eglobuzz july sept '15

FOREWORD

Dear Readers,

We are pleased to bring to you the July to September 2015 issue of e-GlobuzZ,

the maiden issue for the academic year 2015-16.

In addition to the articles on various contemporary topics in International

Business, we have covered in this issue the highlights of the 5Th International

Business Conference, Pangea 2015, hosted by International Business Society (IBS@SIMSR) on 26

September, 2015 at SIMSR.

One of the sad events during the July to September 2015 quarter was the passing away of our

beloved former President and scientist of great eminence Prof. Dr. A.P.J. Abdul Kalam on 27 July,

2015. As a token of our profound respect for late Dr. Abdul Kalam, we have included an obituary

on Dr. Abdul Kalam in this issue.

It is heartening for us at IBS@SIMSR to notice an interesting trend that more and more students

of other than PGDM International Business program are not only writing articles in the e-GlobuzZ

but also are active members of IBS@SIMSR. We certainly welcome this trend and will endeavor

that the IBS@SIMSR Events become more meaningful and engaging to larger audiences of SIMSR

students and Faculty.

We invite our esteemed Faculty, SIMSR students and our alumni to contribute articles on any

topic in International Business for our 6th anniversary issue of e-GlobuzZ i.e. October to December

2015.

Happy Reading!

Prof. C. P. Joshi

Faculty Mentor, IBS@SIMSR

Dean MMM, MFM, MIM & MHRDM,

Area Chairperson (Strategy, International Business & General Management) &

Program coordinator Core PGDM and PGDM– (International Business)

CONTENTS

Faculty Mentor: Prof. C.P. Joshi

Editors-in-Chief: Shweta Singh, Saachi Batta

Editors: Manasvi Adhyanthaya, Mansi Mahajani, Samarth R. Amarnani, Amol Chanshetty, Nirupama Rai

Designer: Geetanjali, Arpit Apoorva

Did You Know? : Samarth R. Amarnani

Crossword : Atul Indoria

All the views expressed in this magazine reflect the personal opinions and views of the authors and do not reflect IBS@SIMSR views.

Obituary to Sir Avul Pakir Jainulabdeen Abdul Kalam

4

When Greece Fell Again—Story of a crumbling

nation

6

Iran Deal and Global Business 8

Extreme Weather Events: Threat to Economy 10

Is Gold Losing it’s Shine? 13

Impact of Rupee Depreciation on India’s Export

and Import

15

The Chinese are coming… 17

The recent instabilities in the Middle East 19

PANGEA 2015 22

Obituary to Sir Avul Pakir Jainulabdeen Abdul Kalam (15th October 1931 - 27 July 2015)

If there is one man who has championed the

aforementioned words and their meaning, it

is none other than Dr. APJ Abdul Kalam, the

Missile Man. He was an ocean of experience,

ideas and motivation and to capture his

personality and contributions in a few

hundred words is a near impossible task. He

was a man

of vision,

m i s s i o n

and a firm

believer in

hard work.

H i s

philosophy of learning from one’s failure

became the fodder for survival of millions of

brains who were to become the future

leaders of the nation. His contributions to the

society in the realm of science, space

research, and teaching are perhaps,

perpetual. There hasn’t been a person in the

recent past who, by virtue of his relentless

enthusiasm, contributed to the nation and

the world so much.

Kalam’s role in spawning India as the nuclear

power is what makes him special. Despite

his calm and composed demeanour he gave

us the power of

being confident

and safe. He is

perhaps a jewel

in the crown

that brings him

close to the likes of Gandhi and other Indian

leaders who had changed the nation and

world, too.

Born in a family of limited means, Kalam sold

newspapers to supplement his family

income.

Fear to fail augurs fear to try; fear to try becomes a hurdle for successes’

His belief in every religion and his way of living life be-

reft of materialistic pursuit makes him an ideal leader.

He was an ardent reader of scriptures ranging from Bha-

gavad Gita to Holy Quran and always voiced the need for

national integration through his own example.

Aviral Singh, PGDM A | 2015-17

However, despite all the odds, he showed

early signs of inclination towards

mathematical subjects. His teachers have

described him as hard working and focussed if

not an outperformer. His predilection for

physics led him to earn a bachelor’s degree

from Saint Joseph College in 1954. Later he

started studying aerospace engineering at

Madras Institute of Technology. He aspired to

be a pilot in the Indian Air force but narrowly

missed achieving his dream. However he

didn’t stop. After his graduation from MIT he

joined the aerospace wing of DRDO (Defence

Research and Development Organization) and

designed a small helicopter for the Indian

Army. He also worked in the INCOSPAR

committee under the renowned space

scientist Vikram Sarabhai. In 1969 Kalam was

transferred to ISRO where he served as the

director of the first Indian Satellite launch

Vehicle (SLV- III). In 1963-64

Kalam visited NASA and in

the 1970s and 1990s tried to

develop Polar Satellite

Launch Vehicles (PSLV) and

SLV-III projects, both of

them being successful.

Kalam’s journey in the nuclear domain began

when he witnessed the country’s first nuclear

test Smiling Buddha as the representative of

TBRL. Kalam played a pivotal role in

developing major missiles including Agni and

Prithvi. He also served as the Chief Scientific

Adviser to Prime Minister and Chief Secretary

of DRDO from July 1992 to December 1999.

