sud4324878

Stocks-Gold or Oil

sud4324878 — Tue, 13 Oct 2009 17:46:20 +0000

In the Hindi blockbuster movie Gajini, the lead actor suffers from a
disastrous aliment “Short-term Memory Loss”. The current market euphoria
across the world reminds me of a similar mental state for investors across
asset classes who are unable to grasp the toughest lessons of last year’s
global economic crisis. The crisis was predominantly about
unsustainability of macro imbalances – imbalances within and between the
nations as well as flaws in policies, regulatory structures & risk
management practices that allowed these imbalances to take the world to the
brink. Many of these structural issues haven’t been adequately addressed
yet. The macro imbalances continue .In the midst of a very lukewarm
recovery in few economic indicators, the recent rally in almost all asset
classes is baffling.The current market upswing is being driven by huge
surge in liquidity, consequent upon biggest ever simultaneous liquidity
injection by the governments across the world. The danger of the current
euphoria is apparent with a very clear writing on the wall regarding
forthcoming acceleration in inflation numbers across the globe. This is
driving the gold prices which are hitting record highs. Even oil& other
commodity prices are showing steady rise & the unprecedented liquidity
is keeping the equity markets buoyant.

Confused investors are seeking answers and searching for appropriate asset
classes for investment . They are clinging on to gold. With looming
inflation in the horizon I don’t see any fault in this logic of buying or
holding on to gold except the fact that the appreciation in gold may not be
significant in the near term considering the fact that it is already at
record high. But for long-term purposes gold will continue to remain an
attractive investment avenue. Jim Rogers the renowned commodity bull
recently mentioned ” I can’t say what will happen to Gold tommorow..but if
you ask me whether Gold will go up in the long term…I would say yes .”

Oil as an investment avenue is a bit complicated and at present avoidable
for the general investors. Inside every Oil bull beats the heart of a
brooding pessimist.Crisis , turbulence & disasters enable Oil prices to
shoot up. Apart from demand/supply dynamics, geopolitical issues play a
significant role in determining the price of oil. Geopolitical tensions
around the world are currently showing signs of cooling down with more
mature US policy response to the various issues. While the economies of
China, India and few other developing countries are on their recovery path
, the same is not true for the European and US economies. Subdued global
economic activity depresses demand for oil and consequently its prices.
Popular belief that holding oil as investment can act as a hedge against
forthcoming increasing inflation will not hold true unless & until
economic activity around the world significantly picks up.

Thus, in spite of nervousness around the world regarding sharp rise in
prices of Equity Shares over the last six months, investing in stocks will
continue to remain attractive.This is specially true in case of India.
During the boom of 2007, the rate differential between the GDP growth of
US,Western Europe and India was around 3-4 per cent, as India was growing
at around 8 per cent, whereas these economies were growing at around 4-5
per cent. Conservatively India is expected to grow at around 6 -7 per cent
during the next few years, whereas US and Western Europe will either show
de-growth or grow marginally. Thus the GDP rate differential has only
moved up to 6 per cent, making India more attractive as an investment
destination. India will continue to attract significant long-term FII fund
inflows ensuring that there is ample liquidity in the market. Domestic
savings will also continue to get channelised indirectly through the Mutual
Funds & Insurance companies. The trick would be to identify the right
sector and right company in these sectors. With the economy growing at 6 –
7 per cent, and expected inflation of around 4-5 per cent, the nominal
growth will be 10-11 per cent. In such a scenario, the performing Indian
companies will definitely provide a CAGR of around 15 per cent over the
next 5 years.

It is also very important to remember the cardinal principle of
investment…don’t try to time the market..be in the market for a time.
Today’s stock market levels are much closer to the 2007-08 peak than the
bottom of 2008-09 & in the short term market movements will be volatile &
choppy. The world economic scenario is still not very rosy & liquidity
levels may fluctuate wildly based on entry or exit of FIIs. However the
medium to long term projection for Indian eqity markets are very
encouraging & Investors with similar time horizon should definitely look at
equity investments for building their wealth.

Financial Inclusion

sud4324878 — Thu, 08 Oct 2009 09:34:24 +0000

Financial inclusion is one of the main planks in India’s drive to wipe out poverty – equal to efforts to build physical infrastructure. Government experts define the policy as the “delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups”. Officials estimate that more than half of Indian rural household about 46m homes – do not have access to credit.

