InFINeeti August2014 Annual Edition

InFINeet | Annual Issue | August 2014


Dear Friends,
Greetings from Team InFINeeti
A lot has changed since the last tme we interacted. A new government has been formed, the Union budget has been pre-
sented, the Sensex has touched a new high of 25000 and many more events. Before the electons, a slogan from BJPs
natonal campaign had become famous, Ache Din Aane Wale Hai. The masses have voted for the party and afer three
decades, a single party has won a majority in the Parliament. There were high expectatons from the new government.
The frst test of the new government was to present a balanced budget which clearly lays down the roadmap for econom-
ic growth in India in both- short and long term. So, our theme for the magazine this tme is based on the slogan of BJP:
Union Budget: Has budget met the expectatons of Ache Din ?
Technology, nowadays, is touching every sphere of business. Banking is no excepton. We have tried to analyse the role of
technology in shaping the banking industry. Also, we are hearing about GST for long enough. One of our artcles analyses
the future of GST in India. Many people believe that the one of the reasons for the fall of the last government can be
atributed to populist schemes by the centre and corrupton emanatng from those schemes. We have tried to analyse
whether populism or ratonal economic policies work in the longer term.
Financial sector is in dire need of reforms. Most of the laws are archaic and date back to the Stone Age. In this backdrop,
FSLRC commitee was formed which tabled its recommendatons. One of our artcles analyses the recommendatons
made by the commitee. In our constant tryst to innovate, we have tried to amalgamate two unrelated events into one.
One is the recently concluded FIFA World Cup and the other one is M&A. How football and M&A can be related? We have
an interestng artcle on it. The magazine also contains the analysis of dividend distributon tax and FDI in Insurance, and a
discussion on whether they are good or not. This is the tme of the year when B-school students have returned from their
summer internship. So, we have captured the experience of one of our colleague regarding how summer internships are
important to understand the nuances of business in a MBA students life. We then have tried to get an insight into the
Indian Agriculture sector and Rural Finances by conductng an interview with a dignitary from NABARD. We have also in-
cluded an artcle on implementaton of IFRS in India.
Besides the insightul artcles, the editon also features regular columns like FIN Trivia, FIN-lingos and News Chronicles.
We have also added a new regular column on equity research. We hope readers will fnd it useful.
From the next tme onwards, the readers will be greeted by our new team and we, the current team, have a sense of
pleasure, pride and at the same tme are poignant as it was an excellent opportunity given to us to handle this esteemed
magazine. We hope that we have done a good job.
Till then we hope that you will enjoy reading this annual budget editon.
Do write to us regarding any suggestons, feedbacks or recommendatons.
Goodbye & Happy Reading !!!

FROM THE EDITORS DESK
3

CONTENTS
2
CONTENTS
4
>>> Page 26 >>> Page 36 >>> Page 56
Football & M&A:
A comprehensive analysis
of M&As using football as
an analogy
5
Budget plus 3.0:
Highlights of post budget
analysis at IIFT
9
Future of gst:
Advantages & disad-
vantages of imple-
mentng GST
12
Top events of 2014:
Review of important
events of 2014
24
Role of technology
in banking:
Analysis of role of tech-
nology in changing the
past, present & future of
banking industry
26
COVER
STORY

ANALYSIS OF THE
UNION BUDGET

Does the budget meet the
expectations of Ache Din
Fslrc recommenda-
tions:
How FSLRC recommenda-
tons can bring much
needed reforms in fnan-
cial sector
45
EXPERT SPEAKS
FIN LINGOS
16
EQUITY RESEACRH PRE-
CURSOR
36
49
Ifrs implementation
in india:
Benefts of adoptng IFRS
53
NEWS CHRONICLE

Regulars
40
Dividend distribu-
tion tax:
How taxing dividends is
useful to government.
Are they really benefi-
cial?
32
Facultys corner:
FDI in Insurance
Populism: A neces-
sary evil?
Ill-efects of populist
measures
Summer internship
experience:
Shubham Agarwal shares
his RBI experience
61
56
60
63 FIN TRIVIA

5
INTRODUCTION
Football has ofen been used as a powerful image
representng hope, as a vehicle that binds people and
encourages them to functon as one, giving them a
sense of purpose and directon. There is even an ad-
vertsement that shows kids playing football with a
rag ball in a poverty stricken locality in Africa, a strong
testament to the overwhelming sentmental appeal
and sway that football holds over the masses. Club
football has cashed in on this popularity and has
transformed itself into elaborate money making ma-
chine that is on par with the leading corporate giants
of present day, in terms of revenue streams and mar-
ketng campaigns.
SOURCES OF REVENUE
How do soccer clubs make money? It is a very simple
queston that many fans of the game ofen wonder
and postulate but seldom fully understand. Most frst
answers to this queston would be match-day sales,
but there are those with a deeper understanding of
the industry that know that this is not quite the full
story. Deloites Football Money League reports the
revenue of top football clubs by broadly classifying
the revenue into 3 main segments: Match-day Reve-
nue (gate receipts), Broadcastng Revenue (domestc
and internatonal), and Commercial Revenue
(sponsorship and merchandise). As per a 2013 report,
Real Madrid earned revenue of $675 million during
the last year and has a team value of $3 billion as of
May 2014, of which $1.12 billion (32.6%) is to be
earned through commercial sources, another $1.12
billion from Broadcastng, $710 million (20.6%)
through Match Day revenue and the remaining $484
million through brand value.
It is important to understand the growing similarity
between corporates of the fnancial world and foot-
balling clubs. For the later, assets are-players, broad-
cast rights, kit sponsorship deals and franchise deals,
and these are used by the club to make money, not
so markedly diferent from the way corporates make
money. Another curious similarity that can be struck
is the concept of mergers and acquisitons (M&A).
FOOTBALL PLAYER TRADE VIS--VIS
CORPORATE M&A

BY-BRAJESH M & NITESH SINGH, IIFT


6
The idea of M & A, though in circulaton for a long
tme, has started gaining purchase over the past few
months, with several big tcket deals being an-
nounced; Whatsapp- Facebook, Shire-Abbvie, Myntra-
Flipkart, to name a few.
FOOTBALL TRANSFERS AND CORPORATE M&A
The footballing world is no stranger to the idea of
M&A, though in an entrely diferent context. It is not
possible for football clubs to buy each other, so acqui-
sitons are limited to people: the manager, the players
and the marketng and support staf. In fact, the
transfer market, which facilitates the acquisiton of
players, is the most talked about topic when transfer
windows open, and is fuelled by incessant speculaton
and hectc negotatons. Before we further develop
this analogy, lets take a step back and try and under-
stand why companies in the fnancial world go in for
M&A. Though the reasons for such actvites would
vary from case to case, they can be broadly grouped
under a few categories, like capability enhancement,
expansion into other markets, reducton in compet-
ton, fnancial survival etc. A close examinaton of
transfer deals in football reveals striking similarites
with these points.
CAPABILITY EXPANSION
Capability expansion refers to a companys eforts in
shoring up its resources and improving resistance to
possible weaknesses. One of the major reasons be-
hind acquisiton is to appropriate some capability that
the target company has and that the acquirer wanted
or needed. Comcasts 2002 acquisiton of AT&T
Broadband (so it could ofer more comprehensive tel-
ecommunicatons services) and Walt Disneys 2006
acquisiton of Pixar (to extend its animaton capabili-
tes and add new flms it could market to its estab-
lished audience) come under this bracket. Premier
League clubs have spent more than 4.4bn on players
since the transfer window was introduced 12 years
ago with this summer's spending set to cross 500m.
Post 2008, when Abu-Dhabi-based oil magnate Sheikh
Mansour bin Zayed Al-Nahyan bought Manchester
City FC, the clubs total cash outlay was 930.4m, of
which only 365.3m was generated from their own
operatons. Chelseas acquisiton of Diego Costa is a
clear indicaton of Mourinhos intenton to adding
some frepower to his long depleted strike force, and
providing support to Fernando Torres who ofen cuts
a lone fgure up front. Luke Shaws move to Manches-
ter United to plug defciencies in lef back can also be
viewed similarly. Other familiar names among big
spenders are Barcelona and Real Madrid, who are
constantly on the lookout for promising new talent, to

maintain their reputaton of being football power-
houses. Roman Abramovich's billions have made Chel-
sea the Premier League's biggest spenders over the
past decade with 681m going on transfer fees.
EXPANSION
Another main motvaton behind M&A is to expand
into a new geographic locaton. Examples include the
acquisiton of Lucent (U.S.) by Alcatel (France) in 2006,
Bharts deal with Zain to buy the Kuwait frm's mobile
operatons in 15 African countries in 2010 and South
African Breweries purchases of Miller (U.S.) in 2002
and Bavaria Brewery (Colombia) in 2005. Extrapolatng
this argument to the world of football, a clubs mone-
tary fortunes are linked to the following that it enjoys
across the world.

The more popular a club is throughout the world, the
more point of sale opportunites it will have for fans to
purchase merchandise, thereby flling the cofers of
the football club. It would be pertnent to talk about
Manchester Uniteds eforts in building up a fan base
in Asia, ranging from ofcial websites in local lan-
guages (manutd.cn, manutd.jp) to te ups with local
mobile networks for access to free content. All of their
promotonal advertsements feature Shinji Kagawa,
their Japanese midfelder, in an atempt to connect
with their fans in Japan. Another instance of clubs try-
ing to build their image in new markets is the estab-
lishment of soccer training camps and youth leagues,
as entry points to an expansion in the future.

Many a tmes, the ratonale behind M&A is to expand
your market share by buying out competton. Acquisi-
ton of Thums up by Coca Cola in 1993 falls under this
category. Thums Up had an 85% market share when
sold, and it made sense for Coca Cola to swoop in and
bring Thums Up under its wings. There are endless
examples for this when it comes to football. A case in
point is Borussia Dortmunds midfelder Mario Gotzes
move to rivals Bayern Munich last summer, followed
by striker Robert Lewandowskis exit to the same club.
Juan Matas move to Manchester United consttutes a
rather curious move by Chelsea to purportedly make
life difcult for its contenders Arsenal, Liverpool and
Manchester City.
7
Source:www.wowtechy.com
Source: www.thesportsbank.com


LEVERAGED DEALS
Many M&A deals take shape of a leverage deal in
which the whole, or a part of a struggling business
entty is taken over by an acquirer, ofen one aligned
with its feld of work, so as to open up the possibility
of collaboraton with the acquired business. Mi-
crosofs acquisiton of Nokia, Sun Pharmaceutcals
taking over of struggling Ranbaxy are examples for
the same.
A lot of football clubs resort to this measure so as to
avert the risk of fnancial crisis. Cash strapped Ju-
ventus, for instance, is trying to make some money
out of the signifcant interest that the other clubs
have in key midfelder Arturo Vidal. Chelsea veteran
Frank Lampard being ofoaded to rivals Manchester
City, is akin to companies getng rid of streams that
are no longer considered core to their business.

CONCLUSION
Having talked of M&A in companies and their similari-
tes with transfers in Football, it is important to sound
a word of cauton; the path to a successful deal is lad-
en with numerous obstacles in all shapes and sizes.
Instances of failed deals and failed transfers are many
in number; America Online (AOL) and Time Warner in
2007, Sprint and Nextel Communicatons in 2005,
Motorola and Google (2012); the list is depressingly
long. A Forbes artcle states that the probability of
success of an M&A deal is about 50%, a coin toss. The
football world is also replete with instances of failed
transfers; Marouane Fellaini to Manchester United,
Fernando Torres to Chelsea, Andriy Shevchenko to
Chelsea, Mario Balotelli to Manchester City. It is
therefore imperatve to understand to the last detail,
the implicatons of a possible merger, or a player ac-
quisiton, for a deal once signed cannot be undone so
easily.
Source:www.etoro.com/www.manutd24.com
Source: www.iamwire.com
8

OVERVIEW
The third editon of the annual budget analysis ses-
sion, Budget Plus 3.0, was organized at Indian Inst-
tute of Foreign Trade, Kolkata. The esteemed discus-
sion panel included Dr. K. Rangarajan, Head, Kolkata
Center, Dr. Ranajoy Bhatacharyya, Professor of Eco-
nomics, IIFT, Dr.Saikat Sinha Roy, professor of eco-
nomics, Jadavpur University, Mr.Pankaj Agarwal and
Mr.Akash Mansinka from Ernst and Young. The discus-
sion was moderated by Dr. Bibek Ray Chaudhuri, Pro-
fessor, IIFT.
Dr. K Rangarajan welcomed everyone and said that
the Budget afects everyone from a housewife to a
business tycoon and how everyone has diverse views
on it. He added that IIFT has invited academicians,
faculty and industry experts to have a discussion on
the budget and what it holds for every one of us.
The Student Body gave an enlightening presentaton
on the highlights of the budget. It was a succinct over-
view, throwing light on the various schemes and init-
atves taken by the Government. Dr. Bibek Ray
Chaudhuri threw light on the developmental per-
spectves and spoke on how he looked forward to
the economy getng back on track with higher
growth, stable infaton and prudent policy system,

9


although the Consumer Price Index, being double-
digit, was stll a major issue of concern. The Budget
lays out the roadmap to achieve a growth rate of 7-
8%. According to him, The Government is targetng
small savings".

