the focus - nov-dec 2012

2

From The Editor’s Desk

IBS Hyderabad

Nov-Dec Vol 1, 2012. The Ecobizz Newsletter

Inside the Issue:

THE HUG CAMPAIGN

A CSR INITIATIVE

The “D” Effect

-Hiren Shamnani

Wall Street to Fall Street : Gambling it all the

way

-Graceson Binu Sebastian

King of Good Times Into Bad Times

- Brundha Ayyanar

COVER STORY

US Elections: Cliff or Slope for India

- Ashwini Iyer, Swarna Aparajita

India on a brink of Recession?

-Bhaavya Grover

Where IT and Economy Meet!!

-Het Mavani

IBS Happenings!!

- AAVEG 3.0

- IBS Alumni Meet- NOSTALGIA

-Brundha Ayyanar

Editor’s Desk

Hey all,

Amidst the plethora of activities buzzing

around in campus, we extend our best wishes to

the senior batch for their ongoing placements.

Club EcoBizz, hereby comes up with the De-

cember 2012 issue of its ever old, yet still young

magazine, ‘THE FOCUS’.

Read on to find out the Cover story on “US

Elections: Cliff or Slope for India”. This vivid

issue also deals with diverse topics ranging

from role of IT in economics as whole, present

status of Indian economy to economics at or-

ganization level.

The first ever club at IBS launching a CSR initia-

tive, within the campus—The ‘Hug Campaign’

is starred upon. And not to forget to mention

about ‘Xtasy’-an event conducted dedicated to

betting. The event was a hit among non-cricket

lovers too. A huge turn-up for the event, like

other events conducted by us, motivates to cater

to new demands of the students.

As always, we are open for feedback and sug-

gestions. We also take the opportunity to thank

our readers and cherish their continued associa-

tion with ‘FOCUS’ .

Here’s hoping that you have an augmented

reading.

Warm Regards

Brundha Ayyanar

3

THE HUG CAMPAIGN

A CSR INITIATIVE

As a part of Club EcoBizz’s CSR initiative, the HUG Campaign was kick-started on 8th November,2012.

It was the club’s way of giving thanks to our college for their unabashed support. It was a very humble

attempt at spreading happiness in the college on the eve of Diwali.

The club members were present in Black attires wearing the EB badges so that the students could recog-

nize them and approach them for a the “Happy Hug”. The initiative was carried out for two days. The

Club also had a contest which entitled the winner Rs.100 worth of gift voucher, which could be re-

deemed at “Bingers”, the college’s most sought after eatery at which is open through the wee hours of

the morning. The contest was thrown open to the public, and they had to HUG every member of the

EcoBizz team within the two days, and the person who got to every member the fastest would win the

contest.

The campaign ended on a very happy note on 9th November,2012 with fond memories of the club

working as team to spread happiness. The club has the mental picture of the beautiful journey em-

barked by them, and also the actual pictured clicked by all the members.

To view the pictures of the” HUG CAMPAIGN” please visit:

EcobizzFREEHUGSCampaignSpreadingHappiness | 116563904868952477562

IBS Hyderabad CSR Initiative


https://picasaweb.google.com/116563904868952477562/EcobizzFREEHUGSCampaignSpreadingHappiness

4

Devaluation is a move by the Government of a

country in response to the financial crisis, trade

and current account deficit, inappropriate bal-

ance of payments. While devaluation is an inten-

tional move, depreciation depends on the de-

mand and supply of the currency in international

market. The prices of currency keep fluctuating

due to changes in demand and supply of cur-

rency.

Both affect the economy in various ways. If we

talk about the benefits

arising from devaluation;

they include increase in

exports and decrease in

imports, inflow of foreign

currency, decrease in

trade deficit etc. The ad-

vantages an economy may

get from the depreciation

are like foreigners coming to India who find

cheaper to come to India which in turn benefits

the hospitality sector. Exporters like IT compa-

nies are benefited because of rupee deprecation

as they receive more rupees per dollar which re-

Depreciation, Devaluation of currency, these two

hefty variables in the history of economics have

left economies to go merry-go-round since times

immemorial. In general sense we know depre-

ciation means decrease in value of particular as-

set. Basically, Depreciation of Currency is decline

in the value of currency because of market forces.

Whereas, decline in value of a currency with re-

spect to other currencies, which is done by cen-

tral bank is called Devaluation of Currency. The

difference here between devalua-

tion and depreciation of cur-

rency is that there is no govern-

ment intervention in Deprecia-

tion of currency; while devalua-

tion of currency is done by the

government itself.

Now the basic question comes

into mind is that why the de-

valuation and depreciation of currency takes

place? Well, the devaluation of currency is

mainly done in developing countries which don’t

want the currency prices to be decided by market

forces. To cope up with financial crisis, develop-

ing countries try to minimise the exchange rate to

save or earn foreign reserves. Here exchange rate

between the two currencies is the rate at which

one currency will be exchanged for another.

