2020 World Ekonomy

Executive Summary
Understanding the 2020 world requires not only the study of the effect of the global financial crisis but also the paths to recovery traced by the world economies. To predict the Delphic future one needs the understanding of the political-economies around the world .At the same time demographic and geo-political factors will also have a significant bearing on the state of 2020 World. Emergence of various modes of capitalism in developed world economies,will mark a shift from entirely market-driven economy ,due to current realities of huge fiscal deficits and future social safety liability (due to an ageing population) .The emerging economies on other hand will practice market rules to a point but with significant deviations ,marked by embedded socio-political ideals , difficult to forecast.
This paper explores the 2020 World Economics on the basis of above factors. First, we divide the world in 7 major economic regions – North America , Latin America , Western Europe , Middle East ,East Europe & Russia, Africa , Asia , Australia and Oceana. Then we choose the potential ‘stars of the next decade ‘ from these economies and then examines them individually on three broad points : effect of 2008 crisis , the response by the economies to crisis , post-crisis economic policies. The study also incorporates a scenario analysis of the world under optimistic and pessimistic expectations.








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1.0 Introduction
Governments from world over responded to the 2008 economic crisis with typical principles of depression economics (the Keynesian economics and QE) .The most vital point that appeared was , as economist Irwin Stelzer argues for the US-economy, “we have gone from a market-driven economy to a politically driven economy”. This statement holds a key into the future. The modes of capitalism that evolve will have a significant bearing on world economic order in 2020.This discussion is relevant because globalized world (resulting in significant capital & trade–exposures) has evidently made the decoupling hypothesis irrelevant. The crisis made it evidently clear that business cycles of developing world in now synchronized with the developed world. A post-crisis world is thus dependent on the political ideals embedded in the economic policies .How will the world transform post-recession? Three very evident transformations will be :
 Advanced economies will slow down :
Since 1990’s the advanced economies have clocked slower growth rates due to rapid growth of developing economies. Post recession this trend will be accelerated due to ageing population , large fiscal deficits , and changing geo-political order.
 Emerging Economies charging for take-over ! Emerging economies are catching up with the advanced world. By 2020, there will be changes in the global balance of economic power. With five emerging countries in the list of top ten largest economies, global power will become more balanced by 2020


 Shift of Economic Power: How real? And at what costs ?
While with a huge population and rising household incomes, the consumer goods and service markets in emerging economies will provide enormous opportunities for businesses. Their young & skilled workforces will drive the MNE’s. The rise in economic importance of emerging countries will lead to a rise in their global political influence , thus ensuring a more balanced ( and probably more stable)geo-political environment . Emerging countries will also become more important foreign investors, thus enhancing their influence in the global economy. Since the early 2000s, China and India have become major foreign investors in Africa & Latin America.


All this will however come at cost of “global warming” due to increasing energy needs . Foreign investment will continue flowing into emerging countries, yet foreign investors will still face heavy regulations and corruption. Overheating economies, commodity needs and rising wages will continue to put an upward pressure on long-term inflation. The rapid growth of emerging economies may also lead to rising social unrest due to the unequal distribution of wealth.
Let us now explore the 7 economic regions & find “stars of the next decade”
2.0 Rise of Asia
The likely emergence of China and India is similar to the advent of a united Germany in the 19th century and a powerful United States in the early 20th century—will transform the geopolitical landscape, with impacts potentially as dramatic as those in the previous two centuries. A combination of sustained high economic growth, expanding military capabilities, and large populations will be at the root of the expected rapid rise in economic and political power for both countries. Barring an abrupt reversal of the process of globalization or any major
upheavals in these countries, the rise of these new powers is a virtual certainty

2.1 The Dragon
2.1.1 The Effect of Crisis : Chinese economy has been mostly led by investment driven and export led growth which is unsustainable. The growth in Chinese exports can’t be persistently higher than world economy. Overcapacity surfaced leading to correction. The global financial crisis exposed this vulnerability of Chinese economy to a large extent.
2.1.2. Response to Crisis : China responded by using an expansionary monetary and fiscal policy. They could afford to do without much trouble. China also went on a massive investment overdrive in strategic location (Africa, Latin America) for its energy needs. They also became largest foreign owner of American government debt. By 2010 , China has started gradual withdrawal of monetary stimulus.
2.1.3 Financial crisis made China a economic superpower
The financial crisis has further enhanced China’s importance in the world economy. It is said to have about $2 trillion in foreign currency reserves.They also enjoyed a enjoyed a trade surplus of $266.3 billion in 2008.The reserves allow them to peg currency, which some doubt may lead to “ Currency Wars”. However, ten years will be too short a time to establish Yuan as world reserve currency because a much longer period will be required to liberalize the Chinese economy, build up efficient money and capital markets, and foster the deep and liquid markets consistent with reserve currency status.
2.1.4. Capitalism – in the communist style: The growth first ideology is consistent with the Communist party of holding its power in China. The state-sponsored growth will help keep the simmering desire for civil-liberty at bay for short run. But, in the long run , to sustain development -government will need to unlock potential by liberating and upholding property rights through legal frameworks and institutions , which in-turn would undermine the political supremacy of communist party. It will be interesting to see how this experiment of capitalism (modes of capitalism) will survive beyond the current decade.