The Pokhran-II tests were conducted during

this period when he served as the chief

project coordinator for the same. He served

as the president of India from July 2002 to

July 2007 and during this period he set

himself as the touchstone for Presidency.

In June 2002, the NDA government headed

by Vajpayee came up with the inspired but

unconventional choice of a modest and an

unassuming technocrat for the post of the

11th President of India, the entire nation, in

rare show of unanimity, rejoiced at the

technocrat elevation. After retiring from

Presidency Kalam became a visiting Professor

at IIM Shillong, IIM Ahmedabad and IIM

Indore. During this period he spread the

message of importance of teaching and how a

teacher should love teaching in order to

deliver quality education. He always

reinforced the role of inquisitive learning in

building creative minds.

The plethora of achievements that Kalam has

to his name would have made any other

individual haughty. But Kalam carried himself

with utmost pride and humbleness. His belief

in every religion and his way of living life

bereft of materialistic

pursuit makes him an ideal

leader. He was an ardent

reader of scriptures ranging

from Bhagavad Gita to Holy

Quran and always voiced

the need for national

integration through his own example.

Mr. Kalam once said “If you are blessed with

intelligence, and empowered with education –

it is your responsibility to change the world”.

All we need to do is to wake up and realize and

follow his footsteps which for sure will take us

and the nation to a status that he had imagined

in his mind. Perhaps, this is the best thing that

we can do to pay him for his service to the

nation, follow his footsteps and reach the

destination that he had set out to reach for. Let

us give our eternally optimistic, grand old

friend, inspiration, mentor and beloved

People’s President of the nation a reason to

smile, wherever he is now. Salute you Kalam sir!

“If you are blessed with intelli-

gence, and empowered with

education – it is your responsi-

bility to change the world”

When Greece Fell Again—Story of a crumbling nation

Greece is known for its fights, heroic battles,

indomitable warriors and the spirit of

undying strength. In history, the nation was

believed to be strong and undefeatable but

21st century saw the country crumble, not

against any enemy but from its own

economy.

After the Wall Street imploded in 2008,

Greece became the epicenter of Europe’s

debt crisis, igniting a reaction that could not

be contained. While the rest of the world

was trying to overcome the crisis, Greece

a n n o u n c e d

that it had

b e e n

understating

its deficit

figures for

years. This

raised alarms

about the soundness and security of Greek

finances, and suddenly, Greece was shut out

from borrowing in the financial markets.

Very soon, the country was veering towards

bankruptcy, which threatened to set off a

global financial crisis.

This saw the emergence of Troika, a joint

body of the International Monetary Fund,

the European Central Bank and the

European Commission. Troika then issued

the first of two international bailouts for

Greece, to contain the explosion which could

be caused. The bailouts eventually totaled

more than 240 billion euros, or about $264

billion at today’s exchange rates. Despite the

fact that bailout conditions were harsh, they

w e r e

accepted as

the country

could not

continue to

operate any

f u r t h e r .

L e n d e r s

imposed austerity terms, deep budget cuts

and steep tax increases along with

streamlining the government

The bailout money was supposed to buy the nation time

to stabilize its finances and subdue market fears that

the European union itself could break up but instead of

making its way into the economy, most of the bailout

money was directly spent on paying off Greece’s inter-

national loans.

Samarth R. Amarnani, PGDM IB | 2015-17

and ending tax evasion practices. Attempts

were being made to make Greece an easier

place to do business.

Billions for Bailout and Still in Crisis?Now

the question arises, if Greece had got billions

of dollars for recovery, why did the crisis

continue? While the plan helped, it still

could not ensure elimination of the problem

altogether. In the last 5 years, the economy

has shrunk to 25%, with unemployment

reaching about a quarter of the population.

The bailout money was supposed to buy the

nation time to stabilize its finances and

subdue market fears that the European

union itself could break up but instead of

making its way into the economy, most of

the bailout money was directly spent on

paying off Greece’s international loans.

Many economists are of the view that the

crisis is the result of the austerity measures

as “it created humanitarian crisis”. The huge

debt load on the government cannot be paid

unless the recovery starts to happen. This

year, the leftist Syriza party rode to power in

the country, promising to renegotiate the

bailout.

Would Grexit Affect the World?Economic

disorder in Greece would affect the

functioning of the Eurozone and in order to

prevent the entire union from being

affected, Grexit is a possibility. In case

Greece exits the Eurozone, it can create

global financial shocks bigger than the

collapse of Lehman Brothers did. Experts are

of the opinion that the turmoil in Greece

could spill over to the rest of the world. The

real decision making power in the European

Union rests with 28 national governments.

The decisions on delicate political matters

like money and immigrants are taken in

consensus by all 28 countries but each

country is obliged to its voters and tax

payers.

On the contrary, some economists believe

that “Grexit”, Greece leaving the currency

union, wouldn’t be such a catastrophe. The

reason being Europe has already put up

safeguards to minimize the effects of the

event. Also, Greece, which is just a small part

of the Eurozone economy, can regain

financial autonomy by exiting the union.

