Favour the new Flavour?

Mr Patel was sitting at the Dwarka Port in Western Gujarat with a copy of The Economic Times in his hand and was pondering over the headline “Pakistan Okays MFN status for India”. He was thinking what implications this would have on an exporter like him. Just then his good friend and economist with the local university Mr Shah came and started discussing with him the implications of this.
Pakistan just granted India the long due Most Favoured nation (MFN) status which India had already given to Pakistan way back in 1996. The MFN status, which means that Pakistan will give trade treatment to India at par with its other partners, is likely to boost the bilateral economic ties. India had granted the MFN status to Pakistan way back in 1996. According to WTO the definition goes “Most-favoured-nation (MFN): treating other people equally      Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.” This has a lot of implications on the trade between the two countries which are listed below:

1. Trade re-routing: Even without the MFN status there is a large amount of trade happening between India and Pakistan. This trade is routed through entrepot centres like Dubai. This MFN declaration would facilitate the direct trade between India and Pakistan thereby eliminating the need for trading via Dubai. Future trade data will show a reduction in India’s exports to the UAE and an increase in exports to Pakistan. 
2. Shipping boom: There will be a boom in the shipping, communication and trade serving directly to Pakistan. The Gujarati ports which don’t have much business will see a boom.
3. Middlemen: These above facts would appear to just be superficial and not affect the business in the economics sense but there will be removal of a lot of costs. For example, the shipping costs would reduce by at least 2x (even though this cost is small, it will have a huge impact). Another dimension is the cost of middlemen in Dubai. The reduction in the number of intermediaries would directly affect the business thus increasing margins.
4. Competition: Indian goods will compete with Pakistani goods which will lead to overall cost reductions.
5. Relationships: More Indian companies will look for opportunities to grow in Pakistan and the same will happen for Pakistani companies. This will lead to companies spread across the border. A large fraction of the global trade is intra firm trade so when big companies from either side establish centres on the other side of the border, this will lead to a growth in the bilateral trade.
6. Benefits for the states: States on the border which have been susceptible during times of conflicts will be the ones which are benefitted the most from this; especially Gujarat with its long coastline nearest to the Pakistani ports. 
7. Benefits for companies: Companies which have set up production centres in states which are bordering Pakistan would be affected in a positive manner as new markets will be approachable cheaply. For example, companies like Tata can look forward to ship their low cost car Nano to Pakistan via the ports in Gujarat. 
8. People: Looking at trade in isolation would be improper as this movement of goods and services will lead to movement of people. Thus, this will hopefully ease the visa restrictions imposed by the two countries on each other. 
9. Finance: It is said in history that finance follows trade. So where trade in goods and services leads, finance follows. MFN would lead to trade financing, cross border banking, payments, purchases of information, FDI, FII flow, INR /PKR currency risk management and investment flows, etc.

Listening to the above mentioned points had a jaw dropping reaction from Mr Patel who started working his Gujarati mind and looked for opportunities to make money from this announcement as it opened a whole new world for him to make more money!


Originally published on : Finertia - GIM's Finance portal

A small world is still a distant dream

As the saying goes “It’s a small world”. I beg to differ with that. With the rapid technological developments we are in fact shortening the world in the sense that a person in one place can interact with another in a different part of the world. But the real question here is that “How many people actually make use of these technologies?” The internet penetration in the world is just 28.7% of the overall population and most of this penetration takes place in the developed countries which represent just a fraction of the world’s population. The places where there is more number of people (eg Africa, India, China, etc.) the penetration of Internet is quite low. Though it is growing at a good rate but the fact remains that it will take many decades to achieve a good level of penetration. By good level I mean penetration worthwhile of saying “a small world”. Moreover, the phrase “small world” also implies people can easily interact and cooperate and work with people from other places constructively. This is being made possible by virtual offices and web/video conferencing but these methods can never replicate the level of understanding and the level of completion conventional methods can achieve. These conventional methods mean meeting and interacting personally which is not easily possible as the world itself is a HUGE place. Moreover, there are still parts which are unexplored by humans in the world. Places where it isn’t easy to survive, reach and where there are species we don’t know about even after being in existence for so long. This fact itself adds to my personal belief that a small world is still a distant dream.

