Real growth does exists, If so how to measure it??

Recently we are hearing across many news items related to rupee depreciation, Capital outflows, widening current account deficit, low growth rate in GDP etc. After hearing all this ,is there any real growth rate in the economy  , what are the real parameters to measure the country's development, I am doubtful whether such parameter do exists?

Does GDP , inflation, growth rate, interest rate, stock market alone will reflect about the country's overall development?. where is the sustainability in all these parameters....are we bringing the items like income growth, education levels, social development, human capital, personal growth, health index, job creation rate infrastructure development for such comparisons...??
If we look into the parameters what we really use for analysis and comparison is more related to corporates/business entities growth in a country than the real human capital growth. If we are able to find out how much leveraged the overall indian business entities i.e. the debt levels, it is a guess that it will be highly leveraged considering the country is over leveraged, in that case following  interpretation may be true to some extent. but this yet to be tested with data.

As entities are over leveraged, the main source of funding will be through banks and as always due to competition banks want to fund companies in all possible ways. Just commenting on one of the recent marketing efforts and possible impact. These days we can see banks (in general) are offering finer pricing for corporates based on external rating through which corporates get huge benefit atleast 400 bps where inturn there is no direct benefit for the depositors, who are primarily public. As a regular phenomena and from the facts we can say atleast 60% public funds in banks is routed to corporates and nobody can really have a 100% check on how and where these funds are utilised . Again this will be acceptable if the normal economic cycle exists where this funds are used by corporates for creation of assets and jobs to public, does this happen in case of all corporate entities where non performance is at its peak now ?? And most of the times we can see funds are pushed into the mouth of corporates even if they don't want, as banks do live on the interest margins.so the growth is concentrated to corporates more often, and as a country we see  more of divergent or dissipated growth. more opinions to follow.

Banks Vs Microfinance institutions

With the recent hype on Microfinance its time for us to look on the basis of existence of this MF organisations. I believe MF started as a concept from the Grameen bank in order to serve the deprived part of the society which gradually changed and now became a profit making business model.

Andhra pradesh is now seen as the MF hub of the country is really spurred with several MF institutions. Why and how these MF is different from banks is really we need to understand. Also do these MF institutions really doing what they intended to do or they missing on the basics??

Banks do talk more on financial inclusion but when coming to the point of serving poor they are simply finding it difficult. They are good in getting the micro-savings from the poor through CASA and deposits but not really interested or properly aided with regulations for providing micro credits. This is seen more as an opportunity to begin and explore by MF institutions which started borrowing from banks at a very low cost of 14-16% and lent around 40-60% or even more. Not to be surprised many foreign institutions also directed their funding to these institutions which earned a reasonably good profit compared to investing in stock markets !!

So basically one of the weakness of the banks( their ability to reach poor) were used by these institutions to generate profits. Also many of the customers of these MF institutions feel that this MF institutions are a way better and in the pipeline they come in between the highly greed private moneylenders and very conservative banks, which made them to access these institutions for credits.

Its good that AP govt come up with the ordinance which caps on the interest that MF institutions charge to their customers and also regulating their operations. I do feel its completely absurd to avoid these institutions which are right in their direction i.e towards financial inclusion but the path they took is bit clouded with too many players with different objectives which needs to be regulated.

So my view is we should not completely move away from MF institutions, we need to take some of their concepts and rework on that to reach financial inclusion.
Its time for an apex institution like RBI to take up regulating these institutions and provide them suggestions and facilities like a common database like CIBIL in order to avoid multiple loans and have a detailed history of the customers.
Also banks also need to learn some of the innovative practices and highly recovery mechanisms using social respect which are adopted by MF institutions.

FII flow vs Interest rate vs inflation

Just an attempt to relate all this macro economic variables.
We recently see a huge surge in the FII inflow into the country.October month alone contributed around one-fourth of the total inflows this year. What could be the reason for this inflow, obviously it is because of the better returns in India compared to other countries and more opportunities in terms of primary market.

This has lead to an increased flow of foreign currencies which will convert the available rupee in the economy into portfolio investments. Because of this the availability of rupee in the economy will get reduced which is transformed into the depreciation of foreign currency and appreciation of Indian rupees (due to increased demand of rupee). You can see observe this through the volatility especially between USD,EUR with INR .

