I came across this article which talks about an issue which is plaguing our nation for past few years - Kidney Transplants. It has become a big business these days with thousands of rupees changing hands in every sale of this precious organ. This article sheds some light about the practices in others countries and what needs to be done to make this organ transplant safer and better in India. Read on...

Author: Maitreesh Ghatak
Posted online at financialexpress.com

Let us assume for the purposes of our discussion that surgical procedures do not entail much risk. Would it be alright then to legalise the kidney trade? To answer this question as well as understand land transactions better, consider the example of heart transplants. Medical technology has made them possible, but the replaced heart comes from the body of a just-deceased person who had pledged beforehand to posthumously donate the organ. Should trading in human hearts be legalised, assuming that healthcare standards are high and there is no use of force or coercion? It is one thing if a dying man allows, in exchange for an agreed-upon sum, his heart to be taken out after his death and given to another person. But what if a healthy but impoverished individual, of his own free will, agrees to be killed and have his heart extracted for transplantation so that the money from the sale can help his family? No legal system in the world would find this acceptable, and with good reason.

It is well known that trading in hair, blood, sperm and eggs is legal in most countries, primarily because the human body can naturally replenish these. This is not the case with the heart and the kidneys, though the body can function quite well with one kidney instead of two. So, in thinking about whether to legalise kidney trade—or, for that matter any other trade that poses serious health risks on the participants—our judgement depends on the extent of these risks. Even the most aggressive advocate of free markets would agree that somewhere between the hair, where the risk is zero, and the heart, where death is certain, there needs to be a line demarcating the limits of the right to buy and sell.

In countries where government regulation is lax and healthcare for the masses is not up to the mark, this line needs to be drawn more conservatively. However, it would be naïve to think that imposing a legal ban puts an end to a troubling practice. There is a thriving black market for kidneys in India, and like all such markets, the biggest gain from it goes to the middlemen. Their presence ensures that sellers get only a fraction of the price paid by the buyers, and the latter are often duped too. And since everything happens outside the ambit of the law, corrupt doctors flout healthcare norms at will. Stories of organ rackets and scams abound in our newspapers. Many feel that legalising the transaction and imposing regulations on the organ market will help matters. While Iran is hardly the best example of a free market economy, it was motivated by similar sentiments in legalising the kidney trade in 1988. As a result, it is the only country where the demand for human kidneys is met with adequate supply.

It must be mentioned that in Iran, kidneys are not bought and sold in the open market, but only within a network created by the government and charitable medical institutions. But as noted earlier, the surgical removal of the organ has been problematic in Iran, and many sellers have ended up regretting their decision. Therefore, one feels somewhat hesitant to laud the fact that in this market demand is being met with supply.

Where a black market exists, such as India, potential sellers are deterred by the fear of being exploited by middlemen, of health risks, and of getting caught. Consequently, supply is always less than demand. Legalising the transaction could potentially reduce malpractices and health risks and ensure a better price to the seller. This is likely to push up the supply considerably in poor countries. However, increased supply will reduce the price. More importantly, unless the poor are provided adequate legal and medical safeguards, now a much larger segment of the population would be exposed to exploitation and health risks. As a result, it is not clear that legalising the sale of kidneys would lead to an increase in overall welfare compared to the earlier situation where a much smaller section of the population was involved in such transactions.

What about donations? The transaction is the same as in sales, with the same health risks and consequences. The difference is that one of the transactions is commercial, while the other is voluntary. There are no financial transactions involved in donations, and this automatically minimises the problems of quality control and malpractice. Health-related risks are similar for both, but the presence of middlemen and traders increases these risks considerably in the case of commercial transactions relative to donations. So, the arguments against legalisation mentioned earlier remain.

But society does have to pay a price for this kind of regulation. The biggest one in this context is the high probability of mismatch between donor and receiver organs. It is possible to start a system of exchange between all donors and receivers. The recent amendments to India’s 15 year law on organ transplants aim to facilitate this. But it is not difficult to gauge the limitations of such a system. The monetary system, after all, was invented because the barter system is subject to the problems of double coincidence of wants and coordination.

The recent amendments also aim to make it easier for the organ to be sourced from just-deceased or brain-dead individuals. In India about 1,00,000 people suffer from renal failure every year and about 80,000 people die of accidents. This suggests cadaveric donations could be an important source of organs. This is not as easy as it sounds, because donor and receiver kidneys need to match, and also, delays can make the organ unfit for transplants. In addition, there are social norms that go against putting a dead man under the scalpel.

In some countries of continental Europe, cadaveric organ procurement is based on the principle of presumed consent as opposed to informed consent as in the US and the UK. Under presumed consent, a deceased individual is classified as a potential donor unless he or she explicitly opts out before death.

Under informed consent, this is the case only if they volunteer, i.e., opt-in. Evidence provided by economists Abadie and Gay (2006)* suggests that the former increases availability significantly (see figure). Given the salience of the anti-legalisation arguments in countries like India, this seems to be a worthwhile direction to explore.

I came across this report recently from my Kiva network and thought would pass it on to you all if you haven't read it.

