US Recession and effect on India

American international Group popularly known as AIG is world's biggest Insurance provider but it ran into crises in mid september 2008 when it showed signs of cashlessness (having no cash reserve at all). Everyone was surprised when the news of AIG going for sell off came open and it spread like fire in a forest. soon the news reached fed reserve(Federal Bank) and it had no other option then investing in AIG by giving it loan of US$ 85 billion and purchase 80 % stake in world's largest insurance provider.

also read : Biggest US Bank failure ever


The Fall of AIG(American international Group) :

So what was the reason behind cashlessness of world's largest insurance company?? The decline of AIG started after the attack on World trade center's on 9/11 by terrorist groups. AIG used to provide insurance cover to world's biggest organizations and was running soundly until the credit crunch and mortagage crises began to start in US economy, various US investment banks like Lehman Brothers(158 years old institution), Merill Lynch, Morgan Stanley, Bear Sterns etc . provides loans in real estate. US public wanted expensive houses which were beyond their budget. US banks gave them loans thinking of gaining more profits from the interest rates which they will get on loan amount however they overlooked the most important condition which was "whether the customer is eligible for purchasing house which was out of the budget for him/her" still they gave the loan which eventually was never returned back to the lender bank.

Now small mortage banks which felt the pinch of credit crises earlier took loans from bigger banks in order to sail their bank to shore in these tough times when their was almost zero income for small mortage banks, now big investment banks like Lehman Brothers, Merill Lynch, Morgan Stanley, Bear Sterns gave loan to these much smaller banks which were facing credit crunch at that time thinking that they will get batter rewards for the investments made in mortagage banks.

To insure their loan to smaller banks they insured their investment with insurance company AIG in particular. Since AIG was dealing with much bigger banks the risks were even higher for insurance companies like American international Group(AIG). Now bigger investment banks never got their money back from smaller mortagage banks and their amount was dead. so the bigger banks could not pay the premiums to insurance companies and this was the time when insurance companies started helping them according to the terms and conditions of the insurance type done with the banks, during this time there was no source of income for insurance companies like AIG.



also read : Biggest US Bank failure ever


This was the time when the cash reserve of Insurance companies reached almost nil. Investment banks which had invested in Credit crunch facing mortage banks were already on verge of bankruptcy. US citizens lost their faith on Financial Institutions and began to sell their shares, the environment of investment bank stocks was discouraging. Share Markets all over the globe felt the heat and all the major indices including DJIA, Standard and Poor index, NASDAQ, BSE, NSE felt drastically.

Hence Federal Reserve bank had to act fast to control the situation and offered loan of US$85 billion to the AIG for improving it's financial conditions, due to this act Fed reserve acted as last hope for many other banks.

Looking at present uncertainity the US government has made an announcement for providing a US$700 billion package to the financial market so that the US $ remains the strongest US economy in future too. but their has been resentment in citizens of USA when they heard about the news that US government is pumping money earned from taxes into the Financial Market to control global uncertainities .



also read : Biggest US Bank failure ever


my fingers are crossed when it comes to question "will supremacy of US $ continue after worst economic depression after the depression of 1929". lets wait and see how things unfold in coming couple of months.

Recently markets tumbled most due to biggest US bank failure in history(Washington Mutual).
Read about Washington Mutual Failure now!
Other top stories

US has vital stake in India's rise as a global power

Describing India as an emerging "global power" and an "ally," US Secretary of State Condoleezza Rice says Washington has a "vital" stake in New Delhi's rise.

"India stands on the front lines of globalisation. This democratic nation promises to become a global power and an ally in shaping an international order rooted in freedom and the rule of law," Rice says after noting that Indo-US relations have experienced a "dramatic breakthrough" during the eight years of Bush Administration.

"...the United States has a vital stake in India's rise to global power and prosperity, and relations between the two countries have never been stronger or broader," Rice says in an article in the latest issue of Foreign Affairs magazine published by Council on Foreign Relations, a Washington think-tank.

"It will take continued work, but this is a dramatic breakthrough for both our strategic interests and our values," she says.

Penning her thoughts on foreign policy pursued by the George W Bush administration during the last eight years, Rice says Washington has placed importance to building strong relations with existing global players as well as emerging.

