BSE Sensex - The Capital Market Index of India

Till the decade of eighties, there was no measure or scale that could precisely measure the various ups and downs in the Indian stock market. BSE, in 1986, came out with a Stock Index-SENSEX- that subsequently became the barometer of the Indian stock market.The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE National Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five major stock exchanges in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE National Index was renamed BSE-100 Index from October 14, 1996 and since then, it is being calculated taking into consideration only the prices of stocks listed at BSE. BSE launched the dollar-linked version of BSE-100 index on May 22, 2006.
With a view to provide a better representation of the increasing number of listed companies, larger market capitalization and the new industry sectors, BSE launched on 27th May, 1994 two new index series viz., the 'BSE-200' and the 'DOLLEX-200'. Since then, BSE has come a long way in attuning itself to the varied needs of investors and market participants. In order to fulfill the need for still broader, segment-specific and sector-specific indices, BSE has continuously been increasing the range of its indices. BSE-500 Index and 5 sectoral indices were launched in 1999. In 2001, BSE launched BSE-PSU Index, DOLLEX-30 and the country's first free-float based index - the BSE TECk Index. The values of all BSE indices are updated every 15 seconds during market hours and displayed through the BOLT system, BSE website and news wire agencies.All BSE Indices are reviewed periodically by the BSE Index Committee. This Committee which comprises eminent independent finance professionals frames the broad policy guidelines for the development and maintenance of all BSE indices.
SENSEX, first compiled in 1986, was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors. The base year of SENSEX was taken as 1978-79. SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization methodology. The "free-float market capitalization-weighted" methodology is a widely followed index construction methodology on which majority of global equity indices are based; all major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float methodology. Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market.
SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds.
Dollex-30BSE also calculates a dollar-linked version of SENSEX and historical values of this index are available since its inception. BSE introduced the new index series called 'BSE Mid-Cap' index and 'BSE Small-Cap' index to track the performance of companies with relatively smaller market capitalization.BSE-500 Index - represents more than 93% of the listed universe. Companies with large market capitalization bias the movement of BSE-500 index. This necessitated construction of a separate indicator to capture the trend in companies with lower market capitalization. Over the years, BSE Mid-Cap and BSE Small-Cap indices have proven to be a great utility to the investing community

(Thanks to Bombay Stock Exchange Ltd., Mumbai)

Agriculture in India - The subsistance sector?

