Why did it take Mumbai?

Blast after blast but we haven't seen much done. Demands of resignations and then some rebuttals, the blame game and we're back to square one. Another day and another blast. Today the target was Assam but no one will talk about it. No debates, no coverage, no media persons. The sad fact is that terror has become a part of our lives. India holds the unfortunate record of the second largest death toll due to terror and guess what? We're second only to Iraq. Some might see our ever expanding population as an asset but this is one record we'd rather not hold. The problems?

Our non-optimized defense budgets:

Does every VIP need security? Shouldn't we get more from what we spend for the defense of our country? We spend 5% of our budget towards defense and related expenses while most developed nations spend a maximum of 3% of their budgets. Are we spending the right amount on the right things? When we spend so much on arms and ammunition defense personnel, why wasn't the Maharashtra Police Head Quarters well equipped to fight automatic riffles and grenades?

The morale of our security forces:

Does the police have to be controlled by the state politicians which in a way requires them to be act in the most subservient of ways. There are numerous stories of officers who get posted around just for disobeying a politician. Is it time to separate politics and policing? The Prime Minister is talking about a federal terror fighting agency, but will that have enough teeth to fight the menace of terror or will it become just another puppet in the hands of the

central government?

Corruption:

When even a havaldar needs to pay his way to get a posting he wants you can imagine how deep rooted corruption is. Police officers with the biggest bellies you'd have ever seen and then again for the fresh recruits at the lowest levels the selection process isn't the most transparent either. People pay just to join the force and with the low salaries the only way of making some money is ofcourse bribes. The role of customs also needs to be studied. Although in the case of Mumbai, arms and explosives were smuggled in by the terrorists themselves directly be the sea route, in the numerous blasts preceding this where did the RDX come from? Were the customs officers inspecting whatever comes through our highly border with Nepal have something to do with this? The truth is that large amounts of goods are being smuggled into India with customs being bothered only about how much the smuggler is ready to bribe. This nexus was first exposed after the 1993 blasts when a few customs officers came into the picture. But is that a lesson forgotten?

Naxals:

Who are they? Are they Indian or is all terror exported from Pakistan? You don't expect such a large movement to happen without sympathizers within our country. When tribals in so many of our states were virtually forgotten while we were writing the growth stories for our metros such repercussions were bound to take place. Maybe it is time for us to truly see why the most mineral rich states: Orissa, Bihar, Jharkhand and Chattisgarh are also our poorest states. Maybe then we will get an answer to why the problem exists and it would be more sensible to treat the problem rather than the symptoms.

Mumbai shouldn't merely be used as an excuse to propagate war or earn some cheap political brownie points but as a time to ponder over our mistakes and how we could have avoided them. I sincerely hope what happened on the 26th November in Mumbai will help us overcome the inertia that has driven our systems for so long and hope that the politicians will also see what happened in Assam on the 2nd December as an equal infringement of our security and as big a failure of the system as was Mumbai.

Don't get me wrong. I am no disgruntled youth who wishes to flee his country and settle in a land overseas. I am as proud of my country as anyone else is. What I am not proud of is our leadership, no party in particular because they're all the same.

I salute the bravery of the men who gave their lives in Mumbai trying to save and protect strangers in a city which most had seen for the very first time. All I wonder is why did something like this have to happen in the first place?

61 years ago Nehru had said:

'Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom.'

Maybe what Nehru said on the 15th of August 1947 was still true on the midnight of 26th November 2008 while we all watched what happened in Mumbai. Maybe it's time to redeem our pledge yet again.

जय हिंद 

-Akhil Sharma

Terror Strikes!