Two third of the country’s population doesn’t have a Bank account and this situation is not expected to change dramatically in the near future. Inclusive growth demands providing financial services to this un-banked population. The attempt of the government is now rightly moving towards using alternate non-banking channels to route financial services into the interiors of the country. As a part of this process it would be only appropriate if the domestic remittance market is opened to the recognised money transfer agents who in any case are authorised to receive inward remittance from abroad. In fact it is quite paradoxical that a person sitting in India can receive remittance from anywhere else in the world but from other locations in India through this RBI approved private Money Transfer Agents. So a person in London can remit money to a person sitting in a remote village in Bihar by using the services of private Money Transfer players, whereas a person sitting in Bombay cannot do the same and the only option open to him is to use the postal department’s Money Order service.

The government has claimed it can end poverty by 2040. Presently, more than 250m Indians live on less than $1 a day.

The problems in India’s rural sector are well documented. About 72 per cent of the country’s 1.14bn people live in rural areas, yet agriculture produces only about 21 per cent of gross domestic product, according to the World Bank. That leaves the majority of the population living off a small chunk of the economic pie. Small and marginal farmers, those with two hectares (five acres) of land or less, comprise three quarters of the nation’s farming households but own less than one-quarter of its farmland. In the poorest states, such as Bihar, small and marginal farmers comprise about 96 per cent of those working the land, industry experts say. A lack of transport and other infrastructure forces farmers to sell their produce to village “aggregators”, the middlemen who take it to markets in nearby towns. With a better knowledge of prices than many of their poorly educated clientele, the middlemen can dupe farmers into a steep discount. They double up as money lenders, providing farmers with credit for seeds and equipment, often at crippling interest rates.

Micro finance and NBFCs can play a huge role in this space. Ofcourse a fully developed & integrated commodity market can also bring in all the related services including collateral management , warehouse receipt financing etc to remove the funding bottlenecks.

Soverign Wealth Funds

sud4324878 — Thu, 08 Oct 2009 06:34:10 +0000

Defining which funds are sovereign wealth funds (SWF) is tricky at best. A relatively strict definition is employed by Monitor Group, which defines SWF’s as investment funds that:

1. Are owned directly by a sovereign government.

2. Are managed independently of other state financial institutions.

3. Do not have predominant explicit pension obligations.

4. Invest in a diverse set of financial asset classes in pursuit of economic returns.

5. Have made a significant proportion of their investments internationally.

This definition would exclude Saudi Arabian Investment Authority (SAMA) for example, as it is a central bank. However, many analysts do include SAMA among the SWFs because its foreign assets are invested in a much more diverse portfolio than most central banks. The Norwegian Government Pension Fund – Global is also included in the SWF group despite the name, because it functions as an endowment fund, and has no explicit pension liability stream.

The issue becomes even thornier when government funds start to raise external debt to finance acquisitions, as in the case of Mubadala and a few other UAE-based funds, as in this case it is not just ‘sovereign’ wealth that is being invested. A distinction also has to be made between funds that invest the nation’s wealth, such as Abu Dhabi Investment Authority, and those that invest the wealth of the ruler, such as Dubai International Capital. The latter is not usually described as a SWF.

Although sovereign wealth funds (SWF) pursue higher risk-adjusted returns than traditional central banks, through a diversified portfolio of assets, their appetite for risk does vary. More conservative funds include Saudi Arabian Investment Authority (SAMA), the Russian funds, and Kuwait’s General Reserve Fund. These tend to focus on fixed income securities and deposits, with a relatively small equity exposure. Most of the larger SWFs, including Abu Dhabi Investment Authority (ADIA), Norway’s Government Pension Fund – Global and Government of Singapore Investment Corporation are largely passive investors, managing diversified portfolio seeking higher returns than the conservative funds. Their portfolios include a substantial proportion of equities, as well as exposure to private equity and other asset classes, such as real estate.

Finally, strategic investors take more active stakes in companies they invest in than either of the above two groups. These SWFs are typically quite small. Dubai’s Istithmar, Abu Dhabi’s Mubadala, and Singapore’s Temasek Holding fall into this category.

