Pushing China into revaluing its currency risks toppling the global recovery from its stabilising axis. Instead, Washington should face the crisis it

These were among the risks associated with the US’ insufficient stimulus, which was designed to placate members of Congress as much as it was to revive the economy. With soaring deficits, a second stimulus appears unlikely, and, with monetary policy at its limits and inflation hawks being barely kept at bay, there is little hope of help from that department, either. So, protectionism is taking pride of place.

The US Treasury has been charged by Congress to assess whether China is a ‘currency manipulator’. Although President Barack Obama has now delayed for some months when Treasury secretary Timothy Geithner must issue his report, the very concept of currency manipulation is flawed: all governments take actions that directly or indirectly affect the exchange rate. Reckless budget deficits can lead to a weak currency; so can low interest rates. Until the recent crisis in Greece, the US benefited from a weak dollar-euro exchange rate. Should Europeans have accused the US of ‘manipulating’ the exchange rate to expand exports at its expense?

Although US politicians focus on the bilateral trade deficit with China — which is persistently large — what matters is the multilateral balance. When demands for China to adjust its exchange rate began during George W Bush’s administration, its multilateral trade surplus was small. More recently, however, China has been running a large multilateral surplus as well.

Saudi Arabia also has a bilateral and multilateral surplus: Americans want its oil, and Saudis want fewer US products. Even in absolute value, Saudi Arabia’s multilateral merchandise surplus of $212 billion in 2008 dwarfs China’s $175 billion surplus; as a percentage of GDP, Saudi Arabia’s current-account surplus, at 11.5% of GDP, is more than twice that of China. Saudi Arabia’s surplus would be far higher were it not for US armaments exports.

In a global economy with deficient aggregate demand, current-account surpluses are a problem. But China’s current-account surplus is actually less than the combined figure for Japan and Germany; as a percentage of GDP, it is 5%, compared to Germany’s 5.2%.

Many factors other than exchange rates affect a country’s trade balance. A key determinant is national savings. US’ multilateral trade deficit will not be significantly narrowed until America saves significantly more; while the Great Recession induced higher household savings (which were near zero), this has been more than offset by the increased government deficits.

ADJUSTMENT in the exchange rate is likely to shift to where the US buys its textiles and apparel: from Bangladesh or Sri Lanka, rather than China. Meanwhile, a rise in the exchange rate is likely to contribute to inequality in China, as its poor farmers face increasing competition from the US’ highly subsidised farms. This is the real trade distortion in the global economy, one in which millions of poor people in developing countries are hurt as the US helps some of the world’s richest farmers.

During the 1997-98 Asian financial crisis, the renminbi’s stability played an important role in stabilising the region. So, too, the renminbi’s stability has helped the region maintain strong growth, from which the world benefits.

Some argue that China needs to adjust its exchange rate to prevent inflation or bubbles. Inflation remains contained but, more to the point, China’s government has an arsenal of other weapons — from taxes on capital inflows and capital-gains taxes to a variety of monetary instruments — at its disposal.

But exchange rates do affect the pattern of growth, and it is in China’s interest to restructure and move away from high dependence on export-led growth. China recognises that its currency needs to appreciate over the long run, and politicising the speed at which it does so has been counterproductive. (Since it began revaluing its exchange rate in July 2005, the adjustment has been half or more of what most experts think is required.) Moreover, starting a bilateral confrontation is unwise.

Since China’s multilateral surplus is the economic issue and many countries are concerned about it, the US should seek a multilateral, rules-based solution. Imposing unilateral duties after unilaterally labelling China a currency manipulator would undermine the multilateral system, with little payoff. China might respond by imposing duties on those American products effectively directly or indirectly subsidised by the US’ massive bailouts of its banks and car companies.

No one wins from a trade war. So, the US should be wary of igniting one in the midst of an uncertain global recovery — as popular as it might be with politicians whose constituents are justly concerned about high unemployment, and as easy as it is to look for blame elsewhere. Unfortunately, this global crisis was made in the US, and the country must look inward, not only to revive its economy, but also to prevent a recurrence.