While depreciation of currency depends on mar-

ket fluctuations, if market conditions are good,

currency will be appreciated. On the other hand,

insufficient market forces lead to currency depre-

ciation.

IBS Hyderabad Economic ‘D’s


THE “D” EFFECT

-Hiren Shamnani

“A deliberate downward adjustment to a country's official exchange

rate relative to other currencies—contrast to

revaluation”

5

facing financial problems today. United States is

trapped into the great recession. The country is

struggling to balance its economy. USA is plan-

ning to devaluate its currency Dollar. Previously

in 1934 USA had devaluated its currency and it

had seen the great results of devaluation on the

economy. The reasons for which USA is cur-

rently planning to devaluate its currency are the

collapsed banking system, shocking house prop-

erty prices, unemployment, low interest rate and

less investment.

Another scenario which we can observe in the

world trade market is that the countries which

previously used to trade in US currency are now

shifting towards inter change currency concepts

which means; if China is exporting its goods to

Japan, then the currency truncations will be done

in terms of China and Japan’s currency rates.

This change in international trade market af-

fected Dollar’s position. There is no other way

US government can pay its $15+ trillion debt ex-

cept devaluation. If the devaluation takes place

the US is expecting to clear its debt in next 5

years and to see positive impacts of it on the

economy. US still speculates on whether to de-

value dollar or not!!

IBS Hyderabad Economic ‘D’s


sults in more net profits for them.

Inspite of the rosy scenario of these two very

similar yet distinct situations, there have been

negative impacts, which by and large have been

faced by the economies time and again with

acute intensity. Depreciation hits importers very

hard who pay more for the products or raw ma-

terials they purchase for their economic activity.

Students going abroad for further studies face

the extra burden of payment due to change in

rupee value. The substantial effect which pinches

any economy is on the oil industry in terms of

hiking oil prices and hence inflation. The disad-

vantages of devaluation are like if the currency of

any country is devalued, the other countries

goods become costly to import from that country.

As effects of devaluation are for short time pe-

riod in nature, it increases the foreign debt bur-

den in terms of home currency.

USA – a country which was said to be the great

6

Preet Bharara said before handing out the convic-tion "Mr. Rajat Gupta once stood at the apex of the international business community. Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away." The court is set to announce the sen-tence on18'" of October, 2012. For someone of Mr. Gupta's stature, when the world is your oyster-why gamble it all away? Is Insider trading simply the manifestation of greed or the inherent desire in every man and woman

to gamble? What then went wrong? For the uninitiated, insider trading is simply the mali-cious use of non- public in-formation by a company insider to earn brownie points on the stock market.

This illegal practice raises cost of capital securi-ties and thereby shows a false rate of growth. United States of America takes a harsh view on insider trading with severe punishment for the same unlike our country, where being related to any politician or industrialist allows corporate criminals to go scot-free. One reason for insider trading to go unnoticed in India is the late ap-pearance of this phenomenon (first case cropped up in 1992) as compared to USA where the first case of insider trading came to light as early as 1929. India has tried to follow in the wake of USA by trying to tighten SEBI provisions that govern in-sider trading. However, it is too tough to bring the culprits to light, as it is difficult to ascertain such unethical activity. Some eminent econo-mists like Milton Friedman have presented an

Modern society thrives on knowledge. The more knowledge you amass, the more wealth you stand to create and the lesser your chances of getting misled in the financial world are. Another commonly accepted desire in today's time is to not just get rich but get rich fast and get rich fast in style. So keeping these truisms in mind, corpo-rate honchos woke up with a jolt when they real-ized that Rajat Gupta was convicted by a federal jury of leaking inside information to hedge-fund manager Rajaratnam. Mr.Gupta lived the Indian dream as well as the American dream. True rags- to- riches tale, his personal life is no less than a Cinderella story with a freedom fighter father, dis-agreeable siblings and an in-opportune orphan, he decided early on to live "on his own". Cracking the IIT entrance exams comfortably and a cozy college romance with his now wife, Mr. Gupta bid farewell to a plush job offer from IIT to settle in at Harvard Business School where he became a scholar. He went onto become one of the most successful and brilliant Indians on Wall Street, serving as the chairman at McKinsey as well as other renowned institutions like Gold-man Sachs, Procter & Gamble, The Gates Foun-dation as well as advising the United Nations Secretary General Kofi Annan and co-founding the prestigious Indian School of Business. So, the business world was naturally appalled when Mr. Gupta, an industry veteran, was con-victed on three counts of securities fraud and on account of passing confidential insider informa-tion about Goldman Sachs and Procter & Gam-ble. Indian-origin chief Manhattan prosecutor

