Public Expenditure – Solution to Financial Crisis and Recession

Public Expenditure is one of the ways that Government all over the world has resorted to solve the problem of Global Economic crisis. Fiscal Stimulus is another strategy adopted by many governments including India to over come the repercussion of Economic crisis. The main idea behid increasing the investments in Public Expenditure is to improve the status of Purchasing power of common man. Even wars which is a form of investing in Public Expenditure helped US, UK to reduce the severity of Economic slowdown that their country is facing. Any investments which leads to productive output or unproductive output as part of Public Expenditure is desired as it increases the demand for goods and services. The bale out plan by US Government to tune of $700 billion was an act of stimulant to improve the financial situation in their country.

Selection of Schemes to improve efficiency of Public Expenditure

The investment schemes that the government decides to invest upon as a part of Public Expenditure has to be carefully choosen. The investment should have well defined return which may be Long term or short term, but it is expected to go for project/schemes which has definite returns especially in Developing countries such as India which needs return on every rupee spent in order to sustain the growth to reach status of Developed Country.

The schemes which is selected to impart impetus to provide soultion to fatal Economic slowdown is based on its capacity to drive the GDP of Country. Infrastructure is one of the schemes which has definite returns and it drives GDP of country to great extent, but the problem with it is that it has long gestation period. The empowerement of Public’s purchasing power takes a long time in this form of investment. Schemes such as Rural Employment schemes, Housing schemes have direct impact on laymen and have shorter gestation period so such schemes is favoured. The other way for judicious investment is to provide incentives to SME sector, Microfinance organization which is marching at a rapid rate to become a major contributor on nations GDP.

Fiscal Stimulus

Fiscal stimuls adopted at times of Great Depression is different from that of todays recession due to differnt methods involved in functionality of Governemnt. Government of India functions as a welfare state now where as US fucntioned as Liberal state during depression. Fiscal stimulus may be in form of reducing the direct taxes or it may be reduction in Indirect taxes such as Excise duties. Both of them tries to empower common mans purchasing power.

Source: The Hindu, January 19, 2009

Special Economic Zones and its role in Development of India

Special Economic Zones is the approach adopted by Governement to provide the needed thrust for overall Development of Nation. The ultimate objective of setting up Special Economic Zones is to make our country self-sustained in all areas such as Infrastructure, Science and Technology, Manufacturing, Communication, Education. Stimulating the process of Industrialization through SEZ will help India emerge as a Developed Nation by 2020.

Industrialization should create employment opportunities to counter-act increasing unemployment problem, which happens to be a major threat for emergence of India as a developed Nation by 2020. Our Economy largely depends on Industrialization process for it to sustain increasing population.

Now moving to other aspect of SEZ where it is considered to be threat to Agricultural Population and an important cause of Environmental Pollution. It is at this point that Advancement in Science and Technology comes into picture. Government should take steps to promote Research&Development Activities in area of prevention of Environmental Hazards due to Industrialization and in developing Techniques that yield high outputs for a given fixed part of Agricultural Land. Industrialization is a must needed thrust for nation like India which is on its development path and without which the process to attain the status of Developed Nation by India would lose its dynamism. Government should take a balanced approach as “Agricultural Sector, Environmental Pollution” are equally important as that of Industrialization.

Source: The Hindu, December 21, 2008

China to Dominate Outsourcing Sector

Global Recession is playing a major role in the evolution of Outsouring sector. According to research conducted by Professor Arie Y.Lewing from Centre for International Business Education and Research (CIBER), Offshoring activity is witnessing a prominent change. Companies in order to cut down their cost at the time of Worst Economic crisis will ultimately go the way of Outsourcing. Though companies perceive it as a form of cost-cutting tool they perceive it as important Business strategy.

With Barack Obama to be soon taking charge of Presidentship, this sector may undergo lot many changes in the wake of US Subprime Mortgage crisis.

China will be a dominant factor in Outsourcing business due to their edge in Product Development area which is the area where 50% offshoring is carried in 2008. Companies perceive China as best Offshoring place because of their Industrial Advancement. Though China is not perceived to dominate because of lack of English speaking skills in theri working population, the above reason overthrows this factor to favour China.