Another group believes that the Eurozone

would actually be better off without a

country which is unable to handle its

economy and seems to constantly need its

neighbors’ support.

Since the initial stages of the debt crisis in

2010, most international banks and foreign

investors have sold all or most of their Greek

bonds and other holdings. This ensures that

they are no longer vulnerable to what

happens in Greece. Trouble could follow for

the banks and investors which invested in

the economy, hoping and speculating for it

to rise in near future.

Talking about the Indian economy, the Greek

tragedy will not be such a big event since

most of our debt and trade is with European

governments. Also, considering indirect

repercussions, the situation is almost under

control thanks to the efforts of the European

Union. All that’s left to see is whether

Greece will be able to recover from the mess

it has created for itself or will this be a war

story in which Greece falls!

Iran Deal and Global Business

After 12 years of ups and downs Iran and

the “P5+1” countries have at last succeeded

in making a nuclear agreement. The

agreement is a huge success from the point

of view of the United Nations and European

Union as Iran will have to utilize its nuclear

capabilities for non-military purpose. For

example, Iran cannot increase uranium

capacity to more than 3.67%. If done, it will

be prohibited from building a nuclear bomb.

In exchange, Iran has been relieved from all

the international sanctions that were

applied by the US and EU earlier.

Roots of this nuclear deal go back to 2003

when Bush Government was in power in the

United States. In 2003 when USA was

looking for Saddam Hussain, Iran was one of

the influential

factors in Iraq.

Iranian leaders

feared that they

were encircled

b u t B u s h

handled the

matter skillfully.

This deal shows that we can reach on an

agreement on many shared international

problems in a peaceful way in spite of the

disputes.

This nuclear deal is favorable to Iran in

many ways. Iran is able to normalize its

relations with the West. The supporters of

the agreement within Iran can reach to

Saudi Arabia with a cooperative intention. In

turn Saudi Arabia can join Iran in

establishing a peaceful and stable

Government in Syria. China and Russia want

peace and stability in the Middle-East region

as they worry about the energy supplies. I

believe that the nuclear deal is a start in this

direction. This deal will make a global

economic impact as improved relations

within Iran and ‘P5+1’ countries have a

potential to improve the global economic

environment. Iran’s GDP was affected due

to restrictions on sending hard currencies to

Iran but this deal will improve Iran’s GDP.

Lifting oil and banking restrictions will

enhance the exports of Iran. People from

European countries can invest in Iran in

exchange of oil. Car manufacturers like

Volkswagen and Peugeot who were leaders

in Iran before the sanctions were applied

are likely to benefit as they can start their

business there

again.

The relationships

between India

and the Middle

Eastern countries

like Israel and Iran

have always been

friendly. India has supported this deal as

India is also concerned about its energy

supplies. Narendra Modi Government is

following a proactive foreign policy in order

to strengthen relationships with many

countries. Middle Eastern countries are

important from the point of view of this

policy. The nuclear deal has opened a new

door for India in regional trade and

commerce area. India has taken steps to

invest in Iran’s southern port of Chabahar.

Car manufacturers like Volkswagen

and Peugeot who were leaders in Iran

before the sanctions were applied are

likely to benefit as they can start

their business there again.

Jaydeep Mali, PGDM FS | 2015-17

Expanding trade through this link can help India

penetrate into central Asian and Afghan

markets without any intervention from

Pakistan. India can hope for advancement in

trade and energy interests due to this nuclear

deal.

Though this deal has its potential benefits, it

has created regional imbalance around Iran.

Neighboring countries are under the impression

that Iran will get stronger here onwards and

challenge the influence of Gulf countries.

Palestine and Israel will face the consequences

of the strong bond between US and Iran. All the

countries in the Middle East like Turkey, and

Egypt are uncertain because of this deal.

Relations between US and Turkey have been

bitter lately; hence the Turkish government is

quite skeptical about the consequences of this

deal. The deal could benefit Turkey but again, it

is up to them how they cope with upcoming

situations.

Another major country that is likely to be

affected is Israel. Israel is one of the leaders of

nuclear capabilities among Middle East

countries. All Middle East countries are well

aware of the nuclear strength of Israel. This

nuclear deal is making Iran a stronger nuclear

power in the region increasing the tensions in

Israel. The deal may lead to an increase in

tension between Shia and Sunni and Egypt is

likely to be affected because of this.

There are pros and cons to the nuclear deal.

The world has to take this deal in a positive way

and identify the potential benefits that can

promote stability, peace, trade and friendship.

The U.S. apparel market is the largest in the world,

comprising about 28 percent of the global total

and has a market value of about 331 billion U.S.

dollar.

India will add a million new workers every month

for the next two decades. Equal to the entire popu-

lation of Sweden joining the labor force every

year for 20 years

Extreme Weather Events: Threat to Economy

‘Climate change has the potential to (and

most likely will) send us into one of the

biggest global recession ever’. I know that for

a lot of us it is hard to take any such

statement at its face value but most of us

cannot even comprehend just what could be

the connection between economy and

environment as environmentalism, in some

circles, is still thought to be only about

protecting trees and endangered species.

Through this article I would like to illustrate

the relationship between economy and

environment.

