DoMination August 2012

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DOMINATION

Europe Debt Derailment As If Im Not Human

(28) (12)

AUGUST

2012

NEWSLETTER FROM DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE

VOLUME-III ISSUE-04


2/34

Editorial

02 | DOMINATION, AUGUST 2012 DEPARTMENTOF MANAGEMENT STUDIES, IIT ROORKEE

-Regards

TeamDoMina

tion

Dear Readers,

With the blistering heat

behind our backs and the feel-ing of independence in our

heart, we step into the season

of rains. As the monsoon

showers wet the streets, we

present to you DoMinaon to

wet your minds with smu-

lang thoughts and ideas.

This edion includes the

winning arcles of Abhivyak,

a Naonal Level Arcle-Wring

Contest organized by Team

DoMinaon. From numerous

entries coming from various

premier B-Schools, Mr. Rajul

Agrawal from NITIE, Mumbaiand Mr. Unnikrishnan Nair

from TAPMI, Manipal emerged

as the Winners.

Mr. Rajul aempts to

illustrate the inial srrings and

causes of the European debt

crisis, analyses the current sce-

nario and talks about what the

future holds in store forthe governments as well

thepublicin his arcle, Europe

Debt Derailment: Daunng theGlobe. On the other hand,

Mr. Unnikrishnan, in his inter-

esng arcle Fast and Furious

Retailing, elucidates with ex-

amples, the concepts of ash

retail and presents several rea-

sons of why it works the way it

does.

As if Im not humandis-

cusses the sensive topic of hu-

man rights violaon across the

globe. The author points outinstances and ethical reacons

to these, as well as expounds

certain trade measures to pre-

serve the sancty of a human

life.

The Indian infrastructure

scenario is one of immense po-

tenal, but is riddled with im-

pediments. This industry hasbeen idened as one of the

key drivers of Indias growth in

the near future. The arcle

Financing Infrastructure ex-

tensively covers the various

risks involved in and the myriad

nancing opons available for

infrastructure nancing in In-

dia.

The guest alumnus for

thismonth,Ms.PoojaJeevagan

is currently working as a con-

sultant with Deloie Touche

Tohmatsu in Hyderabad.

We hope you enjoy thislatest edion of Dominaon

with a hot mug of coee and

raindrops spaering your roof.

Wishing you a joyful Monsoon

and a very very Happy Inde-

pendence Day!!


3/34

Contents

Team DoMination

Aditi Joshi

Anurag Agrawal

Jubin Mohapatra

Manav Kaushik

Pawan Upadhyay

Ruchi Gupta

Saumya Dani

Saumya Verma

Sayantan Chattopadhyay

Shibi Singh

Design Team

Anurag Agrawal

Saumya Verma

Roorkee - 247 667, IndiaTel: +91-1332-285014, 285617Fax: +91-1332-285565Email: [email protected]: www.iitr.ac.in/departments/DM/Pages/Index.html

For private circulation only

DEPARTMENT OF MANAGEMENT STUDIESINDIAN INSTITUTE OF TECHNOLOGYROORKEE

0408

12

15

20

28

21

Sll Young at 65Fast & Furious Retailing

As if Im Not Human

Financing Infrastructure

Retrospecon

Euro Debt Derailment

Qutopia

DoMS da Evince

23

DEPARTMENTOF MANAGEMENT STUDIES, IIT ROORKEE

Success Story

26

03 | DOMINATION, AUGUST 2012
mailto:[email protected]?subject=Feedbackmailto:[email protected]?subject=Feedbackhttp://www.iitr.ac.in/Departments/DM/Pages/Index.htmlhttp://www.iitr.ac.in/Departments/DM/Pages/Index.htmlhttp://www.iitr.ac.in/Departments/DM/Pages/Index.htmlmailto:[email protected]?subject=Feedback


4/34

65 years aer independ-

ence, India is a young naon

with a large proporon of

working-age populaon. Arou-

nd 54% of Indias 1.2 billion

people are under the age of 25.

Moreover, by 2020, the aver-

age Indian will be only 29 years

old, compared to 37 years in

China and US, 45 years in West

Europe and 48 years in Japan.

As seen in gure above,

India will have a huge share of

people in the working age

group 15-59 in the years to

come. The TeamLease Indian

Labor Report 2009 esmates

that 300 million will enter the

labor force by 2025, and by

then, 25% of the worlds work-

ers will be Indians. According to

Internaonal Monetary Fund

(IMF), the demographic divi-

dend of the country could add

about 2 percentage points to

Indias per capita GDP growth

over the next two decades.

Ironically, the four Indian states

(i.e. Uar Pradesh, Bihar,

Madhya Pradesh and Raja-

sthan) that will account for

more than 50% of the increase

in Indias working populaon

are the poorest four states of

India based on per capita in-

come as well as job potenal.

In 2012, the overall unemploy-

ment rate of the naon stood

at 3.8% while in rural and ur-

ban areas it was 3.4% and 5%

respecvely. As reported by

CRISIL, if the current trends in

Indias labor parcipaon and

unemployment rate connue,

about 423 million in Indias

working-age populaon will be

unemployed or unable to par-

Still Young At 65


Cover Story

Perspective| Chlorophyll | Qutopia | DoMS da Evince | Success Story | Regardez Ieconomie



5/34

parcipate in the job market by

2030.

I Gwh Sy

She is a myth and an

idea, a dream and a vision, and

yet very real and present and

pervasive, is how Jawaharlal

Nehru saw India in all her pov-

erty and degradaon. Indias

growth story was relavely

stagnant in the beginning. Aersomeme, she suered mam-

moth growth blockages and

then managed to turn all that

around in a short period of

me.

The objecve of Indias

development strategy has been

to establish a socialisc paern

of society through economic

growth with self-reliance, social

jusce and alleviaon of pov-

erty. These objecves were to

be achieved within a demo-

crac framework using the

mechanism of a mixed econo-my where both public and pri-

vate sectors co-exist. To plan

the economic growth of India,

Planning Commission was es-

tablished. The major challenges

faced by Independent India

were as follows:

Import of machine made

goods from abroad led to a

decay of India's tradional

arts, cras and industries

The responsibility for pro-

mong modern commerce

and industry came to be

concentrated in the hands

of certain classes in the ur-

ban areas, and up to the

end of the nineteenth cen-

tury the only major large-

scale industries which hadtaken root in the country

were coon and jute tex-

les.

About 68 per cent of the

working populaon was en-

gaged in agriculture, about

14 per cent in industry

(large and small scale),

some 8 per cent in trade

and transport and the re-

maining 10 per cent in pro-

fessions and services includ-

ing domesc service. Even

with this large proporon of

the populaon engaged inagriculture, the country was

not self-sucient in food

and raw materials for indus-

try.