IBS Hyderabad Business and Finance

Nov-Dec Vol 1, 2012. The EcoBizz Newsletter

WALLSTREET TO FALL STREET: -

GAMBLING IT ALL AWAY

-Graceson Binu Sebastian

“Insider trading to go unnoticed in India is due to the late appearance of the

phenomenon”

7

ployee tells the same to his spouse or family member, that also falls under the purview of in-sider trading. It was no wonder that the world sat up and took notice when Rajat Gupta was convicted speedily and harshly despite the evidence against him being, for the most part, circumstantial. The equation becomes even more complex when we realize that stock markets thrive on tips that drive the trading. If information is unscrupulous and widespread at the same time, it is difficult to estimate the rare gems of genuine insider infor-mation. Often, culprits are bought to the book (as in the infamous Enron scandal) when they get too big for their boots. The primary reason why insider trading is hot to trot currently is due to improved technology and positive press. It has become slightly easier to capture culprits with the advent of technology, say, in the Rajat Gupta case, the presence of re-corded conversations rather than just circumstan-tial presumptions. So, in all probability Rajat Gupta fell prey to the overzealous guardians of law. Not to mention Gordon Gekko, as always when it comes to the stock market, 'greed is good' until you get caught. And in the end, you always do.

alternate view of insider trading citing rationale that justifies the good aspects of increased trad-ing. Most people are unaware that insider trad-ing is partly legal as several employees do pos-sess stock of the company and indulge in trading. Therefore it is often difficult to discern between trades by employees and insiders on the basis of public information or secret private knowledge. The Securities and Exchange Commission (SEC) enforces a simple guideline to distinguish be-tween legal and illegal insider trading by segre-gating what constitutes 'special' knowledge from knowledge available to insiders. Also, if an em-

IBS Hyderabad Business and Finance

Nov-Dec Vol 1, 2012 The EcoBizz Newsletter

8

tional routes and finally acquired.

The initial cause is attributed to different kinds of

aircraft each possessed, introducing new opera-

tional difficulties. Some companies do fail to

learn from the past. And same is the instance

with KFA. The time when KFA acquired was a

perfect time for the recession to take over the

economy. And so it went on to debt.

Adding to it, the fuel prices soared. And hence

less earnings earned by the company. With that,

the company had to pay huge taxes and airport

charges. As a ripple effect, flights started cancel-

ling and the passengers were not refunded. Sala-

ries not paid to employees and staffs and hence

they expressed a rude behaviour. One instance

after the other was reported against and people

lost faith in KFA. A saying goes this way, “A

company that forgets its employees, is soon for-

gotten”, and so has happened.

In spite of these turbulent times, Mr.Mallaya and

his son, spend a huge amount sponsoring F1

race. To add on to the bad time of the Kingfisher

family, Mallaya had to sell 49% of his ownership

from Force India(F1 car), to keep the airlinr run-

ning.

The present scenario goes as father apologises to

the government, banks and the AAI, where as

son tweets “Await Kingfisher calendar with

spicy girls”. There is any hope left with the gen-

eral public that the chairman and his son are

even trying to bring back the health of airlines

back to normal.

Every one of us would remember the goodies

that we used to get while travelling by Kingfisher

airline. The king of good times, was a dream for

aspirants of various disciples due to high salary

packages and now, the staffs already employed

are not paid.

“I am taking things personally”, Vijay Mallaya,

chairman of Kingfisher Airlines, says when it

comes to running his airline. Running a business

is not easy, and that too airline business, which

are known for making losses, needless to say.

Kingfisher Airlines initially operated as a single

class aircraft, Economy class, after a year shifted

to concentrate on luxury. And this is the time

when yummy meals were given, toys for chil-

dren, chocolates and goodies. Customers were

treated as Kings. When all was fine and well,

there came a twist in the story, when KFA de-

cided to merge with Air Deccan, to cover interna-

IBS Hyderabad The troublesome Indian conglomerate


KING OF GOOD TIMES INTO BAD TIMES

- Brundha Ayyanar

9

them immerse their hands in soil is what the per-

ception of public. What happened to the role of

government? Even if they did interfere, why did

it not make any difference? These questions were

answered as Poor government policies with re-

spect to the aviation industry.

In a way, the fall of KFA is considered good by

various policy makers. Since this led to re-

framing the policies of aviation and led to stricter

regulations. Moreover, this episode is one of the

major reasons to allow FDI in high yielding and

sensitive sectors like that of aviation. Again it has

been encouraging many new players to enter in

the market. Budget airlines like that of SpiceJet

and Indigo, has made air travel inexpensive, fa-

vouring middle class families too.