T h e m a j o r r o a d b l o c k f o r t h e

environmentalists in context to economy is

the fact that though in the long run economy

and environment are not in contrast to one

another but from a short term perspective

actions taken to protect the environment are

often detrimental to the health of economy.

Few instances where we can clearly observe

the negative effect that environmental

regulations have on the economy are:

Stringent pollution regulation hurts the

profitability of companies and decreases the

speed at which they are able to expand their

operations

Renewable energy at the moment is more

costly to produce and will need continuous

support from government to become as

viable as its more polluting alternatives

The strongest argument given in opposition

to this negatively reflected relationship is that

environment related issues are not separate

from any other issue we face but actually a

component of them all. A healthy

environment is a prerequisite for a healthy

economy as economy relies on nature’s

ability to provide resources and necessities of

life, if pollution and climate changes triggered

by mankind are reducing nature’s ability to

provide, the result is catastrophic for the

economy.

Extreme weather events are a major

consequence of climate change, and are

becoming more powerful, erratic and

unfortunately, frequent. Severe weather

events have dominated headlines recently,

causing immense devastation. Every

continent has been affected, from one of the

world’s strongest storms hitting the

Philippines and the widest tornados ever

seen in the United States, to extreme

droughts gripping central Africa, Brazil and

Australia and a series of massive floods in

Pakistan (refer fig1 for severe weather events

that occurred during 2014). Now we wonder

how these extreme weather events affect

economies.

The industrialization of the developing world is creating unsustainable pollution levels. The

solution requires a technological and an intellectual revolution; an alternative route to

economic prosperity that preserves resources and limits carbon emissions has to be developed be-

fore it’s too late.

Nirupama Rai, PGDM RM | 2015-17

While discussing the influence of global

warming on extreme climate and weather

events, Noah Deffenbaugh, an associate

professor of environmental Earth system

science at the Stanford School of Earth

Sciences, said "If we look over the last decade

in the United States, there have been more

than 70 events that have each caused at least

$1 billion in damage, and a number of those

have been considerably very costly." This

statement highlights the untold amounts of

money being funneled into damage control

worldwide resulting due to global climate

change and extreme weather events.

A number of countries and companies have

long been worried that the costs of tackling

climate change by means of prevention,

mitigation or adaptation will be prohibitive

and choose to rather deal with the

consequences. They often assume (or hope)

the consequences will not be as bad as

scientists are predicting. Economic studies

have proved otherwise by consistently

showing that cost of inaction on climate

change is higher than cost of action. The chart

in fig2 shows total costs for action on climate

change by 2100 to be about $11 trillion while

damages will be about $8 trillion. With

inaction, however, damages by 2100 will be

around $20 trillion.

The impacts of climate change have far

greater consequences than economics,

however. While it may be possible to put a

dollar figure on the costs involved in

relocating people, providing humanitarian aid

to countries experiencing drought, and the

cleanup of areas that have experienced

extreme weather or flooding, calculating the

cost of human suffering involved in those

occurrences and putting a dollar figure on it is

of course impossible. There is nothing more

threatening to the health of our economy

than climate change, yet frequently there are

those defending environmentally destructive

activities by claiming that they are doing so

for the sake of the economy. The truth is that

the action they are defending would most

likely be good for the economy in the short

term but in the long term would also

contribute to economic hardship and the risk

of massive global recession, not to mention

the incalculable costs of human suffering.

Rising pollution in the developing world is

ranked as the sixth most significant global

trend this year and in Asia it’s the third. The

industrialization of the developing world is

creating unsustainable pollution levels.

The solution

requires a

technological

and an

intellectual

revolution; an

alternative

route to

economic

prosperity that

preserves

resources and

limits carbon emissions has to be developed

before it’s too late.

In my opinion it’s high time we started

looking at the long term implications of a

damaged environment when mapping out

current economic strategies. This is a great

opportunity for the private sector to take

advantage of. Since the challenge of response

is the challenge of development, we need to

turn this into an investment question.

Presently, we’re only putting band aids on

the problem: the disaster happens, and we

express sorrow. We raise funds and send aid.

We try to relieve whatever pain we can with

the best intentions. Yet we still wait for the

next crisis. Running from disaster to disaster

will not work. The solution is to strengthen

resilience before disaster strikes. That means

investing in developments that work in the

future, not just in the short-term. Costs can

be high and the speed of change can be slow,

but long-term payoffs are impressive: for

national economies, for business, and

certainly for the poorest and most vulnerable

populations who will suffer and pay if we fail

to take these measures.

Total savings (in Banks) of the people in China

is estimated to be around $7.5 Trillion as of

today.

Is Gold Losing it’s Shine?

The shine of gold has reduced post 2013 and

continues to diminish further. So what exactly

caused this mishap? Do people not care about

their yellow metal anymore? What caused

them to abandon gold?

A country’s reserves are a combination of

both gold and currency. Similarly the world

trade depends both on dollar as well as gold.

Though gold remains to be inversely

proportional to dollar value as well as

insignificant to the stock market fluctuations,

post the 2008 global recession, when US

economy suffered a downfall and the

companies were going bankrupt, investors

found refuge in gold. Even the US credit rating

was degraded from AAA+ to AA+ and all this

while gold rates climbed new peaks. Now that

the world economy is improving and dollar is

again

getting

strong, gold

has been

slowly

losing

ground.