Jawaharlal Nehru

viewed planning basically as a

means to enable an underde-

veloped agrarian economy like

that of India to usher into an

industrial society without ei-

ther, the rigors and inequalies

of capitalism, or violence of col-

lecvist-communism. He had

opted for the middle path of

development called a mixed

economic system for India. The

rst ve year plan (1951-

1956), prepared by the Plan-

ning Commission, gave priority

to agriculture and irrigaonand basic services like power

and transportaon. The plan

proved to be successful. The

net domesc product increased

by 15%. The second ve year

plan (1956- 1961) was pre-

pared based on a theorecal

foundaon given by Prof. Ma-

halanobis. Prof. Mahalanobis

proposed to keep investment

in producon goods producing

sector, i.e. heavy industries,

high in-order to catalyst growth

in naonal income. Also, the

Industrial Policy of 1956 gaveprimacy to the role of the state

to assume a predominant and

direct responsibility for indus-

trial development.

Although the Nehru-

Mahalanobis strategy was una-

ble to meet its targets and ad-

dress the major issues- unem-

ployment and poverty, it had a


Still Young At 65




6/34


profound impact on the eco-

nomic development of India.

Finally, in 1984, the Nehru-

Mahalanobis strategy was re-

jected and priority was given to

village and coage industries

and natural mobilizaon of re-

sources thus increasing em-

ployment. Rajiv Gandhi, prime

minister of India from 1984 to

1989, wanted India to makerapid industrial development.

His visions lead to the follow-

ing:

Promoon of Informaon

Technology

Idea of naonal highway

system

Idea of tourism and shaping

India as a tourist desna-

on

Began to dismantle license

raj

In 1990-91 India suered from

Balance of Payment crisis, the

mammoth growth blockages

which lead to economic re-

forms of 1991. This was the

turning point for India. Here is

how the crisis took place:

The rising scal decit and

gradually increasing over-

valuaon contributed to the

rising imbalance

Inadequate exchange rate

adjustment in response to

the external and domesc

shocks

Macro-economic problems

that had been building up

over the decade break-up

of Soviet Union, Iraq invad-

ed Kuwait and set o oil

shock

In mid 1991, foreign reserves

nearly depleted to the extent

that Indian Government could

hardly nance three weeks

worth of import. In course of

me, RBI had to airli 47 tons

of Gold to the Bank of England

& 20 tons of Gold to the Union

Bank of Switzer-land as collat-

eral for a loan of $600 million

to wave o Balance of payment

crisis. In July 1991, a new ap-

proach to economic develop-ment policy was devised by the

P.V. Narasimha Rao Govern-

ment. Following were some of

the measures taken:

Currency was devalued

EXIM policy was revamped

The policy regime for for-

eign investment was liberal-

ized

Stakes in PSUs were divest-

ed

Banking & nancial System

Still Young At 65

Perspective | Chlorophyll | Qutopia | DoMS da Evince | Success Story | Regardez Ieconomie

GDP wh I 1962 2011



7/34


Still Young At 65


reforms, Interest rates on

Loans & Advances to be de-

cided by Banks with RBI

seng the oor price.

Full statutory power to SEBI

& Capital market reforms.

The impact of the reforms of

1991 can be gauged from the

graph above. In 1991, India was

on the brink of bankruptcy. A

decade later, in 2001, Jim

ONeil, a chief economist of

Goldman Sachs coined the ac-

ronym BRIC, a group of four

countries namely Brazil, Russia,

India and China, in order to de-

scribe the largest of the worlds

developing economies. Gold-

man Sachs predicted that com-

bined GDP of BRIC naons will

exceed that of US someme

before 2020.

As a BRIC naon, India must

ensure that her demographic

dividend doesnt become a

nightmare and use the same to

elevate people from poverty

and foster economic develop-

ment.

Arcle By- Sayantan Chaopadhyay

DoMS, IIT Roorkee

[email protected]

mailto:[email protected]:[email protected]:[email protected]


8/34

Perspective

Music can be download-ed or bought from your nearest

music shop and listened in the

best of music systems and yet

nothing can match the experi-

ence of being there in a live

performance by your favourite

arste, grooving with hundreds

to the blaring speakers. No

maer how much you love that

RX 100 bike, yet you would let

go of an opportunity to feel a

Hayabusa. Even the most lov-

ing girl friend can never stop a

guy from checking out that new

Mercedes model being dis-played in your nearest mall and

neither can your handsomeboyfriend or dong husband

stop you from checking out

that new Lakme gloss. Such is

the power of the touch and

feel shopping regardless if

its just to sasfy that burgeon-

ing curiosity of a new or a spe-

cial product.

Proof of how powerful

this is in terms of business is

evident when we look at the

worlds largest public corpora-

on in terms of revenue

Walmart which incidentally is

also the biggest private em-ployer in the world. With over

100 million fooalls every weekin just US, this shows the pow-

er of retail business and an in-

dicator of the volumes which

has le Amazon and E-Bay gaz-

ing into the void promises of

the internet. However, in the

age on instant gracaon

where 15 minutes of fame is all

that you need and sadly is all

what you get ask our Prime

Minister that, it is evident that

the environment is not going to

be leaving retailing untouched.

With in numerous ash mobs

orchestrated every day, andwith retenon and aenon

Fast and Furious Retailing





9/34


grabbing gimmicks geng in-

ated in terms of their costs,

me has seen the evoluon of

the concept of POP-UP Retail

stores or otherwise known as

Flash Retail.

Target, Kate Spade, Guc-

ci, Louis Vuion, Collete, Sam-

sung, E-Bay, Levi Strauss and

last but not the least Apple

these have been some of thebig names who have been tak-

ing this concept and imple-

menng it to successfully get a

more than fair share of the

consumers mind space. A pop

up retail space is a venue that

is temporary and plays host to

dierent events over dierent

periods. The Pop-up shop is

nothing, but the springing up of

a space that exposes the cus-

tomer to a myriad of products

or services for a short period

and disappears o to another

locaon or forth a new period.From gallery like shopping

spaces to one-o exhibionist

themed ash stores, there has

been an increase in temporary

retail manifestaons around

the world.

Its the duraon and the

surprise factor that makes this

concept a clincher. Making its

appearance in 1999, it had its

genesis in Vacant- a Los Ange-

les based companys aempts

to replicate a phenomenon

where customers used to line

up to buy a limited edion

product, and the shop closing

down once it was sold out, and

then re-appearing only for an-

other assortment of similar

niche products. This conceptwas largely promoted in US by

Target Walmarts nearest

competor and now oen re-

ferred as the king of Pop-up

retail. With umpteenth such

stores over the years, Target

has created such stores selling

exclusive Isaac Mizrahis new

womens wear line of clothing

to home accessories to the Pink

Collecon which was done to

support the Breast Cancer Re-

search Foundaon.

The concept even

though looks a bit jaded com-ing into today, is sure to make

a big comeback and is the best

soluon for small business

owners, niche segment players,

test new markets and revive

old brands and most important

to cut corners in terms of costs

especially with the fad of aus-

terity catching the fancy of

countries le right and centre.