(The author,

Joseph E Stiglitz,

is University Professor at Columbia University and recipient of the

2001 Nobel Prize in Economics)

Pehel an Initiative

This page is a platform where socially concerned people can find stories, articles, thought-provoking videos, shortfilms, facts, etc about the various issues faced by our society. We request people to upload any socially relevant videos, photos, articles or links on this page that might be useful in creating awarness about issues that need people's attention & support. We would also provide information about a few NGOs working in these fields for users to know and get connected to

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Team
Akshay Moorty
Prashant Chiluka ..

A Marketable Budget!

2^nd March 2010- The Kolkata wing of ‘Cash-O-Nova’, the Finance club at IIFT, organized a panel discussion on Union Budget 2010-11. The distinguished panel comprised of Dr. Ajitava RayChaudhari, former Head of Economics Department at Jadhavpur University, Mr. Gopal Aggarwal, Indirect Tax Consultant, PricewaterhouseCoopers and Mr. Chetan Panchamia, Head, Equity Research Division, Eastern Financial Ltd. The discussion was moderated by Dr. Ranajay Bhattacharya, an Economics graduate and Fulbright scholar and also a popular professor at IIFT.

Dr. Bhattacharya stated that like every year the current budget too reflected the tussle between economics and politics. He set the tone by stating that this budget was “less popular” than the previous one. However this view was opposed by Dr. RayChaudhary who stated the dual problem of growth and inflation that India faces and said that only innovative budgets would be the way out. He explained how strong social programmes and the rise of the Indian middle class had helped fuel demand but due to poor monsoons we had short supply. This was causing the inflation and he thought only long term measure such as projects under Bharat Nirman like building roads and in general agriculture infrastructure would be the way out. He stressed that budget being basically a one year plan could not cure the problem of inflation; rather what it could do is set the road map for the future. He also emphasized the need to remove the subsidies unless it was absolutely ensured that it benefitted the intended persons. He welcomed the idea of Unique Identification number (UID) programme as a solution to this problem. He did criticize the hike in indirect taxes as this would hit the poorer people more than the middle class and rich.

Mr. Aggarwal voiced a similar opinion on the increase in indirect tax. He reiterated that while the change in slabs made the budget a good one for the middle and high income families, the poor were not incentivized enough. However, he lauded the fact that the honourable finance minister had set a specific date (April 2011) for the Goods and Services Tax (GST). He saw this as a step which will remove the cascading effect of the various excise tax, customs tax etc. He also spotted a trend of a fall in the excise tax and increase in service tax. He said that this was an indicator that India was slowly but steadily moving towards service taxes. He rated the budget a modest 7 on a scale of 10.

Stock market’s reaction is an important indicator of the marketability of a budget and according to Mr. Panchamia the budget was a very marketable one. It not only addressed the question of fiscal consolidation but also stated that the aim was to get the fiscal deficit down to 5.5% of GDP. This was in fact what the market was looking forward to hear as this would mean a better rating from credit agencies, thereby ensuring more inflow of FII. However he did mention that the oil subsidy had caused the debt market to give thumbs down to the budget. He was of the view that markets would be bullish as long as we avoided global pitfalls.

We also witnessed a very good discussion at the end of the session with the floor been thrown open to the students. Prof. RayChaudhari pacified the concerns raised by the students regarding overheating of economy by emphasizing on the importance of technological development. He favoured more focus on developing infrastructure over doling out subsidies. Mr. Chetan was optimistic regarding the disinvestment of the PSUs and Mr. Aggarwal felt that there was a high probability of IT tax cuts being extended by the turn of the year. The session was closed on a positive note with the speakers reasserting that there were definite benefits from this budget such as the bringing of the GST. The final assessment termed it a budget on expected lines and definitely not a path breaking one.

By: Sayani Ghosh

MBA(IB)

2009-11, IIFT

Piggybacking on Comics

written by Janani Kandaswamy

Imagine Asterix deriving his strength from Maggi soup in-stead of druid‘s potion, or Calvin playing with a Lego toy instead of Hobbes. Sounds preposterous? Maybe not. With a lot of fore thinking and planning, marketers are targeting a huge segment of customers by capitalizing on the unique place that comics hold among various age groups.

Using comic characters to reach across to children allows the advertisements to become a part of their world. Bubba the cat, for instance is the mascot for Cadbury India‘s bubblegum brand Bubbaloo. Chandamama also figures in Parle‘s strategy of promoting the multi-coloured confectionery Poppins.