Agriculture is the largest economic sector and plays a significant role in the overall socio-economic development of India. Agriculture is the major source of income for about three-fourths of India's populations who live in villages. Agriculture is not only an important occupation of the people, but also a way of life, culture and custom. Most of the Indian customs and festivals are observed in consonance with agriculture seasons, activities and products. From Lewis's balanced growth model, we know that if supply of good to the growing economy cannot catch up with the demand of food, an economy has to spent a large amount of money to import food to feed the labors and have reduce the accumulation of capital. As indicated by J. Mellow: “It is in practice and in concept that it is possible for the agricultural sector to provide new productivity!" The agricultural sector also provides "investable surplus" and tax revenue to other expending sectors. The excess supply of labors in the LDCs reduces the bargaining power of the labors. As a result, their wages are assumed to be constant. Sustained growth in agricultural sector is necessary to enhance the rural livelihoods by increasing on-farm income and stimulating off-farm income. The importance of agriculture in the socio-economic fabric of India can be realized from the fact that the livelihood of majority of the country’s population depends on agriculture. The agriculture sector contributes only about 18 per cent of the total Gross Domestic Product (GDP) and 9.9% of exports, with more than 60% population dependence, resulting in low per capita income in the farm sector. A huge number of nearly 700 million people comprising nearly 125 million families continue to be engaged in agriculture and dependent on agricultural land for their livelihood. Indian agriculture has witnessed significant transformation over the past few decades. Liberalization of agricultural trade has resulted in increased globalization of Indian agriculture. The changes range from new entrants into the sector to new and improved technologies, to farming becoming more mechanized, to weather, soil and environmental changes, to new markets and demand, and most importantly to agriculture evolving from just a way of life to a full-fledged business — agribusiness. The reasons for these changes are also wider from the pace of the so called globalization and there by inter linking of economies, to the growth of population and the scarcity of food availability in the economy. These changes have unfortunately not been accompanied by changes on the institutional and policy front. Liberalization is not just withdrawal of the state from economic activities, but creation of newer forms of alternate organizations which enable the country’s agriculture and industry to face competition in the international market. Globalization raises many challenges and opportunities to the agricultural sector. Agriculture globalization has the potential to transform the subsistence agriculture of India into a commercialized one.
Despite India’s rapid economic development, over 70% of the population still lives in rural areas. Agriculture is the key employer with around 60% of the labor force, down from 70% in the early nineties. This compares with 44% in China (2002) and 21 % in Brazil (2004). In 2000-01, 67% of work force were depending on agricultural sector and contributed about 27% of national income. The decline in agriculture in the labor force has not kept pace with its decline in the economy. As shown in the following table, still about 60% of work force is depending on agriculture sector as on 2006-07, but the contribution of this sector to the real GDP of India had declined to 18%. This stickiness has been attributed to low labor mobility and slow growth in productivity in agriculture. If we compare the sectoral contributions of GDP in India between 2006-07 and 2000-01, we would be in a position to understand how quickly the contributions primary sector is dwindling. In 2000-01, about 67% of total work force was depending on agricultural sector and contributed about 27% of National income. But if we look at the position in 2006-07, the contribution of primary sector came down to 18% and still about 60% of population is depending on this sector. If we look the same with services sector, we can observe a different picture. In the tertiary sector, about 20% of work force were depending and were contributing about 50% of GDP in 2000-01. The contribution of services sector increased to 53% in 2006-07 and the dependent workforce also increased to 25% of total workforce in India. In other words, more than half of the income generating in the economy is accruing in the hands of less than one fourth of the workforce of the country. This is why the intensity of inequality in the country is increasing tremendously. In this situation can we say that the hyper economic growth that we are achieving is ‘inclusive’? Is this rapid growth of national income is generating purchasing power for each and every citizen of the country? Or at least to majority of the population of the country? How we can break this deadlock? If we are not rupturing this stickiness of growth process, where would be the target of existing growth policies are finally coming to rest? Look at the rate of agricultural growth through the introduction of various plans in India. From the following figure we can understand the path of both agricultural GDP growth and General GDP growth. For the simplicity of analysis the rates we took only from 5th plan onwards. Clearly from the 8th plan onwards, both the rates are showing opposite direction. During the 8th plan only we had introduced the new economic policy in India. Does that mean the new economic policy is aggravating the situation? Or, are we deliberately undermining the importance of agriculture for the sake of achieving higher rate of growth, thereby trying to achieve higher economic status among the world countries? Ok, the approach is well and good for the country’s image and which will definitely help us to boost up out foreign investments. But at the same time we should give more importance to the sustainability of the economy by including, all sections in the growth process, than ballooning the growth process within a short span of time which may become fatal as same as what had happened in South East Asian countries during the mid 1990’s. Sixty years after Independence and 10 Five-Year Plans later, Indian agriculture is still at the crossroads
Gross Capital formation in agriculture as a proportion to total capital formation has shown a continuous decline. This declining share was mainly due to the stagnation or fall in public investment in irrigation, particularly since the mid-1990s. If we look at the composition of investment in agriculture in India, we have generally been given to understand that government investment was significant in boosting growth in agriculture. Moreover, the role of government was not only to raise investment but also induce private investment in agriculture. Since 1980-81, there has been some buoyancy in private investment in agriculture. The rising trend in private investment probably reflects the improved incentives for agriculture and favorable change in the trade policy (Datt & Sundaram; 2007). But the important aspect is the private investment in agriculture is almost completely concentrated in the northern regions of the country. If we closely look at the share of agriculture in total gross capital formation in India, we can observe the very minimal capital between 5 to 7 percentage only is going in a sector which is depending on about 60% of total population of the country. Another major worrying aspect is the share of agriculture in total gross capital formation is on a declining trend

