We have always known economics as a subject which exists in our school or college syllabus. Definitely for me it is one of the very interesting subject and one of my passions to explore the subject from start to finish.
A thought recently clicked my mind that we all know economics as a subject that exist as part of our course in schools and college , but we hardly know how this subject came into being. As a matter of fact the origin of this subject lies in western world where it came into existence around 17th & 18th centuries.
Therefore in this part of my blog I’ll be sharing with you how economics came into being and ill share with you works of various economists whose names are somehow being forgotten by us:
This part of my blog is for those, who really have liking and passion for this subject. Hope you guys like this part of blog also.

Gold Prices shot up to Rs 14, 175

Gold prices shot up by Rs 435 per 10 grams to a new peak of Rs 14,175 on the bullion market in Mumbai on Thursday following renewed buying from stockists and investors on the back of firm trend in global markets.
Silver also moved up in line with gold prices as well as renewed industrial inquiries.
Volatility in other assets that forced investors to park their funds in precious metals as a safe investment also boosted the prices of these metals.
Gold strengthened more than two per cent in Europe to a three-month high, as investors preferred to invest in the metal from the current uncertain scenario.
According to market perception, China taking an interest in gold as an alternative to U S Treasuries, and of a European fund buying bullion, also influenced the prices. Spot gold climbed to a high of $926.10 an ounce and was quoted at $918.50/920.50 an ounce up from $906.75 in New York late on Thursday.
Gold futures rebounced in New York after two sessions to above $900 an ounce as gloomy economic news in the US triggered safe-haven buying.
Gold for February delivery ended up by $16.90 an ounce to $905.10 on the Comex division of the New York Mercantile Exchange. March silver also rose to $12.145 an ounce. Gold was rising as "economic malaise continues to batter the world", a dealer said.
Turning to the domestic market, standard gold (99.5 purity) shot up by Rs 435 per ten grams to Rs 14,175 from Thursday’s closing level of Rs 13,740. Pure gold (99.9 purity) also rose to Rs 14,240 from Rs 13,805.
Silver ready (.999 fineness) jumped by Rs 575 per kilo to Rs 19,795 from Rs 19,220 on Thursday.

source : NDTV PROFIT

Indian Pharma: A Dark Horse

Over the years pharmacy has grown in the form of pharmaceutical sciences through research and development processes. It is related to product as well as services. The various drugs discovered and developed are its products and healthcare it provides comes under category of services.
The Indian pharmaceutical industry is in the top rank of India’s science based industries with a vast array of capabilities in the complex field of drug manufacture and technology. This sector is categorized as highly organized sector registering turnover of $ 4.5 billion and growing at a rate of 8% to 9% annually. The Indian pharmaceutical industry is capable to meet country’s demand for any drug. The manufacturing units within the country are capable of meeting about 80% of the country’s drug requirement. There are about 20,000 production units in India with products sold at competitive lower prices than international drug prices. It ranks high in the third world in terms of technology, quality and range of medicines manufactured. From simple headache pills to complex antibiotics and complicated cardiac compounds, almost every type of medicine is made indigenously.

The Indian pharmaceutical sector is highly fragmented with more than 20,000 registered units. Drastic expansion has been witnessed in last 2 decades. The leading 250 companies control 70% of the market with market leader holding nearly 7% of the market share. It’s an extremely fragmented market with severe competition and government price controls.

Playing a key role in promoting and sustaining development in the vital field of medicines, Indian pharma industry boasts of quality producers and many units approved by regulatory authorities in UK and USA. International companies associated with this sector, have stimulated, assisted and spread head this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world.

India has 300 pharma companies of large and moderate size and another 10,000 small and tiny firms. But 70% of the production is by 100 larger companies. The industry manufactures around 440 of bulk drugs and almost entire range of formulations. About 1/3rd of India’s production – close to US $ 3.5 billion- is exported and exports are growing at 25% per annum. Exports to US fetch India about half billion dollars, while Germany, UK, Italy, Japan are among others. Large quantities of medicines are being exported from India to china, Brazil, Mexico and Nigeria.