Several

reasons can

be provided

to explain this downfall yet it is suggested that

while seasonal factors have played a role, the

main drivers are more structural in nature.

Gold being a dead asset is seen to be a safe

option when the times are tough.

The major gold consuming countries have

been China and India. In the year 2014, the

consumption of gold was led by China with

895 tonnes to be followed by India with 852

tonnes. The country that stood third i.e. US

was nowhere close with just 242 tonnes.

China, a country which accounts for one-third

of global gold demand, has devalued its

currency. In China, people have already

started shifting towards investing in equities

over gold. In fact, China dumped a huge

amount of gold in the market, causing the

prices to fall further. It was said that some 33

tonnes were sold in shanghai market as

investors sought to look for better prospects.

In India, higher import duties and strict import

quotas have limited supply on the domestic

market. Over the past two years, the

government has implemented a lot of

measures to curb the demand for gold, the

second largest import after oil, as a means of

reducing the country’s large trade deficit. In

India, two-thirds of the demand for gold

comes from rural areas, however poor

monsoon

reduces

the rural

customer

demand.

There has

also been

a shift in

the

spending pattern and lifestyle of Indians.

Despite having access to more disposable

income in their hands, they choose to invest

in property and in options other than gold.

Another player in driving the world economy

apart from gold and dollar is oil. A few years

back no one could have imagined that gold,

the most prized commodity, would lose

ground when oil consumption in emerging

markets such as

Low crude oil prices points to lower

inflation and as gold is considered a hedge

against inflation, this has a negative effect

on gold prices as well. With the oil prices

continuing to fall and no signs of inflation,

gold prices might erode further.

Juhi Sharma, Welingkar School of Management | 2015-17

China and India was constantly going up and

the oil producers were finding it difficult to

meet the ever growing demand. For a really

long time US laws dating to 1970’s had

restricted them from exporting oil. Yet once

they discovered huge reserves of shale in

Texas, they replaced oil from all oil producing

countries except Canada with the inexpensive

crude from Texas. Soon the ban on exports

was as well lifted by the U.S Government

further reducing oil prices as another country

had started supplying oil to the world. Low

crude oil prices points to lower inflation and

as gold is considered a hedge against inflation,

this has a negative effect on gold prices as

well. With the oil prices continuing to fall and

no signs of inflation, gold prices might erode

further.

Despite gold losing its shine, it has managed

to maintain a hold on central banks, as the net

purchases in first quarter of 2015 were

reported to be 119.4 metric tonnes, which is

almost on par with previous year’s 119.8

tonnes recorded in the first quarter. Russia

has emerged as the biggest consumer with 30

tonnes in its account. Countries across the

world need to maintain a diversified portfolio,

hence emerging markets came out as the

biggest buyers this year. Overall with the

world moving towards economic stability,

consumers ditching gold for dollar, countries

like China and India resisting gold and oil

prices constantly falling, the future of gold

remains questionable for the near future.

By the mid-20th century, America’s top three auto

manufacturers — General Motors (GM), Ford and Chrys-

ler — produced approximately two-thirds of all cars sold

in the world.

Impact of Rupee Depreciation on India’s Export and Import

The theoretical understanding that a weak or

depreciated currency increases export

competitiveness and results in higher exports,

is reinforced by the experiences of the East

Asian countries of Japan, China, Korea and

Taiwan. It is a well-known fact that China

achieved its export-led double-digit growth by

keeping its exchange rate deliberately

undervalued. Chinese exports took off in early

2000 after the currency was unified in 1998

and effectively depreciated by nearly 30% as

China was securing its entry into the WTO.

Since then, exports rose by an average of 20%

annually, increasing its share in world exports,

higher than Japan and overtaking Germany as

the world's largest exporter in 2009.

India's export behaviour is not all that

different from other Asian economies. In the

case of Indian exports, the Government

authorities cannot ignore the impact of rupee

exchange rate on export performance. A

relatively weak rupee has several advantages.

It inhibits merchandise and service imports;

curbs wasteful energy-intensive consumption;

encourages import substitution and promotes

energy conservation.

Service exports, particularly software exports,

the fastest rising component of external

earnings emerge to be clearly and significantly

negatively correlated with exchange rate

movements. This finding is substantiated by

higher revenues of IT and BPO companies as

rupee depreciates. India's services exports-

especially software services are relatively

more price-elastic and benefit from a weak

rupee. India's share of services exports in the

world improved at a much faster pace than its

share of merchandise exports. Services sector

contributes around 60% to India's GDP, 35%

to employment, 30% to exports and accounts

for more than 40% of FDI into the country.

Promoting services exports that include

software, in-bound tourism, health sector

earnings, encouraging our NRI remittances

and discouraging outbound tourism and

payments to non-resident

factors of production

requires a suitably

depreciated rupee. These

measures will provide a

real improvement in our

current account balance

and not the protectionist or

administrative measures

adopted recently. Merchandise goods exports

are helped by weak rupee if the depreciation

of exchange rate is sustained over time and its

volatility is minimised. There are negative

impacts like increase in import bill, inflation,

burden on government and industrial foreign

borrowings hurting import based industries.