With those, particularly India and Brazil, the United States has built deeper and broader ties, she says.

On Brazil, she says the country's success at using democracy and markets to address centuries of pernicious social inequality has global resonance.

"Today, India and Brazil look outward as never before, secure in their ability to compete and succeed in the global economy.

"In both countries, national interests are being redefined as Indians and Brazilians realise their direct stake in a democratic, secure, and open international order -- and their commensurate responsibilities for strengthening it and defending it against the major transnational challenges of our era," Rice says.

The terror attacks on the US on September 11, 2001 was similar to the attack on Pearl Harbour in 1941, which fundamentally changed the world, she says.

"We were called to lead with a new urgency and with a new perspective on what constituted threats and what might emerge as opportunities. And as with previous strategic shocks, one can cite elements of both continuity and change in our foreign policy since the attacks of September 11."

"What has not changed is that our relations with traditional and emerging great powers still matter to the successful conduct of policy. Thus, my admonition in 2000 that we should seek to get right the "relationships with the big powers" -- Russia, China, and emerging powers such as India and Brazil -- has consistently guided us," Rice says.

Washington's alliances in the Americas, Europe, and Asia remain the pillars of the international order, she says, adding that the Bush administration was now transforming them to meet the challenges of a new era.

"In this strategic environment, it is vital to our national security that states be willing and able to meet the full range of their sovereign responsibilities, both beyond their borders and within them. This new reality has led us to some significant changes in our policy.

"We recognise that democratic state building is now an urgent component of our national interest," she said adding that in the broader Middle East, the US recognises that freedom and democracy are the only ideas that can, over time, lead to just and lasting stability, especially in Afghanistan and Iraq.

Crude Price on all time high

Global crude oil prices are on a all time high of US $ 125 per barrel and is adversly effecting the balance sheet of indian economy, probably it is also a reason of depreciating value of indian rupee when compared with US $ .

Crude prices could reach higher levels over the next few months as the winter season in the northern hemisphere gets under way.
Although the price of the basket of crude relevant for India is ruling at a much lower level than $55, the effect of higher crude prices is bound to affect the profitability of a swathe of companies, especially in the manufacturing sector, as costs of energy, fuel and transportation could start to spiral.

Even if the Government decides to limit the price increases by seeking recourse to further cuts in excise and customs duties, and requiring oil companies to bear an even greater part of the burden, profitability and growth rates could be affected as growth rate of the global and the Indian economy slows down. Market sentiment could also be influenced in a negative manner if liquidity in global markets dries up and a flight to safe assets and safer currencies set in.
Investors as such should consider adopting a cautious approach to buying equities, by staggering investments over a period of time, and partial profit booking on deep-in-the-money positions, may be appropriate. This could mitigate any downside risk that could envelop the markets due to the bullish trend in crude prices that is driven by a combination of robust demand and speculative activity.

The positive aspect of the crude prices story is the likely boom in construction activity in the Gulf countries. This could be an opportunity for companies such as Larsen & Toubro and Voltas, which have executed several projects in the region that could serve as a reference point for bagging more orders, and Gujarat Ambuja Cements, which appears well set to capitalise on the sharp spurt in cement prices in export markets.

The latter's earnings numbers for the July-September quarter have been buoyant with a fillip from exports as well as higher domestic prices, and there could be a further scaling up over the next few quarters. There are others that could benefit from the anticipated construction boom.
For now, we prefer the stocks of these companies, which have an established presence, higher efficiency levels that could compensate partially for rise in input costs and limited downside risks as large-cap stocks. Stock-specific recommendations of Business Line, however, will take precedence over this broad-investment strategy.
- Hindu Business line

Economy of India Growth Pattern - Latest Updates

It has been predicted that by 2035 there would be three major economies of world - US economy, Indian Rupee, Chinese Economy. and the growth rate of indian economy for makin this prediction correct has somewhat slowed down in this fiscal year due to global economic woes. Indian economy is a diversified economy with agriculture sector still the greatest job provider.

Indian INC's are making global impact and every second day we can listen news
about indian company's acqisition of some other company. Global Acquisitions by Indian companies are making the impact of indian economy on a global scale.

