Time to Show Professionalism

The financial turmoil is now in full swing and is showing its impact on world economy as well as on employment. Most of developed countries are in recession and developing country’s economy is going slow. In India this is placement season for the management and engineering students. Last year the season was full of roses for students. Some of them got a package up to Rs 1 crore. But this time there is yet no news regarding the highest packages. The only news is coming about the pink slips to employees, retrenchment which is the part of company’s survival strategies in slowing down economy.
In India every year lakhs of engineers and management students are produced by education industry which generally never face recession. Many out of them either do not get the job or if, get it below their potential and expectations. Now to be an engineer or management students is not as difficult as earlier because of mushrooming of institutes. Because of this the quality of students as per industry standards has come down.
Last year when economy was on boom, no of institutes increased their fees and seats. One of their arguments behind this was the average annual salary what the students offered. But the situation is now different for each and every institute and students who are currently passing through this worst ever scenario in world history. The students of current and just coming batches are main victim of this turmoil. The jobs have been dried up and packages have also been shrunken. They are facing a situation about which they would have never thought before joining. They had seen last year placement scenario where the companies were lining up to embrace their seniors with fat packages but the situation is just reverse, now students are looking for companies. Even though companies are coming in campus, but offered packages are not less than a disappointment for the students. Now their main objective is to be placed as early as possible. The biggest loser in this situation would be the students who had taken loans for getting admission in institutes in hope of hefty packages. This condition is not good for banking sector as well, as no. of education loans might become NPA because of poor placement scenario which might lead to defaults. The students would not be able to pay their EMI timely because the packages would be lower than the expectations and in worst cases students would not get the jobs.
In this horrible scenario Satyam fraud came as last nail in coffin for techies. This incident made the situation worst for its 53000 employees although for their rescue Government has appointed a new board. But what will be the future of those students who got placement in Satyam and were supposed to join later in April or May 2009.
This is the time for the education industry to show their professional attitude regarding the fee structure and batch strengths. When companies are reducing their work force and are giving the indication of cutting down the salaries, there is no need to increase the seats and hiking the fee. They can increase the strength of batch and fee as per industry requirement. By not increasing the seats they will help the society to control the structural unemployment.
Mayank Rastogi
PGPABM,1st year
MANAGE

Tractor Industry and Farmers Facing Serious Problem

Rural economy is the back bone of the Indian Economy. In case we could equip the farmers with farm mechanization tools like tractor and implements, the agricultural production will increase tremendously and if the farmers are financially well off, a lot of additional demand for consumer durables like TVs, refrigerators, ACs, washing machines including motor cycles, cars and multi-utility vehicles can be generated which will ultimately help to neutralize this general slowdown in the industry to a great extent unlike other sectors reeling under the shadow of slowdown, there continues to be normal demand for tractors.
The curbs on financing by banks and financial institutions have not prevented the domestic tractor industry - the segment most heavily dependent on financing - from treading on the growth path. This is at a time when most other segments like passenger car and commercial vehicles have been under pressure constrained largely by the tight availability of finance and mounting commodity prices which compelled automobile companies for subsequent price hikes of their models. Tractor companies are registering a healthy growth despite public sector banks going tough in approving tractor loans due to good monsoon and high farm commodity prices. But due to limited availability of retail finance in the industry and the farmers are suffering. Since banks have withdrew their offerings most of the tractor companies who have their own financing arms like Mahindra has, they charge higher interest rates. Though they don’t ask for land mortgage, only the vehicle is kept as collateral, farmers have no other option.
The various obstacles like the slowdown of financing from the banking especially the public sector banks has been the most important factor for the declining trends in the industry despite good monsoon this year. Private / Micro Financiers are taking cues from PSU Banks. SBI withdrew the ‘blanket-ban circular’ – but no real respite on the ground. Decision making has become centralized leading to inordinate delays. In some areas, lending filter now is as high as 10-15 acres whereas average landholding in India is hardly 4 to 5 acres per family. The budget for agriculture is consumed by financial institutions by lending money for non-productive purposes such as warehouses etc. whereas the farm mechanization suffers. In case there are a larger number of NPAs in a particular area, the credit facilities for the whole district is stopped by the lead banks, the total number of defaulters is hardly 5% of the population of the area, but the remaining 95% are also punished for no fault of theirs. For winning the confidence of the farmers’ banks should have farmer-friendly attitude while sanctioning loans for farm mechanization tools like tractors and implements; a particular portion of the budget for agricultural loan should be reserved for farm mechanization tools only.
As per an expert assessment by Agriculture Today research team, 8% of the total agriculture budget will serve the purpose. Bringing back lending norms to 4 acres as market value of agricultural lands has shot up significantly in the recent past. They suggest restoring margin money requirement to 15%. , reduce interest rates for lending to farm mechanization at par with other auto sector. De-centralize sanctioning authority to branch level as before. Factor in income from commercial usage of farm tractors as lending criterion. Provide more liberal floor finance to dealers of tractors and farm implements. Re-visit SBI customer credit scoring model - should be made more liberal. SBI should take the lead in sanctioning more tractor loans on realistic norms to improve the comfort level of farmers, for other PSUs to follow.
Parag Rastogi
PGPABM-1ST Year
2008-10
MANAGE