2.2 The Elephant
2.2.1 The Effect of Crisis :
The contagion of the crisis spread to India through three major channels – the financial channel, the real channel, and importantly, as happens in all financial crises, the confidence channel. Global liquidity squeeze affected Financial markets in short term , and also slowed credit growth due to confidence channel from 22.3% (07-08) to 17.3%(08-09) .GDP sunk to lows of 6.7% (08-09) from highs of 9% or more in previous three years.
2.2.2 Response to Crisis
This was a downturn and not a recession and was well countered by fiscal and monetary stimulus.However India’s response was adequate and not a largesse like that of China –“biggest stimulus in global history” .
2.2.3 Resurgent India : Post Crisis
India maintained robust growth without Beijing's hefty stimulus in part because it is less exposed to the international economy. more protection from the worst effects of the financial crisis in the West, while China's government needed to be much more active to replace lost exports to the U.S. More significantly, though, India's domestic economy provides greater cushion from external shocks than China's. Private domestic consumption accounts for 57% of GDP in India compared with only 35% in China..
India is banking on following four factors to fuel growth in the next decade
(i) Infrastructure Spending by Government in next decade.
(ii) Service-orientation will accompany growth of real sectors
(iii) Income Distribution (fall in deprived group and rising income of middle class)
(iv) Demography (increasing working age population)
All these have a significant trickle down effect in making India a economic superpower in 2020 ( $5tr Economy by 2020 according to D&B)
2.2.4 Regulated Capitalism-!
Following four decades of Fabian socialism ideals, India opened its economy in 1991- but this was a special case of regulated capitalism . To achieve full potential though India needs to fight the potential threats of inequality and poor governance apart from liberalizing financial markets, improving infrastructure and agriculture productivity. Democracy and Demography will remain vital forces in India trumping China post 2020.
2.3 Japan 2020 : Land of rising sun and declining growth.
After the lost-decade , Japan faced another crisis ’08 .For Japan this was clearly the worst post-1945 recession, by far, with a 6% drop in real GDP output between September 2008 and March 2009.While the government has promised 2% growth per year for next decade , surprisingly Japan has clocked over 2% only 5 times since 1992. To add to the woes are the deficits (8.6% of GDP) and public debt (200% of GDP) With ageing population it would be difficult to finance such a debt internally or via savings of its citizens. Population is shrinking at a faster rate too and the society inherently opposes stronger immigration.
3.0 Threat to US hegemony !
American-style liberal capitalism has been challenged & is pitted against "state capitalism".
Recession : A scar that will linger long !
U.S. economy is recovering after the global economic crisis, but consumers and financial institutions remain cautious as weak housing markets, high unemployment, and risks in Europe remain a concern. Massive bailouts and expansionary monetary policies have helped avoid the worst of recession but now USA is in precarious shape.
(i) Deficit (12.3 % of GDP in 2009 largest since WWII), Total Public Debt Outstanding (95% of GDP ,Nov 2010 )& Un-employment (9.6% ,Oct 2010)
(ii)Ageing Population & Rising Social Security (spending is projected to rise from 4.8% of GDP in 2010 to 5.9% of GDP by 2030, where it will stabilize)
(iii)Long term inflationary pressures. By 2020 the US economy will see real inflation. This is a one way for the Federal Government to begin to reduce its trillions of dollars of debt. Rising Wages (due to lack of skilled workforce in an ageing demography) will push inflation upwards
The aftershocks from deep recessions will haunt for years, even decades, and take an enduring toll on everything from government finances to countless upended individual lives.

The future While USA is still expected to be top economy in 2020 , its economic hegemony will be challenged. Let us trace this changing economic balance on basis of following factor Economic power, Currency power &Financial Power.

4.0 Hit by a Double Whammy !-Western Europe
Western Europe was hit by a double whammy .While the recovery was still fragile post 2008-recession the region had to counter the sovereign debt crisis of 2010.
Sovereign debt crisis –Impacts
(i) Has put the EU ( And EMU) under its biggest test to prove economic strength
(ii) Spillover effects delaying the recovery
4.1 Germany
After Crisis : The crisis hit Germany hard tanking its economy by 6.7% for four quarters following Q12008.Despite this, German economy has made an solid recovery(clocked fastest growth rate since reunification), especially in exports through stronger partners such as China ..
Challenges Ahead :
(i)Tackling the sovereign debt crisis
(ii)Role in creating EU-stability
Positives for 2020
(i) Success with exports of high-tech, patents, licenses, computer games, knowledge intensive services
(ii) Massive foreign investments from China , India , Middle east and PE’s from US
(iii) Foothold in renewable energy technology.( But,need political will)
(iv) Centrist political position – can benefit from rise of China & India .
4.2 United Kingdom - Rebalancing the economy
Challenges Ahead :
(i) Balancing trade deficits .Aiming for fiscal consolidation(Deficits 11.2 % of GDP , 2009 ) and servicing huge national debts (57.1 per cent of GDP ,Oct,2010)
(ii) Manufacturing declined under competitive pressure from developing economies.
(iii) The UK’s energy sector faces significant challenges over the next 10–15 years, both to maintain secure energy supplies and meet climate change and renewable targets

Challenged but all is not lost !
(i) UK’s dynamic and flexible labour market remains key strength. Transition is needed towards high growth and knowledge based sectors.
(ii) Technology and Innovation holds key

5.0 Oil Economics (Russia & Middle East)
These are mostly oil-economies and are prone to the famous “Dutch disease” .The pre-crisis period reminded the why the threat was so real. Oil prices had shot to all time highs of $147 per barrel just before recession and then they tanked.
Major middle eastern region that will benefit post crisis are UAE-Abu-Dhabi ( can survive with low $/br. And thus can build reserves for strategic investment) and Iraq ( post war it can become major oil supplier). East Europe ( Ukraine, Romania) is an up and coming center of high–tech, low cost manufacturing with a well–educated workforce. Business is being transferred from the west – from North America and Western Europe – to the east Europe for low cost , low volumes and high skilled.

5.1 Russia
The Crisis : After being hit hard by the global financial crisis, Russian economy finds itself in a difficult situation. Capital flight began in second half of 2008, when USD 150 billion had fled the country.It needs to find ways to return to sustainable economic growth, beyond just plain post-crisis recovery. They need to chalk out a plan different from the rent seeking , crony capitalist model of Putin era.
The response : The massive outflow of liquidity had forced the Government to use its accumulated reserves to substitute it. Central Bank had lost about $200 billion of its hard currency reserves trying to slow down the sharp depreciation of rouble. The fiscal deficits reached 5.9% (2009).
The Future : With declining reserves (foreign investors faith in Russian debt decreased).There’s always a possibility that oil prices may rise above $100/bbl and further upwards again but not before 2014-2016.Hence to survive as the global power of future Russia needs to shun away from rent seeking model,increase efficiency of the economy & increase productivity

6.0 Africa
The spread of the global financial crisis led to a slowdown of private capital inflows, thus putting at risk the beneficial growth effects of the recent surge in FDI and cross-border bank lending. The main challenge facing these countries now is how to position themselves for post-crisis recovery as well as ensure that policy responses to the crisis do not lead to medium- and long-term problems of debt sustainability. Africa needs to spur the democracy movement , restoring market economies and shared interest to cash on its natural resources and demographic potentials in the next century
7.0 Lights and Shadows : Latin America
As viewed from the early 21st century, the prospects for Latin America in 2020 will be a mixture of lights and shadows. In recent years, Latin America has improved in terms of democratization, some institutional development and a broad consensus on the virtues of financial stability. But the region has also experienced poor social results, inconsistent economic growth, deep loss of legitimacy of its political players. All these challenges will need to be addressed for both Brazil and Mexico in course of next decade.
However, even modes of capitalism in Latin America have followed different trajectories ( and their response to crisis , post-crisis position –all have relevance to the mode of capitalism followed) . While Brazil excelled with state led capitalism intervention for internal market , Chile’s model of export led capitalism with strong intervention of the State failed.Mexico did relatively well with its export led capitalism based on little state intervention.