Dr.Saikat Sinha Roy analyzing the budget
Dr.Saikat Sinha Roy spoke as to how, for the last two
years, the economy has not been performing well.
The trust of the investors in the Economy needs to
be restored. According to him, the budget is a docu-
ment of intent. The current government manifesto
included the need for an overhaul of infrastructure
by which the Government will get revenue. He said
that subsidies should be phased out for the Indian
economy to compete with the other economies.
Although the current government is perceived to be
industry friendly, yet retrospectve taxes have not
been taken of. According to him, one of the fea-
tures of the budget diferent from the earlier ones is
that most of the changes are for more than two
years and no tmeline has been specifed. Moreover
tax benefts have been given to the industries that
have their own power units. Dividend distributon
tax, the tax paid by a company on its dividends paid,
needs to be grossed up".
Students listen as experts dissect every aspect of the budget
Mr. Pankaj Agarwal spoke on the indirect taxes which
comprises the customs, excise and service tax. He en-
lightened the gathering on how Service Tax, though
introduced only in 1994, garners the highest tax reve-
nues for the Government.
He also pointed out the initatves taken to incentvize
the use of renewable energy resources. The decision
of the Government to levy taxes on the services pro-
duced by the educatonal insttutes will add to the
revenues of the Government.
Dr. Ranajoy Bhatacharya took a diferent stance from
the other panelists and remarked that he was
disappointed by the budget. He said that the Gov-
ernment had missed a huge opportunity. Having been
elected with an overwhelming mandate, it
10

was tme to take some hard measures. According to
him, the budget was a pure eyewash. He questoned
the transparency of the Government and its atempt to
surrepttously reduce expenditure behind the
scenes, referring to the reducton in the expenditure
on Agriculture, Rural Development and Social sector.
He remarked that Agriculture is the main botleneck
in India and enlightened us on the fact that Agricul-
ture employs 55 percent of the populaton yet ac-
counts for only 14 percent of the GDP. This structural
faw needs to be addressed.

The audience, comprising of students from IIFT, were
very partcipatve and had various questons ranging
from the duraton of the long term capital gains to
increasing FDI in defense.
The panel concluded that though the budget was
welcoming, yet more was expected of it. They
called in for simpler tax administraton that would
lead to larger tax compliance.
All in all, the session was quite enriching and informa-
tve as students, both from the frst year as well as
from the second year got to understand the nuances
of the budget and also understood how to dissect the
nity-grity of the budget. So, from next tme onwards
they would know what to look for in the budget and
would be in a beter positon to analyze it.
-By Mohd Zeeshan - IIFT

11


INTRODUCTION
The most awaited Goods and Services Tax (GST), a
major reform in the Indian taxaton system with re-
spect to indirect tax, has been announced in the Un-
ion Budget of 2014. Every industry is looking forward
to this transformaton with the positve hopes. There
are questons in the minds of people from every sec-
tor of economy regarding the impact of the changes
that would be brought by GST. The manufacturers,
wholesalers, retailers and the consumers are waitng
to know their stake associated with the reform.
BACKGROUND
The current tax system is inefcient and complicated
due to the tussle between the central and the state
governments to generate maximum revenue for
them. Central government levies tax on the manufac-
ture of goods through CENVAT, on services through
Finance Act and on the sale of goods through Central
Sales Tax Act (CST). States again levy taxes on the
sales of good that is independent of the tax levied by
the Centre. This mult-layered tax system leads to the
cascading efect on the indirect taxaton system.
However, afer the introducton of VAT in 2005, the
cascading efect has been reduced to a certain ex-
tent. Moreover, the bulk of the tax revenue goes to
the central government. So in order to compensate
the state government it levy multple indirect taxes
on the revenue generated from goods, for example
inter-state sales tax, octroi etc.
The proposed GST is aimed at replacing multple indi-
rect taxes like central excise, VAT, service tax with the
common taxaton system. And this can have major
implicatons on the Indian economic growth. GST
would bring in higher revenue for the government by
broadening the tax base and minimizing exemptons.
This would also redistribute the tax burden equitably
between the manufacturing and the service industry.
THE PROPOSAL OF DUAL GST
The current proposal of dual goods and service tax
will not distnguish between goods and services. And
the central and the state GST would be levied on the
taxable value of the transacton. Except few assump-
tons, all the goods and services would be covered
under this scheme.
Currently the indirect taxes on goods is around 20%
and services are taxed at around 10%. But once the

GST IS THERE ANY
FUTURE?

BY- SNEHA SHRIVASTAVA,
IIM-RAIPUR
12

The cascading efect of multstage taxaton in the supply chain
GST is implemented, the fnal rate for GST is expected
to be around 14-16%. Further, the proposal has been
put for the dual tax structure which will impose single
tax rate for services and multple tax rates for the
goods.
WHAT WILL EXACTLY HAPPEN?
The implementaton of the goods and services tax
would impose a single tax on the goods and services.
At the end the amount of tax the consumer has to
pay will remain almost same in the short run. But the
distributon of taxes would be equal on both the
manufacturing and services sector. This will reduce
the extra burden that the manufacturing sector is car-
rying. Moreover, it will broaden the tax base by mini-
mizing exemptons and scope of corrupton by mak-
ing the taxaton system more transparent. The cas-
cading efect of the taxes imposed by the centre and
the state would disappear.
IMPACT ON THE SUPPLY CHAIN AND LOGISTICS:
Currently due to the complex tax structure the inven-
tory and the distributon decisions are taken so as to
avoid as much tax as possible. The manufacturers
maintain warehouses in diferent states to save on
central sales tax imposed on inter-state movement of
goods. This leads to the operatonal inefciency. Fur-
ther, the impact of the increase in the number of
warehouses is borne by the end consumer in terms of
cost or they have to sacrifce on quality.
But the GST will bring a common and centralized mar-
ket for the sales of goods and services across the coun-
try. This will increase the operatonal efciency of the
supply chain and the beneft will reach to the end con-
sumer as well.
IMPACT ON GDP:
Due to the transfer of major share of indirect tax col-
lected to the centre, state levies multple indirect taxes
on the goods and services. To avoid this the taxpayers
play with the loopholes in the tax structure and try to
avoid paying the tax, leading to larger number of ex-
emptons. This leads to losses for the government.
But, the implementaton of GST would bring in trans-
parency and reduce complexity. It will broaden the tax
base and would redistribute the burden between the
manufacture and service sector. Further, under GST all
the goods and services would be covered and the num-
ber of exemptons would be reduced. And this will gen-
erate more revenue for the government.

13


The current proposal for the implementaton of dual GST
The center and state will have their fxed share and
there would not be scope of either unnecessary tax
impositon or tax avoidance. This will bring more in-
vestment, generate more employment and would
promote exports. All this together would add to the
GDP of our country.
IMPACT ON THE MANUFACTURING SECTOR:
As discussed above the manufacturing sector has
been pressed with the extra burden of tax as it pro-
vides the scope for mult-stage taxaton. This has
made this sector less atractve for investment.
But the GST would release the ailing manufacturing
sector from the heavy tax burden. This would make
this sector as a proftable opton which would spur its
growth. As a result, cost of producton will decrease
and export will increase.
IMPACT ON THE PRICE OF GOODS:
In the long run, the price of goods would decrease as
the proft earned in the upper end of the supply chain
would be transferred to the consumers as well.
IMPACT ON THE SYSTEM:
The reform will increase the efciency of the system
by bringing in transparency. The diferent sectors
would be treated equally and the consumers would
have to pay the fair price for the goods and services.
The transparency will bring compliance to the govern-
ment norms and would reduce corrupton.
For example, in case of the goods manufactured, sup-
pose the consumer pays the GST of 6% while buying
the product. Here the tax amount paid by the consum-
er would be shared by the manufacturers, wholesalers
and retailers equitably based on their cost of manufac-
turing or services.
ANALYSIS- FOR THE FUTURE OF GST
With respect to the prior experience - Implementaton
of VAT in 2005-2008:
The implementaton of value added tax (VAT) in 2005
had increased the income tax revenue for the govern-
ment of India to 5.9% of GDP in 2008 when compared
to the 3.7% of GDP in 2004. Working on the

14

similar lines of VAT, GST could also reduce the com-
plexites in the tax structure which gives the scope of
corrupton. It will bring transparency which will in-
crease the revenue generated from the income tax.
WITH REFERENCE TO OTHER COUNTRIES:
According to the report published by the Natonal
Council of Applied Economic Research, implementa-
ton of GST would increase GDP by 0.9%-1.7%. Canada
experienced 1-2% increase in GDP afer the imple-
mentaton of GST. On the similar lines, when GST was
introduced in New Zealand in 1987, it increased the
revenue generated from tax by 45%.
Currently, there are 160 countries in the world who
have adopted GST.
WITH RESPECT TO THE BJPS ELECTION MANIFESTO:
BJP government is strongly in the favor of bringing
transparency in the tax system and the growth and
development of all the sectors of economy. The evi-
dence collected from the implementaton of VAT in
India in 2005 and the implementaton of GST or VAT in
other countries shows the brighter picture. It reveals
that the centralizaton of the taxaton system and the
single tax rate for both the goods and services would
reduce the complexity and would bring in more trans-
parency. It would reduce the scope of red tape and
tax avoidance or exemptons, which is otherwise pos-
sible in the existng taxaton system.
CONCLUSION
To summarize, the implementaton of GST would not
have direct impact on the consumers in the short run,
as they have to pay almost same tax for the consump-
ton of goods and services. However, in the long run
the benefts earned by the manufacturers, wholesalers
and the retailers would be passed on to the consumers
and they have to pay lesser on the purchase of goods.
Moreover, the burden on the manufacturing sector will
get reduced as there will be equitable distributon of
tax between the manufacturing and services. This will
encourage investments in the manufacturing sector,
which is currently lagging behind in our country. The
boost in the manufacturing sector will create the col-
lateral benefts like increase in employment, exports,
investments opportunites, FDI etc.
All these factors would together add to the revenue
generated from the indirect tax and would accelerate
the growth of the country.

15


16
CHINESE WALL
It is the communicaton barrier
that should exist between
diferent departments of a f-
nancial insttuton to avoid any
possible confict of interest.
For example, if a frm ofers both brokering and cor-
porate advisory services, the client should be able to
trust that the sensitve informaton which it is shar-
ing with the advisory department would not be used
by the brokering department to make undue fnan-
cial gains.
INVESTMENT GRADE
It is a ratng system that indicates the risk of default
for a bond issued by a company or a sovereign.
There are bond ratng agencies such as Standard &
Poors, Moodys and Fitch among others that assign
ratngs to corporate, municipal or sovereign bonds.
These ratngs correspond to the risk involved in buy-
ing these bonds.
CLUB DEAL
It is a private equity buyout in which the controlling
interest in a company rests with several diferent
private equity frms. This
group pools its assets togeth-
er and collectvely makes the
acquisiton. PE frms do this
in order to acquire expensive
companies which they would not have been able to
acquire going alone. Also, it is an efectve risk man-
agement strategy since the risk is now distributed.
CONDITIONS PRECEDENT
The set of conditons that a borrower must meet
before he can request that credit facilites be made
available to him. These conditons are a part of the
lending agreement that the borrower might have
with a bank or fnancial insttuton.
Fin Lingo

FALLEN ANGEL
It is a security which was once in-
vestment-grade but has since been
downgraded to junk status. Not all
fallen angels are securites of com-
panies headed towards bankrupt-
cy. For example, a company with
strong fundamentals may temporarily lose investor
confdence due to extraneous factors. This may result
in a downgrade of credit ratng.
EXCHANGE TRADED FUND
An investment fund that holds stocks, bonds or com-
modites and is traded on an ex-
change like a regular stock. An ETF
tracks an index and tries to replicate
the return provided by it. For exam-
ple, when one buys into an ETF
tracking the Sensex, they are buying into a portolio
of stocks being traded there. The objectve here is not
to outdo the performance of the Sensex but to match
it.
CALL SWAPTION
Call Swapton is a category of op-
ton which gives the owner a right
but not the obligaton to exercise
a swap. If exercised the buyer would have the right to
receive a pre-determined fxed interest rate. Swap-
ton is short for call swap opton. It is a hedging tool a
buyer might use if he believes the interest rates are
likely to go down.
PITCHBOOK
A book of graphs, charts and market data along with
recommendatons for the
market presented to prospec-
tve clients by bankers and
fnancial insttutons. The ob-
jectve is to land a mandate to
handle the clients funds.
MATERIAL ADVERSE CHANGE (MAC)
Material Adverse Change (MAC) is a conditon that is
usually included in loan agreements,
providing protecton to lenders
against changes that may have a sig-
nifcant efect on the business, fnan-
cial conditon and assets of the bor-
rower. Afer the occurrence of a
MAC event prior to closing of a deal, lenders usually
reserve the right to modify the interest rate or other
terms of the agreement. For already closed deals,
lenders may refuse any further drawing of cash and
demand immediate debt repayment.
Fin Lingo
17

COVER STORY
14

COVER STORY
19
INTRODUCTION
Electon 2014 was a very high voltage afair where
many promises were made by our politcians to bring
the economy back on track. The current government
carries the expectatons of a billion plus populaton to
salvage the economy from the deep economic mess it
is currently in. With this backdrop the Union budget
2014 was tabled on 10th July in Parliament by our Fi-
nance Minister Mr. Arun Jaitley. The Finance Minister
had limited tme at his disposal to come up with any
big bang reforms. Nevertheless he was successful in
making some good decisions in the Union Budget. The
Finance minister announced a slew of measures for
correctng the economy in felds of manufacturing,
job creaton, educaton, banking and infrastructure.
So, although the budget measures may not be the big
tcket reforms that people were expectng but these
same measures have the potental to cause transient
but critcal changes in the system. Some of the key
measures that the government took could have a very
positve efect on the economy.
MANUFACTURING BOOST
The Budget has specifed a number of measures to
rectfy the manufacturing sector and bring it back on-
to the growth track. The budget has announced steps
to raise private consumpton and make manufactur-
ing industry the future wheel that will drive the econ-
omy. Steps such as extending excise duty cuts on vari-
ous products like auto and consumer durables can
help in raising the private consumpton and spruce up
capacity utlisaton.
Source: Ministry of Statstcs and Programme Imple-
mentaton
Infrastructure push in the form of beter road connec-
tvity could push the demand of automobiles in our
country thus giving a boost to the industry that has
been in stagnaton for the last couple of years. The
biggest advantage of the growth of manufacturing
sector is that the efects are more prominently visible
in the rural areas than the urban areas.
BUDGET ANALYSIS : KYA ACHE
DIN AANE WALE HAI?

