The Business Economist

Head of the Department Prof. V.K Kaul Faculty Advisors : Editorial Board Prof. Rashmi Agrawal Prof.S.C. Aggarwal Prof. Surender Kumar Dr. Aradhna Aggarwal Dr. Deepa Saran Dr. Yamini Gupt Dr. A.G. Dastidar (Editor) President(BEA) Vipul Sonthalia Vice President Ankit Sharma The Editorial Board Rahul Kumar Dipanwita Das Mohit Budholia Deepak Vaibhav Garg Annual Convention Team Kunal Grover Shambhavi Sharma Sneha Sahai Rohit Dhangar Sushmita Malakar Akshita Prabhakar Sandeep Yadav Mohit Budholia Khagesh Batra

mbe
Master of Business Economics
Founded in 1973, the Department of Business Economics has established itself as one of Indias leading centre of excellence in business education and research. The Department pioneered business economics education in the country, with the Masters program in Business Economics. This course was patterned on a similar program run by the Harvard Business School and other leading business schools. Business Economics is essentially an application based interdisciplinary approach to business problems. Close cooperation with business and industry has been the key to the Departments continued success as it keeps reinve nting itself to keep pace with the times and to better suit the industry. One of the most important reasons for this has been its practical approach as against the more theoretical methods used by many institutes. The course has gained wide recognition and appreciation in the corporate world, as borne out by the quality of the recruiters visiting the college over the years. The list includes industry leaders like . The Department also administers Delhis University Bachelor Program in Business Economics at various colleges. It has also helped various universities to set up Business Economics Program at various levels. The Department s pedigree is distinguished and prestigious. The Department s pedigree is distinguished and prestigious. It is part of the University of Delhi and is located in the lush green surroundings of the South Campus. Master of Business Economics is the Departments flagship program and reflects its philosophy of learning through practical application of theoretical knowledge. M.B.E. is an integrated approach to business education, providing a perfect blend of practical, theoretical and analytical tools and a sound business sense.

From The HODs Desk

The global business environment is changing very fast. Though the US and European economies have shown signs of stabilization and recovery, major emerging countries like BRICS have slowed down. The Indian economy has seen a sharp decline in its currency in comparison to the US Dollar. The oil prices are ruling high with uncertainty in the geopolitical environment too. All these have implications for the corporate sector and decision makers. The corporate sector needs people and managers who can sense change early, analyse its implications for the organization and act swiftly, keeping in mind the long term consequences of these actions. T his requires a thorough understanding of the fundamental principles of business and Economics. Decision making today involves a comprehensive knowledge of business cycles, government policies, international events, competitors and consumers, all of which have a major bearing on the bottom line of companies. University of Delhi has been a pioneer in imparting quality education to students over the years. The Master of Business Economics (MBE) programme was initiated in 1973 with the very purpose of serving relevant and comprehensive business education. The course, designed along the lines of the Harvard Business School programme, seeks to equip students with strong conceptual and analytical skills in order to inculcate proficient management capabilities in them. A strong foundation in Qualitative and Quantitative Analysis techniques is imperative to decision making. The course equips students with all the requisite skills needed to be successful in todays corporate world. MBE students with varied backgrounds such as engineering, commerce, economics, and sciences are selected through a rigorous process consisting of a nationally acclaimed written test (CAT), group discussion and interview conducted on an all-India basis. Each batch of MBE students comprises fresh graduates as well as students with prior work experience. This judicious fusion of students with eclectic backgrounds helps the students to learn from each other and grow together as a group. Over the past 40 years, the updated and relevant curriculum has helped the energetic and visionary youth of MBE to carve a niche for themselves as business analysts, financial planners, economic consultants, financial advisors, marketing managers, academicians, management consultants The Annual Convention is the flagship event of MBE and a true highlight of the academic calendar. It is organised every year with an aim to provide a strong platform where corporate visionaries, stalwarts and the academia interact and exchange ideas and information. The theme for this year's Annual Convention Embracing Uncertainty : India In An Interconnected World aptly describes the emerging Indian Economy in a tumultuous time while focussing on various key sectors like manufacturing, niche segments like analytics, human infrastructure and a few other major factors. As the Head of this institution, it is my privilege to invite you to get associated with our Department on the occasion of our 40th Annual Convention.
Professor V K Kaul