7.1 Mexico – rise of Golden Eagle

The Crisis During the last two years, Mexico experienced a harsh economic downturn. From Q2’08 - Q2’09 per-capita GDP plummeted by approximately 10% (Mexican’s were reminded of post-war periods). Mexico was affected by the global crisis through the financial sector in the form of substantial market volatility and a generalized fall in asset prices. Mexican economy was most deeply disturbed through the real sector, as seen in the contraction of international flows of goods and services, especially to and from the United States, Mexico’s main trading partner.
Sound Crisis Management The present day Mexico ( compared to post-war Mexico) has better macroeconomic fundamentals, including a solvent fiscal position, a floating exchange rate system, and an independent central bank committed to price stability , all these elements enabled Mexico to tide away the external shocks external shock on domestic spending.
The Destiny Mexico is set to Overtake Italy as 10th Largest Economy-PPP terms in the World by 2020 ,clocking 3% GDP growth .Enjoys cheap abundant labour and industrialized economy with USA as a neighborhood consumer.
7.2 Brazil –
Braved the Crisis The effects of the 2008-2009 global crisis were less drastic than expected at the outset, which signifies to us that Brazil’s growth pattern is less susceptible to changes in course as a result of the external outlook. However, this does not mean that the Brazilian economy is immune to the global crisis. On the contrary, the crisis has caused Brazil’s GDP to backtrack from an average expansion of 1.6% from Q1-2008 to Q32008 to fall of 4.4% in Q42008 to Q12009. But the return to economic expansion has already taken hold in 2Q2009, demonstrating that Brazil’s solid fundamentals have enabled rapid adjustment to the change in global outlook.
The Reponse to Crisis : Brazil is a state led capitalism oriented towards the internal market. During Crisis, Brazil continued doing more of what it had been doing up to then: strong State investment and the building up of the internal market.
The benefits from the Crisis ! This greater resilience to the external crisis has favorable consequences for the middle- and long-term outlook for the Brazilian economy. Uncertainty regarding the resilience of the country’s economic fundamentals dissipated fairly significantly as the crisis unraveled. Overall country risk and real interest rates should decline even further in the next few years, leading to higher investments and, therefore, higher potential output growth. Thus, the path of Brazil economic fundamentals suggests that, after several decades, potential GDP growth should be higher & less volatile than in the past.
This apart from other advantages of stable banking institutions , large infrastructure investment needs & immense potential in electricity.
8.0 Resilient Australia
Resilience to Turmoil The economy was indeed hit by the global crisis. But growth was stronger than in any other advanced economy. This resilience is the result of robust demand for commodities, a flexible exchange rate, and a healthy banking sector. Cuts in interest rates and a sizable fiscal stimulus were also key factors.
Australia entered the global turmoil on solid footing, and thus the exit strategy appears less challenging than other developed countries. Indeed the early recovery, compared to other advanced countries, has allowed the Reserve Bank of Australia to begin normalizing interest rates.
Steady Sail The Australian economy is expected to grow by 2½ percent in 2010 and 3 percent in 2011, according to IMF. Growth will be led by domestic demand, both private and public, where we have seen better-than-expected domestic performance in recent months, especially in the labor market.
New Realities Strong commodity income prospects are supporting investment. In coming years, Australia is likely to continue to benefit from China’s demand for commodities
9.0 Scenario Analysis: World Economics 2020
Three most important factors that will shape the economics of 2020 are

1.Different Modes of Capitalism
The most significant impact of these Asian Economies will be the different modes of capitalism practiced. While China will become increasingly capitalistic , with only formal rules of ownership . On the other hand we will have India whose legal property rights will be qualified by regulations that will limit capital flows.How their politics , cultures and economies evolve will have a significant bearing on economic future of the world in 2020 and beyond.
2. Shocks !
2.a Energy Shocks The burgeoning economies of the next decade will rely heavily on conventional energy , which will be contingent on highly precarious geo-political environment of middle east. And given that transition on renewable energy sources will take decades the stability of industrial economies and that of global economy will always remain at risk in short run .
2.b Terrorism While terrorism will remain a potential threat .In worst case terrorists may acquire WMD’s. Impact of religiosity on unity of states and potential for conflict; growth of jihadist ideology are other potential threats.

2.c Sovereign Risks The global financial system and the world economy are slowly regaining their health, thanks in large part to unprecedented interventions by governments, but the sharp rise in government debt during the economic crisis is the newest threat to the financial system: growing sovereign risk. ( Ref :Bailout of Greece and Ireland)
3 Income Inequalities Rising income inequalities in the emerging economies like Russia , India and China , will always be a threat to government stability , the quintessential for market stability profitability ( higher cost of capital) .This would however effect in long run, the policy needs are fostering political liberty and inclusive growth.

10.0 Conclusions
The changing economies realties must be accepted by all players . While globalization-linkages propagated the recession , same linkages have helped in spurring the recovery. It is time when the developed world led by America don’t fall into negative psychology of protectionism leading to economic retaliation ,while at the same time pressing for a economic balance between trade deficit countries and trade surplus countries. At the same time ,countries like China realise the unsustainability of huge trade surpluses by spurring domestic demand and adopting flexible exchange rate.






References
[1] “The Age Of Turbulence- Adventures In A New World” by Alan Greenspan , Penguin Publication , 2007
[2] “Return of Depression Economics” by Paul Krugman , W.W. Norton & Company ,2009
[3] Datagraphic “Countries and Consumers , Biggest Economies and Consumer. 2010 v.s 2020 “ , a report by Euromonitor International ,2010
[4] Economic Balance of Powers after the Crisis:by JUNG Ku Hyun , Septemeber 15, 2009 ,Samsung Economic Research Institute .
[5] The 36th Middle-Term Economic Forecast (2009—2020)-Japan Centre for economic research ,Feb , 2010
[6] “India-China 2020: Great Leap Forward?” A Discussion Paper by Dr. Charan Wadhva & Zhang Jun, on 23rd March 2005 at The Foreign Press Association,London
[7]Economic Crisis in Europe: Causes, Consequences and Responses- A report published by European Comission , European Economy 7|2009.

[8]Russia2020www.cgascenarios.wordpress.com ( Spring 2010 , Number 4)- accessed 18th Novemeber 2010
[9] Post Financial Crisis - New Global Paradigm and Asia's Role- speech by Dr. Tony Keng ,Deputy Chairman and Executive Director ,Govt of Singapore Investment Corp At The Commenwealth Economic Forum , Taipei , Taiwan, 18th Jan 2010

[10] A common economic crisis but contradictory responses: The European experience 2008-09, Working Paper No. 93, Robert Kyloh And Catherine Saget, Policy Integration Department International Labour Office, Geneva, May 2009
[11] The Budget and Economic Outlook:
Fiscal Years 2010 to 2020: Congressof The United States , Congressional Budget Office
[12] Latin America 2020: Discussing Long-Term Scenarios : Summary of conclusions of the workshop on Latin American Trends Santiago de Chile, 7-8 June 2004 for the National Intelligence Council Global Trends 2020 Project

Strategies for enhancing civic group efforts for Social Change ( Reference for NGO's working in India)

1.0 Introduction

Revolutions or for that matter any social Change can be brought about by technology , policy and people. The people factor is so crucial because while the other two are broadly catalyst , the third becomes the real agents of change. The challenge enormous, as it needs to be “unfreezed” from its status-quo (socio-economic norms) by
• ‘Dis’-incentivizing the status-quo (Communication)




• Incentivizing the change -------










2.0 The Social Agent :
What it takes to be a social catalyst ? or a Social Agent ?
Before deciphering the strategy of a social catalyst , It is important to first understand , What it takes to be a social Agent ?