Who is to be blamed? Whether the company, that

took immature decisions while implementing

policies for itself and found itself dumped or to

blame the loopholes in the government regula-

tions in the aviation sector, and the system as a

whole? A two way process is always encourage,

whether it is class for CP or in a system. A proper

communication in the system and learning from

others mistakes would prove to be wise.

Another sponsorship, that Kingfisher is famous

for, is IPL. The team that the Mallya family spon-

sored is dissolved and is been taken over by the

SUN Group. It is high time that both dad and

son, get serious about the problems and start act-

ing on the situations than spending time at night

clubs and pubs.

United Breweries, the group under which King-

fisher Airlines do fit into, has various other busi-

nesses as that of electrical, liquor, education and

more. But as the name “Kingfisher” is pro-

nounced, the item that comes to any person’s

mind would be Alcoholic Beverages, which the

group is famous for. The UB group initially

started its operations in liquor and then diversi-

fied. Sadly, it had to sell its stakes from the liquor

business as well to repay the debts. But the debt

was so huge, that they could not even pay 25% of

the debt.

The decisions of the KFA authorities has made

IBS Hyderabad The troublesome Indian conglomerate

Nov-Dec Vol 1, 2012 The EcoBizz Newsletter

11

History has depicted the fact that Republicans

and Democrats are always at loggerheads, and

trust only themselves to do right by the country.

The Republicans are viewed as dominated by far

right conservatives who are determined to main-

tain and preserve the existing antiquated institu-

tions at any cost under the guise of protecting

traditional values. Their economic philosophy

would entail belief in free market and strong in-

ternational alliances, the belief that it is the re-

sponsibility of the citizens to run the govern-

ment, and that people deter-

mine their own destiny and

hence fruitlessness of wel-

fare programs. On the other

hand, the Democrats gener-

ally believe that it is the re-

sponsibility of the govern-

ment to take care of the citi-

zens, believe in a structured

regulated market with mini-

mum external entangle-

ments, and that the people

should share the economic burdens and gener-

ally support welfare programs for the aid of the

poor. However they are also viewed as far left

liberals whose every manoeuvre is bent on politi-

cal correctness, careful not to offend anyone.

In the light of these differences generally it is pre-

sumed that the Republican policies favour Indian

interests and are more amicable to our economic

policies and relations as compared to the Democ-

rats. However, surprisingly in today’s political

After the furore of the US Presidential elections,

US is now facing the looming ‘FISCAL CLIFF’.

Though many institutions would steer clear of

the term ‘FISCAL CLIFF’, thanks to Federal Re-

serve Chairman Ben Bernanke who coined the

term while urging Congress to avoid a steep

drop of the economy at the end of the year,

thanks to tax increases and automatic budget

cuts, the term is here to stay. The Center on

Budget and Policy Priorities would like to believe

that it is more of a slope.

With merely three weeks to

2012’s credit, all eyes and

senses are at Washington’s

Capitol Hill and the FISCAL

CLIFF negotiations. Let’s see

what fiscal cliff really is- An

Inapt Metaphor for the loom-

ing consequences of some very

bad congressional decisions. In

a sentence the most appropri-

ate way to explain fiscal cliff

would be “much too much

austerity, much too quickly-Austerity crisis”

The tax hikes are the centerpiece of attention as

the largest tax hike in American history is pro-

posed to take effect from January 1st, 2013. Let’s

look at the taxes more closely. Five tax measures

are expiring at the end of this year. They are

namely the 2001-2003 BUSH TAX CUTS, 2009

STIMULUS, PAYROLL TAX HOLIDAY, ALTER-

NATIVE MINIMUM TAX and EXTENDERS.

IBS Hyderabad World Politics


US ELECTION:

CLIFF OR SLOPE FOR INDIA

- Ashwini Iyer

If US goes over the Fiscal

cliff , it will be nothing short

of a nuclear weapon-a fiscal

nuclear weapon !

- Swarna Aparajita

12



marginal tax rates, oppose this move.

Republicans on the other hand want to make dra-

matic reforms in the field of Medicare, Medicaid

and other entitlement programs, and higher cuts

to domestic discretionary spending. The recent

proposal by the Republicans calls for raising the

eligibility age for Medicare ,the government

health care program for the elderly and lowering

cost-of-living hikes for Social Security, the Fed-

eral Pension program, while the plan offered by

Obama would raise taxes by $1.6 trillion over a

period of 10 years but it largely exempts Medi-

care and Social Security from the budget cuts.

The Republicans are of the opinion that, the re-

climate it is more difficult to separate the phi-

losophies of either party from the issues. Even

the average Americans today find themselves

voting for a candidate on how they view a single

issue or a group of issues rather than on the ide-

ologies of a particular party. Keeping those dif-

ferences in the back-burner, the regulators of the

country have to work towards the betterment of

the economy. But the going is getting tougher by

the day as the both the parties are nowhere near

a compromise. What the two parties agree on is

that doing nothing and letting all the scheduled

tax hikes and spending cuts to take effect for all

of 2013 would be a horrifying thing for the econ-

omy. They want to do away with the sequester’s

indiscriminate, across the board cuts. Both sides

agree that to reduce the fiscal deficit, a deficit

plan should include both tax-revenues and enti-

tlement cuts. Thus the discussions are mainly

pointing towards REPLACING one deficit plan

with the other.