9:30 pm-26 Nov, 2008: India had just won the 5th ODI consecutively against England. The Indian team had gone from strength to strength. There were celebrations on the field in Cuttack, but somewhere on the western coast of the country, trouble was brewing. A group of men had just arrived at the Sasoon docks and Bandhwara areas in Colaba in inflatable boats. They had had a long journey after having set sail from a neighboring country. The moment they set sail in a merchant vessel, they looked as if they knew what they had to do. They quietly unloaded on landing and started walking in groups of 2 towards different areas. Each of them had with them a huge bag, indicative prima facie, that they were from outside the city. When one of the fisherman in the Koliwada area enquired where they were from, the men curtly told them that they were from Kerala and told them to mind their own business, although neither the appearance nor the accent established this fact, if not disprove it. One of the groups then proceeded towards the well-known Leopold Cafe and settled themselves in. After having eaten and drunk, they paid the bill and pulled out an Avtomat Kalashnikov assault rifle Type 56 and started firing randomly at everyone present there, which included foreigners as well. And here began the fledgling steps that would then turn to leave a bloody imprint all over one of the most important hubs of the country, a form of urban terrorism that had never terrorised the city in this manner.

Having done that, the two of them proceeded to the heavily crowded Chatrapati Shivaji Terminus which was bubbling with activity, of people going home after a long day at work. A CCTV camera caught them moving towards the station normally, but highly alert and looking both sides. They then walked into CST through one of the entrances and announced their presence by hurling a hand-grenade right in front of the CST Police Station. A huge explosion followed which led to the glass of the adjoining ticket windows breaking, screams of horror and panic and people running out in a stampede. They then randomly started firing using their rifles and walked right into CST after blwing up a passenger hall, claiming their first lives. Here they faced the first resistance from the police, among who was the well renowned policeman and encounter specialist, Vijay Salaskar (Encounter Specialist 48 Encounters, Mumbai Crime Branch) and Additional Commissioner of Police Ashok Kamte. 

Anti Terrorism Squad chief, Hemant Karkare arrived at the spot, wore a flimsy bullet-proof jacket and the three of them retaliated to the fire forcing the terrorists to disperse in minutes. At this time, a commotion was reported at Cama Hospital and the three men rushed to the place to ensure that everything there was under control. After this there was a commotion near Metro Cinema and the three then boarded a Qualis to go to that place. When they were maneuvering this, the terrorists opened fire.  Their service revolvers were no match for the assault rifles of the terrorists and each received 3-4 bullets and fell. The terrorists then threw their bodies on the road, hijacked the Qualis and sped away after firing random shots at a group of people and media persons who thought that it was the police, leading to absolute panic, people lying flat on the road and a press reporter getting injured.

Meanwhile, another group of terrorists, started walking about in the posh south Mumbai area firing randomly on the way and threw a grenade at a nearby petrol pump which thankfully missed its mark and did not blow up completely. They then rushed into a residential area of Colaba and holed themselves into Nariman House, an area in which there were primarily Jewish families including the rabbi who had just recently moved there from Brooklyn and their infant baby. While all of this was happening, the iconic Taj Hotel, a 108 year old heritage structure and now a 5-star hotel was under attack. A group of terrorists had walked into the lobby and started firing randomly and hurled grenades in the lobby. A similar situation was on at the nearby Oberoi-Trident hotel at Nariman Point on Marine Drive. All of this was happening in a surreally fast manner, it was as if the entire city was under siege. Even as shops near the vicinity of these places were shutting down and heavily armed policemen were entering the hotels, the police were frisking people to ensure that the terrorists did not escape. Meanwhile the CM of Maharashtra who was then in Kerala, cut-short his visit and rushed to his capital city. 

While this was happening, an innocent taxi driver was in Vile Parle heading towards the airport, perhaps unaware of what was happening South Mumbai. He was driving from the South of the city and had just taken the turn to the domestic airport. I was at my home in Santacruz, tracking these events when the sound of a blast resonated the air. At first I mistook it for a fire cracker, but a few minutes later, reports started coming in that a blast had taken place somewhere near Santacruz airport. A horrified India then saw on national television, what remained of that same taxi with the driver and co-passengers in it. The biggest part of the entire vehicle that was visible was the 2 front wheels and a small portion of the bonnet. Everything else had been blown to smitherins and there was shattered glass everywhere. It dawned on me then that this was the blast, the intensity of which was so huge that  it resonated across the Mumbai sky and could actually be heard in another suburb. Things were getting graver, scarier and extremely grim...