BY SURYANARAYAN PANDA
-IIFT

COVER STORY
So, manufacturing is the best tool to reduce the Urban
-rural income divide.
INFRASTRUCTURE PUSH
A greater thrust on the infrastructure was unmistake-
able in the Union budget. The overall spending for in-
frastructure is budgeted to increase by 24% to
210000 crores. The government has allocated 7060
crores to setup 100 smart cites. This will not only
boost the infrastructure sector but will also provide
low cost housing optons to the millions of poor peo-
ple who cannot aford proper housing.
Source: Ministry of Finance
The Budget has also focussed on ways to fund the In-
frastructure push by setng up of 3P India entty and
Infrastructure bonds. This could create a massive push
for beter infrastructure and the direct benefciaries
would be the Engineering, Procurement and Construc-
ton (EPC) companies. The government has identfed
that 40% of Indians do not have basic sanitaton facili-
tes and the government has not provided its share of
facilites. The basic infrastructural issues like sewage
drain and access to roads could be addressed in the
Infrastructural push of the government thus improv-
ing the standard of life of average Indians.
INCREASE OF TAX EXEMPTION
The Finance Minister increased the basic tax exemp-
ton rate from the current 2 Lac to 2.5 Lac for all
individuals. For women and senior citzens between
the age group of 60 to 80 years the basic exempton
rate is increased from 2.5 Lac to 3.0 Lac. The invest-
ment related deducton under secton 80C has also
been increased from 1.0 Lac to 1.5 Lac. These in-
creased tax exempton rates may cause a revenue loss
of 22000 crores to the government. However, the
increased tax exemptons will ensure greater money
with the consumers, thus increasing the disposal in-
come with the general public. This will increase con-
sumpton and this will get refected as higher econom-
ic actvites. The indirect benefciaries of the raising of
tax exempton could be FMCG, consumer durables,
two wheelers companies as well as the housing indus-
try in the form of increased consumpton.
EASE OF DOING BUSINESS
Investor sentment is very important for the accrual
of required investments to fund our economic growth.
Hence, the ease of doing business is a very important
factor that any country should keep in mind. Sadly,
India ranks at 134 out of 189 countries in the Interna-
tonal Finance Corporatons Ease of Doing Business
index. The Finance Minister has taken a few steps in
this regard to give a fllip to the overall operatng envi-
ronment for an investor. These steps should incentv--
20

COVER STORY
21
-ise value additon, generate income and create more
jobs for an average Indian thus improving the overall
environment for doing business. Moreover it could
also make the Indian investment story atractve for
foreign companies and could atract highly needed
foreign funds.
Source: Ministry of Finance
INCREASE IN FDI IN DEFENCE
The Union budget presented a 12.43% hike in de-
fence budget to 229000 crores of rupees. The Finance
Minister, who also holds the portolio of the Defence
ministry talked about the important task of indige-
nous producton of defense equipments. To boost
home producton, the Finance minister hiked the FDI
in the defence sector to 49% from the earlier 26%.
The government has taken a sound decision by de-
linking FDI up to 49% for transfer of state of the art
technology. The primary focus of the government is
to reduce the dependency of the security of the na-
ton on supplies by other countries. Given the large
domestc market and advantage of operatng out of
India this new policy could give an impetus to domes-
tc manufacturing of defence equipments by domes-
tc companies. It could also atract those foreign com-
panies that were looking to invest in Indian defence
manufacturing as part of the earlier Defence Ofset
Policy.
PUSH TO EMPLOYMENT CREATION
The budget has allocated 330 crores to set up 6
mega clusters around the country to boost the em-
ployment opportunites in the country. The budget
has also reduced the excise duty in labour intensive
sectors like footwear from 12% to 6% for footwear
priced between 500 to 1000 and few specifc foods
packaging industries from 10% to 6%.

COVER STORY
The small and medium enterprises (SME) sector em-
ploys 8% of all the employees in our country. Giving a
boost to the SMEs of our country, the fnance minis-
ter announced a 10000 crores fund to back early
stage companies. This is a huge respite for start-ups
in need of money and this will boost their ability to
survive.
Another employee intensive industry that received
good government atenton is Tourism. The budget
has proposed to create fve tourist circuits at a cost of
500 crores and proposed to launch the E-Visa facili-
ty. Such small incremental steps like E-Visa facility for
foreign tourists can create a vast change in the num-
ber of foreign tourists arrivals especially when the
number of foreign tourists arrival proportonate to
populaton of our country is one of the lowest in the
world and there is a huge upside to achieve on this
front.
In our country where the working populaton const-
tutes 64% of the entre populaton, tourism and man-
ufacturing are two spheres that could create enough
jobs. Moreover, due to requirement of less invest-
ment in tourism sector, our country can aford to in-
vest and develop this sector. The skill requirements
for an employee working in a manufacturing frm are
far less than the skill requirements of an employee
working in the service sector. Hence, boostng the
manufacturing industry could be a pragmatc way to
create low skilled or middle skilled jobs so that peo-
ple could move away from agriculture related low
paying jobs to beter paying manufacturing jobs.

22

TAME INFLATION
The government has encouraged states to allow
setng up of private agriculture market in order to
keep a check on the state sponsored APMCs. This will
increase efciency in terms of tmely delivery of pro-
duce as well as will reduce the food wastage. Key
measures like price stabilisaton fund and higher
budgetary allocaton for rural infrastructure and
warehousing were announced in the budget that will
improve the supply chain of agriculture products as
well as will ensure the tmely arrival of essental sea-
sonal crops like onions etc.

ACHE DIN AANE WALE HAI
The measures undertaken by the government in the
Union budget shows the serious eforts put in by the
government. The measures may be small and incre-
mental but such small measures will go a long way in
transforming our economy locked in low growth and
high infaton. I believe that the government has put its
sincerest eforts in making the budget a pragmatc
budget that touches the life of every Indian in a posi-
tve way and hence I believe that the electon promises
of Ache Din Aane Wale Hai that was made by our poli-
tcians seem quite plausible.
COVER STORY
23

MR. ARUN JAITLEY BECAME THE FINANCE MINISTER
Mr. Arun Jaitley took over the ofce of the Finance
minister under the cur-
rent NDA rule in the 16
th

Lok Sabha. Mr Jaitley,
who holds a Law degree
from the University of
Delhi, got the plum post
along with the Defence portolio.
AIRASIA ENTERS INDIA
Asia's biggest low-cost
carrier, the Kuala Lumpur-
based AirAsia, foated a
joint venture with Tata
Sons, the holding compa-
ny of India's largest con-
glomerate, and Telestra
Tradeplace, an investment vehicle of the Bhata fami-
ly, to launch a new airline in India called as Air Asia
India. AirAsia will have 49% stake, Tatas 30% and
Bhata will hold 21% in the company, which will be
headquartered in Chennai.
VISHAL SIKKA TO BE THE NEW CEO OF INFOSYS
Infosys appointed its frst out-
sider to head the company, hop-
ing new blood will help in its
struggle to stay compettve, as
it tries to evolve from a low-cost
outsourcing company into a
global technology brand. India's second-largest sof-
ware exporter said Vishal Sikka, a veteran of Ger
man sofware company SAP, will take over as manag-
ing director and chief executve.
FLIPKART ACQUIRES
MYNTRA
Flipkart India Pvt Ltd, the
countrys largest e-
commerce frm, ac-
quired rival Myntra.com
in the largest-ever deal in the countrys e-commerce
market. Though the two Bangalore-based companies
did not disclose the merger amount, analysts est-
mates suggest the cash-and-stock deal is likely to val-
ue online fashion retailer Myntra at more than $330
million.
$100B BRICS FUND TO
TURN CONCRETE IN RIO
The BRICS natons formally
announced the setng up
of a $100-billion fund,
which will help member
countries tde over a cur-
rent account defcit crisis, at their ffh summit in Bra-
zil. China will be the largest donor to this fund and is
expected to contribute around $41 billion. India, Rus-
sia and Brazil will contribute $18 billion each with
South Africa bringing in the remaining $5 billion.
SUBRATA ROY IN TIHAR JAIL
Subrata Roy, the famboyant chairman of the fnan-
cial services group Sahara India Pariwar and owner

TOP FINANCIAL EVENTS OF 2014
24


of propertes such as New
Yorks Plaza Hotel and a
stake in Indias only For-
mula One racing team,
surrendered to police
afer the natons top court issued a warrant in a
probe into whether he failed to refund US$3.9 billion
to his depositors.
FLIPKART VALUED AT $7 BILLION
Indias biggest online retailer has
received as much as $1 billion in
fresh capital from its existng inves-
tors including Tiger Global, Naspers and Singapore's
sovereign wealth fund GIC. Singapore's GIC became
the latest investor to put its faith in India's largest
online retailer. The fund raising, the largest-ever by
an Indian start-up and among the largest-ever by any
Internet start-up globally, values Flipkart at over $7
Billion.
TCS AT RS 5 TRILLION
TCS, Indias most valuable company based on market
cap, crossed Rs. 5 lakh crores in market value, a big
achievement considering the tough business environ-
ment it has been operatng in. It has also found itself
a berth among the global top fve business sofware
companies. The market value of TCS is more than
that of the next four Indian IT companies combined,
and exceeds that of the other
Tata Group frms put together as
well. Sustained growth momen-
tum over the past four years rel-
atve to peers is the key factor that has kept the
stock buzzing. In additon, a special dividend of 40
declared last week has atracted investors.
INDIA BLOCKS WTO DEAL ON TFA
India scutled the Trade Facilitaton Agreement (TFA)
which is part of the Bali
package at the WTO be-
cause it was not satsfed
with the progress on
fnding a permanent solu-
ton to the issue of allow-
ing it higher public stockholding of food grains. Last
ditch atempts to meet the 31 July deadline to
make the TFA a WTO rule failed as India did not sup-
port the move. At the heart of the problem is a rule
that caps subsidies to farmers in developing countries
at 10% of the total value of agricultural producton,
based on 1986-88 prices. Developing countries com-
plain that the base year is out-dated and that they
need to be provide food security
to the poor.
MICROMAX BEATS SAMSUNG
Home-grown domestc phone
vendor Micromax has unseated Samsung in India as
the top handset seller in the 2nd quarter of 2014. A
study conducted by technology market research frm
Counterpoint Research says that with a 16.6 percent
share of the mobile market, Micromax is followed by
Samsung with a 14.4 percent market share. However,
in the Smartphone segment, Micromax is stll placed
second with Samsung holding nearly 25 % market.
25


INTRODUCTION
Shabby interiors, grilled counters, disinterested of-
cials, ceiling touching fles, never ending queues to
spick-and-span ofces, open counters and data hun-
gry computers, this has been challenging journey for
banking industry.
Ever since the incepton of banking system in India
from the early establishment of Bank of Hindustan in
1770 to its current state; banking system has con-
stantly been evolving. Natonalizaton of major pri-
vate banks in 1969 was one of the leading milestones
in the history of banking in India that made bank ac-
cessible to unbanked populaton of India. But the
most signifcant change was the opening of Indian
economy towards the global economy that brought
the paradigm shif in the banking system in India. Lib-
eralizaton broke the shackles of the sector which tll
then operated in restricted mode. With the arrival of
foreign tech savvy banks, the public sector banks
were forced to restructure the banking operatons to
have a compettve edge.
ROLE OF TECHNOLOGY IN CHANGING
THE BANKING INDUSTRY

BY AVIRAL VERMA &
SANJEEV RANJAN
-IIFT
26

EVOLUTION OF BANKING STRUCTURE
Technology has power to transform the fundamental
economics of any industry and banking is no diferent.
The banking industry has taken enormous strides with
the use of technology. Most of the banking transac-
tons can now be conducted over the internet. Along
with it, technology has reduced the barriers and
changed the economics of delivery.
KEY MILESTONES IN BANKING INDUSTRY
ATM: Additon of facilites such as fund transfer, bill
payment and account maintenance has reduced the
footall at the bank branch which has brought down
the operatonal costs. Branches are now able to cater
more customer base from a single branch. As per
forecasts, ATMs per million populatons will increase
from 85 to 170.
Plastc Money- Credit and Debit Cards: The biggest
game changer in the banking industry was the intro-
ducton of plastc money. Debit and Credit card pay-
ments through payment gateway revolutonized the
banking sector and provided the individuals hassle
free transactons. Visa, which is a global payment
technology company, processes 47,000 transactons
per second reliably, conveniently and securely. Pres-
ence in 200 countries with $2.2 billion Visa cards and
2.1 million ATM (as of December 31, 2013) it accounts
for a total of 91.6 billion transactons worth $4.5 tril-
lion on 31 March 2014.
NEFT: Natonal Electronic Funds Transfer facilitates
electronically transfer of funds from any branch to
any individual or frm. NEFT has an upper ceiling of
50,000 per transacton.
RTGS: Real tme gross setlement system means con-
tnuous setlement of funds by an individual or by an
order within a span of 30 minutes. No upper ceiling in
transacton makes it the most favorable online trans-
fer mode of payment in case of larger transacton.
Mobile banking: Over the years it was felt to have a
technology which goes beyond ATM. In context of In-
dia which boast of a mammoth subscriber base of 900
million mobile users this was even more necessary.
27

Mobile banking initally provided SMS alert facility but
later added services such as account enquiries, bill
payment, and fund transfer and loan requests. This
helped in enhancing customer experience and con-
venience.
CORE BANKING SOLUTIONS
With the arrival of computer and internet, manual
ways found their way out. IT revoluton equipped the
banking sector with CORE (centralized online real-
tme electronic) banking solutons. It helped in reduc-
ton of operatonal cost as printng and backup be-
came centralized. CORE banking reduced the man-
power requirement and increased efciency by reduc-
ing the transacton cycle tme. It provided to custom-
er the much required freedom to transact anywhere.
It facilitated accurate and quick implementaton of
banking policies. All this helped in increasing business
opportunites which led to reducton in legal expense
and penaltes.
Cheque Truncaton System: CTS introduced cheque
clearance using MICR. It helped in reducing the turna-
round tme in clearing of cheques and curbing cheque
frauds.
ECS Electronic Clearing Service enabled repettve and
periodic transacton such as interest payment, salary
and pension payment towards electricity, phone and
water payments.
DATA ANALYTICS IN BANKING
Data analytcs is the buzz word today. The highly com-
pettve market requires banks to convert vast
amount of data into meaningful informaton which
could help them in generatng sales and diferentated
customer experiences. Banks utlize data analytcs to
improve customer retenton, cross selling, optmizing
price structure, gain customer insights and implement
real tme event management.
Most private banks utlize their business analytcs to
fne tune their campaign and marketng eforts. These
analytcs provides insight and help to identfy new
customers and reduces marketng spend per custom-
ers.
28


Based out of a survey, the graph above shows the rea-
sons why banks implement business intelligence and
analytcs.
IT SPENDING IN BANKING SECTOR
The upsurge in spending on IT products by banks is
encouraging and indicatve of the emphasis being
placed on technology. Total IT spending in banking
sector across North America, Europe, and Asia-Pacifc
will grow to US$188.0 billion in 2014, making an in-
crease of approximately 4.4% over 2013. Indian bank-
ing and securites companies have forecasted to spend
477 billion rupees on IT products and services in 2014,
which amounts to an increase of 12.7 percent over
2013 revenue of 423 billion rupees. Although Europe-
an banks are struggling when it comes to IT spending
as compared to others because of the litle growth of
European economy. Stll banking IT spending will rise
by .4% in 2013 to $59.5 billion, with spending ex-
pected to stay fat through 2015.