From The Editorial Team 2013

Today the planet is all a global village with virtually no boundaries. In present scenario, India is all ready to embrace the challenges that the world of 21 st Century is throwing at it and emerging as a stronger economy. We are rising as a strong nation in terms of sectoral growth performing well than ever before. Not just this, we are also pioneering newer avenues in innovation altogether. With this backdrop, Team Editorial Board along with th Team Convention is elated to bring out the 40 Edition of The Business Economist on occasion of The Annual Convention 2013. - Rahul Kumar The "veil of uncertainty" is upon us now, and the only two things that could help us in preparing for the future are strengthening our fundamentals and emphasizing on innovation. Whereas the former helps to maintain our stronghold, the latter helps in enhancing the same. Analytics, particularly decision analytics could be a game changer in this regard. - Dipanwita Das

With a sound education system, a favourable demographic dividend, India is equipped well to sail through the uncertainty prevailing in the global economy. Factors like infrastructure, labour laws and governance reforms are aiding India to really emerge as a leading economic superpower. This edition of Business Economist gives you a glance of Indias position in the world economy vis-a-vis others. - Deepak

Past few decades, India saw itself in a complacent situation where it was almost immune to the externalities. The economic slowdown in the western economies has hit much harder this time than it was previously thought it would. Our attempts to come out of this slumber has seen a number of challenges. - Mohit Budholia

66 years of independence yet India is a young nation in this global arena of powerful nations. Embracing all the uncertainties and challenges from the world and inside, it is trying to push itself to the ace position. But is it really moving ahead? What all does Indian Economy face? And which path may it take to reach the ace position? Lets find out with this 40th edition of The Business Economist. - Vaibhav Garg

Contents
Promotion of Small Businesses : Key To Recovery From Recession
Professor Aradhna Aggarwal

Indian Rupee: Internal and External Pressures

Professor Lallan Prasad

Embracing Uncertainty: India in an Interconnected World

Dipanwita Das, MBE Final Year

India As An Emerging Knowledge Economy: Embarking A New Growth Path

Rupali A Khanna, DBE Ph.D Scholar Samraj Sahay, DBE Ph.D Scholar

Quantitative Easing
Deepshikha, MBE Previous Year

FDI : A Debate That Refuses to Die Down

Vaibhav Garg, MBE Previous Year

Human Capital and Infrastructure in India

Mohit Budholia, MBE Previous Year

Indias Manufacturing Sector - A Potential Catalyst For Economic Recovery

Deepak, MBE Previous Year

Digital and Social Media

Prateek Jain, MBE Previous Year

Big Data : The Next Frontier For Innovation and Productivity

Megha Chauhan, MBE Final Year

Business Innovation Khagesh Batra, MBE Previous Year Business Focus Tata Group - Leadership With Trust
Rahul Kumar, MBE Final Year Kunal Grover, MBE Final Year Himanshu Raj, MBE Final Year

Business Strategies Dataguru.in

Ankit Sharma, MBE Previous Year

Business Trivia

Promotion of Small Businesses

A Key To Recovery From Recession

Professor Aradhna Aggarwal period between 2004-05 and 2009-10 After growing at an impressive 8% over the period 2003-2011, the Indian economy has been experiencing a steep decline in economic growth over the past two years. In the last fiscal year (2012-13) he growth rate plummeted to as low as 5%. Real estate, financial services, and banking and insurance were the largest contributors to growth but manufacturing, infrastructure, and agriculture showed remarkable slow down, that does not auger well for the economy. The picture for the current fiscal year continues to be grim. The RBI forecast for the current year is 5.8% while the IMF puts the figures at 5.6% in its latest release. In all likelihood, though, it will be surprising if GDP growth was above 5% in 2013-14. Low economic growth is taking its toll on employment. According to the lead release of the 68th NSS Round, unemployment for both men and women in terms of usual principle status has risen to 2.7 per cent across both rural and urban households over the past two years, compared to 2.5 per cent over the years between 200405 and 2009-10. persons The number of from unemployed increased when the economy was growing at a fantastic growth rate of over 8% , there had been hardly any change in the size of employment. The NSS data 2009-10 reveals that employment increased by less than a million people in the country over this period. This jobless growth itself means that there are serious fault lines in Indias growth story that have hampered its potential for sustained growth in the long run. The steep fall in growth in recent years is not purely temporary and cyclical as the policy makers would like the nation to believe. It is very much due to serious policy inaction or mistakes of the past few years. . The costly populist policies being launched by the government will further compound the economic woes and postpone recovery. If growth is to be sustained the country will have to look for an alternative growth paradigm. But unfortunately in the name of growth policies, the focus almost exclusively been on promoting foreign direct investment, under the omnibus title of economic liberalization. Economic liberalization is being treated as a panacea for the countrys structural weaknesses. The broad agenda for policy debate on development is almost completely replaced with the narrow issue of the means and the speed with which liberalization ought to be