Agricultural research - rests in peace

Need is the mother of invention, the quote is necessarily true in every aspect of human life. But it seems that India has forgotten the quote. The ever increasing pressure of growing population, shrinking land, depleting natural resources and decreasing productivity has called for continuous research in agriculture. But according to the data available trends seem to be reversing. While the global food crisis is expanding, the research expenditures are not up to it. According to the government of India’s Economic Survey, the rate of growth in India’s food production is 1.2% a year, significantly less than the population growth rate of 1.9%. The creation of additional irrigation potential in Indian agriculture was 3% a year in the 1990s. It has declined to 1.8% in 2007. 

If we consider the productivity of wheat in India, it was 2.71 tonnes per hectare in 2002. It fell a few notches to 2.63 tonnes per hectare in 2007. India’s productivity in rice was 3.14 tonnes per hectare in 2002. This has moved up marginally to 3.18 tonnes per hectare in 2007. The productivity of wheat in America has inched down from 2.7 tonnes per hectare in 2002 to 2.6 tonnes per hectare in 2007. Even Brazil’s sugarcane productivity has merely climbed up from 70 to 71.10 tonnes per hectare in the same five year span.  India’s average rice yield today is 2.9 tonnes per hectare. By comparison, China’s average rice yield, at 6.3 tonnes per hectare, is more than double that of India. South Korea has achieved an even higher rice yield, i.e., 6.8 tonnes per hectare. 

The reason, as noted agriculture scientist M.S. Swaminathan says, is that “the lab-to-land (technology) transfer has gradually eroded”.

A 2007 report on the impact of science and technology on Indian agriculture by the Chennai-based M.S. Swaminathan Research Foundation said, “There has been no breakthrough in technology in the 1990s even to sustain the growth levels of the earlier decade.”  Currently, public expenditure on research and extension together stands at well below one per cent of GDP in agriculture.

Agricultural research has contributed significantly to improvement in productivity and, with the marginal internal rate of return on research and investment, is still very rewarding. According to an Asian Development Bank report written by C. Ramasamy and K.N. Selvaraj of Tamil Nadu Agricultural University, in Coimbatore. “A 10% increase in public sector expenditure on agricultural R&D (research and development) would induce agricultural growth by 2.4% at constant prices, and overall welfare by 3.8%”.

Still, there is severe under-investment in agricultural R&D, which has fallen from 20% of all research funded by New Delhi in 1960-80 to under 12% in early 2000s, The government, on its part, hasn’t quite walked the talk of agriculture renaissance: agriculture and allied activities’ share in the 11th Plan outlay at 3.7% is down from 4.9% in the ninth and 3.9% in the 10th Plan. Experts say it’s impossible to achieve the 4% growth rate target of the 11th Plan. The rate of growth in agricultural productivity is alarming, just about 2%, which is marginally above the population growth. With almost two years of the current Plan over, achieving 4% growth is impossible. According to Swaminathan, the production target of even the 10th Plan has not been achieved.

 

The changing challenge for Indian agricultural research

• Productivity growth must now extend to greater variety of crops, farming sectors (horticulture, livestock, fisheries, forestry) and ecologies/regions. It is particularly important to focus on areas which were bypassed during the green revolution period and where the livelihoods of the vast majority of poor, particularly women are directly or indirectly linked to farming.

• Agricultural practices and technologies that we generate and promote do not adversely impact our natural resources base. Our past strategies aimed at gains in the short run have led to serious and widespread problem of resources degradation in both irrigated and rainfed ecologies, with grave consequences for sustained productivity and overall ecology. Declining soil quality, deteriorating water resources, loss in bio-diversity have all become a serious limitation in achieving enhanced productivity.

• In view of increasing trade liberalization and emerging WTO regimes, it is important that agricultural production systems become more efficient and competitive.

• A serious consideration is given to understand and think of ways to respond to issues of climate change, which are already impacting agriculture in a variety of ways.

 

It is apparent that the demands on agricultural research are becoming more complex. While the need and concerns of enhancing productivity to meet the needs of the increasing population continue, there are additional concerns which relate to poverty alleviation, equity and sustainability issues. There is increasing pressure for agricultural research not only to result in increased yields, but also to ensure that the benefits of research accrue to the largest recipient groups and that the quality of natural resources base is maintained and improved.

 

 

 

By

 Parag Rastogi

PGPABM I

2008-10

Is it the real scenario?