CHALLENGES
Two banks in the Persian Gulf lost $45 million in a few
hours. A Britsh company reported that it lost $1.3 bil-
lion from a single atack. Brazilian banks say their cus-
tomers lose millions annually to cyber fraud.
While banks customers have turned tech-savvy and
have started using online banking services and prod-
ucts, evidence indicate that fraudsters are devising
new ways of frauds by exploitng the loopholes in sys-
tems and processes. Customers are being exposed to
Phishing, Watering hole, Pharming and Credit Card
Redirecton and diferent malware based-atacks.

29


FUTURE JOURNEY AHEAD
Bitcoin has emerged strongly as an alternatve to con-
ventonal internet banking. Marketed as an open
source and decentralized technology, it is fnding its
user base at an exponental rate. The inclinaton to-
wards Bitcoin comes due to the fact that it poses no
restricton on the transacton amount and is free from
bank charges. This is why it has been witnessing in-
creasing acceptance around the globe. It is currently
values at 584 US Dollar/ per Bitcoin
The fnancial bodies have tme and again raised con-
cerns over the use of Bitcoin as a full-fedged tool for
transactons. Currently the user base is quite small,
which limits its use as a normal currency. It is highly
volatle and as a result its value experience high oscil-
latons. Also, the sofware behind it is stll under beta
phase and a major porton is under development.

Rupay: RBI launched Indias frst ever domestc card
scheme RuPay on March 2012 with an entry level ac-
ceptance at ATMs. Its long term aim is to evolve as
an alternatve to MasterCard and Visa, but before
that it stll has to cover a lot of ground.
CONCLUSION
The pre and post liberalizaton era has witnessed
huge changes in the banking sector and the advent of
technology in this sector has spread new colors. Now
technology has become the integral part of the bank-
ing sector right from driving the basic banking ser-
vices to the introducton of several new products and
services. It is quite evident that what we see today
wont stay the same in coming years. Banking indus-
try will keep chasing the fast paced technology for its
beterment.
30

NATIONAL IT CONCLAVE 2014
Theme: THE NEXT BIG THING IN INDIAN IT
Date: 30
th
August, 2014
Venue: Swissotel, Kolkata FEW SPEAKERS AT THE CONCLAVE

SESSIONS

INAUGURAL SESSION - 09:30 to 11:00 am

SESSION 1 11:15 am to 12:45 pm
Recharging e-Governance

SESSION 2 02:00 to 03.30 pm
SMAC in the Indian context

SESSION 3 03:45 to 05:15 pm
Saturaton vs Satsfacton


INTRODUCTION
Decisions about the Dividend pay-out by far have
been a subject of great curiosity and interest for the
analysts, researchers and academicians for a long
tme now. The objectve of the Dividend Pay-out is to
determine the extent to which the company is distrib-
utng the dividends to its shareholders out of the
earnings of the company.
Both the investors and the corporate houses were
expectng the aboliton of the double taxaton on divi-
dend income ever since the Government of India had
initated fnancial reforms in 1991. In the budget of
1997, the Finance Minister announced the aboliton
of tax on dividend income in the hands of the share-
holders. However, the budget also proposed a new
tax on the companies when they declared, distribut-
ed or paid dividend. This new corporate dividend tax
was also called as Dividend Distributon Tax (DDT).
The main objectve of this was to discourage compa-
nies from increasing the dividend outlow signifcantly
leading to lower capital formaton. Even though this
system exempted investors from paying any direct
tax, it required them to pay an indirect tax on the div-
idend at a prescribed rate.
This new system also ensured that the administraton
of tax on dividend would be more efcient and efec-
tve. The DDT aimed to improve economic growth
and fexibility by eliminatng the tax bias against equi-
ty-fnanced investments thereby promotng saving
and investment. It also aimed at reducing the tax bias
against capital gains in the earlier tax system encour-
aging investment and enhancing the long term
growth potental of the economy.
DIVIDEND DISTRIBUTION TAX (DDT) & DOUBLE
TAXATION:
There is a common noton that the dividends are
ofen taxed twice. There is a school of thought that
argues for tax exempton for dividend income. The
basis of their argument is that the taxaton of divi-
dend income amounts to double taxaton. The expla-
naton behind this concept is that the corporate
profts are subject to corporate tax. Since dividends
are paid out of the proft earned which is already
taxed, if the dividends are taxed again, it amounts to
double taxaton.
REFORMS IN DIVIDEND DISTRIBUTION
TAX : IS THE STEP BY GOVERNMENT
TAKEN IN THE RIGHT DIRECTION?

BY MOHNISH KHAINI
- IIM, SHILLONG
32

This logic can be challenged on two grounds:
There is a legal distncton between the corporaton
as an entty and the individual shareholders who own
the company.
Tax rates currently in place were set with the
knowledge that there was taxaton at the corporate
and individual level. This means that if there is a mor-
al objecton to double taxaton, then, the remedial
acton would also require an increase in the corporate
tax rate.
IS IT UNFAIR TO RETAIL INVESTORS?
Its been over a decade that investors have been argu-
ing that taxing dividend is unfair and it leads to double
taxaton. The argument is well grounded in a sense
that dividend is a source of income for the sharehold-
ers and it is distributed afer the corporate tax is lev-
ied from the gross earning of the frm. Hence, imposi-
ton of tax on distributon is injustce to them. Howev-
er, is it really an injustce to shareholders?
In my opinion, it does not lead to double taxaton.
Why? As per our legal system, a company and its own-
er both are separate enttes. Various benefts are ac-
crued to the owners because of this. For example,
when a company faces in a crisis, its owners are not
liable to pay any debt from their pockets. Considering
that, when the gross earnings of a frm are taxed it is
deemed as an income tax paid by the frm and not by
its owners. Moreover, when dividends are taxed,
earnings of owners are taxed. Hence, the argument of
double taxaton is defnitely fallacious.

REFORMS IN DIVIDEND DISTRIBUTION TAX IN THE
UNION BUDGET 2014 15
The reforms brought in by the newly elected govern-
ment with respect to the direct tax will defnitely be a
shot in the arm for corporate. However, the only
dampener would be the amendment made in the divi-
dend distributon tax. The amendment made was with
respect to secton-115O of income tax.
This secton was introduced in income tax act in 1997
which made corporates liable to pay DDT while distrib-
utng proft to the shareholders. The recent amend-
ment in the act will increase the efectve dividend dis-
tributon tax as the basis for calculaton of tax will be
gross distributable surplus rather than net distributa-
ble surplus.
The diference can be explained by the following ex-
ample:
Lets assume, in 2013, Infosys made Rs.200 Crore proft
and it distributed the entre proft to its shareholders.
In this case, the DDT that Infosys is subjected to pay
would have been as follows:
Dividend distributon amount: Rs.200 Crore/1.16995 =
Rs.170.95 Crore
(The efectve rate of 16.995% includes Educaton cess
and surcharge as well)
Tax Paid: Rs.170.95*16.995% = Rs.29.05 Crore

33

In contrast, Post amendment, suppose the proft fg-
ures are considered to be same for Infosys as per the
example above, the tax that Infosys has to pay in 2014
would be,
Tax paid: Rs.200 Crore*16.995% = Rs.33.99 Crore
Dividend Distributon Amount: Rs.200 Rs.33.99 = Rs.
166.01 Crore
Thus this example shows that a minor tweak in the cal-
culaton of DDT can result in high income that the gov-
ernment is going to earn from it.
IMPLICATIONS OF CHANGES IN THE DIVIDEND DISTRI-
BUTION TAX
1 - Impact on corporates:
There is an inverse relaton between dividend distribu-
ton tax and companys dividend pay-out rato. When
dividend distributon tax is higher, companies prefer to
retain most of their earnings for future spending. Re-
tained earnings can be used to invest in high growth
project which will help in following manner:
Need for external fnancing will be less which will
reduce the cost of capital for the frms.
High growth projects will give an opportunity to frms
to earn more profts which will be refected in their
share price in the secondary markets.
2 - Impact on shareholders:
Plethora of research has been done on what do small
shareholders prefer: capital gain or cash dividends?
Majority of them claim that shareholders are more
satsfed with capital appreciaton than cash dividends.
They do not raise any objecton if company retains all
the earning and invest it in high NPV project as it ult-
mately afects the share price of the company in sec-
ondary market.
Furthermore, if shareholders demand any dividends,
frms can distribute stock dividends in lieu of cash divi-
dends. Stock dividends provide many benefts to both
shareholder and a frm.
It doesnt enforce tax liabilites on shareholders. Firms
dont have to share its earnings and can invest in new
projects to expand quickly. Stock dividends provide
more liquidity to the stock in the secondary market.
Hence, this proposed change will hardly be a cause of
concern for the shareholders.
3 - Clientele efect:
Clientele hypothesis claims that certain type of inves-
tors prefer cash dividends since their marginal tax on
dividend is less than their income from other sources.
It is more prevalent in India as compared to the devel-
oped economies.
For example: In
2013, the maximum
salary that Reliance
can give to Mukesh
Ambani, as agreed
by shareholders, is
Rs. 38 crore. But
Mukesh Ambani
withdrew only 15 crore as a salary. However, the
amount he received from cash dividend is massive Rs.
1,240.7 crore. The ratonale behind this is that his sala-
ry is taxed at 30% while the earnings through dividends
are taxed only at 15%.
34

The above table shows the dividend earnings of busi-
ness persons in the fnancial year 2011.
This clearly shows the presence of clientele efect. Top
managers, who have a fnal say in dividend policy of
the company, have personal advantage in cash divi-
dends which might lead them to incline towards cash
dividends. The proposed change will not limit the gap
completely, but will surely reduce the gap.
CONCLUSION:
Tax is one of the main sources of revenues for the Gov-
ernment. Decisions regarding taxes are always given
paramount importance during the budget since these
decisions set the stage for the economys growth dur-
ing the course of the year. Well aware of these intrica-

cies of taxes, the new government, during its maiden
Union Budget has brought in small but efectve chang-
es in key policies which would assist in streamlining the
cash fows of its treasury. small tweak in the calcula-
ton of the Dividend Distributon Tax can generate huge
revenues to the government. At the frst instance, this
change gives an impression that it is going to play a
spoil sport for the corporates and investors but dwell-
ing deep into this mater, the changes also present an
opportunity for the corporates to look out for beter
growth oriented projects and thereby providing share-
holders beter returns on their investment by way of
capital appreciaton. Hence it can be said that in spite
of having negatve aspects, the positve aspects of the
proposed change outweighs the shortcomings of the
same.
Promoter Company FY11 (Rs. Cr)
Azim H Premji Wipro 1345.1
Mukesh Ambani RIL 1240.7
Rahul Bajaj Bajaj 917.4
Anil Agarwal Vedanta 790.2
Keshub Mahindra M&M 312.2

35


WHAT IS EQUITY RESEARCH?
The purpose of investment research is to help inves-
tors decide which asset class cash and cash equiva-
lents, fxed interest securites, real estate, commodi-
tes, currencies and derivatves amongst others-
would make a good investment. In Equity Research, a
sub-set of investment research, the universe of assets
is limited to stocks. There are two types of profes-
sionals in this feld, namely- Sell-side analyst who
work at brokerages and independent equity research
frms, and Buy-side analyst who work for money man-
agement frms and present stock pitches to portolio
managers.