Based on the primary psycho-

logical factor of human curiosi-

ty, any object with a surprise

element or a limited exposure

me is sure to catch the fancy

of the customers. This has been

one primary reason why Cir-

cuses and Operas and the

street plays sll connue to ex-

ist and songs like D K Bose andWhy this Kolaveri become

more than just another song

and an anthem for months.

The next reason is the

cost factor and with rising

cost and inaon and con-

tracng economies hing the

underbelly of almost all devel-

oped naons, this concept can

help the brands connue the

connect with the consumers

minus the cost of a permanent

store and sta. Tesng out

newer products, and giving cus-

tomers a taste of whats instore at their permanent loca-

ons, such temporary stores

yield signicant fooalls. Any

doubts about this can be safely

cast aside when we look at the

brands which have used this

P & G and Apple have used this

successfully in US, Australia

and Canada and has been such





10/34

a success, that it has warranted

even Samsung to follow suit for

its Galaxy SIII in UK.

Niche products will ab-

solutely love this concept,

thanks largely to the fact that

not only would they be able to

create the ambience sup-

porng their product but

would also be able to piquet

enough customer experience

to pursue the product range

through alternate mediums like

online or exclusive stores,

thereby maintaining the mar-

gins and exclusivity.

Couple these fundamen-

tal reasons with the reach of

social media and locaon

based services, Google and Fa-

cebook are sure to push this

strategy further with their re-

specve ads and context based

services, making sure custom-

ers have their fair bit of sur-

prise as well as driving the ini-

ave for their markeng part-

ners. Iniave by E-Bay where-

by a set of interior designers

were supposed to furnish a

New York penthouse using stu

obtained from E-Bay only was

an aempt of branding E-Bay

from a mere electronic ea

house to a fully edged youth-

ful modern retailer.

India has had its share of

such stores but has never been

considered under the purview

of Pop-Up markeng. Ice-

creams have always been sold

in mobile vehicles in cies and

towns for forever ages that we

remember and it has been that

uncertainty in the availability of

ice creams that had driven

sales even without any huge

markeng extravagance before

Kwality Walls decided to rede-

ne Ice-

cream segment. There

have been umpteenth saree

sales that happen for a period

of a month bringing in hordes

of customers, when big stores

fail to aract a fracon of the

same through the year. Lakme

has been a pioneer of the Pop-

up retail culture in India, with

in numerous such stores in

leading malls marking the

launch of new cosmecs and

products and creang enough

buzz for the customers to cre-

ate the rst burst of buyers.

Sony, Nokia, Lipton, Maru,

Mercedes-Benz are other lead-

ing brands which have explored

this opon to good advantage

in driving home the customer






11/34




Article By - Unnikrishnan Nair

TAPMI, Manipal

[email protected]

interacon for newly intro-

duced products. FlipKart and

niche product makers like

Chumbak amongst others can

gain a lot of tracon for their

services and products by using

this concept especially in the

Tier 2 and Tier 3 regions to

drive home their range of prod-

ucts as well as promote the

sense of belief in online shops

which has been the primary

factor for lack of interest and

growth in e-commerce in India

against the projecons. Cou-

pled with Facebook and other

social media campaigns such

stores can be a major boost for

the customer acquision needs

of online stores albeit at much

lower cost when compared to

the ad campaigns on television

and other media.

With ever evolving customer

percepons and tastes, Pop-Up

stores are bound to be a trend

that will connue and evolve

using the ever powerful social

media and marketers for the

slowing Brands can ignore this

only at their own peril of miss-

ing the point of connecon

with potenal customers. And

for all those who connue to

be scepcs of the concept

look at the recepon for the

series called Sherlock a mere

3 episode 2 season series on

BBC Entertainment and our

very own IPL (though it comes

every year, it is sll a single

month extravaganza). Short

and surprising have always had

an audience otherwise the

world would have never seen

aairs outside marriages.

mailto:[email protected]:[email protected]


12/34

Perspective

Ic

When a person enters

this world, he/she is gied with

few rights as a token of being a

human being which is popularly

known as the Human Rights.

These are applicable every-

where and are same for every-

one irrespecve of the caste

and creed. Oldest records date

back to 1264, when privileges

were given to the Jewish Mi-

nority in Poland for protecon

from any sort of discriminaon.

Since then, a lot has changed.

To provide the people with

their basic rights, which may be

civil, polical, cultural, social or

economical rights, a lot of rules

and regulaons have been for-

mulated.

HRhVl

c h Wl

These rules were intro-

duced to help people sustain a

beer life but the mirror shows

a whole new world of truth.

There are a lot of countries

where, within the organizaons

workers face human rights vio-

laons. To menon a few, let

us see a few incidents from a

few countries. Domesc work-

ers in Saudi Arabia face serious

human rights violaons which

in the worst cases have result-

ed in slavery. In many incidents

workers nd themselves in the

middle of nowhere without be-

ing paid their wages for months

and even years. Physical and

sexual violence were also not

very far.

Contract workers work-

ing in the construcon sites in

Russia face horrible human

right abuses. Rising personal

grievances against the migrant

workers inside the naves had

movated them to act even

violently in a wide number of

cases. Passports have been

snatched from many migrants

and are forced to do jobs in

As If Im Not A Human





13/34


compulsion. They are treated

as convicts, conned to the

workplace and are also beaten.

While in the part of the Gov-

ernment, it seems infeasible to

protect these workers from

these unlawful acvies.

When it comes to sex

trade, there are thousands of

people who are aected by the

an-prostuon policies in the

United States. There, the sex

workers are treated as crimi-

nals and their civil and human

rights are abused very brutally.

They are deprived of their

rights to be protected from any

sort of discriminaon, torture,

geng proper medical aen-

on and most importantly the

right of being treated as equal.

In all the cases what it has been

seen in common is that rather

than the abusers get punished

for what they have done, the

people who were abused facecounter accusaons of burgla-

ry, witchery etc. What to say

about the cases where those

persons even end up in jail for

12-15 years of imprisonment

and around 100-250 lashes. All

these have forced them to

withdraw their cases even if

they had a very rm case, be-

cause they know that even if

they ght the case, they have

to remain in the shelter homes

for many years and the boom

line is that they have to remain

away from their families for all

these years.

T Rl M

Vl

As a measure to protect

the people from human rightsviolaon, certain countries in-

troduced trade restricons

with the countries where actu-

ally these violaons occur. The-

se restricons may be intro-

duced in certain type of goods

also whose producon pro-

motes the rights violaons. For

example, the imports of goods

produced by children are

banned in many countries as a

measure of protecng budding

children from geng abused in

the society as well as the work-

place. In the rst place, childlabor is illegal and then their

abuse is a very serious oense

to the law.

There can also be unilat-

eral trade restricons with cer-

tain countries where abrupt

violaon of rights occur. An

example of such a restricon is

the Burma Law which was en-

forced in 1996 as a response to

the connued human rights

abuses by the government of

Burma. The law aer being en-

forced restricted trade and

commerce with the person or

the organizaon which was car-

rying out business with Myan-

mar. However, this law was

considered as unconstuonal

and was disconnued in 2000.