A committee headed by an expert economist released the latest statistics on poverty in India. As per the report, 37% of the population of India is under the poverty line. 


Story by: TimesofIndia.com
Date: Dec 15, 2009

NEW DELHI: The Suresh Tendulkar committee report revising upwards poverty estimates across the country may further strain government finances with many of the states already demanding special status to address the issue and an enhanced allocation under many of the pro-poor schemes.

The committee, in its report submitted to the Planning Commission last week, had estimated that 37% of India’s population is under the poverty line, while the proportion of the poor is almost 42% in rural areas — sharp increases from official poverty estimates of 27.5% for all of India and 28.3% for rural areas.

The committee has changed the method of estimating poverty to a broad-based consumption basket that includes education and health.

More than half of the rural population of states like Orissa, Bihar, Madhya Pradesh, Chhattisgarh and Jharkhand are still living under abject poverty, not able to meet their basic necessities of food, health and education, according to the revised estimates of the expert group headed by former chairman of Prime Minister’s Economic Advisory Council Suresh Tendulkar. The new figures are not strictly comparable with the earlier estimates, because the Tendulkar panel has significantly changed the method of estimating poverty — from one notionally based on calorific intake to a more broad-based consumption basket that includes education and health.

Nevertheless, the revelation that poverty is higher than it was earlier thought to be may force the government to increase funding for social and rural development schemes such as the National Rural Employment Guarantee Act, Indira Awas Yojana and the Pradhan Mantri Gram Sadak Yojana, say economists.

Tendulkar himself told TOI that though this was not the mandate of the committee, as an economist he thinks government should put a lot of money into education and health, particularly considering the demographic profile of the country with a predominantly young population.

It has been a while since I updated about the National Pension Scheme. But believe me, you didn't lose anything. As usual, government and their policies takes time to move and reach out to public. The movement is very slow in putting all the things in place and setup for enduser investing. I see lot of blogs than lastyear with more details especially many compliants about the way it is being handled.

With all the initial hype and great interest from NRI's, we expected the NPS would be up and running efficiently by now with more marketing from POC's and banks. But thats not truth, things are moving in snail fast. Anyway, here are some information, links and forms which you can go through

One good news, many banks which are declared as Points of Presence (POP) are setting up centers to support this scheme and slowly jumping in the band wagon. Their current target is focused mainly on citizens of India living in India and not many banks have good information about how to NRI's.

One bank which I just came across being named among POP's for NPS is focusing on Gulf/Middle East NRI  community is South Indian Bank. The SIB claims to be the largest service provider for the scheme, having the highest number of authorised branches for offering services under the NPS. You can learn more about their service by visiting their website at SIB.  Other banks who are named as POP's are also offer NPS and accept contributions are listed below:

Allahabad Bank,
Axis Bank Ltd,
Bajaj Allianz General Insurance Co Ltd,
Central Bank of India (CBI),
Citibank,
Computer Age Management Services Private Ltd,
ICICI Bank Ltd, IDBI Bank Ltd,
IL&FS Securities Services Ltd,
Kotak Mahindra Bank Ltd,
Life Insurance Corporation of India,
Oriental Bank of Commerce,
Reliance Capital Ltd,
State Bank of Bikaner&Jaipur,
State Bank of Hyderabad,
State Bank of India,
State Bank of Indore,
State Bank of Mysore,
State Bank of Patiala,
State Bank of Travancore,
Union Bank of India and
UTI Asset Management Company Ltd

Click here to see the detail list of branches in various cities. Also here is the registration form to register with POP.

Here are few Articles I came across which might interest your on this topic.

Details about South India Bank and NPS at thepeninsulaqatar.com

Reasons why NPS is not growing as expected at Business-standard.com

Questions&Answer about NPS economytimes.com

NPS not Cheap by businesspandit.com

ICICI NPS FAQ at ICICI.com

To conclude, it will take more time to get much more clearance on the process and availability of the scheme for NRI's more easily. Please continue the research and you are welcome to share any good information here. I will also keep updating on this topic when I hear any thing new so keep checking.

Happy Newyear Everyone!!

Year 2009 has come and  gone. It surely made imprints with lot of headliners and became a part of the history book. Year 2010 just started ticking it's counter and adding a brand new decade in the 21st century. Another thing to notice about 2010 is, by doubling the last 2 digits either like "10" *2 or 1+1 0+0 makes the first 2 digits "20". I found that to be interesting because it doesn't happen often. Let's hope year 2010 doubles our happiness by doubling our wealth and keeping us healthy.

Newyear Resolution -A waste of time

"May your troubles last as long your Newyear Resolutions" - Author Unknown

I saw the above funny quote posted outside of an auto repair shop. Nowadays people are not at all really serious about newyear resolutions and studies literaly reflects the downtrend. In the recent resolution study, while 52% of participants were confident of success with their goals, only 12% actually achieved their goals despite all the best intenstions.