While all this was happening, the police had cordoned off areas near Chowpatty using barricades to localize the terrorists to one area. The policemen standing at the barricade saw a white civilian vehicle, a silver Skoda approach the barricade really fast. On seeing the barricade, the vehicle suddenly slowed and tried to make a U-turn. Policemen there were very agile and pulled off the key from the ignition after which there were fierce gunshots and one of the two terrorists was 'encountered' and the other had been caught alive after failing to feign death and being caught by the local mob. It turned out that the police Qualis which the terrorists had hijacked had a flat tyre near Chowpatty and realising that they could not go any further, the terrorists had hijacked the Skoda car. This was the first killing by the Mumbai police but in other places situation was getting very serious. In the Taj, media reports started trickling in that a hostage situation was building up with indiscriminate firing from the terrorists. At the Oberoi-Trident, the army arrived indicative of the grave crisis the city was under. Meanwhile, it was reported that the Mumbai police had lost 14 men in a matter of hours. Also, the boat through which they had arrived had been found by the police and it was found to contain bags of explosives, grenades and RDX.  Meanwhile another blast was heard in Wadi Bunder area and Mazgaon on Dockyard road. It was as if the entire city was being bombed at once.  Meanwhile fingers were started being pointed to across the borded, even though some unheard of organization like the Deccan Mujahideen took responsiblity for the attack. Intelligence experts had already started a theory on modus operandi used by these terrorists. The coast guard and navy started a serious combing operation to search for the ship which had brought these terrorists here. The merchant ship MV Alpha was apparently involved in these attacks. Also, the Marine Commandos of the Indian Navy were the first on the site of the Taj and were quick to respond to the threat and started a rescue operation. The bell boys of the Taj were trolleying the guests outside the Taj while the crisis continued. This was going to be one long night and not just one...

Late into the night, it was reported that 6 IAF aircrafts were on the ready at Palam and 2 squadrons of the National Security Guards (NSG) had left for Mumbai. The NSG are the elite commandos of the Indian Army who are very highly trained in combat operations involving difficult situations like these. These brave soldiers left Palam at 2:30 am and arrived in Mumbai early on Thursday and were driectly into the thick of things. Some went to the Taj, some to Oberoi and some to Nariman house, all three who by now had a serious hostage situation with the number of guests in the two hotels running into the hundreds even as the buildings near Sabbath house (Nariman house) were evacuated for safety purposes. The NSG personnel had bullet-proof vests, were heavily armed with assault rifles and all of them took positions around the two hotels. The scene outside the Taj, near the parking lot was fully packed even as police had cordoned off a radius of 100 meters for safety. The operation was to be led by the NSG who went into the Old building amidst sounds of gunshots and grenade blasts with all support being given by the Mumbai police and the Army. Meanwhile there were loud explosions in various places from the frontal wing, western wing, central dome, western dome and other floors of the hotel. Mumbai fire brigade personnel were quick to douse the rising flames which raged inside the building. They also used curtains as make-shift ladders to help evacuate guests from various parts of the hotel. While doing so, a hand grenade was hurled upon them but they continued their operations. By morning many of the guests had been evacuated, but the number still present inside was unknown. Meanwhile, the MARCOS were assisting the NSG personnel at the Oberoi and by late afternoon, the first good news came in that the NSG had successfully gunned down the 2 terrorists inside the hotel, but combing and sanitization operations were still on to make the hotel secure. Atleast one operation had ended, but the devastation and human cost of this was unknown, as bodies were being brought out of the Oberoi. We would later come to know that 30 people had been killed (officially) along with the 2 terrorists. Even as the MARCOs chief issued a statement saying that the terrorists knew the layout of the hotel like the back of their hand and were using black berry phones of foreign origin, the casualtlies were rising. 