According to the Economic times, the 8%

depreciation of rupee against the dollar shall

result in a 20-25% rise in prices of imported

goods. Rise in prices of all imported goods and

imported raw materials will adversely impact

corporate profits.

A relatively weak rupee has several

advantages. It inhibits merchandise and

service imports; curbs wasteful energy-

intensive consumption; encourages import

substitution and promotes energy

conservation.

Nikhita Panday, PGDM IB | 2015-17

India being an import based economy is

heavily dependent on imports for energy

needs and rupee depreciation is inflating this

import bill. A depreciation of the domestic

currency results in higher import costs for the

country. Failure of a similar rise being

experienced in the prices of exportable

commodities is going to result in a widening

of current account deficit (CAD) of the

country.

RBI needs to

keep a sharp

eye on any

tendency for

the rupee to

appreciate, as

an overvalued

currency hurts

India's composite external earnings and helps

directly in widening the current account

deficit, thereby increasing the country's

structural external sector vulnerability. While

domestic business oriented companies may

remain largely unperturbed by the declining

rupee, they too may find the inflationary

impact in their business. Also, companies

using domestic input and exporting most of

output will gain the most from rupee

depreciation.

‘Adobe’ is named after Adobe creek which ran be-

hind the house of co-founder John Warnock.

Rise in prices of all imported goods and

imported raw materials will adversely

impact corporate profits. India being an

import based economy is heavily

dependent on imports for energy needs

and rupee depreciation is inflating this

import bill.

The Chinese are coming….

The ‘devaluation’ of the yuan drew much

media attention this week and some analysts

feared competitive currency devaluation by

other central banks. Analyst seems to have

taken a cue from an African proverb,

“Gazelle in an African Savanna runs faster

than the next gazelle to survive from leopard

attack.”

There goes an old folklore in China that a

man after facing rejection from his woman

for his marriage proposal, persisted with

‘Take a second look lady; it costs you

nothing’, resulting in his proposal’s

acceptance.

So on a second look, a different side to the

devaluation story pops in. Reviewing the

situation, the devaluation is not only meant

for putting the economy on track but is also

related to IMF’s recent decision to postpone

t h e

inclusion of

C h i n e s e

currency in

the Special

d r a w i n g

rights (SDR),

f u n d ’ s

basket of reserve currencies. But how far can

the inclusion be avoided?

The answer is not very long, as evident from

IMF president Christine Lagarde’s statement

few months back that, “the renminbi’s

inclusion is a matter of when, not if”.

The lame duck love falls apart:

China invested for many years its dollar

reserves in US treasury bonds pushing the

rates down and when it ran out of safe

assets options, it bought the US government

sponsored enterprise (GSE) papers.

In the midst of Lehman brother’s failure and

other bailouts, what largely went unnoticed

was US government’s compulsion to bailout

GSE’s to safeguard China’s investment in GSE

papers.

As the lame duck love with US felled apart,

China encouraged domestic consumption

which resulted in a commodity boom, a real

estate bubble, weak shadow banking and

other issues which proved of not much help

to bolster the economy.

China views the ambitious ‘One Belt and One

Road’ mantra will in a way use its reserves

effectively and propel growth in China

without depending much on US.

Will this plan

succeed? We

will have to

wait and see!

Enters the dragon with his Renminbi:

According to an estimate by Citi, a quarter of

Chinese trade is now being settled in

Renminbi.

Why is China pushing for inclusion of its

currency in SDR?

In the midst of Lehman brother’s failure

and other bailouts, what largely went

unnoticed was US government’s compul-

sion to bailout GSE’s to safeguard China’s

investment in GSE papers.

Gaurhari Pal, PG Finance | 2014-16

Inclusion of renminbi will result in IMF

member countries holding renminbi

indirectly through SDR’s; this will allay fears

of countries which as of now refrain in

dealing with Chinese currency. It will help in

creating a prudent financial market in China.

Benefits of this include more job creation as

compared to other financial centers across

the world like London and New York.

Trade settlement in renminbi, removes the

foreign exchange margin, helps in bringing

the cost down, and enables a larger access

to Chinese market. A boon to importers!

Further China’s central bank has

arrangement with other countries central

banks to exchange renminbi with their home

currencies. Many of these countries now

hold renminbi in their foreign exchange

reserves leading to an increased influence of

China.

The Renminbi challenge for India:

According to an estimate released by the

Ministry of Commerce, India’s exports to

China stood at USD 11.95 billion while

imports were USD 60.39 billion in 2014-15.

So, if rupee can hold its fort against the

devalued yuan, it will help in narrowing the

trade deficit with China. A depreciated Yuan

will lead to more dumping of Chinese good

too; on a brighter side it will help companies

get cheap inputs from China.

Other concerns include, depreciation of

rupee to maintain export competitiveness

will increase the import bill (some relief as of

now due to low crude prices).

But increase in crude oil price (when it

occurs) will have cascading effect on the

economy and deterioration in trade balance

will drive the rupee down leading to higher

interest rate. A higher interest rate is bound

to pull the growth down.

Conclusion:

Postponement of inclusion into SDR has only

led to increase in distrust of IMF among

Chinese elites, as they view it to be

influenced by US and its allies.