3.o The action-model for the social catalyst ( Strategy to initiate and complement CIVIC GROUP EFFORTS)




4.0 The Strategy


Lack of Civic Sensitivities in Indians ?

We need to turn this problem upside down to find solution. We first inquire What are the core issues that make Indian’s so insensitive!
.
Few observations.
• A missing story is one of people themselves acting as citizens to change the society they live in, not as needy beneficiaries, participants, political clients or economic producers and consumers, but as agents of their own future. People do not necessarily treat citizenship as a significant aspect of their being.
• The whole issue of Indians can be summed up in because of bad experience with politics and corruption, Indians have shied away from civic and community life. When there is good news, such as the Indian national cricket team playing in the world cup event, more Indians feel good and come out of their self-imposed isolation; however, when there is a bad news, we tend to hide and ignore the reality of civic life.

We believe, the core issue underlying to the problem of lack of civil inclination towards Society (social work or donations for social cause) is that Indians have a bad affliction of learned helplessness.
There are several aspects of human helplessness that have no counterpart among other animals. One of the most intriguing aspects is "vicarious learning (or modeling)": that people can learn to be helpless through observing another person encountering uncontrollable events
(They have seen failed governance and at the top of it they have not seen enough proof with success stories from NGO’s either). This is the bane of India’s lack of sensitivity to civic issues).
The Various Causes of this learned helplessness are
1. NGO Efficacy ? There is a huge suspicion among general public about efficacies of NGO this is linked to individual corruption of workers.
2. High Corruption: People believe that there is large scale misappropriation of donations.
3. Drop of water in the ocean effect: There is too much poverty for my contribution to make any effect. Only donations of Carores can make a difference .On other hand corporate feel that it will sink into ocean as they wont be able to keep a track of it.
4. Desensitization to poverty: There is not enough resources for everybody to be well of therefore there is no solution.
Solution? If you can’t break the ice , drown it .
Strategy of Action:
Strategy 1 :: Strategy to increase the Accountability of NGO
To increase accountability in NGO’s and consequently public trust
• Disclosure statements and reports are among the most widely used tools of accountability and are frequently required by federal or state laws in many countries. In the past it was understandable that keeping and providing minutest of details was often a gigantic and well nigh impossible task however, with the wide spread use of computers it is possible to record and publish on the web the minutest of details. For example the NGO can disclose the name of all donors and the amounts.
• What Smile Foundation can do is collate and publish such reports on the web. Also a detailed record of expenses incurred and Projects financed should be published so that even the layman can add the donation total and the Expenditure total and be assured about the proper utilization of money.
• While important, these external approaches have only limited potential for encouraging organizations and individuals to take internal responsibility for shaping their organizational mission, values, and performance or for promoting ethical behaviour.


Strategy 2: Work Done! Well Done!! But, did you communicate it well enough ?
Focus on Communication to All the concerned stakeholders- the volunteers, the donors, the people at large.( This Will help to “unlearn “ the learned helplessness. )
• Evaluation of performance is an appraisal tool increasingly used called logical framework analysis (LFA). The logical framework is a matrix in which a projects objectives and expected results are clearly identified, along with a list of indicators that are to be used in measuring and verifying progress toward achieving those objectives and results.
• Quantifiable change will make people believe that change is possible even in the most disheartening situation and that a thousand mile journey begins with a first step.

Strategy 3: The Strategy to interest more people in Civic Service : “Inspire by Incentivizing”
Implementation:

(A) For Youth:
• The points of Youth Achievement and Professional Development should be highlighted.
• Link to Schools, colleges & Universities .Senior Level schools should incorporate one field work course in civil service. All graduate and postgraduate courses should have one credit course /non credit course spread over alternate years in civil service.

(B) For Young Professionals :
• It should be considered as a mark of achievement and leadership as well as providing immense practical and problem solving skill and should be recognised and valued by employers
• Linking corporate with special programs , CSR credits
• Society Work Groups in urban localities.

(C ) For Middle Level Professionals, Housewives and Others:
“Art of Volunteering “ on lines of “Art of Living”.
• Heath benefits and holistic benefits to personal development and stress reducing effects should be highlighted.
• Research shows that service matters in some unexpected ways. Volunteering is associated with better health outcomes. Much of the research focuses on the power of volunteering for seniors, but the experience has benefits across the age spectrum. In recent years, research has shown that volunteers are 30% less likely to report poor health. Studies have also shown that volunteers have a 44% lower mortality rate than those who do not volunteer.
• The above point should be focus of communication while inspiring this section of society.
Strategy 4: Villages! People’s War Group. So, Inspire like the Maoists ? ( Sadly but yes they have been successful )
How ?
• Unifying against common enemy (poverty)
• Giving incentives (link it to the local economy)
• Empowering (Give roles to all – Stagewise /Systemwise/Taskwise/Programwise Overseight Groups).

Questions to be asked
Do you empower people in villages enough ? .Are your programs linked to local economics.?
Eg: A reservoir project. Link to local peasants , masonry and benefit farmers and agriculture ( Linked to local economy). Guarantees labor wages ( Incentive)
Common enemy of draught & poverty . Change communication a bit bitter attack poverty , highlight the divide between India and Bharat ( Sometimes for good reasons).Explain cause as not failure of state but failure of villagers themselves in uniting against it .
Empowering ? Mostly policies of Central govt and NGOs’ fail here ( despite correct intent).Who guarentees the completion in programmed manner ?
Step 1: Stage wise implementation of such projects with stage wise budgets. Local people as commanders and incentives on each level of project completion to given set of people
Step 2: Stage 2 starts only after completion of stage 1.Now with different set of people from the community. Oversight to be stage wise and not central ( like elected panchayat or any such central body commissioned by NGO’s )
Step 3: If Democratic systems fails, the responsibility must share hands .Competency is never a question if such oversight groups are made considering them in first place.


To be noted : Reservoir projects failed miserably in UP-East. Due to apathy of Panchayat , people could see their failure but still weren’t empowered enough to change their destiny tied to handful of panchs whom sadly they themselves had chosen.