According to survey, clients in US are seeking more cost-reduction which affects Indian Outsourcing Industries which has relatively less share in “Product Development” area compared to China. Due to some clients seeking Financial support, Indian Outsourcing companies have more financial constraints at this juncture.

SME and Globalization

Topic: Small and Medium Enterprises

The major characteristic’s that SME has to possess inorder to reach Global Stage as perceived by many Leading Business Consultants, Managers are:

1) Entrepreneurial drive
2) Shared purpose
3) Expansion plans
4) Allocation of Limited Resources

An Entrepreneur of Small and Medium Scale Enterprises has to have strong passion to take company at the Global Level. He also has to induce the spirit within himself to his fellow men too. He has to sustain the positive energy throughout the expansion plan and also after post-expansion situation. He should never let his spirits go down at any point of time even in the worst phase. Some of the past SME’s have turned out to be best Operating Multinational Companies at present mainly because of the Entrepreneurs vision to take the Enterprise to greater heights.

All the subsidiaries of an Organisation should work as one coherent bundle in order to achieve the company’s objective. They should share common purpose and work as a single unit to achive this purpose. The purpose or objective should be reviewed at regular intervals as the company’s status changes and it should be manipulated to meet the changing requirements. Tata Group stands as a wonderful example who have achieved great success in the corporate Sector by sharing common values and achieving it by working as single entity.

As perceived by many, Expansion plans are not dictated by the Company’s Administrative and Management unit but by the Competitive Business World. Entry of Business at Global Level largely depends on the necessity of the Manufactured prouduct or services delivered by the company. Inorder for SME to carry its operation at Global level, Entrepreneur has to basically identify the scope of product or services in the market and has to constantly keep in touch with market situation and find suitable time to take it to higher level. He has to get the best people involved in the pre-Expansion plans and Post-Expansion plans to ensure that expansion is taking place at the right pace and in a proper manner.

One of the major tasks that define the Entrepreneurs ability to handle the situation is the allocation of limited Resources to gain maximum benefit while achieving best efficieny possible. The key to taking sme to Global stage largely depends on this factor to large extent.

All of these factors should operate with great synergy between them where ever necessary and finally yield Profit for the organisation which happens to be the main motive for Entrepreneurs to take their Organisation to Global Level.

Source: Economic Times, November 25, 2008

India’s GDP growth rate to go down by 2%

Topic: India’s GDP

According to recent analysis of Indian Economic status, one of the preferred or favoured measure of Economic Development, Gross Domestic Product (GDP) is estimated to fall by 2% in the 08-09. This fall in GDP is said to have direct impact on two major Economic measure firstly Household Income and second Per Capita Income (PCI).

As a result of 2% fall in GDP, in 2008-09 the reduction in Household Income would be to tune of Rs. 3200 (approx) and in 2009-10 it is predicted to reach Rs 7800 (approx). The loss in Per Capita Income is Rs 650 and Rs 1500 (approx) respectively in  2008-09 and 2009-10.

In reality, the 2% decrease in GDP is the difference between the best and worst case GDP Growth rate predicted by major Financial Research Organisation such as Centre for Monitoring Indian Economy (CMIE) and Goldman Sachs. Goldman Sachs predicted the lowest GDP growth rate for 2 consecutive years 2008-09 and 2009-10 to be around 5-7% while CMIE predicted highest GDP growth rate of around 8%.

Source: Economic Times, November 13, 2008

India’s Telelcom Sector undergoing major Changes due to Merger and Acquisition (M&A) Policy

Topic: India’s Telelcom Sector

NTT DoCoMo, Japan’s largest mobile operator as a part of its Strategic pact with Tata Group has decided to take up 26% stake in Tata Teleservices (TTSL) which is worth $2.7 billion. Tata Teleservices is the 6th largest operator in India. With this strategic pact that DoCoMo has pursued, it has been able to enter the worlds fastest growing Telecom Market. Tata Teleservices has a subscriber base of 30 million with its operation mainly concentrated in Maharashtra and Goa. The major stakeholders in TTSL are Tata Sons (45%) and Tata group companies. This deal with DoCoMo values TTSL at $10.4 billion, with each subscriber valued at $346. Bharati Airtel, India’s largest Telecom giant is valued at $24.3 billion.