11.1 million in 2009-10 to 12.4 million in 2011-12 which means an addition of 1.3 million persons to unemployed labour force over the period of two years. More remarkable is the fact that even over the

introduced in the economy. This is in stark contrast to the emerging consensus among policy makers and development economists worldwide that promoting growth requires careful government intervention for a greater diversification of the source of growth and broad basing the economic recovery.. A developing economy may experience growth spurts because of a sudden burst of outsourcing activities or capital inflows due to liberalisation but they tend to peter out unless there is the emergence and expansion of new industries, and movement of labour from traditional industries into modern industries. The way to achieve sustained growth is to promote entrepreneurship and innovation which in turn calls for the promotion of start-ups and micro, small and medium enterprises (MSMEs). But this requires direct not government government interventions and

vulnerable and marginalized sections like women, backward community, minorities etc. They have also been the driver of entrepreneurship and innovations. In OECD countries MSMEs are credited with developing and commercialising a majority of innovative products and services in use today. During 2007-09, firms less than five years old filing at least one patent application represented on average 25% of all patenting firms, and generated 10% of patent applications in OECD countries. In India, MSEs (micro and small enterprise) account for almost 45 percent of the total industrial production, 95 percent of industrial units (includes medium industries) and 40 percent of manufactured exports. The sector employs 73 million persons in over 26 million units. They manufacture over 6000 products ranging from simple consumer precision, products. goods to high-technology, finished sophisticated

withdrawal. This more promising route to recovery seems to have completely lost in the chorus calling for promoting the inflows of foreign capital in to the country. All over the world, MSMEs have been recognized as engines of economic growth. Globally, they can be shown to account for over 95% of enterprises, 52% of private sector value added and 67% of employment. These MSMEs have been instrumental in generating new employment, contributing towards rise in incomes of labour and returns to capital; and promoting regional development and uplifting the lives of

During the past decade this

sector has recorded a higher growth rate in comparison to the overall industrial average. The total number of MSEs operating in India significantly increased at a compounded annual growth rate of 9.1% per annum between 1992-93 and 2009-10. According to the RBI statistics the total amount of fixed investment and employment in the MSME sector increased at a compounded annual growth rate of 10.8%. The sector registered a 14.6 per cent compounded annual growth in terms of production in the same time period. The employment

generating potential of the sector has also grown at an annual compounded rate of 8.97 per cent. Exports from the MSME sector grew at a phenomenal rate of 17.4% (compounded annually) from 1992-93 till 2009-10. Since small businesses represent the overwhelming majority of overall production and business, promotion of the MSME sector will be the key to economic diversification. This is far from being the focus of current making. Public authorities policy tend to

enhancing SMEs access to finance; developing a legal aid supportive to timely payments in commercial transactions; and promoting skills in SMEs and all forms of innovation. The guiding principle should be to create an environment in which small businesses thrive and entrepreneurship is rewarded. This will both deepen and broaden the capitalist base in the economy, generate much needed employment opportunities and thereby be the key to healthy recovery from current period of anaemic growth. Selected Bibliography 1. Report of the Working Group on Micro, Small and Medium Enterprises (MSMEs) Growth for 12th Five Year Plan (20122017), Ministry of Micro, Small and Medium Enterprises, New Delhi. 2. John C. Haltiwanger,Ron S. Jarmin and Javier Miranda Who creates jobs? Small vs. large vs. young, NBER Working Paper 16300 3. David B. Audretsch , A.N.Link and J.T. Scott (2002a) Public/Private Technology Partnerships: Evaluating SBIR-Supported Research, Research Policy 4. Small businesses, job creation and growth: practices http://www.sba.gov/sites/default/files/sb faq.pdf Facts, obstacles and best

picture the business environment from the point of view of larger companies because of their greater visibility and access to Ministers and bureaucrats. At a time of crisis, present one, given such as the SMEs voices should be

greater attention by the policy to their There dynamism is a need and to

makers to create business environment favourable development.