During the last few years there has been huge concern & skepticism over investments by SWFs in foreign assets.Although the US has moderated its stance on acquisitions by Middle Eastern Investors and sovereign wealth funds (SWF) post-financial crisis, some European countries, including France and Germany, remain wary of foreign SWFs buying stakes in what are seen to be ‘strategic’ assets and sectors of the economy. Late last year, France announced the creation of its own state-owned fund to support companies of national strategic importance, and Germany passed legislation allowing the government to review an prohibit a non-European Union company from acquiring more than 25 per cent of the voting rights in a German company.

To a large extent, this simply reflects the lack of information about how these funds are managed and what their investment objectives and strategies are. Since the furore over the DP World deal in 2006, SWFs have made efforts to improve their transparency, disclosure and general public relations efforts. At a meeting hosted by the International Monetary Fund (IMF) in May 2008, SWFs clarified that they have always invested “on the basis of economic and financial risk and return related considerations”, allaying fears of political motivations behind SWF acquisitions in the West. An International Working Group of SWFs, led by Abu Dhabi Investment Authority (ADIA) and the IMF, was also established to put in writing a series of ‘best practices and principles’ that SWFs would strive to adopt voluntarily to improve their transparency and governance. This code of conduct was published later last year and is known as the Santiago Principles. Essentially, the Santiago address the need for greater accountability and disclosure of objective and fund strategies; a sound legal framework for the funds to operate within; improved governance structures and processes to ensure risk management and accountability; and prudent investment practices based on financial and economic risk and return.

Although increased transparency has benefits both for the SWFs and the recipient countries, there can be a cost in terms of the fund’s flexibility, which could compromise the SWFs returns – Norway’s oil fund, one of the most transparent, has on average achieved an annual return about 4 per cent since it was established, compared with an estimated average annual return of about 10 per cent for ADIA. Nevertheless, there is evidence that many funds are making efforts to implement the Santiago Principles, particularly those relating to disclosure of investment objectives and strategies. Temasek recently revised its charter, downplaying its links to government policy or strategic interests, while China Investment Corporation published its first annual report in July 2009. SWFs are also becoming involved in joint ventures, both with each other and with third parties, allaying fears in recipient countries of political motivation in investment decisions transaction.

Economic Models Vs Common Sense

sud4324878 — Wed, 02 Sep 2009 07:33:00 +0000

Keynes’s view was that we need different economic models at different times. The beauty of his General Theory of Employment, Interest and Money was that it was general enough to accommodate a variety of models applicable to different conditions. Markets could behave in ways described by the classical theories, but they need not. So it was important to take precautions against bad behavior. Ultimately, the Keynesian revolution was a triumph not of good science over bad science, but of good judgment over bad judgment

The efficient markets hypothesis is the catwalk supermodel of economics. Strutting down the runway in haute couture, catwalk supermodels present an elegant stylized vision of fashion that bears scant resemblance to the reality of buying clothes on the high street.

Through its failure in successive crises – the 1987 stock market crash, the collapse of Long-Term Capital Management and the current financial crisis – the EMH and the models it has spawned has been shown to have a similar lack of relevance to how financial markets actually work. The recent series of articles in the Financial Times highlighting the shortcomings of the EMH are important because, despite the flaws, the ideas underpinning the theory remain the well-entrenched orthodoxy. Trading rooms are not filled with bankers pontificating on the finer points of economic theory, but the tools they employ on a daily basis – from derivatives pricing models to risk management metrics such as Value at Risk – are all ultimately based on a vision of the world that assumes constant liquidity and the near impossibility of extreme events.

Several of these critiques view the failure of EMH as an opportunity to replace it with something else. Writing on behavioural finance,Jonathan Davis showcases the work of Professor Andrew Lo of Massachusetts Institute of Technology, who admits financial markets simply do not lend themselves to deductive theory as well as the physical world. Similarly,Paul De Grauwe,Professor of Economics at the University of Leuven, suggests the crisis creates the opportunity to develop better models, but notes “the interaction between… imperfectly informed individuals regularly creates collective movements of euphoria and panics. These phenomena are hard to model. Yet this is what macroeconomists will have to do if they want to regain respectability as scientists.”

This last statement contains the essence of the problem. Over the past 50 years economics has attempted to turn itself into a “hard” science through mathematical rigour. But as Professors Lo and De Grauwe both admit, the real world does not lend itself readily to this form of analysis. Rejecting the simplicity of the EMH and focusing on how economic agents actually behave may well produce models that are an improvement on their predecessors, but this is still asking the wrong question. Using the catwalk analogy, we shouldn’t ask how supermodels could be made to look more like normal people and dressed accordingly. Instead, the important question is “do we really need supermodels and haute couture fashion shows to shop on the high street?”