The main disagreements are taxes; Democrats

a.k.a. the erstwhile President Barack Obama

want to hike taxes on the wealthy by about $1.6

trillion and they want approximately $1 trillion

to come from letting the top tax marginal tax rate

to be that of the Clinton –era i.e. a whopping

39.6%. Republicans who have never been a fan of

tax hikes and particularly not the increases in

13

It is feared, and not without reason, that a fall of

the world’s largest economy, off such a cliff,

could have an impact on the global economy

which would be no less dramatic than the

Obama and Romney elections were. And the dra-

matic outcome would also entail the adverse im-

pact on Asia’s export industries.

However, the good news for the investors and

the emerging markets would be, that over the

years there has been a comparative decline in the

dependence over exports to US, meaning there

has been a diversification in the export base,

which has now come to include countries other

than the US or the European countries. For in-

stance, China today has become the largest desti-

nation of exports from a number of South East

Asian countries.

Nevertheless, the fact remains that even today

the US is the world’s largest economy. And

though China’s exports to the US represent only

5% of its GDP, trade with US becomes important

in the light of the fact that China is United States

second largest trading partner. Also, China

might come in the category of major exporter

nations, but the fact that it imports US goods

which were approximately worth US $100 billion

is equally worth keeping in mind while deliber-

ating upon any Balance of Trade issues. So even

though there might be an increase in dollar pay-

ments in absolute terms, these factors cannot be

cent proposal offered by them provides a

“reasonable solution” and that the White House

should respond in a timely and responsible fash-

ion. The republicans have also held steadfastly

that, though this deficit plan would bring in $800

billion in tax revenues as opposed to $1.6 trillion,

it would keep the BUSH TAX CUTS even for the

wealthier lot which has an annual income of

$250,000. Dismissing the idea of raising any tax

rates, the Republicans said the new revenue

would come from closing loopholes and deduc-

tions while lowering rates.

President Bush is of the opinion that if the Re-

publicans do not arrive at a compromise he

would take the country OVER THE CLIFF, even

though it would be detrimental to the economy.

Lets scrutinize as to what will happen if US goes

over the CLIFF?

Millions of families and individuals will be

forced to pay the alternative minimum tax. Death

knell would be sounded for the farmers and

ranchers by the tax. And the average middle

class family will see their taxes go up by at least

$2,000 dollars. If US goes over the Fiscal cliff , it

will be nothing short of a nuclear weapon-a fis-

cal nuclear weapon. There is a possibility of capi-

tal gains taxes and the marginal taxes increasing.

The Congressional Budget Office has estimated

that the US might take out 4% of the GDP if a

deal is not reached before 31st Dec this year.

The solution to this problem is boundless, but the

effects are abysmal. One such solution is post-

poning the fiscal cliff till 2013 or 2014. There is

nothing that is stopping the Congress to vote to

extend some or all of the Bush TAX CUTS and

PAYROLL TAX CUTS. The sequester can be

overthrown and none of the domestic and de-

fense spending cuts becomes effective, thereby

postponing the CLIFF. The upside would be that

there won’t be recession but on the flipside the

deficit will continue to grow.



14

economic growth appear to significantly influ-

ence the growth in the other economies. Some

investors believe that much of the recent stock

market decline has to do with this looming fiscal

cliff. However some others believe that it’s not

just this cliff, but the entire macroeconomic fun-

damentals of the economy which will determine

how the markets move in the coming year.

It’s believed that the impact of it on India is likely

to be a mixed bag, both positive and negative.

The good news for India would be that the com-

modity prices would ease off and the oil prices

might stay significantly

lower than they have been

in the recent past. In fact it

has been observed that the

fear of the fiscal cliff has

already driven down com-

modity prices, starting in

October. The World Bank

estimates that the fall in

energy and non-energy

prices during the same

month has been of 2.4% and

1.6% respectively. This indicates that India’s in-

flation rate might come down fast enough for the

apex bank to bring down interest rates quicker

than anticipated to stimulate growth.

over looked either.

As far as the foreign policies are concerned,

President Obama’s policies have been oriented

toward an idea of “leading from behind” with co

-operation from allies and an open-minded ap-

proach toward verbose with perceived “foes”.

He has recognized what other historians couldn’t

that power alone cannot protect the US. He

seems to be looking to see changes in America’s

global economic role in an era where partner-

ships are more important and negotiation is

more effective than threats and exerting military

power. This attitude will

help maintaining relation-

ships with emerging coun-

tries in terms of investments.