Whether you resolve your resolution are not, somebody is will make big buck out of you. It is most likely going to be,

1. Fitness centers and Trainers
2. Weight loss program and weight loss book sellers
3. Dieticians and Weight loss Food producers

Just be aware of it and don't get pulled by all the marketing gimmicks and TV ads. Most goal setting experts believe this is due to ignorance concerning how to set goals properly. Let me share my very own 3 Talk method which might help achieve things in all the areas of your life.

T1. Talk to yourself first

It might seem wierd but the truth is everything starts from you. You have the answers to know what will work  best for you! So, use this time make an appointment to yourself to think with an open mind, about past year’s mistakes and missed opportunities or goals. Ask yourself what type of life you would like to create for yourself in the coming year.

If you have the habit writing journal, it helps in this process. If you don't have one, I would recommend to start one today.  Try to take these steps during your own interview.

1.Check your past year goals and see how you resolved/performed. Pat your back if you scored well. Tweak them if it need to continue this year.

2. Make 3 new goals for this year whether short or long term. Just Three only, no more!

3. KISS method - Keep it simple stupid. Always set goals as simple as possible to start with.  Try to set SMART goals. These are goals that are Specific, Measurable, Achievable, Relevant, and Trackable. If you want to lose weight, start with losing 5lbs in 2 weeks and continue to maintain it for 2 more weeks.

4.  Write them down and start planning towards working on those goals. If you plan to reduce wait, look for a good and cheaper options to start instead of getting an expensive Treadmill at first. Try signing up for $10 fitness center which has mushroomed in many areas.

5.  Take action by start working out twice a week and gradually move to thrice a week. Adjust your diet accordingly and you will surely see a change in your health. Be resilient.  Don't throw towel in just a week. Try atleast 3 weeks. Ask for help is a old techique. I would say advertise your goals which will motive yourself to achieve them when your friends ask about it.  Eva

2T. Talk to your Doctor

Next an important one. Make an appointment with your family doctor to do the physical checkup during the month of January. Almost all the insurance companies cover the physical check once a year upto $300. Most physical checks including labs won't take more than $300. I try do it by end of Jan so I can see my levels on  LDL, HDL, total cholestrol, Sugar and compare from the last years. 

By doing at the beginning of the year helps to manage those levels  or work to improve on them in the coming months. Prevention is better than cure. By doing physical checkup atleast once a year, it surely helps to find any problems before ahead and gives more time take action to treat the problem in the starting stage itself.

3T. Talk to your Financial Planner/CPA

Finally, your wealth check up. You better meet with your CFP/CPA to check your current financial status. If you are your own financial Planner, try to set up a time to go over your financial condition. Check your financial goals and objectives, see it is performed last year. Make any changes to your short or long term financial goals for this year.

Also take time to check some important documents like WILL, Trust, Durable Power of Attorney and Living Wills. If there is any change in your family staus like new kid, new house, you surely need to make proper adjustments to the Will or Trust to reflect your current status to avoid any future problems.

By doing just these simple things at the beginning of the year, you are setting your life boat in proper condition to sail this new year in the right direction to reach your destination.

Happy Goal setting!!

If you are into picking up stocks for your portofolio whether it is in Newyork exchange or Mumbai Exchange, analysis used to select the right one is more or less the same. You either go with technical indicators or fundmental signs to choose the right one for your portofolio accordingly. But when it comes to picking mutual funds it is not the same. They are totally different.

We end up looking at the underlying stocks to judge the mutual funds performance instead of just looking at mutual fund itself. That is not the right way as per many analyst. Because the very reason we want mutual funds is you don't want to pick the stocks and end up in trouble. It is done by professional managers and they are responsible to make sure the funds perform right. So you should pick the fund as whole not by looking at by picking stocks in the fund.

Check out an article which explains why someone should choose the fund not it's portfolio.  Share your thoughts in this matter.


Pick a fund, not a portfolio
Dhirendra Kumar
www.financialexpress.com
Posted online: Oct 26, 2009 at 2355 hrs

It goes without saying that choosing a mutual fund is the most critical aspect of fund investing. How well your investments perform is directly dependant on how you pick them. It is safe to say that picking the right fund is almost as good as ensuring good returns on your investments. But, despite the fact that choosing funds is such an important factor, most people often seem to falter at this very step.

There are a lot of different approaches used to choose a mutual fund. When it comes to equity funds, the approach that is most ineffective is the one based on the fund’s portfolio. Under this approach, an investor – and quite often even an analyst or expert – looks at the fund’s recent portfolio statement and decides for or against the fund on the basis of the stocks it holds. I can’t stress enough on why this method is a futile way of choosing a fund to invest in.

Firstly, this approach is wrong because it takes away the basic advantage of investing in a fund. You invest in a fund because you don’t have either the time or the knowledge, or sometimes both, required to dabble in stocks. So you let the fund manager do it for you. But when you start decoding a fund’s portfolio, you are doing nothing but dabbling in stocks and worse, also assuming that you are a better judge of stocks than the fund manager. In general, stock investors who feel the need to venture into funds as well use this approach. Apart from them, this method is used by broking firms who have started selling funds. In such firms, the stock analyst analyses the funds as well. And hence, he looks at the fund’s portfolio. If he doesn’t like the stocks in it, he renders the fund unfit for investment.