Source: Moneycontrol

WHATS N IT FOR YOU?
InFINeet from now on launches a new secton, called
EQUITY RESEARCH, to this magazine which will solely
be dedicated to publishing an equity research report
on one of the happening stocks of the quarter every
editon. We, actng as a sell-side analyst, through our
reports will give you our recommendatons on wheth-
er to BUY, HOLD or SELL the stock.
BUT HOW IS EQUITY RESEARCH DONE?
Before you start investng, it is best that you know
how Equity Research reports are made. Hence, in this
editon, we put forward A Prelude to EQUITY RE-
SEARCH so as to get you an understanding of it be-
fore you actually dive into investng.
HOW TO MAKE EQUITY RESEARCH REPORTS?
While doing an Equity Research for a partcular share
or stock, the work in itself requires one to split it into
research and then future projectons or estmatons.
For doing so, the basic framework involves one to un-
derstand the business model of the company, read its
fnancial statements, use rato analysis techniques to
compare its fnancial performance with those of its
closest comparable peers, value it using both intrinsic
(absolute) and relatve valuaton approaches, and

EQUITY RESEARCH :
A PRECURSOR
36

fnally, prepare a complete equity research report
with a recommendaton to BUY, SELL or HOLD the
stock at its current price.
Equity Research starts with carrying out the Funda-
mental analysis of the company followed by the rato
analysis and then fnally valuaton is done.
FUNDAMENTAL ANALYSIS:
Equity Research and analysis begins with an atempt
to understand the business and fnancial characteris-
tcs of the given company. This implies the analysis of
the industry and the company. To start with, doing
the Fundamental analysis of the company becomes
extremely crucial. When analysing an investment,
Fundamentals of a company are the actual numbers
that cause movements in its stock price. In this case,
the analyst is interested in analysing frm specifc data
to have an understanding of the big picture, rather
than looking at the technical aspects of an invest-
ments market chart.
One of the two approaches goes into the doing of
Fundamental analysis namely Botom-Up approach or
Top-Down approach. Botom-Up approach focuses
primarily on the individual stocks rather than on the
external factors impactng the economy. The Top-
Down approach, on the other hand, is a step wise pro-
cess startng with the analysis of the external environ-
ment using PEST analysis, then examining the industry
of the company using models like Porters 5 forces or
Porters Diamond depending upon the underlying fac-
tors involved and eventually analysing the company
using the popular SWOT analysis. Afer doing the
above analysis, the analyst or the investor gets an un-
derstanding on the fundamentals of the company and
can qualitatvely give a ratng to the company. If fun-
damentals of the company are strong, even if the
market goes wrong, the company will come back to its
positon.
A simple framework for understanding the Business
Profle of the company:
FINANCIAL/RATIO ANALYSIS:
Once an overview of the business profle is done, the
fnancial health of the company is to be looked into.
While analysing the fnancial profle, one has to critcal-
ly look into the aspects of Size, Proftability, Growth
profle, Return on Investment and the Credit profle of
the company. Rato analysis helps in evaluatng various
aspects of a companys fnancial performance such as
its efciency, liquidity, proftability and solvency. This
requires the analysis of the fnancial statements,
namely the Balance Sheet, Proft & Loss Statement,
and Cash Flows Statement of the company. But the
numbers in the companys fnancial statements carry
litle meaning in themselves as it doesnt tell us how
good the business is at convertng resources to earn-
ings and this is where the ratos come into help as they
provide meaningful relatonships between individual
line items in the fnancial statements. Another im-
portant aspect of rato analysis is that the ratos can be

37

compared across diferent companies within the same
sector or sub-sector to get an overview of the perfor-
mance of the company against its compettors or the
industry as a whole. In the coming editons of our
magazine, we intend to restrict our use of rato analy-
sis to the fnding of ratos that will help us evaluate
fve aspects of the company namely its operatng per-
formance, actvity levels, liquidity positon, leverage
and valuaton multples.
Example of important ratos used for Power Industry:
From the above table one can easily do a comparatve
analysis of the companies against the important ratos
and approximate an average rato for the industry.
From this, one can fnd out how the company is per-
forming in tandem to the industry in general.
The list of important ratos used:
Source: - www.moneycontrol.com (for the year 2011)

VALUATION:
Having done the two analyses, one moves to the last
and the most important aspect of Equity Research
which is Valuaton. The fnal stage in the research of
the target company is fnding out what is the compa-
nys total worth. As the name goes, valuaton is the
process of determining the current worth of the equi-
ty, asset or company. Valuaton is the estmaton of
an assets value based either on variables perceived to
be related to future investment returns (usually cash
fows) or on comparisons with similar assets. It is
needed in not just doing Equity Research but also in a
number of other things like Mergers and Acquisitons,
investment analysis, capital budgetng and many
more. The valuaton models are used in making invest-
ment decisions as to which assets are undervalued
Operatng
Perfor-
mance
EBITDA
Margin
Return on
Assets
Return on
Equity
Actvity
Levels
Asset
Turnover
Inventory
Turnover
Operatng
working capi-
tal Turnover
Liquidity
Positon
Current
Rato
Quick Rato Cash Rato
Leverage Debt/
Equity
Net Debt/
Equity
Net Debt/
Capital
Stock Val-
uaton
Multples
P/E P/S EV/EBITDA

38
Year 2011 NTPC Power
Grid
Reliance
Power
Face Value 10 10 10
Proftability Ratos
Operatng Proft
Margin (%)
27.09 83.85 24.66
Net Proft
Margin (%)
15.57 28.81 55.59
Liquidity And Solvency Ratos
Current Rato 2.48 1.05 1.94
Quick Rato 2.23 1.02 2.26
Debt Equity
Rato
0.76 2.05 0.44

or overvalued. It is through Valuaton one can quant-
tatvely rate the company.
Approaches to Valuaton as put forth by Aswath Dam-
odaran, professor at NYU Stern:
Intrinsic Valuaton: The value of an asset is estmated
based upon its cash fows, growth potental and risk.
The most widely used valuaton model here are:
Discounted Cash Flow (DCF)
Dividend Discount Model (DDM)
In a DCF model, the forecasted future cash fows are
discounted to get to the present value. The other valu-
aton method in usage is Dividend Discount Model
(DDM). But this can be used only when the company
pays out dividends. Once the intrinsic value or the fair
value of equity is obtained, it is compared with the
Current Market Price of the share and based on this
the analyst comes to a conclusion whether the stock is
overvalued or undervalued.

Relatve Valuaton: Estmates the value of an asset by
looking at the pricing of comparable assets relatve
to a common variable like The above picture indicates
that the Intrinsic price of the equity is more than that
of the Current Market Price which tells us that the
stock is currently undervalued and has potental,
hence should be a BUY.
The tools of equity valuaton is used to address a
range of practcal problems like judging whether the
securites are fairly valued or under/overvalued, infer-
ring market expectatons, evaluatng corporate like
events mergers and acquisitons, divesttures, spin-
ofs, management buy-outs (MBOs), leveraged recapi-
talizatons etc.
Summary of the steps of Equity Research:
Understand the companys business profle and
do the company and industry analysis
Forecast companys performance
Select the appropriate Valuaton model
Make investment decision based on the funda-
mentals and valuaton.
While making an investment decision, both the Funda-
mentals and Valuaton of the company maters. Finally
on the basis of the ratngs of these two parameters,
investment is made. This above mentoned framework
for doing Fundamental analysis, Rato Analysis and
fnally Valuaton is an essental startng point but is by
no means exhaustve. There are many other factors
like the price movements (Technical Analysis) which
are taken into account before making an investment
in the equity.
Now that an overview is given, InFINeet Team inaugu-
rates the secton on EQUITY RESEARCH. Please do look
forward to the next editon so as to start investng

-BY GAYATHRI BHUVANGIRI, IIFT

39
Current Market Price: Rs. 250
Intrinsic Price: Rs. 262


INTRODUCTION
The total number of acts and regulatons governing
the fnancial sector in India today stands at more
than 60. Most of them are archaic and date back all
the way to the Stone Age. For example- Indian mone-
tary policys pillars rest on the Reserve bank of India
Act, 1934. Similarly, the Insurance Act of 1938 gov-
erns the Insurance sector in India .
Table 1: Showing Indias vintage fnancial laws
Yes, there have been amendments over the years but
those changes have been piecemeal and more stop-
gap than not. The results include regulatory overlaps,
regulatory arbitrage and inconsistencies. It was in this
backdrop that the Government of India consttuted
the Financial Sector Legislatve Reforms Commission
(FSLRC) in March 2011 to comprehensively review
and recast the legal and insttutonal structure of the
fnancial sector in India.

FSLRC commitee chairman: - B.N. Krishna
The FSLRC submited its report in October 2012 and
recommended a complete overhaul of the regula-
tons governing the Indian Financial sector. The Com-
mission recommends a draf Indian Financial Code
which eliminates more than 20 of the current 60+
laws governing fnancial markets in India and merges
some of the most powerful Indian Financial Regulato-
ry bodies into one Unifed Financial Authority (See
table 2 in the next page).
The powers of the RBI have been curtailed compre-
hensively in the report while most other regulators
have been replaced by a single super regulator and
the onus of consumer-protecton has been changed
from caveat emptor to caveat vendor. The report
raises the bar for consumer protecton and places the
responsibility of avoiding frauds, or the sale of inap-
propriate products to the consumers, with the ser-
vice provider.
FSLRC: A GAME-CHANGER FOR THE
INDIAN FINANCIAL SECTOR & ITS
STAKEHOLDERS

BY AMARDEEP KUMAR, IIFT

40
Act/Law Year 1
st

incorporated
Public Debt Act 1944
Securites Contract
(Regulaton) Act
1956
Indian Coinage Act 1906
FERA/FEMA 1973/1999
Banking Regulaton Act 1949

KEY RECOMMENDATIONS & THEIR IMPACTS
Let us discuss the key recommendatons of the Com-
mission and their impact on the Indian Financial fr-
mament.
UNIFIED FINANCIAL AUTHORITY (UFA): - One of the
loudest amendments proposed by the Commission is
the formaton of a Unifed Financial Authority re-
placing SEBI, IRDA, PFRDA and FMC (the Forward
Markets Commission). According to the FSLRC, the
incumbent fnancial regime with multple sectorial
regulators creates conficts of interest and leads to
overlaps and gaps in regulaton at the same tme. For
example- while Ponzi schemes are not regulated by
any agency as of now, Securites market is regulated
by SEBI and RBI both. It makes economic sense and
creates synergy to merge regulatory bodies into one
and remove the problems of inter-regulatory turf-
wars. The FSLRC establishes a new seven agency
model to regulate and control the fnancial sector in
India.

It will regulate and control all actvites of the fnan-
cial market other than what is to be regulated by the
RBI. The proposed agency will be carrying out all the
responsibilites of all the existng regulators (other
than the RBI) like SEBI, FMC, IRDA, PFRDA etc. The
UFA will also be the frst consumer interest protec-
ton regulator in the fnancial sector with the excep-
ton of banking and payment systems which will be
under the ambit of the RBI.
ROLE OF RBI: - The RBI gets to keep most of its pow-
ers and contnues to guide the natons monetary pol-
icy and regulaton of its banking industry. It also per-
forms the functon of regulaton and enforcement of
the payment systems and enforcement of the pro-
posed consumer protecton law. However, it loses its
power of managing public debt. Also, its monopoly
over monetary policy formulaton is in danger as the
commission proposes that the central government, in
42
Present Regulator To be replaced by ( as per the recommendatons of the FSLRC)
RBI RBI ( though with reduced powers)
SEBI
FMC
IRDA

United Financial Agency (UFA)
Securites Appellate Tribunal Financial Sector Appellate Tribunal (FSAT)
Deposit Insurance and Credit
Guarantee Corporaton (DICGC)
Resoluton Corporaton (RC)
Financial Stability Development
Council (FSDC)
It remains as it is.
New entty Debt Management Agency (DMA)
New entty Financial Redressal Agency (FRA)
Table 2: Present and proposed Indian Financial Regulatory Structure


consultaton with the RBI Governor, set a monetary
policy target and hold the Central Bank accountable
in case of its failure to achieve these objectves. The
icing on the cake, at least for the Government, is the
fact that the Commission wants the Central bank to
deliver on the monetary policy front by adoptng a
Monetary Policy Commitee having the Governor as
its Chairman and six other members.
Only one of these members will come from RBI. Of
course the Central Bank can advise the Government
on the appointment of two other members while the
remaining three members will be appointed by the
Government. Thus, the Commitee efectvely dilutes
the Central Banks autonomy on monetary policy
maters of the country. It rather places its faith in a
government which is prone to reducing rates in an
electon year and is, otherwise too, gullible to being
populist at the expense of the economy.
Additonally, it places the RBI, and all regulators for
that mater, under judicial review, a step unprece-
dented in the history of India. Dr. Raghuram Rajan
has correctly warned that this provision will result
into constant questoning of regulatory decisions thus
creatng paralysis of analysis as regulators will go slow
on decision making. There is also the danger of
shrewd partcipants in the fnancial system exploitng
the loop-holes to their own advantage by going for
excessive litgaton.
FINANCIAL REDRESSAL AGENCY: - Consumer interest
protecton is one of the key concerns of the Com-
mitee. To this efect, the FSLRC recommends the cre

aton of the Financial Redressal Agency (FRA) to
atend to consumer complaints in the fnancial sector
(except the banking sector) across the naton. The
FRA will replace all sector-specifc Ombudsmen pre-
sent now. All fnancial service providers are required
to set up internal mechanisms for consumer griev-
ance-redressal and to educate the consumer of their
right to seek redressal. If the consumer is unsatsfed
with the appropriate handling of their issues by the
frm, they can approach the FRA.
FINANCIAL SECTOR APPELLATE TRIBUNAL (FSAT): -
Financial Sector Appellate Tribunal (FSAT) is the all-
important pillar proposed by the Commitee, for ap-
peals against the actons of the RBI, the FRA and the
UFA. The existng Securites Appellate Tribunal will be
merged into FSAT, to which the consumer can appeal
against all fnancial sector regulators. FSAT will have
powers of jurisdictonal oversight on the actons of
the regulators. This places regulators in a tght spot,
for their decisions are not always based on the surety
of events but more on their likeliness to happen since
they cannot wait for a tragedy to strike before actng
on it and defanging it.
28