Trade restricons in

some way has also been done

to import hazardous products

like cigarees, asbestos which

are considered as very fatal for

human health. These re-

stricons protect the Right to

Health of the cizens of the

country which imposes the

ban, thereby protecng their

human rights. Each and every

country is entled to enforce

its own human rights obliga-

ons. However, these should

comply with the WTO stand-ards and constant and thor-

ough monitoring needs to be

done in order to make sure

rights are being protected in a

safer way.

According to me, if we

see on the basis of ethics, trade

restricons with all these coun-

tries where rm violaons oc-





14/34



Article By - Anurag Agrawal

DoMS, IIT Roorkee

[email protected]


occur are jused. But when

we change our angle to the

economic viewpoint, these re-

stricons not only harm the

economy of the country with

whom the embargo has been

done but also the country

which imposes the ban also

suers more downward trend

in the economy; than it actually

helps in improving the condi-on of human rights viola-

ons.

Ehcl Rc Vl

Every business community has

a moral responsibility to pro-

mote human rights. The Presi-

dent of United States of Ameri-

ca once said, We demand that

business give people a square

dealThere is one and only one

social responsibility of busi-

nessto increase its prots

without decepon or fraud. As

a legal and ethical reacon to

human rights violaons, busi-

ness community should devote

a reasonable amount of the

companys resources to public

welfare, educaonal and phil-

anthropic purposes which notonly help in curbing these type

of violaons in the community

but also helps in the growth of

the business very smoothly.

Responsible code and conduct

of the business should also be

taken into consideraon.

Ccl

Human rights are the most

basic rights rewarded to a ci-

zen by its country may it be civ-

il, polical, social or cultural. In

some direcon, environmental

protecon is also one of the

most important aspects of the

human rights. Protecng a

child from early enforcement

to do labor helps safeguard his/

her rights to be free and enjoy

his/her childhood while gengthe best educaon facility. The

country where a balance is

maintained between the hu-

man rights and business con-

ducts is sooner or later reward-

ed with economic growth and

prosperity.



15/34

Perspective

In the last decade or so,

India had witnessed an unpar-

alleled growth across all sec-

tors. One of the key factors

that have ensured rapid growth

is the development of infra-

structure. Rapid urbanizaon

has created a necessity of ma-

jor investments to create addi-

onal residenal and commer-

cial spaces, subways, metros,

roads and railways. Also coun-

trys growth depends on indus-

trial infrastructure comprising

of telecom, power, aviaon,

shipping, communicaon as

well as agriculture. Industry ex-

perts and policy makers have

always underlined that infra-

structure is the key to growth

of industry, trade, business as

well as overall economic

growth and auence of a na-

on. In fact, infrastructure de-

velopment and investment has

a straight bearing on the

producvity of a country.

Moreover investment in infra-

structure sector is the key to

sustainable and comprehensive

growth.

Chcc Ic-

Pjc

Infrastructure projects

are characterized by elongated

maturity and very large invest-

ments. A hydropower project

may take around 5 year to be

constructed along with huge

investment but once opera-

onal it could easily have a life

as long as 100 years. Huge in-

vestment for long periods re-

sults in very high underlying

risks. Factors such as environ-

mental surprises, demand un-

certaines, technology obsoles-

cence etc. are responsible for

higher risk. Polics and policy

related uncertainty is a key fac-

tor in this regard. These pro-

jects oen have very low and

xed returns in associaon

with the huge investments.

Financing Infrastructure: Revisiting the Sources





16/34


Yields in these projects should

be measured in real terms as

revenues generated are func-

on of concealed inaon.

R Ic Pjc

The key characterisc of

infrastructure projects is the

high risk associated with them.

Based on past experiences

many risks could be foreseen in

an infrastructure project. Mostimportant of all is the risk asso-

ciated with legal, polical, ad-

ministrave and dispute resolu-

on policies. Economic and -

nancial happenings in the busi-

ness environment pose risk on

unexpected increase in cost

and requirement of more in-

vestment apart from forecast-

ed amount. Moreover, market

risk comprising of business

model, trac evaluaon and

currency valuaon changes al-

so poses high risk. Timely com-

pleon and environmental as-

pect poses a huge risk on these

projects. Environmental norms

as well as public acceptance

are very important factor in

terms of successful compleon

of any infrastructure projects.

Collecon risk as well as wrong

predicon or assessment oftrac is also an important risk

associated with any infrastruc-

ture project. In fact all risk are

more or less interconnected

and leads to late compleon of

project which results in huge

capital loss and requirement of

further funds other than pro-

jected capital in the beginning.

Pvl I-

c jc c-

l h

In the past, government

has taken the sole responsibil-

ity of operaons and mainte-

nance of these projects. But

infeasibility in managing higher

level of scal decit in these

ventures and consideraons

extrapolang that private play-

er would prove cost ecient in

terms of mely delivery of ser-

vices to populaon leads to en-couragement for parcipaon

of private partnerships in infra-

structure. The promoon of

DFIs such as ICICI, IDBI etc.

were steps to get private par-

cipaon, but undercapitaliza-

on and under protability

have posed a doubt over them

to be viable alone.

The exisng prevalent

nancing modes are incapable

of funding the required infra-



SOURCE OF

FUNDS

ESTIMATED RE-

QUIREMENT AS

PER EXISTINGFUNDING PAT-

TERN(in crore)

ESTIMATED

AVAILABILITY

AS PER TRENDS

(in crore)

FUNDING GAP

(in crore)

COMMERCIAL

BANKS

2,67,480 2,02,027 1,25,685

INSURANCE Cos. 52,046 42,330

NBCF(incl IIFCL) 1,24,699 1,00,651

ECBs 76,984 50,515

TOTAL DEBT

FUNDS

5,21,208 3,95,523

EQUITY (incl FDI) 1,86,456 1,84,571 1,885

TOTAL 7,07,664 5,80,094 1,27,570

Table 1: Infrastructure nance required in 2010-11 & 2011-2012

(Sc: Ministry of Finance, Government Of India)



17/34


structure support need as evi-

dent in Figure 1. For Infrastruc-

ture, there has to be credit en-

hancement, able of absorbing

risk involved with the nancing.

Commercial banks have

driven the increase in infra-

structure nance but a conn-

ued speedy expansion may not

be sustainable because of

growing concentraon of risksresulng from maturity mis-

match because of long duraon

projects from short duraon

bank liability. Also many banks

are reaching their exposure

limit to infrastructure projects

as they involve substanal in-

vestments. Key restricons in-

clude minimum credit rang

for debt instruments and mini-

mum dividend payment record

of seven years for equity. Due

to their long construcon peri-

od they could never enjoy high

credit rang in inial years. In-surance companies nancing

infrastructure projects are

themselves very risky in nature.

Moreover they prefer in in-

vesng publicly listed company

to fulll their mandate prereq-

uisite in infrastructure and so-

cial sector. Moreover a restric-

ve cap on interest rates has

aected infrastructure nanc-

ing as it demands for higher

risk premium because of risky

nature of projects.