Is the foreign currency flow is good or bad for economy. It is how the country's internal policy able to utilise this flow and If the country is not able to utilise this opportunity again the flows can be reverted in short term. Here comes RBI, The effective conversion of this foreign currency flows into forex reserves is one of the job of RBI during these times and this is done by accumulating the forex reserves which will help to smoothen the effect of current account deficit. This is usually done by RBI through monetary tools like repo , reverse repo.

Also this FII inflow will increase the money supply in the economy which will increase the inflation to an extent in case there is no substantial output created. But since inflation is one of the effects of FII flow , FII flow cannot be restricted which will affect the growth of the country. Country's economy and policy should be good enough to absorb such FII flows. So this inflation which we see is not alone due to FII's its also because of internal economic policies. this increase in inflation need to curbed through increasing interest rate which is now done by RBI with a 25 bps raise in repo and reverse repo.

Its Team Six

First trimester at BIM...

It's still in my memory how this team has formed, its not a planned one , its not an expected one, formed with an urgency but resulted into a team from where I saw the real "Team Spirit".

The rules for the team formation were like this..Each team should consists of six members and atleast a girl should be there... So we were in the race to form a team and finally ended with ten members as a surprise.

Now the question to us was how to form a team of six? because there were no members free other than this...And leaving four members simply also not possible...so we planned to split this into two teams. Manoj sat down and started to write the names "one in left and one in right", and thus resulted into two teams with 5 members each....And two guys joined later in the class were added one in each team. This is how team six formed.

To tell about the team ..oh there are really lots of stuffs...Still now I know the team has only positives like healthy discussions, never giving up, willingness to share work, understanding others commitments , pushing the team ahead, group study etc etc ...but I guess pulling together everyone (especially me ) for the meeting at right time was a tough task :) for meeting schedulers...

I liked the feedback session conducted at the end of every trimester and the only way we freak out at the end of every presentation at seakings :) ..I heard that more work pressure and busy schedule will enhance the team spirit a lot, but is it true in our case..might be..

Do markets recovered?

The current fluctuating Sensex and Nifty make us to think that the markets really recovered or not. I take up this with an analysis of some current policies and events in the country.

The recent hike of 25bpts in policy rates by RBI in its annual policy shows that curbing inflation is the necessary step at this moment. But why RBI has increased only 25bpts when the industry is expecting more than 50bpts raise which I am not clear, but I think there will be a midpolicy review in the rates again by RBI to curb inflation. The benchmark rates change by RBI has worked out with the wpi inflation has declined from 9.99% to 9.59% on april.

The government's borrowing program for FY11 is planned around $64 billion dollars mainly to reduce the fiscal deficit from 6.5% to 5.5% of gdp. I hope this fiscal policy will also help to reduce the inflation. But how far these inflationary & deficit policy measures will not affect the planned growth of 8% is a question.Next,the recent Greece debt and PIIGS weak economy may affect the indian market sentiment initially with some FII capital moving out but overall the our market stands resilient to this.

And beneficially sales of both commercial and consumer vehicles has increased across the country.With the automobile sector sales revived upto 39% in the month of april alone and the industrial index of production increase of 13.5% shows that the manufacturing sector has recovered and will pass on the same demand to other sectors also.

Q4 FY10 results of most of the Banks, Manufacturing and IT companies also shows a good positive sign in terms of net profit . Also most of the banks hope that their lending will grow by more than 20% on an average YOY, which provides credit to the business/households and thus stimulates the growth momentum. Above all the hopes of south-west monsoon during midjuly need to be met to prevent the food inflation which was a major curse last year. The government will ultimately need to work on to increase the supply rather RBI working on the monetary side by reducing demand/moneyflow.

Currently the stocks of telecom sector facing a downside mainly because of the 3G auction will soon take up once auction is over and 3G services are started.

All this shows a positive signal towards the recovery, more of it we will watch out with optimism....

Impact of rise in CRR in inflation

An increase in CRR of 75 base points by RBI made us to think why it has done during the time where growth is stimulated in India. Does it will curb inflation or not ?

Increase in CRR will make the banks to place more of their money in RBI , for which the oppurtunity cost should be noted if it is available with the same banks. Increased CRR is obviously aimed at reducing the lending by the banks which in turn will reduce the money flow in the economy. Reduced money flow directly means reduced buypower of the households which in turn will reduce the prices especially food.

What happens if the increase in CRR doesnt bring inflation down , what will be next step of RBI and It seems RBI is thinking of reverse repo as a backup measure.