However China continues its efforts in

capital account convertibility front and in

integrating other countries through its

ambitious ‘One Belt and One Road’ strategy,

though treading carefully by “feeling for the

stones while

crossing the

river.” China

plans to use

its savings

and expertise

to build

infrastructure along this route to propel its

western provinces to growth.

Finally as and when renminbi gets included

in SDR it will no longer be compelled to

invest its savings in US treasury bonds and

feel free from the love hate relationship with

US.

Postponement of inclusion into SDR

has only led to increase in distrust of

IMF among Chinese elites, as they

view it to be influenced by US and its

allies.

The recent instabilities in the Middle East

Nowadays, when you open the newspaper

or switch on the television for news bulletin,

most of the shows cover the social unrest

and disorder in some countries or citizens

migrating and crossing boundaries due to

some crisis or tension building in

neighboring countries on some dispute,

especially in Middle East. Today, if one looks

back, he/she will find that there is a rise in

such cases in last 4-5 years in the Middle

East. An important international situation to

be focused is between Yemen and Saudi

Arabia.

Yemen: One word to describe it is chaos. It

all started in 2011 with the revolution

against President Ali Abdullah Saleh who

lead Yemen for more than two decades. In

2012, Saleh’s former vice president Abd

Rabbuh Mansur Hadi became the in charge

and was finding it difficult to unite Yemen

with continuous threats from Al Qaeda in

the Arabian Peninsula (AQAP) and Houthi

militants. In 2014, the Houthis invaded the

capital Sana and pressurized government till

2015 when Hadi and its ministries resigned.

Houthis declared themselves in control of

government dissolving parliament and

installing an interim revolutionary

committee led by Houthi. However, Hadi

escaped to Aden and later to Saudi capital

Riyadh and Saudi authorities began to air

strike in Yemen.

The conflict between the Houthis and the

elected government is also seen as part of a

regional power struggle between Shia-ruled

Iran and Sunni-ruled Saudi Arabia, which

shares a long border with Yemen. Gulf Arab

states have accused Iran of backing the

Houthis financially and militarily, though Iran

has denied this, and they are themselves

backers of President Hadi.

Amol Chanshetty, PGDM A | 2015-17

Yemen is strategically important because it

sits on the Bab al-Mandab strait, a narrow

waterway linking the Red Sea with the Gulf

of Aden, through which much of the world's

oil shipments pass. Egypt and Saudi Arabia

fear a Houthi takeover would threaten free

passage through the strait.(Source: BBC)

The ecological background of Yemen

compounded the political instability. There is

immense scarcity of water in Yemen and the

main source of water is groundwater. The

average Yemeni has access to 140 cubic

meters of water per year for all uses. This

water insecurity has a direct impact on

political instability. Outsiders hear most

about the proxy war between factions

supported by other countries, but according

to the Yemeni newspaper Al-Thawra, 70% to

80% of conflicts in the country's rural regions

are water-related. The country's Interior

Ministry has estimated that across the

country, water and land related disputes kill

40,000 people a year - more than terrorism.

(Source: Wikipedia).

The instability in this region is a concern for

the rest of the world even though Yemen

has enough oil and petrol for its use and

export. And for the west, it’s the question of

AQAP which spreads terrorism in United

States.

Saudi Arabia: After founding in 1932, Saudi

Arabia has been one of the most stable, not

to mention richest, countries in not just the

Middle East, but the world. It had a new

leader recently after the death of King

Abdullah bin Abdul-Aziz, and let's just say

the timing could have been better.

Saudi Arabia has long played a part in

stabilizing the region, a role that is needed

as much as ever. Iraq is battling ISIS

militants, who already control much of the

country and are threatening to take the rest.

The Sunni-led government in neighboring

Yemen is out, with uncertainty of what

comes next or whether some of its violence

will spill over into Saudi. And there's the

threat from across the Persian Gulf in Iran.

On top of all this, the price of the Arab

nation's economic driver, oil, has plummeted

over 50% since the summer to less than $50

a barrel. That's key, because oil revenues are

a bit part of Saudi government's revenues,

and a big reason it's so important on the

world stage.

The Middle East is unstable enough,

especially since the Arab Spring. The Saudi

government was one a few regional

governments to weather that storm

smoothly. But now, there's even more need

for stability, something that having a new

leader may not help with.

It is very possible that Saudi policy doesn't

change much under King Salman. Also it's

not yet clear how the transition will affect

the Saudi government's relationship with the

United States, whose leaders have long been

able to count on Riyadh for counsel and

support. Another possible impact of King

Salman's ascension has nothing to do with

geopolitics, but rather how much you pay at

the gas pump. The new King could decrease

the amount of oil pumped in Saudi Arabia,

which would decrease supply and increase

prices. Even without any Saudi action, the

price of oil has already started climbing after

King Abdullah's death.

Impact of the war: The most significant impact

was the volatility of oil prices. The UN

Secretary General has estimated the $274

million aid required immediately for relief and

rehabilitation of war victims. The U.N.

Children’s' Fund estimates that 100,000 people

have been displaced across the country in the

last two weeks, while Oxfam says that more

than 10 million Yemenis do not have enough

food to eat including 850,000 malnourished

children. Over 13 million people have no

access to clean water.