The first step is to accept the futility of attempting to describe human interactions with mathematical models, particularly ones that return automatically to an equilibrium state. Economics used to be a descriptive discipline – Keynes’s original work was not a mathematical treatise – and would benefit from becoming descriptive once more.

The second step is to accept that extreme events are not that rare. Models based on the EMH are often used as an excuse when things go wrong. The one-in-a-million year or 25 sigma event that no model could predict is regularly trotted out as an excuse – every few years or so. The important point about extreme events, Black Swans to quote prominent critic Nassim Taleb, is that they cannot be predicted or modelled. The conclusion, put forward in a new book, Lecturing Birds on Flying by Pablo Triana, is that “[having] no model is better than a dangerous model”.

If we discard the flawed models, what do we replace them with? Taleb and Triana’s answer is experience honed by common sense. If this sounds anathema, it is a reflection of how powerfully entrenched the false sense of precision offered by models has become. But, in fact, this approach has already been successfully used during the credit crisis. At the end of 2006, when their peers were still accumulating ever-larger credit exposures, senior management at Goldman Sachs took a negative bet on the US sub-prime mortgage market. Goldman’s subsequent financial performance relative to other investment banks is testimony to the power of experience and common sense over slavish adherence to mathematical models.

Asian Commodity Exchanges

sud4324878 — Thu, 13 Aug 2009 07:34:36 +0000

Indonesia is launching a Commodities Exchange (ICDX) to trade crude palm oil and other raw materials, in a fresh sign of Asian emerging countries following the path of Independent projects in Singapore and Hong Kong. In spite of being the world’s largest producer, Indonesia has been unable to set a palm oil benchmark price, with trading centred in neighbouring Bursa Malaysia in Kuala Lumpur.

The ICDX is targeting an October launch and will also focus on gold, and eventually coal. The exchange also intends to trade futures in Indonesia’s currency the rupiah.

Asia is the commodity hub of the world with China, India and Indonesia being the largest producer or consumer of almost all important Agri and Non-Agri Commodities. However, historically other than Tocom there are no large multi Commodity Exchanges in Asia. Thus, though the Asian countries either produce or consume the largest amount of most commodities, they derive the price for the same from either London or the US markets. This is bound to change over the next few years with current ongoing revamp of Tocom and also with the forthcoming launch of HKMEx in Hong Kong and other Commodity Exchangesin Singapore & Jakarta. Even China and India have been talking of revamping the Commodity Exchanges for taking larger role in the Asian Commodity Trade. However, in spite of the size of these markets, both China and India continues to remain closed markets for foreign investors and thus will not be in a position to attract International investors and become Commodity Trading hubs in the near future. Even the convertibility of currencies will remain a prerequisite for China & India to emerge as an asian commodity trading hub.

Out of all the Asian Exchanges being proposed to be launched soon, chances of success of HKMEx is significant considering the fact that apart from Hong Kong being an open economy, it should be in a position to leverage the China growth story and the trading culture of the Chinese investors. Support of Hongkong Government along with the blessings of the Chinese , will definitely take this initiative a long way.

Money Transfers

sud4324878 — Mon, 10 Aug 2009 06:15:24 +0000

As a recent World Bank report makes clear, hard times accentuate the importance of kith and kin. Nowhere is this more true than in developing countries, where automatic stabilisers are weak and vulnerability is high. Support from friends and family abroad is more constant than fragile states and footloose businesses. In the boom years, development finance was chiefly about foreign investment and foreign aid. In 2007 capital flows to developing countries amounted to $1,200bn. That source of money is now drying up. Over the next year capital flows to developing countries are expected to collapse, from $707bn to $363bn.

While foreign investment is in free-fall, remittances – money sent from developed world migrants to relatives in the developing world – are expected to remain relatively stable. The World Bank predicts a seven percent fall in 2009, followed by a modest 3 per cent rise the year after. By 2010 remittances will broadly equal net private capital flows to developing countries. In the short term, the main risks to remittance flows are a significant worsening of the global economy and exchange rate depreciation in countries with sizeable remitting populations. Any further collapse of the Russian rouble, for example, would have big knock-on effects in central Asia.