It is expected that “In every progressive economy, there has been a steady shift of employment and investment from the essential primary activities ….. to secondary activities of all kinds and to a still greater extent into tertiary production.” (A G B Fisher). As we stated elsewhere in the independent India there has been a tremendous shift of GDP in favor of tertiary sector. But the pertinent question is, did this structural shift in GDP share has an impact on the employment pattern or distribution of workforce in India? Interestingly the fall in growth of agricultural employment has not been accompanied by a rise in employment opportunities in the non agricultural sector. On the contrary, withdrawal of state support and reductions in state expenditure has made it difficult for the labor declared surplus in agriculture, to find alternative employment. In regions where agricultural incomes have crossed a minimum threshold, further increase in agricultural output is accompanied by labor displacement rather than greater labor absorption. Recent advances in agricultural technology have been more labor-saving, thereby making life more difficult for agricultural laborers who are looking for work. Changes in cropping pattern have also affected agricultural employment adversely. Not only has there been a shift away more sowing food grains to those of commercial crops, and to horticulture and floriculture, which require much less labor, many regions have simultaneously witnessed a shift away from crops which provided employment all the year round to crops which at best offered seasonal employment (Mitra: 2003). In the name of liberalization there is an increasing tendency to use labor-displacing technology in agriculture; Use of expensive and monetized inputs and a near non-availability of agricultural and other rural credit facilities for the small farmers make the situation looks bleak for the agricultural population of India, where majority of farmers are small and depends on subsistence agriculture.

Will Chandrayan help India economically?

The Chandrayaan mission, at a time of economic belt-tightening, has sparked a national debate about whether a country with hundreds of millions of poor people can afford to play catch-up in the skies. We have to consider the costs for a [manned] moon mission. Even with our low costs it will be billions of dollars. You need a good reason to send someone to the moon for that amount. Yes there is not only good but a sound and strong reasoning for moon mission in India. For achieving a faster rate of growth in the economy uninterrupted supply of energy is a must. As everybody knows, India is now an energy deficient country in terms of its urge for developing the economy into the status of a developed country. The Chandrayaan mission will help India economically. One of India's aims in reaching the moon is the possibility of harvesting helium 3, a key fuel for nuclear fusion. Although fusion is not commercially viable today, scientists say it one day will be, and that once it is a fuel supply will become a problem, as the Earth is believed to have only 15 tonnes of helium 3. The moon is thought to contain up to 5m tonnes. When we develop a technology, initially the cost may be higher. But eventually we can achieve cost effectiveness through the make use of that cutting edge technology. Madras Institute of Development Studies recently calculated that for every rupee spent on the space programme, two were generated in "indirect and direct returns". India is now in the elite club of few countries who has capability to launch satellites commercially. This capability will generate huge income for the economy in future.
Another angle of this question is, by showing the capability of achieving different high profile technologies by our own, sends a signal to the world economy that India has the power to lead the world countries in future. This will boost the confidence on India among the investors worldwide.

How does the cut in Repo rate affect the liquidity of Indian economy?

The RBI reduced its repo rate by 100 basis points with immediate effect, a move that will help lower interest rates and spur consumption to keep the economy up beating. With this the repurchase rate will stand reduced at eight per cent now. The central bank decision has come at the right time as the economy has begun to come under the pressure of global slowdown. The sharp 100 basis point cut in repo with immediate effect is seen as a clear signal to banks to reduce interest rates. The repo is the rate at which the RBI lends money to banks against the collateral of government securities. This is the first time in five years that the RBI has cut the repo rate, the last being in August 2003 by 0.5 percentage point to 6 per cent. In fact, RBI had raised short-term key rates several times in the past three years to control the rising inflation. The head of a public sector bank pointed out that before affecting a lending rate cut, banks will have to lower deposit rates, which have risen substantially in the last three months.