Source: - Livemint
FINANCIAL STABILITY AND DEVELOPMENT COUNCIL
(FSDC): - The Financial Stability and Development
Council (FSDC) is the only existng regulator, apart
from the RBI of course, that stays on. It will oversee
the various systemic risks and will suggest ways to
bring them down. The Commitee wants to establish
a fnancial data cell whose primary job will be to look
for the systemic risk in the fnancial sector and report
the same to its parent body, the FSDC. The FSDC, be-
ing a statutory body, will then measure and manage
the risks in the system. The FSDC will be empowered
to undertake all required interventons for reducing
the systemic risks.
PUBLIC DEBT MANAGEMENT AUTHORITY: - The Pub-
lic Debt Management Authority to manage public
debt is an altogether new insttuton to manage gov-
ernments debt in the proposed regime. A Resoluton
Corporaton has also been proposed to handle the
resoluton of fnancial frms.
ANALYSIS & CONCLUSION
FSLRC has produced one the most far-reaching re-
ports based on its recommendatons and possible
outcomes. Its stress on having a clear framework for
monetary policy-making was what prompted the GoI
to form the Urijit Patel Commitee. The Commis-
sions rap to the service-providers and the regulators
for unfair and not-so-consumer friendly practces may
begin a new era of consumer protectonism in the In-
dian fnancial sector and may force the authorites to
revisit their approach to the consumer and consider
mending their ways. In proposing to create a Draf
Financial Code for India, the commitee has tried to
bring in some fresh air to the laws governing the f-
nancial sector of this country.
43


In trying to amalgamate various regulators into one
body, it has tried creatng the much-needed synergy in
regulaton. By proposing to make RBI and other regu-
lators responsible to the parliament, it has tried to
make them answerable to the people of this country.
In increasing the weight of the government in formu-
latng Indias monetary policy, it has tried to bridge
the gap between the countrys

monetary and fscal policies and has made the govern-
ment further answerable to the people of India. In the
words of Dr. Raghuram Rajan, though he himself is
one of the biggest critc of the commitees recom-
mendatons, FSLRC report is one of the most im-
portant, well researched as well as well-publicized re-
ports in Indian Financial History. The reports infu-
ence will be felt for many years to come. Enough
said.
44

INTRODUCTION
Internatonal Financial Reportng Standards (IFRS),
previously known as Internatonal Accountng Stand-
ards (IAS), is a set of standards, framework and expla-
natons adopted for preparaton and presentaton of
fnancial statements.
In present scenario of globalizaton and liberalizaton,
the world has become a small place. Many corporates
in emerging economies are looking to enhance their
access to the global markets to fulfl their need of cap-
ital funding. Thus, it is of paramount importance that
there exists a system or a set of guidelines which is
consistent all across the globe, and here in lies the
importance of IFRS. Many countries have already
moved towards convergence of their respectve ac-
countng principles with IFRS, while others are stll
passive with their approach.
IFRS IN INDIA
In India, Accountng standards are formulated by Inst-
tute of Chartered Accountants of India (ICAI), through
its Accountng Boards Standard. Thereafer these ac-
countng standards are considered by Natonal Advi-
sory Commitee on Accountng Standards (NACAS)
which then recommends it to the Central govern-
ment. At present, 28 Accountng Standards, with cer-
tain diferences, have been notfed under the Compa-

INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS)

BY- DHAWAL LACHHWANI
- IIFT
45


the Companies Act, 1956.
ICAI, in 2007, commenced the process of develop-
ment of accountng principles which converged with
IFRS. They were to be known as Indian Accountng
Standards (Ind-AS). The move to converge its ac-
countng standards with IFRS, rather than adoptng it
outright, is because there exists a wide fundamental
gap between the Indian GAAP and the IFRS.
NEED FOR IFRS IN INDIA
Globalizaton of Economies - Globalizaton of Econo-
mies has created the need for a standardized practce
for reportng of important fnancial documents to
bring more uniformity across the globe.
For Raising Capital from Overseas - Indian Companies
raising capital overseas is a common practce nowa-
days. This requires the fnancial documents to be
transparent and in a format which is recognized all
over the world
To help MNCs prepare consolidated fnancial state-
ments- The MNCs, which are operatng across various
countries, will fnd it easier to prepare consolidated
balance sheet once IFRS has been implemented glob-
ally
Beter Quality of Informaton- IFRS mandates exten-
sive disclosures and hence is considered a beter tool
for accountng. It is a pro impact accountng system,
which requires all outcomes that have an impact on
companys fnances to be recorded accordingly. It al-
so has very stringent Income recogniton rules.

TIMELINE FOR IMPLEMENTING IFRS
India joined the IFRS bandwagon a litle late, with
close to 130 countries already aligned to IFRS and
many more in the process. IFRS will be implemented
in India in three phases
Phase One- Phase One involves companies having
revenue of more than Rs.1,000 crores. A deadline of
April 1, 2015 has been set for them.
Phase Two- Phase two will begin from April 1, 2016
and will consist of companies with a turnover of more
than Rs.500cr and less than Rs.1000 crores.
Phase Three- Phase three will be applicable for the
remaining companies (companies having revenue of
less than Rs.500cr). No deadline has been set for it as
of now.
ISSUES AND CHALLENGES
In spite of its visible benefts, implementaton of IFRS
in India remains a challenging prospect and is bound
to face certain issues such as:
46

47

AWARENESS ABOUT INTERNATIONAL PRACTICES
IFRS adopton implies that the entre reportng of f-
nancial statements needs to undergo numerous
changes as mentoned above. A lot of work needs to
be done to bring about an awareness regarding the
impact of IFRS among the users and the various stake-
holders.

NEED FOR TRAINING

Professional accountants profciency with IFRS is
absolutely essental for its implementaton. The big-
gest hurdle would be the lack of courses and profes-
sional insttutons that impart knowledge about IFRS.
As its full tme implementaton draws near (2015),
acute shortage of trained IFRS staf is being ob-
served.
BASIS IFRS AS
Principle v/s Rule based
standards
Principle based. The underly-
ing economic substance is the
prime evaluaton factor
Generally rule based. Compa-
nies act determine and guide as
to how a transacton is record-
ed
Standards v/s Local Laws Internatonal Accountng
Standards take precedence
Local regulatons take prece-
dence while preparing fnancial
statements
Presentaton of fnancial
statements
No prescribed format. Assets
and Liabilites need to be clas-
sifed as current and Non-
current
Companies Act and other In-
dustry regulatons have defned
prescribed formats
Depreciaton of fxed assets Depreciaton is an annual
change. Based on the estmat-
ed life of the assets
Useful lives already prescribed
in Schedule II of the Companys
Act
Cash fow statement Mandatory Mandatory for some. Direct
method for insurance compa-
nies and indirect for other
listed companies
Valuatons Provides guidance on how to
measure value of mergers,
acquisitons, take overs and
amalgamatons etc.
The guidelines under IAS are
debatable as of now
DIFFERENCES BETWEEN IFRS AND INDIAN ACCOUNTING STANDARDS


48
AMENDMENTS TO THE EXISTING LAWS
There is a huge gap between IFRS and existng laws
such as SEBI regulatons, banking laws and regula-
tons and even the New Companies Act (2013).
TAXATION
IFRS convergence would result in a change in most of
the elements present in fnancial statements, conse-
quently ushering a change in tax liability. The taxaton
laws should address the treatment of tax liabilites
that arise on convergence of Indian GAAP and IFRS.
FAIR VALUE
IFRS is a principle based accountng system, which
uses fair value as a parameter for recording most of
the items in fnancial statements. The use of fair val-
ue will bring a lot of volatlity and subjectvity into the
picture. Additonally, a lot of groundwork has to be
done to arrive at a fair value that is agreeable to all.
Furthermore, whether fair value gains and losses
should be computed in calculaton of distributable
profts is another debate altogether.
TRAINING & SKILL DEVELOPMENT CHALLENGES
Training and skill development are the critcal issues
the government will have to address for successful
IFRS integraton. All the stakeholders including inves-
tors, accountants, ratng agencies, actuaries and valu-
aton experts would need to develop an understand-
ing of IFRS and its provisions. Educatonal insttutons
will have a big role to play, and academic insttutons
must include IFRS in their curriculum and students
must focus on acquiring a strong & deeper under-
standing. The proposed move to Ind-AS is defnitely a
step in the right directon and it will positvely result
in signifcant improvements to fnancial reportng and
corporate governance practces.
CONCLUSION
Ind-AS (converged with IFRS), despite the issues and
challenges, is clearly a must for India, if it is to move
forward and open the economy in true sense to inter-
natonal investors. The Government of India needs to
become proactve in taking steps to smoothen out
the phasing from Indian GAAP to IFRS.

49
TEAM INFINEETI: What percentage of people, of
those targeted, has actually benefted by schemes for
microfnance designed by NABARD? Are the benefts
sustainable even afer the scheme is over?
MR. SATISH: NABARD is an apex organizaton which
does actual feld level fnancing. In 1990 what NAB-
ARD had realised that existng banking structure was
not sufcient to meet a large number of people who
are outside the existng banking structure and existng
fnancial products. Hence NABARD formulated a pilot
project called Self Help Group Bank Linkage Program,
where NGOs and other organizaton formed a group
of 4 people especially women, afer which they start-
ed savings tll they reach a level of maturity and then
linked to bank branch to give some fnance- which
was in small amount and a period which was suitable
to the Self Help Group. So that basically is micro-
fnance that was started in India in 91-92 in the form
of NABARD project. We just aimed at 500 groups but
it progressed well and it caught imaginaton of bank-
ers and the government. In 96 govt. made it a regu-
lar fnancial actvity for all banks, afer that tme there
was no looking back and the govt supported it. The
RBI also supported unregistered group who can open
their own bank account.
By 98-99 we aimed that at least 1 million groups be
formed and linked to the bank, but the achievement
was that we exceeded in formaton of more than 2
million groups, especially with the support of various
state governments. Today, if we take the data of
March 2014 nearly 8 million groups, of which 80-90%
are women, are linked with outstanding credit to all
these groups must be 50k crores. But there are issues
about the benefts that are sustained at the end of
the period, and we have mixed reports from the feld.
Nurturing and hand holding support is not contnued
afer the groups get the frst dose of credit and then
sometmes the groups defunct or the group disinte-
grates, but what we get from the report on feld is
that sustenance of 45-55% of the group afer the
credit is over and problem is in the rest of the groups.
This is what we are concerned and currently dealing
with.
TEAM INFINEETI: How has been the recovery/
repayment and collecton of the debtors who have
been provided by microcredit schemes?
EXPERT SPEAKS

MR. P. SATISH
CHIEF GENERAL MANAGER,
NABARD


50
MR. SATISH: I was mentoning about the SHG con-
cept where for recovery and repayment there is no
collateral, but there is a lot of infuence of peer
group. However our philosophy & practce has been
that wherever there have been group forming and
nurturing, there has to be a necessarily 100% recov-
ery which have been our experience in 97-98% of
the cases, remaining 2-3% where there has been un-
foreseen circumstances and recovery cannot be
done fully.
But what happened in 98-99, government had
come up with the scheme of SGSY (Swarnajayant
Gram Swarozgar Yojana) in order to help the SHGs.
This scheme saw a lot of bank support but it saw a
lot of deviaton from the original principle of forming
and nurturing of the groups and recovery percentage
was very poor- in the range of 30-40%.Whereas the
groups covered under non-government program
supported good recovery. This happened due to the
diluton of the principles that were previously men-
toned. You must have heard the crisis in Andhra Pra-
desh in 09-10 in the microfnance movement, that
have also added to the problems of recovery. So the
segments in which you normally expect to have
100% recovery, is now facing problems with regards
to recovery percentage. The only silver lining is that
the SGSY is being replaced by Natonal Rural Liveli-
hood Mission, negatvity associated with the govern-
ment will go away and we will be able to bring the
movement back into track.
TEAM INFINEETI: What is the government policy for
the disbursement of funds for NABARD to carry out
actvites such as micro fnancing/microcredit? Does
govt. give a lump sum or does NABARD ask for spe-
cifc funds?
MR. SATISH: Most of the work which NABARD does in
this microfnance is of refnancing, which primarily
comes from our own funds. Earlier we had Micro Fi-
nance Development and Equity Fund (MFDEF), for
which the government, RBI and other banks had con-
tributed some nominal value. A lot of amount we
were ploughing back into the MFDEF. The fund does
not exist now, instead a fnancial inclusion fund exists-
which is also created within NABARD with inital nomi-
nal contributon from government, but more from in-
terest diferental we had from other schemes. So
technically speaking neither government provides any
huge funds nor do we ask for specifc funds, which we
are generatng from our internal actvites.
TEAM INFINEETI: How does NABARD interact or col-
laborate with NGOs? How do you select the NGOs to
work with, and how do you blacklist them?
MR. SATISH: Basically, we look at any organizaton at
a grass root level and we go through its previous work
at the district level- for which we have our district de-
velopment managers. They know the NGOs in the dis-
trict and their track record very well. Afer which we
invite the NGOs to partcipate in our programs. But
whenever there is a case of fnancial sancton, grant or
a support, we normally look at the fnancial reports
and statements for the past 3 years, its working, its
governance, structure, and housekeeping along with
its track record in carrying out developmental actvi-
tes.

51
What we can say is that we are quite liberal and open
to NGOs who are ready to work in the feld in an hon-
est and dedicated manner. For the smaller NGOs who
have smaller track record of say less than 5 years, we
give them smaller programs.
As far as the blacklistng is considered especially when
it comes to serious fnancial irregularites in sanc-
toned grants or loans which they have not used up
properly, and not returned money or even in some
cases, absconding NGO ofce bearers such NGOs, we
discuss with the local administraton and other agen-
cies and then only initate the process of blacklistng
them and inform the government about the same.

TEAM INFINEETI: For a perspectve into foreign trade-
what incentves does NABARD have for increasing the
export/foreign trade? Does it have special trade relat-
ed schemes?
MR. SATISH: One aspect is about Agri Export Zones
and for banks which are fnancing in Agri Export Zones
in short term or long term fnance. There is a special
refnance scheme which refnances their credits to the
banks in the Agri Export Zone. NABARD also support
banks for refnance, and support export promoton for
agriculture, in terms of grading and processing of
fruits and vegetables & packaging, and credits for ex-
port related documentaton. One big area where NAB-
ARD supports is cold storage and other facilites re-
quired for export, including providing freezer vans,
freezing facility etc. All of the schemes are partly sub-
sidised from Ministry of Agriculture and Food Pro-
cessing and partally through loan routed through
NABARD. In other ways we have a lot of promotonal
schemes, wherein we transfer technology to farmer to
produce export quality fruits, vegetables and crops.
These include training the farmers, supplying them
with new variety of seed and plantng material, plus
enabling them in usage of practces that are accepta-
ble in internatonal standards and certfcatons re-
quired to fulfl the phyto-sanitary needs. We believe
that only when markets are open for agriculture and
there is free trade then only farmer is benefted.