This approach has been appearing in the media a lot too. Recently, a financial publication published a misdirected article that picked individual stocks in isolation from funds, followed the fund managers’ actions on those stocks through a couple of years and then declared those actions to be illogical. What amazed, and amused, me was that they didn’t realise that the funds that they had picked out were funds that had mostly outperformed their benchmarks and peers over the last few years.

This is just another example which shows why a fund shouldn’t be analysed on the basis of its portfolio. A fund buys or sells a stock for myriad reasons, many times for reasons that have nothing to do with the stock’s performance. At times, another stock from the industry could be more attractive. At times, there could be an internal limit on an industry, or to the company. And likewise.

Hence, a fund shouldn’t be analysed on the basis of its portfolio. For most funds, a look at its past returns-based performance is more than enough. A comparison of a fund’s returns, vis-à-vis its benchmark’s or peers’ returns, will give you a fair idea of whether the fund is worth investing in or not. The fund’s portfolio should be looked at after it has answered other basic questions. The portfolio should only be seen to know if the fund is concentrated, is it churned a lot, does it have exposure to emerging sectors, etc. The portfolio should be used to decide between two otherwise similar funds, not as a primary deciding factor..

Recently, I came across United Prosperity, a organization which is similar to kiva.org guaranting loans to entrepreneurs in poor nation. I took some time to contact and talk to the founder to hear more about the organization.  Here is the snapshot of the interview.


Hello Bhalchander, Welcome to nrimoneyreallymatters.com.
 
Thank you for taking time to talk to me about your organization, United Prosperity (UP). I looked at the http://www.UnitedProsperity.org  website and it looks inviting. You made real good progress in the past few months. 

1. Before we talk about United Prosperity (UP) which is making waves in the media recently, let's get to know you. Please go ahead and introduce yourself to the readers.

Vijai, Thank you very much for giving this opportunity to talk about United Prosperity. I grew up in Pune, India and live in the SF-Bay Area. I did my Bachelors degree from IIT Bombay and after working for two years with Tata Motors did my MBA from IIM Bangalore. I subsequently worked with Wipro, Microsoft, Mphasis and most recently Infosys and led several multi-year projects in financial services and insurance. Since September 2007 I left my job with Infosys to set up United Prosperity and since then I have enjoyed seeing this idea become a reality.

2. UP is your brainchild, share with us how the idea was born and evolved? 

Having grown up in India I had noticed on numerous occasions that the poor were borrowing money from their employers, friends, shop keepers or others to meet their family needs. The amounts they borrowed used to be pretty small E.g. Rs. 500 ($12). This always puzzled me and I sometimes wondered why banks would not lend to them. 

Fast forward several years later I was consulting with an organization called PMI. PMI does mortgage guarantees. i.e. A mortgage guarantee  offered by PMI allows people who cannot put the 20 % down payment to get a mortgage and achieve the dream of home ownership. In case the borrower is unable to payback the mortgage PMI will cover the losses of the bank upto a certain extent.  So it struck me that if one can get a $500,000 mortgage with a guarantee, why cannot we make microloans available to people using a guarantee.

United Prosperity builds on the same idea. In case the microfinance institution lending to the poor entrepreneurs defaults on its loan to the bank, then the micro lenders or  guarantors on our website will cover the losses up to a certain extent. With the guarantee the bank is more open to making a loan to the microfinance institution which lends to the entrepreneurs.
I have been fortunate to get the support of my team mates Chiradeep Vittal, my wife Shubha Shankaran, Ashok Parameswaran and several dozens of volunteers who have helped us start United Prosperity. We also got great pro bono support from institutional supports including Cognizant, who built the website, Netsuite who provided us the accounting software, several law firms who did the legal research and books2taxes.com which does the accounting for us.

We became operational in the summer of 2009 and have supported more than 200 entrepreneurs so far.

3. Tell us in general about UP and its mission/vision in elaborate.

Our mission is to allow people to combat extreme global poverty and multiply the impact of their microloan through loan guarantees.

There are small entrepreneurs all over the world who cannot afford to start and grow their business alone. Expanding their business may be the only means to adequately feeding their family or sending their children to school. However, banks do not lend to them without collateral, and that’s where people like you and I come in.

We can become a compassionate social guarantor with United Prosperity by providing an interest-free cash collateral or microloan guarantee for an entrepreneur on our website. Based on our microloan guarantee, the bank makes a loan which is nearly double our contribution.  No minimum amount is required, and on loan repayment we get our money back.

4. Do you really think by helping or lending needy entrepreneur, you can abolish poverty? How is it possible? You are also just helping like any other charity organization.

Abolishing poverty is not going to happen overnight, but studies have shown that through microcredit people do improve their livelihoods and come out of poverty over a period of time. Microfinance is not the only way to end poverty but it is a highly sustainable way. It is also one of the few programs which have scaled to a good extent.