Strategy 5: Well Directed Aids. Working on supply chains of aids, reducing barriers.Assuming problems distribution , much research showed in west how assuming the Normally distributed “Homeless” problem led to loss of money while looking it as log-normal saved it and worked well . hence, Scientific rather than politically correct measures.

5.0 Conclusion
The most challenging task Civil Activities face is mobilizing public support, The public is apathetic to the surrounding environment. This is surely a cause of learned helpness. People believe that the situation is irreversible this can be fought with information and empowerment. Information provides the truth and the truth can set you free. Publish each and every detail of the inner workings of NGO’s and Civil organization . Let the public see the results and choose which organization to support. Empower the beneficiary. Of all the stakeholders in an NGO they are the most disempowered. Incentivize civil work by volunteers as practical advantages in their self development and careers. . All minor penalties should be converted to do community work as a part of their corrective action.
Smile can leverage on above strategies to not only to make the effort more broad based but also to pull more resources and get the multiplier effect.
Social change is a infact like a helegian process , it will start with challenging the thesis ( status-quo- learned helplessness, notion that nothing can change , un-giving society ) to an anti-thesis ( change can work, society can leverage on its own potential to challenge status-quo).It ends with synthesis where the thesis and antithesis reconcile. In this context the apathy of people will lessen to a large extent ( while not being eliminated) at the same time the civic service goals will strengthen.


( Paper Selected Round1: @IMI ,Delhi)

Inclusive Growth: A survival question for the Indian Economy?

Executive Summary

Developing India’s rapid growth rates have contributed to a remarkable decline in the incidence of poverty have also been accompanied by rising income and expenditure inequalities and persistence of high levels of non income inequalities. These inequalities could be traced to various dimensions of unevenness in the growth process. Several social, political and economic factors need to be tackled for sustaining a high rate of growth, as well as to make this growth inclusive. Elimination of child labour, women empowerment, removal of caste barriers are just a few of the things the Indian society needs to introspect on. Rapid growth in the rural economy (revival of agriculture ), planned urban growth, infrastructure development, reforms in education and health-care ,ensuring future energy needs, a healthy PPP models, intent to secure inclusivity, and above all good governance will ensure that India achieves what it deserves.


Inclusive Growth : Survival imperative for Indian Economy

( paper selected at NMIMS ,Mumbai B-school competition Ecolibria)

1.The debates on inclusive growth.
Let us first address few debates regarding issue of “inclusive –growth” in a developing economy

1.1 Debate 1: Doesn’t Growth means poverty reduction ?No , says the India V/s Bharat Divide.
The dramatic reduction in poverty achieved in parts of Asia is well-documented. Overall Between 1990 and 2001, the number of people living on less than $1-a-day declined from 931 to 679 million, or from 31% to 20% of a growing population (ADB 2005). These successes are closely associated with rapid growth, and driven in particular by high growth rates in a few countries including People’s Republic of China &India.

But , this growth has been accompanied by rising income and expenditure inequalities and persistence of high levels of non income inequalities. These inequalities could be traced to various dimensions of unevenness in the growth process .we thus see , that growth process creates new economic opportunities that are unevenly distributed. The poor are generally constrained by their circumstances or market failures that disable them to avail of these opportunities. As a result, the poor generally benefit less from growth than the non poor. Thus, growth will generally be not pro-poor if left completely to markets.

Responding to the opportunities of globalization, technological change, economies of scale, and competition, we have the “India “syndrome is emerging where a small segment of the population is benefiting from an extraordinary boom. In sharp contrast, large segments of the population are stuck in a “Bharat” syndrome with low wages, little or no social services, and little opportunity for improved mobility. Rising income inequalities and the persistence of unacceptably high levels of non income inequalities pose a clear and present danger to India’s sustained progress.


1.2 Debate 2: Does “Inclusive growth “ is anti-capitalist or utopian concept ?No, says India’s case. With flagging of growth fueled by middle class , it has become a survival imperative.

Inclusive growth means not only creation of economic opportunities, but also to ensures equal access to the opportunities created for all segments of society, particularly for the poor (Ali and Hwa Son, 2007 p. 12).
The ultimate outcomes of inclusive growth are
• Sustainable and equitable growth : It should be broad-based across sectors and regions, and inclusive of the large part of the labor force
• Social inclusion : the removal of institutional barriers and the enhancement of incentives to increase the access of all segments of the society to development opportunities
• Empowerment: enhancement of the assets and capabilities of diverse individuals and groups to function in and to participate in the growth process
• Security : improved management of the social risks arising out of development interventions

The focus here is not on “redistribution of wealth” (so it is not anti-capitalist ) but creation of sustainable growth( hence more practical then utopian).


1.3 Debate 3: As long as we sustain growth , inequality doesn’t matter ! No. Because it is unsustainable .Inequality may actually dampen growth.
There has been long held view that that greater inequality is inherent in the growth process (Lewis 1983). In the process of structural transformation and growth, certain regions in certain sectors can be expected to benefit first. This would cause some increase in inequality initially. As growth proceeds, more regions and sectors undergo beneficial transformation and inequality declines
The counterviews to this is that inequality if left unchecked may actually dampen growth through three links

• Economic link /Investment Link :
o Who will fuel the next wave of growth ? Underinvestment by people with little wealth or low income impacts negatively on growth.
o With too much capital concentrated in the hands of the rich, allocative inefficiency in investment will impact negatively on growth.
• Political Link
o High levels of inequality will eventually lead to pressures to redistribute, which, if executed via orthodox political mismanagement (India’s case , misdirected subsidies, tax soaps, unaccounted farm -waivers etc)
o Growing inequalities may lead to capture of political ,economic, and legal institutions by an elite .This would aggravate the initial inequalities of opportunities and endowments.
o Call for redistribution and sharing political power can range from peaceful and prolonged street demonstration to violent civil war. India has 160+ declared naxal districts , J&K and North-Eastern states have problems of militancy mainly because of the step-motherly treatment from central government. Lack of institutions (legal , political , health and education ) cause inequalities which after a certain stage begin to demolish the asymmetric system of which they are part of .
• People’s Link If India has opportunity being in the the “Demographic- Sweet spot” (young & dynamic population ).India needs to cash it on the people’s link by providing institutions of Education (Skilled /Semiskilled workforce requirements for growing economy) and Health (longevity of work life , & not to become a social liability).

Hence , inequality is an issue despite growth and also for the want of sustaining growth .