Source: Economic Times, November 13, 2008

Banks in Europe also under Sub-prime Crisis effect after US

Topic: Mortgage Subprime Crisis

The governments are striving hard in Europe particularly of Germany, Britain, Belgium, where the effect is miserable due to bad Real Estate transactions that have undergone in past. The effect of huge package of $700 billion by US Federal Reserves and Citi group taking up Wachovia Corp, the fourth largest US bank made the governments of Europe to take stern action preventing devastating Financial effects.

To reduce the negative outcomes, which is worse compared to the Great Depression of 1930’s, the European governments have taken stake in Fortis, the biggest private employer in Belgium upto $16.4 billion. The German Government agreed to provide 35 billion euros to fund Hypo Real Estate to bring it back from the brink of disaster.

The Britain Government bought up 50 billion pounds of loans, mostly mortgages from Bradford & Bingley.

Source: DeccanHerald, September 30

Mortgage Crisis effect on Merrill Lynch, Lehman Brothers

Topic: Mortgage Crisis

The repercussions of Mortgage crisis is devastating. The ill-effects is slowly moving into the Financial world. The day would not be too far when the negative output spreads all over the world affecting every aspects of the functioning of the financial world. Two of the major Financial Institutions facing the heat of Mortgage crisis is Merrill Lynch and Lehman Brothers.

The main reason for this fall is considered to be bad Mortgage Finance and Real estate Investments.

Merrill Lynch which was worth $100 billion last year is now taken over by Bank of America for $50 billion. This act of Merrill Lynch is considered to avert the huge financial losses that they have been facing. Lehman Brothers unable to find a company which could take over them has chosen the path of  Liquidation to avoid the huge Financial loss. According to leading Economists and other financial Institutions these two events would greatly affect the American Finance sector in a negative manner. With Lehman Brothers chosing the path of Liquidation, the Indian Stock market faced a severe downward movement losing nearly
Rs 2000 crores.

Another event which is expected to have ever lasting effect in American Finance sector is American Institutional Group a major Insurance Company seeking $40 billion from Federal reserve to sustain the losses from the credit crisis.

Bollywood turning out to be hot destination for Investment

Topic: Bollywood turning out to be hot destination for Investment

Multinational Companies are pooling in huge investments in Bollywood on account of better Return on Investments. They believe that there is a huge market potential in Bollywood that needs to be harnessed. The major Multinational Companies who are turning towards Bollywood are Tata Groups, Mahindra and Mahindra, Moser Baer and Ranbaxy.

“Mumbai Chaka Chak” happens to be the first venture for Mahindra and Mahindra media venture company. According to its CEO Entertainment Industry happens to be a hot spot for destination in the coming years. He feels that the Industry is in an Expansion state which happens to be a good sign for Investors in the Corporate sector. Bollywood’d present worth is $2.1 billion and is expected to reach $3.9 billion by 2011.

The key player who has already capitalized on this huge Business is Anil Dhirubai Ambani Group who have already bought Adlabs. More and more people are raising funds to invest in Entertainment sector to get a part of this rising profit. The corporates are trying only small and medium budget films at first to get a feel of the necessities for them to survive in this sector.

Source: The Hindu, September 11, 2008

CHROME v/s Internet Explorer

Topic: CHROME v/s Internet Explorer

Google’s recent free Web-browser ‘CHROME’, according to its officials happens to be more superior than Microsofts Internet Explorer and Firefox browser. Google feels that with the increase in number of internet users, there is a great scope for scalability of its product. This web-browser can also be adopted in mobile phones to provide internet access to mobile users. This feature has brought about increase in the number who comes in contact with Web advertising, due to Mobile user community. This is a huge boost to Google’s lead in Web Advertising. Online search and Web Advertising happens to be the bone of contention for Microsoft and Google. Google has been competing with Microsoft in the areas of presentation software, e-mail software by providing a free or low cost effective packages. Until now Google has been backing Firefox browser which is also open source but due to the Introduction of CHROME, the situation has changed which implies an additional competitior for Internet Explorer.

In reply to Google’s CHROME, the official in Microsoft replied by saying that User friendly nature provided by Internet Explorer 8 along with the Security features offers a high resistance to any Web-browser.

Source: The Hindu, Newscape, September 3, 2008.