India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, India has emerged as the second fastest growing major economy in the world.

The economy has been growing at an average growth rate of 8.8 per cent in the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6 per cent being the highest in the last 18 years. Significantly, the industrial and service sectors have been contributing a major part of this growth, suggesting the structural transformation underway in the Indian economy.

For example, industrial and services sectors have logged in a 10.63 and 11.18 per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and 2006-07 and transport, storage and communication recorded a growth of 14.65 and per cent 16.64 per cent, respectively.

Another significant feature of the growth process has been the consistently increasing savings and investment rate. While the gross saving rate as a proportion of GDP has increased from 23.5 per cent in 2001-02 to 34.8 per cent in 2006-07, the investment rate-reflected as the gross capital formation as a proportion of GDP-has increased from 22.8 per cent in 2001-02 to 35.9 per cent in 2006-07.

The growth pattern for this year has been robust with every sector's growth seen in green colour. some of the details about sectoral growth patterns is as follows :

The process continues in the current fiscal year. On the back of 9.9 per cent growth in the first half of 2006-07, GDP grew by 9.1 per cent during April-September 2007.

* While overall industrial production grew by 9 per cent during April-December 2007, importantly capital goods production rose by 20.2 per cent compared to 18.6 per cent during same period in 2006.
* Services grew by 10.5 per cent in April-September 2007, on the back of 11.6 per cent during the corresponding period in 2006-07.
* Manufacturing grew by 9.6 per cent during April-December 2007, on the back of 12.2 per cent growth during same period in 2006-07.
* Core infrastructure sector continued its growth rate recording 6 per cent growth in April-November 2007.
* While exports grew by 21.76 per cent during April-December 2007, imports increased by 25.97 per cent in the same period.
* Money Supply (M3) has grown by a robust 22.8 per cent growth (year-on-year) as of December 21, 2007 compared to 19.3 per cent last year.
* The annual inflation rate in terms of WPI was 3.5 per cent for the week ended December 29, 2007 as compared to 5.89 per cent a year ago.
* Fiscal and revenue deficit decreased by 11 per cent and 17.2 per cent, respectively, during April-November 2007-08 over corresponding period last year.

With such a robust growth rates, the advance estimates of the Central Statistical Organisation (CSO) expects the economy to grow by 8.7 per cent in 2007-08.

Highlights of Indian economy for present fiscal year are as follows :

Reflecting the favourable prospect of growth rate of Indian economy, the orders received Indian companies have increased by a whopping 68.6 per cent to US$ 32.48 billion during January-October 2007 compared to US$ 19.26 billion in the same period last year.

* India is among the five countries sharing 50 per cent of the world production (or GDP).
* FDI inflows have jumped by almost three times to US$ 15.7 billion in 2006-07 as against US$ 5.5 billion in 2005-06.
* The aggregate income of the top 500 companies rose by 28.4 per cent in 2006-07 to total US$ 469.51 billion.
* India's National Stock Exchange (NSE) ranks first in the stock futures and second in index futures trade in the world.
* Twenty Indian firms have made it to the list of Boston Consulting Group's 100 New Global Challenger Giants list.
* According to a study by the McKinsey Global Institute (MGI), India's consumer market will be the world's fifth largest (from twelfth) in the world by 2025.
* The number of companies incorporated has increased at an annual average of 55,000 companies in the last two years to 865,000, from 712,000 companies at the end of 2005.
* Four Indians and seven Indian microfinance companies make it to the Forbes list of Top10 world's wealthiest CEOs World's Top 50 Microfinance Institutions, respectively.
* India has the most number of private equity (PE) funds operating amongst the BRIC markets.
* Mumbai has been ranked tenth among the world's biggest centres of commerce in terms of the financial flow volumes by a survey compiled by MasterCard Worldwide.

Another significant aspect has been the broad-based nature of the growth process. While new economy industries like Information Technology and biotechnology have been growing around 30 per cent, significantly old economy sectors like steel have also been major contributors in the Indian growth process. For example, India has moved up two places to become the fifth largest steel producer in the world.