2. India’s Case : How severe is the inequality ?
Indicators of inequality
1) Income Inequality : India has Gini-Coefficient of 38 and it is ever-increasing . Poverty in India is widespread with the nation estimated to have a third of the world's poor. Percent of population living on less than $1 a day 44.2% .& $2 a day is 86.2%
2) Sector Inequality :Agriculture and allied sectors like forestry and logging accounted for 16.6% of the GDP in 2007, employed 52% of the total workforce.It however grew at less than 3% (on average) over last three decades.
3) Social Inequality : Eg: Gender Inequality : Literacy of males (76.9%) & women (54.5%) (ref.CIA_World_Factbook,2001)
4) Institutional Inequality : For example healthcare, number of doctors in urban India are six times to that of rural India

3. The three pillars of “Inclusive Growth “ & The Inclusive Strategy !

The three pillars with respective strategy are
(a) Maximum opportunity : This can be done through following
 Improving productivity in rural areas
 Urbanisation of new growth centres
(b) Equal Access for all
 Capability enhancement (Education & Health)
 Infrastructure building (Roads, Utilities , Technology)
(c) Ensuring minimum economic well being. Ensured through social protection ,social safety nets.
The above three pillars rests on fundamentals like
1) Good Governance
2) Adequacy of Institutions : Equitable distribution and access



Fig1. Pillars of Inclusive Growth



4. Conclusions

Overall, inclusive growth with its focus on the process of expanding opportunities will result in more effective poverty reduction in India. While at the same time it will ensure growth , laggard sectors of agriculture should be given importance to. The lower middle class and the BPL class can become the next growth driver , given the inclusive growth. Adequacy of institution, reach and access to legal , health and educational institutions would ensure equalities within seclude societies (North-Eastern states) and minorities .This would ensure the growth is not hampered by abrupt response to inequalities by Bharat in form of social unrest or a liability burden too hot to handle. Inclusive growth will ensure that India reaps its “demographic dividend” and rises to top with efficient allocation of resources across sectors.









References
[1] “Defining and Measuring Inclusive Growth: Application to the Philippines” Ifzal Ali and Hyun H. Son , July 2007, ERD Working Paper No. 98, ADB.

[2] Inclusive Growth: The Road for Global Prosperity and Stability by Sophie Coughlin, Fabrice Lehmann and Jean-Pierre Lehmann the ICC CEO Regional Forum, New Delhi, 4 December 2009

Analysis of the effect of Global financial crisis on India's economy /corporate Sector etc

In year 2008, The United States and the world economy faced a severe financial crisis and are still are convincingly out of threat of the imminent double dip recession. India has so far avoided a banking or financial crisis of the proportions witnessed in the United States and some other economies. However, there are definite indications of a slowdown in the Indian economy, especially in its industrial sector. This article examines the extent to which India’s macroeconomy ( and corporate sector in particular ) was hit by the global recession.

Taking cues from Ila patnaik's article in Indianexpress titled "figure of nine
"There was a strong notion among some part of academic community that India is decoupled from developed economy but it was proved wrong , there has been significant work done to show how business cycles of emerging economies are linked with the developed ones through trade link , capital flow link and banking . "

We see that the Indian economy is now a relatively open economy, despite the capital account not being fully open. The current account, as measured by the sum of current receipts and current payments, amounted to about 53 per cent of GDP in 2007-08, up from about 19 per cent of GDP in 1991. Similarly, on the capital account, the sum of gross capital inflows and outflows increased from 12 per cent of GDP in 1990-91 to around 64 per cent in 2007-08. With this degree of openness, developments in international markets are bound to affect the Indian economy.

India can obviously take comfort in the fact that the global financial troubles have not, so far, triggered a major banking crisis in India, as they did in the UK and a number of other countries. However, there are a number of worrying factors. First, there has been an outflow of foreign institutional investments (FIIs) from India starting in February 2008. The withdrawal of FII investments from India has created other problems in its wake. India’s stock markets have witnessed a major collapse. The Rupee’s value fell from Rs.39-40 to the dollar in January – April 2008 to more than Rs.50. India has been accumulating reserves in 2007. With the outflow of FIIs and depreciation of the Rupee, RBI tried to defend the Rupee by selling dollars. This has resulted in a depletion of foreign exchange reserves.

Econometric analysis suggests that financial crises have a greater impact on expenditure and the financing of corporate sectors in emerging markets than in industrial countries. Industrial countries appear to benefit from a pick-up in bond issuance in the wake of banking crises. Although companies in emerging market countries hold more precautionary liquidity, this is evidently not sufficient to prevent greater amplitude of response of expenditure to shocks (E. Philip Davis, Mark R. Stone, Journal of financial stability)

From the Indian corporate sector point of view important impact was the drying up of investment funds. The foreign source of funds for the domestic corporate is going to dry up. Corporate investment is going to decline during the next few quarters and perhaps sometimes for few years depending upon the speed in which global financial sector recovers. This is perhaps the most important way in which the present global financial crisis is going to affect our macro economy.Indian corporate over the last five years is living in an environment where there is easy exposure to sizable foreign funds. The corporate purchase of foreign funds in different forms – ECBs (External Commercial Borrowings), FCCBs, Depository Receipts and Exchangeable Bonds have facilitated the expansion activities of our corporate in organic as well as inorganic mode.

My attempts include analysing the effect on the following 4 points
.

We take the starting point as the macro-economic linkages between developed and emerging economies. Such macroeconomic indicator explains the overall corporate performance of a country y-o-y.

1) First , I examined the following

• How business cycles are synchronized between the developed countries ( US , Japan ,Germany &
UK) & India .We examine this through significant correlation between the GDP growths of these
Countries with respect to India. Reference The impact of the global financial crisis on business cycles
in Asian emerging economies Jarko Fidrmuc, Iikka Korhonen, Journal of Asian Economics.
• How strongly correlated is Indian financial market with respect to US market .For this we
calculate the correlation between US INDICES and BSE SENSEX .

2) Next I examined the impact of global recession on Indian economy (which in turn would explain the effect on corporate sector).
There were three ways of answering this question

• Capital Flow Link : To examine how fund flows to emerging markets and to India will change when interest rates and stock market returns change in the US.
I collected average return y-o-y on S&P Index of US , interest rate ( T-bill-91 days rate averaged over year), and the net fund inflow to India.

• Banking Link : Banking sector’s exposure to toxic assets. We do not study this because Indian banking sector is negligibly exposed to such toxic assets.

• Trade Link : How directly exposed are Indian exports to the US economy?. We find the trend in India’s export as a percentage of its GDP over the last decade .

3) Finally I tested extent to which corporate sector is hit by global financial crisis , by examining IIP growth numbers affected by the following explanatory variables like interest rate , Rs/dollar exchange rate , and net foreign fund flow


4) We also examine the financial ratios of BSE-100 indexed companies ,the companies included in it are market leaders and thus market representative of India’s corporate sector at large.We examine the trend in the movement of financial ratios before and during the global recession .

Results and Analysis

We anlyse data for the following objectives

1) How business cycles are synchronized between the developed countries & India

On examining the GDP data of developed economies vis-à-vis India.




The increasing weight of emerging countries, especially the trade shares of the largest emerging Asian countries (China and India), have led to faster global growth.