5. From outside, UP seems like a copy cat of Kiva.org, another micro finance lending institution. The model seems to be same except the way you lend to the Micro finance institutions. From your answer, it is seems to be totally new idea with a similarity to Kiva.org. If that's so, tell us the difference.

With other international lending models, the loan made by individual lenders goes to a  microfinance institution which in turn lends to the entrepreneurs. In our case, the loan made by the individual lenders serves as collateral or guarantee which is deposited with a lending bank. Based on the guarantee, the bank makes a larger loan to the microfinance institution which in turn lends to the entrepreneurs.

Our model has several advantages:
a) Doubling of impact: Since the bank makes a loan which is nearly double the guarantee amount, there is a doubling of impact for the individual microlenders.

b) Mitigates foreign exchange risk: Since the loans from Bank to Microfinance institution(MFI) and MFI to entrepreneur are in local currency, foreign exchange risk is mitigated for the MFI and the individual lenders. 

c) Local linkages: Our guarantee facilitates the creation of local linkages between domestic banks, MFIs and poor entrepreneurs. In the course of repaying the loan, both the entrepreneur and the MFIs develop credit histories that will enable them to access more funds at a later date with a lower guarantee percentage, or even without a guarantee. MFIs also get to form relationships with banks and offer other products like savings, insurance, money transfer etc. through the bank.

d) Manages risk better: We get the additional benefit of monitoring of the loan by the bank which is not available with other person to person models. We are also focused on those living in extreme poverty typically, living on less than $2/day.

6. You kept mentioning about "Guarantees". What exactly is a guarantee? How does it different from direct lending?

A loan guarantee is an agreement between a guarantor, a lender, and a borrower in which it is agreed that a guarantor will repay the loan if the borrower defaults. You can learn more about guarantees going to our website at http://www.unitedprosperity.org and clicking the about us link.

7. Your loan/entrepreneur profiles are very limited and centered towards India only. Why and any reason?

We only launched this summer and we eventually plan to roll out to other countries. We will launch in other countries once we have greater traffic to fulfill the need.

8. I see all the guarantees are going towards group of entrepreneurs? Why aren't they individually listed?
We try to reflect the local lending model as much as possible. Most of the microcredit lending is group and we reflect that.

9. Do you think you are competing against Kiva.org for loans and lenders? How you see yourself placed against Kiva.org which has grown manifolds in recent years?
Kiva  has  done a great job in popularizing online microlending. United Prosperity is focused on entrepreneurs in extreme poverty and offers greater impact for individual microlenders with mitigated foreign exchange risk.

10. KIVA is also helping people to get out of poverty and UP just jumped in the same bandwagon. Why someone has to shift their strategy from KIVA to UP? Is there any added advantages?

As I mentioned earlier, our model is totally different from Kiva. We are not
lending, we are only giving guarantees to the loans. We avoid the foreign exchange risk. May be both of our destination might be similar but the path we are taking has lot of more different and more  benefits for both sides.

11. I see many features lag in UP compared to KIVA like forming a team, communicating with other members etc., Are you plan to add them soon?

We have the groups feature on our community site : http://unitedprosperity.ning.com.  Members can form groups and communicate amongst themselves here. However, one cannot assign a guarantee to a particular team. We plan to add that feature in some time. We will be also be adding the gift certificate features by the end of this year.

12. What are you plans in getting the word around?

We have largely used social media marketing to get the word around – facebook, twitter so on. We recently got a google adwords grant and plan to use that for increasing visibility. We will be soon introducing a gift certificate feature for members to invite their friends and family. We also look forward to people like you and others writing about United Prosperity in their blogs and telling their friends.

13. Do you plan to expand your offerings to other nations? If so, anything currently on the works?

Yes, we plan to expand to countries other than India, but the expansion plans are still at a very early stage. Apart from that there is also an ample need in India. The World Bank estimates that 456 million Indians (42% of the total Indian population) now live under the global poverty line of $1.25 per day (PPP). This means that a third of the global poor now reside in India.

14. What are the ways, others can help your organization?

The easiest way is to sign up on http://www.unitedprosperity.org and start guaranteeing loans. It is very easy to sign up and one could start with even $10. Apart from that you could tell your friends, post a link to United Prosperity on Facebook or Linkedin. You could also write about United Prosperity in your blog and help spread the word. You could also choose to volunteer with us if you could spare around 8 hours per month.

Thank you again Bala. I appreciate your time and all the best for success. I know it is not an easy task to setup an organization legally of this big with a strong motive too improve their life style of poor and needy by bringing us altogether. It is a noble cause and hope you will get more support from the community.

Hope you all enjoyed my interviewer the founder of United Prosperity, Bhalchander. As a contributor and lender myself in kiva.org, I recently joined UnitedProsperity.org  few weeks ago and started making few guarantees. It was a simple process and gave me full satisfaction by providing opporunity to help needed entreprenuer directly for their growth and improved life style.  I always feel lucky to have enough to help needy and find different avenues to do so. Kiva.org and UnitedProsperity.org are doing a great job giving us these new avenues.