Meanwhile, NSG personnel were seen airdropping onto the Nariman House building. The strategy was a 'top-down' operation as the terrorists who were present in the building had made passage from the ground floor difficult since they had vantage positions inside the building. Even during this, NSG personnel were able to rescue 14 hostages from inside Nariman House which included many foreigners and a 2 year old boy who as it turned out was the son of the rabbi and his wife who were still holed up in the house. First reactions from the hostages at the Oberoi and Taj, were of extreme gratitude towards the Indian security forces and the exceptional hospitality of these hotels even in times of these crisis. They praised the forces saying that they were extremely helpful and professional in their operations. Meanwhile, the air dropped NSG personnel took positions on the roof and snipers were placed in adjacent buildings. Simultaneously the NSG secured the first two floors of Nariman House and slowly started moving in, gradually and floor by floor, the idea being to sandwich the terrorists toward the main building. As this operation was on, cover fire was used a diversionary tactic as the NSG arrived on the 5th floor. Gunshots could be heard and it was known that the terrorists were on the move. Finally the NSG commandos used a rocket launcher to blow open the 4th floor to further hole the terrorists to the third floor. The NSG found hostages killed on each floor as they went and realised that collateral damage had already been done. Hence they moved in for the kill to successfully eliminate the 2 terrorists holed inside, even as Israel (the country with the worst history of collateral damage) criticized the Indian Force for rushing the operation which led to the rabbi being killed. What they didn't realise was that they had already been killed by the terrorists before they stormed the house. Sadly, an NSG commando Gajinder Singh had lost his life fighting bravely in the operation as he came under gun fire. But he still didn’t compromise his position and fought bravely for the country, for the city, for you and me...

Having secured Nariman house fully and a successful Operation Black Tornado, the NSG left for the Taj, amidst shouts of a grateful local crowd who cheered these brave heroes and thanked them. Loud cheers of Bharat Mata ki Jai rang out as the NSG left in army trucks towards the Taj, with determination on their face and complete focus on the next task at hand. Not once did they show any signs of fatigue (operation having been on for 46 hours) and moved to the Taj while one unit stayed back to do sanitization operations. 

The situation at Taj was tense. There had been a minimum of 25 blasts reported within the hotel and only the new Taj building had been sanitized while terrorists were still present in the heritage building. One could see Army personnel take up positions around the building, with grenade launchers also being used to smoke out terrorists believed to have been present on the first floor. The terrorists used diversionary tactics causing a blast on the 6th floor but the Fire Brigade was successful in dousing the flame. It was as if the fire in the Taj never seemed to stop with smoke billowing out from various parts of this hotel, which had stood out so proudly as a symbol of Indian pride showing to the erstwhile British Raj the skill of Indian architecture, having been built by Jamshedji Tata. It had almost been 55 hours and the gun-fire in the Taj was sporadic with lulls in between and lasted through the night. In the wee hours of morning, one heard gunshots from the ground floor of the building and a terrorist gun came out of one of the windows and fired at the army personnel outside. There was instantaneous retaliatiory fire in which the terrorist was killed and in a few minutes his body was thrown out of the same window by an NSG personnel. His death marked the end of Operation Tornado at the Taj. It was later known that there were four terrorists in the Taj and all of them had been neutralised. One of them jumped from the top floors to escape the fire, lost his footing and was instantly eliminated by the NSG, the filth of the earth being wiped off with a cloth as if it never existed. Finally in the wee hourse of this morning, all terrorist threats were neutralised and the city that never slept (for a different reason) heaved a sigh of relief. It had been the worse 2 days in Mumbai and it was thoroughly shaken.  Schools and colleges had been shut and even the stock markets were closed on Thursday, which would amount to a huge financial loss. But the biggest loss was the human loss, with a 195 killed (exclusive of Taj casualties) and more than 300 injured in wha is now being called India's 9/11. 