What is so attractive about comics as a marketing media for children?

Comics are an integral part of childhood. The intensity of children‘s engagement with comics is very high.

Comics brands such as Tinkle, Amar Chitra Katha and Double Digest are contemplating the idea of tying up with automobile and consumer durable brands. ACK Media, the owner of these comics has already churned out comics featuring LIC India, Kirloskar Brothers Ltd and the National Stock Exchange. An-other brand called Virgin comics is keen to extend its services to a lifestyle brand and a consumer products company. In the coming years there is bound to be more marketing oriented companies following the comics route of attracting young consumers.

On the other end, adults are also being targeted by advertisers. The best example would be Google who marketed their internet browser chrome through an online comic book created by Scott McCloud. The book explained the inner workings of chrome and was de-signed as a printed comic for journalists and bloggers. With good presentation, thought, useful information and easy language it created the awareness which led to a firm entrenchment of Chrome in the minds of its potential users.

With the arrival of comics as a reliable means to garner attention for a product, the marketers have to refine the groundwork they do before zeroing in on a particular medium (web/print etc). There is no single comic for everyone. So creators need to initially identify the type of people who are likely to enjoy it. Once the general audience is identified, they have to deter-mine the influencers in that group and what social media they tend to gather around.

Keeping in mind the success of comics as a marketing medium, we might just get to see our favourite comic characters assuming the roles of brand ambassadors. Now wouldn‘t that be refreshing!!!

bald eagle losing out to the red dragon....

America ain't competitive nor innovative no more......... fears Thomas Freidman......

RBI Ex-General Manager Delivers a Talk on Workings of the Central Bank

19^th February 2010, Kolkata : Cashonova the Finance Club of Indian Institute of Foreign Trade, Kolkata organized a lecture by Samirananda Roy, retired General Manager, Reserve Bank of India. Mr. Roy has also served the government of India in various other capacities. Presently he is working with Disha Consultancy, a trust set up under the aegis of ICICI Bank and engaged in imparting financial education among poor people.

The lecture took us on a historical tour of the country’s central bank. Mr. Roy having served the organization for quite a long period of time presented an insider’s view of the organization. Beginning with the evolution under the colonial masters, the talk encompassed the post reform era of the Indian economy as well. The brief history of the organization was peppered with several anecdotes involving Mr. Roy and his seniors which added a personal touch to the discussion.

The lecture gave the students an insight into the various roles and responsibilities of India’s central bank. He reiterated the role of the central bank in the socio-economic affairs of the country. The students were made aware of the numerous obligations of the central bank and the importance of an overarching mandate being handed over to it. The role of RBI during different period of times and the implication of the policies as enunciated by it was made amply clear. “If the central bank of the country earns profit then country’s health is not good.” Such profound observations clearly led the students in appreciating the larger picture and interrelationship between business of the central bank and its impact on economy.

The lecture was interspersed with thought provoking questions by the students continuously thus making it seem more like a dialogue. The talk was drawn to a close with a vote of thanks and the presentation of a token of appreciation by the club coordinators.

By: Mritunjay Kumar

IIFT, Kolkata MBA(IB) 2009-11

Budget Analysis Session

Corporate Relations Committee of IIFT organised a budget analysis session on 2^nd March 2010. The objective of the session was to analyse various aspects of the budget from different perspectives. The speakers who graced the occasion were

1. Mr. Mohit Satyanand, who is an entrepreneur & Investment Advisor and is also a columnist with Outlook India,

2. Mr. M G Ramachandran, who is an Associate Director, PWC -Tax & Regulatory Services,

3. Prof. Rajan Ratna, Centre for WTO Studies, IIFT.

Ms. Madhuri Ghosh, the co-ordinator of CRC, introduced the speakers to the audience of over hundred.

Mr. Ramachandran started the analysis with his presentation. He elaborated all the changes made in the tax laws – both direct and indirect.

Next speaker was Prof Ratna who pointed out the fact that the budget was not for Aam admi. He justified his opinion by saying that the goods on which the excise duties have been cut like set top boxes, LCD TVs, mobile accessories are not what an ordinary man use heavily in his daily life. He also stressed on the fact of monitoring the funds allocated to various schemes.