Eqy c through

nancial investors is required

so that promoters risk capital

could be distributed among

other projects. But the rules for

selldown of equity are quite

inexible and hence act as de-movator for nancial inves-

tors who always love exible

exit opons. Full capital gain

tax is charged on sales of unlist-

ed projects which leads to fur-

ther reluctance of investors .

Moreover the restricted ability

of insurance companies and

pension funds in India leads to

less aracon of foreign inves-

tors as they also rely on domes-

c investors to a large extent.

Al vlbl

c

Mezzanine nancing,which is a combinaon of debt

and equity, could aract inves-

tors by reducing their risks. It is

sll notmuch explored in India

due to lack of adequate and

variedpool of projects. Moreo-

ver, interest rate caps on ECBs

are not sucient to aract in-

vestors for riskier projects as

return is very low in compari-

son of huge investment and

risky nature of project. The

currency risk to one years for-

ward cover, which results in

inability to hedge long term

risks, poses a big challenge for

using foreign investment. High

stamp duty and banks inability

to mobilize their fund easily

due to low liquidity results inrestricted use of uncondional

take out nancing. Infrastruc-

ture nancing also suers due

to underdeveloped bond mar-

ket in India. Skewed interest

rates, lack of alternave inno-

vave nancing instruments,

incompetent clearing and

selement mechanism with

poor and prolonged enforce-

ment of laws for even common

procedures leads to underde-

veloped bond market.

In the Indian context,

derivave markets, which arevery important for the role of

transformaon of risk, are less

developed due to many regula-

tory issues. Banks are sll not

permied to trade in equity

and commodies. Credit deriv-

aves are not allowed in Indian

market. Moreover strict con-

straints on banks in terms of





18/34


trading in exchange rate deriv-

ave as well as lesser reach of

interest rate derivave due to

regulatory policies make the

condions more complex in

terms of using derivave as al-

ternate instruments for funding

infrastructure projects.

Through the use of OTC deriva-

ves, it could be possible for

banks and insurance bodies todesign products which are tai-

lored to the requisite of infra-

structure projects and are prin-

cipally capital ecient.

F l l

(FLDG) will prove a very

important concept in

situaons where government

seeks to funcon in its scal

limit but the capital funds are

ample. FLDGs funcon on rst

loss basis and seek to provide

paral credit assurance to lend-

ers. They are also non event

specic. For example if it is a16% FLDGs then rst 16% loss

is absorbed by the fund. So in

case of FLDGs government cap-

ital is secondary capital and it is

believed that lender would be

equally conscienous in order

to maximize the return even on

availability of lower implicit

capital. Moreover these FLDGs

make diversicaon benets

accessible to the lenders by re-

ducing the risk to a minimum

extent.

Along with FLDGs, large

projects should be broken into

number of smaller projects and

then funded by insurance com-

panies, banks etc. This will en-

sure the securized instrument

to be of investment grade char-acter and hence could be sub-

scribed by high risk averse

lenders. Also in order to get

capitals for infrastructure pro-

jects, the funds from insurance

companies, provident funds

and pension funds should be

freed.

Capital intensive projects

dealing with scarcity of re-

sources could have opons

of mullateral nancing and

support from government.

Projects having long gesta-

on periods with assets lia-bility mismatch should be

nanced with take out -

nance, long term borrowing

and securizaon of receiv-

ables.

Projects associated with

mulple debt servicing obli-

gaons having high debt

equity rao could be -

nanced with sub-ordinate

debt nancing and interest

rate swaps.

Plc l

Few government regulatory

policies are very much discour-

aging for ow of capital in an

infrastructure project. A detail

study on these policies is very

much required as well as paral-

lel soluons should be advisedto government so that the in-

frastructure funding could be

obtained from NRIs as well as

foreign investors. Moreover

overlapping in terms of regula-

tory bodies i.e. between RBI,

SEBI etc. has made the situa-

on more complex for inves-

tors in Indian infrastructure

market. Even scal policies are

also not very encouraging for

foreign or even Indian investors

in infrastructure projects. For

e.g. the Tax holidays under Sec-

on 80IA provides 100 % taxdeducon on prot from infra-

structure projects for 10 years

and 50% on next 5 years. Now

because of such huge invest-

ments, any infrastructure pro-

jects take at least 7-8 years be-

fore starng to show prot. So,

this incenve is of almost no

use for infrastructure nancer.





19/34


20/34

It was the day when I sat to reect,

The what and why and how of my life

It was the day when I nally realized,

The worth of all situaons that Ive had to pass by

No it wasnt regret, to my surprise not even a sigh

It was the day when I closed my eyes to the world outside and indeed looked inside

For I was not the person that I used to be, not even a distant image of the past me

Nor was I completely dierent inside, coz fears and values within sll remained high

I wasnt happy nor did I cry, it felt like something within had just denied

The basic existence; as if the reecon in the mirror was not mine

Then who was it, what had become of me?

I le the quest unanswered; an unnished business let it be.

Chlorophyll

Poem By- Juhi Gupta

DoMS, IIT Roorkee

[email protected]

Retrospection

Its wise to learn, its GOD like to create





21/34

Qutopia

1) Which consumer electronics company has hired some 3 dozen former market execuves of mar-

ket leader in India in same category?

2) ______ airways posted a prot of`36 crore for the quarter ended in June 2012 aer 5 succes-

sive quarters of losses.

3) Which state has got a `480 crore package for draught relief in August 2012?

1) New Leader of the House in the Lok Sabha Mr._____________(name of person). He replaced

Mr. _____________ .

2) Shoong events of London Olympics 2012 are taking place at ________________. It was built in

the year ________.

s Exquizite, Kills your Quriosity and adds to your Quizdom. Need we say more? Qutopia A Utopia of the

st Biz Quiz Tidbits to wreck your brains! Rush in your answers to [email protected] anu

[email protected] 31st August, 2012. The winner will have their names published in the next issue.

so, person getting the highest score in the current quarter (Jul-Dec 2012) will get a gift voucher. Answers in

e next issue ofDoMination.

Section A(1 Point for each correct answer)


Section B(2 Point for each correct answer)


mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


22/34

Qutopia

1) Lile Sun priced at $10, weighing 120gm is a ____________ specially designed for Indian market

by _____________(country origin e.g. Swedish) arst _______________(name of person).

2) State Industry Minister _______________(name of person) had made request to _________

(company) chairman Mr.__________(name of person) to invest in their state as work culture is

good there.

1) _____________, the self-regulatory body of adversing industry has told consumer goods major

_____________to stop menoning __________ brand as ice-cream in certain adversement. The

complaint was registered by top ice-cream brand __________.

2) India has opened its doors to FDI for which country? It was the only country that was not allowed

to invest in India aer both _________ and __________(name of countries) had been dropped

down from the negave list under the FEMA in the year 2006 and ________ respecvely.