I strongly believe in the Chinese proverb, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” 

Go ahead and make a difference in lending your hand to others by lending your money, start with just $10 or $25. Your money is not earning these days sitting in a bank account; let it at least do some karma to you. If you have any questions about UP, please don't hesitate to comment here. I will try my best to get answers for them.

I planned to write a post talking about recent economic developments in India. When I came across this interesting article, I decided to post since it's very descriptive shedding light, touching different aspects of India's growth. The article author talks about, what is current happening in India after recession, how we were able to get back so quickly and what force drives Indian economy. Check it out and share your feedback.


India finds itself awash in foreign investment
14 Oct 2009, 1713 hrs IST, New York Times

Six months ago, it looked as if India was in for a bumpy recession. Factories were laying off workers and construction sites were grinding to a halt as foreign investment slowed to a trickle.

But in the last few months India has hit a gusher, as investors around the world have turned away from the dollar, the global refuge during the crisis, and rediscovered their optimism in the world economy and India’s place in it.

There is palpable optimism here. Major stock indexes have roughly doubled from their March lows. Companies are advertising initial public offerings on television. And articles about bonuses and corporate expansion plans have started replacing news about layoffs and deferred projects on the front pages of newspapers.

Nearly $7 billion more foreign direct investment flowed into India than left the country in the second quarter, from April through June, nearly twice as much as in the previous six months combined.

Including cash invested in the stock and bond markets, India received about $15 billion in foreign investment, the most it has received in any quarter except the last three months of 2007, according to Macquarie Securities.

If the current surge continues – and skeptics doubt that it can – the Indian economy could start growing at 8 to 9 percent a year as early as 2010, far sooner than forecasts by the International Monetary Fund and many independent analysts.

"Clearly after the big shock of last year, things are back on track," said Surjit S. Bhalla, who runs Oxus Research and Investments, based in New Delhi. "People are seeing the recovery to be lot more robust than what many of the naysayers are saying."

While many say the good times are here to stay, some analysts worry that the renewed ebullience will be fleeting if global financial markets take another turn down.

Confidence in India’s potential could also falter if the government does not address some long-standing problems, namely, improved infrastructure, investment in education and economic reforms, as it has promised to do to lift hundreds of millions out of poverty.

Another big concern is that the foreign money might re-inflate bubbles in stock and real estate markets. Indian stocks are less than 20 percent shy of their 2008 peak, even though corporate profits and the economy as a whole are growing more slowly now.

"Because we are a fairly large attractor of capital, the possibilities of bubbles building up in sectors like real estate are very real," said Abheek Barua, chief economist at HDFC Bank, who is nonetheless upbeat about the economy. "It has clearly happened in China and there is some of that sort of problem here, as well."

For a country that quarantined its economy from the rest of the world for much of the last 60 years, India has increasingly relied on foreign investment in recent years. It has helped bridge the gap between domestic savings and the growing capital needs of the private sector and the government, which is borrowing money to pay for welfare programs and subsidies.

In India’s fiscal year, which ended in March, growth slowed to 6.7 percent, from 9 percent a year earlier, in part because of lower foreign cash flows. Most analysts estimate the economy will grow more than 6 percent this year, but some like Bhalla say growth will be as high as 8 percent.

Rising foreign investment should help offset some of the economic impact of erratic monsoon rains. The agricultural sector makes up about 17 percent of India’s economy but sustains more than half its population.

India’s economy lacks some of the handicaps present in other countries. For instance, domestic demand never collapsed to the extent it did in the United States, and yet consumer spending is picking up now. Car sales were up 13 percent in the five months that ended in August, compared with the same period last year. Builders say sales of affordable apartments – priced from $10,000 to $30,000 – are up, too. Even retailers, who were forced to close hundreds of stores last year after overexpanding, are talking about opening new outlets.

Some Western companies are eager to get a piece of this market. Last month, Ford Motor said it would build and sell a new hatchback here. McDonald’s announced that it would open 120 more restaurants. And Baltimore-based T. Rowe Price, according to local news reports, is in talks to buy a stake in an Indian mutual fund firm. T. Rowe Price declined to comment.

At the same time, thanks to strong overseas demand for Indian stocks and bonds, companies here are raising billions of dollars. In a recent initial public offering for Oil India, a government-owned company, demand outstripped available shares by 31 times.

"There is a large amount of liquidity in the world," said A. Murugappan, executive director at Icici Securities. The money is flowing here, because "people see that India and China are the two growth areas."

Still, the rising flow of foreign funds poses challenges.

India’s currency has appreciated 11 percent since early March, to 46.13 rupees to the dollar, because of rising demand for rupees and the broad decline in the dollar. That will make Indian garment and jewelry exports less competitive on the world market at a time when those industries are still recovering.

"That is a cause of worry," Vasant Mehta, chairman of India’s Gem and Jewelry Export Promotion Council, said about the appreciating rupee. "Profit margins are being squeezed, and in such a period we cannot expect to raise prices."