And with its manufacturing and service sectors on a searing growth path, Lehman Brothers Asia estimates India to grow by as much as 10 per cent every year in the next decade.

It is seen that the per capita income of india is on a rise the following report sums up the per capita income growth trends:

Along this significant acceleration in the growth rate of Indian economy, India's per capita income has increased at a rapid pace, exceeding an earlier forecast made by Goldman Sachs BRIC report which estimated India's per capita to touch US$ 800 by 2010 and US$ 1149 by 2015.

Per capita income has increased from US$ 460 in 2000-01 to almost double to US$ 797 by the end of 2006-07. In 2007-08, India's per capita income is estimated to be over US$ 825.07, according to the advance estimates of the Central Statistical Organisation (CSO). Further, India's per capita income is expected to increase to US$ 2000 by 2016-17 and US$ 4000 by 2025. This growth rate will, consequently, propel India into the middle-income category.

Global Acquisitions by indian firms puts India firmly on major economies

Tata Motors came into global limelight as an automobile major in early 2007 or even earlier when news of the cheapest world car was out of the tata's stable, Launch of tata nano (the $ 2500 car) turned all heds towards the tata motors and every major auto maker now want to replicate the same model but will never able to make a car even cheaper then the Tata's nano due to the cheapest input cost of nano, and the advantage with tata's is that they can use their own homemade steel for making the chasis of their vehicles which other companies have to purchase from other steel companies.
The launch of Tata Nano was much hyped so that the whole world notices the nano and Tata as a global automobile major with a surprise to come later in the year. the world never knew that the year 2007 was year of Tata Motors's brand acquisitions of the JAGUAR and LAND ROVER the iconic british car brands famous through out the world for their excellent cars in luxury car market.

Some still think that tats'a have played much bigger then they can by acquiring JAGUAR and ROVER car companies which were owned by the ford motor company of United states of America.

It may also be recalled that in 2007 the Toyota Motor Corporation surpassed General Motors to become World's number 1 automobile company. Now every car maker want to replicate the Toyota model to make their car company's revenue much larger and Tata's are no exception.

It took 3 decades for the japanese auto maker to enter into the luxury car market .

Toyota is the gold standard that aspiring auto-makers look to. Synonymous with Japanese quality, Toyota got to its premier position in the world auto stakes by a combination of production efficiency, high quality and delivering unsurpassed value to the customer. Toyota fans call a Honda, “a fake Toyota”, seemingly referring to Honda following in Toyota’s footprints and achieving similar status in terms of quality and value. Similarly while a growing company like Hyundai benchmarks its cars against Toyota competitors, a relatively “old-world” company like Volkswagen re-designed its production process based on inputs from Toyota engineers.

Still Toyota did not move beyond its economy and hence cheap image in the Western world till the introduction of its luxury brand, the Lexus. The strategy was such a success that other Japanese auto makers quickly jumped onto the bandwagon. The Lexus strategy had a curious side-effect on the overall Toyota bouquet of products. Unlike how the European companies built their luxury cars, Toyota continued to use the production line using strict quality control to drive efficiency. As a result the luxury cars did not cost significantly more than the regular line-up. While this revolutionized the luxury car market, it also worked wonders for its non-luxury line-up as the superior styling and finish of the luxury models began to rub-off on the rest of the portfolio.

Tata Motors has only taken baby steps towards becoming a global automaker. But the newly-acquired the availability of true luxury brands within the stable allows the company to learn what it takes to give its cars the aspirational value they need to succeed in the Western markets.

In addition to taking design lessons, Tata Motors can also benefit from the world-class R&D facilities, and an established global marketing network. Also while the Jaguar-Land Rover brand image will work wonders for Tata Motors’ own image, there is a danger that it would dilute the value of the British brands. So if the Tatas make it clear that they will treat the new companies as prized possessions that they will take pains to nourish and grow, while also using them as a huge opportunity to learn, then that should allay fears of brand dilution, while keeping the existing jobs and helping the Tatas as they build up their portfolio of vehicles to fill the gap between the SUVs and the luxury vehicles, in terms of both products and aspirational value.

So keep your fingers crossed and wait 2-3 years to see the technology of jaguar and rover brand embedded into indian made tata cars.