So whether there is a fall off

the cliff or just a slope, either

way, investing in equities of

the emerging markets would

remain a safe option at least

for the coming year.

Impact of the Fiscal Cliff on

India

Now a view shared by the most analysts is that

the US is the world economy’s engine, and that

there is a close correlation between the US and

the world output. Also, the movements in the US



“India is in a high opportunity and high risk position. Any fallacious

strategy or policy can crumble down everything !”

15

On the flip side the potentially adverse impact on the Indian economy would be in the form of reduction

in trade and investment. Our merchandise exports now account for almost 16% of the GDP, while the

total exports account for nearly 24% of the GDP. With India’s major trading partners in hot soup, India’s

exports are expected to take a hit.

The fundamentals of the Indian economy are far weaker today than they were in 2008, meaning that the

ability of the policy makers to intervene is less than before. The most glaring indication of this is the fact

that the level of FOREX reserves in the form of import cover has almost halved in the past four years

from 12 months to 6 months and the firepower to battle any attack on rupee is far less impressive than it

was in the aftermath of the Lehman collapse.

However the most likely outcome still seems that there might be some last moment political deal lead-

ing to a modest fiscal consolidation rather than allowing the occurrence of something brutal enough to

destroy the fragile global recovery. The more pertinent issue for us here is to see how India- both the

public and private sectors- manages to negotiate and chart through the volatility accompanying every

twist and turn in the US fiscal politics.

We can conclude here by keeping in mind the words of Albert Einstein: “We cannot solve our problems

with the same thinking we used when we created them”.



16

phase in the economy. Additionally, with US

reporting a GDP growth rate of 1.5% on quarter 2

of 2012 a large number of Indian investors are

beginning to wonder what a global recession

would mean for the Indian economy and Indian

stocks.

Before we determine whether India is heading

towards recession, we need to understand the

meaning of recession and the

impact of recession in the In-

dian economy. The technical

definition of recession may be

defined as following:

A recession occurs when a de-

cline initiated or instigated

occurs in some measure of eco-

nomic activity and causes fur-

ther decline in other key meas-

ures of activity. Considering

an example of decrease in sales

causes a drop in production, declining employ-

ment and income level in the economy, which in

turn feed back into a further fall in sales, this vi-

cious cycle results into recession and downturn

in the economy.

Since liberalization India has experienced two

short recessions which occurred from March

1991 to September 1991 and from May 1996 to

November 1996. Despite the recent malaise of US

crisis which has negatively impacted the Indian

economy, single digit GDP growth can never be

interpreted as a recession. During 2008 crisis,

A few years back when India was about to make

a mark by reaching a double digit GDP growth

rate and it was believed by the world that India

is set to become the next superpower nation by

2050, when everything was moving in the right

direction then a sudden external factor destroyed

the dream of India , though the 2008 US financial

crisis were not that strong enough to shake the

root levels of Indian fi-

nancial system but they

certainly left some nega-

tive impact on our econ-

omy and because of

which some analyst be-

lieve that after 4 years of

US recession in 2008, now

India is on a brink of a

recession.

In keeping with market

expectations and factored

in by stock investors, India‘s GDP (Gross domes-

tic product) growth dipped to 5.3% in the second

quarter (July-September) from 6.7% in the same

quarter of last year’s fiscal, the factors contribut-

ing to such slow growth is the downturn in the

different sectors of the economy.

Eurostat reported that quarter 2 of 2012 GDP

growth was just 0.2% for entire Eurozone, which

was a decline from 0.0% growth reported in

quarter 1 2012. With almost 17 countries contrib-

ute towards 25% of global GDP in the Eurozone,

it is clear that Europe is going towards a bad

IBS Hyderabad Indian economy


INDIA ON A BRINK OF

RECESSION ??

-Bhaavya Grover

“Economic conditions are in

nobody’s hand but to take

remedial measures is in our

hand”

17

lack of funds to cover the problem of debts by

them as well as by government. Lack of infra-

structural growth plans by government and re-

strictions of people for not allowing FDI to flow

into India which could be of a great help to the

economy to boost their growth might lead India

to move towards recession in the coming two

years.

Lower growth rate in the economy is not just the

signal of lower productivity and lack of opportu-

nities available it is also a signal of increasing

unemployment rate and increasing poverty. Mr.

Montek Singh Ahluwalia, the Deputy Chairman

of Planning Commission of India says that India

needs to increase its GDP growth rate to reduce

poverty at a faster rate.

Therefore we cannot predict the time recession

might hit India and situations may turn out to be

even more difficult for us, it is high time that

Government of India should start thinking and

applying for some reforms that save India from

recession and take India 10 years back from

where everything started.