The governor of the Reserve Bank of India recently said that to control inflation, his central bank might have to raise interest rates before developed countries, where rates are at historic lows. But he said that doing so could encourage overseas investors to move even more money into India, driving the rupee even higher.

Last week, we saw how Indian companies are trying to set foot on foreign land? either by buying beaten up companies or brand names. At the same time, many Indian IT companies  are taking back work to offshore(India) to reduce cost/expense at this tough economic times. I read an interesting article posted at financial express on this topic and want to share with you all. 

IT cos increase offshoring focus to beat slump
Rachana Khanzode
Posted online: Sep 02, 2009

After focusing on cutting costs on selling, general and administrative expenses (SG&A), the IT industry seems to be increasing the offshore focus to gain higher margins and better bottom-lines. Large IT firms like Tata Consultancy Services (TCS), Infosys Technologies and Wipro are increasingly focusing on bringing more work to offshore with clients demanding low cost work. Though the model is expected to help them in the short-term, it is not a sustainable model in the long-term, say industry analysts.

Before the downturn, the IT industry was maintaining a ratio of 70% offshore and 30% onsite component. But off late, the offshore component has been increasing, as companies tend to find more demand for the offshore work. This is largely because clients have cut down on IT spends and a low cost offshoring model helps them maintain IT budgets. Under the offshoring model, business processes of a company are outsourced to the Indian IT companies and are done from cost effective centres like India. Certain important aspects like consulting and application development are done onsite, and these are usually high value end work.

Wipro says it wants to target matured projects of application management and BPO, in a bid to increase the offshore component in these areas to about 85%. Wipro executive director and CFO Suresh Senapaty said, “About 50-60% of our existing onsite work is capable of being done offshore and with this the offshore component can be increased up to 85%.” However, Senapaty refused to give any timeline, adding, “It is a constant process to attain this ratio and generally we would target the matured projects. It is a sustainable model because that is what clients are asking for.” Application development, package implementation and consulting could be more of onsite says Senapaty.

The Rs 6,274 crore Wipro’s offshore component at the end of first quarter ending June 30, 2009 was at about 73% from about 69% in the same quarter last year. Offshore component of Infosys Technologies touched to 77.3% in the first quarter from 75.7% the same quarter last year and of HCL Technologies went down to 71.7% in the fourth quarter ending June 30, 2009 from 74.7% in the same quarter last year. Recently, Infosys Technologies CFO V Balakrishnan told FE, “The offshore component will increase due to the demand but we do not intend to reduce the onsite component to 15%. Ideally, the onsite component should be around 25% in the current times.”

At the same time, there has been an increase in the revenues flowing in from the offshore with Wipro’s revenues increasing to 50.4% this quarter, a 4% shift, from 46.1% same quarter last year. TCS grew its offshore revenues shift drastically by 10% to 50.4% this quarter, from 40.9% in the same quarter last year. However, Infosys didn’t see a huge transition from 52.1% offshore revenues in first quarter last year to 53.6% in the same quarter this year.

However, analysts point out that the large firm will tend to miss out on the high-end value projects if they there is an imbalance in the offshore-onsite mix. Therefore the firms are likely to go back to their original levels of offshore component about 70%, once the stability in the global economy comes back.

A recent report “Five themes in the stabilising macro-environment” by Viju George, senior analyst and vice-president at Edelweiss Securities, points out that Wipro has realised more than 50% of its revenues from offshore, highest since Q1FY 2001 and that the continued and inexorable offshore movement shown by TCS and Wipro is unlikely to sustain beyond two-three quarters.

The report added, “If anything, disproportionate focus on this could impair making inroads into new business opportunities and higher-value, closer-to-the customer solutions such as consulting and system integration. What’s more in the long-term, entry into verticals such as government, healthcare (especially in front-end hospital management) will require higher level of onshore intensity. It would not be a durable value-creation model for offshore-intensive service lines such as BPO, infrastructure management and testing, to predominate the revenue pie. There must be a balance, aided by growth of onsite-oriented, domain-intensive, closer-to-the customer offerings.”

Industry watchers say, that the IT industry will start rebounding by the second quarter of the next financial year and the offshore component is likely to go down by then.

With great recessions or depression comes great opportunity to invest and expand for both individuals and businesses. You are already witnessing lot of mergers, take overs and many old companies entirely vanishing from the earth. 

Thats true all over the world and especially many Indian companies taking this opporunity to expand their reach in bigger markets. The trend has gone little more far. Days of American companies coming to India for outsourcing are gone. Now many Indian companies are setting stones in US and UK to service their foreign clients.

TATA's who acquired Jaquar and Land Roover from FORD is one good example. It is planning to launch NANO cars using their dealership network in US. That is change of business model.  Don't wait for business to come to you, go where the business is. In IT servicing industry, this new approach is catching fire and taking many dimensions by Indian IT providers like HCL, Infosys and Wipro. 


I read an article published in PC world 2 months ago and like to share some essence of the article. Indian outsourcers are increasingly looking to put data and software development centers closer to customers, including opening ones in the U.S. Some outsourcers also believe that hiring local staff reduces criticism in the U.S. that Indian outsourcers are causing job losses in the U.S.