Stability of remittance flows is important. While the biggest aggregate recipients are India, China and Mexico, the countries most reliant on remittances tend to be poorer and more unstable: Honduras, Lebanon, Tajikistan. In the longer term, the outlook for remittances is mixed. A simple continuation of past growth is unlikely. Economic uncertainty in the developed world has already provoked ugly populist demands for a severe tightening of immigration policy. Meanwhile, ties between older migrants and their relatives in the developing world may weaken over time.

The role of remittances, both in stabilising consumption in the developing world and in preventing recession from widening global instability, has begun to be recognised. While earlier Group of Eight gatherings underlined the risk of remittances being used as cover for terrorist financing, the L’Aquila summit reiterated the aim of making them easier and cheaper. Leaders set the objective of halving administrative costs from 10 to 5 per cent in five years. Wiring money home may not rank with fiscal stimulus for drama but, taken together, remittances are a crucial link in the global economy.

Inward person to person remittance through private sector players (like Western Union, Moneygram, etc) is permitted in India by RBI, outward remittance through the same channel is not allowed. While there was merit in not allowing the same upto a point of time, with the gradual opening up of the economy, the rationale for the same looks weak. Similarly remittance within the country continues to remain in the exclusive domain of banks and post offices. Considering the fact that only one third of the population have bank accounts, permitting person to person remittance through private established channels (like Western Union, Moneygram, etc) can significantly facilitate financial inclusion and legitimise huge ongoing domestic money movement. Payment and Settlement Regulation 2007 envisages opening up of this sector in a caliberated manner by the RBI over the next few years.

Role of SME Exchange

sud4324878 — Mon, 10 Aug 2009 04:46:50 +0000

Gillian Tett, a reporter with FT mentioned the following incident in a recent column.. ” A decade ago, I was working as a reporter in Tokyo when I was asked to investigate the impact of Japanese-style quantitative easing. Back then, the Bank of Japan was pouring gazillions of yen into the money markets and politicians were angrily exhorting the Japanese banks to lend. Indeed, at one point, the Tokyo government even created quotas, which stipulated that banks should make a certain level of loans to worthy small enterprises to combat a pernicious credit crunch. But, when I examined what the Japanese banks were actually doing, the results were almost comical. In public the banks claimed they were lending to small enterprises; in reality some were only meeting the targets by lending to subsidiaries of Toyota. Faced with a political order to lend, in other words, Japanese banks were ducking round the rules - and the liquidity was notably not ending up where politicians (or central bankers) had hoped”.

Statistics reveal that small and medium enterprises (SMEs) in India constitute over 80 per cent of the total number of industrial enterprises and are responsible for over 40 per cent of the value addition in the manufacturing sector. Today, with tastes altering, expectations rising and competition getting leaner and meaner, SMEs are under pressure to outperform in uncertain market conditions.

To cope with a rapidly changing market scenario and intense competition, SMEs need to form strategies to develop capacities and competencies, an effective method to assess customer needs and continually re-evaluate organizational functions. Moreover, clarity of vision is needed, which is a challenge for SME players.

However, the single largest road block on the path of growth for SMEs continues to remain availability of finance and the cost of the same. The global economic crisis and its domestic ramifications have made credit scarce and expensive for SMEs. With the risk appetite vanishing from the system, the lenders are reluctant to finance the SMEs and wherever they are willing, the risk premium is making the same unviable. Commercial lending will always be costly for SMEs and unavailable when they need the same .

In this context, it is extremely critical to note that couple of decades back the SMEs had easy access to the capital markets by way of listing through IPOs. Unfortunately, the growing sophistication of the capital markets in India has shut out the SMEs from listing . While it is understandable that large equity exchanges may have no space for SMEs, there is an urgent need to create a separate market place for SMEs. This SME Exchange(s) will facilitate raising of funds by SMEs through IPOs and finance their growth. This spin-off benefits for listing of an SME are also considerable in terms of brand building, visibility and recognition. Strict listing requirements also introduces discipline, appropriate governance and compliances. In US (NSDAQ) and UK (AIMs), the SME Exchanges have played a vital role in providing necessary growth engine to the SMEs.

Spread of Equity Culture

sud4324878 — Mon, 20 Jul 2009 05:35:16 +0000

When the British Tea Companies introduced tea for the first time in India, they used to put up stalls at public places and provide the hot beverage free of cost. The purpose was to acquaint Indians with the taste of tea and hence an elaborate attempt was made to ensure that every middle class Indian got the taste of tea free of cost.