The final speaker was Mr. Satyanand who is also a graduate from Delhi School of economics. He stressed upon the economic and political impact of the budget. He opined that the finance minister has taken a very optimistic assumption that fiscal deficit can be controlled by 3G auctioning and disinvestment provisions. Mr. Satyanand also said that we need to restore world confidence in India which is quite low at this point in time. This can be interpreted from the fact that the 10 year bond yields are trading at 7.92 % whereas in an unstable economy like Greece, it is trading at 7 %. So, Government could have done something to make world realise that India is a safe haven for investments.

After the discussions, the floor was opened for questions. Doubts over hike in MAT, rationale behind extra deduction by investing in Infrastructure bonds, deregulation of oil prices etc. came up, which was solved in a very comprehensive manner by the distinguished panellists.

At last, the vote of thanks was given by Madhuri and bouquets were presented to the speakers by the IMF (student body) president Arakkal Vedhus and Ms. Ishaani Gandhar, the convenor of CRC.

The session was very useful in the sense that three different speakers from diversified backgrounds helped us to understand the budget from three separate angles.

My first Holi-day

[Original Version @ chawlamit.blogspot.com. Reproduced on March 1, 2010]

I've never played Holi in the last 25 years of my existence. Here's how it changed today.

0500 - Went to sleep after finishing AOE.

1000 - Loud Music from Buffy's giant speaker wakes me up. Try to sleep again, curse Buffy - but still can't sleep.

1010 - Never take advice from Singh Saab on such important issues. I was scared to go down and have breakfast. But he convinced me that nobody other than Buffy is playing Holi downstairs.

1015 - I go down in the lift. Sneak till the mess door. But that was the farthest i could go. Manjari smears tons of color on me. After exhausting all color that she had, gives me a saintly advice to remove my spectacles. Then IMF Prez takes charge. Insures that his rival Prez has eaten more color than his breakfast.

1020 - Forget Breakfast. Its time for revenge. I ready myself for counter attack. Apply an insane amount of oil, and jump in to the battlefield.

1025 - Now outside. These people haven't left a square cm of my original skin color. I'm looking like every one else now. Multi-colored.

From then onwards, i allow nobody to look less colored than me. Later, we launch an attack on seniors. They start tearing each others clothes. We pick up the tradition quickly. Within 20 mins, all guys are topless. Then, after a photo session and dancing, we decide to call it a day.

1300 - The longest bath of my life starts. All different color blends come out each time i pour a bucket.

1400 - No food inside or in vicinity of campus. We embark on a long trek to search for food. With me are Singh Saab, IMF Prez, Stallion, Koshish Tiwari and Papa Ghosh. What aggravates the problem is lack of ricks and buses. We walk till Mezbaan - closed. Move on towards IIT - Nothing. Finally we spot a bus, and fortunately its going to Saket

1500 - So, we reached Saket in 1 hr. At least McD's didn't disappoint us. We ate like famished beings. Found ricks on our way back. And happily slept from 1600 - 1830.

1830 - Made calls to all friends and family. Over in 30 mins.

1900 - The search for food continues. I must add, we always happen to eat at the most unexpected places for the sake of food variety. Now, me and I-Prez don't maind wandering around. The third person always pays the price for our adventurous journeys. This time it was Papa Ghosh.

2000 - Instant shortage of ricks again. Even JNU is closed. On top of it, we got lost in the vast campus. Finally came out after walking 4 kms. But, Mezbaan was directly opposite to the gate and it was open. But, a huge waiting line outside.

2030 - Papa Ghosh has had enough. We are now at Al Kauser, Munirka. But there are no waiters to take our order. Prez tries to exert his influence on the manager but he refuses to budge citing staff shortage. Papa Ghosh decides never to come back here again.

2130 - We are done with the food now. It was quite delicious for our hungry souls. Papa Ghosh has cooled down. He may come here again. We get into another rick. Old songs playing. And the gentle breeze. Enough adventure for the day.

2200 - Suri calls for TT. Even Doctor has started playing, it seems. Skipped the CB group meeting to play.

0000 - Just finishing the blog. One of the best days in IIFT. Back to work.

SIMPLYFYING THE BUDGET

We had huge expectations from Budget 2010. It was a difficult task for Mr. Mukherjee as he had to satisfy people’s needs as well as control the fiscal deficit.