For the middle class, the big news is the home loan rate cuts—tentative at first, but bound to snowball. The government also held out the likelihood of a major expenditure boost to spur demand across sectors. Since RBI will announce its half-yearly credit policy soon, another tranche of rate cut is on the cards.

This could translate into lower interest rates on house loans, car loans and other consumer loans, bringing cheer to retail borrowers, consumers and businesses.
Industry executives expressed scepticism on immediate relief because the banking system is facing liquidity crunch forcing lenders to push rates higher. To worsen the situation, an anticipated downturn in economic growth exacerbated the cautiousness. The problem is that liquidity is not being sustained in the market. The RBI is infusing liquidity by sucking out rupees. It's not clear if this would improve liquidity. In normal circumstances, the central bank measures, including a cut in the cash reserve ratio and followed by a repo rate cut, would have boosted liquidity and reduced interest rates immediately, but RBI is tackling several variables including controlling inflation, infusing liquidity and ensuring the rupee doesn't depreciate further, which works at cross purposes.

What is the link between the repo rate and the bank rate? The repo rate is the rate at which the RBI borrows from the banks, while the bank rate is the rate at which the banks borrow from the RBI. Naturally, then, if the RBI cuts the repo rate, it may not be long before it cuts the bank rate as well.
A cut in the bank rate could set off a series of rate reduction on fixed-income instruments. Banks, for instance, will lower the interest rate on their fixed-deposits. There could also be a small reduction in the loan rates they offer companies.
The repo rate has a direct bearing on the overnight or the call money market; this is the market where banks and primary dealers borrow money for one day to, typically, 14 days.
How does repo rate relate to the call rate? Repo rate typically acts as a floor rate for the call rate. If not, banks would make arbitrage profits. How? Suppose call rate is lower than repo rate, banks will borrow on call (if there are lenders) at a lower rate, and lend on repos to the RBI at a higher rate. As repo acts as a floor, a cut in repo rate will also lower call rates. And this would depress the returns from money market mutual funds that invest (lend) in the call market.

The central bank had cut CRR by 250 basis points from the fortnight beginning October 11, releasing Rs 1,00,000 crore into the banking system and relaxed the Statutory Liquidity Ratio by 0.5 percentage point enabling banks to borrow more funds from the apex bank. The RBI had also granted a Rs 20,000 crore special liquidity facility to mutual funds to ease their redemption pressure. In short over the last week, RBI and the central government infused Rs 1.45 lakh crore in the system through a slew of measures. These measures seem to have led to a condition of excess liquidity in the system. With this excess liquidity, the banking system of the country can regain its lost confidence out of global slowdown. But we have to wait and see how the system reacts with these measures? Also we have to watch closely the inflation figures. Time and again, the country proved that its economy is strong and well controlled and can get away with any contagious effects from global financial problems.

Rich are getting richer and poor are getting poorer....?

In fact, the richest two percent of adults control more than half of the world's household wealth. In 2000, the wealthiest one percent of the world's adults owned 40 percent of its assets. The richest ten percent of adults controlled 85 percent of global wealth, according to a recent study by the United Nations University's World Institute for Development Economics Research in Helsinki. And if you look at just the richest one percent of households, the United States accounts for 40 percent of that. Another third is in Europe. And another third is in the rich Pacific-Asian region, Japan, Australia and so on. And the rest of the world has only about ten percent of the world's wealth. That actually includes today China, India, Latin America and Africa.

According to the World Bank, 1.1 billion of the world's 6.5-billion people live on less than a dollar a day. People in developed countries earn, on average, an annual per capita income of more than $17,000. Currently, the disparity between incomes in developing countries with respect to income in rich countries is 16 percent.