TEAM INFINEETI: With a new government having a lot
of expectatons from a development standpoint, what
do you thing the new government must do to bring
back Indias growth story back on track and how can
NABARD contribute towards the same
MR. SATISH: We have to realise it that no government
can neglect agriculture as a sector. Though the contri-
buton to the GDP of the naton is only 14% stll, 60%
employment is engaged in Agri-related actvites. But
as far as present govt. is concerned, what we expect is
to have a lot of market related reforms in prices and
movements. The movement between states should be
enabled to move products in and out quickly. Now
you see the price rise in some commodites- a large
part of this is because of restricton of free movement.
Even basic cereal prices are regulated. If the markets
are freed and there is free entry and exit for suppliers
and buyers in the agricultural markets, and we have
acts such as Agriculture Produce Market


52

Commitee Act etc., for which for the last 10 years
there has been no discussion on reforms on the feld
level, things can improve quite a lot. To add on we
have the system of fxing the minimum support price
on certain crops and restricton of export on various
goods. So, unless there is a free market as far as agri-
culture produce is concerned- sector will not grow in
this way. The government must bring in reforms so
that everyone benefts- the farmers and the consum-
ers are not taxed with too much price at its doorstep.

TEAM INFINEETI: What, according to you, is the high-
light of the budget and what are the budgets implica-
tons in the long run?
MR. SATISH: Let me restrict to agriculture related is-
sues of the budget. One thing is that there has been a
creaton of 5000cr fund for NABARD; in the last 10-15

years there is a decrease in agriculture capital for-
maton which is necessary for farm mechanizaton,
irrigaton, hortculture etc.
Second thing is the policy on the Joint Liability Group
of landless farmers, of which Rs.5 Lacs will be spon-
sored by the government. Third is the Rs.2000cr fund
(within NABARD) for Agro Processing Unit which has
an important relaton with Agro Export that we previ-
ously discussed. This is import from an export point
of view as a lot of it goes to Middle East, Europe etc.
Fourthly, climate change adaptaton fund has been
created, which NABARD had initally proposed. NAB-
ARD had implemented a climate change project in
Ahmednagar, Maharashtra to help farmers adapt and
mitgate the impact of climate change. Such inita-
tves have to be taken by the government so that for
the next 5-10 years, climatc changes-be it rise in
temperature or rainfall, it is taken care of.

53
INTRODUCTION
Decision to increase FDI limit in the Insurance Sector
from 26% to 49% by the Government of India is being
hotly debated. The private companies have naturally
welcomed the move seen as giving them a level-
playing feld in a sector heavily dominated by state-
invested enttes.

Fact is, only 3% of GDP is accounted for by this sector
out of which general insurance accounts for less than
one percent of GDP. This implies huge potental for
future growth in this sector. It has also been pointed
out that this move would bring the much needed long
-term capital in this sector. Benefts to existng com-
panies which are constrained by lack of funds and re-
duced proftability are thus understood. Implicatons
for the other important stakeholders like the
consumers are not that obvious. It is being stated by
optmists that new products, more coverage, higher
penetraton especially in rural areas are the likely
benefts of this policy change. Queston which comes
to ones mind is whether lack of capital was the only
problem which was plaguing this sector? Is it the pan-
acea of all evils?
In this artcle we are going to concentrate on health
insurance to understand the present scenario and the
implicatons of the new policy for this partcular sec-
tor. Compared to Life Insurance which has been tradi-
tonally positoned as a tax planning tool, health insur-
ance took a long tme to emerge in our country. Espe-
cially, afer 1990s when the economy was liberalized
and new ideas came from across the border the sec-
tor took of. And once the sector was opened up for
private partcipaton and the per capita income of the
people increased simultaneously it experienced con-
siderable growth. Between the years 2007 and 2011
the health insurance membership increased to 300
million and is expected to touch 600 million by 2015.
Even afer such growth the out-of-pocket expenses
dominate the health care spending estmated at 72%
of total expenses. Indias per capita health care
spending is only $109 compared to the global average
of $863. Hence a lot of potental growth is
FACULTYS CORNER
WOULD INCREASE IN FDI LIMIT HELP
HEALTH INSURANCE SECTOR IN INDIA?
-BY BIBEK ROY CHAUDHARI
PROFESSOR, IIFT


foreseen given the incidence of diseases in our coun-
try. What are the likely factors that have impeded the
growth of this sector?

ANALYSIS OF INSURANCE SECTOR
Like any other fnancial services the insurance sector
is also impacted by the problem of asymmetric infor-
maton. It becomes difcult for the insurer to detect
less risky individuals as there is an incentve to hide
details to pay lesser premium on the part of the in-
sured. The problem is more acute in rural areas. The
moral hazard problem also may be high due to the
unholy nexus between the hospital/doctor and the
customer which may give rise to false claims. Given
the state of legal insttutons in India the probability
of such events are quite high. On the other hand the
third party agents entrusted with claim setlements
ofen create problems even in case of genuine cases.
Thus proftability of companies has come down dras-
tcally due to such reasons and higher competton
from new entrants. On the other hand the consumers
have faced the music in tmes of need which has led
to lesser demand for such products. Informaton re-
garding this kind of incidents spread quickly through
word-of-mouth. Both these reasons limit the growth
of membership among the people aware of the ser-
vices.
Lack of doctors and health care infrastructure has se-
verely limited the access to such services especially in
the rural areas. Most of the people in such areas de-
pend on public health care with serious quality issues.
Whereas the litle bit of private care which does exist
is not afordable for most of the people. Mult-layer
care-delivery system creates a problem for the in-
sured as movement across multple points are re-
quired during each visit. On the other hand due to lax
medical procedures adverse drug related problems
are quite high. In terms of product oferings most of
the insurance providers ofer indemnity based prod-
ucts covering critcal procedures involving lump sum
payments. This bypasses the other needs of health
care seekers like regular check-ups (preventve health
care), one day procedures, maternity related care etc.
Can FDI solve these problems? Increase in FDI limit
may interest new entrants with new models of deliv-
ery and products. This is required given the supply-
demand mismatch observed in this sector. Moreover,
this would create jobs being a labor-intensive pro-
cess. Intensifed competton among players would
increase efciency of services and directly beneft the
consumers. Knowledge spillovers from internatonal
best practces would enable the service providers to
reach out to more customers.
FACTORS AFFECTING THIS SECTOR
First, major point emphasized in the literature which
deals in FDI in health care is whether the sector is al-
ready commercialized. This is because liberalizaton of
this sector leads to commercializaton and if it
54
Source: www.maculahealthcare.com

55

is not already exposed to such phenomenon the en-
try of foreign money may create ripples for which the
market may not be ready. Since in India we have al-
ready allowed 26% foreign partcipaton with a num-
ber of private players there seems to be room for fur-
ther commercializaton and it would be less of a
shock to the system. The greatest impact on health
care fnancing, distributon of facilites, access to ser-
vices, etc., is thus the degree to which health care is
commercial, not whether it is foreign. Nonetheless
FDI may help
in reducing
fnancing con-
straints and
increase
health care access in a country like India.
Second, existng regulatory environment, and
resilience, will signifcantly determine the economic
and health impact of FDI, the efectveness of safe-
guard measures and the stability of commitments.
Important issue in this case is establishing the likely
balance of power between the natonal regulatory
system and potental investors. Not only might regu-
latons determine the level of FDI, but opening up, or
extending, the commercial sector will require stand-
ards in care to be established and maintained. Thus
we need to determine whether the regulatory regime
will be able to handle (greater) FDI, and if not what
measures need to be enacted to do so. Thus the cur-
rent regulatory regime must be made more efectve
in order to atract more FDI. Increasing the limit may
be necessary but not sufcient conditon for larger
FDI fows.
Thirdly, commensurate investment in health care in-
frastructure. Lack of proper health care facilites
across locatons impacts demand for health insurance
services. A
consumer
would be
inclined
buy an in-
surance
product only when commensurate health facilites are
available within their reach. Public-private partnership
may be the way forward especially in semi-urban and
rural areas. Tremendous scope of medical tourism also
may induce more investments in health care facilites
in countries like ours.
Fourthly, the model for health insurance delivery is
also equally important. Various forms of insurance,
mandatory, voluntary and community health insur-
ance cover approximately one-fourth of Indias popu-
laton. Whether insurance is ofered through employ-
ment, purchased voluntarily or sponsored by the gov-
ernment for select populatons, all potentally contrib-
ute towards the health systems goal of providing f-
nancial risk protecton and reducing the fnancial barri-
ers to quality health care. Innovatve models based on
mobile devices are being suggested for greater out-
reach. All in all, it can be said that FDI in insurance has
the capability to transform this sector.


56
INTRODUCTION
Populism has acquired a pejoratve connotaton in
recent tmes. It has become an adjectve of choice to
describe any politcian who wants to take the easy
route to popularity via appeasement. However, isnt
that the point of a democracy? The will of the people
is supposed to be paramount. The problem lies in the
fact that short-term and long-term interests of the
society are ofen antthetcal to each other and one
cannot rely on the masses to provide a logical vision
for the future. Populism has evolved over the last
century as a response to the inequalites inherent in
liberal capitalism. It believes in an expansionary fscal
policy of the government which increases public em-
ployment, mobilizes the masses and blurs the distnc-
tons between leaders and insttutons.
Over the years, Indian polity has thrown up many in-
stances of populist decisions taken without much
thought to economic prudence and ratonality. On 29
February 2008, P. Chidambaram, the Finance Minis-
ter of India at that tme, announced a debt relief
package for farmers which included the complete
waiver of loans given to small and marginal farmers.
It was called the Agricultural Debt Waiver and Debt
Relief Scheme and the 600 billion rupee package in-
cluded the total value of the loans to be waived for
30 million small and marginal farmers (estmated at
500 billion rupees) and a One Time Setlement
scheme (OTS) for another 10 million farmers
(estmated at 100 billion rupees).

Although the sentment behind the measure was
laudable freeing up small agriculturists from the
cycle of debt the design of this scheme was fawed.
An important feature of the program which has been
heavily critcized is that it covers only formal sources
of credit and excludes any kind of informal loan. So
one side it benefted wealthy and large-scale farmers
who had access to insttutonal credit (about 23% of
the total farmers), small and marginal farmers, who
borrow the majority of their funds from private mon-
eylenders, did not benefted from the scheme. Thus
the scheme just ended up straining our public fnanc-
es while the most deprived farmers remained un-
afected. This was a classic populist scheme.
POPULISM HAS BROKEN THE BACK
OF INDIAN ECONOMY. WHATS
WRONG WITH AVOIDING IT?
-BY ASHISH KASHYAP &
SUMIT BHANSALI
SJMSOM, IIT-BOMBAY

57

ELECTIONS ARE THE TARGET
Similarly, just before the 2014 electons, the Govern-
ment of India was considering tweaking the rules for
MGNREGA program wherein the benefts to the
workers would be linked to the infaton rate in or-
der to beter target the rural poor. At the end of No-
vember 2013, the Ministry of Rural Development
consttuted a new commitee to determine a suita-
ble index for the MGNREGA wages on the basis of
which new baseline wages will be fxed for 2014.
Currently the MGNREGA wages are pegged to the
consumer price index (agricultural laborers), or CPI
(AL), which has a large food and beverages compo-
nent.
The commitee would assess the merits of using an
alternatve measure, such as the consumer price in-
dex (rural areas), or CPI (R), where the food and bev-
erages category is accorded a lower weightng, and
was due to release its report in three months' tme,
before the natonal electons to be held by May
2014. Why this logical step could not have been tak-
en in the years before eludes comprehension?
EXAMPLES OF POPULIST SCHEMES
Electoral politcs has become a mechanism to
achieve some sort of redistributon of income every
fve years, placatng all the special interest groups
that dot the politcal landscape of India. Over the
years, a patern seems to have emerged where terri-
torial groups demand special packages (for example,
Bundelkhand) or statehood (for example, Telanga-
na). Most of the Social groups are known to make
community-specifc demands, such as reservatons
(the recent inclusion of Jats in the Central OBC list),
special status (as in case of minority status to Jains),
or subsidies. Various state governments have also
indulged in ofering exclusive benefts to certain spe-
cifc communites, like unemployment allowance,
free TV sets, gold ornaments, free computers, etc.
Afer the DMK announced a string of freebies in its
electon manifesto, bte noire AIADMK came out
with its own editon of the sop opera. If the DMK's
manifesto reads like a book about freebies, the AI-
ADMK is also following the course. In fact, AIADMKs
J. Jayalalithaa has tried to beat her bte noire M.
Karunanidhi at his own game by taking the mad race
to a new level. Ms. Jayalalithaa has in fact promised
to give half a sovereign gold to women awaitng
marriage apart from a cash assistance of Rs.25, 000.
The Maharashtra government, as a fnal shot before
facing the assembly electon, announced a new res-
ervaton quota -- 16 percent for Marathas and 5 per-
cent for Muslims. Before this announcement Maha-
rashtra had 52 percent reservatons, which crossed
the limit set at 50 percent by the Supreme Court.
With these fresh set of reservatons the total


