Posts Tagged ‘India’

India on the move

This article was written by me for on the event of the 60th birth anniversary of our nation. 6 years later we seem to be worse off than ever. Some part of the blame lies on the world financial crisis, but a large portion lies within lack of political will and business apathy.

Here is hoping that the next 6 years will see a robust change


2007 has been a momentous year for India. We have seen the stock markets rising and the dollar falling. Consumer spending and salary levels are never before heights. Today’s young Indian is earning a start salary that his father barely managed to before retiring.

India achieved 8.5% GDP growth in 2006, significantly expanding manufacturing. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Economic expansion has helped New Delhi continue to make progress in reducing its federal fiscal deficit. However, strong growth – more than 8 percent growth in each of the last three years (and over 9% in parts of the last year) – combined with easy consumer credit and a real estate boom is fuelling inflation concerns. The huge and growing population is the fundamental social, economic, and environmental problem. Here is a comparative picture of the growth of India’s GDP.

india graph

The 11th Plan

Sector              Growth rate                 Share of GDP
                          2002-07   1997-02     2002-07  1997-02

   Communications   15.0     17.14             2.3        1.7
   Manufacturing       9.82      3.68            16.7      15.3
   Agriculture            3.97     2.06             20.5      24.7

India is moving from an agricultural economy to a service economy surely but steadily. In relative terms, the decline of agriculture in the share of GDP from 24.7 to 20.5. That decline implies that services and manufacturing are gaining share and that implies that we are moving away from a subsistence economy to one in which we may have some hope of improving our lot.
Of course, as a developing economy, agriculture is the core of the economy.  If India is to ever develop. It is only very severely underdeveloped economies have high agricultural sector share of GDP. For instance Albania, Ethiopia, Mali, Nepal, Ghana — economies with agriculture accounting for a large share of the GDP. Australia, France, Germany, US — agriculture accounts for low single-digit shares of the GDP.

The Indian economy on the eve of the 11th Plan is in a much stronger position than it was a few years ago. After slowing down to an average growth rate of about 5.5% in the Ninth Plan period (1997-98 to 2001-02), it has accelerated in recent years and the average growth rate in the Tenth Plan period (2002-03 to 2006-07) is likely to be about 7%. This is below the Tenth Plan target of 8%, but it is the highest growth rate achieved in any plan period. While this performance reflects the strength of the economy in many areas, it is also true that large parts of our population are still living below the poverty line. The percentage of the population below the poverty line is declining, but only at a modest pace.  These problems are more severe in some states than in others, and in general they are especially severe in rural areas.


Oil- The master of the future

Petrol has dominated world economics for long and will continue to do so for the years to come. Oil has formed a large part of India forex outflow. It is however earning refining business which has been offsetting its import bills. In fact, during 2006-07, refined petroleum products formed the largest chunk of total exports overtaking the Gems and Jewellery sector.

The cost effectiveness of refining in India is drawing many global players here. This is because India is logistically well placed for refineries. Besides being a major market for crude oil and petroleum products, it adjoins major demand centres such as China. Also, crude oil from West Asia can easily be brought to refineries in India.

Of late, a number of players have evinced a keen interest in laying pipelines in the domestic market to supply gas to the consumers. For example, Gujarat State Petronet Ltd, a group company of the Gujarat State Petroleum Corporation, plans to connect all 25 districts of the state with 2,200-kilometre high pressure gas pipeline laid down across the state. Reliance will invest US$4 billion to lay a 1,386-kilometer pipeline from Andhra Pradesh to Gujarat. India is also one among the four countries which have the world’s richest gas hydrate reserves.

India ranks sixth in the world in terms of petroleum demand and by 2010, India is projected to replace South Korea and emerge as the fourth-largest consumer of energy, after the United States, China and Japan. The rising price of crude is of great concern to the growth of the Indian economy. India needs to step up its domestic exploration to produce substance instead of wisps of promise that it has been done till now.

The Forex concerns

In recent days the rupee-dollar exchange rate has been, on average, Rs 39.3 per dollar. A year ago it was 44.7. This means that the rupee has appreciated against the dollar by 13.7% in the last year. Put differently, for an Indian the average price of all American goods has fallen by 13.7% and, for Americans, goods from India have become more expensive.

Over the last year virtually all major currencies have been appreciating vis-à-vis the US dollar. The euro rose by 14.7%, the pound by 10.4%; the Canadian dollar by 23%, Sweden’s kroner by 13.7% – the same as the Indian rupee. Vis-a-vis all major currencies, outside of the US dollar, the rupee has changed very little. It is due to our high dollar exposure of our exports (especially software exports which has been driving the economy to a high) that the fall of the dollar has become a cause of concern.