Most analysts agree that some of the reasons for the disparities in wealth and income are historical. Other causes include political, cultural and economic dynamics, such as high productivity levels in industrialized countries, which typically lead to higher per capita incomes. Secondarily is the fact that different countries have different savings behaviors. In the United States, for example, families have accumulated a lot of wealth. They have very advanced financial markets. They have a well-developed housing market. But most countries in the world don't have financial markets. They don't have housing markets. So it's a combination of differences and income levels, plus the availability of savings instruments. That plays a big role.
Many economists agree that regardless of a country's savings rate, the poorest families need all of their income just to meet basic needs and are unlikely to save. In J M Keynes’s words, the marginal propensity to consume for the poor is very high. Some experts say globalization is helping narrow the gap as more and more people from poor countries seek better-paying jobs in the industrialized world. But the same technological advancement that creates some of these jobs also contributes to wealth and income disparities. Those who are capitalizing from the growing pie of globalization are that those have those who have skill and accessibility to the system. In other words rich people have enough means to be part of the changing developments in the world and getting richer again.

I am not of the opinion that the rich people are like that because they took money from everybody else. For the most part, the rich countries are rich because they had a particular history of industrial development. And the real question is how they can help the rest of the world go through that same process so that they too can become much better off, which in turn will help further the industrial development of rich countries in the form of sustainable markets elsewhere. But even if the gap between rich and poor countries begins to narrow, many experts warn that a bigger problem may be the widening income disparity within rich and poor countries themselves.

For example in India, Rich are getting richer and poor are becoming poorer! is now a common refrain in India in any discussion on economic reforms. Since 1991, India has undergone a great deal of liberalization internally andexternally. Many feel that the gains of this liberalization and globalization have not accrued to the poor mainly because of the knowledge gap.
Wealth amassed by Indian billionaires is estimated to be at $340.9 bn according to Forbes and is nearly 31% of GDP of India. The worth of billionaires in China is just 3% of GDP. The USA’s billionaires hold an equivalent of 11% of GDP of USA. The wealth of Indian billionaires has gone up may fold during last four years. Unequal distribution of Economic Freedom is at the basis of India's uneven development. The reason is simple; the areas in which the middle and upper classes make their living have seen the highest degree of liberalization, while the areas in which the poor earn their livelihood have seen the fewest reforms. Countries with high levels of economic freedom enjoy higher levels of prosperity and greater individual freedoms. Countries at the bottom of the index are often mired in poverty and governed by totalitarian regimes and have few individual rights or freedoms. As the higher level of economic freedom is sustained and the more rapid growth persists, poverty rates will fall.
The analogy also holds because money is like energy, in that it has to be conserved. "It's like a fluid that flows in interactions, it's not created or destroyed, only redistributed," says Yakovenko.

Nobel Laureates in Economics

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to 62 individuals since 1969. It is commonly referred to as the Nobel Prize in Economics. Since 2001, the monetary portion of the Prize in Economics has been 10 million swedish kronor. The following is the list of Nobel laureates in Economics.

In this year (2008) Paul Krugman won the prestigious Nobel Prize.

·2007 - Leonid Hurwicz, Eric S. Maskin, Roger B. Myerson
· 2006 - Edmund S. Phelps
· 2005 - Robert J. Aumann, Thomas C. Schelling
· 2004 - Finn E. Kydland, Edward C. Prescott
· 2003 - Robert F. Engle III, Clive W.J. Granger
· 2002 - Daniel Kahneman, Vernon L. Smith
· 2001 - George A. Akerlof, A. Michael Spence, Joseph E. Stiglitz
· 2000 - James J. Heckman, Daniel L. McFadden
· 1999 - Robert A. Mundell
· 1998 - Amartya Sen
· 1997 - Robert C. Merton, Myron S. Scholes
· 1996 - James A. Mirrlees, William Vickrey
· 1995 - Robert E. Lucas Jr.
· 1994 - John C. Harsanyi, John F. Nash Jr., Reinhard Selten
· 1993 - Robert W. Fogel, Douglass C. North
· 1992 - Gary S. Becker
· 1991 - Ronald H. Coase
· 1990 - Harry M. Markowitz, Merton H. Miller, William F. Sharpe
· 1989 - Trygve Haavelmo
· 1988 - Maurice Allais
· 1987 - Robert M. Solow
· 1986 - James M. Buchanan Jr.
· 1985 - Franco Modigliani
· 1984 - Richard Stone
· 1983 - Gerard Debreu
· 1982 - George J. Stigler
· 1981 - James Tobin
· 1980 - Lawrence R. Klein
· 1979 - Theodore W. Schultz, Sir Arthur Lewis
· 1978 - Herbert A. Simon
· 1977 - Bertil Ohlin, James E. Meade
· 1976 - Milton Friedman
· 1975 - Leonid Vitaliyevich Kantorovich, Tjalling C. Koopmans
· 1974 - Gunnar Myrdal, Friedrich August von Hayek
· 1973 - Wassily Leontief
· 1972 - John R. Hicks, Kenneth J. Arrow
· 1971 - Simon Kuznets
· 1970 - Paul A. Samuelson
· 1969 - Ragnar Frisch, Jan Tinbergen