Even as peace begins be restored, the city and the nation have lost a lot. Hundreds have lost their lives and a trail of destruction remains. People have died fighting against this direct, blatant and audacious attack on India's sovereignty with the financial capital of the country being held at ransom. Spare a thought for all those people, Hemant Karkare, Gajender Singh, Ashok Kamte, Vijay Salaskar and all the police force who gave up their lives so that you and me could sleep safely in our beds, who so selflessly performed their duty, led from the front and showed us what true valour is made of. They, who did so much for us and took so little of the credit. These are the true heroes of the nation, the valiant who don't care what religion or caste your are while saving you. For them, we are all INDIAN first. This is the unity that we need to show to the world, to show our solidarity and take stringent action against the perpetrators. The nation today is under threat, the same nation that has raised you to what you are today. The country needs to be defended at all costs and all means possible. ENOUGH IS ENOUGH. Do not dissociate yourself from this event just because you were not affected. Think of all those families whose wives are widowed, whose children orphaned and who did their job NO MATTER WHAT when the situation demanded. THE NATION demands you to DO YOUR JOB and asks for the retaliation that such a heinous act deserves from this passive government and to tell them that this is it. We will not submit, we will not surrender, we will fight back  till the end. This is what Indians are made of. Let us pledge that we, a billion strong Indians will stand by the nation in this time of crisis and bring the perpetrators to justice. And we will give not give an eye for an eye and not a tooth for a tooth but 2 eyes for an eye and a jaw for a tooth. I conclude this by writing a message for you, fellow Indians:

 

First they Came...

 

First, they came for the socialists,

And I did not speak out 

Because I was not a socialist.

Then they came for the trade unionists,

And I did not speak out

Because I was not a trade unionist.

Then they came for the Jews,

And I did not speak out

Because I was not a Jew.

Then they came for me,

And there was no one left

To speak for me..

-Pastor Martin Niemoller

 

RETALIATE, FIGHT & DEFEAT, MY COUNTRYMEN. IT IS THE NEED OF THE HOUR.

 

JAI HIND!

Oasis 2008! UNIO MYSTICA...

Currency- Our Past, Present and the Future

Looking Beyond the Dollar

Money has always been an important part of life. Ever since man was introduced to occupation, there was a need to buy and sell. In the very early days there was obviously no common medium of transaction and valuation was essentially through exchange or barter. Soon man realized the need of a common instrument in transactions and introduced Commodity Money. Commodity money is basically money whose value is derived from what it is made up of. Gold, Silver and Copper coins issued by the Mughals are one example of this. In today’s day and age, owing to the large fluctuations in the value of commodities such currency is extremely difficult to maintain, produce and circulate and creates an overdependence on the availability of the commodity to meet short and long term needs. The next step in the evolution was issuing notes and coins that were guaranteed by a certain amount of gold or other precious metal. Such a practice was extremely useful and efficiently for atleast a few hundred years. As long as the government could procure enough gold to meet the short and long-term money supply in the economy a gold backed currency was ideal. Unfortunately this concept collapsed and brought with it one of the most severe depressions the world has ever seen.

The Great Depression was caused due to extreme disparity and concentration of wealth but this is generally the hallmark of small recessions too. Arguably, the Depression was created due to mismanagement rather than by the situation. The depression kicked in due to the failure of the entire banking system. This was lead by the collapse of one of the largest public banks- The Bank of the United States. The failure of any public bank creates great panic in depositors and creates a sudden rush for withdrawal. Unfortunately, at the time the gold backed currency system created a lending limit of the Federal Reserve. The failure to bail out The Bank of the United States created a domino effect and the eventual collapse of a massive proportion of deposits and investments. The failure of the financial system, the backbone of any economy would inevitably lead to an overall collapse of an already languishing economy.