PATENT REGIME
The signing of trade related intellectual property rights (TRIPS) agreement in 1995, which committed India to honor the WTO mandated product regime from 2005 marked the beginning of fresh chapter in industry’s evolution and India has finally transited into product patent regime from process patent. Process patent is the form of protection under which the process by which drug is manufactured is given protection. As there were many loopholes in this system companies very conveniently made very minor changes in the product and sold patented drugs at a lower price. Because of this MNC’s like Pfizer, Eli Lily was reluctant to launch their new molecules in Indian market. But under the product patent the molecule gets the protection and others cannot develop the similar molecule till the patent is valid.

POST 2005 SCENARIO
By issuing a patent ordinance, India met a WTO commitment to recognize foreign patents from January 2005, the culmination of 10 year process. In this new scenario, the Indian pharmaceutical manufactures won’t be able to manufacture patented drugs. To adapt to this new patent regime, the industry is exploring business models different from existing traditional ones.
New business models include:
1. Contract research ( drug discovery and clinical trials)
2. Contract manufacturing
3. Co-marketing alliances.

The focus of Indian pharma companies is also shifting from process improvisation to drug discovery and R &D. The Indian companies are setting up their own R &D setups and are also collaborating with research laboratories like CDRI, IICT etc.

CONTRACT RESEARCH
In 2002, the industry for clinical trials in India was $ 70 million. This market is growing at the rate of 20% per annum. According to experts, it will be industry worth anywhere between $ 500 million to $ 1.5 billion by 2010.
The global R&D is spending to the tune of $ 60 billion of which non-clinical segment accounts for $ 21 bn and clinical segment accounts for $ 39 bn. In terms of Indian prices this translates into ($ 7 bn at 1/3rd of US/EU costs) and ($ 7.8 bn of US / EU costs) respectively. This constitutes total potential for $ 14.8 billion for the Indian pharma companies.

CONTRACT MANUFACTURING
Many global pharmaceutical majors are looking to outsource manufacturing from Indian, companies which enjoy much lower costs both capital and recurring than their western counterparts. Many companies have made their plants CGMP compliant and India is having the largest number of USFDA approved plants outside USA.
The pharma companies are going for compliance with international regulatory agencies like USFDA, MCC etc for their manufacturing facilities.
Indian companies are proving to be better at developing API’s then their competitors from target markets and that too with non-infringing processes. Indian drugs are either entering into strategic alliances with large generic companies in the world of off-patent molecules or entering into contract manufacturing agreements with innovator companies for supplying complex under patent molecules.
Some of the companies like Dishman pharma, divis labs and matrix lab have been undertaking contract jobs for MNC’s in US and Europe. Even shasun chemicals, strides arcolabs, jubilant orgonosys and many other large Indian companies started undertaking contract manufacturing of API’s as apart of their additional revenue stream. The Boston consulting group estimated that contract manufacturing market for global companies in India would touch $ 900 million by 2010.


Growth Pattern of the Sector
The pharma industry has grown at 1.5-1.6 times the growth of the economy over the past couple of years. The industry has grown at a CAGR of 13 % from 2002-2007 and is expected to grow at a rate of CAGR of 16% over the period of 2007-2011. Accounting for the 2% of the world’s pharmaceutical market, the Indian pharmaceutical sector has market value of about US $ 8 billion. It ranks 4th in terms total global pharmaceutical production and 13th in terms of value. Over the last 2 years the sector’s market value has increased to about US $ 355 million because of launch of new products. According to an estimate 3900 new generic products have been launched in past 2 years. These have been by and large launched by big brands in the pharma sector. And in the year 2005 Indian pharmaceutical companies captured around 70% of the domestic market.
At present scenario only few people can afford costly drugs which have increased price sensitivity in the drug market. Now the companies are trying to capture the market by introducing high quality and low priced medicine and drugs. At present large number of Indian pharmaceuticals companies are looking for tie-ups with foreign firms for in license drugs. In 2005 6.2% of the disposable income was spent on healthcare as compare to 2.8% in 1995. Health insurance penetration is estimated at 10% in India and is expected to double in next five to seven years.