Section D(4 Point for each correct answer)

W Q (Mch 2012)

1. Prateek Jain (Batch of 2008-10, DoMS IIT Roorkee)

2. Prashant Chaturvedi (Batch of 2007-09, DoMS IIT Roor-


Aw M12 Q

Sc A: -

1. Lack of Women in Boardroom2. Real Madrid FC3. 30,0004. The Workfare Scheme5. Losses increased from 1.1bn to2bnSc C: -

1. Facebook (Mark Zuckerburg was inspired by this Photo Address Book of Phillips Exeter

Academy)

Sc B: -

1. South Africa2. CRISIL3. Sale of Blood



Section C(3 Point for each correct answer)


23/34

DoMS-da-Evince

Pooja Jeevagan is 2011 batch pass out of DoMS,

IIT Roorkee and presently working as the Tech-

nology Risk Consultant of Retail Division inDeloie Touche Tohmatsu

1. Wh y l -

bl wh Dl

Tch Th?

R: Being a consultant

at Deloie Touche Tohmatsu

mandates that you adopt to

three inevitable rules:

Communicate eecvely

Look forward to face ambig-

uous and unknown scenari-

os and come up with solu-

on

Last but not the least, en-

sure quality in even the ni-

est of the things you do, no

maer how insignicant

and inconsequenal it

seems.

As a technology risk consultant

in audit advisory, we basically

are a part of SOX engagements

for Fortune 500 companies as

well as help the audit rely on

the IT infrastructure and syst-

emsupporng

the

client's

nan

cials.

2. Hw w y xc

I RBI hw

Dl?

R: The 8 weeks long

experience as a RBI intern

made me understand the envi-

ronment in public oces. Eve-

ryone around me was friendly,

in fact were sort of pampering

me, considering I was one of

the youngest person in that

oce. Contrary to popular be-

lief that public oces get emp-

ty post 5, I witnessed the sen-

iors there sing ll post 7. All

in all, it was a memorable expe-

rience. However, I do regret

the fact that as an intern at RBI,

with no prior work experience,

the internship didn't really pre-

pare me for the corporate life.

Working in Deloie made me

realize the dierence between

college and oce, deadlines

really meant deadlines; deliver-

ables had to be quality deliver-

ables; and though copy pasng

helps, it denitely doesn't end

your work. You are always ex-

pected to walk an extra mile,

put in a lile more eorts. Oth-

er than that, Deloie being

spread across the connents

gives you a valuable chance to

interact and learn from people

all over the world.

3. Wh h b h

chll l y c

?

R: This one is a tough

one to answer considering eve-

ry day at Deloie has brought

some new challenge. As my

senior manager once said, the

morning he doesn't get a new

challenge and feels clueless, he

would understand it's his me

to call quits from Deloie; and

he has been in Deloie since

last 7 years (that's almost as

long as Deloie US-India has

been).





24/34


I have had a whole range of

challenges in Deloie, from

aending meengs at 12 in

night or at 7 in morning, to en-

suring that I learn up some-

thing new in a day because the

project needs to be closed on a

priority. There have been mes

I have worked nonstop for 12

hours at a stretch, and then

there were mes I spent hoursin front of the laptop, trying to

make out what is to be done.

And since I said, every

situaon feels like tougher than

the one before, I believe I

would say the present phase

has been the most challenging;

working for Indian clients on-

site, travelling endlessly with

no well-made plans, interacng

with clients, understanding

new business processes, and a

lot more. But then, its always

good to have a challenging rst

year, it validates that you actu-ally have had the opportunies

to learn a lot in the very rst

year.

4. Hw h DMS, IIT R

cb y cc?

R: It denitely got me

into Deloie, considering that

this company never visited my

B.Tech.Campus.

On serious notes, DoMS

gave me a lot of new experi-

ence, opportunies and expo-

sure. One thing I like the best

about my alma mater is the

fact that it has a small batch

strength. That ensure we all get

the wonderful chance to organ-

ize, manage and implement

new ideas. It gave me ample of

opportunies to meet newpeople, to interact with others

and gain condence. I believe

the best a college can give you

is the condence to take on the

world, self-assurance that you

can manage any situaon and

actually work things in your fa-

vour.

DoMS made me believe

that I can connect to people,

right from making some really

great friends at college, to in-

teracng with peers from other

colleges while organizing

events. I for one couldn't haveimagined myself as a member

of media cell considering the

fact that I like keeping to my-

self and am not much into

speaking out aloud, but it was

DoMS to insl condence in me

that not only can i be a part of

Media Cell, but acvely handle

Admission Commiee, and of

course be a part of this very

magazine, DoMinaon :)

I will always say, DoMS

made me learn, in fact discov-

er, a lot about myself...and

that's one thing I will always be

grateful for.

5. Ay h -

, clly h c

bch DMS?

R: I believe I am far tooyoung to really be spreading

out messages. Honestly, it's not

even a year since I have le

college. So, Im not really rich

in terms of knowledge to im-

part. All I would say is that

don't dream of reaching to the

moons on the very rst day;

but do dream of reaching the

moon one day soon. And re-

member, the road to moon is

never smooth...there is a lot of

darkness of night which is re-

quired for the moon to shine,

and same way there would bea lot of mes when you would

feel like nothing is going right.

Personally, even in last ten

months, I have felt a lot many

mes that I have messed eve-

rything up...taken some real

wrong decisions. But then,

keep the hope alive, one day

things would turn out to be

DoMS-da-Evince




25/34


perfect. Just give things your

best shot and never lose the

hope. Moon aer all has been

conquered by humans before,

and there is no reason why it

can't be done by us!!

DoMS-da-Evince




26/34

Success Story

Wish..Click..Go...

A decade ago, bookingckets and accommodaon

was not a piece of cake. Inten-

sive online search followed by

convenonal travel booking

methods, which involved

sweang out in long queues,

was the only soluon available.

But Deep Kalra managed to

change the equaons and

sought a soluon.

He is an alumnus of IIM

Ahmedabad. He has also

worked at ABN Amro Bank and

GE Money. Currently, Working

as the Vice President, BusinessDevelopment at GE Capital, he

got the opportunity to be

closely involved in the then

nascent internet industry in In-

dia. But, Deep Kalra was always

thinking about his entrepre-

neurial aspiraons. His dream

turned to reality aer meeng

a venture capitalist friend at a

Mumbai Mall. The new busi-ness plan was joed down on a

paper napkin. Nurtured from

the seed of a single great idea,

at a small oce in Okhla Delhi,

a pioneer in the OTA success

story came into existence,

MMyT.c.

Founded in the year

2000, today MakeMyTrip has a

turnover of 2,200 crore and a

Market Share of over 50%, thus

making it the single most rec-

ognised and trusted player in

the OTA industry.

During the incepon ofthe idea, when in 2000 the

travel industry was sll in nas-

cent stage; Deep Kalra got signs

of hope by growing business of

IRCTC and other websites

which could not cater across all

the categories. Hence they

started their journey in the US

India travel market. Aer con-

solidang their posion in themarket as a brand, they fol-

lowed their success in the India

by launching the India opera-

ons in 2005.

