Inflation and developing economy

As an economy develops the per capita income also increases. Benefits of the development start reaching the bottom of the economical structure. Their purchasing power and thus demand increases, this increases the price. Increase in the price pushes them to earn more. They become more efficient to earn more to meet their requirement. Hence contributes in the development. Inflation causes the development. According to a Times report, inflation had been used as the tool by the Latin American governments for the economical development.

When the inflation becomes higher, government starts spending more on curbing inflation than development works. Giving subsidized food to the poor usually controls food inflations, which costs more for the government. The central bank increases the lending rates, which in turn pressurizes the banks to push their products at higher interest rate. The growth slows down.

Most challenging problem in the developing economy arises when it faces the problem of wage-price-spiral. When the economy develops, the industries see prosperity the workers demand for higher wage. Higher wages increases the cost of the products. Hence the manufacturer and the service providers increase the price of the product. This in turn affects the society and again a demand for the higher wage. This cycle is called as wage-price-spiral. Presently Indian economy is facing this problem and central bank accepts it is very difficult control wage-price-spiral.

Moderate inflation is always good for the developing economy. But development should not be an excuse for the central government and central bank for its failure to curb the problematic inflation.

Inflation is the second nature of developing economy. But development should always be the first nature.

Jul 1: State Bank Day

You might have seen front page advertisements by State Bank of India in today's major news papers across the country. State Bank celebrates State Bank Day by doing remarkable community service every year on 1st Jul, this year 14000 branches of SBI donated 140000 fans to the schools. So what is this State Bank Day?

Intention of forming State Bank of India post independence was to make the formal banking and financial service reach the every corner of the country. Though SBI has grown far bigger than any private profit making banks, its basic intention was social banking. Imperial Bank of India was functioning as commercial and as well as central bank during the period of British rule in India. But our leaders felt there should be our own, state owned banking institution to make the financial services reach the every corner of the country. In the year 1955 Reserve Bank of India acquired the central bank functioning from Imperial Bank. Similarly to perform the commercial bank functioning the Imperial Bank of India was renamed as State Bank of India.

This major break through in the Indian banking industry was started with an parliament act in the year 1955. State Bank of India was given legal recognition by the provisions of the State Bank of India Act of 1955 which came into force from 1 July 1955. This parliament act enabled SBI to be considered as 'state' and the employees to be 'public servant' giving more responsibility in making the banking service reach the public. On that day SBI had 480 branches. Immediate requirement was to expand its presence to make reach banking service to every citizen. Now State Bank controls nearly quarter of the banking business in the country.

So the day on which the new era of the Banking Industry in India has started i.e. July 1st is celebrated by State Bank of India and its subsidiaries as State Bank Day.

Why Should Change the Movie Title Dandupalya? Why Not Name of the Village?

“Why can’t you change the name of your village as Florida?”

This could be one of the funniest ever sentence told by the court. This happened during the public interest litigation filed by the villagers of Dandupalya, a village in Hoskote, near Bangalore to change the name of the title of the Kannada film Dandupalya.

Villagers claimed that the movie Dandupalya, pictured the notorious gang from the village Danduplaya which involved in robbery and murder later sentenced to death, impacts the image of the village. They also informed the court that due to these few criminals from the village, the whole village has got bad name and the villagers are suffering. Youngsters from the village are not getting seats in the colleges. It has become difficult for the villagers to get married due to the notoriety of the gang identified with the name of their village Dandupalay. They claimed the movie will further worsen the situation.

 “Why can’t you change the name of your village as Florida,” a Division Bench comprising Chief Justice Vikramajit Sen and Justice B.V. Nagarathna observed in a lighter vein, The Hindu reported on 29 June 2012.

Madan Patel directed movie Nityanada is also facing title dispute raised by the supportersof self portrayed god-man Swami Nityananda and Nithyananda Dhyana Peetam. Next time I wish it could be Swami Nityanada to get his name changed to protect himself from the impact of the movie Nityananda.

Also read Pooja Gandhi Nude for Dandupalya(?)

Hidden Agenda of Sending Pranab to Rashtrapati Bhavan

Why  Pranab Mukharjee should become president of India? Sonia Gandhi has reasons:
 
The Corporate Pressure: Sonia Gandhi is always known to have good relationship with corporates since from Bofors deal. Few important decisions of Pranab Mukharjee made the eyes of corporate red. He introduced retroactive tax in the 2012-13 budget, with regard to capital gains tax payable to the government on transfer of Indian corporate assets through Vodafone-style M&A deals held abroad. This provision angered British Prime Minister Tony Blair, German Chancellor Angela Merkel and US Secretary of State Hillary Clinton had taken up the issue directly with Prime Minister Manmohan Singh. A report tells seven top US industry, trade and securities associations had sent written complaints against his 2012-13 budget to the US treasury secretary and secretary of state and wanted them to convey their concerns to the highest level of the UPA government. He was also keen in recovering the tax loss of Vodafone deal. So there was a corporate pressure to exit him from finance ministry to enjoy the loop holes of tax framework to enjoy the benefits of  tax heavens.