The 3-D Advanage

As Mr Anand G Mahindra, Vice-Chairman and Managing Director, Mahindra and Mahindra, India said in a seminar, he reposed faith in the 3D advantages of India, Democracy, Demography and Durability. Democracy is a prerequisite to a healthy society, polity and economy. India’s demographic advantage is that it has the highest number of people in the working age group and this is going to continue for some time. Durability stems from the fact that India is a peaceful and stable nation despite many internal disturbances. He said that India has the second largest Muslim population in the world peacefully coexisting with the Hindu majority.

Some facts to chew on

  • India is the world’s fourth-largest economy.
  • By 2034, India will be the most populous country on Earth, with 1.6 billion people.
  • India’s middle class is already larger than the entire population of the United States.
  • One out of three of the world’s malnourished children live in India.
  • India is home to the biggest youth population on earth: 600 million people are under the age of 25.
  • India just edged past the United States to become the second-most-preferred destination for foreign direct investment after China.
  • In 1991, Indians purchased 150,000 automobiles; in 2007, they are estimated to purchase 10 million.
  • By 2008, India’s total pool of qualified graduates will be more than twice as large as China’s.
  • By 2015, an estimated 3.5 million white-collar U.S. jobs will be offshored.
  • India is the largest arms importer in the developing world.
  • American corporations expect to earn $20 to $40 billion from the civilian nuclear agreement with India.
  • In 2007, there are 2.2 million Indian Americans, a number expected to double every decade.
  • Twenty-nine percent of India’s population speaks English – that’s 350 million people.

Is India insulated from the financial crisis?

Are we living in an insulated shell? The finance minister is reassuring the public that our banking system is solid and we are not in a crisis.

But is India a closed economy? Are we not interconnected with the world economy? The sad part is that the popular media prints only press releases. There is very little investigative information available. Get on the Internet and see for your self that the financial world and with it all other parts of industry are crumbling. 
















Can we only take the benefits of globalisation and be protected against the down falls?

Go right ahead and bury your head in the sand. The wake up is going to very tough.

China and India – milk for babies

In India, it is a casually accepted fact that milk is adultrated. Most households, even in urban areas buy milk that is not pasturised,,,,from the local dudhwala who brings milk in cans and measures it out in front of the housewife. There are many a slips of water between the shop and home. 

The government bags of milk are are injected and milk is removed and water added. Blotting paper is also romoured to be used to thickened the milk. Our checks are so poor and so easily bribed away that they are non existance. But who really cares about the poor country India or for that matter who really cared about what China did with thier milk till it started killing babies in China. 

Well, the world did not really care about the small eyed yellow babies but the fact Chinese products are exported world over and may be on your table too!!! ran a story explaining the whole contamination procedure.

Have you eaten or drank any milk or milk based product that is made in China?

Banking Crisis – A blessing in disguise

While most of us are panicing at the banking crisis, it may prove to be sharp wakeup call and a blessing in disguise. The crisis is leading to re-evaluvating our priorities in spending and saving

We are finally curbing our excesses. In countires like India, which have been partly insulated due to controls of the ministry and Reseve Bank, we are truely counting our blessing.

If the current crisis will lead to better checks and controls Kudos to it.

This is not to discount the people who have lost savings and are still gapling with problems….but we definately need to look at the brighter side and say – this is not all too bad – to come out as tough winners instead of winning losers,


Within a matter of months, three of the “Big 5” independent Wall Street merchant banks have collapsed. Other banks are de-leveraging at a brutal pace. So far, the global banking industry has written off half a trillion dollars. The IMF has estimated the full extent of the global bad debt at some $1 trillion, including at non-banks andNouriel Roubini, an economics professor at New York University, has been talking of an ultimately $2 trillion size problem. Alan Greenspan said just last week that “there’s no question that this in the process of outstripping anything I’ve seen and it still is not resolved and still has a way to go and, indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes.”


Problems in the banking sector spill into the broader economy. As these complex Wall Street investments sour, banks need to keep more capital on hand to assure investors that they can weather any future losses from loan portfolios. That means banks are playing defense.

If you want a business loan, car loan, home loan, student loan or virtually any other kind of loan, they’re hesitant to lend, lest they wind up with more bad loans. With lending drying up, auto dealers are sitting with inventory they can’t move and real-estate agents are showing homes they can’t sell. The economy is slowing as credit is squeezed.