Alternative Investments

In 2004 all the newspapers in India were going gaga over Mr Vijay Mallya for bringing back the sword of Tipu Sultan and thus restoring India’s glory. But the fact of the matter is that it was much more than bringing back the glory of India.
As the name suggests these are investments which are unconventional in nature. These investments are the ones apart from the traditional ones of stocks, cash and bonds.
The Tipu Sultan sword is one example. It was bought for Rs1.5 Crore but its current value could easily be triple of that amount. The primary reasons for this could be the rarity of the item which in this case is the sword which is the only one in the world.
Another example of alternative investments is league teams and these teams generate huge returns. An example of this is the Rajasthan Royals IPL team. It was purchased for $67 million by its promoters in 2008 and in 2009 its 11.7% stake was sold to businessman Raj Kundra for US $15.4 million thus valuing the team at $130 million and generating a 94.03% return!
There are other alternative investment products such as stud farms, real estate (islands, vineyards, etc.), hedge funds, art, wine, coins, stamps, private equity, etc.
The Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, based on 2002 data, showed high net worth individuals, as defined in the report, to have 10% of their financial assets in alternative investments. For the purposes of the report, alternative investments included "structured products, luxury valuables and collectibles, hedge funds, managed futures, and precious metals". By 2007, this had reduced to 9%. Alternative investments are sometimes used as a tool to reduce overall investment risk through diversification
Positives
 Diversify an investor’s portfolio with the low correlation
 Reduce risks.
 Offer good profit generating opportunities.
 Give astronomical returns

Negatives
 The liquidity of these investments is lower than that of stocks, bonds and cash.
 The fee structures for these investments are generally higher than those for stocks and bonds.
 These investments require specific expertise, as a result of which the costs associated with due diligence are high.
 It is difficult to establish benchmarks for these investments. This hinders the performance appraisal of the investments. Moreover, the lack of performance data limits an investor’s ability to make an informed choice.

Thus venturing into alternative investments is an art in itself as there is not much data available regarding their valuations.

Published on :Finertia - GIM's Finance portal

Quizzing and its evolution

Staying in GIM amongst the beautiful Western Ghats sometimes brings out the writer in me, compelling me to write about one of my favourite past times – Quizzes.

As popular perception goes, quizzes aren’t just about trivia or knowing stuff but they have evolved to a much more mature form which relies less on knowledge but more on thinking. Of course, one cannot just sit in a quiz without knowing anything about it. I have been quizzing since I was in class 5 which started with an amazing marketing campaign by Maggi to promote its noodles by having quizzes in schools where the prize was the number of Maggi Noodles’ packs one could hold, I managed a decent 12 J. The first question thrown towards me was “Who is known as the nightingale of India?” and till this date I can never forget this missed opportunity which had a yellow Maggi cap as the prize. After that was the weekly dose of trivia in the form of BQC – Bournvita Quiz Contest – one of my favourite TV shows with the knowledgeable Derek O’Brien who is credited with instilling general knowledge in thousands of children (me included).

To the ignorant, BQC would appear as just a bunch of trivia questions but after dissecting it thoroughly I got to know that BQC was one of the first quizzes which had connect questions and questions which required not only knowledge but also application of mind and a keen eye in a time when quizzing was still immature with questions based on trivia. I guess it all changed with the advent of internet based quizzes and the mass use of Google in India.

This change coincided with me entering engineering. Now I was blessed to enter a college which had its own quizzing club which was around 3 years old full of quizzing gurus where I was a lowly mortal. As everyone else I also initially resisted to the change and tried to follow the old school method of quizzing based on trivia but later fell in line as there wasn’t much left for trivia based quizzing. With online quizzing came the most abused cheat of an online quizzer (me included) which was Google. With this almost all the quiz questions could be easily answered by the click of a button but everything was about to change. Online quizzes with pictorial questions and pictorial connects came into play. But with every long route comes a short-cut and we had the development of a reverse image search engine called tineye.com but wasn’t quite effective.

Around 2009 came the big revolution called Facebook and Twitter which changed the face of quizzing from a pure knowledge based to a knowledge + time based game where the fastest to answer was the winner. The pioneer in this is @kweezzz on twitter which has multiple quizzes daily which can be anything under / over / beyond the sun.

Fast forward to 2011 with Google launching the reverse image search which is more than 10 times powerful than tineye.com we are looking at the new era of the species called “Quizzes”. I don’t know what lies forward but quizzes are sure to evolve and being in BrainVista – the quizzing club of GIM, I am sure that I will be on a lookout for this evolution.

PS – Sarojini Naidu is the nightingale of India.

~ Servesh Jasra

www.facebook.com/BrainVista

The Tum-Tum experiences

Tum-Tum (or Tam-Tam but I like the former as I think it should be spelt as it is pronounced, similar to Tummy) is one of the most preferred modes of transport in Pune. I don’t know because of choice but I figured that it must be because of lack of options because I don’t think people would want to be stuffed in an iron box with 7/8/9 other sweaty people in the Pune heat. This metal box is seen moving around in Pune with their drivers thinking themselves as nothing short of Schumacher. It’s equivalent to a roller coaster ride (with the roads) at a cheap rate. These things guzzle gallons of diesel and make so much sound that one would need ear plugs if you stay in it for a longer duration of time.

These experiences are thoughts that came to my mind when I was sitting in one of these hot iron boxes while travelling in Pune. These thoughts are mostly about people who were sitting with me, in front on me, on me. What I think they do, what were their expressions, where do they belong, what language do they speak?

Coming soon: Korean Guy