On 30^th of October, ASSOCHAM in its report projected that 25 to 30% jobs could be slashed in real estate, IT, steel, financial services and aviation as a cost cutting exercise. Reacting to which the GOI vehemently criticized the report touting it as “outrageous”. Under the severe pressure, ASSOCHAM had to revert back by withdrawing the report. But the reality could not be shrouded any way. We heard that, pink slips were to be offered in banking, IT sector.

The venomous impact of recession was realized by apex bank and it was on its way to resurrect the situation. The RBI has taken every step to infuse the money in banking system by gradually reducing the CRR and SLR. Most of expert says that fundamentals of Indian banking system are strong and the impact of global crisis would be very minimal but the reality of banking system is yet to come. 

Real sector companies have borrowed Rs 75000 crore from banks and Rs 25000 crore from mutual fund companies. The NPAs of banks might increase in the end of December quarter because of recession in the economy. The individuals, who are losing their jobs or whose salaries getting chopped off, might become defaulters in coming months, these kinds of defaults, we may see in real sector, auto loan, credit card and personal loan. The uncertainty about jobs and salaries will also affect these sectors’ growth. The default may come from corporate as well. The real sector companies are feeling the heat as the bubble of real sector has burst and there is less number of customers in the market. To lure these customers they are giving offers like 1BHK is free with 2 BHK to meet out their costs. The Banks are pressurising them (corporate and real sector companies) to pay their debts as banks themselves are facing crunch of money. The major concern of banks is their asset-liability mismatches which may hurt their profits. Over the last three year, banks have funded their long term credits via short term liabilities, mostly deposits, large part of which were corporate bulk deposits and certificates of deposits.

The various measures have been initiated by banks in order to mitigate the risk of defaults. They are denying loans (personal, auto, housing etc.)  and credit cards to individuals belonging to IT companies, BPOs, real sector, aviation, and financial institutes ( NBFCs, brokerage houses, insurance companies) and in other cases strict scrutiny is being conducted before lending.

The real impact of recession and its casualties are yet to be grounded before us which will be taking place at the end of this financial year. On the basis of those we will be in situation to count our wounds and may be in position to predict the correct diagnosis in future.

Mayank

PGPABM-I

MANAGE

Redemptions in Mutual fund

October, 2008 saw the redemption pressure on the Mutual Funds (MF) due to the dearth on capital from fund houses due to various reasons. The major change was observed in the Income funds and the Liquid & Money Market funds. This has lead to RBI step in. It has provided a special window for short term credit of Rs. 20.000 crores in order to meet the redemptions pressure. The scheme wise reasons for the redemptions are as follows
ELSS redemption
The redemption from the ELSS was the least due to the three year lock in period and tax advantage issues.
Equity redemption
The change in the total Asset Under Management (AUM) of equity funds (i.e. fund investing 65% of total AUM in equity funds) was only 0.5% of the AUM of equity fund of the total MF industry as a whole. The reason for such a small change was that there was active buying of the fund units by long term investors.
Income fund redemptions
The reasons for high redemption from income fund i.e. 21.9% of the total AUM in income fund was
1) Fear among investors about the portfolio quality. The probable reason for this fear maybe that they are of the view that the money that is been invested my them in purchase of MF units is being invested in to highly risky projects or firms which may lead to losing of money if these firms defaults. And thanks to the downfall of the investment banks in USA which made their assumption concrete.
2) Corporate redemptions for their own cash requirement
3) And more over in October some of the Fixed Maturity Plans had matured hence there redemption also led to rise in total redemptions.
4) Due to the slowdown in the economy it is sure that the companies will cut their production and there fore less generation of profit, hence less dividend distribution, also there was less capital appreciation possible as the stock prices have already fallen down. This may led to low returns. Hence the investor would have thought of investing in fixed income generating schemes.

Liquid & Money market fund redemptions

If we study the past performance of this fund they have show much volatility because the main investors in this type of funds are the corporate and institutions who park their money into this type of funds exclusively because they have less maturity period and for their day to day requirements. This time the redemptions were made to pay the tax, advanced taxes & also due to deteriorating quality of the credit have led them to invest in Fixed Deposits.
The industry MF in India is still at it’s nascent stage, India still preference is given to investing in the schemes like assets like fixed deposits, PPF, bank deposits etc. So the investors with low to medium risk ability can invest into the MF schemes depending on his requirement. To my view investing in MF is a secured way of lowering your risk from harsh fluctuations in returns obtained by investing directly into the stocks. However it is also necessary to now when to exit from a scheme in order to avoid from losing money, rather than losing money, one may not be able to harvest the profit generated from the schemes. People usually forget the basic principle that buy the stocks when they no one wants and sell them when every one wants. But most of the investors just do the opposite leading to financial erosion. It is necessary for every investor to keep his hunger for risk checked because of this he end up making unwise decision which leads to repercussions which may have to be faced by him his family and those dependent on him.

Kalpakant C. Pawar
(Mutual fund advisor)
PGPABM – II
MANAGE, Hyderabad