The crisis feeds on itself. As banks and corporations are perceived to be short of capital and their stock prices fall, their need to raise capital grows even as lenders are defensive. That forces them to sell assets at low prices, and it becomes a vicious circle. That’s what insurance and finance giant American International Group now faces.



Says Jeremy Siegel in today’s WSJ

The turmoil in the financial markets will reorganize the financial landscape. But this does not mean the financial industry will shrink dramatically. In fact the current crisis could well lead to an increase in the demand for financial services, as the world grapples with the need for new financial instruments, new risk management techniques, and the increasing complexity of the financial world.

Despite the recent turmoil, there is good evidence that the worst is over, especially for the commercial banks with access to Federal Reserve credit. Despite yesterday’s severe sell-off, most are significantly higher than their July 15 low, and some such as Wells Fargo and UBS are up over 50% (see chart above).
Nevertheless, the current crisis will change the financial landscape. Certainly Bear, Merrill, Lehman and others will disappear as separate corporate entitles. But other institutions, specifically the commercial banks that absorb these firms, and who have direct access to Federal Reserve credit, will become larger.

The demand for financial services will in no way disappear as the automobile pushed out the horse and buggy a century ago. Although unemployment on Wall Street will undoubtedly rise, many workers will be reabsorbed elsewhere in the industry. The current financial crisis calls out for new products and services as well as more, not less, information about what is safe and profitable in the future environment.

It is easy to be pessimistic about the future of financial services in the current climate. But objective facts indicate that the future demand for these services will be high. Looking beyond past losses, the demand for financial services, especially internationally, has been strong. The growth of the developing countries, combined with the aging in the developed countries, will lead to huge international capital flows that will be facilitated by new and existing financial intermediaries.
It is shocking that firms that withstood the Great Depression are now failing in what economists might not even call a recession. But their failure was not caused by lack of demand for their services. It was caused by management’s unwillingness to understand and face the risks of the investments they made. The names of the players will change, but the future growth of the financial services industry is assured.


In Germany, Speigel reports 

Industry representatives are fond of saying that Germany is “overbanked.” In their view, there are too many financial institutions with too many branches — and not enough profit. And under these conditions, they say, German banks stand little chance of prevailing in the long term against their international competitors, which — thanks to soaring profits in their home markets — are expanding into more and more markets.

Why are interest rates on credit cards so high in India?



This is Guest post by Vinod Chand.


Of late there has been an increase in the interest rate that the bank is offering you on your fixed deposits. When banks pay you more money it translates to a higher cost of borrowing for them.

While banks are offering up to 9.5% on a one-year fixed deposit, they are charging up to 13.5% to people who are borrowing from them. This translates to a spread of about 4%.

But banks deal in many products. Amongst them are home loans, personal loans, vehicle loans, credit cards, etc. Similarly on the deposit side bank are having savings accounts on which they are paying just 3.5% interest per annum.

On the lending side, banks have quietly raised the interest rates on credit cards to as high as 49% per annum. Recently National Consumer Redressal Forum passed an order restricting the interest rate on credit cards to 30%. Most of the foreign banks including Standard Chartered, American Express, CitiBank, etc. have gone in appeal against this order to the Supreme Court of India and sought a stay on the order of the National Consumer Redressal Forum. For the time being Supreme Court has rejected the demand for the stay.

Interestingly in the affidavit filed by the banks justifying the high rates are reasons such as high cost of acquiring a customer, setting up his account, providing phone banking services, making telemarketing calls are cited as reasons.

It would make an interesting study to compare the operations of credit cards across the globe. Cursory research on the internet points to the following

Benchmark Rates in India


Benchmark Rates in US


Bank Rate


Bank Rate


Prime Lending Rate

12.75% to 13.25%

Prime Lending Rate


Savings Bank Rate


Savings Bank Rate


Fixed Deposit Rate

9.5% for One Year

Certificate of Deposit


Citibank Platinum

49% APR

Citibank Platinum


Citibank Platinum Cash Advance

19.99% APR

Citibank Platinum Cash Advance Fees

24% APR

Home Loan


Mortgage Loan

4.75% to 7.75%

From above information it becomes clear that there is a huge gap between the rates charged on credit cards in India and the US. While the gap in bank rate is just 4% (translating to 300% increase) the gap in Credit card rates is 41% translating to an increase of more than 600%.