The great depression taught us a lot and one big change it brought was the introduction of Fiat Currencies. Fiat Currencies are not backed by any physical commodity but basically valued by its usefulness. The government basically accepts taxes in the currency and therefore the health of the economy and the corresponding taxation create the demand for the currency. The valuation of such a currency is hence determined by the efficacy of tax collection and the demand for the currency. A relatively high economic growth and a minimal or nil deficit would always cause the appreciation of a currency. Hence the concept is sound and helps in flexible valuation of currency so the Central Bank can control the money supply in the economy.

There is however a slight downside to it. Considering the inverse relationship between the price of globally traded commodities and the currency in which it is traded, we must understand that if there is a standard currency used for trading, the fiscal and monetary policy controlling currency has a profound impact on global prices. In the present case, the American dollar is the globally accepted currency with most of the commodity trade being Dollar denominated.

Now the question is when the monetary and fiscal policy of a country determines to a great extent the valuation of the currency, we probably need to relook the priorities of the American Federal Reserve. The Federal Reserve is clearly aimed at overlooking inflation for the sake of growth. The recent spike in commodity prices can be greatly attributed to the rather steep devaluation of the US currency due to their fiscal and monetary policies. A record deficit and rather cheap availability of credit has seen the USD taking a dive and commodity prices sky rocketing. Although the United States is the biggest economy in the world, the overdependence on the USD for trading in the international market leads to prices becoming highly sensitive to the American environment. The selfishness seen in the American policies pushes us to look at other currencies that would be more suitable and sensitive to the international needs such that a right balance is struck between inflation and growth. Alternatives include the Euro or the Japanese Yen. The overall health of the American economy also seems to be a big question mark with the American economy seeing a severe financial crisis every now and then. Consumption paced by credit seems to cause issues and bubbles in the American economy and the selfishly prioritized policies seem to be good enough reasons to move away from the dollar. A change from a dollar backed currency would in effect shield us partly from American policies and should be an intelligent move as long as the new currency adopted is governed in a more responsible manner. This wouldn’t be the first time such a change has happened. With the devaluation of the dollar hitting exports hard in India, some of the big names are shifting to Euro billing. This sets a precedent although in a very small way and in a way urges us to move away from the dollar to a better regulated currency. In the future such a step would probably have to be taken at some point of time. It is extremely unlikely that the entire world would ever agree to be united under a single currency however it isn’t hard to imagine a day when the dollar wouldn’t remain the favorite currency of the world.

-Akhil Sharma

The Indian Economy-What Next?