Since then, they have

excelled in providing services in

not only air cket category but

also non air business. It aims to

oer its customers a set of

travel services and products

with domesc and internaon-

al airline ckets, hotel reserva-

ons, holiday packages, car

rentals, Indian railways ckets,

domesc bus ckets and muchmore. It also oers a range of

products and services at rock

boom prices along with

cung-edge technology and

dedicated round-the-clock cus-

tomer support. It is the best

one-stop-travel-shop oering a

vast set of travel products and

services in India for all the avid

Deep KalraCEO and Founder, Make My Trip


DEPARTMENTOF MANAGEMENT STUDIES, IIT ROORKEE26 | DOMINATION, AUGUST 2012


27/34

Success Story

Article By - Ruchi Gupta

DoMS, IIT Roorkee

[email protected]



travellers who can plan their

inerary with a few mouse

clicks. Recently, it has collabo-

rated with Paypal, an interna-

onal payment gateway, to

oer a faster and safer service

to its internaonal customers.

Kalra says that innova-

on and passion are his key

drivers. Constant innovaon

and passion for his venture

with a strong self-belief have

been his key movators. Em-

ployees are given the best

working environment by incor-

porang Fun @ Work. He

rmly believes that an organi-

saon becomes disnct from

others by values such as com-

pany beliefs, core values, zest

for growth, success and chal-

lenges, coupled with undaunt-

ed support for creavity and

innovaon.

Recently MakeMyTrip

has started a new campaign of

Making a 100% promise. This

campaign is backed by a lot of

uncertainty among customers

regarding online booking of ho-

tels. Thus this campaign gives

100% money back guarantee to

the customers if they do not

get what they see in the web-

site. This adversing has fur-

ther increased the trust of cus-

tomers and hence increased

their loyalty base.

Presently,

MakeMyTrip.com

has 20 oces across India and

two Internaonal oces in San

Francisco and New York and

several franchise locaons. It

went public in 2010 and the

results were beyond their ex-

pectaons. They expected to

raise about $70 million but had

more than $1 billion by the

close of the issue. As stated by

Kalra, it has been a fairytale be-

ginning and a stupendous jour-

ney so far.

"F cc b

wh h c

ly chv c h

h b xc wh

h -

. entrepreneurs mantra

for success.



28/34

Regardez Ieconomie

Crisis, as the word

drops onto your ears, it inslls

a sense of urgency and you

tend prepare yourself for all

those adjecves which will be

falling in next, akin to mess,

instability, crunch, collapse

and so on. That is what this

prose is all about, where we

are talking about a connent

having a populaon of more

than 730 million stuck in a mas-

sive crisis owing to various

causes such as high govern-

ment debt levels of various eu-

ro-zone countries, inability to

alter monetary policies due to

a common currency, trade im-

balances and the loss of faith of

investors across the globe.

Wh h?

In the early 21st century,

the world was experiencing a

huge ow of cash on a global

scale, with most of the Europe-

an countries slowly and steadi-

ly running into large decits,

while simultaneously the US

nancial system was gaining

rapid momentum, which fur-

ther allowed banks to use their

investors money shabbily in

various sovereign and collateral

bonds. The ease with which

credit was available through-

out, led to a nancial globaliza-

on. Moreover, it was easier

for developed countries to bor-

row money. The members of

EU although signed the Maas-

tricht Treaty under which they

were obliged to limit their de-

cit spending, but countries like

Greece and Italy were able to

disguise their decit through

complex credit derivave struc-

tures. The net debt for EU has

reached to 89% while Greece

alone faces a magnanimous net

debt of 173% in 2012 as com-

pared to about 90% in 1999.

The vicious cycle kept

repeang, as the foreign in-

ows in various countries

Europe Debt Derailment: Daunting the Globe


Perspective| Chlorophyll | Qutopia | DoMS da Evince | Success Story| Regardez Ieconomie



29/34


across Europe rose to almost 4-

5% of most of the countrysGDP which was a precursor,

but sll was ignored. The na-

onal and local banks of coun-

tries like Greece, Italy and Por-

tugal started expanding and

henceforth started growing at

about 20% per year. They start-

ed giving loans to everyone,

but when people they had giv-

en loan to defaulted, they fell

o the edge. Their large decit

forced the Credit rang agen-

cies like Standard & Poors in

the late 2008, to degrade their

rangs, which in turn terriedthe investors and they started

pulling back their money or de-

manded a higher interest rate

over sovereign bonds, which

le the countries in larger debt

and hence aggravang the de-

railment process.

Hw bl h ?

Aer the agitaon caused by

the USA across the globe, whatthe world least needed at this

me was a Europe muddle,

which has le the common

man to think of his future on

sale. The sudden collapse of

the top banks of USA, like Leh-

man Brothers, Meriyll Lynch,

Goldmann Sachs, caused ab-

rupt disrupon of cash ow,

aecng not only the nancial

systems globally, but even sec-

tors like manufacturing, insur-

ance agencies, etc. which led to

a shrinkage of various other

economies. Moreover, as men-oned before, the out-shoong

of process caused by the inves-

tors le the countries to starve.

Furthermore, the turmoil in Eu-

rope has been connuously

cosng the market in terms of

volality, as the market is on a

connuous jump or drop of as

high as 5%. Addionally, there

were sharp changes in ex-

change rates globally. High ex-change meant high invest-

ments and vice versa.

The gures on the next page

shows the current account of

major European countries.

Most of the countries inially

under-stated their accounts, to

save the fall in their credit

rang, but later when exposed

there was no escape.

The crisis gained mo-

mentum through 2000s, and

today has reached catastrophic

levels, with Greece being the

rst one among the EU coun-tries to be exposed in 2008. Ra-

ther today, a term PIGS

(Portugal, Ireland, Greece,

Spain) in correlaon with the

Euro Crisis. Greece used its sov-

ereign fund to provide heavy

subsidiary in its social security

program for cizens like early

rerement, good pensions,



Although Low Value, but less export to im-

port ratio as compared to others. Thus NEG-

ETIVE CASH INFLOW

Country Government Debt + Banking System

Ireland 43x

UK 14x

Spain 11x

France

10x

Germany 9x

Greece 8.5x

Italy 7.5x



30/34


Government aided healthcare,

educaon etc. This was further

accompanied with high tax eva-

sions, which forced the Greek

Government, had to go on aborrowing spree to nance its

expenditure.

Every country has its

own story of crisis, and so is

the case with Ireland, which

followed in next, as instead of

engaging itself social benets,

it allowed its naonal banks to

do the trick by giving them a

cket to borrow foreign loans

to fund its economys growth.