Congratulations...... Prof. Paul Krugman for winning the Nobel Prize 2008

US economist Paul Krugman, a fierce critic of President George W. Bush's handling of the global financial crisis, on Monday won the 2008 Nobel Economics Prize.
The 55-year-old Princeton University professor, and a New York Times columnist, has worked intensely on the impact of free trade and globalisation, as well as the driving forces behind urbanisation, the Nobel citation said.
The Nobel Prize citation highlights two distinct but connected contributions: Mr. Krugman’s development of the “new trade theory” and his work on the “new economic geography.”
The Nobel committee hailed Krugman's economic approach "based on the premise that many goods and services can be produced more cheaply in long series, a concept generally known as economies of scale."
The theory shows that globalisation tends to increase pressure on urban living because specialisation sucks people into centres of concentration in which "regions become divided into a high-technology urbanised core and a less developed 'periphery'," the Nobel jury said.

Traditional trade theory assumes that differences between countries explain why some nations export agricultural products while others export industrial goods. Such a process holds out the prospect that some countries can improve their situations through complementarity.
He set out to explain why worldwide trade was dominated by a few countries that were similar to one another, and why a country might import the same kinds of goods it exported.
In his model, many companies sell similar goods with slight variations. These companies become more efficient at producing their goods as they sell more, and so they grow. Consumers like variety, and pick and choose goods from among these producers in different countries, enabling countries to continue exchanging similar products.

But Krugman's theory clarifies why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products.
In his latest book, "The Conscience of a Liberal," Krugman argues for "a new New Deal" by reducing inequality in the United States and expanding the social safety net first created through programmes initiated under Franklin D. Roosevelt in the 1930s.
In 1991, he received the John Bates Clark Medal, an award given every two years by the American Economic Association to an economist under 40. Mr. Krugman’s 1991 Journal of Political Economy paper, “Increasing Returns and Economic Geography,” is the first article that provides a clear, internally consistent mathematically rigorous framework for thinking simultaneously about trade and the location of people and firms across space. The model begins with the same basic elements as the new trade theory: monopolistic competition, scale economics, love of variety. To these elements Mr. Krugman adds free migration of workers across space and industries. Because workers are able to move, real wages equalize across space. People in New York City may be paid more, but they give some of that back in the form of higher housing prices. The paper provides economists with a clear framework that can make sense of where we all live. Firms and workers are pulled toward the same location to reduce transportation costs of shipping goods. For example, the garment industry located in New York City, in part because of the vast trade in textiles that was already moving through the city and because of the large number of customers already living in America’s largest city.

Congratulations to Krugman. Now that he's won the Nobel, I would appreciate it if he would get back to work and brainstorm a way out of the current global financial meltdown.

Are we confident enough to combat the contagious effects of Global Economic Crisis?

