Monday, October 17, 2011

Friday, September 3, 2010

New U.S. Visa Fees is the change only to be criticized or can we see anything more coming up soon?

The increased H1-B us visa fee would have had some eyebrows raised but the question to be thought and asked is if this was a major issue pertaining and needing some attention.

Every year thousands of Indians visit US(only with respect to US), for a normal visa the fee ranges till 10K INR and that’s for all one application which if rejected will need a reapplication, mostly if you are a tourist there are no chances of rejection but in most of the student visas which are for longer duration and the one which are for temporary work force ( staff sent by Indian countries to US for temporary period) there are many rejections. Every rejection earns the US government some more dollars.

However the H1-B visas have always been considered more important from the point of Indians who eyed them during the brain drain years and since then have always been eyed upon.

After the recent change in the visa fee due to Schumer border security bill in US one will have to shell away more approximately more of about US$2000 per visa ie about INR 92000.

What is to be looked upon is the direct and indirect impact of this bill on Indians, Indian firms and any kind of employment drawbacks.
  • The majority of the individuals who apply for H1-B visa are students and those always have a choice of applying in student visas.
  • Majority of the Indian firms who send there employees on a temporary period abroad are the ones who apply for H1-B visas however the percentage of these is incomparable to others. The reason why they send there people is simply based on the concept of high profit earnings (i.e. all IT companies charge there counter parts in US on a monthly basis for the service they provide on the other hand the Indian employee is normally paid on a daily fixed expense+ Indian salary or only on daily expenses abroad basis, the net difference is simple profit made in body shopping)        
  •  As we are taking about big corporations whose reason to send an employee and earn over per  head   is  more than mere fee H1-B despite the fact it will add to the cost it will make no difference to the number of people sent by these firms abroad.
  •  Employment Drawbacks: if and only if one would not have any prospects of future earnings they would drop a plan to avail H1-B and as there is no difference made in the number of visas allowed it makes no difference to the overall employment opportunity in US on part time or full time basis.

So after reading all of this the questions still remains same , why is a policy decision hyped so much when it makes no difference to the overall economic situation of a country except for the few thousand dollars surplus(which sound like peanuts in front of the overall reaction).

Or is this just the first step for the change and we can expect more change in the coming days. Looking at the present scenario the only option US seem to be having is generation of employment and creating more opportunity for employment and any changes made there could not only hurt US corporate profits but also Indian companies and overall employment scenario in India.

Thursday, August 12, 2010

Limited Licenses to new banks in private sector

Recently, RBI released a discussion paper on Entry of new banks in the Private sector. This discussion paper is mainly aimed at inviting the feedback and suggestions from the stakeholders, RBI would set up comprehensive guidelines for licensing of new banks.

On the following aspects in the Discussion paper RBI invites suggestions:
Minimum capital requirements for new banks and promoters contribution
Minimum and maximum caps on promoter shareholding and other shareholders
Foreign shareholding in the new banks
Whether industrial and business houses could be allowed to promote banks
Should Non-Banking Financial Companies be allowed conversion into banks or to promote a bank
Business model for the new banks (source. RBI website)

Why this step???
According to the discussion paper, RBI is considering this approach as larger number of banks would foster competition, reduce costs and improve the quality of service. It would promote financial inclusion and ultimately support inclusive economic growth, which is a key focus public policy.
For the discussion paper go to the link:

Sunday, August 8, 2010

Common wealth. What is more uncommon about it, the expenses, the speculations or the reactions?

Any event which is so big in itself  could not only add to the existing grwoth of  a developing nation like India but helps in generating more employment and other benefits . The Common wealth games are contributing to the livelihood of almost 300000 people (WSJ) employed in infrastructure and  other 200000 involved in services.

We know that the people employed in infrastructure would no longer will be working after the completion of the jobs but they have been involved since 2003 so lets account there presence till Oct-2010 and look at the future events taking place.

The stadiums might not be reused, but the equipments hired would be paid for, the stadiums would have tickets contributing towards their fixed cost (contribution), the roads being used and hence value for the money, the visitors coming in the country would stay in hotels (spend )and involve in other shopping around the town.

The basic economics suggest that any input by government favors a multiplier effect on the over all economy hence pump the economy with jobs and money. In a country like India the government investments still do not produce crowding out effect(as in case of developed nations) as in India  the private players  would still have lot of scope to take part.

It’s been estimated that a government expense in India results in a multiplier effect of approximately 1.8(WSJ). We know that after the approx 10000 millions expenses so far and over all revenues and expenditures to touch 2 billion approximately, the net multiplier will be approximately 4billion.

There are always possibilities of leakages in a system and so is the case of common wealth games and despite the uncommon large leakages happened what could possibly be done is manage the large event coming up not only for pride but also for the growth of the economy.

India won the bid to conduct an even which is so large and after having spent so many crores and expecting more to be spent are we looking back to withdraw it? Debate over it? or find a solution?

