Introduction of Derivative Contracts on Foreign Stock Indices

SEBI has issued a circular which permit Stock Exchanges to introduce derivative contracts (Futures and Options) on foreign stock indices in the equity derivatives segment. This circular comes into force from today. It is available on SEBI website Click Here: at http://www.sebi.gov.in/circulars/2011/cirdnpd022011.pdf

Eligibility Criteria: The minimum market capitalization mandated is USD 100 billion and the stock exchange may introduce derivatives on a twenty four foreign stock index if the derivatives on that Index is available. Index should be is “broad based”, that is, the Index consists of a minimum of 10 constituent stocks and no single constituent stock has more than 25% of the weight, computed in terms of free float market capitalization, in the Index.

Trading in derivatives on Foreign Stock Indices shall be restricted to residents in India.

High Food Inflation ─ Lessons for Indian Policy Makers

 

“Economics can be made more productive by paying greater and more explicit attention to the 'ethical' considerations that shape human behavior and judgments." Says Nobel laureate Dr. Amartya Sen. 

It is almost three years now since I took a conscious decision to retire prematurely from an exceptionally fulfilling and absorbing professional career of more than thirty and half years to pursue my subjects of interests. However, the recent past high inflation has already started making holes into my pockets, forcing me to rethink on that decision and join back the services. 

The latest release of the statistics on inflation blames high prices of food items, especially now on onions, led to a sharp spike in India's annual food inflation to 18.32 percent for the week ended Dec. 25, 2010, compared to 14.44 percent the week before. The fifth straight week of rise in food inflation rate, based on wholesale prices, was pushed back to double digits in the second week of December, according to weekly data released by the commerce and industry ministry. 

In the recent past some of our eminent economists, policy makers and lawmakers at seminars had opined that the double digit inflation is caused by some of exogenous factors; is a worldwide phenomenon and due to present high growth rate of economy – vociferously condemning Monsoon as one of the biggest culprit (when every excuse has exhausted blame it on “God–Varuna” - is the best adage) and had suggested prophetically that inflation will be brought down to around 6% before the end of the year [2010], but did not have any foreseeable technically viable Road Map either ‘A’ or ‘B’ in place to demonstrate their tall claims. The roles of others–who are also partners in the overall Supply Chain Management (SCM) in more than dozen other states and are condemning high price rise at the top of their voice, and recently executed “Bharat Bandh” successfully…!?, reasoning steep government expenditures being the cause…, were also totally confused and wanting, and don’t have any viable alternative techno–political solutions either. 

It’s high time that holistic solutions to these problems, like addressing SCM relating to agriculture – cultivation, production, storage and distribution, harnessing nexus of cartelization…; are genuinely well thought-out ‘jointly’ by all on long term basis and implemented at the earliest to ameliorate the sufferings of the “Aam Admi”.

Indian Manufacturing Sector and its future for the next decade

Globalisation and the economic reforms has transformed India into a world economic power. India has put up an impressive growth performance in the past two decades and yet steered clear of the brunt of the recent global financial crises. The severity and worldwide impact of the global downturn was in many ways an unprecedented event that wrecked economies around the world for more than two years. Indian economy was also no exception and has witnessed a slowdown. However, Indian economy showed greater resilience than most others and was amongst the first few to emerge from the downturn. India has weathered the global economic crisis better than other countries, and for the current year GDP is estimated to grow @ 8.5% and forecasted @ 9.0% in 2011-12. This is based on the expectation of a normal SW monsoon in 2011-12. Current indications appear to strongly endorse the Meteorological Department’s assessment that the current year (2010-11) will have a normal monsoon. The rate of GDP growths for the 2008-09 (Quick Estimates), 2009-10 (Revised) and 2010-11 (Forecast) are given in the table below.

Rate of Growth at factor cost (per cent):

	2008-09	2009-10	2010-11 (E)
Agriculture	1.6	0.2	4.5
Manufacturing	3.2	10.8	10
Services	9.8	8.5	8.9
GDP	6.7	7.4	8.5

Source: PMEAC July 2010

The Indian economy has experienced some striking changes during the past two decades. The average annual growth in per capita income in real Rupees has risen from 2.5 per cent during 1981–88 to 7 per cent during 2003–09. These past two decades, have seen a significant decline in poverty. Based on the Planning Commission, the proportion of the population living below the official poverty line declined from 39 per cent in 1987–88 to 27.5 per cent in 2004–05. It is essential to sustain the pace of growth and to achieve even higher rate of development so that the fruits of liberalization and economic progress percolate down to the poorest sections of the society. It is, therefore, imperative that a double digit GDP growth is achieved and sustained on long term basis. In order, to achieve the double digit growth rate, it is important that agriculture will have to grow at 4%, manufacturing at 12% and services at 10.5%.

So how does India achieve these anticipated stellar rates of growth? 

The situation of the manufacturing sector in India is a cause of concern. India has not been able to fully leverage the opportunities provided by the dynamics of the world economy. A large section of the Indian population still remains dependent on agriculture, which employs more than half of India’s workforce and the output share of this category of sectors is only 19% of the GDP (at factor cost), implying that a very large section of the population was primarily dependent on a very small share of the GDP. India has simply not witnessed the kind of transformation—from a traditional, agrarian structure to a modern, industrial economy—that has been seen in virtually all rapidly growing economies. Therefore, going forward, the central challenge the country faces is to achieve the transfer of its workforce from agriculture to other, more productive activities, namely, manufacturing industries.

Over the next decade, India has to create gainful employment opportunities for a large section of its population, with varying degrees of skills and qualifications. The manufacturing sector is the one which would have to provide for this employment creation initiative and would have to ensure that the growth model of India is sustainable.