The banks enacted by channel-

ing that money into property

market, which later defaulted,forcing the Irish government to

take the blame which they

could not aord to honor. The

Celc Tiger, a name given to

Ireland not long ago due to its

fast growing economy, cost in-

vestors their condence and

money at the same me. Spain

on the other hands, being one

of the biggest among the PIGS

in terms of GDP, was seen as a

fruiul and safe investment,

but risky credit and public debt

creaon, has le Spain in con-siderable amount of debt. Situ-

aon in Spain may further

worsen, if debts which are han-

dled internally, default. A Spain

default would have even more

disastrous eects as a large

number of French, Italian and

Brish investors have lent mon-

ey to Spain. This could lead to a



Source: Kyle Base of Human Capital Management



31/34


contagion eect, i.e., a default

in Spain would ulmately lead

to a default in the France, Italy

and Great Britain. Portugal gov-

ernment over the me has en-couraged over expenditure and

investments in public-private

partnerships, leading to a huge

bubble within their economy

and hence the huge decit.

The point of concern

here lies in the

safety net being

provided by strong-

er economies with-

in the Euro coun-

tries, like Germany

and France. Also

nally these coun-

tries are expectedto tap IMF, the

lender of last resort.

M ly lc:

In order to reduce de-

cits to a maximum of 3% of the

GDP, the EU countries have al-

ready subjected their people

with policies to burn their

pockets. Greece has decided to

include new property tax and

lay o almost 30,000 civil serv-

ants on paral pay by the end

of this year. Ireland has

trimmed o a big chunk oftheir domesc spending

amounng to 4bn Euros. Italy

has focused upon high tax rates

such as sales tax and wealth tax

to accommodate a savings of

worth 58.9bn Euros. Spain and

Portugal have not been far be-

hind as they have decided to

make the rich suer more by

imposing 5% pay cut on them.

Addionally Spain has in-

creased its tax on tobacco to

28%. France has raised corpo-

rate tax by up to 5% for high

end companies, making them

pay more for their fortunes and

has simultaneously increased

VAT to 7%. Romania and Neth-

erlands have similarly reducedtheir governmental spending.

The situaon has been

so crical that even Germany

and UK which tend to be in

somewhat beer posion have

been forced to impose strong

austerity measures,

where both plan to

cut 10,000 and

490,000 government

jobs respecvely. And

thats not it, most of

the countries like

France, Germany, UK,

etc., plan to increasererement age of the

workers, in order to reduce the

benets they were liable to pay

otherwise. This acon has been

widely unaccepted especially

by the people of France.

Ay: Bl ?

The age of austerity introduced

in exchange of the bailouts



Country Bailout Package amount provided

Greece 45 billion (23 April 2010)

Ireland 67.5 billion (29 November 2010)

Portugal 78 billion(16 May 2011)

Greece 130 billion(October 2011)

Source: Eurostat



32/34


oered by EU and IMF has ena-

bled the governments to entail

huge amount of money

amounng to tens of billions of

Euros and somewhat soen its

debt problems. Addionally,

these measures are further re-

ducing the risk for ECB and IMF

of experiencing a cardiac arrest

due to the massive bailout

packages which they have beenconstantly lling the trenches

in the overall economy with.

Greece, Italy and Portugal have

already been supplied by the

EU and IMF with bailout pack-

ages of 110bn, 85bn and 78bn

Euros in 2010 respecvely with

many other countries in the

European Union not far behind.

Bailout packages of such

enormous amount can pull

countries like Germany, France,

etc. in a deeper decit down

the line, as ll now they have

been a key source in fueling therest of the economies in Eu-

rope. Hence, austerity

measures have been and will

be eecve and are thus inevi-

table.

But here comes the

cons. As witnessed in the past,

austerity measures have always

resulted in social unrest and so

is the case here to, as people

are not willing to pay for the

mistakes done by their govern-

ments and banks. The reper-

cussions can be seen inthroughout as countries like

Greece has been experiencing

an-austerity movements, such

as Indignant Cizens move-

ment which started with

peaceful means but later

turned out to be violent killing

3 people unl now. More than

250,000 people demonstrated

in London on 26 March which

was said to be citys biggest

protest since 2003 Iraq war.

Public anger has grown expo-

nenally, and people have

been losing faith in their re-specve government as unem-

ployment has been drascally

increasing which rose to 24%

for the EU-27 at the end of

2011. The strict austerity

measures are expected to act

as a catalyst for the further un-

employment ascends. The aus-

terity measures have resulted

in anemic growth of these

countries with deep recession

in sight which will adversely

aect producon, business

prots, investments, etc. andbury the countries under more

and more debt. Amid the vor-

tex, many analysts expect de-

aon which might take coun-

tries into a liquidity trap forcing

the central banks to charge at

zero interest or even negave

interest for money. The Euro

which has been stable ll now

with lile uctuaons of 0.1

(exchange rate with respect to

USD), is not expected to remain

the same, with some fearing

that stringent austerity

measures may lead to devalua-on of the currency in the near

future.



Percentage of people- Blooming, Besieged and Suffering (2011)

Country Blooming Besieged Suffering

UK 53 43 4

France 42 54 4

Germany

41

52

6

Italy 23 73 4

Poland 21 62 18

Greece 14 62 24 Source: Gallup



33/34


Wh l w hv?

Euro, which has been

the common link between all

the EU countries, has been the

major setback for Europe dur-

ing this me of crisis. The hu-

mungous debt mountain of

Greece amounng to 340bn

Euro has alone been responsi-

ble to make the rest of the

countries suer. Thereby, oneof the alternaves is to allow

Greece leave Euro and adopt

its local currency, Greek drach-

ma which will badly aect the

naon in a short term span, as

the currency might experience

devaluaon straight away, but

might save other EU naons on

a longer run. The EU has a

choice to let Greece and Italy

(if required), to default and de-

clare bankruptcy, but at the

same me this might aect the

integrity of European countries

and have drasc implicaons

throughout the world, exagger-

ang the nancial crisis.

In the late 2011, Greece

tried to do something totally

dierent, by advising referen-

dum to the people of Greece,

but the idea itself was met with

outrage by various EU mem-

bers, as they feared nil austeri-ty measures and hence further

increase in the countrys debt.

The ECB has further taken vari-

ous measures like resng the

debt to be paid by Greece and

Spain by up to 50%, increasing

the loan payback me to

15years and so on. Simultane-

ously, countries should focus

on imposing strict regulatory

measures and stern monetary

policies on their nancial sys-

tem.

Wh c b lly l

ll h?

Austerity measures are

inescapable, as the vicious

chain reacon which the coun-

tries are experiencing cant be

circumvented. The public has

to bear the brunt for the mis-

takes commied by the gov-

ernment in terms of invesng

in risky hedge funds, sovereignand collateral bonds or

overleveraging their decit

boundaries. But at the same

me, a public outcry and out-

rage in such a situaon can par-

alyze the system sll further.

Hence, instead of taking drasc

and abrupt measures, govern-

ments can involve their people

in the healing process and act

cooperavely.



Arcle By- Rajul Agrawal

NITIE, Mumbai

[email protected]



34/34

Department of Management Studies, IIT Roorkee

Roorkee - 247667, INDIA

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