Indian Economy - Rupee v/s US $ daily trends - April 2008

Daily rupee trends against US $ date wise for april 2008 (at stock market closing time):

24/4/2008 : (Rs v/s US $) - 39.95 - Down(-0.01)

19/4/2008 : (Rs v/s US $) - 39.96 - Down(-0.17)

17/4/2008 : (Rs v/s US $) - 39.79 - Up^0.16

16/4/2008 : (Rs v/s US $) - 39.95 - Down(-0.11)

15/4/2008 : (Rs v/s US $) - 39.84 - (No change)

14/4/2008 : (Rs v/s US $) - 39.84 - Up^0.10

11/4/2008 : (Rs v/s US $) - 39.94 - Down(-0.10)

10/4/2008 : (Rs v/s US $) - 39.84 - Up^0.18

9/4/2008 : (Rs v/s US $) - 40.02 - Up^0.09

8/4/2008 : (Rs v/s US $) - 40.11 - Down(-0.14)

7/4/2008 : (Rs v/s US $) - 39.97 - Up^0.06 (wrt 6/4/08 rates)

4/4/2008 : (Rs v/s US $) - 39.97 - Up^0.11

3/4/2008 : (Rs v/s US $) - 40.08 - Down(-0.09)

2/4/2008 : (Rs v/s US $) - 39.99 - Down(-0.02)

1/4/2008 : (Rs v/s US $) - 39.97 - Up^0.14

Indian Economy Updates Rs v/s $ daily trends - March 2008

Daily rupee trends against US $ month wise (at stock market closing time):

31/3/2008:(Rs v/s US $) 40.11 - (Up^0.04) - with respect to 28/3/2008 rate

28/3/2008:(Rs v/s US $) 40.15 - (Down -0.08)

27/3/2008:(Rs v/s US $) 40.07 - (Up^0.05)

26/3/2008:(Rs v/s US $) 40.12 - (Up^0.22)

25/3/2008:( Rs v/s US $) 40.34 - (Down -0.05)

24/3/2008:( Rs v/s US $) 40.29 - (Up^0.16)

19/3/2008:( Rs v/s US $) 40.62 - (Up^0.15)

18/3/2008:( Rs v/s US $) 40.77 - (Down -0.32)

17/3/2008:( Rs v/s US $) 40.45 - (Up^0.01)

Indian Budget Projections shattered by US economic recession

Indian budget projections are likely to be shattered by the slowdown in US economy or probably it's recession and government has to make new projections keeping the condition of US economic changes in mind becoz indian economy is governed more or less by US economy, CPI(M) on Saturday demanded immediate halt to futures trading in all essential commodities to contain inflation and corrective measures for the stability of the rupee.

"In order to check speculation and inflation, futures trading must be stopped in all essential commodities though the government has removed pulses, wheat and rice from the purview of forward market due to our pressure," CPI-M Politburo member Sitaram Yechury described.

Stating that the US has officially admitted that its economy was going through rough times, he said, recession, falling value of Dollar and growing unemployment in America would have adverse impact on India and the government must initiate corrective measures to tackle the situation.

Observing that Rupee has appreciated by 13 per cent during the past one year, he said decline in exports and manufacturing sector coupled with badly hit IT and textile sectors would cause considerable loss of jobs.

He said that such a situation has put the projections in the union budget into uncertainties.

It may also be noticed that CPI(M) are also against the nuclear deal and want the indian government to abundan it, they are organising a meeting to discuss the Indo-American nuclear deal on 17th of this month in delhi with government officials.

Slowdown in US Economy V/S Boom in India Economy

From past couple of years their has been a gradual slowdown in the economy of US. There are certain reasons for the slowdown of US Economy. With the growth of economies of Asian countries like China and India .Economy of US has a serious threat as these two asian countries have grown at a decent pace in past four to five years while at the same time the economy of US has shown a slowdown. The subprime mortagage crises occuring in US has made several mortagage companies bankrupt and hence looking into the matter the president of US Mr. George W Bush has recently decreased the rate of interest for mortagage facilities available to the people of US. It's now clearly evident that the government of US has started feeling the heat of the slowdown in it's economy. Recently a mortagage services client of indian company Infosys declared itself short of funde i.e bankrupt and had no money to pay to Infosys for the period of time . There were around 250 customer executives working for the mortagage services company in Infosys found there client bankrupt and hence they all had to be shifted to other process hence the subprime crises of US mortagage companies has started affecting the job oppurunities not only in US but also in countries like india where the processes of these banks have been outsourced. hence Slowdown in the economy of US have forced many software companies of US to outsource more and more work outside US in countries like India.