comprehensively review and put in place a new MSME policy framework. The focus should be to exempt MSMEs including start ups from regulatory burden and introduce special regimes to minimise the regulatory burden on them. This means that starting own business should become an attractive option for individuals and not the option of last resort. Their operations should be made as simple as possible notably by promoting e-government and one-stopshop solutions. But this alone is not sufficient. SMEs In addition, particular attention has to be paid to improving access to public procurement;

Indian Rupee
Internal and External Pressures

Professor Lallan Prasad

Introduction
A currency is valued by its purchasing power in domestic market, its parity with international currencies, especially American dollar, and prices of valuable commodities like gold in the international market. When India became independent a rupee could buy two times full meal, today one cant get even one tomato or an egg out of it, one rupee was more than a dollar, after sixty six years, rupee dollar parity is around 66 to 1 (Aug. 2013) and ten gram of gold which could be bought in few hundred rupees then, requires over Rs. 34ooo now. The fall in rupees value has been very sharp in recent years. In 2004 rupee dollar parity was 46 to 1. In the last one year rupee has depreciated by over 20pc. When a currency becomes weak cost of living goes up , input costs of farms , factories and services go up pushing prices upward reducing capacity to import, bringing down countrys credit worthiness and international rating. decline phase began, though not as sharp as in Europe and America which came in the grip of great financial crisis in 2008 and are now recovering. Inflation broke sixteen years record in India in 2011-12 when it touched 13 pc mark. Prices of all essential commodities- food grains, vegetables and fruits, milk, pulses, fuel, petroleum, gas, electricity, power, transport and public utility services have been rising since then, while growth in manufacturing sector has been declining. In recent months inflation rate has again started rising after some stability. In his first policy review recently the new RBI Governor cut the marginal standing facility (MSF) by 0.75pc while raising the repurchase rate by 0.25pc to bring the MSF rate closure to rapo rate reducing the differential to 200 points. Cash reserve ratio (CRR) requirement was eased to bring it down to 95pc. The signal was clear- RBI will try to ensure that interbank liquidity is not too tight, but it will keep overall rates high to keep a grip on inflation. Governments expenditure on welfare measures, though necessary, but not backed by resources enough to implement them, has adverse impact on the rupee. It is estimated that subsidies doled out by the Government of India are

Current Situation
Indian rupee is under pressure in domestic market for various reasons. A fall in GDP growth rate and sharp rise in prices in recent years have been eroding rupees value. India had an impressive growth of around 9pc and inflation rate of 4 to 5 pc in 2006-07. Since then the

adding over 30pc burden every year on the exchequer since 2008 resulting into widening the budgetary deficit. Central government had to provide for an additional subsidy of Rs. 57000 crores for 2013-14 over the existing provision. Fertilizer subsidy for the current financial year is estimated at Rs. 65,971 crores. Gas subsidy is expected to be over Rs 4000 crores on the budgeted due to rise in gas prices. Rise in oil prices in international market make oil companies demanding more compensation. The Food Security bill which aims to cover 75pc of rural and 50pc of urban population to provide 5 kg of food grains per person per month at a subsidized rate of Rs 3 for rice, 2 for wheat and 1 for coarse grains, is going to add around Rs. 1.25 lakh crores of burden on the exchequer every year. In the current fiscal year it may be 1pc of GDP, but will double next year. An additional amount of Rs. 12000 crores will be needed for maternity benefit under the Act. Budgetary provisions for Mid Day Meal scheme has already increased from Rs 7324 crores from 2007-08 to Rs 13215 crores in the current year. In view of tremendous rise in subsidies it would be difficult for the Government to contain budgetary deficit to 4.8pc in 2013-14 and 4.2pc in 2014-15 as promised. An ideal situation of budgetary deficit of not more than 3pc of GDP is far from sight. The value of rupee is also adversely affected by the transactions in black money and the circulation of fake currency for which no reliable estimates are available. External pressures on a currency are less manageable than domestic as these are