Let us analyse some of the major points of Union Budget 2010 (Fiscal Year 2010-11):

1. Change in tax slabs

Tax Slabs 2009-10	Tax Slabs 2010-11
Rs. 1,60, 000 – Nil 1,60,000 to 3,00,000 – 10% 3,00,000 to 5,00,000 – 20% 5,00,000 + - 30%	Rs. 1,60, 000 – Nil 1,60,000 to 5,00,000 – 10% 5,00,000 to 8,00,000 – 20% 8,00,000 + - 30%

Analysis – Pros: Relief for common man. If a Person earns Rs. 10,00,000, he has to pay Rs.154000 as tax in 2010-11 compared to Rs.2,04,000 which he would be required to pay in 2009-10.

Cons: May Result in loss of revenue for the government. But looking from a different point of view, it has been seen that as and when the tax brackets have been widened, no. of persons paying taxes have increased. So, it might not be a negative at all.

2. Reduction of Surcharge on corporate tax

The surcharge on corporate taxes has been decreased from 10% to 7.5%. If a company pays Rs.4 crores as tax, it has to pay Rs.40 lakhs as surcharge. Now, it has to pay Rs.30 lakhs as surcharge.

Pros: This is a welcome step as far as corporates are concerned. More disposable income will result in investing in new projects and ventures, which in turn will create more jobs.

Cons: It will result in loss of Government’s Revenue.

3. Increament in Minimum Alternate Tax

Last budget, we saw a hike in MAT rate. This year too, FM has increased the rate from MAT from 15% to 18%.

Pros: Increase in Revenues for Government as companies have to pay more tax (MAT) now.

Cons: Extra burden especially for medium and small enterprises because it has been seen that many of them fall under MAT bracket.

4. Extra deduction if invest in Long Term infra bonds

Apart from deductions under section 80C, if a tax payer invests in long term infrastructure bonds, he can get a deduction upto Rs.20000.

Pros: Huge boost for infrastructure sector. For a taxpayer, he can save tax upto Rs.6000.

Cons: Cannot think of it right now.

5. Excise Duty increased

Excise Duty (the tax that has to be paid on manufacturing of goods) has been increased from 8% to 10%. It is being seen as a rollback of fiscal stimulus.

Pros: Augment Government revenues.

Cons: It will inflate prices of goods.

6. Extra excise on petrol and diesel

Extra Excise duty of Re.1 will be charged on petrol and diesel.

7. Service Tax unchanged

Service Tax has not been touched. It remains at 10 percent. FM has intimated that more services will be brought under the reach of the Act.

Pros: Relief for taxpayers. Its increment could have hurt taxpayers in a big way. From mobile bills to restaurant bills, we pay service tax on many items that we are using.

Cons: Cannot think of it at present.

8. Licenses will be given to private players and NBFCs to enter into banking foray

Pros: More Job opportunities will be created. Financial Inclusion will be strengthened.

Need: Strong monitoring

9. Direct Tax code and GST given a deadline

10. Government determined to raise Rs.25000 crores from Disinvestment

Mr. Pranab Mukherjee estimates the fiscal deficit of India to be at 5.5 % for 2010-11 and 4.8% the year thereafter. Fiscal consolidation is on cards as it was evident from certain hard decisions that were taken during the budget.

Stock Market gave a big thumbs up to the budget as it looked progressive and also offered higher disposable income in the hands of the consumers.

Swaminathan Aiyar, the economist rated the budget and gave 6 out of 10. He said it is a middle road budget. FM has promised to control the deficit but was disappointed on certain fronts. Hiking fdi limit in insurance sector to 49% and reducing public sector share in PSU banks etc. were unheard of.

All in all, it was a budget where Finance Minister has given signs of financial stimulus rollback and has also given reasons for a common man to smile. (Smokers will be unhappy though as cigarettes will be costlier). I would give 7 out of 10 for this budget.

Please note the views expressed are personal and open to disagreements and criticisms.

Saurav Tibrewal

Co-ordinator, Cash-o-nova, The Finance Club

Indian Institute of Foreign Trade

MBA(IB) 2009-11 Batch

Contact: 9311580251

Budgets and the BSE

heya buddies,