Widening financial problems in the United States and other European markets has affected even the most basic financial intermediation, with US authorities currently making great efforts to restore fully functioning markets. The changing international financial scenario has limited direct effect on India. But the implications global financial problems and exchange rate destabilization could result in a moderation of our exports. Moreover, heightened risk aversion could also impact pricing of assets. Indian banks do not have any direct exposure to sub-prime mortgages. The banking sector, through its overseas branches, has some exposure to distressed financial instruments and troubled financial institutions. The fundamentals of the Indian economy have been strong and continue to be strong. Our forex and money markets have been functioning in an orderly mannerBeing largely a domestic economy with exports including software at 17% of GDP, India is relatively insulated in comparison with most other economies.
While the impact on growth and exports can be quantified, the impact on currency and capital flows is not as clear. The reason is that despite India being a domestic-driven economy with strong macro fundamentals, in times of an increase in risk aversion, countries with twin deficits, inflation and political challenges tend to be viewed with caution. Possible measures include (1) further relaxation of norms on the capital account, both NRI and ECB guidelines, (2) a likely cut in the SLR given the continued buoyancy in both credit and deposits and consequent demand for government securities to meet statutory requirements, (3) possible relaxation of interest rates to pump more liquidity to the economy and (5) creating more economic confidence by careful implementation of strong fiscal policies.
This is not the time to panic. As we know our fundamentals are very strong and we do have a very good public sector as a backbone. Nervous Indian investors joined a global selloff with weak industrial output adding to the overall gloom. As a result, stocks crashed, with the Bombay Stock Exchange Sensitive Index recording its worst week in almost 18 years, reflecting an Asia-wide slide in stock prices. At the same time one should make use of the situation by procuring cheap shares of good companies right now.
The Reserve Bank of India's dramatic decision to by a further percentage point to 7.5 per cent had some soothing effect for a while when the index pared nearly half the early morning losses of over 1,000 points. This is the single-biggest cut since 2001. This measure could pump atleast Rs/- 25000 crores in to the economy and which will improves the liquidity situation of the country. But that clearly was not enough to allay fears that the deepening credit crisis will push the global economy into recession. The rupee, meanwhile, fell to a lifetime low of 49.26 against the dollar before recovering to close at 48.47. The rupee fell as foreign institutional investors pulled out money from stock markets amid the global financial turmoil. It recovered again due to RBI intervention and sale of the US currency by local banks. There could be a domestic liquidity problem if foreign institutional investors flee en masse and want to take out dollars in exchange for rupees, but the market stabilization bonds that the RBI had issued can be bought back in order to pump rupees into the system. In addition, the fact that India's banks are so well-capitalized, in comparison with both American and European banks, imparts its own stability to the system.....

Increased food production is not the solution for World Food Sarcity !!!

World hunger is extensive in spite of sufficient global food resources. Therefore increased food production is no solution. "The problem is that many people are too poor to buy readily available food". Therefore measures solving the poverty problem is what is required to solve the world hunger problem. But focusing narrowly on increasing production cannot alleviate hunger because it fails to alter the tightly concentrated distribution of economic power that determines who can buy the additional foodThe real problem is poverty. As the market responds to money and not to actual need, it can only work to eliminate hunger when purchasing power is widely dispersed

As the rural poor are increasingly pushed from land, they are less and less able to demand for food on the market. Promoting free trade to alleviate hunger has proven to be a failure. In most developing countries exports have boomed while hunger has continued unabated or actually worsened. The best example is India. The food grain production of the country had increased to around 220 million tonnes. The food godowns of the country are flooding with grains. But still 22% (offical figure) of the population is living below poverty line. Thousands of people are dying out of starvation. At the same time the offtake from the public distribution system is very low.
As the market responds to money and not to actual need, it can only work to eliminate hunger when purchasing power is widely dispersed
The world could feed itself if food policies were based on facts an not on myths as presently. The fact is that there is no scarcity of food. The real reason for the world hunger problem is poverty.
The worst-affected, predictably, are the low-income, food-deficit countries, mostly in sub-Saharan Africa, who face an unaffordable 25 per cent rise in their food bill in just one year.

Given high levels of exposure to world markets, food price increases directly affect purchasing power, increasing the incidence of poverty, as well as government expenditure and debt. A deteriorationof the terms of trade may destabilize the economy and hindereconomic growth.