58

reservatons in the state has gone up to 73 percent.
Although the decision has been challenged in the ju-
diciary, it is a symptom of a larger problem afictng
our entre politcal landscape.
These are direct acts of economic populism which are
easy to diagnose. We must however not ignore the
broader and subtler defniton of populism and the
far-reaching implicatons that it has for the polity of
the country. Populist moves are not just direct eco-
nomic ones all the tme; they also entail concessions
to the majority or some special minority, ideologically
suspect measures, appeasement etc. It needs a very
keen analysis to discern these subtle threats to a
more ratonal governance model. Lets look a few
contemporary issues which will elucidate our point.
The new Narendra Modi Government has promised
us a lot of initatves which reek of populism and du-
bitable logic
Interlinking of Rivers: Rivers have a religious, cultur-
al and sentmental value to India and its populaton.
They are also the lifeblood of the economy. Hence
interlinking of rivers is a highly visible, popular move.
However it is fraught with the possibility of potental
disaster. It is an atempt to change the geography of
the country. When comparisons are made to a na-
tonal water grid on the analogy of a power grid, it
is extremely misleading. A river is not a human crea-
ton, they are integral components of ecological sys-
tems and inextricable parts of the cultural, social and
spiritual lives of the communites concerned. It is not
quite clear how the linking of rivers will contribute to
the objectve of food control. A signifcant modera-
ton of foods will call for a massive diversion of food
waters which may not be feasible at all, or if techni-
cally feasible, it may have serious impacts on the river
regime downstream of the diversion point, on the
diversion route and in the recipient areas. On the
other hand, if only small fractons of the food fows
are to be diverted (as seems to be the intenton),
there will be hardly any food moderaton. For in-
stance, the fow in the Ganga during a high food can
exceed two million cusecs, whereas the link canals
envisaged will divert only 1,500 cusecs. It is primarily
in the context of drought that the project might ap-
pear to be needed. However the proposed river links
(reportedly mainly by gravity, with a few modest lifs)
are no answer to drought-prone areas. Linking a river
to another will merely provide additonal water to
areas already served by rivers.
New IITs, IIMs and AIIMs in every state: While IITs
and IIMs have a very prominent brand value and sig-
nifcance to a large secton of the populaton as an as-
piratonal goal, this move is extremely illogical. The
current new IITs and newer IIMs already face a re-
source crisis, they have yet to acquire proper campus-
es, enough faculty and are struggling. Instead of in-
vestng more in making sure that they get to

59

similar levels of competency as the older insttutes,
this decision aimed at appeasing popular demands is
probably going to add to the woes of our educatonal
system. The need of the hour is more quality insttu-
tons , rather than more insttutons.
Bullet Trains: There is no evidence of any urgent
need for bullet trains in India. Since the entre tech-
nology will be imported and limited to a few sectons
of the railways, we are also not sure about the bene-
fts of the technology transfer. Meanwhile, we con-
tnue to have train accidents, poor sanitaton and
cleanliness in our trains and railway statons and per-
petually delayed trains.
A
more fruitul investment in the network and frequen-
cy of trains in critcally overloaded sectons would be
much more useful. However Bullet Trains is again a
very visible and populist move, aimed at invoking sen-
tments of chauvinism and natonal pride.
CONCLUSIONS
It is very clear that the ideology of democracy and
popular will has been immeasurably damaged by the
machinatons of unscrupulous politcians. Populist
moves are aimed at exploitng the myopia which the
average citzen exhibits when it comes to long-term
issues. Popular democracy and Populism are not in-
separable. A more aware electorate is the need of the
hour.


60

Summer Internship is an integral part of an individu-
als B-School life which equips one with the tools to
be used later in the professional life. It is an enabling
platorm where one can learn the nuances and intri-
cacies of ones desired feld. One can get a feel of
how corporate life is going to be afer an MBA. More-
over it gives one an opportunity to asses ones own
capability and relatve performance with best of the
students in the country in a dynamic environment.
From the frst trimester itself I was very passionate
about fnance and always was ready to walk an extra
mile to learn the intricacies associated with it. Thus, I
always had the desire to pursue an internship in the
fnance domain. Finally, I had the privilege of doing
my internship with Reserve Bank of India in their Kol-
kata regional ofce.
The project which I got to work on was Role of
Treasury in Liquidity Risk Management. The ap-
proach to my project was two-fold. First I had to
study and understand the nuances of Treasury and
RBI guidelines which govern the policies of banks in
our country. Secondly, I had to analyse the treasury
investments of private sector banks and public sector
banks and then give my suggestons. I feel that f-
nance subjects in my frst year of MBA helped me a

lot in gaining an insight about the general functoning
of RBI and specifcally in my project.
The atmosphere in RBI was very vibrant where every-
one from junior level to senior executves were very
enthusiastc about their work , about impartng
knowledge and aiding the interns in their work. I
would say that my learning curve was exponental in
RBI where I learnt various facets of managing risk, got
a rare opportunity to have hands on experience in au-
ditng the banks based out of Kolkata on CAMELS i.e.
Capital Asset Market Earnings Legal and Systems
framework. The investment analysis of my project
was an uphill task where I had to understand the an-
nual reports of various public and private sector banks
and then draw a comparison.
I learnt a lot from my internship where I had to work
on short deadlines, work in diferent groups and talk
and interact with Chief Financial ofcers of various
Public sector banks. During the course of my intern-
ship I also appeared for CFA Level 2 exam and the help
and guidance that I got from my mentors and peers in
RBI was hugely benefcial to me. Overall I would say
that it was an internship which involved diligence cou-
pled with equal amount of fun and a lot of learning.

SUMMER INTERNSHIP EXPERIENCE
( RESERVE BANK OF INDIA)
-BY SHUBHAM AGARWAL, IIFT

RBI CUTS SLR RATE BY 50 BASIS POINT

According to Mr.
Raghuram Rajan, foreign
reserves come at a cost.
Though he accepts that
higher foreign reserve is
beter than lower foreign
reserve, but at the same
tme, he also makes it clear that only having foreign
reserve will never buy the immunity for the Indian
economy.
He opines that if something can provide immunity to
the Indian economy, then that is nothing but credible
monetary policy. If we have low fscal defcit, moder-
ate current account defcit and low infaton people
will want to invest here. To achieve immunity we must
get the status of a developed country. According to
him, it can happen only when the Rupee will go more
internatonal and debt market will become more vi-
brant. That is why RBI gives emphasis on reducing and
controlling infaton so much The Reserve Bank of In-
dia has recently slashed SLR rate by 50 basis points to
22% while CRR (4%) and repo rate (8%) are kept un-
changed.

FLIPKART SIGNED MoU TO PROVIDE TRAINING IN RU-
RAL AREAS
The Retail giant from
India, Bangalore
based Flipkart, has
come forward to ex-
tend help by providing training to rural and semi-
urban people. Flipkart has signed a Memorandum of
Understanding (MoU) for the initatve. They are going
to start the training centres in Agra, Meerut, Varanasi,
Aurangabad, Pochamalli, Salem, Guwahat and Shil-
long. Afer the training Flipkart may well absorb them
as their employee.
COLD WAR BETWEEN RUSSIA & AUSTRALIA
A cold war has been started
between Russia and Aus-
tarlia which started over
the issue of Russias sup-
port to the separatst
movement for Crimea in Ukraine. On one hand Aus-
tralia openly critcised Russias stand on the issue, US
along with other G8 countries have been imposing
ban on Russian organizatons and individuals since
middle of March 2014. As a consequence Russia has
introduced an embargo on various agricultural
61


62
products like beef, pork, fruit, vegetable, poultry, fsh,
milk and number of dairy products from Australia, EU,
US, Canada and others.
JAPAN FOREIGN RESERVES FALLS BY $7.89 BN
Japans foreign exchange reserve fell to the lowest for
the past 4 months. At the end of
July Japans total foreign exchange
reserve is tallying at $1.28 trillion
which is reduced by $7.89 billion in
the last month. According to fnance ministry of Ja-
pan, this happened due to drop in value of foreign se-
curites held by the government because of a slump in
US Treasury bond prices.
SCAM IN BHUSHAN STEEL
CBI has arrested Neeraj Singal, Vice
chairman and Managing Director of
Bhushan steel. The allegaton is
that he is involved in a scam of Rs.
50 Lakh which also involves Syndicate Bank. On 2nd
August, the CBI has arrested 6 accused, together with
the Chairman-cum-Managing Director of Syndicate
Bank S K Jain, for allegedly taking bribe of Rs 50 lakh
to increase credit limit of some companies violatng
the banking rules. As a result share price of Bhushan
steel has taken a plunge of 10% in BSE.

INFIBEAM PLANNING FOR AN IPO
Ahmedabad based Infbeam Inc, the organisaton be-
hind the consumer e-commerce venture called In-
fbeam.com and B2B e-
commerce platorm
namely Build A Bazaar,
is going to raise Rs 500-
1,000 crore ($83-166
million) through an Inital Public Ofering (IPO) in India
within the next couple of quarters as mentoned by
its founder and CEO Vishal Mehta.
UNIVERSAL COMMODITY EXCHANGE STOPPED
TRADING OPERATIONS ON 16TH JULY 2014
Universal Commodity Ex-
change (UCX): Indias 6th
commodity exchange
which started functoning
on 19th April 2013 has sus-
pended all the trading operatons on 16th July 2014. It
was promoted by Commex Technology in joint ven-
tures with IDBI Bank, IFFCO, NABARD and REC. Signs
of fraudulent trade practces have been observed in
the aforementoned exchange by Forward Market
Commission in March. Similar issues were also found
with MCX when a special audit took place under pur-
view of PwC.

63
KNOW ABOUT YOUR COIN!
The latest Indian one rupee coin
which has the highest circula-
ton is made up of Ferritc Stain-
less Steel (FSS), having a diame-
ter of 25mm. It weighs 4.85 gm.
The value of the coin, when
melted is estmated to be 70 paisa. The remaining 30
paisa goes to the government as seigniorage.
NUMBER OF PEOPLE LIVING BELOW THE POVERTY
LINE
A study by BBC shows
that only eight of the
Indian states consttute
poor populaton of 421
million which is greater
than the poor popula-
ton of 26 poorest countries from Africa, which is 410
million. According to World Bank, over 450 million
people living below the internatonal poverty line of
$1.25 a day.
PREMJI PROMISES TO PAY 50% OF HIS WEALTH FOR
SOCIAL CAUSE
Ten out of the worlds top 150-odd billionaires are
Indians. But only one, Azim Premji, fgures in the list
of 105 billionaires
who have pledged to
give away at least
50% of their wealth
for greater social
good. The Azim
Premji Foundaton is now ramping up from a staf of
800 to about 5,000 in the next fve years. It is check-
ing out B-schools to hire fresh MBAs for leadership
roles. Premji will build the foundaton with the same
vision and rigour with which he scaled up Wipro in
the early years.
SWEDEN HAS THE HIGHEST TAX RATE IN THE
WORLD
Sweden has the
highest rate of
Income Tax in the
world. A Swedish
has to pay 56.6%
of his salary as
the income tax.
Sweden is followed by Denmark (55.4%), The Nether-
lands (52%) and Austria (50%). Though they charge a
high rate of tax, stll all these taxes are duly utlised to
provide every aspect of social security to the citzens.


COIN MINTING IN INDIA
Government of India has 4 mints each with a long
and distnguished history. Alipore (Calcuta) mint
and Mumbai (Bombay) mints were established in
1829 by Britsh Government. Hyderabad mint was
established in 1903 under patronage of Nizam, later
taken over by GoI in 1950. Noida mint is the latest
one established in 1986. Each mint has special iden-
tfcaton mark on the coin it releases.
Mumbai (Bombay) mint issued coins has a diamond
mint mark under the year of the coin.
Hyderabad mint issued coins has a star mark below
the year mark.
NOIDA mint issued coins has a thick dot just below
the date. Alipore mint leaves no mark in coins.

64

WEIRD TAXES ACROSS THE WORLD:
Google tax in France: Online tech companies need to pay to the government for online advertsements.
Used to support artsts and online cultural informaton centre.
Jock Tax in California: Exclusively sports superheroes have to pay from match fees.
Window Tax in Scotland, England and Great Britain in 18
th
and 19
th
century.
Cow fatulence Tax: In Ireland Denmark and other EU natons, catle owners need to pay as the catle
produce methane causing global warming.
Beard Tax in Russia: Initated by Peter the great, one of the most notorious Czars.
Tax deducton on Bribe: In Germany, bribery was legal under few circumstances tll 2002.

MEET THE TEAM
65 CREDITS
OUTGOING TEAM
Ankit Tiwari
Ashutosh Deshpande
Sanket Tandon
Sobhit Agarwal

SPECIAL THANKS TO:
Apurva Kulkarni
Kartik Puri
Shubham Agarwal

INCOMING TEAM
Adhiraj Bandhopadhyay
Gayathri Bhuvangiri
Mehul Gehrana
Suryanarayan Panda

FEEDBACK/QUERIES
infineeti@iift.ac.in
infineeti@gmail.com

Published by students of
Indian Insttute of For-
eign Trade
New Delhi | Kolkata

ALL RIGHTS RESERVED
ANKIT TIWARI is a sofware engineer and comes with
a prior work experience in Infosys Limited . He in-
tends to specialize in Finance & Marketng. He
wants to pursue his career in IT & Banking industry.
Additonally, he is an avid reader, likes writng in his
spare tme , loves reading newspaper and also loves
playing and watching Cricket .
ASHUTOSH DESHPANDE has completed his graduaton
in Computer Engineering from Mumbai University,
post which he has worked with Mahindra Holidays.
He has inclinatons towards Finance and Strategy.
Also, he is an avid writer, has writen for various
blogs, football sites and magazines on topics ranging
from Politcs, Current Afairs to European Football.
SANKET TANDON is a sofware engineer and has
prior work experience with Infosys Limited. He in-
tends to specialize in Finance and wants to pursue
his career in the same domain. He is an ardent Man-
chester United fan. Apart from following football he
likes to read and travel in his spare tme
SOBHIT AGARWAL has completed his B.tech in Elec-
tronics and Communicaton engineering from NIT
Surat in year 2012. Before joining IIFT ,he worked as
Marketng Manager at Endeavor Careers Pvt. Ltd.
for 12 months. Moreover , he has a keen interest in
fnance and wants to pursue a career in the same
domain.

Contact Team InFINeeti: infineeti@iift.ac.in | infineeti@gmail.com
Published by Indian Institute of Foreign Trade, New Delhi and Kolkata
All Rights Reserved

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