To introduce a concept not widely popular is a huge challenge and the success of such a gamble depends on , apart from the quality of the product / services, the efforts taken to popularise & market the concept. Indian Financial markets are ripe for change . 34 per cent of our GDP gets saved & out of the savings, 55 per cent sits in bank deposits. Equity investment only constitutes 4 per cent of the savings with only 9 million depository accounts in a country with a population of 1 billion. Long term wealth generation can only happen through investments in equity either direct or indirect & hence the financial landscape has to change.

Reliance Money for the first time in the history of financial markets in India tried to take the Equity Investment culture beyond the metros and mini-metros of the country to the tehsils and talukas. To popularize Equity Investments, Reliance Money introduced a brokerage fee trading facility against payment of a very small amount of Rs. 500/- per year for a turnover of upto Rs5 lakh. Customer was provided access to a complete financial portal providing news, views, research and all market information on a 24 x 7 base with the facility to trade online in Equities and Commodities. Customer also was provided online access to Mutual Fund Investment and redemption. All these at a price which was in effect costing him less than Rs. 42 per month. This was affordable, accessible and safe/secured.

Huge efforts were made to educate the masses through investor awareness seminars across the length and breadth of the country. Customers were also provided facility of accessing the trading platform on their mobile handsets as the penetration of broadband is limited in the country.

Customers also have the option of online chat, call & trade, trade through franchisees across the country. Equity investment has been made really convenient & cost effective.

The potential of the financial services sector is huge and cost effective efficient services needs to be introduced to widen the customer base and realise the full potential of the Indian growth story.

Budget..a second look

sud4324878 — Wed, 15 Jul 2009 07:04:02 +0000

“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, …. lest Rome become bankrupt.” - Cicero - 55 B.C. These guiding principles laid down way back in55 BC, still holds a lesson for all of us.The current year’s budget has provided some SOPs for the “Aam Aadmi” by removing surcharge on Income Tax, providing slightly higher tax exemption limits and few such other measures. But the capital markets were clearly disappointed with the budget as the sky-high expectations were clearly not met. The deficit reached upto 6.8 per cent of GDP and no measures on FDI opening up or PSUs disinvestment was talked about. Consequent upon the above, the significantly higher expected government borrowings is likely to create havoc in the money market resulting in crowding out of private sector borrowings and eventually end up pushing the interest rates in the economy higher.
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The impact of union budget on the common man can be discussed at two levels i.e, what he directly feels or notices and the other which he misses on the face of the document or doesn’t feel directly. While the first one impacts him and or affects his sentiments immediately, the second one is the real long-term impact generating proposition. Aam Aadmi may not have been very happy with this year’s budget at the first level.However, a careful scrutiny of the economic environment of India and the global economic scenario very clearly points out that the Central Government’s emphasis on infrastructure and inclusive growth are absolutely appropriate. India can move to the next orbit of growth and create a virtuous cycle of prosperity only by drastically improving it’s infrastructure and providing growth opportunities to the masses thereby reducing the income disparities and social tension. Large government spending also provides the necessary growth stimulus to the economy as a whole and facilitates industrial recovery.

In a situation where credit markets world over are still in a state of inaction, the Government has very little choice but to try & directly start spending for infrastructure creation & inclusive growth.
On the whole, a careful study of the budget in the context of the present economic realities, very clearly indicates that the government has been extremely pragmatic while drafting the budget. Of course, concerns remain regarding financing of the huge deficit. However, if the same can be financed through PSU dis-investment, etc. the pressure on the money markets would reduce. Selective opening up of FDI restrictions will also provide the impetus for accelerated growth. All of these need not be spelt out in the budget document and can be done effectively out side the budget over a period of time in a prudent manner.

India-the way forward

sud4324878 — Mon, 29 Jun 2009 04:42:01 +0000

Traveling through the interiors of Orissa about 6 months back, I was witness to the abject poverty ,some parts of India still struggles with. Sitting in large metro cities and prosperous towns of the country, we don’t fully realize the situation prevailing in the hinterland. Yes India is growing rapidly; yes India will probably grow more rapidly than every other economy in the world (including China) during the current year but the gap between different sections of the society needs to be narrowed down and this needs to be done very fast.

Economic prosperity in one part of the country or for one section of the society increases the societal imbalances and leads to discontent. The Western European economies have effectively handled this and the deviation from the mean income is marginal in these countries.