Jan 2008: Sensex kisses 21000. There's a general feel good factor in the Indian economy. The domestic currency is strong against a declining dollar (due to subprime and a weak industrial average numbers) due to strong FII inflows. Mutual Funds are flourishing, investor wealth has surged by trillions of rupees, every second person wants to enter the market and there is talk of the Sensex touching 40000 by 'experienced' analysts. (This despite the fact that the index @ 21000 is trading at very unrealistic 20-22.5 times FY09 multiples). To counteract sharp appreciation in the rupee, due to strong capital inflows and protect the exports sector (mainly IT and textiles) from huge losses and a weak bottom-line, RBI Governor YSR Reddy, steps in. The RBI buys huge amounts of dollars to keep the currency in and around 39-40 to the dollar. This is followed by it giving a target of 5% inflation and making it a priority as part of its monetary policy. Inflation falls to 3% owing to corrective action including CRR and repo rate hikes. While most markets and countries go into a slump with subprime losses looming large, India seems apparently unscathed. Excluding two main banks (SBI and ICICI), Indian banks are not greatly exposed thanks to fewer international borrowings. India is expected to be on target for a 9-10% GDP growth rate for FY07-08.
Jun 2008: Sensex has fallen by more than 35% to 13500 and the stock market is in a strong bear grip. A bear market is one where stock prices fall after a downturn of 15-20% or more on multiple indices accompanied by widespread pessimism. India and China are ranked to be the worst performing markets uptil now with the Sensex having its longest losing streak since 2001. FII outflows have eroded Rs 29.46 trillion rupees of investor wealth and there is a bearish sentiment. All support levels are broken, technicals are not working. This is a hugely sentimental market...much the like the Indian people. Finally it is the people who make the market, isnt it? The fundamentals which seemed so strong back in January are not talked about. Inflation stands at 11.42% for the week ended 14th June. Commodity prices are surging and the common man looks on helpless.
What just happened here? India was the next growth story and the only glimmer of hope for global investors. Emerging India it was said. So how the downturn? Let me ask you a question: What is the single most important factor that accounts for more than 70% of India's imports, has a direct impact on IIP numbers (Index of Industrial production), has a high weightage in WPI inflation and can drastically effect current account deficit? Yes, it is Crude Oil. The most relevant factor, that alongwith global sentiment has affected the Indian markets and reveresed the trend. Rightly called the 'Blood of the Earth' by noted writer Dilip Hiro in his book by the same name, crude oil has a direct impact at the macro as well as the micro level. Each nation needs energy for industries, transportation and to 'fuel' all the needs of people. India has always in its formative years been greatly impacted by oil prices. So much so that 2 steep spikes in oil prices in 1973-74 and 1991 led to declaration of emergency (by our then prime-minister Indira Gandhi) and erosion of our foreign exchange resources in 1991, the latter forcing us to approach the IMF for emergency assistance. This led to the dramatic economic liberalisation of our economy by then PM Narsimha Rao which continues even today and has been attributed as the significant action that sustains our 8-10% GDP growth. But the same factor has led to a decline in our indices by a huge amount due to its dramatic rise from $90 to $140 per barrel owing to increased demand, talks of OPEC nations limiting supply and price speculation. It is a combination of these three factors, no one knows where its headed and there are contrasting theories given by analysts some saying that these prices are unsustainable and would eventually fall, while some predicting oil at $200 per barrel this summer. For a country which imports crude in such huge amounts (70% of imports), the impact is more pronounced. There is an instant depreciation of the domestic currency due to oil companies paying more (in dollars) for imports and selling pressure on the rupee. Inflation increases due to the high-base effect of oil from 4.5 to 11 percent, spooking the markets. Add to that, slowing, dismal IIP numbers and expectation of a slowdown in GDP growth, declining global markets, high inflation in domestic markets, we get a negative sentiment which would take an economic miracle to reverse. FII's have been net sellers in the Indian markets ever since the beginning of the year having withdrawn $6.25 billion dollars vs $17.36 billion dollars of inflows last year, a purely profit booking move to show on their bottom-lines. Everything is in the red and return on equity is not magical like last year.
So where are we headed? According to me the Indian story remains hopeful despite all these factors in the long run. Everyone is keenly watching the price movements of oil, our maker or breaker. The government needs to exercise stricter control and raise petrol and diesel prices (in line with crude increase) so that oil companies are not severely effect. The IOC Chairman recently made a statement that it has only enough funds to supply oil at a loss till Sep '08. The Government should recognise the severity of the issue and increase fuel prices by the requisite amount to prevent oil companies from bleeding away. The Left's pressure of protecting the people from price hikes does not come into the picture here as urgent steps need to be taken to curb domestic oil demand so that our current account deficit remains in check. Mr. Karat should realise that this is for the collective good of the people in the long run. Selling oil futures to companies and increasing petrol prices by small amounts will not help. The people should understand that it is indeed a grave situation that the country is facing with respect to oil and the UPA-Alliance should stop its election-mindedness in the greater interest of the country. The recent CRR and Repo hikes of 50bps each by the RBI will reduce liquid money in the economy and thus act in countering inflation but unless oil prices decline, the situation for the Indian economy remains uncertain and it is best to play the wait and watch game.
At the end, I'd like to say that India can be compared to the old, moving elephant (paradigm used by economist Gurcharan Das) with strong fundamentals and huge value unlocking prospects. One should not mix the economic cycles with fundamentals. In the end, the fundamentals will win and reflect themselves, much like the victory of good over evil.
-Utsav Pathak