Amazingly the delinquency rate in India is much lower that that in the US. In India, insolvency laws are myriad and declaring oneself insolvent rare.

Even after being armed with a Credit Information Bureau in the form of CIBIL, credit card issuing banks are painting all their borrowers with the same brush. Each one of the card holder is being charged the same rate of interest taking shelter under the reason that there are defaulters who are making doing credit card business expensive.

The questions to ask here are, when bank are aware that this is a very high risk business, justified by then by charging very high interest rates, why are they indulging in it?

Why not stick to regular business of banking where you borrow from your own account holders and lend rather than borrow from anyone, including RBI, fellow bankers and lend to high risk products?

When rates dip, business increases. Take the example of mobile phone call rates. Once upon a time it used to cost 16 rupees to talk for a minute on the mobile phone. Even incoming calls were to be paid by the called person. When rates started dipping, mobile penetration increased by leaps and bounds.

I think banks need to look inward to curtail their lending rates. If the rates were low, more people would use credit cards. Even rolling over credit card dues would then not lead to a debt trap which it currently does in most cases. Banks need to reduce their cost of operation rather than try to transfer the high cost to the hapless card holder. They need to shun the five-star culture of their operations.

As the Supreme Court is seized with the matter, I am sure good sense will prevail and an errant government, Reserve Bank of India, which has let this situation happen by not giving proper guidelines, along with the banks will be reined in as far as interest rates on credit cards are concerned.

Interesting Links

Interesting calculator that allows you to find out how much interest you will pay if you stop spending on your card and make a fixed payment every month. I tried with 20,000 and a fixed payment of 1000 (5%) and it came back with an amazing detail of 23,037 as interest and a payment period of 43 months (3 Years and 7 months). This does not include the annual charges that you would per force have to pay since you have an outstanding on your card!

A professional from the Information Technology field and an entrepreneur at heart. With more than 20 years of experience, he has been involved in IT Training, Software Development, Web Portal Development. As part of his attempt to give back to the society, he does credit counselling for people distressed by credit card and other debts. He is the General Secretary of Credit Consumers Association of India, a non-profit body. He can be contacted at He also blogs passionately at



A health insurance policy for HIV+ persons

Business Standard reports

In a first of its kind initiative that will bring respite to lakhs of people infected with HIV, an insurance company today rolled out a health policy, which will cover illness of such a patient due to his/her weak immune system.

Star Health and Allied Insurance Company, which launched its group medical insurance policy meant exclusively for HIV+ people, said the policy would cover hospitalisation expenses incurred on opportunistic illness acquired by an HIV+ person.

“The policy is unique not only in India but also in the world. It will cover hospitalisation expenses as a result of opportunistic diseases acquired by the HIV+ person,” Star Health and Allied Insurance Company Vice-President, Government and New Initiatives, Uday Chandran told PTI.

He, however, said that the policy would not cover any treatment cost for HIV and would also not cover conditions, which existed before enrolling into the policy.

“The policy does not cover any treatment for HIV, like Anti Retro-viral Therapy (ART), but would only cover illness acquired by such person because their immune system becomes weak,” he said.

Chandran was, however, quick to add that TB and gastroenteritis, the most common diseases affecting the HIV+ people would not be covered under the policy.

“We wanted the policy to remain as cost effective as possible for those persons. Had these two also been included, the premium would have gone up,” Chandran said.

On asked if the policy would take care of expenses once a HIV+ person is declared full blown AIDS patient, he said that in such cases, lump-sum amount is paid to the policy holder as per the sum insured by him or her.

Money management’s take on the matter

A bit of web research fond that South Africa offers such policies

Two small companies and at least three large companies in South Africa have introduced life cover for the HIV+ person. And although these policies were initially extremely expensive, it is clear that the industry has opened itself now to a greater understanding of this disease, in terms of treatment and prognosis. More and more, HIV is being perceived as a chronic, treatable disease, not unlike Diabetes Mellitus.

The United States of America does not allow HIV+ people to travel into their country stating contagious risk factors though it does have insurance cover for HIV+ people

UK does not offer health insurance to its citizens

On a very funny note from Digital Inspiration –

The BBC World Service, in an effort to prevent transmission of HIV in India, has created a free ringtone for your mobile phone that chants like “condom, condom…”

The idea is to make the word ‘condom’ more socially acceptable here.

If this sounds a bit embarrassing or funny, hit the play button above or download the MP3 ringtone here (680 kb) – pretty creative and you may actually like it.

The project is funded by the Bill & Melinda Gates Foundation.