Some areas that needs improvement are the poli-

cies adopted by the government such as FDI

should be uniformly allowed by all the parties to

come into India , this will not only bring invest-

ment but would create new employment oppor-

tunities for people and better salaries thus im-

proving the overall standard of living of the peo-

ple staying and working here. Inflation is another

factor that government should take concern for is

that, everyday increasing prices of food and oil

has made it very difficult for people to have a

nutritious meal , which is further worsening the

conditions of poor’s.

India didn’t experienced a recession but rather a

milder form of recession called as a slowdown,

which is simply a decrease in growth of produc-

tivity and other allied activities in the economy.

There are a number of reasons which have re-

sulted in the recent trend of declining growth

rate including negative attitude towards allow-

ing foreign retail investment, a continued budget

deficit, poor energy infrastructure and a contin-

ued price control on natural gas and coal. India

has experienced four slowdown in the economy

since 90’s. Now India is experiencing a hard time

in stock markets as we see another recession in

2012. Investors who are looking at the capital

appreciation shall see it for long term perspective

as there is a big chance that India might experi-

ence a recession soon in the coming period.

Inflation is one of the many reasons that have

slowed down the growth prospects in India, cur-

rently India is experiencing an inflation rate of

7.4% which shows there is an increase in fuel and

food prices, people have started spending less

thus in turn consumption has reduced and pro-

duction in the economy has reduced in turn. An-

other aspect that could lead to recessionary con-

ditions is the increasing trade deficit. India’s

trade deficit has started getting worse; the differ-

ence between India’s import and export’s has

widened to $21 billion mostly because of India’s

weak exports and increasing imports. Huge cor-

porate debts like that of kingfisher is one such

example of corporate closing down because of

IBS Hyderabad Indian economy


18

WHERE INFORMATION TECHNOLOGY

AND ECONOMY MEET!!

so fast these days that

the man who says it can't be done is generally

interrupted by someone doing it.” Indian Econ-

omy has developed to a great extent due to com-

puter technology. But US economy became a

world power with this technology, because they

invented it in the first place.

An economy is a cycle through which resources

and capital flow from one stage to another. Basi-

cally, it is a cycle between households and firms.

Households provide employees for the firms

through Factor markets and the firms provide

goods and services to the households through

Product Market. And within this economy, there

is an integrated financial

market to ease the transac-

tions among various mar-

kets. Of course, there are lots

of other factors involved in

this cycle, but this is the ba-

sic framework. The speed of

the flow of factor inputs and

outputs in the cycle deter-

mines the strength of the

economy. This is where IT

becomes important, because

the speed of the cycle can be

accelerated with the technology that IT provides.

For example, a manufacturing firm requires stor-

ing data related to its suppliers, distributors,

workers etc. It can use traditional system of files

and cabinets to hold this data, but searching

through it for relevant data and storing it safely

becomes difficult. When a number of such firms

“Information Technology” - whenever we hear

or see this word, the first thing that comes to our

mind is computers. Although IT wouldn’t exist if

it weren’t for computers, but that does not mean

that IT means only computers. Any technology,

when used to preserve, enhance, or transfer in-

formation may come under Information Technol-

ogy. Now, since a postman taking mails to indi-

vidual locations or a cabinet used to preserve

files is not technologically advanced, we do not

include them under IT. So we are just left with

the computers (along with network infrastruc-

ture) as the most technologically advanced sys-

tems that are used in preserving, enhancing and

transferring information. But are these the last

creations of mankind in the

world?

“Everything that can be

invented has been in-

vented." - Charles H. Duell,

Commissioner, U.S. patent

office, 1899.

"I think there is a world

market for maybe five com-

puters" - Thomas J. Wat-

son, Founder, IBM, 1943.

“Nobody could possibly

need more than 640k of memory” - Bill Gates, Co

-founder and Chairman, Microsoft, 1981.

These quotations has been proved wrong along

with those people who think that the world is at

its best state and it cannot be improved any fur-

ther. Elbert Hubbard said “The world is moving

IBS Hyderabad IT and Economics


-Het Mavani

“Use of smart devices and digital content, digitization of

cable TV and rise in cloud computing to overcome

network bottlenecks have revolutionized the telecom

sector “

19

operating systems used today (Microsoft Win-

dows, Mac OS, Solaris, UNIX, LINUX, etc.) are

developed outside India.

India has a huge potential to invent and develop

its own technologies. Bharat Operating System

Solutions (BOSS) is an open source OS devel-

oped by National Research Centre for Free/

Open Source Software (NRCFOSS) of India.

‘SixthSense’ is a wearable gestural interface de-

vice developed by Pranav Mistry (an Indian).