It is said that the pattern of business cycles in emerging Asian economies generally displays a low degree of synchronization with the OECD countries, which is consistent with the decoupling hypothesis. However, the current financial crisis has had a significant effect on economic developments in emerging Asian economies(The impact of the global financial crisis on business cycles in Asian emerging economies§Jarko Fidrmuc a,b,c,*, Iikka Korhonen Journal of Asian Economics). Correlation analysis is the most common approach for describing output synchronization between countries. Classical correlation is a standard measure of co-movement between time series.

By applying correlation on a macroeconomics perspective like the GDP we can make some deductions.
Countries No Of Years Correlation
India-Uk 10 0.89616
India-Japan 10 0.66117
India-USA 10 0.49096


These are the values of correlation between India and the OECD countries.
This shows a high correlation between India and UK markets followed by India and Japan and the least between India and the US. Thus it shows that the business cycle is especially linked between UK and India and somewhat between the US and India. Thus an economic turmoil in these countries can have an effect on the Indian economy and consequently the Indian corporate world through the effect trade linkages/capital linkages.





2) Correlation between US Indices & BSE Index.



• Dow Jones and BSE are more strongly correlated than S&P and Nasdaq


Correlation Summary

BSE & NASDAQ
S&P & BSE BSE & Dow Jones
Correlation
0.33 0.34 0.37





Performance Summary

BSE S&P NASDAQ Dow Jones
Average Return 0.037% -0.042% -0.019% -0.034%

Standard Deviation 2.43% 1.91% 2.08% 1.87%

All indices clearly showed that they had bottomed out in the month of February 2009 and then recovery process has already begun.

The study showed that there is always a link between stock prices and corporate finance, firms always attempt to increase their market value.
The financial downturn shrunk corporate India’s mobilisation of resources in the form of equity and debt.( capital raised through new issues grew by 158.5 per cent year-on-year in 2007-08, but fell by 82.5 per cent in 2008-09.) The decline was inevitable given the collapse of the stock market in 2008-09 largely as a result of the exit of foreign institutional investors.

3) Next we examine the impact of global recession on Indian economy ( Understanding the exposure of India to financial crisis )

Examining the links one by one

• Examining the Capital Flow Link :

To examine how fund flows to emerging markets and to India will change when interest rates and stock market returns change in the US.
We collect average return y-o-y on S&P Index of US , interest rate ( T-bill-91 days rate averaged over year), and the net fund inflow to India.

Attempted : To examine the effect of S&P avg return and interest rates on the amount of fund inflow in India.








Funds ( In crores) T Bills rate S&P rate of returns Funds ( In crores)
1999 5181 4.63 21.04 5181
2000 6789 5.81 -9.10 6789
2001 8151 3.38 -11.89 8151
2002 6014 1.61 -22.10 6014
2003 15699 1.01 28.68 15699
2004 15366 1.37 10.88 15366
2005 21453 3.14 4.91 21453
2006 29829 4.72 15.79 29829
2007 62106 4.35 5.49 62106
2008 21325 1.365 -37.00 21325


I found that Foreign Fund flow to Indian financial markets is effected by the rate of return an investor would get in US s&p and cost of borrowing the fund ( interest rate).
An investor would obviously ,invest in foreign market , in hope of higher returns

• Examining the Trade Link :

To what extent are Indian exports to the jitters across Globe?. We find the trend in India’s export as a percentage of its GDP over the last decade

We also analyse the effect of financial crisis on the export sector of india during the crisis.The Indian exports both products and service contribute about 24%(2008) to the GDP of India thus playing a pivotal role in the growth story of India. Huge increases in investment and a clear focus on creating the capacity to drive exports higher have worked in the sense of rising per capita incomes, ballooning trade surpluses and an increase in global economic influence. This could be a very important element in how the Indian economy will perform. export of goods as a percent of GDP has risen rapidly from just above 5 percent to 14 percent in 2006-07. In other words, exports have grown much faster than GDP. Services exports have risen even faster. As a result, when goods and services are considered together, we find that at around 25 percent, India exports are around one-fourth of its GDP. A slowdown in global trade and exports is thus unlikely to leave India unaffected.Consequently affecting the BPO, ITES and textile industries.







The above figure clearly shows that India’s dependence on Exports have risen greatly. Starting from around 12% in 1999 it has doubled to 24% in 2008. It has effected the Indian economy by creating Jobs and wealth. Considering the other people who are indirectly associated with the textile industries, total direct and indirect job losses were expected to reach 6 million.
To rub the salt the rupee appreciation hit back at the profit margins of firms.




4) We test extent to which corporate sector is hit by global financial crisis

attempt : To examine the extent to which industrial growth ( measured by IIP numbers) is affected by the foreign fund inflow , foreign exchange rates, and the interest rates.

We know that , Indian corporate over the last five years has been living in an environment where there is easy exposure to sizable foreign funds. The corporate purchase of foreign funds in different forms – ECBs (External Commercial Borrowings), FCCBs, Depository Receipts and Exchangeable Bonds have facilitated the expansion activities of our corporate in organic as well as inorganic mode.The sudden shock of financial crisis momentarily ebbed the flow of funds

Year YOY Industrial growth Exchange rate Funds Inflow
1995 9.1 34.35 4892
1996 13 35.915 6133
1997 6.1 39.495 5385
1998 4.1 42.43 2401
1999 6.7 43.605 5181
2000 5 46.64 6789
2001 2.7 48.8 8151
2002 5.7 47.505 6014
2003 7 43.445 15699
2004 8.4 43.755 15366
2005 8.2 44.605 21453
2006 11.6 43.595 29829
2007 8.5 39.985 62106
2008 2.8 50.945 21325


Result : We see how Industrial growth is significantly affected by the amount of foreign fund inflow at a given exchange rate









5) Examining the financial ratios of companies included in BSE-100 Index, ( representative set of 84 companies for India’s corporate sector)

Years/Fields 2009 2008 2007 2006 2005
Core EBITDA Growth(%) 19.78 63.6 65.07 40.93 33.39
EBIT Growth(%) 35.25 69.04 77.24 43.11 28.02
PAT Growth(%) 8.11 68.71 69.86 46.81 49.39
Total Debt/Equity(%) 76.64 67.85 68.73 65.6 63.31

EBIT Margin(%) 104.75 106.82 101.55 98.08 97.67
Total No. of Companies 84 84 84 84 84















From the graphs we can clearly see that , the recession had its significant effect on the balance sheets of companies eating away EBIT and PAT growth. However , since Indian firms are less leveraged the effect wasn’t as severe as in west. But , short-term borrowing costs ,did increase significantly.