India is one of the top five manufactures of bulk drugs in the world and among the top 20 pharmaceutical exporters of the world. The value of the pharmaceutical output grew more than 10 fold from Rs 5000 crore in 1990 to over 65000 crore in 2006-07.india is now recognized a one of the leading global players in pharmaceutical industry. Europe accounts for highest share of Indian pharma exports followed by North America and Asia. The national pharmaceutical policy, aimed at ensuring availability of lifesaving drugs at reasonable prices is being finalized. Taking stock for the imperative requirement, the government has decided to set up six new institutes of pharmaceutical education and research (NIPERS) in different regions of the country. As anew initiative in pharmaceutical sector, the first pharmaceutical census of India is proposed to during 2007-08 to obtain robust database for the sector.

Pharma to emerge as Dark Horse in slowdown

In these tough times of recession [Indian] pharma sector has shown comparative resilience and has been relatively less impacted. There are two reasons for this: the domestic pharma market continues to experience healthy growth and the demand for generic (a biological equivalent of an originator pharmaceutical product) medicines is on the rise in international market.

Pharma is not completely immune to the slowdown and global economic crisis, but the impact is less severe. Over the past two years, the $8 billion domestic pharma industry has grown at a rate of more than 12%.
It is likely to see high single digit growth in 2009. The growing incidence of lifestyle diseases, rising disposable incomes, greater penetration of health insurance and expanding medical infrastructure will continue to foster growth in the domestic market. The fact is that however bad the economic environment, demand for medicines is relatively inelastic.

They will remain a hot centre for opportunity. There is also growing excitement as drugs worth $60 billion are expected to come off patent in the US in next few years. These positive trends signal a huge market opportunity for Indian pharma companies, who have over the years carved a niche for themselves, in most global markets

Investment scenario in India

Being the fourth largest economy in the world and has second largest GDP among developing countries , in purchasing power terms , India is poised for growth with macro –economic stability and by 2025 Indian economy is projected to be about 60% in size of the US economy.
Investment is the key element which has taken India on high growth trajectory. In this post we try to analyze current scenario of investment in 3 core sectors: infrastructure, education and security.
Infrastructure investment
India has emerged as land of opportunities for infrastructure sector. The potential is exorbitant as many sectors have opened up for participation and private investment. In the last few years a number of Road Projects have been taken up under ambitious National Highway Development Programme costing about US$ 12 billion, in which large number of foreign construction companies are participating. The telecom sector has moved forward at a brisk pace and power reforms have gained momentum while the disinvestments process has got underway in the Telecom and Oil and Gas sector. In order to have an integrated development of Transport system, National Rail Development Programme has also been launched in Dec. 2002 envisaging an investment of about US $3.5 billion.
India has been prominent in attracting most of the infrastructure projects with private participation in the region. For instance an important role behind the extensive growth of Indian IT sector and BPO’s is played by availability of robust infrastructure (telecom, power and roads) in the country. Relevant telecom facilities are an important prerequisite for the success of the software industry and over the years, the Government has taken steps to ensure that telecom remains a priority area.
Similarly, regular, reliable, uninterrupted power, a major necessity for running IT software and services businesses, has also received substantial attention from the Government. Recent steps to privatize the distribution of power and bring in greater efficiencies and customer centricity in the market have been welcomed by the ICT industry.
The overall roads and highways scenario in India has also witnessed major improvements over the last few years. Most cities and first and second tier towns are connected and interlinked to each other. Major investments have gone into the development of highways, both on the side of the central and state Governments. Clearly, the Indian Government has understood the importance of infrastructure to industries such as IT and created a conducive environment for its development and expansion.
Present meltdown
In the present economic crisis when all sectors are facing the heat of downturn, infrastructure sector comes with no exceptions. The major hindrance coming in way of growth of this sector is scarcity of funds. This holds true especially in the case of large scale, complex projects, as in case of hydro power projects, which have long gestation periods. The Government needs to consider introducing mechanisms/ instruments that allow efficient long-term funding of projects. In addition, limits on external commercial borrowings for such infrastructure projects should be removed.
In recently announced fiscal package by government, in order to boost investment in the infrastructure sector, the government authorized the state-run India Infrastructure Finance Co. Ltd (IIFCL) to raise Rs.100 billion through tax-free bonds by next March. Announcing a Rs.3,000-billion ($60-billion) stimulus package to pump prime the economy, a government statement said IIFCL, set up to finance infrastructure projects in the country, could use the fund to refinance port, highway and power projects, being developed under the public-private partnership model.