Yemen is home for about 1,00,000 people of

Indian origin which are now Yemeni citizens

according to Indian embassy. India evacuated

4000 Indians from Yemen.One of India’s most

important shipping routes passes through the

Gulf of Aden, accounting for imports of $50

billion and exports of $60 billion every year,

according to the shipping ministry.The route is

so important that the Indian Navy has

maintained a presence in the Gulf of Aden

since 2008 to protect Indian vessels and the

Indian crew of ships flying the flags of other

countries.

Tennessee is bordered by 8 states: Alabama,

Arkansas, Georgia, Kentucky, Mississippi,

Missouri, North Carolina and Virginia - more

than any other in the US.

Australian Mobile Advertising Spend in

financial year 14 was $620.2 million.

PANGEA 2015

On 26th September 2015, IBS@SIMSR

organized their flagship event PANGEA 2015-

The International Business Conference. The

event had on board some of the leading

industry veterans to share their experiences

and insights with the students. The speakers

were Mr. Arvind Mehra, Regional Sales Head

(Middle East and South Asia)- Cobham

Surveillance UK, Mr. Ankur Mehta, VP- Marsh

India, Mr. Durgesh Buxy, Dy. General

Manager (Exports) - Raymond Ltd and Mr.

Mangesh Kukalkar, Marketing Manager-

Pfizer Ltd. The aim was to give exposure to

the management students to the evolving

industry practice, complement their

classroom learning and garnering essential

industry insights which will help the budding

managers at SIMSR, Mumbai.

The Conference began with the SIMSR’s

tradition of lighting the lamp and reciting the

Campus prayer to invoke the Gods for their

blessings. The first speaker of the session Mr.

Arvind Mehra spoke about the Emerging

Trends in International Trade Finance. He in a

very engaging one hour session took the

students through a myriad of topics such as

short term, medium term or long term

trades, sources of International trade finance,

institutions involved in international trade

and documents associated with it. He also

used a detailed analysis of various

transactions required for international

trading of coffee as an example to help us

understand the concept better.

Next, the presentation on Risk Management

and Emerging Global Trends in Insurance

Business specifically brokerage by Mr. Ankur

Mehta gave us valuable insight on

significance of insurance and role of

insurance brokers. He with the help of a very

concise presentation took us through how

changes have come in the methods employed

to procure insurance and emerging trends in

India in field of insurance brokerage. He also

answered queries from the audience on

concept of re-insurance, umbrella insurance

and normal cycle of insurance broking.

Mr. Durgesh Buxy shared his experience at

Raymond to help us understand ‘how to

make a brand in India and take it global’. He

dwelt on the logic behind Raymond

challenging conventional wisdom by opening

stores in Bangladesh and Pakistan. He also

highlighted how the successful ‘Made to

Measure’ concept of Raymond helped it to

enter even prestigious markets like Dubai. He

gave a handy tip such as to be able to survive

and flourish, a foreign business must respect

the law of the land and also registration of

the brand is extremely crucial. He narrated

his anecdotal experience to make us grasp

the concepts in a more engaging way.

Last but certainly not the least the concluding

speaker, Mr. Mangesh Kukalkar made us

aware about the current challenges faced by

pharmaceutical industry and how inspite of

health care being an important industry the

growth is stagnated. He with the help of a

very informative and impressive presentation

explained how pharmaceutical industry has

moved from suitability to value addition and

various measures taken to bring substantial

growth in the industry, such as companies

collaborating for research and development

and sharing resources, researches, talents,

etc. to bring product faster to market.

He also used this opportunity to make students aware of various prospects in pharmaceuticals

industry for those who are not from this particular field.

Students interacted with these eminent industry experts after each presentation. The conference

closed with the vote of thanks to all the speakers, participants and IBS members, given by Prof C.

P. Joshi, faculty mentor (IBS@SIMSR).

Prof. C. P. Joshi with our esteemed speakers

IBS team with Prof. C. P. Joshi and our eminent speakers

Students attending PANGEA 2015

Mr. Arvind Mehra sharing his insights about

International Trade Finance

Mr. Ankur Mehta interacting with students

Mr. Durgesh Buxy sharing his experiences of taking

Brand Raymond global

Mr. Mangesh Kukalkar expressing his views on

Pharmaceutical Industry

Prof. C. P. Joshi giving vote of thanks

CROSSWORD

ACROSS 2.When one country sells it's products in another country below the cost of production 4.The original name of google 5.what's common-Bentley,Bugatti,Audi,Ducati 6.Parent company of Google 9.IBM's web based e-mail service 10.Ipad's retina scan is manufactured by

DOWN 1.First scooter to cross 1 crore in sales 3.Which kind of trade involves trade of services 4.'Making india beautiful' is the tagline of? 7.Mnemonic of a management tool used for studying macro-environment of a region. 8.Govenment imposed restriction on free international exchange of goods and sevices

Solutions— 1. Activa 2. Backrub 3. Volkswagen 4. Alphabet 5. Verse 6. Tariff

7. Dumping 8. Invisible 9. PESTLE 10. Samsung 11. Big Bazaar

International Business Society @ SIMSR

welcomes your valuable feedback

[email protected]

eglobuzz july sept '15

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