Software jobs in US are also on a decline due to the stagnation in economy. Many US based software companies have all ready opened their development centers in India as carrying business for them in US itself has become less profitable while in India their profit margins are decent and they further can outsource their projects to Indian companies. Boom in Indian Economy has helped India in reducing it's import bills drastically. with the present rate of US dollar equivalent to ~ 39.50 INR and still decreasing further. Time is not far when the economy of Indian would become major Economy of World.

Economists have predicted that if Indian Economy Grows at the Same pace as of today then it would surely surpass the net value of France, Japan by the year 2020, and would become a superpower by year 2025 and India Economy would be third largest economy of world . world would be goverened by three economies of US, China and India, by the year 2035 india economy would surpass the economies of Germany, UK and indian rupee would be used for transactions all over the world.

US market is now dependent on the imports from asian countries like china and India and the volumes of Import from India and China are on a steady rise from the past couple of years. However India economy is still net an importer economy i.e. the imports are still more then the exports but the scenario is soon going to change and India would ultimately become an export economy in coming 10 years. Boom in India Economy is clear from the amount of Foreign Direct Investments being made in India by none other then companies of US since they want higher profits for their further expansions which are not possible while carrying their businesses in US as the profit percentages in US are on a decrease and future looks no better. So these companies have shown their tremandous interest in India and India Economy which is hence on a boom.

India does not have resources of it's own and hence for development it is using the Foreign Direct Investments for it's growth conservatively which is clear as the indian rupee is getting firm day by day . Foreign players have shown tremendous interest in Indian Stock Markets and both of the indian stock exchanges The Bombay Stock Exchange and National Stock Exchange have already crossed the magical mark of 20,000 and 6,000 respectively and are still showing promising signs.

Government of India has also taken promising steps for bringing in more foreign currency to India as investment . The Incredible India campaign is an example and government has many plans to attract foreign tourists on Indian Festivals by providing certain package to the tourists.

Indian rupee as new Global Economy

Hi Everyone!
Post your views about when can you see Indian Rupee as new global economy as powerful as the US dollar which is presently the strongest economy in the world. Indian economy is growing and hence it has very bright future prospects. HOW DO YOU FEEL ABOUT IT????
There are various questions which need to be answered for making indian rupee achieve this feat.
some of them are:

1. What should be done for increasing the growth percent of economy at the same pace as China is growing??

2. What can India learn from the chineese economy and the policies of government there ?

3. Can Indian government policies achieve economy growth of over 11%??

There are several steps that Indian government need to take such as making strict rules as the government of China has made for using the huge man power in right proportion as required by different industry sectors. India is lacking this very ingredient as government is not able to divide the man power required by different industry sectors in right proportion hence there is surplus man power available in one sector but scarcity in another sector. India is boasting of itself majorly on services sector which i think is a superficial sector and is more or less governed by growth of manufacturing sectors so more emphasis should be made on the Hard core manufacturing sectors like automobile,steel, heavy machinary industry etc which determines the right growth of the country.
So basically i want to say is that the man power should be rightly divided in correcr proportion so that the saying "INDIA IS LAND OF 1 BILLION + OPPURTUNITIES" is felt as correct saying.

IF U HAVE SUGGESTIONS FOR THIS TOPIC DO POST YOUR COMMENTS !!

like SHOULD INDIA CHANGE IT'S ECONOMY MODEL SIMILAR TO THAT OF CHINA???
not fully but to some extent as possible.

one thimg is sure that growth of country is governed by growth in manufacturing sector rather than growth in services sector....

so what are you waiting for!!! Start posting your comments and let people know about your views and suggesions about the same!

Thanks,
Himanshu