Scenario of investment in private education
Indian education system has witnessed an impressive growth path since independence. From just 0.1 Million in 1947, enrollments in the country have grown to more than 11 Million in 2005-06. The education system in the country saw a revolution with the emergence of a whole new class of education providers, including private institutes, distance education providers, self-financing courses in public institutions and foreign education providers.
Despite the fact of rising enrolment figures, the cumulative expenditure of states on educational services as a % of total expenditure has shown a decline of 18% in 2007-08. Inter-state differences in per capita education spending across states are widening. While per capita fund flow to education in 2005-06 was Rs 483 in Uttar Pradesh and Rs 487 in Bihar. It was Rs 1034 in Maharashtra and Kerala and Rs 1777 in Himachal Pradesh. A slowdown in government spending in key areas of education infrastructure in many of these states has happened despite a marked improvement in the fiscal performance of most of these states. This is in sharp contrast to the post -1997 periods when a fall in education spending could be attributed to shortage in government finances due to deteriorating fiscal health of states.

Aftermath of terrorism on India Inc
Recent terror attacks in financial of the country Mumbai will post short term impact on Indian economy according to many economist and analyst. Being the home of Asia’s oldest stock exchange, country’s central bank, capital markets regulator (SEBI) and India’s biggest corporate houses- Tata’s , Birla’s , Ambani’s , accounts for country ‘s $ 1 trillion (Rs 49.9 trillion) economy and contributes one third of its direct taxes. According to various economists though these attacks will affect country’s economy but deeper impacts will come from global slowdown.
National security is a critical factor that determines the level of investment — both domestic and foreign — along with conducive business environment, positive policy matrix and return on investment. Global investors apply these parameters diligently while making their decision on investment destinations.
In tough times like we are in currently, the portfolio investment and allocation decisions by certain global funds could be affected. However, investment decisions by various multinationals to enter a market for strategic reasons tend to be made with a longer term and global view in mind and should not get impacted, unless these attacks continue for prolonged period. While overall FDI flows at $17 bn were 137% higher in the first half of this fiscal year, the second quarter ended September 2008 has seen a slowdown of 30% in FDI flows compared to the June quarter. On the other hand, portfolio flows into India (FII) have already seen a massive outflow this fiscal year of over $9 bn through end of October, while FIIs had invested over $13 billion in the Indian markets last fiscal year.
The business confidence which was weakening due to current global turmoil will now bear the heat of this terror attack, with sentiments further going weak. The hardest hit industries will be hospitality, travel and tourism and luxury retail business. Already tourism sector is struggling to beat economic slowdown, now these terror attacks have added to their struggle with hoteliers are expecting large scale cancellation of bookings mostly from overseas visitors. This will in turn affect the aviation business which is already in battle with the slowdown. Another immediate victim of this attack would be luxury retail business. The Taj and Trident are home to around a dozen of luxury retailers including Gucci, Ferragamo, Jimmy Choo, Estee Lauder, Louis Vuitton and Fendi. Business would be impacted not only due to space but also sales because lot of sales comes from in-house guests. Most luxury brands prefer to operate out of five star hotels because India doesn’t have high quality luxury retail space.

Boom time for security industry
In the times when Indian industries are battling with wicked effects of global slowdown and recent terror attacks on Mumbai, the only industry poised to book high profits in future is Indian security industry. Private security in India will become a Rs 50,000 crore (Rs 500 billion) industry in four years as corporate have increased their spending on safeguards after the Mumbai terror strikes. The private security business, a Rs 22,000 crore (Rs 220 billion) industry now, would touch Rs 50,000 crore as security all of a sudden has become top priority for Indian Inc.
Terrorism now is a universal phenomenon and most countries are facing it. It is the other overwhelming factors that will affect investments. Yet, it’s imperative that we put in place a foolproof security system that can sense and eliminate these terrorist attacks. We also need to improve risk management systems and disaster recovery plans.
India’s position in the emerging financial and economic architecture is going to be substantial. Stakeholders of the growth are not Indians alone but the world community. That calls for a joint action against terrorism.