Wednesday, July 28, 2010

Tightening Monetary Policy: Repo and Reverse Repo

It was impending and is not taken as a surprise…when on 27th July 2010, RBI Governor, D. Subbarao announced the increase in Repo and Reverse Repo rates by 25 and 50 basis points respectively, making it to 5.75% and 4.5%. The hike in policy rates is done keeping in mind the food and non food inflation which is still in double digit at glaring 10.4%.However it is expected that monsoon will moderate the food prices and will help the inflation rate to come down. As a part of monetary tightening policy, increase in the interest rates will make the credit dearer, reduce the spending, thereby tightening the liquidity in the market. Apart from this, there is also narrowing of LAF (Liquidity Adjustment Facility) corridor to 125 bps.

LAF can be simply defined as gap between the repo and reverse repo rate incorporated in 2000.The broad objectives of LAF are:

• To give RBI greater flexibility in determining both the quantum of adjustment as also the rates by responding to the system on a daily basis.
• To help RBI ensure that the injected funds are being used to fund day-to-day liquidity mismatches and not to finance more permanent assets.
• To help RBI set a corridor for short-term rates, which should ideally be governed by the reverse-repo (top band), and repo (lower band) rates. This would impart greater stability in the markets.

The exact quantum of liquidity to be absorbed or injected and the accompanying repo and reverse repo rates are determined after taking into consideration, the liquidity conditions in the market, the interest rate situation and the stance of monetary policy. The decisions are based on a numerous factors including net inflows and outflows on account of forex operations, current account balances of the banks against the CRR requirements, open market operations, redemption of loans and coupon payments, announcement of new issues by the government, un-drawn liquidity support on account of export refinance, collateralized lending facility to banks.
D. Subbarao, in the disclosure also talked about the LAF to be narrowed to 125 bps thereby reducing the volatility.

However, the change in the rates had empirically no impact on the growing sectors, i.e auto and real estate immediately. It may be because the hike was an expected event or it may be just a short phenomenon.
The question which becomes pertinent here is the impact of hikes in the long run on the growth sectors and on the inflation. It is also expected that deposit and lending rates are next on the list. What will be its impact?

Sunday, July 18, 2010

Lending policies is there any safe way out? Liberalized or conservatism which view do you hold or is there any third way out?

The world seems to be astonished looking at India, a country which was popular for snake charmers and elephants in west is in news but for all the new reasons. From the terminology of “outsourced” synonymous to “Bangalored” in world, to financial shock observer India is leading the world for its policies and conservative approach.

Some day we blamed public sector banks for there hundreds of documentation procedures but today we look at them proudly and say” This is called banking”. When United States largest banks were in soup we had State Bank of India having its revenues exceeding its previous year. When People had serious doubts about banks like CITI Bank in India we even had private players like HDFC being not affected.

The Basel committee on banking supervision which consists of 27 countries seems to be following the same path of Indian Banking system with its new recommendations. The recommendations would be to thicken capital buffers, hold more liquid and cut down on leverage. This means improving on Cash Reserves (Like Indian CRR) and Capital adequacy ratio (CAR)will become mandatory for all the banks in the 27 nations at least.

The reason of the policy is simple, to avoid any other financial crisis in the future as was last time(mostly because of excessive liberal lending policies). Now when we are talking about capital account convertibility in India the world seems to be moving our way towards a more conservatism.

Liberalized policies or conservatism? One recession and we seem to neglect the growth created by the liberal lending policies, is the solution right or is there any other way around? Can we have a standard lending policies promoting growth?

Monday, July 12, 2010

Is Inflation problem India-Specific?????????

The year-end inflation figures as given from CIA Fact Book for India are 8.3% (2008) & 10.9% (2009), respectively. This year we have seen double digit inflation figures with WPI being at around 11 % in March 2010. Strong demand, supply constraints, rise in oil prices all are set to pressurize the Indian Government while making economic policies.

As recently we saw central bank’s initiative to tame inflation by shifting the BPLR system to the base rate system in which credit could not be lent to anyone at a rate below the base rate. Sure enough, this way of contracting the money supply help in taming inflation as the interest rate would be transmitted to the end-consumer in this way & hence would curb their spending thereby reducing their demand, & hence control the supply led inflation.

But the issue of concern is that is this inflation problem India-specific or is the same with other developing economies as well.

"This time around, inflation does appear to be an India-specific phenomenon, as there are no global factors at play as was the case during 2008," said Mr. Saumitra Chaudhuri, Member of the Planning Commission.

The question to ponder over is that is the RBI’s measure only sufficient to control inflation or we need to do something over our aggregate supply. Well, in the short-run, it would be impossible to increase our aggregate supply because it will take some time to start new plants and all. In the short-run, contracting money supply is the measure while in long run, focus should be towards improving the supply side.

When we see in developing economies like BRICs nations, we see that unlike India & China, Russia’s inflation has declined considerably. The reason may be attributed perhaps to the fact that India & China are already working at nearly full capacities & hence growing demand in these economies is further causing the inflationary pressures to rise.

What is your opinion from India’s perspective????? Is inflation problem India-specific????Are we running at nearly full capacities????Is RBI’s step sufficient to tame inflation?????