Conclusions and Policy implications

Conclusions

1) India’s economic cycle is significantly in synchronization with developed economies

2) India’s exposure to the risks of global crisis can be tested through both trade (export-import) link and the capital flow link. We find that India’s share of export as a percentage of GDP has significantly increased over the years making it even more prone to global shocks. Industries such as IT, BPO , Textile are all prone to foreign demand declines and the rupee appreciation that follows in course of such global downturn

With respect to capital inflows link : fund flows to India will change significantly when interest rates and stock market returns change in the US .

3) Infact, even financial markets (India’s and US) are significantly correlated , matching each other’s movement.

4) Recession weighed heavily on the PAT and EBIT margins of Indian companies, due to decrease in global demand ,especially in services sector ( that is not as much fuelled by domestic demand as by foreign demand)

5) Industrial growth is dependent on such short –to-medium term borrowings( foreign fund inflows) ,foreign exchange rates, and the rate of interest .


Policy implications

In open economies, we must equally focus on domestic demand which may help in insulating the economy from adverse external economic shocks.

That is to build up internal demand. China whose export reliance has increased year by year has started to change policies to drive domestic demand. India which has a export value of 24% of GDP needs to drive domestic demand.


• Limitations of the study :

• To analyse the business cycle synchronization between India and developed world , we have used Classical correlation is a standard measure of co-movement between time series. Unfortunately the classical correlation has drawbacks: An alternative measure of synchronization in the case of business cycles is dynamic correlation.
• The study doesn’t include the testing of corporate earnings before and after 2008 , through dummy variable , because of the lack of sufficient data ( within our reach) beyond q1,2009.

References
1) examined the decoupling hypothesis through published research papers .Work of Jayaram, Shruthi, Patnaik, Ila and Shah, Ajay (2009) "Examining the decoupling hypothesis for India" , National Institute of Public Finance and Policy, New Delhi.
2) referred the “The impact of the global financial crisis on business cycles in Asian emerging economies” by Jarko Fidrmuc &, Iikka Korhonen published in Journal of Asian Studies.

acknowledgement
Special thanks to Amartaya Kundu ( MBA-MS batchmate ) for GDP data , and export link ( trade link ) data .

Sources of data
DU e-resources

Budget 2010 Expectations

Budget 2010 : Sorry ! No Fireworks This time !

Click here to see a portion of Article accepted @ Businessworld Column

When discussing expectations from budget , we see that this government has a balanced view on hot issues such as deregulation of power ( and all other politically sensitive issues) .The dynamics of decision making in this UPA government is to discuss & debate sort out such issues outside the budget. In the past too we have seen , crucial policy implementation outside the budget , in an attempt somehow to downplay the euphoria that traditionally surrounds the budget season. Although , the downside with this strategy is that now government fails to give a point wise policy-change agenda at a time most ripe for it with no left-front dragging its foot away and with the worst of the financial crisis over globally & healthy domestic growth.

So, as an investor or stakeholder one should be conscious of these facts – in short don’t over-expect.

Let me therefore cite my expectations and over expectations in that context!

Expectations

1)Fiscal Rollback : Partial Withdrawal

Given that RBI has come on record to say that next crisis could be in currency and fiscal following the government support worldwide to curb the financial crisis. Also , the FRBM targets have never been met since its incorporation.FRBM targets should however be revised in harmony with the business cycles. This could be done by hiking duties by 1.5-2 % in sectors that are going at about 20% or higher(Automobiles, consumer durables etc ) .However, the support for export-oriented sectors would ( hopefully )be continued .

2) Simplify tax and still raise revenues . However ,given the fiscal deficit ,no tax rate cuts are expected.

The Tax Code Bill 2009 talks of increasing the 10% slab to Rs 10 lakhs, 20% slab between Rs 10 lakhs and Rs 25 lakhs and 30% above Rs 25 lakhs.The difference between the current slabs and the New Direct Tax Code is very high. This budget may herald a smooth transition from current to new system.

Over-expectations :: However ,there is very slight chance that the slabs would be increased drastically. Incase , FM does so , it would make sense to even do-away with separate rates for capital gains and integrate it with income tax rates.Also ,to minimize the Wealth Tax rate and its floor cutoff .

3) Indirect Tax Reforms

· Phasing out CST ( currently about 2 %) is vital for smooth implementation of GST.

· All cess on for eg; R&D cess etc should be done away with , this will again be on –the-lines of GST, removing all indirect taxes.

· Initiation of the process of termination of “ Tax-holiday “for big players in the IT-ITES sector .

4) Reforms for Infrastructure

· Tax incentive scheme for infrastructure sector for areas including generation of power, development of railways, ports and airports and construction of oil pipelines.

· Tax incentives could be increased for projects including low carbon power generation such as hydroelectricity and wind turbines or low carbon transport infrastructure

· Encouraging PPP –especially in “housing for all”—making such PPP models more profitable especially in small cities.

5) Reforms in the Agriculture : Inclusive growth !!

Although government focus is back on agriculture , but sadly, it being a state subject , does require commitment and support from the state government as well.

At the Central level, some urgent measures are needed are

· Increase agricultural investment, particularly in irrigation in dry-land areas, research and extension.

· Increased effort to reduce regional inequality with particular attention to the eastern states and dry-land areas.

· Reform agricultural marketing, including a revamp of the Agriculture Produce Marketing Committee Act.

· Managing the food economy , through , better procurement and public distribution systems.

6) Health Care Reforms

Allocations for the National Rural Health Mission (NRHM), the flagship programme of the UPA, must increase both

in terms of size ( monetary) and scope (coverage of districts )

Debatable /Over expectations

1) Import duty on capital goods . (Revoked/ Minimized)

The war between Power ministry and Heavy Industries ministry can turn any side , but since the higher duties implies costlier power for common man , there is good chance such duties will done away with substantially .( Much to the dismay of local players like BHEL )

2) Deregulation of power and oil &gas sector

Given that 80% of our oil is imported and that content of our domesticconsumption will keep growing it is very necessary to align the global prices with global prices .This in turn will benefit fiscal consolidation in long run .

Based on Kirit Parikh Committee report Government is expected to do the following :

(a) Government must introduce free pricing of petrol and partially hike diesel

(b) However, Government( left with no choice ) will have to continue subsidy in cooking gas and kerosene to protect the poor and control inflation.

7) Reforms in the commodity market

(a) Commodity market hopes for entry of banks, funds and foreign brokers in the futures market in the forthcoming federal budget

(b) More autonomy to FMC, ( currently under Ministry of Consumer Affairs )

(c) Moot the idea of making FMC, common regulator for both exchanges and warehouses

(d) Removing ban on futures trading in few commodities

But, these move could be unlikely due to sharp rise in food prices which will restrict some decisions from UPA goverment.

3) Realty Sector

Infrastructure status to be accorded to integrated township projects.This will enable the developers to raise funds at cheaper rates and relaxed norms especially when there is increasing demand for affordable housing.