India has the third highest number of Internet

use these traditional techniques, the speed of the

cycle in the economy slows down and the growth

is affected. Implementation of IT in the economy

not only helps in speeding up this cycle, but also

securing it from theft and accidents. This

strengthens the economy and the country as a

whole.

According to NASSCOM, the IT sector revenues

have grown from 1.2 per cent as a proportion of

national GDP in FY1998 to an estimated 7.5 per

cent in FY2012. The IT–BPO sector’s aggregated

revenues was US$100 billion in FY2012, where

export and domestic revenue stood at US$69.1

billion and US$31.7 billion respectively, growing

by over 9%. The industry’s share of total Indian

exports (merchandise plus services) increased

from less than 4% in FY1998 to about 25% in

FY2012.

These facts indicate how Information Technology

has contributed to the Indian Economy. The IT

industry in India was born in 1960s, whereas in

US and European countries, this industry was

invented during the World Wars. The Internet, as

we see it today, was actually ARPANET in USA

and NPL in UK (some other networks also con-

tributed to making of The Internet). Most of the



20

of the key factors of IT-enabled healthcare facili-

ties.

Although India is developing at a fast pace, it

requires an alternative to the current IT infra-

structure. Apart from the current investments in

making the whole system computerized, India

needs a different platform to make its mark. The

next generation of Indian Youth will give a new

dimension to the IT industry in India, which is

unimaginable as of now. It may even be called by

a different name than, but this new face of Infor-

mation Technology will make India unique in its

progress towards a developed nation.

Users after China and USA, yet there is only one

Web Browser developed in India (Epic Browser).

Of the many sectors, manufacturing sector indus-

tries are implementing IT infrastructure for the

flow of information for orders, order status, and

deliveries. Use of cloud computing, Supply

Chain Management (SCM) System and Business

Intelligence (BI) System has enabled Indian

manufacturing firms to increase efficiency in

their production.

Apart from manufacturing, Banking Sector has

also been revolutionized through the use of IT in

Communication and Connectivity and Business

Process Reengineering. Information Technology

enables sophisticated product development, bet-

ter market infrastructure, implementation of reli-

able techniques for control of risks and helps the

financial intermediaries to geographically distant

and diversified markets.

Information Technology is now integrated into

every sector. Use of smart devices and digital

content, digitization of cable TV and rise in cloud

computing to overcome network bottlenecks

have revolutionized the telecom sector which is

growing at a rate of over 26 per cent. Use of vid-

eoconferencing through Internet kiosks, Elec-

tronic Medical Records, Telemedicine Softwares

and sharing of these medical records through

various hospitals for efficient diagnosis are some



21

way. The effort put in by the team was visually

felt all around the campus.

As icing on the cake, there was a finishing touch to the story with prize distribution and DJ night.

AAVEG 3.0 the inter B school sports extrava-

ganza, hosted by IBS, Hyderabad on 7th, 8th and 9th of December 2012. .It was a platform to ex-hibit skills and to test them against the best in pursuit of the glory to be called CHAMPIONS. AAVEG symbolising flow and meaning Impulse, redefining the concept of Sports, where students from B-Schools all across India come together to compete, face challenges and work in teams to achieve the Ultimate Prize – Excellence among the best B-Schools in India in Sports!

Three days at college were like spending in a fair

or a fest with stalls ranging from pani puri to

pizzas. There were games organised by the team

VAPS, that encouraged and held the crowd with

them. The most interesting aspect was the

Pahsha’s den where various fun events were wit-

nessed.

This three day event started its promotion cam-

paign around twenty days before the event, leav-

ing no space for other clubs to promote their

products, was highly commendable. It set an ex-

ample for all the events to be promoted in such a

IBS Hyderabad IBS Buzz


AAVEG 3.0

22

IBS ALUMNI MEET

‘NOSTALGIA’

IBS celebrated “Happy Birthday” to its Alumni Relations Club and organized NOSTALGIA, an alumni meet at the campus. Alumni, working all around the world, made their presence and shared contacts for finals placements as well.

IBS Hyderabad, maintains a strong relationship with its alumni. Year by year the base of alumni is getting diversified, with students of IBS in vari-ous organizations, various fields and various parts of the world. Every year, this strong force is in-vited by the college, with the main aim of interact-ing with the current students and to provide them with insights of in- dustrial experience.

Similarly, this year, the meet was organized by a dedicated club for alumni relations. As the name suggests, their were nos- talgic feelings with the alumni, remembering their past at the college. The interactions went up to such a level that current students were ready to join as the interns at the company started by their seniors.

Adding a touch and feel to the event, a stage performance was organized, which the students as well as alumni enjoyed and the show ended with a ‘to be continued’ notation with a rocking DJ. The DJ lasted long for the people in the campus to enjoy and for the alumni to cherish these moments, until next alumni meet.

IBS Hyderabad IBS Buzz


23

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the focus - nov-dec 2012

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