Indian outsourcer HCL Technologies has acquired its first data center in the U.S. from one of its customers, the company said on Monday.

HCL also took over the data center's staff and other operations, said R. Srikrishna, senior vice president for sales for the North America business of HCL's Infrastructure Services Division. The data center, located in New Jersey, fits into HCL's strategy to offer some services from locations close to its customers, Srikrishna said. The data center will in part be used to serve the unnamed customer HCL purchased it from, as well as offer services to other HCL clients.

HCL has already invested US$15 million to upgrade the 35,000-square-foot center to support eco-friendly technologies, virtualization, cloud computing, business continuity and mainframe management services. Customers want data center services delivered from locations close to them, he said. A customer in California, for example, would prefer to have services delivered from a data center in the state rather than from New Jersey, he added.

Although customers can save money by outsourcing IT services to India, this may not be the case with data centers, according to Srikrishna.

Setting up and running a data center in the U.S. is far cheaper because of India's high electricity costs, Srikrishna said. Real estate -- the other major cost for a data center -- is on par and in some cases cheaper in the U.S. than in India, he added.

HCL already has close to 5,000 staff in the U.S., and this is likely to grow, Srikrishna said. About 1,500 of the staff became part of the company after its acquisition last year of Axon Group, a SAP consulting company firm in the U.K.  A large number of outsourcing contracts, particularly infrastructure services contracts, have required HCL to absorb some of the clients' IT staff.

This change is also happening in banking sector. SBI India has opened branches in DC, Newyork and Chicago to act as US bank with Indian foot hold to attract NRI's investment. It is a good change and welcome one.

What do you think about this change? Share your comments and thoughts.

Continuing from the previous post, we will see the few important consumer questions like what to look out and what can you do in this current Gold Rush period.

What to look out?
 
Lakshmi Iyer, head of fixed income and products, Kotak Mahindra AMC India, tells in her interview with FE, “There has been a recent break out in gold prices and into the buying of gold as an asset class. This is a little contrary to the expected trend. Normally, one would see a lot of redemptions happening now, especially since the gold prices have gone reasonably upwards after being range bound for a while.”

“However, with the festive season approaching, the demand for gold on the outside primary markets has gone up as well. The Indian investor’s mood suggests that they now feel that gold will increase in price. So far gold had been range-bound, but now it may not remain that way much longer, and I too believe the price will increase. Most financial advisors and portfolio managers are of the opinion that one should hold gold as an asset class and at least dedicate between 5-15 or 20% towards it,” Iyer adds. This is also being done as a counter-balancing measure as after a long time have people begun increasing their overall portfolio risk by now investing heavily in equity again, she says.

Iyer whilst talking about the future of gold or what is to be expected in the coming months says, “In the short-term we may see a 40-50 dollar rise in gold prices, after which as far as gold funds go, one may notice profit booking and correction phase. However, I do not expect this correction to be all that much, but it will provide investors with another entry point into gold none the less. In the long run I feel that the price of gold will definitely go up. As we go along people should get use to higher gold prices.”

She went on to add, “The world central bankers have all created liquidity within the markets, and it does not appear like they are going to withdraw this money anytime soon. In such a scenario the only hedge to inflation and money supply will be gold. This is not something that will take place instantly and gold is in no hurry. However, I would not be surprised if the price of gold goes as high as $1,500-$2,000 or even double the current market levels. This could happen in the long-run especially, and I feel a 3-5 year holding period is a reasonable frame.”

As the dollar has been weakening and risk aversion is setting into investors mind, gold is once more looking attractive and its demand is high. A shift from currency assets to gold assets is in the process and like in 2008 when gold did well due to a low risk appetite seen in investors, this time round too, a similar strategy may be seen. Inflation expectations are also building and gold is again perceived as the best hedge against inflation.”

What can I do?

The desire of gold is not for gold. It is for the means of freedom and benefit.” Ralph Waldo Emerson, a 17th century American writer’s summary on why gold is so sought after. Gold is considered an hard core asset with real appreciating characteristics in this current economy.

While facts, figures, numbers and historical data all predict that gold is going to have another wave of price rises and increasing demand this September and maybe for the coming time frame after that. Prudence is still a better route while cashing in any windfalls your gold portfolio may make it a good idea, skewing one’s overall portfolio to favour more than 20% or so of gold.

This could be counter-productive as, only last year most investors only painfully learnt that history is not the answer to the future, as things we may not have considered can always occur.

Financial advisors are very much in tune to the idea of gold being a good investment choice, but they too are weary of becoming over-dependent on it and rather use it as a safety net for their clients.

“The price movement in the last six months has been sideways and therefore while many speculators felt that the price of gold would drop and provide an opportune entry point into this asset class that, has not been the case. Also, with the weakening dollar, gold price has strengthened as well.

All in all, gold is looking to glitter all right and the third quarter, starting with magical September looks like a good time for investors to make sure their portfolios and lockers have a decent amount of gold to navigate this wave.

Sources: financialexpress.com