Crude Oil- The Issue

Just when you thought that subprime was going to fizzle out and the fear of the credit crunch was almost a thing of the past, you saw global crude dangerously flirting with $140 levels and a very realistic fear of US undergoing recession. It makes you wonder how the present global crisis against all odds is such a lethal combination of the credit crisis, slowdown and commodity and food price inflation. The reality seems much more connected than what we actually think. With subprime playing heavily on the American economy, the US Federal Reserve was in no position to let housing prices fall further along with much needed liquidity to bail out the ailing investment banks. The collapse of Bear Sterns would have most likely played havoc with depositors and investors and seen an overnight withdrawal of all investments and deposits. Though in the absence of the $200 Bn injection into the US financial system, a pre World War II- Great Depression like situation was almost imminent, yet the way in which the money came into the system may be argued. 

As the global and American economy was staring into the eyes of a slowdown, investor confidence in equity especially in developed world was at an all time low. With decoupling of the Asian economies also disapproved, the last thing any sensible person wanted to do was put in money into equities. Corporate debt was definitely an alternative but considering the sudden drop in sales and consequently margins and revenues, investors would any day prefer to remain at an arms length from any sort of corporate borrowings, long-term or short-term. The gradual easing of interest rates in the US was one reason for the rapid depreciation in the USD and an obvious consequence was a steep rise in the price of crude along with other commodities. Another important consideration is that the existing and newly injected money supply in the system would have to be invested in some instrument or the other and eventually it seems, most of the money lay invested in commodities. With the global economy barely growing by 3.5% in 2007 riding on the back of India and China inspite of the largest economy in the world shuddering from prospects of a recession, a modest estimate would be that oil consumption too went up in line with the growth [Though 2008 sees a forecast of oil demand rising by just 0.8%]. So has the supply really fallen since the demand has been more or less stationary? What really made oil price double in the past one year? Speculation of a fall in supply due to turmoil in Nigeria, Iran and a few other oil producing countries is said to be one of the reasons why the price of crude has really risen. However one must remember, during the American war in Iraq both at the times of George Bush Sr. and his infamous son, speculation of a supply shortfall was much stronger than what it is today. Even the discovery of massive oil reserves just offshore of Brazil couldn’t help decrease the price of crude. 

The present Bush administration seems to be cocksure that the present case of oil price is basic demand supply hike. Looks like the first citizen of America isn’t really aware of the amount of speculative capital in commodities right under his nose. With futures trading in oil going up by 100% at New York over the past year, it can be easily understood that the demand has been essentially created through artificial factors and the bubble will probably be the first victim of a resurgent world economy. Unfortunately, oil prices have a strong bearing on the global economical growth and at such high levels the economy will be tested hard to prove its resurgence. From our past experiences global economy will definitely hit back but the question is when? At this point of time an extremely likely situation of a steep increase in interest rates by Ben Bernake too cool inflation in the US would probably slow down the American economy further and delay a comeback on the industry’s part. Till the manufacturing and services industries don’t revive wages won’t increase and a rise in demand for industrial goods and services seems unlikely. Until then investor money will slowly move out of equities and seems to be safely locked into commodities. It looks like there has been selective picking and steep increases in various commodity prices. In 2007 we saw gold rallying and then it was food. Crude has slowly and steadily been rising in the past 1 year and it looks like very soon speculators will have to look for other commodities. From what it appears as of now, crude will remain stable at current levels for a certain amount of time and there will be a gradual fall in commodity prices only when we see a few good quarters by some of the big international firms and only then would confidence into equities and corporate debt be regained.

-Akhil Sharma