To make him exit from Finance Ministry: Sonia Gandhi was unhappy with Pranab Mukharjee for not convincing alleys in the recent decisions of finance ministry like the FDI in retail, foreign participation in pension fund management, foreign control in banking and insurance sectors and fuel price increase. A high inflation was seen during last couple of years leading to high interest rates which made industrial and development activities come down. This again resulted in a slow-down in FDI and FII inflows. So the prime minister and the UPA chairperson Sonia Gandhi were looking for the exit of Pranab Mukharjee from the finance ministry.

To decide the next prime minister: Yet another most important reason why Pranab Mukharjee should be the President. Definitely PM Mr Singh will make way for new face in prime minister's office in next general election. Pranab was a potential candidate after Singh. Congress does not have another unquestionable leader to replace Mr Singh as Pranab will be in Rashtrapati Bhavan. Rahul Gandhi's way to PMO will be clear now. Or it may be Sonia Gandhi, as Mr Kalam is not there to stop her from becoming PM.

What Happened to Subhiksha?

 Once a favorite model of retail success, now a study of financial failure

It was in 1996 that the idea of Subhiksha (prosperity in Sanskrit), organized retail services came to the mind of Subramanian, and IIT Madras and IIM Ahmedabad alumnus. He opened the first shop in Chennai in March 1997. By March 1999 there were 10 Subhiksha shops in Chennai. Its unique discounting model enraged the retail trade in Chennai

By 2000 Subhiksha grew to nearly 50 shops in Chennai retailing groceries and medicines. ICICI Venture's decision then to pick up a 10 per cent stake in Subhiksha for Rs 15 crore gave the retailer enhanced credibility in the market. This money was used to expand outside Chennai, into the rest of Tamil Nadu. By 2002-03, Subhiksha had 140 stores across 30 towns in Tamil Nadu. Sales grew steadily. Cash flows were reasonable and debt, at Rs 15 crore against the net worth of Rs 23 crore, was comfortable.

Tamil Nadu was not enough for the growth of Subhiksha. Subramanian wanted to expand it all over the nation. There was two choices- expand Subhiksha in one state by one and expand many states at a time. The subhiksha model proved to be successful. He choosed second option. Between late 2004 and early 2007, Rs 160 crore worth of equity was raised. That apart, a debt of Rs 220 crore and a bridge loan of Rs 125 crore (for pending raising of equity from capital markets) was arranged to fund the national rollout.

On an average, 60 to 70 stores were added in a month. The pace of rollout is evident from the fact that till September 2006, Subhiksha had a store count of just 160, but by March 2007 it had shot up to 670 and by March 2008 to 1,320. By September 2008, it was 1,650-in all 1,500 stores were added ih just 24 months. 2006-07 and 2007-08 Subhiksha doubled the stores, tripled revenues and almost quadrupled profits

At the time of tough retail competition with the entry of Reliance, Tata and Aditya Birla group into the field Subhiksha had become the country's largest mobile phone retailer with an annual turnover of Rs 1,000 crore. The performance of Subhiksha attracted the investors. Wipro Chairman Azim Premji, in March 2008, picked up the 10 per cent stake in Subhiksha that was offloaded by ICICI Venture for Rs 230 crore, pegging the company's valuation at Rs 2,300 crore.

That was the time for Subhiksha to capitalize Premji’s interest in the company. Company kept postponing the IPO. It did not want to dilute the shareholders interest. So it continued to raise money through debts. During September 2008, people lost their interest in share markets. There was a complete collapse of equity market. At the time when liquidity was tight, Subhiksha needed Rs 125 crore in cash to repay the loan.  It was due for Subhiksha to repay the bridge loan. The working capitals were diverted to rescue and expand Subhiksha with the hope of IPO in the confidence of success of the model. Working capital eroded. Many shops were closed as a rescue measure. Suppliers stopped supplying. Shops’ stands became empty. The security guards did not turned to the work. These all happened in less than 3 months. And finally in February 2009 there were not a single Subhiksha faced even cheque bounce case. Ajim Premji accused him for financial fraud. ICICI asked for detailed investigation of financial mismanagement. And he and his company became defaulter for over Rs 750 crore to 13 banks.

Probably, if IPO was done instead of postponement, equity could have been used to reduce the debt and Subhiksha would have survived.

Adopted from a case study in IGNOU MBA question paper.