determined by economically powerful countries and the prevailing international economic situation at a given time. Advanced economies of West were down especially since 2008 when financial crisis overtook them and their economies went through one of the worst depressions in the history. Investors found a green field in some of the emerging market economies in Asia, South America and Africa with large population, waiting for capital inflow and provide a huge untapped market. Countries like China, India, Indonesia, Brazil, Mexico, Argentina, South Africa, Nigeria and a few others were able to attract investors by opening their economies in 1990s and offering opportunities to earn more in these economies than their home economies where property prices were nose driving, employment opportunities were shrinking. China attracted maximum foreign investment, followed by Brazil and India. An UNTAD survey projected India as the second most important destination after China for Trans National Corporations in 2010-12. Indias foreign exchange reserve grew from $1 billion to $293 billion by March 2013. It came down to $278 billion in the second week of August due to heavy selling of the stocks by FIIs. India alone is not in its suffering on account of currency depreciation. Many emerging economies in Asia, South America and Africa are faced with similar situation because of FIIs flight primarily due to Federal Reserves decision to withdraw stimulus it was pumping into American economy to recover from

financial crisis which seems to be over attracting investors in West back to America. Decline in GDP growth and political uncertainties in some emerging economies also added to capital flight and FIIs started looking to safer destinations. International rating agencies have been warning about growing distrust among foreign investors in this regard. Exchange rates declined in Brazil and India, by 16 and 14 pc and in Indonesia and South Africa by 7pc each respectively during the last four months only. China is the least affected because of strong fundamentals built over years, favorable current account balance and internal demand. Central banks and governments in these countries have been taking steps to avert the possible crisis. When Brazilian Real fell to five years low the Central Bank decided to spend $ 500 million a day on Monday to Thursday and $ 1 billion buying Reals on Friday in currency market till Dec. 2013. Earlier intervention of similar nature was done in 2002 when speculations were rising of neighboring Argentina falling into debt trap and default. Indonesian government announced lifting restriction on mineral exports to increase inflow of dollars and impose new taxes on luxury goods to reduce out flow when its rupiah fell in Aug. 2013 to weakest against dollar since 2009.

and $ 900 million in forwards in the domestic market by Aug. 24, 2013. It has also been doing tactical interventions, sometimes with success sometimes without. Measures taken so far have not been very effective to stop rupees fall. Import duty on gold was raised by the Government twice during last few months to discourage import, but love for yellow metal in this country is not affected by rise in duty and quota restrictions. Gold prices soared to Rs. 34,500 per 10 gram in August end breaking all time records. Government is considering measures like scattered payment and currency swap arrangements which involve exchange of one currency with another with its key trading partners to stabilize the volatile Indian rupee. Such an arrangement exists with Japan for Delhi- Mumbai Industrial Corridor. Emerging economies together are taking steps to weather the currency storm. In G20 meeting recently they decided to set up a $100 billion fund to overcome currency slide. China will contribute $41 billion, while India, Brazil and Russia will pay in $18 billion each and South Africa $5 billion. The Contingency Reserve Agreement will become a reality next year. It may serve as a second layer cushion after foreign exchange reserve.

RBIs Intervention
Reserve Bank of India has been intervening in the market by selling short term bonds. It sold $ 2.7 billion in spot

Conclusion
The greatest challenge of fall in rupee and shortage of dollar in India is on oil front which takes away major share of foreign

exchange reserve. Oil import bill is expected to go up from $160 billion in 2012-13 to $ 200 billion in 2013-14 at the current prices. Upward moving prices of oil in international market throw out all calculations of emerging economies. Public sector oil companies (IOC, BPCL, HPCL) which are required to supply oil at highly subsidized rate are adversely affected by any price rise unless they are allowed to increase supply prices internally. Government may import more oil from Iran which accepts rupee payment and reduce its dependence on countries supplying oil against dollar only.

In the long run increase in domestic production and development of alternate sources of energy is the only solution. Other industries which had to bear the brunt of rupee losing and dollar shortage are banking and financial institutions and infrastructure companies which have borrowed heavily from markets abroad and telecom, power and capital goods industries which depend heavily on import of costly equipment and technology. Export sector which benefits from decline in the value of currency has not shown positive signs except in handicrafts, tourism and some services.